Form 10QSB for HYBRID TECHNOLOGIES INC.
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17-Mar-2006
Quarterly Report
Item 2. Management's Discussion and Analysis or Plan of Operation
FORWARD LOOKING STATEMENTS
This quarterly report contains forward-looking statements that involve risks and uncertainties. We use words such as anticipate, believe, plan, expect, future, intend and similar expressions to identify such forward-looking statements. You should not place too much reliance on these forward-looking statements. Our actual results are likely to differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in this section.
SIX MONTHS ENDED JANUARY 31, 2006 and 2005
We incurred a net loss of $8,457,688 for the six months ended January 31, 2006, which included management and consulting fees of $274,049, general and administrative costs of $1,118,499, license and permits fees of $2,864, and research and development expense of $567,544.
Our net loss for the six-month period ended January 31, 2006 increased from the comparative period in fiscal 2005 (from $1,895,738 in 2005 to $8,457,688 in 2006). This was primarily due to an increase in stock-based compensation from none in the six-month period ended January 31, 2005, to $6,107,585 for the comparable period in 2006, an increase in administrative costs from $887,234 in 2005 to $1,118,499 in 2006, a decrease in management and consulting fees from $376,785 in 2005 to $274,049 in 2006, an increase in research and development expense from $6,180 in 2005 to $567,544 in 2006, and a decrease in license and permit fees from $360,853 in 2005 to $2,864 for the comparable period in 2006. We also incurred interest expense of $84,993 related to loans payable, as compared with $143,750 for the comparable period in 2005.
PLAN OF OPERATION
During the period since inception on April 12, 2000 to January 31, 2006, we have incurred operating losses aggregating $30,122,770. At January 31, 2006, we had liabilities of $5,273,024, a working capital deficiency of $5,176,161 and a stockholders' deficit of $5,032,935.
The continuation of the Company as a going concern is dependent upon the continued financial support from our shareholders, our ability to obtain necessary equity financing to continue operations, and the attainment of profitable operations. Our auditors have expressed substantial doubt concerning our ability to continue as a going concern.
As of March 16, 2006, we had cash on hand of $4,310,859.
Electric Vehicles
We have terminated the License Agreement with RV Systems, and on October 25, 2005, we filed suit for rescission of the License Agreement and damages against Lithium House and RV Systems and related parties. See "Item 3-Legal Proceedings".
We are now converting vehicles in our own leased facility in Mooresville, North Carolina. We are working with Kokam (South Korea) in developing battery management systems. On November 18, 2005, we announced a partnership with Kokam, who have sent a senior engineer to work with us for two weeks in our North Carolina facility. We are renting office space from Kokam and have hired two engineers to work in this rented office in Seoul, South Korea.
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Commercial Initiatives
We have commercial initiatives in China with Geely Corporation. The proposed joint venture agreement with Geely has been drafted. The party to the agreement for Hybrid Technologies would be a Chinese company owned by a Hybrid Technologies Hong Kong subsidiary. The Chinese company is in the process of being formed. We have completed two prototypes, the E-Cobra and the Jin Bike. We have also delivered a prototype to the U.S. Navy. We are constructing a lithium power solar house in Van Nuys, California. (This facility is part of the litigation we initiated against RV Systems and related parties--see "Item 3. Legal Proceedings".) We have signed a Space Act Agreement with NASA and will be providing vehicles (Pt Cruiser, Smart Car, all terrain) for the Kennedy Space Center to determine the utility of lithium powered vehicles.
Telecommunications Services
We offer telecommunications services to business and residential customers utilizing VoIP technology. The strategic initial objective of our telecommunications operations is to develop a superior multilevel platform that provides highly reliable and advanced telecommunications services. Our telecommunications operations are conducted through our subsidiary, Zingo, Inc., of which we own approximately 69% of the outstanding common stock. We plan to focus our efforts in many parts of the globe where the area is equipped broadband access for Internet services. The VoIP system is developed to work via the Internet thus allowing those destinations to have access to a highly advanced telephone system. The immediate focus is Central and Latin America, Europe and developed countries in Asia.
As of the period immediately preceding filing this report, our telecommunications subsidiary had over 2,000 subscribers, an increase from approximately 1,200 subscribers last quarter.
5.2 Liquidity and Capital Resources
Since our incorporation, we have financed our operations almost exclusively through the sale of our common shares to investors and borrowings. We expect to finance operations through the sale of equity in the foreseeable future as we receive minimal revenue from our current business operations. There is no guarantee that we will be successful in arranging financing on acceptable terms.
On February 24, 2004, we announced receipt of $1 million dollars of a $3 million dollar non-recourse loan (the "Loan") to be collateralized by stock. On April 14, 2004, we drew down an additional $1,000,000 on this loan, and on April 22, 2004, we drew down the final $1,000,000 of the loan. The lender is Sterling Capital, Inc. The maturity date of the first installment was February 24, 2006, and we are in default by reason of not having repaid that installment of principal of the Loan. We had recently made a $250,000 interest payment on the Loan. The related loan agreement (the "Loan Agreement") provides that if we default in repayment of any installment of principal of the Loan, Sterling Capital may declare the then outstanding balance of the Loan, interest, costs and money owing by us to be immediately due and payable. As security for the Loan, we pledged an aggregate of 9,000,000 shares of our Common Stock ("Pledged Shares"), and the certificates for the Pledged Shares are held in trust by a Trustee pursuant to the Loan Agreement. We have not received as of the date of this report any formal notice of default from Sterling Capital. Pursuant to the Loan Agreement, Sterling Capital's sole recourse against us, if an event of default has occurred and is continuing, is to take whole possession of the Pledged Shares for their sole benefit.
We have raised equity capital through issuances of common stock and debt. During the six months ended January 31, 2006, we received proceeds of $1,371,200 from the exercise of stock options and $719,183 from advances from related parties.
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At March 16, 2006, we had $4,310,859 cash on hand. Our ability to raise additional capital is affected by trends and uncertainties beyond our control.
We anticipate that up to $2,000,000 of working capital will be required over the next 12 months for market introduction of these products through joint venture partners or otherwise.
We do not currently have any arrangements for financing and we may not be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor sentiment. Market factors may make the timing, amount, terms or conditions of additional financing unavailable to us.
Our auditors are of the opinion that our continuation as a going concern is in doubt. Our continuation as a going concern is dependent upon continued financial support from our shareholders and other related parties.
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