SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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: 000-26165
IQ POWER TECHNOLOGY INC.
(Name of Small Business Issuer in its charter)
Canada Not Applicable
(Jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
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)
Evergreen Corporate Services, Inc.
31635 36th Avenue S.W.
Federal Way, Washington 98023-2105
(253) 838-4427
(Name, address and telephone number of agent for service)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common shares without par value
-------------------------------
(Title of Class)
Check whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $0.00
Aggregate market value of the Registrant's Common Stock held by
non-affiliates as of December 31, 1999 was approximately $19,767,353. The number
of shares of the Registrant's Common Stock outstanding as of December 31, 1999
was 24,329,050.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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TABLE OF CONTENTS
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Page
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Item 1: Description of Business................................................................................1
Item 2. Description of Properties.............................................................................12
Item 3. Legal Proceedings.....................................................................................12
Item 4. Submission of Matters to a Vote of Shareholders.......................................................13
Item 5. Market for Common Equity and Related Stockholder Matters..............................................14
Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations.................14
Item 7. Financial Statements..................................................................................20
Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure..................20
Item 9. Directors, Executive Officers, Promoters and Control Persons..........................................20
Item 10. Executive Compensation................................................................................22
Item 11. Security Ownership of Certain Beneficial Owners and Management........................................24
Item 12. Certain Relationships and Related Transactions .......................................................25
Item 13. Exhibits and Reports on Form 8-K......................................................................27
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................27
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Forward-Looking Statements
Certain statements in this Annual Report on Form 10-KSB 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 achievements of iQ Power Technology Inc. and its subsidiary, iQ
Battery Research and Development GmbH (collectively, referred to as "we," "us,"
"our," iQ Power" and/or "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, lengthy sales cycles, the Company's dependence upon a relative
concentration of customers, competition, product development risks and risks of
technological change, dependence on selected vertical markets and third-party
marketing relationships and suppliers, the Company's ability to protect its
intellectual property rights and the other risks and uncertainties described
under "Business - Risk Factors" in Part I of this Annual Report on Form 10-KSB.
Certain of the forward looking statements contained in this Annual Report are
identified with cross references to this section and/or to specific risks
identified under "Business - Risk Factors."
Part I
Item 1: Description of Business
OUR COMPANY
We were incorporated on December 20, 1994 under the Canada Business Corporations
Act as 3099458 Canada Inc. We changed our name to iQ Power Technology Inc. on
May 9, 1997. Our principal executive offices are located at Suite 708-A, 1111
West Hastings Street, Vancouver, British Columbia, Canada V6E 2J3, and our
telephone number at that location is (604) 669-3132.
iQ Germany was formed in 1991 to research and evaluate methods of maximizing
lead-acid battery performance. We were formed to acquire iQ Germany and to
license the technology developed by iQ Germany to others or to market products
based on such technology. Throughout this annual report we refer to the
technology developed by iQ Germany as the "iQ technology."
On August 25, 1998, we acquired all the issued and outstanding common stock of
iQ Germany in exchange for 10,000,000 of our common shares. The total deemed
purchase price of iQ Germany was US$2,500,000 or US$0.25 per share.
On June 18, 1999, we completed our initial public offering in the United States
pursuant to which we received net proceeds of US$4,690,000.
As a result of the share exchange, we acquired all of the assets and liabilities
of iQ Germany and are currently engaged in the development and commercialization
of electrical power sources for the automotive industry and other industries.
We have not been subject to any bankruptcy, receivership or similar proceeding.
BUSINESS
Overview
We are engaged in the development and commercialization of electrical power
sources and energy management technologies for the automotive industry and other
industries, including the medical and defense industry. Our primary technology
relates to a "smart" automotive starter battery, which combines several
proprietary features. These features include:
o an insulated case to minimize temperature fluctuation; o
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o an internal microprocessor to monitor and control the charging and
discharging process;
o a battery acid anti-stratification device, to create a battery with
more efficient charging, storage and power delivery than conventional
automotive batteries; and
o a communication device to transmit digital data over the direct
current power lines (DC lines) of a vehicle.
Compared to conventional car batteries, the iQ battery is lighter, has increased
cold-weather starting performance and increased life expectancy.
Other applications of the iQ Technology relate to battery status indicators,
energy management systems for modern powernet architectures in vehicles and
digital DC line communication devices.
The starting, lighting and ignition battery industry is a mature and stable
industry that is composed of a limited number of aftermarket resellers and
original equipment manufacturers (OEM). Over the last ten years, new competition
and changes in the automotive industry have increased pressure on starting,
lighting and ignition (SLI) battery manufacturers to reduce costs and to improve
the power and efficiency of the batteries they produce. In response to these
conditions and to the increased market demand for smaller and lighter SLI
batteries that produce adequate amounts of electrical power, we have developed
the iQ technology, a battery technology that lowers the weight and increases the
electrical output of SLI batteries.
We have produced prototype batteries based on the iQ technology for testing by
several major automotive manufacturers, including Daimler-Benz, BMW and Audi. As
a result of these tests and extensive internal testing, we believe that when
compared to a conventional 12 volt automotive battery, a comparable iQ battery
will:
o weigh 40% less;
o have six times the recharging capacity in cold conditions;
o require 40% less lead;
o have increased service life; and
o have increased low-temperature starting capacity.
We intend to market the iQ battery to automakers and other customer groups in
order to stimulate demand for the iQ technology. We anticipate that we will
eventually license the iQ technology to automobile suppliers and battery
manufacturers or enter into one or more strategic relationships with established
battery manufacturers to produce and distribute the iQ battery.
Industry Background
The SLI battery industry is a stable, mature industry that is composed of a
limited number of aftermarket resellers and OEM's. In 1997, worldwide unit sales
in the SLI battery market have been estimated at approximately 235 million units
with a value of US$7.5 billion (Source: AMZ Auto Motor Zubehor, September 1997).
The SLI battery industry is highly-concentrated and is dominated by eight SLI
battery manufacturers who, in 1997, accounted for approximately 66% of the
worldwide market share. According to ANZ Auto Motor Zubehor, the manufacturers
included Exide (U.S.) (20%), Yuasa (Japan) (10%); GNB (Australia) (8%); Hawker
(England) (7%); Johnson Control (U.S.) (6%); Varta (Germany) (5%); JSB (Japan)
(5%) and Delco Remy (U.S.) (5%).
The SLI battery industry, over the past 30 years, has had a relatively low level
of product innovation and has been slow to respond to changes in automotive
technology and performance requirements. However, new competition within the SLI
battery industry and changes in the automotive manufacturing industry have
placed increased pressure on SLI battery manufacturers to reduce costs and to
increase the power and efficiency of the batteries they produce. In recent
years, many automotive manufacturers have begun selling their component
manufacturing divisions in an effort to streamline production. This has resulted
in increased competition and lower overall prices for SLI batteries. At the same
time, many automobile manufacturers, in an effort to reduce costs, have begun to
apply strict conditions to their relationships with OEM's, such as requiring
"just-in-time" delivery and "in house" assembly of components.
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Many automobile manufacturers have also adopted a policy of having at least two
alternative sources of supply, thus requiring any developer of new battery
technologies to persuade other OEM's to adopt similar technologies.
Recent advances in automobile technology and design have placed increasing
demands on the electrical output generated by an automobile battery. Despite
these changes, conventional lead acid batteries have remained relatively
unchanged since they were first introduced as an electrical power source for the
auto industry. Conventional lead acid batteries are extremely sensitive to
changes in temperature and continuously lose output capacity due to temperature
fluctuations, vibration damage and corrosion and sulfatation inside the battery.
As a result, in order to compensate for the tendency of conventional lead acid
batteries to lose much of their output capacity over time, conventional battery
manufacturers are required to manufacture larger and heavier batteries with
increased initial output capacity. Such batteries not only add additional weight
to the vehicle, but are also often more difficult to integrate into modern
engine configurations. At the same time, fuel efficiency requirements and engine
designs require that battery size and weight be reduced to ensure maximum fuel
efficiency.
We believe that increased competition in the SLI battery manufacturing industry
along with increased demands for high-powered, lightweight, efficient SLI
batteries that can be used in both traditional and alternative vehicle
applications, will facilitate the adoption of our "smart battery" technology by
aftermarket resellers and OEM's.
How the iQ technology Works
Over time, lead-acid batteries lose output capacity due to, among other things,
temperature fluctuations and corrosion of the internal lead plates. The iQ
battery utilizes an insulated case, an internal microprocessor and a battery
acid anti-stratification device to minimize the loss of output capacity. As a
result, the iQ battery requires fewer lead plates than a conventional lead acid
battery to deliver the required output capacity for a specific application.
Double-Walled Casing
Conventional lead-acid batteries are vulnerable to damage caused by temperatures
above 50 degrees Centigrade (122 degrees Fahrenheit) and to loss of starting
performance when temperatures fall below freezing (0 degrees Celsius or 32
degrees Fahrenheit). Some auto manufacturers have attempted to protect batteries
from the high temperatures found in the car's engine compartment by installing
the batteries in the rear of the vehicle. Although this placement protects
batteries from heat, it requires the use of long, thick cables to connect the
battery to the engine. The cables not only increase the weight of the car, they
also produce electrical losses in cold starting conditions. To offset these
losses, manufacturers must use batteries with larger amounts of lead and acid,
thus further increasing the total weight of the automobile.
In order to minimize the loss of performance caused by temperature extremes, we
engaged BASF, Germany's largest chemical company, to develop a double-walled
battery case made from a polypropylene foam material called Neopolen(R), a
thermoplastic particle foam. When a battery is placed inside the Neopolen case,
it is protected against the extreme temperature fluctuations by the thermal
insulation properties of the material.
In addition, Neopolen has mechanical properties which lends itself to
integrating with battery technology. The cells of this ductile material remain
intact under mechanical pressure and, after protracted compression, the material
returns to its original shape. We believe that the structural stability of the
Neopolen case will provide additional protection to the internal battery
components.
Energy Control System
Although the insulated case of the iQ battery provides protection against
extreme high temperatures, the insulated case cannot protect the battery from
extended low temperatures. Temperatures below freezing dramatically reduce the
ability of a battery to start an automobile engine and to be recharged by a
running car's generator. To prevent the loss of performance caused by low
temperatures, the iQ battery incorporates an energy control system to maintain
or reestablish optimal internal battery temperatures.
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The energy control system consists of a sensor and control system and an
internal heating component. The sensor and control unit is designed to measure
and record a variety of internal and external factors, including:
o outside temperature
o changes in outside temperature
o inside temperatures
o changes in inside temperature
o the revolutions per minute at which the engine was cranked
o the time of travel and the RPMs during travel
o voltage
o changes in voltage
Using this information, the energy control system determines when the heating
component must be activated and the amount of power that may be used to maintain
optimum internal battery temperature without draining the battery to the point
that damage occurs. We anticipate that, in the future, automobiles will have
real time electronic information displays linked to the vehicle's on-board
computer system to provide the driver information relating to battery charge
levels, electrical outputs, temperature and other information.
We have initiated programs to complete the production design of the integrated
circuits necessary for the internal sensor and control unit. As part of this
process, we have received bids, from several manufacturers, each of which has
established, at its own cost, design teams to compete for anticipated production
orders. At the present time, each manufacturer has developed and presented
functional prototypes meeting our specifications. If we elect to produce the iQ
battery, rather than license the iQ technology, we anticipate that we will
select one of these manufacturers to produce the energy control system
components.
The Anti-Stratification Component
Acid stratification is a less well-known, but significant problem associated
with lead-acid batteries. Lead-acid batteries utilize a mixture of sulfuric acid
and distilled water. Because the density of water is less than that of sulfuric
acid, over time gravity causes the acid and the water to separate. When this
separation occurs, the battery is not able to produce or store electric power in
the upper parts of the internal lead plates that are surrounded by water. In
addition, if pure sulfuric acid becomes concentrated in the lower parts of the
battery, the highly corrosive effects of the acid tend to override the
electrochemical process in the lower parts of the internal lead plates.
The problems caused by acid stratification can be alleviated by continuously
mixing the acid and water. In the past, manufacturers have sought to address
this problem with acid pumps and other methods, but their efforts have not been
successfully adapted for commercial application in the automotive starter
battery market.
Instead of using moving parts or pumps, the iQ technology uses hydrodynamic
principles to facilitate continuous mixing of the sulfuric acid and the
distilled water inside the battery without using moving parts. A simple plastic
baffle is integrated into each cell of the battery. When the vehicle is moving,
e.g., accelerating or braking, the inertial energy acts with the baffle to
produce internal fluid pressure that causes the sulfuric acid at the bottom of
the battery to travel through a corridor to the top of the battery. Specially
designed "gating" mechanisms inhibit the reversal of the fluid flow. In
addition, when the vehicle is not moving, the internal baffle system acts as a
hydrodynamic pump that moves fluid to the top of the battery in response to the
battery's internal heating element.
The Communication Device
Until recently, data transmission in automobile electrical systems used separate
data cable and connector systems. YAMAR Electronics has patented technology that
permits information and data to be accumulated in the microprocessor and
transmitted over DC lines. This technology is currently being tested and
evaluated by BMW, OEMs and Tier 1 suppliers. We have entered into a
collaborative agreement with YAMAR to develop solutions using their patented
technologies in our iQ Battery. The iQ solution is able to transmit digital data
at the rate of up to 250 kbs over the DC lines, improving the efficiency of
electrical systems by reducing the number of wiring harnesses
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and connectors used in electrical systems. We believe that this technology can
be developed into a solution that will permit information such as the state of
charge (SOC) and state of health (SOH) of battery and other electrical systems
to be transferred to the board computer or separate status indicators. The iQ
solution is designed to avoid potential wiring and connector problems and reduce
the costs related to wiring and connector installations.
We are closely collaborating with our strategic partner YAMAR Electronics to
develop an ASIC solution using this patented technology. To date we have spent
approximately US$30,000 on research and development for applications related to
our iQ Battery, and we anticipate that prototypes of this system will be
available in the third-quarter of 2000.
Performance Specifications and Test Results
The outer dimensions of the iQ battery are identical to a conventional 12 volt
lead acid battery in order to facilitate ease of replacement in existing
vehicles. In addition, the dimensions and shape of the iQ battery's terminals
are identical to those of conventional batteries. The iQ battery, however, loses
charging capacity at a much lower rate than conventional batteries. As a result,
the iQ battery requires less amp output to deliver the same performance over
time, and therefore because it requires fewer lead plates, weighs approximately
40% less than conventional batteries.
Our prototype batteries have been tested extensively both in-house and by
third-party organizations. The following descriptions detail the results of
independent tests performed in 1998 by a major auto manufacturer with which we
have a strategic relationship. All tests compared the prototype iQ battery with
a standard, 12 volt, 100 amp battery that is normally used as OEM equipment in
German luxury cars.
Car Power System Test
In the car power system test, the tested batteries were inserted into the power
system of a standard automobile. A winter night drive was then simulated by
placing the power system under load by adding additional power consumers, such
as a heater, headlights, a stereo, power windows, etc. The electrical current
output of the batteries was then measured under two different temperature
conditions, 20 degrees Celsius and -20 degrees Celsius. The results indicate
that at 20 degrees Celsius, the electrical current output of the iQ battery was
125% of a conventional battery. At -20 degrees Celsius, the electrical current
output of the iQ battery was 420% of a conventional battery.
Battery Test
In the battery test, the tested batteries were charged and discharged multiple
times at different temperature levels. The amount of time necessary to complete
a full charging cycle (e.g., fully charge after being fully discharged) was
measured. The tests showed that the iQ battery's recharging times were
substantially equivalent to conventional batteries in moderate to warm
temperatures and over 40 hours less than the recharge time of a conventional
battery in extreme cold conditions.
Climate Room Test
In the climate room test, the batteries were mounted in automobiles and placed
in cold conditions (-25 degrees Celsius). The car's engine was then cranked and
the number of revolutions per minute was recorded. The higher the revolutions,
the more starting power can be attributed to the tested battery. Based on the
results of the climate room test, the iQ battery performed better than the
conventional battery in cold starting conditions.
Life Cycle Test
In the life cycle test, the batteries were run through a series of industry
standard tests that simulated the normal life cycle of a automobile SLI battery.
At the end of the test, the lead battery plates were examined and the charging
capacity of the batteries was measured to determine the percentage of battery
capacity that was lost over time. The iQ battery lost approximately 14% of its
capacity compared with the loss of approximately 22% of capacity for the
conventional battery.
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In addition to the foregoing, in 1996, we completed independent, third party
safety testing of the iQ battery in Germany, and in which all applicable safety
specifications were met. (TUV Rheinland Product Safety GmbH, test report no.
E-9613191E-01). We are not aware of any safety issues related to the iQ battery
that are not also applicable to standard automotive batteries.
Our Strategy
Our objective is to license the iQ technology to leading manufacturers of
automotive batteries and to position us as a leading provider of battery and
electric power technology to the automotive industry and other industries. Our
strategy includes the following elements:
o Marketing to Automakers. We have begun marketing prototypes of the iQ
battery to major automakers in order to stimulate demand for the iQ
technology. We anticipate that its initial marketing efforts with
automakers will be concentrated on a relatively small group of
companies and will be directed by a small and highly-skilled sales
force of sales and application engineers.
o Own manufacturing capacities. We are exploring an opportunity to
acquire an interest in a battery manufacturer in order to reduce
time-to-market of our ready developed product.
o Marketing to other industries. We have been approached by the medical
and the defense industries to develop batteries to solve problems that
are similar to those faced by users of SLI batteries. We have sent
proposals for development to these companies and have entered into
contract negotiations. We anticipate we will develop and deliver
prototype products to the companies for testing.
o License the iQ technology and Develop Manufacturing Relationships.
Once automakers and manufacturer demand has been developed, we intend
to license the iQ technology to major automaker and established
third-party manufacturers of SLI batteries. We may also establish
strategic relationships with manufacturers and suppliers of SLI
batteries in order to produce commercial quantities of SLI batteries
utilizing the iQ technology. We have also had discussions with
suppliers regarding integrating the iQ Chip and software technology
into their electronic equipment.
o Competitive Pricing. We anticipate that the retail price of the iQ
battery will be comparable to the retail prices of other premium
priced SLI batteries.
Industry Relationships
We have established relationships with a number of companies in the automotive
and electronics industries which are described below:
Suppliers and Manufacturers
BASF
We have entered into a Cooperation Agreement with BASF, a leading international
chemical and textile manufacturer, under which BASF has agreed to participate
with the iQ Germany in developing and marketing the Neopolen battery case. Under
the agreement, iQ Germany has agreed to exclusively use the Neopolen material
produced by BASF in its battery designs in return for a payment by BASF to iQ
Germany on every kilogram of Neopolen sold by BASF to battery manufacturers.
TEXAS INSTRUMENTS
We have entered into a Cooperation Agreement with Texas Instruments, the world's
leading manufacturer of digital signal processors and analog products, under
which Texas Instruments has agreed to participate with the iQ Germany in
developing and marketing the iQ microprocessor. Under the agreement, Texas
Instruments has committed at its
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cost to develop the micro-controller and related electronic components in
accordance with iQ specifications. The components will be available exclusively
to iQ.
YAMAR Electronics Ltd.
We entered into a Cooperation Agreement with YAMAR Electronics Ltd, an Israeli
company based in Tel Aviv, that specializes in the development of communication
technologies over the DC power lines. We are collaborating with YAMAR
Electronics to develop an ASIC solution using patented YAMAR technology, which
accumulates information and data in a microprocessor and transmits digital data
over the DC lines to an board computer or a separate status indicator, improving
the efficiency of electrical systems by reducing the number of wiring harnesses
required for electrical systems. Under our agreement with YAMAR, we have the
exclusive right to integrate the patented YAMAR technology into batteries and
battery related applications.
To date we have spent approximately US$30,000 on research and development for
applications related to our iQ Battery, and we anticipate that iQ Battery
prototypes integrating this technology will be available in the third-quarter of
2000.
Massachusetts Institute of Technology (MIT)
We have joined the MIT/Industry Consortium of Advanced Automotive
Electrical/Electronic Components and Systems. Members of the consortium are -
amongst others - automakers, including DaimlerChrysler, BMW, AUDI, Ford, General
Motors and automobile suppliers, including Johnson Controls Inc, Delphi
Automotive Systems, Bosch and others. The participants are working on future
technologies for automobiles, including the 42 Volt power net.
Automakers
DaimlerChrysler
We have provided prototypes of the iQ battery to DaimlerChrysler, which
successfully concluded in-the-car and out-of-the-car tests.
BMW
Together with YAMAR, we have provided prototypes of the DC powerline
communication to BMW, which is currently testing the prototypes. We have also
purchased and installed BMW battery test and electronic lab equipment in iQ
Germany's laboratories in Chemnitz, Germany, for the purposes of conducting
tests on the iQ battery prototypes.
To date, neither Daimler-Benz nor BMW have committed to incorporate the iQ
technology into any of their commercially available automobiles or other
products.
Other Relationships
In addition to the above relationships, we have also had discussions, and in
some cases, delivered prototypes of the iQ battery to Audi, Volkswagen, Ford,
Opel, Volvo, Hyundai and Porsche for testing. We currently do not have any
contractual arrangements with these automakers other than confidentiality
agreements and limited agreements for the testing of prototypes. No automaker
has committed to incorporate the iQ technology into any of their commercially
available automobiles or other products. In addition to these German automakers,
we are also pursuing contacts with other major automakers worldwide.
We have engaged in discussions with established battery manufacturers regarding
the possibility of a joint venture to produce small quantities of batteries
using the iQ technology in order to stimulate market interest or to satisfy
niche market demands. In the event we are unsuccessful in our primary marketing
strategy of licensing the iQ technology to major automakers and established
battery manufacturers, we anticipate that this type of arrangement may provide
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an alternative means of market entry for us. There can be no assurance that we
will be able to successfully establish a joint venture arrangement with a
battery manufacturer on terms favorable to us, if at all.
Research and Development
We are focusing our research and development efforts on improving the iQ
technology and developing process technology required to manufacture the iQ
battery. A key element of our strategy is to complete development of a battery
that has undergone all relevant testing programs by German auto manufacturers
and can be produced in commercial quantities. Over its most recent four fiscal
years, we have spent a total of US$2,919,000 on research and development.
We believe that our highly-qualified engineering and scientific personnel
provide us with a significant competitive advantage. iQ Germany currently
employs 16 engineers and scientists in its Chemnitz plant on a full- and
part-time basis, whose primary focus is research and development. iQ Germany's
personnel have considerable experience with the development of SLI battery
systems and applications. We believe that this combination of expertise has
allowed iQ Germany, and will continue to allow us to design and develop battery
technologies that can be implemented in a timely and cost-effective manner.
Competition
Competition in the battery industry is, and is expected to remain, intense. Our
competitors range from early stage companies to major domestic and international
companies. Many of these companies have financial, technical, marketing, sales,
manufacturing, distribution, and other resources significantly greater than
ours. In addition, many of these companies have name recognition, established
positions in the market, and long-standing relationships with OEMs and other
customers. Our competitors are doing significant development work on various
battery systems (including electrochemistries such as NiCd, NiMH and lithium),
with significant effort focused on achieving higher energy densities, lower
maintenance, lighter weight, longer energy retention and lower cost batteries.
We cannot assure you that one or more new, higher power battery technologies
will not be introduced which could be directly compete with or be superior to
the iQ technology.
We believe that our primary competitors are existing suppliers of automotive and
lead-acid batteries. Johnson Controls, Inc., Exide Corporation, GNB Inc. and
Delphi are the primary suppliers of car batteries in North America. VB
Autobatterie GmbH), Hawker Batteries, Fiamm, Delco Remy, Exide Corporation,
Autosil, Hoppecke, Yuasa and Matsushita are the primary suppliers of car
batteries in Europe. All of these companies are very large and have substantial
resources and market presence. Many are vertically integrated and produce the
core components for their batteries from raw or recycled materials, reducing the
unit cost of manufacturing. These companies have pursued and implemented
aggressive production and manufacturing strategies which have led to substantial
competitive advantages in the areas of production efficiencies and integrated
distribution and inventory management systems. We expect that we will compete in
targeted market segments on the basis of performance, reliability, ease of
recycling and increased battery life. We cannot assure you that we will be able
to compete successfully against these companies in any of the targeted market
segments.
We may also develop products to compete in market segments including standby
power, small batteries for engine starting and medical and electronics
applications. We expect that our primary competition in the market for small
lead acid batteries used in non-automotive applications are Yuasa, Exide
Corporation, Matsushita, Hawker, CSB Battery of America Corp. and GS Battery.
These companies are large and have substantial resources and market presence. We
cannot assure you that we will be able to compete successfully against
traditional lead acid batteries in any of the targeted applications.
The market for batteries, and the evolution of battery technology, is very
dynamic. Other companies are devoting significant resources to improving
existing battery technologies and developing new battery technologies. We cannot
assure you that we will be able to compete effectively in any of their targeted
market segments.
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Intellectual Property Rights
Our success is dependent on our ability to protect our intellectual property
rights. We rely principally on a combination of copyright, trademarks, trade
secret and patent laws, non-disclosure agreements and other contractual
provisions to establish and maintain our proprietary rights. We, through iQ
Germany, hold two United States patents related to its technology, both of which
will expire in the year 2014. iQ Germany has also applied for patents related to
the iQ technology in Germany and the European Union. We, through iQ Germany,
have been issued patents cover the battery temperature sensor and heating
element design and configuration. We filed three additional patent applications
in 1999 related to battery technologies that we have developed.
As part of our confidentiality procedures, we generally enter into nondisclosure
and confidentiality agreements with each of our key employees, consultants,
distributors and corporate partners and limits access to and distribution of our
technology, documentation and other proprietary information. In particular, we
have entered into non-disclosure agreements with each of our key employees and
strategic partners. The terms of the employee non-disclosure agreements include
provisions requiring assignment to iQ Germany of employee inventions. There can
be no assurance that our efforts to protect our intellectual property rights
will be successful. Despite our efforts to protect our intellectual property
rights, unauthorized third parties, including competitors, may from time to time
copy or reverse engineer portions of the iQ technology and use such information
to create competitive products.
Policing the unauthorized use of the iQ technology is difficult, and, while we
are unable to determine the extent to which piracy of the iQ technology exists,
such piracy can be expected to be a persistent problem. In addition, the laws of
some countries in which the iQ technology is or may be licensed do not protect
our products and intellectual property rights to the same extent as do the laws
of the United States. As a result, sales of products based on the iQ technology
in such countries may increase the likelihood that iQ technology might be
infringed upon by unauthorized third parties.
It is possible that the scope, validity and/or enforceability of our
intellectual property rights could be challenged by competitors or other
parties. We are currently in the process of recording our interests in the iQ
technology with relevant authorities in applicable jurisdictions. The results of
such challenges before administrative bodies or courts depend on many factors
which cannot be accurately assessed at this time. Unfavorable decisions by such
administrative bodies or courts could have a negative impact on our intellectual
property rights. Any such challenges, whether with or without merit, could be
time consuming, result in costly litigation and diversion of resources, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all. In the event of a claim of
product infringement against us and our failure or inability to license the
infringed or similar technology, our business, operating results and financial
condition could be materially adversely affected.
iQ Germany has registered the trademark "iQ" in Germany. iQ Germany has applied
for registration of its trademark in the United States, Canada and 10 European
countries.
Environmental Matters
We currently contract with third-parties for the manufacture of our iQ battery
prototypes. We currently do not incur any significant direct cost related to
environmental compliance matters.
Employees
As of December 31, 1999, iQ Germany had 16 employees engaged in product research
and development on a part- and full-time basis and 12 employees engaged in
general and administrative and marketing functions on a part- and full-time
basis. Our success will depend in large part on our ability to attract and
retain skilled and experienced employees. None of our or iQ Germany's employees
are covered by a collective bargaining agreement, and we believe iQ Germany's
relations with its employees are good. We do not currently have any key man life
insurance on any of our directors or executive officers.
9
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RISK FACTORS
Our inability to secure additional financing on acceptable terms could prevent
or delay us from developing and commercializing the iQ technology which could
decrease the value of the shares or cause us to go out of business.
We may need additional financing in order to fund our anticipated research and
development efforts, or if we experience delays, cost overruns, additional
funding needs for joint ventures or other unanticipated events. If we fail to
get the necessary financing on a timely basis, it might:
o delay and increase the costs of development and commercialization of
the iQ technology;
o cause us to default on some of our financial commitments;
o prevent us from being able to commercialize the iQ technology; and
o force us to discontinue our operations or to look for a purchaser for
the iQ technology or our business,
all of which would negatively impact your investment in the shares. If we raise
money by selling additional securities, it could cause substantial reduction in
the value of your shares. If we borrow funds from third parties, the money may
not be available on a timely basis or on terms acceptable to us. We anticipate
that our current working capital will be significant will satisfy our cash needs
through the end of the year 2000.
The intense competition in the lead-acid battery industry may hinder our entry
into the marketplace and may negatively impact our ability to commercialize the
iQ technology.
Many of our competitors have:
o longer operating histories than we do;
o substantial resources that are devoted to research and development,
manufacturing, marketing and commercializing products;
o products and technologies that are widely accepted by retail consumers
and other buyers of batteries;
o long histories of reliable and effective use; and
o established reputations and long-standing relationships with original
equipment manufacturers.
all of which could hinder our entry into the marketplace and give them a large
competitive advantage over us. We expect competition in the battery industry to
intensify because many battery companies are consolidating or vertically
integrating which, because they own all stages of production, allows them to
make batteries at lower cost. In recent years, buyers of lead-acid batteries
have also consolidated, reducing the number of customers for lead-acid batteries
and increasing price competition.
Our inability to commercialize the iQ technology would have a material adverse
effect on our business.
We believe that the iQ technology can be integrated into lead-acid batteries on
a commercial basis, and that a commercially feasible manufacturing process can
be developed. However, if we are not successful in doing so, it would
materially, adversely affect our financial condition and results of operations
and the value of your investment. Our design requires us to integrate the iQ
technology with existing lead-acid battery technology. Neither we nor iQ Germany
have manufactured prototypes of batteries based on the iQ technology in
commercial quantities or have developed a commercial manufacturing process.
Our revenues will depend mostly on licensing the iQ technology or selling
batteries that incorporate iQ technology which will make us vulnerable to
changes in market demand. As a result, any decline in demand could materially,
adversely affect our business.
We anticipate that all of our revenues will initially come from fees derived
from licensing the iQ technology or, possibly, from the sale of our own
batteries that incorporate the iQ technology. Consequently, any decline in the
demand for such technology or batteries could materially, adversely affect us.
We cannot guarantee that we will
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<PAGE>
receive any revenues from the licensing of the iQ technology or from the sale of
batteries incorporating the iQ technology, or that we can generate a profit. If
we receive any revenues, the revenues may decrease after an initial period of
market introduction due to factors such as:
o increased competition;
o changes in consumer preferences;
o changes in customer specifications, market saturation;
o government regulation of the battery industry;
o changes in demand from OEMs;
o changes in demand for automobiles;
o changes in economic conditions;
or other factors, many of which are beyond our control.
We may not be able to develop acceptable new electric power technologies or
products and this could negatively affect our prospects for growth and our
business.
We may not successfully complete the development or introduction of new electric
power technologies or products, or, if we do, such technologies or products may
not achieve market acceptance. In addition, we may experience delays in the
development process. We believe our growth will depend upon our ability to
develop and commercialize the iQ technology and to introduce new products and
technologies that are attractive to consumers, OEMs, automobile manufacturers,
automobile service providers and retailers of automotive batteries. We cannot
assure you that we will be successful in doing so.
Market demand for the iQ technology and for batteries that incorporate the iQ
technology is uncertain which may affect our ability to generate revenues and
profits and may adversely affect your investment.
There may not be enough demand for the iQ technology or for batteries that
incorporate the iQ technology to generate enough revenues so that we will make a
profit. If so, this would adversely affect your investment. There are currently
no commercially produced lead-acid batteries that use the iQ technology. As a
result, the potential demand for batteries that use the iQ technology and the
degree to which the iQ technology can meet market demand is difficult to
estimate. Our success in gaining market acceptance for the iQ technology will be
affected by a number of factors that are beyond our control, such as:
o the license fees for the iQ technology;
o the willingness of consumers to pay a premium price for batteries
incorporating the iQ technology;
o specifications of automobile manufacturers;
o the marketing and pricing strategies of competitors;
o the development of alternative technologies; and
o general economic conditions.
We expect to be dependent on a few key customers, and the loss of any one of
them could significantly reduce our ability to generate revenues which will have
an adverse affect on our business.
To the extent we depend upon key customers for a large percentage of our
revenues, the loss of one or more of them or a significant reduction in
licensing fees from one or more of them could have a material adverse effect on
our business. We anticipate that a large portion of our revenues will come from
license fees from a limited number of key customers including automobile
manufacturers, aftermarket resellers and OEMs. To date, we have not entered into
any licensing agreements for the iQ technology.
11
<PAGE>
We will rely on third parties to supply development, manufacturing, marketing
and distribution expertise which will make our success dependent upon their
efforts. If they are not successful, it could negatively impact our ability to
commercialize the iQ technology and our business.
Our future success is dependent on the development and maintenance of strategic
relationships. If our strategic partners or third parties fail to perform
effectively, we may not generate any revenues or a profit. We may rely upon
strategic partners:
o to assist us in the research and development of the iQ technology and
future technologies;
o to participate in the later stage development and testing of
commercial prototypes;
o to manufacture products based on the iQ technology; and
o to market and distribute such products.
We have no experience in manufacturing battery technology or products. If we
decide to manufacture and market our own product line, we will likely contract
with a third-party manufacturer to manufacture, assemble, test and package our
products to our specifications. We cannot assure you that we will be able to
enter into such contracts on terms that are acceptable to us. In addition,
third-party manufacturers are required to meet governmental and regulatory
requirements including environmental and consumer safety requirements. If the
third-party manufacturer we select should fail to comply with the regulatory
requirements or be unable to meet our quantity and quality requirements, we will
have to select another manufacturer, which may result in delays in delivering
products to distributors or other purchasers.
We have no sales, marketing or distribution experience. To the extent that we
depend on our strategic partners or third parties for marketing and
distribution, any revenues received by us will depend upon their efforts. We
cannot guarantee that such efforts will lead to a successful and effective sales
force and distribution system. We may have to rely on experienced employees,
strategic partners, distributors and third-party manufacturer's representatives
to market our products. If we are unable to maintain or establish third-party
distribution relationships, we may have to develop our own marketing and sales
force with technical expertise and supporting distribution capabilities. We can
not guarantee you that we will be successful in doing so.
Item 2. Description of Properties.
Facilities
iQ Germany occupies approximately 528 square meters of leased office space at
its headquarters in Unterhaching, Germany for its product development,
marketing, support and administration operations. iQ Germany also occupies
approximately 509 square meters of leased office space in Chemnitz, Germany. The
Unterhaching lease terminates on February 28, 2005 and the Chemnitz lease may be
terminated on the giving of six months' notice, but not before December 31,
2001. We maintain a license for our executive offices in Vancouver, British
Columbia, Canada on a month-to-month basis.
Item 3. Legal Proceedings.
As of the date hereof, there is no material litigation pending against us or iQ
Germany. 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 (US$310,000). The intellectual property rights at issue
are now held by iQ Germany. Mr. Engelhorn alleges that the Brauns had a
contractual obligation to transfer the intellectual property to a partnership
which has since been dissolved. Although the lawsuit is still pending, we have
been advised by the Brauns that the prosecution of this lawsuit has not been
pursued. We believe that the lawsuit is without merit and will not materially
affect our rights in the intellectual property at issue.
From time to time, we and/or iQ Germany may be a party to litigation and claims
incident to the ordinary course of business. While the results of litigation and
claims cannot be predicted with certainty, we believe that the final
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outcome of such matters will not have a material adverse effect on our business,
financial condition and operating results.
Item 4. Submission of Matters to a Vote of Shareholders.
No matters were submitted to securities holders during the fourth quarter
covered by this report.
13
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Price Range of Common Shares
Our Common Shares began trading on NASD Over The Counter Bulletin Board under
the symbol IQPT on June 29, 1999. Prior to June 29, 1999, there was no public
market for the Common Shares. The following table sets forth, for the periods
indicated, the high and low sale prices for the Common Shares as reported on
NASD Over The Counter Bulletin Board.
NASD Over The Counter
Bulletin Board
----------------------------
US$ US$
------------- -------------
High Low
------------- -------------
1999
Second Quarter........................ 1.7500 1.5000
Third Quarter......................... 2.0312 1.4375
Fourth Quarter........................ 2.0938 1.375
2000
First Quarter......................... 1.6875 0.8125
- -----------------
The closing price for our common shares on the NASD Over The Counter Bulletin
Board was US$0.8125 on April 5, 2000.
As of December 31, 1999, we had approximately 61 shareholders of record
(including nominees and brokers holding street accounts), 3 shareholders of whom
had addresses in the United States and who held 1,207,100 Common Shares, or
4.96% of our outstanding Common Shares.
We have never paid dividends on our Common Stock. We currently intend to retain
earnings for use in its business and does not anticipate paying any dividends in
the foreseeable future. Our current bank credit agreement prohibits the payment
of dividends without prior consent of the lender.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Selected Financial Data
Our selected consolidated financial data are qualified in their entirety by
reference to and should be read in conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of this
annual report and the audited consolidated financial statements and notes
included in this annual report. The consolidated statement of operations data
for the years ended December 31, 1999 and 1998 and the consolidated balance
sheet data at December 31, 1999 and 1998, are derived from and are qualified by
reference to our audited consolidated financial statements which appear in this
annual report. These financial statements were prepared in accordance with
Canadian GAAP.
14
<PAGE>
<TABLE>
Years Ended December 31
1999 1998 1997
---- ---- ----
(expressed in United States dollars;
all amounts in thousands except per share data)
<S> <C> <C> <C>
Statement of Operations
Data:
Revenue.................. $ 11 $ -- $ 26
Research and development 1,137 875 486
expenses.................
General and administrative 702 112 94
expenses................
Net loss................. 3,157 1,027 597
Comprehensive loss....... 1,981 1,121 597
Net loss per share ......... $ 0.10(1) $ 0.09 $ 0.05
</TABLE>
At December
1999 1998
---- ----
Balance Sheet Data:
Cash and cash equivalents. 2,283 13
Working capital 2,651 (1,550)
(deficiency)..............
Total assets.............. 2,837 250
Non-current liabilities... 2 60
Stockholders' equity...... 2,649 (1,610)
- -------------------------------------
(1) Pro forma net loss would have been $4,171,000 and net loss per share would
have been $4,171,000 $0.22 per share if compensation cost for the Company's
share options granted to employees had been determined based on the
Black-Scholes value at the grant dates for awards as prescribed by SFAS No.
123. See, Note 7 (c) of the Company's financial statement for the years
ended December 31, 1999, 1998 and 1997.
Management's Discussion and Analysis
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 and other industries.
Since that date, we have 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 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.
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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. That option terminated on June 18, 1999, when the
Company raised in excess of US$3,000,000 by 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.
The Company's Results of Operations for the Year Ended December 31, 1999
Compared to the Year Ended December 31, 1998
No significant revenues were recorded in either the year ended December 31, 1999
or the year ended December 31, 1998.
As of December 31, 1999, the Company had an accumulated deficit of US$4,676,000.
The Company incurred a net loss of US$2,157,000 for the year ended December 31,
1999, compared to a net loss of US$1,027,000 for 1998. The increase in net loss
was primarily as result of the cost of the Company's public offering, increased
research and development expenses and increased general and administrative
expenses.
For the year ended December 31, 1999, the Company incurred research and
development expenses of US$1,137,000 compared with US$875,000 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 related
to research, product development, building prototypes and product testing.
Expenses related to personnel increased to US$496,000 in 1999 compared to
US$299,000 as the Company hired four additional research personnel and began
development efforts related to its communication device technologies. Laboratory
expenses increased to US$232,000 in 1999 compared to US$153,000 in 1998, as the
Company increased research and development efforts and product testing. Office
expenses related to research and development increased to US$145,000 in 1999
compared to US$54,000 in 1998 as a result of the Company's increased research
and development efforts. Consulting fees declined by US$22,000, from US$153,000
in 1998 to US$131,000 in 1991, as the Company hired employees to provide similar
services. Professional fees declined by US$83,000, from US$216,000 in 1998 to
US$133,000 in 1998.
The Company incurred general and administrative expenses of US$702,000 for the
year ended December 31, 1999 compared with US$112,000 for the comparable period
of the prior year. The increase in administrative and general corporate expenses
was due primarily to the cost of the Company's public offering and investor
relations. The Company incurred financing expenses of US$120,000 in 1999
compared to US$3,000 in 1998; investor relations fees of US$80,000 in 1999
compared to nil in 1998; travel expenses of US$103,000 in 1999 compared to nil
in 1998; and miscellaneous expenses of US$125,000 in 1999, all primarily
attributable to the Company's initial public offering and investor relations
activities. Personnel expenses related to general administration increased to
US$91,000 in 1999 compared to US$18,000, as the Company hired 4 additional
general administrative employees. Office expenses increased to US$25,000
compared to US$7,000 to support the increased business and administration
activities. Consulting fees related to general administration decreased by
US$3,000 to US$35,000 in 1999 compared to US$38,000 in 1998, while the Company
incurred management fees of US$35,000 in 1999 compared to nil in 1998. During
1999, the Company paid membership fees of US$50,000 related to its membership in
the MIT/Industry Consortium of Advance Automotive Electrical/Electronic
Components and Systems. The Company's expenditures are expected to materially
increase in 2000 as it pursues research, development, testing and
commercialization programs and expands finance and administrative staff and
financial and management system.
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The Company's Results of Operations for the Year Ended December 31, 1998
Compared to the Year Ended December 31, 1997
The Company earned no revenues in the year ended December 31, 1998 and no
material revenues in the year ended December 31, 1997.
As of December 31, 1998, the Company had an accumulated deficit of US$1,576,000.
The Company incurred a net loss of US$1,027,000 for the year ended December 31,
1998, compared to a net loss of US$597,000 for the comparable period of the
prior year primarily as result of the cost of its public offering, increased
management and professional fees and increased employment expenses related to
the hiring of additional employees during 1998. 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 year ended December 31, 1998, the Company incurred research and
development expenses of US$875,000 compared with US$486,000 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$112,000 for the
year ended December 31, 1998 compared with US$94,000 for the comparable period
of the prior year. The increase in administrative and general corporate expenses
was due primarily to increased consulting and professional fees.
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily through sales
of its equity securities. As of December 31, 1999, the Company had cash and cash
equivalents of US$2,283,000. From inception to December 31, 1999, the Company
had raised approximately US$2,311,000 (net of issuance costs) from the sale of
such securities, excluding the issuance of 10,000,000 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 of 5,500,000 common
shares in the United States pursuant to which it received additional net
proceeds of US$4,690,000. As a part of the issuance of 5,500,000 common shares
the agent to the offering was granted 550,000 Agent Warrants entitling the agent
to purchase 550,000 common shares for $1 per share in the first year of the
warrant and for $1.50 per share in the second year of the warrant. During the
period to December 31, 1999, 349,625 warrants were exercised for proceeds of
$350,000.
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
17
<PAGE>
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 we undertake research and development activities related to
the commercialization of the iQ technology. In addition, we anticipate that our
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
us.
Warrants
The Company entered into a US Investor Relations Service Agreement dated June
28, 1999, which provided for 500,000 warrants to purchase common shares of the
Company. The agreement was cancelled on November 12, 1999 and the warrants were
cancelled.
The Company has issued 100,000 one-year Service Warrants to Boyle International
(Ghernsey) Investor Relations pursuant to an investor relation agreement dated
December 8, 1999. Each warrant entitles the holder to purchase one common share
exercisable as follows:
(i) 50,000 warrants vesting on December 8, 1999, exercisable at a price of
$2.00 per share;
(ii) 50,000 warrants vesting June 1, 2000, exercisable at a price of $3.00
per share.
Year 2000 Issue
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were programmed with a
two-digit century (i.e. December 31, 1999 would appears as 12/31/99) assuming
that all years would be part of the 20th century. On January 1, 2000, systems
with this programming will default to 01/01/1900 instead of 01/01/2000, and
calculations using or reporting the date will not be correct and errors will
arise. To prevent this from occurring, information systems needed to be updated
to ensure they recognize the Year 2000.
The Company completed Year 2000 compliance measures and testing in November
1999, and shut down its computer systems on December 31, 1999. On January 3,
2000, the Company restarted its systems and conducted a review of its computer
systems to identify the systems that were affected by the Year 2000. All of the
Company's systems were operational without any adverse affect from the Year 2000
rollover. The Company also contacted each of its strategic partners,
consultants, contractors and significant suppliers and have obtained assurances
from some of them that their relevant operating software and systems are Year
2000 compliant. The Company places minimal reliance on data sensitive software
and believes that its systems are Year 2000 compliant and that any remedial
efforts to resolve Year 2000 issues that appear in the future would not result
in a material effect on its results of operations. All tests were repeated in
late January 2000, and the Year 2000 completion test was successfully passed in
all locations of 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.
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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.
Plan of Operation
Since June 1999, we finalized a pre-production run of batteries incorporating
the iQ technology as well as the first prototypes of 36 V batteries including
the iQ Chip. We also brought our laboratories in Chemitz into full operating
status. We are currently undergoing the international standards organization
(ISO) and Verein Deutscher Automobilzulieferer (VDA), the Association of German
automotive suppliers, certification that we anticipate will be finalized during
2000. ISO and VDA certifications are generally required for battery suppliers.
No governmental or regulatory approvals are required for the development of
battery technologies.
As part of our strategic plan, over the next 12 months, we intend to
Research and Development
o expand our research and development operations,
o prepare for a pre-production and initial production of batteries that
incorporate the iQ technology, and
o continue our third party testing program.
Marketing
o enter into development contracts with customers of the automotive
industry and other industries to apply our technology to their
individual demand with the goal of producing and supplying the
products that will be developed for these customers in their own
production plants,
o open a Detroit office for technical sales and to build a market
presence in the US,
o launch a new web site in April 2000, which we anticipate will be an
important base for communication with customers and strategic partners
and form the basis for future e-commerce solutions like software
downloads, and online customer support etc., and
o market the iQ Chip and our software as part of our technology for
solutions regarding state of charger (SOC) and state of health (SOH)
status indications for batteries to car manufacturers (OEMs) and/or
their First Tier suppliers.
Financial
o seek additional financing to expand our operations and to acquire an
interest in or form a strategic alliance with a battery manufacturer,
so that time-to-market of our first generation of products can be
reduced.
We anticipate that we have sufficient working capital to satisfy our cash needs
through December 31, 2000. We may need more money if we experience delays, cost
overruns, additional funding needs for joint ventures or other
19
<PAGE>
unanticipated events. We cannot assure you that we will be able to obtain more
financing or that, if we do, it will be on favorable terms or on a timely basis.
Item 7. Financial Statements
Reference is made to the financial statements listed under the heading "(a)(1)
Financial Statements" of Item 13 herein, which financial statements are
incorporated herein by reference in response to this Item 7.
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
DIRECTORS AND EXECUTIVE OFFICERS
Our directors, executive officers and key employees are as follows:
Name Age Position
- ---- --- --------
Directors and Executive
Officers
Peter E. Braun 36 President and Chief Executive Officer,
Director
Dr. Gunther C. Bauer 50 Vice President, Research and
Development, Director
Gerhard K. Trenz 59 Vice President, Finance and Chief
Financial Officer
Russell French 52 Director
Hans Ambos 65 Director
John Lawson 58 Director
Gregory A. Sasges 39 Secretary and Director
Eckehard Endler 56 Development Engineer
Key Employees
Rolf Kohler 54 Development Engineer
Friedrich-Wilhelm Schutz 58 Director, Material Management,
Electronic Production and Quality
Control
Steffen Tschirch 38 Director of Research and Development
- -----------------------------
Directors and Executive Officers
Peter E. Braun has served as a director and as our President and Chief Executive
Officer since September 1998. From 1994 to the present, Mr. Braun has also
served as Managing Director of iQ Germany. From 1992 to 1994, Mr. Braun worked
for Daimler Benz as an in-house consultant to Deutsche Aerospace. Mr. Braun
received a Masters of Science degree in Aeronautic Engineering and Space
Technology from the Technical University of Berlin in 1992.
Dr. Gunther C. Bauer has served as a director and as our Vice President,
Research and Development since September 1998. From 1994 to the present, Dr.
Bauer has also served as Vice President, Engineering of iQ Germany. From 1993 to
1994, Dr. Bauer was responsible for creating a Profit Center within the Daimler
Benz Group, an German automobile manufacturer, and from 1992 to 1993, he was
responsible for business strategy with the TEMIC Group, a wholly-owned
subsidiary of Daimler-Benz Aerospace A.G. From 1987 to 1992, Dr. Bauer served in
positions with German Aerospace, including Head of Staff of Innovations Field
Logic and Director of Corporate Development for Business Aeronautics. Since
1980, Dr. Bauer has been a Lecturer at the University of
20
<PAGE>
the Bundeswehr German Forces in Munich, Germany. Dr. Bauer received his Master
of Science in Electronics from the Technical University of Munich and his
doctorate in Mechanical Engineering from the University of Dortmund in Dortmund,
Germany.
Gerhard K. Trenz has served as our Vice President, Finance and our Chief
Financial Officer since September 1998. From 1996 to the present, Mr. Trenz has
also served as Vice President, Finance at iQ Germany. From 1988 to 1996, Mr.
Trenz headed Semicustom, a business unit of the Siemens Group, as Vice
President, Finance and Business Administration of Siemens Semiconductor
Division. From 1970 to 1988, Mr. Trenz held various positions in the Siemens
Group including Controller of Technology Development for ICs, in-house
consultant for the Corporate Strategic Planning Group of Siemens and Vice
President, Finance and Business Administration of Lormont / Bordeaux, a
production site of Siemens in France. Mr. Trenz received his Master of Science
degree in Telecommunications and Business Administration at the Technical
University of Munich.
Russell French has served as a director since 1994. From December 1994 to August
1998, Mr. French served as our President. From 1993 to the present, Mr. French
has been a principal of Mayon Management Corp., a company organized to manage,
organize and find new business ventures. Mr. French currently serves as a
director and President of AlPaka Resources Corp. Mr. French is a past director
and President of Pacific Falkon Resources Corp. and a past director of
International Precious Metals Corporation.
Hans Ambos has served as a director since June 1999. Mr. Ambos has broad
experience in the high technology field generally and senior management
expertise in advanced technology development, including service with
Daimler-Benz Aerospace, the German Ministry of Defence, Dornier Aerospace, the
NATO MRCA Management Agency (NAMMA), and the NATO Industrial Advisory Group
(NIAG). Mr. Ambos first worked as an aeronautical engineer in Germany
progressing to higher levels of management in research and technology
development, and project management. Subsequently, he has held various high
senior management positions including executive board member for research and
development at Dornier (which included strategic co-operation with Canadair and
Bombardier), executive officer responsible for corporate strategy for
Daimler-Benz Aerospace reporting to Mr. Jurgen Schrempp, the current chairman of
the Daimler-Chrysler Group, and national and international advisor for
technology to Daimler-Benz Aerospace. In addition, he serves as a board member
with both the International Society for Innovation out of the University of
Bern, Switzerland and the Forum for Aerospace of Bonn/Berlin, a mirror body to
the Parliamentary Group for Aerospace in the German parliament.
John Lawson has served as a director since October 1999. Mr. Lawson is the
President, Business Aircraft Sales, for Bombardier Aerospace with responsibility
for the sales of the Learjet family, Canadair Challenger, Bombardier Global
Express and Canadair Regional Jet. Mr. Lawson formerly served as president of
Canadair Business Aircraft, vice-president marketing and international sales at
Canadair, and vice-president Challenger product support, and held other
executive positions with both Andrew Canada and Canadair. Mr. Lawson graduated
from the Royal Military College of Canada and the University of Toronto with a
Bachelor of Science degree in electrical engineering. Mr. Lawson brings to iQ
Power over 25 years of senior corporate management experience with some of the
most complex manufacturing concerns in Canada and will spearhead iQ's
development of its international marketing and sales division.
Gregory A. Sasges has served as our Secretary since December 1, 1998, and was
elected a director on June 30, 1999. Mr. Sasges is a partner in a Vancouver law
firm through his personal corporation and has practiced law continually for the
past 13 and 1/2 years with a preferred area of practice in corporate and
securities law. Mr. Sasges also currently serves as the corporate secretary and
is a former director of High Desert Mineral Resources, Inc., a mineral resource
company. Mr. Sasges is a past director of Alpaka Resources Corp. and a past
corporate secretary of GHK Resources Ltd. and Consolidated Silver Tusk Mines
Ltd., all of which were mineral resource companies. Mr. Sasges received his
Bachelor of Commerce and Bachelor of Laws degrees from the University of British
Columbia, Canada, in 1984 and 1985 respectively.
All officers are appointed annually by the board of directors and serve at the
pleasure of the board. All directors are elected annually at the annual general
meeting of shareholders and serve until the next annual general meeting, or
until their successors are elected and qualified.
21
<PAGE>
KEY EMPLOYEES:
Our key employees are:
Eckehard Endler has served as a Development Engineer since 1998. From 1994 to
the present, Mr. Endler has also served as manager, Measurement and Laboratories
of iQ Germany. From 1978 to 1994, Mr. Endler worked as a Development Engineer
for a textile company. He received a degree in Electrical Engineering from The
Senior Technical College in Dresden, Germany in 1973.
Rolf Kohler has served as a Development Engineer since 1998. From 1973 to 1997,
he served as a Development and Test Engineer at Foron, a white goods producer,
in Chemnitz, Germany. Mr. Koehler received a degree in Electronic Device
Construction from The Senior Technical College in Midweida / Chemnitz in 1973.
Friedrich-Wilhelm Schutz has served as our Director, Material Management,
Electronic Production and Quality Control since 1998. In 1997, Mr. Schutz held
the same position in iQ Germany. From 1967 to 1996, Mr. Schutz worked in the
field of production and project development at Deutsche Aerospace, Bosch and
Rhode & Schwarz. Mr. Schutz received his Master of Science degree in
Telecommunications from the Senior Technical College in Cologne, Germany and in
Microelectronics from the Technical University in Aachen, Germany in 1967.
Steffen Tschirch has served as our Director of Research and Development since
1998. From 1994 to the present, Mr. Tschirch held the same position at iQ
Germany. From 1989 to 1993, Mr. Tschirch worked as a Scientific Assistant at the
Technical University of Chemnitz, Germany. Prior to that period, Mr. Tschirch
studied at the Technical University of Chemnitz with a focus on Physics and
Electronic Components and received his Master of Science degree in 1989.
Item 10. Executive Compensation
COMPENSATION OF DIRECTORS AND OFFICERS
The following table sets forth the compensation paid to our directors and
officers during the fiscal year ended December 31, 1999. The amounts shown for
Gunther C. Bauer, Peter E. Braun and Gerhard K. Trenz reflects salary paid to
the officer or director by iQ Germany during the fiscal year ended December 31,
1999. For your convenience, we have converted Deutschmark salary amounts into
U.S. dollars using the average noon buying rate in New York City for cable
transfers payable in Deutschmarks, as certified for customs purposes by the
Federal Reserve Bank of New York for the relevant period.
22
<PAGE>
<TABLE>
Summary Compensation Table
(in United States Dollars)
Annual Compensation Long Term Compensation
------------------------------------- -----------------------------------------
Awards Payouts
----------------------------------------
Restricted
Securities Shares or
Fiscal Other Annual under Restricted LTIP
Name and Principal Year Salary Bonus Compensation Options/SARs Share Units Payouts All Other
Position Ended (US$) (US$) (US$) Granted (#) (US$) (US$) Compensation
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gunther C. Bauer, 1999 96,000 - - 1,000,000 - - -
Vice President
Research and
Development
Peter E. Braun, 1999 102,000 - - 1,000,000 - - -
President and CEO
Russell French, 1999 72,000(1) - - 1,000,000 - - -
Director
Gerhard K. Trenz, 1999 84,000 - - 200,000 - - -
Vice President,
Finance and CFO
- -----------------------
</TABLE>
(1) Represents consulting fees paid to Mayon Management Corp., a corporation
controlled by Russell French.
We do not have a long-term incentive plan under which cash or non-cash
compensation intended to serve as an incentive for performance (whereby
performance is measured by reference to financial performance or the price of
our securities) was paid or distributed to the executive officers listed above
during the most recently completed financial year.
During our most recently completed financial year ended December 31, 1999, we
did not have a pension plan for our directors, officers or employees.
Director Compensation
Other than compensation paid to Peter Braun, Gunther Bauer and Russell French,
as disclosed above under the sub-heading "Compensation of Directors and
Officers," none of our directors have received any cash compensation, directly
or indirectly, for their services rendered during our most recently completed
financial year. We do not have any non-cash compensation plans for our directors
and we do not propose to pay or distribute any non-cash compensation during the
current financial year, other than by granting stock options.
Options to Purchase Securities
During our most recently completed financial year ended December 31, 1999, we
have granted our directors and officers the stock options described below under
"Item 11 Security Ownership of Certain Beneficial Owners and Management." During
our most recently completed financial year ended December 31, 1999, none of our
directors or officers exercised any stock options. In addition, during our most
recently completed financial year ended December 31, 1999, we did not do any SAR
or stock option repricings. Since the completion of our fiscal year ended
December 31, 1999, we have not granted any stock options.
Employment Agreements
Effective September 1, 1998, Peter E. Braun, Dr. Gunther C. Bauer and Gerhard
Trenz have entered into employment agreements with us, providing for annual
salaries of US$102,000, US$96,000 and US$84,000, respectively. Mr. Braun's and
Dr. Bauer's employment agreements are for a term of five (5) years. Mr. Trenz's
23
<PAGE>
employment agreement is for a term of three (3) years. The employment agreements
are governed by the laws of Germany.
1998 Stock Option Plan
In December 1998, our board of directors adopted the 1998 Stock Option Plan. The
Stock Option Plan will terminate on the earlier of June 30, 2008 or such other
date as the board of directors may determine. The Stock Option Plan is
administered by the board of directors (or a committee thereof) and provides
that options may be granted to our officers, directors, employees and other
persons, including consultants, as determined by the Plan Administrator in its
sole discretion.
The options issued under the Stock Option Plan are exercisable at a price fixed
by the Plan Administrator, in its sole discretion; provided that options granted
in substitution for outstanding options of another corporation in connection
with a merger, consolidation, acquisition of property or stock or other
reorganization involving such corporation and us or any of our subsidiaries may
be granted with an exercise price equal to the exercise price for the
substituted option of the other corporation, subject to adjustment. Subject
exceptions in the Stock Option Plan relating to death, divorce and estate
planning techniques, options granted under the Stock Option Plan are
non-assignable and non-transferable.
The maximum number of the shares reserved for issuance under the Stock Option
Plan, including options currently outstanding is 4,795,000 shares. As of
December 31, 1999 a total of 4,420,000 options are issued and unexercised.
Indebtedness of Directors and Senior Officers
None of our directors or senior officers or any of our associates or affiliates,
are or have been indebted to us at any time since the beginning of the last
completed financial year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
PRINCIPAL SHAREHOLDERS
The following table sets forth as of December 31, 1999 information concerning
the beneficial ownership of our shares, by persons who are known by us to own
beneficially more than 10% of shares, by each of the persons named in the table
under the caption "Compensation of Directors and Officers" and by all of our
directors and executive officers as a group. The calculations in the table are
based on an aggregate of 24,329,050 shares outstanding as of December 31, 1999.
Unless otherwise noted all addresses of the beneficial owners are Erlenhof Park,
Inselkammer Strasse 4, D-82008, Unterhaching, Germany. The symbol "*" indicates
that the amount shown is less than 1% of outstanding shares.
<TABLE>
Name and Address Number of Percentage of Class
of Beneficial Owner shares
----------------------------------------------------------------------------------------
<S> <C> <C>
Gunther Bauer(1)........................ 3,454,000(1) 13.69%(1)
Horst Dieter Braun...................... 1,750,000 7.19%
Peter E. Braun(2)....................... 3,000,000(2) 11.89%(2)
Gerhard Trenz(3)........................ 162,963(3) *
Russell French(4) 1,136,214(4) 4.5%(4)
Suite 708-A
1111 West Hastings Street
Vancouver, B.C. V6E 2J3
All Directors and Officers as a Group(5) 8,202,506(5) 29.81%(5)
- --------------------------------------------------------------------------------
</TABLE>
(1) Includes vested options to purchase 900,000 shares within 60 days of
December 31, 1999 and 54,000 shares held by Mr. Bauer's spouse, Christiane
Bauer.
(2) Includes vested options to purchase 900,000 shares within 60 days of
December 31, 1999. (3) Includes vested options to purchase 133,333 shares
within 60 days of December 31, 1999.
24
<PAGE>
(4) Includes 236,213 shares held by Mayon Management Corp., a corporation
controlled by Mr. French, also includes vested options to purchase 900,000
shares within 60 days of December 31, 1999.
(5) Includes vested options to purchase 3,183,333 shares within 60 days of
December 31, 1999.
We have been advised that Gunther Bauer, Horst Dieter Braun, Peter E. Braun,
Karin Wittkewitz and Gerhard Trenz and all other former shareholders of iQ
Germany have entered into a Shareholders Agreement in which they have agreed to
act jointly with respect to the voting of our shares held by them.
As of December 31, 1999, the following options to purchase our shares are
outstanding.
<TABLE>
Optionee Number of Shares Exercise Price Expiration Date
- -------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Issued to officers, directors
and key employees
Gregory A. Sasges 50,000 US$1.00 12/01/08
Joachim Schweizer 50,000 1.00 12/01/08
Steffen Tschirch 50,000 1.00 12/01/08
Joanne Gaska 25,000 1.00 12/01/08
Eckehard Endler 20,000 1.00 12/01/08
Friedrich-Wilhelm Schutz 20,000 1.00 12/01/08
Rolf Kohler 10,000 1.00 12/01/08
Russell French 800,000 1.00 12/01/08
Peter E. Braun 800,000 1.00 12/01/08
Gunther Bauer 800,000 1.00 12/01/08
Gerhard K. Trenz 200,000 1.00 12/01/08
Russell French 200,000 1.00 06/28/09
Gunther Bauer 200,000 1.50 07/07/09
Peter E. Braun 200,000 1.50 07/07/09
John Lawson 250,000 1.75 10/15/09
Hans Ambos 100,000 1.75 10/15/09
Issued to employees and
consultants
145,000 1.00 06/28/09
150,000 1.00 04/30/00
150,000 1.00 06/28/01
200,000 * 10/15/09
TOTAL: 4,420,000
</TABLE>
* Vested on a two year period on an exercise price range from $2.00 to $4.00.
Item 12. Certain Relationships and Related Transactions.
In March 1995, iQ Germany entered into an Industrial Property Rights and
Know-How Agreement with Horst Dieter Braun and Peter Braun. Under the Industrial
Property Rights Agreement, Horst Dieter Braun, a principal shareholder of our
company, and Peter Braun, a principal shareholder, director and officer of our
company, transferred to iQ Germany all their right, title and interest to
patents and other intellectual property rights related to starter batteries
technologies, and the German registered national trademark "iQ" in consideration
for payment of a one time payment of DM400,000 and royalties equal to 40% of our
revenues from license fees and 20% of our gross revenues (excluding license
fees) until the Year 2000. In August 1996, iQ Germany entered into a
supplemental contract with Messrs. Braun, which supplements the obligations of
Messrs. Braun under the Industrial Property Rights Agreement, requires them to
undertake all necessary actions to convey the Braun IP Rights and acknowledges a
civil dispute in District Court Berlin (Case No. 3 0 40/94) regarding a
partnership in which
25
<PAGE>
Messrs. Braun were involved. In September 1996, iQ Germany entered into an
extension of the Industrial Property Rights Agreement with Messrs. Braun. Under
the extension, the one time payment of DM400,000 is allocated DM300,000 to Horst
Dieter Braun and DM100,000 to Peter Braun, and iQ Germany's obligations to
Messrs. Braun are offset by payments on bank loans made by iQ Germany on behalf
of Horst Dieter Braun in the cumulative amount of DM275,000 and on behalf of
Peter Braun in the cumulative amount of DM120,000. In December 1996, the
Industrial Property Rights Agreement was amended to provide that, until iQ
Germany has the ability to pay or until it is liquidated, the one time payment
of DM400,000 due under the Industrial Property Rights Agreement, may be delayed.
In October 1998, Messrs. Braun waived their right under the Industrial Property
Rights Agreement to receive royalties equal to 40% of our revenues from license
fees and 20% of our gross revenues (excluding license fees).
In December 1998, iQ Germany, Horst Dieter Braun and Peter Braun entered into an
Agreement Re Rights and Interests amending and supplementing the payment terms
of the Industrial Property Rights Agreement previously entered into among the
parties. The Agreement Re Rights and Interests provided that the one time
payment of DM400,000 due under the Industrial Property Rights Agreement is
payable only out of and only to the extent of the gross profits of iQ Germany.
In December 1998, iQ Germany, Horst Dieter Braun and Peter Braun entered into a
Trademark Assignment Agreement amending and supplementing the Industrial
Property Rights Agreement to restate the assignment of all rights and interest
in German Trademark No. 2,061,981 for the "iQ" trademark and design. In December
1998, iQ Germany, Horst Dieter Braun and Peter Braun entered into a Patent
Assignment Agreement amending and supplementing the Industrial Property Rights
Agreement to restate the assignment of all rights and interest in German Patent
No. 41 42 628 and other patents and patent applications related to the iQ
technology.
In December 1996, iQ Germany entered into an agreement with Dr. Bauer in which
Dr. Bauer agreed not to enforce his claim to the payment of DM95,000 owed to Dr.
Bauer under an agreement dated March 15, 1994 with us unless iQ Germany has the
ability to redeem the obligation or unless a surplus exists after any
liquidation of iQ Germany.
We have entered into employment and confidentiality agreements, effective
September 1998, with Peter Braun, Dr. Bauer, and Gerhard Trenz, our
Vice-President, Finance and Chief Financial Officer. We have also entered into a
confidentiality agreement with Russell French, a director of our company. The
confidentiality agreements restrict competition with us for a period of five
years, and require that our confidential information be kept confidential and
that all work product, copyrights, inventions and patents produced during the
employment relationship will be our property.
In August 1998, we entered into a consulting agreement with Mayon Management
Corp., a corporation controlled by Mr. French. The agreement is for an initial
term of three (3) years and provides for a base annual fee of US$72,000 and for
the reimbursement of reasonable expenses. The agreement superseded a management
agreement between us and Mayon dated January 1997.
In August 1998, we entered into a Share Exchange Agreement with iQ Germany and
the shareholders of iQ Germany including Dr. Bauer and Peter E. Braun and Horst
Dieter Braun and Ms. Wittkewitz under which we acquired all the issued and
outstanding shares in iQ Germany in exchange for 10,000,000 shares at a deemed
price of US$0.25 per common share. Under the terms of the Share Exchange
Agreement, the former shareholders of iQ Germany, as a group, have been granted
a limited right to require us to repurchase all, but not less than all, of the
our shares received by such shareholders. The repurchase right terminated at the
close of our initial public offering on June 18, 1999.
In August and September of 1998, we entered into Atypical Share Exchange
Agreements with each of the holders of atypical shares of iQ Germany, including
Mr. Trenz, under the terms of which we issued into escrow an additional
2,800,000 shares against the deposit into escrow of "atypical shares" of iQ
Germany held by such holders. The shares and the "atypical shares" were released
from escrow to us and the common shares were released to the former holders of
atypical shares at the close of our initial public offering on June 18, 1999.
In connection with the Share Exchange transaction, our shareholders and the
former holders of common stock and atypical share of iQ Germany, including Mr.
French, Peter Braun, Dr. Bauer, Horst Dieter Braun, Mr. Trenz and Ms.
26
<PAGE>
Wittkewitz, entered into a pooling agreement under the terms of which an
aggregate of 16,979,424 shares in our company are held in escrow subject to
conditions governing their release.
Item 13. Exhibits and Reports on Form 8-K.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following financial statements of the Registrant and the Report of
Independent Auditors thereon are included herewith in response to Item 8 above.
(a) 1. Consolidated Financial Statements
Page
----
Report of Independent Auditors ....................................F-1
Consolidated Balance Sheets .......................................F-2
Consolidated Statement of Loss and Comprehensive Loss ............F-3
Consolidated Statement of Changes in Stockholders' Equity .........F-4
Consolidated Statement of Cash Flows ..............................F-5
Notes to the Consolidated Financial Statements ....................F-6
2. Exhibits:
The following Exhibits are filed as part of this report:
Exhibit
Number Description
------ -----------
2.1(1) Certificate of Incorporation dated December 20, 1994, for
3099458 Canada Inc.
2.2(1) Articles of Incorporation dated December 21, 1994, for
3099458 Canada Inc.
2.3(1) Certificate of Amendment dated May 9, 1997, together with
Form 4, Articles of Amendment for iQ Power Technology Inc.
2.4(1) Certificate of Amendment dated March 31, 1998, for iQ Power
Technology Inc.
2.5(1) By-law Number One General By-Law of iQ Power Technology Inc.
dated December 31, 1997, as confirmed on June 30, 1998
6.1(1) Form of Atypical Share Exchange Agreement
6.2(1) Share Exchange Agreement dated August 25, 1998, between iQ
Power Technology Inc., iQ Battery Research and Development
GmbH and the Shareholders of iQ Battery Research and
Development GmbH
6.3(1) Pooling Agreement No. 1 dated August 25, 1998, between iQ
Power Technology Inc., Montreal Trust Company of Canada and
the Shareholders of iQ Power Technology Inc.
6.4(1) Pooling Amendment Agreement dated August 15, 1998, between
iQ Power Technology Inc., Montreal Trust Company of Canada
and the Shareholders of iQ Power Technology Inc.
6.5(1) Management Agreement dated January 1, 1997, between 3099458
Canada Inc. and Mayon Management Corp.
6.6(1) Consulting Agreement dated August 25, 1998, between iQ Power
Technology Inc. and Mayon Management Corp.
6.7(1) Employment Agreement dated August 31, 1998 with Dr. Gunther
C. Bauer
6.8(1) Employment Agreement dated August 31, 1998 with Peter E.
Braun
6.9(1) Employment Agreement dated September 1, 1998 with Gerhard K.
Trenz
6.10(1) Form of Confidentiality Agreement between iQ Power
Technology Inc. and certain Officers of the Company
27
<PAGE>
Exhibit
Number Description
------ -----------
6.11(1) Lease Agreement by and between iQ Battery Research and
Development GmbH and Spima Spitzenmanufaktur GmbH dated
December 9, 1997 (Translated to English)
6.12(1) Commercial Lease Agreement by and between iQ Battery
Research and Development GmbH and Josef Landthaler, GmbH
dated May 9, 1996, as amended (Translated to English)
6.13(1) Form of iQ Germany Confidentiality Agreement (Translated to
English)
6.14(1) Form of iQ Germany Employee Confidentiality and
Nondisclosure Agreement (Translated to English)
6.15(1) Cooperation Agreement by and between iQ Battery Research and
Development GmbH and BASF Aktiengesellschaft (Translated to
English)
6.16(1) Confidentiality Agreement by and between iQ Battery Research
and Development GmbH and Bayerische Motoren Werke dated July
29, 1997 (Translated to English)
6.17(1) Mutual Confidentiality Agreement among iQ Battery Research
and Development GmbH, Akkumulatorenfabrik Moll GmbH & Co.
KG, and Audi dated May 26, 1998 (Translated to English)
6.18(1) Confidentiality Agreement between iQ Battery Research and
Development GmbH and Mercedes Benz Aktiengessellschaft dated
March 21, 1997 (Translated to English)
6.19(1) Letter Agreement between iQ Battery Research and Development
GmbH and Manufacturer of Batteries Moll Ltd. dated August 3,
1998 (Translated to English)
6.20(1) Mutual Confidentiality Agreement between iQ Battery Research
and Development GmbH and Manufacturer of Batteries Moll
dated September 8, 1997 (Translated to English)
6.21(1) Loan Contract by and between Karin Wittkewitz and iQ Battery
Research and Development GmbH dated December 28, 1996
(Translated to English)
6.22(1) Contract Concerning Industrial Property Rights and Know How
by and between Dieter Braun and Peter E. Braun and iQ
Battery Research and Development GmbH dated March 15, 1995
(Translated to English)
6.23(1) Supplementary Contract to the Contract concerning Industrial
Property Rights and Know How by and between H. Deiter Braun
and Peter E. Braun and iQ Battery Research and Development
GmbH dated August 16, 1996 (Translated to English)
6.24(1) Extension of Contract regarding Industrial Property Rights
and Know How by and between Deiter Braun and Peter Braun and
iQ Battery Research and Development GmbH dated September 20,
1996 (Translated to English)
6.25(1) Consulting Contract by and between iQ Battery Research and
Development GmbH and Peter Braun dated August 28, 1994
(Translated to English)
28
<PAGE>
Exhibit
Number Description
------ -----------
6.26(1) Consulting Contract by and between iQ Battery Research and
Development GmbH and Dr. Gunther Bauer dated October 30,
1996 (Translated to English)
6.27(1) Agreement (Debt Deferral) by and between iQ Battery Research
and Development GmbH and Dieter Braun and Peter Braun dated
December 27, 1996 (Translated to English)
6.28(1) Agreement (Debt Deferral) by and between iQ Battery Research
and Development GmbH and Gunther Bauer dated December 27,
1996 (Translated to English)
6.29(1) Waiver among H. Dieter Braun, Peter E. Braun, Gunther Bauer,
Karin Wittkewitz and iQ Battery Research and Development
GmbH dated December 19, 1997 (Translated to English)
6.30(1) Agreement by and between iQ Battery Research and Development
GmbH and Dieter Braun and Peter Braun dated October 9, 1998
(Translated to English)
6.31(1) 1998 Stock Option Plan
6.32(1) Form of Stock Option Agreement
6.33(1) License Agreement dated September 1, 1998 between iQ Power
Technology, Inc. and Mattalex Management Ltd.
6.34(1) Agreement Re Rights and Interests dated December 9, 1998 by
and among the Company, H. Dieter Braun and Peter E. Braun
6.35(1) Trademark Assignment dated December 9, 1998 by and between
the Company and H. Dieter Braun
6.36(1) Patent Assignment dated December 9, 1998 by and between the
Company and H. Dieter Braun and Peter E. Braun
6.37(2) Pooling Agreement No. 2 dated December 1, 1998 between iQ
Power Technology, Inc., Montreal Trust Company of Canada and
certain shareholders of iQ Power Technology, Inc.
6.38(2) Lease Agreement effective as of February 16, 1999 between
Dr. Arne Curt Berger and iQ Battery Research & Development
GmbH (translated to English)
6.39(2) Rescission Agreement dated January 13, 1999 between Spima
Spitzenmanufaktor GmbH and iQ Battery Research & Development
GmbH
6.40 Cooperation Agreement dated October 19, 1999 between Yamar
Electronics Ltd. and iQ Battery R&D GmbH
6.41 Investor Relations Consulting Agreement dated December 8,
1999 between Boyle International (Guernsey) Investor
Relations and iQ Power Technology Inc.
7.1(1) List of Material Foreign Patents
10.1 Consent of Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
13.1(1) Form F-X Consent
- -----------------------
(1) Previously filed as an exhibit to the registrant's registration statement
on Form SB-1 on December 10, 1998 (File No. 333-68649).
(2) Previously filed as an exhibit to the registrant's registration statement
on Form SB-1/A (Amendment No. 1) on March 18, 1998 (File No. 333-68649).
(b) Report on Form 8-K
None.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, iQ Power Technology Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
April 13, 2000.
IQ POWER TECHNOLOGY INC.
By: /s/ Peter E. Braun
------------------------------------
Peter E. Braun, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
to be signed by the following persons on behalf of iQ Power Technology Inc. in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Peter E. Braun
- --------------------------- President, Chief Executive April 13, 2000
Peter E. Braun Officer and Director
(principal executive officer)
/s/ Gerhard K. Trenz Vice-President, Finance April 13, 2000
- --------------------------- (chief financing officer)
Gerhard K. Trenz
/s/ Gunther Bauer Vice-President, Research and April 13, 2000
- --------------------------- Development and Director
Dr. Gunther C. Bauer
/s/ Russell French Director April 13, 2000
- ---------------------------
Russell French
Director April __, 2000
- ---------------------------
Hans Ambos
/s/ Gregory Sasges Secretary and Director April 13, 2000
- ---------------------------
Gregory A. Sasges
<PAGE>
Auditors' Report and Consolidated Financial Statements
iQ POWER TECHNOLOGY INC.
(a development stage company)
December 31, 1999
<PAGE>
Independent Auditors' Report
To the Board of Directors and the Shareholders of
iQ Power Technology Inc.
(a development stage company)
We have audited the consolidated balance sheets of iQ Power Technology Inc. (a
development stage company) as of December 31, 1999 and 1998 and the related
consolidated statements of loss and comprehensive loss, shareholders' equity,
and cash flows for each of the years in the three year period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1999 and 1998 and the consolidated results of its
operations, and its cash flows for each of the years in the three year period
ended December 31, 1999 in accordance with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements 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 to repay
its liabilities when they become due. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Munich, February 4, 2000
/s/ Deloitte & Touche GmbH
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
F-1
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
CONSOLIDATED BALANCE SHEET
(Expressed in United States dollars;
all amounts in thousands except per share data)
<TABLE>
- ----------------------------------------------------------------------------------------------------------
December 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 2,283 $ 13
Receivable from shareholders 62 49
Accounts receivable 180 119
Prepaids and deposits 15 1
- ----------------------------------------------------------------------------------------------------------
Total current assets 2,540 182
EQUIPMENT, net (Note 6) 297 68
- ----------------------------------------------------------------------------------------------------------
Total assets $ 2,837 $ 250
- ----------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Bank indebtedness $ 1 $ 125
Accounts payable 130 538
Accrued liabilities 55 172
Loans from iQ Power - 886
Current portion of bank debt - 1
Due to shareholders - 78
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 186 1,800
BANK DEBT - non-current 2 3
NON-CURRENT DUE TO SHAREHOLDERS - 57
- ----------------------------------------------------------------------------------------------------------
Total liabilities 188 1,860
- ----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Note 7)
Authorized:
An unlimited number of common shares of no par value.
Issued and outstanding:
24,329,050 common shares at December 31, 1999
12,800,000 common shares at December 31, 1998 5,904 60
Additional paid-in capital 396 -
Accumulated other comprehensive income (loss) 82 (94)
Accumulated deficit, during development stage (3,733) (1,576)
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) 2,649 (1,610)
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,837 $ 250
- ----------------------------------------------------------------------------------------------------------
</TABLE>
CONTINUING OPERATIONS (Note 2)
See accompanying notes to consolidated financial statements
F-2
<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)
- --------------------------------------------------------------------------------
<TABLE>
Cumulative from
date of inception Year ended Year ended Year ended
to December 31, December 31, December 31, December 31,
1999 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales and other revenues $ 176 $ 11 $ - $ 26
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development expenses:
Personnel 1,295 496 299 132
Laboratory 704 232 153 115
Office 279 145 54 34
Consulting services 532 131 153 96
Professional fees 666 133 216 109
- ---------------------------------------------------------------------------------------------------------------------
3,476 1,137 875 486
General and administrative expenses:
Personnel 171 91 18 52
Financing 151 120 3 -
Office 59 25 7 6
Consulting services 102 35 38 2
Professional fees 143 37 46 34
Management fees 36 36 - -
Investor relations 80 80 - -
Research memberships 50 50 - -
Travel 103 103 - -
Other 125 125 - -
- ---------------------------------------------------------------------------------------------------------------------
1,020 702 112 94
Interest 133 15 46 44
Stock based compensation 368 368 - -
- ---------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 4,997 2,222 1,033 624
INTEREST INCOME (63) (54) (6) (1)
- ---------------------------------------------------------------------------------------------------------------------
NET LOSS (4,758) (2,157) (1,027) (597)
- ---------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss) income:
Accumulated other comprehensive
income (loss) 82 176 (94) -
- ---------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS $ (4,676) $ (1,981) $ (1,121) $ (597)
- ---------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.35) $ (0.10) $ (0.09) $ (0.05)
- ---------------------------------------------------------------------------------------------------------------------
Basic and diluted weighted average
number of shares outstanding 13,484,439 18,959,952 12,800,000 12,800,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<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)
- --------------------------------------------------------------------------------
<TABLE>
Accumulated Total
Additional Other Shareholders'
Common shares Paid-In Comprehensive Accumulated Equity
Shares Amount Capital Income (Loss) Deficit (Deficit)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 100 $ 60 $ - $ - $ (173) $ (113)
Issue of shares -
Net loss (341) (341)
Allocation of loss to
atypical shares 379 379
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 100 60 - - (135) (75)
Issue of shares -
Net loss (496) (496)
Allocation of loss to
atypical shares 139 139
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 100 60 - - (492) (432)
Issue of shares -
Net loss (597) (597)
Allocation of loss to
atypical shares 312 312
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 100 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 100 60 - (94) (1,576) (1,610)
Reorganization of capital on
reverse acquisition 12,799,900
Deemed issuance of shares on
acquisition of iQ Power
Technology Inc. 11,179,425 5,495 5,495
Stock based compensation 396 396
Exercise of warrants 349,625 349 349
Net loss (2,157) (2,157)
Other comprehensive (loss) -
foreign currency translation
adjustments 176 176
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 24,329,050 $ 5,904 $ 396 $ 82 $ (3,733) $ 2,649
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in United States dollars;
all amounts in thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
Cumulative
from date of
Inception to Year ended Year ended Year ended
December 31, December 31, December 31, December 31,
1999 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,758) $ (2,157) $ (1,027) $ (597)
Items not affecting cash
Depreciation and amortization 115 71 20 12
Stock based compensation 368 368 - -
Changes in non-cash working capital
Increase in accounts receivable (180) (42) (2) (47)
Increase in prepaid and deposits (15) 4 - -
Increase (decrease) in accounts payable 130 (707) 243 50
(Decrease) increase in accrued liabilities 55 (163) 41 55
- ---------------------------------------------------------------------------------------------------------------------
(4,285) (2,626) (725) (527)
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITY
Additions to property, plant and equipment (412) (300) (42) (46)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
(Decrease) increase in short-term debt 1 (124) 68 3
(Decrease) increase in due to shareholder (62) (13) 36 (2)
Advances received from external parties 296 - 142 254
(Decrease) increase in other long-term debt 2 (2) (35) 6
Cash acquired on business combination 4,718 4,718 - -
Advances from subsidiary 581 260 321 -
Issuance of shares 409 349 - -
Issuance of atypical shares 1,025 - 228 312
- ---------------------------------------------------------------------------------------------------------------------
6,970 5,188 760 573
- ---------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND
CASH EQUIVALENTS 2,273 2,262 (7) -
FOREIGN EXCHANGE MOVEMENT 10 8 2 -
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 13 18 18
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,283 $ 2,283 $ 13 $ 18
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
iQ Power Technology Inc. (iQ Power) was incorporated under the Canada
Business Corporations Act on September 20, 1994. IQ Power entered into a
share exchange agreement with iQ Battery Research & Development GmbH (iQ
Battery) on August 25, 1998. After iQ Power completed an equity financing
with gross proceeds of more than $3,000,000, the options of the
shareholders of iQ Battery to cancel the share exchange agreement expired
on June 17, 1999. The business combination has been accounted for as
reverse acquisition with iQ Battery being identified as the acquiror (see
Note 5). 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. In 1999, iQ Battery's legal
domicile was moved from Floha, Germany, to Chemnitz, Germany. iQ Battery
also 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 5,500,000 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 Battery'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.
F-6
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
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
US dollars, German Deutsche Marks 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 1998 and
1999 were 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.
F-7
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
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 3-10 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.
(See note 8)
(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.
F-8
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
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 (see Note
7(c)).
(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 December 31, 1999 and 1998 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.
4. ACCOUNTS RECEIVABLE
Accounts Receivable are recorded at net realizable value. No allowance for
doubtful accounts has been provided.
F-9
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
5. BUSINESS COMBINATION
During the year ended December 31, 1998, iQ Power issued shares pursuant to
a share exchange agreement dated August 25, 1998 with iQ Battery whereby
the shareholders of iQ Battery transferred their iQ Battery shares to iQ
Power for, in the aggregate, 10,000,000 common shares. The shareholders of
iQ Battery had the option to cancel the share exchange agreement if after
the four month anniversary of the initial filing by iQ Power of a
registration statement on Form SB-1 with the United States Securities and
Exchange Commission (a) iQ Power had failed to complete an equity offering
with gross proceeds of at least $3,000,000 and (b) the shareholders of iQ
Battery had repaid to iQ Power the full amount of all funds advanced to iQ
Battery. The option terminated when iQ Power completed an equity financing
with gross proceeds of more than $3,000,000.
iQ Power also entered into share exchange agreements in September 1998
under which 2,800,000 common shares were issued to the holders of Atypical
Shares of iQ Battery. Atypical Shares means certain shares of iQ Battery
which are not part of the ordinary capital of iQ Battery. The Atypical
shares were issued pursuant to agreements between iQ Battery and the
holders of those shares under German tax incentives. The iQ Power common
shares and the Atypical shares were held in escrow until completion of the
offering.
The business combination has been accounted for as a reverse acquisition
whereby the purchase method of accounting has been used with iQ Battery
being identified as the accounting parent. These consolidated financial
statements include the operations of iQ Power, the accounting subsidiary,
from the date of acquisition. The fair value of the net assets of iQ Power
at the date of acquisition is as follows:
F-10
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
5. BUSINESS COMBINATION (Continued)
<TABLE>
Thousands
-------------
<S> <C>
Current assets, including cash of $4,718 $ 4,755
Advances to iQ Battery 1,113
----------------------------------------------------------------------------------------
5,868
Less: Current liabilities (345)
----------------------------------------------------------------------------------------
Purchase price $ 5,523
----------------------------------------------------------------------------------------
Purchase price comprised of:
Issuance of common shares $ 5,495
Assumption of obligation relating to share purchase warrants 28
----------------------------------------------------------------------------------------
$ 5,523
----------------------------------------------------------------------------------------
</TABLE>
The following unaudited pro forma information presents the results of
operations of the Company as if the iQ Power acquisition had occurred at
January 1, 1999 and 1998.
<TABLE>
Year ended Year ended
December 31, December 31,
1999 1998
--------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue $ 11 $ 26
---------------------------------------------------------------------------------------------------
Net loss for the period (in thousands) $ (2,238) $ (733)
---------------------------------------------------------------------------------------------------
Loss per share (in US$) $ (0.12) $ (0.05)
---------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 18,959,952 13,750,294
---------------------------------------------------------------------------------------------------
</TABLE>
6. EQUIPMENT
Equipment is as follows:
December 31, December 31,
1999 1998
-------------- --------------
Equipment, at cost $ 378 $ 78
Less accumulated depreciation 81 10
------------------------------------------------------------------------
Net book value $ 297 $ 68
------------------------------------------------------------------------
F-11
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL
Authorized
An unlimited number of common shares
Issued and outstanding
<TABLE>
Number of
Common shares Amount
---------------- ----------
<S> <C> <C>
Balance, January 1, 1998 (iQ Power) 1,969,740 $ 493
Private placement, issued for cash 3,709,685 927
-----------------------------------------------------------------------------------------------------
Balance, December 31, 1998 5,679,425 1,420
Shares issued for cash 5,500,000 5,500
Issue costs - (653)
-----------------------------------------------------------------------------------------------------
Balance, June 17, 1999 11,179,425 6,267
Adjustment for reverse acquisition on June 17, 1999 - (6,207)
-----------------------------------------------------------------------------------------------------
11,179,425 60
-----------------------------------------------------------------------------------------------------
Issued to effect the reverse acquisition 12,800,000 5,495
-----------------------------------------------------------------------------------------------------
Warrants exercised during the year 349,625 349
-----------------------------------------------------------------------------------------------------
Balance, December 31, 1999 24,329,050 $ 5,904
-----------------------------------------------------------------------------------------------------
</TABLE>
(a) Agent's Warrants
As a part of the issuance of 5,500,000 common shares the agent to the
offering was granted 550,000 Agent Warrants entitling the agent to
purchase 550,000 common shares for $1 per share in the first year of
the warrant and for $1.50 per share in the second year of the warrant.
During the period to December 31, 1999 349,625 warrants were exercised
for proceeds of $350,000.
F-12
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
7. 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 500,000 warrants provided
for under the IR Agreement are hereby cancelled.
The Company has created 100,000 one year Service Warrants, each
warrant entitling the holder to purchase one common share exercisable
as follows:
(i) 50,000 warrants vesting on execution of Investor Relations
Agreement, exercisable at a price of $2.00 per share;
(ii) 50,000 warrants vesting June 1, 2000, exercisable at a price
of $3.00 per share.
The Company will issue the Service Warrants on the execution of an
Investor Relations Agreement.
(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 4,795,000 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 least
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.
F-13
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL (Continued)
(c) Stock options (Continued)
Under the Stock Option Plan the following options have been granted
and remain outstanding at December 31, 1999.
2,825,000 $ 1.00 December 1, 2008
345,000 $ 1.00 June 28, 2009
150,000 $ 1.00 June 28, 2001
400,000 $ 1.50 July 7, 2009
350,000 $ 1.75 October 15, 2009
350,000 $ * October 15, 2009
* Vested on a two year period on an exercise price range from $2.00
to $4.00.
No options have been exercised or cancelled under the Plan.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", issued in October 1995, requires the use of
the fair value based method of accounting for stock options. Under
this method, compensation cost is measured at the grant date as the
fair value of the options granted and is recognized over the exercise
period. During the year ended December 31, 1999, the Company issued
options to individuals other than employees and directors which under
SFAS 123 are recognized as share-based compensation rateably over the
vesting period. SFAS 123, however, allows the Company to continue to
measure the compensation cost of employee and director related stock
options in accordance with APB 25. The Company has therefore adopted
the disclosure-only provision of SFAS 123.
F-14
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL (Continued)
(c) Stock options (Continued)
Had compensation cost for the Company's share options granted to
employees been determined based on the Black-Scholes value at the
grant dates for awards as prescribed by SFAS No. 123, pro forma net
loss and net loss per share would have been as follows:
<TABLE>
Years ended December 31,
-----------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss
As reported $ (2,157) $ - $ -
SFAS No. 123 pro forma (2,014) - -
-----------------------------------------------------------------------------------------
Pro forma net loss (4,171) - -
Loss per share
As reported (0.11)` - -
SFAS No. 123 pro forma (0.11) - -
-----------------------------------------------------------------------------------------
Pro forma loss per share $ (0.22) $ - $ -
-----------------------------------------------------------------------------------------
</TABLE>
The weighted average Black-Scholes option pricing model value of
options granted under the share option plan during the years ended
December 31, 1999, 1998 and 1997 were $0.52, $Nil and $Nil per share,
respectively. The fair value of these options was estimated at the
date of grant using a weighted average volatility factor of 20%, a
dividend yield of 0%, a weighted average expected life of the stock
options of 9.73 years, and a risk free interest rate of 5.25%.
(d) Loss per share
Loss per share calculations give effect to the reverse takeover
described in Note 1.
F-15
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL (Continued)
(e) iQ Battery share capital
The registered capital of iQ Battery is DM 100,000 which is fully
paid.
All equity securities were acquired by iQ Power as part of the
business combination.
8. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the financial
statements comprised:
(a) Management fees for the twelve months ended December 31, 1999 of
$36,000 (1998 - $Nil; 1997 - $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".
F-16
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 1999
(Expressed in United States dollars; tabular amounts in thousands
except per share data)
- --------------------------------------------------------------------------------
8. RELATED PARTY TRANSACTIONS (Continued)
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.
9. OPERATING LEASES
The Company has operating leases for certain equipment and facilities. As
at December 31, 1999 obligations to make future minimum lease payments were
as follows:
Payments to be made in the years ending December 31 are as follows:
2000 $ 40
2001 28
2002 18
2003 2
Thereafter -
10. INCOME TAXES
For all periods presented the provision for income taxes differs from the
federal corporation income tax rate of 40% (1999), respectively 45% (1998
and 1997) because no benefit was realized for operating losses incurred.
As at December 31, 1999 the Company had total deferred income tax assets
relating to loss carryforwards of $1,560,188 (1998 - $652,515; 1997 -
$219,365) which have been reduced to zero by valuation allowances. The
valuation allowance represents the amount of deferred income tax assets
that may not be realized based upon expectations of taxable income that are
consistent with the Company's operating history.
As of December 31, 1999 the Company had net operating loss carryforwards of
approximately $3,767,695 for corporation income taxes. These loss
carryforwards have no set expiry dates.
11. 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.
F-17
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
------ -----------
2.1(1) Certificate of Incorporation dated December 20, 1994, for
3099458 Canada Inc.
2.2(1) Articles of Incorporation dated December 21, 1994, for
3099458 Canada Inc.
2.3(1) Certificate of Amendment dated May 9, 1997, together with
Form 4, Articles of Amendment for iQ Power Technology Inc.
2.4(1) Certificate of Amendment dated March 31, 1998, for iQ Power
Technology Inc.
2.5(1) By-law Number One General By-Law of iQ Power Technology Inc.
dated December 31, 1997, as confirmed on June 30, 1998
6.1(1) Form of Atypical Share Exchange Agreement
6.2(1) Share Exchange Agreement dated August 25, 1998, between iQ
Power Technology Inc., iQ Battery Research and Development
GmbH and the Shareholders of iQ Battery Research and
Development GmbH
6.3(1) Pooling Agreement No. 1 dated August 25, 1998, between iQ
Power Technology Inc., Montreal Trust Company of Canada and
the Shareholders of iQ Power Technology Inc.
6.4(1) Pooling Amendment Agreement dated August 15, 1998, between
iQ Power Technology Inc., Montreal Trust Company of Canada
and the Shareholders of iQ Power Technology Inc.
6.5(1) Management Agreement dated January 1, 1997, between 3099458
Canada Inc. and Mayon Management Corp.
6.6(1) Consulting Agreement dated August 25, 1998, between iQ Power
Technology Inc. and Mayon Management Corp.
6.7(1) Employment Agreement dated August 31, 1998 with Dr. Gunther
C. Bauer
6.8(1) Employment Agreement dated August 31, 1998 with Peter E.
Braun
6.9(1) Employment Agreement dated September 1, 1998 with Gerhard K.
Trenz
6.10(1) Form of Confidentiality Agreement between iQ Power
Technology Inc. and certain Officers of the Company
6.11(1) Lease Agreement by and between iQ Battery Research and
Development GmbH and Spima Spitzenmanufaktur GmbH dated
December 9, 1997 (Translated to English)
6.12(1) Commercial Lease Agreement by and between iQ Battery
Research and Development GmbH and Josef Landthaler, GmbH
dated May 9, 1996, as amended (Translated to English)
6.13(1) Form of iQ Germany Confidentiality Agreement (Translated to
English)
<PAGE>
Exhibit
Number Description
------ -----------
6.14(1) Form of iQ Germany Employee Confidentiality and
Nondisclosure Agreement (Translated to English)
6.15(1) Cooperation Agreement by and between iQ Battery Research and
Development GmbH and BASF Aktiengesellschaft (Translated to
English)
6.16(1) Confidentiality Agreement by and between iQ Battery Research
and Development GmbH and Bayerische Motoren Werke dated July
29, 1997 (Translated to English)
6.17(1) Mutual Confidentiality Agreement among iQ Battery Research
and Development GmbH, Akkumulatorenfabrik Moll GmbH & Co.
KG, and Audi dated May 26, 1998 (Translated to English)
6.18(1) Confidentiality Agreement between iQ Battery Research and
Development GmbH and Mercedes Benz Aktiengessellschaft dated
March 21, 1997 (Translated to English)
6.19(1) Letter Agreement between iQ Battery Research and Development
GmbH and Manufacturer of Batteries Moll Ltd. dated August 3,
1998 (Translated to English)
6.20(1) Mutual Confidentiality Agreement between iQ Battery Research
and Development GmbH and Manufacturer of Batteries Moll
dated September 8, 1997 (Translated to English)
6.21(1) Loan Contract by and between Karin Wittkewitz and iQ Battery
Research and Development GmbH dated December 28, 1996
(Translated to English)
6.22(1) Contract Concerning Industrial Property Rights and Know How
by and between Dieter Braun and Peter E. Braun and iQ
Battery Research and Development GmbH dated March 15, 1995
(Translated to English)
6.23(1) Supplementary Contract to the Contract concerning Industrial
Property Rights and Know How by and between H. Deiter Braun
and Peter E. Braun and iQ Battery Research and Development
GmbH dated August 16, 1996 (Translated to English)
6.24(1) Extension of Contract regarding Industrial Property Rights
and Know How by and between Deiter Braun and Peter Braun and
iQ Battery Research and Development GmbH dated September 20,
1996 (Translated to English)
6.25(1) Consulting Contract by and between iQ Battery Research and
Development GmbH and Peter Braun dated August 28, 1994
(Translated to English)
6.26(1) Consulting Contract by and between iQ Battery Research and
Development GmbH and Dr. Gunther Bauer dated October 30,
1996 (Translated to English)
6.27(1) Agreement (Debt Deferral) by and between iQ Battery Research
and Development GmbH and Dieter Braun and Peter Braun dated
December 27, 1996 (Translated to English)
6.28(1) Agreement (Debt Deferral) by and between iQ Battery Research
and Development GmbH and Gunther Bauer dated December 27,
1996 (Translated to English)
<PAGE>
Exhibit
Number Description
------ -----------
6.29(1) Waiver among H. Dieter Braun, Peter E. Braun, Gunther Bauer,
Karin Wittkewitz and iQ Battery Research and Development
GmbH dated December 19, 1997 (Translated to English)
6.30(1) Agreement by and between iQ Battery Research and Development
GmbH and Dieter Braun and Peter Braun dated October 9, 1998
(Translated to English)
6.31(1) 1998 Stock Option Plan
6.32(1) Form of Stock Option Agreement
6.33(1) License Agreement dated September 1, 1998 between iQ Power
Technology, Inc. and Mattalex Management Ltd.
6.34(1) Agreement Re Rights and Interests dated December 9, 1998 by
and among the Company, H. Dieter Braun and Peter E. Braun
6.35(1) Trademark Assignment dated December 9, 1998 by and between
the Company and H. Dieter Braun
6.36(1) Patent Assignment dated December 9, 1998 by and between the
Company and H. Dieter Braun and Peter E. Braun
6.37(2) Pooling Agreement No. 2 dated December 1, 1998 between iQ
Power Technology, Inc., Montreal Trust Company of Canada and
certain shareholders of iQ Power Technology, Inc.
6.38(2) Lease Agreement effective as of February 16, 1999 between
Dr. Arne Curt Berger and iQ Battery Research & Development
GmbH (translated to English)
6.39(2) Rescission Agreement dated January 13, 1999 between Spima
Spitzenmanufaktor GmbH and iQ Battery Research & Development
GmbH
6.40 Cooperation Agreement dated October 19, 1999 between Yamar
Electronics Ltd. and iQ Battery R&D GmbH
6.41 Investor Relations Consulting Agreement dated December 8,
1999 between Boyle International (Guernsey) Investor
Relations and iQ Power Technology Inc.
7.1(1) List of Material Foreign Patents
10.1 Consent of Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
13.1(1) Form F-X Consent
- -----------------------
(1) Previously filed as an exhibit to the registrant's registration statement
on Form SB-1 on December 10, 1998 (File No. 333-68649).
(2) Previously filed as an exhibit to the registrant's registration statement
on Form SB-1/A (Amendment No. 1) on March 18, 1998 (File No. 333-68649).
EXHIBIT 6.40
COOPERATION AGREEMENT
between
Yamar Electronics Ltd.
(hereinafter referred to as "Yamar")
and
IQ Battery R & D GmbH
(hereinafter referred to as "iQ")
INDEX
1. BASIC ELEMENTS OF CONTRACT
1.1 Preamble
1.2 Cooperation
1.3 Framework agreement and precedence
1.4 Transfer of rights and duties
1.5 Definitions
2. CONTENT OF PERFORMANCES
2.1 Performances by Yamar
2.1.1 Provision of the DC-bus
2.1.2 Marketing support
2.2 Performances by iQ
2.2.1 Further development
2.2.2 Development know-how
2.2.3 Series manufacture
2.3 Reciprocal performances
2.4 Property rights
2.5 Development results
3. SECURING OF PERFORMANCES
3.1 Exclusive collaboration
3.2 Secrecy and data protection
3.3 Duties relating to information
3.4 Involvement of third parties
3.5 tax, customs duty and embargo provisions
4. EXECUTION OF CONTRACT
4.1 Term of contract/notice of termination
4.2 Winding up of contract
5. FINAL PROVISIONS
5.1 Choice of law/place of jurisdiction
5.2 Mediation
5.3 Place of performance
5.4 Written form
5.5 Severance clause
6. SCHEDULES
1
<PAGE>
-2-
1. BASIC ELEMENTS OF CONTRACT
1.1 PREAMBLE
Yamar has developed software and hardware for transferring data in electrical
cables of vehicles. iQ has developed software and hardware for an improved
"intelligent car battery system".
The iQ battery gathers and processes data in a chip. iQ is looking for
possibilities of transmitting this data to other vehicle components, in
particular the on-board computer. For this reason, the parties intend to
integrate Yamar's software and hardware into the iQ battery system.
In order to he able to exploit the respective products jointly in series
manufacture, it is necessary that:
- iQ shall integrate Yamar's software and hardware into its battery
concept;
- Yamar shall supply iQ with its software and hardware in the context of
series production of the battery.
By the present contract, Yamar grants iQ the right to use its software and
hardware for integration into the battery system. Further, this contract shall
lay out the framework for the planned further cooperation between both parties.
The details of the further cooperation shall be laid down in separate
implementation agreements.
1.2 Cooperation
Achievement of contractual success shall require a close collaboration between
iQ and Yamar. Both parties declare, in the context of the provisions of the law,
their unrestricted willingness to take mutual account of one another, provide
comprehensive information, give precautionary advice against risks and
protection against disruptive influences by third parties. A link under company
law between the parties is not thereby intended. This agreement does not
authorize either party to represent or bind the other. Neither party shall be
entitled to represent or bind the other without the specific written and signed
authorization by the other.
1.3 Framework agreement and precedence
This contract is the basis for the future cooperation in so far as not otherwise
agreed in the individual agreements to be concluded.
1.4 Transfer of rights and duties
Any transfer of rights and duties under this contract shall only be possible
with the express written and signed approval of the other party (subject to
section 8 below).
1.5 Definitions
The following definitions are agreed:
- Dc-bus:
<PAGE>
-3-
The software and hardware for the transmission of data in electrical wires as
developed by Yamar.
- iQ-B:
The intelligent battery system developed by 1Q.
- DC-iQ:
The final product planned through integration of the DC-bus into the iQ-B by iQ.
2. CONTENT OF PERFORMANCES
2.1 Performances by Yamar
2.1.1 Provision of the DC-bus
Yamar shall pass to iQ for test and development purposes "evaluation boards" and
"evaluation software" relating to the DC-bus.
Yamar shall inform iQ as to all changes to the hardware and software of the
DC-bus and shall supply iQ with the respectively latest, revised version of the
DC-bus.
2.1.2 Marketing support
iQ shall be entitled, for marketing purposes, to demonstrate the DC-bus arid
DC-iQ to third parties, in particular automobile manufacturers, and to make the
same available for test purposes, in so far as iQ shall have previously
concluded with such third parties a confidentiality and non-impairment
agreement.
2.2 Performances by iQ
2.2.1 Integration of DC-BUS with iQ-B
iQ shall integrate the DC-bus into the iQ-B with the aim of producing a
combination of the two products (DC-iQ) which is ready for series manufacture.
The costs involved in such integration will be on the account of iQ.
2.2.2 Development know-how
iQ shall notify Yamar of all technical results arising during development of the
DC-iQ and shall make available to Yamar copies of all data arising during the
test and development work.
2.2.3 Series manufacture
If iQ shall succeed in integrating the DC-bus into the iQ-B system and in
marketing the DC-iQ arising therefrom as a series product, iQ shall purchase the
DC-buses from Yamar which are required for production of the DC-iQ.
<PAGE>
-4-
Details shall be laid down in a separate production and supply contract.
iQ may not manufacture the DC-bus nor allow or enable any body else to
manufacture it, except if Yamar will unreasonably refuse to supply the products
(DC-bus or DC-iQ), but only for iQ's own use, and subject to payment of a
reasonable royalty as percentage of the DC-iQ sales.
2.3 Reciprocal performances
The parties shall reciprocally support one another in marketing the DC-bus, iQ-B
and DC-iQ. For each transaction which one party shall conclude (at its option)
an a result of arrangement by the other party, the arranging party shall receive
commission. The commission shall be calculated on the basis of total turnover
from the respective transaction and shall amount to the following:
- For engineering or development contracts 4.5%
- For the aggregate product sales:
Up to 1 million $: 3%
Between 1 and 2.5 million $: 2%
Over 2.5 million $: 1%
2.4 Property eights
Yamar holds; the property rights or pending applications for the same as listed
in detail in
Schedule 1.
iQ holds the property rights or pending applications for the same an listed in
Schedule 2.
Yamar shall own the exclusive rights to the DC-bus technology and know-how,
whether or not included in its patents and applications, and whether or not such
patents are valid. iQ shall likewise own the exclusive rights to the iQ
technology and know-how.
In so far as required within the framework of this contract, or a contract
concluded on the basis of this contract, the parties shall allow each other to
use such property rights, the software which is respectively to be made
available within the framework of product development, and the secret know-how
which each party possesses, and to base their own developments thereon. Except
that either party may only use the technology or know-how of the other for the
DC-iQ project and products as provided by this agreement.
<PAGE>
-5-
2.5 Development results
Each party is and shall remain owner of the property rights and copyright
(background property rights) which they shall acquire outside the development
project.
If inventions shall come into being in the framework of the contractual
collaboration, which inventions may lead to property rights, then exclusively
that party shall be entitled to file for property rights whose staff or agents
have created the invention.
The parties shall inform one another on a reciprocal basis as to property rights
which have been filed for registration.
If, within the framework of the contractual work, Inventions shall come into
being in which staff or agents of both parties are involved, then the parties
shall be deemed to be joint inventors and a separate agreement shall be reached
on a case by case basis as to which of them shall file for registration of any
property rights and where, as well as who shall bear the costs thereof, and who
has which eights therein. Any granting of licence to third parties shall be
undertaken jointly - in so far as not otherwise agreed. Except that any
invention or development related to the DC-bus; shall belong to Yamar, and any
invention or development related to iQ-B shall belong to iQ, notwithstanding the
party who developed or invented it. Inventions related to the integration of the
DC-bus to the iQ-B shall belong to iQ. The know-how created within the framework
of the further development referred to at para. 2.2.1 shall be at the disposal
of both parties for all types of use free of charge.
3. SECURING OF PERFORMANCES
3.1 Exclusive collaboration
In view of the considerable prior investments of both parties with regard to
development of the DC-iQ, exclusive collaboration in the production, supply and
distribution of the DC-iQ is planned. Both parties are aware that the actual
structure of production and supply contracts must comply with the provisions of
the law, in particular cartel law.
On this basis, Yamar shall only offer for sale or sell batteries, which are
vehicle batteries, based on the iQ-B technology. Yamar will be free to use the
DC-BUS with batteries developed or manufactured or sold by other third party
provided that such third party refuse to use iQ batteries and have their own
technology and do not use iQ-B technology.
iQ shall only offer for sale such "DC-Power Line-communication Technology" in
the vehicle battery market as shall be based on the DC-bus technology.
These restrictions relate to the market for all SLI batteries
(Starting-Lighting-Ignition).
3.2 Secrecy and data protection
With regard to all documents and information previously exchanged or which may
be exchanged in the future, as well as knowledge acquired as to fundamentals,
working methods, production, new development, improvements and other details
which they shall receive for the purpose of or
<PAGE>
-6-
during the course of execution of this contract or the implementation agreements
linked thereto, Yamar and iQ shall use the same only for the purpose of
executing these contracts and shall maintain secrecy with regard thereto. This
shall apply in particular to the source codes of the software used by each party
as well as all parts of the development documentation, which must be set up and
maintained at least in accordance with the standards which the respective party
shall apply to securing its own know-how and industrial property rights. This
shall apply as long as and in so far as the same shall not have become generally
known (without the fault of the respective party). All documents shall be kept
securely and at the end of this contract shall be returned or destroyed without
any copies being retained. The legal duties with regard to data protection must
be observed. Both contracting parties may at any time demand information as to
the measures taken and shall have a right of inspection with regard to relevant
records, such as log books, rights of access, attendance lists, etc.
Such duties shall continue to exist also after the and of the contract. Any
breaches by staff or vicarious agents of a contracting party shall be attributed
to the respective party, irrespective of its fault therein.
3.3 Duties relating to information
Within the framework of this project, both parties shall reciprocally pass to
each other all materials, items and information and grant all rights of access
which shall be necessary for the swiftest possible realization of the aims of
the cooperation, as well as in order to be able to assess the respective status
of the project from technical, commercial and legal perspectives.
In this regard, both parties shall be entitled to receive copies, documents and
technical documentation, as well as to enter those premises in which project
documents are stored.
If information relevant to the project cannot be separated from other
information, either party may demand that a third party or publicly appointed
and sworn expert under a duty to maintain professional confidentiality shall be
informed who shall not be linked either professionally or personally with either
of the two parties. Such third party shall obtain the relevant information and
pass the same on while maintaining confidentiality relating to information not
relevant to the project. The costs of the third party shall be borne by the
party who shall request engagement of the same. All information within the
framework of this project shall be kept secret in accordance with the same
standards as the know-how arising.
3.4 Tax, customs duty and embargo provisions
Both parties undertake to observe the relevant tax, customs duty and embargo
provisions and to ensure that in particular no joint tax liability for taxes not
paid shall arise so as to be due from the other party,
4. EXECUTION OF CONTRACT
4.1 Term of contract/notice of termination
This contract shall enter into force upon signature hereof and shall be
initially concluded for 2 years. The parties shall decide by mutual agreement
upon any extension to the contract.
<PAGE>
-7-
Ordinary notice of termination in respect of the contract shall be possible at
the earliest following a two-year contractual term. The notice period shall be 8
months.
4.2 Winding up of contract
Further to winding up and/or notice of termination in respect of this contract
or an implementation agreement, both parties shall immediately return to one
another all items received and pass on all information which is relevant to them
from a technical, commercial or legal perspective in so far as they shall have a
contractual claim thereto. The general duties of protection and provision of
cautionary advice shall be observed also further to termination of the contract.
If data is administered in the EDP system, it shall be deleted further to prior
advice to the other contractual party.
5. FINAL PROVISIONS
5.1 Choice of law/place jurisdiction
All business relations between iQ and Yamar shall be subject exclusively to the
law of the Federal Republic of Germany. Place of jurisdiction shall be either
Munich or Tel Aviv, depending on the registered office of the Defendant.
5.2 Mediation
Before taking any dispute before the courts, the parties shall attempt to solve
all problems which may arise in implementing contracts on an amicable basis
through negotiation.
If the parties shall not succeed in removing their differences of opinion within
60 days of commencement of negotiations, the parties shall implement a mediation
procedure pursuant to the procedural rules, by way of
Schedule 3.
being the mediation procedure rules of the Gesellachaft fur Wirtschaftsmediation
und Konfilktmanagement e.V. (gwmk). The same shall apply if relevant discussions
shall not have been commenced within 30 days of receipt of a request to one
party to participate in amicable negotiations.
This agreement shall not prevent either party from bringing summary proceedings
before a court, in particular proceedings for attachment or an interlocutory
injunction.
5.3 Place of performance
Place of performance for deliveries of goods and provision of services shall be
the office which shall be contractually agreed as the performance address, and
in the event of doubt this shall be Unterhaching. Place of performance for
payments shall be the place of the payment office indicated in the invoice,
<PAGE>
-8-
5.4 Written form
Any amendments or additions to this contract must be in writing and signed by
the authorized officer of the respective party, whereby this requirement as to
the written form shall itself only be revocable in writing and signed as
aforesaid.
5.5 Severance clause
In the event that any individual terms of this contract or any individual
agreements made on a subsidiary basis hereto shall be wholly or partially
invalid, this shall not affect the validity of the other terms. Both contracting
parties shall undertake to replace the invalid term by a provision which shall
come as close as possible in economic intent to the invalid term which it
replaces and which for its part shall be valid.
5.6 Construction
This contract fully reflects the whole agreement of the parties in the subject
matter hereof.
6. Assignment
6.1 This agreement may not be assigned except as part of the enterprise of the
respective party related to the subject matter of this agreement.
6.2 Neither party shall delegate or otherwise transfer the performance of its
undertakings hereunder.
6.3 Neither party may license or otherwise allow or enable the use of the
technology or know-how of the other to any third party.
6.4 Any license or subcontracting by iQ to manufacture the DC-iQ products by
others shall be conditional on the manufacturer's undertaking to purchase
the DC-buses and DC-iQs from Yamar pursuant to section 2.2.3 above.
7. Trademarks and Tradenames
The DC-iQ products shall designate the inclusion of the DC-bus technology by
stating on the packaging and in any advertisement - "DC-BUS included". Subject
thereto neither party may use the trademark or tradename of the other whether
registered or not.
8. SCHEDULES
Schedule 1 List of patents and technology of iQ
Schedule 2 List of patents and technology of Yamar
Schedule 3 Procedural rules of the Gesellschaft fur Wirtschaftsmediation
und Konfliktmanagement e.V.
<PAGE>
-9-
Unterhaching, dated 19/10/99 Tel Aviv, dated 19/10/99
/s/ [Illegible] /s/ [Illegible]
- ---------------------------------- ----------------------------------
iQ Battery
Research & Development GmbH Yamar Electronics Ltd.
EXHIBIT 6.41
INVESTOR RELATIONS CONSULTING AGREEMENT
Between: BOYLE INTERNATIONAL (GUERNSEY) INVESTOR RELATIONS LTD.
(the "Consultant")
At: 22 Grosvenor Square
London, England W1X 9LH
Facsimile: (44) 171 355 2175
And: iQ POWER TECHNOLOGY INC.
(the "Company")
At: c/o Erlenhof Park, Inselkammer Strasse 4,
D-82008 Unterhaching, Germany
Facsimile: 011-4989-614483-40
IN CONSIDERATION of the mutual promises and covenants and the terms and
conditions set out in sections 1.00 through 9.00 attached, the Company hereby
offers and the Consultant hereby accepts engagement with the Company upon the
terms and conditions set forth herein:
Position: Investor Relations Part-Time Dependent Contractor.
Services: Services to be provided shall relate generally to the
position of the Consultant and shall include those items and
be provided in the manner described in Schedule A.
Term of Agreement: This Agreement shall have a term of 6 months plus a day and
be deemed to have commenced on December 1, 1999,
notwithstanding the date of execution.
Period of Services: As directed by the Company.
Compensation: As consideration for the Services of the Consultant
hereunder, the Company shall:
1. pay the Consultant a fee of US$5,000 per month for the
first six months of this Agreement, due on the last
business day of each calendar month during the term of
this Agreement; and
2. issue the Consultant forthwith following execution of
this Agreement, 100,000 one-year warrants (the
"Warrants"), which Warrants shall vest and be
exerciseable as follows:
a. 50% of the Warrants shall vest and be exerciseable
for the price of US$2 per share immediately;
and
b. the remaining 50% of the Warrants shall vest and
be exerciseable for the price of US$3 per share at
any time on or after June 1, 2000.
Executed and delivered by and on behalf of the Company at Executed and delivered
by and on behalf of the Consultant Unterhaching, Germany, effective December 8,
1999. at London, effective December 10, 1999.
BOYLE INTERNATIONAL (GUERNSEY)
iQ POWER TECHNOLOGY INC. INVESTOR RELATIONS LTD.
Per: "Peter Braun" Per: "Dawn Boyle"
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Peter Braun, President Dawn Boyle, President
<PAGE>
CONSULTING AGREEMENT
TERMS AND CONDITIONS
1.00 Representations, Warranties, and Covenants of the Consultant
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1.01 The Consultant represents and warrants to, and covenants with, the Company,
as follows:
a. the Consultant has the ability, experience and skills necessary to carry
out its obligations under this Agreement;
b. the Consultant and its officer, employees, agents and consultants shall
comply with all securities laws and regulations applicable to the Company
or the Consultant, and all policies, rules and requirements of any exchange
or quotation system on which the shares of the Company trade;
c. the Consultant shall, and shall cause its officers, employees, agents and
co-consultants to, act at all times in the best interests of the Company;
d. the Consultant, upon notice from the Company, will cease all Services for
the period directed by the Company without effect on the payment of
compensation due hereunder unless this Agreement is terminated in
connection with the request to cease Services;
e. the Consultant will not distribute or disseminate any information
concerning the Company in any form or medium, unless such information has
been provided to the Consultant by the Company for distribution or
dissemination, or the Company has reviewed and approved such information
prior to its distribution of dissemination by the Consultant;
f. the Consultant will not engage in any transaction involving the offer or
sale of securities of the Company, and will not solicit or encourage any
other party to engage in any transaction involving the offer or sale of
securities of the Company, at any time that the Consultant is in possession
of material non-public information concerning the Company;
g. the Consultant is not a "U.S. Person" (the definition of which includes,
but is not limited to, an individual resident in the United States and an
estate or trust of which any executor or administrator or trustee,
respectively, is a U.S. Person and any partnership or corporation organized
or incorporated under the laws of the United States);
h. the Consultant did not enter into this Agreement while in the United
States;
i. neither the Warrants nor any shares acquired on the exercise thereof (the
"Securities") are being or may be acquired, directly or indirectly, for the
account or benefit of a U.S. Person or a person in the United States;
j. the Consultant acknowledges that the Securities have not been registered
under the United States Securities Act of 1933, as amended (the "1933
Act"), and may not be offered or sold in the United States, and the
Consultant undertakes and agrees that it will not offer or sell the
Securities in the United States unless the Securities are registered under
the 1933 Act and the securities laws of all applicable states of the United
States or an exemption from such registration requirements is available;
and
k. the Consultant understands that the Company has no obligation or present
intention of filing a registration statement under the 1933 Act in respect
of the Securities.
2.00 Position
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2.01 The Consultant shall provide the Services indicated on the first page
hereof and in such capacity, shall carry out the duties and responsibilities
commensurate with that position as such duties are more specifically defined
from time to time during the term of this Agreement by the Board of Directors of
the Company.
2.02 In providing his services hereunder, the Consultant shall report to and
take directions from the President of the Company or such person as may be
designated by him, subject to overriding directions from the Board of Directors
of the Company.
<PAGE>
Consulting Agreement
Page 3
3.00 Terms; Termination of Engagement
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3.01 The term of engagement pursuant to this Agreement shall be for the term
stated on the first page hereof and thereafter engagement shall continue on a
monthly basis until terminated by the Company or the Consultant. Either party
may terminate the Consultant's engagement as follows:
a. the Consultant may terminate his services at any time and for any reason
upon one month's written notice to the Company;
b. the Company may terminate the Consultant's services at will. If the Company
terminates the Consultant's engagement without cause, the Consultant's
monthly compensation shall continue until at least May 31, 2000;
c. the Company may terminate the Consultant's services for cause after
reasonable notice of any non-performance has been given by the Company to
the Consultant and a reasonable opportunity has been afforded to the
Consultant to remedy any instance of non-performance. For purposes of the
preceding sentence, "cause" shall include but not be limited to:
i. fraud,
ii. conviction or confession of an indictable offense,
iii. destruction or theft of the Company's property,
iv. misconduct materially injurious to the Company, or
v. any breach or threatened breach of this Agreement.
3.02 If the Consultant's engagement is terminated:
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a. subject to paragraph 3.01.b, no further compensation coming due under this
Agreement after the date of termination shall be payable by the Company and
all unvested warrants shall be deemed void and not exerciseable; and
b. the Consultant shall continue to be bound by the terms of section 6.00 of
this Agreement.
4.00 Compensation
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4.01 During the term of this Agreement, the Consultant shall be paid in
accordance with the compensation provisions on the first page hereof. This
compensation may be increased from time to time subject to the approval of the
Board of Directors of the Company and, where required, any regulatory body
having jurisdiction.
4.02 The Company shall reimburse the Consultant for its reasonable expenses
incurred on behalf of the Company incidental to the performance of its Services
hereunder upon the Consultant tendering receipts for the expenses so incurred in
the manner and time prescribed by the Company provided expenses in excess of
US$500 per month shall be subject to the prior written approval of an authorize
representative of the Company having jurisdiction to authorize such expenses.
5.00 Non-circumvention of Consultant
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5.01 In and for valuable consideration, the Company agrees that:
a. the Consultant may introduce the Company (whether written, oral, data, or
otherwise made by the Consultant) to opportunities (the "Opportunities"),
including, without limitation, existing or potential investors, lenders,
borrowers, trusts, corporations, and unincorporated business entities;
b. the identity of the Opportunities, and all other information concerning the
Opportunities (including, without limitation, all mailing information,
telephone and facsimile numbers, email addresses, and other contact
information) introduced hereunder are the property of the Consultant and
shall be treated as confidential information;
c. it shall not use such information except in the context of its engagement
of the Consultant, and never without the Consultant's prior written
approval; and
<PAGE>
Consulting Agreement
Page 4
d. neither it, nor its employees, affiliates and assigns shall enter into, or
otherwise arrange (either for itself or any other person of entity) any
business relations, contact any person of an Opportunity, either directly
or indirectly, or any of its affiliates, or accept any compensation or
advantage in relation to an Opportunity except as directed through the
Consultant, without the prior written approval of the Consultant.
The Consultant is relying on the Company to assent to these terms and the intent
of the Company to be bound by the terms as evidenced by the Company's execution
of this Agreement. Without the assent of the Company to these terms, the
Consultant would not introduce any Opportunity or disclose any confidential
information in pursuance of this Agreement.
6.00 Ownership of Technology; Confidentiality
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6.01 The Consultant recognizes and acknowledges that during the course of his
engagement, he will have access to certain information not generally known to
the public, relating to the products, sales or business of the Company which may
include, without limitation, software, literature, data, programs, customer
contact lists, sources of supply, prospects or projections, manufacturing
techniques, processes, formulas, research or experimental work, work in process,
trade secrets or any other proprietary or confidential matter (collectively, the
"Confidential Information"). The Consultant recognizes and acknowledges that
this Confidential Information constitutes a valuable, special and unique asset
of the Company, access to and knowledge of which are essential to the
performance of the Consultant's duties. The Consultant acknowledges and agrees
that all such Confidential Information, including without limitation that which
the Consultant conceives or develops, either alone or with others, at any time
during his engagement by the Company, is and shall remain the exclusive property
of the Company. The Consultant further recognizes, acknowledges and agrees that,
to enable the Company to perform services for its customers or its clients, such
customers or clients may furnish to the Company or the Consultant Confidential
Information concerning their business affairs, property, methods of operation or
other data, that the goodwill afforded to the Company depends on the Company and
its employees preserving the confidentiality of such information, and that such
information shall be treated as Confidential Information of the Company for all
purposes under this Agreement.
6.02 The Consultant agrees that, except as directed by the Company, the
Consultant will not at any time, whether during or after his engagement with the
Company, use or disclose to any person for any purpose other than for the
benefit of the Company any Confidential Information, or permit any person to
use, examine and/or make copies of any documents, files, data or other
information sources which contain or are derived from Confidential Information,
whether prepared by the Consultant or otherwise coming into the Company's
possession or control without the prior written permission of the Company.
6.03 The Consultant agrees that upon request by the Company and in any event
upon termination of engagement, the Consultant shall turn over to the Company
(or provide proof of destruction of) all Confidential Information in the
Consultant's possession or under his control which was created pursuant to, is
connected with or derived from the Consultant's services to the Company, or
which is related in any manner to the Company's business activities or research
and development efforts, whether or not such materials are in the Consultant's
possession as of the date of this Agreement.
6.04 The Company agrees that Confidential Information shall not include the
following information:
a. information which at the data hereof is disclosed in the public domain;
b. information which after the date hereof is published or otherwise becomes
part of the public domain through no fault or action of the Consultant or
any employees or agents;
c. information which the Consultant can prove was in its possession prior to
the date hereof and was not acquired by the Consultant directly or
indirectly from the Company or anyone under an obligation of
confidentiality to the Company; and
d. information received by the Consultant without restriction as to disclosure
from a third party who has the lawful right to disclose the same.
<PAGE>
Consulting Agreement
Page 5
7.00 Saving Provision
- ---------------------
7.01 The Company and the Consultant agree and stipulate that the agreements and
covenants contained in the preceding sections 5.00 and 6.00, including the scope
of the restricted activities described therein and the duration and geographic
extent of such restrictions, are fair and reasonably necessary for the
protection of the parties and the information described, goodwill and other
protectable interests, in light of all of the facts and circumstances of the
relationship between the Consultant and the Company. In the event a court of
competent jurisdiction should decline to enforce any provision of the preceding
paragraphs, such paragraphs shall be deemed to be modified to restrict them to
the maximum extent, in both time and geography which the court shall find
enforceable.
8.00 Injunctive Relief
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8.01 Each party acknowledges that a breach or threatened breach of any of the
covenants or other agreements contained herein would give rise to irreparable
injury to the party relying on such covenant or other agreement which injury
would be inadequately compensable in money damages. Accordingly, such party or
where appropriate, a client of such party, may seek and obtain an injunctive
relief from the breach or threatened breach of any provision, requirement or
covenant of this Agreement, in addition to and not in limitation of any other
legal remedies which may be available.
8.02 The parties acknowledge and agree that the covenants contained herein are
necessary for the protection of the parties' respective legitimate business
interests and are reasonable in scope and content.
9.00 General
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9.01 This Agreement and all matters arising hereunder will be governed by and
construed in accordance with the laws of the State of Washington, and the laws
of the United States applicable therein, and all disputes and claims, whether
for specific performance, injunction, declaration or otherwise howsoever both at
law and in equity, arising out of or in any way connected with this Agreement
will be referred to the courts of the State of Washington exclusively, and, by
execution and delivery of this Agreement, each party hereby irrevocably submits
and attorns to such jurisdiction.
9.02 In the event it becomes necessary to enforce this Agreement through legal
action, whether or not a suit is actually commenced, the party which obtains
substantial success in a legal action shall be entitled to his or actual
reasonable solicitor's fees and disbursements.
9.03 Any reference in this Agreement in the masculine gender shall include the
feminine and neuter genders, and vice versa, as appropriate. Any reference in
this Agreement in the singular shall mean the plural and vice versa, as
appropriate.
9.04 There is no verbal or other agreement which may modify or affect this
Agreement.
9.05 All dollars expressed in this Agreement are United States dollars.
9.06 This Agreement shall be considered and construed as a single instrument and
the failure to perform any of the terms and conditions in this Agreement shall
constitute a violation or breach of the entire instrument or Agreement and shall
constitute the basis for cancellation or termination.
9.07 The parties hereto agree to do or cause to be done all acts or things
necessary to implement and carry into effect the provisions and intent of this
Agreement.
9.08 All notices, requests, demands and other communications which are required
to be or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person or transmitted by e-mail
or other telecommunication facility or on receipt after dispatch by certified or
registered first class mail, postage prepaid to the party to whom the same is so
given or made to its address noted on the first page.
9.09 This Agreement, including all Schedules attached hereto, constitutes the
entire agreement and supersedes all prior agreements and understandings, oral
and written, between the parties hereto with respect to the subject matter
hereof and may not be amended, modified or terminated unless in a written
instrument executed by the party or parties sought to be bound.
<PAGE>
Consulting Agreement
Page 6
9.10 This Agreement may be executed in any number of counterparts, each of which
when executed, shall be deemed to be an original and all of which together shall
be deemed to be one and the same instrument and a facsimile copy of this
Agreement executed by a party hereto in counterpart or otherwise will be deemed
to be a valid and binding Agreement and accepted as an original of the Agreement
until such time as each of the parties has an originally executed Agreement in
its possession.
<PAGE>
SCHEDULE A
Services shall include:
1. assisting in formulating plans and budgets from time to time for the
dissemination of information concerning the Company to its clients,
potential clients, existing shareholders, potential investors who have
contacted the Company seeking such information, financiers, the media, the
brokerage community and others as appropriate;
2. disseminating such information to the persons mentioned in accordance with
the marketing plan of the Company to encourage participation in the
development of the Company;
3. bank and institutional liaison and data compilation;
4. regular reports to the Company;
5. advising the Company on matters concerning corporate finance and arranging
introductions for the purpose of sourcing capital;
6. introducing the Company to prospective financiers and business contacts who
could assist in the development of the Company; and
7. providing to the President of the Company or such person designated by him
on a timely basis a list of contacts and presentations made by the
Consultant and such other information concerning the performance of its
services hereunder as may be required by the Company to coordinate its
investor relations program.
Services do not include the following matters which shall be the subject of
separate arrangements between the parties in addition to any fees and expenses
paid by the Company under this Agreement:
1. any future European road shows organized by Consultant will be subject to
separate billing and the prior approval of the Company; and
2. any funds raised through or with the assistance of the Consultant at a
future date will be subject to separate billing of an appropriate finders
fee to be negotiated in due course by the parties and paid to the
Consultant.
EXHIBIT 10.1
WEDIT
Deloitte & Touche
- ----------------- ----------------------------------------
[GRAPHIC] Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
CONSENT OF DELOITTE & TOUCHE GMBH
We hereby consent to the incorporation by reference to the Registration
Statement on Form S-8 (Registration Number 333-84453) of our report dated
February 4, 2000 on our audits of the consolidated financial statements of iQ
Power Technology, Inc. and its subsidiaries as of December 31, 1998 and 1999,
which report is included in the Annual Report on Form 10-KSB of iQ Power
Technology, Inc. for the year ended December 31, 1999.
Deloitte & Touche GmbH
/s/ Deloitte & Touche GmbH
Munich, Germany Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
February 2, 2000
