SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): October 10,
1995
ELECTROSOURCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-16323 74-2466304
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) Number)
3800B Drossett Drive
Austin, Texas 78744-1131
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (512) 445-
6606
Page 1 of 3 Pages
Item 5. Other Events
In connection with the filing with the Securities and
Exchange Commission of a registration statement covering the
offer and sale of shares of the Company's Common Stock by certain
selling shareholders, the Company has determined that the its financial
statements for the fiscal year ended December 31, 1994, should be
amended by the addition of a footnote regarding the impact of
certain subsequent events and, accordingly, the Company's independent
auditors, Ernst & Young LLP, have determined that their report in respect
of such financial statements and the related schedule should be revised.
The full text of the financial statements and report of independent
auditors, as so revised, follow.
Item 7. Financial Statements and Exhibits.
The following financial statements for the fiscal year ended
December 31, 1994, are filed as an exhibit to this report.
Balance Sheets - December 31, 1994 and 1993
Statements of Operations--For the years ended
December 31, 1994, 1993, and 1992, and
cumulative amounts from inception
Statements of Shareholders' Equity--For the years ended
December 31, 1994, through 1988, and the period
beginning June 3, 1987 and ended December 31, 1987
Statements of Cash Flow--For the years ended
December 31, 1994, 1993, and 1992, and cumulative
amounts from incemption
Notes to Financial Statements--
December 31, 1994
Financial Statement Schedule--
Schedule VIII - Valuation and Qualifying Accounts
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 hereunto duly authorized.
ELECTROSOURCE, INC.
By: /s/
James M. Rosel, Vice President
Date: October 12, 1995
ELECTROSOURCE, INC. (A Development Stage Company)
Audited Financial Statements
December 31, 1994
Audited Financial Statements
Report of Independent Auditors F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-7
Notes to Financial Statements F-8
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Electrosource, Inc.
We have audited the accompanying balance sheets of Electrosource,
Inc., (a development stage company) as of December 31, 1994 and
1993, and the related statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended
December 31, 1994, and the cumulative amounts from inception
(June 3, 1987). Our audits also included the financial statement
schedule listed in the Index. These financial statements and
schedules 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. These 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 Electrosource, Inc. (a development stage company) at December
31, 1994, and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended
December 31, 1994, and the cumulative amounts from inception, in
conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information
set forth therein.
The accompanying financial statements and schedule have been prepared
assuming that Electrosource, Inc. will continue as a going concern.
Since the date of completion of our audit of the accompanying
financial statements and initial issuance of our report thereon
dated February 13, 1995, except as to Note Q as to which the date
is March 10, 1995, the Company, as discussed in Note R, has
incurred recurring operating losses and has experienced cash flow
shortages at various times that raise substantial doubt about its
ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note R. The financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.
Austin, Texas
February 13, 1995, except for Note Q,
as to which the date is March 10, 1995,
and Note R, as to which the date is
October 6, 1995.
ELECTROSOURCE, INC. (A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31,
1994 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................... $2,193,290 $1,000,723
Trade receivables (including contract retainage
of $24,000 in 1994 and $152,000 in 1993; and
net of bad debt allowance).................... 2,478,311 1,112,266
Receivable from joint venture partner........... 326,116
Inventories..................................... 231,656
Prepaid expenses................................ 24,651 37,080
TOTAL CURRENT ASSETS 4,927,908 2,476,185
PROPERTY AND EQUIPMENT 2,632,049 286,613
TECHNOLOGY LICENSE AGREEMENT (net of accumulated
amortization of $1,291,104 in 1994 and
$1,102,284 in 1993) ............................ 1,757,570 1,946,390
TOTAL ASSETS $9,317,527 $4,709,188
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities....... $1,307,688 $ 486,133
Accrued salaries and employee benefits......... 566,848 108,398
Notes payable.................................. 750,000
Current portion of capital lease obligations... 21,760 9,259
Deferred revenue............................... 1,000,000
TOTAL CURRENT LIABILITIES 2,896,296 1,353,790
CONVERTIBLE NOTE PAYABLE........................ 3,800,000
TECHNOLOGY LICENSE PAYABLE...................... 3,271,343
CAPITAL LEASE OBLIGATIONS (less current portion) 35,337 33,017
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock, par value $0.10 per share;
authorized 30,000,000 shares, shares issued
and outstanding: 15,134,463 in 1994 and
13,172,797 in 1993 ........................... 1,513,446 1,317,280
Warrants......................................
Paid in capital............................... 15,356,043 11,017,174
Retained earnings (deficit accumulated during
the development stage)...................... (17,554,938) (9,012,073)
(685,449) 3,322,381
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $9,317,527 $4,709,188
See notes to financial statements.
ELECTROSOURCE, INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Cumulative
For the year ended December 31 amounts from
1994 1993 1992 inception
Revenues
Project revenue.......... $2,901,690 $2,967,097 $ 531,653 $7,645,487
Revenue from joint
venture partner ......... 410,414 339,761 750,175
License fees............. 800,000 800,000
Royalty revenue.......... 50,000 50,000 100,000
Battery sales............ 377,666 377,666
Interest income.......... 74,400 15,712 12,579 900,489
4,614,170 3,372,570 544,232 10,573,817
Costs and expenses
Selling, general and
administrative......... 4,557,650 1,624,003 755,354 11,336,055
Research and development
costs.................. 1,932,685 1,530,132 622,484 7,822,492
Production............... 2,210,748 2,210,748
Technology license and
royalties.............. 3,929,350 110,000 110,000 4,591,017
Depreciation and
amortization........... 446,602 272,885 284,077 2,055,617
Loss on sale of equipment 32,826 32,826
13,077,035 3,569,846 1,771,915 28,048,755
Loss before income taxes... (8,462,865) (197,276) (1,227,683) (17,474,938)
Income taxes (foreign)..... 80,000 80,000
Net loss................... $(8,542,865) $(197,276) $(1,227,683) $(17,554,938)
Loss per share............ $(0.61) $(0.03) $(0.20)
Average shares outstanding 14,106,358 6,806,901 6,146,798
See notes to financial statements.
<TABLE>
ELECTROSOURCE, INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 1994, 1993, 1992, 1991, 1990,
1989, 1988 and the period beginning June 3, 1987 (inception of
the corporation) and ended December 31, 1987.
<CAPTION>
Retained Total
Capital Stock Earnings Shareholders
Common Preferred Paid-in Capital (Deficit) Equity(Deficit)
<S> <C> <C> <C> <C> <C>
Issuance of common stock
(4,693,118 shares).......... $469,312 $6,724,853 $7,194,165
Net loss for period ended
December 31, 1987........... $ (350,940) (350,940)
Balance at December 31, 1987.. 469,312 6,724,853 (350,940) 6,843,225
Stock Options exercised
(50,000 shares)............. 5,000 95,000 100,000
Net loss for year ended
December 31, 1988........... (1,741,888) (1,741,888)
Balance at December 31, 1988.. 474,312 6,819,853 (2,092,828) 5,201,337
Stock options exercised
(10,000 shares)............. 1,000 19,000 20,000
Warrant exercised
(50,000 shares)............. 5,000 95,000 100,000
Shares issued pursuant to
amended royalty reduction
agreement (162,628 shares).. 16,263 288,664 304,927
Net loss for year ended
December 31, 1989........... (2,037,079) (2,037,079)
Balance at December 31, 1989.. 496,575 7,222,517 (4,129,907) 3,589,185
Shares issued pursuant to
amended royalty reduction
agreement (300,351 shares).. 30,035 502,562 532,597
Shares issued in
Subscription Rights Offering
(880,700 shares)............ 88,070 1,396,139 1,484,209
Net loss for year ended
December 31, 1990........... (2,557,340) (2,557,340)
Balance at December 31, 1990.. 614,680 9,121,218 (6,687,247) 3,048,651
Net loss for year ended
December 31, 1991........... (899,867) (899,867)
Balance at December 31, 1991.. 614,680 9,121,218 (7,587,114) 2,148,784
Issuance of Preferred Stock
(1,280,000 shares).......... 1,280,000 220,000 1,500,000
Net loss for year ended
December 31, 1992........... (1,227,683) (1,227,683)
Balance at December 31, 1992.. 614,680 1,280,000 9,341,218 (8,814,797) 2,421,101
Preferred stock conversion
(6,400,000 shares).......... 640,000 (1,280,000) 640,000
Warrants exercised
(452,000 shares)............ 45,200 846,800 892,000
Stock options exercised
(174,000 shares)............ 17,400 189,156 206,556
Net loss for year ended
December 31, 1993........... (197,276) (197,276)
Balance at December 31, 1993.. 1,317,280 11,017,174 (9,012,073) 3,322,381
Stock options exercised
(128,166 shares)............ 12,816 131,189 144,005
Warrants exercised
(148,000 shares)............ 14,800 318,200 333,000
Shares issued in Regulation S
offering (1,200,000 shares). 120,000 2,551,556 2,671,556
Shares issued in Regulation D
offering (485,500 shares)... 48,550 1,337,924 1,386,474
Net loss for year ended
December 31, 1994........... (8,542,865) (8,542,865)
Balance at December 31, 1994.. $1,513,446 $ $15,356,043 $(17,554,938) $ (685,449)
</TABLE>
See notes to financial statements.
<TABLE>
ELECTROSOURCE, INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<CAPTION>
Cumulative
For the year ended December 31, amounts from
1994 1993 1992 inception
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss................... $(8,542,865) $ (197,276) $(1,227,683) $(17,554,938)
Adjustments to reconcile
net income to net cash
used in operating
activities:
Technology license fee..... 3,271,343 3,271,343
Depreciation............... 257,782 84,065 95,257 764,513
Amortization of technology
license agreement........ 188,820 188,820 188,820 1,291,104
Amortization of prepaid
prepaid royalties........ 75,000 100,000 175,000
Loss on sale of equipment.. 32,826 32,826
Changes in operating assets
and liabilities:
Increase in receivables (1,039,929) (1,432,451) (5,141) (2,478,311)
Increase in inventories (231,656) (231,656)
Decrease (increase) in
prepaid expenses..... 12,429 (20,568) (613) (30,902)
Increase (decrease) in
accounts payable and
accrued liabilities.. 1,280,005 413,983 (111,884) 2,005,786
Increase in deferred
revenue.............. 1,000,000 1,000,000
Decrease in earnest
deposit.............. (25,000)
NET CASH USED IN OPERATING
ACTIVITIES (3,804,071) (855,601) (986,244) (11,755,235)
INVESTING ACTIVITIES
Purchases of plant and
equipment............... (2,603,218) (142,564) (10,262) (3,403,091)
Payment of royalty
reduction option........ (887,422)
Proceeds from sale of
equipment............... 19,995 19,995
CASH USED IN INVESTING
ACTIVITIES.............. (2,603,218) (122,569) (10,262) (4,270,518)
FINANCING ACTIVITIES
Proceeds from notes
payable 3,800,000 550,000 200,000 4,650,000
Payment of note payable and
capital lease obligations (735,179) (4,015) (100,000) (839,194)
Net proceeds of rights
offering................ 1,484,209
Royalty reduction agreement
stock registration costs. (30,563)
Proceeds from issuance of
common stock............. 4,535,035 1,098,556 11,754,591
Proceeds from issuance of
preferred stock.......... 1,200,000 1,200,000
CASH PROVIDED BY FINANCING
ACTIVITIES 7,599,856 1,644,541 1,300,000 18,219,043
INCREASE IN CASH AND CASH
EQUIVALENTS 1,192,567 666,371 303,494 2,193,290
Cash and cash equivalents at
beginning of period........ 1,000,723 334,352 30,858
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $2,193,290 $1,000,723 $ 334,352 $2,193,290
See notes to financial statements.
</TABLE>
ELECTROSOURCE, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Reporting Period: Electrosource, Inc. (the Company)
was incorporated as a Delaware corporation on June 3, 1987. At that
time, the Company was a wholly-owned subsidiary of Tracor, Inc.
(Tracor), a publicly-held company. On October 5, 1987, Tracor made a
capital contribution of $6 million and a sublicense of its patented
technology agreement (valued at $1.2 million, Tracor's amortized cost)
to the Company in exchange for additional stock in the Company. Tracor
then distributed approximately 85 percent of the Company's stock to
Tracor shareholders and the Company began operating as a separate
entity. Prior to October 5, 1987, the research and development
activities which are now conducted by the Company were conducted by
Tracor. Tracor owns approximately 4 percent of the Company's
outstanding common stock at December 31, 1994.
In January 1992, under a Securities Purchase Agreement (see Note K),
the Company issued voting convertible preferred stock to Battery
Horizons, Ltd. ("BHL"), such that BHL had effective voting control of
the Company. All outstanding shares of Preferred Stock were converted
into Common Stock in December 1993, and the shares of Common Stock
received upon conversion were distributed to the general and limited
partners in BHL.
Development Stage Company: The Company is engaged in the manufacture
of advanced lead-acid, rechargeable storage batteries and the
development of related processes and technologies and has not earned
significant revenues from its intended operations. Accordingly, the
Company is a "development stage company" for financial reporting
purposes.
Cash and Cash Equivalent: The Company's cash and cash equivalents
consist of cash and short-term investments with a maturity of three
months or less when purchased.
Inventories: Inventories are stated at the lower of cost (first-in-
first-out method) or market value and consist primarily of raw
materials.
Property and Equipment: Property and equipment are recorded at cost.
The Company has also capitalized equipment in accordance with the terms
of related leases. Depreciation of property and equipment (including
amounts recorded under capitalized leases) is computed using the
straight-line method over the estimated useful lives of the assets,
ranging from 3 to 10 years.
Technology License Agreement: The Company has been assigned all
license rights by Tracor under Tracor's Patent License Agreement
relating to coextruded wire (See Note D). The cost of this license is
being amortized over the legal life of the patent on the technology (17
years). It is the Company's policy to account for the license at the
lower of amortized cost or fair value. On an ongoing basis, management
reviews the valuation and amortization of the license, taking into
consideration any events or circumstances which might have diminished
fair value.
Earnings (Loss) Per Share: Earnings (loss) per share is based on the
average number of shares of common stock outstanding during each
period. Since the Company has experienced net operating losses,
outstanding options and warrants to purchase common stock have an
antidilutive effect. Therefore, options and warrants were not included
in the earnings (loss) per share calculation.
Business Segments: The Company is engaged in the manufacture of
advanced lead-acid, rechargeable storage batteries and the development
of related processes and technologies. Accordingly, the Company
considers itself to be operating in one business segment.
Income Taxes: Effective January 1, 1993, the Company adopted the
Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"), which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the years
in which the differences are expected to reverse. Under SFAS 109,
changes in tax rates are recognized in the year the new legislation is
enacted. (See Note M.)
The adoption of SFAS 109 had no impact on the Company's financial
statements or accumulated deficit, due to the establishment of a
valuation allowance for all deferred tax assets. Financial statements
prior to the adoption have not been restated.
Reclassification: Certain reclassifications have been made to the 1993
financial statements to conform with the 1994 presentation.
NOTE B _ RECEIVABLE FROM JOINT VENTURE PARTNER
During 1993, the Company and BDM Technologies, Inc. ("BDM"), under a
Strategic Alliance, formed Horizon Battery Technologies, Inc. ("HBTI")
in order to establish and operate a limited capability for
manufacturing and producing advanced technology batteries. Each
partner maintained a 50 percent interest, and the Company accounted for
the investment using the equity method. Through 1994, HBTI has not had
significant operations as BDM funded the development of the
manufacturing technology internally. Revenues of approximately
$410,000 and $340,000 in 1994 and 1993, respectively, were generated in
support of an agreement between the Company and BDM for a time and
materials task order contract for technical support to BDM in
developing a low rate initial production line for the Horizon battery.
HBTI, under the Shareholder's Agreement, had committed to pay the
Company a minimum royalty of $25,000 per quarter. The Company
generated $50,000 in royalty revenue during 1994 and 1993 representing
the minimum royalty for the first and second quarter of 1994 and the
third and fourth quarters of 1993. As part of an agreement to license
certain technology in-process from BDM, the Company agreed to consider
the amounts owed by BDM as additional consideration for the license
(See Note G).
NOTE C _ PROPERTY AND EQUIPMENT
1994 1993
Office equipment 390,546 $ 189,069
Production equipment 1,379,206
Lab equipment 423,799 290,857
Leasehold improvements 1,132,805 246,571
3,326,356 726,497
Less - accumulated depreciation
and amortization 694,307 439,884
Total Property and Equipment $2,632,049 $286,613
NOTE D _ TECHNOLOGY LICENSE AGREEMENT AND ROYALTY PAYMENTS
The Company had, at its inception, obtained an exclusive sublicense
from Tracor for the development, manufacture, and commercial
exploitation of coextruded wire for lead-acid battery applications
under Tracor's Patent License Agreement with the holder of the patent
(Blanyer-Mathews Associates, Inc., the "Licensor") relating to
coextruded wire. In May 1990, Tracor, Inc., with the consent of the
Licensor, assigned the rights under the original License Agreement
between Tracor, Inc., and the Licensor to the Company. This assignment
provides the Company with unrestricted applications of the licensed
technology and effectively terminates the Sublicense Agreement between
Tracor, Inc., and the Company. Previous to this assignment, the
Company's use of the technology was limited specifically to products
and components associated with lead-acid, storage batteries.
Additionally, the Company is now responsible for the maintenance and
administration of the licensed patent and agrees to pay Tracor, Inc., a
royalty of four percent on all technology sales unrelated to lead-acid,
storage batteries for the term of the License Agreement. Tracor is to
receive a minimum annual royalty of $10,000 for a five-year period
beginning on the date of the assignment. Such royalty payments were to
have begun in May 1991, but Tracor agreed to defer each payment for two
years. The deferred minimum royalty payments accrue interest at the
rate of 8.5 percent per year, from the original due date until paid.
The Company is obligated to pay the Licensor a royalty of one-half
percent of net sales of coextruded wire and wire-related products, with
a minimum annual royalty of $100,000.
In January 1991, the Company executed an agreement with the Licensor
whereby the 1991 minimum royalty payments, which are payable quarterly
under the License terms, could be deferred until January 1992.
Deferrals carried interest at ten percent (10%) and deferred royalties
could, at the Licensor's option, be paid by the issuance of stock at a
price of $.63 per share. The total number of shares of common stock so
issuable would approximate 169,000 shares.
On January 16, 1992, the Company executed a License Modification
Agreement with the Licensor whereby the Company satisfied its future
minimum royalty payments through December 31, 1993 (totaling $300,000)
with the issuance of preferred stock (See Note K). Minimum royalty
payments of $100,000 for 1994 were paid in cash.
NOTE E CONVERTIBLE NOTE PAYABLE
In November 1994, the Company entered into a Convertible Promissory
Note with Mitsui Engineering and Shipbuilding Co., Ltd. for $3,800,000.
The note carries an interest rate of five percent per annum on the
unpaid principal and interest is due and payable semi-annually in the
form of additional notes payable. Mitsui may convert the Notes
(principal and interest) into 1,638,617 shares of Common Stock or
convert the Notes to satisfy its obligation to pay any license fees due
to the Company. The Company may prepay the Notes anytime after
November 1999 provided that the Common Stock has reached a specified
level and that Mitsui does not desire to convert the Notes to Common
Stock.
NOTE F NOTES PAYABLE
On January 29 and February 26, 1993, the Company entered into several
ten percent notes payable aggregating $550,000 with several individuals
with warrants to purchase 440,000 shares of Common Stock for a purchase
price of $2.25 per share (See Note J). The Notes and all accrued
interest were paid in August 1994. The notes were collateralized by
essentially all assets of the Company (excluding accounts receivable
and notes receivable).
On December 29, 1992, the Company entered into a ten percent note
payable in the amount of $200,000 with an individual with a warrant to
purchase 200,000 shares of Common Stock for a purchase price of $1.625
per share (See Note J). The Note and all accrued interest was paid in
full in July 1994. The Note was collateralized by essentially all
assets of the Company (excluding accounts receivable and notes
receivable).
Interest expense incurred by the Company was approximately $72,000,
$70,000 and $4,000 in 1994, 1993 and 1992, respectively.
NOTE G 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, previously
created by BDM and the Company, for 100,000 shares of Common Stock.
The Company has recorded an expense of $3,819,350 in 1994 for this
transaction based on the fair market value of the various components of
the transaction. This was treated as an expense as the technological
feasibility of the technology licensed has not been completely proven
and the Company has no alternative future uses for this technology.
During the first quarter of 1995, the Company issued 241,666 shares of
Common Stock to BDM under the terms of this agreement.
NOTE H COMMITMENTS AND CONTINGENCIES
The Company leases various plant and office facilities, production
equipment, office and warehouse equipment under operating and capital
leases expiring between 1997 and 1999. Future minimum annual rentals
under lease arrangements at December 31, 1994, are as follows:
Fiscal Year Capital Leases Operating Leases
1995 $28,825 $ 784,241
1996 20,808 603,576
1997 9,900 423,143
1998 7,987 407,203
67,520 $2,218,163
Less imputed interest 10,423
Present value of capital
lease obligations $57,097
Rental expense for operating leases for the years ended December 31,
1994, 1993 and 1992 were $496,645, $105,746 and $63,624, respectively.
The Company is involved in certain contingencies incidental to its
business. While the ultimate results of these matters cannot be
predicted with certainty, management does not expect them to have a
material adverse effect on the consolidated financial position of the
Company.
NOTE I LICENSE FEES
During 1994, the Company and Mitsui Engineering and Shipbuilding Co.
Ltd. signed a distribution agreement whereby Mitsui will pay the
Company $2,000,000 for the distribution rights of the Horizon battery
in Japan and an option for a manufacturing license. Upon exercise of
the option Mitsui would pay the Company $3,000,000. Mitsui paid
$200,000 to HBTI under the distribution license in 1993 (which was
recorded by HBTI), an additional $800,000 to the Company in 1994 and
will pay the remaining $1,000,000 in 1995. Mitsui has not
exercised the option for the manufacturing license. The Company
recognized approximately $800,000 as license fee revenue (and $80,000
of applicable foreign income tax See Note M) and deferred revenue of
$1,000,000 in 1994.
NOTE J COMMON STOCK
In June and July 1994, the Company issued 1,200,000 shares of the
Company's Common Stock which resulted in net proceeds of $2,671,556 to
the Company. Additionally, in July and August 1994, holders of 148,000
warrants to purchase the Company's Common Stock, exercised these
warrants which resulted in net proceeds of $333,000 to the Company. In
September and October 1994, the Company sold 485,500 shares of Common
Stock which resulted in net proceeds of $1,386,474 to the Company.
Warrants attached to this offering allow the purchase of an equal
number of shares. One-half of the warrants may be exercised at a price
of $4.50 per share until September 1995, and the remaining one-half may
be exercised at a price of $5.50 per share until September 1996.
Stock Options
The Company has established four stock option plans. The 1987 Stock
Option Plan, as Amended, provides for the grant of options at the
discretion of the Compensation/Stock Option Committee to officers and
key employees to purchase shares of the Company's Common Stock at a
price not less than 100 percent of the market price of such stock on
the date the option is granted. The plan provides for the granting of
options for up to 1,500,000 shares of common stock.
The following table represents a summary of activity for this plan for
the two years ending December 31, 1994:
<TABLE>
<CAPTION>
Beginning Ending
Shares Shares Shares Shares Shares Shares
Year ended Outstanding Granted Exercised Forfeited Outstanding Vested
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993 630,000 175,000(1) 103,999 -- 701,001(2) 367,659
December 31, 1994 701,001 700,000(3) 128,166 80,000 1,192,835(4) 599,499
<FN>
(1) Option prices vary from $2.31 to $4.00
(2) Option prices vary from $1.06 to $4.00
(3) Option prices vary from $2.875 to $3.75
(4) Option prices vary from $1.06 to $3.75
</FN>
</TABLE>
The 1988 Non-Employee Director Stock Option Plan, as Amended, provides
for the automatic, non-discretionary award of options to purchase
shares of Common Stock, at an exercise price equal to the market price
of the covered shares as of the date of grant, to each director of the
Company who is not also an officer or employee of the Company. Grants
of options under this plan are effective on the date of election to the
Board of Directors. These options become exercisable in three stages
beginning six months after the date of grant and expire up to five
years from the date of grant. The plan provides for the granting of
options for up to 1,000,000 shares of Common Stock.
The following table represents a summary of activity for this plan for
the two years ending December 31, 1994:
Beginning Ending
Shares Shares Shares Shares Shares Shares
Year ended Outstanding Granted Exercised Forfeited Outstanding Vested
December 31, 1993 220,000 220,000(1) 70,000 40,000 330,000(2) 80,000
December 31, 1994 330,000 55,000(3) -- -- 385,000(2) 150,000
(1) Option prices vary from $3.625 to $4.625
(2) Option prices vary from $1.06 to $4.625
(3) Option price $3.50
The 1993 Non-Employee Consultant Stock Option Plan provides for the
grant of options at the discretion of the Compensation/Stock Option
Committee to non-employee consultants to purchase shares of the
Company's Common Stock at a price not less than 100 percent of the
market price of such stock on the date the option is granted. The plan
provides for the granting of options for up to 200,000 shares of Common
Stock.
The following table represents a summary of activity for this plan for
the year ending December 31, 1994:
Beginning Ending
Shares Shares Shares Shares Shares Shares
Year ended Outstanding Granted Exercised Forfeited Outstanding Vested
December 31, 1993 80,000(1) 80,000(1)
December 31, 1994 80,000 80,000(1) 26,666
(1) Option price $3.75
The 1994 Stock Option Plan is pending approval at the May 31, 1995,
Shareholders' Meeting. The Plan provides for the grant of options at
the discretion of the Compensation/Stock Option Committee to officers
and key employees to purchase shares of the Company's Common Stock at a
price not less than 100 percent of the market price of such stock on
the date the option is granted. The plan provides for the granting of
options for up to 1,500,000 shares of common stock; however, only
500,000 shares of Common Stock have been reserved pending shareholder
approval.
The following table represents a summary of activity for this plan for
the year ending December 31, 1994:
Beginning Ending
Shares Shares Shares Shares Shares Shares
Year ended Outstanding Granted Exercised Forfeited Outstanding Vested
December 31, 1994 335,000(1) 335,000(1)
(1) Option price $3.50
Warrants
On December 29, 1992, the Company entered into a ten percent note
payable with an individual with a warrant to purchase 200,000 shares of
Common Stock for a purchase price of $1.625 per share during an
exercise period from January 16, 1994, until July 1, 1994
On January 29 and February 26, 1993, the Company entered into several
ten percent notes payable with several individuals with warrants to
purchase 440,000 shares of Common Stock for a purchase price of $2.25
per share during an exercise period from February 16, 1994, until
August 1, 1994.
In September and October 1994, the Company sold 485,500 shares of
Common Stock under a Regulation D offering. Warrants attached to this
offering allow the purchase of an equal number of shares. One-half of
the warrants may be exercised at a price of $4.50 per share until
September 1995, and the remaining one-half may be exercised at a price
of $5.50 per share until September 1996.
The following table represents a summary of activity of the 1992/1993
Electrosource, Inc., Loan/Warrant Program and the Regulation D Offering
for the two years ending December 31, 1994:
Warrants Warrants Warrants Warrants Warrants
Outstanding Granted Exercised Forfeited Outstanding
December 31, 1993 200,000 440,000(1) 452,000 -0- 188,000(1)
December 31, 1994 188,000 485,500(2) 148,000 40,000 485,500(2)
(1) Warrant price $2.25
(2) Warrant prices vary from $4.50 to $5.50
At December 31, 1994, shares of the Company's common stock were
reserved as follows:
For issuance under:
1987 Stock Option Plan - as Amended 1,207,835
1988 Non-Employee Director Stock Option Plan - as Amended 930,000
1993 Non-Employee Consultant Stock Option Plan 200,000
1994 Stock Option Plan 1,500,000
EPRI Financing/Equity Sharing Program (See Note L) 2,500,000
Mitsui Note Payable Conversion (See Note E) 1,638,617
BDM Transaction 3,000,000
Exercise of Warrants 485,500
11,461,952
NOTE K PREFERRED STOCK
On January 16, 1992, the Company consummated a Securities Purchase
Agreement (the "Agreement") with Battery Horizons, Limited ("BHL"), a
Texas limited partnership, pursuant to which the Company sold to BHL
1,280,000 shares of a new issue of voting, convertible preferred
stock, $1.00 par value, of the Company designated as 1992 Series A
Preferred Stock (the "Preferred Stock"). BHL is a Texas limited
partnership having as its general partner a corporation formed by a
former officer of the Company and other private investors.
The Preferred Stock was convertible into Common Stock at the rate of
five shares of Common Stock for each share of Preferred Stock, and was
entitled to vote with the Common Stock on an as-converted basis on all
matters to come before the stockholders of the Company, including the
election of directors. BHL, as the sole owner of the Preferred Stock
was able to elect all of the members of the Company's Board of
Directors and had voting control of the Company.
The purchase price for the Preferred Stock was $1.5 million, of which
$1.2 million was paid in cash and $.3 million was paid by the
procurement by BHL of a reduction in the amount of deferred and minimum
royalties payable by the Company to the Licensor for the fourth quarter
of 1990, fiscal years 1991 and 1992, and the first three quarters of
1993. All outstanding shares of Preferred Stock were converted into
Common Stock in December 1993, and the shares of Common Stock received
upon conversion were distributed to the general and limited partners in
BHL.
NOTE L _ PROJECT REVENUE
The Company generated project revenue of approximately $2,056,000,
$3,000,000, and $530,000 in 1994, 1993, and 1992, respectively, under
an Agreement with the Electric Power Research Institute ("EPRI") for
continuing efforts to develop and commercialize the Company's
proprietary advanced lead-acid battery. The project was a research and
development program which concluded in July, 1994.
Pursuant to the terms of the agreement, EPRI is the owner of any new
patents or other intellectual property created under this agreement and
the Company has a license and the right to sublicense such property.
Royalties will accrue at the rate of one-half of one percent on sales
of products containing licensed technology and on other revenues
derived by the Company from license fees, joint ventures and other
arrangements involving the licensed technology, with aggregate
royalties subject to varying caps (to a maximum of twenty times the
amount of funds advanced) depending upon the amount of funding provided
by EPRI. If, among other things, funding for the first and second
phases of the program is determined to have exceeded $5,000,000, EPRI
could have the right to exchange all future royalties for shares of
Company Common Stock representing approximately 13 percent of the
number of outstanding shares on a fully diluted basis as of the final
invoice date. The Company has granted demand and "piggy-back"
registration rights with respect to such shares.
In August 1994, Chrysler awarded the Company a $1,600,000 contract to
custom fit the Horizon battery to prototypes of the automaker's NS-
series electric van. During 1994, the company recorded approximately
$846,000 in project revenue under this agreement. This project is
expected to conclude in early 1995.
NOTE M INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes." The Company adopted
the provisions of the new standard in its financial statements for the
year ended December 31, 1993. The effect of adopting Statement 109 was
not significant. As permitted by the Statement, prior year financial
statements were not restated to reflect the change in accounting
method. The cumulative effect as of January 1, 1993 of adopting
Statement 109 was not significant.
Under Statement 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected
to reverse. Prior to the adoption of Statement 109, income tax expense
was determined using the deferred method. Deferred tax expense was
based on items of income and expense that were reported in different
years in the financial statements and tax returns and were measured at
the tax rate in effect in the year the difference originated.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax asset
at December 31, 1994, and 1993, are as follows:
1994 1993
Deferred Tax Assets:
Net operating loss and other tax carryforwards $2,636,000 $1,231,000
Book depreciation in excess of tax depreciation 133,000 61,000
Accruals and other 1,360,000
Total deferred tax assets 4,129,000 1,292,000
Less valuation allowance (4,129,000) (1,292,000)
Deferred tax assets, net $ -0- $ -0-
Significant components of the provision for income taxes are as
follows:
1994 1993
Current:
Foreign $80,000 -0-
$80,000 $ -0-
The effective rate of the provisions for federal income taxes
reconciles to the statutory rate as follows:
1994 1993
Statutory U.S. federal income tax rate 34.0% 34.0%
Increase (reduction) in rate resulting from:
Increase in valuation allowance (34.0) (34.0)
Other (0.9) 0.0
Actual income tax rate (0.9%) 0.0%
Results of operations for the year ended December 31, 1994, increased
both deferred tax assets and the corresponding valuation allowance by
$2,837,000. At December 31, 1994, the Company has net operating loss
carryforwards of approximately $7.5 million for income tax purposes,
which will expire beginning in the year 2002. The Change in Control in
January, 1992 (See Note K), caused utilization of the Company's net
operating loss carryforwards to be significantly limited. Utilization
of approximately $2.2 million of the net operating loss carryforwards
is limited to $188,000 per year. During 1994, foreign income taxes of
approximately $80,000 were withheld at source which generated a foreign
tax credit carryforward for income tax purposes, which will expire in
the year 1999, it not utilized.
NOTE N RIGHTS OFFERING
The Company undertook a common stock Subscription Rights ("Rights")
offering, whereby shareholders of record on October 24, 1989, were
offered Rights to purchase one share of common stock of the Company for
every three shares held. The subscription price was $2.00 per share of
common stock, and the offering concluded on February 1, 1990, with
total gross proceeds of $1,761,400 which, net of actual offering costs,
produced net proceeds to the Company of $1,484,200. The total Rights
exercised under this offering resulted in the issuance of 880,700
shares of Company common stock in February 1990. At the inception of
the Rights offering, the Company estimated that certain legal,
accounting, and other costs associated with the offering would be
$285,000. Approximately $277,200 of total costs were incurred, which
were offset against the proceeds of the offering.
NOTE O RELATED PARTY TRANSACTIONS
Several directors of the Company are also directors and shareholders of
Blanyer-Mathews Associates, Inc. (See Note D for further discussion
regarding the Company's relationship with Blanyer-Mathews Associates,
Inc.)
A director of the Company had served as general counsel to the Company
since January 1992, and the law firms with which he has been associated
have received legal fees and expense reimbursements of approximately
$28,000 during 1993, and $30,000 in 1992.
NOTE P EMPLOYEE BENEFIT PLAN
The Company sponsors a qualified defined contribution plan covering all
full-time eligible employees. The Company matches twenty-five percent
of a participant's voluntary contributions up to a maximum of one
percent and four percent of a participant's compensation for the plan
years ending January 31, 1994 and 1995, respectively. The Company's
contribution expense was approximately $22,000 and $16,000 in 1994 and
1993, respectively.
NOTE Q SUBSEQUENT EVENTS
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 March
1995, the Company sold 500,000 shares of Common Stock which resulted in
net proceeds to the Company of $1,000,000.
NOTE R ABILITY TO CONTINUE AS A GOING CONCERN
During the second quarter of 1995, the Company discovered problems with
certain of the batteries that were produced late in 1994 and in early
1995. Due to the problems encountered, the Company decided to replace
approximately 1,700 batteries at no cost to the customer. This,
combined with the increases in costs which were necessary to achieve
the Company's manufacturing objectives and correct the above problems,
have significantly depleted the cash resources of the Company. These
factors raise substantial doubt about the Company's ability to continue
as a going concern. Management has instituted a cost reduction program
which includes a reduction in labor costs. Management is also in
active discussion with potential sources of additional capital. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
<TABLE>
SCHEDULE VIII
The Valuation and Qualifying Accounts
<CAPTION>
Balance at Charged to Charged to
Beginning of Costs and Other Other Charges Balance at
Description Period Expense Accounts Deduct(Add) End of Period
Year ended December 31, 1994
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts 0 $7,500 0 0 $7,500
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts 0 0 0 0 0
Year ended December 31, 1992
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts 0 0 0 0 0
</TABLE>
