-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S3+FOPatapZ/M/TLzSV1eZ/S/n5KFdf4saSq56BQL/mxUGA/xGDzrcYYb8jBQ90x bNrT9XiDF6kaQD66Rna/Tg== 0000912282-04-000280.txt : 20040517 0000912282-04-000280.hdr.sgml : 20040517 20040517171805 ACCESSION NUMBER: 0000912282-04-000280 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IQ POWER TECHNOLOGY INC CENTRAL INDEX KEY: 0001072667 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26165 FILM NUMBER: 04813614 BUSINESS ADDRESS: STREET 1: SUITE 708-A STREET 2: 11 WEST HASTINGS STREET, V6E 2J3 CITY: VANCOUVER, BC BUSINESS PHONE: 6046693132 MAIL ADDRESS: STREET 1: SUITE 708-A, 111 WEST HASTINGS STREET STREET 2: VANCOUVER, BC V6E 2J3 10QSB 1 iq10qsb_03312004.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________ FORM 10-QSB |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 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. (Exact name of small business issuer as specified in its charter) CANADA NOT APPLICABLE (Jurisdiction of incorporation) (I.R.S. Employer Identification No.) Erlenhof Park Inselkammer Strasse 4 D-82008 Unterhaching, Germany (Address of principal executive offices) + 49 89 614 483 10 (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 May 13, 2004 was 31,510,457. Transitional Small Business Disclosure Format (check one): Yes [ ]; No [X] ITEM 1. FINANCIAL STATEMENTS iQ POWER TECHNOLOGY INC. (a development stage company) CONSOLIDATED BALANCE SHEETS (Expressed in United States Dollars; all amounts in thousands, except per share data) (Unaudited) - --------------------------------------------------------------------------------------------------------- March 31, December 31, 2004 2003 - ----------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents 555 1,135 Accounts receivable - 37 Receivable from related parties - 15 Other receivables 49 45 Prepaids and deposits 94 41 Current deposits 410 410 Inventory 239 245 --------------------------------------------------------------------------------------------------- Total current assets 1,347 1,928 Non-current Assets Equipment, net 422 445 --------------------------------------------------------------------------------------------------- Total non-current assets 422 445 TOTAL ASSETS 1,769 2,373 - ----------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Current liabilities Bank overdraft - 182 Short-term debt - 155 Accounts payable 517 818 Accrued payroll and employees benefits 168 226 Advances 54 292 Other/Accrued liabilities 167 193 ------------------------------------------------------------------------------------------------- Total current liabilities 906 1,866 --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 906 1,866 SHAREHOLDERS' EQUITY Authorized: An unlimited number of common shares of no par value Issued and outstanding: 27,563,071 common shares at December 31, 2003 29,619,207 common shares at March 31, 2004 14,268 13,315 Capital surplus/Additional paid-in 2,017 2,108 Accumulated other comprehensive (loss) income (1,034) (1,221) Accumulated deficit, during development stage (after loss allocation to silent partners of k$1,024) (14,388) (13,695) --------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 863 507 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,769 2,373 - -----------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 1 iQ POWER TECHNOLOGY INC. (a development stage company) CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS) (Expressed in United States Dollars; all amounts in thousands, except per share data) (Unaudited) - ------------------------------------------------------------------------------------------------------------------ Cumulative from date of inception Three months ended to March 31, to March 31, to March 31, 2004 2004 2003 - ----------------------------------------------------------------------------------------------------------------- SALES AND OTHER REVENUE 224 - - Costs of goods sold 29 - - - ----------------------------------------------------------------------------------------------------------------- GROSS MARGIN 195 0 0 EXPENSES Research and development expenses Personnel (incl. stock based compensation) 4,745 184 180 Laboratory 1,923 71 70 Office & Travel 651 12 6 Consulting services 637 - 8 Professional fees 912 13 8 - ----------------------------------------------------------------------------------------------------------------- Total Research & Development expenses 8,868 280 272 Marketing and general & administrative expenses Personnel (incl. stock based compensation) 1,955 (1) 48 Financing 588 2 7 Office & Travel 860 38 32 Consulting services 735 29 50 Professional fees 1,334 39 92 Management fees 351 23 18 Marketing activities 436 13 25 Investor relations 997 69 31 Research memberships 100 - - Provision for investment 225 - - Other 229 3 3 - ----------------------------------------------------------------------------------------------------------------- Total Marketing and G&A expenses 7,810 215 306 - ----------------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 16,678 495 578 Interest expense 193 3 2 - ----------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES 16,871 498 580 Interest and other income (154) (0) (0) (Gain)/loss on foreign exchange (1,110) 195 (90) INCOME/(LOSS) BEFORE INCOME TAX (15,412) (693) (490) NET INCOME/(LOSS) (15,412) (693) (490) - ----------------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) (1,035) 187 (98) COMPREHENSIVE INCOME/(LOSS) (16,447) (506) (588) - ----------------------------------------------------------------------------------------------------------------- Basic and diluted loss per share, on net loss (1.52) (0.02) (0.02) Basic and diluted weighted average number of shares outstanding 10,170,423 28,978,212 20,620,396 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 2 iQ POWER TECHNOLOGY INC. (a development stage company) CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in United States Dollars; all amounts in thousands) (Unaudited) - -------------------------------------------------------------------------------------------------------------------- Cumulative from Three months Three months date of inception ended ended to March 31, March 31, March 31, 2004 2004 2003 - -------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net loss (15,413) (693) (490) Items not affecting cash Depreciation and amortization 494 20 25 Stock based compensation 2,226 (26) 38 Changes in non-cash working capital (Increase) decrease in receivables 55 55 (1) (Increase) decrease in prepaids and deposits (85) (53) (75) Increase (decrease) in accounts payable 530 (287) 31 Increase (decrease) in accrued liabilities 392 (74) 139 (Increase) decrease in inventory (196) 0 (1) - -------------------------------------------------------------------------------------------------------------------- (11,997) (1,058) (334) INVESTING ACTIVITIES (Additions) of current deposits (410) (0) - (Additions) to property, plant and equipment (848) (4) (4) - -------------------------------------------------------------------------------------------------------------------- (1,258) (4) (4) FINANCING ACTIVITIES Increase (decrease) in bank overdraft (20) (181) 16 Increase (decrease) in due to shareholder 138 - - Proceeds received from issuance of short term debt 167 - - Repayment of short term debt (187) - - Advances received from external parties 646 54 (32) Cash acquired on business combination 4,718 - - Other advances received 581 - - Issue of capital stock 7,890 441 288 Issuance of atypical shares 1,025 - - - -------------------------------------------------------------------------------------------------------------------- 14,958 314 272 (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 1,703 (748) (66) EFFECT OF FOREIGN EXCHANGE MOVEMENT (1,148) 168 (91) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - 1,135 331 - -------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD 555 555 174 - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 3 iQ POWER TECHNOLOGY INC. (a development stage company) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (Expressed in United States Dollars; all amounts in thousands, except per share data) (Unaudited) - --------------------------------------------------------------------------------------------------------------- Accumulated Total Common shares Additional Other Shareholders' ------------------------ Paid-In Comprehensive Accumulated Equity Shares Amount Capital Income (Loss) Deficit (Deficit) ------------ ----------- ---------- ---------------- ----------- ------------- Balance at December 31, 1999 9,731,620 5,904 396 82 (3,733) 2,649 Net loss - - - - (2,359) (2,359) Other comprehensive (loss) - foreign currency translation adjustments - - - (98) - (98) Exercise of options 15,000 37 - - - 37 Stock based compensation - - 10 - - 10 - --------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 9,746,620 5,941 406 (16) (6,092) 239 Net loss - - - - (3,754) (3,754) Other comprehensive (loss) - foreign currency translation adjustments - - - 42 - 42 Issue of shares 5,203,004 2,132 - - - 2,132 Stock based compensation - - 1,444 - - 1,444 Exercise of options 1,002,500 501 - - - 501 - --------------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 15,952,124 $ 8,574 $ 1,850 $ 26 $ (9,846) $ 604 Net loss - - - - (1,555) (1,555) Other comprehensive (loss) - foreign currency translation adjustments - - - (472) - (472) Issue of shares 4,376,103 1,992 - - - 1,992 Stock based compensation - - (279) - - (279) Exercise of options 20,000 10 - - - 10 - --------------------------------------------------------------------------------------------------------------- Balance at December 31, 2002 20,348,227 $ 10,576 $ 1,571 $ (446) $ (11,401) $ 300 Net loss - - - - (2,294) (2,294) Other comprehensive (loss) - foreign currency translation adjustments - - - (775) - (775) Issue of shares 4,683,145 1,670 - - - 1,670 Stock based compensation 138,198 6370 - - 431 Exercise of warrants 1,622,853 700 - - - 700 Exercise of options 770,648 308 167 - - 475 - --------------------------------------------------------------------------------------------------------------- Balance at December 31, 2003 27,563,071 $ 13,315 $ 2,108 $ (1,221) $ (13,695) $ 507 Net loss - - - - (693) (693) Other comprehensive (loss) - foreign currency translation adjustments - - - 187 - 187 Issue of shares 1,206,634 523 - - - 523 Conversion of debt 259,452 158 - - - 158 Stock based compensation 108,800 (129) - - (63) Exercise of warrants 281,250 118 - - - 118 Exercise of options 200,000 88 38 - - 126 - --------------------------------------------------------------------------------------------------------------- Balance at March 31, 2004 29,619,207 $ 14,268 $ 2,017 $ (1,034) $ (14,388) $ 863 - ---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 4 iQ POWER TECHNOLOGY INC. (a development stage company) Notes to the Consolidated Financial Statements For the Quarter Ended March 31, 2004 (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. Effective June 17, 1999, iQ Power completed a business combination with iQ Battery Research & Development GmbH ("iQ Battery"). The business combination has been accounted for as a reverse acquisition with iQ Battery being identified as the acquirer. Although iQ Battery is deemed to be the acquiring corporation for financial accounting and reporting purposes, the legal status of iQ Power as the surviving corporation does not change. Herein after iQ Power and its subsidiary are referred to as "the Company". 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 an intelligent car battery, in which electronics, microprocessors and software manage the energy. Additional products, related to energy management in automotive vehicles, have been developed. 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. BarbiQ was established in 2003 as an investment holding company and is domiciled in Barbados. Since its inception, BarbiQ has had no significant holdings or operations. 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 has incurred cumulative losses since inception. As of March 31, 2004, the Company has a positive working capital position. 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 become 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. In 1999, the Company 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. In May 2001, the Company completed a private placement of 3,000,000 common shares at $0.25 per share for proceeds of $750,000. In September 2001, a private placement of 333,333 common shares at $0.75 per share for proceeds of $250,000 was also completed. In the fourth quarter of 2001, the Company raised additional funds through the private placement of 1,019,344 units of the Company at $0.70 per unit for proceeds of $713,541, with each unit consisting of one common share of the Company and one non-transferable warrant exercisable for a period of six months following closing and entitling the holder to purchase one additional common share of the Company for $1.00 (see note 5(e) for more details on the warrants). In January 2002, the Company raised an additional $617,500 in equity capital through the private placement of 950,000 units of the Company at $0.65 per unit, each such unit consisting of one common share of the Company and one non-transferable warrant exercisable for a period of twelve months following closing and entitling the holder to purchase one additional common share of the Company for $0.85. In June 2002, the Company raised an additional $750,000 in equity capital through the private placement of 1,500,000 units of the Company at $0.50 per unit, each such unit consisting of one common share of the Company and one non-transferable warrant exercisable for a period of twelve months following closing and entitling the holder to purchase one additional Common share 5 iQ POWER TECHNOLOGY INC. (a development stage company) Notes to the Consolidated Financial Statements For the Quarter Ended March 31, 2004 (Expressed in United States dollars; tabular amounts in thousands except per share data) ================================================================================ 2. CONTINUING OPERATIONS (Continued) of the Company for $0.65. In November and December 2002, the Company raised an additional $550,500 in equity capital through the private placement of 1,572,853 units of the Company at $0.35 per unit, each such unit consisting of one common share of the Company and one non-transferable warrant exercisable for a period of twelve months following closing and entitling the holder to purchase one additional common share of the Company for $0.45. In February 2003, the Company raised $52,500 in equity capital through the private placement of 150,000 units of the Company at $0.35 per unit, each such unit consisting of one common share of the Company and one non-transferable warrant exercisable for a period of twelve months following closing and entitling the holder to purchase one additional common share of the Company for $0.45. From February through June 2003, the Company raised $820,300 in capital through the private placement of 2,563,437 units of the Company at $0.32 per unit, each such unit consisting of one common share of the Company and one non-transferable warrant exercisable for a period of twelve months following closing and entitling the holder to purchase one additional common share of the Company for $0.42. In October 2003, the Company's subsidiary iQ Battery Research & Development GmbH issued a convertible loan instrument at 12% interest per annum, due September 2004. The loan terms provide that the holders have the right to convert their respective loans, together with interest thereon, into common shares of iQ Power at a conversion price of $0.61 (EUR 0.48). The Company had the right to repay the loan including interest at any time, prior to the due date. Under this agreement, $153.000 (EUR 120,000) had been subscribed and the lender opted to convert the loan plus accumulated interest of $5,766 (EUR 4,537) on January 7, 2004 into 259,452 shares. In November 2003, we announced another private placement of 2,222,222 units at $0.45 per unit, each such unit consisting of one common share and one non-transferable warrant exercisable for a period of twelve months following closing and entitling the holder to purchase one additional common share for $0.50. In December 2003, our Board of Directors increased the private placement allotment to 2,850,000 units. As of December 31, 2003 1,686,666 units for $759,000 were subscribed. In the quarter ended March 31, 2004, the remaining 1,163,334 shares for proceeds of $523,000 were issued. In the quarter ended March 31, 2004, 281,250 shares for proceeds of $118,000 were issued on the exercise of warrants. As of March 31, 2004, we received additional advances of $54,000, which were placed into trust for the exercise of 110,000 warrants. [see F/S notes.] The subscribers to all private placements were non-U.S. persons outside the United States of America. The Company has used 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. Additional funds are necessary to allow the Company to complete its product development and marketing plan. In order to increase outsourced production and to build in-house production capabilities, additional financing will be required. There is no assurance that the Company will be able to secure additional financing or that such financing will be on terms beneficial to the existing shareholders. The Company has used 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. Additional funds are necessary to 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 financing will be on terms beneficial to the existing shareholders. 6 iQ POWER TECHNOLOGY INC. (a development stage company) Notes to the Consolidated Financial Statements For the Quarter Ended March 31, 2004 (Expressed in United States dollars; tabular amounts in thousands except per share data) ================================================================================ 2. CONTINUING OPERATIONS (Continued) The Company has signed agreements to jointly develop and market its applications with large corporations. Such alliances involve the utilization of certain aspects of the Company's technology and know how. The ability of the Company to succeed in these alliances is dependent upon the Company's ability to obtain additional financing. The Company has been active in its search for such financing. Management believes that the Company will be able to obtain the necessary financing. As of March 31, 2004, the Company's current financial condition requires additional capital in order to continue or expand its current operations. If the Company is unable to obtain additional capital, the Company will be unable to meet all of its financial obligations. There is no assurance that the Company will be able to secure additional financing or that such financing will be on terms beneficial to the existing shareholders. 3. BASIS OF PRESENTATION The unaudited financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-QSB. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The statements should be read in conjunction with the accounting policies and notes to consolidated financial statements included in the Company's 2003 Annual Report on Form 10-KSB. In the opinion of management, the financial statements reflect all adjustments necessary for a fair statement of the operations for the interim periods presented. 4. SHARE CAPITAL Authorized An unlimited number of common shares Issued and outstanding Number of Common shares Amount ($ 000) Balance, January 1, 1998 (iQ Power) 787,896 493 Private placement, issued cash 1,483,874 927 ------------------------------------------------------------------------------------------------- Balance, December 31, 1998 2,271,770 1,420 Shares issued for cash 2,200,000 5,500 Issue costs - (653) ------------------------------------------------------------------------------------------------- Balance, June 17, 1999 4,471,770 6,267 Adjustment for reverse acquisition on June 17, 1999 - (6,207) ------------------------------------------------------------------------------------------------- 4,471,770 60 Issued to effect the reverse acquisition 5,120,000 5,495 Warrants exercised during the year 139,850 349 Balance, December 31, 1999 9,731,620 5,904 Options exercised during the year 15,000 37 -------------------------------------------------------------------------------------------------
7 iQ POWER TECHNOLOGY INC. (a development stage company) Notes to the Consolidated Financial Statements For the Quarter Ended March 31, 2004 (Expressed in United States dollars; tabular amounts in thousands except per share data) ================================================================================ 4. SHARE CAPITAL (Continued) Balance, December 31, 2000 9,746,620 5,941 Private placements, issued for cash (incl. Finder's Fees) 4,597,944 1,714 Shares issued for conversion of debt 400,000 200 Shares issued for external stock based compensation 205,060 218 Options exercised during the year 1,002,500 501 ------------------------------------------------------------------------------------------------- Balance, December 31, 2001 15,952,124 8,574 Private placements, issued for cash (incl. Finder's Fees) 4,225,853 1,881 Shares issued for external stock based compensation 150,250 111 Options exercised during the year 20,000 10 ------------------------------------------------------------------------------------------------- Balance, December 31, 2002 20,348,227 10,576 Private placements, issued for cash (incl. Finder's Fees) 7,076,646 2,678 Shares issued for stock based compensation 138,198 61 ------------------------------------------------------------------------------------------------- Balance, December 31, 2003 27,563,071 13,315 Private placements, issued for cash (incl. Finder's Fees) 1,947,336 888 Shares issued for stock based compensation 108,800 65 ------------------------------------------------------------------------------------------------- Balance, March 31, 2004 29,619,207 14,268
On April 10, 2000, the company's board of directors declared a 2.5 to 1 reverse stock split of the company's common stock. In addition, the authorized shares of common stock issued and outstanding were decreased from 24,366,550 to 9,746,620 shares. All references in the consolidated financial statements to shares and related prices, weighted average number of shares, per share amounts, and stock plan data have been adjusted to reflect the reverse split. (a) Stock options The Company has established a Stock Option Plan for employees, officers, directors, consultants, and advisors. The Company has reserved 4,714,000 common shares for issuance under the Stock Option Plan. Thereof 30,000 options were granted in the first quarter 2002 with an exercise price of $1.00. In the second quarter of 2002, 20,000 shares were issued on the exercise of stock options granted under the stock option plan. During the first quarter of 2003, no shares have been issued on the exercise of stock options granted under the stock option plan. Options granted for issuance under the Stock Option Plan generally are not transferable, and the exercise price of 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 there under, 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. SFAS No. 123, 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 years ended December 31, 2002 and 2001, the Company issued options to individuals other than employees and directors, which under SFAS No. 123 are recognised as share-based compensation rateably over the vesting period. SFAS No. 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 adopted the disclosure-only provision of SFAS No. 123 and SFAS 8 iQ POWER TECHNOLOGY INC. (a development stage company) Notes to the Consolidated Financial Statements For the Quarter Ended March 31, 2004 (Expressed in United States dollars; tabular amounts in thousands except per share data) ================================================================================ 4. SHARE CAPITAL (Continued) No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB Statement No. 123. On June 12, 2000, the Board of Directors decreased the exercise price for the Stock Option Plan; from $2.50 to $1.50 for all options granted under and outside of the plan. On January 16, 2001, the Board of Directors decreased again the exercise price for the Stock Option Plans from $1.50 to $0.50 for all options granted under and outside of the plan. On January 18, 2002, the Board of Directors decreased the exercise price of the 1,415,000 options granted under the Plan on June 28, 2001, from $1.37 to $1.00. On June 6, 2003 all outstanding options were reprised to $0.40. Due to the changes, all the options granted under the plan will be accounted for using variable plan accounting under APB 25. On March 31, 2004, the fair value of the Company's stock was below the fair values accounted for as of December 31, 2003. Therefore, stock-based compensation expense of $91,000 was reversed. The following table illustrates the effect on net earnings (loss) and net earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. All amounts below are in $000's except per share data. Three months ended Three months ended March 31, March 31, 2004 2003 ------------------ ------------------ Net loss, as reported $ (693) $ (491) Add: reversal of stock based compensation $ (91) $ (0) Expense (reversal of expense), included in reported net loss, net of related tax effects Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects $ (5) $ - ---------------------------------------------------------------------------------------------------- Pro forma net loss $ (789) $ (491) Loss per share (basic and diluted) As reported $ (0.02) $ (0.02) SFAS No. 123 pro forma $ (0.01) $ - ---------------------------------------------------------------------------------------------------- Pro forma net loss $ (0.03) $ (0.02)
The weighted average fair value, calculated using the Black-Scholes option pricing model value of options granted under the stock option plan during the year ended March 31, 2004 was $0.37 per share. The fair value of these options was estimated at the date of grant using a weighted average volatility factor of 142%, a dividend yield of 0%, a weighted average expected life of the stock options of 4 years, and a risk free interest rate of 1.375%. For the three months ended March 31, 2004, no stock options were granted to employees, however the non vested options of 100,000, issued in December 2003, were accounted for on a pro-rata basis. (b) Incentive Share Plan The Company has a long-term incentive plan although no 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 the Company's securities) was paid or distributed to the executive officer listed or any other person, company, or entity during the most recently completed financial year under that plan. The Incentive Plan was 9 iQ POWER TECHNOLOGY INC. (a development stage company) Notes to the Consolidated Financial Statements For the Quarter Ended March 31, 2004 (Expressed in United States dollars; tabular amounts in thousands except per share data) ================================================================================ 4. SHARE CAPITAL (Continued) adopted by shareholders in 2001 and amended in 2002 and provides for the issue of up to 2,500,000 common shares to valued directors, key employees, and consultants of the Company and similar such persons to encourage those persons to acquire a greater proprietary interest in the Company, thereby strengthening their incentive to achieve the objectives of the shareholders of the Company, and to serve as an aid and inducement in the hiring of new employees and to provide an equity incentive to consultants and other persons. The shares issued pursuant to the Incentive Plan will be issued at a discount to market price on the basis of resale restrictions prohibiting their being sold, assigned, pledged or otherwise transferred, voluntarily or involuntarily, by a plan participant until the Company meets certain performance requirements. Such restrictions on transfer shall, to the extent that such shares of Common Stock have not previously been forfeited to the Company, lapse on the last day of the fiscal period in which the Company shall have generated cumulative net revenue from inception of $2,500,000 or more, calculated in accordance with United States generally accepted accounting principles. The shares awarded or sold under the Plan shall be forfeited to the Company if the Company shall not have generated cumulative net revenues from inception of $2,500,000 or more, calculated in accordance with United States generally accepted accounting principles, prior to December 31, 2006. Certificates for the shares shall be issued in the plan participant's respective names and shall be held in escrow by the Company until all restrictions lapse or such shares are forfeited. No incentive shares have been granted under this plan as of December 31, 2003. However, the board of Directors decided on Dec 17, 2003 to grant 1,350,000 of these incentive shares in 2004. These incentive shares were granted on January 7, 2004 to the above mentioned escrow account. (c) Loss per share Losses per share calculations give effect to the reverse takeover described in Note 1. (d) iQ share capital The registered capital of iQ Battery is EUR51,129, which is fully paid. All equity securities were acquired by iQ Power as part of the business combination. (e) Issuance of shares due to private placements In November 2003, we announced another private placement of 2,222,222 units at $0.45 per unit, each such unit consisting of one common share and one non-transferable warrant exercisable for a period of twelve months following closing and entitling the holder to purchase one additional common share for $0.50. In December 2003, our Board of Directors increased the private placement allotment to 2,850,000 units. As of December 31, 2003 1,686,666 units for $759,000 were subscribed. In the quarter ended March 31, 2004, the remaining 1,163,334 shares for proceeds of $523,000 were issued. In the quarter ended March 31, 2004, 281,250 shares for proceeds of $118,000 were issued on the exercise of warrants. As of March 31, 2004, we received additional advances of $54,000, which were placed into trust for the exercise of 110,000 warrants. [see F/S notes.] The combined fair value of the attached warrants issued in 2004, as of the date of the private placement, was approximately $435,000. The fair value was calculated using the Black-Scholes option-pricing model. 10 iQ POWER TECHNOLOGY INC. (a development stage company) Notes to the Consolidated Financial Statements For the Quarter Ended March 31, 2004 (Expressed in United States dollars; tabular amounts in thousands except per share data) ================================================================================ 4. SHARE CAPITAL (Continued) (f) Issuance of shares due to consulting agreements In August 2002, we entered into a Financial Public Relations Adviser Consulting Agreement with Joerg Schweizer, a non-U.S. person outside the United States. We agreed to pay Joerg Schweizer a consulting fee in the amount of approximately $6,250 (EUR 5,000) per month for such services. Of the consulting fee, approximately $2,500 (EUR 2,000) is due monthly, while the remaining approximately $3,750 (EUR 3,000) is payable by issuing Joerg Schweizer common shares, issuable on a quarterly basis. The agreement has an initial term of 12 months. As of December 31, 2002, we issued Joerg Schweizer 16,900 common shares under the agreement. During the fiscal year 2003, we issued Joerg Schweizer 50,700 common shares under the agreement, as well as another 22,500 common shares on account of reimbursement of expenses. Effective August 2003, we entered into a restated Agreement with Joerg Schweizer. In the first quarter of 2004, we also concluded a Supplemental Agreement with Joerg Schweizer, under which we issued Mr. Schweizer 75,000 common shares in consideration for his provision of services beyond those contracted for in his Financial Public Relations Adviser Consulting Agreements and in respect of which two further installments of 25,000 common shares each are due. During the first Quarter 2004, we issued Joerg Schweizer 108,800 common shares. Through March 31, 2004, we have issued a total of 204,500 shares to Joerg Schweizer in connection with these agreements. 5. RELATED PARTY TRANSACTIONS Related party transactions not disclosed elsewhere in the financial statements comprised: (a) Management fees for the three months ended March 31, 2004 of $21,600 (2003 - $18,000) were paid to a company with a common director. The Company has entered into the following contractual arrangements: (b) employment agreement with two directors of the Company to occupy the position of President and Chief Executive Officer and Chief Technical Officer. Under the terms of these agreements the Company is obligated to pay these employees $9,300 and $8,750 per month, respectively. This agreement is subject for renewal at the 2004 Annual General Assembly. (c) 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, one of which is a director of the Company. 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 approximately $250,000 (DM 400,000; approximately EUR 205,000) from future income. No 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. The majority of the Company's significant physical assets are located in Germany. 11 iQ POWER TECHNOLOGY INC. (a development stage company) Notes to the Consolidated Financial Statements For the Quarter Ended March 31, 2004 (Expressed in United States dollars; tabular amounts in thousands except per share data) ================================================================================ 7. SUBSEQUENT EVENTS In 2003 we began participating in another joint filing of a research project under the European 6th Framework program, again under the lead of DaimlerChrysler. The project is called Secure Propulsion using Advanced Redundant Control (SPARC). This project aims at scalable architecture and solutions to be used both in passenger cars and heavy trucks. Again, it is iQ's role to provide the system architecture and components for safe electrical energy supply. The project agreement became effective in January 2004. From this project, the Company received funds amounting to approx. $135,000 (EUR 112,000). In April 2004, we concluded arrangements with SBI for the recovery of our Gel Project advances. We assigned our interest in the Gel notes and GE Industries' notes aggregating $525,000 to SBI against promissory notes from SBI in similar amounts. We took this step as SBI was already in possession of the Gel assets and had notified us that it intended to proceed with the Hong Kong/China project despite our withdrawal. SBI also issued us notes for the $96,000 we advanced directly to it. Management believes that the amounts will be recovered during the fiscal year ending December 31, 2004, and that no allowance pertaining to the deposits made to GE Industries and SBI is necessary as of March 31, 2004. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in this Quarterly Report on Form 10-QSB 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 (hereinafter "iQ Germany" or "iQ Battery"), (hereinafter collectively, referred to as "iQ Power" and "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; risks related to delays in developing, marketing and commercializing the Company's batteries; lengthy development and sales cycles related to the commercialization of battery technologies; the Company's dependence upon a relative concentration of customers in the automotive and battery manufacturing industries; competition in the battery industry and competing battery technologies; risk related to the development of the Company's battery technologies and acceptance by the automotive and battery manufacturing industries; risks of technological change that may be inconsistent with the Company's technologies or the may render its technologies obsolete; dependence on selected vertical markets within the automotive and battery manufacturing industries; general economic risks that may affect the demand for automotive batteries; the Company's reliance on third-party marketing relationships and suppliers; the Company's ability to protect its intellectual property rights; risks related to the Company's proposed acquisitions and the other risks and uncertainties described under "Business - Risk Factors" in Part I of the Company's Annual Report on Form 10-KSB filed with the United States Securities and Exchange Commission on April 14, 2004. 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, it 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. While our iQ Battery technology platform can be applied across a diversified spectrum of industries and applications, ranging from automotive (including electric, hybrid and fuel cell powered vehicles) to stationary applications in telecommunications and standby power sources, we have chosen in light of our own expertise and financial limitations to initially focus on the automotive market and specifically cars and trucks. We have only recently begun the process of commercially marketing our products on a limited basis. We have targeted two products for initial commercialization in 2004: we began shipping our PowerLyzer(R) in 2003 and expect to ship additional orders in 2004, and we also expect to begin to commercialize our Generation 1 MagiQTM Battery in 2004, assuming adequate financing is available. Our commercialization efforts resulted from years of research and development work and we expended substantial management time and resources over the past 2 years finalizing our supply chain, sourcing contract manufacturers, and marketing our Generation 1 MagiQTM Battery to potential Original Equipment Manufacturer (OEM) users. The greatest challenge we have faced and continue to face is raising sufficient capital on a timely basis to implement commercial production while maintaining our existing research and development operations and the overhead associated with those operations. Further details of our current financial plan for implementing production can be found below. In addition to any production we may undertake directly, we anticipate that we will eventually license the iQ technology to automobile suppliers and battery manufacturers or that we will enter into one or more strategic relationships with established battery manufacturers to produce and distribute our battery and energy management products. We currently have no arrangements or agreements to do so. The Company believes that its historic spending levels are not indicative of future spending levels because in order to implement our planned commercialization and development strategies, the Company will need to increase spending on product research and development, marketing, staffing and other general operating expenses. For these reasons, the Company believes its 13 expenses, losses, and deficit accumulated during the development stage will increase significantly before it generates any material revenues. Critical Accounting Policies Financial Reporting Release (FRR) No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies," requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The discussion and analysis of the Company's financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of its financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. The accounting policy which the Company believes are the most critical to aid in fully understanding and evaluating its reported financial results include the following: 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, as amended by SFAS 148 "Accounting for Stock-Based Compensation-Transition and Disclosure", 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. Due to changes in the exercise price for certain Stock Options granted under the Stock Option Plan, those options will be accounted for using variable plan accounting under APB 25. Under variable plan accounting total compensation cost is measured by the difference between the quoted market price of the stock and the amount, if any, to be paid by an employee and is recognized as an expense over the period the employee performs related services. (see Note 5(a)). Stock options granted to non-employees result in the recognition of expenses based upon the fair value of such stock options. The Company's accounting for stock options is significant because the effect the compensation expense has on the Company's results. As the Company begins to produce their product in the future and begins to earn revenue on sales of the product, the compensation expense associated with the Company's stock options will have a significant effect on its ability to incur positive net results. The Company is in the development stage and will require additional capital to implement it business strategy. Given the Company's history of losses and its working capital position, the Company could fail before implementing its business strategy. The Company expects to continue to incur net losses for the foreseeable future. The Company prepared the accompanying financial statements assuming that we will continue as a going concern. The Company's auditors in their audit report on the Company's financial statements for the year ended December 31, 2003 expressed uncertainty as to the Company's ability to continue as a going concern. The Company's current activities result in transactions denominated in US dollars, Euros, and Canadian dollars. The Company has determined that the United States dollar is the appropriate currency for reporting purposes and is the functional currency for iQ Power. 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 the consolidated statement of loss and comprehensive loss. The functional currency of iQ Battery is the Euro. iQ Battery had previously reported its internal financial statements in German Deutsche Marks, but as of January 1, 2002 the entity successfully transitioned its systems to the Euro. Assets and liabilities of iQ Battery 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. The US dollar effect arising from translation of the financial statements at changing rates is recorded as a separate component of comprehensive income (loss). 14 In April 2004, we concluded arrangements with SBI for the recovery of our Gel Project advances. We assigned our interest in the Gel notes and GE Industries' notes aggregating $525,000 to SBI against promissory notes from SBI in similar amounts. We took this step as SBI was already in possession of the Gel assets and had notified us that it intended to proceed with the Hong Kong/China project despite our withdrawal. SBI also issued us notes for the $96,000 we advanced directly to it. Management believes that the amounts will be recovered during the fiscal year end December 31, 2004, and that no allowance pertaining to the deposits made to GE Industries and SBI is necessary as of March 31, 2004. Related Party Transactions Financial Reporting Release (FRR) No. 61, "Effects of transactions with related and certain other parties," requires all companies to include a discussion of all material transactions with related and certain other parties to the Company, as discussed in Note 5 of the financial statements. The Company's Results of Operations for the Three Months Ended March 31, 2004 Compared to the Three Months Ended March 31, 2003 Revenues. No revenues were recorded in either the three month period ended March 31, 2004 or the three month period ended March 31, 2003. The Company delivered a limited number of its MagiQTM batteries for a pilot program as its first step in the plan to commercialize MagiQTM batteries. No revenues were recorded in for these deliveries. The Company does not anticipate that it will generate any significant revenues from the sale of MagiQTM batteries until it successfully introduces MagiQTM batteries to a broad commercial market or one or more manufacturers install MagiQTM batteries as original manufacturer equipment in their vehicles, assuming the Company can raise sufficient financing to commercialize its MagiQTM batteries. Total Operating Expenses. The Company had total operating expenses of $496,000 for the three month period ended March 31, 2004, compared to $578,000 for the same period in 2003. Total operating expenses for the three month period ended March 31, 2004 included research and development expenses of $280,000 ($272,000 - - 2003) and marketing and general and administrative expenses of $215,000 ($306,000 - 2003). Total operating expenses decreased by $82,000 or 14% for the three month period ended March 31, 2004, compared to the same period in 2003. The primary factors contributing to decreased operating expenses were a reversal of $91,000 in non-cash stock-based compensation expenses in the three month period ended March 31, 2004, compared to nil during the same period in 2003. Research and Development Expenses. Research and development expenses in total were $280,000 for the three months ended March 31, 2004 compared to $272,000 for the same period in 2003, an increase of $8,000 or 3%. Research and development personnel costs increased by $4,000 from $180,000 for the first quarter in 2003 to $184,000 for the first quarter in 2004. Research and development personnel costs included the reversal of stock-based compensation expenses in the three month period ended March 31, 2004 of $41,000, which was offset by additional personnel expense of $37,000. Laboratory expenses related to research and development were approximately the same at $71,000 for the three months ended March 31, 2004 and $70,000 for the comparable period in 2003. Research and development office & travel expenses increased from $6,000 for the three month period ending March 31, 2003 to $12,000 for the same period in 2004. Consulting services decreased from $8,000 for the first quarter in 2003 to $0 for the first three months in 2004. The Company's professional fees associated with research and development increased to $13,000 in the first quarter of 2004, compared to $8,000 in 2003. The Company anticipates that research and development expenses will be slightly higher in 2004 as it continues development of our BEM-Battery Energy Manager(R) and SEM-Smart Energy Manager(R) technologies and continues research and development efforts to improve its MagiQTM batteries and PowerLyzer(R) product. See "Plan of Operation." Marketing and General and Administration Expenses. The expenses related to marketing and general and administration decreased to $215,000 for the three month period ended March 31, 2004 from $306,000 for the same period in 2003, a decrease of $91,000 or 30%. Personnel related expenses decreased $49,000 to $(1,000) for the three month period ended March 31, 2004 from $48,000 for the same period in 2003. The reversal of stock-based 15 compensation expenses in the three month period ended March 31, 2004 accounted for $50,000 of the total decrease in personnel related expenses (no expenses related to stock-based compensation were incurred in 2003). Professional fees decreased significantly to $39,000 for the first quarter in 2004, compared to $92,000 for the first quarter in 2003. Investor relations expenses increased to $69,000 for the three months ended March 31, 2004, from $31,000 for the same period in 2003, a decrease of $38,000, due to increase fees paid to the Company's investors relations firm. Consulting fees decreased $21,000 to $29,000 for the three months ended March 31, 2004, from $50,000 for the three months ended March 31, 2003. Other expenses related to marketing and general and administration for the quarter ended March 31, 2004 included: increased office & travel expenses at $38,000 ($32,000 - first quarter 2003); decreased marketing activities at $13,000 ($25,000 - first quarter 2003); increased management fees at $23,000 ($18,000 - first quarter 2003); and decreased all other expenses at $5,000 ($10,000 - first quarter 2003). The Company anticipates that the level of expenditures related to its marketing and general and administration expenses will increase during 2004 as it plans to increase marketing efforts to introduce and commercialize the MagiQTM battery and PowerLyzer(R). The Company also expects to increase its efforts to enter into service and licensing arrangements to commercialize its MagiQTM battery and its related energy management technologies. Net Loss. The Company incurred a net loss of $693,000 or $0.02 per share for the first quarter of 2004, compared to a net loss of $490,000 or $0.02 per share during the same period in 2003. The Company incurred a loss on foreign exchange of $195,000 for the three months period ended March 31, 2004, compared to a gain on foreign exchange of $90,000 for the same period in 2003. The Company anticipates that it will continue to incur losses in future periods until the Company is able to successfully commercialize its MagiQTM battery and energy management technologies. There can be no assurance that the Company will have sufficient capital to commercialize its MagiQTM battery and energy management technologies or that such products will be commercially successful. The MagiQTM battery is being manufactured by a third-party manufacturer for limited sales in Europe, assuming that adequate financing is available. The Company did not ship any products during the first quarter of 2004. There can be no assurance that the Company's efforts to commercialize the MagiQTM battery or any other products will be successful or that we will not experience delays in introducing our battery or any other products to the market. Liquidity and Capital Resources Since inception, the Company has financed its operations primarily through sales of its equity securities. From inception to March 31, 2004, the Company had raised approximately $14,000,000 (net of issuance costs) from the sale of such securities. As of March 31, 2004, the Company had cash and cash equivalents of $555,000, compared to $1,135,000, at December 31, 2003. The Company had working capital of $441,000 at March 31, 2004, compared to working capital of $62,000 at December 31, 2003. In light of the Company's working capital position and prospects at December 31, 2003, the Company's auditors expressed substantial doubt about the ability of the Company to continue as a going concern. The circumstances giving rise to these concerns continue to exist as of March 31, 2004. The Company's financial statements are prepared using United States generally accepted accounting principles, applicable to a going concern, and do not reflect adjustments to the carrying value of assets and liabilities, the reported expenses and balance sheet classifications that would be necessary if the appropriateness of the going concern assumption were not appropriate. Such adjustments could be material. In November 2003, the Company announced a private placement of 2,222,222 units of the Company at $0.45 per unit, each such unit consisting of one common share of the Company and one non-transferable warrant exercisable for a period of twelve months following closing and entitling the holder to purchase one additional common share of the Company for $0.50. In December 2003 the Board of Directors decided to increase the private placement allotment to 2,850,000 units. Until December 31, 2003 1,686,666 units for $759,000 were subscribed. In the quarter ended March 31, 2004, a further 1,163,334 shares for proceeds of $523,000 were issued. In the quarter ended March 31, 2004, 281,250 shares for proceeds of $118,000 were issued on the exercise of warrants out of private placements. As of the balance sheet date, additional advances of $54,000 were placed into the Company's trust account for the exercise of 110,000 warrants. 16 The subscribers to all private placements and warrant exercises were non-U.S. persons outside the United States of America. The Company has used 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. Additional funds are necessary to allow the Company to complete its product development and marketing plan. In order to increase outsourced production and to build in-house production capabilities, additional financing will be required. There is no assurance that the Company will be able to secure additional financing or that such financing will be on terms beneficial to the existing shareholders. The Company currently has no further commitments for equity financing, credit facilities, revolving credit agreements or lines of credit that could provide additional working capital. The Company anticipates that it will require an additional $2,300,000 to $2,600,000 in financing to meet its on-going short term and long term obligations during 2004 and to fund its plan of operation. See "Plan of Operation." The Company plans to finance its capital needs principally from the net proceeds of its securities offerings, if any. In addition, the Company expects to generate revenues from the sales of its products. The Company advanced $225,000 to Gel Electric Technologies, Inc. in connection with our proposed acquisition of its assets. The Company made a bad debt provision of $75,000 related to these advances, and the letter of intent related to the acquisition of these assets has expired. In 2003, the Company withdrew from the Gel Battery Project to focus on our automotive related products and wrote off a total of $225,000 related to these advances, including $150,000 in 2002. In addition, the Company recorded $410,000 in 2003 related to a balance originating from deposit payments made in connection with the planned acquisition of assets from a battery manufacturing facility. These assets will be used by a former prospective venture partner, who will eventually acquire these assets and reimburse these advances to the Company. The management believes that the amounts are recoverable in the foreseeable future and that no allowance was necessary as of March 31, 2004. The Company currently has no external sources of capital and there can be no assurance that the Company will be able to raise sufficient financing to meet its capital requirements on acceptable terms or in a timely manner, if at all. The Company anticipates that the level of spending will increase significantly in future periods as the Company undertakes marketing and sales 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 commercialization, research, development, testing and business development programs. The Company expects its expenditures on research and development to continue on the current level. The actual levels of research and development, administrative and general, and marketing corporate expenditures are dependent on the cash resources available to the Company, if any. Currently the Company is exploring investment opportunities such as an investment in a production site in Germany. Should the Company pursue such investments, it anticipates that it will require substantially more capital. The Company currently has commitments in the form of letters of intent for government subsidies and credit financing for the building of a manufacturing plant in Germany. Both are dependent on the availability of equity financing, which the Company has not secured. Obligations and Commitments 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, one of which is a director of the Company. 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 approximately $250,000 (DM 400,000; approximately EUR 205,000) from future income. No amounts are due as the Company has not realized any applicable revenues or royalties. In August 2002, the Company entered into a Financial Public Relations Adviser Consulting Agreement with Joerg Schweizer, a non-U.S. person outside the United States. The Company agreed to pay Joerg Schweizer a consulting fee in the amount of approximately $6,250 (EUR 5,000) per month for such services. Of the consulting fee, approximately $2,500 (EUR 2,000) is due monthly, while the remaining approximately $3,750 (EUR 3,000) is payable by issuing Joerg Schweizer common shares, issuable on a quarterly basis. The agreement has an initial term of 12 months. As of December 31, 2002, the Company had issued Joerg Schweizer 16,900 common shares under the agreement. During the fiscal year 2003, the Company had issued Joerg Schweizer 50,700 common shares under the agreement, as well as another 22,500 common shares for the reimbursement of expenses. During the first Quarter 2004, the company had issued Joerg Schweizer 65,280 common shares. As of March 31, 2004 the Company had issued 155,380 shares to Joerg Schweizer in connection with this agreement. Effective August 2003, the Company entered into a restated Agreement with Joerg Schweizer. In the first quarter of 2004, the Company also concluded a Supplemental Agreement with Joerg Schweizer, under which the Company issued Mr. Schweizer 75,000 common shares in consideration for his provision of services beyond those contracted for in his Financial Public Relations Adviser Consulting Agreements and in respect of which two further installments of 25,000 common shares each are due. During the first quarter 2004, the Company had issued Joerg Schweizer 108,800 common shares. Through March 31, 2004, the Company issued a total of 204,500 shares to Joerg Schweizer in connection with these agreements. 17 Our capital requirements depend on several factors, including the success and progress of our product development programs, the resources we devote to developing our products, the extent to which our products achieve market acceptance, and other factors. We expect to devote substantial cash for research and development. We cannot adequately predict the amount and timing of our future cash requirements. We 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, we 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 we will be able to raise additional cash if our cash resources are exhausted. Our ability to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as our business performance. Plan of Operation As part of our strategic plan for fiscal 2004, assuming sufficient funding, we intend to undertake the following activities: Research and Development We anticipate that we will spend approximately $900,000 on research and development for the fiscal year ending December 31, 2004. We expect this will be partially compensated by $200,000 in subsidies from European programs. Our research and development initiatives for fiscal 2004 are expected to include: o intensifying our research and development operations on the SEM and BEM product family designs; o complete and continuously improve refining and supplementing ourMagiQTM product family designs; o finalizing our third party testing and validation program; o continuing and expanding our joint research activities with car makers in various x-by-wire programs; o continuing our state of charge (SOC) and state of health (SOH) software and implementation development; o expediting our activities in the field of power line communication with the DC-BUS technology; and o expanding our activities in the field of powernet measurement and diagnosis tools (similar to the PowerLyzer(R)) Production We anticipate that we will spend approximately $500,000 on production related costs and planning activities in fiscal 2004. These activities are expected to include: o commencing production of our MagiQTM battery; o continuing and expanding production of the PowerLyzer(R)device o continuing the assessment and the qualification of additional manufacturing sites for the production of the MagiQTM battery designs; o seeking and concluding joint ventures, partnership agreements, cooperation agreements or similar agreements with battery manufacturers and component suppliers; o assessing options to operate own manufacturing sites; o enforcing quality management and assurance programs of supplier's and internal workflows; o continuously improving production processes, optimizing cost structure, and increasing product quality; and 18 o implementing adequate software tools for production planning and scheduling (PPS) and enterprise resource planning (ERP) Hof Project: We have entered into a letter of intent with the City of Hof, Germany, to pursue the opportunity to build a pilot production plant as part of an automotive cluster that the Bavarian State plans to locate there. In that context, the Company had filed an application for government funds in April 2002, and has been negotiating financings with numerous banks and investment firms, resulting in the issuance of a letter of intent by a major German bank for the loan financing portion of the investment. In 2003 we received a second letter of intent by another German bank institute to participate in the loan financing of the plant. The Hof plant is contingent upon the Company raising and designating to the project an additional $6,000,000 to $8,000,000 in equity capital, resulting in over $25,000,000 for investment and working capital being provided by bank loans and government subsidies. Though negotiations with independent financiers are ongoing, there is no assurance that the Company will be successful in this endeavor. Sales and Marketing We anticipate that we will spend approximately $400,000 on marketing and sales for the fiscal year ending December 31, 2004. These funds are expected to be expended on: o expanding our marketing activities of our MagiQTM battery system; o starting sales of our MagiQTM battery system to OEM customers and AM distributors; o marketing the iQ technology and our software as part of our technology for solutions regarding SOC and SOH status indications for batteries to car manufacturers and their Tier 1 suppliers under license agreements or similar agreements; o entering into customization programs with customers of the automotive industry and other industries to apply our technology for energy storage (MagiQTM) to their individual demand; and o entering into development contracts with customers of the automotive industry and other industries to apply our technology for energy management solutions (BEM, SEM) to their individual demand with the goal of producing and supplying the products to those customers. Financing activities Our ability to continue as a going concern is entirely dependent on our ability to raise additional capital in 2004. We anticipate that we will spend approximately $150,000 for capital raising efforts during fiscal 2004 with a view to o seeking 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; o generating sales of our products; and o research and development. Administrative and General Operating We estimate that our general administrative and operating budget will be approximately $1,200,000 during our fiscal year ending December 31, 2004. In addition to existing general administrative functions, we anticipate o intensifying our business development activities towards corporations and alliances; o implementing additional corporate governance structures in order to respond to increased internal and external needs; 19 o continuously improving public awareness through investor and public relations activities in accordance with the Company's development; o adjusting the structure of the Company organization and work flows along company growth and expansion; and o Selecting IT-support tools for smoother and more efficient and transparent processes. We anticipate that our total operating budget for fiscal year ending December 31, 2004, will be approximately $2,950,000, and that we will require minimum additional financing of approximately $2,000,000 to $2,600,000 to satisfy our working capital requirements through December 31, 2004. In the event that we acquire or commence plans to develop our own production facilities, our total budget for the fiscal year ended 2004 is expected to increase significantly. In the first quarter of 2004, we received funds out of a private placement but we will need to undertake additional financings in the near future. See "Liquidity and Capital Resources" above. We may need more financing if we experience delays, cost overruns, additional funding needs for joint ventures or other 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. If we are unable to raise additional financing on acceptable terms, we may be required to take some or all of the following: o reduce expenditures on research and development; o reduce sales and marketing expenditures; o reduce general and administrative expenses through lay offs or consolidation of our operations; o suspend our participation in pilot programs that are not economically profitable; o sell assets, including licenses to our technologies; o suspend our operations until sufficient financing is available; or o sell or wind up and liquidate our business. Any of these actions may affect our ability to offer competitive products or compete in the market. Our inability to offer a competitive product or to effectively compete will affect our ability to continue as a going concern. Personnel The Company does not expect any significant changes in its personnel strategy over the next twelve months. The Company's personnel strategy is to maintain its research and development capabilities and the Company may hire personnel in marketing and sales once the commercial production of the MagiQTM battery is commenced. 20 Other Trends and Uncertainties Foreign Currency Translation Risk US dollars forwarded to our German subsidiary are translated into Euros for German accounting purposes as soon as the funds are used for their operations. In the consolidation process these loans are translated back into US dollars resulting in foreign exchange gains or losses at the Company's German subsidiary. In the first quarter of 2004, due to the strengthening of the Euro versus the US dollar, the Company incurred foreign exchange losses of $195,000. The Company believes its risk of foreign currency translation is limited to these inter-company transactions. 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. Going Concern We are still in the development stage and could fail before implementing our business strategy. We may continue to incur net losses for the foreseeable future and our auditors have prepared the accompanying financial statements assuming that we will continue as a going concern. Our auditors have expressed continued uncertainty as to our ability to continue as a going concern. See "Item 7. Financial Statements -- Note 2 to our Financial Statements." Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. ITEM 3. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, the Company's management carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in connection with the filing of the quarterly report on Form 10-QSB for the quarter ended March 31, 2004. During the most recent fiscal quarter ended March 31, 2004, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 21 Part II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As of March 31, 2004, there was no material litigation pending against the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Sales of Unregistered Securities. In the quarter ended March 31, 2004, the Company issued Joerg Schweizer, a non-U.S. person outside the United States, 108,800 common shares under the terms of a Financial Public Relations Adviser Consulting Agreements. The shares were issued in reliance upon an exception from the registration requirement of the Securities Act under Regulation S. In November 2003, the Company announced a private placement of 2,222,222 units of the Company at $0.45 per unit, each such unit consisting of one common share of the Company and one non-transferable warrant exercisable for a period of twelve months following closing and entitling the holder to purchase one additional common share of the Company for $0.50. In December 2003 the Board of Directors increased the private placement allotment to 2,850,000 units. Until December 31, 2003 1,686,666 units for $759,000 were subscribed. As of March 31, 2004, a further 1,163,334 shares for proceeds of $523,000 were issued. The Units were issued outside the United States to non-U.S. Persons in reliance upon the exception from registration available under Regulation S of the Securities Act of 1933, as amended. As of March 31, 2004, 281,250 shares for proceeds of $118,000 were issued on the exercise of warrants out of private placements. As of the balance sheet date, additional advances of $54,000 were placed into trust for the exercise of 110,000 warrants. The Warrants were exercised and the shares were issued outside the United States to non-U.S. Persons in reliance upon the exception from registration available under Regulation S of the Securities Act of 1933, as amended. Additional information regarding the Company's issuance of unregistered securities during the past three fiscal years is contained in the Company's annual reports on Form 10-KSB for the years ended December 31, 2003, 2002 and 2001 under "Item 5. Market for Common Equity and Related Shareholder Matters - Recent Sale of Unregistered Securities" filed with the United States Securities and Exchange Commission. The information contained under Item 5. "Market for Common Equity and Related Shareholder Matters Purchases of Equity Securities by the Company or Affiliated Purchasers There were no purchases of equity securities by the Company or any "affiliated purchaser" (as defined in Rule 10b-18(a)(3) of the Securities Exchange Act of 1934, as amended) during the quarter ended March 31, 2004. 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 Shareholders during the quarter ended March 31, 2004. ITEM 5. OTHER INFORMATION None. 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following Exhibits are filed as part of this report: EXHIBIT INDEX EXHIBIT NO. 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 2.6(9) Certificate of Amendment dated July 23, 2002 for iQ Power Technology Inc. 2.7(9) Amendment to By-law Number One General By-Law of iQ Power Technology Inc. dated June 28, 2002 10.1(1) Management Agreement dated January 1, 1997, between 3099458 Canada Inc. and Mayon Management Corp. (previously filed as Exhibit 6.5) 10.2(1) Consulting Agreement dated August 25, 1998, between iQ Power Technology Inc. and Mayon Management Corp. (previously filed as Exhibit 6.6) 10.3(1) Employment Agreement dated August 31, 1998 with Dr. Gunther C. Bauer (previously filed as Exhibit 6.7) 10.4(1) Employment Agreement dated August 31, 1998 with Peter E. Braun (previously filed as Exhibit 6.8) 10.5(1) Form of Confidentiality Agreement between iQ Power Technology Inc. and certain Officers of the Company (previously filed as Exhibit 6.10) 10.6(1) Form of iQ Germany Confidentiality Agreement (Translated to English)(previously filed as Exhibit 6.13) 10.7(1) Form of iQ Germany Employee Confidentiality and Nondisclosure Agreement (Translated to English)(previously filed as Exhibit 6.14) 10.8(1) Cooperation Agreement by and between iQ Battery Research and Development GmbH and BASF Aktiengesellschaft (Translated to English)(previously filed as Exhibit 6.15) 10.9(1) Confidentiality Agreement by and between iQ Battery Research and Development GmbH and Bayerische Motoren Werke dated July 29, 1997 (Translated to English)(previously filed as Exhibit 6.16) 10.10(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)(previously filed as Exhibit 6.17) 23 EXHIBIT NO. DESCRIPTION ----------- ----------- 10.11(1) Confidentiality Agreement between iQ Battery Research and Development GmbH and Mercedes Benz Aktiengessellschaft dated March 21, 1997 (Translated to English)(previously filed as Exhibit 6.18) 10.12(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)(previously filed as Exhibit 6.22) 10.13(1) Supplementary Contract to the Contract concerning Industrial Property Rights and Know How by and between H. Dieter Braun and Peter E. Braun and iQ Battery Research and Development GmbH dated August 16, 1996 (Translated to English)(previously filed as Exhibit 6.23) 10.14(1) Extension of Contract regarding Industrial Property Rights and Know How by and between Dieter Braun and Peter Braun and iQ Battery Research and Development GmbH dated September 20, 1996 (Translated to English)(previously filed as Exhibit 6.24) 10.15(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)(previously filed as Exhibit 6.27) 10.16(1) Agreement (Debt Deferral) by and between iQ Research and Development GmbH and Gunther Bauer dated December 27, 1996 (Translated to English)(previously filed as Exhibit 6.28) 10.17(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)(previously filed as Exhibit 6.29) 10.18(1) Agreement by and between iQ Battery Research and Development GmbH and Dieter Braun and Peter Braun dated October 9, 1998 (Translated to English)(previously filed as Exhibit 6.30) 10.19(1) 1998 Stock Option Plan (previously filed as Exhibit 6.31) 10.20(1) Form of Stock Option Agreement (previously filed as Exhibit 6.32) 10.21(1) Agreement Re Rights and Interests dated December 9, 1998 by and among the Company, H. Dieter Braun and Peter E. Braun (previously filed as Exhibit 6.34) 10.22(1) Trademark Assignment dated December 9, 1998 by and between the Company and H. Dieter Braun (previously filed as Exhibit 6.35) 10.23(1) Patent Assignment dated December 9, 1998 by and between the Company and H. Dieter Braun and Peter E. Braun (previously filed as Exhibit 6.36) 10.24(3) Cooperation Agreement dated October 19, 1999 between Yamar Electronics Ltd. and iQ Battery R&D GmbH(previously filed as Exhibit 6.40) 10.25(4) Agreement of Subordination in Priority in Association with a Conditional Waiver of Claim by and between IQ Power Technology Inc. and iQ Battery Research and Development GmbH dated May 2, 2001 (previously filed as Exhibit 6.49) 10.26(5) Amendment No. 3 to iQ Power Technology 1998 Stock Option Plan (previously filed as Exhibit 6.50) 24 EXHIBIT NO. DESCRIPTION ----------- ----------- 10.27(5) iQ Power Technology 2001 Incentive Plan (previously filed as Exhibit 6.51) 10.28(8) European Investor Relations Consulting Agreement Supplemental Agreement # 1 by and between the Company and Magdalena Finance Corp. dated September 1, 2001. (previously filed as Exhibit 6.57) 10.29(10) Amendment No. 4 to iQ Power Technology 1998 Stock Option Plan (previously filed as Exhibit 6.61) 10.30(10) Amendment No. 1 to iQ Power Technology 2001 Incentive Plan (previously filed as Exhibit 6.62) 10.31(11) Media Relations Consulting Agreement by and between iQ Power Technology Inc. and Andreas Gloetzl (previously filed as Exhibit 6.63) 10.32(11) Financial Public Relations Adviser Consulting Agreement by and between iQ Power Technology Inc. and Jorg Schweizer (previously filed as Exhibit 6.64) 10.33(11) Letter of Intent by and between iQ Power Technology Inc. and Gel Electric Technologies, Inc. (previously filed as Exhibit 6.65) 10.34(12) Consulting Agreement by and between iQ Power Technology Inc. and Marco Graf v. Matuschka 10.35(13) Financial Public Relations Adviser Consulting Agreement 2003 by and between iQ Power Technology Inc. and Jorg Schweizer 10.36 Amendment to Financial Public Relations Adviser Consulting Agreement 2003 by and between iQ Power Technology Inc. and Jorg Schweizer 31.1 Section 302 Certification of Chief Executive Officer and Acting Principal Financial Officer 32.1 Section 904 Certification of Chief Executive Officer and Acting Principal Financial Officer - --------------------- (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). (3) Previously filed as an exhibit to the registrant's annual report on Form 10-KSB for the year ended December 1, 1999. (4) Previously filed as an exhibit to the registrant's annual report on Form 10-KSB for the year ended December 31, 2000. (5) Previously filed as an exhibit to the registrant's registration statement on Form S-8 filed on July 25, 2001. (6) Previously filed as an exhibit to the registrant's quarterly report on Form 10-QSB for the quarter ended June 30, 2001. (7) Previously filed as an exhibit to the registrant's quarterly report on Form 10-QSB for the quarter ended September 30, 2001. (8) Previously filed as an exhibit to the registrant's annual report on Form 10-KSB for the year ended December 31, 2001. (9) Previously filed as an exhibit to the registrant's quarterly report on Form 10-QSB for the quarter ended June 30, 2002. 25 (10) Previously filed as an exhibit to the registrant's registration statement on Form S-8 filed on November 8, 2002. (11) Previously filed as an exhibit to the registrant's quarterly report on Form 10-QSB for the quarter ended September 30, 2002. (12) Previously filed as an exhibit to the registrant's annual report on Form 10-KSB for the year ended December 31, 2002. (13) Previously filed as an exhibit to the registrant's annual report on Form 10-KSB for the year ended December 31, 2003. (b) Reports on Form 8-K. None. 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. May 13, 2004. iQ POWER TECHNOLOGY INC. By: /s/ Peter E. Braun ------------------------------------------- Peter E. Braun, President and Chief Executive Officer (Principal Executive Officer) 26 EX-10.36 2 ex10_36.txt EXHIBIT 10.36 FINANCIAL PUBLIC RELATIONS ADVISER AGREEMENT SUPPLEMENTAL AGREEMENT #1 February 5, 2004 Between: JOERG SCHWEIZER And: IQ POWER TECHNOLOGY INC. (the "Adviser") (the "Corporation") At: Watzmannstrasse 9 At: c/o Erlenhof Park, Inselkammer Strasse 4, 81541 Muenchen D-82008 Unterhaching, Germany Germany Facsimile: 011-4989-614483-40 IN CONSIDERATION of the mutual promises and covenants and the terms and conditions herein and the extraordinary services of the Adviser to the Corporation in addition to those required under the August 1, 2003, Financial Public Relations Adviser Agreement with the Corporation (the "IR Agreement") as well as under the Adviser's previous agreement with the Corporation (collectively the 2 agreements are referred to as the "IR Agreements"), the Corporation and the Adviser hereby agree as follows: Position: The position of the Adviser shall remain as originally stated in the IR Agreement. Additional Services: The description of Services shall be amended to include those services reflected in Schedule "A" hereto. Term of Amendment The provisions of this Supplemental Agreement shall be in addition to the IR Agreement, have a term commencing on February 5, 2004, and concluding on June 30, 2004, and be deemed to have commenced on February 5, 2004, notwithstanding the date of execution. Period of Services: The period of services shall remain as originally stated in the IR Agreement except that the Additional Services described herein shall be provided as soon as practicable during the term of this Supplemental Agreement. Compensation: As consideration for the Additional Services of the Adviser hereunder, the Corporation shall pay the Adviser an additional fee of US$27,500 through the issue of 50,000 common shares of the Corporation at a deemed issue price per share of US $0.55 (EUR 0.44 @ US$1 to EUR 1.2603 as of February 5, 2004) payable in two equal installments of 25,000 shares due on the last day of each of April 2004 and June 2004. Bonus: In recognition of the extraordinary contributions of the Adviser to the undertaking of the Corporation in addition to those required to date under the IR Agreements, and specifically the provision of the services herein contracted for during the period August 1, 2002, through January 31, 2004, the Corporation hereby awards the Adviser and agrees to pay an immediate bonus of US$41,250 forthwith following execution of this Supplemental Agreement #1 through the issue of 75,000 common shares of the Corporation at the deemed issue price per share of US $0.55. Continued IR Agreement: Except as supplemented or amended hereby, the terms and conditions of the IR Agreement remain in full force and effect. Executed and delivered by and on Executed and delivered by and on behalf behalf of the Adviser at _______ of the Corporation at Unterhaching, effective ______________________. Germany, effective ____________________. IQ POWER TECHNOLOGY INC. /s/ Joerg Schweizer Per: /s/ Peter Braun - ----------------------------- --------------------------------------- JOERG SCHWEIZER Peter Braun, President Schedule "A" The Additional Services of the Adviser shall include the following: 1. Supporting the Corporation in processing financings; 2. Preparing adequate Corporate Presentation Materials; 3. Assisting the Corporation in preparing and updating its business plan; 4. Assisting the Corporation in administering and controlling the financing process; 5. Communicating with and advising the directors and officers of Corporation concerning the Services contracted for, including traveling to meet the directors and officers from time to time at the cost and expense of the Adviser; 6. Participating in presentations of the Corporation to institutional investors worldwide at the cost and expense of the Adviser; 7. Distributing Corporate Press Releases to particular international media (such as IR-World) at the cost and expense of the Adviser; 8. Introducing clients, customers, or other business opportunities to the Corporation with a view to generating sales of goods or services by the Corporation; 9. Assisting the Corporation in the creation and maintenance of a new Website. EX-31.1 3 ex31_1.txt EXHIBIT 31.1 SECTION 302 CERTIFICATION I, Peter E. Braun, certify that: 1. I have reviewed this quarterly report of iQ Power Technology Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statement, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls, and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Peter E. Braun ------------------------------------------ Peter E. Braun, Chief Executive Officer May 13, 2004 EX-32.1 4 ex32_1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of iQ Power Technology Inc. (the "Company") on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter E. Braun, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Peter E. Braun ----------------------------------- Peter E. Braun, Chief Executive Officer May 13, 2004 A signed original of this written statement required by Section 906 has been provided to iQ Power Technology Inc. and will be retained by iQ Power Technology Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----