<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Quarterly Period Ended June 30, 2000
[ ] 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)
<TABLE>
<S> <C>
DELAWARE 13-3411148
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
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 10, 2000: 51,030,138
shares of Common Stock
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - June 30, 2000 (Unaudited)
and December 31, 1999 1
Consolidated Statements of Operations -Three Months and Six Months
Ended June 30, 2000 and 1999, and Period From
July 21, 1989 (Date of Inception) to June 30, 2000 (Unaudited) 2
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) - Six Months Ended June 30, 2000 (Unaudited) 4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2000 and 1999, and Period from
July 21, 1989 (Date of Inception) to June 30, 2000 (Unaudited) 5
Notes to Consolidated Financial Statements - Six Months
Ended June 30, 2000 (Unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 278,000 $ 38,000
Accounts receivable 1,000 21,000
Other current assets 1,000 18,000
------------ ------------
Total Current Assets 280,000 77,000
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF
$1,078,000 AND $1,024,000
400,000 430,000
SECURITY DEPOSITS 21,000 21,000
------------ ------------
Total assets $ 701,000 $ 528,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 484,000 $ 164,000
Accrued salaries 458,000 366,000
Other accrued expenses 100,000 100,000
------------ ------------
Total current liabilities 1,042,000 630,000
------------ ------------
LONG-TERM LIABILITIES:
Convertible Promissory Notes 2,063,000 818,000
------------ ------------
Total liabilities 3,105,000 1,448,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $.01 per share:
Authorized - 125,000,000 shares
Issued and outstanding - 50,104,919 and 48,280,749 shares 501,000 483,000
Additional paid-in capital 46,838,000 46,357,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (42,878,000) (40,895,000)
------------ ------------
Total stockholders' equity (deficiency) (2,404,000) (920,000)
------------ ------------
$ 701,000 $ 528,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
2000 1999
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES:
Development contracts $ 0 $ 22,000
------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 481,000 351,000
General and administrative 651,000 346,000
1,132,000 697,000
OTHER INCOME (EXPENSE):
Interest expense, net of interest income 4,000 5,000
4,000 5,000
------------ ------------
NET LOSS $ (1,128,000) $ (670,000)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
50,002,000 43,367,000
BASIC AND DILUTED NET LOSS PER SHARE: $ (.02) $ (.02)
============ ============
</TABLE>
2
<PAGE> 5
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Six Months Ended June 30, July 31, 1989 to
------------------------- ----------------
2000 1999 June 30, 2000
---- ---- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES:
Development contracts $ 0 $ 44,000 $ 168,000
------------ ------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 827,000 707,000 9,223,000
General and administrative 1,163,000 710,000 13,047,000
Stock based compensation expense -- -- 1,769,000
------------ ------------ ------------
1,990,000 1,417,000 24,039,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income 7,000 (14,000) (1,816,000)
Interest expense related to beneficial conversion feature -- -- (17,841,000)
Other non-operating income -- -- 650,000
------------ ------------ ------------
7,000 (14,000) (19,007,000)
------------ ------------ ------------
NET LOSS $ (1,983,000) $ (1,387,000) $(42,878,000)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
49,607,000 40,857,000
BASIC AND DILUTED NET LOSS PER SHARE: $ (.04) $ (.03)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Deficit
Accumulated
During
Common Stock Additional Accumulated Development
Shares Amount Paid-In Capital Deficit Stage
------ ------ --------------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1999 48,280,749 $ 483,000 $ 46,357,000 ($ 6,685,000) ($40,895,000)
Six months ended June 30, 2000:
Issuance of Common Stock:
Upon conversion of Stock Options 1,824,170 18,000 481,000
Net loss -- -- -- -- (1,983,000)
------------ ------------ ------------ ------------ ------------
BALANCES AT JUNE 30, 2000 50,104,919 $ 501,000 $ 46,838,000 ($ 6,865,000) ($42,878,000)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
July 21, 1989
(Date of
Six Months Ended Inception)
June 30, to
2000 1999 June 30, 2000
---- ---- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,983,000) $ (1,387,000) $(42,878,000)
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 54,000 115,000 1,080,000
Amortization of debt issue costs -- 8,000 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 158,000 1,915,000
Fair value of warrants and option granted for services rendered -- -- 209,000
Common stock issued for services provided 75,000 273,000
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 51,000 (1,000)
Other current assets 17,000 5,000 15,000
Security and equipment deposits -- -- (21,000)
Accounts payable, accrued expenses and customer deposits 412,000 55,000 2,559,000
Due to related parties -- -- (118,000)
------------ ------------ ------------
Net cash used in operating activities (1,480,000) (920,000) (16,353,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (24,000) -- (1,230,000)
Other -- -- 94,000
------------ ------------ ------------
Net cash provided by (used in) investing activities (24,000) -- (1,136,000)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES: --
Proceeds received from Convertible Promissory Notes 1,245,000 -- 2,063,000
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 -- 1,136,000
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 1,744,000 -- 17,767,000
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 240,000 (920,000) 278,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 38,000 1,073,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 278,000 $ 153,000 $ 278,000
============ ============ ============
</TABLE>
5
<PAGE> 8
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
<TABLE>
<CAPTION>
Period From
July 21, 1989
(Date of
Six Months Ended Inception)
June 30, to
2000 1999 June 30, 2000
---- ---- -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Contribution to capital by former principal stockholder -- -- $3,659,000
Related party debt exchanged for convertible debt -- -- $ 321,000
Exchange of indebtedness to former principal stockholder for common 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
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 9
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
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, 1999. Operating results for the three and six months
ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000 or any interim
period.
2. COMPANY BUSINESS AND RECENT DEVELOPMENTS
Lithium Technology Corporation together with its wholly-owned
subsidiary, Lithion Corporation ("Lithion"), collectively referred to
as the "Company", are development stage companies in the process of
commercializing a unique, solid-state, lithium polymer rechargeable
battery. The Company is engaged in research and development activities
and pilot line manufacturing operations to further develop and exploit
this battery technology and also holds various patents relating to such
batteries. The Company is in the late stages of developing and
commercializing innovative rechargeable solid-state lithium-ion polymer
batteries for Hybrid Electric Vehicle (HEV) and Electric Vehicle (EV)
applications.
7
<PAGE> 10
The date of inception of the Company's development stage is July 21,
1989. At that time, the Company exchanged its capital stock for all of
the capital stock of Lithion and an equipment manufacturing 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 the Company's deficit
accumulated during the development stage in the accompanying
consolidated financial statements.
On January 19, 2000, the Company and Pacific Lithium Limited ("PLL") of
Auckland, New Zealand signed an Agreement and Plan of Merger to merge
their respective companies (the "Merger"). The Merger will require the
approval of the stockholders of the Company and PLL.
PLL is an unlisted New Zealand company which carries on research,
development and production of specialized lithium chemistries for use
in the lithium battery industry. PLL commercially produces high and
premium grade lithium carbonate using proprietary processes and has
developed or is the exclusive licensee of lithium manganese cathode
products, lithium polymers and their production processes. PLL has an
exclusive licensing arrangement with the Massachusetts Institute of
Technology (MIT) and the National Research Council of Canada to
commercialize proprietary electrode and electrolyte polymers. PLL is a
significant supplier of high quality battery-specific lithium carbonate
to Japanese cathode and electrolyte suppliers. PLL has developed and is
sampling customers with patented high temperature stable, layered
manganese cathode materials which will be suitable for both the HEV and
portable applications markets. PLL's plant to commercially produce
these cathode materials is scheduled to be commissioned in 2000.
Prior to the Merger, PLL will domesticate into the U.S. and become a
Delaware corporation pursuant to the provisions of Section 388 of the
Delaware Corporation Law (the "Domestication"), change its name to
Ilion Technology Corporation ("Ilion") and consummate an initial public
offering in the United States and NASDAQ listing of Ilion (the "Ilion
IPO"). PLL has indicated that it expects to consummate the
Domestication and the Ilion IPO during the November 2000-February 2001
timeframe, depending upon market and other factors.
In the Merger, the Company will merge with and into Ilion and all of
the outstanding shares of the Company's common stock will be exchanged
for an aggregate of 3.5 million shares of Ilion, subject to possible
increase of up to 639,044 additional shares of Ilion common stock under
certain circumstances relating to the number of the Company options and
warrants exercised prior to the merger (the "Merger Securities"). The
Merger Securities will be issued to the Company stockholders on a
pro-rata basis. Based on the currently contemplated capital structure
of Ilion after the Ilion IPO, these shares will represent approximately
9-12% of Ilion's outstanding shares of common stock. Such ownership
percentage is not guaranteed by the Merger Agreement and would be
further diluted by any additional issuances of PLL or Ilion shares
prior to the Merger.
The consummation of the Merger is contingent upon certain closing
conditions being met by the parties including the approval of the
Merger by the stockholders of the Company and PLL and the closing of
the Ilion IPO. Pursuant to Amendment No. 3 to the Merger Agreement
entered into on June 6, 2000, the Ilion IPO will be completed prior to,
rather than contemporaneously with, the Merger and the LTC shareholder
meeting will be held as soon as practicable after completion of the
Ilion IPO. The Company expects that the Merger will be closed within 90
days of the Ilion IPO assuming the remaining closing conditions have
been met. Based on PLL's currently contemplated Ilion IPO in the
November 2000-February 2001 timeframe, the Merger closing date would
follow in the February -May 2001 timeframe. Both the Ilion IPO and the
Merger closing date may occur on later dates, but in no event may the
Merger closing date be beyond February 28, 2002.
Prior to the shareholder meeting, the Company and PLL will mail a proxy
statement and prospectus to all of the Company stockholders with
complete information on the Merger, PLL and the securities to be
8
<PAGE> 11
received by the Company stockholders in the Merger.
Pursuant to the terms of a Bridge Loan Financing Agreement entered into
as of November 29, 1999 (the "Bridge Loan"), PLL has agreed to advance
working capital to the Company. PLL has advanced a total of U.S.
$2,063,000 as of June 30, 2000 for working capital and the purchase of
a packaging machine. These advances are referred to as Convertible
Promissory Notes on the Company's balance sheets. In addition, PLL has
agreed to advance to the Company funds required by the Company for
ongoing employee, operating and administrative expenses, excluding
capital expenses (the "Company's Continuing Costs").
If the Merger is not consummated for any reason, any advances from PLL
to the Company under the Bridge Loan Financing Agreement will be
converted into the Company's common stock at $0.10 per share (the
"Common Conversion Shares") and except in the event of a PLL default
under the Merger Agreement, PLL will be issued three year warrants to
purchase 7.5 million shares of the Company's common stock exercisable
at $0.15 per share and PLL will have a first option to purchase the
Company's technologies and processes at market value if the Company
sells, goes into receivership, liquidation or the like. The Merger
Agreement also provides that if the Merger Agreement is terminated
other than in the event of a default of PLL and after approval of the
Merger by the Company's stockholders, PLL will have the right and
option to purchase the Company's pilot plant and equipment at book
value as of the date of the Merger Agreement.
In connection with the Bridge Loan, the Company has granted PLL a
non-exclusive worldwide license to use the Company's thin film
technology and manufacturing methods solely as it relates to
lithium-ion polymer batteries. Pursuant to the licensing agreement, PLL
will pay to the Company 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 (which rate will apply retroactively to October 1,
1999). The funds advanced by PLL to the Company under the Bridge Loan
will be deemed as an advance payment of royalty fees due under the
licensing agreement.
The Company has agreed that prior to the Merger Closing Date, it will
use its best efforts to cause all outstanding warrants and options
issued by the Company to be exercised by the holders thereof. In
connection therewith, the Company has approved the repricing of all
outstanding warrants to $.15 and acceleration of the vesting of all
outstanding warrants and options provided that the holder of the
warrant consents to a new termination date of the warrant of the
earlier of the original expiration date and the date 30 days prior to
the closing date of the Merger as an inducement to their exercise by
the holders thereof.
The Company has agreed to terminate all the Company stock plans and
outstanding and unexercised stock options as of a date not later than
immediately prior to the closing date of the Merger. Any of the Company
warrants outstanding at the Merger closing date that are not
terminated, other than warrants held by PLL, will be converted and
adjusted at the Merger closing date into warrants to purchase shares of
Ilion in accordance with their terms.
The Company has agreed that in the event that any holder of the Company
warrants or options exercises such warrants or options prior to the
merger, the Company will use all proceeds thereof (the "Exercise
Funds") as follows: (1) the first three hundred fifty thousand dollars
($350,000) will be used by the Company to finance the operations of the
Company in lieu of obtaining financing under the Bridge Loan Financing
Agreements and (2) the second two hundred thousand dollars ($200,000)
will be used by the Company to pay a portion of the accrued salary due
and owing to Mr. Thomas Thomsen, the Company's former Chairman and
Chief Executive Officer.
Any Exercise Funds in excess of the foregoing five hundred fifty
thousand dollars ($550,000) (the "Excess Exercise Funds") will be used
by the Company to pay the Company's Continuing Costs directly by the
Company. To the extent the Company pays its Continuing Costs through
the Excess Exercise Funds rather than through Bridge Loan Financing
funds the Merger Securities to be distributed to the
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<PAGE> 12
Company stockholders in the Merger shall be increased on the following
basis: one share of PLL Common Stock will be added to the 3,500,000
Merger Securities for every $2.25 of Excess Exercise Funds received by
the Company (the "Additional Merger Securities").
On June 15, 2000 the Company's stockholders approved an amendment to
the Company's Certificate of Incorporation to increase the number of
shares of common stock authorized for issuance by the Company from 50
million to 125 million. The Amendment became effective June 19, 2000.
Effective June 30, 2000 Dr. George Ferment resigned as the President,
Chief Operating Officer and Chief Technology Officer of the Company,
and a director of the Company, and will continue to provide consulting
services to the Company.
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 and preferred stock. Continuation of the Company's operations is
dependent upon the Bridge Loan and the closing of the Merger described
in Note 2. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
MANAGEMENT'S PLANS - During the last six years, the Company has
recruited a new management team and a core technical staff with
commercialization and battery technology expertise. The staff has
expertise in technology, commercialization, process development,
battery engineering, strategic alliance development and sales and
marketing. 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, general and
administrative expenses and interest expenses.
The Company has worked closely with selected portable electronics 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, as
described herein, LTC has now refocused its unique large footprint cell
manufacturing technology and market activities to concentrate on
automotive battery applications, including HEVs. LTC is developing a 3
kWh lithium-ion polymer HEV battery which meets generic specifications
of existing HEVs. Completion of the first working prototype is targeted
for the third quarter of 2000.
Until the closing of the Merger, LTC and PLL are working together as
partners in leveraging their combined vertical integration capabilities
and patented/proprietary technologies encompassing: (1) secured access
to one of the world's largest unexploited lithium reserves; (2)
advanced carbonate and cathode materials; (3) composite fiber web cell
structures; (4) unique web handling manufacturing processes; and (5)
lithium recycling. The two companies are targeting global market
opportunities involving HEV batteries, portable electronics, and other
selected large footprint cell applications. Ilion is also planning to
establish joint venture manufacturing and distribution relationships
with selected partners around the world. While LTC will focus on
automotive battery applications, LTC process technology will be applied
by Ilion joint venture partners for other applications.
The Company's working capital and capital requirements will depend upon
numerous factors, including,
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<PAGE> 13
without limitation, the progress of the Company's research and
development program, the levels and resources that the Company devotes
to the upgrade of manufacturing processes and marketing capabilities,
technological advances, the status of competitors and the ability of
the Company, including PLL, subsequent to the merger to establish
collaborative arrangements with other companies to provide an expanded
capacity to market and manufacture the Company's products.
The Company has raised approximately $17,245,000 since inception
through various sales of convertible debt and common and preferred
stock. Management believes that, as of June 30, 2000, the Bridge Loan
commitments from PLL are sufficient to meet the Company's obligations
through the next year.
There can be no assurance that the Merger will occur and the Company
would be able to attain other capital needed to attain commercial
viability of the Company's battery technology. If the merger is not
consummated and 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.
4. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2000 are summarized as follows:
<TABLE>
<S> <C>
Laboratory equipment $1,326,000
Furniture and office equipment 98,000
Leasehold improvements 54,000
----------
$1,478,000
Less: Accumulated depreciation and amortization 1,078,000
----------
$400,000
==========
</TABLE>
5. STOCKHOLDERS' EQUITY
In February and June 2000, options to purchase 1,824,000 shares of the
Company's common stock were exercised, resulting in proceeds of
$499,000 to the Company.
6. SUBSEQUENT EVENTS
In July and August of 2000, PLL advanced an additional $400,000 to the
Company for working capital per the Bridge Loan, bringing the total
Bridge Loan financing to $2,463,000.
In July and August of 2000, options to purchase 1,029,302 shares of the
Company's common stock were exercised, resulting in proceeds of
$276,458 to the Company. The Company used $160,000 of these proceeds to
pay accrued salaries owed to a former officer of the Company.
11
<PAGE> 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 AND PLAN OF OPERATION
Lithium Technology Corporation ("LTC" or the "Company") is a development stage
company that is in the late stages of producing innovative rechargeable
solid-state lithium-ion polymer batteries with a principal focus on Hybrid
Electric Vehicle (HEV) and Electric Vehicle (EV) applications. The Company
believes its battery technology offers higher energy densities, lighter weight
and improved run-times in a thinner, flatter form factor than current competing
batteries, while being safe for end-users and friendly to the environment. LTC
also believes it has significant competitive advantages in the manufacturing
process over other battery manufacturers in the process of commercializing
lithium-ion polymer technology. The Company's batteries are based on its
patented and proprietary web structure technology which the Company believes
offers significant manufacturing efficiencies, including yield and cost
advantages over competing technologies. To date, the Company has delivered
limited quantities of prototype batteries and component cells for evaluation to
selected battery pack integrators and portable electronics Original Equipment
Manufacturers ("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.
The Company is currently engaged in routine pilot production operations,
regularly producing 4" x 8" x 1/4" 10 Ah flat cells ideal for HEVs and other
large battery applications. The Company's cells produced on the pilot line are
now achieving energy densities of 140 Wh/Kg and 320 Wh/l, with over 500
discharge cycles, which compares very favorably with the best liquid lithium-ion
cells in the marketplace. The Company's intellectual property rights portfolio
includes 25 issued U.S. patents, 8 patents pending and 61 new applications in
process.
The Company's proprietary web structure allows the use of conventional coating
materials and standard coating/laminating machinery thereby allowing LTC to be a
low-cost producer of high quality product. The patented web structure is three
dimensional, providing a thin, flat and lightweight cell with unparalleled
stability, performance and ease of manufacturing. The end result is a battery
with a significant energy density advantage (longer run times) which can be
adapted to any size, shape and configuration versus the standard liquid
electrolyte batteries.
The Company has worked closely with selected portable electronics 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, as described further below, LTC has
now refocused its unique large footprint cell manufacturing technology and
market activities to concentrate on automotive battery applications, including
HEVs. LTC is developing a 3 kWh lithium-ion polymer HEV battery which meets
generic specifications of existing HEVs. Completion of the first working
prototype is targeted for the third quarter of 2000.
LTC emerged from Hope Technologies in 1994, with recruitment of a new management
team which has brought the Company to its current position. The Company's focus
has been on the optimization and commercialization of its battery technology,
validating and perfecting the continuous flow manufacturing process, and forming
key strategic alliances.
In January 2000, LTC and Pacific Lithium Limited ("PLL") of New Zealand signed
an agreement to merge their respective battery technologies and operation into a
new U.S. public corporation, Ilion Technology Corporation ("Ilion"). Until the
closing of the Merger, LTC and PLL are working together as partners in
leveraging their combined
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vertical integration capabilities and patented/proprietary technologies
encompassing: (1) secured access to one of the world's largest unexploited
lithium reserves; (2) advanced carbonate and cathode materials; (3) composite
fiber web cell structures; (4) unique web handling manufacturing processes; and
(5) lithium recycling. The two companies are targeting global market
opportunities involving HEV batteries, portable electronics, and other selected
large footprint cell applications. Ilion is also planning to establish joint
venture manufacturing and distribution relationships with selected partners
around the world. While LTC will focus on automotive battery applications, LTC
process technology will be applied by Ilion joint venture partners for other
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 will range from ultra 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
selected joint venture partners for global manufacturing and distribution - will
enable the new company to become the low cost provider of high quality and high
performance lithium polymer batteries. Targeted end user applications for Ilion
and its array of technologies include rapidly emerging markets for large
footprint batteries such as HEVs, as well as the more traditional portable
electronics market.
LTC, which has been unprofitable since inception, expects to incur substantial
additional 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, 2000.
MERGER WITH PACIFIC LITHIUM LIMITED
GENERAL
On January 19, 2000, LTC and Pacific Lithium Limited of Auckland, New Zealand
signed an Agreement and Plan of Merger to merge their respective companies. The
terms of the Merger and related bridge financing with PLL are described fully in
the Company's Form 10-KSB for the year ended December 31, 1999 and subsequent
filings under the Securities Exchange Act of 1934. The following is a summary of
provisions of the Merger Agreement amended during the current fiscal quarter,
the amount of the currently outstanding bridge notes, the currently anticipated
timing of the Company's meeting of stockholders and other related matters.
Prior to the Merger, PLL will domesticate into the U.S. and become a Delaware
corporation pursuant to the provisions of Section 388 of the Delaware
Corporation Law (the "Domestication"), change its name to Ilion Technology
Corporation ("Ilion") and consummate an initial public offering in the United
States and NASDAQ listing of Ilion (the "Ilion IPO"). PLL has indicated that it
expects to consummate the Ilion IPO during the November 2000-February 2001
timeframe, depending upon market and other factors and complete the
Domestication prior to the Ilion IPO.
In the Merger, the Company will merge with and into Ilion and all of the
outstanding shares of the Company common stock will be exchanged for an
aggregate of 3.5 million shares of Ilion, subject to possible increase of up to
639,044 additional shares of Ilion common stock under certain circumstances
relating to the number of the Company options and warrants exercised prior to
the merger. (the "Merger Securities"). The Merger Securities will be issued to
the Company stockholders on a pro-rata basis. Assuming that all of the LTC
options and warrants are exercised prior to the Merger a total of 4,138,267
shares of Ilion common stock will be issued in the merger and based on the
foregoing 14.10 shares of LTC common stock would be converted into one share of
Ilion in the Merger. Based on the currently contemplated capital structure of
Ilion after the Ilion IPO, these shares will represent approximately 9-12% of
Ilion's outstanding shares of common stock. Such ownership percentage is not
guaranteed by the Merger Agreement.
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The consummation of the Merger is contingent upon certain closing conditions
being met by the parties including the approval of the Merger by the
stockholders of the Company and PLL and the closing of the Ilion IPO. Pursuant
to Amendment No. 3 to the Merger Agreement entered into on June 6, 2000, the
Ilion IPO will be completed prior to, rather than contemporaneously with, the
Merger and the LTC shareholder meeting will be held as soon as practicable after
completion of the Ilion IPO. The Company expects that the Merger will be closed
within 90 days of the Ilion IPO assuming the remaining closing conditions have
been met. Based on PLL's currently contemplated Ilion IPO in the November
2000-February 2001 timeframe, the Merger closing date would follow in the
February -May 2001 timeframe. Both the Ilion IPO and the Merger closing date may
occur on later dates, but in no event may the Merger closing date be beyond
February 28, 2002.
BRIDGE LOAN
Pursuant to the terms of a bridge loan between PLL and the Company, PLL has
agreed to advance working capital to the Company. PLL has advanced $1,938,000 as
of June 30, 2000 and $2,338,000 as of August 10, 2000 for working capital and
$125,000 for the completion of the purchase of a packaging machine. In addition,
PLL has agreed to advance to the Company ongoing funds required by the Company
for ongoing employee, operating and administrative expenses excluding capital
expenses. The Company believes that provided PLL advances the needed working
capital to the Company until the consummation of the Merger, the Company will
have sufficient capital resources to meet the Company's needs and satisfy the
Company's obligations through the date of the Merger. However, there can be no
assurance that funding will be continued to be provided by PLL in the amounts
necessary to meet all of the Company's obligations.
If the Merger is not consummated for any reason any advances from PLL to the
Company under the Bridge Loan Financing Agreement will be converted into the
Company common stock at $0.10 per share (the "Common Conversion Shares") and
except in the event of a PLL default under the Merger Agreement, PLL will be
issued three year warrants to purchase 7.5 million shares of the Company common
stock exercisable at $0.15 per share and PLL will have a first option to
purchase the Company's technologies and processes at market value if the Company
sells, goes into receivership, liquidation or the like. The Merger Agreement
also provides that if the Merger Agreement is terminated other than in the event
of a default of PLL and after approval of the Merger by the Company's
stockholders, PLL will have the right and option to purchase the Company's pilot
plant and equipment at book value as of the date of the Merger Agreement.
The Company estimates that approximately $1,200,000 will be required by the
Company for working capital from September 2000-December 2000 and that the
Company will require approximately $250,000-$300,000 per month thereafter and
through the closing of the Merger. Under the agreements with PLL, the Company
will offset a portion of the funds received by the Company upon the exercise of
options and warrants against the funding otherwise required to be advanced by
PLL under the Bridge Financing Agreement. If the Merger does not close until
February 2002, a total of approximately $7,000,000-$8,000,000 may be required by
the Company for working capital from PLL.
At August 10, 2000, PLL held $2,463,000 of convertible notes convertible into
24,630,000 shares of Common Stock at a conversion price of at $.10. The
convertible notes are only convertible in the event of a default or if the
Merger does not close by February 28, 2002. The Company may issue up to
approximately $4,500,000-$5,500,000 of additional notes to Ilion from September
2000 until February 2002, convertible into 45,000,000-55,000,000 shares of
common stock at a conversion price of $.10 per share, and may issue to Ilion
warrants to purchase 7,500,000 shares of the Company common stock exercisable at
$0.15 per share. The notes will not be converted into the Company common stock
and the warrants will not be issued to Ilion if the merger is closed.
The percentage ownership of the Company that Ilion will own if there is a
default under the bridge financing agreement or in the event the Merger is not
closed will depend on the amount of funds advanced by Ilion to the Company. If
Ilion advances another $5,000,000 in addition to the $2,463,000 advanced through
August 10, 2000, and the notes were converted, Ilion would own approximately
75,000,000 shares of the Company common
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stock, which would represent approximately 59% of the Company's outstanding
common stock. If the Merger is completed, the notes will not be converted into
the Company common stock and no warrants will be issued to Ilion.
The bridge financing agreement does not contain a maximum of the amount of
funding that may be advanced under such agreement. Accordingly, there is no
maximum number of notes that may be issued to Ilion. The amount of the notes
will be related to the working capital requirements of the Company and the
length of time until the Merger is completed.
LTC STOCKHOLDER MEETING TO CONSIDER THE MERGER
The consummation of the Merger is contingent upon certain closing conditions
being met by the parties including the approval of the Merger by the
stockholders of the Company and PLL and the closing of the Ilion IPO. Pursuant
to Amendment No. 3 to the Merger Agreement entered into on June 6, 2000, the
Ilion IPO will be completed prior to, rather than contemporaneously with, the
Merger and the LTC shareholder meeting will be held as soon as practicable after
completion of the Ilion IPO.
The Company expects that the Merger will be closed within 90 days of the Ilion
IPO assuming the remaining closing conditions have been met. Based on PLL's
currently contemplated Ilion IPO in the November 2000-February 2001 timeframe,
the Merger closing date would follow in the February -May 2001 timeframe. Both
the Ilion IPO and the Merger closing date may occur on later dates, but in no
event may the Merger closing date be beyond February 28, 2002.
Prior to the shareholder meeting the Company and PLL will mail a proxy statement
and prospectus to all of the Company stockholders with complete information on
the Merger, PLL and the securities to be received by the Company stockholders in
the Merger.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
The Company has financed its operations since inception with convertible debt
and private placements of common and preferred stock and has raised
approximately $17.25 million, including $2,063,000 from PLL as of June 30, 2000.
At June 30, 2000, the Company had cash and cash equivalent of $278,000, fixed
assets of $400,000 and other assets of $21,000. The Company's total liabilities
were $3,105,000 consisting of accounts payable, accrued salaries, and accrued
expenses in the amount of $1,042,000 and convertible promissory notes payable to
PLL in the amount of $2,063,000. The Company had a working capital deficit of
$762,000 on June 30, 2000 as compared to a working capital deficit of $553,000
on December 31, 1999.
The Company's cash and cash equivalents increased by approximately $240,000 from
December 31, 1999 to June 30, 2000. The working capital and cash increase is
attributable primarily to the bridge financing from PLL.
The Company's stockholders' deficiency was $2,404,000 at June 30, 2000, after
giving effect to an accumulated deficit of $49,743,000 which consisted of
$42,878,000 accumulated deficit during the development stage from July 21, 1989
through June 30, 2000 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, PLL has agreed to advance working
capital to the Company until the closing of the Merger. PLL has advanced a total
of U.S. $1,938,000 through June 30, 2000 for working capital and $125,000 for
the completion of the purchase of a packaging machine. In addition, PLL has
agreed to advance to the Company
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ongoing funds required by the Company for ongoing employee, operating and
administrative expenses excluding capital expenses. Beginning in October 1999
and until the closing of the Merger, PLL has provided and has agreed to provide
working capital to the Company. The Company believes that provided PLL advances
the needed working capital until the consummation of the Merger, the Company
will have sufficient capital resources to meet its needs and satisfy its
obligations through the date of the Merger. The Company does not currently have
sufficient cash to achieve all its development and production objectives. There
can be no assurance that funding will be continued to be provided by PLL in the
amounts necessary to meet all of the Company's obligations.
If the Company does not consummate the Merger, the Company will assess all
available alternatives including a sale of the assets of the Company to another
party or a merger with another party, the suspension of operations and possibly
liquidation, auction, bankruptcy, or other measures.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
The Company had no revenues from commercial operations for the six months ended
June 30, 2000 and 1999. Engineering, research and development expenses were
$827,000 for the six months ended June 30, 2000 compared to $707,000 for the six
months ended June 30, 1999. The increase of $120,000 was due primarily to
increased lab supplies and salaries, including a $92,000 severance package owed
to the former President of the Company.
General and administrative expenses were $1,163,000 for the six months ended
June 30, 2000 compared to $710,000 for the six months ended June 30, 1999. The
increase of $453,000 was due primarily to increased legal, accounting and other
expenses associated with the PLL merger.
Interest income for the six months ended June 30, 2000 was $7,000 with no
interest expense compared to $14,000 of interest expense (net of interest income
of $14,000) for the six months ended June 30, 1999. The decrease in interest
expense for the comparable periods is attributable to the conversion of the
Company's convertible term notes into common stock.
THREE MONTHS ENDED JUNE 30, 2000
The Company had no revenues from commercial operations for the three months
ended June 30, 2000 and 1999. Engineering, research and development expenses
were $481,000 for the three months ended June 30, 2000 compared to $351,000 for
the three months ended June 30, 1999. The increase of $130,000 was due primarily
to increased lab supplies and salaries, including a $92,000 severance package
owed to the former President of the Company.
General and administrative expenses were $651,000 for the three months ended
June 30, 2000 compared to $346,000 for the three months ended June 30, 1999. The
increase of $305,000 was due primarily to increased legal, accounting and other
expenses associated with the PLL merger.
Interest expense for the three months ended June 30, 2000 was $4,000 compared to
$5,000 of interest expense for the three months ended June 30, 1999. The
decrease in interest expense for the comparable periods is attributable to the
conversion of the Company's convertible term notes into common stock.
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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 Company's ability to consummate strategic alliances,
technology development problems, and the Company's ability to successfully
finance future plant and equipment plans, as well as its current ongoing
operations.
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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
On June 15, 2000 the Company's stockholders approved by written
consent an amendment to the Company's Certificate of Incorporation
to increase the number of shares of common stock authorized for
issuance by the Company from 50 million to 125 million. The
following is a tabulation of the votes cast on the Amendment:
<TABLE>
<S> <C>
Shares outstanding: 49,974,168
Votes cast for the Amendment: 38,137,432
Votes cast against the Amendment: 819,542
Abstentions: 94,976
</TABLE>
The Amendment became effective June 19, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
2.5 Amendment Agreement No. 3 dated June 6, 2000
between Pacific Lithium Limited and the Company.
(1)
10.46 Agreement dated May 5, 2000, between the Company
and George Ferment.
b) Form 8-K Reports during the Quarter Ended June 30, 2000
Form 8-K dated June 15, 2000 reporting on the execution of
Amendment No. 3 to the Merger Agreement.
(1) Incorporated by reference to the Company's Form 8-K dated June 15, 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.
August 12, 2000 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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