<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, 1998
[ ] 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 April 30, 1998:
21,016,361 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, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets - March 31, 1998 and December
31, 1997 3
Consolidated Statements of Operations - Three Months Ended
March 31, 1998 and 1997, and Period From July 21,
1989 (Date of Inception) to March 31, 1998 4
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1998 and 1997, and Period from July 21,
1989 (Date of Inception) to March 31, 1998 5
Notes to Consolidated Financial Statements - March 31, 6-9
1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10-12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
</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>
March 31, December 31,
1998 1997
------------ -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 931,000 $ 506,000
Cash held in escrow 2,180,000 3,330,000
Other current assets 9,000 15,000
---------- ----------
Total Current Assets 3,120,000 $3,851,000
---------- ----------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $617,000 AND $567,000 533,000 422,000
OTHER ASSETS:
Debt issue costs, less accumulated amortization of $75,000 and $39,000 603,000 638,000
Security and equipment deposits 20,000 49,000
----------- -----------
623,000 687,000
----------- -----------
$4,276,000 $4,960,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 498,000 $ 390,000
Accrued salaries 165,000 181,000
Other accrued expenses 278,000 308,000
Customer deposits 100,000
----------- -----------
Total Current liabilities $1,041,000 $ 879,000
----------- -----------
LONG-TERM LIABILITIES:
Senior Secured Convertible Notes, due July 1, 2002 5,500,000 5,500,000
----------- -----------
Total liabilities 6,541,000 6,379,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Common stock, par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 21,016,361 shares 210,000 210,000
Additional paid-in capital 38,277,000 38,277,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (33,887,000) (33,041,000)
------------ ------------
Total Stockholders' Deficiency (2,265,000) (1,419,000)
------------ ------------
$4,276,000) $4,960,000
============ ============
</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
Three Months Ended Inception) to
March 31, March 31,
1998 1997 1998
---------- ---------- ---------------
(unaudited) (unaudited) (As Restated -
see Note 7)
(unaudited)
<S> <C> <C> <C>
COSTS AND EXPENSES:
Engineering, research and development $ 335,000 $ 344,000 $ 5,447,000
General and administrative 440,000 571,000 9,053,000
Interest expense, net of interest income
of $44,000 (1998) and $12,000 (1997) 71,000 447,000 1,546,000
Interest expense related to beneficial
conversion feature -- -- 17,841,000
------------- ----------- -------------
846,000 1,362,000 33,887,000
------------- ----------- -------------
NET LOSS $ (846,000) $(1,362,000) $(33,887,000)
------------- ----------- -------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 21,016,000 17,377,000
============= ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (.04) $ (.08)
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
Three Months Ended July 21, 1989
March 31, (Date of
------------ Inception) to
1998 1997 March 31, 1998
---------- ----------- -----------------
(unaudited) (unaudited) (As Restated,
see Note 7)
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (846,000) $(1,362,000) $(33,887,000)
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 -- -- 17,841,000
Depreciation 50,000 41,000 617,000
Amortization of debt issue costs 35,000 142,000 955,000
Common stock issued in lieu of interest -- 455,000 1,288,000
Fair value of warrants and option granted
for services rendered -- -- 205,000
Common stock issued for services
provided -- -- 206,000
Expenses paid by shareholder of behalf
of Company -- -- 79,000
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 6,000 10,000 (4,000)
Security deposits 29,000 -- (20,000)
Accounts payable, accrued expenses and
customer deposits 162,000 (102,000) 2,150,000
Due to related parties -- -- (118,000)
------------ ----------- ------------
Net cash used in
operating activities (564,000) (816,000) (10,684,000)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (161,000) -- (900,000)
Restricted cash -- 65,000 --
Other -- -- 94,000
------------ ----------- ------------
Net cash provided by (used in)
investing activities (161,000) 65,000 (806,000)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advance repayable only out of -- -- 471,000
proceeds of public offering
Proceeds received upon issuance of -- -- 3,239,000
common stock
Proceeds received from issuance of -- -- 100,000
preferred stock, net of related costs
Proceeds received upon exercise of options -- -- 583,000
and warrants, net of costs
Net advances by former principal
stockholder -- -- 321,000
Proceeds from sale of convertible debt 1,150,000 -- 8,694,000
Debt issue costs -- - (887,000)
Repayment of convertible debt -- -- (100,000)
------------ ----------- ------------
Net cash provided by
financing activities 1,150,000 -- 12,421,000
------------ ----------- ------------
NET CHANGE IN CASH AND CASH 425,000 (751,000) 931,000
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 506,000 1,388,000 --
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 931,000 $ 637,000 $ 931,000
============ =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Contribution to capital by former principal $ -- $ -- $ 3,659,000
stockholder
Related party debt exchanged for convertible debt $ -- $ -- $ 321,000
Exchange of indebtedness to former principal $ -- $ -- $ 445,000
stockholder for common stock
Issuance of common stock for services and accrued $ -- $ -- $ 352,000
salaries
Exchange of equipment and accrued rent for $ -- $ -- $ 271,000
common stock
Subordinated notes and related accrued interest $ -- $ -- $ 3,300,000
exchanged for Series A preferred stock
Exchange of convertible debt for convertible $ -- $ -- $ 356,000
preferred stock
Conversion of convertible debt and accrued interest $ -- $ -- $ 4,776,000
into common stock, net of unamortized debt
discount
Exchange of advances repayable only out of $ -- $ -- $ 471,000
proceeds of public offering for common stock
Deferred offering costs on warrants exercised $ -- $ -- $ 88,000
Issuance of warrants in settlement of litigation for
debt issue costs and for services rendered $ -- $ -- $ 364,000
Common stock issued for costs related to 10% $ -- $ -- $ 525,000
promissory notes
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
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, 1997. Operating
results for the three month period ended March 31, 1998 is not
necessarily indicative of the results that may be expected for
the year ended December 31, 1998 or any interim period.
Effective January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income"
("SFAS 130"). During the periods presented, the Company had no changes
in equity from transactions or other events and circumstances from
non-owner sources. Accordingly, a statement of comprehensive income
has not been provided as comprehensive loss equals net loss for all
periods presented.
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 large
volume commercial quantities in the near term.
6
<PAGE> 7
3. OPERATING AND LIQUIDITY DIFFICULTIES AND MANAGEMENT'S PLANS TO
OVERCOME:
The accompanying consolidated financial statements of the Company have
been prepared on a going concern basis, which contemplates the
continuation of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. Since its inception,
the Company has incurred substantial operating losses and expects to
incur additional operating losses over the next several years. The
Company does not expect to generate any revenues from operations prior
to late 1998 or the first half of 1999. Since December 1993,
operations have been financed primarily through the use of proceeds
from the sale of convertible debt and private placements of common and
preferred stock. Continuation of the Company's operations is dependent
upon its ability to raise additional financing. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
MANAGEMENT'S PLANS - During the last four years, the Company has
recruited a new management team and a core technical staff with
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
develops 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 $14,800,000 since inception
through various sales of convertible debt and common and preferred
stock. Management's plans include expansion of its strategic
alliances, which would provide capital from joint development
programs, license fees or an additional equity investment. The Company
also plans to raise additional capital by means of private and/or
public equity or debt financings.
In January 1998, the Company signed a Letter of Intent to enter into an
agreement with a major global notebook computer manufacturer to
complete the development of a specific battery for its notebook
computers. Among other things, the Company was paid $100,000 upon
executing the Letter of Intent and will receive an additional $900,000
upon achieving certain milestones under the contemplated agreement.
(See Note 8).
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
$20 million (without regard to 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.
7
<PAGE> 8
4. PROPERTY AND EQUIPMENT ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Laboratory equipment $1,014,000 $ 855,000
Furniture and office equipment 94,000 93,000
Leasehold improvements 42,000 41,000
---------- ---------
1,150,000 989,000
Less: Accumulated depreciation
and amortization 617,000 567,000
---------- ---------
$ 533,000 $ 422,000
========== =========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
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 sought
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 included the unpaid legal fees
in accounts payable, however, it believed these actions to be without
merit. Accordingly, the Company filed its own lawsuit against the
former counsel as well as the former director. Subsequent to March 31,
1998, the Company reached agreements to settle the law suits noted
above. See Note 8.
8
<PAGE> 9
6. STOCK OPTIONS
Options under the 1994 Stock Plan and Directors Plan as of March 31,
1998 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise Price
<S> <C> <C>
Outstanding, beginning of period 2,909,000 $ 0.73
Granted -- --
Exercised -- --
Enrolled -- --
Cancelled -- --
---------- ------
Outstanding, end of period 2,909,000 $ 0.73
---------- ------
Options exercisable, end of period 2,060,000 $ 0.63
---------- ------
</TABLE>
7. RESTATEMENT
Subsequent to the issuance of the March 31, 1997 financial statements
on Form 10-Q, management determined that the accounting treatment of
the convertible notes issued in 1994 and 1995 did not reflect the
intrinsic value of the beneficial conversion feature of those notes. As
a result, the financial statements for the period from July 21, 1989
(date of inception) to March 31, 1997, and for the years ended
December 31, 1994 and December 31, 1995 have been restated from amounts
previously reported to reflect the appropriate accounting treatment for
the beneficial conversion features. The effect of the restatement is to
record the discount as interest expense for each period with an
offsetting credit to additional paid-in capital. The restatement had no
impact on total stockholders' equity or total assets.
The impact of the restatement on the Company's financial statements is
summarized below:
<TABLE>
<CAPTION>
As Previously
Reported As Restated
<S> <C> <C>
Net loss:
For the period July 21, 1989 (date of inception)
through March 31, 1997 $12,219,000 $20,239,000
=========== ===========
</TABLE>
8. SUBSEQUENT EVENTS
In May 1998, the Company reached agreements to settle the law suits
described in Note 5 pursuant to which the Company will issue 125,000
shares of its common stock, will receive a cash settlement payment, and
will eliminate an accrued liability, the net effect of which will be
cash proceeds to the Company of approximately $505,000. The parties
have entered into definitive settlement documentation and stipulations
of dismissal with prejudice as of the filing of the Company's Report on
Form 10-QSB for the quarter ended March 31, 1998.
In May 1998, the Company entered into a technology development
agreement with a globally prominent personal computer (PC) manufacturer
for the Company to provide its proprietary rechargeable lithium-ion
polymer batteries for an advanced notebook application. Under the terms
of the agreement, the PC manufacturer will invest $1,000,000 in the
Company for equity and other considerations. Of this amount, $100,000
has already been advanced to the Company and $900,000 is scheduled for
funding in two tranches based upon technology-related milestones.
9
<PAGE> 10
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.
Subsequent to the issuance of the March 31, 1997 financial statements on Form
10-QSB, management determined that the accounting treatment of the convertible
notes issued in 1994 and 1995 did not reflect the intrinsic value of the
beneficial conversion feature of those notes. As a result, the financial
statements for the period from July 21, 1989 (date of inception) to March 31,
1997, and for the years ended December 31, 1994 and 1995 have been restated from
amounts previously reported to reflect the appropriate accounting treatment for
the beneficial conversion features. The effect of the restatement is to record
the discount as interest expense for each period with an offsetting credit to
additional paid-in capital. The restatement had no impact on total stockholders'
equity or total assets.
GENERAL
The Company is a development stage company engaged in the business of
developing and seeking to commercialize unique, solid state, lithium-ion
polymer and lithium metal polymer rechargeable batteries. The Company has
generated no revenues and has no commercial operations to date. The Company has
been unprofitable since inception, expects to incur substantial additional
operating losses over the next few years and needs significant additional
financing to repay existing indebtedness and to continue the development and
commercialization of its technology. The Company does not expect to generate
any significant revenues from operations during the fiscal year ending December
31, 1998. 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 devices). The Company's patented and proprietary composite cell
construction and low-cost manufacturing process are equally applicable to
lithium-ion polymer technology or lithium metal 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 since inception with convertible debt
and private placements of common and preferred stock and has raised
approximately $14.8 million, including, most recently, $5.5 million from the
September 1997 sale of convertible notes described herein (the "1997 Notes").
At March 31, 1998, the Company had cash of $3,111,000 (including cash
equivalents and cash held in escrow), fixed assets of $533,000 and other assets
of $623,000. The Company's total liabilities were $6,541,000 consisting of
accounts payable, accrued salaries, accrued expenses and customer deposits in
the amount of $1,041,000 and the 1997 Notes due July 1, 2002 in the amount of
$5,500,000. The Company had net working capital of $2,079,000 on March 31,
1998.
The Company's net working capital was decreased by approximately $893,000 from
December 31, 1997 to March 31, 1998. The Company's cash, cash equivalents and
cash held in escrow decreased by approximately $725,000 from December 31, 1997
to March 31, 1998. The decrease in net working capital and in cash and cash
equivalents (including cash held in escrow) is attributable primarily to
operating expenses and capital expenditures as discussed below in "Results in
Operations".
The Company's stockholders deficiency was $2,265,000 at March 31, 1998, after
giving effect to an accumulated deficit of $40,752,000 which consisted of
$33,887,000 accumulated deficit during the development stage from July 21, 1989
through March 31, 1998 and $6,865,000 accumulated deficit from prior periods.
The Company expects to incur substantial operating losses as it continues its
commercialization efforts.
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 March 31, 1998, it has sufficient capital
resources to meet the Company's needs and satisfy the Company's obligations
through approximately June 1999 other than financing for the development of
manufacturing capacity, including the obtaining of additional financing of
approximately $2.7 million for approximately $3.5 million in equipment
expenditures that is currently estimated to be required in 1998 to achieve
sustained production levels, 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. Continuation of the Company's operations is
dependent upon its ability to raise additional financing. In order to raise
sufficient capital for its future growth and repayment of the 1997 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 $20 million (without regard to repayment of the
$5,500,000 1997 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
The Company had no revenues for the three months ended March 31, 1998 and 1997.
Engineering, research and development expenses were $335,000 for the three
months ended March 31, 1998 compared to $344,000 in 1997. The decrease of
$9,000 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 $440,000 for the three months ended
March 31, 1998 compared to $571,000 in 1997. The decrease of $131,000 was due to
decreased legal costs and decreased amortization of debt issue costs offset by
increased consulting expenses.
Interest expense decreased to $71,000 (net of interest income of $44,000) for
the three months ended March 31, 1998 compared to $447,000 (net of interest
income of $12,000) in 1997. The decrease 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
if its right to extend the maturity date for repayment of its then outstanding
Convertible Notes.
10
<PAGE> 11
PLAN OF OPERATIONS FOR THE COMPANY
The Company's strategy is to commercialize a new generation of solid state
lithium-ion polymer and lithium metal polymer batteries based on fifteen years
research and development and a strong patent portfolio covering both the battery
construction and manufacturing process unique to the battery industry. The
proprietary technology uses high performance fibers in composite battery
structures and low-cost web coating/handling methods for manufacturing. This
technology encompasses lithium-ion polymer batteries (market entry in 1998) and
lithium alloy polymer batteries (market entry in three to five years). The
Company's target market is mobile communications and computing applications
which showcase the Company's thin, flat lightweight form factor and long
run-times. The Company's long term objectives include the development and/or
licensing of battery technology for a variety of other applications including
microelectronics, electric vehicles, aerospace and defense and solar cells.
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 Company's Demonstration Manufacturing
Facility (DMF) and its equipment augmentation, and other manufacturing-related
facilities including commercial production at the Company's Plymouth Meeting
Manufacturing Plant (PMMP) and commercial production at the Company's proposed
Taiwan Manufacturing Plant (TMP).
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, 1998, the management team and technical staff
consisted of eleven 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 early 1998 (on-going);
(v) installation of larger scale lamination and backend
assembly equipment at PMMP, with initial commercial production at PMMP in late
1998;
(vi) initial production at the Taiwan factory (scheduled for
late 1999) with the capability of ramping up to hundreds of thousands of
notebook computer batteries per month; and
(vii) construction of additional manufacturing facilities in
the United States and Europe in the 2000-2001 timeframe once market demand
exceeds initial manufacturing capacity.
The Company estimates that completion of phases (iv) through (vi) through the
end of 1998 will cost the Company approximately $20 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. In
connection with achieving and implementing manufacturing capability and
commercialization, the Company expects to hire significant additional
personnel.
11
<PAGE> 12
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 has been 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 augment the DMF equipment to construct a
manufacturing line (Plymouth Meeting Manufacturing Plant -- PMMP) reflecting the
cost, quality, reliability, and performance required for the various target
market applications. It is anticipated that the PMMP will cost approximately
$3.5 million to construct in the 1998-99 time frame. The PMMP will be located
within the Company's existing facility in Plymouth Meeting, Pennsylvania.
During the next twelve months after the date of this report, the Company
expects to incur expenses of approximately $3.5 million for the purchase of
equipment and services at the PMMP 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 $20 million total
capital equipment and operating expense required to bring the Company to the
initial commercial production stage at approximately the end of 1998 by means of
private and/or public equity or debt financings.
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 $2.7 million for equipment purchases. As noted above (See
"Liquidity, Capital Resources, and Financial Condition") the Company believes
that as of March 31, 1998 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. 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.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for certain forward-looking statements. Statements contained in this
report that are not historical facts are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those stated in the forward-looking statements. Factors that could cause
actual results to differ materially include, among others: general economic
conditions, changes in laws and government regulations, fluctuations in demand
for the Company's products, the Company's ability to consummate strategic
alliances, technology development problems, and the Company's ability to
successfully finance future plant and equipment plans, as well as its current
ongoing operations.
12
<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1998, the Company reached agreements to settle the law suits described
in Note 5 above and in the Company's previous reports since June 30, 1996 on
Form 10-QSB and Form 10-KSB, pursuant to which the Company will issue 125,000
shares of its common stock, will receive a cash settlement payment, and will
eliminate an accrued liability, the net effect of which will be cash proceeds
to the Company of approximately $505,000. The parties have entered into
definitive settlement documentation and stipulations of dismissal with
prejudice as of the filing of the Company's Report on Form 10-QSB for the
quarter ended March 31, 1998.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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 Quarter Ended
March 31, 1998
None.
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)
May 15, 1998
13
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL EXTRACTED FROM THE COMPANY'S FINANCIAL
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