================================================================================
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 March 31, 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 [X] No [ ]
The number of outstanding common shares, without par value, of the
registrant at March 31, 2000 was 9,746,620.
<PAGE>
IQ POWER TECHNOLOGY
INDEX TO THE FORM 10-QSB
For the quarterly period ended March 31, 2000
Page
Part I - Financial Information
ITEM 1. Financial Statements
Balance Sheet ......................................................3
Statement of Loss and Deficit ......................................4
Statement of Cash Flow .............................................5
Notes to the Financial Statements ..................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................15
Part II - Other Information ..................................................17
Item 1. Legal Proceedings ..................................................17
Item 2. Changes in Securities and Use of Proceeds ..........................17
Item 3. Defaults Upon Senior Securities ....................................17
Item 4. Submission of Matters to a Vote of Security Holders ................18
Item 5. Other Information ..................................................18
Item 6. Exhibits and Reports on Form 8-K ...................................18
Signatures ...................................................................19
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Balance Sheet
March 31, 2000
(Expressed in United States dollars; all amounts in thousands
except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
March 31, December 31,
2000 1999
------------ -------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 1,940 $ 2,283
Receivable from shareholders 46 62
Accounts receivable 90 180
Prepaids and deposits 19 15
- --------------------------------------------------------------------------------------------------------
Total current assets 2,095 2,540
EQUIPMENT, net 285 297
- --------------------------------------------------------------------------------------------------------
Total assets $ 2,380 $ 2,837
========================================================================================================
LIABILITIES
CURRENT
Bank indebtedness $ 1 $ 1
Accounts payable 108 130
Accrued liabilities 36 55
- --------------------------------------------------------------------------------------------------------
Total current liabilities 145 186
BANK DEBT - non-current 2 2
- --------------------------------------------------------------------------------------------------------
Total liabilities 147 188
========================================================================================================
SHAREHOLDERS' EQUITY (Note 4)
Authorized:
An unlimited number of common shares of no par value.
Issued and outstanding:
9,776,620 common shares at March 31, 2000
9,731,620 common shares at December 31, 1999 5,941 5,904
Additional paid-in capital 401 396
Accumulated other comprehensive income (loss) (1) 82
Accumulated deficit, during development stage (4,108) (3,733)
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) 2,233 2,649
- --------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,380 $ 2,837
========================================================================================================
</TABLE>
CONTINUING OPERATIONS
See accompanying notes to consolidated financial statements
3
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Loss and Comprehensive Loss
Three Months Ended March 31, 2000
(Expressed in United States dollars; all amounts in thousands
except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Cumulative from Three Three
date of inception months ended months ended
to March 31, March 31, March 31,
2000 2000 1999
----------------- ------------ -------------
<S> <C> <C> <C>
Sales and other revenues $ 176 $ - $ -
- --------------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development expenses:
Personnel 1,412 117 122
Laboratory 785 81 42
Office 349 70 5
Consulting services 547 15 15
Professional fees 676 10 17
- --------------------------------------------------------------------------------------------------------------------
3,768 292 201
General and administrative expenses:
Personnel 220 49 14
Financing 151 - 1
Office 67 8 5
Consulting services 110 8 5
Professional fees 176 33 5
Management fees 54 18 -
Investor relations 100 20 -
Research memberships 50 - -
Travel 119 16 -
Other 141 16 -
- --------------------------------------------------------------------------------------------------------------------
1,187 167 30
Interest 133 - -
Stock based compensation 368 - -
- --------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 5,456 459 231
- --------------------------------------------------------------------------------------------------------------------
INTEREST INCOME (147) (84) -
- --------------------------------------------------------------------------------------------------------------------
NET LOSS (5,133) (375) (231)
- --------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income:
Accumulated other comprehensive
income (loss) (1) (46) (78)
- --------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS $ (5,134) $ (458) $ (309)
- --------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.04) $ (0.04)
- --------------------------------------------------------------------------------------------------------------------
Basic and diluted weighted average
number of shares outstanding 9,730,820 5,120,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Cash Flows
Three Months Ended March 31, 2000
(Expressed in United States dollars; all amounts in thousands
except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Cumulative
from date of Three Three
Inception to months ended months ended
March 31, March 31, March 31,
2000 2000 1999
----------------- ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,123) $ (375) $ (231)
Items not affecting cash
Depreciation and amortization 123 8 -
Stock based compensation 373 5 -
Changes in non-cash working capital
Decrease (increase) in accounts receivable (90) 90 35
Decrease (increase) in prepaid and deposits (19) (4) -
Increase (decrease) in accounts payable 108 (22) (64)
Increase (decrease) in accrued liabilities 36 (19) 1
- ----------------------------------------------------------------------------------------------------------------------
(4,592) (317) (259)
- ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITY
Additions to property, plant and equipment (420) (8) (89)
- ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in short-term debt 1 - 177
Increase in due to shareholder (46) 16 224
Advances received from external parties 296 - -
Increase in other long-term debt 2 - -
Cash acquired on business combination 4,718 - -
Advances from subsidiary 581 - 69
Issuance of shares 409 - -
Issuance of atypical shares 1,025 - -
- ----------------------------------------------------------------------------------------------------------------------
6,986 16 470
- ----------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND
CASH EQUIVALENTS 1,963 (310) 122
FOREIGN EXCHANGE MOVEMENT (23) (33) (92)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 2,283 13
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,940 $ 1,940 $ 43
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<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
Shares 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 - - - - (375) (375)
Other comprehensive (loss) -
foreign currency translation
adjustments - - - (83) - (83)
Exercise of Options 15,000 37 - - - 37
Stock based compensation - - 5 - - 5
- ---------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 9,746,620 $ 5,941 $ 401 $ (1) $ (4,108) $ 2,233
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 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.
The comparative financial statements are those of iQ Battery.
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 assets or the amounts 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 2,200,000 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's
technology, 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.
7
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and
reflect the following significant accounting policies:
(a) Consolidation
These consolidated financial statements include accounts of the
Company and its wholly owned subsidiary IQ Battery. All intercompany
transactions and balances have been eliminated.
(b) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 could differ from those estimates.
(c) Foreign currency translation
The Company's current activities result in transactions denominated in
German Deutschemarks and US and Canadian dollars. Management
considered the following in the process of determining the Company's
functional currency.
(i) All significant 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 or
German Deutsche Marks to the extent necessary to pay
Canadian or German 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.
8
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 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.
9
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
(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.
10
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
4. SHARE CAPITAL
Authorized
An unlimited number of common shares
Issued and outstanding
<TABLE>
Number of
Common shares Amount
--------------- ------------
<S> <C> <C>
Balance, December 31, 1998 2,271,770 $ 1,420
Shares issued for cash 2,200,000 5,500
Issue costs - (653)
---------------------------------------------------------------------------------------------------------
Balance, June 17, 1999 4,471,770 6,267
Adjustment for reverse acquisition on June 17, 1999 - (6,207)
---------------------------------------------------------------------------------------------------------
4,471,770 60
---------------------------------------------------------------------------------------------------------
Issued to effect the reverse acquisition 5,120,000 5,495
---------------------------------------------------------------------------------------------------------
Warrants exercised during the year 139,850 349
---------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 9,731,620 $ 5,904
Options exercised during the period 15,000 37
---------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 9,746,620 $ 5,941
---------------------------------------------------------------------------------------------------------
</TABLE>
Subsequent to March 31, 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 consolidation has been
retroactively applied in these financial statements.
(a) Agent's Warrants
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. During the period to December 31, 1999, 139,850 warrants were
exercised for proceeds of $350,000.
11
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
4. SHARE CAPITAL (Continued)
(b) 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.
(c) 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.
12
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
4. SHARE CAPITAL (Continued)
(c) Stock options (continued)
The following options have been granted and remain outstanding at
March 31, 2000 under the Stock Option Plan:
Number of Exercise
options price Expiry date
------------- ----------- ----------------
1,115,000 $ 2.50 December 1, 2008
58,000 $ 2.50 June 28, 2009
80,000 $ 2.50 June 28, 2009
160,000 $ 3.75 July 7, 2009
140,000 $ 4.375 October 15, 2009
20,000 $ 5.00 April 30, 2000
---------------
1,573,000
The following options have been granted and remain outstanding at
March 31, 2000 outside of the Stock Option Plan:
Number of Exercise
options price Expiry date
------------- ----------- ----------------
60,000 $ 2.50 June 28, 2001
40,000 $ 5.00 June 30, 2000
-------------
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.
(d) iQ Battery share capital
The registered capital of iQ Battery is DM 100, which is fully paid.
In addition, the Company has also received a total of DM 1,842,000
($1,025,000) of capital from the issue of atypical shares. The
atypical shareholders have certain information rights, but no voting
powers. Losses and profits are allocated to the atypical shareholders
capital account as stipulated in the individual atypical shareholder
agreements. The atypical shareholders are entitled to terminate the
agreements at the end of 2002 depending on their entrance dates: iQ
Battery had the rights to terminate the agreement in 2001, 2002 and
2003. Generally the compensation to be paid to the atypical
shareholders upon their termination is based on the applicable fair
value of the Company.
All equity securities were acquired by iQ Power as part of the
business combination.
13
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the financial
statements comprised:
(a) Management fees for the three months ended March 31, 2000 of $Nil
(three months ended March 31, 1999 - $Nil) paid to a company with a
common director.
The Company has entered into the following contractual arrangements:
(a) 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;
(b) 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;
(c) 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.
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.
14
<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. 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.
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 entering 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 US$
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.
The Company's Results of Operations for the Three Months Ended March 31,
2000 Compared to the Three Months Ended March 31, 1999.
No revenues were recorded in either the three month period ended March 31,
2000 or the three month period ended March 31, 1999.
As of March 31, 2000, the Company had an accumulated deficit of
US$5,133,000. The Company incurred a net loss of US$375,000 for the three month
period ended March 31, 2000, compared to a net loss of US$231,000 for the
comparable period of the prior year primarily as result of the cost of increased
management and professional fees
15
<PAGE>
and increased employment expenses related to the hiring of additional employees
during 1999. 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.
For the three month period ended March 31, 2000, the Company incurred
research and development expenses of US$292,000 compared with US$201,000 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.
The Company incurred general and administrative expenses of US$167,000 for
the three month period ended March 31, 2000 compared with US$30,000 for the
comparable period of the prior year. The increase in administrative and general
corporate expenses was due primarily to increased personnel costs.
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 March 31, 2000, the Company had cash and
cash equivalents of US$1,940,000. From inception to March 31, 2000, the Company
had raised approximately US$7.35 million (net of issuance costs) from the sale
of such securities, excluding the issuance of 4,000,000 common shares for deemed
proceeds of US$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 US $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. During the period to March 31, 2000, 139,850
warrants were exercised for proceeds of $350,000 to the Company.
iQ Germany is obligated to pay to Horst Dieter Braun, that company's
founding President and Peter Braun, our 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 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.
16
<PAGE>
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
As of the date hereof, there is no material litigation pending against the
Company. On January 3, 1994, a civil lawsuit was filed by Hans Engelhorn against
Peter E. Braun and Horst Dieter Braun in the District Court of Berlin (Case No.
3 O 40/94). Mr. Engelhorn seeks to compel transfer of intellectual property
rights related to the iQ technology or, alternatively, money damages of
approximately DM500,000 ($310,000). The intellectual property rights at issue
are now held by iQ Battery. Mr. Engelhorn alleges that the Brains had a
contractual obligation to transfer the intellectual property to a partnership
which has since been dissolved. Although the lawsuit is still pending, the
Company has been advised by the Brauns that the prosecution of this lawsuit has
not been pursued. The Company believes that the lawsuit is without merit and
will not materially affect its rights in the intellectual property at issue.
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.
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.
17
<PAGE>
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.
In addition, the following table sets forth an estimate of all expenses
incurred in connection with the offering, other than Agent's fees. All amounts
shown are estimated except for the registration fees of the SEC.
SEC Registration Fee $ 1,390
NASD Filing Fee $ 1,000
Accounting Fees and Expenses $ 50,000
Legal Fees and Expenses $ 75,000
Blue Sky Qualification Fees and Expenses $ 15,000
Transfer and Custody Agent Fees $ 10,000
Printing Expenses $ 4,000
Miscellaneous $ 103,610
-------
Total $ 260,000
After deducting the estimated expenses set forth above, the net offering
proceeds to the Company was $5,240,000. Since May 10, 1999, the Company has used
a portion of the net offering proceeds for the purposes described below. The
Company believes that the amounts set forth represent a reasonable estimate of
the amounts actually applied.
Transfer to iQ Battery $ 3,500,000
Payment of payables $ 312,527
Current expenses (working capital) $ 224,470
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its March 30, 2000 Special Shareholders' Meeting, the Company received
approval from its shareholders to pass a Special Resolution that the Articles of
the Corporation be amended to change the issued and outstanding common shares
without par value of the Corporation through the consolidation of every 2.5 such
shares into 1 share. Subsequently the Company effected its 2.5 to 1 reverse
split on April 10, 2000. As a consequence of the reverse split, the trading
symbol and CUSIP number for the Company have changed to "IQPR" and "44985N 20 5"
respectively
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
2.6 Articles of Amendment dated April 10, 2000.
(b) Reports on Form 8-K
None.
18
<PAGE>
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: May 12, 2000 By: /s/ Peter E. Braun
----------------------------------------
Name: Peter E. Braun
Title: President
Date: May 12, 2000 By: /s/ Gerhard K. Trenz
----------------------------------------
Name: Gerhard K. Trenz
Title: Vice President Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
------ -----------
2.6 Articles of Amendment dated April 10, 2000.
EXHIBIT 2.6
ARTICLES OF AMENDMENT
CANADA BUSINESS LOI SUR LES SOCIETES
CORPORATIONS ACT COMMERCIALES CANADIENNES
FORM 4 FORMULE 4
ARTICLES OF AMENDMENT CLAUSES MODIFICATRICES
(SECTION 27 OR 171) (ARTICLES 27 OU 171)
- --------------------------------------------------------------------------------
1 - Name of Corporation - 2 - Corporation No. -
Denomination de la societe N(Degree) de la societe
iQ Power Technology Inc. 309945-8
- --------------------------------------------------------------------------------
3 - The articles of the above-named Les statuts de la societe ci-haut
corporation are amended as follows: mentionee sont modifies de la facon
suivante:
A. Pursuant to s.173(1)(h) of the Canada Business Corporations Act, Article 3
is amended to change the issued and outstanding common shares without par
value of the Corporation through the consolidation of every 2.5 such shares
into 1 share.
- --------------------------------------------------------------------------------
Date Signature Description of Office -
March 30, 2000 Signed "Gregory A. Sasges" Description du poste
Secretary
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY A L'USAGE DU MINISTERE SEULEMENT
- --------------------------------------------------------------------------------
Filed - Deposee
- --------------------------------------------------------------------------------
