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Energy Conversion Devices Inc · 10-Q · For 3/31/97

Filed On 5/14/97   ·   Accession Number 32878-97-6   ·   SEC File 1-08403

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  As Of                Filer                Filing    For/On/As Docs:Size

 5/14/97  Energy Conversion Devices Inc     10-Q        3/31/97    2:44K

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        March 97 10-Q                                         21     80K 
 2: EX-27       March 97 FDS                                           1      8K 


10-Q   —   March 97 10-Q
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Financial Statements
8United Solar
9Sovlux
"GM Ovonic
15Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
20Item 6. Exhibits and Reports on Form 8-K
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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended March 31, 1997 ------------------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8403 ENERGY CONVERSION DEVICES, INC. (Exact name of registrant as specified in its charter) DELAWARE 38-1749884 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1675 WEST MAPLE ROAD, TROY, MICHIGAN 48084 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (810) 280-1900 ----------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of May 12, 1997 there were 219,913 shares of Class A Common Stock and 10,594,751 shares of Common Stock outstanding. Page 1 of 21 pages
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PART I - FINANCIAL INFORMATION Item 1. Financial Statements ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) [Enlarge/Download Table] Three Months Ended Nine Months Ended March 31, March 31, ---------------------------------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- REVENUES Product sales $ 3,287,378 $ 3,804,556 $ 12,140,674 $11,058,631 Royalties 302,642 358,238 1,119,074 980,723 Revenues from research and development agreements 1,683,233 2,332,313 3,708,783 7,130,747 Revenues from license and other agreements 42,000 375,000 4,452,645 10,474,262 Other 368,613 646,534 1,019,143 1,310,258 TOTAL REVENUES 5,683,866 7,516,641 22,440,319 30,954,621 EXPENSES Cost of product sales 4,214,051 4,726,619 13,895,955 12,041,162 Cost of revenues from research and development agreements 1,728,708 1,908,752 3,719,833 7,330,034 Product research and development 3,705,538 2,176,176 10,754,479 6,110,906 Patent Defense 1,274,766 1,070,012 2,431,311 1,823,085 Patent 108,234 144,930 332,541 327,724 Operating, general and administrative 2,078,897 1,486,614 5,314,940 4,268,358 ----------- ----------- ------------ ----------- TOTAL EXPENSES 13,110,194 11,513,103 36,449,059 31,901,269 ----------- ----------- ------------ ----------- NET (LOSS) FROM OPERATIONS (7,426,328) (3,996,462) (14,008,740) (946,648) OTHER INCOME (EXPENSE) Gain on sale of Ovonic Battery Company stock -- 4,500,000 -- 4,500,000 Interest expense (65,793) (107,985) (249,787) (340,880) Interest income 305,124 350,620 995,210 530,027 Other nonoperating income (net) 58,605 11,994 217,311 86,810 TOTAL OTHER INCOME 297,936 4,754,629 962,734 4,775,957 ----------- ----------- ----------- ----------- NET (LOSS) INCOME $ (7,128,392) $ 758,167 $(13,046,006) $ 3,829,309 ============= ============ ============ ============ NET (LOSS) INCOME PER COMMON SHARE AND COMMON EQUIVALENT SHARE $ (.66) $ .07 $ (1.22) $ .37 ========== =========== ========== =========== NET (LOSS) INCOME PER COMMON SHARE ASSUMING FULL DILUTION $ (.66) $ .07 $ (1.22) $ .36 =========== =========== ========== =========== See notes to consolidated financial statements. 2
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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY CONSOLIDATED BALANCE SHEETS ASSETS March 31, June 30, 1997 1996 (Unaudited) (Audited) CURRENT ASSETS Cash, including cash equivalents of $14,503,000 at March 31, 1997 and $23,769,000 at June 30, 1996 $ 14,508,410 $ 23,773,742 Investments 3,611,165 10,327,352 Accounts receivable (net of allowance for uncollectible accounts of $25,000 at March 31, 1997 and $29,000 at June 30, 1996) 12,202,341 9,985,722 Amounts due from related parties 2,598,812 2,901,509 Inventories 2,457,190 3,275,135 Prepaid expenses and other current assets 772,820 362,558 TOTAL CURRENT ASSETS 36,150,738 50,626,018 PROPERTY, PLANT AND EQUIPMENT Land and land improvements 312,588 312,588 Buildings and improvements 3,678,042 3,595,009 Machinery and other equipment 19,176,479 17,249,435 Capitalized lease equipment 5,708,390 5,802,806 ------------- ------------- 28,875,499 26,959,838 Less accumulated depreciation and amortization (21,851,420) (21,260,424) PROPERTY, PLANT AND EQUIPMENT 7,024,079 5,699,414 JOINT VENTURES United Solar Systems Corp. -- -- GM Ovonic L.L.C. -- -- Sovlux Co. Ltd. -- -- OTHER ASSETS 791,303 804.007 ------------- ------------- TOTAL ASSETS $ 43,966,120 $ 57,129,439 ============ ============ See notes to consolidated financial statements. 3
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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY March 31, June 30, 1997 1996 (Unaudited) (Audited) CURRENT LIABILITIES Accounts payable and accrued expenses $ 4,352,357 $ 3,911,122 Salaries, wages and amounts withheld from employees 1,403,068 1,175,102 Deferred revenues under business agreements 876,033 711,894 Current installments on capitalized lease obligations and short-term debt 1,309,318 1,302,973 TOTAL CURRENT LIABILITIES 7,940,776 7,101,091 CAPITALIZED LEASE OBLIGATIONS 820,433 1,853,728 DEFERRED GAIN 339,356 686,351 NON-REFUNDABLE ADVANCE ROYALTIES 3,605,385 3,754,229 ------------- ----------- TOTAL LIABILITIES 12,705,950 13,395,399 STOCKHOLDERS' EQUITY Capital Stock Class A Convertible Common Stock, par value $0.01 per share: Authorized - 500,000 shares Issued and outstanding - 219,913 shares 2,199 2,199 Common Stock, par value $0.01 per share: Authorized - 15,000,000 shares Issued and outstanding - 10,594,751 shares at March 31, 1997 and 10,489,591 shares at June 30, 1996 105,948 104,896 Additional paid-in capital 201,809,719 200,757,697 Accumulated deficit (170,176,758) (157,130,752) Treasury stock at cost - 28,000 shares (480,938) TOTAL STOCKHOLDERS' EQUITY 31,260,170 43,734,040 ------------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 43,966,120 $ 57,129,439 ============== ============ See notes to consolidated financial statements. 4
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[Enlarge/Download Table] ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended March 31, 1997 1996 OPERATING ACTIVITIES: Net (loss) income $(13,046,006) $ 3,829,309 Adjustments to reconcile net (loss) income to net cash (used in) by operating activities: Depreciation and amortization 1,375,188 883,985 Gain on sale of Ovonic Battery Company stock -- (4,500,000) Creditable royalties (148,844) (39,829) Employee stock options 339,750 339,750 Stock issued for services rendered 119,203 59,463 Amortization of deferred gain (34,497) (34,497) Loss on sale of equipment 1,508 Changes in working capital other than debt: Accounts receivable and amounts due from related parties, less amount due from sale of Ovonic Battery Company stock in 1996 (1,913,922) (4,132,036) Inventories 817,945 (647,030) Prepaid expenses and other current assets (397,558) 100,765 Accounts payable and accrued expenses 669,201 (640,734) Deferred revenues under business agreements 164,139 (294,983) NET CASH (USED IN) OPERATIONS (12,053,893) (5,075,837) INVESTING ACTIVITIES: Purchases of capital equipment (net) (3,013,859) (1,428,899) Purchases of investments -- (4,290,000) Sales of investments 6,716,187 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,702,328 (5,718,899) FINANCING ACTIVITIES: Purchase of treasury stock (480,938) Proceeds from sale of stock and exercise of stock options and warrants 594,121 31,925,365 Proceeds from capital lease transactions 167,161 Principal payments under short-term and long-term debt obligations and capitalized lease obligations (1,026,950) (1,194,879) -------------- ------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (913,767) 30,897,647 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,265,332) 20,102,911 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,773,742 6,259,451 ------------ ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,508,410 $ 26,362,362 ============ ============= See notes to consolidated financial statements. 5
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ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended March 31, 1997 1996 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $249,787 $340,880 See notes to consolidated financial statements. 6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - MARCH 31, 1997 (Unaudited) NOTE A - Basis of Presentation Information for the three and nine months ended March 31, 1997 and 1996 is unaudited but includes all adjustments which Energy Conversion Devices, Inc. ("ECD") considers necessary for a fair presentation of its financial condition, cash flows and results of operations. In accordance with the instructions for the completion of the Quarterly Report on Form 10-Q, certain information and footnotes necessary to comply with Generally Accepted Accounting Principles ("GAAP") have been condensed or omitted. These financial statements should be read in conjunction with ECD's 1996 Annual Report on Form 10-K, which contains a summary of ECD's accounting principles and other footnote information. The consolidated financial statements include the accounts of ECD and its 93.5%- owned subsidiary, Ovonic Battery Company, Inc. ("Ovonic Battery"), a company formed to develop and commercialize ECD's Ovonic nickel metal hydride ("Ni-MH") battery technology (collectively the "Company"). Due to cumulative losses incurred by Ovonic Battery, no minority interest is recorded in the consolidated financial statements. ECD also has three investments accounted for by the equity method: (i) United Solar Systems Corp. ("United Solar") (49.98%), ECD's photovoltaic (solar energy) joint venture with Canon Inc. of Japan ("Canon"); (ii) Sovlux Co. Ltd. ("Sovlux") (50%), ECD's Russian joint venture with State Research and Production Enterprise Kvant ("Kvant") and the Russian Ministry of Atomic Energy and its various enterprises ("MINATOM"); and (iii) GM Ovonic L.L.C. ("GM Ovonic") (40%), Ovonic Battery's joint venture with General Motors Corporation ("General Motors") to manufacture and sell the Company's proprietary Ni-MH batteries for electric vehicle applications worldwide. The Company's investments in its joint ventures, United Solar, Sovlux and GM Ovonic, are recorded at zero. The Company will continue to carry its investment in each of these joint ventures at zero until the venture becomes profitable, at which time the Company will start to recognize over a period of years its share, if any, of the then equity of each of the ventures, and will recognize its share of each venture's profits or losses on the equity method of accounting. Upon consolidation, all intercompany accounts and transactions have been eliminated. 7
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Certain items for the three months and nine months ended March 31, 1996 have been reclassified to be consistent with the classification of items in the three months and nine months ended March 31, 1997. In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. The Company is impacted by factors such as the continued receipt of contracts from the U.S. government, its ability to protect and maintain the proprietary nature of its technology, its continued product and technological advances and the strength and ability of the Company's licensees and joint venture partners to commercialize the Company's products and technologies. United Solar In 1990, ECD and Canon entered into a joint venture agreement for the formation of United Solar. The agreement provided that United Solar would be owned 49.98% by ECD, 49.98% by Canon, with the balance held by Mrs. Haru Reischauer, a member of the Board of Directors of ECD. ECD's principal contribution to United Solar was a license in the field of photovoltaics. In return for its contributions, ECD received 49.98% equity interest in United Solar. In return for its 49.98% equity interest in United Solar, Canon has invested over $50,000,000 in United Solar. The following sets forth certain selected financial data regarding United Solar that is derived from United Solar's financial statements: UNITED SOLAR STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended March 31, March 31, --------------------------- -------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues* $ 1,739,851 $ 1,298,042 $ 4,341,840 $ 4,333,576 Operating Expenses Cost of product sales 2,272,133 1,961,934 5,561,517 4,934,344 Research and development 719,890 664,055 2,178,841 2,119,513 General and administrative 776,526 399,010 1,685,290 1,241,854 Sales and marketing 409,316 394,656 1,197,302 1,211,518 Total 4,177,865 3,419,655 10,622,950 9,507,229 ----------- ----------- ----------- ----------- Other Income (Expense) 13,257 (149,549) 103,020 (142,796) ----------- ----------- ----------- ----------- Net Loss $(2,424,757) $(2,271,162) $(6,178,090) $(5,316,449) =========== =========== =========== =========== * Includes product sales and revenues earned under research contracts. 8
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UNITED SOLAR BALANCE SHEETS March 31, June 30, 1997 1996 (Unaudited) (Unaudited) Current Assets: Cash and cash equivalents $ 42,177 $ 1,481,480 Accounts receivable - Trade 641,684 395,551 Accounts receivable - NREL 251,197 217,810 Accounts receivable - Stockholders 230,097 70,190 Inventory 3,449,064 2,257,458 Other current assets 290,645 332,002 ------------ ------------ Total Current Assets 4,904,864 4,754,491 Property, plant and equipment (Net) 13,591,012 11,276,455 Other assets 228,239 216,730 ------------ ------------ Total Assets $ 18,724,115 $ 16,247,676 ============ ============ Current Liabilities: Short-term bank debt $ 10,000,000 $ 14,375,565 Accounts payable - Trade & Stockholders 4,262,564 1,363,044 Accrued expenses and other 427,762 297,186 ------------ ------------ Total Current Liabilities 14,690,326 16,035,795 Total Stockholders' Equity 4,033,789 211,881 ------------ ------------ Total Liabilities and Stockholders' Equity $ 18,724,115 $ 16,247,676 ============ ============ Sovlux In 1990, ECD established Sovlux, a joint venture with Kvant in Russia, to manufacture photovoltaic and battery products and systems in the countries comprising the former U.S.S.R. and sell them worldwide (except for Japan and India). In July 1996, MINATOM agreed to become an equity partner in Sovlux. Sovlux is owned 50% by ECD and 50% by Kvant and MINATOM. No tangible assets have been contributed to Sovlux by ECD. Through March 31, 1997, the activities related to Sovlux have been limited to facility preparation at certain Kvant facilities from which Sovlux will operate, the cost of which Kvant has also assumed as part of its commitment to the venture, the training of employees and other pre-production activities related to equipment purchase from ECD. There are no financial statements available for Sovlux since the December 31, 1993 unaudited financial statements set forth in ECD's Annual Report on Form 10-K for the year ended June 30, 1995, as amended. GM Ovonic In June 1994, Ovonic Battery and General Motors formed a joint venture for the manufacture and marketing of Ovonic Ni-MH batteries for electric vehicles. General Motors has a 60% interest and Ovonic Battery has a 40% interest in this joint venture. 9
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Ovonic Battery has contributed intellectual property, licenses, production processes, know-how, personnel and engineering services pertaining to Ovonic Ni-MH battery technology to the joint venture. General Motors' contribution consists of operating capital, plant, equipment and management personnel necessary for the volume production of batteries. GM Ovonic is currently producing first generation batteries at its manufacturing facility in Troy, Michigan, with the first module of production-intent equipment being operational. Financial statements of GM Ovonic for the three- and nine-month periods ended March 31, 1997 are currently not available. Accounts Receivable The following tabulation shows the component elements of accounts receivable from long-term contracts and other programs: March 31, June 30, 1997 1996 U.S. Government: Amounts billed $ 971,513 $ 743,482 Unbilled 791,087 453,394 ----------- ----------- Total 1,762,600 1,196,876 ----------- ------------ Commercial Customers: Amounts billed 4,497,479* 2,768,531* Unbilled - due per contracts 7,291,102** 7,062,239** - other 1,116,193 1,222,173 ----------- ----------- Total 12,904,774 11,052,943 ----------- ----------- Other 158,779 666,412 Allowance for uncollectible accounts (25,000) (29,000) ----------- ----------- $14,801,153 $12,887,231 =========== =========== * Includes related-party (principally GM Ovonic) amounts of $1,367,440 and $1,041,445, respectively. ** Includes related-party (principally GM Ovonic) amounts of $1,231,372 and $1,860,064, respectively. Unbilled receivables from commercial customers represent revenues recognized for the present value of license payments to be received in future periods. They also include revenues recognized on the percentage-of-completion method of accounting related to machine-building contracts and amounts earned under certain contracts, which amounts were billed subsequently. Certain contracts with the U.S. government require a retention that is paid upon completion of audit of the Company's indirect rates. There are no material retentions at March 31, 1997 and June 30, 1996. Certain U.S. government contracts remain subject to audit. Management does not believe that adjustments which may result from an audit would be material to the financial position or results of operations of the Company. 10
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Inventories Inventories of raw materials, work in process and finished goods for the manufacture of electrodes, battery packs and other products, together with supplies, are valued at the lower of cost (moving average) or market. Cost elements included in inventory are materials, direct labor and manufacturing overhead. Cost of sales are removed from inventory based on actual costs of items shipped to customers. Inventories (principally those of Ovonic Battery) are as follows: March 31, 1997 June 30, 1996 Finished products $ 77,677 $ 263,525 Work in process 1,230,950 1,902,396 Raw materials 1,148,563 1,075,401 Supplies -- 33,813 ------------ ----------- $ 2,457,190 $ 3,275,135 ============ =========== Product Sales Product sales include electrodes, battery packs and machine-building. Revenues related to machine-building contracts are recognized on the percentage-of-completion method of accounting using the costs incurred to date as a percentage of the total expected costs. All other product sales are recognized when the product is shipped. Royalties Most license agreements provide for the Company to receive royalties from the sale of products which utilize the licensed technology. Typically, the royalties are incremental to and distinct from the license fee and are recognized as revenue upon the sale of the respective licensed product. In several instances, the Company has received cash payments for non-refundable advance royalty payments which are creditable against future royalties under the licenses. Advance royalty payments are deferred and recognized in revenues as the creditable sales occur, the underlying agreement expires, or when the Company has demonstrable evidence that no additional royalties will be creditable and, accordingly, the earnings process is completed. 11
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Business Agreements The Company's strategy is to develop products that have broad applications and technological advantages over available alternatives and that are capable of being produced commercially on an economically competitive basis. The Company invents and develops materials, products and production technology for use in the energy and information industries. It is engaged in manufacturing and selling its proprietary products through joint ventures, licensing arrangements and through its own internal production operations. A substantial portion of the Company's revenues are derived through business agreements for the development and/or commercialization of products based upon the Company's proprietary technologies. Such agreements are of two types. The first type of agreement relates to licensing the Company's proprietary technology. Licensing activities are tailored to provide each licensee with the right to use the Company's technology, most of which is patented, for a specific product application or, in some instances, for further exploration of new product applications for such technologies. The terms of such licenses, accordingly, are tailored to address a number of circumstances relating to the use of such technology which have been negotiated between the Company and the licensee. Such terms generally address whether the license will be exclusive or nonexclusive, whether the licensee is limited to very narrowly defined applications or to broader-based product manufacture or sale of products using such technologies, whether the license will provide royalties for products sold which employ such licensed technology and how such royalties will be measured, as well as other factors specific to each negotiated arrangement. In some cases, licenses relate directly to research and development that the Company has undertaken pursuant to research and development agreements ("R&D Agreements"); in other cases, they relate to product development and commercialization efforts of the licensee; other agreements combine the efforts of the Company with those of the licensee. License agreement fees are generally recognized as revenue at the time the agreements are consummated, which is the completion of the earnings process. Typically, such fees are non-refundable, do not obligate the Company to incur any future costs or require future performance by the Company and are not related to future production or earnings of the licensee. License fees payable in installments are recorded at the present value of the amounts to be received taking into account the collectibility of the license fee. In some instances, a portion of such license fees is contingent upon the commencement of production or other uncertainties. In these cases, license fee revenues are not recognized until commencement of production or the resolution of uncertainties. In the second type of agreement, R&D Agreements, the Company conducts specified research and development projects related to one of its principal technology specializations for an agreed-upon fee. Some of these projects have stipulated performance criteria and deliverables whereas others require "best efforts" with no specified performance criteria. Revenues from R&D Agreements that contain specific performance criteria are recognized on a percentage-of-completion basis which matches the contract revenues to the costs incurred on a project based on the relationship of costs incurred to estimated total project costs. Revenue from R&D Agreements, where there are no specific performance terms, are recognized in amounts equal to the amounts expended on the programs. Generally, the agreed-upon fees for R&D Agreements contemplate 12
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reimbursing the Company for costs considered associated with project activities including expenses for direct product development and research, patents, operating, general and administrative expenses and depreciation. Accordingly, expenses related to R&D Agreements are recorded as cost of revenues from business agreements. Other Operating Revenues Other operating revenues consist principally of third-party service revenue realized by certain of the Company's service departments, including the Production Technology and Machine Building Division and Central Analytical Laboratory. Other Non-operating Income Other non-operating income - net consists of rental income and gains and losses on sale of fixed assets. NOTE B - Product Sales, Royalties and Revenues from R&D Agreements and License and Other Agreements The Company has business agreements with third parties for which sales, royalties and other revenues are included in the consolidated statement of operations. A summary of revenue from such agreements follows: Nine Months Ended March 31, 1997 1996 ---- ---- Product Sales: Negative and positive electrodes $ 8,273,418 $ 3,173,709 Battery packs 2,218,556 1,692,565 Machine building 1,648,700 6,192,357 ------------ ------------ $ 12,140,674 $ 11,058,631 ============ ============ Royalties: Battery technology $ 915,001 $ 920,674 Optical memory technology 204,073 60,049 ------------ ------------ $ 1,119,074 $ 980,723 ============ ============ Revenues from R&D Agreements: Photovoltaics $ 842,290 $ 2,376,237 Battery technology 1,480,794 3,293,835 Microelectronics 687,249 881,374 Hydrogen 488,590 435,630 Other 209,860 143,671 ------------ ------------ $ 3,708,783 $ 7,130,747 ============ ============ License and Other Agreements: Battery $ 4,372,000 $ 9,349,262 Microelectronics 80,645 1,125,000 ------------ ------------ $ 4,452,645 $ 10,474,262 ============ ============ 13
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NOTE C - Non-Refundable Advance Royalties At March 31, 1997 and at June 30, 1996, the Company deferred recognition of revenues relating to non-refundable advance royalty payments. Non-refundable advance royalties consist of the following: March 31, 1997 June 30, 1996 Battery $1,692,991 $1,704,991 Optical Memory 1,912,394 2,049,238 ---------- ---------- $3,605,385 $3,754,229 ========== ========== NOTE D - Net (Loss) Income Per Common Share The Company uses the treasury stock method to calculate primary and fully-diluted earnings per share. Common stock equivalents consist of stock options and warrants. Weighted average number of shares outstanding and primary earnings per share for the three months and nine months ended March 31, 1997 and 1996 are computed as follows: [Enlarge/Download Table] Three Months Ended Nine Months Ended March 31, March 31, 1997 1996 1997 1996 Weighted average number of shares outstanding 10,745,713 10,015,088 10,714,176 8,957,381 Pro Forma weighted average shares for Common Stock Equivalents --- 1,457,593 --- 1,399,382 ---------- ---------- ---------- ---------- AVERAGE NUMBER OF SHARES OUTSTANDING AND EQUIVALENTS 10,745,713 11,472,681 10,714,176 10,356,763 Net income (loss) as reported $(7,128,392) $ 58,167 $(13,046,006) $3,829,309 Effect of application of modified treasury stock method --- --- --- --- ----------- ---------- ------------ ---------- Adjusted net (loss) income $(7,128,392) $ 758,167 $(13,046,006) $3,829,309 =========== ========== ============ ========== NET (LOSS) INCOME PER SHARE $ (.66) $ .07 $ (1.22) $ .37 =========== ========== ============ ========== The difference between the primary earnings per share and the fully-diluted earnings per share for the nine months ended March 31, 1996 is the result of using the ending market value of $21.125 per share versus the average market value of $18.416. This results in pro forma weighted average shares for common stock equivalents of 1,628,781 and a fully-diluted earnings per share of $.36. 14
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Summary The changes from net income in the periods ended March 31, 1996 to net losses in the current periods are primarily a result of the sale of $4,500,000 of the stock of Ovonic Battery in the prior three and nine month periods and an approximate $6,000,000 reduction in one-time license fees in the nine months ended March 31, 1997. The net loss for the three and nine months ended March 31, 1997 was as a result of: - increased Company-funded electric and hybrid vehicle battery development; - costs related to start up and expansion of negative electrode production equipment and initiation of positive electrode production and equipment; - expenses of additional technical, manufacturing and engineering support for the GM Ovonic manufacturing joint venture in furtherance of initial Ni-MH battery production and ongoing technical assistance to other customers; - expenses for ongoing defense of the Company's battery technology patents. On April 3, 1997, the Company announced that it anticipates the satisfactory resolution of patent litigation brought by Matsushita Battery Industrial Co., Ltd. This should result in a reduction in future patent defense costs; and - reduced revenues from license and other agreements in 1997. Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996 The Company had a net loss for the three months ended March 31, 1997 of $7,128,000 compared to net income of $758,000 for the three months ended March 31, 1996. This change results primarily from (i) a $4,500,000 gain on the sale of Ovonic Battery Company stock in 1996; (ii) an increase of $1,349,000 in spending for research and development from $4,085,000 in the 1996 quarter to $5,434,000 in the 1997 quarter while outside funding from R&D Agreements decreased by $649,000; and (iii) ongoing costs for the defense of the Company's battery technology patents. Product sales, consisting of battery electrodes, battery packs and machine-building, decreased 14% in the quarter ended March 31, 1997 compared to the same quarter in the previous year due to reduced machine-building activities and reduced sales of battery packs, because battery packs previously sold to GM Ovonic for General Motors electric vehicles are 15
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now being manufactured by GM Ovonic. Battery electrode sales increased 412% to $2,815,000 in the three months ended March 31, 1997 from $550,000 in the three months ended March 31, 1996 due to increased sales volume of both negative and positive electrodes. Sales of battery packs decreased 89% to $137,000 in the three months ended March 31, 1997 from $1,215,000 in the three months ended March 31, 1996. Revenues from machine-building were $335,000 in the March 1997 quarter, down from $2,040,000 in the same period last year, principally due to the completion of photovoltaic manufacturing equipment purchased by United Solar and reduced machine-building activities in 1997 for Ovonic Battery. The 28% decrease in revenues from R&D Agreements from $2,332,000 in the three months ended March 31, 1996 to $1,683,000 in the three months ended March 31, 1997 was due to reduced revenues ($1,209,000 in the March 1997 quarter compared to $1,782,000 in the March 1996 quarter) from the U.S. Department of Energy ("DOE") and National Renewable Energy Laboratory ("NREL") programs and from the United States Advanced Battery Consortium ("USABC"). The decrease in other revenues was due to decreased billings in the quarter ended March 31, 1997 for miscellaneous work performed for Ovonic Battery licensees. The decrease in cost of revenues from R&D Agreements and the increase in product development and research expense in the three months ended March 31, 1997 compared to the three months ended March 31, 1996 was principally due to ongoing electric vehicle battery and other research and development with reduced revenues from funded research and development programs. Cost of product sales of $4,214,000 in the three months ended March 31, 1997 decreased 11% compared to the same 1996 quarter principally as a result of reduced product sales, improved manufacturing efficiencies for battery electrode, partially offset by a $425,000 addition to the lower of cost of market valuation provision for inventories. Patent defense expenses for 1997 and 1996 were incurred in connection with the defense and prosecution of litigation with respect to Ovonic Battery's United States patents covering its proprietary technology for Ni-MH batteries. The increase in operating, general and administrative expenses from $1,487,000 in the three months ended March 31, 1996 to $2,079,000 in the three months ended March 31, 1997 was primarily due to increased administrative expenses in 1997, including salaries, depreciation expense and rents and reduced allocation of expenses to cost of revenues from R&D Agreements in 1997. 16
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The change from other income of $4,755,000 in the three months ended March 31, 1996 to other income of $298,000 in the three months ended March 31, 1997 was due principally to the $4,500,000 gain on the sale of Ovonic Battery stock in 1996. Nine Months Ended March 31, 1997 Compared to Nine Months Ended March 31, 1996 The Company had a net loss for the nine months ended March 31, 1997 of $13,046,000 compared to net income of $3,829,000 for the nine months ended March 31, 1996. This change results primarily from (i) a $4,500,000 gain on the sale of Ovonic Battery Company stock in 1996; (ii) an increase in spending for research and development from $13,441,000 in year-to-date 1996 to $14,474,000 in year-to-date 1997 while outside funding from R&D agreements decreased by $3,422,000; (iii) a decrease in revenues from license and other agreements from $10,474,000 in 1996 to $4,452,000 in 1997; and (iv) ongoing defense of the Company's battery technology patents. Product sales, consisting of battery electrodes, battery packs and machine-building, increased 10% in the nine months ended March 31, 1997 compared to the nine months ended March 31, 1996. Battery electrode sales increased 161% to $8,274,000 in the nine months ended March 31, 1997 from $3,174,000 in the nine months ended March 31, 1996 due to increased sales volume of both negative and positive electrodes. Sales of battery packs increased 31% to $2,219,000 in the nine months ended March 31, 1997 from $1,693,000 in the nine months ended March 31, 1996. Revenues from machine-building were $1,648,000 in the nine months ended March 31, 1997 down from $6,192,000 in the nine months ended March 31, 1996, principally due to the completion of photovoltaic manufacturing equipment purchased by United Solar and reduced machine-building revenue in 1997 for Ovonic Battery. The 48% decrease in revenues from R&D agreements from $7,131,000 in the nine months ended March 31, 1996 to $3,709,000 in the nine months ended March 31, 1997 was due to reduced revenues ($2,323,000 in 1997 compared to $5,670,000 in 1996) from DOE, NREL and USABC. In the nine months ended March 31, 1997, the Company entered into a battery license agreement with Canon granting Canon nonexclusive rights to manufacture and market Ovonic Ni-MH batteries for certain applications. The Company recognized license fee revenue of $1,246,000 in connection with this agreement and will receive running royalties. In December 1996, Ovonic Battery signed an agreement with Sanoh Industrial Co., Ltd. ("Sanoh") to form a European joint venture to manufacture and sell Ovonic Ni-MH batteries for electrically-powered two- and three-wheeled vehicles. Ovonic Battery, 45% owner in the joint venture, will provide the necessary licenses and technical know-how. Sanoh, 55% owner in the joint venture, will provide the necessary funding for the operations and capital expenses. Ovonic Battery, in addition to its 45% equity, will receive total payments of up to $5,000,000, of which $2,000,000 is recorded as license fees in the 17
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nine months ended March 31, 1997. Revenues from license and other agreements were $10,474,000 in the nine months ended March 31, 1996 and included license fees of $8,849,000 from Asia Pacific Investment Co. and Sanoh. Also, in December, 1996 Ovonic Battery signed an agreement with LG Chemical Ltd. of the Republic of Korea to manufacture and sell consumer Ni-MH batteries. Ovonic Battery will receive total payments of up to $5,000,000, of which $1,000,000 is recorded as license fees at March 31, 1997. In addition, the Company will receive running royalties under this agreement. The decrease in cost of revenues from R&D Agreements and the increase in product development and research expense in the nine months ended March 31, 1997 compared to the nine months ended March 31, 1996 was principally due to ongoing electric vehicle battery and other research and development with reduced revenues from funded R&D Agreements. The increase in cost of product sales to $13,896,000 in the nine months ended March 31, 1997 from $12,041,000 in the nine months ended March 31, 1996 was principally due to the startup and expansion of negative electrode production equipment and battery pack production. Patent defense expenses for 1997 and 1996 were incurred in connection with the defense and prosecution of litigation with respect to Ovonic Battery's United States patents covering its proprietary technology for Ni-MH batteries. The increase in operating, general and administrative expenses to $5,315,000 in the nine months ended March 31, 1997 from $4,268,000 in the nine months ended March 31, 1996 was primarily due to increased administrative expenses in 1997, including salaries, depreciation and rents and reduced allocations of expenses to cost of revenue from R&D Agreements in 1997. The change from other income of $4,776,000 in the nine months ended March 31, 1996 compared to other income of $963,000 in the nine months ended March 31, 1997 was due principally to the $4,500,000 gain on the sale of Ovonic Battery stock in 1996. Liquidity and Capital Resources As of March 31, 1997, the Company had unrestricted consolidated cash and cash equivalents, which consist of investments maturing in three months or less, of approximately $14,508,000, a decrease of approximately $9,265,000 from June 30, 1996. As of March 31, 1997, the Company had consolidated working capital of approximately $28,210,000, compared with a consolidated working capital of $43,525,000 as of June 30, 1996. Investments, which consist of commercial paper maturing in four to six months, decreased $6,716,000 in the nine months ended March 31, 1997. 18
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During the nine months ended March 31, 1997, approximately $12,054,000 cash was used in operations. The difference between the net loss of approximately $13,046,000 and the net cash used in operations was principally due to depreciation and amortization in the nine months ended March 31, 1997. In addition, during this period approximately $3,013,000 of machinery and equipment were purchased or constructed for the expansion of Ovonic Battery's manufacturing capacity. Some business agreements related to R&D Agreements have been entered into by the Company with U.S. government agencies and with industry to develop the Company's products and production technology. The technology developed, together with the applicable patents, are generally owned by the Company. Generally, the agreed-upon fees for these R&D Agreements reimburse the Company for its direct costs associated with these projects, together with a portion of indirect costs (patents, operating, general and administrative expenses and depreciation). The Company has entered into a third-party leasing arrangement with Finova Capital Corporation ("Finova"), formerly Financing for Science International, which provides lease financing for certain equipment used by the Company. As of March 31, 1997, the Company had financed equipment having an acquisition cost of $8,600,000 under this arrangement. The Company's leases with Finova provide for a term of three to five years. The required lease payments over this period equal the acquisition cost of the leased equipment plus an interest factor. The Company has agreed to purchase certain equipment leased from Finova upon the expiration of the applicable leases for 10% of its acquisition cost. For other equipment, the Company has an option to purchase the equipment for its then market value (but no less than 10% nor more than 20% of its acquisition cost). The Company has an option to purchase certain other leased equipment upon the expiration of the applicable leases for its then fair market value. While certain programs have limited terms, the equipment being utilized for these programs has alternative future uses for other programs if, in fact, the programs are not continued beyond their respective terms. The Company has entered into licensing or joint venture agreements with established industrial companies, such as General Motors, Canon, Sanoh, Matsushita Electric Industrial Co., Ltd., Toshiba Corporation, Hitachi, Ltd., Hyundai Motor Co. Ltd. and others, for the manufacture and commercialization of products incorporating the Company's technologies in its three core businesses: Information Technology, Energy Generation and Energy Storage. The Company's future revenues are largely dependent on the ability of the Company's licensees and joint venture partners such as those indicated above to successfully manufacture and market commercial products based on the Company's technologies. 19
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PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. A. Exhibits Exhibit 27Financial Data Schedule (Edgar version) B. Reports on Form 8-K None 20
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Energy Conversion Devices, Inc. (Registrant) By: /s/ Kenneth A. Pullis Kenneth A. Pullis Date: May 14, 1997 Controller (Principal Accounting Officer) By: /s/ Stephan W. Zumsteg Stephan W. Zumsteg Date: May 14, 1997 Treasurer By: /s/ Stanford R. Ovshinsky Stanford R. Ovshinsky Date: May 14, 1997 President and Chief Executive Officer 21

Dates Referenced Herein   and   Documents Incorporated By Reference

Referenced-On Page
This 10-Q Filing   Date First   Last      Other Filings
12/31/939
6/30/95910-K405/A
3/31/9671810-Q
6/30/9631810-K, NT 10-K
For The Period Ended3/31/97119
4/3/9715
5/12/971
Filed On / Filed As Of5/14/9721
 
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