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, 2003,

                                       or

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


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



     Delaware                                       04-3372365
     (State or other jurisdiction                 (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 August 10, 2003 was 42,815,928.

<PAGE>

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

                                                                          Page
PART I.  Financial Information

Item 1.  Financial Statements:

  Consolidated Balance Sheets at June 30, 2003 and December 31, 2002.        1

  Unaudited Consolidated Statements of Operations for the three and six
    months ended June 30, 2003 and 2002 and for the Period May 8, 1997
    (date of inception) to June 30, 2003.                                    2

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

  Notes to Unaudited Consolidated Financial Statements.                    5-9

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk          21

       Item 4.  Controls and Procedures                                     21

PART II.  Other Information

     Item 1.  Legal Proceedings                                             22
     Item 2.  Changes in Securities                                         22
     Item 3.  Defaults on Senior Securities                                 22
     Item 4.  Submission of Matters to a Vote of Security Holders           22
     Item 5.  Other Information                                             22
     Item 6.  Exhibits, Financial Statements Schedules and Reports on
                Form 8-K                                                    23

Signatures                                                                  24

Certifications                                                           25-28

<PAGE>


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

                                                                          June 30,             December 31,
                                                                            2003                   2002
                                                                    ---------------------  ---------------------
Assets
Current assets:
   Cash and cash equivalents                                              $   13,211,755         $   18,221,766
   Prepaid expenses and other current assets                                     828,585              1,775,455
   Assets held for sale                                                           53,715                 53,715
                                                                    ---------------------  ---------------------
      Total current assets                                                    14,094,055             20,050,936

Property and equipment, net (Note 3)                                             407,981                562,929
Investments (Note 5)                                                           1,296,428                      -
Other assets                                                                     480,232                291,901
                                                                    ---------------------  ---------------------

Total assets                                                              $   16,278,696         $   20,905,766
                                                                    =====================  =====================

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                        $     114,021           $     77,326
   Accrued compensation and benefits                                             269,067                226,623
   Other accrued expenses                                                        421,351                576,881
   Restructuring reserve                                                       1,577,965              1,749,738
   Current portion of capital lease obligations                                   72,369                200,041
                                                                    ---------------------  ---------------------
      Total current liabilities                                                2,454,773              2,830,609

Capital lease obligations, net of current portion                                      -                      -
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;
   42,815,928 and 42,812,897 shares issued and outstanding at
   June 30, 2003 and December 31, 2002, respectively                             428,159                428,129
   Deferred stock compensation                                                  (14,314)               (18,413)
   Additional paid-in-capital                                                132,746,859            132,750,525
   Other comprehensive income                                                    196,428                      -
   Deficit accumulated during the development stage                        (119,433,549)          (114,985,424)
   Treasury stock, at cost                                                      (99,660)               (99,660)
                                                                    ---------------------  ---------------------
      Total stockholders' equity                                              13,823,923             18,075,157

Total liabilities and stockholders' equity                                $   16,278,696         $   20,905,766
                                                                    =====================  =====================

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


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

<TABLE>
<CAPTION>
                                                                                                               Cumulative from
                                                                                                                   May 8, 1997
                                                                                                               (date of inception)
                                            Three months ended June 30,         Six months ended June 30,       through June 30,
                                               2003             2002              2003             2002               2003
                                          ---------------- ----------------  ---------------- ---------------- --------------------

<S>                                              <C>              <C>               <C>              <C>              <C>
Revenue                                          $      -         $      -          $      -         $      -         $    551,184

Operating expenses:
   Selling, general and administrative          1,261,019        1,469,986         2,479,668        3,505,747           25,602,695
   Research and development                       952,098        1,770,370         1,911,004        4,910,124           48,704,899
   Loss on sales commitments                            -                -                 -                -              375,974
   Depreciation and amortization                   43,581          506,144           143,270        1,012,235            3,809,273
   Restructuring charges                                -                -                 -                -            2,159,280
   Loss on impairment of assets                         -                -                 -                -            4,297,128
                                          ---------------- ----------------  ---------------- ---------------- --------------------
        Total operating expenses                2,256,698        3,746,500         4,533,942        9,428,106           84,949,249
                                          ---------------- ----------------  ---------------- ---------------- --------------------

Loss from operations                          (2,256,698)      (3,746,500)       (4,533,942)      (9,428,106)         (84,398,065)

Other income (expense):
Interest income                                   43,716          148,786           101,755          302,738            3,663,758
Interest expense                                  (1,757)         (13,320)           (5,987)         (28,187)          (1,092,977)
Other expense                                     (4,011)        (426,150)           (9,951)        (434,524)            (600,071)
                                          ---------------- ----------------  ---------------- ---------------- --------------------
   Total other income (expense), net               37,948        (290,684)            85,817        (159,973)            1,970,710
                                          ---------------- ----------------  ---------------- ---------------- --------------------
Net loss                                      (2,218,750)      (4,037,184)       (4,448,125)      (9,588,079)         (82,427,355)

Preferred stock dividends                               -                -                 -                -         (36,825,680)
Accretion of convertible preferred stock                -                -                 -                -            (113,014)
                                          ---------------- ----------------  ---------------- ---------------- --------------------
Loss to common shareholders                 $ (2,218,750)    $ (4,037,184)     $ (4,448,125)    $ (9,588,079)       $(119,366,049)
                                          ================ ================  ================ ================ ====================

Loss per share, basic and diluted               $  (0.05)        $  (0.09)         $  (0.10)        $  (0.22)
                                          ================ ================  ================ ================
Weighted-average common shares outstanding     42,814,929       42,795,821        42,813,918       42,783,407
                                          ================ ================  ================ ================

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

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
                                                                                                 Cumulative from
                                                                                                   May 8, 1997
                                                                                               (date of inception)
                                                                 Six months ended June 30,        through June
                                                                    2003            2002            30, 2003
                                                              ------------------------------------------------------
Cash flows from operating activities:
<S>                                                              <C>             <C>                <C>
    Net loss                                                     $ (4,448,125)   $ (9,588,079)      $  (82,427,355)
    Adjustments to reconcile net loss to net cash used in
    operating activities:
        Depreciation and amortization                                  143,270       1,012,235            3,809,273
        Loss on sale of fixed assets                                         -               -              170,868
        Gain on sale of fixed assets                                   (6,276)               -              (6,276)
        Impairment of assets                                                 -               -            4,297,128
        Restructuring charge net of expenses paid                    (171,773)               -            1,577,965
        Reserve for officers note                                        9,951         426,149              438,349
        Interest expense relating to issuance of warrants                    -               -              371,000
        Non-cash charge for change in option terms                           -               -              346,591
        Non-cash charge for settlement of lawsuit                            -               -              303,160
        Amortization of deferred consulting expense, net                     -               -            1,160,784
        Amortization of deferred stock compensation                          -          19,294            1,290,253
        Warrants issued for consulting services                              -               -            1,569,366
        Services and interest expense paid in preferred stock                -               -               11,485
    Changes in operating assets and liabilities:
        Prepaid expenses and other current assets                      936,919         164,570          (1,366,594)
        Accounts payable                                                36,695       (824,017)              114,021
        Accrued compensation and benefits                               42,444       (434,703)              269,067
        Accrued interest                                                     -               -              275,560
        Due to related party                                                 -        (35,532)                    -
        Other accrued expenses and current liabilities               (155,530)       (301,484)              430,021
                                                              ------------------------------------------------------

        Net cash used in operating activities                      (3,612,425)     (9,561,567)         (67,365,334)

Cash flows from investing activities:
    Purchase of investments                                        (1,100,000)               -          (1,100,000)
    Increase in other assets                                         (194,102)        (81,700)            (369,320)
    Purchases of property and equipment                                (5,916)       (293,454)          (8,419,631)
    Sale of property and equipment                                      29,641               -               29,641
                                                              ------------------------------------------------------

        Net cash used in investing activities                      (1,270,377)       (375,154)          (9,859,310)

Cash flows from financing activities:
    Initial public stock offering, net of expenses                           -               -           49,341,537
    Payment of dividends                                                     -               -          (1,159,373)
    Shares issued under employee stock purchase plan                       463          12,765              123,712
    Exercise of employee stock options                                       -               -            1,175,670
    Issuance of preferred stock                                              -               -           32,868,028
    Repayment of subscription receivable                                     -               -            5,000,000
    Proceeds from capital leases                                             -               -              495,851
    Repayment of capital leases                                      (127,672)       (180,492)            (959,026)
    Proceeds from notes payable issued to investors                          -               -            3,550,000
                                                              ------------------------------------------------------

        Net cash (used) provided by financing activities             (127,209)       (167,727)           90,436,399

(Decrease) increase in cash and cash equivalents                   (5,010,011)    (10,104,448)           13,211,755

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

Cash and cash equivalents, end of period                          $ 13,211,755    $ 24,497,137        $  13,211,755
                                                              ======================================================

Supplemental disclosure of non--cash transactions:
    Cash paid for interest                                            $  6,000       $  34,000           $  487,426
                                                              ======================================================
    Cash paid for taxes                                               $  4,500       $  17,000           $   30,300
                                                              ======================================================
    Assets acquired through capital lease                               $    -         $     -           $  535,445
                                                              ======================================================

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

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements


Note 1.  Nature of Business and Operations

Nature of Business. Beacon Power Corporation is a development stage company that
was  incorporated  on  May  8,  1997.  The   Corporation,   and  its  subsidiary
(collectively  "Beacon" or "the  Company")  designs,  develops,  configures  and
offers for sale, power conversion and energy storage systems that provide highly
reliable, high-quality, environmentally friendly, uninterruptible electric power
employing both  proprietary and third-party  solutions for a number of potential
applications.  The Company has segmented the potential  markets for its products
into  four  broad  categories:   (1)  power  conversion  systems  for  renewable
applications  (such as the  recently  introduced  M5  product)  (2) high  energy
flywheel-based   energy  storage  systems  for  telecom  and  renewable   energy
applications,  (3) flywheel-based  high-power and energy systems for utility and
distributed   generation   (specifically   frequency  and  voltage   regulation)
applications,  and (4) high-power  uninterruptible  flywheel-based power systems
(UPS) for both short (12-30 sec) and long (5-15 min) duration applications.

The Company  believes its near-term  opportunities  are in the  development  and
marketing  of its M5  Power  Conditioning  System  based  on  recently  acquired
intellectual  property.  This system  converts DC power  generated  by renewable
sources  from  solar  or  wind  to the AC  power  required  by  residential  and
commercial  users.  The Company expects to have commercial sales of its M5 Power
Conditioning System for solar applications by the end of this year.

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

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

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

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

Operations.  The Company has  experienced net losses since its inception and, as
of June 30, 2003, had an accumulated  deficit of  approximately  $119.4 million.
The  Company's  business  strategy  is to create  near-term  revenues  and gross
margins from the sale of solar power inverters,  while building a reputation for
excellent performance from its equipment and its sales and service organization.
The Company  will then use the  relationships  it is  developing  to gain market
access for the Company's future products for the renewable energy industry.  For
the Company's current and contemplated  flywheel-based systems, it is continuing
to  evaluate  products  in  terms  of the  market  size  and  growth  potential,
competitive  advantages  that its products  could  provide and  probable  market
penetration. The Company will not make the additional expenditures that would be
required for  prototype  development  or  production  capabilities  until it has
defined the  specific  markets to be served and the  marketplace  has  expressed
tangible  interest.  If markets are identified in which the Company believes its
flywheel  products  will be  successful,  and those  markets  express a tangible
interest in its products,  the Company may not have sufficient cash available to
complete prototype  development and production of its products unless additional
equity or debt financing is available.

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 and six months
ended June 30, 2003 are not  necessarily  indicative  of the results that may be
expected for the full year ending  December 31, 2003.  Certain  information  and
footnote  disclosure  normally  included in  consolidated  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or  omitted.  It  is  suggested  that  these  consolidated  financial
statements   presented   herein  be  read  in  conjunction  with  the  Company's
consolidated  financial  statements and notes thereto  included in the Company's
annual report on Form 10-K, for the year ended December 31, 2002.

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



<PAGE>


Note 3.  Property and Equipment

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

                                                     Estimated
                                                       Useful       June 30,        December 31,
                                                       Lives          2003              2002
                                                    -------------------------------------------------
<S>                                                   <C>             <C>                 <C>
Machinery and equipment                               5 years         $1,996,259          $1,998,631
Service vehicles                                      5 years             63,792              63,792
Furniture and fixtures                                7 years            686,572             717,293
Office equipment                                      3 years          1,908,500           1,914,195
Leasehold improvements                               Lease term        2,072,577           2,072,577
Equipment under capital lease obligations            Lease term        1,008,985           1,081,726
                                                                -------------------------------------

     Total                                                            $7,736,685          $7,848,214

Less accumulated depreciation and amortization                       (3,045,775)         (2,996,079)
                                                                -------------------------------------

     Property and equipment, before impairment                        $4,690,910          $4,852,135
                                                                -------------------------------------

Less Impairment Reserve                                              (4,282,929)         (4,289,206)
                                                                -------------------------------------

     Property and equipment, net                                       $ 407,981           $ 562,929
                                                                =====================================
</TABLE>


Note 4.  Commitments

The Company leases office and light manufacturing space under an operating lease
through  September  30, 2007 and has  various  operating  short-term  leases for
certain office and manufacturing equipment expiring through December 2003. Under
the terms of the  facility  lease,  the  Company  provided  the  lessor  with an
irrevocable  letter of  credit.  At June 30,  2003 the  balance of the letter of
credit totaled $355,232. A cash deposit secures this letter of credit.


Note 5.  Investments

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

This investment in equity securities is classified as available for sale and is,
therefore,  carried on the balance sheet at fair market  value,  with changes in
carrying value being recorded in Accumulated Other  Comprehensive  Income/(Loss)
until the  investments  are sold, in accordance with the provisions of Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity  Securities."  Fair market value is determined  using period-end
sales prices on U.S. or foreign stock exchanges.


Note 6.  Common Stock

Reserved  Shares.  At June 30,  2003  and  December  31,  2002,  13,595,240  and
14,493,238 shares of common stock were reserved for issuance under the Company's
stock option plan and outstanding warrants, respectively.

Note 7.  Related Party Transactions

Advance to Officers. During 2001, the Company advanced approximately $785,000 to
three officers of the Company.  These advances are interest  bearing and secured
by the officers' holdings of the Company's common stock and were provided to the
officers to allow them to  exercise  stock  options and in one case,  to pay the
related taxes.  Through June 30, 2003,  the Company has collected  approximately
$323,000 in payments on these advances.  In June 2002, due to the current market
value  of the  pledged  securities  and the  uncertainty  of  collection  of the
advance,  the  Company  took a charge in the amount of  $426,148  to reserve the
remaining  balance of the  advance to Mr.  William  Stanton,  its former CEO and
president.  This loan, however, has not been cancelled, and is partially secured
by 308,318 shares of the Company's stock. Mr. Stanton continues to be a director
of the Company.  This charge is included in other  expenses in the  accompanying
consolidated   statement  of  operations.   The  remaining  advance  balance  of
approximately  $55,000 at June 30, 2003 is included in prepaid and other  assets
in the accompanying consolidated balance sheet.

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  products
into this market.  Therefore,  in July 2002,  in an effort to reduce its monthly
cash-spending rate, the Company implemented a number of cost-cutting measures to
ensure the availability of resources  necessary to pursue its business  strategy
for a reasonable period but at a significantly lower cash expenditure rate. As a
result, a substantial portion of its long-term assets have been idled, including
machinery and equipment,  tooling,  office furniture and fixtures, and equipment
and  leasehold  improvements.  The Company has evaluated all of its property and
equipment as required by Statement of  Financial  Accounting  Standards  No. 144
"Accounting  for the  Impairment  or Disposal of  Long-Lived  Assets"  and, as a
result, has taken a restructuring and impairment charge of $6.5 million of which
$4.3 million represents  impaired capital equipment and leasehold  improvements,
$.3 million  relates to severance  costs and $1.9  million  relates to a reserve
against future lease payments and related  facility  costs.  The assets held for
sale have been grouped  together and classified as "Assets held for sale" in the
current  assets  section of the  balance  sheet.  Assets held for sale have been
written  down to their fair value based on quotes from  vendors and other market
factors.   The  reserve   against   future  lease   payments  is  classified  as
"Restructuring reserve" in the current liabilities section of the balance sheet.

A summary of the restructuring reserves is as follows:
<TABLE>
<CAPTION>

                                                       Facility related        Asset impairment
<S>                                                         <C>                     <C>
Beginning balance at December 31, 2002                      $ 1,749,738             $ 4,289,206
Charges for the period                                                -                       -
Other                                                                 -                 (6,277)
Payments                                                      (171,773)                       -
                                                ------------------------------------------------
Ending balance at June 30, 2003                             $ 1,577,965             $ 4,282,929
                                                ================================================
</TABLE>

Note 9.  Stock-Based Compensation

In 2002 the Company implemented FASB Statement of Financial Accounting Standards
No. 148 ("SFAS 148"),  Accounting for  Stock-Based  Compensation-Transition  and
Disclosure.  SFAS 148 amends  disclosure  requirements  and  requires  prominent
disclosures on both annual and interim financial  statements about the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported  results.  This  statement is effective for  financial  reports
containing financial statements for interim periods beginning after December 15,
2002. SFAS 148 also provides  alternative  methods of transition for a voluntary
change to fair value based methods of accounting  which have not been adopted at
this time.  Compensation  expense  associated with awards of stock or options to
employees is measured using the intrinsic-value  method.  Deferred  compensation
expense associated with awards to non-employees is measured using the fair-value
method  and is  amortized  over  the  vesting  period  of  three  years  using a
calculation under FASB Interpretation No. 28, "Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans."

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

                                              Three months ended    Three months ended     Six months ended      Six months ended
                                                   30-Jun-03             30-Jun-02             30-Jun-03             30-Jun-02


<S>                                                  <C>                   <C>                   <C>                   <C>
Net loss to common shareholders as reported          ($2,218,750)          ($4,037,184)          ($4,251,696)          ($9,588,079)

Pro forma compensation expense                            114,330               825,472               223,000             1,650,944
Net loss--pro forma                                  ($2,333,080)          ($4,862,656)          ($4,474,696)         ($11,239,023)
Loss per share--as reported                               ($0.05)               ($0.09)               ($0.10)               ($0.22)
Loss per share--pro forma                                 ($0.05)               ($0.11)               ($0.10)               ($0.26)

</TABLE>

<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

The Company designs, develops,  configures and offers for sale, power conversion
and  energy  storage  systems  that  provide  highly   reliable,   high-quality,
environmentally   friendly,   uninterruptible   electric  power  employing  both
proprietary  and third-party  solutions for a number of potential  applications.
The Company has  segmented  the  potential  markets for its products  into three
broad categories: (1) low power conversion systems (also known as inverters) and
low power,  high energy  flywheel-based  energy  storage  systems for  renewable
energy  applications,  (2)  flywheel-based  high-power  and energy  systems  for
utility  and  distributed   generation   (specifically   frequency  and  voltage
regulation)  applications,  and (3)  high-power  uninterruptible  flywheel-based
power  systems  (UPS) for both short  (12-30  sec) and long (5-15 min)  duration
applications.

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

The  Company's  business  strategy  is to create  immediate  revenues  and gross
margins with the M5 Power  Conditioning  System while  building a reputation for
excellence  from the performance of its equipment and from its sales and service
organization.  The  Company  has hired key  personnel  from AES in the sales and
service area, and is developing a training and  certification  program to insure
the highest reliability in its equipment being installed.  The Company will then
use the  relationships  it is developing to gain market access for the Company's
future products for the renewable energy industry.

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


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

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

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

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

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

From its  inception  through  June 30, 2003 the Company has  incurred  losses of
approximately  $119.4 million.  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.  Also,  the Company's  losses and uses of cash may
fluctuate  significantly  from  quarter to quarter as its costs of  development,
production  and  marketing  fluctuate.   In  addition,   the  Company  may  make
investments that it consider strategic.

Results of operations:

Comparison of three months ended June 30, 2003 and 2002

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

Selling,  General and Administrative Expenses. The Company's sales and marketing
expenses  consist  primarily  of  compensation  and  benefits  for our 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
$1,261,000  and  $1,470,000  for the three  months ended June 30, 2003 and 2002,
respectively.  The decrease of approximately  $209,000 or 14.2% is primarily the
result of a reduction in headcount.

Research  and  Development.  The  Company's  cost of  research  and  development
consists  primarily  of the cost of  compensation  and benefits for research and
development  and support  staff,  as well as materials  and supplies used in the
engineering design process.  These costs were reduced  significantly during 2002
as the Company  reduced its headcount on March 12 and July 19, 2002. The Company
is incurring costs for emerging  inverter  product  development but is not doing
significant  development  work on its  flywheel  family of  products.  While the
Company does not expect to incur any significant  additional  development  costs
for its existing flywheel or inverter  products,  it may incur significant costs
for  the  development  of  new  flywheel  design   prototypes  or  staffing  the
manufacturing  function  and  establishing  required  processes  for  commercial
production of its products.  The Company will begin  prototype  development  and
establishing  production  capabilities  only after it has defined  the  specific
markets to be served and the marketplace has expressed tangible interest.  While
the Company will continue to undertake modest design efforts on new high-powered
flywheel products, it expects its cost of research and development in 2003 to be
reduced   compared  to  2002.   Research  and   development   expenses   totaled
approximately  $952,000 and  $1,770,000 for the three months ended June 30, 2003
and 2002,  respectively.  The  decrease of $818,000  or 46.2% is  primarily  the
result of lower headcount and lower  development  costs in 2003 compared to 2002
as the  Company  performs  limited  development  work while  working to identify
markets for our flywheel products.

Depreciation and  Amortization.  The Company's  depreciation and amortization is
primarily  related to depreciation on capital  expenditures and the amortization
of lease and  leasehold  costs related to our  facilities.  The Company also has
intellectual property in the form of a patent on its vacuum system that it began
to amortize in 2002. Depreciation and amortization totaled approximately $44,000
and $506,000  for the three  months ended June 30, 2003 and 2002,  respectively.
The  decrease  of  $462,000  or 91.3% is  attributable  to the  decrease  in the
remaining net book values of our assets.

Interest and Other Income/Expense,  net. The Company's  non-operating income and
expenses are primarily  attributable to interest  income  resulting from cash on
hand,  partially offset by interest expense  associated with its capital leases.
Interest  income  for the three  months  ended June 30,  2003 was  approximately
$44,000,  compared to $149,000 for the same period in 2002. The decrease in 2003
compared  to the prior  year is the  result  of lower  cash  balances  and lower
interest rates.

Interest expense  decreased to  approximately  $2,000 for the three months ended
June 30, 2003 from approximately  $13,000 for the same period in 2002.  Interest
expense relates to assets leased under capital leases.

Other expense of  approximately  $4,000 for the three months ended June 30, 2003
relates to the  write-off of  capitalized  interest on the reserved  loan of our
former CEO.

Liquidity and Capital Resources

The Company's cash requirements  depend on many factors,  including its research
and development  activities,  continued  efforts to  commercialize  products and
additional  market   development.   The  Company  expects  to  make  significant
expenditures  to fund its  working  capital,  develop  technologies  and explore
opportunities  to find and develop other markets to sell its products.  However,
the Company has taken significant  actions over the last 21 months to reduce its
cash  expenditures  for  product  development,   infrastructure  and  production
readiness.   The  Company  has  significantly  reduced  spending  on  headcount,
development work and capital expenditures.  The Company has focused its activity
on  market  analysis  in  terms  of size of  markets,  competitive  aspects  and
advantages  that its products  could  provide.  The Company has  continued to do
preliminary  design and  development  of potential  products  for markets  under
consideration.  The Company is not making expenditures for prototype development
or  production  capabilities  until it has  defined the  specific  markets to be
served.

Net  cash  used in  operating  activities  was  approximately  ($3,612,000)  and
($9,562,000) for the six months ended June 30, 2003 and 2002, respectively.  The
primary  component to the negative cash flow from operations is from net losses.
For the first six months of 2003,  the Company  had a net loss of  approximately
($4,448,000).  This included  non-cash charges of approximately  $10,000 for the
reserve of  interest  capitalized  on a reserved  note due from its former  CEO,
facility  related  cash  payments  charged  against  restructuring  reserves  of
approximately   ($172,000),   gain  on  the  sale  of  assets  of  ($6,000)  and
depreciation and amortization of  approximately  $143,000.  Changes in operating
assets and liabilities generated approximately $861,000 of cash during the first
six months of 2003. The primary  components  were increases in accounts  payable
and  accrued  compensation  and  benefits  of  approximately  $37,000 and 42,000
respectively, and decreases in prepaid expenses of approximately $937,000. These
were offset by accrued  expenses and other current  liabilities of approximately
($156,000).  For the first six  months of 2002,  the  Company  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.

Net  cash  used in  investing  activities  was  approximately  ($1,270,000)  and
($375,000)  for the six months ended June 30, 2003 and 2002,  respectively.  The
principal  uses of cash  during  the  first six  months  of 2003 were  primarily
related to the investment in Evergreen Solar of ($1,100,000), increases in other
assets totaling  ($194,000),  purchase of capital  equipment of ($6,000) and the
principal  sources of cash were from the sale of certain impaired  machinery and
equipment of the Company of  approximately  $30,000.  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.)

Net  cash  used  by  financing  activities  was  approximately   ($127,000)  and
($168,000)  for the six months ended June 30, 2003 and 2002,  respectively.  For
the first six months of 2003, the cash used for financing  activities related to
repayment of capital  leases of  ($128,000),  offset by cash  proceeds  from the
employee  stock  purchase plan of  approximately  $1,000,  and for the first six
months of 2002 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.

Based on the Company's  Business Plan,  which includes the cash flow benefits of
significantly  reduced headcount,  development spending and capital expenditures
as well as the  revenues  and  margins  associated  with its  emerging  inverter
electronics  business,  the Company  believes that its cash and cash equivalents
and future cash flow from operations will satisfy the Company's  working capital
needs through 2004.  However,  this belief assumes no expenditures for prototype
development  or  production  capabilities  for  flywheel  products,  which could
require  significant  amounts of cash. In the event that the Company is not able
to obtain  development  contracts from customers to fund prototype  development,
these expenditures, if made, could significantly reduce the number of months its
cash and cash  equivalents  and future cash flow from  operations  will  satisfy
working  capital  needs.  In as much as the  Company  does not  expect to become
profitable or cash flow positive until at least 2006, its ability to continue as
a going concern will depend on being able to raise additional  capital or obtain
debt financing.  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  extremely  dilutive  to its
shareholders.

Certain Factors Affecting Future Operating Results

The  following  factors,  as well as others  mentioned in the  Company's  Annual
Report on Form 10-K for the year ended December 31, 2002 (filed March 31, 2003),
could  cause  actual  results  to differ  materially  from  those  indicated  by
forward-looking statements made in this Quarterly Report on Form 10-Q:

The Value  Proposition  of our Inverter  Power  Conditioning  Systems May Not Be
Recognized.

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

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

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

We Acquired the  Intellectual  Properties  for the Inverter  Power  Conditioning
Systems from a Company in Bankruptcy and Distributors and Their Retail Customers
may not Purchase Our Products.

     The Company  purchased the  intellectual  property that its Inverter  Power
     Conditioning  Systems are based on from a company in  bankruptcy  which had
     fielded units that are not supported by warranties  and in some cases these
     units are not  functioning  as  expected.  While the  Company  has made the
     changes to its emerging  product to provide  reliable  performance  and the
     Company will provide  warranties  for its products,  there can no assurance
     that the  distributors  and their  customers  will  purchase the  Company's
     product.

We Face Intense Competition from other Inverter Manufacturers.

     The performance of other inverter  manufacturers  may improve to rival what
     the Company  considers to be superior  performance  characteristics  of its
     product.  This could affect the Company's  ability to maintain pricing that
     is expected to provide sufficient cash flow to continue operations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

        o        expanding research and development;

        o        achieving  manufacturing capability;

        o        funding additional working capital; or

        o        acquiring complementary products, businesses or technologies.

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

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

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

Our Stock May be Disqualified from the SmallCap Market System of NASDAQ.

     The Company has been granted an extension  until October 6, 2003 to achieve
     compliance  of the listing  requirement  to maintain a minimum  closing bid
     price of one dollar for ten consecutive trading days. In the event that the
     Company  is  unable to meet  this  listing  requirement,  and  appeals  for
     additional time to achieve compliance are unsuccessful, the Company's stock
     could no longer be eligible for  quotation on the NASDAQ  SmallCap  Market.
     Should  the  Company's  stock  lose its  eligibility  to be  quoted  on the
     SmallCap Market, it will seek to have its stock quoted on the OTCBB.  While
     the  Company  knows of no reason  that its stock will not be  accepted  for
     quotation on OTCBB, it cannot guarantee that  acceptance.  If the Company's
     stock is not accepted for acceptance on the OTCBB, it will be listed on the
     pink sheets.

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

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

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

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

     The Company has  incurred  net losses to common  shareholders  and negative
     cash flows since its  inception in May 1997.  The Company had net losses to
     common  shareholders of approximately  ($4,448,000)  through June 30, 2003,
     ($20,839,000)  in 2002,  ($26,146,000)  in 2001,  ($53,279,000) in 2000 and
     ($6,630,000) in 1999.  Since its inception in May 1997, the Company has had
     net losses to common  shareholders  totaling  ($119,366,000).  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.  Revenue must grow
     substantially  if the Company is to offset these higher expenses and become
     profitable.  Even if the  Company  does  achieve  profitability,  it may be
     unable to sustain or increase profitability in the future.

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

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

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

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

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

          o reducing  manufacturing costs for the flywheel's shaft, hub and rim,
          bearings and related  electronics to increase our chances of achieving
          profitability;

          o ensuring  minimal  warranty  expenses  through  design  and  quality
          control;

          o ensuring quality and cost control from our suppliers;

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

          o extending the product to new applications.


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

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

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

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

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

Government Regulation May Impair Our Ability to Market Our Product.

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

     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 our  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 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 Renewable Energy Inverters or Flywheels in General.

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

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

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

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

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

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

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

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

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

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

     Stockholders who owned the Company prior to its initial public offering own
     approximately  52.7% of our  outstanding  stock as of June 30,  2002.  If a
     sufficient  number of these  stockholders were to vote together as a group,
     they would have the ability to control the Company's board of directors and
     its policies. For instance, these stockholders would be able to control the
     outcome of all  stockholder  votes,  including  votes  concerning  director
     elections,  charter and by-law amendments and possible  mergers,  corporate
     control  contests  and  other  significant  corporate  transactions.  These
     stockholders may use their influence to approve actions that are adverse to
     the interest of other investors, which could depress 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 the Company's common
     stock, which could affect its ability to attract additional capital to fund
     operations.

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

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

We May make  Investments  in Other  Energy  Companies  in Our Sector to Increase
Shareholder  Values Through Strategic  Alliance or Return on Investment Which do
Not Create Gains and therefore Reduce Shareholder Value.

     The Company may make investments in other energy companies in its sector to
     gain  strategic  alliances,  channels  to market or  appreciation  in stock
     value.  These  investments may not provide  alliances or channels to market
     that would increase shareholder value. Given the volatility of share prices
     for  companies  in this  sector,  general  economic  conditions  and market
     fluctuations  in general,  the market price of the investments may decrease
     and reduce shareholder value.

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

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

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

     On  September  11,  2001,  the United  States  was the target of  terrorist
     attacks of unprecedented  scope.  These attacks have caused  instability in
     the global  financial  markets,  and have  contributed to volatility in the
     stock prices of United States  publicly  traded  companies,  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.


Subsequent Event

The Company,  on August 5, 2003 was notified by the Nasdaq Stock Market that the
Nasdaq Listing  Qualifications  Panel had determined  that a continuation of the
listing  of the  Company's  securities  on the Nasdaq  SmallCap  Market had been
granted  and that its stock will  continue to be listed on the  SmallCap  Market
until October 6, 2003. As previously  announced,  on June 6, 2003,  the staff of
the Nasdaq  Stock  Market  notified  the Company that its stock would be removed
from the  SmallCap  Market due to its  failure  to  satisfy  the $1.00 bid price
requirement,  and on July 18,  2003 the Company  requested a hearing  before the
Nasdaq Listing Qualifications Panel to appeal the Company's delisting. The Panel
exercised  its  discretionary  authority and granted the Company an extension in
light  of a  proposal  that  Nasdaq  has  made to the  Securities  and  Exchange
Commission  that, if approved by the SEC,  would provide two 180-day  periods in
which to satisfy  the bid price  requirement  (in  addition  to the two  180-day
periods  currently  provided by Nasdaq) for issuers,  such as the Company,  that
meet core initial-listing  criteria.  There is no way to predict what action, if
any, the SEC will take on this matter  before  October 6, 2003,  and there is no
assurance  that the  Company's  stock will  continue  to be listed on the Nasdaq
SmallCap  Market after that date. If the SEC rejects the Nasdaq proposal and the
Company is unable to satisfy  the $1.00 bid price  requirement,  then the Nasdaq
may cause the Company's stock to be removed from the SmallCap Market.

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 June 30,
2003, the Company had  approximately  $60,000 of cash equivalents that were held
in  non-interest  bearing  accounts.  Also at June 30,  2003,  the  Company  had
approximately  $651,000 of cash  equivalents  that were held in interest bearing
checking  accounts and  $12,501,000  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 $13,000, 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 a date within 90 days
before the filing date of this  quarterly  report.  Based upon that  evaluation,
they have concluded that the Company has in place controls and other  procedures
that are  designed to ensure that  information  required to be  disclosed by the
Company in the reports that it files or submits  under the  Securities  Exchange
Act of 1934 is recorded,  processed,  summarized  and  reported  within the time
periods  specified  in  the  SEC's  rules  and  forms.  Since  the  date  of the
evaluation,  there have been no  significant  changes in the Company's  internal
controls or in other factors that could significantly affect these controls.


<PAGE>

                                     PART II

Item 1.  Legal Proceedings

On June 30, 2003, Vlado Ostovic, an independent engineer who resides in Germany,
commenced  a  lawsuit  against  the  Company  in  Middlesex  Superior  Court  in
Cambridge,  Massachusetts. Mr. Ostovic alleges that the Company owes him $36,700
for engineering consulting services performed under a written agreement with the
Company.  Mr. Ostovic's Complaint was served on the Company on or about July 16,
2003. The Complaint alleges that the Company terminated Mr. Ostovic's consulting
project  earlier than he expected  and, as a result,  he is entitled to charge a
rate for his services higher than the agreed upon rate set forth in the parties'
contract. The Company has agreed to pay to Mr. Ostovic for hours worked pursuant
to the contract rate,  which amounts to  approximately  $18,000.  Mr. Ostovic is
unwilling  to accept  the  contract  rate  given his claim  that he was told the
project would be a long-term venture and the Company  terminated it prematurely.
Mr.  Ostovic is requesting a payment of an additional  $18,000.  The Company has
refused to pay Mr. Ostovic's charges in excess of the agreed upon rate based, in
part, on the contractual  language  expressly  allowing the Company to terminate
the project at any phase upon payment for the task under development. Should Mr.
Ostovic  continue to refuse to accept payment at the contract rate as payment in
full,  the  Company  intends  to  aggressively  defend  against  his claim to be
entitled to additional amounts.

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 June 30, 2003,  the Company 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,  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  $36 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.  The  officers  have repaid  approximately  $323,000 of
these  advances  through June 30, 2003. In June 2002,  due to the current market
value  of the  pledged  securities  and the  uncertainty  of  collection  of the
advance,  the  Company  took a charge in the amount of  $426,148  to reserve the
remaining  balance of the  advance to Mr.  William  Stanton,  its former CEO and
president.  This, however,  has not been cancelled,  and is partially secured by
308,318 shares of the Company's stock. Mr. Stanton continues to be a director of
the  Company.  This  charge is included  in other  expenses in the  accompanying
consolidated   statement  of  operations.   The  remaining  advance  balance  of
approximately  $55,000 at June 30, 2003 is included in prepaid and other  assets
in the accompanying  consolidated  balance sheet. Other than as disclosed above,
none of these amounts were direct or indirect  payments to directors or officers
of the  issuer  or their  associates  or to  persons  owning  10% or more of the
Company's common stock or to any of our affiliates.

Item 3.  Defaults Upon Senior Securities

         None.

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

         None.

Item 5.  Other Information

         None.

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

   (a) 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:  August 14, 2003          By:  /s/ F. William Capp
                                          -------------------
                                          F. William Capp
                                          President and Chief Executive Officer


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



<PAGE>

                                                                  Exhibit 31.1


                                  CERTIFICATION

I, F. William Capp, certify that:

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

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

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

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

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

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

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

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

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

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

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


<PAGE>

                                                                  Exhibit 31.2

                                  CERTIFICATION

I, James M. Spiezio, certify that:

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

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

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

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

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

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

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

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

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

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

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


<PAGE>

                                                                  Exhibit 32.1

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

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

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

August 14, 2003



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



<PAGE>

                                                                  Exhibit 32.2

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

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

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


August 14, 2003


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