================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________.
Commission file number 0-28968
IQ POWER TECHNOLOGY INC.
(Exact name of small business issuer as specified in its charter)
CANADA NOT APPLICABLE
(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
Suite 708-A, 1111 West Hastings Street
Vancouver, British Columbia V6E 2J3
(604) 669-3132
(Address and telephone number
of principal executive offices)
Erlenhof Park
Inselkammer Strasse 4
D-82008 Unterhaching, Germany
(Address of principal place of business or intended principal place of business)
(604) 669-3132
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 No ----- --------
The number of outstanding common shares, without par value, of the
registrant at June 30, 2000 was 9,746,620.
Transitional Small Business Disclosure Format (check one): Yes [ ]; No [X]
<PAGE>
IQ POWER TECHNOLOGY
INDEX TO THE FORM 10-QSB
For the quarterly period ended June 30, 2000
<TABLE>
Page
----
<S> <C>
Part I - Financial Information ..................................................1
ITEM 1. FINANCIAL STATEMENTS ........................................1
Consolidated Balance Sheet ........................................1
Consolidated Statement of Loss and Comprehensive Loss .............2
Consolidated Statement of Shareholders' Equity (Deficit) ..........3
Consolidated Statement of Cash Flow ...............................4
Notes to the Consolidated Financial Statements ....................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................12
Part II - OTHER INFORMATION ....................................................15
ITEM 1. LEGAL PROCEEDINGS ..........................................15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ..................16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........16
ITEM 5. OTHER INFORMATION ..........................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...........................17
SIGNATURES
</TABLE>
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Balance Sheet
(Expressed in United States Dollars)
(Unaudited)
================================================================================
<TABLE>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 1,363 $ 2,283
Receivable from shareholders 56 62
Accounts receivable 102 180
Prepaids and deposits 42 15
----------------------------------------------------------------------------------------------
Total current assets 1,563 2,540
EQUIPMENT, net 348 297
----------------------------------------------------------------------------------------------
Total assets $ 1,911 $ 2,837
==============================================================================================
LIABILITIES
CURRENT
Bank indebtedness $ - $ 1
Accounts payable 157 130
Accrued liabilities 91 55
----------------------------------------------------------------------------------------------
Total current liabilities 248 186
BANK DEBT - non-current - 2
----------------------------------------------------------------------------------------------
Total liabilities 248 188
----------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock
Authorized:
An unlimited number of common shares of no par value
Issued and outstanding:
9,746,620 common shares at June 30, 2000
9,731,620 common shares at December 31, 1999 5,941 5,904
Additional paid-in capital 406 396
Accumulated other comprehensive (loss) income (15) 82
Accumulated deficit, during development stage (4,669) (3,733)
----------------------------------------------------------------------------------------------
Total shareholders' equity 1,663 2,649
----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,911 $ 2,837
==============================================================================================
</TABLE>
CONTINUING OPERATIONS (Note 2)
See Accompanying Notes to the Consolidated Financial Statements
1
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Loss and Comprehensive Loss
(Expressed in United States Dollars;
all amounts in thousands except per share data)
(Unaudited)
<TABLE>
Cumulative
from date of Three months ended Six months ended
inception to June 30, June 30,
June 30, --------------------- ----------------------
2000 2000 1999 2000 1999
------------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
SALES AND OTHER REVENUE $ 176 $ - $ - $ - $ -
----------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development expenses
Personnel 1,575 162 111 279 243
Laboratory 872 87 50 169 90
Office 395 46 12 115 17
Consulting services 553 6 21 21 35
Professional fees 712 36 58 47 76
----------------------------------------------------------------------------------------------------------------
4,107 337 252 631 461
----------------------------------------------------------------------------------------------------------------
General and administrative expenses
Personnel 253 33 23 68 39
Financing 144 (7) 7 (58) 8
Office 83 16 4 24 9
Consulting services 139 29 6 46 12
Professional fees 219 43 35 76 39
Management fees 72 18 - 36 -
Marketing and sales expenses 40 39 - 40 -
Investor relations 147 47 - 68 -
Research memberships 50 - - - -
Travel 123 4 - 20 -
Other 127 21 - 31 -
----------------------------------------------------------------------------------------------------------------
1,397 243 75 351 107
----------------------------------------------------------------------------------------------------------------
Interest 133 - 9 - 15
Stock based compensation 406 5 288 10 288
----------------------------------------------------------------------------------------------------------------
(5,867) (585) (624) (992) (871)
----------------------------------------------------------------------------------------------------------------
INTEREST INCOME 173 24 5 56 5
----------------------------------------------------------------------------------------------------------------
NET LOSS (5,694) (561) (619) (936) (866)
Other comprehensive (loss) income:
Accumulated other comprehensive
income (loss) (15) (51) 3 (97) (75)
----------------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS $(5,709) $ (612) $ (616) $ (1,033) $ (941)
----------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.06) $ (0.10) $ (0.11) $ (0.16)
----------------------------------------------------------------------------------------------------------------
Weighted average number of
shares outstanding 9,746,620 5,865,295 9,741,620 5,492,647
----------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
2
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Shareholders' Equity (Deficit)
(Expressed in United States Dollars;
all amounts in thousands except per share data)
(Unaudited)
<TABLE>
---------------------------------------------------------------------------------------------------------------------
Accumulated Total
Common Shares Additional Other Shareholders'
------------------ Paid-In Comprehensive Accumulated Equity
Number Amount Capital Income (Loss) Deficit (Deficit)
------ ------ --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 40 $ 60 $ - $ - $ (173) $ (113)
Issue of shares - - - - - -
Net loss - - - - (341) (341)
Allocation of loss to atypical shares - - - - 379 379
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 40 60 - - (135) (75)
Issue of shares - - - - - -
Net loss - - - - (496) (496)
Allocation of loss to atypical shares - - - - 139 139
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 40 60 - - (492) (432)
Issue of shares - - - - - -
Net loss - - - - (597) (597)
Allocation of loss to atypical shares - - - - 312 312
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 40 60 - - (777) (717)
Issue of shares - - - - - -
Net loss - - - - (1,027) (1,027)
Allocation of loss to atypical shares - - - - 228 228
Other comprehensive (loss) - -
foreign currency translation adjustments - - - (94) - (94)
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 40 60 - (94) (1,576) (1,610)
Reorganization of capital on reverse
acquisition 5,119,960 - - - - -
Deemed issuance of shares on
acquisition of iQ Power Technology Inc. 4,471,770 5,495 - - - 5,495
Stock based compensation - - 396 - - 396
Exercise of warrants 139,850 349 - - - 349
Net loss - - - - (2,157) (2,157)
Other comprehensive (loss) -
foreign currency translation adjustments - - - 176 - 176
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 9,731,620 5,904 396 82 (3,733) 2,649
Net loss - - - - (936) (936)
Other comprehensive (loss) -
foreign currency translation adjustments - - - (97) - (97)
Exercise of options 15,000 37 - - - 37
Stock based compensation - - 10 - - 10
---------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 9,746,620 5,941 406 (15) (4,669) 1,663
</TABLE>
Note 1
During the period to June 30, 2000 the Company completed a share consolidation
whereby all of the Company's issued and outstanding shares were consolidated on
a 2.5 shares to 1 basis. This consoldation has been retroactively applied in
these financial statements.
See Accompanying Notes to the Consolidated Financial Statements
3
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Cash Flow
(Expressed in United States Dollars;
all amounts in thousands except per share data)
(Unaudited)
<TABLE>
----------------------------------------------------------------------------------------------------------------------
Cumulative from Six months Six months
date of inception ended ended
to June 30, June 30, June 30,
2000 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,694) $ (936) $ (866)
Items not affecting cash
Depreciation and amortization 165 50 25
Stock based compensation 406 10 288
Changes in non-cash working capital
(Increase) decrease in accounts receivable (102) 84 9
(Increase) decrease in prepaid and deposits (42) (27) -
Increase (decrease) in accounts payable 157 27 (377)
(Decrease) increase in accrued liabilities 91 36 14
(5,019) (756) (907)
----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITY
Additions to property, plant and equipment (513) (101) (120)
----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Decrease in long-term debt (2) (3) (105)
Decrease in due to shareholder (56) 6 (79)
Advances received from external parties 296 - -
Cash acquired on business combination 4,718 - 4,718
Advances from subsidiary 581 - 260
Issue of capital stock 446 37 -
Issuance of atypical shares 1,025 - -
7,008 40 4,794
----------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 1,476 (817) 3,767
FOREIGN EXCHANGE MOVEMENT (113) (103)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 2,283 11
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,363 $1,363 $ 3,778
----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 6 for non-cash investing and financing activity
See Accompanying Notes to the Consolidated Financial Statements
4
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
(Expressed in United States Dollars;
tabular amounts in thousands except per share data)
(Unaudited)
================================================================================
1. NATURE OF OPERATIONS
iQ Power Technology Inc. (iQ Power) was incorporated under the Canada
Business Corporations Act on September 20, 1994. Effective June 17, 1999,
iQ Power completed a business combination with iQ Battery Research
Development GmbH (iQ Battery). The business combination has been accounted
as reverse acquisition with iQ Battery being identified as the acquiror
(see Note 5). The comparative financial statements are those of iQ Battery.
Collectively within these financial statements the term Company applied to
operations subsequent to the business combination.
iQ Battery, established in 1991, is developing a chargeable battery which
allows an improved current output at low outside temperatures. The process
engineering for this chargeable battery and the know-how is based on a
patent acquired from the founding shareholders of iQ Battery.
Patents have been granted for Germany, thirteen other European countries
and for the United States of America. International patents applications
have been filed in nine additional countries. iQ Battery's legal domicile
is Floha, Germany, and it maintains a branch near Munich, where management
has its offices. The Company intends to grant licenses for this process to
the automotive and related industries in the future.
2. CONTINUING OPERATIONS
These financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business The Company's ability to
continue as a going concern is dependent upon the ability of the Company to
attain future profitable operations and/or to obtain the necessary
financing to meet its obligations and repay its liabilities arising from
normal business operations when they come due. The financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of liabilities that may result from the
outcome of this uncertainty. The Company has raised approximately
$4,875,000, net of commissions and costs of issue, through the issuance of
shares of common stock pursuant to a Registration Statement on Form SB-1.
The Company intends to use the proceeds to fund research and development of
iQ Germany, expansion of the Company's marketing and sales activities and
general working capital. It is unlikely that current funds on hand will
allow the Company to complete its product development and marketing plan.
Additional financing will be required and there is no assurance that the
Company will be able to secure additional financing or that such financings
will be on terms beneficial to the existing shareholders.
5
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
(Expressed in United States Dollars;
tabular amounts in thousands except per share data)
(Unaudited)
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for
interim financial reporting and pursuant to the instructions of the
United States Securities and Exchange Commission Form 10-Q and Article
10 of Regulations S-X. While these financial statements reflect all
normal recurring adjustments which are, in the opinion of management,
necessary for fair presentation of the results of the interim period,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report filed on
Form 10-SB for the year ended December 31, 1999.
(b) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Foreign currency translation
The Company's current activities result in transactions denominated in
both US and Canadian dollars. Management considered the following in
the process to determine the Company's functional currency.
(i) All equity financing to this date have been denominated in US
funds.
(ii) In excess of 50% of the Company's operating expenditures are paid
or denominated in US funds.
(iii)In excess of 50% of the total assets throughout are denominated
in US funds. Further, the Company maintains its cash in US
dollars, only converting to Canadian dollars to the extent
necessary to pay Canadian denominated liabilities.
Based on these factors the Company has determined that the United
States dollars is the appropriate functional currency for measurement
and reporting purposes.
6
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
(Expressed in United States Dollars;
tabular amounts in thousands except per share data)
(Unaudited)
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Foreign currency translation (continued)
Transaction amounts denominated in foreign currencies are translated
into US dollars at exchange rates prevailing at the transaction dates.
Carrying values of non-US dollar assets and liabilities are adjusted
at each balance sheet date to reflect the exchange rate prevailing at
that date. Gains and losses arising from adjustment of foreign assets
and liabilities are included in earnings. Assets and liabilities of
subsidiaries not reporting in US dollars are translated into their US
dollar equivalents at the rate of exchange in effect at the balance
sheet date. Revenues and expenses are translated at the average
exchange rate for the reporting period. Gains and losses arising from
translation of financial statements are deferred and recorded as a
separate component of comprehensive income (loss).
(d) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks
and highly liquid money market instruments with an original maturity
of 90 days or less.
(e) Equipment
Equipment is recorded at cost. Depreciation is recorded using the
straight-line method based upon the useful lives of the assets,
generally estimated at 3-5 years. When assets are sold or retired, the
cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in income.
(f) Long-term liabilities to original shareholders
Liabilities due to shareholders including interest only in case the
Company has generated sufficient net assets or liquidation proceeds
are shown under non-current liabilities.
(g) Research and development
Research and development costs are expensed as incurred unless a
project meets the specified criteria for capitalization. Transfer of
intangible assets in the amount of DM400,000 (patent and registered
design) by founding shareholders of the Company and the related
liability are not reflected in the accompanying financial statements.
(h) Impairment of long-lived assets
The carrying value of long-lived assets, principally equipment, is
reviewed for potential impairment when events or changes in
circumstances indicate that the carrying amount of such assets may not
be recoverable. The determination of recoverability is made based upon
the estimated undiscounted future net cash flows of the related
assets.
7
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
(Expressed in United States Dollars;
tabular amounts in thousands except per share data)
(Unaudited)
================================================================================
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Stock based compensation
In accordance with the provisions of the Financial Accounting
Standards Board's ("FASB") Statement of Accounting Standard ("SFAS")
No. 123, Accounting for Stock-Based Compensation, the Company has
elected to follow the Accounting Principles Board's Opinion No. 25,
Accounting for Stock Issued to Employees and the related
interpretations ("APB 25") in accounting for its employee stock based
compensation plans. Under APB 25, if the exercise price of employee
stock options equals or exceeds the fair value of the underlying stock
on the date of grant, no compensation expense is recognized.
(j) Financial instruments and risk concentration
The Company estimates that the carrying values of its cash and cash
equivalents, current receivables and, payables, approximate fair value
at March 31, 2000 and December 31, 1999 due to the short-term maturity
of the balances. Financial instruments which potentially subject the
Company to concentration of credit risk are primarily cash and cash
equivalents. It is the Company's practice to place its cash and cash
equivalents in time deposits at commercial banks with high credit
ratings. In foreign locations, local financial institutions are
generally utilized for local currency needs. The Company limits the
amount of exposure to any one institution and does not believe it is
exposed to any significant credit risk.
(k) Recent pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 (SFAS 133), Accounting for Derivative Instruments
and Hedging Activities, which standardizes the accounting for
derivative instruments. SFAS 133, as amended, is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The
impact on the Company's financial statements has not been determined
but the Company currently does not use derivatives to manage its
exposure to foreign exchange and interest rate risk. The Company will
adopt SFAS 133 as of January 1, 2001.
8
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
(Expressed in United States Dollars;
tabular amounts in thousands except per share data)
(Unaudited)
================================================================================
4. SHARE CAPITAL
(a) Service warrants
The US Investor Relations Service Agreement dated June 28, 1999 has
been terminated in November 12, 1999 and the 200,000 warrants provided
for under the IR Agreement were cancelled. In December 1999, the
Company issued 40,000 one year Service Warrants, each warrant
entitling the holder to purchase one common share exercisable as
follows:
(i) 20,000 warrants vesting on execution of Investor Relations
Agreement, exercisable at a price of $5.00 per share;
(ii) 20,000 warrants vesting June 1, 2000, exercisable at a price of
$7.50 per share.
(b) Stock options
The Company has established a Stock Option Plan for employees,
officers, directors, consultants, and advisors. Options granted under
the Stock Option Plan may be either incentive stock option or
non-qualified stock options. The Company has reserved 1,918,000 common
shares for issuance under the Stock Option Plan. Options granted for
issuance under the Stock Option Plan generally are not transferable,
and the exercise price of incentive stock options must be at lease
equal to 100% of the fair market value of the common shares on the
date of the grant. The Stock Option Plan may be administered by the
Board of Directors or a committee of the Board (the "Committee"). The
Board of Directors or the Committee, as the case may be, has the power
to determine the terms of any options granted thereunder, including
the exercise price, the number of shares subject to the option, and
the exercisability thereof. The term of an option granted under the
Plan may not exceed ten years. The specific terms of each option grant
shall be approved by the Board of Directors or the Committee. The
Company grants stock options both under the Stock Option Plan and by
way of individual grants outside of the Stock Option Plan.
The following options have been granted and remain outstanding at June
30, 2000 under the Stock Option Plan:
Number of Exercise
options price Expiry date
------- ----- -----------
1,035,000 $ 1.50 December 1, 2008
80,000 $ 2.50 December 1, 2008
58,000 $ 1.50 June 28, 2009
80,000 $ 1.50 June 28, 2009
160,000 $ 1.50 July 7, 2009
115,000 $ 1.50 October 15, 2009
367,000 $ 1.50 June 12, 2010
---------
1,895,000
9
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
(Expressed in United States Dollars;
tabular amounts in thousands except per share data)
(Unaudited)
================================================================================
4. SHARE CAPITAL (Continued)
(b) Stock options (continued)
The following options have been granted and remain outstanding at June
30, 2000 outside of the Stock Option Plan:
Number of Exercise
options price Expiry date
--------- ----- -----------
60,000 $ 1.50 June 28, 2001
40,000 $ 1.50 June 12, 2002
--------
100,000
In addition, 15,000 shares were issued in the quarter ended March 31,
2000, on the exercise of stock options granted under the Stock Option
Plan.
5. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the financial
statements comprised: (a) Management fees for the six months ended June 30,
2000 of $Nil (six months ended June 30, 1999 - $Nil) paid to a company with
a common director. The Company has entered into the following contractual
arrangements:
(i) a consulting agreement dated August 25, 1998 with a company having a
common director. Under the terms of the agreement the Company is
obligated to pay the consultant $6,000 per month for a term of three
years commencing August 25, 1998;
(ii) employment agreement with two directors of the Company to occupy the
position of President and Chief Executive Officer and Vice-President,
Research and Development and Technical Advisor. Under the terms of
these agreements the Company is obligated to pay these employees
$9,000 and $8,000 per month, respectively, for a term of five years
commencing August 31, 1998;
(iii)an employment agreement with the Vice-President, Finance and Chief
Financial Officer. Under the terms of the agreement, the Company is
obligated to pay this employee $7,000 per month for a term of three
years commencing September 1, 1998. IQ Battery acquired patents and
know-how improving the current output of a chargeable battery at low
outside temperatures and the registered design "iQ" based on a
contract dated March 15, 1995 from two shareholders and directors of
iQ Battery. The intangibles purchased relate to a German patent, an
international patent application as well as the registered design
"iQ". The Company and the shareholders agreed that the shareholders
would receive DM 400,000 from future income. Any amounts paid will be
charged to operations as a current expense. No other amounts are due
as the Company has not realized any applicable revenues or royalties.
10
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2000
(Expressed in United States Dollars;
tabular amounts in thousands except per share data)
(Unaudited)
================================================================================
6. SEGMENT DISCLOSURES
The Company is currently marketing and developing its proprietary
technology. In accordance with SFAS No. 131 the Company considers its
business to consist of one reportable operating segment. All of the
Company's physical assets are located in Germany.
11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements and information contained in this Report constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievement of the Company, or developments in the
Company's industry, to differ materially from the anticipated results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to: the Company's limited
operating history and history of losses, the Company's relative concentration of
customers, the risks related to the Company's ability to commercialize its
technology, risks associated with changes in market demand for the Company's
technology, risks involving the management of growth and integration of
acquisitions, competition, product development risks and risks of technological
change, dependence on third-party marketing relationships and suppliers, the
Company's ability to protect its intellectual property rights and the other
risks and uncertainties detailed in the Company's Securities and Exchange
Commission filings.
Unless provided otherwise, all amounts are in United States dollars.
Overview
The Company was organized in 1991 to develop and commercialize batteries
and electric power technology for the automotive industry. Since that date, the
Company has been engaged primarily in research and product development efforts.
Its primary product is a "smart" automotive starter battery, which combines
several proprietary features designed to optimize automotive starter battery
efficiency.
The Company is an early stage company and its principal activity to date
has been research and development. The Company has not derived revenues from
operations, and does not anticipate having material revenues from operations
until late 2000, if at all. The Company has incurred substantial losses to date,
and there can be no assurance that the Company will attain any particular level
of revenues or that the Company will achieve profitability.
The Company believes that its historic spending levels are not indicative
of future spending levels because it is in a period in which it will increase
spending on product research and development, marketing, staffing and other
general operating expenses. For these reasons, the Company believes its
expenses, losses, and deficit accumulated during the development stage will
increase significantly before it generates material revenues. Prior to June 18,
1999, the financial statements of the Company and iQ Battery Research &
Development GmbH ("iQ Germany") were presented as separate and distinct as the
former shareholders of iQ Germany had a put option to enable them to reverse the
August 25, 1998 transaction in which the Company acquired iQ Germany. That
option terminated on June 18, 1999, when the Company raised in excess of
$3,000,000 through equity financing. See "Liquidity and Capital Resources."
After June 17, 1999, all financial information is reported on a
consolidated basis. Any financial information of the Company used for
comparative purposes prior to June 18, 1999, is financial information of iQ
Germany only.
On March 30, 2000, the Company's shareholders approved a reverse-split of
the Company's issued and outstanding common shares on a two and one-half (2 1/2)
share for one (1) share basis. On April 10, 2000, the Company filed Articles of
Amendment to effect the reverse split, and each 2 1/2 common shares issued and
outstanding on April 10, 2000 were automatically converted into 1 common share.
The information contained in the Company's financial statements, which are a
part of this report, and this report give effect to the reverse split.
12
<PAGE>
The Company's Results of Operations for the Three Months Ended June 30, 2000
Compared to the Three Months Ended June 30, 1999.
No revenues were recorded in either the three month period ended June 30,
2000 or the three month period ended June 30, 1999. The Company does not
anticipate it will record any revenues from operations during the third quarter
ending September 30, 2000. The Company earned $24,000 in interest income during
the three month period ended June 30, 2000, compared to $5,000 for the same
period in 1999.
As of June 30, 2000, the Company had an accumulated deficit of $4,669,000.
The Company incurred a net loss of $561,000 for the three month period ended
June 30, 2000, compared to a net loss of $619,000 for the comparable period in
1999. The difference in the non-cash stock-based compensation expense during the
three month period ended June 30, 1999 of $288,000 compared to $5,000 during the
same period in 2000, accounted in part for the higher net loss for the three
month period ended June 30, 1999.
For the three month period ended June 30, 2000, the Company incurred
research and development expenses of $337,000 compared with $252,000 for the
comparable period of the prior year. The increase in research and development
expenses reflects the cost of supporting a higher level of activity, principally
research, product development, building prototypes and product testing. Research
and development expenses increased during the three month period ended June 30,
2000, compared to the same period in 1999 for the following: personnel expenses
increased to $162,000 during the three month period in 2000 from $111,000 in
1999, as a result of an increase in the number of research and development
personnel; laboratory expenses increased to $87,000 during the three month
period in 2000 from $50,000 in 1999; and office expenses increased to $46,000
during the three month period in 2000 from $12,000 in 1999, as a result of
increased research and development activity. Consulting services and
professional fees related to research and development decreased from $79,000
during the three month period in 1999 to $42,000 in 2000, as the Company relied
on its own personnel for research and development.
The Company incurred general and administrative expenses of $243,000 for
the three month period ended June 30, 2000 compared with $75,000 for the
comparable period in 1999. Administrative and general corporate expenses
increased during the three month period ended June 30, 2000, compared to the
same period in 1999 for the following: personnel expenses increased to $33,000
during the three month period in 2000 from $23,000 in 1999, as a result of an
increase in the number of administrative personnel; office expenses increased to
$16,000 during the three month period in 2000 from $4,000 in 1999, as a result
of an increase in general administrative and business activities; consulting
services increased to $29,000 during the three month period in 2000 from $6,000
in 1999. During the three month period ended June 30, 2000, the Company incurred
management fees of $18,000, marketing and sales expenses of $39,000, investor
relations expenses of $47,000, travel expenses of $4,000 and other expenses of
$21,000, primarily as a result of sales and marketing activities and additional
administrative cost related to being a public company. Professional fees related
to general and administrative activities increased to $43,000 during the three
month period ended June 30, 2000 from $35,000 during the same period in 1999.
The Company's expenditures are expected to materially increase as it
pursues research, development, testing and commercialization programs and
expands finance and administrative staff and financial and management system.
The Company's Results of Operations for the Six Months Ended June 30, 2000
Compared to the Six Months Ended June 30, 1999.
No revenues were recorded in either the six month period ended June 30,
2000 or the six month period ended June 30, 1999. The Company does not
anticipate it will record any revenues from operations during the third quarter
ending September 30, 2000. The Company earned $56,000 in interest income during
the six month period ended June 30, 2000, compared to $5,000 for the same period
in 1999.
The Company incurred a net loss of $936,000 for the six month period ended
June 30, 2000, compared to a net loss of $866,000 for the comparable period in
1999. The difference in the non-cash stock-based compensation expense during the
six month period ended June 30, 1999 of $288,000 compared to $10,000 during the
same period in 2000, accounted in part for the higher net loss for the six month
period ended June 30, 1999.
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For the six month period ended June 30, 2000, the Company incurred research
and development expenses of $631,000 compared with $461,000 for the comparable
period of the prior year. The increase in research and development expenses
reflects the cost of supporting a higher level of activity, principally
research, product development, building prototypes and product testing. Research
and development expenses increased during the six month period ended June 30,
2000, compared to the same period in 1999 for the following: personnel expenses
increased to $279,000 during the six month period in 2000 from $243,000 in 1999,
as a result of an increase in the number of research and development personnel;
laboratory expenses increased to $169,000 during the six month period in 2000
from $90,000 in 1999; and office expenses increased to $115,000 during the six
month period in 2000 from $17,000 in 1999, as a result of increased research and
development activity. Consulting services and professional fees related to
research and development decreased from $111,000 during the six month period in
1999 to $68,000 in 2000, as the Company relied on its own personnel for research
and development.
The Company incurred general and administrative expenses of $351,000 for
the six month period ended June 30, 2000 compared with $107,000 for the
comparable period in 1999. Administrative and general corporate expenses
increased during the six month period ended June 30, 2000, compared to the same
period in 1999 for the following: personnel expenses increased to $68,000 during
the six month period in 2000 from $39,000 in 1999, as a result of an increase in
the number of administrative personnel; office expenses increased to $24,000
during the six month period in 2000 from $9,000 in 1999, as a result of an
increase in general administrative and business activities; consulting services
increased to $46,000 during the six month period in 2000 from $12,000 in 1999.
During the six month period ended June 30, 2000, the Company incurred management
fees of $36,000, marketing and sales expenses of $40,000, investor relations
expenses of $68,000, travel expenses of $20,000 and other expenses of $31,000,
primarily as a result of sales and marketing activities and additional
administrative cost related to being a public company. Professional fees related
to general and administrative activities increased to $76,000 during the six
month period ended June 30, 2000 from $39,000 during the same period in 1999.
The Company's expenditures are expected to materially increase as it
pursues research, development, testing and commercialization programs and
expands finance and administrative staff and financial and management system.
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily through
sales of its equity securities. As of June 30, 2000, the Company had cash and
cash equivalents of $1,363,000. From inception to June 30, 2000, the Company had
raised approximately $7.35 million (net of issuance costs) from the sale of
securities, excluding the issuance of 4,000,000 common shares for deemed
proceeds of $2,500,000 on the business combination with iQ Germany. On June 18,
1999, the Company completed its initial public offering in the United States
pursuant to which it received net proceeds of $4,690,000. As a part of the
issuance of 2,200,000 common shares the agent to the offering was granted
220,000 Agent Warrants entitling the agent to purchase 220,000 common shares for
$2.50 per share in the first year of the warrant and for $3.75 per share in the
second year of the warrant. Agent Warrants were exercised to purchase 139,850
shares for proceeds of $349,000 to the Company during the year ended December
31, 1999.
iQ Germany is obligated to pay to Horst Dieter Braun, that company's
founding President and Peter Braun, the Company's President, DM 400,000 in
connection with iQ Germany's acquisition of the iQ technology and other
intellectual property rights. The amount is payable only out of and only to the
extent of the gross profits of iQ Germany.
The Company plans to finance its capital needs principally from the net
proceeds of its past securities offerings and interest thereon and, to the
extent available, lines of credit. The Company currently has no commitments for
any credit facilities such as revolving credit agreements or lines of credit
that could provide additional working capital. The Company believes that its
existing capital resources will be sufficient to fund its operations through
2000. The Company's capital requirements depend on several factors, including
the success and progress of its product development programs, the resources the
Company devotes to developing its products, the extent to which its products
achieve market acceptance, and other factors. The Company expects to devote
substantial cash for research and development. The Company cannot adequately
predict the amount and timing of our future cash requirements. The Company will
consider collaborative research and development arrangements with strategic
partners and additional public or private financing (including the issuance of
additional equity securities) to fund all or a part of a particular program in
the future. There can be no assurance that additional funding will be available
or, if available, that it will be available on terms acceptable to the Company.
If adequate funds are not available, the Company may have to reduce
substantially or eliminate expenditures for
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research and development, testing, production and marketing of its proposed
products, or obtain funds through arrangements with strategic partners that
require it to relinquish rights to some of its technologies or products. There
can be no assurance that the Company will be able to raise additional cash if
its cash resources are exhausted. The Company's ability to arrange such
financing in the future will depend in part upon the prevailing capital market
conditions as well as its business performance.
The Company anticipates that the level of spending will increase
significantly in future periods as it undertakes research and development
activities related to the commercialization of the iQ technology. In addition,
the Company anticipates that its general and administrative expenses will also
significantly increase as a result of the growth in our research, development,
testing and business development programs. The actual levels of research and
development, administrative and general corporate expenditures are dependent on
the cash resources available to the Company.
Foreign Currency Translation Risk
To date, exposure to foreign currency fluctuations has not had a material
effect on our operations. The Company believes its risk of foreign currency
translation is limited, as its operations are based in Germany with resulting
transactions primarily denominated in United States dollars. The Company does
not currently engage in hedging or other activities to control the risk of
foreign currency translation, but may do so in the future, if conditions
warrant.
Recent Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including some types of
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS 133 is effective for fiscal years beginning
after June 15, 1999 and must be applied to instruments issued, acquired, or
substantively modified after December 31, 1997. The Company does not expect the
adoption of the accounting pronouncement to have a material effect on our
financial position or results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
From time to time, the Company may be a party to litigation and claims
incident to the ordinary course of business. While the results of litigation and
claims cannot be predicted with certainty, the Company believes that the final
outcome of such matters will not have a material adverse effect on its business,
financial condition and operating results.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a) Sales of Unregistered Securities
During the three month period ended March 31, 2000, the Company issued
15,000 common shares pursuant to the exercise of Stock Options for proceeds of
$37,500. The common shares were issued to non-U.S. persons outside the United
States in reliance upon an exemption from registration pursuant to Regulation S
promulgated under the Securities Act.
b) Use of Proceeds from Sales of Registered Securities
On June 18, 1999, the Company completed an initial public offering of its
common shares. The selling agent in the offering was IPO Capital Corp. (the
"Agent"). The common shares sold in the offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement on Form SB-1
(the "Registration Statement") (Reg. No. 333-68649) that was declared effective
by the SEC on May 10, 1999. The offering commenced on May 10, 1999 after which
time, all 2,200,000 common shares registered under the Registration Statement
were sold at a price to the public of $2.50 per common share. The aggregate
offering amount registered was $5,500,000. In connection with the offering, the
Company paid an aggregate of $105,000 in commissions and fees to the Agent and
also issued to the Agent warrants to purchase 220,000 common shares. The Agent
may exercise the warrants for $2.50 per common share during the first year and
for $3.75 per common share during the second year after issuance.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the three month period ended June 30, 2000.
ITEM 5. OTHER INFORMATION
Effective July 17, 2000, Gerhard K. Trenz was terminated as the Company's
Vice-President - Finance and Chief Financial Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IQ POWER TECHNOLOGY INC
Date: August 11, 2000 By: /s/ Peter E. Braun
-------------------------------------
Name: Peter E. Braun
Title: President and Principal
Financial and Accounting
Officer
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