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, 2004,

                                       or

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

                        Commission File Number: 001-16171

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




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



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

                                 (978) 694-9121
              (Registrant's telephone number, including area code)
                            ------------------------

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

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

     The number of shares of the  Registrant's  common stock, par value $.01 per
share, outstanding as of May 10, 2004 was 43,141,582.

<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, 2004 and December 31, 2003.    1

     Unaudited Consolidated Statements of Operations for the three months
        ended March 31, 2004 and 2003 and for the Period May 8, 1997
        (date of inception) to March 31, 2004.                               2

     Unaudited Consolidated Statements of Cash Flows for three months
        ended March 31, 2004 and 2003 and for the Period May 8, 1997
        (date of inception) to March 31, 2004.                               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>
<CAPTION>
                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                     Consolidated Balance Sheets (Unaudited)

                                                                         March 31,             December 31,
                                                                            2004                   2003
                                                                    ---------------------  ---------------------
Assets
Current assets:
<S>                                                                       <C>                    <C>
   Cash and cash equivalents                                              $    7,096,242         $    8,909,261
   Accounts receivable, trade                                                     97,972                128,133
   Inventory                                                                     606,786                238,684
   Prepaid expenses and other current assets                                     594,339                773,226
   Investments (Note 5)                                                        1,187,500              1,163,758
                                                                    ---------------------  ---------------------
      Total current assets                                                     9,582,839             11,213,062

Property and equipment, net (Note 3)                                             342,940                357,180
Restricted cash                                                                  405,232                405,232
Other assets                                                                      73,060                 91,325
                                                                    ---------------------  ---------------------

Total assets                                                              $   10,404,071         $   12,066,799
                                                                    =====================  =====================

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                        $     365,159          $     148,075
   Accrued compensation and benefits                                             216,563                156,000
   Other accrued expenses                                                        582,664                664,527
   Restructuring reserve                                                       1,320,305              1,406,191
                                                                    ---------------------  ---------------------
      Total current liabilities                                                2,484,691              2,374,793

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;
   43,137,526 and 43,107,526 shares issued and outstanding at
   March 31, 2004 and December 31, 2003, respectively                            431,375                431,075
   Deferred stock compensation                                                 (451,669)              (832,639)
   Additional paid-in-capital                                                133,791,498            133,796,667
   Deficit accumulated during the development stage                        (125,752,164)          (123,603,437)
   Treasury stock, at cost                                                      (99,660)               (99,660)
                                                                    ---------------------  ---------------------
      Total stockholders' equity                                               7,919,380              9,692,006

Total liabilities and stockholders' equity                                $   10,404,071         $   12,066,799
                                                                    =====================  =====================
           See notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                Consolidated Statements of Operations (Unaudited)

                                                                                   Cumulative from
                                                                                      May 8, 1997
                                                                                        (date of
                                                                                       inception)
                                                  Three months ended March 31,     through March 31,
                                                     2004             2003                2004
                                                ---------------- ----------------  -------------------
<S>                                                  <C>                <C>              <C>
Revenue                                              $   57,408         $      -         $    608,592
Cost of goods sold                                       75,779                -               75,779
                                                ---------------- ----------------  -------------------
Gross profit                                           (18,371)                -              532,813

Operating expenses:
   Selling, general and administrative                1,076,262        1,218,648           29,135,865
   Research and development                           1,048,240          958,907           51,391,726
   Loss on sales commitments                                  -                -              375,974
   Depreciation and amortization                         46,587           99,689            3,997,323
   Restructuring charges                                      -                -            2,159,280
   Loss on impairment of assets                               -                -            4,663,916
                                                ---------------- ----------------  -------------------
        Total operating expenses                      2,171,089        2,277,244           91,724,084
                                                ---------------- ----------------  -------------------

Loss from operations                                (2,189,460)      (2,277,244)         (91,191,271)

Other income (expense):
Interest income                                          40,583           58,039            3,820,550
Interest expense                                              -          (4,230)          (1,093,703)
Other income (expense)                                      150          (5,940)            (281,546)
                                                ---------------- ----------------  -------------------
   Total other income (expense), net                     40,733           47,869            2,445,301
                                                ---------------- ----------------  -------------------
Net loss                                            (2,148,727)      (2,229,375)         (88,745,970)

Preferred stock dividends                                     -                -         (36,825,680)
Accretion of convertible preferred stock                      -                -            (113,014)
                                                ---------------- ----------------  -------------------
Loss to common shareholders                        $(2,148,727)     $(2,229,375)      $ (125,684,664)
                                                ================ ================  ===================
Loss per share, basic and diluted                    $   (0.05)       $   (0.05)
                                                ================ ================
Weighted-average common shares outstanding           43,121,702       42,812,897
                                                ================ ================

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

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                Consolidated Statements of Cash Flows (Unaudited)
                                                                                               Cumulative from
                                                                                                 May 8, 1997
                                                                                                   (date of
                                                                                                  inception)
                                                               Three months ended March 31,     through March
                                                                   2004            2003            31, 2004
                                                              --------------- --------------- -------------------
Cash flows from operating activities:
<S>                                                            <C>             <C>               <C>
      Net loss                                                 $ (2,148,727)   $ (2,229,375)     $  (88,745,970)
      Adjustments to reconcile net loss to net cash used in
      operating activities:
          Depreciation and amortization                               46,587          99,689           3,997,324
          Loss on sale of fixed assets                                     -         (5,693)             170,868
          Impairment of assets                                             -               -           4,663,916
          Changes in restricted cash                                       -               -           (405,232)
          Restructuring charge net of expenses paid                 (85,886)        (85,887)           1,320,305
          Reserve for officers note                                        -           5,940             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                349,401               -           1,639,654
          Warrants issued for consulting services                          -               -           1,569,366
          Services and interest expense paid in preferred
          stock                                                            -               -              11,485
      Changes in operating assets and liabilities:
          Accounts receivable                                         30,161               -            (97,972)
          Inventory                                                (368,102)               -           (606,786)
          Prepaid expenses and other current assets                  178,887         440,686           (813,974)
          Accounts payable                                           217,084          70,194             365,159
          Accrued compensation and benefits                           60,563        (72,955)             216,563
          Accrued interest                                                 -               -             275,560
          Dividend receivable                                       (23,742)               -            (87,500)
          Due to related party                                             -               -                   -
          Other accrued expenses and current liabilities            (81,863)       (160,995)             591,334
                                                              --------------- --------------- -------------------
          Net cash used in operating activities                  (1,825,637)     (1,938,396)        (73,634,390)

Cash flows from investing activities:
      Purchase of investments                                              -               -         (1,100,000)
      Increase in other assets                                             -       (149,600)           (412,072)
      Purchases of property and equipment                           (14,082)               -         (8,435,790)
      Sale of property and equipment                                       -          28,878              53,365
                                                              --------------- --------------- -------------------
          Net cash used in investing activities                     (14,082)       (120,722)         (9,894,497)

Cash flows from financing activities:
      Initial public stock offering, net of expenses                       -               -          49,341,537
      Payment of dividends                                                 -               -         (1,159,373)
      Shares issued under employee stock purchase plan                     -               -             124,214
      Exercise of employee stock options                              26,700               -           1,436,267
      Issuance of preferred stock                                          -               -          32,868,028
      Repayment of subscription receivable                                 -               -           5,000,000
      Proceeds from capital leases                                         -               -             495,851
      Repayment of capital leases                                          -        (76,013)         (1,031,395)
      Proceeds from notes payable issued to investors                      -               -           3,550,000
                                                              --------------- --------------- -------------------
          Net cash provided by (used in) financing
          activities                                                  26,700        (76,013)          90,625,129

(Decrease)increase in cash and cash equivalents                  (1,813,019)     (2,135,131)           7,096,242

Cash and cash equivalents, beginning of period                     8,909,261      17,866,534                   -
                                                              --------------- --------------- -------------------
Cash and cash equivalents, end of period                          $7,096,242     $15,731,403       $   7,096,242
                                                              =============== =============== ===================

Supplemental disclosure of non--cash transactions:
      Cash paid for interest                                         $     -        $  4,230         $   488,126
                                                              =============== =============== ===================
      Cash paid for taxes                                           $  1,956        $  4,456         $    32,456
                                                              =============== =============== ===================
      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") design,  develop,  configure and offer
for sale,  power  conversion  and energy  storage  systems that  provide  highly
reliable, high-quality, environmentally friendly, uninterruptible electric power
employing  both  proprietary  and  third-party  technology  and components for a
number of applications and potential applications. The Company has the following
products, which are in varying stages of development:

o             Smart Energy(TM) Matrix - A high-power, flywheel-based system,
              that continuously regulates the frequency of electricity on the
              power grid, and could be used by independent system operators and
              regional transmission operators to regulate electrical power;
o             The Smart Energy Matrix could also continuously regulate the
              frequency of electricity produced by a distributed generation
              facility and compensate for temporary differences between the
              demand for electricity and the amount being produced by that
              facility;
o             Smart Power(TM) 250 - A high-power, flywheel-based system that
              could provide electricity until a longer-term backup power source
              comes on-line;
o             Smart Power M5 inverter system - An electronic system that
              converts direct current electricity produced by photovoltaic
              panels into alternating current electricity for residential and
              commercial use; and
o             Smart Energy system - A high-energy flywheel-based system that
              stores electricity for telecommunications, cable systems, computer
              networks, and Internet markets applications.

Smart Energy Matrix

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

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

Smart Power 250

     For uninterrupted  power supply applications the Company has available it's
Smart  Power 250 for  short  (10 to 60  seconds)  duration.  When grid  power is
interrupted, the Company's Smart Power 250 provides power for a short time while
a diesel  generator can be activated.  This  application  would typically be for
commercial  and  industrial  facilities.  The Company does not produce the short
duration Smart Power 250, but has domestic distribution  agreements in place for
the flywheel and the required electronics with their manufacturers.  The Company
does not believe that the market for this product is  significant at the present
time.  The Company  believes  that as power quality and  distributed  generation
become more widely  used,  the market  demand for the Smart Power 250 could grow
substantially.

Smart Power M5

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

Smart Energy

     The Company has available for sale its Smart Energy products, which deliver
a low level of power for a long  period of time  (typically  measured in hours).
These  products  include  the 2kWh and 6kWh  Smart  Energy  systems,  which have
demonstrated  quality  performance and reliability at numerous sites.  The Smart
Energy products are tailored to the telecommunications,  cable systems, computer
networks,  and  Internet  markets.  The Company  believes  that its Smart Energy
products  offer  life  cycle  cost   advantages  and   significant   performance
improvements  over  conventional,   battery-based  back-up  power  sources.  The
Company's Smart Energy systems have approximately  350,000 hours of operation in
customer sites without  failure of their  mechanical  system,  which the Company
believes  verifies the reliability of their  technologies.  The Company believes
that its Smart Energy  technology is an excellent base to begin development of a
higher energy 25kWh flywheel system for renewable  applications when the Company
determines  that the market  interest is  sufficient  to justify that  product's
development.

     Although  the Company has begun  shipment of if its Smart Power M5 product,
operations have not yet reached a level that would qualify the company to emerge
from the  development  stage.  Therefore it  continues to be accounted  for as a
development stage company under Statement of Financial  Accounting Standards No.
7 "Accounting and Reporting by Development Stage Enterprises."

     Operations. The Company has experienced net losses since its inception and,
as of March  31,  2004,  had an  accumulated  deficit  of  approximately  $125.8
million.  The  Company's  business  strategy is to continue to create  near-term
revenues  from  the  sale  of its  Smart  Power  M5  inverter  for  solar  power
applications,  while  building a reputation for excellent  performance  from its
equipment and its sales and service organization. The Company expects to use the
relationships  it is developing  to gain market access for the Company's  future
products  for the  renewable  energy  industry.  For the  Company's  current and
contemplated flywheel-based systems including its Energy Matrix, Smart Power 250
and Smart Energy  products,  the Company is continuing to evaluate  market size,
growth potential and competitive  advantages that its products could provide and
the  probable  market  penetration  that  could  be  achieved.  If  markets  are
identified  in  which  the  Company  believes  its  flywheel  products  will  be
successful,  and those markets express a tangible interest in its products,  the
Company may not have sufficient cash available to complete prototype development
and  production of its products  unless  additional  equity or debt financing is
obtained.  The Company does not expect to become  profitable or obtain  positive
cash flow before 2006 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 months ended
March  31,  2004  are not  necessarily  indicative  of the  results  that may be
expected for the full year ending  December 31, 2004.  Certain  information  and
footnote  disclosure  normally  included in  consolidated  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted.  It  is  suggested  that  these  consolidated  financial
statements   presented   herein  be  read  in  conjunction  with  the  Company's
consolidated  financial  statements and notes thereto  included in the Company's
annual report on Form 10-K, for the year ended December 31, 2003.

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


Note 3.  Property and Equipment

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                     Estimated
                                                       Useful          March 31,          December 31,
                                                       Lives             2004                 2003
                                                    ------------- -------------------- --------------------
<S>                                                   <C>                <C>                  <C>
Machinery and equipment                               5 years            $    627,406         $    627,406
Service vehicles                                      5 years                  62,327               62,327
Furniture and fixtures                                7 years                 279,190              279,190
Office equipment                                      3 years               1,398,835            1,398,835
Leasehold improvements                               Lease term               538,428              524,347
Equipment under capital lease obligations            Lease term               918,284              918,284
                                                                  -------------------- --------------------
     Total                                                              $   3,824,470        $   3,810,389
Less accumulated depreciation and amortization                            (3,481,530)          (3,453,209)
                                                                  -------------------- --------------------
     Property and equipment, net                                         $    342,940         $    357,180
                                                                  ==================== ====================
</TABLE>

<PAGE>
Note 4.  Commitments

     The Company leases office and light  manufacturing space under an operating
lease  through  September 30, 2007.  Under the terms of this lease,  the Company
provided the lessor with an irrevocable  letter of credit. At March 31, 2004 the
balance of that letter of credit totaled  $355,232.  A cash deposit secures this
letter of credit.

Note 5.  Investments

     On May 15, 2003 the Company invested $1,000,000 in Series A Preferred Stock
of Evergreen Solar,  Inc., a public company that specializes in renewable energy
sources,  in order to develop a strategic  relationship  with that company.  The
Company believes that this investment may provide significant  financial returns
on investment.  The Company's investment was part of a larger financing provided
by several  investors.  The Company made its investment on the same terms as the
other  investors  in this  financing,  except that the Company was  permitted to
purchase a three-year  warrant for $100,000  that is  exercisable  for 2,400,000
shares of Evergreen's common stock at $3.37 per share. Evergreen's financing was
a private  placement of  $29,475,000  of Series A Preferred  Stock and the above
warrant.   Perseus  2000,   L.L.C.,   an  affiliate  of  one  of  the  Company's
stockholders, Perseus Capital, L.L.C., invested $3 million in Evergreen's Series
A Preferred  Stock in this  financing.  Mr. Philip J. Deutch and Mr.  Kenneth M.
Socha,  members of the Board of Directors of the Company,  are Managing Director
and Senior Managing Director,  respectively,  of Perseus, L.L.C., and Mr. Deutch
led  the  Evergreen  Solar  Series  A  Preferred  financing  and is one of  four
individuals  from the  Evergreen  investor  group  to be  added to the  Board of
Directors  of  Evergreen.  Messrs.  Deutch and Socha  disclosed  their  possible
conflict relating to this transaction,  and abstained from voting on the matter.
In addition,  Mr. Deutch has not taken part in any  discussions  concerning this
investment. Beacon's participation in the transaction was evaluated, debated and
approved  by  all  the  disinterested  directors  of  the  Company,  after  full
disclosure of relevant facts and circumstances.

     This  investment  in equity  securities  is carried on the balance sheet at
cost, plus accrued  dividends.  The Series A Preferred Stock is convertible into
common  stock on a one to one basis and accrues  dividends at a rate of 10%. The
common  stock  market  value on an as  converted  basis at  March  31,  2004 was
$2,359,486.

Note 6.  Common Stock

     Reserved  Shares.  At March 31, 2004 and December 31, 2003,  11,725,157 and
11,755,157 shares of common stock were reserved for issuance under the Company's
stock option plan and for outstanding warrants, respectively.

Note 7.  Related Party Transactions

     Advance to  Officers.  During  2001,  the  Company  advanced  approximately
$565,000 to an officer of the Company,  Mr. William Stanton,  its former CEO and
President.  This  advance is  interest  bearing  and  secured  by the  officers'
holdings  of Beacon  Power  Corporation  common  stock and was  provided  to the
officer to allow him to exercise  stock  options  and to pay the related  taxes.
Through  March 31, 2004,  the Company had  collected  approximately  $447,000 in
principal  payments on these advances.  The balance of this loan is $118,000 and
has been reserved,  however, it has not been cancelled. Mr. Stanton continues to
be a director of the Company.

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:

                                                  March 31,
                                     -----------------------------------
                                           2004             2003
                                     -----------------------------------
Beginning balance                        $  1,406,191      $  1,749,738
Charges for the period                              -                 -
Payments                                     (85,886)          (85,887)
                                     -----------------------------------
Ending balance                           $  1,320,305      $  1,663,851
                                     ===================================


Note 9.  Stock-Based Compensation

     The Company accounts for its stock based  compensation using 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."

     The  Company  implemented  a long  term  stock  incentive  plan to  provide
employees  deferred  compensation  in the form of  restricted  stock  units  (or
"RSUs")  at no cost to the  recipient,  that can be  converted  into  shares  of
Company's common stock through establishing and evaluating quarterly, or in some
cases yearly, targets for the employee and, following each quarter,  determining
the number of RSUs to accrue and to be granted in four equal installments in the
fiscal year following the fiscal year with respect to which employee accrued the
RSUs.  Employees  have the right to convert  their RSUs into  shares at any time
after such  grant,  subject  to a  quarterly  vesting  schedule.  The  Company's
employees earned 667,151 RSUs for the fiscal year ended December 31, 2003, which
are not available for exercise until  satisfaction of the vesting periods during
2004.  The grants are  recorded as deferred  stock  compensation  until they are
earned over the vesting  schedule,  at which time, the value of the RSUs will be
recorded as compensation  expense in the Company's Income Statement.  At the end
of the first quarter the Company recorded  compensation expense in the amount of
$349,401.

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

<TABLE>
<CAPTION>
                                                         Three months ended March 31,
                                                         2004                    2003
                                                 ----------------------------------------------

<S>                                                    <C>                    <C>
Net loss to common shareholders as reported            $   (2,148,727)        $    (2,229,375)
Pro forma compensation expense                                  92,867                       -
                                                 ---------------------- -----------------------
Net loss--pro forma                                    $   (2,241,594)        $    (2,229,375)
Loss per share--as reported                              $      (0.05)          $       (0.05)
Loss per share--pro forma                                $      (0.05)          $       (0.05)

</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

     When the Company  recognized  that its Smart Energy products as alternative
backup  solutions  to the  telecommunications  industry  were  not on a path  to
produce  meaningful  revenues,  the Company  initiated a series of cost  cutting
measures throughout 2002 and 2003. The focus of these efforts was to reduce cash
usage while preserving the Company's intellectual properties and maintaining the
integrity of its public  company  requirements  while  evaluating  all potential
product markets for the Company's  technologies and considering  acquisitions or
mergers  that  could  lead  to  increased   shareholder  value.  Based  on  this
evaluation,  which is ongoing,  the Company (i) believes that it has  identified
two  promising  applications  for its Smart Energy  Matrix  product and (ii) has
introduced its Smart Energy M5 inverter system into the renewable  energy market
and  delivered 31 units in 2003 and an additional 10 during the first quarter of
2004.

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

o        continuing as a going concern;
o        ongoing research and development of inverter products;
o        manufacturing capability;
o        working capital requirements; and
o        new business development,

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

Results of operations:

Comparison of three months ended March 31, 2004 and 2003

<TABLE>
<CAPTION>

                                                     Three months ended March 31,
                                                 2004      2003    $ Change   % Change
                                              -------------------------------------------
                                                            (in thousands)
<S>                                                <C>       <C>       <C>       <C>
Revenues                                           $  57     $   -     $   57        n/a
Selling, general and administrative                1,076     1,219      (143)        12%
Research and development                           1,048       959         89         9%
Depreciation and amortization                         47       100       (53)        53%
Interest and other income (expense), net              41        48        (7)        15%
</TABLE>

     Revenues.  The Company  recorded  its first  revenues  from the sale of its
Smart  Power M5 power  conditioning  system  during the  quarter.  For its other
products,  the  Company  continues  to evaluate  markets  but did not  recognize
revenues for the three months ended March 31, 2004 or 2003.

     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
$1,076,000  and  $1,219,000  for the three months ended March 31, 2004 and 2003,
respectively.  The decrease of  approximately  $143,000 or 12% is primarily  the
result of decreases in the cost of Directors  and Officers  Liability  Insurance
premiums partially offset by higher  compensation  expenses due to the Company's
long term  incentive  stock plan and increased  marketing  efforts for its Smart
Power M5 and Energy Matrix Products.

     Research and  Development.  The Company's cost of research and  development
consists  primarily  of the cost of  compensation  and benefits for research and
development  and support  staff,  as well as materials  and supplies used in the
engineering design process.  These costs increased for the first quarter of 2004
over the same quarter of 2003 due primarily to increased product development for
products for the photovoltaic market. While the Company does not expect to incur
significant  additional costs for its existing  flywheel  products,  the Company
does expect to incur costs for the design and development of additional products
for renewable  energy  applications.  The costs of  development  of its flywheel
systems will be significant if the Company determines there is sufficient market
validation  to  initiate  development  of these  products  and it has funding to
complete this work. The Company expects its cost of research and development for
the  remainder  of 2004 to  continue  to be  slightly  higher  compared to 2003.
Research and development expenses totaled approximately  $1,048,000 and $959,000
for the three months ended March 31, 2004 and 2003,  respectively.  The increase
of $89,000 or 9% is primarily the result of higher development costs relating to
the Company's Smart Power M5.

     Depreciation and Amortization.  The Company's depreciation and amortization
is  primarily   related  to  depreciation  on  capital   expenditures   and  the
amortization of lease and leasehold costs related to our facilities. The Company
is also  amortizing  the Smart Power M5  intellectual  property it acquired from
Advanced  Energy  Systems  in  2003.   Depreciation  and  amortization   totaled
approximately $47,000 and $100,000 for the three months ended March 31, 2004 and
2003,  respectively.  The  decrease  of  $53,000 or 53% is  attributable  to the
decrease in the remaining net book values of the Company's assets.

     Interest and Other Income/Expense,  net. The Company's non-operating income
and expenses are primarily  attributable to interest income  resulting from cash
on hand and accrued dividends receivable from Evergreen Series A Preferred Stock
holdings,  partially  offset by  interest  expense  associated  with its capital
leases.  Interest and dividend  income for the three months ended March 31, 2004
was approximately $41,000,  compared to $48,000 for the same period in 2003. The
decrease  in 2004  compared  to the  prior  year is the  result  of  lower  cash
balances.

     Interest  expense  decreased  to zero for the three  months ended March 31,
2004 from  approximately  $4,000 for the same period in 2003.  Interest  expense
relates to assets leased under capital leases.

<PAGE>


Liquidity and Capital Resources

                            Quarter ending March 31,
                                              -------------------------------
                                                   2004           2003
                                              -------------------------------
                                                       (in thousands)
Cash and cash equivalents                           $   7,096      $  15,732
Working capital                                         7,098         14,609
Cash provided by (used in)
   Operating activities                               (1,826)        (1,938)
   Investing activities                                  (14)          (121)
   Financing activities                                    27           (76)
                                              -------------------------------
Net decrease in cash and cash equivalents          $  (1,813)     $  (2,135)
                                              ===============================
Current ratio                                             3.9            6.8
                                              ===============================


     The Company's cash requirements  depend on many factors,  including but not
limited  to  research  and   development   activities,   continued   efforts  to
commercialize  products,   facilities  costs,  and  general  and  administrative
expenses.  The  Company  expects to make  significant  expenditures  to fund its
operations,  develop technologies and explore  opportunities to find and develop
additional  markets to sell its  products.  The  Company  has taken  significant
actions to reduce its cash expenditures for product development,  infrastructure
and production readiness by reducing headcount, development spending and capital
expenditures  over the past 3 years.  The Company  has  focused its  activity on
market analysis in terms of size of markets,  competitive aspects and advantages
that its products  could provide.  It has continued to do preliminary  design of
products  for  markets  under  consideration  for its  flywheel  systems and has
purchased intellectual  properties and incurred development costs for its newest
product in the renewable energy market. The Company must raise additional equity
to execute its business plan. Based on the Company's rate of expenditure of cash
and the  additional  expenditures  expected in support of its business plan, the
Company will need to obtain an equity investment by early 2005 to fund:

o        continuing as a going concern;
o        ongoing research and development of inverter products;
o        manufacturing operations;
o        working capital requirements; and
o        new business development,

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

     Net cash used in operating  activities was  approximately  ($1,826,000) and
($1,938,000)  for the three months ended March 31, 2004 and 2003,  respectively.
The primary  component to the  negative  cash flow from  operations  is from net
losses.  For the first  three  months  of 2004,  the  Company  had a net loss of
approximately  ($2,149,000).   This  included  employee  stock  compensation  of
$349,000,  facility related cash payments charged against restructuring reserves
of approximately  ($86,000),  and depreciation and amortization of approximately
$47,000.  Changes in operating  assets and liabilities  generated  approximately
$13,000  of cash  during the first  three  months of 2004.  For the first  three
months of 2003, the Company had a net loss of approximately  ($2,229,000).  This
included  non-cash charges of approximately  $14,000  primarily  attributable to
depreciation  and  amortization  of  approximately  $100,000,  a reserve against
accrued  interest on a note receivable from the Company's  former CEO of $6,000;
partially offset by facility related cash payments charged against restructuring
reserves of approximately ($86,000), and a loss on the sale of capital equipment
of ($6,000). Changes in operating assets and liabilities generated approximately
$277,000 of cash during the first three months of 2003.

     Net cash used in  investing  activities  was  approximately  ($14,000)  and
($121,000) for the three months ended March 31, 2004 and 2003, respectively. The
principal  use of cash during the first three months of 2004 was the purchase of
capital equipment of ($14,000). The principal use of cash during the first three
months of 2003 was the  purchase of  intellectual  property  of Advanced  Energy
Systems,  Inc. of  ($149,600),  partially  offset by the sale of  machinery  and
equipment totaling approximately $29,000.

     Net cash generated/(used) by financing activities was approximately $27,000
and ($76,000) for the three months ended March 31, 2004 and 2003,  respectively.
For the first three months of 2004, the cash  generated by financing  activities
related to the exercise of stock options in the amount of $27,000. For the first
three months of 2003 the cash used for financing activities related to repayment
of capital leases of approximately ($76,000).

     In the event that the Company elects to begin full scale development of its
Smart Energy  Matrix or Smart Power 250 flywheel  systems,  the amount of equity
required  would  increase  substantially.  In as  much  as  the  Company  is not
expecting to become  profitable or cash flow positive  until at least 2006,  its
ability  to  continue  as a going  concern  will  depend on being  able to raise
additional capital. The Company may not be able to raise this capital at all, or
if it is able to do so, it may be on terms that are adverse to shareholders. The
Company   believes  that  it  cannot  use  debt   financing  to  meet  its  cash
requirements.


Certain Factors Affecting Future Operating Results

     The following factors,  as well as others mentioned in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003 (filed March 30, 2004),
could  cause  actual  results  to differ  materially  from  those  indicated  by
forward-looking statements made in this Quarterly Report on Form 10-Q:


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

     As shown in the  consolidated  financial  statements,  the Company incurred
     significant losses from continuing  operations of $8,618,000,  $20,839,000,
     and  $26,146,000   and  cash  decreases  of  $8,957,000,   $16,335,000  and
     $27,850,000,  during the years  ended  December  31,  2003,  2002 and 2001,
     respectively.  The Company has  $7,096,000 of cash and cash  equivalents on
     hand at March 31, 2004. The Company has recorded limited revenue from sales
     of its products. These factors, among others, indicate that the Company may
     be unable to continue as a going concern.

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

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

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

The Company Needs Additional Financing.

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

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

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

The Company May Not Be Able to Reduce Its Product Cost Enough to Make The
Company's Prices Competitive.

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

The Company Has No Experience Manufacturing Inverter Systems or Flywheel Energy
Storage Systems on a Commercial Basis. In the Event of Significant Sales, the
Company Will Need to Develop or Obtain Manufacturing Capacity for Its Products.

     Should the Company experience  significant customer demand for its inverter
     or  flywheel  products,  it will need to  develop  or obtain  manufacturing
     capacity to meet quality, profitability and delivery schedules. The Company
     may need to  establish  additional  manufacturing  facilities,  expand  its
     current facilities or expand third-party manufacturing.  The Company has 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. 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 will not achieve profitability if it cannot develop
     or obtain  efficient,  low-cost  manufacturing  capability,  processes  and
     suppliers  that  will  enable  the  Company  to meet  the  quality,  price,
     engineering, design and production standards or production volumes required
     to meet its product  commercialization  schedule, if any, or to satisfy the
     requirements of its customers or the market generally.

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

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

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

The Company Has Incurred  Losses Since Its Inception and  Anticipates  Continued
Losses Through at Least 2006.

     The  Company  has  incurred  net losses and  negative  cash flows since its
     inception  in May  1997.  The  Company  had  net  losses  of  approximately
     ($8,618,000)  in  2003,  ($20,839,000)  in  2002,  ($26,146,000)  in  2001,
     ($53,279,000) in 2000 and  ($6,630,000) in 1999.  Since its inception,  the
     Company has had net losses totaling ($125,685,000).  The Company expects to
     continue to incur net losses through at least 2006. Although the Company is
     looking for additional ways to economize and reduce costs,  its efforts may
     prove even more expensive than anticipated. The Company's revenue must grow
     substantially to offset these higher expenses and become  profitable.  Even
     if the Company does achieve  profitability,  it may be unable to sustain or
     increase its profitability in the future.

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

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

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

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

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

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

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

     Because  the  Company's  future  success  depends to a large  degree on the
     success  of its  sales  organization,  the  Company's  ability  to meet its
     business  plan will  depend  significantly  on whether it can  attract  and
     retain sales personnel. The current sales organization has been impacted by
     both health  issues and a  resignation.  Competition  for skilled  sales is
     intense 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 the  Company's
Products.

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

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

     In addition to the risks the Company faces when operating  within the U.S.,
     additional  risks are present if the Company  operates  internationally.  A
     part of the Company's business strategy is to ultimately market, distribute
     and service 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company Might Fail to Develop Successful Flywheel Products.

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

o             maintaining the development schedule and achieve technical
              success, as such development could take substantially longer than
              anticipated;
o             the cost of developing key components of the Company's systems
              that have significant technical risk and which may not be
              economically feasible for a competitive product;
o             ensuring long-life and maintenance free performance through design
              and quality control;
o             ensuring quality and cost control from suppliers; and
o             raising the necessary financing.

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

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

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

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

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

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

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

     The photovoltaic market is growing rapidly,  but the sales and distribution
     channels  are not  stable.  In the last  year,  the cross  section of these
     distributors has changed as some  photovoltaic  module  manufacturers  have
     left the market for  "balance of systems"  products  such as the  Company's
     Smart Power M5 inverter system, and other distributors have been merged. In
     particular,  several of the large volume  distributors  have reduced  their
     product  offerings  to only solar  panels.  When these types of change take
     place,  it often  results  in a period  of  uncertainty  in the  sales  and
     distribution  channels,  leading to fewer and smaller  orders being placed.
     The Company is using a strategy of selling through full-service,  wholesale
     distributors  and there can be no  assurance  that  this  strategy  will be
     successful in the channel structure that continues to be restructured.

Inverter Sales may Not be Achieved.

     If the value  proposition  that the  Company  offers  to the  market is not
     accepted,  or if the  market  does not  continue  to grow,  or if the sales
     channels to market  continue  to be in a state of change,  then the Company
     may not achieve sales of inverters. If sales are not achieved, then profits
     will not be realized,  resulting in further  need for  additional  investor
     funding which may not be available on acceptable terms, or at all.

The Company Faces Intense Competition in the Inverter Markets.

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

The Company Might Fail to Develop Successful Additional Inverter Products.

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

o             maintaining the development schedule for these products, as such
              development could take substantially longer than anticipated;
o             the cost of developing key components of the Company's systems
              that have technical risk and which may not be economically
              feasible for a competitive product in the renewable energy market;
o             reducing manufacturing and assembly costs to increase the
              Company's chances of achieving profitability;
o             ensuring minimal warranty expenses through design and quality
              control;
o             ensuring quality and cost control from suppliers;
o             raising the necessary financing; and
o             extending each product design into as many applications and
              markets as possible.

The Photovoltaic Energy Market may not Maintain the Market Growth Upon Which the
Company's Business Plan is Based.

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

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

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

The Telecommunications Industry Continues to Experience lower rates of Build-Out
and Maintenance Spending.

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

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

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

o             maintaining the development schedule for these products, as such
              development could take substantially longer than anticipated;
o             the cost of developing key components of the Company's systems
              that have significant technical risk and which may not be
              economically feasible for a competitive product in the high-energy
              market;
o             reducing manufacturing costs for the flywheel's shaft, hub and
              rim, bearings and related electronics to increase the Company's
              chances of achieving profitability;
o             ensuring minimal warranty expenses through design and quality
              control;
o             ensuring quality and cost control from suppliers;
o             raising the necessary financing; and
o             extending the product to new applications.

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

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

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

     The  Company's  cash  equivalents  and  investments,   all  of  which  have
maturities of less than one year,  may expose the Company to interest rate risk.
At March 31, 2004,  the Company had  approximately  $60,000 of cash  equivalents
that were held in  non-interest  bearing  accounts.  Also at March 31, 2004, the
Company  had  approximately  $636,000  of cash  equivalents  that  were  held in
interest bearing checking accounts and $6,805,000  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 $7,000, 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

None

Item 2.  Changes in Securities

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

     From November 16, 2000 to March 31, 2004,  the Company spent  approximately
$10.7 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  $40.9 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  March 31,  2004,  the Company has  collected
approximately  $667,000 in payments on these advances and two of the three loans
have been paid in full. The remaining loan is to Mr. William Stanton, who serves
on the board of directors for the Company and was its former CEO and  president.
The  outstanding   balance  on  Mr.   Stanton's  loan  at  March  31,  2004  was
approximately  $118,000.  In June 2002,  due to the current  market value of the
pledged securities and the uncertainty of collection of the advance, the Company
took a charge in the amount of  approximately  $426,000 to reserve the remaining
balance of this advance.  In August 2003, Mr. Stanton sold all of the stock that
secured the loan and in the fourth  quarter of 2003, he reduced the loan balance
by $323,000.  The  remaining  loan balance of $118,000 has not been forgiven and
remains  outstanding,  even  though  all stock held as  security  under the loan
agreement has been sold.

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

Item 3.  Defaults Upon Senior Securities

         None.

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

         None.

Item 5.  Other Information

         None.

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

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


(b) Reports on Form 8-K

         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 13, 2004                By:  /s/ F. William Capp
                                         -------------------
                                         F. William Capp
                                         President and Chief Executive Officer


        May 13, 2004                By:  /s/ James M. Spiezio
                                         -------------------
                                         James M. Spiezio
                                         Vice President of Finance,
                                         Chief Financial Officer,
                                         Treasurer and Secretary
                                         Principal Financial Officer