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 March 31, 2003,
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 ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes ____ No __X__.
The number of shares of the Registrant's common stock, par value $.01 per
share, outstanding as of May 1, 2003 was 42,815,928.
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 March 31, 2003 and
December 31, 2002. 1
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 2003 and 2002 and for the
Period May 8, 1997 (date of inception) to March 31, 2003. 2
Unaudited Consolidated Statements of Cash Flows for three
months ended March 31, 2003 and 2002 and for the Period
May 8, 1997 (date of inception) to March 31, 2003. 3
Notes to Unaudited Consolidated Financial Statements. 6-8
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations. 8-17
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 18
Item 4. Controls and Procedures 18
PART II. Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults on Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits, Financial Statements Schedules and Reports
on Form 8-K 19
Signatures 20
Certifications 21-22
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2003 2002
----------------------- -----------------------
Assets
Current assets:
Cash and cash equivalents $ 16,086,635 $ 18,221,766
Prepaid expenses and other current assets 1,328,829 1,775,455
Assets held for sale 53,715 53,715
----------------------- -----------------------
Total current assets 17,469,179 20,050,936
Property and equipment, net (Note 3) 442,612 562,929
Other assets 438,944 291,901
----------------------- -----------------------
Total assets $ 18,350,735 $ 20,905,766
======================= =======================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 147,520 $ 77,326
Accrued compensation and benefits 153,668 226,623
Other accrued expenses 415,886 576,881
Restructuring reserve 1,663,851 1,749,738
Current portion of capital lease obligations 124,028 200,041
----------------------- -----------------------
Total current liabilities 2,504,953 2,830,609
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;
42,812,897 shares issued and outstanding at March 31, 2003
and December 31, 2002 428,129 428,129
Deferred stock compensation (14,314) (18,413)
Additional paid-in-capital 132,746,426 132,750,525
Deficit accumulated during the development stage (117,214,799) (114,985,424)
Less: treasury stock, at cost (99,660) (99,660)
----------------------- -----------------------
Total stockholders' equity 15,845,782 18,075,157
Total liabilities and stockholders' equity $ 18,350,735 $ 20,905,766
======================= =======================
See notes to unaudited 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 March 31, through March 31,
2003 2002 2003
----------------- ----------------- --------------------
Revenue $ - $ - $ 551,184
Operating expenses:
Selling, general and administrative 1,218,648 2,035,761 24,341,676
Research and development 958,907 3,139,754 47,752,801
Loss on sales commitments - - 375,974
Depreciation and amortization 99,689 506,091 3,765,692
Restructuring charges - - 2,159,280
Loss on impairment of assets - - 4,297,128
----------------- ----------------- --------------------
Total operating expenses 2,277,244 5,681,606 82,692,551
----------------- ----------------- --------------------
Loss from operations (2,277,244) (5,681,606) (82,141,367)
Other income (expense):
Interest income 58,039 153,952 3,620,042
Interest expense (4,230) (14,867) (1,091,220)
Other expense (5,940) (8,374) (596,060)
----------------- ----------------- --------------------
Total other income, net 47,869 130,711 1,932,762
----------------- ----------------- --------------------
Net loss (2,229,375) (5,550,895) (80,208,605)
Preferred stock dividends - - (36,825,680)
Accretion of convertible preferred stock - - (113,014)
----------------- ----------------- --------------------
Loss to common shareholders $ (2,229,375) $ (5,550,895) $(117,147,299)
================= ================= ====================
Loss per share, basic and diluted $ (0.05) $ (0.13)
================= =================
Weighted-average common shares outstanding 42,812,897 42,770,856
================= =================
See notes to unaudited 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 inception)
Three months ended March 31, through March
2003 2002 31, 2003
---------------------------------------------------------
Cash flows from operating activities:
Net loss $ (2,229,375) $ (5,550,895) $ (80,208,605)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 99,689 506,091 3,765,692
Loss on sale of fixed assets - - 170,868
Gain on sale of fixed assets (5,693) - (5,693)
Impairment of assets - - 4,297,128
Restructuring charge net of expenses paid (85,887) - 1,663,851
Reserve for officers note 5,940 - 434,338
Interest expense relating to issuance of warrants - - 371,000
Non-cash charge for change in option terms - - 346,591
Non-cash charge for settlement of lawsuit - - 303,160
Amortization of deferred consulting expense, net - - 1,160,784
Amortization of deferred stock compensation - 10,820 1,290,253
Warrants issued for consulting services - - 1,569,366
Accrued loss on sales commitments - - 375,974
Services and interest expense paid in preferred stock - - 11,485
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 440,686 86,544 (1,862,827)
Accounts payable 70,194 (435,416) 147,520
Accrued compensation and benefits (72,955) (81,875) 153,668
Accrued interest - - 275,560
Due to related party - (35,532) -
Accrued loss on sales commitments - - (375,974)
Other accrued expenses and current liabilities (160,995) (233,280) 424,556
---------------------------------------------------------
Net cash used in operating activities (1,938,396) (5,733,543) (65,691,305)
Cash flows from investing activities:
Increase in other assets (149,600) (13,029) (324,818)
Purchases of property and equipment - (89,045) (8,413,715)
Sale of property and equipment 28,878 - 28,878
---------------------------------------------------------
Net cash used in investing activities (120,722) (102,074) (8,709,655)
Cash flows from financing activities:
Initial public stock offering, net of expenses - - 49,341,537
Payment of dividends - - (1,159,373)
Shares issued under employee stock purchase plan - - 123,249
Exercise of employee stock options - - 1,175,670
Issuance of preferred stock - - 32,868,028
Repayment of subscription receivable - - 5,000,000
Proceeds from capital leases - - 495,851
Payments on capital leases (76,013) (96,201) (907,367)
Proceeds from notes payable issued to investors - - 3,550,000
---------------------------------------------------------
Net cash (used) provided by financing activities (76,013) (96,201) 90,487,595
(Decrease) increase in cash and cash equivalents (2,135,131) (5,931,818) 16,086,635
Cash and cash equivalents, beginning of period 18,221,766 34,601,585 -
---------------------------------------------------------
Cash and cash equivalents, end of period $ 16,086,635 $ 28,669,767 $ 16,086,635
=========================================================
Supplemental disclosure of non-cash transactions:
Cash paid for interest $ 4,230 $ 20,957 $ 485,656
=========================================================
Cash paid for taxes $ 4,456 $ 17,156 $ 30,256
=========================================================
Assets acquired through capital lease $ - $ - $ 535,445
=========================================================
See notes to unaudited consolidated financial statements.
BEACON POWER CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Notes to Unaudited 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. 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.
Because the Company has not yet generated a significant amount of revenue from
its principal operations, it is continuing 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
and does not have a segmented structure dictated by product lines, geography or
customer type. However, 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.
Operations. The Company has experienced net losses since its inception and, as
of March 31, 2003, had an accumulated deficit of approximately $117.1 million.
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. 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. 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. 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.
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 ended
March 31, 2003 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2003. 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, 2002.
There have been no significant additions to or changes in accounting policies of
the Company since December 31, 2002. For a complete description of the Company's
accounting policies, see Note 2 to Consolidated Financial Statements in the
Company's 2002 Annual Report on Form 10-K.
Note 3. Property and Equipment
Property and equipment consist of the following:
Estimated
Useful March 31, December 31,
Lives 2003 2002
-------------------------------------------------
Machinery and equipment 5 years $ 1,991,381 $ 1,998,631
Service vehicles 5 years 63,792 63,792
Furniture and fixtures 7 years 686,572 717,293
Office equipment 3 years 1,908,500 1,914,195
Leasehold improvements Lease term 2,072,577 2,072,577
Equipment under capital lease obligations Lease term 1,008,985 1,081,726
-------------------------------------
Total $ 7,731,807 $ 7,848,214
Less accumulated depreciation and amortization (3,005,683) (2,996,079)
-------------------------------------
Property and equipment, before impairment $ 4,726,124 $ 4,852,135
-------------------------------------
Less Impairment Reserve (4,283,512) (4,289,206)
-------------------------------------
Property and equipment, net $ 442,612 $ 562,929
=====================================
Note 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 March 31, 2003 the balance of the letter of credit totaled
$355,232. A cash deposit secures this letter of credit.
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. This investment will be part of a
larger financing provided by several investors and will be made on the same
terms as the other investors in this financing, except that the Company will
also be permitted to purchase a three-year warrant for $100,000 that is
exercisable for 2,400,000 shares of Evergreen's common stock.
Note 5. Common Stock
Reserved Shares. At March 31, 2003 and December 31, 2002, 13,684,392 and
14,493,238 shares of common stock were reserved for issuance under the Company's
stock option plan and outstanding warrants, respectively.
Note 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 in one
case, to pay the related taxes. Through March 31, 2003, the Company has
collected approximately $317,000 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 $62,000 at March 31, 2003 is included in
prepaid and other assets in the accompanying consolidated balance sheet.
Note 7. Restructuring 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.
A summary of the restructuring reserves is as follows:
Facility related Asset impairment
Beginning balance at December 31, 2002 $ 1,749,738 $ 4,289,206
Charges for the period - -
Other - (5,694)
Payments (85,887) -
------------------------------------------------
Ending balance at March 31, 2003 $ 1,663,851 $ 4,283,512
================================================
Note 8. 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 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.
Three months ended Three months ended
March 31, 2003 March 31, 2002
--------------------------------------------------------
Net loss to common shareholders as reported $(2,229,375) $(5,550,895)
Pro forma compensation expense - 361,993
-------------------------- ----------------------------
Net loss--pro forma $(2,229,375) $(5,912,888)
Loss per share--as reported $ (0.05) $ (0.13)
Loss per share--pro forma $ (0.05) $ (0.14)
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
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
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. Additionally, we are developing a new high-energy product for
potential applications in the renewable energy market for both photovoltaic and
wind turbine uses.
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 March 31, 2003 we have incurred losses of
approximately $117.1 million. We do not expect to become profitable or obtain
positive cash flow before 2006 and may not achieve positive cash flow even at
that point or beyond. 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.
Results of operations:
Comparison of three months ended March 31, 2003 and 2002
Revenues. We are evaluating markets for our current products and other future
products but we did not recognize revenues for the three months ended March 31,
2003 or 2002. 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 2001, we increased
our sales and marketing effort by hiring five sales persons and initiating
several marketing research efforts to help us find markets for our current and
future products. We continue to rely on engineering personnel to provide
technical specifications and product overviews to our potential customer base.
Our general and administrative expenses consist primarily of compensation and
benefits related to our corporate staff, professional fees, insurance costs and
travel. Selling, general and administrative expenses totaled approximately
$1,219,000 and $2,036,000 for the three months ended March 31, 2003 and 2002,
respectively. The decrease of approximately $817,000 is primarily the result of
a reduction in headcount.
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. These costs were reduced significantly during 2002
as we reduced our headcount on March 12 and July 19, 2002.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.
Research and development expenses totaled approximately $959,000 and $3,140,000
for the three months ended March 31, 2003 and 2002, respectively. The decrease
of $2,181,000 is primarily the result of lower headcount and lower development
costs in 2003 compared to 2002 as we perform limited development while working
to identify markets for our products.
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 also have intellectual
property in the form of a patent on our vacuum system that we began to amortize
in 2002. Depreciation and amortization totaled approximately $100,000 and
$506,000 for the three months ended March 31, 2003 and 2002, respectively. The
decrease of $406,000 is attributable to the decrease in the remaining net book
values of our assets.
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 March 31, 2003 was approximately
$58,000, compared to $154,000 for the same period in 2002. The decrease in 2003
compared to the prior year is the result of lower cash balances and lower
interest rates.
Interest expense decreased to approximately $4,000 for the three months ended
March 31, 2003 from approximately $15,000 for the same period in 2001. Interest
expense relates to assets leased under capital leases.
Other expense of approximately $6,000 for the three months ended March 31, 2002
relates to the write-off of capitalized interest on the reserved loan of our
former CEO.
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.
Net cash used in operating activities was approximately ($1,938,000) and
($5,734,000) for the three months ended March 31, 2003 and 2002, respectively.
The primary component to the negative cash flow from operations is from net
losses. For the first three months of 2003, we had a net loss of approximately
($2,229,000). This included non-cash charges of approximately $6,000 for the
reserve of interest capitalized on a reserved note due from our former CEO,
facility related cash payments charged against restructuring reserves of
approximately ($86,000), gain on the sale of assets of ($6,000) and depreciation
and amortization of approximately $100,000. Changes in operating assets and
liabilities generated approximately $277,000 of cash during the first three
months of 2003. The primary components were increases in accounts payable of
approximately $70,000, and decreases in prepaid expenses of approximately
$441,000. These were offset by accrued expenses and other current liabilities of
approximately ($161,000) and accrued compensation and benefits of approximately
($73,000). For the first three months of 2002, we had a net loss of
approximately ($5,551,000). This included non-cash charges of approximately
$11,000 for amortization of deferred stock compensation and depreciation and
amortization of approximately $506,000. Changes in operating assets and
liabilities used approximately ($699,000) of cash during the first three months
of 2002. The primary components were decreases in accounts payable of
approximately ($435,000), accrued expenses and other current liabilities of
approximately ($233,000), accrued compensation and benefits of approximately
($82,000) and amount due to a related party of ($36,000). These were offset by a
decrease of approximately $87,000 for prepaid expenses and other current assets.
Net cash used in investing activities was approximately ($121,000) and
($102,000) for the three months ended March 31, 2003 and 2002, respectively. The
principal uses of cash during the first three months of 2003 were related to
increases in other assets totaling ($150,000) and the principal sources of cash
were from the sale of certain impaired machinery and equipment of the company of
approximately $29,000. The principal uses of cash during the first three months
of 2002 were related to purchases of machinery and equipment totaling
approximately ($89,000) and an increase in other assets of ($13,000.)
Net cash used by financing activities was approximately ($76,000) and ($96,000)
for the three months ended March 31, 2003 and 2002, respectively. For the first
three months of 2003 and 2002 the cash used for financing activities all related
to repayment of capital leases.
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 through 2004.
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. In as much 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.
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, 2002 (filed March 31, 2003),
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 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 2006.
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
($117,147,299). 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 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 3. 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 March 31, 2003, we had
approximately $60,000 of cash equivalents that were held in non-interest bearing
accounts. Also at March 31, 2003, we had approximately $1,013,000 of cash
equivalents that were held in interest bearing checking accounts and $15,013,000
invested in interest-bearing money market accounts. A 10% change in interest
rates would change the investment income realized on an annual basis by
approximately $26,000, which we do not believe is material.
Item 4. 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 quarterly 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.
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 March 31, 2003, 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 $33 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 officers have
repaid approximately $317,000 of these advances through March 31, 2003. 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 $62,000 at March 31, 2003 is included
in prepaid and other assets in the accompanying consolidated balance sheet.
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
None.
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
None
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: May 6, 2003 By: /s/ F. William Capp
-------------------
F. William Capp
President and Chief Executive
Officer
May 6, 2003 /s/ James M. Spiezio
--------------------
James M. Spiezio
Vice President of Finance, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial
Officer)
CERTIFICATION
I, F. William Capp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Beacon Power
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 6, 2003
/s/ F. William Capp
---------------------------
F. William Capp
Chief Executive Officer
CERTIFICATION
I, James M. Spiezio, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Beacon Power
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
quarterly 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: May 6, 2003
/s/ James M. Spiezio
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James M. Spiezio
Chief Financial Officer