SEC Info - Energy Conversion Devices Inc

SEC Info℠

Home

Help

Please Sign In

Energy Conversion Devices Inc – ‘10-Q’ for 9/30/97

As of: Friday, 11/14/97 · For: 9/30/97 · Accession #: 32878-97-17 · File #: 1-08403

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

11/14/97  Energy Conversion Devices Inc     10-Q        9/30/97    2:41K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        September 30, 1997 10-Q                               20     74K 
 2: EX-27       September 97 FDS                                       1      7K

10-Q — September 30, 1997 10-Q
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Financial Statements GM Ovonic Management's Discussion and Analysis of Financial Condition and Results of Operations United Solar
1	1st Page - Filing Submission
2	Item 1. Financial Statements
8	United Solar
9	GM Ovonic
14	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
19	Item 6. Exhibits and Reports on Form 8-K

10-Q 1st Page of 20 TOC ↑Top Previous Next ↓Bottom Just 1st
 
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                 SEPTEMBER 30, 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    (248) 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 October 31, 1997,  there were  219,913  shares of Class A Common Stock
and 10,610,663 shares of Common Stock outstanding.                              

Page 1 of 20 pages  

1   

10-Q 2nd Page of 20 TOC 1st Previous Next ↓Bottom Just 2nd
    PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements                                                   

    ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

     CONSOLIDATED STATEMENTS OF OPERATIONS

     (Unaudited)

                                                Three Months Ended September 30,
                                              1997            1996
                                               -------------------------------
REVENUES                                                                        
Product sales                               $  2,574,497   $   4,474,450
Royalties                                        338,000         401,338
Revenues from research and development                                  
   agreements                                  2,848,570         755,438
Revenues from license agreements                 ---           1,326,645
Other                                            699,378         219,990
                                          -------------- ---------------

   TOTAL REVENUES                              6,460,445       7,177,861

EXPENSES                                                                        
Cost of product sales                          2,577,267       4,990,729
Cost of revenues from research and development                          
   agreements                                  2,768,836         586,287
Product development and research               3,345,929       3,582,942
Patent defense                                    71,395         439,746
Patents                                          216,574         119,508
Operating, general and administrative          1,952,998       1,631,044
                                           -------------  --------------

   TOTAL EXPENSES                             10,932,999      11,350,256
                                            ------------   -------------

         LOSS FROM OPERATIONS                  (4,472,554)     (4,172,395)

OTHER INCOME (EXPENSE):                                                         
 Interest expense                                 (44,996)       (106,540)
Interest income                                  189,696         322,723
Other nonoperating income - net                   30,788          58,179
                                         --------------- ---------------

   TOTAL OTHER INCOME                            175,488         274,362
                                          --------------  --------------

 NET LOSS                                    $ (4,297,066)   $ (3,898,033)
                                            ============    ============

NET LOSS PER COMMON SHARE AND                                           
    COMMON EQUIVALENT SHARE                $         (.40)   $       (.36)
                                          ==============    ============

NET LOSS PER COMMON SHARE                                               
    ASSUMING FULL DILUTION                 $         (.40)   $       (.36)
                                          ==============    ============

See notes to consolidated financial statements.                                 

   2

10-Q 3rd Page of 20 TOC 1st Previous Next ↓Bottom Just 3rd
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

 CONSOLIDATED BALANCE SHEETS

ASSETS

                                                     September 30,    June 30,
                                                      1997            1997
                                                     -------------   ---------
                                                      (Unaudited)    (Audited)
CURRENT ASSETS                                                                  
Cash, including cash equivalents of                                   
$7,425,000 as of September 30, 1997 and                           
      $14,265,000 as of June 30, 1997                $ 7,430,489  $ 14,270,145
Investments (including restricted investments                         
of $290,000 at September 30, 1997 and                             
      June 30, 1997)                                   1,807,359     1,059,933
Accounts receivable (net of allowance for                             
uncollectible accounts of approximately                           
$140,000 at September 30, 1997 and                                
      June 30, 1997)                                  11,241,347    10,800,813
    Amounts due from related parties                   2,995,631     1,809,414
    Inventories                                        1,581,118     1,626,065
    Prepaid expenses and other current assets            498,688       404,204
                                                    ------------  ------------

         TOTAL CURRENT ASSETS                         25,554,632    29,970,574

PROPERTY, PLANT AND EQUIPMENT                                                   
    Land and land improvements                           312,588       312,588
    Buildings and improvements                         3,787,527     3,785,827
Machinery and other equipment (including                              
construction in progress of approximately                         
$1,765,000 at September 30, 1997 and                              
      $1,647,000 at June 30, 1997)                    19,676,907    19,517,585
    Capitalized lease equipment                        5,689,706     5,699,048
                                                    ------------  ------------
                                                      29,466,728    29,315,048

     Less accumulated depreciation and amortization   (22,956,687)  (22,346,615)

      TOTAL PROPERTY, PLANT AND EQUIPMENT              6,510,041     6,968,433

JOINT VENTURES                                                                  
United Solar Systems                                --            --  
GM Ovonic                                           --            --  

OTHER ASSETS                                              788,028       790,090 
                                                    ------------  ------------

      TOTAL ASSETS                                  $ 32,852,701  $ 37,729,097
                                                    ============  ============

See notes to consolidated financial statements.                                 

 3

10-Q 4th Page of 20 TOC 1st Previous Next ↓Bottom Just 4th
      ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

       CONSOLIDATED BALANCE SHEETS

      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                September 30,     June 30,
                                                  1997            1997
                                                -------------     --------
                                                (Unaudited)      (Audited)
CURRENT LIABILITIES                                                             
   Accounts payable and accrued expenses        $   3,238,134  $   3,669,167
Salaries, wages and amounts withheld                                  
     from employees                                 1,567,890      1,144,446
   Deferred revenues under business agreements        421,270        671,531
Current installments on capitalized lease                             
     obligations                                    1,048,380      1,324,322
                                                -------------  -------------
     TOTAL CURRENT LIABILITIES                      6,275,674      6,809,466

CAPITALIZED LEASE OBLIGATIONS                           511,716        585,795  

DEFERRED GAIN                                           108,019        223,691  

NON-REFUNDABLE ADVANCE ROYALTIES                      3,674,486      3,691,486  
                                                -------------  -------------

     TOTAL LIABILITIES                             10,569,895     11,310,438

STOCKHOLDERS' EQUITY                                                            
Capital Stock                                                         
Class A Convertible Common Stock, par                             
value $0.01 per share:                                            
Authorized - 500,000 shares                                 
        Issued & outstanding - 219,913 shares           2,199          2,199
Common Stock, par value $0.01 per share:                          
Authorized - 15,000,000 shares                              
Issued & outstanding - 10,609,663 shares                    
at September 30, 1997 and 10,603,251                        
        shares at June 30, 1997                       106,097        106,033
   Additional paid-in capital                     202,165,748    202,004,599
    Accumulated deficit                           (179,382,430)  (175,085,364)
    Treasury stock at cost - 42,000 shares            (608,808)      (608,808)
                                                -------------  -------------

     TOTAL STOCKHOLDERS' EQUITY                    22,282,806     26,418,659
                                                -------------  -------------

TOTAL LIABILITIES & STOCKHOLDERS'                           
             EQUITY                             $  32,852,701  $  37,729,097
                                                =============  =============

See notes to consolidated financial statements.                                 

       4

10-Q 5th Page of 20 TOC 1st Previous Next ↓Bottom Just 5th
      ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY

       CONSOLIDATED STATEMENTS OF CASH FLOWS
       (Unaudited)

                                                      Three Months Ended
                                                       September 30,
                                                       1997         1996
                                                       -------------------
OPERATING ACTIVITIES:                                                           
     Net loss                                        $ (4,297,066) $ (3,898,033)
Adjustments to reconcile net (loss) to net                            
cash used in operating activities:                                
        Depreciation and amortization                    505,899       432,999
         Creditable royalties                             (17,000)      (69,844)
        Employee stock options                           113,250       113,250
        Stock issued for services rendered                  --          52,562
         Amortization of deferred gain                    (11,499)      (11,499)
Changes in working capital:                                           
Accounts receivable and amounts due from                      
          related parties                             (1,626,751)    1,522,148
         Inventories                                       44,947      (426,914)
         Prepaid expenses and other current assets        (92,422)     (251,176)
        Accounts payable and accrued expenses             (7,589)      292,772
         Deferred revenues under business agreements     (250,261)     (375,644)
                                                      ------------  ------------

       NET CASH USED IN OPERATIONS                     (5,638,492)   (2,619,379)

INVESTING ACTIVITIES:                                                           
     Purchases of capital equipment (net)                (151,680)     (899,387)
 Purchase of investments                           (2,692,653)        --
    Sales of investments                               1,945,227    10,327,352
                                                     -----------   -----------

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES      (899,106)    9,427,965 

FINANCING ACTIVITIES:                                                           
     Purchase of treasury stock                             --         (417,000)
Principal payments under current debt and                             
       capitalized lease obligations                     (350,021)     (400,300)
Proceeds from exercise of stock options                               
      and warrants                                        47,963        41,037
                                                    ------------  ------------

NET CASH USED IN FINANCING ACTIVITIES                    (302,058)     (776,263)
NET INCREASE (DECREASE) IN CASH AND CASH                                        
    EQUIVALENTS                                       (6,839,656)    6,032,323
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD       14,270,145    23,773,742 
                                                    ------------  ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $  7,430,489   $29,806,065 
                                                    ============   ===========

See notes to consolidated financial statements.                                 

       5

10-Q 6th Page of 20 TOC 1st Previous Next ↓Bottom Just 6th
ENERGY CONVERSION DEVICES, INC. and SUBSIDIARY  

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited) 

                                                      Three Months Ended
                                                       September 30,
                                                        1997        1996
                                                      ------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW                                           
INFORMATION:                                                          

  Cash paid for interest                              $ 44,996    $ 95,238

6   

10-Q 7th Page of 20 TOC 1st Previous Next ↓Bottom Just 7th
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - SEPTEMBER 30, 1997 

NOTE A - Basis of Presentation                                                  

      Information  for the three months ended September 30, 1997 ("fiscal 1998")
and 1996 is  unaudited  but  includes all  adjustments  which Energy  Conversion
Devices,  Inc. ("ECD") considers  necessary for a fair presentation of 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
1997 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
("NiMH")  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 two major 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")  and (ii) 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
NiMH batteries for electric vehicle applications worldwide. In addition, ECD has
a  50%-owned  joint  venture  ("Sovlux")  in Russia  (which  had no  significant
activity  in the  quarter  ended  September  30,  1997 due to  current  economic
conditions  in Russia) and has agreed to form a new  45%-owned  joint venture in
Europe with Sanoh Industrial Co. Ltd. ("Sanoh").                                

      The Company's  investments in its joint ventures 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  (based upon the venture's history of
sustainable  profits),  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  are
eliminated.                                                                     

      Certain  items for the three  months  ended  September  30, 1996 have been
reclassified  to be  consistent  with the  classification  of items in the three
months ended September 30, 1997.                                                

7   

10-Q 8th Page of 20 TOC 1st Previous Next ↓Bottom Just 8th
      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 other factors such as the continued receipt of contracts from the
U.S. government and industrial partners, 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 $55,000,000.                                                      

      The following sets forth certain selected  financial data regarding United
Solar that are derived from United Solar's unaudited financial statements:      

UNITED SOLAR STATEMENTS OF OPERATIONS 

                                   Three Months Ended       Three Months Ended
                                   September 30, 1997       September 30, 1996
                                   ------------------       ------------------
                                    (Unaudited)              (Unaudited)

 Revenues*                        $  2,704,216            $  1,074,959

Operating Expenses                                                  
    Cost of product sales            4,312,307               1,518,346
    Research and development           626,443                 666,563
    General and administrative         181,156                 478,919
    Sales and marketing                389,775                 349,449
                                  ------------            ------------
       Total                         5,509,681               3,013,277
                                  ------------            ------------

  Net Loss                         $ (2,805,465)           $ (1,938,318)
                                  ============            ============

   *  Includes product sales and revenues earned under research contracts.

8   

10-Q 9th Page of 20 TOC 1st Previous Next ↓Bottom Just 9th
UNITED SOLAR BALANCE SHEETS 

                                                 September 30,    June 30,
                                                   1997           1997
                                                   ------------    -----------
                                                    (Unaudited)    (Unaudited)
Current Assets:                                                     
        Cash and cash equivalents                 $     431,776   $  2,342,628
        Accounts receivable - trade                   1,504,199        738,378
Accounts receivable - National Renewable                      
           Energy Laboratory ("NREL")                   359,687        242,938
        Accounts receivable - stockholders            3,618,953      4,633,757
        Inventory                                     3,362,777      4,015,379
        Other current assets                            329,399        322,232
                                                  -------------   ------------
           Total Current Assets                       9,606,791     12,295,312
     Property, plant and equipment (net)             13,423,169     13,676,080
     Other assets                                       214,873        225,913
                                                  -------------   ------------
           Total Assets                           $  23,244,833   $ 26,197,305
                                                  =============   ============

Current Liabilities:                                                
        Short-term bank debt                      $   9,850,000   $ 10,000,000
        Accounts payable - trade and stockholders     2,955,759      3,001,352
        Accrued expenses and other                      425,330        376,743
                                                  -------------   ------------
           Total Current Liabilities                 13,231,089     13,378,095
                                                  -------------   ------------
           Total Stockholders' Equity                10,013,744     12,819,210
                                                  -------------   ------------
Total Liabilities and Stockholders'                 
                Equity                            $  23,244,833   $ 26,197,305
                                                  =============   ============

GM Ovonic                                                                       

      In June 1994, Ovonic Battery and General Motors formed a joint venture for
the  manufacture  and  commercialization  of Ovonic NiMH  batteries for electric
vehicles.  General  Motors  has a 60%  interest  and  Ovonic  Battery  has a 40%
interest in this joint  venture.  Ovonic  Battery has  contributed  intellectual
property,  licenses,  production processes,  know-how, personnel and engineering
services pertaining to Ovonic NiMH battery technology to the joint venture.  The
contribution by General Motors consists of operating capital,  plant,  equipment
and management personnel necessary for the volume production of batteries.      

      GM  Ovonic  is  currently  engaged  in  low-volume  manufacturing  of NiMH
batteries at its facility in Troy,  Michigan.  Production  volume is expected to
increase in early 1998 at a larger facility.                                    

      There are no financial  statements  currently  available for GM Ovonic. GM
Ovonic is in its  developmental  stage and, as such,  has a history of operating
losses.                                                                         

9   

10-Q 10th Page of 20 TOC 1st Previous Next ↓Bottom Just 10th
Accounts Receivable                                                             

      The  following   tabulation  shows  the  component  elements  of  accounts
receivable from long-term contracts and other programs:                         

                                               September 30,    June 30,
                                                 1997           1997
                                                ------------    ----------
U.S. Government:                                                    
      Amounts billed                            $   789,102    $   572,193
      Unbilled                                      640,632        797,558
                                                -----------    -----------
         Total                                    1,429,734      1,369,751
                                                -----------    -----------

Commercial Customers:                                               
      Amounts billed                              3,016,503      1,701,006
Related party billed                                          
         - United Solar                             106,327         19,840
         - GM Ovonic                              1,517,735      1,072,546
      Due per contracts                           6,744,264      7,480,792
Related party unbilled                                        
         - GM Ovonic                              1,371,569        717,028
      Other unbilled                                 89,522        281,580
                                                -----------    -----------
         Total                                   12,845,920     11,272,792
                                                -----------    -----------

   Other                                            101,324        107,684
    Allowance for Uncollectible Accounts            (140,000)      (140,000)
                                                -----------    -----------

            TOTAL                               $14,236,978    $12,610,227
                                                ===========    ===========

      Amounts due per contracts,  related party unbilled and other unbilled 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   commercial
contracts, which are billed in subsequent months.                               

      Certain  contracts  with the U.S.  government  require a retention that is
paid upon completion of an audit of the Company's  indirect rates.  There are no
material  retentions  at  September  30, 1997 and June 30,  1997.  Certain  U.S.
government   contracts  remain  subject  to  audit.   Management  believes  that
adjustments, if any, which may result from an audit would not be material to the
financial position or results of operations of the Company.                     

Inventories                                                                     

      Inventories of raw  materials,  work in process and finished goods for the
manufacture of negative 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 is removed from inventory based on actual costs of items
shipped to customers.                                                           

10  

10-Q 11th Page of 20 TOC 1st Previous Next ↓Bottom Just 11th
Inventories (principally those of Ovonic Battery) are as follows:   

                         September 30, 1997    June 30, 1997

Finished products            $   60,852         $   --        
Work in process                 957,863          1,010,989    
Raw materials                   562,403            615,076    
                         ----------         ----------
                         $1,581,118         $1,626,065
                         ==========         ==========

Product Sales                                                                   

      Product sales include battery electrodes,  revenues related to building of
battery packs,  and revenues  related to  machine-building  contracts.  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.  In certain cases, cost of sales exceeds
product sales due to significant changes in products and manufacturing methods. 

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.                 

      For both ECD and Ovonic  Battery  royalties,  there are  royalty  trust or
contingent  fee  arrangements  whereby  ECD is  obligated  to pay a trust 25% of
optical memory royalties received and a law firm 25% of Ovonic Battery royalties
received  relative  to  consumer  battery  licenses  entered  into  in  1995  in
settlement of an International Trade Commission action.                         

Business Agreements                                                             

      A substantial  portion of revenue is 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 business  agreement  relates to licensing  the Company's
proprietary  technologies.  Licensing  activities  are  tailored to provide each
licensee  with the right to use the  Company's  technologies,  most of which are
patented, for a specific product application or, in some instances,  for further
exploration of new product applications of                                      

11  

10-Q 12th Page of 20 TOC 1st Previous Next ↓Bottom Just 12th
such technologies. The terms of such licenses, accordingly, are tailored to     
address a number of circumstances relating to the use of such technologies 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
technologies  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  ("R&D")  Agreements;  in other  cases,  they relate to product
development and commercialization  efforts of the licensee, and 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.  There are
no current or future direct costs associated with license fees.                 

      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, is recognized in amounts equal to the amounts expended on the
programs.  Generally,  the  agreed-upon  fees  for  R&D  Agreements  contemplate
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 R&D
Agreements.                                                                     

Overhead Allocations                                                            

      The  Company  allocates  overhead  to  product  development  and  research
expenses and to cost of revenues  from R&D  Agreements  based on a percentage of
direct labor costs.  For cost of revenues from R&D Agreements this allocation is
limited to the amount                                                           

12  

10-Q 13th Page of 20 TOC 1st Previous Next ↓Bottom Just 13th
of revenues, after direct expenses, under the applicable agreements. Overhead is
allocated  to cost of product  sales  through  the  application  of  overhead to
inventory costs.                                                                

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 Nonoperating Income                                                       

      Other  nonoperating  income-net  consists  of rental  income and gains and
losses on the sale of fixed assets.                                             

NOTE B - Product Sales, Royalties, Revenues from R&D Agreements and License and 
Other Agreements                                                                

      The Company has business agreements with third parties for which royalties
and  revenues are  included in the  consolidated  statements  of  operations.  A
summary of the royalties and revenues from such agreements follows:             

                                                Three Months Ended
                                                 September 30,
                                                 1997           1996
                                                  ------------------------
Product Sales:                                                                  
Negative and positive electrodes                 $2,316,828     $2,481,886
Battery packs                                       164,374        925,771
Machine building                                     93,295      1,066,793
                                                 ----------     ----------
                                                 $2,574,497     $4,474,450
                                                 ==========     ==========

Royalties:                                                                      
Battery Technology                               $  300,000     $  303,338
Optical Memory                                       38,000         98,000
                                                 ----------     ----------
                                                 $  338,000     $  401,338
                                                 ==========     ==========

Revenues from research and development agreements:                            
Photovoltaics                                    $   75,248     $  280,433
Battery Technology                                2,096,789        137,139
Microelectronics                                    241,705        234,458
Hydrogen                                            184,877        100,666
Other                                               249,951          2,742
                                                 ----------     ----------
                                                 $2,848,570     $  755,438
                                                 ==========     ==========

Revenues from license agreements:                                               
Battery                                          $  --          $1,246,000
Microelectronics                                    --              80,645
                                                 ----------     ----------
                                                 $  --          $1,326,645
                                                 ==========     ==========

13  

10-Q 14th Page of 20 TOC 1st Previous Next ↓Bottom Just 14th
NOTE C - Non-Refundable Advance Royalties                                       

      At September 30 and June 30, 1997,  the Company  deferred  recognition  of
revenues  relating to non-refundable  advance royalty  payments.  Non-refundable
advance royalties consist of the following:                                     
                                              September 30,   June 30,
                                                1997          1997
                                                -------------   ----------

     Battery                                     $1,647,592     $1,647,592
     Optical Memory                               2,026,894      2,043,894
                                                 ----------     ----------
                                                 $3,674,486     $3,691,486
                                                 ==========     ==========
NOTE D - Net Loss Per 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  ended  September  30, 1997 and 1996 are
computed as follows:                                                            

                                                    1997          1996
                                                    ----------    ----------

 Weighted average number of shares outstanding      10,785,775    10,698,496
Pro forma weighted average shares for common                              
stock equivalents                                   --            --
                                                   -----------   -----------

AVERAGE NUMBER OF SHARES                                            
       OUTSTANDING AND EQUIVALENTS                  10,785,775    10,698,496
                                                   ===========   ===========

  Net loss as reported                              $(4,297,066)  $(3,898,033)
                                                   ===========   ===========

     NET LOSS PER SHARE                             $      (.40)  $      (.36)
                                                   ===========   ===========

      Primary  and  fully-diluted  net loss per  share  are the same for each of
these periods.                                                                  

Item 2. Management's Discussion and Analysis of Financial Condition and Results 
of Operations                                                   

Results of Operations 

Three Months Ended September 30, 1997 Compared to Three Months Ended            
September 30, 1996                                                              

      The Company had a net loss for the three months ended  September  30, 1997
of approximately  $4,297,000 compared to a net loss of approximately  $3,898,000
for the three months ended  September  30, 1996.  The increased  loss  primarily
results  from a  $1,246,000  one time  license  fee from Canon in the prior year
quarter, partially offset by                                                    

14  

10-Q 15th Page of 20 TOC 1st Previous Next ↓Bottom Just 15th
a narrowing of losses on product  sales in the current  quarter.  License fees  
are non-recurring and based upon developing new business relationships.         

      The  loss in the  quarter  ended  September  30,  1997  resulted  from the
continued  investment of funds for the development of the Company's products and
the  associated  operating,  general  and  administrative  expenses,  as well as
business development expenses.                                                  

      Product sales, consisting of battery electrodes, battery packs and machine
building,  decreased 42% in the quarter ended September 30, 1997 compared to the
same  quarter  in the  previous  year,  principally  due to  the  completion  of
manufacturing   equipment   purchased  by  United   Solar,   reduced   level  of
machine-building  for GM Ovonic and reduced  sales of battery packs as GM Ovonic
ramped-up its production. (See Note B - Product Sales, Royalties,  Revenues from
R&D Agreements and License and Other Agreements.)                               

      Royalties  decreased 16% from $401,000 in the three months ended September
30, 1996 to $338,000 in the three  months  ended  September  30, 1997 because of
reduced levels of royalties from ECD's optical memory technology in fiscal 1998,
due partially to lower selling prices and unfavorable exchange rates.           

      The increase in revenues  from R&D  agreements  to $2,849,000 in the three
months  ended  September  30,  1997  from  $755,000  in the three  months  ended
September  30,  1996  was due to  substantially  increased  revenues  from a new
multi-year,  multi-task  program with General  Motors to develop  batteries  for
electric  and hybrid  battery  applications  ($1,035,000  in the  quarter  ended
September  30,  1997) and from the United  States  Advanced  Battery  Consortium
($730,000 in the quarter ended September 30, 1997).                             

      Revenues from license agreements were $1,327,000 in the three months ended
September 30, 1996 while there were no revenues  from license  agreements in the
three months ended  September 30, 1997. In the three months ended  September 30,
1996, the Company entered into a royalty-bearing  battery license agreement with
Canon granting Canon  nonexclusive  rights to manufacture and market Ovonic NiMH
batteries  for  certain  applications.   The  Company  is  actively  engaged  in
implementing its strategy to form strategic  alliances to further  commercialize
its products.  While  revenues from license  agreements are  non-recurring,  the
Company is negotiating  with a number of companies which are expected to provide
additional license fees to the Company in the future.                           

      The  increase  in other  revenues  was due to  increased  billings  in the
quarter ended  September 30, 1997 for  miscellaneous  work  performed for Ovonic
Battery licensees.                                                              

      The decrease in cost of product sales from  $4,991,000 in the three months
ended  September 30, 1996 to $2,577,000 in the three months ended  September 30,
1997 was principally due to the completion of manufacturing  equipment purchased
by United  Solar,  reduced  level of machine  building for GM Ovonic and reduced
sales of battery packs as GM Ovonic ramped-up its production.                   

15  

10-Q 16th Page of 20 TOC 1st Previous Next ↓Bottom Just 16th
      The increase in cost of revenues from R&D  agreements  and the decrease in
product development and research expense in the three months ended September 30,
1997 compared to the three months ended  September 30, 1996 was  principally due
to ongoing  electric  vehicle battery and other research and  development,  with
increased revenues from funded research and development programs.               

      The increase in patent  expenses  from  $120,000 in the three months ended
September 30, 1996 to $217,000 in the three months ended  September 30, 1997 was
primarily due to higher patent and  maintenance  costs in the three months ended
September 30, 1997. Patent defense expenses for the three months ended September
30,  1997 were  incurred in  connection  with the  defense  and  prosecution  of
litigation  involving  Matsushita  Battery  Industrial Co., Ltd. with respect to
Ovonic Battery's  United States patents covering its proprietary  technology for
NiMH batteries.                                                                 

      The  increase in  operating,  general  and  administrative  expenses  from
$1,631,000  in the three months ended  September  30, 1996 to  $1,953,000 in the
three  months  ended  September  30,  1997 was  primarily  related to  increased
salaries and depreciation to support Ovonic Battery operations.                 

      The  change  from  other  income of  $274,000  in the three  months  ended
September  30,  1996  compared to other  income of $175,000 in the three  months
ended September 30, 1997 was due principally to decreased interest income in the
three months ended September 30, 1997.                                          

Liquidity and Capital Resources 

      As of September 30, 1997, the Company had unrestricted  consolidated  cash
and cash equivalents and investments, consisting of commercial paper maturing in
four to six months, of $9,238,000,  a decrease of $6,092,000 from June 30, 1997.
In  addition,  the Company had  accounts  receivable  at  September  30, 1997 of
$14,237,000  compared to $12,610,000 at June 30, 1997. As of September 30, 1997,
the Company had  consolidated  working capital of  $19,279,000,  compared with a
consolidated working capital of $23,161,000 as of June 30, 1997.                

      The Company continues its strategies to commercialize its products through
strategic  alliances by forming joint ventures or license  agreements with third
parties who can provide  financial  resources  and  marketing  expertise for the
Company's  technologies  and products.  The Company is also  developing  its own
capabilities for volume manufacturing of battery electrodes.                    

      During the three months ended  September 30, 1997,  $5,638,000 of cash was
used in operations.  The  difference  between the net loss of $4,297,000 and the
net cash used in  operations  was  principally  due to an  increase  in accounts
receivable,  partially offset by depreciation expense. In addition,  during this
period $152,000 of machinery and equipment were purchased or constructed for the
Company's operations.                                                           

16  

10-Q 17th Page of 20 TOC 1st Previous Next ↓Bottom Just 17th
      During the next 12 months,  Ovonic Battery is considering  the purchase of
up to $1,900,000 of machinery and equipment.  The machinery and equipment  would
be utilized principally for Ovonic Battery's manufacturing operation.           

      The Company  expects  significant  revenues and cash flows  related to R&D
agreements,  many of which already  exist,  that are entered into by the Company
with U.S. government agencies,  including the contracts outlined below, and with
industry partners to develop the Company's  products and production  technology.
Contracts with industry partners include a multi-year,  multi-task  program with
General   Motors  to  develop   batteries   for  electric  and  hybrid   battery
applications.  This program,  which is of  significant  value to the Company and
builds upon the Company's earlier  investments to develop a family of batteries,
is intended to provide next- and  future-generation  NiMH batteries that will be
manufactured  by GM  Ovonic.  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).                                  

Recently, the Company was awarded the following contracts:          

a.  A three-year contract awarded to Ovonic Battery by the National 
     Institute of Standards and Technology ("NIST") under the Advanced
     Technology Program ("ATP") to develop the next generation of high
         energy density NiMH batteries using low-cost magnesium-based hydrogen
          storage materials.  The total cost of this 36-month cost-share program
 is $18,900,000, of which Ovonic Battery and its team members,
    including Manufacturing Sciences Corporation, Oak Ridge National
        Laboratory, Colorado School of Mines and Iowa State University, will
          receive $8,200,000 in federal funds.  The balance is to be provided by
   the recipients with in-kind contributions.  Ovonic Battery will
      receive approximately $5,000,000 in cash during the course of this
program.                                                    

b.  A two-year contract to support development of a new, low-cost   
manufacturing system for DVD (digital versatile disks),  a  
          high-storage-capacity  optical  memory  product that is based on ECD's
          proprietary  Ovonic  phase-change  technology.  The new disks  will be
          fully compatible with current DVD standards.  Manufacturing throughput
          for   the   new   disks   is    expected    to   be    greater    than
       conventionally-manufactured disks and at a considerably lower cost.

          The  contract  was  awarded by the U.S.  Commerce  Department  through
          NIST's ATP. The new manufacturing  system will be used to produce both
          prerecorded  DVD-ROM media and phase-change  rewritable DVD-RAM media.
          ECD originated phase change technology, which is the standard selected
          for  use  by  the  DVD   Forum--a   group  of  leading   DVD   product
          manufacturers--for  rewritable  DVD-RAM media.  The total cost of this
          24-month  cost-share program is $5,900,000,  of which ECD will receive
approximately $2,000,000 in cash.                           

17  

10-Q 18th Page of 20 TOC 1st Previous Next ↓Bottom Just 18th
      c.  A four-year  contract  awarded by NIST for the further  development of
          the aforementioned  optical memory (phase-change)  products. The total
          cost of this 48-month program is $5,800,000, of which ECD will receive
$2,700,000 in cash.                                         

      d.  A two-year  contract  awarded by Department of Energy via the State of
          Florida  to  ECD  for  work  on   photovoltaics.   This  program  will
          concentrate on the development of manufacturing of photovoltaic  metal
          roofs.  The total cost of this  24-month  contract is  $3,800,000,  of
which ECD will receive $1,900,000 in cash.                  

      The Company is actively pursuing its strategy to form strategic  alliances
to further  commercialize  its products.  It is in negotiations with a number of
companies which could provide  additional license fees and other revenues to the
Company in the current year.                                                    

      The Company  recently has been issued a basic  patent in Japan  specifying
the fundamentals that make NiMH batteries commercially feasible. The issuance of
this patent is expected  to result in the  payment of  additional  retrospective
royalties, as well as higher running royalties in the future.                   

      The  Company  is also  actively  negotiating  additional  machine-building
contracts  that could  provide  revenues in the coming year and beyond.  Machine
building is cyclical but a growing part of the Company's business.              

      The Company  has entered  into a leasing  arrangement  with a  third-party
leasing company for the financing of certain  equipment used by the Company.  As
of  September  30,  1997,  the Company has  remaining  lease  payments  totaling
$1,530,000. The Company has agreed to purchase certain leased equipment upon the
expiration of the applicable  leases for 10% of the lessor's  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.  If the
Company  exercises  the  option to  purchase  all of the  equipment  for  leases
expiring during the next 12 months, the capital requirement ranges from $268,000
to $537,000.                                                                    

      While certain  programs have a limited term, 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.                   

      Management believes that funds generated from operations and existing cash
and investment  balances will be adequate to support and finance planned growth,
capital  expenditures and  company-sponsored  research and development  programs
over the coming  year.  Additional  sources of cash are,  however,  required  to
sustain the Company for the long term and to build the business in the future.  

18  

10-Q 19th Page of 20 TOC 1st Previous Next ↓Bottom Just 19th
PART II - OTHER INFORMATION 

Item 6.     Exhibits and Reports on Form 8-K.                                   

A.    Exhibits                                                      

Exhibit 27.    Financial Data Schedule (Edgar version)  

B.    Reports on Form 8-K                                           

None                                                    

19  

10-Q Last Page of 20 TOC 1st Previous Next ↓Bottom Just 20th
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/ Stephan W. Zumsteg
      Stephan W. Zumsteg
Date: November 14, 1997               Treasurer                                 

   By:       /s/ Stanford R. Ovshinsky
         Stanford R. Ovshinsky
 President and
Date: November 14, 1997               Chief Executive Officer                   

20

10-Q	1st Page of 20	TOC	↑Top	Previous	Next	↓Bottom	Just 1st

10-Q	2nd Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 2nd

10-Q	3rd Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 3rd

10-Q	4th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 4th

10-Q	5th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 5th

10-Q	6th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 6th

10-Q	7th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 7th

10-Q	8th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 8th

10-Q	9th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 9th

10-Q	10th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 10th

10-Q	11th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 11th

10-Q	12th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 12th

10-Q	13th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 13th

10-Q	14th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 14th

10-Q	15th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 15th

10-Q	16th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 16th

10-Q	17th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 17th

10-Q	18th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 18th

10-Q	19th Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 19th

10-Q	Last Page of 20	TOC	1st	Previous	Next	↓Bottom	Just 20th

Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	11/19/97
Filed on:	11/14/97	20
	10/31/97	1
For Period End:	9/30/97	1	18
	6/30/97	3	16	10-K, 10-K/A
	9/30/96	7	16	10-Q
				List all Filings

↑Top

Filing Submission 0000032878-97-000017 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Energy Conversion Devices Inc – ‘10-Q’ for 9/30/97

As of: Friday, 11/14/97 · For: 9/30/97 · Accession #: 32878-97-17 · File #: 1-08403

Previous ‘10-Q’: ‘10-Q’ on 5/14/97 for 3/31/97 · Next: ‘10-Q’ on 2/17/98 for 12/31/97 · Latest: ‘10-Q’ on 11/14/11 for 9/30/11

Quarterly Report — Form 10-QFiling Table of Contents

10-Q — September 30, 1997 10-QDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Quarterly Report — Form 10-Q
Filing Table of Contents

10-Q — September 30, 1997 10-Q
Document Table of Contents