UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
for the quarterly period ended June 30, 2002,
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
(For the transition period from to ).
Beacon Power Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-3372365
(State or other jurisdiction 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)
------------------------
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 ___
The number of shares of the Registrant's common stock, par value $.01 per share,
outstanding as of August 10, 2002 was 42,809,361.
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Table of Contents
Page
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 2002
and December 31, 2001. 2
Consolidated Statements of Operations for the
three and six months ended June 30, 2002 and
2001 and for the Period May 8, 1997 (date of
inception) to June 30, 2002. 3
Consolidated Statements of Cash Flows for six
months ended June 30, 2002 and 2001 and for
the Period May 8, 1997 (date of inception) to
June 30, 2002. 4
Notes to Consolidated Financial Statements. 5-7
Item 2. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations. 8-12
PART II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults on Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits, Financial Statements Schedules
and Reports on Form 8-K 13
Signatures 14
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2002 2001
---------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 24,497,137 $ 34,601,585
Prepaid expenses and other current assets 440,686 1,131,065
---------------------------------------
Total current assets 24,937,823 35,732,650
Property and equipment, net (Note 3) 5,443,094 6,188,507
Other assets 318,128 209,796
---------------------------------------
Total assets $ 30,699,045 $ 42,130,953
=======================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 87,448 $911,465
Accrued compensation and benefits 286,427 721,130
Due to related party - 35,532
Other accrued expenses 639,616 941,100
Current portion of capital lease obligations 273,952 335,145
---------------------------------------
Total current liabilities 1,287,443 2,944,372
Capital lease obligations, net of current portion 86,053 205,352
Commitments (Note 4)
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no
shares issued or outstanding - -
Common stock, $.01 par value; 110,000,000 shares authorized;
42,809,361 and 42,770,856 shares issued and outstanding at June
30, 2002 and December 31, 2001, respectively 428,094 427,709
Deferred stock compensation (24,467) (211,564)
Additional paid-in capital 132,755,833 132,911,256
Deficit accumulated during the development stage (103,734,251) (94,146,172)
Less: treasury stock, at cost (99,660) -
--------------------------------------
Total stockholders' equity 29,325,549 38,981,229
---------------------------------------
Total liabilities and stockholders' equity $ 30,699,045 $ 42,130,953
=======================================
See notes to consolidated financial statements.
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations (Unaudited)
Cumulative from
May 8, 1997
(date of inception,)
Three months ended June 30, Six months ended June 30, through June 30
2002 2001 2002 2001 2002
--------------------------------------------------------------------------------------
Revenue $ - $ - $ - $ - $ 551,184
Operating expenses:
Selling, general and administrative 1,469,986 2,356,717 3,505,747 3,851,597 20,991,872
Research and development 1,770,370 4,209,885 4,910,124 8,756,596 44,574,138
Loss on sales commitments - - - - 375,974
Depreciation and amortization 506,144 302,715 1,012,235 557,196 3,034,008
--------------------------------------------------------------------------------------
Total operating expenses 3,746,500 6,869,317 9,428,106 13,165,389 68,975,992
--------------------------------------------------------------------------------------
Loss from operations (3,746,500) (6,869,317) (9,428,106) (13,165,389) (68,424,808)
Other (expense) income:
Interest income 148,786 595,152 302,738 1,454,887 3,360,707
Interest expense (13,320) (7,236) (28,187) (14,926) (1,073,243)
Other expense (426,150) (20,683) (434,524) (376,092) (590,711)
--------------------------------------------------------------------------------------
Total other income (expense), net (290,684) 567,233 (159,973) 1,063,869 1,696,751
--------------------------------------------------------------------------------------
Net loss (4,037,184) (6,302,084) (9,588,079) (12,101,520) (66,728,057)
Preferred stock dividends - - - - (36,825,680)
Accretion of redeemable convertible
preferred stock - - - - (113,014)
--------------------------------------------------------------------------------------
Loss to common shareholders $ (4,037,184) $ (6,302,084) $(9,588,079) $(12,101,520) $ (103,666,751)
======================================================================================
Loss per share - basic and diluted $ (0.09) $ (0.15) $ (0.22) $ (0.29)
=================================================================
Weighted-average common shares
outstanding 42,795,821 42,523,462 42,783,407 42,347,529
=================================================================
See notes to consolidated financial statements.
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows (Unaudited)
Cumulative from
May 8, 1997
(Date of
Six months ended June 30, Inception) through
2002 2001 June 30,2002
----------------------------------------------------
Cash flows from operating activities:
Net loss $ (9,588,079) $(12,101,520) $ (66,728,057)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,012,235 557,196 3,034,008
Loss on sale of fixed assets - 86,523 156,387
Reserve for officer's note 426,149 - 426,149
Interest expense relating to issuance of warrants - - 371,000
Non-cash charge for change in option terms - - 346,591
Amortization of deferred consulting expense, net - - 1,160,784
Amortization of deferred stock compensation 19,273 48,273 1,290,013
Warrants issued for consulting services - - 1,569,366
Accrued loss on sales commitments - - 375,974
Non-cash charge for settlement of lawsuit - 303,160 303,160
Services and interest expense paid in preferred stock - - 11,485
Changes in operating assets and liabilities
Inventory - (238,297) -
Prepaid expenses and other current assets 164,570 263,181 (966,495)
Accounts payable (824,017) (993,037) 87,448
Accrued compensation and benefits (434,703) 803,311 286,427
Due to related party (35,532) 45,705 -
Accrued loss on sales commitments - - ( 375,974)
Other accrued expenses and current liabilities (301,484) (88,246) 648,286
----------------------------------------------------
Net cash used in operating activities (9,561,567) (11,313,751) (57,727,888)
Cash flows from investing activities:
Increase in other assets (81,700) 488,793 (256,918)
Purchases of property and equipment (293,454) (3,340,243) (8,241,088)
----------------------------------------------------
Net cash used in investing activities (375,154) (2,851,450) (8,498,006)
Cash flows from financing activities:
Initial public stock offering, net of expenses - - 49,341,537
Shares issued under employee stock purchase plan 12,765 - 122,709
Exercise of employee stock options - 801,541 1,175,670
Issuance of preferred stock - - 32,868,028
Repayment of subscription receivable - - 5,000,000
Repayment of capital leases (180,492) (67,665) (671,391)
Dividends paid - (1,159,373) (1,159,373)
Refinance of assets with capital lease 495,851
Proceeds from notes payable issued to investors - - 3,550,000
----------------------------------------------------
Net cash (used in) provided by financing activities (167,727) (425,497) 90,723,031
(Decrease) increase in cash and cash equivalents (10,104,448) (14,590,698) 24,497,137
Cash and cash equivalents, beginning of period 34,601,585 62,497,102 -
----------------------------------------------------
Cash and cash equivalents, end of period $24,497,137 $47,906,404 $24,497,137
====================================================
See notes to consolidated financial statements.
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Operations
Nature of Business. Beacon Power Corporation is a development stage company that
was incorporated on May 8, 1997. Beacon Power Corporation and its subsidiary
("Beacon" or "the Company") designs, develops, configures, and offers for sale
power systems that provide highly reliable, high-quality, uninterruptible
electric power, employing both proprietary and third party solutions. It is best
known for its environmentally friendly, flywheel-based products (employing a
flywheel made from proprietary composite materials), which can store and deliver
energy in a variety of configurations. Such products have longer life, reduced
maintenance, quicker recharging, remote monitoring and other advantages over
competing solutions. Because the Company has not yet generated a significant
amount of revenue from its principal operations, it continues to be 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 has no segmented structure dictated by
product lines, geography or customer type.
Operations. The Company has experienced net losses since its inception and, as
of June 30, 2002, had an accumulated deficit of approximately $103.7 million.
The Company is facing the challenge of ongoing development, as well as
refinement and marketing of its commercial products. Meeting these challenges is
expected to require significant outlays of capital. The Company expects to have
sufficient cash on hand to fund its reduced operations for more than 24 months.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
using accounting principles generally accepted in the United States of America
for interim financial information and with Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals considered
necessary for a fair presentation, have been included in the accompanying
unaudited financial statements. Operating results for the three months and six
months ended June 30, 2002 are not necessarily indicative of the results that
may be expected for the full year ending December 31, 2002. Certain information
and footnote disclosure normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these consolidated financial
statements presented herein be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K, for the year ended December 31, 2001.
There have been no significant additions to or changes in accounting policies of
the Company since December 31, 2001. For a complete description of the Company's
accounting policies, see Note 3 to Consolidated Financial Statements in the
Company's 2001 Annual Report on Form 10-K.
Reclassifications. Certain amounts in prior year financial statements have been
reclassified to conform to their 2002 presentation.
3. Property and Equipment
Property and equipment consist of the following:
Estimated
Useful June 30, December 31,
Lives 2002 2001
-------------------------------------------------
Machinery and equipment 5 years $ 2,228,210 $ 1,996,711
Service vehicles 5 years 63,792 63,792
Furniture and fixtures 7 years 733,018 733,018
Office equipment 3 years 2,059,409 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 8,238,732 7,978,477
Less accumulated depreciation and amortization (2,795,638) (1,789,970)
----------------------------------
Property and equipment, net $ 5,443,094 $ 6,188,507
==================================
4. Commitments
The Company leases office and light manufacturing space under an operating lease
through September 30, 2007 and has various operating leases for certain office
and manufacturing equipment expiring through December 2003. Under the terms of
the facility lease, the Company provided the lessor with an irrevocable letter
of credit. At June 30, 2002 the balance of the letter of credit totaled
$400,454. A cash deposit with the Company's commercial bank secures this letter
of credit.
5. Common Stock
Treasury Stock. As a part of the repayment of a loan from the Company, an
officer surrendered 132,000 shares of Beacon Power Corporation common stock that
were held as collateral against that loan. These shares were acquired at the
then market price of $0.755 per share. The Company is holding these 132,000
shares in treasury at their cost of $99,660. The remainder of the loan was
repaid in cash.
Reserved Shares. At June 30, 2002 and December 31, 2001, 15,210,059 and
13,839,129 shares of common stock were reserved for issuance under the Company's
stock option plan and outstanding warrants, respectively.
Stock Warrants. Deferred compensation relating to stock warrants at June 30,
2002 and December 31, 2001 is approximately $24,000 and $212,000, respectively.
The warrants were issued to an investor under an agreement that an affiliate of
that investor will provide the Company with technical expertise. One half of the
warrants vested immediately upon their issuance with the remaining warrants to
vest ratably as the services are provided. No services have been provided
through June 30, 2002. The agreement terminates and any unvested warrants are
forfeited on November 1, 2003.
6. Related Party Transactions
Advance to Officers - During 2001, the Company advanced approximately $785,000
to three officers of the Company. These advances are interest bearing and
secured by the officers' holdings of Beacon Power Corporation common stock and
were provided to the officers to allow them to exercise stock options and pay
the related taxes. Through June 30, 2002, the Company has collected
approximately $287,000 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 its former CEO and president. This
charge is included in other expenses in the accompanying consolidated statement
of operations. The remaining advance balance of approximately $72,000 at June
30, 2002 is included in prepaid and other assets in the accompanying
consolidated balance sheet.
7. Summary of Non-cash Investing and Financing Activities:
During the six months ended June 30, 2002 and 2001, cash paid for interest was
approximately $34,000 and $16,000, respectively.
During the six months ended June 30, 2002 and 2001, cash paid for taxes was
approximately $17,000 and $1,000, respectively.
During March 2002, as a part of the repayment of a loan from the Company, an
officer surrendered 132,000 shares of common stock of the Company that were held
as collateral against that loan. These shares were surrendered at the then
market price of $0.755. The Company is holding these 132,000 shares in treasury
at their cost of $99,660. The remainder of the loan was paid in cash.
During the six months ended June 30, 2002 and 2001, the Company recorded
decreases in deferred compensation from the issuance of non-qualified stock
options to third parties of $187,097 and $642,559, respectively. These were
offset by charges to additional paid in capital.
8. Subsequent Events
During 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 burn rate, and thus on a less ambitious
timetable. Beacon reduced its current expenditures on product development by
deferring a significant portion of these expenditures. It has also put on hold
all capital expenditures relating to manufacturing, and reduced its total
headcount by 26 employees, or approximately 45 percent (as measured against
those remaining following Beacon's earlier reduction in headcount, in March
2002), to a total of 31 employees. Beacon had 92 employees on January 1, 2002.
With these reductions, the Company is concentrating its resources on product
marketing and on activities that offer a strategic fit with its core
competencies. If Beacon later were to decide to engage in manufacturing, it
would need to scale up that portion of its business.
As a result of our decisions noted above, a substantial portion of our long-term
assets have been idled, including machinery and equipment, tooling, office
furniture and fixtures and equipment and leasehold improvements. We are
evaluating all of our property and equipment to determine its future use. We
also intend to reduce our facility costs by attempting to sublease our excess
capacity. We are attempting to determine how best to reconfigure our operation
into significantly less space. As a result of this effort, we expect to leave a
significant portion of the facility unused. As required by FAS 144, we will take
a non-cash accounting charge for any assets left idle by the above-mentioned
actions. In addition, we expect to take a charge for costs associated with the
idled facility, which is under an operating lease. At this time, we have not yet
determined the full amount of the charge but expect it to be in the range of
$2.8 million to $6.5 million. This range includes severance charges of
approximately $300,000 relating to the reduction in force in July. The majority
of the range relates to the uncertainty of business opportunities for our
products that would be benefited by these assets and the facility lease as well
as uncertainty of recovery values of those assets or facilities that are idled.
This charge will be recorded in the third quarter of 2002.
Based upon our operating plan, and cash on hand, we believe that our cash and
cash equivalents and future cash flow from operations will satisfy the Company's
working capital needs for the foreseeable future.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Note Regarding Forward Looking Statements:
This Quarterly Report on Form 10-Q contains forward-looking statements
concerning, among other things, the Company's expected future revenues,
operations and expenditures and estimates of the potential markets for the
Company's services. Such statements made by the Company fall within the meaning
of the Private Securities Litigation Reform act of 1995, as amended. All such
forward-looking statements are necessarily only estimates of future results and
the actual results achieved by the Company may differ materially from these
projections due to a number of factors as discussed in the section entitled
"Certain Factors Affecting Future Operating Results" of this Form 10-Q.
Overview
Beacon Power Corporation is a developmental-stage company which designs,
develops, configures, and offers for sale power systems that provide highly
reliable, high-quality, uninterruptible electric power for use as a stand alone
back-up power solution in Telcom applications and as a transition unit to
generators in high power applications. It is known for its environmentally
friendly, flywheel-based products (employing a flywheel made from proprietary
composite materials) that can store and deliver energy in a variety of
configurations. Such products have longer life, reduced maintenance, quicker
recharging, remote monitoring and other advantages over competing solutions.
Our initial products were 2Kwh and 6Kwh long duration back up power units
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. The Company continues to
offer these products but has expanded its market to include UPS applications and
stored energy for utilities such as an array for high power. An array of high
energy composite flywheels can be connected together to provide high power
(Megawatts) energy storage for minutes in applications requiring rapid, deep
discharge, and/or frequent cycling. Examples of applications are transition to
turbine or natural gas engine start (requiring minutes, not seconds), reducing
generator starting frequency and backup time for wind and other renewable power,
stiffening of substation and microgrid power, and load following high power fuel
cells and generators. Lead acid batteries are usually not effective in these
applications because rapid, frequent or deep discharging of a battery
substantially reduces life and increases maintenance requirements. There are no
other practical alternatives in use today, and low power flywheels like those
used to start diesel generator in 12 seconds do not have sufficient energy to be
practical elements of a flywheel array.
There is a growing awareness of sustainability among customers and the
associated interest in eliminating batteries from their operations may partially
offset these trends. Sustainability is a philosophy and set of practices that
have gained considerable acceptance among global organizations in recent years.
The concept of sustainability refers to business conduct that holistically
addresses the economic, social and environmental impacts of global operations;
the so-called "triple bottom line." More than 50% of Fortune 100 companies have
adopted sustainable business practices and issue comprehensive annual reports on
their progress. These forward-thinking companies, including many in the energy,
manufacturing and telecommunications sectors, hold a longer-term view that
embraces the importance of seeing the total impact of a product or service, from
development through end-of-life.
Flywheel-based systems, unlike lead-acid batteries, are sustainable "green"
technology solutions that do not use hazardous materials for production, nor
create them during operation. Unlike batteries, flywheels operate reliably for
many years with little or no maintenance. Their life cycle cost benefits and ROI
have proven to be far superior to those of lead-acid batteries. Despite an
initial cost disadvantage, flywheels offer an attractive and long-term
cost-effective energy storage alternative for the growing number of
organizations whose operating philosophy includes sustainability.
From our inception through June 30, 2002 we have incurred losses of
approximately $103.7 million. We expect to continue to incur losses as a result
of the difficulty we face in marketing our existing and emerging products and
potential costs for product development and commercialization programs. These
losses could fluctuate significantly from quarter to quarter. Fluctuations may
be substantial as a result of, among other factors, the amount of development
materials purchased, nonrecurring engineering expenses and subcontract work
related to product testing and ramp-up costs related to manufacturing
capacities.
Results of operations:
Comparison of three and six months ended June 30, 2002 and 2001
Revenues. We did not record any revenue for the three or six months ended June
30, 2002 and 2001. We have placed several development prototypes with potential
customers and shipped pre-production units. These products were provided to
potential customers 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. Our general and
administrative expenses consist primarily of compensation and benefits related
to our corporate staff, professional fees, and related travel. Selling, general
and administrative expenses totaled approximately $1,470,000 and $2,357,000 for
the three months ended June 30, 2002 and 2001, respectively. The decrease of
approximately $887,000 is primarily the result of decreased compensation and
benefit costs due to staffing reductions, reduced professional fees and travel
partially offset by higher costs for director's and office's insurance. Selling,
general and administrative expenses totaled approximately $3,506,000 and
$3,852,000 for the six months ended June 30, 2002 and 2001, respectively. The
decrease of approximately $346,000 is primarily the result of decreased
compensation and benefit costs due to staffing reductions partially offset by
higher costs for director's and officer's insurance and sales and marketing
effort.
Research and Development. Our cost of research and development consists
primarily of the cost of compensation and benefits for research and development,
manufacturing and support staff, as well as materials and supplies used in the
engineering design process. Our cost of research and development has been
reduced sharply while we focus on defining market opportunities for our
capabilities. In the event that markets are defined that require product
development we may have significant increases for additional product designs,
refining existing products or expand our analytic capabilities. Research and
development expenses totaled approximately $1,770,000 and $4,210,000 for the
three months ended June 30, 2002 and 2001, respectively. The decrease of
$2,440,000 is primarily the result of decreased compensation and benefit costs
related to staffing reductions in engineering and manufacturing and decreases in
the amount of materials used for product development. Research and development
expenses totaled approximately $4,910,000 and $8,757,000 for the six months
ended June 30, 2002 and 2001, respectively. The decrease of approximately
$3,847,000 is primarily the result of decreased compensation and benefit costs
related to staff reductions and decreased spending on materials related to
product development.
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. Depreciation and amortization
totaled approximately $506,000 and $303,000 for the three months ended June 30,
2002 and 2001, respectively. The increase of $203,000 is attributable to
increases in leasehold improvements and capital equipment expenditures.
Depreciation and amortization totaled approximately $1,012,000 and $557,000 for
the six months ended June 30, 2002 and 2001, respectively. The increase of
$455,000 is attributable to increases in leasehold improvements, capital
equipment expenditures and changes in the useful life of computer equipment.
Interest and Other Income/Expense, net. Our non-operating income and expenses
are primarily attributable to interest income resulting from cash on hand
partially offset by interest expense associated with our capital leases. Our
interest income for the three months ended June 30, 2002 was approximately
$149,000, compared to $595,000 for the same period in 2001. The decrease in 2002
is the result of higher cash balances in 2001 from our initial public offering
in the fourth quarter of 2000. Our interest income for the six months ended June
30, 2002 was approximately $303,000, compared to $1,455,000 for the same period
in 2001. The decrease in 2002 is the result of higher cash balances in 2001 from
our initial public offering in the fourth quarter of 2000.
Interest expense decreased to approximately $13,000 for the three months ended
June 30, 2002 from approximately $7,000 for the same period in 2001. Interest
expense decreased to approximately $28,000 for the six months ended June 30,
2002 from approximately $15,000 for the same period in 2001. Interest expense
relates to assets leased under capital leases.
Other expense of approximately $426,000 and 21,000 for the three months ended
June 30, 2002 and 2001, respectively. The $426,000 is a non-cash expense taken
in March of 2002 for an advance to an officer. During 2001, the Company advanced
approximately $785,000 to three officers of the Company, including an advance of
$ 564,822 to Mr. William Stanton, former CEO and President. These advances are
interest bearing and secured by the officers' holdings of Beacon Power
Corporation common stock and were provided for the exercise of employee stock
options and in the case of Mr. Stanton income taxes related to the exercise of
those options. The officers repaid approximately $152,000 of these advances
during 2001 and an additional $135,000 through June 30, 2002. In June 2002, the
Company took a reserve in the amount of $426,148 for the full remaining amount
of the advances (including interest thereon) to Mr. Stanton. The Company has
fully reserved this balance due to the current market valuation of the pledged
securities and uncertainty that the obligation will be collected from Mr.
Stanton. The Company expects the remaining advance to be repaid in full by the
officer to whom it was made and who is still employed by the Company. The
balance of $72,468 and $634,110 at June 30, 2002 and December 31, 2001,
respectively are included in prepaid and other assets in the accompanying
consolidated balance sheet. Other expense for the six months ending June 30,
2002 and 2001, respectively were approximately $435,000 and $376,000. The 2002
balance represents a reserve taken for an advance to an officer and the 2001
balance relates to additional write-offs of $52,000 for certain tooling costs
associated with an earlier version of our product and a non-cash charge related
to the settlement of a lawsuit brought by a former employee of approximately
$303,000. Under the terms of the settlement, we permitted the former employee to
exercise options to purchase 53,000 shares of our common stock at a price of
$1.78 when the current market price was $7.50. We incurred a charge of $5.72,
the difference between the market price and the exercise price, for each share
exercised.
Liquidity and Capital Resources
Net cash used in operating activities was approximately ($9,562,000) and
($11,314,000) for the six months ended June 30, 2002 and 2001, respectively. The
primary component to the negative cash flow from operations is from the net
losses. For the first six months of 2002, we had a net loss of approximately
($9,588,000). This included non-cash charges of approximately $1,457,000
including a reserve taken against a note receivable from a former officer of
$426,000; approximately $19,000 related to stock options issued for consulting
services and depreciation and amortization of approximately $1,012,000. Changes
in operating assets and liabilities used approximately ($1,431,000) of cash
during the first six months of 2002. The primary components were a decrease in
accounts payable of approximately ($824,000), a decrease in accrued compensation
and benefits of approximately ($435,000), a decrease in amounts due to a related
party of approximately ($36,000) and a decrease in other accruals and current
liabilities of ($301,000), these were offset by a decrease in prepaid expense
and other current assets of approximately $165,000. For the first six months of
2001, we had a net loss of approximately ($12,102,000). This included non-cash
charges of approximately $995,000 including a charge related to the settlement
of a lawsuit of approximately $303,000; approximately $48,000 related to stock
options issued for consulting services; $87,000 for the write-off of tooling
related to older versions of our flywheel; and depreciation and amortization of
approximately $557,000. Changes in operating assets and liabilities used
approximately ($207,000) of cash during the first six months of 2001. The
primary components were a decrease in accounts payable of approximately
($993,000) offset by an increase in accrued compensation and benefits of
approximately $803,000 and an increase in prepaid expense and other current
assets of approximately $263,000. Changes in other working capital accounts used
cash of approximately ($280,000).
Net cash used in investing activities was approximately ($375,000) and
($2,851,000) for the six months ended June 30, 2002 and 2001, respectively. The
principal uses of cash during the first six months of 2002 were related to
purchases of machinery and equipment totaling approximately ($293,000) and other
assets of ($82,000.) The principal uses of cash during the first six months of
2001 were related to purchases totaling approximately ($3,340,000) for machinery
and equipment, furniture and fixtures and leasehold improvements to the new
operating facility. Other assets decreased by approximately $489,000 as deposits
made in prior quarters relating to long-term assets were reclassified to
property and equipment.
Net cash used in financing and investing activities during the six months ended
June 30, 2002 was approximately ($168,000). The cash used for financing
activities related to repayment of capital leases of approximately ($181,000)
offset by cash proceeds from the employee stock purchase plan of approximately
$13,000. Net cash used by financing activities during the six months ended June
30, 2001 was approximately ($425,000). The primary use of cash was for the
payment of dividends on our various classes of preferred stock of approximately
$1,159,000, which were accrued during 2000, prior to our initial public offering
of our common stock. In addition, we made principal payments against our capital
leases of approximately ($68,000). These uses were offset by proceeds from stock
options exercised of approximately $802,000.
During 2001, the Company advanced approximately $785,000 to three officers of
the Company, including an advance of $564,822 to Mr. William Stanton, former CEO
and President. These advances are interest bearing and secured by the officers'
holdings of Beacon Power Corporation common stock and were provided for the
exercise of employee stock options and in the case of Mr. Stanton income taxes
related to the exercise of those options. The officers repaid approximately
$152,000 of these advances during 2001 and an additional $135,000 through June
30, 2002. In June 2002, we took a reserve in the amount of $426,148 against the
full remaining amount of the advances (including interest thereon) to Mr.
Stanton. The Company has fully reserved this balance due to the current market
valuation of the pledged securities and uncertainty that the obligation will be
collected from Mr. Stanton. We expect the remaining advance to be repaid in full
by the officer to whom it was made and who is still employed by the Company. The
balance of $72,468 and $634,110 at June 30, 2002 and December 31, 2001,
respectively are included in prepaid and other assets in the accompanying
consolidated balance sheet.
As a result of the difficulty the Company has had in generating revenues
discussed above, subsequent to the end of the quarter, we took several steps to
reduce our cash expenditures for the future. On July 19, we reduced our
headcount by 26 people bringing our total number of full time employees to 31.
and reduced our expenditures for product development and put on hold all capital
expenditures relating to manufacturing. We also have begun to assess our
facilities costs and have already implemented several cost saving initiatives.
We will look into reducing our costs further through subletting excess capacity
within the facility. In addition, we canceled several purchase orders and
development efforts for activities not closely related to our core strategy.
Finally, we have eliminated all extraneous tasks associated with testing,
research and development. As a result, we have reduced our projected cash
outlays by over 50% from the levels projected prior to July 19.
As a result of our decisions noted above, a substantial portion of our long-term
assets have been idled, including machinery and equipment, tooling, office
furniture and fixtures and equipment and leasehold improvements. We are
evaluating all of our property and equipment to determine its future use. As
noted above, we also intend to reduce our facility costs by attempting to
sublease our excess capacity. We are attempting to determine how best to
reconfigure our operation into significantly less space. As a result of this
effort, we expect to leave a significant portion of the facility, which is
subject to a long-term lease, unused. As required by FAS 144, we will take a
non-cash accounting charge for any assets left idle. In addition, we expect to
take a charge for costs associated with the idled portion of our facility. At
this time, we have not yet determined the full amount of the charge but expect
it to be in the range of $2.8 million to $6.5 million, which includes severance
charges of approximately $300,000 relating to the reduction in force in July.
The amount of the charge relates to the uncertainty of business opportunities
for our products that would be benefited by these assets and the facility lease
as well as uncertainty of recovery values of those assets or facilities that are
idled. This charge will be recorded in the third quarter of 2002. Based upon our
operating plan, and cash on hand, we believe that our cash and cash equivalents
and future cash flow from operations will satisfy the Company's working capital
needs for the foreseeable future.
Impact of Recently Issued Accounting Standards Not Yet Implemented
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The adoption of SFAS 141 did not have a material impact on our financial
condition or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective
January 1, 2002. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. SFAS 142 also requires us to complete a transitional
goodwill impairment test six months from the date of adoption. The adoption of
SFAS 142 did not have a material impact on our financial condition or results of
operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supercedes SFAS No. 121. SFAS No. 144
further refines the requirements of SFAS No. 121 that companies (1) recognize an
impairment loss only if the carrying amount of a long-lived asset is not
recoverable based on its undiscounted future cash flows and (2) measure an
impairment loss as the difference between the carrying amount and fair value of
the asset. In addition, SFAS No. 144 provides guidance on accounting and
disclosure issues surrounding long-lived assets to be disposed of by sale. As
discussed in Note 8, we are evaluating the impact the adoption of SFAS 144 will
have on our financial condition or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Cost Associated with
Exit or Disposal Activities". SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December 31,
2002. We believe that the adoption of SFAS No. 146 will not have a material
impact on our financial statements.
Certain Factors Affecting Future Operating Results
The following factors, as well as others mentioned in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001 (filed March 31, 2002),
could cause actual results to differ materially from those indicated by
forward-looking statements made in this Quarterly Report on Form 10-Q.
The Value Proposition of our 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
in order to conserve cash, which will make manufacturing capability even more
difficult to achieve should we need to do so. 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.
We May Need to Issue A Substantial Number of Shares to Obtain Financing.
If we raise additional funds by issuing additional equity securities and our
stock continues to trade at low values it will result in our issuing a
substantial number of shares. Furthermore, the newly issued securities could
have rights superior to the rights of the common stock outstanding.
Our Stock May be Disqualified from NASDAQ.
Because of its low price, our stock has been removed from the Nasdaq National
Market System and placed on the Nasdaq SmallCap Market. If we do not meet the
requirements for continued listing on that market , our stock will be removed
from it and will then be quoted on the OTCBB.
We Face Intensified Competition from Batteries Due to Their Declining Prices and
Improved Life. As a Consequence Our Customers are Less Likely to Realize 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.
Also a number of Asian and low cost battery manufacturers have entered the
market, which is intensifying competition. These changes in battery pricing and
performance make it more difficult for us to establish a value proposition of
our high-energy products.
Our Initial Target Market, the Communications Industry, Has Experienced a Sharp
Decline, Which Has Adversely Affected Our Financial Performance and Stock Price.
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. They
have become less willing to consider life-cycle costs in their purchasing
decisions or try new more expensive solutions that offer environmental or
technical performance advantages, 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 making 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.
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 ($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 ($103,667,000). We expect to continue to incur net losses
through at least 2003. Although we are looking for 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.
We Might Fail to Develop a Successful High- Power UPS Product.
The successful development of our high-power UPS products will involve
significant technological and cost challenges and will require additional
financing to complete. Major risks include:
o maintaining the development schedule may not be possible and such
development could take substantially longer than anticipated;
o the cost of developing key components of our systems that have significant
technical risk may not be economically successful 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 make them profitable;
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 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 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. The
supplier of the control electronics for our new high-power UPS product is a
single source supplier, and the loss or interruption of supply from this
supplier would adversely affect our ability to market our high-power UPS product
and, thus, our financial results.
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 us 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
super capacitors, fuel cells, advanced batteries, and other types of 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 assure you 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 assure you 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 our
flywheels so that if they fail, the flywheel is expected to 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 only with Messrs. Capp, Spiezio, Lazarewicz and French. Mr.
Capp and Mr. Lararewicz's employment agreements are in effect until December 1,
2004 and October 25, 2003, respectively, but the employment agreements with
Messrs. Spiezio and French will expire on October 26, 2002.
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 High-Power UPS
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 high-power UPS
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 US, 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 distributorship
relationships and enforcing contractual obligations and intellectual property
rights in foreign countries, 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 assure you 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, 2001. 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.
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 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. 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 our
management and board of directors.
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 June 30, 2002, we had
approximately $60,000 of cash equivalents that were held in a non-interest
bearing checking account. Also at June 30, 2002, we had approximately $1,979,000
of cash equivalents that were held in interest bearing checking accounts,
$1,713,000 invested in interest-bearing money market accounts and approximately
$20,745,000 in high-grade commercial paper. 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 $50,000, which we
do not believe is material.
PART II
Item 1. 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 2. Changes in Securities
On November 16, 2000, the Securities and Exchange Commission declared our
Registration Statement on Form S-1 (File No. 333-43386) effective. In our
initial public offering during the fourth quarter of 2000, we sold 9,200,000
shares of our common stock, inclusive of the underwriters' over allotment, at an
initial public offering price of $6.00 per share. We received net proceeds from
our initial public offering of approximately $49.3 million, reflecting gross
proceeds of $55.2 million net of underwriter commissions of approximately $3.9
million and other offering costs payable to persons, other than directors or
officers, of approximately $2.0 million.
From November 16, 2000 to June 30, 2002, we spent approximately $9.8 million for
inventory and materials used in research and development and $7.2 million for
property and equipment, including the build-out of our facility at 234
Ballardvale Street in Wilmington, MA. In addition, we spent approximately $1.2
million to pay dividends on our preferred stock that accrued through the date of
our initial public offering. We have spent approximately $20.8 million for other
working capital needs. In addition to the above, we advanced funds totaling
approximately $785,000 to three officers of the Company. The remainder of the
net offering proceeds has been invested in short-term, income producing bank
deposits pending their use for the purchase of property and equipment and
working capital needs. Other than as disclosed above, none of these amounts were
direct or indirect payments to directors or officers of the issuer or their
associates or to persons owning 10% or more of our common stock or to any of our
affiliates.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders of the Company was held on May 23, 2002.
The stockholders of the Company elected certain members of the Board of
Directors and ratified the selection of Deloitte & Touche LLP as the Company's
independent auditors for the current fiscal year. The number of affirmative,
negative and abstained votes cast with respect to each of the matters voted on
were as follows:
The tabulation of votes for the nominees for directors were as follows:
For Withheld
Alan P. Goldberg 35,782,402 405,805
Nancy Hawthorne 36,014,148 174,059
For Against Abstain
Selection of Deloitte & Touche LLP as auditor 36,119,212 38,175 30,820
Item 5. Other Information
None.
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) None.
(b) Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BEACON POWER CORPORATION
Date: August 14, 2002 By: /s/ F. William Capp
F. William Capp
President and Chief Executive Officer
August 14, 2002 /s/ James M. Spiezio
James M. Spiezio
Vice President of Finance and Chief
Financial Officer
(Principal Financial Officer and Chief
Accounting Officer)