<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 SEPTEMBER 30, 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 November 3, 1997:
18,302,138 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 SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets - September 30, 1997 and December
31, 1996 3
Consolidated Statements of Operations - Nine Months Ended
September 30, 1997 and 1996, and Period From July 21,
1989 (Date of Inception) to September 30, 1997 4
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) - Nine Months Ended September 30, 1997 5
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1997 and 1996, and Period from July 21,
1989 (Date of Inception) to September 30, 1997 6
Notes to Consolidated Financial Statements - September 30, 8-13
1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents, including cash held in
escrow of $4,130,000 at September 30, 1997 $ 4,839,000 $ 1,388,000
Prepaid expenses and other current assets -- 10,000
------------ ------------
Total Current Assets 4,839,000 1,398,000
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION
of $489,000 at September 30, 1997 and $363,000 at
December 31, 1996 500,000 624,000
------------ ------------
OTHER ASSETS:
Restricted cash -- 65,000
Debt issue costs, less accumulated amortization
of $584,000 at September 30, 1997 and $438,000
at December 31, 1996 274,000 142,000
Deferred consulting fees 190,000 --
Security deposits 20,000 20,000
------------ ------------
484,000 227,000
------------ ------------
$ 5,823,000 $ 2,249,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable $ -- $ 1,750,000
Accounts payable and accrued expenses 1,110,000 1,046,000
Accrued salaries 277,000 232,000
------------ ------------
Total Current Liabilities 1,387,000 3,028,000
------------ ------------
LONG-TERM LIABILITIES:
Convertible notes payable, due November 2, 1998 1,505,000 --
Senior secured convertible notes payable, due
July 1, 2002 5,500,000 --
------------ ------------
Total Long-Term Liabilities 7,005,000 --
------------ ------------
Total Liabilities 8,392,000 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 - 17,759,000 shares
at September 30, 1997 and
17,108,000 shares at December 31, 1996 177,000 171,000
Additional paid-in capital 27,376,000 16,772,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (23,257,000) (10,857,000)
------------ ------------
Total Stockholders' Equity (Deficiency) (2,569,000) (779,000)
------------ ------------
$ 5,823,000 $ 2,249,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 21, 1989
(DATE OF INCEPTION)
THREE MONTHS ENDED NINE MONTHS ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ------------------------------- ---------------
1997 1996 1997 1996 1997
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
COSTS AND EXPENSES:
Engineering,
research and
development $ 287,000 $ 325,000 $ 914,000 $ 899,000 $ 4,627,000
General and
administrative 294,000 765,000 1,135,000 2,143,000 8,094,000
Interest expense,
net of interest
income 46,000 (13,000) 530,000 21,000 715,000
Interest expense (Note 6) 9,821,000 9,821,000 9,821,000
---------- ------------ ----------- ----------- ------------
10,448,000 1,077,000 12,400,000 3,063,000 23,257,000
---------- ----------- ----------- ----------- ------------
NET LOSS: $(10,448,000) $(1,077,000) $(12,400,000) $(3,063,000) $(23,257,000)
=========== =========== ============ ============ ============
NUMBER OF COMMON
SHARES OUTSTANDING: 17,612,000 15,919,000 17,530,000 13,212,000
========== ========== ========== ==========
NET LOSS PER SHARE: $ (.59) $ (.07) $ (.71) $ (.23)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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
Nine months ended
September 30,1997: 17,108,000 $171,000 $16,772,000 $(6,865,000) $(10,857,000)
Issuance of
Common Stock:
In connection with
costs relating to
the issuance of 10%
convertible notes 493,000 5,000 450,000
In connection
with the sale of
Escrowed Shares by
the Convertible Note
Purchasers 158,000 1,000 143,000
Issuance of warrants
in connection with
Consulting Agreement 190,000
Interest expense relating to
the beneficial conversion
feature of the Senior
Secured Convertible Notes
(Note 6) 9,821,000
Net loss (12,400,000)
---------- -------- ----------- ------------ -----------
BALANCES AT
SEPTEMBER 30, 1997 17,759,000 $177,000 $27,376,000 $(6,865,000) $(23,257,000)
============== ======== =========== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 21, 1989
NINE MONTHS ENDED (DATE OF INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997
---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,400,000) $ (3,063,000) $(23,257,000)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Interest expense relating to the beneficial
conversion feature of the Senior Secured
Convertible Note 9,821,000 9,821,000
Depreciation 126,000 127,000 488,000
Amortization of debt issue costs 146,000 225,000 885,000
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 109,000 659,000 2,121,000
Due to related parties -- (209,000) (118,000)
------------ ----------- ------------
Net cash provided by (used in)
operating activities (1,733,000) (2,215,000) (9,102,000)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,000) (143,000) (738,000)
Restricted cash 65,000 (18,000) --
Other (1,000) -- 93,000
------------ ----------- -----------
Net cash provided by (used in)
investing activities 62,000 (161,000) (645,000)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances repayable only out of
proceeds of public offering -- -- 471,000
Proceeds received upon issuance of common stock -- 2,207,000 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 -- 68,000 569,000
Net advances by former principal stockholder -- -- 321,000
Proceeds from sale of convertible debt 5,500,000 516,000 10,874,000
Debt issue costs (278,000) (51,000) (888,000)
------------ ----------- ------------
Repayment of convertible debt (100,000) -- (100,000)
------------ ----------- ------------
Net cash provided by financing activities 5,122,000 2,740,000 14,586,000
------------ ----------- ------------
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
PERIOD FROM
NINE MONTHS ENDED JULY 21, 1989
SEPTEMBER 30, (DATE OF
------------- INCEPTION) TO
1997 1996 SEPTEMBER 30, 1997
---- ---- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET CHANGE IN CASH AND EQUIVALENTS 3,451,000 364,000 4,839,000
CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,388,000 217,000 --
----------- ----------- ------------
CASH AND EQUIVALENTS, END OF YEAR $ 4,839,000 $ 581,000 $ 4,839,000
=========== ========= ============
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 $ -- $ 167,000 $ 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 $ 145,000 $ 2,220,000 $ 3,413,000
=========== =========== ===========
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 $ 190,000 $ 68,000 $ 350,000
=========== =========== ===========
Common stock issued for costs related
to 10% promissory notes $ -- $ -- $ 525,000
=========== =========== ===========
Interest expense relating to the
beneficial conversion feature of
the Senior Secured Convertible Notes $ 9,821,000 $ -- $ 9,821,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE> 8
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 and nine month periods ended September 30, 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") together with its wholly-owned
subsidiary, Lithion Corporation ("Lithion"), collectively referred to
as the "Company", is an advanced development stage publicly held
company 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 holds 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 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
computers and wireless communications handset devices). The Company's
patented and proprietary composite cell construction and low-cost
manufacturing process are equally applicable to lithium metal polymer
technology or lithium-ion polymer technology. The Company intends to
pursue both chemistries for specific portable electronics
applications.
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.
8
<PAGE> 9
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 few years. The
Company has generated no revenues nor has it had any commercial
operations to date and does not expect to generate any significant
revenues from operations during 1997.
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
capabilities, 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 $14,460,000 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). In
July-August 1997, the Company borrowed $500,000 pursuant to the sale
of convertible notes described herein (see Note 6). This bridge
financing of $500,000 was repaid in full from the proceeds resulting
from the sale of $5,500,000 Senior Secured Convertible Notes on
September 22, 1997. (See Note 6 for details regarding the Company's
$5,500,000 Senior Secured Convertible Notes).
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
$22 million (assuming repayment of the $5,500,000 Senior Secured
Convertible Notes). 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.
9
<PAGE> 10
4. PROPERTY AND EQUIPMENT ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Laboratory equipment $ 855,000 $ 855,000
Furniture and fixtures 93,000 91,000
Leasehold improvements 41,000 41,000
--------- ---------
989,000 987,000
Less: Accumulated depreciation
and amortization 489,000 363,000
--------- ---------
$ 500,000 $ 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
agreement has been extended through May 8, 1998. The officer
voluntarily elected to defer his compensation and at September 30,
1997 such deferral ($257,458) has been included in accrued salaries
in the accompanying financial statements.
In July 1996, the Company entered into one year employment agreements
with its President/Chief Operating Officer and its Executive 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. In May 1997, these employment
agreements were extended for one year on the same terms and conditions
except that no new options were granted.
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.
The complaint also includes similar allegations against the former
director, flowing from the fraudulent issuance of warrants to him.
10
<PAGE> 11
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 September 30, 1997.
CONVERTIBLE NOTES PAYABLE DUE NOVEMBER 2, 1998 - In October 1996, the
Company sold $1.75 million principal amount of Convertible Notes. The
Company did not repay the $1.75 million principal of the Convertible
Notes on the March 24, 1997 maturity date and, accordingly, pursuant
to the terms of the Convertible Note Agreements, the Company and the
Convertible Note Purchasers 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. The Convertible
Note Purchasers did not take any action to exercise any default
remedies while negotiations were proceeding to restructure the
Convertible Note Agreements. On August 18, 1997, the Company and the
Convertible Note Purchasers agreed to the following material terms:
(i) the maturity date of the Convertible Notes was extended to
November 2, 1998; (ii) the Company will pay to the Convertible Note
Purchasers $100,000 toward the outstanding principal balance of the
Convertible Notes upon the closing of a private placement of the
Company's securities currently in the negotiation phase, plus accrued
interest since March 24, 1997 (paid in September 1997); (iii) the
Convertible Note Purchasers will be permitted to sell certain
quantities of the Escrowed Shares at then current market prices,
the proceeds of which will be deemed to reduce the outstanding
principal amount owed on the Convertible Notes; (iv) once the
principal amount of the Convertible Notes is repaid either through
sales of the Escrowed Shares or by the Company's repayment of the
Convertible Notes, 12.5% of any remaining Escrowed Shares will be
delivered to the Convertible Note Purchasers, and the remaining 87.5%
will be retired by the Company (subject to adjustment depending on the
occurrence of certain events); (v) the Convertible Notes may be
prepaid by the Company, provided that the Company issue 250,000 of
the Escrowed Shares to the Convertible Note Purchasers; and (vi)
certain weekly issuances of shares of the Company's Common Stock
which were issued to the Convertible Note Purchasers under the terms
of the Convertible Note Agreements will be deemed to have terminated
on March 24, 1997. Interest accrues at 10% per annum. No interest
shall accrue and be due on any principal amount that is unpaid after
July 1, 1998. The amendments to the Convertible Notes also provide
that if the Convertible Note Purchasers' resale exemption from
registration is not available due to a change in the law, then the
Company must file a registration statement with the Securities and
Exchange Commission covering certain shares of the Company's Common
Stock held by the Convertible Note Purchasers.
On September 22, 1997, the Company paid $100,000 to the Convertible
Note Purchasers to reduce the principal amount of the Convertible
Notes. During September 1997, one of the Convertible Note Purchasers
also sold 158,000 Escrowed Shares which further reduced the principal
amount of the Convertible Notes by $144,452.
11
<PAGE> 12
BRIDGE FINANCING - In July and August 1997, the Company obtained
bridge financing for an aggregate $500,000 by issuing convertible
notes to five lenders and an aggregate of 100,000 warrants to these
lenders. The terms of this bridge financing, as amended, include,
among other things, interest of 8% on the bridge notes, maturity of
the bridge notes on September 30, 1997, the convertibility of the
bridge notes into the Company's Common Stock at $.28 per share, and an
exercise price of $.14 per share for the bridge lenders' warrants. On
September 22, 1997, these convertible notes were repaid from proceeds
of the sale of $5.5 million of the Company's Senior Secured
Convertible Notes. In November 1997, warrants to purchase 100,000
shares of the Company's Common Stock were exercised by the bridge
lenders at an exercise price of $.14 per share.
SENIOR SECURED CONVERTIBLE NOTES DUE JULY 1, 2002 - On September 22,
1997, the Company entered into a Senior Secured Convertible Note
Purchase Agreement (the "Note Purchase Agreement") with Lithium Link
LLC (the "Lender") for the sale of $5.5 million of the Company's Senior
Secured Convertible Notes (the "Notes"). The Company received $1.37
million of the $5.5 million funding as of the September 22, 1997
closing date and an additional $800,000, plus interest was disbursed
from the escrow agent on November 3, 1997 in accordance with terms of
the Note Purchase Agreement. The remaining proceeds of the sale of the
Notes will be disbursed to the Company from the escrow account
bi-monthly over a ten month period in amounts varying between $550,000
and $1,730,000 based on a pre-determined disbursement schedule. The
bi-monthly fundings are subject to the Company's satisfaction of
certain conditions subsequent set forth in the Note Purchase Agreement,
none of which relate to operating or financial milestones. Interest
accrues at 8.5% and is payable annually, at the Company's election in
cash or the Company's Common Stock. The principal of the Notes is
payable on or before July 1, 2002. The Notes are convertible into the
Company's Common Stock at a conversion price of $.28 per share. The
Company has recorded the intrinsic value of the beneficial conversion
feature of the Senior secured covertible notes as a charge to interest
expense at its then fair value of $9,821,000. The holders of the
Notes will have two demand registration rights and "piggyback"
registration rights, subject to conditions set forth in the Note
Purchase Agreement.
In connection with the sale of the Notes, the Company entered into a
Consulting Agreement with Interlink Management Corporation ("IMC")
whereby IMC will be paid $5,000 per month for one year, with the
Company having an option to renew the Consulting Agreement for another
one year term. IMC was granted a warrant to purchase 500,000 shares of
the Company's Common Stock at a price of $.40 per share, which has been
recorded at its then fair value of $190,000. Such amount will be
amortized over the life of the Consulting Agreement. IMC will provide
consulting services in connection with strategic planning and the
identification of prospective strategic alliance partners with respect
to the manufacture and distribution of the Company's lithium-ion
polymer rechargeable battery products. IMC was paid $150,000 for
services and expenses.
The Notes are secured by a first priority security interest in favor
of the Lender as to substantially all of the Company's assets other
than the Company's intellectual property. The Company's obligations
under the Notes are guaranteed by the Company's subsidiary, Lithion
Corporation, and the Company pledged its interest in the shares of
Lithion Corporation as security for repayment of the Notes.
The Company granted to the Lender a nonexclusive, royalty-free,
assignable, and sublicenseable license to use the Company's
lithium-ion-related patents and other intellectual property for the
manufacture and distribution of lithium-ion polymer batteries in a
defined territory essentially comprised of designated countries in
Asia and Oceania, provided that the agreement expressly excludes the
use of the licensed subject matter for the manufacture of lithium
metal polymer battery products. The License Agreement provides that
the Lender may not exercise the license unless a bankruptcy proceeding
is filed by or against the Company or other bankruptcy-related
triggering events respecting the Company occur.
12
<PAGE> 13
7. STOCK INCENTIVE PLAN -- Options under the 1994 Stock Incentive Plan
are summarized as follows:
<TABLE>
<S> <C>
Options outstanding January 1, 1997 1,744,000
Options granted ($.78125 per share) 12,000
Options exercised --
Options canceled (97,000)
----------
Options outstanding, September 30, 1997
($.501-$2.55 per share) 1,659,000
=========
Options available for grant, September 30, 1997 1,008,000
=========
Options exercisable, September 30, 1997 1,348,000
=========
</TABLE>
DIRECTORS STOCK OPTION PLAN -- Options under the Directors
Plan are summarized as follows:
<TABLE>
<C> <C>
Options outstanding, January 1, 1997 107,000
Options granted --
Options canceled (40,000)
----------
Options outstanding, September 30, 1997
($.90 per share) 67,000
=========
Options available for grant, September 30, 1997 266,000
=========
Options exercisable, September 30, 1997 30,000
=========
</TABLE>
WARRANTS -- Warrants are summarized as follows:
<TABLE>
<C> <C>
Warrants outstanding, January 1, 1997 2,360,000
Warrants granted (1) 1,687,000
Warrants exercised --
Warrants expired --
---------
Warrants outstanding, September 30, 1997
($.40 to $3.60 per share) 4,047,000
=========
Warrants exercisable, September 30, 1997 3,940,000
=========
</TABLE>
(1) Includes approximately 987,000 warrants issuable pursuant to anti-dilution
provisions of existing warrant agreements resulting primarily from the sale
of Senior secured convertible notes on September 22, 1997.
8. SUBSEQUENT EVENTS -- During October 1997, one of the Convertible Note
Purchasers sold 275,413 Escrowed Shares which further reduced the
principal amount of the Convertible Notes by $326,977. In addition,
since the principal amount of one note holder has been completely
repaid, 12.5% or 167,307 Escrowed Shares have been issued to this
noteholder and 1,171,151 Escrowed Shares have been retired by the
Company.
In November 1997, warrants to purchase 100,000 shares of the Company's
Common Stock were exercised by the bridge lenders (see Note 6) at an
exercise price of $.14 per share.
13
<PAGE> 14
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 an advanced 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 few years. The Company does not expect to generate any significant
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 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 computers and wireless communications
handset devices). The Company's patented and proprietary composite cell
construction and low-cost manufacturing process are equally applicable to
lithium metal polymer technology or lithium-ion polymer technology. The
Company intends to pursue both chemistries for specific portable electronics
applications.
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 $14.46 million, including most recently, $5.5 million from the
September 1997 sale of convertible notes described herein.
AS OF SEPTEMBER 30, 1997
At September 30, 1997, the Company had cash of $4,839,000 (including equivalents
and cash held in escrow), fixed assets of $500,000 and other assets of $484,000.
The Company's total liabilities were $8,392,000 consisting of accounts payable
and accrued expenses in the amount of $1,387,000, convertible notes due November
2, 1998 in the amount of $1,505,000, and Senior Secured Convertible Notes due
July 1, 2002 in the amount of $5,500,000. The Company had a net working capital
of $3,452,000 on September 30, 1997.
The Company's net working capital was increased by approximately $5,082,000 from
December 31, 1996 to September 30, 1997. The Company's cash and equivalents
increased by approximately $3,451,000 from December 31, 1996 to September 30,
1997. This increase in net working capital and in cash (including cash held in
escrow) is attributable primarily (i) to the sale of $5,500,000 in Senior
Secured Convertible Notes during September 1997 and (ii) to reduced operating
expenses as compared to the corresponding period in 1996 primarily for the
reasons discussed below in "Results of Operations".
The Company's stockholder's deficiency was $2,569,000 at September 30, 1997,
after giving effect to an accumulated deficit of $30,122,000 which consisted of
$23,257,000 accumulated deficit during the development stage from July 21, 1989
through September 30, 1997 and $6,865,000 accumulated deficit from prior
periods. The Company expects to incur substantial operating losses as it
continues its commercialization efforts.
On September 22, 1997, the Company entered into a Senior Secured Convertible
Note Purchase Agreement (the "Note Purchase Agreement") with Lithium Link LLC
(the "Lender") for the sale of $5.5 million of the Company's Senior Secured
Convertible Notes (the "Notes").
The Company is obligated to borrow, and the Lender is obligated to loan, the
entire $5.5 million principal amount. The Company has received $1.37 million
of the $5.5 million funding as of the September 22, 1997 closing date. The
proceeds of the sale of the Notes will be disbursed to the Company from an
escrow account bi-monthly over a ten month period in amounts varying between
$550,000 and $1,730,000 based on a pre-determined disbursement schedule. The
bi-monthly fundings are subject to the
14
<PAGE> 15
Company's satisfaction of certain conditions subsequent set forth in the Note
Purchase Agreement, none of which relate to operating or financial milestones.
Interest accrues at 8.5% and is payable annually, at the Company's election in
cash or the Company's Common Stock. The principal of the Notes is payable on
or before July 1, 2002. The Notes are convertible into the Company's Common
Stock at a conversion price of $.28 per share. The Company has recorded the
intrinsic value of the beneficial conversion feature of the Senior secured
convertible notes as a charge to interest expense at its then fair value of
$9,821,000. The holders of the Notes will have two demand registration rights
and "piggyback" registration rights, subject to conditions set forth in the Note
Purchase Agreement.
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. 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, the Company's continuing compliance with
the conditions contained in the Note Purchase Agreement, 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 September 30, 1997 it has sufficient capital
resources to meet the Company's needs and satisfy the Company's obligations
through approximately June 1999 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
repayment of long-term liabilities. 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 incremental capital needed for attaining
commercial viability of the Company's battery technology, which the Company
currently estimates at $22 million (assuming repayment of the $5,500,000 Senior
Secured 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
Nine Months Ended September 30, 1997 and 1996.
The Company had no revenues for the nine months ended September 30, 1997 and
1996. Engineering, research and development expenses were $914,000 for the nine
months ended September 30, 1997 compared to $899,000 in 1996. The increase of
$15,000 results from decreased contract research activities and increased lab
supplies and salaries as the Company continues to accelerate its
commercialization efforts.
General and administrative expenses were $1,135,000 for the nine months ended
September 30, 1997 compared to $2,143,000 in 1996. The decrease of $1,008,000
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.
Interest expense increased to $530,000 (net of interest income of $28,000) for
the nine months ended September 30, 1997 compared to $21,000 (net of interest
income of $39,000) 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. The
Company has recorded the intrinsic value of the beneficial conversion feature
of the Senior secured convertible notes as a charge to interest expense at its
then fair value of $9,821,000.
15
<PAGE> 16
Three Months Ended September 30, 1997 and 1996.
The Company had no revenues for the three months ended September 30, 1997 and
1996. Engineering, research and development expenses were $287,000 for the
three months ended September 30, 1997 compared to $325,000 in 1996. The
decrease of $38,000 results from decreased contract research activities as the
Company restricted cash expenditures during the three months ended September
30, 1997.
General and administrative expenses were $294,000 for the three months ended
September 30, 1997 compared to $765,000 in 1996. The decrease of $471,000 was
due to decreased legal costs and accrued but unpaid wages to the Company's
Chief Executive Officer.
Interest expense increased to $46,000 (net of interest income of $10,000) for
the three months ended September 30, 1997 compared to ($13,000) (net of interest
income of $13,000) in 1996. The increase in interest expense for the comparable
periods is attributable to the Company's convertible term notes. The Company has
recorded the intrinsic value of the beneficial conversion feature of the Senior
secured convertible notes as a charge to interest expense at its then fair value
of $9,821,000.
16
<PAGE> 17
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 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 September 30, 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. Cade 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. In May
1997, these employment agreements were extended for one year.
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 and distribution of DMF-made
lithium-ion polymer cell samples to selected Original Equipment Manufacturers
(OEMs) customers in early 1997 (accomplished);
(iv) distribution of prototype battery packs to selected OEMs
in late 1997;
(v) initial commercial production of hand assembled battery
packs using DMF-made cells for OEMs in early 1998, ramping up to 20,000
notebook computer batteries per month and generating sales of $6 million in
1998;
(vi) installation of a pilot manufacturing facility in early
1998;
(vii) expansion of the pilot manufacturing facility in late
1998 by automating the backend assembly; 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 (vii) 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.
17
<PAGE> 18
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 larger 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 long term liabilities if not
converted to equity and $2 million for equipment purchases. As noted above (See
"Liquidity, Capital Resources, and Financial Condition") the Company believes
that as of September 30, 1997 it has sufficient capital resources to meet the
Company's needs and satisfy the Company's obligations through approximately
June 1999 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. In order to
raise sufficient capital for its future growth, and repayment of long term
liabilities if not converted to equity, 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, 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. 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.
18
<PAGE> 19
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
In July and August 1997, the Company issued to certain individuals warrants to
purchase 100,000 shares of the Company's Common Stock at an exercise price of
$.14 per share. The warrants were issued in consideration of providing
$500,000 in bridge financing to the Company and were exercised in November 1997.
On September 22, 1997, the Company sold $5,500,000 of its Senior Secured
Convertible Notes to Lithium Link LLC. Interest accrues at 8.5% and is payable
annually, at the Company's election in cash or in Common Stock. The notes are
convertible into the Company's Common Stock at a conversion price of $.28 per
share. In connection with the sale of the Notes, a warrant to purchase 500,000
of the Company's Common Stock at an exercise price of $.40 per share was issued
to Interlink Management Corporation and the Company also paid $150,000 for
services and expenses (see Note 6). Such securities were issued pursuant to
the exemption under Section 4(2) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None.
b) Form 8-K Reports during the Third Quarter and
thereafter
The Company filed two Current Reports
on Form 8-K during the quarter ended September 30, 1997
as follows:
1. Form 8-K Report dated August 21, 1997 with
respect to Item 5 of such Report.
2. Form 8-K Report dated September 22, 1997 with
respect to Item 5 of such Report.
20
<PAGE> 21
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
-----------------------------------------
Thomas R. Thomsen
Chairman and Chief Executive Officer
/s/ William D. Walker
-----------------------------------------
William D. Walker
Treasurer and
Chief Financial Officer
(Principal Financial Officer)
November 14, 1997
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL EXTRACTED FROM THE COMPANY'S FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,839
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,839
<PP&E> 969
<DEPRECIATION> 489
<TOTAL-ASSETS> 5,823
<CURRENT-LIABILITIES> 1,387
<BONDS> 0
0
0
<COMMON> 177
<OTHER-SE> (2,569)
<TOTAL-LIABILITY-AND-EQUITY> 5,823
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,351
<INCOME-PRETAX> (12,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,400)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> (.71)
</TABLE>
