<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, 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 March 31, 1999: 43,257,689
shares of Common Stock
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PAGE
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 1999 (Unaudited)
and December 31, 1998 1
Consolidated Statements of Operations -Three Months
Ended March 31, 1999 and 1998, and Period From
July 21, 1989 (Date of Inception) to March 31,
1999 2
Consolidated Statements of Changes in Stockholders'
Equity - Three Months Ended March 31, 1999
(Unaudited) 3
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998, and Period from
July 21, 1989 (Date of Inception) to March 31,
1999 4
Notes to Consolidated Financial Statements -
March 31, 1999 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
<PAGE> 3
PART I - FINANCIAL INFORMATION
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 570,000 $ 1,073,000
Accounts receivable 46,000 77,000
Other current assets 14,000 17,000
------------ ------------
Total Current Assets $ 630,000 $ 1,167,000
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION
OF $856,000 AND $799,000 $ 406,000 463,000
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 $ 1,131,000 $ 2,221,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 253,000 $ 213,000
Accrued salaries 258,000 212,000
Other accrued expenses 100,000 229,000
------------ ------------
Total current liabilities 611,000 654,000
------------ ------------
LONG-TERM LIABILITIES:
Senior Secured Convertible Notes, due July 1, 2002 -- 5,500,000
------------ ------------
Total liabilities 611,000 6,154,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 43,257,689 and 23,052,185 shares 433,000 231,000
Additional paid-in capital 43,971,000 39,003,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (37,019,000) (36,302,000)
------------ ------------
Total stockholders' equity (deficiency) 520,000 (3,933,000)
------------ ------------
$ 1,131,000 $ 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 21,
1989 (Date of
Three Months Ended March 31, Inception) to
-------------------------------- March 31,
1999 1998 1999
------------ ------------ -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES:
Development contracts $ 22,000 $ --- $ 121,000
------------ ------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 356,000 335,000 7,367,000
General and Administrative 364,000 440,000 10,747,000
------------ ------------ ------------
720,000 775,000 18,114,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income (19,000) (71,000) (1,835,000)
Interest expense related to beneficial conversion feature -- -- (17,841,000)
Other non-operating income -- -- 650,000
------------ ------------ ------------
(19,000) (71,000) (19,026,000)
------------ ------------ ------------
NET LOSS $ (717,000) $ (846,000) $(37,019,000)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
38,349,000 21,016,000
============ ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (.02) $ (.04)
============ ============
</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)
Three months ended March 31, 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
Net loss -- -- -- -- (717,000)
------------ ------------ ------------ ------------- ------------
BALANCES AT MARCH 31, 1999 43,257,689 $ 433,000 $ 43,971,000 $ (6,865,000) $(37,019,000)
============ ============ ============ ============= ============
</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
July 21, 1989
Three Months Ended (Date of
March 31, Inception)
1999 1998 March 31, 1999
------------ ------------ --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (717,000) $ (846,000) $(37,019,000)
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 57,000 50,000 856,000
Amortization of debt issue costs 8,000 35,000 1,070,000
Reduction of accrued expenses -- -- (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 -- -- 206,000
Common stock issued upon settlement of litigation -- -- 125,000
Expenses paid by shareholder on behalf of Company -- -- 79,000
Changes in operating assets and liabilities: -- -- --
Accounts receivable 31,000 -- (46,000)
Other current assets 3,000 6,000 2,000
Security and equipment deposits -- 29,000 (95,000)
Accounts payable, accrued expenses and customer deposits (43,000) 162,000 1,990,000
Due to related parties -- -- (129,000)
------------ ------------ ------------
Net cash used in operating activities (503,000) (564,000) (13,267,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment -- (161,000) (1,012,000)
Restricted cash -- -- --
Other -- -- 94,000
------------ ------------ ------------
Net cash provided by (used in) investing activities -- (161,000) (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 -- -- 321,000
Proceeds from sale of convertible debt -- 1,150,000 10,874,000
Debt issue costs -- -- (887,000)
Repayment of convertible debt -- -- (100,000)
------------ ------------ ------------
Net cash provided by financing activities -- 1,150,000 14,755,000
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (503,000) 425,000 570,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,073,000 506,000 --
------------ ------------ ------------
CASE AND CASH EQUIVALENTS, END OF PERIOD $ 570,000 $ 931,000 $ 570,000
============ ============ ============
</TABLE>
4
<PAGE> 7
<TABLE>
<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)
MARCH 31, 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 months ended
March 31, 1999 are not necessarily indicative of the results that may
be expected for the year ended 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 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.
The Company had cash of $570,000 at March 31, 1999. In the absence of
new capital, such cash is only sufficient to meet the Company's
operating needs through approximately June, 1999 other than financing
for the development of manufacturing capacity. 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."
4. PROPERTY AND EQUIPMENT ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<S> <C>
Laboratory equipment $1,122,000
Furniture and office equipment 95,000
Leasehold improvements 45,000
----------
1,262,000
Less: Accumulated depreciation and amortization 856,000
----------
$ 406,000
==========
</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
<PAGE> 9
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
$570,000 at March 31, 1999 and working capital of $19,000 as of March 31, 1999.
The Company had cash and cash equivalents of approximately $435,000 at April 30,
1999 and a working capital deficit of approximately $161,000 at April 30, 1999.
The Company's stockholders equity was $520,000 at March 31, 1999. 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 March 31,
1999 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. 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 June 1999 is dependent
upon the Company's ability to raise 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 is currently
seeking to privately place convertible preferred stock generating gross proceeds
of approximately $4,000,000. Proceeds from this offering, if completed for the
full $4,000,000, would be used to provide the Company with working capital for
approximately 12 months of operations and capital for the acquisition of
necessary equipment and transaction expenses.
The preferred stock as currently proposed includes the following terms
and features. At the option of the holders, the preferred stock would be (i) at
any time after issuance and prior to redemption, convertible into 4.8 million
shares of registered Common Stock of the Company or (ii) at any time after the
Company receives any OEM purchase order, repurchased by the Company for an
aggregate purchase price of $10 million (payable over time with a portion of
commercial revenue generated by the Company). The preferred stock would be
automatically convertible into 4.8 million shares of Common Stock of the Company
in the event that the Company's Common Stock maintained a stock price of at
least $2.00 for ten consecutive trading days. At the option of the Company, the
preferred stock would be redeemable from the date of issuance to January 1, 2000
for an aggregate redemption price of $6 million and after January 1, 2000 and
before July 1, 2000 for an aggregate redemption price of $10 million (payable in
installments by the Company). It is contemplated that the holders of the
preferred stock may be granted a co-exclusive royalty-free license to the
Company's technology, know-how and equipment for use in the manufacture and
distribution of lithium-ion polymer battery technology worldwide, subject to all
pre-existing rights in such technology which license may not be exercised,
sublicensed or transferred until July 1, 2000. The license would terminate upon
the conversion or redemption of the preferred stock or in the event of certain
fundamental transactions involving the Company. If the license is not terminated
by July 1, 2000, the holders of the preferred stock would be entitled to 50% of
all funds generated by the use of the license until the preferred stockholders
are paid $10 million. The Company would file a registration statement to
register the 4.8 million shares of Common Stock underlying the preferred stock
within 45 days of the closing of the preferred stock issuance.
The Company has received no commitments with respect to the $4,000,000
preferred stock offering as of the date of this report and the above described
terms and features may not be the final terms and features of the preferred
stock when it is sold and issued. In addition, there can be no assurances that
the preferred stock will be issued and sold on these or any terms.
This report does not constitute an offer to sell, nor a solicitation of
an offer to purchase the preferred stock of the Company. No offer or sale of
such securities shall be made except pursuant to a formal offering memorandum,
and in compliance with, or under available exemptions from a registration or
qualification under the Federal and all applicable State securities laws. Any
such formal offering memorandum will contain additional and more detailed
disclosures than are set forth herein, including a discussion to certain risk
factors relevant to an investment in the Company.
In addition to the proposed preferred stock financing, the Company will
require further financing of approximately $10,000,000 in order to attain
commercial viability of the Company's battery technology. There can be no
assurance that the $4,000,000 currently sought by the Company for short-term
needs nor the $10,000,000 required for subsequent 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.
7
<PAGE> 10
OVERVIEW
The Company is in the late stages of developing and seeking to commercialize
innovative rechargeable solid-state lithium-ion polymer batteries. As of March
31, 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 third quarter/fourth quarter 1999
time frame with respect to limited production of beta test prototypes and in
early 2000 with respect to commercial production. LTC also had executed a letter
of intent contemplating a joint venture partnership with Elite Material Co.,
Ltd. ("EMC"), a manufacturer of high quality laminates for printed circuit
boards, to establish a manufacturing facility in Taiwan. The Company and EMC
recently decided to terminate the Taiwan manufacturing joint venture since the
two parties have been unable to reach mutual agreement on the fundamental
business terms of the relationship.
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.
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.
At March 31, 1999, the Company had cash and cash equivalents of $570,000, fixed
assets of $406,000 and other assets of $95,000. The Company's total liabilities
were $611,000 consisting of accounts payable, accrued salaries, and accrued
expenses. The Company had net working capital of $19,000 on March 31, 1999.
The Company's net working capital decreased by approximately $494,000 from
December 31, 1998 to March 31, 1999. The Company's cash and cash equivalents
decreased by approximately $503,000 from December 31, 1998 to March 31, 1999.
The decrease in net working capital and in cash and cash equivalents is
attributable to operating expenses.
The Company's stockholders equity was $520,000 at March 31, 1999, after giving
effect to an accumulated deficit of $43,884,000 which consisted of $37,019,000
accumulated deficit during the development stage from July 21, 1989 through
March 31, 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.
8
<PAGE> 11
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
research and development funding to the Company and to manufacture and market
the Company's products.
The Company believes that as of March 31, 1999, 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 for
approximately $4.0 million in equipment expenditures that are currently
estimated to be required in 1999-2000 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 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 June 1999 is dependent upon its ability to raise additional financing. In
order to raise sufficient capital for its future growth, the Company will be
required to sell additional debt or equity securities.
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, it will be forced to curtail
pre-production expenditures which, in turn, will delay, and could prevent, the
completion of the commercialization process.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 and March 31, 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 March 31, 1999.
The Company had no revenues from commercial operations for the three months
ended March 31, 1999 and 1998.
Engineering, Research and Development Expenses
Engineering, research and development expenses were $356,000 for the three
months ended March 31, 1999 compared to $335,000 for the same period in 1998.
The increase of $21,000 results from increased salaries offset by decreased lab
supplies.
General and Administrative Expenses
General and administrative expenses were $364,000 for the three months ended
March 31, 1999 compared to $440,000 for the same period in 1998. The decrease of
$76,000 was due primarily to decreased consulting expenses.
Interest Expense
Interest expense was $19,000 (net of interest income of $9,000) for the three
months ended March 31, 1999 compared to $71,000 (net of interest income of
$44,000) 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 the upgraded
manufacturing line and $4.0 million for
9
<PAGE> 12
additional equipment purchases and associated engineering services. As noted
above (See "Liquidity, Capital Resources, and Financial Condition") the Company
believes that as of March 31, 1999 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
exceptions and uncertainties discussed in this report. 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 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 (third
to fourth quarter of 1999);
(vi) initial commercial production in early 2000;
(vii) construction of additional manufacturing facilities in Asia, 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) 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 -- 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 and to sharpen
manufacturing cost estimates. Through equipment augmentation and upgrade, the
pilot line is in the process of transitioning to the Plymouth Meeting
Manufacturing Plant which will serve as the production facility for battery
cells which will be assembled into battery packs for Original Equipment
10
<PAGE> 13
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 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 is in the process of conducting 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 includes 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
requires that the Company's review include broad identification, assessment,
remediation and testing efforts.
Based upon its identification and assessment efforts to date, the Company is
certain that its current telephone system will need to be modified or replaced
and believes that certain other IT Systems will also require replacement or
modification. The Company has already paid a retainer fee to a Y2K consultant
who will review by mid-1999 the Company's IT Systems for Y2K compliance.
Additionally, the Company periodically replaces computer equipment and software
and in so doing, seeks to acquire only year 2000 compliant software and
hardware. The Company plans to complete its assessment of its non-IT systems by
mid 1999. The Company presently believes that its planned modifications or
replacements of existing IT systems and non-IT systems will be completed on a
timely basis so as to avoid any of the potential year 2000-related disruptions
or malfunctions of the computer equipment and software it has identified.
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. At this point
in the review process, the Company cannot reasonably estimate the cost of
achieving year 2000 compliance; however, the Company does not anticipate the
cost of implementing its year 2000 efforts to be material. 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.
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.
11
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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 March 31, 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)
May 17, 1999
12
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMTAION EXTRACTED FROM THE
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