Nef Value Research L.L.C.

Thought of the Week Issue10September15, 2007

If you like, my ideas and you are a hedge fund or mutual fund portfolio manager, trader, or analyst then contact me here to set up a meeting or a trial of my company’s services.

SPECULATIVE TRADE

Every once in a while I like to swing for the fences and see if I can put one out of the park. Today’s idea falls into this category. Beacon Power(BCON) is an alternative energy company that has developed a flywheel-based system for storing and transmitting kinetic energy. The system is used to support electricity grid operation for frequency regulation. This link explains fully what the company’s equipment does.

This second link explains how the company can benefit from frequency regulation.

Near-term Catalysts

BCON has a number of near-term catalysts coming up that have the potential to send the stock higher. In the past positive announcements have sent the stock higher at a double digit rate, and the company has a very important announcement coming up in September. On the next page is a chart that shows recent strong moves in the stock price. I have highlighted in yellow the start of each move and I have footnoted the reason for the move below the chart.

  1. 6/5 BCON is approved by the PJM Interconnection for use in frequency regulation markets in its territories. PJM manages the flow of electricity in the world’s largest competitive wholesale electricity market. The region includes the states of: Delaware, New Jersey, Pennsylvania, Indiana, Illinois, Kentucky, Maryland, Michigan, Ohio, Tennessee, Virginia, West Virginia and North Carolina. (+21%)
  2. 6/19 BCON shares break back above $1 a share and as it becomes apparent that it will remain above $1 for 10 consecutive days, allowing it to avoid NASDAQ delisting the stock gained momentum. (+142%)
  3. 9/5 the company announces a $10 million placement with Quercus Trust. The $10 million is half of the financing that the company expected to raise in the second half of 2007. The Quercus Trust is a trust that is very active in the alternative energy markets. Other companies it has taken positions I include: EPG, OEGY, ASTI, WWAT, OPTT, DLSL, and Live Fuels, so the news is welcome. (+35%)

  1. 9/12 BCON announced successful results over a full range ofperformance tests for its Smart Energy 25 Flywheel, and announced that they will now be starting to build its first 10 commercial flywheel units. (+18%).

On Monday, BCON will be presenting at the Merriman Cushman Ford 4th Annual Investor Summit in San Francisco. During its last conference call management stated that it will be announcing the site of its first commercial-sized plant. If the company announces its plans concurrent with the conference, the stock could experience a short-term pop.

The company has stated that it will generate its first service revenues in April of 2008, and that it will have 10 to 20 megawatts in service by the end of 2008. Each megawatt that the company gets into service is worth about $460 thousand in revenues annually. If the company can stick to its schedule, revenues should begin to hockey stick during the second quarter of 2008. To date, the company has only generated revenue through R&D contracts and test programs. Needless to say, BCON only generated $969 thousand in revenue last year. Once the service revenues begin to kick in, the top line should grow rapidly as the company adds more megawatts to its service areas. A 20 megawatt plant should generate just over $9 million in revenues annually, and BCON believes the size of the market it is targeting is at least $650 million annually. All said, BCON’s process for generating power for frequency regulation is efficient, eco-friendly, and high-margined. A new frequency regulation area is set to open in early 2008, which will increase BCON’s target market. Note that this newsletter is just to alert you to the opportunity. It is not meant as an end-all on the stock or its processes. Do some due diligence on this one so that you can understand their process. I believe that the company’s revenues are ready to hockey stick, and that it is usually good to be ahead of the revenue curve.The company’s website is .

Valuation

Given that BCON has less than $1 million in revenues at the moment it is very hard to value the stock effectively. Given the opportunity ahead of the company, if they are successful, it is possible that they will be generating $40 million plus in revenues within the next five years. I have conservatively given the stock a valuation range for the next 3 years below. Remember, this is a speculative trade. Don’t bet the house on it, but it may be worth a small gamble at these levels. All said, at the minimum, keep it on your radar screen.

Beacon Power ($1.73)

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$1.00 $2.00 $3.00 $4.00

$1.50 $2.50 $3.50

I hope you have enjoyed our free thought and I look forward to bring you more thoughts in the weeks ahead. If you like, my ideas and you are a hedge fund or mutual fund portfolio manager, trader, or analyst then contact me here to set up a meeting or a trial of my company’s services.

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