<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 JUNE 30, 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 July 31, 1998:
21,239,694 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 JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets - June 30, 1998 and December
31, 1997 3
Consolidated Statements of Operations - Six Months Ended
June 30, 1998 and 1997, and Period From July 21,
1989 (Date of Inception) to June 30, 1998 4
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1998 and 1997, and Period from July 21,
1989 (Date of Inception) to June 30, 1998 6
Notes to Consolidated Financial Statements - June 30,
1998 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 933,000 $ 506,000
Cash held in escrow 1,630,000 3,330,000
Other current assets 2,000 15,000
---------- ----------
Total Current Assets 2,565,000 3,851,000
---------- ----------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $666,000 AND $567,000 589,000 422,000
OTHER ASSETS:
Debt issue costs, less accumulated amortization of $111,000 and $39,000 617,000 638,000
Security and equipment deposits 95,000 49,000
----------- -----------
712,000 687,000
----------- -----------
$3,866,000 $4,960,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 185,000 $ 390,000
Accrued salaries 165,000 181,000
Other accrued expenses 432,000 308,000
Customer deposits 100,000
----------- -----------
Total Current liabilities 882,000 879,000
----------- -----------
LONG-TERM LIABILITIES:
Senior Secured Convertible Notes, due July 1, 2002 5,500,000 5,500,000
----------- -----------
Total liabilities 6,382,000 6,379,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Common stock, par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 21,239,694 and 21,016,361 shares 212,000 210,000
Additional paid-in capital 38,454,000 38,277,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (34,317,000) (33,041,000)
------------ ------------
Total Stockholders' Deficiency (2,516,000) (1,419,000)
------------ ------------
$3,866,000 $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 INCEPTION)
THREE MONTHS ENDED SIX MONTHS ENDED TO
JUNE 30, JUNE 30, JUNE 30,
------------------------- ------------------------------ -----------------
1998 1997 1998 1997 1998
---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Development contracts $ 22,000 $ 22,000 $ 22,000
---------- ---------- ----------- ----------- ------------
COSTS AND EXPENSES:
Engineering, research
and development 525,000 283,000 860,000 627,000 5,972,000
General and administrative 497,000 270,000 937,000 841,000 9,550,000
---------- ---------- ----------- ----------- ------------
1,022,000 553,000 1,797,000 1,468,000 15,522,000
---------- ---------- ----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest expense, net of
interest income (80,000) (37,000) (151,000) (484,000) (1,626,000)
Interest expense related
to beneficial conversion
feature (17,841,000)
Other non-operating
income - Note 5 650,000 650,000 650,000
---------- ---------- ----------- ----------- ------------
570,000 (37,000) 499,000 (484,000) (18,817,000)
---------- ---------- ----------- ----------- ------------
NET LOSS: $ (430,000) $ (590,000) $(1,276,000) $(1,952,000) $(34,317,000)
========== ========== =========== =========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: 21,090,000 17,601,000 21,053,000 17,489,000
========== ========== =========== ===========
BASIC AND DILUTED NET LOSS
PER SHARE: $(0.02) $(0.03) $(0.06) $(0.11)
========== ========== =========== ===========
</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, 1997 21,016,361 $210,000 $38,277,000 $(6,865,000) $(33,041,000)
Six months ended June 30, 1998:
Issuance of Common Stock:
In connection with
settlement of litigation 125,000 1,000 124,000
Upon exercise of stock options 98,333 1,000 53,000
Net loss (1,276,000)
---------- -------- ----------- ----------- ------------
BALANCES AT
JUNE 30, 1998 21,239,694 $212,000 $38,454,000 $(6,865,000) $(34,317,000)
========== ======== =========== =========== ============
</TABLE>
5
<PAGE> 6
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
Six Months Ended July 21, 1989
June 30, (Date of
------------ Inception) to
1998 1997 June 30, 1998
---------- ----------- -----------------
(unaudited) (unaudited) (As Restated,
see Note 7)
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,276,000) $(1,952,000) $(34,317,000)
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 99,000 84,000 666,000
Amortization of debt issue costs 72,000 142,000 992,000
Reduction of accrued expenses (270,000) -- (270,000)
Common stock issued in lieu of interest -- 455,000 1,288,000
Fair value of warrants and option granted
for services rendered -- -- 209,000
Common stock issued for services
provided -- -- 206,000
Common stock issued upon settlement of
litigation 125,000 -- 125,000
Expenses paid by shareholder on behalf
of Company -- -- 79,000
Changes in operating assets and liabilities:
Other current assets 13,000 10,000 3,000
Security and equipment deposits (46,000) -- (95,000)
Accounts payable, accrued expenses and
customer deposits 273,000 63,000 2,261,000
Due to related parties -- -- (118,000)
------------ ----------- ------------
Net cash used in
operating activities (1,010,000) (1,198,000) (11,130,000)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (266,000) (1,000) (1,005,000)
Restricted cash -- 65,000 --
Other -- -- 94,000
------------ ----------- ------------
Net cash provided by (used in)
investing activities (266,000) 64,000 (911,000)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advance repayable only out of
proceeds of public offering -- -- 471,000
Proceeds received upon issuance of
common stock -- -- 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 54,000 -- 637,000
Net advances by former principal
stockholder -- -- 321,000
Proceeds from sale of convertible debt 1,700,000 -- 9,244,000
Debt issue costs (51,000) (26,000) (938,000)
Repayment of convertible debt -- -- (100,000)
------------ ----------- ------------
Net cash provided by
financing activities 1,703,000 (26,000) 12,974,000
------------ ----------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 427,000 (1,160,000) 933,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 506,000 1,388,000 --
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 933,000 $ 228,000 $ 933,000
============ =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Contribution to capital by former principal
stockholder $ -- $ -- $ 3,659,000
Related party debt exchanged for convertible debt $ -- $ -- $ 321,000
Exchange of indebtedness to former principal
stockholder for common stock $ -- $ -- $ 445,000
Issuance of common stock for services and accrued
salaries $ -- $ -- $ 352,000
Exchange of equipment and accrued rent for
common stock $ -- $ -- $ 271,000
Subordinated notes and related accrued interest
exchanged for Series A preferred stock $ -- $ -- $ 3,300,000
Exchange of convertible debt for convertible
preferred stock $ -- $ -- $ 356,000
Conversion of convertible debt and accrued interest
into common stock, net of unamortized debt
discount $ -- $ -- $ 4,776,000
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%
promissory notes $ -- $ -- $ 525,000
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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. In the opinion of management, all
adjustments (consisting only 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 and six month
periods ended June 30, 1998 are 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", are development stage companies in the process of
commercializing a unique, solid-state, lithium polymer rechargeable
battery. The Company is engaged in research and development activities
to further develop and exploit this battery technology and also holds
various patents relating to such batteries. The Company's
commercialization focus is on the rapidly growing portable electronics
market segment (notebook computers and wireless communications handset
devices).
7
<PAGE> 8
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 commercial
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.
8
<PAGE> 9
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. Through June 30, 1998, the Company
had not generated any revenues and the losses have resulted
principally from (i) interest expense related to the beneficial
conversion feature of certain convertible notes, (ii) general and
administrative costs and (iii) research and development costs.
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, the ability of the
Company to obtain equity and/or debt financing in the public or private
markets, 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. 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. During 1997, the Company
issued 8.5% Senior Secured Convertible Notes for $5,500,000.
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 May 1998, the Company entered into a technology development
agreement with a global notebook computer 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 manufacturer will invest $1,000,000 in the Company for 1,428,571
shares of Common Stock. Of this amount, $100,000 was advanced to the
Company and $900,000 is scheduled for funding in two payments based
upon technology-related milestones.
The Company is currently seeking to raise gross proceeds of $22,000,000
through the private placement of redeemable convertible preferred
stock. The definitive terms of the offering are subject to negotiation
with the investors. No commitments for the purchase of the preferred
stock being offered have been received by the Company.
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 (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.
9
<PAGE> 10
4. PROPERTY AND EQUIPMENT ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Laboratory equipment $1,119,000 $ 855,000
Furniture and office equipment 94,000 93,000
Leasehold improvements 42,000 41,000
---------- ---------
1,255,000 989,000
Less: Accumulated depreciation
and amortization 666,000 567,000
---------- ---------
$ 589,000 $ 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 had not been registered and to which he claimed entitlement. The
Company had declared such warrants and related documents void. The
complaint of the Company's former counsel alleged 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.
In May 1998, the Company reached agreements to settle the law suits
pursuant to which the Company issued 125,000 shares of its Common
Stock, received a cash settlement payment and eliminated an accrued
liability, the net effect of which was cash proceeds to the Company of
approximately $505,000.
10
<PAGE> 11
6. STOCK OPTIONS
Options under the 1994 Stock Plan and Directors Plan as of June 30,
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 65,000 1.01
Exercised (98,000) .55
Cancelled (108,000) 1.20
---------- ------
Outstanding, end of period 2,768,000 $ 0.73
---------- ------
Options exercisable, end of period 1,913,000 $ 0.62
---------- ------
</TABLE>
11
<PAGE> 12
7. RESTATEMENT
Subsequent to the issuance of the June 30, 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 June 30, 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 June 30, 1997 $12,809,000 $20,829,000
=========== ===========
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
Subsequent to the issuance of the June 30, 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 June 30,
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.
OVERVIEW
The Company is in the late stages of developing and seeking to commercialize
innovative rechargeable solid-state lithium-ion polymer batteries. As of June
30, 1998, the Company had not generated any product revenues and had no
commercial operations. To date, the Company has delivered limited quantities of
its battery cells to selected original equipment manufacturers ("OEMs") for
evaluation. Based upon the performance of the Company's battery cells and its
unique manufacturing technology, a top ten personal computer manufacturer (the
"PC OEM") has recently entered into a technology development agreement with the
Company to incorporate the Company's lithium-ion polymer batteries in the PC
OEM's advanced notebook computer scheduled for release in early 1999. Subject to
successful qualification of the Company's battery, the Company anticipates
entering into a definitive supply agreement with the PC OEM.
In anticipation of sales to OEMs, the Company has recently focused its resources
on the augmentation of its manufacturing operations. The Company has purchased
larger scale automation equipment to upgrade its pilot line and begin
manufacturing at the Company's Plymouth Meeting plant which the Company
anticipates will become operational in late 1998. LTC also has executed a letter
of intent to enter into a joint venture partnership with Elite Material Co.,
Ltd. ("EMC"), a manufacturer of high quality laminates of printed circuit
boards, to construct a 40,000 square foot manufacturing facility in Taiwan
which is expected to begin production in late 1999. The Company has entered
into a design agreement with Centurion International, Inc. ("Centurion"), a
leading manufacturer and supplier of high performance battery packs to a number
of major portable electronics manufacturers, to integrate LTC's lithium-ion
polymer battery cells into battery packs for the PC OEM.
The Company has been unprofitable since inception, expects to incur substantial
additional operating losses in the future, 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.
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 in senior
secured convertible notes (the "1997 Notes").
13
<PAGE> 14
At June 30, 1998, the Company had cash of $2,563,000 including cash equivalents
and cash held in escrow, fixed assets of $589,000 and other assets of $712,000.
The Company's total liabilities were $6,382,000 consisting of accounts payable,
accrued salaries, and accrued expenses in the amount of $882,000 and the 1997
Notes in the amount of $5,500,000. The Company had net working capital of
$1,683,000 on June 30, 1998.
The Company's net working capital decreased by approximately $1,289,000 from
December 31, 1997 to June 30, 1998. The Company's cash, cash equivalents and
cash held in escrow decreased by approximately $1,273,000 from December 31,
1997 to June 30, 1998. The decrease in net working capital and in cash and cash
equivalents is attributable primarily to operating expenses and capital
expenditures offset by $505,000 in proceeds from the settlement of litigation.
The Company's stockholders deficiency was $2,516,000 at June 30, 1998, after
giving effect to an accumulated deficit of $41,182,000 which consisted of
$34,317,000 accumulated deficit during the development stage from July 21, 1989
through June 30, 1998 and $6,865,000 accumulated deficit from prior periods.
The Company expects to incur substantial operating losses as it continues its
commercialization efforts.
In May 1998, the Company entered into the aforementioned technology development
agreement with the PC OEM for the Company to provide its proprietary
rechargeable lithium-ion polymer batteries for an advanced notebook
application. Under the terms of the agreement, the manufacturer will invest
$1,000,000 in the Company for 1,428,571 shares of Common Stock. Of this amount,
$100,000 was advanced to the Company and $900,000 is scheduled for funding in
two payments based upon technology-related milestones. Upon issuance of the
shares, the value of the discount on the shares may result in a charge to
earnings.
In May 1998, the Company reached agreements to settle lawsuits pursuant to which
the Company issued 125,000 shares of its Common Stock, received a cash
settlement payment and eliminated an accrued liability, the net effect of which
was the receipt of cash proceeds by the Company of approximately $505,000.
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 ability of the Company to obtain
equity and/or debt financing in the public or private markets, 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.
14
<PAGE> 15
The Company believes that as of June 30, 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.
The Company is currently seeking to raise gross proceeds of $22,000,000
through the private placement of redeemable convertible preferred stock. The
definitive terms of the offering are subject to negotiation with the investors.
No commitments for the purchase of the preferred stock being offered have been
received by the Company.
There can be no assurance that the incremental capital needed for attaining
commercial viability of the Company's battery technology, which the Company
currently estimates at $22 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
Six Months Ended June 30, 1998 and June 30, 1997
Revenues
The Company had no revenues from commercial operations for the three
months ended June 30, 1998 and 1997.
Engineering, Research and Development Expenses
Engineering, research and development expenses were $860,000 for the six
months ended June 30, 1998 compared to $627,000 for the same period in 1997.
The increase of $233,000 results from increased lab supplies and salaries offset
by completion of certain contract research activities.
General and Administrative Expenses
General and administrative expenses were $937,000 for the six months ended
June 30, 1998 compared to $841,000 for the same period in 1997. The increase of
$96,000 was due to increased consulting and promotional expenses.
15
<PAGE> 16
Interest Expense
Interest expense was $151,000 (net of interest income of $81,000) for the
six months ended June 30, 1998 compared to $484,000 (net of interest income of
$18,000) for the same period in 1997. The decrease in interest expense is
primarily attributable to convertible notes issued in 1996 (the "1996 Notes"),
which were paid during 1997.
Three Months Ended June 30, 1998 and June 30, 1997
Revenues
The Company had no revenues from commercial operations for the three months
ended June 30, 1998 and 1997.
Engineering, Research and Development Expenses
Engineering, research and development expenses were $525,000 for the three
months ended June 30, 1998 compared to $283,000 for the same period in 1997. The
increase of $242,000 results from increased lab supplies and salaries offset by
completion of certain contract research activities.
General and Administrative Expenses
General and administrative expenses were $497,000 for the three months
ended June 30, 1998 compared to $270,000 for the same period in 1997. The
increase of $227,000 was due to increased consulting and promotional expenses.
Interest Expense
Interest expense was $80,000 (net of interest income of $37,000) for the
three months ended June 30, 1998 compared to $37,000 (net of interest income of
$6,000) for the same period in 1997. The decrease in interest expense is
primarily attributable to the Company's 1996 Notes which were paid during 1997.
16
<PAGE> 17
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
of 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 or
early 1999) 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).
Beginning in 1994 the Company recruited a new management team and a core
technical staff with thin film commercialization, battery technology and global
marketing expertise. A modern research facility was leased in late 1994 and
product development has continued at an accelerated pace. At June 30, 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 June
1998, the Company extended the Chief Executive Officer's employment agreement,
as of May 1, 1998, through December 31, 1998. Also in June 1998, the Company
extended the employment agreement with its President/Chief Operating Officer
and its Executive Vice President of Operations/Chief Technical Officer for two
years on the same terms and conditions except that no new options were granted,
the salary for the President/Chief Operating Officer was increased to $155,000
per year, the salary for the Executive Vice President/Chief Technical Officer
was increased to $145,000 per year, both officers were granted bonuses of 20%
of their salaries in the event certain specified milestones are achieved, both
officers were granted certain severance payment benefits in the event of a
change in control (as defined in the employment extension agreements) combined
with the officer's employment termination resulting from the officer's
resignation or the Company's termination of the officer's employment without
cause, and the vesting provisions relating to certain of these officers' stock
options were modified in the event of specified employment termination events,
disability or death.
17
<PAGE> 18
The Company's development and commercialization plan currently has the
following milestones:
(i) hand-made cell samples tested by potential strategic
partners beginning 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 Manufacturer
(OEM) 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 or early 1999;
(vi) initial production at the Taiwan Joint Venture plant
(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 $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. In
connection with achieving and implementing manufacturing capability and
commercialization, the Company expects to hire significant additional
personnel.
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 $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 or early
1999 by means of private and/or public equity or debt financings.
18
<PAGE> 19
The Company does not currently have sufficient cash to achieve all its
development and production objectives, including the 1998 installation of the
upgraded manufacturing line and repayment of long term liabilities if not
converted to equity and $2.7 million for additional equipment purchases. As
noted above (See "Liquidity, Capital Resources, and Financial Condition") the
Company believes that as of June 30, 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 and the private equity market, 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
1998, 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.
19
<PAGE> 20
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 issued 125,000
shares of its common stock, received a cash settlement payment, and will
eliminate an accrued liability, the net effect of which was cash proceeds
to the Company of approximately $505,000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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
June 30, 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)
August 14, 1998
20
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