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 March 31, 2002,

                                       or

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



                            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 Phone
                               (978) 694-9127 Fax
              (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 ___


The number of shares of the Registrant's common stock, par value $.01 per share,
outstanding as of May 13, 2002 was 42,770,856.

<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 March 31, 2002 and
   December 31, 2001.                                                        2

  Unaudited Consolidated Statements of Operations for
   the three months ended March 31, 2002 and 2001 and
   for the Period May 8, 1997 (date of inception) to
   March 31, 2002.                                                           3

  Unaudited Consolidated Statements of Cash Flows for
   three months ended March 31, 2002 and 2001 and for
   the Period May 8, 1997 (date of inception) to
   March 31, 2002.                                                           4

  Notes to Unaudited Consolidated Financial Statements.                    5-7

 Item 2.  Management's Discussion and Analysis of
          Consolidated Financial Condition and
          Results of Operations.                                          8-17


PART II.  Other Information

 Item 1.  Legal Proceedings                                                 18
 Item 2.  Changes in Securities                                             18
 Item 3.  Defaults on Senior Securities                                     18
 Item 4.  Submission of Matters to a Vote of Security
           Holders                                                          18
 Item 5.  Other Information                                                 18
 Item 6.  Exhibits, Financial Statements Schedules and
           Reports on Form 8-K                                              18

Signatures                                                                  19


<PAGE>


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

                                                                              (Unaudited)
                                                                               March 31,           December 31,
                                                                                 2002                  2001
                                                                          ---------------------------------------
<S>                                                                            <C>               <C>
Assets
Current assets:
    Cash and cash equivalents                                                   $ 28,669,767       $ 34,601,585
    Prepaid expenses and other current assets                                        944,862          1,131,065
                                                                          ---------------------------------------

        Total current assets                                                      29,614,629         35,732,650

Property and equipment, net  (Note 3)                                              5,773,062          6,188,507
Other assets                                                                         221,224            209,796
                                                                          ---------------------------------------

Total assets                                                                    $ 35,608,915       $ 42,130,953
                                                                          =======================================

Liabilities and Stockholders' Equity
Current liabilities:
    Accounts payable                                                               $ 476,049           $911,465
    Accrued compensation and benefits                                                639,255            721,130
    Due to related party                                                                   -             35,532
    Other accrued expenses                                                           707,821            941,100
    Current portion of capital lease obligations                                     307,009            335,145
                                                                          ---------------------------------------

        Total current liabilities                                                  2,130,134          2,944,372

Capital lease obligations, net of current portion                                    137,287            205,352
Commitments (Note 4)

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;
    42,770,856 shares issued and outstanding at both March 31, 2002
    and December 31, 2001                                                            427,709            427,709
    Deferred stock compensation                                                      (63,591)          (211,564)
    Additional paid-in capital                                                   132,774,103        132,911,256
    Deficit accumulated during the development stage                             (99,697,067)       (94,146,172)
    Less: treasury stock, at cost                                                    (99,660)                 -
                                                                          ---------------------------------------

        Total stockholders' equity                                                33,341,494         38,981,229
                                                                          ---------------------------------------

Total liabilities and stockholders' equity                                      $ 35,608,915       $ 42,130,953
                                                                          =======================================
</TABLE>

                 See notes to 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 March 31,     through March 31
                                                               2002             2001               2002
                                                         --------------------------------------------------------
<S>                                                          <C>               <C>                <C>
Revenue                                                       $         -       $        -        $     551,184

Operating expenses:
 Selling, general and administrative                            2,035,761        1,623,777           19,521,886
 Research and development                                       3,139,754        4,417,815           42,803,768
 Loss on sales commitments                                              -                -              375,974
 Depreciation and amortization                                    506,091          254,480            2,527,864
                                                         --------------------------------------------------------

  Total operating expenses                                      5,681,606        6,296,072           65,229,492
                                                         --------------------------------------------------------
Loss from operations                                          (5,681,606)      (6,296,072)         (64,678,308)

Other income (expense):
 Interest income                                                  153,952          859,734            3,211,921
 Interest expense                                                (14,867)          (7,690)          (1,059,925)
 Other expense                                                    (8,374)        (355,408)            (164,561)
                                                         --------------------------------------------------------
  Total other income, net                                         130,711          496,636            1,987,435
                                                         --------------------------------------------------------
Net loss                                                      (5,550,895)      (5,799,436)         (62,690,873)

Preferred stock dividends                                               -                -         (36,825,680)
Accretion of redeemable convertible preferred stock                     -                -            (113,014)
                                                         --------------------------------------------------------
Loss to common shareholders                                 $ (5,550,895)    $ (5,799,436)       $ (99,629,567)
                                                         ========================================================

Loss per share - basic and diluted                          $      (0.13)    $      (0.14)
                                                         ===================================

Weighted-average common shares outstanding                     42,770,856      42,169,642
                                                         ===================================
</TABLE>
                 See notes to 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) through
                                                             Three months ended March 31,            March 31,
                                                                 2002            2001                  2002
                                                           -------------------------------------------------------
<S>                                                           <C>             <C>                 <C>

Cash flows from operating activities:
 Net loss                                                      $(5,550,895)    $(5,799,436)       $ (62,690,873)
 Adjustments to reconcile net loss to net cash used in
 operating activities:
  Depreciation and amortization                                    506,091         254,480            2,527,864
  Loss on sale of fixed assets                                           -          52,248              156,387
  Interest expense relating to issuance of warrants                      -               -              371,000
  Non-cash charge for change in option terms                             -               -              346,591
  Amortization of deferred consulting expense, net                       -               -            1,160,784
  Amortization of deferred stock compensation                       10,820          48,273            1,281,539
  Warrants issued for consulting services                                -               -            1,569,366
  Accrued loss on sales commitments                                      -               -              375,974
  Non-cash charge for settlement of lawsuit                              -         303,160              303,160
  Services and interest expense paid in preferred stock                  -               -               11,485
 Changes in operating assets and liabilities:
  Inventory                                                              -             146                    -
  Prepaid expenses and other current assets                         86,544         122,688           (1,044,521)
  Accounts payable                                                (435,416)       (917,823)             476,049
  Accrued compensation and benefits                                (81,875)        367,941              639,255
  Due to related party                                             (35,532)         84,041                    -
  Accrued loss on sales commitments                                      -               -             (375,974)
  Other accrued expenses and current liabilities                  (233,280)         22,315              992,050
                                                           -------------------------------------------------------

  Net cash used in operating activities                         (5,733,543)     (5,461,967)         (53,899,864)

Cash flows from investing activities:
 Increase in other assets                                          (13,029)        607,689             (188,247)
 Purchases of property and equipment                               (89,045)     (2,632,807)          (8,036,679)
                                                           -------------------------------------------------------

  Net cash used in investing activities                           (102,074)     (2,025,118)          (8,224,926)

Cash flows from financing activities:
 Initial public stock offering, net of expenses                          -               -           49,341,537
 Exercise of employee stock options                                      -         328,188            1,175,670
 Shares issued under employee stock purchase plan                        -               -              109,944
 Issuance of preferred stock                                             -               -           32,868,028
 Repayment of subscription receivable                                    -               -            5,000,000
 Repayment of capital leases                                       (96,201)        (38,064)            (587,100)
 Dividends paid                                                          -      (1,159,373)          (1,159,373)
 Proceeds from capital lease refinancing                                 -               -              495,851
 Proceeds from notes payable issued to investors                         -               -            3,550,000
                                                           -------------------------------------------------------
  Net cash (used in) provided by financing activities              (96,201)       (869,249)          90,794,557

(Decrease) increase in cash and cash equivalents                (5,931,818)     (8,356,334)          28,669,767

Cash and cash equivalents, beginning of period                  34,601,585      62,497,102                    -
                                                           -------------------------------------------------------
Cash and cash equivalents, end of period                      $ 28,669,767    $ 54,140,768         $ 28,669,767
                                                           =======================================================
</TABLE>

                 See notes to 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 (a development stage company) was
incorporated  on May 8,  1997.  Beacon  Power  Corporation  and  its  subsidiary
("Beacon" or "the  Company")  have been engaged in the  development  of flywheel
devices for storing  kinetic  energy that is  transferred  into electric  power.
Because the Company has not yet generated a  significant  amount of revenue from
its principal operations,  it is continuing to be accounted for as a development
stage  company  under  Statement of Financial  Accounting  Standards  No. 7. The
Company has a single operating segment, manufacturing alternative power sources.
The Company has no segmented  structure dictated by product lines,  geography or
customer type.

Operations.  The Company has  experienced net losses since its inception and, as
of March 31, 2002, had an accumulated  deficit of  approximately  $99.6 million.
The  Company is facing the  challenge  of ongoing  development,  refinement  and
marketing of its commercial  products.  Meeting these  challenges is expected to
require  significant  outlays of capital.  During  March  2002,  in an effort to
reduce its monthly  cash  spending  rate;  the Company  implemented  a number of
cost-cutting  measures  including a 37%  reduction in  headcount.  These actions
combined  with other cost cutting  measures  taken in the fourth  quarter of the
prior year will ensure the Company has enough cash for the next 24 months.

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
for interim financial information and with Regulation S-X. Accordingly,  they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  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 three months ended
March  31,  2002  are not  necessarily  indicative  of the  results  that may be
expected for the full year ending  December 31, 2002.  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, for the year ended December 31, 2001.

There have been no significant additions to or changes in accounting policies of
the Company since December 31, 2001. For a complete description of the Company's
accounting  policies,  see Note 3 to  Consolidated  Financial  Statements in the
Company's 2001 Annual Report on Form 10-K.

Reclassifications.  Certain amounts in prior year financial statements have been
reclassified to conform to their 2002 presentation.


<PAGE>


3.  Property and Equipment

Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                        Estimated     (Unaudited)
                                                         Useful        March 31,     December 31,
                                                          Lives           2002            2001
                                                     ---------------------------------------------
<S>                                                   <C>             <C>             <C>
Machinery and equipment                                  5 years      $ 2,065,775     $ 1,996,711
Service vehicles                                         5 years           63,792          63,792
Furniture and fixtures                                   7 years          733,018         733,018
Office equipment                                         3 years        2,048,069       2,030,653
Leasehold improvements                                 Lease term       2,072,577       2,072,577
Equipment under capital lease obligations              Lease term       1,081,726       1,081,726
                                                                    ------------------------------
    Total                                                               8,064,957       7,978,477
Less accumulated depreciation and amortization                         (2,291,895)     (1,789,970)
                                                                    ------------------------------

    Property and equipment, net                                       $ 5,773,062     $ 6,188,507
                                                                    ==============================
</TABLE>

4.  Commitments

The Company leases office and light manufacturing space under an operating lease
through  September 30, 2007 and has various  operating leases for certain office
and manufacturing  equipment  expiring through December 2003. Under the terms of
the facility lease, the Company  provided the lessor with an irrevocable  letter
of  credit.  At March 31,  2002 the  balance  of the  letter  of credit  totaled
$400,454. A cash deposit secures this letter of credit.

5.  Common Stock

Treasury  Stock.  As a part of the  repayment  of a loan  from the  Company,  an
officer surrendered 132,000 shares of Beacon Power Corporation common stock that
were held as  collateral  against that loan.  These shares were  acquired at the
then market  price of $0.755.  The Company is holding  these  132,000  shares in
treasury at their cost of $99,660. The remainder of the loan was repaid in cash.

Reserved  Shares.  At March 31,  2002 and  December  31,  2001,  15,214,647  and
13,839,129 shares of common stock were reserved for issuance under the Company's
stock option plan and outstanding warrants, respectively.

Stock Warrants.  Deferred  compensation  relating to stock warrants at March 31,
2002 and December 31, 2001 is approximately $56,000 and $150,000,  respectively.
The warrants were issued to an investor  under an agreement that an affiliate of
that investor will provide the Company with technical expertise. One half of the
warrants vested  immediately upon their issuance with the remaining  warrants to
vest  ratably as the  services  are  provided.  No services  have been  provided
through March 31, 2002. The agreement  terminates and any unvested  warrants are
forfeited on November 1, 2003.

6.  Related Party Transactions

Advance to Officers. During 2001, the Company advanced approximately $785,000 to
three officers of the Company.  The officers  repaid  approximately  $152,000 of
these advances during 2001.  During March 2002,  upon  termination of employment
with the  Company,  one officer  repaid the  balance of  $120,000  in full.  The
remaining  balances  are  expected to be repaid in full by the  officers and are
secured by the officers'  holdings of Beacon Power Corporation common stock. The
balance of  $499,693  and  $634,110  at March 31, 2002 and  December  31,  2001,
respectively  are  included  in  prepaid  and other  assets in the  accompanying
consolidated balance sheet.

7.  Summary of Non-cash Investing and Financing Activities:

During the three  months  ended March 31, 2002 and 2001,  cash paid for interest
was approximately $21,000 and $7,000, respectively.

During the three months  ended March 31, 2002 and 2001,  cash paid for taxes was
approximately $17,000 and $1,000, respectively.

During March 2002,  as a part of the  repayment  of a loan from the Company,  an
officer  surrendered  132,000  that were held as  collateral  against that loan.
These shares were surrendered at the then market price of $0.755. The Company is
holding these 132,000 in treasury at their cost of $99,660. The remainder of the
loan was paid in cash.

During the three  months  ended  March 31, 2002 and 2001,  the Company  recorded
decreases  in deferred  compensation  from the issuance of  non-qualified  stock
options to third parties of $147,973 and  $1,013,084,  respectively.  These were
offset by charges to additional paid in capital.


Note 8.  Recent Accounting Pronouncements.

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment or
Disposal of  Long-Lived  Assets,  which  supercedes  SFAS No. 121.  SFAS No. 144
further refines the requirements of SFAS No. 121 that companies (1) recognize an
impairment  loss  only if the  carrying  amount  of a  long-lived  asset  is not
recoverable  based on its  undiscounted  future  cash  flows and (2)  measure an
impairment loss as the difference  between the carrying amount and fair value of
the asset.  In  addition,  SFAS No. 144  provides  guidance  on  accounting  and
disclosure issues  surrounding  long-lived assets to be disposed of by sale. The
adoption of SFAS 144 did not have a material  impact on our financial  condition
or results of operations.

<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

We design,  develop and offer for sale,  flywheel-based  power systems providing
highly reliable,  cost-competitive,  environmentally  friendly,  uninterruptible
electric  power  for  commercial  facilities,  communications,  cable,  computer
networks, the internet and industrial manufacturing plants. We are attempting to
market a  high-energy  flywheel-based  product  and  expect to soon be  offering
high-power  uninterruptible power supply (or UPS) flywheel-based  products.  Our
current,  high-energy  products deliver a low amount of power over a long period
of time (typically  measured in hours), and the UPS products will be designed to
deliver high amounts of power over a short period of time (typically measured in
seconds).  We expect to be able to deliver the first of our proposed  high-power
UPS products late in 2002.

Certain users of electricity  experience  significant losses in their operations
if their  electricity  supply is  partially  or wholly  interrupted,  such as by
voltage sags and surges or power  outages.  When  grid-supplied  electricity  is
interrupted,  these users employ alternative  systems to ensure  uninterruptible
power. Even if the utility industry were to undertake  substantial  upgrades and
other  investments  to improve  overall  utility  grid  reliability,  the grid's
exposure to severe  weather,  accidents and other external events means that the
absolute level of power quality  required for today's  sophisticated  electronic
and  industrial   applications   remains  difficult  to  achieve  without  local
uninterrupted power protection close to the place of use.

Lead-acid batteries are the most commonly used devices for providing replacement
electric  power and  ensuring  power  quality,  either  alone or as a  temporary
measure  until  generators  or  other  power  sources  can  be  activated.   Our
flywheel-based  systems  are  among the  energy  storage  technologies  that can
perform the same function as batteries.  Flywheel systems draw electrical energy
from a primary power source while that source is operational, store that energy,
and then convert that energy to provide immediate,  peak-power,  voltage support
and  uninterruptible  electric  power when the primary  power source fails or is
disrupted.

We believe that our current and anticipated  flywheel-based  products offer cost
and significant performance advantages over conventional,  battery-based back-up
power  and  UPS  systems.   These  advantages   include  improved  certainty  of
operations, more reliable monitoring,  higher reliability,  significantly longer
life,   improved   recharging   capability,   significantly   reduced  scheduled
maintenance, and greater environmental friendliness.  We expect the initial cost
to users of our UPS products to be generally  competitive  with those of battery
driven UPS systems and we expect the life-cycle costs to be  significantly  less
than competing systems.  Life-cycle comparisons consider the costs over the life
of the product and include initial costs,  expense of  maintaining,  monitoring,
replacing  and  disposing of competing  products.  We also  anticipate  that our
systems  will  provide   customers   significantly   better   reliability   over
conventional back-up power and UPS systems.

From  our  inception   through  March  31,  2002  we  have  incurred  losses  of
approximately  $99.7 million.  We expect to continue to incur losses as a result
of the difficulty we face in marketing our existing products and the cost of our
ongoing product development and commercialization program. We expect that losses
will  fluctuate  from quarter to quarter.  Fluctuations  may be substantial as a
result of, among other  factors,  the amount of materials  purchased for product
testing and the number of systems we produce and sell to our customers.


Results of operations:

Comparison of three months ended March 31, 2002 and 2001

Revenues.  We did not record any  revenue for the three  months  ended March 31,
2002 and 2001. During the fourth quarter of 2000 and throughout 2001, we shipped
the first units of our Smart Energy(TM)  products.  While we have orders to ship
six  additional  units in 2002,  we are  seeking  other  markets for our current
product and future products in our Smart Power(TM) line, which is high-power for
UPS  applications.  We have placed several of our Smart  Energy(TM)  products as
development  prototypes  with  potential  customers  and shipped  pre-production
units. These products were provided to potential  customers without charge or on
a  demonstration  basis to allow us  access  to field  test  information  and to
demonstrate the application of our technologies.

Selling,  General and Administrative  Expenses. Our sales and marketing expenses
consist  primarily of  compensation  and  benefits  for our sales and  marketing
personnel and related business development  expenses.  During 2001, we increased
our sales and  marketing  effort by hiring  five sales  persons  and  initiating
several  marketing  research efforts to help us find markets for our current and
future  products.  We  continue  to rely on  engineering  personnel  to  provide
technical  specifications  and product overviews to our potential customer base.
Our general and  administrative  expenses consist  primarily of compensation and
benefits related to our corporate staff,  professional fees, insurance costs and
travel.  Selling,  general and  administrative  expenses  totaled  approximately
$2,036,000  and  $1,624,000  for the three months ended March 31, 2002 and 2001,
respectively.  The increase of approximately $412,000 is primarily the result of
market  research  costs of  relating  to the  high-power  flywheel  markets  and
severance  costs  as a result  of  headcount  reductions  during  March  2002 of
approximately  $63,000.  In addition,  we had higher costs for professional fees
and insurance  during the first three months of 2002 compared to 2001.  While we
continue to explore new and  existing  markets for our  products,  we expect our
selling,  general and  administrative  expenses to decrease for the remainder of
the  year  due to the  headcount  reduction  and  other  cost  cutting  measures
implemented during March 2002 and during the fourth quarter of 2001.

Research  and  Development.  Our  cost  of  research  and  development  consists
primarily of the cost of compensation and benefits for research and development,
manufacturing  and support staff,  as well as materials and supplies used in the
engineering design process.  These costs increased  significantly during 2001 as
we  completed  the  designs of our  low-power  products  as well as the  related
electronics.  While we do not expect to incur any significant  additional  costs
for the low-power  products units, we do expect to incur  significant  costs for
the design and development of our  high-powered  products.  These costs began in
the first quarter of 2002 and are expected to continue  throughout the remainder
of  2002  and  into  2003.  As a part  of  the  strategy  for  moving  into  the
high-powered market, we have reduced the number of development teams from two to
one. This team will focus solely on the  high-powered  design.  As a result,  we
reduced our headcount with respect to  development  engineers  significantly  in
March 2002. While we will continue to develop the new high-powered  products, we
expect our cost of research and  development  in 2002 to be reduced  compared to
2001.  Research and development  expenses totaled  approximately  $3,140,000 and
$4,418,000 for the three months ended March 31, 2002 and 2001, respectively. The
decrease of  $1,278,000 is primarily  the result of lower  development  costs in
2002  compared  to 2001 as we  focused  our  efforts  on the  design  of our new
high-powered unit and did not incur significant costs for expensed materials and
testing for the product.  Expenses  were also reduced due to lower  compensation
and benefit costs  related to a reduction in force during the fourth  quarter of
2001 and again in March 2002.  Included in the March 2002  expense is  severance
costs of approximately $394,000.

Depreciation  and  Amortization.  Our depreciation and amortization is primarily
related to depreciation on capital  expenditures  and the  amortization of lease
and  leasehold  costs  related  to our  facilities.  We also  have  intellectual
property in the form of a patent on our vacuum  system that we began to amortize
in 2002.  Depreciation  and  amortization  totaled  approximately  $506,000  and
$254,000 for the three months ended March 31, 2002 and 2001,  respectively.  The
increase of $252,000 is  attributable to increased  depreciation  resulting from
leasehold  improvements and capital equipment  expenditures made during the last
three quarters of 2001.

Interest and Other  Income/Expense,  net. Our non-operating  income and expenses
are  primarily  attributable  to  interest  income  resulting  from cash on hand
partially  offset by interest  expense  associated with our capital leases.  Our
interest  income for the three  months  ended March 31,  2002 was  approximately
$154,000, compared to $860,000 for the same period in 2001. The decrease in 2002
is the result of lower cash balances in 2002 and lower interest rates.

Interest expense  increased to approximately  $15,000 for the three months ended
March 31, 2002 from approximately  $8,000 for the same period in 2001.  Interest
expense relates to assets leased under capital leases.

Other  expense of  approximately  $355,000  for the three months ended March 31,
2001 relates to the write-off of $52,000 for certain  tooling  costs  associated
with an earlier  version of our  product  and a non-cash  charge  related to the
settlement of a lawsuit brought by a former employee of approximately  $303,000.
Under the terms of the settlement,  we permitted the former employee to exercise
options to purchase  53,000  shares of our common stock at a price of $1.78 when
the  current  market  price was  $7.50.  We  incurred  a charge  of  $5.72,  the
difference  between  the market  price and the  exercise  price,  for each share
exercised.

Liquidity and Capital Resources

Our cash  requirements  depend  on many  factors,  including  our  research  and
development  activities,  expansion  of our  manufacturing  facilities,  planned
growth of  operations  and  related  infrastructure  and  continued  efforts  to
commercialize our products,  including market development. We expect to continue
to make  significant  expenditures  to fund our  working  capital,  develop  our
technologies and expand our manufacturing  capabilities  assuming success in our
marketing efforts.

Net  cash  used in  operating  activities  was  approximately  ($5,734,000)  and
($5,462,000)  for the three months ended March 31, 2002 and 2001,  respectively.
The primary  component to the  negative  cash flow from  operations  is from net
losses.  For the first three months of 2002, we had a net loss of  approximately
($5,551,000).  This  included  non-cash  charges of  approximately  $11,000  for
amortization of deferred stock compensation and depreciation and amortization of
approximately  $506,000.  Changes  in  operating  assets  and  liabilities  used
approximately  ($699,000)  of cash  during the first three  months of 2002.  The
primary   components  were  decreases  in  accounts   payable  of  approximately
($435,000),  accrued  expenses and other current  liabilities  of  approximately
($233,000),  accrued  compensation and benefits of  approximately  ($82,000) and
amount due to a related party of  ($36,000).  These were offset by a decrease of
approximately  $87,000 for prepaid  expenses and other current  assets.  For the
first three  months of 2001,  we had a net loss of  approximately  ($5,799,000).
This included  non-cash  charges of  approximately  $658,000  including a charge
related to the settlement of a lawsuit of approximately $303,000;  approximately
$48,000 related to stock options issued for consulting services; $52,000 for the
write-off of tooling related to older versions of our flywheel; and depreciation
and  amortization of  approximately  $254,000.  Changes in operating  assets and
liabilities used approximately  ($321,000) of cash during the first three months
of  2001.  The  primary  components  were a  decrease  in  accounts  payable  of
approximately  ($918,000)  offset  by  increases  in  accrued  compensation  and
benefits of  approximately  $368,000 and a decrease in prepaid expense and other
current  assets of  approximately  $123,000.  Changes in other  working  capital
accounts generated cash of approximately $106,000.

Net  cash  used  in  investing  activities  was  approximately   ($102,000)  and
($2,025,000)  for the three months ended March 31, 2002 and 2001,  respectively.
The principal uses of cash during the first three months of 2002 were related to
purchases of machinery and equipment totaling approximately  ($89,000) and other
of ($13,000.)  The principal  uses of cash during the first three months of 2001
were related to purchases totaling approximately  ($2,633,000) for machinery and
equipment,  furniture  and  fixtures  and  leasehold  improvements  to  the  new
operating facility. Other assets decreased by approximately $608,000 as deposits
made in prior  quarters  relating  to  long-term  assets  were  reclassified  to
property and equipment.

Net cash used by financing activities was approximately ($96,000) and ($869,000)
for the three months ended March 31, 2002 and 2001, respectively.  For the first
three  months of 2002 the cash used for  financing  activities  all  related  to
repayment of capital leases.  For the first three months of 2001 the primary use
of cash was for the payment of  dividends  on our various  classes of  preferred
stock of approximately  ($1,159,000.)  These dividends were accrued during 2000,
prior to our initial public offering of our common stock.  In addition,  we made
principal payments against our capital leases of approximately ($38,000).  These
uses were offset by  proceeds  from stock  options  exercised  of  approximately
$328,000.

Based upon our  operating  plan,  and cash on hand, we believe that our cash and
cash equivalents and future cash flow from operations will satisfy the Company's
working capital needs for the next 24 months.

Impact of Recently Issued Accounting Standards

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase  method of accounting  for business  combinations
initiated  after June 30, 2001 and eliminates the  pooling-of-interests  method.
The  adoption  of SFAS  141 did not  have a  material  impact  on our  financial
condition or results of operations.

In July 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
142 ("SFAS 142"),  "Goodwill and Other  Intangible  Assets,"  which is effective
January 1, 2002. SFAS 142 requires,  among other things,  the  discontinuance of
goodwill  amortization.  In addition,  the standard includes  provisions for the
reclassification  of  certain  existing  recognized   intangibles  as  goodwill,
reassessment   of  the  useful   lives  of  existing   recognized   intangibles,
reclassification  of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments  of goodwill.  SFAS 142 also requires us to complete a  transitional
goodwill  impairment test six months from the date of adoption.  The adoption of
SFAS 142 did not have a material impact on our financial condition or results of
operations.

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment or
Disposal of  Long-Lived  Assets,  which  supercedes  SFAS No. 121.  SFAS No. 144
further refines the requirements of SFAS No. 121 that companies (1) recognize an
impairment  loss  only if the  carrying  amount  of a  long-lived  asset  is not
recoverable  based on its  undiscounted  future  cash  flows and (2)  measure an
impairment loss as the difference  between the carrying amount and fair value of
the asset.  In  addition,  SFAS No. 144  provides  guidance  on  accounting  and
disclosure issues  surrounding  long-lived assets to be disposed of by sale. The
adoption of SFAS 144 did not have a material  impact on our financial  condition
or results of operations.

Certain Factors Affecting Future Operating Results

The  following  factors,  as well as others  mentioned in the  Company's  Annual
Report on Form 10-K for the year ended December 31, 2001 (filed March 31, 2002),
could  cause  actual  results  to differ  materially  from  those  indicated  by
forward-looking statements made in this Quarterly Report on Form 10-Q:

The Value Proposition of our High-Energy Products may not be Recognized.

There can be no assurance that we will be able to compete  successfully  against
batteries.  To be  successfully  we must establish the value  proposition of our
products  based  upon  the  dependability,   environmental  benefits,  and  long
maintenance-free life of our products.

We Will Need Additional Financing Which May not Be Available to Us on Acceptable
Terms or At All.

We will  need to  secure  additional  financing  in the  future to carry out our
business  plan.  We  believe  our cash  balances  will fund our  operations  for
approximately 24 months. We may also need additional  financing for a variety of
reasons including:

  o  expanding research and development;

  o  expanding manufacturing equipment and facilities faster than planned;

  o  funding additional working capital; or

  o  acquiring complementary products, businesses or technologies.

We cannot be  certain  that we will be able to raise  additional  funds on terms
acceptable  to us or at all.  If future  financing  is not  available  or is not
available on acceptable terms, our business, results of operations and financial
condition  would be materially  adversely  affected.  See  "Selected  Historical
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

We May Need to Issue A Substantial Number of Shares to Obtain Financing.

If we raise additional  funds by issuing  additional  equity  securities and our
stock  continues  to  trade  at low  values  it will  result  in our  issuing  a
substantial  number of shares.  Furthermore,  the newly issued  securities could
have rights superior to the rights of the common stock outstanding.

Our Stock May be Disqualified from the National Market System of Nasdaq.

By letter  dated March 13, 2002,  the Nasdaq  notified us that because our stock
has been trading for less than one dollar for 30  consecutive  trading  days, on
June 11, 2002 our stock will be removed from the National  Market  System unless
it trades for more than one dollar for ten trading days before that date. If our
stock is so removed,  we plan to apply to have our stock  quoted on the SmallCap
Market,  but it is conceivable that this application will not be granted.  If it
is not granted, our stock will be quoted on the OTCBB.

We Face Intensified Competition from Batteries Due to Their Declining Prices and
Improved  Life.  As a  Consequence  Our Customers are Less Likely to Realize the
Value Proposition of Our Products.

The performance of batteries has improved while battery prices have declined due
to lower volume demand from the communications  markets and others and increased
competition  resulting from an increase in the number of battery  manufacturers.
Also a number of Asian  battery  manufacturers  are entering the market which is
intensifying competition.  These changes in battery pricing and performance make
it more  difficult for us to establish a value  proposition  of our  high-energy
products.

Our Initial Target Market, the Communications Industry, Has  Experienced a Sharp
Decline, Which May Adversely Affect Our Financial Performance and Stock Price.

We initially targeted the communications markets for the sale of our 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.  Significant reductions in both maintenance budgets and
capital build-out budgets at  telecommunications  companies made these potential
customers more  conservative  with their spending and  expenditure  analysis and
less willing to try new technology solutions, such as our products.

It Is Difficult to Evaluate Us and to Predict Our Future Performance, Because We
Have a Short Operating History and Are a Development  Stage Company.  Therefore,
Our  Future  Financial  Performance  May  Disappoint  Investors  and Result in a
Decline in Our Stock Price.

We have a limited operating history. We were formed in May 1997 to commercialize
electrical power systems based on flywheel energy storage.  We are a development
stage company  making the transition to the  manufacturing  of new products in a
new and developing sector.  Unless we can achieve  significant market acceptance
of our  products at volumes and with margins that allow us to cover our costs of
operations,  we may never  advance  beyond our start-up  phase.  In light of the
foregoing,  it is difficult or impossible  for us to predict  future results and
investors  should not be assured that we will have future  revenue  growth.  See
"Business," "Selected Financial Data" and "Management's  Discussion and Analysis
of Financial Condition and Results of Operations."

We Have  Incurred  Losses Since Our Inception and  Anticipate  Continued  Losses
Through at Least 2003.

We have incurred net losses to common shareholders and negative cash flows since
our  inception  in May  1997.  We had  net  losses  to  common  shareholders  of
approximately  ($26,146,000) in 2001,  ($53,279,000) in 2000 and ($6,630,000) in
1999.  Since  our  inception  in May  1997,  we have had net  losses  to  common
shareholders totaling  ($99,630,000).  We expect to continue to incur net losses
through at least 2003.  Although we are looking for ways to economize and reduce
costs, our efforts may prove even more expensive than we anticipate. Our revenue
must grow  substantially  if we are to offset these  higher  expenses and become
profitable. Even if we do achieve profitability,  we may be unable to sustain or
increase our  profitability  in the future.  See "Selected  Financial  Data" and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

We Have Very Limited Experience Manufacturing Flywheel Energy Storage Systems on
a Commercial Basis, and We May Be Unable to Achieve Profitability.

We may not  achieve  profitability  if we cannot  develop  or obtain  efficient,
low-cost manufacturing  capability,  processes and suppliers that will enable us
to meet the quality,  price,  engineering,  design and  production  standards or
production volumes required to meet our product  commercialization  schedule, if
any, or to satisfy the requirements of our customers or the market generally. To
date,  we have  focused  primarily  on  research  and  development  and  have no
experience  manufacturing flywheel energy storage systems on a commercial basis.
See "Business."


We Might Fail to Develop a Successful High- Power UPS Product.

The successful development of our high-power UPS products will involve
significant technological and cost challenges and will require additional
financing to complete. Major risks include:

  o  maintaining the schedule on development may not be possible and it could
     take substantially longer than anticipated;

  o  developing key components that have technical risk such as the motor may
     not be economically successful for a competitive product in the UPS market

  o  reducing manufacturing costs for the flywheel's shaft, hub and rim,
     bearings and related electronics in order to make them profitable;

  o  ensuring minimal warranty expenses through design and quality control;

  o  ensuring quality and cost control from our suppliers;

  o  raising the necessary financing to provide sufficient funding for
     completion  of development may not be possible

  o  extending the product to new applications.


Because We Depend on Third-Party Suppliers for the Development and Supply of Key
Components  for Our Products,  and Because We Do Not Have  Contracts  with These
Suppliers,  We Could  Experience  Disruptions  in  Supply  that  Could  Delay or
Decrease Our Revenues.

Our business,  prospects, results of operations, or financial condition could be
harmed if we are unable to maintain  satisfactory  relationships with suppliers.
To  accelerate  development  time  and  reduce  capital  investment,  we rely on
third-party  suppliers  for  several of our key  components.  We do not have any
contracts with these suppliers. If these suppliers should fail to timely deliver
components that meet our quality,  quantity,  or cost  standards,  then we could
experience  production  delays or cost  increases and our financial  performance
could be adversely affected. Because the components with limited sources are key
components  that are  complex,  difficult to  manufacture  and require long lead
times, we may have difficulty finding alternative  suppliers on a timely or cost
effective  basis.  As a result,  we could  experience  shortages in supply or be
unable to be cost  competitive  in the markets we are pursuing.  The supplier of
the  flywheel  unit for our new  high-power  UPS product and the supplier of the
control  electronics for that product are both single source suppliers,  and the
loss or  interruption  of supply from either of these  suppliers would adversely
affect our ability to market our high-power UPS product and, thus, our financial
results. See "Business."

In the Event of  Significant  Sales  Growth,  We Will Need to  Develop or Obtain
Manufacturing Capacity for Our Products.  There Can be No Assurance That We Will
be Able to Accomplish These Tasks.

If we have an opportunity to produce  significant volumes of products to satisfy
customer demands,  we will need to develop or obtain  manufacturing  capacity to
meet quality,  profitability  and delivery  schedules.  We may need to establish
additional  manufacturing  facilities,  expand our current  facilities or expand
third party  manufacturing.  We have no experience in the volume  manufacture of
flywheel  systems  and  there  can be no  assurance  that  we  will  be  able to
accomplish these tasks, if necessary,  on a timely basis to meet customer demand
or at all.

We Face Intense Competition and We May Be Unable to Compete Successfully.

The markets for highly  reliable,  uninterruptible  electric power are intensely
competitive.  There are a number of  companies  located  in the  United  States,
Canada, and abroad that are developing  flywheel energy storage  technology.  We
also compete 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 flywheel  energy storage systems or other
alternative  energy  products for sale to our 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 our systems and could be
brought to market more quickly  than ours.  To the extent they already have name
recognition,  their products may enjoy greater initial market  acceptance  among
our potential  customers.  These  competitors may also be better able than us to
adapt quickly to customers'  changing demands and to changes in technology.  See
"Business."

Technological  advances in  alternative  energy  products  or other  alternative
energy technologies may render our systems obsolete. We do not have any products
or technologies  other than flywheel systems under  development.  Our system is,
however,  only one of a number of alternative energy products being developed by
potential  competitors that have potential  commercial  applications,  including
super capacitors, fuel cells, advanced batteries, and other types of alternative
energy technologies. See "Business."

The performance of batteries has improved while battery prices have declined due
to lower volume demand from the communications  markets and others and increased
competition resulting from an expansion of the number of battery  manufacturers.
These  changes in  battery  pricing  and  performance  coupled  with the lack of
recognition of the value proposition of our high-energy  products have precluded
the general acceptance of our high-energy products.

Government Regulation May Impair Our Ability to Market Our Product.

Government  regulation  of our product,  whether at the federal,  state or local
level,  including any regulations  relating to installation and servicing of our
products,  may increase  our costs and the price of our systems,  and may have a
negative impact on our revenue and profitability.  We cannot assure you that our
products will not be subject to existing or future federal and state regulations
governing traditional electric utilities and other regulated entities. We expect
that our  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. We
do not know the extent to which any existing or new  regulations  may impact our
ability to distribute, install and service our products. Once our products reach
the  commercialization  stage and we begin distributing our systems to our early
target markets,  federal,  state or local government entities or competitors may
seek to impose regulations.

Product  Liability  Claims Against Us Could Result in  Substantial  Expenses and
Negative Publicity Which Could Impair Successful Marketing of Our Products.

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

Safety Failures by Our Products or Those of Our Competitors  Could Reduce Market
Demand or Acceptance for Flywheels in General.

A serious accident involving either our flywheels or our competitors'  flywheels
could be a significant deterrent to customer acceptance and adversely affect our
financial  performance.  With any form of energy storage,  including  machinery,
chemicals,  fuel or other means of energy  storage,  there is the possibility of
accident.  If a metal  flywheel  fails and the energy  stored is  released,  the
flywheel  could  break  apart and the pieces  could be ejected at a high rate of
speed.  However,  we have  designed  our  flywheels  so that if they  fail,  the
flywheel is expected to shut down  rather  than to  disintegrate.  To date,  our
testing  validates  this design  conclusion.  Also,  we believe  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 rather than (as in the case
of metal) to break into a small  number of large  fragments  that have a greater
possibility of bursting a containment vessel and causing injury. A consortium of
government,  academic,  and industry  representatives has been formed to address
containment  flywheel safety in the event of this kind of flywheel  failure.  At
this  early  stage of  commercialization,  there  are  differing  approaches  to
containment  safety with  disagreement  in the  community on the most  effective
means.

Our Financial  Performance  Could Be Adversely  Affected by Our Need to Hire and
Retain Key Executive Officers and Skilled Technical Personnel.

Because  our  future  success  depends to a large  degree on the  success of our
technology,  our  competitiveness  will depend  significantly  on whether we can
attract and retain skilled technical personnel,  especially  engineers,  and can
retain members of our executive  team. We have  employment  agreements only with
Messrs. Capp, Spiezio, Lazarewicz and French. Mr. Capp's employment is in effect
until December 1, 2004, but the other employment agreements will expire on
October 26, 2002.

In the fourth  quarter of 2001 and the first quarter of 2002,  we  substantially
reduced our workforce.  Competition for skilled personnel is intense,  and as we
seek to determine the right size for our workforce,  we may not be successful in
attracting and retaining the personnel or executive  talent necessary to develop
our products and operate  profitably.  Because we must have a certain  number of
skilled  technical  personnel,  there is a limit to the  amount  by which we can
reduce expenses while maintaining development programs.

There May Be Only a Modest Number of Potential  Customers for Our High-Power UPS
Products.  To the Extent We Obtain  Customers,  We May Have To Rely On A Limited
Number Of Such Customers, And Our Business May Be Adversely Affected By The Loss
Of, Or Reduced Purchases By, Any One Of Those Customers.

There may only be a limited number of potential customers for our high-power UPS
product,  in  which  case we will be  subject  to the  risk  that the loss of or
reduced purchases by any single customer could adversely affect our business.

If We Are Unable to  Successfully  Market,  Distribute  and Service Our Products
Internationally   We  May  Experience  a  Shortfall  in  Expected  Revenues  and
Profitability Which Could Lead to a Reduction in Our Stock Price.

In addition to the risks we face when operating within the US,  additional risks
are present when we operate internationally. A part of our business strategy may
be to expand our customer  base by  marketing,  distributing  and  servicing our
products  internationally  through  distributors.  We  have  limited  experience
developing  and  manufacturing  our products to comply with the  commercial  and
legal requirements of international markets. Our ability to properly service our
products internationally will depend on third party service providers.  There is
no assurance that we will be able to locate service providers in every region or
that these providers will effectively service our products. Also, our success in
those markets will depend,  in part, on our ability to secure foreign  customers
and our  ability  to  manufacture  products  that meet  foreign  regulatory  and
commercial  requirements.  In addition, our planned international operations are
subject  to  other  inherent   risks,   including   potential   difficulties  in
establishing   satisfactory   distributorship    relationships   and   enforcing
contractual  obligations and intellectual  property rights in foreign countries,
fluctuations  in  currency  exchange  rates.  If we are  unable to  successfully
market,  distribute  or  service  our  products  internationally,  we may  never
experience profitability and our stock price may decline.

Any Failure to Protect Our  Intellectual  Property  Could  Seriously  Impair Our
Competitive Position.

We cannot  assure  you that we have or will be able to  maintain  a  significant
proprietary position on the basic technologies used in our flywheel systems. Our
ability to compete effectively against alternative technologies will be affected
by our  ability to protect  our  proprietary  technology,  systems  designs  and
manufacturing  processes.  We do not know  whether  any of our pending or future
patent  applications  under  which we have  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 our  technology or processes,  or will protect us
from  competitors.  Even if all  our  patent  applications  are  issued  and are
sufficiently  broad,  they may be  challenged  or  invalidated.  We could  incur
substantial  costs in prosecuting or defending  patent  infringement  suits, and
such suits would divert funds and resources  that could be used in our business.
We do not  know  whether  we  have  been or will  be  completely  successful  in
safeguarding and maintaining our proprietary rights.

Further,  our  competitors  or  others  may  independently   develop  or  patent
technologies or processes that are substantially equivalent or superior to ours.
If we are found to be infringing on third party patents,  we do not know whether
we 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 our systems.

We rely,  in part,  on  contractual  provisions to protect our trade secrets and
proprietary  knowledge.  These  agreements may be breached,  and we may not have
adequate  remedies for any breach.  Our trade  secrets may also be known without
breach of such  agreements or may be  independently  developed by competitors or
others.  Our inability to maintain the proprietary  nature of our technology and
processes  could  allow our  competitors  or others  to limit or  eliminate  any
competitive advantages we may have, thereby harming our business prospects.  See
"Business."

Our Majority Stockholders Will Control All Matters Requiring a Stockholder Vote,
Which will Limit Other  Investors'  Ability to Influence  the Outcome of Matters
Requiring Stockholder Approval.

Stockholders  who owned our company  prior to our initial  public  offering  own
approximately  64% of our  outstanding  stock  as of  December  31,  2001.  If a
sufficient  number of these  stockholders were to vote together as a group, they
would have the ability to control our board of directors and its  policies.  For
instance,  these  stockholders  would  be able to  control  the  outcome  of all
stockholder votes,  including votes concerning director  elections,  charter and
by-law  amendments and possible  mergers,  corporate  control contests and other
significant corporate  transactions.  These stockholders may use their influence
to approve  actions that are adverse to the interest of other  investors,  which
could depress our stock price.

The Share Prices of  Companies  in Our Sector have been Highly  Volatile and Our
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 our  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
us, or our  competitors,  patent or proprietary  rights  developments and market
conditions for high technology stocks in general. In addition, stock markets, in
particular the Nasdaq National Market, 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
our common stock,  which could affect our ability to attract  additional capital
to fund our operations.

Provisions of Delaware Law and of Our Charter and By-laws May Inhibit a Takeover
that Stockholders Consider Favorable.

Provisions in our certificate of  incorporation  and by-laws and in the Delaware
corporate  law 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 our
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 our  annual  stockholder  meeting  in  2001,  we  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.  Additionally,
our 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 our
management and board of directors.

Item 7A.  Quantitative and Qualitative Disclosure about Market Risk

Our cash equivalents and investments,  all of which have maturities of less than
one year,  may  expose us to  interest  rate  risk.  At March 31,  2002,  we had
approximately  $60,000  of cash  equivalents  that were  held in a  non-interest
bearing checking account. Also at March 31, 2002, we had approximately  $577,000
of cash  equivalents  that  were held in  interest  bearing  checking  accounts,
$6,711,000 invested in interest-bearing  money market accounts and approximately
$21,322,000 in high-grade  commercial paper. The fair value of these investments
approximates  their  cost.  A 10%  change in  interest  rates  would  change the
investment income realized on an annual basis by approximately $75,000, which we
do not believe is material.

<PAGE>

                                     PART II


Item 1.  Legal Proceedings

We are not involved in any legal proceedings.  However, we may from time to time
be involved in legal proceedings in the ordinary course of our business.

Item 2.  Changes in Securities

On November 16,  2000,  the  Securities  and  Exchange  Commission  declared our
Registration  Statement  on Form S-1  (File  No.  333-43386)  effective.  In our
initial  public  offering  during the fourth  quarter of 2000, we sold 9,200,000
shares of our common stock, inclusive of the underwriters' over allotment, at an
initial public  offering price of $6.00 per share. We received net proceeds from
our 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 March 31, 2002, we spent  approximately  $9.8 million
for inventory and materials  used in research and  development  and $6.9 million
for  property  and  equipment,  including  the  build-out of our facility at 234
Ballardvale Street in Wilmington,  MA. In addition,  we spent approximately $1.2
million to pay dividends on our preferred stock that accrued through the date of
our initial public offering. We have spent approximately $20.8 million for other
working  capital  needs.  In addition to the above,  we advanced  funds totaling
approximately  $785,000 to three  officers of the  Company.  The  officers  have
repaid  approximately  $285,000 of these  advances  through March 31, 2002.  The
advances  are  expected to be repaid in full by the  officers and are secured by
the officers'  holdings of Beacon Power Corporation  common stock. The remainder
of the net offering  proceeds has been invested in short-term,  income producing
bank  deposits  pending their use for the purchase of property and equipment and
working capital needs. 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 our common stock or to any of our
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)      None.

(b)      Reports on Form 8-K

On March 20, 2002, we filed a Current Report on Form 8-K announcing that our new
Company  strategy of expanding our product mix and entry into the high power UPS
market was to be unveiled at the CIBC conference in New York.



<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:  May 15, 2002             By:  /s/ F. William Capp
                                          -------------------
                                          F. William Capp
                                          President and Chief Executive Officer


            May 15, 2002                  /s/ James M. Spiezio
                                          --------------------
                                          James M. Spiezio
                                          Vice President of Finance and Chief
                                          Financial Officer
                                          (Principal Financial Officer)