Overview and Background
The following management's discussion and analysis is intended to provide information necessary to understand our condensed consolidated financial statements and highlight certain other financial information, which in the opinion of management, will enhance a reader's understanding of our financial condition, changes in financial condition, and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial condition and operating results during the nine months ended
We are engaged in the development and sale of renewable energy solutions using our direct methanol micro fuel cell technology. Our fuel cells are designed to replace existing rechargeable battery technology in a variety of applications and can run in either aerobic or anaerobic modes. We are developing solutions specifically targeted for the military, transportation vehicles, and portable electronics applications. Our long-lasting, efficient and safe power solutions include devices, such as notebook PCs, military radios, and other power-hungry computer, entertainment and communications products. We use a unique patented, silicon-based design for our micro fuel cells that create higher power densities and enables lighter-weight, smaller form-factors, and will potentially create more cost effective manufacturing and potentially lower product costs.
We are developing two classes of fuel cells, one referred to as the PowerChip™ and the other as the BuzzBar™ suite of products. The PowerChip™ is a silicon based fuel cell that uses traditional computer chip manufacturing to build the fuel cell. The BuzzBar™ product was developed during the last two years using some processing steps of the PowerChip™ technology and using polymeric materials for a lower cost, consumer oriented product. The PowerChip™ is targeted for applications (anaerobic) where the quality of the surrounding air is unpredictable or not available like diesel-fumes contaminated environments or underwater applications. The BuzzBar™ product uses air from the surrounding environment and is targeted for consumer-oriented and less aggressive applications for lower power ranges. Our technology and its application have been validated both by our own research and customer results. We believe our fuel cells will outperform lithium ion batteries and other similar power sources, with longer run time, shorter recharge time, ease of portability, and other measures of performance. We anticipate that our fuel cell solution will be particularly beneficial in applications requiring the use of more than one battery because the user will only need to use a single fuel cell with a supply of smaller fuel cartridges, resulting in reduced overall size and weight.
We have an intellectual property portfolio consisting of 12 issued patents, 4 patents pending, 2 Canadian patent applications and various trade secrets for our proprietary technology. We use a unique, patented and award winning, silicon-based design for our PowerChip™ micro fuel cells that enable higher power densities, lower cost and compact form-factors. The PowerChip™ technology has been recognized for both its innovativeness and its application potential from noted sources including the 2012 ZINO Green finalist, the 2010 WTIA finalist, 2010 Best of What's New Popular Science and other awards.
Our business model includes the potential to license the manufacturing of our fuel cells or to purchase product directly from the Company. We believe that our licensing strategy will be particularly attractive to customers who have access to their own computer chip manufacturing capacity, because our PowerChip™ products can be manufactured with existing equipment used in the semiconductor industry without significant capital outlays for new equipment.
We also intend to design and distribute the fuel cartridges that these fuel cells require for refueling. We anticipate that we will generate future revenues from the sale and licensing of both fuel cartridges and the completed fuel cells. Our business plan contemplates that we will subcontract to third parties substantially all of the production and assembly of the fuel cells and fuel cartridges.
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For the PowerChip™ technology, we are focusing our initial sales strategy on markets requiring anaerobic or low oxygen content environments, such as underwater, transportation, aerospace and military applications. Our product focus for fiscal 2014 will be directed to our business with the aforementioned US defense suppliers and the proposal to the commercial aviation provider, as well as fuel cell range extenders for electric and other recreational vehicles.
For the PowerChip™ and the BuzzBar™ products, we will also continue to pursue adoption in the consumer markets. While the size of the consumer markets is very significant, the adoption cycle can be much longer than the other markets that we are currently focused on. These longer adoption cycles are driven by longer lead times for product development, distribution, supply chain implementation, and consumer specific safety testing. We are in preliminary discussions with a large consumer Company for consumer applications, which, if successful, is expected to take 6 to 16 months for product placement on store shelves.
The deployment of our business strategy has been delayed during 2013 and 2014 by the availability of capital and our inability to raise sufficient capital to fund ongoing operations, sales and marketing and production. Assuming we are able to continue to obtain sufficient financing, we intend to focus on production and delivery of products to customers and sales efforts. We intend to continue to develop business relationships and demonstrate our technology to potential leading edge adopters.
Liquidity, Going Concern and Capital Resources
Our Condensed Consolidated Financial Statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The report of our auditors on our Consolidated Financial Statements for our fiscal year ended
Since our inception, we have reported net losses, including losses of
During the past several years, we have funded our operations through sales of our common and preferred stock, short-term borrowings, and settlement of accounts payable by issuance of common stock. During the nine months ended
We require additional financing to execute our business strategy and to satisfy our near-term working capital requirements. Our operating expenses will use a significant amount of our cash resources. As of
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Results of Operations
For the three and nine months ended
We recorded no revenues for the three and nine months ended
Research and development expenses ("R&D") consist primarily of salaries and other personnel-related expenses, facilities costs, and other laboratory and research related expenses. Total R&D costs for the three and nine months ended
General and administrative expenses ("G&A") consist primarily of salaries and related expenses for our management, finance and related personnel, as well as costs for marketing and sales expenses, professional fees, such as accounting and legal, corporate insurance and facilities costs, and non-employee members of our board of directors. G&A expenses increased
† an increase in board compensation of
† an increase of
† an increase of
† an decrease in salaries expense of
† an increase in professional services of
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† a decrease in facility cost of
† an increase in other expenses of
During the three and nine months ended
Interest expense decreased by
Financing costs increased
We are not certain how the current economic downturn may affect our business. Because of the global recession, government agencies and private industry may not have the funds to purchase its power systems. It may also be more difficult for us to raise capital in the current economic environment. Other than as discussed herein, the Company does not know of any material trends, events or uncertainties that may impact its operations in the future.
Critical Accounting Policies and Estimates
We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in
Off-Balance Sheet Arrangements