<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, 1999
[ ] 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 June 30, 1999: 43,525,546
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, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART 1 - FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - June 30, 1999 (Unaudited)
and December 31, 1998 1
Consolidated Statements of Operations - Three Months and Six Months
Ended June 30, 1999 and 1998, and Period From
July 21, 1989 (Date of Inception) to June 30, 1999 2
Consolidated Statements of Changes in Stockholders'
Equity - Six Months Ended June 30, 1999
(Unaudited) 3
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 1999 and 1998, and Period from July
21, 1989 (Date of Inception) to June 30, 1999 4
Notes to Consolidated Financial Statements -
Six Months Ended June 30, 1999 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 153,000 $ 1,073,000
Accounts receivable 26,000 77,000
Other current assets 12,000 17,000
------------ ------------
Total Current Assets 191,000 1,167,000
============ ============
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION
OF $914,000 AND $799,000 348,000 463,000
OTHER ASSETS:
Debt issue costs, less accumulated amortization of
$0 and $187,000 -- 496,000
Security and equipment deposits 95,000 95,000
------------ ------------
95,000 591,000
------------ ------------
Total assets $ 634,000 $ 2,221,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 305,000 $ 213,000
Accrued salaries 304,000 212,000
Other accrued expenses 100,000 229,000
------------ ------------
Total current liabilities 709,000 654,000
------------ ------------
LONG-TERM LIABILITIES:
Senior Secured Convertible Notes, due July 1, 2002 -- 5,500,000
------------ ------------
Total liabilities 709,000 6,154,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 43,525,546 and 23,052,185 shares 435,000 231,000
Additional paid-in capital 44,044,000 39,003,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (37,689,000) (36,302,000)
------------ ------------
Total stockholders' equity (deficiency) (75,000) (3,933,000)
------------ ------------
$ 634,000 $ 2,221,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
July 31, 1989
(Date of Inception)
Three Months Ended June 30, Six Months Ended June 30, to June 30,
--------------------------- ------------------------- -------------------
1999 1998 1999 1998 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Development contracts $ 22,000 $ 22,000 $ 44,000 $ 22,000 $ 143,000
----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES:
Engineering, research and development 351,000 525,000 707,000 860,000 7,718,000
General and Administrative 346,000 497,000 710,000 937,000 11,093,000
----------- ----------- ----------- ----------- ------------
697,000 1,022,000 1,417,000 1,797,000 18,811,000
----------- ----------- ----------- ----------- ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income 5,000 (80,000) (14,000) (151,000) (1,830,000)
Interest expense related to beneficial
conversion feature -- -- -- -- (17,841,000)
Other non-operating income -- 650,000 -- 650,000 650,000
----------- ----------- ----------- ----------- ------------
5,000 570,000 (14,000) 499,000 (19,021,000)
----------- ----------- ----------- ----------- ------------
NET LOSS $ (670,000) $ (430,000) $(1,387,000) $(1,276,000) $(37,689,000)
=========== =========== =========== =========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
43,367,000 21,090,000 40,857,000 21,053,000
========== ========== ========== ==========
BASIC AND DILUTED NET LOSS PER SHARE: $(.02) $(.02) $(.03) $(.06)
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY) - (UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
--------------------- Additional During
Paid- Accumulated Development
Shares Amount In Capital Deficit Stage
------ ------ ---------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1998 23,052,185 $231,000 $ 39,003,000 $ (6,865,000) $(36,302,000)
Six months ended June 30, 1999:
Issuance of Common Stock:
Upon conversion of the Senior
Secured Convertible Notes 19,642,857 196,000 4,816,000 -- --
In lieu of interest 562,647 6,000 152,000
In payment of accounts payable 267,857 2,000 73,000
Net loss -- -- -- -- (1,387,000)
---------- -------- ------------ ------------ ------------
BALANCES AT JUNE 30, 1999 43,525,546 $435,000 $ 44,044,000 $ (6,865,000) $(37,689,000)
========== ======== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<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)
1999 1998 June 30, 1999
---- ---- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss (1,387,000) $ (1,276,000) $(37,689,000)
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 115,000 99,000 914,000
Amortization of debt issue costs 8,000 72,000 1,070,000
Reduction of accrued expenses -- (270,000) (270,000)
Common stock issued in lieu of interest 158,000 -- 1,914,000
Fair value of warrants and option granted for services rendered -- -- 209,000
Common stock issued for services provided 75,000 -- 281,000
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: -- -- --
Accounts receivable 51,000 -- (26,000)
Other current assets 5,000 13,000 4,000
Security and equipment deposits -- (46,000) (95,000)
Accounts payable, accrued expenses and customer deposits 55,000 273,000 2,088,000
Due to related parties -- -- (129,000)
------------ ------------ ------------
Net cash used in operating activities (920,000) (1,010,000) (13,684,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment -- (266,000) (1,012,000)
Restricted cash -- -- --
Other -- -- 94,000
------------ ------------ ------------
Net cash provided by (used in) investing activities -- (266,000) (918,000)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net advance repayable only out of proceeds of public offering -- -- 471,000
Proceeds received upon issuance of common stock -- -- 3,339,000
Proceeds received from issuance of preferred stock, net of related -- -- 100,000
costs
Proceeds received upon exercise of options and warrants, net of costs -- -- 637,000
Net advances by former principal stockholder -- 54,000 321,000
Proceeds from sale of convertible debt -- 1,700,000 10,874,000
Debt issue costs -- (51,000) (887,000)
Repayment of convertible debt -- -- (100,000)
------------ ------------ ------------
Net cash provided by financing activities -- 1,703,000 14,755,000
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (920,000) 427,000 153,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,073,000 506,000 --
------------ ------------ ------------
CASE AND CASH EQUIVALENTS, END OF PERIOD $ 153,000 $ 933,000 $ 153,000
============ ============ ============
</TABLE>
4
<PAGE> 7
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued
<TABLE>
<CAPTION>
Period From
Six Months Ended July 21, 1989
June 30, (Date of Inception)
1999 1998 June 30, 1999
---- ---- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
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 -- -- 445,000
stock
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 -- -- 3,300,000
Exchange of convertible debt for convertible preferred stock -- -- 356,000
Conversion of convertible debt and accrued interest into common stock, -- -- 4,776,000
net of unamortized debt discount
Exchange of advances repayable only out of proceeds of public offering -- -- 471,000
for common stock
Deferred offering costs on warrants exercised -- -- 88,000
Issuance of warrants in settlement of litigation for debt issue costs -- -- 364,000
and for services rendered
Common stock issued for costs related to 10% promissory notes -- -- 525,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STATE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
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, 1998.
Operating results for the three and six months ended June 30, 1999
are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999 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", are late development
stage companies in the process of commercializing a unique,
solid-state, lithium polymer rechargeable battery. The Company is
engaged in research and development and pilot line manufacturing
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).
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 significant revenues from operations during the
fiscal year ending December 31, 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 secure 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.
The Company had cash of $153,000 at June 30, 1999. In the absence
of new capital, such cash is only sufficient to meet the Company's
operating needs through approximately July, 1999. The Company has
developed and is implementing appropriate strategies to minimize
expenses and conserve cash. Although management's operating plan
seeks to minimize the Company's capital requirements,
commercialization of the Company's battery technology will require
substantial amounts of additional capital. The Company expects
that operating expenses will increase 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
scale-up 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 agreements with other companies to provide research
and development funding to the Company and to manufacture and
market the Company's products. There can be no assurance that the
Company will obtain needed capital on terms favorable and
acceptable to the Company. For details see "Management's
Discussion and Analysis - Liquidity, Capital Resources, and
Financial Condition."
6
<PAGE> 9
4. PROPERTY AND EQUIPMENT ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
<S> <C> <C>
Laboratory equipment $1,122,000
Furniture and office equipment 95,000
Leasehold improvements 45,000
----------
1,262,000
Less: Accumulated depreciation and amortization 914,000
----------
$348,000
========
</TABLE>
5. STOCKHOLDERS' EQUITY
In January 1999, the Company's $5.5 million notes (the "1997
Notes") issued in September 1997 pursuant to a Senior Secured
Convertible Note Purchase Agreement (the "1997 Note Purchase
Agreement") were converted to equity by the lender in accordance
with the original terms of the 1997 Note Purchase Agreement. As a
result of the conversion, the Company issued 19,642,857 shares of
its common stock to convert the 1997 Notes and 562,647 shares of
its common stock to pay accrued interest to the conversion date.
6. SUBSEQUENT EVENT
In July and August 1999, the Company raised $450,000 in
connection with the sale of 4,500,000 shares of its restricted
common stock to various private investors including several
members of the Company's Board of Directors. Such cash is only
sufficient to meet the Company's operating needs through
approximately mid-October, 1999.
7
<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.
The Company is experiencing serious liquidity difficulties as a result of the
lack of significant revenues from operations and the need to complete an equity
or debt financing to provide needed capital to fund ongoing operations. As
further discussed below, the Company had cash and cash equivalents of $153,000
at June 30, 1999 and a working capital deficit of $518,000 as of June 30, 1999.
The Company had cash and cash equivalents of approximately $273,000 at July 31,
1999 and a working capital deficit of approximately $438,000 at July 31, 1999.
The Company's stockholders deficit was $75,000 at June 30, 1999. The Company
completed a private placement of restricted shares of common stock in July and
August 1999, the gross proceeds of which was $450,000. See Note 6 - "Subsequent
Event" for details.
The Company does not expect to generate any significant revenues from operations
during the fiscal year ending December 31, 1999. The Company believes that as of
June 30, 1999 it has sufficient capital resources to meet the Company's needs
and satisfy the Company's obligations through approximately July 1999 other than
financing for the development of manufacturing capacity. Utilizing the cash from
the aforementioned July and August 1999 private placement the Company believes
as of the date of this report that it has only sufficient resources to meet its
operating needs through approximately mid-October, 1999. The Company does not
currently have sufficient cash to achieve all its development and production
objectives, including the completion of its Plymouth Meeting manufacturing
plant. See "Liquidity, Capital Resources and Financial Condition" for details.
Continuation of the Company's operations beyond September 1999 is dependent upon
the Company's ability to secure substantial additional financing. In order to
raise sufficient capital for its operations and growth, the Company will be
required to sell additional debt or equity securities. The Company reported in
its March 31, 1999 report on Form 10-QSB that it was then seeking to raise gross
proceeds of $4,000,000 through the private placement of redeemable convertible
preferred stock. As reported by the Company at that time, the Company had
received no commitments with respect to the $4,000,000 preferred stock offering
nor have any commitments since been received, and the Company has determined not
to proceed with this offering.
The Company will require further financing of approximately $14,300,000 in order
to attain commercial viability of the Company's battery technology. There can be
no assurance that the $14,300,000 required by the Company for operational and
capital needs will be available, or if available that the terms thereof will be
acceptable to the Company and/or that the transaction(s) can be completed within
the existing time constraints. If the Company is unable to raise sufficient
capital, the Company will be forced, among other things, to (a) curtail research
and development expenditures and suspend or cease operations which, in turn,
will delay, and could prevent, the completion of the commercialization process
and (b) assess and possibly implement liquidation, auction, bankruptcy, or other
measures. To the extent the Company succeeds in raising any or all of the new
capital referred to above, existing stockholders will likely experience
substantial dilution. This report is qualified in its entirety by reference to
the foregoing summary of the Company's current financial condition and the
accompanying financial statements and notes thereto inclusive of the substantial
doubt expressed therein about the Company's ability to continue as a going
concern.
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, 1999, the Company had not generated any significant 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") is working with the Company to incorporate the Company's lithium-ion
polymer batteries into an advanced notebook computer. Subject to successful
qualification of the Company's battery and the ability to meet the OEM's volume
production needs, the Company anticipates entering into a definitive supply
agreement with the PC OEM or a comparable 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 laminating and packaging equipment to upgrade its pilot line and
begin manufacturing at the Company's Plymouth Meeting plant which the Company
anticipates will become operational in the fourth quarter 1999 time frame with
respect to limited production of beta test prototypes and in early 2000 with
respect to commercial production, subject to raising sufficient capital as
discussed elsewhere in this report.
The Company has been unprofitable since inception, expects to incur substantial
additional operating losses in the future, and needs significant additional
financing 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, 1999.
8
<PAGE> 11
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 $15.3 million.
At June 30, 1999, the Company had cash and cash equivalents of $153,000, fixed
assets of $348,000 and other assets of $95,000. The Company's total liabilities
were $709,000 consisting of accounts payable, accrued salaries, and accrued
expenses. The Company had a net working capital deficit of $518,000 on June 30,
1999.
The Company's net working capital decreased by approximately $1,031,000 from
December 31, 1998 to June 30, 1999. The Company's cash and cash equivalents
decreased by approximately $920,000 from December 31, 1998 to June 30, 1999. The
decrease in net working capital and in cash and cash equivalents is attributable
to operating expenses.
The Company's stockholders deficit was $75,000 at June 30, 1999, after giving
effect to an accumulated deficit of $44,554,000 which consisted of $37,689,000
accumulated deficit during the development stage from July 21, 1989 through June
30, 1999 and $6,865,000 accumulated deficit from prior periods. The Company
expects to incur substantial operating losses as it continues its
commercialization efforts.
In September 1997, the Company entered into a Senior Secured Convertible Note
Purchase Agreement (the "1997 Note Purchase Agreement") with Lithium Link LLC
for the sale of $5.5 million of the Company's Senior Secured Convertible Notes
(the "1997 Notes"). In January 1999, the 1997 Notes were converted into
19,642,857 shares of the Company's common stock and 562,647 shares of the
Company's common stock were issued to pay accrued interest to the conversion
date. Interest accrued at 8.5% and was payable annually, at the Company's
election in cash or the Company's common stock. The principal of the 1997 Notes
was payable on or before July 1, 2002. The 1997 Notes were convertible into the
Company's common stock at a conversion price of $.28 per share. In 1997, the
Company recorded the intrinsic value of the beneficial conversion feature of the
1997 Notes as a charge to interest expense of $9,821,000.
In July and August 1999, the Company raised $450,000 in connection with the sale
of 4,500,000 shares of its restricted common stock to various private investors
including several members of the Company's Board of Directors. Such cash is only
sufficient to meet the Company's operating needs through approximately
mid-October, 1999.
Although the Company's operating plan seeks to minimize the Company's capital
requirements, commercialization of the Company's battery technology will require
substantial amounts of additional capital. The Company expects that research and
development and production expenses will increase significantly as it continues
to advance its battery technology and develop products for commercial
applications. The Company's working capital and capital requirements will depend
upon numerous factors, including, without limitation, the progress of the
Company's research and development program, the levels and resources that the
Company devotes to the development of manufacturing 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
development and equipment augmentation funding to the Company and to provide
large volume manufacturing and distribution capabilities for the Company's
technology and products.
The Company believes that as of June 30, 1999, it has sufficient capital
resources to meet the Company's needs and satisfy the Company's obligations
through approximately July 1999 other than financing for the development of
manufacturing capacity, including the obtaining of additional financing for
approximately $4.0 million in equipment expenditures that are currently
estimated to be required in 1999-2000 to achieve viable commercial production
levels, based on the Company's current strategies and subject to the
uncertainties discussed in this report. Utilizing the cash from the
aforementioned July and August 1999 private placement the Company believes as of
the date of this report that it has only sufficient resources to meet its
operating needs through approximately mid-October, 1999. The Company does not
currently have sufficient cash to achieve all its development and production
objectives, including the completion of the Plymouth Meeting manufacturing
plant. Accordingly, the Company has implemented measures to reduce the burn rate
of cash including the voluntary deferral of the payment of the Chairman/CEO's
salary and the monthly fees due the Company's financial relations consultant.
These deferred payments will be accrued on the Company's balance sheet.
Continuation of the Company's operations beyond mid-October, 1999 is dependent
upon its ability to secure additional financing. In order to raise sufficient
capital for its future growth, the Company will be required to sell additional
debt or equity securities.
9
<PAGE> 12
There can be no assurance that the incremental capital needed for attaining
commercial viability of the Company's battery technology will be obtained, which
the Company currently estimates at approximately $14,300,000 (without regard to
the capital requirements for the development of any overseas manufacturing
capacity). The $14,300,000 is comprised as follows (i) $6,300,000 for working
capital through August 2001; (ii) $4,000,000 for capital equipment (iii)
$2,500,000 for technology licensing; and (iv) $1,500,000 for fees and legal
expenses. If the Company is unable to raise sufficient capital, the Company will
be forced, among other things, to (a) curtail research and development
expenditures and suspend or cease operations which, in turn, will delay, and
could prevent, the completion of the commercialization process and (b) assess
and possibly implement liquidation, auction, bankruptcy, or other measures.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 and June 30, 1998
Revenues
The Company had $44,000 in research and development contract revenues as a
subcontractor to Yardney Technical Products for a NASA battery research and
development contract and as a supplier of lithium ion polymer cells to
NASA/Lewis Research Center for the six months ended June 30, 1999.
The Company had no revenues from commercial operations for the six months ended
June 30, 1999 and 1998.
Engineering, Research and Development Expenses
Engineering, research and development expenses were $707,000 for the six months
ended June 30, 1999 compared to $860,000 for the same period in 1998. The
decrease of $153,000 was due primarily to decreased lab supplies and consulting
expenses.
General and Administrative Expenses
General and administrative expenses were $710,000 for the six months ended June
30, 1999 compared to $937,000 for the same period in 1998. The decrease of
$227,000 was due primarily to decreased consulting fees, accounting fees and
amortization of debt issue costs.
Interest Expense
Interest expense was $14,000 (net of interest income of $14,000) for the six
months ended June 30, 1999 compared to $151,000 (net of interest income of
$81,000) for the same period in 1998. The decrease in interest expense is
primarily attributable to the convertible notes issued in 1997, which were paid
during January 1999.
Three Months Ended June 30, 1999 and June 30, 1998
Revenues
The Company had $22,000 in Research and Development contract revenues as a
subcontractor to Yardney Technical Products for a NASA battery Research and
Development contract and as a supplier of lithium ion polymer cells to
NASA/Lewis Research Center for the three months ended June 30, 1999.
The Company had no revenues from commercial operations for the three months
ended June 30, 1999 and 1998.
Engineering, Research and Development Expenses
Engineering, research and development expenses were $351,000 for the three
months ended June 30, 1999 compared to $525,000 for the same period in 1998. The
decrease of $174,000 was due primarily to decreased lab supplies, consulting
expenses and salaries.
General and Administrative Expenses
General and administrative expenses were $346,000 for the three months ended
June 30, 1999 compared to $497,000 for the same period in 1998. The decrease of
$151,000 was due primarily to decreased accounting fees, amortization of debt
issue costs and salaries.
10
<PAGE> 13
Interest Expense
Interest expense was $(5,000) (net of interest income of $5,000) for the three
months ended June 30, 1999 compared to $80,000 (net of interest income of
$37,000) for the same period in 1998. The decrease in interest expense is
primarily attributable to the convertible notes issued in 1997, which were paid
during January 1999.
PLAN OF OPERATIONS FOR THE COMPANY
The Company does not currently have sufficient cash to achieve all its
development and production objectives, including the completion of its Plymouth
Meeting manufacturing plant. As noted above (See "Liquidity, Capital Resources,
and Financial Condition") the Company believes that as of June 30, 1999 it has
sufficient capital resources to meet the Company's needs and satisfy the
Company's obligations through approximately July 1999 based on the Company's
current strategies and subject to the exceptions and uncertainties discussed in
this report. Utilizing the cash from the aforementioned July and August 1999
private placement the Company believes as of the date of this report that it has
only sufficient resources to meet its operating needs through approximately
mid-October, 1999.
In order to raise sufficient capital for its future growth, 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 1999, which may result in further dilution to
the Company's existing stockholders. The Company will seek to expand its
strategic alliances which, if achieved but for which there is no assurance,
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.
The Company's strategy is to commercialize a new generation of solid state
lithium-ion polymer and lithium metal polymer batteries based on sixteen 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 1999 or
early 2000) 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 complete the equipment augmentation at the Company's Plymouth
Meeting Manufacturing Plant (PMMP) .
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 pilot line continuous flow coating and laminating
unit in first quarter of 1996 (accomplished);
(iii) upgrade of the pilot line and distribution of lithium-ion polymer
cell samples produced on the pilot line to selected OEMs beginning in
early 1997 (accomplished);
(iv) distribution of prototype battery packs to selected OEMs in early
1998 (on-going);
(v) installation of packaging equipment and environmental control
equipment to achieve EPA compliance at the Plymouth Meeting plant
(fourth quarter of 1999);
11
<PAGE> 14
(vi) initial commercial production in early 2000;
(vii) construction of additional manufacturing facilities through
strategic partners in Asia, the United States and Europe in the
2000-2001 timeframe once market demand exceeds initial manufacturing
capacity through strategic partners.
The Company estimates that completion of phases (iv) through (vi) will cost the
Company approximately $14.3 million in capital expenditures and operating costs.
The $14,300,000 is comprised as follows (i) $6,300,000 for working capital
through August 2001; (ii) $4,000,000 for capital and equipment; (iii) $2,500,000
for potential technology licensing; and (iv) $1,500,000 for fees and legal
expenses. 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 pilot line - sometimes
referred to as the Demonstration Manufacturing Facility ("DMF") -- was installed
by the Company. This line has been used to further define the Company's
manufacturing technology and to sharpen manufacturing cost estimates. Through
equipment augmentation and upgrade, this line is in the process of transitioning
to the "Plymouth Meeting Manufacturing Plant" (sometimes also referred to as the
"PMMP") which the Company expects will serve as the production facility for
battery cells which will be assembled into battery packs for Original Equipment
Manufacturer ("OEM") customers. Subject to the uncertainties discussed in this
report and the availability of capital, it is anticipated that the PMMP will
cost approximately $4.0 million to complete in the 1999-2000 time frame
including manufacturing equipment meeting applicable environmental regulatory
standards. The PMMP according to the Company's current plan will be located
within the Company's existing facility in Plymouth Meeting, Pennsylvania. The
Company intends to finance the overall estimated $14,300,000 total capital
equipment and operating expense required to bring the Company to the initial
commercial production stage and provide working capital through August 2001 by
means of private and/or public equity or debt financings. These targets and the
milestones discussed in phases (v) through (vii) are subject to continuing
update and revision as the Company completes the applications-specific
technology development activity and proves in manufacturing processes from the
prototype phase to the commercial production phase.
YEAR 2000
The Company is a late development stage company in the process of
commercializing and productizing a unique, solid-state lithium-ion polymer
rechargeable battery. The Company has conducted a review of its computer and
business systems to identify and address any problems that the systems may have
with correctly interpreting and processing date information as the year 2000
approaches. The Company's review included a series of initiatives to ensure that
all of the Company's computer equipment and software will function properly into
the next millennium. Computer hardware and software includes systems generally
thought of as information-technology dependent, such as accounting, data
processing, and telephone equipment ("IT systems"), as well as systems not
obviously information-technology dependent, such as battery manufacturing and
testing equipment, telecopier machines and securities systems ("non-IT
systems"). These systems may contain embedded technology, which required that
the Company's review include broad identification, assessment, remediation and
testing efforts.
The Company has retained a Y2K consultant to review its IT systems. The Y2K
consultant has issued its report which recommended that modifications be made to
the telephone voicemail system and to certain computer hardware and software to
achieve Year 2000 compliance. The estimated cost of these recommendations is
approximately $10,000. Due to the Company's current financial condition as
discussed elsewhere in this report the Company has determined not to implement
at present the Y2K consultant's recommendations. In addition, the Company has
examined its security system and found it to be compliant.
As a development stage enterprise, the Company has not yet established any
significant customer relationships, whereby year 2000 compliance or
non-compliance might materially affect the Company's operations. As and when the
Company transitions from the development stage to significant commercial
manufacturing operations, the Company plans to determine the year 2000 readiness
of its then key suppliers, identify alternative sources for materials and
services in the event that lack of year 2000 compliance is indicated, and make
inquires regarding the year 2000 readiness of any potential strategic partners.
Management is continuing to examine the year 2000 issues as they potentially
impact the Company, and will be developing contingency plans as necessary.
12
<PAGE> 15
There can be no assurance that the failure of the Company or any third parties
to achieve year 2000 compliance would not have a material adverse effect on the
Company. A contingency plan has not yet been developed for dealing with the most
reasonably likely worst case scenario, and such scenario has not yet been
clearly identified.
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.
13
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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 June 30, 1999
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 16, 1999
14
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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