During the first quarter of 2009, Beacon earned revenue from frequency regulation service provided through an ISO-New England (ISO-NE) pilot program that began in November 2008, and from its research and development contracts. Revenue earned during the equivalent period of 2008 was derived from the sale of solar inverters and related products. Cost of goods sold increased from around $0 in the first three months of 2008 to around $172,000 during the equivalent period of 2009.
During the first quarter of 2009, cost of goods sold includes around $130,000 for the cost of energy associated with the provision of frequency regulation services under the pilot program. The cost of energy during this period exceeded revenue from frequency regulation service because of the manner in which the company was connected to the grid for the pilot program. This resulted in Beacon being paid at wholesale rates for the energy the company provided to the grid, but being charged at retail rates for the energy used. As of late April 2009, ISO-New England and the local utility have implemented a change to net metering through the ISO, which will reduce the cost of energy for the company going forward by billing for net (rather than gross) usage at wholesale rates.
During the first quarter of 2009, Beacon began to classify as operations and maintenance on its income statement expenses related to the manufacturing, materials handling and procurement functions, Smart Energy Matrix operations, and expensed non-fungible costs associated with its flywheel installations. Prior to 2009, such expenses were included under research and development. On a combined basis, operations and maintenance and research and development costs for the quarter ended March 31, 2009, were $2,968,000, compared to $3,032,000 in the first quarter of 2008, a reduction of $64,000, or 2%. The reduction in costs was attributable to lower stock-based compensation expense, greater absorption of overhead and lower legal and occupancy costs, partially offset by higher costs in certain areas. Selling, General and Administrative expense was $1,897,000 during the first quarter of 2009, compared to $2,176,000 in the first quarter of 2008, a decrease of $279,000, or around 13%. This decrease is due primarily to lower stock-based compensation and legal costs. Depreciation expense increased by $144,000 compared to the first quarter of 2008. This increase is mainly related to the company’s new facility in Tyngsboro, Massachusetts.
At March 31, 2009, the company had $5.3 million in cash and cash equivalents, with working capital of $2.2 million.
