1103345--3/15/2010--BEACON_POWER

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We have successfully deployed a small number of Smart Energy Matrix in our commercial design. However, we may not be successful in volume production or even if we are, we may fail to meet our commercial production targets. Even if we are able to complete development of and manufacture commercial quantities of the Smart Energy Matrix flywheel system, we will have the challenge of integrating multiple Smart Energy 25 flywheels into a common facility, constituting a 20 MW Smart Energy Matrix . Sale of plants overseas will typically require that our technology be compatible with 50 Hz. electrical design requirements. Our business plan includes the construction and operation of frequency regulation plants in a variety of locations, as well as the sale of turnkey systems. Should we fail to execute any of these tasks it may have a material adverse effect on our Company. We face a number of challenges related to the DOE loan guarantee on our first 20 MW plant. If we cannot effectively manage these challenges, it will have a material and adverse effect. The commercialization of our Smart Energy Matrix will require substantial funds. Our stockholders may be adversely affected if we issue debt securities or additional equity securities to obtain financing. Reductions in energy prices and demand for electricity may have a material adverse impact on both the demand for and pricing of frequency regulation services and therefore our revenue. Our stock price has been volatile and purchasers of our common stock could incur substantial losses. Historically, the amount of frequency regulation required in the United States typically has been one percent of all power produced. If a reduction in this percentage occurs, our business plan could be adversely affected. We have a history of losses, anticipate future losses and will have limited revenues in the near term. Unless we raise substantial additional capital to operate our business, we may not be able to continue as a going concern. Our December 2009 cash balances, combined with funds from the 2010 Seaside investment, are sufficient to close the DOE loan for Stephentown and fund operations only through approximately the second quarter of 2010. We are dependent on third-party suppliers for materials and components used to manufacture our flywheels and build our Smart Energy Matrix plants. Increases in purchase prices or decreases in availability of materials and commodities may affect our ability to achieve profitability. In particular, our systems require carbon fiber, steel and aluminum, the cost of which may be impacted by the price and availability of energy and other factors. Our competitive position could be impaired if we either fail to protect our intellectual property or infringe third-party patent rights. Government regulations may impair our ability to construct and operate our plants profitably. The exercise of options and warrants and other issuances of shares will likely have a dilutive effect on our stock price. Our financial performance could be adversely affected if we are unable to retain key executive officers. Our financial performance could be adversely affected if we are unable to retain or attract key personnel. We currently purchase a small percentage of components for our flywheels from companies outside of the United States. Further, although our initial target market is within the United States, we expect to expand our business to other countries in the future. Engaging in business outside of the United States exposes us to a variety of risks related to the specific countries in which we may operate. If our Smart Energy Matrix systems were to malfunction and/or cause damage we could be subject to possible product liability claims for both damages and fines that exceed our liability insurance coverage. Additionally, our stock price could drop as a result of negative publicity from such claims. Economic conditions could negatively impact our business. Competitors in the frequency regulation market include established utilities, independent service providers and alternative energy storage technology companies with greater resources than we have. We have anti-takeover defenses that could delay or prevent an acquisition and changes in control that could adversely affect the price of our common stock. Our stock may be removed from The Nasdaq Stock Market.

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1103345--3/15/2010--BEACON_POWER_CORP