(PFLM) PowerFilm

PowerFilm, Inc.

PowerFilm Reports 2011 First Half Results

07 September 2011, LONDON, UK and AMES, IOWA - PowerFilm, Inc. (AIM: PFLM), ("PowerFilm" or "the Company"), the developer and manufacturer of thin flexible solar panels and developer of roll to roll flexible electronics, today announces its preliminary results for the six months ended 30 June 2011.

Financial Highlights

·      Revenue of $4.5 million for the first half 2011 (first half 2010: $4.5 million);

·      Gross Margin of 14.3% for the first half 2011 (first half 2010: 6.0%);

·      Net Loss of $ 0.35 million for the first half 2011 (first half 2010: net loss of $0.46 million);

·      $15.7 million of cash and cash equivalents, restricted cash, restricted investment securities, and cash held for property and equipment construction (2010: $16.2 million).  The cash held for property and equipment construction is a separate internal account only and is not contractually committed for the purchase of property and equipment. 

Operational Highlights

·      Large volume orders of a custom product from an OEM customer and foldable solar charger sales led the sales momentum for the first half of 2011.  The higher production volumes resulted in higher gross margins.

·      Military sales remain steady and product demonstrations to U.S. military and NATO personnel are ongoing.

·      Commercial collaborations and third-party testing for architectural/building integrated products continue as planned.  As was previously announced, PowerFilm has been awarded a $220,000 grant from the Iowa Power Fund for commercializing its building integrated products.

·      Phicot, the Company's majority owned subsidiary, has made live demonstrations of its working prototypes of flexible displays using its roll to roll manufactured backplane drivers.

For further information, please contact:

PowerFilm, Inc.                                                                  +1 (515) 292 7606 x 102 

Frank Jeffrey, CEO 

Mike Coon, VP, Building Integrated,

Business Development, and External Relations  

Nomura Code Securities Limited, Nominated Advisor            +44 (0) 20 7776 1200 

Juliet Thompson, Giles Balleny  

A copy of this announcement will be available on the PowerFilm website at http://www.powerfilmsolar.com.  The common shares of PowerFilm, Inc. are traded on the AIM Market of the London Stock Exchange and are not registered under the US Securities Act 1933, as amended.  Such shares may not be offered or sold to residents of the United States or to persons acting on their behalf, or to other persons who are "United States Persons" within the meaning of Regulation S as promulgated under the Securities Act of 1933, unless such shares have been registered under the Securities Act or there is an available exemption from registration.

Financial Review

For the first half year ended 30 June 2011 PowerFilm achieved $4,463,464 in revenue.  The Company's gross profit for the period was $637,525, resulting in a 14.3% gross margin.  There was a net loss of $354,877 for the first half year 2011.

The following is a comparison of the financial results for the 6 months ended 30 June 2011 compared to the first half of 2010:  In the first half of 2011 revenues were $4,463,464 versus $4,481,956 in the first half of 2010, a 0.4% decrease.  Net loss for the first half of 2011 was $354,877 versus a net loss of $456,170 in the first half of 2010, a 22.3% improvement.  Pre-tax loss improved 18% from $756,344 for the first half of 2010 to $619,580 for the first half of 2011. Gross margin improved from 6.0% at half year 2010 to 14.3% at half year 2011.  The improvement correlates to higher efficiency of material processing in the current year compared to the same time period last year.

Revenues and profitability increased in the mid to latter part of the first half of 2011.  At the beginning of 2011, sales purchase orders were slim, however the sales momentum started picking up and the Company was able to achieve some of its highest monthly revenues by the latter part of the first half of 2011.  The Company has the benefit of an increasingly diverse sales base which mitigates risk of any one market adversely impacting the Company's revenues. 

The Company continues to have a significant development contract in place with the Army Research Laboratory; however three development contracts were completed in 2010 and January 2011 decreasing the amount of monthly contract revenue.  Internally funded research and development expenses were $3,367 for first half 2011 compared to $5,044 for the first half of 2010. 

Sales, general, and administrative expenses were $1,214,353 for the six months ended 30 June 2011 versus $977,418 for the first half of 2010.  The increase is largely due to increased number of sales personnel and military and operational consultants, in addition to higher property taxes and utility expenses.  Personnel were added to increase our sales and marketing focus on targeted markets.  The increase in operational consultants was implemented with the goal of preventing roadblocks once higher sales volumes are reached.

PowerFilm's balance sheet continues to have a strong position at 30 June 2011, which includes cash and cash equivalents of $2,176,516, $5,000,000 of U.S. government agency backed callable bonds, $1,000,000 of restricted cash and $7,500,000 of cash held for property and equipment construction.  The aggregation of these accounts total $15,676,516.

The $7,500,000 of funds designated as cash held for property and equipment construction are not committed to any specific purchases.  The designation indicates an estimated amount that was originally set aside to be used for construction of equipment, however the funds are unrestricted and uncommitted. 

The $1,000,000 of restricted cash and the $5,000,000 of U.S. government agency backed callable bonds are contractually required to be maintained as a compensating balance at the bank that issued the letter of credit on the industrial revenue bonds.

Cash outflow in the first half 2011 was high due primarily to increased expenditures on capitalized equipment (nearly $600,000) and increased inventory levels (over $770,000 compared to year end 2010) in preparation of higher sales volumes.

The financial statements of PowerFilm are prepared on the basis of US Generally Accepted Accounting Principles (US GAAP).

Operational Review

PowerFilm,Inc. is a leading developer and manufacturer of thin, flexible solar panels and, through its majority-owned subsidiary Phicot, is a developer of roll to roll flexible electronics.

The Company's core strategy is product differentiation combined with competitive cost manufacturing.  This strategy differs from that of rigid panel manufacturers who often are dealing only with generic commodity products which are easily substituted and compete only on price.

Below is a summary of the core strategies which provide the context in which the Company's operational decisions are made. 

Core Strategies

The core strategies of PowerFilm include the following:

-Maintain, and improve a competitive technical competitive advantage in the market.  For PowerFilm, that begins with its proprietary manufacturing process.

-Product differentiation is a core strategy.  PowerFilm customizes products and seeks to offer total solutions that meet customer needs better than its competitors.

-Form strategic relationships for market access, penetration, and a continued presence.

-Maintaining a strong balance sheet with limited long-term debt for land and building, as well as maintain a strong cash position. 

-Seek diversified revenue streams from select target markets.

-Use the core thin film manufacturing and device know-how in roll to roll flexible electronics.

PowerFilm's foundation is built upon its proprietary manufacturing process that enables the production of differentiated, low-cost products at scale.  The Company's manufacturing technology platform has four primary components:  roll-to-roll manufacturing, amorphous silicon, a printed interconnect, and the use of a flexible plastic substrate.  The products are manufactured with proprietary equipment that is custom-engineered and fabricated in-house at a lower cost than externally available equipment.   

Technology Platform Advantages

-Roll to Roll Manufacturing

Lower cost than batch manufacturing

-Amorphous Silicon

After evaluation, the Company selected amorphous silicon over CIGS technology since amorphous silicon does not have the potential supply limitations of Indium in CIGS, and on the basis that amorphous silicon is easier for manufacturing, and products using it can be used right out of the box (CIGS products require set-aside time for light soaking).  This last point is especially important for the military market.

-Printed Interconnect

This process is lower cost and more durable than other cell connection methods.  It also enables thinner and lighter weight encapsulation materials.

-Flexible Plastic Substrate

The polyimide flexible plastic substrate is lighter weight than current alternatives, as well as being generally more durable than glass.  The use of plastic also eliminates the potential hazard of glass shards from glass solar panels. 

Multiple Modes of Product Differentiation

Products are customized to meet the specific needs of relatively high-volume customers in select target markets.  Customization is achieved in several ways.  The core solar panel can be customized through printing and laser equipment software program modifications to achieve a specified voltage and current output, physical size, and form factor.  Core solar panels can be protected by a variety of encapsulation options which are selected to meet optimally the application and market needs of the customer.  Lifetime, durability, functionality, and cost are the typical tradeoffs.  Encapsulated (protected) products are then fastened to and integrated into products using adhesives and mechanically fastening options.

Further competitive differentiation is achieved through the offering of engineered total power solutions (optimized solar panel size and form factor + battery + powered device +installation method) to ensure that a customer's total end product or power system goals are optimally met.  Because of both the inherent low-cost customization characteristics of its core manufacturing process and its highly-skilled in-house product development engineering expertise, PowerFilm has built a strong position as the go-to solar company for differentiated solar products and solar power solutions.  The result is long-term customer relationships for engineering, manufacturing, and supplying current and future solar products. 

And as production volumes increase-especially with the meter-wide equipment-the inherent scale economies of the core manufacturing process are expected to reduce manufacturing costs per unit to a leading position in the thin film solar industry.  

Technology Roadmap

PowerFilm's technology roadmap is to continue to reduce manufacturing costs per unit, both for the core solar panel, and for finished products.

Core manufacturing and device technology research and development is focused on increasing solar panel efficiency (output per area) and increasing manufacturing equipment throughput speeds.

Ongoing evaluation of lower-cost encapsulation materials to reduce finished product cost continues.

Factory automation including robotics are being added to the production assembly area for reducing cost per unit for finished products.  Also LEAN manufacturing techniques are being implemented for finished products.

Sales and Marketing Progress

PowerFilm's sales and marketing group works closely with customers and in-house product development colleagues to create total power solutions that meet end-user needs.  Distribution varies by target market.

Target Markets:  OEM

PowerFilm's target markets within OEM include the Oil and Gas, Golf Cart, RV, Marine, LED lighting, and GPS markets.  The Company works with industry leaders in these sectors to provide total power solutions to meet the specific need of each application.  In addition to these target markets, custom panels are provided to customers in other markets for diverse applications.

The Company's in-house product development engineering expertise is especially important for building and maintaining long-term relationships with these customers.

Military

Wes White, PowerFilm's Director of Military Sales, joined the Company in 2011 from Rockwell Collins and brings 20 years of prior military experience, with the last years at the Pentagon in military acquisition programs.  He is working on expanding the use of PowerFilm products in the military as part of soldier and hybrid power systems, to get them established as part of ongoing Department of Defense acquisition programs that are a program of record.  Products include portable AA battery and foldable solar chargers, solar quads, and PowerShade solar field shelters.  In addition to the U.S. military, NATO allies also are being given product demonstrations.  While there is a risk that overall defense budgets will be reduced, budgets to implement beneficial new technologies tend to remain steady or perhaps even grow during transitional times.

Solar Chargers for Consumers

Solar chargers for consumers include USB+AA Solar Chargers, AA Chargers, Foldable Chargers, and Rollable Chargers.  Social media marketing (Facebook) is being used to drive increased sales of these products.  Sales at Amazon.com continued to grow. 

Building Integrated

PowerFilm is working closely with its strategic partners for building integrated photovoltaics (BIPV) products.  In particular, the Company has extensive interaction with its architectural fabric partner, Serge Ferrari (formerly named Ferrari Textiles), in order to develop, market, and sell a truly integrated solar product and system.  Work with other partners such as Kwang Myung Electric Engineering Company of South Korea continues.

As was previously stated, PowerFilm has customized its core products to meet the specific needs of its building integrated strategic partners and markets, beginning with panels to be integrated with architectural fabric and metal roofing.  Those panels have been submitted to a third-party test lab for certification to IEC and UL standards where testing continues as planned.    

As was previously announced, PowerFilm has been awarded a $220,000 grant from the Iowa Power Fund to support the commercialization of its building integrated products.

Production

There is a concerted company-wide emphasis on reducing costs per unit to further increase gross margins.  Within the production group there is an aggressive pursuit of LEAN and 5S disciplines in both the core roll manufacturing and finished product assembly areas.

Phicot Subsidiary:  Roll to Roll Flexible Electronics

As was previously announced, Phicot, the majority owned subsidiary of PowerFilm, Inc., has made live demonstrations of its working prototypes of flexible displays using its roll to roll manufactured backplane drivers.

The flexible display demonstrations feature the world's first and only backplane array technology for a flexible display made using a full roll to roll process. 

The technology has been developed by PowerFilm, Inc.'s majority owned subsidiary Phicot, in collaboration with Hewlett-Packard (HP) and the Army Research Laboratory (ARL).  PowerFilm has licensed HP's self aligning imprint lithography (SAIL) technology.

PowerFilm has received essential funding from ARL to develop a self powered flexible display for soldiers that uses both PowerFilm's flexible display technology and also one of PowerFilm's solar panels, so it is self-powered.

PowerFilm's core roll to roll manufacturing expertise for semiconductors, developed for its PV products  has been expanded to develop flexible electronics.  Phicot is focused on developing that part of the business.  In collaboration with Hewlett-Packard (HP), Phicot has developed a flexible backplane driver to be integrated with a front plane driver to create the full working display. 

A backplane driver is an array of transistors that turns individual pixels on a display on and off, according to instructions from a computer.

The advantages of this technology, compared to current display technology and other technologies in development which are not true roll to roll processed, is that the backplane driver itself is thin, lightweight, nonbreakable (plastic not glass), conformable, and is made using a low cost manufacturing process at scale. 

The technology is revolutionary not only from a technical manufacturing standpoint but also in terms of the products it has the potential to offer to the military, consumers, and commercial users:  new, next generation electronics that are thin, lightweight, nonbreakable, and conformable.  In the future, this will allow the production of a computer screen that is thin, lightweight, and made of plastic so it will not break if dropped.

Additional potential future applications include other military applications such as a ruggedized deployable briefing board and other display screens, E books, other consumer electronics devices, and billboards.

The technology has been developed in the USA, where the working prototypes also have been made.  PowerFilm has been active in the area of roll to roll flexible electronics for a decade, with the past 5 years focused on the development of flexible display technology.

The Company is active in the flexible electronics industry and in 2010 PowerFilm and HP were awarded the FlexTech Alliance's R&D Archievement Award.

The next steps are continued yield improvement, along with funding and site selection for the pilot manufacturing facility. 

Outlook

We are gaining sales revenue growth momentum and progress toward returning to profitability.  The sales order book as of June 30, 2011 was $2.7 million.  The post-recession stability of the global economy has improved yet remains unpredictable.  If the global economy continues as it has been over the past several months, then ongoing steady incremental growth in revenues is expected.  If business and consumer confidence is further shaken, then there is a risk of decreased purchases from customers.  Military sales are expected to remain steady.  PowerFilm's strategy of maintaining a diversified mix of revenues continues to be important for the Company:  in uncertain times it helps to manage the risk of over-reliance for revenues on any one market; it also positions the company to realize revenues in multiple target markets as the economy returns.

As sales and corresponding production volumes increase, further improvement in gross margins is expected.

The Company remains committed to maintaining its strong cash position.  We have increased resources in sales, marketing, and inventory tracking/accounting systems in the push for expanded sales coming out of this period of economic uncertainty.  We expect to keep that spending steady as sales grow to support it. 

Additional production capacity with the meter-wide silicon deposition machines can be added incrementally as market demand for our products confirms the need for additional production lines.

The Company's roll to roll flexible electronics development program with Hewlett-Packard (HP) and the Army continues to make good technical progress.  Pilot manufacturing and commercialization options are being evaluated.  Recent developments in HP's direction does, however, add more uncertainty to the path that the Company will take in trying to push the flexible electronics to market.

Returning to profitability remains an important goal for the Company. 

The Directors believe that PowerFilm's proprietary technology platform provides a strong foundation for growth versus competitors in the years ahead.  The Company's thorough evaluation of technology options in the early days of the Company and the solid choices made at that time have resulted in a technology base that is both enduring and open to using and benefitting from ongoing advancements in science and technology.   

Forward-looking Statements

This release includes forward-looking statements which are based on certain assumptions and reflect management's current expectations as contemplated under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations.  Some of these factors include:  uncertainty as to whether our strategies, partnerships and business plans will yield the expected benefits; general global economic conditions; general industry and market conditions and growth rates; increasing competition; the ability to identify, develop and achieve commercial success for new products, services and technologies; changes in technology; changes in laws and regulations, including government incentive programs; intellectual property rights; our ability to secure and maintain strategic relationships, including key supply relationships; the availability and cost of capital; the availability of, and our ability to retain, key personnel; and the failure of the Company to effectively integrate acquisitions.  Additional factors are discussed in our public disclosure materials from time to time.  We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 

Notes to Editors

Technology and Manufacturing

PowerFilm has developed a proprietary thin film manufacturing process which consists of roll-to-roll manufacturing of solar cells using an amorphous silicon sunlight absorber layer deposited on a flexible plastic substrate. The Company's proprietary manufacturing process includes an automated low-cost interconnection of individual solar cells within the overall solar panel. 

Key elements of PowerFilm's proprietary production process are:

·      Roll to roll manufacturing;

·      Plastic, flexible substrate;

·      Amorphous silicon absorber layer;

·      Automated cell connection process (printed interconnects, laser scribing, laser welding);

·      Roll form encapsulation; and

·      Low cost integration.

PowerFilm has developed, manufactures, markets, and sells a range of thin flexible solar panels in a variety of sizes and configurations. The Company's solar panels are manufactured on a flexible, thin plastic substrate that is as thin as 1/1000^th of an inch (0.025 mm) thick allowing its solar panels to be much thinner and more lightweight, flexible and durable than rigid crystalline panels.  This enables easier integration into roofing materials and allows for simple, robust, low cost building installations.