2
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 June 30, 1999
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 of (I.R.S. Employer Identification
No.)
incorporation or organization)
2809 Interstate 35 South, San 78666
Marcos, Texas
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, (512) 753-6500
including area code:
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: 10,596,631 shares as of August 12, 1999.
INDEX TO FINANCIAL STATEMENTS
June 30, 1999
ELECTROSOURCE, INC. COMMISSION FILE NUMBER 0-16323
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Balance Sheets at June 30, 1999 (Unaudited)
and December 31, 1998 Page 3
Condensed Statements of Operations for the three and six
months
ended June 30, 1999 and 1998 (Unaudited) Page 4
Condensed Statements of Cash Flows for the six months ended
June 30, 1999 and 1998 (Unaudited) Page 5
Notes to Condensed Financial Statements (Unaudited) Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited) Page 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings Page 12
Item 2. Changes in Securities Page 12
Item 3. Defaults On Senior Securities Page 13
Item 4. Submission of Matters to a Vote of Security HoldersPage 13
Item 5. Other Information Page 13
Item 6. Exhibits and Reports on Form 8-K Page 13
INDEX TO EXHIBITS Page 16
Part I - Financial Information
Item 1. Financial Statements
Electrosource, Inc.
Condensed Balance Sheets
June 30, December
1999 31, 1998
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 317,017 $ 207,246
Trade receivables 400,349 109,520
Inventories 169,607 350,464
Prepaid expenses and other assets 16,769 29,938
TOTAL CURRENT ASSETS 903,742 697,168
PROPERTY AND EQUIPMENT (net of
accumulated depreciation
of $3,976,351 in 1999 and $4,028,762 in 3,089,470 3,462,157
1998)
INTANGIBLE ASSETS (net of accumulated
amortization
of $2,140,807 in 1999 and $2,046,397 in 907,867 1,002,277
1998)
OTHER ASSETS 54,000 55,500
TOTAL ASSETS 4,955,079 5,217,102
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 785,568 $ 948,528
Accrued liabilities 1,474,354 1,308,346
Deferred revenue and advance payments 401,484 649,893
on batteries
Current portion of capital lease 81,707 77,006
obligations
TOTAL CURRENT LIABILITIES 2,743,113 2,983,773
CAPITAL LEASE OBLIGATIONS (less current 29,449 71,512
portion)
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock, par value $1.00 per
share,
authorized 50,000,000 shares; issued
and outstanding
10,596,631 in 1999 and 8,434,531 in 10,596,631 8,434,531
1998
Preferred Stock, par value $1.00 per
share; authorized
10,000,000 shares, no shares issued - -
or outstanding
Common Stock subscription receivable (467,663) (467,663)
Warrants - -
Paid in capital 51,481,594 51,446,508
Accumulated deficit (59,428,045) (57,251,559)
2,182,517 2,161,817
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 4,955,079 $5,217,102
See notes to financial statements.
Electrosource, Inc.
Condensed Statements of Operations (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues
Battery sales $ 72,950 $ 143,644 $ 274,974 $ 388,619
Project revenue 300,180 165,941 465,186 214,956
Other income 50,189 - 54,816 -
Interest income 5 18,989 64 28,573
423,324 328,574 795,040 632,148
Costs and expenses
Manufacturing 606,680 742,085 1,328,300 1,734,689
Selling, general and 273,673 605,054 564,655 1,182,767
Research and development 276,463 483,531 552,048 1,079,642
Technology license and 25,000 25,000 50,000 50,000
royalties
Depreciation and 228,740 444,862 467,098 911,073
amortization
Interest expense 4,436 148,164 9,426 350,421
1,414,992 2,448,696 2,971,527 5,308,592
Loss before extraordinary (991,668)(2,120,122) (2,176,487) (4,676,444)
gain
Extraordinary gain from
early extinguishment
of debt (Note D) - 3,532,045 - 3,532,045
Net income (loss) $ (991,668)$1,411,923 $(2,176,487) $(1,144,399)
Net income (loss) per $(0.10) $0.27 $(0.24) $(0.24)
common share
Average common shares 9,576,301 5,164,202 9,122,280 4,851,105
outstanding
See notes to condensed
financial statements.
Electrosource, Inc.
Condensed Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
1999 1998
OPERATING ACTIVITIES
Net loss $(2,176,487) $(1,144,399)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity instruments for consulting services - 300,000
Depreciation and amortization 467,098 911,074
Non-cash interest expense 44,889 359,573
Amortization of prepaid lease expense - 213,071
Extraordinary gain from early - (3,532,045)
extinguishment of debt
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables (290,829) 230,387
(Increase) decrease in inventories 180,857 (16,093)
Decrease in prepaid expenses and other 14,669 118,157
assets
Decrease in accounts payable and accrued (41,841) (404,166)
liabilities
Increase (decrease) in deferred revenue (248,409) 616,611
and advance payments on batteries
CASH USED IN OPERATING ACTIVITIES (2,050,053) (2,347,830)
INVESTING ACTIVITIES
Purchases of property and equipment, net (37,362) (32,173)
CASH USED IN INVESTING ACTIVITIES (37,362) (32,173)
FINANCING ACTIVITIES
Proceeds from issuances of convertible notes
payable and related warrants to purchase - 1,000,000
Common Stock
Payment of notes payable and capital lease - (1,535,731)
obligations
Proceeds from issuances of common stock, net 2,197,186 2,700,000
Decrease in restricted cash - 81,604
CASH PROVIDED BY FINANCING ACTIVITIES 2,159,824 2,245,873
INCREASE (DECREASE) IN CASH AND CASH 109,771 (134,130)
EQUIVALENTS
Cash and cash equivalents at beginning of 207,246 782,918
period
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 317,017 $ 648,788
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, 1998, and are
not necessarily indicative of results for the entire year.
NOTE B - INVENTORIES
1999 1998
Raw materials $155,092 $147,235
Work in progress 14,408 61,499
Finished goods 107 141,730
$169,607 $350,464
NOTE C - PROPERTY AND EQUIPMENT
1999 1998
Office equipment $ 801,610 $ 801,610
Production and lab equipment 5,388,291 5,388,291
Leasehold improvements 875,920 1,301,018
7,065,821 7,490,919
Less-accumulated depreciation (3,976,351) (4,028,762)
and amortization
Total Property and Equipment $3,089,470 $3,462,157
NOTE D - CONVERTIBLE NOTES PAYABLE
In June 1998, in accordance with the terms of a Stock Purchase
Agreement ("Agreement") with Kamkorp Limited ("Kamkorp"), a
company organized in England, the Company executed an agreement
with Corning Incorporated ("Corning") to retire the full
$6,293,002 in outstanding Convertible Notes Payable and accrued
interest owed to Corning, in exchange for $1,500,000 in cash. The
transaction was completed on June 16, 1998. The Convertible Notes
Payable and accrued interest had a carrying amount of $5,032,045
(after unamortized discount of $1,260,957), resulting in an
extraordinary gain from the early extinguishment of debt of
$3,532,045 upon completion of the transaction. Basic and diluted
earnings per share for the extraordinary gain from the early
extinguishment of debt were $0.68 and $0.73 per share,
respectively, for the three and six month periods ended June 30,
1998. The $1,500,000 was provided to the Company by Kamkorp from
the sale of 1,500,000 share of Common Stock under the terms of
the Agreement. (See Note G).
NOTE E - CONTINGENCIES
In 1994, the Company signed a "Know-How License Agreement" (the
"Agreement") with Horizon Battery Technologies, Ltd., ("HBTL"),
of Bombay, India, calling for the completion of several detailed
subordinate agreements with the ultimate purpose to license the
manufacture and sale of batteries in India. The effectiveness of
the Agreement was conditioned upon the subsequent execution of
these six related agreements, none of which were executed. The
Company believes, therefore, the Agreement never became effective
and has no force or effect. Separately in 1995, HBTL agreed to
pay the Company $250,000 for a Preliminary Design Review ("PDR")
for a potential manufacturing facility in India which was
required to complete one of the subordinate agreements. The
Company received $100,000 from HBTL and completed the PDR in
1995. The remaining $150,000 was never paid by HBTL, in spite of
repeated demands by the Company.
In September 1996, the Company received a demand from HBTL to
arbitrate damage claims for alleged breach of the Agreement. HBTL
claimed damages of approximately $5.1 million for its expenses
and lost profits related to the Agreement. The Company disputes
the claim for damages and will vigorously defend any action taken
by HBTL to pursue the claims. The Company also filed a petition
in State Court in Travis County, Texas, seeking, among other
things, a declaratory judgment that HBTL had no right to
arbitration or monetary relief. HBTL contested jurisdiction and
removed the proceedings to the U.S. Federal District Court. The
Federal District Court to which the action was removed ruled that
it did not have personal jurisdiction over HBTL and therefore had
no power to hear the case. The Company filed an appeal in the
U.S. Fifth Circuit Court of Appeals from the final judgment and
rulings in the Federal District Court, which denied jurisdiction.
The appeal has been successful and the case has now been remanded
to the U.S. Federal District Court to hear. The Company has filed
a motion for summary judgment in the case. No liability has been
recorded in the financial statements at June 30, 1999 for this
uncertainty as management is unable to determine the likelihood
of an unfavorable outcome of this matter or to estimate the
amount or range of potential loss should the outcome be
unfavorable. The resolution of this matter could have a material
adverse effect on the financial position of the Company.
The Company is also involved in certain other 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 financial
position of the Company.
NOTE F - EARNINGS PER SHARE
Basic and diluted 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, such options and warrants were
not included in the diluted loss per share calculation.
NOTE G - LIQUIDITY
Under the terms of an Agreement entered into with the Company in
June 1998, Kamkorp Limited ("Kamkorp") agreed to provide up to
$6,000,000 of equity funding for 6,000,000 Common Shares
("shares") at $1.00 per share. In addition, Kamkorp was granted
an option to purchase up to 3,000,000 shares at $1.00 per share.
Assuming purchase of the full 6,000,000 shares available under
the Agreement and full exercise of the option to purchase
3,000,000 shares, Kamkorp is the beneficial owner of 9,000,000
shares representing 66.2% of the Company's Common Stock. As of
August 4, 1999, Kamkorp has paid for and been issued 6,000,000
shares at $1.00 per share, representing 56.6% of the Company's
outstanding Common Stock at that date.
In accordance with the terms of the Agreement Kamkorp nominated
three members to the Company's Board of Directors, who were
unanimously approved by the Board of Directors, and has the
ability to ultimately have control of the Board of Directors.
Additionally, pursuant to the terms of the Agreement, the Company
must obtain approval from Kamkorp for all important management
policies and decisions, which include the following:
a. issuance of Common Stock or any security which provides for
the right to acquire Common Stock, or any other capital stock of
the Company;
b. overall policy decisions relating to business direction and
manufacturing capacity;
c. any agreement or commitment that materially affects or
modifies the intellectual property owned by the Company;
d. approval of the annual operating budget, capital budget,
overhead budgets and business plans of the Company;
e. approval of any merger, consolidation, partnership or joint
venture;
f. approval of transfer of any assets of the Company with a
fair market value greater than $100,000;
g. incurring indebtedness for borrowed money, granting any
material pledge or security interest in the assets of the
Company;
h. increasing the size of the Company's Board of Directors;
i. amending the Company's Certificate of Incorporation or
Bylaws;
j. entering into any transaction involving an amount greater
than, or having a value in excess of, $100,000 or involving a
term or commitment for more than 12 months; and
k. other various management policies and decisions.
During the six months ended June 30, 1999, existing battery
orders and contract work have not been adequate to sustain the
Company on an ongoing basis and the Company continues to be
dependent on cash payments from Kamkorp and its affiliates to
continue operations on a day-to-day basis. The Company has
approximately $800,000 of outstanding accounts payable greater
than 30 days past due, most of which is payable to raw material
suppliers, some of which date back to June 1998. Certain of these
vendors have threatened legal action for non-payment of invoices.
Cash payments from Kamkorp have been sufficient to fund payroll
and rent obligations, and a portion of the outstanding accounts
payable balances.
Funding from Kamkorp, additional battery orders, or other
financing will be required in the third quarter of 1999 to
continue operations and to maintain compliance with the minimum
listing standards of The Nasdaq Stock Markets ("Nasdaq"). The
Company is discussing the possibility of accelerated or
additional financing from Kamkorp, which could be provided under
the terms of the Agreement through Kamkorp's exercise of all or a
portion of its option to purchase 3,000,000 shares of the
Company's Common Stock at $1.00 per share.
The Company's Common Stock is traded in the Over-the-Counter
Market and is reported on Nasdaq. In order to maintain listing by
Nasdaq under rules which went into effect in February 1998, the
Company must maintain a minimum $2,000,000 of net tangible assets
(total assets, excluding goodwill, minus total liabilities) and
the Company's closing stock price cannot fall below $1.00 per
share for 30 consecutive trade dates. On February 1, 1999, the
Company received written notice from Nasdaq that the closing bid
price of its shares fell below $1.00 for 30 consecutive trade
dates and therefore did not meet the Nasdaq minimum listing
requirements. The written notification stated that within 90
calendar days of the notification, the Company's closing bid
price must be $1.00 or higher for ten consecutive trading days to
satisfy the requirement. This requirement was met on or about
February 18, 1999. As of March 31, 1999, the Company's net
tangible assets were less than $2,000,000. As a result, the
Company was not in compliance with the minimum listing
requirements of Nasdaq and advised Nasdaq of that fact. The
Company anticipated that Kamkorp would make an additional equity
investment in the Company in April 1999 sufficient to bring it
into compliance; this did not occur due to delays in completing
renegotiation of outstanding battery orders with Kamkorp
affiliates. On April 15, 1999, the Company received notice from
Nasdaq that it was concerned that the Company may not be able to
sustain compliance with the continued listing requirements of
Nasdaq in light of the "going concern" opinion from its
independent auditor. To address this concern, Nasdaq requested a
detailed letter from the Company on or before April 30, 1999,
discussing the Company's plans to address the specific items that
led to the issuance of the "going concern" opinion, an expected
timeline for resolution of these items and a discussion
explaining why the Company believes it will be able to sustain
compliance with the continued listing standards of Nasdaq. The
Company complied with this request on April 30, 1999.
Additionally, on May 20, 1999, the Company received notice that
since the Company failed to meet the requirement for net tangible
assets of $2 million on the March 31, 1999 Form 10-Q, the Company
would be required to submit before June 4, 1999, a proposal for
achieving compliance. This proposal was submitted June 3, 1999.
The Nasdaq Staff responded to both of these issues in a letter
dated July 14, 1999. The Staff has reviewed the Company's plan
for regaining and maintaining compliance and acknoweldged that
the Company did address the issues raised by its auditors by the
"going concern" opinion. While the Staff has determined that the
Company will not be delisted due to its previously cited failures
to comply, they have determined to apply more stringent reporting
requirements. The Company is required to submit an internal
balance sheet and statement of operations for the period ended
July 31, 1999 by August 20, 1999. Thereafter, until further
notice, the Company is required to submit by the 20th of each
month, an internal balance sheet and statement of operations for
the preceding month's end. The Company is required to keep Nasdaq
apprised of all material events and any changes in its financial
statements. Should the Company fail to maintain $2 million net
tangible assets, the Staff will issue a formal delisting letter
to the Company.
In the event that the Common Stock were no longer traded on the
Nasdaq market, brokers and dealers effecting trades in the Common
Stock would become subject to the Securities and Exchange
Commission rules covering trading in "penny stocks." These rules
generally require that such broker-dealers make specific
disclosures to customers including information on available bid
and asked prices for the stock in question and compensation to
the broker-dealer and his associates with respect to the proposed
trade, and provide periodic reports as to the market value of a
customer's position in penny stocks. The rules also impose
heightened "know your customer" requirements that require broker-
dealers to obtain information, including personal financial
information, from customers sufficient to allow the broker-dealer
to make a determination that the investment in penny stocks is
suitable for the customer and that the customer is capable of
assessing the risks of such an investment. Broker-dealers may be
less willing to effect trades in any security subject to these
rules due to the additional disclosure, record-keeping and other
requirements imposed by the rules. In addition, some potential
investors in penny stock may be reluctant to provide the required
personal financial information to broker-dealers, which may
reduce the number of potential investors. These factors would
likely further reduce trading liquidity in the Common Stock.
If the Company were delisted from Nasdaq, it would likely be more
difficult to obtain additional funding. There can be no assurance
that additional funding which will generate sufficient cash to
sustain operations can be obtained on terms acceptable to the
Company, if at all. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Unaudited)
Financial Condition
The Company's cash balance increased from $207,246 to $317,017
during the six months ended June 30, 1999, as a result of equity
sales in excess of continued operating losses. Inventories
declined from $350,464 to $169,607, despite an increase in raw
materials inventories. This decline in work in process and
finished goods reflects a combination of shipments to fill orders
outstanding at year-end with the absence of firm orders against
which to build finished goods inventories in the first six months
of the year.
The Company sold 800,000 and 1,300,000 shares of Common Stock to
Kamkorp for $1.00 per share in the quarter ended March 31 and
June 30, 1999, respectively; participants in the Company's stock
option plans exercised options for 51,000 and 11,000 shares of
Common Stock in the aggregate for a total consideration of
approximately $80,000 and $17,000 in the quarters ended March 31
and June 30, 1999, respectively.
Results of Operations:
Revenues. The Company had battery sales of approximately $73,000
and $275,000 for the three and six months ended June 30, 1999
compared to $144,000 and $389,000 for the three and six months
ended June 30, 1998. Approximately 47% of both 1999 and 1998
battery sales, were to Chrysler Corporation. These purchases were
for testing and evaluation of the Horizon battery in the EPIC
Minivan Program. Chrysler announced its decision to use Nickel-
Metal-Hydride batteries in its electric minivan for the 1999
model year. The Company does not expect significant sales to
Chrysler for the remainder of 1999 and sales beyond this period
are uncertain. The majority of the remainder of 1999 battery
sales were to Lockheed Martin for use in Hybrid Electric Vehicles
("HEV") and Electric Vehicles ("EV") they are producing for
testing and evaluation. Sales of batteries to Lockheed Martin are
expected to increase slightly throughout 1999. Approximately 40%
and 9% of the 1999 and 1998 battery sales, respectively, were to
Lockheed Martin. Lockheed Martin produces a drive train used in
hybrid buses manufactured by the Orion Bus Company and others.
The New York City Transit Authority is currently testing a hybrid
diesel bus on the streets of New York City manufactured by Orion,
which is powered by a Lockheed Martin drive train and
Electrosource batteries. The tests have been completed and were
successful. The New York City Transit Authority may place an
order for the hybrid buses powered by Horizon batteries in the
third quarter of 1999; however, the amount and timing of such
orders remains uncertain. The remainder of battery sales were to
various customers for testing and evaluation.
The Company received a purchase order in June 1999 for 8,000
12H85 batteries from Electrosource International Limited ("EIL")
for delivery beginning in the third quarter of 1999 with
completion of the order in the first quarter of 2000. EIL is the
international marketing group and is affiliated with Kamkorp.
This order replaces a previous order for 5,800 batteries of which
2,062 were shipped.
Management expects to receive Federal Aviation Administration
("FAA") certification of its battery design used in helicopter
starting applications in the third quarter of 1999, at which time
sales of these batteries are expected to commence; however, the
timing and amount of these sales remains uncertain.
The Company had project revenue of approximately $300,000 and
$465,000 for the three and six months ended June 30, 1999
compared to $166,000 and $215,000 for the three and six months
ended June 30, 1998. During the three months ended June 30, 1999,
the Company had approximately $182,000 of project revenue under
an agreement with Frazer-Nash Research Limited for the continued
research and development of the Company's battery technology. The
Company also had $50,000 of other income from Electrosource
International, Ltd. ("EIL") for marketing assistance to complete
negotiations for an order of 8,000 of the Company's 12H85
batteries. This order from EIL follows receipt of an order from
Perusahaan Otomobil Elektrik (Malaysia) Sdn. Bdh. ("POEM"). The
remaining revenue generated in 1999 was from cooperative
development and research agreements with the Defense Advanced
Research Projects Agency ("DARPA") and with the Department of
Energy ("DOE"). The DARPA programs are for various HEV and EV
applications. The DOE program is for the development of core
technology for a lithium polymer material eventually to be used
in batteries. Similar programs were in progress in 1998. Project
revenue is expected to decrease throughout 1999 as some of the
DARPA programs were completed in early 1999.
Costs and Expenses. Total costs were significantly lower in the
three and six months ended June 30 , 1999 compared to the three
and six months ended June 30, 1998. Manufacturing costs were
lower in 1999 primarily due to savings associated with the non-
production of batteries in the first quarter such as lower
utilities, consumables/equipment and hazardous waste removal
costs, etc. Additionally, certain operating leases for
manufacturing equipment began to expire in late 1998 and early
1999 reducing 1999 manufacturing lease expense. Some of these
expired leases pertain to equipment necessary for production and
will have to be renegotiated, so that the expense reduction will
be only temporary to that extent. The per battery cost of
building batteries (direct material and direct labor) also
decreased throughout 1998 contributing to the decline in
manufacturing costs in 1999. Manufacturing costs have remained
high as a percentage of battery sales, primarily due to the lack
of capital required to further automate the production processes,
materials being purchased in low volumes and the fixed facility
cost for leasing and maintaining the 88,000 square foot
manufacturing and office facility. Management expects that
manufacturing costs can decrease as a percentage of battery sales
as volume production begins; however, additional capital will be
required to significantly reduce labor and raw material costs per
battery.
Selling, general and administrative costs have decreased for the
three and six months ended June 30, 1999 compared to the three
and six months ended June 30, 1998, primarily due to labor
reductions throughout 1998 and early 1999 in middle management
and executive management positions combined with reductions in
travel costs. Such costs are expected to begin increasing
throughout 1999 as the level of production activity increases.
Research and development costs have decreased for the six months
ended June 30, 1999 compared to the same period in 1998 due to
the reduction in work on development programs in 1999, primarily
SMH Automobile S.A. ("SMH"), which terminated its contract with
the Company in mid-1998 and a reduction in work on the Fiat Auto
("Fiat") program associated with the current shortage of raw
materials. In addition, the Company incurred approximately
$200,000 of costs in the first quarter of 1998 on improvements in
manufacturing processes and joint research and development
efforts with Corning Incorporated ("Corning"). This program was
terminated by Corning in mid-1998. Research and development costs
are expected to remain at approximately the same level throughout
1999.
Depreciation and amortization costs decreased for the three and
six months ended June 30, 1999 compared to the three and six
months ended June 30, 1998, primarily due to the full
amortization of purchased technology in October 1998, which
resulted in a monthly decrease of approximately $67,000 in
amortization. The remainder of the decrease in 1999 is due to
the full depreciation of various production pieces of equipment
in 1998 and 1999 which remain in use.
Interest costs decreased in 1999 as the Company's outstanding
debt obligations to Corning were fully settled in June of 1998,
following the equity funding from Kamkorp.
Liquidity and Capital Resources. Liquidity and Capital Resources
have been discussed in detail under "NOTE G - LIQUIDITY" to the
interim financial statements, which is incorporated into this
Item 2 by reference.
In addition to the disclosures under that Note, in December 1997,
the Company issued 299,304 shares of Common Stock to BDM as
partial payment for past obligations owed to BDM for occupancy
related costs (which the Company has accrued) and as prepayment
under operating leases for manufacturing equipment which are
guaranteed by BDM. The number of shares issued was determined
based on the fair market value of the shares at the date of the
agreement ($2.56 per share). When the shares are sold by BDM,
the proceeds will be used to satisfy these past and future
obligations. If the proceeds from the sale of such shares are
not sufficient to satisfy the obligations, the Company will issue
additional shares of Common Stock or pay cash to BDM to make up
the deficiency. BDM has agreed to reduce amounts owed to it by
at least $1.00 per share or $299,304 for the shares issued. BDM
will retain any overage from the sale of such shares in excess of
the amounts owed. Additionally, the Company has agreed to pay
$300,000 to BDM (for the remaining unpaid occupancy related
costs) from the proceeds received from any fundraising activities
completed by the Company before March 31, 1998 in excess of
$5,000,000, which did not occur. As a result of this transaction,
a Common Stock subscription receivable of $467,663 was recorded.
The Company's closing market price as reported by Nasdaq on
August 12, 1999 was $1.625. BDM has not notified the Company of
an intent to sell such shares in the near term; however, unless
the value of the Company's Common Stock improves, based on
current market prices of the Company's Common Stock, additional
shares of Common Stock or cash will be required to settle these
obligations under the terms of this agreement.
Significant capital expenditures will be required in the future
to further automate and achieve consistency in the production
process; however, such expenditures are not expected to be
significant in 1999 to satisfy current battery orders. There were
no significant capital commitments at June 30, 1999.
The Company terminated the employment of Gary Sams, an officer of
the Company, in January 1999. On March 10, 1999, Mr. Sams filed
an action in the 207th Judicial District Court (Hays County,
Texas), claiming that he is entitled to compensation under a
Severance Agreement entered into between the Company and Mr. Sams
in May 1998. The suit seeks damages representing, in summary,
compensation at his beginning salary rate for the period of time
that Mr. Sams remains unemployed (or six months, whichever is
less), the amount of premiums paid for health and group life
insurance coverage, housing costs and attorneys fees. The Company
disputes the claim for damages and will vigorously defend the
action. No liability has been recorded in the financial
statements at June 30, 1999 for this uncertainty as management is
unable to determine the likelihood of an unfavorable outcome of
this matter or to estimate the amount or range of potential loss
should the outcome be unfavorable.
The Company is a party to certain litigation that, if resolved in
a manner adverse to the Company, could have a material adverse
effect on the Company's liquidity and capital resources. (See
NOTE E - CONTINGENCIES to the interim financial statements.)
From time to time the Company may publish forward-looking
statements relating to such matters as anticipated financial
performance, business prospects, technological development, new
products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes
that a variety of factors could cause the Company's actual
results and experience to differ materially from the anticipated
results or other expectations expressed in the Company's forward-
looking statements. When used in this discussion, the words
"expects," "believes," "anticipates" and similar expressions are
intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. The
risks and uncertainties that may affect the operations,
performance, development and results of the Company's business
primarily include completion of existing battery orders,
uncertainty as to receipt of additional orders, inability to
obtain additional debt or equity financing, financing and
battery sales. Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to republish
revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence
of unanticipated events. Readers are also urged to carefully
review and consider the various disclosures made by the Company
which attempt to advise interested parties of the factors which
affect the Company's business in this report and in the Company's
periodic reports on Forms 10-K and 8-K filed with the Securities
and Exchange Commission.
Qualitative and Quantitative Disclosures About Market Risk
The Company does not hold financial investments or instruments
subject to market risk, therefore disclosures about market risk
are not applicable.
Part II - Other Information
Item 1. Legal Proceedings
The Company was sued in May, 1999 by a vendor for approximately
$11,000 for past due invoices, attorney's fees and court costs.
The Company has subsequently paid the amount due the vendor,
including attorney's fees. The lawsuit has been dismissed.
Item 2. Changes in Securities
The Company sold 800,000 shares of its Common Stock to Kamkorp at
a price of $1.00 per share in cash during the first quarter. Of
these shares, 600,000 were issued during the quarter and 200,000
were issued later, although the subscription price receivable for
these later-issued shares is reflected in paid in capital at
March 31, 1999. The Company issued an additional 1,300,000 shares
of its Common Stock to Kamkorp at a price of $1.00 per share in
cash during the second quarter of 1999.
There were no underwriters involved in the sale, and no
underwriting discounts or commissions. The securities were sold
pursuant to exemptions under Section 4(2) of the Securities Act
of 1933 and Regulation D thereunder; the offering was to a single
sophisticated, accredited investor in a transaction not involving
public solicitation or advertising.
Item 3. Defaults on Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on June
22, 1999, the following items were voted on:
PROPOSITION FOR AGAINST ABSTAIN NON-VOTE
1. Directors:
Norman Hackerman 8,281,396 0 64,050 0
Roger G. Musson 8,307,704 0 37,742 0
2. Proposal Concerning New 5,628,983 122,305 24,617 2,569,541
1999 Stock Option Plan
3. Approve Ernst & Young 8,307,609 31,447 6,389 0
as Independent auditors
for fiscal 1999
The following persons remained as additional Board members after
the vote:
Mr. Kamal Siddiqi
Mr. Clifford G. Winckless
Dr. Richard E. Balzhiser
Mr. William F. Griffin
Mr. Nathan Morton
Mr. James M. Rosel
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4. Employee Stock Option Plan
10. Purchase Order from Electrosource International, Ltd.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
Reports on Form 8-K filed during the quarter ended June 30,
1999 and up to the date of this filing on Form 10-Q were:
None.
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: August 13, 1999
ELECTROSOURCE, INC.
/s/
William F. Griffin
Chairman, President
and Chief Executive Officer
/s/
Donald C. Perriello
Vice President/Finance,
Treasurer and
Chief Accounting Officer
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
June 30, 1999 Number 0-16323
__________________________________________
ELECTROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 742466304
(State or other jurisdiction of (I.R.S. Employer Identification
No.)
incorporation or organization)
2809 Interstate 35 South, San 78666
Marcos, Texas
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(512) 753-6500
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 $1.00 per share
(Title of Class)
INDEX TO EXHIBITS
No. Description Page
4 Employee Stock Option Plan
10 Purchase Order from Electrosource International,
Ltd.
27 Financial Data Schedule
EXHIBIT 4
1999 Stock Option Plan
Adopted by the Board of Directors
March 3, 1999
I. Purpose
The 1999 Stock Option Plan (the "Plan") of Electrosource,
Inc. (the "Corporation") is intended to provide an opportunity
for officers, directors (employee and non-employee), employees
and consultants to acquire an equity interest in the development
and financial success of the Corporation's business. The
purposes of the plan are to create an incentive to serve or
continue in the service of the Corporation, to aid in obtaining
and retaining key personnel of outstanding ability, to attract
and retain directors with a high degree of training, experience
and ability, and to attract and retain consultants with a high
degree of training, experience and ability whose services are
considered specialized and unusually valuable.
II. Shares Subject to the Plan
The maximum number of shares of the common stock, $1.00 par
value, of the Corporation (the "Stock) which may be issued
pursuant to Incentive Stock Options and Non-Qualified Stock
Options granted under the Plan (collectively referred to herein
as "Options") shall be a total of 1,000,000 shares of Stock
(subject to adjustment as provided in Section VII), which may be
either authorized and unissued Stock or Stock held in the
treasury of the Corporation, as shall be determined from time to
time by the Committee of the Board of Directors of the
Corporation described below. If an Option expires or terminates
for any reason without being exercised in full, the unpurchased
shares of Stock subject to such Option shall again be available
for purposes of the Plan. Until termination of the Plan, the
Corporation shall at all times reserve a sufficient number of
shares to meet the requirements of the Plan.
III. Effective Date of the Plan
The Plan shall be deemed to be effective as of the 3rd day
of March 1999, but its adoption shall be subject to approval by
the holders of at least a majority of a quorum of the voting
stock of the Corporation. In the event that such stockholder
approval is not obtained on or before March 3, 2000, the Plan,
and all options granted hereunder, shall terminate. The Plan
shall expire on March 3, 2009, unless sooner terminated as
provided in Section XII.
IV. Administration of the Plan
This Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors consisting of
not less than three directors, each of whom must be a "Non-
Employee Director." A Non-Employee Director shall mean a
director who: (A) is not currently an officer (as defined in
Rule 16a-l(f) of the Securities and Exchange Commission) of the
Corporation or a parent or subsidiary of the Corporation, or
otherwise currently employed by the Corporation or a parent or
subsidiary of the Corporation; (B) does not receive compensation,
either directly or indirectly, from the Corporation or a parent
or subsidiary of the Corporation, for services rendered as a
consultant or in any capacity other than as a director, except
for an amount that does not exceed the dollar amount for which
disclosure would be required pursuant to Section 404(a) of
Regulation S-K of the Securities and Exchange Commission
("Regulation S-K"); (C) does not possess an interest in any other
transaction for which disclosure would be required pursuant to
Section 404(a) of Regulation S-K; and (D) is not engaged in a
business relationship for which disclosure would be required
pursuant to Section 404(b) of Regulation S-K.
The Board of Directors may from time to time appoint members
of the Committee in substitution for or in addition to members
previously appointed and may fill vacancies, however caused, in
the Committee. A majority of the Committee shall constitute a
quorum. All actions of the Committee shall be taken by a
majority of its members. Any action may be taken by a written
instrument signed by the members, and action so taken shall be
fully as effective as if it had been taken by the members at a
meeting duly called and held. The Committee shall select one of
its members as its chairman and shall hold its meetings at such
times and places as it shall deem advisable.
The Committee shall have full authority in its discretion to
determine the officers, directors, key employees, prospective
employees, and consultants of the Corporation and its
subsidiaries to whom Options (as defined below) shall be granted,
the number of shares of Stock covered thereby and the terms and
provisions thereof, subject to the Plan. In making such
determinations, the Committee may take into account the nature of
the services rendered and to be rendered by the respective
recipients, their present and potential contributions to the
Corporation and its subsidiaries and any other factors which the
Committee deems relevant. The Committee shall have full and
conclusive authority to interpret the Plan; to prescribe, amend
and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective Option
agreements; and to make all other determinations necessary or
advisable for the proper administration of the Plan. The
Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are
eligible to receive, Options under the Plan (whether or not such
persons are similarly situated). The Committee's decisions shall
be final and binding on all participants in the Plan.
V. Eligibility and Limits
Eligibility. Options to purchase Stock (hereinafter
referred to "Options"), may be granted to officers, employee
directors, non-employee directors, key employees, and consultants
of the Corporation and its present or future subsidiary
corporations.
Limits. The Committee shall have full and complete
authority, in its discretion, but subject to the express
provisions of the Plan, to grant from time to time options under
the Plan which constitute Incentive Stock Options, and to grant
options under the Plan which do not constitute Incentive Stock
Options (such options being hereinafter referred to as "Non-
Qualified Options"). At the time any Option is granted under the
Plan, the Committee shall determine whether the Option is to be
an Incentive Stock Option or a Non-Qualified Stock Option, and
the Option shall be clearly identified as to its status as an
Incentive Stock Option or a Non-Qualified Stock Option. The
aggregate fair market value (which shall be determined on the
date of the grant) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an
individual during any calendar year shall not exceed $100,000.
Directors. Each member of the Corporation's Board of
Directors that is not also an employee or officer of the
Corporation or an active Director who has received the initial
option to purchase 15,000 shares under this or any prior plan as
of the date of the adoption of the Plan, and any person who
assumes a position on the Board of Directors of the Corporation
for the first time (whether by appointment by the Board or
election) after such date who is not also an employee or an
officer of the Corporation at the time shall, automatically and
without the exercise of discretion or the requirement of any
further action or authorization on the part of any person,
receive an option to purchase an aggregate of 15,000 shares of
the Common Stock of the Corporation. In addition, each non-
employee director will be awarded an annual option to purchase
2,000 shares of the Common Stock of the Corporation; however, in
no event will a director become eligible for the annual grant
prior to two full years of service on the Board of Directors.
The annual option of 2,000 shares may be issued under this Plan
or any prior plan; however, only one such option may be granted
annually.
VI. Terms and Conditions of Options
The terms and conditions of each option granted an Optionee
designated by the Committee under the Plan shall be set forth in
an instrument designated "Notice of Grant of Stock Options and
Option Agreement" issued by the Corporation to the Optionee and
containing such provisions as the Board of Directors or Committee
shall deem appropriate. The 1999 Stock Option Agreements issued
by the Corporation need not be identical but shall comply with
the following terms and conditions, to-wit:
Option Price. Subject to Section VIII and other provisions
of this Section VI, the Option price per share of Stock
purchasable under any Option granted under the Plan shall be
fixed by the Committee and set forth in the applicable Option
agreement. With respect to each grant of an Incentive Stock
Option, the option price per share shall not be less than the par
value or the fair market value of a share of Stock (as determined
in good faith by the Committee) on the date such Option is
granted. The date an Option is granted shall be the date on
which the Committee has approved the terms and conditions of an
Option agreement evidencing the Option and has determined the
recipient of the Option and the number of shares covered by the
Option and has taken all such other action as is necessary to
complete the grant of the Option. In the event that the Stock is
listed on NASDAQ or an established stock exchange, its fair
market value shall be deemed to be the closing price of the Stock
on such exchange on the date the Option is granted, or if no sale
of Stock shall have been made on such date, its fair market value
shall be deemed to be such price for the next preceding date on
which a sale has occurred.
Option Term. The term of each option shall be for such
period as the Committee shall determine, but in no event be
exercisable after the expiration of ten years from the date of
grant of such Option and shall be subject to earlier termination
as herein provided.
Payment. Payment for all shares purchased pursuant to
exercise of an Option shall be made by cash, check, that number
of shares of the Corporation's Common Stock having an aggregate
market value (as determined by the closing price per share on the
NASDAQ on the date of exercise) equal to such purchase price, or
any combination of the foregoing. Subject to the provisions as
set forth below under Special Procedure for Certain Credit
Assisted Transactions, such payment shall be made at the time
that the Option or any part thereof is exercised, and no shares
of Stock shall be issued or delivered until full payment therefor
has been made.
Conditions to Exercise of Option. Each Option granted under
the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts as the
Committee shall specify in the Option agreement, except that no
Option when initially granted as an Incentive Stock Option shall
provide that it may be exercisable to any extent during the first
six months following the date of grant; provided, however, that
subsequent to the grant of an Option, the Committee at any time
before complete termination of such Option, may accelerate the
time or times at which such Option may be exercised in whole or
in part.
Nontransferability of Options. An Option shall not be
transferable or assignable except by will or by the laws of
descent and distribution and shall be exercisable, during the
holder's lifetime, only by the holder.
Termination of Employment or Death. Upon any termination of
employment of the holder for any reason other than death or
disability, any Option held at the date of such termination may,
to the extent exercisable, be exercised within three months after
the date of such termination. Should the Option remain
unexercised at the end of the three-month period, such Option is
forfeited and returned to shares available for further grants.
Upon any termination of employment of the holder by reason of
disability, any Option held at the date of such termination may,
to the extent then exercisable, be exercised within twelve months
after the date of such termination. If the holder of an Option
dies, any Option held at the date of death may be exercised in
full, whether or not the Options are fully vested at such time,
by the holder's legatee or legatees under the holder's last will,
or by the holder's personal representatives or distributees,
within twelve (12) months after the holder's death. If the
holder of an Option retires at normal retirement age (age 65 or
older), any Options held at the date of retirement may be
exercised in full, whether or not the Options are fully vested at
such time, within twelve (12) months after the holder's
retirement. This Section shall not extend the term of the Option
specified in or pursuant to Section entitled Option Term. For
purposes of this Section, employment of a holder shall not be
deemed terminated so long as the holder is employed by the
Corporation, by a subsidiary of the Corporation or by another
corporation (or a parent or subsidiary corporation of such other
corporation) which has assumed the Option of the holder. For
purposes of this Section, the extent to which an Option is
exercisable shall be determined as of the date of termination of
employment except where specifically stipulated to the contrary.
Special Procedure for Certain Credit Assisted Transactions.
To the extent not inconsistent with the provisions of Section 422
of the Code or the provisions of Rule 16b-3 issued by the
Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended (the "Act"), any Option holder desiring
to obtain credit from a broker, dealer or other "creditor" as
defined in Regulation T issued by the Board of Governors of the
Federal Reserve System to assist in exercising an Option may
deliver to such creditor a written exercise notice executed by
such holder with respect to such Option, together with written
instruction to the Corporation to deliver the Stock issued upon
such exercise of the Option to the creditor for deposit into an
account designated by the Option holder; upon receipt of such
exercise notice and instructions in a form acceptable to the
Corporation, the Corporation shall confirm to the creditor that
it will deliver to the creditor on behalf of the Option holder
the Stock issued upon such exercise of the Option and covered by
such instruction promptly following receipt of the exercise price
from the creditor. To the extent not inconsistent with the
provisions of Section 422 of the Code or the provisions of Rule
16b-3 issued by the Securities and Exchange Commission under the
Act, upon written request, the Corporation may in its discretion,
but shall not be obligated, to deliver to the creditor on behalf
of the Option holder shares of Stock resulting from such a credit
assisted exercise prior to receipt of the exercise price for such
shares if the creditor has delivered to the Corporation, in
addition to the other documents contemplated by this Section VI,
the creditor's written agreement to pay the Corporation such
exercise price in cash within five days after delivery of such
shares. The credit assistance contemplated by this Section VI
may include a margin loan by the creditor secured by the stock
purchased upon exercise of an Option or, in the case of an Option
holder who is not subject to Section 16 of the Act, an immediate
sale of some or all of such Stock by the creditor to obtain or
recover the exercise price which the creditor has committed to
pay to the Corporation on behalf of the Option holder.
VII. Change in Capitalization; Merger; Liquidation
The number of shares of Stock as to which Options may be
granted, the number of shares covered by each outstanding Option,
and the price per share of each outstanding Option shall be
proportionately adjusted for any increase or decrease in the
number of issued shares of Stock resulting from a subdivision or
combination of shares or the payment of a stock dividend in
shares of Stock to holders of outstanding shares of Stock or any
other increase or decrease in the number of such shares effected
without receipt of consideration by the Corporation. If the
Corporation shall be the surviving corporation in any merger or
consolidation, recapitalization, reclassification of shares or
similar reorganization, the holder of each outstanding Option
shall be entitled to purchase, at the same times and upon the
same terms and conditions as are then provided in the Option, the
number and class of shares of stock or other securities to which
a holder of the number of shares of Stock subject to the Option
at the time of such transaction would have been entitled to
receive as a result of such transaction. In the event of any
such changes in capitalization of the Corporation, the Committee
may make such additional adjustments in the number and class of
shares of Stock or other securities with respect to which
outstanding Options are exercisable and with respect to which
future Options may be granted as the Committee in its sole
discretion shall deem equitable or appropriate to prevent
dilution or enlargement of rights. Any adjustment pursuant to
this Section VII may provide, in the Committee's discretion, for
the elimination of any fractional shares that might otherwise
become subject to any Option without payment therefor. The
optionee shall have the right, immediately prior to dissolution,
liquidation, merger or consolidation of the Corporation (to the
extent the Corporation is not the surviving entity in such merger
or consolidation), to exercise his/her Options in full without
regard to any installment exercise provisions, to the extent that
it shall not have been exercised. In the event of a dissolution
or liquidation of the Corporation or a merger or consolidation in
which the Corporation is not the surviving corporation, each
outstanding Option shall terminate upon the effective date
thereof, except to the extent that another corporation assumes
such Option or substitutes another option therefor. In the event
of a change of the Corporation's shares of Stock with par value
into the same number of shares with a different par value or
without par value, the shares resulting from any such change
shall be deemed to be the Stock within the meaning of the Plan.
Except as expressly provided in this Section, the holder of an
Option shall have no rights by reason of any subdivision or
combination of shares of Stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of
shares of Stock of any class or by reason of any dissolution,
liquidation, merger or consolidation or distribution to the
Corporation's stockholders of assets or stock of another
corporation. Except as expressly provided herein, any issue by
the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with regard to,
the number or price of shares of Stock subject to any Option.
The existence of the Plan and Options granted pursuant to the
Plan shall not affect in any way the right or power of the
Corporation to make or authorize any adjustment,
reclassification, reorganization or other change in its capital
or business structure, any merger or consolidation of the
Corporation, any issue of debt or equity securities having
preferences or priorities as to the Stock or the rights thereof,
the dissolution of the Corporation, any sale or transfer of all
or part of its business or assets, or any other corporate act or
proceeding.
VIII. Compliance with Code; Compliance with Rule 16b-3
All Incentive Stock Options granted hereunder are intended
to comply with Section 422 and, to the extent applicable, Section
424 of the Code, and all provisions of this Plan and all
Incentive Stock Options granted hereunder shall be construed in
such manner as to effectuate that intent. This Plan and all
Options granted hereunder are intended to satisfy the conditions
of Rule 16b-3 issued by the Securities and Exchange Commission
under the Act, as it may be amended from time to time, and all
provisions of this Plan and all Options granted hereunder shall
be construed in such manner as to effectuate that intent.
IX. Right to Terminate Employment; No Rights as Stockholder
Nothing in the Plan or in any Option granted under the Plan
shall confer upon any holder thereof the right to continue as an
employee, director or consultant of the Corporation or any of its
subsidiaries or affect the right of the Corporation or any of its
subsidiaries to terminate the holder's association with the
Corporation or any of its subsidiaries at any time. The holder
of an Option shall, as such, have none of the rights of a
stockholder.
X. Leaves of Absence
Except as otherwise provided by law or regulation with
respect to Incentive Stock Options, the Committee may in its
discretion determine whether any leave of absence constitutes a
termination of employment for purposes of the Plan and the
impact, if any, of such leave of absence on Options previously
granted to a holder who takes a leave of absence.
XI. Restrictions on Delivery and Sale of Shares
Each Option granted under the Plan is subject to the
condition that if at any time the Committee, in its discretion,
shall determine that the listing, registration or qualification
of the shares covered by such Option upon any securities exchange
or under any state or federal law is necessary or desirable as a
condition of or in connection with the granting of such Option or
the purchase or delivery of shares thereunder, the delivery of
any or all shares pursuant to such Option may be withheld unless
and until such listing, registration or qualification shall have
been effected. If a registration statement is not in effect
under the Securities Act of 1933 and any applicable state
securities laws with respect to the shares of Stock purchasable
or otherwise deliverable under Options then outstanding, the
Committee may require, as a condition of exercise of any Option,
that the optionee or other recipient of an Option represent, in
writing, that the shares received pursuant to the Option are
being acquired for investment and not with a view to distribution
and agree that the shares will not be disposed of except pursuant
to an effective registration statement, unless the Corporation
shall have received an opinion of counsel that such disposition
is exempt from such requirement under the Securities Act of 1933
and any applicable state securities laws. The Corporation may
endorse on certificates representing shares delivered pursuant to
an Option such legends referring to the foregoing representations
or restrictions or any other applicable restrictions or resale as
the Corporation, in its discretion, shall deem appropriate.
XII. Termination and Amendments of the Plan
The Plan shall terminate March 3, 2009, the date ten years
after adoption of the Plan by the Board of Directors, and no
Options shall be granted under the Plan after that date, but
Options granted before termination of the Plan shall remain
exercisable thereafter until they expire or lapse according to
their terms. The Plan may be terminated, modified or amended by
the Board of Directors of the Corporation; provided, however,
that:
A. No such termination, modification or amendment
without the consent of the holder of the Option shall
adversely affect his rights under such Option; and
B. Any modification or amendment which would (1)
materially increase the benefits accruing to
participant, (2) materially increase the number of
securities which may be issued under the Plan, or (3)
materially modify the requirements as to eligibility
for participation in the Plan, within the meaning of
Rule 16b-3 issued by the Securities and Exchange
Commission under the Act, shall be effective only if it
is approved by the stockholders of the Corporation at
the next annual meeting of stockholders after the date
of adoption by the Board of Directors of such
modification or amendment.
XIII. Effective Date of Plan; Stockholder Approval
The Plan shall become effective on March 3, 1999, the date
of its adoption by the Board of Directors, subject, however, to
the approval of the Plan by the Corporation's stockholders at
their next annual meeting. Options granted hereunder prior to
such approval shall be conditional upon such approval. Unless
such approval is obtained by March 3, 2000, this Plan and any
Options granted hereunder shall become void thereafter.
EXHIBIT 10
PURCHASE ORDER
Electrosource International
The following number must appear on al related
Correspondence, shipping papers, and invoices: Order
Serial Number: ES1002
Electrosource, Inc. P.O. DATE
2809 Interstate 35 South 17/06/99
San Marcos OUR REF.
Texas CW/ch
UNITED STATES OF AMERICA TELEPHONE NO. FAX NO.
001 512 7536500 001
512 7536578
ITEM NO. QTY. DESCRIPTION UNIT PRICE TOTAL
Please Supply & Deliver.
1 8000 Maintenance free battery 12H85 USD$ 210.00 USD$1,680,000
Prices Quoted Ex-Works USA in
United States Dollars.
Shipping Schedule:
1 months A.R.O. 200 units
3 months A.R.O. 800 units
4 months A.R.O. 750 units
5 months A.R.O. 750 units
6 months A.R.O. 750 units
7 months A.R.O. 1750 units
8 months A.R.O. 1000 units
9 months A.R.O. 2000 units
Terms:
1) Payment to be within 30 days of
Shipment.
TOTAL PRICE USD$1,680,000
Electrosource International Limited
Electron 5, The Bilton Centre
Business Park 5, Leatherhead,
Surrey KT22 7 NF
United Kingdon
Authorised by: /s/ Roger G. Musson
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 317
<SECURITIES> 0
<RECEIVABLES> 400
<ALLOWANCES> 0
<INVENTORY> 170
<CURRENT-ASSETS> 904
<PP&E> 7,066
<DEPRECIATION> (3,976)
<TOTAL-ASSETS> 4,955
<CURRENT-LIABILITIES> 2,743
<BONDS> 29
0
0
<COMMON> 10,596
<OTHER-SE> (8,414)
<TOTAL-LIABILITY-AND-EQUITY> 4,955
<SALES> 795
<TOTAL-REVENUES> 795
<CGS> 1,328
<TOTAL-COSTS> 2,963
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> (2,176)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,176)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,176)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
