LITHIUM TECHNOLOGY CORP, 424B3, 1996-09-27

LITHIUM TECHNOLOGY CORP
424B3, 1996-09-27
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES

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<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-08143

The date of this Prospectus is September 27, 1996.

LITHIUM TECHNOLOGY CORPORATION

12,525,882 Shares of Common Stock

This Prospectus relates to (i) 9,831,379 of the outstanding shares
(the "Outstanding Shares") of common stock, $.01 par value per share (the
"Common Stock"), of Lithium Technology Corporation, a Delaware corporation
(sometimes referred to herein as, the "Company" or "LTC"), and (ii) 2,307,858
shares of Common Stock underlying stock purchase warrants ("Warrants"), and
386,645 shares of Common Stock underlying certain stock options ("Options") (the
shares underlying the Warrants and Options collectively, the "Underlying
Shares") (the Outstanding Shares together with the Underlying Shares, the
"Shares").

The Shares covered by this Prospectus are being sold by the Selling
Shareholders identified herein. See "Selling Shareholders". Except for the
exercise price of the Options and Warrants, the Company will not receive any
part of the proceeds from the sale of the Shares. All expenses incurred in
connection with the offering by Selling Shareholders are being borne by the
Company.

The Common Stock is quoted on the "OTC Bulletin Board" under the
stock symbol "LITH". On August 16, 1996, the closing bid price for the Common
Stock was $1.625 per share and the closing asked price was $1.9375 per share as
quoted on the OTC Bulletin Board.

THESE SECURITIES ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK AND
SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS/HER ENTIRE
INVESTMENT. SEE "RISK FACTORS" ON PAGES 7 TO 16 OF THIS PROSPECTUS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<PAGE> 2
AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement
under the Securities Act of 1933, as amended, with respect to the Shares offered
by this Prospectus (the "Registration Statement").

The Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information filed by the Company,
including the Registration Statement, can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, New York, New York 10048, and at Northwestern Atrium Center,
500 West Madison Street, Suite #1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site (http://www.sec.gov)
that will contain certain subsequently filed reports, proxy and information
statements and other information regarding the Company.

This Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits thereto. For further information
with respect to the Company and the Shares, reference is made to the
Registration Statement and the exhibits filed therewith. The Company will
provide without charge to each person who receives this Prospectus upon written
or oral request of such person, a copy of the information that was incorporated
by reference in this Prospectus (not including exhibits to the information that
is incorporated by reference, unless the exhibits themselves are specifically
incorporated by reference). All such requests should be directed to the Company
at 5115 Campus Drive, Plymouth Meeting, PA 19462, Attention: Secretary, or by
telephone at (610) 940-6090 (ext. 109). Statements contained in this Prospectus
as to the contents of any document filed as an exhibit to the Registration
Statement are qualified in all respects by reference to the exhibit for a
complete statement of its terms and conditions.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. For a description of certain technical terms used
in this Prospectus, see "Glossary of Technical Terms."

THE COMPANY

The Company's strategy includes the development of strategic
alliances with partners of global prominence who the Company believes will
assist in bringing the technology to the manufacturing stage and participate in
the distribution and sale of the Company's products on a world-wide basis. On
March 29, 1996, the Company entered into a Technology Development Agreement with
a Japanese consortium consisting of Mitsubishi Materials Corporation and Mitsui
& Co., Ltd. (the "Consortium"), based on the Company's proprietary
lithium-polymer rechargeable battery technology. The Company is continuing to
seek a third investor to join the Consortium. There can be no assurance that a
third investor will join the Consortium or do so on terms favorable and
acceptable to the Company. The Consortium has been granted options on market
specific, exclusive manufacturing and distribution rights. The Company and the
Consortium anticipate that the Technology Development Agreement is the first
step in a broad strategic alliance for the research and development, production,
promotion, and distribution of the Company's lithium-polymer batteries. It is
the Company's and the Consortium's strategy that the Consortium will assist the
Company in the development of its lithium-polymer battery product line with the
Company taking advantage of the Consortium's expertise and experience in the
development of other high-tech products, familiarity with the geographic markets
for such products, and experience in developing new markets.

The Company's operating results consist solely of operating losses
attributable to research and development and general and administrative
expenses. The Company has generated no revenues from operations.

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During the last two years, the Company has recruited a new
management team and a core technical staff with commercialization and battery
technology expertise. A modern research facility has been leased and research
and product development is continuing. Earlier in 1996, in addition to
consummating the Consortium arrangement with Mitsubishi and Mitsui, the Company
entered into employment agreements pursuant to which Thomas R. Thomsen now
serves as the Company's Chief Executive Officer, David Cade serves as the
Company's President and Chief Operating Officer and Dr. George Ferment serves
as the Company's Executive Vice President of Operations and Chief Technical
Officer.

The Company is a corporation organized under the laws of the State
of Delaware on December 28, 1995. The Company's predecessor -- Lithium
Technology Corporation (a Nevada corporation) -- merged with and into the
Company in a reincorporation merger that became effective on February 8, 1996.
The principal executive office of the Company is located at 5115 Campus Drive,
Plymouth Meeting, PA 19462 and its telephone number is (610) 940-6090.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by Selling
Shareholders 12,525,882 shares

Common Stock to be outstanding after the
offering 18,746,822 shares(1)

Estimated Proceeds $3,176,810 gross proceeds to the Company, if all of the
Underlying Shares are purchased by the holders of the
Warrants and the Options. The Company will receive
none of the proceeds from the sale of the Outstanding
Shares or the sale of the Underlying Shares by the
Selling Shareholders.

Use of Proceeds Research and development activities of
the Company; working capital.

Risk Factors Investment in the securities offered hereby involves a
high degree of risk. See "Risk Factors".

OTC Bulletin Board Symbol LITH
</TABLE>

- -----------------------
(1) Includes 16,052,319 shares of Common Stock issued and outstanding on
August 19, 1996, and 2,307,858 shares underlying the Warrants and
386,645 shares underlying the Options, and assumes the exercise of
all the Warrants and the Options to the maximum extent. Excludes
approximately 1,853,450 shares that the Company intends to
subsequently register for public sale inclusive of up to 236,770
shares that may be issued to certain employees and 1,616,680 shares
which are issuable upon exercise of certain options to purchase
Common Stock which options have been granted to directors and
officers of the Company.

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SELECTED FINANCIAL INFORMATION

The following table contains selected financial information derived
from the financial statements set forth elsewhere in this Prospectus, and should
be read in conjunction with such financial statements and notes thereto.

The unaudited financial information of the Company as of June 30,
1996 and for the six months then ended has been prepared on the same basis as
the audited financial statements of the Company and, in the opinion of
management, includes all adjustments necessary to present fairly the financial
position and the results of operations of the Company.

SUMMARY STATEMENT OF OPERATIONS DATA

<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31
---------------------- -----------------------
June 30, June 30,
1996 1995 1995 1994
--------- --------- -------- ------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Costs and expenses $ 1,986,000 $ 1,226,000 $ 2,472,000 $ 2,133,000
Net Loss $(1,986,000) $(1,226,000) $(2,472,000) $(2,133,000)
Net Loss Per Common
Share $ (.17) $ (.18) $ (.36) $ (.36)
</TABLE>

SUMMARY BALANCE SHEET DATA

<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
Unaudited
<S> <C> <C>
Working capital (deficit) $ (80,000) $(2,386,000)
Total assets $2,089,000 $ 1,165,000
Long-term debt - 0 - $300,000
Total liabilities $1,391,000 $ 2,957,000
Stockholders' equity $ 698,000 $(1,792,000)
(deficiency)
</TABLE>

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GLOSSARY OF TECHNICAL TERMS

<TABLE>
<S> <C>
Alkaline Metals................................... The elements which are in Group 1A of the Periodic Table including
lithium, sodium and potassium.

Anode............................................. The electrode in a battery which releases electrons to an external circuit and
ions into the electrolyte.

Cathode........................................... The electrode in a battery which accepts electrons from the external circuit and
ions from the electrolyte.

Electrolyte....................................... The medium in a battery which provides the ion transport mechanism between
the anode and cathode.

Electron.......................................... An elementary particle having a negative charge.

Energy Density.................................... The total quantity of electrical energy in a battery, expressed as a function of
volume (e.g., Watt-hours per liter) or weight (e.g., Watt-hours per kilogram).

Ion............................................... An atom or a molecule that has acquired an electrical charge by the loss or gain
or electrons.

Laminated Battery................................. A battery composed of thin sheets of anode, electrolyte and cathode that have
been bonded together.

Lead Acid Battery................................. A rechargeable battery with electrodes made of lead compounds and with an
electrolyte containing acid.

Lithium........................................... A soft, low density alkali earth metal with high electrochemical potential.

Memory Effect..................................... The undesirable characteristic of NiCd batteries to lose energy storage capacity
on each recharge after a partial discharge.

Nickel Cadmium Battery (NiCd)..................... A rechargeable battery with electrodes made of nickel and cadmium
compounds.

Polymer........................................... A large molecule that is made by bonding together many smaller identical
molecules.

Primary Battery................................... A battery that is not rechargeable.

Rechargeable Battery.............................. A battery that, after discharge, may be restored close to the fully charged
state by the passage of electric current through the battery in the opposite
direction to that of discharge.

Self-Discharge Rate............................... The rate at which a charged battery loses energy while not in use.

Web............................................... A non-woven net composed of thin fibers that have been randomly placed in
all directions and bonded together to form an open mesh structure of
continuous length.
</TABLE>
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RISK FACTORS

THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE
OF RISK. AN INVESTMENT IN THE COMPANY IS SUITABLE ONLY FOR PERSONS WHO CAN
AFFORD TO SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS,
PRIOR TO MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, ALONG WITH
OTHER MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS. THERE IS NO
ASSURANCE THAT THE PROPOSED BUSINESS OF THE COMPANY DESCRIBED HEREIN WILL BE
COMMERCIALLY VIABLE. IN ADDITION, ACTUAL RESULTS OF THE DEVELOPMENT ACTIVITIES,
TECHNOLOGICAL DEVELOPMENTS, MARKET AND COMPETITIVE CONDITIONS, RESULTS OF
OPERATIONS AND OTHER FACTORS MAY REQUIRE SIGNIFICANT MODIFICATIONS OF ALL OR
PART OF THE PROPOSED BUSINESS. INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING:

COMPANY IS AT AN EARLY STAGE OF DEVELOPMENT. The Company currently
has no commercial products available for sale. Moreover, the Company does not
expect to generate sales in commercial quantities in the near term. Significant
additional development will be necessary in order to make the Company's
lithium-polymer rechargeable battery technically and commercially viable. No
assurance can be given that the Company will be able to complete such
development, engineering or commercialization successfully, or that the Company
will be able to develop products for commercial sale or that, if developed, they
can be produced in commercial quantities or at acceptable costs or be
successfully marketed. The likelihood of the Company's future success must be
considered in light of the risks, expenses, difficulties and delays frequently
encountered in connection with the operation and development of a relatively
early stage business and development activities generally. See "Business."

NEED FOR ADDITIONAL CAPITAL; UNCERTAINTY OF ADDITIONAL FUNDING. The
amount of capital the Company currently has will not be sufficient to finance
all stages necessary to commercialize the Company's rechargeable battery
technology. The Company believes that it has sufficient capital resources to
meet the Company's needs and satisfy the Company's obligations through
approximately the last quarter of 1996 based on the Company's current
strategies and subject to the uncertainties discussed in this Prospectus. The
Company does not currently have sufficient cash to achieve all its development
and production objectives, including the 1997 installation of the DMF pilot
line (defined and discussed herein) during the first half of 1997. In order
to finance its business, the Company will need to obtain additional financing.
In order to raise this capital, the Company will be required to sell additional
debt or equity securities. The Company has thus far successfully raised
approximately $7.1 million through the private sale of its securities including
$2,400,000 from the Consortium earlier in 1996. There can be no assurance that
the incremental capital needed to attain commercial viability of the Company's
battery technology will be obtained (which the Company currently estimates at
approximately $25 million). There can be no assurance that additional financing
will be available when needed or on terms acceptable to the Company. If
additional funds are raised by issuing equity securities, existing stockholders
will incur further dilution. If the Company is unable to raise sufficient
capital, it will be forced to curtail research

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and development expenditures which, in turn, will delay, and could prevent, the
completion of the commercialization process.

New capital will be required in order for the Company to proceed
with the Company's business strategy, and such new capital is planned to be
sought from several sources, including the Consortium. The Company is also
currently discussing future funding alternatives with potential unrelated
third-party investors, including the possible restructuring of a letter of
intent that was executed on July 5, 1996 from a $5.0 million equity transaction
to a $2.0 million debt transaction but which is otherwise not being pursued by
the parties. The Company has no commitments for new capital investment as of
the date of this Prospectus. The completion of any of these transactions is
subject to several conditions including the potential investor's and the
Company's due diligence and the negotiation of mutually satisfactory definitive
agreements. There is no assurance that any of these transactions, or any
portion thereof, will be consummated on a timely basis or on acceptable terms.
See "Management's Discussion and Analysis -- Liquidity, Capital Resources, and
Financial Conditions".

HISTORY OF LOSSES. The Company has generated no revenues from
operations. The Company had existed as a capital equipment manufacturer under
various names since 1966. It had pursued research and development on lithium-
polymer rechargeable batteries since the early 1980s. LTC's equipment business
experienced financial difficulties in the early 1990s and all battery research
and development was suspended in early 1992. Until November 1993, the Company's
principal operating subsidiary was Hope Industries, Inc. ("Industries"); as
part of the reorganization plan of Industries under Chapter 11 of the U.S.
Bankruptcy Code, LTC transferred all of the outstanding stock of Industries to
Stephen F. Hope, the then principal stockholder of LTC. On December 10, 1993,
the Company had no personnel, and no assets other than the intellectual
property (patents and other documentation) associated with its battery
technology. Since April 1994 the Company has assembled a new management team,
including research scientists, technicians and executives experienced in the
battery industry. The Company's activities have been solely research and
development, and accordingly, its results of operations consist solely of the
operating loss attributable to the cost of such research and development
activities and general and administrative expenses. For the period July 1989
through November 1993, the Company had accumulated losses attributable to the
research and development activities associated with the battery technology of
$1,801,000. For the period November 1993 through June 1996, the Company had
accumulated net losses of $6,658,000, resulting from the Company's research and
development expenses and administrative expenses since November 1993.
Therefore, the Company's aggregate accumulated losses for the battery
technology through June 1996 are $8,459,000. The Company spent approximately
$505,000 and $1,080,000 on research and development activities during 1994 and
1995, respectively. The Company expects to incur substantial additional losses
because of the research and development expenses necessary for the development
of a commercially feasible rechargeable lithium-polymer battery. See
"Management's Discussion and Analysis or Plan of Operations" and "Business".

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STATUS OF TECHNOLOGY. The Company's technologies, whether patented
or unpatented, are in the development stage. The technologies are undergoing
laboratory tests and studies and none have proved in actual operations to be
commercially viable. Further, even if the Company had favorable results from
such laboratory tests and studies, no assurance can be given that any such
technology will ultimately be commercially viable.

RISK OF NEW PRODUCTS AND TECHNOLOGIES; PRODUCT LIABILITY. The
proposed marketing of the Company's proposed products have inherent risks. The
proposed technologies have not operated over time and under various conditions
of actual use. Even if a proposed product is successfully developed,
manufactured and marketed, the occurrence of warranty liability and/or product
liability, or retraction of market acceptance due to failure of a proposed
product or failure of such product to meet expectations could prevent the
Company from ever becoming profitable. Failure of a proposed product to operate
as expected could lead to potential liability suits. The Company does not
currently have product liability insurance. The Company intends to obtain
appropriate product liability insurance at the point in time when the Company
places products in distributor or end-user applications. Development of new
technologies for manufacture is frequently subject to unforeseen expenses,
difficulties and complications and in some cases such development cannot be
accomplished.

TIME LAPSE FROM START OF OPERATIONS TO COMMERCIAL SALES. There will
be a period of time before any product resulting from the Company's development
efforts can be commercially marketed, sold and delivered. There can be no
assurances as to when, if ever, the proposed products can be commercially
marketed, sold and delivered. In addition, because of such development period
and other potential delays, other companies may develop and commence production
of similar products prior to the Company commencing commercial production.

OBSTACLES TO DEVELOPMENT OF COMMERCIAL PRODUCTS. The challenge
facing the Company is the commercialization of its battery product.
Commercialization is the process by which the Company will move from
laboratory-scale product prototypes and related manufacturing processes to the
construction of a manufacturing plant for full-scale market introduction.

The Company continues to work on improving product performance and
refining its manufacturing concepts. During 1995, the Company delivered test
cells and test data for certain potential customers and alliance partners to
demonstrate its laboratory results. The efforts of further developing the
technology to meet product application specific parameters will be ongoing. The
Company must now expand the testing protocols to include specific customer
parameters.

During March 1996, a benchtop continuous flow coating/laminating
line -- referred to as the Demonstration Manufacturing Facility ("DMF") -- was
installed by the Company. This line will be used to further define the Company's
manufacturing technology, to sharpen manufacturing cost estimates, and then
serve as the initial production facility for battery cells which will be
manually assembled into battery packs for Original Equipment Manufacturer
("OEM") customers. Thereafter, based on design data obtained from the DMF, the
Company must successfully

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construct a pilot manufacturing facility reflecting the cost, quality,
reliability, and performance required for the various target market
applications. It is anticipated that a full pilot manufacturing facility and
associated equipment will cost approximately $7.5 million to construct in the
1998 time frame. The pilot manufacturing facility, according to the Company's
current strategy, will be located within the Company's existing facility in
Plymouth Meeting, Pennsylvania. Ultimately, the pilot manufacturing facility
would be replaced with a larger scale second tier manufacturing facility.
Construction of the pilot manufacturing facility will require approximately 12
months. The Company intends to finance the overall estimated $25 million total
capital equipment and operating expense required to bring the Company to the
initial commercial production stage at approximately the end of 1998 (which $25
million includes the aforementioned estimated $7.5 million cost of the pilot
manufacturing facility).

There can be no assurance that the Company will be able to meet the
technological objectives and/or satisfy the capital requirements that the
Company believes are necessary to convert battery technology into successful
commercial products. There can be no assurance that the Company's products will
generate any revenues, will not encounter technical problems when used, will be
successfully marketed, will be produced at a competitive cost, or will achieve
customer acceptance or, if commercial products are developed and revenues
produced, that the Company will be profitable. The likelihood of the success of
the Company must be weighed against the problems, expenses, difficulties,
complications and delays frequently encountered in developing and marketing a
new product.

COMPANY'S MANUFACTURING EXPERIENCE IS LIMITED; DEPENDENCE ON
SUPPLIERS. The Company currently has no capacity for, or experience in,
manufacturing lithium-polymer rechargeable batteries in commercial quantities.
In order for the Company to be successful in the commercial market, its products
must be manufactured to meet high quality standards in commercial quantities at
competitive prices. The development of such manufacturing technology and
processes will require extensive lead times and the commitment of significant
financial and engineering resources of the Company and others. There can be no
assurance that the Company will successfully develop this technology or these
processes or obtain access to these resources. Moreover, there can be no
assurance that the Company will be able to successfully implement the quality
control measures necessary for commercial manufacturing.

There is no assurance fully committed sources of supply can be
located or that they will provide sufficient supplies at a reasonable cost for
the proposed products. Even if an acceptable supplier can be found, termination
of the services of such supplier could result in interruptions of the ability to
manufacture the products until an alternative source can be secured. The Company
will thus be dependent on third parties in order to timely manufacture the
proposed products in sufficient quantities, at the required specifications, and
at low enough prices to meet the Company's proposed sales prices for its
proposed products.

MARKET ACCEPTANCE. To be successful, the Company's batteries must
gain broad market acceptance. There can be no assurance that such market
acceptance will be achieved or sustained. In addition, the Company's
lithium-polymer batteries can best be optimized when

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configured to the requirements of each application. To determine such
requirements, the Company will be dependent upon original equipment
manufacturers ("OEMS") in the portable consumer electronics and
telecommunications markets into whose products the Company's batteries will be
incorporated. No assurances can be given that the Company will receive adequate
assistance from OEMs to successfully commercialize its products. Furthermore, no
assurances can be given that the perceived safety risks associated with lithium
will not impede acceptance of the Company's batteries by OEMs or end users. See
"Business- Government Regulations, Safety, Environmental Compliance."

RELIANCE ON STRATEGIC ALLIANCES. Consummation of corporate alliances
is an important step in the Company's commercialization strategy. The Company's
strategy contemplates that these corporate partners will bring technology and
funding support through equity, licensing of the technology, and manufacturing
and distribution rights. Extensive discussions have been held with numerous
potential corporate partners from the United States, the Pacific Rim and Europe.
To date, the Company has only entered into one strategic alliance with a
Japanese Consortium pursuant to a Technology Development Agreement entered into
on March 29, 1996. Pursuant to the Technology Development Agreement, the
Consortium has been granted options on market specific, exclusive manufacturing
and distribution rights. The Company and the Consortium anticipate that the
Technology Development Agreement is the first step in a broad strategic alliance
for the research and development, manufacture, distribution, promotion and sales
of the Company's lithium-polymer batteries. It is the Company's and the
Consortium's strategy that the Consortium will assist the Company in the
development, production and distribution of the Company's lithium-polymer
battery product line with the Company taking advantage of the Consortium's
expertise and experience in the development of other high tech products,
familiarity with the geographic market for such products, experience in
developing new markets and existing relationships with key OEMs around the
world. The Consortium partners are committed to using their own marketing, sales
and product support capabilities to provide a global network for the
distribution of the Company's products. Although the Company has held its own
discussions with OEMs in the portable consumer electronics and
telecommunications markets about possible strategic relationships as a means to
accelerate introduction of its batteries into these markets, no assurance can be
given that the Company will be able to enter into any such alliances. Moreover,
there can be no assurance that any strategic alliance will achieve its goals.
The success of any strategic alliance is dependent upon the general business
condition of the partner, its commitment to the strategic alliance and the
skills and experience of its employees responsible for the strategic alliance.

COMPANY IS DEPENDENT ON PATENTS AND PROPRIETARY RIGHTS. The
Company's ability to compete effectively will depend on its ability to maintain
the proprietary nature of its technology and manufacturing processes through a
combination of patent and trade secret protection, non-disclosure agreements and
licensing agreements. The Company currently holds 19 U.S. patents and three
foreign patents covering key elements of its technology. In addition, the
Company has patent applications pending in the United States and in foreign
countries, including the European Community and Japan. The Company intends to
continue to file patent applications covering important features of its
technology. There can be no assurance, however,

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that patents will issue from any of these pending applications or, if patents
issue, that the claims allowed will be sufficiently broad to protect the
Company's technology, or that issued patents will not be challenged or
invalidated or that any of its issued patents will afford protection against a
competitor. Litigation, or participation in administrative proceedings, may be
necessary to protect the Company's patent position. Such litigation can be
costly and time consuming and there can be no assurance that the Company would
be successful if such litigation were instituted. The invalidation of patents
owned by or licensed to the Company could have a material adverse effect on the
Company. In addition, patent applications filed in foreign countries are subject
to laws, rules and procedures that differ from those of the United States. Thus,
there can be no assurance that foreign patent applications related to patents
issued in the United States will be granted. Furthermore, even if these patent
applications are granted, some foreign countries provide significantly less
patent protection than the United States. In the absence of patent protection,
and despite the Company's reliance upon its proprietary confidential
information, competitors of the Company may be able to use innovations similar
to those used by the Company to design and manufacture products directly
competitive with the Company's lithium-polymer rechargeable batteries. In
addition, no assurance can be given that patents issued to the Company will not
be infringed upon or designed around by others or that others will not obtain
patents that the Company will need to license or design around. Moreover, to the
extent any of the Company's products are covered by third party patents,
development and marketing of such products by the Company could require a
license under such patents.

Despite the Company's efforts to safeguard and maintain its
proprietary rights, there can be no assurance that the Company will be
successful in doing so. While the Company believes its patents to be unique from
those of its competitors, competition in lithium battery research and
development is intense, and there can be no assurance that the Company's
competitors will not independently develop or patent technologies that are
substantially equivalent or superior to the Company's technology. Moreover, if
the issues were to be placed before a court, the Company cannot be certain that
such a court would determine that the Company was the first creator of
inventions covered by its issued patents or pending patent applications or that
it was the first to file patent applications for such inventions. If the Company
is found to be infringing third party patents, there can be no assurance that it
will be able to obtain the required licenses from the holders of such patents on
acceptable terms, if at all. Failure of the Company to obtain necessary licenses
could result in delays in the introduction of the Company's lithium-polymer
rechargeable battery and in costly attempts to design around such patents, or
could foreclose the development, manufacture or sale of the Company's products.
The Company could also incur substantial costs in defending itself in patent
infringement suits brought by others and in prosecuting patent infringement
suits against infringers.

The Company also relies on trade secrets and proprietary know-how
that it seeks to protect, in part, through non-disclosure and confidentiality
agreements with its employees, consultants, strategic partners and potential
strategic partners. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be independently
developed by competitors.

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GOVERNMENT REGULATIONS, SAFETY, ENVIRONMENTAL COMPLIANCE. The
Company's products incorporate lithium, which is known to cause explosions and
fires if not properly handled. Although the Company believes that its batteries
do not present safety risks, there can be no assurance that safety problems will
not develop in the future. The Company intends to incorporate safety policies in
its manufacturing processes designed to minimize safety risks, although there
can be no assurance that an accident in its facilities will not occur. Any
accident, whether occasioned by the use of a battery or the Company's
manufacturing operations, could result in significant production delays or
claims for damages resulting from injuries, which would adversely affect the
Company's operations and financial condition.

Prior to the commercial introduction of the Company's batteries into
a number of markets, the Company will seek to obtain approval of its products by
one or more of the organizations engaged in testing product safety, such as
Underwriters Laboratories. Such approvals could require significant time and
resources from the Company's technical staff and, if redesign were necessary,
result in a delay in the introduction of the Company's products.

Pursuant to the regulations of the United States Department of
Transportation ("DOT"), a permit is required to transport lithium across state
lines. The International Air Transport Association ("IATA") similarly regulates
the international shipment of lithium. Although the Company believes that DOT
has granted permits for, and IATA has allowed, the transport of rechargeable
lithium-based batteries to be shipped or used by the general public, there can
be no assurance that DOT or IATA will grant such a permit to the Company or that
changes in such regulations, or in their enforcement, will not impose costly
requirements or otherwise impede the transport of lithium. In addition, the DOT
and IATA approval processes will require significant time and resources from the
Company's technical staff and if redesign were necessary, could delay the
introduction of the Company's products.

Various regulatory agencies will have jurisdiction over the
operation of any manufacturing facilities established by the Company. Because of
the risks generally associated with the use of lithium, the Company expects
rigorous enforcement. No assurance can be given that the Company will not
encounter any difficulties in complying with applicable health and safety
regulations.

Federal, state and local regulations impose various environmental
controls on the storage, use and disposal of certain chemicals and metals used
in the manufacture of lithium-polymer batteries. Although the Company believes
its activities will conform to current environmental regulations, there can be
no assurances that changes in such regulations will not impose costly equipment
or other requirements. Any failure by the Company to adequately control the
discharge of hazardous wastes could also subject it to future liabilities.

COMPETITION; TECHNOLOGICAL OBSOLESCENCE. Competition in the battery
industry is intense with a large number of companies offering or seeking to
develop technology and products similar to those of the Company. The industry
consists of development stage companies and major domestic and international
companies, many of which have financial, technical, marketing, sales,

13
<PAGE> 14
manufacturing, distribution and other resources significantly greater than those
of the Company. There can be no assurance that the Company will be successful in
competing with such entities. Furthermore, there can be no assurance that
competitors will not succeed in developing products or technologies that would
render the Company's technology and products obsolete or in obtaining market
acceptance of products more rapidly than the Company. See
"Business--Competition."

DEPENDENCE ON KEY PERSONNEL. The Company's success will to a large
degree be dependent on its ability to retain the services of its key executives
and research scientists, in particular, on the services of Thomas R. Thomsen
(the Chief Executive Officer of the Company), David Cade (the President and
Chief Operating Officer), and Dr. George Ferment (the Executive Vice President
of Operations and Chief Technical Officer). Loss of the services of Mr.
Thomsen, Mr. Cade or Dr. Ferment or any key executives or research scientists
could have a material adverse effect upon the ability of the Company to
commercialize the rechargeable battery technology or to develop its business.
The Company currently has no "key-man" life insurance. A total of eight
employees are currently engaged full-time in research, development, and
engineering necessary for the commercialization of the battery technology. The
Company's success will, to a large degree, be dependent on its ability to
retain the services of its key executives and research scientists. The ability
of the Company to pursue effectively its business strategy will also depend
upon, among other factors, the successful recruitment and retention of
additional highly skilled and experienced managerial, marketing, engineering
and technical personnel. There can be no assurance that the Company will be
able to retain or recruit such personnel. See "Business-Employees" and
"Management--Executive Officers and Directors."

RISKS RELATING TO GROWTH AND EXPANSION. Rapid growth of the
Company's business may significantly strain the Company's management,
operational and technical resources. If the Company is successful in obtaining
rapid market penetration of its products, the Company will be required to
deliver large volumes of quality products to its customers on a timely basis at
a reasonable cost to those customers. The Company has no experience in
delivering large volumes of its rechargeable batteries or in manufacturing
commercial quantities of rechargeable batteries. There can be no assurance,
however, that the Company's business will achieve rapid growth or that its
efforts to expand its manufacturing and quality control activities will be
successful or that it will be able to satisfy commercial scale production
requirements on a timely and cost-effective basis. The Company will also be
required to continue to improve its operational, management and financial
systems and controls. Failure to manage growth effectively could have an adverse
effect on the business of the Company.

Certain customers for the Company's batteries may be outside the
United States, in various parts of the world. The Technology Development
Agreement the Company has recently entered into is with a Consortium of two
Japanese companies. Thus, the Company may be subject to the risk of foreign
operations including arbitrary governmental actions, currency fluctuation,
import/export controls, lack of a well-defined business or legal system,
arbitrary government actions, and instability of a political system.

PENDING LITIGATION. The Company is a party in three lawsuits, two
of which are pending in United States District Court for the Southern District
of New York and one of which is pending in United States District Court for the
Eastern District of Pennsylvania. See "Legal Proceedings" for details. All
three lawsuits were commenced in early August, 1996 and are currently in the
earliest phases of discovery and motions. The Company is currently unable to
predict the likely outcome of these actions but the Company believes that it
has meritorious defenses to the claims asserted in the New York litigation. The
Company intends to vigorously assert its defenses and all of its claims and
counter-claims. In the event of an adverse outcome in these lawsuits, or in the
event of an adverse settlement or the incurring of a significant expense in
litigating these matters, the Company could incur significant obligations
and/or expenses. There can be no assurance that the Company will be successful
in the defense of the New York lawsuits or in the prosecution of the
Pennsylvania lawsuit.

14
<PAGE> 15
LACK OF DIVIDENDS. The Company has never paid a cash dividend on
any class of its capital stock and does not anticipate paying any dividends in
the foreseeable future. It is anticipated that future earnings, if any, will be
retained to finance the development and expansion of the Company's business. See
"Dividend Policy".

TRADING AND VOLATILITY OF COMMON STOCK. The outstanding shares of
the Company's Common Stock are quoted only on the OTC Bulletin Board, and on
August 16, 1996, the highest bid price was $1.625 per share and the highest ask
price was $1.9375 per share. There can be no assurance that the existing market
for the Company's Common Stock will be maintained or that the holders of Common
Stock will be able to sell the Common Stock should they so desire.

The market price of the Common Stock has fluctuated significantly
since January 1, 1994 (see "Market Prices") and may continue to be highly
volatile. Factors such as delays by the Company in achieving development goals,
inability of the Company to commercialize or manufacture its products,
fluctuation in the Company's operating results, changes in earnings estimates by
analysts, announcements of technological innovations or new products by the
Company or its competitors, perceived changes in the markets for various OEM
applications incorporating the Company's products, the announcement or
termination of relationships with strategic alliance partners or OEMs, and
general market conditions may cause significant fluctuations in the market price
of the Common Stock. The market prices of the stock of many high technology
companies have fluctuated substantially, often unrelated to the operating or
research and development performance of the specific companies. Such market
fluctuations could adversely affect the market price for the Company's Common
Stock.

CONTROL BY EXISTING SHAREHOLDERS. The existing officers and
directors of the Company and related parties currently control approximately
34.23% of the outstanding Common Stock (including shares that may be acquired
upon the exercise of options that are exercisable or will become exercisable
within 60 days). As a result, they will be able to exert significant influence
on the Company. In addition, Mr. Donald C. Taylor and entities affiliated with
him own beneficially approximately 8.55% of the outstanding Common Stock
(including shares that may be obtained upon the exercise of Warrants that are
exercisable or could become exercisable within 60 days). As a result, Mr. Taylor
will be able to exert significant influence on the Company. See "Security
Ownership of Certain Beneficial Owners and Management."

EXERCISE OF OUTSTANDING WARRANTS; ADDITIONAL DILUTION. At August 19,
1996, there were outstanding stock options to purchase an aggregate of
2,011,243 shares of common stock at exercise prices ranging from $0.501 to
$2.56 per share. Of this amount, options to purchase 1,009,708 shares were
exercisable as of such date. Additionally, at August 19, 1996, there were
outstanding warrants to purchase 2,307,858 shares of common stock at exercise
prices ranging from $0.50 to $2.56 per share. Of this amount, warrants to
purchase 1,127,858 are immediately exercisable. To the extent that the
outstanding stock options and warrants are exercised, substantial additional
dilution to the interests of the Company's stockholders will occur. Moreover,
the terms upon which the Company will be able to obtain additional equity
capital may be adversely affected since the holders of such outstanding
securities can be expected to

15
<PAGE> 16
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in the outstanding options. See "Description of Securities". As noted
above, the Company plans to proceed in raising additional capital in 1996 and
1997 through private placement of its equity securities and possible corporate
alliances, either or both of which are likely to result in further dilution to
the Company's existing stockholders. See "Management's Discussion and Analysis
or Plan of Operations--Plan of Operation for the Company."

SHARES ELIGIBLE FOR FUTURE SALES. Of the 16,052,319 shares of Common
Stock presently outstanding, approximately 11,638,659 shares are "restricted
securities" as defined by Rule 144. The restricted securities and the shares
which may be sold by the Selling Shareholders underlying warrants or options may
be resold in the future only pursuant to registration under the Securities Act
of 1933 (the "Act"), an exemption from the registration provisions of the Act,
or pursuant to Rule 144. The sale of such shares under Rule 144, pursuant to
this Prospectus or otherwise, may have a depressive effect on the market price
of the Common Stock, and such sales, if substantial, might also adversely affect
the Company's ability to raise additional capital.

After the date of this Prospectus, the Company intends to register
(a) approximately 236,770 shares of Common Stock in connection with a
contemplated offering to certain employees (subject to the execution of lock-up
agreements to be negotiated between the Company and such individuals) and (b)
1,616,680 shares of Common Stock underlying director and employee options that
are reserved for issuance pursuant to the Company's Directors Stock Option Plan
and the 1994 Stock Incentive Plan. See "Executive Compensation".

POTENTIAL ANTI-TAKEOVER EFFECT OF AUTHORIZED PREFERRED STOCK. The
Company is authorized to issue 100,000 shares of $0.01 par value preferred stock
with the rights, preferences, privileges and restrictions thereof to be
determined by the Board of Directors of the Company. Preferred Stock can thus be
issued without the vote of the holders of Common Stock. Rights could be granted
to the holders of preferred stock which could reduce the attractiveness of the
Company as a potential takeover target, make the removal of management more
difficult, or adversely impact the rights of holders of Common Stock. No
preferred stock is currently outstanding, and the Company has no present plans
for the issuance thereof of any shares of preferred stock.

16
<PAGE> 17
USE OF PROCEEDS

Because the Shares offered hereby are being sold by the Selling
Shareholders, the Company will not receive any proceeds from the sale of the
Shares. The Company will receive proceeds from the issuance of the Underlying
Shares upon the exercise of the Warrants or Options held by certain Selling
Shareholders. In the event that all of the Warrants and Options constituting the
Underlying Shares are exercised, the gross proceeds to be received by the
Company upon such exercise will be approximately $3,176,810. The Company will
use the proceeds from the issuance and sale of the Underlying Shares, if any,
for research and development activities of the Company, to provide working
capital, and for general corporate purposes.

SELLING SHAREHOLDERS

The following table sets forth as of August 19, 1996, except as
otherwise indicated in the notes thereto, the following information regarding
each Selling Shareholder who is offering Shares pursuant to this Prospectus: the
name of each Selling Shareholder; any position, office, or other material
relationship which the Selling Shareholder has had within the past three years
with the Company or any of its predecessors or affiliates; and the number of
shares of Common Stock owned by each Selling Shareholder before the offering
pursuant to this Prospectus, the amount of shares to be offered for each Selling
Shareholder's account, and the amount and percentage of the Common Stock to be
owned by each Selling Shareholder after the offering pursuant to this Prospectus
is complete.

<TABLE>
<CAPTION>
Total Number of Shares Shares to be Owned
to be Offered for Selling Upon Completion of
Name of Selling Shares Owned Prior Shareholder's Offering(2),(3)
Shareholder to Offering(1) Account
- ----------- ----------- ------- --------
Percentage
Number of Class
------ --------
<S> <C> <C> <C> <C>
Group III Capital, Inc. (4) 1,500,000 (5) 1,500,000 0 *
</TABLE>

17
<PAGE> 18
<TABLE>
<CAPTION>
Total Number of Shares Shares to be Owned
to be Offered for Selling Upon Completion of
Name of Selling Shares Owned Prior Shareholder's Offering(2),(3)
Shareholder to Offering(1) Account
- ----------- ----------- ------- --------
Percentage
Number of Class
------ --------
<S> <C> <C> <C> <C>
PCGI Advisory Services, Inc. 740,087 740,087 0 *
Edelson Technology Partners 1,568,518 1,568,518 0 *
III L.P. (6)
Alan R. Cohen 67,325 67,325 0 *
Gerald M. Labush (7) 268,319 (8) 264,986 3,333 *
D. Stephen Rosenbloom 35,063 35,063 0 *
Ezra Grayman 17,325 17,325 0 *
Noble Blackman 86,622 86,622 0 *
Donald B. Campbell 22,190 22,190 0 *
William D. Walker (9) 219,393 (10) 155,976 63,417 *
Ralph D. Ketchum (11) 93,289 (12) 86,622 6,667 *
Joseph E. Kuhar, DDS 43,311 43,311 0 *
William Evans 28,152 28,152 0 *
Kevin McNamara 32,483 32,483 0 *
John L. Bordo 5,198 5,198 0 *
Franklyn R. Basile 8,531 8,531 0 *
Warren Vogel 4,332 4,332 0 *
John Valcarcel 3,465 3,465 0 *
George H. McGovern, III 86,622 86,622 0 *
Thomas L. Elliott 34,649 34,649 0 *
</TABLE>

18
<PAGE> 19
<TABLE>
<CAPTION>
Total Number of Shares Shares to be Owned
to be Offered for Selling Upon Completion of
Name of Selling Shares Owned Prior Shareholder's Offering(2),(3)
Shareholder to Offering(1) Account
- ----------- ----------- ------- --------
Percentage
Number of Class
------ --------
<S> <C> <C> <C> <C>
Thomas M. Galvin 177,149 177,149 0 *
William Foley 67,649 67,649 0 *
Thomas F. Flynn 43,311 43,311 0 *
Robert A. and Kathleen A. 8,663 8,663 0 *
Johannesen
Christopher J. and Juliann 316,758 316,758 0 *
Lange
Richard J. and Eileen K. Lang 8,663 8,663 0 *
Theodore and Katherine Volz 8,663 8,663 0 *
James Elsner (13) 386,645 (14) 386,645 (14) 0 *
Herring Tractor & Truck Co. 283,422 283,422 0 *
Dr. Reed Moskowitz 436,502 436,502 0 *
James High 42,514 42,514 0 *
David Hughes (15) 335,179 (16) 331,846 3,333 *
John D. McKey, Jr. and 562,534 (18) 559,201 3,333 *
Candace McKey (17)
Deryl O'Briant 170,054 170,054 0 *
Peter G. Seiden 120,497 120,497 0 *
James A. Fisher, Jr. and 153,628 153,628 0 *
Margaret M. Fisher
Anthony B. Fisher (19) 420,082 (20) 420,082 (20) 0 *
</TABLE>

19
<PAGE> 20
<TABLE>
<CAPTION>
Total Number of Shares Shares to be Owned
to be Offered for Selling Upon Completion of
Name of Selling Shares Owned Prior Shareholder's Offering(2),(3)
Shareholder to Offering(1) Account
- ----------- ----------- ------- --------
Percentage
Number of Class
------ --------
<S> <C> <C> <C> <C>
Paramount Capital Group, Inc. 126,288 126,288 0 *
Bruce and Kathryn Evans 208,377 208,377 0 *
Meadow Ventures 389,449 389,449 0 *
Robert J. Mailey 90,775 90,775 0 *
Guy Castranova and Charles 56,175 56,175 0 *
Crow
Francis and Marion McGowen 64,140 64,140 0 *
Paul L. Weidner and/or Upper 416,390 373,895 42,495 *
Bucks Orthopedic Profit
Sharing Plan FBO
Paul L. Weidner
Irrevocable Trust of James A. 177,470 177,470 0 *
Fisher and Margaret M. Fisher
Robert Pfeffer 600,000 (21) 600,000 0 *
Frank E. Barnes, III, IRA 12,348 12,348 0 *
Robert J. Ciskanik 30,408 30,408 0 *
Thomas M. Conlin 5,015 5,015 0 *
Lawrence J. Kent 49,428 47,619 1,809 *
Maurice D. Kent 24,609 24,609 0 *
Jay Marcus 10,747 10,747 0 *
Fran McGowen C/F 4,902 4,902 0 *
Matthew R. McGowen
UGMAPA
Fran McGowen C/F 4,902 4,902 0 *
Daniel P. McGowen
UGMAPA
</TABLE>

20
<PAGE> 21
<TABLE>
<CAPTION>
Total Number of Shares Shares to be Owned
to be Offered for Selling Upon Completion of
Name of Selling Shares Owned Prior Shareholder's Offering(2),(3)
Shareholder to Offering(1) Account
- ----------- ----------- ------- --------
Percentage
Number of Class
------ --------
<S> <C> <C> <C> <C>
Fran I. McGowen C/F 4,902 4,902 0 *
Molly M. McGowen
UGMAPA
Raymond H. Welsh 61,983 61,983 0 *
Donald S. White 9,663 9,663 0 *
George and Patricia Wilson 24,929 23,810 1,119 *
Coastal Leasing & Investment, 21,833 21,833 0 *
Inc.
Ralph Geiger 15,044 15,044 0 *
Trinity American Corp. 71,145 71,145 0 *
Lynn Dixon 57,145 53,645 3,500 *
Harris Hester 14,167 14,167 0 *
John H. Jacobs 20,000 20,000 0 *
Group III Capital Ventures, 1,030,000 1,030,000 0 *
Inc. (22)
Valentina D. Mancuso 10,000 10,000 0 *
Donald C. Taylor (23) 50,000 50,000 0 *
Nanele Services, Inc. 150,000 (24) 150,000 0 *
</TABLE>

21
<PAGE> 22
<TABLE>
<CAPTION>
Total Number of Shares Shares to be Owned
to be Offered for Selling Upon Completion of
Name of Selling Shares Owned Prior Shareholder's Offering(2),(3)
Shareholder to Offering(1) Account
- ----------- ----------- ------- --------
Percentage
Number of Class
------ --------
<S> <C> <C> <C> <C>
David C. Freinberg 16,666 16,666 0 *
Patricia A. Giordano 13,833 13,833 0 *
Michael S. Jacobs 3,233 3,233 0 *
J. Joseph McClatchy 8,333 8,333 0 *
Kevin T. McFeeley 4,800 4,800 0 *
Robert E. and Josephine 22,833 22,833 0 *
McFeeley
Joan Seiden 5,000 5,000 0 *
Judith Levi 5,000 5,000 0 *
Gallagher, Briody 31,111 31,111 0 *
& Butler
Steven J. Campbell 20,833 20,833 0 *
Mr. and Mrs. Charles B. 3,333 3,333 0 *
Herman, Jr.
</TABLE>

22
<PAGE> 23
<TABLE>
<CAPTION>
Total Number of Shares Shares to be Owned
to be Offered for Selling Upon Completion of
Name of Selling Shares Owned Prior Shareholder's Offering(2),(3)
Shareholder to Offering(1) Account
- ----------- ----------- ------- --------
Percentage
Number of Class
------ --------
<S> <C> <C> <C> <C>
Mark Herman 3,333 3,333 0 *
Norma M. Herman 3,333 3,333 0 *
Timothy S. Herman 3,333 3,333 0 *
Heather Hay and James J. 20,833 20,833 0 *
Murren
Robert Johannesen 5,333 5,333 0 *
Mitchell Kupfer 4,167 4,167 0 *
Christopher J. Lange 41,667 41,667 0 *
James McLaughlin 1,667 1,667 0 *
Noubar G. Megerian 8,333 8,333 0 *
Thomas A. Ponticelli 4,167 4,167 0 *
Katherine F. O'Donovan and 8,333 8,333 0 *
Timothy F. O'Donovan
Kevin J. and Marcia H. 3,333 3,333 0 *
Rehnberg
Mark Sklar 16,667 16,667 0 *
Donald T. Wargo and Susan 20,833 20,833 0 *
T. Wargo
John Wilson 1,667 1,667 0 *
William Cothery 10,013 10,013 0 *
</TABLE>

23
<PAGE> 24
<TABLE>
<CAPTION>
Total Number of Shares Shares to be Owned
to be Offered for Selling Upon Completion of
Name of Selling Shares Owned Prior Shareholder's Offering(2),(3)
Shareholder to Offering(1) Account
- ----------- ----------- ------- --------
Percentage
Number of Class
------ --------
<S> <C> <C> <C> <C>
Charles Herman 10,613 10,613 0 *
Sea Island Clothiers Profit 6,133 6,133 0 *
Sharing Plan
Stephen Hope (25) 1,957,946 (26) 78,167 1,879,779 10.2%
Gotlin & Jaffe 10,833 10,833 0 *
Georgia Pine Clothiers 6,347 6,347 0 *
G. David Rosenblum 31,787 31,787 0 *
</TABLE>

Footnotes:

(1) Includes shares of Common Stock underlying warrants or stock options
exercisable as of August 19, 1996, or exercisable within 60 days
after August 19, 1996, unless otherwise indicated.

(2) Asterisk indicates less than 1%.

(3) Assumes the sale of all Shares by each Selling Shareholder. Based on
16,052,319 shares of Common Stock issued and outstanding on
August 19, 1996 plus 2,694,503 shares to be issued upon the
exercise of all the Warrants and Options to the maximum extent.

(4) Group III Capital, Inc. is the holder of a warrant to purchase
1,500,000 Shares without regard to shares of Common Stock owned, or
which may be acquired, by Donald C. Taylor and/or Group III Capital
Ventures, Inc. Donald C. Taylor, a consultant and a former director
of the Company from August, 1995 to May, 1996, is the President and
a director of Group III Capital, Inc. and the President and a
director of Group III Capital Ventures, Inc.

24
<PAGE> 25
(5) Includes 1,500,000 Shares issuable upon exercise of outstanding
Warrants. Of these Warrants, 320,000 are vested and the remaining
1,180,000 vest on May 1, 1997, provided that such 1,180,000 Warrants
will immediately vest upon the Company's completion of a financing
or a joint venture agreement resulting in gross proceeds of $5
million to the Company.

(6) Mr. Edelson is a General Partner of Edelson Technology Partners
III, L.P. Mr. Edelson is a director of the Company.

(7) Mr. Labush is a director of the Company.

(8) Includes 3,333 shares issuable upon exercise of outstanding
options.

(9) Mr. Walker is the Company's Treasurer and Chief Financial Officer.

(10) Includes 25,001 shares issuable upon exercise of outstanding stock
options.

(11) Mr. Ketchum is a director of the Company.

(12) Includes 6,667 shares issuable upon exercise of outstanding stock
options.

(13) Mr. Elsner is a former Director, President and Chief Executive
Officer of the Company.

(14) Includes 386,645 shares issuable upon exercise of outstanding stock
options.

(15) Mr. Hughes is a director of the Company.

(16) Includes 3,333 shares issuable upon exercise of outstanding stock
options.

(17) Mr. McKey is a director of the Company.

(18) Includes 3,333 shares issuable upon exercise of outstanding stock
options.

(19) Mr. Fisher is a former Director of the Company.

(20) Includes 57,858 shares issuable upon exercise of a warrant.

(21) Includes 600,000 shares issuable upon exercise of outstanding
warrants.

25
<PAGE> 26
(22) Donald C. Taylor, a former director of the Company, is the President
and a director of Group III Capital Ventures, Inc.

(23) Excludes the securities owned by Group III Capital, Inc. and Group
III Capital Ventures, Inc. See notes 4 and 22 for details. Mr.
Taylor is a former director of the Company and is currently a
consultant to the Company.

(24) Includes 150,000 shares issuable upon exercise of outstanding
warrants.

(25) Mr. Hope is a director of the Company.

(26) Includes 193,334 shares of Common Stock held by Hope Lithographic
Enterprises, Inc. The Estate of Henry Hope owns 51%, and Stephen F.
Hope owns 36.5%, of the outstanding capital stock of Hope
Lithographic Enterprises, Inc., and therefore both may be deemed to
be the beneficial owners of the Company's stock held by that entity.
Includes 1,347,001 shares of Common Stock owned by the Estate of
Henry Hope.

Information set forth in the foregoing table regarding the
securities owned by each Selling Shareholder is provided to the best knowledge
of the Company based on information furnished to the Company by the respective
Selling Shareholder and/or available to the Company through its stock transfer
records.

The Company has entered into lock-up agreements with certain Selling
Shareholders with respect to certain of the Shares offered for sale in this
prospectus. Approximately, 2.8 million Shares will be subject to such lock-up
until March 31, 1997 (provided that 825,000 Warrant Shares would be released
from such lock-up prior to March 31, 1997 immediately upon the Company's
completion of a $5.0 million financing); approximately 1.8 million Shares will
be subject to such lock-up until June 30, 1997; and approximately 2.8 million
Shares will be subject to such lock-up until September 30, 1997. Approximately
5.7 million Shares will not be subject to lock-up provisions and will be freely
tradeable upon the effective date of this prospectus. The Company reserves the
right in its sole discretion to waive any of the lock-up provisions.

PLAN OF DISTRIBUTION

The securities offered hereby may be sold by the Selling
Shareholders or by pledgees, donees, transferees or other successors-in-interest
(including sales after exercise of warrants). Such sales may be made in the
over-the-counter market, in privately negotiated transactions, or otherwise, at
prices and at terms then prevailing, at prices related to the then current
market prices or at negotiated prices. The shares may be sold by one or more of
the following methods: (a) a block trade in which the broker or dealer so
engaged will attempt to sell the shares as agent but may position and resell a
portion of the block as principal in order to consummate the transaction; (b) a
purchase by a broker or dealer as principal, and the resale by such broker or
dealer for its account pursuant to this Prospectus, including resale to another
broker or dealer; or (c) ordinary brokerage transactions and transactions in
which the broker solicits purchasers. In effecting sales, brokers or dealers
engaged by a Selling Shareholder may arrange for other brokers or dealers to
participate. Any such brokers or dealers will receive commissions or discounts
from a Selling Stockholder in amounts to be negotiated immediately prior to the
sale. Such brokers or dealers and any other participating brokers or dealers may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended. Any gain realized by such a broker or dealer on the sale of shares
which it purchases as a principal may be deemed to be compensation to the broker
or dealer in addition to any commission paid to the broker by a Selling
Shareholder.

Some of the securities covered by this Prospectus may be sold under
Rule 144 instead of under this Prospectus. The Company will not receive any
portion of the proceeds of the securities sold by the Selling Shareholders, but
will receive amounts upon exercise of warrants and/or options, which funds will
be used for working capital. There is no assurance that the Selling Shareholders
will sell any or all of the securities offered hereby.

26
<PAGE> 27
The Selling Shareholders have been advised that during the time each
is engaged in distribution of the securities covered by this Prospectus, each
must comply with, among other things, Rule 10b-6 under the Securities Exchange
Act of 1934, as amended, and pursuant thereto: (i) shall not engage in any
stabilization activity in connection with the Company's securities; (ii) shall
furnish each broker through which securities covered by this Prospectus may be
offered the number of copies of this Prospectus which are required by each
broker; and (iii) shall not bid for or purchase any securities of the Company or
attempt to induce any person to purchase any of the Company's securities other
than as permitted under the Securities Exchange Act of 1934, as amended.

In order to comply with certain state securities laws, if
applicable, the Shares will not be sold in Arizona, Washington, D.C., Illinois
or North Dakota, unless such securities have been registered or qualified for
sale in such state or an exemption from registration for qualification is
available and complied with, nor will shares be sold in New York unless such
sales are effected through the use of a broker-dealer registered in such state.

SELECTED FINANCIAL INFORMATION

The unaudited financial information of the Company as of June 30,
1996 and for the six months then ended have been prepared on the same basis as
the audited financial statements of the Company and, in the opinion of
management, include all adjustments necessary to present fairly the financial
position and the results of operations of the Company.

SUMMARY STATEMENT OF OPERATIONS DATA

27
<PAGE> 28
SUMMARY BALANCE SHEET DATA

<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------- -----------------
Unaudited
<S> <C> <C>
Working capital (deficit) $ (80,000) $(2,386,000)
Total assets $2,089,000 $ 1,165,000
Long-term debt - 0 - $300,000
Total liabilities $1,391,000 $ 2,957,000
Stockholders' equity $ 698,000 $(1,792,000)
(deficiency)
</TABLE>

28
<PAGE> 29

MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION

The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
Prospectus.

GENERAL

The Company is a development stage company engaged in the business of
developing and seeking to commercialize a unique, solid-state, lithium-polymer,
rechargeable battery. The Company has generated no revenues and has no
commercial operations to date. The Company has been unprofitable since
inception and expects to incur substantial additional operating losses over the
next several years. The Company does not expect to generate any revenues from
operations during the fiscal year ending December 31, 1996 nor during the
twelve months commencing on the date of this Prospectus. The Company believes
that its battery technology, which is currently in the pre-prototype
development phase, is capable of providing four to six times the performance of
current rechargeable batteries. The Company's objective is the
commercialization of such technology, inclusive of moving from laboratory-scale
product prototypes and related prototype processes to full scale market
introduction, achieving cost-competitiveness, and constructing a manufacturing
plant. The Company's commercialization focus is on the rapidly growing
portable electronics market segment (notebook and palmtop computers and
wireless communications devices).

LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION

The Company has financed its operations from December 10, 1993 with
convertible debt and private placements of common and preferred stock and has
raised approximately $7.1 million, including, most recently, $2.4 million from
the March 29, 1996 sale of shares of Common Stock to the Consortium described
herein.

AS OF JUNE 30, 1996. At June 30, 1996, the Company had cash of
$1,309,000, prepaid and other current assets of $2,000, fixed assets of
$693,000 and other assets of $85,000. The Company's total liabilities were
$1,391,000, consisting of accounts payable and accrued expenses. The $300,000
plus accrued interest due to holders of the 7% convertible promissory notes was
converted into 152,038 shares of Common Stock during January 1996. In
addition, the Company converted $1,800,000 of debt plus accrued interest into
7,003,446 shares of Common Stock on March 29, 1996. The Company had a net
working capital deficit of $80,000 on June 30, 1996.

The Company's working capital declined by approximately $962,000 from
March 31, 1996 to June 30, 1996. The Company's cash and equivalents declined
by approximately $914,000 from March 31, 1996 to June 30, 1996. This decline
in working capital and cash is attributable primarily to the Company's
expenditure of cash obtained from equity investments in order to pay operating
expenses, which have increased during the quarter and six months ended June 30,
1996 as compared to corresponding 1995 periods and as compared to the quarter
ended March 31, 1996 primarily for the reasons discussed below in "Results of
Operations".

The Company's stockholder's equity was $698,000 at June 30, 1996,
after giving effect to an accumulated deficit of $(15,324,000) which consisted
of $(8,459,000) accumulated deficit during the development stage from July 21,
1989 through June 30, 1996 and $(6,865,000) accumulated deficit from prior
periods. The Company expects to incur substantial operating losses as it
continues its commercialization efforts.

29
<PAGE> 30

While the Company's operating plan seeks to minimize the Company's
capital requirements, commercialization of the Company's battery technology
will require substantial amounts of additional capital. The Company expects
that research and development and production expenses will increase
significantly as it continues to advance its battery technology and develop
products for commercial applications. The Company's working capital and
capital requirements will depend upon numerous factors, including, without
limitation, the progress of the Company's research and development program, the
levels and resources that the Company devotes to the development of
manufacturing and marketing capability, technological advances, the status of
competitors and the ability of the Company to establish collaborative
arrangements with other companies to provide research and development funding
to the Company and to manufacture and market the Company's products.

The Company believes that is has sufficient capital resources to meet
the Company's needs and satisfy the Company's obligations through approximately
the last quarter of 1996 based on the Company's current strategies and subject
to the uncertainties discussed in this Prospectus. The Company does not
currently have sufficient cash to achieve all its development and production
objectives, including the 1997 installation of the DMF pilot line during the
first half of 1997. In order to raise sufficient capital for its future
growth, the Company will be required to sell additional debt or equity
securities. See "Plan of Operation for the Company."

There can be no assurances that the capital needed for attaining
commercial viability of the Company's battery technology, which the Company
currently estimates at $25 million, will continue to be obtained. If the
Company is unable to raise sufficient capital, it will be forced to curtail
research and development expenditures which, in turn, will delay, and could
prevent, the completion of the commercialization process.

On March 29, 1996, the Company entered into the Technology Development
Agreement and Stock Purchase Agreement with the Japanese consortium consisting
of Mitsubishi Materials Corporation and Mitsui & Co., Ltd. (the "Consortium")
discussed in further detail elsewhere in this Prospectus, based on the
Company's proprietary lithium-polymer rechargeable battery technology, which
Agreements, among other things, required that the $1,800,000 due to the holders
of the 12% convertible promissory notes, and accrued interest thereon, be
converted into 7,003,446 shares of Common Stock, on such date and as permitted
under the Notes. All liens and security interests held by the Noteholders were
simultaneously released and discharged.

Under the Technology Development Agreement, the Consortium will
provide funds and technical resources to assist the Company in completing the
development of its high energy battery to meet specific performance
requirements for portable electronics applications. The principal objective is
to take the patented technology to the manufacturing scale-up stage. The
Agreement gives the Consortium exclusive option rights to license the Company's
technology for manufacturing in the Far East and Oceania, and co-exclusive
rights along with the Company for manufacturing in Europe and the Americas,
where the parties' strategy includes establishing joint ventures for
manufacturing operations. The Agreement also gives the Consortium an exclusive
option for worldwide distribution and sales of the Company's products. For
these considerations and, 631,637 shares of the Company's Common Stock
(representing a 4% equity position in the Company as of the closing) the
Consortium paid $2.4 million,

30
<PAGE> 31
prior to payment of placement costs of approximately $212,000, which funds have
been invested in treasury bills.

AS OF DECEMBER 31, 1995. At December 31, 1995, the Company had cash
of $217,000, prepaid and other current assets of $54,000, fixed assets of
$653,000 and other assets of $241,000. The Company's total liabilities were
$2,957,000, consisting of $1,373,000 in accounts payable and accrued expenses
and $300,000 due to the holders of the 7% convertible promissory notes and
$1,284,000 due to holders of the 12% convertible term notes. The Company had a
working capital deficiency of $2,386,000 at December 31, 1995.

The Company's stockholder's deficiency was $(1,792,000) at December
31, 1995, after giving effect to an accumulated deficit of $(13,338,000) which
consisted of $(6,473,000) accumulated deficit during the development stage from
July 21, 1989 through December 31, 1995 and $(6,865,000) accumulated deficit
from prior periods.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1995 AND 1994. The Company had no revenues
for the years ended December 31, 1995 and 1994. Engineering, research and
development expenses were $1,080,000 for the year ended December 31, 1995
compared to $505,000 in 1994. The increase was primarily the result of (i)
increased salary costs as the Company increased its research and development
staff from one employee to eight employees and accelerated its
commercialization efforts and (ii) increased depreciation expenses of $157,000
reflecting the late 1994 purchase of equipment and instrumentation as the
Company outfitted its modern research and development facility.

General and administrative expenses were $1,307,000 for the year ended
December 31, 1995 compared to $1,617,000 in 1994. The decrease of $310,000 was
due to decreased patent costs, discontinuance of a director's consulting
agreement, termination of certain investment banking services, (See "Legal
Proceedings" and "Certain Relationships and Related Transactions -- Consulting
Agreements"), a decrease in costs associated with regulatory compliance,
increased amortization relating to the 1995 sale of 12% Convertible Promissory
Notes, decreased amortization relating to the 1994 exchange of convertible debt
for Series B convertible preferred stock, increased amortization relating to
the 1995 conversion of 7% convertible promissory notes into 577,961 shares of
Common Stock, increased rent, increased insurance costs, decreased employment
costs and a decrease in promotional costs.

Interest expense increased to $85,000 for the year ended December 31,
1995 compared to $11,000 in 1994. The increase in interest expense for the
comparable periods is primarily attributable to the Company's 7% convertible
promissory notes and 12% convertible term notes.

31
<PAGE> 32
SIX MONTHS ENDED JUNE 30, 1996 AND 1995. The Company has had no
revenues for the six month periods ended June 30, 1996 and 1995.

Engineering, research and development expenses were $574,000 for the
six months ended June 30, 1996 compared to $564,000 in 1995. The increase
resulted from increased contract research activities.

General and administrative expenses were $1,378,000 for the six months
ended June 30, 1996 compared to $626,000 in 1995. The increase of $752,000 was
due to increased legal costs of $600,000 associated with the termination of
certain investment banking services and the defense and settlement of
litigation and preparation of a Registration Statement related thereto,
increased amortization of debt issue costs of $214,000 relating to the 1995
sale of 12% Convertible Promissory Notes and increased insurance costs offset
to a minor extent by discontinuance of a director's consulting agreement and
decreased employment costs.

Interest expense decreased to $34,000 (net of interest income of
$26,000) for the six months ended June 30, 1996 compared to $36,000 (net of
interest income of $9,000) in 1995. The increase in interest expense for the
comparable periods is primarily attributable to the Company's 12% convertible
term notes.

THREE MONTHS ENDED JUNE 30, 1996 AND 1995. The Company has had no
revenues for the three month periods ended June 30, 1996 and 1995.

Engineering, research and development expenses were $318,000 for the
three months ended June 30, 1996 compared to $279,000 in 1995. The increase
resulted from increased contract research activities.

General and administrative expenses were $723,000 for the three
months ended June 30, 1996 compared to $388,000 in 1995. The increase of
$335,000 was due to increased legal costs of $434,000 primarily associated with
the termination of certain investment banking services and the defense and
settlement of litigation and preparation of a Registration Statement related
thereto, and increased insurance costs offset to a minor extent by
discontinuance of a director's consulting agreement and decreased employment
costs.

Interest expense decreased to ($22,000) (net of interest income of
$22,000) for the three months ended June 30, 1996 compared to $17,000 (net of
interest income of $7,000) in 1995. The increase in interest expense for the
comparable periods is primarily attributable to the Company's 12% convertible
term notes.

Two newly issued accounting standards were adopted in the first
quarter of 1996 and are not expected to have a material effect on financial
position or results of operations of the Company. A summary of these standards
follows.

Statement of Financial Accounting Standard No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," requires that certain long-lived assets be reviewed for impairment when
events or circumstances indicated that the carrying amounts of the assets may
not be recoverable. If such review indicates that the carrying amount of an
asset exceeds the sum of its expected future cash flows, the asset's carrying
value must be written down to fair value.

Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation," requires companies to measure employee stock
compensation plans based on the fair value method of accounting. However, the
statement allows the alternative of continued use of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," with
pro forma disclosure of net income and earnings per share determined as if the
fair value based method had been applied in measuring compensation cost.

32
<PAGE> 33
PLAN OF OPERATION FOR THE COMPANY

The Company's strategy is to commercialize its solid-state,
lithium-polymer, rechargeable battery with primary focus on high performance
portable electronic products (notebook computers, palmtop computers and
wireless communications devices). These market segments are large, growing
rapidly, and demand high performance batteries with a thin, flat form factor
and long run times. There can be no assurance, however, that the Company will
be able to achieve the technological breakthroughs that will be necessary in
order to ultimately achieve commercialization and/or obtain financings or
generate revenues in order to sustain the Company's on-going research and
development phase or to undertake the design and construction of the
Demonstration Manufacturing Facility discussed herein and other
manufacturing-related facilities.

During 1994, the Company recruited a new management team and a core
technical staff with commercialization and battery technology expertise. A
modern research facility has been leased and product development is continuing.
At June 30, 1996, the management team and technical staff consisted of nine
full-time employees. The staff has the required expertise in technology,
commercialization, process development, battery engineering, electrochemistry
and strategic alliance development. During 1996 the Company has entered into
employment agreements pursuant to which Thomas R. Thomsen now serves as the
Company's Chief Executive Officer, David Cade serves as the Company's President
and Chief Operating Officer and Dr. George Ferment serves as the Company's
Executive Vice President and Chief Technical Officer.

The Company's development and commercialization plan currently has the
following milestones:

(i) hand-made cell samples tested by potential strategic partners
in 1995 (accomplished);

(ii) installation of a Demonstration Manufacturing Facility (DMF)
continuous flow coating and laminating unit in first quarter of 1996
(accomplished);

(iii) upgrade of the DMF in late 1996 and distribution of cell
samples to potential Original Equipment Manufacturer (OEM) customers in early
1997;

(iv) complete manual assembly process on the back end of the DMF in
late 1997, which would enable initial production of hand made battery packs for
OEMs in 1998;

(v) installation of a pilot manufacturing line in early 1998;

(vi) expansion of the pilot manufacturing line in late 1998 by
automating the backend assembly; and

(vii) construction of a second tier manufacturing capability once
market demand exceeds initial manufacturing capacity.

The Company estimates that completion of phases (i) through (vi) will cost
approximately $25 million. There can be no assurances that the Company will
meet these development milestones on the time schedule outlined above.

During March 1996, a benchtop continuous flow coating/laminating line
- -- referred to previously in this "Plan of Operation" as the Demonstration
Manufacturing Facility ("DMF") --

33
<PAGE> 34
was installed by the Company. This line will be used to further define the
Company's manufacturing technology, to sharpen manufacturing cost estimates,
and then serve as the initial production facility for battery cells which will
be manually assembled into battery packs for original equipment manufacturer
("OEM") customers. Thereafter, based on design data obtained from the DMF, the
Company must successfully construct a pilot manufacturing line reflecting the
cost, quality, reliability, and performance required for the various target
market applications. It is anticipated that the pilot manufacturing line and
associated equipment will cost approximately $7.5 million to construct in the
1998 time frame. The pilot manufacturing line, according to the Company's
current strategy, will be located within the Company's existing facility in
Plymouth Meeting, Pennsylvania. Construction of the pilot manufacturing line
will require approximately 12 months. Ultimately, the pilot manufacturing line
would be replaced with a larger scale second tier manufacturing line housed in
the Company's existing facility, which could be expanded if necessary. The
Company intends to finance the overall estimated $25 million total capital
equipment and operating expense required to bring the Company to the initial
commercial production stage at approximately the end of 1998 (which $25 million
includes the aforementioned estimated $7.5 million cost of the pilot
manufacturing facility) by means of private and/or public equity or debt
financings during the next two years.

There can be no assurance that the Company will be able to meet the
technological objectives and/or satisfy the capital requirements that the
Company believes are necessary to convert battery technology into successful
commercial products. There can be no assurance that the Company's products
will generate any revenues, will not encounter technical problems when used,
will be successfully marketed, will be produced at a competitive cost, or will
achieve customer acceptance or, if commercial products are developed and
revenues produced, that the Company will be profitable. The likelihood of the
success of the Company must be weighed against the problems, expenses,
difficulties, complications and delays frequently encountered in developing and
marketing a new product.

During the next twelve months after the date of this Prospectus, the
Company expects to incur expenses of approximately $2,000,000 for the purchase
of equipment based on the Company's current strategies and subject to the
uncertainties discussed in this Prospectus. During the same time frame the
Company expects the number of its employees to increase to approximately 27
individuals.

The Company does not currently have sufficient cash to achieve all its
development and production objectives, including the 1997 installation of the
DMF pilot line during the first half of 1997. In order to raise sufficient
capital for its future growth, the Company will be required to sell additional
debt or equity securities. On March 29, 1996, the Company entered into the
Technology Development Agreement and Stock Purchase Agreement with the
Consortium as discussed herein, as the first step in a broader strategic
alliance and simultaneously sold an aggregate of 631,637 shares of Common Stock
and other considerations as described above to the Consortium for $2.4
million. This capital infusion will permit the Company to continue its
development and commercialization efforts through approximately the last
quarter of 1996 and will be used to accomplish the

34
<PAGE> 35
commercialization plan milestones through the last quarter of 1996 based on the
Company's current strategies and subject to the uncertainties discussed in this
Prospectus.

New capital will be required in order for the Company to proceed with
the Company's business strategy, and such new capital is planned to be sought
from several sources, including the Consortium. The Company is also currently
discussing future funding alternatives with potential unrelated third-party
investors, including the possible restructuring of a letter of intent that was
executed on July 5, 1996 from a $5.0 million equity transaction to a $2.0
million debt transaction but which is otherwise not being pursued by the
parties. The Company has no commitments for new capital investment as of the
date of this Prospectus. The Company is also seeking to raise additional
capital for its activities beyond 1996, which may result in further dilution to
the Company's existing stockholders. The Company will seek to expand its
strategic alliance with the Consortium and is pursuing further corporate
alliances which would provide capital from license fees or an additional equity
investment. Discussions are continuing with companies in Japan, Korea, Taiwan,
Europe and the United States. However, there can be no assurances that
additional capital will be available to the Company on a timely basis or on
acceptable terms.

35
<PAGE> 36
BUSINESS

OVERVIEW AND RECENT DEVELOPMENTS

The Company is a development stage company engaged in the business of
developing and seeking to commercialize a unique solid-state, lithium-polymer,
rechargeable battery. The Company believes that its battery technology, which
is currently in the pre-prototype development phase, is capable of providing
four to six times the performance of current rechargeable batteries. The
Company's objective is the commercialization of such technology, inclusive of
moving from laboratory-scale product prototypes and related prototype processes
to full scale market introduction, achieving cost-competitiveness, and
constructing a manufacturing plant. The Company's commercialization focus is
on the rapidly growing portable electronics market segment (notebook and
palmtop computers and wireless communication devices).

Until 1993, the Company had been named Hope Technologies, Inc. (HTI),
consisting of two subsidiaries: Hope Industries, Inc. (Industries) and
Lithion. Industries was the operating arm of the Company and it manufactured
professional and industrial photoprocessing and X-ray equipment. Lithion was
engaged in rechargeable battery research and development. By the end of 1993,
Industries was divested and since such time the Company has focused on
commercialization of battery technology and developing strategic alliance
partners of global prominence who the Company believes will assist in bringing
the technology to the manufacturing stage and participate in the distribution
and sale of the Company products on a worldwide basis. The Company currently
has one subsidiary, Lithion Corporation, which is wholly-owned by the Company.

During the last two years, the Company has recruited a new management
team and a core technical staff with commercialization and battery technology
expertise. A modern research facility has been leased and research and product
development is continuing. During 1996, the Company has entered into
employment agreements pursuant to which Thomas R. Thomsen now serves as the
Company's Chief Executive Officer, David Cade serves as the Company's President
and Chief Operating Officer and Dr. George Ferment serves as the Company's
Executive Vice President of Operations and Chief Technical Officer.

On March 29, 1996, the Company entered into a Technology Development
Agreement and Stock Purchase Agreement with a Japanese consortium consisting of
Mitsubishi Materials Corporation and Mitsui & Co., Ltd. (the "Consortium"),
based on the Company's proprietary lithium-polymer rechargeable battery
technology. The parties anticipate that this is the first step in a broader
strategic alliance for the research and development, production, promotion and
distribution of lithium-polymer batteries worldwide. The Company is continuing
to seek a third investor to join the Consortium. There can be no assurance
that a third investor will join the Consortium or do so on terms favorable and
acceptable to the Company. Under the Technology Development Agreement, the
Consortium provided funds and will provide technical resources to assist the
Company in completing the development of its high energy battery to meet
specific

36
<PAGE> 37
performance requirements for portable electronics applications. The principal
objective is to take the patented technology to the manufacturing scale-up
stage. The Technology Development Agreement gave the Consortium exclusive
option rights to license the Company's technology for manufacturing in the far
East and Oceania, and co-exclusive option rights along with the Company for
manufacturing in Europe and the Americas, where the parties' strategy includes
establishing joint ventures for manufacturing operations. The Technology
Development Agreement also gives the Consortium an exclusive option for
worldwide distribution and sales of the Company's products. For these
considerations and 631,637 shares of the Company's Common Stock (representing a
4% equity position in the Company as of the closing) the Consortium paid
$2,400,000, prior to payment of placement costs of approximately $212,000,
which funds have been invested in treasury bills.

On July 5, 1996 the Company entered into a letter of intent with an
unrelated third-party investor. This letter of intent originally contemplated
a $5.0 million preferred stock investment in the Company including certain
registration, redemption and conversion rights and a right of first refusal
relative to the Company's private equity financings. The Company is discussing
with this potential investor the possible restructuring of this letter of
intent from a $5.0 million equity transaction to a $2.0 million debt
transaction but the letter of intent is not otherwise being pursued by the
parties. The Company has no commitments for new capital investment as of the
date of this Prospectus. There is no assurance that this transaction, or
portion thereof, will be consummated.

The Company is a corporation organized under the laws of the State of
Delaware on December 28, 1995. The Company's predecessor -- Lithium Technology
Corporation (a Nevada corporation) -- merged with and into the Company in a
reincorporation merger that became effective on February 8, 1996. In
connection with the reincorporation on February 8, 1996, the Company also
implemented a recapitalization of its outstanding Common Stock and convertible
preferred stock, a reverse stock split, the ratification of an amendment to the
Company's 1994 Stock Incentive Plan, and ratification of a Directors Stock
Option Plan.

MARKET SUMMARY

The worldwide battery market consists of a variety of segments, such
as household "disposable" batteries, automotive batteries, and high performance
rechargeable batteries for portable electronic devices. Virtually all segments
are growing and experiencing a technological revolution with the important
driving forces being technology/portability and environmental issues. In
particular, miniaturization of electronic devices has fueled explosive market
growth in mobile electronic products, including notebook and palmtop computers,
wireless communications handsets, camcorders and medical applications. Battery
power, size and shape shortcomings have been the limiting factors in product
engineering and design. Improved batteries are necessary to increase operating
times and mobility. There is also increasing demand for environmentally
friendly batteries. Lead-acid, alkaline and nickel cadmium (NiCd) batteries,

37
<PAGE> 38
unlike the Company's battery, contain metals such as lead, mercury and cadmium,
which have become environmental and public health concerns.

This growth has created a worldwide search for advanced rechargeable
battery systems with much longer run times with light weight and low cost, and
which are environmentally friendly. The Company believes that its
lithium-polymer battery technology may be capable of filling these demands.
There can be no assurance, however, that the Company will be able to achieve
the technological breakthroughs that will be necessary in order to ultimately
achieve commercialization and/or obtain financings or generate revenues in
order to sustain the Company's on-going research and development phase or to
undertake the design and construction of the Demonstration Manufacturing
Facility discussed below and other manufacturing-related facilities.

THE BATTERY TECHNOLOGY

The Company's lithium-polymer rechargeable battery design is based
upon an integrated approach employing a patented and proprietary lithium alloy
anode, a flexible solid polymer composite electrolyte, and a composite oxide
cathode. One advantage of this approach is the use of a solid polymer
electrolyte rather than the traditional liquid electrolyte technology. Unlike
the liquid electrolyte used in most batteries, the Company's battery
electrolyte is a thin, flat, solid plastic which reduces weight and volume, and
improves safety. The Company's research and development and marketing strategy
is to seek to distinguish the Company's battery product from competitors'
products as to the following features: energy density, self-discharge
frequency, design flexibility, cost, user safety and environmental safety. The
Company's ability to implement this strategy is highly dependent upon the
Company's ability to achieve its technology research and development and
financing objectives and overcome the related uncertainties as discussed
herein.

The ability to manufacture so called "laminated batteries" (See
"Glossary") with consistent high quality and low cost is a critical
commercialization challenge and the Company believes its key advantage lies in
its manufacturing approach. Its composite electrolyte and composite cathode
technology lends itself to the use of commonly used manufacturing equipment and
proven process methodology. These composites act as traveling carriers in the
manufacturing process, starting as rolls that are then coated with electrolyte
or oxide materials using existing and proven coating technology. Such
traveling carriers are usually called "traveling webs" or simply "webs". "Web"
processing is a common practice in the paper, textile, thin film, barrier
plastics, floor covering, and packing industries. Other companies also
attempting to commercialize lithium-polymer batteries do not use this
Company-patented approach and therefore use more complex and hence costly
manufacturing methods.

INTELLECTUAL PROPERTY

The Company holds 19 issued U.S. patents and 8 pending patent
applications on its technology. The Company also has other proprietary
knowledge that is in the patent disclosure

38
<PAGE> 39
stage or that it protects as trade secrets. The Company's early patents relate
to materials and construction for lightweight solid-state rechargeable
batteries. The later patents and applications relate to improvements to the
technology contained in the first patent or to other aspects of rechargeable
battery technology.

There are other companies with lithium-polymer battery technology
patents; however, the Company believes its patents to be unique from those of
its competitors in that they focus upon composite cathode structure, composite
electrolyte structure, alloy anode and packaging. The earliest of the
Company's patents expires 2003. There is no current or, to the Company's
knowledge, threatened litigation on its patents. See "Description of Business
- - Competition".

The following table sets forth the patents currently held by the Company:

<TABLE>
<CAPTION>
Patent Number Description Year of Expiration
------------- ----------- ------------------
<S> <C> <C>
4,576,883 Electrode Construction for Solid State Electrochemical Cell 2003

4,794,059 Lightweight Solid Rechargeable Batteries 2005

4,808,496 Electrode Construction for Solid State Electrochemical Cell 2006

4,816,357 Intensification of Ion Exchange in Lithium Batteries 2006

4,861,690 Lightweight Battery Construction 2006

4,888,206 Method and Apparatus for Coating a Substrate with Alkaline 2006
or Alkaline Earth Metals

4,960,655 Lightweight Batteries 2007

5,006,431 Solid State Polymer Electrolyte for Batteries 2008

5,053,295 Lightweight Electroconductive Solderless Internal Cell 2008
Connector for Alkaline or Alkaline Earth Metal Batteries

5,057,385 Battery Packing Construction 2008

5,057,651 Lightweight Electroconductive Wire 2008

5,006,554 Fire and Moisture Proof Anode Construction for Alkaline 2008
Metal or Alkaline Earth Metal Batteries

5,102,752 Solid State Composite Electrolyte for Batteries 2009
</TABLE>

39
<PAGE> 40
<TABLE>
<CAPTION>
Patent Number Description Year of Expiration
------------- ----------- ------------------
<S> <C> <C>
5,350,647 Electrodes for Electrochemical Devices 2011

5,378,558 Solid State Composite Electrolyte for Electrochemical 2012
Devices

5,422,200 Battery Packaging Construction for Alkali Metal Multicell 2012
Batteries

5,443,602 Apparatus and Method for Automatic Mass Production and 2012
Packaging of Electrochemical Cells

5,521,023 Composite Electrolytes for Electrochemical Devices 2013

08/341,622 Lightweight Composite Polymeric Electrolytes for 2013
Electrochemical Devices
</TABLE>

TECHNOLOGY DEVELOPMENT HISTORY

The Company's advanced rechargeable battery technology is based on
nearly eleven years of specific research and development and nearly forty years
of experience in plastics, thin films and emulsions. With the divestiture of
Industries in late 1993, the Company successfully raised capital from outside
sources, narrowed the Company's focus, and renewed development of its
rechargeable battery technology. During 1994, the Company was re-staffed with
needed technical personnel and critical research including historical test data
such as capacity and cycle life was reconfirmed. During 1995, the Company
concentrated its efforts on improving its base line technology in the crucial
areas of weight reduction, design flexibility, rechargeability, self-discharge,
safety, capacity and cycle life. Research and development effort has also been
expended on the carbon fiber web used to build the cathode structure, the
proprietary lithium metal alloy used as the anode structure, the polymer
electrolyte structure, and thermal curing of the polymer as opposed to
expensive and complicated electron beam methodology. Improvements have also
been made in sealing which has resulted in a patented, fireproof anode concept
and improved current-collection technology has been developed through
lightweight, embedded fiber construction. The Company has also advanced its
technology by developing a solid state lithium-ion battery using proprietary
web structures in both the anode and cathode with excellent cycle life and
which demonstrate the utility of the Company's manufacturing technology for use
in other battery chemistries.

For the period July 1989 through October 1993, the Company had
accumulated net losses attributable to activities associated with the battery
technology of $1,801,000. For the period November 1993 through June 1996, the
Company had accumulated net losses of $6,658,000 of which $2,133,000 was
incurred during 1994, $2,472,000 was incurred during 1995, and $1,986,000 was
incurred in the first half of 1996. Therefore, the Company's aggregate

40
<PAGE> 41
accumulated losses for the battery technology through June 1996 are $8,459,000.
The Company spent approximately $505,000 and $1,080,000 on research and
development activities during 1994 and 1995, respectively, and has spent
$574,000 thus far in 1996 (through June) on research and development. These
funds were derived from the Company's debt and equity financings as discussed
in this Prospectus as opposed to operating revenues.

BUSINESS STRATEGY

The challenge facing the Company, as indicated above, is the
commercialization of its battery technology, i.e., moving from laboratory-scale
product prototypes and related prototype manufacturing processes to full scale
market introduction and the construction of a manufacturing plant.

Consummation of corporate alliances is an important step in the
commercialization plan. The Company's strategy contemplates that these
corporate partners will bring technology and funding support through equity,
licensing of the technology, and manufacturing and distribution rights.
Extensive discussions have been held with numerous potential corporate partners
from the United States, the Pacific Rim and Europe. As noted above, on March
29, 1996, the Company entered into the Technology Development Agreement with
the Japanese Consortium of Mitsubishi and Mitsui. The Consortium has also been
granted options on market specific, exclusive manufacturing and distribution
rights. The Company and the Consortium anticipate that the Technology
Development Agreement is the first step in a broad strategic alliance for the
research and development, manufacture, distribution, promotion and sale of the
Company's lithium-polymer batteries. It is the Company's and the Consortium's
strategy that the Consortium will assist the Company in the development,
production and distribution of its lithium-polymer battery product line with
the Company taking advantage of the Consortium's expertise and experience in
the development of other high-tech products, familiarity with the geographic
markets for such products, experience in developing new markets, and existing
relationships with global OEMs.

With the reconfirmation of historical test data during 1994, the
Company continues to work on improving product performance and refining its
manufacturing concepts. During 1995, the Company delivered test cells and test
data to certain potential customers and alliance partners that demonstrate its
laboratory results. The efforts of further developing the technology to meet
product application specific parameters will be ongoing.

During March 1996, a benchtop continuous flow coating/laminating line
- -- referred to above as the Demonstration Manufacturing Facility ("DMF") -- was
installed by the Company. This line will be used to further define the
Company's manufacturing technology, to sharpen manufacturing cost estimates,
and then serve as the initial production facility for battery cells which will
be manually assembled into battery packs for original equipment manufacturer
("OEM") customers. Thereafter, based on design data obtained from the DMF, the
Company must successfully construct a pilot manufacturing line reflecting the
cost, quality, reliability, and performance required for the various target
market applications. It is anticipated that the pilot manufacturing line and
associated equipment will cost approximately $7.5 million to

41
<PAGE> 42
construct in the 1998 time frame. The pilot manufacturing facility, according
to the Company's current strategy, will be located within the Company's
existing facility in Plymouth Meeting, Pennsylvania. Ultimately, the pilot
manufacturing line would be replaced with a larger scale second tier
manufacturing capability. Construction of the pilot manufacturing line will
require approximately 12 months. The Company intends to finance the overall
estimated $25 million total capital equipment and operating expense required to
bring the Company to the initial commercial production stage at approximately
the end of 1998 (which $25 million includes the aforementioned estimated $7.5
million cost of the pilot manufacturing line).

There can be no assurance that the Company will be able to meet the
technological objectives and/or satisfy the capital requirements that the
Company believes are necessary to convert battery technology into successful
commercial products. There can be no assurance that the Company's products
will generate any revenues, will not encounter technical problems when used,
will be successfully marketed, will be produced at a competitive cost, or will
achieve customer acceptance or, if commercial products are developed and
revenues produced, that the Company will be profitable. The likelihood of the
success of the Company must be weighed against the problems, expenses,
difficulties, complications and delays frequently encountered in developing and
marketing a new product.

The Company believes that the "web" construction of its battery (See
"Glossary") is unique compared to other emerging lithium-polymer approaches.
It allows the Company to use proven and well understood equipment from the
textile and plastics industries. This manufacturing approach presents the
flexibility to utilize alternative component chemistries as required to meet
specific OEMs' application operating parameters. While the Company is
confident that this approach increases the probability of success in
commercializing the technology, there can be no assurances of that success.

While the Company's operating plan seeks to minimize the Company's
capital requirements, commercialization of the Company's battery technology
will require substantial amounts of additional capital. The Company has thus
far successfully raised approximately $7.1 million through the private sale of
its securities including $2,400,000 from the Consortium, prior to payment of
placement costs of $212,000. There can be no assurances that the incremental
capital needed for attaining commercial viability of the Company's battery
technology will be obtained (which the Company currently estimates at
approximately $25 million). If the Company is unable to raise sufficient
capital, it will be forced to curtail research and development expenditures
which, in turn, will delay, and could prevent, the completion of the
commercialization process. See "Management's Discussion and Analysis --
Liquidity, Capital Resources, and Financial Conditions".

COMPETITION

Competition in the battery industry is intense. The industry consists
of developmental stage companies and major domestic and international
companies, many of which have financial, technical, marketing, sales,
manufacturing, distribution and other resources significantly greater

42
<PAGE> 43
than those of the Company, excluding the resources of the Company's Japanese
Consortium partners.

The Company believes that its lightweight, thin, low-cost, high
energy, rechargeable battery is uniquely appropriate for the high-growth
portable electronics market (notebook computers, cellular telephones and other
wireless devices). Longer term, its technology may have significant potential
for the emerging Electric Vehicle (EV) market.

These markets are currently served mainly by Nickel-Cadmium ("NiCd")
batteries. NiCd batteries suffer from lower energy density, memory effect,
short shelf life, and environmental problems. It is anticipated, however, that
NiCd batteries will continue to be a force in the marketplace for the
foreseeable future.

Nickel-Metal-Hydride ("NiMH") batteries are an alternative to NiCd
batteries, since they have a somewhat higher energy density than NiCd
batteries. However, they too have a short shelf life and they cost more than
NiCd batteries. Liquid electrolyte ("Lithium-Ion") batteries are just now
entering the marketplace. These batteries have higher energy density but
suffer from short shelf life and higher cost.

The Company's test data has demonstrated that the Company's
lithium-polymer rechargeable battery test cells offer three to four times the
energy density of NiCd batteries, two to three times that of NiMH batteries,
and one and one-half to two times that of lithium-ion batteries. Additionally,
the Company believes that its technology and approach to manufacturing offer
significantly lower production costs. The competition from these current
technologies will be difficult because the products using such technologies are
entrenched and produced by large companies such as Eveready, Sanyo, Duracell
and Panasonic that have large resource bases.

Competition in the high energy density arena comes mainly from other
emerging companies such as AER (Air-Zinc), licensees of Bellcore lithium ion
polymer technology, including Ultralife and Valence, Moltech (Li-Polymer) and
Poly-Plus (Li-Polymer). A number of these competitors are seeking to move
their technologies from the laboratory to commercialization and face similar
challenges as LTC faces. The Company believes that its focus on the
manufacturing process presents superior commercialization potential, since it
has a lower cost potential and can be readily adapted to run various component
chemistries including lithium-ion polymer. Additionally, its "web"
construction has the inherent ability to provide higher energy densities and to
accept future technological advances. The Company believes that its
lithium-polymer battery products will be competitively superior -- from an
environmental point of view -- compared to other batteries because the
company's batteries can be disposed of with less risk of adverse impact on the
environment due to the design features and the materials utilized in the
Company's product.

43
<PAGE> 44
RAW MATERIALS

Certain materials used in the Company's products are available only
from a limited number of sources. The industry currently has sufficient
capacity to meet the Company's needs. However, there can be no assurances that
the currently adequate supply of raw materials will continue.

EQUIPMENT AND FACILITIES

The Company has outfitted a modern research and development facility
with appropriate equipment and instrumentation. At 12,400 square feet, this
modern facility has sufficient space to meet the Company's near-term needs,
including the DMF. The Company had leased from the Hope family certain
machinery and equipment acquired by Henry Hope in connection with the
development of battery technology. The Company terminated these leases in
1994. See "Certain Relationships and Related Transactions".

EMPLOYEES

During 1994, the Company hired a new management team and a core
technical staff that numbered thirteen full-time employees. The staff has the
required expertise in technology, commercialization, process, development,
battery engineering, electrochemistry and strategic alliance development. At
December 31, 1995, the Company had a total of 11 employees, of whom ten were
employed full-time by the Company. The Company anticipates that it will need
to hire approximately six technical employees and approximately one management
employee in order to advance the Company's research and development projects in
1996, and that the Company will have approximately 27 employees by mid-1997.
The Company believes that individuals having appropriate expertise are readily
available in the workforce at compensation levels consistent with the Company's
business plan and compensation policies.

GOVERNMENT REGULATION, SAFETY, ENVIRONMENTAL COMPLIANCE

The Company's products incorporate lithium, which is known to cause
explosions and fires if not properly handled. Although the Company believes
that its batteries do not present safety risks substantially different from
those inherent in currently marketed lithium ion batteries, there can be no
assurance that safety problems will not develop in the future. The Company
intends to incorporate safety policies in its manufacturing processes designed
to minimize safety risks, although there can be no assurance that an accident
in its facilities will not occur. Any accident, whether occasioned by the use
of a battery or the Company's manufacturing operations, could result in
significant production delays or claims for damages resulting from injuries,
which would adversely affect the Company's operations and financial condition.

44
<PAGE> 45
require significant time and resources from the Company's technical staff and,
if redesign were necessary, result in a delay in the introduction of the
Company's products.

Pursuant to the regulations of the United States Department of
Transportation ("DOT"), a permit is required to transport lithium across state
lines. The International Air Transport Association ("IATA") similarly
regulates the international shipment of lithium. Although the Company believes
that DOT has granted permits for, and IATA has allowed, the transport of
rechargeable lithium-based batteries to be shipped or used by the general
public, there can be no assurance that DOT or IATA will grant such a permit to
the Company or that changes in such regulations, or in their enforcement, will
not impose costly requirements or otherwise impede the transport of lithium.
In addition, the DOT and IATA approval processes will require significant time
and resources from the Company's technical staff and if redesign were
necessary, could delay the introduction of the Company's products.

Various regulatory agencies will have jurisdiction over the operation
of any manufacturing facilities established by the Company. Because of the
risks generally associated with the use of lithium, the Company expects
rigorous enforcement. No assurance can be given that the Company will not
encounter any difficulties in complying with applicable health and safety
regulations.

45
<PAGE> 46
PROPERTY

The Company leases a 12,400 square foot research facility and
corporate headquarters in a free-standing building at 5115 Campus Drive in
Plymouth Meeting, Pennsylvania, near Philadelphia. This facility includes
sufficient laboratory and office space to allow the Company to expand its
research efforts and to construct its DMF. The lease commenced on November 1,
1994 for a term of 5 years with a base rent of $122,400 per year. Management
expects that the facility will be suitable for the Company's currently planned
operations. The Company believes that its properties and assets are adequately
covered by appropriate insurance.

LEGAL PROCEEDINGS

On August 7, 1996 and August 8, 1996 civil actions were commenced
against the Company by Richard Perlman and Christy & Viener, respectively. The
two suits were commenced in United States District Court for the Southern
District of New York. Mr. Perlman's complaint alleges that he is entitled to
monetary damages and specific performance of registration rights relating to
certain warrants of the Company that have not been registered and to which he
claims entitlement. The Company has declared such warrants and related
documents void. Christy & Viener's complaint alleges non-payment of legal
fees incurred in connection with the rendering of legal services. The
Company was served with both complaints on August 8, 1996 and is in the initial
stages of evaluating the allegations and the Company's course of action. The
Company intends to vigorously defend both actions and to assert all available
defenses and counterclaims.

On August 15, 1996, the Company filed a lawsuit against Christy &
Viener and others for claims arising out of Christy & Viener's alleged fraud,
legal malpractice and conflicts of interest. The complaint also asserts claims
for alleged violations of Federal securities laws, the Racketeer Influenced and
Corrupt Organizations Act, and fiduciary duties owed by the law firm and its
partners to the Company.

The lawsuit was filed in United States District Court in Philadelphia
and names as defendants: Christy & Viener and William Gray, Steven Berger, and
Franklin Viele, each a partner in the firm. The complaint includes claims
against a fifth defendant, Richard Perlman, formerly a financial advisor to the
Company and a member of its Board of Directors. This lawsuit is in the early
stages of initial motions and discovery. The Company intends to vigorously
prosecute this action.

In addition, the Company has filed a complaint with the First Judicial
Department, Departmental Disciplinary Committee, Supreme Court, Appellate
Division, State of New York, relating to the conduct of Christy & Viener and
certain of its attorneys as referenced above.

On June 20, 1996 the Company settled litigation commenced against the
Company by Robert Pfeffer and Matthew Stuart and Co., Inc. in the Southern
District of New York. In connection with the settlement, the Company issued a
warrant to Robert Pfeffer entitling him to purchase 600,000 shares of Common
Stock at $0.51 per share. The parties exchanged mutual releases and the suit
was dismissed with prejudice.

46
<PAGE> 47
MANAGEMENT

The following table sets forth information concerning the directors
and executive officers of the Company as of the date of this Prospectus:

<TABLE>
<CAPTION>
NAME AGE POSITION

<S> <C> <C>
Thomas R. Thomsen 61 Chairman of the Board and
Chief Executive Officer
J. Paul Bagley, III 53 Director
Harry Edelson 60 Director
L. Wayne Harber 43 Director
Stephen F. Hope 51 Director
David H. Hughes 52 Director
Ralph D. Ketchum 70 Director
Gerald M. Labush 49 Director
John D. McKey, Jr. 52 Director
David J. Cade 59 President and Chief
Operating Officer
George R. Ferment 56 Executive Vice President
of Operations and Chief
Technical Officer
Susan M. Gustafson 37 Vice President of
Administration and
Secretary
William D. Walker 55 Treasurer and Chief
Financial Officer
</TABLE>

Thomas R. Thomsen was appointed Chief Executive Officer of the Company
on May 9, 1996. Mr. Thomsen was elected a director of the Company, effective
February 22, 1995, and was elected Chairman of the Board of the Company,
effective August 7, 1995. Mr. Thomsen was President of AT&T Technology
Systems from 1983 to 1990 and was a director of AT&T Credit Corp., Sandia
Corporation and Rennselear Polytechnic Institute from 1984 to 1990. Mr.
Thomsen currently serves as a director of Transcript International and the
Pioneer Foundation and is on the Executive Committee of the University of
Nebraska Technology Park, L.L.C.

J. Paul Bagley, III was elected a director of the Company, effective
September 8, 1995. He is Chairman of Fiduciary Capital Management Company
(since 1989), Chief Executive Officer of Laidlaw Holdings (since February 1995),
and Managing Director of Stone Pine Capital (since 1994), all investment-related
companies. Mr. Bagley is Chairman of Silver Screen

47
<PAGE> 48
Management (since October 1982), a film-related Company. He currently serves
as a director of America First Financial Corporation.

Harry Edelson was elected a director of the Company, effective May 9,
1996. Since July 1984, Mr. Edelson has been the Managing Partner of Edelson
Technology Partners ("ETP"), a venture capital fund managing money for six
corporations: AT&T, Ford Motor, Paramount Communications, 3-M, Asea Brown
Boveri and Cincinnati Bell. ETP has invested in more than 70 companies
involved in a wide range of technologies including telecommunications,
computers, semi-conductors, specialty chemicals and environmental. Mr.
Edelson has served as a Director of Advanced Oxygen Technology since 1990.

L. Wayne Harber was elected a director of the Company, effective May
9, 1996. Since 1994, Mr. Harber has been a Managing Director of Stone Pine
Capital, L.L.C. and Stone Pine China, L.L.C., both investment banking funds.
Mr. Harber also serves as Executive Vice President of Fiduciary Asset Managers,
L.L.C., the advisor to a $200 million mezzanine and private equity fund. From
1990 to 1993, Mr. Harber was the Senior Vice President of Marketing for Aegis
Holdings Corporation, an asset management and investment banking concern
specializing in asset securitization and structured finance. From 1980 to
1990, Mr. Harber was a Vice President and National Sales Manager for Franchise
Finance Corporation of America. Mr. Harber is also a Director of Laidlaw
Holdings Asset Management.

Stephen F. Hope currently serves as a director of the Company and was
a President, Chairman of the Board and Treasurer of the Company from October
1990 through April 1994. He is a director of Lithion Corporation ("Lithion"),
a wholly-owned subsidiary of the Company. Mr. Hope has an ongoing consulting
arrangement with the Company with respect to the battery technology that is
being developed by the Company. He received a B.A. from Dartmouth University
in 1965 and is a member of the Society of Manufacturing Engineers and the
Society of Photo-Finishing Engineers. Mr. Hope was a Director and the
President of Hope Industries, Inc. ("Industries"), a previously wholly-owned
subsidiary of the Company, from 1985 through December 1993. Industries filed
for reorganization under the Bankruptcy Code in April 1993 and its Plan of
Reorganization was confirmed on May 6, 1994.

David H. Hughes was elected a director of the Company, effective
September 8, 1995. Since 1972, Mr. Hughes has been Chairman and Chief Executive
Officer of Hughes Supply, Inc., a building supply company whose shares are
traded on the New York Stock Exchange, for over ten years. Mr. Hughes is also a
director of SunTrust Banks, Inc.

Ralph D. Ketchum was elected a director of the Company, effective July
1, 1994. He has been President of RDK Capital, Inc. ("RDK Capital") since
January 1987. RDK Capital is the general partner of RDK Capital Limited
Partnership, an investment limited partnership. Mr.

48
<PAGE> 49
Ketchum served as Chief Executive Officer and Chairman of the Board of Heintz
Corporation ("Heintz"), a majority owned subsidiary of RDK Capital Limited
Partnership. In August 1993, Heintz filed for protection under Chapter 11 of
the United States Bankruptcy Code in the Bankruptcy Court of the Eastern
District of Pennsylvania. Mr. Ketchum was Senior Vice President and Group
Executive of the Lighting Group, General Electric Company from 1980 to 1987.
He also serves as a director of Metropolitan Savings Bank, Oglebay-Norton
Corporation, Thomas Industries and Pacific Scientific, Inc.

Gerald M. Labush was elected a director of the Company, effective
December 6, 1995. Since 1979, he has been an attorney in private practice at
the law offices of Gerald M. Labush in New York City.

John D. McKey, Jr. was elected a director of the Company, effective
September 8, 1995. He has since September 1993, been a partner at the law firm
of McCarthy, Summers, Bobko & McKey, P.A., and, from June 1986 to September
1993, was a partner at Kohn, Bobko, McKey & Higgins, P.A. Mr. McKey currently
serves as a director of Publishing Company of North America and Laidlaw
Holdings, Inc.

David J. Cade was appointed President and Chief Operating Officer of
the Company in May 1996. Mr. Cade served as the Company's Vice President of
Marketing from August 1994 to May 1996 and was elected as an officer in October
1994. Mr. Cade has over thirty years of experience in senior business
development, marketing, and sales in global telecommunications systems and
information technologies. From February 1988 to October 1992, Mr. Cade was
Vice President of Marketing and Business Development for COMSAT Systems
Division and from October 1992 until April 1994, Mr. Cade was Vice President of
Marketing and Sales at Interdigital Communications Corporation, a Philadelphia
company that manufactures wireless telephone systems for customers worldwide.
Previously, Mr. Cade held managerial positions with AT&T, Martin Marietta (now
Lockheed Martin) and the Department of Defense. Mr. Cade holds an MBA from
Syracuse University and an undergraduate degree from the University of
Illinois.

George R. Ferment, Ph.D. was appointed Executive Vice President of
Operations and Chief Technical Officer of the Company in May 1996. Dr.
Ferment previously served as the Company's Vice President of Technology and
Engineering from July 1994 to May 1996 and from March 1994 through July 1994,
as Director of Technology Development. Dr. Ferment has over 25 years of
technology experience in product and process development with extensive
background in plastic and polymer science. His early experience was in
research and development of fibers and polymers at Celanese Corporation. Dr.
Ferment spent 14 years at GAF/Tarkett Corporation where he rose to the
position of General Manager (October 1983 - May 1988). From October 1989 to
November 1993, Dr. Ferment was a Group Director of Campbell Soup Company where
he had worldwide responsibility for the company's diverse packaging technology
development programs. Dr. Ferment received his Master's Degree and Ph.D. in
Chemical Engineering from the New Jersey Institute of Technology.

49
<PAGE> 50
Susan M. Gustafson was elected Secretary of the Company in April 1994
and Vice President of Administration, effective November 22, 1995. From July
1992 through April 1994, Ms. Gustafson was Executive Assistant to the President
and Chief Executive Officer of Severn Trent (U.S.) Inc. From March 1991
through July 1992, Ms. Gustafson was Executive Assistant to the Chief Executive
Officer of Therapeutic Systems, Inc. From September 1986 through March 1991,
Ms. Gustafson was Executive Assistant to the Chief Executive Officer of Real
Estate Financial Partnership in Philadelphia, Pennsylvania.

William D. Walker was elected Treasurer and Chief Financial Officer of
the Company, effective September 8, 1995. Mr. Walker was Vice President of
Finance of Simon LG Industries, Inc., a manufacturer of machinery for the paper
industry, from October 9, 1990 to March 31, 1994. Mr. Walker was, from May
1994 until September 1995, an independent financial consultant, including to
the Company (from August, 1994 to his election as Treasurer and Chief Financial
Officer). On October 6, 1995, Mr. Walker was elected Chairman of LG
Industries, Inc., the successor of Simon LG Industries, Inc.

The Company's directors hold office until the next annual meeting of
the Company's stockholders and until their successors have been duly elected
and qualified. The Company's directors do not receive compensation for their
services in that capacity.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation
paid by the Company during the three years ended on December 31, 1995 to (i)
the Chief Executive Officer of the Company and (ii) all other executive
officers of the Company, or any of its subsidiaries, who were serving in such
capacity on December 31, 1995 and received total salary and bonus in excess of
$100,000 during fiscal year 1995 (collectively, "Named Executive Officers").
Unless otherwise noted, the figures used in this "Executive Compensation"
section have been adjusted to reflect the effect of the Company's
one-for-thirty reverse stock split.

50
<PAGE> 51

EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- -----------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
- -----------------------------------------------------------------------------------------------------------------------------------

Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas R. Thomsen, 1995 0 0 0 0 13,334(2) 0 0
Chairman of the 1994 0 0 0 0 0 0 0
Board of 1993 0 0 0 0 0 0 0
Directors(1)
- -----------------------------------------------------------------------------------------------------------------------------------
James A. Elsner, 1995 $75,720 0 0 0 0 0 0
President and Chief 1994 $185,000 $100,000 0 0 522,020(4) 0 $185,000(5)
Executive Officer 1993 0 0 0 0 0 0 0
(Resigned effective
August 7, 1995)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
George R. Ferment, 1995 $120,000 $28,000 0 0 200,001(7) 0 0
Exec. Vice President 1994 $94,385 0 0 0 133,333 0 0
of Technology and 1993 0 0 0 0 0 0 0
Engineering(6)
- -----------------------------------------------------------------------------------------------------------------------------------
David J. Cade, Vice 1995 $125,000 $11,000 0 0 266,667(9) 0 0
President of 1994 $45,513 0 0 0 66,667 0 0
Marketing(8) 1993 0 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Footnotes to this Summary Compensation Table appear on the following page.

51
<PAGE> 52
FOOTNOTES TO THE SUMMARY COMPENSATION TABLE APPEARING ON THE PREVIOUS PAGE

(1) The Company did not have a Chief Executive Officer at the completion
of the fiscal year ended December 31, 1995; however, Thomas R. Thomsen
had performed certain of the typical CEO duties (without compensation
therefor) since the resignation of James A. Elsner as the Company's
President and CEO in August 1995. On May 9, 1996, Mr. Thomsen was
appointed CEO of the Company.

(2) Mr. Thomsen was granted 13,334 stock options on February 22, 1995
exercisable at $3.00 per share. Such stock options were cancelled on
February 8, 1996 pursuant to the Directors Plan and replaced the same
day with a grant of 13,334 stock options exercisable at $0.90 per
share. (See "Executive Compensation - Directors Stock Option Plan"
for details).

(3) James A. Elsner resigned as Chief Executive Officer and President of
the Company, effective August 7, 1995.

(4) In 1994, Mr. Elsner was granted options to purchase 522,020 shares of
Common Stock from the Company under the Company's 1994 Stock Incentive
Plan. As of the date of his resignation (August 7, 1995), options to
purchase 386,645 shares had vested.

(5) In connection with Mr. Elsner's resignation, Mr. Elsner drew on the
irrevocable letter of credit, issued for his benefit, in the amount of
$185,000.

(6) On May 9, 1996, Dr. Ferment was appointed the Company's Executive Vice
President of Operations and Chief Technical Officer. As required by
the applicable regulations of the Securities and Exchange Commission,
the Summary Compensation Table reflects Dr. Ferment's position with
the Company at the completion of the fiscal year ended December 31,
1995.

(7) Dr. Ferment was granted 33,334 stock options on March 15, 1995
exercisable at $0.085 per share. Such stock options, and the 133,333
stock options granted in fiscal year 1994 exercisable at an average
price of $0.19 per share were cancelled on September 8, 1995 and
replaced the same day with a grant of 166,667 stock options
exercisable at $0.03 per share, the then estimated fair market value
of the Company's Common Stock. Such exercise price was later adjusted
to $0.90 per share, pursuant to the reverse stock split. (See
"Executive Compensation - Stock Options Repricing" for details).

(8) On May 9, 1996, Mr. Cade was appointed the Company's President and
Chief Operating Officer. As required by the applicable regulations of
the Securities and Exchange Commission, the Summary Compensation Table
reflects Mr. Cade's position with the Company at the completion of the
fiscal year ended December 31, 1995.

52
<PAGE> 53
(9) Mr. Cade was granted 100,000 stock options on March 15, 1995
exercisable at $0.085 per share. Such stock options, and the 66,667
stock options granted in the fiscal year 1994 exercisable at $0.18 per
share were cancelled on September 8, 1995 and replaced the same day
with a grant of 166,667 stock options exercisable at $0.03 per share,
the then estimated fair market value of the Company's Common Stock.
Such exercise price was later adjusted to $0.90 per share, pursuant to
the reverse stock split. (See "Executive Compensation - Stock Option
Repricing" for details).

OPTION GRANTS IN FISCAL YEAR 1995

The following table sets forth stock options granted to each of the
Named Executive Officers during fiscal year 1995 to purchase shares of Common
Stock (including options repriced during fiscal year 1995).

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL OPTIONS/
UNDERLYING SARS GRANTED TO EXERCISE MARKET PRICE
OPTIONS/SARS EMPLOYEES IN OR BASE ON DATE OF EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/Sh.) GRANT DATE
---- ----------- ----------- ------------- ----- ----
<S> <C> <C> <C> <C> <C>

Thomas R. Thomsen(1) 13,334 1.1% $0.90 $0.90 2/22/05

James A. Elsner 0 0 0 0 0

David J. Cade(2) 100,000 8.4% $2.55 $2.55 3/15/05
166,667 13.9% $0.90 $0.90 3/15/05

George F. Ferment(3) 33,334 2.8% $2.55 $2.55 3/15/05
166,667 13.9% $0.90 $0.90 3/15/05
</TABLE>

(1) Mr. Thomsen was granted 13,334 stock options on February 22, 1995
exercisable at $3.00 per share. Such stock options were cancelled on
February 8, 1996 pursuant to the Directors Plan and replaced the same day
with a grant of 13,334 stock options exercisable at $0.90 per share. (See
"Executive Compensation - Directors Stock Option Plan" for details).
One-fourth (approximately 3,333) of Mr. Thomsen's options will become
exercisable on February 22, 1996 and an additional one-fourth will become
exercisable on February 22, 1997, February 22, 1998 and February 22, 1999.

(2) Mr. Cade was granted 100,000 stock options on March 15, 1995 exercisable at
$0.085 per share. Such options, and the 66,667 stock options granted in
fiscal year 1994 exercisable at $0.18 per share, were cancelled on
September 8, 1995 and replaced the same day with a grant of 166,667 stock
options exercisable at $0.03 per share, the then estimated fair market
value of the Company's Common Stock. Such exercise price was later
adjusted to $0.90 per share, pursuant to the reverse stock split. (See
"Executive Compensation - Repricing of Stock Options" for details and
"Options Exercised and Options Outstanding" for vesting information).

53
<PAGE> 54
(3) Dr. Ferment was granted 33,334 stock options on March 15, 1995 exercisable
at $0.085 per share. Such options, and the 133,333 stock options granted
in fiscal year 1994 exercisable at an average price of $0.19 per share,
were cancelled on September 8, 1995 and replaced the same day with a grant
of 166,667 stock options exercisable at $0.03 per share, the then estimated
fair market value of the Company's Common Stock. Such exercise price was
later adjusted to $0.90 per share, pursuant to the reverse stock split.
(See "Executive Compensation - Repricing of Stock Options" for details and
"Options Exercised and Options Outstanding" for vesting information).

OPTIONS EXERCISED AND OPTIONS OUTSTANDING

The following table sets forth information with respect to (i) options
exercised by each of the Named Executive Officers in fiscal year 1995 and (ii)
the number and value of options held by each of the Named Executive Officers at
the end of fiscal year 1995.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN THE MONEY
OPTIONS/SARs AT OPTIONS/SARs AT
SHARES FY-END ($) FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
---- ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C>

Thomas R. Thomsen(2) 0 0 0/13,334 0/$74,004

James A. Elsner 0 0 386,645/0 $2,300,151/0

David J. Cade(3) 0 0 0/166,667 0/$925,002

George F. Ferment(4) 0 0 0/166,667 0/$925,002
</TABLE>

(1) The exercise price of the options for Messrs. Thomsen, Cade and
Ferment is $0.90 per share, and for Mr. Elsner is $0.501 per share,
and, for the purposes of this calculation only, the fair market value
of the shares of Common Stock underlying the options is deemed to be
$6.45 per share, the high "bid" price for the Common Stock on the OTC
Bulletin Board on December 29, 1995 after giving effect to the reverse
stock split on February 8, 1996.

(2) One-fourth (approximately 3,333) of Mr. Thomsen's options designated
in this table as unexercisable as of December 31, 1995 will become
exercisable on February 22, 1996 and an additional one-fourth will
vest on February 22, 1997, February 22, 1998 and February 22, 1999.

54
<PAGE> 55
(3) 66,667 of Mr. Cade's stock options are exercisable at any time on or
after the later of July 1, 1996 or the date of receipt by the Company
of $2 million in cash from a strategic alliance initiated, developed
and completed by Mr. Cade and exercisable as to another 33,333 shares
on the date of receipt by the Company of a further $1 million in cash
from a strategic alliance initiated, developed and completed by Mr.
Cade, but no earlier than July 1, 1996. The remaining 66,667 options
vest on July 1, 1996 (16,667 options), August 15, 1996 (16,667
options), August 15, 1997 (16,667 options), and August 15, 1998
(16,666 options).

(4) 33,334 of Dr. Ferment's options will become exercisable at any time on
or after the later of July 1, 1996 or the date of completion of
construction by the Company of a Demonstration Manufacturing Facility.
The remaining 133,333 options vest on July 1, 1996 (50,000 options),
September 19, 1996 (16,667 options), April 7, 1997 (16,667 options),
September 19, 1997 (16,667 options), April 7, 1998 (16,666 options),
and September 19, 1998 (16,666 options).

STOCK INCENTIVE PLAN

In February 1994 the Board of Directors of the Company established the
1994 Stock Incentive Plan (the "Stock Plan") to aid the Company in attracting,
retaining and motivating officers and key employees, whether or not they are
directors of the Company, and consultants and other advisors to the Company by
providing them with incentives for making significant contributions to the
growth and profitability of the Company. In February 1994, Majestic, as the
majority stockholder, approved the adoption of the Stock Plan and on February
8, 1996 ratified an amendment to the Stock Plan, increasing from 1,333,333 to
2,666,667 (after giving effect to the 1 for 30 reverse stock split on February
8, 1996) the number of shares available for issuance in respect of awards
granted under the Stock Plan.

Set forth below is a brief description of the principal features of
the Stock Plan.

The Stock Plan authorizes the Company to grant stock options, both
incentive stock options (within the meaning of Section 422 of the Internal
Revenue Code) and non-qualified stock options, SARs and awards payable in
stock, restricted stock or cash. All of such awards may be granted singly, in
combination or in tandem, or in substitution for awards granted previously
under the Stock Plan or any other Stock Plan of the Company. In addition, the
Stock Plan permits the Company to extend dividend equivalency rights to awards
made thereunder. The payment or exercise of any awards, including stock
options, under the Stock Plan may be conditioned on the satisfaction of various
criteria, such as the achievement of specific business objectives, attainment
of growth rates and other comparable measurements of the Company's performance.
It is expected that, while some or all other types of awards referred to above
may be made from time to time, the Company will grant principally stock options
under the Stock Plan.

The Stock Plan provides for a maximum of 2,666,667 shares of the
Company's Common Stock to be available for issuance in respect of awards
granted under the Stock Plan, which

55
<PAGE> 56
terminates in February 2004, provided that the aggregate number of shares of
Common Stock which may be the subject of an award for any participant may not
exceed 666,667 shares in any fiscal year of the Company. Shares related to
awards (or portions thereof) that are forfeited, canceled or terminated, expire
unexercised, are surrendered in exchange for other awards, or are settled in
cash in lieu of shares or in any other manner such that shares covered by an
award are not and will not be issued, will be restored to the total number of
shares available for issuance pursuant to awards granted under the Stock Plan.
As of August 19, 1996, there were outstanding options with respect to 1,897,487
shares of Common Stock under the Stock Plan. As of August 19, 1996, options
with respect to 981,792 shares of Common Stock were fully vested.

The Stock Plan provides that, in the event of a stock split, stock
dividend, combination or reclassification of shares, recapitalization, merger
or similar event, proportional adjustments will be made in (a) the number of
shares of the Company's Common Stock (i) reserved for issuance under the Stock
Plan, (ii) available for options or other awards and (iii) covered by
outstanding awards, (b) the prices related to outstanding awards, and (c) the
appropriate fair market value and other price determinations for such awards.
In addition, equitable adjustments will be made in the event of any other
change affecting the Company's Common Stock or any distribution (other than
normal cash dividends) to stockholders of the Company.

The Stock Plan provides that it shall be administered by a committee
designated by the Board of Directors, consisting of at least two directors who
are not officers or employees of the Company or any of its subsidiaries. The
committee that administers the Stock Plan (the "Stock Plan Committee") consists
of Messrs. Harber and Ketchum. The Stock Plan Committee has the sole authority,
among other things, to grant awards; determine the term, conditions and
limitations of awards; establish rules, procedures, regulations and guidelines
relating to the Stock Plan generally and to interpret the Stock Plan and award
agreements entered into pursuant to the Stock Plan. The Stock Plan Committee
may also effect the continuation, acceleration or modification of awards under
the Stock Plan in certain circumstances including events that might constitute a
change in control of the Company.

Officers, key employees and directors who are also officers or
employees of the Company or its subsidiaries or who have been designated by the
Board of Directors of the Company as eligible to receive awards under the Stock
Plan, are eligible to participate in the Stock Plan. Key employees are those
employees who hold positions of responsibility or whose performance, in the
judgment of the Stock Plan Committee, can have a significant effect on the
growth and profitability of the Company.

Generally, a Stock Plan participant may exercise or receive payment of
an award only while employed by or associated with the Company or a subsidiary
of the Company, except that, under some circumstances, and subject to
restrictions and limitations imposed by the Stock Plan Committee, the Stock Plan
Committee may permit exercise by, or payment to, participants who have retired
or become disabled, or who otherwise have had their employment or association
terminated. In addition, if a participant dies while still employed or
associated with the Company or a subsidiary thereof, the estate, and heirs or
beneficiaries of the deceased participant may, subject to restrictions and
limitations imposed by the Stock Plan Committee, exercise or receive payment in
respect of awards held by

56
<PAGE> 57
the participant at the time of death. In general, awards granted under the
Stock Plan are not assignable or transferable by a participant, except under
the limited circumstances contemplated by the Stock Plan.

The exercise price of an option granted under the Stock Plan will be
not less than the fair market value of the Company's Common stock on the date of
grant. The exercise price of an option must be paid in full in cash at the time
of exercise, or, if permitted by the Stock Plan Committee, may be paid in whole
or in part by (a) tendering shares of Common Stock or surrendering another award
granted under the Stock Plan or another benefit Stock Plan of the Company, (b)
delivering a promissory note issued by the participant to the Company containing
terms and conditions determined by the Stock Plan Committee or (c) any other
means acceptable to the Stock Plan Committee. In order to enable the Company to
satisfy any tax payment obligations resulting from any exercise of, or other
payment on, an award under the Stock Plan, the Company has the right, among
other things, to withhold an appropriate amount from such payment or to withhold
an appropriate number of shares of the Company's Common Stock receivable by the
participant, for payment thereof.

The Stock Plan may not, without the approval of the stockholders as
set forth therein, be amended to (i) materially increase the aggregate number
of shares of the Company's Common Stock that may be issued under the Stock Plan
(except for adjustment pursuant to Section 14 of the Stock Plan), as described
above, (ii) materially increase the benefits accruing to participants or (iii)
materially modify the eligibility requirements of the Stock Plan. The Stock
Plan may not be changed in such a way as to alter, impair, amend, modify,
suspend or terminate any rights of a participant or any obligations of the
Company under any award theretofore granted in any manner adverse to such
participant without the consent of such participant.

No options have been exercised since the Stock Plan was adopted.

STOCK OPTION REPRICING

In September 1995, the Board of Directors approved a program whereby
all options held by each employee were cancelled and new options were granted
under the Company's 1994 Stock Plan with such new options having an exercise
price of $0.03 per share, the then estimated fair market value of the Company's
Common Stock. The Board of Directors determined such repricing to be
appropriate in order to sustain the incentivization of all of its employees
since the outstanding options had exercise prices well in excess of the then
market price of the Company's Common Stock. As a condition for such repricing,
such new options do not become exercisable until the later of July 1, 1996 or
the original vesting schedule of such options, except that newly issued options
which replaced vested options retained their vested status. As a result of
this stock option repricing, the Company cancelled a total of 780,000 stock
options and granted the same number of new stock options at the aforementioned
exercise price of $0.03 per share. Such exercise price was later adjusted to
$0.90 per share, pursuant to the Company's one-for-thirty reverse stock split.

57
<PAGE> 58
COMPENSATION OF DIRECTORS

Directors receive no cash compensation for serving on the Company's
Board of Directors. Each Non-Employee Director receives an initial option to
purchase 13,334 shares of Common Stock as described below under the caption
"Directors Stock Option Plan."

DIRECTORS STOCK OPTION PLAN

In August 1995, the Board of Directors adopted the Directors Stock
Option Plan (the "Directors Plan") and on February 8, 1996, Majestic, as the
majority stockholder, ratified the adoption of the Directors Plan. As of
February 8, 1996, options previously granted to directors who were not
officers or employees of the Company were cancelled and new options were
reissued under the Directors Plan, with the identical number of options
granted, but with the exercise price of such options at the fair market value
of the Common Stock as of the effective date, pursuant to the terms and
conditions of the Directors Plan. The Directors Plan authorizes the granting
of up to 333,333 options. The members of the Committee administering the
Directors Plan are Thomas R. Thomsen, Ralph Ketchum, and Wayne Harber, who also
comprise the Company's Compensation Committee.

The purpose of the Directors Plan is to aid the Company in attracting,
retaining and motivating independent directors by providing them with
incentives for making significant contributions to the growth and profitability
of the Company. The Directors Plan is designed to accomplish this goal by the
granting of stock options, thereby providing participants with a proprietary
interest in the growth, profitability and success of the Company.

Directors of the Company who are not officers or employees of the
Company or any subsidiary thereof ("Non-Employee Directors") are eligible to
receive grants of stock options pursuant to the Directors Plan. Under the
Directors Plan, non-qualified stock options to purchase shares of the Company's
Common Stock shall be granted automatically to Non-Employee Directors at the
times specified in the Directors Plan. Each Non-Employee Director receives an
initial option to purchase 13,334 shares of the Common Stock on the date on
which such director first becomes eligible to participate in the Directors
Plan. Thereafter, as long as a Non-Employee Director remains eligible to
participate in the Directors Plan, such director will receive on the date the
Company consummates a joint venture agreement with an investment in the Company
of at least $3,000,000, options to acquire up to an additional 20,000 shares.
Notwithstanding the foregoing, no stock option shall be granted to any person
whose service as a director of the Company has ceased. The exercise price of
any stock option granted pursuant to the Directors Plan is the fair market
value of the Common Stock on the date of grant. As of August 19, 1996, there
were outstanding options under the Directors Plan with respect to 106,672
shares of Common Stock, which have exercise prices ranging from $.90 per share
to $2.56 per share and options with respect to 23,332 shares of Common Stock
are fully vested as of August 19, 1996.

EMPLOYMENT AGREEMENTS AND CERTAIN EMPLOYEE MATTERS

Effective April 15, 1994, the Company elected James A. Elsner as its
President and Chief Executive Officer. Upon commencement of Mr. Elsner's
employment, the Company paid him

58
<PAGE> 59
a one-time bonus of $100,000. Mr. Elsner resigned as President and Chief
Executive Officer, effective as of August 7, 1995. In connection with the
separation arrangement between the Company and Mr. Elsner, Mr. Elsner drew on
the irrevocable letter of credit, issued for his benefit, in the amount of
$185,000. In addition, the Company paid Mr. Elsner's health insurance premiums
until January 1996. At the time of his resignation, Mr. Elsner had vested
options to acquire 386,645 shares of Common Stock, which options are exercisable
(a) as to one-half until the 90th day following the later of (i) the effective
date of this registration statement or (ii) the date that the Company notifies
Mr. Elsner in writing that the registration statement has become effective, (b)
as to one-fourth until the close of business on the 90th day following March 31,
1997, and (c) as to one-fourth until the 90th day following September 30, 1997.
As part of the separation arrangement, Mr. Elsner waived all claims against the
Company for back pay and accrued bonuses.

On May 9, 1996, the Company entered into a one-year employment
agreement with Thomas R. Thomsen pursuant to which Mr. Thomsen is employed as
the Company's Chief Executive Officer at an annual salary of $185,000. Mr.
Thomsen shall also be eligible to receive a target bonus of up to 40% of his
annual salary for such fiscal year of the Company, the exact amount of such
bonus to be determined by the Board of Directors in accordance with performance
thresholds for such fiscal year to be agreed upon by the Board of Directors and
Mr. Thomsen. Mr. Thomsen's employment agreement also provides for the issuance
of a ten (10) year non-qualified option to purchase 400,000 shares of the
Company's common stock at an exercise price of $2.5625 per share. If Mr.
Thomsen's employment is terminated without cause and other than due to
disability or death, the Company will be obligated to (i) continue Mr.
Thomsen's salary for an additional six (6) months or the remainder of the term
on the contract, whichever is longer ("severance period"), (ii) continue for
such "severance period" all of Mr. Thomsen's benefits under the Company's
medical insurance, disability insurance, life insurance and other benefit plans
as are then in effect for executives of the Company, and (iii) accelerate the
vesting of all unexercisable options such that upon termination all then
exercisable and unexercisable options immediately become exercisable on the
date of termination, and all the same shall remain exercisable for a period of
three (3) years commencing on the date of termination.

On July 24, 1996, the Company entered into a one-year employment
agreement with David J. Cade pursuant to which Mr. Cade is employed as the
Company's President and Chief Operating Officer at an annual salary of
$140,000. Mr. Cade shall also be eligible to receive a target bonus of up to
20% of his annual salary for such fiscal year of the Company, the exact amount
of such bonus to be determined by the Board of Directors in accordance with
performance thresholds for such fiscal year to be agreed upon by the Board of
Directors and Mr. Cade. Mr. Cade's employment agreement also provides for the
issuance of a ten (10) year incentive option to purchase 133,333 shares of the
Company's common stock at an exercise price of $1.33 per share. If Mr. Cade's
employment is terminated without cause and other than due to disability or
death, the Company will be obligated to (i) continue Mr. Cade's salary for an
additional six (6) months or the remainder of the term on the contract,
whichever is longer ("severance period"), (ii) continue for such "severance
period" all of Mr. Cade's benefits under the Company's medical insurance,
disability insurance, life insurance and other benefit plans as are then in
effect for executives of the Company, and (iii) in the case of death or
disability, the option shall be exercisable to the extent then vested for a
period of three years.

On July 24, 1996, the Company entered into a one-year employment
agreement with George R. Ferment pursuant to which Dr. Ferment is employed as
the Company's Executive Vice President of Operations and Chief Technical
Officer at an annual salary of $130,000. Dr. Ferment shall also be eligible to
receive a target bonus of up to 20% of his annual salary for such fiscal year
of the Company, the exact amount of such bonus to be determined by the Board of
Directors in accordance with performance thresholds for such fiscal year to be
agreed upon by the Board of Directors and Dr. Ferment. Dr. Ferment's employment
agreement also provides for the issuance of a ten (10) year incentive option to
purchase 133,333 shares of the Company's common stock at an exercise price of
$1.33 per share. If Dr. Ferment's employment is terminated without cause and
other than due to disability or death, the Company will be obligated to (i)
continue Dr. Ferment's salary for an additional six (6) months or the remainder
of the term on the contract, whichever is longer ("severance period"), (ii)
continue for such "severance period" all of Dr. Ferment's benefits under the
Company's medical insurance, disability insurance, life insurance and other
benefit plans as are then in effect for executives of the Company, and (iii) in
the case of death or disability, the option shall be exercisable to the extent
then vested for a period of three years.

59
<PAGE> 60

On November 15, 1995, the Company's Board of Directors authorized the
issuance of up to 299,440 shares of the Company's Common stock to certain
employees in exchange for such employees' forgiveness of accrued salaries and
bonuses totalling approximately $150,000. In August 1996 the Company completed
these transactions which resulted in the issuance of 198,354 shares of Common
Stock (the "Restricted Shares") to certain employees in exchange for such
employees' forgiveness of approximately $99,000 of accrued salaries and bonuses
and in the issuance of 38,416 shares of Common Stock to another employee for
$19,208 in cash. The Restricted Shares are subject to a risk of forfeiture in
the event that the recipient's employment is terminated for any reason (other
than death or disability) prior to the vesting of all of the Restricted Shares
held by such employee. Two Named Executive Officers, David Cade and George
Ferment, have been issued 55,981 and 88,037 Restricted Shares respectively. The
Restricted Shares will vest upon the earlier of (i) the shares becoming eligible
to be resold pursuant to a registration statement being filed and declared
effective by the U.S. Securities and Exchange Commission or (ii) January 1,
1997. Furthermore, the Restricted Shares, when issued, will be restricted
securities within the meaning of the Securities Act of 1933 as amended.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth information as of August 19, 1996 with
respect to the equity securities of the Company known by the Company to be
beneficially owned by each beneficial owner of more than five percent of the
Company's Common Stock, by each director and Named Executive Officer (as
defined in applicable SEC regulations), and by all directors and executive
officers as a group.

<TABLE>
<CAPTION>
Name and Address Number of Shares
of Beneficial Owner(1) Beneficially Owned(2) Percent of Class(2)
------------------- ------------------ ----------------
<S> <C> <C>

Thomas R. Thomsen 203,333(3) 1.25

J. Paul Bagley, III 3,333(4) *

Harry Edelson 1,568,518(5) 9.77

L. Wayne Harber -0- *

Stephen F. Hope 1,957,946(6) 12.20

David H. Hughes 335,179(7) 2.09

Ralph D. Ketchum 93,289(8) *
</TABLE>

60
<PAGE> 61
<TABLE>
<CAPTION>
Name and Address Number of Shares
of Beneficial Owner(1) Beneficially Owned(2) Percent of Class(2)
------------------- ------------------ ----------------
<S> <C> <C>

Gerald M. Labush 268,319(9) 1.67

John D. McKey, Jr. 562,534(10) 3.50

David J. Cade 233,760(11) 1.42

George R. Ferment 199,150(12) 1.23

Susan M. Gustafson 44,303(13) *

William D. Walker 219,393(14) 1.36

James E. Elsner 386,645(15) 2.35

Edelson Technology Partners III 1,568,518 9.77

Group III Capital Ventures, Inc. 1,030,000 6.42

Donald C. Taylor 1,400,000(16) 8.55

Estate of Henry Hope 1,540,335(17) 9.60

All Directors and Officers as a 5,689,057 34.23
Group (13 persons)+
</TABLE>

------------------------
* Less than 1%.
+ Includes the Company's directors and officers on August 19, 1996.

(1) The address of each beneficial owner is c/o Lithium Technology
Corporation, 5115 Campus Drive, Plymouth Meeting, PA 19462 except for
Edelson Technology Partners III: Whiteweld Centre, 300 Tice Boulevard,
Woodcliff Lake, NJ 07675; Group III Capital Ventures, Inc. and Donald
C. Taylor: 475 Park Avenue South, Suite 330, New York, NY 10016.

(2) Includes shares of Common Stock underlying outstanding warrants,
options and convertible securities which are exercisable by the
beneficial owner with respect to whom the calculation is made, but
does not include shares of Common Stock that may be acquired within
more than 60 days after August 19, 1996 upon the exercise or conversion
of warrants, options or convertible securities.

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<PAGE> 62
(3) Includes vested options to acquire 3,333 shares of Common Stock, and
non-vested options to acquire 200,000 shares of Common Stock which
become exercisable within 60 days of August 19, 1996.

(4) Includes options to acquire 3,333 shares of Common Stock which become
exercisable within 60 days of August 19, 1996.

(5) Includes 1,568,518 shares of Common Stock held by Edelson Technology
Partners III, L.P. ("ETP"). Mr. Edelson is a General Partner and
significant shareholder of ETP and, therefore, may be deemed to be the
beneficial owner of the Company's Common Stock held by ETP.

(6) Includes 193,334 shares of Common Stock held by Hope Lithographic
Enterprises, Inc. The Estate of Henry Hope owns 51%, and Stephen F.
Hope owns 36.5%, of the outstanding capital stock of Hope Lithographic
Enterprises, Inc., and therefore both may be deemed to be the
beneficial owners of the Company's stock held by that entity.
Includes 1,347,001 shares of Common Stock owned by the Estate of Henry
Hope.

(7) Includes options to acquire 3,333 shares of Common Stock which become
exercisable within 60 days of August 19, 1996.

(8) Includes vested options to acquire 3,333 shares of Common Stock, and
non-vested options to acquire 3,334 shares of Common Stock which
become exercisable within 60 days of August 19, 1996.

(9) Includes options to acquire 3,333 shares of Common Stock which become
exercisable within 60 days of August 19, 1996.

(10) Includes options to acquire 3,333 shares of Common Stock which become
exercisable within 60 days of August 19, 1996.

(11) Includes options to acquire 177,779 shares of Common Stock which
become exercisable within 60 days of August 19, 1996 and 55,981
shares of restricted Common Stock issued pursuant to the 1994 Stock
Incentive Plan.

(12) Includes options to acquire 111,113 shares of Common Stock which become
exercisable within 60 days of August 19, 1996 and 88,037 shares of
restricted Common Stock issued pursuant to the 1994 Stock Incentive
Plan.

(13) Includes options to acquire 28,334 shares of Common Stock which become
exercisable within 60 days of August 19, 1996 and 15,969 shares of
restricted Common Stock issued pursuant to the 1994 Stock Incentive
Plan.

(14) Includes options to acquire 25,001 shares of Common Stock which become
exercisable within 60 days of August 19, 1996 and 38,416 shares of
restricted Common Stock issued pursuant to the 1994 Stock Incentive
Plan.

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<PAGE> 63
(15) Includes vested options to acquire 386,645 shares of Common Stock.
Mr. Elsner resigned as President and Chief Executive Officer and a
director of the Company, effective August 7, 1995.

(16) Includes 1,030,000 shares of Common Stock owned by Group III Capital
Ventures, Inc., and 320,000 shares of Common Stock underlying a
warrant beneficially owned by Group III Capital, Inc. Excludes
1,180,000 shares of Common Stock underlying a warrant beneficially
owned by Group III Capital, Inc. not exercisable within 60 days after
August 19, 1996 in the absence of specified vesting events.

(17) Includes 193,334 shares of Common Stock held by Hope Lithgraphic
Enterprises, Inc. The Estate of Henry Hope owns 51%, and Stephen F.
Hope owns 36.5%, of the outstanding capital stock of Hope Lithographic
Enterprises, Inc., and therefore both may be deemed to be the
beneficial owners of the Company's stock held by that entity.
Includes 808,667 shares held by Hazel Hope, as Executrix of the Estate
of Henry Hope.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN TRANSACTIONS IN THE COMPANY'S SECURITIES

Convertible Promissory Note. As of December 1993, the Company owed
Stephen F. Hope and his family approximately $445,000; at that time the Company
issued to Stephen F. Hope, a director of the Company, and to members of Stephen
F. Hope's family, a convertible promissory note in exchange for outstanding
indebtedness of the Company to such individuals in the aggregate principal
amount of $321,110. The balance of such indebtedness constituted accrued rent
on property and equipment leases owed to Stephen F. Hope and his family by the
Company. This convertible promissory note had the same terms and provisions as
the convertible promissory notes issued to private investors, and was
convertible into 642,220 shares of Common Stock. Pursuant to an agreement with
the Company entered into as of May 1994, Stephen F. Hope agreed to surrender
and cancel this promissory note (including the conversion rights associated
therewith) and agreed to terminate certain leases of real property and
equipment and cancel the indebtedness owed by the Company with respect thereto
(described below under "Leases with Related Parties").

63
<PAGE> 64
OTHER COMPENSATION

In connection with assisting the Company in its efforts in 1995 to
restructure its finances, Anthony B. Fisher, a former director of the Company,
and Group III Capital, Inc., of which Donald C. Taylor, a former director of
the Company, is a principal stockholder, were paid consulting fees of $118,550
and $205,725, respectively, plus a warrant to be issued to Mr. Fisher with
respect to 57,858 shares of Common Stock.

LEASES WITH RELATED PARTIES

From 1989 through 1994, the Company had leased equipment related to
battery research and development from the Estate of Henry Hope and had leased a
research laboratory in Willow Grove, Pennsylvania from Stephen F. Hope and
other members of his family. Pursuant to an agreement with the Company entered
into as of May 1994, Stephen F. Hope and the Estate of Henry Hope terminated
the equipment lease and the real property lease, and granted to the Company a
purchase option with respect to all or part of such equipment. The Company
notified Stephen F. Hope of the exercise of such option with respect to the
designated equipment. Upon the consummation of such purchase, the Company
issued 83,334 shares of Common Stock for such equipment having an appraised
value of $250,000. In addition, Stephen F. Hope agreed to waive any claims
to accrued rent with respect to the equipment and property leases, and in
consideration therefor and the settlement of certain other contingencies, the
Company agreed to issue to Stephen F. Hope an additional 78,167 shares of
Common Stock of the Company.

CONSULTING AGREEMENTS

Effective December 10, 1993, the Company entered into a consulting
agreement with Stephen F. Hope, pursuant to which the Company agreed to employ
Mr. Hope as an independent consultant at a rate of $150,000 per year, of which
compensation at the rate of only $50,000 per year shall be payable until such
time as the Company has sufficient capital. If, at any time in the future, the
Company has sufficient capital to employ Mr. Hope as a consultant at a rate of
$150,000 per year, Mr. Hope will not be entitled to any back compensation for
the difference between his $150,000 stated per annum consulting salary and the
$50,000 actually paid him during any such year. Mr. Hope will only act as a
battery technology consultant for so long as the Board of Directors determines
his services to be necessary. No consulting services were rendered by Mr. Hope
during 1995 and 1996 and no compensation has been paid to Mr. Hope for such
periods.

From December 1993 through April 1995, Matthew Stuart & Co., Inc.
("Matthew Stuart") provided certain consulting and advisory services to the
Company. For these services, Matthew Stuart has been paid approximately
$112,000 exclusive of commissions and accrued amounts in connection with
various private placements. Matthew Stuart and Robert Pfeffer, a former
principal in Matthew Stuart, commenced litigation claiming they were also
entitled to further fees and certain warrants. The Company has disputed the
issuance of these warrants to Matthew Stuart, Mr. Pfeffer, and Richard Perlman,
formerly a vice president of Matthew Stuart, and the Company has declared the
1993 warrant agreement and related warrant documents void. See "Legal
Proceedings" for details. Mr. Perlman served as a director of the Company
from July 1994 until his resignation in September

64
<PAGE> 65
1995. Effective April 1995, the Company terminated any continuing relationship
with Matthew Stuart. On June 20, 1996, the Company entered into a Settlement
Agreement with Matthew Stuart and Mr. Pfeffer thereby terminating the
litigation and pursuant to which the Company issued a warrant entitling Mr.
Pfeffer to purchase up to 600,000 shares of the Company's Common Stock.

On May 9, 1996, the Company entered into a Consulting Agreement with
former director Donald C. Taylor who will provide investment advisory services,
shareholder relations and related consulting services to the Company. As
consideration for such services, Mr. Taylor will receive $7,000 a month over
the term of the Consulting Agreement. The Consulting Agreement is for a period
of one year and is automatically renewable for not more than two additional
years unless either party to the Agreement provides notice to the contrary. In
addition, in consideration for past and prospective services provided to the
Company by Group III Capital, Inc., of which Mr. Taylor is the President and a
director, the Company issued to Group III Capital, Inc. a warrant to purchase
1,500,000 shares of the Company's Common Stock at an exercise price of $1.54
per share. Mr. Taylor served as a director of the Company from August 1995 to
May 1996.

STOCK OPTIONS

As of August 19, 1996, the Company has issued and outstanding stock
options to purchase 2,011,243 shares of the Company's Common Stock, comprised
of (a) options to acquire 106,672 shares pursuant to the Directors Stock Option
Plan (the "Directors Plan") (See "Executive Compensation--Directors Stock
Option Plan" for details), (b) options to acquire 1,897,487 shares pursuant to
the 1994 Stock Incentive Plan (the "Stock Plan") (See "Executive
Compensation--Stock Incentive Plan" for details), and (c) 7,084 options granted
to consultants.

In 1995, the Board of Directors approved a program whereby all
options held by each employee were cancelled and new options were granted under
the Company's 1994 Stock Plan with such new options having an exercise price of
$0.03 per share (without giving effect to the subsequent reverse stock split),
the then fair market value of the Company's Common Stock. The Board of
Directors determined such repricing to be appropriate in order to sustain the
incentivization of all of its employees since the outstanding options had
exercise prices well in excess of the then market price of the Company's Common
Stock. As a condition for such repricing, such new options do not become
exercisable until the later of July 1, 1996 or the original vesting schedule of
such options, except that newly issued options which replaced vested options
retained their vested status. As a result of this stock option repricing, the
Company cancelled a total of 780,000 stock options having exercise prices in
excess of the then market price of the Company's Common Stock and granted the
same number of new stock options at the aforementioned $0.90 exercise price per
share ($0.03 without taking into account the reverse stock split).

Pursuant to the Majority Consent of Stockholders dated February 8,
1996, the following directors each exchanged options to purchase 13,334 shares
of Common Stock, previously granted to each of them by the Company, for the
same number of options to be granted under the

65
<PAGE> 66
Directors Plan at a purchase price of $0.90 per share, with vesting schedules
substantially similar to the vesting schedules of the surrendered options:
Messrs. J. Paul Bagley, III; Anthony B. Fisher; David H. Hughes; Ralph D.
Ketchum; John D. McKey, Jr.; Donald C. Taylor and Thomas R. Thomsen. Mr.
Taylor has since waived his rights to such options.

During the two years preceding the date of this Prospectus, the
Company issued options to purchase its Common Stock to the following executive
officers in the amounts listed in parenthesis next to each executive officer's
name: Thomas R. Thomsen (413,334); David J. Cade (233,333); Dr. George F.
Ferment (233,334); Susan M. Gustafson (126,668); and William D. Walker
(33,334).

CERTAIN EMPLOYEE MATTERS

DESCRIPTION OF SECURITIES

Unless otherwise noted, the figures used in this "Description of
Securities" have been adjusted to reflect the effect of the Company's
one-for-thirty reverse stock split.

COMMON STOCK

The Company has 50,000,000 shares of authorized Common Stock, par
value $.01 per share, 16,052,319 shares of which were issued and outstanding as
of August 19, 1996. Each share of Common Stock entitles the holder to one vote
on all matters that are required or otherwise come before a vote of the
stockholders of the Company. The Common Stock carries no cumulative voting,
preemptive, conversion, redemption or similar rights. The shares of Common
Stock outstanding are fully paid and non-assessable and will share equally in
all dividends as, when and if declared by the Board of Directors out of funds
legally available therefor and any assets available to the Company's
stockholders upon liquidation. The Company has never paid any dividends and if
and when the Company has funds legally available therefor, it intends to invest
such available funds in the further development of the Company's business.

PREFERRED STOCK

The Company is authorized to issue up to 100,000 shares of preferred
stock, all of which is undesignated and may be divided and issued from time to
time in one or more series as may be designated by the Board of Directors from
time to time. In the event of liquidation,

66
<PAGE> 67
dissolution or winding up of the Company, the holders of the preferred stock
will be entitled to a liquidation preference over the Common Stock.

The preferred stock will be entitled to such dividends, redemption
rights, liquidation rights, conversion rights and voting rights as the Board of
Directors, in its discretion, may determine, in a resolution or resolutions
providing for the issuance of any such stock. No shares of preferred stock are
outstanding. Preferred stock can thus be issued without the vote of the
holders of Common Stock. Rights could be granted in the future to the holders
of preferred stock which could reduce the attractiveness of the Company as a
potential takeover target, make the removal of management more difficult, or
adversely impact the rights of holders of Common Stock.

The Board of Directors had originally designated 14,151 shares of such
undesignated preferred stock as Series B Convertible Preferred Stock, par value
$.01 per share (the "Series B Stock"), all of which was issued during 1994 and
all such shares have been converted into 754,720 shares of Common Stock as of
June 28, 1996 after giving effect to the Reverse Stock Split. Each share of
Series B Stock was convertible into 53.3334 shares of Common Stock. The Series
B Stock was not entitled to dividends, and carried no voting, preemptive,
redemption or similar rights.

The Board of Directors had designated 10,000 shares of such
undesignated preferred stock as Series C Convertible Preferred Stock, par value
$.01 per share (the "Series C Stock"), all of which was issued during 1994 and
all such shares have been converted into 83,334 shares of Common Stock as of
June 28, 1996 after giving effect to the Reverse Stock Split. Each share of
Series C Stock was convertible into 8.3334 shares of Common Stock. The Series
C Stock was not entitled to dividends, and carries no voting, preemptive,
redemption or similar rights.

MISCELLANEOUS

The Company is governed by the provisions of Section 203 of the
General Corporation Law of the State of Delaware. In general, Section 203
prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. "Business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the

67
<PAGE> 68
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.

MARKET PRICES

The Company's Common Stock is traded only in the over-the-counter
markets, and "bid" and "asked" price quotations of dealers who make a market in
the Common Stock are quoted in the OTC Bulletin Board. The Company's Common
Stock is traded under the symbol "LITH". The following table sets forth
certain information with respect to the high and low bid prices for the
Company's Common Stock as of the close of each of the four calendar quarters of
1994 and 1995 and the first two calendar quarters of 1996. Such quotations
reflect inter-dealer prices, without retail mark-ups, mark-downs or
commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
Bid Prices for Common Stock*
---------------------------

1996 High Low
---- ---- ---
<S> <C> <C>

Second Quarter $4.625 $2.125
First Quarter
February 8, 1996 to March 31, $5.56 $1.88
1996 --------------------------------
[*No adjustment has been made ]
[ to reflect the one-for-thirty ]
[ reverse stock split on ]
[ February 8, 1996. ]
--------------------------------
January 1, 1996 to February 7, $ .25 $ .05
1996

1995
----

Fourth Quarter $ .39 $.085
Third Quarter $ .14 $ .06
Second Quarter $ .11 $ .03
First Quarter $ .13 $ .03

1994
----

Fourth Quarter $ .19 $ .03
Third Quarter $ .22 $ .05
Second Quarter $ .20 $ .10
First Quarter $ .28 $ .06
</TABLE>

As of August 16, 1996, there were approximately 596 holders of record
of the Company's Common Stock.

68
<PAGE> 69
DIVIDEND POLICY

The Company has never paid cash dividends on its Common Stock and does
not presently anticipate paying cash dividends in the foreseeable future. It
is anticipated that earnings, if any, will be retained for use in the business
of the Company for an indefinite period. Payments of dividends in the future,
if any, will depend, among other things, on the Company's ability to generate
earnings, its need for capital, and its financial condition. Additionally, the
Company's ability to pay dividends is limited by applicable state law.
Declaration of dividends in the future will remain within the discretion of the
Company's Board of Directors which will review its dividend policy from time to
time.

TRANSFER AGENT

The transfer agent for the Company's Common Stock is StockTrans, Inc.,
7 E. Lancaster Avenue, Ardmore, Pennsylvania 19003. The transfer agent's phone
numbers are (610) 649-7300 and (800) 733-1121.

LEGAL MATTERS

Mason, Briody, Gallagher & Taylor, 104 Carnegie Center, Suite 201,
Princeton, New Jersey 08540, counsel to the Company, will render an opinion
with respect to the valid issuance and non-assessability of the Shares.

EXPERTS

The financial statements for the years ended December 31, 1995 and
1994 included in this Prospectus have been audited by Wiss & Company, LLP,
independent certified public accountants, and have been so included in
reliance upon the reports given upon the authority of that firm as experts in
auditing and accounting.

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES

There are no indemnification provisions for directors, officers or
controlling persons of the Company against liability under the Securities Act
of 1933. However, as permitted by Section 145 of the Delaware General
Corporation Law (the "DGCL"), Article V of the Company's By-laws provides for
the indemnification of an "authorized representative" of the Company (a)
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person, by reason of the fact that such person was
or is an authorized representative of the Company, in connection with a
threatened, pending or completed third party proceeding, whether civil or
criminal, administrative or investigative, if such

69
<PAGE> 70
individual acted in good faith and in a manner such person reasonably believed
to be in, or not opposed to, the best interests of the Company, and, if the
action was a criminal proceeding, if such person had no reasonable cause to
believe that such person's conduct was unlawful; and (b) against expenses
actually and reasonably incurred by such person in connection with the defense
or settlement of a threatened, pending or completed corporate proceeding, by
reason of the fact such person was or is an authorized representative of the
Company, if such person acted under the standards set froth in section (a)
above and if such person was not found liable to the Company (or if so found
liable, if a proper court found such person to be fairly and reasonably
entitled to indemnification). The Company's By-laws further provide for
mandatory indemnification of authorized representatives of the Company who have
been successful in defense of any third party or corporate proceeding or in
defense of any claim, issue or matter therein, against expenses actually and
reasonably incurred in connection with such defense. An "authorized
representative" of the Company includes a director, employee or agent of the
Company, or a person serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.

In addition, Article Ninth of the Company's Certificate of
Incorporation provides that, to the full extent that the DGCL permits the
limitation or elimination of the liability of directors or officers of a
corporation, directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages. As a result of this
provision, the Company and its stockholders may be unable to obtain monetary
damages from a director for breach of his duty of care. Although stockholders
may continue to seek injunctive or other equitable relief for an alleged breach
of fiduciary duty by a director, stockholders may not have any effective remedy
against the challenged conduct if equitable remedies are unavailable.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted against the Company by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

70
<PAGE> 71
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report F-2

Consolidated Financial Statements (December 31, 1995):

Consolidated Balance Sheets at December 31, 1995 F-3

Consolidated Statements of Operations for the Years Ended December 31, 1995
and 1994 and the Period from July 21, 1989 (Date of Inception)
to December 31, 1995 F-4

Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
for the Years Ended December 31, 1995 and 1994 F-5

Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995 and 1994 and the Period from July 21,
1989 (Date of Inception) to December 31, 1995 F-6

Notes to Consolidated Financial Statements F-7 to F-19

Consolidated Financial Statements (Unaudited) (June 30, 1996):

Consolidated Balance Sheets - June 30, 1996 (Unaudited) and
December 31, 1995 F-20

Consolidated Statements of Operations - Six Months Ended June 30,
1996 and 1995, and Period from July 21, 1989 (Date of Inception) to
June 30, 1996 (Unaudited) F-21

Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) - Six Months Ended June 30, 1996 (Unaudited) F-22

Consolidated Statements of Cash Flows - Six Months ended June 30,
1996 and 1995 and Period from July 21, 1989 (Date of Inception) to
June 30, 1996 (Unaudited) F-23

Notes to Consolidated Financial Statements - June 30, 1996 (Unaudited) F-24 to F-29
</TABLE>

F-1

<PAGE> 72

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Lithium Technology Corporation and Subsidiary
(Development Stage Companies)

We have audited the consolidated balance sheet of Lithium Technology
Corporation and subsidiary (Development Stage Companies) as of December 31,
1995, the related consolidated statements of operations and cash flows for the
years ended December 31, 1995 and 1994 and for the period July 21, 1989 (date
of inception) to December 31, 1995, and the related consolidated statements of
changes in stockholders' equity (deficit) for the years ended December 31, 1995
and 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lithium
Technology Corporation and subsidiary (Development Stage Companies) as of
December 31, 1995 and the results of their operations and their cash flows for
the years ended December 31, 1995 and 1994 and for the period July 21, 1989
(date of inception) to December 31, 1995 in conformity with generally accepted
accounting principles.

WISS & COMPANY, LLP

Livingston, New Jersey
March 12, 1996, except as to Note 8
for which the date is March 29, 1996

F-2
<PAGE> 73
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995

<TABLE>
<S> <C> <C>
ASSETS

CURRENT ASSETS:
Cash and equivalents $ 217,000
Prepaid expenses and other current assets 54,000
-----------
Total Current Assets $ 271,000

PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $177,000 653,000

OTHER ASSETS:
Restricted cash 47,000
Debt issue costs, less accumulated amortization of $100,000 174,000
Security deposits 20,000
-----------
241,000
------------
$ 1,165,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
12% convertible promissory notes $ 1,284,000
Accounts payable 891,000
Due to related parties 327,000
Accrued salaries 155,000
-----------
Total Current Liabilities $ 2,657,000

7% CONVERTIBLE PROMISSORY NOTES, DUE DECEMBER 1999 300,000
------------
Total Liabilities 2,957,000
------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIENCY):
Undesignated preferred stock:
Authorized 75,849 shares, issued and outstanding - none -
Series B convertible preferred stock, par value $.01 per share:
Authorized 14,151 shares, issued and outstanding - 6,942 shares -
Series C convertible preferred stock, par value $.01 per share:
Authorized 10,000 shares, issued and outstanding 10,000 shares -
Common stock, par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 7,543,000 shares 75,000
Additional paid-in capital 11,471,000
Accumulated deficit (6,865,000)
Deficit accumulated during development stage (6,473,000)
-----------
Total Stockholders' Equity (Deficiency) (1,792,000)
------------
$ 1,165,000
============
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 74
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Period From
July 21, 1989
Year Ended (Date of
December 31, Inception) to
------------------------------------ December 31,
1995 1994 1995
----------------- ----------------- ------------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Engineering, research and development $ 1,080,000 $ 505,000 $ 2,634,000
General and administrative 1,307,000 1,617,000 3,743,000
Interest expense, net of interest income of $13,000
(1995) and $10,000 (1994) 85,000 11,000 96,000
------------- ------------ -----------
2,472,000 2,133,000 6,473,000
------------- ------------ -----------

NET LOSS $ (2,472,000) $ (2,133,000) $(6,473,000)
============= ============ ===========

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,923,000 5,961,000
============= ============

NET LOSS PER SHARE $(.36) $ (.36)
====== ========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 75
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
SERIES B SERIES C
CONVERTIBLE PREFERRED STOCK CONVERTIBLE PREFERRED STOCK
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993 - $ - - $ -

YEAR ENDED DECEMBER 31, 1994:
Change in par value of Class B common
stock to $.0001 - - - -
Issuance of common stock:
For services relating to warrants
exercised in 1995 - - - -
Upon cancellation of indebtedness - - - -
In exchange for advances repayable
only out of proceeds of public
offering - - - -
Upon exercise of option - - - -
For cash, less related costs of $152,000 - - - -
Upon conversion of $162,000 of 7%
convertible promissory notes and
accrued interest thereon - - - -
Upon exercise of option to acquire
laboratory equipment and forgiveness
of related accrued rent - - - -
Upon conversion of preferred stock (815) - - -
Issuance of convertible preferred stock:
In exchange for convertible
promissory notes 14,151 - - -
For cash - - 10,000 -
Net loss - - - -
------------ ------------ ------------ -------------

BALANCES AT DECEMBER 31, 1994 13,336 - 10,000 -

YEAR ENDED DECEMBER 31, 1995:
Issuance of common stock:
Upon conversion of convertible
preferred stock (6,394) - - -
Upon conversion of 7% convertible
promissory notes and accrued interest
thereon - - - -
Upon exercise of warrants - - - -
Recapitalization of common stock
(Note 7) - - -
Net loss - - - -
------------ ------------ ------------ -------------

BALANCES AT DECEMBER 31, 1995 6,942 $ - 10,000 $ -
============ ============ ============ =============
</TABLE>

<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
----------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993 3,333,000 $ 10,000 1,887,000 $ 3,000

YEAR ENDED DECEMBER 31, 1994:
Change in par value of Class B common
stock to $.0001 - - - 3,000
Issuance of common stock:
For services relating to warrants
exercised in 1995 - - 22,000 -
Upon cancellation of indebtedness - - 78,000 -
In exchange for advances repayable
only out of proceeds of public
offering - - 133,000 -
Upon exercise of option - - 17,000 -
For cash, less related costs of $152,000 - 907,000 3,000
Upon conversion of $162,000 of 7%
convertible promissory notes and
accrued interest thereon - - 79,000 -

Upon exercise of option to acquire
laboratory equipment and forgiveness
of related accrued rent - - 83,000 1,000
Upon conversion of preferred stock - - 43,000 -
Issuance of convertible preferred stock:
In exchange for convertible
promissory notes - - - -
For cash - - - -
Net loss - - - -
------------ ---------- -------------- --------------
BALANCES AT DECEMBER 31, 1994 3,333,000 10,000 3,249,000 10,000

YEAR ENDED DECEMBER 31, 1995:
Issuance of common stock:
Upon conversion of convertible
preferred stock - - 341,000 1,000
Upon conversion of 7% convertible
promissory notes and accrued interest
thereon - - 500,000 1,000
Upon exercise of warrants - - 120,000 1,000
Recapitalization of common stock
(Note 7) (3,333,000) (10,000) (4,210,000) (13,000)
Net loss - - - -
------------ ---------- -------------- --------------

BALANCES AT DECEMBER 31, 1995 - $ - - $ -
============ ========== ============== ==============
</TABLE>

Common Stock Additional
----------------------------- Paid-In
Shares Amount Capital
------------ -------------- --------------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993 - $ - $7,386,000

YEAR ENDED DECEMBER 31, 1994:
Change in par value of Class B common
stock to $.0001 - - (3,000)
Issuance of common stock:
For services relating to warrants
exercised in 1995 - - 88,000
Upon cancellation of indebtedness - 445,000
In exchange for advances repayable
only out of proceeds of public
offering - - 471,000
Upon exercise of option - - 8,000
For cash, less related costs of $152,000 - - 933,000
Upon conversion of $162,000 of 7%
convertible promissory notes and
accrued interest thereon - - 165,000
Upon exercise of option to acquire
laboratory equipment and forgiveness
of related accrued rent - - 271,000
Upon conversion of preferred stock - - -
Issuance of convertible preferred stock:
In exchange for convertible
promissory notes - - 356,000
For cash - - 100,000
Net loss - - -
------------ -------------- --------------
BALANCES AT DECEMBER 31, 1994 - - 10,220,000

YEAR ENDED DECEMBER 31, 1995:
Issuance of common stock:
Upon conversion of convertible
preferred stock - - (1,000)
Upon conversion of 7% convertible
promissory notes and accrued interest
thereon - - 1,050,000
Upon exercise of warrants - - 254,000
Recapitalization of common stock
(Note 7) 7,543,000 75,000 (52,000)
Net loss - - -
------------ -------------- --------------

BALANCES AT DECEMBER 31, 1995 7,543,000 $ 75,000 $11,471,000
============ ============== ==============
</TABLE>

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING
ACCUMULATED DEVELOPMENT
DEFICIT STAGE
--------------- --------------
<S> <C> <C>
BALANCES AT DECEMBER 31, 1993 $(6,865,000) $(1,868,000)

YEAR ENDED DECEMBER 31, 1994:
Change in par value of Class B common
stock to $.0001 - -
Issuance of common stock:
For services relating to warrants
exercised in 1995 - -
Upon cancellation of indebtedness - -
In exchange for advances repayable
only out of proceeds of public
offering - -
Upon exercise of option - -
For cash, less related costs of $152,000 - -
Upon conversion of $162,000 of 7%
convertible promissory notes and
accrued interest thereon - -
Upon exercise of option to acquire
laboratory equipment and forgiveness
of related accrued rent - -
Upon conversion of preferred stock - -
Issuance of convertible preferred stock:
In exchange for convertible
promissory notes - -
For cash - -
Net loss - (2,133,000)
--------------- --------------
BALANCES AT DECEMBER 31, 1994 (6,865,000) (4,001,000)

YEAR ENDED DECEMBER 31, 1995:
Issuance of common stock:
Upon conversion of convertible
preferred stock - -
Upon conversion of 7% convertible
promissory notes and accrued interest
thereon - -
Upon exercise of warrants - -
Recapitalization of common stock
(Note 7) - -
Net loss - (2,472,000)
--------------- --------------

BALANCES AT DECEMBER 31, 1995 $(6,865,000) $(6,473,000)
=============== ==============
</TABLE>

See notes to consolidated financial statements.

F-5

<PAGE> 76
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
JULY 21, 1989
YEAR ENDED (DATE OF
DECEMBER 31, INCEPTION) TO
------------------------------------ DECEMBER 31,
1995 1994 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,472,000) $ (2,133,000) $ (7,102,000)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation 167,000 10,000 177,000
Amortization of debt issue costs 179,000 66,000 245,000
Other - 25,000 25,000
Loss from discontinued operations - - 629,000
Fair value of warrants and option granted for services
rendered - 38,000
Common stock of the Company issued to certain
employees for services provided to Industries - - 106,000
Expenses paid by shareholder on behalf of Company - - 79,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (30,000) (24,000) (49,000)
Security deposits - (20,000) (20,000)
Accounts payable and accrued expenses 94,000 589,000 1,333,000
Due to related parties 160,000 167,000 209,000
--------------- --------------- ----------------
Net cash provided by (used in) operating
activities (1,902,000) (1,320,000) (4,330,000)
--------------- --------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - (580,000) (580,000)
Restricted cash 183,000 (230,000) (47,000)
Net advances from (to) discontinued operations - - 94,000
--------------- --------------- ----------------
Net cash provided by (used in) investing
activities 183,000 (810,000) (533,000)
--------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances repayable only out of proceeds of public offering - - 471,000
Proceeds received upon issuance of common stock - 936,000 1,032,000
Proceeds received from issuance of preferred stock - 100,000 100,000
Proceeds received upon exercise of warrants, net of costs 343,000 8,000 472,000
Net advances by former principal stockholder - - 321,000
Proceeds from sale of convertible debt 1,760,000 1,027,000 3,108,000
Debt issue costs (273,000) (99,000) (419,000)
--------------- --------------- ----------------
Net cash provided by financing activities 1,830,000 1,972,000 5,085,000
--------------- --------------- ----------------

NET CHANGE IN CASH AND EQUIVALENTS 111,000 (158,000) 222,000

CASH AND EQUIVALENTS, BEGINNING OF YEAR 106,000 264,000 -
--------------- --------------- ----------------

CASH AND EQUIVALENTS, END OF YEAR $ 217,000 $ 106,000 $ 222,000
=============== =============== ================

SUPPLEMENTAL CASH FLOW INFORMATION:
Contribution to capital by former principal stockholder $ - $ - $ 3,659,000
=============== =============== ================
Related party debt exchanged for convertible debt $ - $ - $ 321,000
=============== =============== ================
Exchange of indebtedness to former principal
stockholder for common stock $ - $ 445,000 $ 445,000
=============== =============== ================
Issuance of common stock for services $ - $ 88,000 $ 88,000
=============== =============== ================
Exchange of equipment and accrued rent for common stock $ - $ 271,000 $ 271,000
=============== =============== ================
Subordinated notes and related accrued interest
exchanged for Series A preferred stock $ - $ - $ 3,300,000
=============== =============== ================
Exchange of convertible debt for convertible preferred stock $ - $ 356,000 $ 356,000
=============== =============== ================
Conversion of convertible debt and accrued interest
into common stock $ 1,051,000 $ 165,000 $ 1,215,000
=============== =============== ================
Exchange of advances repayable only out of
proceeds of public offering for common stock $ - $ 471,000 $ 471,000
=============== =============== ================
Deferred offering costs on warrants exercised $ 88,000 $ - $ 88,000
=============== =============== ================
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 77
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - HISTORY OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:

Lithium Technology Corporation ("LTC") and its wholly-owned
subsidiary, Lithion Corporation ("Lithion"), collectively
referred to as the "Company", are development stage companies
in the process of commercializing a unique, solid-state,
lithium-polymer rechargeable battery, and are engaged in
research, development and engineering activities to further
develop and exploit this battery technology and hold various
patents relating to such batteries. The Company believes that
its battery technology, which is currently in the
pre-prototype development phase, is capable of providing four
to six times the performance of current rechargeable
batteries. The Company's objective is the commercialization
of such technology, inclusive of moving from laboratory scale
product prototypes and related prototype processes to full
scale market introduction, achieving cost competitiveness, and
constructing a manufacturing plant. The Company's
commercialization focus is on the rapidly growing portable
electronics market segment (notebook and palmtop computers and
wireless communications devices).

The Company has generated no revenues and has no commercial
operations to date. The Company has been unprofitable since
inception and expects to incur substantial additional
operating losses over the next several years. The Company
does not expect to generate any revenues from operations
during the fiscal year ending December 31, 1996.

Effective February 1996, the Company's then majority
stockholder approved a merger agreement pursuant to which the
Company, a Nevada Corporation, merged with a newly formed
Delaware corporation in order to reincorporate the Company as
a Delaware corporation and effectuate a recapitalization,
principally the reverse stock split (see Note 7).

ESTIMATES AND UNCERTAINTIES - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results, as determined at a later date, could
differ from those estimates.

FINANCIAL INSTRUMENTS - Financial instruments include cash,
other assets, accounts payable and promissory notes payable.
The amounts reported for financial instruments are considered
to be reasonable approximations of their fair values. The fair
value estimates presented herein were based on market
information available to management. The use of different
market

F-7
<PAGE> 78
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

assumptions and/or estimation methodologies could have a
material effect on the estimated fair value amounts.

CONSOLIDATION - As indicated above, the consolidated financial
statements include the accounts of LTC and Lithion. All
significant intercompany accounts and transactions have been
eliminated.

CASH AND EQUIVALENTS - The Company considers all highly liquid
debt instruments purchased with a maturity of three months or
less to be cash equivalents.

PROPERTY AND EQUIPMENT - Property and equipment are recorded
at cost. Furniture and fixtures, computer equipment and
software and laboratory equipment are depreciated primarily
using the straight-line method over their estimated useful
lives of 3 to 7 years. Leasehold improvements are amortized
over the period of the respective lease using the
straight-line method.

CONCENTRATION OF CREDIT RISK - The Company maintains its cash
balances in several financial institutions. The accounts at
each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 1995, uninsured
balances were approximately $24,000. In addition, the Company
has a money market account in a non-financial institution
totalling approximately $47,000 at December 31, 1995.

DEBT ISSUE COSTS - Costs related to the issuance of
convertible promissory notes are capitalized. Such costs are
amortized over the term of the related debt.

ENGINEERING, RESEARCH AND DEVELOPMENT - Costs related to new
product development and improvement or support of existing
products are expensed as incurred.

INCOME TAXES - Deferred tax assets and liabilities are
computed annually for temporary differences between the
financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the
periods in which the temporary differences are expected to
affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount
expected to be realized.

NET INCOME (LOSS) PER COMMON SHARE - Net income (loss) per
common share is based upon the weighted average number of
outstanding common shares. The shares issuable upon the
exercise of outstanding warrants and options have been
excluded since the assumed conversion would be antidilutive
due to net losses for all periods presented.

F-8
<PAGE> 79
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NEW ACCOUNTING PRONOUNCEMENTS - Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires that certain long-lived assets be reviewed for
possible impairment and written down to fair value, if
appropriate. The Company will adopt this new pronouncement in
1996 and the impact of adoption is not expected to have a
material effect on the Company's financial statements.

Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," requires companies
to measure employee stock compensation plans based on the fair
value method of accounting. However, the statement allows the
alternative of continued use of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees,"
with pro forma disclosure of net income and earnings per share
determined as if the fair value based method had been applied
in measuring compensation cost. The Company has not yet
determined if it will adopt this new pronouncement in 1996 or
provide only proforma disclosure. The effects of this new
pronouncement, if adopted, have not been determined.

Statements of Financial Accounting Standards (SFAS No. 106)
"Employers' Accounting for Post-Retirement Benefits Other Than
Pensions" and (SFAS No. 112) "Employers' Accounting for
Post-employment Benefits" were issued in December 1990 and
November 1992, respectively. SFAS 106 requires the accrual of
post retirement benefits (principally post-retirement health
care benefits) as a form of deferred compensation rather than
recognizing such benefits when paid. SFAS 112 requires the
accrual of certain benefits to be paid to former or inactive
employees when they leave the Company other than by reason of
retirement, such as salary continuation, severance benefits
and continuation of benefits such as life insurance coverage.
The Company presently has no benefit plans that would be
subject to these standards.

NOTE 2 - OPERATING AND LIQUIDITY DIFFICULTIES AND MANAGEMENT'S PLANS TO
OVERCOME :

The Company has been unprofitable since inception and expects
to incur substantial additional operating losses over the next
several years. The Company has generated no revenues nor has
it had any commercial operations to date and does not expect
to generate any revenues from operations during 1996.

The Company has experienced liquidity difficulties since
inception and in order to continue the development of the
Company's technology, needs significant additional financing.
The Company has financed its operations since December 1993
with the proceeds from the sale of convertible debt and
private placements of common and preferred stock.

F-9
<PAGE> 80
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT'S PLANS - During 1994, the Company recruited a new
management team and a core technical staff with needed
commercialization and battery technology expertise. The staff
has expertise in technology, commercialization, process
development, battery engineering and strategic alliance
development. A modern research facility was leased and
product development commenced. The Company's operating
results to date are solely attributable to research and
development activities and general and administrative
expenses.

Management's operating plan seeks to minimize the Company's
capital requirements, but commercialization of the Company's
battery technology will require substantial amounts of
additional capital. The Company expects that research and
development expenses will increase significantly as it
continues to advance its battery technology and develop
products for commercial applications. The Company's working
capital and capital requirements will depend upon numerous
factors, including, without limitation, the progress of the
Company's research and development program, the levels and
resources that the Company devotes to the development of
manufacturing and marketing capability, technological
advances, the status of competitors and the ability of the
Company to establish collaborative arrangements with other
companies to provide research and development funding to the
Company and to manufacture and market the Company's products.

The Company raised approximately $1,830,000 (1995) and
$1,972,000 (1994) through the sale of convertible debt and
common and preferred stock. The Company raised an additional
$500,000 in January 1996 through the sale of convertible debt.
In March 1996, the Company sold a 4% equity position to a
Japanese Consortium for approximately $2,400,000 (see Note 8).
As a result, the Company believes that it has sufficient
capital resources to meet the Company's needs and satisfy the
Company's obligations for the next twelve months, based on the
Company's current strategies.

There can be no assurance that the capital needed for
attaining commercial viability of the Company's battery
technology will continue to be obtained, which the Company
currently estimates at $15 to 20 million. If the Company is
unable to raise sufficient capital, it will be forced to
curtail research and development expenditures which, in turn,
will delay, and could prevent, the completion of the
commercialization process.

Reference should be made to "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
included elsewhere herein for additional information.

F-10
<PAGE> 81
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - PROPERTY AND EQUIPMENT:

Property and equipment at December 31, 1995 is summarized as
follows:

<TABLE>
<S> <C>
Laboratory equipment $714,000
Furniture and fixtures 80,000
Leasehold improvements 36,000
--------
830,000
Less: Accumulated depreciation and
amortization 177,000
--------

$653,000
========
</TABLE>

NOTE 4 - RELATED PARTY TRANSACTIONS:

The Company previously engaged in a number of transactions
with the former majority stockholders of the Company. These
transactions, including advances, patent agreements, leases
and other arrangements, were carried out under terms and
conditions which have varied during the periods presented.
Such terms and conditions may not have been the same as those
which would have resulted from transactions among unrelated
parties

LEASES - From 1989 through 1994, the Company had leased
equipment related to battery research and development from
Henry Hope (and from his Estate) and had leased a research
laboratory in Willow Grove, Pennsylvania from Stephen Hope and
other members of his family. The Hopes were the former
principal stockholders of the Company. Pursuant to an
agreement with the Company entered into as of May 1994,
Stephen Hope and the Estate of Henry Hope terminated the
equipment lease and the real property lease and granted to the
Company a purchase option with respect to all or part of such
equipment. The Company exercised such option with respect to
the designated equipment and the leases were terminated in
December 1994. Upon the consummation of such purchase, the
Company issued 83,334 shares of common stock for such
equipment having an independent appraised value of $250,000.
In addition, Stephen Hope agreed to waive any claims to
accrued rent with respect to the equipment and property
leases.

Rent accrued under the above leases totalled $22,000 during
the year ended December 31, 1994.

AGREEMENT WITH FORMER PRINCIPAL STOCKHOLDER - Through December
31, 1993, the Company had received net advances of
approximately $445,000 from its former principal stockholder,
Stephen Hope. In December 1993,

F-11
<PAGE> 82
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stephen Hope exchanged $321,000 of this indebtedness (see Note
7) for convertible promissory notes of the Company,
convertible into approximately 642,000 shares of the Company's
common stock. In May 1994, the Company and Stephen Hope
agreed to the cancellation of the $321,000 convertible
promissory note, the surrender of the conversion right
included in the promissory note and the conversion of the
remaining amount due from the Company ($124,000) into 100,000
shares of common stock. Such agreement was subsequently
amended to provide for the issuance of 78,167 shares of common
stock and also provided for the cancellation of certain leases
and the execution of a new lease relating to certain
laboratory equipment then owned by Stephen Hope (see above).

CONSULTING AGREEMENTS - The Company entered into a consulting
agreement with Stephen Hope in December 1993, effective
January 1994. The agreement provided for annual compensation
of $50,000 for consulting services in connection with the
battery technology for a period to be determined by the
Company's Board of Directors and only if the Board determines
his services to be necessary. Upon the Company's raising of
sufficient additional capital, annual compensation was to be
increased to $150,000. The Company paid $44,000 to Stephen
Hope during 1994 pursuant to this agreement. No payments were
made during 1995.

During 1994, the Company had a consulting agreement with an
investment banking firm, whose former Executive Vice-President
was a former Director of the Company. The investment banking
firm acted as the Company's financial consultant providing
advisory services with respect to raising capital, developing
an alliance strategy, resolving outstanding obligations of the
Company for periods prior to 1994 and recruiting key
executives for the Company. The investment banking firm
provided services totalling $21,000 (1995) and $143,000 (1994)
for consulting, $119,000 related to the 1994 sale of 906,667
shares of common stock to private investors and $99,000
related to the sale of its 7% convertible promissory notes.
Amounts unpaid at December 31, 1995 and 1994 totalled $114,000
and $167,000, respectively. In addition, the Company paid
$35,000 to the investment banking firm prior to 1994 relating
to the sale of $356,000 of convertible promissory notes. The
firm also received five year warrants to acquire up to 6.75%
(on a fully-diluted basis) of the Company's common stock
outstanding. In April 1995, the Company terminated its
relationship with the investment banking firm. In September
1995, the Executive Vice President of the investment banking
firm resigned as a Director of the Company. See "Legal
Proceedings" included elsewhere herein and Note 6 -
"Contingencies" for information regarding certain claims filed
against the Company.

In connection with assisting the Company in its efforts in
1995 to restructure its finances, a consultant, who is a
director of the Company, and a corporation,

F-12
<PAGE> 83
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

whose principal stockholder is a director of the Company,
earned consulting fees of $119,000 and $206,000, respectively,
of which a total of $171,000 remains unpaid at December 31,
1995.

NOTE 5 - INCOME TAXES:

Deferred income taxes reflect the net effects of temporary
differences between the amounts of assets and liabilities for
financial reporting purposes and the amounts used for income
tax purposes. The principal temporary difference arises from
the net operating loss carryforwards and results in a deferred
tax asset of approximately $2,444,000 at December 31, 1995 and
$1,432,000 at December 31, 1994.

A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax asset will not be
realized. The Company has determined, based on its recurring
net losses, lack of a commercially viable product and it being
a development stage company, that a full valuation allowance
is appropriate at December 31, 1995 and 1994.

A reconciliation of the provision (benefit) for income taxes
computed at the federal statutory rate of 34% and the
effective tax rate of income (loss) before income taxes is as
follows:

<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------
1995 1994
----------- ---------
<S> <C> <C>
Computed tax on net loss at federal
statutory rate $ (840,000) $(725,000)

State income taxes, net of federal
income tax benefits (200,000) (172,000)

Tax effect of net operating losses not
currently usable 1,040,000 897,000
----------- ---------
Provision (benefit) for income taxes $ - $ -
=========== =========
</TABLE>

At December 31, 1995, the Company had net operating loss
carryforwards of approximately $5,819,000 expiring in the
years 2004 through 2010.

Current tax law limits the use of net operating loss
carryforwards after there has been a substantial change in
ownership (as defined) during a three year period. Because of
the possible future changes in common stock, the use of the
Company's net operating loss carryforwards may be subject to
an annual limitation. To the extent amounts available under
the annual limitation are not

F-13
<PAGE> 84
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

used, they may be carried forward for the remainder of 15
years from the year the losses were originally incurred.

NOTE 6 - COMMITMENTS AND CONTINGENCIES:

LEASES - The Company leases its principal operating facility
from an unrelated party providing for annual rent of $122,400
through November 1999 and contains an option to renew for an
additional 5 years.

EMPLOYMENT AGREEMENTS - In February 1994, the Company entered
into a five year employment agreement with its former
President/Chief Executive Officer. The agreement provided
for, among other things, annual compensation, bonuses and
stock options. Effective August 1995, the President/Chief
Executive Officer resigned, received $185,000, and waived all
claims against the Company for back pay and accrued bonuses.

The Company also has a four year employment agreement with its
Director of Research providing for annual compensation of
$125,000 through January 1998.

In addition, the Company has two separate letter agreements,
by which it employs its Director of Technology Development and
its Vice-President of Marketing. The agreements provide for
total annual compensation of $245,000 with annual bonuses as
determined by the Company's Board of Directors.

See Note 7 for information on certain stock options issued in
connection with the employment agreements.

LEGAL PROCEEDINGS -There is presently pending litigation in
the United States District court of the Southern District of
New York against the Company instituted by the investment
banking firm described in Note 4 (and a former principal of
the firm) that allegedly provided services to the Company.
Such action was instituted on February 7, 1996. The complaint
alleges monetary damages relating to certain warrants of the
Company that have not been registered and to which he claims
entitlement and also alleges entitlement to compensation for
services allegedly rendered to the Company. This action is in
discovery and the Company is vigorously defending this matter.
The Company is also contesting the issuance of these warrants
and raising other applicable defenses and claims.

NOTE 7 - STOCKHOLDERS' EQUITY:

MERGER AND REVERSE STOCK SPLIT - Pursuant to the January 1996
merger, as described in Note 1, the Company's existing Class A
and Class B common stock

F-14
<PAGE> 85
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

were combined into a single new class of common stock (the
"New Common Stock"). Each 30 outstanding shares of Class A
and Class B common stock were automatically converted into one
share of New Common Stock, each share of which has one vote.
In addition, each outstanding share of Series B and Series C
Convertible Preferred Stock was automatically converted into
one share of newly issued Series B Convertible Preferred Stock
and Series C Convertible Preferred Stock, respectively. Such
recapitalization has been reflected in the accompanying
consolidated financial statements as if it had occurred on
December 31, 1995. Retroactive effect has been given to the
weighted average number of shares outstanding for purposes of
computing net loss per share.

COMMON AND PREFERRED STOCK - On all matters that are required
or otherwise came before a vote of the stockholders prior to
the merger as described above, each share of Class B common
stock had one vote and each share of Class A common stock had
three votes.

In July 1989, 697,000 shares of the Company's common stock
were sold for $8,000 and the Company received an interest-free
advance of $792,000 from a financial consultant who provided
services to the Company, including introducing Lithion to the
Company. In June 1994 and as amended in October 1994, the
Company agreed to issue 133,333 shares of common stock to this
financial consultant in exchange for the remaining balance of
the $471,000 advance. In November 1994, the Company issued
21,833 shares of its common stock to this consultant in
exchange for services provided relating to warrants exercised.

Each share of Series C preferred stock is convertible into
8.33 shares of common stock (total of 83,333 shares issuable).
The Series C preferred stock is not entitled to dividends and
carries no voting, preemptive, redemption or similar rights.

In January 1996, the Company revised its authorized shares of
common stock to 50,000,000 and its preferred stock to 100,000,
respectively, and changed the par value of its common stock
from $.0001 to $.01 per share.

CONVERTIBLE DEBT - In December 1993 and January 1994, the
Company sold 6% convertible promissory notes totalling
$677,000 of which $321,000 was issued in exchange for other
Company indebtedness owed to the Hopes. In June 1994, the
holders of $356,000 of these convertible promissory notes
agreed to exchange such notes for shares of the Company's
Series B convertible preferred stock. Each share of Series B
preferred stock is convertible into approximately 53 shares of
the Company's common stock. During December 1994 through
December 1995, approximately 7,200 shares of the preferred

F-15
<PAGE> 86
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

stock were converted into approximately 384,000 shares of the
Company's common stock.

During September 1994 through April 1995, the Company sold 7%
convertible promissory notes totalling approximately
$1,468,000. A total of up to approximately 699,000 shares of
the Company's common stock may be issued upon conversion of
these notes. Through December 1995, promissory notes
totalling approximately $1,168,000 were converted to 577,967
shares of common stock, together with related accrued interest
of $48,000. The remaining $300,000 of these promissory notes
were converted to 152,038 shares of common stock in January
1996.

During August through October 1995, the Company issued and
sold to a group of private investors, including certain
Directors and an officer, an aggregate principal amount of
$1,000,000 convertible promissory notes. Such notes bear
interest at 12% per annum, mature on August 3, 1996 and are
convertible into an aggregate of 30% of the then outstanding
common stock of the Company on a fully diluted basis. Such
notes, and related accrued interest, were converted into
5,617,492 shares of common stock in connection with the
Company's March 1996 transaction with the Japanese Consortium
(see Note 8).

The Company also issued and sold to a group of private
investors, including certain Directors and an officer, an
aggregate principal amount of $800,000 in convertible
promissory notes in December 1995 ($284,000) and January 1996
($516,000). Such notes bear interest at 12% per annum, mature
on November 30, 1996 and are convertible into 1,333,333 shares
of the Company's common stock. The shares to be issued upon
conversion may be adjusted for any additional stock issuances
by the Company due to antidilutive provisions. Such notes,
and related accrued interest, were converted into 1,385,954
shares of common stock in connection with the Company's March
1996 transaction with the Japanese Consortium (see Note 8).

STOCK INCENTIVE PLAN - The Company's Board of Directors
adopted the 1994 Stock Incentive Plan (the "1994 Stock Plan")
in February. The purpose of the 1994 Stock Plan is to aid the
Company in attracting, retaining and motivating officers, key
employees, consultants and other advisors of the Company by
providing them with incentives for making significant
contributions to the growth, profitability and success of the
Company. The 1994 Stock Plan shall terminate ten years after
its initial effective date, unless terminated earlier by the
Board of Directors. A total of 1,333,333 shares of common
stock shall be reserved and available for grants. Shares
available for issuance under the 1994 Stock Plan were
increased to 2,666,667 pursuant to a Plan amendment adopted by
the Company's Board of Directors in December 1995. Stock
options permitting the holder to purchase a specified number
of shares of common stock will be granted at an exercise price
not less than 100% of the

F-16
<PAGE> 87
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

fair value of such stock on the date of grant. The stock
options may be in the form of an incentive stock option or a
non-qualified stock option. Options granted will be cancelled
immediately upon termination of the grantee's employment or
association with the Company, except in certain situations
such as retirement, death or disability.

In February 1994, pursuant to the 1994 Stock Plan, the Company
granted to the former President/Chief Executive Officer a
ten-year non-qualified stock option to purchase an aggregate
of 522,020 shares of common stock at an exercise price of $.50
per share. Upon the resignation of the President/Chief
Executive Officer in August 1995, approximately 386,645
options have vested and the expiration date of such options
was extended until 90 days following the registration of the
underlying shares on a Form S-8 Registration Statement. Such
registration statement has not yet been filed.

STOCK OPTION REPRICING - In September 1995, the Board of
Directors approved the exchange of options held by each
employee (including executive officers) under the Company's
Stock Plan for new options. The new options provide for an
exercise price of $0.03 per share, the then estimated fair
market value of the common stock. The Board of Directors
determined such change to be appropriate in order to sustain
the incentivization of all of its employees. As a condition
for such repricing, such new options do not become exercisable
until the later of July 1, 1996 or the original vesting
schedule of such options. As a result of this stock options
repricing, the Company cancelled a total of 780,000 stock
options and granted the same number of new stock options at
the aforementioned $.03 exercise price per share. Such
exercise price was adjusted to $.90 per share, pursuant to the
reverse stock split.

Options under the 1994 Stock Plan are summarized as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1995 1994
-------------- -------------
<S> <C> <C>
Options outstanding, beginning of year 816,000 -

Options granted ($.501 - $2.55 per share) 437,000 816,000
Options cancelled (153,000) -
-------------- --------------

Options outstanding, end of year
($.501 -$.2.55 per share) 1,100,000 816,000
============== ==============
Options available for grant, end of year 1,567,000 517,000
============== ==============
Options exercisable, end of year 403,000 139,000
============== ==============
</TABLE>

Since inception, no options granted under the plan have been
exercised.

F-17
<PAGE> 88
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DIRECTORS STOCK OPTION PLAN- In August 1995, the Board of
Directors adopted the Directors Stock Option Plan (the
"Directors Plan"). The purpose of the Directors Plan is to
aid the Company in attracting, retaining and motivating
independent directors by providing them with incentives for
making significant contributions to the growth and
profitability of the Company. The Directors Plan shall
terminate ten years after its initial effective date, unless
terminated earlier by the Board of Directors. A total of
333,333 shares of the Company's common stock shall be reserved
and available for grant. Stock options permitting the holder
to purchase a specified number of shares of common stock will
be granted at an exercise price equalling the then fair market
value of the common stock on the date of grant. Upon the
termination of a participant's association with the Company,
options granted will remain exercisable for a period of three
months or until the stated expiration of the stock option, if
earlier.

Options under the Directors Plan at December 31, 1995 are
summarized as follows:

<TABLE>
<S> <C>
Options outstanding, beginning of year -
Options granted ($.90 per share) 106,672
---------

Options outstanding, end of year ($.90 per share) 106,672
=========

Options available for grant, end of year 226,661
=========
Options exercisable, end of year -
=========
</TABLE>

Since inception, no options granted under the plan have been
exercised.

RIGHTS OF SHAREHOLDERS - The Company has 75,849 shares of
authorized undesignated preferred stock at December 31, 1995,
which may be issued with such rights and preferences as the
Board of Directors may determine upon issuance. Therefore,
the undesignated preferred stock may be issued with
liquidation, dividend, voting and other rights superior to
those of existing shareholders, including the right to elect a
controlling number of directors as a class.

OTHER WARRANTS AND OPTIONS - During the periods presented, the
Company had outstanding 632,833 warrants which entitled the
holders thereof to purchase one share of common stock at $2.85
per share, such price being reduced from $4.41 per share by a
Board of Directors' resolution in January 1995. During
February and March 1995, 120,167 warrants were exercised. The
remaining warrants expired March 17, 1995.

During the periods presented, the Company granted to various
consultants options to purchase 78,333 shares of the Company's
common stock at prices ranging from $.90 to $4.20 per share.
The options have vesting schedules substantially similar to
the vesting schedules of the 1994 Stock Plan and the Directors
Plan.

F-18
<PAGE> 89
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - SUBSEQUENT EVENT:

TECHNOLOGY DEVELOPMENT AGREEMENT - On March 29, 1996, the
Company entered into a Technology Development Agreement and
Stock Purchase Agreement (the "Agreement") with a Japanese
Consortium consisting of two multi-billion dollar companies
(the "Consortium:), based on the Company's proprietary
lithium-polymer rechargeable battery technology. The parties
anticipate that this is the first step in a broader strategic
alliance for the research and development, production,
promotion and distribution of lithium-polymer batteries
worldwide. Negotiations are continuing with a third party
interested in joining the consortium. There can be no
assurance that a third party will in fact join the Consortium
or do so on terms favorable and acceptable to the Company.
Under the Agreement, the consortium provided funds and will
provide technical resources to assist the Company in
completing the development of its high energy battery to meet
specific performance requirements or portable electronics
applications. The principal objective is to take the patented
technology to the manufacturing scale-up state. The Agreement
gives the consortium exclusive option rights to license the
Company's technology for manufacturing in the Far East and
Oceania, and co-exclusive option rights along with the Company
for manufacturing in Europe and the Americas, where the
parties' strategy includes establishing joint ventures for
manufacturing operations. The Agreement also gives the
Consortium an exclusive option for worldwide distribution and
sales of the company's products. For these considerations and
631,367 shares of the Company's Common Stock (representing a
4% equity position in the Company), the Consortium paid
$2,400,000. In addition, $1,800,000 of convertible promissory
notes and related accrued interest (see Note 7) were converted
into approximately 7,000,000 shares of the Company 's common
stock in connection with the Agreement.

NOTE 9 - EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):

As more fully described in Notes 2 and 8, the Company believed
it had sufficient capital resources to meet its needs and
satisfy its obligations for 1996. The Company now believes
that its capital resources are only sufficient to meet its
requirements through approximately the last quarter of 1996.
The Company also believes that the capital needed for attaining
commercial viability of its battery technology now approximates
$25 million. However, there can be no assurances that such
capital can be obtained. If the Company is unable to raise
sufficient capital, it will be forced to curtail research and
development expenditures which will delay, and could prevent,
the completion of the commercialization process and the
Company's ability to continue in existence. Reference should
be made to "Management's Discussion and Analysis or Plan of
Operation" included elsewhere herein for additional
information.

F-19
<PAGE> 90

LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
----------- ------------
<S> <C> <C>
CURRENT ASSETS: (Unaudited)
Cash and equivalents $ 1,309,000 $ 217,000
Prepaid expenses and other current assets 2,000 54,000
----------- -----------
Total Current Assets 1,311,000 271,000
----------- -----------

PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF
$262,000 at June 30, 1996 and $177,000 at December 31, 1995 693,000 653,000
----------- -----------
OTHER ASSETS:
Restricted cash 65,000 47,000
Debt issue costs, less accumulated amortization of $100,000 - 174,000
Security deposits 20,000 20,000
----------- -----------
85,000 241,000
----------- -----------

$ 2,089,000 $ 1,165,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
12% convertible promissory notes $ - $ 1,284,000
Accounts payable 1,214,000 891,000
Due to related parties - 327,000
Accrued salaries 177,000 155,000
----------- -----------
Total Current Liabilities 1,391,000 2,657,000

7% CONVERTIBLE PROMISSORY NOTES, DUE DECEMBER 1999 - 300,000
----------- -----------
Total Liabilities 1,391,000 2,957,000
----------- -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIENCY):
Undesignated preferred stock:
Authorized - 75,849 shares, issued and outstanding - None - -
Series B convertible preferred stock, par value $.01 per share:
Authorized - 14,151 shares; issued and outstanding - None at June 30, 1996 and - -
6,942 shares at December 31, 1995
Series C convertible preferred stock, par value $.01 per share: - -
Authorized - 10,000 shares; issued and outstanding - None at June 30, 1996 and
10,000 shares at December 31, 1995
Common stock par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 15,784,438 shares at June 30, 1996 and 7,542,795
shares at December 31, 1995 158,000 75,000
Additional paid-in capital 15,864,000 11,471,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (8,459,000) (6,473,000)
----------- -----------
Total Stockholders' Equity (Deficiency) 698,000 (1,792,000)
----------- -----------

$ 2,089,000 $ 1,165,000
=========== ===========
</TABLE>

See notes to consolidated financial statements

F-20
<PAGE> 91

LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Six Months Ended Period from
June 30, June 30, July 21, 1989
------------ -------------- ------------ ------------ (Date of Inception)
1996 1995 1996 1995 to June 30, 1996
------------ -------------- ------------ ------------ -------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
COSTS AND EXPENSES:
Engineering, research and development $ 318,000 $ 279,000 $ 574,000 $ 564,000 $ 3,208,000
General and administrative 723,000 388,000 1,378,000 626,000 5,121,000
Interest expense, net of interest income (22,000) 17,000 34,000 36,000 130,000
----------- ---------- ----------- ----------- -----------
1,019,000 684,000 1,986,000 1,226,000 8,459,000
----------- ---------- ----------- ----------- -----------
NET LOSS $(1,019,000) $ (684,000) $(1,986,000) $(1,226,000) $(8,459,000)
=========== ========== =========== =========== ===========

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,674,000 6,797,000 11,842,000 6,711,000
=========== ========== =========== ===========

NET LOSS PER SHARE $ (.07) $ (.10) $ (.17) (.18)
=========== ========== =========== ===========
</TABLE>

See notes to consolidated financial statements

F-21
<PAGE> 92
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANIES)

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)- (Unaudited)

Series B Series C
Convertible Preferred Stock Convertible Preferred Stock Common Stock
---------------------------- ---------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------------ -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>

BALANCES AT
DECEMBER 31, 1995 $6,942 $ $ 10,000 $ $ 7,543,000 $ 75,000

SIX MONTHS ENDED
JUNE 30, 1996:

Issuance of Common Stock:
Upon conversion of convertible
preferred stock (6,942) - (10,000) - 454,000 4,000

Upon conversion of 7% convertible
promissory notes and accrued
interest thereon 152,000 2,000

Upon conversion of 12% convertible
promissory notes and accrued
interest thereon 7,004,000 70,000

For cash from Consortium,
net of placement costs 632,000 7,000

Issuance of Warrants in
settlement of litigation

Net Loss
------- --------- -------- ---------- ----------- --------
BALANCES AT
JUNE 30, 1996 - $ - - $ - $15,785,000 $158,000
======= ========= ======== ========== =========== ========

Deficit
Accumulated
Additional During
Paid-In Accumulated Development
Capital Deficit State
------------- ------------ ------------

<S> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1995 $11,471,000 $(6,865,000) $(6,473,000)

SIX MONTHS ENDED
JUNE 30, 1996:

Issuance of Common Stock:
Upon conversion of Convertible
preferred stock (4,000)

Upon conversion of 7% convertible
promissory notes and accrued
interest thereon 318,000

Upon conversion of 12% convertible
promissory notes and accrued
interest thereon 1,830,000

For cash from Consortium,
net of placement costs 2,181,000

Issuance of Warrants in
settlement of litigation 68,000

Net Loss (1,986,000)
--------- ----------- -----------
BALANCES AT
JUNE 30, 1996 $15,864,000 $(6,865,000) $(8,459,000)
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements

F-22
<PAGE> 93
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period from
Six Months Ended July 21, 1989
June 30, (Date of Inception)
---------------------------
1996 1995 June 30, 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Net loss $(1,986,000) $(1,226,000) $(9,088,000)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation 85,000 84,000 262,000
Amortization of debt issue costs 225,000 11,000 470,000
Other - - 25,000
Loss from discontinued operations - - 629,000
Fair value of warrants and option granted for service rendered - - 38,000
Common stock of the Company issued to certain
employees for services provided to Industries - - 106,000
Expenses paid by shareholder on behalf of Company - - 79,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 52,000 24,000 (2,000)
Security deposits - - (20,000)
Accounts payable and accrued expenses 347,000 94,000 1,680,000
Due to related parties (209,000) (3,000) -
----------- ----------- -----------
Net cash provided by (used in) operating activities (1,486,000) (1,016,000) (5,821,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (125,000) (7,000) (705,000)
Restricted cash (18,000) 185,000 (65,000)
Net advances from (to) discontinued operations - - 94,000
----------- ----------- -----------
Net cash provided by (used in) investing activities (143,000) 178,000 (676,000)
----------- ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances repayable only out of proceeds of public
offering - - 471,000
Proceeds received upon issuance of common stock 2,188,000 - 3,220,000
Proceeds received from issuance of preferred stock - - 100,000
Proceeds received upon exercise of warrants, net of costs 63,000 342,000 535,000
Net advances by former principal stockholder - - 321,000
Proceeds from sale of convertible debt 516,000 475,000 3,624,000
Debt issue costs (51,000) (48,000) (470,000)
----------- ----------- -----------
Net cash provided by financing activities 2,716,000 769,000 7,801,000
----------- ----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS 1,087,000 (69,000) 1,304,000
CASH AND EQUIVALENTS, BEGINNING OF YEAR 217,000 106,000 -
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF YEAR $ 1,304,000 $ 37,000 $ 1,304,000
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Contribution to capital by former principal stockholder $ - $ - $ 3,659,000
=========== =========== ===========
Related party debt exchanged for convertible debt $ - $ - $ 321,000
=========== =========== ===========
Exchange of indebtedness to former principal
stockholder for common stock $ - $ - $ 445,000
=========== =========== ===========
Issuance of common stock for services $ - $ - $ 88,000
=========== =========== ===========
Exchange of equipment and accrued rent for common stock $ - $ - $ 271,000
=========== =========== ===========
Subordinated notes and related accrued interest
exchanged for Series A preferred stock $ - $ - $ 3,300,000
=========== =========== ===========
Exchange of convertible debt for convertible
preferred stock $ - $ - $ 356,000
=========== =========== ===========
Conversion of convertible debt and accrued interest
into common stock $ - $ 160,000 $ 1,215,000
=========== =========== ===========
Exchange of advances repayable only out of
proceeds of public offering for common stock $ - $ - $ 471,000
=========== =========== ===========
Deferred offering costs on warrants exercised $ - $ - $ 88,000
=========== =========== ===========
Settlement of payable upon issuance of warrants $ 68,000 $ - $ 68,000
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements

F-23
<PAGE> 94
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 1996

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
applicable to interim periods. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the Company's
audited financial statements included in the Company's Annual Report on
Form 10-KSB filed with the Securities and Exchange Commission for the year
ended December 31, 1995. Operating results for the three and six month
periods ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996 or any interim
period.

2. DESCRIPTION OF BUSINESS

Lithium Technology Corporation (sometimes referred to herein as "LTC")
together with its wholly-owned subsidiary Lithion Corporation (sometimes
referred to herein as "Lithion") (LTC and Lithion are collectively referred
to herein as the "Company") is considered to be a development stage
company for financial reporting purposes until significant product sales
occur. LTC was incorporated in 1986 but did not conduct business
operations until July 1989 when it exchanged its capital stock for all of
the capital stock of Hope Industries, Inc. ("Industries") and Lithion
Corporation. By the end of 1993, Industries was divested and since such
time the Company has focused on commercialization of battery technology and
developing strategic alliance partners of global prominence who the Company
believes will assist in bringing the technology to the manufacturing stage
and participate in the distribution and sale of LTC products on a worldwide
basis. The Company is engaged in the business of developing and seeking to
commercialize a unique, solid-state, lithium-polymer, rechargeable battery.
The Company's patented technology base includes battery composition,
construction and related continuous-flow manufacturing processes. The
Company believes that its battery technology, which is currently in the
pre-prototype development phase, is capable of providing two to four times
the run time performance of current rechargeable batteries. The Company's
objective is the commercialization of such technology, inclusive of moving
from laboratory-scale product prototypes and related prototype processes to
full scale market introduction, achieving cost-competitiveness, and
constructing manufacturing lines capable of

F-24
<PAGE> 95
producing ever-increasing volumes. The Company's commercialization focus
is on the rapidly growing portable electronics market segment (notebook
computers, wireless communications handsets and multimedia devices). The
Company has generated no revenues and has no commercial operations to date.
The Company has been unprofitable since inception and expects to incur
substantial additional operating losses over the next several years. The
Company does not expect to generate any revenues from operations during the
fiscal year ending December 31, 1996.

3. SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes in accounting policies from those
stated in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995.

The Company adopted the following accounting standards during the six
months ended June 30, 1996:

Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires that certain long-lived assets be reviewed for impairment
when events or circumstances indicated that the carrying amounts of the
assets may not be recoverable. If such review indicates that the carrying
amount of an asset exceeds the sum of its expected future cash flows, the
asset's carrying value must be written down to fair value.

Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation," requires companies to measure employee stock
compensation plans based on the fair value method of accounting. However,
the statement allows the alternative of continued use of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," with pro forma disclosure of net income and earnings per share
determined as if the fair value based method had been applied in measuring
compensation cost.

4. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Laboratory Equipment $835,000 $714,000
Furniture and fixtures 82,000 80,000
Leasehold improvements 38,000 36,000
-------- --------
955,000 830,000
Less: Accumulated depreciation and amortization 262,000 177,000
-------- --------
$693,000 $653,000
======== ========
</TABLE>

F-25
<PAGE> 96
5. COMMITMENTS AND CONTINGENCIES

LEASES - The Company leases its principal operating facility from an
unrelated party providing for annual rent of $122,400 through November 1999
and contains an option to renew for an additional 5 years.

EMPLOYMENT AGREEMENT - On May 9, 1996, the Company entered into a one-year
employment agreement with Thomas R. Thomsen pursuant to which Mr. Thomsen
is employed as the Company's Chief Executive Officer at an annual salary of
$185,000. Mr. Thomsen shall also be eligible to receive a target bonus of
up to 40% of his annual salary for such fiscal year of the Company, the
exact amount of such bonus to be determined by the Board of Directors in
accordance with performance thresholds for such fiscal year to be agreed
upon by the Board of Directors and Mr. Thomsen. Mr. Thomsen's employment
agreement also provides for the issuance of a ten (10) year non-qualified
option to purchase 400,000 shares of the Company's common stock at an
exercise price of $2.5625 per share. If Mr. Thomsen's employment is
terminated without cause and other than due to disability or death, the
Company will be obligated to (i) continue Mr. Thomsen's salary for an
additional six (6) months or the remainder of the term on the contract,
whichever is longer ("severance period"), (ii) continue for such "severance
period" all of Mr. Thomsen's benefits under the Company's medical
insurance, disability insurance, life insurance and other benefit plans as
are then in effect for executives of the Company, and (iii) accelerate the
vesting of all unexercisable options such that upon termination all then
exercisable and unexercisable options immediately become exercisable on the
date of termination, and all the same shall remain exercisable for a period
of three (3) years commencing on the date of termination.

CONSULTING AGREEMENT - On May 9, 1996, the Company entered into a
consulting agreement with Donald C. Taylor, a former director of the
Company, at a monthly compensation of $7,000. Mr. Taylor will provide
advisory services, shareholder relations and related consulting services to
the Company. The Agreement will be in effect for a period of one (1) year,
subject to automatic renewals of one (1) year unless either party to the
Agreement provides written notice of non-renewal to the other party at
least ninety (90) days prior to the expiration of the initial or any
renewal term of the Agreement. In no event shall the Agreement be
automatically renewed for more than two additional one (1) year terms.
These terms may be modified as mutually agreed upon by the parties at any
time.

WARRANTS - During the quarter ended June 30, 1996, the Company issued two
warrants. One warrant was issued to Group III Capital, Inc. ("Group III")
entitling Group III to purchase up to 1,500,000 shares of the Company's
Common Stock at an exercise price of $1.54 per share. The warrant is
exercisable with respect to the first 320,000 shares as of the date of
issuance and with respect to the balance of 1,180,000 underlying shares on
May 1, 1997, provided that exercisability as to the balance of such
1,180,000 warrant shares is accelerated upon the closing of certain debt or
equity financing transactions resulting in gross proceeds to the Company of
$5,000,000 or more. The warrant was issued to Group III in consideration
of services rendered and to be rendered by Group III to the Company.
Donald C. Taylor, a former director of

F-26
<PAGE> 97
the Company, is the President and a director of Group III. The Company
also issued a warrant to Robert Pfeffer in connection with the settlement
of litigation between the Company and Mr. Pfeffer. This warrant entitles
Mr. Pfeffer to purchase up to 600,000 shares of Common Stock at $0.51 per
share. The Company has disputed the issuance of certain other warrants to
Mr. Pfeffer, Matthew Stuart & Co., Inc., and Richard Perlman, formerly a
vice president of Matthew Stuart and formerly a director of the Company.
The Company has declared such other warrants and related documents void.

LEGAL PROCEEDINGS - As of June 30, 1996, there were no legal proceedings
pending against the Company. Two lawsuits were commenced against the
Company on August 7, 1996 and August 8, 1996. See Note 7 for details.

6. STOCKHOLDERS' EQUITY

MERGER AND REVERSE STOCK SPLIT - Effective February 1996, the Company's
then majority stockholder approved a merger agreement pursuant to which the
Company, a Nevada corporation, merged with a newly formed Delaware
corporation in order to reincorporate the Company as a Delaware corporation
and effectuate a recapitalization, principally a 1 for 30 reverse stock
split which has been reflected in the Company's financial statements as if
it had occurred on December 31, 1995.

WARRANTS - At June 30, 1996, the Company had warrants outstanding to
purchase 2,307,858 shares of Common Stock at exercise prices ranging from
$0.51 per share to $2.56 per share which expire through May 2006.

SERIES B CONVERTIBLE PREFERRED STOCK - During June 1996, 795 shares of
Series B Convertible Preferred Stock were converted into 42,400 shares of
Common Stock.

SERIES C CONVERTIBLE PREFERRED STOCK - During June 1996, 10,000 shares of
Series C Convertible Preferred Stock were converted into 83,334 shares of
Common Stock.

7% CONVERTIBLE PROMISSORY NOTES - During January 1996, $300,000 of such
promissory notes were converted into 152,038 shares of Common Stock.

REPRICING OF DIRECTORS STOCK OPTIONS - In August 1995, the Board of
Directors adopted the Directors Stock Option Plan (the "Directors Plan")
and on February 8, 1996, Majestic Hopes, LLC, as the majority stockholder,
ratified the adoption of the Directors Plan. As of February 8, 1996,
options previously granted to directors who were not officers or employees
of the Company were cancelled and new options were reissued under the
Directors Plan, with the identical number of options granted, but with the
exercise price of such options at the fair market value of the Common Stock
as of the effective date, pursuant to the terms and conditions of the
Directors Plan.

F-27
<PAGE> 98
STOCK INCENTIVE PLAN - Options under the 1994 Stock Incentive Plan are
summarized as follows:

<TABLE>
<S> <C>
Options outstanding, January 1, 1996
($0.501 to $2.56 per share) 1,166,645
Options granted 480,000
Options cancelled (15,824)
---------
Options outstanding, June 30, 1996 1,630,821
=========
Options available for grant, June 30, 1996 1,035,846
=========
</TABLE>

As of July 1, 1996, options with respect to 657,901 shares of Common Stock
were fully vested.

DIRECTORS STOCK OPTION PLAN - As of July 1, 1996, there were outstanding
options under the Directors Plan with respect to 106,672 shares of Common
Stock, which have exercise prices ranging from $0.90 per share to $2.56 per
share and options with respect to 10,000 shares of Common Stock are fully
vested as of July 1, 1996.

TECHNOLOGY DEVELOPMENT AGREEMENT AND 12% CONVERTIBLE NOTES - On March 29,
1996, the Company entered into a Technology Development Agreement and Stock
Purchase Agreement (the "Agreement") with a Japanese Consortium consisting
of two multi-billion dollar companies (the "Consortium"), based on the
Company's proprietary lithium-polymer rechargeable battery technology. The
parties anticipate that this is the first step in a broader strategic
alliance for the research and development, production, promotion and
distribution of lithium-polymer batteries worldwide. The Company is
continuing to seek a third investor to join the Consortium. There can be no
assurance that a third party will in fact join the Consortium or do so on
terms favorable and acceptable to the Company. Under the Agreement, the
Consortium provided funds and will provide technical resources to assist
the Company in completing the development of its high energy battery to
meet specific performance requirements for portable electronics
applications. The principal objective is to take the patented technology
to the manufacturing scale-up stage. The Agreement gives the Consortium
exclusive option rights to license the Company's technology for
manufacturing in the Far East and Oceania, and co-exclusive rights along
with the Company for manufacturing in Europe and the Americas, where the
parties' strategy includes establishing joint ventures for manufacturing
operations. The Agreement also gives the Consortium an exclusive option
for worldwide distribution and sales of the Company's products. For these
considerations and 631,637 shares of the Company's Common Stock
(representing a 4% equity position in the Company as of the closing), the
Consortium paid $2,400,000. In addition, $1,800,000 of 12% convertible
promissory notes and related accrued interest were converted into 7,003,446
shares of the Company's Common Stock in connection with the Agreement.

F-28
<PAGE> 99
7. SUBSEQUENT EVENTS

On July 24, 1996, the Company entered into a one-year employment agreement
with David J. Cade pursuant to which Mr. Cade is employed as the Company's
President and Chief Operating Officer at an annual salary of $140,000. Mr.
Cade shall also be eligible to receive a target bonus of up to 20% of his
annual salary for such fiscal year of the Company, the exact amount of such
bonus to be determined by the Board of Directors in accordance with
performance thresholds for such fiscal year to be agreed upon by the Board
of Directors and Mr. Cade. Mr. Cade's employment agreement also provides
for the issuance of a ten (10) year incentive option to purchase 133,333
shares of the Company's common stock at an exercise price of $1.33 per
share. If Mr. Cade's employment is terminated without cause and other than
due to disability or death, the Company will be obligated to (i) continue
Mr. Cade's salary for an additional six (6) months or the remainder of the
term on the contract, whichever is longer ("severance period"), (ii)
continue for such "severance period" all of Mr. Cade's benefits under the
Company's medical insurance, disability insurance, life insurance and other
benefit plans as are then in effect for executives of the Company, and
(iii) in the case of death or disability, the option shall be exercisable
to the extent then vested for a period of three years.

On July 24, 1996, the Company entered into a one-year employment agreement
with George R. Ferment pursuant to which Dr. Ferment is employed as the
Company's Executive Vice President of Operations and Chief Technical
Officer at an annual salary of $130,000. Dr. Ferment shall also be
eligible to receive a target bonus of up to 20% of his annual salary for
such fiscal year of the Company, the exact amount of such bonus to be
determined by the Board of Directors in accordance with performance
thresholds for such fiscal year to be agreed upon by the Board of Directors
and Dr. Ferment. Dr. Ferment's employment agreement also provides for the
issuance of a ten (10) year incentive option to purchase 133,333 shares of
the Company's common stock at an exercise price of $1.33 per share. If Dr.
Ferment's employment is terminated without cause and other than due to
disability or death, the Company will be obligated to (i) continue Dr.
Ferment's salary for an additional six (6) months or the remainder of the
term on the contract, whichever is longer ("severance period"), (ii)
continue for such "severance period" all of Dr. Ferment's benefits under
the Company's medical insurance, disability insurance, life insurance and
other benefit plans as are then in effect for executives of the Company,
and (iii) in the case of death or disability, the option shall be
exercisable to the extent then vested for a period of three years.

On August 7, 1996 and August 8, 1996 civil actions were commenced against
the Company by Richard Perlman and Christy & Viener, respectively. The two
suits were commenced in United States District Court for the Southern
District of New York. Mr. Perlman's complaint alleges that he is entitled
to monetary damages and specific performance of registration rights
relating to certain warrants of the Company that have not been registered
and to which he claims entitlement. The Company has declared such warrants
and related documents void. Christy & Viener's complaint alleges
non-payment of legal fees incurred in connection with the rendering of
legal services. The Company was served with both complaints on August 8,
1996 and is in the initial stages of evaluating the allegations and the
Company's course of action. The Company intends to vigorously defend both
actions and to assert all available defenses and couterclaims.

On June 20, 1996 the Company settled litigation commenced against the
Company by Robert Pfeffer and Matthew Stuart and Co., Inc. in the Southern
District of New York. See Note 5 for details pertaining to the terms of
this settlement. The parties exchanged mutual releases and the suit was
dismissed with prejudice.

On August 15, 1996, the Company filed a lawsuit against Christy & Viener
and others for claims arising out of Christy & Viener's alleged fraud,
legal malpractice and conflicts of interest. The complaint also asserts
claims for alleged violations of Federal securities laws, the Racketeer
Influenced and Corrupt Organizations Act, and fiduciary duties owed by the
law firm and its partners to the Company.

The lawsuit was filed in United States District Court in Philadelphia and
names as defendants: Christy & Viener and William Gray, Steven Berger, and
Franklin Viele, each a partner in the firm. The complaint includes claims
against a fifth defendant, Richard Perlman, formerly a financial advisor to
the Company and a member of its Board of Directors. This lawsuit is in the
early stages of initial motions and discovery. The Company intends to
vigorously prosecute this action.

On November 15, 1995, the Company's Board of Directors authorized the
issuance of up to 299,440 shares of the Company's Common stock to certain
employees in exchange for such employees' forgiveness of accrued salaries
and bonuses totalling approximately $150,000. In August 1996 the Company
completed these transactions which resulted in the issuance of 198,354
shares of Common Stock (the "Restricted Shares") to certain employees in
exchange for such employees' forgiveness of approximately $99,000 of
accrued salaries and bonuses and in the issuance of 38,416 shares of Common
Stock to another employee for $19,208 in cash. The Restricted Shares are
subject to a risk of forfeiture in the event that the recipient's
employment is terminated for any reason (other than death or disability)
prior to the vesting of all of the Restricted Shares held by such
employee. Two Named Executive Officers, David Cade and George Ferment,
have been issued 55,981 and 88,037 Restricted Shares respectively. The
Restricted Shares will vest upon the earlier of (i) the shares becoming
eligible to be resold pursuant to a registration statement being filed and
declared effective by the U.S. Securities and Exchange Commission or (ii)
January 1, 1997. Furthermore, the Restricted Shares, when issued, will be
restricted securities within the meaning of the Securities Act of 1933 as
amended.

F-29
<PAGE> 100

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No dealer, salesman or other person has been
authorized to give any information or to make any
representations, other than those contained or
incorporated by reference in this Prospectus, in
connection with the offering contained herein,
and, if given or made, such information and LITHIUM TECHNOLOGY
representations must not be relied upon as having CORPORATION
been authorized by the Company or the Selling
Shareholder. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful
to make such offer in such jurisdiction. Neither
the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any Common Stock
implication that there has been no change in the
affairs of the Company since the date hereof.
----------------

PROSPECTUS
TABLE OF CONTENTS
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Page
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PROSPECTUS SUMMARY . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . 7
USE OF PROCEEDS . . . . . . . . . . . . . . . 17
SELLING SHAREHOLDERS . . . . . . . . . . . . 17
PLAN OF DISTRIBUTION . . . . . . . . . . . . 26 September 27, 1996
SELECTED FINANCIAL INFORMATION . . . . . . . 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS . . . . . . . . . . . 29
BUSINESS . . . . . . . . . . . . . . . . . . 36
PROPERTY . . . . . . . . . . . . . . . . . . 46
LEGAL PROCEEDINGS . . . . . . . . . . . . . . 46
MANAGEMENT . . . . . . . . . . . . . . . . . 47
EXECUTIVE COMPENSATION . . . . . . . . . . . 50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 63
DESCRIPTION OF SECURITIES . . . . . . . . . . 66
MARKET PRICES . . . . . . . . . . . . . . . . 68
LEGAL MATTERS . . . . . . . . . . . . . . . . 69
EXPERTS . . . . . . . . . . . . . . . . . . . 69
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES . . . . . . . . . . . . . . . 69
FINANCIAL STATEMENTS . . . . . . . . . . . . F-1

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