================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________.
Commission file number 0-28968
IQ POWER TECHNOLOGY INC.
(Exact name of small business issuer as specified in its charter)
CANADA NOT APPLICABLE
(Jurisdiction of incorporation) (I.R.S. Employer Identification No.)
Suite 708-A, 1111 West Hastings Street
Vancouver, British Columbia V6E 2J3
(604) 669-3132
(Address and telephone number
of principal executive offices)
Erlenhof Park
Inselkammer Strasse 4
D-82008 Unterhaching, Germany
(Address of principal place of business or intended principal place of business)
(604) 669-3132
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
The number of outstanding common shares, without par value, of the
registrant at September 30, 2000 was 9,746,620.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
IQ POWER TECHNOLOGY
INDEX TO THE FORM 10-QSB
For the quarterly period ended September 30, 2000
<TABLE>
Page
----
<S> <C>
Part I - Financial Information ..................................................1
ITEM 1. FINANCIAL STATEMENTS ...............................................1
Unaudited Consolidated Balance Sheet ....................................1
Unaudited Consolidated Statement of Loss and Comprehensive Loss .........2
Unaudited Consolidated Statement of Shareholders' Equity (Deficit) ......3
Unaudited Consolidated Statement of Cash Flow ...........................4
Notes to the Unaudited Consolidated Financial Statements ................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .........................................12
Part II - OTHER INFORMATION ....................................................15
ITEM 1. LEGAL PROCEEDINGS .................................................15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS .........................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ...................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...............16
ITEM 5. OTHER INFORMATION .................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ..................................16
SIGNATURES .....................................................................17
</TABLE>
i
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Balance Sheet
September 30, 2000
(Expressed in United States dollars; all amounts in thousands)
(Unaudited)
================================================================================
<TABLE>
September 30, December 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 636 $ 2,283
Receivable from shareholders 61 62
Accounts receivable 95 180
Prepaids and deposits 49 15
--------------------------------------------------------------------------------------
Total current assets 841 2,540
EQUIPMENT, net 359 297
--------------------------------------------------------------------------------------
Total assets $ 1,200 $ 2,837
======================================================================================
LIABILITIES
CURRENT
Bank indebtedness $ - $ 1
Accounts payable 104 130
Accrued liabilities 141 55
--------------------------------------------------------------------------------------
Total current liabilities 245 186
BANK DEBT - non-current - 2
--------------------------------------------------------------------------------------
Total liabilities 245 188
======================================================================================
SHAREHOLDERS' EQUITY (Note 4)
Authorized:
An unlimited number of common shares of no par value.
Issued and outstanding:
9,746,620 common shares at September 30, 2000
9,731,620 common shares at December 31, 1999 5,941 5,904
Additional paid-in capital 406 396
Accumulated other comprehensive income (loss) (89) 82
Accumulated deficit, during development stage (5,303) (3,733)
--------------------------------------------------------------------------------------
Total shareholders' equity (deficit) 955 2,649
--------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,200 $ 2,837
======================================================================================
</TABLE>
CONTINUING OPERATIONS
See accompanying notes to consolidated financial statements
1
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Loss and Comprehensive Loss
September 30, 2000
(Expressed in United States dollars; all amounts in thousands)
(Unaudited)
================================================================================
<TABLE>
Cumulative
from date of
inception to Three months ended Nine months ended
September 30, September 30, September 30,
2000 2000 1999 2000 1999
-------------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Sales and other revenues $ 222 $ 46 $ - $ 48 $ -
----------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development expenses:
Personnel 1,738 163 93 443 328
Laboratory 957 85 71 254 160
Office 438 43 52 158 70
Consulting services 563 10 28 31 64
Professional fees 724 12 27 59 102
----------------------------------------------------------------------------------------------------------------
4,420 313 271 945 724
----------------------------------------------------------------------------------------------------------------
General and administrative expenses:
Personnel 316 63 18 132 55
Financing 116 (28) 121 (94) 128
Office 113 30 24 61 33
Consulting services 211 72 9 119 20
Professional fees 263 44 (4) 120 24
Management fees 90 18 19 54 19
Marketing and sales expenses 107 67 - 109 -
Investor relations 179 32 55 99 55
Research memberships 100 50 50 50 50
Travel 133 10 47 30 47
Other 150 23 17 53 34
----------------------------------------------------------------------------------------------------------------
1,778 381 356 733 465
Interest 133 - (1) - 14
Stock based compensation 406 - 16 10 304
----------------------------------------------------------------------------------------------------------------
(6,515) (648) (642) (1,640) (1,507)
INTEREST INCOME 186 13 23 70 23
----------------------------------------------------------------------------------------------------------------
NET LOSS (6,329) (635) (619) (1,570) (1,484)
Other comprehensive (loss) income:
Accumulated other comprehensive
income (loss) (89) (74) (7) (171) (82)
----------------------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS $(6,418) $ (709) $ (626) $ (1,741) $(1,566)
================================================================================================================
Basic and diluted loss per share $ (0.06) $ (0.03) $ (0.18) $ (0.09)
================================================================================================================
Basic and diluted weighted average
number of shares outstanding 9,746,620 24,007,429 9,746,620 17,168,734
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Cash Flows
September 30, 2000
(Expressed in United States dollars; all amounts in thousands)
(Unaudited)
================================================================================
<TABLE>
Cumulative from Nine months Nine months
date of inception ended ended
to September 30, September 30, September 30,
2000 2000 1999
------------------- --------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (6,329) $ (1,570) $ (1,468)
Items not affecting cash
Depreciation and amortization 178 63 51
Stock based compensation 378 10 288
Changes in non-cash working capital
Decrease (increase) in accounts receivable (95) 85 (12)
Decrease (increase) in prepaid and deposits (49) (34) (40)
Increase (decrease) in accounts payable 103 (26) (621)
Increase (decrease) in accrued liabilities 141 86 (31)
--------------------------------------------------------------------------------------------------------
(5,673) (1,386) (1,833)
--------------------------------------------------------------------------------------------------------
INVESTING ACTIVITY
Additions to property, plant and equipment (536) (124) (284)
--------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in short-term debt 1 - (108)
Increase in due to shareholder (63) (1) (187)
Advances received from external parties 296 - -
Increase in other long-term debt - (2) (1)
Cash acquired on business combination 4,718 - 4,718
Advances from subsidiary 581 - 260
Issuance of capital stock 446 37 166
Issuance of atypical shares 1,025 - -
--------------------------------------------------------------------------------------------------------
7,004 34 4,848
--------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND
CASH EQUIVALENTS 795 (1,476) 2,730
FOREIGN EXCHANGE MOVEMENT (159) (171) (7)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 2,283 11
--------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 636 $ 636 $ 2,734
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Shareholders' Equity (Deficit)
September 30, 2000
(Expressed in United States dollars; all amounts in thousands)
(Unaudited)
================================================================================
<TABLE>
Accumulated Total
Common shares Additional Other Shareholders'
------------------- Paid-In Comprehensive Accumulated Equity
Number Amount Capital Income (Loss) Deficit (Deficit)
-------- -------- ----------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 40 $ 60 $ - $ - $ (173) $ (113)
Issue of shares -
Net loss (341) (341)
Allocation of loss to
atypical shares 379 379
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 40 60 - - (135) (75)
Issue of shares -
Net loss (496) (496)
Allocation of loss to
atypical shares 139 139
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 40 60 - - (492) (432)
Issue of shares -
Net loss (597) (597)
Allocation of loss to
atypical shares 312 312
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 40 60 - - (777) (717)
Issue of shares -
Net loss (1,027) (1,027)
Allocation of loss to
atypical shares 228 228
Other comprehensive (loss) - -
foreign currency translation
adjustments (94) (94)
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 40 60 - (94) (1,576) (1,610)
Reorganization of capital on
reverse acquisition 5,119,960
Deemed issuance of shares on
acquisition of iQ Power
Technology Inc. 4,471,770 5,495 5,495
Stock based compensation 396 396
Exercise of warrants 139,850 349 349
Net loss (2,157) (2,157)
Other comprehensive (loss) -
foreign currency translation
adjustments 176 176
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 9,731,620 $ 5,904 $ 396 $ 82 $ (3,733) $ 2,649
Net loss - - - - (1,570) (1,570)
Other comprehensive (loss) -
foreign currency translation
adjustments - - - (171) - (171)
Exercise of options 15,000 37 - - - 37
Stock based compensation - - 10 - - 10
---------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 9,746,620 $ 5,941 $ 406 $ (89) $ (5,303) $ 955
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
--------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
iQ Power Technology Inc. (iQ Power) was incorporated under the Canada
Business Corporations Act on September 20, 1994. Effective June 17, 1999,
iQ Power completed a business combination with iQ Battery Research
Development GmbH (iQ Battery). The business combination has been accounted
as reverse acquisition with iQ Battery being identified as the acquiror.
The comparative financial statements are those of iQ Battery. Collectively
within these financial statements the term Company applied to operations
subsequent to the business combination.
iQ Battery established in 1991 is conducting research and product
development in the area of intelligent performance-improved battery
systems. The Company's first product is a intelligent car battery, in
which, for the first time, electronics, microprocessors and software manage
the energy. The know-how is based on a patent acquired from the founding
shareholders of iQ Battery.
Patents have been granted for Germany, thirteen other European countries,
and for the United States of America. International patents applications
have been filed in nine additional countries. iQ Battery's legal domicile
is Chemnitz, Germany, and it maintains a branch near Munich, where
management has its offices. The Company intends to grant licenses for this
process to the automotive and related industries in the future.
2. CONTINUING OPERATIONS
These financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company's ability to
continue as a going concern is dependent upon the ability of the Company to
attain future profitable operations and/or to obtain the necessary
financing to meet its obligations and repay its liabilities arising from
normal business operations when they come due. The financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
The Company has raised approximately $4,875,000 net of commissions and
costs of issue, through the issuance of 2,200,000 shares of common stock
pursuant to a Registration Statement on Form SB-1. The Company intends to
use the proceeds to fund research and development of iQ Germany's
technology, expansion of the Company's marketing and sales activities and
general working capital. It is unlikely that current funds on hand will
allow the Company to complete its product development and marketing plan.
Additional financing will be required and there is no assurance that the
Company will be able to secure additional financing or that such financings
will be on terms beneficial to the existing shareholders.
5
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for
interim financial reporting and pursuant to the instructions of the
United States Securities and Exchange Commission Form 10-QSB and
Article 10 of Regulations S-X. While these financial statements
reflect all normal recurring adjustments which are, in the opinion of
the management, necessary for fair presentation of the results of the
interim period, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. For further information, refer to the
financial statements and footnotes thereto included in the Company's
Annual Report filed on Form 10-KSB for the year ended December 31,
1999.
(b) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(c) Foreign currency translation
The Company's current activities result in transactions denominated in
German Deutsche Marks and United States and Canadian dollars.
Management considered the following in the process of determining the
Company's functional currency.
(i) All equity financing to this date have been denominated in US
funds.
(ii) In excess of 50% of the Company's operating expenditures are paid
or denominated in US funds.
(iii)In excess of 50% of the total assets throughout are denominated
in US funds. Further, the Company maintains its cash in US
dollars, only converting to Canadian dollars 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 US dollar
is the appropriate functional currency for measurement and reporting
purposes.
6
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Foreign currency translation (continued)
Transaction amounts denominated in foreign currencies are translated
into US dollars at exchange rates prevailing at the transaction dates.
Carrying values of non-US dollar assets and liabilities are adjusted
at each balance sheet date to reflect the exchange rate prevailing at
that date. Gains and losses arising from adjustment of foreign assets
and liabilities are included in earnings. Assets and liabilities of
subsidiaries not reporting in US dollars are translated into their US
dollar equivalents at the rate of exchange in effect at the balance
sheet date. Revenues and expenses are translated at the average
exchange rate for the reporting period. Gains and losses arising from
translation of financial statements are deferred and recorded as a
separate component of comprehensive income (loss).
(d) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks
and highly liquid money market instruments with an original maturity
of 90 days or less.
(e) Equipment
Equipment is recorded at cost. Depreciation is recorded using the
straight-line method based upon the useful lives of the assets,
generally estimated at 3-5 years. When assets are sold or retired, the
cost and accumulated depreciation are removed from the accounts and
any gain or loss is included in income.
(f) Long-term liabilities to original shareholders
Liabilities due to shareholders, including interest, only in case the
Company has generated sufficient net assets or liquidation proceeds
are shown under non-current liabilities.
(g) Research and development
Research and development costs are expensed as incurred unless a
project meets the specified criteria for capitalization. Transfer of
intangible assets in the amount of DM400,000 (US $ 194,680) (patent
and registered design) by founding shareholders of the Company and the
related liability are not reflected in the accompanying financial
statements.
7
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
--------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Impairment of long-lived assets
The carrying value of long-lived assets, principally equipment, is
reviewed for potential impairment when events or changes in
circumstances indicate that the carrying amount of such assets may not
be recoverable. The determination of recoverability is made based upon
the estimated undiscounted future net cash flows of the related
assets.
(i) Stock based compensation
In accordance with the provisions of the Financial Accounting
Standards Board's ("FASB") Statement of Accounting Standard ("SFAS")
No. 123, Accounting for Stock-Based Compensation, the Company has
elected to follow the Accounting Principles Board's Opinion No. 25,
Accounting for Stock Issued to Employees and the related
interpretations ("APB 25") in accounting for its employee stock based
compensation plans. Under APB 25, if the exercise price of employee
stock options equals or exceeds the fair value of the underlying stock
on the date of grant, no compensation expense is recognized.
(j) Financial instruments and risk concentration
The Company estimates that the carrying values of its cash and cash
equivalents, current receivables and, payables, approximate fair value
at September 30, 2000 and December 31, 1999 due to the short-term
maturity of the balances. Financial instruments which potentially
subject the Company to concentration of credit risk are primarily cash
and cash equivalents. It is the Company's practice to place its cash
and cash equivalents in time deposits at commercial banks with high
credit ratings. In foreign locations, local financial institutions are
generally utilized for local currency needs. The Company limits the
amount of exposure to any one institution and does not believe it is
exposed to any significant credit risk.
(k) Recent pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 (SFAS 133), Accounting for Derivative Instruments
and Hedging Activities, which standardizes the accounting for
derivative instruments.
SFAS 133, as amended, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. The impact on the
Company's financial statements has not been determined but the Company
currently does not use derivatives to manage its exposure to foreign
exchange and interest rate risk. The Company will adopt SFAS 133 as of
January 1, 2001.
8
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
--------------------------------------------------------------------------------
4. SHARE CAPITAL
(a) Service warrants
The US Investor Relations Service Agreement dated June 28, 1999 was
terminated in November 12, 1999 and the 200,000 warrants provided for
under the IR Agreement were cancelled. In December 1999, the Company
issued 40,000 one year Service Warrants, each warrant entitling the
holder to purchase one common share exercisable as follows:
(i) 20,000 warrants vesting on execution of Investor Relations
Agreement, exercisable at a price of $ 5.00 per share;
(ii) 20,000 warrants vesting June 1, 2000, exercisable at a price of $
7.50 per share.
(b) Stock options
The Company has established a Stock Option Plan for employees,
officers, directors, consultants, and advisors. Options granted under
the Stock Option Plan may be either incentive stock option or
non-qualified stock options. The Company has reserved 1,918,000 common
shares for issuance under the Stock Option Plan. Options granted for
issuance under the Stock Option Plan generally are not transferable,
and the exercise price of incentive stock options must be at 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.
The Company grants stock options both under the Stock Option Plan and
by way of individual grants outside of the Stock Option Plan.
9
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
--------------------------------------------------------------------------------
4. SHARE CAPITAL (Continued)
(b) Stock options (continued)
The following options have been granted and remain outstanding at
September 30, 2000 under the Stock Option Plan:
Number of Exercise
options price Expiry date
-------------- ----------- ------------------
1,035,000 $ 1.50 December 1, 2008
138.000 $ 1.50 June 28, 2009
160.000 $ 1.50 July 7, 2009
115.000 $ 1.50 October 15, 2009
367.000 $ 1.50 June 12, 2010
43.000 $ 1.50 July 28, 2010
--------------
1,858,000
==============
The following options have been granted and remain outstanding at
September 30, 2000 outside of the Stock Option Plan:
Number of Exercise
options price Expiry date
-------------- ----------- ------------------
60.000 $ 1.50 June 28, 2001
40.000 $ 1.50 June 28, 2001
--------------
100.000
==============
In addition, 15,000 shares were issued in the quarter ended March 31,
2000, on the exercise of stock options granted under the Stock Option
Plan.
In the quarter ended September 30, 2000, 80,000 options were cancelled
by the board of directors granted under the stock option plan.
10
<PAGE>
iQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2000
(Expressed in United States dollars;
tabular amounts in thousands except per share data)
(Unaudited)
--------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
Related party transactions not disclosed elsewhere in the financial
statements comprised:
(a) Management fees for the nine months ended September 30, 2000 of $Nil
(nine months ended September 30, 1999 - $Nil) paid to a company with a
common director.
The Company has entered into the following contractual arrangements:
(a) a consulting agreement dated August 25, 1998 with a company having a
common director. Under the terms of the agreement the Company is
obligated to pay the consultant $6,000 per month for a term of three
years commencing August 25, 1998;
(b) employment agreement with two directors of the Company to occupy the
position of President and Chief Executive Officer and Vice-President,
Research and Development and Technical Advisor. Under the terms of
these agreements, the Company is obligated to pay these employees
$9,000 and $8,000 per month, respectively, for a term of five years
commencing August 31, 1998;
iQ Battery acquired patents and know-how improving the current output of a
chargeable battery at low outside temperatures and the registered design
"iQ" based on a contract dated March 15, 1995 from two shareholders and
directors of iQ Battery. The intangibles purchased relate to a German
patent, an international patent application as well as the registered
design "iQ".
The Company and the shareholders agreed that the shareholders would receive
DM 400,000 from future income. Any amounts paid will be charged to
operations as a current expense. No other amounts are due as the Company
has not realized any applicable revenues or royalties.
6. SEGMENT DISCLOSURES
The Company is currently marketing and developing its proprietary
technology. In accordance with SFAS No. 131 the Company considers its
business to consist of one reportable operating segment. All of the
Company's physical assets are located in Germany.
11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements and information contained in this Form constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievement of the Company, or developments in the
Company's industry, to differ materially from the anticipated results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to: the Company's limited
operating history and history of losses, the Company's relative concentration of
customers, the risks related to the Company's ability to commercialize its
technology, risks associated with changes in market demand for the Company's
technology, risks involving the management of growth and integration of
acquisitions, competition, product development risks and risks of technological
change, dependence on third-party marketing relationships and suppliers, the
Company's ability to protect its intellectual property rights and the other
risks and uncertainties detailed in the Company's Securities and Exchange
Commission filings.
Unless provided otherwise, all amounts are in United States dollars.
Overview
The Company was organized in 1991 to develop and commercialize batteries
and electric power technology for the automotive industry. Since that date, the
Company has been engaged primarily in research and product development efforts.
Its primary product is a "smart" automotive starter battery, which combines
several proprietary features designed to optimize automotive starter battery
efficiency.
The Company is an early stage company and its principal activity to date
has been research and development. The Company has not derived revenues from
operations, and does not anticipate having material revenues from operations
until fourth quarter of 2001, if at all. The Company has incurred substantial
losses to date, and there can be no assurance that the Company will attain any
particular level of revenues or that the Company will achieve profitability.
The Company believes that its historic spending levels are not indicative
of future spending levels because it is in a period in which it will increase
spending on product research and development, marketing, staffing and other
general operating expenses. For these reasons, the Company believes its
expenses, losses, and deficit accumulated during the development stage will
increase significantly before it generates material revenues. Prior to June 18,
1999, the financial statements of the Company and iQ Battery Research &
Development GmbH ("iQ Germany") were presented as separate and distinct as the
former shareholders of iQ Germany had a put option to enable them to reverse the
August 25, 1998 transaction in which the Company acquired iQ Germany. That
option terminated on June 18, 1999, when the Company raised in excess of
$3,000,000 through equity financing. See "Liquidity and Capital Resources."
After June 17, 1999, all financial information is reported on a
consolidated basis. Any financial information of the Company used for
comparative purposes prior to June 18, 1999, is financial information of iQ
Germany only.
On March 30, 2000, the Company's shareholders approved a reverse-split of
the Company's issued and outstanding common shares on a two and one-half (2 1/2)
share for one (1) share basis. On April 10, 2000, the Company filed Articles of
Amendment to effect the reverse split, and each 2 1/2 common shares issued and
outstanding on April 10, 2000 were automatically converted into 1 common share.
The information contained in the Company's financial statements, which are part
of this report, and this report give effect to the reverse split.
The Company's Results of Operations for the Three Months Ended September 30,
2000 compared to the Three Months Ended September 30, 1999
No revenues from operations were recorded in either the three months period
ended September 2000 or the three months period ended September 1999. The
Company does not anticipate it will record any revenues from operations during
the fourth quarter ending December 31, 2000. The Company earned $13,000 in
interest income during the three months period ended September 30, 2000 compared
to $23,000 for the same period in 1999.
12
<PAGE>
As of September 30, 2000 the Company had an accumulated deficit of
$5,303,000. The Company incurred a net loss of $635,000 for the three month
period ended September 30, 2000 compared to a net loss of $619,000 for the
comparable period in 1999.
For the three month period ended September 30, 2000, the Company incurred
research and development expenses of $313,000 compared with $271,000 for the
comparable period of the prior year, an increase of approximately 15.5%. The
increase during the three month period ended September 30, 2000, compared to the
same period in 1999 results from the following: personnel expenses increased to
$163,000 during the three month period in 2000 from $93,000 in 1999, as a result
of an increase in the number of research and development personnel, and
laboratory expenses increased to $85,000 during the three month period in 2000
from $71,000 in 1999. Increases in personnel expenses as well as in laboratory
expenses reflect the cost of supporting a higher level of activity, principally
related to building prototypes and product testing. Office expenses decreased
from $52,000 during the three month period in 1999 to $43,000 in 2000 due to a
lower level of travel activity and due to foreign currency effects. Consulting
services and professional fees related to research and development decreased
from $55,000 during the three month period in 1999 to $22,000 in 2000, as the
Company relied on its own personnel for research and development.
The Company incurred general and administrative expenses of $381,000 for
the three month period ended September 30, 2000 compared with $356,000 for the
comparable period of the prior year, an increase of approximately 7%.
Administrative and general corporate expenses increased during the three month
period ended September 30, 2000 compared to the same period in 1999 for the
following: personnel expenses increased to $63,000 during the three month period
in 2000 from $18,000 in 1999, as a result of an increase in the number of
administrative personnel and redundant accrued expenses related to the Company's
former Chief Financial Officer incurred during the three month period ended
September 30, 2000; office expenses increased to $30,000 during the three month
period in 2000 from $24,000 in 1999, as a result of an increase in general
administrative and business activities; consulting services increased to $72,000
during the three months period in 2000 from $9,000 in 1999, resulting mainly
from recruiting expenses related to the search for new finance staff, IT-related
expenses in context with the customizing of the Company's management and
financial reporting software and increased management consulting expenses
related to establishing a human resources department for the Company during the
three month period ended September 30, 2000. During the three month period ended
September 30, 2000, the Company incurred marketing and sales expenses of $67,000
compared to $nil in the comparable period of the prior year, due to an increase
in the number of sales personnel and intensified sales and marketing activity
related to implementing the Company's roll-out strategy for its first batteries
in relevant markets scheduled for 2001. Travel expenses decreased from $47,000
during the three month period in 1999 to $10,000 in 2000 and investor relations
expenses decreased from $55,000 during the three month period in 1999 to $32,000
in 2000.
The Company's expenditures are expected to materially increase as it
pursues research, development, testing and commercialization programs, it
intensifies its sales and marketing activity related to implementing a roll-out
strategy for its first batteries in 2001. The Company intends to begin selling
batteries in the fourth quarter of 2001 in the after market, as replacement
batteries. The Company anticipates the batteries will be distributed by
retailers and wholesalers. Selling batteries to the after market reflects only a
part of the Company's distribution and revenue strategy. The Company still
anticipates that the primary source of its revenues will be derived from
licensing its battery technology to manufacturers.
In addition to the extension of sales and marketing activity, the Company
expands finance and administrative staff and financial and management system.
The Company's Results of Operations for the Nine Months Ended September 30, 2000
compared to the Nine Months Ended September 30, 1999
No revenues from operations were recorded in either the nine month period
ended September 30, 2000 or the nine months period ended September 30, 1999. The
Company does not anticipate it will record any revenues from operations during
the fourth quarter ending December 31, 2000. The Company earned $70,000 in
interest income during the nine month period ended September 30, 2000, compared
to $23,000 for the same period in 1999.
The Company incurred a net loss of $1,570,000 for the nine month period
ended September 30, 2000 compared to a net loss of $1,484,000 for the comparable
period in 1999.
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For the nine month period ended September 30, 2000, the Company incurred
research and development expenses of $945,000 compared with $724,000 for the
comparable period of the prior year, an increase of approximately 5.8%. The
increase in research and development expenses reflects the cost of supporting a
higher level of activity, principally research and development, building
prototypes and product testing. Research and development expenses increased
during the nine month period ended September 30, 2000, compared to the same
period in 1999 for the following: personnel expenses increased to $443,000
during the nine month period in 2000 from $328,000 in 1999, as a result of an
increase in the number of research and development personnel; laboratory
expenses increased to $254,000 during the nine month period in 2000 from
$160,000 in 1999; and office expenses attributable to research and development
increased to $158,000 during the nine month period in 2000 from $70,000 in 1999,
as a result if increased research and development activity. Consulting services
and professional fees related to research and development decreased from
$166,000 during the nine month period in 1999 to $90,000 in 2000, as the Company
relied on its own personnel for research and development.
The Company incurred general and administrative expenses of $733,000 for
the nine month period ended September 30, 2000 compared with $465,000 for the
comparable period of the prior year, an increase of approximately 57.63%.
Administrative and general corporate expenses increased during the nine month
period ended September 30, 2000 compared to the same period in 1999 for the
following: personnel expenses increased to $132,000 during the nine month period
in 2000 from $55,000 in 1999, as a result of an increase in the number of
administrative personnel and redundant accrued expenses related to the Company's
former Chief Financial Officer incurred during the nine month period ended
September 30, 2000; office expenses increased to $61,000 during the nine month
period in 2000 from $33,000 in 1999, as a result of an increase in general
administrative and business activities; consulting services increased to
$119,000 during the nine months period in 2000 from $20,000 in 1999, resulting
principally from recruiting expenses related to the search for new finance
staff, IT-related expenses in context with the customizing of the Company's
management and financial reporting software and increased management consulting
expenses related to establishing a human resources department for the Company
during the nine month period ended September 30, 2000. During the nine month
period ended September 30, 2000, the Company incurred management fees of
$54,000, marketing and sales expenses of $109,000, investor relations expenses
of $99,000, travel expenses of $30,000 and other expenses of $53,000, primarily
as a result of sales and marketing activities and additional administrative
costs related to being a public company. Professional fees related to general
and administrative activities increased to $120,000 during the nine month period
ended September 30, 2000 from $24,000 during the same period in 1999.
The Company's expenditures are expected to materially increase as it
pursues research, development, testing and commercialization programs, it
intensifies its sales and marketing activity related to implementing a roll-out
strategy for its first batteries in 2001. The Company intends to begin selling
batteries in the fourth quarter of 2001, in the after market, as replacement
batteries. The Company anticipates its batteries will be distributed by
retailers and wholesalers. Selling batteries to the after market reflects only a
part of the Company's distribution and revenue strategy. The Company still
anticipates that its primary source of revenues in the long-term will be derived
from licensing its battery technology to battery manufacturers.
In addition to the extension of sales and marketing activity, the Company
expands finance and administrative staff and financial and management system.
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily through
sales of its equity securities. As of September 30, 2000, the Company had cash
and cash equivalents of $636,000, and working capital of $596,000. From
inception to September 30, 2000, the Company had raised approximately $7.35
million (net of issuance costs) from the sale of securities, excluding the
issuance of 4,000,000 common shares for deemed proceeds of $2,500,000 on the
business combination with iQ Germany. On June 18, 1999, the Company completed
its initial public offering in the United States pursuant to which it received
net proceeds of $4,690,000. As a part of the issuance of 2,200,000 common shares
the agent to the offering was granted 220,000 Agent Warrants entitling the agent
to purchase 220,000 common shares for $2.50 per share in the first year of the
warrant and for $3.75 per share in the second year of warrant. Agent Warrants
were exercised to purchase 139,850 shares for proceeds of $349,000 to the
Company during the year ended December 31, 1999.
iQ Germany is obligated to pay to Horst Dieter Braun, the Company's
founding President, and Peter Braun, the Company's President, DM400,000
($194,680) in connection with iQ Germany's acquisition of the iQ technology and
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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, additional
equity financings and, to the extent available, lines of credit. The Company
currently has no commitments related to any equity financings or 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, marketing and promoting its products, the extent to which
its products achieve market acceptance, the revenues generated from the sales of
its products, if any, and other factors. The Company expects to devote
substantial cash for research and development activities and to implement the
roll-out strategy related to marketing its first battery scheduled for 2001. The
Company cannot adequately predict the amount and timing of its future cash
requirements. The Company will consider collaborative research and development
arrangements with strategic partners and additional public or private financing
(including the issuance of additional equity securities) to fund all or a part
of a particular program in the future. There can be no assurance that additional
funding will be available or, if available, that it will be available on terms
acceptable to the Company. If adequate funds are not available, the Company may
have to reduce substantially or eliminate expenditures for research and
development, testing, production and marketing of its proposed products, or
obtain funds through arrangements with strategic partners that require it to
relinquish rights to some of its technologies or products. There can be no
assurance that the Company will be able to raise additional cash if its cash
resources are exhausted. The Company's ability to arrange such financing in the
future will depend in part upon the prevailing capital market conditions as well
as its business performance.
The Company anticipates that the level of spending will increase
significantly in the future periods as it undertakes research and development
activities and implements a marketing and sales strategy related to the
commercialization of the iQ technology. In addition, the Company anticipates
that its general and administrative expenses will also significantly increase as
a result of the growth in our research, development, testing and business
development programs. The actual levels of research and development,
administrative and general corporate expenditures are dependent on the cash
resources available to the Company.
Foreign Currency Translation Risk
To date, exposure to foreign currency fluctuations has not had a material
effect on our operations. The Company believes its risk of foreign currency
translation is limited, as its operations are based in Germany with resulting
transactions primarily denominated in United States dollars. The Company does
not currently engage in hedging or other activities to control the risk of
foreign currency translation, but may do so in the future, if conditions
warrant.
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may be a party to litigation and claims
incident to the ordinary course of business. While the results of litigation and
claims cannot be predicted with certainty, the Company believe that the final
outcome of such matters will not have a material adverse effect on its business,
financial condition and operating results.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
a) Sales of Unregistered Securities
Not applicable.
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b) Use of Proceeds from Sales of Registered Securities
On June 18, 1999, the Company completed an initial public offering of its
common shares. The selling agent in the offering was IPO Capital Corp. (the
"Agent"). The common shares sold in the offering were registered under the
Securities Act of 1933, as amended, on a Registration Statement on Form SB-1
(the "Registration Statement") (Reg. No. 333-68649) that was declared effective
by the SEC on May 10, 1999. The offering commenced on May 10, 1999 after which
time, all 2,200,000 common shares registered under the Registration Statement
were sold at a price to the public of $2.50 per common share. The aggregate
offering amount registered was $5,500,000. In connection with the offering, the
Company paid an aggregate of $105,000 in commissions and fees to the Agent and
also issued to the Agent warrants to purchase 220,000 common shares. The Agent
may exercise the warrants for US$2.50 per common share during the first year and
for US$3.75 per common share during the second year after issuance.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the
Company during the three month period ended September 30, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IQ POWER TECHNOLOGY INC
Date: November 14, 2000 By: /s/ Peter E. Braun
-------------------------------------
Name: Peter E. Braun
Title: President and Principal
Financial and Accounting
Officer
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