<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 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 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. 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 25,665,800 shares
------------------------------------ ------------------------------------
(Class) (Outstanding at November 2, 1998)
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
FORM 10-Q/A
FOR THE QUARTER ENDED SEPTEMBER 27, 1998
INDEX
<TABLE>
<CAPTION>
PAGES
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of
September 27, 1998 and March 29, 1998..........................................3
Condensed Consolidated Statements of Operations and Comprehensive
Loss for the period from March 3, 1989 (date of inception) to
September 27, 1998 and for each of the three and
six month periods ended September 27, 1998 and September 28, 1997..............4
Condensed Consolidated Statements of Cash Flows for the period
from March 3, 1989 (date of inception) to September 27, 1998 and
for each of the six month periods
ended September 27, 1998 and September 28, 1997................................5
Notes to Consolidated Financial Statements.....................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................15
Item 2. Changes in Securities and Use of Proceeds.....................................15
Item 6. Exhibits and Reports on Form 8-K..............................................16
</TABLE>
Signature
2
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
-----
<TABLE>
<CAPTION>
September 27, March 29,
1998 1998
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,724 $ 8,400
Accounts receivable 1,078 1,429
Prepaids and other current assets 99 880
---------------- -----------------
Total current assets 7,901 10,709
Property, plant and equipment, net 34,025 31,712
Investment in joint venture - 285
Other assets - 188
---------------- -----------------
Total assets $ 41,926 $ 42,894
---------------- -----------------
---------------- -----------------
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 401 $ 399
Accounts payable 2,004 2,353
Accrued liabilities 6,150 7,213
Accrued royalties and license fees 500 1,000
Advances 700 700
Accrued compensation 548 817
---------------- -----------------
Total current liabilities 10,303 12,482
Deferred revenue 2,500 2,500
Long-term debt, less current portion 4,790 4,950
Long-term debt to stockholder 2,183 -
---------------- -----------------
Total liabilities 19,776 19,932
---------------- -----------------
Contingencies (Note 4).
STOCKHOLDERS' EQUITY
Convertible preferred stock, Series A, $0.001 par value:
Issued and outstanding: 7,500 shares and 0 shares at
September 27, 1998 and March 29, 1998, respectively 5,900 -
Common stock, $0.001 par value:
Authorized: 50,000,000 shares;
Issued and outstanding: 25,538,000 and 25,068,000 shares at
September 27, 1998 and March 29, 1998, respectively 156,245 153,583
Notes receivable from stockholder (4,862) (4,862)
Deficit accumulated during the development stage (137,329) (128,012)
Accumulated other comprehensive income 2,196 2,253
---------------- -----------------
Total stockholders' equity 22,150 22,962
---------------- -----------------
Total liabilities and stockholders' equity $ 41,926 $ 42,894
---------------- -----------------
---------------- -----------------
</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 AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
(unaudited)
-----
<TABLE>
<CAPTION>
Period from
March 3, 1989
(date of
inception) Three Months Ended Six Months Ended
Through ----------------------------------- -----------------------------------
September 27, September 27, September 28, September 27, September 28,
1998 1998 1997 1998 1997
------------------ ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenue:
Research and development
Contracts $ 21,605 $ - $ - $ - $ -
-------------
Costs and expenses:
Research and product
development 93,219 4,708 4,427 8,738 8,462
Marketing 3,579 18 129 47 250
General and administrative 41,686 1,319 1,462 2,257 2,798
Write-off of in-process
Technology 8,212 - - - -
Investment in Danish
Subsidiary 3,489 - - - -
Special charges 18,872 - - - -
------------- ------------ ----------- ----------- -----------
Total costs and
Expenses 169,057 6,045 6,018 11,042 11,510
------------- ------------ ----------- ----------- -----------
Operating loss (147,452) (6,045) (6,018) (11,042) (11,510)
Other income 2,200 2,200 - 2,200 -
Interest income 15,036 48 321 135 774
Interest expense (4,538) (130) (148) (248) (299)
Equity in losses of
joint venture (2,500) - (150) (287) (300)
------------- ------------ ----------- ----------- -----------
Net Loss $ (137,254) (3,927) (5,995) (9,242) (11,335)
-------------
-------------
Dividends on preferred stock (75) - (75) -
------------ ----------- ----------- -----------
Net loss available to common
stockholders $ (4,002) $ (5,995) $ (9,317) $(11,335)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Other comprehensive loss:
Net loss $ (3,927) $ (5,995) $ (9,242) $(11,335)
Change in foreign currency
translation adjustments 731 (865) (57) (472)
------------ ----------- ----------- -----------
Comprehensive loss $ (3,196) $ (6,860) $ (9,299) $(11,807)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Net loss per share, basic and
diluted $ (0.16) $ (0.26) $ (0.37) $ (0.51)
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Shares used in computing net
loss available to common
stockholders per share,
basic and diluted 25,524 22,721 25,436 22,263
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</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)
(unaudited)
-----
<TABLE>
<CAPTION>
Period from
March 3, 1989 Six Months Six Months
(date of inception) Ended Ended
through September 27, September 28,
September 27, 1998 1998 1997
--------------------- ------------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (137,254) $ (9,242) $ (11,335)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 22,481 862 756
Write-off of equipment 14,792 - -
Write-off of in-process technology 6,211 - -
Compensation related to stock options 3,196 - 554
Noncash charge related to acquisition of Danish subsidiary 2,245 - -
Equity in losses of joint venture 2,500 287 300
Amortization of debt discount 14 14 -
Changes in assets and liabilities:
Accounts receivable 13 353 (738)
Interest receivable 58 58 18
Notes receivable - - 78
Prepaid expenses and other current assets (977) 909 5
Accounts payable 1,901 (351) (989)
Accrued liabilities (434) (1,881) (86)
Deferred revenue 2,500 - -
---------------- --------------- ---------------
Net cash used in operating activities (82,754) (8,991) (11,437)
---------------- --------------- ---------------
Cash flows from investing activities:
Purchase of long-term investments (665,789) - (156,869)
Maturities of long-term investments 661,545 - 165,001
Capital expenditures (60,316) (4,769) (6,836)
Other (222) - -
---------------- --------------- ---------------
Net cash used in investing activities (64,782) (4,769) 1,296
---------------- --------------- ---------------
Cash flows from financing activities:
Property and equipment grants 6,419 2,000 -
Borrowings of long-term debt 17,671 2,169 -
Payments of long-term debt:
Product development loan (482) - -
Stockholder and director (6,173) - -
Other long-term debt (11,995) (158) (958)
Proceeds from issuance of warrants and common
stock, net of issuance costs 145,597 2,447 4,891
Proceeds from issuance of preferred stock, Series A,
net of issuance costs 6,040 6,040 -
---------------- --------------- ---------------
Net cash provided by financing activities 157,077 12,498 3,933
---------------- --------------- ---------------
Effect of foreign exchange rates on cash and cash
equivalents (2,817) (414) 472
---------------- --------------- ---------------
---------------- --------------- ---------------
Increase (decrease) in cash and cash equivalents 6,724 (1,676) (5,736)
Cash and cash equivalents, beginning of period - 8,400 27,832
---------------- --------------- ---------------
Cash and cash equivalents, end of period $ 6,724 $ 6,724 $ 22,096
---------------- --------------- ---------------
---------------- --------------- ---------------
</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
(in thousands, except per share amounts)
(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 September 27, 1998, its
consolidated results of operations and cash flows for the period from March
3, 1989 (date of inception) to September 27, 1998 and for each of the
three-month and six-month periods ended September 27, 1998 and September 28,
1997. 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 29, 1998. The year end condensed consolidated
balance sheet data as of March 29, 1998 was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
The Company's current research prototype batteries do not meet all of the
specifications demanded by the marketplace, and the Company presently has no
products available for sale. To achieve profitable operations, the Company
must successfully develop, manufacture and market its products. There can be
no assurance that any products can be developed or manufactured at an
acceptable cost and with appropriate performance characteristics, or that
such products will be successfully marketed.
The results of operations and cash flows for the three-month and six-month
periods ended September 27, 1998 are not necessarily indicative of results of
operations and cash flows for any future period.
2. BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements have
been prepared assuming the Company will continue as a going concern. The
Company has negative working capital and has sustained recurring losses
related primarily to the development and marketing of its products.
Management is actively pursuing additional equity and debt financing. In July
1998, the Company completed private financing arrangements raising $7.5
million in the sale of equity, with a commitment from the investor to
purchase up to another $7.5 million in equity subject to completion of
certain milestones, and arranging a $10 million loan agreement (Notes 5 and
6). There can be no assurance that the Company could successfully consummate
any new debt or equity issuances. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty. The effects of any such adjustments, if necessary, could
be material.
3. NET LOSS PER SHARE
Basic Earnings Per Share (EPS) is computed as net loss available to common
stockholders divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur from common shares issuable through stock options and warrants.
Common equivalent shares are excluded from the computation of net loss per
share as their effect is anti-dilutive.
6
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
-----
The following is a reconciliation of the numerator (net loss) and denominator
(number of shares) used in the basic and diluted EPS calculation:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997
------------------ ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Loss per share:
Net loss available
to common stockholders $(4,002) $(5,995) $(9,317) $(11,335)
Weighted average
shares outstanding 25,524 22,721 25,436 22,263
Earnings per share,
basic and diluted $(0.16) $(0.26) $(0.37) $(0.51)
</TABLE>
Shares excluded from the calculation of diluted EPS as their effect was
anti-dilutive were 3,724 and 3,815 for the three and six months ended
September 27, 1998 and September 28, 1997, respectively.
4. CONTINGENCIES
LITIGATION:
In May 1994, a series of class action lawsuits was 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. In
April 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 that person was an officer. In December 1996, the Company and
the 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 appealed and the case is pending before the United States
Court of Appeals for the Ninth Circuit.
In September 1998, Klockner Bartelt/Medipak, Inc. d/b/a/ Klockner Medipak
filed suit against the Company in the United States District Court for the
Middle District of Florida (File No. 98-1844-Civ-7-24E) alleging breach of
contract by the Company with respect to an agreement for the supply of
battery manufacturing equipment, and claimed damages of approximately
$2,500,000. On January 20, 1999, the Company filed a counterclaim against
Klockner alleging breach of contract, breach of express warranty, breach of
the implied warranty of merchantability, breach of the implied warranty of
fitness for a particular purpose, and rescission and restitution and claimed
compensatory damages to be determined at trial.
7
<PAGE>
In June 1998, the Company filed a lawsuit in the Superior Court of
California, Santa Clara County, against L&I Research, Inc., Powell Electrical
Manufacturing Company and others seeking relief based on rescission and
damages for breach of a contract. In September 1998, Powell filed a
cross-complaint against the Company and others (File No. CV7745534) claiming
damages of approximately $900,000. The cross-complaint alleges breach of
written contract, oral modification of written contract, promissory estoppel,
fraud, quantum meruit, and quantum valebant. In October 1998, the Company
filed a demurrer to the third cause of action for oral modification and fifth
cause of action for fraud in the cross-complaint and Powell demurred to the
complaint. On December 10, 1998, the Company filed a first amended complaint.
On December 18, 1998, the Court sustained the Company's demurrer to the fifth
cause of action for fraud and overruled the demurrer to the third cause of
action for oral modification. The Court also denied Powell's demurrer as
moot. The matter is presently stayed pending settlement discussions.
The ultimate outcome of these actions cannot presently be determined.
Accordingly, no provision for any liability or loss that may result from
adjudication or settlement thereof has been made in the accompanying
consolidated financial statements.
In addition to the litigation noted above, the Company is from time to time
subject to routine litigation incidental to its business. The Company
believes that the results of this routine litigation will not have a material
adverse effect on the Company's financial condition.
5. PREFERRED STOCK
In July 1998, the Company completed private financing arrangements of up to
$25 million. The Company issued 7,500 shares of Series A convertible
preferred stock and warrants at $1,000 per share, raising gross proceeds of
$7.5 million net of transaction costs of $425,000. The Series A convertible
preferred stock accretes at an annual rate of 6% per year, and is convertible
into common stock based upon defined conversion formulas. The Company has a
commitment from an investor to purchase an additional 7,500 shares of
convertible preferred stock upon completion of certain milestones.
In connection with the equity financing, the Company issued warrants to
purchase 447,761 shares of common stock to the Series A investor. The
warrants are exercisable at a purchase price of $6.78 per share and expire in
July 2003. In addition, the Company issued warrants to purchase 87,500 shares
of common stock to the placement agent. The warrants are exercisable at a
price of $4.94 per share and also expire in July 2003. The warrants have been
valued at a total of $1.35 million using the Black Scholes valuation method
and recorded as a component of common stock.
Under the terms of the certificate of designations of the preferred stock and
the warrants, the preferred stock investor may not convert the preferred
stock or exercise the warrants if after doing so the investor will own more
than 4.9% of the Company's common stock.
6. LINE OF CREDIT
The Company also obtained a $10 million line of credit from a principal
stockholder. Under the terms of the line of credit, the Company borrowed $2.5
million and could borrow up to an additional $7.5 million, or less if the
Company secures a new line of credit, through July 1999. The line of credit
bears interest at one percent over the lender's principal line of credit and
is payable August 30, 2002.
In conjunction with the debt financing, the Company issued warrants to
purchase 149,254 shares of common stock. The warrants issued had a fair value
of approximately $2.22 per warrant at the time of issuance. The fair value of
these warrants, totaling $331,000, has been reflected as additional
consideration for the debt financing, recorded as a discount on the debt and
accreted as interest expense to be amortized over the life of the line of
credit.
8
<PAGE>
7. EQUIPMENT GRANT
During September 1998 the Company's subsidiary in Northern Ireland received a
$2,000,000 equipment grant under its 1994 agreement with the Northern Ireland
Industrial Development Board. The grant, which is for the purchase of capital
equipment, is recorded as a contra account to property, plant and equipment
and will be amortized to income over the life of the related asset. Certain
amounts received under the grant are repayable only in the event the
subsidiary defaults under the terms of the agreement. No repayments have been
requested since the inception of the agreement.
8. COMPREHENSIVE INCOME
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 (SFAS No. 130), Reporting Comprehensive Income. SFAS No.
130 establishes standards for the 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 resources.
9. RECENT ACCOUNTING PRONOUNCEMENTS
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 stockholders. 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. The Company has not determined the impact, if any, on
the reporting of segment information.
9
<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. Those statements include words such as "anticipate," "estimate,"
"project," "intend," "expect" and similar expressions which have been used to
identify these statements as forward-looking statements, or may otherwise be
specifically identified as forward looking statements. Such forward looking
statements involve a number of risks and uncertainties including, but not
limited to, availability of working capital, 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 29,
1998 and under the caption "Risk Factors" in the Company's most recent
registration statement filed under the Securities Act of 1933, as amended.
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
29, 1998. The results for the three and six month period ending September 27,
1998 are not necessarily indicative of the results to be expected for the
entire fiscal year ending March 28, 1999.
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), an operating
group of the General Motors Corporation. The Company has incurred cumulative
losses of $137,254,000 from its inception to September 27, 1998.
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 27, 1998 (SECOND QUARTER AND
FIRST HALF OF FISCAL 1999) AND SEPTEMBER 28, 1997 (SECOND QUARTER AND FIRST
HALF OF FISCAL 1998)
During the six month period ended September 27, 1998 and the three and six
month periods ended September 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 six month periods of
fiscal 1999 and fiscal 1998.
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. In addition,
Delphi paid a majority of the facility's operating costs over the term of the
new five year agreement and did so through August 1998. The Company is
treating both of these payments as an offset to research and development
expense.
In May 1998, the Company and Delphi announced the completion of their
collaboration on lithium polymer battery development. Delphi will retain a
license to use Company-developed lithium polymer technology for vehicular and
stationary load leveling / peak shaving applications. The Company will retain
a license to use Delphi-developed lithium polymer technology in all other
applications. After August 1998, the Company anticipates that it will receive
no further payments as a result of the Joint Research and Development
agreement with Delphi. As part of the early termination of the collaboration
agreement, Delphi paid the Company $2.2 million. The Company has no future
obligations under the termination agreement and has recorded the payment as a
component of other income.
10
<PAGE>
Research and development expenses were $4,708,000 and $8,738,000 during the
three and six month periods ended September 27, 1998 as compared to
$4,427,000 and $8,462,000 during the same period of fiscal 1998. The
comparable periods performance has remained relatively stable in absolute
dollars as the Company continued to develop its products in fiscal year 1999.
Marketing expenses were $18,000 and $47,000 for the second quarter and first
half of fiscal year 1999, respectively, as compared to $129,000 and $250,000
during similar periods of fiscal year 1998. The comparative decrease in
marketing expense is primarily due to reduction in the work force.
General and administrative expenses decreased to $1,319,000 and $2,257,000
during the second quarter and first half of fiscal year 1999, down from
$1,462,000 and $2,798,000 during the fiscal year 1998 comparable periods. The
decrease results from reduced legal fees associated with the stockholder
class action lawsuit and lower headcount.
Other income for the three and six months ended September, 27, 1998 was
comprised solely of the $2.2 million payment from Delphi.
Interest income decreased to $48,000 and $135,000 during the second quarter
and first half of fiscal year 1999, as compared to $321,000 and $774,000
during the prior fiscal year's same periods. The decrease is due to the
decline in funds available for investment purposes.
Interest expense was $130,000 and $248,000 during the three and six month
periods ended September 27, 1998 as compared to $148,000 and $299,000 during
the same period of fiscal 1998. This decrease in interest expense results
from reduced principal balances of long-term debt.
Joint venture expenses were $0 and $287,000 for the second quarter and first
half of fiscal year 1999, respectively, as compared to $150,000 and $300,000
during similar periods of fiscal year 1998. Joint venture expenses represent
50% of the start up costs associated with the Hanil Valence operations. The
Company's investment in the joint venture is $0, so the Company is no longer
recording their pro rata share of the losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $8,991,000 net cash for operating activities during fiscal
year 1999's first six months compared to using $11,437,000 during the first
six months of fiscal year 1998, a decrease between comparable periods of
$2,446,000. This decrease resulted primarily from a decrease in net loss, the
collection of accounts receivable and the proceeds of an insurance advance
which were offset by the reduction of accrued liabilities.
During the six months ended September 27, 1998, the Company used $4,769,000
net cash from investing activities compared to providing $1,296,000 during
the first six months of fiscal year 1998, an increased usage of $6,065,000
between comparable periods. The usage in fiscal 1999 was comprised solely of
capital expenditures. There were no purchases or maturities of long term
investments during the first half of fiscal 1999.
The Company provided $12,498,000 net cash from financing activities during
fiscal year 1999's first six months compared to $3,933,000 during the first
six months of fiscal year 1998. This increase resulted from the proceeds of
the issuance of preferred stock and the initial borrowing on a line of credit
from a principal stockholder.
As a result of the above, the Company had a net decrease in cash and cash
equivalents of $1,676,000 during the six months ended September 27, 1998,
whereas it had a net decrease of $5,736,000 during the same period of fiscal
year 1998.
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
September 27, 1998, the Company had received grants aggregating
L4,035,000 reducing remaining grants available to L23,520,000
($40,038,000 as of September 27, 1998).
11
<PAGE>
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 $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.
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.
The major components of construction in progress with their estimated costs
and start dates are as follows: mixing, coating, etching, laminating and
slitting equipment, $8,732,000, March 1997; assembly equipment, $15,954,000,
March 1994; extraction, packaging, and conditioning equipment, $6,667,000,
August 1993; and factory improvements and miscellaneous equipment,
$2,447,000, June 1997. The estimated completion date for these major
categories of CIP is the end of the first quarter of fiscal 2000. These
statements are forward-looking statements, and actual costs and completion
dates are subject to change due to a variety of risks and uncertainties,
including the availability of funds for completion, the risk that actual
costs will be materially greater due to unforseen difficulties in completion
of the projects, reliance on manufacturers to deliver equipment in a timely
manner and that performs as intended, and other risks and uncertainties.
The Company expects that its existing funds as of September 27, 1998,
together with the interest earned thereon, will be sufficient to fund the
Company's operations through March, 1999.
In July 1998, the Company completed private financing arrangements of up to
$25,000,000, under which it sold $7,500,000 of convertible preferred stock
and had a commitment from the investor to purchase an additional $7,500,000
of convertible preferred stock subject to the completion of certain
milestones. Under the terms of the agreements, the Company sold 7,500 shares
of a newly designated Series A Convertible Preferred Stock for aggregate
gross proceeds of $7,500,000. Simultaneously, the Company arranged a
guaranteed line of credit from an affiliate of Carl E. Berg, a director and
principal stockholder of the Company, in an amount up to $10,000,000, under
which it has already drawn down $2,500,000.
The Company anticipates that it may need substantial additional funds in the
future 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. These factors raise substantial
doubts about the Company's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty. The effects of such adjustments,
if necessary, could be material.
12
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
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 stockholders. 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. The Company has not determined the impact, if any, on
the reporting of segment information.
YEAR 2000 READINESS
Many existing software programs, computers and other types of
equipment were not designed to accommodate the Year 2000 and beyond. If not
corrected, these computer applications and equipment could fail or create
erroneous results. For Valence, this could disrupt purchasing, manufacturing,
sales, finance and other support, thereby causing potential lost sales and
additional expenses.
OUR STATE OF READINESS
Our Year 2000 project encompasses both information and
non-information systems within Valence as well as the investigation of the
readiness of our strategic suppliers/vendors. We have created a Year 2000
Project Team that is responsible for planning and monitoring all Year 2000
activities and reporting to our executive management. It has been reviewing
Valence's Year 2000 status for approximately six months now, and has
identified and evaluated crucial area's of concern regarding Year 2000
compliance. We define Year 2000 compliance to be, with respect to information
technology, that the information technology accurately processes date/time
data (including, but not limited to, calculating, comparing, and sequencing)
from, into, and between the twentieth and twenty-first centuries, and the
years 1999 and 2000 and leap year calculations, to the extent that other
information technology, used in combination with the information technology
being acquired, properly exchanges date/time data with it. Fixes have begun
on a majority of these areas. Other areas are still being tested. Our goal is
to have all Year 2000 issues resolved by December 31, 1999. To that end, we
have inventoried and assessed the Year 2000 readiness of the following:
VENDORS/SERVICE PROVIDERS. We are distributing letters and
questionnaires to vendors and service providers that are critical to the day
to day operations of Valence. We have received a letter of compliance from
our fire alarm company that our current fire alarm system is in compliance.
PERSONAL COMPUTERS. All personal computer BIOSs' (basic input/output
systems) are being tested for Year 2000 compliance. Currently 100% of all
Novell servers are Year 2000 compliant with exception to one, for which we
are ordering a replacement. Currently 95% of all user workstations are known
to have a Year 2000 BIOS. Currently 20% of the personal computers that
operate equipment have been tested. Only 2% of these have a Year 2000
compliant BIOS. We expect to patch the computers that are not Year 2000
compliant with a TSR, a software program that loads at computer startup, that
will report the correct date and time to the operating system. This method
has been tested and provides acceptable results.
LABORATORIES. The Maccor Lab is in the process of being upgraded.
Machines are being upgraded and patched for Year 2000. The lab is 25%
complete for BIOS and operating system testing and fixes. Additional testing
needs to be performed on this lab. The electrical chemistry lab is also in
the process of being upgraded. Several computers a week are being upgraded to
meet Year 2000 compliance. One third of this lab had been upgraded and
patched to meet Year 2000 compliance. The data acquisition software run by
these machines has been tested and we have concluded that there is a minor
Year 2000 bug. This may be fixed by slight program change or upgrading to a
newer version of the software. This does not affect the ending results of the
data.
IN-HOUSE SYSTEMS. One database has been tested and is known not to
be compliant. A programmer has been hired to rewrite the database in another
platform making it Year 2000. All other databases at the Henderson, Nevada
system are Year 2000 compliant, and the Year 2000 Project Team is reviewing
the databases at the Northern Ireland facility. The accounting software is
not complaint and an upgrade is being ordered. The badge security system is
not compliant and will need to be replaced or fixed. At present, the system
has been backdated to 1993 and there are no apparent problems with this fix.
There is no critical data or integration that will be affected by this
change. A task force is being assembled and will look into issues that may
have been overlooked and to help continue the efforts to make our facilities
compliant. Valence's phone system is in the process of being upgraded to make
it Year 2000 compliant. The e-mail system is not Year 2000 compliant and
replacements are being evaluated.
13
<PAGE>
COSTS TO ADDRESS THE YEAR 2000
Spending for modifications and updates is being expensed as incurred
and is not expected to have a material impact on our results of operations or
cash flows. The cost of our Year 2000 project is being funded through
available funds. We estimate that our total Year 2000 expenditures will not
be material. Through the end of 1998 Valence had incurred $40,000 in
connection with its Year 2000 compliance program.
RISK ANALYSIS
Like most business enterprises, we are dependent upon our own
internal computer technology and rely upon the timely performance of our
suppliers/vendors. A large-scale Year 2000 failure could impair our ability
to timely complete our research and development, or deliver batteries with
the exacting specifications that will be required by our customers, thereby
causing potential lost sales and additional expenses, which would have a
material adverse effect on Valence, its financial condition and its results
of operations. Our Year 2000 project seeks to identify and minimize this risk
and includes testing of our in-house applications, purchased software and
embedded systems to ensure that all such systems will function before and
after the Year 2000. We are continually refining our understanding of the
risk the Year 2000 poses to our suppliers/vendors based upon information
obtained through our surveys. This refinement will continue through the rest
of 1999.
CONTINGENCY PLANS
Our Year 2000 project anticipates the development of contingency
plans for business critical systems and manufacturing equipment as well as
for suppliers/vendors to attempt to minimize disruption to our operations in
the event of a Year 2000 failure. We have not yet developed these plans, but
will be formulating plans to address a variety of failure scenarios,
including failures of our in-house applications, as well as failures of
suppliers/vendors. Valence does not have an estimated completion date for its
contingency plans.
CAUTIONARY STATEMENT
Year 2000 issues are widespread and complex. While we believe we
will address them on a timely basis, we cannot assure you that we will be
successful or that these problems will not materially adversely affect our
business or results of operations. To a large extent, we depend on the
efforts of our suppliers and other organizations with which we conduct
transactions to address their Year 2000 issues, over which we have no control.
The statements regarding the expected outcome and timing of Year 2000 efforts
are forward-looking statements. Actual results could differ materially from
our expectations due to unforeseen problems arising in connection with
completion of our Year 2000 program, the risk that we will fail to identify a
Year 2000 problem critical to the operations of Valence, or that our
vendors/suppliers will suffer problems that will inhibit them from delivering
their products to us on a timely basis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1994, a series of class action lawsuits was 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. In
April 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 that 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 appealed and the case is pending before the
United States Court of Appeals for the Ninth Circuit. If the appeal is
resolved unfavorably to the Company, the Company will be forced to incur
additional litigation expense, and if the outcome of the case is resolved
unfavorably to the Company it could have a material adverse effect on the
Company's financial condition.
In September 1998, Klockner Bartelt/Medipak, Inc. d/b/a/ Klockner Medipak
filed suit against the Company in the United States District Court for the
Middle District of Florida (File No. 98-1844-Civ-7-24E) alleging breach of
contract by the Company with respect to an agreement for the supply of
battery manufacturing equipment, and claimed damages of approximately
$2,500,000. On January 20, 1999, the Company filed a counterclaim against
Klockner alleging breach of contract, breach of express warranty, breach of
the implied warranty of merchantability, breach of the implied warranty of
fitness for a particular purpose, and rescission and restitution and claimed
compensatory damages to be determined at trial. Although the Company believes
it has meritorious defenses to the complaint, if it is resolved unfavorably
to the Company it could have a material adverse effect on the Company's
financial condition.
In June 1998, the Company filed a lawsuit in the Superior Court of
California, Santa Clara County, against L&I Research, Inc., Powell Electrical
Manufacturing Company and others seeking relief based on rescission and
damages for breach of a contract. In September 1998, Powell filed a
cross-complaint against the Company and others (File No. CV7745534) claiming
damages of approximately $900,000. The cross-complaint alleges breach of
written contract, oral modification of written contract, promissory estoppel,
fraud, quantum meruit, and quantum valebant. In October 1998, the Company
filed a demurrer to the third cause of action for oral modification and fifth
cause of action for fraud in the cross-complaint and Powell demurred to the
complaint. On December 10, 1998, the Company filed a first amended complaint.
On December 18, 1998, the Court sustained the Company's demurrer to the fifth
cause of action for fraud and overruled the demurrer to the third cause of
action for oral modification. The Court also denied Powell's demurrer as
moot. The matter is presently stayed pending settlement discussions. Although
the Company believes it has meritorious defenses to the cross complaint, if
it is resolved unfavorably to the Company it could have a material adverse
effect on the Company's financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 27, 1998, the Company completed the private sale of 7,500 shares of
Series A Convertible Preferred Stock ("Series A Preferred") to a single
private institutional investor, for an aggregate purchase price of $7.5
million. The sale was exempt from registration under the Securities Act of
1933, as amended, pursuant to Rule 506 under such Act.
The shares of Series A Preferred are convertible into shares of Common Stock
(the "Conversion Shares") at the option of the holder. The initial conversion
price (the "Fixed Conversion Price") with respect to any conversion which
occurs prior to July 27, 1999 (or, if the Company has not signed and
announced a material contract or contracts for the sale of batteries on or
before January 27, 1999, with respect to any conversion after January 27,
1999) is $6.03. For conversions following July 27, 1999 (or January 27, 1999,
if a material contract has not been signed prior to that date), the
conversion price would be the lower of the Fixed Conversion Price or the
Variable Conversion Price. The "Variable Conversion Price " means 101% of the
average of the two lowest closing bid prices of the Common Stock for the
number of trading days set forth in the schedules below:
15
<PAGE>
If the Company has signed and announced a material contract for the sale of
batteries on or before January 27, 1999:
<TABLE>
<CAPTION>
Conversion Date: Number of Days in Period:
---------------- -------------------------
<S> <C>
Before August 27, 1999 10
August 27, 1999-September 27, 1999 11
September 27, 1999-October 27, 1999 12
October 27, 1999-November 27, 1999 13
November 27, 1999-December 27, 1999 14
After December 27, 1999 15
</TABLE>
If the Company has not signed and announced a material contract for the sale
of batteries on or before January 27, 1999:
<TABLE>
<CAPTION>
Conversion Date: Number of Days in Period:
---------------- -------------------------
<S> <C>
Before February 27, 1999 10
February 27, 1999-March 27, 1999 11
March 27, 1999-April 27, 1999 12
April 27, 1999-May 27, 1999 13
May 27, 1999-June 27, 1999 14
After June 27, 1999 15
</TABLE>
The number of shares of Common Stock, in the aggregate, which may be issued
pursuant to the conversion of Series A Preferred is 5,071,913. The Company
agreed to seek stockholder authorization at its next annual meeting to issue
shares above this limit, to the extent such additional shares are necessary
due to the Variable Conversion Price.
The purchaser has agreed to purchase up to $7.5 million of additional shares
of Series A Preferred, on the same terms and conditions, subject to the
achievement of certain milestones by the Company.
The terms of the Series A Preferred were amended in December 1999 to cause
the Series A Preferred to convert at the Fixed Conversion Price regardless of
the timing of the conversion, the achievement of the milestones, or the
trading price of the Company's Common Stock.
The purchaser also received warrants to purchase up to 447,761 shares of Common
Stock at an exercise price of $6.7838 per share.
In connection with the sale price of Series A Preferred, the Company paid
Gemini Capital LLC, the placement agent, a fee of $375,000. The placement
agent also received warrants to purchase up to 87,500 shares of Common Stock
at an exercise price of $4.9375 per share. Both the purchaser and the
placement agent are entitled to receive additional warrants if additional
shares of Series A Preferred are sold.
Concurrently with the sale of Series A Preferred, Baccarat Electronics. Inc.
("Baccarat"), an affiliate of Carl Berg, a director of the Company, loaned
the Company $2.5 million. Baccarat has agreed to loan the Company up to an
additional $7.5 million on specified terms. In connection with the loan,
Baccarat received warrants to purchase up to 149,254 shares of Common Stock
at an exercise price of $6.7838 per share, and will be entitled to additional
warrants if further amounts are loaned to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
<TABLE>
<S> <C>
4.1* Securities Purchase Agreement, dated July 27, 1998
4.2* Registration Rights Agreement, dated July 27,1998
4.3* Certificate of Designation of Series A Convertible
Preferred Stock, as filed with the Delaware
Secretary of State on July 27, 1998
4.4* Form of Warrant to CC Investments, LDC
4.5* Form of Warrant to Gemini Capital, LLC
4.6* Form of Warrant to Baccarat Electronics, Inc.
27 Financial Data Schedule
* Incorporated by reference to the like-numbered
exhibit in the Company's Current Report on Form 8-K,
filed August 4, 1998 (Commission No. 0-20028).
</TABLE>
b. Reports on Form 8-K
-------------------
The Company filed a current report on Form 8-K on August 3,
1998 announcing the initial closing of the financing.
16
<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 24, 1999 By: /s/ Lev M. Dawson
---------------------------------------
Lev M. Dawson
Chairman of the Board, Chief Executive
Officer, President and Acting Chief
Financial Officer (Principal Financial
and Accounting Officer)
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit
- -------------- -------
<S> <C>
4.1* Securities Purchase Agreement, dated July 27, 1998
4.2* Registration Rights Agreement, dated July 27,1998
4.3* Certificate of Designation of Series A Convertible
Preferred Stock, as filed with the Delaware Secretary of
State on July 27, 1998
4.4* Form of Warrant to CC Investments, LDC
4.5* Form of Warrant to Gemini Capital, LLC
4.6* Form of Warrant to Baccarat Electronics, Inc.
27 Financial Data Schedule
</TABLE>
* Incorporated by reference to the like-numbered exhibit in the Company's
Current Report on Form 8-K, filed August 4, 1998 (Commission No. 0-20028).
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> SEP-27-1998
<CASH> 6,724
<SECURITIES> 0
<RECEIVABLES> 1,078
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,901
<PP&E> 55,940
<DEPRECIATION> (21,915)
<TOTAL-ASSETS> 41,926
<CURRENT-LIABILITIES> 10,303
<BONDS> 6,973
0
5,900
<COMMON> 156,245
<OTHER-SE> (139,995)
<TOTAL-LIABILITY-AND-EQUITY> 41,926
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (11,042)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (248)
<INCOME-PRETAX> (9,242)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,242)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,317)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
