3
FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number 0-16323
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter.)
Delaware 742466304
(State or other jurisdiction (I.R.S.
Employer
of incorporation or organization)
Identification No.)
3800-B Drossett Drive
Austin, Texas 78744-1131
(Address of principal (Zip Code)
executive offices)
(512)445-6606
(Registrant's telephone number, including area code)
__________________________________________
(Former name, former address and former fiscal year,
if changes since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date: 18,035,355 shares as of May 10, 1995.
INDEX TO FINANCIAL STATEMENTS
March 31, 1995
Electrosource, Inc. Commission file number 0-16323
Condensed Balance Sheets at March 31, 1995 (Unaudited)and
December 31,
1994.................................................. Page 3
Condensed Statements of Operations for the three months ended
March 31, 1995 and 1994
(Unaudited)........................................... Page 4
Condensed Statements of Cash Flows for the three months ended
March 31, 1995 and 1994
(Unaudited)........................................... Page 5
Notes to Condensed Financial Statements............... Page 6
Managements' Discussion and Analysis.................. Page 8
Exhibits to Form 10Q................................... Page 10
Index toExhibits ...................................... Page 11
Part I - Financial Information
Item I. Financial Statements
Electrosource, Inc.
Condensed Balance Sheets
March 31, December 31,
1995
1994
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,037,739 $ 2,193,290
Trade receivables 2,209,711 2,478,311
Inventories 442,919 231,656
Prepaid expenses 180,622 24,651
TOTAL CURRENT ASSETS 3,870,991 4,927,908
PLANT AND EQUIPMENT (net of
accumulated depreciation of $827,579
in 1995 and $694,307 in 1994) 4,395,363 2,632,049
TECHNOLOGY LICENSE AGREEMENT (net of
accumulated
amortization of $1,338,309 in 1995
and $1,291,104 in 1994) 1,710,365 1,757,570
DEPOSITS 60,000 0
TOTAL ASSETS $ 10,036,719 $ 9,317,527
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Accounts payable, accrued
liabilities and other $ 2,250,464 $ 1,896,296
Deferred revenue 0 1,000,000
TOTAL CURRENT LIABILITIES 2,250,464 2,896,296
CONVERTIBLE NOTE PAYABLE 3,800,000 3,800,000
TECHNOLOGY LICENSE PAYABLE 2,894,011 3,271,343
CAPITAL LEASE OBLIGATIONS (less
current portion) 34,115 35,337
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock par value $0.10 per
share; authorized 30,000,000 shares;
shares issued and outstanding:
17,927,411 in 1995 and
15,134,463 in 1994 1,792,741 1,513,446
Warrants 0 0
Paid in capital 19,473,080 15,356,043
Retained earnings (deficit) (20,207,692) (17,554,938)
1,058,129 (685,449)
TOTAL LIABILITIES AND SHAREHOLDERS' $ 10,036,719 $ 9,317,527
EQUITY (DEFICIT)
See notes to condensed financial statements.
Electrosource, Inc.
Condensed Statements of Operations (Unaudited)
Three Months Ended March 31,
1995 1994
Revenues
Project revenue $ 778,593 $ 1,321,423
License fees 1,000,000 0
Revenue from joint venture 0 182,268
partner
Royalty revenue 0 25,000
Battery sales 153,423 0
Interest income 26,779 6,088
1,958,795 1,534,779
Costs and expenses
Selling, general and 1,289,099 523,684
administrative
Research and development 1,089,802 903,764
Manufacturing 1,924,671 0
Technology license and 74,705 74,705
royalties
Depreciation and amortization 133,272 42,658
4,511,549 1,544,811
Loss before income taxes (2,552,754) (10,032)
Income taxes (foreign) 100,000 0
Net loss $ (2,652,754) $ (10,032)
Net loss per common share $ (0.16) $ .00
Average common shares outstanding 16,855,203 13,284,129
See notes to condensed financial statements.
Electrosource, Inc.
Condensed Statements of Cash Flows (Unaudited)
Three Months Ended March 31,
1995 1994
OPERATING ACTIVITIES
Net loss $ (2,652,754) $ (10,032)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Technology license fee 19,000 0
Depreciation 133,272 42,658
Amortization of technology
license agreement 47,205 47,205
Changes in operating assets
and liabilities:
(Increase) decrease in
receivables 268,600 (64,644)
Increase in prepaid
expenses and deposits (215,971) (37,167)
Increase in inventories (211,263) 0
Increase in accounts
payable and accrued liabilities 375,928 72,891
Increase (decrease) in (1,000,000) 98,180
deferred revenue
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (3,235,983) 149,091
INVESTING ACTIVITES
Purchase of plant and equipment (1,896,586) (100,844)
CASH USED IN
INVESTING ACTIVITIES (1,896,586) (100,844)
FINANCING ACTIVITIES
Payment on capital lease
obligations (22,982) (10,384)
Proceeds from issuance of common
stock 4,000,000 142,415
CASH PROVIDED BY
FINANCING ACTIVITIES 3,977,018 132,031
INCREASE
(DECREASE) IN CASH AND
CASH
EQUIVALENTS (1,155,551) 180,278
Cash and cash equivalents at
beginning of period 2,193,290 1,000,723
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 1,037,739 $ 1,181,001
See notes to condensed financial statements.
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they
do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. These interim financial
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
Certain reclassifications have been made to the 1994 financial
statements to conform with the 1995 presentation.
NOTE B - DEVELOPMENT STAGE COMPANY
Prior to 1995 the Company had been a "development stage company"
for financial reporting purposes. In 1995 the Company began to
increase activity at its San Marcos, Texas manufacturing facility
and is beginning to earn significant revenue from its intended
operations. Accordingly, the Company no longer will report as a
"development stage company".
NOTE C - PROPERTY AND EQUIPMENT
March 31, December 31,
1995 1994
Office Equipment $ 464,784 $ 269,957
Production Equipment 2,657,312 1,404,052
Lab Equipment 713,436 519,543
Leasehold Improvements 1,387,410 1,132,804
5,222,942 3,326,356
Less: Accumulated depreciation
and amortization 827,579 694,307
Total Property and Equipment $4,395,363 $ 2,632,049
NOTE D - COMMON STOCK
In January 1995, the Company sold 2,051,282 shares of Common
Stock which resulted in net proceeds to the Company of
$3,000,000. In addition, in March 1995, the Company sold 500,000
shares of Common Stock which resulted in net proceeds to the
Company of $1,000,000.
NOTE E - TECHNOLOGY LICENSE PAYABLE
During the fourth quarter of 1994, the Company finalized the
Technology License Agreement with BDM Technologies, Inc. ("BDM").
Under the terms of this agreement, the Company obtained an
exclusive license to use certain technologies under development
by BDM for the manufacture of batteries. The Company agreed to
pay BDM: $80,000 cash, issue 1,700,000 shares of Common Stock in
thirty-six equal installments; issue 200,000 additional shares of
Common Stock if the Company decides to maintain the license
beyond the original three year term; grant 1,000,000 options to
purchase Common Stock exercisable at $4.00 per share; and buy
BDM's interest in a corporate joint venture ("HBTI"), previously
created by BDM and the Company, for 100,000 shares of Common
Stock. During the first quarter of 1995, the Company issued
241,666 shares of Common Stock to BDM under the terms of this
agreement and recorded a $377,332 increase to shareholders'
equity with a corresponding reduction to the Technology License
Payable.
NOTE F - LICENSE FEES
During 1994, the Company and Mitsui Engineering and Shipbuilding
Co. Ltd. ("MES") signed a distribution agreement whereby MES
agreed to pay the Company $2,000,000 for distribution rights of
the Horizon battery in Japan and an option for a manufacturing
license. The Company recognized $1,000,000 of this license fee
as revenue in the first quarter of 1995 and $800,000 in the
third quarter of 1994.
NOTE G - SUBSEQUENT EVENT
In April 1995 the Company completed an offering of 240
Convertible Debentures ("the Debentures") with a total value of
$6,000,000. The net proceeds to the Company for the issuance of
the Debentures was $5,400,000. Each $25,000.00 Convertible
Debenture is convertible into Electrosource, Inc., Common Stock,
par value $.10 per share. The Conversion Price of the debentures
will be equal to 80 percent of the Market Price (average closing
price of the Common Stock for the five business days immediately
preceding such time as the debentures are converted). Conversion
of 50 percent of the debentures may be effected 60 days after
issue and the remaining 50 percent 30 days thereafter subject to
earlier conversion upon certain events. In addition, Warrants to
purchase 54,237 shares of Common Stock were issued at a price of
$3.6875 per share exercisable until April 5, 2000.
Results of Operations:
Revenues. The Company had project revenue of approximately
$779,000 for the three months ended March 31, 1995 as compared to
$1,321,000 for the three month periods ended March 31, 1994. The
project revenue in 1995 was all generated from an agreement with
the Chrysler Corporation for the retrofit of the Horizon Battery
for the NS mini-van program. This agreement concluded in the
first quarter of 1995 and resulted in the selection of the
Company as the preferred supplier of batteries for the Chrysler
electric mini-van program. This selection has resulted in an
arrangement whereby Chrysler may purchase up to $75 million of
Horizon batteries over a three-year period beginning in 1996.
The project revenue for the first quarter of 1994 was all
generated from an agreement with the Electric Power Research
Institute ("EPRI") for the development and commercialization of
the Company's proprietary advanced lead-acid battery. The EPRI
agreement ended in 1994; however, the Company is continuing to
pursue other project agreements.
For the three months ended March 31, 1995 the Company had
revenue, net of returns, of approximately $153,000 from sales of
the Horizon battery. There was no revenue from battery sales in
the first quarter of 1994. The Company substantially increased
the capacity of the San Marcos, Texas production facility in the
second half of 1994 and the first quarter of 1995 and expects
that this increase in capacity will result in increased battery
sales. However, as the Company still continues to perfect the
battery design and manufacturing technology the timing of battery
sales can not be assured.
During 1994, the Company and Mitsui Engineering and Shipbuilding
Co. Ltd. ("MES") signed a distribution agreement whereby MES
agreed to pay the Company $2,000,000 for distribution rights of
the Horizon battery in Japan and an option for a manufacturing
license. The Company recognized $1,000,000 of this license fee
as revenue in the first quarter of 1995 and $800,000 in the
third quarter of 1994.
Costs and Expenses. Costs and expenses increased substantially
in the three months ended March 31, 1995 as compared to the three
months ended March 31, 1994 as a result of the assumption of
operational control of the low rate initial production facility
in San Marcos, Texas in July 1994, and the subsequent increase in
operations at that facility. The assumption of operational
control of the San Marcos facility corresponded with the decision
by the Company to become the North American manufacturer of the
Horizon battery. Previously the Company planned to license the
manufacturing to third parties, and to use the San Marcos
facility as the first manufacturing plant in North America. As
the manufacturer of the Horizon battery the Company began
incurring production costs for the first time in its history and
increased the sales, marketing and administrative staffs
significantly. In addition, the Company is continuing efforts to
license the manufacturing and distribution of the Horizon battery
outside of North America resulting in additional marketing and
administrative expenditures. The Company also plans to continue
to carry out research and development to improve the battery and
manufacturing process. As a result of this change in corporate
focus, the Company expects that costs in all areas will continue
to increase for the foreseeable future; however, as production of
the battery increases the costs as a percentage of total revenue
will begin to stabilize.
Liquidity and Capital Resources:
During the first three months of 1995 the Company sold 2,551,282
shares of Common Stock which resulted in net proceeds to the
Company of $4,000,000. In addition, in April 1995 the Company
completed an offering of Convertible Debentures that resulted in
net proceeds to the Company of $5,400,000. These funds will be
used to fund the substantially increased working capital and
capital expenditure needs of the Company necessitated by the
decision to become the North American manufacturer of the Horizon
battery. Additional working capital and capital expenditures are
necessary to increase the production capacity of the San Marcos
facility to a level that management believes will demonstrate the
ability to manufacture the Horizon battery in commercial
quantities. Once that level is achieved, management believes it
will still be necessary to continue to expand the capacity of the
San Marcos facility, begin development of additional plants in
North America, and to continue research and development of the
Horizon battery and the related technologies. Accordingly,
management is continuing to devote substantial effort to pursue
additional funding sources.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereto duly authorized.
Date: May 11, 1995 ELECTROSOURCE, INC.
/s/
Michael Rosen
Vice President, Chief
Financial Officer
(Executive Officer)
/s/
Don C. Perriello
Treasurer
(Chief Accounting
Officer)
Form 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
EXHIBITS TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file
March 31, 1995 Number 0-16323
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 742466304
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3800B Drossett Drive
Austin, Texas 78744-1131
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including
area code: (512) 445-6606
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 $.10 per share
INDEX TO EXHIBITS
10.1 Stock Purchase Agreement dated January 31, 1995,
between BDM Technologies, Inc. and Electrosource, Inc.
(filed as Exhibit 10.46 to Electrosource, Inc., Annual
Report on Form 10K for the period ended December 31, 1994,
and incorporated herein by reference).
10.2 Offshore Securities Subscription Agreement dated
January 25, 1995 between Rosehouse Ltd., a Bermuda-based
institutional buyer, and Electrosource, Inc., (filed as an
Exhibit to the Company's January 25, 1995, Form 8K and
incorporated herein by reference).
10.3 Offshore Securites Subscription Ageement dated March 9,
1995 between Rosehouse Ltd., a Bermuda-based institutional
buyer, and Electrosource, Inc., (filed as an Exhibit to the
Company's March 10, 1995 Form 8K and incorporated herein by
reference).
10.4 Offshore Securities Subscription Agreement dated April
5, 1995 between Rosehouse Ltd., a Bermuda-based
institutional buyer, and Electrosource, Inc., (filed as an
Exhibit to the Company's April 12, 1995 Form 8K and
incorporated herein by reference).
(b) Reports on Form 8-K.
Reports on Form 8-K filed during the quarter ended
March 31, 1995 were:
January 25, 1995, Offshore Securities Subscription
Agreement between Rosehouse Ltd., and Electrosource, Inc.
for the placement of 2,051,282 shares of Common Stock.
March 10, 1995, Offshore Securities Subscription Agreement
between Rosehouse Ltd., and Electrosource, Inc. for the
placement of 500,000 shares of Common Stock.
April 3, 1995, Proforma financial statements as of February
28, 1995 which gave effect to equity transactions completed
by the Company in January and March 1995.
April 12, 1995, Convertible Debentures offering for 240
debentures at $25,000.00 each to Rosehouse Ltd., and
Electrosource, Inc., dated April 5, 1995.
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