================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                   ------------------------------------------

                                   FORM 10-QSB


|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended June 30, 1999

                                       OR

|_|  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ---------------- to -------------------.

                         Commission file number 0-28968


                            IQ POWER TECHNOLOGY INC.
        (Exact name of small business issuer as specified in its charter)


          CANADA                                       NOT APPLICABLE
(Jurisdiction of incorporation)             (I.R.S. Employer Identification No.)

                     Suite 708-A, 1111 West Hastings Street
                       Vancouver, British Columbia V6E 2J3
                    (Address of principal executive offices)

                                 (604) 669-3132
                           (Issuer's telephone number)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)

     Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes [ ]   No  [X]

     The  number  of  outstanding  common  shares,  without  par  value,  of the
registrant at June 30, 1999 was 23,979,425.

     Transitional Small Business Disclosure Format (check one): Yes [ ]; No [X]


<PAGE>



                               IQ POWER TECHNOLOGY

                            INDEX TO THE FORM 10-QSB
                  For the quarterly period ended June 30, 1999

<TABLE>


                                                                                      Page
<S>                                                                                    <C>
Part I -  Financial Information

   ITEM 1.    FINANCIAL STATEMENTS

    iQ Power Technology Inc.

            Consolidated Balance Sheet ................................................1

            Consolidated Statement of Loss and Deficit ................................2

            Consolidated Statement of Cash Flow .......................................3

            Notes to the Consolidated Financial Statements ............................4


   ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS ....................................11

Part II - Other Information

   ITEM 1.    LEGAL PROCEEDINGS ......................................................14

   ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS ..............................14

   ITEM 3.    DEFAULTS UPON SENIOR SECURITIES ........................................15

   ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....................15

   ITEM 5.    OTHER INFORMATION ......................................................15

   ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K .......................................15

SIGNATURES ...........................................................................16

</TABLE>


                                      -i-
<PAGE>

PART I -  FINANCIAL INFORMATION

          ITEM 1. FINANCIAL STATEMENTS


IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Balance Sheet
(Expressed in United States Dollars)

--------------------------------------------------------------------------------

<TABLE>
                                                                                         June 30         December 31
                                                                                            1999                1998
                                                                               ------------------  ------------------
                                                                                      (Unaudited)
<S>                                                                                  <C>                   <C>
ASSETS

CURRENT
  Cash                                                                               $ 3,777,780           $  11,073
  Receivable from shareholders                                                            52,201              43,237
  Accounts receivable                                                                    105,947             104,930
  Prepaids and deposits                                                                   19,290               1,055
---------------------------------------------------------------------------------------------------------------------
Total current assets                                                                   3,955,218             160,295

EQUIPMENT, net                                                                           153,968              59,583
---------------------------------------------------------------------------------------------------------------------
Total assets                                                                         $ 4,109,186           $ 219,878
---------------------------------------------------------------------------------------------------------------------
LIABILITIES

CURRENT
  Bank indebtedness                                                                  $     4,745           $ 108,621
  Accounts payable                                                                       394,474             472,449
  Accrued liabilities                                                                    211,028             150,804
  Loans from iQ Power                                                                          -             778,276
  Current portion of bank debt                                                                 -               1,055
  Due to shareholders                                                                     39,547              68,547
---------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                649,794           1,579,752
BANK DEBT - non-current                                                                    2,636               3,164
NON-CURRENT DUE TO SHAREHOLDERS                                                                -              50,092
---------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                        652,430           1,633,008
---------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY

Capital stock                                                                          5,547,672              52,728
Additional paid-in capital                                                               315,720                   -
Cumulative foreign exchange adjustment                                                   (74,589)                  -
Accumulated deficit, during development stage                                         (2,332,047)         (1,465,858)
---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                             3,456,756          (1,413,130)
---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                           $ 4,109,186           $ 219,878
---------------------------------------------------------------------------------------------------------------------
</TABLE>

CONTINUING OPERATIONS (Note 2)



                                       1
<PAGE>


IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Loss and Deficit
(Expressed in United States Dollars)

<TABLE>
                                                          Three months ended                    Six months ended
                                                               June 30                              June 30
                                                   --------------------------------     ---------------------------------
                                                       1999               1998              1999                1998
                                                    (Unaudited)        (Unaudited)        (Unaudited)         (Unaudited)
                                                   -------------     --------------     ---------------   ---------------
<S>                                              <C>                  <C>               <C>                <C>
EXPENSES
  Research and development
     expenses                                    $    253,000         $  186,000        $   461,855        $   346,000
  General and administrative
     expenses                                          58,112             23,000             90,144             61,000
  Interest                                              9,582             13,000             15,581             22,000
  Stock based compensation                            287,943                  -            287,943                  -
  Professional fees                                    15,866                  -             15,866                  -
-------------------------------------------------------------------------------------------------------------------------
                                                      624,503            222,000            871,389            429,000

INTEREST INCOME                                        (5,200)                 -             (5,200)
-------------------------------------------------------------------------------------------------------------------------
NET LOSS                                             (619,303)          (222,000)          (866,189)          (429,000)

Accumulated deficit
  during development
  stage, beginning of period                       (1,712,744)          (749,000)        (1,465,858)          (764,000)
Adjustment to state temporary
  atypical equity at redemption
  amount                                                    -                  -                  -            222,000
-------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT
  DURING DEVELOPMENT
  STAGE, END OF PERIOD                           $ (2,332,047)        $ (971,000)       $(2,332,047)      $   (971,000)
-------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share                 $      (0.04)        $    (0.02)       $     (0.06)      $      (0.03)
-------------------------------------------------------------------------------------------------------------------------
Weighted average number of
  shares outstanding                               14,663,237         12,800,000         13,731,618         12,800,000
-------------------------------------------------------------------------------------------------------------------------
</TABLE>







                                       2
<PAGE>

IQ POWER TECHNOLOGY INC.
(a development stage company)
Consolidated Statement of Cash Flow
(Expressed in United States Dollars)
--------------------------------------------------------------------------------

<TABLE>
                                                                                    Six months          Six months
                                                                                      ended               ended
                                                                                     June 30             June 30
                                                                                       1999                1998
                                                                                 -----------------   -----------------
                                                                                   (Unaudited)         (Unaudited)
<S>                                                                                 <C>                 <C>
OPERATING ACTIVITIES
  Net loss                                                                          $ (866,189)         $ (429,000)
  Items not affecting cash
    Depreciation and amortization                                                       25,616                   -
    Stock based compensation                                                           287,943                   -
  Changes in non-cash working capital
    (Increase) decrease in accounts receivable                                           8,772              14,000
    (Decrease) increase in prepaid and deposits                                              -             (90,000)
    (Decrease) increase in accounts payable                                           (376,692)                  -
    (Decrease) increase in accrued liabilities                                          13,709             106,000
----------------------------------------------------------------------------------------------------------------------
                                                                                      (906,841)           (399,000)
----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITY
  Additions to property, plant and equipment                                          (120,000)            (29,000)
----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
  (Decrease) increase in short-term debt                                              (104,930)             81,000
  (Decrease) increase in due to shareholder                                            (79,092)            (13,000)
  Advances received from external parties                                                    -             139,000
  (Decrease) increase in other long-term debt                                             (527)             (1,000)
  Cash acquired on business combination                                              4,717,998                   -
  Advances from subsidiary                                                             260,099                   -
  Issuance of atypical shares                                                                -             222,000
----------------------------------------------------------------------------------------------------------------------
                                                                                     4,793,548             428,000
----------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND
  CASH EQUIVALENTS                                                                   3,766,707                   -

CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD                                                                   11,073              17,000
----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
  END OF PERIOD                                                                     $3,777,780          $   17,000
----------------------------------------------------------------------------------------------------------------------
</TABLE>


See Note 6 for non-cash investing and financing activity







                                       3
<PAGE>


IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the six months ended June 30, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------


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 Germany).  The business combination has been accounted
     as reverse  acquisition  with iQ Germany  being  identified as the acquiror
     (see Note 5). The comparative financial statements are those of iQ Germany.
     Collectively within these financial  statements the term Company applied to
     operations subsequent to the business combination.

     iQ Germany,  established in 1991, is developing a chargeable  battery which
     allows an improved current output at low outside temperatures.  The process
     engineering  for this  chargeable  battery  and the  know-how is based on a
     patent acquired from the founding shareholders of iQ Germany.

     Patents have been granted for Germany,  thirteen other  European  countries
     and for the United  States of America.  International  patent  applications
     have been filed in nine additional  countries.  iQ Germany's legal domicile
     is Floha,  Germany, and it maintains a branch near Munich, where management
     has its offices.  The Company intends to grant licenses for this process to
     the automotive and related industries in the future.


2.   CONTINUING OPERATIONS

     These financial statements have been prepared on a going concern basis. The
     Company's  ability to continue  as a going  concern is  dependent  upon the
     ability of the Company to attain  future  profitable  operations  and/or to
     obtain  the  necessary  financing  to meet its  obligations  and  repay its
     liabilities arising from normal business operations when they come due. The
     Company has raised approximately  $4,875,000,  net of commissions and costs
     of issue, through the issuance of 5,500,000 shares of common stock pursuant
     to a Registration  Statement on Form SB-1.  The Company  intends to use the
     proceeds to fund research and  development by iQ Germany,  expansion of the
     Company's marketing and sales activities and general working capital. It is
     unlikely  that current funds on hand will allow the Company to complete its
     product  development  and  marketing  plan.  Additional  financing  will be
     required and there is no assurance  that the Company will be able to secure
     additional financing or that such financings will be on terms beneficial to
     the existing shareholders.





                                       4
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the six months ended June 30, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  Basis of presentation

          These  financial  statements  have been  prepared in  accordance  with
          accounting  principles  generally  accepted  in the United  States for
          interim  financial  reporting and pursuant to the  instructions of the
          United States Securities and Exchange Commission Form 10-Q and Article
          10 of Regulations  S-X. While these financial  statements  reflect all
          normal recurring  adjustments which are, in the opinion of management,
          necessary for fair  presentation of the results of the interim period,
          they do not include all of the information  and footnotes  required by
          generally  accepted  accounting   principles  for  complete  financial
          statements. For further information, refer to the financial statements
          and footnotes thereto included in the Company's Annual Report filed on
          Form 10-SB for the year ended December 31, 1998.

     (b)  Use of estimates

          The  preparation of financial  statements in conformity with generally
          accepted accounting principles generally accepted in the United States
          requires  management to make estimates and assumptions that affect the
          reported  amounts  of  assets  and  liabilities  at  the  date  of the
          financial statements and the reported amounts of revenues and expenses
          during the reporting  period.  Actual  results could differ from those
          estimates.

     (c)  Foreign currency translation

          The Company's current activities result in transactions denominated in
          both US and Canadian dollars.  Management  considered the following in
          the process to determine the Company's functional currency.

          (i)       All  equity  financing  to date has been  denominated  in US
                    funds.  The  Company's  completed  financing as disclosed in
                    Note 11 was also denominated in US funds.

          (ii)      In excess of 50% of the Company's operating expenditures are
                    paid or denominated in US funds.

          (iii)     90% of the  total  assets  throughout  1997  and  1998  were
                    denominated in US funds.  Further, the Company maintains its
                    cash in US dollars,  only converting to Canadian  dollars to
                    the   extent   necessary   to   pay   Canadian   denominated
                    liabilities.

          Management considers that subsequent to the completion of the business
          combination  with iQ Germany that the majority of  transactions of the
          combined  enterprise  will be  denominated  in US  dollars  and German
          Deutsche  Marks.  Based on these  factors,  the Company has determined
          that the United States dollar is the appropriate  functional  currency
          for measurement and reporting purposes.






                                       5
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the six months ended June 30, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (c)  Foreign currency translation (Continued)

          Assets and  liabilities  denominated  in Deutsche  Marks and  Canadian
          dollars  are  translated  at the rate of  exchange  in  effect  at the
          balance  sheet  date.   Transaction   gains  and  losses  relating  to
          conversion of period end balances  denominated in Canadian dollars and
          revenue and expenses denominated in Canadian dollars are included with
          operating results.

     (d)  Equipment

          Equipment  is recorded  at cost.  Depreciation  is recorded  using the
          straight-line  method  based  upon the  useful  lives  of the  assets,
          generally estimated at 3-5 years. When assets are sold or retired, the
          cost and  accumulated  depreciation  are removed from the accounts and
          any gain or loss is included in income.

     (e)  Long-term liabilities to original shareholders

          Liabilities  due to shareholders  including  interest only in case the
          Company has generated  sufficient net assets or  liquidation  proceeds
          are shown under non-current liabilities.

     (f)  Research and development

          Research  and  development  costs are  expensed as  incurred  unless a
          project meets the specified criteria for  capitalization.  Transfer of
          intangible  assets in the amount of DM400,000  (patent and  registered
          design)  by  founding  shareholders  of the  Company  and the  related
          liability are not reflected in the accompanying financial statements.

     (g)  Recent pronouncements

          In  June  1998,  the  Financial   Accounting  Standards  Board  issued
          Statement No. 133 (SFAS 133),  Accounting for  Derivative  Instruments
          and  Hedging   Activities,   which  standardizes  the  accounting  for
          derivative instruments.  SFAS 133 is effective for all fiscal quarters
          of all fiscal years  beginning  after June 15, 2000. The impact on the
          Company's financial statements is not expected to be material.






                                       6
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the six months ended June 30, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------


4.   PRO FORMA RESULTS OF OPERATIONS

     The  following  unaudited  pro forma  information  presents  the results of
     operations  of the Company as if the iQ Power  acquisition  had occurred at
     January 1, 1999.

<TABLE>
                                                                             Six months ended
                                                                                  June 30
                                                                                   1999
                                                                          --------------------
<S>                                                                         <C>
Revenue                                                                     $             -
----------------------------------------------------------------------------------------------
Net loss for the period                                                     $    (1,230,805)
----------------------------------------------------------------------------------------------
Loss per share                                                              $         (0.07)
----------------------------------------------------------------------------------------------
Weighted average number of shares outstanding                                    18,479,424
----------------------------------------------------------------------------------------------
</TABLE>


5.   BUSINESS COMBINATION

     On June 17, 1999, iQ Power and iQ Germany  completed an agreement  pursuant
     to which iQ Power issued  12,800,000  common shares in exchange for all the
     issued common and atypical shares of iQ Germany.

     During the year ended December 31, 1998, iQ Power issued shares pursuant to
     a share exchange  agreement  dated August 25, 1998 with iQ Germany  whereby
     the  shareholders of iQ Germany  transferred  their iQ Germany shares to iQ
     Power for, in the aggregate,  10,000,000 common shares. The shareholders of
     iQ Germany had the option to cancel the share  exchange  agreement if after
     the  four-month  anniversary  of  the  initial  filing  by  iQ  Power  of a
     registration  statement on Form SB-1 with the United States  Securities and
     Exchange  Commission (a) iQ Power had failed to complete an equity offering
     with gross proceeds of at least  $3,000,000 and (b) the  shareholders of iQ
     Germany had repaid to iQ Power the full amount of all funds  advanced to iQ
     Germany.  The option terminated when iQ Power completed an equity financing
     with gross proceeds of more than $3,000,000.

     iQ Power also  entered into share  exchange  agreements  in September  1998
     under which 2,800,000  common shares were issued to the holders of Atypical
     Shares of iQ Germany.  Atypical  Shares means certain  shares of iQ Germany
     which are not part of the  ordinary  capital of iQ Germany  and were issued
     pursuant to  agreements  between iQ Germany and the holders of those shares
     under German tax  incentives.  The iQ Power common  shares and the Atypical
     shares were held in escrow until completion of the offering.

     The business  combination  has been accounted for as a reverse  acquisition
     whereby the  purchase  method of  accounting  has been used with iQ Germany
     being identified as the accounting  parent.  These  consolidated  financial
     statements include the operations for iQ Power, the accounting  subsidiary,
     from the date of acquisition.  The fair value of the net assets of iQ Power
     at the date of acquisition is as follows:






                                       7
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the six months ended June 30, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------


5.   BUSINESS COMBINATION (Continued)


<TABLE>
<S>                                                                                 <C>
Current assets, including cash of $4,717,998                                         $    4,754,985
Advances to iQ Battery                                                                    1,112,965
-------------------------------------------------------------------------------------------------------
                                                                                          5,867,950
Less: Current liabilities                                                                  (345,230)
-------------------------------------------------------------------------------------------------------
Purchase price                                                                       $    5,522,720
-------------------------------------------------------------------------------------------------------

Purchase price comprised of:
   Issuance of common shares                                                         $    5,494,944
   Assumption of obligation relating to share purchase warrants                              27,776
-------------------------------------------------------------------------------------------------------
                                                                                     $    5,522,720
-------------------------------------------------------------------------------------------------------

</TABLE>



6.   SHARE CAPITAL

       Authorized
           An unlimited number of common shares
       Issued and outstanding


<TABLE>
                                                                      Number of
                                                                    Common shares          Amount
                                                                 ------------------  ------------------
<S>                                                                   <C>              <C>
Balance, January 1, 1998 (iQ Power)                                   1,969,740        $    492,435
Private placement, issued for cash                                    3,709,685             927,421
-------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                                            5,679,425           1,419,856
Shares issued for cash                                                5,500,000           5,500,000
Issue costs                                                                   -            (652,576)
-------------------------------------------------------------------------------------------------------
Balance, June 17, 1999                                               11,179,425           6,267,280
Adjustment for reverse acquisition on June 17, 1999                           -          (6,214,552)
-------------------------------------------------------------------------------------------------------
                                                                     11,179,425              52,728
Issued to effect the reverse acquisition                             12,800,000           5,494,944
-------------------------------------------------------------------------------------------------------
Balance, June 30, 1999                                               23,979,425        $  5,547,672
-------------------------------------------------------------------------------------------------------
</TABLE>


     (a)  Agent's Warrants

          As a part of the issuance of 5,500,000  common shares the agent to the
          offering was granted  550,000  Agent  Warrants  entitling the agent to
          purchase  550,000  common shares for $1 per share in the first year of
          the warrant and for $1.50 per share in the second year of the warrant.





                                       8
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the six months ended June 30, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------


6.   SHARE CAPITAL (Continued)

     (b)  Service warrants

          The Company  had  created  500,000  two-year  Service  Warrants,  each
          warrant  entitling the holder to purchase one common share exercisable
          as follows:

          i)        125,000 warrants vesting on issue, exercisable at a price of
                    $1.75 per share;

           ii)      125,000 warrants  vesting October 1, 1999,  exercisable at a
                    price of $2.50 per share;

           iii)     125,000 warrants vesting January 1, 2000,  exercisable at a
                    price of $3.50 per share; and

           iv)      125,000 warrants vesting January 1, 2000,  exercisable at a
                    price of $5.00 per share.

          The Company  will issue the Service  Warrants on the  execution  of an
          Investor Relations Agreement.

     (c)  Stock options

          The Company has granted the following stock options.

          Outstanding of June 30, 1999:

         Number of               Exercise
          options                  price                  Expiry date
      ---------------         --------------        ----------------------

         2,825,000                $1.00                 December 1, 2008
           345,000                $1.00                 June 28, 2009
           150,000                $1.00                 June 28, 2001


          In addition a further  400,000  stock  options  were issued on July 7,
          1999  entitling  the holders to purchase  400,000  common shares at an
          exercise price of $1.50 per share, exercisable to July 7, 2009.

     (d)  Loss per share

          The weighted average number of shares used to calculate loss per share
          data is based on treating the shares issued on the reverse acquisition
          as if they had been  outstanding  from the period to June 30, 1999 and
          June 30, 1998.




                                       9
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Consolidated Financial Statements
For the six months ended June 30, 1999
(Expressed in United States Dollars)
--------------------------------------------------------------------------------


7.   RELATED PARTY TRANSACTIONS

     Related  party  transactions  and balances not  disclosed  elsewhere in the
     financial statements include:

     (a)  management fees for the six months ended June 30, 1999 of $36,000 paid
          to a company with a common director;

     (b)  accounts payable and accrued  liabilities  include at June 30, 1999 of
          $34,892 due to a company with a common director;

     The Company has entered into the following contractual arrangements:

     (a)  a consulting  agreement  dated August 25, 1998 with a company having a
          common  director.  Under the terms of the  agreement  the  Company  is
          obligated to pay the  consultant  $6,000 per month for a term of three
          years commencing August 25, 1998;

     (b)  employment  agreement  with two directors of the Company to occupy the
          position of President and Chief Executive Officer and  Vice-President,
          Research and  Development  and Technical  Advisor.  Under the terms of
          these  agreements  the  Company is  obligated  to pay these  employees
          $8,500 and $8,000  per month,  respectively,  for a term of five years
          commencing August 31, 1998;

     (c)  an employment  agreement  with the  Vice-President,  Finance and Chief
          Financial  Officer.  Under the terms of the agreement,  the Company is
          obligated  to pay this  employee  $7,000 per month for a term of three
          years commencing September 1, 1998.



                                       10
<PAGE>

ITEM 2: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     Certain  statements  and  information  contained in this Report  constitute
forward-looking  statements  within the meaning of Section 21E of the Securities
Exchange Act of 1934. Such forward-looking  statements involve known and unknown
risks,  uncertainties  and other  factors  that may cause  the  actual  results,
performance  or  achievement of the Company,  or  developments  in the Company's
industry,  to differ  materially  from the anticipated  results,  performance or
achievements  expressed  or implied  by such  forward-looking  statements.  Such
factors include, but are not limited to: the Company's limited operating history
and history of losses,  the Company's relative  concentration of customers,  the
risks related to the Company's  ability to commercialize  its technology,  risks
associated  with changes in market  demand for the Company's  technology,  risks
involving the management of growth and integration of acquisitions, competition,
product  development  risks and risks of  technological  change,  dependence  on
third-party  marketing  relationships  and suppliers,  the Company's  ability to
protect its intellectual  property rights and the other risks and  uncertainties
detailed in the Company's Securities and Exchange Commission filings.

Overview

     The Company was  organized in 1991 to develop and  commercialize  batteries
and electric power technology for the automotive industry.  Since that date, the
Company has been engaged primarily in research and product development  efforts.
Its primary  product is a "smart"  automotive  starter  battery  which  combines
several  proprietary  features designed to optimize  automotive  starter battery
efficiency.

     The Company is an early stage  company and its  principal  activity to date
has been  research and  development.  The Company has not derived  revenues from
operations,  and does not anticipate  having  material  revenues from operations
until 2000, if at all. The Company has incurred  substantial losses to date, and
there can be no assurance that the Company will attain any  particular  level of
revenues or that the Company will achieve profitability.

     The Company  believes that its historic  spending levels are not indicative
of future  spending  levels  because  it is  entering  a period in which it will
increase spending on product research and development,  marketing,  staffing and
other general operating  expenses.  For these reasons,  the Company believes its
expenses,  losses,  and deficit  accumulated  during the development  stage will
increase significantly before it generates material revenues.

     Prior to June 18,  1999 the  financial  statements  of the  Company  and iQ
Battery  Research & Development  GmbH ("iQ  Germany") were presented as separate
and distinct as the former shareholders of iQ Germany had a put option to enable
them to reverse the August 25, 1998 transaction.  That option terminated on June
18,  1999,  when the  Company  raised  in  excess  of US$  3,000,000  by  equity
financing. See "Liquidity and Capital Resources."

     After  June  17,  1999,   all  financial   information  is  reported  on  a
consolidated   basis.  Any  financial   information  of  the  Company  used  for
comparative  purposes  prior to June 18, 1999,  is financial  information  of iQ
Germany only.


The  Company's  Results of  Operations  for the Three Months Ended June 30, 1999
Compared to the Three Months Ended June 30, 1998


     No revenues  were  recorded in either the three month period ended June 30,
1999 or the three month period ended June 30, 1998.

     The Company  incurred a net loss of  US$619,303  for the three month period
ended June 30, 1999,  compared to a net loss of  US$222,000  for the  comparable
period of the prior year  primarily  as result of the cost of its recent  public
offering,  increased  management and professional fees and increased  employment
expenses related to the hiring of additional employees during 1998. The increase
in research and  development  expenses  reflects the cost of supporting a higher
level  of  activity,   principally  research,   product  development,   building
prototypes and product testing.



                                      -11-
<PAGE>


     For the three  month  period  ended June 30,  1999,  the  Company  incurred
research and development expenses of US$253,000 compared with US$186,000 for the
comparable  period of the prior year.  The increase in research and  development
expenses reflects the cost of supporting a higher level of activity, principally
research, product development, building prototypes and product testing.

     The Company incurred general and  administrative  expenses of US$58,112 for
the three month  period  ended June 30, 1999  compared  with  US$23,000  for the
comparable period of the prior year. The increase in administrative  and general
corporate expenses was due primarily to increased personnel costs.


The  Company's  Results of  Operations  for the Six Months  Ended June 30,  1999
Compared to the Six Months Ended June 30, 1998

     No revenues  were  recorded in either the six month  period  ended June 30,
1999 or the six month period ended June 30, 1998.

     As  of  June  30,  1999,  the  Company  had  an   accumulated   deficit  of
US$2,332,047.  The Company  incurred a net loss of US$866,189  for the six month
period  ended  June  30,  1999,  compared  to a net loss of  US$429,000  for the
comparable  period  of the  prior  year  primarily  as result of the cost of its
recent public offering, increased management and professional fees and increased
employment  expenses related to the hiring of additional  employees during 1998.
The  increase  in  research  and  development  expenses  reflects  the  cost  of
supporting   a  higher  level  of  activity,   principally   research,   product
development, building prototypes and product testing.

     For the six month period ended June 30, 1999, the Company incurred research
and  development  expenses  of  US$461,855  compared  with  US$346,000  for  the
comparable  period of the prior year.  The increase in research and  development
expenses reflects the cost of supporting a higher level of activity, principally
research, product development, building prototypes and product testing.

     The Company incurred general and  administrative  expenses of US$90,144 for
the six month  period  ended  June 30,  1999  compared  with  US$61,000  for the
comparable period of the prior year. The increase in administrative  and general
corporate expenses was due primarily to increased personnel costs.

     The  Company's  expenditures  are  expected  to  materially  increase as it
pursues  research,  development,  testing  and  commercialization  programs  and
expands finance and administrative staff and financial and management system.


Liquidity and Capital Resources

     Since inception,  the Company has financed its operations primarily through
sales of its equity  securities.  As of June 30, 1999,  The Company had cash and
cash equivalents of  US$3,777,780.  From inception to June 30, 1999, the Company
had raised  approximately  US$1,420,050 (net of issuance costs) from the sale of
such securities,  excluding the issuance of 10,000,000  common shares for deemed
proceeds of US$2,500,000 on the business  combination  with iQ Germany.  On June
18, 1999, the Company completed its initial public offering in the United States
pursuant to which it received net proceeds of US $4,690,000.

     iQ Germany is obligated to pay to Horst Dieter Braun,  the  Company's  Vice
President, Research and Development and Peter Braun, our President, DM400,000 in
connection  with  iQ  Germany's  acquisition  of the  iQ  technology  and  other
intellectual  property rights. The amount is payable only out of and only to the
extent of the gross profits of iQ Germany.

     The Company  plans to finance its capital  needs  principally  from the net
proceeds of its past  securities  offerings  and  interest  thereon  and, to the
extent available,  lines of credit. The Company currently has no commitments for
any credit  facilities  such as revolving  credit  agreements or lines of credit
that could provide  additional  working  capital.  The Company believes that its
existing capital  resources,  will be sufficient to fund its operations  through
1999. The Company's capital  requirements  depend on several factors,  including
the success and progress of its product development programs,  the resources the
Company  devotes to developing  its  products,  the




                                      -12-
<PAGE>


extent to which its products achieve market acceptance,  and other factors.  The
Company expects to devote  substantial  cash for research and  development.  The
Company  cannot  adequately  predict  the amount  and timing of our future  cash
requirements.  The Company will consider  collaborative research and development
arrangements with strategic  partners and additional public or private financing
(including the issuance of additional  equity  securities) to fund all or a part
of a particular program in the future. There can be no assurance that additional
funding will be available or, if  available,  that it will be available on terms
acceptable to the Company. If adequate funds are not available,  the Company may
have  to  reduce  substantially  or  eliminate  expenditures  for  research  and
development,  testing,  production  and marketing of its proposed  products,  or
obtain funds through  arrangements  with  strategic  partners that require it to
relinquish  rights  to some of its  technologies  or  products.  There can be no
assurance  that the Company  will be able to raise  additional  cash if its cash
resources are exhausted.  The Company's ability to arrange such financing in the
future will depend in part upon the prevailing capital market conditions as well
as its business performance.

     The  Company   anticipates   that  the  level  of  spending  will  increase
significantly  in  future  periods  as we  undertake  research  and  development
activities related to the  commercialization of the iQ technology.  In addition,
we  anticipate   that  our  general  and   administrative   expenses  will  also
significantly  increase as a result of the growth in our research,  development,
testing and business  development  programs.  The actual  levels of research and
development,  administrative and general corporate expenditures are dependent on
the cash resources available to us.


Year 2000 Issue

     The Year 2000 issue  arises  with the change in century  and the  potential
inability  of  information  systems  to  correctly  "rollover"  dates to the new
century.  To save on computer storage space, many systems were programmed with a
two-digit  century (i.e.  December 31, 1999 would appears as 12/31/99)  assuming
that all years would be part of the 20th  century.  On January 1, 2000,  systems
with this  programming  will default to 01/01/1900  instead of  01/01/2000,  and
calculations  using or  reporting  the date will not be correct  and errors will
arise. To prevent this from occurring, information systems need to be updated to
ensure they recognize the Year 2000.

     The Company has conducted a review of its computer  systems to identify the
systems that could be  incompatible  with dates beyond December 31, 1999, and is
developing an implementation  plan to resolve issues that may arise. The Company
places  minimal  reliance  on data  sensitive  software  and  believes  that the
expected cost and availability of resources, to recover information not properly
processed after December 31, 1999,  would not result in a material effect on its
results of operations.

     The  Company  began  its Year  2000  strategy  by  compiling  a list of all
computerized  equipment  and  making  a  determination  of how,  if at all,  the
software  will  be  affected  by  Year  2000.  Although  the  effect  is so  far
unquantified, all of the Company's software is recent, and therefore the Company
anticipates  that it will have sufficient time to test any new systems that need
to be  installed.  All of the Company's  financial and business  records will be
backed up to ensure that no loss of information can occur.  The Company does not
anticipate incurring significant costs in this regard.

     The Company has  contacted  each of its  strategic  partners,  consultants,
contractors and significant  suppliers and have obtained assurances from some of
them that their relevant  operating software and systems are Year 2000 compliant
or would be by  December  31,  1999.  The  Company  plans  to  continue  to make
inquiries of those suppliers and service  providers who have not yet provided it
with  information  regarding  their Year 2000  compliance  status.  The  Company
anticipates that it will complete its third-party Year 2000 compliance review by
November 1999.  The Company is monitoring  the status of all of its  significant
service  providers' and suppliers' Year 2000 compliance  efforts to minimize the
risk of any material adverse effect on its operations  resulting from compliance
failures. The Company has also, in some cases, identified alternative sources of
supply or service should its present  suppliers or service  providers  encounter
Year 2000 compliance problems.

Foreign Currency Translation Risk

     To date,  exposure to foreign currency  fluctuations has not had a material
effect on our  operations.  The Company  believes  its risk of foreign  currency
translation  is limited,  as its  operations are based in Germany with resulting
transactions  primarily  denominated in United States dollars.  The Company does
not  currently  engage in hedging  or other  activities  to control  the risk of
foreign  currency  translation,  but  may do so in  the  future,  if  conditions
warrant.



                                      -13-
<PAGE>


Recent Accounting Pronouncements

Accounting for Derivative Instruments and Hedging Activities.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities."  The Statement  establishes  accounting  and reporting
standards  requiring that every derivative  instrument  (including some types of
derivative  instruments  embedded in other contracts) be recorded in the balance
sheet as either an asset or liability  measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized  currently in
earnings unless specific hedge accounting  criteria are met. Special  accounting
for qualifying  hedges allows a derivative's  gains and losses to offset related
results on the hedged item in the income statement,  and requires that a company
must formally document,  designate, and assess the effectiveness of transactions
that receive hedge accounting.  SFAS 133 is effective for fiscal years beginning
after June 15,  1999 and must be applied to  instruments  issued,  acquired,  or
substantively  modified after December 31, 1997. The Company does not expect the
adoption  of the  accounting  pronouncement  to have a  material  effect  on our
financial position or results of operations.

PART II -  OTHER INFORMATION

     ITEM 1. LEGAL PROCEEDINGS

     As of the date hereof,  there is no material litigation pending against the
Company. On January 3, 1994, a civil lawsuit was filed by Hans Engelhorn against
Peter E. Braun and Horst Dieter Braun in the District  Court of Berlin (Case No.
3 O 40/94).  Mr.  Engelhorn seeks to compel  transfer of  intellectual  property
rights  related  to  the iQ  technology  or,  alternatively,  money  damages  of
approximately DM500,000 (US$310,000).  The intellectual property rights at issue
are now  held by iQ  Germany.  Mr.  Engelhorn  alleges  that  the  Brauns  had a
contractual  obligation to transfer the  intellectual  property to a partnership
which has since been  dissolved.  Although  the  lawsuit is still  pending,  the
Company has been advised by the Brauns that the  prosecution of this lawsuit has
not been  pursued.  The Company  believes  that the lawsuit is without merit and
will not materially affect its rights in the intellectual property at issue.

     From time to time,  the  Company  may be a party to  litigation  and claims
incident to the ordinary course of business. While the results of litigation and
claims cannot be predicted with  certainty,  the Company  believe that the final
outcome of such matters will not have a material adverse effect on its business,
financial condition and operating results.


     ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

          a)   Sales of Unregistered Securities

               None

          b)   Use of Proceeds from Sales of Registered Securities

     On June 18, 1999, the Company  completed an initial public  offering of its
common  shares.  The selling  agent in the offering was IPO Capital  Corp.  (the
"Agent").  The common  shares sold in the  offering  were  registered  under the
Securities  Act of 1933, as amended,  on a  Registration  Statement on Form SB-1
(the "Registration  Statement") (Reg. No. 333-68649) that was declared effective
by the SEC on May 10, 1999.  The offering  commenced on May 10, 1999 after which
time, all 5,500,000 common shares  registered  under the Registration  Statement
were sold at a price to the  public of $1.00 per  common  share.  The  aggregate
offering amount registered was $5,500,000.  In connection with the offering, the
Company paid an aggregate of $105,000 in  commissions  and fees to the Agent and
also issued to the Agent warrants to purchase  550,000 common shares.  The Agent
may exercise the warrants for US$1.00 per common share during the first year and
for US$1.50 per common share during the second year after issuance.

     In  addition,  the  following  table sets forth an estimate of all expenses
incurred in connection  with the offering,  other than Agent's fees. All amounts
shown are estimated except for the registration fees of the SEC.



                                      -14-

<PAGE>


         SEC Registration Fee                        $            1,390
         NASD Filing Fee                             $            1,000
         Accounting Fees and Expenses                $           50,000
         Legal Fees and Expenses                     $           75,000
         Blue Sky Qualification Fees and Expenses    $           15,000
         Transfer and Custody Agent Fees             $           10,000
         Printing Expenses                           $            4,000
         Miscellaneous                               $          103,610
                                                                -------
         Total                                       $          260,000


     After  deducting the estimated  expenses set forth above,  the net offering
proceeds to the Company were  US$5,240,000.  Since May 10, 1999, the Company has
used a portion of the net offering  proceeds for the purposes  described  below.
The Company believes that the amounts set forth represent a reasonable  estimate
of the amounts actually applied.

             Transfer to iQ Germany                   $       3,500,000
             Payment of payables                      $         287,850
             Current expenses
                   (working capital)                  $          68,340


     ITEM 3. DEFAULTS UPON SENIOR SECURITIES

          None.

     ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.

     ITEM 5. OTHER INFORMATION

          None.

     ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

          None





                                      -15-
<PAGE>


                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                         IQ POWER TECHNOLOGY INC.


Date: September 21, 1999                 By:  /s/ Peter E. Braun
                                             -----------------------------------
                                             Name:    Peter E. Braun
                                             Title:   President




Date: September 21, 1999                 By:  /s/ Gerhard K. Trenz
                                             -----------------------------------
                                             Name:    Gerhard K. Trenz
                                             Title:   Vice President Finance and
                                                      Chief Financial Officer
                                                      (Principal Financial and
                                                      Accounting Officer)