<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ____________ to ____________
Commission file number 1-10446
LITHIUM TECHNOLOGY CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3411148
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5115 Campus Drive, Plymouth Meeting, PA 19462
(Address of Principal Executive Offices)
(610) 940-6090
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of March 31, 1997:
17,601,418 shares of Common Stock
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
Page
PART 1 - FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations - Three Months Ended March 31,
1997 and 1996, and Period From July 21, 1989 (Date
of Inception) to March 31, 1997 4
Consolidated Statements of Changes in Stockholders' Equity (Deficiency) - 5
Three Months Ended March 31, 1997
Consolidated Statements of Cash Flows - Three Months ended March 31, 1997 6
and 1996 and Period from July 21, 1989 (Date of Inception) to
March 31, 1997
Notes to Consolidated Financial Statements - March 31, 1997 7-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 13-17
RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18-19
</TABLE>
Page 2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Cash and equivalents $ 637,000 $ 1,388,000
Prepaid expenses and other current assets -- 10,000
------------ ------------
Total Current Assets 637,000 1,398,000
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF
$404,000 at March 31, 1997 and $363,000 at December 31, 1996 583,000 624,000
------------ ------------
OTHER ASSETS:
Restricted cash -- 65,000
Debt issue costs, less accumulated amortization of $438,000 at December 31, 1996 -- 142,000
Security deposits 20,000 20,000
------------ ------------
20,000 227,000
------------ ------------
$ 1,240,000 $ 2,249,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accrued notes payable $ 1,750,000 $ 1,750,000
Accounts payable and accrued expenses 992,000 1,046,000
Accrued salaries 184,000 232,000
------------ ------------
Total Current Liabilities 2,926,000 3,028,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Undesignated preferred stock:
Authorized - 100,000 shares, issued and outstanding - None -- --
Common Stock, par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 17,601,000 shares at March 31, 1997 and
17,108,000 shares at December 31, 1996 176,000 171,000
Additional paid-in capital 17,222,000 16,772,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (12,219,000) (10,857,000)
------------ ------------
Total Stockholders' Equity (Deficiency) (1,686,000) (779,000)
------------ ------------
$ 1,240,000 $ 2,249,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
Page 3
<PAGE> 4
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
July 21, 1989
Three Months Ended (Date of
March 31, Inception) to
--------------------------------- March 31,
1997 1996 1997
--------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
COSTS AND EXPENSES:
Engineering, research
and development $ 344,000 $ 256,000 $ 4,057,000
General and administrative 571,000 655,000 7,530,000
Interest expense, net of
interest income 447,000 56,000 632,000
----------- ---------- ------------
1,362,000 967,000 12,219,000
----------- ---------- ------------
NET LOSS $(1,362,000) $ (967,000) $(12,219,000)
=========== ========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDINGS 17,377,000 8,013,000
=========== ==========
NET LOSS PER SHARE $ (.08) $ (.12)
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
Page 4
<PAGE> 5
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY) - (UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During
-------------------------- Paid-In Accumulated Development
Shares Amount Capital Deficit Stage
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 17,108,000 $171,000 $16,772,000 $(6,865,000) $(10,857,000)
Three months ended
March 31, 1997:
Issuance of Common Stock:
In connection with costs
relating to the issuance
of 10% convertible notes 493,000 5,000 450,000
Net loss (1,362,000)
---------- -------- ----------- ----------- ------------
BALANCES AT MARCH 31, 1997 17,601,000 $176,000 $17,222,000 $(6,865,000) $(12,219,000)
========== ======== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements
Page 5
<PAGE> 6
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Period from
March 31, July 21, 1989
-------------------------------- (Date of Inception) to
1997 1996 March 31, 1997
------------ ------------ -----------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,362,000) $ (967,000) $(12,219,000)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation 41,000 43,000 403,000
Amortization of debt issue costs 142,000 225,000 881,000
Common stock issued in lieu of interest 455,000 -- 567,000
Fair value of warrants and option granted for services rendered -- -- 121,000
Common stock issued to certain persons for services provided -- -- 206,000
Expenses paid by shareholder on behalf of Company -- -- 79,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 10,000 46,000 5,000
Security deposits -- -- (20,000)
Accounts payable and accrued expenses (102,000) 209,000 1,910,000
Due to related parties -- (113,000) (118,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities (816,000) (557,000) (8,185,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment -- (90,000) (736,000)
Restricted cash 65,000 -- --
Other -- -- 94,000
------------ ------------ ------------
Net cash provided by (used in) investing activities 65,000 (90,000) (642,000)
------------ ------------ ------------
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 3,239,000
Proceeds received from issuance of preferred stock,
net of related costs -- -- 100,000
Proceeds received upon exercise of options and warrants,
net of costs -- -- 569,000
Net advances by former principal stockholder -- -- 321,000
Proceeds from sale of convertible debt -- 516,000 5,374,000
Debt issue costs -- (51,000) (610,000)
------------ ------------ ------------
Net cash provided by financing activities -- 2,653,000 9,464,000
------------ ------------ ------------
NET CHANGE IN CASH AND EQUIVALENTS (751,000) 2,006,000 637,000
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,388,000 217,000 --
------------ ------------ ------------
CASH AND EQUIVALENTS, END OF YEAR $ 637,000 $ 2,223,000 $ 637,000
============ ============ ============
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 and accrued salaries $ $ -- $ 352,000
============ ============ ============
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, net of unamortized debt discount $ -- $ 2,201,000 $ 3,268,000
============ ============ ============
Exchange of advances repayable only out of
proceeds of public offering for common stock $ -- $ -- $ 471,000
============ ============ ============
Deferred offering costs on warrants exercised $ -- $ -- $ 88,000
============ ============ ============
Issuance of warrants in settlement of litigation
and for services rendered $ -- $ -- $ 160,000
============ ============ ============
Common stock issued for costs related to 10% promissory notes $ -- $ -- $ 525,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
Page 6
<PAGE> 7
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
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, 1996. Operating results for the three month period ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997 or any interim period.
2. DESCRIPTION OF BUSINESS
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. The Company is engaged
in research and development activities to further develop and exploit this
battery technology and also hold various patents relating to such
batteries. The Company believes that its battery technology, which is
currently in the prototype development phase, is capable of providing up to
four 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 demonstration
manufacturing processes to full scale market introduction, achieving cost
competitiveness, and constructing a large scale manufacturing facility. 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 sales in commercial quantities
in the near term.
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.
Page 7
<PAGE> 8
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. 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 1997 or in the near term.
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.
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 has raised approximately $8,960,000 since inception
through various sales of convertible debt and common and preferred
stock. During 1996, the Company sold a then 4% equity position to a
Japanese Consortium for approximately $2,400,000 and also sold 10%
convertible promissory notes for $1,750,000 (see Note 6). The
Company believes that it only has sufficient capital resources to
meet the Company's needs and satisfy the Company's obligations
through approximately June 1997, based on the Company's current
strategies, but excluding repayment of the Company's existing $1.75
million bridge financing.
There can be no assurance that the incremental capital needed to
attain commercial viability of the Company's battery technology and
repay existing indebtedness will be obtained, which the Company
currently estimates at approximately $22 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
or Plan of Operation" included elsewhere herein for additional
information.
Page 8
<PAGE> 9
4. PROPERTY AND EQUIPMENT ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Laboratory equipment $ 855,000 $ 855,000
Furniture and fixtures 91,000 91,000
Leasehold improvements 41,000 41,000
---------- ----------
987,000 987,000
Less: Accumulated depreciation
and amortization 404,000 363,000
---------- ----------
$ 583,000 $ 624,000
========== ==========
</TABLE>
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 five
years.
EMPLOYMENT AGREEMENTS - The Company has a four year employment
agreement with its Director of Research providing for annual
compensation of $125,000 through January 1998.
In May 1996, the Company entered into a one year employment agreement
with its Chief Executive Officer at an annual salary of $185,000 and
other incentives, including performance bonuses and stock options.
The officer voluntarily elected to defer his compensation and at
March 31, 1997 such deferral ($164,958) has been included in accrued
payroll in the accompanying financial statements.
In July 1996, the Company entered into one year employment agreements
with its President/Chief Operating Officer and its Vice-President of
Operations/Chief Technical Officer at annual salaries of $140,000 and
$130,000, respectively, plus other incentives, including performance
bonuses and stock options.
See Note 7 for information on certain stock options issued in
Connection with the employment agreements.
LEGAL PROCEEDINGS - In August 1996, civil actions were commenced
against the Company by a former director of the Company, and by the
Company's former legal counsel. The former director's complaint seeks
monetary damages amounting to approximately $4,500,000 and specific
performance of registration rights of 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. The
complaint of the Company's former counsel alleges non-payment of
legal fees for services rendered. The Company has included the unpaid
legal fees in accounts payable, however, it believes these actions to
be without merit and intends to vigorously defend both actions.
Accordingly, the Company has filed its own lawsuit against the former
counsel alleging fraud, legal malpractice and conflict of interest
flowing from the fraudulent issuance of the aforementioned warrants.
In addition, the complaint alleges violations of federal securities
laws, the Racketeering Influenced and Corrupt Organization Act
("RICO-") and fiduciary duties owed by counsel to the Company.
Page 9
<PAGE> 10
The complaint also includes similar allegations against the former
director, flowing from the fraudulent issuance of warrants to him.
6. STOCKHOLDERS' EQUITY:
PREFERRED STOCK - The Company is authorized to issue up to 100,000
shares of preferred stock, all of which is currently 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. In the event of liquidation,
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 may 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. Rights granted
by the Board of Directors may be superior to those of existing
shareholders, (including the right to elect a controlling number of
directors as a class). Preferred Stock can be issued without the vote of
the holders of Common Stock. No shares of preferred stock are
outstanding at March 31, 1997.
BRIDGE FINANCING - In October 1996, the Company completed a bridge
financing pursuant to which the Company issued $1,750,000 of 10%
convertible notes due January 23, 1997 (the "Convertible Notes") and
267,176 shares of common stock in exchange for $1,750,000 in cash. The
Company also issued 66,794 shares of common stock, plus a warrant to
purchase an additional 87,500 shares (at an exercise price of $1.31), to
the placement agent and also paid a $122,500 commission. The 267,176
shares of common stock were issued in consideration of the advance of
the principal amount of the Convertible Notes, for other services to be
rendered and in payment of all interest expense through the anticipated
repayment date in January 1997. These shares and the shares issued to
the placement agent (total of 333,970 shares), were recorded at their
then fair value totalling $437,500. This cost, together with the
commission of $122,500 and other related legal costs have been recorded
as debt issue costs. The Company also agreed to issue additional shares
of common stock to the purchasers of the Convertible Notes (the
"Convertible Note Purchasers") in the event a registration statement
relating to a certain contemplated underwritten public offering is not
filed within 30 days of the effective date of the Convertible Note
Agreement. As the proposed registration statement was not filed, the
Company was required to issue additional shares of common stock to the
Convertible Note Purchasers, which issuances were recorded at the then
current market value per share with a corresponding charge to interest
expense. The Company has issued 250,519 additional shares of common
stock pursuant to such provision.
Pursuant to the terms of the Convertible Note Agreements, additional
shares were issued to the Convertible Note Purchasers because of certain
post-closing occurrences, including the Company's exercise of its right
to extend the maturity date for repayment of the Convertible Notes to
March 24, 1997. The terms of such agreements allowed the Company two
30-day extensions of the initial January 23, 1997 maturity date,
provided the Company issue the Convertible Note Purchasers $175,000
worth of the Company's common stock (based on the value of the common
stock at the time of the extension less a discount factor), for each
such extension. The Company exercised both extensions and issued an
additional 370,265 shares of common stock.
Page 10
<PAGE> 11
The Company did not repay the $1.75 million principal of the Convertible
Notes on the March 24, 1997 maturity date and has not repaid the
Convertible Notes as of the date of this report. Pursuant to the terms
of the Convertible Note Agreements, the Company and the Convertible Note
Purchasers have placed in escrow an additional 6,201,550 shares of the
Company's common stock (the "Escrowed Shares"). The Escrowed Shares are
not considered to be issued and outstanding securities pending actual
payment for such shares. As the result of this nonpayment default: (i)
the Convertible Note Purchasers have the right to convert the $1.75
million principal into the Escrowed Shares which would extinguish the
indebtedness and (ii) interest on the $1.75 million began to accrue at
the rate of ten percent (10%) per annum as of March 24, 1997. Such
interest accrued is payable on September 24, 1997 and at monthly
intervals thereafter. The Convertible Note Purchasers have not taken
any action to exercise any default remedies to date. There can be no
assurance that the Convertible Note Purchasers will continue to refrain
from exercising available default remedies. The Convertible Note
Purchasers' right to convert the $1.75 million principal into the
Escrowed Shares and the aforementioned 10% interest terminate upon the
earlier of repayment of the Convertible Notes or November 2, 1998. The
conversion right is the Convertible Note Purchasers' exclusive remedy
in the event of the Company's failure to pay the principal amount of
the Convertible Notes.
Page 11
<PAGE> 12
7. STOCK INCENTIVE PLAN -- Options under the 1994 Stock Incentive Plan are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Options outstanding January 1, 1997 1,744,000
Options granted ($.78125 per share) 12,000
Options exercised --
Options cancelled --
---------
Options outstanding, March 31, 1997
($.501-$2.55 per share) 1,756,000
=========
Options available for grant, March 31, 1997 911,000
=========
Options exercisable, March 31, 1997 1,163,000
=========
</TABLE>
DIRECTORS STOCK OPTION PLAN -- Options under the Directors Plan are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Options outstanding, January 1, 1997 107,000
Options granted --
---------
Options outstanding, March 31, 1997
($.90 per share) 107,000
=========
Options available for grant, March 31, 1997 226,000
=========
Options exercisable, March 31, 1997 33,000
=========
</TABLE>
WARRANTS -- Warrants are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Warrants outstanding, January 1, 1997 2,360,000
Warrants granted --
Warrants exercised --
Warrants expired --
---------
Warrants outstanding, March 31, 1997
($.51 to $2.56 per share) 2,360,000
=========
Warrants exercisable, March 31, 1997 1,073,000
=========
</TABLE>
Page 12
<PAGE> 13
ITEM 2. 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
report.
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, 1997. The Company believes
that its battery technology, which is currently in the prototype development
phase, is capable of providing up to four times the performance of current
rechargeable batteries. The Company's objective is the commercialization of such
technology, inclusive of moving from current laboratory-scale product prototypes
and related demonstration manufacturing processes to full scale market
introduction, achieving cost-competitiveness, and constructing a large scale
manufacturing facility. The Company's product 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 $8.96 million, including most recently, $1.75 million from
the October 1996 sale of convertible notes described herein.
AS OF MARCH 31, 1997
At March 31, 1997, the Company had cash of $637,000, fixed assets of
$583,000 and other assets of $20,000. The Company's total liabilities were
$2,926,000 consisting of accounts payable and accrued expenses in the amount of
$1,176,000 and convertible notes due March 24, 1997 in the amount of
$1,750,000. The Company had a net working capital deficit of $2,289,000 on
March 31, 1997.
The Company's net working capital deficit was increased by
approximately $659,000 from December 31, 1996 to March 31, 1997. The Company's
cash and equivalents decreased by approximately $751,000 from December 31, 1996
to March 31, 1997. This increase in net working capital deficit and decrease in
cash is attributable primarily to the expenditure of cash to pay operating
expenses, which have increased during the three months ended March 31, 1997 as
compared to corresponding period in 1996 primarily for the reasons discussed
below in "Results of Operations".
Page 13
<PAGE> 14
The Company's stockholder's deficiency was $1,686,000 at March 31,
1997, after giving effect to an accumulated deficit of $19,084,000 which
consisted of $12,219,000 accumulated deficit during the development stage from
July 21, 1989 through March 31, 1997 and $6,865,000 accumulated deficit from
prior periods. The Company expects to incur substantial operating losses as it
continues its commercialization efforts.
In October 1996, the Company sold $1,750,000 principal amount
convertible notes ("Convertible Notes"). The maturity date of the Convertible
Notes, after the Company exercised two extensions of such date, was March 24,
1997. The Company did not repay the Convertible Notes on that date and has not
repaid the Convertible Notes as of the date of this report. Pursuant to the
terms of the Convertible Note Agreements, the Company and the Convertible Note
Purchasers have placed in escrow an additional 6,201,550 shares of the
Company's common stock (the "Escrowed Shares"). The Escrowed Shares are not
considered to be issued and outstanding securities pending actual payment for
such shares. As the result of this nonpayment default: (i) the Convertible Note
Purchasers have the right to convert the Convertible Notes into the Escrowed
Shares which would extinguish the indebtedness and (ii) interest on the
Convertible Notes began to accrue at the rate of ten percent (10%) per annum as
of March 24, 1997. Such interest accrues and is payable on September 24, 1997
and at monthly intervals thereafter. The Convertible Note Purchasers' right to
convert the Convertible Notes into the Escrowed Shares and the aforementioned
10% interest terminate upon the earlier of repayment of the Convertible Notes
or November 2, 1998. The conversion right is the Convertible Note Purchasers'
exclusive remedy in the event of the Company's failure to pay the principal
amount of the Convertible Notes.
Page 14
<PAGE> 15
While the Company's operating plan seeks to minimize the Company's
capital requirements, commercialization of the Company's battery technology and
repayment of the Company's Convertible Notes will require substantial amounts of
additional capital. Subject to the availability of necessary 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 as of March 31, 1997 it has sufficient
capital resources to meet the Company's needs and satisfy the Company's
obligations through approximately June 1997 based on the Company's current
strategies and subject to the uncertainties discussed in this report. The
Company does not currently have sufficient cash to achieve all its development
and production objectives, including the 1998 installation of the pilot
manufacturing line and the repayment of the Convertible Notes. In order to
raise sufficient capital for its future growth and repayment of the Convertible
Notes, the Company will be required to sell additional debt or equity
securities.
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 $22 million, and repayment of the Company's Convertible
Notes can 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.
RESULTS OF OPERATIONS
Three Months ended March 31, 1997 and 1996.
The Company had no revenues for the three months ended March 31, 1997
and 1996. Engineering, research and development expenses were $344,000 for the
three months ended March 31, 1997 compared to $256,000 in 1996. The increase
of $88,000 results from increased contract research activities and lab
supplies as the Company continues to accelerate its commercialization efforts.
General and administrative expenses were $571,000 for the three months
ended March 31, 1997 compared to $655,000 in 1996. The decrease of $84,000 was
due to decreased legal costs and decreased amortization of debt issue costs and
increased consulting expenses and accrued but unpaid wages to the Company's
chief executive officer.
Page 15
<PAGE> 16
Interest expense increased to $447,000 (net of interest income of
$12,000) for the three months ended March 31, 1997 compared to $56,000 (net of
interest income of $4,000) in 1996. The increase in interest expense for the
comparable periods is attributable to the Company's convertible term notes and
the issuance of certain additional shares in connection with the Company's
exercise of its right to extend the maturity date for repayment of the
Convertible Notes.
PLAN OF OPERATIONS 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 was leased in late 1994 and product development has
continued at an accelerated pace. At March 31, 1997, the management team and
technical staff consisted of twelve 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 entered into employment agreements with Thomas R. Thomsen as
the Company's Chief Executive Officer. David J. Code as the Company's President
and Chief Operating Officer, and Dr. George R. Ferment 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 (accomplished) 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) construction of a larger scale pilot manufacturing line in
early 1998 and commencement of trial runs;
(vi) augmentation of the pilot manufacturing line with an automated
backend assembly process in late 1998;
(vii) bringing the pilot manufacturing line "on line" as a commercial
production facility in early 1999; and
(viii) construction of a second tier manufacturing capability once
market demand exceeds initial manufacturing capacity.
The Company estimates that completion of phases (iv) through (vi) through the
end of 1998 will cost approximately $22 million in capital expenditures and
operating costs. There can be no assurances that the Company will meet these
development milestones on the time schedule outlined above.
Page 16
<PAGE> 17
During March 1996, a continuous flow coating/laminating line -- referred
to previously in this "Plan of Operation" as the Demonstration Manufacturing
Facility ("DMF") -- was installed by the Company. This line is being 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. During the next twelve months after the date of this
report, 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 report and the availability of capital.
The Company intends to finance the overall estimated $22 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 $22 million
includes the aforementioned estimated $7.5 million cost of the pilot
manufacturing facility and $2 million for equipment purchases) by means of
private and/or public equity or debt financings during the next two years.
The Company does not currently have sufficient cash to achieve all its
development and production objectives, including the 1998 installation of the
pilot manufacturing line and repayment of the Convertible Notes and $2 million
for equipment purchases. As noted above (See "Liquidity, Capital Resources, and
Financial Condition") the Company believes that as of March 31, 1997 it has
sufficient capital resources to meet the Company's needs and satisfy the
Company's obligations through approximately June 1997 based on the Company's
current strategies and subject to the uncertainties discussed in this report. In
order to raise sufficient capital for its future growth and repayment of the
Convertible Notes discussed above, the Company will be required to sell
additional debt or equity securities. Such new capital is planned to be sought
from several sources, including strategic partners, although the Company has no
commitments for new capital as of the date of this report. The Company is also
seeking to raise additional capital for its activities beyond 1997, which may
result in further dilution to the Company's existing stockholders. The Company
will seek to expand its strategic alliances which would provide capital from
joint development programs, license fees or an additional equity investment.
Discussions are continuing with companies in Japan, Korea, 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. In addition,
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.
Page 17
<PAGE> 18
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In August 1996 civil actions were commenced against the Company by
Richard Perlman, a former director of the Company, and Christy & Viener, former
legal counsel to the Company, respectively. The two suits were commenced in the
United States District Court for the Southern District of New York. The Company
subsequently filed its own lawsuit against Christy & Viener and Mr. Perlman in
United States District Court for the Eastern District of Pennsylvania.
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 believes these actions to be
meritless and intends to vigorously defend both actions and to assert all
available defense and counterclaims.
The Company's lawsuit against Christy & Viener, a New York City law
firm, includes claims arising out of Christy & Viener's alleged fraud, legal
malpractice and conflicts of interest flowing from the fraudulent issuance of
the same warrants that form the basis of Perlman's action. The complaint
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 complaint names as defendants:
Christy & Viener and William Gray, Steven Berger, and Franklin Viele, each a
partner in the firm. The complaint includes similar claims against a fifth
defendant, Mr. Perlman as noted above, a former financial adviser to the
Company and former member of its Board of Directors, flowing from the
fraudulent issuance of warrants to him.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company completed a bridge loan financing in October 1996 pursuant
to which the Company issued $1.75 million principal amount convertible notes to
the Convertible Note Purchasers. Since the sale of the Convertible Notes the
Company has issued the Convertible Note Purchasers an additional 620,784 shares
of common stock through March 31, 1997 in accordance with the terms of the
Convertible Note Agreements. In addition, the Company and the Convertible Note
Purchasers have placed in escrow an additional 6,201,550 shares of the Company's
common stock (the "Escrowed Shares") pursuant to the terms of the Convertible
Note Agreements. The Escrowed Shares are not considered to be issued and
outstanding securities pending actual payment for such shares. The Company did
not repay the $1.75 million principal of the Convertible Notes on the March 24,
1997 maturity date and has not repaid the Convertible Notes as of the date of
this report. As a result of this nonpayment default: (i) the Convertible Note
Purchasers have the right to convert the $1.75 million principal into the
Escrowed Shares which would extinguish the indebtedness and (ii) interest on the
$1.75 million began to accrue at the rate of ten percent (10%) per annum as of
March 24, 1997. Such interest accrued is payable on September 24, 1997 and at
monthly intervals thereafter. The Convertible Note Purchasers have not taken any
action to exercise any default remedies to date. There can be no assurance that
the Convertible Note Purchasers will continue to refrain from exercising
available default remedies. The Convertible Note Purchasers' right to convert
the $1.75 million principal into the Escrowed Shares and the aforementioned 10%
interest terminate upon the earlier of repayment of the Convertible Notes or
November 2, 1998. The conversion right is the Convertible Note Purchasers'
exclusive remedy in the event of the Company's failure to pay the principal
amount of the Convertible Notes.
Page 18
<PAGE> 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
None.
b) Form 8-K Reports during the First Quarter
and thereafter
The Company filed four Current Reports on
Form 8-K during the quarter ended March 31, 1997,
and one thereafter as follows:
1. Form 8-K Report, dated January 14, 1997,
with respect to Item 9 of such Report.
2. Form 8-K Report, dated February 4, 1997,
with respect to Item 9 of such Report.
3. Form 8-K Report, dated February 25,
1997, with respect to Item 9 of such
Report.
4. Form 8-K Report, dated March 18, 1997,
with respect to Item 9 of such Report.
5. Form 8-K Report, dated April 8, 1997,
with respect to Item 9 of such Report.
Page 19
<PAGE> 20
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LITHIUM TECHNOLOGY CORPORATION
By: /s/ Thomas R. Thomsen
--------------------------------------------
Chairman and Chief Executive Officer
/s/ William D. Walker
--------------------------------------------
William D. Walker
Treasurer and
Chief Financial Officer
(principal financial officer)
May 9, 1997
Page 20
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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