Securities and exchange commission


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the quarterly period ended September 30, 2001

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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934 For the transition period from to

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Commission file number:

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ACTIVE POWER, INC.

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(Exact name of registrant as specified in its charter)
Delaware 74-2961657

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(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

11525 Stonehollow Dr., Suite 110, Austin, Texas 78758

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(Address of principal executive offices) (Zip Code)
(512) 836-6464

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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed

since last report)
Indicate by check mark whether the registrant (1) has filed all reports

required to be filed by Sections 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. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's

classes of common stock, as of the latest practicable date. The number of shares

of common stock as of September 30, 2001 was 40,531,070 with a par value of

$0.001 per share.
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ACTIVE POWER, INC.

INDEX


PART I - FINANCIAL INFORMATION.................................................1
Item 1. Financial Statements..............................................1
BALANCE SHEETS........................................................1
STATEMENT OF OPERATIONS...............................................2
STATEMENT OF CASH FLOWS...............................................3
Notes to Financial Statements.........................................4
Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations...................................5
Liquidity and Capital Resources.......................................8
Quantitative and Qualitative Disclosures About Market Risk............9
Risk Factors That May Affect Future Results..........................10
PART II- OTHER INFORMATION....................................................18
Item 1. Legal Proceedings................................................18
Item 2. Changes in Securities and Use of Proceeds........................18
Item 3. Defaults Upon Senior Securities..................................18
Item 4. Submission of Matters to a Vote of Security Holders..............18
Item 5. Other Information................................................18
Item 6. Exhibits and Reports on Form 8-K.................................18
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

ACTIVE POWER, INC.

BALANCE SHEETS
(in thousands)


September 30, December 31,

2001 2000

---- ----

(unaudited)
ASSETS

Current assets:

Cash and cash equivalents $ 80,005 $ 92,720

Short-term investments 10,013 42,541

Accounts receivable, net 3,415 1,934

Inventories, net 6,153 2,343

Prepaid expenses and other 1,344 1,177

---------- ----------

Total current assets 100,930 140,715

Property and equipment, net 16,489 4,469

Long-term investments 29,493 10,948

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Total assets $ 146,912 $ 156,132

========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

Accounts payable $ 6,045 $ 2,133

Accrued expenses 3,057 1,610

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Total current liabilities 9,102 3,743
Stockholders' equity:

1992 preferred stock - -

Common stock 41 39

Treasury stock (2) (2)

Deferred stock compensation (3,604) (7,519)

Additional paid-in capital 215,029 212,601

Accumulated deficit (73,654) (52,730)

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Total stockholders' equity 137,810 152,389

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Total liabilities and stockholders' equity $ 146,912 $ 156,132

========== ==========

See accompanying notes
1

ACTIVE POWER, INC.

STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)

(unaudited)

Three Months Nine Months

Ended September 30, Ended September 30,

-------------------------- --------------------------

2001 2000 2001 2000

------------ ------------ ------------ ------------
Product revenue $ 6,219 $ 1,343 $ 18,058 $ 2,204

Cost of goods sold 6,885 2,085 20,670 3,782

------------ ------------ ------------ ------------

Product margin (loss) (666) (742) (2,612) (1,578)
Operating expenses:

Research and development 4,003 3,060 11,562 6,718

Selling, general and administrative 2,908 1,578 8,571 4,138

Amortization of deferred stock compensation 926 1,881 3,197 5,021

------------ ------------ ------------ ------------

Total operating expenses 7,837 6,519 23,330 15,877

------------ ------------ ------------ ------------

Operating loss (8,503) (7,261) (25,942) (17,455)
Interest income (expense) 1,266 1,548 5,167 2,243

Change in fair value of warrants with

redemption rights - - - (1,562)

Other income (expense) (123) (76) (148) (80)

------------ ------------ ------------ ------------

Net loss $ (7,360) $ (5,789) $ (20,923) $ (16,854)

Preferred stock dividends and accretion - (3,669) - (19,079)

Net loss to common shareholders $ (7,360) $ (9,458) $ (20,923) $ (35,933)

============ ============ ============ ============
Net loss per share - basic and diluted $ (0.18) $ (0.35) $ (0.53) $ (2.18)
Shares used in computing net loss per share,

basic and diluted 40,153,164 27,322,877 39,532,822 16,467,498


See accompanying notes

2

ACTIVE POWER, INC.

STATEMENT OF CASH FLOWS
(in thousands)

Nine Months Ended

September 30,

-------------------------

2001 2000

---------- ----------

(unaudited) (unaudited)
Operating activities

Net loss $ (20,923) $ (16,854)

Adjustment to reconcile net loss to cash used in

operating activities:

Depreciation expense 1,704 708

Amortization of deferred stock compensation 3,197 5,021

Change in fair value of warrants with redemption rights - 1,562

Changes in operating assets and liabilities:

Accounts receivable, net (1,481) (880)

Inventories, net (3,811) (1,082)

Prepaid expenses and other assets (777) (1,026)

Accounts payable 3,913 1,448

Accrued expenses 1,447 230

Other non-current liabilities - (7)

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Net cash used in operating activities (16,731) (10,880)
Investing activities

Purchases of property and equipment (13,724) (3,518)

Net maturity (purchase) of investments 13,983 (15,612)

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Net cash provided by (used in) investing activities 259 (19,130)
Financing activities

Proceeds from issuance of common stock, net of issuance costs 1,489 139,911

Proceeds from exercise of warrants 2,268 30

Payments on notes payable . - (55)

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Net cash provided by financing activities 3,757 139,886

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Increase in cash and cash equivalents (12,715) 109,876

Cash and cash equivalents, beginning of period 92,720 24,856

---------- ----------

Cash and cash equivalents, end of period $ 80,005 $ 134,732

========== ==========


See accompanying notes.

3

Active Power, Inc.

Notes to Financial Statements
(unaudited)
1. Organization
Active Power, Inc. was founded in 1992 as Magnetic Bearing

Technologies, Inc. for the purpose of developing and commercializing advances in

the field of electromechanics. In the early years, Active Power devoted efforts

principally to research and development, pursuing patent protection for

intellectual property, successful production of initial prototypes, raising

capital and pursuing markets for our flywheel-based power quality and energy

storage products. In 2000 and 2001, the size and scope of our operations

expanded considerably. We raised our level of new product development, increased

our manufacturing capabilities and capacity, and added resources in sales and

service to strengthen our distribution channels.
2. Basis of Presentation
The accompanying unaudited interim financial statements have been

prepared pursuant to the rules and regulations of the Securities and Exchange

Commission. Accordingly, certain information and footnote disclosures normally

included in financial statements prepared in accordance with generally accepted

accounting principles have been condensed or omitted. These financial statements

should be read in conjunction with the audited financial statements and

accompanying notes thereto included in our Annual Report on Form 10-K for the

year ended December 31, 2000. In the opinion of management the financial

statements include all adjustments (consisting of normal recurring adjustments)

necessary for a fair presentation of the results for the periods presented.

Results of operations for any interim period are not necessarily indicative of

results for any other interim period or for the full year.
3. Inventory
Active Power states inventories at the lower of cost or replacement

cost, with cost being determined on a standard cost basis, which does not differ

materially from actual cost.
Inventories consist of the following:
September 30, December 31,

2001 2000

------------ ------------

Raw Materials $ 5,170,147 $ 2,902,224

Work in Progress 2,540,858 310,330

Finished Goods 50,285 4,981

Less Reserves (1,608,029) (874,867)

------------ ------------

$ 6,153,261 $ 2,342,668

============ ============

4

4. Capital Structure
The following table sets forth the computation of basic and

diluted net loss per share:

Three Months Nine Months

Ended September 30, Ended September 30,

--------------------------- ---------------------------

2001 2000 2001 2000

------------ ------------ ------------ ------------
Net loss to common stockholders (thousands) $ (7,360) $ (9,458) $ (20,923) $ (35,933)

Basic and diluted:

Weighted-average shares of common

stock outstanding 40,318,355 27,820,583 39,769,876 16,894,343

Weighted-average shares of common

stock subject to repurchase (165,191) (497,706) (237,054) (426,845)

------------ ------------ ------------ ------------

Shares used in computing basic and diluted

net loss per share 40,153,164 27,322,877 39,532,822 16,467,498

============ ============ ============ ============
Basic and diluted net loss per share $ (0.18) $ (0.35) $ (0.53) $ (2.18)

============ ============ ============ ============

Item 2. Management's Discussion and Analysis of Financial Condition and Results

of Operations
The following discussion should be read in conjunction with the

financial statements appearing elsewhere in this Quarterly Report on Form 10-Q

and within our Annual Report on Form 10-K for the year ended December 31, 2000.

This report contains forward-looking statements, within the meaning of Section

27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act

of 1934, that involve risks and uncertainties. Our actual results could differ

materially from those anticipated in these forward-looking statements as a

result of various factors, including those discussed below under the heading

"Risk Factors," and other factors detailed in the Company's filings with the

Securities and Exchange Commission, specifically our Form 10-K for the year

ended December 31, 2000.
Overview
We design, manufacture and market power quality products that provide

the consistent, reliable electric power required by today's digital economy. We

believe that we are the first company to commercialize a flywheel energy storage

system that provides a highly reliable, low-cost and non-toxic replacement for

lead-acid batteries used in conventional power quality installations. Leveraging

our expertise in this technology and in conjunction with Caterpillar Inc., the

leading maker of engine generators for the power reliability market, we have

developed a battery-free power quality system, which is marketed under the

Caterpillar brand name (Cat(R) UPS). Our products are sold for use in the

facilities of companies in many different industries that all share a critical

need for reliable, high-quality power, such as semiconductor manufacturers,

hospitals, credit card processing centers, telecommunications providers,

Internet service providers, electric utilities and broadcasters. As an extension

of these existing product lines, we are developing additional products to more

broadly serve the various market segments within the power quality and

reliability market.
Since 1996, we have focused our efforts and financial resources

primarily on the design and development of our CleanSource(R) line of power

quality products (CleanSource DC and Cat(R) UPS) and on establishing effective
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