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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Polyfuel Regs | LSE:PYF | London | Ordinary Share | COM SHS USD0.001 (REG S) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 3.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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RNS Number:3678E
PolyFuel Inc.
25 September 2007
25 September 2007
POLYFUEL, INC.
INTERIM REPORT
RESULTS FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2007
PolyFuel, Inc. (LSE: PYF) ("PolyFuel" or the "Company"), a world leader in fuel
cell technology, particularly engineered membranes, that provide significantly
improved performance in both direct methanol and hydrogen fuel cells, especially
for portable electronic and automotive applications, today announces its interim
results for the six months ended 30th June 2007.
PolyFuel believes that its leading edge, hydrocarbon-based membranes will enable
a new generation of fuel cells that for the first time will deliver on the
long-awaited promise of clean, long-running and cost effective portable power.
INTERIM HIGHLIGHTS
Customers
* Increased quantities of membrane and membrane-related fuel cell products
shipped to customers during the first six months of the year to more than
twice those for the whole of 2006.
* Secured three additional fuel cell system prototype design wins from
leading portable fuel cell systems developers.
Technical Operations
*Achieved significant milestone in relationship with Johnson Matthey Fuel
Cells Limited ("JMFC") by successfully passing a rigorous vendor
qualification audit. This audit is a key step in the process of positioning
PolyFuel to supply commercial quantities of its hydrocarbon membranes for
incorporation into JMFC's value-added fuel cell products.
*Extended the capability of PolyFuel's continuous roll-to-roll hot
bondable manufacturing process to include new thinner 20-micron membrane
material.
*Secured the issuance of a second key membrane composition-of-matter
patent.
Financial and Organisational
*Secured reinstatement of US$2 million in funding from the US Department
of Energy for the development of a prototype for a next-generation Direct
Methanol Fuel Cell ("DMFC") portable power supply for a notebook computer.
*Continued control of operating expenses, combined with increased
revenues, resulted in cash expenditures for the six months ended 30 June
2007 well within planned levels.
*Strengthened Board capabilities with the appointment of Don MacDonald,
Vice President and General Manager for Global Marketing and Branding at
Intel Corporation, to the position of Non-Executive Director.
PROGRESS SINCE 30 JUNE 2007
Customers
*Secured fourth fuel cell system prototype design win of 2007 from a major
consumer electronics company.
*Continued strong product shipments to customers with quantities of
membrane and membrane related fuel cell products shipped through 31 August
running at greater than 21/2 times the total for all of 2006.
Technical Operations
*Demonstrated state of the art fuel cell system engineering capabilities
with the development of world leading compact DMFC stack with power density
of 500 Watts per liter.
*Filed two additional patent applications covering important advances in
portable fuel cell membrane technology.
Financial and Organisational
*Refocused and re-prioritised corporate resources in order to better
support customers' fuel cell system development efforts and to reduce
overall expenditure levels and significantly lower projected cash
requirements, providing the Company with sufficient cash to finance the
business into the second half of 2009.
Jim Balcom, Chief Executive Officer, commented:
"PolyFuel has made significant progress so far in 2007, already achieving a
number of the milestones that we established for the year, including the
securing of additional design wins."
"Going forward we are firmly focused on supporting our customers along three
paths to commercialisation and we are making good progress on all fronts. We
have refocused our resources internally to ensure our expertise can best be
channeled where it's needed. This has allowed us to reduce overall expenditure
levels and significantly lower our projected cash requirements such that we now
have sufficient cash to finance the business into the second half of 2009, by
which time we believe that our customers test market activities will have led to
commercial business for PolyFuel."
"With our extensive systems engineering capabilities, world leading hydrocarbon
membrane technology and strong industry alliances, PolyFuel is uniquely
positioned to assist portable fuel cell developers to reach commercialisation."
For further information contact:
PolyFuel, Inc Tel: +1 650 429 4646
Jim Balcom, Chief Executive Officer
Mark Campion, Chief Financial Officer
Hogarth Partnership Limited Tel: +44 (0)20 7357 9477
Nick Denton / Sarah MacLeod / Ian Payne
Collins Stewart Europe Limited Tel: +44 (0)20 7523 8350
Seema Paterson / Mark Connelly
CHIEF EXECUTIVE'S REVIEW
Introduction
PolyFuel made significant progress during the first six months of 2007,
achieving a number of the milestones that it had established for the year,
including the securing of additional prototype design wins, the filing of key
fuel cell membrane and system patents, the continued enhancement of its membrane
manufacturing capabilities, and the re-instatement of more than US$2 million in
US government funding to assist in the development of a next generation fuel
cell laptop power supply (the "DOE Program"). At the same time, the Company has
continued to advance its strategy of building technology "bridges" in order to
enable its customers to accelerate their progress toward commercialisation.
Market and Customer Developments
Demand for longer runtime power supplies has continued to increase in 2007 with
the introduction of a growing number of portable products embedded with an ever
expanding array of power-hungry applications. Supporting this fact are numerous
studies conducted by leading consumer electronics companies which consistently
indicate that the number one concern among users of portable devices is limited
battery runtime. In response to this growing need, most of the world's largest
consumer electronics companies, including leading lithium ion battery
manufacturers, have concluded that the portable fuel cell in general and the
Direct Methanol Fuel Cell ("DMFC") in particular, represents the most
technologically viable means of addressing this issue.
PolyFuel, for its part, is focused on supporting its customers in their DMFC
commercialisation efforts in three principal ways:
* Directly, by providing an ever-expanding line of hydrocarbon-based
membrane products;
* Indirectly, through channel partners, such as Johnson Matthey Fuel Cells
Limited ("JMFC"), in order to deliver value-added fuel cell components; and
* Through the provision of engineering support services to enable
customers to optimise the design and performance of their portable fuel cell
systems and components.
PolyFuel refers to these activities as helping customers to build "bridges" to
commercialisation. Evidence of the success that PolyFuel has achieved in terms
of building the first two "bridges" can be seen in the following:
* First, shipments of membrane to direct and indirect customers grew
significantly during the period with quantities in the first half of 2007
running at over twice the level for the whole of 2006. This trend has
continued into the second half of the year, with shipments at the end of
August now at 21/2 times those for the whole of 2006;
* Second, the Company made significant progress in terms of its channel
partner relationships, with JMFC advising PolyFuel that it had passed a
rigorous vendor qualification audit, a key step in the process of
positioning PolyFuel to supply commercial quantities of its hydrocarbon
membranes for incorporation into JMFC's value-added fuel cell products;
* Third, PolyFuel has now secured a total of four prototype design wins in
2007; and
* Fourth, PolyFuel increased its paying customer base to 24 leading
portable fuel cell system developers.
During the period, it became clear that certain portable fuel cell system
developers require additional engineering support to optimise the design and
performance of their portable fuel cell systems and components in order to meet
their commercialisation milestones. To address this need, PolyFuel has focused
additional resources on helping customers build this "third bridge to
commercialisation". As evidence of PolyFuel's capabilities in this area,
PolyFuel recently engineered a DMFC fuel cell stack for a customer that, using
PolyFuel's new 20 micron membrane, achieved a record power density of 500 Watts
per liter at 56 watts peak power at the customer's operating conditions. This
fuel cell stack, which delivers more than twice the average power required for a
typical laptop, is, to the best of the Company's knowledge, the highest power
density portable DMFC stack ever demonstrated.
Technical Developments
PolyFuel continued to expand its intellectual property portfolio in 2007 with
the successful issuance of its second key membrane composition-of-matter patent
during the half year period, and its subsequent filing of two additional fuel
cell membrane patents.
At the same time, in response to growing customer demand for the product, the
Company extended the capability of its continuous roll-to-roll hot bondable
manufacturing process to include its new, thinner 20-micron membrane material.
Financial Review
Revenues for the six months ended 30 June 2007 totaled approximately US$0.6
million, of which US$0.3 million represented revenues earned on a cost
reimbursement basis under the DOE Program. This compares with revenues of
approximately US$0.1 million recognised for the six months ended 30 June 2006,
reflecting an increase of US$0.5 million. No revenues were earned under the DOE
Program in 2006 due to its suspension in January of that year as a result of US
budgetary constraints. The DOE Program was subsequently reinstated in April
2007.
Net losses in the first half of 2007 amounted to approximately US$4.4 million as
compared with net losses of US$4.6 million in 2006. This decrease in net losses
was primarily attributable to the aforementioned increase in revenues, offset in
part by slightly higher operating expenses and a reduction in other income,
primarily interest income, as a result of lower levels of cash available for
investment in 2007.
Cash flow used in operations for the period was approximately US$4.3 million as
compared with US$4.1 million in the corresponding period in 2006. The increase
in capital required to fund operations in 2007 was almost entirely attributable
to balance sheet effects, including increases in accounts receivable
attributable to the DOE Program and decreases in accounts payable and accrued
liabilities. At 30 June 2007, the Company had on hand cash, cash equivalents and
liquid short-term investments of approximately US$17.4 million.
In July 2007, as a result of the Company's progress with building its channel
partner relationships (the "second bridge"), PolyFuel concluded that it could
refocus resources away from pure research and development of catalyst coated
membrane products. At the same time, in response to the need of certain
customers for additional engineering support to optimise the design and
performance of their portable fuel cell systems and components, PolyFuel took
steps to refocus resources into customer engineering support activities.
Re-prioritising capabilities in this way also allowed the Company to reduce its
overall expenditure level and significantly lower its projected cash
requirements. As a result of these measures, the Company believes that it has
sufficient cash to finance the business into the second half of 2009.
Outlook
As PolyFuel enters the second half of 2007 and looks to the future, it perceives
a portable fuel cell market that, while challenging, is also one that holds
significant promise. Market demand for better portable power supplies continues
to grow, while incumbent battery technologies are increasingly challenged to
keep pace with the need for longer runtimes, and to do so in as safe a manner as
possible.
The world's fuel cell system developers clearly understand the need for better
portable power and are keen to introduce the technology, provided the necessary
commercial benchmarks can be met. PolyFuel's ability to demonstrate a 500 watts
per liter DMFC stack is particularly significant in this regard as it provides
strong evidence that long-running fuel cell power supplies of a size and weight
attractive to consumers, and, which can physically integrate with a laptop in
the same fashion as today's Lithium ion batteries, are technically within reach.
PolyFuel believes that with its extensive stack and systems engineering
capabilities, world leading hydrocarbon membrane technology and strong industry
alliances, it is uniquely positioned to assist fuel cell developers to reach
commercialisation.
In the coming months, PolyFuel will continue to focus its resources on extending
its relationships with customers and on providing engineering support for their
system development programmes. The Company looks forward to updating
shareholders with its progress.
Jim Balcom
Chief Executive Officer
25 September 2007
PolyFuel, Inc.
(A development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Period from
27 January
1999
Six Months Ended 30 June (Inception)
------------------------ to
2007 2006 30 June 2007
U.S.$ U.S.$ U.S.$
------------ --------- --------
Revenues 594,876 88,870 2,664,684
Costs and operating expenses
Research and development 2,868,865 2,755,304 32,503,511
General and administrative 2,623,595 2,499,127 27,333,822
--------- --------- --------
Total expenses 5,492,460 5,254,431 59,837,333
--------- --------- --------
Loss from operations (4,897,584) (5,165,561) (57,172,649)
Other income (expense), net 4,563 (13,805) (24,864)
Interest income 520,271 601,494 2,711,390
Interest expense -- (59,706) (1,590,691)
--------- --------- --------
Net loss (4,372,750) (4,637,578) (56,076,814)
========= ========= ========
Net loss attributable to common (4,372,750) (4,637,578) (43,861,701)
stockholders ========= ========= ========
Net loss per share
Basic and diluted (0.08) (0.08)
========= =========
Weighted average number of shares used
in net
loss per share calculations
Basic and diluted 57,321,654 55,065,165
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
PolyFuel, Inc.
(A development stage enterprise)
CONSOLIDATED BALANCE SHEETS (Unaudited)
30 June 31 December
2007 2006
U.S.$ U.S.$
-------- ---------
Assets
Current assets
Cash 12,537,273 15,177,509
Short-term investments 4,912,425 6,654,886
Accounts receivable 151,270 35,434
Inventories 131,249 88,806
Prepaid expenses and other 247,399 357,435
current assets ---------- ----------
Total current assets 17,979,616 22,314,070
Property and equipment, net 394,304 460,405
Other assets 195,300 195,300
---------- ----------
Total assets 18,569,220 22,969,775
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Accounts payable and accrued expenses 843,024 1,162,994
Deferred revenue 107,336 115,475
---------- ----------
Total liabilities 950,360 1,278,469
---------- ----------
Stockholders' equity
Common stock: US$0.001 par value, 100,000,000
shares authorised; 57,365,704 and 57,282,839
shares issued and outstanding at 30 June 2007
and 31 December 2006, respectively 57,366 57,283
Additional paid-in capital 58,919,331 58,616,546
Accumulated other comprehensive income (loss) (1,707) 857
Deficit accumulated during development stage (41,356,130) (36,983,380)
------------ -----------
Total stockholders' equity 17,618,860 21,691,306
---------- ----------
Total liabilities and stockholders' equity 18,569,220 22,969,775
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
PolyFuel, Inc.
(A development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Period from
27 January
1999
Six Months Ended 30 June (Inception)
----------------------- to
2007 2006 30 June 2007
U.S.$ U.S.$ U.S.$
Cash flows from operating activities
Net loss (4,372,750) (4,637,578) (56,076,814)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortisation 114,207 206,518 3,050,938
Purchased research and development -- -- 3,825,984
(Gain) loss on sale of equipment 4,059 -- (112,666)
Stock-based expense - non-employees -- -- 45,887
Stock-based employee compensation expense 294,581 108,851 667,998
Non-cash expense related to notes -- -- 112,118
receivable from stockholders
Non-cash interest expense related to -- -- 1,006,401
issuance of warrants
Non-cash interest expense related to -- -- 34,980
bridge loans
Amortisation of securities premium 8,402 10,922 189,270
Changes in assets and liabilities:
Accounts receivable (115,836) 26,758 (151,270)
Inventories (42,443) -- (131,249)
Prepaid expenses and other current assets 110,036 61,072 (247,399)
Other assets -- (112,701) (195,300)
Deferred revenue (8,139) 100,000 107,336
Accounts payable and accrued expenses (319,970) 118,580 1,066,055
------ ------ ------
Net cash used in operating activities (4,327,853) (4,117,578) (46,807,731)
------ ------ ------
Cash flows from investing activities
Purchase of investments (2,518,505) (6,873,741) (22,053,402)
Proceeds from sales and maturities of 4,250,000 100,000 16,950,000
investments
Proceeds from sale of property and 255 -- 140,980
equipment
Purchase of property and equipment (52,420) (65,429) (3,473,556)
------ ------ ------
Net cash provided by (used in) investing 1,679,330 (6,839,170) (8,435,978)
activities ------ ------ ------
Cash flows from financing activities
Proceeds from issuance of common stock, 8,287 16,764,448 28,279,141
net
Proceeds from issuance of redeemable -- -- 37,097,656
convertible preferred stock, net
Proceeds from lease line and finance -- -- 2,545,612
facility
Repayment of lease line and finance -- (500,733) (2,545,612)
facility obligations
Proceeds from issuance of notes payable -- -- 2,404,185
and bridge loans ------ ------ ------
Net cash provided by financing activities 8,287 16,263,715 67,780,982
------ ------ ------
Net increase (decrease) in cash and cash (2,640,236) 5,306,967 12,537,273
equivalents
Cash and cash equivalents at beginning of 15,177,509 13,378,449 --
period ------ ------ ------
Cash and cash equivalents at end of 12,537,273 18,685,416 12,537,273
period ========= ========= =========
Period from
27 January
1999
Six Months Ended 30 June (Inception)
----------------------- to
2007 2006 30 June
2007
U.S.$ U.S.$ U.S.$
Supplemental disclosure of non-cash
investing and financing activities
Issuance of common and redeemable -- -- 4,153,200
convertible preferred stock for in-process
research and development and notes payable
Issuance of warrants with credit line, -- -- 1,006,401
lease line, finance facilities and bridge loans
Repurchase of common stock for notes -- -- 62,631
receivable
Cancellation of notes receivable -- -- 78,907
Conversion of redeemable convertible -- -- 43,380,636
preferred stock upon recapitalisation
Issuance of common stock option in -- -- 242,568
connection with AIM listing
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - Organisation, Basis of Presentation and Significant Accounting Policies
Organisation
PolyFuel, Inc. (the "Company"), was incorporated in Delaware on 27 January 1999.
The Company, a spin-off of SRI International, Inc., was established primarily
for the purpose of developing micro fuel cell technology. Since inception, the
Company has been deemed to be in the development stage as it has devoted
substantially all of its efforts to developing its product, raising capital and
recruiting personnel. The Company is headquartered in Mountain View, California
and is publicly listed on the AIM market of the London Stock Exchange ("AIM").
Principles of Consolidation
The accompanying financial statements have been prepared on a consolidated basis
and, accordingly, reflect the financial position and results of operations of
both PolyFuel, Inc. and its wholly owned Canadian subsidiary, PolyFuel, Ltd. All
intercompany account balances have been eliminated in consolidation.
Basis of Presentation and Continuance of Operations
The accompanying unaudited, Consolidated Financial Statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. The results for the six
month period ended 30 June 2007 are not necessarily indicative of the results
that may be expected for the year ending 31 December 2007, or for any future
period. These unaudited, Consolidated Financial Statements and notes thereto
should be read in conjunction with the audited Consolidated Financial Statements
included in the Company's Annual Report for the year ended 31 December 2006, a
copy of which can be found in its entirety on the Company's website.
These unaudited, 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. Notwithstanding
this fact, the Company has incurred losses and negative cash flow from
operations for every fiscal period since its inception. For the six months ended
30 June 2007, the Company incurred a net loss of approximately US$4.4 million
and negative cash flows from operations of US$4.3 million. In the event the
Company is not successful in generating profits and positive cash flow from
operations in future periods, it will be dependent upon additional financing to
support its continuing operations. While the Company has been successful in
completing numerous rounds of public and private equity financing, totaling
approximately US$67.8 million (net of issuance costs) through June 2007, no
assurances can be given that additional financing will be available, in which
case, the Company's ability to achieve its business objectives will be adversely
affected. The accompanying Consolidated Financial Statements do not include any
adjustments that might result from such adverse outcomes.
Significant Accounting Policies
The Company's significant accounting policies are disclosed in its Annual Report
for the year ended 31 December 2006 and have not changed materially as of 30
June 2007.
Recent Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 provides guidance for using fair value to measure
assets and liabilities. It also responds to investors' requests for expanded
information about the extent to which companies' measure assets and liabilities
at fair value, the information used to measure fair value, and the effect of
fair value measurements on earnings. SFAS No. 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair
value, and does not expand the use of fair value in any new circumstances.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and will therefore be required to be adopted
by the Company effective 1 January 2008. The Company does not believe that the
adoption of SFAS No. 157 will have a material impact upon either its
consolidated results of operations or its financial condition.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159
permits companies to choose to measure certain financial instruments and certain
other items at fair value. The standard requires that unrealised gains and
losses on items for which the fair value option has been elected, be reported in
earnings. SFAS No. 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and will therefore be required to be
adopted by the Company effective 1 January 2008. The Company does not believe
that the adoption of SFAS No. 159 will have a material impact upon either its
consolidated results of operations or its financial condition.
NOTE 2 - Stock-Based Compensation
Effective 1 January 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123 (revised
2004), "Share-Based Payment" ("SFAS 123R"), using the modified prospective
transition method. Accordingly, stock-based compensation cost is measured at
grant date, based upon the fair value of the award, and is generally recognised
as expense on a straight line basis over the requisite employee service period.
Stock-based compensation expense recognised under SFAS No. 123R for the six
months ended 30 June 2007 and 2006 was as follows:
Six Months Ended 30 June
------------------------
2007 2006
U.S.$ U.S.$
------- -------
Research and development 99,028 33,445
General and administrative 195,553 75,406
Total 294,581 108,851
Amounts include (i) amortisation related to the compensation cost for all post
AIM listing share-based payments granted prior to, but not yet vested as of 1
January 2006, based on the grant date fair value estimated in accordance with
the pro forma provisions of Statement 123, and (ii) compensation expense
pertaining to the share-based payment awards granted subsequent to 1 January
2006, based on the grant-date fair value estimated in accordance with SFAS No.
123R.
The weighted average estimated fair value per share of employee stock options
granted during the six months ended 30 June 2007 and 2006 was determined to be
US$0.56 and US$0.85, respectively, using the Black Scholes Option Pricing Model
with the following underlying assumptions:
Six Months Ended 30 June
------------------------
2007 2006
------ ------
Expected volatility 70% 70%
Weighted average risk-free interest rate 4.85% 5.74%
Expected dividend yield 0% 0%
Weighted average expected life (in years) 6.25 6.61
The Company has estimated its expected stock price volatility based on
historical volatility calculations for a group of peer comparable companies. The
weighted average risk free interest rate reflects the rates of U.S. government
securities appropriate for the term of the Company's stock options at the time
of grant. The weighted average expected life of options granted is based on the
simplified calculation of expected life, described in the U.S. Securities and
Exchange Commission's Staff Accounting Bulletin 107. Accordingly, the
weighted-average estimated life assumption of 6.25 years is based on the average
of the vesting term and the 10 year contractual lives of all options awarded
after 1 January 2006.
Stock-based compensation expense recognised in the unaudited Consolidated
Statement of Operations for the six months ended 30 June 2007 and 2006 is based
on awards ultimately expected to vest; therefore, such amounts have been reduced
to reflect estimated forfeitures. SFAS No. 123R requires forfeitures to be
estimated at the time of initial grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. The Company estimates
forfeitures based on its historical activity, as it believes that these
forfeiture rates are indicative of its expected forfeiture rate.
As of 30 June 2007, the Company had unrecorded deferred stock-based compensation
expense related to stock options of approximately US$1.05 million after
estimated forfeitures, which will be recognised over an estimated
weighted-average remaining requisite service period of 3.10 years. During the
six months ended 30 June 2007 and 2006, the Company granted 25,950 and 1,053,000
options with an estimated total fair market value at grant date of approximately
US$0.01 million and US$0.8 million, respectively, after estimated forfeitures.
The Company accounts for equity instruments issued to non-employees in
accordance with SFAS No. 123, Emerging Issues Task Force Issue No. 96-18,
Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling Goods or Services and Financial
Accounting Standards Board Interpretation No. 28, Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans. Accordingly,
as these equity instruments vest, the Company will be required to remeasure the
fair value of the equity instrument at each reporting period prior to vesting
and finally at the vesting date of the equity instruments. Stock-based
compensation expense recognised with respect to equity instruments issued to
non-employees for the six months ended 30 June 2007 and 2006 and for the period
from 27 January 1999 (inception) to 30 June 2006 was nil, nil and US$45,887,
respectively.
NOTE 3 - Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. Diluted net loss per
share is computed by giving effect to all potentially dilutive common stock
equivalents, including stock options and warrants. For the six months ended 30
June 2007 and 2006, the following potentially dilutive common stock equivalents
were excluded from the computation of diluted net loss per share as the effect
would be antidilutive:
Six Months Ended 30 June
------------------------
2007 2006
------- -------
Stock options 7,788,520 * 7,194,217 *
Warrants 502,978 8,348,494
------- -------
* Includes an option to purchase 444,616 shares of the Company's common stock
which was granted to Collins Stewart Limited, the Company's nominated advisor in
connection with the Company's listing on AIM.
The following table sets forth the computation of basic and diluted net loss per
share:
Six Months Ended 30 June
------------------------
2007 2006
U.S.$ U.S.$
Numerator
Net loss attributable to common (4,372,750) (4,637,578)
stockholders ========== ==========
Denominator
Weighted average common shares outstanding 57,321,654 55,065,165
========== ==========
Net loss per share
Basic and diluted (0.08) (0.08)
========== ==========
NOTE 4 - Stockholders' Equity
Stock Option Plan
In October 2000, the Company's Board of Directors adopted the 2000 Equity
Incentive Plan (the "Plan"), which provides for the issuance of incentive stock
options to employees and nonqualified stock options to employees, directors and
service providers of the Company. Under the terms of the Plan, the Board of
Directors is authorised to determine to whom options will be granted, the number
of shares underlying such grants, the term and the exercise price (which cannot
be less than the estimated fair market value at the date of grant for incentive
stock options or 85% of the estimated fair market value for nonqualified stock
options). The options are exercisable at times and in increments as specified by
the Board of Directors, and generally expire ten years from the date of grant.
Activity under the Plan for the six months ended 30 June 2007 was as follows:
Options Outstanding
----------
Weighted
Shares Number of average
available exercise
for grant shares price
(U.S.$)
Balances, 1 January 2007 2,744,116 7,402,900 0.57
Options granted (25,950) 25,950 0.83
Options exercised -- (82,865) 0.10
Options cancelled 2,081 (2,081) 0.10
---- ----- -----
Balances, 30 June 2007 2,720,247 7,343,904 0.57
======= ======== ========
Options outstanding and exercisable at 30 June 2007 by exercise price range are
as follows:
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------------------
Weighted
average Weighted Weighted
remaining average Aggregate average Aggregate
Exercise contractual exercise intrinsic exercise Intrinsic
price Number life price value Number price Value
U.S.$ outstanding (in years) U.S.$ U.S.$ exercisable U.S.$ U.S.$
------- ------- ------- ------- ------- -------- -------
22.50 598 3.53 22.50 -- 598 22.50 --
4.50 64,851 5.76 4.50 -- 64,804 4.50 --
0.76 3,575,650 8.82 0.99 -- 3,073,571 0.98 --
-
1.77
0.10 3,702,805 7.03 0.10 2,369,795 3,581,607 0.10 2,292,228
------- ------- ------- ------- ------- -------- -------
7,343,904 7.89 0.57 2,369,795 6,720,580 0.55 2,292,228
======= ======= ======= ======== ======= ======== =======
The aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value, based on options with an exercise price less than the Company's
closing stock price of UK37p per share (US$0.74 at the then effective exchange
rate) as of 30 June 2007, which would have been received by the option holders
had those option holders exercised their options as of that date. The total
number of in-the-money options exercisable as of 30 June 2007 was 3,581,607. As
of 31 December 2006, there were 6,573,415 outstanding options exercisable, and
the weighted average exercise price was US$0.54 per share.
The aggregate intrinsic value of options exercised during the six months ended
30 June 2007 was approximately US$53,034. The total cash received from employees
as a result of employee stock option exercises during this period was
approximately US$8,287.
Authorised Share Capital
In June 2006, the Company's stockholders approved an increase in the authorised
share capital of the Company from US$70,000 to US$100,000 by authorizing an
additional 30,000,000 shares of Common Stock, each with a par value of US$0.001.
This increase brings the total authorised shares of the Company to 100,000,000
from 70,000,000.
Comprehensive Loss
Comprehensive loss consists of net loss and other comprehensive loss, which
includes certain changes in equity that is excluded from net loss. Specifically,
unrealised losses on investments are included in accumulated other comprehensive
loss in the stockholder's equity section of the accompanying Consolidated
Financial Statements. Comprehensive loss for the periods presented consisted of
the following:
SixMonthsEnded30June
-----------------------
2007 2006
U.S.$ U.S.$
------- -------
Net loss (4,372,750) (4,637,578)
Unrealised loss on investments (2,564) (24,324)
------- -------
(4,375,314) (4,661,902)
======= =======
As of 30 June 2007 and 31 December 2006, accumulated other comprehensive income
(loss) represented unrealised losses on investments of US$1,707 and unrealised
gains on investments of US$857, respectively.
NOTE 5 - Income Taxes
Effective 1 January 2007, the Company adopted the provisions of FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN No. 48"). FIN No. 48 clarifies
the accounting for uncertainty in income taxes by prescribing the recognition
threshold a tax position is required to meet before being recognised in the
financial statements. It also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. To date, the Company has recognised net operating
losses for tax purposes in each year since inception. In addition to the
resulting net operating loss carryforwards, the Company has also generated
federal and state research and development credit carryforwards. Utilisation of
the aforementioned net operating loss carryforwards may be subject to annual
limitation due to ownership percentage change limitations imposed by the
Internal Revenue Code of 1986, as amended, and similar state provisions. These
limitations may result in the expiration of the carryforwards before
utilisation. Taking into consideration these potential limitations and other
factors, the Company has adopted the position it is more likely than not that
the deferred tax assets, which these carryforwards represent, will not be
utilised, such that a full valuation allowance has been recorded. Given this
fact, adoption of FIN No. 48 did not have an impact upon the Company's financial
results.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Executive Summary
Company Description
PolyFuel is a development stage, advanced materials science company specialising
in the design, development and manufacture of hydrocarbon based fuel cell
membranes for portable power applications. The Company's products are currently
being purchased and evaluated by many of the world's leading developers of
portable fuel cell power systems who are considering their performance
characteristics in the context of commercial product launches planned for the
2008/2009 timeframe.
In addition to PolyFuel's primary focus in the area of portable power, the
Company has also developed a version of its hydrocarbon membrane which has been
engineered for automotive applications.
The Company's corporate headquarters are located in Mountain View, California
where it conducts its membrane research and development, manufacturing, business
development and administrative functions. The Company also has a facility in
Burnaby, British Columbia focused on advanced research in portable fuel cell
system technology.
Mission, Vision and Strategy
PolyFuel's mission is to become the world's leading supplier of fuel cell
membranes for portable electronic and automotive applications. The Company's
vision and strategy for achieving this goal incorporates the following key
elements:
- Establish and maintain market leadership through the continuing
innovation of world leading fuel cell membrane products;
- Focus sales and marketing efforts on the leading developers of fuel cell
systems in the portable sector;
- Establish strong channel relationships with key "value added resellers"
of fuel cell components;
- Support our customers through the provision of engineering support
services to enable them to optimise the design and performance of their
portable fuel cell systems and components;
- Secure the protection of our technology through rigorous attention to
the filing of intellectual property patents and the safeguarding of trade
secrets; and
- Control and optimise the deployment of capital resources.
Business, Products and Markets
As an emerging developer of hydrocarbon-based membranes for fuel cell
applications, PolyFuel's primary focus is on the world's portable power markets,
where advances in application technology (i.e. wireless networks, portable
gaming, music, television, global positioning, etc.) are stimulating an ever
growing demand for energy that is rapidly exceeding the ability of existing
battery technologies to meet it. The Company refers to this growing divergence
as the "runtime gap".
Most of the major consumer electronics companies are turning to portable fuel
cells and replaceable methanol fuel cartridges as the solution to this runtime
gap. These same manufacturers, however, have been frustrated by the lack of a
suitable fuel cell that meets the cost, size, and power requirements that
consumers demand.
PolyFuel's membrane technology has been custom engineered to enable these
consumer electronics manufacturers to make portable fuel cells a realistic
alternative for the market. The membrane is, in essence, the "heart" of the fuel
cell; that is, it dictates the cost, size, weight, power and runtime of a
portable fuel cell. PolyFuel has engineered a family of fuel cell membrane
products specifically for portable direct methanol fuel cells ("DMFC"s) that has
captured the attention of virtually every leading consumer electronics
manufacturer and portable fuel cell system developer in the world. The PolyFuel
DMFC membrane has been selected by many of these companies for use in their
portable fuel cell research and development programmes, and is on test at most
of the others.
PolyFuel's DMFC membrane products are essentially the "next generation" in fuel
cell membrane technology. Engineered using advanced "hydrocarbon chemistry",
these products have inherently better mechanical properties, higher fuel
efficiency, are more robust, and are more environmentally friendly than the
existing commercial products. During 2006, the Company announced the
introduction of an ultra-thin 20-micron version of its DMFC membrane and began
shipping this product to lead customers. This product delivers greater than 40%
more power than any fuel cell membrane previously available. With its membrane
technology, the Company believes fuel cell system developers will finally be
able to design portable fuel cells that are small enough, light enough,
inexpensive enough, and durable enough to deliver long runtime solutions to
their portable device customers.
In addition to marketing and distributing its products directly to fuel cell
system customers, it is also the Company's plan to establish a number of
non-exclusive, sales channel cooperation agreements with leading fuel cell
component suppliers. These companies will purchase PolyFuel's DMFC membrane
products for incorporation into higher level fuel cell sub-assemblies, which
will then be sold on to various fuel cell system developers. In April 2006, the
Company entered into the first such agreement with Johnson Matthey Fuel Cells
Limited, the fuel cell subsidiary of Johnson Matthey Plc, one of the world's
leading specialist chemicals companies.
In addition to its work in DMFC, PolyFuel has also done research in the area of
hydrogen fuel cell membranes for automotive applications. Initial indications
have been encouraging and the Company has supplied its material to a number of
the world's leading automotive manufacturers for testing and evaluation. At the
present time, the Company is actively seeking discrete sources of funding in
order to accelerate its development activities in this area.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon PolyFuel's unaudited Consolidated Financial Statements,
which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. Management bases its estimates on historical
experience and on various other assumptions that it believes to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under alternative assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, if different estimates reasonably could have
been used, or if changes in the estimate that are reasonably likely to occur
could materially impact the financial statements. Management believes that there
have been no significant changes during the six months ended 30 June 2007 to the
items that were disclosed as critical accounting policies and estimates in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in PolyFuel's Annual Report for the year ended 31 December 2006.
Recent Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for a full description of
recent accounting pronouncements, including the expected dates of adoption and
estimated effects on results of operations and financial condition, which is
incorporated herein by reference.
Results of Operations
The following table sets forth for the periods indicated, the Company's results
of operations:
Six Months Ended 30 June
------------------------
2007 2006
U.S.$ U.S.$
------- ------
Revenues 594,876 88,870
------- ------
Costs and operating expenses
Research and development 2,868,865 2,755,304
General and administrative 2,623,595 2,499,127
------ ------
Total expenses 5,492,460 5,254,431
------ ------
Loss from operations (4,897,584) (5,165,561)
Other income (expense), net 4,563 (13,805)
Interest income 520,271 601,494
Interest expense -- (59,706)
------ ------
Net loss (4,372,750) (4,637,578)
======== =======
Revenues
Total revenues for the six months ended 30 June 2007 were US$0.6 million as
compared to US$0.1 million for the same period in 2006, an increase of US$0.5
million. This increase was attributable to (i) a US$0.1 million increase in the
amount of membrane and membrane-related products sold in 2007, (ii) a US$0.1
million increase in the amount fuel cell system engineering services provided in
2007 and (iii) US$0.3 million of revenue earned in 2007 on a cost reimbursement
basis in connection with a three year, US$3 million research and development
contract awarded the Company by the U.S. Department of Energy ("DOE") to develop
a fuel cell power supply for a next generation laptop computer (the "DOE
Program"). The contract, which was originally awarded in August 2004, was
suspended in January 2006 as a result of governmental budgetary constraints and
subsequently reinstated in April 2007.
Research and Development
Research and development expenses consist of costs associated with product
research, product development, non-recurring engineering projects and government
programs. Research and development costs were US$2.9 million for the six months
ended 30 June 2007 as compared to US$2.8 million for the same period in 2006, an
increase of US$0.1 million or approximately 4%. This increase was primarily the
result of increased personnel costs attributable to headcount additions to
support the DOE Program, offset in part by a reduction in the level of outside
services costs.
General and Administrative
General and administrative expenses consist of costs incurred in connection with
sales and marketing, business development, and finance and administrative
activities; including personnel costs, consulting and professional service fees,
facilities and other general corporate expenses. General and administrative
expenses were US$2.6 million for the six months ended 30 June 2007 as compared
to US$2.5 million for the same period in 2006, an increase of US$0.1 million or
approximately 5%. This increase was primarily the result of greater personnel
costs attributable to headcount additions to support increased business
development activities (US$0.3 million), offset in part by a reduction in
professional fees and other outside services costs (US$0.2 million).
Interest Income
Interest income for the six months ended 30 June 2007 was US$0.5 million as
compared to US$0.6 million for the same period in 2006, a decrease of US$0.1
million or approximately14%. This decrease resulted from less cash available for
investment in 2007, offset, in part, by the impact of increasing interest rates.
Interest Expense
Interest expense for the six months ended 30 June 2007 was nil due to the
extinguishment of all outstanding indebtedness in the first quarter of 2006.
Liquidity and Capital Resources
Since its inception and through 30 June 2007, the Company has financed its
operations primarily with proceeds from the sale of private and public equity
totaling approximately US$67.8 million (net of issuance costs). In July 2005,
the Company completed an initial public offering of common stock on the AIM
Market of the London Stock Exchange, placing 15,686,276 new shares of common
stock (each share issued together with 1/2 Series A warrant to purchase an
additional share of common stock at UK60p per share within 18 months following
the placement) at a per share price of UK51p, raising a total of #8 million
(US$14 million at the then effective exchange rate and before transaction costs
of approximately US$2.5 million).
In January 2006, the Company placed an additional 12,500,000 new shares of
common stock in a follow-on offering at a per share price of UK80p, raising a
total of #10 million (US$17.5 million after conversion at the then effective
exchange rate and before transaction costs of approximately US$0.75 million).
As of 30 June 2007, the Company had US$12.5 million of cash and cash
equivalents, and short-term investments of US$4.9 million available to fund
future operations.
The following table sets out the Company's sources and uses of cash for the
periods presented:
Six Months Ended 30 June
------------------------
2007 2006
U.S.$ U.S.$
Cash used in operating activities (4,327,853) (4,117,578)
Cash provided by (used in) investing 1,679,330 (6,839,170)
activities
Cash provided by financing activities 8,287 16,263,715
----- -----
Net increase (decrease) in cash and cash (2,640,236) 5,306,967
equivalents ======== ========
Cash Used in Operations
Net cash used in operations increased by approximately US$0.2 million for the
six months ended 30 June 2007 as compared with the corresponding period in 2006.
This increase was attributable primarily to year-over-year decreases in accounts
payable and deferred revenue of US$0.5 million, together with increases in
accounts receivable of US$0.1 million. The effect of such increases was
partially offset by a decrease in net loss from operations (adjusted for
non-cash charges related to depreciation and amortisation and stock-based
compensation) of US$0.4 million, and a year-over-year decrease in the change in
other assets of US$0.1 million.
Cash Provided by (Used in) Investing Activities
Net cash provided by (used in) investing activities increased by approximately
US$8.5 million for the six months ended 30 June 2007 as compared to the
corresponding period in 2006 due primarily to a decrease in the net purchase of
investments.
Cash Provided by Financing Activities
Net cash provided by financing activities decreased by approximately US$16.3
million for the six months ended 30 June 2007 as compared to the corresponding
period in 2006 due primarily to the Company's sale in January 2006 of 12.5
million new shares of common stock at a per share price of UK80p raising a total
of #10 million (approximately US$17.5 million after conversion at the then
effective exchange rate and before transaction costs of approximately US$0.75
million). This decrease was partially offset by reductions in the repayment of
lease line and finance facility obligations of US$0.5 million.
Contractual Cash Obligations
At 30 June 2007, the Company had total contractual cash obligations under all of
its non-cancelable operating leases of US$0.25 million, and US$0.5 million for
the years ended 31 December 2007 and 2008, respectively.
Summary
Management believes that the Company's cash, cash equivalents and short-term
investments at 30 June 2007 will be sufficient to meet its anticipated cash
requirements for operating and working capital purposes for at least the next 12
months. At the same time, it should be noted that the Company has incurred
losses and generated negative cash flow from operations for every fiscal period
since its inception. In the event the Company is not successful in generating
profits and positive cash flow from operations in future periods, it will be
dependent upon additional financing to support its continuing operations. While
the Company has been successful in completing numerous rounds of public and
private equity financing, totaling approximately US$67.8 million (net of
issuance costs) through June 2007, no assurances can be given that additional
financing will be available, in which case, the Company's ability to achieve its
business objectives will be adversely affected.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR PUUAWBUPMGWC
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