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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 June 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-21926
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AER ENERGY RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Georgia 34-1621925
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4600 Highlands Parkway, Suite G, Smyrna, Georgia 30082
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(Address of principal executive offices) (Zip Code)
(770) 433-2127
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(Registrant's telephone number, including area code)
Not Applicable
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(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 25,522,121 shares of Common Stock outstanding as of August 13, 2001.
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AER ENERGY RESOURCES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2001
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Balance Sheets - June 30, 2001 and December 31, 2000 3
Condensed Statements of Operations - Three Months Ended June 30, 4
2001 and 2000, Six Months Ended June 30, 2001 and 2000, and
Period From July 17, 1989 (Date of Inception) to June 30, 2001
Condensed Statements of Cash Flows - Six Months Ended June 30, 5
2001 and 2000, and Period From July 17, 1989 (Date of Inception)
to June 30, 2001
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 9
RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 913,495 $ 781,314
Inventories 96,217 76,752
Prepaid expenses and other current assets 120,868 59,402
------------ ------------
Total current assets 1,130,580 917,468
Equipment and improvements 3,435,817 3,419,463
Less accumulated depreciation (3,182,045) (3,096,045)
------------ ------------
253,772 323,418
Other assets 10,591 10,791
------------ ------------
TOTAL ASSETS $ 1,394,943 $ 1,251,677
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 108,266 $ 60,910
Deferred revenue 71,875 287,500
Other accrued expenses 123,322 158,940
Convertible Notes Payable, net of discount of $121,687 128,313 --
------------ ------------
Total current liabilities 431,776 507,350
Redeemable convertible preferred stock, no par value, in series:
Series A: authorized - 425,000 shares; 404,500 shares issued and
outstanding at June 30, 2001 and December 31, 2000; liquidation
preference and redemption price of $4,252,811 as of June 30, 2000
(including $207,811 undeclared dividends) 3,598,318 3,386,419
Series B: authorized - 250,000 shares; 102,250 shares issued and
outstanding at June 30, 2001; liquidation preference and
redemption price of $1,045,919 as of June 30, 2001 (including
$23,419 undeclared dividends) 759,743 --
Series C: authorized - 250,000 shares; 102,250 shares issued and
outstanding at June 30, 2001; liquidation preference and
redemption price of $1,028,252 as of June 30, 2001 (including
$5,752 undeclared dividends) 385,720 --
------------ ------------
Total liabilities and redeemable convertible preferred stock 5,175,557 3,893,769
Stockholders' deficit:
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; 25,507,121 shares issued and outstanding
at June 30, 2001 and 24,850,263 shares issued and
outstanding December 31, 2000 68,202,194 67,212,754
Unearned stock compensation (14,388) (31,861)
Deficit accumulated during the development stage (71,968,420) (69,822,985)
------------ ------------
Total stockholders' deficit (3,780,614) (2,642,092)
------------ ------------
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK, AND STOCKHOLDERS' DEFICIT $ 1,394,943 $ 1,251,677
============ ============
See notes to condensed financial statements.
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AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
PERIOD FROM
JULY 17, 1989
(DATE OF
THREE MONTHS ENDED SIX MONTHS ENDED INCEPTION) TO
JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000 2001
----------- ----------- ----------- ----------- -------------
License fees and research and development revenues $ 107,812 $ 107,811 $ 215,625 $ 215,625 $ 2,943,845
Product sales -- -- -- -- 338,174
Cost of product sales -- -- -- -- (6,758,985)
----------- ----------- ----------- ----------- ------------
Gross margin on product sales -- -- -- -- (6,420,811)
----------- ----------- ----------- ----------- ------------
107,812 107,811 215,625 215,625 (3,476,966)
----------- ----------- ----------- ----------- ------------
Costs and expenses:
Research and development
- related party -- -- -- -- 1,145,913
- other 745,742 858,338 1,523,289 1,780,106 43,102,602
Marketing, general and administrative
- related party -- -- -- -- 1,388,695
- other 386,852 424,087 800,838 882,763 26,106,500
----------- ----------- ----------- ----------- ------------
Total costs and expenses 1,132,594 1,282,425 2,324,127 2,662,869 71,743,710
----------- ----------- ----------- ----------- ------------
Operating loss (1,024,782) (1,174,614) (2,108,502) (2,447,244) (75,220,676)
Interest income 5,370 24,438 8,629 37,875 4,119,987
Interest expense (45,562) -- (45,562) -- (45,562)
Interest expense - related parties -- (110,725) -- (110,725) (485,611)
----------- ----------- ----------- ----------- ------------
Net loss (1,064,974) (1,260,901) (2,145,435) (2,520,094) (71,631,862)
----------- ----------- ----------- ----------- ------------
Accretion of redeemable preferred stock (67,931) -- (105,352) -- (139,226)
Redeemable preferred stock dividends (91,267) -- (165,689) -- (236,982)
----------- ----------- ----------- ----------- ------------
Net loss attributable to common stock $(1,224,172) $(1,260,901) $(2,416,476) $(2,520,094) $(72,008,070)
=========== =========== =========== =========== ============
Net loss per share (basic and diluted) $ (0.05) $ (0.05) $ (0.10) $ (0.10) $ (4.17)
=========== =========== =========== =========== ============
Weighted average shares outstanding (basic and diluted) 25,312,229 24,850,263 25,082,522 24,850,263 17,253,961
See notes to condensed financial statements.
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AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
PERIOD FROM
JULY 17, 1989
(DATE OF
SIX MONTHS ENDED INCEPTION) TO
JUNE 30, JUNE 30,
2001 2000 2001
----------- ----------- -------------
OPERATING ACTIVITIES:
Net loss $(2,145,435) $(2,520,094) $(71,631,862)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 86,000 171,651 4,229,482
Amortization of unearned stock compensation 17,473 17,473 789,528
Amortization of warrants' value 45,198 --
Amortization of discount on promissory notes -- -- 88,889
Grant of compensatory stock options -- -- 14,063
Forgiveness of promissory notes -- -- 69,875
Loss on disposal of equipment -- -- 79,440
Accretion of discount on short-term investments
and marketable securities -- -- (263,259)
Net changes in operating assets and liabilities (284,619) (177,736) 251,251
----------- ----------- ------------
Net cash used in operating activities (2,326,581) (2,463,508) (66,372,593)
INVESTING ACTIVITIES:
Purchases of equipment and improvements (16,354) (11,856) (4,189,021)
Purchases of short-term investments and marketable securities -- -- (14,736,444)
Purchase of license agreement -- -- (250,000)
Proceeds from sales/maturities of short-term investments and
marketable securities -- -- 15,000,000
Changes in other assets -- -- (140,501)
----------- ----------- ------------
Net cash used in investing activities (16,354) (11,856) (4,315,966)
FINANCING ACTIVITIES:
Proceeds from revolving credit note to related parties -- -- 5,430,000
Issuance of convertible debentures, net of issuance costs -- -- 9,834,500
Proceeds from convertible notes payable 261,113 -- 261,113
Proceeds from convertible notes payable to related parties -- 2,000,000 2,000,000
Payments on notes payable to related parties -- -- (1,150,000)
Payments received on promissory notes -- -- 59,425
Issuance of common stock upon exercise of stock options -- -- 143,558
Issuance of common stock, net of issuance costs 254,211 -- 51,133,766
Issuance of redeemable convertible preferred stock, net of
issuance costs 1,959,792 -- 3,889,692
----------- ----------- ------------
Net cash provided by financing activities 2,475,116 2,000,000 71,602,054
----------- ----------- ------------
(Decrease) increase in cash and cash equivalents 132,181 (475,364) 913,495
Cash and cash equivalents at beginning of period 781,314 1,761,268 --
----------- ----------- ------------
Cash and cash equivalents at end of period $ 913,495 $ 1,285,904 $ 913,495
=========== =========== ============
See notes to condensed financial statements.
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AER ENERGY RESOURCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of AER Energy
Resources, Inc. (the "Company") have been prepared in accordance with accounting
principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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, 2000. Operating results for the three
and six month periods ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001 or any interim
period.
2. SIGNIFICANT ACCOUNTING POLICIES
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.
Inventories
The Company's inventories are valued at the lower of cost or market,
using the first in, first out (FIFO) method. The inventories balances at June
30, 2001 and December 31, 2000 of $96,217 and $76,752, respectively, consist
entirely of raw materials.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those 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
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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 remaining fixed assets. The Company's
estimates of future undiscounted cash flows have taken into consideration its
current research and development operations and contemplate the Company entering
into license agreements and research and development agreements, similar, or
somewhat similar, to its agreements with Duracell Inc. and Rayovac Inc.,
throughout the remaining useful lives of the Company's fixed assets. If the
Company is unable to enter into such agreements, a write down of long-lived
assets to fair value may be required. No write-offs of obsolete equipment were
recorded in either of the six-month periods ended June 30, 2001 or 2000.
3. PREFERRED STOCK AND WARRANT TRANSACTION
On February 27, 2001, the Company issued 102,250 shares of Series B
Convertible Preferred Stock ("Series B Preferred") and a warrant to purchase up
to 776,699 shares of common stock for a total purchase price, net of transaction
fees, of $0.98 million to one of the major shareholders of the Company, Elmwood
Partners II (affiliated with Jon Lindseth, the Company's Chairman of the Board).
The Series B Preferred may be converted, at the option of the holder, to common
stock of the Company at any time at a conversion price of $0.515 per share,
subject to various possible adjustments. The Company may redeem the Series B
Preferred at a price equal to $10.00 per share plus all accrued and unpaid
dividends; and it must be redeemed in February 2006, unless previously
converted. Dividends accrue at the rate of 6.75% per annum, are cumulative and
compound annually.
The warrant is exercisable for five years and entitles the holder to
purchase up to 776,699 shares of common stock at an exercise price of $0.5376
per share, subject to various possible adjustments. The fair value for this
warrant of $0.26 million, or $0.34 per share, was estimated at the date of grant
using a Black-Scholes valuation model. The warrant value has been allocated to
common stock and will be accreted to the Series B Preferred on a straight-line
basis through the mandatory redemption date so that at such redemption date, the
carrying amount of the Series B Preferred will equal the mandatory redemption
value.
On June 1, 2001, the Company issued 102,250 shares of Series C
Convertible Preferred Stock ("Series C Preferred") and a warrant to purchase up
to 982,891 shares of common stock for a total purchase price, net of transaction
fees, of $0.98 million to one of the major shareholders of the Company, FW AER
II, L.P. The Series C Preferred may be converted, at the option of the holder,
to common stock of the Company at any time at a conversion price of $0.407 per
share, subject to various possible adjustments. The Company may redeem the
Series C Preferred at a price equal to $10.00 per share plus all accrued and
unpaid dividends; and it must be redeemed in June 2006, unless previously
converted. Dividends accrue at the rate of 6.75% per annum, are cumulative and
compound annually.
The warrant is exercisable for five years and entitles the holder to
purchase up to 982,891 shares of common stock at an exercise price of $0.425 per
share, subject to various possible adjustments. The fair value for this warrant
of $0.61 million, or $0.62 per share, was estimated at the date of grant using a
Black-Scholes valuation model. The warrant value has been
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allocated to common stock and will be accreted to the Series C Preferred on a
straight-line basis through the mandatory redemption date so that at such
redemption date, the carrying amount of the Series C Preferred will equal the
mandatory redemption value.
4. NOTE PAYABLE, COMMON STOCK, AND WARRANT TRANSACTION
In April 2001, the Company signed a License and Development Agreement
with Rayovac Corporation (the "Agreement"). Under the Agreement the Company is
licensing its zinc-air battery technology to Rayovac and performing design and
development work for Rayovac. Rayovac will own the technology developed under
this agreement and the Company will have rights to utilize that technology.
In connection with the Agreement the Company issued to Rayovac 656,858
shares of Company common stock and a warrant to purchase up to 218,953 shares of
common stock for a total purchase price, net of transaction fees, of $0.27
million. The warrant is exercisable for four years and entitles the holder to
purchase up to 218,953 shares of common stock at an exercise price of $0.4567
per share, subject to various possible adjustments. The fair value for this
warrant of $0.74 million, or $0.34 per share, was estimated at the date of grant
using the Black-Scholes valuation model. Rayovac has certain rights to purchase
additional shares of common stock and warrants as of the Phase III Notice Date,
anticipated to be early 2002.
Additionally, the Company issued a $250,000 non-interest bearing note
payable. The note converts to the number of shares of common stock equal to
$250,000 divided by the lesser of the average closing price for the thirty days
prior to the conversion or $1.50. The principal on the note is payable in cash
only upon the occurrence of specified events of default. The note will convert
to common stock upon the Phase III Notice Date, anticipated to be early 2002.
While the note has no stated interest rate, an interest rate of 15% was used to
discount the note by $0.03 million and will be amortized to interest expense
over its expected life. Based upon the rate at which the note becomes
convertible, an additional discount of $0.07 million was recorded in accordance
with Emerging Issues Task Force Topic No. 00-27, which will also be amortized to
interest expense.
5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has adopted FASB Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" effective January 1, 2001.
Effective June 1, 2001, the Company has also adopted FASB Statement No. 141,
"Business Combinations", and FASB Statement No. 142, "Goodwill and Other
Intangible Assets". There has been no impact on the Company's results of
operations and financial position.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company was incorporated in 1989 and has been engaged in the
development and commercialization of high energy density zinc-air batteries.
Until 1998, the Company's operations were focused primarily on developing and
improving its technology, setting up the manufacturing process, testing and
selling rechargeable zinc-air batteries, recruiting personnel, and similar
activities. In 1998, the Company changed its strategy to research and product
development of zinc-air technology with its focus in primary (disposable)
batteries, rather than rechargeable batteries, and plans to commercialize the
technology through alliances with battery and original equipment manufacturers
("OEMs"). This change allows the Company to capitalize on the capability of its
patented Diffusion Air Manager technology and opportunities in hand-held
electronic products like camcorders, cellular telephones, cordless telephones,
digital cameras, and hand-held computers. The Diffusion Air Manager can extend
zinc-air battery storage life by isolating the cells in zinc-air batteries from
exposure to air during periods when the battery is in storage or not in use.
In September 1998, the Company announced its Technology Licenses and
Services ("TLAS") Agreement with Duracell Inc., a subsidiary of The Gillette
Company, making Duracell the first licensee of the Company's primary
(non-rechargeable) zinc-air technology. Under the terms of the TLAS Agreement,
Duracell agreed to license the rights to the Company's then existing patents. In
addition, Duracell agreed to fund certain joint product development projects
with the Company during 1999. Duracell owns technology developed under the
projects it funds, and the Company has rights to utilize the technology.
Duracell also has options to obtain certain other license rights. The current
revenue of $0.11 million per quarter being recognized under this agreement will
cease in the third quarter of 2001.
In April 2001, the Company entered into a License and Development
Agreement with Rayovac Corporation to explore the feasibility of combined
products and to license AER's proprietary technology and patents to Rayovac. The
Agreement includes both a Development Program and a Stock Purchase. The
Development Program consists of three phases: a preliminary phase (Sub-Phase A),
an intermediate phase (Sub-Phase B), and a final phase (Sub-Phase C), with all
three phases expected to be completed in early 2002. Each party shall perform
specific obligations set for and assigned to it in the Development Plan;
however, the Company will not be required to incur more than $250,000 of its own
expenses. Rayovac will own technology developed for it and AER will have certain
rights to utilize that technology. Rayovac also has options to obtain certain
other license rights. See Footnote 4.
Throughout 2001, the Company will continue to seek additional license
agreements for its patented zinc-air technology with other companies and focus
on the development of prototype primary zinc-air batteries that utilize
Diffusion Air Manager technology.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2001 and 2000
The Company generated $0.11 million of license fees and research and
development revenues under the TLAS Agreement with Duracell during both the
first three months ended June 30, 2001 and 2000.
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Research and development expenses decreased 13% to $0.75 million for
the three months ended June 30, 2001 from $0.86 million for the same period in
2000. This decrease resulted primarily from reduced travel, depreciation, and
tooling expenses.
Marketing, general and administrative expenses decreased 9% to $0.39
million for the three months ended June 30, 2001 from $0.42 million for the same
period in 2000. This decrease resulted primarily from decreased travel, legal,
and personnel related expense, offset by increased investor relations expenses.
Six Months Ended June 30, 2001 and 2000
The Company generated $0.22 million of license fees and research and
development revenues under the TLAS Agreement with Duracell during both the
first six months ended June 30, 2001 and 2000.
Research and development expenses decreased 14% to $1.52 million for
the six months ended June 30, 2001 from $1.78 million for the same period in
2000. This decrease resulted primarily from reduced travel, tooling,
depreciation, and supplies and materials expenses.
Marketing, general and administrative expenses decreased 9% to $0.80
million for the six months ended June 30, 2001 from $0.88 million for the same
period in 2000. This decrease resulted primarily from decreased travel and
investor relations expense, offset by increased sample sales and general
insurance expenses.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
As of June 30, 2001, the Company had cash and cash equivalents of $0.91
million. The Company anticipates using these funds as needed to fund capital
equipment purchases, research and product development efforts, marketing and
licensing activities, production of prototype zinc-air battery products,
development of alliances with battery manufacturers and OEMs, working capital
and general corporate purposes as determined by management.
In February 2001, the Company received $0.98 million in cash, net of
issuance costs, pursuant to the issuance of 102,250 shares of Series B Preferred
to AER's major shareholder, Elmwood Partners II (affiliated with Jon Lindseth,
the Company's Chairman of the Board). The preferred stock may be converted to
common stock of the Company at a conversion price of $0.515 per share, subject
to various possible adjustments, at any time at the option of the holder. The
Company may redeem the preferred stock at a price equal to $10.00 per share plus
all accrued and unpaid dividends at any time and it must be redeemed in February
2006, unless previously converted. Dividends accrue at the rate of 6.75% per
annum, are cumulative and compound annually. A warrant to purchase a total of
776,699 shares of AER Energy common stock at $0.5376 per share, subject to
various possible adjustments, was also issued to the investor. The warrant
expires in February 2006.
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In June 2001, the Company received $0.98 million in cash, net of
issuance costs, pursuant to the issuance of 102,250 shares of Series C Preferred
to AER's major shareholder, FW AER II, L.P. The preferred stock may be converted
to common stock of the Company at a conversion price of $0.407 per share,
subject to various possible adjustments, at any time at the option of the
holder. The Company may redeem the preferred stock at a price equal to $10.00
per share plus all accrued and unpaid dividends at any time and it must be
redeemed in June 2006, unless previously converted. Dividends accrue at the rate
of 6.75% per annum, are cumulative and compound annually. A warrant to purchase
a total of 982,891 shares of AER Energy common stock at $0.425 per share,
subject to various possible adjustments, was also issued to the investor. The
warrant expires in June 2006.
Net cash and cash equivalents used in operating and investing
activities decreased to $2.34 million for the six months ended June 30, 2001
from $2.48 million for the same period in 2000 due primarily to the decrease in
net loss offset by the net increase in operating assets and liabilities.
Net cash and cash equivalents provided by financing activities for the
six months ended June 30, 2001 was $2.48 million, arising from the issuance of a
note payable to Rayovac and the issuance of redeemable convertible preferred
stock and common stock. Net cash provided by financing activities for the same
period in 2000 were $2.00 million, arising from notes payable to related
parties.
The Company currently anticipates that its existing cash and cash
equivalents balance will fund operations and continue technology development at
the current level of activity into the third quarter of 2001. The Company will
need to raise additional funds through additional debt or equity. There can be
no assurance that additional equity or debt financing will be available when
needed or on terms acceptable to the Company.
The market price of the Company's common stock has fluctuated
significantly since it began to be publicly traded in July 1993 and may continue
to be highly volatile. Factors such as those described in "Forward Looking
Statements" below 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.
FORWARD LOOKING STATEMENTS
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 important factors, the risks and
uncertainties which could cause actual results to differ materially from those
anticipated, which include but are not limited to the following: the ability of
the Company to achieve development goals, the ability of the Company to
commercialize its battery technology, the ability of the Company to license its
technology, development of competing battery technologies, the ability
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of the Company to protect its proprietary rights to its technology, improvements
in conventional battery technologies, the demand for and acceptance of the
Company's products in the marketplace, the ability to obtain commitments from
battery manufacturers and OEMs, the impact of any future governmental
regulations, the impact of pricing or material costs, the ability of the Company
to raise additional funds, general market conditions and other factors affecting
the Company's business that are beyond the Company's control. All forward
looking statements contained in this report are intended to be subject to the
safe harbor provided by applicable federal securities laws.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has invested a portion of its cash and cash equivalents in
highly liquid financial instruments. The Company has historically held, and
plans in the future to hold, all such instruments until maturity. If the
instruments were, for some reason not anticipated, redeemed earlier than their
maturity, there might be a gain or loss on the transaction. The Company has no
transactions which qualify for treatment under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities".
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 27, 2001 the Company issued 656,858 shares of common stock and
a warrant to purchase up to 218,953 shares of common stock for a total purchase
price, net of transaction fees, of $0.27 million to Rayovac Corporation. The
warrant is exercisable for four years and entitles the holder to purchase up to
218,953 shares of common stock at an exercise price of $0.4567 per share,
subject to various possible adjustments.
The issuance of the common stock and warrant was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2), including Rule 506 of Regulation D promulgated thereunder. At the time of
purchase, Rayovac was an accredited investor as defined under Regulation D. No
general solicitation or advertising was used in connection with this issuance
and appropriate legends were placed on the certificates representing such
securities stating that the securities were not registered under the Securities
Act.
On June 1, 2001 the Company issued 102,250 shares of Series C
Convertible Preferred Stock ("Series C Preferred") and a warrant to purchase up
to 982,891 shares of common stock for a total purchase price, net of transaction
fees, of $0.98 million to one of the major shareholders of the Company, FW AER
II, L.P. The Series C Preferred may be converted, at the option of the holder,
to common stock of the Company at any time at a conversion price of $0.407 per
share, subject to various possible adjustments. The Company may redeem the
Series C Preferred at a price equal to $10.00 per share plus all accrued and
unpaid dividends; and it must be redeemed in June 2006, unless previously
converted. Dividends accrue at the rate of 6.75% per annum, are cumulative and
compound annually. The warrant is exercisable for five years and entitles the
holder to purchase up to 982,891 shares of common stock at an exercise price
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of $0.425 per share, subject to various possible adjustments.
The issuance of the Series C Preferred and warrant was exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2), including Rule 506 of Regulation D promulgated thereunder. The purchaser
of the Series C Preferred and warrant was an accredited investor as defined
under Regulation D. No general solicitation or advertising was used in
connection with this issuance and appropriate legends were placed on the
certificates representing such securities stating that the securities were not
registered under the Securities Act.
The Series C Preferred is superior to the Company's common stock and is
on parity with the Company's Series A and Series B Preferred Stock as to payment
of dividends and amounts upon liquidation, dissolution or winding-up, and
therefore could adversely affect the holders of common stock with respect to
such payments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2001 Annual Meeting of Shareholders was held on April 26,
2001. The only matter voted upon at this meeting was the election of six
nominees to the Company's Board of Directors. The following table shows the
number of votes cast for each nominee and the number of votes withheld as to
each nominee. There were no abstentions or broker non-votes as to any nominee,
and there were no nominees other than those named in the Company's proxy
statement (who are set forth below).
Name of Nominee Affirmative Votes Votes Withheld
--------------- ----------------- --------------
David G. Brown 21,883,342 70,690
James W. Dixon 21,883,342 70,690
David W. Dorheim 21,883,342 70,690
William L. Jackson 21,883,342 70,690
Jon A. Lindseth 21,883,342 70,690
John L. Wilkes 21,883,342 70,690
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
3.1 Articles of Incorporation of the Company, as amended.
4.1 Form of Series C Convertible Preferred Stock Certificate.
10.6 Securities Purchase Agreement dated as of June 1, 2001 by and
between FW AER II, L.P. and AER Energy Resources, Inc.
10.7 Warrant to Purchase Common Stock of AER Energy Resources,
Inc., dated June 1, 2001 between FW AER II, L.P. and
AER Energy Resources, Inc.
(b) REPORTS ON FORM 8-K:
The registrant did not file any reports on Form 8-K during the
three months ended June 30, 2001.
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: August 13, 2001 By: /s/ David W. Dorheim
-------------------------------
David W. Dorheim, President and
Chief Executive Officer
Date: August 13, 2001 By: /s/ J.T. Moore
-------------------------------
J.T. Moore, Vice President,
Chief Financial Officer, Secretary
and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
AER Energy is a trademark of AER Energy Resources, Inc.
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