1103345--3/16/2009--BEACON_POWER

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We face significant technical challenges in completing the development of the Smart Energy Matrix . We may fail to develop our 25kWh generation flywheel system to a commercial production design, which is a critical requirement for the development of the Smart Energy Matrix and, even if we are able to develop the 25kWh system, we may fail to develop the Smart Energy Matrix into a commercial production design. Although the market for frequency regulation services is large and growing, we have not demonstrated an ability to sell into that market at a commercial level. Further, although the Federal Energy Regulatory Commission has mandated that ISOs allow non-generator resources (such as ours) to provide regulation services, each of several ISOs must modify their separate market rules for us to be able to sell our frequency regulation services in each such market for us to be able to sell such services on an optimal basis. Reductions in energy prices may have a material adverse impact on the pricing of frequency regulation services and therefore our profitability. 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. Our stock price, as well as the stock price of other companies in the energy sector, is likely to be 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. Our business plan includes the design, development, construction and operation of frequency regulation installations in a variety of locations. Should we fail to execute any of these tasks, it will have a material adverse effect on the Company. We are dependent on third-party suppliers for materials and components used to manufacture our flywheels and build our Smart Energy Matrix installations. 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 oil 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 regulation may impair our ability to market our products. 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 technical personnel. We currently purchase certain 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 far 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--3/16/2009--BEACON_POWER_CORP