Key statements:
"We will need to secure additional financing in order to continue operations past 1999 unless we begin to generate significant operating revenue. We will have to continue to devote a significant amount of management time to obtaining financing."
We have an immediate need for additional capital, which if we don't obtain, would cause us to reduce our developmental efforts and impair our ability to commercialize our products. At September 26, 1999, we had cash and cash equivalents of $3,212,000. Subsequent to September 26, 1999 and as of November 10, 1999, we obtained an additional $3
million of equity financing and $1.5 million of debt financing from a
stockholder.
To date, we have not manufactured batteries on a commercial scale.
Competition in the battery industry is intense. The industry consists of major domestic and international companies, most of which have financial, technical, marketing, sales, manufacturing, distribution and other resources substantially greater than ours. Although we
believe that our batteries will compete in most segments of the rechargeable battery market, there is a risk that other companies may develop batteries similar or superior to ours. In addition, many of these companies have name recognition, established positions in the market, and long standing relationships with OEMs and other customers. While these competitors are engaged in significant development work on various battery systems (including
electrochemistries such as NiCad, NiMH and lithium), we believe that much of this effort is focused on achieving higher energy densities for low power applications such as portable electronics. One or more new, higher energy rechargeable battery technologies could be introduced which could be directly competitive with, or be superior to, our technology. We believe that our primary competitors are existing suppliers of Lithium Ion, competing polymer and, in
some cases, NiMH batteries. These include Matsushita Industrial Co., Ltd., Sony, Toshiba, SAFT America, Inc. ("SAFT") and PolyStor Corp. All of these companies are very large and have substantial resources and market presence. We expect that we will compete against manufacturers of other types of batteries in the targeted application segments on the basis of performance, cost and ease of recycling, and there is a risk that we may not be able to compete successfully
against manufacturers of other types of batteries in any of the targeted applications. In addition, in the rechargeable battery market there are a variety of competing technologies. The capabilities of many of these competing technologies have improved over the past year, which has resulted in a customer perception that our technology may not offer as many advantages as previously
anticipated.
While some prototype batteries have survived these tests, others have vented gases containing vaporized solvents and have caught fire.
POSSIBLE VARIABLE CONVERSION OF SERIES B PREFERRED STOCK. After July 27, 1999, the Series B Preferred Stock is convertible into a larger amount of shares if our Common Stock trades at a price below $6.03 in six out of ten consecutive trading days. For example, if on October 31, 1999 our Common Stock in the previous ten trading days had been trading at or above $6.03, the 4,500 remaining shares of Series B Preferred Stock would be convertible into approximately 785,157 shares of our Common Stock. If, however, on that date the average of the lowest six closing bid prices of our Common Stock over the previous ten trading days (referred in the table below as the "average price")had been a lower price, then the Series B Preferred Stock would have converted into a greater number of shares. As of October 31, 1999, CC Investments had converted all of the Series A and $3 million of the Series B Preferred Stock.
The following table illustrates the effect noted above:
AVERAGE PRICE NUMBER OF SHARES INTO WHICH THE 4,500 SHARES OF
SERIES B PREFERRED WOULD CONVERT
$6.03 785,157
$5.00 946,899
$4.00 1,183,624
$3.00 1,578,165
The effect of this variable conversion rate, if it becomes applicable, will be to depress further the market price of our Common Stock and to dilute further stockholder holdings in our Common Stock.
On November 3, 1999, Castle Creek Investments, LDC elected to convert one thousand shares of their Series B Convertible Participating Preferred Stock. These shares of Series B stock, including the accreted redemption value through the date of conversion, converted to 226 shares of Valence Technology, Inc. common stock.
We are currently in the early stages of transitioning production to an automated high volume production line that will work with our newest battery technology in our manufacturing facility in Mallusk, Northern Ireland. The redesign and modification of the manufacturing facility, including its customized manufacturing equipment, will continue to require substantial engineering work and expenses and is subject to significant risks, including risks of cost overruns and significant delays. In addition, in order to rapidly scale up the
manufacturing capacity, we will need to begin fabrication of a second automated production line before completing full qualification of the first line.
We have been unable to meet our prior schedules regarding delivery, installation, de-bugging and qualification of the Northern Ireland facility production equipment.
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