<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -------------------
Commission File Number 0-21926
----------------------------------------------------
AER ENERGY RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Georgia 34-1621925
-------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 Highlands Parkway, Suite G, Smyrna, Georgia 30082
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 433-2127
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(Registrant's telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
There were 24,065,563 shares of Common Stock outstanding as of November 1, 1996.
<PAGE> 2
AER ENERGY RESOURCES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Balance Sheets - September 30, 1996 and December 31, 1995. 3
Condensed Statements of Operations - Three Months Ended September 30, 4
1996 and 1995, Nine Months Ended September 30, 1996 and 1995, and
Period From July 17, 1989 (Date of Inception) to September 30, 1996.
Condensed Statements of Cash Flows - Nine Months Ended September 30, 5
1996 and 1995 and Period From July 17, 1989 (Date of Inception)
to September 30, 1996.
Notes to Condensed Financial Statements - September 30, 1996. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 9
RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 20,495,833 $ 16,417,152
Trade accounts receivable (less allowances of $2,029 at September
30, 1996 and $19,790 at December 31, 1995) . . . . . . . . . . 1,277 8,025
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 181,597 254,008
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 203,299 141,132
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 20,882,006 16,820,317
Equipment and improvements:
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . 2,946,988 2,874,394
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . 436,030 427,905
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 254,766 252,299
-------------- --------------
3,637,784 3,554,598
Less accumulated depreciation . . . . . . . . . . . . . . . . . . 1,900,944 1,496,406
-------------- --------------
1,736,840 2,058,192
Other long termassets . . . . . . . . . . . . . . . . . . . . . . . 16,841 16,841
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,635,687 $ 18,895,350
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 128,286 $ 331,435
Accrued royalties - related party . . . . . . . . . . . . . . . . 25,000 60,000
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . 8,414 18,550
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . 288,539 285,765
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 450,239 695,750
Deferred rental expense . . . . . . . . . . . . . . . . . . . . . . 3,600 7,056
Stockholders' equity:
Convertible debentures. . . . . . . . . . . . . . . . . . . . . . 1,336,641 9,924,073
Preferred stock, no par value:
Authorized - 10,000,000 shares; no shares issued and outstanding - -
Common stock, no par value:
Authorized - 100,000,000 shares; issued and outstanding--
24,065,563 shares at September 30, 1996 and 17,269,180 shares at
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 65,209,711 46,905,677
Notes receivable from common stock sales . . . . . . . . . . . . (71,875) (71,875)
Unearned stock compensation . . . . . . . . . . . . . . . . . . (367,752) (342,000)
Deficit accumulated during the development stage . . . . . . . . (43,924,877) (38,223,331)
-------------- --------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 22,181,848 18,192,544
-------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . . . . $ 22,635,687 $ 18,895,350
============== ==============
</TABLE>
Note: The condensed balance sheet at December 31, 1995 has been derived from
the audited financial statements of AER Energy Resources, Inc. at that date but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See notes to condensed financial statements.
Page 3
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AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 17, 1989
THREE MONTHS NINE MONTHS (DATE OF
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, INCEPTION) TO
-------------------------------- --------------------------------- SEPTEMBER 30,
1996 1995 1996 1995 1996
-------------------------------- --------------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . $ 1,463 $ 92,901 $ 21,554 $ 127,219 $ 228,696
Cost of sales . . . . . . . 214,008 737,662 1,146,389 1,635,448 3,919,916
------------ ------------- ------------- ------------- -------------
Gross margin . . . . . . . (212,545) (644,761) (1,124,835) (1,508,229) (3,691,220)
Costs and expenses:
Research and development
- related party . . . . . -- -- -- -- 1,145,913
- other . . . . . . . . . 1,186,416 854,442 2,891,076 3,923,237 24,230,393
Marketing, general and
administrative
- related party . . . . 24,953 47,213 124,350 196,183 1,118,134
- other . . . . . . . . 670,377 804,359 2,149,111 2,797,174 15,600,251
------------ ------------- ------------- ------------- -------------
Total costs and expenses . 1,881,746 1,706,014 5,164,537 6,916,594 42,094,691
------------ ------------- ------------- ------------- -------------
Operating loss . . . . . . (2,094,291) (2,350,775) (6,289,372) (8,424,823) (45,785,911)
Interest income . . . . . . 299,024 146,519 788,848 538,686 2,416,073
Interest expense
- related parties . . . . -- -- -- -- (264,445)
------------ ------------- ------------- ------------- -------------
Net loss . . . . . . . . . $ (1,795,267) $ (2,204,256) $ (5,500,524) $ (7,886,137) $ (43,634,283)
============ ============= ============= ============= =============
Net loss per share . . . . $ (0.07) $ (0.13) $ (0.25) $ (0.46) $ (3.55)
============ ============= ============= ============= =============
Weighted average shares
outstanding . . . . . . . 24,058,133 17,257,495 22,178,701 17,244,185 12,284,779
</TABLE>
See notes to condensed financial statements.
Page 4
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AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 17, 1989
(DATE OF
NINE MONTHS ENDED SEPTEMBER 30, INCEPTION) TO
---------------------------------- SEPTEMBER 30,
1996 1995 1996
------------------ --------------- ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,500,524) $ (7,886,137) $ (43,634,283)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 414,583 498,344 2,296,453
Amortization of unearned stock compensation . . . . . . . . 112,170 108,000 472,169
Loss on disposal of assets . . . . . . . . . . . . . . . . 7,890 14,936 39,091
Deferred rental expense . . . . . . . . . . . . . . . . . . (3,456) (8,261) 3,600
Accretion of discount on marketable securities . . . . . . -- -- (187,407)
Changes in operating assets and liabilities:
Trade accounts receivable . . . . . . . . . . . . . . . . 6,748 (65,923) (1,277)
Inventories . . . . . . . . . . . . . . . . . . . . . . . 72,411 17,192 (181,597)
Prepaid expenses and other current assets . . . . . . . . (62,167) 80,807 (203,609)
Accounts payable . . . . . . . . . . . . . . . . . . . . (203,149) (80,478) 128,286
Accrued royalties payable - related party . . . . . . . . (35,000) (40,343) 25,000
Other current liabilities . . . . . . . . . . . . . . . . (7,362) 89,955 455,887
-------------- ------------- ---------------
Net cash used in operating activities . . . . . . . . . . . . (5,197,856) (7,271,908) (40,787,687)
INVESTING ACTIVITIES:
Purchases of equipment and improvements . . . . . . . . . . . (101,120) (278,128) (3,698,708)
Purchase of marketable securities . . . . . . . . . . . . . . -- -- (11,512,296)
Purchase of license agreement . . . . . . . . . . . . . . . . -- -- (250,000)
Proceeds from marketable securities . . . . . . . . . . . . . -- -- 11,700,000
Changes in other assets . . . . . . . . . . . . . . . . . . . -- -- (140,501)
-------------- ------------- ---------------
Net cash used in investing activities . . . . . . . . . . . . (101,120) (278,128) (3,901,505)
Financing activities:
Proceeds from revolving credit note to related parties. . . . -- -- 5,430,000
Issuance of convertible debentures, net of issuance costs . . -- -- 9,834,500
Payments on notes payable to related parties . . . . . . . . -- -- (1,150,000)
Payments received on promissory notes . . . . . . . . . . . -- 4,000 57,425
Issuance of Common Stock, exercise of stock options . . . . . 12,440 45,700 133,545
Issuance of Common Stock, net of issuance costs . . . . . . . 9,365,217 -- 50,879,555
-------------- ------------- ---------------
Net cash provided by financing activities . . . . . . . . . . 9,377,657 49,700 65,185,025
-------------- ------------- ---------------
Increase (decrease) in cash and cash equivalents . . . . . . 4,078,681 (7,500,336) 20,495,833
Cash and cash equivalents at beginning of period . . . . . . 16,417,152 16,029,787 --
-------------- ------------- ---------------
Cash and cash equivalents at end of period . . . . . . . . . $ 20,495,833 $ 8,529,451 $ 20,495,833
============== ============= ===============
</TABLE>
See notes to condensed financial statements.
Page 5
<PAGE> 6
AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. These financial statements should be
read in conjunction with the Company's audited financial statements included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1995. Operating results for the
three and nine month periods ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996 or any interim period.
2. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
AER Energy Resources, Inc. was incorporated on July 17, 1989 and since
inception has engaged in the development and commercialization of high energy
density, rechargeable zinc-air batteries. The Company's operations to date
have primarily been focused on developing and updating the technology, setting
up the manufacturing process, testing and selling zinc-air batteries,
recruiting personnel and similar activities. The Company began selling its
first product in August 1994. Sales from August 1994 through September 30,
1996 have been minimal. Until significant product sales occur, the Company is
considered to be a development stage company for financial reporting purposes.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, bank deposits and highly
liquid investments with maturities of three months or less when purchased and
are stated at cost, which approximates market.
Inventory
The Company's inventory has been valued at the lower of cost or
market, using the first in, first out method. The components of inventory are
listed below.
Page 6
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
Raw material $ 158,032 $ 238,101
Work in process 23,565 13,893
Finished products -- 2,014
------------- -------------
Total $ 181,597 $ 254,008
============= =============
</TABLE>
Net Loss Per Share
Net loss per share is based on the weighted average number of common
shares outstanding during the period, including, for all periods presented,
shares and Common Stock equivalents issued during the twelve months immediately
preceding the effective date (June 30, 1993) of the Company's initial public
offering of its Common Stock. Common Stock equivalents issued and outstanding
prior or subsequent to such twelve month period have not been included since
their effect would be anti-dilutive.
In accordance with APB Opinion No. 15, supplemental loss per share
data is presented for comparability purposes. The following loss per share is
calculated excluding the effects of Common Stock equivalents issued during the
twelve months immediately preceding the effective date of the Company's initial
public offering of its Common Stock:
<TABLE>
<CAPTION>
PERIOD FROM JULY 17,
1989 (DATE OF
NINE MONTHS ENDED SEPTEMBER 30, INCEPTION) TO
------------------------------- SEPTEMBER 30,
1996 1995 1996
---------- ----------- ---------------
<S> <C> <C> <C>
Net loss per share $ (0.25) $ (0.46) $ (4.05)
========== ========== ===============
</TABLE>
Use of Estimates
In accordance with FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of,
the Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of those assets. Based on the Company's estimate of
future undiscounted cash flows, the Company expects to recover the carrying
amounts of its fixed assets. Nonetheless, it is reasonably possible that the
estimate of undiscounted cash flows may change in the near term resulting in
the need to write-down those assets to fair value. During the three and nine
months ended September 30, 1996, the Company recorded a write-off
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<PAGE> 8
of obsolete equipment with a net book value of $0 and $7,890, respectively,
which was included in marketing, general and administrative expenses.
3. STOCKHOLDERS' EQUITY
On May 20, 1996, the Company issued 1,584,158 shares of its Common
Stock, and warrants to purchase an additional 835,000 shares, in a private
placement at an aggregate purchase price of $10,000,000. The transaction
generated proceeds of $9,365,217, net of expenses. The warrants have an
exercise price of $6.3125 per share and expire in five years. The value of the
warrants is included in Common Stock on the balance sheet.
Page 8
<PAGE> 9
ITEM 2. 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. During 1995, the Company began shipping two
customized zinc-air accessory batteries designed for computer original
equipment manufacturers ("OEMs"); the AER Energy PowerProTM, a zinc-air
accessory battery designed for certain 1995 models of Toshiba portable
computers, and the AER Energy PowerSlice LXTM, a zinc-air accessory battery
designed for the Hewlett- Packard OmniBook 600 portable computer. During the
three months ended September 30, 1996, the Company phased out the AER Energy
PowerPro battery, which was compatible with Toshiba portable computers that
went out of production in late 1995. In September 1996, Hewlett-Packard
introduced its OmniBook 800 portable computer, an upgrade of its OmniBook 600.
An increase in the power requirements of the OmniBook 800 over the OmniBook 600
plus the Company's incorporation of its most recent technology enhancements
into its battery products have resulted in delays in marketing the Company's
AER Energy PowerSlice LX battery. The Company has recorded limited revenue
from the sales of the AER Energy PowerPro and the AER Energy PowerSlice LX for
the three and nine month periods ended September 30, 1996. The Company has
incurred cumulative losses of $43.6 million since inception to September 30,
1996. The Company expects to continue to incur operating losses at least
through the end of 1997.
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, 1996 and 1995
The Company generated net revenues of $1,000 for the three months
ended September 30, 1996 as compared to $93,000 for the three months ended
September 30, 1995. The revenues
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for the quarter ended September 30, 1995 resulted from the sales of AER Energy
PowerPro batteries. These batteries were introduced in June 1995 to run
certain 1995 models of Toshiba portable computers which are now out of
production. The AER Energy PowerPro was phased out by the Company during the
three months ended September 30, 1996.
The Company's cost of sales for the three months ended September 30,
1996 was $214,000 as compared to $738,000 for the three months ended September
30, 1995. 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 increased to $1,186,000 for the
three months ended September 30, 1996 from $854,000 for the same period in
1995. This increase was primarily the result of an allocation of $368,000 in
manufacturing overhead costs to research and development reflecting the
extensive use of the Company's manufacturing facilities for technology
development and product testing during the three months ended September 30,
1996. The Company also experienced $17,000 increases in both legal and
personnel costs for the three months ended September 30, 1996 as compared to
September 30, 1995. These increases were partially offset by a $41,000
reduction in material, design, and tooling costs, a $12,000 decrease in
facility costs and a $10,000 decrease in depreciation.
Marketing, general and administrative expenses decreased to $695,000
for the three months ended September 30, 1996 from $852,000 for the same period
in 1995. This decrease was largely due to a $104,000 reduction in warranty
expense, a $52,000 reduction in consulting fees and a $35,000 reduction in
marketing, advertising and public relations for the three months ended
September 30, 1996 as compared to September 30, 1995. The Company also
experienced a $22,000 reduction in minimum royalty expense pursuant to the DEMI
License and a $14,000 reduction in the write-off of obsolete inventory. These
reductions were partially offset by a $49,000 increase in facility costs, a
$37,000 increase in professional fees and investor relations expense, a $25,000
increase in personnel related costs and a $10,000 increase in travel related
expenses.
Nine Months Ended September 30, 1996 and 1995
The Company generated net revenues of $22,000 for the nine months
ended September 30, 1996 as compared to $127,000 for the nine month period
ended September 30, 1995. The revenues for the nine months ended September 30,
1995, resulted primarily from the sales of AER Energy PowerPro batteries.
These batteries were introduced in June 1995 to run certain 1995 models of
Toshiba portable computers which are now out of production. The AER Energy
PowerPro was phased out by the Company during the three months ended September
30, 1996.
The Company's cost of sales for the nine months ended September 30,
1996 was $1,146,000 as compared to $1,635,000 for the same period in 1995. The
high cost of sales relative to revenues is primarily due to low production
volumes.
Page 10
<PAGE> 11
Research and development expenses decreased to $2,891,000 for the nine
months ended September 30, 1996 from $3,923,000 for the same period in 1995.
This decrease was primarily due to a reduction of $887,000 in material, design
and tooling costs. These costs were higher in the nine month period ended
September 30, 1995 due to the development in 1995 of the AER Energy PowerPro
and AER Energy PowerSlice LX batteries. The Company also experienced a
$109,000 reduction in personnel costs and a $25,000 reduction in facility costs
for the nine months ended September 30, 1996 as compared to the same period in
1995.
Marketing, general and administrative expenses decreased to $2,273,000
for the nine months ended September 30, 1996 from $2,993,000 for the same
period in 1995. This decrease was largely due to a $268,000 reduction in
marketing, advertising and public relations costs, a $163,000 decrease in
consulting fees, a $101,000 reduction in professional fees and investor
relations expenses, a $98,000 decrease in warranty expense and a $72,000
reduction in the minimum royalty expense pursuant to the DEMI License. The
Company also experienced a $65,000 reduction in the write-off of obsolete
inventory, a $42,000 decrease in amortization expense and a $36,000 reduction
in bad debt expense. These reductions in marketing, general and administrative
expenses were partially offset by a $101,000 increase in personnel related
costs, a $52,000 increase in facility costs, a $21,000 increase in travel
expenses, and an $18,000 filing fee for the listing of additional shares on the
NASDAQ Stock Market in connection with the Company's convertible debentures.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
As of September 30, 1996, the Company had cash and cash equivalents of
$20.5 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 OEM relationships, working capital and other 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 decreased to $5.2 million for
the nine months ended September 30, 1996 from $7.3 million for the same period
in 1995, primarily due to the decreases in costs and expenses discussed above
in "Results of Operations".
For the nine months ended September 30, 1996, the Company used
$101,000 in net cash for equipment purchases. For the same period in 1995, the
Company used $278,000 for equipment purchases and leasehold improvements.
In January 1996, the restricted period expired for the conversion of
the $10,675,000 in principal 8% convertible debentures issued by the Company in
November 1995. During the nine months ended September 30, 1996, $9,325,000 in
principal of these debentures plus accrued interest was converted into
5,184,475 shares of the Company's common stock at an average conversion price
of $1.84 per share.
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<PAGE> 12
In May 1996, the Company received $9,365,217 from the sale in a
private placement of common stock and warrants, net of expenses.
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. Starting in July 1994, the percentage of
royalties dropped to 3% of net sales but may return to 4% in the event certain
patents are obtained by DEMI. The Company recorded royalty expense for the
nine month periods ended September 30, 1996 and 1995 of $125,000 and $200,000,
respectively. As of September 30, 1996 and December 31, 1995, $25,000 and
$60,000, respectively, of these royalty payments remained unpaid. The future
minimum royalty payments specified by the DEMI License consist of the
following:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000
</TABLE>
The Company currently anticipates that its existing cash balances will
fund operations and continue technology development at the current level of
activity into 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 and to expand its relationships with portable
computer OEMs. It may also be necessary for the Company to expand its
manufacturing capacity in order to meet anticipated sales requirements. The
Company anticipates that it will continue to need working capital beyond that
generated to date, 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
Page 12
<PAGE> 13
and development performance of the specific companies. Such market
fluctuations could adversely affect the market price for the Company's common
stock.
Page 13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
11 Statement of Computation of Earnings per Share.
27 Financial Data Schedule (for SEC use only)
(B) REPORTS ON FORM 8-K FILED DURING THE THREE MONTHS ENDED
SEPTEMBER 30, 1996:
The registrant did not file any reports on Form 8-K during the
three months ended September 30, 1996.
Page 14
<PAGE> 15
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.
<TABLE>
<CAPTION>
AER ENERGY RESOURCES, INC.
<S> <C> <C>
Date: November 12, 1996 By: /s/ David W. Dorheim
-------------------------------------
David W. Dorheim, President and
Chief Executive Officer
Date: November 12, 1996 By: /s/ M. Beth Donley
-------------------------------------
M. Beth Donley, Vice President, Chief
Financial Officer, Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
Page 15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
<S> <C> <C>
11 Statement of Computation of Earnings per Share. 17
27 Financial Data Schedule (for SEC use only)
</TABLE>
Page 16
<PAGE> 1
Exhibit 11
AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 17, 1989
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED (DATE OF
SEPTEMBER 30, SEPTEMBER 30, INCEPTION) TO
------------------------------- -------------------------- SEPTEMBER 30,
1996 1995 1996 1995 1996
----------- ------------ ------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Weighted average Common
Stock outstanding . . . . 24,058,133 17,257,495 22,178,701 17,244,185 10,762,853
Common Stock issued and
stock options granted in
accordance with SAB
No. 83 . . . . . . . . . -- -- -- -- 1,521,926
------------- ------------- ------------- ------------- -------------
Total . . . . . . . . . . . 24,058,133 17,257,495 22,178,701 17,244,185 12,284,779
============= ============= ============= ============= =============
Net loss . . . . . . . . . $ (1,795,267) $ (2,204,256) $ (5,500,524) $ (7,886,137) $ (43,634,283)
============= ============= ============= ============= =============
Per share amount . . . . . $ (0.07) $ (0.13) $ (0.25) $ (0.46) $ (3.55)
============= ============= ============= ============= =============
</TABLE>
Page 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
BALANCE SHEETS AND SUMMARY OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,495,833
<SECURITIES> 0
<RECEIVABLES> 3,306
<ALLOWANCES> 2,029
<INVENTORY> 181,597
<CURRENT-ASSETS> 20,882,006
<PP&E> 3,637,784
<DEPRECIATION> 1,900,944
<TOTAL-ASSETS> 22,635,687
<CURRENT-LIABILITIES> 450,239
<BONDS> 0
0
0
<COMMON> 65,209,711
<OTHER-SE> (43,027,863)
<TOTAL-LIABILITY-AND-EQUITY> 22,635,687
<SALES> 1,463
<TOTAL-REVENUES> 1,463
<CGS> 214,008
<TOTAL-COSTS> 214,008
<OTHER-EXPENSES> 1,881,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,795,267)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,795,267)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,795,267)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
