Is this thread dead ?
Here's a management letter filed with the SEC.
I believe the window of opportunity for this company is closing fast. This company has been bleeding money for over a decade. Business moves fast today and current management appears unable to cope. They have been trying for the battery Holy Grail (laptop computers) and
unable to make a dent. The sad part is zinc air technology probably has many profitable applications that can be marketed. The company only now seems to realize this. There are no companies, especially startups, whose fundamental business plan completely misses their intended market, should be expected to survive. Fifteen years later management admits they have to find some new opportunities. Has anyone seen such incredible nimbleness ?
I am a disgusted stock holder in this company. I believe and still do with the technology. But without major change with the existing management I'm pessimistic the company can succeed.
Anyone out there disagree with me?
November 13, 1997
AER ENERGY RESOURCES INC /GA (AERN)
Quarterly Report (SEC form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Since its inception, the Company has been a development stage company primarily engaged in developing rechargeable
zinc-air battery technology, establishing the manufacturing process, defining and developing market opportunities, testing and
selling rechargeable zinc-air batteries and recruiting and training personnel. Much of the Company's marketing focus over the
last few years has been to seek a commitment from one or more original equipment manufacturers (OEMs) of portable
computers to design a product that is electrically and mechanically compatible with an AER Energy rechargeable zinc-air
battery. Management now believes it will be more difficult than originally anticipated to obtain such a commitment from a
portable computer OEM due in large part to the growth in the power demands of portable computers. As a result, the
Company has begun to expand its marketing focus to include additional electronic products that could benefit from the key
attributes of AER Energy's zinc-air technology but require less power. During the second and fourth quarters of 1997, the
Company announced two such products: satellite telephones and data acquisition devices.
The Company's AER Energy PowerSlice Pro(TM) accessory battery is currently being supplied to end-users as a satellite
telephone accessory by Alegna, Inc. under private label as the PowerLink(TM). The PowerLink battery is designed for the
OmniQuestTM satellite telephone system manufactured by Mitsubishi Electric Corporation.
In October 1997, the Company announced a new application of its PowerSlice Pro battery powering a remote data
acquisition device. Bartizan Data Systems LLC selected the PowerSlice Pro to use with its Expo! The Database Builder(TM),
a remote data acquisition device used at tradeshows to scan attendee badges and compile lead information.
The AER Energy PowerSlice LX(TM) battery, an accessory battery designed for the Hewlett-Packard OmniBook 600 and
800 portable computers, will no longer be offered for sale as of November 1997. The PowerSlice LX has an older cell design
and is not compatible with the most current, more powerful version of the OmniBook 800 portable computer.
The Company has recorded minimal revenues from the sales PowerSlice Pro and PowerSlice LX batteries for the three and
nine-month periods ended September 30, 1997. The Company has incurred cumulative losses of $52.3 million since inception
to September 30, 1997 and expects to continue to incur operating losses at least through the end of 1998.
The Company was formed to develop and commercialize rechargeable zinc-air batteries for portable electronic products using
technology licensed from Dreisbach Electromotive, Inc. ("DEMI"). DEMI was formed in 1982 to conduct research and
development on electric vehicles and battery systems utilizing, among others, zinc-air technology. DEMI's zinc-air development
programs included applications for electric vehicles and portable products. The Company has
licensed, through DEMI (the "DEMI License"), the rights to use certain DEMI technology including zinc-air, in non-motor
vehicle applications, while DEMI has retained the rights to zinc-air technology for motor vehicle applications and to its other
technologies for motor vehicle applications and batteries producing over 500 watts continuous power output. Effective
October 15, 1993, the DEMI License was amended so that, under certain circumstances, some or all of the royalties due
under the DEMI License are payable to the shareholders of DEMI rather than to DEMI.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1996
The Company generated net revenues of $82,000 for the three months ended September 30, 1997, compared to $1,000 for
the three months ended September 30, 1996. The revenues for the quarter ended September 30, 1997 resulted primarily from
the sales of PowerLink batteries.
The Company's cost of sales for the three months ended September 30, 1997 increased to $988,000 from $214,000 for the
three months ended September 30, 1996. The high cost of sales relative to revenues is primarily due to the manufacturing
inefficiencies and high material costs resulting from low production volumes.
Research and development expenses decreased to $944,000 for the three months ended September 30, 1997 from
$1,186,000 for the same period in 1996. This decrease was due in part to a $368,000 reduction in the manufacturing
overhead costs allocated to research and development during the quarter ended September 30, 1997 as compared to the
same period in 1996. This allocation in 1996 reflected the use of manufacturing facilities for technology development and
product testing. The Company also experienced a $30,000 decrease in material, design and tooling costs. These decreases
were partially offset by increases of $83,000 in personnel-related costs and $68,000 in legal costs related to the Company's
patent activity.
Marketing, general and administrative expenses increased to $728,000 for the quarter ended September 30, 1997 from
$695,000 for the same period in 1996. In the quarter ended September 30, 1997, the Company experienced a $58,000
increase in personnel-related expenses and a $28,000 increase in marketing, advertising and public relations costs compared
to the same quarter in 1996. These increases were partially offset by a $26,000 decrease in facility expenses and a $24,000
reduction in the write-off of obsolete inventory.
Nine Months Ended September 30, 1997 and 1996
The Company generated net revenues of $106,000 for the nine months ended September 30, 1997 as compared to $22,000
for the same period in 1996.
The Company's cost of sales for the nine months ended September 30, 1997 was
$1,961,000 as compared to $1,146,000 for the same period in 1996. The high cost of sales relative to revenues is primarily
due to low production volumes.
Research and development expenses increased to $3,168,000 for the nine months ended September 30, 1997 from
$2,891,000 for the same period in 1996. This increase was due in part to a $136,000 increase in personnel-related costs, a
$74,000 increase in legal fees related to patent activity, a $47,000 increase in material, design, and tooling costs and a
$37,000 increase in allocated facility costs. These increases were partially offset by a $12,000 decrease in depreciation
expense and an $11,000 reduction in travel costs.
Marketing, general and administrative expenses decreased to $2,232,000 for the nine months ended September 30, 1997
from $2,273,000 for the same period in 1996. This decrease was due primarily to a $63,000 reduction in allocated facility
costs, a $74,000 decrease in warranty expense, a $64,000 decrease in the write-off of obsolete inventory, and a $54,000
decrease in minimum royalty expense pursuant to the DEMI License. These decreases were partially offset by a $175,000
increase in personnel-related costs and a $34,000 credit to bad debt expense in the nine-month period ended September 30,
1996 resulting from the collection of a receivable that had been written off.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
As of September 30, 1997, the Company had cash and cash equivalents of $12.3 million. The Company anticipates using
these funds as needed to fund capital equipment purchases, research and development efforts, sales and marketing activities,
production of commercial and prototype zinc-air battery products, development of relationships with OEMs, working capital
and general corporate purposes as determined by management. In the interim, the Company invests any excess funds in
government securities and other short-term, investment grade, interest-bearing instruments.
Net cash used in operating activities increased to $6.2 million for the nine months ended September 30, 1997 from $5.2
million for the same period in 1996, primarily due to the increases in costs and expenses discussed above in "Results of
Operations".
For the nine months ended September 30, 1997, the Company used net cash of $266,000 for equipment purchases as
compared to $101,000 for equipment purchases for the same period in 1996.
During 1997, the remaining $900,000 in principal of the Company's 8% convertible debentures plus accrued interest were
converted into 518,683 shares of the Company's common stock at an average conversion price of $1.93 per share.
Pursuant to the DEMI License, the Company has agreed to pay DEMI royalties of 4% of net sales, subject to certain minimum
amounts and to possible increases or decreases to a maximum of 4% and a minimum of 2%, as specified in the DEMI License.
The applicable percentage of royalties is currently 4% of net sales. The Company recorded royalty expense for
the nine-month periods ended September 30, 1997 and 1996 of $75,000 and $125,000, respectively. Minimum royalty
expenses are included in marketing, general and administrative expenses in the statements of operations. Actual royalties due
as a percentage of sales under the DEMI License are recorded in cost of sales. As of September 30, 1997 and December 31,
1996, $25,000 and $30,000, respectively, of these royalty payments remained unpaid. The future minimum royalty payments
specified by the DEMI License consist of the following:
Year Ending December 31,
1997................................................. $100,000
1998................................................. $100,000
1999................................................. $ 50,000
The Company currently anticipates that its existing cash balances will fund operations and continue technology development at
the current level of activity through at least the middle of 1998. However, it may be necessary for the Company to increase its
research and development and marketing expenses as it continues to work to improve its zinc-air technology, to expand its
markets for its rechargeable zinc-air batteries and to pursue its relationships with OEMs of portable electronic devices. It may
also be necessary for the Company to expand its manufacturing capacity in order to meet anticipated future sales requirements.
The Company will need working capital beyond its current levels, and depending on the Company's results of operations, the
Company may find it necessary to obtain additional working capital on an accelerated basis or in amounts greater than
currently anticipated. There can be no assurance that additional equity or debt financing will be available when needed or on
terms acceptable to the Company. To date, both costs and development times have substantially exceeded the Company's
forecasts. In addition, the battery business is a chemical processing business and, as such, the Company will require specialized
equipment to manufacture its zinc-air batteries. Future equipment additions could exceed current Company estimates in cost,
complexity and development time.
The market price of the Company's common stock has fluctuated significantly since it began to be publicly traded on July 1,
1993 and may continue to be highly volatile. Factors such as delays by the Company in achieving development goals, inability
of the Company to commercialize or manufacture its products, fluctuation in the Company's operating results, changes in
earning estimates by analysts, announcements of technological innovations or new products by the Company or its
competitors, perceived changes in the markets for various OEM applications incorporating the Company's products, the
announcement or termination of relationships with OEMs, and general market conditions may cause significant fluctuations in
the market price of the Company's common stock. The market prices of the stock of many high technology companies have
fluctuated substantially, often unrelated to the operating or research and development performance of the specific companies.
Such market fluctuations could adversely affect the market price for the Company's common stock.
This report contains statements which to the extent that they are not recitations of historical fact, may constitute "forward
looking statements" within the meaning of applicable federal securities laws and are based on the Company's current
expectations and assumptions.
These expectations and assumptions are subject to a number of risks and uncertainties which could cause actual results to
differ materially from those anticipated, which include but are not limited to the following: ability of the Company to achieve
development goals, ability of the Company to commercialize its battery technology, development of competing battery
technologies, ability of the Company to protect its proprietary rights to its technology, improvements in conventional battery
technologies, demand for and acceptance of the Company's products in the marketplace, ability to obtain commitments from
OEMs, ability of the Company to ramp up production to meet anticipated sales, impact of any future governmental regulations,
impact of pricing, costs of materials, ability of the Company to raise additional funds and other factors affecting the Company's
business that are beyond the Company's control.
AER Energy, AER Energy PowerSlice Pro and AER Energy PowerSlice LX are trademarks of AER Energy Resources, Inc.;
PowerLink is a trademark of Alegna, Inc.; OmniQuest is a trademark of Mitsubishi Electronics America, Inc.; Expo! The
Database Builder is a trademark of Bartizan Data Systems LLC. |
