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 September 30, 2003,

                                       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
              (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 November 10, 2003 was 42,963,525.

<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 September 30, 2003 and
           December 31, 2002.                                                1
         Unaudited Consolidated Statements of Operations for the
           three and nine months ended September 30, 2003 and 2002
           and for the Period May 8, 1997 (date of inception) to
           September 30, 2003.                                               2

         Unaudited Consolidated Statements of Cash Flows for nine
             months ended September 30, 2003 and 2002 and for the
             Period May 8, 1997 (date of inception) to
             September 30, 2003.                                             3

         Notes to Unaudited Consolidated Financial Statements.             5-9

     Item 2.  Management's Discussion and Analysis of Consolidated
         Financial Condition and Results of Operations.                   9-21

     Item 3. Quantitative and Qualitative Disclosures about Market Risk     22

     Item 4.  Controls and Procedures                                       22

PART II.  Other Information

     Item 1.  Legal Proceedings                                             23
     Item 2.  Changes in Securities                                         23
     Item 3.  Defaults on Senior Securities                                 23
     Item 4.  Submission of Matters to a Vote of Security Holders           23
     Item 5.  Other Information                                             23
     Item 6.  Exhibits, Financial Statements Schedules and Reports
        on Form 8-K                                                         23

Signatures                                                                  25

Certifications                                                           26-29



<PAGE>

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

<S>                                                                 <C>                    <C>
                                                                       September 30,           December 31,
                                                                            2003                   2002
                                                                    ---------------------  ---------------------
Assets
Current assets:
   Cash and cash equivalents                                              $   11,597,310         $   18,221,766
   Inventory                                                                     125,782                      -
   Prepaid expenses and other current assets                                     568,584              1,775,455
   Assets held for sale                                                                -                 53,715
                                                                    ---------------------  ---------------------
      Total current assets                                                    12,291,676             20,050,936

Property and equipment, net (Note 3)                                             390,594                562,929
Investments (Note 5)                                                           1,948,214                      -
Other assets                                                                     508,933                291,901
                                                                    ---------------------  ---------------------

Total assets                                                              $   15,139,417         $   20,905,766
                                                                    =====================  =====================

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                        $     104,758          $      77,326
   Accrued compensation and benefits                                             127,653                226,623
   Other accrued expenses                                                        519,523                576,881
   Restructuring reserve                                                       1,492,078              1,749,738
   Capital lease obligations                                                      13,320                200,041
                                                                    ---------------------  ---------------------
      Total current liabilities                                                2,257,332              2,830,609

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;
   42,961,062 and 42,812,897 shares issued and outstanding at
   September 30, 2003 and December 31, 2002, respectively                        429,611                428,129
   Deferred stock compensation                                                  (14,314)               (18,413)
   Additional paid-in-capital                                                132,860,644            132,750,525
   Other comprehensive income                                                    848,214                      -
   Deficit accumulated during the development stage                        (121,142,410)          (114,985,424)
   Treasury stock, at cost                                                      (99,660)               (99,660)
                                                                    ---------------------  ---------------------
      Total stockholders' equity                                              12,882,085             18,075,157

Total liabilities and stockholders' equity                                $   15,139,417         $   20,905,766
                                                                    =====================  =====================

       See notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                Consolidated Statements of Operations (Unaudited)
<CAPTION>

                                                                                                                Cumulative from
                                                                                                                  May 8, 1997
                                                                                                              (date of inception)
                                    Three months ended September 30,     Nine months ended September 30,     through September 30,
                                         2003               2002              2003              2002                 2003
                                   -----------------  ----------------- ----------------- ----------------- ------------------------
<S>                                <C>                <C>                <C>              <C>                <C>
Revenue                                    $      -           $      -          $      -          $      -             $    551,184

Operating expenses:
   Selling, general and administrative    1,259,121          1,054,819         3,738,788         4,560,568               26,861,816
   Research and development                 752,170          1,284,746         2,663,175         6,194,870               49,457,069
   Loss on sales commitments                      -                  -                 -                 -                  375,974
   Depreciation and amortization             44,967            462,849           188,237         1,475,084                3,854,240
   Restructuring charges                          -          2,159,280                 -         2,159,280                2,159,280
   Loss on impairment of assets                   -          4,297,128                 -         4,297,128                4,297,128
                                   -----------------  ----------------- ----------------- ----------------- ------------------------
        Total operating expenses          2,056,258          9,258,822         6,590,200        18,686,930               87,005,507
                                   -----------------  ----------------- ----------------- ----------------- ------------------------

Loss from operations                    (2,056,258)        (9,258,822)       (6,590,200)      (18,686,930)             (86,454,323)

Other income (expense):
Interest income                              29,699            115,514           131,454           418,252                3,693,457
Interest expense                              (676)            (8,770)           (6,663)          (36,958)              (1,093,653)
Other income (expense)                      318,374              1,920           308,423         (432,602)                (281,697)
                                   -----------------  ----------------- ----------------- ----------------- ------------------------
   Total other income (expense), net        347,397            108,664           433,214          (51,308)                2,318,107
                                   -----------------  ----------------- ----------------- ----------------- ------------------------
Net loss                                (1,708,861)        (9,150,158)       (6,156,986)      (18,738,238)             (84,136,216)

Preferred stock dividends                         -                  -                 -                 -             (36,825,680)
Accretion of convertible preferred stock          -                  -                 -                 -                (113,014)
                                   -----------------  ----------------- ----------------- ----------------- ------------------------
Loss to common shareholders           $ (1,708,861)      $ (9,150,158)     $ (6,156,986)    $ (18,738,238)         $  (121,074,910)
                                   =================  ================= ================= ================= ========================

Loss per share, basic and diluted       $    (0.04)        $    (0.21)       $    (0.14)       $    (0.44)
                                   =================  ================= ================= =================
Weighted-average common shares
 outstanding                             42,883,762         42,809,361        42,837,456        42,792,154
                                   =================  ================= ================= =================

            See notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
                                                                                                 Cumulative from
                                                                                                   May 8, 1997
                                                                                               (date of inception)
                                                              Nine months ended September 30,   through September
                                                                    2003            2002            30, 2003
                                                              ------------------------------------------------------
<S>                                                           <C>                <C>           <C>
Cash flows from operating activities:
    Net loss                                                     $ (6,156,986)   $(18,738,238)     $   (84,136,216)
    Adjustments to reconcile net loss to net cash used in
    operating activities:
        Depreciation and amortization                                  188,237       1,475,084            3,854,240
        Loss on sale of fixed assets                                         -           7,342              170,868
        Impairment of assets                                                 -       4,297,128            4,297,128
        Restructuring charge net of payments                         (257,660)       1,835,625            1,492,078
        Reserve for officer's note                                   (308,423)         425,130              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                          -          19,442            1,290,253
        Warrants issued for consulting services                              -               -            1,569,366
        Services and interest expense paid in preferred stock                -               -               11,485
    Changes in operating assets and liabilities:
        Inventory                                                    (125,782)               -            (125,782)
        Prepaid expenses and other current assets                    1,515,294         277,560            (788,219)
        Accounts payable                                                27,432       (696,975)              104,758
        Accrued compensation and benefits                             (98,970)       (543,687)              127,653
        Accrued interest                                                     -               -              275,560
        Due to related party                                                 -        (35,532)                    -
        Other accrued expenses and current liabilities                (57,358)       (489,486)              528,193
                                                              ------------------------------------------------------

        Net cash used in operating activities                      (5,274,216)    (12,166,607)         (69,027,125)

Cash flows from investing activities:
    Purchase of investments                                        (1,100,000)               -          (1,100,000)
    Increase in other assets                                         (226,668)               -            (401,886)
    Purchases of property and equipment                                (5,916)       (423,162)          (8,419,631)
    Sale of property and equipment                                      53,365               -               53,365
                                                              ------------------------------------------------------

        Net cash used in investing activities                      (1,279,219)       (423,162)          (9,868,152)

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                       463          12,765              123,712
    Exercise of employee stock options                                 115,237               -            1,290,907
    Issuance of preferred stock                                              -               -           32,868,028
    Repayment of subscription receivable                                     -               -            5,000,000
    Proceeds from capital leases                                             -               -              495,851
    Repayment of capital leases                                      (186,721)       (263,765)          (1,018,075)
    Proceeds from notes payable issued to investors                          -               -            3,550,000
                                                              ------------------------------------------------------

        Net cash (used) provided by financing activities              (71,021)       (251,000)           90,492,587

(Decrease) increase in cash and cash equivalents                   (6,624,456)    (12,840,769)           11,597,310

Cash and cash equivalents, beginning of period                      18,221,766      34,601,585                    -
                                                              ------------------------------------------------------

Cash and cash equivalents, end of period                          $ 11,597,310    $ 21,760,816       $   11,597,310
                                                              ======================================================

Supplemental disclosure of non--cash transactions:
    Cash paid for interest                                          $    6,700      $   43,000        $     488,126
                                                              ======================================================
    Cash paid for taxes                                             $    4,700      $   17,000        $      30,500
                                                              ======================================================
    Assets acquired through capital lease                            $       -       $       -        $     535,445
                                                              ======================================================

            See notes to unaudited consolidated financial statements.
</TABLE>
<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")  designs,  develops,  configures  and
offers 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  potential  applications.  The Company has  potential  markets for its
products in four broad  categories:  (1) power conversion  systems for renewable
applications  (such as the  recently  introduced  M5 inverter  product) (2) high
energy  flywheel-based  energy storage systems for telecom and renewable  energy
applications,  (3) flywheel-based  high-power and energy systems for utility and
distributed   generation   (specifically   frequency  and  voltage   regulation)
applications,  and (4) high-power  uninterruptible  flywheel-based power systems
(UPS) for both short (12-30 sec) and long (5-15 min) duration applications.

The Company believes its best near-term opportunities are in the development and
marketing of its M5 Power  Conditioning  System,  which is based on intellectual
property  acquired earlier this year. This system converts DC power generated by
renewable  sources such as solar or wind to the AC power required by residential
and commercial users. The Company hopes to have commercial sales of its M5 Power
Conditioning  System for solar  applications  during the fourth  quarter of this
year.

The  Company  believes  that its  next-generation,  high-energy  25kWh  flywheel
product, which is based on existing field-proven  products,  will be well suited
for renewable  energy uses in telecom energy storage as well as photovoltaic and
wind turbine applications. The Company believes that its current and anticipated
flywheel-based   products  offer  life-cycle  cost  advantages  and  significant
performance improvements over conventional,  battery-based back-up power and UPS
systems.  The Company will not make significant  expenditures  beyond the design
level for the 25kWh product until those markets  express a tangible  interest in
its products.

In the area of utility grid and distributed generation applications, the Company
believes grid frequency regulation  represents a very promising  opportunity for
its  flywheel   technology.   Transmission  and  distribution   reliability  and
efficiency depend upon frequency control of the grid. Frequency imbalances occur
when generators cannot follow load changes quickly enough.  The Company believes
that its "Smart Energy Matrix", an array of high-power / high-energy  flywheels,
can  provide  this  service  at costs  that would be  attractive  to  customers.
However,  the Company will not make significant  expenditures  beyond the design
level for this product until those markets express a tangible interest.

Of the four market categories  outlined above, only the power conversion systems
for renewable applications is proceeding to production. Although the Company has
designs for flywheel-based solutions for a number of applications, it would need
to complete  the  development  and test phase prior to the  beginning  of actual
production.  It is uncertain if or to what extent the remaining  segments of its
potential  business  will  materialize.  The Company  will not make  significant
expenditures beyond the design level until it has identified markets in which it
believes its products will be successful,  and those markets  express a tangible
interest in its products.  The Company may not have sufficient cash available to
complete  prototype  development  and production of products  unless  additional
equity or debt financing is available.

Because the Company has not yet generated a  significant  amount of revenue from
its operations,  it continues to be accounted for as a development stage company
under Statement of Financial Accounting Standards No. 7.

Operations.  The Company has  experienced net losses since its inception and, as
of September  30,  2003,  had an  accumulated  deficit of  approximately  $121.1
million.  The Company's  business  strategy is to create near-term  revenues and
gross  margins from the sale of its M5 inverters  for solar power  applications,
while building a reputation for excellent performance from its equipment and its
sales and service  organization.  The Company will then 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,  it is continuing to evaluate  products in terms of the
market size and growth potential, competitive advantages that its products could
provide and probable market penetration.  The Company is aggressively working to
identify  probable  customers and present to them the value  proposition for its
products.  The Company will not make the additional  expenditures  that would be
required for prototype  development or production  capabilities  of its flywheel
systems  until  it has  defined  the  specific  markets  to be  served  and  the
marketplace has expressed tangible interest.  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 may not have sufficient
cash available to complete prototype  development and production of its products
unless  additional  equity or debt financing is available.  The Company does not
expect to become profitable or obtain positive cash flow before 2005 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.
Accordingly,  certain information and footnote  disclosures normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles have been omitted pursuant to applicable rules and regulations of the
Securities  and  Exchange  Commission.   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 and nine months ended September 30,
2003 are not necessarily  indicative of the results that may be expected for the
full year ending December 31, 2003. 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, 2002.

There have been no significant additions to or changes in accounting policies of
the Company since December 31, 2002 except for the investment policy highlighted
in Note 5. For a complete description of the Company's accounting policies,  see
Note 2 to Consolidated  Financial Statements in the Company's 2002 Annual Report
on Form 10-K.

<PAGE>

Note 3.  Property and Equipment

<TABLE>
Property and equipment consist of the following:
<CAPTION>

                                                     Estimated
                                                       Useful        September 30,        December 31,
                                                       Lives             2003                 2002
                                                    ------------- -------------------- --------------------

<S>                                                   <C>               <C>                  <C>
Machinery and equipment                               5 years           $   2,109,895        $   1,998,631
Service vehicles                                      5 years                  63,792               63,792
Furniture and fixtures                                7 years                 685,535              717,293
Office equipment                                      3 years               2,028,545            1,914,195
Leasehold improvements                               Lease term             2,072,577            2,072,577
Equipment under capital lease obligations            Lease term             1,008,985            1,081,726
                                                                  -------------------- --------------------
     Total                                                              $   7,969,329        $   7,848,214

Less accumulated depreciation and amortization                            (3,417,718)          (2,996,079)
                                                                  -------------------- --------------------
     Property and equipment, before impairment                          $   4,551,611        $   4,852,135
                                                                  -------------------- --------------------

Less impairment reserve                                                   (4,161,017)          (4,289,206)
                                                                  -------------------- --------------------
     Property and equipment, net                                         $    390,594         $    562,929
                                                                  ==================== ====================
</TABLE>

Note 4.  Commitments

The Company leases office and light manufacturing space under an operating lease
through  September  30, 2007 and has  various  operating  short-term  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 September 30, 2003 the balance of that letter
of credit totaled $355,232. A cash deposit secures this letter of credit.


Note 5. Investments

On May 12,  2003,  the  Company,  as  part  of a  larger  financing  with  other
investors,  made an  investment  of  $1,100,000  in Series A Preferred  Stock of
Evergreen  Solar,  Inc., a Nasdaq  traded,  public  company that  specializes in
renewable energy systems  manufacturing.  The Company acquired 892,857 shares of
stock  at a price of  $1.12  and also  received  a  three-year  warrant  that is
exercisable for 2,400,000 shares of Evergreen's common stock at $3.37 per share.
This  investment  was  made for the  potential  market  valuation  gains of this
recognized  market  leader in  photovoltaic  systems;  to  develop  a  strategic
relationship with that company and further demonstrate the Company's  commitment
to renewable energy that began with the announcement of its intention to provide
inverters for photovoltaic and wind turbine applications.

This investment in equity securities is classified as available for sale and is,
therefore,  carried on the balance sheet at fair market  value,  with changes in
carrying value being recorded in Accumulated Other Comprehensive  Income/ (Loss)
until the  investments  are sold, in accordance with the provisions of Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity  Securities."  Fair market value is determined  using period-end
sales prices on U.S. or foreign  stock  exchanges.  At  September  30, 2003 this
investment  was valued at $1,948,214  which includes the warrant at its original
cost of $100,000.  The Company has  recognized in other  comprehensive  income a
gain of approximately $848,000.


Note 6. Common Stock

Reserved  Shares.  At September 30, 2003 and December 31, 2002,  12,575,158  and
14,493,238 shares of common stock were reserved for issuance under the Company's
stock option plan and outstanding warrants, respectively.

Note 7. Related Party Transactions

Advance to Officers. During 2001, the Company advanced approximately $785,000 to
three officers of the Company.  These advances are interest  bearing and secured
by the officers' holdings of the Company's common stock and were provided to the
officers to allow them to  exercise  stock  options and in one case,  to pay the
related   taxes.   Through   September  30,  2003,  the  Company  has  collected
approximately  $378,000 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  September  30,  2003  was
approximately  $441,000.  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.  After  September  30,  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. In September  2003, the reserve  balance was reduced to
$118,000.  This  activity  is included  in other  expenses  in the  accompanying
consolidated statement of operations.

Note 8. 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 assets held for sale have been
grouped  together and classified as "Assets held for sale" in the current assets
section of the balance  sheet.  Assets held for sale have been  written  down to
their fair value based on quotes  from  vendors and other  market  factors.  The
reserve against future lease payments is classified as  "Restructuring  reserve"
in the current liabilities section of the balance sheet.

A summary of the restructuring reserves is as follows:

Beginning balance at December 31, 2002                      $ 1,749,738
Charges for the period                                                -
Payments                                                      (257,660)
                                                     -------------------
Ending balance at September 30, 2003                        $ 1,492,078
                                                     ===================

<PAGE>

Note 9. Stock-Based Compensation

In 2002 the Company implemented FASB Statement of Financial Accounting Standards
No. 148 ("SFAS 148"),  "Accounting for Stock-Based  Compensation-Transition  and
Disclosure."  SFAS 148 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."

No stock-based  compensation is reflected in net earnings for 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 September 30,             Nine months ended September 30,
                                                  2003                    2002                  2003                 2002
                                          ---------------------------------------------- -----------------------------------------

<S>                                             <C>                    <C>                    <C>                  <C>
Net loss to common shareholders as reported     $   (1,708,861)        $    (9,150,158)       $  (6,156,986)       $ (18,738,238)
Pro forma compensation expense                          104,579                 383,017              327,579            2,033,961
                                          ---------------------- ----------------------- -------------------- --------------------
Net loss--pro forma                             $   (1,813,440)        $    (9,533,175)       $  (6,484,565)       $ (20,772,199)
Loss per share--as reported                       $      (0.04)          $       (0.21)         $     (0.14)         $     (0.44)
Loss per share--pro forma                         $      (0.04)          $       (0.22)         $     (0.15)         $     (0.49)

Weighted-average common shares outstanding           42,883,762              42,809,361           42,837,456           42,792,154
</TABLE>


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

The Company designs, develops,  configures and offers 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 potential
applications.  The Company has segmented the potential  markets for its products
into  four  broad  categories:  (1)  power  conversion  systems  (also  known as
inverters) for renewable applications, (2) low power, high energy flywheel-based
energy  storage  systems for  telecom and  renewable  energy  applications,  (3)
flywheel-based  high-power  and  energy  systems  for  utility  and  distributed
generation (specifically frequency and voltage regulation) applications, and (4)
high-power  uninterruptible  flywheel-based  power  systems (UPS) for both short
(12-30 sec) and long (5-15 min) duration applications.

The Company believes its best near-term opportunities are in the development and
marketing of its M5 Power Conditioning  System and similar systems for renewable
energy applications in both photovoltaic and wind turbine systems. These systems
convert DC power generated by renewable  sources such as solar or wind to the AC
power required by residential  and commercial  users.  The Company  successfully
acquired the intellectual  property of Advanced Energy Systems (AES) in March of
2003, and  immediately  started a process of evaluating the design of the former
AES MM-5000 inverter.  The Company has now reviewed and tested both the software
and  hardware of the MM-5000  product and has made  improvements  that have been
incorporated  into its M5 Power  Conditioning  System.  The  Company has several
units in field test in solar power  applications  and expects to have commercial
sales of its M5 Power  Conditioning  System  during the  fourth  quarter of this
year.

The  Company's  business  strategy  is to create  immediate  revenues  and gross
margins with its M5 Power  Conditioning  System while  building a reputation for
excellence  throughout the renewable  energy sector from the  performance of its
equipment and from its sales and service organization. The Company has hired key
personnel in electronic  design as well as former  employees of AES in the sales
and service area.  The Company is also  developing a training and  certification
program to insure  professional and consistent  installation of its equipment to
further customer  satisfaction.  The Company will then use the  relationships in
the solar  industry  it is  developing  through  the sale of power  conditioning
systems  to  gain  market  access  for the  Company's  future  products  for the
renewable energy industry.

The Company also believes that its next  generation  high-energy  25kWh flywheel
product, which is based on existing field-proven  products,  will be well suited
for telecom energy storage as well as renewable  energy uses in photovoltaic and
wind turbine applications.  The Company's  flywheel-based storage systems are an
alternative to battery storage and offer a number of advantages in comparison to
batteries.   These  performance   advantages   include  improved   certainty  of
operations, more reliable monitoring,  higher reliability,  significantly longer
life,   improved   recharging   capability,   significantly   reduced  scheduled
maintenance,  greater environmental friendliness and favorable life-cycle costs.
The  telecom  market  has not led to  orders  due to  customer  preferences  for
first-cost  comparisons over longer life-cycle costs. It is uncertain when or to
what extent this segment of the Company's  potential  business will materialize.
The Company however,  believes that customers in the renewable energy market are
more likely to purchase products on a life-cycle cost basis but the Company will
not make significant expenditures beyond the design level for this product until
those markets express a tangible interest in its products.

The Company  believes that it may have long-term  opportunities  for revenues in
flywheel-based  high-power and energy  systems for utility grid and  distributed
generation  (specifically  frequency and voltage regulation)  applications,  and
high-power  uninterruptible  flywheel-based  power  systems (UPS) for both short
(12-30 sec) and long (5-15 min) duration applications.

The Company  believes  grid  frequency  regulation  and  distributed  generation
represents  a  very   promising   opportunity   for  its  flywheel   technology.
Transmission and distribution  reliability and efficiency  depend upon frequency
control of the grid.  Frequency  imbalances occur when generators  cannot follow
load changes quickly enough.  Today,  this control is done by cycling  generator
output to match constantly changing loads. This cycling has a negative impact on
generator  life and results in additional  maintenance  costs for the generators
that provide this service.  The Company believes that its "Smart Energy Matrix,"
an array of high-power / high-energy  flywheels,  can provide  frequency control
service  without  incurring  the  high  maintenance  costs  of  generators.  The
Company's matrix design would provide a significant amount of stored energy (one
megawatt for 15 minutes) to address a requirement of every utility system;  that
of maintaining a constant frequency alternating current. Frequency regulation is
unique among the ancillary  services  that are sold into  Regional  Transmission
Operators such as PJM  Interconnection,  L.L.C.  (PJM) in that it is nominally a
zero energy  service i.e.,  the down  regulation  and up regulation are close to
being in balance.  Because this is the case,  frequency regulation appears to be
especially well suited to the  characteristics  of the Company's flywheel matrix
design.  The Company  believes that today, no other energy storage system exists
that can cost  effectively  offer the  combination of required cyclic life, fast
response,  ease of  connecting  to the grid,  and simple  operation.  At today's
prices for frequency regulation services, the Company believes that its flywheel
matrix design could result in very  attractive  financial  returns.  The Company
believes  its  Smart  Energy  Matrix  can be  introduced  using  today's  market
mechanisms  to  participate  directly  as  an  independent   regulation  service
provider.  This approach is expected to bypass the  traditionally  long adoption
period of new  technology  by the  utility  industry.  The  Company  is  seeking
appropriate  partners to fund and demonstrate  this potential  application.  The
Company will not make significant  expenditures beyond the design level for this
product until it has formed a partner relationship.

For UPS  applications,  the Company  believes  that its current and  anticipated
flywheel-based   products  offer  life-cycle  cost  advantages  and  significant
performance  advantages over conventional,  battery-based  back-up power and UPS
systems.  Users  of  electricity  can  experience  significant  losses  if their
electricity supply is partially or wholly  interrupted,  such as by sags, surges
and temporary  interruptions.  The highest  level of power quality  required for
today's  sophisticated   electronic  and  industrial  applications  requires  an
uninterruptible  power  system  (UPS)  close to the  place of use.  Today's  UPS
systems  typically  use short  duration  (12-30  sec)  energy  storage  to start
fast-responding diesel generators. The Company offers such a product through its
relationship  with other  companies.  In addition,  the  Company's  unique Smart
Energy Matrix design for high-energy  flywheels could deliver power for up to 15
minutes and provide excellent load following for the slower  responding  natural
gas generators and gas turbines.  Again,  the Company will not make  significant
expenditures  beyond the design level for this product until customers express a
tangible interest in its products.

Of the four market categories  outlined above, only the power conversion systems
for renewable applications is proceeding to production. Although the Company has
designs for flywheel-based  solutions for a number of applications,  the Company
would need to complete the  development and test phase prior to the beginning of
actual  production.  It is uncertain if or to what extent the remaining segments
of  its  potential  business  will  materialize.   The  Company  will  not  make
significant expenditures beyond the design level until it has identified markets
in which its products will be successful,  and those markets  express a tangible
interest in its products.  The Company does not expect to have  sufficient  cash
available to complete  prototype  development  and production of products unless
additional equity or debt financing is available.

The Company is marketing its M5 Power  Conditioning  System in the  photovoltaic
market and expects to begin  shipments  in the fourth  quarter of this year.  In
addition, the Company has available for sale high-energy products that deliver a
low level of power over a long  period of time  (typically  measured  in hours).
These products are tailored to the telecommunications,  cable systems,  computer
networks,  and Internet markets. The Company also has UPS products available for
sale to  provide  short-term  (typically  measured  in  seconds)  power  until a
generator or other  long-term  power source can be activated for  commercial and
industrial  facilities  that  are  high-power  applications.  Additionally,  the
Company has designed a high-energy product (25kWh) for potential applications in
the renewable  energy market for both  photovoltaic  and wind turbine uses.  The
Company may not have sufficient cash available to complete prototype development
and  production  of products  unless it raise  additional  equity or obtain debt
financing.

From its inception through September 30, 2003 the Company has incurred losses of
approximately  $121.1 million.  The Company does not expect to become profitable
or obtain positive cash flow before 2005 and may not achieve  positive cash flow
even at that point or beyond.  Also,  the Company's  losses and uses of cash may
fluctuate  significantly  from  quarter to quarter as its costs of  development,
production and marketing fluctuate. In addition, the Company may make additional
investments that it considers strategic.

Results of operations:

Comparison of three months ended September 30, 2003 and 2002

Revenues. The Company continues to evaluate markets for its current products and
other future products but did not recognize  revenues for the three months ended
September 30, 2003 or 2002

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
$1,259,000  and  $1,055,000  for the three months ended  September  30, 2003 and
2002,  respectively.  The increase of approximately $204,000 or 19% is primarily
the result of increased  costs of Directors  and  Officers  Liability  Insurance
premiums partially offset by lower headcount.

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 were reduced  significantly during 2002
when the  Company  reduced  its  headcount  on March 12 and July 19,  2002.  The
Company is incurring costs for emerging inverter product  development but is not
doing significant development work on flywheel products.  While the Company does
not  expect  to incur  any  significant  additional  development  costs  for its
existing flywheel  products,  it may incur significant costs for the development
of  new  inverter   products,   flywheel  design   prototypes  or  staffing  the
manufacturing  function  and  establishing  required  processes  for  commercial
production of its products.  The Company will begin  prototype  development  and
establishing production capabilities for its flywheel products only after it has
defined the  specific  markets to be served and the  marketplace  has  expressed
tangible  interest.  While the Company  will begin  development  of new inverter
products  and  will  continue  to  undertake   modest  design   efforts  on  new
high-powered  flywheel products, it expects its cost of research and development
in 2003 to continue to be significantly  reduced compared to 2002.  Research and
development expenses totaled approximately $752,000 and $1,285,000 for the three
months ended September 30, 2003 and 2002, respectively. The decrease of $533,000
or 41% is primarily the result of lower headcount compared to 2002.

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 also has
intellectual property in the form of a patent on its vacuum system that it began
to amortize in 2002. Depreciation and amortization totaled approximately $45,000
and  $463,000  for  the  three  months  ended   September  30,  2003  and  2002,
respectively. The decrease of $418,000 or 90% is attributable to the decrease in
the remaining net book values of its 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,  partially offset by interest expense  associated with its capital leases.
Interest income for the three months ended September 30, 2003 was  approximately
$30,000,  compared to $131,000 for the same period in 2002. The decrease in 2003
compared  to the prior  year is the  result  of lower  cash  balances  and lower
interest rates.

Interest expense  decreased to  approximately  $1,000 for the three months ended
September  30,  2003  from  approximately  $9,000  for the same  period in 2002.
Interest expense relates to assets leased under capital leases.

Other income of approximately  $318,000 for the three months ended September 30,
2003  relates  to a partial  reversal  of a reserve  on the loan  balance of the
Company's former CEO, net of accrued interest.

Liquidity and Capital Resources

The Company's cash requirements  depend on many factors,  including its research
and development  activities,  continued  efforts to  commercialize  products and
additional  market   development.   The  Company  expects  to  make  significant
expenditures  to fund its  working  capital,  develop  technologies  and explore
opportunities  to find and develop other markets to sell its products.  However,
the Company has taken significant  actions over the last two years to reduce its
cash  expenditures  for  product  development,   infrastructure  and  production
readiness.   The  Company  has  significantly  reduced  spending  on  headcount,
development work and capital expenditures.  The Company has focused its activity
on  market  analysis  in  terms  of size of  markets,  competitive  aspects  and
advantages   that  its  products  could  provide.   The  Company  has  performed
development  work on its  emerging  inverter  products  and has  continued to do
preliminary  design and development of potential  flywheel  products for markets
under  consideration.  The  Company is not  making  expenditures  for  prototype
development or production  capabilities until it has defined the specific market
to be  served  and in the  case of all  products  other  than  power  conversion
systems, that market has expressed a tangible interest in the products.

Net  cash  used in  operating  activities  was  approximately  ($5,274,000)  and
($12,167,000)   for  the  nine  months  ended   September  30,  2003  and  2002,
respectively. The primary component to the negative cash flow from operations is
from net losses.  For the first nine months of 2003,  the Company had a net loss
of  approximately  ($6,157,000).  This  included a reversal  of a portion of the
reserved  note to its former CEO of  approximately  ($323,000)  net of  interest
reserved  of  $14,577,   facility   related  cash   payments   charged   against
restructuring  reserves  of  approximately  ($258,000),   and  depreciation  and
amortization  of  approximately  $188,000.   Changes  in  operating  assets  and
liabilities  generated  approximately  $1,261,000  of cash during the first nine
months of 2003. The primary  components  were  increases in accounts  payable of
approximately  $27,000  and  decreases  in  prepaid  expenses  of  approximately
$1,515,000.  These  were  offset by  increases  in  inventory  of  approximately
($126,000),  and decreases in accrued expenses and other current  liabilities of
approximately  ($57,000) and accrued  compensation and benefits of approximately
($99,000).  For the first nine  months of 2002,  the  Company  had a net loss of
approximately  ($18,738,000).  This included  non-cash  charges of approximately
$8,060,000  primarily  attributable  to a  loss  on  impairment  of  assets  and
restructuring  of  $6,133,000;  a  reserve  against a note  receivable  from the
Company's  former  CEO  of  $426,000;   and  depreciation  and  amortization  of
approximately  $1,475,000.  Changes in  operating  assets and  liabilities  used
approximately  ($1,488,000)  of cash during the first nine  months of 2002.  The
primary  components  were  a  decrease  in  accounts  payable  of  approximately
($697,000),  a decrease in accrued  compensation  and benefits of  approximately
($544,000)  and  a  decrease  in  other  accruals  and  current  liabilities  of
($489,000).  These uses of cash were offset by a decrease in prepaid expense and
other current assets of approximately $278,000.

Net  cash  used in  investing  activities  was  approximately  ($1,279,000)  and
($423,000) for the nine months ended September 30, 2003 and 2002,  respectively.
The principal  uses of cash during the first nine months of 2003 were  primarily
related to an investment in Evergreen Solar, Inc. of ($1,100,000),  increases in
other assets totaling ($227,000),  purchase of capital equipment of ($6,000) and
the principal  sources of cash were from the sale of certain impaired  machinery
and equipment of the Company of  approximately  $53,000.  The principal  uses of
cash during the first nine months of 2002 were related to purchases of machinery
and equipment totaling approximately ($423,000).

Net cash used by financing activities was approximately ($71,000) and ($251,000)
for the nine months ended  September  30, 2003 and 2002,  respectively.  For the
first nine months of 2003,  the cash used for  financing  activities  related to
repayment of capital  leases of  ($187,000),  offset by cash  proceeds  from the
exercise of employee  stock options of  approximately  $115,000 and the issue of
stock under the employee stock purchase plan of  approximately  $1,000.  For the
first  nine  months of 2002 the cash used for  financing  activities  related to
repayment of capital leases of approximately  ($264,000) offset by cash proceeds
from the employee stock purchase plan of approximately $13,000.

Based on the Company's  Business Plan,  which includes the cash flow benefits of
significantly  reduced headcount,  development spending and capital expenditures
as well as the  revenues  and  margins  associated  with its  emerging  inverter
electronics  business,  the Company  believes that its cash and cash equivalents
and future cash flow from operations will satisfy the Company's  working capital
needs through 2004.  However,  this belief assumes no expenditures for prototype
development  or  production  capabilities  for  flywheel  products,  which could
require  significant  amounts of cash. In the event that the Company is not able
to obtain  development  contracts from customers to fund prototype  development,
these expenditures, if made, could significantly reduce the number of months its
cash and cash  equivalents  and future cash flow from  operations  will  satisfy
working  capital  needs.  In as much as the  Company  does not  expect to become
profitable or cash flow positive until at least 2005, its ability to continue as
a going concern will depend on achieving its Business Plan and may require being
able to raise additional capital or obtain debt financing. If additional capital
or debt financing is required,  the Company may not be able to raise  additional
capital,  or if it is able  to do so,  it may be on  terms  that  are  extremely
dilutive to its shareholders.

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, 2002 (filed March 31, 2003),
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 Inverter  Power  Conditioning  Systems May Not Be
Recognized.

     There  can be no  assurance  that  the  Company  will be  able  to  compete
     successfully against other suppliers of inverters.  To compete successfully
     the Company must establish the value proposition of its products based upon
     dependability,  operational benefits, and maintenance-free life, or it must
     develop other strategic alternatives.

We May Not be Able to Establish a Distribution Structure to Sell Our Inverter
Power Conditioning Systems.

     The  Company  expects  to market  its Power  Conditioning  Systems  through
     distributor  channels.  The  Company  does  not  have  experience  in these
     distribution channels or the photovoltaic markets and may not be successful
     in establishing adequate channels to market. Even if the Company is able to
     establish these channels to market there can be no assurances that adequate
     distribution volumes can be achieved to sustain operations.

We Acquired the  Intellectual  Properties  for the Inverter  Power  Conditioning
Systems from a Company in Bankruptcy.

     The Company  purchased the  intellectual  property that its Inverter  Power
     Conditioning Systems are based on from AES, 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
     provided warranties for its products and it has made engineering changes to
     provide  reliable  performance,  there can no assurance  that the Company's
     sales  efforts will not be  adversely  affected by the  performance  of the
     unwarranted products in the field.

We Face Intense Competition from other Inverter Manufacturers.

     The  performance of other inverter  manufacturer's  products may improve to
     compete more effectively with what the Company considers to be the superior
     performance characteristics of its product. This could affect the Company's
     ability  to  maintain  pricing  that  it  considers  essential  to  provide
     sufficient cash flow to continue its operations if additional  financing is
     not available.

The  Renewable  Energy  Market may not Maintain the Market Growth Upon Which our
Business  Plan  is  Based,   Which  Could   Adversely   Affected  Our  Financial
Performance.

     While the renewable energy industry has continued to grow at solid compound
     annual growth rates,  there can be no assurances that these rates of growth
     will  continue,  which could  significantly  reduce the  revenues  that the
     Company  could  realize  and  therefore   adversely  affect  its  financial
     performance.

The  Value  Proposition  of  our  High-Energy   Flywheel  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, or
     it must develop other strategic alternatives.

We Face Intensified Competition from Batteries Due to Their Declining Prices and
Improved  Life.  As a  Consequence  Our  Customers are Less Likely to Accept the
Value Proposition of Our 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  make it
     more  difficult for the Company to establish the value  proposition  of its
     high-energy products.

The  Telecommunications  Industry Has  Experienced  a Sharp  Decline,  Which has
Adversely Affected Our Financial Performance.

     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.   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 the Company's flywheel systems.

We May  Not Be Able  to  Reduce  Our  Product  Cost  for  Inverter  Products  or
High-Energy Flywheels Enough to Make Our Prices Competitive.

     There can be no assurance  that the Company will be  successful in lowering
     its  production  costs  through  lower cost  designs,  volume  discounts or
     improvements in manufacturing  process, which may prevent market acceptance
     of its products.

We Have No  Experience  Manufacturing  Inverter  Power  Conditioning  Systems or
Flywheel  Energy  Storage  Systems  on a  Commercial  Basis.  In  the  Event  of
Significant Sales 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, and if We do not We Will Not Become Profitable.

     Should the Company experience  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  no
     experience in the volume  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. In fact,
     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 the capital
     build-out.  The Company may 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.

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

     The Company will need to secure additional financing in the future to carry
     out its Business  Plan.  While the Company  believes its cash balances will
     fund operations  through 2004, it may also need additional  financing for a
     variety of reasons including:

     o    expanding research and development;

     o    achieving manufacturing capability;

     o    funding additional working capital; or

     o    acquiring complementary products, businesses or technologies.

     The  Company  cannot be  certain  that it will be able to raise  additional
     funds on acceptable terms or at all. If future financing is required and it
     is not  available or is not available on  acceptable  terms,  the Company's
     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."

Our Stockholders may Suffer  Substantial  Dilution if we Issue Additional Equity
to Obtain Financing.

     If the  Company  raises  additional  funds  by  issuing  additional  equity
     securities,   existing  stockholders  will  likely  experience  substantial
     dilution.  Furthermore,  the newly  issued  securities  could  have  rights
     superior to the rights of the common stock outstanding.

Our Stock May be Removed from the SmallCap Market System of Nasdaq.

     The Company has been granted an extension until December 8, 2003 to achieve
     compliance  with the  Nasdaq  listing  requirement  to  maintain  a minimum
     closing bid price of one dollar for ten  consecutive  trading  days. In the
     event that the  Company  is unable to meet this  listing  requirement,  and
     appeals for additional  time to achieve  compliance are  unsuccessful,  the
     Company's  stock could no longer be eligible  for  quotation  on the Nasdaq
     SmallCap  Market.  Should the Company's  stock lose its  eligibility  to be
     quoted on the SmallCap Market, it will seek to have its stock quoted on the
     OTCBB.  While the  Company  knows of no reason  that its stock  will not be
     accepted for quotation on OTCBB, it cannot  guarantee that  acceptance.  If
     the  Company's  stock is not accepted for listing on the OTCBB,  it will be
     listed on the pink sheets.

We Have  Agreed  with the Nasdaq to Seek  Shareholder  Approval  for and, in the
Event Such Approval is Obtained, to Effect a Reverse Stock Split. This Split may
have One or More Adverse Effects on Shareholders and May Not Achieve Its Goal of
Allowing Us to Meet Nasdaq Requirements to Maintain the Listing of Our Stock.

     The effect of a reverse split upon the market price of the Company's common
     stock cannot be predicted  with any  certainty,  and the history of similar
     stock split  combinations for companies in like circumstances is varied. It
     is possible  that the per share price of the  Company's  common stock after
     the  reverse  split will not rise in  proportion  to the  reduction  in the
     number of shares of its common stock outstanding resulting from the reverse
     stock  split,  and  there can be no  assurance  that the  market  price per
     post-reverse  split  share  will  either  exceed or remain in excess of the
     $1.00 minimum bid price required by Nasdaq for a sustained  period of time.
     The  market  price of the  Company's  common  stock is based  also on other
     factors that are unrelated to the number of shares  outstanding,  including
     the Company's future  performance.  In addition,  there can be no assurance
     that the  Company  will not be  delisted  due to a  failure  to meet  other
     continued  listing  requirements  even if the market price per post-reverse
     split share of its common stock  remains in excess of $1.00.  The liquidity
     of the Company's  common stock may be reduced by the proposed reverse split
     given the  reduced  number of shares  that would be  outstanding  after the
     reverse stock split. See "Subsequent Event" below.

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.

     The Company has a limited operating history.  The Company was formed in May
     1997 to  commercialize  electrical  power systems based on flywheel  energy
     storage.  The Company is a development stage company attempting to make the
     transition  to the  manufacturing  of new products in a new and  developing
     sector. Unless the Company can achieve significant market acceptance of its
     current or future  products  at volumes and with  margins  that allow it to
     cover  costs of  operations,  the  Company  may never  advance  beyond  the
     start-up  phase.  In light of the foregoing,  it is difficult or impossible
     for  the  Company  to  predict   when  and  if  the  Company  will  achieve
     profitability.

We Have  Incurred  Losses Since Our Inception and  Anticipate  Continued  Losses
Through at Least 2005.

     The Company has  incurred  net losses to common  shareholders  and negative
     cash flows since its  inception in May 1997.  The Company had net losses to
     common  shareholders of approximately  ($6,157,000)  through  September 30,
     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 in May 1997, the Company has
     had net losses to common shareholders totaling ($121,075,000).  The Company
     expects to continue to incur net losses through at least 2005. Although the
     Company is looking for additional  ways to economize and reduce costs,  its
     efforts may prove even more expensive than  anticipated.  Revenue must grow
     substantially  if the Company is to offset these higher expenses and become
     profitable.  Even if the  Company  does  achieve  profitability,  it may be
     unable to sustain or increase profitability in the future.

We  Might  Fail  to  Develop  Successful  Products  for  the  Markets  in  Power
Conditioning or Flywheel Systems.

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

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

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

     o    reducing  manufacturing  costs for the flywheel's  shaft, hub and rim,
          bearings and related  electronics to increase the 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  to provide  sufficient  funding for
          completion of development;

     o    extending the product to new applications.

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

     The Company's  business,  prospects,  results of  operations,  or financial
     condition could be harmed if the Company is unable to maintain satisfactory
     relationships  with 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 and
     its  financial  performance  could  be  adversely  affected.   Because  the
     components  with  limited  sources  are key  components  that are  complex,
     difficult to manufacture  and may require long lead times,  the Company may
     have difficulty finding alternative suppliers on a timely or cost effective
     basis. As a result, the Company could experience  shortages in supply or be
     unable to be cost competitive in the markets being pursued.

We Face Intense Competition and We May Be Unable to Compete  Successfully in the
Inverter or Flywheel Market.

     The markets for renewable energy electronic  inverters and highly reliable,
     uninterruptible  electric  power  are  intensely  competitive.  There are a
     number of companies located in the United States,  Canada,  and abroad that
     are offering  electronic  inverters and flywheel energy storage technology.
     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.

     Technological  advances in alternative energy products or other alternative
     energy technologies may render the Company's systems obsolete.  The Company
     does not have any  products or  technologies  other than its  inverters  or
     flywheel systems under development.  The Company's flywheel systems compete
     with a number of  alternative  energy  products,  as well as other products
     being  developed by potential  competitors  that have potential  commercial
     applications,  including ultra capacitors,  fuel cells, advanced batteries,
     and other alternative  energy  technologies.  The Company's  inverter power
     conversion  systems  compete  with  products of more  established  inverter
     companies.

Government Regulation May Impair Our Ability to Market Our 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  and
     distributing  its  systems  begins,  federal,  state  or  local  government
     entities 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.

     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 Our Products or Those of Our Competitors  Could Reduce Market
Demand or Acceptance for Renewable Energy Inverters or Flywheels in General.

     A serious accident  involving either inverters or flywheels or competitors'
     similar  products could be a significant  deterrent to customer  acceptance
     and adversely affect the Company's financial performance.  With any form of
     energy  storage,  including  machinery,  chemicals,  fuel or other means of
     energy storage,  there is the possibility of accident. In particular,  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, 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  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.  With inverters,  the potential for
     personal injury or property damage from faulty electronics exists. However,
     the Company's inverters have been tested and quality standards  established
     to insure safe operation.

Our Financial  Performance  Could Be Adversely  Affected by Our 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  that  include  non-compete
     clauses 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.

     In the fourth  quarter of 2001, the first quarter of 2002 and in July 2002,
     the Company  substantially  reduced its workforce.  Competition for skilled
     personnel is intense and, as the Company  seeks to determine the right size
     for its workforce, it may not be successful in attracting and retaining the
     personnel or  executive  talent  necessary to develop  products and operate
     profitably.

There May Be Only a Modest Number of Potential Customers for Our 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 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 the Company faces when operating  within the U.S.,
     additional  risks are present if the Company  operates  internationally.  A
     part of the Company's  business  strategy is to expand its customer base by
     marketing,  distributing  and servicing  products  internationally  through
     distributors.   The   Company  has  limited   experience   developing   and
     manufacturing 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, the Company's planned 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. If the
     Company  is  unable to  successfully  market,  distribute  or  service  its
     products  internationally,  it may never experience  profitability  and the
     Company's stock price may decline.

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

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 the Company prior to its initial public offering own
     approximately 45.5% of its outstanding stock as of September 30, 2003. If a
     sufficient  number of these  stockholders were to vote together as a group,
     they would have the ability to control the Company's 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 the 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 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.

We May not Be Able to Obtain  Financing to Continue  Operations and will Need to
Enter into A Merger or Acquisition and Our Shareholders  may Suffer  Substantial
Dilution.

     In the  event of a merger  or  acquisition,  given  the  volatility  of the
     sector,  the  Company's  inability  to sell  products to date and the asset
     impairments  it has  recognized,  the  Company's  shareholders  may  suffer
     substantial dilution. The dilutive effect may increase substantially if the
     Company's  intellectual  property  is not  recognized  as an  asset  in the
     transaction.

We May Make  Investments  in Other  Energy  Companies  in Our Sector to Increase
Shareholder Value Through  Strategic  Alliances or Return on Investment Which do
Not Create Gains and Therefore Reduce Shareholder Value.

     The Company may make investments in other energy 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 Our 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 our 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.  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.


Subsequent Event

On March 13,  2002,  while the  Company's  common stock was quoted on the Nasdaq
National  Market,  Nasdaq  notified the Company that it had failed to maintain a
closing bid price of at least $1.00 per share for 30  consecutive  trading days.
Pursuant to the Nasdaq's rules,  the Company was given a 90-day period,  through
June 11,  2002,  to satisfy  that  requirement.  On July 10,  2002,  the Company
voluntarily transferred the quotation of its common stock to the Nasdaq SmallCap
Market.  Pursuant to Nasdaq's  rules,  the Company was then  afforded the period
available  to  SmallCap  issuers  to  regain   compliance  with  the  bid  price
requirement,  which was through  September 9, 2002. On September  10, 2002,  the
Company  was  notified  that,  although  it  failed  to  satisfy  the bid  price
requirement  within the  specified  time period,  the Company was eligible for a
second period, which was through March 10, 2003, as contemplated by the Nasdaq's
rules.  Due to changes to Nasdaq's  rules,  the  company was then given  another
period,  through June 6, 2003, to satisfy the bid price requirement.  On June 6,
2003,  however,  the Company had not satisfied that  requirement  and it was not
eligible for any additional compliance periods. Accordingly, Nasdaq informed the
Company that its common stock was subject to removal from the SmallCap Market.

The Company requested a hearing before a Nasdaq Listing  Qualifications Panel on
this issue on June 18, 2003,  which stayed the  removal.  The Panel's  decision,
delivered on August 5, 2003, noted that Nasdaq had pending before the Securities
and Exchange  Commission  a proposal to change its minimum bid price rules,  and
that if such proposals were then in effect the Company would have had additional
compliance  periods.  Accordingly,  the  Panel  granted  the  Company  a  60-day
extension  (until October 6, 2003) to allow for further  developments in the SEC
rule-making process. On October 6, 2003, the Company still had not satisfied the
minimum bid price  requirement.  On October 10, 2003 Nasdaq notified the Company
that because it satisfied  all the  requirements,  other than minimum bid price,
for initially having its common stock quoted on the SmallCap  Market,  it would,
if the  Nasdaq's  proposal  pending  before  the SEC were then in  effect,  have
qualified  for a further  compliance  period  until March 13,  2004,  the second
anniversary  of its initial  failure to meet the minimum bid price  requirement.
Accordingly,  Nasdaq extended the period the Company had to meet the minimum bid
price until December 8, 2003 provided the Company  committed to seek shareholder
approval  for a reverse  stock split to address the bid price  deficiency  on or
before March 13, 2004 and to thereafter  promptly  effect the split.  On October
10, 2003, the Company made this commitment to Nasdaq.


<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 September
30, 2003, the Company had  approximately  $60,000 of cash  equivalents that were
held in non-interest  bearing accounts.  Also at September 30, 2003, the Company
had  approximately  $738,000  of cash  equivalents  that were  held in  interest
bearing checking  accounts and $10,799,000  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  $12,000,  which the Company
does not believe is material.

Item 4. Controls and Procedures

Mr. F. William Capp, the Company's  Chief  Executive  Officer,  and Mr. James M.
Spiezio, the Company's Chief Financial Officer, have evaluated the effectiveness
of the Company's  disclosure controls and procedures as of the end of the period
covered  by this  quarterly  report.  Based  upon  that  evaluation,  they  have
concluded  that at that  time  the  Company  had in  place  controls  and  other
procedures  that  were  designed  to  ensure  that  information  required  to be
disclosed  by the  Company in the  reports  that it files or  submits  under the
Securities Exchange Act of 1934 is recorded, processed,  summarized and reported
within the time periods specified in the SEC's rules and forms. Since that time,
there have been no significant  changes in the Company's internal controls or in
other factors that could significantly affect these controls.


<PAGE>



                                     PART II

Item 1. Legal Proceedings

On June 30, 2003, Vlado Ostovic, an independent engineer who resides in Germany,
commenced  a  lawsuit  against  the  Company  in  Middlesex  Superior  Court  in
Cambridge,  Massachusetts. Mr. Ostovic alleged that the Company owed him $36,700
for engineering consulting services performed under a written agreement with the
Company.  Mr. Ostovic's Complaint was served on the Company on or about July 16,
2003. The Company  offered to pay Mr.  Ostovic for hours worked  pursuant to the
contract rate,  which  amounted to  approximately  $18,000.  Mr. Ostovic was not
willing to accept  this  proposal.  Through  negotiations,  Mr.  Ostovic and the
Company agreed to settle this matter for $22,440.

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 September 30, 2003,  the Company spent  approximately
$9.9 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 our preferred stock that accrued
through  the  date  of its  initial  public  offering.  The  Company  has  spent
approximately  $37.3 million for other working capital needs. In addition to the
above,  the Company  advanced  funds  totaling  approximately  $785,000 to three
officers of the Company.  Through  September 30, 2003, the Company has collected
approximately  $378,000 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  September  30,  2003  was
approximately  $441,000.  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.  After  September  30,  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. In September  2003, the reserve  balance was reduced to
$118,000.  This  activity  is included  in other  expenses  in the  accompanying
consolidated statement of operations.

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

         None



<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:  November 14, 2003           By:  /s/ F. William Capp
                                           -------------------
                                           F. William Capp
                                           President and Chief Executive Officer


          November 14, 2003           By: /s/ James M. Spiezio
                                          -------------------
                                          James M. Spiezio
                                          Vice President of Finance, Chief
                                          Financial Officer, Treasurer and
                                          Secretary, Principal Financial Officer

<PAGE>

                                                                   Exhibit 31.1


                                  CERTIFICATION

I, F. William Capp, certify that:

1.   I have  reviewed  this  quarterly  report  on  Form  10-Q of  Beacon  Power
     Corporation;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness  of  the  disclosure   controls  and  procedures  as  of
          September 30, 2003 based upon such evaluation; and

     c)   Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter that materially affected,  or is reasonably
          likely to materially  affect,  the registrant's  internal control over
          financial reporting; and

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation of internal  controls  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

Date: November 14, 2003
                               /s/ F. William Capp
                               -------------------
                                 F. William Capp
                             Chief Executive Officer


<PAGE>


                                                                   Exhibit 31.2

                                  CERTIFICATION

I, James M. Spiezio, certify that:

1.   I have  reviewed  this  quarterly  report  on  Form  10-Q of  Beacon  Power
     Corporation;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures and presented in this report our conclusions  about the
          effectiveness  of  the  disclosure   controls  and  procedures  as  of
          September 30, 2003 based upon such evaluation; and

     c)   Disclosed  in this  report  any  change in the  registrant's  internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter that materially affected,  or is reasonably
          likely to materially  affect,  the registrant's  internal control over
          financial reporting; and

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation of internal  controls  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.

Date: November 14, 2003
                              /s/ James M. Spiezio
                              --------------------
                                James M. Spiezio
                             Chief Financial Officer

<PAGE>

                                                                   Exhibit 32.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of Beacon Power Corporation
(the  "Company")  on Form 10-Q for the period ended  September 30, 2003 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
I, F. William Capp, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities  Exchange Act of 1934; and (2) The  information  contained in the
Report fairly presents,  in all material respects,  the financial  condition and
result of operations of the Company.

November 14, 2003



                             By /s/F. William Capp
                                ------------------
                                F. William Capp
                                Chief Executive Officer




<PAGE>
                                                                   Exhibit 32.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report of Beacon Power Corporation
(the  "Company")  on Form 10-Q for the period ended  September 30, 2003 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
I, James M. Spiezio, Chief Financial Officer of the Company,  certify,  pursuant
to  18  U.S.C.  section  1350,  as  adopted  pursuant  to  section  906  of  the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities  Exchange Act of 1934; and (2) The  information  contained in the
Report fairly presents,  in all material respects,  the financial  condition and
result of operations of the Company.

November 14, 2003


                             By: /s/James M. Spiezio
                                 -------------------
                                 James M. Spiezio
                                 Chief Financial Officer