<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 September 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)
DELAWARE 13-3411148
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5115 CAMPUS DRIVE, PLYMOUTH MEETING, PA 19462
(Address of Principal Executive Offices)
(610) 940-6090
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 10, 2000: 51,299,035
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 SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
INDEX
<S> <C>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - September 30, 2000 (Unaudited)
and December 31, 1999 1
Consolidated Statements of Operations -Three Months and Nine Months
Ended September 30, 2000 and 1999, and Period From
July 21, 1989 (Date of Inception) to September 30, 2000 (Unaudited) 2
Consolidated Statements of Changes in Stockholders'
Equity (Deficiency) - Nine Months Ended September 30, 2000 (Unaudited) 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999, and Period from
July 21, 1989 (Date of Inception) to September 30, 2000 (Unaudited) 5
Notes to Consolidated Financial Statements - Nine Months
Ended September 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>
September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 84,000 $ 38,000
Accounts receivable 1,000 21,000
Other current assets -- 18,000
------------ ------------
Total Current Assets 85,000 77,000
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF
$1,107,000 AND $1,024,000 395,000 430,000
SECURITY DEPOSITS 21,000 21,000
------------ ------------
Total assets $ 501,000 $ 528,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 271,000 $ 164,000
Accrued salaries 201,000 366,000
Other accrued expenses 100,000 100,000
------------ ------------
Total current liabilities 572,000 630,000
------------ ------------
LONG-TERM LIABILITIES:
Convertible Promissory Notes 2,713,000 818,000
------------ ------------
Total liabilities 3,285,000 1,448,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, par value $.01 per share:
Authorized - 125,000,000 shares
Issued and outstanding - 51,294,035 and 48,280,749 shares 513,000 483,000
Additional paid-in capital 47,146,000 46,357,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (43,578,000) (40,895,000)
------------ ------------
Total stockholders' equity (deficiency) (2,784,000) (920,000)
------------ ------------
$ 501,000 $ 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 September 30,
--------------------------------
2000 1999
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES:
Development contracts $ 0 $ 5,000
------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 338,000 312,000
General and administrative 366,000 313,000
704,000 625,000
OTHER INCOME (EXPENSE):
Interest income (expense), net 4,000 3,000
------------ ------------
NET LOSS $ (700,000) $ (617,000)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: 50,922,000 46,507,000
============ ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (.01) $ (.01)
============ ============
</TABLE>
2
<PAGE> 5
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------- Period from July 31, 1989 to
2000 1999 September 30, 2000
---- ---- ------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUES:
Development contracts $ 0 $ 49,000 $ 168,000
------------ ------------- ------------
COSTS AND EXPENSES:
Engineering, research and development 1,165,000 1,019,000 9,561,000
General and administrative 1,529,000 1,023,000 13,413,000
Stock based compensation expense -- -- 1,769,000
------------ ------------ ------------
2,694,000 2,042,000 24,743,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income (expense), net 11,000 (11,000) (1,812,000)
Interest expense related to beneficial conversion feature -- -- (17,841,000)
Other non-operating income -- -- 650,000
------------ ------------ ------------
11,000 (11,000) (19,003,000)
------------ ------------ ------------
NET LOSS $ (2,683,000) $ (2,004,000) $(43,578,000)
============ ============ -------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: 50,041,000 42,761,000
============ ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (.05) $ (.05)
============ ============
</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)
Nine months ended September 30, 2000:
Issuance of Common Stock:
Upon conversion of Stock Options 3,013,556 30,000 789,000
Net loss -- -- -- -- (2,683,000)
----------- ------------ ------------ ------------ ------------
BALANCES AT SEPTEMBER 30, 2000 51,294,305 $ 513,000 $ 47,146,000 ($ 6,865,000) ($43,578,000)
=========== ============ ============ ============ ============
</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
Nine Months Ended (Date of Inception)
September 30, to September 30,
2000 1999 2000
---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (2,683,000) $ (2,004,000) $(43,578,000)
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 82,000 171,000 1,108,000
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 66,000 (1,000)
Other current assets 18,000 8,000 16,000
Security and equipment deposits -- -- (21,000)
Accounts payable, accrued expenses and customer deposits 57,000 216,000 2,090,000
Due to related parties -- -- (118,000)
------------ ------------ ------------
Net cash used in operating activities (2,620,000) (1,302,000) (17,493,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (47,000) -- (1,253,000)
Other -- -- 94,000
------------ ------------ ------------
Net cash (used in) investing activities (47,000) -- (1,159,000)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES: --
Proceeds received from Convertible Promissory Notes 1,894,000 -- 2,712,000
Net advance repayable only out of proceeds of public offering -- -- 471,000
Proceeds received upon issuance of common stock -- 450,000 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 819,000 -- 1,456,000
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 2,713,000 450,000 18,736,000
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 46,000 (852,000) 84,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 38,000 1,073,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 84,000 $ 221,000 $ 84,000
============ ============ ============
</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
Nine Months Ended (Date of Inception)
September 30, to September 30,
2000 1999 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)
SEPTEMBER 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 nine
months ended September 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 developing innovative rechargeable
solid-state lithium-ion polymer batteries for Hybrid Electric Vehicle
(HEV) and Electric Vehicle (EV) applications.
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"). On October
2, 2000, PLL domesticated into the U.S. and became a private Delaware
corporation pursuant to the provisions of Section 388 of the Delaware
Corporation Law (the "Domestication") and changed its name to Ilion
Technology Corporation ("Ilion"). Ilion intends to consummate an
Initial Public Offering in the United States and NASDAQ listing of
Ilion (the "Ilion IPO") during the first quarter of 2001, depending
upon market and other factors.
Ilion carries on research, development and production of specialized
lithium chemistries for use in the lithium battery industry. Ilion
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. Ilion has licensing agreements with the
Massachusetts Institute of Technology (MIT) and the National Research
Council of Canada (NRC) to commercialize proprietary electrode and
electrolyte polymers. Ilion is a significant supplier of high
7
<PAGE> 10
quality battery-specific lithium carbonate to Japanese cathode and
electrolyte suppliers. Ilion 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. Ilion's plant to commercially produce these
cathode materials is expected to be commissioned by the end of 2000 or
early 2001.
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 625,028 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 Ilion shares prior to
the Merger.
The consummation of the Merger is contingent upon certain closing
conditions being met by the parties including the closing of the Ilion
IPO and the approval of the Merger by the stockholders of the Company
and Ilion. 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 Ilion's currently
contemplated Ilion IPO in the January-March 2001 timeframe, the
Merger closing date would follow in the March-June 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 Ilion will mail a
proxy statement and prospectus to all of the Company stockholders with
complete information on the Merger, Ilion and the securities to be
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"), Ilion has agreed to
advance working capital to the Company. Ilion has advanced a total of
U.S. $2,713,000 as of September 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, Ilion 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
Ilion 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 Ilion default
under the Merger Agreement, Ilion 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 Ilion will have a first option to
purchase the Company's technologies and processes at market value if
the Company undertakes to sell it, 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 Ilion
and after approval of the Merger by the Company's stockholders, Ilion
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 Ilion 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,
Ilion 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
8
<PAGE> 11
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 Ilion 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 $0.15 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. As of November 10, 2000, holders of warrants to
purchase 3,906,128 of the Company's 4,186,128 outstanding warrants had
entered into Warrant Amendment Agreements pursuant to which the holders
consented to such new termination dates. The Company intends to file a
registration statement with the Securities and Exchange Commission as
soon as is practicable to cover the resale of the Common Stock
underlying the outstanding warrants and the resale of outstanding
restricted shares of Company Common Stock having registration rights.
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 Ilion, 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 Company
stockholders in the Merger shall be increased on the following basis:
one share of Ilion 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").
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.
9
<PAGE> 12
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 further in Note 2, the Company has now refocused its unique
large footprint cell manufacturing technology and market activities to
concentrate on automotive battery applications, including HEVs. In
September 2000, the Company completed the first working prototype
lithium-ion polymer HEV battery, complete with electronics. Completion
of a more advanced prototype HEV battery is targeted for the fourth
quarter of 2000.
Until the closing of the Merger, the Company and Ilion are working
together as partners in leveraging their combined vertical integration
capabilities and patented/proprietary technologies encompassing: (1)
access to lithium reserves; (2) advanced carbonate and cathode
materials; (3) composite fiber web cell structures; (4) unique web
substrate 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. The first such joint venture, with Eldor Corporation
of Italy, regarding manufacturing and distribution of lithium-ion
batteries for portable electronics applications worldwide, was signed
on August 2, 2000. 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, 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, and Ilion 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 $17,895,000 since inception
through various sales of convertible debt and common and preferred
stock. Management believes that, as of September 30, 2000, the Bridge
Loan commitments from Ilion 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.
10
<PAGE> 13
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 are summarized as follows:
Laboratory equipment $1,356,000
Furniture and office equipment 98,000
Leasehold improvements 48,000
----------
$1,502,000
Less: Accumulated depreciation and amortization 1,107,000
----------
$ 395,000
----------
5. STOCKHOLDERS' EQUITY
Options to purchase 3,014,000 shares of the Company's common stock were
exercised, resulting in proceeds of $819,000 to the Company during the
nine months ended September 30, 2000. The Company used $165,000 of
these proceeds to pay accrued salaries owed to a former officer of the
Company.
6. SUBSEQUENT EVENTS
In October and November of 2000, Ilion advanced an additional $500,000
to the Company for working capital per the Bridge Loan, bringing the
total Bridge Loan financing to $3,213,000.
In October and November of 2000, options to purchase 5,000 shares of
the Company's common stock were exercised, resulting in proceeds of
$1,300 to the Company.
During October and November 2000, holders of warrants to purchase
3,906,128 of the Company's 4,186,128 outstanding warrants had
consented to new termination dates of such warrants. (See Note 2)
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. 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, the Company has now refocused its unique
large footprint cell manufacturing technology and market activities to
concentrate on automotive battery applications, including Hybrid Electric
Vehicles (HEVs). In September 2000, the Company completed the first working
prototype lithium-ion polymer HEV battery, complete with electronics. Completion
of a more advanced prototype HEV battery is targeted for the fourth quarter of
2000. 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 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. Prior to changing its focus to
developing batteries for HEVs, the Company delivered limited quantities of
prototype batteries and component cells for evaluation to selected battery pack
integrators and portable electronics Original Equipment Manufacturers ("OEMs").
The Company has not yet delivered a prototype HEV battery for testing by a third
party. 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'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's intellectual property rights portfolio as
of November 10, 2000 includes 24 issued U.S. patents, 6 patents pending and 59
new applications in process. A table setting forth the U.S. patents held by the
Company as of November 10, 2000 is included in Exhibit 99.4 of this report.
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 continuous flow manufacturing processes, and forming
key strategic alliances.
In January 2000, LTC and Pacific Lithium Limited ("PLL") of New Zealand signed
an agreement to merge their respective companies. In October 2000, PLL
domesticated as a Delaware corporation and changed its name to
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Ilion Technology Corporation ("Ilion"). Until the closing of the Merger, LTC and
Ilion are working together as partners in leveraging their combined vertical
integration capabilities and patented/proprietary technologies encompassing: (1)
access to lithium reserves; (2) advanced carbonate and cathode materials; (3)
composite fiber web cell structures; (4) unique web substrate 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. The first such joint venture, with
Eldor Corporation of Italy, regarding manufacturing and distribution of
lithium-ion batteries for portable electronics applications worldwide, was
signed on August 2, 2000. 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 the
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 ILION
GENERAL
On January 19, 2000, LTC and Pacific Lithium Limited ("PLL") of Auckland, New
Zealand signed an Agreement and Plan of Merger to merge their respective
companies (the "Merger"). The terms of the Merger and related bridge financing
with Ilion 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 the amount of the currently outstanding
bridge notes, the currently anticipated timing of the Company's meeting of
stockholders and other related matters.
On October 2, 2000, PLL domesticated into the U.S. and became a private
Delaware corporation pursuant to the provisions of Section 388 of the Delaware
Corporation Law (the "Domestication") and changed its name to Ilion Technology
Corporation ("Ilion"). Ilion intends to consummate an Initial Public Offering
in the United States and NASDAQ listing of Ilion (the "Ilion IPO") during the
first quarter of 2001, 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 common stock will be exchanged for an
aggregate of 3.5 million shares of Ilion, subject to possible increase of up to
625,028 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 4,125,028
shares of Ilion common stock will be issued in the merger and based on the
foregoing 14.06 shares of LTC common stock would be converted into one share
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<PAGE> 16
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.
The consummation of the Merger is contingent upon certain closing conditions
being met by the parties including the closing of the Ilion IPO and the approval
of the Merger by the stockholders of the Company and Ilion. 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 Ilion's
currently contemplated Ilion IPO in the January-March 2001 timeframe, the Merger
closing date would follow in the March-June 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 Ilion and the Company, Ilion has
agreed to advance working capital to the Company. Ilion has advanced $2,588,000
as of September 30, 2000 and $3,088,000 as of November 10, 2000 for working
capital and $125,000 for the completion of the purchase of a packaging machine.
In addition, Ilion 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 Ilion 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 Ilion
in the amounts necessary to meet all of the Company's obligations.
If the Merger is not consummated for any reason, any advances from Ilion 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 an Ilion default under the Merger Agreement, Ilion will
be issued three year warrants to purchase 7.5 million shares of the Company
common stock exercisable at $0.15 per share and Ilion 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 Ilion and after approval of the Merger by the
Company's stockholders, Ilion 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 $250,000 will be required by the
Company for working capital in December 2000 and that the Company will require
approximately $250,000 per month thereafter and through the closing of the
Merger. Under the agreements with Ilion, 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 Ilion under the Bridge
Financing Agreement.
At November 10, 2000, Ilion held $3,213,000 of convertible notes convertible
into 32,130,000 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 $3,750,000 of additional notes to Ilion from December 2000 until
February 2002, convertible into 37,500,000 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 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.
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<PAGE> 17
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 $3,750,000 in addition to the $3,213,000 advanced through
November 10, 2000, and the notes were converted, Ilion would own approximately
69,630,000 shares of the Company common stock, which would represent
approximately 58% 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 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 closing of the Ilion IPO and the approval
of the Merger by the stockholders of the Company and Ilion. 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 Ilion's
currently contemplated Ilion IPO in the January-March 2001 timeframe, the
Merger closing date would follow in the March -June 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 Ilion will mail a proxy
statement and prospectus to all of the Company stockholders with complete
information on the Merger, Ilion 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 $17.89 million, including $2,713,000 from Ilion as of September
30, 2000.
At September 30, 2000, the Company had cash and cash equivalent of $84,000,
fixed assets of $395,000 and other assets of $21,000. The Company's total
liabilities were $3,285,000 consisting of accounts payable, accrued salaries,
and accrued expenses in the amount of $572,000 and convertible promissory
notes payable to Ilion in the amount of $2,713,000. The Company had a working
capital deficit of $487,000 on September 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 $46,000 from
December 31, 1999 to September 30, 2000. The working capital and cash increase
is attributable primarily to the bridge financing from Ilion offset by the
Company's engineering, research and development and general and administrative
expenses.
The Company's stockholders' deficiency was $2,784,000 at September 30, 2000,
after giving effect to an accumulated deficit of $50,443,000 which consisted of
$43,578,000 accumulated deficit during the development stage from July 21, 1989
through September 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.
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<PAGE> 18
Pursuant to the terms of a Bridge Loan, Ilion has agreed to advance working
capital to the Company until the closing of the Merger. Ilion has advanced a
total of U.S. $2,588,000 through September 30, 2000 for working capital and
$125,000 for the completion of the purchase of a packaging machine. In addition,
Ilion 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, Ilion
has provided and has agreed to provide working capital to the Company. The
Company believes that provided Ilion 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 Ilion 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
NINE MONTHS ENDED SEPTEMBER 30, 2000
The Company had no revenues from commercial operations for the nine months ended
September 30, 2000 and 1999. Engineering, research and development expenses were
$1,165,000 for the nine months ended September 30, 2000 compared to $1,019,000
for the nine months ended September 30, 1999. The increase of $146,000 was due
primarily to increased lab supplies and salaries, including a $92,000 severance
package paid to the former President of the Company.
General and administrative expenses were $1,529,000 for the nine months ended
September 30, 2000 compared to $1,023,000 for the nine months ended September
30, 1999. The increase of $506,000 was due primarily to increased legal,
accounting and other expenses associated with the Ilion merger.
Interest income for the nine months ended September 30, 2000 was $11,000 with no
interest expense compared to $11,000 of interest expense (net of interest income
of $17,000) for the nine months ended September 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 SEPTEMBER 30, 2000
The Company had no revenues from commercial operations for the three months
ended September 30, 2000 and 1999. Engineering, research and development
expenses were $338,000 for the three months ended September 30, 2000 compared to
$312,000 for the three months ended September 30, 1999. The increase of $26,000
was due primarily to increased lab supplies and salaries.
General and administrative expenses were $366,000 for the three months ended
September 30, 2000 compared to $313,000 for the three months ended September 30,
1999. The increase of $53,000 was due primarily to increased legal, accounting
and other expenses associated with the Ilion merger.
Interest income for the three months ended September 30, 2000 was $4,000
compared to $3,000 of interest income for the three months ended September 30,
1999.
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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
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<S> <C>
2.6 Certificate of Amendment to Certificate of Incorporation
filed June 19, 2000.
10.47 Form of Warrant Amendment Agreement.
99.4 U.S. Patents Held by Lithium Technology Corporation as of
November 10, 2000.
</TABLE>
b) Form 8-K Reports during the Quarter Ended September 30, 2000
None
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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.
November 17, 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)
19