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

                                    FORM 10-Q


                [ X ] Quarterly Report Pursuant to Section 13 or
                  15(d) of the Securities Exchange Act of 1934
                  for the quarterly period ended June 30, 2002,

                                       or

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



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



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



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

                              (978) 694-9121 Phone
                               (978) 694-9127 Fax
              (Registrant's telephone number, including area code)
                            ------------------------

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


The number of shares of the Registrant's common stock, par value $.01 per share,
outstanding as of August 10, 2002 was 42,809,361.

<PAGE>

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


                                                                          Page
PART I.  Financial Information

     Item 1.  Financial Statements:

         Consolidated Balance Sheets at June 30, 2002
         and December 31, 2001.                                              2

         Consolidated Statements of Operations for the
         three and six months ended June 30, 2002 and
         2001 and for the Period May 8, 1997 (date of
         inception) to June 30, 2002.                                        3

         Consolidated Statements of Cash Flows for six
         months ended June 30, 2002 and 2001 and for
         the Period May 8, 1997 (date of inception) to
         June 30, 2002.                                                      4

         Notes to Consolidated Financial Statements.                       5-7

     Item 2.  Management's Discussion and Analysis of
              Consolidated Financial Condition and
              Results of Operations.                                      8-12


PART II.  Other Information

     Item 1.  Legal Proceedings                                             13
     Item 2.  Changes in Securities                                         13
     Item 3.  Defaults on Senior Securities                                 13
     Item 4.  Submission of Matters to a Vote of
              Security Holders                                              13
     Item 5.  Other Information                                             13
     Item 6.  Exhibits, Financial Statements Schedules
              and Reports on Form 8-K                                       13

Signatures                                                                  14

<PAGE>


                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S>                                                                            <C>               <C>
                                                                             (Unaudited)
                                                                               June 30,         December 31,
                                                                                 2002               2001
                                                                          ---------------------------------------
Assets
Current assets:
    Cash and cash equivalents                                                  $ 24,497,137       $ 34,601,585
    Prepaid expenses and other current assets                                       440,686          1,131,065
                                                                          ---------------------------------------

        Total current assets                                                     24,937,823         35,732,650

Property and equipment, net  (Note 3)                                             5,443,094          6,188,507
Other assets                                                                        318,128            209,796
                                                                          ---------------------------------------

Total assets                                                                   $ 30,699,045       $ 42,130,953
                                                                          =======================================

Liabilities and Stockholders' Equity
Current liabilities:
    Accounts payable                                                               $ 87,448           $911,465
    Accrued compensation and benefits                                               286,427            721,130
    Due to related party                                                                  -             35,532
    Other accrued expenses                                                          639,616            941,100
    Current portion of capital lease obligations                                    273,952            335,145
                                                                          ---------------------------------------

        Total current liabilities                                                 1,287,443          2,944,372

Capital lease obligations, net of current portion                                    86,053            205,352
Commitments (Note 4)

Stockholders' equity:
    Preferred stock, $.01 par value; 10,000,000 shares authorized; no
    shares issued or outstanding                                                          -                  -
    Common stock, $.01 par value; 110,000,000 shares authorized;
    42,809,361 and 42,770,856 shares issued and outstanding at June
    30, 2002 and December 31, 2001, respectively                                    428,094            427,709
    Deferred stock compensation                                                     (24,467)          (211,564)
    Additional paid-in capital                                                  132,755,833        132,911,256
    Deficit accumulated during the development stage                           (103,734,251)       (94,146,172)
    Less: treasury stock, at cost                                                   (99,660)                 -
                                                                          --------------------------------------

        Total stockholders' equity                                               29,325,549         38,981,229
                                                                          ---------------------------------------

Total liabilities and stockholders' equity                                     $ 30,699,045       $ 42,130,953
                                                                          =======================================
</TABLE>

                 See notes to consolidated financial statements.


<PAGE>


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

<TABLE>
<CAPTION>
<S>                                      <C>                 <C>           <C>              <C>           <C>

                                                                                                          Cumulative from
                                                                                                            May 8, 1997
                                                                                                       (date of inception,)
                                          Three months ended June 30,      Six months ended June 30,      through June 30
                                             2002            2001            2002            2001              2002
                                       --------------------------------------------------------------------------------------

Revenue                                     $        -       $        -     $        -      $        -       $    551,184

Operating expenses:
 Selling, general and administrative         1,469,986        2,356,717      3,505,747       3,851,597         20,991,872
 Research and development                    1,770,370        4,209,885      4,910,124       8,756,596         44,574,138
 Loss on sales commitments                           -                -              -               -            375,974
 Depreciation and amortization                 506,144          302,715      1,012,235         557,196          3,034,008
                                       --------------------------------------------------------------------------------------

  Total operating expenses                   3,746,500        6,869,317      9,428,106      13,165,389         68,975,992
                                       --------------------------------------------------------------------------------------

Loss from operations                        (3,746,500)      (6,869,317)    (9,428,106)    (13,165,389)       (68,424,808)

Other (expense) income:
 Interest income                               148,786          595,152        302,738       1,454,887          3,360,707
 Interest expense                              (13,320)          (7,236)       (28,187)        (14,926)        (1,073,243)
 Other expense                                (426,150)         (20,683)      (434,524)       (376,092)          (590,711)
                                       --------------------------------------------------------------------------------------
  Total other income (expense), net           (290,684)          567,233      (159,973)       1,063,869          1,696,751
                                       --------------------------------------------------------------------------------------
Net loss                                    (4,037,184)      (6,302,084)    (9,588,079)    (12,101,520)       (66,728,057)

Preferred stock dividends                            -                -              -               -       (36,825,680)

Accretion of redeemable convertible
preferred stock                                      -                -              -               -          (113,014)
                                       --------------------------------------------------------------------------------------
Loss to common shareholders              $ (4,037,184)    $ (6,302,084)   $(9,588,079)   $(12,101,520)    $ (103,666,751)
                                       ======================================================================================

Loss per share - basic and diluted          $   (0.09)       $   (0.15)     $   (0.22)      $   (0.29)
                                       =================================================================
Weighted-average common shares
outstanding                                 42,795,821       42,523,462     42,783,407      42,347,529
                                       =================================================================
</TABLE>

                 See notes to consolidated financial statements.

<PAGE>



                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
<S>                                                               <C>               <C>            <C>

                                                                                                   Cumulative from
                                                                                                     May 8, 1997
                                                                                                       (Date of
                                                                     Six months ended June 30,     Inception) through
                                                                       2002             2001          June 30,2002
                                                                 ----------------------------------------------------
Cash flows from operating activities:
 Net loss                                                            $ (9,588,079)   $(12,101,520)    $ (66,728,057)
 Adjustments to reconcile net loss to net cash used in
 operating activities:
  Depreciation and amortization                                         1,012,235         557,196         3,034,008
  Loss on sale of fixed assets                                                  -          86,523           156,387
  Reserve for officer's note                                              426,149               -           426,149
  Interest expense relating to issuance of warrants                             -               -           371,000
  Non-cash charge for change in option terms                                    -               -           346,591
  Amortization of deferred consulting expense, net                              -               -         1,160,784
  Amortization of deferred stock compensation                              19,273          48,273         1,290,013
  Warrants issued for consulting services                                       -               -         1,569,366
  Accrued loss on sales commitments                                             -               -           375,974
  Non-cash charge for settlement of lawsuit                                     -         303,160           303,160
  Services and interest expense paid in preferred stock                         -               -            11,485
 Changes in operating assets and liabilities
  Inventory                                                                     -        (238,297)                -
  Prepaid expenses and other current assets                               164,570         263,181          (966,495)
  Accounts payable                                                       (824,017)       (993,037)           87,448
  Accrued compensation and benefits                                      (434,703)        803,311           286,427
  Due to related party                                                    (35,532)         45,705                 -
  Accrued loss on sales commitments                                             -               -         ( 375,974)
  Other accrued expenses and current liabilities                         (301,484)        (88,246)          648,286
                                                                 ----------------------------------------------------
  Net cash used in operating activities                                (9,561,567)    (11,313,751)      (57,727,888)

Cash flows from investing activities:
 Increase in other assets                                                 (81,700)        488,793          (256,918)
 Purchases of property and equipment                                     (293,454)     (3,340,243)       (8,241,088)
                                                                 ----------------------------------------------------
  Net cash used in investing activities                                  (375,154)     (2,851,450)       (8,498,006)

Cash flows from financing activities:
 Initial public stock offering, net of expenses                                 -               -        49,341,537
 Shares issued under employee stock purchase plan                          12,765               -           122,709
 Exercise of employee stock options                                             -         801,541         1,175,670
 Issuance of preferred stock                                                    -               -        32,868,028
 Repayment of subscription receivable                                           -               -         5,000,000
 Repayment of capital leases                                             (180,492)        (67,665)         (671,391)
 Dividends paid                                                                 -      (1,159,373)       (1,159,373)
 Refinance of assets with capital lease                                                                     495,851
 Proceeds from notes payable issued to investors                                -               -         3,550,000
                                                                 ----------------------------------------------------
  Net cash (used in) provided by financing activities                    (167,727)       (425,497)       90,723,031

(Decrease) increase in cash and cash equivalents                      (10,104,448)    (14,590,698)       24,497,137

Cash and cash equivalents, beginning of period                         34,601,585      62,497,102                 -
                                                                 ----------------------------------------------------
Cash and cash equivalents, end of period                              $24,497,137     $47,906,404       $24,497,137
                                                                 ====================================================
</TABLE>

                 See notes to consolidated financial statements.


<PAGE>

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                   Notes to 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.  Beacon Power  Corporation and its subsidiary
("Beacon" or "the Company") designs,  develops,  configures, and offers for sale
power  systems  that  provide  highly  reliable,  high-quality,  uninterruptible
electric power, employing both proprietary and third party solutions. It is best
known for its  environmentally  friendly,  flywheel-based  products (employing a
flywheel made from proprietary composite materials), which can store and deliver
energy in a variety of  configurations.  Such products have longer life, reduced
maintenance,  quicker  recharging,  remote  monitoring and other advantages over
competing  solutions.  Because the Company has not yet  generated a  significant
amount of revenue from its  principal  operations,  it continues to be accounted
for as a  development  stage  company  under  Statement of Financial  Accounting
Standards  No. 7. The  Company  has a single  operating  segment,  manufacturing
alternative power sources.  The Company has no segmented  structure  dictated by
product lines, geography or customer type.

Operations.  The Company has  experienced net losses since its inception and, as
of June 30, 2002, had an accumulated  deficit of  approximately  $103.7 million.
The  Company  is  facing  the  challenge  of  ongoing  development,  as  well as
refinement and marketing of its commercial products. Meeting these challenges is
expected to require significant outlays of capital.  The Company expects to have
sufficient cash on hand to fund its reduced operations for more than 24 months.

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

The accompanying  unaudited consolidated financial statements have been prepared
using accounting  principles  generally accepted in the United States of America
for interim financial information and with Regulation S-X. Accordingly,  they do
not include all of the information and footnotes  required by generally accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management, all adjustments,  consisting of normal recurring accruals considered
necessary  for a fair  presentation,  have  been  included  in the  accompanying
unaudited financial  statements.  Operating results for the three months and six
months ended June 30, 2002 are not  necessarily  indicative  of the results that
may be expected for the full year ending December 31, 2002. Certain  information
and footnote disclosure normally included in consolidated  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted.  It  is  suggested  that  these  consolidated  financial
statements   presented   herein  be  read  in  conjunction  with  the  Company's
consolidated  financial  statements and notes thereto  included in the Company's
annual report on Form 10-K, for the year ended December 31, 2001.

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

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


<PAGE>


3.  Property and Equipment

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

                                                        Estimated
                                                         Useful           June 30,       December 31,
                                                          Lives             2002            2001
                                                     -------------------------------------------------
Machinery and equipment                                  5 years        $ 2,228,210      $ 1,996,711
Service vehicles                                         5 years             63,792           63,792
Furniture and fixtures                                   7 years            733,018          733,018
Office equipment                                         3 years          2,059,409        2,030,653
Leasehold improvements                                 Lease term         2,072,577        2,072,577
Equipment under capital lease obligations              Lease term         1,081,726        1,081,726
                                                                    ----------------------------------
    Total                                                                 8,238,732        7,978,477
Less accumulated depreciation and amortization                          (2,795,638)      (1,789,970)
                                                                    ----------------------------------
    Property and equipment, net                                         $ 5,443,094      $ 6,188,507
                                                                    ==================================
</TABLE>


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

5.  Common Stock

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

Reserved  Shares.  At June 30,  2002  and  December  31,  2001,  15,210,059  and
13,839,129 shares of common stock were reserved for issuance under the Company's
stock option plan and outstanding warrants, respectively.

Stock  Warrants.  Deferred  compensation  relating to stock warrants at June 30,
2002 and December 31, 2001 is approximately $24,000 and $212,000,  respectively.
The warrants were issued to an investor  under an agreement that an affiliate of
that investor will provide the Company with technical expertise. One half of the
warrants vested  immediately upon their issuance with the remaining  warrants to
vest  ratably as the  services  are  provided.  No services  have been  provided
through June 30, 2002. The agreement  terminates  and any unvested  warrants are
forfeited on November 1, 2003.

6.  Related Party Transactions

Advance to Officers - During 2001, the Company advanced  approximately  $785,000
to three  officers of the  Company.  These  advances  are  interest  bearing and
secured by the officers'  holdings of Beacon Power Corporation  common stock and
were  provided to the officers to allow them to exercise  stock  options and pay
the  related   taxes.   Through  June  30,  2002,   the  Company  has  collected
approximately  $287,000 in payments on these advances.  In June 2002, due to the
current market value of the pledged securities and the uncertainty of collection
of the  advance,  the Company took a charge in the amount of $426,148 to reserve
the  remaining  balance of the  advance to its  former CEO and  president.  This
charge is included in other expenses in the accompanying  consolidated statement
of operations.  The remaining  advance balance of approximately  $72,000 at June
30,  2002  is  included  in  prepaid  and  other  assets  in  the   accompanying
consolidated balance sheet.

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

During the six months  ended June 30, 2002 and 2001,  cash paid for interest was
approximately $34,000 and $16,000, respectively.

During the six  months  ended  June 30,  2002 and 2001,  cash paid for taxes was
approximately $17,000 and $1,000, respectively.

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

During  the six  months  ended  June 30,  2002 and 2001,  the  Company  recorded
decreases  in deferred  compensation  from the issuance of  non-qualified  stock
options to third  parties of $187,097  and  $642,559,  respectively.  These were
offset by charges to additional paid in capital.

8. Subsequent Events

During 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  burn  rate,  and thus on a less  ambitious
timetable.  Beacon reduced its current  expenditures  on product  development by
deferring a significant portion of these  expenditures.  It has also put on hold
all  capital  expenditures  relating  to  manufacturing,  and  reduced its total
headcount by 26  employees,  or  approximately  45 percent (as measured  against
those remaining  following  Beacon's  earlier  reduction in headcount,  in March
2002),  to a total of 31 employees.  Beacon had 92 employees on January 1, 2002.
With these  reductions,  the Company is  concentrating  its resources on product
marketing  and  on  activities   that  offer  a  strategic  fit  with  its  core
competencies.  If Beacon  later  were to decide to engage in  manufacturing,  it
would need to scale up that portion of its business.

As a result of our decisions noted above, a substantial portion of our long-term
assets have been idled,  including  machinery  and  equipment,  tooling,  office
furniture  and  fixtures  and  equipment  and  leasehold  improvements.  We  are
evaluating  all of our  property and  equipment to determine  its future use. We
also intend to reduce our facility  costs by  attempting  to sublease our excess
capacity.  We are attempting to determine how best to reconfigure  our operation
into  significantly less space. As a result of this effort, we expect to leave a
significant portion of the facility unused. As required by FAS 144, we will take
a non-cash  accounting  charge for any assets  left idle by the  above-mentioned
actions.  In addition,  we expect to take a charge for costs associated with the
idled facility, which is under an operating lease. At this time, we have not yet
determined  the full  amount of the  charge  but expect it to be in the range of
$2.8  million  to  $6.5  million.  This  range  includes  severance  charges  of
approximately  $300,000 relating to the reduction in force in July. The majority
of the range  relates  to the  uncertainty  of  business  opportunities  for our
products that would be benefited by these assets and the facility  lease as well
as uncertainty of recovery  values of those assets or facilities that are idled.
This charge will be recorded in the third quarter of 2002.

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

<page>

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

Note Regarding Forward Looking Statements:

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

Overview

Beacon  Power  Corporation  is  a  developmental-stage  company  which  designs,
develops,  configures,  and offers for sale power  systems that  provide  highly
reliable, high-quality,  uninterruptible electric power for use as a stand alone
back-up  power  solution  in Telcom  applications  and as a  transition  unit to
generators  in high  power  applications.  It is known  for its  environmentally
friendly,  flywheel-based  products  (employing a flywheel made from proprietary
composite  materials)  that  can  store  and  deliver  energy  in a  variety  of
configurations.  Such products have longer life,  reduced  maintenance,  quicker
recharging, remote monitoring and other advantages over competing solutions.

Our  initial  products  were 2Kwh and 6Kwh  long  duration  back up power  units
focused on the telecom  industry.  As a result of the overall economic  downturn
and in particular the significant decline in capital and maintenance spending in
telecom as well as the low price of  lead-acid  batteries,  the  Company has not
been successful in selling products into this market.  The Company  continues to
offer these products but has expanded its market to include UPS applications and
stored  energy for utilities  such as an array for high power.  An array of high
energy  composite  flywheels  can be  connected  together to provide  high power
(Megawatts)  energy storage for minutes in applications  requiring  rapid,  deep
discharge,  and/or frequent cycling.  Examples of applications are transition to
turbine or natural gas engine start (requiring minutes,  not seconds),  reducing
generator starting frequency and backup time for wind and other renewable power,
stiffening of substation and microgrid power, and load following high power fuel
cells and  generators.  Lead acid  batteries  are usually not effective in these
applications   because  rapid,   frequent  or  deep  discharging  of  a  battery
substantially reduces life and increases maintenance requirements.  There are no
other practical  alternatives  in use today,  and low power flywheels like those
used to start diesel generator in 12 seconds do not have sufficient energy to be
practical elements of a flywheel array.

There  is  a  growing  awareness  of  sustainability  among  customers  and  the
associated interest in eliminating batteries from their operations may partially
offset these trends.  Sustainability  is a philosophy  and set of practices that
have gained considerable  acceptance among global organizations in recent years.
The concept of  sustainability  refers to  business  conduct  that  holistically
addresses the economic,  social and environmental  impacts of global operations;
the so-called  "triple bottom line." More than 50% of Fortune 100 companies have
adopted sustainable business practices and issue comprehensive annual reports on
their progress. These forward-thinking companies,  including many in the energy,
manufacturing  and  telecommunications  sectors,  hold a  longer-term  view that
embraces the importance of seeing the total impact of a product or service, from
development through end-of-life.

Flywheel-based  systems,  unlike lead-acid  batteries,  are sustainable  "green"
technology  solutions that do not use hazardous  materials for  production,  nor
create them during operation.  Unlike batteries,  flywheels operate reliably for
many years with little or no maintenance. Their life cycle cost benefits and ROI
have  proven to be far  superior  to those of  lead-acid  batteries.  Despite an
initial  cost   disadvantage,   flywheels  offer  an  attractive  and  long-term
cost-effective   energy   storage   alternative   for  the  growing   number  of
organizations whose operating philosophy includes sustainability.

From  our  inception   through  June  30,  2002  we  have  incurred   losses  of
approximately  $103.7 million. We expect to continue to incur losses as a result
of the  difficulty we face in marketing  our existing and emerging  products and
potential costs for product development and  commercialization  programs.  These
losses could fluctuate  significantly from quarter to quarter.  Fluctuations may
be substantial  as a result of, among other  factors,  the amount of development
materials  purchased,  nonrecurring  engineering  expenses and subcontract  work
related  to  product   testing  and  ramp-up  costs  related  to   manufacturing
capacities.

Results of operations:

Comparison of three and six months ended June 30, 2002 and 2001

Revenues.  We did not record any revenue for the three or six months  ended June
30, 2002 and 2001. We have placed several development  prototypes with potential
customers  and shipped  pre-production  units.  These  products were provided to
potential customers to demonstrate the application of our technologies.

Selling,  General and Administrative  Expenses. Our sales and marketing expenses
consist  primarily of  compensation  and  benefits  for our sales and  marketing
personnel  and  related   business   development   expenses.   Our  general  and
administrative  expenses consist  primarily of compensation and benefits related
to our corporate staff,  professional fees, and related travel. Selling, general
and administrative expenses totaled approximately  $1,470,000 and $2,357,000 for
the three  months  ended June 30, 2002 and 2001,  respectively.  The decrease of
approximately  $887,000 is primarily  the result of decreased  compensation  and
benefit costs due to staffing  reductions,  reduced professional fees and travel
partially offset by higher costs for director's and office's insurance. Selling,
general  and  administrative  expenses  totaled  approximately   $3,506,000  and
$3,852,000  for the six months ended June 30, 2002 and 2001,  respectively.  The
decrease  of  approximately  $346,000  is  primarily  the  result  of  decreased
compensation  and benefit costs due to staffing  reductions  partially offset by
higher costs for  director's  and  officer's  insurance  and sales and marketing
effort.

Research  and  Development.  Our  cost  of  research  and  development  consists
primarily of the cost of compensation and benefits for research and development,
manufacturing  and support staff,  as well as materials and supplies used in the
engineering  design  process.  Our cost of  research  and  development  has been
reduced  sharply  while  we  focus  on  defining  market  opportunities  for our
capabilities.  In the event  that  markets  are  defined  that  require  product
development we may have  significant  increases for additional  product designs,
refining  existing  products or expand our analytic  capabilities.  Research and
development  expenses  totaled  approximately  $1,770,000 and $4,210,000 for the
three  months  ended  June 30,  2002 and 2001,  respectively.  The  decrease  of
$2,440,000 is primarily the result of decreased  compensation  and benefit costs
related to staffing reductions in engineering and manufacturing and decreases in
the amount of materials used for product  development.  Research and development
expenses  totaled  approximately  $4,910,000  and  $8,757,000 for the six months
ended  June 30,  2002 and 2001,  respectively.  The  decrease  of  approximately
$3,847,000 is primarily the result of decreased  compensation  and benefit costs
related to staff  reductions  and  decreased  spending on  materials  related to
product development.

Depreciation  and  Amortization.  Our depreciation and amortization is primarily
related to depreciation on capital  expenditures  and the  amortization of lease
and leasehold costs related to our  facilities.  Depreciation  and  amortization
totaled approximately  $506,000 and $303,000 for the three months ended June 30,
2002 and 2001,  respectively.  The  increase  of  $203,000  is  attributable  to
increases  in  leasehold   improvements  and  capital  equipment   expenditures.
Depreciation and amortization totaled approximately  $1,012,000 and $557,000 for
the six months  ended June 30,  2002 and 2001,  respectively.  The  increase  of
$455,000  is  attributable  to  increases  in  leasehold  improvements,  capital
equipment expenditures and changes in the useful life of computer equipment.

Interest and Other  Income/Expense,  net. Our non-operating  income and expenses
are  primarily  attributable  to  interest  income  resulting  from cash on hand
partially  offset by interest  expense  associated with our capital leases.  Our
interest  income  for the three  months  ended June 30,  2002 was  approximately
$149,000, compared to $595,000 for the same period in 2001. The decrease in 2002
is the result of higher cash balances in 2001 from our initial  public  offering
in the fourth quarter of 2000. Our interest income for the six months ended June
30, 2002 was approximately $303,000,  compared to $1,455,000 for the same period
in 2001. The decrease in 2002 is the result of higher cash balances in 2001 from
our initial public offering in the fourth quarter of 2000.

Interest expense  decreased to approximately  $13,000 for the three months ended
June 30, 2002 from  approximately  $7,000 for the same period in 2001.  Interest
expense  decreased  to  approximately  $28,000 for the six months ended June 30,
2002 from  approximately  $15,000 for the same period in 2001.  Interest expense
relates to assets leased under capital leases.

Other  expense of  approximately  $426,000 and 21,000 for the three months ended
June 30, 2002 and 2001,  respectively.  The $426,000 is a non-cash expense taken
in March of 2002 for an advance to an officer. During 2001, the Company advanced
approximately $785,000 to three officers of the Company, including an advance of
$ 564,822 to Mr. William Stanton,  former CEO and President.  These advances are
interest  bearing  and  secured  by  the  officers'  holdings  of  Beacon  Power
Corporation  common stock and were  provided for the exercise of employee  stock
options and in the case of Mr.  Stanton  income taxes related to the exercise of
those  options.  The officers  repaid  approximately  $152,000 of these advances
during 2001 and an additional  $135,000 through June 30, 2002. In June 2002, the
Company took a reserve in the amount of $426,148 for the full  remaining  amount
of the advances  (including  interest  thereon) to Mr. Stanton.  The Company has
fully reserved this balance due to the current  market  valuation of the pledged
securities  and  uncertainty  that the  obligation  will be  collected  from Mr.
Stanton.  The Company expects the remaining  advance to be repaid in full by the
officer  to whom it was made  and who is  still  employed  by the  Company.  The
balance  of  $72,468  and  $634,110  at June 30,  2002 and  December  31,  2001,
respectively  are  included  in  prepaid  and other  assets in the  accompanying
consolidated  balance  sheet.  Other  expense for the six months ending June 30,
2002 and 2001,  respectively were approximately  $435,000 and $376,000. The 2002
balance  represents  a reserve  taken for an advance to an officer  and the 2001
balance  relates to additional  write-offs of $52,000 for certain  tooling costs
associated  with an earlier version of our product and a non-cash charge related
to the  settlement of a lawsuit  brought by a former  employee of  approximately
$303,000. Under the terms of the settlement, we permitted the former employee to
exercise  options to purchase  53,000  shares of our common  stock at a price of
$1.78 when the current  market  price was $7.50.  We incurred a charge of $5.72,
the difference  between the market price and the exercise price,  for each share
exercised.

 Liquidity and Capital Resources

Net  cash  used in  operating  activities  was  approximately  ($9,562,000)  and
($11,314,000) for the six months ended June 30, 2002 and 2001, respectively. The
primary  component to the  negative  cash flow from  operations  is from the net
losses.  For the first six  months of 2002,  we had a net loss of  approximately
($9,588,000).   This  included  non-cash  charges  of  approximately  $1,457,000
including a reserve taken  against a note  receivable  from a former  officer of
$426,000;  approximately  $19,000 related to stock options issued for consulting
services and depreciation and amortization of approximately $1,012,000.  Changes
in operating  assets and  liabilities  used  approximately  ($1,431,000) of cash
during the first six months of 2002. The primary  components  were a decrease in
accounts payable of approximately ($824,000), a decrease in accrued compensation
and benefits of approximately ($435,000), a decrease in amounts due to a related
party of  approximately  ($36,000) and a decrease in other  accruals and current
liabilities  of ($301,000),  these were offset by a decrease in prepaid  expense
and other current assets of approximately  $165,000. For the first six months of
2001, we had a net loss of approximately  ($12,102,000).  This included non-cash
charges of approximately  $995,000  including a charge related to the settlement
of a lawsuit of approximately  $303,000;  approximately $48,000 related to stock
options  issued for  consulting  services;  $87,000 for the write-off of tooling
related to older versions of our flywheel;  and depreciation and amortization of
approximately  $557,000.  Changes  in  operating  assets  and  liabilities  used
approximately  ($207,000)  of cash  during  the  first six  months of 2001.  The
primary  components  were  a  decrease  in  accounts  payable  of  approximately
($993,000)  offset by an  increase  in  accrued  compensation  and  benefits  of
approximately  $803,000  and an  increase in prepaid  expense and other  current
assets of approximately $263,000. Changes in other working capital accounts used
cash of approximately ($280,000).

Net  cash  used  in  investing  activities  was  approximately   ($375,000)  and
($2,851,000) for the six months ended June 30, 2002 and 2001, respectively.  The
principal  uses of cash  during  the first six  months of 2002 were  related  to
purchases of machinery and equipment totaling approximately ($293,000) and other
assets of ($82,000.)  The principal  uses of cash during the first six months of
2001 were related to purchases totaling approximately ($3,340,000) for machinery
and  equipment,  furniture  and fixtures and leasehold  improvements  to the new
operating facility. Other assets decreased by approximately $489,000 as deposits
made in prior  quarters  relating  to  long-term  assets  were  reclassified  to
property and equipment.

Net cash used in financing and investing  activities during the six months ended
June 30,  2002  was  approximately  ($168,000).  The  cash  used  for  financing
activities  related to repayment of capital leases of  approximately  ($181,000)
offset by cash proceeds from the employee stock  purchase plan of  approximately
$13,000.  Net cash used by financing activities during the six months ended June
30,  2001 was  approximately  ($425,000).  The  primary  use of cash was for the
payment of dividends on our various classes of preferred stock of  approximately
$1,159,000, which were accrued during 2000, prior to our initial public offering
of our common stock. In addition, we made principal payments against our capital
leases of approximately ($68,000). These uses were offset by proceeds from stock
options exercised of approximately $802,000.

During 2001, the Company  advanced  approximately  $785,000 to three officers of
the Company, including an advance of $564,822 to Mr. William Stanton, former CEO
and President.  These advances are interest bearing and secured by the officers'
holdings of Beacon  Power  Corporation  common  stock and were  provided for the
exercise of employee  stock options and in the case of Mr.  Stanton income taxes
related to the  exercise of those  options.  The officers  repaid  approximately
$152,000 of these advances during 2001 and an additional  $135,000  through June
30, 2002. In June 2002, we took a reserve in the amount of $426,148  against the
full  remaining  amount of the  advances  (including  interest  thereon)  to Mr.
Stanton.  The Company has fully  reserved this balance due to the current market
valuation of the pledged  securities and uncertainty that the obligation will be
collected from Mr. Stanton. We expect the remaining advance to be repaid in full
by the officer to whom it was made and who is still employed by the Company. The
balance  of  $72,468  and  $634,110  at June 30,  2002 and  December  31,  2001,
respectively  are  included  in  prepaid  and other  assets in the  accompanying
consolidated balance sheet.

As a  result  of the  difficulty  the  Company  has had in  generating  revenues
discussed above,  subsequent to the end of the quarter, we took several steps to
reduce  our cash  expenditures  for the  future.  On July  19,  we  reduced  our
headcount by 26 people  bringing our total number of full time  employees to 31.
and reduced our expenditures for product development and put on hold all capital
expenditures  relating  to  manufacturing.  We also  have  begun to  assess  our
facilities costs and have already  implemented  several cost saving initiatives.
We will look into reducing our costs further through  subletting excess capacity
within the  facility.  In  addition,  we canceled  several  purchase  orders and
development  efforts for  activities  not closely  related to our core strategy.
Finally,  we have  eliminated  all  extraneous  tasks  associated  with testing,
research  and  development.  As a result,  we have  reduced our  projected  cash
outlays by over 50% from the levels projected prior to July 19.

As a result of our decisions noted above, a substantial portion of our long-term
assets have been idled,  including  machinery  and  equipment,  tooling,  office
furniture  and  fixtures  and  equipment  and  leasehold  improvements.  We  are
evaluating  all of our  property and  equipment to determine  its future use. As
noted  above,  we also  intend to reduce our  facility  costs by  attempting  to
sublease  our  excess  capacity.  We are  attempting  to  determine  how best to
reconfigure  our operation into  significantly  less space.  As a result of this
effort,  we expect to leave a  significant  portion  of the  facility,  which is
subject to a  long-term  lease,  unused.  As required by FAS 144, we will take a
non-cash  accounting charge for any assets left idle. In addition,  we expect to
take  a charge for costs  associated with the idled  portion of our facility. At
this time, we have not yet  determined  the full amount of the charge but expect
it to be in the range of $2.8 million to $6.5 million,  which includes severance
charges of  approximately  $300,000  relating to the reduction in force in July.
The amount of the charge relates to the  uncertainty  of business  opportunities
for our products that would be benefited by these assets and the facility  lease
as well as uncertainty of recovery values of those assets or facilities that are
idled. This charge will be recorded in the third quarter of 2002. Based upon our
operating plan, and cash on hand, we believe that our cash and cash  equivalents
and future cash flow from operations will satisfy the Company's  working capital
needs for the foreseeable future.


Impact of Recently Issued Accounting Standards Not Yet Implemented

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

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

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment or
Disposal of  Long-Lived  Assets,  which  supercedes  SFAS No. 121.  SFAS No. 144
further refines the requirements of SFAS No. 121 that companies (1) recognize an
impairment  loss  only if the  carrying  amount  of a  long-lived  asset  is not
recoverable  based on its  undiscounted  future  cash  flows and (2)  measure an
impairment loss as the difference  between the carrying amount and fair value of
the asset.  In  addition,  SFAS No. 144  provides  guidance  on  accounting  and
disclosure issues  surrounding  long-lived assets to be disposed of by sale.  As
discussed in Note 8, we  are evaluating the impact the adoption of SFAS 144 will
have on our financial condition or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated with
Exit or Disposal  Activities".  SFAS  No. 146 addresses financial accounting and
reporting for costs  associated  with exit or disposal  activities and nullifies
Emerging  Issues Task Force (EITF) Issue  No. 94-3,  "Liability  Recognition for
Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity
(including  Certain Costs Incurred in a  Restructuring)".  SFAS No. 146 requires
that a liability  for a cost  associated  with an exit or  disposal  activity be
recognized  when the liability is incurred.  The  provisions of SFAS No. 146 are
effective for exit or disposal  activities that are initiated after December 31,
2002. We  believe  that the  adoption  of SFAS No. 146 will not have a material
impact on our financial statements.


Certain Factors Affecting Future Operating Results

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

The Value Proposition of our High-Energy Products May Not Be Recognized.

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

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

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

We Have Very Limited Experience Manufacturing Flywheel Energy Storage Systems on
a Commercial Basis. In the Event of Significant Sales We Will Need to Develop or
Obtain Manufacturing  Capacity for Our Products.  There Can be No Assurance That
We Will be Able to Accomplish  These Tasks,  and if We do not We Will Not Become
Profitable.

Should we experience  customer demand for our products,  we will need to develop
or obtain  manufacturing  capacity to meet quality,  profitability  and delivery
schedules. We may need to establish manufacturing facilities, expand our current
facilities  or expand  third-party  manufacturing.  We have no experience in the
volume  manufacture  of flywheel  systems and there can be no assurance  that we
will be able to accomplish these tasks, if necessary,  on a timely basis to meet
customer demand or at all. In fact, we have idled our manufacturing capabilities
in order to conserve cash,  which will make  manufacturing  capability even more
difficult to achieve  should we need to do so. We may not achieve  profitability
if we cannot develop or obtain  efficient,  low-cost  manufacturing  capability,
processes  and  suppliers  that  will  enable  us to meet  the  quality,  price,
engineering,  design and production  standards or production volumes required to
meet  our  product  commercialization  schedule,  if  any,  or  to  satisfy  the
requirements of our customers or the market generally.


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

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

   o expanding research and development;

   o achieving  manufacturing capability;

   o funding additional working capital; or

   o acquiring complementary products, businesses or technologies.

We cannot be  certain  that we will be able to raise  additional  funds on terms
acceptable  to us or at all.  If future  financing  is not  available  or is not
available on acceptable terms, our business, results of operations and financial
condition would be materially adversely affected.

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

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

Our Stock May be Disqualified from NASDAQ.

Because of its low price,  our stock has been removed  from the Nasdaq  National
Market System and placed on the Nasdaq  SmallCap  Market.  If we do not meet the
requirements  for  continued  listing on that market , our stock will be removed
from it and will then be quoted on the OTCBB.

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

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

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

We initially targeted the communications markets for the sale of our high-energy
products.  However, this industry,  which had previously sustained high rates of
infrastructure  build-out,  has experienced a sharp decline in build-out as well
as maintenance spending.  Significant reductions in both maintenance budgets and
capital build-out budgets at  telecommunications  companies made these potential
customers more conservative with their spending and expenditure  analysis.  They
have  become  less  willing to  consider  life-cycle  costs in their  purchasing
decisions  or try new more  expensive  solutions  that  offer  environmental  or
technical performance advantages, such as our products.

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

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

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

We have incurred net losses to common shareholders and negative cash flows since
our  inception  in May  1997.  We had  net  losses  to  common  shareholders  of
approximately  ($26,146,000) in 2001,  ($53,279,000) in 2000 and ($6,630,000) in
1999.  Since  our  inception  in May  1997,  we have had net  losses  to  common
shareholders totaling ($103,667,000).  We expect to continue to incur net losses
through at least 2003.  Although we are looking for ways to economize and reduce
costs, our efforts may prove even more expensive than we anticipate. Our revenue
must grow  substantially  if we are to offset these  higher  expenses and become
profitable. Even if we do achieve profitability,  we may be unable to sustain or
increase our profitability in the future.

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

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

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

   o  the cost of developing key components of our systems that have significant
      technical risk may not be economically successful for a competitive
      product in the high power market

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

   o  ensuring minimal warranty expenses through design and quality control;

   o  ensuring quality and cost control from our suppliers;

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

   o  extending the product to new applications.


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

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

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

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

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



Government Regulation May Impair Our Ability to Market Our Product.

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

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

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

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

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

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

Because  our  future  success  depends to a large  degree on the  success of our
technology,  our  competitiveness  will depend  significantly  on whether we can
attract and retain skilled technical personnel,  especially  engineers,  and can
retain members of our executive team. We have employment agreements that include
non-compete clauses only with Messrs. Capp, Spiezio,  Lazarewicz and French. Mr.
Capp and Mr. Lararewicz's  employment agreements are in effect until December 1,
2004 and October 25, 2003,  respectively,  but the  employment  agreements  with
Messrs. Spiezio and French will expire on October 26, 2002.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Provisions in our certificate of  incorporation  and by-laws and in the Delaware
corporate  law may make it difficult and expensive for a third party to pursue a
tender  offer,  change in control  or  takeover  attempt  that is opposed by our
management  and board of  directors.  Public  stockholders  who might  desire to
participate  in  such a  transaction  may  not  have  an  opportunity  to do so.
Beginning  with our  annual  stockholder  meeting  in  2001,  we  implemented  a
staggered  board of directors  that will make it difficult for  stockholders  to
change the composition of the board of directors in any one-year.  Additionally,
our board of directors may authorize  issuances of "blank check" preferred stock
that could be used to increase the number of outstanding shares and discourage a
takeover attempt. These anti-takeover  provisions could substantially impede the
ability of public stockholders to benefit from a change in control or change our
management and board of directors.

Item 7A.  Quantitative and Qualitative Disclosure about Market Risk

Our cash equivalents and investments,  all of which have maturities of less than
one  year,  may  expose us to  interest  rate  risk.  At June 30,  2002,  we had
approximately  $60,000  of cash  equivalents  that were  held in a  non-interest
bearing checking account. Also at June 30, 2002, we had approximately $1,979,000
of cash  equivalents  that  were held in  interest  bearing  checking  accounts,
$1,713,000 invested in interest-bearing  money market accounts and approximately
$20,745,000 in high-grade  commercial paper. The fair value of these investments
approximates  their  cost.  A 10%  change in  interest  rates  would  change the
investment income realized on an annual basis by approximately $50,000, which we
do not believe is material.

<PAGE>

                                     PART II


Item 1.  Legal Proceedings

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

Item 2.  Changes in Securities

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

From November 16, 2000 to June 30, 2002, we spent approximately $9.8 million for
inventory and materials  used in research and  development  and $7.2 million for
property  and  equipment,  including  the  build-out  of  our  facility  at  234
Ballardvale Street in Wilmington,  MA. In addition,  we spent approximately $1.2
million to pay dividends on our preferred stock that accrued through the date of
our initial public offering. We have spent approximately $20.8 million for other
working  capital  needs.  In addition to the above,  we advanced  funds totaling
approximately  $785,000 to three  officers of the Company.  The remainder of the
net offering  proceeds has been invested in  short-term,  income  producing bank
deposits  pending  their use for the  purchase of  property  and  equipment  and
working capital needs. Other than as disclosed above, none of these amounts were
direct or  indirect  payments  to  directors  or officers of the issuer or their
associates or to persons owning 10% or more of our common stock or to any of our
affiliates.

Item 3.  Defaults Upon Senior Securities

         None.

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

The Annual Meeting of the  Stockholders of the Company was held on May 23, 2002.
The  stockholders  of the  Company  elected  certain  members  of the  Board  of
Directors  and ratified the  selection of Deloitte & Touche LLP as the Company's
independent  auditors for the current  fiscal year.  The number of  affirmative,
negative and  abstained  votes cast with respect to each of the matters voted on
were as follows:

The tabulation of votes for the nominees for directors were as follows:
                                                   For              Withheld
   Alan P. Goldberg                             35,782,402           405,805
   Nancy Hawthorne                              36,014,148           174,059


                                                      For       Against  Abstain
Selection of Deloitte & Touche LLP as auditor       36,119,212   38,175   30,820


Item 5.  Other Information

         None.

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

     (a)     None.

     (b)     Reports on Form 8-K




<PAGE>



                                   SIGNATURES

Pursuant to the  requirements  of Section 13 of the  Securities  Exchange Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                            BEACON POWER CORPORATION

  Date:  August 14, 2002             By:  /s/ F. William Capp
                                              F. William Capp
                                          President and Chief Executive Officer


         August 14, 2002                  /s/ James M. Spiezio
                                              James M. Spiezio
                                          Vice President of Finance and Chief
                                          Financial Officer
                                         (Principal Financial Officer and Chief
                                          Accounting Officer)