<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 28, 1997
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-20028
VALENCE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0214673
-------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 Conestoga Way, Henderson, Nevada 89015
-----------------------------------------------------------
(Address of principal executive offices including zip code)
(702) 558-1000
-----------------------------------------------------------
(Registrant's telephone number, including area code)
-----------------------------------------------------------
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.
(1) Yes X No (2) Yes X No
--- --- --- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $0.001 par value 23,765,968 shares
----------------------------- -----------------------------
(Class) (Outstanding at February 2, 1998)
Page 1 of 15
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
FORM 10-Q
FOR THE THIRD QUARTER ENDED DECEMBER 28, 1997
INDEX
PAGES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
December 28, 1997 and March 30, 1997 . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations
for the period from March 3, 1989 (date of inception)
to December 28, 1997 and for each of the three month and nine
month periods ended December 28, 1997 and December 29, 1996. . . 4
Condensed Consolidated Statements of Cash Flows
for the period from March 3, 1989 (date of inception)
to December 28, 1997 and for each of the nine month
periods ended December 28, 1997 and December 29, 1996. . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . .11
SIGNATURES
2
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
_____
<TABLE>
<CAPTION>
December 28, March 30,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,349 $ 27,832
Short-term investments -- 5,556
Accounts receivable 1,822 431
Interest receivable 2 126
Prepaids and other current assets 104 120
------------ ------------
Total current assets 19,277 34,065
Investments -- 4,000
Property, plant and equipment, net 28,734 17,191
Investments in Joint Venture 1,616 --
Other assets 240 270
------------ ------------
Total assets $ 49,867 $ 55,526
------------ ------------
------------ ------------
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 502 $ 1,433
Accounts payable 4,594 1,949
Accrued expenses 7,294 7,317
Accrued compensation 1,518 1,261
------------ ------------
Total current liabilities 13,908 11,960
Deferred revenue 2,500 --
Long-term debt, less current portion 4,849 5,217
------------ ------------
Total liabilities 21,257 17,177
------------ ------------
Contingencies (Note 3).
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value:
Authorized: 10,000 shares;
Issued and outstanding: none
Common stock, $0.001 par value:
Authorized: 50,000 shares;
Issued and outstanding: 23,473 and 21,745 shares at
December 28, 1997 and March 30, 1997, respectively 146,478 140,580
Deficit accumulated during the development stage (119,824) (103,526)
Cumulative translation adjustment 1,956 1,295
------------ ------------
Total stockholders' equity 28,610 38,349
------------ ------------
Total liabilities and stockholders' equity $ 49,867 $ 55,526
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
_____
<TABLE>
<CAPTION>
Period from
March 3, 1989
(date of inception) Three Months Ended Nine Months Ended
through ----------------------------- -----------------------------
December 28, December 28, December 29, December 28, December 29,
1997 1997 1996 1997 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Research and
development
contracts $ 21,605 $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Research and
development 80,772 $ 3,261 $ 3,570 $ 11,723 $ 8,810
Marketing 3,139 212 29 462 152
General and
administrative 36,541 1,381 1,695 4,179 4,122
Purchase of in
process
technology 8,212 -- -- -- --
Investment in
Danish
subsidiary 3,489 -- -- -- --
Special charges 18,872 -- -- -- --
------------ ------------ ------------ ------------ ------------
Total costs and
expenses 151,025 4,854 5,294 16,364 13,084
------------ ------------ ------------ ------------ ------------
Operating loss (129,420) (4,854) (5,294) (16,364) (13,084)
Interest income 14,689 189 631 963 2,084
Interest expense (4,209) (148) (139) (447) (425)
Equity in earnings
(losses) of Joint
Venture (884) (150) -- (450) --
------------ ------------ ------------ ------------ ------------
Net loss $ (119,824) $ (4,963) $ (4,802) $ (16,298) $ (11,425)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net loss per share:
Basic and Diluted $ -- $ (0.21) $ (0.22) $ (0.72) $ (0.53)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Shares used in
computing net loss
per share: Basic and
Diluted -- 23,406 21,673 22,644 21,672
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
(unaudited)
_____
<TABLE>
<CAPTION>
Period from
March 3, 1989
(date of inception) Nine Months Nine Months
through Ended Ended
December 28, December 28, December 29,
1997 1997 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (119,824) $ (16,298) $ (11,425)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 21,007 1,162 2,618
Write-off of equipment 14,792 -- --
Write-off of in-process technology 6,211 -- --
Compensation related to stock options 2,428 1,007 30
Noncash charge related to acquisition
of Danish subsidiary 2,245 -- --
Equity in (earnings) losses of Joint Venture 884 450 --
Changes in assets and liabilities:
Accounts receivable (733) (1,391) (32)
Interest receivable 8 125 192
Notes receivable (27) 117 258
Prepaid expenses and other current assets (710) 363 (899)
Accounts payable 4,493 2,645 378
Accrued liabilities 966 673 (604)
Deferred revenue 2,500 2,500 0
-------------------- -------------------- --------------------
Net cash used in operating activities (65,760) (8,647) (9,484)
-------------------- -------------------- --------------------
Cash flows from investing activities:
Purchases of long-term investments (665,789) (187,561) (288,259)
Maturities in long-term investments 659,113 194,685 311,255
Capital expenditures (51,144) (11,892) (3,040)
Other (222) 0 0
-------------------- -------------------- --------------------
Net cash provided by (used in)
investing activities (58,042) (4,768) 19,956
-------------------- -------------------- --------------------
Cash flows from financing activities:
Property and equipment grants 4,419 0 28
Maturities of restricted cash
Borrowings of long-term debt 15,502 -- --
Payments of long-term debt:
Product development loan (482) -- --
Shareholder and director (6,173) -- --
Other long-term debt (11,834) (1,298) (1,505)
Proceeds from issuance of common stock,
net of costs 141,675 4,891 0
-------------------- -------------------- --------------------
Net cash provided by (used in) financing
activities 143,107 3,593 (1,477)
-------------------- -------------------- --------------------
Effect of foreign exchange rates on cash and cash
equivalents (1,956) (661) (664)
Increase (decrease) in cash and cash equivalents 17,349 (10,483) 8,331
Cash and cash equivalents, beginning of period 0 27,832 24,569
-------------------- -------------------- --------------------
Cash and cash equivalents, end of period $ 17,349 $ 17,349 $ 32,900
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
_____
1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
These interim condensed consolidated financial statements are unaudited but
reflect, in the opinion of management all normal recurring adjustments
necessary to present fairly the financial position of Valence Technology,
Inc. and Subsidiaries (the Company) as of December 28, 1997 and March 30,
1997, and its consolidated results of operations and cash flows for the
period from March 3, 1989 (date of inception) to December 28, 1997 and for
each of the three-month and nine-month periods ended December 28, 1997 and
December 29, 1996. Because all the disclosures required by generally
accepted accounting principles are not included, these interim condensed
consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto in the Company's Annual Report
on Form 10-K as of and for the year ended March 30, 1997. The year end
condensed consolidated balance sheet data as of March 30, 1997 was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
The results of operations for the three-month and nine-month periods and the
cash flows for the nine-months ended December 28, 1997 are not necessarily
indicative of results of operations and cash flows for any future period.
2. NET LOSS PER SHARE
Financial Acounting Standards Board Statement No. 128, "Earnings Per Share"
(SFAS 128), specifies the computation, presentation, and disclosure
requirements for net income (loss) per share and became effective for the
Company's three month and nine month periods ended December 28, 1997.
Accordingly, net income per share for the three and nine month periods ended
December 28, 1997 have been computed in acccordance with SFAS 128 and all
prior period net income per share data presented has been restated to conform
with SFAS 128.
The computation of net loss per share is based on the weighted average number
of common shares outstanding during the period. Common stock options and
warrants have not been included in the computation since their inclusion
would be antidilutive.
3. CONTINGENCIES
LITIGATION
In May 1994, a series of class action lawsuits were filed in the United
States District Court for the Northern District of California against the
Company and certain of its present and former officers and directors. These
lawsuits were consolidated, and in September 1994 the plaintiffs filed a
consolidated and amended class action complaint. Following the Court's
Orders on motions to dismiss the complaint, which were granted in part and
denied in part, the plaintiffs filed an amended complaint in October 1995
("Complaint"). The Complaint alleges violations of the federal securities
laws against the Company, certain of its present and former officers and
directors, and the underwriters of the Company's public stock offerings,
claiming that the defendants issued a series of false and misleading
statements, including filings with the Securities and Exchange Commission,
with regard to the Company's business and future prospects. The plaintiffs
seek to represent a class of persons who purchased the Company's common stock
between May 7, 1992 and August 10, 1994. The Complaint seeks unspecified
compensatory and punitive damages, attorney's fees and costs. On January 23,
1996, the Court dismissed, with prejudice, all claims against the
underwriters of the Company's public stock offerings, and one claim against
the Company and its present and former officers and directors. On April 29,
1996, the Court dismissed with prejudice all remaining claims against a
present director and limited claims against a former officer and director to
the period when the person was an officer. In December 1996, the Company and
the remaining individual defendants filed motions for summary judgment, which
the plaintiffs opposed. In November 1997, the Court granted the Company's
motion for summary judgment and entered a judgment in favor of all
defendants. Plaintiffs have filed a notice of appeal with the Court.
6
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
4. RECENT ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.130, "REPORTING COMPREHENSIVE
INCOME"
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as " the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners." SFAS 130 is effective for fiscal years beginning
after December 15, 1997, and reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS 130 is
not expected to have a material impact on the Company's financial position,
results of operations or cash flows.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.131, "DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION"
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS 131 generally
supersedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise." Under SFAS 131, 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. Generally, financial information is required to be reported on
the basis that is used internally. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997, and restatement of
comparative information for earlier years is required. However, SFAS 131 is
not required to be applied to interim financial statements in the initial
year of application. SFAS 131 will not have a material impact on the
Company's financial position, results of operations or cash flows.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis below, and throughout this report, contains
forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such forward looking statements involve a number of risks and
uncertainties including, but not limited to, market acceptance, changing
economic conditions, risks in product and technology development, effect of
the Company's accounting policies and other risk factors detailed in the
Company's Securities and Exchange Commission filings. Actual results could
differ materially from those projected or suggested in the forward looking
statements as a result of the risk factors set forth herein and in the
Company's Annual Report on Form 10-K as of and for the year ended March 30,
1997.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the accompanying condensed
consolidated financial statements and notes thereto contained herein and the
Company's consolidated financial statements and notes thereto contained in
the Company's Annual Report on Form 10-K as of and for the year ended March
30, 1997. The results for the three and nine month period ending December
28, 1997 are not necessarily indicative of the results to be expected for the
entire fiscal year ending March 29, 1998.
OVERVIEW
The Company was founded in 1989 to develop and commercialize advanced
rechargeable batteries based on lithium and polymer technologies. Since its
inception, the Company has been a development stage company primarily engaged
in acquiring and developing its initial technology, manufacturing limited
quantities of prototype batteries, recruiting personnel, and acquiring
capital. To date, other than insubstantial revenues from limited sales of
prototype batteries, the Company has not received any significant revenues
from the sale of products. Substantially all revenues to date have been
derived from a research and development contract with the Delphi Automotive
Systems Group ("Delphi," formerly the Delco Remy Division), and operating
group of the General Motors Corporation. The Company has incurred cumulative
losses of $119,824,000 from its inception to December 28, 1997.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996 (THIRD
QUARTER AND FIRST NINE MONTH PERIODS OF FISCAL 1998 AND FISCAL 1997,
RESPECTIVELY).
During the three and nine month periods ended December 28, 1997, the Company
continued development activities under a research and development agreement
with Delphi. Payments were generally made in accordance with the achievement
of certain milestones. No revenues were recognized during the first three
and nine month periods of fiscal 1998 and 1997.
In September, 1994 the Company and Delphi signed a new five year agreement to
combine efforts in developing the Company's rechargeable solid state lithium
polymer battery technology. Under the agreement, Delphi and the Company
combined their research and development activities in a new facility in
Henderson, Nevada. The new facility is owned by the Company, with Delphi
paying a fee of $50,000 per month over the five year term of the new
agreement for access to the Company's research and development (of which
$150,000 and $450,000 were recognized during the third quarter and first nine
months of fiscal 1998, and fiscal 1997, respectively, as an offset to
research and product development expenses). In addition, Delphi is paying a
majority of the facility's operating costs over the term of the new five year
agreement. The Company is treating both of these payments as an offset to
research and development expense.
Research and development expenses were $3,261,000 and $11,723,000 during the
three and nine month periods ended December 28, 1997, respectively, as
compared to $3,570,000 and $8,810,000 during the same periods of fiscal 1997.
The increase year to year was primarily due to costs incurred to complete
development and to proceed with manufacturing product in calendar year 1998.
Marketing expenses were $212,000 and $462,000 for the third quarter and first
nine months of fiscal year 1998, respectively, as compared to $29,000 and
$152,000 during similar periods of fiscal year 1997. The comparative
increase is the result of an increase in personnel, travel expenses, and
severance costs.
8
<PAGE>
General and administrative expenses decreased to $1,381,000 during the third
quarter of fiscal year 1998, from $1,695,000 during the fiscal year 1997
comparable period. The third quarter decrease results from a reduction in
legal fees associated with the shareholder class action lawsuit. For the
nine month periods, general and administrative expenses were essentially
unchanged at $4,179,000 in 1998 versus $4,122,000 in 1997.
Interest income decreased to $189,000 and $963,000 during the third quarter
and first nine months of fiscal year 1998, respectively, as compared to
$631,000 and $2,084,000 during the same periods in the prior fiscal year.
The difference is a result of a decline in funds available for investment
purposes, due to funds used for operations.
Interest expense was constant at $148,000 and $447,000 during the third
quarter and first nine months of fiscal year 1998, respectively, as compared
to $139,000 and $425,000 during the prior fiscal year's comparable periods.
Joint venture expenses were $150,000 and $450,000 for the third quarter and
first nine months of fiscal year 1998, respectively, as compared to nil for
the third quarter and first nine months of fiscal year 1997. Joint venture
expenses represent 50% of the start up costs associated with the Hanil
Valence operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $8,647,000 net cash for operating activities during fiscal
year 1998's first nine months whereas it used $9,484,000 during the first
nine months of fiscal year 1997, a decrease between comparable periods of
$837,000. This decrease primarily resulted from costs associated with the
product commercialization activities.
During the nine months ended December 28, 1997, the Company used $4,768,000
net cash from investing activities compared to providing $19,956,000 during
the first nine months of fiscal year 1997, a decrease of $24,724,000 between
comparable periods. The increase was a result of shortened investment
maturities, resulting in reclassification to cash and cash equivalents as
well as increased costs associated with present commercialization efforts.
The Company provided $3,593,000 net cash from financing activities during
fiscal year 1998's first nine months versus using $1,477,000 during the first
nine months of fiscal year 1997. This increase was primarily due to the
Company receiving proceeds from common stock issuance pursuant to the
exercising of expiring warrants and stock option exercises.
As a result of the above, the Company had a net decrease in cash and cash
equivalents of $10,483,000 during the fiscal year 1998's first nine months,
whereas it had a net increase of $8,331,000 during the same period of fiscal
year 1997.
The Company's $2,000,000 working capital line of credit is available through
March, 1998. The working capital line collateralizes outstanding letters of
credit, which reduce borrowings otherwise available under the line. As of
December 28, 1997, there is one outstanding letter of credit in the amount of
$25,000 to assure delivery of raw materials for product commercialization.
During fiscal year 1994, the Company through its Dutch subsidiary, signed an
agreement with the Northern Ireland Industrial Development Board (IDB) to
open an automated manufacturing plant in Northern Ireland in exchange for
capital and revenue grants from the IDB. The Company has also received
offers from the IDB to receive additional grants. The grants available under
the agreement and offers, for an aggregate of up to L27,555,000, generally
become available over a five year period through October 31, 2001. As of
December 28, 1997, the Company had received grants aggregating L4,035,000
reducing remaining grants available to L23,520,000 (US. $39,219,600 as of
December 28, 1997).
As a condition to receiving funding from the IDB, the subsidiary must
maintain a minimum of L12,000,000 in debt or equity financing from the
Company. Aggregate funding under the grants is limited to L4,035,000 until
the Company has recognized U.S. $4,000,000 in aggregate revenue from the
sale of its batteries produced in Northern Ireland. Given that the Company
has no agreements to supply batteries using its current technology, there are
no assurances that the Company will be able to meet the agreement's revenue
test.
9
<PAGE>
The amount of the grants available under the agreement and offers is
primarily dependent on the level of capital expenditures made by the Company.
Substantially all of the funding received under the grants is repayable to
the IDB if the subsidiary is in default under the agreement and offers, which
includes the permanent cessation of business in Northern Ireland. Funding
received under the grants to offset capital expenditures is repayable if
related equipment is sold, transferred or otherwise disposed of during a four
year period after the date of grant. In addition, a portion of funding
received under the grants may also be repayable if the subsidiary fails to
maintain specified employment levels for the two year period immediately
after the end of the five year grant period. The Company has guaranteed the
subsidiary's obligations to the IDB under the agreement. There can be no
assurance that the Company will be able to meet the requirements necessary
for it to receive and retain grants under the IDB agreement and offers.
At December 28, 1997, the Company's working capital was $5,370,000. The
Company expects that its existing funds as of December 28, 1997, together
with the interest earned thereon, will be sufficient to fund the Company's
operations through the end of fiscal year 1998. The Company anticipates that
it will need substantial additional funds commencing in fiscal 1999 for
capital expenditures, research and product development, marketing and general
and administrative expenses and to pursue joint venture opportunities. The
Company's cash requirements, however, may vary materially from those now
planned because of changes in the Company's operations, including changes in
OEM relationships or market conditions. There can be no assurance that funds
for these purposes, whether from equity or debt financing agreements with
strategic partners or other sources, will be available on favorable terms, if
at all. In the event the Company is unable to raise adequate funds in the
early part of fiscal 1999, it may have to curtail significantly its
activitites, which would have a significantly adverse impact on the Company's
short term operations as well as long term prospects.
Forward looking statments involve a number of risks and uncertaintites
including, but not limited to, market acceptance, changing economic
conditions, risks in product and technology development, effect of the
Company's accounting policies and other risk factors detailed in the
Company's Securities and Exchange Commission filings.
LITIGATION
In May 1994, a series of class action lawsuits were filed in the United
States District Court for the Northern District of California against the
Company and certain of its present and former officers and directors. These
lawsuits were consolidated, and in September 1994 the plaintiffs filed a
consolidated and amended class action complaint. Following the Court's
Orders on motions to dismiss the complaint, which were granted in part and
denied in part, the plaintiffs filed an amended complaint in October 1995
("Complaint"). The Complaint alleges violations of the federal securities
laws against the Company, certain of its present and former officers and
directors, and the underwriters of the Company's public stock offerings,
claiming that the defendants issued a series of false and misleading
statements, including filings with the Securities and Exchange Commission,
with regard to the Company's business and future prospects. The plaintiffs
seek to represent a class of persons who purchased the Company's common stock
between May 7, 1992 and August 10, 1994. The Complaint seeks unspecified
compensatory and punitive damages, attorney's fees and costs. On January 23,
1996, the Court dismissed, with prejudice, all claims against the
underwriters of the Company's public stock offerings, and one claim against
the Company and its present and former officers and directors. On April 29,
1996, the Court dismissed with prejudice all remaining claims against a
present director and limited claims against a former officer and director to
the period when the person was an officer. In December 1996, the Company and
the remaining individual defendants filed motions for summary judgment, which
the plaintiffs opposed. In November 1997, the Court granted the Company's
motion for summary judgment and entered a judgment in favor of all
defendants. Plaintiffs have filed a notice of appeal with the Court.
RECENT ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.130, "REPORTING COMPREHENSIVE
INCOME"
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as " the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners." SFAS 130 is effective for fiscal years beginning
after December 15, 1997, and reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS 130 is
not expected to have a material impact on the Company's financial position,
results of operations or cash flows.
10
<PAGE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO.131, "DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION"
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS 131 generally
supersedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise." Under SFAS 131, 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. Generally, financial information is required to be reported on
the basis that is used internally. SFAS 131 is effective for financial
statements for periods beginning after December 15, 1997, and restatement of
comparative information for earlier years is required. However, SFAS 131 is
not required to be applied to interim financial statements in the initial
year of application. SFAS 131 will not have a material impact on the
Company's financial position, results of operations or cash flows.
YEAR 2000 COMPLIANCE
The Company is in the process of formulating and implementing a program
designed to ensure that all software used in connection with the Company's
computer systems and testing and other equipment will manage and manipulate
data involving the transition of dates from 1999 to 2000 without functional
or data abnormality and without inaccurate results related to such dates. The
Company currently anticipates that this program will not require additional
significant manpower, although there can be no assurances that this will be
the case or that the Company will not incur additional costs in connection
with such program. There can be no assurances that the vendors of the Company
will be in compliance, and the Company has no control over whether such
vendors will be in compliance, with year 2000 requirements. Any failure on
the part of the Company to ensure that its software complies with year 2000
requirements or any similar failure on the part of the Company's vendors
could have a material adverse effect on the Company, its financial condition
and its results of operations.
11
<PAGE>
PART II - OTHER INFORMATION
The discussion and analysis below, and throughout this report, contains
forward looking statements within the meaning of Section 27A of the
Securities and Exchange Act of 1934. Actual results could differ materially
from those projected or suggested in the forward looking statements as a
result of the risk factors set forth herein and in the Company's Annual
Report on Form 10-K as of and for the year ended March 31, 1996.
ITEM 1. LEGAL PROCEEDINGS
In May 1994, a series of class action lawsuits were filed in the United
States District Court for the Northern District of California against the
Company and certain of its present and former officers and directors. These
lawsuits were consolidated, and in September 1994 the plaintiffs filed a
consolidated and amended class action complaint. Following the Court's
Orders on motions to dismiss the complaint, which were granted in part and
denied in part, the plaintiffs filed an amended complaint in October 1995.
("Complaint"). The Complaint alleges violations of the federal securities
laws against the Company, certain of its present and former officers and
directors, and the underwriters of the Company's public stock offerings,
claiming that the defendants issued a series of false and misleading
statements, including filings with the Securities and Exchange Commission,
with regard to the Company's business and future prospects. The plaintiffs
seek to represent a class of persons who purchased the Company's common stock
between May 7, 1992 and August 10, 1994. The Complaint seeks unspecified
compensatory and punitive damages, attorney's fees and costs. On January 23,
1996, the Court dismissed, with prejudice, all claims against the
underwriters of the Company's public stock offerings, and one claim against
the Company and its present and former officers and directors. On April 29,
1996, the Court dismissed with prejudice all remaining claims against a
present director and limited claims against a former officer and director to
the period when the person was an officer. In December 1996, the Company and
the remaining individual defendants filed motions for summary judgment, which
the plaintiffs opposed. In November 1997, the Court granted the Company's
motion for summary judgment and entered a judgment in favor of all
defendants. Plaintiffs have filed a notice of appeal with the Court.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
Exhibit 11.1 Statement of Calculation of Net Loss Per Share
Exhibit 27.1 Financial Data Schedule (EDGAR version only)
b. REPORTS ON FORM 8-K
On December 10, 1997, the Company filed a report on Form 8-K stating
that a press release was issued by the Company on December 4, 1997
announcing the resignation of Calvin Reed and the selection of Lev
M. Dawson as Chairman and Chief Executive Officer.
12
<PAGE>
SIGNATURE
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 thereto duly authorized.
VALENCE TECHNOLOGY, INC.
(Registrant)
Date: February 11, 1998 By: /s/ David Archibald
------------------------------------
David Archibald
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
11.1 Statement of Calculation of Net Loss per Share
27.1 Financial Data Schedule (EDGAR version only)
14
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
STATEMENT OF CALCULATION OF NET LOSS PER SHARE
(Unaudited)
(in thousands, except per share amounts)
_____
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -----------------------------
December 28, December 29, December 28, December 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average shares of common
stock outstanding for the period 23,406 21,673 22,644 21,672
Net loss for period $ (4,963) $ (4,802) $ (16,298) $ (11,425)
Net loss per share for period: Basic and
Diluted $ (0.21) $ (0.22) $ (0.72) $ (0.53)
</TABLE>
Dilutive common stock warrants and stock options have not been included in
the calculations of diluted loss per share, as their inclusion would be
antidilutive.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> DEC-28-1997
<CASH> 17,349
<SECURITIES> 0
<RECEIVABLES> 1,822
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,278
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,867
<CURRENT-LIABILITIES> 13,908
<BONDS> 4,849
0
0
<COMMON> 146,478
<OTHER-SE> (119,824)
<TOTAL-LIABILITY-AND-EQUITY> 49,867
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (4,854)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (148)
<INCOME-PRETAX> (4,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,963)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
