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, 2001
[ ] 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 May 1, 2001: 51,294,305 shares
of Common Stock
Transitional Small Business Disclosure Format (check one):
Yes __ No X
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LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2001
INDEX
PAGE
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets - March 31, 2001 (Unaudited) 3
and December 31, 2000
Condensed Consolidated Statements of Operations -Three Months
Ended March 31, 2001 and 2000, and Period From
July 21, 1989 (Date of Inception) to March 31, 2001 (Unaudited) 4
Condensed Consolidated Statements of Changes in Stockholders'
Deficiency - Three Months Ended March 31, 2001 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2001 and 2000, and Period from
July 21, 1989 (Date of Inception) to March 31, 2001 (Unaudited) 6
Notes to Consolidated Financial Statements - Three Months
Ended March 31, 2001 (Unaudited) 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION 16
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
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PART I - FINANCIAL INFORMATION
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 2001 December 31, 2000
-------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents $ 47,000 $ 52,000
------------ ------------
Total Current Assets 47,000 52,000
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF $1,194,000 AND $1,159,000 336,000 347,000
SECURITY DEPOSITS 21,000 21,000
------------ ------------
Total assets $ 404,000 $ 420,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 355,000 $ 248,000
Accrued salaries 201,000 201,000
Note Payable 85,000 88,000
------------ ------------
Total current liabilities 641,000 537,000
------------ ------------
LONG-TERM LIABILITIES:
Convertible Promissory Notes 4,011,000 3,463,000
------------ ------------
Total liabilities 4,652,000 4,000,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $.01 per share:
Authorized - 125,000,000 shares
Issued and outstanding - 51,294,305 shares 513,000 513,000
Additional paid-in capital 47,170,000 47,170,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (45,066,000) (44,398,000)
------------ ------------
Total stockholders' equity (deficiency) (4,248,000) (3,580,000)
------------ ------------
$ 404,000 $ 420,000
------------ ------------
See accompanying notes to consolidated financial statements.
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Period From July 21, 1989
Three Months Ended March 31, (Date of Inception) to
------------ ------------
2001 2000 March 31, 2001)
------------ ------------ -------------------------
REVENUES:
Development contracts $ 0 $ 0 $ 168,000
COSTS AND EXPENSES:
Engineering, research and development 417,000 346,000 10,328,000
General and administrative 250,000 512,000 14,091,000
Stock based compensation expense, primarily general
and administrative -- -- 1,794,000
------------ ------------ ------------
667,000 858,000 26,213,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income (1,000) 3,000 (1,830,000)
Interest expense related to beneficial conversion feature -- (17,841,000)
Other non-operating income - Notes -- -- 650,000
------------ ------------ ------------
(1,000) 3,000 (19,021,000)
------------ ------------ ------------
NET LOSS $ (668,000) $ (855,000) $(45,066,000)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: 51,294,305 49,212,000
============ ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (.01) $ (.02)
============ ============
See accompanying notes to consolidated financial statements.
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
Deficit
Accumulated
Additional Accumulated During
Shares Amount Paid-In Capital Deficit Development Stage
------ ------ --------------- ------- -----------------
BALANCES AT DECEMBER 31, 2000
Three months ended March 31, 2001: 51,294,305 $513,000 $47,170,000 ($6,865,000) ($44,398,000)
Net loss -- -- -- -- (668,000)
BALANCES AT MARCH 31, 2001 51,294,305 $513,000 $47,170,000 ($6,865,000) ($45,066,000)
See accompanying notes to consolidated financial statements.
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Period From
July 21, 1989
Three Months Ended (Date of Inception)
March 31, to
2001 2000 March 31, 2001
------------ ------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (668,000) $ (855,000) $(45,066,000)
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 36,000 27,000 1,197,000
Amortization of debt issue costs -- -- 1,070,000
Common stock issued at prices below fair market value -- -- 1,167,000
Repricing of outstanding warrants -- -- 602,000
Reduction of accrued expenses -- -- (270,000)
Common stock issued in lieu of interest -- -- 1,915,000
Fair value of warrants and option granted for services rendered -- -- 209,000
Common stock issued for services provided -- -- 273,000
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 -- -- --
Other current assets -- 15,000 (6,000)
Security and equipment deposits -- -- (21,000)
Accounts payable, accrued expenses and customer deposits 104,000 114,000 2,158,000
Due to related parties -- -- (118,000)
------------ ------------ ------------
Net cash used in operating activities (528,000) (699,000) (18,845,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (25,000) -- (1,283,000)
Other -- -- 94,000
------------ ------------ ------------
Net cash provided by (used in) investing activities (25,000) -- (1,189,000)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds received from Convertible Promissory Notes 548,000 532,000 4,011,000
Net advance repayable only out of proceeds of public offering -- -- 471,000
Proceeds received upon issuance of common stock -- -- 3,789,000
Proceeds received from issuance of preferred stock, net of related costs -- -- 100,000
Proceeds received upon exercise of options and warrants, net of costs -- 469,000 1,455,000
Net advances by former principal stockholder -- -- 321,000
Proceeds from sale of convertible debt -- -- 10,874,000
Debt issue costs -- -- (887,000)
Repayment of convertible debt -- -- (100,000)
------------ ------------ ------------
Net cash provided by financing activities 548,000 1,001,000 20,034,000
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (5,000) 302,000 47,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 52,000 38,000 --
------------ ------------ ------------
CASE AND CASH EQUIVALENTS, END OF PERIOD $ 47,000 $ 340,000 $ 47,000
============ ============ ============
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -- CONTINUED
Period From
July 21, 1989
Three Months Ended (Date of
March 31, Inception)
2001 2000 March 31, 2001
------ ------ --------------
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 -- -- $ 501,000
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 -- -- $9,947,000
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 for debt issue costs and for
services rendered -- -- $ 364,000
Common stock issued for costs related to 10% promissory notes -- -- $ 525,000
See accompanying notes to consolidated financial statements.
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001
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, 2000. Operating results for the three months ended
March 31, 2001 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2001 or any interim
period.
2. HISTORY OF THE BUSINESS
Lithium Technology Corporation and its wholly-owned subsidiary, Lithion
Corporation, collectively referred to as "LTC", are pre-production
stage companies in the process of commercializing unique, solid-state,
lithium polymer rechargeable batteries. LTC is engaged in technology
development activities and pilot line manufacturing operations to
further advance this battery technology and also holds various patents
relating to such batteries. LTC is developing innovative lithium
polymer batteries for Hybrid Electric Vehicle (HEV) applications.
The date of inception of LTC's development stage is July 21, 1989. At
that time, LTC exchanged its capital stock for all of the capital stock
of Lithion and an operating company in a reverse acquisition. The
operating company was divested in November 1993. The accumulated
deficit associated with the operating company of $6,865,000 has been
segregated from LTC's deficit accumulated during the development stage
in the accompanying consolidated financial statements.
On January 19, 2000, LTC and Pacific Lithium Limited ("PLL") of
Auckland, New Zealand signed an Agreement and Plan of Merger (the
"Merger Agreement") to merge their respective companies (the "Merger").
On October 2, 2000, PLL domesticated into the U.S. and became a private
Delaware corporation pursuant to the provisions of Section 388 of the
Delaware Corporation Law (the "Domestication") and changed its name to
Ilion Technology Corporation ("Ilion"). Ilion intends to consummate an
Initial Public Offering in the United States and NASDAQ listing of
Ilion (the "Ilion IPO") as soon as practicable depending upon market
conditions and other factors. The Merger will be completed after the
consummation of the Ilion IPO and the approval of the Merger by the LTC
stockholders, assuming the remaining closing conditions are met. A
meeting of the LTC stockholders to approve the Merger will be held as
soon as practicable after the Ilion IPO.
The closing conditions to the Merger must be met by February 28, 2002
or either LTC or Ilion may terminate the Merger Agreement provided that
the terminating party has not prevented the consummation of the Merger
by a breach of the Merger Agreement by such party. Accordingly, both
the Ilion IPO and the approval of the Merger by the LTC Stockholders
must be completed by February 28, 2002 and the remaining closing
conditions must be met by such date. There can be no assurance that
Ilion will be able to
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consummate the Ilion IPO by February 28, 2002. There can also be no
assurance that if the Ilion IPO is completed by February 28, 2002 that
the Merger will be approved by the LTC stockholders by such date.
Pursuant to the terms of a Bridge Loan Financing Agreement entered into
as of November 29, 1999 (the "Bridge Loan"), Ilion has agreed to
advance working capital to LTC. Ilion has advanced a total of
$4,011,000 as of March 31, 2001.
The Bridge Loan Agreement does not contain a maximum of the amount of
funding that may be advanced under such agreement. Accordingly, there
is no maximum amount of notes that may be issued to Ilion. The amount
of the notes will be related to the working capital advances made by
Ilion to LTC and the length of time until the Merger is completed.
If Ilion breaches the Merger Agreement, and the Merger Agreement is
terminated as a result, prior to February 28, 2002, the date the Merger
Agreement expires, Ilion would have the right to convert the Bridge
Loan into shares of LTC common stock at the conversion price of $0.10
per share. In this event, the conversion could result in Ilion holding
an ownership percentage greater than 50%, depending on the amount of
Bridge Loans outstanding on the date of conversion. In addition, LTC
would need to find alternative sources of capital or be forced to
curtail technology development expenditures which, in turn, will delay,
and could prevent, the completion of LTC's commercialization process.
If the Merger does not occur by February 28, 2002 because the closing
conditions have not been met by such date, including the failure of
condition of the Ilion IPO or the approval of the Merger by LTC's
stockholders, and Ilion has not breached the Merger Agreement, Ilion
would have the right to convert the Bridge Loans into shares of LTC
common stock at a conversion price of $0.10 per share. This conversion
could result in Ilion holding an ownership percentage greater than 50%,
depending on the amount of Bridge Loans outstanding on the date of
conversion. In addition, in this instance, Ilion would be issued three
year warrants to purchase 7.5 million shares of LTC common stock
exercisable at $0.15 per share and Ilion would have a first option to
purchase LTC's technologies and processes if LTC sells, goes into
receivership, liquidation or the like. Ilion would also have the right
and option to purchase LTC's pilot plant and equipment at book value as
of the date of the Merger Agreement.
In connection with the Bridge Loan, LTC has granted Ilion a
non-exclusive worldwide license to use LTC's thin film technology and
manufacturing methods solely as it relates to lithium-ion polymer
batteries. Pursuant to the licensing agreement, Ilion will pay to LTC a
royalty equal to the higher of one percent of the net sales price of
each licensed product manufactured, sold or otherwise disposed of
during the term of the licensing agreement or the rate that applies to
any license agreement entered into subsequent to October 1, 1999. The
funds advanced by Ilion to LTC under the Bridge Loan Financing
Agreement will be deemed as an advance payment of royalty fees due
under the licensing agreement. All improvements developed by LTC or
Ilion during the course of the licensing agreement will be owned by
Ilion. As of March 31, 2001, no royalties have been earned under this
agreement.
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3. OPERATIONS 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. Since
December 1993, operations have been financed primarily through the use
of proceeds from the sale of convertible debt and private placements of
common stock. Continuation of the Company's operations in 2001 is
dependent upon Ilion's ability to make additional advances under the
Bridge Loan Financing Agreement and, ultimately, the closing of the
merger described herein. These conditions raise substantial doubt about
LTC's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
MANAGEMENT'S PLANS - LTC is in the late stages of developing and
producing innovative rechargeable solid state lithium polymer
batteries. LTC has worked closely with selected portable electronics
Original Equipment Manufacturers ("OEMs") over the past several years,
exploring various notebook computer, PDA and wireless handset
applications. However, based on emerging market opportunities and as
part of the strategy of merging into Ilion, LTC has now refocused its
unique wide footprint cell manufacturing technology and market
activities to concentrate on large, high-pulse power battery
applications, including Hybrid Electric Vehicles (HEVs) and energy
storage devices for the rapidly growing distributed power market. In
September 2000, LTC completed the first working prototype lithium-ion
polymer HEV battery, complete with electronics. A second generation
prototype HEV battery was completed in January 2001. LTC has not yet
delivered a prototype HEV battery for testing by a third party. All
improvements to LTC's technology contained in the prototype HEV
batteries are owned by Ilion pursuant to the terms of the licensing
agreement between LTC and Ilion entered into in connection with the
Bridge Loan.
Prior to changing its focus to developing batteries for HEVs, LTC
delivered limited quantities of prototype batteries and component cells
for evaluation to selected battery pack integrators and portable
electronics OEMs. LTC has an experienced management team and a strong
technical staff with relevant experience in battery technology and
applications, thin-film manufacturing, capital raising, and global
marketing, sales and strategic alliances.
Management's operating plan seeks to minimize LTC's capital
requirements, but commercialization of LTC's battery technology will
require substantial amounts of additional capital. LTC expects that
technology development and operating and production expenses will
increase significantly as it continues to advance its battery
technology and develop products for commercial applications. LTC's
working capital and capital requirements will depend upon numerous
factors, including, without limitation, the progress of LTC's
technology development program, the levels and resources that LTC
devotes to the development of manufacturing and marketing capabilities,
technological advances, the status of competitors and the ability of
LTC, including Ilion subsequent to the merger, to establish
collaborative arrangements with other companies to provide an expanded
capacity to market and manufacture battery products.
Beginning in October 1999, Ilion has provided working capital for LTC.
Management is depending on the Bridge Loan Agreement funding from Ilion
to meet LTC's obligations through the next year. In 2001, Ilion reduced
the amount of funding it has been providing to LTC on a monthly basis.
Ilion has indicated that it has reduced its operating expenses
throughout Ilion and indicated in March 2001 that it intended to fund
LTC at $100,000 per month under the Bridge Loan Agreement. Ilion and
LTC subsequently entered into discussions regarding funds required by
LTC to meet its operating expenses and in April 2001 Ilion agreed to
support an LTC monthly operating budget of $150,000 and subject to
Ilion's review and reconciliation of LTC's past due payables, agreed to
effect payment of LTC's outstanding payables over a three month period.
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If Ilion does not provide the monthly funding required by LTC or does
not forward funds to meet LTC's outstanding payables, LTC will be
forced to further curtail its current operations, substantially reduce
the number of LTC employees, and take other measures to reduce its
operating expenditures.
If Ilion breaches the Merger Agreement, and the Merger Agreement is
terminated as a result, prior to February 28, 2002, the date the Merger
Agreement expires, Ilion would have the right to convert the Bridge
loans into shares of LTC common stock at a conversion price of $0.10
per share. In this event, the conversion could result in Ilion holding
an ownership percentage greater than 50%, depending on the amount of
Bridge Loans outstanding on the date of conversion. In addition, LTC
would need to find alternative sources of capital or be forced to
curtail technology development expenditures which, in turn, will delay,
and could prevent, the completion of LTC's commercialization process.
If the Merger does not occur by February 28, 2002 because the closing
conditions have not been met by such date, including the failure of
condition of the Ilion IPO or the approval of the Merger by LTC's
Stockholders, and Ilion has not breached the Merger Agreement, Ilion
would have the right to convert the Bridge Loans into shares of LTC
common stock at a conversion price of $0.10 per share. This conversion
could result in Ilion holding an ownership percentage greater than 50%,
depending on the amount of Bridge Loans outstanding on the date of
conversion. In addition, in this instance, Ilion would be issued three
year warrants to purchase 7.5 million shares of LTC common stock
exercisable at $0.15 per share and Ilion would have a first option to
purchase LTC's technologies and processes if LTC sells, goes into
receivership, liquidation or the like. Ilion would also have the right
and option to purchase LTC's pilot plant and equipment at book value as
of the date of the Merger Agreement.
LTC believes that provided Ilion advances the needed working capital to
LTC until the consummation of the Merger, LTC will have sufficient
capital resources to meet its needs and satisfy its obligations through
the date of the Merger. LTC does not currently have sufficient cash to
meet all of its operating needs, pay its outstanding payables or to
achieve all its development and production objectives. There can be no
assurance that funding will continue to be provided by Ilion in the
amounts necessary to meet all of LTC's obligations. If Ilion does not
provide the needed working capital to LTC or if the Merger is not
consummated, LTC will assess all available alternatives including the
suspension of operations and possibly liquidation, auction, bankruptcy,
or other measures.
4. PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2001 are summarized as follows:
Laboratory equipment $1,376,000
Furniture and office equipment 106,000
Leasehold improvements 48,000
----------
$1,530,000
Less: Accumulated depreciation and amortization 1,194,000
----------
$ 336,000
==========
5. SUBSEQUENT EVENTS
In April and May of 2001, Ilion advanced an additional $301,000 to the Company
for working capital under the Bridge Loan, bringing the total Bridge Loan to
$4,312,000 as of May 15, 2001.
In April, 2001, the Company extended the expiration date of the Company's
outstanding warrants until the earlier of (i) the date three business days prior
to the closing of the Merger or (ii) the original termination date set forth in
the warrant, provided however, if there is no registration statement registering
the underlying
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warrant shares effective within ninety days prior to the original warrant
termination date, the original warrant termination date is extended to the date
three business days prior to the closing of the Merger.
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 AND PLAN OF OPERATION
LTC is a pre-production stage company in the process of commercializing a
unique, solid-state, lithium polymer rechargeable battery. LTC is engaged in
technology development activities and pilot line manufacturing operations to
further advance this battery technology and also holds various patents relating
to such batteries. LTC is developing innovative lithium polymer batteries for
Hybrid Electric Vehicle (HEV) applications.
On January 19, 2000, LTC and Pacific Lithium Limited ("PLL") of Auckland, New
Zealand signed an Agreement and Plan of Merger (the "Merger Agreement") to merge
their respective companies (the "Merger"). On October 2, 2000, PLL domesticated
into the U.S. and became a private Delaware corporation pursuant to the
provisions of Section 388 of the Delaware Corporation Law (the "Domestication")
and changed its name to Ilion Technology Corporation ("Ilion"). Ilion intends to
consummate an Initial Public Offering in the United States and NASDAQ listing of
Ilion (the "Ilion IPO") as soon as practicable depending upon market conditions
and other factors. The Merger will be completed after the consummation of the
Ilion IPO and the approval of the Merger by the LTC stockholders, assuming the
remaining closing conditions are met. A meeting of the LTC stockholders to
approve the Merger will be held as soon as practicable after the Ilion IPO.
The closing conditions to the Merger must be met by February 28, 2002 or either
LTC or Ilion may terminate the Merger Agreement provided that the terminating
party has not prevented the consummation of the Merger by a breach of the Merger
Agreement by such party. Accordingly, both the Ilion IPO and the approval of the
Merger by the LTC Stockholders must be completed by February 28, 2002 and the
remaining closing conditions must be met by such date. There can be no assurance
that Ilion will be able to consummate the Ilion IPO by February 28, 2002. There
can also be no assurance that if the Ilion IPO is completed by February 28, 2002
that the Merger will be approved by the LTC stockholders by such date.
Pursuant to the terms of a Bridge Loan Financing Agreement entered into as of
November 29, 1999 (the "Bridge Loan"), Ilion has agreed to advance working
capital to LTC. Ilion has advanced a total of $4,011,000 as of March 31, 2001.
The Bridge Loan Agreement does not contain a maximum of the amount of funding
that may be advanced under such agreement. Accordingly, there is no maximum
amount of notes that may be issued to Ilion. The amount of the notes will be
related to the working capital advances made by Ilion to LTC and the length of
time until the Merger is completed.
If Ilion breaches the Merger Agreement, and the Merger Agreement is terminated
as a result, prior to February 28, 2002, the date the Merger Agreement expires,
Ilion would have the right to convert the Bridge Loan into shares of LTC common
stock at the conversion price of $0.10 per share. In this event, the conversion
could result in Ilion holding an ownership percentage greater than 50%,
depending on the amount of Bridge Loans outstanding on the date of conversion.
In addition, LTC would need to find alternative sources of capital or be forced
to curtail technology development expenditures which, in turn, will delay, and
could prevent, the completion of LTC's commercialization process.
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If the Merger does not occur by February 28, 2002 because the closing conditions
have not been met by such date, including the failure of condition of the Ilion
IPO or the approval of the Merger by LTC's stockholders, and Ilion has not
breached the Merger Agreement, Ilion would have the right to convert the Bridge
Loans into shares of LTC common stock at a conversion price of $0.10 per share.
This conversion could result in Ilion holding an ownership percentage greater
than 50%, depending on the amount of Bridge Loans outstanding on the date of
conversion. In addition, in this instance, Ilion would be issued three year
warrants to purchase 7.5 million shares of LTC common stock exercisable at $0.15
per share and Ilion would have a first option to purchase LTC's technologies and
processes if LTC sells, goes into receivership, liquidation or the like. Ilion
would also have the right and option to purchase LTC's pilot plant and equipment
at book value as of the date of the Merger Agreement.
In connection with the Bridge Loan, LTC has granted Ilion a non-exclusive
worldwide license to use LTC's thin film technology and manufacturing methods
solely as it relates to lithium-ion polymer batteries. Pursuant to the licensing
agreement, Ilion will pay to LTC a royalty equal to the higher of one percent of
the net sales price of each licensed product manufactured, sold or otherwise
disposed of during the term of the licensing agreement or the rate that applies
to any license agreement entered into subsequent to October 1, 1999. The funds
advanced by Ilion to LTC under the Bridge Loan Financing Agreement will be
deemed as an advance payment of royalty fees due under the licensing agreement.
All improvements developed by LTC or Ilion during the course of the licensing
agreement will be owned by Ilion. As of March 31, 2001, no royalties have been
earned under this agreement.
At March 31, 2001, Ilion held $4,011,000 of convertible notes convertible into
40,110,000 shares of Common Stock at a conversion price of at $.10 (which are
only convertible in the event of a default or if the Merger does not close by
February 28, 2002), which would represent approximately 44% of LTC's outstanding
Common Stock upon conversion. Additional notes may be issued by LTC to Ilion
under the Bridge Loan convertible into shares of Common Stock at a conversion
price of $.10 per share and LTC may issue to Ilion warrants to purchase
7,500,000 shares of LTC Common Stock exercisable at $0.15 per share. The notes
will not be converted into LTC Common Stock and the warrants will not be issued
to Ilion if the Merger is completed. The percentage ownership of LTC that Ilion
will own if there is a default under the Bridge Loan or in the event the Merger
is not closed will depend on the amount of funds advanced by Ilion to LTC.
Until the closing of the Merger, LTC and Ilion are working together in
leveraging their combined vertical integration capabilities and
patented/proprietary technologies encompassing: (1) access to lithium reserves;
(2) advanced carbonate and electrode materials; (3) composite cell structures;
(4) unique substrate handling manufacturing processes; (5) large battery
assemblies; and (6) lithium recycling. The two companies are targeting global
market opportunities involving HEV batteries, portable electronics, and
stationary large battery applications. Ilion has also established joint venture
manufacturing and distribution relationships with selected partners around the
world. The first such joint venture, with Eldor Corporation of Italy, regarding
manufacturing and distribution of lithium-ion batteries for portable electronics
applications worldwide, was signed in August, 2000. In November 2000, Ilion
entered into a joint venture agreement with Powercell Corporation. Pursuant to
the agreement, Ilion and Powercell formed Proteus Power LLC, which is owned 75%
by Ilion and 25% by Powercell, to develop and manufacture lithium-ion based
energy storage devices for (1) the management and enhancement of electricity
reliability and power quality (excluding devices under 50 kW), (2) the electric
vehicle market (excluding HEVs) and (3) the renewable energy market, which
includes wind and solar energy. LTC continues to provide technology support to
Ilion in large footprint cell structures, large battery assemblies and
manufacturing process scale-up for all applications.
The new combined entity is expected to have a unique position in the lithium
polymer battery market, providing a proprietary vertical integration capability
that would range from high grade lithium materials to reinforced composite
battery structures, with low cost, high yield thin film manufacturing processes.
This combination of technologies, capabilities and people - coupled with the
selected joint venture partners for global manufacturing and distribution - will
enable the new company to become a low cost provider of high quality and high
performance
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'lithium polymer batteries. Targeted markets for Ilion and its array of
technologies include rapidly emerging markets for large rechargeable lithium
batteries such as HEVs and stationary applications, as well as the more
traditional portable electronics applications.
For a complete description of the terms of the Merger with Ilion, including
Amendment No. 4 that was entered into on February 2, 2001, and the Bridge
Financing provided by Ilion, see the Company's Form 10-KSB for the year ended
December 31, 2000.
LTC has been unprofitable since inception, expects to incur substantial
operating losses over the next few years and needs significant additional
financing to continue the development and commercialization of its technology.
LTC does not expect to generate any significant revenues from operations during
the fiscal year ending December 31, 2001.
If the Merger with Ilion is not consummated, LTC will assess all available
alternatives including the suspension of operations and possibly liquidation,
auction, bankruptcy, or other measures.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
The Company has financed its operations since inception primarily with
convertible debt and private placements of common stock and has raised
approximately $18.4 million, including $4,011,000 from Ilion as of March 31,
2001.
At March 31, 2001, the Company had cash and cash equivalent of $47,000, fixed
assets of $336,000 and other assets of $21,000. The Company's total liabilities
were $4,652,000 consisting of accounts payable, accrued salaries, and a note
payable in the amount of $641,000 and convertible promissory notes payable to
Ilion in the amount of $4,011,000. The Company had a working capital deficit of
$594,000 on March 31, 2001 as compared to a working capital deficit of $380,000
on December 31, 2000.
The Company's cash and cash equivalents decreased by approximately $5,000 from
December 31, 2000 to March 31, 2001. The working capital and cash decrease is
attributable primarily to the decrease in bridge loan financing from Ilion.
The Company's stockholders' deficiency was $4,248,000 at March 31, 2001, after
giving effect to an accumulated deficit of $51,931,000 which consisted of
$45,066,000 accumulated deficit during the development stage from July 21, 1989
through March 31, 2001 and $6,865,000 accumulated deficit from prior periods.
The Company expects to incur substantial operating losses as it continues its
commercialization efforts.
Pursuant to the terms of a Bridge Loan, Ilion has agreed to advance working
capital to the Company until the closing of the Merger. Ilion has advanced a
total of $4,011,000 through March 31, 2001, convertible into 40,110,000 shares
of Company common stock at a conversion price of $.10 per share, which would
represent approximately 44% of LTC's outstanding common stock upon conversion.
Ilion has agreed to advance to the Company ongoing funds required by the Company
for ongoing employee, operating and administrative expenses excluding capital
expenses.
In 2001, Ilion reduced the amount of funding it has been providing to LTC on a
monthly basis. Ilion has indicated that it has reduced its operating expenses
throughout Ilion and indicated in March 2001 that it intended to fund LTC at
$100,000 per month under the Bridge Loan Agreement. Ilion and LTC subsequently
entered into discussions regarding funds required by LTC to meet its operating
expenses and in April 2001 Ilion agreed to support an LTC monthly operating
budget of $150,000 and subject to Ilion's review and reconciliation of LTC's
past due payables, agreed to effect payment of LTC's outstanding payables over a
three month period.
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During 2001, LTC has taken measures to curtail its operating and administrative
expenses. If Ilion does not provide the monthly funding required by LTC or does
not forward funds to meet LTC's outstanding payables, LTC will be forced to
further curtail its current operations, substantially reduce the number of LTC
employees, and take other measures to reduce its operating expenditures.
LTC believes that provided Ilion advances the needed working capital to LTC
until the consummation of the Merger, LTC will have sufficient capital resources
to meet its needs and satisfy its obligations through the date of the Merger.
LTC does not currently have sufficient cash to meet all of its operating needs,
pay its outstanding payables or to achieve all its development and production
objectives. There can be no assurance that funding will continue to be provided
by Ilion in the amounts necessary to meet all of LTC's obligations. If Ilion
does not provide the needed working capital to LTC or if the Merger is not
consummated, LTC will assess all available alternatives including the suspension
of operations and possibly liquidation, auction, bankruptcy, or other measures.
RESULTS OF OPERATIONS
The Company had no revenues from commercial operations for the three months
ended March 31, 2001 and 2000. Engineering, research and development expenses
were $417,000 for the three months ended March 31, 2001 compared to $346,000 for
the three months ended March 31, 2000. The increase of $71,000 was due primarily
to increased lab supplies and consulting expenses.
General and administrative expenses were $250,000 for the three months ended
March 31, 2001 compared to $512,000 for the three months ended March 31, 2000.
The decrease of $262,000 was due primarily to decreased legal and accounting
expenses as well as Company-wide efforts to decrease all non-essential
administrative expenses.
Interest expense for the three months ended March 31, 2001 was $1,000 (net of
interest income of $2,000), compared to $3,000 of interest income with no
interest expense for the three months ended March 31, 2000. The decrease in
interest income for the comparable periods is attributable to a decrease in cash
balances.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "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 consummation of the Merger with Ilion and continued
financing of LTC by Ilion.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
2.7 Amendment No. 4 to the Agreement and Plan of
Merger dated February 2, 2001 between LTC
and Ilion Technology Corporation (1)
10.40 First Amendment to Lease dated March 19,
2001 between PMP Whitemarsh Associates and
LTC (2)
10.41 Form of Second Warrant Amendment Agreement
b) Form 8-K Reports during the Quarter Ended March 31,
2001
Form 8-K dated February 14, 2001 announcing the
update on the pending merger with Ilion and the
execution of Amendment No. 4 to the Merger Agreement
(1) Incorporated by reference to the Company's Form 8-K dated February 14,
2001
(2) Incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 2000
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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/ David J. Cade
-------------------------------------------
David J. Cade, Chairman and Chief Executive
Officer (Chief Executive Officer and Acting
Principal Financial Officer)
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