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 June 30, 2000.
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 (I.R.S. Employer
of incorporation or Identification No.)
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 37,831,097 shares
------------------------------- -------------------------------------
(Class) (Outstanding at August 8, 2000)
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
<TABLE>
INDEX
<CAPTION>
PAGES
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of
June 30, 2000 and March 31, 2000..................................................3
Condensed Consolidated Statements of Operations and Comprehensive
Loss for the period from March 3, 1989 (date of inception) to June
30, 2000 and for each of the three
month periods ended June 30, 2000 and June 27, 1999...............................4
Condensed Consolidated Statements of Cash Flows for the period
from March 3, 1989 (date of inception) to June 30, 2000 and for
each of the three month periods
ended June 30, 2000 and June 27, 1999.............................................5
Notes to Condensed Consolidated Financial Statements..............................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................23
Item 6. Exhibits and Reports on Form 8-K.................................................23
SIGNATURE .....................................................................................24
</TABLE>
Page 2
<PAGE>
<TABLE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
-----
<CAPTION>
June 30, 2000 March 31, 2000
-------------------- ------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 21,324 $ 24,556
Receivables 3,139 1,869
Inventory 2,809 1,641
Prepaid and other current assets 600 1,597
-------------------- ------------------
Total current assets 27,872 29,663
Property, plant and equipment, net 28,189 28,508
Investment in joint venture 0 345
-------------------- ------------------
Total assets $ 56,061 $ 58,516
==================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 390 $ 402
Accounts payable 2,252 6,060
Accrued expenses 2,973 2,882
Accrued royalties and license fees 2,281 2,000
Grant payable 1,823 1,923
Accrued compensation 391 389
-------------------- ------------------
Total current liabilities 10,110 13,656
Deferred revenue 2,500 2,500
Long-term debt, less current portion 3,711 3,937
Long-term debt to stockholder 8,595 8,432
-------------------- ------------------
Total liabilities 24,916 28,525
-------------------- ------------------
Commitments and contingencies (Note 6)
Mandatorily redeemable convertible preferred stock
Authorized: 10,000,000 shares
Series B, $0.001 par value, Issued and outstanding: 3,500
shares at June 30, 2000 and March 31, 2000, respectively 2,198 2,146
(Liquidation value: $3,815)
Stockholders' Equity
Common stock, $0.001 par value, authorized: 100,000,000 shares,
Issued and outstanding: 37,698,639 and 36,838,631 shares
at June 30, 2000 and March 31, 2000, respectively 38 37
Additional paid-in capital 268,689 256,086
Notes receivable from stockholder (4,862) (4,862)
Deficit accumulated during the development stage (232,828) (223,582)
Accumulated other comprehensive income (loss) (2,090) 166
-------------------- ------------------
Total stockholders' equity 28,947 27,845
-------------------- ------------------
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' equity $ 56,061 $ 58,516
==================== ==================
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 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 Three Months Ended
inception)
through
June 30, 2000 June 30, 2000 June 27,1999
------------------- ------------------ -----------------
Revenue:
<S> <C> <C> <C>
Research and development contracts $ 21,605 $ - $ -
Battery and laminate sales 3,518 2,000 -
----------- ---------- ---------
Total revenue 25,123 2,000
Cost of Sales 5,579 5,579 -
------------ ----------- --------
Gross Margin 19,544 (3,579) -
------------ ----------- --------
Costs and expenses:
Research and product
development 102,894 1,256 4,292
Marketing 4,036 102 58
General and administrative 53,325 1,341 1,219
Depreciation and amortization 37,010 2,493 2,182
Write-off of in-process
technology 8,212 - -
Investment in Danish subsidiary 3,489 - -
Factory start-up costs 3,171 - -
Special charges 18,872 - -
----------- ---------- ---------
Total costs and expenses 231,009 5,192 7,751
----------- ---------- ---------
Operating loss (211,465) (8,771) (7,751)
Stockholder lawsuit settlement (30,061) - -
Interest and other income 18,401 299 82
Interest expense (7,203) (429) (354)
Equity in loss of joint venture (2,500) (345) (168)
----------- ---------- ---------
Net loss $ (232,828) (9,246) (8,191)
===========
Beneficial conversion feature
on preferred stock
$ (53) $ (219)
---------- ---------
Net loss available to common
stockholders (9,299) (8,410)
========== =========
Other comprehensive loss:
Net loss $(9,246) $ (8,191)
Change in foreign currency
translation adjustments $(2,256) $ (614)
---------- ---------
Comprehensive loss (11,502) (8,805)
========== =========
Net loss per share available to
common stockholders, basic and diluted $ (0.25) $ (0.31)
========== =========
Shares used in computing net loss
per share available to common
stockholders, basic and diluted 36,856 26,736
========== =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 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 Three Months Three Months
(date of inception) Ended Ended
through June 30, June 27,
June 30, 2000 2000 1999
--------------------- ------------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (232,828) $ (9,246) $ (8,191)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 37,010 2,493 2,182
Write-off of equipment 15,375 - -
Write-off of in-process technology 6,211 - -
Compensation related to stock options 3,891 - -
Non-cash charge related to acquisition of Danish subsidiary 2,245 - -
Non-cash charge from stockholder lawsuit settlement 29,450 - -
Equity in losses of joint venture 2,500 345 168
Amortization of debt discount 804 163 98
Changes in assets and liabilities:
Receivables (2,115) (1,348) 142
Prepaid expenses and other current assets (1,482) 994 90
Inventory (2,809) (1,168) -
Accounts payable 2,445 (3,636) (372)
Accrued liabilities (192) 395 (155)
Deferred revenue 2,500 - -
-------------- ----------- ------------
Net cash used in operating activities (136,995) (11,008) (6,038)
-------------- ----------- ------------
Cash flows from investing activities:
Purchase of long-term investments (665,789) - -
Maturities of long-term investments 661,545 - -
Capital expenditures (75,591) (3,983) (601)
Sale of equipment 1,269 - -
Other (222) - -
-------------- ----------- ------------
Net cash used in investing activities (78,788) (3,983) (601)
-------------- ----------- ------------
Cash flows from financing activities:
Property and equipment grants 6,421 - -
Borrowings of long-term debt 25,452 - 5,450
Payments of long-term debt:
Product development loan (482) - -
Stockholder and director (6,173) - -
Other long-term debt (12,763) (95) (129)
Proceeds from issuance of common stock and warrants,
net of issuance costs 213,788 12,656 105
Proceeds from issuance of preferred stock, Series A,
net of issuance osts 7,075 - -
Proceeds from issuance of preferred stock, Series B,
net of issuance costs 7,125 - -
-------------- ----------- ------------
Net cash provided by financing activities 240,443 12,561 5,426
Effect of foreign exchange rates on cash and cash (802) (17)
equivalents (3,336)
-------------- ----------- ------------
Increase (decrease) in cash and cash equivalents 21,324 (3,232) (1,230)
Cash and cash equivalents, beginning of period - 24,556 2,454
-------------- ----------- ------------
Cash and cash equivalents, end of period $ 21,324 $ 21,324 $ 1,224
============== =========== ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 5
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
These interim condensed consolidated financial statements are
unaudited but reflect, in the opinion of management, all normal
recurring adjustments necessary to present fairly the financial
position of Valence Technology, Inc. and subsidiaries (the "Company")
as of June 30, 2000, its consolidated results of operations for the
period from March 3, 1989 (date of inception) to June 30, 2000 and for
each of the three-month periods ended June 30, 2000 and June 27, 1999,
and the consolidated cash flows for each of the three-month periods
ended June 30, 2000 and June 27, 1999, and for the period from March
3, 1989 (date of inception) to June 30, 2000. 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 31, 2000. The results for the
three-month period ended June 30, 2000 are not necessarily indicative
of the results to be expected for the entire fiscal year ending March
31, 2001. The year end condensed consolidated balance sheet data as of
March 31, 2000 was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
and cash equivalents are on deposit in multiple banks and with an
investment counsel, and are primarily comprised of money market funds
and government securities.
INVENTORIES:
Inventories are stated at the lower of cost or market. The Company
utilizes the first-in, first-out ("FIFO") inventory method.
PROPERTY, PLANT AND EQUIPMENT GRANTS:
Grants relating to the acquisition of property, plant and equipment are
recorded upon satisfaction of the capital investment requirements
underlying the grant and the receipt of grant funds. Such grants are
deferred and amortized over the estimated useful lives of the related
assets as a reduction of depreciation expense.
Page 6
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
DEPRECIATION AND AMORTIZATION:
Property and equipment are stated at cost and depreciated on the
straight-line method over their estimated useful lives, generally three
to five years. Building improvements are amortized over the lesser of
their estimated useful life, generally five years, or the remaining
lease term. The Company assesses its ability to recover the net book
value of its long-term assets. The carrying value of assets determined
to be impaired is written down to net realizable value. In the period
assets are retired or otherwise disposed of, the costs and accumulated
depreciation or amortization are removed from the accounts, and any
gain or loss on disposal is included in results of operations.
LONG-LIVED ASSETS:
The Company periodically assesses the recoverability of property, plant
and equipment and evaluates such assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Asset impairment (including intangible
assets) is determined to exist if estimated future cash flows,
undiscounted and without interest charges, are less than the carrying
amount of the asset. If it is determined that an impairment loss has
occurred, the impairment loss is measured as the difference between the
amount of the discounted cash flows and the carrying amount of the
asset. The Company had no impairment losses for the quarter ended June
30, 2000.
DEFERRED REVENUE:
Deferred revenue relates to payments received from the Company's joint
venture partner in Hanil Valence Co., Ltd. This amount will be
recognized as income once significant product shipments commence from
the joint venture. The Company anticipates that production by the joint
venture will be sufficient to recognize a portion of this deferred
revenue in fiscal 2001.
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred.
FOREIGN CURRENCY TRANSLATION:
Exchange adjustments resulting from foreign currency transactions are
generally recognized in operations, whereas adjustments resulting from
the translation of financial statements are reflected as a separate
component of stockholders' equity. Net foreign currency transaction
gains or losses are not material in any of the years presented.
INCOME TAXES:
The Company utilizes the liability method to account for income taxes
where deferred tax assets or liabilities are determined based on the
differences between the financial statements and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which
the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amounts expected to be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, receivables, accounts payable, and
other accrued liabilities, approximate fair value due to their short
maturities. Based on borrowing rates currently available to the Company
for loans with similar terms, the carrying value of its debt
obligations approximates fair value.
Page 7
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
3. INVENTORIES:
<TABLE>
Inventories consist of the following:
<CAPTION>
June 30, 2000 March 31, 2000
--------------- ---------------
<S> <C> <C>
Raw materials $ 685 $ 423
Work-in-process 2,124 1,218
--------------- ---------------
Total $ 2,809 $ 1,641
=============== ===============
</TABLE>
4. EARNINGS PER SHARE:
Earnings per share ("EPS") is computed by dividing net loss available
to common stockholders by the weighted average number of common shares
outstanding for that period. Diluted EPS is computed giving effect to
all dilutive potential common shares that were outstanding during the
period. Dilutive potential common shares consist of incremental common
shares issuable upon conversion of preferred stock and exercise of
stock options and warrants for all periods.
The following is a reconciliation of the numerator (net loss) and
denominator (number of shares) used in the basic and diluted EPS
calculation (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 2000 JUNE 27, 1999
------------- -------------
<S> <C> <C>
Net loss available
to common stockholders $ (9,299) $ (8,410)
Weighted average
shares outstanding 36,856 26,736
Earnings per share,
basic and diluted $ (0.25) $ (0.31)
</TABLE>
Shares excluded from the calculation of diluted EPS as their effect was
anti-dilutive were 5,426,000 and 6,955,000 for the three months ended
June 30, 2000 and June 27, 1999, respectively.
5. LONG-TERM DEBT TO STOCKHOLDER:
In July 1997, the Company entered into an amended loan agreement with
a stockholder which allows the Company to borrow, prepay and re-borrow
up to the full $10,000,000 principal under the promissory note on a
revolving basis and provided that the lender will subordinate its
security interest to other lenders when new debt is obtained after the
stockholder's loan is prepaid to zero. The loan bears interest at one
percent over lender's borrowing rate (approximately 9.00% at June 30,
2000) and is available through August 30, 2002. As of June 30, 2000, a
total of $1,201,979 has been charged to interest expense.
In conjunction with the amended loan agreement, the Company issued
warrants to purchase 594,031 shares of common stock. The warrants were
valued using the Black Scholes valuation method and had an average
weighted fair value of approximately $3.63 per warrant at the time of
issuance. The fair value of these warrants, totaling approximately
$2,158,679, has been reflected as additional consideration for the debt
financing, recorded as a discount on the debt which is amortized as
interest expense over the term of the line of credit. As of June 30,
2000, a total of $803,349 has been charged to interest expense.
Page 8
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
6. COMMITMENTS AND CONTINGENCIES:
LITIGATION:
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 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. On December 10, 1998, the Company filed a first
amended complaint for breach of contract, breach of express warranty,
breach of implied warranty of merchantability, breach of implied
warranty of fitness for particular purpose, and breach of the implied
covenant of good faith and fair dealing. On or about December 23, 1998,
Powell filed a first amended complaint again seeking damages of
approximately $900,000. In April 2000, we prevailed on a motion for
summary adjudication against Powell's claims for oral modification,
promissory estoppel, and fraud. On July 7, 2000 we entered into a
settlement agreement which specified that the Company pay Powell the
sum of $370,000. Payment was made on July 17, 2000, and on July 20,
2000 the court entered a formal dismissal with prejudice pursuant to
the terms of the settlement.
7. SEGMENT INFORMATION:
The Company conducts its business in one operating segment and uses
only one measurement of profitability.
Long-lived asset information by geographic area at June 30, 2000 and
March 31, 2000 is as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
--------------- -------------------
<S> <C> <C>
United States $ 4,821 $ 4,851
International (primarily Northern Ireland) 23,368 23,657
--------------- -------------------
Total long-lived assets $28,189 $ 28,508
=============== ===================
</TABLE>
Page 9
<PAGE>
VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES
(companies in the development stage)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(unaudited)
8 RECENT ACCOUNTING PRONOUNCEMENTS:
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities". SFAS 133
establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the balance sheet, and that
the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on
the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. Currently,
the Company does not hold derivative instruments or engage in hedging
activities.
SECURITIES AND EXCHANGE COMMISSION STAFF ACCOUNTING BULLETIN NO. 101,
"REVENUE RECOGNITION IN FINANCIAL STATEMENTS"
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 clarifies existing accounting
principles related to revenue recognition in financial statements. The
Company is required to comply with the provisions of SAB 101 by the
fourth quarter of 2000. Management has not yet completed an analysis of
the impact that SAB 101 will have on the Company's current revenue
recognition practices.
9. SUBSEQUENT EVENTS:
On July 7, 2000, the Company entered into an agreement in settlement of
a lawsuit against Powell Electrical Manufacturing Company. The Company
paid Powell $370,000 on July 17, 2000, and on July 20, 2000 the court
entered a formal dismissal with prejudice pursuant to the terms of the
settlement.
Page 10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. The words "expect," "estimate,"
"anticipate," "predict," "believe," and similar expressions and variations of
such words are intended to identify forward-looking statements. Such statements
appear in a number of places in this report and include statements regarding our
intent, belief or current expectations with respect to, among other things, the
progress of our research and development activities, trends affecting our
liquidity position, including, but not limited to, our access to additional
equity or debt financing and our rate of expenditures, our joint venture
relationships, the status of the development of our products and their
anticipated performance and customer acceptance and our business and liquidity
strategies. We caution you not to put undue reliance on such forward-looking
statements. Such forward-looking statements are not guarantees of our future
performance and involve risks and uncertainties. Our actual results may differ
materially from those projected in this report, for the reasons, among others,
our limited available working capital, uncertain market acceptance of our
products, changing economic conditions, risks in product and technology
development, the effect of the Company's accounting policies and the other risks
discussed in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission. We undertake no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date of this report. In addition to the risks and uncertainties discussed
above, our other filings with the Securities and Exchange Commission contain
additional information concerning risks and uncertainties that may cause actual
results to differ materially from those projected or suggested in our
forward-looking statements. You should carefully review the risk factors
discussed in our Annual Report on Form 10-K and the other documents we have
filed with the Securities and Exchange Commission.
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 31,
2000. The results for the three-month period ended June 30, 2000 are not
necessarily indicative of the results to be expected for the entire fiscal year
ending March 31, 2001.
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.
In the first quarter of fiscal 2001, the Company recorded its first significant
commercial sales. Previously, other than immaterial revenues from limited sales
of prototype batteries, the Company had not received any significant revenues
from the sale of products. Substantially all revenues prior to the first quarter
of fiscal 2001, 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, which expired
in May 1998. The Company has incurred cumulative losses of $232,828,000 from its
inception to June 30, 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 (FIRST QUARTER OF FISCAL 2001) AND JUNE 27,
1999 (FIRST QUARTER OF FISCAL 2000).
REVENUE. Revenue from battery and laminate sales totaled $2,000,000 for the
first quarter of fiscal 2001. The Company did not record sales revenue in the
corresponding period of fiscal 2000. This is the first quarter of significant
sales revenue and signifies the Company's movement from research and development
to manufacturing.
COST OF SALES. The cost of sales for the first quarter of fiscal 2001 was
$5,579,000. The Company did not record cost of sales in the first quarter of
fiscal 2000 as the Company was primarily a research and development enterprise.
RESEARCH AND PRODUCT DEVELOPMENT. Research and development expenses were
$1,256,000 and $4,292,000 during the three-month periods ended June 30, 2000 and
June 27, 1999, respectively. The decreased expenditures reflect the Company's
transition from research and development to manufacturing.
MARKETING. Marketing expenses were $102,000 and $58,000 for the first quarter of
fiscal years 2001 and 2000, respectively. The increased expenditures are
primarily the result of an increase in the work force combined with extensive
travel for the purpose of product presentation to potential customers.
Page 11
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1,341,000
and $1,219,000 for the first three months of fiscal year 2001 and fiscal year
2000, respectively. The increase between comparable periods is due primarily to
higher expenditures for international travel and legal services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was $2,493,000 and
$2,182,000 for the first quarter of fiscal year 2001 and fiscal year 2000,
respectively. Increased capital expenditures in previous periods has caused
depreciation to rise accordingly.
INTEREST AND OTHER INCOME. Interest and other income was $299,000 for the first
quarter of fiscal 2001 as compared to $82,000 for the same period in fiscal
2000. The increase primarily results from additional funds being available for
investment.
INTEREST EXPENSE. Interest expense was $429,000 and $354,000 during the three
month periods ending June 30, 2000 and June 27, 1999, respectively. This
increase is a result of interest accrued on long term debt. The debt reached its
current level at the end of the first quarter of fiscal 2000.
EQUITY IN LOSSES OF JOINT VENTURE. Joint venture loss was $345,000 for the first
quarter of fiscal 2001 as compared to a loss of $168,000 for the comparable
period in fiscal 2000. The joint venture losses for the first quarter of fiscal
2001 and fiscal 2000 are primarily due to pre-production costs, interest expense
and foreign currency translation adjustments.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $11,008,000 net cash for operating activities during the first
three months of fiscal year 2001 compared to using $6,038,000 during the first
three months of fiscal year 2000, an increase between comparable periods of
$4,970,000. This increase resulted primarily from the intensification of efforts
to complete product development, expand and train production staff, expand
marketing staff and efforts, and completing engineering efforts on production
facilities. Additionally, the overall account payable balance was reduced by
over $3.6 million during the first quarter due to the timing of payments, and
the Company does not anticipate a significant change in account balances during
the next quarter.
During the three months ended June 30, 2000, the Company used $3,983,000 net
cash from investing activities compared to $601,000 during the three months
ended June 27, 1999, an increased usage of $3,382,000 between comparable
periods. The usage in both periods was comprised solely of capital expenditures.
The Company provided $12,561,000 net cash from financing activities during the
first quarter of fiscal year 2001 compared to $5,426,000 during the first
quarter of fiscal year 2000. This increase of $7,135,000 resulted primarily from
the sale of common stock to an institutional investor.
As a result of the above, the Company had a net decrease in cash and cash
equivalents of $3,232,000 during the three months ended June 30, 2000, whereas
it had a net decrease in cash and cash equivalents of $1,230,000 during the
three months ended June 27, 1999.
During June 2000 the Company entered into separate private placement funding
arrangements with Acqua Wellington Value Fund Ltd.("Acqua Wellington"), an
institutional investor, and Carl E. Berg ("Mr. Berg"), a principal stockholder
and director of the Company, for an equity investment commitment totaling $25
million. Acqua Wellington funded $12.5 million on June 29th by the purchase of
846,665 shares of common stock and a warrant to purchase 169,333 shares,
exercisable at $18.45 per share. The remaining $12.5 million is in the form of a
binding commitment from Mr. Berg for funding through the fiscal year end. The
draw down of Mr. Berg's commitment is at the Company's option.
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 (pound)25.6 million (approximately $38.7
million), generally become available over a five year period through October 31,
2001. As of June 30, 2000, the Company had received grants aggregating
(pound)4.1 million (approximately $6.2 million), reducing remaining grants
available to (pound)21.5 million (approximately $32.5 million).
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As a condition to receiving funding from the IDB, the subsidiary must maintain a
minimum of (pound)12.0 million (approximately $18.1 million) in debt or equity
financing from the Company. Aggregate funding under the grants was limited to
(pound)4.1 million (approximately $6.2 million) until the Company had recognized
$4.0 million in aggregate revenue from the sale of its batteries produced in
Northern Ireland. An amendment to the agreement with the IDB permits the Company
to receive (pound)500,000 (approximately $756,000) after achieving sales of
batteries manufactured by the Northern Ireland operation of at least $1.5
million. An additional (pound)500,000 (approximately $756,000) is available when
the total related sales reach $2.5 million. It is anticipated that the Company
will qualify during the next quarter to apply for both of these grants. Further
applications for additional available grants are anticipated to be filed during
the third quarter of this fiscal year.
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, $2,543,000, March 1997; assembly equipment, $9,940,000, March 1994;
extraction, packaging, and conditioning equipment, $400,000, August 1993; and
factory improvements and miscellaneous equipment, $660,000, June 1997. The
estimated completion date for these major categories of construction in progress
is the end of the fourth quarter of fiscal 2001. 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.
WE MAY HAVE A NEED FOR ADDITIONAL CAPITAL. At June 30, 2000, we had cash and
cash equivalents of $21,324,000. In addition, we have the ability to draw down
up to $12.5 million under the Berg financing and anticipate the availability of
a portion of our IDB grant funds during fiscal 2001. After taking into account
our cash and cash equivalents, projected revenues and receipt of funds from IDB
grants and from the Berg financing, we believe that will have sufficient
financing through fiscal 2001 to complete funding of planned capital expansion,
research and product development, marketing and general and administrative
expenses. Our cash requirements, however, may vary materially from those now
planned because of changes in our operations, including changes in original
equipment manufacturer (OEM) relationships, market conditions, joint venture and
business opportunities or our failure to receive sufficient IDB grant funds. In
such event, we may need to raise additional funding through debt or equity
financing through fiscal 2001. We cannot assure you that additional funds for
these purposes, whether from equity or debt financing agreements, will available
on favorable terms, if at all. If we need capital and cannot raise additional
funds, it may delay further development and production of our batteries or
otherwise delay our execution of our business plan, all of which may have a
material adverse effect on our operations and financial condition.
At June 30, 2000, we had cash and cash equivalents of $21,324,000. In addition,
we have the ability to draw down up to $12.5 million under the Berg financing
and anticipate the availability of a portion of our IDB grant funds during
fiscal 2001. After taking into account our cash and cash equivalents, projected
revenues and receipt of funds from IDB grants and from the Berg financing, we
believe that will have sufficient financing through fiscal 2001 to complete
funding of planned capital expansion, research and product development,
marketing and general and administrative expenses. Our cash requirements,
however, may vary materially from those now planned because of changes in our
operations, including changes in original equipment manufacturer (OEM)
relationships, market conditions, joint venture and business opportunities or
our failure to receive sufficient IDB grant funds. In such event, we may need to
raise additional funding through debt or equity financing through fiscal 2001.
We cannot assure you that additional funds for these purposes, whether from
equity or debt financing agreements, will available on favorable terms, if at
all.
RISK FACTORS
CAUTIONARY STATEMENTS AND RISK FACTORS
Several of the matters discussed in this document contain forward-looking
statements that involve risks and uncertainties. Factors associated with the
forward-looking statements that could cause actual results to differ from those
projected or forecast are included in the statements below. In addition to other
information contained in this Report, you should carefully consider the
following cautionary statements and risk factors.
RISKS RELATED TO OUR BUSINESS
WE ARE IN THE EARLY STAGES OF MANUFACTURING, AND OUR FAILURE TO DEVELOP THE
ABILITY TO EFFICIENTLY MANUFACTURE BATTERIES IN COMMERCIAL QUANTITIES WHICH
SATISFY OUR CUSTOMERS' PRODUCT SPECIFICATIONS COULD DAMAGE OUR CUSTOMER
RELATIONSHIPS AND RESULT IN SIGNIFICANT LOST BUSINESS OPPORTUNITIES FOR US. To
be successful, we must cost-effectively manufacture commercial quantities of our
batteries that meet customer specifications. Until recently, our batteries only
had been manufactured on our pilot manufacturing line, which is able to produce
prototype batteries in quantities sufficient to enable customer sampling and
testing and product development. Our manufacturing facilities will require
additional development to enable us to produce batteries cost-effectively,
according to customer specifications and on a commercial scale. To facilitate
commercialization of our products, we will need to reduce our manufacturing
costs. This includes being able to substantially raise and maintain battery
yields of commercial quality in a cost-effective manner. Failure to achieve
substantially increased yields of our batteries and to reduce unit-manufacturing
costs will preclude us from offering our batteries at a competitive price to the
market, which would impair our ability to attract current and future customers.
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We are currently in the early stages of transitioning production to an automated
production line that will work with our newest battery technology in our
manufacturing facility in Mallusk, Northern Ireland. We have begun to
manufacture batteries on a commercial scale to fulfill our first significant
purchase orders. The redesign and modification of the Mallusk manufacturing
facility, including its customized manufacturing equipment, will continue to
require substantial engineering work and capital expenses and is subject to
significant risks, including risks of cost overruns and significant delays. In
addition, in order to scale up the manufacturing capacity, we will need to begin
qualification of additional automated production lines. In automating,
redesigning and modifying the manufacturing processes, we have been, and will
continue to depend on, several developers of automated production lines, all of
whom have limited experience in producing equipment for the manufacture of
batteries. A failure to successfully develop and implement a large scale
manufacturing facility capable of cost-effectively producing commercial
quantities of batteries and according to customer specifications would harm our
ability to serve the needs of our customers and threaten our future sales and
profits.
As part of our manufacturing ramp-up, we will need to hire and train a
substantial number of new manufacturing workers. The availability of skilled and
unskilled workers in Northern Ireland, the site of our manufacturing facility,
is limited due to a relatively low unemployment rate. As a result, we face the
risk that we may not:
o successfully hire and train the new manufacturing workers necessary for the
ramp-up of our Mallusk, Northern Ireland manufacturing facility;
o successfully develop improved processes;
o design required production equipment;
o enter into acceptable contracts for the fabrication of required production
equipment;
o obtain timely delivery of required production equipment;
o implement multiple production lines; or
o successfully operate the Mallusk facility.
Our failure to successfully automate our production on a timely basis, if at
all, could damage our reputation, relationships with future and existing
customers, cause us to lose business and potentially prevent us from
establishing the commercial viability of our products.
IF WE CONTINUE TO EXPERIENCE DELAYS IN QUALIFYING OUR MANUFACTURING FACILITIES,
THIS COULD SIGNIFICANTLY DELAY OUR BRINGING COMMERCIAL QUANTITIES OF PRODUCT TO
MARKET AND INTERFERE WITH OUR ABILITY TO GENERATE THE REVENUE AND CASH THAT WE
NEED TO SUSTAIN OUR BUSINESS. We may be unable to meet our schedules regarding
delivery, installation, de-bugging and qualification of our Northern Ireland
facility production equipment, and face the prospect of further delays or
problems related to facility qualification because:
o most of the production equipment is being specifically manufactured for us;
thus, delays may occur since the design and delivery of this equipment is
not within our control;
o through our laboratory scale prototype work, we are modifying and bringing
many of the manufacturing processes that we are implementing in this
production equipment up to date for the first time and may need to refine
these processes, which could cause delays;
o even if we are able to refine our process, we may not be able to produce
the amount of qualification samples required by our customers; and
o our customers generally require an extensive qualification period once they
receive their first commercial product off a production line.
Any qualification-related delays or problems would impair our ability to bring
our batteries to market and would harm our business by adversely affecting
revenue growth and our cash position. Any extended delays in bringing our
products to market could harm our competitive position and harm our economic
growth.
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OUR LIMITED ABILITY TO MANUFACTURE LARGE VOLUMES OF BATTERIES MAY PREVENT US
FROM FULFILLING EXISTING ORDERS WHICH MAY HARM OUR BUSINESS. At the present time
our ability to sell and ship product is limited. We currently have three
outstanding unfilled purchase orders for our batteries and are actively
soliciting additional purchase orders. We presently have limited quantities of
batteries available for sale and do not currently have the necessary equipment
in operation to manufacture a commercially adequate volume of products. We are
currently installing additional automated equipment at our facilities in
Mallusk, Northern Ireland and anticipate that this production facility will be
fully operational by the third quarter of calendar 2001, which will provide us
the capacity to manufacture and ship batteries in high volumes.
In 1993, we were ultimately unable to fulfill a purchase order for batteries
which incorporated a previous technology due to our inability to produce our
batteries on a commercial scale. If we cannot rapidly increase our production
capabilities to make sufficient quantities of commercially acceptable batteries,
we may not be able to fulfill existing purchase orders in a timely manner, if at
all. In addition, we may not be able to procure additional purchase orders,
which could cause us to lose existing and future customers, purchase orders,
revenue and profits.
WE MAY HAVE A NEED FOR ADDITIONAL CAPITAL. At June 30, 2000, we had cash and
cash equivalents of $21,324,000. In addition, we have the ability to draw down
up to $12.5 million under the Berg financing and anticipate the availability of
a portion of our IDB grant funds during fiscal 2001. After taking into account
our cash and cash equivalents, projected revenues and receipt of funds from IDB
grants and from the Berg financing, we believe that will have sufficient
financing through fiscal 2001 to complete funding of planned capital expansion,
research and product development, marketing and general and administrative
expenses. Our cash requirements, however, may vary materially from those now
planned because of changes in our operations, including changes in original
equipment manufacturer (OEM) relationships, market conditions, joint venture and
business opportunities or our failure to receive sufficient IDB grant funds. In
such event, we may need to raise additional funding through debt or equity
financing through fiscal 2001. We cannot assure you that additional funds for
these purposes, whether from equity or debt financing agreements, will available
on favorable terms, if at all. If we need capital and cannot raise additional
funds, it may delay further development and production of our batteries or
otherwise delay our execution of our business plan, all of which may have a
material adverse effect on our operations and financial condition.
WE HAVE A HISTORY OF LOSSES, HAVE AN ACCUMULATED DEFICIT AND MAY NEVER ACHIEVE
OR SUSTAIN SIGNIFICANT REVENUES OR PROFITABILITY. We have incurred operating
losses each year since inception in 1989 and had an accumulated deficit of
$232,828,000 as of June 30, 2000. We have working capital of $17.8 million as of
June 30, 2000, and have sustained recurring losses related primarily to the
research and development and marketing of our products. We expect to continue to
incur operating losses and negative cash flows through fiscal 2001, as we
continue our product development, begin to build inventory and continue our
marketing efforts. We may never achieve or sustain significant revenues or
profitability in the future.
IF OUR BATTERIES FAIL TO PERFORM AS EXPECTED, WE COULD LOSE EXISTING AND FUTURE
BUSINESS, AND OUR LONG-TERM ABILITY TO MARKET AND SELL OUR BATTERIES COULD BE
HARMED. If we manufacture our batteries in commercial quantities and they fail
to perform as expected, our reputation could be severely damaged, and we could
lose existing or potential future business. Even if the performance failure was
corrected, this performance failure might have the long-term effect of harming
our ability to market and sell our batteries.
BECAUSE WE DEPEND ON A SMALL NUMBER OF CUSTOMERS FOR OUR REVENUES, OUR RESULTS
OF OPERATIONS AND FINANCIAL CONDITION COULD BE HARMED IF WE WERE TO LOSE THE
BUSINESS OF ANY ONE OF THESE CUSTOMERS. To date, our three existing purchase
orders in commercial quantities are from two customers. We anticipate that sales
of our products to a limited number of key customers will continue to account
for a significant portion of our total revenues. We do not have long-term
agreements with any of our customers, and do not expect to enter into any
long-term agreements in the near future. As a result, we face the substantial
risk that any of the following events could occur:
o reduction, delay or cancellation of orders from a customer;
o development by a customer of other sources of supply;
o selection by a customer of devices manufactured by one of our competitors
for inclusion in future product generations;
o loss of a customer or a disruption in our sales and distribution channels;
and
o failure of a customer to make timely payment of our invoices.
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If we were to lose one or more customers, or if we were to lose revenues due to
a customer's inability or refusal to continue to purchase our batteries, our
business, results of operations and financial condition could be harmed.
WE MUST CONTINUE TO EXPAND OUR EMPLOYEE BASE AND OPERATIONS IN ORDER TO
DISTRIBUTE OUR PRODUCTS COMMERCIALLY, WHICH MAY STRAIN OUR MANAGEMENT AND
RESOURCES AND COULD HARM OUR BUSINESS. During 1999, we grew rapidly, expanding
our manufacturing capacity significantly. We have grown from 184 employees at
March 1999 to 409 employees as of July 2000. We plan to expand our manufacturing
capability in the next six months by adding more equipment. We plan to expand
our sales and marketing organizations in addition to increasing the number of
manufacturing employees and adding to our operating team. To implement our
growth strategy successfully, we will have to increase our staff, including
personnel in sales and marketing, engineering, development and product support
capabilities, as well as third party and direct distribution channels. However,
we face the risk that we may not be able to attract new employees to
sufficiently increase our staff or product support capabilities, or that we will
not be successful in our sales and marketing efforts. Failure in any of these
areas could impair our ability to execute our plans for growth and adversely
affect our future profitability.
COMPETITION FOR PERSONNEL, IN PARTICULAR FOR PRODUCT DEVELOPMENT AND PRODUCT
IMPLEMENTATION PERSONNEL, IS INTENSE, AND WE MAY HAVE DIFFICULTY ATTRACTING THE
PERSONNEL NECESSARY TO EFFECTIVELY OPERATE OUR BUSINESS. We believe that our
future success will depend in large part on our ability to attract and retain
highly skilled technical, managerial and marketing personnel who are familiar
with and experienced in the battery industry, as well as skilled personnel to
operate our facility in Northern Ireland. If we cannot attract and retain
experienced sales and marketing executives, we may not achieve the visibility in
the marketplace that we need to obtain purchase orders, which would have the
result of lowering our sales and earnings. We compete in the market for
personnel against numerous companies, including larger, more established
competitors with significantly greater financial resources than us. We have
experienced difficulty in recruiting qualified personnel in the past, and we
cannot be certain that we will be successful in attracting and retaining the
skilled personnel necessary to operate our business effectively in the future.
BECAUSE OUR BATTERIES ARE PRIMARILY SOLD TO BE INCORPORATED INTO OTHER PRODUCTS,
WE RELY ON ORIGINAL EQUIPMENT MANUFACTURERS AND BATTERY PACK ASSEMBLERS TO
COMMERCIALIZE OUR PRODUCTS. WE MAY NOT OBTAIN ADEQUATE ASSISTANCE FROM THESE
THIRD PARTIES TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS. We rely heavily on
assistance in gaining market acceptance for our products from original equipment
manufacturers, or OEMs (manufacturers who produce complex equipment from
components usually bought from other manufacturers) and battery pack assemblers
who incorporate our batteries into products that they later sell to commercial
manufacturers or the public. We will therefore need to meet these companies'
requirements by developing and introducing on a timely basis, new products and
enhanced, or modified, versions of our existing products. OEMs and battery pack
assemblers often require unique configurations or custom designs for batteries,
which must be developed and integrated into their product well before the
product is launched. This development process not only requires substantial
lead-time between the commencement of design efforts for a customized battery
system and the commencement of volume shipments of the battery system to the
customer, but also requires the cooperation and assistance of the OEMs or
battery pack assemblers for purposes of determining the battery requirements for
each specific application. If we are unable to design, develop and introduce
products that meet original equipment manufacturers' and battery pack
assemblers' requirements, we may not be able to fulfill our obligations under
existing purchase orders, we may lose opportunities to enter into additional
purchase orders and our reputation may be damaged. As a result, we may not
receive adequate assistance from OEMs or battery pack assemblers to successfully
commercialize our products, which could impair our profitability.
WE DEPEND ON A SOLE SOURCE SUPPLIER FOR OUR ANODE RAW MATERIALS, AND UTILIZE A
LIMITED NUMBER OF SUPPLIERS FOR OTHER KEY RAW MATERIALS THAT WE USE IN
DEVELOPING AND MANUFACTURING OUR BATTERIES. IF WE CANNOT OBTAIN NECESSARY RAW
MATERIALS, OUR PRODUCTION OF BATTERIES WILL BE DELAYED. We depend on a sole
source supplier for our anode, or negative electrode, raw material. In addition,
we utilize a limited number of suppliers for other key raw materials used in
manufacturing and developing our batteries. We generally purchase raw materials
pursuant to purchase orders placed from time to time and have no long-term
contracts or other guaranteed supply arrangements with our sole or limited
source suppliers. As a result, we face the following risks relating to our
supply of raw materials necessary for operating our business:
o our suppliers may not be able to meet our requirements relative to
specifications and volumes for key raw materials, and we may not be able to
locate alternative sources of supply at an acceptable cost; and
o we have in the past experienced delays in product development due to the
delivery of nonconforming raw materials from our suppliers, and if in the
future we are unable to obtain high quality raw materials in sufficient
quantities and on a timely basis, our production of batteries may be
delayed.
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Any loss, delay or failure in obtaining key raw materials could impede our
ability to fulfill existing or future purchase orders and harm our reputation
and profitability.
IF OUR BATTERIES OR OUR CUSTOMERS' APPLICATIONS THAT INCORPORATE OUR BATTERIES
DO NOT ACHIEVE LASTING MARKET ACCEPTANCE, WE MAY LOSE POTENTIAL CUSTOMERS. To
achieve market acceptance, our batteries must offer significant performance or
other measurable advantages at a cost-effective rate as compared to other
current and potential alternative battery technologies in a broad range of
applications. Our batteries may not be able to achieve or sustain these
advantages. Even if our batteries provide meaningful price or performance
advantages, there is a risk our batteries may not be able to achieve or maintain
market acceptance in any potential market application. The success of our
products also will depend upon the level of market acceptance of OEMs and other
customers' end products that incorporate our batteries, a circumstance over
which we have little or no control. Our ability to realize these performance
advantages and our failure to achieve significant market acceptance with our
products could hurt our ability to attract customers in the future.
WE HAVE FOUR KEY EXECUTIVES. THE LOSS OF A SINGLE EXECUTIVE OR THE FAILURE TO
HIRE AND INTEGRATE CAPABLE NEW EXECUTIVES COULD HARM OUR BUSINESS. Our success
is highly dependent upon the active participation of four key executives. We do
not have written employment contracts or key man life insurance policies with
respect to any of these key members of management. Without qualified executives,
we face the risk that we will not be able to effectively run our business on a
day-to-day basis or execute our long-term business plan.
IF WE CANNOT PROTECT OR ENFORCE OUR EXISTING INTELLECTUAL PROPERTY RIGHTS OR IF
OUR PENDING PATENT APPLICATIONS DO NOT RESULT IN ISSUED PATENTS, WE MAY LOSE THE
ADVANTAGES OF OUR RESEARCH AND MANUFACTURING SYSTEMS. Our ability to compete
successfully will depend on whether we can protect our existing proprietary
technology and manufacturing processes. We rely on a combination of patent and
trade secret protection, non-disclosure agreements and cross-licensing
agreements. These measures may not be adequate to safeguard the proprietary
technology underlying our batteries. Employees, consultants, and others who
participate in the development of our products may breach their non-disclosure
agreements with us, and we may not have adequate remedies in the event of their
breaches. In addition, our competitors may be able to develop products that are
equal or superior to our products without infringing on any of our intellectual
property rights. Moreover, we may not be able to effectively protect our
intellectual property rights outside of the United States.
We have established a program for intellectual property documentation and
protection in order to safeguard our technology base. We intend to vigorously
pursue enforcement and defense of our patents and our other proprietary rights.
We could incur significant expenses in preserving our proprietary rights, and
these costs could harm our financial condition. We are also attempting to expand
our intellectual property rights through our applications for new patents.
Patent applications in the United States are maintained in secrecy until the
patents that are applied for are ultimately issued. Since publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries by several months, we cannot be certain that we were the first
creator of inventions covered by pending patent applications or the first to
file patent applications on such inventions. Therefore, our pending patent
applications may not result in issued patents and our issued patents may not
afford protection against a competitor. Our failure to protect our existing
proprietary technologies or to develop new proprietary technologies may
substantially impair our financial condition and results of operations.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS BROUGHT AGAINST US COULD BE TIME
CONSUMING AND EXPENSIVE TO DEFEND. In recent years, there has been significant
litigation in the United States involving patents and other intellectual
property rights. While we currently are not engaged in any intellectual property
litigation or proceedings, we may become involved in these proceedings in the
future. In the future we may be subject to claims or inquiries regarding our
alleged unauthorized use of a third party's intellectual property. An adverse
outcome in litigation could force us to do one or more of the following:
o stop selling, incorporating or using our product that use the challenged
intellectual property;
o pay significant damages to third parties;
o obtain from the owners of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or
o redesign those products or manufacturing processes that use the infringed
technology, which may be economically or technologically infeasible.
Whether or not an intellectual property litigation claim is valid, the cost of
responding to it, in terms of legal fees and expenses and the diversion of
management resources, could be expensive and harm our business.
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OUR BATTERIES CONTAIN POTENTIALLY DANGEROUS MATERIALS, WHICH COULD EXPOSE US TO
PRODUCT LIABILITY CLAIMS. In the event of a short circuit or other physical
damage to a battery, a reaction may result with excess heat or a gas being
generated and released. If the heat or gas is not properly released, the battery
may be flammable or potentially explosive. Our batteries that were based on an
earlier technology, have, in the past, smoked, caught fire and vented gas. If we
are unsuccessful in our efforts to reduce these risks in our current design, we
could be exposed to product liability litigation. In addition, our batteries
incorporate potentially dangerous materials, including lithium. It is possible
that these materials may require special handling or that safety problems may
develop in the future. We are aware that if the amounts of active materials in
our batteries are not properly balanced and if the charge/discharge system is
not properly managed, a dangerous situation may result. Other battery
manufacturers using technology similar to ours include special safety circuitry
within the battery to prevent such a dangerous condition. We expect that our
customers will have to use a similar type of circuitry in connection with their
use of our products.
WE ARE ENGAGED IN ONGOING SAFETY TESTING OF OUR BATTERIES TO MEET CUSTOMER
REQUIREMENTS AND MAY NOT BE ABLE TO INCREASE COMMERCIAL SALES OF OUR BATTERIES
IF OUR PRODUCTS ARE NOT SUCCESSFUL IN THESE TESTS. We have conducted safety
testing of our batteries and have submitted batteries to Underwriters
Laboratories for certification, which is required by a number of OEMs prior to
placing a purchase order with us. Underwriters Laboratories has granted a
preliminary acceptance of an earlier generation of our batteries, pending a
manufacturing site audit. Those batteries, while similar to the batteries we are
selling today, are not of the current design and composition. Our current
batteries must be submitted for Underwriters Laboratories' approval, and
Underwriters Laboratories has not yet begun a scheduled audit of our Northern
Ireland manufacturing facility.
As part of our safety testing program, prototype batteries of various sizes,
designs and chemical formulations are subject to abuse testing, in which the
battery is subjected to conditions outside expected normal operating conditions.
Each new battery design will continue to require new safety testing. In
addition, safety problems may develop with respect to our current and future
battery technology that could prevent or delay commercial introduction of our
products.
ACCIDENTS AT OUR FACILITIES COULD DELAY PRODUCTION AND ADVERSELY AFFECT OUR
OPERATIONS. An accident in our facilities could occur. Any accident, whether due
to the production of our batteries or otherwise resulting from our facilities'
operations, could result in significant manufacturing delays or claims for
damages resulting from personal or property injuries, which would adversely
affect our operations and financial condition.
WE DEPEND UPON THE CONTINUED OPERATION OF A SINGLE MANUFACTURING FACILITY.
OPERATIONAL PROBLEMS AT THIS FACILITY COULD HARM OUR BUSINESS. Our revenues are
dependent upon the continued operation of our manufacturing facility in Northern
Ireland. The operation of a manufacturing plant involves many risks, including
potential damage from fire or natural disasters. In addition, we have obtained
permits to conduct our business as currently operated at the facility. There can
be no assurance that these permits would continue to be effective at the current
location if the facility were destroyed and rebuilt, or that we would be able to
obtain similar permits to operate at another location. There can be no assurance
that the occurrence of these or any other operational problems at our Northern
Ireland facility would not harm our business.
WE DO NOT FULLY CONTROL THE OPERATION OF OUR JOINT VENTURES' OPERATIONS,
STRATEGIES AND FINANCIAL DECISIONS, AND WE CANNOT ASSURE YOU THAT OUR PRODUCTS
WILL BE MARKETED SUCCESSFULLY THROUGH THESE VENTURES. At the present time, we
have investment interests in two operating joint ventures. We established a
joint venture company in Korea, Hanil Valence Co., Ltd., to manufacture, package
and distribute advanced rechargeable solid polymer batteries. We supply Hanil
Valence Co. with its proprietary laminates (film and laminate materials), from
which Hanil Valence Co. will manufacture batteries for the Korean market. In
addition, we will supply technology, initial equipment and product designs and
technical support for the Hanil Valence Co. joint venture out of our Northern
Ireland facility. We cannot be certain that the Hanil Valence Co. joint venture
will be profitable, and if this joint venture does not remain in business, we
would need to find other business partners and/or contract with third parties
for purposes of manufacturing, selling and distributing rechargeable batteries
in the Korean market.
We also established a joint venture company, Alliant/Valence, L.L.C., to market
our battery technology and technology obtained under our non-exclusive license
with Telecordia Technologies (formerly Bellcore) and to develop and to
manufacture batteries for our U.S. military customers, as well as for foreign
military sales activities. In connection with this joint venture, Alliant Power
Sources Company, an Alliant operating company, has ordered both battery
component material and finished battery cells from Valence to be used in the
construction of several different specialized batteries for military and
aerospace applications.
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We do not control or manage either of these joint ventures. Consequently, we
must rely on the management skills of our venture partners to successfully
operate these ventures. Our joint venture partners may have economic, businesses
or legal interests or goals that conflict with ours. In addition, we may have
significant disagreements with our venture partners regarding strategic or
operational issues that could have material adverse effect on the ventures'
business or financial conditions. We may be required to fulfill the obligations
of our joint venture partners if they are unable to meet their obligations.
We also depend to a significant degree on local partners in our joint ventures
to provide us with regulatory and marketing expertise and familiarity with the
local business environment. Any disruption in our relationship with these
parties could make it more difficult to market our products in the geographic
regions or to the customers to which the joint venture relates. Unsuccessful
ventures could also significantly damage our reputation, making it more
difficult to obtain purchase orders for our batteries.
WE DO NOT HAVE A COLLABORATIVE PARTNER TO ASSIST US IN DEVELOPMENT OF OUR
BATTERIES, WHICH MAY LIMIT OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR
PRODUCTS. The use of alliances for our development, product design, volume
purchase and manufacturing and marketing expertise could reduce the need for
development and use of internal resources. We have received substantially all
our revenues to date from a research and development agreement for joint
development in the automotive market with Delphi Automotive Systems Group, which
we completed in May 1998. Although we have held discussions with OEMs in the
portable consumer electronics and telecommunications markets about possible
strategic relationships as a means to accelerate introduction of our batteries
into these markets, we may choose not to, or may not be able to, enter into any
such alliances. Further, even if we could collaborate with a desirable partner,
the partnership may not be successful. The success of any strategic alliance
that we may enter into depends on, among other things, the general business
condition of the partner, its commitment to the strategic alliance and the
skills and experience of its employees. Without a collaborative partner to
assist us in development of our batteries, our ability to develop and
commercialize our products may be limited.
WE EXPECT TO SELL A SIGNIFICANT PORTION OF OUR PRODUCTS TO CUSTOMERS LOCATED
OUTSIDE THE UNITED STATES. FOREIGN GOVERNMENT REGULATIONS, CURRENCY FLUCTUATIONS
AND INCREASED COSTS ASSOCIATED WITH INTERNATIONAL SALES COULD MAKE OUR PRODUCTS
UNAFFORDABLE IN FOREIGN MARKETS, WHICH WOULD REDUCE OUR FUTURE PROFITABILITY.
The largest of our initial product orders is with an international customer. We
expect that international sales will represent an increasingly significant
portion of our product sales. International sales can be subject to many
inherent risks that are difficult or impossible for us to predict or control,
including:
o changes in foreign government regulations and technical standards,
including additional regulation of rechargeable batteries or the transport
of lithium, which may reduce or eliminate our ability to sell in certain
markets;
o foreign governments may impose tariffs, quotas and taxes on our batteries;
o requirements or preferences of foreign nations for domestic products could
reduce demand for our batteries;
o fluctuations in currency exchange rates relative to the U.S. dollar could
make our batteries unaffordable to foreign purchasers or more expensive
compared to those of foreign manufacturers;
o longer payment cycles typically associated with international sales and
potential difficulties in collecting accounts receivable may reduce the
future profitability of foreign sales;
o import and export licensing requirements in Northern Ireland or Korea may
reduce or eliminate our ability to sell in certain markets; and
o political and economic instability in Northern Ireland or Korea may reduce
the demand for our batteries or our ability to market our batteries in
foreign countries.
These risks may increase our costs of doing business internationally and reduce
our sales or future profitability.
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POLITICAL INSTABILITY IN NORTHERN IRELAND COULD INTERRUPT MANUFACTURING OF OUR
BATTERIES AT OUR NORTHERN IRELAND FACILITY AND CAUSE US TO LOSE SALES AND
MARKETING OPPORTUNITIES. Northern Ireland has experienced significant social and
political unrest in the past and we cannot assure you that these instabilities
will not continue in the future. Any political instability in Northern Ireland
could temporarily or permanently interrupt our manufacturing of batteries at our
facility in Mallusk, Northern Ireland. Any delays could also cause us to lose
sales and marketing opportunities, as potential customers would find other
vendors to meet their needs.
RISKS ASSOCIATED WITH OUR INDUSTRY
THERE HAS BEEN, AND CONTINUES TO BE, A RAPID EVOLUTION OF BATTERY TECHNOLOGIES.
IF COMPETING TECHNOLOGIES THAT OUTPERFORM OUR BATTERIES WERE DEVELOPED AND
SUCCESSFULLY INTRODUCED, THEN OUR PRODUCTS MIGHT NOT BE ABLE TO COMPETE
EFFECTIVELY IN OUR TARGETED MARKET SEGMENTS. The battery industry has
experienced, and is expected to continue to experience, rapid technological
change. Rapid and ongoing changes in technology and product standards could
quickly render our products less competitive, or even obsolete. Various
companies are seeking to enhance traditional battery technologies, such as lead
acid and nickel cadmium. Other companies have recently introduced or are
developing batteries based on nickel metal hydride, liquid lithium ion and other
emerging and potential technologies. These competitors are engaged in
significant development work on these various battery systems and we believe
that much of this effort is focused on achieving higher energy densities for low
power applications such as portable electronics. One or more new, higher energy
rechargeable battery technologies could be introduced which could be directly
competitive with, or be superior to, our technology. The capabilities of many of
these competing technologies have improved over the past several years.
Competing technologies that outperform our batteries could be developed and
successfully introduced and, as a result, there is a risk that our products may
not be able to compete effectively in our targeted market segments.
OUR PRINCIPAL COMPETITORS HAVE GREATER FINANCIAL AND MARKETING RESOURCES THAN WE
DO AND THEY MAY THEREFORE DEVELOP BATTERIES SIMILAR OR SUPERIOR TO OURS OR
OTHERWISE COMPETE MORE SUCCESSFULLY THAN WE DO. Competition in the rechargeable
battery industry is intense. The industry consists of major domestic and
international companies, most of which have financial, technical, marketing,
sales, manufacturing, distribution and other resources substantially greater
than ours. There is a risk that other companies may develop batteries similar or
superior to ours. In addition, many of these companies have name recognition,
established positions in the market, and long standing relationships with OEMs
and other customers. We believe that our primary competitors are existing
suppliers of liquid lithium ion, competing polymer and, in some cases, nickel
metal hydride batteries. These suppliers include Sanyo, Matsushita Industrial
Co., Ltd. (Panasonic), Sony, Toshiba and SAFT America, Inc. All of these
companies are very large and have substantial resources and market presence. We
expect that we will compete against manufacturers of other types of batteries in
our targeted application segments, which include laptops, cellular telephones
and personal digital assistant products, on the basis of performance, size and
shape, cost and ease of recycling. There is also a risk that we may not be able
to compete successfully against manufacturers of other types of batteries in any
of our targeted applications.
LAWS REGULATING THE MANUFACTURE OR TRANSPORT OF BATTERIES MAY BE ENACTED WHICH
COULD RESULT IN A DELAY IN THE PRODUCTION OF OUR BATTERIES OR THE IMPOSITION OF
ADDITIONAL COSTS THAT WOULD HARM OUR ABILITY TO BE PROFITABLE. At the present
time, international, federal, state or local law does not directly regulate the
storage, use and disposal of the component parts of our batteries or the
transport of our batteries. However, laws and regulations may be enacted in the
future which could impose environmental, health and safety controls on the
storage, use, and disposal of certain chemicals and metals used in the
manufacture of lithium polymer batteries as well as regulations governing the
transport of our batteries. Satisfying any future laws or regulations could
require significant time and resources from our technical staff and possible
redesign which may result in substantial expenditures and delays in the
production of our product, all of which could harm our business and reduce our
future profitability.
GENERAL RISKS ASSOCIATED WITH STOCK OWNERSHIP
CORPORATE INSIDERS OR AFFILIATES WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL
OVER MATTERS REQUIRING STOCKHOLDER APPROVAL THAT MIGHT NOT BE IN THE BEST
INTERESTS OF OUR STOCKHOLDERS AS A WHOLE. As of June 30, 2000, our officers,
directors, and their affiliates as a group beneficially owned approximately
20.5% of our outstanding common stock. Carl Berg, one of our directors, owns a
substantial portion of that amount. As a result, these stockholders will be able
to exercise significant control over all matters requiring stockholder approval,
including the election of directors and the approval of significant corporate
transactions, which could delay or prevent someone from acquiring or merging
with us. The interest of our officers and directors, when acting in their
capacity as stockholders, may lead them to:
o vote for the election of directors who agree with the incumbent officers'
or directors' preferred corporate policy; or
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o oppose or support significant corporate transactions when these
transactions further their interests as incumbent officers or
directors, even if these interests diverge from their interests as
shareholders per se and thus from the interests of other shareholders.
SOME PROVISIONS OF OUR CHARTER DOCUMENTS MAY MAKE TAKEOVER ATTEMPTS DIFFICULT,
WHICH COULD DEPRESS THE PRICE OF OUR STOCK AND LIMIT THE PRICE POTENTIAL
ACQUIRERS MAY BE WILLING TO PAY FOR YOUR SHARES. Our board of directors has the
authority, without any action by the stockholders, to issue additional shares of
our preferred stock, which shares may be given superior voting, liquidation,
distribution and other rights as compared to those of our common stock. The
rights of the holders of our capital stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future. The issuance of additional shares of preferred stock
could have the effect of making it more difficult for a third party to acquire a
majority of our outstanding voting stock. These provisions may have the effect
of delaying, deferring or preventing a change in control, may discourage bids
for our common stock at a premium over its market price and may decrease the
market price, and infringe upon the voting and other rights of the holders, of
our common stock.
CONVERSION OF PREFERRED STOCK AND SALES OF COMMON STOCK BY CC INVESTMENTS MAY
DEPRESS THE PRICE OF OUR COMMON STOCK AND SUBSTANTIALLY DILUTE YOUR STOCK. If CC
Investments LDC ("CC Investments") were to exercise all of the warrants it holds
and convert all of the shares of preferred stock it owns, as of June 30, 2000,
it would then own approximately 1,081,624 shares of our common stock. This
amount includes 633,863 shares of our common stock that CC Investments would
acquire upon their conversion of the shares of Series B Preferred Stock it
currently holds. Our Series B Preferred Stock has a variable conversion rate and
is convertible into a larger amount of shares when our common stock trades at a
price below $6.03 in six out of ten consecutive trading days. In addition, the
number of shares into which the preferred stock converts increases at 6% per
year. If CC Investments exercises additional warrants or converts its preferred
stock into shares of our common stock and sells the shares into the market,
these sales could depress the market price of our common stock and would dilute
your holdings in our common stock. Additionally, dilution or the potential for
dilution could harm our ability to raise capital through the future sale of
equity securities.
OUR STOCK PRICE IS VOLATILE. The market price of the shares of our common stock
has been and is likely to continue to be highly volatile. Factors that may have
a significant effect on the market price of our common stock include the
following:
o fluctuation in our operating results;
o announcements of technological innovations or new commercial products by us
or our competitors;
o failure to achieve operating results projected by securities analysts;
o governmental regulation;
o developments in our patent or other proprietary rights or our competitors'
developments;
o our relationships with current or future collaborative partners; and
o other factors and events beyond our control.
In addition, the stock market in general has experienced extreme volatility that
often has been unrelated to the operating performance of particular companies.
These broad market and industry fluctuations may adversely affect the trading
price of our common stock, regardless of our actual operating performance.
As a result of this potential stock price volatility, investors may be unable to
resell their shares of our common stock at or above the cost of their purchase
prices. In addition, companies that have experienced volatility in the market
price of their stock have been the object of securities class action litigation.
If we were the subject of securities class action litigation, this could result
in substantial costs, a diversion of our management's attention and resources
and harm to our business and financial condition.
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FUTURE SALES OF CURRENTLY OUTSTANDING SHARES COULD ADVERSELY AFFECT OUR STOCK
PRICE. The market price of our common stock could drop as a result of sales of a
large number of shares in the market or in response to the perception that these
sales could occur. In addition these sales might make it more difficult for us
to sell equity or equity-related securities in the future at a time and price
that we deem appropriate. We had outstanding 38,468,681 shares of common stock,
based upon shares outstanding as of August 8, 2000 and the conversion of all of
our Series B Preferred Stock. Of these shares, most will be registered and
freely tradable. Included in these shares are 950,000 shares issued to a wholly
owned subsidiary, which pledged these shares to secure our obligations in
accordance with the settlement of a class action lawsuit. On May 8, 2000, the
court approved the parties' settlement agreement for this class action lawsuit
and issued an order formally dismissing the case. Under the terms of the
settlement, the plaintiffs' settlement counsel, or their authorized agents,
acting on behalf of the settlement class and subject to the supervision and
direction of the court, will administer and calculate the claims submitted by
the settlement class members and will oversee distribution of the balance of the
settlement fund to the authorized claimants as of the effective date of the
settlement. The settlement fund will be applied in the following order: (a) to
pay counsel to the representative plaintiffs attorneys' fees the fee and expense
award (as defined in the settlement and if and to the extent allowed by the
court); (b) to pay all costs and expenses reasonably and actually incurred in
connection with providing notice i.e. locating class members; (c) to pay the
taxes and tax expenses as described in the settlement agreement; and (d) to
distribute the balance of the settlement fund to authorized claimants as allowed
by the terms of the settlement, the Court or the Plan of Allocation (as defined
in the settlement). In addition, we have filed registration statements on Form
S-8 under the Securities Act of 1933 that cover 2,125,107 shares of common stock
pursuant to outstanding but unexercised vested options to acquire our common
stock.
WE DO NOT INTEND TO PAY DIVIDENDS AND THEREFORE YOU WILL ONLY BE ABLE TO RECOVER
YOUR INVESTMENT IN OUR COMMON STOCK, IF AT ALL, BY SELLING THE SHARES OF OUR
STOCK THAT YOU HOLD. Some investors favor companies that pay dividends. We have
never declared or paid any cash dividends on our common stock. We currently
intend to retain any future earnings for funding growth and we do not anticipate
paying cash dividends on our common stock in the foreseeable future. Because we
may not pay dividends, your return on an investment in our shares likely depends
on your ability to sell our stock at a profit.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has long term debt, principally in the form of two building
mortgages, one of which has a balloon payoff in 2001. One note bears interest at
a fixed rate of 10.4% and the other note bears interest at an annually
adjustable published interest rate index (7.375% at June 30, 2000).
Based on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of its debt obligations approximates fair
value. At June 30, 2000, the weighted average interest rate on the Company's
long term debt is 8.378%.
The table below presents principal amounts by fiscal year for the Company's
long-term debt.
<TABLE>
<CAPTION>
2001 2002 2003 2004 2005 Thereafter Total
---- ----- ---- ---- ---- ---------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Fixed rate debt:.......... 162 1,277 -- -- -- -- 1,439
Variable rate debt........ 240 263 285 305 325 1,482 2,900
</TABLE>
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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
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. On
December 10, 1998, the Company filed a first amended complaint for breach of
contract, breach of express warranty, breach of implied warranty of
merchantability, breach of implied warranty of fitness for particular purpose,
and breach of the implied covenant of good faith and fair dealing. On or about
December 23, 1998, Powell filed a first amended complaint again seeking damages
of approximately $900,000. In April 2000, we prevailed on a motion for summary
adjudication against Powell's claims for oral modification, promissory estoppel,
and fraud. On July 7, 2000 we entered into a settlement agreement which
specified that the Company pay Powell the sum of $370,000. Payment was made on
July 17, 2000, and on July 20, 2000 the court entered a formal dismissal with
prejudice pursuant to the terms of the settlement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
27 Financial Data Schedule
b. REPORTS ON FORM 8-K
l. Report on Form 8-K filed June l4, 2000 announcing change in
accountants which did not result from any disagreement with
management.
2. Report on Form 8-k filed June 29, 2000 announcing sale of
common stock and warrants to institutional investor.
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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: August 14, 2000 By: /S/ JAY L. KING
----------------------------------------------
Jay L. King
Vice President and Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
27 Financial Data Schedule
