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, 2001
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 1-10446
LITHIUM TECHNOLOGY CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 13-3411148
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5115 CAMPUS DRIVE, PLYMOUTH MEETING, PA 19462
(Address of Principal Executive Offices)
(610) 940-6090
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes X 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 14, 2001: 51,294,305
shares of Common Stock
Transitional Small Business Disclosure Format (check one):
Yes __ No X
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
INDEX
PAGE
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - September 30, 2001 (Unaudited)
and December 31, 2000 1
Consolidated Statements of Operations -Three Months and Nine
Months Ended September 30, 2001 and 2000, and Period From
July 21, 1989 (Date of Inception) to September 30, 2001
(Unaudited) 2
Consolidated Statements of Changes in Stockholders'
Deficiency - Nine Months Ended September 30, 2001 (Unaudited) 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2001 and 2000, and Period from
July 21, 1989 (Date of Inception) to September 30, 2001 (Unaudited) 5
Notes to Consolidated Financial Statements - Nine Months Ended
September 30, 2001 (Unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
PART I - FINANCIAL INFORMATION
LITHIUM TECHNOLOGY CORPORATION AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
September 30, December 31,
CURRENT ASSETS: 2001 2000
---- ----
(unaudited)
Cash and cash equivalents $ 65,000 $ 52,000
------------ ------------
Total Current Assets 65,000 52,000
------------ ------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF
$1,266,000 AND $1,159,000 270,000 347,000
------------ ------------
SECURITY DEPOSITS 21,000 21,000
------------ ------------
Total assets $ 356,000 $ 420,000
============ ============
CURRENT LIABILITIES:
Accounts payable $ 236,000 $ 248,000
Accrued salaries 201,000 201,000
Other accrued expenses 80,000 88,000
------------ ------------
Total current liabilities 517,000 537,000
------------ ------------
LONG-TERM LIABILITIES:
Convertible Promissory Notes 4,906,000 3,463,000
------------ ------------
Total liabilities 5,423,000 4,000,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, par value $.01 per share
Authorized - 100,000 shares
Issued and outstanding - None
Common stock, par value $.01 per share:
Authorized - 125,000,000 shares
Issued and outstanding - 51,294,305 513,000 513,000
Additional paid-in capital 47,170,000 47,170,000
Accumulated deficit (6,865,000) (6,865,000)
Deficit accumulated during development stage (45,885,000) (44,398,000)
------------ ------------
Total stockholders' equity (deficiency) (5,067,000) (3,580,000)
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 356,000 $ 420,000
============ ============
See accompanying notes to consolidated financial statements.
1
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,
--------------------------------
2001 2000
---- ----
(Unaudited) (Unaudited)
REVENUES:
Development contracts $ 0 $ 0
Other 5,000 0
------------ ------------
5,000 0
------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 223,000 338,000
General and administrative 164,000 366,000
------------ ------------
387,000 704,000
------------ ------------
OTHER INCOME (EXPENSE):
Interest income (expense), net (1,000) 4,000
------------ ------------
(1,000) 4,000
------------ ------------
NET LOSS $ (383,000) $ (700,000)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING: 51,294,305 50,922,000
============ ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (0.01) $ (0.01)
============ ============
See accompanying notes to consolidated financial statements.
2
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, Period from July 21, 1989 to
-------------------------------
2001 2000 September 30, 2001
---- ---- ------------------
(Unaudited) (Unaudited) (Unaudited)
REVENUES:
Development contracts $ 0 $ 0 $ 168,000
Other 12,000 0 12,000
------------ ------------ ------------
12,000 0 180,000
------------ ------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 850,000 1,165,000 10,761,000
General and administrative 646,000 1,529,000 14,487,000
Stock based compensation expense 0 -- 1,794,000
------------ ------------ ------------
1,496,000 2,694,000 27,042,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net of interest income (3,000) 11,000 (1,832,000)
Interest expense related to beneficial -- (17,841,000)
conversion feature
Other non-operating income - Notes -- -- 650,000
------------ ------------ ------------
(3,000) 11,000 (19,023,000)
------------ ------------ ------------
NET LOSS $ (1,487,000) $ (2,683,000) $(45,885,000)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING: $ 51,294,305 50,041,000
============ ============
BASIC AND DILUTED NET LOSS PER SHARE: $ (0.03) $ (0.05)
============ ============
See accompanying notes to consolidated financial statements.
3
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
Deficit
Accumulated
During
Common Stock Additional Accumulated Development
------------
Shares Amount Paid-In Capital Deficit Stage
------ ------ --------------- ------- -----
BALANCES AT DECEMBER 31, 2000 51,294,305 $ 513,000 $ 47,170,000 ($ 6,685,000) ($44,398,000)
Nine months ended September 30, 2001:
Net loss -- -- -- -- (1,487,000)
----------- ---------- ------------ ------------ -------------
BALANCES AT SEPTEMBER 30, 2001 51,294,305 $ 513,000 $ 47,170,000 ($ 6,685,000) ($45,885,000)
=========== ========== ============ ============ ============
See accompanying notes to consolidated financial statements.
4
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period From
July 21, 1989
Nine Months Ended (Date of
September 30, Inception)
to
2001 2000 September 30, 2001
---- ---- ------------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,487,000) $ (2,683,000) $ (45,885,000)
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 107,000 82,000 1,268,000
Amortization of debt issue costs -- 1,070,000
Common stock issued at prices below fair market value 1,167,000
Repricing of outstanding warrants 602,000
Repricing of outstanding options 25,000
Reduction of accrued expenses -- (270,000)
Common stock issued in lieu of interest 1,915,000
Fair value of warrants and option granted for services rendered -- 209,000
Common stock issued for services provided 273,000
Common stock issued upon settlement of litigation -- 125,000
Expenses paid by shareholder on behalf of Company -- 79,000
Changes in operating assets and liabilities:
Accounts receivable 20,000 --
Other current assets 18,000 16,000
Security and equipment deposits -- (21,000)
Accounts payable, accrued expenses and customer deposits (21,000) 57,000 2,033,000
Due to related parties -- (118,000)
------------ ------------ ------------
Net cash used in operating activities (1,401,000) (2,620,000) (19,671,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (29,000) (47,000) (1,287,000)
------------
Other -- -- 94,000
------------ ------------ ------------
Net cash used in investing activities (29,000) (47,000) (1,193,000)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds received from Convertible Promissory 1,443,000 1,894,000 4,906,000
Notes
Net advance repayable only out of proceeds of -- 471,000
public offering
Proceeds received upon issuance of common stock -- 3,789,000
Proceeds received from issuance of preferred -- 100,000
stock, net of related costs
Proceeds received upon exercise of options and 819,000 1,455,000
warrants, net of costs
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 1,443,000 2,713,000 20,929,000
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 13,000 46,000 65,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 52,000 38,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 65,000 $ 84,000 $ 65,000
============ ============ ============
5
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
Period From
July 21, 1989
Nine Months Ended (Date of
September 30, Inception)
2001 2000 September 30,
---- ---- -------------
2001
----
(Unaudited) (Unaudited) (Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION:
Contribution to capital by former principal stockholder -- -- $3,659,000
Related party debt exchanged for convertible debt -- -- 321,000
Exchange of indebtedness to former principal
stockholder for common stock -- -- 445,000
Issuance of common stock for services and accrued salaries -- -- 501,000
Exchange of equipment and accrued rent for common stock -- -- 271,000
Subordinated notes and related accrued interest
exchanged for Series A preferred stock -- -- 3,300,000
Exchange of convertible debt for convertible
preferred stock -- -- 356,000
Conversion of convertible debt and accrued interest
into common stock, net of unamortized debt discount -- -- 9,947,000
Exchange of advances repayable only out of proceeds
of public offering for common stock -- -- 471,000
Deferred offering costs on warrants exercised -- -- 88,000
Issuance of warrants in settlement of litigation for
debt issue costs and for services rendered -- -- 364,000
Common stock issued for costs related to 10%
promissory notes -- -- 525,000
See accompanying notes to consolidated financial statements.
6
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
applicable to interim periods. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. Certain information
and note disclosures normally included in LTC's annual financial
statements, prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted.
These financial statements should be read in conjunction with LTC's
audited financial statements included in LTC's Annual Report on Form
10-KSB filed with the Securities and Exchange Commission for the year
ended December 31, 2000. Operating results for the nine months ended
September 30, 2001 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2001 or any interim period.
2. HISTORY OF THE BUSINESS
Lithium Technology Corporation and its wholly-owned subsidiary, Lithion
Corporation, collectively referred to as "LTC", are pre-production stage
companies in the process of commercializing unique, solid-state, flat,
lithium ion rechargeable batteries.
The date of inception of LTC's development stage is July 21, 1989. At that
time, LTC exchanged its capital stock for all of the capital stock of
Lithion and an operating company in a reverse acquisition. The operating
company was divested in November 1993. The accumulated deficit associated
with the operating company of $6,865,000 has been segregated from LTC's
deficit accumulated during the development stage in the accompanying
consolidated financial statements.
LTC has entered into an Agreement and Plan of Merger with Ilion Technology
Corporation ("Ilion"), formerly known as Pacific Lithium Limited to merge
their respective companies. See Note 3.
3. OPERATIONS AND LIQUIDITY DIFFICULTIES AND MANAGEMENT'S PLANS TO OVERCOME
The accompanying consolidated financial statements of LTC have been
prepared on a going concern basis, which contemplates the continuation of
operations, realization of assets and liquidation of liabilities in the
ordinary course of business. Since its inception, LTC has incurred
substantial operating losses and expects to incur additional operating
losses over the next several years. Since December 1993, operations have
been financed primarily through the use of proceeds from the sale of
convertible debt and private placements of common stock.
Continuation of LTC's operations in 2001 is dependent upon Ilion's ability
to make additional advances under the Bridge Loan Financing Agreement
described below or the ability of LTC to obtain funding from a new
financing source as described herein. These conditions raise substantial
doubt about LTC's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
7
MANAGEMENT'S PLANS - LTC is engaged in technology development activities
and pilot line manufacturing operations to further advance its battery
technology. LTC holds various patents relating to its batteries. LTC is
developing innovative flat lithium ion batteries for large, high rate
applications including Hybrid Electric Vehicles (HEVs), other automotive
applications and energy storage devices for the rapidly growing
distributed power market. In September 2000, LTC completed the first
working prototype lithium-ion HEV battery, complete with electronics. A
second generation prototype HEV battery was completed in January 2001. All
improvements to LTC's technology contained in the prototype HEV batteries
are owned by Ilion pursuant to the terms of the licensing agreement
between LTC and Ilion entered into in connection with the Bridge Loan
described below.
Management's operating plan seeks to minimize LTC's capital requirements,
but commercialization of LTC's battery technology will require substantial
amounts of additional capital. LTC expects that technology development and
operating and production expenses will increase significantly as it
continues to advance its battery technology and develop products for
commercial applications. LTC's working capital and capital requirements
will depend upon numerous factors, including, without limitation, the
progress of LTC's technology development program, the levels and resources
that LTC devotes to the development of manufacturing and marketing
capabilities, technological advances, the status of competitors and the
ability of LTC to establish collaborative arrangements with other
companies to provide an expanded capacity to market and manufacture
battery products.
LTC has engaged Colebrooke Capital, Inc. ("Colebrooke") of New York City
to assist in the strategic repositioning of LTC, including a reorientation
of the relationship with Ilion. Colebrooke is assisting LTC in seeking new
sources of capital financing, exploring strategic technology partnership
scenarios and closing customer opportunities involving specific product
needs addressable by LTC's large stacked cell batteries as part of LTC
management's contingency planning.
MERGER WITH ILION TECHNOLOGY CORPORATION AND RELATED BRIDGE FINANCING - On
January 19, 2000, LTC and Pacific Lithium Limited ("PLL") of Auckland, New
Zealand signed an Agreement and Plan of Merger (the "Merger Agreement") to
merge their respective companies (the "Merger"). On October 2, 2000, PLL
domesticated into the U.S. and became a private Delaware corporation and
changed its name to Ilion Technology Corporation ("Ilion"). At the time
LTC entered into the Merger Agreement Ilion had intended to consummate an
initial public offering in the United States and NASDAQ listing of Ilion
(the "Ilion IPO") and the closing of the Merger was conditioned on the
consummation of the Ilion IPO by February 28, 2002. If the closing
conditions are not met by February 28, 2002 either LTC or Ilion may
terminate the Merger Agreement provided that the terminating party has not
prevented the consummation of the Merger by a breach of the Merger
Agreement by such party.
As Ilion has not yet filed a registration statement for the Ilion IPO, it
is unlikely that Ilion will be able to consummate the Ilion IPO by
February 28, 2002. LTC's management is engaged in contingency planning
since it is unlikely that the Ilion IPO and Merger will occur by February
28, 2002. LTC is seeking alternative sources of capital financing as well
as seeking potential technology partners and customers interested in LTC's
large batteries. In order to consummate any new financing management
believes the transaction with Ilion will need to be restructured. If LTC
is unable to restructure the transaction with Ilion and complete a new
transaction, it may be forced to suspend operations and possibly
liquidate, auction its assets, or file for bankruptcy.
Pursuant to the terms of a Bridge Loan Financing Agreement entered into as
of November 29, 1999 (the "Bridge Loan"), Ilion has agreed to advance
working capital to LTC. Ilion has advanced a total of $4,906,000 as of
September 30, 2001. The Bridge Loan Agreement does not contain a maximum
of the amount of funding that may be advanced under such agreement.
Accordingly, there is no maximum amount of notes that may be issued to
Ilion under the Bridge Loan. The amount of the notes will be related to
the working capital advances made by Ilion to LTC and the length of time
until the Merger is completed.
Management is depending on the Bridge Loan Agreement funding from Ilion to
meet LTC's obligations until LTC can obtain a new funding source. In 2001,
Ilion reduced the amount of funding it has been providing to LTC on a
monthly basis. Ilion indicated that it had reduced its operating expenses
throughout Ilion and indicated in
8
March 2001 that it intended to fund LTC at $100,000 per month under the
Bridge Loan Agreement. Ilion and LTC subsequently entered into discussions
regarding funds required by LTC to meet its operating expenses and in
April 2001 Ilion agreed to support an LTC monthly operating budget of
$150,000 and, subject to Ilion's review and reconciliation of LTC's past
due payables, agreed to effect payment of LTC's outstanding payables over
a three month period. During July, August and September 2001, Ilion
provided $104,000, $196,000 and $133,000, to LTC, respectively, or a total
of $433,000 for such three month period. No additional funds were provided
to LTC by Ilion during such time and at September 30, 2001, LTC had
outstanding accounts payable of $236,000. As a result of the reduction in
the amount of funding provided by Ilion to LTC from the original funding
level of approximately $250,000 per month to the current level, LTC has
been forced to curtail its operations, reduce the number of employees and
take other measures to reduce its operating and administrative expenses
and seek alternative sources of funding as described herein.
In connection with the Bridge Loan, LTC has granted Ilion a non-exclusive
worldwide license to use LTC's thin film technology and manufacturing
methods solely as it relates to lithium-ion batteries. Pursuant to the
licensing agreement, Ilion will pay to LTC a royalty equal to the higher
of one percent of the net sales price of each licensed product
manufactured, sold or otherwise disposed of during the term of the
licensing agreement or the rate that applies to any license agreement
entered into subsequent to October 1, 1999. The funds advanced by Ilion to
LTC under the Bridge Loan Financing Agreement will be deemed as an advance
payment of royalty fees due under the licensing agreement. All
improvements developed by LTC or Ilion during the course of the licensing
agreement will be owned by Ilion. As of September 30, 2001, no royalties
have been earned under this agreement.
If Ilion or LTC breaches the Merger Agreement, and the Merger Agreement is
terminated as a result, prior to February 28, 2002, the date the Merger
Agreement expires, Ilion would have the right to convert the Bridge loans
into shares of LTC common stock at a conversion price of $0.10 per share.
In this event, the conversion could result in Ilion holding an ownership
percentage greater than 50%, depending on the amount of Bridge Loans
outstanding on the date of conversion. In addition, LTC would need to find
alternative sources of capital or be forced to curtail technology
development expenditures which, in turn, will delay, and could prevent,
the completion of LTC's commercialization process.
If the Merger does not occur by February 28, 2002 because the closing
conditions have not been met by such date, including the failure of the
condition of the Ilion IPO or the approval of the Merger by LTC's
Stockholders, and Ilion has not breached the Merger Agreement, Ilion would
have the right to convert the Bridge Loans into shares of LTC common stock
at a conversion price of $0.10 per share. This conversion could result in
Ilion holding an ownership percentage greater than 50%, depending on the
amount of Bridge Loans outstanding on the date of conversion. In addition,
in this instance, Ilion would be issued three year warrants to purchase
7.5 million shares of LTC common stock exercisable at $0.15 per share and
Ilion would have a first option to purchase LTC's technologies and
processes if LTC sells, goes into receivership, liquidation or the like.
Ilion would also have the right and option to purchase LTC's pilot plant
and equipment at book value as of the date of the Merger Agreement.
LTC does not currently have sufficient cash to meet all of its operating
needs, pay its outstanding payable or to achieve all its development and
production objectives. There can be no assurance that funding will
continue to be provided by Ilion or a new financing source in the amounts
necessary to meet all of LTC's obligations. If LTC does not obtain the
needed working capital from either Ilion or a new financing source, LTC
will assess all available alternatives including the suspension of
operations and possibly liquidation, auction of its assets, bankruptcy, or
other measures.
9
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2001 are summarized as follows:
Laboratory equipment $ 1,382,000
Furniture and office equipment 106,000
Leasehold improvements 48,000
-----------
1,536,000
Less: Accumulated depreciation and amortization (1,266,000)
-----------
$ 270,000
===========
5. REVENUES
Other revenues consist of sales of samples and materials which is
expected to be non-recurring.
6. SUBSEQUENT EVENTS
In October and November 2001, Ilion advanced an additional $209,000 to LTC
for working capital under the Bridge Loan, bringing the total Bridge Loan
to $5,115,000 as of November 15, 2001.
As of November 15, 2001, LTC's outstanding accounts payable totaled
$165,000.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
GENERAL AND PLAN OF OPERATION
LTC is a pre-production stage company in the process of commercializing unique,
solid-state, lithium ion rechargeable batteries. LTC is engaged in technology
development activities and pilot line manufacturing operations to further
advance this battery technology and also holds various patents relating to such
batteries. LTC is developing innovative flat lithium ion batteries for large,
high rate applications including HEVs, other automotive applications and energy
storage devices for the rapidly growing distributed power market. LTC has an
experienced management team and a strong technical staff with experience in
battery technology and applications, thin-film manufacturing, capital raising,
and global marketing, sales and strategic alliances. LTC maintains a current
commercial awareness of products, materials, manufacturing processes, battery
applications, competition and markets on a worldwide basis.
On January 19, 2000, LTC and Pacific Lithium Limited ("PLL") of Auckland, New
Zealand signed an Agreement and Plan of Merger (the "Merger Agreement") to merge
their respective companies (the "Merger"). On October 2, 2000, PLL domesticated
into the U.S. and became a private Delaware corporation (the "Domestication")
and changed its name to Ilion Technology Corporation ("Ilion"). At the time LTC
entered into the Merger Agreement Ilion had intended to consummate an initial
public offering in the United States and NASDAQ listing of Ilion (the "Ilion
IPO") and the closing of the Merger was conditioned on the consummation of the
Ilion IPO by February 28, 2002. For a complete description of the terms of the
Merger with Ilion and the related Bridge Financing see LTC's Form 10-KSB for the
year ended December 31, 2000. If the closing conditions are not met by February
28, 2002 either LTC or Ilion may terminate the Merger Agreement provided that
the terminating party has not prevented the consummation of the Merger by a
breach of the Merger Agreement by such party.
As Ilion has not yet filed a registration statement for the Ilion IPO, it is
unlikely that Ilion will be able to consummate the Ilion IPO by February 28,
2002. LTC's management is engaged in contingency planning since it is unlikely
that the Ilion IPO and Merger will occur by February 28, 2002. LTC is seeking
alternative sources of capital financing as well as seeking potential technology
partners and customers interested in LTC's large batteries. In order to
consummate any new financing management believes the transaction with Ilion
needs to be restructured.
LTC has engaged Colebrooke Capital, Inc. ("Colebrooke") of New York City to
assist in the strategic repositioning of LTC, including a reorientation of the
relationship with Ilion. Colebrooke is assisting LTC in seeking new sources of
capital financing, exploring strategic technology partnership scenarios and
closing customer opportunities involving specific product needs addressable by
LTC's large stacked cell batteries as part of LTC management's contingency
planning. If LTC is unable to restructure the transaction with Ilion and
complete a new transaction, it may be forced to suspend operations and possibly
liquidate, auction its assets, or file for bankruptcy.
Pursuant to the terms of a Bridge Loan Financing Agreement entered into as of
November 29, 1999 (the "Bridge Loan"), Ilion has agreed to advance working
capital to LTC. At September 30, 2001, Ilion held $4,906,000 of convertible
notes convertible into 49,060,000 shares of Common Stock at a conversion price
of at $.10 (which are only convertible in the event of a default or if the
Merger does not close by February 28, 2002), which would represent approximately
49% of LTC's outstanding Common Stock upon conversion. Additional notes may be
issued by LTC to Ilion under the Bridge Loan convertible into shares of Common
Stock at a conversion price of $.10 per share and LTC may issue to Ilion
warrants to purchase 7,500,000 shares of LTC Common Stock exercisable at $0.15
per share. The percentage ownership of LTC that Ilion will own will depend on
the amount of funds advanced by Ilion to LTC.
11
Ilion has established joint venture manufacturing and distribution relationships
with selected partners around the world. The first such joint venture, with
Eldor Corporation of Italy, regarding manufacturing and distribution of
lithium-ion batteries for portable electronics applications worldwide, was
signed in August 2000. In November 2000, Ilion entered into a joint venture
agreement with Powercell Corporation. Pursuant to the agreement, Ilion and
Powercell formed Proteus Power LLC, which is owned 75% by Ilion and 25% by
Powercell, to develop and manufacture lithium-ion based energy storage devices
for (1) the management and enhancement of electricity reliability and power
quality (excluding devices under 50 kW), (2) the electric vehicle market
(excluding HEVs) and (3) the renewable energy market, which includes wind and
solar energy. LTC has provided technology support to Ilion in large footprint
cell structures, large battery assemblies and manufacturing process automation
and scale-up for all applications.
With Ilion's approval, LTC has accepted certain external subcontract work for
several companies involving rapid prototyping and integration of lithium-ion
cells and batteries for various stationary and mobile applications. These
external initiatives, leveraging LTC's know-how, are expected to continue and
increase with the result of providing revenues to LTC. No revenues were
received from such subcontract work during the quarter ended September 30, 2001.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
LTC has financed its operations since inception with convertible debt and
private placements of common stock and has raised approximately $19.3 million,
including $4,906,000 from Ilion as of September 30, 2001.
LTC has been unprofitable since inception, expects to incur substantial
operating losses over the next few years and needs significant additional
financing to continue the development and commercialization of its technology.
LTC does not expect to generate any significant revenues from operations during
the fiscal year ending December 31, 2000.
At September 30, 2001, LTC had cash and cash equivalent of $65,000, fixed assets
of $270,000 and other assets of $21,000. LTC's total liabilities were $5,423,000
consisting of accounts payable, accrued salaries, a note payable totaling
$517,000 and convertible promissory notes payable to Ilion in the amount of
$4,906,000. LTC had a working capital deficit of $452,000 on September 30, 2001.
LTC's cash and cash equivalents increased by approximately $13,000 from December
31, 2000 to September 30, 2001. The cash increase is attributable primarily to
slower payments made to vendors.
LTC's stockholders' deficiency was $5,067,000 at September 30, 2001, after
giving effect to an accumulated deficit of $52,750,000 which consisted of
$45,885,000 accumulated deficit during the development stage from July 21, 1989
through September 30, 2001 and $6,865,000 accumulated deficit from prior
periods. LTC expects to incur substantial operating losses as it continues its
commercialization efforts.
Pursuant to the terms of a Bridge Loan, Ilion has agreed to advance working
capital to LTC until the closing of the Merger. Ilion has advanced a total of
$4,906,000 through September 30, 2001. Ilion has agreed to advance to LTC
ongoing funds required by LTC for ongoing employee, operating and administrative
expenses excluding capital expenses.
Management has been depending on the Bridge Loan Agreement funding from Ilion to
meet LTC's obligations. In 2001, Ilion reduced the amount of funding it has been
providing to LTC on a monthly basis. Ilion has indicated that it has reduced its
operating expenses throughout Ilion and indicated in March 2001 that it intended
to fund LTC at $100,000 per month under the Bridge Loan Agreement. Ilion and LTC
subsequently entered into discussions regarding funds required by LTC to meet
its operating expenses and in April 2001 Ilion agreed to support an LTC
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monthly operating budget of $150,000 and subject to Ilion's review and
reconciliation of LTC's past due payables, agreed to effect payment of LTC's
outstanding payables over a three month period. During July, August and
September 2001, Ilion provided $104,000, $196,000 and $133,000, to LTC,
respectively, or a total of $433,000 for such three month period. No additional
funds were provided to LTC by Ilion during such time and at September 30, 2001,
LTC had outstanding accounts payable of $236,000.
As a result of the reduction in the amount of funding provided by Ilion to LTC
from the original funding level of approximately $250,000 per month to the
current level, LTC has been forced to curtail its operations, reduce the number
of employees, take other measures to reduce its operating and administrative
expenses and seek alternative sources of funding as described herein.
LTC does not currently have sufficient cash to meet all of its operating needs,
pay its outstanding payables or to achieve all its development and production
objectives. There can be no assurance that funding will continue to be provided
by Ilion or a new financing source in the amounts necessary to meet all of LTC's
obligations. If LTC does not obtain the needed working capital from either Ilion
or a new financing source, LTC will assess all available alternatives including
the suspension of operations and possibly liquidation, auction of its assets,
bankruptcy, or other measures.
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RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
LTC had $12,000 in revenues from commercial operations for the nine months ended
September 30, 2001 and no revenues in 2000. Engineering, research and
development expenses were $850,000 for the nine months ended September 30, 2001
compared to $1,165,000 for the nine months ended September 30, 2000. The
decrease of $315,000 was due primarily to decreased salaries and benefits due to
a decrease in the number of technical personnel and a decrease in lab supplies
and other materials.
General and administrative expenses were $646,000 for the nine months ended
September 30, 2001 compared to $1,529,000 for the nine months ended September
30, 2000. The decrease of $883,000 was due primarily to a decrease in salary and
benefits due to a decrease in the number of administrative personnel and related
expenses and decreased legal, accounting and other administrative expenses.
Interest expense net of interest income for the nine months ended September 30,
2001 was $7,000 with interest income of $4,000 compared to $11,000 of interest
income with no interest expense for the nine months ended September 30, 2000.
The decrease in interest expense from the comparable periods is attributable to
a decrease in interest on notes payable.
THREE MONTHS ENDED SEPTEMBER 30, 2000
LTC had $5,000 in revenues from commercial operations for the three months ended
September 30, 2001 and no revenues for 2000. Engineering, research and
development expenses were $223,000 for the three months ended September 30, 2001
compared to $338,000 for the three months ended September 30, 2000. The decrease
of $115,000 was due primarily to decreased personnel and related expenses and a
decrease in lab supplies and other materials.
General and administrative expenses were $164,000 for the three months ended
September 30, 2001 compared to $366,000 for the three months ended September 30,
2000. The decrease of $202,000 was due primarily to decreased personnel and
related expenses and a decrease in legal, accounting and other administrative
expenses.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. Statements contained in this report that
are not historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
stated in the forward-looking statements. Factors that could cause actual
results to differ materially include, among others: general economic conditions,
changes in laws and government regulations, fluctuations in demand for LTC's
products, LTC's ability to consummate the merger with Ilion of other strategic
partners, technology development problems, and LTC's ability to successfully
finance future plant and equipment plans, as well as its current ongoing
operations.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 19, 2001 LITHIUM TECHNOLOGY CORPORATION
By: /s/ David J. Cade
---------------------------------------------
David J. Cade, Chairman and Chief Executive
Officer (Chief Executive Officer and Acting
Principal Financial Officer)
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