UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------
                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                      OF THE SECURITIES EXCHANGE ACTOF 1934

                   For the fiscal year ended December 31, 2002
                        Commission files number 000-31973

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

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

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

                              (978) 694-9121 Phone
                               (978) 694-9127 Fax
              (Registrant's telephone number, including area code)
                            ------------------------
        Securities registered pursuant to Section 12(b) of the Act: None
                    Securities registered pursuant to Section
                                12(g) of the Act:

                     Common Stock, par value $.01 per share
                            ------------------------

     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 if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ______

     As of  March  21,  2003,  the  market  value  of the  voting  stock  of the
Registrant held by non-affiliates of the Registrant was $8,562,579.

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined by rule 12b-2 of the Act). ___ Yes _X_ No

     As of June 28, 2002 the market value of the voting stock of the  registrant
held by non-affiliates of the registrant was $9,418,459.

     The number of shares of the  Registrant's  common stock, par value $.01 per
share, outstanding as of March 21, 2003 was 42,812,897.

                       DOCUMENTS INCORPORATED BY REFERENCE

Pertinent extracts from the Registrant's Proxy Statement for the 2003 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
are incorporated by reference into Part III of this Form 10-K. Such information
incorporated by reference shall not be deemed to specifically incorporate by
reference the information referred to in Item 402(a) (8) of Regulation S-K.


Table of Contents                                                         Page
PART I
     Item 1.    Business                                                     1
     Item 2.    Properties                                                   8
     Item 3.    Legal Proceedings                                            8
     Item 4.    Submission of Matters to a Vote of Security Holders          8
     Item 4A.   Executive Officers of the Company                            8

PART II
     Item 5.    Market for Registrant's Common Equity and Related
                  Stockholder Matters                                       10
     Item 6.    Selected Consolidated Financial Data                        11
     Item 7.    Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                       12
     Item 7A.   Quantitative and Qualitative Disclosure about Market Risk   24
     Item 8.    Financial Statements and Supplementary Data                 25
     Item 9.    Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                       47

PART III
     Item 10.   Directors and Executive Officers                            48
     Item 11.   Executive Compensation                                      48
     Item 12.   Security Ownership of Certain Beneficial Owners
                  And Management                                            48
     Item 13.   Certain Relationships and Related Transactions              48
     Item 14.   Controls and Procedures                                     48

PART IV
     Item 15.   Exhibits, Financial Statement Schedules, and
                  Reports on Form 8-K                                       49

     Signatures                                                             52



<PAGE>



Note Regarding Forward Looking Statements:

This Annual Report on Form 10-K may include  statements  that are not historical
facts and are considered  "forward-looking" statements within the meaning of the
Private  Securities  Litigation  Reform  Act of  1995.  These  "forward-looking"
statements  reflect  Beacon Power  Corporation's  view about  future  events and
financial  performance,  including  among  other  things,  our  expected  future
revenues,  costs of  operations  and capital  expenditures  and estimates of the
potential  markets for our products.  Such  statements  made by the Company fall
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section  21E of the  Securities  Exchange  Act of  1934,  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
"Item 7.  Management's  Discussion  and  Analysis of  Financial  Conditions  and
Results of Operations - Certain Factors  Affecting Future Operating  Results" of
this Form 10-K.

                                     PART I

Item 1.  Business

Overview

Beacon Power Corporation is a development stage company that was incorporated on
May 8, 1997. The Corporation,  and its subsidiary (collectively "Beacon" or "the
Company") designs, develops,  configures and offers for sale, power systems that
provide highly reliable, high-quality, environmentally friendly, uninterruptible
electric power employing both proprietary and third-party solutions for a number
of potential  applications.  The Company has segmented the potential markets for
its   products   into   three   broad   categories:    high-energy,   high-power
uninterruptible  power systems (UPS), and high power distributed  generation and
utility power grid energy  storage  systems.  We have available for sale several
high-energy  products  that  deliver a low level of power over a long  period of
time  (typically  measured  in  hours).  These  products  are  tailored  to  the
telecommunications,  cable systems,  computer networks, and Internet markets. We
are  developing a new  high-energy  product for  potential  applications  in the
renewable energy market for both  photovoltaic and wind turbine uses. As part of
exploring  these  markets we have  committed to invest $1.1 million in Evergreen
Solar,  Inc.  and we have  purchased  the  inverter  electronics  technology  of
Advanced Energy Systems, Inc., as described in more detail below. We do not have
high-energy  units in inventory or purchase orders placed with vendors for these
products.  In the event that we are able to sell these  products we will need to
place  orders  for  components  with  vendors  and hire and train  manufacturing
personnel to assemble,  inspect and assist in the  installation  of  deliverable
units.  We also  have UPS  products  available  for sale to  provide  short-term
(typically measured in seconds) power until a generator or other long-term power
source can be  activated  for  commercial  and  industrial  facilities  that are
high-power  applications.  We do not have units in inventory or purchase  orders
placed with the suppliers of the flywheel  system or the  electronics  unit. For
both components we do have  agreements with the suppliers,  but these units will
need to be produced and the electronics  unit will also require  modification to
meet U.S. electrical  standards.  We are now developing products for distributed
generation  and utility  power grid  applications  that  provide  megawatts  for
minutes.  Our existing  products already offer more stored energy than any other
commercial flywheel product.  The flywheel module being designed for distributed
generation  and  utility  applications  will be  significantly  higher in stored
energy capacity than any other available products in the industry. Completion of
development  of this product will depend on tangible  interest  expressed by the
marketplace.

We have taken  significant  actions over the last eighteen  months to reduce our
expenditures for product development,  infrastructure and production  readiness.
Our  headcount,   development   spending  and  capital  expenditures  have  been
significantly  reduced. We have continued the preliminary design and development
of potential products for markets under consideration and with specific approval
by the Company's Board of Directors limited component development by our vendors
may be authorized. For example we have placed purchase orders for key components
for our next generation high-energy 25kWh product. However, we will not make the
additional  expenditures  that would be required for  prototype  development  or
production  capabilities until we have defined the specific markets to be served
and the marketplace has expressed tangible interest.

We are presently  analyzing  markets for our current and  contemplated  flywheel
systems and  electronic  products  in terms of their size and growth  potential,
competitive  advantages that our products could provide and probable penetration
we could achieve. Our 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, we have not yet been successful in selling products into
this market. As a result of the cost-cutting measures referred to above, we have
recognized  restructuring  and asset  impairment  charges in 2002. A substantial
portion  of our  long-term  assets  has  been  idled,  including  machinery  and
equipment, tooling, office furniture and fixtures and leasehold improvements. We
have  evaluated  all of our property  and  equipment as required by Statement of
Financial  Accounting  Standards  No. 144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets." We have taken a non-cash  accounting  charge of
$6.5 million of which $4.3 million  represents  impaired  capital  equipment and
leasehold  improvements,  $1.9 million relates to a reserve against future lease
payments and related facility costs and $0.3 million relates to severance 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.

If we identify markets in which we believe our products will be successful,  and
those  markets  express a tangible  interest  in our  products,  we may not have
sufficient  cash available to complete  prototype  development and production of
our products unless we raise additional equity, or obtain debt financing.

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

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

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

From  our  inception  through  December  31,  2002 we have  incurred  losses  of
approximately  $114.9 million.  We do not expect to become  profitable or obtain
positive cash flow before 2006.  Also, our losses and uses of cash may fluctuate
significantly  from quarter to quarter as our costs of  development,  production
and marketing fluctuate and we make investments that we consider strategic.

Markets for our Products

High-Energy Market. The needs and dynamics of the back-up high-energy market are
for  products  that  supply  low-power  for a  longer  time  (as  contrasted  to
high-power UPS products,  which supply higher power for a shorter  period).  Our
high-energy  products  have been  designed to address  specifically  the back-up
power  needs  of  the  telecommunications   industry  (for  example,  telephony,
broadband,  cable and wireless networks) in decentralized  locations in suburban
and rural areas.

The  telecommunications  industry,  however,  experienced a significant  overall
slowdown that began in 2000 and is continuing,  and there can be no assurance of
when it will recover.  Significant  reductions in both  maintenance  budgets and
capital build-out budgets at  telecommunications  companies made these potential
customers  more  conservative  with spending and  expenditure  analysis and less
willing to implement  new  technology  solutions,  such as our  products.  These
conditions  have  also  discouraged   potential  customers  from  comparing  our
products' life-cycle cost to that of batteries,  because the savings produced by
our products  accrue in the future,  whereas the higher initial cost is realized
immediately.

Customers  that  might be  receptive  to our  products  are  those for which the
advantages  outweigh the greater  initial cost.  Some potential  customers might
have particular  needs for 100%  reliability,  such as critical-use  facilities,
hospitals,  data  centers  and call  centers;  or a power  source  might be very
expensive  to replace or maintain  due to its  location or for any other  reason
(making life-cycle analysis more attractive); or a power source or site might be
located where there are dramatic swings in temperature or where temperatures are
very  high  (making   batteries   impractical  due  to  severe   degradation  of
performance).

In  addition,  we believe that our next  generation  high-energy  25kWh  product
currently being developed as an extension of our existing  high-energy  products
will be well  suited for  renewable  energy uses in both  photovoltaic  and wind
turbine  applications.  We have purchased the  intellectual  property  assets of
Advanced Energy  Systems,  Inc.  (AES), a supplier of inverter  electronics.  We
believe this will strengthen our potential entry into these markets for both our
flywheel systems and for improved 5kW inverter control electronics. Inverters in
these  applications  convert DC power  generated by renewable  sources to the AC
power  required by  residential  and  commercial  users.  In  addition,  we have
committed  to  investments  in  Evergreen  Solar,   Inc.  to  explore  strategic
opportunities  in the  photovoltaic  market.  We believe that we will be able to
provide increased  reliability and performance in both the photovoltaic and wind
turbine markets. We believe that these markets will make purchase decisions with
a greater  emphasis on life-cycle  costs,  which will allow us to be competitive
with battery-based  systems.  In addition,  we believe that our  environmentally
friendly products are ideal to introduce to these markets.

High-Power  UPS Market.  In the  high-power  UPS market,  power quality  systems
usually consist of three  interconnected  devices;  (a) solid-state switches and
control  electronics,  (b) batteries or flywheels to supply short-term power and
(c) engine  generators to supply  longer-term  power which together are commonly
referred to as a continuous power system or CPS. We have products for commercial
and  industrial  facilities to provide  either  stand-alone  UPS functions or to
provide  short-term  (typically  measured in seconds) power until a generator or
other long-term power source can be activated.

A  UPS  protects  sensitive  systems  from  sags,  surges  and  other  temporary
interruptions  or variations in  utility-supplied  power. If the UPS electronics
determine  that the  power  being  supplied  from the  grid is  unacceptable  or
insufficient,   it  will  draw  from  the   back-up   power   source  to  ensure
uninterrupted, quality power.

A CPS provides back-up power for a lengthy period, thus if the power disturbance
lasts for more than a few seconds,  the CPS generator is activated and begins to
operate.  Internet service  providers,  data processing  centers,  semiconductor
plants and cellular phone sites all use CPS to keep critical business  equipment
operating when electric utility grid power falters.

We believe that our flywheel systems provide significant advantages to potential
customers due to the numerous  problems  associated  with  lead-acid  batteries,
including:

     o Reliability. Batteries are not only prone to multiple problems leading to
battery  failure,  but when they are  repeatedly  used at close to their maximum
power capacity;  their power output capacity can rapidly decrease,  reducing the
batteries'  effectiveness  over time.  Also,  the amount of power  available  in
battery  systems  may not readily be  monitored  and,  therefore,  the amount of
remaining energy cannot be assured.

     o Life-Cycle Cost. The use of batteries has both direct and indirect costs.
In addition to bearing the initial purchase costs of the batteries,  a user must
allocate  significant  space to large battery arrays (space that could otherwise
be allocated  to  revenue-generating  equipment),  must inspect and test them on
site every few months (as their power output degrades over time), must cool them
with costly air conditioning (if the user wishes to avoid the rapid  degradation
in  performance  and life that results with  temperature  variations),  and must
replace them every two to six years  (depending on type of use,  environment and
other factors).

     o  Life.  In  applications  where  discharges  consume  all or  most of the
battery's  available reserve, or where the batteries are used in facilities that
are not air-conditioned, the life of batteries is significantly reduced.

     o  Environmental.  Batteries  contain  toxic  materials  such as  lead  and
sulfuric acid. They are considered  hazardous  waste and their disposal  entails
rigorous  environmental  regulations.  Facilities with spent batteries must make
arrangements  with  hazardous  waste  handlers  for  disposal.  Both  the  costs
associated  with disposal and the complexity of compliance for proper  handling,
permitting and regulatory  requirements  continue to increase and may accelerate
sharply as pressure increases to curb such hazardous wastes.

The  high-power  market  needs  range  from  200  watts  to two  megawatts.  The
percentage of this market that is expected to be flywheel-based is not known due
to the short  history of such  products.  However,  we expect the  percentage to
increase as more market  participants  sell  flywheel-based  products  and their
advantages become better known.

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

We believe that our flywheel systems provide significant advantages to potential
customers in these markets.


Our Products

We have available for delivery a high-power UPS product: the Smart Power(TM) 250
kWh  flywheel  UPS (which  consists of a flywheel  system  coupled  with control
electronics).  This  product  bridges the supply of power for a short  period of
time (measured in seconds) from interruption of electricity until the customer's
longer-term source (such as a generator or fuel cell) begins to operate. Our UPS
product  uses a composite  flywheel  and it can supply  power for  approximately
twice  as long  as  devices  using  steel  flywheels.  Our  UPS  product  can be
configured to achieve higher power  (depending on customer  needs) by connecting
units in parallel.  It is designed to be compatible with industry  standards for
standby generators, enabling its use in a CPS. We have designs that could expand
the power output of our UPS product up to 500kWh if we  determine  that the size
and growth of markets,  competitive  aspects and  advantages  that our  products
could provide and probable market penetration we could achieve are sufficient to
develop prototypes and begin production.

We believe that our UPS products will be superior to  battery-based  UPS systems
in life-cycle cost to the customer, in function,  and in environmental  benefits
described  earlier.  We also  expect  these  products  to be  superior  to other
flywheel-based  products with which it will compete.  We anticipate that it will
require  significantly less maintenance and provide superior quality performance
to other flywheel-based products.

Previously,  the flywheel and control electronics  components of our current UPS
product  have been  marketed  outside  the  United  States  by their  respective
manufacturers.  We have a distribution agreement with our flywheel supplier, and
we will purchase the  associated  control  electronics.  The only  adaptation of
these  components  needed for the U.S.  market is the  conversion of the control
electronics component to US standards, which is being undertaken by the supplier
in conjunction with us.

Our existing high-energy  products,  the 2kWh and 6kWh flywheel Smart Energy(TM)
systems, have approximately 250,000 hours of operation in customer sites without
failure of our mechanical  system,  which we believe verifies the reliability of
our  technologies.  We  installed  additional  units  during  2002 to expand the
demonstration  of the  performance of our products in the telecom  industry.  At
Verizon   Communications,   Century   Communications,   now  part  of   Adelphia
Communications, Cox Communications,  AT&T Broadband, Rogers Cable, and WinDBreak
Cable, we have  successfully  maintained power with no degradation of service in
planned and unplanned losses of utility power.  Also, our systems can be adapted
to deliver the amount of power and back-up time required to meet specific  needs
of  customers  by  integrating   multiple  flywheel   systems.   This  has  been
successfully demonstrated at Verizon Communications sites.

We believe  our  next-generation  high-energy  25kWh  product,  currently  being
developed as an extension of our  existing  high-energy  products,  will be well
suited for renewable energy  applications in both  photovoltaic and wind turbine
markets.  Our product will provide a number of energy storage and power benefits
including  extended  ride through to  generator  start,  load  leveling and load
following.  In addition,  potential products based on further development of AES
intellectual  property  would  include  grid-connect,   off-grid  and  UPS-based
inverter systems. We have preliminary designs for these products but we will not
make  the  significant  additional  expenditures  that  would  be  required  for
prototype development or production capabilities until we have fully defined the
market potential and the marketplace has expressed  tangible  interest.  We have
obtained Underwriters  Laboratory approval for our existing high-energy products
and we are  pursuing the same for our UPS and utility  grid power  products.  We
designed and certified our  high-energy  product in  accordance  with  Telcordia
standards,   which   represent   the  safety   standards   established   by  the
telecommunications  industry.  Our high-power  products are designed and will be
tested  for  concurrence  with  the  Institute  of  Electrical  and  Electronics
Engineers (IEEE) 587 standard, which is the standard for all UPS systems.

Our Technology

Since our formation, we have been developing flywheel energy storage products to
offer superior  reliability and performance at competitive  costs. Our composite
flywheel is a rotating  wheel on hybrid,  magnetic  bearings  that operates in a
near-frictionless vacuum environment.  Energy is stored as kinetic energy in the
rotating flywheel rim. The flywheel is powered up to its operational speed, like
a motor,  using electricity from an external power source.  The flywheel is able
to spin for extended  periods with great  efficiency,  because friction and drag
are  virtually  eliminated  by employing  magnetic  bearings and a vacuum in the
container.  Because  it has very low  friction,  little  power  is  required  to
maintain the  flywheel's  operating  speed.  When the  external  power source is
eliminated,  the spinning  flywheel  drives a generator  and its  bi-directional
inverter converts the kinetic energy into electrical energy,  providing it to an
end-user as back up or UPS power.

Steel  flywheels have been used since the industrial  revolution in applications
such as piston  engines  to store  energy  during the power  stroke for  release
during  the  compression  stroke,  and  punch  presses,   such  as  sheet  metal
fabrications,  to store energy to achieve stamping pressure.  These applications
are limited on the revolutions per minute (RPM) that steel flywheels are able to
operate at and steel's limited density of storage of energy by volume.  There is
interest in attempting  to  commercialize  flywheel  systems that are capable of
higher power or energy based on  technology  first  developed  for aerospace and
nuclear  processing  applications  and  have  resulted  in  compact  high-energy
flywheels  that can be  commercially  cost  competitive.  The  products we offer
employ  new  enabling  materials  and  products  such  as  high-strength  fiber,
efficient  electric  drives,  and  low-loss,  long-life  bearings  to create new
generations of flywheel  products.  Our composite  flywheels are fabricated from
high-strength,  lightweight  fiber  composites,  such as graphite and fiberglass
combined  with  resins,  which  allow our  flywheel to rotate at high speeds and
store large amounts of energy  relative to similar size and weight machines made
from  metals.   For  example,  a  600-pound  steel  flywheel  running  at  8,000
revolutions per minute (RPM) will store  approximately 900 watt-hours of energy.
In contrast,  our  150-pound,  composite  flywheel  running at 22,500 RPM stores
2,700  watt-hours of energy and delivers 2,000 watt-hours of energy to the load.
On a per-pound basis, our flywheel  technology is much more efficient than steel
flywheels.

Our  proprietary  technology  enables  the design of  maintenance-free  flywheel
products,  in that our products can employ a  proprietary  internal  rather than
external  vacuum system and our bearing systems have been designed and developed
to have a long life  with no  scheduled  replacement  or  maintenance  required.
Competing  flywheel  products rely on bearings and separate  vacuum systems that
require periodic maintenance and replacement.  Our proprietary  technologies are
used in our  high-energy  products,  but  have  not  yet  been  employed  in our
anticipated   high-power  UPS  products.  Our  Smart  Energy(TM)  products  have
dramatically  longer  discharge  times than any other  flywheel  energy  storage
system;  this is possible because our technologies  result in very low operating
losses that would  otherwise  deplete the energy  without making it available to
support the customer's load.

In addition,  we have  purchased the  intellectual  property  assets of Advanced
Energy Systems, Inc. (AES). These assets include anti-islanding  software, which
ensures safe grid  utility  interconnection,  as well as drawings,  source code,
production  know-how,  and  all  associated  documentation.   We  believe  these
technologies   will  enhance  our  product  mix  to  provide   increased  market
opportunities   in  renewable   energy  solutions  such  as  wind  turbines  and
photovoltaic systems.


Research and Development

We believe  that our  research  and  development  efforts are  essential  to our
ability  to  successfully  design  and  deliver  our  products  to our  targeted
customers,  as well as to modify and improve  them to reflect the  evolution  of
markets and customer needs. Our research and development team has worked closely
with potential  customers to define product  features and performance to address
specific needs.  Our research and development  expenses,  including  engineering
expenses,  were  approximately  $7,130,000  in 2002,  $17,628,000  in 2001,  and
$12,715,000 in 2000. We expect research and  development  expenses in 2003 to be
lower than in 2002. As we determine  market  opportunities,  we may need to make
significant  levels of research and development  expenditures in the future.  At
December 31, 2002, we employed 23 engineers and  technicians who were engaged in
research  and  development.  At  December  31,  2001,  we had 53  engineers  and
technicians.

Manufacturing

Historically, our manufacturing has consisted of the welding and assembly of our
products.  We have previously  contracted out the manufacture of our high-energy
flywheel components,  using our design drawings and processes to facilitate more
rapid  growth  by  taking  advantage  of  third-party  installed   manufacturing
capacity.  For a  limited  number of  non-proprietary  components,  we  generate
performance  specifications and obtain either standard or custom components.  We
then perform the final assembly and testing.

Our facility is  underutilized as a result of reductions in development work and
customer  orders for  production.  We are  maintaining  a limited  manufacturing
staff,  many of whom are skilled in Six-Sigma  quality  control  techniques.  We
expect to continue to utilize contract  manufacturing  and outside  suppliers in
the future based on our estimate of product demand from potential customers. The
suppliers  of the  mechanical  flywheel  and  the  control  electronics  for our
high-power  UPS  product  are  both  single-source  suppliers,  and the  loss or
interruption of supply from either of these suppliers would adversely affect our
ability  to market  and  deliver  our  high-power  UPS  product,  and thus,  our
financial results. To manage cost and supplier risk, we may elect to manufacture
composite rims (the most expensive portion of flywheel units) in our facility if
we determine that it is in our best interest to do so. We have personnel skilled
in management,  design, and the manufacturing of composites that will manage our
manufacturing processes.

Sales and Marketing

We are marketing our products directly to customers, and are attempting to build
market interest through power quality manufacturer's representatives and through
lead generation via advertising, trade press articles, participation in industry
conferences,  technical  presentations to potential customers and limited direct
mail to specific  power quality  customers.  We believe that this strategy could
evolve into alliances and channel  partnerships,  involving  relationships  with
power  quality  manufacturer's  representatives,  OEMs,  architects,  engineers,
system  integrators,  electrical  contractors  and power  quality  personnel  in
electric utilities.

With respect to our existing  high-energy back-up power products,  our marketing
strategy has been to identify key prospects and to work with those  companies to
formulate  our  product  plan,   pricing,   initial   installation  and  service
strategies.  We have installed on-site,  working  demonstration units at Verizon
Communications,  Century  Communications (now part of Adelphia  Communications),
Cox Communications,  AT&T Broadband,  Rogers Cable, and WinDBreak Cable. We will
continue to perform market analysis to identify  opportunities for installations
that fit the unique characteristics of those products and to emphasize the value
proposition of our high-energy products.  Potential customers for these products
include  businesses  with  heightened  needs  for  100%  reliability,   such  as
hospitals,  data centers,  call centers and other  critical-use  facilities.  We
believe that our high-energy  products will also be attractive to customers with
power  sources  that are very  expensive  to  replace or  maintain  due to their
location or other factors,  or power sources located where there are high or low
prevailing temperatures or dramatic changes in temperature.

Backlog

At December 31, 2002, we did not have any backlog.

Customer Service

We intend to provide  maintenance  and  support  for our  products,  although we
expect to contract out such functions at an  appropriate  time. All our products
are designed to have maintenance-free lives of 20 years.

Competition

Substantially  all of the  high-energy and UPS market today consists of sales of
battery-based products, rather than battery-free technologies. The power quality
and power  reliability  markets are  intensely  competitive,  with the principal
bases for competition being system  reliability and quality,  brand recognition,
and price,  including  the initial  cost of the system to the  customer  and the
total cost of ownership.  Various energy technology companies compete in the UPS
market. We will compete with:

     o Manufacturers and developers of battery technologies;

     o Other companies developing flywheel technology; and

     o Other companies developing additional alternative energy products.

Examples of other  technologies that are potentially  competitive  include ultra
capacitors,  fuel cells and  super-conducting  magnetic energy storage products.
While we have not yet sold any units, our market research  indicates that we may
be able to demonstrate a competitive value proposition in certain markets. There
are other  companies  selling  diesel  generators  and micro  turbines  that are
competitors in the broadest sense,  although we believe that in most cases,  our
flywheels will be complementary to their equipment.

As for our high-energy  back-up power  products,  competition is on the basis of
cost and value to the  customer.  We plan to  continue  to  emphasize  the value
proposition of our high-energy products based upon dependability,  environmental
benefits, and the long maintenance-free life of our products.

Intellectual Property

Our success  depends upon our ability to develop and  maintain  the  proprietary
aspects of our technologies and to operate without infringing on the proprietary
rights of  others.  To some  extent,  our  success  also  depends  upon the same
abilities on the part of our suppliers.  The intellectual property rights of our
high-energy   products  are  based  on  a  combination   of  SatCon   Technology
Corporation's  flywheel  technologies  and  patents for  stationary  terrestrial
flywheel  applications that we are licensed to use and patents that Beacon holds
or are pending. Our current UPS product is based on intellectual  property owned
or controlled  by the  suppliers of the two main  elements of that  product.  We
expect to develop  additional  intellectual  properties  and trade secrets as we
continue developing  high-energy UPS and high-power  distributed  generation and
utility  power grid  products.  We rely on a combination  of patent,  trademark,
trade  secret  and  copyright  law and  contract  restrictions  to  protect  the
proprietary  aspects  of our  technology.  We seek to  limit  disclosure  of our
intellectual property by requiring employees, consultants, and any third parties
with access to our proprietary information to execute confidentiality agreements
and by restricting access to that information.  These protections,  however, may
afford only limited protection for our technology.

We hold a perpetual, exclusive, royalty-free, worldwide right and license to use
SatCon Technology Corporation's flywheel technologies and patents for stationary
terrestrial  flywheel  applications.  Those rights  include  eleven  issued U.S.
patents and eleven U.S. and foreign patent  applications  that expire on various
dates  between 2012 and 2021.  This license  covers  SatCon's  technologies  and
patents  and all  improvements  made by SatCon  through  the date of our initial
public offering.  We are not entitled to any future improvements to its flywheel
technology that SatCon develops.  We own all technology  improvements we develop
that are based on the technology  licensed from SatCon.  We have a patent on our
vacuum system. We also have 22 pending U.S. and foreign patent applications, and
seven other  applications being prepared for filing. Our patent and trade secret
rights are of  material  importance  to us and to our future  prospects.  We are
actively pursuing both national and foreign patent protection.

We have purchased the  intellectual  property assets of Advanced Energy Systems,
Inc. (AES).  These assets include  anti-islanding  software,  which ensures safe
grid  utility  interconnection,  as well as drawings,  source  code,  production
know-how, and all associated documentation.

Government Regulation

We do not  believe  that  we will be  subject  to  existing  federal  and  state
regulatory   commissions   governing  electric  utilities  and  other  regulated
entities. We do believe that our products and their installation will be subject
to oversight  and  regulation  at the local level in  accordance  with state and
local ordinances relating to building codes,  safety,  pipeline  connections and
related matters. We intend to encourage the standardization of industry codes to
avoid  having  to comply  with  differing  regulations  on a  state-by-state  or
locality-by-locality  basis.  We have  obtained FCC approval of our  high-energy
products, and plan to pursue the same for our UPS product.

Employees

At December 31, 2002,  we had a total staff of 30  full-time  employees  and two
independent   contractors,   of  which   approximately  23  were  engineers  and
technicians  involved  in  research  and  development  and four  were in  sales,
marketing  and customer  service.  The  remaining  five people were  involved in
administrative  tasks.  As a first step in the  implementation  of our  strategy
discussed in Item 1 of this  document,  we reduced  staffing at all levels in an
effort to preserve our cash. None of our employees is represented by a union. We
consider our relations with employees to be satisfactory.

Item 2.  Properties

Our principal  executive  offices,  laboratory and manufacturing  facilities are
located at a single  location in Wilmington,  Massachusetts.  This 51,650 square
foot facility operates under a lease that expires on September 30, 2007.

Item 3.  Legal Proceedings

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

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

None.

Item 4A.  Executive Officers of the Company

Our executive officers, their positions and their ages as of March 21, 2003, are
as follows:

Name                          Age           Position

F. William Capp                54           President and Chief Executive
                                            Officer, Director

William J. Driscoll            43           Vice President of Engineering

Matthew L. Lazarewicz          52           Vice President and Chief Technical
                                            Officer

James M. Spiezio               55           Vice President of Finance, Chief
                                            Financial Officer, Treasurer and
                                            Secretary


F.  William  Capp.  Mr.  Capp has served as our  President  and Chief  Executive
Officer since  December 1, 2001 when he joined  Beacon  Power.  Prior to joining
Beacon  Power,  Mr. Capp was the  President of the  Telecommunications  group of
Bracknell   Corporation,   a  company  that  provided   infrastructure  for  the
telecommunications  industry  with annual  sales of $350 million and 30 regional
offices in the US and Canada.  From 1997-2000,  Mr. Capp served as the President
of a division of York International where he increased aftermarket sales by over
50%  from  1997 to  1999,  which  were  the two  most  profitable  years in that
division's  history.  From  1978-1997,  Mr.  Capp  held  numerous  positions  at
Ingersoll Rand. From 1992-1997,  he served as Vice President and General Manager
of the Compressor  Division where he was  responsible for an operation with over
700 employees.  He managed a complex supply chain including over $100 million in
purchases  from a variety of companies.  From  1989-1992,  Mr. Capp was the Vice
President of  Technology  for the  Torrington  Company,  which is a $900 million
manufacturer  of bearings and precision  components to the  automotive and other
industries worldwide.  Mr. Capp assisted in the development of new products, new
manufacturing  technologies and project management.  He also held numerous other
engineering  positions within Ingersoll Rand. Prior to joining Ingersoll Rand in
1978,  he  worked  for  Ford's  Truck  Division  in such  positions  as  project
engineering, supervisor, and product planning. Mr. Capp received his Bachelor of
Science in Aeronautical Engineering from Purdue University, a Master of Business
Administration and a Master Degree in Mechanical Engineering from the University
of  Michigan.  He also has his Black Belt  Training  Program  from the  American
Society for Quality.

William J.  Driscoll.  Mr.  Driscoll  joined us in September of 2001 as our Vice
President of  Engineering.  Prior to his arrival at Beacon Power  Corporation he
had worked in the power electronics industry for 22 years, most recently as Vice
President of Engineering for the Omnirel division of International Rectifier. In
this capacity,  Mr. Driscoll was  responsible  for all technical  aspects of the
business,  including Research and Development,  New Product Development and Test
Engineering. Prior to Omnirel, Mr. Driscoll was employed at Raytheon Electronics
Systems  Division for  approximately  ten years. At Raytheon,  Mr. Driscoll held
positions such as Manager of Missile Guidance Power Systems,  Program Manager of
the Airborne  Surveillance  System for the SIVAM program in Brazil,  and Missile
Lead Engineer for one of Raytheon's Special Access Programs.  Prior to Raytheon,
Mr. Driscoll was employed at AVCO Systems  Division for four years. At AVCO, Mr.
Driscoll was the lead Power System  Design  Engineer for programs such as the MX
MK 21 Reentry  Vehicle,  the Sensor Fused Weapon System and the Boosted  Kinetic
Energy  Penetrator.  Mr.  Driscoll  holds  a  Bachelor's  Degree  in  Electronic
Engineering from the University of Massachusetts (Lowell).

Matthew  L.  Lazarewicz.  Mr.  Lazarewicz  has served as our Vice  President  of
Engineering  since  February  1999,  and was named  Chief  Technical  Officer in
September  of 2001.  Prior to joining  us,  Mr.  Lazarewicz  worked for  General
Electric Company in various  capacities.  He started his 25-year career with the
General Electric Company in the gas turbine division as a design engineer. After
a transfer to GE Aircraft Engines,  he progressed through a variety of positions
in  design,  manufacturing,  quality,  marketing,  and  product  support in both
military and  commercial  applications.  Most recently he served as a manager of
program independent analysis from 1996 to 1999, and he was the mechanical design
manager for the F414 engine used in the Navy front line F/A18  fighter from 1991
to 1996.  This  included  the  development  through  production  phases.  He was
recognized  as the GE Aircraft  Engines  "Engineer of the Year" and received the
Department of Defense  "Excellence in  Acquisition"  Award for his leadership of
this  project.  Mr.  Lazarewicz  is a  Registered  Professional  Engineer in the
Commonwealth of Massachusetts  and received both Bachelor's and Master's Degrees
in Mechanical  Engineering from the Massachusetts  Institute of Technology.  Mr.
Lazarewicz also completed his Master's Degree in Management at the Massachusetts
Institute of Technology Sloan School of Management.

James M. Spiezio.  Mr.  Spiezio joined us in May 2000. He has served as our Vice
President of Finance,  Chief  Financial  Officer and Treasurer  since July 2000,
Secretary  since March 2001, and our Corporate  Controller from May 2000 to July
2000. He worked as a financial consultant from November 1999 to May 2000. He has
over twenty-five  years of diversified  manufacturing  and financial  management
experience.  Prior to acting as an independent financial consultant, Mr. Spiezio
was  the  Chief  Financial  Officer  at  Starmet   Corporation,   a  diversified
metallurgical  manufacturing  company, from January 1993 to November 1999. While
at Starmet he also served as President of a wholly owned manufacturing  facility
for five years and held  additional  financial  management  positions  including
Corporate  Controller  and  Manager  Planning  and  Analysis.  Prior to  joining
Starmet,   Mr.   Spiezio  held  financial   management   positions  with  United
Technologies Corporation, Pratt & Whitney Aircraft Group in accounting, cost and
business  analysis.  Prior  to  Pratt &  Whitney,  Mr.  Spiezio  held  financial
management positions with General Electric Company in both the Power Systems and
Apparatus  Services  business  groups.  Mr. Spiezio is a graduate of the Indiana
University School of Business.


<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

Our  Common  Stock is quoted on the  NASDAQ  SmallCap  Market  under the  symbol
"BCON".  The  following  table  sets  forth the high and low sales  price of the
common stock for the period indicated.

                                     High             Low

Fourth quarter 2002              $   0.44         $   0.14
Third quarter 2002               $   0.31         $   0.15
Second quarter 2002              $   0.58         $   0.21
First quarter 2002               $   1.50         $   0.50

Fourth quarter 2001              $   1.85         $   0.75

On March 21,  2003,  the last  reported  sale price of the  common  stock on the
NASDAQ SmallCap Market was $0.20 per share, and there were 296 holders of record
of common stock.

We have never declared or paid cash dividends on shares of our common stock.  We
expect to retain any future  earnings to finance the  expansion of our business,
and therefore we do not expect to pay cash dividends in the foreseeable  future.
Payment of future cash dividends, if any, will be at the discretion of our board
of directors after taking into account various factors,  including our financial
condition,  operating results,  current and anticipated cash needs and plans for
expansion.

Recent Sales of Unregistered Securities

During 2002, we issued no unregistered securities.


<PAGE>

Item 6.  Selected Consolidated Financial Data

The following selected financial data should be read together with "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
the financial  statements,  including the related notes, found elsewhere in this
Form 10-K.

The following  tables present selected  historical  financial data for the years
ended December 31, 2002,  2001, 2000, 1999, 1998, and for the period from May 8,
1997, the date of our inception, through December 31, 2002.
<TABLE>
<CAPTION>
<S>                                       <C>        <C>        <C>        <C>         <C>          <C>
                                                                                                      Period from
                                                                                                         Date
                                                                                                     of Inception
                                                                                                     (May 8, 1997)
                                                           Year ended December 31,                        to
                                         ----------------------------------------------------------  December 31,
                                            2002       2001       2000       1999         1998           2002
                                         ---------------------------------------------------------------------------
                                                           (In Thousands, except Per Share Data)

Statement of Operations Data:
Revenues                                      $    -     $    -     $   50     $  269          $   -        $   551

Operating expenses:
    Selling, general and administrative        5,637      8,940      4,631      1,559          1,188         23,123
    Research and development                   7,130     17,628     12,715      3,506          3,524         46,794
    Loss on sales commitments                      -          -         51        325              -            376
    Depreciation and amortization              1,644      1,324        401        219             78          3,666
    Restructuring charges                      2,159          -          -          -              -          2,159
    Loss on impairment of assets               4,297          -          -          -              -          4,297
                                         ---------------------------------------------------------------------------
Total operating expenses                      20,867     27,892     17,798      5,609          4,790         80,415
                                         ---------------------------------------------------------------------------
Loss from operations                        (20,867)   (27,892)   (17,748)    (5,340)          4,790       (79,864)
Interest and other income (expense), net          28      1,746        330      (331)            (3)          1,885
                                         ---------------------------------------------------------------------------
Net loss                                    (20,839)   (26,146)   (17,418)    (5,671)          4,739       (77,979)

Preferred stock dividends                          -          -   (35,797)      (917)          (112)       (36,826)
Accretion of redeemable convertible
preferred stock                                    -          -       (64)       (42)            (7)          (113)
                                         ---------------------------------------------------------------------------
Loss to common shareholders                 (20,839)   (26,146)   (53,279)    (6,630)        (4,912)      (114,918)
                                         ===========================================================================
Net loss per share, basic and diluted        ($0.49)    ($0.61)   ($10.77)  ($393.52)      ($291.58)
                                         ============================================================
Shares used in computing net loss per
share, basic and diluted                      42,797     42,551      4,946         17             17
                                         ============================================================

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                             <C>         <C>         <C>         <C>        <C>
                                                                 As of December 31,
                                             ------------------------------------------------------------
                                                 2002        2001       2000        1999        1998
                                             ------------------------------------------------------------

                                                                   (In thousands)
Balance Sheet Data:
Cash and cash equivalents                          $18,222    $34,602    $62,497         $234     $2,491

Working capital                                     17,220     32,788     59,224        (878)      1,481

Total assets                                        20,906     42,131     67,738          974      2,992

Redeemable convertible preferred stock                   -          -          -        4,535      4,493
Total stockholders' equity (deficiency)             18,075     38,981     63,308      (8,591)    (2,720)
</TABLE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

The following  discussion  of our financial  condition and results of operations
should be read in conjunction with our financial statements,  the notes to those
financial statements and other financial information appearing elsewhere in this
document.  In addition to historical  information,  the following discussion and
other parts of this document contain forward-looking statements that reflect our
plans, estimates, intentions, expectations and beliefs. Our actual results could
differ materially from those discussed in the  forward-looking  statements.  See
"Note  Regarding  Forward-Looking  Statements."  Factors  that  could  cause  or
contribute to such differences  include, but are not limited to, those set forth
in  the  "Certain  Factors  Affecting  Future  Operating  Results"  section  and
contained elsewhere in this Form 10-K.

Overview

Beacon Power Corporation is a development stage company that was incorporated on
May 8, 1997. The Corporation,  and its subsidiary (collectively "Beacon" or "the
Company") designs,  develops,  configures and offers for sale power systems that
provide highly reliable, high-quality, environmentally friendly, uninterruptible
electric power employing both proprietary and third-party solutions for a number
of potential  applications.  The Company has segmented the potential markets for
its  products  into  three  broad   categories:   high-energy   and   high-power
uninterruptible  power systems  (UPS),  high-power  distributed  generation  and
utility power grid applications.  We have available for sale several high-energy
products that deliver a low level of power over a long period of time (typically
measured in hours).  These  products are tailored to the  communications,  cable
systems,  computer networks, and Internet markets. We are currently developing a
new  high-energy  product  that  is an  extension  of our  existing  high-energy
products.  We believe this product is well suited for  renewable  energy uses in
both photovoltaic and wind turbine applications. We have preliminary designs for
this product but we will not make the significant  additional  expenditures that
would be required for prototype development or production  capabilities until we
have fully  defined  the market  potential  and the  marketplace  has  expressed
tangible  interest.  As part of  exploring  these  markets we have  committed to
invest $1.1 million in Evergreen Solar,  Inc. and we have purchased the inverter
electronics  technology of Advanced Energy  Systems,  Inc. We also have 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.  We are
now  developing  products  for  distributed  generation  and utility  power grid
applications that provide  megawatts for minutes.  Our existing products already
offer  more  stored  energy  than any other  commercial  flywheel  product.  The
flywheel   module  being  designed  for   distributed   generation  and  utility
applications  will be  significantly  higher  in  energy  level  than any  other
available products in the industry.  Completion of development of these products
will depend on tangible interest expressed by the marketplace.

From our  inception  through  December  31,  2002,  we have  incurred  losses of
approximately $114.9 million. We expect to continue to incur losses as we expand
our  product  development  and  commercialization  program  and  prepare for the
commencement  of full  manufacturing  operations.  We expect  that  losses  will
fluctuate from quarter to quarter and that such fluctuations may be substantial.

Revenues.  We are evaluating  markets for our current  products and other future
products but we did not recognize  revenues in 2002 or 2001. Prior to the fourth
quarter of 2000, we recorded revenues as a result of development  contracts with
government  entities  focused on the design of  flywheel  technologies.  We have
placed  several  development  prototypes  with  potential  customers and shipped
pre-production  units.  These  products  were  provided to  potential  customers
without  charge or on a  demonstration  basis to allow us  access to field  test
information and to demonstrate the application of our technologies.

Selling,  General and Administrative  Expenses. Our sales and marketing expenses
consist  primarily of  compensation  and  benefits  for our sales and  marketing
personnel and related business  development  expenses.  During 2002, we expanded
our sales  and  marketing  effort  into UPS and  utility  grid  applications  by
initiating  several market research  efforts to help us evaluate markets for our
current and future products and technical  presentations  at potential  customer
locations.  During  2002 we focused  our  marketing  efforts on the  high-energy
market. Prior to 2001, our historical sales and marketing expenses have not been
material.  We continue to rely on  engineering  personnel  to provide  technical
specifications  and product overviews to our potential  customer base. We expect
sales and marketing expenses to continue to increase as we expand our efforts to
seek new markets for our  products.  Our  general  and  administrative  expenses
consist  primarily of compensation  and benefits related to our corporate staff,
professional  fees,  insurance and travel. In October 2001, March 2002 and again
in  July  2002,  we  reduced  our  headcount  in  sales  and  marketing  and  in
administration  functions.  As a  result  of these  reductions,  we  expect  our
selling,  general  and  administrative  expenses  to be reduced  during  2003 as
compared to 2002.

Research  and  Development.  Our  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 and development process. These costs decreased  significantly during 2002
as we focused on reducing our  expenditure  rate by reducing  product design and
development  activities.  While  we do  not  expect  to  incur  any  significant
additional costs for our existing  products,  we do expect to incur  significant
costs for the design and development of our  high-powered  products once we have
defined the  specific  markets to be served and the  marketplace  has  expressed
tangible interest.

Loss on Sales Commitments.  We will establish reserves for anticipated losses on
sales commitments when our cost estimates  indicate a loss will be incurred.  We
did not accrue such losses  during 2002.  In the second half of 2001 we reversed
projected losses  contemplated and recognized during 2000 and early 2001. We are
most  likely  to  recognize  probable  losses  on sales  commitments  early in a
product's introduction prior to being able to realize expected decreases in cost
per unit through engineering design changes, operating efficiencies,  and volume
purchasing discounts.

Restructuring  and asset impairment  charges.  We recognized  restructuring  and
asset  impairment  charges during 2002. Our 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  and  therefore  has taken  non-cash  asset
impairment  charges  aggregating $4.3 million  pursuant to Financial  Accounting
Standard  No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets."

Depreciation  and  Amortization.  Our depreciation and amortization is primarily
related to depreciation on capital  expenditures  and the  amortization of lease
and leasehold costs related to our facilities.  We do have intellectual property
in the form of a patent on our vacuum  system and expect to obtain other patents
during 2003 and beyond.

Interest and Other  Income/Expense,  net. Our non-operating  income and expenses
are primarily  attributable to interest income relating to cash on hand from our
private  financings and initial public offering and interest expense  associated
with our capital.

Preferred  Stock  Dividends.  Prior to our initial public offering of our common
stock, we had various classes of preferred stock outstanding,  each of which was
entitled to receive dividends.  We accrued dividend expense monthly according to
the  requirements  of each class of  preferred  stock.  In  addition,  we issued
warrants to purchase  common stock in  conjunction  with the issuance of certain
classes of the preferred stock. Any value assigned to these warrants was charged
to dividend expense. As a result of our initial public stock offering during the
fourth quarter of 2000, we no longer have any preferred stock  outstanding.  All
outstanding dividends were paid in full during 2001.

Results of operations:

Comparison of Year ended December 31, 2002 and 2001

Revenue.  During 2002 and 2001 we did not record any revenue.  To date, proceeds
from the sale of  demonstration  and test units have been applied as a reduction
against  research and  development  expense.  Proceeds from these sales totaling
$69,000 were applied as a reduction against research and development  expense in
2001.  In 2002 we had  proceeds of $79,000 from work  performed  on  electronics
development for others. These proceeds have been recorded as offsets to Research
and Development expenses.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses for 2002 totaled  approximately  $5,637,000 compared to
approximately  $8,940,000 during the year ended December 31, 2001. This decrease
of  $3,303,000  is primarily  the result of decreased  compensation  and benefit
costs due to the  reduction in staffing.  During  October  2001,  March 2002 and
again in July 2002,  we reduced  our  headcount  in sales and  marketing  and in
administration  functions  by 8, 11 and 7  respectively.  As a  result  of these
reductions,  we expect our selling,  general and  administrative  expenses to be
further reduced during 2003 as compared to 2002.

Research and Development  Expenses.  Research and development  expenses for 2002
were  approximately  $7,130,000,  compared to approximately  $17,628,000  during
2001.  This  decrease  of  $10,498,  000 is  primarily  the result of  decreased
compensation   and  benefit  costs  related  to  reductions  in  the  number  of
engineering  and   manufacturing   personnel  and  materials  used  for  product
development.  During October 2001, March 2002 and again in July 2002, we reduced
our  headcount  in  research  and  development   functions  by  29,  24  and  18
respectively. These costs decreased significantly during 2002 as a result of our
focus on  reducing  our cash  expenditures.  While we do not expect to incur any
significant  additional costs for our existing  products,  we do expect to incur
significant  costs  for the  development  of  prototypes  for new  products  and
staffing the  manufacturing  function and  establishing  required  processes for
commercial  production of our products.  We will begin prototype development and
establishing  production capabilities after we have defined the specific markets
to be served and the marketplace has expressed tangible interest.  While we will
continue to design new high-powered products, we expect our cost of research and
development in 2003 to be reduced compared to 2002.

Depreciation  and  Amortization.  Depreciation  and  amortization  for  2002 was
approximately  $1,644,000 compared to approximately $1,324,000 during 2001. This
increase of $320,000 is attributable  to amortization of leasehold  improvements
at the new  facility in  Wilmington  Massachusetts  as well as  amortization  on
additional machinery and equipment and other capital assets acquired in 2001. We
expect our charge for  depreciation in 2003 to be reduced  compared to 2002 as a
result of restructuring and asset impairment charges.

Restructuring and asset impairment charges. We have recognized restructuring and
asset impairment charges in 2002. 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 as
of yet been successful in selling products into this market.  Therefore, in July
2002,  in an effort to reduce  our  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  and  on a  less  ambitious
timetable.  As a result, a substantial  portion of our long-term assets has been
idled, including machinery and equipment, tooling, office furniture and fixtures
and leasehold improvements.  We have evaluated all of our property and equipment
as required by Statement of Financial  Accounting  Standards No. 144 "Accounting
for  the   Impairment  or  Disposal  of  Long-Lived   Assets".   We  have  taken
restructuring  and  impairment  charges of $6.5  million  of which $4.3  million
represents impaired capital equipment and leasehold  improvements,  $1.9 million
relates to a reserve  against future lease  payments and related  facility costs
and $.3 million relates to severance  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.

Interest and Other Income/ (Expense), net. Our net non-operating income for 2002
was  approximately  $28,000  compared to  approximately  $1,746,000 in 2001. The
decrease is attributable to lower interest income associated with the lower cash
balances,   lower  interest  rate  yields  on  investments   and  a  reserve  of
approximately $426,000 for the loan to the former CEO.


Comparison of Year ended December 31, 2001 and 2000

Revenue.  During 2001 we shipped 20 flywheel  units.  These units were primarily
demonstration and test units. As such, any proceeds from the sale of these units
were  applied as a  reduction  against  research  and  development  expense.  We
recorded  $50,000 of  revenue  during the year ended  December  31,  2000.  This
revenue was derived from a milestone related shipment of our first two units. No
revenue  was  recognized  for five  other  units  that we  shipped in the fourth
quarter of 2000.  Proceeds from these sales  totaling  $69,000 were applied as a
reduction against research and development expense in 2001.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses for 2001 totaled  approximately  $8,940,000 compared to
approximately  $4,631,000 during the year ended December 31, 2000. This increase
of  $4,309,000  is primarily  the result of increased  compensation  and benefit
costs due to the increased staffing required for infrastructure  development and
expansion of our sales and marketing  effort.  During  October 2001 and again in
March  2002,   we  reduced  our   headcount  in  sales  and   marketing  and  in
administration functions.

Research and Development  Expenses.  Research and development  expenses for 2001
were  approximately  $17,628,000,  compared to approximately  $12,715,000 during
2000.  This  increase  of  $4,913,000  is  primarily  the  result  of  increased
compensation  and  benefit  costs  related  to an  increase  in  the  number  of
engineering  and   manufacturing   personnel  and  materials  used  for  product
development. These costs increased significantly during 2001 as we completed the
designs of our 2kWh unit and our 6kWh units as well as the related  electronics.
While we do not expect to incur any significant additional costs for the 2kWh or
6kWh  units,  we do  expect  to  incur  significant  costs  for the  design  and
development of our high-powered products. These costs began in the first quarter
of 2002 and are expected to continue  throughout  the remainder of 2002 and into
2003. As a part of the new strategy for moving into the high-powered  market, we
have reduced the number of our  development  teams from two to one. The one team
will focus solely on the  high-powered  design.  As a result of this, we reduced
our headcount with respect to development engineers significantly in March 2002.

Loss on Sales Commitments.  Loss on sales commitments for 2000 was approximately
$51,000. No loss on sales commitments was recorded during 2001. We accrued these
losses during 2000 based on our estimated costs to complete delivery commitments
during 2000 and 2001.  We have  adjusted  our  delivery  schedule  and  reversed
projected losses contemplated earlier in 2000. As a result, at both December 31,
2001 and 2000 there was no cumulative accrual.

Depreciation  and  Amortization.  Depreciation  and  amortization  for 2001 were
approximately  $1,324,000  compared to approximately  $401,000 during 2000. This
increase of $923,000 is attributable  to amortization of leasehold  improvements
at the new  facility in  Wilmington  MA as well as  amortization  on  additional
machinery and equipment and other capital assets acquired in 2001.

Interest and Other Income/ (Expense), net. Our net non-operating income for 2001
was  approximately  $1,746,000  compared to approximately  $330,000 in 2000. The
increase is  attributable  to interest  income  associated  with the higher cash
balances resulting from our stock offering during the fourth quarter of 2000.

Preferred Stock Dividends.  During 2000, we accrued preferred stock dividends on
redeemable  convertible  preferred stock of approximately  $35,797,000.  Of this
amount  $33,000,000  was a non-cash  charge  from the  issuance  of  warrants in
connection  with the  issuance of our Class F redeemable  convertible  preferred
stock. In addition,  we recorded a $1,300,000  non-cash charge from the issuance
of warrants to purchase  common  stock in  conjunction  with the issuance of our
Class D  redeemable  convertible  preferred  stock.  As a result of our  initial
public stock  offering  during the fourth quarter of 2000, we no longer have any
preferred stock outstanding.  All outstanding dividends were paid in full during
2001.


Liquidity and Capital Resources

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

From our  inception  to date,  our primary cash  requirements  have been to fund
research and development,  establish production  capabilities  including capital
expenditures and for working capital including various infrastructure costs. Net
cash   used   in   operating   activities   was   approximately   ($15,586,000),
($24,220,000),  and  ($12,458,000) for 2002, 2001, and 2000,  respectively.  The
primary  component of the negative cash flow from  operations is the net losses.
For the year  2002 we had a net loss of  approximately  ($20,839,000).  This was
offset by approximately $1,644,000 for depreciation and amortization; $4,297,000
for  an  impairment  of  fixed  assets;  $1,750,000  for  restructuring  charges
resulting from our reduction in force; $428,000 for a reserve on officer's note;
other  non-cash  consulting  expenses  of  $19,000;  and losses from the sale or
disposal  of capital  equipment  of  $14,000.  Changes in  operating  assets and
liabilities  used  approximately  $2,901,000  of cash during 2002.  For the year
2001,  we had a net loss of  approximately  ($26,146,000).  This was  offset  by
approximately  $1,324,000  for  depreciation  and  amortization;  $347,000 for a
non-cash  expense from the change in stock  option terms for certain  terminated
employees;  other  non-cash  consulting  expenses of  $340,000;  $303,000  for a
non-cash charge in connection with the settlement of a lawsuit and approximately
$109,000 from the sale or disposal of certain fixed assets and tooling.  Changes
in operating assets and liabilities used  approximately  $497,000 of cash during
2001.  The  primary  components  were  decreased  accounts  payable  and accrued
expenses of  approximately  $857,000 and  decreased  inventory of  approximately
$208,000.  These were offset by decreased  prepaid  expenses  and other  current
assets of approximately $274,000 and an increase in our accrual for compensation
and benefits of $444,000.  For the year 2000 we had a net loss of  approximately
($17,418,000) offset by non-cash expenses of approximately  $3,799,000.  Changes
in operating assets and liabilities  generated cash of approximately  $1,161,000
during 2000.

Net  cash  used  in   investing   activities   was   approximately   ($466,000),
($3,655,000),  and  ($3,702,000)  for  2002,  2001 and 2000,  respectively.  The
principal  uses of cash were related to the purchase of equipment  including the
leasehold improvements to the new operating facility and the payment of security
deposits pursuant to obtaining the new facility lease.

Net cash used in financing activities was approximately  ($327,000) during 2002.
This compares to net cash used in 2001 of  approximately  ($21,000) and net cash
generated in 2000 of  $78,423,000.  During 2002,  the principal  sources of cash
were  approximately  $13,000  from the exercise of shares of common stock issued
under our Employee  Stock  Purchase  Plan.  The  repayment of capital  leases of
($340,000)  offset these  proceeds.  During 2001, the principal  sources of cash
were  approximately  $829,000  from the exercise of employee  stock  options and
shares of common  stock  issued  under our  Employee  Stock  Purchase  Plan.  In
addition we refinanced  certain fixed assets under capital leases that generated
approximately  $496,000.  These proceeds were offset by the payment of dividends
accrued in 2000 related to various classes of preferred  stock of  approximately
$1,159,000  and the repayment of capital  leases of $186,000.  During 2000,  the
principal  source of cash was our initial  public  stock  offering  which raised
approximately  $49,341,000  net of  $5,858,000 of expenses  associated  with the
offering.  Additionally, we raised approximately $28,352,000 during 2000 through
our sale of Class F Preferred stock.

Based on our  operating  baseline  which  includes the cash flow benefits of our
significantly reduced headcount,  development spending and capital expenditures,
we  believe  that our cash  and cash  equivalents  and  future  cash  flow  from
operations  will satisfy the  Company's  working  capital  needs for the next 24
months.  However,  this belief assumes no expenditures for prototype development
or production capabilities,  which would require significant amounts of cash. In
the event that we are not able to obtain development contracts from customers to
fund prototype  development,  these expenditures will  significantly  reduce the
number  of  months  our cash and cash  equivalents  and  future  cash  flow from
operations will satisfy our working capital needs.  Inasmuch as we do not expect
to become  profitable or cash flow positive  until 2006, our ability to continue
as a going concern will depend on our being able to raise additional capital. We
may not be able to raise this capital at all, or if we are able to do so, it may
be on terms that are extremely dilutive to our shareholders.

Our significant long-term contractual obligations as of December 31, 2002 are as
follows:
<TABLE>
<CAPTION>
<S>                                     <C>        <C>        <C>       <C>        <C>         <C>      <C>
                                                    Cash Payments Due During the Year Ended December 31,
                                        -----------------------------------------------------------------------------
Description of Commitment                  2003      2004       2005       2006      2007    Thereafter    Total
---------------------------------------------------------------------------------------------------------------------
Operating Leases                          $490,675   $490,675  $500,359   $529,413   $397,059     $    -  $2,408,181

</TABLE>

The amounts listed for operating leases represent payments for the occupancy our
principal executive offices,  laboratory and manufacturing facilities located in
Wilmington,  Massachusetts.  Our  commitment  on this  lease  is  secured  by an
irrevocable  letter of credit in the amount of $355,232.  A cash deposit secures
this letter of credit.

We may make investments in companies for strategic business reasons. Because our
primary motivation in making these investments is not to realize a profit on the
investment  itself,  but  rather  to  expand  our  business   prospects,   these
investments  may lack any  financial  returns  to us,  may  result  in a loss of
principal and may lack liquidity.

On March 24, 2003 we announced  that we had  committed to invest  $1,000,000  in
Series A Preferred  Stock of  Evergreen  Solar,  Inc.,  a public  company  which
specializes  in  renewable  energy  sources,  in order to  develop  a  strategic
relationship  with that  company.  We also  believe that this  investment  has a
potential to provide us with  significant  financial  returns on our investment.
Our investment was part of a larger financing provided by several investors.  We
made our investment on the same terms as the other  investors in this financing,
except that we also were permitted to purchase a three-year warrant for $100,000
that is  exercisable  for 2,400,000  shares of  Evergreen's  common stock.  This
warrant makes our  investment  terms more  favorable  than those received by the
other  investors.  Evergreen's  financing  was a private  placement  of  $29.475
million of its Series A Preferred  Stock and the above  warrant.  Perseus  2000,
L.L.C.,  an affiliate of one of the  Company's  stockholders,  Perseus  Capital,
L.L.C.,  invested $3 million in  Evergreen's  Series A  Preferred  Stock in this
financing.  Mr. Philip J. Deutch and Mr. Kenneth M. Socha,  members of the Board
of Directors of the Company, are Managing Director and Senior Managing Director,
respectively, of Perseus, L.L.C., and Mr. Deutch is one of four individuals from
the Evergreen  investor group to be added to the Board of Directors of Evergreen
when the investment closes.

We believe that the  Evergreen  investment  will give us access to the renewable
energy  market,  which  we  believe  has  significant  potential  for  our  next
high-energy product, which is now in development. In addition, on March 24, 2003
we purchased,  for approximately $141,000, the inverter electronics technologies
of Advanced  Energy  Systems,  Inc to strengthen our potential  entry into these
markets

Investments  such as those made in Evergreen  Solar and the  acquisition  of the
intellectual  properties of Advanced  Energy  Systems may accelerate our need to
raise  capital.  We may not be able to raise this  capital at all,  or if we are
able  to do  so,  it  may  be on  terms  that  are  extremely  dilutive  to  our
shareholders.

Inflation

We do not believe our operations have been materially affected by inflation.

Certain Factors Affecting Future Operating Results

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

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

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

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

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

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

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

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

     o expanding research and development;

     o achieving manufacturing capability;

     o funding additional working capital; or

     o acquiring complementary products, businesses or technologies.

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

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

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

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

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

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

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

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

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


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

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

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

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

     We have incurred net losses to common  shareholders and negative cash flows
since our  inception in May 1997.  We had net losses to common  shareholders  of
approximately  ($20,839,000) in 2002,  ($26,146,000)  in 2001,  ($53,279,000) in
2000 and  ($6,630,000) in 1999. Since our inception in May 1997, we have had net
losses to common shareholders totaling ($114,918,000).  We expect to continue to
incur net losses through 2006.  Although we are looking for  additional  ways to
economize and reduce costs,  our efforts may prove even more  expensive  than we
anticipate. Our revenue must grow substantially if we are to offset these higher
expenses and become profitable.  Even if we do achieve profitability,  we may be
unable to sustain or increase our profitability in the future.

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

We Have Very Limited Experience Manufacturing Flywheel Energy Storage Systems on
a Commercial Basis, and We May Be Unable to Achieve Profitability.

     We may not achieve  profitability if we cannot develop or obtain efficient,
low-cost manufacturing  capability,  processes and suppliers that will enable us
to meet the quality,  price,  engineering,  design and  production  standards or
production volumes required to meet our product  commercialization  schedule, if
any, or to satisfy the requirements of our customers or the market generally. To
date,  we have  focused  primarily  on  research  and  development  and  have no
experience  manufacturing flywheel energy storage systems on a commercial basis.
See "Business."

We Might Fail to Develop Successful Products.

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

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

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

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

     o ensuring minimal warranty expenses through design and quality control;

     o ensuring quality and cost control from our suppliers;

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

     o extending the product to new applications.

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

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

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

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

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

Government Regulation May Impair Our Ability to Market Our Product.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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




Item 7A.  Quantitative and Qualitative Disclosure about Market Risk

Our cash equivalents and investments, all of which have maturities of less than
one year, may expose us to interest rate risk. At December 31, 2002, we had
approximately $60,000 of cash equivalents that were held in a non-interest
bearing checking account. Also at December 31, 2002, we had approximately
$2,939,000 invested in interest-bearing money market accounts, and approximately
$15,223,000 in high-grade bonds. The fair value of these investments
approximates their cost. A 10% change in interest rates would change the
investment income realized on an annual basis by approximately $27,000, which we
do not feel is material.



<PAGE>
Item 8.  Financial Statements and Supplementary Data

                            BEACON POWER CORPORATION
                          (A Development Stage Company)
                   Index to Consolidated Financial Statements

                                                                         Page

Independent Auditors' Report                                               26

Consolidated Balance Sheets at December 31, 2002 and 2001                  27

Consolidated Statements of Operations for the years ended December 31,
2002, 2001 and 2000 and for the period May 8, 1997 (date of
inception) to December 31, 2002.                                           28

Consolidated Statements of Stockholders' Equity (Deficiency) for the years
ended December 31, 2002, 2001 and 2000 and for the period
May 8, 1997 (date of inception) to December 31, 2002.                      29

Consolidated Statements of Cash Flows for the years ended December 31,
2002, 2001 and 2000 and for the period May 8, 1997 (date of
inception) to December 31, 2002.                                           33

Notes to Consolidated Financial Statements                                 35


<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
Beacon Power Corporation:

     We have  audited the  accompanying  consolidated  balance  sheets of Beacon
Power  Corporation and subsidiary (the "Company") (a development  stage company)
as of December 31, 2002 and 2001,  and the related  consolidated  statements  of
operations,  stockholders'  equity  (deficiency)  and cash flows for each of the
three years in the period ended December 31, 2002 and for the period from May 8,
1997 (date of inception) through December 31, 2002. These consolidated financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  consolidated  financial  statement  presentation.  We believe  that our
audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the financial position of Beacon Power
Corporation  and  subsidiary as of December 31, 2002 and 2001 and the results of
their  operations and their cash flows for each of the three years in the period
ended  December  31,  2002 and the period  from May 8, 1997 (date of  inception)
through  December 31, 2002 in conformity  with accounting  principles  generally
accepted in the United States of America.

/s/ Deloitte & Touche LLP

Boston, Massachusetts
March 7, 2003


<PAGE>

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S>                                             <C>               <C>             <C>           <C>
                                                                                    December 31,
                                                                                2002            2001
                                                                          ----------------------------------
Assets
Current assets:
     Cash and cash equivalents                                                $ 18,221,766     $ 34,601,585
     Assets held for sale                                                           53,715                -
     Prepaid expenses and other current assets                                   1,775,455        1,131,065
                                                                          ----------------------------------
        Total current assets                                                    20,050,936       35,732,650

Property and equipment, net  (Note 3)                                              562,929        6,188,507
Other assets                                                                       291,901          209,796
                                                                          ----------------------------------
Total assets                                                                  $ 20,905,766     $ 42,130,953
                                                                          ==================================

Liabilities and Stockholders' Equity
Current liabilities:
    Accounts payable                                                          $     77,326     $    911,465
    Accrued compensation and benefits                                              226,623          721,130
    Due to related party  (Note 13)                                                      -           35,532
    Other accrued expenses                                                         576,881          941,100
    Restructuring reserve                                                        1,749,738                -
    Current portion of capital lease obligations  (Note 4)                         200,041          335,145
                                                                          ----------------------------------
        Total current liabilities                                                2,830,609        2,944,372

Capital lease obligations, net of current portion  (Note 4)                              -          205,352
Commitments (Note 5)

Stockholders' equity:
    Preferred stock, $.01 par value; 10,000,000 shares authorized; no
    shares issued or outstanding (Note 6)                                                -                -
    Common stock, $.01 par value; 110,000,000 shares authorized;
    42,812,897and 42,770,856 shares issued and outstanding in 2002 and
    2001, respectively                                                             428,129          427,709
    Deferred stock compensation                                                   (18,413)        (211,564)
    Additional paid-in capital                                                 132,750,525      132,911,256
    Deficit accumulated during the development stage                         (114,985,424)     (94,146,172)
    Treasury stock, 132,000 shares, at cost                                       (99,660)                -
                                                                          ----------------------------------
        Total stockholders' equity                                              18,075,157       38,981,229
                                                                          ----------------------------------
Total liabilities and stockholders' equity                                    $ 20,905,766     $ 42,130,953
                                                                          ==================================

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


                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
                      Consolidated Statements of Operations
<TABLE>
<CAPTION>
<S>                                             <C>                <C>                 <C>                <C>
                                                                                                            Cumulative from
                                                                                                               May 8, 1997
                                                    Year ended          Year ended         Year ended      (date of inception)
                                                    December 31        December 31        December 31       through December
                                                       2002                2001               2000              31, 2002
                                                 ------------------  -----------------  -----------------  --------------------

Revenue                                                   $      -           $      -         $   50,000           $   551,184
Cost of goods sold                                               -                  -                  -                     -
                                                 ------------------  -----------------  -----------------  --------------------
Gross profit                                                     -                  -             50,000               551,184

Operating expenses:
    Selling, general and administration                  5,636,903          8,939,589          4,630,915            23,123,028
    Research and development                             7,129,880         17,627,714         12,714,823            46,793,894
     oss on sales commitments
    L                                                            -                  -             50,974               375,974
    Depreciation and amortization                        1,644,230          1,323,958            401,013             3,666,003
    Restructuring charges                                2,159,280                  -                  -             2,159,280
    Loss on impairment of assets                         4,297,128                  -                  -             4,297,128
                                                 ------------------  -----------------  -----------------  --------------------
          Total operating expenses                      20,867,421         27,891,261                               80,415,307
                                                                                              17,797,725
                                                 ------------------  -----------------  -----------------  --------------------

Loss from operations                                  (20,867,421)       (27,891,261)       (17,747,725)          (79,864,123)

Interest income                                            504,034          2,157,724            747,202             3,562,003
Interest expense                                          (41,932)          (303,160)          (370,299)           (1,086,990)
Other income (loss)                                      (433,933)          (108,971)           (47,216)             (590,120)
                                                 ------------------  -----------------  -----------------  --------------------
    Total other income, net                                 28,169          1,745,593            329,687             1,884,893
                                                 ------------------  -----------------  -----------------  --------------------
Net loss                                              (20,839,252)       (26,145,668)       (17,418,038)          (77,979,230)

Preferred stock dividends                                        -                  -       (35,796,675)          (36,825,680)
Accretion of convertible preferred stock                         -                  -           (64,435)             (113,014)
                                                 ------------------  -----------------  -----------------  --------------------
Loss to common shareholders                         $ (20,839,252)     $ (26,145,668)     $ (53,279,148)       $ (114,917,924)
                                                 ==================  =================  =================  ====================
Loss per share, basic and diluted                          $(0.49)           $ (0.61)          $ (10.77)
                                                 ==================  =================  =================
Average shares outstanding, basic                       42,797,072
                                                                           42,550,502          4,946,411
                                                 ==================  =================  =================
</TABLE>
                                See notes to consolidated financial statements.

<PAGE>

                     BEACON POWER CORPORATION AND SUBSIDIARY
                          (A Development Stage Company)
          Consolidated Statements of Stockholders' Equity (Deficiency)
<TABLE>
<CAPTION>
<S>                                      <C>               <C>        <C>          <C>       <C>          <C>         <C>

                                                    Class A                  Class C
                                                   Preferred Stock             Preferred                                Deferred
                                                                              Stock                  Common Stock      Consulting
                                             Shares        Amount      Shares    Amount        Shares       Amount      Expense
                                         -----------------------------------------------------------------------------------------

BALANCE AT MAY 8, 1997 (DATE OF
INCEPTION)                                          -          $     -      -     $     -                -    $     -   $       -

Issuance of Founder's Shares                        -                -      -           -        6,750,000     67,500           -
Issuance of Class A preferred stock         1,390,000        5,662,500      -           -                -          -    (275,000)
Recapitalization                            3,373,313           67,466                  -       (6,746,626)   (67,466)          -
Rounding for fractional shares                      -                -      -           -               (2)         -           -
Issuance of Class C preferred and
 common stock                                       -                -      6      29,866           13,476        134           -
Deferred Consulting                                 -                -      -           -                -          -     175,000
Repayment of subscription receivable                -                -      -           -                -          -           -
Issuance of Series A preferred stock
 for services and interest on loans             4,594           11,485      -           -                -          -           -
Dividend on Class D preferred stock                 -                -      -           -                -          -           -
Repayment of subscription receivable                -                -      -           -                -          -           -
Accretion of redeemable preferred stock
 to redemption value                                -                -      -           -                -          -           -
Deferred Stock Compensation                         -                -      -           -                -          -           -
Amortization of Deferred Stock
 Compensation                                       -                -      -           -                -          -           -
Issuance of warrants for Class D shares             -                -      -           -                -          -           -
Issuance of warrants for bridge loans               -                -      -           -                -          -           -
Net loss                                            -                -      -           -                -          -           -
                                         -----------------------------------------------------------------------------------------
Balance, December 31, 1999                  4,767,907        5,741,451      6      29,866           16,848        168    (100,000)

Dividends on redeemable convertible
 preferred stock                                    -                -      -           -                -          -           -
Issuance of warrants                                -                -      -           -                -          -           -
Deferred stock compensation                         -                -      -           -                -          -           -
Amortization of deferred stock compensation         -                -      -           -                -          -           -
Accretion of redeemable preferred stock
  to redemption value                               -                -      -           -                -          -           -
Proceeds from stock offering                        -                -      -           -        9,200,000     92,000           -
Conversion of Class A preferred stock      (4,767,907)      (5,741,451)     -           -        9,535,814     95,358           -
Conversion of Class C preferred stock               -                -     (6)    (29,866)              12          -           -
Conversion of redeemable convertible
 preferred stock                                    -                -      -           -       19,823,704    198,237           -
Deferred consulting                                 -                -      -           -                -          -     598,284
Common stock issuance for consulting                -                -      -           -          134,464      1,345    (498,284)
Payment of accrued dividend                         -                -      -           -          859,330      8,593           -
Cashless warrant exercise                           -                -      -           -        1,982,876     19,829           -
Exercise of stock options                           -                -      -           -          480,266      4,803           -
Net loss                                            -                -      -           -                -          -           -
                                         -----------------------------------------------------------------------------------------
Balance, December 31, 2000                          -                -       -          -       42,033,314    420,333           -

Issuance of stock options                           -                -      -           -                -          -           -
Deferred stock compensation                         -                -      -           -                -          -           -
Amortization of deferred stock
 compensation                                       -                -      -           -                -          -           -
Common stock issued through Employee                -                -      -           -                -          -           -
Stock Purchase Plan                                 -                -      -           -           54,956        550           -
Common stock issuance for consulting                -                -      -           -                -          -           -
Change in option terms for severed
 employees                                          -                -      -           -                -          -           -
Exercise of stock options                           -                -      -           -          682,586      6,826           -
Net loss                                            -                -      -           -                -          -           -
                                        ------------------------------------------------------------------------------------------
Balance, December 31, 2001                          -                -      -           -      42,770,856     427,709           -

Deferred stock compensation                         -                -      -           -                -          -           -
Amortization of deferred stock
 compensation                                       -                -      -           -                -          -           -
Common stock issued through Employee
 Stock Purchase Plan                                -                -      -           -           42,041        420           -
Change in option terms for severed
 employees                                          -                -      -           -                -          -           -
Purchase of  treasury stock                         -                -      -           -                -          -           -
Net loss                                            -                -      -           -                -          -           -
                                         -----------------------------------------------------------------------------------------
Balance, December 31, 2002                          -         $      -       -     $    -       42,812,897  $ 428,129   $       -
                                         =========================================================================================
</TABLE>
                 See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
<S>                                      <C>       <C>        <C>          <C>         <C>          <C>          <C>         <C>
                                                                                                                         Total
                                         Deferred     Additional     Stock                                            Stockholders'
                                           Stock       Paid-in    Subscription Accumulated       Treasury Stock       (Deficiency)
                                       Compensation    Capital     Receivable    Deficit      Shares       Amount        Equity
                                       --------------------------------------------------------------------------------------------

BALANCE AT MAY 8, 1997 (DATE OF
INCEPTION)                                 $     -       $     -      $     -  $        -            -       $     -      $     -

Issuance of Founder's Shares                     -             -            -     (65,000)           -             -            -
Issuance of Class A preferred stock              -             -   (5,000,000)          -            -             -      387,500
Recapitalization                                 -             -            -           -            -             -            -
Rounding for fractional shares                   -             -            -           -            -             -            -
Issuance of Class C preferred and
 common stock                                    -             -            -           -            -             -       30,000
Deferred Consulting                              -             -            -           -            -             -      175,000
Repayment of subscription receivable             -             -    2,992,492           -            -             -    2,992,492
Issuance of Series A preferred stock
 for services and interest on loans              -             -            -           -            -             -       11,485
Dividend on Class D preferred stock              -             -            -    (749,005)           -             -     (749,005)
Repayment of subscription receivable             -             -    2,007,508           -            -             -    2,007,508
Accretion of redeemable preferred
 stock to redemption value                       -             -            -     (48,579)           -             -      (48,579)
Deferred Stock Compensation               (65,318)        65,318            -           -            -             -            -
Amortization of Deferred Stock
 Compensation                                8,670             -            -           -            -             -        8,670
Issuance of warrants for Class D shares          -       280,000            -    (280,000)           -             -            -
Issuance of warrants for bridge loans            -       170,000            -           -            -             -      170,000
Net loss                                         -             -            - (13,576,272)           -             -  (13,576,272)
                                       --------------------------------------------------------------------------------------------
Balance, December 31, 1999                 (56,648)      515,318            - (14,721,356)           -             -   (8,591,201)

Dividends on redeemable convertible
 preferred stock                                 -             -            -  (1,496,675)           -             -   (1,496,675)
Issuance of warrants                             -    36,070,366            - (34,300,000)           -             -    1,770,366
Deferred stock compensation revaluation (2,944,649)    2,944,649            -           -            -             -            -
Amortization of deferred stock
 compensation                              930,638             -            -           -            -             -      930,638
Accretion of redeemable preferred
 stock to redemption value                       -             -            -     (64,435)           -             -      (64,435)
Proceeds from stock offering, net of
 expenses                                        -    49,249,537            -           -            -             -   49,341,537
Conversion of Class A preferred stock            -     5,646,093            -           -            -             -            -
Conversion of Class C preferred stock            -        29,866            -           -            -             -            -
Conversion of redeemable convertible
 preferred stock                                 -    36,496,431            -           -            -             -   36,694,668
Deferred consulting                              -             -            -           -            -             -      598,284
Common stock issuance for consulting             -       496,939            -           -            -             -            -
Payment of accrued dividend                      -     1,077,714            -           -            -             -    1,086,307
Cashless warrant exercise                        -       (19,829)           -           -            -             -            -
Exercise of stock options                        -       451,674            -           -            -             -      456,477
Net loss                                         -             -            - (17,418,038)           -             -  (17,418,038)
                                       --------------------------------------------------------------------------------------------
Balance, December 31, 2000              (2,070,659)  132,958,758            - (68,000,504)           -             -   63,307,928

Issuance of stock options                        -       303,160            -           -            -             -      303,160
Deferred stock compensation revaluation  1,566,906    (1,566,906)           -           -            -             -            -
Amortization of deferred stock
 compensation                              340,081             -            -           -            -             -      340,081
Common stock issued through Employee
 Stock Purchase Plan                             -       109,394            -           -            -             -      109,944
Common stock issuance for consulting       (47,892)       47,892            -           -            -             -            -
Change in option terms for severed
 employees                                       -       346,591            -           -            -             -      346,591
Exercise of stock options                        -       712,367            -           -            -             -      719,193
Net loss                                         -             -            - (26,145,668)           -             -  (26,145,668)
                                       --------------------------------------------------------------------------------------------
Balance, December 31, 2001                (211,564)  132,911,256            - (94,146,172)           -             -   38,981,229

Deferred stock compensation revaluation    173,616      (173,616)           -           -            -             -            -
Amortization of deferred stock
 compensation                               19,535             -            -           -            -             -       19,535
Common stock issued through Employee
 Stock Purchase Plan                             -        12,885            -           -            -             -       13,305
Purchase of treasury stock                       -             -            -           -      132,000       (99,660)     (99,660)
Net loss                                         -             -            - (20,839,252)           -             -  (20,839,252)
                                       --------------------------------------------------------------------------------------------
Balance, December 31, 2002               $ (18,413) $132,750,525      $     -$(114,985,424)    132,000     $ (99,660) $18,075,157
                                       ============================================================================================

</TABLE>

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

                                                                                                                 Cumulative from
                                                                                                                   May 8, 1997
                                                                                                               (date of inception)
                                                                           Year ended December 31,               through December
                                                                    2002            2001           2000              31, 2002
                                                              ----------------------------------------------------------------------
Cash flows from operating activities:
    Net loss                                                    $ (20,839,252)  $ (26,145,668) $ (17,418,038)       $   (77,979,230)
    Adjustments to reconcile net loss to net cash used in
    operating activities:
         Depreciation and amortization                              1,644,230       1,323,958        401,013              3,666,003
         Loss on sale of fixed assets                                  14,481         108,971         47,416                170,868
         Impairment of assets                                       4,297,128               -              -              4,297,128
         Restructuring charge net of severance paid                 1,749,738               -              -              1,749,738
         Reserve for officers note                                    428,398               -              -                428,398
         Interest expense relating to issuance of warrants                  -               -        201,000                371,000
         Non-cash charge for change in option terms                         -         346,591              -                346,591
         Non-cash charge for settlement of lawsuit                          -         303,160              -                303,160
         Amortization of deferred consulting expense, net                   -               -        598,284              1,160,784
         Amortization of deferred stock compensation                   19,534         340,081        930,638              1,290,253
         Warrants issued for consulting services                            -               -      1,569,366              1,569,366
         Accrued loss on sales commitments                                  -               -         50,974                375,974
         Services and interest expense paid in preferred stock              -               -              -                 11,485

    Changes in operating assets and liabilities:
         Inventory                                                          -         207,613      (207,613)                      -
         Prepaid expenses and other current assets                 (1,172,448)       (273,928)      (841,150)            (2,303,513)
         Accounts payable                                            (834,139)       (816,865)      1,315,184                 77,326
         Accrued compensation and benefits                           (494,507)         444,044        167,880                226,623
         Accrued interest                                                   -               -        111,420                275,560
         Due to related party                                         (35,532)        (17,193)         52,725                      -
         Accrued loss on sales commitments                                  -               -      (375,974)              (375,974)
         Other accrued expenses and current liabilities              (364,219)        (40,570)        938,449                585,551
                                                               ---------------------------------------------------------------------
         Net cash used in operating activities                    (15,586,588)    (24,219,807)   (12,458,426)           (63,752,909)

Cash flows from investing activities:
    Decrease/(Increase) in other assets                                     -         664,986      (683,054)              (175,218)
    Purchases of property and equipment                              (466,081)     (4,320,064)    (3,019,266)            (8,413,715)
                                                               ---------------------------------------------------------------------
         Net cash used in investing activities                       (466,081)     (3,655,078)    (3,702,320)            (8,588,933)

Cash flows from financing activities:
    Initial public stock offering, net of expenses                          -               -     49,341,537             49,341,537
    Payment of dividends                                                    -     (1,159,373)              -            (1,159,373)
    Shares issued under employee stock purchase plan                   13,305         109,944              -                123,249
    Exercise of employee stock options                                      -         719,193        456,477              1,175,670
    Issuance of preferred stock                                             -               -     28,351,791             32,868,028
    Repayment of subscription receivable                                    -               -              -              5,000,000
    Proceeds from capital leases                                            -         495,851              -                495,851
    Repayment of capital leases                                      (340,455)       (186,247)      (126,307)              (831,354)
    Proceeds from notes payable issued to investors                         -               -        400,000              3,550,000
                                                               ---------------------------------------------------------------------
         Net cash (used) provided by financing activities            (327,150)        (20,632)     78,423,498             90,563,608

Increase (decrease) in cash and cash equivalents                  (16,379,819)    (27,895,517)     62,262,752             18,221,766

Cash and cash equivalents, beginning of period                      34,601,585      62,497,102        234,350                      -
                                                               ---------------------------------------------------------------------
Cash and cash equivalents, end of period                           $18,221,766     $34,601,585    $62,497,102         $   18,221,766
                                                               =====================================================================

Supplemental disclosure of non-cash transactions:
    Cash paid for interest                                            $48,926         $34,000       $370,000              $ 481,426
                                                              =====================================================================
    Cash paid for taxes                                               $17,000         $ 1,600       $  1,800               $ 25,800
                                                              =====================================================================
    Assets acquired through capital lease                              $    -          $    -       $281,034              $ 535,445
                                                              =====================================================================

</TABLE>
                                See notes to consolidated financial statements.

<PAGE>



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

1.  Nature of Business and Operations

Nature of Business.  Beacon  Power  Corporation  (the  "Company" or "Beacon") (a
development  stage  company) was  incorporated  on May 8, 1997 as a wholly owned
subsidiary of SatCon  Technology  Corporation  ("SatCon").  Since its inception,
Beacon has been engaged in the  development of flywheel  devices for storing and
transmitting  kinetic  energy.  Because  the  Company  has not yet  generated  a
significant amount of revenue from its principal operations, it is accounted for
as a development stage company under Statement of Financial Accounting Standards
No. 7. The Company has a single  operating  segment,  manufacturing  alternative
power  sources.  The  Company's  organizational  structure  has no  divisions or
subsidiaries dictated by product lines, geography or customer type.

Operations.  The Company has  experienced net losses since its inception and, as
of December 31, 2002, had an accumulated  deficit of approximately $115 million.
The  Company  is  currently  facing  the  challenge  of  identifying   potential
applications  and the  ongoing  development  and  refinement  of its  commercial
products.   This  ongoing  research  and  development  is  expected  to  require
significant  outlays  of  capital.  As  discussed  in Note 7,  during the fourth
quarter of 2000, the Company  completed an initial public offering of its common
stock  and  raised   approximately  $49.3  million  net  of  offering  expenses.
Management  believes that this funding is sufficient to continue its  operations
as a going  concern  through  at least  June 30,  2004.  The  Company  has taken
significant   actions  over  the  last  eighteen   months  to  reduce  its  cash
expenditures for product development,  infrastructure and production  readiness.
Headcount, development spending and capital expenditures have been significantly
reduced.  The Company has  focused its  activity on market  analysis in terms of
size of markets,  competitive  aspects and  advantages  that our products  could
provide.  Preliminary  design and development of potential  products for markets
under  consideration  continue.  No  expenditures  for prototype  development or
production  capabilities  will be made until the  specific  markets to be served
have been defined.  In the event that  development  or  production  capabilities
costs are higher  than  anticipated  the  Company  may need to raise  additional
funding earlier than expected.

2.  Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Accounting Principles.  The accompanying  consolidated financial statements have
been  prepared  using  accounting  principles  generally  accepted in the United
States of America.

Consolidation.  The accompanying  consolidated  financial statements include the
accounts of the Company and its subsidiary Beacon Power Securities  Corporation.
All significant  intercompany  accounts and transactions have been eliminated in
consolidation.

Recapitalization.    The   accompanying    financial    statements   reflect   a
recapitalization of the Company in 1997 when one shareholder exchanged shares of
common stock for Class A preferred stock.

Stock Split. The accompanying  financial  statements  reflect a 2-for-1 split of
the  Company's   common  stock,   which  occurred   immediately   prior  to  the
effectiveness of the Company's initial public stock offering.  All share and per
share information herein has been retroactively restated to reflect this split.

Summary of Significant Accounting Policies

Use of  Estimates.  The  preparation  of  consolidated  financial  statements in
accordance with accounting principles generally accepted in the United States of
America,  requires  management to make estimates and assumptions that affect the
reported  amounts of assets and liabilities and disclosure of contingent  assets
and  liabilities at the date of the  consolidated  financial  statements and the
reported  amounts of revenues and expenses during the reporting  period.  Actual
results could differ from those estimates.

Cash and Cash Equivalents. Cash and cash equivalents include demand deposits and
highly liquid  investments  with maturity of three months or less when acquired.
Cash equivalents are stated at cost, which approximates market value.

Employee Advances.  During 2001, the Company advanced  approximately $785,000 to
three officers of the Company.  These advances are interest  bearing and secured
by the  officers'  holdings of Beacon  Power  Corporation  common stock and were
provided  to the  officers to allow them to  exercise  stock  options and in one
case,  to pay the related  taxes.  Through  December 31,  2002,  the Company has
collected  approximately  $311,000 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  $68,000 at December  31, 2002 is included in
prepaid and other assets in the accompanying consolidated balance sheet.

Property  and   Equipment.   Property   and   equipment,   including   leasehold
improvements,  are stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets.

Other Assets.  Other assets  consist of unamortized  legal  expenses  related to
patents and various deposits on long-term assets and on the Company's  operating
facility.

Loss on Sales Commitments. When the Company has sales commitments that are firm,
have  fixed-prices  and the direct costs to manufacture  products covered by the
Company's  firm sales  commitments  are in excess of the fixed  selling  prices,
revenue and cost of revenue on such sales commitments are recorded as deliveries
are made. Direct costs consist of materials and direct labor costs. These excess
costs have been  estimated  and  accrued as losses on sales  commitments  in the
period in which the sales commitment is made.  Estimates of costs to manufacture
products are reviewed and revised  periodically  and changes in estimated losses
from such revisions are recorded in the accounting period in which the revisions
are made. At December 31, 2002,  no estimated  losses on sales  commitments  are
anticipated.

Long-Lived  Assets.  In  accordance  with  Statement  of  Financial   Accounting
Standards  No. 144  Accounting  for the  Impairment  or Disposal  of  Long-Lived
Assets,  long-lived  assets to be held and used by the Company  are  reviewed to
determine  whether  any  events or changes in  circumstances  indicate  that the
carrying value of the asset may not be  recoverable.  The conditions  considered
include whether or not the asset is in service, has become obsolete,  or whether
external  market  circumstances  indicate  that the  carrying  amount may not be
recoverable.  The  Company  recognizes  a loss for the  difference  between  the
estimated fair value of the asset and the carrying amount. The fair value of the
asset is measured using either available  market prices or estimated  discounted
cash flows. The Company's analyses indicate that there has been an impairment of
long-lived assets and recognized  restructuring and asset impairment  charges in
2002.

Restructuring and asset impairment 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.

The restructuring reserves are as follows:

<TABLE>
<CAPTION>
<S>                                        <C>                       <C>                    <C>
                                            Employee severance          Facility related           Asset impairment
Beginning balance                                    $       -               $         -                $         -
Charges for the period                                 323,656                 1,835,624                  4,297,128
Other                                                        -                         -                     (7,922)
Payments                                              (323,656)                  (85,886)                         -
                                         ----------------------  ------------------------  -------------------------
Ending balance at December 31, 2002                  $       -               $ 1,749,738                $ 4,289,206
                                         ======================  ========================  =========================
</TABLE>

Revenue  Recognition.  Revenue  relates to work  performed  under  research  and
development  contracts and delivery of units.  Revenue is recognized as services
are performed or when products are shipped and all related costs are estimable.

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  current  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.


                                Year ended          Year ended      Year ended
                                December 31        December 31     December 31
                                   2002                2001            2000
                             --------------------------------------------------

Net loss to common shareholders
 as reported                     $ (20,839,251)  $ (26,145,668)  $ (53,279,148)
Net loss--pro forma                (23,837,863)    (28,753,668)    (54,175,173)
Loss per share--as reported          $   (0.49)      $   (0.61)      $  (10.77)
Loss per share--pro forma            $   (0.56)      $   (0.68)      $  (10.95)



The fair  value of the  options  on their  grant  date was  measured  using  the
Black-Scholes   option-pricing   model.  Key  assumptions  used  to  apply  this
option-pricing model are as follows:

                                       2002             2001              2000
                          -----------------------------------------------------

Risk-free interest rate        2.5% - 3.6%     3.0% - 6.25%      6.25% and 6.5%
Expected life of option          1-3 years        1-3 years          3 years
Expected dividend payment rate,
 as a percentage of the stock price
 on the date of grant                 0%               0%                 0%
Assumed volatility               130% - 137%      100% - 135%           100%


The  option-pricing  model used was  designed to value  readily  tradable  stock
options with  relatively  short lives.  However,  management  believes  that the
assumptions  used to value the options and the model  applied yield a reasonable
estimate of the fair value of the grants made under the circumstances  (see also
Note 13).

Income Taxes. Deferred income tax assets and liabilities are determined based on
the  differences  between the  financial  reporting  and tax bases of assets and
liabilities  and tax loss and credit carry forwards using the currently  enacted
tax rates and laws. A valuation  allowance is provided to the extent realization
of deferred tax assets is not considered more likely than not.

Research  and  Development.  Research  and  development  costs are  expensed  as
incurred.

Financial  Instruments.  The  carrying  amount  of cash  and  cash  equivalents,
accounts payable, accrued expenses, notes payable to investors and capital lease
obligations approximate their fair values.

Concentration of Credit Risk. Financial instruments that potentially subject the
Company to significant  concentration  of credit risk consist  primarily of cash
and  cash  equivalents.  Substantially  all  of  the  Company's  cash  and  cash
equivalents are managed by one financial  institution.  At December 31, 2002 and
2001,  the Company had cash  balances  at a financial  institution  in excess of
federally  insured  limits.  However,  the Company  does not believe  that it is
subject to unusual  credit risk beyond the normal  credit risk  associated  with
commercial banking relationships.

Comprehensive  Loss.  Comprehensive loss is the same as net loss for all periods
presented.


Loss Per Share - Basic and Diluted. Basic loss per share has been computed using
the  weighted-average  number of shares of common stock outstanding  during each
period.  Diluted  loss per share was  computed in the same  manner.  Potentially
dilutive  securities  have been excluded from the computation as their effect is
antidilutive.


3.  Property and Equipment

Property and equipment consisted of the following at December 31:

                                       Estimated
                                           Useful
                                          Lives          2002            2001
                                ----------------------------------------------
Machinery and equipment             5 years         $1,998,631    $ 1,996,711
Furniture and fixtures              7 years            717,293        733,018
Service vehicles                    5 years             63,792         63,792
Office equipment                    3 years          1,914,195      2,030,653
Leasehold improvements            Lease term         2,072,577      2,072,577
Equipment under capital lease
 obligations                      Lease term         1,081,726      1,081,726
                                            ----------------------------------
        Total                                        7,848,214      7,978,477
Less accumulated depreciation
 and amortization                                   (2,996,079)    (1,789,970)
                                            ----------------------------------
        Property and equipment, net                  4,852,135)     6,188,507
Less Impairment reserve                             (4,289,206)             -
                                               -------------------------------
                                                     $ 562,929    $ 6,188,507
                                               ===============================


4.  Capital Lease Obligations

The Company leases  equipment under capital lease  agreements  expiring  through
September 2003. Future  obligations under such capital leases as of December 31,
2002 are as follows:

2003                                                         $ 206,662

Less amount representing interest                              (6,621)
                                                        ---------------

Current portion of capital lease obligations                 $ 200,041
                                                        ===============


5.  Commitments

The Company leases office and light manufacturing space under an operating lease
through  September  30,  2007 and has an  operating  lease  for  certain  office
equipment  which expired  October  2001.  At December 31, 2002,  the Company has
provided  the  lessor  with an  irrevocable  letter of  credit in the  amount of
$355,232. This letter of credit is secured by a cash deposit.

Future minimum annual lease payments under non-cancelable operating leases as of
December 31, 2002 are as follows:

                   2003               $490,675
                   2004                490,675
                   2005                500,359
                   2006                529,413
                   2007               $397,059


Total rent expense was $436,083,  $567,239 and $473,576,  during 2002,  2001 and
2000, respectively.

6.  Preferred Stock

As a result of the initial public offering of the Company's common stock and the
conversion of all outstanding  shares of all classes of the preferred stock, the
Company  amended its charter and cancelled  all its classes of preferred  stock.
The Company then added a new class of preferred  stock that can be issued in the
future by filing a Certificate of Designations with the specific terms as set by
its Board of  Directors.  At December  31,  2002 and 2001,  there are 10 million
shares of preferred stock authorized with none outstanding.

7.  Common Stock

Initial  Public  Offering.  During the fourth  quarter of 2000, the Company sold
9,200,000  shares of its  common  stock,  inclusive  of the  underwriters'  over
allotment,  at an initial public offering price of $6 per share. Net proceeds to
the  Company  as a result  of the stock  offering  totaled  approximately  $49.3
million   reflecting   gross  proceeds  of  $55.2  million  net  of  underwriter
commissions of approximately  $3.9 million and other estimated offering costs of
approximately $2.0 million.

Shareholder  rights plan. In September  2002,  the Company's  Board of Directors
approved a Shareholder  Rights Plan. Under the plan, each holder of common stock
on October 7, 2002  automatically  received a distribution of one Right for each
share of common stock held.  Each Right entitles the holder to purchase  1/100th
of a share of our newly issued  preferred stock for $22.50 in the event that any
person not approved by the board of directors acquires more than 15% (35% 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 any  rights  held by the  acquiring  person  are not
exercisable and become void).

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

8.  Redeemable Convertible Preferred Stock and Stock Warrants

Class D Redeemable Convertible Preferred Stock and Class D Stock Warrants. Prior
to its initial public offering, the Company's capital structure included Class D
redeemable convertible preferred stock ("Class D Stock"). All outstanding shares
of the Class D Stock plus accrued dividends were either converted into shares of
common stock during the initial public offering or were paid in cash in February
2001.  After the initial public  offering,  the Company  amended its charter and
cancelled all its Class D Stock.

Under the conditions of the Class D Stock offering,  the Company issued warrants
in October 1999 to three investors to purchase 772,500 shares of common stock at
$1.67,  772,500  shares of common stock at $2.25,  and 772,500  shares of common
stock at $3.00 (the "October 1999  warrants").  The estimated  fair value of the
warrants  at the date of their  issuance  was  $280,000.  Upon  issuance  of the
warrants,  this amount was  recorded as a dividend to the holders of the Class D
Stock and credited to additional paid-in-capital. These warrants expire December
31, 2004.

Additional  warrants were issued under the Class D Stock agreement  during April
2000 to three investors to purchase  712,500 shares of common stock at $1.67 per
share,  712,500 shares of common stock at $2.25 per share, and 712,500 shares of
common stock at $3.00 per share.  Upon issuance of these  warrants,  the Company
recorded a dividend of  approximately  $1,300,000  for the fair market  value of
these warrants based on the Black-Scholes  option pricing model.  These warrants
expire December 31, 2004.

In December 2000, an investor exercised a portion of its warrants, in a cashless
transaction,  to purchase 300,000 shares of the Company's common stock at $1.67,
300,000 shares of the Company's  common stock at $2.25 and 300,000 shares of the
Company's common stock at $3.00 per share. Net shares issued totaled 608,843.

Class E Redeemable Convertible Preferred Stock and Class E Stock Warrants. Prior
to its initial public offering, the Company's capital structure included Class E
redeemable convertible preferred stock ("Class E Stock"). All outstanding shares
of the Class E Stock plus accrued dividends were either converted into shares of
common stock during the initial public offering or were paid in cash in February
2001.  After the initial public  offering,  the Company  amended its charter and
cancelled all its Class E Stock.

In conjunction with the issuance of the Senior Notes in August 1999, the Company
issued warrants to four investors to purchase 315,000 shares of Class E Stock at
an exercise price of $2.50 per share (the "August 1999 warrants"). The estimated
fair value of these warrants at the date of grant was $170,000.  This amount was
recorded as a discount on the Senior  Notes and was charged to interest  expense
in 1999, as the Senior Notes were demand notes. These warrants were to expire on
August 2, 2004.

In conjunction with the Class E Stock  conversion,  warrants to purchase 315,000
shares,  issued in  conjunction  with the issuance of the Senior Notes in August
1999, were cancelled. In exchange,  warrants to purchase 306,535 shares of Class
E Stock at $2.50 per share were issued. These warrants expire April 7, 2005. The
estimated fair market value of these warrants was approximately $344,000.  Since
these warrants replaced the August 2, 1999 warrants, the amount allocated to the
August 1999 warrants  have been  reallocated  to Class E Stock  Warrants and the
remaining  $174,000 was charged to interest  expense in the year ended  December
31, 2000. As a result of the initial public stock offering by the Company in the
fourth quarter of 2000, the holders of the warrants are now entitled to purchase
613,070 shares of the Company's common stock instead of the Class E Stock.

In December  2000,  an investor  exercised  its  102,398 of its  warrants,  in a
cashless transaction, to purchase 84,433 shares of the Company's common stock.

Class F Redeemable Convertible Preferred Stock and Class F Stock Warrants. Prior
to its initial public offering, the Company's capital structure included Class F
redeemable convertible preferred stock ("Class F Stock"). All outstanding shares
of the Class F Stock plus accrued dividends were either converted into shares of
common stock during the initial public offering or were paid in cash in February
2001.  After the initial public  offering,  the Company  amended its charter and
cancelled all its Class F Stock.

In  conjunction  with the  issuance  of the Class F Stock,  the  Company  issued
warrants to seven investors to purchase  6,333,333 shares of its common stock at
an exercise price of $2.25. The estimated fair value of the warrants at the date
of their issuance was $33,000,000. This amount was recorded as a dividend to the
holders of the Class F Stock and credited to additional  paid-in-capital  during
2000. These warrants expire on May 23, 2005. During December 2000, two investors
exercised 1,884,800 of their warrants,  in a cashless  transaction,  to purchase
1,289,600 shares of the Company's common stock.

Consultant  Warrants.  The Company issued warrants to two  consultants  that are
exercisable for an aggregate of 70,000 shares of its common stock at an exercise
price of $6.00 per share. The holder of one of these warrants to purchase 50,000
shares of common stock may exercise its warrant at any time prior to January 31,
2002.  None of these warrants were  exercised  prior to January 31, 2002 and the
warrants have expired. The holder of the other warrant to purchase 20,000 shares
of common  stock may  exercise  its warrant at any time prior to August 2, 2005.
These  warrants  were fully vested upon the issuance and the Company  recorded a
charge to consulting expense of $213,861.

On October 24, 2000, the Company  issued  240,000  warrants to an investor at an
exercise  price of  $2.10  per  share in  conjunction  with an  agreement  by an
affiliate of that investor to provide the Company with technical expertise.  One
half of the warrants vest  immediately  and the  remainder  vest as services are
utilized.  During the fourth quarter of 2000,  the company  recorded a charge to
consulting  expense for  $1,355,505  to  recognize  the fair market value of the
vested  warrants.  The Company has  deferred  the  remaining  warrants  and will
revalue the amount and record additional expense as necessary in future quarters
as the remaining services are provided.  Deferred compensation relating to these
warrants  was  approximately  $150,000 and  $1,100,000  at December 31, 2001 and
2000.  The  agreement  terminates  and any  unvested  options are  forfeited  on
November 1, 2003.

All warrants  were valued on the date of grant using the  Black-Scholes  (common
stock) or the Binary Option Pricing Model  (preferred  stock).  The  assumptions
used to value these warrants were as follows:
<TABLE>
<CAPTION>
<S>                                                 <C>            <C>      <C>        <C>         <C>

                                                        April                  August     October
                                                         2000        2000       1999        1999        1997
                                                       Warrants    Warrants   Warrants    Warrants    Warrants
                                                     ------------------------------------------------------------

Risk-free interest rate                                 6.15%        6.5%       5.62%      5.86%       6.25%
Expected life of warrant                              12 months    Various    30 months  27 months   24 months
Expected dividend payment rate, as a percentage
of the stock price on the date of grant                   0%          0%         0%          0%          0%
Assumed volatility                                       73%         100%        60%        60%         48%

</TABLE>

9.  Stock Options

The Company's option plans provide for the granting of stock options to purchase
up to 9,000,000 shares of the Company's common stock.  Options may be granted to
employees,  officers,  directors and consultants of the Company with terms of up
to 10 years.  Under the  terms of the  option  plans,  incentive  stock  options
("ISOs")  are to be granted at fair market value of the  Company's  stock at the
date of grant,  and  nonqualified  stock options ("NSOs") are to be granted at a
price determined by the Board of Directors. ISOs and NSOs generally vest ratably
over 36 months from the grant date and have contractual lives of up to 10 years.

Stock option activity since inception is as follows:

                                                      Weighted-    Weighted-
                                                       Average      Average
                                           Number of   Exercise      Fair
                                            Shares     Price         Value
                                       ----------------------------------------


Outstanding at inception                            -
    Granted                                 2,314,000   $ 0.89        0.36
    Canceled, forfeited or expired           (305,688)
                                       ----------------------------------------
Outstanding, December 31, 1999              2,008,312     0.89
    Granted                                 3,443,688     3.15        1.78
    Exercised                                (480,266)    0.89
    Canceled, forfeited or expired           (238,694)    2.37
                                       ----------------------------------------
Outstanding, December 31, 2000              4,733,040     2.50
    Granted                                 2,361,007     2.94        1.93
    Exercised                                (682,586)    1.05
    Canceled, forfeited or expired         (1,561,560)    4.07
                                       ----------------------------------------
Outstanding, December 31, 2001              4,849,901     2.37
    Granted                                 3,050,628     1.16         .38
    Exercised                                       -        -
     anceled, forfeited or expired         (2,513,186)    2.25
                                       ----------------------------------------
Outstanding, December 31, 2002              5,387,343   $ 1.78
                                       ===========================

The following table summarizes  information  about stock options  outstanding at
December 31, 2002:

                                                                 Vested
                             Weighted-             ----------------------------
                              Average    Weighted-                    Weighted-
                   Number    Remaining    Average                      Average
                 of Options Contractual   Exercise      Number         Exercise
Exercise Price Outstanding     Life       Price      of Options        Price
-------------    -----------  ----------   ---------  -----------  ------------
$0.32 - $0.89      3,307,497        8.76       $0.80    2,247,513      $0.82
$1.00 - $2.50      1,005,979        8.47       $2.18      823,332      $2.23
$3.00 - $4.10        737,335        8.55       $3.33      707,335      $3.33
$5.10 - $6.10        238,893        8.39       $5.58      192,734      $5.62
$6.90 - $7.22         54,776        8.81       $7.04       44,777      $7.03
$9.25 - $9.31         42,863        9.14       $9.26       41,197      $9.26


Included in the above schedules are grants of 45,000, 50,000 and 130,000 options
made to non-employee consultants in 2002, 2001 and 2000, respectively.

10.  Employee Stock Purchase Plan

On October 15, 2000 the Company  adopted an Employee  Stock  Purchase  Plan (the
"Plan")  under  which  eligible  employees  are able to  purchase  shares of the
Company's  Common  Stock at 85% of the market  value at the date of the start of
each six month  option  period or the end of such  period,  whichever  is lower.
Under the provisions of the Plan up to 1,000,000  shares are authorized.  Shares
purchased   under  the  Plan  in  2002  and  2001  totaled  42,041  and  54,956,
respectively  and the  weighted  average  grant  date fair  value of the  shares
purchased  was $0.28 in 2002 and $2.00 in 2001. No shares were issued under this
Plan during the year ended December 31, 2000. There are 931,301 shares available
under the Plan at December 31, 2002.

11.  Income Taxes

The  components  of the provision  (benefit)  for income taxes  consisted of the
following:
<TABLE>
<CAPTION>
<S>                                    <C>            <C>             <C>            <C>
                                                                                        Cumulative from
                                                                                          May 8, 1997
                                                                                           (Date of
                                         Year ended      Year ended     Year ended       Inception) to
                                        December 31,    December 31,   December 31,      December 31,
                                            2002            2001            2000             2002
                                      --------------------------------------------------------------------

State - current                               $      -      $   17,156        $      -         $   17,156
Federal--deferred                           (7,377,177)     (9,919,839)     (5,115,236)       (27,040,235)
State--deferred                               (824,557)     (1,679,472)       (993,055)        (4,313,787)
Increase in valuation allowance              8,201,734      11,599,311       6,108,291         31,354,022
                                      --------------------------------------------------------------------

Provision for income taxes                     $     -       $  17,156        $     -          $   17,156
                                      ====================================================================

</TABLE>

A  reconciliation  of the statutory  federal rate to the effective  rate for all
periods is as follows:

         Statutory federal rate benefit                            (34) %
         State, net of federal effect                               (6)
         Valuation allowance provided                                40
                                                                -------

         Effective rate                                             --%
                                                                 ======


The components of the Company's deferred tax assets and liabilities consisted of
the following at December 31:

                                                     2002            2001
                                              ---------------------------------

Long-term assets:
    Net operating loss carry forwards              $ 26,081,296     $20,279,512
    Research and development credits                  2,214,815       2,208,080
    Restructuring reserves                            2,415,578               -
                                              ---------------------------------
    Other                                               642,334         664,696
                                              ---------------------------------

Net deferred tax assets before valuation allowance   31,354,022      23,152,288
Less valuation allowance                            (31,354,022)    (23,152,288)
                                                  -----------------------------

Net deferred tax assets                                 $     -         $     -
                                                  =============================

The valuation allowance increased by $8,201,734 in 2002 and $11,599,311 in 2001,
primarily due to the generation of net operating loss carry forwards and credits
for which realization is not reasonably assured.

The Company has available for future  periods net operating  loss carry forwards
for federal and state tax purposes of approximately $65,050,177 and $66,274,676,
respectively,  as of December  31, 2002.  In addition,  the Company has business
credits of approximately $1,621,423 and $593,392 for federal and state purposes,
respectively  as of December 31, 2002.  The net  operating  loss carry  forwards
begin to expire in 2012 for federal and 2002 for state tax purposes. The federal
research and  development  credits begin to expire in 2012.  The Company did not
pay any income taxes from inception to December 31, 2002.

Under the provisions of the Internal Revenue Code, certain  substantial  changes
in the Company's  ownership may have  limited,  or may limit in the future,  the
amount of net operating loss carry forwards which could be utilized  annually to
offset  future  taxable  income and income  tax  liabilities.  The amount of any
annual  limitation  is  determined  based upon the  Company's  value prior to an
ownership change.

12.  Benefit Plan

In 1998,  the Company  created a 401(k) Profit Sharing Plan (the "Plan") for its
full-time  employees.  Each  participant  in the Plan may elect to  contribute a
percentage of his or her annual  compensation  to the Plan on a pre-tax basis up
to the annual limit  established by the Internal  Revenue  Service.  The Company
matches  employee  contributions  at a rate  of 50%  up to the  first  6% of the
employee's  contributions.  The Company may also elect to make a  profit-sharing
contribution at the discretion of the Board of Directors. Employee contributions
are fully vested.  Company  matching and profit sharing  contributions  vest 20%
after two years of service  consisting of at least 1,000 hours per calendar year
and 20% annually thereafter.  Company contributions were $113,257,  $189,883 and
$102,085 during 2002, 2001 and 2000, respectively.

13.  Related Party Transactions

Strategic  Investment.  On March 24,  2003,  the Company  announced  that it had
committed  to invest  $1,000,000  in the Series A Preferred  Stock of  Evergreen
Solar, Inc., a public company which specializes in renewable energy sources,  in
order to develop a strategic  relationship with that company. Our investment was
part of a larger financing provided by several investors. We made our investment
on the same terms as the other investors in this financing,  except that we also
were permitted to purchase a three-year warrant for $100,000 that is exercisable
for  2,400,000  shares of  Evergreen's  common  stock.  This  warrant  makes our
investment  terms more  favorable  than those  received by the other  investors.
Evergreen's financing was a private placement of $29.475 million of its Series A
Preferred Stock and the above warrant. Perseus 2000, L.L.C., an affiliate of one
of the Company's stockholders,  Perseus Capital,  L.L.C., invested $3 million in
Evergreen's Series A Preferred Stock in this financing. Mr. Philip J. Deutch and
Mr.  Kenneth M. Socha,  members of the Board of Directors  of the  Company,  are
Managing  Director  and Senior  Managing  Director,  respectively,  of  Perseus,
L.L.C.,  and Mr. Deutch is one of four individuals  from the Evergreen  investor
group to be added to the Board of  Directors of  Evergreen  when the  investment
closes.

Employee Advances.  During 2001, the Company advanced  approximately $785,000 to
three officers of the Company.  These advances are interest  bearing and secured
by the  officers'  holdings of Beacon  Power  Corporation  common stock and were
provided  to the  officers to allow them to  exercise  stock  options and in one
case,  to pay the related  taxes.  Through  December 31,  2002,  the Company has
collected  approximately  $311,000 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 plus incremental interest 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  $68,000 at  December  31, 2002 is
included in prepaid and other assets in the  accompanying  consolidated  balance
sheet.

Consulting Agreements. The Company entered into consulting agreements with three
investors.   The  contracts  were  seven-year  agreements,   renewable  annually
thereafter,  for consulting services to be provided by the investors in exchange
for annual  issuances  of shares of the  Company's  Class A Stock.  Through 2000
$1,061,000 was recorded as consulting expense relating to these agreements,  and
399,464  shares  of  Class  A Stock  was  issued  as  compensation  under  these
contracts.  Prepaid and accrued consulting expenses have been recorded annually,
based on the terms and dates of the consulting agreements. The services provided
by the investors were recorded  based upon the value of the  securities  issued.
These  contracts all expired upon the completion of the initial public  offering
of the Company's common stock in November 2000.

Patents.  The Company has entered into an agreement  with SatCon  whereby SatCon
granted the Company a perpetual license to use the technology patented by SatCon
relating to the field of flywheel energy storage products, systems and processes
for stationary terrestrial applications.

Services  Agreements.  Through  2000,  SatCon  performed  certain  research  and
development,  administrative and other services for the Company. Amounts paid to
SatCon for such services amounted to approximately $551,000 during 2000.

Inventory.  Through 2001 the Company used SatCon to perform certain  engineering
and other  processing  tasks on  certain  of the  electrical  components  of its
product.  The Company had payables to SatCon for electronic  component purchases
totaling $35,532 at December 31, 2001.

Distribution  Agreement.  In 1997, the Company signed a 20-year  agreement which
granted an investor  exclusive  rights to  distribute  certain of the  Company's
products in a territory  comprised of seven Mid-Atlantic States and the District
of Columbia.  However,  the Company  retained the right to  distribute  products
directly to cable television and telephone companies.

14.  Subsequent Events

On March 24,  2003,  the Company  committed  to invest  $1,100,000  in Evergreen
Solar, Inc., a publicly traded company specializing in photovoltaic products.

Also on  March  24,  2003,  the  Company  paid  approximately  $141,000  for the
intellectual  property assets of Advanced  Energy  Systems,  Inc., a supplier of
inverter electronics.


15.   Quarterly Results (Unaudited)

In management's  opinion,  this unaudited  information includes all adjustments,
consisting  only  of  normal  recurring   adjustments,   necessary  for  a  fair
presentation  of the  information  for the  quarters  presented.  The  operating
results for any quarter are not necessarily indicative of results for any future
quarters.
<TABLE>
<CAPTION>
<S>                                   <C>               <C>               <C>                <C>

                                                                       2002
                                          First            Second              Third             Fourth
                                         Quarter           Quarter            Quarter           Quarter
                                     -------------------------------------------------------------------------


                                            $
Revenue                                     -                  $      -           $      -          $      -

Loss from operations                      (5,681,606)        (3,746,500)        (9,258,822)       (2,180,493)
Net loss                                $ (5,550,895)      $ (4,037,184)      $ (9,150,158)      $(2,101,015)
Loss per share - basic and diluted         $   (0.13)         $   (0.09)         $   (0.21)        $   (0.05)
Weighted-average common shares
outstanding                                42,770,856         42,795,821         42,809,361        42,811,667


                                                                       2001
                                           First            Second             Third             Fourth
                                          Quarter          Quarter            Quarter           Quarter
                                     -------------------------------------------------------------------------

Revenue                                       $      -          $      -           $      -          $      -

Loss from operations                       (6,296,072)       (6,869,317)        (8,063,401)       (6,662,471)
Net loss                                 $ (5,799,436)     $ (6,302,084)      $ (7,588,410)      $(6,455,738)
Loss per share - basic and diluted          $   (0.14)        $   (0.15)         $   (0.18)        $   (0.15)
Weighted-average common shares
outstanding                                 42,169,642        42,523,462         42,739,635        42,760,695


</TABLE>

<PAGE>



Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

None.




<PAGE>



                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

Information  concerning  executive officers of the Company that responds to this
Item is  incorporated by reference from Item 4A contained in Part 1 of this Form
10-K.  The  information  that responds to this Item with respect to Directors is
incorporated by reference from the section  entitled  "Election of Directors" in
the  Company's  definitive  proxy  statement  for its  2003  Annual  Meeting  of
Stockholders, which is required to be filed pursuant to Regulation 14A under the
Securities  Exchange Act of 1934  ("Exchange  Act") and which will be filed with
the SEC not later than 120 days after the end of the Company's  fiscal year (the
"Proxy  Statement").  Information  with respect to  compliance  by the Company's
directors  and  executive  officers  with  Section  16(a) of the Exchange Act is
incorporated by reference from the section  entitled  "Section 16(a)  Beneficial
Ownership Reporting Compliance" in the Proxy Statement.

Item 11.  Executive Compensation

Information  required in response to this Item is incorporated by reference from
the  section  entitled   "Compensation  of  Executive  Officers"  in  the  Proxy
Statement.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

Information  required in response to this Item is incorporated by reference from
the sections entitled "Election of Directors" and "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.


Item 13.  Certain Relationships and Related Transactions

Information  required in response to this Item is incorporated by reference from
the section  entitled  "Other  Information  Relating to Directors,  Nominees and
Executive Officers" in the Proxy Statement.

Item 14.  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 annual 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 IV

Item 15.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K

         (a)      1.  Financial Statements

The financial statements are listed under Part II, Item 8 of this Report.

                  2.  Financial Statement Schedules

Schedules  for which  provision  is made in the  applicable  regulations  of the
Securities and Exchange  Commission have been omitted because the information is
disclosed in the Consolidated Financial Statements or because such schedules are
not required or not applicable.

                  3.  Exhibits

The exhibits are listed below under Part IV, Item 14(c) of this report.

         (b) Reports on Form 8-K

Form 8-K filed on October 4, 2002 with respect to a Shareholders Rights


         (c )     Exhibits

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

  Exhibit
  Number                          Description of Document

     3.1          Sixth  Amended and  Restated  Certificate  of  Incorporation  (Incorporated  by  reference  to
                  Exhibit No. 3.1 to the  Registration  Statement  on Form S-1 of Beacon Power  Corporation  No.
                  333-43386 filed on November 16, 2000).

    3.2           Amended  and  Restated  Bylaws   (Incorporated   by  reference  to  Exhibit  No.  3.2  to  the
                  Registration  Statement  on Form  S-1 of  Beacon  Power  Corporation  No.  333-43386  filed on
                  November 16, 2000).

10.1.1            Securities   Purchase  Agreement  by  and  among  SatCon  Technology   Corporation,   Duquesne
                  Enterprises  (n/k/a DQE  Enterprises,  Inc.) and Beacon Power  Corporation  dated May 28, 1997
                  (Incorporated  by reference to Exhibit No.  10.1.1 to the  Registration  Statement on Form S-1
                  of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.2            Securities  Purchase  Agreement  by and  among  Beacon  Power  Corporation,  Perseus  Capital,
                  L.L.C.,  Duquesne  Enterprises  (n/k/a DQE  Enterprises,  Inc.),  Micro-Generation  Technology
                  Fund,  L.L.C.  and SatCon  Technology  Corporation  dated  October 23, 1998  (Incorporated  by
                  reference  to Exhibit No.  10.1.2 to the  Registration  Statement  on Form S-1 of Beacon Power
                  Corporation No. 333-43386 filed on November 16, 2000).

10.1.3            Securities  Purchase  Agreement  by and  among  Beacon  Power  Corporation,  Perseus  Capital,
                  L.L.C.,  Duquesne  Enterprises  (n/k/a DQE  Enterprises,  Inc.),  Micro-Generation  Technology
                  Fund,  L.L.C.  and  SatCon  Technology  dated  April 7, 2000  (Incorporated  by  reference  to
                  Exhibit No. 10.1.3 to the Registration  Statement on Form S-1 of Beacon Power  Corporation No.
                  333-43386 filed on November 16, 2000).

10.1.4            Securities  Purchase  Agreement  by and  among  Beacon  Power  Corporation,  Perseus  Capital,
                  L.L.C.,  Micro-Generation  Technology Fund, L.L.C.,  Mechanical Technology  Incorporated,  The
                  Beacon  Group Energy  Investment  Fund II, L.P.  and Penske  Corporation  dated April 21, 2000
                  (Incorporated  by reference to Exhibit No.  10.1.4 to the  Registration  Statement on Form S-1
                  of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.5            Securities  Purchase  Agreement  by and  among  Beacon  Power  Corporation,  Perseus  Capital,
                  L.L.C.,  DQE  Enterprises,   Inc.,   Micro-Generation   Technology  Fund,  L.L.C.,  Mechanical
                  Technology  Incorporated,  GE  Capital  Equity  Investments,  Inc.,  The Beacon  Group  Energy
                  Investment  Fund  II,  L.P.  and  Penske  Corporation  dated  May 23,  2000  (Incorporated  by
                  reference  to Exhibit No.  10.1.5 to the  Registration  Statement  on Form S-1 of Beacon Power
                  Corporation No. 333-43386 filed on November 16, 2000).

10.1.6            Investor Rights  Agreement by and among Beacon Power  Corporation,  Perseus  Capital,  L.L.C.,
                  DQE  Enterprises,  Inc.,  Micro-Generation  Technology  Fund,  L.L.C.,  Mechanical  Technology
                  Incorporated,  GE Capital Equity  Investments,  Inc., The Beacon Group Energy  Investment Fund
                  II, L.P.,  Penske  Corporation,  SatCon  Technology  Corporation,  James S. Bezreh,  Russel S.
                  Jackson,  Russell A. Kelley,  Stephen J. O'Connor,  Jane E. O'Sullivan and Robert G. Wilkinson
                  dated May 23,  2000  (Incorporated  by  reference  to Exhibit No.  10.1.6 to the  Registration
                  Statement on Form S-1 of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.7            Form of Warrant of Beacon Power  Corporation  issued pursuant to class D financing and list of
                  holders  thereof  (Incorporated  by  reference  to  Exhibit  No.  10.1.7  to the  Registration
                  Statement on Form S-1 of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.8            Form of Warrant of Beacon Power  Corporation  issued pursuant to class E financing and list of
                  holders  thereof  (Incorporated  by  reference  to  Exhibit  No.  10.1.8  to the  Registration
                  Statement on Form S-1 of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.9            Form of Warrant of Beacon Power  Corporation  issued pursuant to class F bridge  financing and
                  list of holders thereof  (Incorporated  by reference to Exhibit No. 10.1.9 to the Registration
                  Statement on Form S-1 of Beacon Power Corporation No. 33-43386 filed on November 16, 2000).

10.1.10           Form of Warrant of Beacon Power  Corporation  issued pursuant to class F financing and list of
                  holders  thereof  (Incorporated  by  reference  to Exhibit  No.  10.1.10  to the  Registration
                  Statement on Form S-1 of Beacon Power Corporation No. 333-43386 filed on November 16, 2000))

10.1.11           Warrant of Beacon Power Corporation  issued to Cox  Communications,  Inc. dated August 2, 2000
                  (Incorporated  by reference to Exhibit No. 10.1.11 to the  Registration  Statement on Form S-1
                  of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.12           Warrant  of  Beacon  Power  Corporation   issued  to  Kaufman-Peters   dated  August  2,  2000
                  (Incorporated  by reference to Exhibit No. 10.1.12 to the  Registration  Statement on Form S-1
                  of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.13           Warrant of Beacon  Power  Corporation  issued to GE Capital  Equity  Investments,  Inc.  dated
                  October  24, 2000  (Incorporated  by  reference  to Exhibit  No.  10.1.13 to the  Registration
                  Statement on Form S-1 of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.14           Second  Amended  and  Restated  1998  Stock   Incentive  Plan  of  Beacon  Power   Corporation
                  (Incorporated  by reference to Exhibit No. 10.1.14 to the  Registration  Statement on Form S-1
                  of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.15           Form of  Incentive  Stock  Option  Agreement  of Beacon  Power  Corporation  (Incorporated  by
                  reference  to Exhibit No.  10.1.15 to the  Registration  Statement on Form S-1 of Beacon Power
                  Corporation No. 333-43386 filed on November 16, 2000).

10.1.16           Form of  Non-Qualified  Stock Option  Agreement of Beacon Power  Corporation  (Incorporated by
                  reference  to Exhibit No.  10.1.16 to the  Registration  Statement on Form S-1 of Beacon Power
                  Corporation No. 333-43386 filed on November 16, 2000).

10.1.17           Form of  Non-Qualified  Stock Option Agreement of Beacon Power  Corporation  issued to certain
                  consultants  on July 24,  2000 and list of  holders  thereof  (Incorporated  by  reference  to
                  Exhibit No.  10.1.17 to the  Registration  Statement on Form S-1 of Beacon  Power  Corporation
                  No. 333-43386 filed on November 16, 2000).

10.1.18           Amended and Restated  License  Agreement by and between  Beacon Power  Corporation  and SatCon
                  Technology  Corporation  dated  October 23, 1998  (Incorporated  by  reference  to Exhibit No.
                  10.1.18 to the  Registration  Statement on Form S-1 of Beacon Power  Corporation No. 333-43386
                  filed on November 16, 2000).

10.1.19           Lease between Beacon Power  Corporation and BCIA New England  Holdings LLC dated July 14, 2000
                  (Incorporated  by reference to Exhibit No. 10.1.20 to the  Registration  Statement on Form S-1
                  of Beacon Power Corporation No. 333-43386 filed on November 16, 2000).

10.1.20           Letter Agreement among Beacon Power Corporation,  GE Capital Equity  Investments,  Inc. and GE
                  Corporate  Research  and  Development  dated  October 24, 2000  (Incorporated  by reference to
                  Exhibit No.  10.1.24 to the  Registration  Statement on Form S-1 of Beacon  Power  Corporation
                  No. 333-43386 filed on November 16, 2000).

10.1.21           Form of Director and Officer  Indemnification  Agreement (Incorporated by reference to Exhibit
                  No.  10.1.25  to the  Registration  Statement  on Form S-1 of  Beacon  Power  Corporation  No.
                  333-43386 filed on November 16, 2000).

10.1.22           Employment  agreement  dated  December  1, 2001  between  F.  William  Capp and  Beacon  Power
                  Corporation.

10.1.23           Employment  agreement  dated May 6, 2002  between  Matthew  L.  Lazarewicz  and  Beacon  Power
                  Corporation.

10.1.24           Employment  agreement  dated  October 25, 2002  between  William J.  Driscoll and Beacon Power
                  Corporation.

10.1.25           Employment  agreement  dated  October  25, 2002  between  James M.  Spiezio  and Beacon  Power
                  Corporation.

11.1              Statement of  Computation  of Earnings per Share.  (This exhibit has been omitted  because the
                  information is shown in the financial statements or notes thereto.)

12.1     Shareholder  Rights  Agreement dated as of September 25, 2002.  (Incorporated  by reference to Exhibit No.
                  99.1 to the Current Report on Form 8-K of Beacon Power Corporation filed on October 4, 2002)

12.2     Amendment to Shareholder Rights Agreement dated as of December 27, 2002.

23.1              Consent of Deloitte & Touche LLP


</TABLE>

<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

                                   -------------------------------------------
                                       F. William Capp
                                       President and Chief Executive Officer
                                       Date:  March 31, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.


Signature                     Title                                  Date

/s/ F. William Capp     President and Chief Executive Officer,
--------------------    and Director
F. William Capp         (Principal Executive Officer)            March 31, 2003

/s/ James M. Spiezio    Vice President of Finance, Chief Financial
--------------------    Officer, Treasurer and Secretary
James M. Spiezio        (Principal Financial Officer)            March 31, 2003


/s/ Philip J. Deutch
Philip J. Deutch        Director                                 March 31, 2003


/s/ Jack P. Smith
Jack P. Smith           Director                                 March 31, 2003


/s/ Kenneth M. Socha
Kenneth M. Socha        Director                                 March 31, 2003

/s/ William E. Stanton
William E. Stanton      Director                                 March 31, 2003


<PAGE>




                                  CERTIFICATION


I, F. William Capp, certify that:


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


2.  Based on my  knowledge,  this  annual  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 annual
report;


3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  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 annual 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 annual report is being prepared;


b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and


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


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


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


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


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


Date: March 31, 2003


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



<PAGE>


                                  CERTIFICATION


I, James M. Spiezio, certify that:


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


2.  Based on my  knowledge,  this  annual  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 annual
report;


3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  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 annual 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 annual report is being prepared;


b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and


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


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


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


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


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


Date: March 31, 2003


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





<PAGE>


Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT


We consent to the incorporation by reference in Registration Statement No.
333-50260 of Beacon Power Corporation on Form S-8 of our report dated March 7,
2003 appearing in this Annual Report on Form 10-K of Beacon Power Corporation
for the year ended December 31, 2002.

/S/ Deloitte & Touche, LLP

Boston, MA
March 28, 2003