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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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
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
(Address of principal executive offices)
30082
(Zip Code)
Registrant's telephone number, including area code: (770) 433-2127
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant, based upon the closing sale price of the Common Stock on the
Nasdaq Stock Market's National Market on March 21, 1997, was approximately
$34,907,854.
As of March 21, 1997, the registrant had outstanding 24,364,570 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1996 are incorporated by reference to the
extent indicated in Part II of this Form 10-K. In addition, certain portions
of the Proxy Statement for the registrant's 1997 Annual Meeting of Shareholders
are incorporated by reference to the extent indicated in Part III of this Form
10-K.
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TABLE OF CONTENTS
PART I
Item 1. Business ................................................................ 3
2. Properties .............................................................. 11
3. Legal Proceedings ....................................................... 12
4. Submission of Matters to a Vote of Security Holders ..................... 12
Executive Officers of the Registrant .................................... 13
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters ................................................................. 15
6. Selected Financial Data .................................................. 15
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 15
8. Financial Statements and Supplementary Data .............................. 15
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................................ 15
PART III
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Item 10. Directors and Executive Officers of the Registrant ........................ 16
11. Executive Compensation .................................................... 16
12. Security Ownership of Certain Beneficial Owners and Management ............ 16
13. Certain Relationships and Related Transactions ............................ 16
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 17
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PART I
ITEM 1. BUSINESS.
GENERAL
AER Energy Resources, Inc. (the "Company" or "AER Energy") is engaged in
the development and commercialization of high energy density, rechargeable
zinc-air batteries that provide long, continuous run-time to users of portable
computers and other portable electronic products. The Company believes the
limited run-time between recharges (generally two to four hours) offered by
other manufacturers' rechargeable batteries is a major source of
dissatisfaction to some users of portable computers. The Company's
rechargeable zinc-air technology, which provides high energy density by weight
and high energy storage capacity, is being used to develop batteries capable of
operating most portable computers and certain other portable electronic
products at maximum power continuously for a full workday on a single charge.
Since its inception, the Company has been a development stage company and
has generated only minimal revenues from battery product sales. The Company
has focused its efforts on developing and improving its rechargeable zinc-air
technology, establishing the manufacturing process, developing relationships
with portable computer manufacturers (OEMs), defining and developing market
opportunities and testing and selling rechargeable zinc-air batteries. During
1994, the Company converted its pilot manufacturing line to a production
facility and began shipping its first battery product.
The Company has initially produced and marketed two types of rechargeable
batteries: stand-alone accessory batteries designed to power certain models of
the installed base of portable computers; and customized optional batteries
designed to power specific computer models of certain OEMs. The Company's
stand-alone accessory batteries and customized optional batteries have been
marketed to end-users through specialty computer catalogs, value-added
resellers (VARs) and direct sales. The Company's customized optional batteries
have also been marketed through OEM accessory catalogs.
During 1995, the Company introduced two customized optional batteries for
portable computer OEMs, the AER Energy PowerProTM and the AER Energy PowerSlice
LXTM. The AER Energy PowerPro was designed to power several 1995 models of
Toshiba portable computers which were discontinued by Toshiba in late 1995. As
a result, the Company phased out the AER Energy PowerPro in 1996. The AER
Energy PowerSlice LX was designed for the Hewlett-Packard (HP) OmniBook 600 PC
portable computer that was upgraded to the more powerful Pentium-based OmniBook
800 in September 1996. The increased power requirements of the OmniBook 800
necessitated an upgrade of the AER Energy PowerSlice LX, and the Company began
shipping limited quantities of the upgraded version in the first quarter of
1997. The Company recognized $23,000 in net revenues from the sales of AER
Energy PowerPro and AER Energy PowerSlice LX batteries during the year ended
December 31, 1996.
Although net revenues generated from battery product sales have been
minimal, the Company has used information gained from the field use of its
batteries to further improve its zinc-air technology and battery product
marketing. During 1996, the Company made significant
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improvements to its rechargeable zinc-air technology, enabling it to build a
3.2 pound prototype battery with sufficient power to operate a 30 plus watt
portable computer for a full workday on a single charge. As a result of
eliminating the need to add mercury to its zinc-air batteries during 1996, AER
Energy's rechargeable zinc-air batteries are no longer considered hazardous
waste under federal regulations and can be disposed of as household waste.
Also in 1996, the Company developed a low-cost design process that enables it
to more quickly adapt its battery product designs to serve different
applications.
During 1997, the Company hopes to obtain a commitment from one or more
OEMs to design a portable computer that is mechanically and electrically
compatible with an AER Energy zinc-air battery.
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. The Company and DEMI entered into a license
agreement (the "DEMI License") in July 1989 whereby DEMI granted to the Company
exclusive worldwide rights to DEMI's zinc-air battery patents and technology
(including trade secrets) for all applications other than motor vehicles for so
long as the Company wishes to use such licensed rights.
The Company was originally incorporated in Ohio in July 1989 under the
name Aerobic Power Systems, Inc. It subsequently changed its state of
incorporation to Georgia and its name to AER Energy Resources, Inc.
TECHNOLOGY OVERVIEW
The market for batteries is currently being served by a variety of
different battery technologies, some of which were first commercialized
approximately 100 years ago. Each of these battery technologies offers certain
attributes such as energy density, energy storage capacity, cost, configuration
and service life which make it best suited for particular product applications.
Choosing the appropriate battery to serve a given application involves
matching the battery's characteristics to the user's application requirements.
The Company is not aware of any single battery technology that can ideally
serve all applications.
The battery industry is broadly segmented into two types of batteries:
disposable and rechargeable. Disposable batteries, which include carbon-zinc
and alkaline technologies, are used until discharged and then discarded and
typically are priced below rechargeable batteries. Applications suited to
disposable batteries include products such as flashlights that operate at low
power and require infrequent use. In contrast, rechargeable batteries can be
discharged and then recharged to almost full capacity and discharged again.
Rechargeable batteries are best suited for applications that would require the
frequent replacement of a disposable battery. Commercially available
rechargeable batteries include nickel-cadmium, nickel-metal hydride,
lithium-ion, lead acid batteries and AER Energy's zinc-air batteries.
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The Company believes important rechargeable battery characteristics
include energy density, energy storage capacity, cell voltage and discharge
voltage profile. Energy density can be calculated based on either the weight or
volume of the battery. For a given amount of energy, higher energy density by
weight yields lighter batteries and higher energy density by volume yields
smaller batteries. Energy storage capacity refers to the limits on a battery's
ability to store energy safely and practically. Batteries with high energy
storage capacity may more easily be configured to deliver increased operating
time. Cell voltage determines the number of individual cells that must be
connected in series to provide the overall voltage required to operate a
specific product. Generally, batteries requiring fewer cells to achieve a given
battery voltage are more reliable and facilitate OEM product design. The shape
of a battery's discharge voltage profile defines the range of voltage over which
a product must operate to utilize all of the energy stored in the battery. A
battery with a flat discharge profile delivers a more consistent level of
voltage throughout the battery's discharge cycle and may simplify OEM product
design and contribute to better operating efficiency.
The Company believes its zinc-air rechargeable batteries offer a unique
combination of high energy density by weight and high energy storage capacity.
In addition, the Company's zinc-air battery cell has a flat discharge voltage
profile that can be an advantage in OEM product design and contribute to better
operating efficiency.
BUSINESS STRATEGY
The Company's strategy is to capitalize on the demand for long run-time
batteries by mobile workers dissatisfied with the run-time of portable
computers powered by other manufacturers' rechargeable batteries. The
Company's objective is to become a leading producer of long run-time
rechargeable zinc-air batteries. The following are key elements of the
Company's strategy:
Technology Development. The Company believes that, although it has
made very substantial technical progress, there is still a significant
opportunity to further improve its rechargeable zinc-air battery technology.
The Company's principal product research and development objectives to date
have been to improve energy storage capacity and energy density, reduce battery
size, increase power output, increase the number of recharges, reduce recharge
time, extend overall field service life, eliminate added mercury and lower
product costs. The Company intends to incorporate any such improvements into
existing and future products as appropriate.
Marketing. The Company has pursued parallel marketing strategies aimed at
selling rechargeable zinc-air batteries to both end-users and OEMs of portable
computers and other portable electronic products. The Company has learned that
selling directly to end-users is a difficult and expensive process due to the
lack of standard interfaces to power portable computers and the rapid
obsolescence of computer products. Therefore, the Company believes the key to
generating significant revenues depends largely on one or more computer OEMs
developing portable computers that are designed to be mechanically and
electrically compatible with AER Energy zinc-air batteries. This is the
Company's primary marketing focus in 1997.
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In past relationships with OEMs, the Company designed customized
optional zinc-air batteries to operate specific portable computers that were
already being marketed by the OEMs, such as the AER Energy PowerPro and AER
Energy PowerSlice LX batteries. In these relationships, the Company was
responsible for the design and distribution of the batteries. The Company is
currently working to obtain a commitment from one or more OEMs to design a
portable computer that is mechanically and electrically compatible with an AER
Energy zinc-air battery. In the future, the Company plans to pursue OEMs of
portable computers and other portable electronic products to develop products
with an AER Energy rechargeable zinc-air battery fitting inside the product,
thereby eliminating the need for a separate battery case and reducing the size
and weight of the product and battery combination.
The Company plans to continue its direct end-user sales effort by targeting
selected corporations which utilize large numbers of the same model of portable
computer in applications requiring long run-time. The sale of accessory
batteries to end-users is designed to provide actual field usage information
that can be used to further technology development and to validate battery
performance to support the Company's marketing effort with computer OEMs.
Manufacturing. In order to maintain control of its development and
manufacturing processes, the Company believes that, at least currently, it is
desirable to manufacture its batteries itself rather than contract with third
party manufacturers.
PRODUCTS
During 1996, the Company produced and marketed two customized optional
batteries designed to power specific computer models of two OEMs -- the AER
Energy PowerPro and the AER Energy PowerSlice LX. As discussed above, the AER
Energy PowerPro was phased out of production during 1996. Also discussed above,
the AER Energy PowerSlice LX was upgraded during 1996 in order to accommodate
the increased power requirements of the HP OmniBook 800 portable computer. The
Company began shipping limited quantities of the upgraded version of the
PowerSlice LX in the first quarter of 1997.
MARKETING AND SALES
The Company has conducted market research with certain individual users
and major corporate purchasers of portable computers and determined that many
mobile workers are dissatisfied with the run-time exhibited by portable
computers powered by other manufacturers' rechargeable batteries. The Company
believes an unserved market exists for long run-time batteries with mobile
workers who depend on portable computer operation in mobile environments and
carry multiple batteries. The Company is marketing computer batteries that
provide a full workday operation specifically to this segment of mobile
workers, both directly to portable computer end-users and through OEMs.
End-User Markets. The Company has a marketing communications program
primarily utilizing computer industry publications and trade shows. The
Company has distributed its stand-alone accessory batteries and customized
optional batteries through specialty computer
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catalogs, VARs and direct sales to end-users, targeting major corporations and
governmental agencies. The Company has agreements with three regional
distribution sales representative organizations to support end-user distribution
of accessory batteries.
OEM Markets. The Company's marketing efforts to OEMs are supplemented by
regional OEM sales representative organizations. The Company currently has
agreements with five such organizations.
The Company currently employs six people in its sales and marketing
department. Their responsibilities include the sales and marketing of the
Company's battery products and the development of relationships with OEMs.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts have been focused on
programs that lead to the commercialization of its rechargeable zinc-air
batteries. The Company has continued to work on improvements to its zinc-air
technology, materials and processing methods, with technical goals tied to
specific product application needs. The Company's principal product research
and development objectives to date have been to improve energy storage capacity
and energy density, reduce battery size, increase power delivery, increase the
number of recharges, reduce recharge time, eliminate added mercury, extend
overall field service life and lower product costs. The Company's research and
development activities during 1996 resulted in a smaller, thinner zinc-air cell
that enables the Company to make more powerful batteries, the elimination of
added mercury and a low-cost design process that allows the Company to quickly
adapt the size of its battery products to serve different applications.
A majority of the Company's expenses to date have been for
research and development. The Company's research and development expenses for
the years ended December 31, 1996, 1995 and 1994 were $4,208,000, $4,696,000
and $6,341,000, respectively.
MANUFACTURING
The Company currently manufactures its zinc-air batteries itself rather
than contracting with third party manufacturers. The Company believes that
control of the basic elements of the production process should assist the
Company in its efforts to improve the performance and quality of its zinc-air
batteries and maintain a proprietary position.
The Company commenced pilot production of prototype batteries in the
fourth quarter of 1992. In 1993, the Company purchased certain equipment for
the production of air cathodes used in its zinc-air batteries and licensed
certain related air cathode process technology pursuant to an agreement (the
"Westinghouse License") with Westinghouse Electric Corporation
("Westinghouse"). During 1994, the Company converted its pilot manufacturing
line to a production facility for volume assembly of rechargeable zinc-air
batteries, both prototype batteries and batteries for sale to customers. To
date, the Company has produced more than 74,000 cells at its manufacturing
facility for use in experimental testing and field trials and in the production
of more than 2,600 zinc-air batteries.
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The principal raw materials used in the production of the zinc-air
batteries are zinc, carbon, potassium hydroxide and metal and plastic parts.
These materials are available from multiple sources in North America and Asia.
The Company is seeking to build long term relationships with vendors to
generate reliable sources of supply.
ENVIRONMENTAL MATTERS
The Company is subject to various United States federal, state and local
standards that govern the storage, use and disposal of various chemicals used
in and waste materials produced in the manufacture of its zinc-air batteries,
including zinc, carbon, potassium hydroxide, solvents and adhesives. These
standards include the Environmental Protection Agency's regulations governing
the amount of zinc in the manufacturing waste stream and state and local
regulations governing fire protection, air quality standards and employee
safety, training and preparedness.
During 1996, the Company eliminated the addition of mercury to its
zinc-air cells and batteries without sacrificing size, weight or power. Under
federal regulations, the Company's rechargeable zinc-air batteries with no
added mercury are not considered hazardous waste and can be disposed of as
household garbage. However, the Company believes that some of the chemicals
currently used in its batteries, such as zinc metal and potassium hydroxide,
may subject its batteries to regulation in the future.
COMPETITION
The development and marketing of battery products is highly competitive.
The industry consists primarily of major domestic and international companies,
the vast majority of which have financial, technical, marketing, sales,
manufacturing, distribution and other resources and name recognition
substantially greater than those of the Company as well as established
positions in the market and established ties with OEMs.
The Company is not aware of any competitor currently developing
rechargeable zinc-air batteries for portable computers and other portable
electronic products. Although the Company does not have extensive knowledge of
specific competitive activities, the Company is aware that a great deal of
battery research is in progress on a global basis. The Company believes that
its major competitors are makers of nickel-cadmium, nickel-metal hydride and
lithium-based batteries. Ralston Purina's Eveready Division, Gillette's
Duracell Division, Sanyo Electric Co., Ltd., Toshiba Corporation, Matsushita
Electric Industrial Co., Ltd., SAFT and Varta Batterie AG, among others,
currently manufacture nickel-cadmium or nickel-metal hydride batteries or both.
Sony Corporation, Sanyo Electric Co., Ltd. and Matsushita Electric, among
others, are marketing a lithium-ion battery that is designed for use with
portable computers, video cameras and cellular telephones. Valence Technology,
Inc., Ultralife Batteries, Inc., Hydro-Quebec, Yuasa Battery Company, Ltd.,
Dowty Battery Company and Asahi Chemical Industry Company, Ltd. are engaged in
the research and development of lithium-polymer batteries, which are not yet
commercially available. In addition, companies such as Sony, Matsushita,
Sanyo, SAFT, Tadiran Electronic Industries, Eveready, Duracell and Toshiba, and
possibly other companies, have active research and development programs to
commercialize high energy density batteries.
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No assurance can be given that such companies will not develop batteries
similar or superior to the Company's zinc-air batteries.
PATENTS AND LICENSES
The Company relies on certain technology for which either the Company or
DEMI has sought patent protection, including certain patents licensed to the
Company by DEMI. The Company has sought to protect certain technology that the
Company believes to be proprietary, filing patent applications for such
technology both in the United States and in certain countries abroad. The
Company plans to prosecute infringements to its patent rights, where
appropriate. However, there can be no assurance that any particular
infringement will be prosecuted, or if prosecuted, that it will be successful.
The Company also plans to rely upon trade secrets, know-how, continuing
technological innovations and its ability to exploit new opportunities to
develop and maintain its competitive position.
The Company has exclusive rights to nine DEMI patents (except for motor
vehicle applications) which have been issued in the United States, (three of
which have issued in Japan and one has issued in Europe), three of which cover
the air manager system. The air manager system regulates the flow of air
within the battery, a critical variable affecting zinc-air battery life.
During the last six years, the Company has been granted thirteen United States
and three European patents. In addition, the Company has filed eight United
States and eighteen foreign patent applications and currently has nine patent
disclosures in review. It is the Company's intention to continue to consider
filing new patent applications in the United States, Japan, Europe and Canada
as appropriate for technology, products and product improvements that its
research and commercialization activities might yield.
United States patents, either issued to or applied for by DEMI, Mr. Cheiky,
or the Company, and in each case subject to the DEMI License, relate to some of
the operating parameters of the zinc-air battery system. The Company and DEMI
entered into the DEMI License in July 1989 whereby DEMI granted to the Company
the exclusive worldwide rights to DEMI's zinc-air battery patents and technology
(including trade secrets) for all applications other than motor vehicles for so
long as the Company wishes to use such licensed rights. The DEMI License
includes the right to sublicense and it covers any new zinc-air technology
developed or acquired by DEMI, or by Mr. Mike Cheiky, DEMI's former principal
scientist, prior to expiration of his employment agreement with DEMI. For
these rights, the Company agreed to pay DEMI royalties, beginning in 1991, of 4%
of net sales through July 18, 2004, subject to certain minimum amounts and
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. After July 18, 2004, the Company may continue to use
such licensed technology without payment of further royalties. In order to
maintain exclusive rights to the technology covered by the DEMI License, the
Company must pay minimum royalties to DEMI for the first ten years of the DEMI
License (through 1999). Pursuant to a Technology Assignment Agreement, DEMI
also had rights to battery technology developed by Mr. Cheiky after the
expiration of his employment agreement with DEMI (which expired on October 15,
1993) and prior to July 19, 2004, subject to certain annual
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payments to be made to Mr. Cheiky and certain other conditions and exceptions.
This Technology Assignment Agreement was terminated on December 26, 1995.
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. DEMI has also agreed
to the terms of a proposed OEM air manager license agreement to be entered into
by the Company and any OEMs licensing the air manager system, which provides
that 4% of the royalties the Company receives from sublicensing the air manager
system will be payable to DEMI, subject to the reduction as provided in the
proposed agreement. Pursuant to the DEMI License, a relationship for the
exchange of technology exists between the Company and DEMI.
The DEMI License currently includes nine patents. The DEMI patents relate
to air manager systems, an electrolyte recirculating system, a flexible cell
case which allows for internal volume change during charge and discharge, a
continuous consumable anode, a coated air electrode and an attachment method for
zinc-air batteries. The Company currently is utilizing only the technology
embodied in the air manager system. The Company has designed its air manager
system to use the principles described in DEMI's United States Patent No.
4,913,983, which expires in the year 2008, No. 5,387,477, which expires in 2012,
and No. 5,571,630 which expires in 2014. The Company has done a validity study
and believes that these patents are valid over prior art known to the Company.
The Company has developed several air manager system improvements and has five
United States patent applications on its designs relating to the air manager
system. The Company believes that the air manager patents and pending
applications under which it has rights have the potential to provide significant
intellectual property benefits for the Company's zinc-air batteries.
In order to manufacture air electrodes for its zinc-air batteries at its
present production facility, the Company purchased production equipment and
licensed the accompanying air electrode and process technology pursuant to the
Westinghouse License. The Westinghouse License included two patents. One,
which expired in August 1993, relates to an air electrode which can both charge
and discharge and the other, which expires in 1997, relates to a multi-ply
pasted air electrode. Presently the Company believes that the trade secrets
covered by the Westinghouse License will offer more benefit to the Company than
the patents covered by the Westinghouse License. The Company paid Westinghouse
a total of $325,000 to purchase the production equipment. The Company's rights
with respect to use of Westinghouse's air electrode technology are exclusive
for portable computer products, but non-exclusive for all other portable
products. The Westinghouse License entitled the Company to improvements
developed or acquired by Westinghouse prior to May 1, 1995. The Company has an
option to negotiate with Westinghouse to acquire certain other Westinghouse
improvements developed or acquired by Westinghouse from May 1, 1995 to May 1,
1998. Under the Westinghouse License, the Company paid an initial license fee
of $250,000 and is obligated to pay royalties of 1% of its revenues from sales
of zinc-air battery products up to $300,000, followed by royalties of 0.5% of
such revenues up to an additional $350,000, at which time no further royalties
for product sales will be due. In addition, for ten years the Company will pay
Westinghouse the greater of (i) 50% of any sublicense fees it receives if it
sublicenses the technology licensed from Westinghouse, or (ii) 0.5% of
sublicensee product sales. Currently, the Company has no plans to license its
rights to zinc-air technology to any other company, except for possibly
sublicensing the air manager system to OEMs in connection with design-in
products.
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In addition to potential patent protection, the Company attempts to
protect its trade secrets and other proprietary information through secrecy
agreements with customers, suppliers, employees and consultants and other
security measures. Although the Company intends to protect its rights
vigorously, there can be no assurance that these measures will be successful.
EMPLOYEES
At December 31, 1996, the Company had 64 regular employees and 2 temporary
employees. Of the total number of regular employees, 20 were engaged in
product research and development, 31 (including 10 hourly employees) were
engaged in manufacturing and manufacturing process development and 13 were in
marketing and general and administrative functions. The Company's success will
depend in large part on its ability to attract and retain skilled and
experienced employees. None of the Company's employees are covered by a
collective bargaining agreement, and the Company considers its relations with
its employees to be good.
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 risks and uncertainties which could
cause actual results to differ materially from those anticipated, which include
but are not limited to the following: ability of the Company to achieve
development goals, ability of the Company to commercialize its battery
technology, development of competing battery technologies, ability of the
Company to protect its proprietary rights to its technology, improvements in
conventional battery technologies, demand for and acceptance of the Company's
products in the marketplace, ability to obtain commitments from OEMs of
portable computers to design portable computers mechanically and electrically
compatible with the Company's batteries, Company's ability to ramp up
production to meet anticipated sales, impact of any future governmental
regulations, impact of pricing, costs of materials, ability of the Company to
raise additional funds and other factors affecting the Company's business that
are beyond the Company's control.
ITEM 2. PROPERTIES.
The Company leases 9,600 square feet of office administration, engineering
and testing space and an additional 24,800 square feet of production and
manufacturing space in Smyrna, Georgia. Both facilities are located within the
same industrial park. The Company believes that its existing facilities and
equipment, together with equipment to be purchased with existing cash, will be
adequate to manufacture its zinc-air batteries in commercial quantities through
1997. Should the Company need additional space, management believes that the
Company will be able
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to secure additional space at reasonable rates.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to, and no property of the Company is
presently the subject of, any pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1996.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 15, 1997 were as
follows:
NAME AGE POSITION
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David W. Dorheim 47 President, Chief Executive Officer and
Director
R. Dennis Bentz 46 Vice President -- Manufacturing
M. Beth Donley 44 Vice President -- Chief Financial Officer,
Treasurer and Secretary
Frank M. Harris 44 Vice President -- Marketing and Sales
Lawrence A. Tinker 44 Vice President -- Engineering
David W. Dorheim joined the Company in 1989 as President, Chief Executive
Officer and a director. From 1985 to 1989, Mr. Dorheim was Vice President,
Battery Assembly Division, Gates Energy Products, Inc., with responsibility for
assembly operations in Juarez, Mexico, Newcastle, England and Hong Kong as well
as a design center in El Paso, Texas. Prior to 1985, Mr. Dorheim held various
marketing and sales positions with the General Electric Battery Division in
Gainesville, Florida, including Regional Sales Manager and Manager of Marketing
Programs. Mr. Dorheim is a director of DEMI.
R. Dennis Bentz joined the Company in 1990 as Vice President --
Manufacturing. Mr. Bentz was employed from 1978 to 1990 by Duracell
International, Inc., a battery manufacturer. Mr. Bentz's last four years at
Duracell were spent as Product Engineering Manager, with responsibility for
product and process design of alkaline, lithium and disposable zinc-air
batteries. Prior to 1987, Mr. Bentz managed the Duracell development and
testing facility in Tarrytown, New York and served as Engineering Manager and
Product Engineer.
M. Beth Donley joined the Company in August 1994 as Cost Accounting
Manager and was promoted to Vice President -- Chief Financial Officer,
Treasurer and Secretary in September 1994. From 1987 to 1994, Ms. Donley was
employed by BraeLoch Holdings Inc., a New Orleans-based independent operator of
oil and gas properties, where she served as Manager of Financial Reporting and
Manager of Corporate Planning and Analysis. Prior to 1987, Ms. Donley served
as a consulting manager for Ernst & Young LLP, a national public accounting
firm, was a partner in a Texas-based public accounting firm, and held various
supervisory positions with E. I. Dupont de Nemours and Co., a chemical
manufacturing company, and GHR Industries, Inc., an independent oil and gas
producer and refiner. Ms. Donley is a certified public accountant.
Frank M. Harris joined the Company in 1990 as Vice President -- Marketing
and Sales.
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From 1987 through 1989, Mr. Harris was employed by International Components
Corporation, a Chicago-based manufacturer of battery chargers, as Vice
President of Engineering and Director of Sales. From 1986 to 1987, Mr. Harris
served as Manager of Marketing Programs for a lighting product line of the GE
Business Lighting Group. From 1981 to 1986, Mr. Harris worked with the battery
business of General Electric where he held positions in market research and
served as manager of private label battery marketing.
Lawrence A. Tinker joined the Company in January 1993 as Vice President --
Engineering. During the prior five years, Dr. Tinker was employed by Gates
Energy Products, Inc., where his most recent position was Manager, Technology
for aerospace batteries. In this position, Dr. Tinker managed a group of
scientists responsible for developing nickel-cadmium, nickel-metal hydride and
nickel-hydrogen aerospace battery systems. Prior to 1988, Dr. Tinker was
employed by Ballard Research Inc. for six years, where he managed the research
and development effort for rechargeable lithium battery systems. Dr. Tinker
holds a Bachelors and Masters degree in Chemistry from Georgia State
University, and a Doctorate degree in Chemistry from the University of Texas.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information contained under the caption "Shareholder Information" in the
Company's Annual Report to Shareholders for the fiscal year ended December 31,
1996 (the "1996 Annual Report to Shareholders") is incorporated herein by
reference in response to this Item 5.
On May 20, 1996, the Company sold for $10 million 1,584,158 shares of its
common stock and warrants to purchase an additional 835,000 shares of common
stock at $6.31 per share to one accredited investor. The transaction was
exempt from registration under the Securities Act of 1933 by reason of Section
4(2) and Regulation D promulgated thereunder. The Company paid finders' fees to
Wasserstein Perella & Co., Inc. and UBS Securities, Inc. of $250,000 each, for a
total of $500,000.
ITEM 6. SELECTED FINANCIAL DATA.
Information contained under the caption "Selected Financial Data" in the
Company's 1996 Annual Report to Shareholders is incorporated herein by
reference in response to this Item 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
1996 Annual Report to Shareholders is incorporated herein by reference in
response to this Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements for the Company and the Report of Independant
Auditors thereon are contained in the Company's 1996 Annual Report to
Shareholders and are incorporated herein by reference in response to this Item
8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the nominees for Directors of the Company set
forth under "Election of Directors" in the Company's Proxy Statement for its
1997 Annual Meeting of Shareholders is incorporated herein by reference in
response to the information required by this Item 10.
Information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 set forth under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders is incorporated herein by reference in response
to the information required by this Item 10.
Information concerning the Executive Officers of the Company is contained
in a separate section captioned "Executive Officers of the Registrant" in Part
I of this report and is incorporated herein by reference in response to the
information required by this Item 10.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under "Executive Compensation" in the Company's
Proxy Statement for its 1997 Annual Meeting of Shareholders is incorporated
herein by reference in response to the information required by this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under "Voting Securities" in the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders is incorporated herein by
reference in response to the information required by this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under "Certain Transactions" and "Compensation
Committee Interlocks and Insider Participation" in the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders is incorporated herein by
reference in response to the information required by this Item 13.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents:
(1) The following financial statements of the Company and Report of
Independent Auditors are contained in the Company's 1996 Annual Report to
Shareholders and are incorporated by reference in Part II, Item 8.
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996, 1995, and
1994, and for the period from July 17, 1989 (date of inception) to December 31,
1996
Statements of Stockholders' Equity for the years ended December 31, 1996,
1995, and 1994, and for the period from July 17, 1989 (date of inception) to
December 31, 1996
Statements of Cash Flows for the years ended December 31, 1996, 1995, and
1994, and for the period from July 17, 1989 (date of inception) to December 31,
1996
Notes to Financial Statements
Report of Independent Auditors
(2) Financial Statement Schedules
Financial statement schedules have been omitted either because they are
not applicable or because the information that would be included in such
schedules is included elsewhere in the financial statements or the notes
thereto.
(3) Exhibits:
EXHIBIT
- -------
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
3.1 -- Articles of Incorporation of the Company, as amended.(1)
3.2 -- Bylaws of the Company, as amended.(1)
4.1 -- See Articles II and VII of the Company's Articles of Incorporation located within Exhibit 3.1.
4.2 -- See Articles 2, 3 and 4 of the Company's Bylaws located within Exhibit 3.2.
10.1 -- License Agreement dated July 19, 1989 among the Company, Dreisbach
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Electromotive, Inc. and Mike Cheiky.(2)
10.2 -- Technology Assignment Agreement dated July 19, 1989 among the Company, Dreisbach Electromotive, Inc. and Mike
Cheiky.(2)
10.3 -- Shareholders Agreement among the existing stockholders of the Company.(2)
10.4 -- Industrial Real Estate Lease dated February 5, 1991 between the Company and Brentwood One and Brentwood II Joint
Venture.(2)
10.5 -- Lease dated September 16, 1992 between the Company and Indian Trail Development Company.(2)
10.6* -- AER Energy Resources, Inc. 1992 Stock Option Plan, as amended.(2)
10.7* -- Form of Non-Qualified Stock Option Agreement.(3)
10.8* -- Form of Incentive Stock Option Agreement.(3)
10.9 -- Agreement dated May 12, 1993 between the Company and Westinghouse Electric Corporation.(2)
10.10* -- Form of Indemnity Agreement with Directors.(2)
10.11 -- Voting and Co-Sale Agreement dated July 17, 1992 among the Company, Jon A. Lindseth, Battery Partners, Elmwood
Partners II, The Kindt-Collins Company, Odyssey Partners, L.P. and Chemical Equity Associates.(2)
10.12 -- Consent to Partial Assignment of Royalties and Amendment No. 2 to License Agreement dated as of October 15, 1993
among the Company, Dreisbach Electromotive, Inc. and Mike Cheiky.(4)
10.13 -- Amended and Restated DEMI/AER Air Manager Agreement dated October 15, 1993 among the Company, Dreisbach
Electromotive, Inc. and Mike Cheiky.(4)
10.14* -- AER Energy Resources, Inc. 1993 Non-Employee Directors' Restricted Stock Award Plan.(4)
10.15* -- Form of Director's Restricted Stock Award Agreement.(5)
10.16* -- Stock Option Agreement dated November 2, 1989 by and between David W. Dorheim and Aerobic Power Systems, Inc. (now
AER Energy Resources, Inc.) (6)
10.17* -- Stock Option Agreement dated February 8, 1991 by and between R. Dennis Bentz and AER Energy Resources, Inc. (6)
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10.18* -- Stock Option Agreement dated July 1, 1990 by and between Frank M. Harris and Aerobic Power Systems, Inc. (now AER
Energy Resources, Inc.). (6)
10.19 -- Lease Agreement dated November 15, 1993 between AER Energy
Resources, Inc. and Highlands Park Associates. (7)
10.20 -- Lease Agreement dated March 25, 1994 between AER Energy
Resources, Inc. and Highlands Park Associates. (7)
10.21* -- Stock Option Agreement dated December 20, 1994 between H.
Douglas Johns and AER Energy Resources, Inc. (8)
10.22* -- Consulting Agreement dated December 20, 1994 between H.
Douglas Johns and AER Energy Resources, Inc. (9)
10.23 -- Form of Convertible Debenture Subscription Agreement. (10)
10.24 -- Form of 8% Convertible Debenture due November 17, 1997. (10)
10.25 -- Registration Rights Agreement. (10)
10.26 -- Warrant to Purchase Common Stock. (10)
10.27 -- Amendment No. 3 to License Agreement and Termination of
Technology Assignment Agreement dated December 26, 1995.
10.28 -- Securities Purchase Agreement, dated as of May 20, 1996, by and
between FW AER Partners, L.P. and AER Energy Resources, Inc. (11)
10.29 -- Warrant to Purchase Common Stock (11)
10.30* -- Agreement between H. Douglas Johns and AER Energy Resources, Inc.
dated November 7, 1996, amending Mr. Johns' Consulting Agreement and
Stock Option Agreement.
11 -- Computation of Per Share Loss.
13 -- The Registrant's Annual Report to Shareholders for the year ended
December 31, 1996. Only those portions of said report which are
specifically designated in this Form 10-K as being incorporated by
reference are being electronically filed pursuant to the Securities
Exchange Act of 1934.
21 -- Subsidiaries of the Company. (2)
23 -- Consent of Ernst & Young LLP., Independent Auditors
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27 -- Financial Data Schedule (for SEC use only).
- ------------------------------------------------------------------------
* Indicates management contract or compensatory plan or arrangement.
(1) Filed on June 17, 1993 as an Exhibit to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (File No. 33-62668) and
incorporated herein by reference.
(2) Filed on May 14, 1993 as an Exhibit to the Registrant's Registration
Statement on Form S-1 (File No. 33-62668) and incorporated herein by reference.
(3) Filed on October 5, 1993 as an Exhibit to the Registrant's Registration
Statement on Form S-8 (File No. 33-69982) and incorporated herein by
reference.
(4) Filed on October 29, 1993 as an Exhibit to the Registrant's Quarterly
Report on Form 10-Q (File No. 0-21926) for the quarter ended September 30,
1993 and incorporated herein by reference.
(5) Filed on September 24, 1993 as an Exhibit to the Registrant's
Registration Statement on Form S-8 (File No. 33-69462) and incorporated
herein by reference.
(6) Filed on March 25, 1994 as an Exhibit to the Registrant's Annual Report
on Form 10-K (File No. 0-21926) for the year ended December 31, 1993 and
incorporated herein by reference.
(7) Filed on September 23, 1994 as an Exhibit to the Registrant's
Registration Statement on Form S-1 (File No. 33-84300) and incorporated
herein by reference.
(8) Filed on February 2, 1995 as an Exhibit to the Registrant's Registration
Statement on Form S-8 (File No. 33-89068) and incorporated herein by reference.
(9) Filed on March 23, 1995 as an Exhibit to the Registrant's Annual Report on
Form 10-K (File No. 0-21926) for the year ended December 31, 1994 and
incorporated herein by reference.
(10) Filed on December 13, 1995 as an Exhibit to the Registrant's Form 8-K
(File No. 0- 21926) and incorporated herein by reference.
(11) Filed on May 20, 1996 as an Exhibit to the Registrant's Form 8-K (File
No. 0-21926) and incorporated herein by reference.
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
The registrant did not file any reports on Form 8-K during quarter ended
December 31, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 27, 1997.
AER ENERGY RESOURCES, INC.
By: /s/ David W. Dorheim
--------------------
David W. Dorheim,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------------------- --------------------------------- --------------
/s/ Jon A. Lindseth Chairman March 27, 1997
---------------------
Jon A. Lindseth
/s/ David W. Dorheim Director, President and Chief March 27, 1997
---------------------
David W. Dorheim Executive Officer
/s/ M. Beth Donley Vice President -- Chief Financial March 27, 1997
--------------------- Officer, Treasurer and Secretary
M. Beth Donley (Principal Accounting Officer and
Principal Financial Officer)
/s/ David G. Brown Director March 27, 1997
---------------------
David G. Brown
/s/ Charles M. Boesenberg Director March 27, 1997
--------------------------
Charles M. Boesenberg
/s/ William L. Jackson Director March 27, 1997
--------------------------
William L. Jackson
/s/ H. Douglas Johns Director March 27, 1997
--------------------------
H. Douglas Johns
/s/ John L. Wilkes Director March 27, 1997
-------------------
John L. Wilkes
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