NOTE: This special financial report is being filed pursuant to Rule 15d-2 and
contains only the registrant's financial statements for the fiscal year ending
December 31, 1998, the financial statements of the registrant's subsidiary, iQ
Battery Research & Development GmbH, for the same period and pro forma financial
information for the years ended December 31, 1998 and 1997.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 000-26165
IQ POWER TECHNOLOGY INC.
(Name of Small Business Issuer in its charter)
Canada Not Applicable
(Jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
14675 Interurban Avenue South
Seattle, Washington 98168-4664
(Address of principal executive offices)
Issuer's telephone number, including area code: (604) 669-3132
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Check whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $0.00
Aggregate market value of the Registrant's Common Stock held by
non-affiliates as of August 2, 1999 was approximately $34,123,655. The number of
shares of the Registrant's Common Stock outstanding as of August 2, 1999 was
24,029,425.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
iQ POWER TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
Page
<S> <C>
iQ Power Technology, Inc..........................................................................................1
Auditors'Report................................................................................................2
Balance Sheets.................................................................................................3
Statements of Loss and Deficit.................................................................................4
Statements of Cash Flow........................................................................................5
Notes to the Financial Statements..............................................................................6
IQ BATTERY Research & Development GmbH...........................................................................11
Independent Auditors'Report...................................................................................11
Balance Sheets................................................................................................12
Statement of Operations.......................................................................................13
Statement of Cash Flows.......................................................................................14
Notes to the Financial Statements.............................................................................15
Selected Unaudited Pro forma Consolidated Financial Information..................................................23
Unaudited Pro Forma Consolidated Balance Sheet................................................................24
Unaudited Pro Forma Statement of Loss December 31, 1998.......................................................25
Unaudited Pro Forma Statement of Loss December 31, 1997.......................................................26
Notes to the Unaudited Pro Forma Consolidated Financial Information...........................................27
</TABLE>
1
<PAGE>
AUDITORS' REPORT
To the Shareholders of
IQ Power Technology Inc.
(a development stage company)
We have audited the balance sheets of IQ Power Technology Inc. (a development
stage company) as at December 31, 1998 and 1997 and the statements of loss and
deficit and cash flow for each of the years in the three year period ended
December 31, 1998 and the cumulative from date of inception to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and 1997
and the results of its operations and cash flows for each of the years in the
three year period ended December 31, 1998 and the cumulative from date of
inception to December 31, 1998 in accordance with accounting principles
generally accepted in Canada applied on a consistent basis.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
April 30, 1999
Comments by Auditors for U.S. Readers on Canada
- - U.S. Reporting Conflict
To the Directors of
IQ Power Technology Inc.
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the auditor
concludes that there is substantial doubt about the entities' ability to
continue as a going concern such as described in Note 2 of the financial
statements. Our report to the shareholders dated April 30, 1999 is expressed in
accordance with Canadian reporting standards, which do not permit a reference to
such an uncertainty in the auditors' report when the uncertainty is adequately
disclosed in the financial statements.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
April 30, 1999
2
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Balance Sheets
December 31
(Expressed in U.S. Dollars)
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 238,204 $ 43,525
Accounts receivable 10,962 3,060
Prepaids and deposits - 4,600
Advances to iQ Germany 862,964 368,076
- ----------------------------------------------------------------------------------------------------------------------
1,112,130 419,261
INVESTMENT (Note 4) 3,200,000 -
- ----------------------------------------------------------------------------------------------------------------------
$ 4,312,130 $ 419,261
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable $ 187,051 $ 56,841
Accrued liabilities 23,257 15,725
Loans from iQ Germany 98,626 -
- ----------------------------------------------------------------------------------------------------------------------
308,934 72,566
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock (Note 4) 4,619,856 492,435
Accumulated deficit, during development stage (616,660) (145,740)
- ----------------------------------------------------------------------------------------------------------------------
4,003,196 346,695
- ----------------------------------------------------------------------------------------------------------------------
$ 4,312,130 $ 419,261
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
CONTINUANCE OF OPERATIONS (Note 2)
APPROVED BY THE BOARD OF DIRECTORS
_____________________________ Director
_____________________________ Director
3
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Statements of Loss and Deficit
For the years ended December 31
(Expressed in U.S. Dollars)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
Cumulative
from date of
inception to
December 31
1998 1998 1997 1996
--------------- ------------------------------- ----------------
<S> <C> <C> <C> <C>
Expenses
Automobile $ 1,572 $ 1,572 $ - $ -
Advertising and promotion 7,173 7,173 - -
Loss on foreign exchange 33,256 862 32,394 -
Management fees 94,488 51,290 43,198 -
Office 36,718 36,507 211 -
Professional fees 233,346 207,080 21,640 4,626
Travel 110,229 72,436 37,793 -
Technical reports 5,878 5,878
Wages 94,000 94,000 - -
- --------------------------------------------------------------------------------------------------------------------
616,660 470,920 135,236 10,504
- --------------------------------------------------------------------------------------------------------------------
Net loss (616,660) (470,920) (135,236) (10,504)
Accumulated deficit during development stage,
beginning of period - (145,740) (10,504) -
- --------------------------------------------------------------------------------------------------------------------
Accumulated deficit during development stage, end
of period $ (616,660) $ (616,660) $ (145,740) $ (10,504)
- --------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ - $ (0.09) $ (0.14) N/A
- --------------------------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding - 5,465,690 950,294 N/A
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Statements of Cash Flow
For the years ended December 31
(Expressed in U.S. Dollars)
<TABLE>
Cumulative from
date of
inception to
December 31
1998 1998 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (616,660) $ (470,920) $ (135,236) $ (10,504)
Items not affecting cash
(Increase) in accounts receivable (10,962) (7,902) (3,060) -
(Decrease) increase in prepaid and - 4,600 (4,600) -
deposits
Increase in accounts payable 187,051 130,210 56,841 -
Increase in loans payable 98,626 98,626 - -
(Decrease) increase in accrued
liabilities 23,257 7,532 15,725 -
- ----------------------------------------------------------------------------------------------------------------------
(318,688) (237,854) (70,330) (10,504)
- ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITY
Increase in advances to iQ Germany (862,964) (494,888) (220,099) (147,977)
- ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in share subscriptions 152,603 - - 152,603
(Decrease) increase in due to
shareholder - - (5,877) 5,877
Issuance of common shares 1,267,253 927,421 339,831 1
- ----------------------------------------------------------------------------------------------------------------------
1,419,856 927,421 333,954 158,481
- ----------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 238,204 194,679 43,525 -
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 43,525 - -
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 238,204 $ 238,204 $ 43,525 $ -
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1998, the Company issued 12,800,000 common
shares at a deemed value of $3,200,000 to acquire 100% of the issued and
outstanding shares of IQ Germany.
5
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Financial Statements
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS
IQ Power Technology Inc. (the "Company") was incorporated under the Canada
Business Corporations Act on December 20, 1994. The Company commenced
operations on June 21, 1996. The Company's current business strategy is to
acquire 100% interest in iQ Battery Research & Development GmbH (iQ
Germany) which is legally domiciled in Floha, Germany. The Company's
strategic objectives include the commercial exploitation of a new
generation of computer optimized vehicle batteries researched and developed
by IQ Germany.
2. CONTINUANCE OF 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 plans to raise a maximum of $4,690,000 to a minimum of $2,440,000,
net of commissions and costs of issue, through the issuance of 5,500,000 or
3,000,000 shares of common stock pursuant to a Registration Statement and
prospectus on Form SB-1. The Company intends to use the proceeds to fund
research and development of iQ Germany, expansion of the Company's
marketing and sales activities and general working capital.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada, which for these financial
statements conform with those in the United States except as outlined in
Note 9.
(a) Foreign currency translation
The Company is a Canadian corporation but considers the United States
dollar to be the appropriate functional currency for the Company's
operations and these financial statements. Accordingly, for the
purposes of preparing these financial statements, transactions in
Canadian dollars and German deutsche marks have been measured into
United States dollars so that monetary assets and liabilities are
translated at the rate in effect at the balance sheet date. Other
balance sheet items and revenues and expenses are translated at the
rates prevailing on the respective transaction dates. Exchange gains
and losses related to current monetary items are included in income.
Exchange gains and losses related to non-current monetary items are
deferred and amortized over the remaining lives of the monetary items.
(b) Estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
6
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Financial Statements
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Investments
Investments in iQ Battery Research & Development GmbH are carried at
cost, less any impairment which is determined to be other than
temporary. On a quarterly basis, the Company reviews its investment
for any impairment. In the period since the investment was acquired
there has been no indication of a permanent impairment.
(d) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks,
deposits in trust, and highly liquid investments with an original
maturity of three months or less.
4. SHARE CAPITAL
Authorized: an unlimited number of common shares
<TABLE>
----------------------------------------------------------------------
1998 1997
----------------------------------------------------------------------
Number of Amount Number of Amount
Common shares Common shares
----------------- ----------------- ----------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of period 1,969,741 $ 492,435 1 $ 1
Private placement, issued for cash 3,709,683 927,421 1,969,740 492,434
Shares contingently issued 12,800,000 3,200,000 -- --
- --------------------------------------------------------------------------------------------------------------------
18,479,424 $ 4,619,856 1,969,741 $ 492,435
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended December 31, 1998, the Company issued 3,709,683
shares for cash (December 31, 1997 - 1,969,740) pursuant to private
placements of $0.25 per share.
During the year ended December 31, 1998, the Company issued shares pursuant
to a share exchange agreement dated August 25, 1998 with iQ Germany whereby
the shareholders of iQ Germany sold and transferred their iQ Germany shares
to the Company for, in the aggregate, 10,000,000 common shares of the
Company for deemed proceeds of $2,500,000. The shareholders of iQ Germany
have the option to cancel the share exchange agreement if after the four
month anniversary of the initial filing by IQ Canada of a registration
statement on Form SB-1 with the United States Securities and Exchange
Commission (a) IQ Canada has failed to complete an equity offering with
gross proceeds of at least $3,000,000 and (b) the shareholders of iQ
Germany have repaid to IQ Canada the full amount of all funds advanced to
iQ Germany. The option shall terminate and shall not be exercisable as of
such date that IQ Canada shall complete an equity financing with gross
proceeds of not less than $3,000,000;
The Company also entered into share exchange agreements in September 1998
under which 2,800,000 common shares of the Company 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 Company's common
shares and the Atypical shares will be held in escrow until completion of
the offering. The share exchange will not be completed if the option
referred to above is exercised.
7
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Financial Statements
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
4. SHARE CAPITAL (Continued)
The business combination at the expiration of the put option will be
accounted for as a reverse takeover as iQ Germany is determined to be the
acquirer. Due to the put rights and the reverse takeover accounting the
investment has been recorded at the deemed proceeds of $3,200,000.
Also during December 1998, 2,875,000 stock options were granted to
employees at an exercise price of $1.00 with an expiry date of December 1,
2008. All shares vested on the date of grant.
5. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts receivable,
prepaids and deposits, travel advances, accounts payable and accrued
liabilities, due to shareholder and share subscriptions, the fair value of
such financial instruments approximates carrying values due to the
short-term to maturity of the financial instruments and similarity to
market rates. The Company is exposed to currency risk in respect of
financial instruments. Currency risk is the risk that the value of
financial instruments will fluctuate due to changes in foreign exchange
rates. The Company does not attempt to hedge currency risk.
The fair value of the advances to iQ Germany is $799,041, based on a
discount factor of 8% and an anticipated term of 1 year.
6. RELATED PARTY TRANSACTIONS
Related party transactions and balances not disclosed elsewhere in the
financial statements include:
(a) management fees of $51,290 (1997 - $43,198) paid to a company with a
common director;
(b) a lawyer was appointed secretary of the Company effective December 1,
1998. The law firm of which this officer is a partner provided legal
services to the Company for fees of $34,411 during 1998 (1997 -
$16,445);
(c) at December 31, 1998, accounts payable and accrued liabilities include
$35,363 due to a company with a common director; and
(d) issuance of 236,213 common shares at a price of $0.25 per share for
proceeds of $59,053 to a company with a common director.
7. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Company may experience the effects of the Year 2000 issue before, on,
or after January 1, 2000, and the impact on operations and financial
reporting, if not addressed, may range from minor errors to significant
systems failure which could affect the Company's ability to conduct normal
business operations. It is not possible to be certain that all aspects of
the Year 2000 issue affecting the Company, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
8
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Financial Statements
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
8. COMMITMENTS
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 agreements with two directors of the Company to occupy the
positions 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 3 years
commencing September 1, 1998.
9. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(a) Accounting for income taxes
U.S. GAAP requires, pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 109, that a deferred tax asset amount be
recognized for loss carry-forwards. Although the Company has Canadian
non-capital tax loss carry-forwards, due to uncertainty as to
utilization prior to their expiry, the deferred tax asset amounts
would have been completely offset in these consolidated financial
statements by a valuation provision.
(b) Recent accounting pronouncements
(i) In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income", which requires
that an enterprise report, by major components and as a single
total, the change in its net assets during the period from
non-owner sources; and SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information" which establishes
annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products,
services, geographic areas, and major customers. Adoption of
these statements did not impact the Company's consolidated
financial position, results of operations or cash flows.
(ii) In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", which standardizes the accounting for derivative
instruments. SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. The Company is
currently assessing the impact of SFAS No. 133 on the Company's
financial statements and has not yet determined what if any
changes will be necessary.
9
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Notes to the Financial Statements
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
10. SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company has filed a registration
statement in accordance with Form SB-1, Amendment No. 3, for the purpose of
registering the issuance of a maximum of 5,500,000 shares under the
Securities Act of 1933 at an anticipated price of $1 per share.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
We have audited the accompanying balance sheets of iQ BATTERY Research &
Development GmbH as of December 31, 1998 and 1997, and the related statements of
operations and of cash flows for each of the years in the three year period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Germany and the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of iQ BATTERY Research &
Development GmbH as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 1998 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses, negative operating cash
flows and shareholders' capital deficiency raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Munich, February 26, 1999
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
/s/ Deloitte & Touche GmbH
11
<PAGE>
iQ BATTERY Research & Development GmbH
Balance Sheets as of December 31
(DM in Thousands)
<TABLE>
1998 1997
DM DM
-------------------- ------------------
<S> <C> <C>
Assets
Current assets
Cash 21 31
Receivable from shareholders 82 36
Other receivables, primarily refundable value added 199 241
taxes
Prepaid expenses 2 3
-------------------- ------------------
Total current assets 304 311
Non-current assets
Equipment-net 113 75
Total assets 417 386
==================== ==================
Liabilities and Shareholders' Deficit
Current liabilities
Short-term bank debt 208 88
Trade accounts payable 896 387
Due to original shareholders 130 66
Accrued payroll 202 138
Due to parent company 563 0
Advances 913 663
Other accrued liabilities 84 158
-------------------- ------------------
Total current liabilities 2.996 1.500
Long-term bank debt 6 8
Non-current liabilities due to original shareholders 95 155
-------------------- ------------------
Total liabilities 3.097 1.663
-------------------- ------------------
Commitments and Contingencies
Temporary atypical equity 0 0
-------------------- ------------------
Shareholders' deficit
Registered capital 100 100
Accumulated deficit
Attributable to voting shareholders (2.780) (1.377)
-------------------- ------------------
Total shareholders' deficit (2.680) (1.277)
Total liabilities, temporary equity, and shareholders'
deficit 417 386
==================== ==================
</TABLE>
See Notes to Financial Statements
12
<PAGE>
iQ BATTERY Research & Development GmbH
Statement of Operations for the years ended December 31
(DM in Thousands)
<TABLE>
1998 1997 1996
DM DM DM
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues
Sales 0 45 0
Grants received 0 0 0
------------------ -------------------------------------
0 45 0
------------------ -------------------------------------
Operating Expenses
Research and development expenses (1.538) (842) (655)
General administrative and other expenses (196) (162) (127)
------------------ ------------------ ------------------
Operating loss (1.734) (959) (782)
Interest income 11 1 3
Interest and other finance expense (80) (76) (12)
------------------ ------------------ ------------------
Loss before taxes (1.803) (1.034) (791)
Income taxes 0 0 0
------------------ -------------------------------------
Net loss (1.803) (1.034) (791)
Accumulated deficit
Beginning of year (1.377) (883) (313)
------------------ ------------------ ------------------
Adjustment to state temporary atypical equity
at redemption amount 400 540 221
------------------ ------------------ ------------------
End of year (2.780) (1.377) (883)
================== =====================================
</TABLE>
See Notes to Financial Statements
13
<PAGE>
iQ BATTERY Research & Development GmbH
Statements of Cash Flows for the years ended December 31
(DM in Thousands)
<TABLE>
1998 1997 1996
DM DM DM
-------------- --------------- ---------------
<S> <C> <C> <C>
Operating activities:
Net loss (1.803) (1.034) (791)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 36 21 10
Loss on disposal of equipment 0 0 10
Changes in assets and liabilities:
Other receivables and prepaid expenses (3) (81) (54)
Accounts payable and other current liabilities 499 182 266
-------------- --------------- ---------------
Net cash used in operating activities (1.271) (912) (559)
-------------- --------------- ---------------
Investing Activities:
Proceeds from sales of equipment 0 0 3
Additions to property, plant and equipment (74) (80) (13)
-------------- --------------- ---------------
Net cash used in investing activities (74) (80) (10)
-------------- --------------- ---------------
Financing Activities:
Temporary atypical capital increases 400 540 221
Increase in short-term debt 120 6 28
Increase (decrease) in debt due to shareholders 64 (4) 107
Received from affiliated company 563 0 0
Advances received from external parties 250 440 223
Increase (decrease) in other long-term debt (62) 10 0
-------------- --------------------------------
Net cash provided in financing activities 1.335 992 579
-------------- --------------- ---------------
Increase (decrease) in cash (10) 0 10
Cash, beginning of period 31 31 21
============== =============== ===============
Cash, end of period 21 31 31
============== =============== ===============
</TABLE>
See Notes to Financial Statements
14
<PAGE>
IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(Balance Sheets as of December 31, 1998 and 1997 and the Related Statements of
Operations and Cash Flows for Each of the Years in the Three Year Period ended
December 31, 1998)
(DM in Thousands)
1 Description of Business
iQ BATTERY Research & Development GmbH ("iQ BATTERY"), established in 1991,
is developing a chargeable battery which allows an improved current output
at low outside temperatures. The process engineering for this chargeable
battery and the know-how is based on a patent acquired from the founding
shareholders of iQ BATTERY Research and Development GmbH.
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.
The Company'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 Summary of Significant Accounting Policies
a) Basis of accounting
The accompanying 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. As shown in the financial
statements during the years ended December 31, 1998, 1997 and 1996, the
Company incurred net losses of DM 1.803 and DM 1.034 and DM 791 and had
negative operating cash flows of DM 1,.271, DM 912 and DM 559 respectively.
The shareholders capital deficit as of December 31, 1998 and 1997 was DM
2.680 and DM 1.277 respectively. These factors among others may indicate
that the Company will be unable to continue as a going concern for a
reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to obtain
additional financing.
Management is continuing its efforts to obtain additional financing as
follows:
- Offering activities
On April 29, 1998, iQ BATTERY and its then prospective shareholding
company iQ Power Technology Inc. entered into an agreement with a lead
agent in Vancouver/Canada to attempt to raise seed financing of at
least US-$ 500,000 and, in subsequence, an offering of US-$ 3,000,000.
Of these proceeds, US-$ 500,000 will be placed in trust and advanced
to iQ BATTERY periodically pursuant to a mutually agreed upon budget
and achievement of certain milestones, among them a share exchange of
iQ Power Technology Inc. common shares to the then existing
shareholders of iQ BATTERY.
15
<PAGE>
IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(Balance Sheets as of December 31, 1998 and 1997 and the Related Statements of
Operations and Cash Flows for Each of the Years in the Three Year Period ended
December 31, 1998)
(DM in Thousands)
2 Summary of Significant Accounting Policies (Continued)
The Share Exchange Agreement among IQ Power Technology Inc., iQ
BATTERY Research and Development GmbH and the shareholders of iQ
BATTERY Research and Development GmbH has been entered into effective
August 25,1998. Of the seed financing of US$ 500.000, a portion of US$
350.000 has been advanced to iQ BATTERY during 1998 and has been
included in current liabilities.
- Additional financing activities
In July 1997, iQ Battery filed an application with Sachsische
Aufbaubank GmbH in Dresden aiming at an investment grant of DM 1.7
million.
Management believes that iQ BATTERY will obtain sufficient funds from
the offering and special financing activities during the next twelve
months to continue its operations.
b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ from
these estimates.
c) Equipment
Equipment is stated 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.
d) Long-term liabilities to 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.
e) Research and Development
Research and development costs are expensed as incurred. DM 400 for the
transfer of intangible assets (patent and registered design) by founding
shareholders of the Company and the related liability are not reflected in
the accompanying financial statements (see also note 12).
f) Earnings per share
Earnings per share are not presented because the Company is privately held.
g) Income taxes
Income taxes are provided for in accordance with the asset and liability
method. Deferred tax assets, net of valuation allowances, and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
carryforwards.
16
<PAGE>
IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(Balance Sheets as of December 31, 1998 and 1997 and the Related Statements of
Operations and Cash Flows for Each of the Years in the Three Year Period ended
December 31, 1998)
(DM in Thousands)
2 Summary of Significant Accounting Policies (Continued)
h) Supplemental cash flow information
Cash paid for interest and income taxes for the years ended December 31 was
as follows:
<TABLE>
-------------------------------------------------------------------------------------------------------------
December 31,
1998 1997 1996
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest 27 56 7
Income taxes 0 0 0
-------------------------------------------------------------------------------------------------------------
</TABLE>
3 Equipment
Equipment at December 31 was as follows:
<TABLE>
-----------------------------------------------------------------------------------------------------
December 31,
1998 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Equipment-at cost 187 112
Less accumulated depreciation 74 37
================== ================
Equipment-net 113 75
================== ================
-----------------------------------------------------------------------------------------------------
</TABLE>
Depreciation expense was DM 36 for the year ended December 31, 1998 (1997:
DM 21; 1996: DM 10).
4 Atypical shareholders
Up to December 31, 1998, the company has received a total of DM 1.842 of
capital from atypical shareholders. The atypical shareholders have certain
information rights, but no voting powers; they share in the losses which
are debited to the atypical shareholders accounts and in the profits of the
company as stipulated in the individual atypical shareholders' agreements.
In connection with the Share Exchange Agreement among IQ Power Technology
Inc., iQ BATTERY Research and Development GmbH and the shareholders of the
latter company IQ Power Technology Inc. has entered into contracts with the
atypical shareholders according to which the atypical shareholders agree to
convey, assign and transfer to IQ Power Technology Inc. all their rights
resulting from the atypical shareholders' agreements in consideration for
the issuance of common shares of IQ Power Technology Inc.
IQ Power Technology Inc. intends to waive irrevocably effective December
31,1998 all rights resulting from the atypical shareholders' agreements.
17
<PAGE>
IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(Balance Sheets as of December 31, 1998 and 1997 and the Related Statements of
Operations and Cash Flows for Each of the Years in the Three Year Period ended
December 31, 1998)
(DM in Thousands)
4 Atypical shareholders (Continued)
The following table presents the movements on temporary atypical equity
(amount in DM)
<TABLE>
-------------------------------------------------------------------------------------------------------
December 31,
1998 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Opening balance -- --
Capital contributions 400 540
------------------ ------------------
Adjustments to state equity at redemption amount (400) (540)
------------------ ------------------
Redemption amount -- --
================== ==================
-------------------------------------------------------------------------------------------------------
</TABLE>
5 Shareholders' Deficit
The registered capital of the Company is DM 100, which has been fully paid
in by the Company's founding shareholders.
By Share Exchange Agreement dated August 25,1998 the shareholders of iQ
BATTERY Research and Development GmbH have sold and transferred their
shares to IQ Power Technology Inc. for shares of IQ Power Technology Inc.
thus making the latter company the shareholder of iQ BATTERY Research and
Development GmbH.
The following table presents the changes in shareholders' deficit for the
period from January 1, 1997 to December 31, 1998 (amounts in DM):
<TABLE>
-------------------------------------------------------------------------------------------------------------
Registered Accumulated
Capital Deficit Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1997 100 (883) (783)
Adjustments to redemption value of atypical
equity 540 540
Net loss 1997 (1.034) (1.034)
----------------- ----------------- ---------------
December 31, 1997 100 (1.377) (1.277)
Adjustments to redemption value of atypical
equity 400 400
Net loss 1998 (1.803) (1.803)
----------------- ----------------- ---------------
December 31, 1998 100 (2.780) (2.680)
-------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(Balance Sheets as of December 31, 1998 and 1997 and the Related Statements of
Operations and Cash Flows for Each of the Years in the Three Year Period ended
December 31, 1998)
(DM in Thousands)
6 Short-term Bank Debt
Short-term bank debt is summarized as follows (amounts in DM):
<TABLE>
------------------------------------------------------------------------------------------------------
December 31,
1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commerzbank AG, Ottobrunn 190 65
Dresdner Bank AG, Dresden 16 21
Current portion of Behncke Bank GmbH, Hamburg 2 2
================= ==============
Total short-term bank debt 208 88
================= ==============
------------------------------------------------------------------------------------------------------
</TABLE>
The Commerzbank debt is personally guaranteed by four original shareholders
up to a maximum total of DM 320; any cash and deposits maintained with
Commerzbank have been pledged. The Dresdner Bank debt is personally
guaranteed by an original shareholder up to a maximum total of DM 50.
Interest expense for the short-term bank debt amounts to DM 27 for the year
ended December 31, 1998 (1997: DM 22; 1996: DM 5)). The weighted average
interest rates were 10%.
7 Long-term bank debt
Long-term bank debt is determined as follows (amounts in DM):
<TABLE>
------------------------------------------------------------------------------------------------------
December 31,
1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Behncke Bank GmbH, Hamburg 8 10
Less current portion 2 2
================= ==============
Long-term debt, excluding current portion 6 9
================= ==============
------------------------------------------------------------------------------------------------------
</TABLE>
The Behncke Bank debt is a financing loan for the telephone equipment in
the Munich office. The loan was contracted in 1997 and the term is over
five years.
Payments to be made for the years ending December 31 (amounts in DM):
2000 2
2001 2
2002 2
19
<PAGE>
IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(Balance Sheets as of December 31, 1998 and 1997 and the Related Statements of
Operations and Cash Flows for Each of the Years in the Three Year Period ended
December 31, 1998)
(DM in Thousands)
8 Non-current Liabilities
Non-current liabilities due to original shareholders are summarized as
follows (amounts in DM):
<TABLE>
---------------------------------------------------------------------------------------------------
December 31,
1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Due to original shareholders 95 155
</TABLE>
Interest, which has to be paid only in case the company has generated
sufficient net assets or liquidation proceeds, has been accrued for 1998
(DM 57) and 1997 (31) on debt to founding shareholders. For 1996 and prior
years the founding shareholders have ultimately waived their interest
claims on long-term debt.
Payments are expected for the years ending December 31 (amounts in DM):
1999 95
9 Leases
The Company has operating leases for certain equipment and facilities.
Rental expense was DM 99 for the year ended December 31, 1998 (1997: DM 29;
1996: DM 12). As of December 31, 1998 obligations to make future minimum
lease payments were as follows:
Payments to be made in the years ending December 31 (DM):
1999 43
2000 30
2001 4
2002 3
Thereafter 0
10 Income Taxes
The provision for income taxes differed from the standard federal
corporation income tax rate of 45 % because no benefit was realized for the
operating losses incurred up to 1998.
As of December 31, 1998 and 1997, the Company had total deferred tax assets
relating to loss carryforwards of DM 1.731 and DM 736, respectively, which
were reduced to zero by valuation allowances. The valuation allowance
represents the amount of deferred tax assets that may not be realized based
upon expectations of taxable income that are consistent with the Company's
operating history.
As of December 31, 1998, the Company had net operating loss carryforwards
of approximately DM 2.717 for corporation income taxes and DM 4.579 for
municipal trade taxes. Such loss carryforwards have no set expiry dates.
20
<PAGE>
IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(Balance Sheets as of December 31, 1998 and 1997 and the Related Statements of
Operations and Cash Flows for Each of the Years in the Three Year Period ended
December 31, 1998)
(DM in Thousands)
11 Fair Value of Financial Instruments
Management has determined that the carrying values of cash, accounts
receivable, accounts payable and short-term bank debt approximate fair
value at December 31, 1998 and 1997 because of immediate or short-term
maturities. The carrying amount reported for non-current liabilities due to
shareholders approximates fair value because the interest rate of 5,5%
provided for the accrued interest in 1998 and 1997 approximates the market
rate.
12 Related Party Transactions
The Company paid management fees of DM 98 for the year ended December 31,
1998 (1997: DM 132; 1996: DM 132) to the company's two founding
shareholders based on contracts dated October 11, 1991, March 28, 1992 and
August 28, 1994.
iQ BATTERY acquired patents and know-how improving the current output of a
chargeable battery at low outside temperatures and the registered design
"iQ" based on a contract dated March 15, 1995 from two shareholders and
managing directors of iQ BATTERY. The intangibles purchased relate to a
German patent, an international patent application as well as the
registered design "iQ".
The purchase price consists of a one time payment of DM 400 and is not
payable as long as the Company is in a deficit position. The transaction
has not been reflected in the accompanying financial statements.
13 Share Exchange Agreement
On August 25,1998 IQ Power Technology Inc. ("iQ Canada ") acquired all the
issued and outstanding stock of iQ BATTERY Research & Development GmbH ("iQ
Battery") in exchange for 10,000,000 common shares of iQ Canada. Pursuant
to the terms of the Share Exchange Agreement, the former shareholders of iQ
Battery, as a group, have a limited right to repurchase all of the iQ
Canada common shares received by such shareholders (the "Put Option"). The
Put Option is exercisable at and after the four month anniversary of the
initial filing of a prospectus with the Securities and Exchange Commission
if (i) iQ Canada has failed to complete an equity offering with gross
proceeds of at least US$3 Million and (ii) such shareholders have repaid to
iQ Canada the full amount of all funds iQ Canada has advanced or invested
in iQ Battery. As a result of the business combination, the shareholders of
iQ Battery will acquire control of the combined entity. Due to this
acquisition of control, iQ Battery is identified as the acquiror (reverse
acquisition) and the business combination will be accounted for under the
purchase method.
Pursuant to the terms of the Atypical Share Exchange Agreements, iQ Canada
has also issued into escrow an additional 2,800,000 Common Shares against
the deposit into escrow of the atypical shares of iQ Battery held by
twenty-one atypical shareholders. The common shares and the atypical shares
will be released from escrow to the atypical shareholders and iQ Canada,
respectively, on the completion of a minimum equity financing of US$3
Million. In the event the Put Option is exercised, the common shares and
the atypical shares will be released from escrow and returned to iQ Canada
and the atypical shareholders, respectively.
14 Commitments and Contingencies
The Company is not currently involved in any legal proceedings in the
ordinary course of business.
15 Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." The
21
<PAGE>
IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(Balance Sheets as of December 31, 1998 and 1997 and the Related Statements of
Operations and Cash Flows for Each of the Years in the Three Year Period ended
December 31, 1998)
(DM in Thousands)
15 Accounting for Derivative Instruments and Hedging Activities (Continued)
Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain 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 its financial position or
results of operations.
22
<PAGE>
Selected Unaudited Pro forma
Consolidated Financial Information
The selected unaudited pro forma consolidated financial information for the
Company set forth below gives effect to the acquisition of the shares of IQ
Power Technology Inc. (IQ Canada) and IQ Battery Research and Development GmbH
(IQ Germany). The historical financial information set forth below has been
derived from, and is qualified by reference to, the financial statements of the
Company and IQ Germany and should be read in conjunction with those financial
statements and the notes thereto included elsewhere herein.
The December 31, 1998 pro forma balance sheet has been prepared as if the
transactions described in Notes 1 and 2 had occurred on December 31, 1998, and
represents the consolidation of the December 31, 1998 balance sheet of IQ
Germany with the December 31, 1998 balance sheet of the Company.
The pro forma statements of net loss for the years ended December 31, 1998 and
1997 have been prepared as if the transactions described in Notes 1 and 2 had
occurred at the commencement of the relevant period. They represent the
consolidation of the IQ Germany statements of loss for the years ended December
31, 1998 and 1997 with the statement of loss of the Company for the years
December 31, 1998 and 1997.
The pro forma consolidated financial statements are not intended to reflect the
results of operations or the financial position of the Company which would have
actually resulted had the proposed transactions described in Notes 1 and 2 been
effected on the dates indicated. Further, the pro forma financial information is
not necessarily indicative of the results of operations or the financial
position that may be obtained in the future.
23
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Unaudited Pro Forma Consolidated Balance Sheet
As at December 31, 1998
(Expressed in Thousands of United States Dollars)
- --------------------------------------------------------------------------------
<TABLE>
Proforma
after
business Minimum Proforma
IQCanada IQGermany Acquisition combination Offering Consolidated
------------ ------------ ------------ ------------ ------------ -------------
(Note1) (Note2)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT
Cash $ 238 $ 13 $ - $ 251 $ 3,000 $ 2,691
(560)
Accounts receivable 11 - - 11 - 11
Receivable from shareholders - 50 - 50 - 50
Other - 122 - 122 - 122
Advances to IQ Germany 863 - (863) - - -
- --------------------------------------------------------------------------------------------------------------------
1,112 185 (863) 434 2,440 2,874
INVESTMENT 3,200 - (3,200) - - -
EQUIPMENT, net - 68 - 68 - 68
- --------------------------------------------------------------------------------------------------------------------
$ 4,312 $ 253 $ (4,063) $ 502 $ 2,440 $ 2,942
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable $ 187 $ 542 $ - $ 729 $ - $ 729
Accrued liabilities 23 173 - 196 - 196
Share subscriptions - - - - - -
Current portion of bank debt - 126 - 126 126
Due to shareholders - 79 - 79 79
Loans from iQ Germany 99 - - 99 99
Advances from IQ Canada - 894 (894) - -
- --------------------------------------------------------------------------------------------------------------------
309 1,814 (894) 1,229 - 1,229
BANK DEBT - 4 - 4 - 4
NON-CURRENT
LIABILITIES DUE TO SHAREHOLDERS - 58 - 58 - 58
- --------------------------------------------------------------------------------------------------------------------
309 1,876 (894) 1,291 - 1,291
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock 4,620 62 (3,817) 865 3,000 3,865
Cumulative foreign exchange - (2) 31 29 - 29
adjustment
Deficit (617) (1,683) 617 (1,683) (560) (2,243)
- --------------------------------------------------------------------------------------------------------------------
4,003 (1,623) (3,169) (789) 2,440 1,651
- --------------------------------------------------------------------------------------------------------------------
$ 4,312 $ 253 $ (4,063) $ 502 $ 2,440 $ 2,942
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Unaudited Pro Forma Statement of Loss
December 31, 1998
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
<TABLE>
Business Combination
of iQ Germany
------------------------------
December 31 Proforma
IQCanada 1998 Adjustment Consolidated
-------------- -------------- -------------- --------------
(Note 1)
<S> <C> <C> <C>
OPERATING EXPENSES
Research and development expenses $ - $ 931 $ 931
General administrative and other expenses 471 119 590
- ------------------------------------------------------------------------------------------------------------------
(471) (1,050) (1,521)
INTEREST INCOME - 7 7
INTEREST AND OTHER
FINANCE EXPENSE - (48) (48)
- ------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (471) $ (1,091) (1,562)
- ------------------------------------------------------------------------------------------------------------------
Loss per share $ (0.09)
- ------------------------------------------------------------------------------------------------------------------
Weighted average
common shares
outstanding 5,465,690 15,086,461
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Unaudited Pro Forma Statement of Loss
December 31, 1997
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
<TABLE>
Acquisition of IQ Germany
---------------------------------
December 31 Adjustments Proforma
IQ Canada 1997 Acquisition Consolidated
---------------- ---------------- ---------------- ----------------
(Note2)
<S> <C> <C> <C>
REVENUE $ - $ 26 $ 26
- ------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Research and development expenses - 486 486
General administrative 135 94 229
- ------------------------------------------------------------------------------------------------------------------------
(135) (580) (715)
INTEREST AND OTHER
FINANCE EXPENSE - (44) (44)
- ------------------------------------------------------------------------------------------------------------------------
(135) (624) (759)
- ------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (135) $ (598) $ (733)
- ------------------------------------------------------------------------------------------------------------------------
Loss per share $ (0.14) $ (0.05)
- ------------------------------------------------------------------------------------------------------------------------
Weighted average
common shares
outstanding 950,294 13,750,294
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
Notes to the Unaudited Pro Forma Consolidated
Financial Information
- --------------------------------------------------------------------------------
1. BUSINESS COMBINATION
During the year ended December 31, 1998, the Company issued 12,800,000 common
shares at a deemed value of $3,200,000 to acquire 100% of the issued and
outstanding shares of iQ Germany.
The acquisition has been accounted for using the purchase method. The acquiror
in the business combination has been identified as IQ Germany, as it is the
shareholders of IQ Germany who, as a group, has the ability to control the
combined enterprise. The shares of the Company's common stock that were issued
have been recorded at a fair value of $803,000 based on the fair market value of
the Company's net assets acquired.
Intercompany advances have been eliminated.
The effect of the business combination on the unaudited pro forma consolidated
balance sheet at December 31, 1998 is summarized below:
<TABLE>
<S> <C>
Purchase price
Common stock held by IQ Power Technology Inc. shareholders $ 803
- -------------------------------------------------------------------------------------------------
Allocation of purchase price
Current assets $ 1,112
Current liabilities 309
- -------------------------------------------------------------------------------------------------
$ 803
- -------------------------------------------------------------------------------------------------
Elimination of IQ Power Technology Inc.
Capital stock $ 3,817
Deficit (617)
Investment in IQ Germany (3,200)
Advances to IQ Germany (863)
Advances to IQ Canada 894
Cumulative foreign exchange adjustment (31)
</TABLE>
The effect of the business combination on the unaudited pro forma consolidated
statement of loss is summarized below:
Historical results of iQ Germany are summarized as follows:
Year ended
December 31
1998
---------------
Revenue $ -
Operating expenses (1,050)
Interest income 7
Interest expense (48)
- --------------------------------------------------------------------------------
$ (1,091)
- --------------------------------------------------------------------------------
27
<PAGE>
Notes to the Unaudited Pro Forma Consolidated
Financial Information
- --------------------------------------------------------------------------------
2. MINIMUM OFFERING OF SHARES OF COMMON STOCK
The pro forma balance sheet reflects the public offering of 3,000,000 shares of
common stock for net proceeds, estimated at a minimum of $2,440,000. The
offering agreement entered into with IPO Capital Corp. contemplates the issuance
of a minimum of 3,000,000 common shares and a maximum of 5,500,000 shares. The
pro forma balance sheet reflects completion of the minimum offering (see Note 5
for the effect of completing the maximum offering).
The pro forma financial statements reflect the following adjustments related to
the public offering and related transactions:
<TABLE>
<S> <C>
Balance Sheet
Cash
Gross proceeds from offering $ 3,000
10% Agents' financing fee (300)
Expenses of offering (260)
- -----------------------------------------------------------------------------------------------
Increase in cash $ 2,440
- -----------------------------------------------------------------------------------------------
Increase in stockholders' equity
Share capital $ 3,000
Deficit (560)
- -----------------------------------------------------------------------------------------------
Increase in stockholders' equity $ 2,440
- -----------------------------------------------------------------------------------------------
</TABLE>
3. CAPITAL STOCK
Capital stock subsequent to the reverse takeover and the pro forma effect of
share issuances can be summarized as follows:
<TABLE>
Number Amount
---------------- --------------
<S> <C> <C>
Share capital of IQ Germany 100 $ 62
Effect of reverse takeover 9,999,900 -
Issued to acquire IQ Canada 3,279,225 803
- -----------------------------------------------------------------------------------------------------
13,279,225 865
Exchange of shares for Atypical shares 2,800,000 -
- -----------------------------------------------------------------------------------------------------
16,079,225 865
Minimum public offering 3,000,000 3,000
- -----------------------------------------------------------------------------------------------------
19,079,225 $ 3,865
- -----------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
Notes to the Unaudited Pro Forma Consolidated
Financial Information
- --------------------------------------------------------------------------------
4. SUPPLEMENTARY INFORMATION
As disclosed in Note 1, the Company has entered into an offering agreement
providing for the issuance of a minimum of 3,000,000 common shares or a maximum
of 5,500,000 common shares. The following analysis provides the effect on the
pro forma balance sheet (prepared based on the minimum offering) of the
completion of the maximum offering:
<TABLE>
Proforma Maximum Adjusted
Balance sheet offering Balance Sheet
---------------- --------------- ----------------
<S> <C> <C> <C>
Assets
Cash $ 2,691 $ 2,250 $ 4,941
Other current assets 183 - 183
Equipment (net) 68 - 68
- ----------------------------------------------------------------------------------------------------
$ 2,942 $ 2,250 $ 5,192
- ----------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities $ 1,229 $ - $ 1,229
Non-current liabilities 62 - 62
Capital stock 3,865 2,500 6,365
Cumulative foreign exchange adjustment 29 - 29
Deficit (2,243) (250) (2,493)
- ----------------------------------------------------------------------------------------------------
$ 2,942 $ 2,250 $ 5,192
- ----------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, iQ Power Technology Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
July 30, 1999.
IQ POWER TECHNOLOGY INC.
By: /s/ Peter E. Braun
-----------------------------------
Peter E. Braun, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
to be signed by the following persons on behalf of iQ Power Technology Inc. in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ Peter E. Braun President, Chief Executive Officer
- ------------------------------------ and Director
Peter E. Braun (principal executive officer) July 30, 1999
/s/ Gerhard K. Trenz Vice-President, Finance
- ------------------------------------ (chief accounting officer) July 30, 1999
Gerhard K. Trenz
/s/ Dr. Gunther C. Bauer Vice-President, Research and
- ------------------------------------ Development and Director July 30, 1999
Dr. Gunther C. Bauer
/s/ Russ French
- ------------------------------------ Director July 30, 1999
Russell French
- ------------------------------------ Director July __, 1999
Hans Ambos
/s/ Gregory A. Sasges
- ------------------------------------ Secretary and Director July 30, 1999
Gregory A. Sasges
</TABLE>
