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 MARCH 31, 1998
--------------------------------
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 (248) 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 May 7, 1998 there were 219,913 shares of Class A Common Stock and
10,830,067 shares of Common Stock outstanding.
Page 1 of 25 Pages
1
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Product sales $ 2,862,637 $ 3,287,378 $ 8,105,845 $ 12,140,674
Royalties 730,355 302,642 1,825,355 1,119,074
Revenues from product development
agreements 3,948,527 1,725,233 10,961,782 3,834,783
Revenues from license and other agreements 600,000 -- 900,000 4,326,645
Other 841,199 368,613 2,398,652 1,019,143
----------- ----------- ------------ ------------
TOTAL REVENUES 8,982,718 5,683,866 24,191,634 22,440,319
EXPENSES
Cost of product sales 3,214,676 4,214,051 9,173,655 13,895,955
Cost of revenues from product
development agreements 4,171,715 1,728,708 11,084,642 3,719,833
Product research and development 3,097,756 3,705,538 9,849,944 10,754,479
Patent Defense 92,157 1,274,766 294,104 2,431,311
Patent 245,096 108,234 715,177 332,541
Operating, general and administrative 1,969,748 2,078,897 4,984,226 5,314,940
----------- ----------- ------------ ------------
TOTAL EXPENSES 12,791,148 13,110,194 36,101,748 36,449,059
----------- ----------- ------------ ------------
LOSS FROM OPERATIONS (3,808,430) (7,426,328) (11,910,114) (14,008,740)
OTHER INCOME (EXPENSE)
Interest expense (28,547) (65,793) (110,661) (249,787)
Interest income 89,752 305,124 401,092 995,210
Other nonoperating income (net) (31,772) 58,605 36,801 217,311
----------- ----------- ------------ ------------
TOTAL OTHER INCOME 29,433 297,936 327,232 962,734
----------- ----------- ------------ ------------
NET LOSS $(3,778,997) $(7,128,392) $(11,582,882) $(13,046,006)
=========== =========== ============ ============
BASIC NET LOSS PER COMMON SHARE $ (.35) $ (.66) $ (1.07) $ (1.22)
=========== =========== ============ ============
DILUTED NET LOSS PER COMMON SHARE $ (.35) $ (.66) $ (1.07) $ (1.22)
=========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
1998 1997
--------- --------
CURRENT ASSETS (Unaudited) (Audited)
Cash, including cash equivalents of
$5,271,000 ($290,000 restricted) as of
March 31, 1998 and $14,265,000 as of
June 30, 1997 $ 5,276,639 $ 14,270,145
Investments (including restricted investments
of $290,000 at June 30, 1997) -- 1,059,933
Accounts receivable (net of allowance for
uncollectible accounts of $140,000 at
March 31, 1998 and June 30, 1997) 8,898,966 10,800,813
Amounts due from related parties 1,829,618 1,809,414
Inventories 1,833,319 1,626,065
Prepaid expenses and other current assets 466,755 404,204
------------ ------------
TOTAL CURRENT ASSETS 18,305,297 29,970,574
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 312,588 312,588
Buildings and improvements 3,792,025 3,785,827
Machinery and other equipment (including
construction in progress of approximately
$876,000 at March 31, 1998 and
$1,647,000 at June 30, 1997) 21,733,373 19,517,585
Capitalized lease equipment 2,976,603 5,699,048
------------ ------------
28,814,589 29,315,048
Less accumulated depreciation and amortization (22,516,914) (22,346,615)
TOTAL PROPERTY, PLANT AND EQUIPMENT 6,297,675 6,968,433
Investment in EV Global/Unique Mobility 2,000,000 --
JOINT VENTURES
United Solar -- --
GM Ovonic -- --
Sanoh/Ovonic Power Systems -- --
Sovlux -- --
OTHER ASSETS 1,339,998 790,090
------------ ------------
TOTAL ASSETS $ 27,942,970 $ 37,729,097
============ ============
See notes to consolidated financial statements.
3
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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------- ---------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,166,604 $ 3,669,167
Salaries, wages and amounts withheld
from employees 1,678,926 1,144,446
Deferred revenues under business agreements 484,584 671,531
Current installments on capitalized lease
obligations 710,686 1,324,322
------------- -------------
TOTAL CURRENT LIABILITIES 6,040,800 6,809,466
CAPITALIZED LEASE OBLIGATIONS 247,692 585,795
DEFERRED GAIN -- 223,691
NON-REFUNDABLE ADVANCE ROYALTIES 3,763,402 3,691,486
------------- -------------
TOTAL LIABILITIES 10,051,894 11,310,438
STOCKHOLDERS' EQUITY
Capital Stock
Class A Convertible Common Stock,
par value $0.01 per share:
Authorized - 500,000 shares
Issued & outstanding - 219,913 shares 2,199 2,199
Common Stock, par value $0.01 per share:
Authorized - 20,000,000 shares
Issued and outstanding - 10,848,257 shares
at March 31, 1998 and
10,603,251 shares at June 30, 1997 108,483 106,033
Additional paid-in capital 205,057,448 202,004,599
Accumulated deficit (186,668,246) (175,085,364)
Treasury stock at cost - 42,000 shares (608,808) (608,808)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 17,891,076 26,418,659
------------- -------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 27,942,970 $ 37,729,097
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended March 31,
1998 1997
OPERATING ACTIVITIES:
Net loss $(11,582,882) $(13,046,006)
Adjustments to reconcile net loss to net cash
used in by operating activities:
Depreciation and amortization 1,441,960 1,375,188
Creditable royalties 71,916 (148,844)
Employee stock options 339,750 339,750
Stock issued for services rendered 44,995 119,203
Amortization of deferred gain (15,352) (34,497)
Loss on sale of equipment -- 1,508
Changes in assets and liabilities other than
property, plant and equipment:
Accounts receivable and amounts due from
related parties 1,881,643 (1,913,922)
Inventories (207,254) 817,945
Prepaid expenses and other current assets
and other assets (612,459) (397,558)
Accounts payable and accrued expenses and
salaries, wages and amounts withheld
from employees 31,917 669,201
Deferred revenues under business agreements (186,947) 164,139
------------ ------------
NET CASH USED IN OPERATIONS (8,792,713) (12,053,893)
INVESTING ACTIVITIES:
Purchases of capital equipment (net) (979,540) (3,013,859)
Purchases of investments (3,085,435) --
Sales of investments 4,145,368 6,716,187
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 80,393 3,702,328
FINANCING ACTIVITIES:
Purchase of treasury stock -- (480,938)
Proceeds from exercise of stock options and
warrants 670,553 594,121
Principal payments under current debt and
capitalized lease obligations (951,739) (1,026,950)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (281,186) (913,767)
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,993,506) (9,265,332)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 14,270,145 23,773,742
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,276,639 $ 14,508,410
============ ============
See notes to consolidated financial statements.
5
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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
-----------------
1998 1997
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $110,661 $249,787
The Company's non-cash investing and financing
activities were as follows:
Investment in EV Global/Unique Mobility $2,000,000
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 1998
NOTE A - Basis of Presentation
Information for the nine months ended March 31, 1998 and 1997 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
1997 Annual Report on Form 10-K, as amended, 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.
The Company also has two major 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");
and (ii) 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. Additionally, the Company has investments in: (i) Sovlux Co., Ltd.
("Sovlux") (50%), ECD's joint venture in Russia; and (ii) Sanoh Ovonic Power
Systems Corporation (45%), Ovonic Battery's joint venture with Sanoh Industrial
Co. Ltd. ("Sanoh") to manufacture and sell NiMH batteries for two- and
three-wheeled electric vehicles in Europe.
The Company's investments in its joint ventures are recorded at zero. The
Company will continue to carry its investment in each of these joint ventures at
zero (unless the Company makes a cash investment in one of its joint ventures)
until the venture becomes profitable (based upon the venture's history of
sustainable profits), 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.
The Company has invested, through an exchange of stock, a total of
$2,000,000 in EV Global Motors ("EVG"), a public company, a producer and
marketer of electric-powered bicycles based in Los Angeles, California, and
Unique Mobility, a private company, a supplier of the motor and controller for
the EVG bicycle. The Company's investment in EVG is being accounted for on the
cost basis of accounting. The Company is accounting for its investment in Unique
Mobility using Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). This
standard requires that certain debt and equity securities be adjusted to market
value at the end of each accounting period. Any unrealized gains and losses
are charged or credited to a separate
7
<PAGE>
component of shareholders' equity. At March 31, 1998, the carrying value of
these investments was approximately the same as the market value for these
stocks.
Upon consolidation, all intercompany accounts and transactions are
eliminated.
Certain items for the three months and nine months ended March 31, 1997
have been reclassified to be consistent with the classification of items in the
three months and nine months ended March 31, 1998. Revenues from product
development agreements were previously identified as revenues from research and
development agreements.
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 and industrial partners, 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 in the manufacture of products based upon the Company's
technologies.
In June 1997, the Financial and Accounting Standards Board ("FASB") issued
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information. This Statement requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in assessing
performance. The Company has not completed its analysis of this Statement and
its impact on disclosures. In the initial year of application, comparative
information for earlier years is to be restated. This Statement need not be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods in the
second year of application. The Company will be required to adopt the provisions
of this Statement in fiscal 1999. Adoption of this Statement is not expected to
have a material impact on the Company's financial statements.
The Company is in the process of assessing the impact of addressing any of
its Year 2000 computing problems. The Company has not yet determined whether the
Year 2000 issues are material to its business, operations or financial
condition.
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
8
<PAGE>
Solar. In return for its 49.98% equity interest in United Solar, Canon has
invested over $55,000,000.
The following sets forth certain selected financial data regarding United
Solar that are derived from United Solar's unaudited financial statements:
UNITED SOLAR STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues* $ 2,608,023 $ 1,739,851 $ 8,631,514 $ 4,341,840
Operating Expenses
Cost of product sales 3,151,074 2,272,133 11,942,349 5,561,517
Research and development 732,450 719,890 2,084,553 2,178,841
General and administrative 338,110 776,526 847,053 1,685,290
Sales and marketing 401,275 409,316 1,364,976 1,197,302
----------- ----------- ----------- -----------
Total 4,622,909 4,177,865 16,238,931 10,622,950
----------- ----------- ----------- -----------
Other Income (Expense) (175,389) 13,257 (728,133) 103,020
----------- ----------- ----------- -----------
Net Loss $(2,190,275) $(2,424,757) $(8,335,550) $(6,178,090)
=========== =========== =========== ===========
</TABLE>
* Includes product sales and revenues earned under research contracts.
UNITED SOLAR BALANCE SHEETS
March 31, June 30,
--------- --------
1998 1997
---- ----
(Unaudited) (Unaudited)
Current Assets:
Cash and cash equivalents $ 1,056,141 $ 2,342,628
Accounts receivable - trade 1,310,255 738,378
Accounts receivable - National Renewable
Energy Laboratory ("NREL") 373,191 242,938
Accounts receivable - stockholders 225,682 4,633,757
Inventory 2,879,436 4,015,379
Other current assets 467,112 322,232
------------ ------------
Total Current Assets 6,311,817 12,295,312
Property, plant and equipment (net) 12,089,427 13,676,080
Other assets 183,763 225,913
------------ ------------
Total Assets $ 18,585,007 $ 26,197,305
============ ============
Current Liabilities:
Short-term bank debt $ -- $ 10,000,000
Current maturities of capitalized lease
obligation 1,445,703 --
Accounts payable - trade and stockholders 1,588,151 3,001,352
Accrued expenses and other 659,549 376,743
------------ ------------
Total Current Liabilities 3,693,403 13,378,095
Note Payable - Canon 2,500,000 --
Lease Payable 7,943,059 --
Total Stockholders' Equity 4,448,545 12,819,210
------------ ------------
Total Liabilities and Stockholders'
Equity $ 18,585,007 $ 26,197,305
============ ============
9
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GM Ovonic
In June 1994, Ovonic Battery and General Motors formed a joint venture for
the manufacture and commercialization 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. The
contribution by General Motors consists of operating capital, plant, equipment
and management personnel necessary for the volume production of batteries.
GM Ovonic is currently engaged in low-volume manufacturing of NiMH
batteries at its facility in Troy, Michigan. GM Ovonic, consistent with the
business plan, is in the process of scaling up production in a facility
approximately ten times larger than the current plant.
There are no financial statements currently available for GM Ovonic. GM
Ovonic is in the early stages of commercialization and, as such, has a history
of operating losses.
Accounts Receivable
The following tabulation shows the component elements of accounts
receivable from long-term contracts and other programs:
March 31, June 30,
1998 1997
U.S. Government:
Amounts billed $ 646,318 $ 572,193
Unbilled 683,942 797,558
----------- -----------
Total 1,330,260 1,369,751
----------- -----------
Commercial Customers:
Amounts billed 6,067,166 1,701,006
Related party billed
- United Solar 178,536 19,840
- GM Ovonic 1,179,620 1,072,546
Due per contracts 1,406,004 7,480,792
Related party unbilled
- GM Ovonic 471,462 717,028
Other unbilled 168,476 281,580
----------- -----------
Total 9,471,264 11,272,792
----------- -----------
Other 67,060 107,684
Allowance for Uncollectible Accounts (140,000) (140,000)
----------- -----------
TOTAL $10,728,584 $12,610,227
=========== ===========
Amounts due per contracts, related party unbilled and other unbilled from
commercial customers include revenues recognized for the present value of
license payments to be received in future periods. They also include revenues
recognized on the percentage-of-
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completion method of accounting related to machine-building contracts and
amounts earned under certain commercial contracts, which are billed in
subsequent months.
Certain contracts with the U.S. government require a retention that is
paid upon completion of an audit of the Company's indirect rates. There are no
material retentions at March 31, 1998 and June 30, 1997. Certain U.S. government
contracts remain subject to audit. Management believes that adjustments, if any,
which may result from an audit would not 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 are valued
at the lower of cost or market. Cost elements included in inventory are
materials, direct labor and manufacturing overhead. Cost of sales is removed
from inventory based on actual costs of items shipped to customers.
Inventories (principally those of Ovonic Battery) are as follows:
March 31, 1998 June 30, 1997
Finished products $ 127,236 $ --
Work in process 1,101,997 1,010,989
Raw materials 604,086 615,076
---------- ----------
$1,833,319 $1,626,065
========== ==========
Product Sales
Product sales include battery electrodes, revenues related to building of
battery packs and machine-building contracts. 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. In certain cases, cost of sales exceeds product sales due to
significant changes in products and manufacturing methods.
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.
11
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For both ECD and Ovonic Battery royalties, there are royalty trust or
contingent fee arrangements whereby the Company is obligated to pay a trust 25%
of optical memory royalties received and a law firm 25% of Ovonic Battery
royalties received, up to a stated limit, relative to consumer battery licenses
entered into in 1995 in settlement of an International Trade Commission action.
Business Agreements
A substantial portion of revenue is derived through business agreements
for the development and/or commercialization of products based upon the
Company's proprietary technologies. Such agreements are of two types.
The first type of business agreement relates to licensing the Company's
proprietary technologies. Licensing activities are tailored to provide each
licensee with the right to use the Company's technologies, most of which are
patented, for a specific product application or, in some instances, for further
exploration of new product applications of such technologies. The terms of such
licenses, accordingly, are tailored to address a number of circumstances
relating to the use of such technologies 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 employ such licensed technologies 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 product development agreements; in
other cases, they relate to product development and commercialization efforts of
the licensee, and 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. There are
no current or future direct costs associated with license fees.
In the second type of agreement, product development agreements, the
Company conducts specified commercialization and research and development
projects related to one of its principal technology specializations for an
agreed-upon fee. Some of these projects have stipulated performance criteria and
deliverables whereas others require "best efforts" with no specified performance
criteria. Revenues from product development 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
product development
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<PAGE>
agreements, where there are no specific performance terms, is recognized in
amounts equal to the amounts expended on the programs. Generally, the
agreed-upon fees for product development 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 product development agreements are recorded as cost of revenues from
product development agreements.
Overhead Allocations
The Company allocates overhead to product development and research
expenses and to cost of revenues from product development agreements based on a
percentage of direct labor costs. For cost of revenues from product development
agreements this allocation is limited to the amount of revenues, after direct
expenses, under the applicable agreements. Overhead is allocated to cost of
product sales through the application of overhead to inventory costs.
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 Nonoperating Income
Other nonoperating income-net consists of rental income and gains and
losses on the sale of fixed assets.
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<PAGE>
NOTE B - Product Sales, Royalties, Revenues from Product Development Agreements
and License and Other Agreements
The Company has business agreements with third parties for which royalties
and revenues are included in the consolidated statements of operations. A
summary of the royalties and revenues from such agreements follows:
Nine Months Ended March 31,
---------------------------
1998 1997
---- ----
Product Sales:
Negative and positive electrodes $ 7,710,893 $ 8,273,418
Battery packs 246,652 2,218,556
Machine building 148,300 1,648,700
------------ ------------
$ 8,105,845 $ 12,140,674
============ ============
Royalties:
Battery technology $ 1,775,699 $ 915,001
Optical memory technology 49,656 204,073
------------ ------------
$ 1,825,355 $ 1,119,074
============ ============
Revenues from Product Development Agreements:
Photovoltaics $ 1,431,412 $ 842,290
Battery technology 7,702,140 1,606,794
Microelectronics 963,037 687,249
Hydrogen 535,807 488,590
Other 329,386 209,860
------------ ------------
$ 10,961,782 $ 3,834,783
============ ============
License and Other Agreements:
Battery $ 900,000 $ 4,246,000
Microelectronics -- 80,645
------------ ------------
$ 900,000 $ 4,326,645
============ ============
NOTE C - Non-Refundable Advance Royalties
At March 31, 1998 and June 30, 1997, the Company deferred recognition of
revenues relating to non-refundable advance royalty payments. Non-refundable
advance royalties consist of the following:
March 31, June 30,
1998 1997
---- ----
Battery $1,647,592 $1,647,592
Optical Memory 2,115,810 2,043,894
---------- ----------
$3,763,402 $3,691,486
========== ==========
14
<PAGE>
NOTE D - Net Loss Per Share
In the three months and nine months ended March 31, 1998, the Company
adopted FASB Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings per Share. The Statement simplifies the standards for computing
earnings per share. The adoption of this Statement did not have any impact on
the Company since there were net losses in all of the current periods. Weighted
average number of shares outstanding and basic loss per share for the three
months and nine months ended March 31, 1998 and 1997 are computed as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
--------------- ------------------
1998 1997 1998 1997
(Unaudited) (Unaudited)
AVERAGE NUMBER OF SHARES
OUTSTANDING 10,931,636 10,745,713 10,837,143 10,714,176
========== ========== ========== ==========
NET LOSS $(3,778,997) $(7,128,392) $(11,582,882) $(13,046,006)
=========== =========== ============ ============
NET LOSS PER SHARE $ (.35) $ (.66) $ (1.07) $ (1.22)
=========== =========== ============ ============
Basic and diluted net loss per share are the same for each of these
periods. Outstanding stock options were not treated as common shares as they
were not anti-dilutive.
Item 2.Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
accompanying Quarterly Financial Information and Notes thereto and the Company's
Annual Report on Form 10-K, as amended, for the year ended June 30, 1997 and is
qualified in its entirety by the foregoing. The results of operations for the
three and nine months ended March 31, 1998 are not necessarily indicative of
results to be expected in future periods.
Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 (the "Securities
Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange
Act") which are not historical facts and involve risks and uncertainties that
could cause actual results to differ materially from those expected and
projected. These forward-looking statements concern, among other things, the
Company's expectations, plans and strategies for the development and
commercialization of products based on its technologies and are generally
identified by the use of such terms as "intends," "expects," "plans,"
"projects," "estimates," "anticipates," "should" and "believes."
The Company's future business prospects are substantially dependent upon
the ability of the Company, its joint venture partners and licensees to develop,
manufacture and sell products based on the Company's technologies. Any revenues
or profits which may be derived
15
<PAGE>
by the Company from license and joint venture agreements will be
substantially dependent upon the willingness and ability of the Company's
licensees and joint venture partners to devote their financial resources and
manufacturing and marketing capabilities to commercialize products based on the
Company's technologies. Additional development efforts will be required before
certain products based on the Company's technologies can be manufactured and
sold commercially. There can be no assurance that certain products based on the
Company's technologies can be manufactured cost effectively on a commercial
scale, that such products will gain market acceptance or that competing products
and technologies will not render products based on the Company's technologies
obsolete or noncompetitive. There can be no assurance that the Company's patents
or other proprietary rights will be determined to be valid or enforceable if
challenged in court or administrative proceedings or that the Company patents or
other proprietary rights, even if determined to be valid, will be broad enough
in scope to enable the Company to prevent third parties from producing products
using similar technologies or processes.
The Company cautions that the foregoing factors, as well as other factors
discussed in this Quarterly Report and in other documents and reports filed by
the Company with the Securities and Exchange Commission pursuant to the
requirements of the federal securities laws, could cause the actual facts and
conditions that may exist in the future to vary materially from the assumed
facts and conditions upon which the forward-looking statements contained herein
are based. The Company does not undertake any obligation to update or revise any
forward-looking statement, made by it or on its behalf, whether as a result of
new information, future events or otherwise.
Results of Operations
Three months ended March 31, 1998 Compared to Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
The Company had a net loss for the three months ended March 31, 1998 of
$3,779,000 compared to a net loss of $7,128,000 for the three months ended March
31, 1997. The loss is primarily due to (i) ongoing battery product development
and (ii) losses related to electrode production.
Product sales, consisting of positive and negative battery electrodes,
battery packs and machine building, decreased 13% in the quarter ended March 31,
1998 compared to the same quarter in the previous year. Battery electrode sales
were $2,819,000 in the March 1998 quarter compared to $2,814,000 in the March
1997 quarter. Higher product volumes of negative electrodes were partially
offset by lower negative electrode prices and reduced sales of positive
electrodes as GM Ovonic ramps up its production of positive electrodes. Battery
pack sales decreased to $44,000 in the March 1998 quarter from $137,000 in the
March 1997 quarter as GM Ovonic (Ovonic Battery's principal customer for battery
packs) ramps up its production of battery packs. There were no revenues from
machine building in the March 1998 quarter, compared to $335,000 in the same
period last year, principally because machine- building projects for GM Ovonic
were completed for that time period.
Royalties increased 141% to $730,000 in the three months ended March 31,
1998 from $303,000 in the three months ended March 31, 1997, primarily due to
the issuance in Japan
16
<PAGE>
of a basic patent recognizing the fundamentals that make NiMH batteries
commercially feasible. The volume of NiMH batteries being sold is increasing
substantially; however, the royalties the Company receives are adversely
affected by lower sales prices and unfavorable exchange rates with the Japanese
yen. Royalties from ECD's optical memory technology were significantly lower
than the year earlier quarter due to lower sales of phase-change dual ("PD")
disks in 1998.
The 129% increase in revenues from product development agreements to
$3,949,000 in the three months ended March 31, 1998 from $1,725,000 in the three
months ended March 31, 1997 was due to substantially increased revenues from a
new multi-year, multi-task program with General Motors to develop batteries for
electric and hybrid electric vehicle applications ($1,953,000 in the quarter
ended March 31, 1998) and from contracts with the National Institute of
Standards and Technology ("NIST") ($382,000 in the quarter ended March 31, 1998)
in the Company's battery and optical memory technologies. Revenues from product
development agreements and research and development for ECD's photovoltaic
technology increased $405,000 (136%).
The Company has $13,463,000 in unrecognized revenues outstanding under
product development agreements with U.S. government or other agencies or
companies, of which $7,133,000 is subject to the normal availability of funding
by the applicable agency. Based on these product development agreements, and on
scheduled funding and performance, without giving effect to any new product
development agreements which may be entered into during the remainder of the
year ended June 30, 1998, $5,955,000 additional revenue is expected to be
recorded in revenues from product development agreements for the remainder of
the year ending June 30, 1998.
Revenues from license and other agreements were $600,000 in the three
months ended March 31, 1998 relating to a technology transfer agreement with
Sovlux and the Chepetsky Mechanical Plant, an enterprise of the Russian Ministry
of Atomic Energy.
The Company incurred a total of $7,269,000 in the quarter ended March 31,
1998 for product development (funded and unfunded) compared to $5,434,000 in the
same quarter in the prior year. This planned increase in expenditures for
product development was primarily for continued development of the Company's
"family of batteries" products. The increased spending of $1,835,000 for product
development was more than paid for by the $2,223,000 increase in revenues from
product development agreements.
Other revenues increased by $473,000 in the three months ended March 31,
1998 due to increased billings for work performed for Ovonic Battery licensees.
The decrease in cost of product sales from $4,214,000 in the three months
ended March 31, 1997 to $3,215,000 in the three months ended March 31, 1998 was
principally due to the reduced level of machine building for GM Ovonic and
reduced sales of battery packs as GM Ovonic ramped-up its production. The
Company has made progress in its efforts to reduce product costs, and the loss
on product sales decreased from $927,000 in the 1997 quarter to $352,000 in the
1998 quarter. The Company's cost reduction efforts continue to be focused on:
improving quality control through increased automation, on-line gauging,
improved process
17
<PAGE>
monitoring and control, early identification of non-conforming material and
operator training; investing in equipment and equipment upgrades to minimize
downtime and increase capability; and improving the preventive
maintenance program to reduce unplanned downtime.
Expenses were incurred in 1998 and 1997 in connection with the defense and
prosecution of litigation with respect to Ovonic Battery's United States patents
covering its proprietary NiMH battery technology. The reduction in expense from
$1,275,000 in the three months ended March 31, 1997 to $92,000 in the three
months ended March 31, 1998 relates to the successful conclusion of litigation
involving Matsushita Battery Industrial Co., Ltd.
("MBI") in December 1997.
The decrease in operating, general and administrative expenses from
$2,079,000 in the three months ended March 31, 1997 to $1,970,000 in the three
months ended March 31, 1998 was primarily due to increased allocations in 1998
to cost of revenues from product development agreements.
The decrease in other income from $298,000 in the three months ended March
31, 1997 to other income of $29,000 in the three months ended March 31, 1998 was
due principally to decreased interest income in 1998.
Nine months ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
- -----------------------------------------------------------------------------
The Company had a net loss for the nine months ended March 31, 1998 of
$11,583,000 compared to a net loss of $13,046,000 for the nine months ended
March 31, 1997. The loss is primarily due to (i) ongoing battery product
development; (ii) losses related to electrode production; and (iii) ongoing
protection of the Company's technologies. Excluding revenues from license and
other agreements, which are non-recurring, the net loss was reduced from
$17,373,000 for the nine months ended March 31, 1997 to $12,483,000 for the nine
months ended March 31, 1998.
Product sales, consisting of positive and negative battery electrodes,
battery packs and machine building, decreased 33% in the nine months ended March
31, 1998 compared to the nine months ended March 31, 1997. Battery electrode
sales decreased to $7,711,000 in the nine months ended March 31, 1998 from
$8,273,000 in the nine months ended March 31, 1997, primarily due to lower
negative electrode prices. Battery pack sales decreased 89% to $247,000 from
$2,219,000 as GM Ovonic, formally the Company's principal battery pack customer,
ramps up its production of battery packs. Revenues from machine building were
$148,000 in the nine months ended March 31, 1998 down from $1,649,000 in the
nine months ended March 31, 1997, principally because machine-building projects
for GM Ovonic were completed for that time period.
Royalties increased 63% to $1,825,000 in the nine months ended March 31,
1998 from $1,119,000 in the nine months ended March 31, 1997 primarily due to
the issuance in Japan of a basic NiMH battery patent in August, 1997. The volume
of NiMH batteries being sold is increasing substantially; however, the royalties
the Company receives are adversely affected by lower sales prices and
unfavorable exchange rates with the Japanese yen. The Company
18
<PAGE>
also experienced lower levels of royalties from ECD's optical memory technology
in 1998 due to lower sales of PD disks.
The 186% increase in revenues from product development agreements to
$10,962,000 in the nine months ended March 31, 1998 from $3,835,000 in the nine
months ended March 31, 1997 was due to substantially increased revenues from a
new multi-year, multi-task program with General Motors to develop batteries for
electric and hybrid electric vehicle applications ($4,707,000 in the nine months
ended March 1998), from a contract with the United States Advanced Battery
Consortium ("USABC") ($1,759,000 in the nine months ended March 31, 1998) and
from contracts with NIST in the Company's battery and optical memory technology
($605,000 in the nine months ended March 31, 1998). Revenues from product
development agreements and research and development for ECD's photovoltaic
technology increased $589,000 (70%).
Revenues from license and other agreements decreased from $4,327,000 in
the nine months ended March 31, 1997 to $900,000 in the nine months ended March
31, 1998. 1997 revenues included license fees of $2,000,000 from Sanoh
Industrial Co., Ltd., $1,000,000 from LG Chemical, Ltd. and $1,246,000 from
Canon, Inc. in connection with license agreements with these companies. 1998
license fees of $900,000 relate to a technology transfer agreement with Sovlux
and the Chepetsky Mechanical Plant in Russia.
The Company incurred a total of $20,935,000 in the nine months ended March
31, 1998 for product development (funded and unfunded) compared to $14,474,000
in the nine months ended March 31, 1997. This planned increase in expenditures
for product development was primarily for continued development of the Company's
"family of batteries" products. The increased spending of $6,461,000 for product
development was more than paid for by the $7,127,000 increase in revenues from
product development agreements.
Other revenues increased by $1,380,000 in the nine months ended March 31,
1998 due to increased billings for work performed for Ovonic Battery licensees.
The decrease in cost of product sales to $9,174,000 in the nine months
ended March 31, 1998 from $13,896,000 in the nine months ended March 31, 1997
was principally due to the reduced level of machine building for GM Ovonic and
reduced sales of battery packs as GM Ovonic ramped-up its production. The
Company has made progress in its effort to reduce product costs and its cost
reduction efforts are focused on: improving quality control through increased
automation, on-line gauging, improved process monitoring and control, early
identification of non-conforming material and operator training; investing in
equipment and equipment upgrades to minimize downtime and increase capability;
and improving the preventive maintenance program to reduce unplanned downtime.
Expenses were incurred in 1998 and 1997 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 reduction in expense
from $2,431,000 in the nine months ended March 31, 1997 to $294,000 in the nine
months ended March 31, 1998 relates to the successful conclusion of litigation
involving MBI in December 1997.
19
<PAGE>
Operating, general and administrative expenses decreased to $4,984,000 in
the nine months ended March 31, 1998 from $5,315,000 in the nine months ended
March 31, 1997 primarily due to increased allocations in 1998 to cost of
revenues from product development agreements.
The change from other income of $963,000 in the nine months ended March
31, 1997 compared to other income of $327,000 in the nine months ended March 31,
1998 was due principally to decreased interest income in 1998.
Liquidity and Capital Resources
As of March 31, 1998, the Company had unrestricted consolidated cash and
cash equivalents and investments, consisting of commercial paper maturing in
four to six months, of $5,277,000, a decrease of $10,053,000 from June 30, 1997.
In addition, the Company had current accounts receivable at March 31, 1998 of
$10,729,000, a decrease of $1,881,000, compared to $12,610,000 at June 30, 1997
due to the collection of a large receivable for a one-time license fee. As of
March 31, 1998, the Company had consolidated working capital of $12,264,000
compared with a consolidated working capital of $23,161,000 as of June 30, 1997.
The Company continues its strategies to commercialize its products through
strategic alliances by forming joint ventures or license agreements with third
parties who can provide financial resources and marketing expertise for the
Company's technologies and products. The Company is also developing its own
capabilities for volume manufacturing of battery electrodes.
During the nine months ended March 31, 1998, $8,793,000 of cash was used
in operations. The difference between the net loss of $11,583,000 and the net
cash used in operations was principally due to depreciation expense and a
decrease in accounts receivable, partially offset by an increase in inventories.
In addition, during this period $980,000 of machinery and equipment was
purchased or constructed for the Company's operations.
During the next 12 months, Ovonic Battery is considering the purchase of
up to $4,000,000 of machinery and equipment. The machinery and equipment would
be utilized principally for Ovonic Battery's manufacturing operation.
The Company expects significant revenues and cash flows related to product
development agreements, many of which already exist, that are entered into by
the Company with U.S. government agencies and with industry partners to develop
the Company's products and production technology. Contracts with industry
partners include a multi-year, multi-task program with General Motors to develop
batteries for electric and hybrid electric vehicle applications. This program,
which is currently funded on a monthly basis, builds upon the Company's earlier
investments to develop a family of batteries and is intended to provide next-
and future-generation NiMH batteries that will be manufactured by GM Ovonic.
Three contracts awarded to the Company by NIST under three Advanced Technology
Programs ("ATP") will also provide significant cashflows. One contract was
awarded to Ovonic Battery to develop the next generation of high energy density
NiMH batteries using low-cost
20
<PAGE>
magnesium-based hydrogen storage materials. The other two NIST contracts
were awarded to ECD to support development of a new, low-cost manufacturing
system for DVD (digital versatile disks) based on ECD's proprietary phase-change
technology and for further development of the optical memory phase-change
products. Generally, the agreed-upon fees for these product development
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).
In April 1998, the Company entered into a one-year financing agreement
with Standard Federal Bank for a line of credit of up to $5,000,000. This
financing bears an interest rate of prime plus 1/2%, is secured by a first
interest in the Company's accounts receivable and inventory and contains certain
financial covenants relating to the Company's tangible net worth, working
capital and total debt to tangible net worth.
In April 1998, the Company also recently entered into a $6,000,000 credit
arrangement with Finova Capital Corporation, which has two components. One
component, which has been fully utilized, provided $2,000,000 to refinance
existing leased equipment, (resulting in $1,200,000 net cash to the Company),
has a three-year term at the expiration of which the Company will be required to
purchase the equipment for 10% of the original cost. The second component
provides for up to $4,000,000 of financing through December 31, 1998 for the
Company's sale and leaseback of equipment it acquired subsequent to June 30,
1996; at the expiration of the related five-year lease, the Company will be
required to purchase the leased equipment for 10% of the original cost.
On April 22, 1998, the Company filed a Registration Statement with the
Securities and Exchange Commission for the sale of two million shares of ECD
Common Stock and two million warrants to purchase two million shares of ECD
Common Stock in the form of two million units, each unit consisting of one share
of ECD Common Stock and one warrant to purchase one share of ECD Common Stock.
The Company is actively pursuing its strategy to form strategic alliances
to further commercialize its products. While the Company is in negotiations with
a number of companies which could provide additional revenue under license and
other agreements for the Company in the coming year, it is unable to predict, if
any, the amount of such revenue.
The Company was issued a basic patent in Japan in August, 1997 specifying
the fundamentals that make NiMH batteries commercially feasible. The issuance of
this patent has resulted in higher royalty revenue and is expected to result in
the payment of higher running royalties in the future based upon current
production rates and selling prices of batteries produced in Japan by licensees.
Other than the foregoing, the Company is not aware of other events or
circumstances that would allow it to forecast royalty revenues significantly
higher or lower for the next twelve months.
The Company is also actively negotiating new machine-building contracts
that could provide revenues in the coming year and beyond. Machine building is
cyclical but an important part of the Company's business. As of March 31, 1998,
the Company had no backlog of machine-building contracts.
21
<PAGE>
The amount of cash to be received under existing product development
agreements for the remainder of the year ending June 30, 1998 is anticipated to
be approximately $5,900,000. The amount of cash for royalties (which are
recognized for revenue purposes on an accrual basis) to be received for the
remainder of the year ending June 30, 1998 is expected to be, based on
historical trends, approximately $62,000.
License fees are non-recurring, and while the Company is engaged in
negotiations with a number of companies, the outcome of these negotiations is
difficult to predict. Therefore, the Company is unable to predict the amount of
cash from license fees, if any, to be received during the remainder of the year
ending June 30, 1998.
Management believes that funds generated from operations and existing cash
and investment balances, along with agreements currently under negotiation and
the proceeds from the securities offered by the Company pursuant to the
Registration Statement filed by the Company on April 22, 1998, will be adequate
to fund its operations and to support and finance planned capital expenditures
and company-sponsored research and development programs over the coming year.
22
<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 February 19,
1998 (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 14,498,500 227,499
Iris M. Ovshinsky 14,505,058 220,941
Robert C. Stempel 14,502,815 223,184
Nancy M. Bacon 14,528,295 197,704
Umberto Colombo 14,367,563 358,436
Hellmut Fritzsche 14,514,635 211,364
Joichi Ito 14,374,702 351,297
Seymour Liebman 14,529,443 196,556
Walter J. McCarthy, Jr. 14,510,954 215,045
Florence I. Metz 14,510,529 215,470
Haru Reischauer 14,351,838 374,161
Nathan J. Robfogel 14,509,339 216,660
Stanley K. Stynes 14,485,829 240,170
At the Meeting, the stockholders approved a proposal to increase the
number of authorized shares of the Company's Common Stock from 15,000,000 to
20,000,000 with 7,950,596 Common Stock votes and 5,497,825 Class A Common Stock
votes cast for the proposal. There were 536,401 Common Stock votes cast against
the proposal and 97,495 Common Stock abstentions.
Also approved at the Meeting was the appointment of Deloitte & Touche LLP
as independent accounts for the fiscal year ending June 30, 1998 which passed
with 14,511,325 votes for, 155,501 votes against and 59,173 abstentions.
Item 5.Other Information
On April 23, 1998, United Solar Systems Corp. ("United Solar"), ECD's
photovoltaic (solar energy) joint venture with Canon Inc. of Japan, and Sky
Station International, Inc. ("Sky Station") announced the formation of a new
joint venture, Sky Solar, L.L.C., to manufacture photovoltaic ("PV") products
for stratospheric platforms and space satellites. The venture is owned 60% by
United Solar, which is contributing its proprietary PV technology to the
venture, and 40% by Sky Station which is to provide the funding to optimize
United Solar's technology for stratospheric and space ("strato-space")
applications and for construction of a dedicated strato-space PV production
line. In connection with this agreement, substantial amounts of the funding will
be used for the development and construction of the equipment which will be
subcontracted by United Solar to ECD to produce the PV products for these
platforms and satellites. Final contracts for the development and construction
of this equipment are pending the successful completion of Sky Station's
funding.
23
<PAGE>
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.
24
<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/ Stephan W. Zumsteg
Stephan W. Zumsteg
Date: May 8, 1998 Treasurer
By: /s/ Stanford R. Ovshinsky
Stanford R. Ovshinsky
Date: May 8, 1998 President and Chief Executive Officer
25
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form 10-
Q for the period March 31, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,276,639
<SECURITIES> 0
<RECEIVABLES> 10,728,584
<ALLOWANCES> (140,000)
<INVENTORY> 1,833,319
<CURRENT-ASSETS> 18,305,297
<PP&E> 28,814,589
<DEPRECIATION> 22,516,914
<TOTAL-ASSETS> 27,942,970
<CURRENT-LIABILITIES> 6,040,800
<BONDS> 247,692
0
0
<COMMON> 110,682
<OTHER-SE> 17,780,394
<TOTAL-LIABILITY-AND-EQUITY> 27,942,970
<SALES> 8,105,845
<TOTAL-REVENUES> 24,191,634
<CGS> 9,173,655
<TOTAL-COSTS> 11,084,642
<OTHER-EXPENSES> 15,843,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,661
<INCOME-PRETAX> (11,582,882)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,582,882)
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<NET-INCOME> (11,582,882)
<EPS-PRIMARY> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
