SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended DECEMBER 31, 1996
-----------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8403
ENERGY CONVERSION DEVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-1749884
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1675 WEST MAPLE ROAD, TROY, MICHIGAN 48084
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (810) 280-1900
-----------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
As of January 31, 1997 there were 219,913 shares of Class A Common Stock
and 10,533,931 shares of Common Stock outstanding.
Page 1 of 21 Pages
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months EndedSix Months Ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES
Product sales $ 4,378,846 $ 3,640,195 $ 8,853,296 $ 7,254,075
Royalties 415,094 350,485 816,432 622,485
Revenues from research and development
agreements 1,312,112 2,447,775 2,025,550 4,798,434
Revenues from license and other agreements 3,042,000 6,399,262 4,410,645 10,099,262
Other 430,540 329,207 650,530 663,724
------------ ------------ ------------- ------------
TOTAL REVENUES 9,578,592 13,166,924 16,756,453 23,437,980
EXPENSES
Cost of product sales 4,691,175 3,623,623 9,681,904 7,314,543
Cost of revenues from research and
development agreements 1,404,838 2,677,728 1,991,125 5,421,282
Product research and development 3,465,999 1,894,906 7,048,941 3,720,501
Patent defense 716,799 753,073 1,156,545 753,073
Patent 104,799 89,227 224,307 397,023
Operating, general and administrative 1,604,999 1,351,380 3,236,043 2,781,744
------------ ------------ ------------- ------------
TOTAL EXPENSES 11,988,609 10,389,937 23,338,865 20,388,166
------------ ------------ ------------- ------------
(LOSS)INCOME FROM OPERATIONS (2,410,017) 2,776,987 (6,582,412) 3,049,814
OTHER INCOME (EXPENSE)
Interest expense (77,454) (121,060) (183,994) (232,895)
Interest income 367,363 76,958 690,086 179,407
Other nonoperating income (net) 100,527 25,023 158,706 74,816
------------ ------------ ------------- ------------
TOTAL OTHER INCOME (EXPENSE) 390,436 (19,079) 664,798 21,328
------------ ------------ ------------- ------------
NET (LOSS) INCOME $ (2,019,581) $ 2,757,908 $ (5,917,614) $ 3,071,142
============ ============ ============= ============
NET (LOSS) INCOME PER COMMON SHARE
AND COMMON EQUIVALENT SHARE $ (.19) $ .29 $ (.55) $ .33
============ ============ ============= ============
NET (LOSS) INCOME PER COMMON SHARE
ASSUMING FULL DILUTION $ (.19) $ .29 $ (.55) $ .33
============ ============ ============= ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
1996 1996
CURRENT ASSETS (Unaudited) (Audited)
Cash, including cash equivalents of
$20,233,000 at December 31, 1996
and $23,769,000 at June 30, 1996 $ 20,861,964 $ 23,773,742
Investments 1,957,453 10,327,352
Accounts receivable (net of allowance for
uncollectible accounts of $25,000 at
December 31, 1996 and $29,000 at
June 30, 1996) 11,886,106 9,985,722
Amounts due from related parties 2,885,239 2,901,509
Inventories 3,689,023 3,275,135
Prepaid expenses and other current assets 1,013,709 362,558
TOTAL CURRENT ASSETS 42,293,494 50,626,018
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 312,588 312,588
Buildings and improvements 3,650,298 3,595,009
Machinery and other equipment 18,570,436 17,249,435
Capitalized lease equipment 5,717,732 5,802,806
------------ ------------
28,251,054 26,959,838
Less accumulated depreciation and
amortization (22,006,769) (21,260,424)
TOTAL PROPERTY, PLANT AND EQUIPMENT 6,244,285 5,699,414
JOINT VENTURES
United Solar Systems Corp. _ _
GM Ovonic L.L.C. _ _
Sovlux Co. Ltd. _ _
OTHER ASSETS 784,293 804,007
------------ ------------
TOTAL ASSETS $ 49,322,072 $ 57,129,439
============ ============
See notes to consolidated financial statements.
3
<PAGE>
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1996 1996
(Unaudited) (Audited)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,612,667 $ 3,911,122
Salaries, wages and amounts withheld
from employees 1,048,631 1,175,102
Deferred revenues under business
agreements 293,000 711,894
Current installments on capitalized lease
obligations and short-term debt 1,458,536 1,302,973
------------- -------------
TOTAL CURRENT LIABILITIES 6,412,834 7,101,091
CAPITALIZED LEASE OBLIGATIONS 980,538 1,853,728
DEFERRED GAIN 455,021 686,351
NON-REFUNDABLE ADVANCE ROYALTIES 3,617,385 3,754,229
------------- -------------
TOTAL LIABILITIES 11,465,778 13,395,399
STOCKHOLDERS' EQUITY
Capital Stock
Class A Convertible Common Stock,
par value $0.01 per share:
Authorized - 500,000 shares
Issued and outstanding - 219,913
shares 2,199 2,199
Common Stock, par value $0.01 per share:
Authorized - 15,000,000 shares
Issued and outstanding - 10,523,539
shares at December 31, 1996 and
10,489,591 shares at June 30, 1996 105,235 104,896
Additional paid-in capital 201,278,164 200,757,697
Accumulated deficit (163,048,366) (157,130,752)
Treasury stock at cost - 28,000 shares (480,938)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 37,856,294 43,734,040
------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 49,322,072 $ 57,129,439
============= =============
See notes to consolidated financial statements.
4
<PAGE>
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended December 31,
1996 1995
OPERATING ACTIVITIES:
Net (loss)income $(5,917,614) $ 3,071,142
Adjustments to reconcile net (loss) income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 865,998 589,323
Creditable royalties (136,844) (18,000)
Employee stock options 226,500 226,500
Stock issued for services rendered 77,719 2,397
Amortization of deferred gain (22,998) (31,330)
Changes in working capital:
Accounts receivable and amounts due
from related parties (1,884,114) (7,435,923)
Inventories (413,888) (547,645)
Prepaid expenses and other current assets (631,437) (877,717)
Accounts payable and accrued expenses (424,926) (28,113)
Deferred revenues under business agreements (418,894) 778,132
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATIONS (8,680,498) (4,271,234)
INVESTING ACTIVITIES:
Purchases of capital equipment (net) (1,619,201) (1,109,257)
Sales of investments 8,369,899
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 6,750,698 (1,109,257)
FINANCING ACTIVITIES:
Purchase of treasury stock (480,938)
Proceeds from exercise of stock options and
warrants 216,587 1,970,459
Proceeds from capital lease transaction 167,161
Principal payments under short-term debt and
capitalized lease obligations (717,627) (728,539)
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (981,978) 1,409,081
NET (DECREASE) IN CASH & CASH EQUIVALENTS (2,911,778) (3,971,410)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,773,742 6,259,451
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $20,861,964 $ 2,288,041
=========== ===========
See notes to consolidated financial statements.
5
<PAGE>
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
1996 1995
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 183,994 $ 232,895
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - DECEMBER 31, 1996
NOTE A - Basis of Presentation
Information for the three months and six months ended December 31, 1996
and 1995 is unaudited but includes all adjustments which Energy Conversion
Devices, Inc. ("ECD") considers necessary for a fair presentation of financial
condition, cash flows and results of operations.
In accordance with the instructions for the completion of the Quarterly
Report on Form 10-Q, certain information and footnotes necessary to comply with
Generally Accepted Accounting Principles ("GAAP") have been condensed or
omitted. These financial statements should be read in conjunction with ECD's
1996 Annual Report on Form 10-K, which contains a summary of ECD's accounting
principles and other footnote information.
The consolidated financial statements include the accounts of ECD and its
93.5%- owned subsidiary Ovonic Battery Company, Inc. ("Ovonic Battery"), a
company formed to develop and commercialize ECD's Ovonic nickel metal hydride
("NiMH") battery technology (collectively the "Company"). Due to cumulative
losses incurred by Ovonic Battery, no minority interest is recorded in the
consolidated financial statements.
ECD also has three investments accounted for by the equity method: (i)
United Solar Systems Corp. ("United Solar") (49.98%), ECD's photovoltaic (solar
energy) joint venture with Canon Inc. of Japan ("Canon"); (ii) Sovlux Co. Ltd.
("Sovlux") (50%), ECD's Russian joint venture with State Research and Production
Enterprise Kvant ("Kvant") and the Russian Ministry of Atomic Energy and its
various enterprises ("MINATOM"); and (iii) GM Ovonic L.L.C. ("GM Ovonic") (40%),
Ovonic Battery's joint venture with General Motors Corporation ("General
Motors") to manufacture and sell the Company's proprietary
NiMH batteries for electric vehicle applications worldwide.
The Company's investments in its joint ventures, United Solar, Sovlux and
GM Ovonic, are recorded at zero. The Company will continue to carry its
investment in each of these joint ventures at zero until the venture becomes
profitable, at which time the Company will start to recognize over a period of
years its share, if any, of the then equity of each of the ventures, and will
recognize its share of each venture's profits or losses on the equity method of
accounting.
Upon consolidation, all intercompany accounts and transactions have been
eliminated.
Certain items for the three months and six months ended December 31, 1995
have been reclassified to be consistent with the classification of items in the
three months and six months ended December 31, 1996.
7
<PAGE>
In preparing financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the
reported period. Actual results could differ from those estimates. The Company
is impacted by other factors such as the continued receipt of contracts from the
U.S. government, its ability to protect and maintain the proprietary nature of
its technology, its continued product and technological advances and the
strength and ability of the Company's licensees and joint venture partners to
commercialize the Company's products and technologies.
United Solar
In 1990, ECD and Canon entered into a joint venture agreement for the
formation of United Solar. The agreement provided that United Solar would be
owned 49.98% by ECD, 49.98% by Canon, with the balance held by Mrs. Haru
Reischauer, a member of the Board of Directors of ECD. ECD's principal
contribution to United Solar was a license in the field of photovoltaics. In
return for its contributions, ECD received 49.98% equity interest in United
Solar. In return for its 49.98% equity interest in United Solar, Canon has
invested over $50,000,000 in United Solar.
In 1992, a memorandum of understanding was signed by Canon and ECD stating
that should United Solar require additional funding beyond what Canon has
already agreed to invest, Canon would assist United Solar in finding means of
raising funds, which would not result in the dilution of ECD's interest in
United Solar, to continue the expansion of United Solar's operations to
profitability.
The following sets forth certain selected financial data regarding United
Solar that are derived from United Solar's unaudited financial statements.
<TABLE>
<CAPTION>
UNITED SOLAR STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues* $ 1,528,946 $ 1,446,680 $ 2,601,989 $ 2,994,053
Operating Expenses
Cost of product sales 1,771,038 1,640,431 3,289,384 3,400,949
Research and development 792,388 542,419 1,458,951 1,026,919
General and administrative 367,389 361,313 908,764 842,844
Sales and marketing 438,537 475,079 787,986 816,865
------------ ----------- ----------- -----------
Total 3,369,352 3,019,242 6,445,085 6,087,577
Other Income (Expense) 15,391 30,750 89,763 48,235
------------ ----------- ----------- -----------
Net Loss $ (1,825,015) $(1,541,812) $(3,753,333) $(3,045,289)
* Includes product sales and revenues earned under research contracts.
</TABLE>
8
<PAGE>
UNITED SOLAR BALANCE SHEETS
December 31, June 30,
1996 1996
(Unaudited) (Unaudited)
Current Assets:
Cash and cash equivalents $ 1,272,524 $ 1,481,480
Accounts receivable - Trade 532,507 395,551
Accounts receivable - NREL 217,723 217,810
Accounts receivable - Stockholders 534,169 70,190
Inventory 3,048,191 2,257,458
Other current assets 290,685 332,002
------------ ------------
Total Current Assets 5,895,799 4,754,491
Property, Plant and Equipment (Net) 13,461,135 11,276,455
Other Assets 234,998 216,730
------------ ------------
Total Assets $ 19,591,932 $ 16,247,676
============ ============
Current Liabilities:
Short-term bank debt $ 11,000,000 $ 14,375,565
Accounts payable - Trade and Stockholders 1,558,229 1,363,044
Accrued expenses and other 575,155 297,186
------------ ------------
Total Current Liabilities 13,133,384 16,035,795
Total Stockholders' Equity 6,458,548 211,881
------------ ------------
Total Liabilities and Stockholders'
Equity $ 19,591,932 $ 16,247,676
============ ============
Sovlux
In 1990, ECD established Sovlux, a joint venture with Kvant in Russia, to
manufacture photovoltaic and battery products and systems in the countries
comprising the former U.S.S.R. and sell them worldwide (except for Japan and
India). In July 1996, MINATOM agreed to become an equity partner in Sovlux.
Sovlux is owned 50% by ECD and 50% by Kvant and MINATOM. In 1990, Kvant entered
into machine-building contracts with ECD for the construction of photovoltaic
manufacturing equipment and battery equipment. Kvant paid ECD a total of
$10,450,000 for these machine-building contracts. At June 30, 1993, ECD had
completed these machines and shipped them to Kvant.
The joint venture arrangements provide that Kvant contribute such
equipment in an installed and operational condition to the joint venture in
exchange for its 50% interest. ECD's contribution to the venture consists solely
of the technology necessary to support Sovlux's operations. No tangible assets
have been contributed to Sovlux by ECD. Through December 31, 1996, the
activities related to Sovlux have been limited to facility preparation at
certain Kvant facilities from which Sovlux will operate, the cost of which Kvant
has also assumed as part of its commitment to the venture, the training of
employees and other pre-production activities.
There are no financial statements available for Sovlux since the December
31, 1993 unaudited financial statements set forth in ECD's Annual Report on Form
10-K for the year ended June 30, 1995, as amended.
9
<PAGE>
GM Ovonic
In June 1994, Ovonic Battery and General Motors formed a joint venture for
the manufacture and marketing of Ovonic NiMH batteries for electric vehicles.
General Motors has a 60% interest and Ovonic Battery has a 40% interest in this
joint venture. Ovonic Battery has contributed intellectual property, licenses,
production processes, know-how, personnel and engineering services pertaining to
Ovonic NiMH battery technology to the joint venture. General Motors'
contribution consists of operating capital, plant, equipment and management
personnel necessary for the volume production of batteries.
GM Ovonic is currently manufacturing production-intent batteries, is
conducting production scale-up engineering activities and is installing the
equipment necessary for the initial low volume production of battery packs at a
manufacturing plant in Troy, Michigan.
Financial statements of GM Ovonic for the three- and six-month periods
ended December 31, 1996 are currently not available.
Accounts Receivable
The following tabulation shows the component elements of accounts
receivable from long-term contracts and other programs:
December 31, June 30,
1996 1996
(Unaudited) (Audited)
U.S. Government:
Amounts billed $ 526,497 $ 743,482
Unbilled 532,908 453,394
----------- -----------
Total 1,059,405 1,196,876
----------- -----------
Commercial Customers:
Amounts billed 3,208,958* 2,768,736*
Unbilled
- due per contracts 8,840,209** 7,062,239**
- other 1,522,514 1,222,173
----------- -----------
Total 13,571,681 11,053,148
----------- -----------
Other 166,604 666,412
Allowance for Uncollectible Accounts (26,345) (29,205)
----------- -----------
TOTAL $14,771,345 $12,887,231
=========== ===========
Includes related-party (principally GM Ovonic) amounts of $1,399,366 and
$1,041,445, respectively. Includes related-party (principally GM Ovonic)
amounts of $1,485,873 and $1,860,064, respectively.
Unbilled receivables from commercial customers represent revenues
recognized for the present value of license payments to be received in future
periods. They also include revenues recognized on the percentage-of-completion
method of accounting related to machine-building contracts and amounts earned
under certain contracts, which amounts were billed subsequently.
Certain contracts with the U.S. government require a retention that is
paid upon completion of audit of the Company's indirect rates. There are no
material retentions at December 31, 1996 and June 30, 1996. Certain U.S.
government contracts remain subject to audit. Management does not believe that
adjustments which may result from an audit would be material to the financial
position or results of operations of the Company.
Inventories
Inventories of raw materials, work in process and finished goods for the
manufacture of negative electrodes, battery packs and other products, together
with supplies, are valued at the lower of cost (moving average) or market. Cost
elements included in inventory are materials, direct labor and manufacturing
overhead. Cost of sales are removed from inventory based on actual costs of
items shipped to customers.
10
<PAGE>
Inventories (principally those of Ovonic Battery) are as follows:
December 31, 1996 June 30, 1996
(Unaudited) (Audited)
Finished products $ 282,409 $ 263,525
Work in process 1,894,837 1,902,396
Raw materials 1,473,134 1,075,401
Supplies 38,643 33,813
---------- ----------
$3,689,023 $3,275,135
========== ==========
Product Sales
Product sales include negative electrodes, battery packs and machine-
building. Revenues related to machine-building contracts are recognized on the
percentage-of-completion method of accounting using the costs incurred to date
as a percentage of the total expected costs. All other product sales are
recognized when the product is shipped.
Royalties
Most license agreements provide for the Company to receive royalties from
the sale of products which utilize the licensed technology. Typically, the
royalties are incremental to and distinct from the license fee and are
recognized as revenue upon the sale of the respective licensed product. In
several instances, the Company has received cash payments for non-refundable
advance royalty payments which are creditable against future royalties under the
licenses. Advance royalty payments are deferred and recognized in revenues as
the creditable sales occur, the underlying agreement expires, or when the
Company has demonstrable evidence that no additional royalties will be
creditable and, accordingly, the earnings process is completed.
Business Agreements
A substantial portion of revenues are derived through business agreements
seeking to develop and/or commercialize products based upon the Company's
proprietary technologies. Such agreements are of two types.
The first type of agreement relates to licensing the Company's proprietary
technology. Licensing activities are tailored to provide each licensee with the
right to use the Company's technology, most of which is patented, for a specific
product application or, in some instances, for further exploration of new
product applications for such technologies. The terms of such licenses,
accordingly, are tailored to address a number of circumstances relating to the
use of such technology which have been negotiated between the Company and the
licensee. Such terms generally address whether the license will be exclusive or
nonexclusive, whether the licensee is limited to very narrowly defined
applications or to broader-based product manufacture or sale of products using
such technologies, whether the license will provide royalties for products sold
which
11
<PAGE>
employ such licensed technology and how such royalties will be measured, as well
as other factors specific to each negotiated arrangement. In some cases,
licenses relate directly to research and development that the Company has
undertaken pursuant to research and development agreements; in other cases, they
relate to product development and commercialization efforts of the licensee;
other agreements combine the efforts of the Company with those of the licensee.
License agreement fees are generally recognized as revenue at the time the
agreements are consummated, which is the completion-of-the-earnings process.
Typically, such fees are non-refundable, do not obligate the Company to incur
any future costs or require future performance by the Company and are not
related to future production or earnings of the licensee. License fees payable
in installments are recorded at the present value of the amounts to be received
taking into account the collectibility of the license fee. In some instances, a
portion of such license fees is contingent upon the commencement of production
or other uncertainties. In these cases, license fee revenues are not recognized
until commencement of production or the resolution of uncertainties.
In the second type of agreement, the Company conducts specified research
and development projects related to one of its principal technology
specializations for an agreed-upon fee ("R&D Agreements"). Some of these
projects have stipulated performance criteria and deliverables whereas others
require "best efforts" with no specified performance criteria. Revenues from R&D
Agreements that contain specific performance criteria are recognized on a
percentage-of-completion basis which matches the contract revenues to the costs
incurred on a project based on the relationship of costs incurred to estimated
total project costs. Revenue from R&D Agreements, where there are no specific
performance terms, are recognized in amounts equal to the amounts expended on
the programs. Generally, the agreed-upon fees for R&D Agreements contemplate
reimbursing the Company for costs considered associated with project activities
including expenses for direct product development and research, patents,
operating, general and administrative expenses and depreciation. Accordingly,
expenses related to R&D Agreements are recorded as cost of revenues from
business agreements.
Other Operating Revenues
Other operating revenues consist principally of third-party service
revenue realized by certain of the Company's service departments, including the
Production Technology and Machine Building Division and Central Analytical
Laboratory.
Other Non-operating Income
Other non-operating income-net consists of rental income and gains and
losses on sale of fixed assets.
12
<PAGE>
NOTE B - Product Sales, Royalties and Revenues from R&D Agreements and
License and Other Agreements
The Company has business agreements with third parties for which sales,
royalties and other revenues are included in the consolidated statement of
operations. A summary of revenue from such agreements follows:
Six Months Ended December 31,
1996 1995
Product Sales:
Negative electrodes $ 5,459,371 $ 2,624,289
Battery packs 2,080,856 477,969
Machine building 1,313,069 4,151,817
----------- -----------
$ 8,853,296 $ 7,254,075
=========== ===========
Royalties:
Battery Technology $ 612,359 $ 600,942
Optical Memory 204,073 21,543
----------- -----------
$ 816,432 $ 622,485
=========== ===========
Revenues from R&D Agreements:
Photovoltaics $ 544,031 $ 1,373,938
Battery technology (principally USABC) 569,648 2,514,474
Microelectronics 463,406 487,056
Hydrogen 340,721 337,714
Other 107,744 85,252
----------- -----------
$ 2,025,550 $ 4,798,434
=========== ===========
License and Other Agreements:
Battery $ 4,330,000 $ 9,349,262
Microelectronics 80,645 750,000
----------- -----------
$ 4,410,645 $10,099,262
=========== ===========
NOTE C - Non-Refundable Advance Royalties
At December 31 and June 30, 1996, the Company deferred recognition of
revenues relating to non-refundable advance royalty payments. Non-refundable
advance royalties consist of the following:
December 31, 1996 June 30, 1996
Battery $1,704,991 $1,704,991
Optical Memory 1,912,394 2,049,238
---------- ----------
$3,617,385 $3,754,229
========== ==========
13
<PAGE>
NOTE D - Net Income (Loss) Per Share
The Company uses the treasury stock method to calculate primary and
fully-diluted earnings per share. Common stock equivalents consist of stock
options and warrants. Weighted average number of shares outstanding and primary
earnings per share for the three months and six months ended December 31, 1996
and 1995 are computed as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding 10,696,383 8,491,958 10,697,399 8,434,276
Pro Forma weighted average shares for
Common Stock Equivalents -- 1,442,871 -- 1,395,018
---------- ---------- ---------- ----------
AVERAGE NUMBER OF SHARES
OUTSTANDING AND EQUIVALENTS 10,696,383 9,934,829 10,697,399 9,828,294
========== ========== ========== ==========
Net income (loss) as reported $(2,019,581) $2,757,908 $(5,917,614) $3,071,142
Effect of application of modified
treasury stock method -- 125,410 -- 181,818
----------- ---------- ----------- ----------
Adjusted net (loss) income $(2,019,581) $2,883,318 $(5,917,614) $3,252,960
=========== ========== =========== ==========
NET (LOSS) INCOME PER SHARE $ (.19) $ .29 $ (.55) $ .33
=========== ========== =========== ==========
Primary and fully diluted net (loss) income per share are the same for
each of these periods.
</TABLE>
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended December 31, 1996 Compared to Three Months Ended
December 31, 1995
The Company had net loss for the three months ended December 31, 1996 of
$2,020,000 compared to net income of $2,758,000 for the three months ended
December 31, 1995. The loss is primarily due to (i) startup and expansion of
negative electrode production equipment and battery pack production; (ii)
additional technical, manufacturing and engineering support for GM Ovonic; (iii)
ongoing electric vehicle battery research and development with reduced revenues
from funded programs; and (iv) ongoing defense of the Company's battery
technology patents.
Product sales, consisting of battery electrodes, battery packs and machine
building, increased 20% in the quarter ended December 31, 1996 compared to the
same quarter in the previous year due to increased sales of battery electrodes
and battery packs. Battery electrode and battery pack sales increased 133% to
$4,112,000 in the December 1996 quarter from $1,762,000 in the December 1995
quarter. Revenues from machine-building were $265,000 in the December 1996
quarter, down from $1,878,000 in the same period last year, principally due to
the completion of photovoltaic manufacturing equipment purchased by United
Solar.
Royalties increased 19% to $415,000 in the three months ended December 31,
1996 from $350,000 in the three months ended December 31, 1995 primarily due to
higher levels of royalties from ECD's optical memory technology in 1996.
The 46% decrease in revenues from business agreements from $2,448,000 in
the three months ended December 31, 1995 to $1,312,000 in the three months ended
December 31, 1996 was due to substantially reduced revenues ($474,000 in the
December 1996 quarter compared to $1,063,000 in the December 1995 quarter) from
the United States Advanced Battery Consortium ("USABC"). In December 1996, GM
Ovonic received notification that USABC had approved funding for an $8,000,000,
15-month program between Ovonic Battery and GM Ovonic to reduce the costs of
manufacturing NiMH electric vehicle batteries.
Revenues from license and other agreements decreased 52% from $6,399,000
in the three months ended December 31, 1995 to $3,042,000 in the three months
ended December 31, 1996. 1995 revenues included license fees of $6,024,000 from
Asia Pacific Investment Co., Ltd. ("APIC"). In December 1996, Ovonic Battery
signed an agreement with Sanoh Industrial Co., Ltd. ("Sanoh") to form a European
joint venture to manufacture and sell Ovonic NiMH batteries for
electrically-powered two- and three-wheeled vehicles. Ovonic Battery, 45% owner
in the joint venture, will provide the necessary licenses and technical
know-how. Sanoh, 55% owner in the joint venture, will provide the necessary
15
<PAGE>
funding for the operations and capital expenses. Ovonic Battery, in addition to
its 45% equity, will receive total payments of up to $5,000,000, of which
$2,000,000 is recorded as license fees at December 31, 1996. The agreement
provides for other interested companies to invest in the joint venture as
additional shareholders.
Also, in December, 1996 Ovonic Battery signed an agreement with LG
Chemical Ltd. ("LG Chemical") of the Republic of Korea to manufacture and sell
consumer NiMH batteries. Ovonic Battery will receive total payments of up to
$5,000,000, of which $1,000,000 is recorded as license fees at December 31,
1996. In addition, the Company will receive running royalties under this
agreement.
The increase in other revenues was due to increased billings in the
quarter ended December 31, 1996 for miscellaneous work performed for Ovonic
Battery licensees.
The decrease in cost of revenues from business agreements and the increase
in product development and research expense in the three months ended December
31, 1996 compared to the three months ended December 31, 1995 was principally
due to ongoing electric vehicle battery and other research and development with
reduced revenues from funded research and development programs.
The increase in cost of product sales from $3,624,000 in the three months
ended December 31, 1995 to $4,691,000 in the three months ended December 31,
1996 was principally due to the startup and expansion of negative electrode
production equipment and battery pack production.
The increase in patent expenses from $89,000 in the three months ended
December 31, 1995 to $105,000 in the three months ended December 31, 1996 was
primarily due to higher patent and maintenance costs in 1996. Patent defense
expenses for 1996 and 1995 were incurred in connection with the defense and
prosecution of litigation with respect to Ovonic Battery's United States patents
covering its proprietary technology for NiMH batteries.
The increase in operating, general and administrative expenses from
$1,351,000 in the three months ended December 31, 1995 to $1,605,000 in the
three months ended December 31, 1996 was primarily due to increased
administrative expenses in 1996, including salaries, depreciation expense and
rents.
The change from other expense of $19,000 in the three months ended
December 31, 1995 to other income of $390,000 in the three months ended December
31, 1996 was due principally to increased interest income in 1996.
16
<PAGE>
Six Months Ended December 31, 1996 Compared to Six Months Ended
December 31, 1995
The Company had net loss for the six months ended December 31, 1996 of
$5,918,000 compared to net income of $3,071,000 for the six months ended
December 31, 1995. The loss is primarily due to (i) startup and expansion of
negative electrode production equipment and battery pack production; (ii)
additional technical, manufacturing and engineering support for GM Ovonic; (iii)
ongoing electric vehicle battery research and development with reduced revenues
from funded programs; and (iv) ongoing defense of the Company's battery
technology patents.
Product sales, consisting of battery electrodes, battery packs and machine
building, increased 22% in the six months ended December 31, 1996 compared to
the six months ended December 31, 1995 due to increased sales of battery
electrodes and battery packs. Battery electrode and battery pack sales increased
143% to $7,540,000 in the six months ended December 31, 1996 from $3,102,000 in
the six months ended December 31, 1995. Revenues from machine-building were
$1,313,000 in the six months ended December 31, 1996 down from $4,152,000 in the
six months ended December 31, 1995, principally due to the completion of
photovoltaic manufacturing equipment purchased by United Solar.
Royalties increased 31% to $816,000 in the six months ended December 31,
1996 from $622,000 in the six months ended December 31, 1995 primarily due to
higher levels of royalties from ECD's optical memory technology in 1996.
The 58% decrease in revenues from business agreements from $4,798,000 in
the six months ended December 31, 1995 to $2,026,000 in the six months ended
December 31, 1996 was due to substantially reduced revenues ($569,000 in 1996
compared to $2,172,000 in 1995) from USABC.
Revenues from license and other agreements decreased 56% from $10,099,000
in the six months ended December 31, 1995 to $4,411,000 in the six months ended
December 31, 1996. 1995 revenues included license fees of $8,849,000 from APIC
and Sanoh. In the six months ended December 31, 1996, ECD and Ovonic Battery
entered into a battery license agreement with Canon granting Canon nonexclusive
rights to manufacture and market Ovonic NiMH batteries for certain applications.
The Company recognized license fee revenue of $1,246,000 in connection with this
agreement and will receive running royalties.
The decrease in cost of revenues from business agreements and the increase
in product development and research expense in the six months ended December 31,
1996 compared to the six months ended December 31, 1995 was principally due to
ongoing electric vehicle battery and other research and development with reduced
revenues from funded R&D Agreements.
17
<PAGE>
The increase in cost of product sales to $9,682,000 in the six months
ended December 31, 1996 from $7,315,000 in the six months ended December 31,
1995 was principally due to the startup and expansion of negative electrode
production equipment and battery pack production.
The decrease in patent expenses from $397,000 in the six months ended
December 31, 1995 to $224,000 in the six months ended December 31, 1996 was
primarily due to lower patent and maintenance costs in 1996. Patent defense
expenses for 1996 and 1995 were incurred in connection with the defense and
prosecution of litigation with respect to Ovonic Battery's United States patents
covering its proprietary technology for NiMH batteries.
The increase in operating, general and administrative expenses to
$3,236,000 in the six months ended December 31, 1996 from $2,782,000 in the six
months ended December 31, 1995 was primarily due to increased administrative
expenses in 1996, including salaries, depreciation and rents.
The change from other income of $21,000 in the six months ended December
31, 1995 compared to other income of $665,000 in the six months ended December
31, 1996 was due principally to increased interest income in 1996.
Liquidity and Capital Resources
As of December 31, 1996, the Company had unrestricted consolidated cash
and cash equivalents, which consist of investments maturing in three months or
less, of approximately $20,862,000, a decrease of approximately $2,912,000 from
June 30, 1996. As of December 31, 1996, the Company had consolidated working
capital of approximately $35,881,000, compared with a consolidated working
capital of $43,525,000 as of June 30, 1996. Investments, which consist of
commercial paper maturing in four to six months, decreased $8,370,000 in the six
months ended December 31, 1996.
During the six months ended December 31, 1996, approximately $8,680,000
cash was used in operations. The difference between the net loss of
approximately $5,818,000 and the net cash used in operations was principally due
to revenues from agreements in the six months ended December 31, 1996 pursuant
to which certain payments will be received at a later date. In addition, during
this period approximately $1,619,000 of machinery and equipment were purchased
or constructed for the expansion of Ovonic Battery's manufacturing capacity.
During the next 12 months, Ovonic Battery plans to purchase approximately
$5,000,000 of machinery and equipment. The machinery and equipment are
principally for expansion of Ovonic Battery's manufacturing capacity.
Some business agreements related to R&D agreements have been entered into
by the Company with U.S. government agencies and with industry to develop the
Company's products and production technology. The technology developed, together
with the applicable patents, are generally owned by the Company. Generally, the
agreed-upon
18
<PAGE>
fees for these R&D Agreements reimburse the Company for its direct costs
associated with these projects, together with a portion of indirect costs
(patents, operating, general and administrative expenses and depreciation).
The Company has entered into a third-party leasing arrangement with Finova
Capital Corporation ("Finova"), formerly Financing for Science International,
which provides lease financing for certain equipment used by the Company. As of
December 31, 1996, the Company had financed equipment having an acquisition cost
of $8,600,000 under this arrangement. The Company's leases with Finova provide
for a term of five years. The required lease payments over this period equal the
acquisition cost of the leased equipment plus an interest factor. The Company
has agreed to purchase certain equipment leased from Finova upon the expiration
of the applicable leases for 10% of its acquisition cost. For other equipment,
the Company has an option to purchase the equipment for its then market value
(but no less than 10% nor more than 20% of its acquisition cost). The Company
has an option to purchase certain other leased equipment upon the expiration of
the applicable leases for its then fair market value.
While certain programs have limited terms, the equipment being utilized
for these programs has alternative future uses for other programs if, in fact,
the programs are not continued beyond their respective terms.
19
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on January 16,
1997 (the "Meeting"), the following directors were elected for the ensuing year
and until their successors shall be duly elected and qualified:
For Withheld
Stanford R. Ovshinsky 15,065,334 138,238
Iris M. Ovshinsky 15,050,390 153,182
Robert C. Stempel 15,067,996 135,576
Nancy M. Bacon 15,067,996 135,576
Umberto Colombo 14,860,526 343,046
Jack T. Conway 14,858,036 345,536
Hellmut Fritzsche 15,051,546 152,026
Joichi Ito 15,068,096 135,476
Walter J. McCarthy, Jr. 15,051,396 152,176
Florence I. Metz 15,052,886 150,686
Haru Reischauer 14,857,781 345,791
Nathan J. Robfogel 15,052,846 150,726
Stanley K. Stynes 15,052,846 150,726
Also approved at the Meeting was the appointment of Deloitte & Touche LLP
as independent accountants for the fiscal year ending June 30, 1997 (with
15,072,544 For; 70,920 Against; and 60,108 Abstentions).
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27. Financial Data Schedule (Edgar version)
B. Reports on Form 8-K
None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Energy Conversion Devices, Inc.
(Registrant)
By: /s/ Kenneth A. Pullis
Kenneth A. Pullis
Date: February 14, 1997 Controller (Principal Accounting Officer)
By: /s/ Nancy M. Bacon
Nancy M. Bacon
Date: February 14, 1997 Senior Vice President
By: /s/ Stanford R. Ovshinsky
Stanford R. Ovshinsky
Date: February 14, 1997 President and Chief Executive Officer
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for the period December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 20,861,964
<SECURITIES> 1,957,953
<RECEIVABLES> 11,886,106
<ALLOWANCES> (25,000)
<INVENTORY> 3,689,023
<CURRENT-ASSETS> 42,293,494
<PP&E> 28,251,054
<DEPRECIATION> (22,006,796)
<TOTAL-ASSETS> 49,322,072
<CURRENT-LIABILITIES> 6,412,834
<BONDS> 1,458,536
0
0
<COMMON> 107,434
<OTHER-SE> 37,748,860
<TOTAL-LIABILITY-AND-EQUITY> 49,322,072
<SALES> 8,853,296
<TOTAL-REVENUES> 16,756,453
<CGS> 9,681,904
<TOTAL-COSTS> 1,991,125
<OTHER-EXPENSES> 11,665,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183,994
<INCOME-PRETAX> (5,917,614)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,917,614)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,917,614)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
</TABLE>
