-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WLZeBgvwirc6QHliwhj2tCo+8IaJN9cHcO7Gartm8+0jlaLM1aZziR+bqO4sZvyy W7SaGRtk2VT3IbDQ6bVaaA== 0000893220-97-001806.txt : 19971117 0000893220-97-001806.hdr.sgml : 19971117 ACCESSION NUMBER: 0000893220-97-001806 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LITHIUM TECHNOLOGY CORP CENTRAL INDEX KEY: 0000804154 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 133411148 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-10446 FILM NUMBER: 97718273 BUSINESS ADDRESS: STREET 1: 5115 CAMPUS DR CITY: PLYMOUTH MEETING STATE: PA ZIP: 19462-1129 BUSINESS PHONE: 2158301392 MAIL ADDRESS: STREET 1: 5115 CAMPUS DR CITY: PLYMOUTH MEETING STATE: PA ZIP: 19462-1129 FORMER COMPANY: FORMER CONFORMED NAME: HILLCRAFT CORP DATE OF NAME CHANGE: 19890807 10QSB 1 10QSB FOR LITHIUM TECHNOLOGY CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission file number 1-10446 LITHIUM TECHNOLOGY CORPORATION (Exact Name of Small Business Issuer as Specified in Its Charter) Delaware 13-3411148 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 5115 Campus Drive, Plymouth Meeting, PA 19462 (Address of Principal Executive Offices) (610) 940-6090 (Issuer's Telephone Number, Including Area Code) (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of November 3, 1997: 18,302,138 shares of Common Stock Transitional Small Business Disclosure Format (check one): Yes No X --- --- 2 LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1997 INDEX
PAGE PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 3 Consolidated Statements of Operations - Nine Months Ended September 30, 1997 and 1996, and Period From July 21, 1989 (Date of Inception) to September 30, 1997 4 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) - Nine Months Ended September 30, 1997 5 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996, and Period from July 21, 1989 (Date of Inception) to September 30, 1997 6 Notes to Consolidated Financial Statements - September 30, 8-13 1997 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 19 ITEM 2. CHANGES IN SECURITIES 19 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19 ITEM 5. OTHER INFORMATION 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
2 3 PART I - FINANCIAL INFORMATION LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) CONSOLIDATED BALANCE SHEETS ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
September 30, December 31, 1997 1996 ---- ---- (Unaudited) ASSETS CURRENT ASSETS: Cash and equivalents, including cash held in escrow of $4,130,000 at September 30, 1997 $ 4,839,000 $ 1,388,000 Prepaid expenses and other current assets -- 10,000 ------------ ------------ Total Current Assets 4,839,000 1,398,000 ------------ ------------ PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION of $489,000 at September 30, 1997 and $363,000 at December 31, 1996 500,000 624,000 ------------ ------------ OTHER ASSETS: Restricted cash -- 65,000 Debt issue costs, less accumulated amortization of $584,000 at September 30, 1997 and $438,000 at December 31, 1996 274,000 142,000 Deferred consulting fees 190,000 -- Security deposits 20,000 20,000 ------------ ------------ 484,000 227,000 ------------ ------------ $ 5,823,000 $ 2,249,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Notes payable $ -- $ 1,750,000 Accounts payable and accrued expenses 1,110,000 1,046,000 Accrued salaries 277,000 232,000 ------------ ------------ Total Current Liabilities 1,387,000 3,028,000 ------------ ------------ LONG-TERM LIABILITIES: Convertible notes payable, due November 2, 1998 1,505,000 -- Senior secured convertible notes payable, due July 1, 2002 5,500,000 -- ------------ ------------ Total Long-Term Liabilities 7,005,000 -- ------------ ------------ Total Liabilities 8,392,000 3,028,000 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIENCY): Undesignated preferred stock: Authorized - 100,000 shares, issued and outstanding - None -- -- Common Stock, par value $.01 per share: Authorized - 50,000,000 shares Issued and outstanding - 17,759,000 shares at September 30, 1997 and 17,108,000 shares at December 31, 1996 177,000 171,000 Additional paid-in capital 27,376,000 16,772,000 Accumulated deficit (6,865,000) (6,865,000) Deficit accumulated during development stage (23,257,000) (10,857,000) ------------ ------------ Total Stockholders' Equity (Deficiency) (2,569,000) (779,000) ------------ ------------ $ 5,823,000 $ 2,249,000 ============ ============
See accompanying notes to consolidated financial statements 3 4 LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM JULY 21, 1989 (DATE OF INCEPTION) THREE MONTHS ENDED NINE MONTHS ENDED TO SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, -------------------------------- ------------------------------- --------------- 1997 1996 1997 1996 1997 ---- ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) COSTS AND EXPENSES: Engineering, research and development $ 287,000 $ 325,000 $ 914,000 $ 899,000 $ 4,627,000 General and administrative 294,000 765,000 1,135,000 2,143,000 8,094,000 Interest expense, net of interest income 46,000 (13,000) 530,000 21,000 715,000 Interest expense (Note 6) 9,821,000 9,821,000 9,821,000 ---------- ------------ ----------- ----------- ------------ 10,448,000 1,077,000 12,400,000 3,063,000 23,257,000 ---------- ----------- ----------- ----------- ------------ NET LOSS: $(10,448,000) $(1,077,000) $(12,400,000) $(3,063,000) $(23,257,000) =========== =========== ============ ============ ============ NUMBER OF COMMON SHARES OUTSTANDING: 17,612,000 15,919,000 17,530,000 13,212,000 ========== ========== ========== ========== NET LOSS PER SHARE: $ (.59) $ (.07) $ (.71) $ (.23) =========== =========== =========== ===========
See accompanying notes to consolidated financial statements 4 5 LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY) - (UNAUDITED)
Deficit Accumulated Common Stock Additional During ------------ Paid-In Accumulated Development Shares Amount Capital Deficit Stage ------ ------ ------- ------- ----- BALANCES AT DECEMBER 31, 1996 Nine months ended September 30,1997: 17,108,000 $171,000 $16,772,000 $(6,865,000) $(10,857,000) Issuance of Common Stock: In connection with costs relating to the issuance of 10% convertible notes 493,000 5,000 450,000 In connection with the sale of Escrowed Shares by the Convertible Note Purchasers 158,000 1,000 143,000 Issuance of warrants in connection with Consulting Agreement 190,000 Interest expense relating to the beneficial conversion feature of the Senior Secured Convertible Notes (Note 6) 9,821,000 Net loss (12,400,000) ---------- -------- ----------- ------------ ----------- BALANCES AT SEPTEMBER 30, 1997 17,759,000 $177,000 $27,376,000 $(6,865,000) $(23,257,000) ============== ======== =========== ============ =============
See accompanying notes to consolidated financial statements 5 6 LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM JULY 21, 1989 NINE MONTHS ENDED (DATE OF INCEPTION) TO SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1997 1996 1997 ---- ---- ---- (UNAUDITED) (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(12,400,000) $ (3,063,000) $(23,257,000) Adjustments to reconcile net loss to net cash flows from operating activities: Interest expense relating to the beneficial conversion feature of the Senior Secured Convertible Note 9,821,000 9,821,000 Depreciation 126,000 127,000 488,000 Amortization of debt issue costs 146,000 225,000 885,000 Common stock issued in lieu of interest 455,000 -- 567,000 Fair value of warrants and option granted for services rendered -- -- 121,000 Common stock issued to certain persons for services provided -- -- 206,000 Expenses paid by shareholder on behalf of Company -- -- 79,000 Changes in operating assets and liabilities: Prepaid expenses and other current assets 10,000 46,000 5,000 Security deposits -- -- (20,000) Accounts payable and accrued expenses 109,000 659,000 2,121,000 Due to related parties -- (209,000) (118,000) ------------ ----------- ------------ Net cash provided by (used in) operating activities (1,733,000) (2,215,000) (9,102,000) ------------ ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (2,000) (143,000) (738,000) Restricted cash 65,000 (18,000) -- Other (1,000) -- 93,000 ------------ ----------- ----------- Net cash provided by (used in) investing activities 62,000 (161,000) (645,000) ------------ ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net advances repayable only out of proceeds of public offering -- -- 471,000 Proceeds received upon issuance of common stock -- 2,207,000 3,239,000 Proceeds received from issuance of preferred stock, net of related costs -- -- 100,000 Proceeds received upon exercise of options and warrants, net of costs -- 68,000 569,000 Net advances by former principal stockholder -- -- 321,000 Proceeds from sale of convertible debt 5,500,000 516,000 10,874,000 Debt issue costs (278,000) (51,000) (888,000) ------------ ----------- ------------ Repayment of convertible debt (100,000) -- (100,000) ------------ ----------- ------------ Net cash provided by financing activities 5,122,000 2,740,000 14,586,000 ------------ ----------- ------------
6 7
PERIOD FROM NINE MONTHS ENDED JULY 21, 1989 SEPTEMBER 30, (DATE OF ------------- INCEPTION) TO 1997 1996 SEPTEMBER 30, 1997 ---- ---- ------------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) NET CHANGE IN CASH AND EQUIVALENTS 3,451,000 364,000 4,839,000 CASH AND EQUIVALENTS, BEGINNING OF YEAR 1,388,000 217,000 -- ----------- ----------- ------------ CASH AND EQUIVALENTS, END OF YEAR $ 4,839,000 $ 581,000 $ 4,839,000 =========== ========= ============ SUPPLEMENTAL CASH FLOW INFORMATION: Contribution to capital by former principal stockholder $ -- $ -- $ 3,659,000 =========== =========== =========== Related party debt exchanged for convertible debt $ -- $ -- $ 321,000 =========== =========== =========== Exchange of indebtedness to former principal stockholder for common stock $ -- $ -- $ 445,000 =========== =========== =========== Issuance of common stock for services and accrued salaries $ -- $ 167,000 $ 352,000 =========== =========== =========== Exchange of equipment and accrued rent for common stock $ -- $ -- $ 271,000 =========== =========== =========== Subordinated notes and related accrued interest exchanged for Series A preferred stock $ -- $ -- $ 3,300,000 =========== =========== =========== Exchange of convertible debt for convertible preferred stock $ -- $ -- $ 356,000 =========== =========== =========== Conversion of convertible debt and accrued interest into common stock, net of unamortized debt discount $ 145,000 $ 2,220,000 $ 3,413,000 =========== =========== =========== Exchange of advances repayable only out of proceeds of public offering for common stock $ -- $ -- $ 471,000 =========== =========== =========== Deferred offering costs on warrants exercised $ -- $ -- $ 88,000 =========== =========== =========== Issuance of warrants in settlement of litigation and for services rendered $ 190,000 $ 68,000 $ 350,000 =========== =========== =========== Common stock issued for costs related to 10% promissory notes $ -- $ -- $ 525,000 =========== =========== =========== Interest expense relating to the beneficial conversion feature of the Senior Secured Convertible Notes $ 9,821,000 $ -- $ 9,821,000 =========== =========== ===========
See accompanying notes to consolidated financial statements 7 8 LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1997 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim periods. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the Company's audited financial statements included in the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission for the year ended December 31, 1996. Operating results for the three and nine month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997 or any interim period. 2. DESCRIPTION OF BUSINESS Lithium Technology Corporation ("LTC") together with its wholly-owned subsidiary, Lithion Corporation ("Lithion"), collectively referred to as the "Company", is an advanced development stage publicly held company in the process of commercializing a unique, solid-state, lithium polymer rechargeable battery. The Company is engaged in research and development activities to further develop and exploit this battery technology and also holds various patents relating to such batteries. The Company believes that its battery technology, which is currently in the prototype development phase, is capable of providing up to four times the performance of current rechargeable batteries. The Company's objective is the commercialization of such technology, inclusive of moving from laboratory-scale product prototypes and related prototype processes to full scale market introduction, achieving cost competitiveness, and constructing a manufacturing plant. The Company's commercialization focus is on the rapidly growing portable electronics market segment (notebook computers and wireless communications handset devices). The Company's patented and proprietary composite cell construction and low-cost manufacturing process are equally applicable to lithium metal polymer technology or lithium-ion polymer technology. The Company intends to pursue both chemistries for specific portable electronics applications. The Company has generated no revenues and has no commercial operations to date. The Company has been unprofitable since inception and expects to incur substantial additional operating losses over the next several years. The Company does not expect to generate any sales in commercial quantities in the near term. 8 9 3. OPERATING AND LIQUIDITY DIFFICULTIES AND MANAGEMENT'S PLANS TO OVERCOME: The Company has been unprofitable since inception and expects to incur substantial additional operating losses over the next few years. The Company has generated no revenues nor has it had any commercial operations to date and does not expect to generate any significant revenues from operations during 1997. The Company has experienced liquidity difficulties since inception and in order to continue the development of the Company's technology, needs significant additional financing. The Company has financed its operations since December 1993 with the proceeds from the sale of convertible debt and private placements of common and preferred stock. MANAGEMENT'S PLANS - During 1994, the Company recruited a new management team and a core technical staff with needed commercialization and battery technology expertise. The staff has expertise in technology, commercialization, process development, battery engineering and strategic alliance development. A modern research facility was leased and product development commenced. The Company's operating results to date are solely attributable to research and development activities and general and administrative expenses. Management's operating plan seeks to minimize the Company's capital requirements, but commercialization of the Company's battery technology will require substantial amounts of additional capital. The Company expects that research and development expenses will increase significantly as it continues to advance its battery technology and develop products for commercial applications. The Company's working capital and capital requirements will depend upon numerous factors, including, without limitation, the progress of the Company's research and development program, the levels and resources that the Company devotes to the development of manufacturing and marketing capabilities, technological advances, the status of competitors and the ability of the Company to establish collaborative arrangements with other companies to provide research and development funding to the Company and to manufacture and market the Company's products. The Company has raised approximately $14,460,000 since inception through various sales of convertible debt and common and preferred stock. During 1996, the Company sold a then 4% equity position to a Japanese Consortium for approximately $2,400,000 and also sold 10% convertible promissory notes for $1,750,000 (see Note 6). In July-August 1997, the Company borrowed $500,000 pursuant to the sale of convertible notes described herein (see Note 6). This bridge financing of $500,000 was repaid in full from the proceeds resulting from the sale of $5,500,000 Senior Secured Convertible Notes on September 22, 1997. (See Note 6 for details regarding the Company's $5,500,000 Senior Secured Convertible Notes). There can be no assurance that the incremental capital needed to attain commercial viability of the Company's battery technology will be obtained, which the Company currently estimates at approximately $22 million (assuming repayment of the $5,500,000 Senior Secured Convertible Notes). If the Company is unable to raise sufficient capital, it will be forced to curtail research and development expenditures which, in turn, will delay, and could prevent, the completion of the commercialization process. Reference should be made to "Management's Discussion and Analysis or Plan of Operation" included elsewhere herein for additional information. 9 10 4. PROPERTY AND EQUIPMENT ARE SUMMARIZED AS FOLLOWS:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ---- ---- Laboratory equipment $ 855,000 $ 855,000 Furniture and fixtures 93,000 91,000 Leasehold improvements 41,000 41,000 --------- --------- 989,000 987,000 Less: Accumulated depreciation and amortization 489,000 363,000 --------- --------- $ 500,000 $ 624,000 ========= =========
5. COMMITMENTS AND CONTINGENCIES LEASES - The Company leases its principal operating facility from an unrelated party providing for annual rent of $122,400 through November 1999 and contains an option to renew for an additional five years. EMPLOYMENT AGREEMENTS - The Company has a four year employment agreement with its Director of Research providing for annual compensation of $125,000 through January 1998. In May 1996, the Company entered into a one year employment agreement with its Chief Executive Officer at an annual salary of $185,000 and other incentives, including performance bonuses and stock options. The agreement has been extended through May 8, 1998. The officer voluntarily elected to defer his compensation and at September 30, 1997 such deferral ($257,458) has been included in accrued salaries in the accompanying financial statements. In July 1996, the Company entered into one year employment agreements with its President/Chief Operating Officer and its Executive Vice President of Operations/Chief Technical Officer at annual salaries of $140,000 and $130,000, respectively, plus other incentives, including performance bonuses and stock options. In May 1997, these employment agreements were extended for one year on the same terms and conditions except that no new options were granted. LEGAL PROCEEDINGS - In August 1996, civil actions were commenced against the Company by a former director of the Company, and by the Company's former legal counsel. The former director's complaint seeks monetary damages amounting to approximately $4,500,000 and specific performance of registration rights of certain warrants of the Company that have not been registered and to which he claims entitlement. The Company has declared such warrants and related documents void. The complaint of the Company's former counsel alleges non-payment of legal fees for services rendered. The Company has included the unpaid legal fees in accounts payable, however, it believes these actions to be without merit and intends to vigorously defend both actions. Accordingly, the Company has filed its own lawsuit against the former counsel alleging fraud, legal malpractice and conflict of interest flowing from the fraudulent issuance of the aforementioned warrants. In addition, the complaint alleges violations of federal securities laws, the Racketeering Influenced and Corrupt Organization Act ("RICO") and fiduciary duties owed by counsel to the Company. The complaint also includes similar allegations against the former director, flowing from the fraudulent issuance of warrants to him. 10 11 6. STOCKHOLDERS' EQUITY: PREFERRED STOCK - The Company is authorized to issue up to 100,000 shares of Preferred Stock, all of which is currently undesignated and may be divided and issued from time to time in one or more series as may be designated by the Board of Directors. In the event of liquidation, dissolution or winding up of the Company, the holders of the Preferred Stock will be entitled to a liquidation preference over the Common Stock. The Preferred Stock may be entitled to such dividends, redemption rights, liquidation rights, conversion rights and voting rights as the Board of Directors, in its discretion, may determine, in a resolution or resolutions providing for the issuance of any such stock. Rights granted by the Board of Directors may be superior to those of existing shareholders, (including the right to elect a controlling number of directors as a class). Preferred Stock can be issued without the vote of the holders of Common Stock. No shares of Preferred Stock are outstanding at September 30, 1997. CONVERTIBLE NOTES PAYABLE DUE NOVEMBER 2, 1998 - In October 1996, the Company sold $1.75 million principal amount of Convertible Notes. The Company did not repay the $1.75 million principal of the Convertible Notes on the March 24, 1997 maturity date and, accordingly, pursuant to the terms of the Convertible Note Agreements, the Company and the Convertible Note Purchasers placed in escrow an additional 6,201,550 shares of the Company's Common Stock (the "Escrowed Shares"). The Escrowed Shares are not considered to be issued and outstanding securities pending actual payment for such shares. The Convertible Note Purchasers did not take any action to exercise any default remedies while negotiations were proceeding to restructure the Convertible Note Agreements. On August 18, 1997, the Company and the Convertible Note Purchasers agreed to the following material terms: (i) the maturity date of the Convertible Notes was extended to November 2, 1998; (ii) the Company will pay to the Convertible Note Purchasers $100,000 toward the outstanding principal balance of the Convertible Notes upon the closing of a private placement of the Company's securities currently in the negotiation phase, plus accrued interest since March 24, 1997 (paid in September 1997); (iii) the Convertible Note Purchasers will be permitted to sell certain quantities of the Escrowed Shares at then current market prices, the proceeds of which will be deemed to reduce the outstanding principal amount owed on the Convertible Notes; (iv) once the principal amount of the Convertible Notes is repaid either through sales of the Escrowed Shares or by the Company's repayment of the Convertible Notes, 12.5% of any remaining Escrowed Shares will be delivered to the Convertible Note Purchasers, and the remaining 87.5% will be retired by the Company (subject to adjustment depending on the occurrence of certain events); (v) the Convertible Notes may be prepaid by the Company, provided that the Company issue 250,000 of the Escrowed Shares to the Convertible Note Purchasers; and (vi) certain weekly issuances of shares of the Company's Common Stock which were issued to the Convertible Note Purchasers under the terms of the Convertible Note Agreements will be deemed to have terminated on March 24, 1997. Interest accrues at 10% per annum. No interest shall accrue and be due on any principal amount that is unpaid after July 1, 1998. The amendments to the Convertible Notes also provide that if the Convertible Note Purchasers' resale exemption from registration is not available due to a change in the law, then the Company must file a registration statement with the Securities and Exchange Commission covering certain shares of the Company's Common Stock held by the Convertible Note Purchasers. On September 22, 1997, the Company paid $100,000 to the Convertible Note Purchasers to reduce the principal amount of the Convertible Notes. During September 1997, one of the Convertible Note Purchasers also sold 158,000 Escrowed Shares which further reduced the principal amount of the Convertible Notes by $144,452. 11 12 BRIDGE FINANCING - In July and August 1997, the Company obtained bridge financing for an aggregate $500,000 by issuing convertible notes to five lenders and an aggregate of 100,000 warrants to these lenders. The terms of this bridge financing, as amended, include, among other things, interest of 8% on the bridge notes, maturity of the bridge notes on September 30, 1997, the convertibility of the bridge notes into the Company's Common Stock at $.28 per share, and an exercise price of $.14 per share for the bridge lenders' warrants. On September 22, 1997, these convertible notes were repaid from proceeds of the sale of $5.5 million of the Company's Senior Secured Convertible Notes. In November 1997, warrants to purchase 100,000 shares of the Company's Common Stock were exercised by the bridge lenders at an exercise price of $.14 per share. SENIOR SECURED CONVERTIBLE NOTES DUE JULY 1, 2002 - On September 22, 1997, the Company entered into a Senior Secured Convertible Note Purchase Agreement (the "Note Purchase Agreement") with Lithium Link LLC (the "Lender") for the sale of $5.5 million of the Company's Senior Secured Convertible Notes (the "Notes"). The Company received $1.37 million of the $5.5 million funding as of the September 22, 1997 closing date and an additional $800,000, plus interest was disbursed from the escrow agent on November 3, 1997 in accordance with terms of the Note Purchase Agreement. The remaining proceeds of the sale of the Notes will be disbursed to the Company from the escrow account bi-monthly over a ten month period in amounts varying between $550,000 and $1,730,000 based on a pre-determined disbursement schedule. The bi-monthly fundings are subject to the Company's satisfaction of certain conditions subsequent set forth in the Note Purchase Agreement, none of which relate to operating or financial milestones. Interest accrues at 8.5% and is payable annually, at the Company's election in cash or the Company's Common Stock. The principal of the Notes is payable on or before July 1, 2002. The Notes are convertible into the Company's Common Stock at a conversion price of $.28 per share. The Company has recorded the intrinsic value of the beneficial conversion feature of the Senior secured covertible notes as a charge to interest expense at its then fair value of $9,821,000. The holders of the Notes will have two demand registration rights and "piggyback" registration rights, subject to conditions set forth in the Note Purchase Agreement. In connection with the sale of the Notes, the Company entered into a Consulting Agreement with Interlink Management Corporation ("IMC") whereby IMC will be paid $5,000 per month for one year, with the Company having an option to renew the Consulting Agreement for another one year term. IMC was granted a warrant to purchase 500,000 shares of the Company's Common Stock at a price of $.40 per share, which has been recorded at its then fair value of $190,000. Such amount will be amortized over the life of the Consulting Agreement. IMC will provide consulting services in connection with strategic planning and the identification of prospective strategic alliance partners with respect to the manufacture and distribution of the Company's lithium-ion polymer rechargeable battery products. IMC was paid $150,000 for services and expenses. The Notes are secured by a first priority security interest in favor of the Lender as to substantially all of the Company's assets other than the Company's intellectual property. The Company's obligations under the Notes are guaranteed by the Company's subsidiary, Lithion Corporation, and the Company pledged its interest in the shares of Lithion Corporation as security for repayment of the Notes. The Company granted to the Lender a nonexclusive, royalty-free, assignable, and sublicenseable license to use the Company's lithium-ion-related patents and other intellectual property for the manufacture and distribution of lithium-ion polymer batteries in a defined territory essentially comprised of designated countries in Asia and Oceania, provided that the agreement expressly excludes the use of the licensed subject matter for the manufacture of lithium metal polymer battery products. The License Agreement provides that the Lender may not exercise the license unless a bankruptcy proceeding is filed by or against the Company or other bankruptcy-related triggering events respecting the Company occur. 12 13 7. STOCK INCENTIVE PLAN -- Options under the 1994 Stock Incentive Plan are summarized as follows: Options outstanding January 1, 1997 1,744,000 Options granted ($.78125 per share) 12,000 Options exercised -- Options canceled (97,000) ---------- Options outstanding, September 30, 1997 ($.501-$2.55 per share) 1,659,000 ========= Options available for grant, September 30, 1997 1,008,000 ========= Options exercisable, September 30, 1997 1,348,000 =========
DIRECTORS STOCK OPTION PLAN -- Options under the Directors Plan are summarized as follows: Options outstanding, January 1, 1997 107,000 Options granted -- Options canceled (40,000) ---------- Options outstanding, September 30, 1997 ($.90 per share) 67,000 ========= Options available for grant, September 30, 1997 266,000 ========= Options exercisable, September 30, 1997 30,000 =========
WARRANTS -- Warrants are summarized as follows: Warrants outstanding, January 1, 1997 2,360,000 Warrants granted (1) 1,687,000 Warrants exercised -- Warrants expired -- --------- Warrants outstanding, September 30, 1997 ($.40 to $3.60 per share) 4,047,000 ========= Warrants exercisable, September 30, 1997 3,940,000 =========
(1) Includes approximately 987,000 warrants issuable pursuant to anti-dilution provisions of existing warrant agreements resulting primarily from the sale of Senior secured convertible notes on September 22, 1997. 8. SUBSEQUENT EVENTS -- During October 1997, one of the Convertible Note Purchasers sold 275,413 Escrowed Shares which further reduced the principal amount of the Convertible Notes by $326,977. In addition, since the principal amount of one note holder has been completely repaid, 12.5% or 167,307 Escrowed Shares have been issued to this noteholder and 1,171,151 Escrowed Shares have been retired by the Company. In November 1997, warrants to purchase 100,000 shares of the Company's Common Stock were exercised by the bridge lenders (see Note 6) at an exercise price of $.14 per share. 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. GENERAL The Company is an advanced development stage company engaged in the business of developing and seeking to commercialize a unique, solid state, lithium polymer rechargeable battery. The Company has generated no revenues and has no commercial operations to date. The Company has been unprofitable since inception and expects to incur substantial additional operating losses over the next few years. The Company does not expect to generate any significant revenues from operations during the fiscal year ending December 31, 1997. The Company believes that its battery technology, which is currently in the prototype development phase, is capable of providing up to four times the performance of current rechargeable batteries. The Company's objective is the commercialization of such technology, inclusive of moving from laboratory-scale product prototypes and related prototype processes to full scale market introduction, achieving cost-competitiveness, and constructing a manufacturing plant. The Company's commercialization focus is on the rapidly growing portable electronics market segment (notebook computers and wireless communications handset devices). The Company's patented and proprietary composite cell construction and low-cost manufacturing process are equally applicable to lithium metal polymer technology or lithium-ion polymer technology. The Company intends to pursue both chemistries for specific portable electronics applications. LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION The Company has financed its operations from December 10, 1993 with convertible debt and private placements of Common and Preferred Stock and has raised approximately $14.46 million, including most recently, $5.5 million from the September 1997 sale of convertible notes described herein. AS OF SEPTEMBER 30, 1997 At September 30, 1997, the Company had cash of $4,839,000 (including equivalents and cash held in escrow), fixed assets of $500,000 and other assets of $484,000. The Company's total liabilities were $8,392,000 consisting of accounts payable and accrued expenses in the amount of $1,387,000, convertible notes due November 2, 1998 in the amount of $1,505,000, and Senior Secured Convertible Notes due July 1, 2002 in the amount of $5,500,000. The Company had a net working capital of $3,452,000 on September 30, 1997. The Company's net working capital was increased by approximately $5,082,000 from December 31, 1996 to September 30, 1997. The Company's cash and equivalents increased by approximately $3,451,000 from December 31, 1996 to September 30, 1997. This increase in net working capital and in cash (including cash held in escrow) is attributable primarily (i) to the sale of $5,500,000 in Senior Secured Convertible Notes during September 1997 and (ii) to reduced operating expenses as compared to the corresponding period in 1996 primarily for the reasons discussed below in "Results of Operations". The Company's stockholder's deficiency was $2,569,000 at September 30, 1997, after giving effect to an accumulated deficit of $30,122,000 which consisted of $23,257,000 accumulated deficit during the development stage from July 21, 1989 through September 30, 1997 and $6,865,000 accumulated deficit from prior periods. The Company expects to incur substantial operating losses as it continues its commercialization efforts. On September 22, 1997, the Company entered into a Senior Secured Convertible Note Purchase Agreement (the "Note Purchase Agreement") with Lithium Link LLC (the "Lender") for the sale of $5.5 million of the Company's Senior Secured Convertible Notes (the "Notes"). The Company is obligated to borrow, and the Lender is obligated to loan, the entire $5.5 million principal amount. The Company has received $1.37 million of the $5.5 million funding as of the September 22, 1997 closing date. The proceeds of the sale of the Notes will be disbursed to the Company from an escrow account bi-monthly over a ten month period in amounts varying between $550,000 and $1,730,000 based on a pre-determined disbursement schedule. The bi-monthly fundings are subject to the 14 15 Company's satisfaction of certain conditions subsequent set forth in the Note Purchase Agreement, none of which relate to operating or financial milestones. Interest accrues at 8.5% and is payable annually, at the Company's election in cash or the Company's Common Stock. The principal of the Notes is payable on or before July 1, 2002. The Notes are convertible into the Company's Common Stock at a conversion price of $.28 per share. The Company has recorded the intrinsic value of the beneficial conversion feature of the Senior secured convertible notes as a charge to interest expense at its then fair value of $9,821,000. The holders of the Notes will have two demand registration rights and "piggyback" registration rights, subject to conditions set forth in the Note Purchase Agreement. While the Company's operating plan seeks to minimize the Company's capital requirements, commercialization of the Company's battery technology will require substantial amounts of additional capital. Subject to the availability of necessary capital, the Company expects that research and development and production expenses will increase significantly as it continues to advance its battery technology and develop products for commercial applications. The Company's working capital and capital requirements will depend upon numerous factors, including, without limitation, the progress of the Company's research and development program, the levels and resources that the Company devotes to the development of manufacturing and marketing capability, technological advances, the status of competitors, the Company's continuing compliance with the conditions contained in the Note Purchase Agreement, and the ability of the Company to establish collaborative arrangements with other companies to provide research and development funding to the Company and to manufacture and market the Company's products. The Company believes that as of September 30, 1997 it has sufficient capital resources to meet the Company's needs and satisfy the Company's obligations through approximately June 1999 based on the Company's current strategies and subject to the uncertainties discussed in this report. The Company does not currently have sufficient cash to achieve all its development and production objectives, including the 1998 installation of the pilot manufacturing line and repayment of long-term liabilities. In order to raise sufficient capital for its future growth and repayment of the Convertible Notes, the Company will be required to sell additional debt or equity securities. There can be no assurances that the incremental capital needed for attaining commercial viability of the Company's battery technology, which the Company currently estimates at $22 million (assuming repayment of the $5,500,000 Senior Secured Convertible Notes) can be obtained. If the Company is unable to raise sufficient capital, it will be forced to curtail research and development expenditures which, in turn, will delay, and could prevent, the completion of the commercialization process. RESULTS OF OPERATIONS Nine Months Ended September 30, 1997 and 1996. The Company had no revenues for the nine months ended September 30, 1997 and 1996. Engineering, research and development expenses were $914,000 for the nine months ended September 30, 1997 compared to $899,000 in 1996. The increase of $15,000 results from decreased contract research activities and increased lab supplies and salaries as the Company continues to accelerate its commercialization efforts. General and administrative expenses were $1,135,000 for the nine months ended September 30, 1997 compared to $2,143,000 in 1996. The decrease of $1,008,000 was due to decreased legal costs and decreased amortization of debt issue costs and increased consulting expenses and accrued but unpaid wages to the Company's Chief Executive Officer. Interest expense increased to $530,000 (net of interest income of $28,000) for the nine months ended September 30, 1997 compared to $21,000 (net of interest income of $39,000) in 1996. The increase in interest expense for the comparable periods is attributable to the Company's convertible term notes and the issuance of certain additional shares in connection with the Company's exercise of its right to extend the maturity date for repayment of the Convertible Notes. The Company has recorded the intrinsic value of the beneficial conversion feature of the Senior secured convertible notes as a charge to interest expense at its then fair value of $9,821,000. 15 16 Three Months Ended September 30, 1997 and 1996. The Company had no revenues for the three months ended September 30, 1997 and 1996. Engineering, research and development expenses were $287,000 for the three months ended September 30, 1997 compared to $325,000 in 1996. The decrease of $38,000 results from decreased contract research activities as the Company restricted cash expenditures during the three months ended September 30, 1997. General and administrative expenses were $294,000 for the three months ended September 30, 1997 compared to $765,000 in 1996. The decrease of $471,000 was due to decreased legal costs and accrued but unpaid wages to the Company's Chief Executive Officer. Interest expense increased to $46,000 (net of interest income of $10,000) for the three months ended September 30, 1997 compared to ($13,000) (net of interest income of $13,000) in 1996. The increase in interest expense for the comparable periods is attributable to the Company's convertible term notes. The Company has recorded the intrinsic value of the beneficial conversion feature of the Senior secured convertible notes as a charge to interest expense at its then fair value of $9,821,000. 16 17 PLAN OF OPERATIONS FOR THE COMPANY The Company's strategy is to commercialize its solid-state, lithium-polymer, rechargeable battery with primary focus on high performance portable electronic products (notebook computers and wireless communications devices). These market segments are large, growing rapidly, and demand high performance batteries with a thin, flat form factor and long run times. There can be no assurance, however, that the Company will be able to achieve the technological breakthroughs that will be necessary in order to ultimately achieve commercialization and/or obtain financings or generate revenues in order to sustain the Company's on-going research and development phase or to undertake the design and construction of the Demonstration Manufacturing Facility discussed herein and other manufacturing-related facilities. During 1994, the Company recruited a new management team and a core technical staff with commercialization and battery technology expertise. A modern research facility was leased in late 1994 and product development has continued at an accelerated pace. At September 30, 1997, the management team and technical staff consisted of twelve full-time employees. The staff has the required expertise in technology, commercialization, process development, battery engineering, electrochemistry and strategic alliance development. During 1996 the Company entered into employment agreements with Thomas R. Thomsen as the Company's Chief Executive Officer, David J. Cade as the Company's President and Chief Operating Officer, and Dr. George R. Ferment as the Company's Executive Vice President and Chief Technical Officer. In May 1997, these employment agreements were extended for one year. The Company's development and commercialization plan currently has the following milestones: (i) hand-made cell samples tested by potential strategic partners in 1995 (accomplished); (ii) installation of a Demonstration Manufacturing Facility (DMF) continuous flow coating and laminating unit in first quarter of 1996 (accomplished); (iii) upgrade of the DMF and distribution of DMF-made lithium-ion polymer cell samples to selected Original Equipment Manufacturers (OEMs) customers in early 1997 (accomplished); (iv) distribution of prototype battery packs to selected OEMs in late 1997; (v) initial commercial production of hand assembled battery packs using DMF-made cells for OEMs in early 1998, ramping up to 20,000 notebook computer batteries per month and generating sales of $6 million in 1998; (vi) installation of a pilot manufacturing facility in early 1998; (vii) expansion of the pilot manufacturing facility in late 1998 by automating the backend assembly; and (viii) construction of a second tier manufacturing capability once market demand exceeds initial manufacturing capacity. The Company estimates that completion of phases (iv) through (vii) through the end of 1998 will cost approximately $22 million in capital expenditures and operating costs. There can be no assurances that the Company will meet these development milestones on the time schedule outlined above. 17 18 During March 1996, a continuous flow coating/laminating line -- referred to previously in this "Plan of Operation" as the Demonstration Manufacturing Facility ("DMF") -- was installed by the Company. This line is being used to further define the Company's manufacturing technology, to sharpen manufacturing cost estimates, and then serve as the initial production facility for battery cells which will be manually assembled into battery packs for Original Equipment Manufacturer ("OEM") customers. Thereafter, based on design data obtained from the DMF, the Company must successfully construct a larger pilot manufacturing line reflecting the cost, quality, reliability, and performance required for the various target market applications. It is anticipated that the pilot manufacturing line and associated equipment will cost approximately $7.5 million to construct in the 1998 time frame. The pilot manufacturing line, according to the Company's current strategy, will be located within the Company's existing facility in Plymouth Meeting, Pennsylvania. Construction of the pilot manufacturing line will require approximately 12 months. Ultimately, the pilot manufacturing line would be replaced with a larger scale second tier manufacturing line housed in the Company's existing facility, which could be expanded if necessary. During the next twelve months after the date of this report, the Company expects to incur expenses of approximately $2,000,000 for the purchase of equipment based on the Company's current strategies and subject to the uncertainties discussed in this report and the availability of capital. The Company intends to finance the overall estimated $22 million total capital equipment and operating expense required to bring the Company to the initial commercial production stage at approximately the end of 1998 (which $22 million includes the aforementioned estimated $7.5 million cost of the pilot manufacturing facility and $2 million for equipment purchases) by means of private and/or public equity or debt financings during the next two years. The Company does not currently have sufficient cash to achieve all its development and production objectives, including the 1998 installation of the pilot manufacturing line and repayment of long term liabilities if not converted to equity and $2 million for equipment purchases. As noted above (See "Liquidity, Capital Resources, and Financial Condition") the Company believes that as of September 30, 1997 it has sufficient capital resources to meet the Company's needs and satisfy the Company's obligations through approximately June 1999 based on the Company's current strategies and subject to the uncertainties discussed in this report. The Company does not currently have sufficient cash to achieve all its development and production objectives, including the 1998 installation of the pilot manufacturing line. In order to raise sufficient capital for its future growth, and repayment of long term liabilities if not converted to equity, the Company will be required to sell additional debt or equity securities. Such new capital is planned to be sought from several sources, including strategic partners, although the Company has no commitments for new capital as of the date of this report. The Company is also seeking to raise additional capital for its activities beyond 1997, which may result in further dilution to the Company's existing stockholders. The Company will seek to expand its strategic alliances which would provide capital from joint development programs, license fees or an additional equity investment. Discussions are continuing with companies in Japan, Korea, Taiwan, Europe and the United States. However, there can be no assurances that additional capital will be available to the Company on a timely basis or on acceptable terms. In addition, there can be no assurance that the Company will be able to meet the technological objectives and/or satisfy the capital requirements that the Company believes are necessary to convert battery technology into successful commercial products. There can be no assurance that the Company's products will generate any revenues, will not encounter technical problems when used, will be successfully marketed, will be produced at a competitive cost, or will achieve customer acceptance or, if commercial products are developed and revenues produced, that the Company will be profitable. The likelihood of the success of the Company must be weighed against the problems, expenses, difficulties, complications and delays frequently encountered in developing and marketing a new product. 18 19 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In August 1996 civil actions were commenced against the Company by Richard Perlman, a former director of the Company, and Christy & Viener, former legal counsel to the Company, respectively. The two suits were commenced in the United States District Court for the Southern District of New York. The Company subsequently filed its own lawsuit against Christy & Viener and Mr. Perlman in United States District Court for the Eastern District of Pennsylvania. Mr. Perlman's complaint alleges that he is entitled to monetary damages and specific performance of registration rights relating to certain warrants of the Company that have not been registered and to which he claims entitlement. The Company has declared such warrants and related documents void. Christy & Viener's complaint alleges non-payment of legal fees incurred in connection with the rendering of legal services. The Company believes these actions to be meritless and intends to vigorously defend both actions and to assert all available defense and counterclaims. The Company's lawsuit against Christy & Viener, a New York City law firm, includes claims arising out of Christy & Viener's alleged fraud, legal malpractice and conflicts of interest flowing from the fraudulent issuance of the same warrants that form the basis of Perlman's action. The complaint asserts claims for alleged violations of federal securities laws, the Racketeer Influenced and Corrupt Organizations Act, and fiduciary duties owed by the law firm and its partners to the Company. The complaint names as defendants: Christy & Viener and William Gray, Steven Berger, and Franklin Viele, each a partner in the firm. The complaint includes similar claims against a fifth defendant, Mr. Perlman as noted above, a former financial adviser to the Company and former member of its Board of Directors, flowing from the fraudulent issuance of warrants to him. ITEM 2. CHANGES IN SECURITIES In July and August 1997, the Company issued to certain individuals warrants to purchase 100,000 shares of the Company's Common Stock at an exercise price of $.14 per share. The warrants were issued in consideration of providing $500,000 in bridge financing to the Company and were exercised in November 1997. On September 22, 1997, the Company sold $5,500,000 of its Senior Secured Convertible Notes to Lithium Link LLC. Interest accrues at 8.5% and is payable annually, at the Company's election in cash or in Common Stock. The notes are convertible into the Company's Common Stock at a conversion price of $.28 per share. In connection with the sale of the Notes, a warrant to purchase 500,000 of the Company's Common Stock at an exercise price of $.40 per share was issued to Interlink Management Corporation and the Company also paid $150,000 for services and expenses (see Note 6). Such securities were issued pursuant to the exemption under Section 4(2) of the Securities Act. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. 19 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits None. b) Form 8-K Reports during the Third Quarter and thereafter The Company filed two Current Reports on Form 8-K during the quarter ended September 30, 1997 as follows: 1. Form 8-K Report dated August 21, 1997 with respect to Item 5 of such Report. 2. Form 8-K Report dated September 22, 1997 with respect to Item 5 of such Report. 20 21 SIGNATURE In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LITHIUM TECHNOLOGY CORPORATION By: /s/ Thomas R. Thomsen ----------------------------------------- Thomas R. Thomsen Chairman and Chief Executive Officer /s/ William D. Walker ----------------------------------------- William D. Walker Treasurer and Chief Financial Officer (Principal Financial Officer) November 14, 1997 21 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 4,839 0 0 0 0 4,839 969 489 5,823 1,387 0 0 0 177 (2,569) 5,823 0 0 0 0 2,049 0 10,351 (12,400) 0 (12,400) 0 0 0 (12,400) (.71) (.71)
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