1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For The Quarterly Period Ended June 30, 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 August 21, 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 JUNE 30, 2001
INDEX
PAGE
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - June 30, 2001 and
December 31, 2000 (Unaudited) 1
Consolidated Statements of Operations -Three Months and Six Months
Ended June 30, 2001 and 2000, and Period From July 21,
1989 (Date of Inception) to June 30, 2001 (Unaudited) 2
Consolidated Statements of Changes in Stockholders'
Deficiency - Six Months Ended June 30, 2001 (Unaudited) 4
Consolidated Statements of Cash Flows - Six Months Ended June 30,
2001 and 2000, and Period from July 21, 1989 (Date of
Inception) to June 30, 2001 (Unaudited) 5
Notes to Consolidated Financial Statements - Six Months
Ended June 30, 2001 (Unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
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PART I - FINANCIAL INFORMATION
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
June 30, 2001 December 31, 2000
------------- -----------------
CURRENT ASSETS: (Unaudited) (Unaudited)
Cash and cash equivalents $ 32,000 $ 52,000
------------ ------------
Total Current Assets 32,000 52,000
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF
$1,229,000 AND $1,159,000 305,000 347,000
------------ ------------
SECURITY DEPOSITS 21,000 21,000
============ ============
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 358,000 $ 420,000
============ ============
CURRENT LIABILITIES:
Accounts payable $ 285,000 $ 248,000
Accrued salaries 201,000 201,000
Other accrued expenses 82,000 88,000
------------- ------------
Total current liabilities 568,000 537,000
------------ ------------
LONG-TERM LIABILITIES:
Convertible Promissory Notes 4,474,000 3,463,000
------------ ------------
Total liabilities 5,042,000 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 (45,502,000) (44,398,000)
------------ ------------
Total stockholders' equity (deficiency) (4,684,000) (3,580,000)
------------ ------------
$ 358,000 $ 420,000
============ ============
See accompanying notes to consolidated financial statements.
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30,
---------------------------
2001 2000
---- ----
(Unaudited) (Unaudited)
REVENUES:
Development contracts $ 0 $ 0
Other 7,000 0
------------ ------------
7,000 0
------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 210,000 481,000
General and administrative 232,000 651,000
------------ ------------
442,000 1,132,000
============ ============
OTHER INCOME (EXPENSE):
Interest expense, net of interest income (1,000) 4,000
------------ ------------
(1,000) 4,000
------------ ------------
NET LOSS $ (436,000) $ (1,128,000)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING: 51,294,305 50,002,000
============ ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (0.01) $ (0.02)
============ ============
See accompanying notes to consolidated financial statements.
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, Period from July
------------------------- 31, 1989 to
2001 2000 June 30, 2001
---- ---- -------------
(Unaudited) (Unaudited) (Unaudited)
REVENUES:
Development contracts $ 0 $ 0 $ 175,000
Other 7,000 0 0
------------ ------------ ------------
7,000 0 175,000
------------ ------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 627,000 827,000 10,538,000
General and administrative 482,000 1,163,000 14,323,000
Stock based compensation expense -- -- 1,794,000
------------ ------------ ------------
1,109,000 1,990,000 26,655,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income (2,000) 7,000 (1,831,000)
Interest expense related to beneficial conversion feature -- -- (17,841,000)
Other non-operating income - Notes -- -- 650,000
------------ ------------ ------------
(2,000) 7,000 (19,022,000)
------------ ------------ ------------
NET LOSS $ (1,104,000) $ (1,983,000) $(45,502,000)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING: 51,294,000 49,607,000
============ ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (0.02) $ (0.04)
============ ============
See accompanying notes to consolidated financial statements.
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
(Unaudited)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
Deficit
Accumulated
Common Stock During
-------------------------- Additional Accumulated Development
Shares Amount Paid-In Capital Deficit Stage
------ ------ --------------- ------- -----
BALANCES AT DECEMBER 31, 2000 51,294,305 $ 513,000 $ 47,170,000 ($ 6,865,000) ($44,398,000)
Six months ended June 30, 2001:
Net loss -- -- -- -- (1,104,000)
------------ ------------ ------------ ------------ ------------
BALANCES AT JUNE 30, 2001 51,294,305 $ 513,000 $ 47,170,000 ($ 6,865,000) ($45,502,000)
See accompanying notes to consolidated financial statements.
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period From
July 21, 1989
Six Months Ended (Date of
June 30, Inception)
to
2001 2000 June 30, 2001
------------ ------------ -------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,104,000) $ (1,983,000) $(45,502,000)
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 71,000 54,000 1,232,000
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 -- 20,000 --
Other current assets -- 17,000 (6,000)
Security and equipment deposits -- -- (21,000)
Accounts payable, accrued expenses and customer deposits 31,000 412,000 2,132,000
Due to related parties -- -- (118,000)
------------ ------------ ------------
Net cash used in operating activities (1,002,000) (1,480,000) (19,272,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (29,000) (24,000) (1,287,000)
Other -- -- 94,000
------------ ------------ ------------
Net cash provided by (used in) investing activities (29,000) (24,000) (1,193,000)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds received from Convertible Promissory Notes 1,011,000 1,245,000 4,474,000
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 -- 499,000 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 1,011,000 1,744,000 20,497,000
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (20,000) 240,000 32,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 52,000 38,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 32,000 $ 278,000 $ 32,000
============ ============ ============
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
Period From
July 21,
Six Months Ended 1989
June 30, (Date of
Inception)
2001 2000 June 30, 2001
---- ---- -------------
(Unaudited) (Unaudited) (Unaudited)
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 -- -- 3,300,000
preferred stock
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 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 LTC's audited financial
statements included in LTC'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 six months ended June 30, 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, flat
lithium ion rechargeable batteries.
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.
LTC has entered into an Agreement and Plan of Merger with Ilion Technology
Corporation ("Ilion"), formerly known as Pacific Lithium Limited, to merge
their respective companies. See Note 3.
3. OPERATIONS AND LIQUIDITY DIFFICULTIES AND MANAGEMENT'S PLANS TO OVERCOME
The accompanying consolidated financial statements of LTC 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, LTC 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 LTC's operations in 2001 is dependent upon Ilion's ability
to make additional advances under the Bridge Loan Financing Agreement
described below 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.
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MANAGEMENT'S PLANS - LTC is engaged in technology development activities
and pilot line manufacturing operations to further advance its battery
technology. LTC holds various patents relating to its batteries. LTC is
developing innovative flat lithium ion batteries for large, high rate
applications including Hybrid Electric Vehicles (HEVs), other automotive
applications and energy storage devices for the rapidly growing
distributed power market. In September 2000, LTC completed the first
working prototype lithium-ion 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 described below.
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.
MERGER WITH ILION TECHNOLOGY CORPORATION AND RELATED BRIDGE FINANCING - 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 and
changed its name to Ilion Technology Corporation ("Ilion"). Ilion has
advised LTC that 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 Agreement provides that 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. 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 the Ilion IPO or the
Merger will be consummated by February 28, 2002 or at all.
LTC's management is engaged in contingency planning in the event the Ilion
IPO and Merger do not occur by February 28, 2002 for any reason, and the
Merger Agreement date is not extended beyond February 28, 2002. As Ilion
has not yet filed a registration statement for the Ilion IPO, Ilion may
not be able to consummate the Ilion IPO by February 28, 2002. If the Ilion
IPO is not consummated by February 28, 2002, and such closing date is not
extended, either Ilion or LTC may terminate the Merger Agreement.
Contingency plans under consideration by LTC include seeking alternative
sources of financing as well as seeking potential technology partners and
customers and possibly restructuring the transaction with Ilion. If LTC is
unable to close or restructure the transaction with Ilion or complete any
new transaction, it may be forced to suspend operations and possibly
liquidate, auction its assets, or file for bankruptcy.
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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 $4,474,000 as of
June 30, 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 under the
Bridge Loan. 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.
Management is depending on the Bridge Loan Agreement funding from Ilion to
meet LTC's obligations through February 28, 2002. In 2001, Ilion reduced
the amount of funding it has been providing to LTC on a monthly basis.
Ilion indicated that it had 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. During April, May
and June 2001, Ilion provided $151,236, $187,865 and $123,282, to LTC,
respectively, or a total of $462,383 for such three month period. No
additional funds were provided to LTC by Ilion during such time and at
June 30, 2001, LTC had outstanding accounts payable of $285,000.
As a result of the reduction in the amount of funding provided by Ilion to
LTC from the original funding level of approximately $250,000 per month to
the current level, LTC has been forced to curtail its operations, reduce
the number of employees and take other measures to reduce 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, further reduce the number of
LTC employees, and take other measures to reduce its operating
expenditures.
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 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 June 30, 2001, no royalties have
been earned under this agreement.
If Ilion or LTC 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.
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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 June 30, 2001 are summarized as follows:
Laboratory equipment $1,380,000
Furniture and office equipment 106,000
Leasehold improvements 48,000
----------
$1,534,000
Less: Accumulated depreciation and amortization 1,229,000
----------
$305,000
----------
5. SUBSEQUENT EVENTS
In July and August 2001, Ilion advanced an additional $247,000 to LTC for
working capital under the Bridge Loan, bringing the total Bridge Loan to
$4,721,000 as of August 21, 2001.
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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 unique,
solid-state, lithium ion 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 flat lithium ion batteries for large,
high rate applications including HEVs, other automotive applications and energy
storage devices for the rapidly growing distributed power market.
LTC has an experienced management team and a strong technical staff with
experience in battery technology and applications, thin-film manufacturing,
capital raising, and global marketing, sales and strategic alliances. LTC
maintains a current commercial awareness of products, materials, manufacturing
processes, battery applications, competition and markets on a worldwide basis.
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 (the "Domestication")
and changed its name to Ilion Technology Corporation ("Ilion"). Ilion has
advised LTC that 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. For a complete
description of the terms of the Merger with Ilion and the related Bridge
Financing see LTC's Form 10-KSB for the year ended December 31, 2000.
The Merger Agreement provides that 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. 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 the
Ilion IPO or the Merger will be consummated by February 28, 2002 or at all.
LTC's management is engaged in contingency planning in the event the Ilion IPO
and Merger do not occur by February 28, 2002 for any reason, and the Merger
Agreement date is not extended beyond February 28, 2002. As Ilion has not yet
filed a registration statement for the Ilion IPO, Ilion may not be able to
consummate the Ilion IPO by February 28, 2002. If the Ilion IPO is not
consummated by February 28, 2002, and such closing date is not extended, either
Ilion or LTC may terminate the Merger Agreement. Contingency plans under
consideration by LTC include seeking alternative sources of financing as well as
seeking potential technology partners and customers and possibly restructuring
the transaction with Ilion. If LTC is unable to close or restructure the
transaction with Ilion or complete any new transaction, it may be forced to
suspend operations and possibly liquidate, auction its assets, or file for
bankruptcy.
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. At June 30, 2001, Ilion held $4,474,000 of convertible notes
convertible into 44,740,000 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 47% 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.
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Ilion has 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
automation and scale-up for all applications. At present, LTC's principal
support function is to supply Ilion with components for the assembly of
prototype high power devices for the Proteus joint venture.
With Ilion's approval, LTC has accepted certain external subcontract work for
several companies involving rapid prototyping and integration of lithium-ion
cells and batteries for various stationary and mobile applications. These
external initiatives, leveraging LTC's know-how, are expected to continue and
increase with the result of providing revenues to LTC.
As previously reported, to facilitate moving forward with the Ilion IPO, and in
turn to facilitate the closing of the Merger, on February 2, 2001, Ilion and LTC
entered into Amendment No. 4 to the Merger Agreement under which the Merger was
to be restructured from a variable price arrangement (approximately 3.9 to 4.1
million Ilion shares) to a fixed price arrangement ($25 million of Ilion shares,
but in no event more than 5 million shares or less than 2.5 million Ilion
shares). As further reported, these provisions of Amendment No. 4 were only to
become effective if and when Ilion filed a Registration Statement with the
Securities and Exchange Commission (the "SEC") relating to the Ilion IPO (the
"Registration Statement") and could be terminated by LTC or Ilion by giving
written notice to the other if the Registration Statement had not been declared
effective by the SEC on or before July 31, 2001. As Ilion has not yet filed the
Registration Statement, the provisions set forth in Amendment No. 4 changing the
terms of the Merger are no longer effective and these provisions of Amendment
No. 4 may be terminated by LTC or Ilion by giving written notice to the other.
Upon termination of the provisions of Amendment No. 4 the Merger Agreement will
be restored to the same terms and conditions as if such provisions of Amendment
No. 4 had never become effective. Management of LTC is considering whether to
terminate these provisions of Amendment No. 4 to the Merger Agreement. No
decision has been made as of the date of this filing.
On May 15, 2001, LTC extended the termination or expiration date of LTC'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 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.
On July 12, 2001, Barry Huret resigned from the LTC Board of Directors since
Board matters were requiring more time than Mr. Huret was able to commit to and
without such increased time commitment Mr. Huret felt he would be unable to
continue to contribute positively to the LTC Board.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
LTC has financed its operations since inception with convertible debt and
private placements of common stock and has raised approximately $18.9 million,
including $4,474,000 from Ilion as of June 30, 2001.
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.
At June 30, 2001, LTC had cash and cash equivalent of $32,000, fixed assets of
$305,000 and other assets of $21,000. LTC's total liabilities were $5,042,000
consisting of accounts payable, accrued salaries, and a note payable in the
amount of $568,000 and convertible promissory notes payable to Ilion in the
amount of $4,474,000. LTC had a working capital deficit of $536,000 on June 30,
2001 as compared to a working capital deficit of $380,000 on December 31, 2000.
LTC's cash and cash equivalents decreased by approximately $20,000 from December
31, 2000 to June 30, 2001.
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The working capital and cash decrease is attributable primarily to the decrease
in bridge loan financing from Ilion.
LTC's stockholders' deficiency was $4,684,000 at June 30, 2001, after giving
effect to an accumulated deficit of $52,367,000 which consisted of $45,502,000
accumulated deficit during the development stage from July 21, 1989 through June
30, 2001 and $6,865,000 accumulated deficit from prior periods. LTC 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 LTC until the closing of the Merger. Ilion has advanced a total of
$4,474,000 through June 30, 2001 and $4,721,000 as of August 21, 2001. Ilion has
agreed to advance to LTC ongoing funds required by LTC for ongoing employee,
operating and administrative expenses excluding capital expenses.
Management is depending on the Bridge Loan Agreement funding from Ilion to meet
LTC's obligations through February 28, 2002. 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. During April,
May and June 2001, Ilion provided $151,236, $187,865 and $123,282, to LTC,
respectively, or a total of $462,383 for such three month period. No additional
funds were provided to LTC by Ilion during such time and at June 30, 2001, LTC
had outstanding accounts payable of $285,000.
In July and August 2001, Ilion advanced an additional $247,000 to LTC for
working capital under the Bridge Loan, bringing the total Bridge Loan to
$4,721,000 as of August 21, 2001. As of August 21, 2001 LTC's outstanding
accounts payable were approximately $157,000.
As a result of the reduction in the amount of funding provided by Ilion to LTC
from the original funding level of approximately $250,000 per month to the
current level, LTC has been forced to curtail its operations, reduce the number
of employees and take other measures to reduce its operating and administrative
expenses.
LTC believes that provided Ilion advances the needed 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 of its assets, bankruptcy, or
other measures.
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\ RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
LTC had $7,000 in revenues from commercial operations for the six months ended
June 30, 2001 and no revenues in 2000. Engineering, research and development
expenses were $627,000 for the six months ended June 30, 2001 compared to
$827,000 for the six months ended June 30, 2000. The decrease of $200,000 was
due primarily to decreased salaries and benefits due to a decrease in the number
of technical personnel and a decrease in lab supplies and other materials.
General and administrative expenses were $482,000 for the six months ended June
30, 2001 compared to $1,163,000 for the six months ended June 30, 2000. The
decrease of $681,000 was due primarily to a decrease in salary and benefits due
to a decrease in the number of administrative personnel and related expenses
and decreased legal, accounting and other administrative expenses.
Interest expense for the six months ended June 30, 2001 was $5,000 with interest
income of $3,000 compared to $7,000 of interest income with no interest expense
for the six months ended June 30, 2000. The increase in interest expense for the
comparable periods is attributable to interest on notes payable.
THREE MONTHS ENDED JUNE 30, 2000
LTC had $7,000 in revenues from commercial operations for the three months ended
June 30, 2001 and no revenues for 2000. Engineering, research and development
expenses were $210,000 for the three months ended June 30, 2001 compared to
$481,000 for the three months ended June 30, 2000. The decrease of $271,000 was
due primarily to decreased personnel and related expenses and a decrease in lab
supplies and other materials.
General and administrative expenses were $232,000 for the three months ended
June 30, 2001 compared to $651,000 for the three months ended June 30, 2000. The
decrease of $419,000 was due primarily to decreased personnel and related
expenses and a decrease in legal, accounting and other administrative expenses.
Interest expense for the three months ended June 30, 2001 was $2,500 with
interest income of $1,500 compared to $4,000 of interest income with no
interest expense for the three months ended June 30, 2000. The increase in
interest expense for the comparable periods is attributable to interest on
notes payable.
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 LTC's
products, LTC's ability to consummate the merger with Ilion or other strategic
partners, technology development problems, and LTC's ability to successfully
finance future plant and equipment plans, as well as its current ongoing
operations.
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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
None.
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
August 22, 2001 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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