<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 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 26,704,703 shares
- --------------------------------- ----------------------------------------
(Class) (Outstanding at February 2, 1999)
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 27, 1998
INDEX
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of
December 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 December 27, 1998 and for each of the three and
nine month periods ended December 27, 1998 and
December 28, 1997...............................................4
Condensed Consolidated Statements of Cash Flows for the
period from March 3, 1989 (date of inception) to
December 27, 1998 and for each of the nine month periods
ended December 27, 1998 and December 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
SIGNATURE
</TABLE>
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>
December 27, March 29,
1998 1998
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,825 $ 8,400
Accounts receivable 630 1,429
Prepaids and other current assets 101 880
---------------- -----------------
Total current assets 8,556 10,709
Property, plant and equipment, net 36,166 31,712
Investment in joint venture - 285
Other assets - 188
---------------- -----------------
Total assets $ 44,722 $ 42,894
---------------- -----------------
---------------- -----------------
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 398 $ 399
Accounts payable 2,450 2,353
Accrued liabilities 6,284 7,213
Accrued royalties and license fees 750 1,000
Advances 700 700
Accrued compensation 443 817
---------------- -----------------
Total current liabilities 11,025 12,482
Deferred revenue 2,500 2,500
Long-term debt, less current portion 4,635 4,950
Long-term debt to stockholder 2,203 -
---------------- -----------------
Total liabilities 20,363 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
December 27, 1998 and March 29, 1998, respectively 6,013 -
Convertible preferred stock, Series B, $0.001 par value:
Issued and outstanding: 7,500 shares and 0 shares at
December 27, 1998 and March 29, 1998, respectively 5,428 -
Common stock, $0.001 par value:
Authorized: 50,000,000 shares;
Issued and outstanding: 26,386,000 and 25,068,000 shares at
December 27, 1998 and March 29, 1998, respectively 161,525 153,583
Notes receivable from stockholder (4,862) (4,862)
Deficit accumulated during the development stage (145,358) (128,012)
Accumulated other comprehensive income 1,613 2,253
---------------- -----------------
Total stockholders' equity 24,359 22,962
---------------- -----------------
Total liabilities and stockholders' equity $ 44,722 $ 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 Nine Months Ended
Through --------------------------------- --------------------------------
December 27, December 27, December 28, December 27, December 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 99,085 5,866 3,261 14,604 11,723
Marketing 3,607 28 212 75 462
General and administrative 43,543 1,857 1,381 4,114 4,179
Write-off of in-process
technology 8,212 - - - -
Investment in Danish subsidiary 3,489 - - - -
Special charges 18,872 - - - -
-------------- ------------- ----------- ------------ ------------
Total costs and expenses 176,808 7,751 4,854 18,793 16,364
Operating loss (155,203) (7,751) (4,854) (18,793) (16,364)
Other income 2,200 - - 2,200 -
Interest income 15,114 78 189 213 963
Interest expense (4,766) (228) (148) (476) (447)
Equity in losses of
joint venture (2,500) - (150) (287) (450)
-------------- ------------- ----------- ------------ ------------
Net loss $ (145,155) (7,901) (4,963) (17,143) (16,298)
--------------
--------------
Dividends & beneficial conversion
feature on preferred stock (3,553) - (3,628) -
------------- ----------- ------------ ------------
Net loss available to common
stockholders $ (11,454) $ (4,963) $(20,771) $(16,298)
------------- ----------- ------------ ------------
Other comprehensive loss:
Net loss $ (7,901) $ (4,963) $(17,143) $(16,298)
Change in foreign currency
translation adjustments (583) 1,132 (640) 660
------------- ----------- ------------ ------------
Comprehensive loss $ (8,484) $ (3,831) $(17,783) $(15,638)
------------- ----------- ------------ ------------
------------- ----------- ------------ ------------
Net loss per share available to
common stockholders, basic and
diluted $ (0.44) $ (0.21) $ (0.81) $ (0.72)
------------- ----------- ------------ ------------
------------- ----------- ------------ ------------
Shares used in computing net loss
per share available to common
stockholders, basic and diluted 25,931 23,406 25,601 22,644
------------- ----------- ------------ ------------
------------- ----------- ------------ ------------
</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 Nine Months Nine Months
(date of inception) Ended Ended
through December 27, December 28,
December 27, 1998 1998 1997
--------------------- ------------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (145,155) $ (17,143) $ (16,298)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 22,890 1,271 1,162
Write-off of equipment 14,792 - -
Write-off of in-process technology 6,211 - -
Compensation related to stock options 3,196 - 1,007
Noncash charge related to acquisition of Danish
subsidiary 2,245 - -
Equity in losses of joint venture 2,500 285 450
Amortization of debt discount 35 35 -
Changes in assets and liabilities:
Accounts receivable 454 794 (1,391)
Interest receivable 58 58 125
Notes receivable - - 117
Prepaid expenses and other current assets (979) 907 363
Accounts payable 2,355 103 2,645
Accrued liabilities (67) (1,512) 673
Deferred revenue 2,500 - 2,500
----------------- -------------- ---------------
Net cash used in operating activities (88,965) (15,202) (8,647)
----------------- -------------- ---------------
Cash flows from investing activities:
Purchase of long-term investments (665,789) - (187,561)
Maturities of long-term investments 661,545 - 194,685
Capital expenditures (63,084) (7,537) (11,892)
Other (222) - -
----------------- -------------- ---------------
Net cash used in investing activities (67,550) (7,537) (4,768)
----------------- -------------- ---------------
Cash flows from financing activities:
Property and equipment grants 6,428 2,009 -
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 (12,133) (296) (1,298)
Proceeds from issuance of warrants and common stock
net of issuance costs 150,490 7,340 4,891
Proceeds from issuance of preferred stock, Series A,
net of issuance costs 6,040 6,040 -
Proceeds from issuance of preferred stock, Series B,
net of issuance costs 5,800 5,800 -
----------------- -------------- ---------------
Net cash provided by financing activities 167,641 23,062 3,593
----------------- -------------- ---------------
Effect of foreign exchange rates on cash and cash
equivalents (3,301) (898) (661)
----------------- -------------- ---------------
Increase (decrease) in cash and cash equivalents 7,825 (575) (10,483)
Cash and cash equivalents, beginning of period - 8,400 27,832
----------------- -------------- ---------------
Cash and cash equivalents, end of period $ 7,825 $ 7,825 $ 17,349
----------------- -------------- ---------------
----------------- -------------- ---------------
</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 December 27, 1998, its consolidated results
of operations for the period from March 3, 1989 (date of inception) to December
27, 1998 and for each of the three-month and nine-month periods ended December
27, 1998 and December 28, 1997, and the consolidated cash flows for each of the
nine-month periods ended December 27, 1998 and December 28, 1997, and for the
period from March 3, 1989 (date of inception) to December 27, 1998. 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 nine-month
periods ended December 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
and December 1998, the Company completed private financing arrangements
raising $15 million in the sale of equity 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 Nine Months Ended
December 27, 1998 December 28, 1997 December 27, 1998 December 28, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Loss per share:
Net loss available
to common stockholders $(11,360) $(4,963) $(20,677) $(16,298)
Weighted average
shares outstanding 25,931 23,406 25,601 22,644
Earnings per share,
basic and diluted $(0.44) $(0.21) $(0.81) $(0.72)
</TABLE>
Shares excluded from the calculation of diluted EPS as their effect was
anti-dilutive were 6,707 and 6,798 for the three and nine months ended
December 27, 1998 and December 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>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
-----
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 of Series A convertible preferred stock,
raising gross proceeds of $7.5 million, with transaction costs of $425,000. In
December 1998, the Company completed the equity portion of the financing
arrangements, issuing 7,500 shares of Series B convertible preferred stock and
warrants at $1,000 per share of Series B convertible preferred stock, raising
gross proceeds of $7.5 million, with transaction costs of $375,000. The Series A
convertible preferred stock and Series B convertible preferred stock accrete at
an annual rate of 6% per year, and are convertible into common stock based upon
defined conversion formulas. The remaining $10 million of the financing
arrangements is in the form of a line of credit arrangement (Note 6).
In connection with the equity financing, the Company issued warrants to purchase
895,522 shares of common stock to the Series A and B 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 175,000 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 a fair value of
$3.2 million using the Black Scholes valuation method and were 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 by doing so the investor will own more than
4.9% of the Company's common stock.
6. LONG TERM DEBT TO STOCKHOLDER
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.
8
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
(unaudited)
-----
In conjunction with the debt financing, the Company issued warrants to purchase
149,254 shares of common stock. The warrants were valued using the Black Scholes
valuation method and 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.
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, 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 nine month periods ending December 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 $145,061,000
from its inception to December 27, 1998.
RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED DECEMBER 27, 1998 (THIRD QUARTER AND FIRST
NINE MONTH PERIODS OF FISCAL 1999) AND DECEMBER 28, 1997 (THIRD QUARTER AND
FIRST NINE MONTH PERIODS OF FISCAL 1998)
During the nine month period ended December 27, 1998 and 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 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, and Delphi paid 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.
10
<PAGE>
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. 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.
Research and development expenses were $5,866,000 and $14,604,000 during the
three and nine month periods ended December 27, 1998, respectively, as compared
to $3,261,000 and $11,723,000 during the same periods of fiscal 1998,
respectively. The increased expeditures are a result of the Company's
intensified efforts to develop its products and the loss of research and
development offsets previously provided by the developmental agreement with
Delphi, which is terminated.
Marketing expenses were $28,000 and $75,000 for the third quarter and first nine
months of fiscal year 1999, respectively, as compared to $212,000 and $462,000
during similar periods of fiscal year 1998, respectively. The comparative
decrease in marketing expense is primarily due to reduction in the work force.
General and administrative expenses were $1,857,000 and $4,114,000 during the
third quarter and first nine months of fiscal year 1999, respectively, as
compared with $1,381,000 and $4,179,000 during the same respective periods of
fiscal 1998. The increase during the third quarter of fiscal 1999 is due
primarily to the loss of expense offset reductions which previously resulted
from funds provided by Delphi.
Other income for the nine months ended December, 27, 1998 was comprised solely
of the $2.2 million termination payment from Delphi.
Interest income decreased to $78,000 and $213,000 during the third quarter and
first nine months of fiscal year 1999, respectively, as compared to $189,000 and
$963,000 during the prior fiscal year's same periods, respectively. The decrease
is due to the decline in funds available for investment purposes.
Interest expense was $228,000 and $476,000 during the three and nine month
periods ended December 27, 1998, respectively, as compared to $148,000 and
$447,000 during the same respective periods of fiscal 1998. This increase is
a result of the drawdown on the line of credit during the second quarter of
fiscal 1999 partially offset by principal payments on other debt.
Joint venture expenses were $0 and $287,000 for the third quarter and first nine
months of fiscal year 1999, respectively, as compared to $150,000 and $450,000
for the corresponding periods of fiscal year 1998, respectively. 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 $15,202,000 net cash for operating activities during fiscal
year 1999's first nine months compared to using $8,647,000 during the first nine
months of fiscal year 1998, an increase between comparable periods of
$6,555,000. This increase resulted primarily from the intensification of efforts
to develop the Company's products.
During the nine months ended December 27, 1998, the Company used $7,537,000 net
cash from investing activities compared to $4,768,000 during the first nine
months of fiscal year 1998, an increased usage of $2,769,000 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
nine month period of fiscal 1999.
The Company provided $23,062,000 net cash from financing activities during
fiscal year 1999's first nine months compared to $3,593,000 during the first
nine months of fiscal year 1998. This increase resulted from proceeds of
issuance of preferred stock, the initial borrowing on a line of credit from a
principal stockholder and the exercise of stock options by former officers and
employees.
As a result of the above, the Company had a net decrease in cash and cash
equivalents of $575,000 during the nine months ended December 27, 1998, whereas
it had a net decrease in cash and cash equivalents of $10,483,000 during the
same period of fiscal year 1998.
11
<PAGE>
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 27, 1998, the
Company had received grants aggregating L4,035,000 reducing remaining
grants available to L23,520,000 ($39,332,000 as of December 27, 1998).
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 construction in progress 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 unforeseen
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 December 27, 1998, together
with the interest earned thereon, will be sufficient to fund the Company's
operations through March 1999.
In July and December, 1998, the Company completed private financing
arrangements of up to $25,000,000, under which it sold $15,000,000 of
convertible preferred stock. Under the terms of the agreements, the Company
sold 7,500 shares of a newly designated Series A Convertible Preferred Stock
and 7,500 shares of newly designated Series B Convertible Preferred Stock for
aggregate gross proceeds of $15,000,000. 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 will 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.
13
<PAGE>
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.
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 200 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 CC
Investments, LDC, a 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.
On December 18, 1998, the Company completed the private sale of 7,500 shares
of Series B Convertible Preferred Stock ("Series B Preferred") to the same
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.
15
<PAGE>
The shares of Series A Preferred and Series B Preferred are convertible into
shares of the Company's Common Stock (the "Conversion Shares") at the option
of the holder at any time. In connection with the issuance of the Series B
Preferred, the Company and the investor amended the terms of the Series A
Preferred to provide that the Series A Preferred converts at a fixed
conversion price of $6.03 (the "Fixed Conversion Price"), regardless of the
trading price of the Company's Common Stock. The Series B Preferred also
converts at the Fixed Conversion Price until July 27, 1999, at which time the
conversion price for the Series B Preferred will be the lower of the Fixed
Conversion Price or the Variable Conversion Price. The "Variable Conversion
Price " means 101% of the average of the six lowest closing bid prices of the
Company's Common Stock for the ten consecutive trading days prior to
conversion.
CC Investments also received warrants to purchase up to an aggregate of
985,522 shares of the Company's Common Stock at an exercise price of $6.7838
per share in connection with the issuance collectively of the Series A
Preferred and Series B Preferred. The holders of these securities may not
convert or exercise these securities unless such conversion or exercise will
not cause the holder to hold in excess of 4.9% of the Company's outstanding
Common Stock.
In connection with the sale of Series A Preferred and Series B Preferred, the
Company paid Gemini Capital LLC, the placement agent, an aggregate fee of
$750,000. The placement agent also received warrants to purchase up to an
aggregate of 175,000 shares of the Company's Common Stock at an exercise
price of $4.9375 per share.
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 the Company's
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.
On February 4, 1999, the Company obtained stockholder approval for the
issuance of the full amount of the Company's Common Stock upon conversion of
all of the shares of the Series A Preferred and Series B Preferred and
exercise of all of the warrants. Consequently, as a result of the variable
conversion feature of the Series B Preferred, there is no limit on the number
of shares of the Company's Common Stock that may be issued upon conversion of
the securities issued in these transactions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
<TABLE>
<C> <S>
4.1* Amended and Restated Securities Purchase Agreement, dated
December 11, 1998
4.2* Amended and Restated Registration Rights Agreement, dated
December 11,1998
4.3* Certificate of Designation of Series B Convertible
Preferred Stock, as filed with the Delaware Secretary of
State on December 17, 1998
4.4* Form of Warrant to CC Investments, LDC
4.5* Form of Warrant to Gemini Capital, LLC
27 Financial Data Schedule
</TABLE>
* Incorporated by reference to the like-numbered exhibit in
the Company's Current Report on Form 8-K, filed December
21, 1998 (Commission No. 0-20028).
b. REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K on December 21,
1998 announcing the second 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 10, 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
- -------------- -------
<C> <S>
4.1* Amended and Restated Securities Purchase Agreement, dated
December 11, 1998
4.2* Amended and Restated Registration Rights Agreement, dated
December 11,1998
4.3* Certificate of Designation of Series B Convertible
Preferred Stock, as filed with the Delaware Secretary of
State on Delaware 17, 1998
4.4* Form of Warrant to CC Investments, LDC
4.5* Form of Warrant to Gemini Capital, LLC
27 Financial Data Schedule
</TABLE>
* Incorporated by reference to the like-numbered exhibit in the
Company's Current Report on Form 8-K, filed December 21, 1998
(Commission No. 0-20028).
18
<TABLE> <S> <C>
<PAGE>
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<PERIOD-START> MAR-30-1998
<PERIOD-END> DEC-27-1998
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11,441
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