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

                                    FORM 10-Q


    [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the quarterly period ended March 31, 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 Phone
                               (978) 694-9127 Fax
              (Registrant's telephone number, including area code)
                            ------------------------

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___

     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 May 1, 2003 was 42,815,928.

<PAGE>

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


                                                                          Page

PART I.  Financial Information

     Item 1.  Financial Statements:

         Consolidated Balance Sheets at March 31, 2003 and
         December 31, 2002.                                                 1

         Unaudited Consolidated Statements of Operations for the
         three months ended March 31, 2003 and 2002 and for the
         Period May 8, 1997 (date of inception) to March 31, 2003.          2

         Unaudited Consolidated Statements of Cash Flows for three
         months ended March 31, 2003 and 2002 and for the Period
         May 8, 1997 (date of inception) to March 31, 2003.                 3

         Notes to Unaudited Consolidated Financial Statements.            6-8

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

     Item 3. Quantitative and Qualitative Disclosures about
         Market Risk                                                       18

     Item 4.  Controls and Procedures                                      18

PART II.  Other Information

     Item 1.  Legal Proceedings                                            19
     Item 2.  Changes in Securities                                        19
     Item 3.  Defaults on Senior Securities                                19
     Item 4.  Submission of Matters to a Vote of Security Holders          19
     Item 5.  Other Information                                            19
     Item 6.  Exhibits, Financial Statements Schedules and Reports
         on Form 8-K                                                       19

Signatures                                                                 20

Certifications                                                          21-22


<PAGE>


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

                                                                         (Unaudited)
                                                                          March 31,              December 31,
                                                                             2003                    2002
                                                                    ----------------------- -----------------------
<S>                                                                 <C>                     <C>
Assets
Current assets:
   Cash and cash equivalents                                               $    16,086,635         $    18,221,766
   Prepaid expenses and other current assets                                     1,328,829               1,775,455
   Assets held for sale                                                             53,715                  53,715
                                                                    ----------------------- -----------------------
      Total current assets                                                      17,469,179              20,050,936

Property and equipment, net (Note 3)                                               442,612                 562,929
Other assets                                                                       438,944                 291,901
                                                                    ----------------------- -----------------------

Total assets                                                               $    18,350,735         $    20,905,766
                                                                    ======================= =======================

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                         $      147,520           $      77,326
   Accrued compensation and benefits                                               153,668                 226,623
   Other accrued expenses                                                          415,886                 576,881
   Restructuring reserve                                                         1,663,851               1,749,738
   Current portion of capital lease obligations                                    124,028                 200,041
                                                                    ----------------------- -----------------------
      Total current liabilities                                                  2,504,953               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;
   42,812,897 shares issued and outstanding at March 31, 2003
   and December 31, 2002                                                           428,129                 428,129
   Deferred stock compensation                                                    (14,314)                (18,413)
   Additional paid-in-capital                                                  132,746,426             132,750,525
   Deficit accumulated during the development stage                          (117,214,799)           (114,985,424)
   Less: treasury stock, at cost                                                  (99,660)                (99,660)
                                                                    ----------------------- -----------------------
      Total stockholders' equity                                                15,845,782              18,075,157

Total liabilities and stockholders' equity                                 $    18,350,735         $    20,905,766
                                                                    ======================= =======================

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


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

                                                                                       Cumulative from
                                                                                           May 8, 1997
                                                                                       (date of inception)
                                                      Three months ended March 31,      through March 31,
                                                        2003               2002               2003
                                                  -----------------  ----------------- --------------------
<S>                                               <C>                <C>               <C>
 Revenue                                                  $      -           $      -         $    551,184

 Operating expenses:
     Selling, general and administrative                 1,218,648          2,035,761           24,341,676
     Research and development                              958,907          3,139,754           47,752,801
     Loss on sales commitments                                   -                  -              375,974
     Depreciation and amortization                          99,689            506,091            3,765,692
     Restructuring charges                                       -                  -            2,159,280
     Loss on impairment of assets                                -                  -            4,297,128
                                                  -----------------  ----------------- --------------------
           Total operating expenses                      2,277,244          5,681,606           82,692,551
                                                  -----------------  ----------------- --------------------

 Loss from operations                                  (2,277,244)        (5,681,606)         (82,141,367)

 Other income (expense):
 Interest income                                            58,039            153,952            3,620,042
 Interest expense                                          (4,230)           (14,867)          (1,091,220)
 Other expense                                             (5,940)            (8,374)            (596,060)
                                                  -----------------  ----------------- --------------------
     Total other income, net                                47,869            130,711            1,932,762
                                                  -----------------  ----------------- --------------------
 Net loss                                              (2,229,375)        (5,550,895)         (80,208,605)

 Preferred stock dividends                                       -                  -         (36,825,680)
 Accretion of convertible preferred stock                        -                  -            (113,014)
                                                  -----------------  ----------------- --------------------
 Loss to common shareholders                         $ (2,229,375)      $ (5,550,895)       $(117,147,299)
                                                  =================  ================= ====================

 Loss per share, basic and diluted                        $ (0.05)           $ (0.13)
                                                  =================  =================
 Weighted-average common shares outstanding             42,812,897         42,770,856
                                                  =================  =================

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

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
                                                                                                    Cumulative from
                                                                                                      May 8, 1997
                                                                                                  (date of inception)
                                                                 Three months ended March 31,        through March
                                                                     2003             2002             31, 2003
                                                              ---------------------------------------------------------
<S>                                                           <C>                  <C>               <C>
Cash flows from operating activities:
    Net loss                                                       $ (2,229,375)    $ (5,550,895)       $ (80,208,605)
    Adjustments to reconcile net loss to net cash used in
    operating activities:
        Depreciation and amortization                                     99,689          506,091            3,765,692
        Loss on sale of fixed assets                                           -                -              170,868
        Gain on sale of fixed assets                                     (5,693)                -              (5,693)
        Impairment of assets                                                   -                -            4,297,128
        Restructuring charge net of expenses paid                       (85,887)                -            1,663,851
        Reserve for officers note                                          5,940                -              434,338
        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                            -           10,820            1,290,253
        Warrants issued for consulting services                                -                -            1,569,366
        Accrued loss on sales commitments                                      -                -              375,974
        Services and interest expense paid in preferred stock                  -                -               11,485
    Changes in operating assets and liabilities:
        Prepaid expenses and other current assets                        440,686           86,544          (1,862,827)
        Accounts payable                                                  70,194        (435,416)              147,520
        Accrued compensation and benefits                               (72,955)         (81,875)              153,668
        Accrued interest                                                       -                -              275,560
        Due to related party                                                   -         (35,532)                    -
        Accrued loss on sales commitments                                      -                -            (375,974)
        Other accrued expenses and current liabilities                 (160,995)        (233,280)              424,556
                                                              ---------------------------------------------------------

        Net cash used in operating activities                        (1,938,396)      (5,733,543)         (65,691,305)

Cash flows from investing activities:
    Increase in other assets                                           (149,600)         (13,029)            (324,818)
    Purchases of property and equipment                                        -         (89,045)          (8,413,715)
    Sale of property and equipment                                        28,878                -               28,878
                                                              ---------------------------------------------------------

        Net cash used in investing activities                          (120,722)        (102,074)          (8,709,655)

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                           -                -              123,249
    Exercise of employee stock options                                         -                -            1,175,670
    Issuance of preferred stock                                                -                -           32,868,028
    Repayment of subscription receivable                                       -                -            5,000,000
    Proceeds from capital leases                                               -                -              495,851
    Payments on capital leases                                          (76,013)         (96,201)            (907,367)
    Proceeds from notes payable issued to investors                            -                -            3,550,000
                                                              ---------------------------------------------------------

        Net cash (used) provided by financing activities                (76,013)         (96,201)           90,487,595

(Decrease) increase in cash and cash equivalents                     (2,135,131)      (5,931,818)           16,086,635

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

Cash and cash equivalents, end of period                            $ 16,086,635     $ 28,669,767        $  16,086,635
                                                              =========================================================

Supplemental disclosure of non-cash transactions:
    Cash paid for interest                                             $   4,230        $  20,957         $    485,656
                                                              =========================================================
    Cash paid for taxes                                                $   4,456        $  17,156          $    30,256
                                                              =========================================================
    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  systems that  provide  highly  reliable,  high-quality,
environmentally   friendly,   uninterruptible   electric  power  employing  both
proprietary  and third-party  solutions for a number of potential  applications.
Because the Company has not yet generated a  significant  amount of revenue from
its principal operations,  it is continuing to be accounted for as a development
stage  company  under  Statement of Financial  Accounting  Standards  No. 7. The
Company has a single operating segment,  manufacturing alternative power sources
and does not have a segmented structure dictated by product lines,  geography or
customer type. However,  the Company has segmented the potential markets for its
products into three broad categories:  high-energy,  high-power  uninterruptible
power systems  (UPS),  and high-power  distributed  generation and utility power
grid energy storage systems.

Operations.  The Company has  experienced net losses since its inception and, as
of March 31, 2003, had an accumulated  deficit of approximately  $117.1 million.
We are presently  analyzing  markets for our current and  contemplated  flywheel
systems and  electronic  products  in terms of their size and growth  potential,
competitive  advantages that our products could provide and probable penetration
we could achieve.  If we identify  markets in which we believe our products will
be successful, and those markets express a tangible interest in our products, we
may not have  sufficient  cash available to complete  prototype  development and
production of our products  unless we raise  additional  equity,  or obtain debt
financing.  We have taken  significant  actions over the last eighteen months to
reduce our expenditures for product  development,  infrastructure and production
readiness.  Our headcount,  development  spending and capital  expenditures have
been  significantly  reduced.  We have  continued  the  preliminary  design  and
development  of potential  products  for markets  under  consideration  and with
specific  approval  by  the  Company's  Board  of  Directors  limited  component
development  by our vendors  may be  authorized.  However,  we will not make the
additional  expenditures  that would be required for  prototype  development  or
production  capabilities until we have defined the specific markets to be served
and the marketplace has expressed tangible interest.

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

The accompanying  unaudited consolidated financial statements have been prepared
using accounting  principles  generally accepted in the United States of America
for interim financial information and with Regulation S-X. Accordingly,  they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management, all adjustments,  consisting of normal recurring accruals considered
necessary  for a fair  presentation,  have  been  included  in the  accompanying
unaudited  financial  statements.  Operating  results for the three months ended
March  31,  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. 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

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

                                                       Estimated
                                                         Useful       March 31,        December 31,
                                                         Lives           2003              2002
                                                      -------------------------------------------------
<S>                                                     <C>              <C>               <C>
Machinery and equipment                                 5 years          $ 1,991,381       $ 1,998,631
Service vehicles                                        5 years               63,792            63,792
Furniture and fixtures                                  7 years              686,572           717,293
Office equipment                                        3 years            1,908,500         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                                                               $ 7,731,807       $ 7,848,214

Less accumulated depreciation and amortization                           (3,005,683)       (2,996,079)
                                                                  -------------------------------------

     Property and equipment, before impairment                           $ 4,726,124       $ 4,852,135
                                                                  -------------------------------------

Less Impairment Reserve                                                  (4,283,512)       (4,289,206)
                                                                  -------------------------------------

     Property and equipment, net                                          $  442,612        $  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 leases for certain office
and manufacturing  equipment  expiring through December 2003. Under the terms of
the facility lease, the Company  provided the lessor with an irrevocable  letter
of  credit.  At March 31,  2003 the  balance  of the  letter  of credit  totaled
$355,232. A cash deposit secures this letter of credit.

On March  24,  2003,  the  Company  announced  that it had  committed  to invest
$1,000,000 in the Series A Preferred  Stock of Evergreen  Solar,  Inc., a public
company which  specializes in renewable  energy  sources,  in order to develop a
strategic  relationship  with that company.  This  investment  will be part of a
larger  financing  provided  by several  investors  and will be made on the same
terms as the other  investors  in this  financing,  except that the Company will
also be  permitted  to  purchase  a  three-year  warrant  for  $100,000  that is
exercisable for 2,400,000 shares of Evergreen's common stock.

Note 5.  Common Stock

Reserved  Shares.  At March 31,  2003 and  December  31,  2002,  13,684,392  and
14,493,238 shares of common stock were reserved for issuance under the Company's
stock option plan and outstanding warrants, respectively.


Note 6.  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 Beacon  Power  Corporation  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  March 31,  2003,  the  Company  has
collected  approximately  $317,000 in payments on these advances.  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 $426,148
to reserve the  remaining  balance of the advance to Mr.  William  Stanton,  its
former CEO and president.  This loan,  however,  has not been cancelled,  and is
partially  secured  by  308,318  shares  of the  Company's  stock.  Mr.  Stanton
continues  to be a director  of the  Company.  This  charge is included in other
expenses in the accompanying consolidated statement of operations. The remaining
advance  balance of  approximately  $62,000  at March 31,  2003 is  included  in
prepaid and other assets in the accompanying consolidated balance sheet.

Note 7. 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  products
into this market.  Therefore,  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:
<TABLE>
<CAPTION>

                                                       Facility related        Asset impairment
<S>                                                         <C>                     <C>
Beginning balance at December 31, 2002                      $ 1,749,738             $ 4,289,206
Charges for the period                                                -                       -
Other                                                                 -                 (5,694)
Payments                                                       (85,887)                       -
                                                ------------------------------------------------
Ending balance at March 31, 2003                            $ 1,663,851             $ 4,283,512
                                                ================================================
</TABLE>

Note 8.  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           Three months ended
                                                        March 31, 2003               March 31, 2002
                                                   --------------------------------------------------------

<S>                                                             <C>                           <C>
Net loss to common shareholders as reported                     $(2,229,375)                  $(5,550,895)
Pro forma compensation expense                                             -                       361,993
                                                   --------------------------  ----------------------------
Net loss--pro forma                                             $(2,229,375)                  $(5,912,888)
Loss per share--as reported                                       $   (0.05)                    $   (0.13)
Loss per share--pro forma                                         $   (0.05)                    $   (0.14)
</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  Corporation,  and its subsidiary  (collectively  "Beacon" or "the Company")
designs,  develops,  configures and offers for sale,  power systems that provide
highly  reliable,   high-quality,   environmentally  friendly,   uninterruptible
electric power employing both proprietary and third-party solutions for a number
of potential  applications.  The Company has segmented the potential markets for
its   products   into   three   broad   categories:    high-energy,   high-power
uninterruptible  power systems (UPS) and high-power  distributed  generation and
utility power grid energy  storage  systems.  We have available for sale several
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. We
also have 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,  we are  developing a new  high-energy  product for
potential  applications in the renewable energy market for both photovoltaic and
wind turbine uses.

Lead-acid   batteries   are  the  most   commonly  used  devices  for  providing
long-duration backup power and replacement electric power and for ensuring power
quality,  either alone or as a temporary measure until generators or other power
sources can be activated.  Our  flywheel-based  systems offer an  alternative to
battery  systems,  providing  the same  function  but with much  longer life and
without the need for  regular  maintenance.  Flywheel  systems  draw  electrical
energy from a primary power source while that source is operational,  store that
energy, and then convert that energy to provide immediate,  peak-power,  voltage
support and  uninterruptible  electric power when the primary power source fails
or is disrupted.

We believe  that our  current  and  anticipated  flywheel-based  products  offer
life-cycle  cost  advantages  and   significant   performance   advantages  over
conventional,  battery-based  back-up power and UPS systems.  These  performance
advantages include improved certainty of operations,  more reliable  monitoring,
higher reliability,  significantly longer life, improved recharging  capability,
significantly   reduced  scheduled   maintenance,   and  greater   environmental
friendliness.  Life-cycle cost  comparisons  consider the costs over the life of
the product and  include  initial  costs,  expense of  maintaining,  monitoring,
replacement and disposing of competing products.

In the area of distributed  generation and utility grid  applications,  users of
electricity  can  experience  significant  losses in their  operations  if their
electricity supply is partially or wholly  interrupted,  such as by sags, surges
and other temporary  interruptions or variations in utility-supplied power. When
grid-supplied electricity is interrupted,  these users must employ some means to
replace it. Even if the utility industry were to undertake  substantial upgrades
and other  investments to improve overall utility grid  reliability,  the grid's
exposure to severe  weather,  accidents and other external events means that the
absolute level of power quality  required for today's  sophisticated  electronic
and  industrial   applications   remains  difficult  to  achieve  without  local
uninterrupted  power  protection  close to the  place  of use.  In  addition  to
supplying the necessary  power levels and time duration for these  applications,
these  flywheel  systems would have the added  advantages  of minimal  scheduled
maintenance, long life, reliable monitoring and environmental friendliness.

From  our  inception   through  March  31,  2003  we  have  incurred  losses  of
approximately  $117.1 million.  We do not expect to become  profitable or obtain
positive  cash flow before 2006 and may not achieve  positive  cash flow even at
that  point  or  beyond.  Also,  our  losses  and  uses  of cash  may  fluctuate
significantly  from quarter to quarter as our costs of  development,  production
and marketing fluctuate and we make investments that we consider strategic.



Results of operations:

Comparison of three months ended March 31, 2003 and 2002

Revenues.  We are evaluating  markets for our current  products and other future
products but we did not recognize  revenues for the three months ended March 31,
2003 or 2002.  Prior to the fourth  quarter of 2000,  we recorded  revenues as a
result of development  contracts with government  entities focused on the design
of flywheel  technologies.  We have placed several  development  prototypes with
potential  customers  and shipped  pre-production  units.  These  products  were
provided to potential  customers  without charge or on a demonstration  basis to
allow us access to field test  information and to demonstrate the application of
our technologies.

Selling,  General and Administrative  Expenses. Our sales and marketing expenses
consist  primarily of  compensation  and  benefits  for our sales and  marketing
personnel and related business development  expenses.  During 2001, we increased
our sales and  marketing  effort by hiring  five sales  persons  and  initiating
several  marketing  research efforts to help us find markets for our current and
future  products.  We  continue  to rely on  engineering  personnel  to  provide
technical  specifications  and product overviews to our potential customer base.
Our general and  administrative  expenses consist  primarily of compensation and
benefits related to our corporate staff,  professional fees, insurance costs and
travel.  Selling,  general and  administrative  expenses  totaled  approximately
$1,219,000  and  $2,036,000  for the three months ended March 31, 2003 and 2002,
respectively.  The decrease of approximately $817,000 is primarily the result of
a reduction in headcount.

Research  and  Development.  Our  cost  of  research  and  development  consists
primarily of the cost of compensation and benefits for research and development,
manufacturing  and support staff,  as well as materials and supplies used in the
engineering design process.  These costs were reduced  significantly during 2002
as we reduced our headcount on March 12 and July 19, 2002.While we do not expect
to incur any  significant  additional  costs for our  existing  products,  we do
expect to incur  significant  costs for the  development  of prototypes  for new
products and  staffing the  manufacturing  function  and  establishing  required
processes for  commercial  production of our products.  We will begin  prototype
development and establishing  production  capabilities after we have defined the
specific  markets  to be  served  and the  marketplace  has  expressed  tangible
interest.  While we will continue to design new high-powered products, we expect
our cost of research  and  development  in 2003 to be reduced  compared to 2002.
Research and development expenses totaled approximately  $959,000 and $3,140,000
for the three months ended March 31, 2003 and 2002,  respectively.  The decrease
of $2,181,000 is primarily the result of lower  headcount and lower  development
costs in 2003 compared to 2002 as we perform limited  development  while working
to identify markets for our products.

Depreciation  and  Amortization.  Our depreciation and amortization is primarily
related to depreciation on capital  expenditures  and the  amortization of lease
and  leasehold  costs  related  to our  facilities.  We also  have  intellectual
property in the form of a patent on our vacuum  system that we began to amortize
in 2002.  Depreciation  and  amortization  totaled  approximately  $100,000  and
$506,000 for the three months ended March 31, 2003 and 2002,  respectively.  The
decrease of $406,000 is  attributable  to the decrease in the remaining net book
values of our assets.

Interest and Other  Income/Expense,  net. Our non-operating  income and expenses
are  primarily  attributable  to  interest  income  resulting  from cash on hand
partially  offset by interest  expense  associated with our capital leases.  Our
interest  income for the three  months  ended March 31,  2003 was  approximately
$58,000,  compared to $154,000 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  $4,000 for the three months ended
March 31, 2003 from approximately  $15,000 for the same period in 2001. Interest
expense relates to assets leased under capital leases.

Other expense of approximately  $6,000 for the three months ended March 31, 2002
relates to the  write-off of  capitalized  interest on the reserved  loan of our
former CEO.

Liquidity and Capital Resources

Our cash  requirements  depend  on many  factors,  including  our  research  and
development  activities,  continued  efforts to  commercialize  our products and
additional  market  development.  We expect to make significant  expenditures to
fund our working capital,  develop our technologies and explore opportunities to
find and develop  other  markets to sell our  products.  However,  we have taken
significant   actions  over  the  last  eighteen   months  to  reduce  our  cash
expenditures for product development,  infrastructure and production  readiness.
We have  significantly  reduced  headcount,  development  spending  and  capital
expenditures.  We have focused our activity on market  analysis in terms of size
of markets,  competitive aspects and advantages that our products could provide.
We have continued to do preliminary design and development of potential products
for markets under  consideration.  We are not making  expenditures for prototype
development  or  production  capabilities  until we have  defined  the  specific
markets to be served.

Net  cash  used in  operating  activities  was  approximately  ($1,938,000)  and
($5,734,000)  for the three months ended March 31, 2003 and 2002,  respectively.
The primary  component to the  negative  cash flow from  operations  is from net
losses.  For the first three months of 2003, we had a net loss of  approximately
($2,229,000).  This included  non-cash charges of  approximately  $6,000 for the
reserve of  interest  capitalized  on a reserved  note due from our former  CEO,
facility  related  cash  payments  charged  against  restructuring  reserves  of
approximately ($86,000), gain on the sale of assets of ($6,000) and depreciation
and  amortization of  approximately  $100,000.  Changes in operating  assets and
liabilities  generated  approximately  $277,000  of cash  during the first three
months of 2003. The primary  components  were  increases in accounts  payable of
approximately  $70,000,  and  decreases  in prepaid  expenses  of  approximately
$441,000. These were offset by accrued expenses and other current liabilities of
approximately  ($161,000) and accrued compensation and benefits of approximately
($73,000).  For  the  first  three  months  of  2002,  we  had  a  net  loss  of
approximately  ($5,551,000).  This included  non-cash  charges of  approximately
$11,000 for  amortization of deferred stock  compensation  and  depreciation and
amortization  of  approximately  $506,000.   Changes  in  operating  assets  and
liabilities used approximately  ($699,000) of cash during the first three months
of  2002.  The  primary   components  were  decreases  in  accounts  payable  of
approximately  ($435,000),  accrued  expenses and other current  liabilities  of
approximately  ($233,000),  accrued  compensation  and benefits of approximately
($82,000) and amount due to a related party of ($36,000). These were offset by a
decrease of approximately $87,000 for prepaid expenses and other current assets.

Net  cash  used  in  investing  activities  was  approximately   ($121,000)  and
($102,000) for the three months ended March 31, 2003 and 2002, respectively. The
principal  uses of cash  during the first three  months of 2003 were  related to
increases in other assets totaling  ($150,000) and the principal sources of cash
were from the sale of certain impaired machinery and equipment of the company of
approximately  $29,000. The principal uses of cash during the first three months
of  2002  were  related  to  purchases  of  machinery  and  equipment   totaling
approximately ($89,000) and an increase in other assets of ($13,000.)

Net cash used by financing activities was approximately  ($76,000) and ($96,000)
for the three months ended March 31, 2003 and 2002, respectively.  For the first
three months of 2003 and 2002 the cash used for financing activities all related
to repayment of capital leases.

Based on our operating  baseline,  which  includes the cash flow benefits of our
significantly reduced headcount,  development spending and capital expenditures,
we  believe  that our 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, which would require significant amounts of cash. In the
event that we are not able to obtain  development  contracts  from  customers to
fund prototype  development,  these expenditures will  significantly  reduce the
number  of  months  our cash and cash  equivalents  and  future  cash  flow from
operations  will  satisfy our  working  capital  needs.  In as much as we do not
expect to become  profitable  or cash flow positive  until 2006,  our ability to
continue as a going  concern  will depend on our being able to raise  additional
capital.  We may not be able to raise this  capital at all, or if we are able to
do so, it may be on terms that are extremely dilutive to our 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 High-Energy Products May Not Be Recognized.

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

We May Not Be Able  to  Reduce  Our  Product  Cost  Enough  to Make  Our  Prices
Competitive

     There  can be no  assurance  that we will be  successful  in  lowering  our
     production costs through lower cost designs or volume discounts,  which may
     prevent market acceptance of our products.

We Have Very Limited Experience Manufacturing 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 we  experience  customer  demand for our  products,  we will need to
     develop or obtain manufacturing capacity to meet quality, profitability and
     delivery  schedules.  We may need to  establish  manufacturing  facilities,
     expand our current facilities or expand third-party manufacturing.  We have
     no experience in the volume  manufacture of flywheel  systems and there can
     be no  assurance  that  we  will be able  to  accomplish  these  tasks,  if
     necessary, on a timely basis to meet customer demand or at all. In fact, we
     have idled our manufacturing  capabilities  through headcount reduction and
     delaying the development of our manufacturing process documentation and the
     capital build-out to conserve cash. We may not achieve  profitability if we
     cannot  develop or obtain  efficient,  low-cost  manufacturing  capability,
     processes  and  suppliers  that will enable us to meet the quality,  price,
     engineering, design and production standards or production volumes required
     to meet our product  commercialization  schedule, if any, or to satisfy the
     requirements of our customers or the market generally.

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

     We will need to secure additional  financing in the future to carry out our
     business  plan. We believe our cash balances will fund our  operations  for
     the foreseeable future. We 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.

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

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

     If we raise additional funds by issuing additional equity  securities,  our
     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 Disqualified from the SmallCap Market System of NASDAQ

     NASDAQ has advised us that unless our stock maintains a minimum closing bid
     price of one dollar for ten  consecutive  trading days before June 6, 2003,
     it will no longer be eligible for quotation on the NASDAQ  SmallCap  Market
     after that date.  We do not expect our stock to satisfy  this  requirement.
     Should our stock lose its eligibility to be quoted on the SmallCap  Market,
     we will  seek to have it quoted  on the  OTCBB.  While we know of no reason
     that our stock  will not be  accepted  for  quotation  on OTCBB,  we cannot
     guarantee that  acceptance.  If our stock is not accepted for acceptance on
     the OTCBB, it will be listed on the pink sheets.

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 Products.

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

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

     We  initially  targeted  the  communications  markets  for the  sale of our
     high-energy  products.   However,  this  industry,   which  had  previously
     sustained high rates of infrastructure  build-out,  has experienced a sharp
     decline  in  build-out  as  well  as  maintenance   spending.   Significant
     reductions in both  maintenance  budgets and capital  build-out  budgets at
     telecommunications   companies   made  these   potential   customers   more
     conservative with their spending and expenditure  analysis and less willing
     to try new technology solutions, such as our products.

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

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

     See "Business," "Selected Financial Data" and "Management's  Discussion and
     Analysis of Financial Condition and Results of Operations."

We Have  Incurred  Losses Since Our Inception and  Anticipate  Continued  Losses
Through at Least 2006.

     We have incurred net losses to common  shareholders and negative cash flows
     since our inception in May 1997.  We had net losses to common  shareholders
     of   approximately   ($20,839,000)   in   2002,   ($26,146,000)   in  2001,
     ($53,279,000)  in 2000 and ($6,630,000) in 1999. Since our inception in May
     1997,   we  have  had  net   losses   to   common   shareholders   totaling
     ($117,147,299).  We expect to  continue to incur net losses  through  2006.
     Although we are looking for additional  ways to economize and reduce costs,
     our efforts may prove even more expensive  than we anticipate.  Our revenue
     must grow  substantially  if we are to offset  these  higher  expenses  and
     become profitable. Even if we do achieve profitability, we may be unable to
     sustain or increase our profitability in the future.

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

We Might Fail to Develop Successful Products.

     The   successful   development   of  our  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 our  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 our chances of achieving
          profitability;

     o    ensuring minimal warranty expenses through design and quality control;

     o    ensuring quality and cost control from our suppliers;

     o    raising the  necessary  financing  to provide  sufficient  funding for
          completion of development;

     o    extending the product to new applications.

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

     Our business,  prospects,  results of  operations,  or financial  condition
     could be harmed if we are  unable to  maintain  satisfactory  relationships
     with  suppliers.   To  accelerate   development  time  and  reduce  capital
     investment,  we rely on third-party suppliers for several key components of
     our systems.  We do not have any contracts with all of these suppliers.  If
     these  suppliers  should fail to timely  deliver  components  that meet our
     quality,  quantity, or cost standards,  then we could experience production
     delays or cost increases and our financial  performance  could be adversely
     affected.  Because the components  with limited  sources are key components
     that are complex,  difficult to manufacture and require long lead times, we
     may have  difficulty  finding  alternative  suppliers  on a timely  or cost
     effective basis. As a result, we could experience shortages in supply or be
     unable to be cost competitive in the markets we are pursuing.

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

     The  markets  for  highly  reliable,  uninterruptible  electric  power  are
     intensely  competitive.  There are a number  of  companies  located  in the
     United States, Canada, and abroad that are offering flywheel energy storage
     technology. We also compete with companies that are developing applications
     using other types of alternative  energy  storage.  In addition,  if large,
     established companies decide to focus on the development of flywheel energy
     storage  systems  or  other  alternative  energy  products  for sale to our
     potential customers, they may have the manufacturing,  marketing, and sales
     capabilities to complete  research,  development and  commercialization  of
     commercially  viable  alternative energy storage systems that could be more
     competitive  than our systems  and could be brought to market more  quickly
     than ours. To the extent they already have name recognition, their products
     may enjoy greater initial market acceptance among our potential  customers.
     These  competitors  may also be better able than we are 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 our systems  obsolete.  We do not have any
     products or technologies other than flywheel systems under development. Our
     system is,  however,  only one of a number of alternative  energy  products
     being  developed by potential  competitors  that have potential  commercial
     applications,  including ultra capacitors,  fuel cells, advanced batteries,
     and other alternative energy technologies.

Government Regulation May Impair Our Ability to Market Our Product.

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

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

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

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

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

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

     Because our future success  depends to a large degree on the success of our
     technology, our competitiveness will depend significantly on whether we can
     attract and retain skilled technical personnel,  especially engineers,  and
     can retain  members of our executive  team. We have  employment  agreements
     that include  non-compete  clauses with Messrs.  Capp,  CEO and  President;
     Spiezio, Vice President of Finance, Chief Financial Officer,  Treasurer and
     Secretary;  Driscoll, Vice President of Engineering;  and Lazarewicz, Chief
     Technical Officer.

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

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

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

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

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

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

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

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

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

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

     Stockholders who owned our company prior to our initial public offering own
     approximately  64% of our  outstanding  stock as of December 31, 2002. If a
     sufficient  number of these  stockholders were to vote together as a group,
     they would  have the  ability to  control  our board of  directors  and its
     policies.  For instance,  these  stockholders  would be able to control the
     outcome of all  stockholder  votes,  including  votes  concerning  director
     elections,  charter and by-law amendments and possible  mergers,  corporate
     control  contests  and  other  significant  corporate  transactions.  These
     stockholders may use their influence to approve actions that are adverse to
     the interest of other investors, which could depress our stock price.

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

     The markets for equity securities of high technology  companies,  including
     companies in the power  reliability  and power quality  markets,  have been
     highly volatile  recently and the market price of our common stock has been
     and may continue to be subject to significant  fluctuations.  This could be
     in  response  to  operating   results,   announcements   of   technological
     innovations  or  new  products  by  us,  or  our  competitors,   patent  or
     proprietary  rights  developments and market conditions for high technology
     stocks  in  general.  In  addition,  stock  markets  in recent  years  have
     experienced  extreme  price and  volume  fluctuations  that often have been
     unrelated or  disproportionate  to the operating  performance of individual
     companies.   These  market  fluctuations,   as  well  as  general  economic
     conditions,  may  adversely  affect the market  price of our common  stock,
     which could  affect our ability to attract  additional  capital to fund our
     operations.

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, our inability to sell products to date and the asset impairments we
     have  recognized our  shareholders  may suffer  substantial  dilution.  The
     dilutive effect may increase  substantially if our 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  Values Through Strategic  Alliance or Return on Investment Which do
Not Create Gains and therefore Reduce Shareholder Value.

     We may make  investments  in other  energy  companies in our sector to gain
     strategic  alliances,  channels to market or  appreciation  in stock value.
     These  investments  may not  provide  alliances  or channels to market that
     would increase  shareholder value. Given the volatility of share prices for
     companies  in  our  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 our  certificate  of  incorporation  and  by-laws and in the
     Delaware  corporate  law,  and the  shareholder  rights  plan we 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 our management and board of directors.  Public  stockholders who
     might  desire  to  participate  in  such a  transaction  may  not  have  an
     opportunity  to do so.  Beginning  with our annual  stockholder  meeting in
     2001,  we  implemented  a staggered  board of  directors  that will make it
     difficult  for  stockholders  to  change  the  composition  of the board of
     directors in any one-year. Pursuant to a shareholder rights plan adopted in
     September  2002,  we issued  rights as a dividend  on our  common  stock on
     October 7, 2002 each of which entitles the holder to purchase  1/100th of a
     share of our 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
     our  outstanding  common  stock,  or in the event that we are  acquired  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, our board of directors
     may authorize issuances of "blank check" preferred stock that could be used
     to increase  the number of  outstanding  shares and  discourage  a takeover
     attempt.  These  anti-takeover  provisions could  substantially  impede the
     ability  of public  stockholders  to  benefit  from a change in  control or
     change in our 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,  such as Beacon
     Power.  These attacks may lead to armed  hostilities  or to further acts of
     terrorism and civil  disturbances in the United States or elsewhere,  which
     may further  contribute  to economic  instability  in the United States and
     could have a material adverse effect on our business,  financial  condition
     and operating results.

<PAGE>

Item 3.  Quantitative and Qualitative Disclosure about Market Risk

Our cash equivalents and investments,  all of which have maturities of less than
one year,  may  expose us to  interest  rate  risk.  At March 31,  2003,  we had
approximately $60,000 of cash equivalents that were held in non-interest bearing
accounts.  Also at March  31,  2003,  we had  approximately  $1,013,000  of cash
equivalents that were held in interest bearing checking accounts and $15,013,000
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 $26,000, which we do 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 a date within 90 days
before the filing date of this  quarterly  report.  Based upon that  evaluation,
they have concluded that the Company has in place controls and other  procedures
that are  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  the  date  of the
evaluation,  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

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

Item 2.  Changes in Securities

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

From  November 16, 2000 to March 31, 2003, we spent  approximately  $9.8 million
for inventory and materials  used in research and  development  and $7.2 million
for  property  and  equipment,  including  the  build-out of our facility at 234
Ballardvale Street in Wilmington,  MA. In addition,  we spent approximately $1.2
million to pay dividends on our preferred stock that accrued through the date of
our initial public offering.  We have spent  approximately $33 million for other
working  capital  needs.  In addition to the above,  we advanced  funds totaling
approximately  $785,000 to three  officers of the  Company.  The  officers  have
repaid approximately  $317,000 of these advances through March 31, 2003. 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  $426,148  to reserve  the  remaining  balance  of the  advance to Mr.
William Stanton, its former CEO and president.  This loan, however, has not been
cancelled,  and is partially  secured by 308,318 shares of the Company's  stock.
Mr. Stanton  continues to be a director of the Company.  This charge is included
in other expenses in the accompanying consolidated statement of operations.  The
remaining advance balance of approximately $62,000 at March 31, 2003 is included
in prepaid and other  assets in the  accompanying  consolidated  balance  sheet.
Other than as  disclosed  above,  none of these  amounts were direct or indirect
payments  to  directors  or  officers  of the issuer or their  associates  or to
persons owning 10% or more of our common stock or to any of our affiliates.

Item 3.  Defaults Upon Senior Securities

         None.

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

         None.

Item 5.  Other Information

         None.

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

     (a) None

     (b) Reports on Form 8-K
         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:  May 6, 2003         By:  /s/ F. William Capp
                                            -------------------
                                            F. William Capp
                                            President and Chief Executive
                                            Officer


                   May 6, 2003              /s/ James M. Spiezio
                                            --------------------
                                            James M. Spiezio
                                            Vice President of Finance, Chief
                                            Financial Officer, Treasurer and
                                            Secretary (Principal Financial
                                            Officer)

<PAGE>
                                  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  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

     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  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 6, 2003


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

<PAGE>

                                  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  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

     c)  presented  in  this  quarterly   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

     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  in the design or  operation  of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: May 6, 2003

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