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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-28060
BOLDER TECHNOLOGIES CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 84-1166231
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4403 TABLE MOUNTAIN DRIVE
GOLDEN, CO 80403
(Address of principal executive offices) (Zip Code)
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(303) 215-7200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
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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 and 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant, based upon the closing price of the Common Stock reported on the
Nasdaq Stock Market (National Market) on February 28, 1999 was $57,832,330.
The number of shares of Common Stock outstanding as of February 28, 1999
was 9,687,142.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement to be filed
not later than 120 days after December 31, 1998, in connection with the
Registrant's 1999 Annual Meeting of Stockholders is incorporated by reference
into Part III of this Form 10-K.
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TABLE OF CONTENTS
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PAGE
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PART I
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Item 1. Business.........................................................................................3
Item 2. Properties......................................................................................15
Item 3. Legal Proceedings...............................................................................15
Item 4. Submission of Matters to a Vote of Security Holders.............................................15
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters...........................16
Item 6. Selected Financial Data.........................................................................17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...........19
Item 7A. Quantitative and Qualitative Disclosures about Market Risk......................................23
Item 8. Financial Statements and Supplementary Data.....................................................23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............23
PART III
Item 10. Directors and Executive Officers of the Registrant..............................................24
Item 11. Executive Compensation..........................................................................24
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................24
Item 13. Certain Relationships and Related Transactions..................................................24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ................................25
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PART I
ITEM 1. BUSINESS
NOTE CONCERNING FORWARD-LOOKING INFORMATION
This Annual Report contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "anticipate," "estimate," "project," "expect" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, projected or expected. Key factors that may have a
direct bearing on the Company's results include, but are not limited to, those
discussed in the sections entitled "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as well as those
discussed in the section entitled "Risk Factors" in the Company's Registration
Statement on Form S-3 filed on December 5, 1997, as amended through February
19, 1998 (the "Registration Statement"). Any forward-looking statements speak
only as of the date such statements are made.
INTRODUCTION
BOLDER is an energy technology company that is developing and
commercializing advanced, high power, rechargeable battery systems based on its
patented thin metal film ("TMF(R)") technology. The Company's TMF battery uses
proven lead acid electrochemistry in a proprietary configuration that has
higher power density than any other commercially available battery system. The
Company believes that its TMF batteries are attractive for many existing
battery-powered applications that require very large bursts of power, and will
enable new applications that could not previously be powered by batteries. The
Company believes that the combination of the following characteristics of its
prototype TMF battery systems offers advantages over commercially available
rechargeable batteries in a broad range of current and future applications:
High Power. The Company believes its TMF batteries can deliver higher
sustained power density than any other commercially available battery
technology. This is important in existing applications such as high
power/pulse power tools, specialty standby power, power quality and
engine starting, and may enable new applications ranging from high
performance hybrid electric vehicles to an automotive starting battery
that weighs substantially less than conventional automotive starting
batteries.
Cost Effective. TMF batteries are manufactured using inexpensive,
readily available raw materials. In addition, the Company believes its
manufacturing process will be cost effective at high volumes.
No Memory Effect. TMF batteries do not suffer from the memory effect
that reduces the capacity of nickel cadmium ("NiCd") batteries if they
are partially discharged and recharged repeatedly.
Small Size. In high power applications, such as high power/pulse power
tools, automotive starting and standby power, TMF batteries can do the
same amount of work as much larger conventional rechargeable
batteries. Since the battery system typically accounts for a
significant part of the physical volume and weight of these products,
TMF technology can make such products easier to use and/or less
expensive to manufacture by enabling reductions in product size.
Faster Recharge. TMF batteries can be recharged to full capacity in
less than five minutes with an appropriate charger, allowing the
device to be back to work quickly, thus increasing the "up time" of
the device.
Stable Discharge Voltage. In some applications, notably standby power,
electronic circuits must be used to compensate for the voltage drop
during discharge of other types of rechargeable batteries. TMF
batteries have very stable voltage during high rate discharge, and
thus provide more consistent performance and potentially reduce the
need for and cost of voltage regulation.
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Cool Operation. High power operation of batteries typically generates
significant heat that must be accommodated in the design of products,
such as standby power systems or professional power tools. The low
impedance of TMF batteries greatly reduces the amount of heat
generated by the battery, thus simplifying product design.
Superior Cold Temperature Operation. All batteries lose capacity as
the temperature drops. TMF batteries lose much less of their room
temperature capacity at lower temperatures than do conventional
batteries.
Extremely Rapid Response. TMF batteries deliver energy when requested
much more rapidly than conventional batteries.
Easy to Recycle. Environmental concerns have made recycling of
batteries increasingly important. Unlike many existing and emerging
battery technologies, TMF batteries are readily handled by the well
developed recycling process that is currently used to recycle
approximately 90 percent of the lead acid batteries in the United
States.
The Company has focused its initial product development efforts on its
sub-C cell, which was introduced in October 1998. The sub-C cell can be used as
a modular building block for battery packs that can be used in a variety of
applications. The Company has also introduced its TMF REBEL(TM) rechargeable
battery packs. Based on the core product sub-C cell, the high power TMF REBEL
product line includes battery modules ranging from 6 to 24 volts. The sub-C
cell is produced on an automated production line located in the Company's
127,000 square foot leased facility in Golden, Colorado. This facility has been
designed to accommodate multiple production lines and two research and
development lines, as well as all of the Company's other operations. The
qualification of the Company's first high-volume production line was completed
in September 1998, and the Company is currently producing a few thousand sub-C
cells per month that are being used as samples, to fulfill small orders, and as
experiments to improve the product and the production process. The Company does
not expect significant volume shipments to begin prior to the second half of
1999.
An integral part of the Company's strategy is to work with OEM
customers and strategic partners to develop market opportunities and leverage
its resources. For example, BOLDER intends to channel a portion of its sales
through value added partners ("VAPs"), and the Company has established
agreements with five VAPs to market TMF batteries throughout North America and
Europe. The Company believes that VAP sales will help the Company develop new
applications and market segments.
The Company is also seeking opportunities to increase the share of
value it obtains from those applications that can uniquely benefit from the
capabilities of TMF batteries. Consistent with this strategy, the Company has
announced that it will introduce a line of emergency starting products for
cars, trucks, and other engine powered vehicles. These products will be
designed and produced by the Company and sold to end users through various
sales channel partners. The Company expects these products to be attractive
because they will be small and lighter and perform better than existing
products used for this function.
During 1998 the Company completed a technology transfer program with
Johnson Controls, Inc. ("JCI"), one of the world's leading suppliers of
automotive batteries. The Company has licensed JCI to produce and sell TMF
batteries for certain specific market segments.
BOLDER Technologies Corporation was incorporated in Colorado in 1991
and reincorporated in Delaware in 1993. The Company's executive offices are
located at 4403 Table Mountain Drive, Golden, Colorado 80403, and its telephone
number is (303) 215-7200.
MARKET OPPORTUNITY
Industry sources estimate that the world market for rechargeable
batteries in 1998 was in excess of $16 billion. The demand for rechargeable
batteries is being driven by rapidly growing demand for a wide range of
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portable devices, as well as economic growth in the developed and developing
world. In addition, there is an increasing importance of providing standby
power and/or power quality maintenance for mission critical systems.
The largest market segment for rechargeable batteries is automotive
engine starting. While this $9 billion market is fairly mature, there are a
number of electrical system changes being contemplated by the automotive
leaders that will have major implications on the types of batteries used in the
automotive industry.
Over the past few years while developing the technology and
manufacturing capability, the Company pursued a broad-based OEM market
development with the objective of engaging with attractive strategic partners
and validating a range of large market opportunities. This period of market
validation has resulted in a focused prioritization of the company's business
opportunities. They are being pursued relative to their potential for
accelerating revenue and achieving attractive gross margins.
TABLE 1. EXISTING APPLICATIONS.
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PRIMARY TARGETS SECONDARY TARGETS OTHER APPLICATIONS
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Automotive Starting Airplane Starting Electric Powered Lawn Mowers
Gasoline Powered Lawn Mowers ATM Terminals Grass Trimmers
Power Boats Point of Sale Terminals Other Power Tools
Jet Skis Telecommunications Equipment Photographic Equipment
Snowmobiles Transport Systems Portable Electric Saws
Snowblowers Uninterruptible Power Supplies Portable Power Drills
Motorcycles Very Small Standby Power Razors
Small Engine Starting Systems Toothbrushes
Portable Generator Sets Weapons Toys
Tractors Pulse Power Tools Weed Whackers
Emergency and Auxiliary Starting
Equipment
Power Quality Systems
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The above table illustrates the major applications for rechargeable
batteries ranked based on the compelling aspects of the TMF technology and
current industry trends.
Of particular importance, the Company foresees a substantial near-term
growth opportunity targeting the $9 billion engine-starting segment. The unique
high power performance and size advantages of the TMF technology is being
validated in a number of engine starting applications such as: motorcycles,
outboard marine, emergency jump-starting, primary car/truck starting and
aircraft backup starting.
In addition to engine starting, the Company believes there are
attractive applications in standby power and high power/pulse power portable
tools, which take advantage of the same performance characteristics as found in
automotive and motor sport engine starting applications. The Company intends to
selectively target these segments through its OEM sales program.
NEW AND EMERGING APPLICATIONS
The unique high power, fast recharge and small size of the TMF battery
will enable more cost-effective solutions for next generation automotive
applications:
Automotive Dual Battery Systems. Automotive manufacturers are
currently focused on resolving several issues related to automotive starting
batteries, including very limited space available under the hood, increasing
under-hood temperatures, which can cause premature battery failure, and growing
loads on the battery from accessories that continue to operate even when the
engine is off. Currently, all automakers use traditional lead acid batteries
for automotive starting. Several major automakers are considering a dual
battery system that would include a dedicated starting battery and a separate
"hotel load" battery to provide power for accessories. The Company believes
that the high power to size/weight ratio and low temperature performance of its
TMF battery system are
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well suited for use in a small format automotive starting battery. The Company
has granted JCI a limited exclusive license to sell TMF batteries for car and
truck engine primary starting applications until 2001, when BOLDER has the
right to sell into these markets.
Electric Vehicles and Hybrid Electric Vehicles. In response to growing
concerns about pollution and the availability of fossil fuels, the automobile
industry is in the process of developing Electric Vehicles ("EVs") and Hybrid
Electric Vehicles ("HEVs"). EVs would be powered exclusively by a battery
system.
HEVs would use a small fossil fuel powered engine (typically a diesel
or turbine engine) as a base power source combined with a power storage system
(such as a battery or flywheel) for power boosts to accelerate and climb hills.
In addition, HEVs use "regenerative braking" to capture and to store the energy
generated by the automobile when braking. The objective of HEV design is to
provide car performance similar to current car models, significant reductions
in pollution and large increases in gas mileage. The Company believes that its
TMF batteries are particularly well suited for HEV applications because their
low impedance enables them to capture and store the large amounts of power
generated by braking and quickly deliver large amounts of power to supplement
the power of the internal combustion engine needed for acceleration and hill
climbing. The Company believes that its TMF technology has the potential to
provide a viable power storage solution for HEVs. Chrysler Corporation
successfully demonstrated a prototype HEV powered by BOLDER's TMF batteries,
the Dodge Intrepid ESX HEV, at the 1996 North American Auto Show. JCI has a
non-exclusive license for HEV applications. The Company also participated in a
government funded SBIR program to develop a larger (5Ah) cell and associated
manufacturing process technology for HEV applications. The Company continues to
ship batteries to organizations conducting R&D in the area of Hybrid and
Electric Vehicles. The Company may consider participating in future development
programs in the area.
STRATEGY
The Company's objective is to become a major supplier of innovative
rechargeable batteries and battery-powered end use products. The Company's
strategies for achieving this objective include the following:
Execute a Sequential Market Entry Strategy. Introduce products and
enter markets in a sequential manner such that the technical and market
experience of each phase or "building block" lays the groundwork for the next
building block. The building blocks are as follows:
1. TMF cells and battery packs sold to OEM customers who will
incorporate them into their products.
2. Emergency starting units based on TMF batteries and sold to
end users.
3. Specialized batteries for marine and motorsports
applications.
4. Car and truck starting batteries.
(See the "Sequential Market Entry" Section for further detail.)
Manage Channels to Optimize Margins and Market Development. The
Company has, and will continue to establish, direct relationships with major
OEM customers. In addition, the Company intends to channel a portion of its
initial production of TMF batteries through a network of VAPs, which the
Company believes can help develop new applications and market segments. The
Company will also partner with key sales channel participants to optimize
access to end use and other markets.
Partner with Key OEMs to Define, Test and Introduce Products. The
Company is seeking to maximize the development potential and shorten the sales
cycle for its TMF batteries by working with a limited number of OEMs in targeted
market segments. These OEM customers have helped and will continue to help to
define the specifications for some of the Company's initial products by
providing useful feedback throughout the development process.
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Use Precision Process Control and Advanced Analytical Tools to Improve
Performance and Cost. The Company is committed to improving process efficiency,
enhancing product quality and performance and reducing manufacturing costs
through the use of advanced process controls and analytical tools. The Company
uses sophisticated process controls to capture multiple data points throughout
the manufacturing process. The Company uses this data to evaluate, control and
improve the manufacturing process, to optimize and improve product performance
and to reduce product cost. The Company believes that the resulting
improvements in product performance and cost will allow it to significantly
expand the addressable market over time.
Aggressively Leverage, Grow and Protect the Technology Base. The
Company considers its product and process technology to be one of its most
valuable assets. This technology is applicable to a wide range of battery
products in both spiral wound and prismatic (flat) formats. The Company intends
to fully exploit this technology by developing new products based on market
need. The Company aggressively protects and intends to grow its technology base
through its established program for intellectual property documentation and
protection. The Company has six issued patents in the U.S., four issued foreign
patents and a number of pending patents in the U.S., Canada, Europe and Japan.
In addition, the Company holds significant trade secrets in the area of product
and process technology.
Use Strategic Relationships to Leverage Company Resources. The Company
is using, and plans to continue to use, strategic relationships to access
funding, research and development, marketing and other resources and to develop
specific markets. For example, the Company has agreements with five VAPs that
provide for, among other things, marketing and distribution of the products
throughout North America and Europe. The Company also has a strategic
relationship with Eagle Picher Industries for the military market. The Company
is currently exploring other strategic relationships as a means of entering end
use markets for its emergency starting products, as well as other market
segments.
The Company's ability to achieve these strategic objectives depends
upon a number of factors. See the section entitled "Risk Factors" in the
Registration Statement for a discussion of certain of the risks associated with
the Company's ability to achieve these strategic objectives.
SEQUENTIAL MARKET ENTRY
Original Equipment Manufacturers (OEM's). The Company has organized a
network of value-added distributor partnerships (known as VAPs). These
independent sales and battery assembly companies are promoting the TMF 9/5
sub-C cell into various applications where the TMF size and performance value
is significantly higher than competing NiCd or lead acid batteries. The VAPs
have a particular focus and knowledge in standby power, power quality and
specialized high power battery applications.
In addition to the VAPs, the Company is pursuing strategic customer
opportunities with OEMs who are developing next generation high power products
such as portable power tools. The Company believes the power tool market will
provide long-term growth opportunities. The Company continues to seek out new
and unique applications for its technology by engaging in strategic discussions
with large OEMs in the automotive and portable electronics industry.
Emergency-Starting Products. The Company has taken an aggressive
posture in developing a family of consumer and professional emergency jump-start
products for cars, trucks and marine use. The Company has combined its TMF cells
with unique package designs and microprocessor control circuitry, which will
allow the Company to introduce a very compact and easy to use family of
jump-start products which are substantially smaller and perform significantly
better compared to current products on the market.
The Company believes it may have a significant impact on the existing
professional market consisting of auto service stations, tow truck operators
and fleet organizations. The Company plans to address the professional market
through relationships with key participants in this channel. Beyond the
professional users, the Company will be targeting high-end consumers and
do-it-yourself customers who have not been buyers of these products due to the
large size of the existing products. The Company intends to market this family
of emergency jump-start products directly into the automotive aftermarket and
through the major retail stores including the TV shopping networks. This will
be accomplished through a network of independent sales representatives focused
on the retail and automotive aftermarket. With over 200 million cars and trucks
in use, the Company believes there is an attractive opportunity to expand
revenue growth.
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Specialized Batteries for Marine and Motor Sports. The performance,
size and weight improvements of the TMF battery are ideally suited for marine
and motor sports use. Motor sports include motorcycles, snowmobiles, jet ski's
and all terrain vehicles. The Company has begun development of a "smart"
battery product which will include control circuitry to insure that the engine
will always start under a broad range of conditions.
The Company intends to introduce a marine and motor sport product
offering during 2000. The products will be marketed into the aftermarket retail
sales channel as premium solutions to the battery problems often encountered
with existing products by the enthusiast and sportsman. The Company believes
there are more than 20 million vehicles in use in the U.S. that could be
candidates for the Company's future product.
Car and Truck Starting Batteries
The Company has granted JCI a limited exclusive license with respect
to automotive primary engine starting until July 2001, at which time the
Company may enter the market. Recently, JCI announced plans to offer a TMF
dedicated engine starting battery for the dual-battery systems under
development by the major automotive manufacturers. The Company plans to
introduce a line of car and truck starting batteries for both the OEM and
aftermarkets after JCI's period of exclusivity has ended.
TECHNOLOGY AND PRODUCTS
The Company believes that its TMF technology represents a significant
advance over existing rechargeable battery technologies for applications that
require high power in a small package. TMF rechargeable batteries employ a
proprietary configuration of traditional lead acid electrochemistry--the same
electrochemistry that has been used in battery systems for over a century and
that is currently used in batteries for cars and many electronic applications.
A variety of combinations of chemical and metallurgical materials can
be used to form a rechargeable battery system. For example, rechargeable lead
acid batteries that are used in automobiles include a negative and positive
plate made of lead and lead oxide compounds and an electrolyte of sulfuric
acid. A rechargeable NiCd battery incorporates a positive and negative plate
made of nickel and cadmium compounds with a potassium hydroxide electrolyte.
TMF batteries use the same components as traditional lead acid batteries. This
provides a cost advantage over NiCd batteries because the raw materials for
lead acid batteries are less expensive than those used in NiCds.
The primary structural innovations of the Company's TMF batteries are
an increased plate surface area within the battery, a short path through the
active material to the negative or positive plates, and patented end cap
connectors. As in a traditional lead acid battery, the TMF battery cell has a
negative and positive plate. However, the TMF plates are unique because they
are comprised of very thin lead foil substrates that are coated with a very
thin, uniform layer of active material (lead oxide paste) (See Figure 1). The
negative and positive plates of the TMF battery are interleaved with a
fiberglass separator. In the spiral wound form factor of the TMF battery, the
combination of the negative and positive plates and the fiberglass separator
are wound so that the negative and positive plates are slightly offset at
opposite ends of the cell. A connector is cast on to each end of the cell (See
Figure 2). The Company designed its patented connector to cap the ends of the
spiral wound TMF battery so that it is in continuous contact with the exposed
edge of both the negative and positive plates.
FIGURE 1 FIGURE 2
[A picture of one of the [A picture of the connector cap
Company's battery cells and its appears here.]
component parts, including the
positive plate, the negative
plate and the separator appears
here. The picture illustrates
the slight offset of the
negative and positive plates at
opposite ends of the cell.]
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The use of thin lead foil substrates significantly increases the
surface area of the lead, thus lowering the impedance of the cell and greatly
increasing the rate at which the cell can be charged and discharged. In
addition, the use of the thin lead foil substrates in combination with the
fiberglass separator provides for a short path through the active material to
the negative or positive plates, allowing for more rapid delivery of the
current, increasing the responsiveness of the cell. The patented end cap
provides a continuous, uniform and dispersed connection between the negative
and positive plates and the device being powered. TMF batteries have been made
in sizes ranging from 0.5-inch diameter (0.4 Ah) cells up to approximately
3-inch diameter (12 Ah) cells.
While the TMF technology can be deployed in different formats, the
Company's initial product is a sub-C format (cylindrically shaped, 0.90 inch in
diameter by 2.84 inches in length), which is compatible with the existing NiCd
battery form factor. This form factor is the one most commonly used by power
tool and portable appliance manufacturers and can be assembled into packs of
various sizes and configurations. Due to the higher voltage in the Company's
TMF cell (2.1 volts), only six cells are required to replace ten NiCd cells
(1.2 volts) to make a 12 volt pack with similar overall performance
characteristics. In addition, multiple sub-C cells can be configured to
increase power and voltage. For example, the Company has built and delivered to
Chrysler Corporation for use in a prototype HEV two battery packs each
consisting of 600 sub-C cells in a series parallel matrix of four cells by 150
cells. In addition, the Company has successfully fabricated very thin
(approximately 1/16 inch) prismatic, or flat, format TMF cells. These cells can
be stacked to achieve various voltages in an extremely compact format that is
useful in products, such as small format electronic devices, where space is at
a premium.
OTHER BATTERY TECHNOLOGIES
Rechargeable battery systems utilize a number of different
electrochemistries, the most common of which include lead acid, nickel cadmium,
nickel metal hydride and lithium ion. The performance characteristics of
battery systems are interdependent, and all battery systems involve trade-offs
between various performance characteristics, such as power density and energy
density. For example, battery systems that are designed to maximize energy
density may not have a good power density, and vice versa. Therefore, different
electrochemistries have advantages in different applications.
FIGURE 3
[A graphic appears here plotting the power density and energy
density characteristics of existing battery systems. The
graphic illustrates that Lead Acid batteries have power
density ranging from approximately 40-400 W/kg and an energy
density of approximately 40 to 15 Wh/kg; Nickel Cadmium
batteries have a power density ranging from approximately
50-900 W/kg and an energy density of approximately 40 to 1
Wh/kg; Nickel Metal Hydride batteries have power density
ranging from approximately 40-800 W/kg and an energy density
of approximately 45 to 20 Wh/kg; Lithium Ion batteries have
power density ranging from approximately 50-1500 W/kg and an
energy density of approximately 90 to 1 Wh/kg; and; the
Company's TMF batteries have power density ranging from
approximately 40-6000 W/kg and an energy density of approximately
30 to 5 Wh/kg. All battery systems except TMF exhibit rapidly
declining energy density with increasing power density.]
Although there have been significant advances in the design of
rechargeable batteries over recent years, a primary focus of those efforts has
been to increase energy density. Increases in energy density allow longer
periods of use between recharges, but do not increase the sustained power that
a battery system can deliver. For example, it can be seen in Figure 3 that
lithium-ion batteries have higher energy density (i.e., can store and deliver
higher amounts of energy) than other battery electrochemistries in low power
applications. By contrast, the Company's TMF technology has been engineered to
optimize power density. Increases in power density allow more high power work
to be done with a battery of a given size or weight. As Figure 3 indicates, TMF
batteries are capable of five to six times the power delivery of any other
battery system. TMF batteries have the same advantage in power delivery as
lithium-ion batteries have in energy delivery. And TMF batteries deliver
significantly more energy than other electrochemical systems when the energy is
provided at high power rates. Certain products with short duty cycles, which
require very high levels of power to operate, can now be made portable for the
first time by utilizing TMF batteries.
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Traditional Lead Acid. Traditional lead acid batteries have been in
commercial production for over a century. Traditional lead acid batteries come
in two types: flooded and valve regulated. Flooded lead acid batteries are
typically used as automobile batteries or for large standby power systems.
These batteries use a liquid electrolyte and must be stored and used upright.
Valve regulated lead acid batteries are used in security, medical and
electronics applications, and can be used in any position. Lead acid batteries
are generally the least expensive of any battery system, provide moderate
energy and power density and have a nominal voltage of two volts per cell.
There is a well-developed recycling process for lead acid batteries, and over
90 percent of lead acid batteries (mainly car batteries) are recycled in the
United States.
Nickel Cadmium. NiCd batteries were first introduced in the 1960s, and
have enabled a wide range of portable products, including electronics and
portable power tools. NiCd batteries cost more to produce than lead acid
batteries, in part because of the high cost of nickel and cadmium. While they
deliver good energy density and moderately good power density, NiCd batteries
have relatively low cell voltage (1.2 volts) and lose capacity if they are
repeatedly partially discharged and then recharged (referred to as the memory
effect). In addition, there are growing environmental concerns regarding NiCd
batteries, including the potential for harmful release of highly toxic cadmium.
For example, regulatory agencies in the European Union have proposed limits or
bans on the use of NiCd batteries.
Nickel Metal Hydride. NiMH batteries, first introduced in the
mid-1980s, provide significantly higher energy density than NiCd batteries.
NiMH batteries are typically used in applications that require low to moderate
power output and long run times, such as camcorders and laptop computers. NiMH
batteries are more expensive than NiCd batteries, and are generally less
suitable for high power applications such as power tools.
Lithium. Both lithium ion batteries, which are now available
commercially, and lithium polymer batteries, which are now becoming available,
can provide substantially greater energy density than other available battery
systems for low rate applications, such as laptop computers. Existing lithium
systems, however, have low sustained power density and are generally unsuitable
for applications that require high power output. In addition, they are
significantly more expensive than other commercial batteries, require
relatively complex monitoring and charging circuitry and raise safety issues
due to the volatility of lithium metal.
STRATEGIC RELATIONSHIPS
BOLDER uses strategic relationships as a means of accessing funding,
research and development, marketing and other resources and to develop specific
markets. For example, the Company has agreements with five VAPs that market and
distribute the products throughout North America and Europe and provide
value-added services. In addition, the Company has a license relationship with
JCI that is currently focusing on commercialization of the TMF batteries for
specific market segments.
JCI, with headquarters in Milwaukee, Wisconsin, is a global market
leader in automotive systems and building controls. Through its Automotive
Systems Group, it supplies seating systems, interior systems and batteries to
the automotive original equipment and replacement markets. The Controls Group
serves the nonresidential buildings market with control systems and services,
and integrated facility management. Founded in 1885, it operates in more than
500 locations worldwide.
In June 1995, the Company and JCI established a joint venture (the
"Joint Venture") to develop high volume manufacturing technology for TMF
batteries, to manufacture TMF batteries for sale by both partners and to pursue
HEV battery development opportunities for TMF batteries. In 1997, having
substantially completed its primary objective of developing the high volume
manufacturing technology, the Company and JCI announced a new relationship,
which replaced the Joint Venture effective as of July 1996. Under the terms of
the new relationship, which was finalized in July 1997, each party will
separately implement TMF production facilities to best meet the unique
requirements of the markets addressed by each.
In connection with the agreement to discontinue the Joint Venture,
BOLDER received a cash payment from JCI, as well as all of the tangible net
assets of the Joint Venture. In return, BOLDER granted JCI certain
royalty-bearing licenses and committed to provide certain technology transfer
services. The Company completed is technology transfer obligations to JCI in
1998. All of the licenses are royalty bearing, and certain of the licenses are
10
<PAGE> 11
subject to minimum royalties and minimum performance criteria. BOLDER and JCI
also entered into a cross supply agreement with commitments to supply the other
party with minimum quantities of TMF battery products for several years.
In connection with the original agreement between JCI and the Company,
JCI purchased 250,000 shares of the Company's preferred stock, which converted
into 250,000 shares of Common Stock at the time of the Company's initial public
offering in May 1996. In addition, JCI exercised warrants to purchase an
additional 308,666 shares of preferred stock in April 1996. This preferred
stock also converted to Common Stock at the time of the Company's initial
public offering. JCI currently owns approximately 5.9 percent of the
outstanding Common Stock of the Company.
The Company is seeking to develop additional strategic relationships
to facilitate its entry into various markets.
MANUFACTURING
The Company has now completed installation of its first high volume
production line, completed certain key modifications, and demonstrated the
fundamental mechanical functionality of the entire line. Qualification of both
the manufacturing process and the Company's initial product, the sub-C cell,
has been completed. The production line is operational on a full one-shift
basis. Ongoing enhancements in both the manufacturing process and equipment
continue to improve the Company's manufacturing capability.
A flowchart of the manufacturing process for the spiral wound TMF
battery is shown below.
[A flowchart appears here summarizing the manufacturing
process of the Company's spiral wound TMF battery. The
flowchart illustrates that lead oxide paste is applied to
thin lead foil to form the positive and negative plates of
the cell, the separator is placed between the plates, the
plates are then wound together, the molten lead connectors
are formed on each end of the cell, the cell is assembled
into a plastic case and filled with electrolyte, and the cell
is then formed into a sub-C cell.]
The manufacturing process starts with the application of active
material (lead oxide paste) to very thin lead foil to form the positive and
negative plates of the cell. The plates, separated by a thin fiberglass
separator, are wound together using a process similar to that used to wind
capacitors. Each end of the wound cell is immersed in molten lead, which forms
the positive and negative end connectors of the cell. The cell is assembled
into a plastic case and filled with liquid electrolyte. The cell undergoes a
process known as "formation," whereby a proprietary sequence of charges,
discharges, and rests are used to electrochemically make the negative and
positive plates functional. The completed cell is tested to verify that it
meets the Company's specifications.
The Company is committed to improving process efficiency, enhancing
product quality and performance and reducing manufacturing costs through the
use of advanced process controls and analytical tools. The Company uses
sophisticated process controls to capture multiple data points throughout the
manufacturing process which it uses to evaluate, control and improve the
manufacturing process, to optimize and improve product performance and to
reduce product cost. In addition, the Company employs an extensive validation
program that measures performance criteria critical to customer applications.
Certain elements of the manufacturing process are proprietary to the Company,
and the Company owns the designs to certain equipment used in the process.The
principal raw materials used to produce TMF batteries are lead foil and lead
oxide. While these materials are available from multiple sources, the TMF
manufacturing process requires levels of consistency and purity in excess of
those required for many other applications. The Company has developed a vendor
qualification and partnering program and an incoming material inspection system
to evaluate the quality of raw materials.
MARKETING AND SALES
In order to optimize margins, the Company is initially targeting sales
to customers with applications that benefit from the very high power density of
TMF batteries. These applications include, emergency starting units
11
<PAGE> 12
standby power systems, power quality maintenance systems, high power/pulse
power tools,, small and portable generator starting, and other small engine
starting. The Company is working with a limited number of OEMs in these
targeted market segments. The Company's OEM "customer partners" have helped to
develop the specifications of the Company's initial products by providing input
early in the development process and by testing the Company's products. Some of
these customer partners are developing products based on TMF batteries.
The Company has a direct sales team that supports the Company's OEM
customers as well as the VAP network. The Company has signed exclusive
distribution agreements with the following VAPs for the following territories:
VALUE ADDED PARTNERS TERRITORIES
Engineered Assemblies Corp. All states east of the Mississippi
EXCELL Battery Company Canada
House of Batteries California, Arizona and New Mexico
Southwest Electronic Energy Corp. Texas, Oklahoma, Arizona and Louisiana
DMS Technologies Europe
VAPs typically provide value added services such as cell testing,
matching and pack assembly, assembly of the battery pack into a custom housing,
and packaging with an appropriate charger for OEM battery users, as well as
marketing and distribution of the Company's products throughout most of North
America and Europe. The VAP agreements are subject to minimum performance
criteria and standard termination provisions. VAPs may sell competitive
products. In each of the VAP agreements, the Company has reserved the right to
deal with any OEM in North America and Europe directly and expects to service
larger OEMs through its direct sales force, rather than through the VAPs.
The Company is planning to market its line of emergency starting units
through several different channel partners. Each of the partners will be
selected for their strong position in a particular target market segment.
RESEARCH AND DEVELOPMENT
The Company is directing its research and development efforts toward
continuously improving the sub-C cell and the manufacturing process. The
Company believes that the current product is acceptable for certain
applications and that additional improvements to the sub-C cell will increase
the potential number of applications for that product. The Company has a record
of continuous and substantial improvement in the performance of its sub-C cell.
These ongoing improvements are designed to continuously address the expanding
market. Several significant product and process improvement activities are
currently in the full production trial stage.
The Company has developed and tested prototypes of various form
factors, including larger and smaller spiral wound cells and very thin
(1/16-inch) prismatic, or flat, batteries. While the Company believes that each
of these products may have significant market opportunities, there can be no
assurance that any of these programs will result in a commercial product. In
addition, the Company is engaged in internal research programs to develop
charging procedures and chargers for its batteries and is working with battery
charger suppliers to address the availability of chargers for its batteries.
The Company has recently completed an SBIR research and development
agreement valued at up to $750,000 to develop a large (5 Ah) cell and
associated manufacturing process technology for HEV applications. The Company
previously completed a feasibility study for the program for which it received
$100,000.
PATENTS, TRADE SECRETS AND TRADEMARKS
The Company holds six issued United States patents that expire
beginning in 2008 and ending in 2016. The Company's issued patents cover a
number of inventions including thin non-perforated plates used in lead acid
batteries, and an end connector for establishing electrical continuity between
thin plates and a battery terminal. The Company also has four issued foreign
patents. In addition, the Company has 11 pending patents in the United
12
<PAGE> 13
States, as well as a number of pending foreign patents. Patent applications in
the United States are maintained in secrecy until patents issue, and since
publication of discoveries in the scientific or patent literature tends to lag
behind actual discoveries, the Company cannot be certain that it was the first
creator of inventions covered by pending patent applications or the first to
file patent applications on such inventions. There can be no assurance that the
Company's pending patent applications will result in issued patents or that any
of its issued patents will afford meaningful protection against a competitor.
In addition, patent applications filed in foreign countries are subject to
laws, rules and procedures that differ from those of the United States, and
thus there can be no assurance that foreign patent applications related to
issued United States patents will issue. Furthermore, if these patent
applications issue, some foreign countries provide significantly less patent
protection than the United States.
The status of patents involves complex legal and factual questions and
the breadth of claims issued is uncertain. Accordingly, there can be no
assurance that patent applications filed by the Company will result in patents
being issued or that its patents, and any patents that may be issued to it in
the future, will afford protection against competitors with similar technology.
In addition, no assurances can be given that others will not infringe or design
around patents issued to the Company or that the Company would need to license
or design around patents that others will obtain. If existing or future patents
containing broad claims are upheld by the courts, the holders of such patents
could require companies to obtain licenses. If the Company is found to be
infringing third-party patents, there can be no assurance that licenses that
might be required for the Company's products would be available on reasonable
terms, if at all.
The Company could incur substantial costs in defending itself or its
licensees, distributors or customers in litigation brought by others or
prosecuting infringement claims against third parties. If the outcome of any
such litigation is unfavorable to the Company, the Company's business could be
adversely affected. To determine the priority of inventions, the Company may
have to participate in interference proceedings declared by the United States
Patent Office or comparable proceedings in foreign patent offices, which could
result in substantial cost to the Company and may result in an adverse decision
as to the priority of the Company's inventions.
In addition to patent protection, the Company relies on the law of
unfair competition and trade secrets to protect its proprietary rights. The
Company considers several elements of the TMF manufacturing process to be trade
secrets. The Company attempts to protect its trade secrets and other
proprietary information through agreements with customers and suppliers,
proprietary information agreements with employees and consultants and other
security measures. Although the Company intends to protect its rights
vigorously, there can be no assurance that these measures will be successful.
See the section in the Registration Statement entitled "Risk Factors -- Patents
and Proprietary Rights."
The Company has registered its trademark "BOLDER" and its trademark
"TMF" as trademarks on the principal federal trademark register.
COMPETITION
Competition in the battery industry is, and is expected to remain,
intense. The competitors range from development stage companies to major
domestic and international companies. Many of these companies have financial,
technical, marketing, sales, manufacturing, distribution, and other resources
significantly greater than those of the Company. In addition, many of these
companies have name recognition, established positions in the market, and long
standing relationships with OEMs and other customers. While there is
significant development work being done by these competitors on various battery
systems (including electrochemistries such as NiCd, NiMH and lithium), the
Company believes that much of this effort is focused on achieving higher energy
densities for low power applications such as portable electronics. The
sustained power density of the Company's TMF batteries is substantially higher
than the published specifications of any other commercially available
rechargeable battery system. There can be no assurance that one or more new,
higher power battery technologies will not be introduced which could be
directly competitive with or superior to the Company's TMF technology.
The Company believes that its primary competitors are existing
suppliers of NiCd and lead acid batteries. In applications such as portable
tools and appliances, and certain electronic and medical products, the
Company's primary competitors will be suppliers of NiCd batteries, including
SANYO, Panasonic, Energizer and SAFT. All of
13
<PAGE> 14
these companies are very large and have substantial resources and market
presence. The Company expects that it will compete against NiCd batteries in
certain market segments on the basis of performance, cost and ease of
recycling. There can be no assurance that the Company will be able to compete
successfully against NiCd batteries in any of the targeted applications.
In applications such as car starting, standby power, very small
batteries for engine starting, and a few medical and electronics applications,
the Company expects that its primary competition will be from lead acid
batteries. The primary suppliers of small lead acid batteries used in
non-automotive applications are Yuasa, Exide Corporation, Matsushita, Hawker,
CSB Battery of America Corp., and GS Battery. The primary suppliers of
automotive batteries are JCI, Exide Corporation, GNB Inc. and Delphi. All of
these companies are very large and have substantial resources and market
presence. The Company expects that it will compete with lead acid batteries on
the basis of performance in the targeted application segments. In addition,
under the terms of its new strategic partnership with JCI, the Company has
granted JCI certain royalty bearing license rights which will allow JCI to
compete with the Company in the lawn and garden starting, motorcycle starting,
HEV, standby power markets and emergency jump starting markets. There can be no
assurance that the Company will be able to compete successfully against
traditional lead acid batteries in any of the targeted applications.
The market for batteries, and the evolution of battery technology, is
very dynamic. Other companies are devoting significant resources to improving
existing battery technologies and developing new battery technologies. There
can be no assurance that the Company's products will be able to compete
effectively in any of its targeted market segments. See the section in the
Registration Statement entitled "Competition."
SAFETY AND ENVIRONMENTAL ISSUES
The Company's operations involve the storage, use and disposal of a
number of toxic and hazardous materials, including lead, lead oxide, sulfuric
acid, solvents and adhesives. As a result, the Company is required to maintain
its research and manufacturing operations in compliance with United States
federal, state, and local standards that govern the storage, use, and disposal
of various chemicals used in and waste materials produced by the manufacture of
its TMF batteries. The Company's new manufacturing facility includes an
enclosed area specifically for the mixing of lead oxide paste, the pasting of
the lead foil and the winding of the cells. Employees operating in these areas
are instructed in the use of safety equipment such as gloves, protective
clothing, and respirators and are required under OSHA guidelines to submit to
blood monitoring tests on a periodic basis. The supervision and analysis of
these tests are undertaken by an outside, independent agency and the results
thereof are communicated to the Company's employees. The Company's activities
are also subject to federal, state and local environmental and safety laws and
regulations, including but not limited to regulations issued and laws enforced
by the Colorado Labor and Employment Department, the U.S. Department of
Transportation, the U.S. Department of Commerce, the U.S. Environmental
Protection Agency, the U.S. Department of Labor and by state and county health
and safety agencies. United States and foreign agencies are considering more
stringent regulation of the disposal of all rechargeable batteries. Although
the Company believes that its activities conform to current environmental and
other regulations, there can be no assurance that the Company will be able to
operate in conformity with such laws and regulations in the future, or that
changes in such laws or regulations will not require the Company to incur
substantial capital or operating costs to achieve and maintain compliance. Any
failure by the Company to adequately control the discharge of its hazardous
materials and wastes could also subject it to future liabilities, which could
be significant. See the section in the Registration Statement entitled "Safety
and Environmental Issues."
Lead acid batteries, regardless of their configuration, are generally
considered to be safer than NiCd and lithium batteries. However, lead acid
batteries, including the Company's TMF battery, may develop significant
internal pressures during severe overcharge conditions due to the release of
gases as a byproduct of the chemical reaction occurring in the cell. In order
to prevent potential pressure build up, the Company's batteries incorporate a
Bunsen pressure relief valve that, under normal overcharge conditions, will
allow the venting of small amounts of gases, primarily hydrogen and oxygen. If
the batteries are subjected to abusive overcharge or overdischarge conditions,
larger amounts of these gases may be vented, which, when mixed with air, can
cause explosions. In addition, under such conditions, toxic gases and/or
sulfuric acid spray may be released. Sulfuric acid can cause burns. While the
Company maintains product liability insurance in amounts which it believes are
reasonable given the associated risks, there is no assurance that such
insurance will be adequate to cover any potential liability
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<PAGE> 15
relating to one or more claims of product liability. The Company has tested its
batteries under a variety of conditions and plans to continue to test its
products for safety.
HUMAN RESOURCES
As of February 28, 1999, the Company had 123 full-time equivalent
employees. Of the total, 21 employees were engaged in product research and
development, 77 in operations, and 25 in general and administrative and
marketing functions. The Company's success will depend in large part on its
ability to attract and retain skilled and experienced employees. None of the
Company's employees are covered by a collective bargaining agreement, and the
Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company is located in a 127,000 square foot leased facility in
Golden, Colorado (approximately 15 miles northwest of Denver) that was
built-to-suit in 1997 for the Company. The Company has an eleven-year lease for
the facility with two five-year renewal options. This facility includes all of
the Company's offices and laboratories as well as the Company's first high
volume production line. The facility is designed to accommodate multiple high
volume production lines and two development lines.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, there were no matters requiring a
vote of security holders.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
The Company's Common Stock, par value $.001 per share, (Nasdaq Stock
Market (National Market) Symbol "BOLD") began trading publicly on the Nasdaq
National Market effective May 1, 1996. Prior to that date, there was no public
market for the Company's Common Stock. The following table presents quarterly
information on the price range of the Company's Common Stock. This information
indicates the high and low sale prices reported by the Nasdaq Stock Market
(National Market).
<TABLE>
<CAPTION>
1996 HIGH LOW
---- ---- ---
<S> <C> <C>
Second Quarter (from May 1) ....... $15.38 $10.50
Third Quarter ..................... $14.38 $10.75
Fourth Quarter .................... $17.13 $13.13
1997 HIGH LOW
---- ---- ---
First Quarter ..................... $17.25 $11.25
Second Quarter .................... $14.25 $11.00
Third Quarter ..................... $15.50 $12.13
Fourth Quarter .................... $14.00 $ 8.50
1998 HIGH LOW
---- ---- ---
First Quarter ..................... $11.75 $ 7.88
Second Quarter .................... $14.00 $ 8.50
Third Quarter ..................... $14.31 $ 8.50
Fourth Quarter .................... $13.75 $ 8.13
</TABLE>
HOLDERS
As of February 28, 1999, there were approximately 220 holders of
record of the Common Stock.
DIVIDENDS
The Company has not paid any dividends on its Common Stock since its
inception and does not intend to pay any dividends on its Common Stock in the
foreseeable future.
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<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the
Company's statements of operations for the years ended December 31, 1998, 1997,
1996, 1995 and 1994, and balance sheets as of December 31, 1998, 1997, 1996,
1995 and 1994 are derived from audited financial statements of the Company.
Such financial statements were audited by Arthur Andersen LLP, independent
public accountants, whose report with respect to the years ended December 31,
1998, 1997 and 1996 and as of December 31, 1998 and 1997 appears elsewhere
herein. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and the Notes related thereto included
elsewhere in this document.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Product sales .............. $ 49,264 $ 84,716 $ 35,580 $ 39,006 $ 9,379
Research and development
services .................. 2,410,605 2,466,377 440,324 66,667 33,333
------------ ------------ ------------ ------------ ------------
Total revenues ....... 2,459,869 2,551,093 475,904 105,673 42,712
Cost of revenues ................ 332,919 707,606 171,486 49,647 20,954
------------ ------------ ------------ ------------ ------------
2,126,950 1,843,487 304,418 56,026 21,758
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development ...... 7,677,787 7,092,534 2,863,552 2,479,428 2,212,977
General and administrative .... 3,286,783 3,348,061 2,132,565 808,724 1,124,101
Selling and marketing ......... 665,573 357,716 212,960 163,771 --
------------ ------------ ------------ ------------ ------------
Total operating expenses. 11,630,143 10,798,311 5,209,077 3,451,923 3,337,078
------------ ------------ ------------ ------------ ------------
Income (loss) from operations ... (9,503,193) (8,954,824) (4,904,659) (3,395,897) (3,315,320)
Other income (expense):
Interest income ............... 905,735 839,025 798,846 126,546 31,188
Interest expense .............. (1,346,511) (633,625) (54,277) (72,633) (32,092)
------------ ------------ ------------ ------------ ------------
Net income (loss) ............... (9,943,969) (8,749,424) (4,160,090) (3,341,984) (3,316,224)
------------ ------------ ------------ ------------ ------------
Dividend on preferred stock ..... (1,512,900) (352,320) -- -- --
Accretion of preferred stock
offering costs ................. (214,217) (50,000) -- -- --
------------ ------------ ------------ ---------- ------------
Net loss allocable to common
stockholders ................... $(11,671,086) $ (9,151,744) $ (4,160,090) $ (3,341,984) $ (3,316,224)
============ ============ ============ ============ ============
Basic net loss per share (1) .... $ (1.22) $ (0.97) $ (0.64) $ (3.07) $ (3.74)
============ ============ ============ ============ ============
Shares used in computing basic
net loss per share (1) ......... 9,560,660 9,446,930 6,465,281 1,087,554 886,367
============ ============ ============ ============ ============
Unaudited, pro forma basic net
loss per share (1).............. $ (0.49)
============
Shares used in computing
unaudited, pro forma basic
net loss per share (1) ....... 8,437,817
============
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and .......
available-for-sale securities .. $11,119,734 $20,394,777 $16,070,677 $ 2,799,697 $ 881,609
Working capital .................. 8,060,606 15,016,605 12,403,356 2,532,911 568,959
Total assets ..................... 32,591,747 41,275,589 27,146,116 4,748,347 2,308,606
Notes and capital leases payable.. 10,381,045 6,404,903 486,537 558,687 288,495
Mandatorily Redeemable Preferred
Stock(2) ....................... -- -- -- 13,433,482 7,893,900
Convertible, Redeemable
Preferred Stock ................ 15,998,863 16,205,046 -- -- --
Total stockholders' equity
(deficit) ...................... 20,388,338 30,286,815 23,070,901 (9,538,565) (6,134,888)
</TABLE>
(1) See Note 2 of Notes to Financial Statements for information concerning the
computation of basic net loss per share and pro forma basic net loss per
share.
(2) Each share of the Company's Mandatorily Redeemable Preferred Stock
automatically converted into one share of the Common Stock on May 6, 1996
upon the closing of the Company's initial public offering.
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<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, this report
may contain forward-looking statements that involve risks and uncertainties,
including manufacturing risks associated with implementing new process
technology, achieving commercial-scale manufacturing levels, achieving
consistent yields and quality, uncertainty of market acceptance and the timing
of market acceptance, as well as other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission, including the
Company's registration statement on Form S-3 filed on December 5, 1997, as
amended through February 19, 1998. These risks (i) have materially and
adversely affected, and may in the future materially and adversely affect, the
Company's results and (ii) have caused and may in the future cause such results
to differ materially from those expressed in any forward-looking statements
made by BOLDER.
GENERAL
Since its inception in March 1991, BOLDER Technologies Corporation
(the "Company") has been a development stage company, principally engaged in
the research and development of its Thin Metal Film ("TMF(R)") battery
technology, and has devoted significant resources to the development of its
technology and processes to manufacture its TMF batteries. In May 1997, the
Company moved to a new 127,000 square foot leased manufacturing facility and
corporate headquarters in Golden, Colorado. This facility has been designed to
accommodate multiple production lines and two research and development lines,
as well as all of the Company's other operations. The Company had disclosed in
early February 1998 that the qualification of its first high-volume
manufacturing line for producing a "sub-C cell" had proceeded more slowly than
originally anticipated, due to the late delivery and installation of equipment
and the time involved in initially testing and debugging of the line. Since
February 1998, the Company focused on making key modifications to the
production line and completing the debugging, testing, and qualification
process. In September 1998, the Company completed this process. In October, the
Company introduced its sub-C cell, which can be used as a modular building
block for various battery packs. Based on the sub-C cell, the Company also
introduced a modular line of battery packs known as its TMF REBEL rechargeable
battery packs. The Company is currently producing a few thousand sub-C cells
per month for sampling, to fulfill small orders and for experiments to improve
the production process and product performance.
The Company believes that the task of improving the efficiency of its
first production line, the efficiency of the overall manufacturing process, and
the performance of its TMF products will be an ongoing activity, as with any
new process technology, even beyond the start of commercial operations.
Additional modifications will be required from time to time to improve the
production capability of the line. Similarly, changes in the design of the
Company's products will be required from time to time to improve product
performance.
As with any new enabling technology, the Company expects to go through
a period of market adoption in which customers test and evaluate the BOLDER TMF
batteries, subsequently designing the batteries into customer's products.
Initially, the Company expects modest product shipments until significant
numbers of customers have completed this process. The Company expects to
generate revenues primarily from the sale of its TMF batteries. The Company
does not expect a significant volume of product shipments and resulting
revenues prior to the second half of 1999.
In June 1995, the Company and JCI established a joint venture (the
"Joint Venture") to develop high volume manufacturing technology for TMF
batteries, to manufacture TMF batteries for sale by both partners and to pursue
HEV battery development opportunities for TMF batteries. In 1997, having
substantially completed its primary objective of developing the high volume
manufacturing technology, the Company and JCI announced a new relationship,
which replaced the Joint Venture effective as of July 1996. Under the terms of
the new relationship, which was finalized in July 1997, each party is
separately implementing TMF battery-manufacturing facilities to best meet the
unique requirements of the markets addressed by each.
In connection with the agreement to discontinue the Joint Venture,
BOLDER received a cash payment from JCI, as well as all of the tangible net
assets of the Joint Venture. In return, BOLDER granted JCI certain
royalty-bearing licenses and committed to provide certain technology transfer
services. The Company completed
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<PAGE> 20
all of its obligations to provide technology transfer services to JCI in 1998.
All of the licenses are royalty bearing, and certain of the licenses are
subject to minimum royalties and minimum performance criteria. BOLDER and JCI
also entered into a cross supply agreement with commitments to supply the other
party with minimum quantities of TMF battery products for several years.
The Company believes that its results of operations to date may not be
indicative of results in future periods. Future operating results may be
affected by a wide range of factors and may fluctuate significantly from period
to period.
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenues decreased to $2,459,869 in 1998 from $2,551,093 in
1997. As in previous reporting periods, the majority of revenues resulted from
research and development services ("R&D"). Revenues from product sales
decreased to $49,264 in 1998 from $84,716 in 1997 and are expected to remain at
nominal levels until the Company has gone through a period of market adoption
by customers and commercial operations begin to increase. Approximately 85 and
75 percent of the $2,410,605 and $2,466,377 of R&D revenues in 1998 and 1997,
respectively, resulted from the Company's recognition of revenue from services
performed in connection with the technology transfer arrangement with JCI. The
remainder of the R&D revenues in 1998 and 1997, respectively, resulted from
customer-funded research and development programs. The R&D revenues associated
with the JCI agreement were non-cash items in 1998. The technology transfer
agreement with JCI was completed in 1998, and no additional R&D revenues will
be recognized beyond 1998 from this agreement. The Company considers R&D
revenues as an insignificant part of the future of the business.
Cost of revenues decreased to $332,919 in 1998 from $707,606 in 1997.
Most of the decrease in 1998 was due to lower levels of customer funded product
development programs compared to 1997.
Research and development expenses increased to $7,677,787 in 1998 from
$7,092,534 in 1997. The increase in 1998 was primarily due to additional
technical staff and associated expenses, and new manufacturing facility and
production line expenses related to the Company's expanded efforts to
commercialize its sub-C cell and to implement high volume manufacturing.
General and administrative expenses decreased to $3,286,783 in 1998
compared to $3,348,061 in 1997. The small decrease in 1998 reflected lower
expenses for legal fees and recruiting and relocation than in the prior year.
Selling and marketing expenses increased to $665,573 in 1998 compared
to $357,716 in 1997. The increases in 1998 were primarily due to increased
staffing levels and small amounts of advertising expenses associated with the
commercial introduction of the Company's products.
Interest income increased to $905,735 in 1998 from $839,025 in 1997.
This increase was due to larger invested cash balances in 1998, primarily
resulting from the Company's private placement of Series A Preferred Stock in
October 1997 and proceeds from debt financing in March 1998.
Interest expense increased to $1,346,511 in 1998, compared to $633,625
in 1997. The increases in 1998 were due to increased levels of debt financing.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
During 1997, the Company received revenues from services provided
under a technology transfer agreement with JCI, from a Small Business
Innovation Research ("SBIR") research and development agreement, from a
customer-funded development program and from the sale of batteries for testing
and evaluation by customers. R&D revenues increased to $2,466,377 in 1997 from
$440,324 in 1996. Approximately 75 percent of the 1997 R&D revenues resulted
from the technology transfer agreement with JCI, which agreement did not exist
in 1996. The remaining 25 percent of R&D revenues in 1997 and all of the 1996
R&D revenues resulted from a
20
<PAGE> 21
combination of both private customer-funded and the SBIR product development
programs. Product sales revenues increased to $84,716 in 1997 from $35,580 in
1996 and were expected to remain at nominal levels until the beginning of
high-volume production.
Cost of revenues increased to $707,606 in 1997 from $171,486 in 1996.
The increase was a result of higher costs directly related to commercial and
government funded product development programs.
Research and development expenses increased to $7,092,534 in 1997 from
$2,863,552 in 1996, primarily due to additional technical staff and associated
expenses and new manufacturing facility expenses related to the Company's
increased efforts to commercialize its sub-C cell and prepare to implement
high-volume manufacturing.
General and administrative expenses increased to $3,348,061 in 1997
from $2,132,565 in 1996. The increase was due to additional administrative
staffing and added expenses for insurance, legal and investor relations. Also,
included in the 1997 expenses were $210,000 of costs (printing, legal and
accounting) associated with the registration statement filed in February 1997
and withdrawn in May 1997.
Selling and marketing expenses increased to $357,716 in 1997 from
$212,960 in 1996. The increase was primarily due to increased marketing and
business development activities related to the Company efforts to obtain new
customers for future delivery of product.
Interest income increased to $839,025 in 1997 from $798,846 in 1996.
The increase resulted primarily from slightly higher average cash balances
invested during 1997 than in 1996.
Interest expense increased to $633,625 in 1997 from $54,277 in 1996.
The increase resulted primarily from increased levels of lease and debt
financing in 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
During 1996, the Company received revenues from a customer-funded
development program, from the sale of batteries for testing and evaluation by
customers, and from an SBIR research and development agreement. Total revenues
increased to $475,904 in 1996 from $105,673 in 1995, primarily from a
customer-funded product development program. Product sales in 1996 and 1995
were nominal and were expected to remain at nominal levels until the beginning
of high-volume production.
Cost of revenues increased to $171,486 in 1996 from $49,647 in 1995.
The increase was a result of increased costs directly related to commercial and
government funded product development programs.
Research and development expenses increased to $2,863,552 in 1996 from
$2,479,428 in 1995, primarily due to the Company's increased efforts to
commercialize its sub-C cell and develop its manufacturing process.
General and administrative expenses increased to $2,132,565 in 1996
from $808,724 in 1995. The increase was due to additional administrative
staffing and added expenses for insurance, legal and investor relations
associated with becoming a public company.
Selling and marketing expenses increased to $212,960 in 1996 from
$163,771 in 1995. The increase was primarily due to increased marketing and
business development activities related to the Company's efforts to heighten
customer interest as the Company increased efforts to commercialize its sub-C
cell.
Interest income increased to $798,846 in 1996 from $126,546 in 1995.
The increase resulted primarily from investment of the net proceeds from the
Company's initial public offering and from the exercise of warrants by
stockholders in April 1996.
Interest expense decreased to $54,277 in 1996 from $72,633 in 1995.
The decrease resulted primarily from the absence of debt service in 1996 on
convertible promissory notes issued to certain stockholders in March 1995,
which were converted into Common Stock in May 1995.
21
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
From its inception through December 31, 1998, the Company has financed
its operations and met its capital requirements primarily through private and
public offerings of its equity securities, raising net proceeds of $52.5
million from sales of these securities. The Company has also received net
proceeds of $12.3 million from a debt agreement with Transamerica Business
Credit Corporation. At December 31, 1998, the Company's balances of cash, cash
equivalents, and available-for-sale securities totaled $11.1 million, compared
to $20.4 million at December 31, 1997.
In October 1997, the Company received approximately $15.8 million in
net proceeds from the private placement of 336,200 shares of Series A
Convertible Preferred Stock. The first dividend payment, in the form of shares
of the Company's common stock, was made on March 13, 1998, resulting in the
issuance of 77,985 shares of the Company's common stock. The total amount of
this dividend payment, representing the period from October 8, 1997 through
March 12, 1998, was $654,900. An additional dividend payment, in the form of
shares of the Company's common stock, was made on June 30, 1998. This resulted
in the issuance of 36,704 shares. The total value of the dividend payment,
which covered the period from March 13, 1998 through June 30, 1998, was
$453,870. A dividend payment in the amount of $756,450, made on December 31,
1998, for the period from July 1, 1998 through December 31, 1998, resulted in
the issuance of 80,902 shares of BOLDER common stock.
In March 1998, the Company obtained loan proceeds of $5.2 million from
its debt agreement with Transamerica Business Credit Corporation ("TBCC"). The
Company has no additional financing available from the TBCC debt agreement. The
remaining loan balance, which is collateralized by tenant improvements and the
high volume production line, is $10.3 million at December 31, 1998.
As of December 31, 1998, the Company had made payments of $11.4
million to fund the construction of its first high-volume production line, of
which $8.0 million were financed through its debt agreement with TBCC. The
Company has no additional obligations to the supplier of its production line.
In 1998, the Company invested approximately $1.6 million in leasehold
improvements, machinery, equipment, and office furnishings to support its new
facility and its development, production, sales and administrative activities.
Except as noted above, the Company currently has no other significant
capital commitments other than its commitments under notes payable. The Company
believes that its existing sources of liquidity and projected cash generated
from operations will satisfy the Company's funding requirements at least
through year-end 1999. To provide funds for future production lines, the
Company will need to access additional sources of equity capital or debt. If
these financing sources are not available, the Company would likely delay any
substantial expansion of fully-automated manufacturing capacity. There can be
no assurance that the Company will generate revenues and operating income
sufficient to satisfy its working capital and equipment expenditure needs in
the future. In addition, the Company is unable to predict the precise amount of
future capital that it may require, and there can be no assurance that any
additional financing will be available to the Company if that need arises or
that financing will be in a form or on terms acceptable to the Company. The
inability to generate revenues and operating income or obtain required
financing on acceptable terms would have a material adverse effect on the
Company's business, financial condition, and results of operations.
Consequently, the Company could be required to significantly reduce or suspend
its operations, seek a merger partner or sell additional securities on terms
that could be dilutive to the Company's stockholders.
INCOME TAXES
Net operating loss carry-forwards totaling approximately $34.9 million
are available to reduce taxable income as of December 31, 1998. The net
operating loss ("NOL") carry-forwards expire from 2005 through 2013. The
Company has not paid income taxes since its inception. The Tax Reform Act of
1986 and other income tax regulations contain provisions which may limit the
NOL carry-forwards available to be used in any given year, if certain events
occur, including significant changes in ownership interests. A change of
ownership of a company greater than 50 percent within a three-year period
results in an annual limitation on the Company's ability to utilize its NOL
carry-forwards from tax periods prior to the ownership change. The private
placement sale of Series A Convertible, Redeemable Preferred Stock in October
1997 resulted in such a change of ownership, and the Company
22
<PAGE> 23
estimates that the resulting NOL carry-forwards limitation will be
approximately $6.8 million per year for periods subsequent to October, 1997.
The Company does not believe that this limitation will affect the eventual
utilization of its total NOL carry-forwards. The Company has established a
valuation allowance for the entire amount of its deferred tax asset since
inception due to its history of operating losses.
YEAR 2000
State of Readiness. The Company relies on software in its information
systems and manufacturing equipment. Most of this equipment and software was
installed and written within the past three years. The Company has completed an
inventory of its critical control systems, computers, and application software.
Costs. The Company has a plan to validate each of these systems by the
end of Third Quarter 1999. This plan (35% of total expected hours completed to
March 15, 1999) will be accomplished through a combination of written vendor
confirmations and specific validation testing. The Company has contracted with
third party vendors to assist in planning tests and/or testing these systems.
Cost of the testing and validation phase are not expected to exceed $50,000,
including consulting and internal resources.
Due to the fact that the Company's information and embedded systems
are new, generally off-the-shelf, and vendor relationships still exist for the
subject equipment and software, Year 2000 remediation costs are expected to be
relatively small. They are expected to consist of replacing relatively low-cost
personal computers, and installations of bug-fixes from major manufacturers of
equipment, along with some customer software fixes. These costs, including
hardware replacements accelerated by the Year 2000 situation, and other
contingency plan activities, are not expected to exceed $50,000.
Risks. The most likely risks to the Company from Year 2000 issues are
external, due to the difficulty of validating key third parties' readiness for
Year 2000. The Company will seek confirmation of such compliance and seek
relationships that are compliant. However, the risk that a major supplier of
raw materials, or a major OEM customer, will become unreliable due to Year 2000
problems will still exist. The Company will maintain contingency plans for each
of these key relationships as they arise, such as second sourcing, purchasing
additional inventory, and creating joint contingency plans for Year 2000
situations with each relationship.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable, because the Company has only fixed rate debt and no
derivatives.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Company are
provided at the pages indicated in Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has not been any change of accountants or any disagreements with
the Company's accountants on any matter of accounting practice or financial
disclosure during the reporting periods.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to executive officers and directors of the
Company appearing in the Proxy Statement under the captions "Election of Class
III Directors," "Executive Officers and Key Employees" and "Section 16(a)
Beneficial Ownership Reporting Compliance" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation appearing in the
Proxy Statement under the caption "Executive Compensation" is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the information in the Proxy Statement labeled "Security Ownership
of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the section in the Proxy Statement labeled "Certain Transactions."
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a) FINANCIAL STATEMENTS
The financial statements required by this item are submitted in a separate
section beginning on Page F-1 of this report.
FINANCIAL STATEMENTS OF BOLDER TECHNOLOGIES CORPORATION
<TABLE>
<S> <C>
Report of Independent Public Accountants .................................. F-1
Balance Sheets as of December 31, 1998 and 1997 ........................... F-2
Statements of Operations for the three years ended December 31, 1998, 1997,
and 1996; and the period from inception
(March 22, 1991) to December 31, 1998 ................................... F-4
Statements of Stockholders' Equity (Deficit) from inception
(March 22, 1991) to December 31, 1998 ................................... F-5
Statements of Cash Flows for the years ended December 31,
1998, 1997, 1996; and the period from inception (March 22,
1991) to December 31, 1998 .............................................. F-12
Notes to Financial Statements ............................................ F-14
</TABLE>
b) REPORTS ON FORM 8-K
During the last quarter of its fiscal year ended December 31, 1998, the
Company filed no Report on Form 8-K.
c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
3(i).1* Amended and Restated Certificate of Incorporation of the
Company.
3(i).2** Certificate of Designation of the Series A Preferred Stock of
the Company.
3(i).3** Amendment to the Certificate of Designation of the Series A
Preferred Stock of the Company.
3(i).4*** Certificate of Designation of the Series B Junior
Participating Preferred Stock of the Company.
3(ii).1* Amended and Restated Bylaws of the Company.
3(ii).2** Amendment to the Amended and Restated Bylaws of the Company.
4.1 Reference is made to Exhibits 3(i).1 through 3(ii).2.
4.2* Specimen stock certificate representing shares of Common
Stock of the Company.
4.3** Specimen stock certificate representing shares of Series A
Preferred Stock of the Company.
4.4*** Rights Agreement between the Company and American Stock
Transfer & Trust Company, dated January 23, 1998.
4.5*** Form of Rights Certificate.
10.1*+ Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.2 1996 Equity Incentive Plan of the Company, as amended through
April 17, 1997 (previously filed as an exhibit to the
Company's Registration Statement on Form S-8 (Registration
No. 333-08968) and incorporated herein by reference).
10.3* 1996 Employee Stock Purchase Plan of the Company.
10.4*+ Employment Agreement between the Company and Daniel S.
Lankford, dated July 11, 1994.
10.5*+ Employment Agreement between the Company and Joseph F.
Fojtasek, dated February 13, 1996.
10.6+ Employment Agreement between the Company and Arthur S. Homa,
dated September 25, 1997 (previously filed as an exhibit to
the Company's Form 10-K for the year ended December 31, 1997
and incorporated herein by reference).
10.7+ Employment Agreement between the Company and Daniel A.
Schwob, dated September 16, 1998.
</TABLE>
25
<PAGE> 26
<TABLE>
<S> <C>
10.8* Series C Preferred Stock Purchase Agreement between the
Company and the purchasers named therein, dated July 19,
1994.
10.9* Supplemental Agreement to Series C Preferred Stock Purchase
Agreement between the Company and the purchasers named
therein, dated September 30, 1994.
10.10* First Amendment to Purchase Agreement among the Company, the
stockholders of the Company named therein and Phoenix Leasing
Incorporated, dated July 29, 1994.
10.11* Amendment to Purchase Agreement among the Company, the
stockholders of the Company named therein and Phoenix Leasing
Incorporated, dated March 21, 1996.
10.12* Note and Warrant Purchase Agreement between the Company and
the purchasers named therein, dated March 14, 1995.
10.13* Preferred Stock and Warrant Purchase Agreement between the
Company and the purchasers named therein, dated May 24, 1995.
10.14* Letter Agreement among the Company, Harold Scott and the
stockholders of the Company named therein, dated January 18,
1996.
10.15* Series E Preferred Stock and Warrant Purchase Agreement among
the Company, Johnson Controls Battery Group, Inc. and the
stockholders of the Company named therein, dated June 26,
1995.
10.16** Purchase Agreement between the Company and BT Alex. Brown
Incorporated, dated October 3, 1997.
10.17** Registration Rights Agreement between the Company and BT
Alex. Brown Incorporated, dated October 8, 1997.
10.18* Senior Loan and Security Agreement between the Company and
Phoenix Leasing Incorporated, dated July 29, 1994, including
forms of Promissory Notes and Warrants to Purchase Shares of
Series C Preferred Stock issued thereunder.
10.19* Warrant to Purchase Shares of Series C Preferred Stock issued
to Phoenix Leasing Incorporated, dated March 21, 1996.
10.20 Security Agreement between the Company and Transamerica
Business Credit Corporation, dated March 4, 1997, including
form of Promissory Notes issued thereunder (previously filed
as an exhibit to the Company's Form 10-KSB for the year ended
December 31, 1996 and incorporated herein by reference).
10.21* Agreement between the Company and Wright Industries, Inc.,
dated March 11, 1996.
10.22 Agreement among the Company, Johnson Controls Battery Group,
Inc. and Johnson Controls/Bolder LLC, dated July 31, 1996
(previously filed as an exhibit to the Company's February 5,
1997 Form 8-K and incorporated herein by reference).
10.23 Cross Supply Agreement between the Company and Johnson
Controls Battery Group, Inc., dated January 22, 1997
(previously filed as an exhibit to the Company's February 5,
1997 Form 8-K and incorporated herein by reference).
23.1 Consent of Arthur Andersen LLP, independent auditors.
27.1 Financial Data Schedule.
</TABLE>
- -----------------------
* Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 333-2500-D) and incorporated herein by
reference.
** Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 333-41625) and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's January 23, 1998 Form 8-K
and incorporated herein by reference.
+ Management contract or compensatory plan or arrangement.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BOLDER TECHNOLOGIES CORPORATION
Date: March 26, 1999 By: /s/ DANIEL S. LANKFORD
------------------------------
Daniel S. Lankford
Chief Executive Officer, President
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DANIEL S. LANKFORD Chief Executive Officer, March 26, 1999
- ----------------------------------- President and Chairman of
(Daniel S. Lankford) the Board (Principal
Executive Officer)
/s/ JOSEPH F. FOJTASEK Chief Financial Officer, Vice March 26, 1999
- ----------------------------------- President of Finance and
(Joseph F. Fojtasek) Administration, Treasurer,
and Secretary (Principal
Financial and Accounting
Officer)
/s/ WILMER R. BOTTOMS Director March 26, 1999
- ----------------------------------
(Wilmer R. Bottoms)
/s/ WILLIAM D. CONNOR Director March 26, 1999
- ----------------------------------
(William D. Connor)
/s/ DONOVAN B. HICKS Director March 26, 1999
- ----------------------------------
(Donovan B. Hicks)
/s/ DAVID L. RIEGEL Director March 26, 1999
- ----------------------------------
(David L. Riegel)
/s/ CARL S. STUTTS Director March 26, 1999
- ----------------------------------
(Carl S. Stutts)
/s/ ROGER F. WARREN Director March 26, 1999
- ----------------------------------
(Roger F. Warren)
</TABLE>
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BOLDER Technologies Corporation:
We have audited the accompanying balance sheets of BOLDER Technologies
Corporation (a Delaware corporation in the development stage) as of December
31, 1998 and 1997, and the related statements of operations, stockholders'
equity (deficit) and cash flows for each year in the three-year period ended
December 31, 1998, and for the period from inception (March 22, 1991) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BOLDER Technologies
Corporation (a development stage company) as of December 31, 1998 and 1997, and
the results of its operations and its cash flows for each year in the
three-year period ended December 31, 1998, and for the period from inception to
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 3, 1999.
F-1
<PAGE> 29
BOLDER TECHNOLOGIES CORPORATION
(A Development Stage Company)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 962,453 $ 5,414,330
Available-for-sale securities 10,157,281 14,980,447
Inventory 129,887 162,828
Trade accounts receivable 46,151 78,453
Prepaid expenses 109,040 121,656
------------ ------------
Total current assets 11,404,812 20,757,714
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment 16,916,057 2,893,378
Leasehold improvements 5,303,058 5,206,887
Construction in progress 908,840 13,403,336
------------ ------------
23,127,955 21,503,601
Less--Accumulated depreciation and amortization (2,312,955) (1,230,669)
------------ ------------
Property and equipment, net 20,815,000 20,272,932
PATENTS, net of accumulated amortization of $61,041 and
$33,477 in 1998 and 1997, respectively 335,113 207,770
OTHER ASSETS 36,822 37,173
------------ ------------
Total assets $ 32,591,747 $ 41,275,589
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these balance sheets.
F-2
<PAGE> 30
BOLDER TECHNOLOGIES CORPORATION
(A Development Stage Company)
BALANCE SHEETS
December 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 384,256 $ 1,061,897
Construction in progress payables -- 746,259
Accrued compensation and other accrued liabilities (Note 8) 1,403,108 953,791
Deferred revenue (Note 5) 35,000 1,821,924
Current portion of notes payable (Note 6) 1,521,842 1,157,238
------------ ------------
Total current liabilities 3,344,206 5,741,109
------------ ------------
LONGTERM LIABILITIES:
Notes payable (Note 6) 8,859,203 5,247,665
------------ ------------
Total longterm liabilities 8,859,203 5,247,665
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 7)
STOCKHOLDERS' EQUITY:
Convertible, redeemable preferred stock, $0.001 par value, 5,000,000
shares authorized; 336,200 issued and outstanding at
December 31, 1998 and 1997, with a liquidation and redemption
value of $16,810,000 (including $0 and $352,320 of accrued
dividends at December 31, 1998 and 1997, respectively) 15,998,863 16,205,046
Common stock, $.001 par value, 25,000,000 shares authorized;
9,713,376 and 9,498,440 issued at December 31, 1998
and 1997, respectively 9,713 9,498
Treasury stock, $.001 par common stock, 33,333 shares at
December 31, 1998 and 1997 (50,000) (50,000)
Additional paid-in capital 36,773,529 36,522,069
Deficit accumulated during the development stage (32,343,767) (22,399,798)
------------ ------------
Total stockholders' equity 20,388,338 30,286,815
------------ ------------
Total liabilities and stockholders' equity $ 32,591,747 $ 41,275,589
============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these balance sheets.
F-3
<PAGE> 31
BOLDER TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEAR ENDED DECEMBER 31, INCEPTION
-------------------------------------------------- (MARCH 22, 1991) TO
1998 1997 1996 DECEMBER 31, 1998
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
REVENUES (Note 10):
Product sales $ 49,264 $ 84,716 $ 35,580 $ 317,945
Research and development services 2,410,605 2,466,377 440,324 5,317,306
------------ ------------ ------------ ------------
Total revenues 2,459,869 2,551,093 475,904 5,635,251
------------ ------------ ------------ ------------
COST OF REVENUES 332,919 707,606 171,486 1,282,612
------------ ------------ ------------ ------------
2,126,950 1,843,487 304,418 4,352,639
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and development 7,677,787 7,092,534 2,863,552 24,147,521
General and administrative 3,286,783 3,348,061 2,132,565 11,741,022
Selling and marketing 665,573 357,716 212,960 1,400,020
------------ ------------ ------------ ------------
Total operating expenses 11,630,143 10,798,311 5,209,077 37,288,563
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (9,503,193) (8,954,824) (4,904,659) (32,935,924)
OTHER INCOME (EXPENSE):
Interest income 905,735 839,025 798,846 2,758,873
Interest expense (including $0, $0, $51,737,
and $139,825 in 1998, 1997, 1996 and
from inception, respectively, to related
parties) (1,346,511) (633,625) (54,277) (2,166,716)
------------ ------------ ------------ ------------
NET LOSS (9,943,969) (8,749,424) (4,160,090) (32,343,767)
------------ ------------ ------------ ------------
Dividend on preferred stock (1,512,900) (352,320) --
Accretion of preferred stock offering costs (214,217) (50,000) --
------------ ------------ ------------
NET LOSS ALLOCABLE TO COMMON STOCKHOLDERS (11,671,086) (9,151,744) (4,160,090)
============ ============ ============
Basic and diluted net loss per share (Note 2) $ (1.22) $ (0.97) $ (0.64)
============ ============ ============
Shares used in computing basic and diluted
net loss per share (Note 2) 9,560,660 9,446,930 6,465,281
============ ============ ============
Unaudited, pro forma basic
net loss per share (Note 2) $ (0.49)
============
Shares used in computing unaudited,
pro forma basic net loss per share (Note 2) 8,437,817
============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE> 32
BOLDER TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (March 22, 1991) to December 31, 1998
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
-------------------------------------------------------
MANDATORILY
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK OPTIONS AND WARRANTS ADDITIONAL
--------------------- ------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- --------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, INCEPTION (March 22, 1991) -- $ -- -- $ -- -- $ -- $ --
Issuance of common stock to
an officer for contributed research
and development, stated at historical
carrying value of $0, recorded at par,
in March 1991 -- -- 550,000 550 -- -- 2,450
Issuance of common stock to an officer
for cash ($0.0165 per share), recorded
at estimated fair market value ($0.15
per share), in March 1991 -- -- 9,167 9 -- -- 1,366
Issuance of common stock for cash
($0.36 per share), net of offering costs
of $7,650, in April 1991 -- -- 137,500 138 -- -- 42,212
Issuance of common stock to lessor,
recorded at estimated fair market value
($0.15 per share), in May 1991 -- -- 8,937 9 -- -- 1,332
Issuance of Series A preferred stock for
cash ($0.927 per share), net of
offering costs of $31,100, in June, August
and November 1991 337,550 313,000 -- -- -- -- (31,100)
Net loss -- -- -- -- -- -- --
------- --------- ------- ------- ------ ------ --------
BALANCES, December 31, 1991 337,550 313,000 705,604 706 -- -- 16,260
Issuance of Series A preferred stock for
cash ($0.927 per share), in April 1992 234,014 217,000 -- -- -- -- --
Issuance of shares of common stock to an
officer for services, recorded at estimated
fair market value ($0.15 per share), in -- -- 45,834 46 -- -- 6,829
November 1992
Net loss -- -- -- -- -- -- --
------- --------- ------- ------- ------ ------ --------
BALANCES, December 31, 1992 571,564 $ 530,000 751,438 $ 752 -- $ -- $ 23,089
======= ========= ======= ======= ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDER'S DEFICIT
-------------------------------------
DEFICIT
ACCUMULATED
TREASURY STOCK DURING THE
----------------- DEVELOPMENT
SHARES AMOUNT STAGE
-------- ------- --------------
<S> <C> <C> <C>
BALANCES, INCEPTION (March 22,
1991) -- $ -- $ --
Issuance of common stock to
an officer for contributed research
and development, stated at historical
carrying value of $0, recorded at par,
in March 1991 -- -- --
Issuance of common stock to an officer
for cash ($0.0165 per share), recorded
at estimated fair market value ($0.15
per share), in March 1991 -- -- --
Issuance of common stock for cash
($0.36 per share), net of offering costs
of $7,650, in April 1991 -- -- --
Issuance of common stock to lessor,
recorded at estimated fair market value
($0.15 per share), in May 1991 -- -- --
Issuance of Series A preferred stock for
cash ($0.927 per share), net of
offering costs of $31,100, in June, August
and November 1991 -- -- --
Net loss -- -- (194,512)
-------- ------- ----------
BALANCES, December 31, 1991 -- -- (194,512)
Issuance of Series A preferred stock for
cash ($0.927 per share), in April 1992 -- -- --
Issuance of shares of common stock to an
officer for services, recorded at estimated
fair market value ($0.15 per share), in -- -- --
November 1992
Net loss -- -- (637,733)
-------- ------- ----------
BALANCES, December 31, 1992 -- $ -- $ (832,245)
======== ======= ==========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-5
<PAGE> 33
BOLDER TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (March 22, 1991) to December 31, 1998
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
----------------------------------------------
MANDATORILY
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK OPTIONS AND WARRANTS
---------------------- ------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- ------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1992 571,564 $ 530,000 751,438 $ 752 -- $ --
Issuance of Series B preferred stock
($1.50 per share) in January 1993 for
cash of $3,143,140 and conversion of
debt of $717,864, net of offering
costs of $27,524 2,574,003 3,861,004 -- -- -- --
Net loss -- -- -- -- -- --
--------- ---------- ------- ------ ----------- ---------
BALANCES, December 31, 1993 3,145,567 4,391,004 751,438 752 -- --
Issuance of Series C preferred stock
($3.00 per share) in July and
September 1994 for cash of $2,474,522
and conversion of debt and accrued
interest totaling $1,028,274, net of
offering costs of $58,871 1,167,595 3,502,796 -- -- -- --
Issuance of warrants to purchase
10,500 shares of Series C preferred
stock, in July 1994, exercisable at
$3.00 per share -- -- -- -- 10,500 --
Issuance of common stock to employees
for options exercised ($0.09 per
share), in January and July 1994 -- -- 19,226 19 -- --
Issuance of common stock to an officer
for cash ($0.375 per share), in July
1994 -- -- 133,333 133 -- --
Issuance of common stock to an
officer, in exchange for services in
accordance with employment agreement
($0.128 per share), in August 1994 -- -- 124,705 125 -- --
Issuance of common stock to
consultants for services ($0.375 per
share), in August 1994 -- -- 7,333 7 -- --
Issuance of common stock to employees
for options exercised ($0.15 per
share), in July and November 1994 -- -- 4,805 5 -- --
Net loss -- -- -- -- -- --
--------- ---------- --------- ------ -------- ---------
BALANCES, December 31, 1994 4,313,162 $7,893,800 1,040,840 $1,041 10,500 $ --
========= ========== ========= ====== ======== =========
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
----------------------------------------------------------------
DEFICIT
ACCUMULATED
ADDITIONAL TREASURY STOCK DURING THE
PAID-IN ------------------ DEVELOPMENT
CAPITAL SHARES AMOUNT STAGE
--------- ------- ------ -----------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1992 $ 23,089 -- $ -- $ (832,245)
Issuance of Series B preferred stock
($1.50 per share) in January 1993 for
cash of $3,143,140 and conversion of
debt of $717,864, net of offering
costs of $27,524 (22,714) -- -- --
Net loss -- -- -- (1,999,831)
------- ----- ----- ----------
BALANCES, December 31, 1993 375 -- -- (2,832,076)
Issuance of Series C preferred stock
($3.00 per share) in July and
September 1994 for cash of $2,474,522
and conversion of debt and accrued
interest totaling $1,028,274, net of
offering costs of $58,871 (58,871) -- -- --
Issuance of warrants to purchase
10,500 shares of Series C preferred
stock, in July 1994, exercisable at
$3.00 per share -- -- -- --
Issuance of common stock to employees
for options exercised ($0.09 per
share), in January and July 1994 1,710 -- -- --
Issuance of common stock to an officer
for cash ($0.375 per share), in July
1994 49,867 -- -- --
Issuance of common stock to an
officer, in exchange for services in
accordance with employment agreement
($0.128 per share), in August 1994 15,830 -- -- --
Issuance of common stock to
consultants for services ($0.375 per
share), in August 1994 2,744 -- -- --
Issuance of common stock to employees
for options exercised ($0.15 per
share), in July and November 1994 716 -- -- --
Net loss -- -- -- (3,316,224)
-------- -- ----- -----------
BALANCES, December 31, 1994 $ 12,371 -- $ -- $(6,148,300)
======== == ===== ===========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements
F-6
<PAGE> 34
BOLDER TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (March 22, 1991) to December 31, 1998
<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE STOCKHOLDERS' DEFICIT
CONVERTIBLE ---------------------------------------------------------
PREFERRED STOCK COMMON STOCK OPTIONS AND WARRANTS ADDITIONAL
------------------------- ---------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1994 4,313,162 $7,893,800 1,040,840 $1,041 10,500 $ -- $12,371
Issuance of warrants in March 1995, to
purchase 149,998 shares of common
stock, exercisable at $0.75 per share
for five years, in connection with the
issuance of debt, for a purchase price
of $0.015 per warrant -- -- -- -- 149,998 2,250 --
Issuance of Series C preferred stock,
($3.00 per share) in April 1995 in
conversion of accrued interest of
$41,950 13,979 41,950 -- -- -- -- --
Issuance of Series D preferred stock
($6.00 per share) in April 1995 for
cash of $2,000,000 and conversion of
debt of $1,797,732, net of offering
costs of $28,819 632,951 3,797,732 -- -- -- -- (28,819)
Issuance of warrants to purchase
166,666 shares of common stock,
exercisable at $1.50 per share for
five years, in connection with the
issuance of Series D preferred, in
April 1995, for a purchase price of
$0.0015 per warrant -- -- -- -- 166,666 250 --
Issuance of 90-day option to purchase
166,667 shares of Series D preferred
stock in April 1995, exercisable at $6
per share, in connection with the
issuance of Series D preferred stock -- -- -- -- 166,667 -- --
Partial exercise of option ($6.00 per
share) in August 1995 for Series D
preferred stock 33,333 200,000 -- -- (166,667) -- --
Issuance of Series E preferred stock
($6.00 per share) in June 1995 for
cash of $1,500,000, net of offering
costs of $28,963 250,000 1,500,000 -- -- -- -- (28,963)
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
TREASURY STOCK DURING THE
--------------------- DEVELOPMENT
SHARES AMOUNT STAGE
--------------------- -----------
<S> <C> <C> <C>
BALANCES, December 31, 1994 -- $ -- $(6,148,300)
Issuance of warrants in March 1995, to
purchase 149,998 shares of common
stock, exercisable at $0.75 per share
for five years, in connection with the
issuance of debt, for a purchase price
of $0.015 per warrant -- -- --
Issuance of Series C preferred stock,
($3.00 per share) in April 1995 in
conversion of accrued interest of
$41,950 -- -- --
Issuance of Series D preferred stock
($6.00 per share) in April 1995 for
cash of $2,000,000 and conversion of
debt of $1,797,732, net of offering
costs of $28,819 -- -- --
Issuance of warrants to purchase
166,666 shares of common stock,
exercisable at $1.50 per share for
five years, in connection with the
issuance of Series D preferred, in
April 1995, for a purchase price of
$0.0015 per warrant -- -- --
Issuance of 90-day option to purchase
166,667 shares of Series D preferred
stock in April 1995, exercisable at $6
per share, in connection with the
issuance of Series D preferred stock -- -- --
Partial exercise of option ($6.00 per
share) in August 1995 for Series D
preferred stock -- -- --
Issuance of Series E preferred stock
($6.00 per share) in June 1995 for
cash of $1,500,000, net of offering
costs of $28,963 -- -- --
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-7
<PAGE> 35
BOLDER TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (March 22, 1991) to December 31, 1998
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
-----------------------------------------------------------
MANDATORILY
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK OPTIONS AND WARRANTS ADDITIONAL
----------------------- ------------------ -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- --------- ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of warrants to purchase
308,666 shares of Series E preferred
stock in June 1995, exercisable at
$6.00 per share for one year, in
connection with the issuance of Series
E preferred stock, for a purchase
price of $0.0015 per warrant -- -- -- -- 308,666 463 --
Purchase of 33,333 shares of treasury
stock for $1.50 per share for cash
from a founder, in August 1995 -- -- -- -- -- -- --
Issuance of common stock to employees
for options exercised ($0.09 per
share) in August and December 1995 -- -- 49,817 50 -- -- 4,406
Issuance of common stock to employees
for options exercised ($0.15 per
share) in February, April, September
and December 1995 -- -- 33,321 33 -- -- 4,964
Issuance of common stock to employees
($1.50 per share) in August 1995 for
cash -- -- 22,443 22 -- -- 33,651
Net loss -- -- -- -- -- -- --
--------- ----------- --------- ------ ------- ------ -------
BALANCES, December 31, 1995 5,243,425 $13,433,482 1,146,421 $1,146 635,830 $2,963 $(2,390)
========= =========== ========= ====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
TREASURY STOCK DURING THE
--------------------- DEVELOPMENT
SHARES AMOUNT STAGE
--------- -------- -----------
<S> <C> <C> <C>
Issuance of warrants to purchase
308,666 shares of Series E preferred
stock in June 1995, exercisable at
$6.00 per share for one year, in
connection with the issuance of Series
E preferred stock, for a purchase
price of $0.0015 per warrant -- -- --
Purchase of 33,333 shares of treasury
stock for $1.50 per share for cash
from a founder, in August 1995 (33,333) (50,000) --
Issuance of common stock to employees
for options exercised ($0.09 per
share) in August and December 1995 -- -- --
Issuance of common stock to employees
for options exercised ($0.15 per
share) in February, April, September
and December 1995 -- -- --
Issuance of common stock to employees
($1.50 per share) in August 1995 for
cash -- -- --
Net loss -- -- (3,341,984)
--------- -------- -----------
BALANCES, December 31, 1995 (33,333) $(50,000) $(9,490,284)
========= ======== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-8
<PAGE> 36
BOLDER TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (March 22, 1991) to December 31, 1998
<TABLE>
<CAPTION>
MANDATORILY STOCKHOLDERS' (DEFICIT) EQUITY
REDEEMABLE --------------------------------------------------
CONVERTIBLE
PREFERRED STOCK COMMON STOCK OPTIONS AND WARRANTS
------------------------- ----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995 5,243,425 $ 13,433,482 1,146,421 $ 1,146 635,830 $ 2,963
Issuance of Series D Preferred
Stock ($6.00 per share) for cash 16,666 100,000 -- -- -- --
Issuance of warrants to purchase
8,625 shares of Series C preferred
stock, in March 1996, exercisable at
$6 per share -- -- -- -- 8,625 --
Issuance of common stock for
warrants exercised ($0.75 to $6.00
per share) -- -- 620,469 622 (625,330) (2,963)
Conversion of Mandatorily Redeemable
Preferred Stock into shares of common stock (5,260,091) (13,533,482) 5,260,091 5,260 -- --
Issuance of common stock upon an Initial
Public Offering, net of offering costs
of $2,060,483 -- -- 2,200,000 2,200 -- --
Issuance of common stock to employees
for options exercised ($0.09 to $0.75
per share) -- -- 220,641 220 -- --
Net loss -- -- -- -- -- --
--------- ------------ --------- ------------ ------- ------------
BALANCES, December 31, 1996 -- $ -- 9,447,622 $ 9,448 19,125 $ --
========= ============ ========= ============ ======= ============
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' (DEFICIT) EQUITY
------------------------------ DEFICIT
ACCUMULATED
ADDITIONAL TREASURY STOCK DURING THE
PAID-IN ----------------------- DEVELOPMENT
CAPITAL SHARES AMOUNT STAGE
----------- ------ ------------ -----------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1995 $ (2,390) (33,333) $ (50,000) $(9,490,284)
Issuance of Series D Preferred
Stock ($6.00 per share) for cash -- -- -- --
Issuance of warrants to purchase
8,625 shares of Series C preferred
stock, in March 1996, exercisable at
$6 per share -- -- -- --
Issuance of common stock for
warrants exercised ($0.75 to $6.00 per share) 2,165,859 -- --
Conversion of Mandatorily Redeemable
Preferred Stock into shares of common stock 13,528,222 -- -- --
Issuance of common stock upon an Initial
Public Offering, net of offering costs
of $2,060,483 21,037,317 -- -- --
Issuance of common stock to employees
for options exercised ($0.09 to $0.75
per share) 32,819 -- -- --
Net loss -- -- -- (4,160,090)
------------ ------- ------------ ------------
BALANCES, December 31, 1996 $ 36,761,827 (33,333) $ (50,000) $(13,650,374)
============ ======= ============ ============
</TABLE>
The accompanying to financial statements are an
integral part of these statements.
F-9
<PAGE> 37
BOLDER TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (March 22, 1991) to December 31, 1998
--------------------------------
<TABLE>
<CAPTION>
STOCKHOLDERS' (DEFICIT) EQUITY
---------------------------------------------------------------------------------
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK OPTIONS AND WARRANTS
------------------- ---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 -- $ -- 9,447,622 $ 9,448 19,125 $ --
Issuance of common stock
under the Employee Stock
Purchase Plan ($8.93 - $11.90
per share) -- -- 15,375 15 -- --
Issuance of common stock to
employees for options exercised
($0.09 - $6.00 per share) -- -- 35,443 35 -- --
Issuance of Series A
Convertible, Redeemable
Preferred Stock as part of a
Private Placement, net of offering
costs of $1,007,274 in October 336,200 15,802,726 -- -- -- --
Issuance of warrants to
purchase 30,641 shares of
common stock exercisable at
$14.50 per share for five years,
in connection with the issuance
of the Series A Convertible,
Redeemable Preferred Stock -- -- -- -- 30,641 --
Accretion of preferred stock
offering costs -- 50,000 -- -- -- --
Accrual of Series A Preferred
Stock dividend -- 352,320 -- -- -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1997 336,200 $ 16,205,046 9,498,440 $ 9,498 49,766 $ --
============ ============ ============ ============ ============ ============
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL TREASURY STOCK DURING THE
PAID-IN ---------------------------- DEVELOPMENT
CAPITAL SHARES AMOUNT STAGE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1996 $ 36,761,827 (33,333) $ (50,000) $(13,650,374)
Issuance of common stock
under the Employee Stock
Purchase Plan ($8.93 - $11.90
per share) 152,985 -- -- --
Issuance of common stock to
employees for options exercised
($0.09 - $6.00 per share) 9,577 -- -- --
Issuance of Series A
Convertible, Redeemable
Preferred Stock as part of a
Private Placement, net of offering
costs of $1,007,274 in October -- -- -- --
Issuance of warrants to
purchase 30,641 shares of
common stock exercisable at
$14.50 per share for five years,
in connection with the issuance
of the Series A Convertible,
Redeemable Preferred Stock -- -- -- --
Accretion of preferred stock
offering costs (50,000) -- -- --
Accrual of Series A Preferred
Stock dividend (352,320) -- -- --
Net loss -- -- -- (8,749,424)
------------ ------------ ------------ ------------
BALANCES, December 31, 1997 $ 36,522,069 (33,333) $ (50,000) $(22,399,798)
============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-10
<PAGE> 38
BOLDER TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (March 22, 1991) to December 31, 1998
<TABLE>
<CAPTION>
STOCKHOLDERS' (DEFICIT) EQUITY
-------------------------------------------------------------------------------
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK OPTIONS AND WARRANTS
--------------------- ----------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1997 336,200 $ 16,205,046 9,498,440 $ 9,498 49,766 $ --
Issuance of common stock
under the Employee Stock
Purchase Plan (at $8.18 per
share) -- -- 13,661 14 -- --
Issuance of common stock to
employees for options exercised
($0.15 - $11.75 per share) -- -- 5,684 6 -- --
Offering costs incurred in
connection with the issuance of
Series A Convertible,
Redeemable Preferred Stock -- (68,080) -- -- -- --
Accretion of preferred stock
offering costs -- 214,217 -- -- -- --
Accrual of Series A Preferred
Stock dividend -- 1,512,900 -- -- -- --
Issuance of common shares in
payment of dividend on Series A
Convertible, Redeemable
Preferred Stock (includes $86
of cash payment due to fractional
shares) -- (1,865,220) 195,591 195 -- --
Net loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1998 336,200 $ 15,998,863 9,713,376 $ 9,713 49,766 $ --
============ ============ ============ ============ ============ ============
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL TREASURY STOCK DURING THE
PAID-IN -------------------- DEVELOPMENT
CAPITAL SHARES AMOUNT STAGE
------- ------ ------ -----
<S> <C> <C> <C> <C>
BALANCES, December 31, 1997 $ 36,522,069 (33,333) $ (50,000) $ (22,399,798)
Issuance of common stock
under the Employee Stock
Purchase Plan (at $8.18 per
share) 111,734 -- -- --
Issuance of common stock to
employees for options exercised
($0.15 - $11.75 per share) 1,904 -- -- --
Offering costs incurred in
connection with the issuance of
Series A Convertible,
Redeemable Preferred Stock -- -- -- --
Accretion of preferred stock
offering costs (214,217) -- -- --
Accrual of Series A Preferred
Stock dividend (1,512,900) -- -- --
Issuance of common shares in
payment of dividend on Series A
Convertible, Redeemable
Preferred Stock (includes $86
of cash payment due to fractional
shares) 1,864,939 -- -- --
Net loss -- -- -- (9,943,969)
------------ ------------ ------------ -------------
BALANCES, December 31, 1998 $ 36,773,529 (33,333) $ (50,000) $ (32,343,767)
============ ============ ============ =============
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-11
<PAGE> 39
BOLDER TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,943,969) $ (8,749,424) $ (4,160,090)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,109,850 670,672 404,082
Loss from operations of joint venture -- -- 669,025
Interest expense paid in preferred stock -- -- --
Common stock issued for research and
development and general and administrative
expenses -- -- --
Preferred stock offering costs charged to expense -- -- --
Changes in
Trade accounts receivable 32,302 13,263 452
Inventory 32,941 (127,032) 318
Prepaid expenses and other assets 12,967 (41,439) 1,347
Accounts payable (677,641) 817,004 90,095
Accrued liabilities 449,317 399,643 414,203
Deferred revenue (1,786,924) 1,075,581 746,343
------------ ------------ ------------
Net cash used in operating activities (10,771,157) (5,941,732) (1,834,225)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (7,091,027) (12,894,062) (25,717,811)
Sale of available-for-sale securities 11,914,193 13,015,995 12,750,909
Purchases of property and equipment (1,624,354) (10,247,985) (9,759,156)
Construction in progress payables (746,259) (1,297,035) 2,043,294
Issuance of notes receivable from founder -- -- --
Payment of notes receivable from founder -- -- 152,066
Investment in joint venture -- -- (533,161)
Patent costs (154,907) (72,851) (61,762)
------------ ------------ ------------
Net cash provided by (used in) investing activities 2,297,646 (11,495,938) (21,125,621)
------------ ------------ ------------
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(MARCH 22, 1991) TO
DECEMBER 31, 1998
-------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(32,343,767)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 2,745,561
Loss from operations of joint venture 833,161
Interest expense paid in preferred stock 70,224
Common stock issued for research and
development and general and administrative
expenses 29,922
Preferred stock offering costs charged to expense 4,810
Changes in
Trade accounts receivable (46,151)
Inventory (129,887)
Prepaid expenses and other assets (146,788)
Accounts payable 384,256
Accrued liabilities 1,420,972
Deferred revenue 35,000
------------
Net cash used in operating activities (27,142,687)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (65,837,831)
Sale of available-for-sale securities 55,680,550
Purchases of property and equipment (23,481,882)
Construction in progress payables --
Issuance of notes receivable from founder (152,066)
Payment of notes receivable from founder 152,066
Investment in joint venture (833,161)
Patent costs (395,060)
------------
Net cash provided by (used in) investing activities (34,867,384)
------------
</TABLE>
The accompanying notes to financial statements are an
integral part of these statements.
F-12
<PAGE> 40
BOLDER TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock $ -- $ 15,921,400 $ 100,000
Proceeds from issuance of common stock 113,658 162,621 25,296,557
Proceeds from issuance of convertible notes payable -- -- --
Proceeds from issuance of notes payable 5,119,951 7,019,749 190,929
Payments on notes payable (1,143,809) (1,101,383) (255,960)
Stock issuance costs (68,080) (118,684) (2,060,483)
Payments on issuance of dividends (86) -- --
Payments on capital lease -- -- (7,119)
Purchase of treasury stock from founder -- -- --
Issuance of warrants to purchase common
or preferred stock -- -- --
------------ ------------ ------------
Net cash provided by financing activities 4,021,634 21,883,703 23,263,924
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (4,451,877) 4,446,033 304,078
CASH AND CASH EQUIVALENTS, beginning of period 5,414,330 968,297 664,219
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 962,453 $ 5,414,330 $ 968,297
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 1,307,113 $ 552,875 $ 52,672
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Accretion of preferred stock offering costs $ 214,217 $ 50,000 $ --
============ ============ ============
Preferred stock dividend accrual $ 1,512,900 $ 352,320 $ --
============ ============ ============
Preferred stock dividend paid in common stock $ 1,865,220 $ -- $ --
============ ============ ============
Conversion of notes payable and related accrued
interest to preferred stock $ -- $ -- $ --
============ ============ ============
Property purchased under capital leases $ -- $ -- $ --
============ ============ ============
<CAPTION>
FOR THE
PERIOD FROM
INCEPTION
(MARCH 22, 1991) TO
DECEMBER 31, 1998
-----------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock $ 25,869,062
Proceeds from issuance of common stock 25,719,787
Proceeds from issuance of convertible notes payable 3,497,732
Proceeds from issuance of notes payable 13,002,615
Payments on notes payable (2,621,570)
Stock issuance costs (2,430,174)
Payments on issuance of dividends (86)
Payments on capital lease (17,805)
Purchase of treasury stock from founder (50,000)
Issuance of warrants to purchase common
or preferred stock 2,963
------------
Net cash provided by financing activities 62,972,524
------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 962,453
CASH AND CASH EQUIVALENTS, beginning of period --
------------
CASH AND CASH EQUIVALENTS, end of period $ 962,453
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 1,947,258
============
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Accretion of preferred stock offering costs $ 264,217
============
Preferred stock dividend accrual $ 1,865,220
============
Preferred stock dividend paid in common stock $ 1,865,220
============
Conversion of notes payable and related accrued
interest to preferred stock $ 3,585,820
============
Property purchased under capital leases $ 17,805
============
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
F-13
<PAGE> 41
BOLDER TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND DEVELOPMENT STAGE RISKS
BOLDER Technologies Corporation (the "Company") is a development-stage
energy technology company that is currently involved in the design, development
and marketing of advanced, high power, rechargeable lead acid-based battery
systems based on its patented Thin Metal Film ("TMF") technology. The Company
was incorporated in the state of Colorado on March 22, 1991 ("Inception") as
Bolder Battery, Inc., and reincorporated as a Delaware corporation on November
19, 1993 and was subsequently renamed BOLDER Technologies Corporation. In May
1996, the Company successfully completed an Initial Public Offering ("IPO") of
2,200,000 shares of stock at $10.50 per share. Its activities to date have been
primarily related to organization, raising capital, personnel recruitment,
research and development, construction and qualification of its initial
production line and marketing. The Company is located in Golden, Colorado, and
its customers to date are primarily United States companies and the United
States government. Revenue recorded in 1998 and 1997 relates primarily to a
technology transfer agreement with a strategic partner, Johnson Controls, Inc.
("Johnson Controls"), Small Business Innovation Research research and
development agreements, a customer-funded research and development agreement,
and sales of demonstration and evaluation units of the Company's product. The
Company's business plan does not contemplate that research and development
services will continue to a significant degree after the Company commences
sales of its product in commercial quantities. Accordingly, such revenue from
research and development services are not considered as recurring or indicative
of the Company's future revenue, if any, from the sale of its battery products
in commercial quantities. The Company has not generated significant revenue
from sales of its battery product to date.
The Company has incurred losses since its inception, and has an
accumulated development stage deficit of $32,343,767 at December 31, 1998. The
Company's operations are subject to certain development stage risks and
uncertainties, some of which follow. The Company has now demonstrated the
ability to produce its Sub-C cell in large volumes on a one shift basis. The
Company must be able to produce its product in commercial quantities on a
24-hour per day basis, and commercial acceptance of the Company's product will
have to occur in the marketplace before the Company can attain successful
operations. The Company expects to incur additional losses in the future as it
continues to improve its manufacturing process and improve product performance,
moves toward commercial sales and seeks to improve its manufacturing, sales and
marketing capability. There can be no guarantee that the Company will achieve or
sustain significant revenues or profitability in the future. Further, during the
period required to achieve successful operations, the Company may require
additional financing which may not be available to it. The Company has
undertaken several initiatives, including seeking additional capital, to ensure
adequate capital is available to fund its anticipated level of operations for at
least the next twelve months. If capital is not available, or the terms of
available capital are not acceptable to the Company, the Company would have to
delay planned expenditures and/or cut back on its current level of operations,
among other actions. The Company believes that its available cash and cash
equivalents, investments and interest income will be sufficient to satisfy its
funding needs at least through year end 1999.
Further, the recovery of the carrying amount of the Company's
long-lived assets, primarily assets for the high-volume production of
batteries, is dependent on generating revenue from sales of batteries in
commercial quantities. To date, the Company has not manufactured its batteries
on a commercial scale.
F-14
<PAGE> 42
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions may affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with
original maturities of three months or less.
Available-for-Sale Securities
Debt and equity securities that the Company has both the positive
intent and ability to hold to maturity are classified as held-to-maturity and
are reported at amortized cost. Debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with the
unrealized gains and losses included in earnings. Debt and equity securities
not classified as either held-to-maturity securities or trading securities are
classified as available-for-sale securities and reported at fair value, with
unrealized gains or losses excluded from earnings and reported as a separate
component of stockholders' equity.
The Company's available-for-sale securities at December 31, 1998 and
1997, consist of United States Treasury bills and debt securities of United
States government agencies and are reported at fair value. The fair market
value of these securities approximates their amortized cost.
Inventory
Inventories are stated at the lower of cost (first-in, first-out
basis) or market, and primarily consist of raw materials and sub-assemblies.
Property and Equipment
Property and equipment, excluding production line equipment, are
stated at cost and depreciation is provided using the straight-line method over
the estimated useful lives of the respective assets, which are three to seven
years. Production line property and equipment are stated at cost and
depreciated based on units expected to be produced over the estimated lives of
the assets, which are five to ten years. Depreciation and amortization expense
related to property and equipment for the years ended December 1998, 1997 and
1996 and since Inception was $1,082,286, $654,591, $395,027 and $2,692,861,
respectively. Leasehold improvements are capitalized and amortized over the
shorter of the lease term or their estimated useful life. Maintenance and
repairs that do not improve or extend the life of assets and expenditures for
research and development equipment for which there is no future alternative use
are expensed as incurred. Expenditures which improve or extend the life of
assets are capitalized.
Patents
The Company capitalizes direct, external costs associated with patent
applications and filings. Costs associated with successful applications are
amortized over fourteen years beginning with the date of issue. Capitalized
costs are written off at such time as it becomes known that an application will
not be successful or when a particular patent is deemed to no longer be of
value.
F-15
<PAGE> 43
Research and Development Revenue
Revenues for research and development services performed under the
Company's technology transfer arrangement with Johnson Controls were recognized
using the percentage of completion method, based on the actual effort expended
for a particular period relative to the total expected effort to perform the
Company's obligations under this arrangement. Revenues recognized under this
agreement totaled $1,748,174, $1,748,169, $ -0-, and $3,496,343 for the years
ended December, 1998, 1997, 1996 and from Inception, respectively. The Company
has fulfilled all of its obligations under the technology transfer agreement as
of October 1998 and accordingly recognized all remaining revenue associated
with this arrangement.
For other research and development arrangements, the Company generally
recognizes revenue upon the completion of established milestones or upon
project completion.
Basic and Diluted Net Loss Per Share and Unaudited, Pro Forma Basic
Net Loss Per Share
The Company has computed earnings per share in accordance with SFAS
No. 128, Earnings Per Share, which the Company adopted in 1997. Also, the
Company has adopted the guidance of the Securities and Exchange Commission
Staff Accounting Bulletin No. 98 and related interpretations. Accordingly, the
Company has presented basic earnings per share for each period presented.
Diluted net loss per common share is not presented, as the effect of common
equivalent shares from stock options and warrants is antidilutive. Prior to
1997 and pursuant to Securities and Exchange Commission rules, common stock and
common stock equivalent shares issued by the Company at prices below the IPO
price during the twelve month period prior to the offering ("cheap stock") were
included in the calculation as if they were outstanding for 1996, regardless of
whether they were antidilutive. Subsequent to December 31, 1997, guidance was
issued to redefine such stock. As a result, 258,815 shares which were
originally treated as cheap stock and included in the previously reported 1996
weighted average shares outstanding of 8,696,632 have been excluded in the
restated 1996 weighted average shares outstanding of 8,437,817. This change in
weighted average shares increased the pro forma basic net loss per share from
$(0.48) to $(0.49). There was no impact on the 1998 and 1997 basic net loss per
share or weighted average shares as a result of this new issuance.
The pro forma 1996 net loss per share assumes that preferred stock
outstanding on the completion of the Company's IPO in May 1996 (which
automatically converted to common stock on such date) was outstanding as common
stock for all of 1996, as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
------------------------------------------
Loss Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Weighted average common shares outstanding (actual) ... 6,465,281
Assumed conversion of preferred stock ................ 1,972,536
---------
Pro forma basic net loss per share .................... $(4,160,090) 8,437,817 $ (0.49)
=========== ========= ===========
</TABLE>
At December 31, 1998, securities that have been excluded from basic
and diluted net loss per share because they would be antidilutive are 1,528,814
outstanding options to purchase the Company's common stock, 49,766 outstanding
warrants to purchase the Company's common stock and 336,200 shares of
Convertible, Redeemable Preferred Stock, which are convertible into 1,120,667
shares of common stock.
At December 31, 1997, securities that have been excluded from basic
and diluted net loss per share because they would be antidilutive are 1,139,240
outstanding options to purchase the Company's common stock, 49,766 outstanding
warrants to purchase the Company's common stock and 336,200 shares of
Convertible, Redeemable Preferred Stock, which are convertible into 1,120,667
shares of common stock.
F-16
<PAGE> 44
At December 31, 1996, securities that have been excluded from basic
and diluted net loss per share because they would be antidilutive are 887,750
outstanding options to purchase the Company's common stock and 49,766
outstanding warrants to purchase the Company's common stock.
Increase in Authorized Shares -- Reverse Stock Split
In March 1996, the Board of Directors authorized an amendment to the
Company's Restated Certificate of Incorporation that was effective May 1996
(the "Effective Date"). The amendment increased the authorized shares of Common
Stock to 25,000,000 shares and authorized the issuance of up to 5,000,000
shares of Preferred Stock, after canceling references to the series of
Preferred Stock that were converted into Common Stock on the Effective Date.
The amendment also authorized a 1.5 for 1 reverse stock split. Common stock
amounts, equivalent share amounts and per share amounts have been adjusted
retroactively to give effect to the 1.5 for 1 reverse stock split.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, available
for sale securities and accounts receivable. The Company maintains the majority
of its cash, cash equivalents and short-term investment balances with financial
institutions that management believes are creditworthy in the form of demand
deposits and United States Treasury notes, Treasury bills, and debt securities
of agencies of the United States government. The Company has no significant
off-balance sheet concentrations of credit risk such as foreign exchange
contracts, options contracts or other foreign hedging arrangements.
The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral. Its accounts
receivable balances are primarily domestic, and are due from agencies of the
United States government. The Company had two principal customers which
accounted for approximately 99% of its total revenue for the year ended
December 31, 1998. Accounts receivable from these customers represented 88% of
the accounts receivable balance at December 31, 1998.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash
equivalents, short-term trade receivables and payables and notes payable. The
carrying values of cash and cash equivalents and short-term trade receivables
and payables approximate fair value. The fair value of notes payable is
estimated based on current rates available for similar debt with similar
maturities and collateral, and at December 31, 1998, approximates the carrying
value.
Impairment of Long-lived Assets
The Company continually evaluates whether events and circumstances
have occurred which may indicate that its long-lived assets may be impaired.
The Company evaluates impairment based upon estimated undiscounted cash flows
over the remaining life of the long-lived assets. Management believes the
carrying value of all long-lived assets at December 31, 1998 and 1997 are
recoverable through normal operations.
Stock-based compensation
The Company accounts for stock-based employee compensation
arrangements in accordance with the provisions of Accounting Principles Board
("APB") Opinion Number 25, "Accounting for Stock Issued to Employees" and
related interpretations and complies with the disclosure provisions of
Statement of Financial Accounting Standards ("SFAS") Number 123, "Accounting
for Stock-Based Compensation." Under APB 25, compensation expense is based on
the difference, if any, on the date of the grant, between the fair value of the
Company's stock and the exercise price of the option. The Company accounts for
equity instruments issued to nonemployees in accordance with the provisions of
SFAS No. 123 and related interpretations.
F-17
<PAGE> 45
Income Taxes
The current provision for income taxes represents actual or estimated
amounts payable or refundable on tax returns filed or to be filed each year.
Deferred tax assets and liabilities are recorded for the estimated future tax
effects of temporary differences between the tax basis of assets and
liabilities and amounts reported in the accompanying balance sheets. Deferred
tax assets are also recognized for net operating loss and tax credit
carryovers. The overall change in deferred tax assets and liabilities for the
period measures the deferred tax expense for the period. Effects of changes in
enacted tax laws on deferred tax assets and liabilities are reflected as
adjustments to tax expense in the period of enactment. The measurement of
deferred tax assets may be reduced by a valuation allowance based on judgmental
assessment of available evidence if deemed more likely than not that some or
all of the deferred tax assets will not be realized.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. From Inception, the Company has not had
any transactions that are required to be reported in comprehensive income as
compared to its net loss.
Segment information
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
This statement establishes standards for the way companies report information
about operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. In accordance with the provisions of SFAS No. 131, the
Company has determined that it does not have separately reportable operating
segments.
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use," which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not expect that the adoption of SOP No. 98-1 will have a material impact on its
financial statements.
The AICPA has issued SOP No. 98-5, "Reporting on the Costs of Start-up
Activities." SOP No. 98-5 requires that all non-governmental entities expense
the costs of start-up activities, including organizational costs, as these
costs are incurred, and is effective for fiscal years beginning after December
15, 1998. The Company does not expect that the adoption of SOP No. 98-5 will
have a material impact on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company is required to adopt SFAS 133
in fiscal 2000. SFAS No. 133 established methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. To date, the Company has not entered into any
derivative financial instruments or hedging activities.
F-18
<PAGE> 46
Reclassifications
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
(3) AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
U.S. government agency debt securities ...... $ 9,138,509 $ 10,934,205
U.S. Treasury notes ......................... 1,018,772 4,046,242
----------- ------------
$10,157,281 $ 14,980,447
=========== ============
</TABLE>
Unrealized gains and losses on available-for-sale securities were
immaterial as of December 31, 1998 and 1997.
The amortized cost of debt securities at December 31, 1998, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities.
<TABLE>
<S> <C>
Less than 1 year........................................... $10,157,281
===========
</TABLE>
(4) STOCKHOLDERS' EQUITY
Preferred Stock
During the period from 1991 through 1996, the Company issued 5,260,091
shares of mandatorily redeemable, convertible preferred stock (Series A through
Series E) for total proceeds of approximately $13.5 million. All of these
shares were converted to 5,260,091 shares of the Company's common stock upon
the IPO in May 1996. In May 1996 the Board of Directors amended the Company's
Restated Certificate of Incorporation, authorizing issue of up to 5,000,000
shares of preferred stock.
In October 1997, the Company completed a private placement sale of
336,200 shares of Series A Convertible, Redeemable Preferred Stock, $0.001 par
value per share ("1997 Series A"), for $50 per share. The net proceeds from the
offering were approximately $15.8 million. The placement agents for the 1997
Series A received warrants to purchase an aggregate of 30,641 shares of the
Company's common stock at an exercise price of $14.50 per share, in addition to
customary commissions. Cash offering costs related to this private placement
totaled $1,075,354.
Dividends on the 1997 Series A are cumulative and payable
semi-annually on June 30 and December 31, beginning October 8, 1997, at an
annual rate equal to $4 per share if paid in cash and $4.50 per share if paid
in shares of the Company's common stock. The shares of 1997 Series A are
convertible into common stock at the option of the holder at a conversion price
equal to $15 per share subject to adjustment in certain circumstances. The 1997
Series A, if not earlier redeemed, must be redeemed on October 8, 2002 at the
redemption price.
The redemption price, which is equal to $50 per share plus accrued and
unpaid dividends, may be paid in shares of the Company's common stock or cash
or in a combination of common stock and cash, at the Company's option. It is
the Company's intent, however, to redeem the 1997 Series A for shares of the
Company's common stock. Accordingly, the 1997 Series A is included as a
component of stockholders' equity.
F-19
<PAGE> 47
Dividends paid on the 1997 Series A have been paid in shares of the
Company's common stock (with cash payments for fractional shares) as follows:
<TABLE>
<CAPTION>
Dividend Payment Date Cash Amount Paid Common Shares Issued
- --------------------- ---------------- --------------------
<S> <C> <C> <C>
March 1998 $ 26 77,985
June 1998 $ 43 36,704
December 1998 $ 17 80,902
</TABLE>
The carrying amount of the 1997 Series A is increased for accrued and
unpaid dividends plus periodic accretion of offering costs, using the effective
interest method, such that the carrying amount will equal the redemption amount
on October 8, 2002. The carrying amount includes accreted offering costs of
$264,217 and $50,000 at December 31, 1998 and 1997, respectively.
1996 Equity Incentive Plan
In March 1996, the Company adopted the 1996 Equity Incentive Plan (the
"Equity Incentive Plan"). The Equity Incentive Plan is a successor to, and
restatement of, the Company's 1992 Incentive Stock Option Plan and its 1992
Non-Qualified Stock Option Plan (the "1992 Plans"). The Equity Incentive Plan
provides for the following types of stock-based awards: incentive stock options
for employees (including officers and employee directors); nonstatutory stock
options for employees (including officers and non-employee directors),
directors and consultants; and restricted stock purchase awards, stock bonuses
and stock appreciation rights to employees (including officers and employee
directors) and consultants. As of December 31, 1998, no grants of stock
bonuses, restricted stock purchase awards or stock appreciation rights have
been made.
The Company has reserved 1,673,025 shares of its Common Stock for
future issuance under the Equity Incentive Plan at December 31, 1998. At
December 31, 1998 options for 144,211 shares of common stock are available for
grant under the terms of the Equity Incentive Plan.
Employee Stock Purchase Plan
In March 1996, the Company adopted the Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 40,000 shares of Common Stock.
The Purchase Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code. Under the
Purchase Plan, the Board of Directors may authorize participation by eligible
employees, including officers, in periodic offerings following the adoption of
the Purchase Plan. The offering period for any offering will be no more than 27
months.
Employees are eligible to participate if they are employed by the
Company or an affiliate of the Company designated by the Board of Directors for
at least 20 hours of service per week and are employed by the Company or a
subsidiary of the Company designated by the Board for at least five months of
service per calendar year. Employees who participate in an offering can have up
to 10% of their earnings withheld pursuant to the Purchase Plan. The amount
withheld will then be used to purchase shares of Common Stock on specified
dates determined by the Board of Directors. The price of Common Stock purchased
under the Purchase Plan will be equal to 85% of the lower of the fair market
value of the Common Stock on the commencement date of each offering period or
the relevant purchase date. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. At December 31,
1998, 29,036 shares of common stock had been issued under the Purchase Plan.
Subsequent to December 31, 1998, 7,099 shares were issued related to employee
participation in 1998. At December 31, 1998, 10,964 shares of common stock were
available for future offerings, which amount was reduced to 3,865 with the
issuance subsequent to December 31, 1998.
F-20
<PAGE> 48
Rights Agreement
In January 1998, the Board of Directors of the Company declared a
dividend distribution of one preferred share purchase right (a "Right") for
each outstanding share of common stock. Upon certain events, including events
which could result in a change in control of the Company, each Right entitles
the registered holder to purchase from the Company one one-hundredth of a share
of Series B Junior Participating Preferred Stock at a price of $100, subject to
adjustment.
Statement of Financial Accounting Standards No. 123
SFAS 123 defines a fair value based method of accounting for employee
stock options or similar equity instruments. However, SFAS 123 allows the
continued measurement of compensation cost for such plans using the intrinsic
value based method prescribed by APB 25, provided that pro forma disclosures
are made of net income or loss and net income or loss per share, assuming the
fair value based method of SFAS 123 had been applied. The Company has elected
to account for its stock-based compensation plans for employees and directors
under APB 25. During 1998, 1997 and 1996, all options were granted at fair
value, and accordingly, the Company recorded no compensation expense during
1998, 1997, and 1996 under the provisions of APB 25. For purposes of the pro
forma disclosures presented below, the Company has computed the fair values of
all options granted during 1998, 1997 and 1996, using the Black-Scholes pricing
model and the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Risk-free interest rate ..................... 5.3% 6.1% 6.1%
Expected dividend yield ..................... 0.0% 0.0% 0.0%
Expected lives outstanding .................. 6.1 yrs 5.3 yrs. 5.2 yrs.
Expected volatility ........................ 26.0% 22.3% 51.7%
</TABLE>
To estimate lives of options for this valuation, it was assumed
options will be exercised upon becoming fully vested. All options are initially
assumed to vest. Cumulative compensation costs recognized in pro forma net
income or loss with respect to options that are forfeited prior to vesting is
reflected as a reduction of pro forma compensation expense in the period of
forfeiture. The expected volatility was based on the Company's volatility since
its IPO. Actual volatility of the Company's common stock varies. Fair value
computations are highly sensitive to the volatility factor assumed; the greater
the volatility, the higher the computed fair value of options granted.
The total fair value of options granted was computed to be
approximately $1,773,000, $1,684,000 and $2,742,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. These amounts are amortized
ratably over the vesting periods of the options or recognized at date of grant
if no vesting period is required. Pro forma stock-based compensation, net of
the effect of forfeitures, was $904,376, $619,497 and $253,000 for 1998, 1997
and 1996, respectively. Because the fair value method of accounting prescribed
by SFAS 123 has not been applied to options granted prior to January 1, 1996,
the resulting pro forma compensation cost may not be representative of that to
be expected in future years.
F-21
<PAGE> 49
In addition to the options, there was approximately $58,000, $38,500
and $29,000 of compensation related to the Purchase Plan for 1998, 1997 and
1996, respectively. The shares were valued assuming a 26.0%, 22.3% and 51.7%
volatility factor, and a 4.8%, 5.2% and 5.0%% risk free interest rate for 1998,
1997 and 1996, respectively.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net loss and pro forma net loss per
common share would have been reported as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss: As reported $ (9,943,969) $ (8,749,424) $ (4,160,090)
============ ============ ============
Pro forma $(10,906,558) $ (9,407,421) $ (4,442,090)
============ ============ ============
Net loss allocable As reported $(11,671,086) $ (9,151,744) $ (4,160,090)
to common ============ ============ ============
shareholders Pro forma $(12,633,675) $ (9,809,741) $ (4,442,090)
============ ============ ============
Basic and As reported (Note 2) $ (1.22) $ (.97) $ (.64)
============ ============ ============
Diluted EPS Pro forma (Note 2) $ (1.32) $ (1.04) $ (.69)
============ ============ ============
</TABLE>
A summary of stock options from inception through December 31, 1998 is
presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
----------- -----------
<S> <C> <C>
BALANCES, as of December 31, 1991 .............. -- --
Granted ...................................... 286,891 $ 0.12
----------
BALANCES, as of December 31, 1992 .............. 286,891 $ 0.12
Granted ...................................... 501,405 $ 0.15
Canceled ..................................... (66) $ 0.15
----------
BALANCES, as of December 31, 1993 .............. 788,230 $ 0.14
Granted ...................................... 392,553 $ 0.32
Canceled ..................................... (116,501) $ 0.15
Exercised .................................... (282,069) $ 0.25
----------
BALANCES, as of December 31, 1994 .............. 782,213 $ 0.19
Granted ...................................... 106,358 $ 1.41
Canceled ..................................... (80,701) $ 0.15
Exercised .................................... (83,138) $ 0.12
----------
BALANCES, as of December 31, 1995 .............. 724,732 $ 0.38
Granted ...................................... 494,399 $ 10.56
Canceled ..................................... (110,740) $ 0.63
Exercised .................................... (220,641) $ 0.15
----------
BALANCES, as of December 31, 1996 .............. 887,750 $ 6.07
Granted ...................................... 362,916 $ 14.22
Canceled ..................................... (75,983) $ 8.19
Exercised .................................... (35,443) $ 0.27
----------
BALANCES, as of December 31, 1997 .............. 1,139,240 $ 8.71
----------
Granted ...................................... 518,130 $ 9.22
Canceled ..................................... (122,872) $ 13.48
Exercised .................................... (5,684) $ 0.34
----------
BALANCES, as of December 31, 1998 .............. 1,528,814 $ 8.53
==========
Weighted average fair value of options granted--
1996 ......................................... $ 5.55
==========
1997 ......................................... $ 4.77
==========
1998 ......................................... $ 3.45
==========
</TABLE>
F-22
<PAGE> 50
The following table summarizes information about the options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING AT EXERCISABLE AT
DECEMBER 31, 1998 DECEMBER 31, 1998
------------------------------------------------ -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE PRICES NUMBER CONTRACTUAL EXERCISE EXERCISE
LIFE PRICE PRICE
- ------------------------- --------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
$0.09 - $0.15 ........... 75,454 4.7 $ 0.13 75,454 $ 0.13
$0.38 - $0.75 ........... 166,905 5.7 $ 0.40 159,515 $ 0.39
$1.50 ................... 86,584 6.5 $ 1.50 66,338 $ 1.50
$6.00 ................... 155,362 7.1 $ 6.00 68,920 $ 6.00
$8.00 - 9.31 ............ 446,666 9.3 $ 8.84 18,800 $ 8.00
$10.50 - $15.50.......... 597,843 8.2 $ 13.29 176,803 $ 12.99
--------- ---------
TOTAL ............ 1,528,814 7.9 $ 8.53 565,830 $ 5.19
========= =========
</TABLE>
(5) JOINT VENTURE AND LICENSE AGREEMENTS
In June 1995, the Company and Johnson Controls formed a joint venture,
Johnson Controls/Bolder LLC (the "Joint Venture"), to develop high volume
manufacturing technology for TMF batteries, to commercialize the TMF technology
and to promote the TMF technology in the hybrid electric vehicle market. In
July 1996, having substantially completed its primary objective of developing
the high volume manufacturing technology, the Company and Johnson Controls
agreed to discontinue the Joint Venture and separately implement TMF battery
manufacturing facilities to best meet the unique requirements of the markets
addressed by each. This agreement to discontinue the Joint Venture was
formalized on January 22, 1997, but made effective as of July 31, 1996. From
inception until it was terminated, the Joint Venture was primarily engaged in
the research and development of the manufacturing process for TMF batteries and
did not generate any significant revenues. Assets and liabilities of the Joint
Venture at the date of termination were considered to be the property of the
Company, and the net assets attributable to Johnson Controls' ownership
interest were considered to be advance payments on the technology transfer
agreement entered into between the Company and Johnson Controls.
From the inception of the Joint Venture, through the effective date of
its termination, July 31, 1996, the Company accounted for its investment in the
Joint Venture using the equity method, and recorded its share of the Joint
Venture's losses. For the years ended December 31, 1996 and 1995, respectively,
the Company recorded $669,025 and $164,136 of such losses ($833,161 from
Inception). Subsequent to July 31, 1996, the Company recorded all of the
expense related to the activities formerly conducted by the Joint Venture.
In the accompanying statements of operations, the Joint Venture losses
are classified as research and development expense and general and
administrative expense. Joint Venture losses classified as research and
development expenses were $520,116 and $647,719 for 1996 and from Inception.
Joint Venture losses classified as general and administrative expenses were
$148,909 and $185,442 for 1996 and from Inception.
In connection with the termination of the Joint Venture and the
restructuring of the relationship between the Company and Johnson Controls, the
Company agreed to engage in technology transfer services which will allow
Johnson Controls to deploy TMF technology in specified markets in commercial
quantities. In exchange for services to be performed under the technology
transfer agreement, the Company received Johnson Controls' interest in the net
assets of the Joint Venture in the amount of $746,343 during 1996, and a cash
payment of $2,750,000 from Johnson Controls during 1997. The Company recognized
F-23
<PAGE> 51
$1,748,174 and $1,748,169 of revenue related to this agreement during the years
ended December 31, 1998 and 1997, respectively. Related deferred revenue
balances were $0 and $1,748,174 at December 31, 1998 and 1997, respectively. In
October, 1998 the Company completed the technology transfer and recognized the
remaining revenue relating to the agreement.
In addition, the Company granted Johnson Controls, Inc. a license to
make and sell TMF batteries in markets related to auto/truck primary starting,
hybrid electric vehicles, lawn and garden equipment starting, motorcycle
starting and uninterruptible power supplies. The Company will receive royalties
on all units sold by Johnson Controls into these markets which incorporate the
Company's TMF technology, subject to certain minimum royalties payable each
year. In 1998 and 1997, the Company received $295,000 and $160,000,
respectively, in minimum royalties. The Company and Johnson Controls also
entered into a cross supply agreement pursuant to which they will supply each
other with TMF battery products.
(6) NOTES PAYABLE
The Company has entered into a senior loan and security agreement (the
"Agreement") whereby the Company may borrow, in one or more borrowings, an
amount not to exceed $1,500,000 in the aggregate. At December 31, 1998,
cumulative borrowings under the Agreement totaled $862,915. No further
borrowings are allowed under the terms of this Agreement. The Company has
granted a first perfected security interest in certain of its equipment,
machinery and fixtures as collateral to these borrowings. At December 31, 1998,
$107,844 is outstanding under the Agreement.
The notes payable under the Agreement at December 31, 1998 and 1997,
bear interest at rates varying from 9.1% to 10.0% (weighted average interest
rate of 9.4% at December 31, 1998), due on varying dates through January 2000
and require monthly payments of principal and interest totaling $12,838.
In connection with the Agreement, the Company issued warrants to the
lender. Under the terms of the warrants, the lender may acquire up to 10,500
shares and 8,625 shares of the Company's Common Stock for $3.00 and $6.00 per
share, respectively.
In March 1997, the Company entered into a senior loan and security
agreement ("the Loan Agreement"), whereby the Company may borrow, in one or
more borrowings, an amount not to exceed $13 million in the aggregate. At
December 31, 1998, cumulative borrowings under the Loan Agreement totaled
$12.26 million. The Company has a first perfected security interest in certain
of its tenant improvements in its Golden, Colorado facility and in its recently
installed commercial production line as collateral. At December 31, 1998,
$10,273,201 is outstanding under the Loan Agreement.
The notes payable under the Loan Agreement at December 31, 1998 and
1997 bear interest at rates varying from 12.8% to 17.2% (weighted average
interest rate of 14.0% at December 31, 1998), are due on varying dates through
June 2003 and require monthly payments of principal and interest totaling
$213,557.
The aggregate maturities of the notes payable are as follows:
<TABLE>
<S> <C>
1999 .............................. $ 1,521,842
2000 .............................. 2,073,662
2001 .............................. 2,209,367
2002 .............................. 1,821,190
2003 .............................. 1,884,339
Thereafter ........................ 870,645
-----------
$10,381,045
===========
</TABLE>
F-24
<PAGE> 52
(7) COMMITMENTS AND CONTINGENCIES
The Company leases its office space and production facility under an
eleven-year lease with two five-year renewal options. The Company also leases
certain office equipment under lease agreements which terminate in 2002. Future
minimum commitments under these leases are as follows:
<TABLE>
<S> <C>
1999 ................. $ 636,588
2000 ................. 626,986
2001 ................. 603,011
2002 ................. 534,761
2003 ................. 533,490
Thereafter 2,311,612
----------
$5,246,448
==========
</TABLE>
Monthly rental payments for the Company's office and manufacturing
space are approximately $45,000. Rent expense for the years ended December 31,
1998, 1997 and 1996 and from Inception was $461,119, $482,584, $167,726, and
$1,447,414, respectively.
The Company has entered into employment agreements with certain
executives that provide for specified severance payments should the Company
terminate the executive's employment with the Company, other than for cause.
The amount to be paid is subject to reduction in certain circumstances.
The Company has a 401(k) plan under which eligible employees may defer
up to 20% of their compensation. The Company may make matching contributions
and discretionary contributions if approved by the Board of Directors. For
1998, 1997, 1996 and since Inception, no employer matching or discretionary
contributions were made to the Plan.
The Company is subject to certain environmental and other regulations
primarily administered by the United States Environmental Protection Agency and
various state agencies. Management of the Company believes it has complied with
all material aspects associated with these regulations.
The Company is subject to various claims and business disputes in the
ordinary course of business. Management does not anticipate that the ultimate
outcome of these issues will have a material impact on the Company's financial
position or results of operations.
(8) ACCRUED COMPENSATION AND OTHER ACCRUED LIABILITIES
The components of accrued compensation and other accrued liabilities
are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accrued vacation ................... $ 250,676 $ 179,939
Employee stock purchase plan payable 60,523 55,897
Property taxes payable ............. 218,016 36,925
Accrued commissions and bonuses .... 344,400 327,000
Compensation payable ............... 178,386 83,874
Accrued interest ................... 120,149 --
Unbilled services .................. 230,958 270,156
---------- ----------
$1,403,108 $ 953,791
========== ==========
</TABLE>
F-25
<PAGE> 53
(9) INCOME TAXES
The Company has had losses since Inception, and therefore has not been
subject to federal or state income taxes. As of December 31, 1998, the Company
had an accumulated net operating loss ("NOL") carryforward for income tax
purposes of approximately $34.6 million. The carryforward is subject to
examination by the tax authorities and expires at various dates through the
year 2013. The Tax Reform Act of 1986 contains provisions that may limit the
NOL carryforwards available for use in any given year upon the occurrence of
certain events, including significant changes in ownership interest. A change
of ownership of a company greater than 50% within a three-year period results
in an annual limitation on the Company's ability to utilize its NOL
carryforwards from tax periods prior to the ownership change. The private
placement sale of the 1997 Series A in October 1997 resulted in such a change
of ownership and the Company estimates that the resulting NOL carryforward
limitation will be approximately $6.8 million per year for periods subsequent
to October, 1997. The Company does not believe that this limitation will affect
the eventual utilization of its total NOL carryforwards.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards .. $ 13,459,592 $ 7,938,406
Deferred revenue .................. 13,388 696,886
Accrued compensation .............. 251,264 225,987
Other ............................. 89,258 58,384
------------ ------------
13,813,502 8,919,663
Less valuation allowance .......... (12,297,020) (8,496,336)
------------ ------------
1,516,482 423,327
Deferred tax liability:
Depreciation differences ......... (1,388,301) (343,919)
Capitalized patent costs ......... (128,181) (79,408)
------------ ------------
(1,516,482) (423,327)
------------ ------------
Net deferred taxes ............... $ 0 $ 0
============ ============
</TABLE>
The Company's net deferred tax assets represent a previously
unrecognized tax benefit. Recognition of these benefits requires future taxable
income, the attainment of which is uncertain, and therefore, a valuation
allowance has been established for the entire tax benefit and no benefit for
income taxes has been recognized in the accompanying statements of operations.
The differences in income taxes provided and the amounts determined by
applying the federal statutory rate to income taxes result from the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income tax benefit using federal statutory rate .. $(3,480,389) $(3,062,298) $(1,456,032)
State income tax benefit ......................... (323,179) (284,356) (135,203)
Meals and entertainment and other ................ 2,883 12,371 6,389
Change in valuation allowance .................... 3,800,685 3,334,284 1,584,846
----------- ----------- -----------
$ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
F-26
<PAGE> 54
(10) BUSINESS SEGMENT INFORMATION
In accordance with the provisions of SFAS No. 131, the Company has
determined that it does not have separately reportable operating segments.
Below is a listing of major customers, each of which comprised more
than 10% of revenues:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ---------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C>
Johnson Controls .......................... $2,055,810 84% $1,952,367 77% -- --
United States Government SBIR
Contract .................................. $ 367,436 15% $ 280,786 11% $ 72,458 15%
Customer 2................................. -- -- $ 277,500 11% $ 360,000 76%
</TABLE>
F-27
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
3(i).1* Amended and Restated Certificate of Incorporation of the
Company.
3(i).2** Certificate of Designation of the Series A Preferred Stock of
the Company.
3(i).3** Amendment to the Certificate of Designation of the Series A
Preferred Stock of the Company.
3(i).4*** Certificate of Designation of the Series B Junior
Participating Preferred Stock of the Company.
3(ii).1* Amended and Restated Bylaws of the Company.
3(ii).2** Amendment to the Amended and Restated Bylaws of the Company.
4.1 Reference is made to Exhibits 3(i).1 through 3(ii).2.
4.2* Specimen stock certificate representing shares of Common
Stock of the Company.
4.3** Specimen stock certificate representing shares of Series A
Preferred Stock of the Company.
4.4*** Rights Agreement between the Company and American Stock
Transfer & Trust Company, dated January 23, 1998.
4.5*** Form of Rights Certificate.
10.1*+ Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.2 1996 Equity Incentive Plan of the Company, as amended through
April 17, 1997 (previously filed as an exhibit to the
Company's Registration Statement on Form S-8 (Registration
No. 333-08968) and incorporated herein by reference).
10.3* 1996 Employee Stock Purchase Plan of the Company.
10.4*+ Employment Agreement between the Company and Daniel S.
Lankford, dated July 11, 1994.
10.5*+ Employment Agreement between the Company and Joseph F.
Fojtasek, dated February 13, 1996.
10.6+ Employment Agreement between the Company and Arthur S. Homa,
dated September 25, 1997 (previously filed as an exhibit to
the Company's Form 10-K for the year ended December 31, 1997
and incorporated herein by reference).
10.7+ Employment Agreement between the Company and Daniel A.
Schwob, dated September 16, 1998.
</TABLE>
<PAGE> 56
<TABLE>
<S> <C>
10.8* Series C Preferred Stock Purchase Agreement between the
Company and the purchasers named therein, dated July 19,
1994.
10.9* Supplemental Agreement to Series C Preferred Stock Purchase
Agreement between the Company and the purchasers named
therein, dated September 30, 1994.
10.10* First Amendment to Purchase Agreement among the Company, the
stockholders of the Company named therein and Phoenix Leasing
Incorporated, dated July 29, 1994.
10.11* Amendment to Purchase Agreement among the Company, the
stockholders of the Company named therein and Phoenix Leasing
Incorporated, dated March 21, 1996.
10.12* Note and Warrant Purchase Agreement between the Company and
the purchasers named therein, dated March 14, 1995.
10.13* Preferred Stock and Warrant Purchase Agreement between the
Company and the purchasers named therein, dated May 24, 1995.
10.14* Letter Agreement among the Company, Harold Scott and the
stockholders of the Company named therein, dated January 18,
1996.
10.15* Series E Preferred Stock and Warrant Purchase Agreement among
the Company, Johnson Controls Battery Group, Inc. and the
stockholders of the Company named therein, dated June 26,
1995.
10.16** Purchase Agreement between the Company and BT Alex. Brown
Incorporated, dated October 3, 1997.
10.17** Registration Rights Agreement between the Company and BT
Alex. Brown Incorporated, dated October 8, 1997.
10.18* Senior Loan and Security Agreement between the Company and
Phoenix Leasing Incorporated, dated July 29, 1994, including
forms of Promissory Notes and Warrants to Purchase Shares of
Series C Preferred Stock issued thereunder.
10.19* Warrant to Purchase Shares of Series C Preferred Stock issued
to Phoenix Leasing Incorporated, dated March 21, 1996.
10.20 Security Agreement between the Company and Transamerica
Business Credit Corporation, dated March 4, 1997, including
form of Promissory Notes issued thereunder (previously filed
as an exhibit to the Company's Form 10-KSB for the year ended
December 31, 1996 and incorporated herein by reference).
10.21* Agreement between the Company and Wright Industries, Inc.,
dated March 11, 1996.
10.22 Agreement among the Company, Johnson Controls Battery Group,
Inc. and Johnson Controls/Bolder LLC, dated July 31, 1996
(previously filed as an exhibit to the Company's February 5,
1997 Form 8-K and incorporated herein by reference).
10.23 Cross Supply Agreement between the Company and Johnson
Controls Battery Group, Inc., dated January 22, 1997
(previously filed as an exhibit to the Company's February 5,
1997 Form 8-K and incorporated herein by reference).
23.1 Consent of Arthur Andersen LLP, independent auditors.
27.1 Financial Data Schedule.
</TABLE>
- -----------------------
* Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 333-2500-D) and incorporated herein by
reference.
** Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 333-41625) and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's January 23, 1998 Form 8-K
and incorporated herein by reference.
+ Management contract or compensatory plan or arrangement.
<PAGE> 1
BOLDER TECHNOLOGIES CORPORATION LOGO
4403 Table Mountain Drive
Golden, CO 80403
Phone: 303/215-7200
Fax: 303/215-2500
September 16, 1998
Mr. Daniel A. Schwob
975 Huristone Lane
San Jose, CA 95120
Dear Dan:
On behalf of BOLDER Technologies Corp., I am pleased to offer you the position
of Senior Vice President Marketing and Sales, reporting to me as the Chief
Executive Officer of the Company.
You will receive a starting base salary of $15,000 per month or $180,000 per
year. All compensation is subject to federal, state and other applicable taxes.
Also, during the first year of your employment, you will be paid a one-time
bonus equal to 20% of your annual salary or $36,000. This will be paid in 26
equal installments included with your regular paycheck, starting with your first
paycheck.
When you join the company, you will be granted an option to purchase 50,000
shares of common stock under the Company's incentive Stock Option Plan. Your
options will vest over a five-year period with 20% vesting on your 13th month of
employment, and the remainder vesting on a monthly basis thereafter.
During 1999 you will have an opportunity to earn a bonus equal to 20% of your
base salary based on achieving certain specific performance objectives. This
bonus opportunity will rise to 40% in 2000.
You will also have the opportunity to earn additional stock options based on the
achievement of certain specific performance objectives. This bonus option
opportunity will be 20,000 shares of common stock in 1999, and 10,000 shares in
each of 2000 and 2001 respectively.
The Company will pay you a $40,000 allowance for relocating you and your family
to the Denver area. All federal, state and other applicable taxes on this
allowance will be your responsibility.
You will be entitled to participate in all of the Company's employee benefit
plans beginning on your date of hire. Details will be provided under separate
cover. In addition, you will be entitled to three weeks of vacation in each
calendar year.
<PAGE> 2
When you report to work you will be expected to execute the Company's standard
agreement relative to patents, confidential information, and non-compete
obligations.
This is an offer for "at will" employment that will continue at the pleasure of
the Board of Directors in accordance with the Company's Bylaws. You and Company
each acknowledge that either has the right to terminate your employment with the
Company at any time, for any reason whatsoever, with or without cause for
advance notice. If your employment is terminated by the Company, other than for
cause, you shall be entitled to separation pay equal to six months' base salary
and benefits, excluding continuing stock vesting or bonus opportunities, at the
rate in effect at the time of such termination. Amounts payable as severance pay
shall be paid at regular intervals in accordance with the Company's payroll
practices at the salary rate in effect at the time of such termination, as
determined by the Compensation Committee of the Board of Directors. You agree to
make a "good faith" effort to find employment. If you find a full time salaried
position, the severance payments and benefits would be reduced to the extent of
the salary and benefits paid by the new employer during the six-month severance
period.
Other than as specifically set forth herein, you will not be entitled to any
other amounts from the Company. This letter constitutes the full offer of
employment and supersedes any prior discussions. This offer will expire if not
accepted in writing on September 25, 1998.
Dan, I am looking forward to your accepting this offer and joining the BOLDER
team. I know you will be a major contributor to building a world-class company.
Sincerely,
/s/ Daniel S. Lankford
Daniel S. Lankford
Chairman and Chief Executive Officer
Accepted by /s/ Dan Schwob Date September 23, 1998
---------------------- -------------------
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Annual Report on Form 10-K, into Bolder Technologies
Corporation's previously filed Registration Statement on Form S-3 (File No.
333-41625), Registration Statement on Form S-8 (File No. 333-20989) and
Registration Statement on Form S-8 (File No. 333-08968).
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Denver, Colorado,
March 29, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 962,453
<SECURITIES> 10,157,281
<RECEIVABLES> 46,151
<ALLOWANCES> 0
<INVENTORY> 129,887
<CURRENT-ASSETS> 11,404,812
<PP&E> 25,446,090
<DEPRECIATION> 2,312,955
<TOTAL-ASSETS> 32,591,747
<CURRENT-LIABILITIES> 3,344,206
<BONDS> 10,381,045
0
15,998,863
<COMMON> 9,713
<OTHER-SE> 4,379,762
<TOTAL-LIABILITY-AND-EQUITY> 32,591,747
<SALES> 49,264
<TOTAL-REVENUES> 2,459,869
<CGS> 73,347
<TOTAL-COSTS> 2,126,950
<OTHER-EXPENSES> 11,630,143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,346,511
<INCOME-PRETAX> (9,943,969)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,943,969)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> (1.22)
</TABLE>
