<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, 1998
--------------------------------------------------
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
----------------------------------------------------
(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 24,862,263 shares of Common Stock outstanding as of October 31, 1998.
<PAGE> 2
AER ENERGY RESOURCES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C> <C>
Balance Sheets - September 30, 1998 (unaudited) and December 31, 1997. 3
Statements of Operations (all unaudited) - Three Months Ended September 30, 4
1998 and 1997, Nine Months Ended September 30, 1998 and 1997, and Period From July 17,
1989 (Date of Inception) to September 30, 1998.
Statements of Cash Flows (all unaudited) - Nine Months Ended September 30, 5
1998 and 1997 and Period From July 17, 1989 (Date of Inception)
to September 30, 1998.
Condensed Notes to Financial Statements (unaudited) - September 30, 1998. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 8
RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
</TABLE>
Page 2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................. $ 5,775,275 $ 10,206,870
Trade accounts receivable ............................................. 0 116
Inventories ........................................................... 102,430 291,278
Prepaid expenses ...................................................... 39,151 149,474
------------ ------------
Total current assets ..................................................... 5,916,856 10,647,738
Equipment and improvements:
Machinery and equipment ............................................... 3,228,773 3,207,603
Office equipment ...................................................... 472,375 469,537
Leasehold improvements ................................................ 257,286 254,766
------------ ------------
3,958,434 3,931,906
Less accumulated depreciation ......................................... 2,890,940 2,539,020
------------ ------------
1,067,494 1,392,886
Other assets ............................................................. 16,841 16,841
------------ ------------
Total assets ............................................................. $ 7,001,191 $ 12,057,465
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 41,055 $ 219,230
Accrued royalties - related party ..................................... 24,994 30,000
Deferred revenue ...................................................... 350,000 0
Other accrued expenses ................................................ 143,154 243,046
------------ ------------
Total current liabilities ................................................ 559,203 492,276
Deferred rental expense .................................................. 0 2,112
Stockholders' equity:
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 -
24,862,263 shares at September 30, 1998 and 24,791,013 shares
at December 31, 1997 ........................................... 66,593,140 66,519,348
Notes receivable from common stock sales .............................. (33,938) (35,938)
Unearned stock compensation ........................................... (125,375) (124,882)
Deficit accumulated during the development stage ...................... (59,991,839) (54,795,451)
------------ ------------
Total stockholders' equity ............................................... 6,441,988 11,563,077
------------ ------------
Total liabilities and stockholders' equity ............................... $ 7,001,191 $ 12,057,465
============ ============
</TABLE>
The accompanying Condensed Notes to Financial Statements are an
integral part of these balance sheets.
Page 3
<PAGE> 4
AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
JULY 17, 1989
(DATE OF
THREE MONTHS ENDED NINE MONTHS ENDED INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997 1998
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues ................. $ 50,000 $ 82,090 $ 51,636 $ 105,808 $ 389,810
Cost of sales ............ 0 988,187 1,405 1,961,304 6,760,390
------------ ------------ ------------ ------------ ------------
Gross margin ............. 50,000 (906,097) 50,231 (1,855,496) (6,370,580)
Costs and expenses:
Research and development
- related party ........ - - - - 1,145,913
- other ................ 1,006,822 943,916 3,666,789 3,168,390 33,237,532
Marketing, general and
administrative
- related party ........ 25,000 21,717 74,933 70,767 1,313,697
- other ................ 623,423 705,926 1,822,242 2,161,112 21,150,279
------------ ------------ ------------ ------------ ------------
Total costs and expenses . 1,655,245 1,671,559 5,563,964 5,400,269 56,847,421
------------ ------------ ------------ ------------ ------------
Operating loss ........... (1,605,245) (2,577,656) (5,513,733) (7,255,765) (63,218,001)
Interest income .......... 79,289 190,798 317,345 659,405 3,827,165
Interest expense
- related parties ....... - - - - (264,445)
------------ ------------ ------------ ------------ ------------
Net loss ................. $ (1,525,956) $ (2,386,858) $ (5,196,388) $ (6,596,360) $(59,655,281)
============ ============ ============ ============ ============
Net loss per share (basic
and diluted) ............. $ (0.06) $ (0.10) $ (0.21) $ (0.27) $ (3.97)
============ ============ ============ ============ ============
Weighted average shares
outstanding (basic
and diluted) ............. 24,833,263 24,791,763 24,831,700 24,573,637 15,008,509
</TABLE>
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
Page 4
<PAGE> 5
AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM JULY
17, 1989 (DATE
NINE MONTHS ENDED SEPTEMBER 30, OF INCEPTION) TO
-------------------------------------- SEPTEMBER 30,
1998 1997 1998
----------------- --------------- ------------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss ................................................. $ (5,196,388) $ (6,596,360) $(59,655,281)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and amortization .......................... 351,921 394,444 3,300,532
Amortization of unearned stock compensation ............ 63,287 86,197 691,297
Forgiveness of promissory notes ........................ - - 35,937
Grant of compensatory stock options .................... - - 14,063
Loss on disposal of equipment .......................... - - 67,270
Deferred rental expense ................................ (2,112) (43) 0
Accretion of discount on marketable securities ......... - - (187,407)
Changes in operating assets and liabilities:
Trade accounts receivable ............................ 116 (76,512) 0
Inventories .......................................... 188,848 (109,852) (102,430)
Prepaid expenses and other current assets ............ 110,323 40,172 (39,461)
Accounts payable ..................................... (178,175) 6,247 41,055
Accrued royalties payable-related party .............. (5,006) (5,000) 64,998
Deferred revenue...................................... 350,000 350,000
Other current liabilities ............................ (99,892) 48,787 262,084
------------ ------------ ------------
Net cash used in operating activities .................... (4,417,078) (6,211,920) (55,157,343)
INVESTING ACTIVITIES:
Purchases of equipment and improvements .................. (26,529) (266,096) (4,061,623)
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 .................... (26,529) (266,096) (4,264,420)
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 .................... 2,000 - 59,425
Issuance of common stock, exercise of stock options ...... 10,012 - 143,558
Issuance of common stock, net of issuance costs .......... - - 50,879,555
------------ ------------ ------------
Net cash provided by financing activities ................ 12,012 - 65,197,038
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents ......... (4,431,595) (6,478,016) 5,775,275
Cash and cash equivalents at beginning of period ......... 10,206,870 18,728,427 -
------------ ------------ ------------
Cash and cash equivalents at end of period ............... $ 5,775,275 $ 12,250,411 $ 5,775,275
============ ============ ============
</TABLE>
The accompanying Condensed Notes to Financial Statements are an
integral part of these statements.
Page 5
<PAGE> 6
AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited 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, 1997. Operating results for the three and nine month periods
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1998 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 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, 1998 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.
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<PAGE> 7
Inventories
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.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Raw material $ 92,974 $ 233,997
Work in process 9,456 34,818
Finished products -- 22,463
-------------- --------------
Total $ 102,430 $ 291,278
============== ==============
</TABLE>
Impairment
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. No write-offs of obsolete equipment were
recorded in either of the nine-month periods ended September 30, 1998 or 1997.
Page 7
<PAGE> 8
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 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.
Starting in 1994, with the sale of the Company's first battery product, a
portion of the research and development effort became focused on the
manufacturing process and the production of both prototype batteries and
batteries for sale to customers. In 1998, the Company started to shift much of
its development efforts into primary (non-rechargeable) zinc-air technology in
order to capitalize on the capability of its patented Diffusion Air Manager
technology and possible opportunities in handheld electronic products like
camcorders and cellular telephones. The Diffusion Air Manager is a simplified
method of isolating the cells in zinc-air batteries from exposure to air during
periods when the battery is in storage or not in use. The Company has pilot line
production capability for primary and rechargeable zinc-air batteries that
incorporate its Diffusion Air Manager Technology. The Company has developed a
6-volt prototype primary zinc-air battery for use with handheld portable
electronic products in order to demonstrate the performance of the Diffusion Air
Manager to potential customers and development partners. This prototype battery
uses a primary zinc-air cell that is 70% smaller than the Company's latest
rechargeable zinc-air cells. The Company has ceased marketing its rechargeable
battery product and canceled all outstanding orders for its rechargeable battery
product. The Company plans to develop, manufacture and sell its primary battery
product in alliance with substantial companies, such as battery manufacturers
and original equipment manufacturers (OEMs).
On September 24, 1998, the Company announced its Technology Licenses
and Services Agreement (TLAS) with Duracell Inc., a subsidiary of The Gillette
Company, making Duracell the first licensee of the Company's zinc-air
technology. Under the terms of the TLAS Agreement, the Company agrees to license
certain of its zinc-air related battery technology to Duracell. In addition,
Duracell is funding certain joint product development projects with the Company.
Under the TLAS Agreement, Duracell agrees to license the rights to the
Company's currently existing patents. Duracell will own technology developed
under the projects it funds, and the Company will have rights to utilize the
technology. Duracell also has options to obtain certain other license rights.
For the remainder of 1998 and throughout 1999, the Company plans to
work with Duracell under the TLAS Agreement, seek additional licensees for its
patented zinc-air technology, focus on the development of prototype primary
zinc-air batteries that utilize Diffusion Air Manager Technology and maintain a
small research and development effort in rechargeable zinc-air technology. The
Page 8
<PAGE> 9
Company continues to seek to expand its zinc-air patent portfolio, and as of
September 30, 1998, the Company had 29 U.S. and eight foreign patents.
The Company has incurred cumulative losses of $59.7 million since
inception to September 30, 1998 and expects to continue to incur operating
losses at least through 1999.
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 battery 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, 1998 and 1997
The Company's revenues were minimal for the three months ended
September 30, 1998 and 1997.
Research and development (R&D) expenses were $1,007,000 for the third
quarter of 1998, as compared to $944,000 for the same period in 1997, an
increase of 6.7 percent. At the same time, manufacturing expenses (cost of
sales) decreased almost $1 million. The net decrease in these two expense
categories is attributable primarily to a smaller work force and fewer materials
and supplies. These changes are in line with the Company's focus on research and
development and reduction in manufacturing-related activities.
Marketing, general and administrative expenses were $648,000, as
compared to $728,000 for the same period in 1997, a decrease of 11 percent. This
decrease resulted from a combination of reductions, primarily in
personnel-related costs ($92,000), travel expense ($26,000) and marketing
expenses ($59,000), which was partially offset by an increased provision for
obsolete materials of $116,000.
Nine Months Ended September 30, 1998 and 1997
The Company's revenues were minimal for the nine months ended September
30, 1998 and 1997.
Page 9
<PAGE> 10
R&D expenses increased approximately $500,000 for the nine months ended
September 30, 1998, as compared to the same period in 1997. At the same time,
manufacturing expenses (cost of sales) decreased approximately $2 million. The
net decrease in these two categories is attributable primarily to a smaller work
force and fewer materials and supplies. These changes are in line with the
Company's focus on research and development and reduction in
manufacturing-related activities.
Marketing, general and administrative expenses for the nine months
ended September 30, 1998 decreased by approximately $335,000 from $2.23 million
for the same period in 1997, a decrease of 15 percent. This decrease resulted
from a combination of reductions, primarily in personnel-related costs
($171,000), advertising and similar marketing expenses ($74,000) and various
taxes ($50,000).
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
As of September 30, 1998, the Company had cash and cash equivalents of
$5.8 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 alliances with battery manufacturers and OEMs, working
capital and general corporate purposes as determined by management. In the
interim, the Company invests any excess funds in government securities and/or
other short-term, investment grade, interest-bearing instruments.
Net cash used in operating activities decreased to $4.4 million for the
nine months ended September 30, 1998 from $6.2 million for the same period in
1997, due primarily to the decreases in costs and expenses discussed above in
"Results of Operations."
For the nine months ended September 30, 1998, the Company used net cash
of $27,000 for equipment purchases as compared to $266,000 for equipment
purchases for the same period in 1997.
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, 1998 and 1997 of $75,000 and $71,000 respectively. Minimum royalty
expenses are included in marketing, general and administrative expenses in the
statements of operations. Royalties due as a percentage of sales under the DEMI
License are recorded in cost of sales. Irrespective of the royalty percentages
mentioned earlier, the future minimum royalty payments specified by the DEMI
License consist of the following:
Page 10
<PAGE> 11
<TABLE>
Year Ending December 31,
<S> <C>
1998.....................................$100,000
1999.....................................$ 50,000
</TABLE>
As a result of the TLAS Agreement, the Company received a payment of
$400,000 from Duracell in September 1998. Additionally under the TLAS Agreement,
the Company expects to receive $1.1 million for license fees in January 1999 and
approximately $1.5 million in development funding during 1999. These revenues
will be recorded as such when they are earned.
As a result of some computer programs being written using two digits
instead of four digits to define an applicable year, time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000 which
could potentially result in miscalculations or system failure. The Company has
been assessing its exposure to this "Year 2000 Issue" and has determined that
most of its operational programs controlling its purchasing, inventory, billing
and accounting systems have been designed to be year 2000 compliant, and for
those that are not, the Company plans to have made the necessary adjustments on
or about the end of 1998 at an approximate cost of $4,000. In addition to its
operational programs, the Company has several programs that test product
performance and quality. These programs are currently being reviewed for year
2000 compliance. The Company does not anticipate that required modifications to
these test programs, if any, would be material in cost or time. Currently the
Company has no critical interfacing systems to third parties. However, there is
no guarantee that systems of other companies with which the Company has business
transactions will be timely converted, and, if they are not, this could have a
material adverse effect on the Company.
The Company currently anticipates that its existing cash balances along
with expected development funds and licensing fees from the TLAS Agreement with
Duracell will fund operations and technology development at the current level of
activity into the first quarter of 2000. However, it may be necessary for the
Company to increase its research and development expenses as it continues to
work to improve its zinc-air technology and develope prototypes of its zinc-air
batteries for various potential applications. It may also be necessary for the
Company to expend greater than anticipated funds on its manufacturing facilities
or otherwise. The Company will continue to need working capital, 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. The Company has also encountered greater difficulty in
commercializing its technology than originally expected. In addition, the
battery business is a chemical processing business, and as such, the Company may
require specialized equipment to manufacture its zinc-air batteries. Future
equipment additions could exceed current Company estimates in cost.
Page 11
<PAGE> 12
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, inability of the Company to reach agreements with
battery manufacturers and OEMs, fluctuation in the Company's operating results,
changes in earnings estimates by analysts, the addition or deletion of analyst
coverage, announcements of technological innovations or new products by the
Company or its competitors, perceived changes in the markets for various
applications incorporating the Company's products, the announcement or
termination of relationships with battery manufacturers and OEMs and general
market conditions may cause significant fluctuations in the market price of the
Company's common stock. Also, 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.
The Nasdaq Stock Market has requirements for continued listing,
including a requirement that the minimum bid price per share of the stock of
each listed company not fall below $1.00 for any 30-consecutive business day
period. The Company was notified on September 3, 1998 by Nasdaq that it was not
in compliance with the listing rules because the closing minimum bid price per
share of the Company's common stock had remained below $1.00 for 30 consecutive
business days. If the closing minimum bid price is not at least $1.00 for a
minimum of ten consecutive business days during the 90-day period ending
December 2, 1998, the Company's common stock may be delisted from the Nasdaq
Stock Market. The Nasdaq rules provide listed companies with the right to a
hearing prior to a delisting becoming effective. The Company intends to request
such a review hearing.
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, ability
of the Company to license its 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 battery manufacturers and OEMs, impact of any future
governmental regulations, impact of pricing or material costs, ability of the
Company to raise additional funds and other factors affecting the Company's
business that are beyond the Company's control. All forward looking statements
contained in this document are intended to be subject to the safe harbor
protection provided by applicable federal securities laws.
AER Energy is a trademark of AER Energy Resources, Inc.
Page 12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C>
10.1 Technology Licenses and Services Agreement, dated as of
September 24, 1998, between Duracell Inc. and AER Energy
Resources, Inc. [Filed on September 24, 1998 as an exhibit to
the Company's Form 8-K (File No. 0-21296) and incorporated
herein by reference.]
27 Financial Data Schedule (for SEC use only).
</TABLE>
(B) REPORTS ON FORM 8-K:
The Company filed a Form 8-K on September 24, 1998, reporting under
Item 5 the execution and delivery of a Technology Licenses and Services
Agreement with Duracell Inc., a wholly-owned subsidiary of The Gillette Company,
pursuant to which the Company's zinc-air battery technology has been licensed to
Duracell on primarily a non-exclusive basis. Under the agreement, Duracell will
provide funding to the Company for certain product development projects; in
return, Duracell will own the technology developed under the product development
projects funded by Duracell. The Company has certain royalty-bearing and
royalty-free rights to utilize the technology funded by Duracell. Duracell also
has certain non-exclusive rights to the Company's currently existing technology
and certain option rights to obtain an exclusive license of the Company's
technology to manufacture and sell certain battery cells.
Page 13
<PAGE> 14
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.
AER ENERGY RESOURCES, INC.
Date: November 16, 1998 By: /s/ David W. Dorheim
--------------------------------------
David W. Dorheim, President and
Chief Executive Officer
Date: November 16, 1998 By: /s/ J. T. Moore
--------------------------------------
J. T. Moore, Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting
Officer)
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,775,275
<SECURITIES> 0
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0
0
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</TABLE>
