TIDMPTX TIDMPTXU
RNS Number : 2327U
Protonex Technology Corporation
22 June 2009
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FOR IMMEDIATE RELEASE
22 June 2009
Protonex Technology Corporation
("Protonex" or "the Company")
Interim Results for the Six Months Ended 31 March 2009 (Unaudited)
DATELINE: SOUTHBOROUGH, MA; Protonex Technology Corporation (LSE: AIM: PTX and
PTXU), a leading provider of advanced fuel cell power systems for portable,
remote and mobile applications, today announced its interim results for the six
months ended 31 March 2009.
H1 2009 Highlights
Protonex Technology Corporation (the "Company" or "Protonex") achieved
significant milestones in the development of several key product areas in the
first half of fiscal year 2009, including its M250 professional and military
product series, unmanned aerial vehicle (UAV) power systems and solid oxide fuel
cell platforms. Progress towards bringing these portable fuel cell products to
the market beginning in 2009 has continued to attract industry-leading
development partners and positions the Company to be an early leader in this
sector.
-Continued progress in moving PEM and SOFC fuel cell platforms towards initial
commercial and military
products
-Introduced and demonstrated M250-B product at several recreational vehicle (RV)
trade shows in United
States to generate and gauge interest. OEM and
beta trials scheduled for H2 2009; general availability revised
to 2010
-Demonstrated fully functional SOFC prototype systems running on propane fuel.
Awarded $1.5 million contract
in January 2009 from US Army for
liquid-fuelled SOFC system development
-Strong progress on several UAV development contracts with the US Military. $3.3
million ($2.2m base award
with $1.1m option) contract awarded in March
2009 by US Department of Defense to develop a high-
performance UAV
propulsion system for emerging AECV platform
-BPM power managers being evaluated in field by US Military. First units of SPM
power managers shipped to
several US Military agencies in the first
half of calendar year 2009
-H1 2009 fiscal year revenues of $2.6 million, a 17% decrease compared to $3.2m
in H1 2008, primarily as a
result of contracting delays on new military
programmes caused by change in US Administration and a general
delay in
the release of military contracts
-Increasing opportunity for US Government and Military funds to support product
development and product
purchases in 2010 and beyond. Driven primarily
by general military needs and stimulus programmes
-Transitioned to Piper Jaffray for NOMAD/Broker services
Post period end highlights
- Hired Dave Ierardi as Vice President of Operations in May of 2009. Dave
brings a very strong background in all
facets of manufacturing and
operations
- In May 2009, received a $0.5 million contract extension from US Naval
Research Lab for testing and refinement
of UAV system
H1 2009 Results Summary
+----------------------------+-----------------------+------------------+
| | Six Months Ended | Six Months Ended |
+----------------------------+-----------------------+------------------+
| | 31 March 2009 | 31 March 2008 |
+----------------------------+-----------------------+------------------+
| | | |
+----------------------------+-----------------------+------------------+
| Revenues | $2,619,598 | $3,158,388 |
+----------------------------+-----------------------+------------------+
| Operating expenses | $10,117,935 | $9,162,212 |
+----------------------------+-----------------------+------------------+
| Net loss | $(7,543,122) | $(5,580,422) |
+----------------------------+-----------------------+------------------+
| Net cash outflow | $(6,791,943) | $(5,655,654) |
+----------------------------+-----------------------+------------------+
Commenting on the results, Scott Pearson, CEO of Protonex, said:
"Throughout the first half of our 2009 fiscal year, Protonex has made
significant progress in virtually all areas of its business. The Company has
continued its transition from being primarily a technology development company
to being a product company. Today, that transition is substantially complete and
we expect the resulting products to deliver strong value to a broad set of
military and commercial markets."
Enquiries
Protonex Technology Corporation Tel: +1 508 490 9960
Scott Pearson, Chief Executive Officer
John Connolly, Chief Financial Officer
Redleaf Communications Limited Tel: +44 (0)20 7566 6700
Press and Investor Relations protonex@redleafpr.com
Samantha Robbins
Paul Dulieu
Piper Jaffray Ltd. Tel: +44 (0)20 3142 8700
Nominated Adviser
Michael Covington
James Steel
Notes to Editors
About Protonex Technology Corporation
www.protonex.com
Protonex Technology Corporation develops and manufactures compact, lightweight
and high- performance fuel cell systems for portable power applications in the
100 to 1000-watt range. The Company's fuel cell systems are designed to meet the
needs of military, commercial and consumer customers for off-grid applications
underserved by existing technologies by providing customizable, stand-alone
portable power solutions and systems that may be hybridized with existing power
technologies. The Company is headquartered in Southborough, Massachusetts.
This document contains statements that are, or may be deemed to be,
forward-looking statements, including, without limitation, statements containing
the words "believes", "anticipates", "intends", "plans", "estimates", "aims",
"expects", or, in each case, their negative or other variations or comparable
terminology or by discussions of strategy plans, objectives, goals, future
events or intentions. These forward-looking statements include all matters that
are not historical facts. They appear in a number of places throughout this
document and include statements regarding the Company's intentions, beliefs or
current expectations concerning, amongst other things, results of operations,
financial condition, liquidity, prospects, growth, strategies and the industries
in which the Company operates. Such forward-looking statements involve unknown
risks, uncertainties and other factors which may cause the actual results,
financial condition, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Factors
that might cause such a difference include but are not limited to those
discussed in Part II, Part III, Part IV and Part VI of the Company's AIM
Admission Document dated 27 June 2006. A copy of this document is posted on the
Company's website or may be obtained by contacting the Company at +1 508 490
9960. Given these uncertainties, investors are cautioned not to place undue
reliance on such forward-looking statements. Subject to any legal and regulatory
requirements, the Company disclaims any obligation to update any such
forward-looking statements in this document to reflect future events or
developments.
Letter from Chairman and from Chief Executive
We are pleased to report that, through the first half of our 2009 fiscal year,
the Company has made significant progress in virtually all areas of its
business. On the military side, we have made great strides in moving core
technologies into functional prototypes and products on various portable power
units, unmanned aerial vehicle (UAV) propulsion systems and power management
devices. The majority of these efforts are receiving ongoing funding from the US
military.
On the non-military side, our primary focus has been on developing, testing,
certifying, and preparing our M250-B product for initial consumer sales in mid
to late 2009. However, on 5 May 2009, Protonex announced a strategic shift to
position the Company more effectively in its targeted consumer, OEM and military
markets. The Company decided to defer the 2009 launch of its M250-B product into
the US recreational vehicle (RV) market until 2010 to focus more of its
near-term technical and business development resources onto several increasingly
attractive military opportunities including the military version of the M250-B,
the M250-CX. This shift was also made to provide time for a set of cost
reduction efforts on the M250-B product, which should make it more economically
attractive when it does enter the RV market in 2010.
Several other non-military platforms, incorporating Proton Exchange Membrane
(PEM) and Solid Oxide Fuel Cell (SOFC) technologies, are in earlier stages of
development and prototyping to enable product launches in late 2010 and beyond.
TRANSITION TO PRODUCT
For the last several years, the Company has been transitioning from being
primarily a technology development company to being a product company. Today,
that transition is substantially complete and Protonex is tightly focused on
developing and launching a series of products that deliver strong value to a set
of targeted military and commercial applications and markets. The current status
of each of the Company's products or platforms is provided below:
M250 Platform: This 250-watt methanol-fuelled platform is the Company's most
mature and enables several near-term products including:
-M250-B: This product integrates into a wide range of existing 12-volt battery
systems to provide clean, quiet, hybrid
power, eliminating the need to
run internal combustion engines or generators. Protonex intends to focus
initially on
the significant US recreational vehicle (RV) market but
also expects to sell this unit into the marine market as well as
small, off-grid solar and wind installations. To date, Protonex has demonstrated
the M250-B unit at several RV shows
and has seen solid interest in the
product. Throughout the second half of 2009, Protonex will be supporting a set
of
beta test sites and several OEM evaluations of the M250-B product.
Initial customer availability of this product is
planned for early
2010.
-M250-CX: This product, which has been developed in parallel to the M250-B, is
designed specifically for the US Military
as a multi-functional field
battery charger, auxiliary power unit and field generator. The development of
the M250-CX
system has been heavily funded by the US Military to
provide soldiers with a portable power source to enable the use
of
rechargeable batteries on the battlefield and to provide portable power for a
wide range of mission scenarios. This
product is currently in its
final design turn and is expected to begin shipping in evaluation quantities in
the second half
of calendar year 2009. Thereafter the Company would
expect material orders if the unit, which the Directors believe
meets
a perceived area of need for the modern military, goes onto full field
deployment.
-M250-U: This rack-mounted version of the M250 platform will be designed for a
range of low power DC backup and
UPS applications. The M250-U unit
will allow network and system operators to deliver extended-run backup power
without the bulk and maintenance of traditional battery banks.
Protonex has seen strong initial interest in this type of
product from
several of the leading backup equipment companies and is currently in
discussions about potential OEM
supply agreements. Evaluation sales to
these potential OEM customers are expected in calendar 2009 and prototype
and product shipments of the M250-U could occur in 2010 or beyond.
-M250-G: This unit will follow the M250-B product and be a fully portable fuel
cell generator that can directly provide
power to lower power AC and
DC equipment. The M250-G will not need to be tethered to a 12-volt battery bank.
The
Company is targeting a mid to late 2010 launch date for this
clean, quiet alternative to small generators.
SOFC Platforms: Protonex SOFC platforms have made extensive progress since our
last report. The Company has recently demonstrated the operation of fully
packaged SOFC systems running on propane and is making great strides in the
processing of more energy dense liquid fuels including kerosene, butanol,
gasoline, and diesel. Protonex is expecting its first SOFC product to be
introduced to non-military markets in mid to late 2010.
Protonex has been receiving an increasing amount of interest in its solid oxide
power systems from US government agencies. In the past six months, the Company
secured one major SOFC development contract from the US Military and is
expecting one or more additional development contracts to be signed before the
end of calendar 2009. SOFC development funds are critical in that they allow the
Company to refine the technology more quickly and to get important exposure to
customer requirements.
UAV/UGV Power Systems: Protonex is a recognised leader in the development of
ultra-high performance propulsion systems for small unmanned vehicles used by
the US Military. These PEM systems are fuelled by advanced chemical hydrides or
gaseous hydrogen and enable two to four times the mission durations of advanced
batteries. While the Company continues to exhibit the functionality and
importance of its fuel cells in ongoing military demonstrations, our military
customers are now starting to commit to and make significant investments to
commercialise the technology into deployable systems. A prime example of this
move to product is the recent $3.3m contract received by the Company in March
2009 to develop, test and trial a fuel cell propulsion system for the All
Environment Capable Variant (AECV) UAV platform. The Directors assess that the
potential market for these premium products may be several thousand systems per
annum plus the accompanying cartridge-based, single-use fuel packs. Initial
deployment, assuming the unit continues its good progress, would likely be in
late 2010 or early 2011.
Power Managers: The Protonex BPM and SPM power managers are small electronic
devices that allow military users to centralize and optimize their mobile power
requirements by establishing a local, intelligent power network. The BPM power
manager products are now available and are being evaluated by several branches
of the US military. BPM units are currently being utilised in Iraq and in
Afghanistan. The first SPM power managers were shipped to military customers in
the first half of calendar year 2009. The Directors believe that the potential
market for these systems may be well into the tens of thousands of units per
annum if power managers, as expected, become an integral part of on-soldier
power systems.
As the aforementioned products are launched and begin to gain traction,
Protonex' business systems and infrastructure will continue to scale. In
anticipation of this growth, the Company is currently in the final stages of
implementing a new Enterprise Resource Planning (ERP) system to manage and
coordinate many aspects of its business - from engineering control and
manufacturing to sales and accounting. We expect this ERP system to be installed
and fully operational in August 2009. On a related note, Protonex hired Dave
Ierardi on 11 May 2009 as our Vice President of Operations. Dave brings a very
strong operations background to Protonex with specific capabilities in contract
manufacturing selection and management, supply chain, cost reductions, quality,
and new product introduction. Dave is expected to be instrumental in scaling and
outsourcing the Company's growing manufacturing volumes.
FINANCIAL REVIEW
Revenues for the six months ended 31 March 2009 totalled $2.62 million, a
decrease of 17% over the comparative period in 2008. Approximately 99% of the
revenue during the period was associated with US Government sponsored
development contracts. In comparison, revenues during the six months ended 31
March 2008 were $3.16 million, all of which were from US Government sponsored
development contracts. The reduction in revenue from the prior period was
primarily due to the change in US Administration and a general delay in the
release of military contracts. These delays are now clearing and contracts have
started to release.
As the Company has continued to grow and invest in its future business,
operating expenses have increased 10% to $10.12 million for the six months ended
31 March 2009 from $9.16 million for the six months ended 31 March 2008. The
increase in operating expenses was planned and was primarily the result of the
significant expansion in the size of the technical and manufacturing operations,
increased spending on product development, marketing programmes, and higher
depreciation expenses.
Interest income for the six months ended 31 March 2009 decreased to $0.06
million, compared to $0.57 million for the six months ended 31 March 2008. This
decrease was primarily the result of lower cash balances and lower interest
rates due to lower short-term market rates and a decision by the Company to
shift its short-term investments to a highly secure US Treasury money market
fund in December 2007. The net loss for the six months ended 31 March 2009 was
$7.54 million, compared to $5.58 million for the six months ended 31 March 2008.
The Company's balance sheet remains satisfactory with $17.51 million in cash and
cash equivalents at 31 March 2009. The net cash used in operating activities
during the six months ended 31 March 2009 was $6.28 million, compared to $5.45
million for the six months ended 31 March 2008. Cash outflows attributable to
capital expenditures totalled $0.5 million during the six months ended 31 March
2009, compared to $0.2 million for the six months ended 31 March 2008. The
overall net cash outflows for the six months ended 31 March 2009 of $6.79
million compared with $5.66 million of net cash outflows for the six months
ended 31 March 2008.
REVIEW AND OUTLOOK
The Company continued to perform well in the first half of 2009 - executing on
its business plan, meeting the bulk of its operational milestones and driving
initial products to market but because of several delayed government programme
starts, the Company delivered financial results in the first half of its 2009
fiscal year that were somewhat below its expectations. As previously
communicated, the Company very much views this as a temporary problem that was
associated with an unusually slow federal budget process and the recent change
in Administration.
The Company remains on course for launching products in 2009 and beyond. On the
military side of the business, the Company is actively marketing its BPM and SPM
power management products to many branches of the US Military and is optimistic
of generating continued evaluation-level sales and possibly a low volume order
in fiscal 2009. With more technical and business development resources focused
on its M250-CX product, the Company expects to begin delivering evaluation
quantities of its M250-CX military battery charging product to its US Army
customers in the second half of calendar 2009. The M250-B product, targeted
initially at recreational vehicle and related markets, is currently planned for
initial customer availability in early 2010. The market response to the M250-B
product has been positive but, given the potential impact of the current
economic downturn, Protonex believes that the strategic decision to defer its
launch will enable the Company to market the product at a lower sales price,
with stronger margins and with a higher probability of success in 2010.
Looking forward, Protonex has three main reasons to be optimistic around
Government contracts. First, the Company continues to do well in identifying,
capturing and delivering on Government contracts. Government funding
opportunities are available for capable companies working on critical equipment
and Protonex is well-suited to participate. Second, several of the government
programmes that were expected to result in contracts for the Company in the
first half of fiscal 2009, have now commenced or are expected to do so shortly.
These delayed programmes had a negative impact on the first half of 2009 but are
expected to have a positive impact on the second half of 2009 and on 2010.
Third, Protonex is seeing considerable new activity around US federal stimulus
programmes for clean or alternative energy projects at the US Departments of
Defense and Energy. Protonex is well-positioned for these incremental stimulus
funds and is pursuing them aggressively.
In summary, the Directors of Protonex are optimistic about the Company's
prospects in 2009 and beyond as a number of the ongoing funded US Military
programs are expected to move toward deployment and a number of non-military
products are launched from early calendar 2010.
Harry Fitzgibbons
Chairman
22 June 2009
Scott A. Pearson
Chief Executive Officer
22 June 2009
Current Public Information
Exact Name of issuer as specified in its charter
Protonex Technology Corporation
State/country of incorporation
State of Delaware,
United States of America
Address of principal executive offices
153 Northboro Road, Southborough, MA, USA 01772
Title and class of securities
Common Stock $0.005 per share par value
Number of shares outstanding as of 5 June 2009
64,905,894
Transfer agent
Computershare Investor Services (Channel Islands) Limited, Ordnance House, 31
Pier Road, St Helier, Jersey, JE4 8PW, Channel Islands
Nature of business
Protonex is a leading provider of advanced fuel cell power solutions for
sub-kilowatt portable, remote and mobile applications. Based on patented proton
exchange membrane (PEM) and solid oxide (SOFC) fuel cell design and
manufacturing technology, these power systems are among the industry's smallest,
lightest and highest performing fuel cell systems for portable power
applications.
Protonex was incorporated and privately funded by four founders in 2000 to
develop a proprietary PEM stack design and manufacturing process. From its
inception until October 2003, Protonex was primarily funded by its founders and
several key managers of the Company, in addition to commercial and government
contracts. Protonex has funded its subsequent growth through two rounds of
venture capital financing and two placings on the AIM market of the London Stock
Exchange (July 2006 and April 2007). Since the first venture capital financing,
the Company has expanded its business focus from providing just PEM fuel cell
stacks to complete PEM and SOFC fuel cell power systems.
In April 2007, Protonex acquired Mesoscopic Devices, a leading SOFC technology,
fuel reforming and desulfurisation systems company. The Company is building on
the technical and market synergies that exist between the two operations to
strengthen its position as a leading provider in the portable fuel cell
industry. Headquartered near Boston, Massachusetts, with a development facility
near Denver, Colorado, Protonex had approximately 88 employees as of 31 May
2009.
Protonex is well positioned to deliver high-performance, low-cost fuel cell
products to military and commercial customers. With a wide range of technical
expertise and an expanding intellectual property portfolio that covers PEM, SOFC
and fuel-reforming technology, the Company is also able to offer a variety of
fuelling options, including hydrogen, chemical hydride, methanol, propane,
gasoline, diesel and other higher hydrocarbons and renewable fuels.
Nature of products and services offered
Protonex targets both military and commercial markets. The military opportunity
includes high energy-density power sources which enable digitisation of the
battlefield, providing potential power solutions to electronic devices such as
radios, communication systems, night vision equipment, global positioning
systems, laser range finders and target designators, digital communication
systems, intelligence gathering sensors, and small unmanned vehicles.
Non-military, commercial and consumer opportunities include: portable generators
for off-grid and emergency power; power sources and battery chargers for
portable electronic equipment; auxiliary power units for applications such as
boats, RVs and vehicles; backup systems for electronic equipment and
communication networks; and propulsion power for wheelchairs and electric
motorbikes.
Protonex is currently developing three product lines for end-user customers:
Military Series products for military customers; Professional Series products
for professional and consumer customers; and Commercial Series backup power
products for telecommunications and network providers. These products offer
customers the benefits of fuel cell technology, including reduced noise, lower
emissions, and extended runtimes at reduced size and weight, without requiring
access to hydrogen or other specialty fuel sources.
While any of Protonex' power solutions can run on direct hydrogen, military and
professional products contain fuelling subsystems that allow the systems to run
on common organic fuels, such as methanol, propane and diesel. Since fuel cells
process fuels electrochemically rather than burning them, running fuel cell
systems on carbon-based fuels still retains the environmental benefits
associated with fuel cells and other alternative power sources.
Protonex is also developing a series of customisable fuel cell power products
for OEM customers in industrial and commercial markets. These products include
the core power generation system of Protonex' packaged end-user solutions which
could be integrated by OEMs with existing technologies and products.
Nature and extent of facilities
Protonex currently has two facilities that house its operations. The first
facility, which functions as its principal offices and headquarters, is located
in Southborough, Massachusetts. This 31,294 square foot facility is leased and
houses all of the major functions of the Company including general management,
research and development, product engineering, manufacturing, sales, marketing
and customer service. The majority of the footprint of this facility is
dedicated to product engineering and manufacturing.
The second facility is located in Broomfield, Colorado, just outside of Denver.
This 11,970 square foot facility is also leased and dedicated to the Company's
SOFC technology development and the infrastructure components required to
support these development efforts.
While Protonex plans to conduct pilot and low-volume manufacturing of its
products at its Southborough facility, it intends to outsource any medium to
high-volume manufacturing to qualified contract manufacturing firms. This will
allow the Company to avoid the capital expense of building out complete
factories and to take advantage of the expertise possessed by these world-class
manufacturing partners.
Protonex Technology Corporation (A Development Stage Company)
Consolidated Balance Sheets
+-----------------------------------------------------+---------------+---------------+
| | (Unaudited) | |
+-----------------------------------------------------+---------------+---------------+
| | 31 March | 30 |
| | | September |
+-----------------------------------------------------+---------------+---------------+
| | 2009 | 2008(1) |
+-----------------------------------------------------+---------------+---------------+
| Assets | | |
+-----------------------------------------------------+---------------+---------------+
| Current assets: | | |
+-----------------------------------------------------+---------------+---------------+
| Cash and cash equivalents | $ | $ |
| | 17,511,565 | 24,303,508 |
+-----------------------------------------------------+---------------+---------------+
| Accounts receivable, net of allowance for doubtful | | |
| accounts of | | |
+-----------------------------------------------------+---------------+---------------+
| $27,355 at 31 March 2009 and 30 September 2008 | 1,087,870 | 1,503,233 |
+-----------------------------------------------------+---------------+---------------+
| Inventory, net | 295,994 | 409,553 |
+-----------------------------------------------------+---------------+---------------+
| Prepaid expenses and other current assets | 215,817 | 320,876 |
+-----------------------------------------------------+---------------+---------------+
| Total current assets | 19,111,246 | 26,537,170 |
+-----------------------------------------------------+---------------+---------------+
| Property and equipment, net of accumulated | 1,971,727 | 1,762,237 |
| depreciation and amortisation | | |
| of $1,225,840 and $873,215 at 31 March 2009 and 30 | | |
| September 2008, | | |
| respectively | | |
+-----------------------------------------------------+---------------+---------------+
| Goodwill | 7,816,990 | 7,816,990 |
+-----------------------------------------------------+---------------+---------------+
| Intangible assets, net of accumulated amortisation | 439,733 | 494,700 |
| of $219,267 and | | |
| $164,300 at 31 March 2009 and 30 September 2008, | | |
| respectively | | |
+-----------------------------------------------------+---------------+---------------+
| Other assets | 52,880 | 52,880 |
+-----------------------------------------------------+---------------+---------------+
| Total assets | $ | $ |
| | 29,392,576 | 36,663,977 |
+-----------------------------------------------------+---------------+---------------+
| Liabilities and stockholders' equity | | |
+-----------------------------------------------------+---------------+---------------+
| Current liabilities: | | |
+-----------------------------------------------------+---------------+---------------+
| Accounts payable (includes related party payables | $ 506,430 | $ 650,144 |
| of $927 and $36,959 | | |
| at 31 March 2009 and 30 September 2008, | | |
| respectively) | | |
+-----------------------------------------------------+---------------+---------------+
| Accrued expenses | 701,285 | 1,012,616 |
+-----------------------------------------------------+---------------+---------------+
| Deferred revenue | 40,465 | 108,150 |
+-----------------------------------------------------+---------------+---------------+
| Current portion of capital lease obligation | 38,655 | - |
+-----------------------------------------------------+---------------+---------------+
| Total current liabilities | 1,286,835 | 1,770,910 |
+-----------------------------------------------------+---------------+---------------+
| Long term portion of capital lease obligation | 23,594 | - |
+-----------------------------------------------------+---------------+---------------+
| Deferred tax liability | 391,058 | 296,070 |
+-----------------------------------------------------+---------------+---------------+
| Total liabilities | 1,701,487 | 2,066,980 |
+-----------------------------------------------------+---------------+---------------+
| Commitments and contingencies (Note 6) | | |
+-----------------------------------------------------+---------------+---------------+
| Stockholders' equity: | | |
+-----------------------------------------------------+---------------+---------------+
| Common stock, $0.005 par value; 85,000,000 shares | 319,427 | 319,342 |
| authorised; | | |
| 63,885,296 and 63,868,366 shares issued and | | |
| outstanding | | |
+-----------------------------------------------------+---------------+---------------+
| Additional paid-in capital | 65,566,338 | 64,929,209 |
+-----------------------------------------------------+---------------+---------------+
| Deficit accumulated during the development stage | (38,194,676) | (30,651,554) |
+-----------------------------------------------------+---------------+---------------+
| Total stockholders' equity | 27,691,089 | 34,596,997 |
+-----------------------------------------------------+---------------+---------------+
| Total liabilities and stockholders' equity | $ | $ |
| | 29,392,576 | 36,663,977 |
+-----------------------------------------------------+---------------+---------------+
(1) Derived from audited financial statements.
See accompanying notes to the condensed consolidated financial statements.
Protonex Technology Corporation (A Development Stage Company)
Consolidated Statements of Operations (unaudited)
+----------------------------------------+-------------+-------------+--+--------------+
| | | | | Period |
| | | | | from |
+----------------------------------------+-------------+-------------+--+--------------+
| | | | | 6 October |
| | | | | 2000 |
+----------------------------------------+-------------+-------------+--+--------------+
| | Six Months Ended 31 | | (inception) |
| | March | | to |
+----------------------------------------+---------------------------+--+--------------+
| | 2009 | 2008 | | 31 March |
| | | | | 2009 |
+----------------------------------------+-------------+-------------+--+--------------+
| Revenues: | | | | |
+----------------------------------------+-------------+-------------+--+--------------+
| Third-party revenues | $ | $ | | $ |
| | 2,619,598 | 3,158,388 | | 21,548,074 |
+----------------------------------------+-------------+-------------+--+--------------+
| Related-party revenues | - | - | | 313,200 |
+----------------------------------------+-------------+-------------+--+--------------+
| Total revenues | 2,619,598 | 3,158,388 | | 21,861,274 |
+----------------------------------------+-------------+-------------+--+--------------+
| Operating expenses: | | | | |
+----------------------------------------+-------------+-------------+--+--------------+
| Research and development | 7,097,200 | 6,445,748 | | 41,094,945 |
+----------------------------------------+-------------+-------------+--+--------------+
| In-process research and development | - | - | | 1,852,000 |
+----------------------------------------+-------------+-------------+--+--------------+
| Sales and marketing | 712,788 | 570,494 | | 3,877,151 |
+----------------------------------------+-------------+-------------+--+--------------+
| General and administrative | 2,307,947 | 2,145,970 | | 15,613,716 |
+----------------------------------------+-------------+-------------+--+--------------+
| Total operating expenses | 10,117,935 | 9,162,212 | | 62,437,812 |
+----------------------------------------+-------------+-------------+--+--------------+
| Loss from operations | (7,498,337) | (6,003,824) | | (40,576,538) |
+----------------------------------------+-------------+-------------+--+--------------+
| Other income (expense): | | | | |
+----------------------------------------+-------------+-------------+--+--------------+
| Interest income | 56,392 | 566,229 | | 2,802,107 |
+----------------------------------------+-------------+-------------+--+--------------+
| Interest expense | (2,490) | - | | (46,387) |
+----------------------------------------+-------------+-------------+--+--------------+
| Miscellaneous income (loss) | (1,665) | (46,023) | | 22,892 |
+----------------------------------------+-------------+-------------+--+--------------+
| Total other income, net | 52,237 | 520,206 | | 2,778,612 |
+----------------------------------------+-------------+-------------+--+--------------+
| Loss before provision for income taxes | (7,446,100) | (5,483,618) | | (37,797,926) |
+----------------------------------------+-------------+-------------+--+--------------+
| Provision for income taxes | (97,022) | (96,804) | | (396,750) |
+----------------------------------------+-------------+-------------+--+--------------+
| Net loss | $ | $ | | $ |
| | (7,543,122) | (5,580,422) | | (38,194,676) |
+----------------------------------------+-------------+-------------+--+--------------+
| Basic and diluted net loss per common | $ (0.12) | $ (0.09) | | |
| share | | | | |
+----------------------------------------+-------------+-------------+--+--------------+
| Weighted average common shares | | | | |
| outstanding: | | | | |
+----------------------------------------+-------------+-------------+--+--------------+
| Basic and diluted | 63,770,381 | 63,413,128 | | |
+----------------------------------------+-------------+-------------+--+--------------+
See accompanying notes to the condensed consolidated financial statements.
Protonex Technology Corporation (A Development Stage Company)
Consolidated Statements of Changes in Stockholders' Equity (unaudited)
Period from 30 September 2008 to 31 March 2009
+---------------+----------+--+----------+--+--------+--+--------+--+-------------+---------------+--------------+
| | | | | | | | | Deficit | |
+---------------+----------+-------------+--+--------+-----------+--+-------------+---------------+--------------+
| | | | | | | | | Accumulated | |
+---------------+----------+-------------+--+--------+-----------+--+-------------+---------------+--------------+
| | Common Stock | | Restricted | | Additional | During | Total |
| | | | Common Stock | | | the | |
| | | | | | Paid-in | Development | |
+---------------+------------------------+--+--------------------+--+-------------+---------------+--------------+
| | Shares | Par | | Shares | Amount | | Capital | Stage | Equity |
| | | Value | | | | | | | |
+---------------+-------------+----------+--+-----------+--------+--+-------------+---------------+--------------+
| Balance, 30 | 63,672,272 | $318,361 | | 196,094 | $981 | | $64,929,209 | $(30,651,554) | $34,596,997 |
| September | | | | | | | | | |
| 2008 | | | | | | | | | |
+---------------+-------------+----------+--+-----------+--------+--+-------------+---------------+--------------+
| Stock options | 16,930 | 85 | | - | - | | 3,046 | - | 3,131 |
| exercised | | | | | | | | | |
+---------------+-------------+----------+--+-----------+--------+--+-------------+---------------+--------------+
| Conversion of | 130,724 | 653 | | (130,724) | (653) | | - | - | - |
| restricted | | | | | | | | | |
| shares to | | | | | | | | | |
| common stock | | | | | | | | | |
+---------------+-------------+----------+--+-----------+--------+--+-------------+---------------+--------------+
| Share-based | - | - | | - | - | | 634,083 | - | 634,083 |
| compensation | | | | | | | | | |
+---------------+-------------+----------+--+-----------+--------+--+-------------+---------------+--------------+
| Net loss | - | - | | - | - | | - | (7,543,122) | (7,543,122) |
+---------------+-------------+----------+--+-----------+--------+--+-------------+---------------+--------------+
| Balance, 31 | 63,819,926 | $319,099 | | 65,370 | $328 | | $65,566,338 | $(38,194,676) | $27,691,089 |
| March 2009 | | | | | | | | | |
+---------------+----------+--+----------+--+--------+--+--------+--+-------------+---------------+--------------+
See accompanying notes to the condensed consolidated financial statements.
Protonex Technology Corporation (A Development Stage Company)
Consolidated Statements of Cash Flows (unaudited)
+----------------------------------------+-------------+-------------+--+---------------+
| | | | | Period |
| | | | | from |
+----------------------------------------+-------------+-------------+--+---------------+
| | | | | 6 October |
| | | | | 2000 |
+----------------------------------------+-------------+-------------+--+---------------+
| | Six Months Ended 31 | | (inception) |
| | March | | to |
+----------------------------------------+---------------------------+--+---------------+
| | 2009 | 2008 | | 31 March |
| | | | | 2009 |
+----------------------------------------+-------------+-------------+--+---------------+
| Cash flows from operating activities: | | | | |
+----------------------------------------+-------------+-------------+--+---------------+
| Net loss | $ | $ | | $(38,194,676) |
| | (7,543,122) | (5,580,422) | | |
+----------------------------------------+-------------+-------------+--+---------------+
| Reconciliation of net loss to net cash | | | | |
| used in | | | | |
| operating activities: | | | | |
+----------------------------------------+-------------+-------------+--+---------------+
| In-process research and development | - | - | | 1,852,000 |
+----------------------------------------+-------------+-------------+--+---------------+
| Depreciation of property and equipment | 362,321 | 228,868 | | 1,302,471 |
+----------------------------------------+-------------+-------------+--+---------------+
| Amortisation of intangible assets | 54,967 | 56,333 | | 222,600 |
+----------------------------------------+-------------+-------------+--+---------------+
| Non-cash expense for services | - | - | | 4,080 |
+----------------------------------------+-------------+-------------+--+---------------+
| Loss on disposal of fixed assets | 1,665 | 46,023 | | 83,585 |
+----------------------------------------+-------------+-------------+--+---------------+
| Loss on impairment of intangible | - | - | | 13,667 |
| assets | | | | |
+----------------------------------------+-------------+-------------+--+---------------+
| Non-cash interest expense | - | - | | 38,269 |
+----------------------------------------+-------------+-------------+--+---------------+
| Deferred tax provision | 94,988 | 96,804 | | 391,058 |
+----------------------------------------+-------------+-------------+--+---------------+
| Stock-based compensation | 634,083 | 607,571 | | 3,175,063 |
+----------------------------------------+-------------+-------------+--+---------------+
| Changes in assets and liabilities, net | | | | |
| of acquisitions: | | | | |
+----------------------------------------+-------------+-------------+--+---------------+
| Accounts receivable, net | 415,363 | (537,098) | | (341,293) |
+----------------------------------------+-------------+-------------+--+---------------+
| Inventory, net | 113,559 | (267,995) | | (283,773) |
+----------------------------------------+-------------+-------------+--+---------------+
| Prepaid expenses and other current | 105,059 | 132,376 | | (178,055) |
| assets | | | | |
+----------------------------------------+-------------+-------------+--+---------------+
| Other assets | - | 874 | | (45,325) |
+----------------------------------------+-------------+-------------+--+---------------+
| Accounts payable | (143,714) | (193,064) | | 311,422 |
+----------------------------------------+-------------+-------------+--+---------------+
| Accrued expenses | (311,331) | (53,603) | | 513,629 |
+----------------------------------------+-------------+-------------+--+---------------+
| Deferred revenue | (67,685) | 11,343 | | 40,465 |
+----------------------------------------+-------------+-------------+--+---------------+
| Net cash used in operating activities | (6,283,847) | (5,451,990) | | (31,094,813) |
+----------------------------------------+-------------+-------------+--+---------------+
| Cash flows from investing activities: | | | | |
+----------------------------------------+-------------+-------------+--+---------------+
| Cash paid for acquisition of | - | (477,645) | | (3,399,946) |
| Mesoscopic Devices | | | | |
| LLC, net of cash acquired | | | | |
+----------------------------------------+-------------+-------------+--+---------------+
| Cash held in escrow | - | 477,645 | | (22,355) |
+----------------------------------------+-------------+-------------+--+---------------+
| Additions to property and equipment | (496,167) | (203,664) | | (3,202,632) |
+----------------------------------------+-------------+-------------+--+---------------+
| Net cash used in investing activities | (496,167) | (203,664) | | (6,624,933) |
+----------------------------------------+-------------+-------------+--+---------------+
Protonex Technology Corporation (A Development Stage Company)
Consolidated Statements of Cash Flows (unaudited) continued
+--+------------+------------+------------+--+--+------------+-------------+--+-------------+
| | | | | | Period |
| | | | | | from |
+----------------------------+---------------+--+--------------------------+--+-------------+
| | | | | | 6 |
| | | | | | October |
| | | | | | 2000 |
+----------------------------+---------------+--+--------------------------+--+-------------+
| | | Six Months Ended 31 March | | (inception) |
| | | | | to |
+----------------------------+---------------+-----------------------------+--+-------------+
| | | 2009 | 2008 | | 31 March |
| | | | | | 2009 |
+----------------------------+---------------+---------------+-------------+--+-------------+
| Cash flows from financing activities: | | | | |
+--------------------------------------------+---------------+-------------+--+-------------+
| | Proceeds from notes | $- | $- | | $350,000 |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Payment on capital lease | (15,060) | - | | (15,060) |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Proceeds from Series B Convertible | - | - | | 3,437,341 |
| | Preferred Stock, net of issuance costs | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Proceeds from Series C Convertible | - | - | | 10,927,837 |
| | Preferred Stock, net of issuance costs | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Proceeds from Series A Convertible | - | - | | 169,200 |
| | Preferred Stock, net of issuance costs | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Proceeds from sale of common stock and | 3,131 | - | | 198,405 |
| | stock option exercises | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Proceeds from Initial Public Offering | - | - | | 13,649,823 |
| | on AIM, net of issuance costs | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Proceeds from Secondary Public Offering | - | - | | 26,517,375 |
| | on AIM, net of issuance costs | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Common stock repurchased | - | - | | (3,610) |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| Net cash provided by (used for) financing | (11,929) | - | | 55,231,311 |
| activities | | | | |
+--------------------------------------------+---------------+-------------+--+-------------+
| Net increase/(decrease) in cash and cash | (6,791,943) | (5,655,654) | | 17,511,565 |
| equivalents | | | | |
+--------------------------------------------+---------------+-------------+--+-------------+
| | Cash and cash equivalents, beginning of | 24,303,508 | 33,874,522 | | - |
| | period | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| Cash and cash equivalents, end of period | $17,511,565 | $28,218,868 | | $17,511,565 |
+--------------------------------------------+---------------+-------------+--+-------------+
| Supplemental cash flow information: | | | | |
+--------------------------------------------+---------------+-------------+--+-------------+
| Cash paid for: | | | | | |
+----------------------------+---------------+---------------+-------------+--+-------------+
| | Interest | $- | $- | | $5,628 |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Income taxes | $2,500 | $456 | | $5,702 |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| Supplemental disclosure of non-cash | | | | |
| investing and financing transactions: | | | | |
+--------------------------------------------+---------------+-------------+--+-------------+
| | Conversion of accrued expense into | $- | $- | | $3,072 |
| | shares of common stock | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Conversion of debt and interest into | $- | $- | | $388,269 |
| | Series B Convertible Preferred Stock | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Conversion of Convertible Preferred | | | | |
| | Stock upon reorganisation | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | and admission to AIM | $- | $- | | $14,922,647 |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Acquisition of equipment utilising | $77,309 | $- | | $77,309 |
| | capital lease | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| Supplemental disclosure of acquisition: | | | | |
+--------------------------------------------+---------------+-------------+--+-------------+
| | On 1 April 2007, Protonex acquired | | | | |
| | Mesoscopic Devices LLC (Note 3) | | | | |
+--+-----------------------------------------+---------------+-------------+--+-------------+
| | Accounts receivable | $- | $(22,355) | | $739,436 |
+---------------+----------------------------+---------------+-------------+--+-------------+
| | Inventories | - | - | | 12,221 |
+---------------+----------------------------+---------------+-------------+--+-------------+
| | Property, plant and | - | - | | 77,844 |
| | equipment | | | | |
+---------------+----------------------------+---------------+-------------+--+-------------+
| | Other assets | - | - | | 45,315 |
+---------------+----------------------------+---------------+-------------+--+-------------+
| | Intangible assets | - | - | | 2,528,000 |
+---------------+----------------------------+---------------+-------------+--+-------------+
| | Goodwill | - | 500,000 | | 7,316,990 |
+---------------+----------------------------+---------------+-------------+--+-------------+
| | Accounts payable and | - | - | | (375,522) |
| | accrued expenses | | | | |
+---------------+----------------------------+---------------+-------------+--+-------------+
| | Cash paid for Mesoscopic | | | | |
| | Devices LLC, including | | | | |
| | cash | | | | |
+---------------+----------------------------+---------------+-------------+--+-------------+
| | released from escrow and | - | (477,645) | | (2,922,301) |
| | net of cash acquired | | | | |
+---------------+----------------------------+---------------+-------------+--+-------------+
| Fair value of common stock issued | | $- | $- | | $7,421,983 |
+--+------------+------------+------------+--+--+------------+-------------+--+-------------+
See accompanying notes to the condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements (unaudited)
Note 1 - Organisation, Basis of Presentation and Summary of Significant
Accounting Policies
Organisation
Protonex Technology Corporation (the "Company") was incorporated in October
2000, and performs engineering and development on fuel cell technology under
cost sharing, cost-reimbursement (cost-type), fixed price and cost plus
contracts. In addition, the Company assembles and sells prototype products on a
limited basis. Since inception, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development
Stage Enterprises", the Company has been considered to be in the development
stage as it has devoted substantially all of its efforts to developing its
products, raising capital and recruiting personnel. Although the Company is
progressing toward the launching of its first consumer and military product
offerings, as of 31 March 2009 the development of its product offerings had not
reached this stage. The Company expects to incur losses as it continues to
participate in government cost share programmes to further certain technology or
product development initiatives with key customers or agencies and invests in
cost reduction and commercialisation initiatives. The Company's primary market
during the development stage has been government agencies of the United States
of America. The Company is headquartered in Southborough, Massachusetts.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles as set
forth by the United States of America Financial Accounting Standards Board ("US
GAAP") for interim financial information. Accordingly, they do not include all
of the information and footnotes required by US GAAP for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation have
been included in the accompanying unaudited financial statements. The results of
operations for the interim periods are not necessarily indicative of the results
of operations to be expected for the fiscal year. The Company suggests that
these interim condensed financial statements be read in conjunction with the
audited financial statements for the fiscal year ended 30 September 2008 which
are contained in the Company's Annual Report covering the fiscal year ended 30
September 2008.
The Company is subject to a number of risks similar to those of other
development stage companies, including risks related to: its dependence on key
individuals; its ability to develop and market commercially usable products; and
its ability to obtain the substantial additional financing necessary to
adequately fund the development, commercialisation and marketing of its
products.
These unaudited condensed consolidated financial statements have also been
prepared on a going concern basis. As such, they anticipate the realisation of
assets and the liquidation of liabilities in the normal course of business. The
Company incurred net losses of $7,543,122 and $5,580,422 for the six months
ended 31 March 2009 and 2008 respectively, and had an accumulated deficit of
$38,194,676 as of 31 March 2009. The Company has funded these losses principally
through equity financings. In April 2007, the Company received $26,517,375 in
net proceeds from the sale of common stock. Management believes that existing
resources will be adequate to fund operations for at least the next twelve
months.
Summary of Significant Accounting Policies
A summary of the Company's significant accounting policies are disclosed in its
Annual Report for the year ended 30 September 2008 and have not changed
materially as of 31 March 2009.
Research and Development Expense
Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various third-party
entities that perform certain research on behalf of the Company. Total research
and development expenses for the six months ended 31 March 2009 and 2008 were
$7,097,200 and $6,445,748, respectively.
Note 1 - Organisation, Basis of Presentation and Summary of Significant
Accounting Policies (continued)
Stock-Based Compensation
The Company has one stock-based employee compensation plan. On 1 October 2005,
the Company adopted the fair value recognition provisions of SFAS No. 123R,
"Share-Based Payment" ("SFAS 123R"), using the prospective transition method.
Under this transition method, stock-based compensation cost was recognised in
the financial statements for all share-based payments granted after 1 October
2005. Under the fair value recognition provisions of SFAS 123R, stock-based
compensation cost is measured at the grant date based on the value of the award
and is recognised as expense over the service period.
The following table presents share-based compensation expenses included in the
Company's Consolidated Statements of Operations:
+--------------------------------------------------------+--+----------+-----------+
| | | Six Months Ended |
| | | 31 March |
+--------------------------------------------------------+--+----------------------+
| | | 2009 | 2008 |
+--------------------------------------------------------+--+----------+-----------+
| Research and development | | $349,256 | $296,261 |
+--------------------------------------------------------+--+----------+-----------+
| Sales and marketing | | 45,768 | 43,776 |
+--------------------------------------------------------+--+----------+-----------+
| General and administrative | | 239,059 | 267,534 |
+--------------------------------------------------------+--+----------+-----------+
| Total share-based compensation expense | | $634,083 | $607,571 |
+--------------------------------------------------------+--+----------+-----------+
At 31 March 2009, there is $1,546,505 of future compensation cost to be
recognised in future periods on outstanding options. That cost is expected to be
recognised over a weighted-average period of 1.7 years.
The fair value of each stock option was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for the six months ended 31 March 2009 and 2008:
+------------------------------------------------+--+--------------+-------------+
| | | 2009 | 2008 |
+------------------------------------------------+--+--------------+-------------+
| Expected volatility | | 83.0% | 73.0% |
+------------------------------------------------+--+--------------+-------------+
| Expected dividend yield | | - | - |
+------------------------------------------------+--+--------------+-------------+
| Expected risk-free interest rate | | 1.79% - | 4.06% - |
| | | 2.42% | 4.14% |
+------------------------------------------------+--+--------------+-------------+
| Expected term of options | | 4.79 - 5.86 | 3.73 - 8 |
| | | years | years |
+------------------------------------------------+--+--------------+-------------+
| Maximum contractual term | | 10 years | 10 years |
+------------------------------------------------+--+--------------+-------------+
| Estimated forfeiture rate | | 12.1% | 12.8% |
+------------------------------------------------+--+--------------+-------------+
Stock Price
All stock options issued from 1 October 2005 through 2 July 2006 were valued
based on an independent valuation study of the Company performed for the Board.
All options issued subsequent to 2 July 2006 were valued based on the publicly
traded market price of the stock.
Expected Volatility
Due to having minimal publicly traded experience of its stock, the Company
utilised an expected volatility based on publicly available information as to
the volatility of comparable traded companies in similar industries, development
stage and size.
Expected Dividend Yield
The Company does not intend to pay dividends on its common stock for the
foreseeable future and, accordingly, uses a dividend yield of zero in the
Black-Scholes pricing model.
Expected Risk-Free Interest Rate
The risk-free interest rates for stock options are based on the US Treasury
yield curve in effect at the time of grant for maturities, similar to the
expected holding period of the stock options.
Expected Term
The expected term of stock options granted is generally based on historical data
and represents the period of time that the stock options granted are expected to
be outstanding. The Company has had very limited stock option exercise
experience to date, making the Company's determination of the "expected term"
judgmental. Accordingly, the Company has based the expected term on publicly
available information for companies in similar industries, development stage and
size. Note 1 - Organisation, Basis of Presentation and Summary of Significant
Accounting Policies (continued)
Stock-Based Compensation (continued)
Estimated Forfeitures
The Company has estimated employee stock option forfeitures as required under
SFAS 123R for two groups of stock options: (a) immediately vested options and
(b) all others and is based on the Company's limited experience. Estimated
forfeitures are adjusted to actual forfeiture experience.
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2007, the FASB issued SFAS No. 141 (revised), "Business
Combinations" ("SFAS 141R"). The standard changes the accounting for business
combinations including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss contingencies,
the recognition of capitalised in-process research and development, the
accounting for acquisition-related restructuring cost accruals, the treatment of
acquisition related transaction costs and the recognition of changes in the
acquirer's income tax valuation allowance. SFAS 141R is effective for fiscal
years beginning after December 15, 2008, with early adoption prohibited. The
Company does not expect the adoption of SFAS 141R to have a material impact on
its financial statements.
In February 2007, the FASB issued SFAS No. 159, "Fair Value Option for Financial
Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 provides companies with
an option to report selected financial assets and liabilities at fair value.
SFAS 159 requires the fair value of the assets and liabilities that the Company
has chosen to fair value be shown on the face of the balance sheet. SFAS 159
also requires companies to provide additional information to enable users of the
financial statements to understand the Company's reasons for electing the fair
value option and how changes in the fair values affect earnings for the period.
SFAS 159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. SFAS 159 is effective
for fiscal years beginning after 15 November 2007. The Company is currently
evaluating the impact of SFAS 159 on the financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. This statement is effective for financial
statements issued for fiscal years beginning after 15 November 2007. The Company
is currently evaluating the impact of SFAS 157 on the financial statements.
In February 2008, the FASB issued Staff Position 157-2, "Effective Date of FASB
Statement No. 157" ("FSP 157-2"). FSP 157-2 delays the effective date of SFAS
157 for non-financial assets and non-financial liabilities, except for certain
items that are recognised or disclosed at fair value in the financial statements
on a recurring basis. This FSP will be effective for fiscal years beginning
after 15 November 2008, and interim periods within those fiscal years for items
within the scope of this FSP.
Note 2 - Net Loss Per Share
The components of basic and diluted loss per share for the six months ended 31
March 2009 and 2008 are as follows:
+----------------+----------------+----------------+----------------+----------------+
| | | | 2009 | 2008 |
+----------------+----------------+----------------+----------------+----------------+
| Net loss, basic and diluted | $ (7,543,122) | $ (5,580,422) |
+--------------------------------------------------+----------------+----------------+
| Weighted average outstanding shares of common | 63,770,381 | 63,413,128 |
| stock | | |
+--------------------------------------------------+----------------+----------------+
| Basic and diluted net loss per share | $ (0.12) | $ (0.09) |
+----------------+----------------+----------------+----------------+----------------+
All common stock equivalents were anti-dilutive for the six months ended 31
March 2009 and 2008. Incremental common shares not included in the denominator
of the diluted earnings per share calculation due to their anti-dilutive nature
are as follows:
+--------------------------------------------+------+------------+---------------+
| | | 2009 | 2008 |
+--------------------------------------------+------+------------+---------------+
| Stock options | | 6,837,946 | 6,685,324 |
+--------------------------------------------+------+------------+---------------+
| Contingent shares | | 1,020,598 | 1,020,598 |
+--------------------------------------------+------+------------+---------------+
| Unvested restricted stock | | 65,370 | 326,818 |
+--------------------------------------------+------+------------+---------------+
| | | 7,923,914 | 8,032,740 |
+--------------------------------------------+------+------------+---------------+
Note 3 - Business Acquisitions
Acquisition of Mesoscopic Devices, LLC
Effective 1 April 2007, the Company acquired all of the shares of Mesoscopic
Devices, LLC. Mesoscopic is a Colorado-based fuel cell technology company and
provider of portable power fuel cell solutions. The Company acquired Mesoscopic
to expand its fuel diversity, market reach and technology portfolio. The
acquisition has been accounted for under the purchase method of accounting and
the results of operations of the acquired business have been included in the
consolidated financial statements of the Company since 1 April 2007. The
purchase price as subsequently adjusted for contingent consideration paid to the
sellers was $10,824,201, which consisted of 4,082,385 shares of Common Stock of
the Company with an aggregate fair value of $7,421,983, cash of $3,189,125 and
$213,093 in direct acquisition costs. The Common Stock is subject to various
lock-up restrictions between six and 30 months in duration from 3 April 2007. As
of 31 March 2009, 1,632,954 shares were subject to lock-up and 2,449,431 were
released from restrictions.
Pursuant to the acquisition agreement, the Company deposited $500,000 into an
escrow account which was to be released to the sellers after twelve months
subject to any indemnification claims of the Company. In January 2008, the
Company filed an escrow claim for $29,496 of which it retained $22,355. In April
and May 2008, the balance in the escrow account of $477,645 was released to the
sellers and the remaining $22,355 was returned to the Company. As a result, this
payment represented additional purchase price and has been recorded as
additional goodwill during the period ended 31 March 2008.
At the time of the acquisition the Company also issued contingent consideration
consisting of 1,020,598 additional shares (the "Contingent Shares") of Common
Stock of the Company. The Contingent Shares are issued but held in escrow
subject to the achievement of certain unit sale milestones. This additional
contingent consideration will be accounted for as additional purchase price to
the extent the milestones are met and the shares are released. As of 31 March
2009, no milestones have been met.
The aggregate purchase price for the Mesoscopic business was allocated to the
assets acquired and liabilities assumed at the date of acquisition as follows:
Total purchase consideration:
+---------------------------------------+---------------------------------------+
| Common stock issued | $ 7,421,983 |
+---------------------------------------+---------------------------------------+
| Cash | 3,189,125 |
+---------------------------------------+---------------------------------------+
| Transaction costs | 213,093 |
+---------------------------------------+---------------------------------------+
| | $ 10,824,201 |
+---------------------------------------+---------------------------------------+
| | |
+---------------------------------------+---------------------------------------+
| Allocation of the purchase | |
| consideration: | |
+---------------------------------------+---------------------------------------+
| Cash | $2,272 |
+---------------------------------------+---------------------------------------+
| Accounts receivable | 709,940 |
+---------------------------------------+---------------------------------------+
| Inventory | 12,221 |
+---------------------------------------+---------------------------------------+
| Prepaid and other current assets | 37,760 |
+---------------------------------------+---------------------------------------+
| Property and equipment, net | 77,844 |
+---------------------------------------+---------------------------------------+
| Goodwill | 7,816,990 |
+---------------------------------------+---------------------------------------+
| Core technology | 555,000 |
+---------------------------------------+---------------------------------------+
| In-process research and development | 1,852,000 |
+---------------------------------------+---------------------------------------+
| Other intangible assets | 121,000 |
+---------------------------------------+---------------------------------------+
| Other assets | 7,555 |
+---------------------------------------+---------------------------------------+
| Total assets acquired | 11,192,582 |
+---------------------------------------+---------------------------------------+
| Accounts payable and accrued expenses | 368,381 |
+---------------------------------------+---------------------------------------+
| Total liabilities assumed | 368,381 |
+---------------------------------------+---------------------------------------+
| Net assets acquired | $ 10,824,201 |
+---------------------------------------+---------------------------------------+
For tax purposes, goodwill generated from this acquisition amounted to
$8,521,368 and is deductible over a 15-year period. The values allocated to the
acquired core technology and other intangible assets are being amortised on a
straight-line basis over the estimated useful life of six years. The core
technology and other intangible assets are included in intangible assets, net in
the accompanying consolidated balance sheets at 31 March 2009 and 30 September
2008. The Company has also evaluated certain in-process research and development
projects and has expensed, as in-process research and development, those
projects that had not at the date of the acquisition attained technical
feasibility, meaning they had not reached the working model stage, did not
contain all of the major functions planned for the products and were not ready
for initial customer testing. The amount expensed during the year ended 30
September 2007 was $1,852,000 and was included in our consolidated statement of
operations. There was no in-process research and development expensed in the six
months ended 31 March 2009 and 2008. The in-process research and development was
valued based on discounting estimated cash flows from the related products. The
in-process research and development did not have any alternative future use and
did not otherwise qualify for capitalisation. As a result, this amount was
expensed upon acquisition.
Note 4 - Intangible Assets
The following is a summary of intangible assets as of 31 March 2009 and 30
September 2008:
+--------------------------------------+-----------+--------------+----------+---------+
| | 31 March 2009 |
+--------------------------------------+-----------------------------------------------+
| | Gross | Accumulated | Net | |
| | Carrying | | Carrying | |
+--------------------------------------+-----------+--------------+----------+---------+
| | Amount | Amortisation | Value | Useful |
| | | | | Life |
+--------------------------------------+-----------+--------------+----------+---------+
| Amortised intangible assets with | | | | |
| finite lives: | | | | |
+--------------------------------------+-----------+--------------+----------+---------+
| Core technology | $ 555,000 | $ | $ | 6 years |
| | | 185,000 | 370,000 | |
+--------------------------------------+-----------+--------------+----------+---------+
| Other intangible assets | 104,000 | 34,267 | 69,733 | 6 years |
+--------------------------------------+-----------+--------------+----------+---------+
| Total intangible assets with finite | $ 659,000 | $ | $ | |
| lives | | 219,267 | 439,733 | |
+--------------------------------------+-----------+--------------+----------+---------+
| | | | | |
+--------------------------------------+-----------+--------------+----------+---------+
| | 30 September 2008 |
+--------------------------------------+-----------------------------------------------+
| | Gross | Accumulated | Net | |
| | Carrying | | Carrying | |
+--------------------------------------+-----------+--------------+----------+---------+
| | Amount | Amortisation | Value | Useful |
| | | | | Life |
+--------------------------------------+-----------+--------------+----------+---------+
| Amortised intangible assets with | | | | |
| finite lives: | | | | |
+--------------------------------------+-----------+--------------+----------+---------+
| Core technology | $ 555,000 | $ | $ | 6 years |
| | | 138,750 | 416,250 | |
+--------------------------------------+-----------+--------------+----------+---------+
| Other intangible assets | 104,000 | 25,550 | 78,450 | 6 years |
+--------------------------------------+-----------+--------------+----------+---------+
| Total intangible assets with finite | $ 659,000 | $ | $ | |
| lives | | 164,300 | 494,700 | |
+--------------------------------------+-----------+--------------+----------+---------+
The Company amortises intangible assets with finite lives using the
straight-line method over the above estimated useful lives of the respective
intangible asset. The Company considers the straight-line method to be
appropriate, as it approximates the pattern in which economic benefits are
consumed in circumstances where such patterns can be reliably determined. During
the six months ended 31 March 2009 and 2008, amortisation expense of intangible
assets amounted to $54,967 and $56,333, respectively and is included in research
and development expenses in the accompanying consolidated statements of
operations. During the year ended 30 September 2008 the Company determined that
one of its patents and trademarks included in other intangible assets was
impaired and recorded an impairment charge of $13,667, reducing the net carrying
value of these assets to $2,700 at 30 September 2008.
Note 5 - Common Stockholders' Equity
Restricted Stock
A summary of the Company's restricted stock activity for the six months ended 31
March 2009 and 2008 is presented in the table below:
+-----------------------------------------------------------+------------+------------+
| | Six Months Ended |
| | 31 March |
+-----------------------------------------------------------+-------------------------+
| | 2009 | 2008 |
+-----------------------------------------------------------+------------+------------+
| Outstanding 1 October | 196,094 | 529,858 |
+-----------------------------------------------------------+------------+------------+
| Converted to common stock | (130,724) | (203,040) |
+-----------------------------------------------------------+------------+------------+
| Outstanding 31 March | 65,370 | 326,818 |
+-----------------------------------------------------------+------------+------------+
During the six months ended 31 March 2009 and 2008 a total of 130,724 and
203,040 restricted shares vested, respectively. As of 31 March 2009, there were
65,370 restricted shares unvested. The remaining unvested shares will vest in
the year ended 30 September 2009.
The Company calculated the aggregate difference between the deemed fair value of
the restricted shares at the time of purchase and the purchase price. The
Company recognises the compensation expense ratably during the vesting period of
the underlying common stock. During the six months ended 31 March 2009 and 2008,
the Company recognised $11,111 and $13,657 of compensation expense,
respectively, which is included in operating expenses in the accompanying
consolidated statements of operations. As of 31 March 2009 the unamortised value
of the restricted stock was $735. This value will be amortised over the
remaining vesting period of the restricted shares of approximately three months.
Common Stock
On 3 April 2007, the Company closed the acquisition of Mesoscopic effective as
of 1 April 2007 (See Note 3). In connection with the Mesoscopic acquisition,
1,020,598 shares of common stock issued but held in escrow subject to meeting
certain unit sale milestones are not considered outstanding for accounting
purposes until the achievement of the unit sale milestones. As a result, these
shares are not included in the issued and outstanding shares as of 31 March 2009
and 30 September 2008.
In addition, on 3 April 2007, the Company completed an equity financing and sold
16,000,000 new shares of common stock at a per share price of UK 88 pence and
U.S. $1.725. The Company raised a total of $27,721,751 at the then effective
exchange rate and before cash transaction costs of $1,204,376.
As of 31 March 2009 and 30 September 2008, there were 63,885,296 and 63,868,366
common shares, respectively, issued and outstanding, of which 63,819,926 and
63,672,272, respectively, were unrestricted and 65,370 and 196,094,
respectively, were restricted.
Note 5 - Common Stockholders' Equity (continued)
Stock Options
In October 2003, the Company's Board of Directors approved the 2003 Stock
Incentive Plan, which allows for the granting of incentive stock options
("ISOs"), non-qualified stock options, stock appreciation rights, performance
shares and restricted stock to employees, officers, Directors, advisors and
consultants of the Company. In March 2009, the Company's shareholders approved
an amendment to the 2003 Stock Incentive Plan to increase the number of shares
of the Company's common stock that may be issued under the plan from 8,800,000
to 9,700,000 shares. As of 31 March 2009, 1,836,615 shares remain available for
future grant. To date, the Company has issued ISOs and non-qualified stock
options under the 2003 Stock Incentive Plan, and has not issued any stock
appreciation rights, performance shares or restricted stock.
A summary of the status of all of the Company's stock options for the six months
ended 31 March 2009 is presented below:
+--------------------------------------+-------------+----------+-------------+-----------+
| | | Weighted | Weighted | |
+--------------------------------------+-------------+----------+-------------+-----------+
| | | Average | Average | |
+--------------------------------------+-------------+----------+-------------+-----------+
| | | Exercise | Remaining | Aggregate |
| | | | | |
+--------------------------------------+-------------+----------+-------------+-----------+
| | Number | Price | Contractual | Intrinsic |
| | | per | | |
+--------------------------------------+-------------+----------+-------------+-----------+
| | of | Share | Life | Value |
| | Shares | | | |
+--------------------------------------+-------------+----------+-------------+-----------+
| Outstanding - 1 October 2008 | 6,787,597 | $0.964 | | |
+--------------------------------------+-------------+----------+-------------+-----------+
| Granted | 442,920 | 0.793 | | |
+--------------------------------------+-------------+----------+-------------+-----------+
| Exercised | (16,930) | 0.185 | | |
+--------------------------------------+-------------+----------+-------------+-----------+
| Forfeited | (192,991) | 1.347 | | |
+--------------------------------------+-------------+----------+-------------+-----------+
| Expired | (182,650) | 0.878 | | |
+--------------------------------------+-------------+----------+-------------+-----------+
| Outstanding - 31 March 2009 | 6,837,946 | $0.946 | 7.40 | $966,026 |
| | | | | |
+--------------------------------------+-------------+----------+-------------+-----------+
| Exercisable - 31 March 2009 | 4,790,378 | $0.786 | 6.96 | $893,050 |
| | | | | |
+--------------------------------------+-------------+----------+-------------+-----------+
+----------------------------------------------------------+---------+----------+
| | Six Months Ended |
| | 31 March |
+----------------------------------------------------------+--------------------+
| | 2009 | 2008 |
+----------------------------------------------------------+---------+----------+
| Weighted average grant date fair value per share of | $0.524 | $1.123 |
| options granted | | |
+----------------------------------------------------------+---------+----------+
| Total intrinsic value of share options exercised | $7,782 | $- |
| | | |
+----------------------------------------------------------+---------+----------+
Note 6 - Commitments
Leases
The Company conducts its operations in leased facilities under operating lease
agreements and has lease commitments for certain equipment. The rent and related
expenses under these agreements totaled $307,696 and $285,334 for the six months
ended 31 March 2009 and 2008, respectively.
In October 2006, the Company entered into an amendment to the operating lease
agreement to expand its facility in Southborough, Massachusetts. The lease
originally commenced on 1 February 2004, and requires a base rent plus tax and
common area maintenance charges and has been re-written to expire in December
2011. The Company is also required to maintain a security deposit of $45,324
related to this agreement.
As of 31 March 2009 and 30 September 2008, the Company maintained deposits
totaling $52,880, as security deposits related to all operating lease
agreements.
In connection with the acquisition of Mesoscopic, effective on 1 April 2007 (See
Note 3), the Company assumed the operating lease agreement in Broomfield,
Colorado. The lease originally commenced on 1 March 2003 and requires a base
rent plus tax and common area maintenance charges and has been re-written to
expire in August 2010. The Company is also required to maintain a security
deposit of $7,525 related to this agreement.
Minimum future payments required under operating leases are as follows:
+---------------------------------------+---------------------------------------+
| For the Years Ending 30 September | |
+---------------------------------------+---------------------------------------+
| 2009 | $ 299,781 |
+---------------------------------------+---------------------------------------+
| 2010 | 459,221 |
+---------------------------------------+---------------------------------------+
| 2011 | 271,945 |
+---------------------------------------+---------------------------------------+
| 2012 | 45,324 |
+---------------------------------------+---------------------------------------+
| Total | $1,076,271 |
+---------------------------------------+---------------------------------------+
Note 7 - Taxes on Income
At 31 March, the provision for income taxes consists of the following:
+--+--------------------+----------------------------------------+----------+----------+
| | | Six Months Ended |
| | | 31 March |
+-----------------------+----------------------------------------+---------------------+
| | | 2009 | 2008 |
+-----------------------+----------------------------------------+----------+----------+
| Current: | | | |
+-----------------------+----------------------------------------+----------+----------+
| | Federal | $ - | $ - |
+--+-------------------------------------------------------------+----------+----------+
| | State | 2,034 | - |
+--+-------------------------------------------------------------+----------+----------+
| | | 2,034 | - |
+-----------------------+----------------------------------------+----------+----------+
| Deferred: | | | |
+-----------------------+----------------------------------------+----------+----------+
| | Federal | 88,592 | 82,911 |
+--+-------------------------------------------------------------+----------+----------+
| | State | 6,396 | 13,893 |
+--+-------------------------------------------------------------+----------+----------+
| | | 94,988 | 96,804 |
+--+-------------------------------------------------------------+----------+----------+
| Total provision for income taxes | $ | $ |
| | 97,022 | 96,804 |
+--+--------------------+----------------------------------------+----------+----------+
The Company's deferred tax liabilities are created by goodwill as a result of
the acquisition of Mesoscopic. In accordance with SFAS 142, deferred tax
liabilities resulting from the different treatment of goodwill for book and tax
purposes cannot offset deferred tax assets in determining the valuation
allowance. As a result, a deferred tax provision is required to increase the
Company's valuation allowance. The deferred tax liability as a result of the
goodwill associated with the Mesoscopic acquisition as of 31 March 2009 is
$391,058 and as of 30 September 2008 was $296,070.
The Company recorded a valuation allowance equal to the gross deferred tax
assets at 31 March 2009 and 2008. Due to the uncertainty of future operating
results, management believes it to be more likely than not that the gross
deferred tax assets will not be realised; therefore, a full valuation allowance
has been recorded.
Effective 1 October 2007 the Company adopted the provisions of FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48").
As of the date of adoption, the total amount of net unrecognised tax benefit was
$673,113 which has been recorded with an offsetting adjustment to the valuation
allowance. Accordingly, there was no adjustment to accumulated deficit at the
date of adoption.
The Company did not recognise any accrued interest and penalties related to
unrecognised tax benefits as no amounts would be due as a result of the
Company's net tax loss carryforward. The Company's policy is to record interest
and penalties related to unrecognised tax benefits in income tax expense. Tax
years for 2000 to 2008 remain subject to examination for Federal and state
jurisdictions. The primary state jurisdiction is the Commonwealth of
Massachusetts.
The Company has not completed an in-depth study to fully assess the amount of
benefit related to Federal and state research and development credits due to the
complexity of the study. The Company expects to further refine its FIN48
analysis surrounding its research and development credits within the current
fiscal year upon completion of the study.
Note 8 - Related Parties
Parker Hannifin Corporation ("Parker") and an affiliate Parker Hannifin
Foundation ("Parker Foundation") are significant shareholders in the Company. As
of 31 March 2009, Parker and Parker Foundation held 12,731,500 common shares of
the Company, representing 19.6% of the common shares issued and outstanding,
including as outstanding the Contingent Shares issued in conjunction with the
Mesoscopic acquisition. Since 1 April 2005, Akbar Naderi, a vice president of
Parker has been a Non-Executive Director of the Company. In October 2004, the
Company entered into an agreement with Parker to jointly develop certain
products, establish a manufacturing relationship for various components or
portions of fuel cell systems, and permit Parker to sell Protonex Fuel Cell
Systems into certain commercial and consumer applications. The agreement was
amended and restated in March 2006. The amended agreement has a term of five
years, unless extended in writing by the mutual consent of both parties.
Additionally in May 2007, the Company entered into an agreement with Parker to
sublicense certain third-party intellectual property to Parker. During the six
months ended 31 March 2009 and 2008, the Company had purchases from Parker of
$40,564 and $39,973, respectively. As of 31 March 2009 and 30 September 2008,
$927 and $12,959, respectively, due to Parker were included in accounts payable.
Through the acquisition of Mesoscopic, the Company began a relationship with CBC
America Corporation ("CBC"). Prior to the acquisition of Mesoscopic, CBC was a
shareholder in Mesoscopic and as a result of the acquisition of Mesoscopic by
the Company, CBC became a shareholder in the Company. CBC is a wholly owned
subsidiary of CBC Co. Ltd. of Tokyo, Japan. CBC also facilitates purchases by
the Company of components for fuel cell development from international
suppliers. Effective as of July 2008, the Company entered into an agreement with
CBC and another party to jointly develop certain products. During the six months
ended 31 March 2009 and 2008 the Company had purchases from CBC of $60,000 and
$30,579. As of 30 September 2008, $24,000 due to CBC was included in accounts
payable.
Note 9 - Concentrations
For the six months ended 31 March 2009 and 2008, the Company had government
sponsored contract revenue of $2,597,615 and $3,158,388 which represented
approximately 99% and 100%, respectively, of total revenue. As of 31 March 2009
and 30 September 2008, accounts receivable from government agencies accounted
for 73%, and 64%, respectively, of total accounts receivable.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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