VLNC Valence Technology, Inc. (MM)

Valence Technology, Inc. (NASDAQ:VLNC), developers of Saphion(R) technology, the first commercially available safe, phosphate-based lithium-ion battery technology, today reported financial results for its fiscal fourth quarter and year ended March 31, 2006. Highlights for fiscal year 2006 include the following: -- Increased revenue by 61.4 percent to $17.2 million. This represents the highest annual revenue in the Company's history. -- Large-format battery systems sales represented 62.4 percent of the sales mix, compared to 11.2 percent for the prior year. -- Volume shipments of Segway, LLC battery packs. -- Announced and began shipments of new U-Charge XP and RT product lines. -- Reduced operating expenses by 12.1 percent year-over-year. Excluding a one-time charge cost decreased by 23.3 percent year-over-year. -- Finalized engineering and manufacturing transition to China. -- Hired Dr. James (Jim) Akridge as president and chief executive officer, Thomas Mezger as chief financial officer and Dr. ChunTai Guo as president of Asia Pacific operations. Jim Akridge, president and chief executive officer, stated, "Valence is executing on a strategy to grow revenues in multiple markets with new products while also reducing costs in all areas. We are entering fiscal year 2007 with a strong management team, a focus on our four strategic priorities, and an increase in market momentum." Financial Results Revenues for fiscal year 2006 were $17.2 million, up 61.4 percent from $10.7 million in fiscal year 2005. The company reported a net loss for fiscal year 2006 of $32.9 million, or $0.37 per basic and diluted share, compared to $32.2 million or $0.40 per basic and diluted share for fiscal year 2005. Operating expenses were $19.4 million, down 12.1 percent from $22.1 million for fiscal year 2005. Gross margin loss as a percentage of revenue was 47.9 percent for fiscal 2006 and 53.2 percent for fiscal 2005. Excluding $3.8 million cost for production scrap, gross margin would have been negative 25.8 percent for fiscal year 2006. For the fourth quarter of fiscal 2006, the company reported revenue of $3.5 million, up 46.7 percent from $2.4 million for the fourth quarter of fiscal 2005. The company reported a net loss of $9.6 million, or $0.11 per basic and diluted share, compared to $9.2 million, or $0.11 per basic and diluted share, for the fourth quarter of fiscal 2005. Fiscal Year 2006 Financial Results Conference Call and Webcast The Valence management team will host a conference call and live webcast to discuss fiscal year 2006 financial results beginning at 4:00 p.m. ET on Thursday, June 29, 2006. Investors and other interested parties may participate in the call by dialing 800-310-6649 at least fifteen minutes prior to the call and entering pass code 7514681, or by listening to the live webcast, which can be accessed on the investor relations section of Valence's Web site, www.valence.com. A replay will be available by phone from 6:00 p.m. ET on Thursday, June 29, 2006, through 12:59 p.m. ET on Wednesday, July 5, 2006. To access the replay, please dial 719-457-0820 and enter pass code 7514681. About Valence Technology, Inc. Valence Technology develops and markets intelligent battery systems using its Saphion(R) technology, the industry's first commercially available, safe, large-format Lithium-ion rechargeable battery technology. Valence Technology holds an extensive, worldwide portfolio of issued and pending patents relating to its Saphion technology and lithium-ion rechargeable batteries. The company has facilities in Austin, Texas, Las Vegas, Nevada, Mallusk, Ireland and Suzhou and Shanghai, China. Valence Technology is traded on the NASDAQ Capital Market under the symbol VLNC and can be found on the Internet at www.valence.com. Safe Harbor Statement Litigation Reform Act of 1995, including our statements that we are positioned to realize better execution, improve gross margins, continue to reduce production costs and expenses, realize a strong year in both customer orders and revenue and our financial guidance. Actual results may vary substantially from these forward-looking statements as a result of a variety of factors. Among the important factors that could cause actual results to differ are: the impact of our limited financial resources on our ability to execute on our business plan and the need to raise additional debt or equity financing to execute on that plan; our uninterrupted history of quarterly losses; our ability to service our debt, which is substantial in relationship to our assets and equity values; the pledge of all of our assets as security for our existing indebtedness; the rate of customer acceptance and sales of our products; the continuance of our relationship with a few existing customers, which account for a substantial portion of our current and expected sales in the upcoming year; the level and pace of expansion of our manufacturing capabilities; the level of direct costs and our ability to grow revenues to a level necessary to achieve profitable operating margins in order to achieve break-even cash flow; the level of our selling, general and administrative costs; any impairment in the carrying value of our intangible or other assets; our execution on our business strategy of moving our operations to Asia and our ability to achieve our intended strategic and operating goals; the effects of competition; and general economic conditions. These and other risk factors that could affect actual results are discussed in our periodic reports filed with the SEC, including our Annual Report on Form 10-K for the year ended March 31, 2005 and our Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, and the reader is directed to these statements for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements. Financial Tables to Follow -0- *T VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) March 31, 2006 March 31, 2005 --------------- -------------- Assets Current assets: Cash and cash equivalents $612 $2,500 Trade receivables, net of allowance of $99 and $115, respectively 2,376 1,464 Inventory 2,738 2,564 Prepaid and other current assets 2,566 920 --------------- -------------- Total current assets 8,292 7,448 Property, plant and equipment, net 3,052 2,383 Intellectual property, net 288 400 --------------- -------------- Total assets $11,632 $10,231 =============== ============== Liabilities and Stockholders' Deficit Current liabilities: Convertible notes payable to stockholder $6,000 $- Accounts payable 1,599 3,251 Accrued expenses 4,479 4,607 Deferred revenue 464 1,241 --------------- -------------- Total current liabilities 12,542 9,099 Long-term interest payable to stockholder 15,580 12,536 Long-term debt, net of debt discount 17,942 - Long-term debt to stockholder, net of debt discount 33,170 34,656 --------------- -------------- Total liabilities 79,234 56,291 --------------- -------------- Commitments and contingencies Redeemable convertible preferred stock, $0.001 par value, 1,000 shares authorized, 861 issued and outstanding at March 31, 2006 and 2005, respectively, liquidation value $8,610 8,610 8,582 Stockholders' deficit: Common stock, $0.001 par value, 200,000,000 shares authorized; 89,883,539 and 87,061,639 shares issued and outstanding as of March 31, 2006 and 2005, respectively 90 87 Additional paid-in capital 426,878 415,745 Deferred compensation (133) (89) Notes receivable from stockholder (5,164) (5,164) Accumulated deficit (494,224) (461,328) Accumulated other comprehensive loss (3,659) (3,893) --------------- -------------- Total stockholders' deficit (76,212) (54,642) --------------- -------------- Total liabilities, preferred stock and stockholders' deficit $11,632 $10,231 =============== ============== VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (in thousands, except per share amounts) Year Ended --------------------------------- March 31, March 31, March 31, 2006 2005 2004 ---------- ---------- ----------- Revenue: Battery and system sales $16,490 $10,274 $8,483 Licensing and royalty revenue 724 391 963 ---------- ---------- ----------- Total revenues 17,214 10,665 9,446 Cost of sales 25,454 16,341 15,923 Gross margin loss (8,240) (5,676) (6,477) Operating expenses: Research and product development 5,112 7,682 8,638 Marketing 2,163 4,292 4,880 General and administrative 11,794 12,933 11,416 Depreciation and amortization 722 884 2,109 Gain on disposal of assets (445) (5,257) (21) Asset impairment charge 170 87 13,660 Restructuring charge - - 926 Contract settlement charge, INI - 957 3,046 Contract settlement charge, other (108) 499 - ---------- ---------- ----------- Total operating expenses 19,408 22,077 44,654 ---------- ---------- ----------- Operating loss (27,648) (27,753) (51,131) Minority interest in joint venture - - 69 Cost of warrants - - (181) Interest and other income 475 585 345 Interest expense (5,551) (4,262) (4,059) ---------- ---------- ----------- Net loss (32,724) (31,430) (54,957) Dividends on preferred stock 172 171 162 Preferred stock accretion 28 578 940 ---------- ---------- ----------- Net loss available to common stockholders, basic and diluted $(32,924) $(32,179) $(56,059) ========== ========== =========== Other comprehensive loss: Net loss $(32,724) $(31,430) $(54,957) Change in foreign currency translation adjustments 234 148 121 ---------- ---------- ----------- Comprehensive loss $(32,490) $(31,282) $(54,836) ========== ========== =========== Net loss per share available to common stockholders $(0.37) $(0.40) $(0.77) ========== ========== =========== Shares used in computing net loss per share available to common stockholders, basic and diluted 89,298 81,108 73,104 ========== ========== =========== VALENCE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (in thousands) Additional Common Stock Paid-in Deferred Shares Amount Capital Compensation --------- ------ ---------- ------------ Balances, March 31, 2003 71,723 $72 $366,518 $(181) Sale of stock to private investors 3,664 4 12,991 Exercise of stock options at $0.63 to $4.94 per share 247 416 Conversion of preferred stock 327 1,391 Issuance of common stock warrants 1,132 Issuance of warrants (940) Stock compensation 36 693 Modification of stock option 738 (738) Interest receivable from stockholder Payment of accrued interest on note receivable from stockholder Dividends on preferred stock Net loss Change in translation adjustment --------- ------ ---------- ------------ Balances, March 31, 2004 75,961 $76 $382,282 $(226) --------- ------ ---------- ------------ Sale of stock to private investors 10,243 10 31,890 Issuance of stock to INI 539 1 1,915 Exercise of stock options at $0.63 to $4.56 per share 319 - 571 Accretion of preferred stock (578) Stock compensation 108 (305) Modification of stock option (443) 442 Interest receivable from stockholder Payment of accrued interest on note receivable from stockholder Dividends on preferred stock Net loss Change in translation adjustment --------- ------ ---------- ------------ Balances, March 31, 2005 87,062 $87 $415,745 $(89) --------- ------ ---------- ------------ Sale of stock to private investors 2,260 2 5,899 Exercise of stock options at $0.63 to $4.56 per share 562 1 789 Issuance of common stock warrants 2,037 Extension of expiring common stock warrants 2,215 Accretion of preferred stock (28) Stock compensation 287 Modification of stock option (66) (44) Interest receivable from stockholder Payment of accrued interest on note receivable from stockholder Dividends on preferred stock Net loss Change in translation adjustment --------- ------ ---------- ------------ Balances, March 31, 2006 89,884 $90 $426,878 $(133) ========= ====== ========== ============ Accumu- lated Notes Other Receivable Compre- from Accumulated hensive Stockholder Deficit Loss Totals ------------- ----------- -------- --------- Balances, March 31, 2003 $(5,161) $(374,604) $(4,162) $(17,518) Sale of stock to private investors 12,995 Exercise of stock options at $0.63 to $4.94 per share 416 Conversion of preferred stock (1) 1,390 Issuance of common stock warrants 1,132 Issuance of warrants (940) Stock compensation 729 Modification of stock option - Interest receivable from stockholder (277) (277) Payment of accrued interest on note receivable from stockholder 277 277 Dividends on preferred stock (162) (162) Net loss (54,957) (54,957) Change in translation adjustment 121 121 ------------- ----------- -------- --------- Balances, March 31, 2004 $(5,161) $(429,724) $(4,041) $(56,794) ------------- ----------- -------- --------- Sale of stock to private investors 31,900 Issuance of stock to INI 1,916 Exercise of stock options at $0.63 to $4.56 per share 571 Accretion of preferred stock (578) Stock compensation (197) Modification of stock option (1) Interest receivable from stockholder (304) (304) Payment of accrued interest on note receivable from stockholder 301 301 Dividends on preferred stock (174) (174) Net loss (31,430) (31,430) Change in translation adjustment 148 148 ------------- ----------- -------- --------- Balances, March 31, 2005 $(5,164) $(461,328) $(3,893) $(54,642) ------------- ----------- -------- --------- Sale of stock to private investors 5,901 Exercise of stock options at $0.63 to $4.56 per share 790 Issuance of common stock warrants 2,037 Extension of expiring common stock warrants 2,215 Accretion of preferred stock (28) Stock compensation 287 Modification of stock option (110) Interest receivable from stockholder (281) (281) Payment of accrued interest on note receivable from stockholder 281 281 Dividends on preferred stock (172) (172) Net loss (32,724) (32,724) Change in translation adjustment 234 234 ------------- ----------- -------- --------- Balances, March 31, 2006 $(5,164) $(494,224) $(3,659) $(76,212) ============= =========== ======== ========= *T