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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
December 31, 2000
OR
[ ] 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
(Name of Small Business Issuer 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, PENNSYLVANIA
(Address of Principal Executive Offices)
19462
(Zip Code)
(610) 940-6090
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK
PAR VALUE, $0.01
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB.[ ]
State issuer's revenues for its most recent fiscal year. None.
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State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days.
Approximately $11,840,735 as of March 1, 2001. The aggregate market value
was based upon the mean between the closing bid and asked price for the common
stock as quoted by the NASD OTC Electronic Bulletin Board.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has 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 REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 2001, 51,294,305
shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security-holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business........................................ 4
Item 2. Description of Property........................................ 19
Item 3. Legal Proceedings.............................................. 19
Item 4. Submission of Matters to a Vote of Security Holders............ 19
PART II
Item 5. Market for LTC's Common Equity and Related Stockholder Matters 20
Item 6. Management's Discussion and Analysis or Plan of Operation...... 21
Item 7. Financial Statements........................................... 23
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 24
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............. 24
Item 10. Executive Compensation......................................... 26
Item 11. Security Ownership of Certain Beneficial Owners and Management. 29
Item 12. Certain Relationships and Related Transactions................. 30
Item 13. Exhibits and Reports on Form 8K................................ 30
FINANCIAL STATEMENTS.................................................... F-1
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PART I
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, the consummation of the Merger with Ilion Technology Corporation and
continued financing of LTC by Ilion Technology Corporation.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Lithium Technology Corporation together with its wholly-owned subsidiary,
Lithion Corporation ("Lithion"), collectively referred to as "LTC" or the
"Company", are pre-production stage companies in the process of commercializing
unique, solid-state, lithium polymer 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. Based on emerging market opportunities and as part of the
strategy of merging into Ilion Technology Corporation ("Ilion"), as described
below, LTC 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, LTC
completed the first working prototype lithium-ion polymer HEV battery, complete
with electronics. A second generation prototype HEV battery was completed in
January 2001, with even more advanced versions scheduled for completion later in
the year. LTC is providing technology support, and has licensed certain
technology, to Ilion in accordance with the terms of the Merger Agreement and
related agreements described below in this Item 1.
LTC is a corporation organized under the laws of the State of Delaware on
December 28, 1995. LTC's predecessor -- Lithium Technology Corporation (a Nevada
corporation previously named Hope Technologies, Inc.) -- merged with and into
LTC in a reincorporation Merger that became effective on February 8, 1996. In
connection with the reincorporation on February 8, 1996, LTC also implemented a
recapitalization of its outstanding common stock and convertible preferred
stock, a reverse stock split, the ratification of an amendment to LTC's 1994
Stock Incentive Plan, and ratification of a Directors Stock Option Plan. Until
1994, LTC had been named Hope Technologies, Inc. (HTI), consisting of two
subsidiaries: Hope Industries, Inc. (Industries) and Lithion Corporation.
Industries was the operating arm of LTC and it manufactured professional and
industrial photoprocessing and X-ray equipment. Lithion was engaged in
rechargeable battery research and development. By the end of 1993, Industries
was divested and since such time LTC has focused on commercialization of its
battery technology. LTC currently has one subsidiary, Lithion Corporation, which
is wholly-owned by LTC. 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.
PENDING MERGER WITH ILION TECHNOLOGY CORPORATION
GENERAL
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 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
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States and NASDAQ listing of Ilion (the "Ilion IPO") as soon as practicable
depending upon market conditions and other factors. The Merger will be completed
after the consummation of the Ilion IPO and the approval of the Merger by the
LTC stockholders, assuming the remaining closing conditions are met. A meeting
of the LTC stockholders to approve the Merger will be held as soon as
practicable after the Ilion IPO.
The closing conditions to the Merger must be met by February 28, 2002 or either
LTC or Ilion may terminate the Merger Agreement provided that the terminating
party has not prevented the consummation of the Merger by a breach of the
Merger Agreement by such party. Accordingly, both the Ilion IPO and the
approval of the Merger by the LTC stockholders must be completed by February
28, 2002 and the remaining closing conditions must be met by such date. There
can be no assurance that Ilion will be able to consummate the Ilion IPO by
February 28, 2002. There can also be no assurance that if the Ilion IPO is
completed by February 28, 2002 that the Merger will be approved by the
LTC stockholders by such date.
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 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 are suitable for both the HEV and
portable applications markets. Ilion's plant to commercially produce these
cathode materials was commissioned in early 2001. Ilion has also established
joint venture manufacturing and distribution relationships with selected
partners on an applications-by-applications-basis, and LTC is providing
technology support to Ilion in accordance with the terms of the Merger
Agreement.
For a description of Ilion see "Ilion Technology Corporation" below in this Item
1.
LTC believes that the new combined entity will have a unique position in the
lithium polymer battery market, providing a proprietary vertical integration
capability that would range from high grade lithium materials to reinforced
composite battery structures, with low cost, high yield thin film manufacturing
processes. LTC believes that this combination of technologies, capabilities and
people will enable the new company to become a low cost provider of high quality
and high performance lithium polymer batteries. Target markets include portable
electronics, HEVs and stationary battery applications.
TERMS OF THE MERGER
In the Merger, LTC will be merged with and into Ilion and all of the outstanding
shares of LTC will be exchanged for shares of common stock of Ilion as described
below (the "Merger Securities").
MERGER SHARES TO BE DELIVERED AND MERGER AGREEMENT PROVISIONS IF AMENDMENT NO. 4
IS IN EFFECT
On February 2, 2001, LTC and Ilion entered into Amendment No. 4 to the Merger
Agreement ("Amendment No. 4") amending the following provisions of the Merger
Agreement relating the Merger Securities to be issued in the Merger, the
application of the proceeds of the exercise of any options or warrants, and the
lock-up of the Merger Securities for a maximum of 180 days after the Merger.
The following provisions of the Amendment No. 4 to Merger Agreement will become
effective only if and when Ilion files a Registration Statement with the
Securities and Exchange Commission (the "SEC") relating to the Ilion IPO (the
"IPO Registration Statement"). Such provisions may be terminated by LTC or
Ilion by giving written notice to the other in accordance with the Merger
Agreement if the IPO Registration Statement has not been declared effective
by the SEC on or before July 31, 2001, and upon any such termination the Merger
Agreement will be restored to the same terms and conditions as if such
provisions of Amendment No. 4
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had never become effective.
Amendment No. 4 provides that in the Merger, LTC will merge with and into Ilion
and all of the outstanding shares of LTC's common stock will be exchanged for an
aggregate of the number of shares of Ilion common stock ("Ilion Common Stock")
determined by dividing $25 million by the Ilion Common Price (as hereinafter
defined), but in no event will LTC shares be exchanged for more than 5,000,000
shares or less than 2,500,000 shares of Ilion Common Stock. The term "Ilion
Common Price" means the average of the daily closing prices of Ilion Common
Stock as reported by the NASDAQ market during the period of the thirty
consecutive trading days on which Ilion's share price is quoted on the NASDAQ
market ending on the date of the second to last trading day prior to the Closing
Date of the Merger. The Merger Securities will be issued to the LTC stockholders
on a pro-rata basis.
Amendment No. 4 also provides that in the event that any holder of LTC warrants
or options exercises any warrants or options prior to the Merger, LTC will use
all proceeds thereof (the "Exercise Funds") as follows: (i) first, to pay a
portion of the advances made by Ilion to LTC pursuant to the Bridge Loan
Financing Agreement in an aggregate amount up to three hundred fifty thousand
dollars ($350,000); (ii) second, to pay certain liabilities of LTC with respect
to the accrued salary due and owing to Mr. Thomsen, LTC's former Chairman and
Chief Executive Officer, in the aggregate amount of two hundred thousand dollars
($200,000); and (iii) third, to pay LTC's employee, operating and administrative
expenses, excluding capital costs ("LTC's Continuing Costs").
Amendment No. 4 provides that from and after the closing under the Merger
Agreement, the Merger Securities will be held in an escrow established jointly
by LTC and Ilion under the terms of which the holders of the Merger Securities
issued pursuant to the Merger Agreement will not be permitted to sell or offer
to sell or otherwise dispose of any shares of Common Stock of Ilion without the
prior written consent of a designated IPO underwriter until the earlier of (1)
the date of termination of the offer, sale and disposition lock-up period which
is applied by the Ilion IPO underwriters to a majority of the Ilion shareholders
or (2) the date which is 180 days after the closing of the Ilion IPO.
MERGER SHARES TO BE DELIVERED AND MERGER AGREEMENT PROVISIONS, IF AMENDMENT NO.
4 IS NOT IN EFFECT
If LTC or Ilion were to restore the provisions contained in Amendment No. 4 to
their terms as if Amendment No. 4 had never become effective, the following
provisions would apply in lieu of those set forth in Amendment No. 4:
In the Merger, LTC will merge with and into Ilion and all of the outstanding
shares of LTC'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 LTC
options and warrants exercised prior to the Merger. The Merger Securities will
be issued to the LTC stockholders on a pro-rata basis.
In the event that any holder of LTC warrants or options exercises any warrants
or options prior to the Merger, LTC will use the Exercise Funds as follows: (i)
the first three hundred and fifty thousand dollars ($350,000) will be used by
LTC to finance the operations of LTC in lieu of obtaining financing under the
Bridge Loan
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Financing Agreement and (ii) the second two hundred thousand dollars ($200,000)
will be used by LTC to pay a portion of the accrued salary due and owing to Mr.
Thomas Thomsen, LTC's former Chairman and Chief Executive, and any excess
Exercise Funds (the "Excess Exercise Funds") will be used by LTC to pay LTC's
Continuing Costs directly by LTC. To the extent LTC pays its Continuing Costs
through the Excess Exercise Funds rather than through Bridge Loan Financing
funds the Merger Securities to be distributed to LTC stockholders in the Merger
will 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 LTC (the "Additional Merger Securities").
There were no lock-up provisions contained in the Merger Agreement prior to
Amendment No. 4.
ADDITIONAL TERMS OF THE MERGER
LTC has agreed that prior to the Merger Closing Date, it will use its best
efforts to cause all outstanding warrants and options issued by LTC to be
exercised by the holders thereof. LTC has agreed to terminate all LTC 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 LTC 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.
In connection therewith, LTC has approved the repricing of all outstanding
warrants to $0.15 and accelerated the vesting of all outstanding warrants and
options in exchange for the consent of the holder of the warrant 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 of March 1,
2001, all holders of LTC warrants had entered into Warrant Amendment Agreements
pursuant to which the holders consented to such new termination dates.
Ilion has agreed that upon the closing of the Merger, Ilion will offer to each
full-time employee of LTC employment with Ilion or an affiliate of Ilion with
each such offer to include a substantially equivalent title, level of
responsibility and compensation and benefits as each such employee had as an
employee of LTC. Ilion will also offer employment to Mr. David Cade, LTC's
Chairman and Chief Executive Officer.
At the time of the Merger, Ilion will grant a minimum of three hundred thousand
(300,000) options to the LTC transferred employees for the purchase of Ilion
Common Stock at an exercise price of $2.25 per share.
Effective at the Merger closing, LTC will have the right to appoint one member
to the Board of Directors of Ilion. Ilion has agreed to use its reasonable best
efforts to cause such appointee to be elected to the Ilion Board of Directors.
The consummation of the Merger is contingent upon certain closing conditions
being met by the parties by February 28, 2002, including the closing of the
Ilion IPO and the approval of the Merger by the stockholders of LTC. A meeting
of the LTC stockholders to approve the Merger will be held as soon as
practicable after the Ilion IPO. Prior to the LTC stockholder meeting LTC and
Ilion will mail a proxy statement and prospectus to all of the LTC stockholders
with complete information on the Merger, Ilion and the securities to be received
by the LTC stockholders in the Merger.
The closing conditions to the Merger must be met by February 28, 2002 or either
LTC or Ilion may terminate the Merger Agreement provided that the terminating
party has not prevented the consummation of the Merger by a breach of the Merger
Agreement by such party. Accordingly, both the Ilion IPO and the approval of the
Merger by the LTC Stockholders must be completed by February 28, 2002 and the
remaining closing conditions must be met by such date. There can be no assurance
that Ilion will be able to consummate the Ilion IPO by February 28, 2002.
There can also be no assurance that if the Ilion IPO is completed by February
28, 2002 that the Merger will be approved by the LTC stockholders by such date.
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There can be no assurance that the Merger will be approved by the stockholders
of LTC or consummated. If the Merger is not consummated LTC will assess all
available options, including the suspension of operations and possibly
liquidation, bankruptcy or other measures.
BRIDGE LOAN FROM ILION
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 $3,462,500 as of December 31, 2000
and $4,076,376 through March 31, 2001. Under the Bridge Loan Agreement, Ilion
has agreed to advance to LTC ongoing funds required by LTC for ongoing employee,
operating and administrative expenses, excluding capital expenses.
Beginning in October 1999, Ilion has provided working capital for LTC.
Management is depending on the Bridge Loan Agreement funding from Ilion to meet
LTC's obligations through the next year. In 2001, Ilion reduced the amount of
funding it has been providing to LTC on a monthly basis. Ilion advanced $250,000
per month in January and February 2001, $113,876 in March 2001 and $109,000
through April 16, 2001. Ilion has indicated that it has reduced its operating
expenses throughout Ilion and has further indicated that it intends to fund LTC
at $100,000 per month under the Bridge Loan. Funding at $100,000 per month will
not be adequate to cover LTC's current operating expenses.
LTC is currently in discussions with Ilion regarding the funding level proposed
by Ilion and the capital required by LTC to meet LTC's ongoing operating
expenses. If Ilion funds LTC at $100,000 per month, LTC will be forced to
curtail its current operations, substantially reduce the number of LTC
employees, and take other measures to reduce its operating expenditures. As of
April 16, 2001, LTC's outstanding payables were approximately $248,000. There
can be no assurances that Ilion will continue to fund or will have the ability
to fund LTC at $100,000 per month or at any level or advance the funds needed to
pay LTC's outstanding payables. In the event Ilion does not advance funds to
meet LTC's operating expenses LTC will access all available alternatives
including suspension of operations and possibly liquidation, auction, bankruptcy
and other measures.
If Ilion 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 Loan into shares of LTC common
stock at the conversion price of $0.10 per share. In this event, the conversion
could share 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 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.
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 polymer 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 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 arrangement will
be owned by Ilion. As of March 31, 2001, no royalties have been earned under
this agreement.
At December 31, 2000, Ilion held $3,462,500 of convertible notes convertible
into 34,625,000 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). At March 31, 2001, Ilion held $4,076,376 of convertible
notes convertible into 40,763,760 shares of LTC Common Stock, which would
represent approximately 44% of LTC's outstanding Common Stock upon conversion.
Additional notes may be issued by LTC to Ilion under the Bridge Loan
convertible into shares of Common Stock at a conversion price of $.10 per share,
and LTC may issue to Ilion warrants to purchase 7,500,000 shares of LTC Common
Stock exercisable at $0.15 per share. The notes will not be converted into LTC
Common Stock and the warrants will not be issued to Ilion if the Merger is
closed. The percentage ownership of LTC that Ilion will own if there is a
default under the Bridge Loan or in the event the Merger is not closed will
depend on the amount of funds advanced by Ilion to LTC. If the Merger
is completed the notes will not be
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converted into LTC common stock and no warrants will be issued to Ilion.
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. 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.
DEVELOPMENT AND COMMERCIALIZATION PLAN
LTC is in the late stages of developing and producing innovative rechargeable
solid state lithium polymer batteries. LTC has worked closely with selected
portable electronics Original Equipment Manufacturers ("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, LTC 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, LTC completed the first working prototype lithium-ion polymer HEV battery,
complete with electronics. A second generation prototype HEV battery was
completed in January 2001, with even more advanced versions scheduled for
completion later in the year. LTC has not yet delivered a prototype HEV battery
for testing by a third party. All improvements to LTC's technology contained in
the prototype HEV batteries are owned by Ilion pursuant to the terms of the
licensing agreement between LTC and Ilion entered into in connection with the
Bridge Loan. See "Bridge Loan From Ilion."
LTC is currently engaged in routine pilot production operations, regularly
producing 4" x 8" x 1/4" 10 Ah flat cells intended for HEVs and other large
battery applications. LTC 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 safer for end-users and
more 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 polymer technology.
LTC's batteries are based on its patented and proprietary web structure
technology which LTC believes offers significant manufacturing efficiencies,
including yield and cost advantages over competing technologies. Prior to
changing its focus to developing large cell batteries, LTC delivered limited
quantities of prototype batteries and component cells for evaluation to selected
battery pack integrators and portable electronics OEMs.
LTC has an experienced management team and a strong technical staff with
relevant experience in battery technology and applications, thin-film
manufacturing, capital raising, and global marketing, sales and strategic
alliances.
LTC's proprietary composite cell structures allow the use of conventional
coating materials and standard coating/laminating machinery thereby enabling 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 the
additional benefits of 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.
Until the closing of the Merger, LTC and Ilion are working together in
leveraging their combined vertical integration capabilities and
patented/proprietary technologies encompassing: (1) access to lithium reserves;
(2) advanced carbonate and electrode materials; (3) composite cell structures;
(4) unique substrate handling manufacturing processes; (5) large battery
assemblies and (6) lithium recycling. The two companies are targeting global
market opportunities involving HEV batteries, portable electronics, and
stationary large battery applications.
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While LTC will focus on HEV battery applications, LTC will also continue to
provide the technology support to Ilion in large footprint cell structures,
large battery assemblies and manufacturing process scale-up for all
applications.
Following the Merger, 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 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 and its joint
venture partners to become low cost providers of high quality and high
performance batteries for a wide range of applications.
LTC TECHNOLOGY OVERVIEW
LTC's lithium polymer batteries are comprised of thin, laminated cells or
bicells. LTC's proprietary technology includes critical composition, process,
and packaging aspects of the battery.
LTC's use of thin, laminated, composite layers (e.g., thin, lightweight fibers
embedded in active solid material matrices) is different from competitive
methods which utilize thin-film extrusion, coating technology and metal grids.
This composite formulation improves conductivity, stability, resistance to
shorting, reliability, uniformity and manufacturability. The composite
structures also permit relatively simple production processes, which form the
basis for successful scale-up and ultimately, lower costs. The processing scheme
uses proven and well understood "substrate handling" technology that results in
a uniform thickness across the substrate, low cost high yield production and
more consistent performance of the battery product.
LTC's version of lithium-ion polymer technology has an energy density advantage
because of the lightweight fiber web construction and a production cost
advantage because of the web-carrier/substrate-based continuous flow, high speed
coating and laminating manufacturing process. Lower cost manufacturing is made
possible by the following: (1) easier cell assembly through direct coating on
substrates; (2) fewer laminate components; (3) fewer process steps; (4) better
bonding; (5) better structural stability; and (6) lower defect rates / higher
yields.
LTC's web structures facilitate consistent, repeatable larger footprint cells,
which are ideal "building blocks" for HEV batteries and other large battery
applications. Based on LTC's technology development progress since 1994 and five
years of pilot-line manufacturing operations, LTC believes it possesses unique
knowledge in the following areas: (1) roll-to-roll continuous flow, high yield
coating, laminating and packaging processes; (2) use of different coating
substrates and cell structures depending upon specific applications; (3) mixing
of electrode and electrolyte formulations; (4) construction and testing of large
footprint cells; (5) production scale-up; and (6) large lithium polymer battery
assemblies.
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INTELLECTUAL PROPERTY
LTC holds twenty-four issued U.S. patents and has six pending patent
applications on its technology. LTC also has other proprietary knowledge that is
in the patent disclosure stage or that it protects as trade secrets. LTC's early
patents relate to materials and construction for lightweight solid-state
rechargeable batteries. The later patents and applications relate to
improvements to the technology contained in the first patent or to other key
aspects of rechargeable lithium battery technology. In 1998, two patents were
issued that gave LTC patent protection on the use of metalized fiber webs for
building electrodes and separators. These metalized webs provide superior
conductivity and further simplify the manufacturing process.
The earliest of LTC's patents expires 2005. There is no current or, to LTC's
knowledge, threatened litigation on its patents. See "Description of
Business-Competition".
The following table sets forth the U. S. patents currently held by LTC:
Patent Number Title
------------- -----
4,794,059 Lightweight Solid State Rechargeable Batteries
4,861,690 Lightweight Battery Construction
4,960,655 Lightweight Batteries
5,006,431 Solid State Polymer Electrolyte for Batteries
5,057,385 Battery Packaging Construction
5,102,752 Solid State Composite Electrolyte for Batteries
5,350,647 Electrodes for Electrochemical Devices
5,378,558 Composite Electrolytes for Electrochemical Devices
5,422,200 Battery Packaging Construction for Alkali Metal Multicell
Batteries
5,443,602 Apparatus and Method for Automatic Mass Production and
Packaging of Electrochemical Cells
5,521,023 Composite Electrolytes
5,529,707 Lightweight Composite Polymeric Electrolytes for
Electrochemical Devices
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5,597,658 Rolled Single Cell and Bi-Cell Electrochemical Devices
and Method of Manufacturing the Same
5,650,243 Battery Packaging Construction Using Flexible Plastic
Barrier Structures
5,655,313 Apparatus for Fluidized, Vacuum Drying and Gas Treatment
for Powdered, Granular, or Flaked Material
5,705,084 Polymer Alloy Electrolytes for Electrochemical Devices
5,747,195 Current Collectors For High Energy Density Cells
5,750,289 Lightweight Current Collectors and Carriers
5,925,483 Multi-Layer Polymer Electrolytes for Electrochemical
Devices
6,025,096 Solid State Polymeric Electrolytes for Electrochemical
Devices
6,080,267 Method for Electroconductive Fastening of Carbon Fiber
Current Collectors and Terminals for Electrochemical
Devices
6,080,511 Composite Polymer Electrolytes for Alkali Metal
Electrochemical Devices which Contain a Glass Fiber Net
6,134,773 Method for Automatic Mass Production of Electrochemical
Cells
6,143,445 Composite Electrodes Containing Chopped Conductive Fibers
4,997,732 Battery in a Vacuum Sealed Enveloping Material and
Process for Making the Same (1)
(1) U.S. Patent No. 4,997,732 is held by Valence Technologies, Inc. LTC has
rights relating to this Patent under the cross-licensing agreement dated July
22, 1997 between LTC and Valence Technologies, Inc.
With respect to licensing relationships, LTC has: (i) granted a license to
Valence Technology Corporation with respect to certain technology and entered
into a cross-license with Valence with respect to certain technology; and (ii)
granted certain license/distributorship option rights pursuant to a Japanese
consortium technology development agreement entered into in 1996.
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 polymer 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 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 arrangement will be
owned by Ilion.
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TECHNOLOGY DEVELOPMENT HISTORY
LTC's advanced rechargeable battery technology is based on nearly eighteen years
of specific research and development and over forty years of experience in
plastics, thin films and emulsions. With the divestiture of Hope Industries in
late 1993, LTC successfully raised capital from outside sources, narrowed LTC's
focus, and renewed development of its rechargeable battery technology.
- During 1994, LTC was re-staffed with needed technical personnel, and
critical research, including historical test data such as capacity and
cycle life, was reconfirmed.
- During 1995, LTC concentrated its efforts on improving its base line
technology in the crucial areas of weight reduction, design flexibility,
rechargeability, self-discharge, safety, capacity and cycle life.
- During 1996 LTC advanced its technology by developing a solid state
lithium-ion polymer cell using proprietary web structures in both the
anode and cathode with excellent cycle life and that demonstrate the
utility of LTC's manufacturing process technology for lithium-ion polymer
cells.
- In March 1996, a prototype continuous flow coating and laminating pilot
line was installed. Since then, the pilot line has been undergoing
continuing upgrade and trial runs.
- In 1997, distribution of lithium-ion polymer cell samples processed on the
pilot line commenced to selected Original Equipment Manufacturers (OEMs).
- During 1998, development and distribution of prototype battery cells and
packs commenced to certain OEMs and is on-going. LTC's pilot line
production operations are regularly producing three generic sizes of thin
flat cells, including a large 9 Ah cell (4" x 8" x 1/4").
- In January 2000, LTC took delivery of a semiautomatic cell packaging and
filling machine. This state-of-the art machine inserts LTC's thin flat
lithium-ion cells into a pouch package, adds the polymer electrolyte and
then seals the package. Its configuration is optimized for LTC's unique
large footprint cells, which will be the common building blocks for
multiple battery applications, including HEVs.
- In September 2000, LTC completed the first working prototype lithium-ion
polymer HEV battery, complete with electronics.
- As of December 31, 2000, LTC had not generated any product revenues and
had no commercial operations.
- A second generation prototype HEV battery was completed in January 2001,
with even more advanced versions scheduled for later in the year. (All
improvements to LTC's technology contained in the prototype HEV batteries
are owned by Ilion)
- LTC 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.
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COMPETITION
There are a number of emerging battery technologies that offer performance
improvements over those that dominate the market today. The principal
competitive rechargeable technologies are Nickel-Cadmium (NiCad), sealed lead
acid, nickel metal hydride, zinc air and liquid electrolyte lithium-ion
batteries. NiCad batteries are still the most widely used rechargeable batteries
in the consumer electronics market, but for wireless communications and portable
computer applications, nickel metal hydride and liquid lithium-ion now have
dominant market share; moreover, lithium-ion has now eclipsed nickel metal
hydride in dollar value of sales, with a focus on high end cell phone, notebook
computer and PDA applications.
NICKEL-CADMIUM
Nickel-Cadmium (NiCad) batteries have experienced evolutionary improvement.
However, even with capacity improvements, NiCads still have significant inherent
user limitations. The batteries lose energy storage capacity on each recharge,
have a high self-discharge rate, and Cadmium is toxic and difficult to recycle.
NICKEL-METAL HYDRIDE
Nickel-metal hydride (NiMH) batteries, first introduced in 1989, are being
produced in large volume by a number of battery companies. The advantage of NiMH
batteries is that they have twice the capacity of NiCads. However, they cannot
discharge as quickly, have slower recharge times, and are currently twice as
expensive than NiCads. They also have a very high self-discharge rate of 10-25%
per month.
LEAD ACID
Automobiles have been the primary users of unsealed, lead batteries since the
turn of the 20th century. There have been only incremental improvements in this
technology. Sealed lead acid batteries for certain portable electronics devices
are inexpensive, but relatively heavy. They have good power density and good
discharge capability, but have very low cycle life and require special disposal
management.
ZINC AIR
Zinc Air batteries, which entered the marketplace in 1994, provide long run time
for notebook computers but have limited mass market appeal because of their high
weight, volume and cost, and their configuration as a "clip-on" using plugs or
jacks rather than as an "integrated" product. Because of these limitations, zinc
air manufacturers have switched their focus to primary batteries.
LITHIUM-ION (NON-POLYMER CONFIGURATION)
Lithium-ion rechargeables, pioneered by Sony and introduced in 1991, have a high
energy density, but less than that of solid polymer lithium metal technology
projected to enter the market in the next three to five years. Lithium-ion
technology also has a higher self-discharge rate than NiMH and is more
expensive. Since lithium-ion cells are not tolerant of overcharge or
overdischarge, more sophisticated electronics are required in the battery pack.
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LITHIUM-ION (POLYMER)
Lithium-ion (polymer) batteries are a solid state version of lithium-ion
(non-polymer configuration) rechargeables. Lithium-ion (polymer) batteries were
developed and licensed by Telecordia (Bellcore) and others. These batteries
appeared in the marketplace in commercial quantities for cell phone applications
in 2000. These batteries have form factor, weight, performance and safety
advantages over liquid electrolyte lithium-ion as well as comparable energy
density and self-discharge properties.
In the late 1990's Bellcore demonstrated in the laboratory a "plastic"
lithium-ion polymer technology that exhibited significant performance and form
factor improvements over other battery technologies. A number of companies paid
royalties for the right to use this technology for commercial production. The
challenge for these companies has been to develop and implement a cost-effective
manufacturing process. To date, management believes that only a few companies
have been successful in bringing this technology to the marketplace. Other
companies have introduced non-Bellcore technologies. Bellcore was subsequently
purchased by Science Applications International Corporation (SAIC) and renamed
Telecordia, and in December 2000 Valence Technologies, Inc. acquired all of
Telecordia's lithium-ion polymer battery intellectual property rights.
As of early 2001, the following companies have lithium-ion polymer battery
products in the marketplace, primarily for cell phone applications in the
500-900 mAh range: Sony, Panasonic, Sanyo, Hitachi Maxell, Samsung, Ultralife
Batteries and approximately 2 or 3 other companies in Asia. LTC believes that
these small footprint polymer batteries represent a low margin business,
especially in competition with cheaper liquid lithium-ion batteries. Competing
prismatic (rectangular) liquid lithium-ion batteries are becoming thinner and
are being produced in ever increasing quantities in Japan, Korea, Taiwan and
China.
LTC believes that there are other emerging market opportunities for polymer
batteries, particularly involving large battery applications such as HEVs and
stationary units, that offer significantly higher margins. LTC believes that its
patented composite cell structures, uniform large footprint cells, thin film
manufacturing processes and large battery assembly knowledge provide market
differentiation in the higher margin applications.
RAW MATERIALS
Certain materials used in LTC's products are available only from a limited
number of sources. The industry currently has sufficient capacity to meet LTC's
needs. LTC also believes that Ilion's direct access to sources of lithium raw
materials should provide a continuing supply of necessary raw materials.
However, there can be no assurances that sources and the currently adequate
supply of raw materials will continue.
EQUIPMENT AND FACILITIES
LTC has outfitted a modern research and development facility in Plymouth
Meeting, Pennsylvania, with appropriate equipment and instrumentation. At 12,400
square feet, this modern facility has sufficient space to meet LTC's near-term
needs. In January 2000 LTC received a semiautomatic cell packaging and filling
machine. Together with the coating equipment and lamination equipment previously
installed, this piece of equipment is one of the central elements of LTC's
capital investment program to expand and upgrade its continuous flow
manufacturing capabilities.
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EMPLOYEES
LTC's management team and core technical staff has expertise in technology,
commercialization, process development, battery engineering, electrochemistry,
international marketing, fund-raising and strategic alliance development. As of
December 31, 2000, LTC had a total of 14 full-time and 2 part-time employees.
GOVERNMENT REGULATION, SAFETY, ENVIRONMENTAL COMPLIANCE
As with any battery, LTC's lithium polymer batteries can short when not handled
properly. Due to the size of LTC's prototype HEV batteries, a short can cause
rapid heat buildup when the battery is in a fully or nearly full charged state.
Under extreme circumstances, this could conceivably cause a fire. This is most
likely to occur during the formation and/or testing phase of LTC's process, when
LTC's batteries are charged and discharged at extremely high rates. LTC
incorporates safety procedures in its battery testing lab to minimize safety
risks, although there can be no assurance that an accident in any part of LTC's
facilities where fully charged batteries are handled will not occur. Any such
accident could cause delays in further development and manufacturing of LTC
products, which could adversely affect LTC's operations and financial condition.
LTC's manufacturing process incorporates the use of solvents, some of which are
flammable and/or toxic. LTC's manufacturing process also incorporates pulverized
solids, which can be toxic to employees when allowed to become airborne. LTC has
incorporated safety controls and procedures into its pilot line manufacturing
processes designed to maximize the safety of its employees and neighbors. Prior
to commercializing LTC batteries, these controls and procedures must be upgraded
to maximize the safety of employees and neighbors during full-scale operations.
Any related incident, including fire or personnel exposure to toxic substances,
could result in significant production delays or claims from damages resulting
from injuries, which could adversely affect LTC's operations and financial
condition.
Prior to commercial production of LTC's batteries, LTC will seek to obtain
approval of its products by one or more of the organizations engaged in product
safety, such as Underwriters' Laboratories. Such approvals could require
significant time and resources from LTC's technical staff and, if redesign were
necessary, result in a delay in the commercialization of LTC's products.
Current manufacturers of small lithium ion batteries are not subject to the
requirements of the U.S. Department of Transportation (USDOT) regulations. In
addition, current lithium ion batteries are considered to be non-dangerous by
the International Civil Aviation Organization (ICOA), the International Air
Transport Association (IATA), and the International Maritime Dangerous Goods
(IMDG) regulations. However, due to the size of LTC's prototype HEV batteries
and the lack of regulatory information currently published for lithium polymer
batteries, a permit may be required to transport LTC's lithium polymer batteries
from LTC's manufacturing facility. Although similar batteries with other
chemistries are routinely shipped from manufacturing facilities to all parts of
the world, and although LTC believes that their batteries will be exempted from
transport regulations based upon current transport regulations, no assurance can
be given at this time that LTC will not encounter any difficulties in complying
with changes in USDOT, ICOA, IATA, and IMDG regulations.
All materials used by LTC must be registered in accordance with the U.S. Toxic
Substance Control Act (TSCA) before they can be imported for use in full-scale
manufacturing operations. Although the raw material
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manufacturer is responsible for obtaining TSCA registration for any products
that it ships to the U.S., the time required for suppliers to obtain TSCA
registration could result in a delay in the commercialization of LTC's products.
As with all employers in the U.S., LTC must comply with U.S. Occupational and
Safety Administration (OSHA) regulations designed for the protection of every
U.S. employee while at the workplace. Similarly, as an employer in the State of
Pennsylvania, LTC must comply with U.S. Environmental Protection Agency (USEPA)
and Pennsylvania Department of Environmental Protection Agency (PADEP)
regulations designed to protect the environment from contaminants that can be
discharged from manufacturing facilities. No assurance can be given that LTC
will not encounter any difficulties in complying with OSHA, USEPA, and PADEP
regulations.
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ILION TECHNOLOGY CORPORATION
Ilion (formerly known as Pacific Lithium Limited) was formed in 1994 as a New
Zealand company and in October 2000 domesticated as a Delaware corporation and
changed its name to Ilion Technology Corporation. Ilion started out developing
processes to extract lithium from sea water, which it first converted into
lithium hydroxide and then into lithium carbonate. Although Ilion was successful
in doing so, the extraction from sea water became uneconomic when a new supplier
entered the market and dropped prices to secure market share.
In 1997, Ilion began utilizing its proprietary technology to convert low cost,
waste lithium hydroxide into high grade and premium grade lithium carbonate for
the rapidly growing lithium-ion battery industry. Ilion's experience producing
lithium carbonate and supplying it to cathode manufacturers enabled it to
develop an understanding of the capabilities of lithium-ion based cathode
materials. Working with and utilizing licenses from the Massachusetts Institute
of Technology and the National Research Council of Canada, Ilion developed its
proprietary lithium manganese oxide cathodes. Ilion has also developed expertise
with respect to anodes and electrolytes and their combination to develop
different types of energy storage devices. Additionally, Ilion has developed
manufacturing techniques and capabilities for its cathodes.
In September 1998, Ilion entered into an agreement with Qinghai Institute of
Salt Lakes, which may provide Ilion with access to one of the world's largest
known unexploited lithium reserves, located in China. At present, the joint
venture company, Qinghai Lithium Limited, is engaged in research to develop
methods to efficiently mine the resources.
In August 2000, Ilion entered into an agreement with Eldor Corporation S.p.A.
("Eldor") regarding the proposed establishment, operation and ownership of a new
company in which Ilion would hold a 25% share and Eldor a 75% share. The new
company would manufacture, market and distribute lithium-ion batteries and cells
for cell phones or other portable electronic consumer or business appliances
using the components Ilion would provide to the new company. The new company has
not yet been formed and will only be formed if Ilion and Eldor produce a
lithium-ion battery designed for cell phones or other portable electronic
consumer or business appliances, for testing by an OEM. If a lithium-ion battery
has not been produced by September 30, 2001, either party has the option to
terminate the agreement. Eldor, headquartered in Como, Italy, currently
manufactures integrated electronic subassemblies for the consumer electronics,
telecommunications and automotive industries. Eldor also specializes in the
design, manufacture and operation of automated production systems. Current Eldor
clients include Vestel Group, Koninklijke Philips NV, DaimlerChrysler AG, Nokia
and Toshiba Corporation.
In November 2000, Ilion entered into a joint venture agreement with Powercell
Corporation ("Powercell"). 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. Proteus'
initial product is expected to be a large cell lithium manganese based energy
storage device for use in high pulse power products. Full-scale production of
Proteus' large cell device is planned to commence in the third quarter of 2001,
in its facility in Burlington, Massachusetts. Powercell, headquartered in
Boston, Massachusetts, is a developer and manufacturer of large-scale energy
storage systems for the premium power, power quality and electricity reliability
markets.
Ilion's goal is to become a leading producer of lithium-ion based energy storage
solutions, including components and end-devices, for use across the rapidly
expanding distributed energy services industry. Ilion manufactures high grade
and premium grade lithium carbonate at its manufacturing facility in Auckland,
New Zealand. Ilion has constructed a pilot cathode process for manufacturing
manganese cathode material at its New Zealand facility.
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ITEM 2. DESCRIPTION OF PROPERTY
LTC leases a 12,400 square foot research facility and corporate headquarters in
a free-standing building at 5115 Campus Drive in Plymouth Meeting, Pennsylvania
pursuant to a Lease Agreement between PMP Whitemarsh Associates and LTC dated
July 22, 1994 and amended on March 19, 2001.
The lease had an initial five year term (which expired on October 31, 1999) and
had an additional five year extension option. By letter agreements, LTC and the
landlord extended the initial term of the lease through March 31, 2001. On March
19, 2001, LTC and the landlord entered into an amendment to the lease pursuant
to which the five year extension option was amended to a two year extension
option which LTC exercised. The two year extension commences on April 1, 2001
and ends on March 31, 2003. The annual rent under the lease during the two year
extension is approximately $134,000 and $136,000 in years one and two,
respectively.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of LTC's security holders during the fourth
quarter of the fiscal year ended December 31, 2000.
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PART II
ITEM 5. MARKET FOR LTC'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
LTC's common stock is traded in the over-the-counter market, and "bid" and
"asked" prices in the common stock are quoted on the NASD OTC Electronic
Bulletin Board under the symbol "LITH". The following table sets forth certain
information with respect to the high and low bid prices for LTC's common stock
as of the close of each of the four calendar quarters of 2000 and 1999. Such
quotations reflect inter-dealer prices, without retail mark-ups, mark-downs or
commissions, and may not represent actual transactions.
Bid Prices for Common Stock
---------------------------
High Low
---- ---
2000
First Quarter $2.625 $0.250
Second Quarter $1.310 $0.490
Third Quarter $0.750 $0.380
Fourth Quarter $0.570 $0.175
1999
Fourth Quarter $0.4400 $0.1500
Third Quarter $0.3600 $0.2400
Second Quarter $0.8400 $0.3800
First Quarter $0.8125 $0.2200
As of December 31, 2000, there were approximately 817 holders of record of LTC's
common stock.
DIVIDEND POLICY
LTC has never paid cash dividends on its common stock and does not presently
anticipate paying cash dividends in the foreseeable future. It is anticipated
that earnings, if any, will be retained for use in the business of LTC for an
indefinite period. Payments of dividends in the future, if any, will depend,
among other things, on LTC's ability to generate earnings, its need for capital,
and its financial condition. Additionally, LTC's ability to pay dividends is
limited by applicable state law. Declaration of dividends in the future will
remain within the discretion of LTC's Board of Directors which will review its
dividend policy from time to time.
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ITEM 6. 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 a
unique, solid-state, lithium polymer rechargeable battery. 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 lithium polymer batteries for
Hybrid Electric Vehicle (HEV) applications.
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 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") as soon as practicable depending upon market conditions
and other factors. The Merger will be completed after the consummation of the
Ilion IPO and the approval of the Merger by the LTC stockholders, assuming the
remaining closing conditions are met. A meeting of the LTC stockholders to
approve the Merger will be held as soon as practicable after the Ilion IPO.
The closing conditions to the Merger must be met by February 28, 2002 or either
LTC or Ilion may terminate the Merger Agreement provided that the terminating
party has not prevented the consummation of the Merger by a breach of the Merger
Agreement by such party. Accordingly, both the Ilion IPO and the approval of the
Merger by the LTC Stockholders must be completed by February 28, 2002 and the
remaining closing conditions must be met by such date. There can be no assurance
that Ilion will be able to consummate the Ilion IPO by February 28, 2002. There
can also be no assurance that if the Ilion IPO is completed by February 28, 2002
that the Merger will be approved by the LTC stockholders by such date.
Until the closing of the Merger, LTC and Ilion are working together in
leveraging their combined vertical integration capabilities and
patented/proprietary technologies encompassing: (1) access to lithium reserves;
(2) advanced carbonate and electrode materials; (3) composite cell structures;
(4) unique substrate handling manufacturing processes; (5) large battery
assemblies; and (6) lithium recycling. The two companies are targeting global
market opportunities involving HEV batteries, portable electronics, and
stationary large battery applications. Ilion has also 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. While LTC will focus on automotive battery
applications, LTC will also continue to provide technology support to Ilion in
large footprint cell structures, large battery assemblies and manufacturing
process scale-up for all 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 would range from 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 a low cost provider of high quality and high
performance lithium polymer batteries. Targeted markets for Ilion and its array
of technologies include rapidly emerging markets for large rechargeable lithium
batteries such as HEVs and stationary applications, as well as the more
traditional portable electronics applications.
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For a description of the Merger with Ilion see "Pending Merger with Ilion
Technology Corporation" above in Item 1.
LTC has been unprofitable since inception, expects to incur substantial
operating losses over the next few years and needs significant additional
financing to continue the development and commercialization of its technology.
LTC does not expect to generate any significant revenues from operations during
the fiscal year ending December 31, 2001.
If the Merger with Ilion is not consummated, LTC will assess all available
alternatives including the suspension of operations and possibly liquidation,
auction, bankruptcy, or other measures.
LIQUIDITY, CAPITAL RESOURCES, AND FINANCIAL CONDITION
LTC 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 approximately $3,463,000 from Ilion as of December 31,
2000.
At December 31, 2000, LTC had cash and cash equivalent of $52,000, fixed assets
of $347,000 and other assets of $21,000. LTC's total liabilities were $3,975,000
consisting of accounts payable, accrued salaries, accrued expenses in the amount
of $512,000 and convertible promissory notes held by Ilion in the amount of
$3,463,000. LTC had a working capital deficit of $485,000 on December 31, 2000
as compared to a $553,000 working capital deficit on December 31, 1999.
LTC's cash and cash equivalents increased by approximately $14,000 from December
31, 1999 to December 31, 2000. The working capital and cash increase is
attributable primarily to the bridge financing from Ilion offset by LTC's
engineering, research and development and general and administrative expenses.
LTC's stockholders' deficiency was $3,580,000 at December 31, 2000, after giving
effect to an accumulated deficit of $51,263,000 which consisted of $44,348,000
accumulated deficit during the development stage from July 21, 1989 through
December 31, 2000 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 Agreement between Ilion and LTC, Ilion
has agreed to advance working capital to LTC until the closing of the Merger.
Ilion has advanced a total of $4,076,376 through March 31, 2001. Under the
Bridge Loan Agreement, Ilion has agreed to advance to LTC ongoing funds required
by LTC for ongoing employee, operating and administrative expenses, excluding
capital expenses.
Beginning in October 1999, Ilion has provided working capital for LTC.
Management is depending on the Bridge Loan Agreement funding from Ilion to meet
LTC's obligations through the next year. In 2001, Ilion reduced the amount of
funding it has been providing to LTC on a monthly basis. Ilion advanced $250,000
per month in January and February 2001, $113,876 in March 2001 and $109,000
through April 16, 2001. Ilion has indicated that it has reduced its operating
expenses throughout Ilion and has further indicated that it intends to fund LTC
at $100,000 per month under the Bridge Loan. Funding at $100,000 per month will
not be adequate to cover LTC's current operating expenses.
LTC is currently in discussions with Ilion regarding the funding level proposed
by Ilion and the capital required by LTC to meet LTC's ongoing operating
expenses. If Ilion funds LTC at $100,000 per month, LTC will be forced to
curtail its current operations, substantially reduce the number of LTC
employees, and take other measures to reduce its operating expenditures. As of
April 16, 2001, LTC's outstanding payables were approximately $248,000.
There can be no assurances that Ilion will continue to fund or will have the
ability to fund LTC at $100,000 per month or at any level or advance the funds
needed to pay LTC's outstanding payables.
If Ilion 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 Loan into shares of LTC common
shares at the 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 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 believes that provided Ilion advances the needed working capital to LTC
until the consummation of the Merger, LTC will have sufficient capital resources
to meet its needs and satisfy its obligations through the date of the Merger.
LTC does not currently have sufficient cash to meet all of its operating needs
or to achieve all its development and production objectives. There can be no
assurance that funding will continue to be provided by Ilion in the amounts
necessary to meet all of LTC's obligations.
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If Ilion does not provide the needed working capital to LTC or if the Merger is
not consummated, LTC will assess all available alternatives including the
suspension of operations and possibly liquidation, auction, bankruptcy, or other
measures.
RESULTS OF OPERATIONS
LTC had no revenues from commercial operations for the years ended December 31,
2000 and 1999. Engineering, research and development expenses were $1,515,000
for the year ended December 31, 2000 compared to $1,385,000 in 1999. The
increase of $130,000 was due primarily to increased lab supplies and salaries,
including a $92,000 severance package paid to the former President of LTC.
General and administrative expenses were $1,957,000 for the year ended December
31, 2000 compared to $1,501,000 in 1999. The increase of $456,000 was due to
increased legal, accounting and other expenses associated with the Ilion Merger.
Stock based compensation expenses were $25,000 for the year ended December 31,
2000 compared to $1,769,000 in 1999. The $25,000 of expenses for 2000 was caused
by a reduction of the exercise price of stock options under the Directors Plan.
For 1999, $1,167,000 of the expense was related to a private placement offering
of common stock of LTC issued at a price below fair market value on the date of
grant and $602,000 was related to the decrease in price of all outstanding
warrants to $0.15 per share.
Interest expense decreased to $6,000 (net of interest income of $15,000) for
the year ended December 31, 2000 compared to $7,000 (net of interest income of
$21,000) in 1999.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for all financial years
beginning after June 15, 2000. SFAS 133, as amended by SFAS No. 137 and SFAS No.
138, establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. LTC adopted
SFAS No. 133 effective January 1, 2000. The adoption of SFAS No. 133 did not
have a significant impact on the financial position or results of operations of
LTC because LTC does not have significant derivative activity.
In March 2000, the FASB issued Financial Accounting Series Interpretation No. 44
entitled "Accounting for Certain Transactions involving Stock Compensation,"
which provides clarification to Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The adoption of this Interpretation
had no effect on LTC's financial position or results of operations for the
current year, but does require that LTC's option plans be accounted for under
variable plan accounting.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of LTC beginning on page F-1 are filed as part of this
Annual Report on Form 10-KSB and are incorporated herein by reference.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth information concerning the directors and
executive officers of LTC as of the date of this report:
NAME AGE POSITION
---- --- --------
David J. Cade 63 Chairman of the Board and Chief Executive Officer
Stephen F. Hope 58 Director
Barry Huret 63 Director
Ralph D. Ketchum 74 Director
Arif Maskatia 51 Director
John D. McKey, Jr. 57 Director
David J. Cade was elected Chairman and Chief Executive Officer of LTC on
November 1, 1999. Mr. Cade previously served as President and Chief Operating
Officer of LTC from May 1996 to November 1999. Mr. Cade served as LTC's Vice
President of Marketing from August 1994 to May 1996 and was elected an officer
in October 1994. Mr. Cade was elected a director of LTC in August 1997. Mr. Cade
has over thirty years of experience in senior business development, marketing,
sales and international strategic alliances in global telecommunications
systems, electronics and information technologies. From February 1988 to October
1992, Mr. Cade was Senior Vice President of Marketing and Business Development
for COMSAT Systems Division in Washington, D.C. and from October 1992 until
April 1994, Mr. Cade was Vice President of Sales and Marketing at Interdigital
Communications Corporation, a Philadelphia company that manufacturers wireless
telephone systems for customers worldwide. Previously, Mr. Cade held managerial
positions in Washington D.C. with Martin Marietta (now Lockheed Martin), AT&T
and the Department of Defense. Mr. Cade holds an MBA from Syracuse University
and an undergraduate degree from the University of Illinois.
Stephen F. Hope currently serves as a director of LTC and was President,
Chairman of the Board and Treasurer of LTC from October 1990 through April 1994.
He is a director of Lithion Corporation, a wholly-owned subsidiary of LTC. Mr.
Hope has an ongoing consulting arrangement with LTC with respect to the battery
technology that is being developed by LTC. He received a B.A. from Dartmouth
University in 1965 and is a member of the Society of Manufacturing Engineers and
the Society of Photo-Finished Engineers. Mr. Hope was Director and the President
of Hope Industries, Inc., a previously wholly-owned subsidiary of LTC, from 1985
through December 1993.
Barry Huret was elected a Director of LTC on December 21, 1998. Mr. Huret is the
President and CEO of Huret Associates, Inc., Yardley, PA, a management and
battery consulting company. Previously, from 1982-1997, he served as the
Assistant General Manager, Division Head - OEM Battery Sales Group for the
Panasonic
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Industrial Company, Secaucus, New Jersey. He holds an MBA with Distinction from
the New York University, Graduate School of Business and a B.A. with Honors in
Economics from Cornell University, Ithaca, New York.
Ralph D. Ketchum was elected a director of LTC, effective July 1, 1994. He has
been President of RDK Capital, Inc. ("RDK Capital") since January 1987. RDK
Capital is a general partner of RDK Capital Limited Partnership, an investment
limited partnership. Mr. Ketchum served as Chief Executive Officer and Chairman
of the Board of Heintz Corporation ("Heintz"), a majority owned subsidiary of
RDK Capital Limited Partnership. Mr. Ketchum was Senior Vice President and Group
Executive of the Lighting Group, General Electric Company from 1980 to 1987. He
also serves as a director of Metropolitan Savings Bank, Oglebay-Norton
Corporation, Thomas Industries and Pacific Scientific, Inc.
Arif Maskatia was elected a director of LTC, effective February 23, 1999. Mr.
Maskatia has over 27 years of experience in the computer industry. He presently
is Vice President of the Advanced Technology & Portable Development Group for
Acer Advanced Labs in San Jose, California, responsible for development of new
notebook computer platforms. Prior to joining Acer, he held senior technology
development positions with Zenith Data Systems and Alcatel/ITT Information
Systems. Mr. Maskatia holds Bachelors and Masters degrees in electrical
engineering from Cornell University.
John D. McKey, Jr. was elected a director of LTC, effective September 8, 1995.
He has, since September 1993, been a partner at the law firm of McCarthy,
Summers, Bobko & McKey, P.A., and, from June 1986 to September 1993, was a
partner at Kohn, Bobko, McKey & Higgins, P.A. Mr. McKey formerly served as a
director of Publishing Company of North America and currently serves as a
director of Consolidated Capital of North America, Inc.
William D. Walker, formerly the Treasurer and Chief Financial Officer of LTC,
resigned from such position effective August 19, 1999. Mr. Walker continues to
provide services to LTC as a part-time consultant.
LTC's directors hold office until the next annual meeting of LTC's stockholders
and until their successors have been duly elected and qualified. LTC's directors
do not receive compensation for their services in that capacity.
On May 31, 2000, Dr. George R. Ferment, President & Chief Operating Officer and
director, resigned to pursue other interests. As a result of the
refocus/realignment of the business based on the strategic relationship and
planned merger with Ilion, two other executives left LTC: Mr. Joseph Calio, Vice
President of Sales and Marketing, on November 1, 2000; and Mr. Joseph Kejha,
Chief Scientist, on February 21, 2001. On June 12, 2000, Mr. John McFeeley,
director, resigned from the LTC Board due to new responsibilities and time
constraints imposed by another undertaking. Dr. A.J. Manning, Vice President of
Manufacturing, was promoted to the position of Executive Vice President of
Operations on January 15, 2001, reflecting his increased responsibilities with
the company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires LTC's officers and
directors, and persons who beneficially own, directly or indirectly, more than
ten percent (10%) of the registered class of LTC's equity securities to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers. Officers, directors and greater than ten percent (10%)
beneficial owners are required by SEC regulation to furnish LTC with copies of
all Forms 3, 4 and 5 they file.
All Forms 3, 4 and 5 that were required to be filed during 2000 pursuant to the
provisions of Section 16(a) of the Exchange Act have been filed. However, some
of the Forms 3, 4 and/or 5 that were required to be filed by the following were
not filed on a timely basis. David J. Cade (1), Ralph Ketchum (1), John D.
McKey, Jr. (2), George Ferment (2). (The number in parenthesis after each name
represents the number of required forms that were not filed on a timely basis.)
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ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid by
LTC during the three years ended on December 31, 2000 to (i) the Chief Executive
Officer of LTC and (ii) all other executive officers of LTC, or any of its
subsidiaries, who were serving in such capacity on December 31, 2000 and
received total salary and bonus in excess of $100,000 during fiscal year 2000
(collectively, "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Awards Securities All
Name and Principal Compensation Underlying Other
Position Year Salary Options/Sars (#) Compensation
-------- ---- ------ ---------------- ------------
David J. Cade, Chairman of 2000 $165,000 0 0
the Board and Chief 1999 $156,667 165,000 (2) 0
Executive Officer (1) 1998 $148,750 528,029 (3) 0
George R. Ferment, 2000 $ 77,500(4) 0 $77,500(4)
President, Chief Operating 1999 $146,667 165,000 (5) 0
Officer and Chief 1998 $138,750 528,029 (6) 0
Technical Officer (4)
(1) Mr. Cade was appointed Chief Executive Officer of LTC on November 1, 1999.
(2) Mr. Cade was granted 165,000 stock options on September 27, 1999 at an
exercise price of $0.26 per share.
(3) Mr. Cade was granted 528,029 stock options on December 18, 1998 at an
exercise price of $0.28 per share.
(4) Dr. Ferment resigned from LTC and the Board of Directors effective May 31,
2000. Pursuant to an Agreement entered into between LTC and Dr. Ferment,
LTC paid Dr. Ferment his salary until June 30, 2000 and $77,500 on June
30, 2000. In addition, LTC agreed to cause the 92,520 Ilion stock options
to be allocated to Dr. Ferment under the Merger Agreement to be issued to
Dr. Ferment on the later of the Ilion IPO or the Merger.
(5) Dr. Ferment was granted 165,000 stock options on September 27, 1999 at an
exercise price of $0.26 per share.
(6) Dr. Ferment was granted 528,029 stock options on December 18, 1998 at an
exercise price of $0.28 per share.
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OPTIONS EXERCISED AND OPTIONS OUTSTANDING
The following table sets forth information with respect to (i) options exercised
by each of the Named Executive Officers in fiscal year 2000 and (ii) the number
and value of in-the-money unexercised options held by each of the Named
Executive Officers at the end of fiscal year 2000. The value of in-the-money
unexercised options held at December 31, 2000 is based on the closing "bid"
price of $0.23 per share of Common Stock on December 31, 2000. All of the
options held by Named Executive Officers had exercise prices in excess of $.23
as of December 29, 2000, accordingly there were no in-the-money unexercised
options as of that date.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2000 AND
DECEMBER 31, 2000 OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised in the Money
Options/Sars Options/Sars
at Fy-end (#) at Fy-end (#)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
David J. Cade 654,529 576,269 701,482/ 0 $0/0
George R. Ferment 582,629 436,298 468,538/ 0 $0/0
In February 2000, the Board approved the acceleration of the vesting of all
outstanding stock options, on the condition that the optionee consents to a new
termination date of the earlier of (i) the original option termination date and
(ii) the date preceding the Merger between LTC and Ilion. This action was taken
in connection with the Merger Agreement between LTC and Ilion which contains a
covenant that LTC will use its best efforts to cause all outstanding LTC options
to be exercised by the holders thereof prior to the Merger.
In June 2000, the Board of Directors approved the reduction of the exercise
price of each outstanding option having an exercise price in excess of $.28 to
$.28. This action was taken in connection with the Merger Agreement between LTC
and Ilion which contains a covenant that LTC will use its best efforts to cause
all outstanding LTC options to be exercised by the holders thereof prior to the
Merger. In connection with the 2000 repricing of the stock options under the
1994 Stock Plan, the Board concluded repricing was advisable and in the best
interests of LTC in order to, among other things, provide incentive to
management and employees and in order to provide LTC with necessary working
capital. No change other than the change in exercise price was approved at that
time.
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COMPENSATION OF DIRECTORS
Directors receive no cash compensation for serving on LTC's Board of Directors.
Each Non-Employee Director receives an option to purchase 13,334 shares of
Common Stock under LTC's Directors Stock Option Plan ( the "Directors Plan")
upon election to the Board.
Under the Directors Plan, non-qualified stock options to purchase shares of
LTC's Common Stock are granted automatically to Non-Employee Directors at the
times specified in the Directors Plan. Each Non-Employee Director receives an
initial option to purchase 13,334 shares of the Common Stock on the date on
which such director first becomes eligible to participate in the Directors Plan.
Thereafter, as long as a Non-Employee Director remains eligible to participate
in the Directors Plan, such director will receive on the date LTC consummates a
joint venture agreement with an investment in LTC of at least $3,000,000,
options to acquire up to an additional 20,000 shares.
EMPLOYMENT AGREEMENTS AND CERTAIN EMPLOYEE MATTERS
On July 24, 1996, LTC entered into a one-year employment agreement with David J.
Cade pursuant to which Mr. Cade was employed as LTC's President and Chief
Operating Officer at an annual salary of $140,000. In May 1997, this agreement
was extended for one year on the same terms and conditions except that no new
options were granted. In June 1998, LTC extended this employment agreement for
two years on the same terms and conditions except that no new options were
granted, and Mr. Cade's salary was increased to $155,000 per year. Effective
November 1, 1999, the Board of Directors elected Mr. Cade LTC's Chairman and
Chief Executive Officer and Mr. Cade's salary was increased to $165,000 per
year. In January 2000, the Board of Directors approved an extension of the
employment agreement between LTC and Mr. Cade until the later of February 28,
2002 and one year after the closing date of the Merger.
Mr. Cade is eligible to receive a target bonus of up to 20% of his annual salary
in the event certain specified milestones are achieved. Mr. Cade's employment
agreement also provides for the issuance of a ten (10) year incentive option to
purchase 133,333 shares of LTC's common stock at an exercise price of $1.33 per
share. In June 1997, the Board of Directors approved the exchange of options
held by each employee (including executive officers) under LTC's Stock Plan for
new options with an exercise price of $0.58 per share. The new options became
exercisable on November 1, 1997. In addition, Mr. Cade was granted 316,001 stock
options on December 2, 1997 at an exercise price of $1.00, 528,029 options on
December 18, 1998 at an exercise price of $.28 and 165,000 options on September
28, 1999 at an exercise price of $.26. On September 27, 1999, the Board approved
the reduction of the exercise price of all 1994 options to $.26, which included
671,982 options held by Mr. Cade.
Mr. Cade's employment agreement provides for certain severance payment benefits
in the event of a change in control (as defined in the employment extension
agreement) combined with his employment termination resulting from his
resignation or LTC's termination of his employment without cause. In connection
with the execution of the Merger Agreement between LTC and Ilion, Mr. Cade
entered into an agreement with Ilion and LTC agreeing to a modification of the
change-in-control and severance provisions of his employment agreement and
agreeing to a termination of the employment agreement with LTC effective at the
time of the Merger closing.
Dr. George Ferment, the President, Chief Operating Officer and Chief Technology
Officer and a director of
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LTC, resigned from LTC effective May 31, 2000. Pursuant to an Agreement entered
into between LTC and Dr. Ferment, LTC paid Dr. Ferment his salary until June 30,
2001 and $77,500 on June 30, 2000. In addition, LTC agreed to cause the 92,520
Ilion stock options to be allocated to Dr. Ferment under the Merger Agreement to
be issued to Dr. Ferment on the later of the Ilion IPO or the Merger.
In 2000, 1999 and 1998, LTC paid $38,937, $53,218 and $73,781, respectively
to William D. Walker for services rendered to LTC. Mr. Walker served as
Treasurer and Chief Financial Officer of LTC until August 1999 and continues to
provide services as a consultant. Mr. Walker did not receive a salary from LTC.
On October 28, 1999, the Board also approved the acceleration of the vesting of
the options owned by Mr. Walker in consideration of consulting services to be
provided to LTC.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 2000 with respect
to the equity securities of LTC known by LTC to be beneficially owned by each
beneficial owner of more than five percent of LTC's Common Stock, by each
current director and Named Executive Officer (as defined in applicable SEC
regulations), and by all current directors and executive officers as a group.
Number of Shares
Name and Address of Beneficial Owner(1) Beneficially Owned(2) Percent of Class(2)
--------------------------------------- --------------------- -------------------
David J. Cade 701,482 (3) 1.35%
Stephen F. Hope 1,289,607 (4) 2.45%
Ralph D. Ketchum 672,438 (5) 1.29%
John D. McKey, Jr. 127,535 (6) *
Barry Huret 13,334 (3) *
Arif Maskatia 13,334 (3) *
All Directors and Officers as a Group (6 persons) 2,817,730 (7) 5.21%
* Less than 1%.
(1) The address of each beneficial owner is c/o Lithium Technology
Corporation, 5115 Campus Drive, Plymouth Meeting, PA 19462.
(2) Includes shares of Common Stock underlying outstanding warrants, options
and convertible securities which are exercisable by the beneficial owner
with respect to whom the calculation is made, that may be acquired within
60 days after December 31, 2000 upon the exercise or conversion of
warrants, options or convertible securities.
(3) Consists of options to acquire shares of Common Stock.
(4) Includes options to acquire 35,000 shares of common stock. Includes 90,328
shares of Common Stock held by Hazel Hope, the Executrix of the Estate of
Henry Hope.
(5) Includes options to acquire 38,334 shares of Common Stock and 249,829
shares held by Mr. Ketchum's spouse.
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(6) Includes options to acquire 58,334 shares of Common Stock.
(7) Includes options to acquire 868,818 shares of common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 22, 1997, LTC entered into a Senior Secured Convertible Note
Purchase Agreement (the "1997 Note Purchase Agreement") with Lithium Link LLC
("Lithium Link") for the sale of $5.5 million of LTC's Senior Secured
Convertible Notes (the "1997 Notes"). The 1997 Notes were convertible into LTC's
Common Stock at a conversion price of $.28 per share. In January 1999, the Notes
were converted into 19,642,857 shares of LTC's Common Stock and 562,647 shares
of LTC's Common Stock were issued to pay accrued interest to the conversion date
(together the "Interlink Shares"). In February 1999, Lithium Link authorized the
distribution of the Interlink Shares to its members. Mr. Ketchum, a director of
LTC and his wife were members of Lithium Link and received a total of 383,660
shares of Company Common Stock from Lithium Link in the distribution.
LTC believes that the transactions described above were fair to LTC and were as
favorable to LTC as those which it might have obtained from non-affiliated third
parties, given the circumstances under which such transactions were proposed and
effectuated.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following Exhibits are filed as part of this Report or
incorporated herein by reference:
2.1 Agreement and Plan of Merger dated January 19, 2000 between Ilion
Technology Corporation ("Ilion"), formerly known as Pacific
Lithium Limited and LTC (Schedules omitted).(1)
2.2 Amendment Agreement No. 1 dated March 31, 2000 between Ilion and
LTC.(2)
2.3 Amendment Agreement No. 2 dated May 5, 2000 between Ilion and
LTC.(3)
2.4 Amendment Agreement No. 3 dated June 6, 2000 between LTC and
Ilion.(4)
2.6 Certificate of Amendment to Certificate of Incorporation
effective June 19, 2000.(5)
2.7 Amendment No. 4 to Agreement and Plan of Merger dated February 2,
2001 between LTC and Ilion.(6)
3.1 Certificate of Incorporation.(7)
3.2 By-Laws, as amended.(7)
3.5 Certificate of Designation of Series A Preferred Stock of LTC.(3)
4.1 Specimen Common Stock Certificate.(7)
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10.1 1994 Stock Incentive Plan, as amended.(8)
10.2 Directors Stock Option Plan.(8)
10.3 Employment Agreement, dated July 24, 1996, between David Cade and
LTC.(9)
10.4 Employment Agreement, dated July 24, 1996, between George Ferment
and LTC.(9)
10.5 Technology Development Agreement, dated March 29, 1996, between
Mitsubishi Materials Corporation, Mitsui & Co., Ltd. and LTC.(10)
10.6 Stock Purchase Agreement, dated March 29, 1996, between
Mitsubishi Materials Corporation, Mitsui & Co., Ltd. and LTC.(10)
(without exhibits)
10.7 Form of Stock Option Agreement relating to LTC's 1994 Stock
Incentive Plan, as amended.(10)
10.8 Form of Stock Option Agreement relating to LTC's Directors Stock
Option Plan.(10)
10.10 Lease Agreement, dated July 22, 1994, between PMP Whitemarsh
Associates and LTC and Addendum dated July 22, 1994. (10)
10.11 Warrant to Purchase Common Stock issued to Robert Pfeffer dated
June 20, 1996. (10)
10.12 Warrant to Purchase Common Stock issued to Group III Capital,
Inc. dated May 9, 1996.(11)
10.13 Warrant to Purchase Common Stock issued to Nanele Services, Inc.,
dated May 9, 1996.(11)
10.14 Stock Option Agreement, dated July 24, 1996, between David Cade
and LTC.(9)
10.15 Stock Option Agreement, dated July 24, 1996, between George
Ferment and LTC.(9)
10.16 Form of Restricted Stock Agreement relating to LTC's 1994 Stock
Incentive Plan.(11)
10.17 Form of Warrant Agreement dated October 23, 1996 between LTC and
the Placement Agent.(12)
10.18 Form of Registration Rights Agreement dated October 23, 1996
between LTC and the Placement Agent.(12)
10.19 Letter Agreement dated February 5, 1997 between LTC and Chase
Manhattan Bank.(12)
10.20 Form of Common Stock Warrant dated September 22, 1997 issued by
LTC in favor of Interlink Management Corporation.(13)
10.21 Employment Agreement Extension, dated June 1, 1998, between David
Cade and LTC.(14)
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10.22 Employment Agreement Extension, dated June 1, 1998, between
George Ferment and LTC.(14)
10.23 1998 Stock Incentive Plan.(14)
10.24 Form of Stock Option Agreements relating to LTC's 1998 Stock
Incentive Plan.(14)
10.25 Form of Stock Purchase Agreement relating to the sale of
4,500,000 shares of Company common stock. (2)
10.26 Bridge Loan Financing Agreement dated as of November 29, 1999
between LTC and Ilion.(1)
10.27 Convertible Secured Promissory Note dated as of November 29, 1999
issued by LTC to Ilion in the principal amount of $125,000.(1)
10.28 Convertible Promissory Note dated January 19, 2000 issued by LTC
to Ilion in the amount of $975,000.(1)
10.29 Form of Operating Convertible Promissory Note.(1)
10.30 Security Agreement dated as of November 29, 1999 between LTC and
Ilion.(1)
10.31 Warrant to purchase 7,500,000 shares of LTC Common Stock dated as
of January 19, 2000.(1)
10.32 License and Option Agreement effective as of October 1, 1999
between LTC and Ilion.(1)
10.33 Form of Security Agreement and Assignment of Lease between LTC
and Ilion.(1)
10.34 Agreement between David Cade, Ilion and LTC dated January 19,
2000.(1)
10.35 Employment Agreement Extension dated January 4, 2000 between LTC
and David Cade.(1)
10.36 Lease Extension, dated February 3, 2000 between PMP Whitemarsh
Associates and LTC (1).
10.37 Agreement dated May 5, 2000 between LTC and Thomas Thomsen (3)
10.38 Agreement dated May 5, 2000 between LTC and George Ferment (3)
10.39 Form of Warrant Amendment Agreement. (5)
10.40 First Amendment to Lease, dated March 19, 2001 between PMP
Whitemarsh Associates and LTC.+
21.1 List of Subsidiaries.(11)
23.1 Consent of Deloitte & Touche, LLP.+
23.2 Consent of Wiss & Company, LLP+
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(1) Incorporated herein by reference to LTC's Report on Form 8-K,
dated January 19, 2000.
(2) Incorporated herein by reference to LTC's Annual Report on Form
10-K for the fiscal year ended December 31, 1999.
(3) Incorporated herein by reference to LTC's Form S-4 filed on May
12, 2000.
(4) Incorporated herein by reference to LTC's Report on Form 8-K,
dated June 6, 2000.
(5) Incorporated herein by reference to LTC's Quarterly Report on
Form 10- QSB for the quarter ended September 30, 2000.
(6) Incorporated herein by reference to LTC's Report on Form 8-K,
dated February 14, 2001.
(7) Incorporated herein by reference to LTC's Annual Report on Form
10-K for the fiscal year ended October 31, 1989.
(8) Incorporated herein by reference to the exhibits contained in
LTC's Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934, dated January 19, 1996.
(9) Incorporated herein by reference to LTC's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1996.
(10) Incorporated herein by reference to LTC's Form 10-KSB for the
fiscal year ended December 31, 1995.
(11) Incorporated herein by reference to LTC's Registration Statement
on Form SB-2, File No. 333-08143, which was filed with the
Securities and Exchange Commission on July 15, 1996.
(12) Incorporated herein by reference to LTC's Report on Form 8-K,
dated October 25, 1996.
(13) Incorporated herein by reference to LTC's Report on Form 8-K,
dated September 22, 1997.
(14) Incorporated herein by reference to LTC's Annual Report on Form
10-KSB, for the year ended December 31, 1998.
(15) Incorporated herein by reference to LTC's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 2000.
+ Exhibit filed herewith in this Report.
33
34
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
DECEMBER 31, 2000
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Reports............................................ F-2
Consolidated Balance Sheet at December 31, 2000.......................... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 2000 and 1999 and the Period from July 21, 1989
(Date of Inception) to December 31, 2000................................. F-5
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) for the Period from July 21, 1989 (Date of Inception)
to December 31, 2000..................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000 and 1999 and the period from July 21, 1989
(Date of Inception) to December 31, 2000................................. F-15
Notes to Consolidated Financial Statements............................... F-18
F-1
35
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Lithium Technology Corporation
and Subsidiary (Development Stage Companies)
We have audited the accompanying consolidated balance sheet of Lithium
Technology Corporation and subsidiary (development stage companies) as of
December 31, 2000, and the related consolidated statements of operations,
changes in stockholders' deficiency and cash flows for each of the two years in
the period ended December 31, 2000, and for the period from July 21, 1989 (date
of inception) to December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The Company's
financial statements for the period July 21, 1989 (date of inception) through
December 31, 1996, were audited by other auditors whose report, dated January
22, 1997, expressed an unqualified opinion on those statements and included
explanatory paragraphs that described the uncertainty concerning the Company's
ability to continue as a going concern. The financial statements for the period
July 21, 1989 (date of inception) through December 31, 1996 reflect a cumulative
net loss of $18,877,000, of the total net loss of $44,398,000 for the period
July 21, 1989 (date of inception) through December 31, 2000. The other auditors'
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for such prior periods, is based solely on the report of such
other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, such
consolidated financial statements present fairly in all material respects, the
financial position of Lithium Technology Corporation and subsidiary (development
stage companies) as of December 31, 2000, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
2000, and for the period from July 21, 1989 (date of inception) through December
31, 2000, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in developing and marketing lithium-polymer rechargeable
batteries. As discussed in Note 3 to the financial statements, the Company's
operating losses since inception and lack of adequate financing to fund its
operations raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
3. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
/s/ DELOITTE & TOUCHE, LLP
Philadelphia, PA
April 11, 2001
F-2
36
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Lithium Technology Corporation
and Subsidiary (Development Stage Companies)
We have audited the consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows of Lithium Technology Corporation
and subsidiary (Development Stage Companies) for the period July 21, 1989 (date
of inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Lithium
Technology Corporation and subsidiary (Development Stage Companies) for the
period July 21, 1989 (date of inception) to December 31, 1996, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 3 of the
financial statements, the Company is a development stage company, has suffered
recurring losses from operations and needs significant additional financing to
repay existing indebtedness and to continue the development of its technology.
These factors raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ WISS & COMPANY, LLP
Woodbridge, New Jersey
January 22, 1997
F-3
37
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2000
CURRENT ASSETS:
Cash and cash equivalent $ 52,000
------------
Total Current Assets 52,000
------------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $1,159,000 347,000
Security and equipment deposits 21,000
------------
Total assets $ 420,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 248,000
Accrued salaries 201,000
Note payable 88,000
------------
Total current liabilities 537,000
------------
LONG-TERM LIABILITIES
Convertible Promissory Notes 3,463,000
------------
Total liabilities 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 shares 513,000
Additional paid-in capital 47,170,000
Accumulated deficit (6,865,000)
Deficit accumulated during development stage (44,398,000)
------------
Total stockholders' equity (deficiency) (3,580,000)
------------
Total liabilities and stockholders'
equity (deficiency) $ 420,000
============
See accompanying notes to consolidated financial statements.
F-4
38
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
AND PERIOD FROM JULY 21, 1989 (DATE OF INCEPTION)
TO DECEMBER 31, 2000
Year Ended
December 31, Period From
------------ July 21, 1989
(Date of Inception) to
2000 1999 December 31, 2000
---- ---- -----------------
REVENUES:
Development contracts 69,000 168,000
------------ ------------ ------------
COSTS AND EXPENSES:
Engineering, research and development 1,515,000 1,385,000 9,911,000
General and administrative 1,957,000 1,501,000 13,841,000
Stock based compensation expense,
primarily general and administrative 25,000 1,769,000 1,794,000
------------ ------------ ------------
3,497,000 4,655,000 25,546,000
OTHER INCOME (EXPENSES):
Interest expense, net of interest income (6,000) (7,000) (1,829,000)
Interest expense related to beneficial
conversion feature -- -- (17,841,000)
Other non-operating income -- -- 650,000
------------ ------------ ------------
(6,000) (7,000) (19,020,000)
------------ ------------ ------------
NET LOSS ($ 3,503,000) ($ 4,593,000) ($44,398,000)
============ ============ =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING: 50,541,000 44,354,000
BASIC AND DILUTED NET LOSS PER SHARE: $ (.07) $ (.10)
============ ============
See accompanying notes to consolidated financial statements.
F-5
39
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
PERIOD FROM JULY 21, 1989 (DATE OF INCEPTION)
TO DECEMBER 31, 2000
Series A Series B Series C
Preferred Stock Convertible Preferred Convertible Preferred
Stock Stock
----------------- ----- -----
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
BALANCES AT JULY 21, 1989 PERIOD ENDED
OCTOBER 31, 1989:
Net assets received in reverse
acquisition -- --
Change in par value -- --
Exchange for debt owed to officer 23,000 2,300,000 -- -- -- --
Shares sold to financial consultant
in conjunction with financing -- -- -- -- -- --
Expenses paid by principal shareholder
on behalf of Lithium Corporation -- -- -- -- -- --
Net income (loss) for the year
---------- ---------- ---------- ---------- ---------- ----------
BALANCES AT OCTOBER 31, 1989 23,000 2,300,00 -- -- -- --
YEAR ENDED OCTOBER 31, 1990
Issuance of Class B common stock for
cash to Investors -- -- -- -- -- --
Exercise of Class B common stock
warrants, net of offering costs -- -- -- -- -- --
NET INCOME (LOSS) FOR THE YEAR
---------- ---------- ---------- ---------- ---------- ----------
BALANCES AT OCTOBER 31, 1990 23,000 $2,300,000 -- -- -- --
YEAR ENDED OCTOBER 31, 1991:
Conversion of debt due stockholder 10,000 1,000,000 -- -- -- --
Exercise of Class B common stock
warrants, net of offering costs
of $520,000 -- -- -- -- -- --
Fair value of warrants issued in
connection with financial
consulting services -- -- -- -- -- --
Net loss -- -- -- -- -- --
BALANCES AT OCTOBER 31, 1991 33,000 3,300,000 -- -- -- --
YEAR ENDED OCTOBER 31, 1992:
Issuance of common stock to certain
employees for services rendered -- -- -- -- -- --
Net loss -- -- -- -- -- --
BALANCES AT OCTOBER 31, 1992 33,000 3,300,000 -- -- -- --
YEAR ENDED OCTOBER 31, 1993:
Net loss -- -- -- -- -- --
BALANCES AT OCTOBER 31, 1993 33,000 $3,300,000 -- -- -- --
See accompanying notes to consolidated financial statements.
F-6
40
Deficit
Accumulated
Class A Class B Additional During
Common Stock Common Stock Common Stock Paid-in Accumulated Development
Shares Amount Shares Amount Shares Amount Capital Deficit Stage
------ ------ ------ ------ ------ ------ ------- ------- -----
BALANCES AT JULY 21, 1989 2,333,000 1,000 -- -- -- (6,465,000) --
PERIOD YEAR ENDED OCTOBER 31, 1989:
Net assets received in reverses
acquisition (Note 1) -- -- 210,000 1,000 36,000 --
Change in par value
Exchange for debt owed to officer -- 6,000 -- (6,000)
Shares sold to financial consultant
in conjunction with financing -- -- 697,000 1,000 7,000 --
Expenses paid by principal
shareholder on behalf of
Lithium Corporation -- -- -- -- 79,000 --
Net income (loss) for the year -- -- -- -- -- 844,000 (502,000)
---------- ------ --------- ------ -------- ----------- ----------
BALANCES AT OCTOBER 31, 1989 2,333,000 7,000 907,000 2,000 116,000 (5,621,000) (502,000)
YEAR ENDED OCTOBER 31, 1990
Issuance of Class B common stock
for cash to Investors -- -- 57,000 -- 50,000 -- --
Exercise of Class B common stock
warrants, net of offering costs -- -- 15,000 -- -- -- --
NET INCOME (LOSS) FOR THE YEAR -- -- -- -- -- 569,000 (498,000)
---------- ------ --------- ------ -------- ----------- ----------
BALANCE AT OCTOBER 31, 1990 2,333,000 $7,000 979,000 $2,000 $166,000 $(5,052,000) (1,000,000)
YEAR ENDED OCTOBER 31, 1991:
Conversion of debt due stockholder -- -- -- -- -- -- --
Exercise of Class B common stock
warrants, net of offering costs
of $520,000 -- -- 145,000 -- 121,000 -- --
Fair value of warrants issued in
connection with financial
consulting services -- -- -- -- 30,000 -- --
Net loss -- -- -- -- -- (84,000) (560,000)
---------- ------ --------- ------ -------- ----------- ----------
BALANCES AT OCTOBER 31, 1991 2,333,000 7,000 1,124,000 2,000 317,000 (5,136,000) (1,560,000)
See accompanying notes to consolidated financial statements.
F-7
41
Deficit
Accumulated
Class A Class B Additional During
Common Stock Common Stock Common Stock Paid-in Accumulated Development
Shares Amount Shares Amount Shares Amount Capital Deficit Stage
------ ------ ------ ------ ------ ------ ------- ------- -----
YEAR ENDED OCTOBER 31, 1992:
Issuance of common stock to
certain employees for services
rendered -- -- 96,000 -- 106,000
Net loss -- -- -- -- -- (23,000) (175,000)
---------- ------ --------- ------ --------
BALANCES AT OCTOBER 31, 1992 2,333,000 7,000 1,220,000 2,000 423,000 (5,159,000) (1,735,000)
YEAR ENDED OCTOBER 31, 1993:
Net loss -- -- -- -- -- (1,706,000) (66,000)
---------- ------ --------- ------ -------- ----------- ----------
BALANCES AT OCTOBER 31, 1993 2,333,000 $7,000 1,220,000 $2,000 $423,000 $(6,865,000) (1,801,000)
========== ====== ========= ====== ======== =========== ==========
Series A Series B Series C
Preferred Stock Convertible Preferred Stock Convertible Preferred Stock
--------------- --------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
BALANCES AT OCTOBER 31, 1993 33,000 3,300,000 -- -- -- --
TWO MONTHS ENDED
DECEMBER 31, 1993:
Contribution to capital of Industries
accumulated losses in excess of
Company's investment -- -- -- -- -- --
Conversion of preferred stock to
common stock (33,000) (3,300,000) -- -- -- --
Fair value of option issued in exchange
for certain legal services -- -- -- -- -- --
Net loss -- -- -- -- -- --
------- ---------- ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1993 -- -- -- -- -- --
YEAR ENDED DECEMBER 31, 1994:
Change in par value of Class B
common stock to $.0001 -- -- -- -- -- --
Issuance of common stock:
For services relating to warrants
exercised in 1995 -- -- -- -- -- --
Upon cancellation of indebtedness -- -- -- -- -- --
In exchange for advances repayable
only out of proceeds of public
offering -- -- -- -- -- --
Upon exercise of option -- -- -- -- -- --
For cash, less related costs of
$152,000 -- -- -- -- -- --
See accompanying notes to consolidated financial statements.
F-8
42
Series A Series B Series C
Preferred Stock Convertible Preferred Stock Convertible Preferred Stock
--------------- --------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Upon conversion of $162,000 of 7%
convertible promissory notes and
accrued interest thereon -- -- -- -- -- --
Upon exercise of option to acquire
laboratory equipment and
forgiveness of related accrued
rent -- -- -- -- -- --
Upon conversion of preferred stock -- -- (815) -- -- --
Issuance of convertible preferred stock
in exchange for convertible
promissory notes -- -- 14,151 -- -- --
For cash -- -- -- -- 10,000 --
Issuance of 7% convertible promissory
notes -- -- -- -- -- --
Net loss -- -- -- -- -- --
------- ---------- ------ ------ ------ ------
BALANCES AT DECEMBER 31, 1994 -- -- 13,336 -- 10,000 --
------- ---------- ------ ------ ------ ------
YEARS ENDED DECEMBER 31, 1995
YEAR ENDED DECEMBER 31, 1995
Issuance of common stock
Upon conversion of convertible
preferred stock (6,394) -- -- --
Upon conversion of 7% convertible
promissory notes and accrued
interest thereon -- -- -- --
Upon exercise of warrants -- -- -- --
Recapitalization of common stock -- -- -- --
Issuance of 12% convertible
promissory notes -- -- -- --
Net loss -- -- -- --
BALANCES AT DECEMBER 31, 1995 6,942 $ -- 10,000 $ --
------ ------ ------ ------
Deficit
Accumulated
Class A Class B Additional During
Common Stock Common Stock Common Stock Paid-in Accumulated Development
Shares Amount Shares Amount Shares Amount Capital Deficit Stage
------ ------ ------ ------ ------ ------ ------- ------- -----
BALANCES AT OCTOBER 31, 1993 2,333,000 7,000 1,220,000 2,000 423,000 (6,865,000) (1,801,000)
TWO MONTHS ENDED DECEMBER 31, 1993:
Contribution to capital of
Industries accumulated losses
in excess of Company's
investment -- -- -- -- 3,659,000 -- --
Conversion of preferred stock to
common stock 1,000,000 3,000 667,000 1,000 3,296,000 -- --
See accompanying notes to consolidated financial statements.
F-9
43
Deficit
Accumulated
Class A Class B Additional During
Common Stock Common Stock Common Stock Paid-in Accumulated Development
Shares Amount Shares Amount Shares Amount Capital Deficit Stage
------ ------ ------ ------ ------ ------ ------- ------- -----
Fair value of option issued in
exchange for certain legal
services -- -- -- -- 8,000 -- --
Net loss -- -- -- -- -- -- (67,000)
---------- ------ --------- ------ --------- -----------
BALANCE AT DECEMBER 31, 1993: 3,333,000 10,000 1,887,000 3,000 7,386,000 (6,865,000) (1,868,000)
YEAR ENDED DECEMBER 31, 1994:
Change in par value of Class B
common stock to $.0001 -- -- -- 3,000 (3,000) -- --
Issuance of common stock:
For services relating to
warrants exercised in 1995 -- -- 22,000 -- 88,000 -- --
Upon cancellation of
Indebtedness -- -- 78,000 -- 445,000 -- --
In exchange for advances
repayable only out of
proceeds of public offering -- -- 133,000 -- 471,000 -- --
Upon exercise of option -- -- 17,000 -- 8,000 -- --
For cash, less related costs of
$152,000 -- -- 907,000 3,000 933,000 -- --
Upon conversion of $162,000 of
7% convertible promissory
notes and accrued interest
thereon -- -- 79,000 -- 165,000 -- --
Upon exercise of option to
acquire laboratory equipment
and forgiveness of related
accrued rent -- -- 83,000 1,000 271,000 -- --
Upon conversion of preferred
stock -- -- 43,000 -- -- -- --
Issuance of convertible preferred
stock in exchange for
convertible promissory notes -- -- -- -- 356,000 -- --
For cash -- -- -- -- 100,000 -- --
Issuance of 7% convertible
promissory notes -- -- -- -- 1,643,000 -- --
Net loss -- -- -- -- -- -- (3,776,000)
See accompanying notes to consolidated financial statements.
F-10
44
Deficit
Accumulated
Class A Class B Additional Accumu- During
Common Stock Common Stock Common Stock Paid-in lated Develop-
Shares Amount Shares Amount Shares Amount Capital Deficit ment Stage
------ ------ ------ ------ ------ ------ ---------- ------- -----------
BALANCES AT
DECEMBER 31, 1994 3,333,000 10,000 3,249,000 10,000 11,863,000 (6,865,000) (5,644,000)
YEARS ENDED
DECEMBER 31, 1995:
Issuance of common
stock
Upon conversion of
convertible pre-
ferred stock -- -- 341,000 1,000 (1,000) -- --
Upon conversion of
7% convertible
promissory notes
and accrued in-
terest thereon -- -- 500,000 1,000 1,050,000 -- --
Upon exercise of
warrants -- -- 120,000 1,000 254,000 -- --
Recapitalization of
common stock (3,333,000) (10,000) (4,210,000) (13,000) 7,543,000 75,000 (52,000) --
Issuance of 12%
convertible --
promissory notes -- -- -- -- 6,377,000 -- --
Net loss -- -- -- -- -- -- (8,849,000)
--------- -------- ---------- -------- --------- ------ ---------- ------------ ------------
BALANCES AT
DECEMBER 31, 1995 -- $ -- -- $ -- 7,543,000 75,000 19,491,000 $ (6,865,000) $(14,493,000)
See accompanying notes to consolidated financial statements.
F-11
45
Deficit
Accumulated
Additional During
Common Stock Paid-In Accumulated Development
Shares Amount CAPITAL DEFICIT STAGES
------ ------ ---------- ----------- -----------
BALANCES AT DECEMBER 31, 1995 7,543,000 75,000 $ 19,491,000 $ (6,865,000) $(14,493,000)
YEAR ENDED DECEMBER 31, 1996
Issuance of common stock:
Upon conversion of convertible
preferred stock 454,000 4,000 (4,000) -- --
Upon conversion of 7% convertible
promissory notes and accrued interest
($20,000) and related costs of $41,000 152,000 2,000 277,000 -- --
Upon conversion of 12% convertible
promissory notes and accrued interest
thereon of $100,000 net of related
costs of $218,000 7,004,000 70,000 1,612,000 -- --
For cash:
From consortium, net of placement
costs of $212,000 632,000 7,000 2,181,000 -- --
Upon exercise of stock options 193,000 2,000 95,000 -- --
Other 38,000 -- 19,000 -- --
In payment of accrued salaries and
accounts Payable 434,000 4,000 260,000 -- --
Upon exercise of warrants 196,000 2,000 98,000 -- --
In connection with costs relating to
the Issuance of 10% convertible notes 462,000 5,000 520,000 -- --
Issuance of warrants for services
rendered -- -- 175,000 -- --
Issuance of warrants in settlement of
litigation -- -- 68,000 -- --
Net loss -- -- -- -- (4,384,000)
---------- ------------ ------------ ------------ ------------
BALANCES AT DECEMBER 31, 1996 17,108,000 $ 171,000 $ 24,792,000 $ (6,865,000) $(18,877,000)
---------- ------------ ------------ ------------ ------------
YEAR ENDED DECEMBER 31, 1997:
Issuance of common stock
In connection with costs relating to the
issuance of 10% convertible notes 493,000 5,000 575,000
In connection with the sale of Escrowed
Shares by the Convertible Note 2,669,000 27,000 2,219,000
Purchasers
Upon exercise of warrants 100,000 1,000 13,000
In payment of accrued salaries and
accounts payable 646,000 6,000 369,000
Issuance of warrants for services
rendered 88,000
See accompanying consolidated financial statements.
F-12
46
Deficit
Accumulated
Additional During
Common Stock Paid-In Accumulated Development
Shares Amount CAPITAL DEFICIT STAGES
------ ------ ---------- ----------- -----------
In connection with the sale of the 8.5%
Senior secured convertible notes 400,000
Issuance of the 8.5% senior secured
convertible notes 9,821,000
Net loss: (14,164,000)
------------ ------------ ------------ ----------- ------------
BALANCES AT DECEMBER 31, 1997 21,016,000 210,000 38,277,000 (6,865,000) (33,041,000)
YEAR ENDED DECEMBER 31, 1998
Issuance of common stock:
In connection with settlement of
litigation 125,000 1,000 124,000
Upon exercise of stock options 98,000 1,000 53,000
For cash 143,000 2,000 98,000
In lieu of interest: 1,670,000 17,000 451,000
Net loss: (3,261,000)
------------ ------------ ------------ ----------- ------------
BALANCES AT DECEMBER 31, 1998 23,052,000 $ 231,000 $ 39,003,000 $(6,865,000) $(36,302,000)
============ ============ ============ =========== ============
YEAR ENDED DECEMBER 31, 1999:
Issuance of common stock:
In connection with conversion of
senior secured convertible notes 20,206,000 202,000 4,968,000
In connection with services rendered 523,000 5,000 211,000
In connection with repricing of warrants -- -- 602,000 == ==
In connection with private placement 4,500,000 45,000 1,573,000
Net loss: (4,593,000)
------------ ------------ ------------ ----------- ------------
BALANCES AT DECEMBER 31, 1999 48,281,000 483,000 46,357,000 (6,865,000) (40,895,000)
============ ============ ============ =========== ============
See accompanying financial statements.
F-13
47
Deficit
Accumulated
Additional During
Common Stock Paid-In Accumulated Development
Shares Amount CAPITAL DEFICIT STAGES
------ ------ ---------- ----------- -----------
YEAR ENDED DECEMBER 31, 2000:
Issuance of common stock:
Upon exercise of stock options 3,022,000 30,000 788,000
In connection with repricing of
common stock -- 25,000
Net
loss: (3,503,000)
===========
BALANCES AT DECEMBER 31, 2000 51,303,000 513,000 47,170,000 (6,865,000) (44,398,000)
---------- ------- ---------- ----------- ------------
See accompanying financial statements.
F-14
48
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
AND PERIOD FROM JULY 21, 1998 (DATE OF INCEPTION)
TO DECEMBER 31, 2000
Period From
Year Ended July 21, 1989
December 31, (Date of Inception) to
2000 1999 December 31, 2000
---- ---- ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $ (3,503,000) $ (4,593,000) $(44,398,000)
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 135,000 227,000 1,161,000
Amortization of debt issue costs -- 8,000 1,070,000
Common stock issued at prices
below fair market value -- 1,167,000 1,167,000
Repricing of outstanding options 25,000 -- 25,000
Repricing of outstanding warrants -- 602,000 602,000
Reduction of accrued expenses -- -- (270,000)
Common stock issued in lieu of
interest -- 159,000 1,915,000
Fair value of warrants and option
granted for services rendered -- -- 209,000
Common stock issued for services
provided -- 67,000 273,000
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 21,000 56,000 0
Other current assets 18,000 (1,000) 16,000
Security and equipment deposits -- 74,000 (21,000)
Accounts payable, accrued expenses
and customer deposits (93,000) 125,000 2,054,000
Due to related parties -- -- (118,000)
------------ ------------ ------------
Net cash used in operating activities (3,397,000) (2,109,000) (18,270,000)
============ ============ ============
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (52,000) (194,000) (1,258,000)
Other -- 94,000
------------ ------------ ------------
Net cash used in
investing activities (52,000) (194,000) (1,164,000)
============= ============ =============
See accompanying notes to consolidated financial statements.
F-15
49
CASH FLOW FROM FINANCING
ACTIVITIES:
Proceeds received from Convertible
Promissory Notes 2,645,000 818,000 3,463,000
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 818,000 1,455,000
Net advances by former principal Stockholder -- -- 321,000
Proceeds from sale of convertible debt -- -- 10,874,000
Debt issue costs -- -- (887,000)
Repayment of convertible debt -- -- (100,000)
Net cash provided by financing
activities 3,463,000 1,268,000 $ 19,486,000
============ ============ ============
NET CHANGE IN CASH AND CASH
EQUIVALENTS 14,000 (1,035,000) 52,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 38,000 1,073,000 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 52,000 $ 38,000 $ 52,000
============ ============= ============
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 $ 149,000 $ 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
See accompanying notes to consolidated financial statements.
F-16
50
Conversion of convertible debt and
accrued interest into common stock,
net of unamortized debt discount $ 5,171,000 $ 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.
F-17
51
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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, lithium
polymer 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 lithium polymer batteries for
Hybrid Electric Vehicle (HEV) applications.
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.
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 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") as soon as practicable depending upon market conditions
and other factors. The Merger will be completed after the consummation of
the Ilion IPO and the approval of the Merger by the LTC stockholders,
assuming the remaining closing conditions are met. A meeting of the LTC
stockholders to approve the Merger will be held as soon as practicable
after the Ilion IPO.
The closing conditions to the Merger must be met by February 28, 2002 or
either LTC or Ilion may terminate the Merger Agreement provided that the
terminating party has not prevented the consummation of the Merger by a
breach of the Merger Agreement by such party. Accordingly, both the Ilion
IPO and the approval of the Merger by the LTC Stockholders must be
completed by February 28, 2002 and the remaining closing conditions must
be met by such date. There can be no assurance that Ilion will be able to
consummate the Ilion IPO by February 28, 2002. There can also be no
assurance that if the Ilion IPO is completed by February 28, 2002 that
the Merger will be approved by the LTC stockholders by such date.
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 $3,462,500 as of
December 31, 2000.
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. 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.
If Ilion 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 Loan
into shares of LTC common stock at the conversion price of $0.10 per
share. In this event, the conversion could result in Ilion holding an
ownership percentage greater than 50%, depending on the amount of Bridge
Loans outstanding on the date of conversion. In addition, LTC would need
to find alternative sources of capital or be forced to curtail technology
development expenditures which, in turn, will delay, and could prevent,
the completion of LTC's commercialization process.
If the Merger does not occur by February 28, 2002 because the closing
conditions have not been met by such date, including the failure of
condition of the Ilion IPO or the approval of the Merger by LTC's
stockholders, and Ilion has not breached the Merger Agreement, Ilion
would have the right to convert the Bridge Loans into shares of LTC
common stock at a conversion price of $0.10 per share. This conversion
could result in Ilion holding an ownership percentage greater than 50%,
depending on the amount of Bridge Loans outstanding on the date of
conversion. In addition, in this instance, Ilion would be issued three
year warrants to purchase 7.5 million shares of LTC common stock
exercisable at $0.15 per share and Ilion would have a first option to
purchase LTC's technologies and processes if LTC sells, goes into
receivership, liquidation or the like. Ilion would also have the right
and option to purchase LTC's pilot plant and equipment at book value as
of the date of the Merger Agreement.
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 polymer
F-18
52
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2000, no
royalties have been earned under this agreement.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the
accounts of LTC and Lithion. All significant intercompany accounts and
transactions have been eliminated.
ESTIMATES AND UNCERTAINTIES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results, as determined at a later date, could differ from those
estimates.
FINANCIAL INSTRUMENTS - Financial instruments include cash and cash
equivalents, other assets, accounts payable and convertible promissory
notes payable. With the exception of convertible promissory notes
payable, management believes that the amounts reported for financial
instruments are reasonable approximations of their fair values due to
their short-term nature.
CASH AND CASH EQUIVALENTS - LTC considers all highly liquid investment
instruments purchased with a maturity of three months or less to be cash
equivalents.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Furniture and fixtures, computer equipment and software and laboratory
equipment are depreciated primarily using the straight-line method over
their estimated useful lives of 3 to 7 years. Leasehold improvements are
amortized over the period of the respective lease using the straight-line
method.
INCOME TAXES - Deferred tax assets and liabilities are computed for
temporary differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the
periods in which the temporary differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
F-19
53
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK OPTIONS - In accordance with Statement of Financial Accounting
Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123), LTC has elected to account for stock option grants to
employees using the intrinsic value based method prescribed by APB
Opinion No. 25.
NET LOSS PER COMMON SHARE - LTC has presented net loss per common share
pursuant to SFAS No. 128, "Earnings Per Share". Net loss per common share
is based upon the weighted average number of outstanding common shares.
For the years ended December 31, 2000 and 1999, LTC's potential common
shares have an anti-dilutive effect on earnings per share and, therefore,
have not been used in determining the total weighted average number of
common shares outstanding. Potential common shares resulting from
convertible notes payable, stock options and warrants that would be used
to determine diluted earnings per share for the years ended December 31,
2000 and 1999 were as follows:
POTENTIAL COMMON SHARES
2000 1999
--------- ---------
Stock options 2,517,000 5,474,000
Warrants 4,186,000 4,590,000
--
--------- ----------
Total 6,703,000 10,064,000
========= ==========
(The table above does not give effect to the conversion of shares from
the convertible promissory notes with Ilion as those notes will only be
convertible in the event the proposed merger is not closed.)
COMPREHENSIVE INCOME - A statement of comprehensive income has not been
provided as comprehensive loss equals net loss for all periods presented.
BUSINESS SEGMENTS - As a development stage enterprise, LTC considers
itself to have one operating segment.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities" which is effective for
all financial years beginning after June 15, 2000. SFAS 133, as amended
by SFAS No. 137 and SFAS No. 138, establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. Under
SFAS No. 133, certain contracts that were not formerly considered
derivatives may now meet the definition of a derivative. LTC adopted
SFAS No. 133 effective
F-20
54
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 1, 2000. The adoption of SFAS No. 133 did not have a
significant impact on the financial position of results of
operations of LTC because LTC does not have significant derivative
activity.
In March 2000, the FASB issued Financial Accounting Series
Interpretation No. 44 ("FIN 44") entitled "Accounting for Certain
Transactions involving Stock Compensation," which provides clarification
to Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." The adoption of this Interpretation had no effect
on the Company's financial position or results of operations for the
current year, but does require that the Company's option plans be
accounted for under variable plan accounting (See Note 9).
NOTE 3 - OPERATING 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 and preferred stock.
Continuation of LTC's operations in 2001 is dependent upon Ilion's
ability to make additional advances under the Bridge Loan Financing
Agreement and, ultimately, the closing of the merger described in Note
1. 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.
MANAGEMENT'S PLANS - LTC is in the late stages of developing and
producing innovative rechargeable solid state lithium polymer batteries.
LTC 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, LTC 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, LTC completed the
first working prototype lithium-ion polymer HEV battery, complete with
electronics. A second generation prototype HEV battery was completed in
January 2001. LTC has not yet delivered a prototype HEV battery for
testing by a third party. All improvements to LTC's technology contained
in the prototype HEV batteries are owned by Ilion pursuant to the terms
of the licensing agreement between LTC and Ilion entered into in
connection with the Bridge Loan.
Prior to changing its focus to developing batteries for HEVs, LTC
delivered limited quantities of prototype batteries and component cells
for evaluation to selected battery pack integrators and portable
electronics Original Equipment Manufacturers ("OEMs"). LTC has an
experienced management team and a strong
F-21
55
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
technical staff with relevant experience in battery technology and
applications, thin-film manufacturing, capital raising, and global
marketing, sales and strategic alliances.
Management's operating plan seeks to minimize LTC's capital requirements,
but commercialization of LTC's battery technology will require
substantial amounts of additional capital. LTC expects that technology
development and operating and production expenses will increase
significantly as it continues to advance its battery technology and
develop products for commercial applications. LTC's working capital and
capital requirements will depend upon numerous factors, including,
without limitation, the progress of LTC's technology development program,
the levels and resources that LTC devotes to the development of
manufacturing and marketing capabilities, technological advances, the
status of competitors and the ability of LTC, including Ilion subsequent
to the merger, to establish collaborative arrangements with other
companies to provide an expanded capacity to market and manufacture
battery products.
Beginning in October 1999, Ilion has provided working capital for LTC.
Management is depending on the Bridge Loan Agreement funding from Ilion
to meet LTC's obligations through the next year. 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 has further indicated that it intends to fund LTC at $100,000
per month under the Bridge Loan Agreement. Funding at $100,000 per month
will not be adequate to cover LTC's current operating expenses.
LTC is currently in discussions with Ilion regarding the funding level
proposed by Ilion and the capital required by LTC to meet LTC's ongoing
operating expenses. If Ilion funds LTC at $100,000 per month, LTC will be
forced to curtail its current operations, substantially reduce the number
of LTC employees, and take other measures to reduce its operating
expenditures.
If Ilion breaches the Merger Agreement, and the Merger Agreement is
terminated as a result, prior to February 28, 2002, the date the Merger
Agreement expires, Ilion would have the right to convert the Bridge loans
into shares of LTC common stock at a conversion price of $0.10 per share.
In this event, the conversion could result in Ilion holding an ownership
percentage greater than 50%, depending on the amount of Bridge Loans
outstanding on the date of conversion. In addition, LTC would need to
find alternative sources of capital or be forced to curtail technology
development expenditures which, in turn, will delay, and could prevent,
the completion of LTC's commercialization process.
If the Merger does not occur by February 28, 2002 because the closing
conditions have not been met by such date, including the failure of
condition of the Ilion IPO or the approval of the Merger by LTC's
Stockholders, and Ilion has not breached the Merger Agreement, Ilion
would have the right to convert the Bridge Loans into shares of LTC
common stock at a conversion price of $0.10 per share. This conversion
could result in Ilion holding an ownership percentage greater than 50%,
depending on the amount of Bridge Loans outstanding on the date of
conversion. In addition, in this instance, Ilion would be issued three
year warrants to purchase 7.5 million shares of LTC common stock
exercisable at $0.15 per share and Ilion would have a first option to
purchase LTC's technologies and processes if LTC sells, goes into
receivership, liquidation or the like. Ilion would also have the right
and option to purchase LTC's pilot plant and equipment at book value as
of the date of the Merger Agreement.
LTC believes that provided Ilion advances the needed working capital to
LTC until the consummation of the Merger, LTC will have sufficient
capital resources to meet its needs and satisfy its obligations through
the date of the Merger. LTC does not currently have sufficient cash to
meet all of its operating needs or to achieve all its development and
production objectives. There can be no assurance that funding will
continue to be provided by Ilion in the amounts necessary to meet all of
LTC's obligations. If Ilion does not provide the needed working capital
to LTC or if the Merger is not consummated, LTC will assess all
available alternatives including the suspension of operations and
possibly liquidation, auction, bankruptcy, or other measures.
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. 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.
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 2000 is summarized as follows:
2000
----
Laboratory equipment $1,352,000
Furniture and office equipment 106,000
Leasehold improvements 48,000
----------
1,506,000
----------
Less: Accumulated depreciation and amortization 1,159,000
----------
$ 347,000
----------
F-22
56
NOTE 5 - NOTE PAYABLE:
LTC is currently in default on a note for a research and development
funding agreement. Under the agreement, starting in 1999 LTC was
obligated to pay a total of $100,000 for principal and $50,000 for
interest through January 2004. LTC did not make payments on the note
until 2000. The principal balance remaining under the note is $88,000. As
the note is in default, the principal amount can be due immediately. The
note is secured by the intellectual property rights and equipment
developed from the funds provided by this agreement. Management is in the
process of renegotiating the payment terms of this note.
NOTE 6 - CONVERTIBLE PROMISSORY NOTES
As of December 31, 2000, in connection with the Bridge Loan Financing
Agreement, Ilion has advanced to LTC working capital of $3,462,500 in the
form of Convertible Promissory Notes which have no stated interest rate
(See Note 1). If the Merger, as described in Note 1, is not consummated
for any reason, the notes may be converted into shares of LTC common
stock at a price of $0.10 per share. In the event of conversion, LTC will
recognize interest expense related to the beneficial conversion feature
of the note. In addition, the principal amount of the notes will be
decreased by any royalties Ilion owes to LTC under their non-exclusive
worldwide license to use LTC's thin film technology and manufacturing
methods related to lithium-ion polymer batteries.
NOTE 7 - INCOME TAXES:
Deferred income taxes reflect the net effects of temporary differences
between the amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The principal
temporary difference arises from the net operating loss carryforwards and
results in a deferred tax asset of approximately $9,700,000 at December
31, 2000.
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. LTC has
determined, based on its recurring net losses, lack of a commercially
viable product and limitations under current tax law, that a full
valuation allowance is appropriate at December 31, 2000.
At December 31, 2000, LTC had net operating loss carryforwards for
federal income tax purposes of approximately $25,000,000 expiring in the
years 2005 through 2015 and net operating loss carryforwards of
approximately $12,000,000 for state income tax purposes, expiring in the
years 2001 through 2003.
Current tax law limits the use of net operating loss carryforwards after
there has been a substantial change in ownership (as defined) during a
three year period. Due to changes in ownership between 1993 and 1997, and
the conversion of the Senior Secured Convertible Notes in January 1999
(see Note 9), there exists substantial risk that LTC's use of net
operating losses may be severely limited under the Internal Revenue Code.
F-23
57
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
LTC leases a 12,400 square foot research facility and corporate
headquarters in a free-standing building at 5115 Campus Drive in Plymouth
Meeting, Pennsylvania pursuant to a Lease Agreement between PMP
Whitemarsh Associates and LTC dated July 22, 1994. The lease had an
initial five year term (which expired on October 31, 1999) and had an
additional five year extension option. By letter agreements, LTC and the
landlord extended the initial term of the lease (see Note 10). Rental
expense under the agreement was $141,000 and $136,000 in 2000 and 1999,
respectively.
EMPLOYMENT AGREEMENTS - LTC has an employment agreement with its Director
of Research/Senior Scientist providing for annual compensation of
$125,000 through February, 2001. The employment agreement was not renewed
in 2001.
In May 1996, LTC entered into a one year employment agreement with its
Chief Executive Officer at an annual salary of $185,000 and other
incentives, including performance bonuses and stock options. The
agreement was extended through October 1999. Effective November 1, 1999,
the Chief Executive Officer resigned. The officer had voluntarily elected
to defer his compensation in 1997 and 1998. At December 31, 2000,
$201,000 of deferrals from 1997 and 1998 have been included in accrued
salaries in the accompanying financial statements. In 2000, the Board of
Directors approved payment of the officer's $366,000 deferred salary
fifty percent in cash and fifty percent in common stock at fair value on
the date of issuance. The former officer received $165,000 in cash during
2000.
Effective November 1, 1999, LTC extended the employment agreements with
its Chairman/Chief Executive Officer, Mr. Cade, and its President, Chief
Operating Officer/Chief Technical Officer at an annual salary of $165,000
plus other incentives, including performance bonuses and stock options
until the later of February 28, 2002 or one year after the merger with
Ilion.
Mr. Cade's employment agreement provides for certain severance payment
benefits in the event of a change in control (as defined in the
employment extension agreement) combined with his employment termination
resulting from his resignation or LTC's termination of his employment
without cause. In connection with the execution of the Merger Agreement
between LTC and Ilion, Mr. Cade entered into an agreement with Ilion and
LTC agreeing to a modification of the change-in-control and severance
provisions of his employment agreement and agreeing to a termination of
the employment agreement with LTC effective at the time of the Merger
closing.
F-24
58
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dr. George Ferment, the President, Chief Operating Officer and Chief
Technology Officer and a director of LTC, resigned from LTC effective May
31, 2000. Pursuant to an Agreement entered into between LTC and Dr.
Ferment, LTC paid Dr. Ferment his salary until June 30, 2000 and paid
$77,500 on June 30, 2000. In addition, LTC agreed to cause the 92,520
Ilion stock options to be allocated to Dr. Ferment under the Merger
Agreement to be issued to Dr. Ferment on the later of the Ilion IPO or
the Merger.
NOTE 9 - STOCKHOLDERS' EQUITY
PREFERRED STOCK - LTC is authorized to issue up to 100,000 shares of
preferred stock, all of which is currently undesignated and may be
divided and issued from time to time in one or more series as may be
designated by the Board of Directors. In the event of liquidation,
dissolution or winding up of LTC, the holders of the preferred stock will
be entitled to a liquidation preference over the Common Stock.
The preferred stock may be entitled to such dividends, redemption rights,
liquidation rights, conversion rights and voting rights as the Board of
Directors, in its discretion, may determine, in a resolution or
resolutions providing for the issuance of any such stock. Rights granted
by the Board of Directors may be superior to those of existing
shareholders, (including the right to elect a controlling number of
directors as a class). Preferred stock can be issued without the vote of
the holders of Common Stock. No shares of preferred stock are outstanding
at December 31, 2000.
ACCOUNTS PAYABLE - In December 1999, LTC issued 523,000 shares of its
Common Stock in settlement of accounts payable of $149,000. The fair
value of the shares was $216,000. Additional expense of $67,000 was
recognized as a result of the transaction.
PRIVATE PLACEMENT OFFERING - During 1999, LTC held a private placement
offering of common stock of LTC. As a result of the offering, 4,500,000
shares were issued at a price of $0.10 per share. The shares were issued
to the Board of Directors below the fair market value of the stock on the
date of grant as compensation for services and therefore LTC recognized
additional compensation expense of $1,167,000 as a result of this
transaction.
STOCK INCENTIVE PLAN - LTC's Board of Directors adopted the 1994 Stock
Incentive Plan (the "1994 Stock Plan") in February 1994. The 1994 Stock
Plan terminates in February 2004, unless terminated earlier by the Board
of Directors. A total of 5,333,334 shares of common stock were reserved
and available for grants. Stock options permitting the holder to purchase
a specified number of shares of common stock are to be granted at an
exercise price not less than 100% of the fair value of such stock on the
date of grant; however, for any non-qualified Stock Option the option
price per share of Common Stock, may alternatively, be fixed at any price
deemed to be fair and reasonable, as of the date of grant. The stock
options may be in the form of an incentive stock option or a
non-qualified stock option. All options outstanding under the 1994 Stock
Plan were 100% vested in February 2000. Options granted will be cancelled
immediately upon termination of the grantee's employment or
F-25
59
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
association with LTC, except in certain situations such as retirement,
death or disability.
DIRECTORS STOCK OPTION PLAN - In August 1995, the Board of Directors
adopted the Directors Stock Option Plan (the "Directors Plan"). The
Directors Plan terminates in August 2005, unless terminated earlier by
the Board of Directors. A total of 333,333 shares of LTC's common stock
are reserved and available for grant. Stock options permitting the holder
to purchase a specified number of shares of common stock are to be
granted at an exercise price equaling the then fair market value of the
common stock on the date of grant. All options outstanding under the
Directors Plan were 100% vested in February 2000. Upon the termination of
a participant's association with LTC, options granted will remain
exercisable for a period of three months or until the stated expiration
of the stock option, if earlier.
1998 STOCK INCENTIVE PLAN - LTC's Board of Directors adopted the 1998
Stock Incentive Plan (the "1998 Plan") in December 1998. The 1998 Plan
terminates in December 2008. A total of 3,000,000 shares of common stock
are reserved and available for grant. The exercise price of an option
granted under the 1998 Plan will not be less than the fair market value
of LTC's Common Stock on the date of grant; however, for any
non-qualified Stock Option the option price per share of Common Stock,
may alternatively, be fixed at any price deemed to be fair and
reasonable, as of the date of grant. All options outstanding under the
1998 Plan were 100% vested in February 2000. Options granted will be
cancelled immediately upon termination of the grantee's employment or
association with LTC, except in certain situations such as retirement,
death or disability.
In September 1999, LTC decreased the exercise price of all outstanding
options issued under the 1994 Stock Plan to an exercise price of $0.26
and in June 2000, LTC decreased the exercise price of all outstanding
options issued under the Directors Plan and the 1998 Plan having an
exercise price in excess of $.28 to $.28. The repricing resulted in
approximately $25,000 of additional stock compensation expense to LTC. In
February 2000, the Board approved the acceleration of the vesting of all
outstanding stock options, on the condition that the optionee consents to
a new termination date of the earlier of the original option termination
date or the date preceding the merger. As a result of the repricings, all
of LTC's option plans require variable plan accounting beginning on July
1, 2000, as prescribed by FIN 44. This did not result in any additional
compensation expense for the year ended December 31, 2000. Options under
the 1994 Stock Plan, the Directors Plan and the 1998 Plan as of December
31 are summarized as follows:
2000 1999
---- ----
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
Outstanding, beginning of year 5,474,000 0.27 4,598,000 $0.55
Granted 65,000 0.48 946,000 $0.27
Exercised (3,022,000) 0.27
Cancelled 0 0.27 (70,000) $0.57
--------- ---- --------- -----
Outstanding, end of year 2,517,000 0.27 5,474,000 $0.27
--------- ---- --------- -----
Options exercisable, end of year 2,517,000 0.27 4,025,000 $0.27
--------- ---- --------- -----
F-26
60
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding
at December 31, 2000:
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Options Exercise Contractual Options Exercise
Prices Outstanding Price Life Exercisable Price
------ ----------- ----- ---- ----------- -----
0.22 14,590 .22 8 years 14,590 0.22
0.25 13,334 .25 8 years 13,333 0.25
0.26 1,910,057 .26 4 years 1,910,057 0.26
0.28 512,979 .28 8 years 512,979 0.28
0.48 65,600 .48 8 years 65,000 0.48
The per share weighted-average fair value of stock options granted during
2000 and 1999 was $.27 and $.48 on the date of grant. LTC applies
Accounting Principles Board Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Had the compensation cost
for LTC's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, LTC's pro forma net loss for the years ended December 31,
2000 and 1999 would have been $3,732,000 ($.07 per share) and $4,904,000
($.11 per share), respectively.
The fair value of options granted under LTC's stock option plans was
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used: 2000 - no dividend
yield, expected volatility of 131%, risk-free interest rate of 6.3% and
expected life of 2 years; 1999 - no dividend yield, expected volatility of
103%, risk-free interest rate of 6.3% and expected life of 5 years.
F-27
61
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WARRANTS -
Warrants as of December 31 are summarized as follows:
2000 1999
---- ----
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
--------- -------- -------- --------
Outstanding, beginning of year 4,590,000 $.15 4,590,000 $.15
Cancelled (404,000) $.15
Outstanding, end of year 4,186,000 $.15 4,590,000 $.15
--------- --------- ----
Exercisable 4,186,000 $.15 4,590,000 $.15
========= ========= ----
There were no warrants granted or exercised during 2000 or 1999. In
November 1999, LTC approved the decrease of the exercise price of all of
the outstanding warrants to $0.15. LTC recognized an expense of $602,000
in connection with the repricing. The following table summarizes
information about warrants outstanding at December 31, 2000:
Weighted Weighted Average Weighted
Range of Warrants Average Remaining Warrants Average
Exercise Price Outstanding Exercise Price Contractual Life Exercisable Exercise Price
-------------- ----------- -------------- ---------------- ----------- --------------
$0.15 4,186,000 $.15 .48 years 4,186,000 $.15
NOTE 10 - SUBSEQUENT EVENTS
AMENDMENT TO MERGER AGREEMENT
On February 2, 2001, LTC and Ilion entered into Amendment No. 4 to the
Merger Agreement ("Amendment No. 4") amending the following provisions of
the Merger Agreement relating the Merger Securities to be issued in the
Merger, the application of the proceeds of the exercise of any options or
warrants, and the lock-up of the Merger Securities for a maximum of 180
days after the Merger.
The following provisions of the Amendment No. 4 to Merger Agreement will
become effective only if and when Ilion files a Registration Statement
with the Securities and Exchange Commission (the "SEC") relating to the
Ilion IPO (the "IPO Registration Statement"). Such provisions may be
terminated by LTC or Ilion by giving written notice to the other in
accordance with the Merger Agreement if the IPO Registration Statement has
not been declared effective by the SEC on or before July 31, 2001, and
upon any such termination the Merger Agreement will be restored to the
same terms and conditions as if such provisions of Amendment. 4 had never
become effective.
F-28
62
LITHIUM TECHNOLOGY CORPORATION
AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amendment No. 4 provides that in the Merger, LTC will merge with and into
Ilion and all of the outstanding shares of LTC's common stock will be
exchanged for an aggregate of the number of shares of Ilion common stock
("Ilion Common Stock") determined by dividing $25 million by the Ilion
Common Price (as hereinafter defined), but in no event will LTC shares be
exchanged for more than 5,000,000 shares or less than 2,500,000 shares of
Ilion Common Stock. The term "Ilion Common Price" means the average of the
daily closing prices of Ilion Common Stock as reported by the NASDAQ
market during the period of the thirty consecutive trading days on which
Ilion's share price is quoted on the NASDAQ market ending on the date of
the second to last trading day prior to the Closing Date of the Merger.
The Merger Securities will be issued to the LTC stockholders on a pro-rata
basis.
Amendment No. 4 also provides that in the event that any holder of LTC
warrants or options exercises any warrants or options prior to the Merger,
LTC will use all proceeds thereof (the "Exercise Funds") as follows: (i)
first, to pay a portion of the advances made by Ilion to LTC pursuant to
the Bridge Loan Financing Agreement in an aggregate amount up to three
hundred fifty thousand dollars ($350,000); (ii) second, to pay certain
liabilities of LTC with respect to the accrued salary due and owing to Mr.
Thomsen, LTC's former Chairman and Chief Executive Officer, in the
aggregate amount of two hundred thousand dollars ($200,000); and (iii)
third, to pay LTC's employee, operating and administrative expenses,
excluding capital costs ("LTC's Continuing Costs").
Amendment No. 4 provides that from and after the closing under the Merger
Agreement, the Merger Securities will be held in an escrow established
jointly by LTC and Ilion under the terms of which the holders of the
Merger Securities issued pursuant to the Merger Agreement will not be
permitted to sell or offer to sell or otherwise dispose of any shares of
Common Stock of Ilion without the prior written consent of a designated
IPO underwriter until the earlier of (1) the date of termination of the
offer, sale and disposition lock-up period which is applied by the Ilion
IPO underwriters to a majority of the Ilion shareholders or (2) the date
which is 180 days after the closing of the Ilion IPO.
AMENDMENT TO LEASE AGREEMENT
By letter agreements, LTC and PMP White Marsh Associates extended the
initial term of LTC's lease for its facility in Plymouth Meeting through
March 31, 2001. On March 19, 2001, LTC landlord entered into an amendment
to the lease pursuant to which the five year extension option was amended
to a two year extension option which LTC exercised. The two year extension
commences on April 1, 2001 and ends on March 31, 2003. The annual rent
under the lease during the two year extension is approximately $134,000
and $136,000 in years one and two, respectively.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS ENDED
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------------
1999:
Net revenues $ 22,000 $ 22,000 $ 5,000 $ 20,000
Net loss $ 717,000 $ 670,000 $ 617,000 $ 2,589,000
Basic and diluted earnings (loss) per share $ 0.02 $ 0.02 $ 0.01 $ 0.06
=========== =========== =========== ===========
Weighted average common shares outstanding 38,349,000 43,367,000 46,507,000 44,354,000
=========== =========== =========== ===========
2000:
Net revenues $ $ $ $
Net Income loss $ 855,000 $ 1,128,000 $ 700,000 $ 770,000
Basic and diluted loss per share $ 0.02 $ 0.02 $ 0.01 $ 0.02
=========== =========== =========== ===========
Weighted average common shares outstanding 49,212,000 50,002,000 50,922,000 50,541,000
=========== =========== =========== ===========
Basic and diluted net income (loss) per common share for the year ended
December 31, 2000 and 1999, differs from the sum of basic and diluted net income
(loss) per common share for the quarters during the respective year due to the
different periods used to calculate net income (loss) and weighted average
shares outstanding.
F-29
63
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LITHIUM TECHNOLOGY CORPORATION
Date: April 19, 2001 By: /s/ David J. Cade
-----------------
David J. Cade, Chairman and Chief
Executive Officer (Principal Executive
Officer and Acting Principal Financial
and Accounting Officer)
In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons and in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ David J. Cade
----------------- Director April 19, 2001
David J. Cade
__________________ Director April __, 2001
Stephen F. Hope
/s/ Barry Huret
--------------- Director April 19, 2001
Barry Huret
/s/ Ralph D. Ketchum
-------------------- Director April 19, 2001
Ralph D. Ketchum
/s/ Arif Maskatia
----------------- Director April 19, 2001
Arif Maskatia
__________________ Director April __, 2001
John D. McKey, Jr.