<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For The Quarterly Period Ended March 31, 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 May 1, 2000: 49,990,835 shares
of Common Stock
Transitional Small Business Disclosure Format (check one):
Yes __ No X
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LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
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<CAPTION>
PAGE
----
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Operations -Three Months
Ended March 31, 2000 and 1999, and Period From
July 21, 1989 (Date of Inception) to March 31, 2000 (Unaudited) 4
Consolidated Statements of Changes in Stockholders'
Deficiency - Three Months Ended March 31, 2000 (Unaudited) 5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2000 and 1999, and Period from
July 21, 1989 (Date of Inception) to March 31, 2000 (Unaudited) 6
Notes to Consolidated Financial Statements - Three Months
Ended March 31, 2000 (Unaudited) 8
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>
2
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PART I - FINANCIAL INFORMATION
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 340,000 $ 38,000
Accounts receivable 21,000 21,000
Other current assets 3,000 18,000
------------ ------------
Total Current Assets 364,000 77,000
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF
$1,051,000 AND $1,024,000
403,000 430,000
SECURITY DEPOSITS 21,000 21,000
------------ ------------
Total assets $ 788,000 $ 528,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 278,000 $ 164,000
Accrued salaries 366,000 366,000
Other accrued expenses 100,000 100,000
------------ ------------
Total current liabilities 744,000 630,000
------------ ------------
LONG-TERM LIABILITIES:
Convertible Promissory Notes 1,350,000 818,000
------------ ------------
Total liabilities 2,094,000 1,448,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $.01 per share:
Authorized - 50,000,000 shares
Issued and outstanding - 49,990,835 and 48,280,749 shares 500,000 483,000
Additional paid-in capital 46,809,000 46,357,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (41,750,000) (40,895,000)
------------ ------------
Total stockholders' equity (deficiency) (1,306,000) (920,000)
------------ ------------
$ 788,000 $ 528,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From July 21, 1989
Three Months Ended March 31, (Date of Inception) to
---------------------------- March 31,
2000 1999 2000
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES:
Development contracts $ 0 $ 22,000 $ 168,000
------------ ------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 346,000 356,000 8,742,000
General and administrative 512,000 364,000 12,396,000
Stock based compensation expense -- -- 1,769,000
------------ ------------ ------------
858,000 720,000 22,907,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income 3,000 (19,000) (1,820,000)
Interest expense related to beneficial conversion feature -- -- (17,841,000)
Other non-operating income -- -- 650,000
------------ ------------ ------------
3,000 (19,000) (19,011,000)
------------ ------------ ------------
NET LOSS $ (855,000) $ (717,000) $(41,750,000)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
49,212,000 38,349,000
============ ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (.17) $ (.02)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Deficit
Accumulated
During
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 ($ 6,865,000) ($40,895,000)
Three months ended March 31, 2000:
Issuance of Common Stock:
Upon conversion of Stock Options 1,710,086 17,000 452,000
Net loss -- -- -- -- (855,000)
---------- ------------ ------------ ------------ ------------
BALANCES AT MARCH 31, 2000 49,990,835 $ 500,000 $ 46,809,000 ($ 6,865,000) ($41,750,000)
========== ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From
July 21, 1989
Three Months Ended (Date of Inception)
March 31, to
2000 1999 March 31, 2000
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss (855,000) $ (717,000) $(41,750,000)
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 27,000 57,000 1,053,000
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 -- 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 -- 31,000 (21,000)
Other current assets 15,000 3,000 13,000
Security and equipment deposits -- -- (21,000)
Accounts payable, accrued expenses and customer deposits 114,000 (43,000) 2,261,000
Due to related parties -- -- (118,000)
------------ ------------ ------------
Net cash used in operating activities (699,000) (503,000) (15,572,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment -- -- (1,206,000)
Other -- -- 94,000
------------ ------------ ------------
Net cash provided by (used in) investing activities -- -- (1,112,000)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds received from Convertible Promissory Notes 532,000 -- 1,350,000
Net advance repayable only out of proceeds of public offering -- -- 471,000
Proceeds received upon issuance of common stock -- -- 3,789,000
Proceeds received from issuance of preferred stock, net of related costs -- -- 100,000
Proceeds received upon exercise of options and warrants, net of costs 469,000 -- 1,106,000
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 1,001,000 -- 17,024,000
NET CHANGE IN CASH AND CASH EQUIVALENTS 302,000 (503,000) 340,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 38,000 1,073,000 --
------------ ------------ ------------
CASE AND CASH EQUIVALENTS, END OF PERIOD $ 340,000 $ 570,000 $ 340,000
============ ============ ============
</TABLE>
6
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
<TABLE>
<CAPTION>
Period From
July 21, 1989
Three Months Ended (Date of
March 31, Inception)
2000 1999 March 31, 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
preferred stock -- -- $3,300,000
Exchange of convertible debt for convertible preferred stock -- -- $ 356,000
Conversion of convertible debt and accrued interest into common stock, net of
unamortized debt discount -- -- $9,947,000
Exchange of advances repayable only out of proceeds of public offering for
common stock -- -- $ 471,000
Deferred offering costs on warrants exercised -- -- $ 88,000
Issuance of warrants in settlement of litigation for debt issue costs and for
services rendered -- -- $ 364,000
Common stock issued for costs related to 10% promissory notes -- -- $ 525,000
</TABLE>
See accompanying notes to consolidated financial statements.
7
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LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 months ended
March 31, 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 ("the Company") 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 to further develop and exploit this battery
technology and also holds various patents relating to such batteries.
The Company's commercialization focus is on the rapidly growing
portable electronics market segment (notebook and palmtop computers and
wireless communications devices) and hybrid electric vehicles market.
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 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) to commercialize MIT's proprietary electrode and
electrolyte polymers. PLL is a significant supplier of high quality
battery-specific lithium carbonate to Japanese cathode and electrolyte
suppliers.
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
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NASDAQ listing of Ilion (the "Ilion IPO"). PLL has indicated that it
expects to complete the Domestication in May 2000 and consummate the
Ilion IPO during the year 2000, depending upon market and other
factors. The Merger will be closed contemporaneously with 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 638,267 additional shares of Ilion common stock under certain
circumstances relating to the number of the Company options and
warrants exercised prior to the merger as described further below (the
"Merger Securities"). The Merger Securities will be issued to the
Company stockholders on a pro-rata basis. Based on the capital
structure of Ilion after the Ilion IPO, these shares will represent
approximately 9.80-11.39% of Ilion's outstanding shares of common
stock. Such ownership percentage is not guaranteed by the Merger
Agreement and may be further diluted by other issuances of PLL stock
prior to 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.
$1,350,000 as of March 31, 2000 for working capital. 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").
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. The Company will hold a meeting of the stockholders to
consider and approve the Merger and prior to the 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. The closing of the Merger will occur contemporaneously with the
Ilion IPO, assuming the remaining closing conditions have been met.
Pursuant to an extension agreement (See Note 6), the Company is
required to obtain the approval of the Merger by the Company
stockholders by July 31, 2000, unless such date is further extended by
the Company and PLL. The Company and PLL currently have targeted a
closing to occur within 90 days of the Company stockholder meeting.
If the expected consummation date for the Ilion IPO is after September
30, 2000 the Company and PLL intend to change the date of the
Company stockholder meeting date so that the closing date will not be
more than 90 days after the Company stockholder meeting date. While
the Company and PLL currently contemplate a July 31, 2000 Company
stockholder meeting date and a closing date by September 30, 2000, the
meeting and the closing dates may occur on later dates, but in no event
may the closing date be beyond February 28, 2002.
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 repriced all outstanding warrants
to $.15 and accelerated the vesting of all outstanding warrants and
options 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, 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
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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 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").
Upon the approval of the Merger Agreement by the stockholders of the
Company and until the closing of the Merger or the termination of the
Merger Agreement, PLL has agreed to retain the Company as a consultant
to PLL and the Company has agreed to provide management and technical
services to PLL. The work product and new technology resulting from the
Company's services to PLL will belong exclusively to PLL. The Company
may not, directly or indirectly, engage in any conduct competitive to
PLL during the term of the consulting arrangement.
If the Merger is not consummated for any reason or the Merger is not
approved by the Company stockholders by July 31, 2000 (or such later
date agreed to by the Company and PLL) 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. If the Merger Agreement is
terminated other than in the event of a default of PLL, PLL will also
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 also agreed to enter into a Security Agreement and
Assignment of Lease in favor of PLL upon the approval of the Merger by
the Company stockholders (the "Approval Date") pursuant to which
the Company will grant PLL a first priority security interest in all of
the assets of the Company effective from the Approval Date until the
closing of the Merger (the "Security Agreement"). The Security
Agreement will grant PLL the right to foreclose on all of the Company's
assets in the event of any bankruptcy of the Company or similar event.
Pending the amendment of the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock, the Notes
issued in connection with the bridge financing will be convertible into
shares of Preferred Stock having the economic and voting equivalent of
the Common Conversion Shares.
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3. OPERATIONS AND LIQUIDITY DIFFICULTIES AND MANAGEMENT'S PLANS TO
OVERCOME:
The accompanying consolidated financial statements of the Company have
been prepared on a going concern basis, which contemplates the
continuation of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. Since its inception,
the Company has incurred substantial operating losses and expects to
incur additional operating losses over the next several years. Since
December 1993, operations have been financed primarily through the use
of proceeds from the sale of convertible debt and private placements of
common 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 and strategic alliance development. A modern
research facility was leased and product development commenced. The
Company's operating results to date are solely attributable to research
and development activities, general and administrative expenses and
interest expenses.
Management's operating plan seeks to minimize the Company's capital
requirements, but commercialization of the Company's battery technology
will require substantial amounts of additional capital. The Company
expects that research and development and operating and production
expenses will increase significantly as it continues to advance its
battery technology and develop products for commercial applications.
The Company's working capital and capital requirements will depend upon
numerous factors, including, without limitation, the progress of the
Company's research and development program, the levels and resources
that the Company devotes to the development of manufacturing and
marketing 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 $16,532,000 since inception
through various sales of convertible debt and common and preferred
stock. Management believes that, as of March 31, 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 March 31, 2000 are summarized as follows:
<TABLE>
<S> <C>
Laboratory equipment $1,311,000
Furniture and office equipment 98,000
Leasehold improvements 45,000
----------
$1,454,000
Less: Accumulated depreciation and amortization 1,051,000
----------
$403,000
==========
</TABLE>
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5. STOCKHOLDERS' EQUITY
In February 2000, options to purchase 1,710,000 shares of the Company's
common stock were exercised, resulting in proceeds of $469,000 to the
Company.
6. SUBSEQUENT EVENTS
In April of 2000, PLL advanced an additional $250,000 to the Company
for working capital per the Bridge Loan, bringing the total Bridge Loan
financing to $1,600,000.
On May 5, 2000, the Company and PLL amended the Merger Agreement, the
Convertible Promissory Notes and related documents to change the date
by which the Company's shareholders must vote on the proposed merger
from June 30, 2000 to July 31, 2000 and to amend the use of the
Exercise Funds by the Company from the exercise of outstanding warrants
or options as described above in Note 2.
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
The Company is a development stage company engaged in the business of developing
and seeking to commercialize unique, solid state, lithium-ion polymer batteries
for portable electronic devices and other applications such as the rapidly
emerging hybrid electric vehicle market. The Company's pilot line production
operations are regularly producing three generic sizes of thin flat cells,
including a large 9 Ah cell (4"x8"x1/4"). The Company's patented and proprietary
technology uses high performance fibers in composite battery structures and low
cost continuous flow fiber web coating and handling processes for manufacturing.
These new batteries represent a significant benefit to the end-user in terms of
longer run times and thinner, flatter, lighter-weight form factors.
The Company's strategy is to commercialize and produce a new generation of solid
state lithium polymer batteries based on seventeen years of research and
development and a strong patent portfolio covering both the battery construction
and manufacturing process unique to the battery industry. The proprietary
technology uses high performance fibers in composite battery structures and
low-cost lithium coating/handling methods for manufacturing. This technology
encompasses lithium-ion polymer batteries (market entry in 2000) and lithium
alloy polymer batteries (market entry in three to five years). The Company's
target market is hybrid electric vehicles (HEVs) and mobile computing and
communications applications which showcase the Company's thin, flat, lightweight
and long run-time cells.
During March 1996, a continuous flow coating/laminating pilot line - sometimes
referred to as the Demonstration Manufacturing Facility ("DMF") - was installed
by the Company. This pilot line has been used to further define the Company's
manufacturing technology and to sharpen manufacturing cost estimates. Through
equipment augmentation and upgrade, this pilot line is in the process of
transitioning to the "Plymouth Meeting Manufacturing Plant" (sometimes also
referred to as the "PMMP") which the Company expects will serve as the
production facility for battery cells which will be assembled into battery packs
for Original Equipment Manufacturer ("OEM") customers.
Subject to the uncertainties discussed herein, it is anticipated that the PMMP
will cost approximately $4.0 million to complete in 2000 including manufacturing
equipment meeting applicable environmental regulatory standards. The Board of
Directors of PLL has approved the purchase of the equipment necessary to
complete the PMMP. The equipment will be owned by PLL and located within the
Company's existing facility in Plymouth Meeting, Pennsylvania. There can be no
assurance that the Company will be able to achieve the production capabilities
that
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will be necessary in order to ultimately achieve commercialization or generate
revenues or that PLL will provide all of the financing and equipment necessary
to complete the PMMP.
The Company 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. The Company 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, the Company and Pacific Lithium Limited ("PLL") of
Auckland, New Zealand signed an Agreement and Plan of Merger to merge their
respective companies.
Prior to the Merger PLL will domesticate into the U.S. and become a
Delaware corporation, 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
complete the Domestication in May 2000 and consummate the Ilion IPO during
the second half of 2000 depending upon market and other factors. The Merger
will be closed contemporaneously with the Ilion IPO; the offering will be made
only by means of a prospectus.
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. The
following is a summary of amended provisions of the merger agreement, the amount
of the currently outstanding bridge notes, the currently anticipated timing of
the Company's meeting of stockholders and other related matters.
ILION SHARES TO BE ISSUED IN THE MERGER
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 a total
of 3,500,000 million shares of Ilion, subject to possible increase of up to
638,267 additional shares of Ilion common stock under circumstances relating to
the number of the Company options and warrants exercised prior to the Merger as
described herein (the "Merger Securities"). The 3,500,000 to 4,138,267 Merger
Securities will be issued to the Company's stockholders on a pro-rata basis.
Upon completion of the merger (based on the following assumed capital structure
of Ilion after the Ilion IPO and the Merger), the Merger Securities will
represent approximately 9.80% - 11.39% of Ilion's outstanding common stock and
the merger exchange ratio will be between 14.28 and 14.10 shares of the
Company's common stock for one share of Ilion:
- --Company Stockholders are Issued 3,500,000 Ilion Shares in the Merger (9.80% of
the outstanding stock of Ilion)
<TABLE>
<CAPTION>
NUMBER OF ILION SHARES STOCKHOLDERS
- ------------------------------------- ----------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1, 2000)
8,000,000 Shares to be issued in the Ilion IPO
3,500,000 Base number of shares to be issued to the Company shareholders in the merger
35,693,079 Total number of outstanding Ilion shares
</TABLE>
13
<PAGE> 14
- --Exchange Ratio Based on 3,500,000 Merger Shares
- --Assuming 3,500,000 Ilion shares are issued in exchange for the 49,990,835
currently outstanding shares of the Company common stock, 14.28 shares of the
Company's common stock would be exchanged for one share of Ilion common stock in
the merger.
- --Company Stockholders are Issued 4,138,267 Ilion Shares in the Merger (11.39%
of the outstanding stock of Ilion)
<TABLE>
<CAPTION>
NUMBER OF ILION SHARES STOCKHOLDERS
- ------------------------------------- ----------------------------------------------------------------------------
<S> <C>
24,193,079 Shares owned by current Ilion stockholders (as of May 1, 2000)
8,000,000 Shares to be issued in the Ilion IPO
3,500,000 Base number of shares to be issued to the Company shareholders in the merger
638,267 Additional Ilion shares to be issued to the Company shareholders assuming
all the Company options and warrants are exercised prior to the merger
36,331,346 Total number of outstanding Ilion shares
</TABLE>
- --Exchange Ratio Based on 4,138,267 Merger Shares
Assuming 4,138,267 Ilion shares are issued in exchange for the 58,334,353 shares
of the Company (comprised of the 49,990,835 shares of the Company's common stock
outstanding as of May 1, 2000, 3,763,469 shares of the Company to be issued upon
the exercise of the Company options and 4,590,049 shares of the Company to be
issued upon the exercise of the Company warrants), 14.10 shares of the Company
common stock would be exchanged for one share of Ilion common stock in the
merger.
- --Final Percentage of Ilion that Company Stockholders Will Own May Change
Since the final number of shares to be issued in the Ilion IPO may be
more or less than 8 million shares, and Ilion may issue additional shares in
connection with private placement financings prior to the Ilion IPO, the
percentage of Ilion stock that the shares to be issued to the Company
stockholders may decrease or increase from the 9.80%-11.39% range described
above.
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 $1,225,000 as
of March 31, 2000 and $1,475,000 as of May 1, 2000 for working capital and
$125,000 for 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.
The Company estimates that approximately $250,000 per month will be required by
the Company for working capital until the date 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
$5,250,000 will be required by the Company for working capital from June 2000
until February 2002.
14
<PAGE> 15
At March 31, 2000, PLL held $1,350,000 of convertible notes convertible into
13,500,000 shares of Common Stock at a conversion price of at $.10. At May 1,
2000, Ilion held $1,600,000 of convertible notes convertible into 16,000,000
shares of the Company common stock at a conversion price of $.10. The
convertible notes are only convertible in the event of a default or if the
Merger does not close by February 28, 2002 or is not approved by the Company
stockholders by July 31, 2000 or such later date agreed to by Ilion. The Company
may issue up to approximately $5,250,000 of additional notes to Ilion from June
2000 until February 2002, convertible into 52,500,000 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's common stock exercisable at $0.15 per
share if the Merger is not consummated. 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 $5,250,000 in addition to the $1,600,000 advanced through
May 1, 2000, and the notes were converted, Ilion would own approximately
68,500,000 shares of the Company common stock, which would represent
approximately 58% of the Company's outstanding common stock on a fully diluted
basis. If the Merger is completed, the notes will not be converted into the
Company's common stock and no warrants will be issued to Ilion.
The bridge financing agreement does not contain a maximum amount of funding that
may be advanced under such agreement. Accordingly, there is no maximum number of
notes that may be issued to PLL. 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. The
Company will hold a meeting of the stockholders to consider and approve the
Merger and prior to the 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. The closing of the Merger will occur
contemporaneously with the Ilion IPO, assuming the remaining closing conditions
have been met.
Pursuant to Amendment Agreement No.2 to the Merger Agreement dated May 5, 2000,
the Company is required to obtain the approval of the Merger by the Company's
stockholders by July 31, 2000, unless such date is further extended by the
Company and PLL. The Company and PLL currently have targeted a closing to occur
within 90 days of the Company stockholder meeting. If the expected consummation
date for the Ilion IPO is after September 30, 2000 the Company and PLL intend to
change the date of the Company stockholder meeting date so that the closing date
will not be more than 90 days after the Company stockholder meeting date. While
the Company and PLL currently contemplate a July 31, 2000 Company stockholder
meeting date and a closing date by September 30, 2000, the meeting and the
closing dates may occur on later dates, but in no event may the closing date be
beyond February 28, 2002.
15
<PAGE> 16
TREATMENT OF THE COMPANY OPTION AND WARRANT PROCEEDS
Pursuant to Amendment Agreement No. 2 to the Merger Agreement dated May
5, 2000 the Company and PLL amended the provisions of the Merger Agreement
relating to the use of the option and warrant proceeds. The Amendment No.2
provides 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 Company stockholders in the Merger will be increased on the following
basis: one share of PLL Common Stock shall be added to the base number of
3,500,000 Merger Securities for every $2.25 of Excess Exercise Funds received by
the Company (the "Additional Merger Securities"). The Additional Merger
Securities will be distributed to the Company's stockholders on the same
basis as the Merger Securities.
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 $16.5 million, including $1,350,000 from PLL as of March 31, 2000.
At March 31, 2000, the Company had cash and cash equivalent of $340,000, fixed
assets of $403,000 and other assets of $21,000. The Company's total liabilities
were $2,094,000 consisting of accounts payable, accrued salaries, and accrued
expenses in the amount of $744,000 and convertible promissory notes payable to
PLL in the amount of $1,350,000. The Company had a working capital deficit of
$380,000 on March 31, 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 $302,000 from
December 31, 1999 to March 31, 2000. The working capital and cash increase is
attributable primarily to the bridge financing.
The Company's stockholders' deficiency was $1,306,000 at March 31, 2000, after
giving effect to an accumulated deficit of $48,615,000 which consisted of
$41,750,000 accumulated deficit during the development stage from July 21, 1989
through March 31, 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. $1,225,000 through March 31, 2000 for working capital and
16
<PAGE> 17
$125,000 for 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.
Beginning in October 1999 and until the closing of the Merger, PLL has provided
and will continue to provide working capital for the Company. 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 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.
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
The Company had no revenues from commercial operations for the three months
ended March 31, 2000 and 1999. Engineering, research and development expenses
were $346,000 for the three months ended March 31, 2000 compared to $356,000 for
the three months ended March 31, 1999. The decrease of $10,000 was due primarily
to decreased lab supplies and consulting expenses.
General and administrative expenses were $512,000 for the three months ended
March 31, 2000 compared to $364,000 for the three months ended March 31, 1999.
The increase of $148,000 was due primarily to increased legal expenses
associated with the PLL merger.
Interest income for the three months ended March 31, 2000 was $3,000 with no
interest expense compared to $19,000 of interest expense (net of interest income
of $9,000) for the three months ended March 31, 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.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a new "safe
harbor" for certain forward-looking statements. Statements contained in this
report that are not historical facts are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those stated in the forward-looking statements. Factors that could cause
actual results to differ materially include, among others: general economic
conditions, changes in laws and government regulations, fluctuations in demand
for the Company's products, the Company's ability to consummate strategic
alliances, technology development problems, and the Company's ability to
successfully finance future plant and equipment plans, as well as its current
ongoing operations.
17
<PAGE> 18
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
2.2 Amendment Agreement No. 1 dated March 31,
2000 between Pacific Lithium Limited and the
Company.(1)
2.3 Amendment Agreement No. 2 dated May 5, 2000
between Pacific Lithium Limited and the
Company.(2)
2.4 Agreement and Plan of Merger, dated January
19, 2000, between Pacific Lithium Limited
and Lithium Technology Corporation, as
amended and restated on May 12, 2000.(2)
3.5 Certificate of Designation of Series A
Preferred Stock of the Company.(2)
10.44 Lease Extension, dated February 3, 2000,
between PMP Whitemarsh Associates and the
Company.(1)
10.45 Agreement dated May 5, 2000, between the
Company and Thomas Thomsen.(2)
b) Form 8-K Reports during the Quarter Ended March 31,
2000
Form 8-K dated January 19, 2000 announcing the
execution of the Merger Agreement between the Company
and Pacific Lithium Limited.
(1) Incorporated herein by reference to the Company's Report on Form 10-KSB for
the fiscal year ended December 31, 1999.
(2) Incorporated herein by reference to the Company's Registration Statement on
Form S-4 filed on May 12, 2000.
18
<PAGE> 19
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LITHIUM TECHNOLOGY CORPORATION
By: /s/ David J. Cade
David J. Cade, Chairman and Chief Executive
Officer (Chief Executive Officer and Acting
Principal Financial Officer)
May 15, 2000
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 340
<SECURITIES> 0
<RECEIVABLES> 21
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 364
<PP&E> 1,454
<DEPRECIATION> 1,051
<TOTAL-ASSETS> 788
<CURRENT-LIABILITIES> 744
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> (1,806)
<TOTAL-LIABILITY-AND-EQUITY> 788
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 858
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (855)
<INCOME-TAX> 0
<INCOME-CONTINUING> (855)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (855)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
