FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 Marcos, Texas 78666
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 753-6500
Securities registered pursuant None
to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $1.00 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reported 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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 24, 2000, 13,154,300 common shares were
outstanding and the aggregate market value of the common shares
held by non-affiliates (based on the closing price of these
shares of $16.00, as reported by NASDAQ at the close of business
on March 24, 2000) was approximately $210,468,800.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference
into the indicated part or parts of this report:
Portions of the Company's Definitive Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held on June 14,
2000, are incorporated by reference into Part III hereof.
PART I
Item 1. Business.
General
Electrosource, Inc. ("ELSI" or the "Company"), is an energy
storage solutions company engaged in the manufacture of advanced
lead-acid, rechargeable storage batteries and the development of
related processes and technologies. The Horizon battery
utilizes plate grids made from a patented coextruded wire and a
special paste mixture. The Company is focusing its efforts on
development of Horizon battery technology for use in many
applications including hybrid power vehicles, electric vehicles,
neighborhood electric vehicles, electric scooters, lawn and
garden tools, power management and starting power.
The principal executive offices of the Company are located at
2809 Interstate 35 South, San Marcos, Texas 78666, and its
telephone number is (512) 753-6500.
Significant Events
During 1999, the Company continued to receive equity financing
under an Agreement, which was entered into on June 2, 1998, with
Kamkorp Limited, a private limited company incorporated in
England ("Kamkorp"), for up to $6,000,000 of equity financing.
Kamkorp is a management holding company, holding shares in a
number of companies including Frazer-Nash Research Ltd. (FNR),
Frazer-Nash Research, Inc. (FNRI), and Electrosource
International Ltd. (EIL). Kamkorp also has options to purchase
an additional 3,000,000 shares at $1.00 under this original
agreement. In addition, in October 1999 Kamkorp was granted the
option to purchase an additional 3,000,000 shares of the
Company's Common Stock at $1.00. At December 31, 1999, Kamkorp
is the record holder of 7,480,000 shares or 61.6% of the
Company's 12,137,699 outstanding shares of Common Stock and is
the beneficial owner of 12,000,000 shares or 70% of the Company's
Common Stock. Kamkorp appointed three members to the Company's
nine-member Board of Directors in 1998 under the original
Agreement (See Note G - Liquidity).
The Horizon Battery
The Company has concentrated its efforts on the design of a new
concept of lead-acid battery employing coextruded wire in plates
oriented in the horizontal plane, as opposed to the vertical
plane orientation of conventional batteries. This battery
concept, named "Horizon," enables design of a lead-acid battery
with significantly higher energy density than is possible with
conventional battery design. We believe the Horizon design may
ultimately prove to be more economical to manufacture than
conventional batteries due to the elimination of several steps in
the manufacturing process. Several hundred prototypes and
production versions of the Horizon battery have been built and
tested in a variety of configurations. Testing by the Company
and by third parties indicates that various configurations of the
battery meet or exceed some of the performance goals established
by major governmental and industry groups for electric vehicle
batteries. The Company also believes the Horizon battery has a
number of applications other than electric vehicles, such as
hybrid powered vehicles, portable power tools such as lawn and
garden tools, electric power management, uninterruptible power
and for starting, lighting and ignition ("SLI") batteries for
automobiles and aircraft. The Company has designed various
prototype batteries for such applications which are currently
under evaluation by customers.
Coextrusion Technology The Company holds an exclusive license
for the development and commercial exploitation of patented
coextruded wire. Coextrusion is a process by which one material
is extruded, or forced through a die, with uniform thickness,
onto a core material passing simultaneously through the same die.
The process is capable of extruding lead (or lead alloy) onto any
material having adequate tensile strength to pass at high speed
through the pressurized dies. The Company refers to this process
as C2M technology. Successfully coextruded core materials
include fiberglass, Kevlar and cross-linked carbon fiber yarns,
aluminum, copper and titanium wire and polypropylene, polyester,
nylon and polyethylene monofilament.
Coextruded lead wire facilitates the use in lead-acid batteries
of pure lead or extremely low concentration lead alloys, which
are difficult to cast repeatedly at the high rates required in
production. The management of the Company believes that grids
made from such wire and used in lead-acid storage batteries have
improved corrosion resistance and, therefore, longer life, or
equivalent life with reduced total material content.
Energy-Active Material Formulation The Company has also
developed a new type of energy-active material, or paste, for use
in lead-acid battery electrodes. The Company also invented two
additional paste formulations, each of which may contribute to
the reduction of battery manufacturing cost. The Company has
protected this proprietary technology as trade secrets, and does
not plan to apply for patents related to these formulations. The
Company is continuing the development of these formulations in
connection with the Horizon battery project, but has no current
plans for separate commercialization of the energy active
material.
Battery Grid The Company has patented the use of its coextruded
wire in electrodes for lead-acid batteries. The claims in this
patent encompass not only the present method employed by the
Company of weaving the wire into a woven mesh to form the
"bigrids" but also any non-woven methods of using the coextruded
wire in lead-acid battery electrodes.
Compression Cage During the development stage of the Company, we
learned through battery life testing that the plates and
separators in a sealed lead-acid battery must be kept under a
constant compression in order to achieve high cycle life. The
Company developed and patented an idea to encase the plates and
separators in a "compression cage" to comply with this
requirement.
Marketing
The worldwide market for lead-acid batteries can be classified
into the following major segments:
Starting, Lighting and Ignition. For engine starting
applications as used in aircraft, passenger cars, light and heavy
trucks, garden tractors and motorcycles.
Motive Power. For use in electric vehicles, hybrid
vehicles, industrial fork lifts, underground mining equipment,
golf carts and neighborhood electric vehicles. Such batteries
undergo daily discharging and overnight recharging.
Power Management. For use in utility emergency power,
telecommunications, uninterrupted computer and other power
supplies and cellular radio. Such batteries are typically used
as a secondary source of power.
Portable Power. Typically small, lead-acid batteries for
use in such items as portable power tools and outdoor power tool
products, as well as electrically driven medical equipment.
The Company has initiated strategic business relationships and
cooperative development agreements with companies and government
agencies in all of the above markets. Management believes that
in 2000 some of these customers could move from test phases to
integration of Horizon technology into their commercial products.
Competition
The lead-acid battery industry is mature, well-established and
highly competitive. The industry is characterized by a few major
domestic and foreign producers including Exide, Delphi, Johnson
Controls, Inc., GNB, Hawker and Yuasa, all of which have
substantially greater financial resources than the Company.
Accordingly, the Company's ability to succeed in this market
depends upon its ability to demonstrate superior performance and
cost attributes of its technology. The Company has historically
concentrated its activities in the electric vehicle segment of
the market with a view to demonstrating improved energy to weight
and longer battery life in comparison to traditional lead-acid
batteries. The principal competitors of the Company in the
electric vehicle market (Ovonics and Saft) have directed their
efforts to other battery types, such as nickel-cadmium and nickel-
metal hydride, rather than lead-acid formulations. At least one
major automobile manufacturer and one major battery company are
known to have research and development projects underway to
develop lead-acid batteries for electric vehicles.
Patents and Protection of Technology
Prior to May 1990, the Company held an exclusive sublicense from
Tracor, Inc. ("Tracor") under several US patents covering the
coextruded wire and the coextrusion apparatus for producing
composite wire for use only in lead-acid battery applications.
In May 1990, Tracor assigned to the Company all rights under the
original license agreement between Tracor and Blanyer-Mathews,
the inventors of the coextrusion technology. This assignment
terminated the sublicense between Tracor and the Company and
allowed the Company to apply the technology outside of the area
of lead-acid storage batteries, if any such applications are
available. The license assigned to the Company expires
concurrently with the patents, the earliest of which expires in
2004, and requires payment of annual minimum royalties to Blanyer-
Mathews the greater of $100,000 or sales-based royalties equal to
1/2 percent of sales for battery applications. The license
becomes non-exclusive in the event the Company defaults in its
obligation to pay the minimum royalty. The license may be
terminated by the licensor in the event that the Company defaults
in its obligation to pay sales-based royalties or enters
bankruptcy. The Company is responsible for the maintenance and
administration of the licensed patent. Under the terms of the
assignment, the Company is to pay Tracor a royalty of four
percent on all technology sales unrelated to lead-acid storage
batteries for the term of the license.
In March 1990, a patent was issued to the Company covering an
energy-active material formulation, including the processes for
manufacturing this material. In October 1990, a US patent was
issued to the Company for the Horizon battery design. In
September 1989, a patent was issued to the Company covering the
battery grid and its producing method. In April 1995, a patent
was issued to the Company covering the battery plate compression
assembly. In 1999, the Company was granted a "composition-of-
matter" patent covering the lead-glass composite material
produced by the Company. This provides an additional seventeen
years of protection of this critically important advanced
material on which the Horizon technology is based.
The know-how relating to the Company's energy-active material
formulation, the application of coextruded wire to battery
electrodes and certain manufacturing processes are confidential
and proprietary to the Company.
Research and Development
Initial research and development programs were directed toward
understanding the behavior of the wire in lead-acid battery
electrodes in various corrosive environments. With the
development of the Horizon C2M battery concept, the focus of
research work has been redirected toward improving the
performance of the battery in the following areas; longer cycle
life, longer shelf life, and increased specific energy. In
addition, programs are underway to reconfigure the Horizon
battery concept into a variety of applications. A limited number
of prototype Horizon batteries for specialized markets (see
"Marketing") continue to be built in attempts to optimize battery
electrical performance and life and to meet customer requests for
different battery configurations or performance.
The Company incurred approximately $1,300,000, $1,800,000, and
$2,500,000 in research and development costs in the years ended
December 31, 1999, 1998, and 1997, respectively, of which
approximately $448,000, $415,000, and $1,400,000 related to
customer sponsored research activities in the years ended
December 31, 1999, 1998, and 1997, respectively.
Backlog
The Company's backlog was approximately $1,892,000, $410,000, and
$210,000, respectively, in battery orders at December 31, 1999,
1998, and 1997. As of December 31, 1999, the Company has a
backlog of approximately $510,000 in project revenue.
Export Sales
During 1999, 1998, and 1997, the Company earned revenue of
approximately $1,286,000, $360,000, and $1,100,000, respectively,
from sales of Horizon batteries and project services to foreign
customers.
Customer Concentration
A significant portion of the Company's total revenue from battery
sales, project revenue and all other sources (approximately 6%,
39%, and 37% in 1999, 1998, and 1997, respectively) was generated
from Chrysler Corporation ("Chrysler"). In December 1997,
Chrysler announced its decision to use nickel-metal hydride
batteries made by a competitor in its electric vehicles.
Chrysler's purchase of a significant number of batteries from the
Company in the future is uncertain.
Approximately 19% of the Company's 1999 battery sales were to
Electrosource International Limited ("EIL"), an affiliate.
Management of the Company believes that sales to EIL will
increase as a percentage of total sales. The Company is
economically dependent on this affiliate and its parent company,
Kamkorp Limited ("Kamkorp") (See Management's Discussion and
Analysis of Financial Condition and Results of Operations).
Kamkorp is a significant shareholder with representation on the
Company's Board of Directors. The Company is dependent on cash
payments from Kamkorp to continue operations on a day-to-day
basis.
EIL's customer for the batteries is Perusahaan Otomobil Elektrik
(Malaysia) ("POEM"), a Malaysian joint venture company in which
Kamkorp affiliates hold a minority interest, engaged in the
production of the electric vehicles developed by Kamkorp.
Raw Materials
The basic raw materials of lead-acid batteries are lead, sulfuric
acid and plastic, each of which is readily available. The Company
has experienced no material delays in obtaining timely delivery
of these materials.
Environmental Concerns
The Company's laboratory facility and manufacturing plant
includes an enclosed area specifically for the mixing of lead-
oxide paste and the application of such paste to battery
electrodes. The air in these areas is continuously filtered to
remove lead particles. Employees operating in these areas are
instructed in the use of safety equipment such as gloves,
protective aprons, and respirators and are required under
Occupational Safety and Health Administration ("OSHA") guidelines
to submit to blood monitoring tests on a periodic basis. The
analysis of these tests are undertaken by an outside, independent
and OSHA approved laboratory and the results thereof are
communicated to the Company's employees.
The management of the Company believes that the energy-active
material developed by the Company may be safer to manufacture
than energy-active materials currently in general use due to
reductions in potential environmental hazards. The active
material paste used in conventional batteries has a consistency
similar to wet cement and must be allowed to dry for two or three
days after being impressed into the grid of a battery plate.
When dried the plates produce fine lead dust as they are
transported in a plant through the battery assembly process.
This airborne dust poses a potential health risk to workers, and
there are OSHA regulations regarding allowable levels of airborne
lead in a battery plant for which manufacturers must devote
significant resources in prevention, treatment, and compliance.
The Company's energy-active material, on the other hand, has a
consistency similar to toothpaste and contains certain binders
which minimize the generation of lead dust, thus minimizing
worker exposure to airborne lead.
As a part of the battery manufacturing process, the Company
handles and disposes of various hazardous materials such as lead
and sulfuric acid. The Company is subject to strict environmental
regulations and has previously incurred significant costs in
installing equipment to manage and control hazardous substances
and pollution. As part of its on-going operations, the Company
incurred $75,000, $68,000, and $37,000 in non-capital
expenditures in 1999, 1998, and 1997, respectively, to properly
dispose of hazardous materials and waste. As a result of such
preventive measures, the Company has not incurred significant
remediation costs to date. The management of the Company
believes that the Company is currently in compliance with all
applicable local, state, and federal environmental rules and
regulations in all material respects.
Management is not currently aware of any material infrequent or
non-recurring clean-up expenditures to be incurred in the future
based on present circumstances and conditions.
Employees
As of March 24, 2000, the Company employed 50 full-time
employees.
Item 2. Properties.
All of the Company's operations are located in an 88,000 square
foot facility located in San Marcos, Texas at 2809 Interstate 35
South. The monthly rental rate is currently $30,000 per month
and escalates over the life of the lease to $35,000 per month
until expiration in 2003. The Company believes this site is
adequate for low-rate production requirements and possesses
enough expansion capacity if the Company elects to expand
capacity at this site.
Management believes that all personal property used by the
Company is in good condition.
Item 3. Legal Proceedings.
In December 1996, the Company filed a petition in State Court in
Travis County, Texas, seeking, among other things, a declaratory
judgment that Horizon Battery Technologies, LTD. ("HBTL") had no
right to arbitration or monetary relief under a "Know-How License
Agreement". HBTL contested jurisdiction and removed the
proceedings to the U.S. Federal Court. The Federal District
Court ruled that it did not have personal jurisdiction over HBTL.
The Company successfully appealed in the U.S. Fifth Circuit Court
of Appeals. In September 1999, the District Court granted
summary judgement in favor of the Company. No further
proceedings are anticipated since no appeal was filed by HBTL.
The Company has approximately $1,000,000 of outstanding accounts
payable, most of which is payable to raw materials suppliers and
service providers, some of which is considerably past due. One
vendor sued the Company in May 1999 for approximately $12,000 and
the suit was settled in the third quarter. In the first quarter
of 2000, six vendors have filed suits against the Company. Five
of these vendors have accepted pay out agreements for the amounts
owed and the remaining one is in negotiation for a pay out
agreement.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters.
Trading Market for ELSI Common Stock
The Company's Common Stock has been traded in the over-the-
counter market and reported on NASDAQ under the symbol "ELSI"
since January 1988. The following table sets forth, for the
periods indicated, the high and low bid price per share of Common
Stock as reported by NASDAQ. Prices represent inter-dealer
quotations, without adjustment for retail markup, markdown or
commission, and may not represent actual transactions.
High Low
1998
First Quarter 2 5/8 3/8
Second Quarter 3 19/32
Third Quarter 2 9/16 7/8
Fourth Quarter 1 5/8 5/8
1999
First Quarter 3 1/4 5/8
Second Quarter 1 7/8 1
Third Quarter 1 5/8 13/16
Fourth Quarter 5 3/4 13/16
The transfer agent and registrar for the Common Stock of the
Company is Harris Trust and Savings Bank, Shareholder Services
311-11, 311 West Monroe, Chicago, IL 60606 (phone 312-360-5475).
The approximate number of record holders of Common Stock at March
20, 2000, was 3,365.
Dividends and Dividend Policy
The Company has paid no dividends on its Common Stock to date and
does not anticipate paying dividends on the Common Stock
currently or in the foreseeable future. Further, the Company
currently has a deficit in its "surplus" account (defined as the
excess of net assets over par value of shares outstanding) which,
under Delaware corporate law, precludes any distributions to
shareholders in a given year unless the Company reports net
income in that year or the preceding year, in which case
dividends could be paid to the extent of net income for the year
in which the dividend is declared and net income for the fiscal
year immediately preceding the year of declaration. In the event
that the earnings of the Company permit payment of dividends
under Delaware law, the timing and amount of such dividends will
be determined by the Board of Directors in light of the Company's
earnings, financial condition and capital requirements.
Item 6. Selected Financial Data.
(In thousands, except per share data)
Year Ended December 31,
1999 1998 1997 1996 1995
Revenues $2,203 $2,380 $3,244 $3,563 $3,278
Loss before
Extraordinary Gain $(3,466) $(5,862) $(7,833) $(7,825) $(20,508)
Extraordinary Gain - $2,331 - - -
Net Loss $(3,466) $(3,530) $(7,833) $(7,825) $(20,508)
Basic (and diluted) Loss per
Share-continuing operations $(0.34) $(0.95) $(1.91) $(2.13) $(9.76)
Basic (and diluted)
Loss per Share $(0.34) $(0.57) $(1.91) $(2.13) $(9.76)
Dividends per Share None None None None None
As of Year Ended December 31
1999 1998 1997 1996 1995
Working Capital (Deficit) $(1,115) $(2,287) $(1,675) $(2,845) $1,556
Total Assets $5,407 $5,217 $8,006 $9,488 $15,277
Shareholders' Equity $2,505 $2,162 $1,492 $3,847 $1,240
Long-Term Obligations - $72 $2,949 $1,768 $11,324
See Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations for discussion of material
uncertainties which may cause the data above not to be indicative
of the Company's future financial condition or results of
operations.
The foregoing should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Disclosure Regarding Forward-Looking 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 report, 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, continued willingness
and ability of Kamkorp and its affiliates to provide financing,
currency controls and other uncertainties arising from Malaysia
and Far East economies upon which the Company is dependent for
equity financing and battery sales, the dependence of the Company
upon a few key customers, the invention of technology which might
limit the value of the Company's products, the invention or
discovery of new/alternative energy sources which might limit the
value of the Company's products, the lack of capacity of the
Company to manufacture products to fulfill new orders, delisting
of the Company's Common Stock on NASDAQ, delays in shipment or
cancellation of orders, customer reorganization, fluctuations in
demand primarily associated with governmental mandates for the
production of zero emission vehicles and the ability to
successfully commercialize the Horizon battery. 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-Q and 8-K as filed with the Securities and Exchange
Commission.
Results of Operations
During 1999, the Company continued to receive equity financing
under an Agreement, which was entered into on June 2, 1998, with
Kamkorp Limited, a private company organized in England
("Kamkorp"), for up to $6,000,000 of equity financing. Kamkorp
also has options to purchase an additional 3,000,000 shares at
$1.00 under this original agreement. In addition, in October
1999 Kamkorp was granted the option to purchase an additional
3,000,000 shares of the Company's Common Stock at $1.00. At
December 31, 1999, Kamkorp is the record holder of 7,480,000
shares or 61.6% of the Company's 12,137,699 outstanding shares of
Common Stock and is the beneficial owner of 12,000,000 shares or
70% of the Company's Common Stock. Kamkorp appointed three
members to the Company's nine-member Board of Directors in 1998
under the original Agreement.
The Company continued to maintain operations with a
reduced workforce throughout the year as a result of limited
funding and the inability to generate battery orders sufficient
to warrant an increase in staffing. While Kamkorp has provided
substantial amounts of financing to the Company to date
($7,480,000), Kamkorp is not legally required to make future
advances. However, Kamkorp has acknowledged to the Company that
it intends to continue providing equity funding to the Company in 2000
to fund day-to-day operations.
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. The
Company delivered 444 batteries against this order during the
year ended December 31, 1999 and is scheduled to deliver the
remainder of the order in 2000. EIL is the international
marketing company and is affiliated with Kamkorp. The delivered
battery sales represent 19% of the battery sales for 1999.
The Company received a purchase order in December 1999 for 6,000
12C25 batteries from Frazer-Nash Research Limited (FNR) for
delivery beginning in the first quarter of 2000 with completion
of the order in April. FNR is a private limited company
incorporated in England, and is a wholly owned subsidiary of
Kamkorp. Its principle activity is the design and development of
advanced electric vehicles and a range of electronic products for
the consumer, telecommunications and automotive industries. The
12C25 battery has been specified by Frazer-Nash Research Limited
as the battery for all of the electric vehicles to be supplied to
the Sydney 2000 Olympic Games. Frazer-Nash is the exclusive
supplier of electric vehicles to the Olympic Games.
In late 1998 management made the decision to concentrate all
research and development activity on developing new batteries
suitable for mass markets such as vehicles, UPS systems, hybrid
electric vehicles and electric vehicles. The external
development programs which remain active are those with the
Defense Advanced Project Agency ("DARPA"), the Department of
Energy ("DOE") and Horizon Aircraft. All others programs have
been terminated by the customer or the Company. Such
terminations did not have a material adverse effect on the
financial position of the Company.
Sales of existing battery types did not increase as expected in
1999 due to delays in orders from Lockheed Martin and others
testing the battery for use in new products in emerging markets.
Generally, testing of products by customers has taken longer than
expected because of difficulties in integration of battery packs
in new products. Battery packs are being tested simultaneously
with other newly designed components in customer products.
Revenue
The Company generated project revenue of approximately
$1,603,000, $736,000, and $2,234,000 for the years ended December
31, 1999, 1998, and 1997, respectively. Essentially all of the
remaining project revenue generated in 1999 was from cooperative
development and research agreements with DARPA and DOE for Hybrid
Electric Vehicle ("HEV") and Electric Vehicle ("EV")
applications. All projects are for lead-acid batteries with the
exception of the DOE program in which the Company is working on a
lithium polymer which may eventually be used in batteries for a
wide variety of applications. During 1998, approximately $215,000
of revenue generated was from the final resolution and settlement
of a program with a customer which remains confidential. Battery
orders from this customer are not expected in the near future, if
at all. During 1997, approximately $1,500,000 of revenue was
generated from SMH Automobile S. A. ("SMH"), DARPA and Fiat for
the development and/or evaluation of batteries and battery packs
for HEV and EV applications and $645,000 was generated from
Chrysler for various engineering, environmental and other tests
performed on the 12H85 battery. The SMH program was terminated
by the customer in 1998 and in late 1997 Chrysler announced its
decision to use nickel-metal-hydride batteries made by a
competitor. Project revenue is expected to continue to decline
in 2000 as the Company focuses its efforts on sales of its
standard production batteries.
The Company had battery sales of approximately $490,000,
$955,000, and $915,000 for the years ending December 31, 1999,
1998, and 1997, respectively. Approximately 19% and 38% of 1999
and 1998 battery sales, respectively, were to EIL. The Company
is economically dependent on Kamkorp and its affiliates (See
Liquidity and Capital Resources section below.) Management
expects sales to Kamkorp and its affiliates to increase as a
percentage of total battery sales and for the group to remain the
largest collective customer for Horizon batteries in 2000.
Approximately 26%, 28%, and 56% of 1999, 1998, and 1997, battery
sales, respectively, were to Chrysler. Chrysler announced its
decision to use Nickel-Metal-Hydride batteries in its electric
minivan for the 1999 model year, however, it has continued to
order a small number of batteries from the Company for further
testing and evaluation. However, Chrysler's purchase of a
significant number of batteries from the Company in the future is
uncertain. Approximately 32%, 12% and 28% of 1999, 1998 and 1997
battery sales, respectively, were to Lockheed Martin for use in
HEVs and EVs they are producing for fleet consumers for testing
and evaluation. Sales of batteries to Lockheed Martin are
expected to increase in 2000. Lockheed Martin produces a drive
train used in hybrid buses manufactured by the Orion Bus Company
and others. The New York Transit Authority has been 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. Following the favorable results, the New York
Transit Authority placed an order with Orion, in December 1999,
for the hybrid buses powered by Horizonr batteries. However, the
amount and timing of any order for batteries for the Company
remains uncertain. The remainder of battery sales in all years
were from numerous customers requesting batteries for testing and
evaluation. Management expects the level of battery sales to
increase beginning in the second quarter of 2000, at which time
battery orders from EIL are expected to increase. Additionally,
the Company has received Federal Aviation Administration ("FAA")
certification of its battery designs used in the helicopter
starting applications, and expects that interest in this battery
design will be increasing. However, the amount and timing of any
sales of this battery design remains uncertain. The majority of
these applications are in emerging markets and the entry of final
products into such markets is difficult to predict.
During 1998, the Company received a $1,104,275 purchase order
from Chrysler, which replaced an earlier purchase order for
$1,400,000. The $1,104,275 purchase order was paid in full in
1998. Chrysler designated $656,100 for the purchase order as a
cancellation fee from the previous order and $448,175 for
batteries to be delivered in 1998 and 1999. During 1998, the
Company recorded $656,100 as income as all tasks necessary to
earn the income were performed and there were no further
obligations related to such revenue. Approximately $171,000 of
the battery revenue remains deferred at December 31, 1999 and
will be recognized upon shipment of the batteries in 2000.
Costs and Expenses
Manufacturing costs decreased by approximately $1,095,000 or 31%
during 1999 as the Company continued to maintain
operations with a reduced workforce throughout the year.
Manufacturing costs have remained high as a percentage of battery
sales primarily due to the fact that the Company has not had the
capital required to further automate the production processes or
purchase materials at higher volumes to receive better pricing.
Fixed facility costs of leasing and maintaining its 88,000 square
foot facility are also a significant expense. Management expects
that manufacturing costs can decrease as a percentage of battery
sales if, and when, volume production begins; however, additional
capital will be required for manufacturing tooling required for
higher production volumes in order to achieve manufacturing
efficiencies and to lower raw material costs.
Selling, general and administrative costs decreased by
approximately $998,000 or 52% during 1999 primarily based on the
actions taken in February 1998 to reduce the workforce and to
control costs. Costs were also reduced significantly for travel,
legal, accounting and consulting fees. Management expects
selling, general and administrative costs to remain relatively
constant in 2000 until battery orders and production levels
warrant additional support sales and administrative staff and
associated costs.
Research and development costs decreased by approximately
$543,000 or 30% in 1999 due to the decrease in work on programs,
primarily SMH and Chrysler. The amount of development work and
related costs have not decreased proportionately with revenue as
a larger proportion of development work and related costs were
incurred in 1999 on programs which did not generate revenue and
on cost-share programs which generate less revenue than
commercial programs. Research and development costs had
increased by approximately $1,040,000 or 72% in 1997 due to the
significant increase in development work in 1997 associated with
the custom design of numerous batteries and battery packs for
customers (SMH, Fiat, SMUD, Black & Decker, Chrysler and another
which remains confidential), testing and evaluation of batteries
(aircraft and helicopter starting applications) and costs
associated with joint research and development efforts with
Corning to improve the Company's products, production processes
and automation. It is anticipated that the current level of
research and development expenditures will remain relatively
constant in 2000.
Depreciation and amortization costs decreased by approximately
$792,000 or 47% during 1999. The majority of the decrease is 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 1999 which remain in use.
Interest costs decreased by approximately $345,000 or 95% during
1999. Interest costs relate primarily to the Company's previous
debt obligations to Corning and have decreased due to the
Company's retirement of its obligations to Corning in June 1998.
During 1997 and early 1998, the Company issued Convertible Notes
Payable to Corning with a principal balance of $6,202,500 at face
interest rates of 5%. The Company was also amortizing discounts
on the Convertible Notes Payable. In June 1998, the Company paid
Corning $1,500,000 in cash in full settlement of its outstanding
obligations to Corning. An extraordinary gain on the early
extinguishment of debt of approximately $3,500,000 was realized
from this transaction. Interest costs are expected to remain
relatively constant in 2000, unless significant debt is incurred.
As a part of the battery manufacturing process, the Company
handles and disposes of various hazardous materials such as lead
and sulfuric acid. The Company is subject to strict
environmental regulations and has incurred significant costs in
installing equipment to manage and control hazardous substances
and pollution. As part of its on-going operations, the Company
incurred $75,000, $68,000 and $37,000, in non-capital
expenditures in 1999, 1998 and 1997, respectively, to properly
dispose of hazardous materials and waste. As a result of such
preventive measures, the Company has not incurred significant
remediation costs. Management is not currently aware of any
material infrequent or non-recurring clean-up expenditures to be
incurred in the future based on present circumstances and
conditions.
The Company did not experience any information technology
complications arising from the problems associated with the Year
2000. The Company had previously completed an assessment of its
information technology systems' readiness for the Year 2000 and
believed that the modifications necessary for the Year 2000 would
not be significant.
During the years ended December 31, 1999, 1998 and 1997, the
Company issued approximately 3,700,000, 3,900,000 and 677,000
shares of Common Stock, respectively, as a result of a change in
control of the Company, financing transactions, purchases of
technology and equipment, payment of the Technology License
Payable and consulting services and the exercise of stock
options. As a result of the increase in shares for these years,
the loss per share in each year was less than it would have been
based on the shares outstanding at the end of the preceding year.
Management of the Company believes that the issuance of shares in
these years was necessary to fund the increased working capital
and capital expenditure requirements.
Liquidity and Capital Resources
During 1999, the Company did not generate sufficient cash flow
from operations to fund its working capital needs. The Company
continued to receive equity financing ($3,580,000 in 1999) under
an Agreement, which was entered into on June 2, 1998, with
Kamkorp Limited, a private company organized in the United
Kingdom ("Kamkorp"), for up to $6,000,000 in equity financing.
Kamkorp also has options to purchase an additional 3,000,000
shares at $1.00 under this Agreement. In addition, in October
1999, Kamkorp was granted the option to purchase an additional
3,000,000 shares of the Company's Common Stock at $1.00. At
December 31, 1999, Kamkorp is the record holder of 7,480,000
shares or 61.6% of the Company's 12,137,699 outstanding shares of
Common Stock and is the beneficial owner of 12,000,000 shares or
70% of the Company's Common Stock. In accordance with the terms of the
Agreement, Kamkorp has nominated three members to the Company's nine-
member Board of Directors. Additionally, the Company must obtain express
approval from Kamkorp for all important management policies and decisions
(See Note G - Liquidity). While Kamkorp has provided substantial amounts
of financing to the Company to date, Kamkorp is not legally required
to make future advances. However, Kamkorp has acknowledged to the
Company that it intends to continue equity funding to the Company
in 2000.
Funds generated in 1999 from the fund raising activities above
were used to maintain minimum production capabilities and to
sustain operations, to design and develop new battery products including
the 12C25 battery, and to pay for the lease and maintenance of its
88,000 square foot manufacturing facility. Capital expenditures of
approximately $10,000 were incurred in 1999.
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. The
Company delivered 444 batteries against this order during the
year ended December 31, 1999 and is scheduled to deliver the
remainder of the order in 2000. EIL is the international
marketing company and is affiliated with Kamkorp. EIL's customer
for the batteries is Perusahaan Otomobil Elektrik (Malaysia)
("POEM"), a Malaysian joint venture company in which Kamkorp
affiliates hold a minority interest, engaged in the production of
the electric vehicles developed by Kamkorp.
The Company received a purchase order in December 1999 for 6,000
12C25 batteries from Frazer-Nash Research Limited for delivery
beginning in the first quarter of 2000 with completion of the
order in April. The 12C25 battery has been specified by Frazer-
Nash Research Limited as the battery for all of the electric
vehicles to be supplied to the Sydney 2000 Olympic Games. Frazer-
Nash is the exclusive supplier of electric vehicles to the
Olympic Games.
Cash balances have been depleted and the Company is currently
dependent on cash payments from Kamkorp and its affiliates to
continue operations on a day-to-day basis. The Company has
approximately $1,000,000 of outstanding accounts payable, most of
which is payable to raw material suppliers and service providers, some
of which is considerably past due. Cash generated from battery sales and
contracts with other customers is not sufficient to fund
operations. Cash payments from Kamkorp and its affiliates to date
have been sufficient to fund ongoing operations, but not to pay
the outstanding accounts payable or raw material purchases. If a
significant battery order is received, significant funding will
be required to pay the outstanding accounts payable and to order
raw materials. The Company is discussing the possibility of
accelerated or additional financing from Kamkorp including
Kamkorp's exercise of its option to purchase the remaining
options to purchase 4,520,000 shares (the original agreement to
purchase 6,000,000 shares, plus options to purchase an additional
6,000,000 shares, less shares purchased as of December 31, 1999
of 7,480,000 shares) of the Company's Common Stock at $1.00 per
share. Absent additional funding from Kamkorp or other sources,
the Company will not have the funds necessary to complete battery
orders from Kamkorp affiliates or other customers, or to pay all
outstanding obligations and will not be able to continue as a
going concern.
The Company's Common Stock is traded in the Over-the-Counter
Market and is reported on the Nasdaq Stock Markets ("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
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 business days and therefore did not meet
the Nasdaq minimum listing requirements. The written notification
stated that within 90 days of the notification, the Company's
closing bid price must be $1.00 or higher for ten consecutive
calendar days to satisfy the requirement. This requirement was
met by mid-February 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. 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,
discussing the 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 reviewed the
Company's plan for regaining and maintaining compliance and
stated 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 was 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
will be 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 has complied with this requirement to
date. 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. If the Company does not continue to maintain the
required listing criteria, it is likely that the Company's shares
would be delisted from the Nasdaq Small cap Market at a time
specified by Nasdaq, in which event the shares would be quoted on
the Over-the-Counter ("OTC") Bulletin Board and/or the Pink
Sheets of the National Quotation Board ("NQB"). In such trading
markets, brokers and dealers effecting trades in the Common Stock
would become subject to the Securities and Exchange Commission
rules covering trading in "penny stocks." Becoming subject to the
"penny stock" rules would likely have a material adverse effect
on both the price and trading liquidity of the Company's 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.
Other
In December 1996, the Company filed a petition in State Court in
Travis County, Texas, seeking, among other things, a declaratory
judgment that Horizon Battery Technologies, LTD. ("HBTL") had no
right to arbitration or monetary relief under a "Know-How License
Agreement". HBTL contested jurisdiction and removed the
proceedings to the U.S. Federal Court. The Federal District
Court ruled that it did not have personal jurisdiction over HBTL.
The Company successfully appealed in the U.S. Fifth Circuit Court
of Appeals. In September 1999, the District Court granted
summary judgement in favor of the Company. No further
proceedings are anticipated since no appeal was filed by HBTL.
Management of the Company believes that inflation does not have a
material effect on the Company's results of operations.
Item 8. Financial Statements and Supplementary Data.
See Item 14(a) for an index of the financial statements and
schedules included as a part of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
As disclosed on Form 8-K on August 11, 1999, (amended on October
7, 1999) Ernst & Young LLP resigned as the Company's independent
auditors. As disclosed on Form 8-K on November 23, 1999, Weaver
and Tidwell were appointed as the Company's independent auditors.
PART III
Item 10. Directors and Executive Officers of Registrant.
Information with regard to directors and executive officers and
their business experience is set forth under "ELECTION OF
DIRECTORS" in the Company's Definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on June 14, 2000, and
is incorporated herein by reference.
Information with regard to the filing of reports of ownership and
changes of ownership by the Company's directors, officers, and
persons who beneficially own more than ten percent of a
registered class of the Company equity securities is set forth
under "ELECTION OF DIRECTORS - Section 16(a) Disclosure" in the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on June 14, 2000, and is incorporated
herein by reference.
Item 11. Executive Compensation.
Information with regard to executive compensation and pension or
similar plans is set forth under "ELECTION OF DIRECTORS -
Compensation of Executive Officers and Directors" in the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on June 14, 2000, and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information with regard to security ownership of certain
beneficial owners and management is set forth under "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the
Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on June 14, 2000, and is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information with regard to certain transactions is set forth
under "ELECTION OF DIRECTORS - Compensation Committee Interlocks
and Insider Participation" and "ELECTION OF DIRECTORS - Certain
Relationships and Related Transaction" in the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on June 14, 2000, and is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) The following financial statements of the Company are included
in Item 8:
Page
No.
Balance Sheets -- December 31, 1999 and 1998 F-4
Statements of Operations -- For the years ended
December 31, 1999, 1998 and 1997 F-5
Statements of Shareholders' Equity -- For the years ended
December 31, 1999, 1998 and 1997 F-6
Statements of Cash flows -- For the years ended
December 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements -- December 31, 1999 F-8
(a)(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are included in
the notes to financial statements, not required under the related
instructions or are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
3.1 Restated Certificate of Incorporation of Electrosource,
Inc. (filed as Exhibit 3.1 to Electrosource, Inc.,
Registration Statement on Form 10 filed October 19, 1987,
as amended by Form 8 Amendments filed January 8, 1988
and January 13, 1988 (hereinafter referred to as "Form 10")
and incorporated herein by reference).
3.2 Certificate of Designation, Preferences, Rights and Limitations
of 1992 Series A Preferred Stock and Series A-1 Preferred Stock
of Electrosource, Inc. as filed of record with the Delaware
Secretary of State on January 15, 1992 (filed as Exhibit 4.1 to
Electrosource, Inc. Form 8-K Current Report for Issuers Subject
to the 1934 Act Reporting Requirements filed December 24, 1991
and incorporated herein by reference).
3.3 Amendment to Restated Certificate of Incorporation of Electrosource,
Inc., increase in authorized shares to 50,000,000 shares (filed as
Exhibit 3.1 to Electrosource, Inc., Quarterly Report on Form 10-Q
for quarter ended June 30, 1995 and incorporated herein by reference).
3.4 Amendment to Restated Certificate of Incorporation of Electrosource,
Inc., elimination of Certificate of Designation for Series A and
Series A-1 Preferred Stock (filed as Exhibit 3.2 to Electrosource,
Inc., Quarterly Report on Form 10-Q for quarter ended June 30, 1995
and incorporated hereby by reference).
3.5 Amendment to the Restated Certificate of Incorporation of
Electrosource filed as of July 22, 1996 (filed as Exhibit 3.1
to Electrosource, Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 and incorporated herein by reference).
3.6 Bylaws of Electrosource, Inc. (filed as Exhibit 3.2 to
Form 10 and incorporated herein by reference).
3.7 Amendment to Bylaws of Electrosource, Inc., pursuant to
a Certificate of Secretary dated May 25, 1990 (filed as
Exhibit 3.3 to Electrosource, Inc., Annual Report on Form 10-K
for the period ended December 31, 1991 and incorporated herein
by reference).
3.8 Amendment to Bylaws of Electrosource, Inc. dated November 3, 1993
(filed as Exhibit 3.5 to Electrosource, Inc., Annual Report on
Form 10-K for the period ended December 31, 1993 and incorporated
herein by reference).
3.9 Amendment to Bylaws of Electrosource, Inc. dated June 23, 1994
(filed as Exhibit 3.6 to Electrosource, Inc. Annual Report filed
on Form 10-K for the period ended December 31, 1994 and incorporated
herein by reference).
3.10 Amendment to Bylaws of Electrosource, Inc. dated November 13, 1996
(filed as Exhibit 3.10 to Electrosource, Inc. Annual Report filed on
Form 10-K for the period ended December 31, 1996 and incorporated
herein by reference).
4.1 Warrant to purchase up to 5,424 shares of Electrosource, Inc. Common
Stock issued to Rosehouse Ltd., a Bermuda-based institutional buyer,
dated April 5, 1995 (filed as an Exhibit to Electrosource, Inc.
Current Report on Form 8-K filed April 12, 1995 and incorporated
herein by reference).
4.2 Warrant to purchase up to 5,000 shares of Electrosource, Inc.
Common Stock issued to Ally Capital Management, Inc. on April 17,
1995 (filed as Exhibit 4.1 to Electrosource, Inc. Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995 and incorporated
herein by reference).
4.3 Warrant to purchase up to 25,000 shares of Electrosource, Inc.,
Common Stock, issued to Rosehouse Ltd., a Bermuda-based institutional
buyer, dated July 27, 1995 (filed as Exhibit 4.4 to Electrosource,
Inc. Quarterly Report on Form 10-Q for quarter ended June 30, 1995
and incorporated herein by reference).
4.4 Warrant (Stock Option Agreement No. W12-101) to purchase up to 20,000
shares of Electrosource, Inc., Common Stock, issued to Corning
Incorporated dated December 31, 1997 for payment of that certain
Project Annex dated October 20, 1997 (filed as Exhibit 4.16 to
Electrosource, Inc. Annual Report on Form 10-K for the period ended
December 31, 1997 and incorporated herein by reference).
4.5 Warrant (Stock Option Agreement No. W12-102A) to purchase up to
70,000 shares of Electrosource, Inc., Common Stock, issued to Corning
Incorporated dated December 31, 1997 for payment on that certain
Project Annex dated October 20, 1997 (filed as Exhibit 4.17 to
Electrosource, Inc. Annual Report on Form 10-K for the period ended
December 31, 1997 and incorporated herein by reference).
4.6 Warrant (Stock Option Agreement No. W12-103A) to purchase up to
70,000 shares of Electrosource, Inc., Common Stock, issued to
Corning Incorporated dated December 31, 1997 for payment on that
certain Project Annex dated October 20, 1997 (filed as Exhibit 4.18
to Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1997 and incorporated herein by reference).
4.7 Warrant (Stock Option Agreement No. W12-102B) to purchase up to
60,000 shares of Electrosource, Inc. Common Stock, issued to
Corning Incorporated dated June 30, 1998 for payment of that certain
Project Annex dated October 20, 1997 (filed as Exhibit 4.7 to
Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1998 and incorporated herein by reference).
4.8 Warrant (Stock Option Agreement No. W12-103B) to purchase up to
60,000 shares of Electrosource, Inc. Common Stock, issued to
Corning Incorporated dated June 30, 1998 for payment of that certain
Project Annex dated October 20, 1997 (filed as Exhibit 4.8 to
Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1998 and incorporated herein by reference).
10.1 Sublicense Agreement dated as of October 5, 1987 between
Electrosource, Inc. and Tracor, Inc. (filed as Exhibit 10.4 to
Form 10 and incorporated herein by reference).
10.2 Patent and Technology Exclusive License Agreement dated August 14,
1984 between Tracor, Inc. and Blanyer-Mathews Associates, Inc.
("BMA") (filed as Exhibit 10.9 to Registration Statement
[No 33-30486] on Form S-1 filed August 14, 1989 hereinafter
referred to as "Form S-1" and incorporated herein by reference).
10.3 Amendment to Patent and Technology Exclusive License Agreement dated
May 29, 1987 between Tracor, Inc. and BMA (filed as Exhibit 10.10
to Form S-1 and incorporated herein by reference).
10.4 Bonus Royalty Agreement dated May 26, 1989 among Electrosource, Inc.,
Tracor, Inc., and BMA (filed as Exhibit 19 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter ended June 30, 1989 and
incorporated herein by reference).
10.5 Amendment to Bonus Royalty Agreement entered into as of November 30,
1989 by and among BMA, Tracor, Inc. and Electrosource, Inc. (filed
as Exhibit 10.17 to Post Effective Amendment No. 1 to Form S-1
Registration Statement [No. 33-34581] filed December 11, 1989
hereinafter referred to as "Post-Effective Amendment" and
incorporated herein by reference).
10.6 Assignment of Patent License dated as of May 14, 1990 by and between
Electrosource, Inc. and Tracor, Inc. (joined by BMA for limited
purposes described therein)(filed as Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the period ended December 31, 1990
hereinafter referred to as the "1990 Form 10-K" and incorporated
herein by reference).
10.7 Letter Agreement dated as of January 15, 1991 between Electrosource,
Inc. and BMA (filed as Exhibit 10.21 to the Company's 1990 Form 10-K
and incorporated herein by reference).
10.8 License Modification Agreement dated January 16, 1992 between Blanyer
Mathews & Associates, Inc., Electrosource, Inc. and Battery Horizons,
Ltd. (filed as Exhibit 10.23 to Electrosource, Inc. Annual Report
on Form 10-K for the period ended December 31, 1991 and incorporated
herein by reference).
10.9 First Amendment to Assignment of Patent License dated April 2, 1992
between Electrosource, Inc. and Tracor, Inc. (filed as Exhibit 10.58
to Company's Registration Statement [No. 33-65248] on Form S-1 filed
June 30, 1993 and incorporated herein by reference).
10.10 Lease Agreement between William D. McMorris and Horizon Battery
Technologies, Inc. dated August 17, 1993 (filed as Exhibit 10.42
to Electrosource Inc. Annual Report on Form 10-K for the period
ended December 31, 1994 and incorporated herein by reference).
10.11 Lease Agreement between William D. McMorris and Electrosource, Inc.
dated May 29, 1998 (filed as Exhibit 10.1 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
and incorporated herein by reference).
10.12 Amendment to Business Alliance and License Agreement dated
November 1, 1995 between Electric Power Research Institute and
Electrosource, Inc. (filed as Exhibit 10.2 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995 and incorporated herein by reference).
10.13 Stock Purchase Agreement together with the Asset and Technology
License Agreement dated January 31, 1995 between BDM Technologies,
Inc. and Electrosource, Inc. (filed as Exhibit 10.46 to
Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1994 and incorporated herein by reference).
10.14 First Amendment to Asset and Technology License Agreement between
BDM International, Inc. and Electrosource, Inc. dated December 18,
1997 (filed as Exhibit 10.17 to Electrosource, Inc. Annual Report
on Form 10-K for the period ended December 31, 1997 and incorporated
herein by reference).
10.15 Equipment Lease Agreement dated September 7, 1995, between Salem
Capital Corporation and Electrosource, Inc. (filed as Exhibit 10.65
to Electrosource, Inc. Annual Report on Form 10-K for the period
ending December 31, 1995 and incorporated herein by reference).
10.16 Development Agreement and Agreement for Purchase of Machinery and
Supplies between Electrosource, Inc., and Charles L. Mathews
("Contractor") dated November 1, 1995 (filed as Exhibit 10.68 to
Electrosource, Inc. Annual Report on Form 10-K for the period ending
December 31, 1995 and incorporated herein by reference).
10.17 Agreement for Aircraft Starting Battery Distribution between
Electrosource, Inc. and Horizon Aviation, Inc. dated February 13,
1996 (filed as Exhibit 10.70 to Electrosource, Inc. Annual Report
on Form 10-K for the period ending December 31, 1995 and incorporated
herein by reference).
10.18 Memorandum of Understanding between Electrosource, Inc. and Lockheed
Martin Corporation dated March 15, 1996 (filed as Exhibit 10.1 to
Electrosource, Inc. Quarterly Report on Form 10-Q for quarter ended
March 31, 1996 and incorporated herein by reference).
10.19 Subscription Agreements between participants and Electrosource,
Inc. dated January 23, 1997 (filed as Exhibit 4.9 to Electrosource,
Inc. Registration Statement [No. 333-25659] Form S-3 on April 23,
1997 and incorporated herein by reference).
10.20 Amendment Number One to Stock Purchase Warrant dated August 18, 1998,
issued under Subscription Agreements between participants and
Electrosource, Inc. dated January 23, 1997 (filed as Exhibit 10.2
to Electrosource, Inc. Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 and incorporated herein by reference).
10.21 Note Purchase and Option Agreement for $4 million dated March 27,
1997 between Electrosource, Inc. and Corning Incorporated (filed as
Exhibit 4.1 to Electrosource, Inc. Quarterly Report on Form 10-Q for
quarter ended March 31, 1997 and incorporated herein by reference).
10.22 5% Convertible Promissory Note for $100,000 dated September 27, 1997
between Electrosource, Inc. and Corning Incorporated for payment of
interest due on the Note Purchase and Option Agreement dated
March 27, 1997 (filed as Exhibit 10.31 to Electrosource, Inc. Annual
Report on Form 10-K for the period ended December 31, 1997 and
incorporated herein by reference).
10.23 5% Convertible Promissory Note for $102,500 dated March 27, 1998
between Electrosource, Inc. and Corning Incorporated for payment of
interest due on the Note Purchase and Option Agreement dated
March 27, 1997 and Promissory Note dated September 27, 1997 (filed
as Exhibit 10.32 to Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and incorporated herein by
reference).
10.24 Amendment No. 1 dated December 22, 1997 to Stock Option Agreement
dated March 27, 1997 between Corning Incorporated and Electrosource,
Inc. (filed as Exhibit 10.33 to Electrosource, Inc. Annual Report on
Form 10-K for the period ended December 31, 1997 and incorporated
herein by reference).
10.25 Research and Development Umbrella Agreement dated July 1, 1997
between Corning Incorporated and Electrosource, Inc. (filed as
Exhibit 10.34 to Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1997 and incorporated herein by
reference).
10.26 Project Annex dated October 20, 1997 to the Development Umbrella
Agreement dated as of July 1, 1997 by and between Corning
Incorporated and Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Physical and Chemical Description of
Battery Electrode "Moss." (filed as Exhibit 10.35 to Electrosource,
Inc. Annual Report on Form 10-K for the period ended December 31,
1997 and incorporated herein by reference).
10.27 Project Annex dated October 20, 1997 to the Development Umbrella
Agreement dated as of July 1, 1997 by and between Corning
Incorporated and Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Engineering Resources (filed as
Exhibit 10.36 to Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and incorporated herein
by reference).
10.28 Project Annex dated October 20, 1997 to the Development Umbrella
Agreement dated as of July 1, 1997 by and between Corning
Incorporated and Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Characterization of Electrode Materials
and Collector Grid Materials (filed as Exhibit 10.37 to Electrosource,
Inc. Annual Report on Form 10-K for the period ended December 31, 1997
and incorporated herein by reference).
10.29 Amendment dated June 15, 1998 to May 29, 1998 Agreement terminating
Notes between Corning Incorporated and Electrosource, Inc. for a
one-day extension for payment (filed as Exhibit 10.3 to Electrosource,
Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
and incorporated herein by reference).
10.30 Stock Purchase Agreement dated June 2, 1998 between Kamkorp and
Electrosource, Inc. (filed as Exhibit 4.1 to Electrosource, Inc.
Form 8-K dated June 11, 1998 and incorporated herein by reference).
10.31 Registration Rights Agreement dated June 2, 1998 between Kamkorp and
Electrosource, Inc. (filed as Exhibit 4.2 to Electrosource, Inc.
Form 8-K dated June 11, 1998 and incorporated herein by reference).
10.32 Form of Severance Agreement between officers/key employees and
Electrosource, Inc. dated May 18, 1998 (filed as Exhibit 10.4 to
Electrosource, Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by reference).
10.33 Purchase Order for Horizon Batteries Pack Development Program between
Fiat Auto and Electrosource, Inc. dated September 30, 1996 (filed as
Exhibit 10.40 to Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1997 and incorporated herein by
reference).
10.34 Frame-Development Contract dated March 14, 1997 between SMH Automobile
S.A. and Electrosource, Inc. (filed as Exhibit 10.41 to Electrosource,
Inc. Annual Report on Form 10-K for the period ended December 31, 1997
and incorporated herein by reference).
10.35 Summary Contract Amendment Terms dated November 12, 1997 for Frame-
Development Contract dated March 14, 1997 between SMH Automobile S.A.
and Electrosource, Inc. (filed as Exhibit 10.42 to Electrosource, Inc.
Annual Report on Form 10-K for the period ended December 31, 1997 and
incorporated herein by reference).
10.36 Severance Agreement between James M. Rosel and Electrosource, Inc.
effective August 31, 1998 (filed as Exhibit 10.1 to Electrosource,
Inc. Quarterly Report on Form 10-Q for the quarter ended September 30,
1998 and incorporated herein by reference).
10.37 Purchase Order Number ES1001 between Electrosource International and
Electrosource, Inc. dated June 15, 1998 for 5,800 batteries (filed as
Exhibit 10.49 to Electrosource, Inc. Annual Report on Form 10-K for
the period ended December 31, 1998 and incorporated herein by
reference).
10.38 Purchase Order Number ES1002 (amendment to Purchase Order Number
ES1001) between Electrosource International and Electrosource, Inc.
dated March 3, 1999 (filed as Exhibit 10.50 to Electrosource, Inc.
Annual Report on Form 10-K for the period ended December 31, 1998
and incorporated herein by reference).
The following exhibits filed under Paragraph 10 of Item 601 are the Company's
compensation plans and arrangements:
10.39 Director Indemnification Agreement dated September 1, 1993 between
Electrosource, Inc. and Dr. Norman Hackerman (filed as Exhibit 10.57
to Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1993 and incorporated herein by reference).
10.40 Director Indemnification Agreement dated June 22, 1995 between
Electrosource, Inc. and Nathan Morton (filed as Exhibit 10.2 to
Electrosource, Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 and incorporated herein by reference).
10.41 Director Indemnification Agreement dated March 3, 1997 between
Electrosource, Inc. and Richard E. Balzhiser (filed as Exhibit 10.51
to Electrosource, Inc. Annual Report on Form 10-K for the period
ended December 31, 1997 and incorporated herein by reference).
10.42 Director Indemnification Agreement dated June 2, 1998 between
Electrosource, Inc. and Kamal Siddiqi (filed as Exhibit 10.5 to
Electrosource, Inc. Quarterly Report on Form 10-Q for the period
ended June 30, 1998 and incorporated herein by reference).
10.43 Director Indemnification Agreement dated June 2, 1998 between
Electrosource, Inc. and Clifford Winckless (filed as Exhibit 10.6
to Electrosource, Inc. Quarterly Report on Form 10-Q for the period
ended June 30, 1998 and incorporated herein by reference).
10.44 Director Indemnification Agreement dated June 2, 1998 between
Electrosource, Inc. and Roger Musson (filed as Exhibit 10.7 to
Electrosource, Inc. Quarterly Report on Form 10-Q for the period
ended June 30, 1998).
10.45 Director Indemnification Agreement dated December 23, 1998 between
Electrosource, Inc. and William F. Griffin (filed as Exhibit 10.64
to Electrosource, Inc. Annual Report on Form 10K for the period
ended December 31, 1998 and incorporated herein by reference).
10.46 Director Indemnification Agreement dated December 23, 1998 between
Electrosource, Inc. and James M. Rosel (filed as Exhibit 10.65 to
Electrosource, Inc. Annual Report on Form 10K for the period ended
December 31, 1998 and incorporated herein by reference).
10.47 Director Indemnification Agreement dated August 16, 1999 between
Electrosource, Inc. and Benny E. Jay.
10.48 1996 Stock Option Plan for Electrosource, Inc. (filed as Exhibit 4.2
to Registration Statement [No. 333-31101] on Form S-8 and incorporated
herein by reference).
10.49 1999 Stock Option Plan for Electrosource, Inc. (filed as Exhibit 4
to Form 10Q for the quarter ended June 30, 1999 and incorporated
herein by reference).
24.1 Consent of Weaver and Tidwell LLP
24.2 Consent of Ernst & Young LLP
27. Financial Data Schedule
(b) Reports on Form 8-K.
Reports on Form 8-K filed during the quarter ended December 31,
1999 were:
November 9, 1999 Grant of 3,000,000 options to Kamkorp, Ltd.
November 23, 1999 Appointment of Weaver and Tidwell as
independent auditors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ELECTROSOURCE, INC.
By: /s/
Date: Benny E. Jay, President/Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
Director, March 24, 2000
/s/ President and
Benny E. Jay Chief Executive Officer
/s/ Director March 24, 2000
Richard E. Balzhiser
/s/ Director March 22, 2000
William F. Griffin
/s/ Director March 22, 2000
Norman Hackerman
Director ___________
Nathan P. Morton
/s/ Director and March 23, 2000
Roger Musson Chief Financial Officer
/s/ Director March 22, 2000
James M. Rosel
/s/ Director March 23, 2000
Kamal Siddiqi
/s/ Director March 23, 2000
Clifford G. Winckless
/s/ Vice President March 24, 2000
Don C. Perriello Treasurer and
Chief Accounting Officer
ELECTROSOURCE, INC.
Audited Financial Statements
December 31, 1999
Audited Financial Statements
Report of Independent Auditors for 1999 F-2
Report of Independent Auditors for 1998 and 1997 F-3
Balance Sheets F-4
Statements of Operations F-5
Statements of Shareholders' Equity F-6
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 sheet of Electrosource,
Inc., as of December 31, 1999, and the related statements of
operations, shareholders' equity, and cash flows for the year ended
December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides 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. at December 31, 1999, and the results of its
operations and its cash flows for year ended December 31, 1999, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully
described in Note O, the Company has incurred recurring operating
losses, has a working capital deficit and revenues have not
resulted in sufficient cash flow to sustain operations. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern. 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 outcome of
this uncertainty.
/s/
Weaver and Tidwell LLP
Fort Worth, Texas
March 14, 2000
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Electrosource, Inc.
We have audited the accompanying balance sheet of Electrosource,
Inc. as of December 31, 1998, and the related statements of
operations, shareholders' equity, and cash flows for each of the
two years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Electrosource, Inc. at December 31, 1998 and the results of its
operations and its cash flows for each of the two years in the
period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully
described in Note O, the Company has incurred recurring operating
losses, has a working capital deficit and revenues have not
resulted in sufficient cash flow to sustain operations. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern. 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 outcome of
this uncertainty.
/s/ Ernst & Young LLP
Austin, Texas
March 5, 1999, except for Note O,
As to which the date is April 12, 1999
ELECTROSOURCE, INC.
Balance Sheets
December 31
1999 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 157,008 $ 207,246
Trade receivables 1,417,736 109,520
Inventories 167,569 350,464
Prepaid expenses and other assets 45,247 29,938
TOTAL CURRENT ASSETS 1,787,560 697,168
PROPERTY AND EQUIPMENT, Net 2,753,849 3,462,157
INTANGIBLE ASSETS
Technology license agreement 3,048,674 3,048,674
Less: accumulated amortization (2,235,217) (2,046,397)
NET INTANGIBLE ASSETS 813,457 1,002,277
OTHER ASSETS 52,500 55,500
TOTAL ASSETS $ 5,407,366 $ 5,217,102
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,044,086 $ 948,528
Accrued liabilities 1,399,285 1,308,346
Deferred revenue and advance
payment on batteries 387,421 649,893
Current portion of capital lease obligations 71,513 77,006
TOTAL CURRENT LIABILITIES 2,902,305 2,983,773
CAPITAL LEASE OBLIGATIONS (less current portion) - 71,512
COMMITMENTS AND CONTINGENCIES (Notes H, I and O)
SHAREHOLDERS' EQUITY
Common Stock, par value $1.00 per share,
authorized 50,000,000 shares; issued and
outstanding 12,137,699 in 1999 and
8,434,531 in 1998 12,137,699 8,434,531
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 (Note J) - -
Paid in capital 51,552,599 51,446,508
Accumulated deficit (60,717,574) (57,251,559)
2,505,061 2,161,817
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,407,366 $ 5,217,102
See notes to financial statements.
ELECTROSOURCE, INC.
Statements of Operations
For the years ended December 31,
1999 1998 1997
REVENUES
Battery sales $ 381,434 $ 593,864 $ 914,901
Battery sales - Frazer-Nash/EIL 108,990 360,850 -
Project revenue 1,602,797 735,719 2,233,923
Cancellation fee - 656,100 -
Miscellaneous Income 109,499 - -
Interest income 87 33,218 94,849
2,202,807 2,379,751 3,243,673
COSTS AND EXPENSES
Manufacturing 2,469,023 3,564,176 3,448,677
Selling, general and administrative 915,107 1,913,128 2,468,778
Research and development 1,260,918 1,803,632 2,490,677
Technology license and royalties 100,000 100,000 110,000
Depreciation and amortization 907,203 1,699,305 1,915,942
Interest expense 16,571 362,040 453,506
Loss on payment of capital lease - - 189,316
5,668,822 9,442,281 11,076,896
LOSS BEFORE INCOME TAXES (3,466,015) (7,062,530) (7,833,223)
INCOME TAX BENEFIT - 1,200,895 -
LOSS BEFORE EXTRAORDINARY GAIN (3,466,015) (5,861,635) (7,823,223)
EXTRAORDINARY GAIN FROM EARLY
EXTINGUISHMENT OF DEBT, NET OF
TAX OF $1,200,895 (NOTE F) - 2,331,150 -
NET LOSS $(3,466,015) $(3,530,485) $(7,833,223)
BASIC (AND DILUTED) LOSS PER SHARE
BEFORE EXTRAORDINARY GAIN $ (0.34) $ (0.95) $ (1.91)
BASIC (AND DILUTED) LOSS PER SHARE $ (0.34) $ (0.57) $ (1.91)
WEIGHTED AVERAGE SHARES OUTSTANDING 10,071,303 6,180,010 4,106,695
See notes to financial statements.
ELECTROSOURCE, INC.
Statements of Shareholders' Equity
[CAPTION]
<TABLE> Common Stock Total
Common Paid In Subscriptions Accumulated Shareholders'
Stock Capital Receivable Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $3,857,912 $45,876,668 - $(45,887,851) $ 3,846,729
Shares issued in Regulation D
offering 109,397 545,453 - - 654,850
Shares issued Technology License 76,668 1,172,016 - - 1,248,684
Shares issued for capital lease
obligations and equipment
purchases 127,500 708,945 - - 836,445
Shares issued for operating lease
and other obligations 299,304 467,663 (467,663) - 299,304
Shares issued for consulting services 6,000 58,800 - - 64,800
Exercises of options and warrants 57,750 246,383 - - 304,133
Stock options issued for technical
and consulting services - 480,000 - - 480,000
Stock options issued in conjunction
Convertible Notes Payable - 1,590,580 - - 1,590,580
Net loss for year ended
December 31, 1997 - - - (7,833,223) (7,833,223)
Balance at December 31, 1997 4,534,531 51,146,508 (467,663) (53,721,074) 1,492,302
Shares issued to Kamkorp 3,900,000 - - - 3,900,000
Stock options issued for technical
and consulting services - 300,000 - - 300,000
Net loss and comprehensive income
for year ended December 31, 1998 - - - (3,530,485) (3,530,485)
Balance at December 31, 1998 8,434,531 51,446,508 (467,663) (57,251,559) 2,161,817
Shares issued to Kamkorp (Note G) 3,580,000 - - - 3,580,000
Stock options exercised under
1996 Stock Option Plan 86,918 49,432 - - 136,350
Shares issued for exercise
of Warrants 36,250 56,659 - - 92,909
Net loss for year ended
December 31, 1999 - - - (3,466,015) (3,466,015)
Balance at December 31, 1999 $12,137,699 $51,552,599 $(467,663) $(60,717,574) $2,505,061
See notes to financial statements.
</TABLE>
ELECTROSOURCE, INC.
Statements of Cash Flows
1999 1998 1997
OPERATING ACTIVITIES
Net loss $(3,466,015) $(3,530,485) $(7,833,223)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Equity instruments issued
for consulting services - 300,000 544,800
Depreciation of property, plant
and equipment 718,383 788,945 922,822
Amortization of intangible
assets 188,820 859,070 993,120
Amortization of prepaid lease
expense - 299,304 -
Extraordinary gain from early
extinguishment of debt,
Net of tax - (2,331,150) -
Amortization of discounts on
convertible notes payable and
deferred financing costs - 169,569 188,728
Interest expense paid in
convertible notes payable
or common stock - 193,002 100,000
Loss on payment of capital lease - - 189,316
Deferred tax benefit - (1,200,895) -
Changes in operating assets and liabilities:
(Increase) decrease in trade
receivables (1,308,216) 298,710 (160,599)
(Increase) decrease in inventories 182,895 (28,175) (73,054)
(Increase) decrease in prepaid
expenses and other assets (12,309) (2,485) 86,865
Increase in accounts payable
and accrued liabilities 186,497 69,348 378,934
Increase (decrease) in deferred
revenue and advance payments
on batteries (262,472) 217,294 (724,429)
CASH USED IN OPERATING ACTIVITIES (3,772,417) (3,897,948) (5,386,720)
INVESTING ACTIVITIES
Purchases of property and
equipment, net (10,075) (86,643) (134,458)
CASH USED IN INVESTING ACTIVITIES (10,075) (86,643) (134,458)
FINANCING ACTIVITIES
Proceeds from issuances of convertible
notes payable and related warrants
to purchase Common Stock - 1,000,000 5,000,000
Payment of notes payable and
capital lease obligations (77,005) (1,572,685) (685,968)
Proceeds from issuances of common
stock, net 3,809,259 3,900,000 958,983
Decrease in restricted cash - 81,604 663,220
CASH PROVIDED BY FINANCING ACTIVITIES 3,732,254 3,408,919 5,936,235
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (50,238) (575,672) 415,057
Cash and cash equivalents at
beginning of period 207,246 782,918 367,861
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 157,008 $ 207,246 $ 782,918
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
ELECTROSOURCE, INC.
December 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Electrosource, Inc. (the "Company") was
incorporated as a Delaware corporation on June 3, 1987. The
Company designs and manufactures advanced lead-acid batteries for
use in motive power and starting applications. The majority of
revenue recognized through December 31, 1999 has been derived
from the development and sales of batteries for electric vehicles
and hybrid electric vehicles to automotive manufacturers in the
United States, England and Malaysia.
Cash and Cash Equivalents: 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 (on a
standard, direct materials and direct labor cost basis) or market
value.
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 or the respective lease term, ranging
from 3 to 10 years.
Technology License Agreement and Purchased Technology: The
Company has been assigned all license rights relating to
coextruded wire by the original licensee (See Note D.) The cost
of this license is being amortized over the legal life of the
patents on the technology (17 years). The patents expire
beginning in 2004. On November 1, 1995, the Company obtained
intellectual property rights (purchased technology) developed
under a Research and Development Agreement (See Note D.) The
cost of this purchased technology was fully amortized in 1998. On
an ongoing basis, the Company reviews the valuation and
amortization of its intangibles, taking into consideration any
events or circumstances which might have diminished their value.
Project Revenue: Projects are accounted for under the percentage
of completion method, wherein revenue is recognized based on
cumulative costs incurred and the estimated cost to complete as
such relates to total contract price. All costs are expensed as
incurred and losses on contracts are estimated and recognized
when it becomes apparent a loss is to be incurred. Certain
projects are billed quarterly or upon the completion of contract
milestones.
Stock Compensation: The Company accounts for its stock
compensation arrangements under the provisions of APB 25,
"Accounting for Stock Issued to Employees."
Basic and Diluted Loss Per Share: Basic and diluted loss per
share is based on the weighted 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.
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 in one operating segment.
Comprehensive Income: In 1997 the Financial Accounting Standards
Board issued Statement 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components. The Company
adopted SFAS 130 effective January 1, 1998, but did not have any
comprehensive income as defined in SFAS 130 during 1999, 1998 or
1997.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes: The Company reports income taxes in accordance with
the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires that deferred tax assets and
liabilities be 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.
Advertising Costs: The Company expenses costs of producing
advertising and sales related materials as incurred. These
expenses for the years ended December 31, 1999, 1998 and 1997
were $4,000, $4,400, and $0, respectively.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
NOTE B - INVENTORIES
1999 1998
Raw materials $121,027 $147,235
Work in progress 46,222 61,499
Finished goods 320 141,730
Total Inventories $167,569 $350,464
NOTE C - PROPERTY AND EQUIPMENT
1999 1998
Office equipment $ 801,610 $ 801,610
Production and lab equipment 5,398,365 5,388,291
Leasehold im provements 875,919 1,301,018
7,075,894 7,490,919
Less - accumulated depreciation
and amortization (4,322,045) (4,028,762)
Total Property and Equipment $2,753,849 $3,462,157
NOTE D - INTANGIBLE ASSETS
Technology License Agreement
At its inception, the Company obtained an exclusive sublicense
for the development, manufacture and commercial exploitation of
coextruded wire for lead-acid battery applications. The Company
is responsible for the maintenance and administration of the
licensed patent and has an obligation to pay the original
licensee a royalty of four percent on all technology sales
unrelated to lead-acid, storage batteries for the term of the
License Agreement. The Company is obligated to pay the licensor
a royalty of one-half of one percent of net sales of coextruded
wire and wire-related products, with a minimum annual royalty of
$100,000.
Purchased Technology
In November 1995, the Company completed a research and
development agreement with the Electric Power Research Institute
("EPRI"). In accordance with the terms of a November 1995
amendment to the agreement, the Company issued 215,800 shares of
Common Stock in exchange for the transfer of intellectual
property rights (purchased technology) and the transfer of title
to certain equipment which had been purchased by EPRI in
connection with research activity undertaken by the Company. In
addition, pursuant to the terms of such agreement, certain member
utilities of EPRI have elected to receive royalties at the rate
of one-tenth of one percent on the Company's 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.
NOTE E - ACCRUED LIABILITIES
1999 1998
Payroll and related items $249,253 $111,174
Due to BDM (Note H) 767,950 722,774
Other 382,082 474,398
Total Accrued Liabilities $1,399,285 $1,308,346
NOTE F - CONVERTIBLE NOTES PAYABLE
In June 1998, in conjunction with the terms of a Stock Purchase
Agreement ("Agreement") with Kamkorp Limited ("Kamkorp"), a
company organized in England, the Company executed a separate
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 $2,331,150, net of tax of $1,200,895. Basic and
diluted earnings per share for the extraordinary gain from the
early extinguishment of debt were $0.38 for the year ended
December 31, 1998. The $1,500,000 was provided to the Company by
Kamkorp from the sale of 1,500,000 shares of Common Stock under
the terms of the Agreement (See Note G).
Cash interest paid by the Company was approximately $17,000,
$22,000 and $128,000 in 1999, 1998 and 1997, respectively.
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
under the initial agreement. On October 27, 1999, the Company
granted Kamkorp an option to purchase an additional 3,000,000
shares of its Common Stock at a price of $1.00 per share. These
latest options expire as to 2,000,000 shares in six months,
500,000 shares in nine months, and 500,000 shares in twelve
months. Kamkorp is the beneficial owner of 12,000,000 shares
representing 70.0% of the Company's Common Stock if all options
to Kamkorp are exercised. As of March 14, 2000, Kamkorp has paid
for and been issued 8,130,000 shares at $1.00 per share,
representing 62% of the Company's outstanding Common Stock at
that date.
In accordance with the terms of the Agreement Kamkorp nominated
three members of 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. the 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.
As of December 31, 1999, Kamkorp is the record owner of 7,480,000
shares or 61.6% of the Company's 12,137,699 outstanding shares of
Common Stock and, including options to purchase Common Stock, the
beneficial owner of 12,000,000 shares or 70% of the Company's
Common Stock (assuming purchase of the full 6,000,000 shares
available under the Agreement and full exercise of the option to
purchase 6,000,000 shares). The Company granted Kamkorp demand
and piggyback registration rights with respect to all such
shares.
During the year ended December 31, 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 anticipates that
funds will be available from Kamkorp in an amount sufficient to
sustain operations; however, Kamkorp is not obligated to provide
this funding. Kamkorp has acknowledged to the Company that it
intends to continue equity funding to the Company in 2000. The
Company has approximately $1,000,000 of outstanding accounts
payable, most of which is payable to raw materials suppliers and
service providers, some of which is considerably past due. One
vendor sued the Company in May 1999 for approximately $12,000 and
the suit was settled in the third quarter. In the first quarter
of 2000, six vendors have filed suits against the Company. Five
of these vendors have accepted pay out agreements for the amounts
owed and the remaining one is in negotiation for a pay out
agreement. Funding from Kamkorp, additional battery orders, or
other financing will be required in the year 2000 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 financing from Kamkorp,
which could be provided under the terms of the Agreement through
Kamkorp's exercise of all or a portion of its options to purchase
the balance of 4,520,000 shares of the Company's Common Stock at
$1.00 per share.
NOTE H - LEASE AND OTHER COMMITMENTS
The Company leases various plant and office facilities, and
production, office and warehouse equipment under operating and
capital leases expiring between 2000 and 2003. Future minimum
annual rentals under lease arrangements at December 31, 1999 are
as follows:
Fiscal Year Capital Operating
Leases Leases
2000 $ 75,473 $ 408,636
2001 - 370,135
2002 - 420,000
2003 - 385,000
Thereafter - -
$ 75,473 $1,583,771
Less imputed interest (3,961)
Present value of capital
lease obligations $ 71,512
The Company's monthly rental rate on its 88,000 square foot
facility is approximately $30,000 per month, escalating to
$35,000 per month in 2001. The lease expires in November 2003.
Rental expense for operating leases for the years ended December
31, 1999, 1998 and 1997 was approximately $484,000, $905,000, and
$898,000, respectively. Sublease rental income of approximately
$29,000, $189,000 and $119,000 was received in 1999, 1998 and
1997, respectively.
In December 1997, the Company issued 299,304 shares of Common
Stock to BDM Technologies, Inc. ("BDM") (now part of TRW) as
partial payment for past obligations owed to BDM for occupancy
related costs ($314,875, which the Company had accrued) and as
prepayment under operating leases for manufacturing equipment
which are guaranteed by BDM ($452,092). 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 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 accept a minimum of
$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
obligations. The Company recorded the shares issued to BDM at
fair market value on the date of the agreement ($766,967) and
recorded a subscription receivable ($467,663) for the difference
between the fair market value of the shares and the minimum value
for such shares accepted by BDM which will be recorded as
permanent equity upon final determination of the number of shares
to be issued. The Company's market price was below $2.56
per share for most of 1999; however, it has recently been above the
$2.56 price, and as reported by the NASDAQ Stock Market at the close
of business on March 14, 2000, the closing price was $12.75. 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
remains above the $2.56 per share level, additional shares of
Common Stock or cash will be required to settle these obligations
under the terms of this agreement.
NOTE I - CONTINGENCIES
In December 1996, the Company filed a petition in State Court in
Travis County, Texas, seeking, among other things, a declaratory
judgment that Horizon Battery Technologies, LTD. ("HBTL") had no
right to arbitration or monetary relief under a "Know-How License
Agreement". HBTL contested jurisdiction and removed the
proceedings to the U.S. Federal Court. The Federal District
Court ruled that it did not have personal jurisdiction over HBTL.
The Company successfully appealed in the U.S. Fifth Circuit Court
of Appeals. In September 1999, the District Court granted
summary judgement in favor of the Company. No further
proceedings are anticipated since no appeal was filed by HBTL.
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.
Trade receivables are composed of balances due from a limited
customer base. Although the Company has a concentration of
credit risk related to the industries in which its customers
participate and to the limited number of customers comprising the
trade receivable balance, the Company has not experienced
significant collection losses from these respective customers.
Activity in the Company's allowance for doubtful accounts was as
follows:
Additions
<TABLE>
<CAPTION> Balance at Charged to Charged to Write-Off of Balance at
Beginning Costs and Other Uncollectible End of
Description of Period Expense Accounts Accounts Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 - 0 - - 0 - - 0 - - 0 - - 0 -
Year ended December 31, 1998 - 0 - - 0 - - 0 - - 0 - - 0 -
Year ended December 31, 1997 $15,599 ($15,599) - 0 - - 0 - - 0 -
</TABLE>
NOTE J - SHAREHOLDERS' EQUITY
In 1997, the Company sold 109,397 shares of Common Stock
(combined with warrants to purchase Common Stock at prices
ranging from $5.25 to $7.56 per share) for net proceeds of
approximately $655,000. During 1998, the warrants were repriced
to $2.56 per share.
Stock Option Plans
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25") and related Interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price
of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation
expense is recognized.
The Company has two stock option plans, the 1996 Stock Option
Plan ("1996 Plan"), which received shareholder approval in 1997,
authorizing 960,000 shares and the 1999 Stock Option Plan ("1999
Plan"), which received shareholder approval in 1999, authorizing
1,000,000 shares. Both Plans provide for the grant/award of
options to employees, directors and consultants at the discretion
of the Compensation/Stock Option Committee to purchase shares of
the Company's Common Stock at a price not less than 100% of the
market price of such stock on the date the option is granted.
These options generally become exercisable in three stages in
equal portions at six months, eighteen months and thirty months
after the date of grant and expire up to ten years from the date
of grant.
In August 1998, the Board of Directors approved the repricing of
all employee stock options effective on that date. Accordingly,
461,833 employee stock options with exercise prices ranging from
$5.28 to $37.50 per share were repriced to an exercise price of
$1.56 per share, the fair value of the Company's Common Stock on
that date. The repricing had no impact on vesting schedules.
Director and consultant stock options were not repriced.
Pro forma information regarding net loss and loss per share is
required by FASB Statement 123 and has been determined as if the
Company had accounted for its employee stock options under the
fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions for 1999 1998 and 1997, respectively: risk-free
interest rates of 5.0%, 5.0% and 5.3%; dividend yield of 0%;
volatility factors of the expected market price of the Company's
common stock of 1.91, 1.76 and .80; and a weighted-average
expected life of the option of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting
period. The Company's pro forma information follows:
1999 1998 1997
Pro forma stock-based
compensation expense $428,133 $873,222 $1,320,661
Pro forma net loss $3,894,148 $4,403,707 $9,153,884
Pro forma loss per share $(0.39) $(0.71) $(2.23)
The effects of applying Statement No. 123 for pro forma
disclosures are not necessarily indicative of future amounts due
to the prospective adoption of FASB Statement No. 123's effects
on reported net income for future years.
A summary of changes in common stock options during 1997, 1998
and 1999 is as follows:
Range of Exer. Weighted-Avg.
Shares Prices ($) Exer. Price($)
Options outstanding January 1, 1997 495,765 5.28 - 37.50 14.13
Granted 298,131 2.94 - 7.75 6.79
Exercised (31,500) 5.28 5.28
Surrendered (28,100) 5.28 - 35.00 9.50
Options outstanding December 31, 1997 734,296 2.94 - 37.50 11.71
Granted 603,418 1.00 - 2.50 1.51
Exercised - - -
Surrendered (648,037) 1.56 - 37.50 10.82
Options outstanding December 31, 1998 689,677 1.00 - 37.50 3.62
Granted 280,083 1.00 - 1.75 .73
Exercised (86,918) 1.563 - 1.75 .85
Surrendered (186,366) 1.563 -35.00 1.99
Options outstanding December 31, 1999 696,476 1.00 - 37.50 8.06
Options exercisable, December 31,
1997 525,145 2.94 - 37.50 13.37
1998 210,844 1.00 - 37.50 8.33
1999 463,064 1.00 - 37.50 8.02
The weighted-average fair value of options granted during 1999,
1998 and 1997 was $1.57, $1.42, and $4.60 per share,
respectively.
A summary of option information by exercise price as of December
31, 1999 follows:
Total Options Outstanding Currently Exercisable
Weighted- Weighted-
Number Average Average Number Weighted-
Exercise of Exercise Remaining Of Average
Price ($) Options Price Contractual Options Exercise Price
1.00 - 1.44 137,350 1.06 9.15 67,350 1.03
1.56 267,548 1.56 7.35 225,541 1.56
1.62 - 1.75 184,084 1.75 9.07 62,679 1.64
2.16 - 6.94 81,687 5.69 7.04 81,687 5.69
7.00 -17.50 10,407 12.65 7.02 10,407 7.02
27.50 9,900 27.50 6.83 9,900 27.50
37.50 5,500 37.50 6.83 5,500 37.50
1.00 -37.50 696,476 2.81 8.11 463,064 3.46
Warrants
The Company has issued numerous warrants associated with various
debt and equity financings and other agreements with varying
expiration dates through 2005.
The Company entered into a technical development agreement with
Corning in September 1997 to jointly improve the Company's
products, production processes and automation. The Company paid
Corning for such services by issuing warrants at agreed upon
values and exercise prices. The Company expensed the warrants
issued in 1998 and 1997 at their estimated fair value of
approximately $300,000 and $400,000, respectively. The technical
development agreement was terminated in 1998.
The following table represents a summary of warrant activity for
the three years ended December 31, 1999:
Warrants Price Per Warrant ($)
Warrants outstanding January 1, 1997 394,423 15.30 - 55.00
Issued 1,277,383 4.00 - 9.00
Exercised (26,250) 5.25
Expired (56,499) 16.13 - 55.00
Warrants outstanding December 31, 1997 1,589,057 4.00 - 50.00
Issued 120,000 7.12
Exercised - -
Expired (300,000) 30.00 - 40.00
Warrants outstanding December 31, 1998 1,409,057 4.00 - 50.00
Issued - -
Exercised (36,250) 2.563
Expired (500,000) 4.00 - 6.00
Warrants outstanding December 31, 1999 872,807 4.00 - 6.00
Reserved Shares
At December 31, 1999, shares of the Company's Common Stock were
reserved as follows for issuance under:
Stock option plans 1,841,582
Exercise of warrants 872,807
Stock Purchase Agreement (Note G) 4,520,000
BDM Agreement (Note H) 767,663
8,002,052
NOTE K - REVENUE
Project
The Company generated approximately $1,155,000 of project revenue
for the year ended December 31, 1999, under agreements with
Frazer-Nash Research Limited and Frazer-Nash Research, Inc. for
the continued research and development of the Company's battery
technology. The Company also had $100,000 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 Otomobile 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 revenues were expected to decrease throughout 1999 as
some of the DARPA programs were completed in early 1999.
During 1997, the Company generated project revenue of
approximately $645,000 from Chrysler Corporation ("Chrysler") for
various environmental and other tests performed on the Horizon
battery. The majority of remaining project revenue generated in
1997 (approximately 65%) was from SMH, DARPA and Fiat Auto for
the development and/or evaluation of batteries for hybrid and
electric vehicle applications.
SMH is located in Switzerland, DARPA and DOE in the United States
and Fiat Auto in Italy.
Batteries
Approximately 19% of the Company's 1999 battery sales were to
EIL. The Company is economically dependent on Kamkorp and its
affiliates (See Notes G and O). Approximately 26%, 30% and 56% of
the Company's 1999, 1998 and 1997 battery sales, respectively,
were to Chrysler. In December 1997, Chrysler announced its
decision to use nickel-metal-hydride batteries made by a
competitor in its EPIC Minivan. Accordingly, Chrysler's purchase
of a significant number of batteries from the Company in the
future is uncertain.
Capacity Maintenance
In July 1996, the Company received a $3,000,000 payment from
Chrysler. Chrysler designated $2,366,000 of this payment as
compensation for continued capacity maintenance and ramp-up costs
incurred by the Company in relation to its role as a supplier to
the automaker for its electric vehicle EPIC Minivan Program and
$634,000 for various engineering, research and development (ER&D)
efforts. During 1996, the Company recorded $2,366,000
as income as all tasks necessary to earn the income were
performed and there were no further obligations related to such
revenue. The Company recorded $634,000 as deferred revenue which
was recognized in income in 1997 as the ER&D tasks were
performed.
Cancellation Fee
During 1998, the Company received a $1,104,275 purchase order
from Chrysler, which replaced an earlier purchase order for
$1,400,000. The $1,104,275 purchase order was paid in full in
1998. Chrysler designated $656,100 of the purchase order as a
cancellation fee from the previous order and $448,175 for
batteries to be delivered in the future. During 1998, the Company
recorded $656,100 as income as all tasks necessary to earn the
income were performed and there were no further obligations
related to such revenue. Approximately $171,000 of the battery
revenue remains deferred at December 31, 1999 and will be
recognized upon shipment of the batteries.
During 1999, 1998 and 1997, the Company earned revenue of
approximately $1,286,000, $360,000, and $1,100,000 (61%, 15%, and
34% of total revenue), respectively, from sales of batteries and
project services to foreign customers. The majority of 1999 and
1998 revenue from foreign customers was from EIL and Frazer-Nash
Research Limited (See Note O). The majority of 1997 revenue from
foreign customers was from SMH (Switzerland) and Fiat Auto
(Italy).
NOTE L - INCOME TAXES
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, 1999 and 1998 are as follows:
1999 1998
Deferred Tax Assets:
Net operating loss and other tax carry-forwards $ 17,556,179 $ 16,165,976
Book depreciation in excess of tax depreciation 1,940,134 2,158,793
Inventory, accruals and other 288,772 444,121
Total deferred tax assets 19,785,085 18,768,890
Less valuation allowance (19,785,085) (18,768,890)
Deferred tax assets, net $ - $ -
The reconciliation of income tax provision (benefit) on
continuing operations computed at the United States federal
statutory tax rates to income tax expense for the years ended
December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
Income tax benefit at statutory U.S.
federal income tax rate (34.0%) (34.0%) (34.0%)
Operating losses not benefited 34.0% 17.0% 34.0%
Effective income tax rate 0.0% (17.0%) 0.0%
The Company's valuation allowance increased by $1.0 million in
1999 and $1.1 million in 1998, primarily as a result of net
operating losses which were generated but may not be realizable.
At December 31, 1999, the Company had net operating loss carry
forwards of approximately $50 million, which will expire from
2002 through 2019, research and development credits of
approximately $400,000 and foreign tax credits of approximately
$120,000 which expire beginning in 2002 and 2000, respectively.
Ownership changes as defined in the Internal Revenue Code have
resulted in severe limitations on the utilization of a
significant portion of the Company's net operating loss and other
tax carry forwards.
NOTE M - RELATED PARTY TRANSACTIONS
During 1995, the Company entered into agreements with a director
of the Company for the development of certain machinery and
materials as well as general consulting. The Company paid
$32,000 and $103,000 under such agreements in 1997 and 1996,
respectively. The Company may also purchase machinery developed
in accordance with this agreement at its option for an additional
fee. During 1997, the Company also began purchasing certain raw
materials from the former director. The Company paid $5,900,
$44,000, and $65,000 for such materials during 1999, 1998 and
1997, respectively. In addition, the Company has leased
approximately 4,000 square feet in the former director's
manufacturing facility for a monthly cost of $400 and has paid
$3,400 in 1999 and $4,800 annually under such agreement during
1997 and 1998.
NOTE N - EMPLOYEE BENEFIT PLAN
The Company sponsors a qualified defined contribution plan
covering all eligible employees. The Company matches twenty-five
percent of a participant's voluntary contributions up to a
maximum of four percent of a participant's compensation. The
Company's contribution expense was approximately $31,000,
$30,000, and $33,000 in 1999, 1998 and 1997, respectively.
NOTE O - ABILITY TO CONTINUE AS A GOING CONCERN
The Company has continued to incur operating losses. Revenues
have not resulted in sufficient cash flows to sustain operations
and at December 31, 1999 there is a net working capital deficit.
As a result, the Company is dependent on Kamkorp and its
affiliates to continue operations on a day to day basis.
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 under the initial agreement. On October 27, 1999,
the Company granted Kamkorp an option to purchase an additional 3,000,000
shares of its Common Stock at a price of $1.00 per share. These latest
options expire as to 2,000,000 shares in six months, 500,000 shares in
nine months, and 500,000 shares in twelve months. Kamkorp is the
beneficial owner of 12,000,000 shares representing 70.0% of the Company's
Common Stock if all options to Kamkorp are exercised. As of March 14,
2000, Kamkorp has paid for and been issued 8,130,000 shares at $1.00
per share, representing 62% of the Company's outstanding Common Stock
at that date.
As of December 31, 1999, Kamkorp has purchased 7,480,000 shares
of the Company's Common Stock. Kamkorp's obligation to make
these purchases is dependent upon the absence of any material
change in the financial position, business or prospects of the
Company and upon certain other conditions precedent, such as the
absence of litigation, absence of defaults on other contracts and
agreements, and compliance with environmental regulations. From
January 1 through March 14, 2000, Kamkorp purchased an additional
650,000 shares of Common Stock at $1.00 per share. Although
Kamkorp has provided substantial amounts of financing to the
Company to date, Kamkorp is not legally required to provide this
funding. Kamkorp has acknowledged to the Company that it intends
to continue equity funding to the Company in 2000.
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. The
Company delivered 444 batteries against this order during the
year ended December 31, 1999 and is scheduled to deliver the
remainder of the order in 2000. EIL is the international
marketing company and is affiliated with Kamkorp. These battery
sales represent 19% of the battery sales in 1999.
The Company received a purchase order in February 2000 for 6,000
12C25 batteries from Frazer-Nash Research Limited for delivery
beginning in the first quarter of 2000 with completion of the
order in April. The 12C25 battery has been specified by Frazer-
Nash Research Limited as the battery for all of the electric
vehicles to be supplied to the Sydney 2000 Olympic Games. Frazer-
Nash is the exclusive supplier of electric vehicles to the
Olympic Games.
The Company's Common Stock is traded in the Over-the-Counter
Market and is reported on the Nasdaq Stock Markets ("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
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 business days and therefore did not meet
the Nasdaq minimum listing requirements. The written notification
stated that within 90 days of the notification, the Company's
closing bid price must be $1.00 or higher for ten consecutive
calendar days to satisfy the requirement. This requirement was
met by mid-February 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. 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 about April 30, 1999, discussing the 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 reviewed the Company's plan for regaining and maintaining
compliance and stated 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 was 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 would be 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 has complied with
this requirement. 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. If the Company does not continue to maintain the
required listing criteria, it is likely that the Company's shares
would be delisted from the Nasdaq Small cap Market at a time
specified by Nasdaq, in which event the shares would be quoted on
the Over-the-Counter ("OTC") Bulletin Board and/or the Pink
Sheets of the National Quotation Board ("NQB"). In such trading
markets, brokers and dealers effecting trades in the Common Stock
would become subject to the Securities and Exchange Commission
rules covering trading in "penny stocks." Becoming subject to the
"penny stock" rules would likely have a material adverse effect
on both the price and trading liquidity of the Company's 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.
Washington, D.C. 20549
________________________________________
EXHIBITS TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
December 31, 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 Marcos, Texas 78666
(Address of principal executive office) (Zip Code)
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
3.1 Restated Certificate of Incorporation of --
Electrosource, Inc. (filed as Exhibit 3.1 to
Electrosource, Inc., Registration Statement on
Form 10 filed October 19, 1987, as amended by
Form 8 Amendments filed January 8, 1988 and
January 13, 1988 (hereinafter referred to as
"Form 10") and incorporated herein by
reference).
3.2 Certificate of Designation, Preferences, Rights --
and Limitations of 1992 Series A Preferred
Stock and Series A-1 Preferred Stock of
Electrosource, Inc. as filed of record with the
Delaware Secretary of State on January 15, 1992
(filed as Exhibit 4.1 to Electrosource, Inc.
Form 8-K Current Report for Issuers Subject to
the 1934 Act Reporting Requirements filed
December 24, 1991 and incorporated herein by
reference).
3.3 Amendment to Restated Certificate of --
Incorporation of Electrosource, Inc., increase
in authorized shares to 50,000,000 shares
(filed as Exhibit 3.1 to Electrosource, Inc.,
Quarterly Report on Form 10-Q for quarter ended
June 30, 1995 and incorporated herein by
reference).
3.4 Amendment to Restated Certificate of --
Incorporation of Electrosource, Inc.,
elimination of Certificate of Designation for
Series A and Series A-1 Preferred Stock (filed
as Exhibit 3.2 to Electrosource, Inc.,
Quarterly Report on Form 10-Q for quarter ended
June 30, 1995 and incorporated hereby by
reference).
3.5 Amendment to the Restated Certificate of --
Incorporation of Electrosource filed as of July
22, 1996 (filed as Exhibit 3.1 to
Electrosource, Inc. Quarterly Report on Form 10-
Q for the quarter ended June 30, 1996 and
incorporated herein by reference).
3.6 Bylaws of Electrosource, Inc. (filed as Exhibit --
3.2 to Form 10 and incorporated herein by
reference).
3.7 Amendment to Bylaws of Electrosource, Inc., --
pursuant to a Certificate of Secretary dated
May 25, 1990 (filed as Exhibit 3.3 to
Electrosource, Inc., Annual Report on Form 10-K
for the period ended December 31, 1991 and
incorporated herein by reference).
3.8 Amendment to Bylaws of Electrosource, Inc. --
dated November 3, 1993 (filed as Exhibit 3.5 to
Electrosource, Inc., Annual Report on Form 10-K
for the period ended December 31, 1993 and
incorporated herein by reference).
3.9 Amendment to Bylaws of Electrosource, Inc. --
dated June 23, 1994 (filed as Exhibit 3.6 to
Electrosource, Inc. Annual Report filed on Form
10-K for the period ended December 31, 1994 and
incorporated herein by reference).
3.10 Amendment to Bylaws of Electrosource, Inc. --
dated November 13, 1996 (filed as Exhibit 3.10
to Electrosource, Inc. Annual Report filed on
Form 10-K for the period ended December 31,
1996 and incorporated herein by reference).
4.1 Warrant to purchase up to 5,424 shares of --
Electrosource, Inc. Common Stock issued to
Rosehouse Ltd., a Bermuda-based institutional
buyer, dated April 5, 1995 (filed as an Exhibit
to Electrosource, Inc. Current Report on Form 8-
K filed April 12, 1995 and incorporated herein
by reference).
4.2 Warrant to purchase up to 5,000 shares of --
Electrosource, Inc. Common Stock issued to Ally
Capital Management, Inc. on April 17, 1995
(filed as Exhibit 4.1 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 and incorporated herein by
reference).
4.3 Warrant to purchase up to 25,000 shares of --
Electrosource, Inc., Common Stock, issued to
Rosehouse Ltd., a Bermuda-based institutional
buyer, dated July 27, 1995 (filed as Exhibit
4.4 to Electrosource, Inc. Quarterly Report on
Form 10-Q for quarter ended June 30, 1995 and
incorporated herein by reference).
4.4 Warrant (Stock Option Agreement No. W12-101) to --
purchase up to 20,000 shares of Electrosource,
Inc., Common Stock, issued to Corning
Incorporated dated December 31, 1997 for
payment of that certain Project Annex dated
October 20, 1997 (filed as Exhibit 4.16 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and
incorporated herein by reference).
4.5 Warrant (Stock Option Agreement No. W12-102A) --
to purchase up to 70,000 shares of
Electrosource, Inc., Common Stock, issued to
Corning Incorporated dated December 31, 1997
for payment on that certain Project Annex dated
October 20, 1997 (filed as Exhibit 4.17 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and
incorporated herein by reference).
4.6 Warrant (Stock Option Agreement No. W12-103A) --
to purchase up to 70,000 shares of
Electrosource, Inc., Common Stock, issued to
Corning Incorporated dated December 31, 1997
for payment on that certain Project Annex dated
October 20, 1997 (filed as Exhibit 4.18 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and
incorporated herein by reference).
4.7 Warrant (Stock Option Agreement No. W12-102B) --
to purchase up to 60,000 shares of
Electrosource, Inc. Common Stock, issued to
Corning Incorporated dated June 30, 1998 for
payment of that certain Project Annex dated
October 20, 1997 (filed as Exhibit 4.7 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1998 and
incorporated herein by reference).
4.8 Warrant (Stock Option Agreement No. W12-103B) --
to purchase up to 60,000 shares of
Electrosource, Inc. Common Stock, issued to
Corning Incorporated dated June 30, 1998 for
payment of that certain Project Annex dated
October 20, 1997 (filed as Exhibit 4.8 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1998 and
incorporated herein by reference).
10.1 Sublicense Agreement dated as of October 5, --
1987 between Electrosource, Inc. and Tracor,
Inc. (filed as Exhibit 10.4 to Form 10 and
incorporated herein by reference).
10.2 Patent and Technology Exclusive License --
Agreement dated August 14, 1984 between Tracor,
Inc. and Blanyer-Mathews Associates, Inc.
("BMA") (filed as Exhibit 10.9 to Registration
Statement [No 33-30486] on Form S-1 filed
August 14, 1989 hereinafter referred to as
"Form S-1" and incorporated herein by
reference).
10.3 Amendment to Patent and Technology Exclusive --
License Agreement dated May 29, 1987 between
Tracor, Inc. and BMA (filed as Exhibit 10.10 to
Form S-1 and incorporated herein by reference).
10.4 Bonus Royalty Agreement dated May 26, 1989 --
among Electrosource, Inc., Tracor, Inc., and
BMA (filed as Exhibit 19 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1989 and incorporated herein by
reference).
10.5 Amendment to Bonus Royalty Agreement entered --
into as of November 30, 1989 by and among BMA,
Tracor, Inc. and Electrosource, Inc. (filed as
Exhibit 10.17 to Post Effective Amendment No. 1
to Form S-1 Registration Statement [No. 33-
34581] filed December 11, 1989 hereinafter
referred to as "Post-Effective Amendment" and
incorporated herein by reference).
10.6 Assignment of Patent License dated as of May --
14, 1990 by and between Electrosource, Inc. and
Tracor, Inc. (joined by BMA for limited
purposes described therein) (filed as Exhibit
10.20 to the Company's Annual Report on Form 10-
K for the period ended December 31, 1990
hereinafter referred to as the "1990 Form 10-K"
and incorporated herein by reference).
10.7 Letter Agreement dated as of January 15, 1991 --
between Electrosource, Inc. and BMA (filed as
Exhibit 10.21 to the Company's 1990 Form 10-K
and incorporated herein by reference).
10.8 License Modification Agreement dated January --
16, 1992 between Blanyer Mathews & Associates,
Inc., Electrosource, Inc. and Battery Horizons,
Ltd. (filed as Exhibit 10.23 to Electrosource,
Inc. Annual Report on Form 10-K for the period
ended December 31, 1991 and incorporated herein
by reference).
10.9 First Amendment to Assignment of Patent License --
dated April 2, 1992 between Electrosource, Inc.
and Tracor, Inc. (filed as Exhibit 10.58 to
Company's Registration Statement [No. 33-65248]
on Form S-1 filed June 30, 1993 and
incorporated herein by reference).
10.10 Lease Agreement between William D. McMorris and --
Horizon Battery Technologies, Inc. dated August
17, 1993 (filed as Exhibit 10.42 to
Electrosource Inc. Annual Report on Form 10-K
for the period ended December 31, 1994 and
incorporated herein by reference).
10.11 Lease Agreement between William D. McMorris and --
Electrosource, Inc. dated May 29, 1998 (filed
as Exhibit 10.1 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by
reference).
10.12 Amendment to Business Alliance and License --
Agreement dated November 1, 1995 between
Electric Power Research Institute and
Electrosource, Inc. (filed as Exhibit 10.2 to
Electrosource, Inc. Quarterly Report on Form 10-
Q for the quarter ended September 30, 1995 and
incorporated herein by reference).
10.13 Stock Purchase Agreement together with the --
Asset and Technology License Agreement dated
January 31, 1995 between BDM Technologies, Inc.
and Electrosource, Inc. (filed as Exhibit 10.46
to Electrosource, Inc. Annual Report on Form 10-
K for the period ended December 31, 1994 and
incorporated herein by reference).
10.14 First Amendment to Asset and Technology License --
Agreement between BDM International, Inc. and
Electrosource, Inc. dated December 18, 1997
(filed as Exhibit 10.17 to Electrosource, Inc.
Annual Report on Form 10-K for the period ended
December 31, 1997 and incorporated herein by
reference).
10.15 Equipment Lease Agreement dated September 7, --
1995, between Salem Capital Corporation and
Electrosource, Inc. (filed as Exhibit 10.65 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ending December 31, 1995 and
incorporated herein by reference).
10.16 Development Agreement and Agreement for --
Purchase of Machinery and Supplies between
Electrosource, Inc., and Charles L. Mathews
("Contractor") dated November 1, 1995 (filed as
Exhibit 10.68 to Electrosource, Inc. Annual
Report on Form 10-K for the period ending
December 31, 1995 and incorporated herein by
reference).
10.17 Agreement for Aircraft Starting Battery --
Distribution between Electrosource, Inc. and
Horizon Aviation, Inc. dated February 13, 1996
(filed as Exhibit 10.70 to Electrosource, Inc.
Annual Report on Form 10-K for the period
ending December 31, 1995 and incorporated
herein by reference).
10.18 Memorandum of Understanding between --
Electrosource, Inc. and Lockheed Martin
Corporation dated March 15, 1996 (filed as
Exhibit 10.1 to Electrosource, Inc. Quarterly
Report on Form 10-Q for quarter ended March 31,
1996 and incorporated herein by reference).
10.19 Subscription Agreements between participants --
and Electrosource, Inc. dated January 23, 1997
(filed as Exhibit 4.9 to Electrosource, Inc.
Registration Statement [No. 333-25659] Form S-3
on April 23, 1997 and incorporated herein by
reference).
10.20 Amendment Number One to Stock Purchase Warrant --
dated August 18, 1998, issued under
Subscription Agreements between participants
and Electrosource, Inc. dated January 23, 1997
(filed as Exhibit 10.2 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 and incorporated
herein by reference).
10.21 Note Purchase and Option Agreement for $4 --
million dated March 27, 1997 between
Electrosource, Inc. and Corning Incorporated
(filed as Exhibit 4.1 to Electrosource, Inc.
Quarterly Report on Form 10-Q for quarter ended
March 31, 1997 and incorporated herein by
reference).
10.22 5% Convertible Promissory Note for $100,000 --
dated September 27, 1997 between Electrosource,
Inc. and Corning Incorporated for payment of
interest due on the Note Purchase and Option
Agreement dated March 27, 1997 (filed as
Exhibit 10.31 to Electrosource, Inc. Annual
Report on Form 10-K for the period ended
December 31, 1997 and incorporated herein by
reference).
10.23 5% Convertible Promissory Note for $102,500 --
dated March 27, 1998 between Electrosource,
Inc. and Corning Incorporated for payment of
interest due on the Note Purchase and Option
Agreement dated March 27, 1997 and Promissory
Note dated September 27, 1997 (filed as Exhibit
10.32 to Electrosource, Inc. Annual Report on
Form 10-K for the period ended December 31,
1997 and incorporated herein by reference).
10.24 Amendment No. 1 dated December 22, 1997 to --
Stock Option Agreement dated March 27, 1997
between Corning Incorporated and Electrosource,
Inc. (filed as Exhibit 10.33 to Electrosource,
Inc. Annual Report on Form 1o-K for the period
ended December 31, 1997 and incorporated herein
by reference).
10.25 Research and Development Umbrella Agreement --
dated July 1, 1997 between Corning Incorporated
and Electrosource, Inc. (filed as Exhibit 10.34
to Electrosource, Inc. Annual Report on Form 10-
K for the period ended December 31, 1997 and
incorporated herein by reference).
10.26 Project Annex dated October 20, 1997 to the --
Development Umbrella Agreement dated as of July
1, 1997 by and between Corning Incorporated and
Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Physical and
Chemical Description of Battery Electrode
"Moss." (filed as Exhibit 10.35 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and
incorporated herein by reference).
10.27 Project Annex dated October 20, 1997 to the --
Development Umbrella Agreement dated as of July
1, 1997 by and between Corning Incorporated and
Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Engineering
Resources (filed as Exhibit 10.36 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and
incorporated herein by reference).
10.28 Project Annex dated October 20, 1997 to the --
Development Umbrella Agreement dated as of July
1, 1997 by and between Corning Incorporated and
Electrosource, Inc., being further defined in
Exhibit 1, Project Proposal, Characterization
of Electrode Materials and Collector Grid
Materials (filed as Exhibit 10.37 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and
incorporated herein by reference).
10.29 Amendment dated June 15, 1998 to May 29, 1998 --
Agreement terminating Notes between Corning
Incorporated and Electrosource, Inc. for a one-
day extension for payment (filed as Exhibit
10.3 to Electrosource, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998
and incorporated herein by reference).
10.30 Stock Purchase Agreement dated June 2, 1998 --
between Kamkorp and Electrosource, Inc. (filed
as Exhibit 4.1 to Electrosource, Inc. Form 8-K
dated June 11, 1998 and incorporated herein by
reference).
10.31 Registration Rights Agreement dated June 2, --
1998 between Kamkorp and Electrosource, Inc.
(filed as Exhibit 4.2 to Electrosource, Inc.
Form 8-K dated June 11, 1998 and incorporated
herein by reference).
10.32 Form of Severance Agreement between --
officers/key employees and Electrosource, Inc.
dated May 18, 1998 (filed as Exhibit 10.4 to
Electrosource, Inc. Quarterly Report on Form 10-
Q for the quarter ended June 30, 1998 and
incorporated herein by reference).
10.33 Purchase Order for Horizon Batteries Pack --
Development Program between Fiat Auto and
Electrosource, Inc. dated September 30, 1996
(filed as Exhibit 10.40 to Electrosource, Inc.
Annual Report on Form 10-K for the period ended
December 31, 1997 and incorporated herein by
reference).
10.34 Frame-Development Contract dated March 14, 1997 --
between SMH Automobile S.A. and Electrosource,
Inc. (filed as Exhibit 10.41 to Electrosource,
Inc. Annual Report on Form 10-K for the period
ended December 31, 1997 and incorporated herein
by reference).
10.35 Summary Contract Amendment Terms dated November --
12, 1997 for Frame-Development Contract dated
March 14, 1997 between SMH Automobile S.A. and
Electrosource, Inc. (filed as Exhibit 10.42 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and
incorporated herein by reference).
10.36 Severance Agreement between James M. Rosel and --
Electrosource, Inc. effective August 31, 1998
(filed as Exhibit 10.1 to Electrosource, Inc.
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 and incorporated
herein by reference).
10.37 Purchase Order Number ES1001 between --
Electrosource International and Electrosource,
Inc. dated June 15, 1998 for 5,800 batteries
(filed as Exhibit 10.49 to Electrosource, Inc.
Annual Report on Form 10-K for the period ended
December 31, 1998 and incorporated herein by
reference).
10.38 Purchase Order Number ES1002 (amendment to --
Purchase Order Number ES1001) between
Electrosource International and Electrosource,
Inc. dated March 3, 1999 (filed as Exhibit
10.50 to Electrosource, Inc. Annual Report on
Form 10-K for the period ended December 31,
1998 and incorporated herein by reference).
The following exhibits filed under Paragraph 10 of Item 601 are
the Company's compensation plans and arrangements:
10.39 Director Indemnification Agreement dated --
September 1, 1993 between Electrosource, Inc.
and Dr. Norman Hackerman (filed as Exhibit
10.57 to Electrosource, Inc. Annual Report on
Form 10-K for the period ended December 31,
1993 and incorporated herein by reference).
10.40 Director Indemnification Agreement dated June --
22, 1995 between Electrosource, Inc. and Nathan
Morton (filed as Exhibit 10.2 to Electrosource,
Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and incorporated
herein by reference).
10.41 Director Indemnification Agreement dated March --
3, 1997 between Electrosource, Inc. and Richard
E. Balzhiser (filed as Exhibit 10.51 to
Electrosource, Inc. Annual Report on Form 10-K
for the period ended December 31, 1997 and
incorporated herein by reference).
10.42 Director Indemnification Agreement dated June --
2, 1998 between Electrosource, Inc. and Kamal
Siddiqi (files as Exhibit 10.5 to
Electrosource, Inc. Quarterly Report on Form 10-
Q for the period ended June 30, 1998 and
incorporated herein by reference).
10.43 Director Indemnification Agreement dated June --
2, 1998 between Electrosource, Inc. and
Clifford Winkless (filed as Exhibit 10.6 to
Electrosource, Inc. Quarterly Report on Form 10-
Q for the period ended June 30, 1998 and
incorporated herein by reference).
10.44 Director Indemnification Agreement dated June --
2, 1998 between Electrosource, Inc. and Roger
Musson (filed as Exhibit 10.7 to Electrosource,
Inc. Quarterly Report on Form 10-Q for the
period ended June 30, 1998).
10.45 Director Indemnification Agreement dated --
December 23, 1998 between Electrosource, Inc.
and William F. Griffin (filed as Exhibit 10.64
to Electrosource, Inc. Annual Report on Form
10K for the period ended December 31, 1998 and
incorporated herein by reference).
10.46 Director Indemnification Agreement dated --
December 23, 1998 between Electrosource, Inc.
and James M. Rosel (filed as Exhibit 10.65 to
Electrosource, Inc. Annual Report on Form 10K
for the period ended December 31, 1998 and
incorporated herein by reference).
10.47 Director Indemnification Agreement dated August E-10
16, 1999 between Electrosource, Inc. and Benny
E. Jay.
10.48 1996 Stock Option Plan for Electrosource, Inc. --
(filed as Exhibit 4.2 to Registration Statement
[No. 333-31101] on Form S-8 and incorporated
herein by reference).
10.49 1999 Stock Option Plan for Electrosource, Inc. --
(filed as Exhibit 4 to Form 10Q for the quarter
ended June 30, 1999 and incorporated herein by
reference).
24.1 Consent of Weaver and Tidwell LLP E-14
24.2 Consent of Ernst & Young LLP E-15
27. Financial Data Schedule E-16
EXHIBIT 10.47
DIRECTOR INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 16th day of August, 1999,
between ELECTROSOURCE, INC., a Delaware corporation
("Corporation") and Benny E. Jay ("Director").
WITNESSETH:
WHEREAS, Director is a member of the Board of Directors of
Corporation and in such capacity is performing a valuable service
for Corporation; and
WHEREAS, the Bylaws of the Corporation (the "Bylaws")
provide for the indemnification of the officers, directors,
agents and employees of Corporation; and
WHEREAS, such Bylaws and Section 145 of the Delaware General
Corporation Laws, as amended to date (the "State Statutes"),
specifically provide that they are not exclusive, and thereby
allow that contracts may be entered into between Corporation and
the members of its Board of Directors with respect to
indemnification of such directors; and
WHEREAS, in accordance with the authorization provided by
the State Statutes, Corporation has purchased and presently
maintains a policy or policies of Directors and Officers
Liability Insurance ("D&O Insurance") covering certain
liabilities which may be incurred by its directors and officers
in the performance of their services for Corporation; and
WHEREAS, recent developments with respect to the terms and
availability of D&O Insurance and with respect to the
application, amendment and enforcement of statutory and bylaw
indemnification provisions generally have raised questions
concerning the adequacy and reliability of the protection
afforded to directors thereby; and
WHEREAS, in order to resolve such questions and thereby
induce the Director to continue to serve as a member of the Board
of Directors of Corporation, Corporation has determined and
agreed to enter into this Agreement with Director.
NOW THEREFORE, in consideration of Director's continued
service as a Director after the date hereof, the parties hereto
agree as follows:
1. Indemnity of Director.
Corporation shall hold harmless and indemnify
Director to the full extent authorized or permitted by
the provisions of the State Statutes, or by any
amendment thereof or other statutory provisions
authorizing or permitting such indemnification which is
adopted after the date hereof.
2. Maintenance of Insurance and Self Insurance.
(a) Corporation represents that it presently has
in force and effect a policy of D&O Insurance with
the insurance company and in the amount as follows
(the "Insurance Policy"):
Insurer Policy No. Amount Deductible
National Union Fire Insurance Co. 008565962 $2,000,000 $100,000/$250,000 SEC
Subject only to the provisions of Section 2(b)
hereof, Corporation hereby agrees that, so long as
Director shall continue to serve as a director of
Corporation (or shall continue at the request of
Corporation to serve as a director, officer,
employee or agent of another corporation,
partnership, joint venture, trust or other
enterprise) and thereafter so long as Director
shall be subject to any possible claim or
threatened, pending or completed action, suit or
proceeding, whether civil, criminal or
investigative, by reason of the fact that Director
was a director of Corporation (or served in any of
said other capacities), Corporation will purchase
and maintain in effect for the benefit of Director
one or more valid, binding and enforceable policy
or policies of D&O Insurance providing, in all
respects, coverage at least comparable to that
presently provided pursuant to the Insurance
Policy.
(b) Corporation shall not be required to maintain
said policy or policies of D&O Insurance in effect
if said insurance is not reasonably available or
if, in the reasonable business judgment of the
then directors of Corporation, either (i) the
premium cost for such insurance is substantially
disproportionate to the amount of coverage; or
(ii) the coverage provided by such insurance is so
limited by exclusions that there is insufficient
benefit from such insurance.
(c) In the event Corporation does not purchase
and maintain in effect said policy or policies of
D&O Insurance pursuant to the provisions of
Section 2(b) hereof, Corporation agrees to hold
harmless and indemnify Director to the full extent
of the coverage which would otherwise have been
provided for the benefit of Director pursuant to
the Insurance Policy.
3. Additional Indemnity.
Subject only to the limitations set forth in
Section 4 hereof, and without limitation to Section 1
above, Corporation shall further hold harmless and
indemnify Director:
(a) Against any and all expenses (including
attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably
incurred by Director in connection with any
threatened, pending or completed action, suit or
proceeding, whether civil, criminal,
administrative or investigative (including an
action by or in the right of the Corporation) to
which Director is or was a party or is threatened
to be made a party by reason of the fact that
Director is, was or at any time becomes a director
of the Corporation, or is or was serving or at any
time serves at the request of the Corporation as a
director, officer, employee or agent of another
corporation, partnership, joint venture, trust or
other enterprise; and
(b) Otherwise to the fullest extent that may be
provided to Director by Corporation under the
nonexclusivity provisions of Section 10.5 of the
Bylaws of the Corporation and the State Statutes.
4. Limitations on Additional Indemnity.
No indemnity pursuant to Section 3 hereof shall be paid
by Corporation:
(a) except to the extent the aggregate of losses
to be indemnified thereunder exceeds the amount of
such losses for which the Director is indemnified
either pursuant to Sections 1 or 2 hereof or
pursuant to any D&O Insurance purchased and
maintained by the Corporation; or
(b) in respect to remuneration paid to Director
if it shall be determined by the Reviewing Party
(as defined in Section 5 below), or by a final
judgment or other final adjudication, that such
remuneration was in violation of law; or
(c) if a determination of the Reviewing Party is
made, or if a judgment is rendered against a
Director, that an accounting must be made for
profits made from the purchase or sale by Director
of securities of Corporation in violation of the
provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local
statutory law; or
(d) on account of Director's conduct which is
determined by the Reviewing Party, or by a final
judgment or other final adjudication, to have been
knowingly fraudulent, deliberately dishonest or of
willful misconduct; or
(e) if the Reviewing Party or a Court having
jurisdiction in the matter shall determine that
such indemnification is not lawful.
5. Reviewing Party.
"Reviewing Party" means:
(a) the Board of Directors, provided that a
majority of directors are not parties to the
claim, or
(b) special, independent counsel selected and
appointed by the Board of Directors; or
(c) special, independent counsel approved or
chosen pursuant to Section 6 below.
Any determination by the Reviewing Party shall be
conclusive and binding on Corporation and Director. If
the Reviewing Party determines that Director would not
be permitted to be indemnified in whole or in part,
Director shall have the right to commence litigation in
the State of Delaware in any court of proper
jurisdiction seeking an order or judgment by the court
equivalent to the determination of the Reviewing Party
or challenging any such determination by the Reviewing
Party or any aspect thereof.
6. Change in Control of Corporation.
If there is a change in control of Corporation (as
defined below), then with respect to all matters
thereafter arising concerning the rights of Director to
indemnity payments and expense advances under this
Agreement, or any other agreements or Bylaws now or
hereafter in effect relating to director
indemnification, Corporation shall seek legal advice
and shall retain a Reviewing Party only from special,
independent counsel selected by Director and approved
by Corporation (which approval shall not be
unreasonably withheld), and who has not otherwise
performed services for Corporation or Director. In the
event that Director and Corporation are unable to
agree on the selection of the special, independent
counsel, such special, independent counsel shall be
selected by lot from among at least five law firms
designated by Director, each of such law firms having
more than 35 attorneys and having a rating of "av" or
better in the then current Martindale-Hubbell Law
Directory. Such selection shall be made in the
presence of Director (and Director's legal counsel or
either of them, as Director may elect). Such special,
independent counsel, among other relevant appropriate
matters, shall determine whether and to what extent
Director would be permitted to be indemnified under
applicable law and shall render its written opinion to
Corporation and Director to such effect. Corporation
shall pay the reasonable fees of the special,
independent counsel and shall fully indemnify such
counsel against any and all costs and expenses arising
out of or relating to this Agreement or its engagement
pursuant hereto.
"Change in control" of Corporation shall be deemed
to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other
than a trustee or other fiduciary holding securities
under an employee benefit plan of Corporation, is or
becomes the "beneficial owner" (as defined in rule
13d-3 under the Act), directly or indirectly, of
securities of Corporation representing 20% or more of
the total voting power represented by Corporation's
then outstanding voting securities; (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of
Directors of Corporation and any new director whose
election by the Board of Directors or nomination for
election by Corporation's shareholders was approved by
a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the
beginning of the period or whose election or nomination
for election was previously so approved, cease, for any
reason, to constitute a majority of the Board of
Directors; or (iii) the shareholders of Corporation
approve a merger or consolidation of Corporation with
any other corporation, other than a merger or
consolidation that would result in the voting
securities of Corporation outstanding immediately
prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the
total voting power represented by the voting securities
of Corporation or the surviving entity, as the case may
be, or an agreement for sale or disposition by
Corporation of all or substantially all Corporation's
assets.
7. Continuation of Indemnity.
All agreements and obligations of Corporation
contained herein shall continue during the period
Director is a director of Corporation (or is or was
serving at the request of Corporation as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise),
and shall continue thereafter so long as Director shall
be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether,
civil, criminal or investigative, by reason of the fact
that Director was a director of Corporation or serving
in any other capacity referred to herein.
8. Notification and Defense of Claim.
Promptly after receipt by Director of notice of
the commencement of any action, claim, suit or
proceeding, Director will, if a claim in respect
thereof is to be made against Corporation under this
Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will
not relieve it from any liability which it may have to
Director otherwise than under this Agreement. With
respect to any such action, suit or proceeding as to
which Director notifies Corporation of the commencement
thereof;
(a) Corporation will be entitled to participate
therein at its own expense, and;
(b) Except as otherwise provided below, to the
extent that it may wish, Corporation jointly with
any other indemnifying party similarly notified
will be entitled to assume the defense thereof,
with counsel satisfactory to Director. After
notice from Corporation to Director of its
election so to assume the defense thereof,
Corporation will not be liable to Director under
this Agreement for any legal or other expenses
subsequently incurred by Director in connection
with the defense thereof other than reasonable
costs of investigation or as otherwise provided
below. Director shall have the right to employ
counsel in such action, suite or proceeding, but
the fees and expenses of such counsel incurred
after notice from Corporation of its assumption of
the defense thereof shall be at the expense of
Director unless (i) the employment of counsel by
Director has been authorized by Corporation; (ii)
Director shall have reasonably concluded that
there may be a conflict of interest between
Corporation and Director in the conduct of the
defense of such action; or (iii) Corporation
shall not in fact have employed counsel to assume
the defense of such action, in each of which cases
the fees and expenses of counsel shall be at the
expense of Corporation. Corporation shall not be
entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of
Corporation or as to which Director shall have
made the conclusion provided for in (i) above.
(c) Corporation shall not be liable to indemnify
Director under this Agreement for any amounts paid
in settlement of any action or claim effected
without its written consent. Corporation shall
not settle any action or claim in any manner which
would impose any penalty or limitation on Director
without Director's written consent. Neither
Corporation nor Director will unreasonably
withhold its consent to any proposed settlement.
9. Advancement of Expenses.
Upon the request of Director, and except as
limited by paragraph 8(b) above, Corporation shall
reimburse Director for all reasonable expenses paid by
Director in defending any claim, civil or criminal
action, suit or proceeding for which Director is
entitled to be indemnified by Corporation for such
expenses under the provisions of the State Statutes,
the Bylaws, this Agreement or otherwise.
10. Repayment of Expenses.
Director shall reimburse Corporation for all
reasonable expenses paid or advanced to Director by
Corporation in defending any claim, civil or criminal
action, suit or proceeding against Director in the
event and only to the extent that it shall be
determined by the Reviewing Party that Director is not
entitled to be indemnified by Corporation for such
expenses under the provisions of the State Statutes,
the Bylaws, this Agreement or otherwise.
11. Enforcement.
(a) Corporation expressly confirms and agrees
that it has entered into this Agreement and
assumed the obligations imposed on Corporation
hereby in order to induce Director to continue as
a director of Corporation, and acknowledges that
Director is relying upon this Agreement in
continuing in such capacity.
(b) In the event Director is required to bring
any action to enforce rights or to collect moneys
due under this Agreement and is successful in
such action, Corporation shall reimburse Director
for all of Director's reasonable fees and expenses
in bringing and pursuing such action.
12. Severability.
Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the
others, so that if any provision hereof shall be held
to be valid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions
hereof.
13. Governing Law; Binding Effect; Amendment and
Termination.
(a) This Agreement shall be interpreted and
enforced in accordance with the laws of the State
of Delaware.
(b) This Agreement shall be binding upon Director
and upon Corporation, its successors and assigns,
and shall inure to the benefit of Director, his
heirs, personal representatives and assigns and
to the benefit of Corporation, its successors and
assigns.
(c) No amendment, modification, termination or
cancellation of this Agreement shall be effective
unless in writing, signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
ELECTROSOURCE, INC. DIRECTOR
By: /s/ /s/
Printed Name: Don C. Perriello Printed Name: Benny E. Jay
Title: Vice President/Finance
EXHIBIT 24.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in: (i)
the Registration Number 33-21598 on Form S-8, (ii) the
Registration Statement Number 33-49040 on Form S-8, and
(iii) the Registration Statement Number 33-64110 on
Form S-8 pertaining to the 1987 Stock Option Plan of
Electrosource, Inc.; (i) the Registration Statement
Number 33-22223 on Form S-8, (ii) the Registration
Statement Number 33-35856 on Form S-8, (iii) the
Registration Statement Number 33-49042 on Form S-8 and
(iv) the Registration Statement Number 33-64108 on Form
S-8 pertaining to the 1988 Non-Employee Director Stock
Option Plan of Electrosource, Inc.; the Registration
Statement Number 33-65386 on Form S-8 pertaining to the
1993 Non-Employee Consultant Stock Option Plan of
Electrosource, Inc.; the Registration Statement Number
33-63363 on Form S-8 pertaining to the 1994 Stock
Option Plan of Electrosource, Inc.; the Registration
Statement Number 33-31101 on Form S-8 pertaining to the
1996 Stock Option Plan of Electrosource, Inc.; the
Registration Statement (Amendment Number 2 to Form S-3
Number 33-63361) and related Prospectus for the
registration of 185,934 shares of Electrosource, Inc.
common stock; the Registration Statement (Form S-3
Number 333-04637) and related Prospectus for the
registration of 80,610 shares of Electrosource, Inc.
common stock; the Registration Statement (Form S-3
Number 333-10715) and related Prospectus for the
registration of 1,231 shares of Electrosource, Inc.
common stock; and the Registration Statement (Form S-3
Number 333-25659) and related Prospectus for the
registration of 437,674 shares of Electrosource, Inc.
common stock of our report dated March 14, 2000, with
respect to the financial statements of Electrosource,
Inc. as of the for the year ended December 31, 1999,
included in this Annual Report on Form 10-K for the
year ended December 31, 1999.
WEAVER AND TIDWELL, LLP
Fort Worth, Texas
March 28, 2000
EXHIBIT 24.2
Consent of Independent Auditors
We consent to the incorporation by reference in:
(i) the Registration Statement Number 33-21598 on Form
S-8; (ii) the Registration Statement Number 33-49040 on
S-8 and (iii) the Registration Statement Number 33-
64110 on Form S-8 pertaining to the 1987 Stock Option
Plan of Electrosource, Inc.; (i) the Registration
Statement Number 33-22223 on Form S-8, (ii) the
Registration Statement Number 33-35856 on Form S-8,
(iii) the Registration Statement Number 33-49042 on
Form S-8 and (iv) the Registration Statement Number 33-
64108 on Form S-8 pertaining to the 1988 Non-Employee
Director Stock Option Plan of Electrosource, Inc.; the
Registration Statement Number 33-65386 on Form S-8
pertaining to the 1993 Non-Employee Consultant Stock
Option Plan of Electrosource, Inc.; the Registration
Statement Number 33-63363 on Form S-8 pertaining to
the 1994 Stock Option Plan of Electrosource, Inc.; the
Registration Statement Number 33-31101 on Form S-8
pertaining to the 1996 Stock Option Plan of
Electrosource, Inc.; the Registration Statement
(Amendment Number 2 to Form S-3 Number 33-63361) and
related Prospectus for the registration of 185.934 shares of
Electrosource, Inc. Common Stock; the Registration Statement
(Form S-3 Number 333-04637) and related Prospectus for the
registration of 80,610 shares of Electrosource, Inc. common stock; the
Registration Statement (Form S-3 Number 333-10715) and
related Prospectus for the registration of 1,231 shares
of Electrosource, Inc. common stock; and the
Registration Statement (Form S-3 Number 333-25659) and
related Prospectus for the registration of 437,674
shares of Electrosource, Inc. common stock of our
report dated March 5, 1999, with respect to the
financial statements of Electrosource, Inc. as of and
for the years ended December 31, 1998 and 1997 included
in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
/s/ Ernst & Young LLP
Austin, Texas
March 28, 2000
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