Our net proceeds from the sale of the 1,625,000 shares of common stock
offered by us, after deducting underwriting discounts and commissions and
estimated expenses payable by us, are estimated to be approximately $52.7
million ($65.0 million if the underwriters' over-allotment option is
exercised in full). We plan to use a portion of these net proceeds to repay
indebtedness under our outstanding revolving lines of credit, term loans,
and capital leases. At April 30, 2000, approximately $27 million was
outstanding under these obligations at weighted average interest rate of
7.5% per annum. We anticipate the balance of these proceeds will be used
for the expansion of our development engineering capabilities and general
corporate purposes including research and development in fuel cell
technologies and working capital
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We anticipate that our investment in research and development will
significantly increase as we focus our efforts in developing fuel cell
enabling technologies. As we pursue this business strategy, we expect to
incur operating losses driven by research and development expenditures for
at least the next 12 months. In particular, we plan to use a substantial
portion of the net proceeds from this offering to fund this effort. We may
not recover this investment.
We may be unable to raise additional capital to complete our product
development and commercialization plans.
We currently anticipate that we will need to raise additional funds to
complete the development and commercialization of our fuel cell enabling
technologies.
+++++++++++++++++++++++++++++++++++
After this offering, we will have 10,204,807
shares of common stock outstanding. Of these shares, the 2,500,000 shares
sold in this offering will be freely tradeable. Of the remaining 7,704,807
shares, 4,831,080 shares which are currently freely tradeable will remain freely tradeable and 2,946,291
shares will be subject to 135 day lock-up agreements. In addition, up to
1,313,931 shares issuable upon the exercise of options outstanding as of
May 31, 2000 may become available for sale in the public markets. The
holders of 1,115,326 shares subject to the 135 day lock-up agreement have
the right to require us to register some or all of those shares for sale
after the expiration of the 135 day period
+++++++++++++++++++++++++++++++++++
Ford, DaimlerChrysler, General Motors, Honda, Hyundai, Mazda and Nissan
have each announced their intention to commercialize fuel cells in motor
vehicle applications sometime between the years 2003 and 2005. We intend to
participate in the growth of the fuel cell segment of this industry by
focusing primarily on the development and integration of fuel storage, fuel
delivery and electronic control systems in fuel cell and gaseous fuel
applications. We have no current plans to manufacture fuel cells or
reformers.
Competitive Advantages
We believe our current and future technological leadership position in the
alternative fuel and fuel cell industries will result from our continued
success in the design, manufacturing and commercialization of advanced fuel
delivery systems and components, our relationships with leading companies
in our targeted transportation, material handling and industrial and power
generation markets, our substantial financial commitment to research and
development and our proven ability to develop and commercialize products in
the emerging fuel cell and alternative fuel industries. We believe our
competitive strengths include:
Industry Leader. We are a leader in the rapidly emerging alternative fuel
industry and a market share leader in the use of non-liquid fuels in
internal combustion engines. Our technology leadership position is derived
from the broad application and integration of our technology and enabling
systems into the expanding advanced fuel system technology industry. Our
significant investment of more than $65 million in research and development
over the past seven years, coupled with our history and experience in this
industry has provided us with a strong technology base for new product
innovation. Our new proprietary fuel cell enabling technologies are
currently patented or patent pending, which could make it more difficult
for new entrants in the industry to develop directly competing products
based on the same or similar technologies.
Advanced Enabling Technologies and Systems for Fuel Cells. Our research in
fuel storage, fuel delivery and electronic system controls have delivered
advanced, low cost technologies, which we believe can be
adapted to apply to a broad range of applications. We have also
concentrated efforts on extensive testing and validation of our new
advanced fuel technology products which focus upon safety and durability.
In 1995, we began development of products for fuel cell applications in our
target markets. Our new TriShield all-composite, light weight and low cost
fuel storage tank is of special interest to the fuel cell industry due to
its ability to store hydrogen at high pressures and at a very attractive
weight-to-strength ratio. This tank, in conjunction with our patented
in-tank regulator, is particularly cost-effective when compared to existing
and other traditional tank and regulator technologies. Sandia National
Laboratories is currently evaluating our tanks for potential hydrogen
storage applications. Our new fuel metering disc injector has also been
well received among automotive and fuel cell manufacturers. Our patent
pending technology associated with the injector uses low leakage and low
friction discs to meter the fuel rather than the conventional plunger
technology now used. We believe our new injector, which utilizes high
volume gasoline injector parts, will have broad applications in fuel cell
and alternative fuel systems, with potential in the traditional liquid fuel
market.
Proven Manufacturing Methods. We have over four decades of experience in
the manufacture and development of alternative fuel technologies and
products. We currently maintain manufacturing and production facilities in
the United States, Europe, Mexico and Australia, which produce a broad
range of products and services including components, systems and specialty
vehicle assembly. Our United States, Australian and European facilities
have achieved or are in the process of implementing ISO-9000 or QS-9000
certification. We believe our manufacturing expertise will enable us to
successfully address the fuel cell industry.
Strong OEM Relationships. We have a Teaming Agreement with General Motors
to supply alternative fuel systems and components for General Motors'
vehicles. We are currently their exclusive provider of natural gas and
propane systems and cooperate with them in sharing non-proprietary
technology, test facilities and procurement resources. We also sell
conversion components to General Motors in international markets. During
the fiscal years ended April 30, 1999 and 2000, sales to General Motors
represented 27.8% and 16.0% of our revenues, respectively. In addition, we
have longstanding relationships with many domestic and international OEMs,
including BMW, Caterpillar, Clark, Cummins, Daewoo, Detroit Diesel, Ford
Australia, Hyster/Yale/Sumitomo, Isuzu, Komatsu, Mazda, Mitsubishi, Nissan,
ONAN, Perkins, Toyota and Volvo.
In-Depth System Integration Expertise. As more OEMs seek to reduce costs by
outsourcing key tasks and reducing numbers of suppliers, we have
increasingly focused on capturing additional revenue opportunities by
expanding our current systems integration capabilities. In 1996, we created
our Automotive OEM division to serve this customer value-added opportunity.
In 1998, through the Crusader acquisition, we established our Industrial
Engine Systems business in Sterling Heights, Michigan, which provides
systems integration of our low- emission products onto engines that are
subsequently sold to industrial OEMs. We believe that our systems
integration expertise, together with our proprietary and patented
technologies, give us a significant advantage in the emerging fuel cell
markets.
Positioned for Global Growth. With eight international facilities and over
300 distributors and dealers outside the United States, we believe that we
are uniquely positioned to capitalize on regional growth opportunities. We
believe that the alternative fuel markets will grow dramatically
internationally, particularly in China, India, Japan, Mexico and Southeast
Asia where urban pollution problems will continue to predominate. We are
currently working with the Mexican government to develop advanced fuel
solutions for public transportation, government and taxi fleets. The
government of Mexico State recently selected us as the preferred vendor for
the conversion of over 4,000 taxi and mass transit vehicles, which could
reach 70,000 vehicles in the next five years.
+++++++++++++++++++++++++++
Competition
We are a leading provider of fuel storage, fuel delivery and electronic
control systems for the alternative fuel and fuel cell markets. While we
recognize that there are several competitors of gaseous fuel delivery
systems worldwide, we believe we have no single global competitor present
in any of the regions and markets where we are active. We believe we are
the only company which provides products and integrated services for all
gaseous alternative fuels, in our target markets for use in all end user
applications.
Our key competitors in the gaseous fuel delivery systems, accessory
components and engine conversions markets include Asian, GFI, Koltec,
Landi, Lovato, OMVL, Tartarini and Vialle, which together with us account
for a majority of the world market for alternative fuel products and
services. Some motor vehicle OEMs such as Ford, Honda, Toyota and Volvo
have developed their own systems which currently use our components or
could in the future. In addition, various motor vehicle OEMs, including
Ford, Honda, Mazda, Nissan, Toyota and Volvo have developed fuel systems
for their own vehicles, some of which use our components. |
