Energy Research Reports Q3 Results
2 September 1998
Energy Research Reports Third Quarter Results; Loss Caused by One Time Factors
DANBURY, Conn.--Sept. 1, 1998--Energy Research Corporation (AMEX: ERC) today reported a net loss for the three months ending July 31, 1998 of $349,000 on revenues of $5,537,000 compared to a net income of $195,000 on revenues of $6,448,000 in the same period a year ago.
Basic earnings per share were ($0.08) compared to a profit of $0.05 last year.
Net income for the nine month period was $6,000 on revenues of $16,056,000 versus $346,000 on revenues of $18,203,000 for the same period a year ago. Earnings per share were nil for the current nine month period, versus basic and diluted earnings per share of $0.09 and $0.08, respectively, for the same period last year.
Earnings were negatively affected by costs associated with two expense items related to the ramping up for the commercialization of the battery business, without which ERC would have been profitable in the quarter. During the quarter ERC incurred expenses in negotiating several significant agreements with parties in China: licensing ERC's nickel-zinc battery technology for electric bicycles and other applications, forming a joint venture to manufacture and sell batteries, and forming a joint venture to develop various other electrochemistry based products.
Since ERC invested in the manufacturing joint venture an amount similar to the fee it received for the license, the fee received will not be counted as income and is therefore not available to offset these expenses. Instead, valued at a nominal sum, is an asset representing a 51% ownership in a joint venture with $3,100,000 in cash and the nickel-zinc license mentioned above. The joint venture may in the future grant sublicenses to other battery companies in China.
Also in the quarter, ERC was involved in extensive negotiations to acquire a privately held battery company to provide production facilities to manufacture its nickel-zinc batteries. After substantial due diligence costs were incurred, issues arose that caused ERC to decide not to proceed with the transaction. Accordingly, all related costs were expensed in the quarter.
"This was actually a superb quarter in terms of our commercialization goals," said Jerry D. Leitman, CEO of ERC. "In fuel cells there were both technical and business accomplishments. Our full height stack demonstration went perfectly, and we are now preparing for an autumn demonstration of our final commercial design stack. We will actually power our Danbury facility with it. We renewed the memorandum of understanding with Fluor Daniel, Inc., to work together to develop markets for our products. We signed a cross license agreement with MTU, an affiliate of Daimler Benz, to enhance the marketing of each other's fuel cell products, all of which make use of our stacks.
"In the quarter, our Battery Group also made rapid progress towards commercialization of its product. Since the acquisition of the battery company did not go through, we are in the process of setting up a production facility to manufacture nickel-zinc batteries in the US. We expect to be in production in Connecticut in a leased facility in early calendar 1999. This facility is intended to produce batteries to distribute to potential partners to meet their testing needs, as well as provide products for niche markets that we can serve with minimal investment in marketing and distribution infrastructure. In China, we are aiming for mass production, given the size of the market needs and the low cost production environment. We believe the production line of our new joint venture will be in operation by mid-calendar 1999. In addition, a number of potential licensees and production partners worldwide have expressed an interest in the technology and the company expects to enter into additional agreements over the next year.
"ERC delivered nickel-zinc batteries in August to our electric and hybrid electric vehicle licensee - a partnership between Formosa Plastics of Taiwan and the Xiamen Three Circles Co., Ltd. in the People's Republic of China. The length of the cycle test program is expected to allow recognition of the $1,300,000 license fee in the first calendar quarter of 1999."
Energy Research Corporation, located in Danbury and Torrington, Connecticut, is an internationally recognized leader in the field of electrochemical technology for electric power generation and storage. ERC is developing its Direct Fuel Cells and batteries through funding from and in cooperation with government, electric utility and major international industrial organizations.
This press release contains forward-looking statements regarding the commercialization and demonstration of its fuel cells and nickel-zinc batteries and the development, production and marketing of fuel cells and nickel-zinc batteries. The successful implementation of the production, development and commercialization efforts of the Company's fuel cells and nickel-zinc rechargeable batteries, including the licensing of ERC's technology, involve significant risks and uncertainties. There can be no assurance that the licensing, production or development of ERC's fuel cells and nickel-zinc rechargeable batteries, will be successful. The forward-looking statements in this press release speak only as of this date. ERC expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in ERC's expectation with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
RESULTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
THREE MONTHS ENDED JULY 31,
1998 1997
Revenues $ 5,537 $ 6,448
Net income before income
taxes $ (512) $ 285
Net income (loss) $ (349) $ 195
Earnings per share:
Basic earnings per share $ (.08) $ .05
Basic shares outstanding 4,116,318 3,976,610
Diluted earnings per share N/A $ .05
Diluted shares outstanding 4,302,487 4,158,878
NINE MONTHS ENDED JULY 31,
1998 1997
Revenues $ 16,056 $ 18,203
Net income before income
taxes $ 1 $ 562
Net income (loss) $ 6 $ 346
Earnings per share:
Basic earnings per share $ 0 $ .09
Basic shares outstanding 4,065,357 3,941,176
Diluted earnings per share $ 0 $ .08
Diluted shares outstanding 4,227,457 4,179,869
BALANCE SHEET
(In thousands)
ASSETS
July 31, October 31,
1998 1997
Current assets $16,661 $10,161
Property, plant & equipment,
net 8,190 8,254
Other assets 2,717 3,018
Total assets $27,568 $21,433
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, October 31,
1998 1997
Current liabilities $ 6,189 $ 3,795
Long-term debt 2,111 2,699
Other long-term liabilities 219 170
Minority interest 3,220 -
Shareholders' equity 15,829 14,769
Total liabilities and
Shareholders' equity $27,568 $21,433