<PAGE>

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

                                   FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the quarterly period ended September 30, 2000
                               ------------------------------------

                                      or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from _____________________ to ________________________

Commission file number: ________________________________________________________

                              ACTIVE POWER, INC.
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

              Delaware                                    74-2961657
--------------------------------------------------------------------------------
   (State or other jurisdiction of                     (I.R.S. Employer
    incorporation or organization)                    Identification No.)

11525 Stonehollow Dr., Suite 110, Austin, Texas                     78758
--------------------------------------------------------------------------------
(Address of principal executive offices)                            (Zip Code)


                                (512) 836-6464
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)


________________________________________________________________________________
  (Former name, former address and former fiscal year, if changed since last
                                    report)

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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.  [X] Yes  [_] No

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

 Indicate the number of shares outstanding of each of the issuer's classes of
               common stock, as of the latest practicable date.
 The number of shares of common stock as of October 31, 2000 was 38,808,844 with
                        a par value of $.001 per share.
________________________________________________________________________________
<PAGE>

                               ACTIVE POWER, INC.
                                     INDEX

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

        Balance Sheet as of September 30, 2000 (unaudited) and
          December 31, 1999  ......................................       3

        Statements of Operations for the Three Months Ended
          September 30, 2000 and September 30, 1999 and for the
          Nine Months Ended September 30, 2000 and September 30,
          1999 (unaudited) .........................................      4

        Statement of Cash Flows for the Nine Months Ended
          September 30, 2000 and September 30, 1999 (unaudited) .....     5

        Notes to Financial Statements ...............................     6

Item 2. Management's Discussion and Analysis ........................     8

        Liquidity and Capital Resources .............................    11

        Qualitative and Quantitative Disclosures about Market Risk ..    12

        Risk Factors ................................................    12

                          PART II - OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds.

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

Item 6. Exhibits and Reports on Form 8-K.
<PAGE>

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

                              ACTIVE POWER, INC.
                                BALANCE SHEETS
                                (in thousands)

                                          September 30,   December 31,
                                               2000           1999
                                          ------------    ------------
                                           (unaudited)
Assets
Current assets:
  Cash and cash equivalents                    $134,732       $ 24,856
  Short-term investments                         12,015          1,409
  Accounts receivable                               918             38
  Inventories, net                                2,016            934
  Prepaid expenses and other                      1,031              5
                                               --------       --------
Total current assets                            150,712         27,242
Long-term investments                             5,006              -
Property and equipment, net                       3,934          1,124
                                               --------       --------

  Total assets                                 $159,652       $ 28,366
                                               ========       ========

Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                             $  1,643       $    196
  Accrued expenses                                  828            597
  Current portion of notes payable                    -             55
                                               --------       --------
Total current liabilities                         2,471            848

Non-current Liabilities:
  Warrants with redemption rights                     -          3,614
  Other non-current liabilities                       -              7
                                               --------       --------
Total non-current liabilities                         -          3,621
Redeemable convertible preferred stock                -         54,235

Stockholders' (deficit) equity
 1992 preferred stock                                 -              -
 Common stock                                        39             11
 Treasury stock                                      (2)            (2)
 Deferred stock compensation                     (9,191)        (5,430)
 Additional paid-in capital                     212,815            803
 Accumulated deficit                            (46,480)       (25,720)
                                               --------       --------

 Stockholders' (deficit) equity                 157,181        (30,338)
                                               --------       --------
 Liabilities and stockholders' equity          $159,652       $ 28,366
                                               ========       ========

See accompanying notes
<PAGE>

                              ACTIVE POWER, INC.
                            STATEMENT OF OPERATIONS
               (in thousands, except shares and per share data)

<TABLE>
<CAPTION>
                                                    Three                      Nine
                                                Months Ended               Months Ended
                                                September 30,              September 30,
                                             2000          1999         2000          1999
                                          ------------------------   ---------------------
                                                 (unaudited)                (unaudited)
<S>                                       <C>           <C>          <C>           <C>
Product revenue                           $     1,343   $      103   $     2,204   $       577
Cost of goods sold                              2,085          682         3,782         2,042
                                          -----------   ----------   -----------   -----------
Product margin                                   (742)        (579)       (1,578)       (1,465)

Development funding                                 -        2,000             -         5,000

Operating expenses:
 Research and development                       3,060        1,091         6,718         3,165
 Selling, general and administrative            1,578          623         4,138         1,672
 Amortization of deferred stock
   compensation                                 1,881          971         5,021         1,036
                                          -----------   ----------   -----------   -----------
Total operating expenses                        6,519        2,685        15,877         5,873
                                          -----------   ----------   -----------   -----------

Operating loss                                 (7,261)      (1,264)      (17,455)       (2,338)

Interest income                                 1,548           72         2,243           234
Change in fair value of warrants                    -       (1,042)       (1,562)       (2,574)
Other income (expense)                            (76)          (1)          (80)            4
                                          -----------   ----------   -----------   -----------
  Total other income / (expense)                1,472         (971)          601        (2,336)

Loss before income taxes                       (5,789)      (2,235)      (16,854)       (4,674)
                                          ===========   ==========   ===========   ===========

Provision for income taxes                          -            -             -             -

Net loss                                  $    (5,789)  $   (2,235)  $   (16,854)  $    (4,674)
                                          ===========   ==========   ===========   ===========

Preferred stock dividends,
  accretion, & conversion                      (3,669)      (1,070)      (19,079)       (3,099)

Net loss to common shareholders           $    (9,458)  $   (3,305)  $   (35,933)  $    (7,773)
                                          ===========   ==========   ===========   ===========

Weighted average common
  shares outstanding                       27,322,877    9,948,722    16,467,498     9,914,888
Net loss to common shareholders
  per share - basic & diluted             $     (0.35)  $    (0.33)  $     (2.18)  $     (0.78)
Pro forma weighted average
 Shares outstanding, assuming
 conversion of convertible
 preferred stock to common,
 beginning of period                       34,535,394                 30,487,988
Pro forma net loss per share
 assuming conversion of
 convertible preferred stock                   $(0.17)               $     (0.55)
</TABLE>

See accompanying notes
<PAGE>

                              ACTIVE POWER, INC.
                            STATEMENT OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                            Nine            Nine
                                                        Months Ended    Months Ended
                                                       September 30,   September 30,
                                                           2000             1999
                                                       -------------   --------------
                                                        (unaudited)     (unaudited)
<S>                                                    <C>             <C>
Operating activities
--------------------
Net loss                                                    $(16,854)        $(4,674)
Amortization of deferred stock compensation                    5,021           1,036
Change in fair value of put warrant                            1,562           2,574
Depreciation expense                                             708             463
Change in operating assets and liabilities:
     Accounts receivable, net                                   (880)           (836)
     Inventories, net                                         (1,082)           (288)
     Prepaid expenses and other                               (1,026)             14
     Accounts payable                                          1,448             (73)
     Accrued expenses                                            230              25
     Non current liabilities                                      (7)              -
                                                            --------         -------
Net cash used in operating activities                        (10,880)         (1,759)

Investing activities
--------------------
     Capital expenditures                                     (3,518)           (483)
     Net maturity (purchase) of investments                  (15,612)          3,611
                                                            --------         -------
Net cash provided by (used in) investing activities          (19,130)          3,128

Financing activities
--------------------
     Proceeds from issuance of common stock,
      net of issuance costs                                  139,911              16
     Preferred stock issuance costs                                -              (8)
     Payments on notes payable                                   (55)           (132)
     Proceeds from exercise of warrants                           30               -
                                                            --------         -------
Net cash provided by (used in) financing activities          139,886            (124)

Increase in cash and cash equivalents                       $109,876         $ 1,245
Cash and cash equivalents, beginning of period              $ 24,856         $ 2,800
                                                            --------         -------
Cash and cash equivalents, end of period                    $134,732         $ 4,045
                                                            ========         =======
</TABLE>

See accompanying notes.
<PAGE>

                               ACTIVE POWER, INC.
                         Notes to Financial Statements
                                  (unaudited)

1.  Organization

    Active Power, Inc. was founded in 1992 for the purpose of developing and
commercializing advances in the field of electromechanics. Since inception,
Active Power has devoted its efforts principally to research and development and
marketing of flywheel-based power-quality and storage products that provide the
consistent, reliable electric power required by today's digital economy.

    In March 2000 we reincorporated as a Delaware corporation and on August 8,
2000, completed the process of becoming a publicly traded company (See Note 5).

2.  Basis of Presentation

    The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should be
read in conjunction with the audited financial statements and accompanying notes
thereto included in our Registration Statement on Form S-1, File No. 333-36946.
In the opinion of management the financial statements include all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the results for the periods presented. Results of operations for any interim
period are not necessarily indicative of results for any other interim period or
for the full year.

3.  Recent Accounting Pronouncements

The Financial Accounting Standards Board recently issued Interpretation No. 44
"Accounting for Certain Transactions Involving Stock Compensation", an
interpretation of APB Opinion No. 25. Interpretation No. 44 has an effective
date of July 1, 2000. We do not believe Interpretation No. 44 will affect our
accounting for transactions involving stock-based compensation.

In December 1999, the Staff of the Securities and Exchange Commission released
Staff Accounting Bulletin, or SAB, No. 101, entitled "Revenue Recognition in
Financial Statements", which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements. We believe our current
revenue recognition policies and practices are materially consistent with the
statement, and do not expect this statement to have a material impact on our
financial statements.

4.  Inventory

Active Power states inventories at the lower of cost or replacement cost, with
cost being determined on a standard cost basis which does not differ materially
from actual cost.

Inventories, before reserves, consist of the following:


<PAGE>

                      September 30,  December 31,
                          2000          1999
                       ----------    ----------
Raw Materials          $2,120,109    $1,287,031
Work in Progress       $  691,929    $  135,324
Finished Goods         $  101,559    $  295,315
Evaluation Units       $        -    $   27,771
                       ----------    ----------
                       $2,913,597    $1,745,441
                       ==========    ==========

5.  Capital Structure and Stock Option Plans

    In August 2000, the Company completed its initial public offering (the
"Offering") of 9,200,000 shares of its common stock. Of these shares, the
Company sold 8,900,000 shares (including 900,000 shares issued in connection
with the exercise of the underwriters' overallotment option), and selling
shareholders sold 300,000 shares, at a price of $17.00 per share. The Company
received proceeds from the Offering of approximately $140 million in cash (net
of underwriting discounts and commissions and estimated offering costs). Upon
consummation of the Offering, all outstanding shares of the Company's
convertible preferred stock were automatically converted into an aggregate of
17,461,883 shares of Common Stock.

The following table sets forth the computation of basic and diluted net loss
per share:

<TABLE>
<CAPTION>
                                                  Three                          Nine
                                               Months Ended                  Months Ended
                                               September 30,                 September 30,
                                            2000           1999            2000          1999
                                        ---------------------------   ---------------------------
                                               (unaudited)                   (unaudited)
<S>                                     <C>           <C>             <C>           <C>
Net Loss to Common
 Shareholders (in thousands)            $    (9,458)    $    (3,305)  $   (35,933)    $    (7,773)
                                        ===========     ===========   ===========   =============

Basic and Diluted:
------------------
Weighted Average Common
 Shares Outstanding                      27,820,583      10,067,279    16,894,343      10,045,343

Weighted Average Common
 Shares subject to repurchase              (497,706)       (118,557)     (426,846)       (130,455)
                                        -----------     -----------   -----------   -------------

Shares used in computing basic
 and diluted net loss per share          27,322,877       9,948,722    16,467,498       9,914,888
                                        ===========     ===========   ===========   =============

Basic and diluted net loss per share    $     (0.35)    $     (0.33)  $     (2.18)    $     (0.78)
                                        ===========     ===========   ===========   =============

Pro forma:
----------
Net Loss (in thousands)                 $    (5,789)                  $   (16,854)
Shares used above                        27,322,877                    16,467,498

Adjustment to reflect assumed
 conversion of convertible
 preferred stock at beginning
 of period                                7,212,517                    14,020,490
                                        -----------                 -------------
</TABLE>

<PAGE>

<TABLE>
<S>                                  <C>                                           <C>
Shares used in computing pro
 forma basic and diluted net
 loss per share                          34,535,394                                    30,487,988
                                        ===========                                 =============

Pro forma basic and diluted net
 loss per share                         $     (0.17)                                  $     (0.55)
                                        ===========                                 =============

</TABLE>

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

The following discussion should be read in conjunction with the financial
statements appearing elsewhere in this Form 10-Q and within our Registration
Statement on Form S-1, File No. 333-36946. This report contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, that involve risks and
uncertainties. Among the important factors which could cause actual results to
differ materially include: our ability to accurately forecast our revenue;
inability to sufficiently increase manufacturing capacity and obtain key
components from suppliers to meet rising demand; overall market performance and
the performance of the market for power quality products; our dependence on one
primary customer; delays in new product development; inventory risks; the
ability to protect our intellectual property; concentration of ownership; and
other factors detailed in the Company's filings with the Securities and Exchange
Commission, specifically Form S-1, File No. 333-36946.

Overview

    We design, manufacture and market power quality products that provide the
consistent, reliable electric power required by today's digital economy. We
believe that we are the first company to commercialize a flywheel energy storage
system that provides a highly reliable, low-cost and non-toxic replacement for
lead-acid batteries used in conventional power quality installations. Leveraging
our expertise in this technology and in conjunction with Caterpillar, the
leading maker of engine generators for the power reliability market, we have
developed a battery-free power quality system, which is marketed under the
Caterpillar brand name. Our products are sold for use in the facilities of
companies in many different industries that all share a critical need for
reliable, high-quality power, such as Internet service providers, semiconductor
manufacturers, telecommunications providers, pharmaceutical manufacturers,
hospitals, electric utilities and broadcasters. As an extension of these
existing product lines, we are developing a fully integrated continuous power
system. The initial target market for this product is the rapidly growing
telecommunications industry.

    Since 1996, we have focused our efforts and financial resources primarily on
the design and development of our CleanSource line of power quality products and
on establishing effective OEM channels to market our products. As of September
30, 2000, we had generated an accumulated deficit of $46.5 million and expect to
continue to sustain operating losses for the next several years. We have funded
our operations primarily through sales of shares of our preferred stock, which
have resulted in gross proceeds of approximately $42.8 million. We believe the
proceeds from our August 2000 initial public offering, approximately $140
million net of
<PAGE>

commissions and issuance costs, together with cash balances on hand prior to
August 2000 will be sufficient to meet our capital requirements through at least
the next 24 months.

    Since our inception, a small number of customers have accounted for the
majority of our annual sales. During 1999, our four largest customers accounted
for 89% of our sales, with our largest customer, Caterpillar, accounting for
39%. In the first nine months of 2000, Caterpillar accounted for 90% of our
revenue as we shifted focus from our CleanSource DC product to our CleanSource
UPS product. We expect to continue to be dependent on a few OEM customers,
primarily Caterpillar, for the majority of our sales for the foreseeable future.

    With the commercial release of our second generation product line,
CleanSource UPS, in May 2000 under the Caterpillar brand name, and a growing
market demand for power quality equipment, we believe the demand for our
products will increase significantly. To prepare for this anticipated growth in
demand and to position us for future growth, we have increased and expect to
continue to increase the scale of our operations in the following ways:

    .     Expand our manufacturing facilities and add manufacturing personnel to
          address anticipated increases in product demand;

    .     Increase our personnel levels in product development and engineering
          to accelerate time to market on new products and enhance existing
          product lines; and

    .     Add sales and marketing personnel to support our OEM customers.

    We believe that although these efforts will increase our operating expenses,
they will also enable us to realize accelerated revenue growth.

Results of Operations

    Product Revenue. Product revenue primarily consists of sales of our
CleanSource power quality products. Sales increased $1.2 million to $1.34
million for the three months ended September 30, 2000 from $103,000 for the
three months ended September 30, 1999. Product revenue increased $1.6 million to
$2.2 million for the nine months ended September 30, 2000 from $577,000 for the
same period last year. Both the quarterly and nine month increases are
attributable to a ramp up in the sales of our recently launched CleanSource UPS
product line. For the nine month period we have sold 44 quarter-megawatt
flywheel units. For the quarter we sold 25 quarter-megawatt flywheel units. The
majority of these units were sold to our CleanSource UPS distribution partner,
Caterpillar.

    Cost of goods sold. Cost of goods sold includes the cost of component parts
of our product that are sourced from suppliers, personnel, equipment and other
costs associated with our assembly and test operations, shipping costs, and the
costs of manufacturing support functions such as logistics and quality
assurance. Cost of goods sold increased $1.4 million to $2.1 million for the
three months ended September 30, 2000 from $682,000 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000 cost of goods
sold increased $1.7 million to $3.8 million from $2.1 million for the same
period last year. Both the quarterly and nine month increases were associated
with an increase in sales.

<PAGE>

In anticipation of future demand for our products, we expect to continue
to expand our manufacturing capacity which will increase our costs at existing
and new facilities. Over time, we expect production volumes to increase which
will tend to decrease our unit production costs as we achieve greater economies
of scale in production and in purchasing component parts.

    Development funding. Development funding consists of funds received from
Caterpillar to support the development of the CleanSource UPS product. We
received $2 million in development funding during the three months ended
September 30, 1999 and $5 million for the full year of 1999. No development
funding has been received in 2000 and we do not have any outstanding development
funding contracts.

    Research and development. Research and development expense primarily
consists of compensation and related costs of employees engaged in research,
development and engineering activities, third party consulting and development
activities, as well as an allocated portion of our occupancy costs. Research and
development expense increased $2.0 million to $3.1 million for the three months
ended September 30, 2000 from $1.1 million for the three months ended September
30, 1999. For the nine months ended September 30, 2000 research and development
expense increased $3.6 million to $6.7 million from $3.1 million for the same
period last year. The increase in research and development expense was primarily
due to the increased product development of the CleanSource UPS and other
products. We believe that research and development expense will continue to
increase significantly in 2000 and thereafter as we continue to apply resources
to new product development and to enhance existing product lines.

    Selling, general and administrative. Selling, general and administrative
expense is primarily comprised of compensation and related costs for sales,
marketing and administrative personnel, selling and marketing expenses,
professional fees and reserves for bad debt. Selling, general and
administrative expense increased approximately $955,000 to $1.6 million for the
three months ended September 30, 2000 from $623,000 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000 selling,
general and administrative expense increased approximately $2.4 million to $4.1
million from $1.7 million for the same period last year. The increase in
selling, general and administrative expense was principally due to increased
personnel in our sales organization in order to support our OEM channel partners
and to address opportunities for sales of our CleanSource UPS product line. We
believe that selling, general and administrative expense will increase in future
periods as we add sales, marketing and administrative personnel and costs to
position us for future sales growth and to assist in the administration of an
expanding work force and the additional activities associated with becoming a
public company.

    Amortization of deferred stock compensation. Deferred stock compensation
reflects the difference between the exercise price of option grants to employees
and the estimated fair value determined subsequently by us of our common stock
at the date of grant. We are amortizing deferred stock compensation as an
operating expense over the vesting periods of the applicable options, which
resulted in amortization expense of $1.9 and $5.0 million for the three months
and nine months ended September 30, 2000. We expect amortization expense to
decrease in the future as these options become fully vested.

<PAGE>


    Interest income. Interest income increased $1.5 million to $1.5 million for
the three months ended September 30, 2000 from $72,000 for the three months
ended September 30, 1999. For the nine months ended September 30, 2000 interest
income increased $2.0 million to $2.2 million from $234,000 for the nine months
ended September 30, 1999. This is primarily due to increases in our average cash
balance for the third quarter and nine month period of $107.2 and $50.5 million
compared to an average cash balances of $5.7 and $6.2 for the third quarter and
nine months of 1999. The increase in our cash balances is primarily associated
with the approximately $140 million raised as part of our August 2000 initial
public offering.

    Change in fair value of warrants. Due to the redemption feature of our
outstanding warrants, we record a liability associated with the fair value of
the warrants on the balance sheet and record changes in fair value of the
warrants in current periods. We calculate the fair value of the warrants using a
Black-Scholes pricing model. In 1999 and 2000 the fair value of the underlying
common stock increased substantially, resulting in an increase in the warrant
value and corresponding expense. Expenses recorded for the three months and nine
months ended September 30, 2000 was $0 and $1.6 million compared to $1.0 and
$2.6 million in the same periods the prior year. The primary reason for the year
over year decreases was the conversion of the warrants to common stock as part
of our initial public offering.

Liquidity and Capital Resources

    Our principal source of liquidity as of September 30, 2000 consisted of
$151.8 million of cash, cash equivalents, short-term and long-term investments.

    In August 2000, we completed a successful initial public offering, raising
approximately $140 million, net of commissions and issuance expenses. This is in
addition to our private financing efforts in 1999, including the sale of shares
of our preferred stock, which have resulted in gross proceeds of approximately
$42.8 million, and $5.0 million in development funding received from Caterpillar
in 1999. During 1999, cash used by operating activities was $1.8 million, which
compares to $10.9 million of cash used by operating activities for the nine
months ended September 30, 2000. The cash usage in each of these periods was
primarily attributable to our focus on the development of products and the
expansion of our manufacturing operations and sales activities.

    Capital expenditures were $483,000 for the nine months ended September 30,
1999 and $3.5 million for the nine months ended September 30, 2000. We made
these expenditures to acquire engineering test equipment, and to purchase
manufacturing equipment to facilitate
<PAGE>

production testing, as well as for general computer equipment and software for
administrative purposes. We expect to incur approximately $1.5 million in
additional costs in 2000 primarily on manufacturing facility improvements,
including product test and assembly equipment, in both existing and new
facilities to increase our manufacturing capacity.

    We believe our existing cash balances at September 30, 2000 will be
sufficient to meet our capital requirements through at least the next 24 months,
although we might elect to seek additional funding prior to that time. Beyond
the next 24 months, our capital requirements will depend on many factors,
including the rate of sales growth, the market acceptance of our products, the
rate of expansion of our sales and marketing activities, the rate of expansion
of our manufacturing facilities, and the timing and extent of research and
development projects. Although we are not a party to any agreement or letter of
intent with respect to a potential acquisition, we may enter into acquisitions
or strategic arrangements in the future which could also require us to seek
additional equity or debt financing.

Quantitative and Qualitative Disclosures About Market Risk

    Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in short-
term instruments. We believe that our investment policy is conservative, both in
terms of the average maturity of investments that we allow and in terms of the
credit quality of the investments we hold. Therefore, we have concluded that we
do not have a material market risk exposure.

Risk Factors That May Affect Future Results

    Numerous factors may affect our business and future operating results. These
factors include, but are not limited to the potential for significant losses to
continue; our ability to accurately forecast our revenue; inability to
sufficiently increase manufacturing capacity and obtain key components from
suppliers to meet rising demand; overall market performance and the performance
of the market for power quality products; our dependence on one primary
customer; delays in new product development; inventory risks; the ability to
protect our intellectual property; concentration of ownership; and other factors
detailed in the Company's Securities and Exchange Commission filings. For a more
thorough discussion of these and other factors that may affect our business and
future results, see the discussion under the caption "Additional Factors That
May Affect Future Results" within our Registration Statement on Form S-1, File
No. 333-36946.
<PAGE>

                              ACTIVE POWER, INC.

                                    PART II


Item 1.  Legal Proceedings.

         Not applicable

Item 2.  Changes in Securities and Use of Proceeds.

         From July 1, 2000 through September 30, 2000, we issued approximately
211,846 shares of our common stock to employees pursuant to exercises of stock
options (with exercise prices ranging from $0.07 to $6.94 per share) under our
stock plans. These issuances were deemed exempt from registration under Section
5 of the Securities Act of 1933 in reliance upon Rule 701 thereunder. In
addition, the recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with a
view to, or for sale in connection with, any distribution thereof and
appropriate restrictive transfer legends were affixed to the share certificates
issued in each such transaction.

         Our registration statement (Registration No. 333-36946) under the
Securities Act of 1933, as amended, relating to our initial public offering of
our common stock became effective on August 7, 2000. A total of 9,200,000 shares
of common stock were registered. We sold a total of 8,900,000 shares of our
common stock and a selling stockholder sold 300,000 shares to an underwriting
syndicate. The managing underwriters were Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporation, Morgan Stanley & Co. Incorporation and
CIBC World Markets. The offering commenced and was completed on August 8, 2000,
at a price to the public of $17.00 per share. The initial public offering
resulted in net proceeds to us of approximately $140 million after deducting
underwriting commissions of approximately $10.6 million and estimated offering
expenses of approximately $1.2 million. As of September 30, 2000, these proceeds
have been invested in government securities and other short-term investments.

Item 3.  Defaults Upon Senior Securities.

         Not applicable

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

During the quarter ended September 30, 2000, our stockholders took the following
actions by written consent on August 4, 2000:

     .   approving the amendment and restatement of our certificate of
         incorporation;

     .   approving the amendment and restatement of our bylaws;
<PAGE>

     .  approving an increase in the number of shares of our common stock
        available for issuance under our 1993 Stock Option Plan, as amended;

     .  approving the 2000 Stock Incentive Plan and Employee Stock Purchase
        Plan;

     .  electing Eric L. Jones, Joseph F. Pinkerton, III, Richard E. Anderson,
        Rodney S. Bond, Lindsay R. Jones, Jan H. Lindelow and Terrence L. Rock
        as directors;

     .  ratifying the appointment of Ernst & Young LLP as independent public
        accountants for the 2000 fiscal year; and

     .  approving indemnification agreements for directors and officers.

Item 5.  Other Information.

         Not applicable


Item 6.  Exhibits and Reports on Form 8-K.

     (a)  The following exhibit is filed as part of this report:
                27.01 Financial Data Schedule (EDGAR version only)
     (b)  There were no reports on Form 8-K filed during the quarter ended
          September 30, 2000.


                                  SIGNATURES*

  Pursuant to the requirements 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.

                                                     ACTIVE POWER, INC.
                                          --------------------------------------
                                                      (Registrant)

                                             /s/ Joseph F. Pinkerton, III
----------------------------------        --------------------------------------
        November 14, 2000                        Joseph F. Pinkerton, III
                                          President and Chief Executive Officer

                                                  /s/ David S. Gino
----------------------------------        --------------------------------------
        November 14, 2000                            David S. Gino
                                                  Chief Financial Officer