Attached files
file | filename |
---|---|
EX-31.2 - EX-31.2 - ENER1 INC | v200866_ex31-2.htm |
EX-32.2 - EX-32.2 - ENER1 INC | v200866_ex32-2.htm |
EX-4.23 - EX-4.23 - ENER1 INC | v200866_ex4-23.htm |
EX-32.1 - EX-32.1 - ENER1 INC | v200866_ex32-1.htm |
EX-31.3 - EX-31.3 - ENER1 INC | v200866_ex31-3.htm |
EX-31.1 - EX-31.1 - ENER1 INC | v200866_ex31-1.htm |
EX-4.32 - EX-4.32 - ENER1 INC | v200866_ex4-32.htm |
EX-4.33 - EX-4.33 - ENER1 INC | v200866_ex4-33.htm |
EX-32.3 - EX-32.3 - ENER1 INC | v200866_ex32-3.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2010
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ____________ to ____________
Commission
File Number 001-34050
Ener1,
Inc.
(Exact
name of registrant as specified in its charter)
FLORIDA
|
59-2479377
|
(State
or other jurisdiction
of
incorporation or organization)
|
(I.R.S.
Employer
Identification
No.)
|
1540
Broadway, Suite 25C
New
York, New York 10036
(Address
of principal executive offices) (Zip Code)
(212)
920-3500
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
|
Accelerated
filer R
|
Non-accelerated
filer o
(Do not check if a smaller reporting
company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No R
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Class
|
Outstanding
as of October 29, 2010
|
|
Common
Stock, par value $0.01 per share
|
162,671,465
|
ENER1,
INC.
Form
10-Q for the Quarter Ended September 30, 2010
Page
|
||
PART I. FINANCIAL
INFORMATION
|
||
Item
1.
|
Consolidated
Financial Statements (Unaudited)
|
|
Consolidated
Balance Sheets as of September 30, 2010 and December 31,
2009
|
2
|
|
Consolidated
Statements of Operations for the three and nine months
|
||
ended
September 30, 2010 and 2009
|
3
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the nine
|
||
months
ended September 30, 2010 and 2009
|
4
|
|
Consolidated
Statements of Cash Flows for the nine months ended
|
||
September
30, 2010 and 2009
|
5
|
|
Notes
to Unaudited Consolidated Financial Statements
|
6
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and
|
|
Results
of Operations
|
33
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
44
|
Item
4.
|
Controls
and Procedures
|
44
|
PART II. OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
45
|
Item
1A.
|
Risk
Factors
|
45
|
Item
6.
|
Exhibits
|
59
|
Signatures
|
60
|
ITEM
1. Consolidated Financial Statements
ENER1,
INC.
CONSOLIDATED
BALANCE SHEETS
(unaudited,
in thousands, except share data)
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 34,009 | $ | 14,314 | ||||
Restricted
cash
|
18,094 | 3,668 | ||||||
Accounts
receivable, net of allowance of $565 and $865
|
13,962 | 6,350 | ||||||
Grant
receivable
|
5,235 | - | ||||||
Inventories,
net of provision for obsolescence of $1,789 and $1,296
|
21,047 | 10,415 | ||||||
Prepaid
expenses and other current assets
|
3,639 | 2,020 | ||||||
Total
current assets
|
95,986 | 36,767 | ||||||
Deferred
financing costs, net of amortization of $2,769 and $177
|
2,262 | 268 | ||||||
Property
and equipment, net of accumulated depreciation of $13,701 and
$8,340
|
117,227 | 52,903 | ||||||
Intangible
assets, net of accumulated amortization of $4,334 and
$2,736
|
11,681 | 13,230 | ||||||
Investment
in unconsolidated entity
|
41,750 | 19,177 | ||||||
Goodwill
|
51,754 | 51,019 | ||||||
Other
|
1,087 | 1,043 | ||||||
Total
assets
|
$ | 321,747 | $ | 174,407 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ | 26,955 | $ | 14,268 | ||||
Deferred
grant proceeds, current portion
|
429 | - | ||||||
Income
taxes payable
|
336 | 329 | ||||||
Convertible
line of credit and accrued interest due to related party,
net
|
- | 10,516 | ||||||
Current
portion of capital leases and other debt obligations
|
31,565 | 15,373 | ||||||
Total
current liabilities
|
59,285 | 40,486 | ||||||
Deferred
grant proceeds, less current portion
|
28,092 | - | ||||||
Derivative
liabilities
|
12,082 | 6,871 | ||||||
Financial
instruments
|
4,436 | - | ||||||
Long-term
debt
|
45,126 | 7,368 | ||||||
Other
long-term liabilities
|
1,855 | 1,281 | ||||||
Deferred
income tax liabilities
|
296 | 402 | ||||||
Total
liabilities
|
151,172 | 56,408 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity
|
||||||||
Common
stock, $0.01 par value, 235,714,286 shares authorized,
|
||||||||
151,660,747
and 124,375,196 issued and outstanding
|
1,519 | 1,245 | ||||||
Paid
in capital
|
560,657 | 451,592 | ||||||
Accumulated
other comprehensive income
|
6,059 | 4,860 | ||||||
Accumulated
deficit
|
(399,402 | ) | (341,505 | ) | ||||
Total
Ener1, Inc. stockholders' equity
|
168,833 | 116,192 | ||||||
Noncontrolling
interests
|
1,742 | 1,807 | ||||||
Total
stockholders' equity
|
170,575 | 117,999 | ||||||
Total
liabilities and stockholders' equity
|
$ | 321,747 | $ | 174,407 |
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
- 2
-
ENER1,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited,
in thousands, except per share data)
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
sales
|
$ | 17,262 | $ | 8,117 | $ | 44,288 | $ | 23,846 | ||||||||
Cost
of sales
|
15,164 | 7,693 | 38,974 | 20,856 | ||||||||||||
Gross
profit
|
2,098 | 424 | 5,314 | 2,990 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative
|
7,522 | 4,317 | 18,517 | 12,675 | ||||||||||||
Research
and development, net
|
3,714 | 7,556 | 23,712 | 21,270 | ||||||||||||
Grant
proceeds recognized
|
(92 | ) | - | (161 | ) | - | ||||||||||
Depreciation
and amortization
|
1,587 | 1,304 | 4,408 | 3,766 | ||||||||||||
Total
operating expenses
|
12,731 | 13,177 | 46,476 | 37,711 | ||||||||||||
Loss
from operations
|
(10,633 | ) | (12,753 | ) | (41,162 | ) | (34,721 | ) | ||||||||
Other
income (expense)
|
(16,275 | ) | (3,343 | ) | (16,711 | ) | (1,632 | ) | ||||||||
Loss
before income taxes
|
(26,908 | ) | (16,096 | ) | (57,873 | ) | (36,353 | ) | ||||||||
Income
tax expense (benefit)
|
81 | (24 | ) | 91 | (22 | ) | ||||||||||
Net
loss
|
(26,989 | ) | (16,072 | ) | (57,964 | ) | (36,331 | ) | ||||||||
Net
loss attributable to noncontrolling interests
|
(40 | ) | (235 | ) | (67 | ) | (325 | ) | ||||||||
Net
loss attributable to Ener1, Inc.
|
$ | (26,949 | ) | $ | (15,837 | ) | $ | (57,897 | ) | $ | (36,006 | ) | ||||
Net
loss per share attributable to Ener1, Inc.:
|
||||||||||||||||
Basic
|
$ | (0.18 | ) | $ | (0.14 | ) | $ | (0.43 | ) | $ | (0.31 | ) | ||||
Diluted
|
$ | (0.18 | ) | $ | (0.14 | ) | $ | (0.45 | ) | $ | (0.32 | ) | ||||
Weighted
average shares outstanding
|
||||||||||||||||
Basic
|
148,632 | 117,238 | 135,200 | 114,851 | ||||||||||||
Diluted
|
148,632 | 117,238 | 135,255 | 114,892 |
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
- 3
-
ENER1,
INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited,
in thousands)
Accumulated
|
||||||||||||||||||||||||
Other
|
Total
|
|||||||||||||||||||||||
Common
|
Paid
in
|
Comprehensive
|
Accumulated
|
Noncontrolling
|
Stockholders'
|
|||||||||||||||||||
Stock
|
Capital
|
Income (Loss)
|
Deficit
|
Interest
|
Equity
|
|||||||||||||||||||
Balance
at December 31, 2008
|
$ | 1,132 | $ | 397,080 | $ | 1,510 | $ | (296,826 | ) | $ | 3,517 | $ | 106,413 | |||||||||||
Comprehensive
loss:
|
||||||||||||||||||||||||
Net
loss
|
- | - | - | (36,006 | ) | (325 | ) | (36,331 | ) | |||||||||||||||
Translation
adjustment
|
- | - | 2,386 | - | 67 | 2,453 | ||||||||||||||||||
Total
comprehensive loss
|
(258 | ) | (33,878 | ) | ||||||||||||||||||||
Shares
sold for cash, net of costs
|
60 | 38,384 | - | - | - | 38,444 | ||||||||||||||||||
Stock
option and warrant exercises
|
8 | 684 | - | - | - | 692 | ||||||||||||||||||
Shares
issued for additional noncontrolling interest
|
4 | 1,264 | 86 | - | (1,354 | ) | - | |||||||||||||||||
Shares
issued for debt origination costs
|
- | 8 | - | - | - | 8 | ||||||||||||||||||
Shares
issued for investment in unconsolidated entity
|
9 | 5,821 | - | - | - | 5,830 | ||||||||||||||||||
Cumulative
effect of change in accounting principle
|
- | (19,521 | ) | - | 6,325 | 38 | (13,158 | ) | ||||||||||||||||
Reduction
in derivative liability
|
- | 2,746 | - | - | - | 2,746 | ||||||||||||||||||
Warrants
issued to related party as borrowing
|
||||||||||||||||||||||||
fees
under a line of credit agreement
|
- | 1,703 | - | - | - | 1,703 | ||||||||||||||||||
Early
extinguishment of related party debt
|
- | (3,553 | ) | - | - | - | (3,553 | ) | ||||||||||||||||
Beneficial
conversion value of related party debt
|
- | 2,816 | - | - | - | 2,816 | ||||||||||||||||||
Stock-based
compensation expense
|
- | 3,470 | - | - | - | 3,470 | ||||||||||||||||||
Balance
at September 30, 2009
|
$ | 1,213 | $ | 430,902 | $ | 3,982 | $ | (326,507 | ) | $ | 1,943 | $ | 111,533 |
Accumulated
|
||||||||||||||||||||||||
Other
|
Total
|
|||||||||||||||||||||||
Common
|
Paid
in
|
Comprehensive
|
Accumulated
|
Noncontrolling
|
Stockholders'
|
|||||||||||||||||||
Stock
|
Capital
|
Income
|
Deficit
|
Interests
|
Equity
|
|||||||||||||||||||
Balance
at December 31, 2009
|
$ | 1,245 | $ | 451,592 | $ | 4,860 | $ | (341,505 | ) | $ | 1,807 | $ | 117,999 | |||||||||||
Comprehensive
loss:
|
||||||||||||||||||||||||
Net
loss
|
- | - | - | (57,897 | ) | (67 | ) | (57,964 | ) | |||||||||||||||
Translation
adjustment
|
- | - | 1,199 | - | 2 | 1,201 | ||||||||||||||||||
Total
comprehensive loss
|
(65 | ) | (56,763 | ) | ||||||||||||||||||||
Shares
sold for cash, net of costs
|
21 | 7,739 | - | - | - | 7,760 | ||||||||||||||||||
Shares
sold for cash, net of costs, related party
|
187 | 63,303 | - | - | - | 63,490 | ||||||||||||||||||
Shares
and warrants issued with unsecured senior notes
|
10 | 3,075 | - | - | - | 3,085 | ||||||||||||||||||
Stock
option and warrant exercises
|
2 | 170 | - | - | - | 172 | ||||||||||||||||||
Reduction
in derivative liability
|
- | 297 | - | - | - | 297 | ||||||||||||||||||
Conversion
of related party debt
|
54 | 31,020 | - | - | - | 31,074 | ||||||||||||||||||
Warrants
issued to related party as borrowing
|
||||||||||||||||||||||||
fees
under a line of credit agreement
|
- | 275 | - | - | - | 275 | ||||||||||||||||||
Stock-based
compensation expense
|
- | 3,195 | - | - | - | 3,195 | ||||||||||||||||||
Other
|
- | (9 | ) | - | - | - | (9 | ) | ||||||||||||||||
Balance
at September 30, 2010
|
$ | 1,519 | $ | 560,657 | $ | 6,059 | $ | (399,402 | ) | $ | 1,742 | $ | 170,575 |
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
- 4
-
ENER1,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited,
in thousands)
Nine
Months
|
||||||||
Ended
September 30,
|
||||||||
2010
|
2009
|
|||||||
Operating
activities:
|
||||||||
Net
loss
|
$ | (57,964 | ) | $ | (36,331 | ) | ||
Adjustments
to reconcile net loss to cash used in operating
activities:
|
||||||||
Gain
on derivative liabilities and financial instruments
|
(3,654 | ) | (2,430 | ) | ||||
Debt
conversion expense
|
13,245 | - | ||||||
Non-cash
accretion of discounts on debt
|
2,122 | 252 | ||||||
Non-cash
interest expense related to financing costs
|
3,621 | 2,732 | ||||||
Depreciation
and amortization
|
6,994 | 5,580 | ||||||
Grant
proceeds recognized
|
(161 | ) | - | |||||
Stock-based
compensation expense
|
3,195 | 3,470 | ||||||
Other
non-cash changes
|
922 | 1,115 | ||||||
Changes
in certain operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(7,736 | ) | 1,376 | |||||
Grant
receivable related to operating expenses
|
(5,120 | ) | - | |||||
Inventory
|
(10,860 | ) | 2,266 | |||||
Accounts
payable and accrued expenses
|
7,672 | (6,937 | ) | |||||
Changes
in current assets, liabilities and other, net
|
2,445 | (419 | ) | |||||
Net
cash used in operating activities
|
(45,279 | ) | (29,326 | ) | ||||
Investing
activities:
|
||||||||
Capital
expenditures and equipment deposits
|
(67,106 | ) | (8,199 | ) | ||||
Grant
proceeds received related to capital expenditures
|
28,567 | - | ||||||
Investment
in unconsolidated entity
|
(17,628 | ) | (7,785 | ) | ||||
Restricted
cash
|
(14,345 | ) | (1,229 | ) | ||||
Other
|
18 | 56 | ||||||
Net
cash used in investing activities
|
(70,494 | ) | (17,157 | ) | ||||
Financing
activities:
|
||||||||
Proceeds
from sale of stock, net
|
7,760 | 38,444 | ||||||
Proceeds
from sale of stock, net of costs, related party
|
63,490 | - | ||||||
Proceeds
from issuance of senior unsecured notes, net
|
52,676 | - | ||||||
Proceeds
from issuance of senior convertible notes
|
10,000 | - | ||||||
Proceeds
from credit facility, net
|
14,727 | 4,496 | ||||||
Proceeds
from related party borrowings
|
5,000 | 12,086 | ||||||
Repayment
of credit facility, bank loans and capital leases
|
(18,279 | ) | (2,974 | ) | ||||
Repayment
of related party borrowings
|
- | (336 | ) | |||||
Other
|
163 | 1,649 | ||||||
Net
cash provided by financing activities
|
135,537 | 53,365 | ||||||
Effect
of exchange rates on cash and cash equivalents
|
(69 | ) | (180 | ) | ||||
Net
increase in cash and cash equivalents
|
19,695 | 6,702 | ||||||
Cash
and cash equivalents - beginning balance
|
14,314 | 11,229 | ||||||
Cash
and cash equivalents - ending balance
|
$ | 34,009 | $ | 17,931 | ||||
Supplemental
Disclosure of Non-cash Investing and Financing Activities:
|
||||||||
Non-cash
investing and financing activities:
|
||||||||
Cumulative
effect of change in accounting principle on accumulated
deficit
|
$ | - | $ | 6,325 | ||||
Cumulative
effect of change in accounting principle on paid in
capital
|
- | 19,521 | ||||||
Shares
and warrants issued in connection with senior unsecured
notes
|
3,085 | - | ||||||
Conversion
of related party debt
|
31,074 | - | ||||||
Reduction
in derivative liability
|
297 | 2,746 | ||||||
Early
extinguishment of related party debt
|
- | (3,553 | ) | |||||
Beneficial
conversion value in connection with related party debt
|
- | 2,816 | ||||||
Warrants
issued in connection with advances of related party debt
|
275 | 1,703 | ||||||
Warrants
issued in connection with short term borrowings
|
2,166 | - | ||||||
Put
option issued in connection with investment in unconsolidated
entity
|
4,945 | |||||||
Shares
issued for the purchase of noncontrolling interest
|
- | 1,354 | ||||||
Shares
issued for purchase of equity investment
|
- | 5,830 | ||||||
Borrowings
pursuant to capital leases and equipment purchases
|
721 | 3,220 | ||||||
Shares
issued for capital lease obligations
|
- | 8 |
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
- 5
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1 – Business Overview
Nature
of the Business
Ener1,
Inc., (Ener1, the Company, the Registrant, we, our or us) designs, develops and
manufactures high-performance, rechargeable, lithium-ion batteries and battery
systems for energy storage in the transportation market, stationary power market
and small format products market.
Our
primary products for the transportation market consist of battery solutions for
hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs),
electric vehicles (EVs) and other vehicles such as trucks and buses. In
May 2010, we commenced commercial production and shipment of lithium-ion battery
packs for Think Global, AS (Think Global) an EV manufacturer in
Norway.
We made
strategic investments in Think Holdings, AS, a Norwegian limited liability
company (Think Holdings) and the majority owner of Think Global, in 2009 and
2010. As of September 30, 2010, we controlled approximately 33% of the
outstanding voting power in Think Holdings. On October 25, 2010, we
exchanged shares of Ener1 common stock for additional preferred securities in
Think Holdings and, as a result, we controlled approximately 48% of the
outstanding voting power in Think Holdings as of such date. See Note 12,
Related Party Transactions.
In the stationary power
market, we are developing energy storage applications for utility grid and
commercial applications. Our South Korean subsidiary, Ener1 Korea,
Inc., formerly known as Enertech International, Inc. (Ener1 Korea), manufactures
lithium-ion batteries for the small format products markets which encompasses
consumer, industrial and military products. Our primary small format
product line consists of commercial lithium-ion batteries for products such as
Motorola’s hand-held scanners.
We
manufacture and assemble lithium-ion batteries and battery systems in the United
States through our subsidiary EnerDel, Inc. (EnerDel) and in South Korea through
Ener1 Korea. We are currently expanding production capacity for cells at
our facilities in the United States.
As of
September 30, 2010, Ener1 held a 94% interest in Ener1 Korea. Ener1 Korea
has a wholly owned subsidiary, Emerging Power, Inc., a New Jersey
corporation.
Ener1
Group, Inc. (Ener1 Group) and Bzinfin, S.A. (Bzinfin), the sole owner of Ener1
Group, collectively owned approximately 48.8% of our outstanding common stock
and, with warrants, beneficially owned approximately 57.3% of our shares on a
fully diluted basis as of September 30, 2010. See Note 12, Related Party
Transactions.
Basis
of Presentation
In the
opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments, consisting only of normal recurring
accruals, necessary for a fair statement of financial position, results of
operations, and cash flows. The information included in this quarterly report on
Form 10-Q should be read in conjunction with these interim consolidated
financial statements and the accompanying notes, as well as with our audited
financial statements for the year ended December 31, 2009 included in our Annual
Report on Form 10-K for the year ended December 31, 2009 (2009 Annual Report).
Our accounting policies are described in the “Notes to Consolidated Financial
Statements” included in the 2009 Annual Report and updated, as necessary, in our
subsequent filings with the Securities and Exchange Commission. The
year-end consolidated balance sheet data presented for comparative purposes was
derived from audited financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States of
America. The results of operations for the nine months ended September 30, 2010
are not necessarily indicative of the operating results for the full year or for
any other subsequent interim period.
- 6
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Principles
of Consolidation
Our
consolidated financial statements include the accounts of all wholly-owned and
majority-owned domestic and foreign subsidiaries. Amounts attributable to
the noncontrolling interests held by third parties in the operating results and
financial position of Ener1 Korea, our majority-owned subsidiary, are reported
as a component of stockholders’ equity separate from Ener1’s equity.
Intercompany transactions and balances are eliminated in
consolidation.
We
account for our investment in Think Holdings, an entity over which we exercise
significant influence but do not exercise control, using the cost method because
the form of our investment is not deemed to be equivalent to common stock for
accounting purposes.
Certain
amounts for prior periods have been reclassified to conform to the 2010
presentation.
Foreign
Currencies
Subsidiaries
located outside the United States of America use the local currency as the
functional currency. We translate assets and liabilities denominated in foreign
currencies using exchange rates in effect at the balance sheet date and equity
accounts at historical exchange rates. We translate revenues and expenses
using average exchange rates during the period. Translation adjustments
resulting from this process are shown as a separate component of accumulated
other comprehensive income within stockholders’ equity. Foreign currency
transaction gains and losses are reported in other income (expense) in the
statements of operations.
Use
of Estimates
Preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America (US GAAP) requires management to make
estimates and assumptions that may affect reported amounts presented and
disclosed in our consolidated financial statements. Significant estimates
and assumptions used in the presentation of these consolidated financial
statements require the exercise of judgment and are used to account for, among
other things; revenue recognition and related allowances; derivative
liabilities; financial instruments; inventories; impairments of long-lived
assets including intangible assets; impairments of goodwill; income taxes,
including the valuation allowance for deferred tax assets; valuation of
long-lived assets; research and development; product warranty reserves;
contingencies and litigation; as well as stock-based payments; warrants;
valuation of beneficial conversion feature, if any, on convertible securities;
and other financing matters. Due to the inherent uncertainty involved in making
these estimates and assumptions, actual results reported in future periods may
be materially different from the results reported based on these
estimates.
Note
2 – New Accounting Pronouncements
Recently
Adopted Accounting Pronouncements
On
January 1, 2010, we adopted new accounting guidance for the consolidation of
variable interest entities which requires us to determine whether our variable
interest gives us a controlling financial interest in a variable interest
entity. This new standard has broad implications and may affect how we
account for the consolidation of equity method investments and other agreements
and purchase arrangements. Under this revised guidance, more entities may
meet the definition of a variable interest entity. We have evaluated our
investments in entities that may fall within the scope of this amended guidance
and determined that we are not required to consolidate our investments in any
additional entities. As a result, the adoption of this standard did not
have a material impact on our financial statements.
- 7
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In
January 2010, we adopted accounting guidance that amends the disclosure
requirements related to fair value measurements requiring new disclosures on the
transfers of assets and liabilities between Level 1 (assets and liabilities
measured based on quoted prices in active markets for identical assets or
liabilities) and Level 2 (assets and liabilities measured using significant
other observable inputs) of the fair value measurement hierarchy, including the
reasons for and the timing of the transfers. Effective January 1, 2011, we
will adopt the guidance contained in this amendment that requires a rollforward
of activities regarding purchases, sales, issuance, and settlements of the
assets and liabilities measured using significant unobservable inputs (Level 3
fair value measurements). Other than requiring additional disclosures,
adoption of this new guidance did not, and adoption of the additional guidance
is not expected to, have a material impact on our financial
statements.
In
January 2010, we adopted new accounting guidance that clarifies the scope of the
noncontrolling interests standard to provide for consistency in the treatment of
partial sales and deconsolidation events. The Financial Accounting
Standards Board (FASB) broadened the scope of the new guidance to include groups
of assets that are businesses or nonprofit activities. Under this
amendment more disposal transactions will be subject to the full gain and loss
recognition requirements in the consolidation guidance. We have
retroactively applied this new guidance to January 1, 2009, evaluated all
transactions that fall within the scope of this amended guidance and determined
that the adoption of this standard did not have a material impact on our
financial statements.
Recently
Issued Accounting Standards
In April
2010, new accounting guidance was issued regarding the application of the
milestone method of revenue recognition to research or development arrangements.
Under this guidance, management may only recognize revenue contingent upon the
achievement of a milestone in its entirety in the period in which the milestone
is achieved if the milestone meets all the criteria within the guidance to be
considered substantive. This guidance is effective on a prospective basis for
research and development milestones achieved in 2011. Early adoption is
permitted; however, adoption of this guidance as of a date other than
January 1, 2011 will require us to apply this guidance retrospectively
effective as of January 1, 2010 and will require disclosure of the effect
of this guidance as applied to all previously reported interim periods in the
fiscal year of adoption. We plan to adopt this new guidance on a
prospective basis which means the effect of this guidance will be limited to
future transactions. We do not expect the adoption of this standard to have a
material impact on our financial position or results of operations.
In July
2010, new accounting guidance was issued amending the disclosure requirements
related to receivables to require new disclosures about the credit quality of
financing receivables and the allowance for credit losses. The new
disclosure requirements require information regarding the issuer’s allowance,
charge-off and impairment policies and any changes from prior periods as well as
a rollforward of the allowance activity during the reporting period. In
addition, the new disclosures also require information about management’s credit
assessment process, and whether the assessment is based on external or internal
credit indicators. In addition, qualitative and quantitative information
about troubled debt restructurings will be required. The new disclosure
requirements will be effective the first quarter of 2011. Other than
requiring additional disclosures, the adoption of this standard will not have a
material impact on our financial statements.
- 8
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
3 – Supplemental Financial Information
Revenue
Recognition
Revenue
is recognized when persuasive evidence of a sales arrangement exists, the price
is fixed or determinable, title and risk of loss are transferred, collectability
is reasonably assured and there are no remaining significant obligations or
customer acceptance requirements. Historically, our net sales consisted
primarily of battery related sales by Ener1 Korea and battery prototype sales by
EnerDel. Ener1 Korea does not provide discounts, rebates, product
guarantees or warranties.
In May
2010, EnerDel commenced commercial production and sales of battery packs for an
EV manufacturer and provides a limited warranty on these battery packs.
The estimated cost of the limited warranty is recorded as a component of
cost of sales in the period the revenue is recognized. The warranty period
ends on the earlier of the passage of a specified period of time or the
occurrence of a specified number of charge and discharge cycles of the battery
packs. The warranty provides that the battery packs will conform to
specifications and be free from defects in design, materials and workmanship.
The warranty further provides that EnerDel will repair or replace a
battery pack determined to be defective promptly and at no cost to the
customer.
Grant
Receivable and Deferred Grant Proceeds
In August
2009, we were awarded a grant of $118.5 million under the Automotive Battery
Manufacturing Initiative (ABMI), which is administered by the Department of
Energy (the DOE). The proceeds from the grant are being used primarily to
purchase production equipment in 2010 and subsequent periods, to maximize
production capacity at our existing facilities and to establish and equip an
additional manufacturing facility in Mt. Comfort, Indiana. Under the ABMI
grant, we receive one incentive dollar for each dollar we spend of our own
funds.
ABMI
grant proceeds related to the purchase of assets are recorded as deferred grant
proceeds and recognized as a reduction of operating expenses over the periods
during which depreciation on the assets is charged and in proportion to the
amount of the depreciation charge. We begin depreciating a purchased asset
on the date the asset is placed in service. ABMI grant proceeds used to
pay operating expenses related to machine qualification and direct application
engineering are recorded as a reduction of research and development expenses and
totaled approximately $9.0 million during the nine months ended September 30,
2010.
Inventories
The
following table presents the components of inventories (in
thousands):
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Raw
materials and supplies
|
$ | 10,788 | $ | 5,090 | ||||
Work
in process
|
2,765 | 1,164 | ||||||
Finished
goods
|
9,283 | 5,457 | ||||||
22,836 | 11,711 | |||||||
less:
provision for obsolescence
|
(1,789 | ) | (1,296 | ) | ||||
$ | 21,047 | $ | 10,415 |
The
Company establishes reserves for obsolete or slow-moving inventory based on
management’s analysis of inventory levels and future sales forecasts at the end
of each accounting period.
- 9
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Property and Equipment
The
components of property and equipment were as follows (in thousands, except
useful life data):
Useful
life
|
September
30,
|
December
31,
|
|||||||||
(in years)
|
2010
|
2009
|
|||||||||
Land
|
$ | 2,129 | $ | 2,091 | |||||||
Building
and building improvements
|
30
- 39
|
5,806 | 5,704 | ||||||||
Machinery
and equipment
|
5 -
10
|
40,833 | 33,884 | ||||||||
Office
equipment, furniture and other
|
3 -
7
|
3,834 | 2,999 | ||||||||
Leasehold
improvements
|
1 -
10
|
12,851 | 9,929 | ||||||||
Equipment
deposits
|
n/a
|
13,833 | 4,802 | ||||||||
Construction
in progress
|
n/a
|
51,642 | 1,834 | ||||||||
130,928 | 61,243 | ||||||||||
less:
accumulated depreciation
|
(13,701 | ) | (8,340 | ) | |||||||
$ | 117,227 | $ | 52,903 |
Assets
capitalized under capital leases were approximately $8.4 million and $7.7
million at September 30, 2010 and December 31, 2009, respectively.
Construction in progress includes equipment that is being built by third
parties specifically for our use and is not yet placed in service.
Depreciation on these assets will commence when the assets are placed in
service.
Depreciation
expense for the periods ended September 30, 2010 and 2009 was approximately $5.4
million and $4.0 million, respectively and is reflected in the consolidated
statement of operations as follows (in thousands):
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Depreciation
expense:
|
||||||||||||||||
Cost
of sales
|
$ | 892 | $ | 687 | $ | 2,586 | $ | 1,820 | ||||||||
Operating
expenses
|
1,066 | 788 | 2,839 | 2,177 | ||||||||||||
Total
depreciation expense
|
$ | 1,958 | $ | 1,475 | $ | 5,425 | $ | 3,997 |
Intangible
Assets
The
components of intangible assets were as follows (in thousands, except useful
life data):
Useful
|
As
of September 30, 2010
|
As
of December 31, 2009
|
|||||||||||||||||||||||||
life
|
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
|||||||||||||||||||||||
(in
yrs)
|
Amount
|
Amortization
|
Net
|
Amount
|
Amortization
|
Net
|
|||||||||||||||||||||
Patented
and unpatented technology
|
10
|
$ | 13,907 | $ | (2,966 | ) | $ | 10,941 | $ | 13,905 | $ | (1,920 | ) | $ | 11,985 | ||||||||||||
Electric
vehicle battery technology
|
4.2
|
1,163 | (535 | ) | 628 | 1,137 | (318 | ) | 819 | ||||||||||||||||||
Customer
relationships
|
2.2
|
945 | (833 | ) | 112 | 924 | (498 | ) | 426 | ||||||||||||||||||
$ | 16,015 | $ | (4,334 | ) | $ | 11,681 | $ | 15,966 | $ | (2,736 | ) | $ | 13,230 | ||||||||||||||
Goodwill
|
Indefinite
|
$ | 51,754 | $ | - | $ | 51,754 | $ | 51,019 | $ | - | $ | 51,019 |
Certain
intangible assets are subject to foreign currency translation and the
translation adjustment is recorded as a component of accumulated other
comprehensive income within stockholders’ equity in the consolidated balance
sheets. During the period ended September 30, 2010, the carrying amounts of
certain intangible assets were adjusted as a result of foreign currency
translations.
- 10
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Intangible
asset amortization expense was approximately $1.6 million for each of the
periods ended September 30, 2010 and 2009. The following table reflects
the estimated future amortization expense related to intangible assets as of
September 30, 2010 (in thousands):
Year Ended December 31,
|
||||
2010
|
$ | 1,513 | ||
2011
|
1,652 | |||
2012
|
1,633 | |||
2013
|
1,383 | |||
2014
|
1,362 | |||
Thereafter
|
4,138 | |||
$ | 11,681 |
Goodwill
Goodwill
represents the difference, if any, between the purchase price and the fair value
of the net assets acquired in a business combination. During the nine
months ended September 30, 2010, goodwill was adjusted as a result of foreign
currency translations totaling approximately $735,000 due to fluctuations in the
Korean Won, the local currency of Ener1 Korea, which the Company acquired in
October 2008.
Accounts
Payable and Accrued Expenses
The
components of accounts payable and accrued expenses were as follows (in
thousands):
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Accounts
payable
|
$ | 19,330 | $ | 9,847 | ||||
Accrued
other
|
3,137 | 1,915 | ||||||
Accrued
financing fee
|
1,800 | - | ||||||
Accrued
compensation and benefits
|
1,585 | 1,376 | ||||||
Customer
advances
|
1,025 | 1,130 | ||||||
Product
warranty reserves
|
78 | - | ||||||
$ | 26,955 | $ | 14,268 |
The
accounts payable balance at September 30, 2010 includes approximately $1.4
million related to equipment purchases made under the ABMI grant. The
accrued financing fee represents minimum fees for advisory services payable by
Ener1. See Note 6 - Current and Long-Term Debt.
- 11
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Product Warranty Reserves
Product
warranty reserves represent the estimated cost of honoring the product warranty
recorded as a component of cost of sales in the period the revenue is
recognized. We began recording these reserves in May 2010 when we began
selling products on which we provide product warranties. We use internal
durability testing data, comparative industry information and industry sources
to develop the estimated liability. If our actual liability for warranty
claims differs from these estimates, adjustments to the product warranty reserve
representing the estimated product warranty liability could have a material
effect on our consolidated financial statements. The components of the
product warranty liability, since May 2010, were as follows (in
thousands):
Nine
Months
|
||||||||
Ended September 30,
|
||||||||
2010
|
2009
|
|||||||
Balance,
beginning of period
|
$ | - | $ | - | ||||
Provision
for new warranties
|
230 | - | ||||||
Balance,
end of period
|
230 | - | ||||||
less:
current portion
|
(78 | ) | - | |||||
Long
term product warranty liability
|
$ | 152 | $ | - |
Other
Long-Term Liabilities
The
components of other long-term liabilities were as follows (in
thousands):
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Product
liability
|
$ | 152 | $ | - | ||||
Severance,
Ener1 Korea
|
1,308 | 1,007 | ||||||
Refundable
government grants, Ener1 Korea
|
395 | 274 | ||||||
$ | 1,855 | $ | 1,281 |
Net loss
per share - basic is calculated by dividing net loss by the weighted average
number of common shares outstanding during the period. Net loss per share -
diluted is calculated by including in the number of shares outstanding the
number of common shares potentially issuable if in-the-money options or warrants
are exercised or in-the-money convertible debt is converted into common
stock and the effect of the exercise or conversion on the net loss per
share. In addition, in calculating net loss per share-diluted we assume
in-the-money warrants containing dilution protection features are exercised,
which may cause the gain or loss on derivatives to increase or decrease, which
may, in turn cause the net loss per share-diluted, if dilutive, to increase or
decrease. Lastly, in calculating net loss per share-diluted we assume the
Ener1 Put Option is exercised, which may cause the gain or loss on financial
instruments to increase or decrease, which may in turn, cause the net loss per
share-diluted, if dilutive, to increase or decrease.
- 12
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Following
is a reconciliation of net loss attributable to Ener1 and weighted average
common shares outstanding for purposes of calculating basic and diluted loss per
share (in thousands, except per share data):
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
loss for basic loss per share
|
$ | (26,949 | ) | $ | (15,837 | ) | $ | (57,897 | ) | $ | (36,006 | ) | ||||
Adjustment
for derivative gain
|
- | - | (3,146 | ) | (843 | ) | ||||||||||
Net
loss for diluted loss per share
|
$ | (26,949 | ) | $ | (15,837 | ) | $ | (61,043 | ) | $ | (36,849 | ) | ||||
Weighted
average number of common shares outstanding:
|
||||||||||||||||
Basic
|
148,632 | 117,238 | 135,200 | 114,851 | ||||||||||||
Effect
of dilutive securities:
|
||||||||||||||||
Certain
warrants
|
- | - | 55 | 41 | ||||||||||||
Diluted
|
148,632 | 117,238 | 135,255 | 114,892 | ||||||||||||
Loss
per common share attributable to Ener1, Inc.:
|
||||||||||||||||
Basic
|
$ | (0.18 | ) | $ | (0.14 | ) | $ | (0.43 | ) | $ | (0.31 | ) | ||||
Diluted
|
$ | (0.18 | ) | $ | (0.14 | ) | $ | (0.45 | ) | $ | (0.32 | ) |
The
following amounts were not included in the calculation of net loss per share
because their effects were anti-dilutive or the securities were not in the money
(in thousands):
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Stock
options
|
3,392 | 3,568 | 2,021 | 3,153 | ||||||||||||
Warrants
|
20,476 | 19,376 | 18,895 | 18,473 | ||||||||||||
Restricted
stock
|
1,490 | 40 | 1,490 | 40 | ||||||||||||
Convertible
instruments
|
2,779 | 2,320 | 2,779 | 1,676 | ||||||||||||
Total
|
28,137 | 25,304 | 25,185 | 23,342 |
Note
5 – Other Income (Expense)
The
components of other income (expense) were as follows (in
thousands):
Three
Months
|
Nine
Months
|
|||||||||||||||
Ended September 30,
|
Ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
$ | (1,201 | ) | $ | (1,525 | ) | $ | (7,563 | ) | $ | (4,261 | ) | ||||
Debt
conversion expense
|
(13,245 | ) | - | (13,245 | ) | - | ||||||||||
Gain
(loss) on derivative liabilities
|
(838 | ) | (1,487 | ) | 3,145 | 2,430 | ||||||||||
Gain
(loss) on financial instruments
|
(467 | ) | - | 509 | - | |||||||||||
Foreign
currency loss
|
(579 | ) | (452 | ) | (20 | ) | (84 | ) | ||||||||
Other
|
55 | 121 | 463 | 283 | ||||||||||||
Total
other income (expense)
|
$ | (16,275 | ) | $ | (3,343 | ) | $ | (16,711 | ) | $ | (1,632 | ) |
- 13
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On August
3, 2010, we converted $18.4 million of principal and accrued interest under the
convertible line of credit with Bzinfin into 5,398,785 unregistered shares of
Ener1 common stock at an amended conversion price of $3.40 per share, resulting
in debt conversion expense of $6.8 million. In addition, as an
inducement to convert, Ener1 issued to Bzinfin warrants to purchase up to
approximately 2.3 million shares of Ener1 common stock, resulting in debt
conversion expense of $5.9 million. Ener1 further agreed to make a
cash payment equal to the withholding taxes that Bzinfin must pay with respect
to the total interest paid under the line of credit of approximately $527,000
which was recorded as debt conversion expense. See Note 12 – Related
Party Transactions.
Note
6 – Current and Long-Term Debt
September 30, 2010
|
December 31, 2009
|
|||||||||||||||
Current
|
Long-Term
|
Current
|
Long-Term
|
|||||||||||||
8.25%
Senior Unsecured Notes due March 2013
|
$ | 16,798 | $ | 29,223 | $ | - | $ | - | ||||||||
6.00%
Senior Convertible Notes due August 2015
|
38 | 10,000 | - | - | ||||||||||||
8.50%
Convertible Bonds due January 2013
|
- | 420 | - | 385 | ||||||||||||
Capital
lease obligations
|
2,854 | 1,104 | 2,372 | 2,701 | ||||||||||||
Bank
loans
|
11,875 | 4,379 | 13,001 | 4,282 | ||||||||||||
$ | 31,565 | $ | 45,126 | $ | 15,373 | $ | 7,368 |
Senior
Unsecured Notes
On
September 7, 2010, Ener1 completed the sale of $55.0 million of Senior Unsecured
Notes (the Notes), 960,926 shares of Ener1 common stock (the Common Stock) and
warrants to purchase up to 2,882,776 shares of Ener1 common stock at an exercise
price of $3.82 per share (the Warrants) for aggregate consideration of $55.0
million.
The
principal of the Notes is payable in ten equal quarterly installments, with the
first installment due January 3, 2011.
We may
pay amounts due on the Notes in cash, or, if certain conditions are met, shares
of Ener1 common stock or a combination of cash and shares of Ener1 common
stock. The stated interest rate on the note is 8.25%, but the
payments for principal and interest due on any payment date will be computed to
give effect to recent share prices, valuing the shares of our common stock at
91.75% of a weighted average share price over a pricing period ending shortly
before the payment date.
We are
required to register the resale under the Securities Act of 1933 of the maximum
number of shares of Ener1 common stock we may elect to issue in payment of
amounts due under the Notes. We deposited approximately $14.5
million, representing the first two installment payments due on the Notes, in a
restricted cash account to secure these payments until a registration statement
covering the resale of the shares of Ener1 common stock that we may issue in
payment of amounts due under the Notes is declared effective.
The
estimated fair value of the Common Stock and the Warrants has been recorded as
debt discount and is amortized to interest expense, using the effective interest
method, over the term of the Notes. The Warrants are immediately
exercisable and expire five years from the date of grant. The
Warrants contain certain anti-dilution protection features and have been
recognized in the accompanying consolidated balance sheet as a derivative
liability. See Note 7, Derivative Instruments and Fair Value of
Financial Instruments.
- 14
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
components of the Notes as of September 30, 2010 are as follows (in
thousands):
Face
value of the Notes
|
$ | 55,000 | ||
Debt
discount, net
|
(9,277 | ) | ||
Accrued
interest
|
298 | |||
Balance,
end of period
|
46,021 | |||
less:
current portion
|
(16,798 | ) | ||
Long-term
portion
|
$ | 29,223 |
The
amortization of debt discount, using the effective interest method, during the
period ended September 30, 2010 and the future amortization over the remaining
life of the Notes are as follows (in thousands):
Original
discount
|
$ | 9,571 | ||
Amortized
to expense
|
(294 | ) | ||
Balance,
end of period
|
$ | 9,277 | ||
Future
Amortization:
|
||||
Year
ended December 31, 2010
|
$ | 1,142 | ||
Year
ended December 31, 2011
|
4,839 | |||
Year
ended December 31, 2012
|
3,013 | |||
Year
ended December 31, 2013
|
283 | |||
$ | 9,277 |
Financing
costs associated with the sale of the Notes totaling approximately $2.3 million
have been recorded as deferred financing costs and are being amortized to
interest expense over the term of the Notes. Financing costs of
approximately $62,000 were expensed during the period ended September 30, 2010
and the remaining $2.3 million will be expensed as follows: $147,000 during the
remainder of 2010, $1.2 million in 2011, $848,000 in 2012 and $107,000 in
2013.
Senior
Convertible Notes
During
the period ended September 30, 2010, Ener1 sold $10.0 million in Senior
Convertible Notes (the Convertible Notes) to Itochu Corporation, a Japanese
corporation (Itochu). The Convertible Notes bear interest at 6.0% per
annum and the interest is payable in arrears on February 26th and August 26th of
each year, commencing on February 26, 2011. Itochu has the right to
convert all or any part of the outstanding principal and unpaid interest into
shares of Ener1 common stock at a conversion price of $3.612 per
share. The Convertible Notes mature on August 27, 2015.
Convertible
Bonds
On
January 25, 2008, Ener1 Korea issued convertible bonds with an aggregate
principal amount of $9.2 million maturing on January 25, 2013 (Ener1 Korea
Convertible Bonds). Interest accrues on the Ener1 Korea Convertible
Bonds at 8.5% per annum and is payable at maturity. Prior to December
2012, principal due under the bonds may be converted by the holder into shares
of Ener1 Korea common stock at a fixed conversion price of 750 Korean Won per
share. Upon conversion, the principal amount to be converted is
translated from United States Dollars to Korean Won, using the exchange rate in
effect on the date of conversion.
- 15
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Ener1
acquired 96% of the principal amount of the Ener1 Korea Convertible Bonds in
October 2008 in connection with Ener1’s acquisition of Ener1
Korea. In December 2009, Ener1 converted $6.9 million of the
outstanding principal of the Ener1 Korea Convertible Bonds into shares of Ener1
Korea common stock. As of September 30, 2010, approximately $2.6
million in principal and accrued interest of the Ener1 Korea Convertible Bonds
was outstanding and is convertible into up to 2,822,915 shares of Ener1 Korea
common stock. We owned approximately 84% of the outstanding principal
balance of the Ener1 Korea Convertible Bonds at September 30, 2010 and have
eliminated the principal and related accrued interest in
consolidation.
Credit
Facility
On March
23, 2010, Ener1 entered into a Credit Agreement with Credit Suisse AG, Cayman
Islands Branch (Credit Suisse), as lender and borrowed $15.0 million for general
corporate purposes (the Credit Facility), which was repaid on June 23,
2010. Interest was payable monthly at the London Interbank Offering
Rate (LIBOR) plus 5% per annum.
Commitment
fees and legal fees associated with closing the Credit Facility totaling
approximately $273,000 have been recorded as deferred financing
costs. In addition, in connection with the Credit Facility, Ener1
issued to Credit Suisse warrants to purchase up to 1,046,511 shares of Ener1
common stock at an exercise price of $4.30 per share. The warrants
are immediately exercisable and expire on March 23, 2012. Ener1 used
a Black-Scholes pricing model to value the warrants and recorded the fair value
of $2.2 million as deferred financing costs. See Note 7, Derivative
Instruments and Fair Value of Financial Instruments. Total financing costs
incurred of approximately $2.4 million were amortized to interest expense over
the term of the Credit Facility.
On March
23, 2010, Ener1 entered into an Engagement Letter with Credit Suisse for
advisory services that obligates Ener1 to offer Credit Suisse the lead role in
any future public offerings of Ener1 securities and entitles Credit Suisse to
receive minimum fees of $1.8 million prior to September 23, 2011 (Credit Suisse
Engagement Letter). This minimum fee is payable whether or not Ener1
undertakes a public offering.
Bank
loans
Ener1
Korea maintains bank loans denominated in Korean Won, consisting of trade
financing agreements and letters of credit. The total amount
available at September 30, 2010 under these loans was approximately $14.9
million, of which $10.2 million was outstanding, based on the period-end
exchange rate of 1,142.00 Korean Won per United States Dollar. The
amounts are scheduled for repayment at various times throughout 2010 and
2011.
Ener1
Korea has an equipment loan that is also denominated in Korean
Won. The total amount available and outstanding at September 30, 2010
was approximately $4.4 million. The loan bears interest at 7.85% and
is scheduled to mature in October 2011.
Ener1
Korea’s wholly-owned subsidiary Emerging Power, Inc., has a $2.0 million line of
credit with a commercial bank that is denominated in United States
Dollars. At September 30, 2010, $1.7 million was outstanding under
this line of credit which is scheduled to mature in June 2011.
Certain
bank deposits, land, buildings and equipment owned by Ener1 Korea and Emerging
Power, Inc. are pledged as collateral for their respective bank
loans.
- 16
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
7 - Derivative Instruments and Fair Value of Financial Instruments
We record
the fair value of derivative instruments and financial instruments in our
consolidated balance sheet and reflect the changes in fair value as gain or loss
on derivative liabilities and financial instruments. Our derivative
instruments are not designated as hedging instruments.
Derivative
Instruments
We issued
freestanding warrants in connection with capital raising activity during 2004
and 2005 that contained dilution protection features requiring exercise
price adjustments if we issued securities deemed to be dilutive to the warrants
(2004 Warrants and 2005 Warrants, respectively). Prior to January 1, 2009, these
warrants were classified in equity. After evaluating the application
of changes in US GAAP, the 2004 Warrants and 2005 Warrants were no longer deemed
to be indexed to Ener1’s common stock and on January 1, 2009 were reclassified
as a derivative liability.
In March
2010, in connection with the Credit Facility, we issued warrants to Credit
Suisse (Credit Suisse Warrants) and in September 2010, in connection with the
sale of the Notes, we issued warrants to purchase Ener1 common stock to the
purchasers of the Notes (2010 Warrants). The Credit Suisse Warrants
and the 2010 Warrants contain dilution protection features requiring exercise
price adjustments if we issue securities that are deemed to be dilutive to the
warrants.
In
accordance with applicable accounting guidance, the conversion feature of the
Ener1 Korea Convertible Bonds was bifurcated and recorded as a derivative
liability on January 1, 2009. As foreign currency rates
fluctuate, the number of shares of Ener1 Korea stock to be issued upon
conversion fluctuates.
Financial
Instruments
In May
2010, in connection with our investment in Think Holdings, Ener1 agreed that
certain investors that purchased Think Holdings’ Series B Convertible Preferred
Stock (Series B Stock) could require Ener1 to issue shares of Ener1 common stock
to the investors in exchange for their shares of Series B Stock and half of
their warrants to purchase Series B Stock (the Ener1 Put Option). See
Note 12, Related Party Transactions.
When an
investor exercises its Ener1 Put Option, each share of Series B Stock will have
a stated value of $1.67 per share. The Ener1 common stock issued in
exchange for Series B Stock will be valued at the greater of (i) the preceding
15-day volume weighted average price of Ener1 common stock or (ii) $4.00 per
share. Investors have until May 2011 to exercise the Ener1 Put Option
and, upon exercise, would receive unregistered shares of Ener1 common
stock. The total amount of Ener1 common stock issuable upon exercise
of the Ener1 Put Option is capped at $27.5 million.
Lattice Valuation
Model
Freestanding
Warrants
We valued
the 2004 Warrants and 2005 Warrants using a lattice valuation model, for which
management understands the methodologies, with the assistance of a valuation
consultant. This model incorporates factors such as the price of Ener1’s common
stock, contractual terms of the warrants, expiration date of the warrants, and
risk-free interest rates, as well as assumptions about future financings by
Ener1, volatility of Ener1 common stock, and warrant holder behavior on key
dates, including warrant exercise dates and period end reporting
dates. These assumptions are reviewed quarterly and are subject to
change. Changes to these assumptions could materially affect
management’s estimate of the fair value of the 2004 Warrants and 2005
Warrants.
During
the period ended September 30, 2010, certain 2005 Warrants were exercised and
the remaining 2005 Warrants expired. As of the respective exercise or
expiration dates, these 2005 Warrants were no longer treated as derivative
liabilities. The fair value of the derivative liability associated
with the 2005 Warrants that were exercised was marked to market on the date of
exercise and a gain or loss on derivative liability was recorded, as
applicable. The balance of the derivative liability associated with
the 2005 Warrants that were exercised of $297,000 was recorded as a contribution
to paid in capital on the date of exercise.
- 17
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Our
management estimates that the fair value of the derivative liability associated
with the 2004 Warrants that remain outstanding as of September 30, 2010 is
approximately $3.5 million. Some of the key assumptions on which this
estimate is based include, but are not limited to, projected annual volatility
of Ener1 common stock of 64% and assumptions that holders of the 2004 Warrants
will exercise the warrants when Ener1’s common stock price is equal to 200% of
the exercise price.
Financial
Instruments
With the
assistance of a valuation consultant, we valued the Ener1 Put Option using a
lattice valuation model, for which management understands the methodologies, in
which the value of Ener1 common stock and the value of Series B Stock is
projected and correlated to determine if the holder of the Ener1 Put Option
would exercise the put right. This model also incorporates factors
such as the volatility of Ener1’s common stock, contractual terms of the Ener1
Put Option, and the expiration date of the Ener1 Put Option, as well as the
restriction on the resale of the Ener1shares received when the put right is
exercised. Because the shares of Series B Stock are not publicly
traded, the values of the Series B Stock and warrants were determined using
recent investments in Think Holdings and the average stock prices of 14
comparable companies that operate in the same industry as, and are similar in
size to, Think Holdings. Volatility of the Series B Stock was
estimated using the average volatility of the common stock of the same 14
comparable companies.
Our
management estimates that the fair value of the Ener1 Put Option is
approximately $4.4 million as of September 30, 2010. The key
assumptions on which this estimate is based include, but are not limited to,
projected annual volatility of Ener1 common stock of 64%, a projected annual
volatility of Series B Stock of 172% and a correlation coefficient of 0.4, all
of which relate to the determination of whether the holder of the Ener1 Put
Option would exercise the put right.
Black-Scholes Valuation
Model
Freestanding
Warrants
We use a
Black-Scholes pricing model to determine the fair value of the Credit Suisse
Warrants and the 2010 Warrants. This model uses market sourced inputs
such as interest rates, stock price and volatility, the selection of which
requires management’s judgment.
The fair
value of the Credit Suisse Warrants on key dates, including the issuance date
and period end reporting dates was estimated using the following
inputs:
Volatility
|
Interest Rate
|
Stock Price
|
Term
in
Years
|
|||||||||||||
March
23, 2010
|
84.9 | % | 1.0 | % | $ | 4.44 | 2.0 | |||||||||
March
31, 2010
|
85.0 | % | 1.0 | % | $ | 4.73 | 2.0 | |||||||||
June
30, 2010
|
84.5 | % | 0.6 | % | $ | 3.38 | 1.7 | |||||||||
September
30, 2010
|
60.7 | % | 0.4 | % | $ | 3.68 | 1.5 |
Based on
these inputs, the derivative liability associated with the Credit Suisse
Warrants as of September 30, 2010 was $973,000 and the gain on
derivative liability for the period ended September 30, 2010 was approximately
$314,000.
The fair
value of the 2010 Warrants on key dates, including the issuance date and period
end reporting dates was estimated using the following inputs:
Volatility
|
Interest Rate
|
Stock Price
|
Term
in
Years
|
|||||||||||||
September
7, 2010
|
95.6 | % | 1.4 | % | $ | 3.21 | 5.0 | |||||||||
September
30, 2010
|
95.3 | % | 1.3 | % | $ | 3.68 | 4.9 |
- 18
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Based on
these inputs, the derivative liability associated with the 2010 Warrants as of
September 30, 2010 was $7.6 million and the loss on derivative liability for the
period ended September 30, 2010 was approximately $1.1 million.
Ener1
Korea Convertible Bonds
We use a
Black-Scholes pricing model to determine the fair value of the Ener1 Korea
Convertible Bonds. This model uses market sourced inputs such as interest
rates, stock price and volatility, the selection of which requires management’s
judgment. Because the bonds are convertible into shares of Ener1 Korea
common stock, stock prices were estimated using the average stock price of four
comparable Korean companies which operate in the same industry as, and are
similar in size to, Ener1 Korea, with a 30% liquidity discount. Volatility
of the Ener1 Korea common stock was estimated using the average volatility of
the common stock of the same four comparable Korean companies. Interest
rates represent the Korean government bond rate for securities with a maturity
that approximates the estimated expected life of the Ener1 Korea Convertible
Bonds.
The fair
value of the Ener1 Korea Convertible Bonds on period end reporting dates was
estimated using the following inputs:
Volatility
|
Interest Rate
|
Stock Price
|
Term
in
Years
|
|||||||||||||
December
31, 2009
|
61.2 | % | 4.9 | % | $ | 0.43 | 3.1 | |||||||||
March
31, 2010
|
60.7 | % | 4.5 | % | $ | 0.42 | 2.8 | |||||||||
June
30, 2010
|
61.4 | % | 4.4 | % | $ | 0.45 | 2.6 | |||||||||
September
30, 2010
|
60.8 | % | 3.7 | % | $ | 0.48 | 2.3 |
We own a
percentage of the outstanding principal balance of the convertible bonds as of
September 30, 2010, and as a result have eliminated 90% of the related
derivative liability and the loss on derivative liability in
consolidation. Based on these assumptions, the remaining derivative
liability as of September 30, 2010 is $28,000 and the gain on derivative
liability for the period ended September 30, 2010 was approximately
$1,000.
Fair
Value of Financial Instruments
Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. A fair value hierarchy is used
which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The three levels of
inputs that may be used to measure fair value are:
Level 1 – Quoted prices
in active markets for identical assets or liabilities.
Level 2 – Observable
inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.
Level 3 – Unobservable
inputs that are supported by little or no market activity and that are financial
instruments whose values are determined using pricing models, discounted cash
flow methodologies, or similar techniques, as well as instruments for which the
determination of fair value requires significant judgment or estimation. Our
Level 3 liabilities as of September 30, 2010 consist of the 2004 Warrants,
Ener1 Put Option, Credit Suisse Warrants, 2010 Warrants and Ener1 Korea
Convertible Bonds.
- 19
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Financial Assets and
Liabilities Measured at Fair Value on a Recurring Basis
The
following table summarizes the financial assets and liabilities measured at fair
value during the period ended September 30, 2010 (in thousands):
Carrying
|
Fair
Value Measurements Using
|
|||||||||||||||||||
Value
|
Level
1
|
Level
2
|
Level
3
|
Total
|
||||||||||||||||
Warrant
derivative
|
$ | 12,054 | $ | - | $ | - | $ | 12,054 | $ | 12,054 | ||||||||||
Convertible
bond derivative
|
28 | - | - | 28 | 28 | |||||||||||||||
Total
Derivative Liabilities
|
$ | 12,082 | $ | - | $ | - | $ | 12,082 | $ | 12,082 | ||||||||||
Ener1
Put Option
|
$ | 4,436 | $ | - | $ | - | $ | 4,436 | $ | 4,436 |
Level 3
Valuation Techniques
The
following table provides a summary of the changes in fair value, including net
transfers in and/or out, of all financial instruments measured at fair value on
a recurring basis using significant unobservable inputs (in
thousands):
Convertible
|
Ener1
|
|||||||||||||||
Warrants
|
Bonds
|
Put
Option
|
Total
|
|||||||||||||
Balance,
January 1, 2010
|
$ | 6,842 | $ | 29 | $ | - | $ | 6,871 | ||||||||
Total
realized/unrealized (gains) or losses:
|
||||||||||||||||
Included in other income and expense
|
(3,144 | ) | (1 | ) | (509 | ) | (3,654 | ) | ||||||||
Included in other comprehensive income
|
- | - | - | - | ||||||||||||
Included in stockholders' equity
|
(297 | ) | - | - | (297 | ) | ||||||||||
Purchases,
issuances and settlements
|
8,653 | - | 4,945 | 13,598 | ||||||||||||
Balance,
September 30, 2010
|
$ | 12,054 | $ | 28 | $ | 4,436 | $ | 16,518 |
Ener1
Korea may from time to time hold derivative instruments for managing exposure to
foreign currency primarily to hedge against the foreign exchange risk arising
from accounts receivable from domestic subsidiaries. These derivative
instruments are measured at fair value as they are not designated as hedges
based on the criteria established under US GAAP, and gains or losses from
changes in the fair value are recognized in earnings.
In
January 2010, we entered into an Open Market Sale Agreement (Open Market Sale
Agreement) with Jefferies & Company, Inc. (Jefferies), engaging Jefferies to
sell, on our behalf, shares of Ener1 common stock with an aggregate sales price
of up to $60.0 million. Sales of the shares are executed by means of ordinary
brokers’ transactions on the Nasdaq Global Market at market prices, privately
negotiated transactions, crosses or block transactions. Under the terms of
the Open Market Sale Agreement, we could also sell shares to Jefferies as a
principal for its own account at a price agreed upon at the time of sale.
The compensation to Jefferies for sales of common stock sold pursuant to the
Open Market Sale Agreement is 3.0% of the gross proceeds of the sales price per
share.
We began
selling shares under the Open Market Sale Agreement in February 2010 and through
September 30, 2010 we sold 2,069,250 shares for an aggregate purchase price of
$8.2 million, at an average price of $3.94 per share. After deducting fees
and expense of $357,000, we received net proceeds of $7.8 million from the sale
of these shares.
- 20
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
9 – Stock-Based Compensation
At
September 30, 2010, we had seven active stock-based compensation plans which
provide for the granting of incentive and non-qualified stock options,
restricted stock and bonuses to officers, directors, employees and
consultants. The Compensation Committee of the Board of Directors
administers the plans and has the authority to determine the recipients to whom
awards will be made, the terms of the vesting and forfeiture, the amounts of the
awards and other terms. Under the terms of the plans, the option exercise
price approved by the Compensation Committee shall not be less than the fair
market value of Ener1 common stock at the date of grant.
Performance
options are earned based on achievement of specifically identified performance
criteria and are subject to forfeiture if such performance criteria are not
met. These options usually vest ratably over a three year period, but
cannot be exercised unless the options are both earned and vested. We also
award incentive options from time to time which generally vest over a three or
five year period. Compensation expense is recorded on a straight-line
basis over the vesting periods and is based on the amount of awards expected to
be earned and vested.
We grant
restricted stock from time to time to certain employees. The restrictions
may be based on the passage of time or the achievement of specifically
identified performance criteria provided the recipient remains an employee of
the Company. Compensation expense is determined at the grant date, based
on the closing price of our common stock, and is recorded on a straight-line
basis over the restriction period.
Compensation
expense (net of estimated forfeitures) related to awards under our stock-based
compensation plans for the periods ended September 30, 2010 and 2009 was
approximately $3.2 million and $3.5 million, respectively. The total
unrecognized compensation expense (net of estimated forfeitures) related to
non-vested awards, as of September 30, 2010 is approximately $8.1 million and is
expected to be expensed in future years as follows (in thousands):
2010
|
$ | 949 | ||
2011
|
2,933 | |||
2012
|
2,281 | |||
2013
|
1,170 | |||
2014
|
529 | |||
Thereafter
|
230 | |||
$ | 8,092 |
If there
are any modifications or cancellations of the underlying non-vested awards, we
may be required to accelerate, increase or cancel any remaining unearned
compensation expense. Future compensation expense and unrecognized compensation
expense may increase to the extent that additional equity awards are
granted.
- 21
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A summary
of the activity in our stock option plans is as follows:
Options
|
Weighted
average
exercise
price
|
Weighted
average
remaining
contractual
life
|
Aggregate
intrinsic
value
|
|||||||||||||
Balance,
January 1, 2010
|
4,473,660 | $ | 3.80 |
4.0
|
$ | 11,840,919 | ||||||||||
Granted
|
1,335,000 | 3.43 | ||||||||||||||
Exercised
|
(69,810 | ) | 2.47 | |||||||||||||
Forfeited
or expired
|
(207,786 | ) | 5.02 | |||||||||||||
Balance,
September 30, 2010
|
5,531,064 | $ | 3.68 |
4.1
|
$ | 3,653,381 | ||||||||||
Exercisable,
September 30, 2010
|
3,604,267 | $ | 3.56 |
3.2
|
$ | 3,481,558 |
The
intrinsic value of options exercised during the periods ended September 30, 2010
and 2009 was approximately $172,000 and $1.4 million, respectively.
The
weighted average fair value of non-vested options and restricted stock during
the period ended September 30, 2010 is as follows:
Weighted
|
||||||||
Non-vested
|
average
|
|||||||
Options
|
fair
value
|
|||||||
Non-vested,
January 1, 2010
|
1,296,465 | $ | 3.84 | |||||
Granted
|
1,335,000 | 3.43 | ||||||
Vested
|
(496,882 | ) | 5.32 | |||||
Forfeited
|
(207,786 | ) | 5.02 | |||||
Non-vested,
September 30, 2010
|
1,926,797 | $ | 3.18 |
Weighted
|
||||||||
Restricted
|
average
|
|||||||
Stock
|
fair
value
|
|||||||
Non-vested,
January 1, 2010
|
40,000 | $ | 6.19 | |||||
Granted
|
1,460,000 | 3.51 | ||||||
Vested
|
(10,000 | ) | 4.05 | |||||
Non-vested,
September 30, 2010
|
1,490,000 | $ | 3.57 |
- 22
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following key
assumptions:
2010
|
||
Expected
term
|
4 -
6 yrs
|
|
Risk
free interest rate
|
1.3%
- 2.17%
|
|
Expected
volatility
|
91.2%
- 105.4%
|
|
Expected
dividend yield
|
0%
|
Expected
term
The
expected term represents the period over which the stock options are expected to
be outstanding. It has been determined using the “simplified method” described
in Staff Accounting Bulletin No. 110, which is based on a calculation that
determines the midpoint between the vesting date and the end of the contractual
term.
Risk-free
interest rate
The
risk-free interest rate assumption is based on the implied yield currently
available on United States treasury bonds with a remaining term equivalent to
the expected term of the stock options.
Expected
volatility
The
expected volatility assumptions are based upon the weekly closing stock price of
Ener1’s common stock since January 2002, when Ener1 underwent a change in
control. We determined that share prices prior to January 2002 do not
reflect the ongoing business valuation of our current operations.
Dividend
yield
We do not
intend to pay dividends on our common stock in the foreseeable future.
Accordingly, we use a dividend yield of zero in our assumptions.
The
following table summarizes stock option information for options outstanding at
September 30, 2010:
Options
Outstanding
|
||||||||||||||||
Exercise price
range
|
Number
of
options
|
Weighted
average
remaining
contractual life
|
Weighted
average
exercise price
|
Aggregate
instrinsic
value
|
||||||||||||
$0.49
- $1.61
|
811,945 |
1.3
|
$ | 1.60 | $ | 1,785,718 | ||||||||||
$2.10
- $4.20
|
3,181,546 |
5.1
|
3.05 | 1,867,663 | ||||||||||||
$4.83
- $4.90
|
480,644 |
2.6
|
4.90 | - | ||||||||||||
$5.18
- $6.79
|
869,071 |
4.0
|
6.51 | - | ||||||||||||
$7.15
- $7.63
|
187,858 |
3.0
|
7.31 | - | ||||||||||||
Totals
|
5,531,064 |
4.1
|
$ | 3.68 | $ | 3,653,381 |
- 23
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following table summarizes stock option information for options exercisable at
September 30, 2010:
Options
Exercisable
|
||||||||||||||||
Exercise price
range
|
Number
of
options
|
Weighted
average
remaining
contractual life
|
Weighted
average
exercise price
|
Aggregate
instrinsic
value
|
||||||||||||
$0.49
- $1.61
|
769,010 |
1.3
|
$ | 1.60 | $ | 1,696,849 | ||||||||||
$2.10
- $4.20
|
1,664,640 |
3.9
|
2.68 | 1,784,709 | ||||||||||||
$4.83
- $4.90
|
363,712 |
2.6
|
4.90 | - | ||||||||||||
$5.18
- $6.79
|
702,618 |
4.1
|
6.55 | - | ||||||||||||
$7.15
- $7.63
|
104,287 |
2.8
|
7.38 | - | ||||||||||||
Totals
|
3,604,267 |
3.2
|
$ | 3.56 | $ | 3,481,558 |
Note
10 - Warrants
A summary
of the activity for warrants is as follows:
Warrants
|
Weighted
average
exercise price
|
Weighted
average
remaining
contractual life
|
Aggregate
intrinsic value
|
|||||||||||||
Balance,
January 1, 2010
|
27,607,246 | $ | 4.23 |
2.2
|
$ | 75,389,036 | ||||||||||
Granted
|
16,927,434 | 4.08 | ||||||||||||||
Exercised
|
(714,287 | ) | 5.39 | |||||||||||||
Expired
|
(159,784 | ) | 5.17 | |||||||||||||
Balance,
September 30, 2010
|
43,660,609 | $ | 4.06 |
2.8
|
$ | 25,946,229 | ||||||||||
Exercisable,
September 30, 2010
|
33,233,939 | $ | 4.06 |
2.0
|
$ | 25,209,729 |
The
weighted average fair value of non-vested warrants during the period ended
September 30, 2010 is as follows:
Weighted
|
||||||||
Non-vested
|
average
|
|||||||
Warrants
|
fair
value
|
|||||||
Non-vested,
January 1, 2010
|
- | $ | 0.00 | |||||
Granted
|
10,426,670 | 4.07 | ||||||
Vested
|
- | 0.00 | ||||||
Forfeited
|
- | 0.00 | ||||||
Non-vested,
September 30, 2010
|
10,426,670 | $ | 4.07 |
- 24
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The fair
value of each warrant granted during the first, second and third quarters of
2010 was estimated on the date of the grant using the Black-Scholes option
pricing model with the following key assumptions:
2010
|
||
Expected
term (in years)
|
2 -
5.5
|
|
Risk
free interest rate
|
0.91%
- 1.98%
|
|
Expected
volatility
|
84%
- 108%
|
|
Dvidend
yield
|
0%
|
Expected
term
The
expected term represents the period over which the warrants are expected to be
outstanding.
Risk-free
interest rate
The
risk-free interest rate assumption is based on the implied yield currently
available on United States treasury bonds with a remaining term equivalent to
the expected term of the warrants.
Expected
volatility
The
expected volatility assumptions are based upon the weekly closing stock price of
Ener1’s common stock since January 2002, when Ener1 underwent a change in
control. We determined that share prices prior to January 2002 do not
reflect the ongoing business valuation of our current operations.
Dividend
yield
We do not
intend to pay dividends on our common stock in the foreseeable future.
Accordingly, we use a dividend yield of zero in our assumptions.
The
following table summarizes warrant information for warrants outstanding at
September 30, 2010:
Warrants
Outstanding
|
||||||||||||||||
Exercise
price range
|
Number
of
warrants
|
Weighted
average
remaining
contractual life
|
Weighted
average
exercise price
|
Aggregate
instrinsic
value
|
||||||||||||
$2.10
- $2.80
|
18,166,712 |
1.5
|
$ | 2.31 | $ | 24,967,863 | ||||||||||
$4.83
- $5.95
|
17,820,292 |
4.7
|
4.09 | 978,366 | ||||||||||||
$7.50
- $8.88
|
7,058,217 |
1.3
|
7.61 | - | ||||||||||||
$10.50
- $17.57
|
615,388 |
3.6
|
14.62 | - | ||||||||||||
43,660,609 |
2.8
|
$ | 4.06 | $ | 25,946,229 |
- 25
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following table summarizes warrant information for warrants exercisable at
September 30, 2010:
Warrants
Exercisable
|
||||||||||||||||
Exercise
price range
|
Number
of
warrants
|
Weighted
average
remaining
contractual life
|
Weighted
average
exercise price
|
Aggregate
instrinsic
value
|
||||||||||||
$2.10
- $2.80
|
18,166,712 |
1.5
|
$ | 2.31 | $ | 24,967,863 | ||||||||||
$4.83
- $5.95
|
7,393,622 |
3.8
|
4.12 | 241,866 | ||||||||||||
$7.50
- $8.88
|
7,058,217 |
1.3
|
7.61 | - | ||||||||||||
$10.50
- $17.57
|
615,388 |
3.6
|
14.62 | - | ||||||||||||
33,233,939 |
2.0
|
$ | 4.06 | $ | 25,209,729 |
Note
11 – Noncontrolling Interests
The
following table reconciles equity attributable to the noncontrolling interests
related to Ener1 Korea, our majority-owned subsidiary (in
thousands):
Nine
Months
|
||||||||
Ended
September 30,
|
||||||||
2010
|
2009
|
|||||||
Balance,
beginning of period
|
$
|
1,807
|
$
|
3,517
|
||||
Net
loss attributable to noncontrolling interests
|
(67
|
)
|
(325
|
)
|
||||
Translation
adjustments
|
2
|
67
|
||||||
Reduction
in noncontrolling interests
|
-
|
(1,354
|
)
|
|||||
Cumulative
effect of change in accounting principle
|
-
|
38
|
||||||
Balance,
end of period
|
$
|
1,742
|
$
|
1,943
|
During
2010, we made cash contributions to Ener1 Korea of approximately $12.0 million,
which increased our ownership interest to 94%, on a fully diluted
basis.
Ener1
Korea has a share-based compensation plan in which stock options to purchase
Ener1 Korea common stock are granted to Ener1 Korea’s directors and employees
who have contributed to Ener1 Korea’s operations.
- 26
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
12 – Related Party Transactions
Investment
in Unconsolidated Entity
On August
24, 2009, we entered into a Securities Investment and Subscription Agreement
(SISA) with Think Holdings, the majority owner of Think Global, a customer of
EnerDel. As of February 28, 2010, we had fulfilled our obligations under
the SISA and purchased 10,826,640 shares of Think Holdings’ Series B Stock for
approximately $18.8 million.
On May 5,
2010, we entered into a second Securities Investment and Subscription Agreement
(Second SISA) with Think Holdings and as of June 14, 2010, we had fulfilled our
obligations under the Second SISA and purchased 7,500,000 shares of Series B
Stock for approximately $11.9 million. In October 2010, we made short-term
working capital loans to Think Holdings totaling $6.4 million, with an interest
rate of 5.0% per annum, scheduled to mature on December 31, 2010.
In
connection with our investment in Think Holdings under the Second SISA, we
agreed to grant the Ener1 Put Option to other investors that purchased Series B
Stock under the Second SISA. In accordance with applicable accounting
standards, in May 2010, we initially recognized the fair value of the Ener1 Put
Option by increasing the investment in unconsolidated entity by approximately
$4.9 million. Subsequently, we measured the fair value of the Ener1
Put Option at September 30, 2010 and recognized $466,000 in loss on financial
instruments during the period ended September 30, 2010. See Note 7,
Derivative Instruments and Fair Value of Financial Instruments.
As of
September 30, 2010, we controlled approximately 33% of the outstanding voting
power in Think Holdings and two directors who serve on the board of directors of
Ener1 also serve on the board of directors of Think Holdings. In
accordance with applicable accounting standards, we have accounted for this
investment under the cost method, at September 30, 2010, as the Series B Stock
is not considered to be equivalent to common stock for accounting
purposes. The components of the investment in unconsolidated entity
are as follows (in thousands):
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Balance,
beginning of period
|
$ | 19,177 | $ | - | ||||
Cash
investment, SISA
|
5,752 | 13,022 | ||||||
Equity
investment
|
- | 5,830 | ||||||
Cash
investment, Second SISA
|
11,867 | - | ||||||
Cash
investment, Other
|
9 | 325 | ||||||
Ener1
Put Option, at inception
|
4,945 | - | ||||||
Balance,
end of period
|
$ | 41,750 | $ | 19,177 |
On
October 25, 2010, an investor that purchased Series B Stock under the Second
SISA exercised its rights under the Ener1 Put Option. The investor
transferred 7,500,000 shares of Series B Stock to Ener1 and the Company issued
3,131,250 unregistered shares of Ener1 common stock to the investor, which
increased our investment in unconsolidated entity by approximately $12.4
million. Ener1 also extended to this investor the right to transfer
to Ener1 an additional 2,706,660 shares of Series B Stock under the same terms
and conditions of the Ener1 Put Option. The investor exercised this
right and on October 25, 2010, transferred such additional shares of Series B
Stock to Ener1 in exchange for 1,130,031 unregistered shares of Ener1 common
stock, which increased our investment in unconsolidated entity by an additional
$4.5 million.
After
taking into consideration the effect of the October 25, 2010 transactions, our
investment in unconsolidated entity totaled approximately $58.6 million and we
controlled approximately 48% of the outstanding voting power of Think
Holdings. Two directors who serve on the board of directors of
Ener1 also serve on the board of directors of Think Holdings. We continue to
monitor our activity with Think Holdings for potential transactions that may
require the consolidation of the accounts of Think Holdings with the accounts of
Ener1.
- 27
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Convertible
Line of Credit
In
February 2010, we borrowed an additional $5.0 million under an existing $30.0
million line of credit extended by Bzinfin and, in accordance with the terms of
the credit agreement, issued to Bzinfin warrants to purchase up to 250,000
shares of Ener1 common stock at an exercise price of $8.25 per
share. These warrants are immediately exercisable and expire in
February 2012. Using a Black-Scholes pricing model, the estimated
fair value of the warrants of $0.3 million was recorded as a reduction in
proceeds and has been accreted to interest expense over the remaining five-month
term of the credit agreement.
We did
not repay the amount outstanding under the line of credit when it matured on
July 1, 2010, as we were in negotiations at such time to amend the conversion
terms of the line of credit. On August 3, 2010, we agreed with
Bzinfin that all the outstanding principal and accrued interest of approximately
$18.4 million under the line of credit would be converted into 5,398,785
unregistered shares of Ener1 common stock at the amended conversion price of
$3.40 per share, resulting in $6.8 million in debt conversion
expense.
In
addition, as an inducement to agree to the amended conversion terms, Ener1
issued to Bzinfin a warrant to purchase up to 863,806 shares of Ener1 common
stock at an exercise price of $3.40 per share (the Class A Warrant) and a
warrant to purchase up to 1,457,672 shares of Ener1 common stock at an exercise
price of $4.25 per share (the Class B Warrant), resulting in $5.9 million in
additional debt conversion expense. The Class A and Class B warrants
are immediately exercisable and expire five years from the date of
issuance.
From July
2, 2010 to August 2, 2010, interest accrued on the outstanding amounts under the
line of credit at an annual rate of 15%. Ener1 agreed to make a cash
payment on behalf of Bzinfin equal to the withholding taxes that Bzinfin must
pay with respect to the total interest paid under the line of credit from
February 2009, the date of inception, to August 2, 2010, the date of conversion,
of approximately $527,000, which was recorded as debt conversion
expense.
Securities
Purchase Agreement with Ener1 Group
On June
1, 2010, Ener1 entered into a Securities Purchase Agreement (June SPA) with
Ener1 Group, which owned approximately 51% of our outstanding common stock as of
such date, before giving effect to the transaction contemplated by the June
SPA. Pursuant to the June SPA, Ener1 Group agreed to purchase
18,678,161 unregistered shares of Ener1 common stock, a warrant to purchase
3,000,000 shares of Ener1 common stock at an exercise price of $3.48 per share
(the Class A Warrant) and a warrant to purchase 5,000,000 shares of Ener1 common
stock at an exercise price of $4.40 per share (the Class B
Warrant). Ener1 Group has agreed that the Class A Warrant and the
Class B Warrant shall not become exercisable until the issuance of the Class A
Warrant and Class B Warrant is approved by the Ener1 shareholders. If such
approval is obtained, the Class A Warrant and Class B Warrant will become
exercisable on the later of December 8, 2010 or the date of shareholder approval
and expire on the later of December 8, 2015, or five years from the date of
shareholder approval.
On June
3, 2010, Ener1 Group disposed of 18,000,000 shares of Ener1 common stock to two
Ener1 shareholders, and effective June 9, 2010 purchased 18,678,161 shares of
Ener1 common stock pursuant to the June SPA for an aggregate purchase price of
$65 million. Ener1 received proceeds from the sale of $63.5 million
after deducting legal fees and expense of approximately $1.5
million.
On
September 21, 2010, Ener1 entered into a Securities Purchase Agreement
(September SPA) with Ener1 Group under which Ener1 Group agreed to purchase
5,665,723 unregistered shares of Ener1 common stock, a warrant to purchase
910,000 shares of Ener1 common stock at an exercise price of $3.53 per share
(the Class C Warrant) and a warrant to purchase 1,516,670 shares of Ener1 common
stock at an exercise price of $4.46 per share (the Class D
Warrant). Ener1 Group has agreed that the Class C Warrant and the
Class D Warrant shall not become exercisable until the issuance of the Class C
Warrant and Class D Warrant is approved by the Ener1 shareholders. If such
approval is obtained, the Class C Warrant and Class D Warrant will become
exercisable on March 21, 2011 and expire on March 21, 2016. The
closing of the transaction pursuant to the September SPA was effective on
October 1, 2010.
- 28
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On
October 1, 2010, Ener1 entered into a Securities Purchase Agreement (October
SPA) with Ener1 Group under which Ener1 Group agreed to purchase 1,083,714
unregistered shares of Ener1 common stock, a warrant to purchase 174,062 shares
of Ener1 common stock at an exercise price of $3.7877 per share (the Class E
Warrant) and a warrant to purchase 290,102 shares of Ener1 common stock at an
exercise price of $4.79 per share (the Class F Warrant). Ener1 Group has agreed
that the Class E Warrant and the Class F Warrant shall not become exercisable
until the issuance of the Class E Warrant and Class F Warrant is approved by the
Ener1 shareholders. If such approval is obtained, the Class E Warrant and Class
F Warrant will become exercisable on April 1, 2011 and expire on April 1, 2016.
The closing of the transaction pursuant to this SPA was effective on October 1,
2010.
Effective
October 1, 2010, pursuant to the September SPA and the October SPA, Ener1 Group
collectively purchased 6,749,437 shares of Ener1 common stock for an aggregate
purchase price of $24.1 million. Ener1 received proceeds from the sale of $23.7
million after deducting legal fees and expenses of approximately $450,000. After
giving effect to the September SPA and the October SPA, Ener1 Group owned
approximately 45% of the outstanding Ener1 common stock as of October 1,
2010.
Ener1
Group obtained the funds to purchase the Ener1 securities under the June SPA,
the September SPA and the October SPA from loans extended by JSC VTB Bank (the
Bank Loan). Ener1 Group has pledged shares of Ener1 common stock that it owns to
JSC VTB Bank to secure these loans, which pledged shares, as of the date of this
Report, represent approximately 40% of the outstanding shares of Ener1 common
stock. Ener1 Group is required to maintain a collateral coverage ratio of 0.4:1
so long as these loans remain outstanding, and in order to do so it may be
required from time to time to pledge additional shares of Ener1 common stock
that it owns. Mr. Boris Zingarevich has personally guaranteed 75% of these
loans.
Note
13 - Segments
Operating
segments are designed to allocate resources internally and provide a framework
for management responsibility. Operating segments are defined as components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance. Our
chief operating decision maker is our Chief Executive Officer.
We have
identified three reportable operating segments: battery, fuel cell and
nanotechnology. The battery business designs, develops and manufactures
high-performance, rechargeable, lithium-ion batteries and battery systems for
energy storage in the transportation market, stationary power market and small
format products market. Our primary products for the transportation market
consist of battery solutions for HEVs, PHEVs, EVs and other vehicles such as
trucks and buses. The fuel cell business develops and markets fuel cells and
fuel cell systems. The nanotechnology business develops nanotechnology related
manufacturing processes and materials.
Transactions
between segments, consisting principally of product sales and purchases, are
recorded at the consummated sales price. The accounting policies of the segments
are the same as those described elsewhere in these footnotes.
The
following table provides summarized financial information regarding our
reportable operating segments (in thousands):
- 29
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
sales:
|
||||||||||||||||
Battery
|
$ | 17,260 | $ | 8,049 | $ | 44,186 | $ | 23,675 | ||||||||
Fuel
Cell
|
2 | 13 | 65 | 6 | ||||||||||||
Nanotechnology
|
- | - | - | - | ||||||||||||
Unallocated
|
- | 55 | 37 | 165 | ||||||||||||
Total
Net Sales
|
$ | 17,262 | $ | 8,117 | $ | 44,288 | $ | 23,846 | ||||||||
Corporate
allocations:
|
||||||||||||||||
Battery
|
$ | 3,415 | $ | 2,610 | $ | 9,045 | $ | 7,443 | ||||||||
Fuel
Cell
|
242 | 230 | 632 | 756 | ||||||||||||
Nanotechnology
|
69 | 61 | 171 | 238 | ||||||||||||
Corporate
|
(3,726 | ) | (2,901 | ) | (9,848 | ) | (8,437 | ) | ||||||||
$ | - | $ | - | $ | - | $ | - | |||||||||
Net
income (loss) attributable to Ener1, Inc.
|
||||||||||||||||
Battery
|
$ | (10,115 | ) | $ | (11,975 | ) | $ | (38,056 | ) | $ | (31,321 | ) | ||||
Fuel
Cell
|
(932 | ) | (894 | ) | (2,695 | ) | (2,875 | ) | ||||||||
Nanotechnology
|
(220 | ) | (253 | ) | (747 | ) | (956 | ) | ||||||||
Reconciling
amounts
|
(15,682 | ) | (2,715 | ) | (16,399 | ) | (854 | ) | ||||||||
Net
loss attributable to Ener1, Inc.
|
$ | (26,949 | ) | $ | (15,837 | ) | $ | (57,897 | ) | $ | (36,006 | ) |
September
30,
|
December
31,
|
|||||||
Assets:
|
2010
|
2009
|
||||||
Battery
|
$ | 229,687 | $ | 142,864 | ||||
Fuel
Cell
|
489 | 438 | ||||||
Nanotechnology
|
70 | 146 | ||||||
Unallocated
|
91,501 | 30,959 | ||||||
Total
assets
|
$ | 321,747 | $ | 174,407 |
Corporate
allocations represent corporate level activity including, but not limited to,
salary and benefits, stock-based compensation, and legal and professional fees
which are allocated to each segment on a pro-rata basis. Reconciling
amounts represent corporate level activity not specifically attributed to a
segment.
We record
proceeds from cost-sharing grants as a reduction of research and development
expenses. Proceeds from grants were $2.2 million and $3.1 million for the
nine months ended September 30, 2010 and 2009, respectively.
The
following table provides certain segment information by geographic area (in
thousands). Net sales attributed to geographic areas are based on the
location where the sale originated.
- 30
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
sales:
|
||||||||||||||||
U.S.
|
$ | 15,924 | $ | 5,785 | $ | 36,732 | $ | 15,808 | ||||||||
South
Korea
|
12,824 | 4,758 | 34,926 | 17,420 | ||||||||||||
Intersegment
transfers
|
(11,486 | ) | (2,426 | ) | (27,370 | ) | (9,382 | ) | ||||||||
Total
net sales
|
$ | 17,262 | $ | 8,117 | $ | 44,288 | $ | 23,846 | ||||||||
Net
income (loss) attributable to Ener1, Inc.
|
||||||||||||||||
U.S.
|
$ | (26,397 | ) | $ | (13,988 | ) | $ | (55,896 | ) | $ | (33,255 | ) | ||||
South
Korea
|
(879 | ) | (1,952 | ) | (1,895 | ) | (2,730 | ) | ||||||||
Intersegment
transfers
|
327 | 103 | (106 | ) | (21 | ) | ||||||||||
Net
loss attributable to Ener1, Inc.
|
$ | (26,949 | ) | $ | (15,837 | ) | $ | (57,897 | ) | $ | (36,006 | ) |
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Assets:
|
||||||||
U.S.
|
$ | 247,815 | $ | 111,702 | ||||
South
Korea
|
73,932 | 62,705 | ||||||
Total
assets
|
$ | 321,747 | $ | 174,407 |
We are
dependent on several large clients for a significant portion of net sales.
Sales from customers accounting for 10% or more of net sales are as follows (in
thousands):
Nine
Months Ended
|
||||||||||||||||
September 30,
|
||||||||||||||||
2010
|
2009
|
|||||||||||||||
Symbol
Technologies (Motorola)
|
$ | 11,729 | 26 | % | $ | 4,264 | 18 | % | ||||||||
Think
Global
|
4,433 | 10 | % | - | 0 | % | ||||||||||
Li-Tec
Battery
|
1,316 | 3 | % | 2,453 | 10 | % | ||||||||||
$ | 17,478 | $ | 6,717 |
- 31
-
ENER1,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
14 – Commitments and Contingencies
Litigation
Ener1
receives communications from time to time alleging various claims. These claims
may include, but are not limited to, employment matters, collections of accounts
payable, product liability claims, and allegations that certain of its
products infringe the patent rights of other third parties. Ener1 cannot
predict when such claims may be made, the outcome of any such claims or the
effect of any such claims on its operating results, financial condition, or cash
flows. As of September 30, 2010, there were no material pending legal
proceedings.
Purchase
Commitments
Ener1 has
outstanding commitments with and has submitted purchase orders to various
suppliers to purchase machinery, equipment and inventory. These
commitments are not recorded in the accompanying consolidated balance sheets and
totaled approximately $38.2 million as of September 30, 2010.
Change
in Control Provisions in Certain Agreements
Ener1 has
entered into employment agreements with certain key employees and executive
officers requiring Ener1 to make severance payments to these individuals if
their employment is terminated under circumstances specified in the
agreements. The maximum contingent liability pursuant to these provisions
is $2.2 million.
Note
15 – Subsequent Events
On
October 29, 2010, a Supply Agreement (the Supply Agreement) entered into by
Ener1 and Joint Stock Company “Mobile Gas Turbine Electric Powerplants,” a
Russian corporation (MGTES), became binding and effective. The Supply Agreement
was entered into on October 6, 2010, but did not become binding and effective on
both parties until October 29, 2010. Under the Supply Agreement, Ener1 has
agreed to manufacture and sell, and MGTES has agreed to purchase, certain
lithium-ion battery units to be used by MGTES to power grid energy storage
systems in Russia. The total purchase price for the units is $40.0 million, the
payment of which will be made in installments over a period of approximately two
years, and each installment payment will be subject to the satisfaction of
specified production, inspection and performance conditions. Although we
anticipate that the contract will be completed by the end of 2012, no assurances
can be made that all installment payments will be received by us in full or on a
timely basis.
- 32
-
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Cautionary
Statement Concerning Forward Looking Information
Certain
statements in the following Management’s Discussion and Analysis, other than
purely historical information, including, without limitation, statements
concerning our financial outlook for 2010 and beyond, estimates and projections,
statements relating to our business plans, objectives and expected operating
results, and the assumptions upon which those statements are based, are all
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended.
These
forward-looking statements may be identified by words such as “believe,”
“project,” “expect,” “think,” “anticipate,” “strategy,” “intend,” “estimate,”
“future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,”
“will continue,” “will likely result,” or similar expressions. You should
understand that these forward-looking statements are based on current
expectations and assumptions that are subject to risks and uncertainties, which
may cause actual results to differ materially from those expressed or implied in
the forward-looking statements.
A
detailed discussion of risks and uncertainties that could cause actual results
and events to differ materially from such forward-looking statements is included
in the section entitled “Risk Factors” in Part II, Item 1A of this Report.
We undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events, or
otherwise.
Executive
Summary and Recent Developments
The
following discussion should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2009, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and other filings with the Securities and Exchange
Commission and our Consolidated Financial Statements and the accompanying notes
included in this Quarterly Report on Form 10-Q.
We
design, develop and manufacture high-performance, rechargeable, lithium-ion
batteries and battery systems for energy storage in the transportation market,
stationary power market and small format products market. We believe a
confluence of market forces and government policy initiatives may lead to a
transition from oil-fueled vehicles and energy inefficient electricity
production to electric vehicles and more efficient grid storage and energy
management. We further believe that the fuel economy standards and
rules of the United States, together with the stringent carbon dioxide emissions
standards of the European Economic Community, will likely cause many automobile
manufacturers to manufacture some form of electric cars, trucks and buses. The
automotive industry has plans to introduce additional HEV, EV and PHEV models,
the introduction of which is expected to increase the total number of electric
vehicle models available worldwide to approximately 120 by the end of
2012.
Our
primary products for the transportation market consist of battery solutions for
hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs),
electric vehicles (EVs) and other vehicles such as trucks and buses. In May
2010, we commenced commercial production and shipment of lithium-ion battery
packs for Think Global, an EV manufacturer in Norway.
We made
strategic investments in Think Holdings, the majority owner of Think Global, in
2009 and 2010. As of September 30, 2010, we controlled 33% of the
outstanding voting power in Think Holdings. On October 25, 2010, our
voting power increased to approximately 48% of the outstanding voting power of
Think Holdings when we exchanged shares of Ener1 common stock for additional
preferred securities of Think Holdings, as further described below under Financial
Highlights.
In May
2010, we entered into a letter of intent to form a battery cell manufacturing
joint venture and a battery pack manufacturing joint venture (together, the
Joint Ventures), with Wanxiang EV CO. LTD (Wanxiang), the electric vehicle
division of Wanxiang Group. Wanxiang and Ener1 will initially own 60% and
40%, respectively, of the Joint Ventures; however, Ener1 will have the right to
increase its ownership interest up to 49%. The formation of the Joint
Ventures under the letter of intent is subject to certain conditions, including
the completion of final due diligence by both parties and the negotiation and
execution of definitive agreements as well as obtaining requisite government and
board approvals.
- 33
-
In the
stationary power markets, we are developing energy storage applications for
utility grid and commercial applications. On October 29, 2010, a Supply
Agreement (the Supply Agreement) entered into by Ener1 and Joint Stock Company
“Mobile Gas Turbine Electric Powerplants,” a Russian corporation (MGTES), became
binding and effective. The Supply Agreement was entered into on October 6,
2010, but did not become binding and effective on both parties until October 29,
2010. Under the Supply Agreement, Ener1 has agreed to manufacture and
sell, and MGTES has agreed to purchase, certain lithium-ion battery units to be
used by MGTES to power grid energy storage systems in Russia. The total
purchase price for the units is $40.0 million, the payment of which will be made
in installments over a period of approximately two years, and each installment
payment will be subject to the satisfaction of specified production, inspection
and performance conditions. Although we anticipate that the contract will
be completed by the end of 2012, no assurances can be made that all installment
payments will be received by us in full or on a timely basis.
Our South
Korean subsidiary, Ener1 Korea International, Inc., formerly known as Enertech
International, Inc., (Ener1 Korea), manufactures lithium-ion batteries for the
small format products market which encompasses consumer, industrial and military
products. Our primary small format product line consists of commercial
lithium-ion batteries for products such as Motorola’s hand-held
scanners.
We
manufacture and assemble lithium-ion batteries and battery systems in the United
States through our subsidiary EnerDel, Inc. (EnerDel) and in South Korea through
Ener1 Korea. We are currently expanding production capacity at our
facilities in the United States.
We were
awarded a grant of $118.5 million from the United States Department of Energy
(DOE) in August 2009, under the Automotive Battery Manufacturing Initiative
(ABMI) to help finance our United States battery plant capacity expansion. We
are reimbursed under the grant as we make equipment purchases, and we are
required to match grant proceeds with an equal amount of our own funds. Using
funds provided under the ABMI, we are expanding our production capacity in
Indiana. We expect our worldwide automotive production capacity will
increase during 2011 to the equivalent of 900 EV packs per month as a result of
our battery plant expansion.
We have
also applied to the DOE for a long-term low interest loan of approximately
$290.0 million under the Advanced Technology Vehicle Manufacturing Incentives
Program (ATVM). We would use the proceeds of this loan to further
expand our battery production capacity. We are currently negotiating
a term sheet in connection with this loan. If we receive an ATVM
loan, the ATVM loan program will require us to match every eighty cents of loan
proceeds with twenty cents of our own investment. Indiana state and local
government authorities have also provided us approximately $80.0 million of
grants and tax offsets to assist in our expansion plans. With proceeds under the
ATVM loan, if approved, and combined with the funds available to us under the
ABMI program and the State of Indiana incentives, we plan to increase our
domestic production capacity to an estimated manufacturing capacity of 120,000
equivalent EV battery packs per year.
Financial
Highlights
We have
raised $162.3 million from sales of equity and debt securities during
2010. Proceeds from the sale of shares of Ener1 common stock total
approximately $97.3 million, of which $89.1million was from sales to Ener1
Group, our principal shareholder. Proceeds received from the issuance
of debt total $65.0 million, which includes $55.0 million of senior unsecured
notes due March 2013 (the Notes), and $10.0 million of convertible debt due
August 2015 (the Convertible Notes).
In May
2010, in connection with our strategic investment in Think Holdings, Ener1
provided that certain investors who made certain investments in Think Holdings
could exchange their shares of Series B Stock and half of their warrants to
purchase Series B Stock for shares of Ener1 common stock (the Ener1 Put
Option). Investors have until May 2011 to exercise the Ener1 Put
Option and, upon exercise, would receive unregistered shares of Ener1 common
stock. The total amount of Ener1 common stock issuable upon exercise
of the Ener1 Put Option is capped at $27.5 million. We valued the
Ener1 Put Option, in May 2010, at fair value and increased our investment in
unconsolidated entity by approximately $4.9 million. In October 2010,
we made short-term working capital loans to Think Holdings totaling $6.4 million
with an interest rate of 5.0% per annum, scheduled to mature on December 31,
2010.
- 34
-
On
October 25, 2010, an investor in Think Holdings exercised its rights under the
Ener1 Put Option and transferred 7,500,000 shares of Series B Stock to Ener1 in
exchange for 3,131,250 unregistered shares of Ener1common stock, increasing our
investment in unconsolidated entity by approximately $12.4
million. Ener1 also extended to this investor the right to transfer
to Ener1 an additional 2,706,660 shares of Series B Stock under the same terms
and conditions of the Ener1 Put Option. The investor accepted this
offer and exchanged the additional Series B Stock for 1,130,031 unregistered
shares of Ener1 common stock, increasing our investment in unconsolidated entity
by an additional $4.5 million.
After
taking into consideration the effect of the October 25, 2010 transactions, our
investment in unconsolidated entity totaled approximately $58.6 million and we
controlled approximately 48% of the outstanding voting power in Think
Holdings. Two directors who serve on the board of directors of
Ener1 also serve on the board of directors of Think Holdings. We
continue to monitor our activity with Think Holdings for potential transactions
that may require the consolidation of the accounts of Think Holdings with the
accounts of Ener1.
On August
3, 2010, we converted all outstanding principal and accrued interest of $18.4
million under our convertible line of credit with Bzinfin into 5,398,785
unregistered shares of Ener1 common stock at an amended conversion price of
$3.40 per share. In addition, as an inducement to convert this debt,
Ener1 issued to Bzinfin warrants to purchase up to approximately 2.3 million
shares of Ener1 common stock. As of September 30, 2010, Ener1 Group
and Bzinfin, the owner of Ener1 Group, collectively owned approximately 48.8% of
our outstanding common stock and, with warrants, beneficially owned
approximately 57.3% of our shares outstanding on a fully diluted
basis.
Results
of Operations
Three
Months ended September 30, 2010 compared to the Three Months ended September 30,
2009
The
following information has been derived from the accompanying unaudited
consolidated financial statements for the three months ended September 30, 2010
and 2009 and is presented in thousands. With the commencement of
commercial production in May 2010, certain expenses previously classified as
research and development are now classified as general and
administrative.
Three
Months Ended
|
||||||||||||||||
September
30,
|
Change
|
|||||||||||||||
2010
|
2009
|
$
|
%
|
|||||||||||||
Net
sales
|
$ | 17,262 | $ | 8,117 | $ | 9,145 | 113 | % | ||||||||
Cost
of sales
|
15,164 | 7,693 | 7,471 | 97 | % | |||||||||||
Gross
profit
|
2,098 | 424 | 1,674 | 395 | % | |||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative
|
7,522 | 4,317 | 3,205 | 74 | % | |||||||||||
Research
and development, net
|
3,714 | 7,556 | (3,842 | ) | -51 | % | ||||||||||
Grant
proceeds recognized
|
(92 | ) | - | (92 | ) | n/a | ||||||||||
Depreciation
and amortization
|
1,587 | 1,304 | 283 | 22 | % | |||||||||||
Total
operating expenses
|
12,731 | 13,177 | (446 | ) | -3 | % | ||||||||||
Loss
from operations
|
(10,633 | ) | (12,753 | ) | 2,120 | -17 | % | |||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(1,201 | ) | (1,525 | ) | 324 | -21 | % | |||||||||
Debt
conversion expense
|
(13,245 | ) | - | (13,245 | ) | n/a | ||||||||||
Loss
on derivative liabilities
|
(838 | ) | (1,487 | ) | 649 | -44 | % | |||||||||
Loss
on financial instruments
|
(467 | ) | - | (467 | ) | n/a | ||||||||||
Foreign
currency loss
|
(579 | ) | (452 | ) | (127 | ) | 28 | % | ||||||||
Other
|
55 | 121 | (66 | ) | -55 | % | ||||||||||
Total
other income (expense)
|
(16,275 | ) | (3,343 | ) | (12,932 | ) | 387 | % | ||||||||
Loss
before income taxes
|
(26,908 | ) | (16,096 | ) | (10,812 | ) | 67 | % | ||||||||
Income
tax expense (benefit )
|
81 | (24 | ) | 105 | -438 | % | ||||||||||
Net
loss
|
(26,989 | ) | (16,072 | ) | (10,917 | ) | 68 | % | ||||||||
Net
loss attributable to noncontrolling interests
|
(40 | ) | (235 | ) | 195 | -83 | % | |||||||||
Net
loss attributable to Ener1, Inc.
|
$ | (26,949 | ) | $ | (15,837 | ) | $ | (11,112 | ) |
- 35
-
Net
sales, Cost of sales and Gross profit
The
increase in net sales is due to an increase in EV battery pack commercial sales
to Think Global of approximately $4.3 million as shipments to Think Global under
our Supply Agreement commenced in May 2010, as well as a $1.9 million increase
in EV battery pack prototype sales to various customers from $0.4 million
for the three months ended September 30, 2009 to $2.3 million for the same
period in 2010. In addition, domestic sales of small cell battery
packs to commercial customers increased from $5.3 million during the three
months ended September 30, 2009 to $8.8 million for the same period in 2010, an
increase of approximately $3.5 million, or 66%, due to an increase in
demand.
Cost of
sales increased at a slower rate than net sales increased as a result of higher
prototype sales during the three months ended September 30, 2010. We
expect cost of sales to increase at a faster rate than net sales until we
achieve the production levels upon which our standard costs are
based. Cost of sales also includes depreciation expense of
approximately $892,000 for the three months ended September 30, 2010, an
increase of approximately $205,000, or 30%, which is primarily due to battery
manufacturing and production equipment placed in service starting in late
2009.
General
and administrative expense
General
and administrative expenses increased primarily due to an increase in salary and
benefits of $1.9 million resulting from the increase in our management team and
their compensation and an increase in stock-based compensation and bonuses of
$306,000 during the three months ended September 30, 2010 as compared to the
prior year period. Legal and professional fees increased $593,000, of
which $109,000 was for professional services related to investor, government,
media and public relations. Facilities-related expenses increased
$212,000 primarily due to the commencement
of commercial production, in May 2010, at our Indiana
facilities.
Research
and development expense
Research
and development expenses decreased primarily due to the proceeds from the ABMI
grant that are used to pay operating expenses related to machine qualification
and direct application engineering and treated as a reduction of research and
development expenses which totaled approximately $8.0 million during the three
months ended September 30, 2010. This decrease has been partially
offset by an increase in salaries and benefits of $1.3 million as a result of
the increase in our workforce. Materials and non-capitalized
equipment expenses increased $2.0 million as commercial production continued to
ramp up and EV battery pack prototype sales
increased. Facilities-related expenses increased approximately
$726,000 primarily due to property taxes, rent and utilities for our Mt.
Comfort, Indiana facility, which we commenced leasing in February
2010. There were no ABMI grant proceeds received during the same
period of the prior year.
We also
present proceeds from our cost-sharing arrangements with federal government
agencies as a reduction of research and development
expenses. Proceeds received under these cost-sharing arrangements
were $639,000 and $1.0 million for the three months in the periods ended
September 30, 2010 and 2009, respectively.
Grant
proceeds recognized
Proceeds
from government grants related to asset purchases are recorded as deferred grant
proceeds and recognized as a reduction of operating expense over the periods
during which depreciation on the assets is charged and in proportion to the
amount of the depreciation charge. We begin depreciating purchased
assets on the date the assets are placed in service. During the three
months ended September 30, 2010, we recognized approximately $92,000 in grant
proceeds.
Depreciation
and amortization expense
Depreciation
expense, included in operating expenses, increased $278,000 as a result of the
increase in our property and equipment and is reflected in the consolidated
statement of operations as follows (in thousands):
- 36
-
Three
Months
|
||||||||||||||||
Ended September 30,
|
Change
|
|||||||||||||||
2010
|
2009
|
$
|
%
|
|||||||||||||
Depreciation
expense:
|
||||||||||||||||
Cost
of sales
|
$ | 892 | $ | 687 | $ | 205 | 30 | % | ||||||||
Operating
expenses
|
1,066 | 788 | 278 | 35 | % | |||||||||||
Total
depreciation expense
|
$ | 1,958 | $ | 1,475 | $ | 483 | 33 | % | ||||||||
Amortization
expense:
|
||||||||||||||||
Operating
expenses
|
521 | 516 | 5 | 1 | % | |||||||||||
Total
depreciation and amortization
|
$ | 2,479 | $ | 1,991 | $ | 488 | 25 | % |
Interest
expense
Interest
expense represents a combination of cash and non-cash interest related to our
deferred financing costs, borrowings with banks, capital leases and other debt
instruments, as well as debt issuances costs. The cash and non-cash
components of interest expense are (in thousands):
Three
Months Ended
|
||||||||||||||||
September
30,
|
Change
|
|||||||||||||||
2010
|
2009
|
$
|
%
|
|||||||||||||
Cash
|
$ | 505 | $ | 470 | $ | 35 | 7 | % | ||||||||
Non-cash
|
696 | 1,055 | (359 | ) | -34 | % | ||||||||||
Total
interest expense
|
$ | 1,201 | $ | 1,525 | $ | (324 | ) | -21 | % |
The
decrease in interest expense is due to maturation of the convertible line of
credit with Bzinfin on July 1, 2010. Of the total $696,000 in
non-cash interest expense for the period ended September 30, 2010, $628,000, or
90%, represents the amortization of deferred financing costs and debt issuance
costs associated with the fair value of warrants issued in connection with debt
financing arrangements and the beneficial conversion feature associated with the
convertible line of credit.
Debt
conversion expense
On August
3, 2010, we converted $18.4 million of principal and accrued interest under the
convertible line of credit with Bzinfin into 5,398,785 unregistered shares of
Ener1 common stock at an amended conversion price of $3.40 per share, resulting
in debt conversion expense of $6.8 million. In addition, as an
inducement to convert this debt, Ener1 issued to Bzinfin warrants to purchase up
to approximately 2.3 million shares of Ener1 common stock, resulting in
additional debt conversion expense of $5.9 million. Ener1 further
agreed to make a cash payment equal to the withholding taxes that Bzinfin must
pay with respect to the total interest paid under the line of credit from
February 2009, the date of inception, to August 2, 2010, the date of conversion,
of approximately $527,000, which was recorded as debt conversion
expense.
Loss
on derivative liabilities
The loss
on derivative liabilities during the three months ended September 30, 2010 was
primarily due to the issuance of warrants that contain dilution protection
features. Specifically, the loss on derivative liabilities is due to
the increase in value of warrants issued in connection with the Notes (2010
Warrants) of approximately $1.1 million from the date of issuance to September
30, 2010. The increase in the value of the warrant derivatives is
primarily due to the increase in the price of Ener1 common stock during the same
period.
Loss
on financial instruments
The loss
on financial instruments during the three months ended September 30, 2010 is due
to the increase in the fair value of the Ener1 Put Option, which was granted in
May 2010, which increase was a result of the increase in the price of Ener1
common stock during the three months ended September 30, 2010.
- 37
-
Nine
Months ended September 30, 2010 as compared to the Nine Months Ended September
30, 2009
The
following information has been derived from the accompanying unaudited
consolidated financial statements for the nine months ended September 30, 2010
and 2009 and is presented in thousands. With the commencement of commercial
production in May 2010, certain expenses previously classified as research and
development are now classified as general and administrative.
Nine
Months Ended
|
||||||||||||||||
September 30,
|
Change
|
|||||||||||||||
2010
|
2009
|
$
|
%
|
|||||||||||||
Net
sales
|
$ | 44,288 | $ | 23,846 | $ | 20,442 | 86 | % | ||||||||
Cost
of sales
|
38,974 | 20,856 | 18,118 | 87 | % | |||||||||||
Gross
profit
|
5,314 | 2,990 | 2,324 | 78 | % | |||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative
|
18,517 | 12,675 | 5,842 | 46 | % | |||||||||||
Research
and development, net
|
23,712 | 21,270 | 2,442 | 11 | % | |||||||||||
Grant
proceeds recognized
|
(161 | ) | - | (161 | ) | n/a | ||||||||||
Depreciation
and amortization
|
4,408 | 3,766 | 642 | 17 | % | |||||||||||
Total
operating expenses
|
46,476 | 37,711 | 8,765 | 23 | % | |||||||||||
Loss
from operations
|
(41,162 | ) | (34,721 | ) | (6,441 | ) | 19 | % | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(7,563 | ) | (4,261 | ) | (3,302 | ) | 77 | % | ||||||||
Debt
conversion expense
|
(13,245 | ) | - | (13,245 | ) | n/a | ||||||||||
Gain
on derivative liabilities
|
3,145 | 2,430 | 715 | 29 | % | |||||||||||
Gain
on financial instruments
|
509 | - | 509 | n/a | ||||||||||||
Foreign
currency loss
|
(20 | ) | (84 | ) | 64 | -76 | % | |||||||||
Other
|
463 | 283 | 180 | 64 | % | |||||||||||
Total
other income (expense)
|
(16,711 | ) | (1,632 | ) | (15,079 | ) | 924 | % | ||||||||
Loss
before income taxes
|
(57,873 | ) | (36,353 | ) | (21,520 | ) | 59 | % | ||||||||
Income
tax expense (benefit )
|
91 | (22 | ) | 113 | -514 | % | ||||||||||
Net
loss
|
(57,964 | ) | (36,331 | ) | (21,633 | ) | 60 | % | ||||||||
Net
loss attributable to noncontrolling interests
|
(67 | ) | (325 | ) | 258 | -79 | % | |||||||||
Net
loss attributable to Ener1, Inc.
|
$ | (57,897 | ) | $ | (36,006 | ) | $ | (21,891 | ) |
Net
sales, Cost of sales and Gross profit
The
increase in net sales is due to an increase in EV battery pack commercial sales
to Think Global of approximately $7.7 million as shipments to Think Global under
our Supply Agreement commenced in May 2010 and an increase in EV
battery pack prototype sales to various customers from $0.9 million during
the nine months ended September 30, 2009 to $3.5 million for the same period of
2010, an increase of approximately $2.6 million. In addition,
domestic sales of small cell battery packs to commercial customers
increased from $14.3 million during the nine months ended September 30, 2009 to
$24.1 million during the same period of 2009, an increase of approximately $9.8
million, or 69%, due to an increase in demand.
Cost of
sales increased at a slightly faster rate than net sales increased as a result
of start-up costs for EV battery cell production. We expect cost of
sales to continue increasing at a faster rate than net sales until we achieve
the levels of production upon which our standard costs are
based. Also included in cost of sales is depreciation expense of
approximately $2.6 million for the nine months ended September 30, 2010, an
increase of approximately $766,000, or 42%, primarily due to battery
manufacturing and production equipment placed in service in late
2009.
General
and administrative expense
General
and administrative expenses increased primarily due to an increase in salary and
benefits of $4.0 million. Legal and professional fees increased $1.1 million, of
which $752,000 was for professional services related to investor, government,
media and public relations. Facilities-related expenses increased
$518,000 primarily due to the
commencement of commercial production, in May 2010, at our Indiana
facilities.
- 38
-
Research
and development expense
Research
and development expenses increased primarily due to an increase in salaries and
benefits of $6.1 million as a result of the increase in our workforce, which was
partially offset by a decrease of $933,000 in stock-based compensation.
Facilities-related expenses increased approximately $1.4 million primarily due
to property taxes, rent and utilities for our Mt. Comfort, Indiana facility,
which we commenced leasing in February 2010. Materials and non-capitalized
equipment increased $3.8 million as commercial production continued to ramp up
and EV battery pack prototype sales increased. These increases have been
partially offset by a decrease in professional fees of $530,000 related to legal
fees incurred for filing, maintaining and protecting our patents and
technology.
We
present proceeds from the ABMI grant that are used to pay operating expenses
related to machine qualification and direct application engineering as a
reduction of research and development expenses. These proceeds totaled
approximately $9.0 million during the nine months ended September 30, 2010.
There were no ABMI grant proceeds received during the same period of the prior
year.
We also
present proceeds from our cost-sharing arrangements with federal government
agencies as a reduction of research and development expenses. Proceeds received
under these cost-sharing arrangements were $2.2 million and $3.1 million for the
periods ended September 30, 2010 and 2009, respectively.
Grant
proceeds recognized
Proceeds
from government grants related to asset purchases are recorded as deferred grant
proceeds and recognized as a reduction of operating expense over the periods
during which depreciation on the assets is charged and in proportion to the
amount of the depreciation charge. We begin depreciating purchased assets on the
date the assets are placed in service. During the nine months ended September
30, 2010 we recognized approximately $161,000 in grant proceeds.
Depreciation
and amortization expense
Depreciation
expense, included in operating expenses, increased $662,000 as a direct result
of the increase in our property and equipment and is reflected in the
consolidated statements of operations as follows (in thousands):
Nine
Months
|
||||||||||||||||
Ended September 30,
|
Change
|
|||||||||||||||
2010
|
2009
|
$
|
%
|
|||||||||||||
Depreciation
expense:
|
||||||||||||||||
Cost
of sales
|
$ | 2,586 | $ | 1,820 | $ | 766 | 42 | % | ||||||||
Operating
expenses
|
2,839 | 2,177 | 662 | 30 | % | |||||||||||
Total
depreciation expense
|
$ | 5,425 | $ | 3,997 | $ | 1,428 | 36 | % | ||||||||
Amortization
expense:
|
||||||||||||||||
Operating
expenses
|
1,569 | 1,589 | (20 | ) | -1 | % | ||||||||||
Total
depreciation and amortization
|
$ | 6,994 | $ | 5,586 | $ | 1,408 | 25 | % |
Interest
expense
Interest
expense represents a combination of cash and non-cash interest related to our
deferred financing costs, borrowings with banks, capital leases and other debt
instruments, as well as debt issuances costs. The cash and non-cash components
of interest expense are (in thousands):
Nine
Months Ended
|
||||||||||||||||
September 30,
|
Change
|
|||||||||||||||
2010
|
2009
|
$
|
%
|
|||||||||||||
Cash
|
$ | 1,068 | $ | 746 | $ | 322 | 43 | % | ||||||||
Non-cash
|
6,495 | 3,515 | 2,980 | 85 | % | |||||||||||
Total
interest expense
|
$ | 7,563 | $ | 4,261 | $ | 3,302 | 77 | % |
- 39
-
The
increase in interest expense is due to a $16.2 million increase in short-term
debt. Of the total $6.5 million in non-cash interest expense for the period
ended September 30, 2010, $5.3 million, or 82%, represents the amortization of
deferred financing costs and debt issuance costs associated with the fair value
of warrants issued in connection with debt financing arrangements and the
beneficial conversion feature associated with our convertible line of
credit.
Debt
conversion expense
On August
3, 2010, we converted $18.4 million of principal and accrued interest under the
convertible line of credit with Bzinfin into 5,398,785 unregistered shares of
Ener1 common stock at an amended conversion price of $3.40 per share, resulting
in debt conversion expense of $6.8 million. In addition, as an inducement to
convert, Ener1 issued to Bzinfin warrants to purchase up to approximately 2.3
million shares of Ener1 common stock, resulting in debt conversion expense of
$5.9 million. Ener1 further agreed to make a cash payment equal to the
withholding taxes that Bzinfin must pay with respect to the total interest paid
under the line of credit of approximately $527,000 which was recorded as debt
conversion expense.
Gain
on derivative liabilities
The
increase in gain on derivative liabilities during the nine months ended
September 30, 2010 is related to the overall decline in the price of Ener1
common stock, which resulted in a gain on derivative liabilities of
approximately $3.4 million. This increase has been partially offset by the $1.1
million loss on derivative liabilities due to the issuance, in September 2010,
of the 2010 Warrants, which contain dilution protection features, and the
expiration of the dilution protection feature contained in certain free standing
warrants that expired during the period ended March 31, 2009, resulting in a
decrease in of approximately $1.6 million.
Gain
on financial instruments
The
increase in gain on financial instruments during the nine months ended September
30, 2010 is due to the decline in the fair value of the Ener1 Put Option, which
was granted in May 2010, as a result of the overall decline in the price of
Ener1 common stock since the date of grant.
Liquidity
and Capital Resources
At
September 30, 2010, the Company had cash and cash equivalents of $34.0 million,
restricted cash of $18.1 million and working capital of $36.7
million.
Cash
Flow Summary
The
following information has been derived from the accompanying unaudited
consolidated financial statements for the nine months ended September 30, 2010
and 2009 and is presented in thousands. Cash and cash equivalents increased by
$19.7 million during the period ended September 30, 2010. The change in cash and
cash equivalents is as follows (in thousands):
September 30,
|
||||||||
2010
|
2009
|
|||||||
Net
loss
|
$ | (57,964 | ) | $ | (36,331 | ) | ||
Non-cash
items
|
26,284 | 10,719 | ||||||
Net
change in working capital items
|
(13,599 | ) | (3,714 | ) | ||||
Operating
activities
|
(45,279 | ) | (29,326 | ) | ||||
Investing
activities
|
(70,494 | ) | (17,157 | ) | ||||
Financing
activities
|
135,537 | 53,365 | ||||||
Effects
of exchange rates
|
(69 | ) | (180 | ) | ||||
Net
increase in cash and cash equivalents
|
$ | 19,695 | $ | 6,702 | ||||
Cash
and cash equivalents - beginning balance
|
14,314 | 11,229 | ||||||
Cash
and cash equivalents - ending balance
|
$ | 34,009 | $ | 17,931 |
Operating
Activities
Cash used
in operating activities is primarily driven by our net loss, adjusted for
non-cash items and changes in working capital. Non-cash items consist primarily
of debt conversion expense, depreciation and amortization, stock-based
compensation, interest expense and accretion of debt discounts, which are
partially offset by the gain on derivative liabilities and financial
instruments.
- 40
-
Net cash
used in operating activities increased $16.0 million during the period ended
September 30, 2010, as compared to the same period in 2009 due primarily to the
increase in our net loss of $21.6 million and the net change in working capital
items of approximately $9.9 million, partially offset by the increase in
non-cash items of $15.6 million. Non-cash items increased primarily due to the
debt conversion expense associated with the conversion of our convertible line
of credit at an amended conversion price.
Investing
activities
Net cash
used in investing activities for the period ended September 30, 2010 was $70.5
million, an increase of $53.3 million, compared to $17.2 million for the period
ended September 30, 2009. This increase is comprised primarily of a $30.3
million increase in net cash used for purchases of property, plant and equipment
as we continue to execute our capital expansion plan. In addition, our
investment in Think Holdings increased $9.8 million during the nine months
September 30, 2010 due to the purchase of additional equity securities from
Think Holdings. In connection with the issuance of the Notes, we deposited
approximately $14.5 million, representing the first two installment payments due
under the Notes, in a restricted cash account to secure payment.
Financing
activities
Net cash
provided by financing activities for the period ended September 30, 2010 was
$135.5 million, an increase of $82.1 million, compared to $53.4 million for the
same period ended 2009. This increase in cash provided by financing activities
is comprised of an increase in proceeds from the sales of Ener1 common stock of
$32.8 million, the increase in proceeds from the issuance of long term debt of
$62.7 million and an increase in proceeds from related party and bank borrowings
of $3.1 million during the period ended September 30, 2010. These proceeds have
been partially offset by the increase in repayments of borrowings and capital
leases of $15.0 million.
Sale of
Stock
In
January 2010, we entered into an Open Market Sale Agreement under which we may
sell up to $60.0 million in shares of Ener1 common stock. These sales are
effected by Jefferies & Company, Inc., acting as our agent. Between February
3, 2010 and September 30, 2010, we sold 2,069,250 shares for net proceeds
totaling $7.8 million.
Effective
June 9, 2010, Ener1 Group purchased 18,678,161 shares of Ener1 common stock and
warrants to purchase shares of Ener1 common stock pursuant to the June Stock
Purchase Agreement for an aggregate purchase price of $65 million, of which
Ener1 received $63.5 million after deducting legal fees and expenses of
approximately $1.5 million.
Effective
October 1, 2010, Ener1 Group purchased 6,749,437 shares of Ener1 common stock
and warrants to purchase shares of Ener1 common stock pursuant to the September
and October Stock Purchase Agreements for an aggregate purchase price of $24.1
million, of which Ener1 received $23.7 million after deducting legal fees and
expenses of approximately $450,000.
8.25% Senior Unsecured
Notes
On
September 7, 2010, Ener1 sold $55.0 million of Senior Unsecured Notes (the
Notes), 960,926 shares of Ener1 common stock (the Common Stock) and warrants to
purchase up to 2,882,776 shares of Ener1 common stock at an exercise price of
$3.82 per share (the Warrants) for aggregate consideration of $55.0
million.
The
principal of the Notes is payable in ten equal quarterly installments, with the
first installment due January 3, 2011.
We may
pay amounts due on the Notes in cash, or, if certain conditions are met, shares
of Ener1 common stock or a combination of cash and shares of Ener1 common stock.
The stated interest rate on the note is 8.25%, but the payments for principal
and interest due on any payment date will be computed to give effect to recent
share prices, valuing the shares of our common stock at 91.75% of a weighted
average share price over a pricing period ending shortly before the payment
date.
- 41
-
We are
required to register the resale under the Securities Act of 1933 of the maximum
number of shares of Ener1 common stock we may elect to issue in payment of
amounts due under the Notes. We deposited approximately $14.5 million,
representing the first two installment payments due on the Notes, in a
restricted cash account to secure these payments until a registration statement
covering the resale of the shares of Ener1 common stock we may issue in payment
of amounts due under the Notes is declared effective.
Financing
costs associated with the sale of the Notes totaling approximately $2.3 million
have been recorded as deferred financing costs and are being amortized to
interest expense over the term of the Notes. Financing costs of approximately
$62,000 were expensed during the period ended September 30, 2010 and the
remaining $2.3 million will be expensed as follows: $147,000 during the
remainder of 2010, $1.2 million in 2011, $848,000 in 2012 and $107,000 in
2013.
6.0 % Senior Convertible
Notes
During
the period ended September 30, 2010, Ener1 sold $10.0 million in Senior
Convertible Notes (the Convertible Notes) to Itochu Corporation, a Japanese
corporation (Itochu). The Convertible Notes bear interest at 6% per annum and
the interest is payable in arrears on February 26th and
August 26th of each
year, commencing on February 26, 2011. Itochu has the right to convert all or
any part of the outstanding principal and unpaid interest into shares of Ener1
common stock at a conversion price of $3.612 per share. The Convertible Notes
mature on August 27, 2015.
Credit
Facility
In March
2010, we entered into a Credit Agreement with Credit Suisse AG, Cayman Islands
Branch (Credit Suisse), as lender and borrowed $15.0 million for general
corporate purposes (the Credit Facility), which was repaid on June 23, 2010.
Interest was payable monthly at the London Interbank Offering Rate (LIBOR) plus
5% per annum. Commitment fees and legal fees associated with closing the Credit
Facility totaled approximately $273,000.
Convertible Line of
Credit
In
February 2010, we borrowed an additional $5.0 million under an existing line of
credit extended by Bzinfin. We did not repay the amount outstanding under the
line of credit when it matured on July 1, 2010, as we were in negotiations at
such time to amend the conversion terms of the line of credit.
On August
3, 2010, we converted $18.4 million of principal and accrued interest under the
convertible line of credit with Bzinfin into 5,398,785 unregistered shares of
Ener1 common stock at an amended conversion price of $3.40 per share, resulting
in debt conversion expense of $6.8 million. In addition, as an inducement to
convert this debt, Ener1 issued to Bzinfin warrants to purchase up to
approximately 2.3 million shares of Ener1 common stock, resulting in additional
debt conversion expense of $5.9 million. Ener1 further agreed to make a cash
payment equal to the withholding taxes that Bzinfin must pay with respect to the
total interest paid under the line of credit from the date of inception to the
date of conversion of approximately $527,000, which was recorded as debt
conversion expense.
Management’s
Assessment of Liquidity
We
believe we have access to sufficient capital to continue our planned operations
for the 12 months following the balance sheet date of September 30,
2010.
We have
historically financed, and expect to continue to finance, our operations through
public and private offerings of debt and equity securities. We have raised
$162.3 million through sales of equity and debt securities during 2010. Our
ability to access the public debt and equity markets and the related cost of
these activities may be affected by market conditions. Since 2008, the global
financial markets have experienced significant price and volume fluctuations.
Volatility in debt and equity markets may adversely affect our ability to
procure future financing.
- 42
-
Under our
capital expenditure plan to increase our cell and battery pack production
capacity, we intend to spend a total of $74.9 million at our Indiana facilities,
of which $52.8 million has been spent through September 30, 2010, and $12.0
million has been spent at our Korea facility. These plans are designed to reach
capacity levels in 2011 that would enable us to produce the equivalent of an
estimated 900 EV packs per month. In January 2010, we began utilizing the funds
available to us under AMBI grant awarded to us by the DOE in August 2009 to
execute our 2010 capital expansion strategy for our Indiana facility. Through
October 22, 2010, we have invested $57.4 million in manufacturing equipment and
capacity expansion for our production facilities in Indiana. $28.7 million of
these costs have been funded under the DOE grant. We also invested $12.0 million
in additional manufacturing equipment and capacity expansion at our existing
Ener1 Korea facility.
We expect
to receive a total of $5.5 million from our active cost-sharing arrangements
with the DOE and the United States Advanced Battery Consortium through September
2012, which will reduce our future research and development
expenses.
We have
applied for a long-term, low interest loan of approximately $290 million under
the DOE ATVM loan program. We would use the proceeds of this loan to further
expand our battery production capacity in Indiana. If we received an ATVM loan,
the ATVM loan program will require us to match every eighty cents of loan
proceeds with twenty cents of our own investment. Funds received pursuant to the
ATVM loan program are restricted to the purchase of buildings, equipment and
payment of other qualified expenses and are subject to certain terms and
conditions regarding equipment grants by the DOE. We are currently negotiating a
term sheet in connection with this loan.
We plan
to utilize the proceeds from sales of common stock pursuant to the Open Market
Sale Agreement and other possible sources to continue to fund operations and the
planned purchase of production equipment and manufacturing plant
assets.
Contractual
Obligations
Purchase
commitments
Ener1 has
outstanding commitments with, and has submitted purchase orders to, various
suppliers to purchase machinery, equipment and inventory. These commitments are
not recorded in the accompanying consolidated balance sheets and totaled
approximately $38.2 million as of September 30, 2010.
During
the period ended September 30, 2010, Ener1 entered into capital lease
obligations for certain battery production equipment totaling approximately
$721,000, payable over the next two to ten years. In addition, in February 2010,
EnerDel entered into a two-year lease for approximately 211,500 square feet of
industrial space located in Mt. Comfort, Indiana. The annual base rent under the
initial two-year term of the lease is approximately $780,000.
Change
in Control Provisions in Certain Agreements
Ener1 has
entered into employment agreements with certain key employees and executive
officers requiring Ener1 to make certain severance payments to these individuals
if their employment is terminated under circumstances specified in the
agreements. The maximum contingent liability pursuant to these provisions is
$2.2 million.
New
Accounting Standards
Refer to
Note 2, New Accounting
Pronouncements, in “Notes to Consolidated Financial Statements,” for a
discussion regarding new accounting standards.
Application
of Critical Accounting Policies
Our
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP).
Preparing financial statements requires management to make estimates, judgments
and assumptions regarding uncertainties that may affect the reported amounts of
assets, liabilities, revenue and expenses. These estimates, judgments and
assumptions are affected by management’s application of accounting policies. We
base our estimates, judgments and assumptions on historical experience and other
relevant factors that are believed to be reasonable under the circumstances. In
any given reporting period, our actual results may differ from the estimates,
judgments and assumptions used in preparing our consolidated financial
statements.
- 43
-
Refer to
Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our Annual Report on Form 10-K for the year ended
December 31, 2009 for a discussion of our critical accounting
estimates.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
We have
international operations that expose us to foreign currency exchange
risks.
We
conduct a portion of our business in foreign countries and are subject to
transactional currency exposures that arise when our foreign subsidiaries enter
into transactions denominated in currencies other than their own local currency.
We do not have any long term supply agreements with suppliers as of September
30, 2010, but we are exposed to currency exchange risk when purchases are
denominated in a foreign currency. Currently, the majority of our principal
suppliers are based in China, Japan and Korea and we may not be able to
negotiate payment terms that are denominated in United States Dollars. As a
result, any future decline in the United States Dollar against the Chinese Yuan,
the Japanese Yen or the Korean Won will increase the amount we may have to pay
to our suppliers and could have material impact on our financial condition,
results of operations and cash flows.
In
addition, we are exposed to fluctuations in foreign exchange rates from
translating the results of our Korean and Japanese operations to United States
Dollars. At September 30, 2010 and December 31, 2009, the translation adjustment
recognized in accumulated comprehensive income was $6.1 million and $4.9
million, respectively.
To date,
we have not entered into any derivative financial instruments for purposes of
reducing our exposure to adverse fluctuations in foreign currency exchange
rates. We are not exposed to market risk from changes in interest rates due to
the fixed nature of interest rates associated with our debt instruments and the
short-term nature of our debt instruments that have variable interest
rates.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the reports the Company files or
submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and that such
information is accumulated and communicated to the Company's management
including the Chief Executive Officer, the Chief Financial Officer and the Chief
Accounting Officer, as appropriate, to allow timely decisions regarding required
disclosure.
As of
September 30, 2010, we carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e). This evaluation was done under the
supervision and with the participation of our management, including our Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer. Based
on this evaluation, our Chief Executive Officer, Chief Financial Officer and
Chief Accounting Officer have concluded that as of September 30, 2010, such
disclosure controls and procedures were effective. There were no changes in our
internal control over financial reporting during the quarter ended September 30,
2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
We
receive communications from time to time alleging various claims. These claims
may include, but are not limited to, employment matters, collection of accounts
payable, and allegations that certain of our products infringe the patent rights
of other third parties. We cannot predict the outcome of any such claims or the
effect of any such claims on our operating results, financial condition, or cash
flows. As of September 30, 2010, there are no material pending legal
proceedings.
Item
1A. Risk Factors.
We
have an unproven business plan.
We have
an unproven business plan and do not expect to be profitable for the next
several years. We are developing technologies, products and services primarily
related to lithium-ion batteries, and to a lesser extent, related to fuel cells
and nanotechnology. Before investing in our securities, you should consider the
challenges, expenses and difficulties that we will face as a company seeking to
develop and manufacture new products.
We
have a history of operating losses.
We have
experienced net operating losses since 1997, and negative cash flows from
operations since 1999. Total net cash used in operations for the years ended
December 31, 2009, 2008 and 2007 was $40.7 million, $24.1 million and $26.7
million, respectively. We expect that we will continue to incur net losses and
negative operating cash flows and will require additional cash to fund our
operations and implement our business plan.
Our
planned capital expenditures depend on the availability of funds under DOE grant
and loan programs. We also will need to raise capital or borrow funds to fund
our share of capital expenditures under both the grant and loan
programs.
We have
been formally awarded $118.5 million in funds under the DOE ABMI grant program.
We also have a pending application under the DOE ATVM loan program in which we
are seeking a loan of approximately $290.0 million. There is no assurance that
the final DOE ATVM loan will be approved in full or in part, or that the terms
and conditions for borrowing under the facility will be acceptable to us. The
approval of the loan may be affected by political conditions in the United
States and by political perceptions regarding our substantial foreign ownership.
If the loan is not approved or is approved in a substantially reduced dollar
amount, our future expansion plans would have to be significantly curtailed and
our near term prospects would be materially adversely affected. The DOE ABMI
grant requires that we match the grant award by spending one dollar on
qualifying capital expenditures and other costs for every dollar reimbursed
under the grant, and the loan program requires that recipients of any loans
match the loan by spending $0.20 (twenty cents) on qualifying capital
expenditures and other costs for every $0.80 (eighty cents) of loan proceeds
received. We will need to raise debt or equity capital to fund our share of the
capital expenditures under both the grant and, if we are included, under the
loan program and raising equity capital will result in dilution to our
shareholders. There is also no assurance that we will be able to choose the
order of funds that we may receive under the grant or the loan. To the extent
that funds must be drawn entirely under the grant first, we will be subject to a
higher matching requirement and will need to raise debt or equity capital more
quickly in the near future as compared to what we would otherwise have to raise
if we are able to draw funds under the loan first. Access to both grant and loan
funds will also be conditioned on our continued compliance with the terms and
conditions of the grant and loan programs.
- 45
-
We
are beginning production in a new industry with new processes, and our future
profitability is dependent upon achieving reductions in manufacturing costs and
projected economies of scale from increasing manufacturing quantities. Failing
to achieve such reductions in manufacturing costs and projected economies of
scale could materially adversely affect our financial performance.
Since
2002, we have focused primarily on research and development. However, we are
currently developing new battery products that will require high volume battery
manufacturing processes and equipment. While we acquired a lithium-ion battery
cell manufacturer in South Korea in 2008, we have limited experience
manufacturing any of our planned products on a commercial basis. We do not know
whether or when we will be able to develop efficient, low-cost manufacturing
capabilities and processes that will enable us to manufacture our products in
commercial quantities while meeting the quality, price, engineering, design and
production standards required to successfully market our products. Our failure
to develop such manufacturing processes and capabilities would have a material
adverse effect on our business, financial condition, results of operations and
prospects.
We are
beginning high-volume production in South Korea and the United States of new
products in a new industry in which there is not a significant production
history. Historically, we have produced only the component parts for our battery
packs in limited production quantities in our South Korean plant and for
prototype and production packs in limited quantities in our United States plant.
Our future profitability is, in part, dependent upon achieving increased savings
from volume purchases of raw materials, achieving acceptable manufacturing yield
and capitalizing on machinery efficiencies. Although we expect to achieve lower
costs of production resulting from our progress along the machine and labor
learning curves, it is impossible to determine what those savings may be as we
are entering a new industry with new customer requirements.
Our
supply chain will also be experiencing a sharp increase in demand for its
products and will be undergoing similar production ramp-up activities. Although
we expect future costs to decline if a domestic supply business develops for our
industry, there is no assurance that such supply business will actually develop
in the near future or at all. In addition, there is no assurance that we will
achieve the material, labor and machine cost reductions associated with higher
purchasing power and higher production levels, and failure to achieve these cost
reductions could adversely impact our competitiveness and our financial
results.
Viable
markets for our products may never develop, may take longer to develop than we
anticipate or may not be sustainable.
Our
energy products and technologies target new and developing markets, and we do
not know the extent to which these markets, including the market for electric
vehicles (EVs) and hybrid electric vehicles (HEVs), will develop. We currently
have one commercially developed product, which began production in 2010. If
viable markets fail to develop or develop more slowly than we anticipate, we may
be unable to recover the losses we will have incurred to develop our products
and may be unable to achieve profitability. In addition, the development of a
viable market for our products may be impacted by many factors which are partly
or totally out of our control, including:
|
·
|
the cost competitiveness of our
products;
|
|
·
|
consumer reluctance to try a new
product;
|
|
·
|
consumer perceptions of our
products’ safety;
|
|
·
|
regulatory
requirements;
|
|
·
|
barriers to entry created by
existing energy providers;
|
|
·
|
government funding of electric
vehicle technologies; and
|
|
·
|
emergence of newer, more
competitive technologies and
products.
|
- 46
-
We
will need additional capital to fund development and production activities,
which may not be accessible on attractive terms or at all.
For the
last several years, we have financed our operations and capital expenditures
through the sale of our securities and by borrowing money. Our ability to obtain
additional financing will be subject to a number of factors, including the
development of the market for HEVs and EVs, commercial acceptance of our
products, our operating performance, the terms of our existing indebtedness and
the credit and capital markets. We cannot assure you that we will be able to
raise additional funds on terms favorable to us or at all. If we raise
additional funds through the sale of equity or convertible debt securities, the
ownership percentage of our then existing shareholders will be reduced and the
percentage of our outstanding common stock to which our convertible securities
and our senior unsecured notes are convertible will be reduced. In addition, any
such transaction may dilute the value of our common stock and other debt or
equity securities. We may have to issue securities that have rights, preferences
and privileges senior to our common stock. The terms of any additional
indebtedness may include restrictive financial and operating covenants that
would limit our ability to compete and expand or limit our flexibility in paying
our indebtedness.
Both the
credit and capital markets have experienced extreme volatility in recent
periods. Credit markets have remained illiquid despite injections of capital by
the United States and foreign governments. Banks and other lenders, such as true
equipment leasing companies, have significantly increased credit requirements
and reduced financing available to borrowers. In the capital markets,
institutional investors have experienced large losses resulting in reductions of
and restrictions on funds available for investment. As a result, the market for
offerings of our debt and equity securities may be limited.
Our
ability to obtain financing from the ATVM loan program and government grants is
subject to the availability of funds under the applicable government programs as
well as the approval of our applications to participate in such programs. We
cannot assure you that our efforts to obtain such funds from these government
sources will be successful.
If we do
not obtain adequate short-term working capital and permanent financing, whether
through credit or capital markets or through government programs, we would have
to curtail our development and production activities and adopt an alternative
operating model to continue as a going concern. Our failure to obtain any
required future financing would materially and adversely affect our business,
our financial condition and our prospects.
Our
future growth is dependent upon consumers’ willingness to adopt electric
vehicles.
Our
growth is highly dependent upon the adoption by consumers of EVs. If the market
for EVs does not develop as we anticipate or develops more slowly than we
expect, our business, operating results, financial condition and prospects will
be harmed. The market for EVs is relatively new, rapidly evolving, characterized
by rapidly changing technologies, price competition, additional competitors,
evolving government regulation and industry standards, frequent new vehicle
announcements and changing consumer demands and behaviors. Factors that
influence the rate at which consumers adopt EVs include:
|
·
|
perceptions about EV quality,
safety (in particular with respect to lithium-ion battery packs), design,
performance and cost, especially if adverse events or accidents occur that
are linked to the quality or safety of EVs and/or lithium-ion battery
packs;
|
|
·
|
the limited range over which EVs
may be driven on a single battery
charge;
|
|
·
|
the decline of an EV’s range
resulting from deterioration over time in the battery’s ability to hold a
charge;
|
|
·
|
concerns about electric grid
capacity and reliability, including access to charging
stations;
|
|
·
|
improvements in the fuel economy
of the internal combustion
engine;
|
|
·
|
the environmental consciousness
of consumers;
|
|
·
|
volatility in the cost of oil and
gasoline; and
|
|
·
|
government regulations and
economic incentives promoting fuel efficiency and alternate forms of
energy.
|
The
influence of any of the factors described above may cause current or potential
consumers not to purchase EVs, which would materially adversely affect our
business, operating results, financial condition and
prospects.
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We
depend on a limited number of customers, including Think Global, for a
significant portion of our revenue, and the loss of our most significant or
several of our smaller customers could materially adversely affect our business
and results of operation.
A
significant portion of our revenue is expected to be generated from a limited
number of customers, with sales to Think Global representing nearly all of our
forecasted automotive revenue for the foreseeable future. We entered into an
amended Supply Agreement with Think to supply lithium-ion battery packs for the
Think City EV commencing in 2010. We are also a significant investor in Think
Holdings, have voting power of approximately 48% of their equity, and we have
contractual arrangements with certain other shareholders of Think Holdings which
allow them to put their preferred shares in Think Holdings to us in exchange for
our common stock. In addition, two of our directors are directors of Think
Holdings. We expect Think will become a significant customer in 2011. A delay in
the delivery of battery packs to Think or delays in Think’s start-up plans and
financing activities, however, would adversely affect our expected 2010 and 2011
revenues and profitability and could have a material adverse effect on our
business and our investment in Think. Think, in its corporate history, has been
through insolvency proceedings on three separate occasions, including most
recently in 2009. Think is increasing production and entering new markets and
faces the risks associated with the launch of a new vehicle, including achieving
production levels, managing production costs, managing their supply chain,
financing the costs associated with increased production levels and higher
working capital requirements, gaining consumer acceptance, delivering vehicles
on time, servicing new customers, satisfying warranty claims and other issues
related to manufacturing, selling and servicing automobiles; through our
ownership in Think Holdings, we are also exposed to these risks. Think also
faces many of the same (or similar) risks as are inherent in our business.
Moreover, based on our current ownership interest in Think Holdings and the
possibility that we may eventually acquire a majority interest in and control of
Think Holdings, we are exposed to any additional risks that may be inherent in
any consolidation of Think Holdings with our company. Although the composition
of our customer base will vary from period to period, we expect that most of our
automotive revenue will continue, for the foreseeable future, to come from a
relatively small number of customers.
In
addition, our contracts with our customers do not include long-term commitments
or minimum volumes that ensure future sales of our products. Consequently, our
financial results may fluctuate significantly from period-to-period based on the
actions of one or more of our significant customers. A customer may take actions
that affect us for reasons that we cannot anticipate or control, such as reasons
related to the customer’s financial condition, changes in the customer’s
business strategy or operations, the introduction of alternative or competing
products or as the result of the perceived quality or cost-effectiveness of our
products. Our agreements with these customers may be cancelled if we fail to
meet certain product specifications or materially breach the agreement or for
other reasons outside of our control. In addition, our customers may seek to
renegotiate the terms of current agreements or renewals. The loss of or a
reduction in sales or anticipated sales to our most significant or several of
our smaller customers could have a material adverse effect on our business,
operating results, financial condition and prospects.
We
are expanding our equipment production capacity worldwide and are subject to all
of the risks associated with purchasing, installing and efficiently operating
new equipment as well as achieving production economies from projected increased
efficiencies.
We have
begun purchasing new equipment (which is partially funded by grants from the
DOE) to increase our production capacity in the United States. Risk of
noncompliance with DOE protocols would delay or eliminate reimbursement of
certain costs. If we fail to comply with DOE protocols, it is possible that we
would have to repay the DOE for funds that were granted to us or return assets
acquired by us with DOE funds. While we have constrained the level of purchases
in the first year of the grant, during the next three years we expect to
purchase a substantial amount of equipment and to increase our production
capacity correspondingly. Both the equipment procurement process and the
installation and integration of the equipment into our facilities are
potentially subject to delays. Achieving rated capacity levels with such
equipment is subject to additional risks, and the equipment may never reach its
projected capacity. Some of the assembly equipment that is scheduled for
installation was designed by our engineers and manufactured by independent
equipment manufacturers, and achieving projected machine efficiencies is
dependent upon the equipment operating as designed. In addition, our competitors
may be purchasing equipment similar or identical to our equipment, and to the
extent there is increased demand for such equipment, there may be shortages or
delays in receiving equipment which in turn could result in delays in our
production schedules. Delays in the start-up of production could adversely
impact our reputation and financial results. Delays in production deliveries
also could adversely impact the financial results of our customers because of
delays in the delivery of vehicles to their customers. Failure to reach
projected machine efficiencies could result in higher production costs than
planned and consequently could have a material adverse impact on our financial
results.
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Our
financial results may vary significantly from period-to-period due to long and
unpredictable sales cycles for some of our products and the seasonality of
certain end-markets into which we sell our products, which may in turn lead to
volatility in our stock price.
The
amount and timing of our revenue recognition from sales to our customers is
difficult to predict and is market dependent. We are often required to invest
significant time to educate our customers about the use and benefits of our
products, including their technical and performance characteristics. Customers
typically undertake a significant evaluation process that has in the past
resulted in a lengthy sales cycle for us, typically many months. In some
markets, such as the transportation market, there is usually a significant lag
time between the design phase and commercial production. We spend substantial
amounts of time and money on our sales efforts and there is no assurance that
these investments will produce any sales within expected time frames or at all.
Given the potentially large size of battery development and supply contracts,
the loss of or delay in the signing of a contract or a customer order could
significantly reduce our revenue in any given period. Since most of our
operating and capital expenses are incurred based on the estimated number of
design wins and their timing, they are difficult to adjust in the short term. As
a result, if our revenue falls below our expectations or is delayed in any given
period, we may not be able to reduce proportionately our operating expenses or
manufacturing costs for that period and any reduction of manufacturing capacity
could have long-term implications on our ability to accommodate future
demand.
In
addition, since our batteries and battery systems are incorporated into our
customers’ products for sale into their respective end-markets, our business is
exposed to the seasonal demand that may characterize some of our customers’ own
product sales. Because many of our expenses are based on anticipated levels of
annual revenue, our business and operating results could also suffer if we do
not achieve revenue consistent with our expectations in relation to this
seasonal demand.
As a
result of these factors, we believe that quarter-to-quarter comparisons of our
operating results are not necessarily meaningful and that these comparisons
cannot be relied upon as indicators of future performance. Moreover, our
operating results may not meet expectations of equity research analysts or
investors. If this occurs, the trading price of our common stock could fall
substantially either suddenly or over time.
Oil
prices are extremely volatile and trends to convert to electric and hybrid
electric vehicles may be adversely affected by any perceived significant
reduction in gasoline prices.
Oil and
gasoline prices have been extremely volatile and the possibility of continuing
volatility is expected to persist. Decreases in gasoline prices lower the
perception in government and the private sector that cheaper, more readily
available energy alternatives should be developed and produced. Lower oil prices
also result in a decrease to the cost of existing energy technologies, making
them more competitive with alternative products such as lithium-ion batteries.
If oil prices decline, the demand for hybrid and electric vehicles may decrease
which would have a material adverse effect on our business.
Problems
in our manufacturing and assembly processes could limit our ability to produce
sufficient batteries to meet the demands of our customers.
Regardless
of the process technology used, the manufacturing and assembly of safe,
high-power batteries and battery systems is a highly complex process that
requires extreme precision and quality control throughout a number of production
stages. Any defects in battery packaging, impurities in the electrode materials
used, contamination of the manufacturing environment, incorrect welding, excess
moisture, equipment failure or other difficulties in the manufacturing process
could cause batteries to be rejected, thereby reducing yields and affecting our
ability to meet customer expectations. As we scale up our production capacity,
we may experience production problems that may limit our ability to produce a
sufficient number of batteries to meet the demands of our customers. If these or
other production problems occur and we are unable to resolve them in a timely
fashion, our business could suffer and our reputation may be
harmed.
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We
may provide warranty coverage and product recall coverage for some of our
products, and we do not have significant experience in projecting possible
warranty or recall claims and costs. If warranty or recall claims are
significantly higher than our initial projections, our financial results would
be adversely affected.
We
provide warranty coverage in connection with certain automotive battery pack
sales and we expect to provide warranty coverage in connection with grid storage
battery pack sales, which warranty coverage ranges from 3-5 years and includes
warranties that our product complies with the agreed upon specifications
developed with the end-user, warranties that there are no defects in our
products and warranties that our product will maintain a specified power
capacity during the life of the product. We may also be required to provide
product recall coverage. We are selling new products in a new industry that does
not have a significant history of product use. While we have tested batteries
and battery packs in a controlled environment, we have not tested large numbers
of batteries and packs for extended periods of time. These and other customer
protection provisions, such as return rights, could delay our recognition of
revenue. We expect to establish a warranty reserve in our accounts based upon
our expected warranty claims, but there is no assurance that this reserve will
be sufficient. Our financial results could consequently vary based upon actual
experience relative to how we account for any expected warranty claims.
Furthermore, a significant warranty claim or product recall experience would
likely materially adversely affect our financial results.
We
face high levels of competition and may be unable to compete
successfully.
The
markets in which we intend to market and sell our products are highly
competitive. A number of competitors located in Asia, the United States and
elsewhere, including Sanyo Electric Co., Ltd., NEC Corporation, Johnson
Controls, Inc., Compact Power, Inc., Dow Kokam and A123 Systems, Inc., are
developing and planning to manufacture battery cell technologies and other
energy products that compete with our technologies and planned products. We also
face competition from companies that are focused on traditional energy sources,
such as oil and natural gas, as well as those that develop alternative energy
technologies such as solar power, wind power, ethanol and biofuels. We will need
to develop commercially viable products for our business to be
successful.
The
developers of traditional and alternative energy technologies include, among
others, major electric, oil, chemical, natural gas, battery, generator and
specialized electronics firms, as well as universities, research institutions
and foreign government-sponsored companies. Many of these entities have
substantially greater financial, research and development, manufacturing and
marketing resources than we do. A significant amount of public and private
funding is directed toward the development of traditional and alternative energy
generation, distribution and storage. The resulting technologies may render some
of our planned products less attractive or obsolete, or our competitors may be
able to offer comparable products at better prices.
We
may never complete the research and development of commercially viable products
that are in our product pipeline. The current market for lithium-ion batteries
may undergo significant change.
We are
developing a number of products that involve new technologies. While we have
completed the development of a lithium-ion battery pack for an electric vehicle
and a prototype of our lithium-ion battery pack for hybrid electric vehicles, we
continue to work on other projects which are in various stages of development,
including testing new lithium-ion chemistries for automotive, truck, bus,
stationary power, military and other applications. We do not know when or
whether we will successfully complete research and development of these
products. If we are unable to develop commercially viable products, we will not
be able to generate sufficient revenue to become profitable. In addition, while
we are conducting tests to predict the overall life of our products, we may not
have tested our products over their projected useful lives prior to the
commencement of large-scale commercialization. As a result, we cannot be sure
that our products will last as long as predicted, and, if they do not, we may
incur liability under warranty claims and diminished goodwill with
customers.
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The
market for advanced rechargeable batteries is at a relatively early stage of
development, and the extent to which our lithium-ion batteries will be able to
meet our customers’ requirements and achieve significant market acceptance is
uncertain. Rapid and ongoing changes in technology and product standards could
quickly render our products less competitive or even obsolete if we fail to
continue to improve the performance of our battery chemistries and systems.
Other companies that are seeking to enhance traditional battery technologies
have recently introduced or are currently developing batteries based on other
emerging technologies. These competitors are engaged in significant development
work on these various battery systems. One or more new, higher energy
rechargeable battery technologies could be introduced which could be directly
competitive with, or superior to, our technology. The capabilities of many of
these competing technologies have improved over the past several years.
Competing technologies that outperform our batteries could be developed and
successfully introduced, and as a result, there is a risk that our products may
not be able to compete effectively in our target markets. If our battery
technology is not adopted by our customers, or if our battery technology does
not meet industry requirements for power and energy storage capacity in an
efficient and safe design, our batteries may not gain market
acceptance.
We
intend to offer lithium-ion batteries to the automotive industry, which is a
very competitive and cost focused industry. We have limited automotive industry
experience.
Our
primary business strategy, which is to supply lithium-ion batteries to the
automotive industry, carries significant risks. We will be competing against
much larger suppliers that have greater financial, marketing and other
resources; more experience in low cost, high-volume manufacturing operations;
existing relationships with automotive purchasing and engineering development
departments; and increased ability to take advantage of economies of scale in
purchasing raw materials. The automotive industry is extremely competitive and
competition to supply vehicle components to manufacturers focuses on the power,
energy, cost, weight and size of such components. The ability of domestic
automobile manufacturers to adopt new battery technologies will depend on many
factors outside our control, including their ability to develop related vehicle
platforms. If the industry does not accept lithium-ion battery technology, or if
our lithium-ion batteries do not meet industry requirements for battery power,
energy, cost, weight, size and other characteristics, our batteries will not
gain market acceptance and/or our primary business strategy will not be
successful.
We
may not be able to protect the intellectual property upon which we depend and we
could incur substantial costs defending against claims that our products
infringe on the proprietary rights of others.
As of
October 31, 2010, we have 44 United States issued patents and 33 foreign issued
patents. Our ability to compete effectively will depend, in part, on our ability
to protect our proprietary technologies, systems designs and manufacturing
processes. While we have attempted to safeguard and maintain our proprietary
rights, we do not know whether we have been or will be completely successful in
doing so. We rely on patents, trademarks, and policies and procedures related to
confidentiality to protect our intellectual property. However, some of our
intellectual property is not covered by any patents or patent applications.
Moreover, we do not know whether any of our pending patent applications will
issue or, in the case of patents issued or to be issued, that the claims allowed
are or will be sufficient to protect our technology or processes. Even if all of
our patent applications are issued, our patents may be challenged or
invalidated. Patent applications filed in foreign countries may be subject to
laws, rules and procedures that are substantially different from those of the
United States, and any resulting foreign patents may be difficult and expensive
to enforce. In addition, we do not know whether the United States Patent &
Trademark Office will grant federal registrations based on our pending trademark
applications. Even if federal registrations are granted to us, our trademark
rights may be challenged. It is possible that our competitors or others will
adopt trademarks similar to ours, thereby impeding our ability to maintain our
brand identity and possibly leading to customer confusion.
Asserting,
defending and maintaining our intellectual property rights could be difficult
and costly and a failure to do so may diminish our ability to compete
effectively and may harm our operating results. We may need to pursue legal
action to enforce our intellectual property rights, to protect our trade secrets
and domain names and to determine the validity and scope of the proprietary
rights of others. If third parties prepare and file applications for trademarks
used or registered by us, we may oppose those applications and be required to
participate in proceedings to determine priority of rights to the trademark.
Similarly, competitors may have filed applications for patents, may have
received patents and may obtain additional patents and proprietary rights
relating to products or technology that block or compete with ours. We may have
to participate in interference proceedings to determine the priority of
invention and the right to a patent for the technology. Litigation and
interference proceedings, even if they are successful, are expensive to pursue
and time consuming and could require the expenditure of a substantial amount of
our financial resources. If we are found to be infringing third-party
proprietary rights, we could be required to pay substantial royalties and/or
damages, or be enjoined from selling our products. We do not know whether we
will be able to obtain licenses to use the intellectual property at issue on
acceptable terms, if at all. Failure to obtain needed licenses could delay or
prevent the development, manufacture or sale of our products and could require
the expenditure of significant resources to develop or acquire non-infringing
intellectual property.
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We
rely, in part, on contractual provisions to protect our trade secrets and
proprietary knowledge.
Confidentiality
agreements to which we are party may be breached, in which case we may not have
adequate remedies. Our trade secrets may become publicly available without
breach of such agreements or may be independently developed by competitors. Our
inability to maintain the proprietary nature of our technology and processes
could allow our competitors to limit or eliminate any competitive advantages we
may have.
Our
principal shareholders have substantial control over our affairs.
Ener1
Group, Inc. and Bzinfin, S.A. are affiliated entities that as of October 25,
2010, own 49.6% of our outstanding common stock (and 57.6% if these entities
exercised all of the warrants they own). A principal of the two entities is also
a member of our Board of Directors. Ener1 Group and Bzinfin have the ability to
effectively control all matters submitted to a vote of the shareholders of
Ener1, including increases of authorized shares of the Company, the election and
removal of directors and any decision regarding any potential merger,
consolidation or sale of all or substantially all of our assets. In addition,
Ener1 Group and Bzinfin, through their combined ability to elect a majority of
the members of our Board of Directors, may dictate the management of our
business and affairs. This concentration of ownership could have the effect of
delaying, deferring or preventing an increase in the Company’s authorized shares
or a change in control or impeding a merger, consolidation, takeover or other
business combination which other shareholders may view favorably.
Lithium-ion
battery cells have, on rare occasions, been observed to catch fire or vent smoke
and flames.
Batteries
contain chemicals including acid-based electrolytes that, if improperly
packaged, used, charged or discharged, could result in serious injuries and
damage to property from fire or otherwise. On rare occasions, lithium-ion cells
can rapidly release the energy they contain by venting smoke and flames in a
manner that can ignite nearby materials. For example, a claim has been brought
against our South Korean subsidiary for damages resulting from a battery that
was allegedly packaged improperly and subsequently caught fire. Although we did
not package the battery in question, and although we believe we have no
liability with respect to such claim, it is possible that we may become subject
to future claims for damages caused by our batteries, whether or not the cause
of such damages were our responsibility or the responsibility of third-party
manufacturers and packagers. Regardless of the merits of any claims such as the
foregoing, we cannot predict when such claims may be brought against us and
whether such claims will lead to costly litigation. In addition, highly
publicized incidents of laptop computer and cell phone batteries bursting into
flames have focused consumer attention on the safety of these lithium-ion
battery cells. These events have also raised questions about the suitability of
lithium-ion cells for automotive applications. To address these questions and
concerns, a number of cell manufacturers are pursuing alternative lithium-ion
battery cell chemistries and formulations to improve safety. We have tested our
batteries and subjected them to damage-inducing treatments such as high
temperatures, vibrations, overcharging, crushing or puncturing, all in order to
assess our battery pack’s response to deliberate and sometimes destructive
abuse. There is no assurance that a failure of our battery packs will not occur,
which could lead to property damage, personal injury or death and may subject us
to lawsuits.
In
addition, we expect to store a significant number of lithium-ion cells at our
manufacturing facilities. Any mishandling of battery cells in the production
process may cause disruption to the operation of our facilities. While we have
implemented safety procedures related to the handling of the cells, there is no
assurance that a safety issue or fire related to battery cells would not disrupt
our operations. Such damage or injury would likely lead to adverse publicity and
potentially a safety recall. The manufacture and use of batteries could also
result in product liability claims. Our product liability insurance may not be
adequate to protect us from potential liability claims. We also may have
exposure to possible third-party claims that our batteries have caused damages
to other products or caused serious injuries.
The
industry could be harmed from negative publicity if serious accidents are
attributable to battery products regardless of whose battery product was
involved. Such damage or adverse publicity would negatively affect our brand and
harm our business, operating results, financial condition and
prospects.
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We
are subject to financial and reputational risks due to product recalls resulting
from product quality and liability issues.
The risk
of product recalls, and associated adverse publicity, is inherent in the
development, manufacture, marketing and sale of batteries and battery systems.
Our products and the products of third parties in which our products are a
component are becoming increasingly sophisticated and complicated as rapid
advancements in technologies occur and as demand increases for lighter and more
powerful rechargeable batteries. At the same time, product quality and liability
issues present significant risks. Product quality and liability issues may
affect not only our own products but also the third-party products in which our
batteries and battery systems are a component. Our efforts and the efforts of
our development partners to maintain product quality may not be successful, and
if they are not, we may incur expenses in connection with, for example, product
recalls and lawsuits, and our brand image and reputation may suffer. Any product
recall or lawsuit seeking significant monetary damages could have a material
adverse effect on our business and financial condition. A product recall could
generate substantial negative publicity about our products and business, could
interfere with our manufacturing plans and product delivery obligations as we
seek to replace or repair affected products or could inhibit or prevent
commercialization of other future product candidates. Although we do have
product liability insurance, we do not have insurance sufficient to cover the
costs associated with a product recall and the expenses we would incur in
connection with a product recall could have a material adverse affect on our
operating results.
We
rely on third parties to develop and provide key materials and components for
our products.
We rely
on third-party suppliers to develop and supply key materials and components for
our products. If those suppliers fail to develop and supply these materials and
components in a timely manner or at all, or fail to develop or supply materials
and components that meet our quality, quantity or cost requirements, and we are
unable to obtain substitute sources of these materials and components on a
timely basis or on terms acceptable to us, we may not be able to manufacture our
products. In addition, we may be unable to obtain substitute sources of these
materials and components to the extent our suppliers use technology or
manufacturing processes that are proprietary. We do not know when or whether we
will secure long-term supply relationships with any suppliers or whether such
relationships will be on costs and terms that will allow us to achieve our
objectives. Our business, prospects, results of operations and financial
condition could be harmed if we fail to secure long-term relationships with
entities that will supply the required components for our battery and energy
related products. If we experience a rapid increase in demand for our battery
products, we could face short term supply issues on key materials and components
of our battery systems.
Demand
for raw materials may affect future prices and availability of raw
materials.
The
demand for raw materials that we use, including lithium, may increase as the
projected demand for hybrid and electric vehicles increases which in turn could
lead to higher prices for our raw materials. Global supply disruptions caused by
political or other dislocations could also lead to shortages and higher prices.
The inability to acquire raw materials on commercially reasonable terms, or at
all, would delay and/or increase the cost of manufacturing our products and
result in a significant adverse effect on our profitability.
Declines
in product prices may adversely affect our financial results.
Our
business is subject to intense price competition worldwide, which makes it
difficult for us to maintain product prices and achieve adequate profits. Such
intense price competition may adversely affect our ability to achieve
profitability, especially during periods of decreased demand. In addition,
because of their purchasing size, our larger automotive customers can influence
market participants to compete on price terms. If we are not able to offset
pricing reductions resulting from these pressures by improved operating
efficiencies and reduced expenditures, those pricing reductions may have an
adverse impact on our business.
Failure
of our planned products to pass testing would negatively impact demand for our
planned products.
We may
encounter difficulties and delays during testing of our planned products for a
number of reasons, including the failure of our technology or the technology of
third parties. Many of these potential problems and delays are beyond our
control. Any problem or perceived problem with test results for our planned
products would materially harm our reputation and impair market acceptance of,
and demand for, any of our products.
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We
face risks associated with our plans to market, distribute and service our
products internationally.
We have
limited experience developing, manufacturing and distributing products for sale
either domestically or internationally. Our success in international markets
will depend, in part, on our ability to secure relationships with foreign
sub-distributors and to manufacture products that meet foreign regulatory and
commercial standards. International operations are subject to other inherent
risks, including potential difficulties in enforcing contractual obligations and
intellectual property rights in foreign countries (especially China) and
fluctuations in currency exchange rates.
Our
substantial international operations subject us to a number of risks, including
unfavorable political, regulatory, labor and tax conditions.
We have
significant manufacturing facilities and operations in South Korea, we intend to
expand our presence in China through our planned joint venture with the Wanxiang
Group and we are in the process of expanding our business in Europe through
growth in our customer relationships. These activities are subject to the legal,
political, regulatory and social requirements and economic conditions in these
jurisdictions. In addition, we expect to sell a significant portion of our
products to customers located outside the United States. Risks inherent to
international operations and sales, include, but are not limited to, the
following:
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•
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exposure to violations of the
Foreign Corrupt Practices Act of 1977, as
amended;
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difficulty in enforcing
agreements, judgments and arbitration awards in foreign legal
systems;
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fluctuations in exchange rates
may affect product demand and may adversely affect our profitability in
United States dollars to the extent the cost of raw materials and labor is
denominated in a foreign
currency;
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impediments to the flow of
foreign exchange capital payments and receipts due to exchange controls
instituted by certain foreign governments and the fact that the local
currencies of these countries are not freely
convertible;
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inability to obtain, maintain or
enforce intellectual property
rights;
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•
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changes in general economic and
political conditions;
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changes in foreign government
regulations and technical standards, including additional regulation of
rechargeable batteries, power technology, or the transport of lithium or
phosphate, which may reduce or eliminate our ability to sell or license in
certain markets;
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requirements or preferences of
foreign nations for domestic products could reduce demand for our
products;
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trade barriers such as export
requirements, tariffs, taxes and other restrictions and expenses, which
could increase the prices of our products and make us less competitive;
and
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longer payment cycles typically
associated with international sales and potential difficulties in
collecting accounts receivable, which may reduce the future profitability
of foreign sales.
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Our
business in foreign jurisdictions requires us to respond to rapid changes in
market conditions in these countries. Our overall success as a global business
depends on our ability to succeed in different legal, regulatory, economic,
social and political situations and conditions. We may not be able to develop
and implement effective policies and strategies in each foreign jurisdiction
where we do business. Also, each of the foregoing risks will likely take on
increased significance as we implement plans to expand foreign manufacturing
operations.
The
United States and global automobile industries have undergone a significant
decline in worldwide sales, with many participants experiencing large losses and
liquidity issues, all of which may affect our future sales and the development
of the electric vehicle industry generally.
Our
business depends on and is directly affected by the general state of the United
States and global automobile industries. The effect of the continued economic
difficulties of the major auto manufacturers on our business is unclear. Several
automotive companies were sold or closed in recent years, and two large United
States automotive companies reorganized under the bankruptcy laws. Several large
automotive companies have sold or discontinued brands of automobiles. It is
possible that the ownership of our prospective customers could change and affect
our supply agreements and development activities. Volvo, a significant
prospective customer, has been acquired by Geely Automotive based in China. The
impact of any such restructuring on the automobile industry and its suppliers is
unclear and difficult to predict. Possible effects could include reduced
spending on alternative energy systems for automobiles, a delay in the
introduction of new hybrid and electric vehicles and a delay in the conversion
of automobile car battery technology from NiMH to lithium-ion chemistry, each of
which would have a material adverse effect on our
business.
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We
may be unable to manage rapid growth effectively.
We expect
to expand our manufacturing capabilities, accelerate the commercialization of
our products and enter a period of growth, all of which will place a significant
strain on our senior management team and our financial and other resources. Our
proposed expansion will expose us to increased competition, greater overhead,
marketing and support costs and other risks associated with the
commercialization of new products. Our ability to manage our growth effectively
will require us to continue to improve our operations and our financial and
management information systems and to train, motivate and manage our employees.
Difficulties in effectively managing the budgeting, forecasting and other
process control issues presented by such a rapid expansion could harm our
business, prospects, results of operations and financial condition.
Future
acquisitions may disrupt our business, distract our management and reduce the
percentage ownership of our shareholders.
As part
of our business strategy, we may seek to acquire complementary technologies,
products, expertise and/or other valuable assets. We may be unable, however, to
identify suitable acquisition candidates or, if we do identify suitable
candidates, we may not be able to complete acquisitions on commercially
acceptable terms or at all. If we issue equity securities as part of an
acquisition transaction, the percentage ownership of our then current
shareholders may be reduced. By virtue of our ownership interest in Think
Holdings, and the contractual relationship with certain shareholders of Think
which allow them to put their preferred shares in Think to us in exchange for
our common stock, we may obtain a majority interest in Think Holdings. Once we
have acquired a business, we may have to devote a significant amount of time,
management and financial resources to successfully integrate the business into
our existing operations in a timely and non-disruptive manner, and we may be
unable to do so. An acquisition may not produce the desired revenues, earnings
or business synergies that were anticipated prior to concluding the transaction,
which in turn could cause our business and financial condition to be materially
and adversely affected. As a result of an acquisition, we may incur nonrecurring
charges and be required to amortize significant amounts of intangible assets,
which in turn could adversely affect our results of operations and
profitability.
We
may not meet our development and commercialization milestones.
We have
established product development and commercialization milestones that we use to
assess our progress toward developing additional commercially viable products.
These milestones relate to power, energy capacity, technology and product design
as well as to dates for achieving development goals. To gauge our progress, we
plan to operate, test and evaluate our products. If our systems or products
exhibit performance or technical defects or are unable to meet cost or
performance goals, including power output, useful life and reliability, our
commercialization schedule could be delayed and potential purchasers of our
commercial battery and energy products may decline to purchase them. We cannot
assure you that we will successfully achieve our milestones in the future or
that any failure to achieve these milestones will not result in potential
competitors gaining advantages in our target market. Failure to meet our
development and commercialization milestones might have a material adverse
effect on our operations and our stock price.
Regulatory
and other changes related to the energy industry or to the electric vehicle
industry may adversely affect our ability to produce, and may reduce demand for,
our planned products.
Federal,
state, local and foreign government laws, regulations and policies concerning
the energy industry and/or the electric vehicle industry may heavily influence
the market for our technologies and products. A change in the current regulatory
environment, including amendments to or a rescission or delay in implementation
of federal Corporate Average Fuel Economy standards mandate increases in fuel
economy in the United States or reduction in tax incentives to purchase EVs,
could make it more difficult or costly for us to develop, manufacture or market
our products. Any such changes could also deter further investment in the
research and development of alternative energy sources, which could
significantly reduce demand for our technologies and products. We cannot predict
how changes in regulation or other industry changes will affect the market for
our products or impact our ability to distribute, install and service our
products.
- 55
-
Business
practices in Asia may entail greater risk and dependence upon the personal
relationships of senior management than is common in North America, and
therefore some of our agreements with other parties in China and South Korea
could be difficult or impossible to enforce.
The
business culture in parts of Asia is, in some respects, different from the
business cultures in Western countries and may present some difficulty for
Western investors reviewing contractual relationships among companies in Asia
and evaluating the merits of an investment. Personal relationships among
business principals of companies and business entities in Asia may be very
significant in their business cultures. In some cases, because so much reliance
is based upon personal relationships, written contracts among businesses in Asia
may be less detailed and specific than is commonly accepted for similar written
agreements in Western countries. In some cases, material terms of an
understanding are not contained in the written agreement but exist only as oral
agreements. In other cases, the terms of transactions which may involve material
amounts of money are not documented at all. In addition, in contrast to the
Western business environment where a written agreement specifically defines the
terms, rights and obligations of the parties in a legally-binding and
enforceable manner, the parties to a written agreement in Asia may view that
agreement more as a starting point for an ongoing business relationship which
will evolve and undergo ongoing modification over time. As a result, written
agreements in Asia may appear to the Western reader to look more like outline
agreements that precede a formal written agreement. While these documents may
appear incomplete or unenforceable to a Western reader, the parties to the
agreement in Asia may feel that they have a more complete understanding than is
apparent to someone who is only reading the written agreement without having
attended the negotiations. As a result, contractual arrangements in Asia may be
more difficult to review and understand.
We
could incur substantial costs, including environmental damages and sanctions,
cleanup costs and capital expenditures, resulting from our research, development
or manufacturing operations.
We are
subject to numerous federal, state, local, foreign and international laws,
regulations and other requirements relating to environmental protection and
human health and safety, including those governing the management,
manufacturing, transport, sale, importation and disposal of hazardous materials,
the cleanup of contaminated sites and the discharge of pollutants to air and
water. Our business involves the use of hazardous materials and exposes us to
the risk that harmful substances may escape into the environment, resulting in
personal injury or loss of life, damage to or destruction of property and
natural resources, cleanup obligations or other liabilities or claims. Our
insurance policies may not adequately reimburse us for costs incurred in
defending, settling and paying environmental liabilities and claims, and in some
instances, we may not be reimbursed at all. These laws and regulations have
changed frequently in the past, and it is reasonable to expect there will be
additional changes in the future. If our operations do not comply with current
or future environmental laws and regulations, we may be required to make
significant unanticipated capital and operating expenditures to bring our
operations or products into compliance. If we fail to comply with applicable
environmental laws and regulations, governmental authorities may seek to impose
fines and penalties on us or to revoke or deny the issuance or renewal of
operating permits and private parties may seek damages from us. Under those
circumstances, we might be required to curtail or cease operations, conduct site
remediation or other corrective action, or pay substantial damage claims. Our
facilities or operations also could be damaged or adversely affected as a result
of natural disasters or unpredictable events.
Laws
regulating the manufacture, transportation or exportation of batteries may be
enacted which could result in a delay in the production of our batteries or the
imposition of additional costs that could harm our ability to be
profitable.
Laws and
regulations exist today, and additional laws and regulations may be enacted in
the future, which impose environmental, health and safety controls on the
transportation, exportation, storage, use and disposal of certain chemicals and
metals used in the manufacture of lithium-ion batteries. Complying with any laws
or regulations could require significant time and resources from our technical
staff and possible redesign of our products or otherwise result in substantial
expenditures or delays in the production of one or more of our products, all of
which could harm our business and reduce our future profitability. The
transportation of lithium and lithium-ion batteries is regulated both
domestically and internationally. Compliance with these regulations, when
applicable, increases the cost of producing and delivering our
products.
- 56
-
Our
business depends on retaining and attracting highly capable management and
operating personnel.
Our
success depends in large part on our ability to retain and attract qualified
management and operating personnel. We require a highly-skilled, specialized
workforce, including scientists, engineers, researchers and manufacturing and
marketing professionals, individuals who are in high demand and are often
subject to competing offers. To retain and attract key personnel, we use various
measures, including employment agreements, a stock incentive plan and incentive
bonuses for key employees. These measures may not be enough to retain and
attract the personnel we need or to offset the impact on our business of the
loss of the services of key officers or employees. We could face difficulty
hiring and retaining qualified management and operating personnel. Because of
the highly technical nature of our batteries and battery systems, the loss of
any significant number of our existing engineering and project management
personnel could have a material adverse effect on our business and operating
results.
Future
issuances of our common stock may adversely affect our stock price.
The sale
of a substantial number of shares of our common stock, the exercise of existing
warrants or stock options, the exchange of shares of Think Holdings AS for
shares of our common stock or the perception by the market that such sales,
exercises or exchanges could occur may cause the market price of our common
stock to decline or may make it more difficult for us to raise funds through the
sale of equity or equity-linked securities in the future. Similarly, if we issue
a large number of shares in connection with future acquisitions or financings,
particularly if we issue shares at a discount to the then current market price,
the price of our common stock could decline significantly.
We will
need to raise additional capital in the future, and there is no assurance that
we will be able to raise additional funds on terms favorable to us or at all.
Our failure to obtain required financing would materially and adversely affect
our financial condition and our prospects. We have outstanding warrants
exercisable for approximately 41,564,773 shares of our common stock as of
October 25, 2010. The exercise price and expiration date for these warrants are
summarized in the table below:
Number of Warrant Shares
|
|||||||||
Ener1 Group
and Bzinfin
|
Other
Holders
|
Exercise
Price
|
Expiration Date
|
||||||
1,962,500
|
- | $ | 8.25 |
Various
2011
|
|||||
4,969,893
|
- | $ | 2.10 |
June
30, 2011
|
|||||
-
|
250,000 | $ | 4.90 |
October
20, 2011
|
|||||
-
|
750,000 | $ | 5.25 |
October
20, 2011
|
|||||
-
|
71,429 | $ | 2.10 |
January
5, 2012
|
|||||
250,000
|
- | $ | 8.25 |
February
10, 2012
|
|||||
2,457,144
|
- | $ | 2.10 |
February
13, 2012
|
|||||
-
|
1,046,511 | $ | 4.09 | * |
March
23, 2012
|
||||
5,331,758
|
- | $ | 2.10 |
Various
2012
|
|||||
2,274,569
|
3,061,919 | $ | 2.80 |
August
14, 2012
|
|||||
142,858
|
- | $ | 5.95 |
March
26, 2013
|
|||||
-
|
170,551 | $ | 10.50 |
November
14, 2013
|
|||||
-
|
170,551 | $ | 14.00 |
November
14, 2013
|
|||||
-
|
2,285,717 | $ | 7.11 | * |
January
21, 2014
|
||||
-
|
274,286 | $ | 17.57 |
December
9, 2014
|
|||||
863,806
|
- | $ | 3.40 |
August
5, 2015
|
|||||
1,457,672
|
- | $ | 4.25 |
August
5, 2015
|
|||||
-
|
2,882,775 | $ | 3.82 |
September
2, 2015
|
|||||
3,000,000
|
- | $ | 3.48 |
December
8, 2015
|
|||||
5,000,000
|
- | $ | 4.40 |
December
8, 2015
|
|||||
910,000
|
- | $ | 3.53 |
March
21, 2016
|
|||||
1,516,670
|
- | $ | 4.46 |
March
21, 2016
|
|||||
174,062
|
- | $ | 3.79 |
April
1, 2016
|
|||||
290,102
|
- | $ | 4.79 |
April
1, 2016
|
|||||
30,601,034
|
10,963,739 |
- 57
-
*
|
Exercise price subject to
adjustment for issuance of stock on October 4, 2010 and October 25, 2010.
The Company does not expect that the adjustment will materially change the
exercise price.
|
In
connection with our equity investment in Think, we granted a put right to
certain other investors in Think. The put right expires on May 10, 2011 and
grants these investors the right to exchange their Think preferred shares (along
with one-half of their Think warrants) for our common stock. In connection with
any put, the agreed upon exchange price for one Think preferred share is $1.67,
and the price at which our common stock is valued will be the then 15 day moving
average of our common stock trading price (but in no event less than $4.00 per
share). Our obligation to honor all of the put rights is capped at $27,500,000.
Since the per share price at which Think investors may exchange their Think
shares to us is fixed at $1.67, a decline in the value of Think in conjunction
with the issuance of our common stock at fair value may have an adverse effect
on our stock price.
Our
equity financing obtained from Ener1 Group during 2010, specifically purchases
of our equity securities under the June SPA, the September SPA and the October
SPA, was funded by Ener1 Group through a loan it obtained from JSC VTB Bank. In
connection with such loan, Ener1 Group and its principals pledged more than a
majority of their shares of our common stock to JSC VTB Bank as collateral. The
pledged shares represent approximately one-third of our outstanding shares of
common stock. As part of that loan, we granted JSC VTB Bank registration rights
with respect to the pledged shares on a “commercially reasonable” basis. If JSC
VTB Bank forecloses on the pledged shares and decides to sell such shares in
large blocks, any such sales would likely have a material adverse affect on our
stock price.
On August
3, 2010, we entered into a conversion agreement with Bzinfin, S.A. pursuant to
which we agreed to convert all of the principal and accrued interest owed to
Bzinfin under our line of credit facility with them into shares of our common
stock and warrants. As of August 3, 2010, the aggregate principal and accrued
and unpaid interest outstanding under our line of credit facility was
$18,355,868. The price at which we agreed to convert this loan amount is $3.40
per share, which reflects the closing trading price for our common stock on
August 3, 2010 ($3.34) plus a six cent premium. For each share of common stock
issued as part of the conversion, we issued to Bzinfin 0.16 five-year “Class A”
warrants having an exercise price of $3.40 per share, and 0.27 five-year “Class
B” warrants having an exercise price of $4.25 per share. Based on the foregoing,
an aggregate of 5,398,785 shares of common stock, 863,806 “Class A” warrants and
1,457,672 “Class B” warrants have been issued to Bzinfin, and at such time our
line of credit facility with Bzinfin has been satisfied in full and
terminated.
In
addition to the foregoing, one of our unaffiliated shareholders owns a
substantial block of our common stock, consisting of 12,000,000 shares issued on
June 3, 2010. Although these shares are currently restricted, with the lapse of
time, these shares will become unrestricted six months after the date of
issuance, and subject to potential resale in the market.
Our
stock price has been, and could remain, volatile.
The
market price of our common stock has historically experienced, and may continue
to experience, significant volatility. Our progress in developing and
commercializing our products, our quarterly operating results, announcements of
new products by us or our competitors, our perceived prospects, changes in
securities analysts’ recommendations or earnings estimates, changes in general
conditions in the economy or the financial markets, adverse events related to
our strategic relationships and other developments affecting us or our
competitors could cause the market price of our common stock to fluctuate
substantially. In addition, in recent years, the stock market, and in particular
the market for technology-related stocks, has experienced significant price and
volume fluctuations. This volatility has affected the market prices of
securities issued by many companies for reasons unrelated to their operating
performance and may adversely affect the price of our common stock. In addition,
we may be subject to class action securities litigation as a result of
volatility in the price of our common stock, which could result in substantial
costs and diversion of management’s attention and resources and could harm our
stock price and the value of our other debt or equity securities, and our
business, prospects, results of operations and financial
condition.
- 58
-
Our
articles of incorporation and Florida law could adversely affect our common
stock price.
Provisions
of our articles of incorporation and Florida law could discourage potential
acquisition proposals and could delay or prevent a change in control of us.
These provisions could diminish the opportunities for a shareholder to
participate in tender offers, including tender offers at a price above the then
current market value of our common stock. These provisions may also inhibit
fluctuations in the market price of our common stock that could result from
takeover attempts. In addition, our board of directors, without further
shareholder approval, may issue additional series of preferred stock that could
have the effect of delaying, deterring or preventing a change in control. The
issuance of additional series of preferred stock could also adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others.
Item
6. Exhibits.
See
exhibits listed under the Exhibit Index below.
- 59
-
ENER1,
INC. AND SUBSIDIARIES
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
ENER1,
INC.
|
||
Dated:
November 4, 2010
|
by:
|
/s/ Charles Gassenheimer
|
Charles
Gassenheimer
|
||
Chief
Executive Officer, Chairman
|
||
(Principal
Executive Officer)
|
||
Dated:
November 4, 2010
|
by:
|
/s/ Jeffrey
Seidel
|
Jeffrey
Seidel
|
||
Chief
Financial Officer
|
||
(Principal
Financial Officer)
|
||
Dated:
November 4, 2010
|
by:
|
/s/ Robert R.
Kamischke
|
Robert
R. Kamischke
|
||
Chief
Accounting Officer and Vice President of Finance
|
||
(Principal
Accounting Officer)
|
- 60
-
Exhibit
Number
|
Description
|
|
3.1
|
Amended
and Restated Articles of Incorporation of the Registrant, dated February
12, 1993, incorporated by reference to Exhibit 3(i) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2000,
SEC File No. 000-21138.
|
|
3.2
|
Articles
of Amendment to Amended and Restated Articles of Incorporation, dated
March 11, 2002, incorporated by reference to Exhibit 3.2 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
2001, SEC File No. 000-21138.
|
|
3.3
|
Articles
of Amendment to Amended and Restated Articles of Incorporation, dated
October 21, 2002, incorporated by reference to Exhibit 3.1 of the
Registrant's Current Report on Form 8-K dated October 28, 2002, SEC File
No. 000-21138.
|
|
3.4
|
Articles
of Amendment to Amended and Restated Articles of Incorporation,
incorporated by reference to Exhibit A of the Registrant's Schedule 14C
filed on December 6, 2004, SEC File No. 000-21138.
|
|
3.5
|
By-laws
of the Registrant, incorporated by reference to Exhibit 3.4 of the
Registrant's Registration Statement on Form SB-2 (Registration No.
333-112837), filed February 13, 2004.
|
|
3.6
|
Certificate
of Designations of Series B Convertible Preferred Stock, dated October 15,
2004, incorporated by reference to Exhibit 3.6 of the Registrant’s Annual
Report on Form 10-KSB for the year ended December 31, 2004, SEC File No.
000-21138.
|
|
3.7
|
Amendment
to By-laws of the Registrant, dated January 5, 2005, incorporated by
reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K
dated January 12, 2005, SEC File No. 000-21138.
|
|
3.8
|
Articles
of Amendment to Amended and Restated Articles of Incorporation,
incorporated by reference to Exhibit B of the Registrant's Schedule 14C
filed December 10, 2007.
|
|
3.9
|
Articles
of Amendment to Amended and Restated Articles of Incorporation,
incorporated by reference to Exhibit 3.8 of the Registrant’s Current
Report on Form 8-K filed April 24, 2008.
|
|
3.10
|
Articles
of Amendment to Amended and Restated Articles of Incorporation,
incorporated by reference to Exhibit B of the Registrant’s Schedule 14C
filed July 22, 2008.
|
|
3.11
|
Articles
of Amendment to Amended and Restated Articles of Incorporation,
incorporated by reference to Exhibit B of the Registrant’s Schedule 14C
filed December 11, 2008.
|
|
3.12
|
Articles
of Amendment to Amended and Restated Articles of Incorporation,
incorporated by reference to Exhibit of the Registrant’s Schedule 14C
filed June 11, 2010.
|
|
4.1
|
Form
of Warrant to Purchase Common Stock issued pursuant to Securities Purchase
Agreement, dated January 16, 2004, incorporated by reference to Exhibit
4.2 to the Registrant's Current Report on Form 8-K dated January 21, 2004,
SEC File No. 000-21138.
|
|
4.2
|
Warrant
to Purchase Common Stock issued October 20, 2004 to Delphi Automotive
Systems, LLC, to purchase up to 7,000,000 shares of Common Stock,
incorporated by reference to Exhibit 4.6 of the Registrant’s Annual Report
on Form 10-KSB for the year ended December 31, 2004, SEC File No.
000-21138.
|
|
4.3
|
Form
of Warrant to Purchase Common Stock of Ener1, dated December 9, 2004
issued to Merriman Curhan Ford & Co., incorporated by reference to
Exhibit 4.10 to the Registrant’s Registration Statement on Form SB-2
(Registration No. 333-124745), filed May 9,
2005.
|
- 61
-
4.4
|
Warrant
issued to Ener1 Group, Inc. dated June 30, 2006 to purchase 9,000,000
shares of Common Stock of the Registrant incorporated by reference to
Exhibit 4.17 of Registrant's Quarterly Report on Form 10-QSB, filed August
21, 2006.
|
|
4.5
|
Warrant
issued to Ener1 Group, Inc. dated June 30, 2006 to purchase 20,000,000
shares of Common Stock of the Registrant incorporated by reference to
Exhibit 4.18 of Registrant's Quarterly Report on Form 10-QSB, filed August
21, 2006.
|
|
4.6
|
Form
of Warrant to Purchase Common Stock of Ener1, Inc. issued to Ener1 Group
on August 29, 2006, incorporated by reference to Exhibit 4.17 of
Registrant's Form SB-2/A filed September 3, 2006.
|
|
4.7
|
Warrant
issued to Ener1 Group, Inc. dated September 30, 2006 to purchase 9,000,000
shares of Common Stock of the Registrant, incorporated by reference to
Exhibit 4.20 of Registrant's Quarterly Report on Form 10-QSB for the
period ending September 30, 2006.
|
|
4.8
|
Warrant
issued to Ener1 Group, Inc. dated September 30, 2006 to purchase 9,000,000
shares of Common Stock of the Registrant, incorporated by reference to
Exhibit 4.21 of Registrant's Quarterly Report on Form 10-QSB for the
period ending September 30, 2006.
|
|
4.9
|
Form
of Warrant to purchase 9,000,000 and 18,000,000 shares of Common Stock of
the Registrant, issued to Ener1 Group, Inc. dated February 13, 2007,
incorporated by reference to Exhibit 4.27 to the Registrant’s Registration
Statement on Form SB-2 filed on February 13, 2007.
|
|
4.10
|
Warrant
issued to Charles Gassenheimer dated January 5, 2007 to purchase 500,000
shares of common stock of the Registrant, incorporated by reference to
Exhibit 4.28 to the Registrant’s Registration Statement on Form SB-2 filed
on February 13, 2007.
|
|
4.11
|
Form
of Warrant to Purchase Common Stock of the Registrant issued pursuant to
Series B Stock Amendment Agreement between Ener1, Inc., Ener1 Group, Inc.
and Cofis Compagnie Fiduciaire S.A., incorporated by reference to Exhibit
4.32 of the Registrant’s Annual Report on Form 10-KSB for the period ended
December 31, 2007 filed on March 12, 2008.
|
|
4.12
|
Warrant
issued to Alpha Class Investments, Ltd., dated October 24, 2008, to
purchase 2,560,000 shares of Common Stock of the Registrant at a price per
share of $7.50, incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K dated October 30,
2008.
|
|
4.13
|
Warrant
to Purchase Common Stock of Ener1, Inc. under Line of Credit Agreement
dated December 29, 2008, incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K dated December 30,
2008.
|
|
4.14
|
Warrant
Agreement with Credit Suisse AG, Cayman Islands Branch, dated as of March
23, 2010, incorporated by reference to Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K dated March 23, 2010.
|
|
4.15
|
Securities
Purchase Agreement with Ener1 Group, Inc., dated June 1, 2010,
incorporated by reference to Exhibit 10.6 to the Registrant’s Form 10-Q
dated August 5, 2010.
|
|
4.16
|
Warrant
Agreement with Ener1 Group, Inc., dated as of June 8, 2010, to purchase
3,000,000 shares of Common Stock of the Registrant at a price per share of
$3.48 (Class A Warrant), incorporated by reference to Exhibit 4.19 to the
Registrant’s Form 10-Q dated August 5, 2010.
|
|
4.17
|
Warrant
Agreement with Ener1 Group, Inc., dated as of June 8, 2010, to purchase
5,000,000 shares of Common Stock of the Registrant at a price per share of
$4.40 (Class B Warrant), incorporated by reference to Exhibit 4.20 to the
Registrant’s Form 10-Q dated August 5, 2010.
|
|
- 62
-
4.18
|
Conversion
Agreement with Bzinfin, S.A., dated August 3, 2010, incorporated by
reference to Exhibit 10.7 to the Registrant’s Form 10-Q dated August 5,
2010.
|
|
4.19
|
Warrant
Agreement with Bzinfin, S.A., dated as of August 3, 2010, to purchase
863,806 shares of Common Stock of the Registrant at a price per share of
$3.40 (Class A Warrant), incorporated by reference to Exhibit 4.21 to the
Registrant’s Form 10-Q dated August 5, 2010.
|
|
4.20
|
Warrant
Agreement with Bzinfin, S.A., dated as of August 3, 2010, to purchase
1,457,672 shares of Common Stock of the Registrant at a price per share of
$4.25 (Class B Warrant), incorporated by reference to Exhibit 4.22 to the
Registrant’s Form 10-Q dated August 5, 2010.
|
|
4.21
|
Note
Purchase Agreement, dated as of August 27, 2010, by and between Ener1 and
Itochu Corporation, incorporated by reference to Exhibit 1.1 to the
Registrant’s Current Report on Form 8-K dated September 2,
2010.
|
|
4.22
|
$4,000,0000
6% Senior Convertible Note, dated August 27, 2010, issued by Ener1 to
Itochu Corporation, incorporated by reference to Exhibit 1.2 to the
Registrant’s Current Report on Form 8-K dated September 2,
2010.
|
|
4.23
|
*
|
$6,000,000
6% Senior Convertible Note, dated September 15, 2010, issued by Ener1 to
Itochu Corporation.
|
4.24
|
Form
of Note, incorporated by reference to Exhibit 1.2 to the Registrant’s
Current Report on Form 8-K dated September 3, 2010.
|
|
4.25
|
Form
of Warrant, incorporated by reference to Exhibit 1.3 to the Registrant’s
Current Report on Form 8-K dated September 3, 2010.
|
|
4.26
|
Registration
Rights Agreement, dated as of September 2, 2010, by and between Ener1 and
the investors party thereto, incorporated by reference to Exhibit 1.4 to
the Registrant’s Current Report on Form 8-K dated September 3,
2010.
|
|
4.27
|
Warrant
Agreement with Ener1 Group, Inc., dated as of September 21, 2010, to
purchase 910,000 shares of Common Stock of the Registrant at a price per
share of $3.53 (Class C Warrant), incorporated by reference to Exhibit
10.2 to the Registrant’s Current Report on Form 8-K dated September 23,
2010.
|
|
4.28
|
Warrant
Agreement with Ener1 Group, Inc., dated as of September 21, 2010, to
purchase 1,516,670 shares of Common Stock of the Registrant at a price per
share of $4.46 (Class D Warrant), incorporated by reference to Exhibit
10.3 to the Registrant’s Current Report on Form 8-K dated September 23,
2010.
|
|
4.29
|
Warrant
Agreement with Ener1 Group, Inc., dated as of October 1, 2010, to purchase
174,062 shares of Common Stock of the Registrant at a price per share of
$3.7877 (Class E Warrant), incorporated by reference to Exhibit 10.2 to
the Registrant’s Current Report on Form 8-K dated October 7,
2010.
|
|
4.30
|
Warrant
Agreement with Ener1 Group, Inc., dated as of October 1, 2010, to purchase
290,102 shares of Common Stock of the Registrant at a price per share of
$4.79 (Class F Warrant), incorporated by reference to Exhibit 10.3 to the
Registrant’s Current Report on Form 8-K dated October 7,
2010.
|
|
4.31
|
Think
Promissory Note, dated October 1, 2010, incorporated by reference to
Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated October
7, 2010.
|
|
4.32
|
*
|
Amended
Think Promissory Note, dated October 1,
2010.
|
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4.33
|
*
|
Think
Promissory Note, dated October 28, 2010.
|
10.1
|
Securities
Purchase Agreement, dated as of September 2, 2010, by and between Ener1
and the investors party thereto, incorporated by reference to Exhibit 1.1
to the Registrant’s Current Report on Form 8-K dated September 3,
2010.
|
|
10.2
|
Separation
Agreement and General Release dated September 17, 2010, by and between
Ener1 and Gerard A. Herlihy, incorporated by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K dated September 21,
2010.
|
|
10.3
|
Securities
Purchase Agreement between Ener1, Inc. and Ener1 Group, Inc., dated
September 21, 2010, incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K dated September 23,
2010.
|
|
10.4
|
Securities
Purchase Agreement between Ener1, Inc. and Ener1 Group, Inc., dated
October1, 2010, incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K dated October 7,
2010.
|
|
10.5
|
Employment
Agreement with Jeffrey Seidel, dated October 14, 2010, incorporated by
reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K
dated October 15, 2010.
|
|
10.6
|
Exchange
Agreement between Ener1, Inc. and Rockport Capital Partners, dated October
20, 2010, incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K dated October 26, 2010.
|
|
10.7
|
Supply
Agreement between Ener1, Inc. and Joint Stock Company "Mobile Gas Turbine
Electric Powerplants", effective as of October 29, 2010, incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
dated November 2, 2010.
|
|
31.1
|
*
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.
|
31.2
|
*
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
31.3
|
*
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Accounting
Officer.
|
32.1
|
‡
|
Section
1350 Certification of Chief Executive Officer.
|
32.2
|
‡
|
Section
1350 Certification of Chief Financial Officer.
|
32.3
|
‡
|
Section
1350 Certification of Chief Accounting
Officer.
|
* Filed
herewith.
‡
Furnished herewith.
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