UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              ---------------------

                                    FORM 10-Q


    [  X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 for the quarterly period ended June 30, 2004,

                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                   Act of 1934
                  (For the transition period from ___ to ___ ).

                        Commission File Number: 001-16171

                            Beacon Power Corporation
             (Exact name of registrant as specified in its charter)




          Delaware                                         04-3372365
(State or other jurisdiction of                        (I.R.S. Employer
  incorporation or organization)                      Identification No.)

        234 Ballardvale Street
       Wilmington, Massachusetts                            01887-1032
(Address of principal executive offices)                    (Zip code)

                                 (978) 694-9121
              (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 by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes ____ No __X__

     The number of shares of the Registrant's common stock, par value $.01 per
share, outstanding as of August 9, 2004 was 43,465,718.



<PAGE>

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                                Table of Contents


                                                                           Page

PART I.  Financial Information

  Item 1.  Financial Statements:

    Consolidated Balance Sheets at June 30, 2004 and December 31, 2003.       1

    Unaudited Consolidated Statements of Operations for the six months
      ended June 30, 2004 and 2003 and for the Period May 8, 1997
      (date of inception) to June 30, 2004.                                   2

    Unaudited Consolidated Statements of Cash Flows for six months
      ended June 30, 2004 and 2003 and for the Period May 8, 1997
      (date of inception) to June 30, 2004.                                   3

    Notes to Unaudited Consolidated Financial Statements.                  5-10

  Item 2.  Management's Discussion and Analysis of Consolidated
    Financial Condition and Results of Operations.                        11-22

  Item 3. Quantitative and Qualitative Disclosures about Market Risk         23

  Item 4.  Controls and Procedures                                           23

PART II.  Other Information

  Item 1.  Legal Proceedings                                                 24
     Item 2.  Changes in Securities                                          24
     Item 3.  Defaults on Senior Securities                                  24
     Item 4.  Submission of Matters to a Vote of Security Holders            24
     Item 5.  Other Information                                              24
     Item 6.  Exhibits, Financial Statements Schedules and Reports
       on Form 8-K                                                           24

Signatures                                                                   26



<PAGE>



                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                     Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>

                                                                              June 30,       December 31,
                                                                                2004            2003
                                                                           -------------    -------------
Assets
Current assets:
<S>                                                                        <C>              <C>
   Cash and cash equivalents ...........................................   $   4,999,460    $   8,909,261
   Accounts receivable, trade, net .....................................         145,592          128,133
   Inventory, net (Note 3) .............................................         809,542          238,684
   Prepaid expenses and other current assets ...........................         483,303          773,226
   Investments in available-for-sale securities ........................       3,254,231        1,163,758
                                                                           -------------    -------------
      Total current assets .............................................       9,692,128       11,213,062

Property and equipment, net (Note 4) ...................................         326,247          357,180
Restricted cash ........................................................         360,011          405,232
Other assets ...........................................................          54,795           91,325
                                                                           -------------    -------------

Total assets ...........................................................   $  10,433,181    $  12,066,799
                                                                           =============    =============

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable ....................................................   $     170,125    $     148,075
   Accrued compensation and benefits ...................................         227,230          156,000
   Other accrued expenses ..............................................         819,827          664,527
   Restructuring reserve ...............................................       1,234,418        1,406,191
                                                                           -------------    -------------
      Total current liabilities ........................................       2,451,600        2,374,793

Commitments (Note 5)

Stockholders' equity:
   Preferred Stock, $.01 par value; 10,000,000 shares authorized
   no shares issued or outstanding .....................................            --               --
   Common stock, $.01 par value; 110,000,000 shares authorized;
   43,465,718 and 43,107,526 shares issued and outstanding at
   June 30, 2004 and December 31, 2003, respectively ...................         434,657          431,075
   Deferred stock compensation .........................................        (153,471)        (832,639)
   Additional paid-in-capital ..........................................     133,754,545      133,796,667
   Other comprehensive income ..........................................       2,063,879             --
   Deficit accumulated during the development stage ....................    (128,018,369)    (123,603,437)
   Treasury stock, at cost .............................................         (99,660)         (99,660)
                                                                           -------------    -------------
      Total stockholders' equity .......................................       7,981,581        9,692,006

Total liabilities and stockholders' equity .............................   $  10,433,181    $  12,066,799
                                                                           =============    =============
</TABLE>
            See notes to unaudited consolidated financial statements.


<PAGE>

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
                                                                                                              Cumulative from
                                                                                                                 May 8, 1997
                                                                                                                  (date of
                                                                                                                 inception)
                                             Three months ended June 30,       Six months ended June 30,      through June 30,
                                                2004             2003            2004             2003              2004
                                           -------------    -------------    -------------    -------------    -------------
<S>                                        <C>              <C>              <C>              <C>              <C>
Revenue ................................   $     126,484    $        --      $     183,891    $        --      $     735,076
Cost of goods sold .....................         308,088             --            383,867             --            383,867
                                           -------------    -------------    -------------    -------------    -------------
Gross profit ...........................        (181,604)            --           (199,976)            --            351,209

Operating expenses:
   Selling, general and administrative .       1,212,428        1,261,019        2,288,690        2,479,668       30,348,293
   Research and development ............         921,266          952,098        1,969,506        1,911,004       52,312,992
   Loss on sales commitments ...........            --               --               --               --            375,974
   Depreciation and amortization .......          43,199           43,581           89,785          143,270        4,040,522
   Restructuring charges ...............            --               --               --               --          2,159,280
   Loss on impairment of assets ........            --               --               --               --          4,663,916
                                           -------------    -------------    -------------    -------------    -------------
       Total operating expenses ........       2,176,893        2,256,698        4,347,981        4,533,942       93,900,977
                                           -------------    -------------    -------------    -------------    -------------
Loss from operations ...................      (2,358,497)      (2,256,698)      (4,547,957)      (4,533,942)     (93,549,768)

Other income (expense):
Interest income ........................          31,247           43,716           71,830          101,755        3,851,797
Interest expense .......................            --             (1,757)            --             (5,987)      (1,093,703)
Other income (expense) .................          61,045           (4,011)          61,195           (9,951)        (220,501)
                                           -------------    -------------    -------------    -------------    -------------
   Total other income (expense), net ...          92,292           37,948          133,025           85,817        2,537,593
                                           -------------    -------------    -------------    -------------    -------------
Net loss ...............................      (2,266,205)      (2,218,750)      (4,414,932)      (4,448,125)     (91,012,175)

Preferred stock dividends ..............            --               --               --               --        (36,825,680)
Accretion of convertible preferred stock            --               --               --               --           (113,014)
                                           -------------    -------------    -------------    -------------    -------------
Loss to common shareholders ............   $  (2,266,205)   $  (2,218,750)   $  (4,414,932)   $  (4,448,125)   $(127,950,869)
                                           =============    =============    =============    =============    =============
Loss per share, basic and diluted ......                    $       (0.05)   $       (0.05)   $       (0.10)   $       (0.10)
                                           =============    =============    =============    =============
Weighted-average common shares outstanding    43,273,817       42,814,929       43,197,760       42,813,918
                                           =============    =============    =============    =============
</TABLE>

           See notes to unaudited consolidated financial statements.

<PAGE>

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
                                                                                            Cumulative from
                                                                                              May 8, 1997
                                                                                         (date of inception)
                                                               Six months ended June 30,     through June
                                                                 2004            2003          30, 2004
                                                             ------------    ------------    ------------
Cash flows from operating activities:
<S>                                                          <C>             <C>             <C>
   Net loss ..............................................   $ (4,414,932)   $ (4,448,125)   $(91,012,175)
   Adjustments to reconcile net loss to net cash used in
   operating activities:
     Depreciation and amortization .......................         89,786         143,270       4,040,523
     Loss on sale of fixed assets ........................           --            (6,276)        170,868
     Impairment of assets ................................         (8,241)           --         4,655,675
     Restricted cash .....................................         45,221            --          (360,011)
     (Expenses paid) restructuring charge ................       (171,773)       (171,773)      1,234,418
     Reserve for officers note ...........................           --             9,951         119,975
     Interest expense relating to issuance of warrants ...           --              --           371,000
     Non-cash charge for change in option terms ..........           --              --           346,591
     Non-cash charge for settlement of lawsuit ...........           --              --           303,160
     Amortization of deferred consulting expense, net ....           --              --         1,160,784
     Amortization of deferred stock compensation .........        611,652            --         1,901,905
     Warrants issued for consulting services .............           --              --         1,569,366
     Services and interest expense paid in preferred stock           --              --            11,485
   Changes in operating assets and liabilities:
     Accounts receivable .................................        (17,459)           --          (145,592)
     Inventory ...........................................       (570,858)           --          (809,542)
     Prepaid expenses and other current assets ...........        289,923         936,919        (702,938)
     Accounts payable ....................................         22,050          36,695         170,125
     Accrued compensation and benefits ...................         71,230          42,444         227,230
     Accrued interest ....................................           --              --           275,560
     Dividend receivable .................................        (26,594)           --           (90,352)
     Due to related party ................................           --              --              --
     Other accrued expenses and current liabilities ......        155,300        (155,530)        828,497
                                                             ------------    ------------    ------------
     Net cash used in operating activities ...............     (3,924,695)     (3,612,425)    (75,733,448)

Cash flows from investing activities:
   Purchase of investments ...............................           --        (1,100,000)     (1,100,000)
   Increase in other assets ..............................           --          (194,102)       (412,072)
   Purchases of property and equipment ...................        (14,082)         (5,916)     (8,435,790)
   Sale of property and equipment ........................           --            29,641          53,365
                                                             ------------    ------------    ------------
     Net cash used in investing activities ...............        (14,082)     (1,270,377)     (9,894,497)

Cash flows from financing activities:
   Initial public stock offering, net of expenses ........           --              --        49,341,537
   Payment of dividends ..................................           --              --        (1,159,373)
   Shares issued under employee stock purchase plan ......          2,276             463         126,490
   Exercise of employee stock options ....................         26,700            --         1,436,267
   Issuance of preferred stock ...........................           --              --        32,868,028
   Repayment of subscription receivable ..................           --              --         5,000,000
   Proceeds from capital leases ..........................           --              --           495,851
   Repayment of capital leases ...........................           --          (127,672)     (1,031,395)
   Proceeds from notes payable issued to investors .......           --              --         3,550,000
                                                             ------------    ------------    ------------
     Net cash provided by (used in) financing activities .         28,976        (127,209)     90,627,405

(Decrease)increase in cash and cash equivalents ..........     (3,909,801)     (5,010,011)      4,999,460

Cash and cash equivalents, beginning of period ...........      8,909,261      18,221,766            --
                                                             ------------    ------------    ------------
Cash and cash equivalents, end of period .................   $  4,999,460    $ 13,211,755    $  4,999,460
                                                             ============    ============    ============

Supplemental disclosure of non-cash transactions:
   Cash paid for interest ................................   $       --      $      6,000    $    488,126
                                                             ============    ============    ============
   Cash paid for taxes ...................................   $      1,956    $      4,500    $     32,456
                                                             ============    ============    ============
   Assets acquired through capital lease .................   $       --      $       --      $    535,445
                                                             ============    ============    ============
</TABLE>
            See notes to unaudited consolidated financial statements.

<PAGE>


                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements


Note 1.  Nature of Business and Operations

Nature of Business. Beacon Power Corporation is a development stage company that
was   incorporated   on  May  8,  1997.  The   Corporation  and  its  subsidiary
(collectively  "Beacon" or "the Company") design,  develop,  configure and offer
for sale,  power  conversion  and energy  storage  systems that  provide  highly
reliable, high-quality, environmentally friendly, uninterruptible electric power
employing  both  proprietary  and  third-party  technology  and components for a
number of applications and potential applications. The Company has the following
products, which are in varying stages of development:

o    Smart  Energy(TM)  Matrix  -  A  high-power,  flywheel-based  system,  that
     continuously  regulates the frequency of electricity on the power grid, and
     could be used by  independent  system  operators and regional  transmission
     operators to regulate electrical power;

o    The Smart Energy Matrix could also  continuously  regulate the frequency of
     electricity  produced by a distributed  generation  facility and compensate
     for temporary differences between the demand for electricity and the amount
     being produced by that facility;

o    Smart  Power(TM)  250 - A  high-power,  flywheel-based  system  that  could
     provide electricity until a longer-term backup power source comes on-line;

o    Smart  Energy  system - A  high-energy  flywheel-based  system  that stores
     electricity for telecommunications,  cable systems,  computer networks, and
     Internet markets applications; and

o    Smart Power M5 inverter system - An electronic  system that converts direct
     current  electricity  produced  by  photovoltaic  panels  into  alternating
     current electricity for residential and commercial use.

Smart Energy Matrix

The Company has  identified  an  application  for its Smart  Energy  Matrix in a
well-established market with attractive pricing characteristics.  This market is
frequency  regulation  for the power  grid.  Using the  Company's  Smart  Energy
Matrix,  frequency  regulation  can, for the first time, be provided  separately
with higher  performance and lower operating  costs.  The Smart Energy Matrix is
the first product that specifically addresses this application.  The Company has
identified  an  additional   application  for  its  Smart  Energy  Matrix.  That
application is providing a high-power,  flywheel-based  system that continuously
regulates the  frequency of  electricity  produced by a  distributed  generation
facility  and  compensates  for  temporary  differences  between  the demand for
electricity and the amount being produced.

Although the Company has finished the  preliminary  designs for the Smart Energy
Matrix, it will not begin significant development until the market has expressed
a more tangible interest in this product and the Company has sufficient funds to
complete  development.  Once begun, the development cycle for completion of this
product is  expected to be 18 to 24 months,  and  achieving  significant  volume
production capability will take an additional six to 12 months.  Therefore,  the
Company will not receive  revenues  from this product for  approximately  two to
three years after development has commenced.

Smart Power 250

For uninterrupted  power supply  applications the Company has a design available
for it's Smart Power 250 flywheel system. This system would provide short (10 to
60 seconds) duration power. When grid power is interrupted,  the Company's Smart
Power 250 design would provide  power for a short time while a diesel  generator
is activated.  This  application  would  typically be marketed to commercial and
industrial  facilities,  although  the  market  for  this  product  is  not  yet
significant.  The  Company  believes  that  as  power  quality  and  distributed
generation  become more  widely  used the market  demand for the Smart Power 250
could grow  substantially and it could be of economic benefit for the Company to
begin production as the demand increases.

Smart Energy

The Company has  available for sale its Smart Energy  products,  which deliver a
low level of power for a long  period of time  (typically  measured  in  hours).
These  products  include  the 2kWh and 6kWh  Smart  Energy  systems,  which have
demonstrated  quality  performance and reliability at numerous sites.  The Smart
Energy products are tailored to the telecommunications,  cable systems, computer
networks,  and  Internet  markets.  The Company  believes  that its Smart Energy
products  offer  life  cycle  cost   advantages  and   significant   performance
improvements  over  conventional,   battery-based  back-up  power  sources.  The
Company's Smart Energy systems have approximately  400,000 hours of operation in
customer sites without mechanical  failure,  which the Company believes verifies
the reliability of its technologies.  The Company believes that its Smart Energy
technology is an excellent  base to begin  development  of a higher energy 25kWh
flywheel system for renewable  applications when the Company determines that the
market interest is sufficient to justify that product's development.

Smart Power M5

The Smart Power M5 inverter system for the  photovoltaic  energy market converts
the direct  current  generated  by solar cells from  sunlight  into  alternating
current  required by residential and commercial  users for operating  electrical
devices and  reducing  the amount of  purchased  power when it is connected to a
power grid.  The Company's  Smart Energy M5 inverter  system has the capacity to
convert  direct  current  electricity  into up to  5,000  watts  of  alternating
current. The Company began delivering its Underwriters Laboratory approved Smart
Power M5 inverter systems in December 2003. The Smart Power M5 has been designed
for use in North American  grid-connected solar power applications.  The Company
intends to develop on and off grid inverters for use  throughout the world.  The
Company  may  also  develop   inverters  for  use  in  low  power  wind  turbine
applications.


Revenue

Revenues  on sales of the  Company's  Smart  Power  M5 are  recorded  net of any
discounts and net of estimated  future rebate  claims.  Although the Company has
begun shipment of if its Smart Power M5 product, operations have not yet reached
a level that would  qualify the Company to emerge  from the  development  stage.
Therefore it continues to be accounted for as a development  stage company under
Statement of Financial  Accounting  Standards No. 7 "Accounting and Reporting by
Development Stage Enterprises."

In  addition,  the  Company has secured a $98  thousand  fixed-price  government
contract for research and development of potential applications for its flywheel
based products.  The Company accounts for its fixed price  government  contracts
using the percentage-of-completion  method of accounting. Under this method, all
contract  costs are  charged to  operations  as  incurred;  and a portion of the
contract  revenues,  based on the estimated profits and the degree of completion
of the contract as measured by a comparison of the actual and  estimated  costs,
is  recognized as revenues  each  quarter.  Anticipated  losses on contracts are
charged to earnings as soon as these losses are known.

Cost of goods  sold

The Company  costs its products at the lower of cost or market.  Costs in excess
of this  measurement  are expensed in the period in which they are incurred.  As
the Company is in the early stages of production, its actual manufacturing costs
incurred  currently  exceed the fair market value of its  products.  The Company
provides a five-year  limited  product  warranty  for its Smart Power M5 product
line and accrues for estimated  future warranty costs in the period in which the
revenue is recognized.

Operations

The Company has  experienced  net losses since its inception and, as of June 30,
2004, had an accumulated  deficit of approximately  $128 million.  The Company's
business  strategy is to continue to create near-term  revenues from the sale of
its Smart  Power M5  inverter  for solar power  applications,  while  building a
reputation  for  excellent  performance  from its  equipment  and its  sales and
service  organization.  The  Company  expects  to use  the  relationships  it is
developing  to gain market  access for the  Company's  future  products  for the
renewable   energy  industry.   For  the  Company's   current  and  contemplated
flywheel-based  systems  including its Energy Matrix,  Smart Power 250 and Smart
Energy  products,  the Company is  continuing  to evaluate  market size,  growth
potential and  competitive  advantages  that its products  could provide and the
probable market penetration that could be achieved. If markets are identified in
which the Company believes its flywheel  products will be successful,  and those
markets express a tangible  interest in its products,  the Company will not have
sufficient  cash available to complete  prototype  development and production of
its products unless additional equity or debt financing is obtained. The Company
does not expect to become  profitable  or obtain  positive cash flow before 2008
and may not achieve positive cash flow even at that point or beyond.


Note 2.  Basis of Presentation and Summary of Significant Accounting Policies

The accompanying  unaudited consolidated financial statements have been prepared
using accounting  principles generally accepted in the United States of America.
In the opinion of management,  all  adjustments,  consisting of normal recurring
accruals considered necessary for a fair presentation, have been included in the
accompanying  unaudited  financial  statements.  Operating  results  for the six
months ended June 30, 2004 are not  necessarily  indicative  of the results that
may be expected for the full year ending December 31, 2004. Certain  information
and footnote disclosure normally included in consolidated  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted.  It  is  suggested  that  these  consolidated  financial
statements   presented   herein  be  read  in  conjunction  with  the  Company's
consolidated  financial  statements and notes thereto  included in the Company's
annual report on Form 10-K/A, for the year ended December 31, 2003.

Allowance for Doubtful Accounts

The Company  provides an allowance for doubtful  accounts equal to the estimated
uncollectible amounts due from its customers. The Company's estimate is based on
limited historical  collection  experience and a review of the current status of
trade accounts receivable. It is reasonably possible that the Company's estimate
of the allowance  for doubtful  accounts will change.  Accounts  receivable  are
presented  in the  Company's  balance  sheets net of an  allowance  for doubtful
accounts of $10,400 and $0 at June 30, 2004 and December 31, 2003, respectively.

Government Contract Revenue Recognized on the Percentage-of-Completion Method

The Company  recognizes  contract  revenues  using the  percentage-of-completion
method,  based  primarily on contract costs incurred to date compared with total
estimated  contract costs.  Changes to total estimated contract costs or losses,
if any,  are  recognized  in the  period in which  they are  determined.  Claims
against customers are recognized as revenue upon settlement. Revenues recognized
in excess of amounts  billed are  classified  as current  assets under  contract
work-in-progress, and included in "Prepaid expenses and other current assets" in
the Company's  balance  sheets.  Amounts billed to clients in excess of revenues
recognized to date are classified as current  liabilities under advance billings
on  contracts.   Changes  in  project  performance  and  conditions,   estimated
profitability,  and final contract settlements may result in future revisions to
construction contract costs and revenue.

Other than as described  above,  there have been no significant  additions to or
changes in  accounting  policies of the Company since  December 31, 2003.  For a
complete  description  of  the  Company's  accounting  policies,  see  Note 2 to
Consolidated  Financial  Statements in the Company's  2003 Annual Report on Form
10-K/A.

Note 3. Inventory

Inventories  are  stated at the lower of cost  (first-in,  first-out  method) or
market and consist of raw materials, work in process and finished goods held for
resale. The Company's provisions for inventory write-downs are based on its best
estimates of product sales prices and market demand  patterns,  and its plans to
transition its products.

Inventory balances include the following amounts:

                           June 30, 2004  December 31, 2003
Raw materials ............   $ 718,735       $ 104,362
Work in progress .........     133,666          26,001
Finished goods ...........      98,268         108,321
                             ---------       ---------
Total inventories ........     950,669         238,684
Less: obsolescence reserve    (141,127)           --
                             ---------       ---------
Inventories, net .........   $ 809,542       $ 238,684
                             =========       =========

Note 4.  Property and Equipment

Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                               Estimated
                                                                Useful        June 30,     December 31,
                                                                Lives           2004           2003
                                                               ----------   -----------    -----------
<S>                                                            <C>          <C>            <C>
Machinery and equipment ....................................   5 years      $   616,714    $   627,406
Service vehicles ...........................................   5 years           62,327         62,327
Furniture and fixtures .....................................   7 years          296,652        279,190
Office equipment ...........................................   3 years        1,398,835      1,398,835
Leasehold improvements .....................................   Lease term       538,428        524,347
Equipment under capital lease obligations ..................   Lease term       918,284        918,284
                                                                            -----------    -----------
   Total ...................................................                $ 3,831,240    $ 3,810,389
Less accumulated depreciation and amortization .............                 (3,504,993)    (3,453,209)
                                                                            -----------    -----------
   Property and equipment, net .............................                $   326,247    $   357,180
                                                                            ===========    ===========
</TABLE>

Note 5.  Commitments

The Company leases office and light manufacturing space under an operating lease
through  September 30, 2007. Under the terms of this lease, the Company provided
the lessor with an irrevocable letter of credit. At June 30, 2004 the balance of
that letter of credit totaled $310,011.

The Company entered into a manufacturing agreement with a vendor for an integral
component of the Company's M5 power conversion  system. The Company provided the
vendor  with an  irrevocable  letter  of credit in the  amount of  $50,000  that
expires on October 3, 2004.

The above  letters of credit are secured by a cash  deposit.  The required  cash
deposit is included in restricted cash in the accompanying  consolidated balance
sheets.

Note 6.  Investments

In 2003 the Company invested $1,000,000 in Series A Preferred Stock of Evergreen
Solar,  Inc., a public company that specializes in renewable energy sources,  in
order to  develop a  strategic  relationship  with  that  company.  The  Company
believes that this investment may provide  significant  financial  returns.  The
Company's  investment  was  part  of a  larger  financing  provided  by  several
investors.  The  Company  made its  investment  on the same  terms as the  other
investors in this financing, except that the Company was permitted to purchase a
three-year  warrant for $100,000 that is  exercisable  for  2,400,000  shares of
Evergreen's common stock at $3.37 per share. Evergreen's financing was a private
placement  of  $29,475,000  of Series A Preferred  Stock and the above  warrant.
Perseus 2000, L.L.C., an affiliate of one of the Company's stockholders, Perseus
Capital,  L.L.C., invested $3 million in Evergreen's Series A Preferred Stock in
this  financing.  Mr. Philip J. Deutch and Mr. Kenneth M. Socha,  members of the
Board of  Directors of the Company,  are Managing  Director and Senior  Managing
Director,  respectively,  of Perseus,  L.L.C.,  and Mr. Deutch led the Evergreen
Solar  Series A  Preferred  financing  and is one of four  individuals  from the
Evergreen  investor  group to be added to the Board of Directors  of  Evergreen.
Messrs.  Deutch and Socha  disclosed  their possible  conflict  relating to this
transaction and abstained from voting on the matter. In addition, Mr. Deutch has
not  taken  part  in  any  discussions  concerning  this  investment.   Beacon's
participation in the transaction was evaluated,  debated and approved by all the
disinterested  directors of the Company, after full disclosure of relevant facts
and circumstances.

During the second quarter of 2004 all of the Company's holdings in its Evergreen
Solar Series A Preferred  Stock were  converted  to 973,528  shares of Evergreen
Solar common  stock.  This  investment  in equity  securities  is carried on the
Company's  balance sheet at fair value and  classified as  "available-for-sale,"
and any unrealized gains or losses are recorded as other comprehensive income in
the equity  section of the Company's  balance  sheets,  as required by Financial
Accounting Standard 115,  "Accounting for Certain Investments in Debt and Equity
Securities." On June 30, 2004 the total value of Evergreen's common stock on the
Company's  balance  sheet based on the then  current  per-share  market price of
$3.24  was  $3,154,231  and the  warrant  was  valued at its  purchase  price of
$100,000.  On August 12, 2004 the market value of the  Company's  investment  in
Evergreen Solar common stock,  based on the then current  per-share market price
of $2.82 was $2,745,349.

Note 7.  Common Stock

Reserved  Shares.  At June 30,  2004  and  December  31,  2003,  11,435,059  and
11,755,157 shares of common stock were reserved for issuance under the Company's
stock option plan and for outstanding warrants, respectively.

Note 8.  Related Party Transactions

Advance to Officers. During 2001, the Company advanced approximately $565,000 to
an officer of the Company,  Mr. William  Stanton,  its former CEO and President.
This advance is interest bearing and secured by the officers' holdings of Beacon
Power  Corporation  common stock and was provided to the officer to allow him to
exercise stock options and to pay the related taxes.  Through June 30, 2004, the
Company had  collected  approximately  $447,000 in  principal  payments on these
advances.  The balance of this loan is $118,000 and has been reserved,  however,
it has not been cancelled.  Mr. Stanton  continues to serve as a director of the
Company.

Note 9. Restructuring Charges

The Company's initial products were focused on the telecom industry. As a result
of the overall  economic  downturn and in particular the significant  decline in
capital  and  maintenance  spending  in  telecom,  as well as the low  price  of
lead-acid   batteries,   the  Company  has  not  been   successful   in  selling
flywheel-based products into this market. Therefore,  beginning in July 2002, in
an effort to reduce its monthly  cash-spending  rate, the Company  implemented a
number  of  cost-cutting  measures  to  ensure  the  availability  of  resources
necessary  to pursue its  business  strategy  for a  reasonable  period but at a
significantly lower cash expenditure rate. As a result, a substantial portion of
its  long-term  assets  have been  idled,  including  machinery  and  equipment,
tooling,   office   furniture   and   fixtures,   and  equipment  and  leasehold
improvements.  The Company has  evaluated  all of its property and  equipment as
required by Statement of Financial  Accounting Standards No. 144 "Accounting for
the Impairment or Disposal of Long-Lived  Assets" and, as a result,  has taken a
restructuring  and  impairment  charge of $6.5  million  of which  $4.3  million
represents  impaired capital equipment and leasehold  improvements,  $.3 million
relates to severance  costs and $1.9 million relates to a reserve against future
lease  payments and related  facility  costs.  The reserve  against future lease
payments is classified  as  "Restructuring  reserve" in the current  liabilities
section of the balance sheets.

A summary of the restructuring reserves is as follows:

                                  June 30,
                         --------------------------
                                2004           2003
                         -----------    -----------
Beginning balance ....   $ 1,406,191    $ 1,749,738
Charges for the period          --             --
Payments .............      (171,773)      (171,773)
                         -----------    -----------
Ending balance .......   $ 1,234,418    $ 1,577,965
                         ===========    ===========


Note 10.  Stock-Based Compensation

The Company accounts for its stock based  compensation using the recognition and
measurement principles of APB 25 "Accounting for Stock Issued to Employees", and
its related  interpretations.  FASB Statement of Financial  Accounting Standards
No. 148 ("SFAS 148"),  "Accounting for Stock-Based  Compensation-Transition  and
Disclosure" amends disclosure requirements and requires prominent disclosures on
both annual and interim financial  statements about the method of accounting for
stock-based employee  compensation and the effect of the method used on reported
results.  This statement is effective for financial reports containing financial
statements for interim periods  beginning after December 15, 2002. SFAS 148 also
provides  alternative methods of transition for a voluntary change to fair value
based  methods  of  accounting  which  have  not  been  adopted  at  this  time.
Compensation  expense associated with awards of stock or options to employees is
measured  using  the  intrinsic-value   method.  Deferred  compensation  expense
associated with awards to non-employees is measured using the fair-value  method
and is  amortized  over the vesting  period of three  years using a  calculation
under FASB  Interpretation No. 28, "Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans."

The  Company  also has a long term stock  incentive  plan to  provide  employees
deferred  compensation  in the form of restricted  stock units (or "RSUs") at no
cost to the  recipient,  that can be converted  into shares of Company's  common
stock through  establishing and evaluating  quarterly,  or in some cases yearly,
targets for the employee and, following each quarter,  determining the number of
RSUs to accrue and to be granted in four equal  installments  in the fiscal year
following  the fiscal  year with  respect to which  employee  accrued  the RSUs.
Employees  have the right to convert  their  RSUs into  shares at any time after
such grant,  subject to a quarterly  vesting schedule.  The Company's  employees
earned 667,151 RSUs for the fiscal year ended  December 31, 2003,  which are not
available for exercise until  satisfaction  of the vesting  periods during 2004.
The grants are  recorded as deferred  stock  compensation  until they are earned
over the vesting schedule, at which time, the value of the RSUs will be recorded
as compensation  expense in the Company's income  statement.  For the six months
ending June 30, 2004 the Company  recorded RSU related  compensation  expense in
the amount of $611,652.

No  stock-based  compensation  is reflected  in net  earnings for stock  options
granted to employees as all options granted under the plan had an exercise price
equal to or greater than the market price of the underlying stock at the date of
the grant.  The  following  table  illustrates  the effect on net  earnings  and
earnings  per  share if the  Company  had  applied  the fair  value  recognition
provisions of FASB Statement No. 123 "Accounting  for Stock-Based  Compensation"
to stock-based employee compensation.

<TABLE>
<CAPTION>
                                              Three months ended June 30,   Six months ended June 30,
                                                  2004           2003           2004          2003
                                              --------------------------    --------------------------

<S>                                           <C>            <C>            <C>            <C>
Net loss to common shareholders as reported   $(2,266,205)   $(2,218,750)   $(4,414,932)   $(4,448,125)
Pro forma compensation expense ............        91,520        114,330        184,387        223,000
                                              -----------    -----------    -----------    -----------
Net loss--pro forma .......................   $(2,357,725)   $(2,333,080)   $(4,599,319)   $(4,671,125)
Loss per share--as reported ...............   $     (0.05)   $     (0.05)   $     (0.10)   $     (0.10)
Loss per share--pro forma .................   $     (0.05)   $     (0.05)   $     (0.11)   $     (0.11)
</TABLE>

<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Note Regarding Forward Looking Statements:

This  Quarterly  Report  on  Form  10-Q  contains   forward-looking   statements
concerning,   among  other  things,  the  Company's  expected  future  revenues,
operations  and  expenditures  and  estimates of the  potential  markets for the
Company's services.  Such statements made by the Company fall within the meaning
of the Private  Securities  Litigation Reform act of 1995, as amended.  All such
forward-looking  statements are necessarily only estimates of future results and
the actual  results  achieved by the Company  may differ  materially  from these
projections  due to a number of factors as  discussed  in the  section  entitled
"Certain Factors Affecting Future Operating Results" of this Form 10-Q.

Overview

When the Company recognized that its Smart Energy products as alternative backup
solutions  to the  telecommunications  industry  were  not on a path to  produce
meaningful  revenues,  the Company  initiated a series of cost cutting  measures
throughout  2002 and 2003.  The focus of these  efforts was to reduce cash usage
while  preserving  the Company's  intellectual  properties and  maintaining  the
integrity of its public  company  requirements  while  evaluating  all potential
product markets for the Company's  technologies and considering  acquisitions or
mergers  that  could  lead  to  increased   shareholder  value.  Based  on  this
evaluation,  which is ongoing,  the Company (i) believes that it has  identified
two  promising  applications  for its Smart Energy  Matrix  product and (ii) has
introduced its Smart Energy M5 inverter system into the renewable  energy market
and  delivered 31 units in 2003 and an additional 41 units during the six months
ended June 30, 2004.

The Company must raise additional  equity to execute its business plan. Based on
the  Company's  rate of  expenditure  of cash  and the  additional  expenditures
expected in support of its  business  plan,  the Company  will need to obtain an
equity investment by early 2005 to fund:

     o    continuing as a going concern;

     o    ongoing research and development of inverter products;

     o    manufacturing capability;

     o    working capital requirements; and

     o    new business development.

In the event that the  Company  elects to begin full  scale  development  of its
Smart Energy  Matrix or Smart Power 250 flywheel  systems,  the amount of equity
required would increase substantially.

Results of operations:

Comparison of six months ended June 30, 2004 and 2003

                                               Six months ended June 30,
                                           -----------------------------------
                                             2004   2003   $ Change  % Change
                                           ------ -------- -------- ----------
                                 (in thousands)
Revenues ...............................   $  184   $ --     $  184       n/a
Cost of goods sold .....................      384     --        384       n/a

Selling, general and administrative ....    2,289    2,480      191         8%

Research and development ...............    1,970    1,911      (59)        3%

Depreciation and amortization ..........       90      143       53        37%

Interest and other income (expense), net      133       86       47        55%


Revenues

The  Company  recorded  its first  revenues  from the sale of its Smart Power M5
power  conditioning  system of $57 thousand during the first quarter of 2004. In
the  second  quarter  of 2004,  in  addition  to its Smart  Power M5  revenue of
approximately  $46 thousand,  the Company  recorded revenue of $81 thousand of a
contract valued at $98 thousand from a government  contract under the percentage
of completion method. For its other products,  the Company continues to evaluate
markets  but did not  recognize  revenues on those  products  for the six months
ended June 30, 2004 or 2003.

Cost of Goods Sold

Cost of goods sold,  for the six months  ending  June 30,  2004,  include  costs
associated with both Smart Power M5 inverters and a flywheel related  government
contract.  The costs  associated  with the Smart  Power M5 include  inventories,
valued at the lower of cost or market and direct  labor.  In  addition  to these
costs the Company  recognized  a reserve of  approximately  $141,000  during the
second quarter for inventories  that had become obsolete  through design changes
and product  mix. On the  government  contract,  the Company  recorded all costs
incurred to date.

Selling,  General and Administrative Expenses

The Company's sales and marketing expenses consist primarily of compensation and
benefits for its sales and marketing personnel and related business  development
expenses. The Company's general and administrative expenses consist primarily of
compensation  and benefits related to its corporate  staff,  professional  fees,
insurance costs and travel. Selling, general and administrative expenses totaled
approximately  $2,289,000  and $2,480,000 for the six months ended June 30, 2004
and  2003,  respectively.  The  decrease  of  approximately  $191,000  or  8% is
primarily  the  result  of  decreases  in the  cost of  Directors  and  Officers
Liability  Insurance premiums partially offset by higher  compensation  expenses
due to the Company's  long term  incentive  stock plan and  increased  marketing
efforts for its Smart Power M5 and Energy Matrix Products.

Research and Development

The Company's cost of research and development consists primarily of the cost of
compensation  and benefits for research and  development  and support staff,  as
well as materials and supplies used in the  engineering  design  process.  These
costs  increased  for the six months  ending  June 30, 2004 over the same period
during 2003 due primarily to increased  product  development of products for the
photovoltaic  market.  While the  Company  does not expect to incur  significant
additional costs for its existing flywheel products,  the Company does expect to
incur costs for the design and development of additional  products for renewable
energy  applications.  The costs of development of its flywheel  systems will be
significant if the Company  determines there is sufficient  market validation to
initiate development of these products and it has funding to complete this work.
The Company  expects its cost of research and  development  for the remainder of
2004  to  continue  to  be  slightly  higher  compared  to  2003.  Research  and
development expenses totaled approximately $1,970,000 and $1,911,000 for the six
months ended June 30, 2004 and 2003, respectively. The increase of $59,000 or 3%
is primarily the result of higher  development  costs  relating to the Company's
Smart Power M5.

Depreciation and Amortization

The Company's depreciation and amortization is primarily related to depreciation
on  capital  expenditures  and the  amortization  of lease and  leasehold  costs
related to our  facilities.  The Company is also  amortizing  the Smart Power M5
intellectual  property  it  acquired  from  Advanced  Energy  Systems  in  2003.
Depreciation and amortization totaled approximately $90,000 and $143,000 for the
six months ended June 30, 2004 and 2003,  respectively.  The decrease of $53,000
or 37% is  attributable  to the decrease in the remaining net book values of the
Company's assets.

Interest and Other Income/Expense, net

The Company's  non-operating  income and expenses are primarily  attributable to
interest income resulting from cash on hand,  accrued  dividends  receivable and
the 7% conversion  premium from the  conversion of Evergreen  Series A Preferred
Stock holdings, partially offset by interest expense associated with its capital
leases.  Interest and dividend income for the six months ended June 30, 2004 was
approximately $72,000, compared to approximately $102,000 for the same period in
2003.  The  decrease  in 2004  compared to the prior year is the result of lower
cash balances.  Interest expense decreased to zero for the six months ended June
30, 2004 from approximately $6,000 for the same period in 2003. Interest expense
relates to assets leased under capital leases.

Other income (expense) increased to approximately $61,000 for the six months
ended June 30, 2004 compared to other expense of approximately $10,000 for the
six months ending June 30, 2003. The increase was primarily due to the 7%
conversion premium paid to the Company on the conversion of the Series A
Preferred stock of Evergreen Solar, Inc.


Liquidity and Capital Resources

                                                      Quarter ending June 30,
                                                      -----------------------
                                                          2004        2003
                                                        --------    --------
                                                      (in thousands)
Cash and cash equivalents ...........................   $  4,999    $ 12,807

Working capital .....................................      7,241      11,234
Cash provided by (used in)
   Operating activities .............................     (3,970)     (3,612)
   Investing activities .............................         31      (1,270)
   Financing activities .............................         29        (127)
                                                        --------    --------
Net decrease in cash and cash equivalents ...........   $ (3,910)   $ (5,009)
                                                        ========    ========
Current ratio .......................................        4.0         5.6
                                                        ========    ========

The  Company's  cash  requirements  depend on many  factors,  including  but not
limited  to  research  and   development   activities,   continued   efforts  to
commercialize  products,   facilities  costs,  and  general  and  administrative
expenses.  The  Company  expects to make  significant  expenditures  to fund its
operations,  develop technologies and explore  opportunities to find and develop
additional  markets to sell its  products.  The  Company  has taken  significant
actions to reduce its cash expenditures for product development,  infrastructure
and production readiness by reducing headcount, development spending and capital
expenditures  over the past three years. The Company has focused its activity on
market analysis in terms of size of markets,  competitive aspects and advantages
that its products  could provide.  It has continued to do preliminary  design of
products  for  markets  under  consideration  for its  flywheel  systems and has
purchased intellectual  properties and incurred development costs for its newest
product in the renewable energy market. The Company must raise additional equity
to execute its business plan and remain a going concern.  Based on the Company's
rate of expenditure of cash and the additional  expenditures expected in support
of its business  plan,  the Company will need to obtain an equity  investment by
early 2005 to fund:

     o    continuing as a going concern;

     o    ongoing research and development of inverter products;

     o    manufacturing operations;

     o    working capital requirements; and

     o    new business development.

In the event that the  Company  elects to begin full  scale  development  of its
Smart Energy  Matrix or Smart Power 250 flywheel  systems,  the amount of equity
required would increase substantially.

Net  cash  used in  operating  activities  was  approximately  ($3,925,000)  and
($3,612,000) for the six months ended June 30, 2004 and 2003, respectively.  The
primary  component to the negative cash flow from operations is from net losses.
For the first six months of 2004,  the Company  had a net loss of  approximately
($4,415,000).   This  included  employee  stock  compensation  of  approximately
$612,000,  facility related cash payments charged against restructuring reserves
of approximately ($172,000), a reduction in restricted cash related to the lease
of the  Company's  facility  of  approximately  $45,000,  and  depreciation  and
amortization  of  approximately   $90,000.   Changes  in  operating  assets  and
liabilities used approximately  ($76,000) of cash during the first six months of
2004.  For  the  first  six  months  of  2003,  the  Company  had a net  loss of
approximately  ($4,448,000).  This included  non-cash  charges of  approximately
$10,000 for the reserve of interest  capitalized on a reserved note due from its
former  CEO,  facility  related  cash  payments  charged  against  restructuring
reserves  of   approximately   ($172,000),   gain  on  the  sale  of  assets  of
approximately  ($6,000)  and  depreciation  and  amortization  of  approximately
$143,000.  Changes in operating assets and liabilities  generated  approximately
$861,000  of cash during the first six months of 2003.  The  primary  components
were  increases  in accounts  payable and accrued  compensation  and benefits of
approximately $37,000 and 42,000 respectively, and decreases in prepaid expenses
of  approximately  $937,000.  These were  offset by accrued  expenses  and other
current liabilities of approximately ($156,000).

Net  cash  used  in  investing   activities  was  approximately   ($14,000)  and
($1,270,000) for the six months ended June 30, 2004 and 2003, respectively.  The
principal  use of cash  during the first six months of 2004 was the  purchase of
capital equipment of approximately  ($14,000). The principal uses of cash during
the  first six  months  of 2003 were  primarily  related  to the  investment  in
Evergreen   Solar  of   ($1,100,000),   increases  in  other   assets   totaling
approximately  ($194,000),   purchase  of  capital  equipment  of  approximately
($6,000)  and the  principal  sources  of cash  were  from the  sale of  certain
impaired machinery and equipment of the Company of approximately $30,000.

Net cash  generated/(used) by financing activities was approximately $29,000 and
($127,000)  for the six months ended June 30, 2004 and 2003,  respectively.  For
the first six months of 2004,  the cash  generated  by financing  activities  of
approximately  $29,000 related to the exercise of stock options in the amount of
approximately  $27,000 and shares issued under the employee  stock purchase plan
of  approximately  $2,000.  For the first six months of 2003,  the cash used for
financing  activities  related to repayment of capital  leases of  approximately
($128,000),  offset by cash  proceeds from the employee  stock  purchase plan of
approximately $1,000

In the event that the  Company  elects to begin full  scale  development  of its
Smart Energy  Matrix or Smart Power 250 flywheel  systems,  the amount of equity
required  would  increase  substantially.  In as  much  as  the  Company  is not
expecting to become  profitable or cash flow positive  until at least 2008,  its
ability  to  continue  as a going  concern  will  depend on being  able to raise
additional capital. The Company may not be able to raise this capital at all, or
if it is able to do so, it may be on terms that are adverse to shareholders. The
Company   believes  that  it  cannot  use  debt   financing  to  meet  its  cash
requirements.


Certain Factors Affecting Future Operating Results

The  following  factors,  as well as others  mentioned in the  Company's  Annual
Report on Form 10-K/A for the year ended December 31, 2003 (filed May 17, 2004),
could  cause  actual  results  to differ  materially  from  those  indicated  by
forward-looking statements made in this Quarterly Report on Form 10-Q:

The Company May Not Be Able to Continue as a Going Concern, as its Cash Balances
Are Sufficient to Fund Operations Only Through Approximately April 2005.

     As shown in the  consolidated  financial  statements,  the Company incurred
     significant losses from continuing operations of approximately  $8,618,000,
     $20,839,000,   and   $26,146,000   and  cash  decreases  of   approximately
     $8,957,000,  $16,335,000 and  $27,850,000,  during the years ended December
     31, 2003, 2002 and 2001,  respectively.  The Company has $4,999,000 of cash
     and cash  equivalents  on hand at June 30,  2004.  The Company has recorded
     limited  revenue from sales of its products.  These factors,  among others,
     indicate that the Company may be unable to continue as a going concern.

     Deloitte & Touche LLP, the Company's independent auditors, have included an
     explanatory paragraph related to a going concern uncertainty in their audit
     report on the Company's  consolidated  financial  statements for the fiscal
     year ended December 31, 2003,  which states that "the  Company's  recurring
     losses from  operations  and negative  cash flows raise  substantial  doubt
     about its ability to continue as a going concern."

     The  Company's  financial  statements  have been prepared on the basis of a
     going  concern,  which  contemplates  the  realization  of  assets  and the
     satisfaction  of liabilities in the normal course of business.  The Company
     has not made any adjustments to its financial statements as a result of the
     going  concern  uncertainty.  If the  Company  cannot  continue  as a going
     concern, it may have to liquidate its assets and may receive  significantly
     less than the values at which they are carried on its financial statements.
     Any shortfall in the proceeds from the liquidation of the Company's  assets
     would  directly  reduce the amounts  that holders of its common stock could
     receive in liquidation.

     The Company  expects its cash  position  to fund  operations  approximately
     through April 2005 according to its business plan. The Company is exploring
     opportunities  to  raise  additional   capital  through  equity  offerings,
     strategic alliances and other financing vehicles,  but it does not make any
     assurances that  sufficient  funds will be available to it on terms that it
     deems acceptable, if they are available at all.

The Company Needs Additional Financing.

     The Company will need additional financing to execute its business plan and
     continue as a going concern.  The Company cannot be certain that it will be
     able to raise  additional  funds on terms  acceptable  to the Company or at
     all. If future financing is not available or is not available on acceptable
     terms,  the Company would not be able to continue as a going  concern.  See
     "Selected  Historical  Financial  Data" and  "Management's  Discussion  and
     Analysis of Financial Condition and Results of Operations."

The Company's Stockholders May be Adversely Affected if the Company Issues
Additional Equity to Obtain Financing.

     If the  Company  raises  additional  funds  by  issuing  additional  equity
     securities,  existing  stockholders  may be adversely  affected because new
     investors may have rights superior to those of current shareholders and may
     also be diluted.

The Company May Not Be Able to Reduce Its Product Cost Enough to Make The
Company's Prices Competitive and Therefore It May Not Be Able to Realize Volumes
With Margins that Allow It to Cover Its Costs of Operations.

     There can be no assurance  that the Company will be  successful in lowering
     production  costs through  improved  product  designs or volume  discounts,
     which may prevent  widespread  market  acceptance  of its  products  due to
     higher pricing than those of its competitors.

The Company Has Limited Experience Manufacturing Inverter Systems or Flywheel
Energy Storage Systems on a Commercial Basis. In the Event of Significant Sales,
the Company Will Need to Develop or Obtain Manufacturing Capacity for Its
Products.

     Should the Company experience  significant customer demand for its inverter
     or  flywheel  products,  it will need to  develop  or obtain  manufacturing
     capacity to meet quality, profitability and delivery schedules. The Company
     may need to  establish  additional  manufacturing  facilities,  expand  its
     current  facilities or expand  third-party  manufacturing.  The Company has
     limited  experience in the manufacture of inverter or flywheel  systems and
     there can be no assurance  that it will be able to accomplish  these tasks,
     if  necessary,  on a timely  basis to meet  customer  demand or at all. The
     Company  has  taken   actions  to  conserve  cash   including   idling  its
     manufacturing  capabilities  through  headcount  reduction,   delaying  the
     development  of  its  manufacturing   process   documentation  and  capital
     build-out.  The Company will not achieve profitability if it cannot develop
     or obtain  efficient,  low-cost  manufacturing  capability,  processes  and
     suppliers  that  will  enable  the  Company  to meet  the  quality,  price,
     engineering, design and production standards or production volumes required
     to meet its product  commercialization  schedule, if any, or to satisfy the
     requirements of its customers or the market generally.

It Is Difficult to Evaluate the Company and to Predict Its Future Performance
Because of Its Short Operating History and the Fact that It is a Development
Stage Company.

     The Company has a limited  operating  history  and is a  development  stage
     company.  Unless the Company can achieve  significant  market acceptance of
     its current or future products at volumes and with margins that allow it to
     cover its costs of  operations,  the Company may never  advance  beyond the
     start-up phase.

     See  "Management's  Discussion  and  Analysis of  Financial  Condition  and
     Results of Operations."

The Company Has Incurred Losses Since Its Inception and Anticipates Continued
Losses Through at Least 2008.

     The  Company  has  incurred  net losses and  negative  cash flows since its
     inception  in May  1997.  The  Company  had  net  losses  of  approximately
     ($8,618,000)  in  2003,  ($20,839,000)  in  2002,  ($26,146,000)  in  2001,
     ($53,279,000) in 2000 and  ($6,630,000) in 1999.  Since its inception,  the
     Company has had net losses totaling ($127,951,000).  The Company expects to
     continue to incur net losses through at least 2008. Although the Company is
     looking for additional ways to economize and reduce costs,  its efforts may
     prove even more expensive than anticipated to successfully develop products
     for potential  markets.  The Company's  revenue must grow  substantially to
     offset these higher  expenses  and become  profitable.  Even if the Company
     does  achieve  profitability,  it may be unable to sustain or increase  its
     profitability in the future.

     See  "Management's  Discussion  and  Analysis of  Financial  Condition  and
     Results of Operations."

Because the Company Depends on Third-Party Suppliers for the Development and
Supply of Key Components for Its Products, It Could Experience Disruptions in
Supply that Could Delay or Decrease Its Revenues.

     The Company's  business,  prospects,  results of  operations,  or financial
     condition  could  be  harmed  if  it is  unable  to  maintain  satisfactory
     relationships  with existing  suppliers or develop  relationships  with new
     suppliers.  To accelerate  development time and reduce capital  investment,
     the Company relies on  third-party  suppliers for several key components of
     its  systems.  The  Company  does  not  have  contracts  with  all of these
     suppliers. If these suppliers should fail to timely deliver components that
     meet the Company's quality,  quantity, or cost standards,  then the Company
     could experience  production delays or cost increases.  Because certain key
     components that are complex,  and difficult to manufacture and require long
     lead times, the Company may have difficulty finding  alternative  suppliers
     on a timely or cost  effective  basis.  In addition,  there are a number of
     components that the Company has not purchased on a production  basis and it
     may be  difficult  for the  Company  to find  suppliers.  As a result,  the
     Company  could  experience  shortages  in  supply  or be  unable to be cost
     competitive in the markets it is pursuing.

The Company's Financial Performance Could Be Adversely Affected by its Need to
Hire and Retain Key Executive Officers and Skilled Technical Personnel.

     Because  the  Company's  future  success  depends to a large  degree on the
     success  of its  technology,  the  Company's  competitiveness  will  depend
     significantly  on  whether it can  attract  and  retain  skilled  technical
     personnel,  especially  engineers,  and can retain members of its executive
     team.  The Company has  employment  agreements  with Messrs.  Capp, CEO and
     President;  Spiezio,  Vice President of Finance,  Chief Financial  Officer,
     Treasurer and Secretary; and Lazarewicz, Vice President and Chief Technical
     Officer.

     The Company may not be successful in attracting and retaining the personnel
     or executive talent necessary to develop products and operate profitably.

The Company's Financial Performance Could be Adversely Affected by Needs to Hire
and Retain Key Sales Personnel.

     Because  the  Company's  future  success  depends to a large  degree on the
     success  of its  sales  organization,  the  Company's  ability  to meet its
     business  plan will  depend  significantly  on whether it can  attract  and
     retain sales  personnel.  The sales  organization has been impacted by both
     health issues, and a resignation. The lead salesman for the Company's Smart
     Power M5 Inverter has been on medical leave and has only recently  returned
     to work on a  part-time  basis.  A  salesman  for both the  Smart  Power M5
     Inverter and the Company's  flywheels  systems  resigned to pursue business
     opportunities  that did not require  travel.  Competition for skilled sales
     people is intense and the Company may not be successful  in attracting  and
     retaining the personnel or executive  talent  necessary to develop  markets
     and operate profitably.

There  May Be Only a Modest  Number of  Potential  Customers  for the  Company's
Products.

     There may only be a limited number of potential customers for the Company's
     products,  in which case the  Company  will be subject to the risk that the
     loss of or reduced  purchases by any single customer could adversely affect
     its business.

If the Company is Unable to Successfully Market, Distribute and Service Its
Products Internationally it May Experience a Shortfall in Expected Revenues and
Profitability.

     In addition to the risks the Company faces when operating  within the U.S.,
     additional  risks are present if the Company operates  internationally.  To
     develop  sufficient  revenue  volumes for the Company to be profitable  the
     Company may need to market, distribute and service products internationally
     through   distributors.   The   Company  has  no   experience   developing,
     manufacturing  or selling  products to comply with the commercial and legal
     requirements of international  markets.  The Company's  ability to properly
     service  its   products   internationally   will   depend  on   third-party
     distributors to install and provide service. There is no assurance that the
     Company  will be able to locate  service  providers in every region or that
     these providers will effectively service its products.  Also, the Company's
     success in those  markets  will depend,  in part,  on its ability to secure
     foreign customers and its ability to manufacture products that meet foreign
     regulatory  and  commercial   requirements.   In  addition,   international
     operations  are  subject  to  other  inherent  risks,  including  potential
     difficulties in establishing  satisfactory  distributor  relationships  and
     enforcing  contractual  obligations  and  intellectual  property  rights in
     foreign countries, and fluctuations in currency exchange rates.

Any Failure to Protect  the  Company's  Intellectual  Property  Could  Seriously
Impair Its Competitive Position.

     The  Company  cannot  provide  assurance  that  it has or  will  be able to
     maintain a significant  proprietary position on the basic technologies used
     in its inverter  and flywheel  systems.  The  Company's  ability to compete
     effectively  against  alternative  technologies  will  be  affected  by its
     ability  to   protect   proprietary   technology,   systems   designs   and
     manufacturing  processes.  The  Company  does not know  whether  any of its
     pending or future patent  applications under which it has rights will issue
     or, in the case of patents issued or to be issued,  that the claims allowed
     are or will be  sufficiently  broad to protect the Company's  technology or
     processes,  or will protect it from competitors.  Even if all the Company's
     patent  applications  are issued and are  sufficiently  broad,  they may be
     challenged or  invalidated.  The Company could incur  substantial  costs in
     prosecuting or defending  patent  infringement  suits, and such suits would
     divert funds and resources  that could be used in the  Company's  business.
     The  Company  does  not  know  whether  it has  been or will be  completely
     successful in safeguarding and maintaining its proprietary rights.

     Further, the Company's  competitors or others may independently  develop or
     patent  technologies  or processes  that are  substantially  equivalent  or
     superior to those of the Company.  If the Company is found to be infringing
     on third-party  patents,  the Company does not know whether it will be able
     to obtain  licenses to use such  patents on  acceptable  terms,  if at all.
     Failure to obtain needed  licenses could delay or prevent the  development,
     manufacture or sale of the Company's systems.

     The Company  relies,  in part, on  contractual  provisions to protect trade
     secrets and proprietary  knowledge.  These agreements may be breached,  and
     the Company may not have  adequate  remedies for any breach.  The Company's
     trade secrets may also be known without breach of such agreements or may be
     independently  developed by competitors or others. The Company's  inability
     to maintain the  proprietary  nature of its technology and processes  could
     allow   competitors  or  others  to  limit  or  eliminate  any  competitive
     advantages the Company may have, thereby harming its business prospects.

The Share Prices of Companies in the Company's Sector have been Highly Volatile
and the Company's Share Price Could Be Subject to Extreme Price Fluctuations.

     The markets for equity securities of high technology  companies,  including
     companies in the power  reliability  and power quality  markets,  have been
     highly volatile recently and the market price of the Company's common stock
     has been and may continue to be subject to significant  fluctuations.  This
     could be in response to operating  results,  announcements of technological
     innovations or new products by the Company,  or its competitors,  patent or
     proprietary rights developments, energy blackouts and market conditions for
     high  technology  stocks in general.  In addition,  stock markets in recent
     years have  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 the Company's
     common stock,  which could affect its ability to attract additional capital
     to fund operations.

There May be Other Technologies Under Development That Could Prevent the Company
from Achieving or Sustaining Its Ability to Sell Products or to Do So at Prices
that will Yield Profits.

     There are number of technology  companies in various stages of development.
     The Company  cannot give  assurance  that some or all of its target markets
     and pricing plans could not be displaced by emerging technologies.

The Company Has an Investment in Another Company in Its Sector in an Effort to
Increase Shareholder Value Through Strategic Alliance or Return on Investment
Which may Not Create Gains and therefore Reduce Shareholder Value.

     Given the Company's financial position,  its ability to make investments in
     other companies is very limited at this time.  However,  in the future, the
     Company  may make  investments  in other  companies  in its  sector to gain
     strategic  alliances,  channels to market or  appreciation  in stock value.
     These investments may not increase  shareholder value. Given the volatility
     of share prices for companies in this sector,  general economic  conditions
     and market fluctuations in general, the market price of the investments may
     decrease and reduce shareholder value.

Provisions of Delaware Law and of the Company's Charter and By-laws May Inhibit
a Takeover that Stockholders Consider Favorable.

     Provisions in the Company's certificate of incorporation and by-laws and in
     the  Delaware  corporate  law, and the  shareholder  rights plan adopted in
     September  2002,  may make it difficult  and expensive for a third party to
     pursue a tender  offer,  change in  control  or  takeover  attempt  that is
     opposed  by  the  Company's  management  and  board  of  directors.  Public
     stockholders  who might desire to participate in such a transaction may not
     have  an  opportunity  to  do  so.  Beginning  with  the  Company's  annual
     stockholder  meeting in 2001, it implemented a staggered board of directors
     that will make it difficult for  stockholders  to change the composition of
     the board of directors in any one-year.  Pursuant to a  shareholder  rights
     plan adopted in September  2002, the Company issued rights as a dividend on
     common  stock on  October  7, 2002  each of which  entitles  the  holder to
     purchase  1/100th of a share of newly issued  preferred stock for $22.50 in
     the event that any person not approved by the board of  directors  acquires
     more than 15% (30% in the case of one large  shareholder that already owned
     more than 15%) of the Company's  outstanding  common stock, or in the event
     of an acquisition by another  company,  $22.50 worth of the common stock of
     the other company at half its market value (in each case the rights held by
     the acquiring  person are not exercisable and become void). The shareholder
     rights  plan was  modified by rights plan  Amendment 1 dated  December  27,
     2002.  The amendment  increased the  beneficial  ownership  approved by the
     board of directors from 30% to 35% for one large shareholder. Additionally,
     the Company's  board of directors may authorize  issuances of "blank check"
     preferred  stock that could be used to increase  the number of  outstanding
     shares and discourage a takeover attempt.  These  anti-takeover  provisions
     could  substantially  impede the ability of public  stockholders to benefit
     from a change in control or change in the Company's management and board of
     directors.

Terrorist Attacks have Contributed to Economic Instability in the United States;
Continued Terrorist Attacks, War or Other Civil Disturbances Could Lead to
Further Economic Instability and Depress the Company's Stock Price.

     On  September  11,  2001,  the United  States  was the target of  terrorist
     attacks of unprecedented  scope.  These attacks have caused  instability in
     the global  financial  markets,  and have  contributed to volatility in the
     stock prices of United States  publicly  traded  companies,  such as Beacon
     Power.  These attacks may lead to armed  hostilities  or to further acts of
     terrorism and civil  disturbances in the United States or elsewhere,  which
     may further  contribute  to economic  instability  in the United States and
     could have a material adverse effect on the Company's  business,  financial
     condition and operating results.

Government Regulation May Impair the Company's Ability to Market Products.

     Government  regulation of the Company's  products,  whether at the federal,
     state or local  level,  including  any change in  regulations,  on tariffs,
     product buy downs or tax rebates  relating to purchase and  installation of
     its products,  may increase the cost and price of its systems, and may have
     a negative impact on the Company's revenue and  profitability.  The Company
     cannot provide  assurance that its products will not be subject to existing
     or future  federal and state  regulations  governing  traditional  electric
     utilities  and other  regulated  entities.  The  Company  expects  that its
     products and their installation 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. The
     Company does not know the extent to which any  existing or new  regulations
     may impact its ability to  distribute,  install  and service its  products.
     Once the Company's  products  reach the  commercialization  stage  federal,
     state or local government entities may seek to impose regulations.

Product Liability Claims Against the Company Could Result in Substantial
Expenses and Negative Publicity Which Could Impair Successful Marketing of its
Products.

     The Company's  business  exposes it to potential  product  liability claims
     that  are   inherent   in  the   manufacturing,   marketing   and  sale  of
     electro-mechanical  products, and as such, the Company may face substantial
     liability for damages  resulting  from the faulty design or  manufacture of
     products or  improper  use of  products  by end users.  The Company  cannot
     provide  assurance  that  its  product  liability  insurance  will  provide
     sufficient  coverage  in the event of a claim.  Also,  the  Company  cannot
     predict  whether it will be able to maintain  such  coverage on  acceptable
     terms,  if at all, or that a product  liability  claim would not materially
     adversely  affect its  business,  financial  condition  or the price of its
     common stock. In addition, negative publicity in connection with the faulty
     design or manufacture of the Company's  products would adversely affect its
     ability to market and sell its products.

Safety Failures by the Company's Flywheel Products or Those of The Company's
Competitors Could Reduce Market Demand or Acceptance for Flywheels in General.

     A serious accident involving either the Company's flywheels or competitors'
     similar  products could be a significant  deterrent to customer  acceptance
     and adversely  affect the  Company's  financial  performance.  There is the
     possibility of accident with any form of energy storage. In particular,  if
     a metal  flywheel  fails and the stored  energy is  released,  the flywheel
     could  break apart into  fragments  that could be ejected at a high rate of
     speed.  However, the Company's flywheels are based on a composite design so
     that in the event of a  failure,  the  Company's  flywheel  would shut down
     rather than  disintegrate.  To date, the Company's  testing  validates this
     design conclusion. Also, the Company believes that one of the advantages of
     composite flywheels over metal flywheels is that in the event of a flywheel
     failure,  the flywheel tends to delaminate and shut down rather than (as in
     the case of metal) to break  into a number of large  fragments  that have a
     greater possibility of bursting a containment vessel and causing injury. At
     this early stage of  commercialization,  there are differing  approaches to
     containment safety with disagreement in the community on the most effective
     means.

The Market for Using the Company's Smart Energy Matrix to Provide Frequency
Regulation has not been Established.

     The  Company  believes  that the use of its  Smart  Energy  Matrix  will be
     successful  in the frequency  regulation  market.  However,  this market is
     currently being served by independent service providers that use generators
     and although the Company  believes its product offers greater  efficiencies
     than  generators  and  could  produce  positive   investment   returns  for
     independent  service providers,  there can be no assurance that the Company
     will be able to establish its product in that market.

The  Value  Proposition  of the  Company's  Smart  Energy  Products  May  Not Be
Recognized.

     There  can be no  assurance  that  the  Company  will be  able  to  compete
     successfully  against batteries.  To compete  successfully the Company must
     establish  the  value   proposition   of  its  products  based  upon  their
     dependability,  environmental benefits, and long maintenance-free life. The
     performance  of batteries has improved  while battery  prices have declined
     due to  lower  demand  from  the  communications  markets  and  others  and
     increased  competition  resulting from an increase in the number of battery
     manufacturers.  These changes in battery  pricing and  performance  make it
     even more  difficult for the Company to establish the value  proposition of
     its Smart Energy products.

The Company Might Fail to Develop Successful Flywheel Products.

     The successful  development  of the Company's  flywheel  products  involves
     significant  technological and cost challenges and will require  additional
     financing to complete. Major risks include:

     o    maintaining the development schedule and achieve technical success, as
          such development could take substantially longer than anticipated;

     o    the cost of developing  key  components of the Company's  systems that
          have  significant  technical  risk and which  may not be  economically
          feasible for a competitive product;

     o    ensuring long-life and maintenance free performance through design and
          quality control;

     o    ensuring quality and cost control from suppliers; and

     o    raising the necessary financing.

The Company's Sales Efforts may be Adversely Affected by the Reputation of the
Bankrupt Company from which The Company Acquired the Intellectual Properties for
the Smart Power M5 Inverter System.

     The Company  purchased  the  intellectual  property that its Smart Power M5
     inverter systems are based on from Advanced Energy Systems, Inc., a company
     in  bankruptcy,  which had sold units that are not supported by warranties.
     And in some cases these units are not functioning as expected. Although the
     Company  will  provide   warranties  for  its  products  and  it  has  made
     engineering  changes  to  provide  reliable  performance,  there  can be no
     assurance that the Company's  sales efforts will not be adversely  affected
     by the performance of the unwarranted products in the field.

The Value Proposition of the Company's Inverter Systems May Not Be Recognized.

     There  can be no  assurance  that  the  Company  will be  able  to  compete
     successfully  and gain market  share in the  renewable  energy  market.  To
     compete  successfully  the Company must establish its value  proposition as
     cost effective for end users based upon its product's price, dependability,
     operational benefits, and long life.

The Company May Not be Able to Establish a Distribution Channel to Sell Its
Inverter Systems.

     The Company expects to market its Smart Power M5 inverter system as well as
     future inverter products through distributor channels. The Company does not
     have  experience  in these  distribution  channels  or in the  photovoltaic
     markets,  and may not be successful in establishing  adequate market volume
     through  this  distribution  strategy.  Even if the  Company  were  able to
     establish  sufficient  sales volumes,  there can be no assurance that these
     channels  will  continue  to provide  adequate  volumes  for the  Company's
     products in the future.

The Channels to Market for Photovoltaic Products are Not Stable and have Changed
Substantially in the Last Year.

     The photovoltaic market is growing rapidly,  but the sales and distribution
     channels  are not  stable.  In the last  year,  the cross  section of these
     distributors  has  changed  as  some  of  the  larger  photovoltaic  module
     manufacturers  have left the market for integrated  solutions to focus only
     on  module  manufacture.  As a  result,  success  of  products  such as the
     Company's  Smart Power M5  inverter  system  will be  dependent  on smaller
     distributors,  who have less financial  resources and,  therefore,  reduced
     ability to influence  the  acceptance  of new products as a result of lower
     advertising abilities and lower consumer  recognition.  When these types of
     changes  take place,  it often  results in a period of  uncertainty  in the
     sales and distribution channels,  leading to fewer and smaller orders being
     placed.  The Company is using a strategy of selling  through  full-service,
     wholesale  distributors,  and there can be no assurance  that this strategy
     will be  successful  in the  channel  configuration  that  continues  to be
     restructured.

If Market Acceptance Does Not Increase, Inverter Sales May Not be Sufficient as
a Viable Business.

     If the value  proposition  that the  Company  offers  to the  market is not
     accepted,  or if the  market  does not  continue  to grow,  or if the sales
     channels to market continue to be in a state of change,  or if the purchase
     volume of the Company's products does not increase substantially,  then the
     Company  may not  achieve  the level of sales of  inverters  to make this a
     viable business.  If sufficient  sales are not achieved,  then profits will
     not be realized,  resulting in further need for additional investor funding
     which may not be available on acceptable terms, or at all.

The Company Faces Intense Competition in the Inverter Markets.

     There are a number of companies located in the United States,  Canada,  and
     abroad that are offering electronic  inverters into the photovoltaic market
     and the  number of  products  being  offered is  increasing.  Many of these
     companies   have   more   substantial   manufacturing,   marketing,   sales
     capabilities, and greater financial resources, as well as brand recognition
     and  established  market  positions.  They may also have greater  research,
     development and commercialization  capabilities.  There can be no assurance
     that the Company  will be able to compete or be able to adapt as quickly to
     changing customer needs.

The Company Might Fail to Develop Successful Additional Inverter Products.

     The  successful   development  of  additional  inverter  products  involves
     technological and cost challenges and will require additional  financing to
     complete. Major risks include:

     o    maintaining  the  development  schedule  for these  products,  as such
          development could take substantially longer than anticipated;

     o    the cost of developing  key  components of the Company's  systems that
          have technical risk and which may not be  economically  feasible for a
          competitive product in the renewable energy market;

     o    reducing  manufacturing  and assembly  costs to increase the Company's
          chances of achieving profitability;

     o    ensuring minimal warranty expenses through design and quality control;

     o    ensuring quality and cost control from suppliers;

     o    raising the necessary financing; and

     o    extending each product design into as many applications and markets as
          possible.

The Photovoltaic Energy Market May Not Grow as Anticipated.

     Although  photovoltaic  installations  have  continued  to  grow  at  solid
     compound annual growth rates of greater than 20%, there can be no assurance
     that these rates of growth will continue.

The Company's High-Energy Flywheels Face Intensified Competition from Batteries
Due to Batteries' Declining Prices and Improved Life. As a Consequence Customers
are Less Likely to Accept the Value Proposition of the Company's High-Energy
Flywheel Products.

     The  performance  of  batteries  has  improved  while  battery  prices have
     declined due to lower demand from the communications markets and others and
     increased  competition  resulting from an increase in the number of battery
     manufacturers.  These changes in battery pricing and performance  have made
     it very difficult for the Company to establish the value proposition of its
     high-energy flywheel products.

The Telecommunications Industry Continues to Experience Lower Rates of Build-Out
and Maintenance Spending.

     The Company initially targeted the  communications  markets for the sale of
     its  high-energy  products.  However,  this industry,  which had previously
     sustained high rates of infrastructure  build-out,  has experienced a sharp
     decline in build-out as well as  maintenance  spending  which began in 2000
     and has  continued  and there can be no certainty of when or if this market
     will  recover.  Significant  reductions  in both  maintenance  budgets  and
     capital  build-out  budgets at  telecommunications  companies  caused these
     potential  customers  to be  more  conservative  with  their  spending  and
     expenditure analysis and less willing to try new technology solutions, such
     as the Company's flywheel systems.

The Company Might Fail to Develop  Successful  Additional  High-Energy  Flywheel
Products.

     The successful  development  of additional  high-energy  flywheel  products
     involves  significant  technological  and cost  challenges and will require
     additional financing to complete. Major risks include:

     o    maintaining  the  development  schedule  for these  products,  as such
          development could take substantially longer than anticipated;

     o    the cost of developing  key  components of the Company's  systems that
          have  significant  technical  risk and which  may not be  economically
          feasible for a competitive product in the high-energy market;

     o    reducing  manufacturing  costs for the flywheel's  shaft, hub and rim,
          bearings and related  electronics to increase the Company's chances of
          achieving profitability;

     o    ensuring minimal warranty expenses through design and quality control;

     o    ensuring quality and cost control from suppliers;

     o    raising the necessary financing; and

     o    extending the product to new applications.

The Company Faces Intense Competition and May Be Unable to Compete Successfully
in the High-Energy Flywheel Markets.

     The markets for uninterruptible  electric power are intensely  competitive.
     There are a number of companies located in the United States,  Canada,  and
     abroad that are offering battery based energy storage options.  The Company
     also competes with companies that are developing  applications  using other
     types of alternative  energy  storage.  In addition,  if large  established
     companies  decide  to  focus  on the  development  of  competing  or  other
     alternative energy products for sale to the Company's potential  customers,
     they may have the  manufacturing,  marketing,  and  sales  capabilities  to
     complete research, development and commercialization of commercially viable
     alternative  energy storage systems that could be more competitive than the
     Company's  systems  and could be brought  to market  more  quickly.  To the
     extent they already have name recognition, their products may enjoy greater
     initial market acceptance among potential customers.  These competitors may
     also be  better  able  than the  Company  to adapt  quickly  to  customers'
     changing demands and to changes in technology.

<PAGE>
Item 3.  Quantitative and Qualitative Disclosure about Market Risk

The Company's cash equivalents and investments,  all of which have maturities of
less than one year,  may expose the Company to interest  rate risk.  At June 30,
2004, the Company had  approximately  $60,000 of cash equivalents that were held
in  non-interest  bearing  accounts.  Also at June 30,  2004,  the  Company  had
approximately  $172,000 of cash  equivalents  that were held in interest bearing
checking  accounts  and  $4,767,000  invested in  interest-bearing  money market
accounts.  A 10% change in interest  rates would  change the  investment  income
realized on an annual basis by approximately  $8,000, which the Company does not
believe is material.

Item 4.  Controls and Procedures

The Company's management,  with the participation of its Chief Executive Officer
and Chief Financial  Officer,  has evaluated the effectiveness of its disclosure
controls  and  procedures  (as defined in Rule  13a-15(e)  under the  Securities
Exchange Act of 1934) as of the end of the period covered by this Report.  Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are effective in
enabling  the  Company to record,  process,  summarize,  and report  information
required to be included in its  periodic SEC filings  within the  required  time
period.

In addition,  the  Company's  management,  with the  participation  of its Chief
Executive Officer and Chief Financial Officer,  has evaluated whether any change
in the Company's  internal control over financial  reporting (as defined in Rule
13a-15(f) under the Securities  Exchange Act of 1934) occurred during the period
covered by this Report.  Based on that evaluation,  the Chief Executive  Officer
and Chief Financial  Officer have concluded that there has been no change in the
Company's internal control over financial reporting during the period covered by
this Report that has materially affected,  or is reasonably likely to materially
affect, its internal control over financial reporting.


<PAGE>



                                     PART II

Item 1.  Legal Proceedings

None

Item 2.  Changes in Securities

On November 16,  2000,  the  Securities  and  Exchange  Commission  declared the
Company's Registration Statement on Form S-1 (File No. 333-43386) effective.  In
the Company's initial public offering during the fourth quarter of 2000, it sold
9,200,000  shares of its  common  stock,  inclusive  of the  underwriters'  over
allotment,  at an initial public offering price of $6.00 per share.  The Company
received net proceeds from its initial public  offering of  approximately  $49.3
million,   reflecting  gross  proceeds  of  $55.2  million  net  of  underwriter
commissions  of  approximately  $3.9 million and other offering costs payable to
persons, other than directors or officers, of approximately $2.0 million.

From November 16, 2000 to June 30, 2004, the Company spent  approximately  $10.8
million for inventory and materials  used in research and  development  and $7.2
million for property and  equipment,  including the build-out of its facility at
234  Ballardvale  Street in  Wilmington,  MA. In  addition,  the  Company  spent
approximately  $1.2 million to pay dividends on its preferred stock that accrued
through  the  date  of its  initial  public  offering.  The  Company  has  spent
approximately   $42.5  million  for  other  working  capital  needs  and  equity
investments.

In addition to the above,  the Company  advanced  funds  totaling  approximately
$785,000 to three officers of the Company to exercise options to purchase common
stock  in the  Company.  Through  June  30,  2004,  the  Company  has  collected
approximately  $667,000 in payments on these advances and two of the three loans
have been paid in full. The remaining loan is to Mr. William Stanton, who serves
on the board of directors for the Company and was its former CEO and  president.
The outstanding balance on Mr. Stanton's loan at June 30, 2004 was approximately
$118,000.  In  June  2002,  due to  the  current  market  value  of the  pledged
securities and the uncertainty of collection of the advance,  the Company took a
charge in the amount of approximately  $426,000 to reserve the remaining balance
of this advance.  In August 2003, Mr. Stanton sold all of the stock that secured
the loan and in the fourth  quarter  of 2003,  he  reduced  the loan  balance by
$323,000.  The  remaining  loan  balance of $118,000  has not been  forgiven and
remains  outstanding,  even  though  all stock held as  security  under the loan
agreement has been sold.

Other than as  disclosed  above,  none of these  amounts were direct or indirect
payments  to  directors  or  officers  of the issuer or their  associates  or to
persons  owning  10% or  more of the  Company's  common  stock  or to any of its
affiliates.

Item 3.  Defaults Upon Senior Securities

         None.

Item 4.  Submission of Matters to a Vote of Security Holders

         None.

Item 5.  Other Information

         None.

Item 6.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

  (a) Exhibits
       31.1     Certification of Chief Executive Officer required by 13a-14(a)
       31.2     Certification of Chief Financial Officer required by 13a-14(a)
       32.1     Section 1350 Certification of Chief Executive Officer
       32.2     Section 1350 Certification of Chief Financial Officer


(b) Reports on Form 8-K

On March 31, 2004, the Company filed a current report on Form 8-K reporting that
it had issued a press release announcing its financial results for fiscal
quarter and year ended December 2003.

On May 18, 2004, the Company filed a current report on Form 8-K reporting that
it had issued a press release announcing its financial results for fiscal
quarter ended March 31, 2004 and that it had filed a Form 10-K/A for the quarter
and year ended December 2003.

On May 20, 2004, the Company filed a current report on Form 8-K reporting that
it had issued a press release disclosing that it had received a staff
determination letter from the Nasdaq Listing Qualifications panel stating that
the Company has not met the minimum $1.00 per share bid price requirement for 30
consecutive days.


<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 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.

                            BEACON POWER CORPORATION

      Date:  August 16, 2004             By:  /s/ F. William Capp
                                                  -------------------
                                                  F. William Capp
                                                  President and Chief Executive
                                                  Officer

             August 16, 2004             By: /s/  James M. Spiezio
                                                  -------------------
                                                  James M. Spiezio
                                                  Vice President of Finance,
                                                  Chief Financial Officer,
                                                  Treasurer and Secretary
                                                  Principal Financial Officer