As filed with the Securities and Exchange Commission on March 18, 1998.
File No. 333-68649
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM SB-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
iQ POWER TECHNOLOGY INC.
(Name of small business issuer in its charter)
3690
Canada (Primary Standard Not Applicable
(State or jurisdiction of Industrial Classification (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
Suite 708-A, 1111 West Hastings Street
Vancouver, British Columbia V6E 2J3
(604) 669-3132
(Address and telephone number of principal executive offices)
Erlenhof Park
Inselkammer Strasse 4
D-82008 Unterhaching, Germany
(Address of principal place of business or intended principal place of business)
Evergreen Corporate Services, Inc.
31635 36th Avenue S.W.
Federal Way, Washington 98023-2105
(253) 838-4427
(Name, address and telephone number of agent for service)
---------------------
Copies to:
Greg A. Sasges, Esq. Randal R. Jones, Esq.
Kjeld Werbes, Esq. Matthew D. Latimer, Esq.
Werbes Sasges & Company Bogle & Gates P.L.L.C.
1111 West Hastings Street Two Union Square
Suite 708 601 Union Street
Vancouver, British Columbia Seattle, Washington 98101-2346
Canada V6E 2J3
---------------------
Approximate date of proposed sale to the public: As soon as practicable after
Registration Statement becomes effective.
---------------------
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
[ ] ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
[ ] ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
[ ] ----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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<TABLE>
CALCULATION OF REGISTRATION FEE
==================================================================================================================
Proposed Proposed Amount of
Title of each class of securities Amount to be maximum offering maximum aggregate registration
to be registered registered price per share (1) offering price (1) fee
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shares, without par value 5,500,000 shares US$1.00 US$5,500,000 US$1,529
==================================================================================================================
</TABLE>
(1) Pursuant to Rule 457(a), the proposed maximum offering price per share and
the proposed maximum aggregate offering price are estimated solely for the
purpose of calculating the registration fee.
-----------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
-----------
Disclosure alternative used (check one): Alternative 1 [ ] Alternative 2 [X]
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION DATED MARCH 18, 1998
iQ POWER TECHNOLOGY INC.
COMMON SHARES
5,500,000 shares (maximum offering amount)
3,000,000 shares (minimum offering amount)
We are offering and selling all of the shares listed above for US$1.00 per
share. The minimum subscription per investor is 25,000 shares or US$25,000. The
offering will terminate on April 10, 1999 or a later date if we and IPO Capital
Corp. agree. Prior to this offering, the shares have not been traded publicly.
IPO Capital Corp. is acting as our selling agent outside the United States, and
sales agents selected by IPO may act as our sales agents in the United States in
connection with this offering. IPO and the sales agents are offering the shares
on a "best efforts" basis, which means that they are obligated only to offer and
sell the shares on our behalf and are not required to purchase any of the
shares. The proceeds of this offering will be held in escrow by IPO subject to
the conditions described elsewhere in this Prospectus.
-----------------------
The shares we are offering involve a high degree of risk. See "Risk Factors" at
page 2.
-----------------------
This Prospectus is not complete and may be amended. Until the registration
statement we have filed with the SEC becomes effective, we cannot sell or accept
any offers to buy the shares. No one has been given authority to give any
information or to make any representation that is not in this Prospectus. You
should not assume that the information in this Prospectus is accurate as of any
date other than the date of this Prospectus.
<TABLE>
Price Commissions Proceeds to iQ Power
----- ----------- --------------------
<S> <C> <C> <C>
Per share..................... US$1.00 US$0.10 US$0.90
Total Minimum................. US$3,000,000 US$300,000 US$2,700,000
Total Maximum................. US$5,500,000 US$550,000 US$4,950,000
</TABLE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
-----------------------
The date of this Prospectus is _____________, 1999
-----------------------
IPO CAPITAL CORP.
<PAGE>
Until __________, 1999 all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
SUMMARY...........................................................................................................1
RISK FACTORS......................................................................................................2
We Are An Early Stage Company................................................................................2
We Have A History Of Losses..................................................................................2
Our Future Profitability is Uncertain........................................................................2
We May Need Additional Financing.............................................................................2
We Face Competition From More Established Companies..........................................................3
We May Not Be Able To Commercialize Our Technology...........................................................3
Our Revenues Depend On Single Product........................................................................3
Successful Development Of New Products Is Uncertain..........................................................4
Market Demand For Our Products Is Uncertain..................................................................4
We Have Only A Limited Amount Of Customers...................................................................4
We Rely On Strategic Relationships...........................................................................4
We Have No Manufacturing, Marketing Or Distribution Experience...............................................5
We Depend On Key Personnel And Must Continue To Attract Key Personnel........................................5
Our Success Depends On Protecting iQ Germany's Intellectual Property Rights..................................5
We May Face Challenges From Third Parties Regarding The Validity Of iQ Germany's
Intellectual Property Rights...............................................................................5
We Are Subject To Risks Associated With International Operations.............................................6
We Are Subject To Currency Risk..............................................................................6
Directors, Executive Officers, Principal Shareholders and Affiliated Entities Own
a Significant Percentage of the Shares.....................................................................6
OUR COMPANY.......................................................................................................8
EXCHANGE RATES....................................................................................................9
ENFORCEABILITY OF CIVIL LIABILITIES...............................................................................9
CAPITALIZATION...................................................................................................10
DILUTION.........................................................................................................11
Dilution To New Investors If The Maximum Offering Amount Is Sold............................................11
Dilution To New Investors If The Minimum Offering Amount Is Sold............................................11
PLAN OF DISTRIBUTION.............................................................................................13
USE OF PROCEEDS..................................................................................................14
BUSINESS.........................................................................................................15
Overview....................................................................................................15
Industry Background.........................................................................................15
How the iQ technology Works.................................................................................17
Performance Specifications and Test Results.................................................................18
Our Strategy................................................................................................20
Industry Relationships......................................................................................21
Research and Development....................................................................................22
Competition.................................................................................................22
Intellectual Property Rights................................................................................23
Plan of Operation...........................................................................................23
Employees...................................................................................................24
Facilities..................................................................................................24
Legal Proceedings...........................................................................................24
SELECTED FINANCIAL DATA..........................................................................................25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.............................26
Overview....................................................................................................26
Acquisition of iQ Germany...................................................................................27
Our Results of Operations...................................................................................27
-i-
<PAGE>
iQ Germany's Results of Operations..........................................................................27
Liquidity and Capital Resources.............................................................................28
Year 2000 Issue.............................................................................................28
Foreign Currency Translation Risk...........................................................................29
Recent Accounting Pronouncements............................................................................29
DIRECTORS AND EXECUTIVE OFFICERS.................................................................................30
Directors and Executive Officers............................................................................30
COMPENSATION OF DIRECTORS AND OFFICERS...........................................................................32
Director Compensation.......................................................................................32
Options to Purchase Securities..............................................................................32
Employment Agreements.......................................................................................33
1998 Stock Option Plan......................................................................................33
Indebtedness Of Directors And Senior Officers...............................................................33
PRINCIPAL SHAREHOLDERS...........................................................................................34
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS.......................................................35
DESCRIPTION OF CAPITAL STOCK.....................................................................................37
Common Shares...............................................................................................37
Special Warrants............................................................................................37
Certain Rights of Shareholders..............................................................................37
Exchange Controls and Other Limitations Affecting Holders of Common Shares..................................37
Pooling and Escrow Agreements...............................................................................38
Transfer Agent and Registrar................................................................................39
DIVIDEND POLICY..................................................................................................39
CERTAIN TAX CONSIDERATIONS.......................................................................................39
United States Federal Income Tax Considerations.............................................................40
Certain Canadian Federal Income Tax Considerations..........................................................44
SECURITIES ELIGIBLE FOR FUTURE SALE..............................................................................45
AVAILABLE INFORMATION............................................................................................46
LEGAL MATTERS....................................................................................................47
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS................................................................47
NARRATIVE INFORMATION REQUIRED IN PROSPECTUS.....................................................................47
Item 2. Significant Parties................................................................................47
Item 3. Relationship with Issuer of Experts Named in Prospectus............................................49
Item 4. Legal Proceedings..................................................................................49
Item 5. Changes in and Disagreements with Accountants......................................................49
Item 6. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................49
INTRODUCTION TO FINANCIAL STATEMENTS.............................................................................50
</TABLE>
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<PAGE>
SUMMARY
This is a summary of information about the offering. This is a summary only, and
you should read the more detailed information contained in this Prospectus,
including the information under the heading "Risk Factors." We urge you to read
this entire Prospectus.
THE COMPANY: iQ Power Technology Inc. was founded in December 1994. The
address of our principal executive office is Suite 708-A,
1111 West Hastings Street, Vancouver, British Columbia V6E
2J3, and our phone number is (604) 669-3132.
PRINCIPAL BUSINESS: We, through our wholly-owned subsidiary, iQ Battery Research
and Development GmbH, develop and market technology related
to starting, lighting and ignition batteries. Throughout
this Prospectus, we refer to iQ Battery Research and
Development GmbH as "iQ Germany."
TERMS OF THE
OFFERING: We are offering a maximum of 5,500,000 shares and a minimum
of 3,000,000 shares at US$1.00 per share. The minimum
subscription per investor is 25,000 shares or US$25,000, but
we may, at our option, accept a lesser amount. IPO will hold
the proceeds of the offering in escrow until:
o we have received subscriptions for the minimum number of
shares; and
o our registration statement on Form 8-A under the
Securities Exchange Act of 1934 has been declared
effective by the SEC.
At that time we will issue the shares to you.
USE OF PROCEEDS: After we pay commissions and offering expenses of
approximately US$260,000, we will receive approximately
US$4,690,000 in net proceeds from the offering if we sell
5,500,000 shares and approximately US$2,440,000 in net
proceeds if we sell 3,000,000 shares.
We expect to use the net proceeds for research and
development of our battery technologies, expansion of our
marketing and sales organization and for general working
capital. We may also use some of the net proceeds to acquire
or invest in businesses, products or technologies that
enhance our existing business.
-1-
<PAGE>
RISK FACTORS
An investment in the shares is very risky. In addition to the other information
in this Prospectus, you should consider the following factors carefully as you
evaluate whether or not to invest in the shares. This Prospectus contains
forward-looking statements that involve risks and uncertainties. Many factors,
including those described below, may cause actual results to differ materially
from anticipated results.
We Are An Early Stage Company
We and iQ Germany both have limited operating histories and have not licensed
any technologies or sold any products based on the iQ technology. iQ Germany is
still developing the iQ technology for commercial use and has not produced any
commercial products based on it. To date, iQ Germany has concentrated on:
o strategic planning;
o developing the iQ technology;
o developing and testing product prototypes;
o developing strategic relationships with automakers and third party
manufacturers of batteries; and
o conducting market research.
We have focused mainly on raising financing to acquire iQ Germany. Neither we
nor iQ Germany have received any material revenues from operations, and we
cannot assure you that we will ever receive any revenues from operations, or be
commercially profitable.
We Have A History Of Losses
We have not generated any revenues from operations and have incurred losses
since our inception. iQ Germany has also incurred losses since inception. We
expect to incur additional operating losses until at least the year 2000 as a
result of increases in our research and development and marketing costs.
Our Future Profitability is Uncertain
We may never have enough revenues from licensing the iQ technology or selling
products to make a profit. We and iQ Germany do not anticipate having any
material revenues from operations until at least the year 2000. Our ability to
generate revenues and to make a profit in the future will depend upon a number
of factors, including our ability to develop the iQ technology for commercial
use in a timely manner, and our ability to license the iQ technology
successfully. If we decide to sell batteries directly, our ability to generate
revenues and to make a profit will depend on our ability to enter into contracts
with third party manufacturers to manufacture batteries based on the iQ
technology, our ability to develop a marketing and distribution network to sell
our products and our customers' acceptance of our products. We cannot guarantee
that it will be able to successfully license the iQ technology to other
companies or that it will be successful in marketing and distributing products
based on the iQ technology.
We May Need Additional Financing
We anticipate that the net proceeds we receive from this offering will satisfy
our cash needs for about twelve months after this offering. After that, our cash
requirements will depend on several things, including the success and progress
of our product development programs, the resources we devote to developing our
products, the extent to which products based on the iQ technology achieve market
acceptance and other factors. We expect to devote substantial capital resources
for research and development. Consequently, in order to fund research and
development, we may be required to raise additional funds by issuing additional
securities. We may also require more money if we experience delays, cost
overruns, additional funding needs for joint ventures or other unanticipated
events. We cannot assure you that we will be able to obtain more financing or
that, if we do, it will be on favorable terms or on a timely basis. If we fail
to get the necessary financing on a timely basis, it might delay and increase
the costs of development and commercialization of the iQ technology, cause us to
default on some of our financial commitments, prevent us from being able to
commercialize the iQ technology and force us to discontinue our operations or to
look for a purchaser for the iQ technology or our business. If we issue
additional equity securities, it could cause substantial reduction in the value
of shares held by existing shareholders.
-2-
<PAGE>
We Face Competition From More Established Companies
The lead-acid battery industry is highly competitive and includes many firms
with greater financial, technological, manufacturing, marketing and other
resources than us. Our competitors range from early stage companies to major
North American and international companies. Many of our competitors also have
longer operating histories than we do and have devoted substantial resources to
research and development, manufacturing, marketing and commercializing products.
We expect competition in the battery industry to intensify because many battery
companies are consolidating or vertically integrating which, because they own
all stages of production, allows them to make batteries at lower cost. Many of
our competitors' products and technologies are widely accepted by retail
consumers and other buyers of batteries and have long histories of reliable and
effective use. Some competitors also have established reputations and
long-standing relationships with original equipment manufacturers that may give
them a large competitive advantage over us and could hinder our entry into the
marketplace. In recent years, buyers of lead-acid batteries have also
consolidated, reducing the number of customers for lead-acid batteries and
increasing price competition.
North America. The United States and Canadian market for starting, lighting, and
ignition and specialty batteries is mature and highly competitive. Battery
manufacturers compete primarily on the basis of price, quality, service,
warranty period and timeliness of delivery. Generally, manufacturers make sales
without long-term contracts. Because the industry has had excess capacity,
competition and increased pressure for cost reduction has resulted in declining
prices in the last several years. Johnson Controls, Inc., Delco Remy (a division
of General Motors Corporation), Exide Corporation and GNB Incorporated are our
primary domestic competitors in North America. Although the U.S. market is
currently dominated by domestic manufacturers, foreign competition could
increase depending on changes in relative prices, duties, tariffs, freight
costs, currency exchange rates or changes in technology.
Europe. The SLI battery market in Europe is also highly competitive. Competition
in this market has intensified because of reduced demand. European manufacturers
compete primarily on the same bases as manufacturers in the United States. The
excess production capacity in the industry, competition and increased pressure
for cost reduction from large customers has caused prices to decline. Currency
fluctuations among the European countries can also have considerable effects on
the amount of revenues generated in the market. Among our competitors in Europe
are VB Autobatterie GmbH, Hawker Batteries, Fiamm, Delco Remy, Exide
Corporation, Autosil, Hoppecke, Yuasa and Matsushita.
We May Not Be Able To Commercialize Our Technology
Neither we nor iQ Germany have manufactured prototypes of batteries based on the
iQ technology in commercial quantities or developed a commercial manufacturing
process. The iQ technology uses an insulated double-walled case, an internal
microprocessor and a battery acid anti-stratification device to increase the
charging, storage and power delivery capabilities of a conventional lead acid
battery. Our design requires us to integrate the iQ technology with existing
lead-acid battery technology. We cannot guarantee that the iQ technology can be
successfully integrated into lead-acid batteries on a commercial basis. In
addition, we may not be successful in developing a manufacturing process that
will permit us to commercialize our battery. Although we believe that the iQ
technology can be integrated into lead-acid batteries on a commercial basis, and
that a commercially feasible manufacturing process can be developed, we cannot
assure you that we will be successful.
Our Revenues Depend On Single Product
We anticipate that all of our revenues will initially come from fees derived
from licensing the iQ technology or, possibly, from the sale of our own
batteries that incorporate the iQ technology. We cannot guarantee that we will
receive any revenues from the licensing of the iQ technology or from the sale of
batteries incorporating the iQ technology or that we can generate a profit. If
we receive any revenues, the revenues may decrease after an initial period of
market introduction due to factors such as:
o competition;
o changes in consumer preferences;
o changes in customer specifications, market saturation;
o changes in demand from OEMs;
-3-
<PAGE>
o changes in demand for automobiles;
o changes in economic conditions;
or other factors, many of which are beyond our control. Any decline in the
demand for batteries could materially, adversely affect us.
Successful Development Of New Products Is Uncertain
The process of creating, developing, researching and commercializing battery and
power technologies is risky. We believe our growth will depend upon our ability
to develop and commercialize the iQ technology and to introduce new products and
technologies that are attractive to consumers, OEMs, automobile manufacturers,
automobile service providers and retailers of automotive batteries. We may
experience delays in the development process, and we cannot assure you that we
will successfully complete the development or introduction of any new
technologies or products, or that such technologies or products will achieve
market acceptance.
Market Demand For Our Products Is Uncertain
There are currently no lead-acid batteries that use technology that is similar
to the iQ technology. As a result, the potential demand for batteries that use
the iQ technology and the degree to which the iQ technology can meet market
demand is difficult to estimate. We cannot guarantee that there will be enough
demand for the iQ technology or for batteries that incorporate the iQ technology
to generate enough revenues so that we will make a profit. Our success in
gaining market acceptance for the iQ technology will be affected by a number of
factors that are beyond our control, such as:
o the license fees for the iQ technology;
o the willingness of consumers to pay a premium price for batteries
incorporating the iQ technology;
o specifications of automobile manufacturers;
o the marketing and pricing strategies of competitors;
o the development of alternative technologies; and
o general economic conditions.
We Have Only A Limited Amount Of Customers
We anticipate that a large portion of our revenues will come from license fees
from a limited number of key customers that may include automobile
manufacturers, aftermarket resellers and OEMs. We have not yet entered into any
licensing agreements for the iQ technology. To the extent we depend upon these
key customers for a large percentage of our revenues, the loss of one or more of
them or a significant reduction in licensing fees from them could have a
material adverse effect on us.
We Rely On Strategic Relationships
Our future success is dependent on the development and maintenance of strategic
relationships. We may rely upon strategic partners:
o to assist us in the research and development of the iQ technology and
future technologies;
o to participate in the later stage development and testing of
commercial prototypes;
o to manufacture products based on the iQ technology; and
o to market and distribute such products.
We intend to license the iQ technology to strategic partners for up-front
licensing fees, royalties or previously agreed upon transfer prices on the sale
of batteries that use our technology. Alternatively, we may enter into a
strategic relationship with a third party manufacturer to manufacture a line of
batteries under our brand name and to distribute and market batteries to the
automotive manufacturing industry and aftermarket resellers. If our strategic
partners or third parties fail to perform effectively, we may not generate any
revenues or a profit. There is no guarantee that any relationship will continue
or result in any successful developments or profits to us.
-4-
<PAGE>
We Have No Manufacturing, Marketing Or Distribution Experience
We have no experience in manufacturing battery technology or products. If we
decide to manufacture and market our own product line, we will likely contract
with a third-party manufacturer to manufacture, assemble, test and package our
products to our specifications. We cannot assure you that we will be able to
enter into such contracts on terms that are acceptable to us. In addition,
third-party manufacturers are required to meet governmental and regulatory
requirements including environmental and consumer safety requirements. If the
third-party manufacturer we select should fail to comply with the regulatory
requirements or be unable to meet our quantity and quality requirements, we will
have to select another manufacturer, which may result in delays in delivering
products to distributors or other purchasers.
We have no sales, marketing or distribution experience. We may have to rely on
experienced employees, strategic partners, distributors and third-party
manufacturer's representatives to market our products. We cannot guarantee that
such efforts will lead to a successful and effective sales force and
distribution system. To the extent that we depend on our strategic partners or
third parties for marketing and distribution, any revenues received by us will
depend upon their efforts. If we are unable to maintain or establish third-party
distribution relationships, we may have to develop our own marketing and sales
force with technical expertise and supporting distribution capabilities.
We Depend On Key Personnel And Must Continue To Attract Key Personnel
Our performance and future operating results substantially depend on the
continued service and performance of our Company's senior management and key
technical personnel. Our President, Peter Braun, and our Vice-President of
Research and Development, Gunther Bauer, are significantly involved in
developing the iQ technology. In addition, we intend to hire a significant
number of additional technical and sales personnel in the next year. Competition
for qualified personnel is intense, and we cannot be sure we will retain our key
technical, sales and managerial employees, or that we will be able to attract or
retain highly-qualified technical and managerial personnel in the future. If we
lose the services of any of our senior management or other key employees, or if
we are unable to attract and retain necessary sales, technical and managerial
personnel, it could have a material adverse effect on us. We do not currently
have key man life insurance on any of our directors or executive officers.
Our Success Depends On Protecting iQ Germany's Intellectual Property Rights
Our success depends upon iQ Germany's ability to protect its intellectual
property rights. iQ Germany relies principally upon a combination of copyright,
trademark, trade secret and patent laws, non-disclosure agreements and other
contractual provisions to establish and maintain its rights. Specifically, iQ
Germany holds two United States patents related to its technology, both of which
will expire in the year 2014. iQ Germany has also applied for patents to the iQ
technology in Germany and the European Union. iQ Germany's policy is to enter
into nondisclosure and confidentiality agreements with each of its consultants,
distributors, customers and corporate partners to limit access to and
distribution of the iQ technology, documentation and other proprietary
information. In particular, iQ Germany has entered into non-disclosure
agreements with each of its employees and strategic partners. The terms of the
employee non-disclosure agreements also include provisions requiring assignment
to iQ Germany of any employee inventions. We cannot guarantee that iQ Germany's
efforts to protect its intellectual property rights will be successful.
We May Face Challenges From Third Parties Regarding The Validity Of iQ Germany's
Intellectual Property Rights
Although we believe that the iQ technology does not infringe upon the
intellectual property rights of third parties, we cannot be sure that third
parties will not bring infringement claims (or claims for indemnification
resulting from infringement claims) against us or iQ Germany with respect to
copyrights, trademarks, patents and other proprietary rights. Any such claims,
whether with or without merit, could:
o be time consuming;
o result in costly litigation and diversion of resources;
o cause product shipment delays; or
o require us or iQ Germany to enter into royalty or licensing
agreements.
-5-
<PAGE>
Such royalty or licensing agreements, if required, may not be available or may
not have terms acceptable to us. A product infringement claim against us or iQ
Germany or iQ Germany's failure or inability to license the infringed or similar
technology, could have a material impact on our business.
We Are Subject To Risks Associated With International Operations
iQ Germany's operations are subject to the risks usually associated with foreign
operations, including the disruption of markets, changes in export or import
laws, restrictions on currency exchanges, and the modification or introduction
of other governmental policies with potential adverse effects. In addition, we
may expand into other countries through joint ventures with local partners who
may have economic, business or legal interests or goals which are inconsistent
with those of the joint venture or us, or who may be unable to meet their
financial or other obligations to the joint venture. We cannot guarantee that we
will be able to effectively protect our economic, business or legal interest
with such joint venture partners.
We Are Subject To Currency Risk
Because we, through iQ Germany, conduct business overseas, we anticipate that a
substantial portion of our future revenues and expenses may be denominated in
currencies other than U.S. dollars. Changes in exchange rates will therefore
have an effect on our results of operations. We currently do not hedge foreign
exchange risks, but may do so in the future. We cannot be sure that this can be
accomplished on satisfactory terms. If we do not take steps to effectively
reduce the changes in the relative value of the U.S. dollar and these foreign
currencies, our financial results could be adversely affected.
Directors, Executive Officers, Principal Shareholders and Affiliated Entities
Own a Significant Percentage of the Shares
After completion of this offering, our directors, executive officers, principal
shareholders and affiliated entities will beneficially own, in the aggregate,
approximately 46.9% of our outstanding common shares, assuming the minimum
amount is sold in this offering. These shareholders, if acting together, will be
able to significantly influence all matters requiring approval by our
shareholders. Such matters include the election of directors and the approval of
mergers or other business combination transactions. In particular, certain
former shareholders of iQ Germany have entered into a Shareholders Agreement
under which they have agreed to act jointly when voting their shares. We may be
adversely affected by the control that these shareholders will have with respect
to matters affecting us.
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<PAGE>
<TABLE>
SUMMARY FINANCIAL DATA
Fiscal
Nine Months Ended Period
September 30, Years Ended December 31, Ended
-------------------------------------------------------------------
1998 1997 December
Statement of Operations Data: Pro Forma Pro Forma 31, 1996
(unaudited)(2) 1998 1997 (unaudited)(1) 1997 (seven months)
-------------- ---- ---- -------------- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................... $ -- $ -- $ -- $ 26,000 $ -- $ --
Operating Expenses..................... 917,000 241,428 57,023 759,000 135,236 10,504
Operating income (loss)............... (917,000) (241,428) (57,023) (733,000) (135,236) (10,504)
Net income (loss) for the period...... (917,000) (241,428) (57,023) (733,000) (135,236) (10,504)
Net income (loss) per share........... (0.06) (0.50) N/A (0.06) (0.14) N/A
Weighted average shares outstanding... 15,086,461 4,546,845 N/A 13,750,294 950,294 --
As at September 30, 1998
------------------------------------------------------------------------------
As Adjusted Proforma(5)
(unaudited) (unaudited)
--------------------------------------------------------------
Actual Minimum(3) Maximum(4) Minimum Maximum
------ ---------- ---------- ------- -------
Balance Sheet Data:
Cash and cash equivalents.......... $ 340,393 $ 2,989,000 $ 5,239,000 $ 3,092,000 $ 5,342,000
Working capital.................... 348,249 3,472,000 5,722,000 2,264,000 4,514,000
Total assets....................... 3,505,845 6,155,000 8,405,000 3,329,000 5,579,000
Non-current liabilities............ - - - 60,000 60,000
Shareholders' equity............... 2,848,249 5,397,000 7,647,000 1,681,000 3,931,000
- ------------------------------
</TABLE>
(1) Gives effect to the business combination with iQ Germany as if it had
occurred on January 1, 1997.
(2) Gives effect to the business combination with iQ Germany as if it had
occurred on January 1, 1998.
(3) Adjusted to give effect to the net proceeds from our sale of the minimum
(3,000,000) shares offered in the offering (at an assumed offering price of
US$1.00 per common share and after deducting the estimated agents' fees and
commissions and estimated offering expenses payable), and other capital
transactions.
(4) Adjusted to give effect to the net proceeds from our sale of the maximum
(5,500,000) shares offered in the offering (at an assumed offering price of
US$1.00 per common share and after deducting the estimated agents' fees and
commissions and estimated offering expenses payable), and other capital
transactions.
(5) Gives effect to the business combination with iQ Germany as if it had
occurred on September 30, 1998.
-7-
<PAGE>
OUR COMPANY
We were incorporated on December 20, 1994 under the Canada Business Corporations
Act as 3099458 Canada Inc. We changed our name to iQ Power Technology Inc. on
May 9, 1997. Our principal executive offices are located at Suite 708-A, 1111
West Hastings Street, Vancouver, British Columbia, Canada V6E 2J3, and our
telephone number at that location is (604) 669-3132.
iQ Germany was formed in 1991 to research and evaluate methods of maximizing
lead-acid battery performance. We were formed to acquire iQ Germany and to
license the technology developed by iQ Germany to others or to market products
based on such technology. Throughout this Prospectus we refer to the technology
developed by iQ Germany as the "iQ technology."
The Share Exchange. On August 25, 1998, we acquired all the issued and
outstanding common stock of iQ Germany in exchange for 10,000,000 of our common
shares. The total deemed purchase price of iQ Germany was US$2,500,000 or
US$0.25 per share. Under the terms of the Share Exchange Agreement, the former
holders of iQ Germany common stock, as a group, have a limited right to require
us to repurchase all, but not less than all, of the our shares they received.
They may exercise this right at and after April 10, 1999 if:
o we have failed to complete an equity offering with gross proceeds of at
least US$3 million; and
o such shareholders have repaid to us the full amount of all funds we have
advanced or invested in iQ Germany.
This right will terminate at the close of this offering.
We have also issued an additional 2,800,000 common shares into escrow against
the deposit into escrow of "atypical shares" of iQ Germany by all the holders of
such shares. Atypical shares are securities, the terms of which are defined by
contract, that include certain liquidation and other preferences. At the close
of this offering, our shares will be released from escrow to the former holders
of the atypical shares and the "atypical shares" will be released from escrow to
us. In the event the repurchase right described above is exercised, our shares
will be released from escrow and returned to us and the atypical shares will be
released from escrow and returned to the former holders of the atypical shares.
In connection with the share exchange, the former holders of iQ Germany's common
stock and atypical shares and certain of our shareholders have entered into two
pooling agreements under which they have agreed to escrow their common shares.
We understand that the former shareholders of iQ Germany have also entered into
a Shareholders Agreement under which they have agreed to act jointly when voting
their common shares. In addition, certain former shareholders of iQ Germany have
entered into employment, confidentiality and non-competition agreements with us.
We will account for the business combination under the purchase method of
accounting with iQ Germany being identified as the acquiror. This method of
accounting is called a reverse acquisition and results in the assets and
liabilities of our company being combined with those of iQ Germany at fair
values. Until all of the conditions have been satisfied to the closing of the
acquisition, our financial results and iQ Germany's financial results cannot be
reported on a consolidated basis. Accordingly, unless otherwise stated in this
Prospectus, the financial information presented is only our financial
information.
-8-
<PAGE>
EXCHANGE RATES
The historical financial statements of iQ Germany are in Deutschmarks (DM). Set
forth below are the relevant exchange rates for one Deutschmark, expressed in
U.S. dollars, based on the noon buying rate in New York City for cable transfers
payable in Deutschmarks as certified for customs purposes by the Federal Reserve
Bank of New York.
<TABLE>
U.S. Dollars Per Deutschmark
Nine Months
Ended
Year Ended December 31, September 30,
---------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
------------- ------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Period End.................... US$0.6020 US$0.6454 US$0.6971 US$0.6499 US$0.5558 US$0.5987
Average....................... 0.5749 0.6204 0.7012 0.6636 0.5749 0.5595
High.......................... 0.6380 0.6702 0.7372 0.6967 0.6488 0.5987
Low........................... 0.5745 0.5673 0.6405 0.6388 0.5316 0.5393
</TABLE>
On January 1, 1999, the European Economic Monetary Union adopted the new "Euro"
currency. As a result, the values of the participating currency units, including
the German Deutschmark, have been irrevocably fixed against the Euro. The
official fixed conversion rate for the translation of Deutschmarks to Euros is
DM0.5113 = 1 Euro. On March 15, 1999, the noon buying rate as adjusted by the
foregoing Euro conversion rate was DM1.00 = US$0.5589. The DM is convertible
into U.S. dollars at freely floating rates, and there are currently no
restrictions on the flow of German currency between Germany and the United
States.
ENFORCEABILITY OF CIVIL LIABILITIES
Your enforcement of civil liabilities under the federal securities laws of the
United States may be affected adversely by the fact that:
o we are incorporated or organized under the laws of Canada;
o that some or all of our directors and officers may be residents of
Canada;
o that some or all of the experts named in the registration statement
may be residents of Canada; and
o that all or a substantial portion of our assets and said persons are
located outside the United States.
As a result, it may be difficult for you to serve process within the United
States upon our directors and officers or experts named in the registration
statement who are not residents of the United States or to enforce, in the
United States, judgments of courts of the United States predicated upon the
civil liability provisions of the federal securities laws of the United States.
We has been advised by Werbes Sasges & Company, our Canadian counsel, that there
is doubt as to the ability of shareholders to subject us, our directors or
officers or experts named in the registration statement who are not residents of
the United States to liability predicated solely upon the civil liability
provisions of the federal securities laws of the United States in original
actions in Canadian courts or in actions in such courts for enforcement of
judgments of courts of the United States.
-9-
<PAGE>
CAPITALIZATION
The following table sets forth, at September 30, 1998, our capitalization and
our capitalization as adjusted to give effect to our issuance and sale of the
minimum amount (3,000,000) of shares offered in the offering, at an assumed
public offering price of US$1.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses. You should read this
table in conjunction with the Consolidated Financial Statements and the
accompanying Notes included in this Prospectus.
<TABLE>
September 30, 1998
----------------------------
As
Actual Adjusted(3)
-------------- -------------
(in thousands)
<S> <C> <C>
Long Term Bank Debt................................................................. - 4,000
Non-Current due to Shareholders..................................................... - 56,000
-------------- -------------
- 60,000
-------------- -------------
Shareholders' equity
Common Shares, without par value, unlimited number of shares authorized;
16,179,425 shares issued, actual;
19,179,425 shares issued(2), as adjusted....................................... $3,345,000 $3,591,000
Share subscriptions.............................................................. 24,000 -
Special Warrants, 2,300,000 issued and outstanding(1)............................ 575,000 575,000
Cumulative Foreign Exchange Adjustment........................................... - 58,000
Retained earnings (deficit)...................................................... (387,000) (1,896,000)
-------------- -------------
Total shareholders' equity..................................................... 3,557,000 2,328,000
-------------- -------------
Total capitalization................................................................ $3,557,000 $2,388,000
========== ==========
</TABLE>
- --------------------------------
(1) Each Special Warrant is exchangeable, without payment of additional
consideration, into one common share.
(2) Includes 12,800,000 shares issued to acquire the common and atypical shares
of iQ Germany.
(3) Determined on the basis that iQ Germany is the accounting parent.
-10-
<PAGE>
DILUTION
As of September 30, 1998, the pro forma net tangible book value of our common
shares was US$3,557,299, or US$0.23 per share. Pro forma net tangible book value
per share represents the amount of total tangible assets less total liabilities,
divided by the number of shares outstanding after giving effect to the issuance
of an additional 536,200 common shares issued after September 30, 1998 and to
the conversion of 2,300,000 Special Warrants outstanding as of March 15, 1999.
Dilution To New Investors If The Maximum Offering Amount Is Sold
After giving effect to our sale of the maximum number of shares offered in the
offering (5,500,000) at an assumed offering price of US$1.00 per share and after
deducting the commissions and estimated offering expenses payable by us, our pro
forma net tangible book value as of September 30, 1999 would have been
US$8,947,299, or US$0.37 per share. This represents an immediate increase in net
tangible book value of US$0.14 per share to existing shareholders and an
immediate dilution of US$0.63 per share to new investors purchasing the shares
in this offering. Dilution is determined by subtracting pro forma net tangible
book value per share after the offering from the amount of cash paid by a new
investor for a share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share ......................................... US$1.00
Pro forma net tangible book value (deficiency) per share as of
September 30, 1998...................................................... US$0.23
Increase per share attributable to the offering........................... US$0.14
----------
Pro forma net tangible book value per share after this offering........... US$0.37
Dilution per share to new investors....................................... US$0.63
==========
</TABLE>
The following table summarizes, on an as adjusted basis as of March 15, 1998,
the number of common shares purchased from us, the total consideration paid to
us and the average price per share paid by existing shareholders and by new
investors purchasing the maximum amount of shares offered in the offering based
at an assumed offering price of US$1.00 per share (before deducting discounts
and commissions and estimated offering expenses payable by us):
<TABLE>
Average
Shares Purchased Total Consideration Price
---------------------------------------------------------------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders, as adjusted basis... 18,479,425 77.0% US$4,619,856 45.7% US$0.25
New investors.............................. 5,500,000 23.0% US$5,500,000 54.3% US$1.00
========================================================
Total................................. 23,979,425 100% US$10,119,856 100%
========================================================
</TABLE>
Dilution To New Investors If The Minimum Offering Amount Is Sold
After giving effect to our sale of the minimum common shares offered in the
offering (3,000,000) at an assumed offering price of US$1.00 per share and after
deducting the commissions and estimated offering expenses payable by us, our pro
forma net tangible book value as of September 30, 1998 would have been
US$6,697,299, or US$0.31 per share. This represents an immediate increase in net
tangible book value of US$0.08 per share to existing shareholders and an
immediate dilution of US$0.69 per share to new investors purchasing shares in
this offering.
-11-
<PAGE>
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share ......................................... US$1.00
Pro forma net tangible book value (deficiency) per share as of
September 30, 1998...................................................... US$0.23
Increase per share attributable to the offering........................... US$0.08
----------
Pro forma net tangible book value per share after this offering........... US$0.31
Dilution per share to new investors....................................... US$0.69
==========
</TABLE>
The following table summarizes, on an as adjusted basis as of March 15, 1999,
the number of common shares purchased from us, the total consideration paid to
us and the average price per share paid by existing shareholders and by new
investors purchasing the minimum amount of shares offered in the offering based
on an assumed offering price of US$1.00 per share (before deducting discounts
and commissions and estimated offering expenses payable by us):
<TABLE>
Average
Shares Purchased Total Consideration Price
---------------------------------------------------------------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders, as adjusted basis... 18,479,425 86.0% US$4,619,856 60.6% US$0.25
New investors.............................. 3,000,000 14.0% US$3,000,000 39.4% US$1.00
========================================================
Total................................. 21,479,425 100% US$7,619,856 100%
========================================================
</TABLE>
The computations above include 2,300,000 common shares issuable upon the
exercise of outstanding Special Warrants and exclude, as of March 15, 1999, the
possible issuance of 2,875,000 common shares at an average exercise price of
$1.00 per share under outstanding stock options. To the extent such options are
exercised, there would be no dilution to new investors in the offering. In
addition, the above computations exclude an aggregate of 325,000 common shares
reserved for issuance upon exercise of options to be granted under our 1998
Stock Option Plan. To the extent such new stock options are granted and
exercised, there may be further dilution to new investors in the offering.
-12-
<PAGE>
PLAN OF DISTRIBUTION
Under the terms and subject to the conditions contained in the Agency Agreement,
IPO has agreed to use its "best efforts" to sell the shares, which means that
IPO is obligated only to offer and sell the shares on our behalf and is not
required to purchase any of the shares. IPO may engage other broker-dealers
registered with the NASD and in applicable jurisdictions and selected securities
dealers in Canada to participate in this offering and may pay a commission to
these dealers. IPO will not make any sales to discretionary accounts. We have
agreed to indemnify IPO against certain liabilities including liabilities under
the Securities Act, or to contribute to payments IPO may be required to make as
a result of any such liabilities.
The offering began on December 10, 1998 and will continue until April 10, 1999
or such later date as we and IPO agree. We may extend the offering if we are
unable to raise the minimum offering amount before April 10, 1999, or if we
determine that additional funds are necessary to meet our operating
requirements. If we do extend the offering, IPO will notify you of the
extension.
When collected, the subscription funds will be held by IPO in an
interest-bearing escrow account. We have the right to reject orders to purchase
shares in whole or in part if we determine that the offering is over-subscribed
or if accepting your subscription would violate applicable securities laws. If
we reject your subscription, IPO will return your money to you without interest
or deduction on the next business day after our rejection.
The offering will be terminated, no shares will be sold, and no subscription
proceeds will be released from escrow to us unless on or before the expiration
of the offering:
o we have accepted subscriptions and payment in full for the minimum
number of shares; and
o our registration statement on Form 8-A under the Exchange Act has been
declared effective by the SEC.
If these conditions have not been satisfied by the expiration of the offering,
or if we otherwise terminate the offering, IPO will promptly return to all
subscribers all subscription funds and will retain any earned interest thereon.
Our directors, officers, and other affiliates may, but are not required to,
purchase shares in order to satisfy the minimum offering amount.
If the minimum number of shares are sold and our registration statement on Form
8-A has been declared effective under the Exchange Act, the subscription amounts
held in escrow, including interest, will be released to us for immediate use.
Any subscriptions accepted by us after the sale of the minimum number of shares,
but before the expiration of the offering, will be held by IPO pending
acceptance or rejection of subscriptions by us. Upon acceptance, such proceeds
will be available for immediate use by us.
We will pay IPO a commission equal to 10% of the offering price and have agreed
to issue IPO warrants to purchase common shares in an amount equal to 10% of the
shares sold in the offering. IPO may exercise the warrants for a period of two
years from the date they receive a letter from us indicating that our
registration statement on Form 8-A has been declared effective by the SEC. IPO
may exercise the warrants for US$1.00 per share during the first year and for
US$1.50 per share during the second year. We have also agreed to pay to IPO a
corporate finance fee of US$50,000.
Before this offering, there has been no market for our common shares. The
offering price of the shares was determined by negotiation between us and IPO
and does not necessarily bear any relationship to our assets, book value,
revenues or other established criteria of value, and should not be considered
indicative of the actual value of the shares. Factors considered in determining
such offering price, in addition to prevailing market conditions, include:
o the history of, and prospects for, the industry in which we compete;
o assessment of our management;
o our past and present operations;
o our prospects;
o our capital structure; and
o such other factors as were deemed relevant.
-13-
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares being offered in the
offering, based on an offering of 3,000,000 to 5,500,000 shares at an assumed
initial public offering price of US$1.00 per share and after deducting
commissions and estimated offering expenses of US$260,000 payable by us, are
estimated to be between US$2,440,000 and US$4,690,000.
We expect to use the proceeds from the offering for:
o research and development of new products and technologies;
o expansion of our marketing and sales organization and activities; and
o general working capital.
The following table sets forth the amounts and anticipated uses of the proceeds
of this offering:
<TABLE>
Net Proceeds
-----------------------------------------
Maximum Minimum
------------------- ------------------
<S> <C> <C>
Research and Development Expenses...................... $3,678,000 $2,002,000
Marketing and Sales Expenses........................... 312,000 110,000
General and Administrative Expenses.................... 700,000 328,000
------------------- ------------------
$4,690,000 $2,440,000
</TABLE>
We may also use a portion of the proceeds to acquire or invest in businesses,
products or technologies that expand, complement or are otherwise related to our
existing business. We have no present plans, agreements or commitments, and are
not currently engaged in any negotiations, with respect to any such
transactions.
In the event the proceeds of this offering are insufficient to satisfy our
needs, we may need to raise additional funds through the issuance of equity or
debt securities. We cannot assure you that we will be able to obtain more
financing, or if we do, that such financing will be on terms favorable to us, or
that we will be able to obtain such financing on a timely basis.
Pending their use, we will invest the net proceeds from this offering in United
States government securities or short-term, interest- or dividend-bearing,
investment grade securities.
-14-
<PAGE>
BUSINESS
Overview
We are engaged in the development and commercialization of electrical power
sources for the automotive industry. Our primary technology relates to a "smart"
automotive starter battery which combines several proprietary features. These
features include:
o an insulated case to minimize temperature fluctuation;
o an internal microprocessor to monitor and control the charging and
discharging process; and
o a battery acid anti-stratification device, to create a battery with
more efficient charging, storage and power delivery than conventional
automotive batteries.
Compared to conventional car batteries, the iQ battery is lighter, has increased
cold-weather starting performance and increased life expectancy.
The starting, lighting and ignition battery industry is a mature and stable
industry that is composed of a limited number of aftermarket resellers and OEMs.
Over the last ten years, new competition and changes in the automotive industry
have increased pressure on SLI battery manufacturers to reduce costs and to
improve the power and efficiency of the batteries they produce. In response to
these conditions and to the increased market demand for smaller and lighter SLI
batteries that produce adequate amounts of electrical power, we have developed
the iQ technology, a battery technology that lowers the weight and increases the
electrical output of SLI batteries.
We have produced prototype batteries based on the iQ technology for testing by
several major automotive manufacturers, including Daimler-Benz, BMW and Audi. As
a result of these tests and extensive internal testing, we believe that when
compared to a conventional 12 volt automotive battery, a comparable iQ battery
will:
o weigh 40% less;
o have six times the recharging capacity in cold conditions;
o require 40% less lead;
o have increased service life; and
o have increased low-temperature starting capacity.
We intend to market the iQ battery to automakers in order to stimulate demand
for the iQ technology. We anticipate that we will eventually license the iQ
technology to automobile suppliers and battery manufacturers or enter into one
or more strategic relationships with established battery manufacturers to
produce and distribute the iQ battery.
Industry Background
The SLI battery industry is a stable, mature industry that is composed of a
limited number of aftermarket resellers and OEM's. In 1997, worldwide unit sales
in the SLI battery market have been estimated at approximately 235 million units
with a value of US$7.5 billion (Source: AMZ Auto Motor Zubehor, September 1997).
The SLI battery industry is highly-concentrated and is dominated by eight SLI
battery manufacturers who, in 1997, accounted for approximately 66% of the
worldwide market share. The following graph sets forth the approximate world SLI
battery market share of the principal battery manufacturers in 1997 (Source: AMZ
Auto Motor Zubehor, September 1997).
-15-
<PAGE>
Worldwide Market Share: 1997*
[Pie chart setting forth the approximate world SLI battery market share of
principal battery manufacturers in 1997. The information contained in the chart
is as follows:
Manufacturer Market Share
Exide 20%
Yuasa (Japan) 10%
GNB (Australia) 8%
Hawker (England) 7%
Johnson Controls (U.S.) 6%
Varta (Germany 5%
JSB (Japan) 5%
Delco Remy (U.S. 5%
Others 34%]
*(Source: AMZ Auto Motor Zubehor, September 1997)
The SLI battery industry, over the past 30 years, has had a relatively low level
of product innovation and has been slow to respond to changes in automotive
technology and performance requirements. However, new competition within the SLI
battery industry and changes in the automotive manufacturing industry have
placed increased pressure on SLI battery manufacturers to reduce costs and to
increase the power and efficiency of the batteries they produce. In recent
years, many automotive manufacturers have begun selling their component
manufacturing divisions in an effort to streamline production. This has resulted
in increased competition and lower overall prices for SLI batteries. At the same
time, many automobile manufacturers, in an effort to reduce costs, have begun to
apply strict conditions to their relationships with OEM's, such as requiring
"just-in-time" delivery and "in house" assembly of components. Many automobile
manufacturers have also adopted a policy of having at least two alternative
sources of supply, thus requiring any developer of new battery technologies to
persuade other OEM's to adopt similar technologies.
Recent advances in automobile technology and design have placed increasing
demands on the electrical output generated by an automobile battery. Despite
these changes, conventional lead acid batteries have remained relatively
unchanged since they were first introduced as an electrical power source for the
auto industry. Conventional lead acid batteries are extremely sensitive to
changes in temperature and continuously lose output capacity due to temperature
fluctuations, vibration damage and corrosion and sulfatation inside the battery.
As a result, in order to compensate for the tendency of conventional lead acid
batteries to lose much of their output capacity over time, conventional battery
manufacturers are required to manufacture larger and heavier batteries with
increased initial output capacity. Such batteries not only add additional weight
to the vehicle, but are also often more difficult to integrate into modern
engine configurations. At the same time, fuel efficiency requirements and engine
designs require that battery size and weight be reduced to ensure maximum fuel
efficiency.
We believe that increased competition in the SLI battery manufacturing industry
along with increased demands for high-powered, lightweight, efficient SLI
batteries that can be used in both traditional and alternative vehicle
applications, will facilitate the adoption of our "smart battery" technology by
aftermarket resellers and OEM's.
-16-
<PAGE>
THE iQ BATTERY
[PICTURE OF iQ BATTERY]
How the iQ technology Works
Over time, lead-acid batteries lose output capacity due to, among other things,
temperature fluctuations and corrosion of the internal lead plates. The iQ
battery utilizes an insulated case, an internal microprocessor and a battery
acid anti-stratification device to minimize the loss of output capacity. As a
result, the iQ battery requires fewer lead plates than a conventional lead acid
battery to deliver the required output capacity for a specific application.
Double-Walled Casing
Conventional lead-acid batteries are vulnerable to damage caused by temperatures
above 50 degrees Centigrade (122 degrees Fahrenheit) and to loss of starting
performance when temperatures fall below freezing (0 degrees Celsius or 32
degrees Fahrenheit). Some auto manufacturers have attempted to protect batteries
from the high temperatures found in the car's engine compartment by installing
the batteries in the rear of the vehicle. Although this placement protects
batteries from heat, it requires the use of long, thick cables to connect the
battery to the engine. The cables not only increase the weight of the car, they
also produce electrical losses in cold starting conditions. To offset these
losses, manufacturers must use batteries with larger amounts of lead and acid,
thus further increasing the total weight of the automobile.
In order to minimize the loss of performance caused by temperature extremes, we
engaged BASF, Germany's largest chemical company, to develop a double-walled
battery case made from a polypropylene foam material called Neopolen(R), a
thermoplastic particle foam. When a battery is placed inside the Neopolen case,
it is protected against the extreme temperature fluctuations by the thermal
insulation properties of the material.
In addition, Neopolen has mechanical properties which lends itself to
integrating with battery technology. The cells of this ductile material remain
intact under mechanical pressure and, after protracted compression, the material
returns to its original shape. We believe that the structural stability of the
Neopolen case will provide additional protection to the internal battery
components.
Energy Control System
Although the insulated case of the iQ battery provides protection against
extreme high temperatures, the insulated case cannot protect the battery from
extended low temperatures. Temperatures below freezing dramatically reduce
-17-
<PAGE>
the ability of a battery to start an automobile engine and to be recharged by a
running car's generator. To prevent the loss of performance caused by low
temperatures, the iQ battery incorporates an energy control system to maintain
or reestablish optimal internal battery temperatures.
The energy control system consists of a sensor and control system and an
internal heating component. The sensor and control unit is designed to measure
and record a variety of internal and external factors, including:
o outside temperature
o changes in outside temperature
o inside temperatures
o changes in inside temperature
o the revolutions per minute at which the engine was cranked
o the time of travel and the RPMs during travel
o voltage
o changes in voltage
Using this information, the energy control system determines when the heating
component must be activated and the amount of power that may be used to maintain
optimum internal battery temperature without draining the battery to the point
that damage occurs. We anticipate that, in the future, automobiles will have
real time electronic information displays linked to the vehicle's on-board
computer system to provide the driver information relating to battery charge
levels, electrical outputs, temperature and other information.
We have initiated programs to complete the production design of the integrated
circuits necessary for the internal sensor and control unit. As part of this
process, we have received bids, from several manufacturers, each of which has
established, at its own cost, design teams to compete for anticipated production
orders. At the present time, each manufacturer has developed and presented
functional prototypes meeting our specifications. If we elect to produce the iQ
battery, rather than license the iQ technology, we anticipate that we will
select one of these manufacturers to produce the energy control system
components.
The Anti-Stratification Component
Acid stratification is a less well-known, but significant problem associated
with lead-acid batteries. Lead-acid batteries utilize a mixture of sulfuric acid
and distilled water. Because the density of water is less than that of sulfuric
acid, over time gravity causes the acid and the water to separate. When this
separation occurs, the battery is not able to produce or store electric power in
the upper parts of the internal lead plates that are surrounded by water. In
addition, if pure sulfuric acid becomes concentrated in the lower parts of the
battery, the highly corrosive effects of the acid tend to override the
electrochemical process in the lower parts of the internal lead plates.
The problems caused by acid stratification can be alleviated by continuously
mixing the acid and water. In the past, manufacturers have sought to address
this problem with acid pumps and other methods, but their efforts have not been
successfully adapted for commercial application in the automotive starter
battery market.
Instead of using moving parts or pumps, the iQ technology uses hydrodynamic
principles to facilitate continuous mixing of the sulfuric acid and the
distilled water inside the battery without using moving parts. A simple plastic
baffle is integrated into each cell of the battery. When the vehicle is moving,
e.g., accelerating or braking, the inertial energy acts with the baffle to
produce internal fluid pressure that causes the sulfuric acid at the bottom of
the battery to travel through a corridor to the top of the battery. Specially
designed "gating" mechanisms inhibit the reversal of the fluid flow. In
addition, when the vehicle is not moving, the internal baffle system acts as a
hydrodynamic pump that moves fluid to the top of the battery in response to the
battery's internal heating element.
Performance Specifications and Test Results
The outer dimensions of the iQ battery are identical to a conventional 12 volt
lead acid battery in order to facilitate ease of replacement in existing
vehicles. In addition, the dimensions and shape of the iQ battery's terminals
are identical to those of conventional batteries. The iQ battery, however, loses
charging capacity at a much lower rate
-18-
<PAGE>
than conventional batteries. As a result, the iQ battery requires less amp
output to deliver the same performance over time, and therefore because it
requires fewer lead plates, weighs approximately 40% less than conventional
batteries.
Our prototype batteries have been tested extensively both in-house and by
third-party organizations. The following tables detail the results of
independent tests performed in 1998 by a major auto manufacturer with which we
have a strategic relationship. All tests compared the prototype iQ battery with
a standard, 12 volt, 100 amp battery that is normally used as OEM equipment in
German luxury cars.
Car Power System Test
[Bar graph showing electrical output for the iQ Battery and a standard battery
under two different temperature conditions: -20 degrees Celcius and 20 degrees
Celcius. The results reflected in the graph are as follows:
-20 degrees Celsius Relative Amp Value
------------------- ------------------
Standard Battery 0.3
iQ Battery 1.22
20 degrees Celsius Relative Amp Value
------------------- ------------------
Standard Battery 5.66
iQ Battery 6.98]
In the car power system test, the tested batteries were inserted into the power
system of a standard automobile. A winter night drive was then simulated by
placing the power system under load by adding additional power consumers, such
as a heater, headlights, a stereo, power windows, etc. The electrical current
output of the batteries was then measured under two different temperature
conditions, 20 degrees Celsius and -20 degrees Celsius. The results indicate
that at 20 degrees Celsius, the electrical current output of the iQ battery was
125% of a conventional battery. At -20 degrees Celsius, the electrical current
output of the iQ battery was 420% of a conventional battery.
Battery Test
[Bar graph showing total cycle time (in hours) for the iQ Battery and a standard
battery under 3 different temperature conditions: -20 degrees Celcius, 0 degrees
Celcius and 20 degrees Celcius. The results reflected in the graph are as
follows:
-20 degrees Celsius Cycle Time (Hours)
------------------- -----------------
Standard Battery 62
iQ Battery 20
0 degrees Celsius Cycle Time (Hours)
------------------ -----------------
Standard Battery 19
iQ Battery 20
20 degrees Celsius Cycle Time (Hours)
------------------- -----------------
Standard Battery 19
iQ Battery 19]
In the battery test, the tested batteries were charged and discharged multiple
times at different temperature levels. The amount of time necessary to complete
a full charging cycle (e.g., fully charge after being fully discharged) was
measured. The tests showed that the iQ battery's recharging times were
substantially equivalent to conventional batteries in moderate to warm
temperatures and over 40 hours less than the recharge time of a conventional
battery in extreme cold conditions.
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<PAGE>
Climate Room Test
[Bar graph showing total revolutions per minute attributable to electrical
output from the iQ Battery and a standard battery. The results reflected in the
graph are as follows:
Revolutions Per Minute
----------------------
iQ Battery 83
Standard Battery 71]
In the climate room test, the batteries were mounted in automobiles and placed
in cold conditions (-25 degrees Celsius). The car's engine was then cranked and
the number of revolutions per minute was recorded. The higher the revolutions,
the more starting power can be attributed to the tested battery. Based on the
results of the climate room test, the iQ battery performed better than the
conventional battery in cold starting conditions.
Life Cycle Test
[Bar graph showing total percentage reduction in battery capacity in the iQ
Battery and in a standard battery. The results reflected in the graph are as
follows:
Percentage Reduction in Capacity
--------------------------------
iQ Battery 14%
Standard Battery 22%]
In the life cycle test, the batteries were run through a series of industry
standard tests that simulated the normal life cycle of a automobile SLI battery.
At the end of the test, the lead battery plates were examined and the charging
capacity of the batteries was measured to determine the percentage of battery
capacity that was lost over time. The iQ battery lost approximately 14% of its
capacity compared with the loss of approximately 22% of capacity for the
conventional battery.
In addition to the foregoing, in 1996, we completed independent, third party
safety testing of the iQ battery in Germany, and in which all applicable safety
specifications were met. (TUV Rheinland Product Safety GmbH, test report no.
E-9613191E-01). We are not aware of any safety issues related to the iQ battery
that are not also applicable to standard automotive batteries.
Our Strategy
Our objective is to license the iQ technology to leading manufacturers of
automotive batteries and to position us as a leading provider of batteries and
electric power technology and technology to the automotive industry. Our
strategy includes the following elements:
o Marketing to Automakers. We and iQ Germany have begun marketing
production-ready prototypes of the iQ battery to major automakers in
order to stimulate demand for the iQ technology. We anticipate that
its initial marketing efforts with automakers will be concentrated on
a relatively small group of
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<PAGE>
companies and will be directed by a small and highly-skilled sales
force of sales and application engineers.
o License the iQ technology and Develop Manufacturing Relationships.
Once automaker and manufacturer demand has been developed, we intend
to license the iQ technology to major automakers and established
third-party manufacturers of SLI batteries. We may also establish
strategic relationships with manufacturers and suppliers of SLI
batteries in order to produce commercial quantities of SLI batteries
utilizing the iQ technology.
o Competitive Pricing. We anticipate that the retail price of the iQ
battery will be comparable to the retail prices of other premium
priced SLI batteries.
Industry Relationships
iQ Germany has established relationships with a number of companies in the
automotive and electronics industries which are described below:
Suppliers and Manufacturers
BASF
iQ Germany has entered into a Cooperation Agreement with BASF, a leading
international chemical and textile manufacturer, under which BASF has agreed to
participate with the iQ Germany in developing and marketing the Neopolen battery
case. Under the agreement, iQ Germany has agreed to exclusively use the Neopolen
material produced by BASF in its battery designs in return for a payment by BASF
to iQ Germany on every kilogram of Neopolen sold by BASF to battery
manufacturers.
Akkumulatorenfabrik Moll
iQ Germany has established a relationship with Moll, a leading battery
manufacturer, under which Moll has manufactured prototypes of a battery based on
the iQ technology. Currently, iQ Germany and Moll are negotiating a cooperation
agreement relating to the joint development, production and marketing of
batteries incorporating the iQ technology.
Automakers
Daimler-Benz
iQ Germany has provided prototypes of the iQ battery to Daimler-Benz, which is
currently performing in-the-car and out-of-the-car tests.
BMW
iQ Germany has provided prototypes of the iQ battery to BMW, which is currently
testing the prototypes. iQ Germany has also purchased and installed BMW battery
test and electronic lab equipment in iQ Germany's laboratories in Chemnitz,
Germany, for the purposes of conducting tests on the iQ battery prototypes.
To date, neither Daimler-Benz nor BMW have committed to incorporate the iQ
technology into any of their commercially available automobiles or other
products.
Other Relationships
In addition to the above relationships, we, via iQ Germany, have also had
discussions, and in some cases, delivered prototypes of the iQ battery to Audi,
Volkswagen and Porsche for testing. In addition to these German automakers, we
are also pursuing contacts with other major automakers worldwide.
-21-
<PAGE>
We have engaged in discussions with established battery manufacturers regarding
the possibility of a joint venture to produce small quantities of batteries
using the iQ technology in order to stimulate market interest or to satisfy
niche market demands. In the event we are unsuccessful in our primary marketing
strategy of licensing the iQ technology to major automakers and established
battery manufacturers, we anticipate that this type of arrangement may provide
an alternative means of market entry for us. There can be no assurance that we
will be able to successfully establish a joint venture arrangement with a
battery manufacturer on terms favorable to us, if at all.
Research and Development
We and iQ Germany are focusing our research and development efforts on improving
the iQ technology and developing process technology required to manufacture the
iQ battery. A key element of our strategy is to complete development of a
battery that has undergone all relevant testing programs by German auto
manufacturers and can be produced in commercial quantities. Over its most recent
three fiscal years, iQ Germany has spent a total of DM2,198,000 (US$1,403,000)
on research and development.
We believe that our highly-qualified engineering and scientific personnel
provide us with a significant competitive advantage. iQ Germany currently
employs 12 engineers and scientists in its Chemnitz plant on a full- and
part-time basis, whose primary focus is research and development. iQ Germany's
personnel have considerable experience with the development of SLI battery
systems and applications. We believe that this combination of expertise has
allowed iQ Germany, and will continue to allow us to design and develop battery
technologies that can be implemented in a timely and cost-effective manner.
Competition
Competition in the battery industry is, and is expected to remain, intense. Our
competitors range from early stage companies to major domestic and international
companies. Many of these companies have financial, technical, marketing, sales,
manufacturing, distribution, and other resources significantly greater than
ours. In addition, many of these companies have name recognition, established
positions in the market, and long-standing relationships with OEMs and other
customers. Our competitors are doing significant development work on various
battery systems (including electrochemistries such as NiCd, NiMH and lithium),
with significant effort focused on achieving higher energy densities, lower
maintenance, lighter weight, longer energy retention and lower cost batteries.
We cannot assure you that one or more new, higher power battery technologies
will not be introduced which could be directly compete with or be superior to
the iQ technology.
We believe that our primary competitors are existing suppliers of automotive and
lead-acid batteries. Johnson Controls, Inc., Exide Corporation, GNB Inc. and
Delphi are the primary suppliers of car batteries in North America. VB
Autobatterie GmbH), Hawker Batteries, Fiamm, Delco Remy, Exide Corporation,
Autosil, Hoppecke, Yuasa and Matsushita are the primary suppliers of car
batteries in Europe. All of these companies are very large and have substantial
resources and market presence. Many are vertically integrated and produce the
core components for their batteries from raw or recycled materials, reducing the
unit cost of manufacturing. These companies have pursued and implemented
aggressive production and manufacturing strategies which have led to substantial
competitive advantages in the areas of production efficiencies and integrated
distribution and inventory management systems. We expect that we will compete in
certain targeted market segments on the basis of performance, reliability, ease
of recycling and increased battery life. We cannot assure you that we will be
able to compete successfully against these companies in any of the targeted
market segments.
We may also develop products to compete in market segments including standby
power, small batteries for engine starting and medical and electronics
applications. We expect that our primary competition in the market for small
lead acid batteries used in non-automotive applications are Yuasa, Exide
Corporation, Matsushita, Hawker, CSB Battery of America Corp. and GS Battery.
These companies are large and have substantial resources and market presence. We
cannot assure you that we will be able to compete successfully against
traditional lead acid batteries in any of the targeted applications.
The market for batteries, and the evolution of battery technology, is very
dynamic. Other companies are devoting significant resources to improving
existing battery technologies and developing new battery technologies. We cannot
assure you that we will be able to compete effectively in any of their targeted
market segments.
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<PAGE>
Intellectual Property Rights
Our success is dependent on iQ Germany's ability to protect its intellectual
property rights. iQ Germany relies principally on a combination of copyright,
trademarks, trade secret and patent laws, non-disclosure agreements and other
contractual provisions to establish and maintain its proprietary rights. iQ
Germany holds two United States patents related to its technology, both of which
will expire in the year 2014. iQ Germany has also applied for patents related to
the iQ technology in Germany and the European Union. iQ Germany has been issued
patents cover the battery temperature sensor and heating element design and
configuration.
As part of its confidentiality procedures, iQ Germany generally enters into
nondisclosure and confidentiality agreements with each of its key employees,
consultants, distributors and corporate partners and limits access to and
distribution of its technology, documentation and other proprietary information.
In particular, iQ Germany has entered into non-disclosure agreements with each
of its employees and strategic partners. The terms of the employee
non-disclosure ageements include provisions requiring assignment to iQ Germany
of employee inventions. There can be no assurance that iQ Germany's efforts to
protect its intellectual property rights will be successful. Despite iQ
Germany's efforts to protect its intellectual property rights, unauthorized
third parties, including competitors, may from time to time copy or reverse
engineer certain portions of the iQ technology and use such information to
create competitive products.
Policing the unauthorized use of the iQ technology is difficult, and, while we
are unable to determine the extent to which piracy of the iQ technology exists,
such piracy can be expected to be a persistent problem. In addition, the laws of
certain countries in which the iQ technology is or may be licensed do not
protect its products and intellectual property rights to the same extent as do
the laws of the United States. As a result, sales of products based on the iQ
technology in such countries may increase the likelihood that iQ technology
might be infringed upon by unauthorized third parties.
It is possible that the scope, validity and/or enforceability of our
intellectual property rights could be challenged by competitors or other
parties. iQ Germany is currently in the process of recording its interests in
the iQ technology with relevant authorities in applicable jurisdictions. The
results of such challenges before administrative bodies or courts depend on many
factors which cannot be accurately assessed at this time. Unfavorable decisions
by such administrative bodies or courts could have a negative impact on iQ
Germany's intellectual property rights. Any such challenges, whether with or
without merit, could be time consuming, result in costly litigation and
diversion of resources, cause product shipment delays or require us to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us or at all. In the event
of a claim of product infringement against us and our failure or inability to
license the infringed or similar technology, our business, operating results and
financial condition could be materially adversely affected.
iQ Germany has registered the trademark "iQ" in Germany. iQ Germany has not
registered any trademarks in the United States.
Plan of Operation
Over the next 12 months, we intend to expand our research and development
operations, prepare for a pre-production and initial production of batteries
that incorporate the iQ technology and continue our third party testing program.
Specifically, we anticipate that our laboratories in Chemitz, Germany will be
fully operational by June 1999. In August 1999, we intend to initiate a
pre-production run of 500 batteries that incorporate the iQ technology in order
to evaluate the production processes and to implement any needed modifications.
During the course of the pre-production process we will finalize the iQ battery
design and identify manufacturing facilities and component suppliers. We expect
that the initial production of the iQ battery will occur on or before January
2000. We also expect that all third party testing will be completed in January
2000.
We anticipate that the net proceeds we receive from this offering will satisfy
our cash needs for the twelve months after this offering. We may need more money
if we experience delays, cost overruns, additional funding needs for joint
ventures or other unanticipated events. We cannot assure you that we will be
able to obtain more financing or that, if we do, it will be on favorable terms
or on a timely basis.
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<PAGE>
Employees
As of March 15, 1999, iQ Germany had 12 employees engaged in product research
and development on a part- and full-time basis and 8 employees engaged in
general and administrative and marketing functions on a part- and full-time
basis. Our and iQ Germany's success will depend in large part on their ability
to attract and retain skilled and experienced employees. None of our or iQ
Germany's employees are covered by a collective bargaining agreement, and we
believe iQ Germany's relations with its employees are good. We do not currently
have any key man life insurance on any of our directors or executive officers.
Facilities
iQ Germany occupies approximately 228 square meters of leased office space at
its headquarters in Unterhaching, Germany for its product development,
marketing, support and administration operations. iQ Germany also occupies
approximately 509 square meters of leased office space in Chemitz, Germany. The
Unterhaching lease terminates on February 28, 2001 and the Chemitz lease may be
terminated on the giving of six months' notice, but not before December 31,
2001. We maintain a license for our executive offices in Vancouver, British
Columbia, Canada on a month-to-month basis.
Legal Proceedings
As of the date hereof, there is no material litigation pending against us or iQ
Germany. 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 certain intellectual
property rights or, alternatively, money damages of approximately DM500,000
(US$310,000). Certain of 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. We have been advised by the Brauns that the prosecution of
this lawsuit has not been pursued. We believe that the lawsuit is without merit
and will not materially affect our rights in the intellectual property at issue.
From time to time, we and/or iQ Germany 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, we believe that the final outcome of
such matters will not have a material adverse effect on our business, financial
condition and operating results.
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<PAGE>
SELECTED FINANCIAL DATA
Our selected consolidated financial data are qualified in their entirety by
reference to and should be read in conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of this
Prospectus and the audited consolidated financial statements and notes included
in this Prospectus. The consolidated statements of operations data for the nine
month periods ended September 30, 1998 and 1997, the years ended December 31,
1997 and 1996 and the consolidated balance sheet data at September 30, 1998 and
at December 31, 1997 and 1996, are derived from and are qualified by reference
to our audited consolidated financial statements which appear in this Prospectus
These financial statements were prepared in accordance with Canadian GAAP. We
provide the pro forma financial data for comparative purposes only and such data
is not necessarily indicative of results that would have been achieved if we had
completed the transactions reflected at the beginning of the period for which
pro forma information is presented or of the results we expect for any later
period.
<TABLE>
Fiscal
Period Ended
December 31,
Years ended
Nine Months Ended September 30, December 31,
--------------------------------------------- --------------------------- --------------
1998 1997
Pro Forma 1998 1997 Pro Forma 1997 1996
(unaudited) (unaudited) (seven months)
--------------- -------------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................... $ -- $ -- $ -- $ 26,000 $ -- $ --
Operating Expenses........ 917,000 241,428 57,023 759,000 135,236 10,504
Net income (loss) for the (947,000) (241,428) (57,023) (733,000) (135,236) (10,504)
period....................
Earnings (loss) per (0.06) (0.05) N/A
common share............. (0.05) (0.14 ) N/A
Weighted average shares
outstanding.............. 15,086,461 4,546,845 -- 13,750,294 950,294 --
</TABLE>
<TABLE>
As at September 30, As At December 31,
------------------------------------------------------------------------------------------
1998
Pro Forma (unaudited)
1998 1997 1996
---------------------- -------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents. $ 3,092,000 $ 340,393 $ 43,525 $ --
Working capital 2,264,000 348,249 346,695 (10,503)
(deficiency)..............
Total assets.............. 3,329,000 3,505,845 419,261 147,977
Non-current liabilities... 60,000 - -- --
Stockholders' equity...... $ 1,681,000 $ 2,848,249 $ 346,695 $ (10,503)
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion contains "forward-looking statements." In particular,
certain statements in "Overview" and "Acquisition of iQ Germany" and the
sections entitled "Results of Operations of iQ Power," "Results of Operations of
iQ Germany" and "Liquidity and Capital Resources" contain forward-looking
statements. Our actual results could differ materially from the results
projected in the forward-looking statements as a result of our ability to:
o achieve the objectives of our business strategy;
o accelerate or defer operating expenses;
o achieve revenue; and
o hire new personnel.
and other factors set forth under "Risk Factors" in this Prospectus. In
particular, you should note the Risk Factors entitled:
o "We Are An Early Stage Company"
o "We Face Competition From More Established Companies"
o "Our Future Profitability Is Uncertain"
o "We May Need Additional Financing"
o "We May Not Be Able To Commercialize Our Technology"
o "Our Revenues Depend on Single Product"
o "Market Demand For Our Products Is Uncertain"
o "We Have No Manufacturing, Marketing or Distribution Experience"
The following discussion is qualified by the more complete financial information
contained in our audited financial statements and the related notes and the
financial statements of iQ Germany and the related notes included in this
Prospectus. Our financial statements have been prepared in accordance with
Canadian generally accepted accounting principles. We believe that there is no
material difference between Canadian GAAP and United States generally accepted
accounting principles as applied to our financial results. The financial
statements of iQ Germany have been prepared in accordance with US GAAP.
The following discussion of our results of operations should be read in
conjunction with our audited financial statements and the related notes, the
discussion of Results of Operations of iQ Germany discussed below and the
audited financial statements of iQ Germany and the related notes included in
this Prospectus. iQ Germany's results of operations are not included in our
financial statements.
Overview
We were organized in December 1994 and commenced operations in June 1996. We
develop and commercialize batteries and electric power technology for the
automotive industry. Our primary product is a "smart" automotive starter battery
which combines several proprietary features designed to optimize automotive
starter battery efficiency.
We are an early stage company and our principal activity to date has been the
acquisition of all the issued and outstanding shares of iQ Germany. Neither we
nor iQ Germany have derived revenues from operations, and we do not anticipate
having material revenues from operations until 2000, if at all. We and iQ
Germany have incurred substantial losses to date, and we cannot assure you that
we will attain any particular level of revenues or that we will achieve
profitability.
We believe that our historic spending levels and the historic spending levels of
iQ Germany are not indicative of future spending levels because we are entering
a period in which we will increase spending on product research and development,
marketing, staffing and other general operating expenses. For these reasons, we
believe our expenses,
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<PAGE>
losses, and deficit accumulated during the development state will increase
significantly before it generates material revenues.
Acquisition of iQ Germany
On August 25, 1998, we acquired all the issued and outstanding common stock of
iQ Germany in exchange for 10,000,000 of our shares at a deemed price of US$0.25
per common share for a total purchase price of US$2,500,000. As a result of the
business combination, the shareholders of iQ Germany have control of us. Due to
this acquisition of control, iQ Germany will be identified as the acquiror
(reverse acquisition), and we will account for the business combination under
the purchase method. Under the terms of the Share Exchange Agreement, the former
shareholders of iQ Germany, as a group, have a limited right to require us to
repurchase all, but not less than all, of our shares received by such
shareholders. They may exercise this right at and after April 10, 1999 if:
o we have failed to complete an equity offering with gross proceeds of
at least US$3 million; and
o they repay us the full amount of all funds we have has advanced or
invested in iQ Germany.
Their repurchase right will terminate at the close of this offering.
Our Results of Operations
We were organized in December 1994 and commenced operations in June 1996. Our
principal activity to date has been the acquisition of all the issued and
outstanding shares of iQ Germany.
No revenues were recorded in either the seven month period ended December 31,
1996, the year-ended December 31, 1997 or the nine-month period ended September
30, 1998.
As of September 30, 1998, we had an accumulated deficit of US$387,168. We
incurred a net loss of US$241,428 for the nine-month period ended September 30,
1998, compared to a net loss of US$57,023 for the comparable period of the prior
year and a net loss of US$135,236 for the year ended December 31, 1997, and
US$10,504 for the seven-month period ended December 31, 1996.
We anticipate 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.
iQ Germany's Results of Operations
iQ Germany was organized in 1991 to develop and commercialize batteries and
electric power technology for the automotive industry. Since that date, iQ
Germany has been engaged primarily in research and product development efforts.
As of September 30, 1998, iQ Germany had an accumulated deficit of DM2,140,000
(US$1,336,000). iQ Germany incurred a net loss of DM1,262,000 (US$706,000) for
the nine-month period ending September 30, 1998 compared with a net loss of
DM745,000 (US$430,000) for the comparable period of the prior year, DM1,034,000
(US$594,000) for the year ending December 31, 1997 and DM791,000 (US$525,000)
for the year ending December 31, 1996.
iQ Germany had no revenues for the nine-month period ending September 30, 1998
and revenues of DM5,000 (US$2,900) for the nine month period ending September
30, 1997, revenues of DM45,000 (US$27,000) for the year ending December 31,
1997, and no revenues for the year ending December 31, 1996. All of iQ Germany's
revenues were derived primarily from licensing fees.
For the nine month period ended September 30, 1998, iQ Germany incurred research
and development expenses of DM1,062,000 (US$593,000) compared with DM584,000
(US$336,000) for the comparable period of the prior year, DM842,000 (US$488,000)
for the year ending December 31, 1997 and DM655,000 (US$435,000) for the year
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<PAGE>
ending December 31, 1996. The increase in research and development expenses in
each period reflects the cost of supporting a higher level of activity,
principally research, product development, building prototypes and product
testing.
iQ Germany incurred general and administrative expenses of DM148,000 (US$83,000)
for the nine-month period ended September 30, 1998 compared with DM114,000
(US$66,000) for the comparable period of the prior year, DM162,000 (US$93,000)
for the year ending December 31, 1997 and DM127,000 (US$84,000) for the year
ending December 31, 1996. The increases in administrative and general corporate
expenses from period to period were due primarily to the increase in expenses
related to the growth of iQ Germany's operations, the leasing of a new office
facility in 1997, and other administrative and corporate expenses related to the
share exchange with us.
Following completion of the offering, iQ Germany's expenditures are expected to
materially increase as we pursue our research, development, testing and
commercialization programs and expands our finance and administrative staff and
financial and management system.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through sales of our
equity securities. As of September 30, 1998, we had cash and cash equivalents of
approximately $340,393. As of September 30, 1998, we had raised approximately
$711,000 (net of issuance costs) from the sale of such securities, excluding the
issuance of 10,000,000 common shares for deemed proceeds of $2,500,000 on the
business combination with iQ Germany. In December 1998, we received gross
proceeds of $709,050 by issuing 536,200 shares and special warrants to purchase
2,300,000 shares at a price of US$0.25 per share and US$0.25 per special
warrant.
iQ Germany is obligated to pay to Horst Dieter Braun, our Vice President,
Research and Development and Peter Braun, our President, DM400,000 in connection
with iQ Germany's acquisition of the iQ technology and certain other
intellectual property rights. The amount is payable only out of and only to the
extent of the gross profits of iQ Germany.
We plan to finance our capital needs principally from the net proceeds of this
offering and interest thereon and, to the extent available, lines of credit. We
currently have no commitments for any credit facilities such as revolving credit
agreements or lines of credit that could provide additional working capital. We
believe that the net proceeds from this offering, together with interest thereon
and our existing capital resources, will be sufficient to fund our operations
through 1999. Our capital requirements depend on several factors, including the
success and progress of our product development programs, the resources we
devote to developing our products, the extent to which our products achieve
market acceptance, and other factors. We expect to devote substantial cash for
research and development. We cannot adequately predict the amount and timing of
our future cash requirements. We will consider collaborative research and
development arrangements with strategic partners and additional public or
private financing (including the issuance of additional equity securities) to
fund all or a part of a particular program in the future. We cannot assure you
that additional funding will be available or, if available, that it will be
available on terms acceptable to us. If adequate funds are not available, we may
have to reduce substantially or eliminate expenditures for research and
development, testing, production and marketing of our proposed products, or
obtain funds through arrangements with strategic partners that require us to
relinquish rights to certain of our technologies or products. We cannot assure
you that we will be able to raise additional cash if our cash resources are
exhausted. Our ability to arrange such financing in the future will depend in
part upon the prevailing capital market conditions as well as our business
performance.
Year 2000 Issue
We have conducted a review of our computer systems to identify the systems that
could be incompatible with dates beyond December 31, 1999, and are developing an
implementation plan to resolve issues that may arise. We have also requested all
our strategic partners, consultants, contractors and significant suppliers to
conduct similar assessments of their respective computer programs, systems,
procedures and operations to determine the extent to which we are exposed to
possible computer system failure. We place minimal reliance on data sensitive
software and believe 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 our results of operations.
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<PAGE>
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.
We and iQ Germany began our respective Year 2000 strategies 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 our and iQ Germany's software is recent, and therefore we
and iQ Germany anticipate that we will have sufficient time to test any new
systems that need to be installed. All of our and iQ Germany's financial and
business records will be backed up to ensure that no loss of information can
occur. We do not anticipate incurring significant costs in this regard.
Foreign Currency Translation Risk
To date, exposure to foreign currency fluctuations has not had a material effect
on our operations. We believe our risk of foreign currency translation is
limited, as our operations are based in Germany with resulting transactions
primarily denominated in United States dollars. We do 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.
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 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. We do not expect the adoption of
the accounting pronouncement to have a material effect on our financial position
or results of operations.
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Our directors, executive officers and key employees are as follows:
<TABLE>
Name Age Position
---- --- --------
<S> <C> <C>
Peter E. Braun 35 President and Chief Executive Officer, Director
Dr. Gunther C. Bauer 48 Vice President, Research and Development, Director
Gerhard K. Trenz 57 Vice President, Finance and Chief Financial Officer
Russell French 51 Director
Eckehard Endler 55 Development Engineer
Rolf Kohler 53 Development Engineer
Freidrich-Wilhelm Schutz 57 Director, Material Management, Electronic Production and Quality Control
Steffen Tschirsch 37 Director of Research and Development
Gregory A. Sasges 38 Secretary
</TABLE>
- -----------------------------
Directors and Executive Officers
Peter E. Braun has served as a director and as our President and Chief Executive
Officer since September 1998. From 1994 to the present, Mr. Braun has also
served as Managing Director of iQ Germany. From 1992 to 1994, Mr. Braun worked
for Daimler Benz as an in-house consultant to Deutsche Aerospace. Mr. Braun
received a Masters of Science degree in Aeronautic Engineering and Space
Technology from the Technical University of Berlin in 1992.
Dr. Gunther C. Bauer has served as a director and as our Vice President,
Research and Development since September 1998. From 1994 to the present, Dr.
Bauer has also served as Vice President, Engineering of iQ Germany. From 1993 to
1994, Dr. Bauer was responsible for creating a Profit Center within the Daimler
Benz Group, an German automobile manufacturer, and from 1992 to 1993, he was
responsible for business strategy with the TEMIC Group, a wholly-owned
subsidiary of Daimler-Benz Aerospace A.G. From 1987 to 1992, Dr. Bauer served in
positions with German Aerospace, including Head of Staff of Innovations Field
Logic and Director of Corporate Development for Business Aeronautics. Since
1980, Dr. Bauer has been a Lecturer at the University of the Bundeswehr German
Forces in Munich, Germany. Dr. Bauer received his Master of Science in
Electronics from the Technical University of Munich and his doctorate in
Mechanical Engineering from the University of Dortmund in Dortmund, Germany.
Gerhard K. Trenz has served as our Vice President, Finance and our Chief
Financial Officer since September 1998. From 1996 to the present, Mr. Trenz has
also served as Vice President, Finance at iQ Germany. From 1988 to 1996, Mr.
Trenz headed Semicustom, a business unit of the Siemens Group, as Vice
President, Finance and Business Administration of Siemens Semiconductor
Division. From 1970 to 1988, Mr. Trenz held various positions in the Siemens
Group including Controller of Technology Development for ICs, in-house
consultant for the Corporate Strategic Planning Group of Siemens and Vice
President, Finance and Business Administration of Lormont / Bordeaux, a
production site of Siemens in France. Mr. Trenz received his Master of Science
degree in Telecommunications and Business Administration at the Technical
University of Munich.
Russell French has served as a director since 1994. From December 1994 to August
1998, Mr. French served as our President. From 1993 to the present, Mr. French
has been a principal of Mayon Management Corp., a company organized to manage,
organize and find new business ventures. Mr. French currently serves as a
director and President of AlPaka Resources Corp. Mr. French is a past director
and President of Pacific Falkon Resources Corp. and a past director of
International Precious Metals Corporation.
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<PAGE>
Gregory A. Sasges has served as our Secretary since December 1, 1998. Mr. Sasges
is a partner in a Vancouver law firm through his personal corporation and has
practiced law continually for the past 12 years with a preferred area of
practice in corporate and securities law. Mr. Sasges also currently serves as
the corporate secretary and is a former director of High Desert Mineral
Resources, Inc., a mineral resource company. Mr. Sasges is a past director of
Alpaka Resources Corp. and a past corporate secretary of GHK Resources Ltd.,
both of which were mineral resource companies. Mr. Sasges received his Bachelor
of Commerce and Bachelor of Laws degrees from the University of British
Columbia, Canada, in 1984 and 1985 respectively.
All officers are appointed annually by the Board of Directors and serve at the
pleasure of the Board. All Directors are elected annually at the Annual General
Meeting of shareholders and serve until the next Annual General Meeting, or
until their successors are elected and qualified.
KEY EMPLOYEES:
Our Key Employees are:
Eckehard Endler has served as a Development Engineer since 1998. From 1994 to
the present, Mr. Endler has also served as manager, Measurement and Laboratories
of iQ Germany. From 1978 to 1994, Mr. Endler worked as a Development Engineer
for a textile company. He received a degree in Electrical Engineering from The
Senior Technical College in Dresden, Germany in 1973.
Rolf Kohler has served as a Development Engineer since 1998. From 1973 to 1997,
he served as a Development and Test Engineer at Foron, a white goods producer,
in Chemnitz, Germany. Mr. Koehler received a degree in Electronic Device
Construction from The Senior Technical College in Midweida / Chemnitz in 1973.
Friedrich-Wilhelm Schutz has served as our Director, Material Management,
Electronic Production and Quality Control since 1998. In 1997, Mr. Schutz held
the same position in iQ Germany. From 1967 to 1996, Mr. Schutz worked in the
field of production and project development at Deutsche Aerospace, Bosch and
Rhode & Schwarz. Mr. Schutz received his Master of Science degree in
Telecommunications from the Senior Technical College in Cologne, Germany and in
Microelectronics from the Technical University in Aachen, Germany in 1967.
Steffen Tschirch has served as our Director of Research and Development since
1998. From 1994 to the present, Mr. Tschirch held the same position at iQ
Germany. From 1989 to 1993, Mr. Tschirch worked as a Scientific Assistant at the
Technical University of Chemnitz, Germany. Prior to that period, Mr. Tschirch
studied at the Technical University of Chemnitz with a focus on Physics and
Electronic Components and received his Master of Science degree in 1989.
-31-
<PAGE>
COMPENSATION OF DIRECTORS AND OFFICERS
The following table sets forth the compensation paid to our directors and
officers during the fiscal year ended December 31, 1998.
<TABLE>
Summary Compensation Table
(in United States Dollars)
Annual Compensation Long Term Compensation
--------------------------------------------------------------------------------
Awards Payouts
---------------------------------------
Restricted
Securities Shares or
Fiscal Other under Restricted LTIP
Name and Principal Year Salary Bonus Annual Options/SARs Share Units Payouts All Other
Position Ended (US$) (US$) Compensation Granted (#) (US$) (US$) Compensation
(US$)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gunther C. Bauer, 1998 85,809(1) - - - - - -
Vice President
Research and
Development
Peter E. Braun, 1998 87,009(1) - - - - - -
President and CEO
Russell French, 1998 51,290(3) - - - - - -
Director
Gerhard K. Trenz, 1998 78,009(1) - - - - - -
Vice President,
Finance and CEO
</TABLE>
- ------------------------------
(1) Reflects salary paid to the officer or director by iQ Germany during the
fiscal year ended December 31, 1998.
(2) For your convenience, we have converted Deutschmark salary amounts into
U.S. dollars using the average noon buying rate in New York City for cable
transfers payable in Deutschmarks as certified for customs purposes by the
Federal Reserve Bank of New York for the relevant period, as set forth in
"Exchange Rate Information."
(3) Represents consulting fees paid to Mayon Management Corp., a corporation
controlled by Russell French.
We do not have a long-term incentive plan under which cash or non-cash
compensation intended to serve as an incentive for performance (whereby
performance is measured by reference to financial performance or the price of
our securities) was paid or distributed to the executive officers listed above
during the most recently completed financial year.
During our most recently completed financial year ended December 31, 1998, we
did not have a pension plan for its our Directors, officers or employees.
Director Compensation
Other than compensation paid to Peter Braun, Gunther Bauer and Russell French,
as disclosed above under the sub-heading "Compensation of Directors and
Officers," none of our directors have received any cash compensation, directly
or indirectly, for their services rendered during our most recently completed
financial year. We do not have any non-cash compensation plans for our directors
and we do not propose to pay or distribute any non-cash compensation during the
current financial year, other than by granting stock options.
Options to Purchase Securities
During our most recently completed financial year ended December 31, 1998, we
have granted our directors and officers the stock options described below under
"Principal Shareholders." During our most recently completed financial year
ended April 10, 1998, none of our directors or officers exercised any stock
options. In addition, during our most recently completed financial year ended
December 31, 1998, we did not do any SAR or stock option repricings. Since the
completion of our fiscal year ended December 31, 1998, we have not granted any
stock options.
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<PAGE>
Employment Agreements
Effective September 1, 1998, Peter E. Braun, Dr. Gunther C. Bauer and Gerhard
Trenz have entered into employment agreements with us, providing for annual
salaries of US$102,000, US$96,000 and US$84,000, respectively. Mr. Braun's and
Dr. Bauer's employment agreements are for a term of five (5) years. Mr. Trenz's
employment agreement is for a term of three (3) years. The employment agreements
are governed by the laws of Germany.
1998 Stock Option Plan
In December 1998, our Board of Directors adopted the 1998 Stock Option Plan. The
Stock Option Plan will terminate on the earlier of June 30, 2008 or such other
date as the Board of Directors may determine. The Stock Option Plan is
administered by the Board of Directors (or a committee thereof) and provides
that options may be granted to our officers, directors, employees and other
persons, including consultants, as determined by the Plan Administrator in its
sole discretion.
The options issued pursuant to the Stock Option Plan are exercisable at a price
fixed by the Plan Administrator, in its sole discretion; provided that options
granted in substitution for outstanding options of another corporation in
connection with a merger, consolidation, acquisition of property or stock or
other reorganization involving such corporation and us or any of our
subsidiaries may be granted with an exercise price equal to the exercise price
for the substituted option of the other corporation, subject to adjustment.
Subject to certain exceptions in the Stock Option Plan relating to death,
divorce and certain estate planning techniques, options granted under the Stock
Option Plan are non-assignable and non-transferable.
The maximum number of the shares reserved for issuance under the Stock Option
Plan including options currently outstanding is 3,000,000 shares. As of March
15, 1999 a total of 2,875,000 options are issued and unexercised.
Indebtedness Of Directors And Senior Officers
None of our directors or senior officers or any of our associates or affiliates,
are or have been indebted to us at any time since the beginning of the last
completed financial year.
-33-
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth as of March 15, 1999 information concerning the
beneficial ownership of our shares, and as adjusted to reflect the issuance of
the minimum shares issuable pursuant to this offering (3,000,000) by persons who
are known by us to own beneficially more than 10% of shares, by each of the
persons named in the table under the caption "Compensation of Directors and
Officers" and by all of our directors and executive officers as a group.
<TABLE>
As Adjusted
-------------------------------------
Name and Address Number of Percentage of Number of shares Percentage of
of Beneficial Owner(1)(9) shares Class(2) Class(3)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gunther Bauer(4)....................... 2,954,000 15.6% 2,954,000 13.4%
Horst Dieter Braun..................... 2,500,000 13.5% 2,500,000 11.6%
Peter E. Braun(5)...................... 2,500,000 13.2% 2,500,000 11.4%
Karin Wittkewitz....................... 1,900,000 10.3% 1,900,000 8.8%
Schrenckweg 1,
85658 Egmating, Germany
Gerhard Trenz(6)....................... 96,297 1.0% 96,297 *
Russell French(7) 636,214 3.4% 636,214 2.9%
Suite 708-A
1111 West Hastings Street
Vancouver, B.C. V6E 2J3
All Directors and Officers as a 10,661,511 54.0% 10,661,511 46.9%
Group(8)...............................
</TABLE>
- ----------------------
* Represents less than 1% of outstanding shares.
(1) Unless otherwise noted all addresses are Erlenhof Park, Inselkammer Strasse
4, D-82008 Unterhaching, Germany.
(2) Based on an aggregate of 18,479,425 shares outstanding as of March 15, 1999
and includes 2,300,000 shares issuable upon the exercise of outstanding
special warrants.
(3) Based on an assumed offering of an aggregate of 3,000,000 shares.
(4) Includes vested options to purchase 400,000 shares within 60 days of March
15, 1999 and 54,000 shares held by Mr. Bauer's spouse, Christiane Bauer.
(5) Includes vested options to purchase 400,000 shares within 60 days of March
15, 1999.
(6) Includes vested options to purchase 66,667 shares within 60 days of March
15, 1999.
(7) Includes 236,213 shares held by Mayon Management Corp., a corporation
controlled by Mr. French, also includes vested options to purchase 400,000
shares within 60 days of March 15, 1999.
(8) Includes vested options to purchase 1,266,667 shares within 60 days of
March 15, 1999.
(9) iQ Power has been advised that Gunther Bauer, Horst Dieter Braun, Peter E.
Braun, Karin Wittkewitz and Gerhard Trenz and all other former shareholders
of iQ Germany have entered into a Shareholders Agreement pursuant to which
they have agreed to act jointly with respect to the voting of our shares
held by them.
As of March 15, 1999, the following options to purchase our shares are
outstanding.
<TABLE>
Optionee Number of Shares Exercise Price Expiration Date
-------- ---------------- -------------- ---------------
<S> <C> <C> <C>
Alain Marchand 50,000 US$1.00 12/01/08
Gregory A. Sasges 50,000 1.00 12/01/08
Joachim Schweizer 50,000 1.00 12/01/08
Steffen Tschirch 50,000 1.00 12/01/08
Joanne Gaska 25,000 1.00 12/01/08
Eckehard Endler 20,000 1.00 12/01/08
Friedrich-Wilhelm Schutz 20,000 1.00 12/01/08
Rolf Kohler 10,000 1.00 12/01/08
Russell French 800,000 1.00 12/01/08
Peter E. Braun 800,000 1.00 12/01/08
Gunther Bauer 800,000 1.00 12/01/08
Gerhard K. Trenz 200,000 1.00 12/01/08
-------
TOTAL: 2,875,000
</TABLE>
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<PAGE>
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
In March 1995, iQ Germany entered into an Industrial Property Rights and
Know-How Agreement with Horst Dieter Braun and Peter Braun. Under the Industrial
Property Rights Agreement, Horst Dieter Braun, a principal shareholder of our
company, and Peter Braun, a principal shareholder, director and officer of our
company, transferred to iQ Germany all their right, title and interest to
certain patents and other intellectual property rights related to starter
batteries technologies, and the German registered national trademark "iQ" in
consideration for payment of a one time payment of DM400,000 and royalties equal
to 40% of our revenues from license fees and 20% of our gross revenues
(excluding license fees) until the Year 2000. In August 1996, iQ Germany entered
into a supplemental contract with Messrs. Braun, which supplements the
obligations of Messrs. Braun under the Industrial Property Rights Agreement,
requires them to undertake all necessary actions to convey the Braun IP Rights
and acknowledges a civil dispute in District Court Berlin (Case No. 3 0 40/94)
regarding a partnership in which Messrs. Braun were involved. In September 1996,
iQ Germany entered into an extension of the Industrial Property Rights Agreement
with Messrs. Braun. Under the extension, the one time payment of DM400,000 is
allocated DM300,000 to Horst Dieter Braun and DM100,000 to Peter Braun, and iQ
Germany's obligations to Messrs. Braun are offset by payments on certain bank
loans made by iQ Germany on behalf of Horst Dieter Braun in the cumulative
amount of DM275,000 and on behalf of Peter Braun in the cumulative amount of
DM120,000. In December 1996, the Industrial Property Rights Agreement was
amended to provide that, under certain circumstances, the one time payment of
DM400,000 due under the Industrial Property Rights Agreement, may be delayed. In
October 1998, Messrs. Braun waived their right under the Industrial Property
Rights Agreement to receive royalties equal to 40% of our revenues from license
fees and 20% of our gross revenues (excluding license fees) until the Year 2000.
In December 1998, iQ Germany, Horst Dieter Braun and Peter Braun entered into an
Agreement Re Rights and Interests amending and supplementing the payment terms
of the Industrial Property Rights Agreement previously entered into among the
parties. The Agreement Re Rights and Interests provided that the one time
payment of DM400,000 due under the Industrial Property Rights Agreement is
payable only out of and only to the extent of the gross profits of iQ Germany.
In December 1998, iQ Germany, Horst Dieter Braun and Peter Braun entered into a
Trademark Assignment Agreement amending and supplementing the Industrial
Property Rights Agreement to restate the assignment of all rights and interest
in German Trademark No. 2,061,981 for the "iQ" trademark and design. In December
1998, iQ Germany, Horst Dieter Braun and Peter Braun entered into a Patent
Assignment Agreement amending and supplementing the Industrial Property Rights
Agreement to restate the assignment of all rights and interest in German Patent
No. 41 42 628 and other patents and patent applications related to the iQ
technology.
In October 1996, iQ Germany entered into a consulting contract with Dr. Gunther
Bauer, a director and officer of our company. The consulting contract is
terminable by either party with three month's notice and provides for a base fee
of DM6,100 per month plus statutory sales tax and related expenses. This
contract has been superseded by an employment agreement and a confidentiality
agreement discussed below.
In December 1996, iQ Germany entered into a loan contract with Karin Wittkewitz,
a principal shareholder of our company. Under the terms of the loan contract,
Ms. Wittkewitz agreed to loan iQ Germany DM60,000 at an annual interest rate of
3% above the bank rate of the German Bundesbank. The loan contract is terminable
within six months after the end of any calendar quarter in which written notice
is given, but in any event, not earlier than December 31, 1998.
In December 1996, iQ Germany entered into an agreement with Dr. Bauer pursuant
to which Dr. Bauer agreed, under certain circumstances, not to enforce his claim
to the payment of DM95,000 owed to Dr. Bauer under an agreement dated July 15,
1994 with us unless iQ Germany has the ability to redeem the obligation or
unless a surplus exists after any liquidation of iQ Germany.
We have entered into employment and confidentiality agreements, effective
September 1998, with Peter Braun, Dr. Bauer, and Gerhard Trenz, our
Vice-President, Finance and Chief Financial Officer. We have also entered into a
confidentiality agreement with Russell French, a director of our company. The
confidentiality agreements restrict competition with us for a period of five
years, and require that our confidential information be kept confidential and
-35-
<PAGE>
that all work product, copyrights, inventions and patents produced during the
employment relationship will be our property.
In August 1998, we entered into a consulting agreement with Mayon Management
Corp., a corporation controlled by Mr. French. The agreement is for an initial
term of three (3) years and provides for a base annual fee of US$72,000 and for
the reimbursement of reasonable expenses. The agreement superseded a management
agreement between us and Mayon dated January 1997.
In August 1998, we entered into a Share Exchange Agreement with iQ Germany and
the shareholders of iQ Germany including Dr. Bauer and Peter E. Braun and Horst
Dieter Braun and Ms. Wittkewitz under which we acquired all the issued and
outstanding shares in iQ Germany in exchange for 10,000,000 shares at a deemed
price of US$0.25 per common share. Under the terms of the Share Exchange
Agreement, the former shareholders of iQ Germany, as a group, have been granted
a limited right to require us to repurchase all, but not less than all, of the
our shares received by such shareholders. This right is exercisable at and after
April 10, 1999 if:
o we have failed to complete an equity offering with gross proceeds of
at least US$3 million; and
o such shareholders have repaid to us the full amount of all funds we
have advanced or invested in iQ Germany.
The repurchase right will terminate at the close of this offering.
In August and September of 1998, we entered into Atypical Share Exchange
Agreements with each of the holders of atypical shares of iQ Germany, including
Mr. Trenz, pursuant to which we issued into escrow an additional 2,800,000
shares against the deposit into escrow of "atypical shares" of iQ Germany held
by such holders. The shares and the "atypical shares" will be released from
escrow to us and the common shares will be released to the former holders of
atypical shares at the close of this offering. In the event the repurchase right
described above is exercised, the shares will be released from escrow and
returned to us and the atypical shares will be returned to the holders of
atypical shares.
In connection with the Share Exchange transaction, certain of our shareholders
and the former holders of common stock and atypical share of iQ Germany,
including Mr. French, Peter Braun, Dr. Bauer, Horst Dieter Braun, Mr. Trenz and
Ms. Wittkewitz, entered into a pooling agreement pursuant to which such persons'
shares in our company are held in escrow subject to certain conditions governing
their release.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Shares
As of March 15, 1999, 18,479,425 of our common shares are issued and outstanding
(assuming the exercise of the special warrants). All of our common shares rank
equally as to dividends, voting powers and participation in assets and as to all
other benefits which might accrue to holders of the shares. No shares have been
issued subject to call or assessment. There are no pre-emptive or conversion
rights, and no provision for redemption, purchase for cancellation, surrender or
sinking funds attached to any of our common shares other than the option the
former shareholders of iQ Germany have to require us to repurchase their common
shares under cetain circumstances. Provisions as to the modification, amendment
or variation of such rights or provisions are contained in the Canadian Business
Corporations Act. Each share carries one vote at our shareholder meetings.
Special Warrants
As of March 15, 1999, we had 2,300,000 special warrants outstanding. We issued
all of the 2,300,000 special warrants to persons resident outside the United
States and none of the special warrants have been exercised to date. Each
special warrant entitles the holder, upon surrender, without payment of further
consideration, to one common share.
Certain Rights of Shareholders
In accordance with the provisions of the Canadian Business Corporation Act, the
amendment of certain rights of holders of a class of our shares, including our
common shares, requires the approval of at least two-thirds of the votes cast by
the holders of such shares voting at a special meeting of such holders. Under
our Bylaws, a quorum for a special meeting of the holders of our common shares
occurs when at least two persons entitled to vote at such a meeting are present.
In circumstances where the rights of our common shares may be amended, however,
holders of our common shares have the right under the Canadian Business
Corporation Act to dissent from such amendment and require that we pay them the
then fair value of the shares.
Exchange Controls and Other Limitations Affecting Holders of Common Shares
Canada has no system of exchange controls. There is no law, government decree or
regulation in Canada restricting the export or import of capital or affecting
the remittance of dividends, interest or other payments to a non-resident holder
of common shares, other than withholding tax requirements.
There are no limitations on the right of holders of common shares not resident
in Canada to hold or vote the common shares imposed by any governmental laws,
decrees or regulations in Canada or by the charter or other constituent document
other than the Canadian Business Corporation Act which generally requires a
majority of the board of directors of a company incorporated under the Canadian
Business Corporation Act to be resident Canadians in order for that board of
directors to conduct business and accordingly has the effect of limiting the
rights of all holders of common shares with respect to the election of
directors; and as provided by the Investment Canada Act.
Under the Investment Canada Act, an investment by an individual, a government or
a government agency or an entity that is not a "Canadian" (as defined in the
Investment Canada Act) may be subject to certain notification requirements or
review by the Minister responsible for the administration of the Investment
Canada Act. Except as set forth below, an investment in common shares by a
non-Canadian would be reviewable under the Investment Canada Act if:
o such investment constitutes an acquisition of direct control of us
where the value of our assets is at least $5 million; or
o an acquisition of indirect control of us where the value of the our
assets is at least $50 million; or
o the investment is related to Canada's cultural heritage or national
identity.
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<PAGE>
All investments subject to review may not be implemented unless the Minister is
satisfied that the investment is likely to be of net benefit to Canada.
Generally, however, an investment made by a "WTO Investor" (as defined in the
Investment Canada Act and which includes American or American controlled
entities) in common shares is reviewable under the Investment Canada Act only if
such investment constitutes an acquisition of direct control of us and the value
of our assets is at least $179 million (in 1998). An indirect acquisition of
control by a WTO Investor (including an American) is generally no longer subject
to review. The lower thresholds of $5 million for direct acquisitions and $50
million for indirect acquisitions are still applicable for WTO Investors
investing in uranium production, financial services, cultural services and
transportation services.
The Investment Canada Act states that a non-Canadian shall acquire control or
shall be deemed to acquire control if such person or entity acquires a majority
of the voting shares. An acquisition of less than a majority but more than
one-third of the voting shares will be presumed to be an acquisition of control
unless it can be established that, upon acquisition, we are not controlled in
fact by the acquirer through the ownership of voting shares.
The notification requirements which would be applicable in the event of a
proposed acquisition of control not otherwise subject to review require the
potential investor to supply certain information concerning the proposed
investment prior to, or within thirty days following, the consummation of the
acquisition. However, the Federal Cabinet retains the right to review any such
proposed investment that is related to cultural heritage or national identity
if, within a specific period, the Federal Cabinet considers it in the public
interest on the recommendations of the Minister to issue an order for the review
of the investment.
In certain limited circumstances, transactions in relation to voting shares
would be exempt from the Investment Canada Act, including:
o an acquisition of voting shares if the acquisition were made in
connection with the person's business as a trader or dealer in
securities;
o an acquisition of control of us in connection with the realization of
a security interest granted for a loan or other financial assistance
and not for any purpose related to the provisions of the Investment
Canada Act; and
o an acquisition of control of us by reason of an amalgamation, merger,
consolidation or corporate reorganization, following which the
ultimate direct or indirect control of us, through the ownership of
voting interests, remains unchanged.
Pooling and Escrow Agreements
An aggregate of 13,514,844 of our common shares are held in escrow pursuant to
the terms of a pooling agreement dated August 25, 1998 between us, Montreal
Trust Company of Canada and certain of our shareholders. Under the terms of the
August pooling agreement, 3,378,711 shares will be released from escrow on April
1, 2000 and an additional 25% of the shares will be released from escrow every
three months thereafter until all shares are released. Any shareholder who holds
less than or equal to 50,000 shares at a release date shall have all such shares
released at such release date.
In addition, 2,800,000 shares subject to the August pooling agreement have been
issued into escrow against the deposit into escrow of all the outstanding
"atypical shares" of iQ Germany. The common shares will be released from escrow
to the former holders of the atypical shares and the atypical shares will be
released from escrow to us, at the close of this offering. Upon release from
escrow the shares issued to the former holders of the atypical shares will be
subject to the August pooling agreement under the terms of an amendment to the
August pooling agreement dated August 25, 1998.
An aggregate of 3,464,580 of our common shares are held in escrow pursuant to
the terms of a pooling agreement dated December 1, 1998 between us, Montreal
Trust Company of Canada and certain of our shareholders. Under the terms of the
December pooling agreement, 3,378,711 shares will be released from escrow on
September 1, 1999
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and an additional 25% of the shares will be released from escrow every three
months thereafter until all shares are released. Any shareholder who holds less
than or equal to 25,000 shares at a release date shall have all such shares
released at such release date.
Transfer Agent and Registrar
Montreal Trust Company of Canada, Vancouver, British Columbia, acts as registrar
and transfer agent for our common shares.
DIVIDEND POLICY
To date, we have not paid any dividends to holders of our shares. The payment of
dividends, if any, to holders of the shares is within the discretion of the
Board of Directors and will depend upon our earnings, capital requirements,
financial condition and other relevant factors. We do not intend to declare any
cash dividends to the holders of the shares in the foreseeable future, but
instead intend to retain all future earnings, if any, for further research and
development, business expansion and working capital.
CERTAIN TAX CONSIDERATIONS
In this section we summarize certain tax considerations relevant to a purchase
of shares in this offering by individuals and corporations which:
o for purposes of the United States Internal Revenue Code, the Income
Tax Act (Canada) and the Canada-United States Tax Convention, are
resident in the United States and not in Canada,
o hold shares as capital assets for purposes of the Internal Revenue
Code and capital property for purposes of the Income Tax Act
o deal at arm's length with us; and
o do not use or hold the shares in carrying on a business through a
permanent establishment or in connection with a fixed base in Canada
and, in the case of individual holders, are also U.S. citizens.
We will refer to persons who satisfy the above conditions as "Unconnected U.S.
Shareholders."
We will assume, for purposes of this discussion, that you are an Unconnected
U.S. Shareholder. The tax consequences of a purchase of shares by persons who
are not Unconnected U.S. Shareholders may differ substantially from the tax
consequences discussed in this section. The Income Tax Act contains rules
relating to securities held by certain financial institutions. We do not discuss
these rules and holders that are financial institutions should consult their own
tax advisors.
This discussion is based upon the current provisions of:
o the Income Tax Act and regulations thereunder;
o the Internal Revenue Code and regulations thereunder;
o the Canada-United States Income Tax Convention;
o our understanding of the current administrative policies and practices
published by Revenue Canada;
o all specific proposals to amend the Income Tax Act and the regulations
thereunder that have been publicly announced by the Minister of
Finance (Canada) prior to the date of this Prospectus;
o the administrative policies published by the U.S. Internal Revenue
Service; and
o judicial decisions,
all of which are subject to change either prospectively or retroactively. We do
not discuss the potential effects of any recently proposed legislation in the
United States and do not take into account the tax laws of the various provinces
or territories of Canada or the tax laws of the various state and local
jurisdictions of the United States or foreign jurisdictions.
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We intend this discussion to be a general description of the U.S. federal and
Canadian federal income tax considerations material to a purchase of shares. We
do not intend it to be legal or tax advice to any prospective Unconnected U.S.
Shareholder and you should not consider it to be legal or tax advice. We do not
give any opinion or make any representation with respect to the income tax
consequences to you. We also have not taken into account the your particular
circumstances and do not address consequences peculiar to you if you are subject
to special provisions of U.S. or Canadian income tax law. Therefore, you should
consult you own tax advisor regarding the tax consequences of purchasing shares
in this offering.
Dividends paid, credited or deemed to have been paid or credited on the shares
to Unconnected U.S. Shareholders will be subject to a Canadian withholding tax
at a rate of 25% under the Income Tax Act. Under the Canada-United States Income
Tax Convention, the rate of withholding tax generally applicable to Unconnected
U.S. Shareholders who beneficially own the dividends is reduced to 15%. In the
case of Unconnected U.S. Shareholders that are companies that beneficially own
at least 10% of our voting stock, the rate of withholding tax on dividends is
reduced to 5%.
United States Federal Income Tax Considerations
As an Unconnected U.S. Shareholder, you generally will include in income the
gross amount of dividends paid by us as dividend income for United States
federal income tax purposes to the extent of our current or accumulated earnings
and profits. You must include in income an amount equal to the U.S. dollar value
of such dividends on the date of receipt (based on the exchange rate on such
date), without reduction for the Canadian withholding tax. You will generally be
entitled to a foreign tax credit, or deduction for U.S. federal income tax
purposes, in an amount equal to the Canadian tax withheld. In the case of
certain Unconnected U.S. Shareholders that are corporations owning 10% or more
of the shares, a portion of the Canadian income tax paid by us is also included
in the foreign tax credit. To the extent dividend distributions made by us
exceed our current or accumulated earnings and profits, they will be treated
first as a return of capital up to the your adjusted tax basis in the shares,
and thereafter as a gain from the sale or exchange of the shares.
Dividends paid by us generally will constitute "passive income" for purposes of
the foreign tax credit, which could reduce the amount of foreign tax credit
available to you. The Internal Revenue Code applies various limitations on the
amount of foreign tax credit that may be available to a U.S. taxpayer. Because
of the complexity of those limitations, you should consult your own tax advisor
with respect to the potential consequences of those limitations.
Dividends paid by us on the shares will not generally be eligible for the
"dividends received" deductions. An Unconnected U.S. Shareholder which is a
corporation may, under certain circumstances, be entitled to a 70% deduction of
the U.S. source portion of dividends received from us if such Unconnected U.S.
Shareholder owns shares representing at least 10% of our voting power and value.
If you do not convert dividends paid in foreign currency into U.S. dollars on
the date of receipt, you will have a tax basis in the foreign currency equal to
its U.S. dollar value on the date of receipt. Any gain or loss you recognize
upon a later sale or other disposition of the foreign currency, including an
exchange for U.S. dollars, will be ordinary income or loss. However, if you are
an individual and if the gain you realize from the sale or other disposition of
the foreign currency does not exceed $200, you will not recognize that gain so
long as there are no expenses associated with the transaction that meet the
requirement for deductibility as a trade or business expense (other than travel
expenses in connection with a business trip) or as an expense for the production
of income.
If you sell the shares, you generally will recognize gain or loss in an amount
equal to the difference between the amount realized on the sale and your
adjusted tax basis in the shares. Any gain or loss you recognize upon the sale
of shares held as capital assets will be long-term or short-term capital gain or
loss, depending on whether the shares have been held by you for more than one
year.
Under current U.S. tax regulations, dividends paid by us on the shares generally
will not be subject to information reporting. However, under U.S. tax
regulations effective on January 1, 2000, dividends paid by us on the shares to
addresses or accounts within the U.S. will generally be subject to information
reporting. Information reporting will not be required for dividends paid by us
on the shares to certain "exempt recipients," as defined by the U.S. tax
regulations.
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Under current U.S. tax regulations, dividends paid by us on the shares generally
will not be subject to U.S. backup withholding tax. However, dividends paid, and
the proceeds of a sale of shares, in the United States through a U.S. or
U.S.-related paying agent (including, a broker) will be subject to U.S.
information reporting requirements and may also be subject to the 31% U.S.
backup withholding tax, unless you furnish the paying agent with a duly
completed and signed Form W-9. Under U.S. tax regulations effective on January
1, 2000, dividends paid on the shares, if any, will generally be subject to the
31% U.S. backup withholding tax unless the recipient is an "exempt recipient,"
as defined by the regulations, or unless the recipient furnishes the payor with
a duly completed and signed Form W-9. You will be allowed a refund or a credit
equal to any amounts withheld under the U.S. backup withholding tax rules
against your U.S. federal income tax liability, provided you furnish the
required information to the Internal Revenue Service.
Personal Holding Companies
We could be classified as a personal holding company for U.S. federal income tax
purposes if both of the following tests are satisfied:
o if at any time during the last half of our taxable year, five or fewer
individuals (without regard to their citizenship or residency) own or
are deemed to own (under certain attribution rules) more than 50% of
the total value of our stock; and
o we receive 60% or more of our U.S. related gross income, as
specifically adjusted, from certain passive sources, such as royalty
payments.
A personal holding company is taxed (currently at a rate of 39.6%) on certain of
its undistributed U.S. source income (including certain types of foreign source
income which are connected with the conduct of a U.S. trade or business) to the
extent such income is not distributed to shareholders. We can not assure you
that we will not qualify as a personal holding company in the future.
Foreign Personal Holding Companies
We could be classified as a foreign personal holding company if in any taxable
year both of the following tests are satisfied:
o five or fewer individuals who are United States citizens or residents
own or are deemed to own (under certain attribution rules) more than
50% of the total voting power of all classes of our stock entitled to
vote or the total value of our stock; and
o at least 60% (50% in certain cases) of our gross income (regardless of
source) consists of "foreign personal holding company income," which
generally includes passive income such as dividends, interest, gains
from the sale or exchange of stock or securities, rent and royalties.
We do not believe that we satisfy either the ownership test or the income test
set forth above. If we are classified as a foreign personal holding company and
if you held shares on the last day of our taxable year, you must include in your
gross income as a dividend your pro rata portion of our undistributed foreign
personal holding company income. If you dispose of your shares prior to such
date, you would not be subject to tax under these rules. We can not assure you
that we will not qualify as a foreign personal holding company the future.
Passive Foreign Investment Companies
The rules governing "passive foreign investment companies" can have significant
tax effects on Unconnected U.S. Shareholders. These rules do not apply to
persons that are not Unconnected U.S. Shareholders. We could be classified as a
passive foreign investment company if, for any taxable year, either:
o 75% or more of our gross income is "passive income," which includes
interest, dividends and certain rents and royalties, or
o the average percentage, by fair market value (or, in certain cases, by
adjusted tax basis) of our assets that produce or are held for the
production of "passive income" is 50% or more.
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We believe that we may qualify as a passive foreign investment company for the
current fiscal year and may qualify as a passive foreign investment company in
future years. We can not assure you regarding our current or future passive
foreign investment company status or that we will be able to satisfy record
keeping requirements which will be imposed on "qualified electing funds," as
defined in Section 1293 of the Internal Revenue Code. You should consult a tax
advisor with respect to how the passive foreign investment company rules affect
your tax situation.
If you hold our shares during any year in which we qualify as a passive foreign
investment company, you will be subject to United States federal income taxation
under one of two alternative tax regimes at your election. In addition, special
rules apply if we qualify as both a passive foreign investment company and a
"controlled foreign corporation" (as defined below) and you own, directly or
indirectly, 10% or more of the total combined voting power of all classes of our
shares.
If you elect in a timely manner to treat us as a qualified electing fund, you
will be subject, under Section 1293 of the Internal Revenue Code, to current
federal income tax for any taxable year in which we qualify as a passive foreign
investment company on your pro rata share of our:
o net capital gain (the excess of net long-term capital gain over net
short-term capital loss), which will be taxed as long-term capital
gain; and
o ordinary earnings (the excess of earnings and profits over net capital
gain), which will be taxed as ordinary income.
In each of the above cases, the tax will be imposed in your taxable year in
which (or with which) our taxable year ends, regardless of whether such amounts
are actually distributed.
The qualified electing fund election also allows you to:
o generally treat any gain realized on the disposition of your shares
(or deemed to be realized on the pledge of your shares) as capital
gain;
o treat your share of our net capital gain, if any, as long-term capital
gain instead of ordinary income; and
o either avoid interest charges resulting from private foreign
investment company status altogether, or make an annual election,
subject to certain limitations, to defer payment of current taxes on
your share of our annual realized net capital gain and ordinary
earnings subject, however, to an interest charge. If you are not a
corporation, such an interest charge would be treated as "personal
interest" that is not deductible.
The procedure you must comply with in making a qualified electing fund election
will depend on whether the year of the election is the first year in your
holding period in which we are a passive foreign investment company. If you make
a qualified electing fund election in such first year (i.e., a timely qualified
electing fund election), then you may make the qualified electing fund election
by simply filing the appropriate documents at the time you file your tax return
for such first year. If, however, we qualified as a passive foreign investment
company in a prior year, then in addition to filing documents, you must elect to
recognize:
o under the rules of Section 1291 of the Internal Revenue Code, any gain
that you would otherwise recognize if you sold your stock on the
qualification date; or
o if we are a controlled foreign corporation, your pro rata share of our
post-1986 earnings and profits as of the qualification date.
The qualification date is the first day of our first tax year in which we
qualified as a qualified electing fund with respect to you. The election to
recognize such gain or earnings and profits can only be made if your holding
period for the shares includes the qualification date. By electing to recognize
such gain or earnings and profits, you will be deemed to have made a timely
qualified electing fund election. You are urged to consult a tax advisor
regarding the availability of and procedure for electing to recognize gain or
earnings and profits under the foregoing rules.
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When a timely qualified electing fund election is made, if we no longer qualify
as a passive foreign investment company in a subsequent year, normal Internal
Revenue Code rules will apply. It is unclear whether a new qualified electing
fund election is necessary if we thereafter re-qualify as a passive foreign
investment company. You should seriously consider making a new qualified
electing fund election under those circumstances.
If you do not make a timely qualified electing fund election during a year in
which you hold (or are deemed to have held) the shares in question and we are a
passive foreign investment company, then special taxation rules under Section
1291 of the Internal Revenue Code will apply to:
o gains realized on the disposition (or deemed to be realized by reason
of a pledge) of your shares and
o certain "excess distributions," as specifically defined, paid by us.
If you did not make a timely qualified electing fund election, you generally
would be required to pro rate all gains realized on the disposition of your
shares and all excess distributions on your shares over the entire holding
period of the shares. All gains or excess distributions allocated to prior years
(other than years prior to our first taxable year during your holding period and
beginning after January 1, 1987 for which we were a passive foreign investment
company) would be taxed at the highest tax rate for each such prior year
applicable to ordinary income.
If you did not make a timely qualified electing fund election you also would be
liable for interest on the foregoing tax liability for each such prior year
calculated as if such liability had been due with respect to each such prior
year. If you are not a corporation you must treat this interest charge as
"personal interest" which, as discussed above, is wholly nondeductible. The
balance of the gain or the excess distribution will be treated as ordinary
income in the year of the disposition or distribution, and no interest charge
will be incurred with respect to such balance.
If we are a passive foreign investment company for any taxable year during which
you have not made a timely qualified electing fund election and you hold shares,
then we will continue to be treated as a passive foreign investment company with
respect to such shares, even if we are no longer definitionally a passive
foreign investment company. You may terminate this deemed passive foreign
investment company status by electing to recognize gain (which will be taxed
under the rules discussed above for holders who do not make a timely qualified
electing fund election) as if such shares had been sold on the last day of the
last taxable year for which we were a passive foreign investment.
If you hold (actually or constructively) marketable stock of a foreign
corporation that qualifies as a passive foreign investment company you may
annually elect to mark such stock to the market. If such an election is made,
you will not be subject to the special taxation rules of Section 1291 of the
Internal Revenue Code for the taxable year for which the mark-to-market election
is made. If you make such an election you will include in ordinary income for
the taxable year for which the election was made an amount equal to the excess,
if any, of the fair market value of the shares as of the close of such tax year
over your adjusted tax basis in such shares.
In addition, you are allowed a deduction for the lesser of:
o the excess, if any, of your adjusted tax basis in the shares over the
fair market value of such shares as of the close of the tax year; or
o the excess, if any, of :
- the mark-to-market gains for the shares included by you for prior
tax years, including any amount which would have been included
for any prior tax year but for Section 1291of the Internal
Revenue Code interest on tax deferral rules (discussed below)
with respect to holders who do not make a timely qualified
electing fund election, over
- the mark-to-market losses for shares that were allowed as
deductions for prior tax years.
Your adjusted tax basis in the shares will be adjusted to reflect the amount
included or deducted as a result of a mark-to-market election. A mark-to-market
election only applies to the taxable year in which the election was made. You
must make a separate election for each subsequent taxable year. Because the
Internal Revenue Service
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has not established procedures for making a mark-to-market election, you should
consult your tax advisor regarding the manner of making such an election.
Under Section 1291(f) of the Internal Revenue Code, the Internal Revenue Service
has issued proposed regulations that, subject to certain exceptions, would treat
as taxable certain transfers of passive foreign investment company stock by
holders who do not make a timely qualified electing fund election which are
generally not otherwise taxed, such as gifts, exchanges pursuant to corporate
reorganizations, and transfers at death. Generally, in such cases the basis of
shares in the hands of the transferee and the basis of any property received in
the exchange for those shares would be increased by the amount of gain
recognized.
If you make a timely qualified electing fund election, you would not be taxed on
certain transfers of our shares, even if we are a passive foreign investment
company, such as gifts, exchanges pursuant to corporate reorganizations, and
transfers at death. The transferee's basis in this case will depend on the
manner of the transfer. In a transfer at death, for example, the transferee's
basis is equal to:
o the fair market value of your shares, less
o the excess of the fair market value of your shares reduced by your
adjusted tax basis in these shares at death.
The specific tax effect to you and the transferee may vary based on the manner
in which the shares are transferred. You should consult a tax advisor with
respect to how the passive foreign investment company rules affect your tax
situation.
Certain special, generally adverse, rules will apply with respect to shares
while we are a passive foreign investment company whether or not we are treated
as a qualified electing fund. For example under Section 1298(b)(6) of the
Internal Revenue Code, an Unconnected U.S. Shareholder who uses passive foreign
investment company stock as security for a loan (including a margin loan) will,
except as may be provided in regulations, be treated as having made a taxable
disposition of such shares.
Controlled Foreign Corporation
If more than 50% of the voting power of all classes of our stock or the total
value of our stock is owned, directly or indirectly, by citizens of the United
States, U.S. domestic partnerships and corporations or estates or trusts other
than foreign estates or trusts, each of which owns 10% or more of the total
combined voting power of all classes of our stock, we could be treated as a
"controlled foreign corporation" under Subpart F of the Internal Revenue Code.
This classification would effect many complex results, including the required
inclusion in income by such 10% or greater shareholders of their pro rata shares
of our "Subpart F Income" (as specifically defined by the Internal Revenue
Code). In addition, under Section 1248 of the Internal Revenue Code, gain from
the sale or exchange of stock by an Unconnected U.S. Shareholder who is or was a
10% or greater shareholder at any time during the five-year period ending with
the sale or exchange will be ordinary dividend income to the extent of our
earnings and profits attributable to the stock sold or exchanged.
We do not believe that we are a controlled foreign corporation and we do not
anticipate that we will become a controlled foreign corporation as a result of
the offering. However, we can not assure you that we will not qualify as a
controlled foreign corporation in the future.
Certain Canadian Federal Income Tax Considerations
In this section, we summarize certain Canadian income tax considerations
relevant to your purchase of shares.
If you purchase the shares you will be deemed to have received a dividend to the
extent that the amount paid by you exceeds the paid-up capital, as defined in
the Tax Act, of the shares acquired. Furthermore, you will be deemed to have
disposed of the shares for proceeds of disposition equal to the amount paid less
the amount deemed to have been received as a dividend. Capital gains realized on
the deemed disposition will have the income tax consequences described below.
The portion of the proceeds of disposition that are deemed to be a dividend will
be subject to a Canadian withholding tax on dividends, as described above.
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Capital gains realized on your disposition or deemed disposition of shares will
not be subject to taxation under the Tax Act unless such shares are "taxable
Canadian property," as defined in the Tax Act. Shares will generally not
constitute taxable Canadian property unless, at any time during the five-year
period immediately preceding the disposition or deemed disposition of the
shares, your persons with whom you did not deal at arm's length, or any
combination thereof owned, had an interest in or an option in respect of, 25% or
more of the issued shares of any class or series of our capital stock. If the
shares constitute taxable Canadian property to you, the Convention will
generally exempt you from income tax under the Tax Act in respect of the
disposition or deemed disposition of the shares, provided the value of the
shares is not derived principally from real property situated in Canada.
Canada does not currently impose any estate taxes or succession duties, however,
if you die, there is a deemed disposition of the shares held at that time for
proceeds of disposition equal to the fair market value of the shares immediately
before the death. Capital gains realized on the deemed disposition, if any, will
have the income tax consequences described above.
SECURITIES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common shares in the
United States. Upon the completion of this offering, assuming the maximum amount
of shares offered in the offering (5,500,000) are issued, there will be
23,979,425 of our common shares outstanding, including 2,300,000 shares issuable
upon the exercise of special warrants and excluding 2,875,000 shares issuable
upon exercise of presently outstanding options. Of these shares, the 5,500,000
shares being sold in this offering will be freely tradable without restriction
or further registration under the Securities Act, except for any such shares
issued to persons who, as a result of positions with us (such as directors and
officers) or stock ownership, are or were "affiliates." Any person who is deemed
to be an affiliate may not resell in the United States our shares held by such
person in the absence of registration under the Securities Act unless an
exemption from registration is available, such as Rule 144 discussed below.
A total of 3,709,684 common shares (including 2,300,000 shares issuable upon
exercise of the Special Warrants) were issued and sold by us in reliance on an
exemption from registration under the Securities Act provided by Rule 504
thereunder. Such shares are unrestricted and freely tradeable in the United
States.
Our affiliates holding 9,290,844 common shares, 7,790,843 shares of which are
subject to the August pooling agreement described below, are entitled to sell in
the United States within any three-month period, that number of shares that does
not exceed the greater of:
o one percent of the number of common shares then outstanding
(approximately 234,794 shares immediately after this offering); or
o the average weekly trading volume of the common shares during the four
calendar weeks preceding such sale.
A total of 14,769,741 common shares were issued by us in reliance upon
Regulation S under the Securities Act to persons whom we believe were outside
the United States at the time of sale and who are not our affiliates. Shares
sold outside the United States in reliance upon Regulation S may, under certain
circumstances, be resold in the United States by persons other than our
affiliates without registration under the Securities Act, subject to fulfillment
of certain resale conditions imposed by Rule 144 under the Securities Act
described below.
Under Regulation S, any shares held by persons other than us, any underwriter,
dealer or other person who participates, pursuant to a contractual arrangement,
in the distribution of the shares sold in reliance thereon, any of their
respective affiliates (other than directors or officers who are affiliates
solely by virtue of holding such position) or any person acting on behalf of any
of the foregoing, may resell the shares in an "offshore transaction," as defined
in Regulation S, provided that the sale is not prearranged with a buyer in the
United States and no directed selling efforts (as such term is defined in
Regulation S) are made in the United States by the seller, any affiliate or any
person acting on their behalf. Officers and directors who are affiliates solely
by virtue of holding such position may
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also resell shares on the same basis, provided that no selling commission, fee
or other remuneration is paid in connection with such offers and sales other
than usual and customary brokers commissions. All other of our affiliates and
such persons would be required to comply with Regulation S restrictions applied
to primary offerings by issuers which, in addition to the offshore transaction
and no directed selling efforts requirements, may include certain other offering
restrictions.
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year (including the holding
period of any prior owner, except an affiliate) is entitled to sell in "broker's
transactions" or to market makers, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of:
o one percent of the number of common shares then outstanding
(approximately 234,794 shares immediately after this offering); or
o the average weekly trading volume of the shares during the four
calendar weeks preceding the required filing of a Form 144 with
respect to such sale.
Sales under Rule 144 are generally subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been our
affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Certain of our shareholders and the former holders of common stock and atypical
shares of iQ Germany have agreed to place their shares into escrow subject to
the terms of the August pooling agreement. An aggregate of 13,514,844 shares are
held in escrow pursuant to the August pooling agreement. Under the terms of the
August pooling agreement, 3,378,711 shares will be released from escrow on April
1, 2000 and an additional 25% of the shares will be released from escrow every
three months thereafter until all shares are released, and any shareholder who
holds less than or equal to 50,000 shares at a release date shall have all such
shares released at such release date.
In addition to the August pooling agreement, 3,464,580 of our common shares are
held in escrow pursuant to the terms of the December pooling agreement. Under
the terms of the December pooling agreement, 866,145 shares will be released
from escrow on the earlier of September 1, 1999 or the date this offering closes
and an additional 25% of the shares will be released from escrow every three
months thereafter until all shares are released. Any shareholder who holds less
than or equal to 25,000 shares at a release date shall have all such shares
released at such release date.
AVAILABLE INFORMATION
We do not report under the Exchange Act. We have filed with the SEC a
registration statement on Form SB-1 covering the shares. We have not included in
this Prospectus certain information contained in the registration statement and
you should refer to the registration statement and its exhibits for further
information. For a fee, you may get a copy of the registration statement from
the public reference section of the SEC at: Judiciary Plaza, 450 5th Street,
N.W., Washington, D.C. 20549; and at the SEC's Regional Office located at: 1400
Citicorp Center, 500 West Madison Street, Chicago, IL 60661. In addition, the
SEC maintains a web site on the Internet at the address http://www.sec.gov that
contains reports, proxy information statements and other information regarding
registrants that file electronically with the SEC.
After completion of this offering, we will be exempt from the rules under the
Exchange Act that require us to furnish proxy statements to our shareholders,
and our officers, directors and principal shareholders will be exempt from the
reporting and short swing profit recovery provisions of Section 16 under the
Exchange Act. However, we will be subject to the reporting requirements of the
Exchange Act that are applicable to foreign private issuers. We are not required
under the Exchange Act to publish financial statements as frequently or as
promptly as United States companies who are subject to the Exchange Act. We
intend, however, to continue to furnish our shareholders
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with annual reports containing consolidated financial statements audited by
independent accountants and with quarterly reports containing unaudited summary
financial information for each of the first three fiscal quarters of each fiscal
year, as well as any other reports as our Board of Directors may authorize or
that are required by law.
LEGAL MATTERS
The legality of the shares offered by this Prospectus will be passed upon for us
by Werbes Sasges & Company, our Canadian Counsel. Certain legal matters in
connection with this offering will be passed upon for us Dorsey & Whitney LLP,
Seattle, Washington our special United States counsel Dorsey & Whitney LLP will
rely on the opinions of Werbes Sasges & Company as to matters of Canadian law.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus including, without limitation,
statements containing the words "believes," "anticipates," "expects" and words
of similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, or the Reform Act. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others:
o We are an early stage company
o We have a history of losses
o Our future profitability is uncertain
o We may need additional financing
o We face competition from more established companies
o We may not be able to commercialize our technology
o Our revenues depend on single product
o Successful development of new products is uncertain
o Market demand for our products is uncertain
o We have only a limited amount of customers
o We rely on strategic relationships
o We have no manufacturing, marketing or distribution experience
o We depend on key personnel and must continue to attract key personnel
o Our success depends on protecting intellectual property rights
o We may face challenges from third parties regarding the validity of iQ
Germany's intellectual property rights
o We are subject to risks associated with international operations
o We are subject to currency risk
o Directors, executive officers, principal shareholders and affiliated
entities own a significant percentage of the shares
NARRATIVE INFORMATION REQUIRED IN PROSPECTUS
Item 2. Significant Parties
(1) The full names and business and residential addresses, as applicable,
of our directors are as follows:
Name: Russell French
Business Address: Suite 708-A, 1111 West Hastings Street, Vancouver,
British Columbia, Canada
Home Address: 3677 Regent Avenue, North Vancouver, British Columbia,
Canada V7N 2C3
-47-
<PAGE>
Name: Peter E. Braun
Business Address: Erlenhof Park, Inselkammer Strasse 4, D-82008
Unterhaching, Germany
Home Address: Reineke Strasse 56, 81545 Munich, Germany
Name: Gunther C. Bauer
Business Address: Erlenhof Park, Inselkammer Strasse 4, D-82008
Unterhaching, Germany
Home Address: Oderweg 7, 85521 Ottobrunn, Bavaria, Germany
(2) The full names and business and residential addresses, as applicable,
of our officers are as follows:
Name: Peter E. Braun, President and Chief Executive Officer
Business Address: Erlenhof Park, Inselkammer Strasse 4, D-82008
Unterhaching, Germany
Home Address: Reineke Strasse 56, 81545 Munich, Germany
Name: Gerhard Trenz, Vice-President, Finance
Business Address: Erlenhof Park, Inselkammer Strasse 4, D-82008
Unterhaching, Germany
Home Address: Heimstettener Strasse 56, 85551 Kirchheim, Germany
Name: Gunther C. Bauer, Vice-President, Research
& Development
Business Address: Erlenhof Park, Inselkammer Strasse 4, D-82008
Unterhaching, Germany
Home Address: Oderweg 7, 85521 Ottobrunn, Bavaria, Germany
(3) We are organized as a corporation and has no general partners.
(4) As of March 15, 1999, the names and business and residential
addresses of record owners of the five percent (5%) or more of any class of our
equity securities are as follows:
Name: Peter E. Braun
Business Address: Erlenhof Park, Inselkammer Strasse 4, D-82008
Unterhaching, Germany
Home Address: Reineke Strasse 56, 81545 Munich, Germany
Name: Gunther C. Bauer
Business Address: Erlenhof Park, Inselkammer Strasse 4, D-82008
Unterhaching, Germany
Home Address: Oderweg 7, Ottobrunn, Bavaria, Germany
Name: Horst Dieter Braun
Business Address: Not applicable
Home Address: Piesenkamer Str. 9, 83679, Sachsenkam, Germany
Name: Karin Wittkewitz
Business Address: Not applicable
Home Address: Piesenkamer Str. 9, 83679, Sachsenkam, Germany
Name: Rainer Welke
Business Address: Ascheberger Strasse 2, 48308 Senden, Germany
Home Address: Kreuzbauerschaft 79, 48308 Senden, Germany
-48-
<PAGE>
Name: Helmut Krack
Business Address: Not applicable
Home Address: Weinerstrasse 7, 48145 Munster, Germany
(5) The names and business and residential addresses of beneficial owners
of five percent (5%) or more of any class of our equity securities include those
persons set forth in response to Item 2(4) as well as:
None.
(6) The name and business and residential address of our promoter is.
Name: Russell French
Business Address Suite 708-A, 1111 West Hastings Street, Vancouver,
British Columbia, Canada
Home Address: 3677 Regent Avenue, North Vancouver, British Columbia,
Canada V7N 2C3
(7) The names and business and residential addresses of our affiliates are
set forth in response to Items 2(1), (2) and (4) as well as:
Name: iQ Battery Research & Development GmbH
Business Address: Erlenhof Park, Inselkammer Strasse 4, D-82008
Unterhaching, Germany
Home Address: Not applicable
(8) Werbes Sasges & Company, 1111 West Hastings Street, Suite 708,
Vancouver, Canada V6E 2J3 is our legal counsel. Dorsey & Whitney LLP, U.S. Bank
Building Center, 450 Fifth Avenue, Suite 400, Seattle, Washington 98101-2346 is
our special U.S. counsel in connection with the proposed offering.
(9) None.
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
Item 3. Relationship with Issuer of Experts Named in Prospectus
We have not engaged any expert named in the Prospectus as having prepared or
certified any part of it on a contingent basis. No expert had or has a material
interest in us or is connected with us as a promoter, underwriter, voting
trustee, director, officer or employee.
Item 4. Legal Proceedings
As of the date of this Prospectus, there is no material litigation pending
against us.
Item 5. Changes in and Disagreements with Accountants
Not applicable.
Item 6. Disclosure of Commission Position on Indemnification for Securities
Act Liabilities
To the extent indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons under our
Company's Articles of Incorporation, contractual agreements or
-49-
<PAGE>
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
INTRODUCTION TO FINANCIAL STATEMENTS
The financial statements included in this Prospectus are those of our company.
These financial statements are set forth on the pages that follow.
iQ POWER TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Page
iQ Power Technology, Inc..........................................................................................1
Auditors' Report...............................................................................................2
Balance Sheets.................................................................................................3
Balance Sheets.................................................................................................3
Statements of Loss and Deficit.................................................................................4
Statements of Loss and Deficit.................................................................................4
Statements of Cash Flow........................................................................................5
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 Financial Statements.................................................................................15
Selected Unaudited Pro forma.....................................................................................23
Unaudited Pro Forma Consolidated Balance Sheet................................................................24
Unaudited Pro Forma Statement of Loss for the nine months ended September 30, 1998............................25
For the nine months ended September 30, 1998..................................................................25
Unaudited Pro Forma Statement of Loss.........................................................................26
Notes to the Unaudited Pro Forma Consolidated Financial Information...........................................27
</TABLE>
<PAGE>
Deloitte & Touche --------------------------------------------------
Deloitte & Touche LLP Telephone: (604) 669-4466
Suite 2100 Facsimile: (604) 685-0395
1055 Dunsmuir Street
P.O. Box 49279
Four Bentall Centre
Vancouver, British Columbia
V7X 1P4
AUDITORS' REPORT
To the Directors 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, 1997 and 1996 and the statements of loss and
deficit and cash flow for the year ended December 31, 1997, the seven month
period ended December 31, 1996 and cumulative from date of inception to December
31, 1997. 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, 1997 and 1996
and the results of its operations and cash flows for the year ended December 31,
1997, the seven month period ended December 31, 1996 and cumulative from date of
inception to December 31, 1997 in accordance with accounting principles
generally accepted in Canada applied on a consistent basis.
/s/ Deloitte & Touche LLP
- -----------------------------------
Chartered Accountants
Vancouver, British Columbia
October 15, 1998
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 October 15, 1998 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
1October 15, 1998
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Balance Sheets
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
<TABLE>
September 30 December 31
1998 1997 1996
----------------- ----------------- -----------------
(Unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT
Cash $ 340,393 $ 43,525 $ -
Accounts receivable 7,614 3,060 -
Prepaids and deposits - 4,600 -
Advances to iQ Germany (Note 4) 657,838 368,076 147,977
- ----------------------------------------------------------------------------------------------------------------------
$ 1,005,845 $ 419,261 $ 147,977
Investment (Note 6) 2,500,000 - -
- ----------------------------------------------------------------------------------------------------------------------
$ 3,505,845 $ 419,621 $ 147,977
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable $ 177,596 $ 56,841 $ -
Accrued liabilities 5,000 15,725 -
Due to shareholder (Note 5) - - 5,877
Share subscription (Note 11(e)) 475,000 - 152,603
- ----------------------------------------------------------------------------------------------------------------------
657,596 72,566 158,480
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIT)
Capital stock (Note 6) 3,210,806 492,435 1
Share subscriptions 24,611 - -
Accumulated deficit, during development stage (387,168) (145,740) (10,504)
- ----------------------------------------------------------------------------------------------------------------------
2,848,249 346,695 (10,504)
- ----------------------------------------------------------------------------------------------------------------------
$ 3,505,845 $ 419,261 $ 147,976
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
CONTINUANCE OF OPERATIONS (Note 2)
F-3
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Statements of Loss and Deficit
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
<TABLE>
Cumulative Cumulative Twelve months
from date of Nine months Nine months from date of Twelve months Seven months
inception to ended ended inception to period ended period ended
September 30 September 30 September 30 December 31 December 31 December 31
--------------- -------------- --------------- -------------- ---------------- ---------------
1998 1998 1997 1997 1997 1996
--------------- -------------- --------------- -------------- ---------------- ---------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Expenses
Automobile $ 1,180 $ 1,180 $ - $ - $ - $ -
Advertising and 6,424 6,424 - - - -
promotion
Loss on foreign 32,394 - - 32,394 32,394 -
exchange
Management fees 99,988 56,790 32,641 43,198 43,198 -
Office 31,194 30,983 29 211 211 -
Professional fees 120,623 94,357 1,085 26,266 21,640 4,626
Technical reports 5,878 - - 5,878 - 5,878
Travel 89,487 51,694 23,268 37,793 37,793 -
- ------------------------------------------------------------------------------------------------------------------------
387,168 241,428 57,023 145,740 135,236 10,504
- ------------------------------------------------------------------------------------------------------------------------
Net loss (387,168) (241,428) (57,023) (145,740) (135,236) (10,504)
Accumulated deficit (145,740) (10,504) (10,504)
during development
stage, beginning of
period
- ------------------------------------------------------------------------------------------------------------------------
Accumulated deficit $(387,168) $ (387,168) $ (67,527) $(145,740) $ (145,740) $ (10,504)
during development
stage, end of period
- ------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss $ (0.05) N/A $ (0.14) N/A
per share
- ------------------------------------------------------------------------------------------------------------------------
Weighted average number 4,546,845 N/A 950,294 N/A
of shares outstanding
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Statements of Cash Flow
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
<TABLE>
Cumulative Cumulative
from date of Nine months Nine months from date of Twelve months Seven months
inception to ended ended inception to ended ended
September 30 September 30 September 30 December 31 December 31 December 31
1998 1998 1997 1997 1997 1996
--------------- ---------------- ------------------------------- ------------------------------
(Unaudited) (Unaudited) (Unaudited)
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C> <C>
Net loss $ (387,168) $ (241,428) $ (57,023) $ (145,740) $ (135,236) $ (10,504)
Items not affecting cash
Increase in accounts
receivable (7,614) (4,554) (1,562) (3,060) (3,060) -
(Decrease) increase in
prepaid and deposits - 4,600 - (4,600) (4,600) -
Decrease in GST payable - - (759)
Increase in accounts
payable 177,596 120,755 34,925 56,841 56,841 -
Increase in advances
payable - - 7,879
(Decrease) increase in
accrued liabilities 5,000 (10,725) - 15,725 15,725 -
- -----------------------------------------------------------------------------------------------------------------------------
(212,186) (131,352) (16,540) (80,834) (70,330) (10,504)
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITY
Increase in advances to
iQ Germany (657,838) (289,762) (78,685) (368,076) (220,099) (147,977)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
(Decrease) increase in
due to shareholder - - (5,877) - (5,877) 5,877
Increase in
share subscriptions 177,214 24,611 142,505 152,603 - 152,603
(equity)
Increase in
share subscriptions 475,000 475,000 - - - -
(liability)
Issuance of common - - - -
shares 558,203 218,371 - 339,832 339,831 1
- -----------------------------------------------------------------------------------------------------------------------------
1,210,417 717,982 136,628 492,435 333,954 158,481
- -----------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS 340,393 296,868 41,403 43,525 43,525 -
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD - 43,525 - - - -
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS, END
OF PERIOD $ 340,393 $ 340,393 $ 41,403 $ 43,525 $ 43,525 $ -
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 6 for non-cash investing and financing activity
F-5
<PAGE>
IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
(Information as at September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 is unaudited)
- --------------------------------------------------------------------------------
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 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 10.
(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.
(c) Investments
Investments in iQ Research & Development GmbH are carried at cost,
less any impairment which is deemed 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.
F-6
<PAGE>
IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
(Information as at September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 is unaudited)
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
(e) Unaudited interim financial statements
The unaudited interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States for interim financial reporting. While these financial
statements reflect all fair presentation of the results for the
interim period, they may not include the footnotes required by
generally accepted accounting principles for complete financial
statements.
4. PROMISSORY NOTES RECEIVABLE
Of the total advances of $657,838, the amount of DM 100,000 ($59,680) is
supported by promissory notes. Promissory notes receivable are unsecured,
do not bear interest and are payable on demand. The remainder of the
advances are not evidenced by any formal documentation and as such are
subject to unspecified terms and conditions. The advances are intended to
provide interim financing until all conditions of the business
combination are satisfied. (Note 11(d))
5. DUE TO SHAREHOLDER
The amounts due to shareholder are unsecured, non-interest bearing and have
no specific terms of repayment.
6. SHARE CAPITAL
Authorized: an unlimited number of common shares
<TABLE>
September 30 December 31
------------------------------ ----------------------------------------------------------
1998 1997 1996
------------------------------ ----------------------------------------------------------
Number of Number of Number of
Common shares Amount Common shares Amount Common shares Amount
------------------------------ ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning
of period 1,969,741 $492,435 1 $1 1 $1
Private placement,
issued for cash 873,484 218,371 1,969,740 492,435 - -
Shares contingently
issued 10,000,000 2,500,000 - - - -
- ----------------------------------------------------------------------------------------------------------------------
12,843,225 $3,210,806 1,969,740 492,435 1 $1
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has issued shares for cash (September 30 ,1998: 873,484 shares and
December 31, 1997: 1,969,740 shares) pursuant to private placements at $0.25 per
share.
F-7
<PAGE>
IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
(Information as at September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 is unaudited)
- --------------------------------------------------------------------------------
6. SHARE CAPITAL (Continued)
During the period ended September 30, 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 (see Note 11(d)). 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 has 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 the 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 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.
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 $2,500,000.
7. 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 $609,109, based on a
discount factor of 8% and an anticipated term of 1 year.
8. RELATED PARTY TRANSACTIONS
Related party transactions and balances not disclosed elsewhere in the
financial statements include:
(a) management fees of September 30, 1998 of $20,801 (September 30, 1997 -
$21,802; December 31, 1997 - $43,198 - 1996 - $Nil) 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 $16,445 during the year ended
December 31, 1997 and $44,404 during the nine months ended September
30, 1998;
(c) accounts payable and accrued liabilities include at September 30, 1998
of $56,947 (1996 - $Nil) due to a company with a common director; and
F-8
<PAGE>
IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
(Information as at September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 is unaudited)
- --------------------------------------------------------------------------------
8. RELATED PARTY TRANSACTIONS (Continued)
(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.
9. 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.
10. 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 will 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.
11. SUBSEQUENT EVENTS
Subsequent to December 31, 1997 and September 30, 1998, the Company entered
into the following transactions that are not disclosed elsewhere in these
financial statements:
(a) entered into 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;
F-9
<PAGE>
IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
(Information as at September 30, 1998 and for the nine months ended
September 30, 1998 and 1997 is unaudited)
- --------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS (Continued)
(b) entered into 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) entered into an employment agreement to occupy the position of
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.
(d) entered into a term sheet with IPO Capital Corp. (the "Agent") to
raise seed financing of up to $5,500,000 for a fee of 10% in cash
of gross proceeds raised, plus Agent's Options in an amount equal
to 10% of the common shares sold;
(e) issued 2,300,000 special warrants for net proceeds of $575,000.
Each special warrant comprises one common share. The special
warrant holder has the right to require the Company to repurchase
all Special Warrants not yet exchanged into common shares of the
Company for the initial subscription price at any time prior to
December 31, 1998;
(f) issued 536,200 common shares for $134,050 cash; and
(g) adopted a Stock Option Plan. The maximum number of the common
shares reserved for issuance under the Stock Option Plan
including options currently outstanding, is 3,000,000 common
shares. As at December 1, 1998 a total of 2,875,000 options are
issued and unexercised at an exercise price of $1.00 per share,
expiring December 1, 2008.
F-10
<PAGE>
Deloitte & Touche --------------------------------------------------
Deloitte & Touche LLP Telephone: (604) 669-4466
Suite 2100 Facsimile: (604) 685-0395
1055 Dunsmuir Street
P.O. Box 49279
Four Bentall Centre
Vancouver, British Columbia
V7X 1P4
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, 1997 and 1996, and the related statements of
operations and of cash flows for each of the years in the three year period
ended December 31, 1997. 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 audit.
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, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 1997 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.
/s/ Deloitte & Touche GmbH
- -----------------------------------
Munich, October 28, 1998
Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
F-11
<PAGE>
iQ BATTERY Research & Development GmbH
Balance Sheets
(DM in Thousands)
<TABLE>
September 30 December 31
------------------------------
1998 1997 1996
DM DM DM
-------------- -------------- --------------
(Unaudited)
Assets
<S> <C> <C> <C>
Current assets
Cash 174 31 31
Receivable from original shareholders 146 36 64
Other receivables, primarily refundable value added taxes 150 241 135
Prepaid expenses - 3
-------------- -------------- --------------
Total current assets 470 311 230
Non-current assets
Equipment-net 109 75 17
============== ============== ==============
Total assets 579 386 247
============== ============== ==============
Liabilities and Shareholders' Deficit
Current liabilities
Short-term bank debt 232 88 82
Trade accounts payable 732 387 272
Due to original shareholders 92 66 70
Accrued payroll 188 138 116
Advances 1,226 663 223
Other accrued liabilities 148 159 113
-------------- -------------- --------------
Total current liabilities 2,618 1,501 876
Long-term bank debt 6 8 -
Non-Current liabilities due to original shareholders 95 155 155
-------------- -------------- --------------
Total liabilities 2,719 1,664 1,031
-------------- -------------- --------------
Commitments and Contingencies
Temporary atypical equity - - -
Shareholders' deficit
Registered capital 100 100 100
Accumulated deficit
Attributable to voting shareholders (2,240) (1,378) (884)
-------------- -------------- --------------
Total shareholders' deficit (2,140) (1,278) (784)
-------------- -------------- --------------
Total liabilities, temporary equity
and shareholders' deficit 579 386 247
============== ============== ==============
</TABLE>
See Notes to Financial Statements
F-12
<PAGE>
iQ BATTERY Research & Development GmbH
Statement of Operations
(DM in Thousands)
<TABLE>
Nine months
ended September 30 Years ended December 31
----------------------------- ---------------------------------------------
1998 1997 1997 1996 1995
DM DM DM DM DM
-------------- -------------- -------------- -------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Sales - 5 45 - -
Grants received - - - - 160
-------------- -------------- -------------- -------------- ---------------
- 5 45 - 160
-------------- -------------- -------------- -------------- ---------------
Operating Expenses
Research and development
expenses (1,062) (584) (842) (655) (582)
General administrative and other
expenses (148) (114) (162) (127) (91)
-------------- -------------- -------------- -------------- ---------------
Operating loss (1,210) (693) (959) (782) (513)
Interest income 8 1 1 3 -
Interest and other finance expense (60) (53) (76) (12) (28)
-------------- -------------- -------------- -------------- ---------------
Loss before taxes (1,262) (745) (1,034) (791) (541)
Income taxes - - - - -
-------------- -------------- -------------- -------------- ---------------
Net loss (1,262) (745) (1,034) (791) (541)
Accumulated deficit
beginning of period (1,278) (784) (784) (214) (274)
Adjustment to state temporary atypical
equity at redemption amount 400 360 540 221 601
-------------- -------------- -------------- -------------- ---------------
Accumulated deficit
end of period (2,140) (1,169) (1,278) (784) (214)
============== ============== ============== ============== ===============
</TABLE>
See Notes to Financial Statements
F-13
<PAGE>
iQ BATTERY Research & Development GmbH
Statements of Cash Flows
(DM in Thousands)
<TABLE>
Nine months ended
September 30 Years ended December 31
-------------------------- ----------------------------------------
1998 1997 1997 1996 1995
DM DM DM DM DM
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss (1,262) (745) (1,034) (791) (541)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 26 7 21 10 9
Loss on disposal of equipment - - 10
Changes in assets and liabilities:
Other receivables and prepaid expenses (16) (39) (81) (54) (96)
Accounts payable and other current
Liabilities 383 188 182 272 (30)
------------ ------------ ------------ ------------ ------------
Net cash used in operating activities (869) (589) (912) (553) (658)
------------ ------------ ------------ ------------ ------------
Investing Activities:
Proceeds from sales of equipment - - - 3 -
Additions to property, plant and equipment (60) (25) (80) (13) (24)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (60) (25) (80) (10) (24)
------------ ------------ ------------ ------------ ------------
Financing Activities:
Temporary atypical capital increases 400 360 540 215 587
Increase (decrease) in short-term debt 144 115 6 28 (1)
Increase ((33)ease) in debt due to shareholders (33) (4) (4) 107 118
Advances received from external parties 563 135 440 223 -
Increase in other long-term debt (2) 8 10 - -
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities 1,072 614 992 573 703
------------ ------------ ------------ ------------ ------------
Increase in Cash 143 - - 10 21
Cash, beginning of period 31 31 31 21 0
============ ============ ============ ============ ============
Cash, end of period 174 31 31 31 21
============ ============ ============ ============ ============
</TABLE>
F-14
<PAGE>
iQ BATTERY Research & Development GmbH
Notes to the Financial Statements
Information as at September 30,1998 and for the nine-month period ended
September 30, 1998 and 1997 is unaudited
(DM in Thousands)
1 Description of Business
iQ BATTERY Research & Development GmbH ("iQ BATTERY"), established in1991, 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 & 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, 1997, 1996 and 1995, the Company
incurred net losses of DM 1,034, DM 791, and DM 541 and had negative operating
cash flows of DM 912, DM 553 and DM 658, respectively. The shareholders capital
deficit of December 31, 1997 was DM 2,140. 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 parent 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, subsequently, 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 existing shareholders of iQ BATTERY. The net proceeds
remaining from the offering will be placed in trust and released to IQ
Power Technology Inc. at such time that IQ Power Technology Inc.'s common
shares are eligible for quotation on the NASDAQ OTC system.
- - Additional financing activities
In February 1998, iQ BATTERY filed an application with
"Technologie-Beteiligungs-Gesellschaft mbH der Deutschen Ausgleichsbank" in
Bonn for a participation of DM 3 million. A similar application was filed
in July 1997 with Sachsische Aufbaubank GmbH in Dresden aiming at an
investment grant of DM 1.7 million.
F-15
<PAGE>
iQ BATTERY Research & Development GmbH
Notes to the Financial Statements
Information as at September 30,1998 and for the nine-month period ended
September 30, 1998 and 1997 is unaudited
(DM in Thousands)
2 Summary of Significant Accounting Policies (Continued)
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. Furthermore, management believes that it would be
possible to enter in the short run into agreements with other parties if the
offering with IQ Power Technology, Inc. cannot be completed.
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 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.
d) 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.
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 11).
f) Earnings per share
Earnings per share are not presented because the Company is privately held.
g) Income taxes
Income taxes have been provided for in accordance with the asset and liability
method. Deferred tax assets, net of valuations 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.
F-16
<PAGE>
iQ BATTERY Research & Development GmbH
Notes to the Financial Statements
Information as at September 30,1998 and for the nine-month period ended
September 30, 1998 and 1997 is unaudited (DM in Thousands)
2 Summary of Significant Accounting Policies (Continued)
h) Supplemental cash flow information
Cash paid for interest and income taxes for the periods ended was as
follows:
<TABLE>
September 30 December 31
------------------------------- ------------------------------------------------
1997 1998 1997 1996 1995
-------------- --------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Interest 41 60 55 7 6
Income taxes - - - - -
</TABLE>
3 Equipment
Equipment was as follows:
<TABLE>
September 30 December 31
1998 1997 1996
---------------- --------------- --------------
<S> <C> <C> <C>
Equipment - at cost 172 112 37
Less accumulated depreciation (63) (37) (20)
- -----------------------------------------------------------------------------------------------------------
Equipment - net 109 75 17
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation expense was DM 26 for the nine months ended September 30, 1998
and DM 22 for the year ended December 31, 1997 (1996: DM 10; 1995: DM 9).
4 Shareholders' Equity and Temporary Atypical Equity
The registered capital of the Company is DM 100, which has been fully paid
in by the Company's shareholders. Such ownership shares are not negotiable.
In addition, the Company has also received a total of DM 1,842 of capital
from the issue of atypical shares. The atypical shareholders have certain
information rights, but no voting powers. Losses and profits are allocated
to the atypical shareholders' capital account as stipulated in the
individual atypical shareholders' agreements. The atypical shareholders are
entitled to terminate the agreements at the end of 1999 or 2002 depending
on their entrance dates; iQ BATTERY can terminate in 2001, 2002 or 2003.
Generally the compensation to be paid to the atypical shareholders upon
their termination is based on the applicable fair value of the company
under exclusion of created goodwill.
The following table presents the movements on temporary atypical equity
(amount in DM):
<TABLE>
September 30 December 31
--------------------------------------------------
1998 1997 1996 1995
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Opening balance - - 6 20
Capital contributions 400 540 215 587
Adjustments to state equity at
redemption amount (400) (540) (221) (601)
--------------------------------------------------------------------------------------------------------------
Redemption amount - - - 6
--------------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
iQ BATTERY Research & Development GmbH
Notes to the Financial Statements
Information as at September 30,1998 and for the nine-month period ended
September 30, 1998 and 1997 is unaudited
(DM in Thousands)
4 Shareholders' Equity and Temporary Atypical Equity (Continued)
The Company has received a total of DM 1,842 with respect to atypical
equity with the redemption amount at September 30, 1998 being Nil.
On August 25, 1998, IQ Power Technology, Inc. (IQ Canada) acquired all the
issued and outstanding stock of 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 require IQ Canada 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.
The following table presents the changes in shareholders deficit for the
period from January 1, 1995 to September 30, 1998 (amounts in DM).
<TABLE>
Registered Accumulated
capital Deficit Total
-------------- ---------------- --------------
<S> <C> <C> <C>
January 1, 1995 100 (374) (274)
Adjustments to redemption value of atypical equity 601 601
Net loss (541) (541)
- -----------------------------------------------------------------------------------------------------------
December 31, 1995 100 (314) (214)
Adjustments to redemption value of atypical equity 221 221
Net loss (791) (791)
- -----------------------------------------------------------------------------------------------------------
December 31, 1996 100 (884) (784)
Adjustments to redemption value of atypical equity 540 540
Net loss (1,034) (1,034)
- -----------------------------------------------------------------------------------------------------------
December 31, 1997 100 (1,378) (1,278)
Adjustments to redemption value of atypical equity 400 400
Net loss (1,262) (1,262)
- -----------------------------------------------------------------------------------------------------------
September 30, 1998 100 (2,240) (2,140)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE>
iQ BATTERY Research & Development GmbH
Notes to the Financial Statements
Information as at September 30,1998 and for the nine-month period ended
September 30, 1998 and 1997 is unaudited
(DM in Thousands)
5 Short-term Bank Debt
Short-term bank debt is summarized as follows (amounts in DM):
<TABLE>
September 30 December 31
1998 1997 1996
---------------- --------------- --------------
<S> <C> <C> <C>
Commerzbank AG, Ottobrunn 212 65 58
Dresdner Bank AG, Dresden 18 21 24
Current portion of Behncke
Bank GmbH, Hamburg 2 2 -
- -----------------------------------------------------------------------------------------------------------
Total short-term bank debt 232 88 82
- -----------------------------------------------------------------------------------------------------------
</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 a founding shareholder up to a maximum total of DM 50.
Interest expense for the short-term bank debt amounts to DM 15 for the nine
months ended September 30, 1998 and to DM 22 for the year ended December
31, 1997 (1996: DM 5; 1995: DM 6). The weighted average interest rates were
11%.
6 Long-term bank debt
Long-term bank debt is determined as follows (amounts in DM):
<TABLE>
September 30 December 31
1998 1997 1996
---------------- --------------- --------------
<S> <C> <C> <C>
Behncke Bank GmbH, Hamburg 8 10 -
Less current portion (2) (2) -
- -----------------------------------------------------------------------------------------------------------
Long-term debt, excluding current portion 6 8 -
- -----------------------------------------------------------------------------------------------------------
</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. Current portion of the long term debt is DM 2 (1997: DM 2;
1996: DM 0)
Payments to be made for the years ending December 31 (amounts in DM):
1999 2
2000 2
2001 2
2002 2
F-19
<PAGE>
iQ BATTERY Research & Development GmbH
Notes to the Financial Statements
Information as at September 30,1998 and for the nine-month period ended
September 30, 1998 and 1997 is unaudited
(DM in Thousands)
7 Non-Current Liabilities Due to Original Shareholders
Non-current liabilities due to shareholders are summarized as follows
(amounts in DM):
September 30 December 31
1998 1997 1996
------------- ---------- ----------
Due to shareholders 95 155 155
- --------------------------------------------------------------------------------
Interest, which has to be repaid only in case the company has generated
sufficient net assets or liquidation proceeds, has been accrued for 1997
(DM 31). For 1996 and prior years the 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
2000 0
2001 0
2002 0
2003 0
8 Leases
The Company has operating leases for certain equipment and facilities.
Rental expense was DM 29 for the year ended December 31, 1997 (1996: DM 12;
1995: DM 9). As of December 31, 1997 obligations to make future minimum
lease payments were as follows:
Payments to be made in the years ending December 31 (amounts in DM):
1998 50
1999 43
2000 30
2001 4
2002 3
Thereafter 0
F-20
<PAGE>
iQ BATTERY Research & Development GmbH
Notes to the Financial Statements
Information as at September 30,1998 and for the nine-month period ended
September 30, 1998 and 1997 is unaudited
(DM in Thousands)
9 Income Taxes
The components of the provision for income taxes are as follows for the
years ended December 31:
1998 1997 1996
------------ ----------- ------------
German
Current 0 0 0
Deferred 0 0 0
Change in valuation allowance 0 0 0
- --------------------------------------------------------------------------------
0 0 0
- --------------------------------------------------------------------------------
The provision for income taxes differed from the federal corporation income
tax rate of 45 % because no benefit was realized for the operating losses
incurred in 1995, 1996 and 1997.
As of September 30, 1998, December 31, 1997 and 1996, the Company had total
deferred tax assets relating to loss carryforwards of DM 576, DM 736 and DM
363, 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, 1997, the Company had net operating loss carryforwards
of approximately DM 1,194 for corporation income taxes and DM 2,616 for
municipal trade taxes. Such loss carryforwards have no set expiry dates.
10 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, 1997 and 1996 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 1997 approximates the market rate.
11 Related Party Transactions
The Company paid management fees of DM 132 for the year ended December 31,
1997 (1996: DM 132; 1995: 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 Company and the shareholders agreed that the shareholders would receive
DM 400 from future income. Any amounts paid will be charged to operations
as a current expense. No other amounts are due as the Company has not
realized any applicable revenues or royalties.
F-21
<PAGE>
iQ BATTERY Research & Development GmbH
Notes to the Financial Statements
Information as at September 30,1998 and for the nine-month period ended
September 30, 1998 and 1997 is unaudited
(DM in Thousands)
12 Commitments and Contingencies
The Company is not currently involved in any legal proceedings in the
ordinary course of business.
F-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 & 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 September 30, 1998 pro forma balance sheet has been prepared as if the
transactions described in Notes 1 and 2 had occurred on September 30, 1998, and
represents the consolidation of the September 30, 1998 balance sheet of iQ
Germany with the September 30, 1998 balance sheet of the Company.
The pro forma statements of net loss for the nine month period ended September
30, 1998 and the year ended December 31, 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 nine months ended September 30, 1998 and the year ended December
31, 1997 with the statement of loss of the Company for the nine months ended
September 30, 1998 and the year ended December 31, 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.
F-23
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Unaudited Pro Forma Consolidated Balance Sheet
As at September 30, 1998
(Expressed in Thousands of United States Dollars)
<TABLE>
Acquisition of iQ
Germany
-----------------
Other Pro forma
Capital capital after capital September 30 Pro forma
IQ Canada transaction transactions transaction 1998 Acquisition Consolidated
--------- ----------- ------------ ----------- ------------ ----------- ------------
(Note 1) (Note 2) (Note 3) (Note 3)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT
Cash $ 340 $ 3,000 $ 209 $ 2,989 $ 103 $ 3,092
(560) -
Accounts receivable 8 8 90 98
Prepaids and
Deposits - - - -
Receivable from
Shareholders - - 87 87
Advances to iQ Germany 658 658 - $ (658) -
- ----------------------------------------------------------------------------------------------------------------------------
1,006 2,440 209 3,655 280 (658) 3,277
INVESTMENT 2,500 2,500 (2,500) -
EQUIPMENT, net - - 52 52
- ----------------------------------------------------------------------------------------------------------------------------
$3,506 $2,440 $ 209 $6,155 $ 332 $(3,158) $ 3,329
LIABILITIES
CURRENT
Accounts payable $ 178 - $ 178 $ 437 - $ 615
Accrued liabilities 5 - 5 199 - 204
Share subscriptions 475 - (475) - -
Current portion of - 138 - 138
bank debt - -
Due to shareholders - - - 56 - 56
Advances from IQ - - - 732 (732) -
Canada
- ----------------------------------------------------------------------------------------------------------------------------
658 - (475) 183 1,562 (732) 1,013
BANK DEBT - - - 4 - 4
NON-CURRENT
LIABILITIES DUE TO
SHAREHOLDERS - - - 56 - 56
- ----------------------------------------------------------------------------------------------------------------------------
658 - (475) 183 1,622 (732) 1,073
Temporary equity - 100 575 - - 575
475
- ----------------------------------------------------------------------------------------------------------------------------
658 - 100 758 2,773 (732) 1,648
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock 3,211 3,000 133 6,344 62 (2,887) 3,519
Share subscriptions 24 - (24) -
Cumulative foreign
exchange adjustment - - (16) 74 58
Deficit (387) (560) - (947) (1,336) 387 (1,896)
- ----------------------------------------------------------------------------------------------------------------------------
2,848 2,440 109 5,397 (1,290) (2,476) 1,681
- ----------------------------------------------------------------------------------------------------------------------------
$3,506 $2,440 $ 209 $6,155 $ 332 $(3,158) $3,329
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
IQ POWER TECHNOLOGY INC.
(a development stage company)
Unaudited Pro Forma Statement of Loss
For the nine months ended September 30, 1998
(Expressed in United States Dollars)
<TABLE>
Business Combination
of iQ Germany
-------------------------------
September 30 Pro forma
IQ Canada 1998 Adjustment Consolidated
------------- ---------------- -------------- ----------------
(Note 2)
<S> <C> <C> <C> <C>
OPERATING EXPENSES
Research and development expenses $ - $ 593 $ 593
General administrative and other expenses 241 83 184
- -------------------------------------------------------------------------------------------------------------------
(241) (676) (917)
INTEREST INCOME - 4 4
INTEREST AND OTHER
FINANCE EXPENSE - (34) (34)
- -------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (241) $ (706) $ (947)
- -------------------------------------------------------------------------------------------------------------------
Loss per share $(0.05) $ (0.06)
- -------------------------------------------------------------------------------------------------------------------
Weighted average
common shares
outstanding 4,546,849 15,086,461
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-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 Pro forma
IQ Canada 1997 Adjustment Consolidated
-------------- ----------------- -------------- ----------------
(Note 2)
<S> <C> <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>
F-26
<PAGE>
IQ POWER TECHNOLOGY INC.
Notes to the Unaudited Pro Forma Consolidated
Financial Information
September 30, 1998
(U.S. Dollars)
- --------------------------------------------------------------------------------
1. CAPITAL TRANSACTION
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 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:
Balance Sheet
Cash
Gross proceeds from offering $3,000,000
10% Agents' financing fee (300,000)
Expenses of offering (260,000)
- --------------------------------------------------------------------------------
Increase in cash $2,440,000
- --------------------------------------------------------------------------------
Increase in stockholders' equity
Share capital $3,000,000
Deficit (560,000)
- --------------------------------------------------------------------------------
Increase in stockholders' equity $2,440,000
- --------------------------------------------------------------------------------
2. OTHER CAPITAL TRANSACTIONS
Subsequent to September 30, 1998, the Company completed several issuances
of equity securities. The pro forma financial statements reflect the
following adjustments related to these equity security issuances:
(i) Completion of a 2,300,000 special warrant offering, satisfying
subscriptions received of $475,000 at September 30, 1998 and $100,000
received after that date. The special warrant holder has a right to
December 31, 1998 to require the Company to return the subscriptions
paid for any special warrants outstanding of that date.
The pro forma effect of this offering is summarized as follows:
Increase in cash $100,000
Reduction of share subscriptions 475,000
Increase in temporary capital 575,000
F-27
<PAGE>
IQ POWER TECHNOLOGY INC.
Notes to the Unaudited Pro Forma Consolidated
Financial Information
September 30, 1998
(U.S. Dollars)
- --------------------------------------------------------------------------------
2. OTHER CAPITAL TRANSACTIONS (Continued)
(ii)Issuance of 536,200 common shares for proceeds of $133,000. The pro
forma effect of the common stock issue is summarized as follows:
Increase in cash $109,000
Reduction of share subscriptions 24,000
Increase in share capital 133,000
3. BUSINESS COMBINATION
On August 25, 1998, the Company exchanged 10,000,000 common shares 100% of
the issued and outstanding equity stock of iQ Germany and has the right to
exchange 2,800,000 common shares for 100% of the atypical 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 $349,000 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 September 30, 1998 is summarized below:
Purchase price
Common stock held by IQ Power Technology Inc. shareholders $349
- --------------------------------------------------------------------------------
Allocation of purchase price
Current assets $1,007
Current liabilities 658
- --------------------------------------------------------------------------------
$349
- --------------------------------------------------------------------------------
Elimination of IQ Power Technology Inc.
Capital stock $2,887
Deficit (387)
Investment in iQ Germany (2,500)
Advances to iQ Germany (658)
Advances to IQ Canada 732
Cumulative foreign exchange adjustment (74)
- --------------------------------------------------------------------------------
F-28
<PAGE>
IQ POWER TECHNOLOGY INC.
Notes to the Unaudited Pro Forma Consolidated
Financial Information
September 30, 1998
(U.S. Dollars)
- --------------------------------------------------------------------------------
3. BUSINESS COMBINATION (Continued)
The effect of the business combination on the unaudited pro forma
consolidated statements of loss is summarized below:
Historical results of iQ Germany are summarized as follows:
1998 1997
------------------ -----------------
Revenue $ - $ 26
Operating expenses (676) (580)
Interest income 4 -
Interest expense (34) (44)
- --------------------------------------------------------------------------------
$ (706) $ (598)
- --------------------------------------------------------------------------------
4. CAPITAL STOCK
Capital stock subsequent to the reverse takeover and the pro forma effect
of share issuances can be summarized as follows:
Number Amount
---------------- ---------------
Share capital of iQ Germany 100 $62
Effect of reverse takeover 9,999,900 -
- --------------------------------------------------------------------------------
10,000,000 62
Issued to acquire IQ Canada 2,843,225 349
Exchange of shares for atypical shares 2,800,000 -
Minimum public offering 3,000,000 3,000
Issued on public placement 436,000 108
- --------------------------------------------------------------------------------
19,079,225 $3,519
- --------------------------------------------------------------------------------
5. 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:
F-29
<PAGE>
IQ POWER TECHNOLOGY INC.
Notes to the Unaudited Pro Forma Consolidated
Financial Information
September 30, 1998
(U.S. Dollars)
- --------------------------------------------------------------------------------
5. SUPPLEMENTARY INFORMATION (Continued)
<TABLE>
Effect of
Pro forma Maximum Adjusted
Balance sheet offering Balance Sheet
----------------- ---------------- -----------------
<S> <C> <C> <C>
Assets
Cash $ 3,092 $ 2,250 $ 5,342
Other current assets 185 - 185
Equipment (net) 52 - 52
- --------------------------------------------------------------- ----------------- -- ---------------- -- -----------------
$ 3,329 $ 2,250 $ 5,579
- --------------------------------------------------------------- ----------------- -- ---------------- -- -----------------
Liabilities and shareholders' equity
Current liabilities $ 1,013 $ - $ 1,013
Non-current liabilities 60 - 60
Temporary Atypical equity 575 - 575
Capital stock 3,519 2,500 6,019
Cumulative foreign exchange adjustment 58 - 58
Deficit (1,896) (250) (2,146)
- --------------------------------------------------------------- ----------------- -- ---------------- -- -----------------
$ 3,329 $ 2,250 $ 5,579
- --------------------------------------------------------------- ----------------- -- ---------------- -- -----------------
</TABLE>
F-30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 1. Indemnification of Directors and Officers
The By-laws of the Company provide that, subject to the Canada Business
Corporations Act (the "CBCA"), the Company shall indemnify a director or officer
of the Company, a former director or officer of the Company or a person who acts
or acted at the Company's request as a director or officer of a body corporate
of which the Company is or was a shareholder or creditor, and his heirs and
legal representatives, against all costs, charges and expenses reasonably
incurred by him in respect of certain actions or proceedings to which he is made
a party by reason of his office, if he met certain specified standards of
conduct and shall also indemnify any such person in such other circumstances as
the CBCA or law permits or requires.
Under the CBCA, except in respect of an action by or on behalf of the Company to
procure a judgment in its favor, the Company may indemnify a present or former
director or officer or a person who acts or acted at the Company's request as a
director or officer of another corporation of which the Company is or was a
shareholder or creditor, and his heirs and legal representatives, against all
costs, charges and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by him in respect of any civil, criminal
or administrative action or proceeding to which he is made a party by reason of
his position with the Company and provided that the director or officer acted
honestly and in good faith with a view to the best interests of the Company,
and, in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, had reasonable grounds for believing that his
conduct was lawful. Such indemnification may be made in connection with a
derivative action only with court approval. A director or officer is entitled to
indemnification from the Company as a matter of right if he was substantially
successful on the merits and fulfilled the conditions set forth above.
The Company is considering obtaining Director's and Officer's Liability
Insurance for its directors, but it does not currently maintain Director's and
Officer's Liability Insurance.
Reference is made to Item 3 for the undertakings of the Company with respect to
indemnification for liabilities under the Securities Act of 1933, as amended.
Item 2. Other Expenses of Issuance and Distribution
Amount(1)
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
(1) All the amounts have been estimated except for the SEC and NASD fees. All
of the above expenses will payable by the Company.
II-1
<PAGE>
Item 3. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant will: (1) for determining any liability under the
Securities Act, treat the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant under Rule 424(b)(1) , or (4) or
497(h) under the Securities Act as part of this Registration Statement as of the
time the SEC declared it effective; and (2) for determining any liability under
the Securities Act, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
Registration Statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
Item 4. Unregistered Securities Issued or Sold within One Year
On December 1, 1998, the Company issued 536,200 Common Shares at a price of
US$0.25 per share for an aggregate purchase price of $134,050. The Common Shares
were issued to the following persons: Noble Larsen, Ronald Nichols, Erin French,
Jeff French, Victor French, Margo French, Gregory A. Sasges, Dawn B. Sasges,
Helga Fisher, Terry Fields, Bill Mairs, Christiane Bauer, Alexa Schluren and
Janice Irving. The Common Shares were issued to holders inside and outside the
United States pursuant to an exemption from registration under Rule 504 of
Regulation D under the Securities Act.
On December 1, 1998, the Company issued Special Warrants to purchase 2,300,000
Common Shares without payment of additional consideration at US$0.25 per Special
Warrant. The aggregate purchase price of the Special Warrants was $575,000. The
names and identities of the persons or entities to whom the Common Shares and
Special Warrants were issued are Haliun Hongorzul, Nuni Wee, Che Wia Ho, Majorie
Polland and Highland Resources Ltd. The special warrants were issued outside the
United States pursuant to an exemption from registration under Rule 504 of
Regulation D under the Securities Act.
On August 25, 1998, the Company agreed to issue 12,800,000 common shares
pursuant to the terms of a Share Exchange Agreement between iQ Canada, iQ
Germany and all of the shareholders of iQ Germany, including holders of atypical
shares of iQ Germany (the "Atypical Shareholders"). For purposes of the share
exchange, each common share of iQ Canada was issued at a deemed price of US$0.25
per share based on the agreed upon value of the iQ Germany shares received by iQ
Canada. The names of the shareholders of iQ Germany were Gunther Bauer, Peter E.
Braun, Horst Dieter Braun, Karin Wittkewitz and Rainer Welke. The names and
identities of persons who are Atypical Shareholders of iQ Germany were Eckehard
Endler, Falk Von Craushaar, Thea and Constantin Von Walthausen, Steffen
Tschirch, Rainer Welke, Manfred Plesker, Karl Schneider, Dr. Ellen Riep, Annett
Heyde, Klaus Suhl, Herbert Rachny, Lidia Bartkowiek-Rachny, Dr. Monika Gottwald,
Herman Dickschat, Thomas Peine, Christine Staedecke/Peine, Barbara
Bergschmidt/Wolfgang Schmitt, Eduard Gabriel, Magnus Olsson, Johanna Wolff,
Gerhard Trenz and Setrak Tokpinar. The Company issued the Common Shares outside
the United States pursuant to an exemption from registration available under
Regulation S under the Securities Act.
On July 1, 1998, the Company issued 300,000 Common Shares at a price of US$0.25
per share for an aggregate purchase price of US$75,000. The Common Shares were
issued outside the United States to Abu B. Khan and Gary O. Khan pursuant to an
exemption from registration under Rule 504 of Regulation D under the Securities
Act.
On May 29, 1998, the Company issued 573,484 Common Shares at a price of US$0.25
per share for an aggregate purchase price of US$143,371. The Common Shares were
issued outside the United States to Mercator Profits Ltd.
II-2
<PAGE>
and Dunkirk Investments Ltd. pursuant to an exemption from registration under
Rule 504 of Regulation D under the Securities Act.
On December 31, 1997, the Company issued 1,969,740 Common Shares at a price of
US$0.25 per share for an aggregate purchase price of US$492,435. The Common
Shares were issued outside the United States to Helmut Krack, Mayon Management
Corp. and Mercator Profits Ltd. pursuant to an exemption from registration under
Regulation S under the Securities Act.
II-3
<PAGE>
Item 5. Index to Exhibits
Exhibit Number Exhibit Description
- -------------- -------------------
1.1 Form of Agency Agreement between iQ Power Technology Inc.
and IPO Capital Corp.
*2.1 Certificate of Incorporation dated December 20, 1994, for
3099458 Canada Inc.
*2.2 Articles of Incorporation dated December 21, 1994, for
3099458 Canada Inc.
*2.3 Certificate of Amendment dated May 9, 1997, together with
Form 4, Articles of Amendment for iQ Power Technology Inc.
*2.4 Certificate of Amendment dated March 31, 1998, for iQ Power
Technology Inc.
*2.5 By-law Number One General By-Law of iQ Power Technology Inc.
dated December 31, 1997, as confirmed on June 30, 1998
3.1 Form of Common Stock Certificate
*3.2 Form of Special Warrant
4.1 Form of Subscription Agreement to be used in connection with
the offering
*6.1 Form of Atypical Share Exchange Agreement
*6.2 Share Exchange Agreement dated August 25, 1998, between iQ
Power Technology Inc., iQ Battery Research and Development
GmbH and the Shareholders of iQ Battery Research and
Development GmbH
*6.3 Pooling Agreement No. 1 dated August 25, 1998, between iQ
Power Technology Inc., Montreal Trust Company of Canada and
the Shareholders of iQ Power Technology Inc.
*6.4 Pooling Amendment Agreement dated August 15, 1998, between
iQ Power Technology Inc., Montreal Trust Company of Canada
and the Shareholders of iQ Power Technology Inc.
*6.5 Management Agreement dated January 1, 1997, between 3099458
Canada Inc. and Mayon Management Corp.
*6.6 Consulting Agreement dated August 25, 1998, between iQ Power
Technology Inc. and Mayon Management Corp.
*6.7 Employment Agreement dated August 31, 1998 with Dr. Gunther
C. Bauer
*6.8 Employment Agreement dated August 31, 1998 with Peter E.
Braun
*6.9 Employment Agreement dated September 1, 1998 with Gerhard K.
Trenz
*6.10 Form of Confidentiality Agreement between iQ Power
Technology Inc. and certain Officers of the Company
*6.11 Lease Agreement by and between iQ Battery Research and
Development GmbH and Spima Spitzenmanufaktur GmbH dated
December 9, 1997 (Translated to English)
II-4
<PAGE>
Exhibit Number Exhibit Description
- -------------- -------------------
*6.12 Commercial Lease Agreement by and between iQ Battery
Research and Development GmbH and Josef Landthaler, GmbH
dated May 9, 1996, as amended (Translated to English)
*6.13 Form of iQ Germany Confidentiality Agreement (Translated to
English)
*6.14 Form of iQ Germany Employee Confidentiality and
Nondisclosure Agreement (Translated to English)
*6.15 Cooperation Agreement by and between iQ Battery Research and
Development GmbH and BASF Aktiengesellschaft (Translated to
English)
*6.16 Confidentiality Agreement by and between iQ Battery Research
and Development GmbH and Bayerische Motoren Werke dated July
29, 1997 (Translated to English)
*6.17 Mutual Confidentiality Agreement among iQ Battery Research
and Development GmbH, Akkumulatorenfabrik Moll GmbH & Co.
KG, and Audi dated May 26, 1998 (Translated to English)
*6.18 Confidentiality Agreement between iQ Battery Research and
Development GmbH and Mercedes Benz Aktiengessellschaft dated
March 21, 1997 (Translated to English)
*6.19 Letter Agreement between iQ Battery Research and Development
GmbH and Manufacturer of Batteries Moll Ltd. dated August 3,
1998 (Translated to English)
*6.20 Mutual Confidentiality Agreement between iQ Battery Research
and Development GmbH and Manufacturer of Batteries Moll
dated September 8, 1997 (Translated to English)
*6.21 Loan Contract by and between Karin Wittkewitz and iQ Battery
Research and Development GmbH dated December 28, 1996
(Translated to English)
*6.22 Contract Concerning Industrial Property Rights and Know How
by and between Dieter Braun and Peter E. Braun and iQ
Battery Research and Development GmbH dated March 15, 1995
(Translated to English)
*6.23 Supplementary Contract to the Contract concerning Industrial
Property Rights and Know How by and between H. Deiter Braun
and Peter E. Braun and iQ Battery Research and Development
GmbH dated August 16, 1996 (Translated to English)
*6.24 Extension of Contract regarding Industrial Property Rights
and Know How by and between Deiter Braun and Peter Braun and
iQ Battery Research and Development GmbH dated September 20,
1996 (Translated to English)
*6.25 Consulting Contract by and between iQ Battery Research and
Development GmbH and Peter Braun dated August 28, 1994
(Translated to English)
*6.26 Consulting Contract by and between iQ Battery Research and
Development GmbH and Dr. Gunther Bauer dated October 30,
1996 (Translated to English)
*6.27 Agreement (Debt Deferral) by and between iQ Battery Research
and Development GmbH and Dieter Braun and Peter Braun dated
December 27, 1996 (Translated to English)
*6.28 Agreement (Debt Deferral) by and between iQ Battery Research
and Development GmbH and Gunther Bauer dated December 27,
1996 (Translated to English)
II-5
<PAGE>
Exhibit Number Exhibit Description
- -------------- -------------------
*6.29 Waiver among H. Dieter Braun, Peter E. Braun, Gunther Bauer,
Karin Wittkewitz and iQ Battery Research and Development
GmbH dated December 19, 1997 (Translated to English)
*6.30 Agreement by and between iQ Battery Research and Development
GmbH and Dieter Braun and Peter Braun dated October 9, 1998
(Translated to English)
*6.31 1998 Stock Option Plan
*6.32 Form of Stock Option Agreement
*6.33 License Agreement dated September 1, 1998 between iQ Power
Technology, Inc. and Mattalex Management Ltd.
*6.34 Agreement Re Rights and Interests dated December 9, 1998 by
and among the Company, H. Dieter Braun and Peter E. Braun
*6.35 Trademark Assignment dated December 9, 1998 by and between
the Company and H. Dieter Braun
*6.36 Patent Assignment dated December 9, 1998 by and between the
Company and H. Dieter Braun and Peter E. Braun
6.37 Pooling Agreement No. 2 dated December 1, 1998 between iQ
Power Technology, Inc., Montreal Trust Company of Canada and
certain shareholders of iQ Power Technology, Inc.
6.38 Lease Agreement effective as of February 16, 1999 between
Dr. Arne Curt Berger and iQ Battery Research & Development
GmbH (translated to English)
6.39 Rescission Agreement dated January 13, 1999 between Spima
Spitzenmanufaktor GmbH and iQ Battery Research & Development
GmbH
*7.1 List of Material Foreign Patents
10.1 Consent of Deloitte & Touche, LLP, Chartered Accountants
10.2 Consent of Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
10.3 Consent of Werbes Sasges & Company (included in Exhibit
11.1)
11.1 Legal Opinion of Werbes Sasges & Company
13.1 Form F-X Consent
* Previously filed as an exhibit to the registrant's registration statement
on Form SB-1 on December 10, 1998 (File No. 333-68649).
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Unterhaching, Germany on March 15, 1999.
iQ POWER TECHNOLOGY INC.
By /s/ Peter E. Braun
------------------------------------
Peter E. Braun, President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
Signatures Title Date
---------- ----- ----
/s/ Peter E. Braun
- ------------------------------------ President, Chief Executive Officer, and March 15, 1999
Peter E. Braun Director (Principal Executive Officer)
/s/ Gerhard K. Trenz
- ------------------------------------ Vice-President, Finance (Principal Financial March 15, 1999
Gerhard K. Trenz and Accounting Officer)
/s/ Dr. Gunther C. Bauer
- ------------------------------------ Vice-President, Research & Development and March 15, 1999
Dr. Gunther C. Bauer Director
- ------------------------------------ Director March 15, 1999
Russell French
*By /s/ Russell French
- ------------------------------------ March 15, 1999
Peter E. Braun or Russell French,
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
Exhibit Number Exhibit Description Page
- -------------- ------------------- ----
<S> <C> <C>
1.1 Form of Agency Agreement between iQ Power Technology Inc.
and IPO Capital Corp.
*2.1 Certificate of Incorporation dated December 20, 1994, for
3099458 Canada Inc.
*2.2 Articles of Incorporation dated December 21, 1994, for
3099458 Canada Inc.
*2.3 Certificate of Amendment dated May 9, 1997, together with
Form 4, Articles of Amendment for iQ Power Technology Inc.
*2.4 Certificate of Amendment dated March 31, 1998, for iQ Power
Technology Inc.
*2.5 By-law Number One General By-Law of iQ Power Technology Inc.
dated December 31, 1997, as confirmed on June 30, 1998
3.1 Form of Common Stock Certificate
*3.2 Form of Special Warrant
4.1 Form of Subscription Agreement to be used in connection with
the offering
*6.1 Form of Atypical Share Exchange Agreement
*6.2 Share Exchange Agreement dated August 25, 1998, between iQ
Power Technology Inc., iQ Battery Research and Development
GmbH and the Shareholders of iQ Battery Research and
Development GmbH
*6.3 Pooling Agreement No. 1 dated August 25, 1998, between iQ
Power Technology Inc., Montreal Trust Company of Canada and
the Shareholders of iQ Power Technology Inc.
*6.4 Pooling Amendment Agreement dated August 15, 1998, between
iQ Power Technology Inc., Montreal Trust Company of Canada
and the Shareholders of iQ Power Technology Inc.
*6.5 Management Agreement dated January 1, 1997, between 3099458
Canada Inc. and Mayon Management Corp.
*6.6 Consulting Agreement dated August 25, 1998, between iQ Power
Technology Inc. and Mayon Management Corp.
*6.7 Employment Agreement dated August 31, 1998 with Dr. Gunther
C. Bauer
*6.8 Employment Agreement dated August 31, 1998 with Peter E.
Braun
*6.9 Employment Agreement dated September 1, 1998 with Gerhard K.
Trenz
*6.10 Form of Confidentiality Agreement between iQ Power
Technology Inc. and certain Officers of the Company
<PAGE>
Exhibit Number Exhibit Description Page
- -------------- ------------------- ----
*6.11 Lease Agreement by and between iQ Battery Research and
Development GmbH and Spima Spitzenmanufaktur GmbH dated
December 9, 1997 (Translated to English)
*6.12 Commercial Lease Agreement by and between iQ Battery
Research and Development GmbH and Josef Landthaler, GmbH
dated May 9, 1996, as amended (Translated to English)
*6.13 Form of iQ Germany Confidentiality Agreement (Translated to
English)
*6.14 Form of iQ Germany Employee Confidentiality and
Nondisclosure Agreement (Translated to English)
*6.15 Cooperation Agreement by and between iQ Battery Research and
Development GmbH and BASF Aktiengesellschaft (Translated to
English)
*6.16 Confidentiality Agreement by and between iQ Battery Research
and Development GmbH and Bayerische Motoren Werke dated July
29, 1997 (Translated to English)
*6.17 Mutual Confidentiality Agreement among iQ Battery Research
and Development GmbH, Akkumulatorenfabrik Moll GmbH & Co.
KG, and Audi dated May 26, 1998 (Translated to English)
*6.18 Confidentiality Agreement between iQ Battery Research and
Development GmbH and Mercedes Benz Aktiengessellschaft dated
March 21, 1997 (Translated to English)
*6.19 Letter Agreement between iQ Battery Research and Development
GmbH and Manufacturer of Batteries Moll Ltd. dated August 3,
1998 (Translated to English)
*6.20 Mutual Confidentiality Agreement between iQ Battery Research
and Development GmbH and Manufacturer of Batteries Moll
dated September 8, 1997 (Translated to English)
*6.21 Loan Contract by and between Karin Wittkewitz and iQ Battery
Research and Development GmbH dated December 28, 1996
(Translated to English)
*6.22 Contract Concerning Industrial Property Rights and Know How
by and between Dieter Braun and Peter E. Braun and iQ
Battery Research and Development GmbH dated March 15, 1995
(Translated to English)
*6.23 Supplementary Contract to the Contract concerning Industrial
Property Rights and Know How by and between H. Deiter Braun
and Peter E. Braun and iQ Battery Research and Development
GmbH dated August 16, 1996 (Translated to English)
*6.24 Extension of Contract regarding Industrial Property Rights
and Know How by and between Deiter Braun and Peter Braun and
iQ Battery Research and Development GmbH dated September 20,
1996 (Translated to English)
*6.25 Consulting Contract by and between iQ Battery Research and
Development GmbH and Peter Braun dated August 28, 1994
(Translated to English)
<PAGE>
Exhibit Number Exhibit Description Page
- -------------- ------------------- ----
*6.26 Consulting Contract by and between iQ Battery Research and
Development GmbH and Dr. Gunther Bauer dated October 30,
1996 (Translated to English)
*6.27 Agreement (Debt Deferral) by and between iQ Battery Research
and Development GmbH and Dieter Braun and Peter Braun dated
December 27, 1996 (Translated to English)
*6.28 Agreement (Debt Deferral) by and between iQ Battery Research
and Development GmbH and Gunther Bauer dated December 27,
1996 (Translated to English)
*6.29 Waiver among H. Dieter Braun, Peter E. Braun, Gunther Bauer,
Karin Wittkewitz and iQ Battery Research and Development
GmbH dated December 19, 1997 (Translated to English)
*6.30 Agreement by and between iQ Battery Research and Development
GmbH and Dieter Braun and Peter Braun dated October 9, 1998
(Translated to English)
*6.31 1998 Stock Option Plan
*6.32 Form of Stock Option Agreement
*6.33 License Agreement dated September 1, 1998 between iQ Power
Technology, Inc. and Mattalex Management Ltd.
*6.34 Agreement Re Rights and Interests dated December 9, 1998 by
and among the Company, H. Dieter Braun and Peter E. Braun
*6.35 Trademark Assignment dated December 9, 1998 by and between
the Company and H. Dieter Braun
*6.36 Patent Assignment dated December 9, 1998 by and between the
Company and H. Dieter Braun and Peter E. Braun
6.37 Pooling Agreement No. 2 dated December 1, 1998 between iQ
Power Technology, Inc., Montreal Trust Company of Canada and
certain shareholders of iQ Power Technology, Inc.
6.38 Lease Agreement effective as of February 16, 1999 between
Dr. Arne Curt Berger and iQ Battery Research & Development
GmbH (translated to English)
6.39 Rescission Agreement dated January 13, 1999 between Spima
Spitzenmanufaktor GmbH and iQ Battery Research & Development
GmbH
*7.1 List of Material Foreign Patents
10.1 Consent of Deloitte & Touche, LLP, Chartered Accountants
10.2 Consent of Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
10.3 Consent of Werbes Sasges & Company (included in Exhibit
11.1)
11.1 Legal Opinion of Werbes Sasges & Company
<PAGE>
Exhibit Number Exhibit Description Page
- -------------- ------------------- ----
13.1 Form F-X Consent
</TABLE>
* Previously filed as an exhibit to the registrant's registration statement
on Form SB-1 on December 10, 1998 (File No. 333-68649).
Exhibit 1.1
AGENCY AGREEMENT
March ___, 1999
IPO Capital Corp.
Suite 3210
666 Burrard Street
Vancouver, British Columbia V6C 2X8
Canada
iQ Power Technology Inc., is a Canadian corporation (the "Company") with
its principal executive offices located at Suite 708-A, 1111 West Hastings
Street, Vancouver, British Columbia V6E 2J3. The Company's principal subsidiary
is iQ Battery Research & Development GmbH ("iQ Battery").
The Company proposes to offer for sale on a "best effort basis" a minimum
of 3,000,000 and a maximum of 5,500,000 Common Shares (collectively the
"Shares," each a "Share"). The Shares are being offered at a subscription price
of US$1.00 per Share (the "Offering Price") to the public (the "Offering"). The
Offering includes the Syndicated Offering defined below.
The Offering is described in a Prospectus dated ____________,1999, which
Prospectus is part of a Registration Statement on Form SB-1 (File Number
333-68649) filed with the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "1933 Act") on December 10, 1998(as
amended from time to time, the "Registration Statement"). Such Prospectus may be
amended or supplemented from time to time as contemplated by this Agreement. As
utilized herein, the term Prospectus shall mean the Prospectus as it may be
amended or supplemented from time to time.
The Offering will be made on a best-efforts basis to the general public as
described in the Prospectus. While the Company shall have the right to reject
individual subscriptions in the Offering in its discretion, the Company shall
also reject individual subscriptions at the request of the Agent based upon
valid legal or regulatory criteria.
The Shares will be offered and sold to the general public by you as the
Agent and, the Selling Group referred to in Section 1 of this Agreement, upon
receipt of NASD Approval. In addition, the Shares will be offered and sold
directly by the Company. It is presently contemplated that, if the Shares are to
be offered by the Selling Group in the United States, you, as Agent (as
hereinafter defined), will apply to the National Association of Securities
Dealers, Inc. ("NASD"), for approval of the terms of your compensation, as
described herein ("NASD Approval"). It is understood that, if the Shares are to
be offered by the Selling Group in the United States, your participation in the
Offering will not commence unless and until you are in receipt of NASD Approval.
All capitalized terms not otherwise defined herein shall have the same
meanings as those ascribed to such terms in the Prospectus.
SECTION 1. Appointment of IPO Capital Corp. as Agent: Compensation to the Agent.
(a) Subject to the terms and conditions herein set forth, the Company
hereby appoints IPO Capital Corp. ("Agent" or "you"), as its sole agent to
consult with and advise the Company and to solicit subscriptions for (other than
subscriptions sold directly by the Company) Shares on behalf of the Company, in
connection with the Company's offering of the Shares in the Offering. On the
basis of the representations, warranties, covenants and agreements set forth
herein, Agent accepts such appointment and agrees to consult with and advise the
Company and to use its best efforts to solicit subscriptions for Shares in
accordance with this Agreement; provided, however, that Agent shall not be
obligated to sell any minimum number of Shares or to take any action not in
accordance with all applicable laws, regulations, decisions or orders. The
appointment of Agent hereunder shall terminate upon (a) the sale of the maximum
number of Shares in the Offering, (b) the Withdrawal
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<PAGE>
Date (as hereinafter defined), or (c) termination by Agent in accordance with
Section 13 hereof. In addition, Agent may, in its sole discretion, offer selling
group participation in the normal course of the brokerage business to selling
groups of other licensed dealers, brokers and investment dealers who may or may
not be offered part of the commissions hereunder and may form a syndicate of
NASD member firms (such syndicate herein collectively called "Selling Group" or
"Selected Dealers"), to participate in the solicitation of offers in the United
States to buy the Shares under a Selected Dealers Agreement ("Syndicated
Offering"). The Agent will transmit to the Company executed Subscription
Agreements substantially in the form attached hereto as Exhibit "A" on each
Closing Date for the Offering. The Offering is subject to a minimum subscription
(the "Minimum Subscription") of 3,000,000 Shares. All funds received by the
Agent for subscription will be held in trust by the Agent until the Minimum
Subscription has been attained. Notwithstanding any other term of this
Agreement, all subscription funds received by the Agent will be returned to the
subscribers if the Minimum Subscription is not attained by April 10, 1999.
(b) In addition to the reimbursement of the expenses specified in Sections
7, 8 and 9 hereof, assuming the consummation of the Offering, the Company will
pay to the Agent, the following compensation for its services hereunder:
(i) in the case of sales of Shares by the Agent and Selling Group, the
Company shall pay to the Agent ten percent (10%) of the aggregate dollar amount
of the Shares sold by members of the Selling Group (which may include Agent);
(ii) to issue to the Agent options entitling the Agent to purchase that
number of previously unissued shares of the Company as is equal to ten percent
(10%) of the number of Shares sold under the Offering for a period of two years
from the effective date of the Registration Statement, which right may be
exercised at any time up to the close of business two years from the effective
date of the Registration Statement. The exercise price for such options shall be
the Offering Price of the Shares during the first year and 150% of the Offering
Price of the Shares during the second year of the term of the options. The terms
of the options will include, among other things, provisions for the appropriate
adjustment in the class, number and price of the shares to be issued under the
Agent's options upon the occurrence of certain events, including any
subdivision, consolidation or reclassification of the shares, the payment of
stock dividends or the amalgamation of the Company; and
(iii) to pay the Agent a corporate finance fee (the "Corporate Finance
Fee") in the amount of US$50,000, payable, at the Agent's discretion, either in
cash or in Shares of the Company at a deemed price equal to the Offering Price
per Share, or any combination thereof.
(c) If the Offering is (A) terminated by the Company after the Prospectus
is first distributed and no shares are issued hereunder; (B) not consummated by
April 10, 1999; or (C) if this Agreement is terminated by the Agent in
accordance with Section 13(a)(i), (ii) or (iii)hereof, Agent shall not be
entitled to the compensation set forth in subsection(b)(i) or (ii) above, but
shall be entitled to receive reimbursement for expenses specified in Sections 7,
8 and 9 hereof.
(d) The fees specified in subsection (b) of this Section 1 shall be payable
in immediately available funds on each Closing Date for the Offering.
(e) The Company agrees to reimburse the Agent for its out-of-pocket costs
and expenses, in the amounts specified in Section 7 hereof, and for all costs
and expenses specified in Sections 8 and 9 hereof, promptly upon receiving
invoices for such costs and expenses. Such costs and expenses shall be paid
whether the Offering is consummated or not as further described in Section 7.
(f) The Company acknowledges that it has retained the Agent in connection
with the Offering and that, in such capacity, only personnel employed by the
Agent and such other personnel as are assigned for the specific purposes
contemplated by this Agreement to be performed by the Agent will be involved in
providing the services described herein.
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<PAGE>
SECTION 2. Closing: Release of Funds and Delivery of Certification.
If all conditions precedent to the consummation of the Offering are
satisfied, the Company agrees to issue with respect to Shares sold in the
Offering as of the first Closing Date and thereafter until the sale of the
maximum number of Shares and to release for delivery or deliver certificates for
the Shares on each Closing Date (each such date being a "Certificate Delivery
Date") against payment thereof to the Company by release of funds from the
Agent. No funds shall be released to the Company or withdrawn until the
conditions specified in Section 10 hereof shall have been complied with to the
reasonable satisfaction of the Agent and its counsel. Such release, withdrawal
and payment shall be made at the Closing Date, at 10:00 a.m., EST, on a business
day and at a place selected by the Agent, which date and place are acceptable to
the Company on at least two business days prior notice to the Company; such
business day shall not be more than five (5) business days after the Termination
Date, or such other time or place as shall be agreed upon by the Agent and the
Company. Certificates for Shares shall be delivered directly to the purchasers
in accordance with their respective Subscription Agreement. The hour and date
upon which the Company shall release for delivery or deliver the Shares sold,
receive the funds due to Company from the Agent and pay the compensation due to
Agent hereunder, according to the terms hereof (the "Closing") with respect to
the Offering are referred to herein as the "Closing Date." After the first
Closing Date, each subsequent Closing shall be at such times and dates as the
Company and the Agent may determine. In any event, funds received by the Agent
for which the Company does not accept a Subscription Agreement shall also be
promptly returned to the subscriber. For purposes of this Agreement, the term
"Termination Date" shall mean April 10, 1999 unless the Offering is extended by
the Company to a date no later than , 1999 by written notice delivered to Agent
by the Company.
SECTION 3. Offering.
The Shares are to be offered in the Offering at the Offering Price.
SECTION 4. Representations and Warranties.
The Company represents and warrants to the Agent and agrees as follows:
(a) The Registration Statement does not, and at the Closing Date will not,
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided that this representation and warranty shall not apply to
statements and/or omissions from the Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by the Agent
expressly for use in the Prospectus.
(b) The accountants who certify the financial statements and supporting
schedules, if any, included or incorporated by reference in the Registration
Statement are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of Regulation S-X under the 1933
Act.
(c) Each "significant subsidiary" of the Company(as such term is defined in
Rule 1-02 of Regulation S-X) has been duly organized and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation to transact business and is in good standing
in each jurisdiction in which such qualification is required, whether by reason
of the ownership or of leasing of property or the conduct of business; and,
except as described in the Prospectus, all of the issued and outstanding capital
stock of each such subsidiary has been duly authorized and validly issued, is
fully paid and nonassessable and, is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; none of the outstanding shares of capital stock of
the subsidiaries was issued in violation of any preemptive or similar rights
operating by operation of law, or under the charter or bylaws of any subsidiary
or under any agreement to which the Company or any subsidiary is a party. The
only subsidiary of the Company is iQ Battery.
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<PAGE>
(d) The financial statements of the Company and iQ Battery, audited and
unaudited, if any, included in the Prospectus present fairly the financial
position of the Company at the dates indicated and the results of its operations
for the periods specified; and such financial statements were prepared in
conformity with generally accepted accounting principles applied on a consistent
basis for the periods presented. The financial, statistical and proforma
information and related notes included in the Prospectus are accurate and
present fairly the information therein on a basis consistent with the financial
statements of the Company and iQ Battery included in the Prospectus.
(e) Since the respective dates as of which information is given in the
Prospectus, except as may otherwise be stated therein: (i) on the date hereof
there has not been, and of the Closing Date there will not be, any material
adverse change in the condition, earnings, business affairs or business
prospects of the Company or iQ Battery, financial or otherwise, whether or not
arising in the ordinary course of business, and (ii) on the date hereof there
has not been, and as of the Closing Date there will not be, any material
transactions entered into by the Company or iQ Battery.
(f) As of the date of the Prospectus and the Closing Date: (i) the Company
is a corporation, duly incorporated, validly existing and in good standing under
the laws of Canada with full power and authority (corporate and other) to own or
lease its properties and to conduct its business as described in the Prospectus;
(ii) the Company is in good standing in each jurisdiction in which the character
of the business conducted by it or the location of the properties owned by it
makes such qualification necessary, and (iii) the Company has obtained all
licenses, permits and other governmental authorizations required for the conduct
of its business.
(g) The authorized capital stock of the Company consists of _____Common
Shares. As of the date of the Prospectus there were 16,179,425 Common Shares
issued and outstanding. The Shares have been duly and validly authorized for
issuance and, when issued and delivered by the Company against payment of the
consideration therefor, the Shares will be duly and validly issued, fully paid
and non-assessable and will be free and clear of any voting restrictions,
trading restrictions other than _____, security interest, pledge, lien,
encumbrance, claim or equity other than created by the purchase thereof; the
issuance of the Shares will not be in violation of any pre-emptive rights or
other rights to subscribe for or to purchase, or any restriction upon the voting
or transfer of, any Common Shares pursuant to the Company's articles of
incorporation, bylaws or other governing documents or any agreement or other
instrument to which the Company is a party or by which it is bound; and the
terms and provisions of the Shares conform and will conform in all material
respects to the description thereof contained in the Prospectus.
(h) As of the date of the Prospectus and the Closing Date, neither the
Company nor iQ Battery is in violation of any material law, rule, regulation or
order (including laws, rules, regulations and orders pertaining to the offer and
sale of securities), or in violation of its articles of incorporation or by
laws, or in default in the performance or observance of any material obligation,
agreement, covenant, or condition contained in any material contract, lease,
loan agreement, indenture or other instrument to which it is a party or by which
it or any of its properties may be bound, except where such violation or default
does not have a material adverse effect on the condition, financial or
otherwise, or the business, operations or income of the Company or iQ Battery;
nor will the consummation of any of the transactions described in the
Prospectus, nor the execution and delivery of this Agreement or the consummation
of the transactions herein contemplated, conflict with or constitute a violation
of the articles of incorporation or bylaws of the Company or iQ Battery, or any
law, rule, regulation or order applicable to the Company, or result in a default
under any material contract, lease or other instrument to which the Company or
iQ Battery is a party, except where such conflict or violation would not have a
material adverse effect on the condition, financial or otherwise, of the
business, operations or income of the Company or iQ Battery.
(i) As of the Closing Date and the date of the Prospectus, the Company and
iQ Battery each has good and marketable title in fee simple to all items of real
property, and good and marketable title to all personal property and assets
which are material to its business and are described in the Prospectus as owned
by it as of such dates, in each case, free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or do not affect the
value of such property and do not interfere in any material respect with the
business of the Company or iQ Battery and all agreements by which the Company
holds an interest in a property, business or asset are in good standing
according to their terms.
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<PAGE>
(j) As of the date of the Prospectus and the Closing Date, the Company and
iQ Battery are each conducting its business so as to comply in all material
respects with all applicable statutes and regulations, and there is no suit or
proceedings, charge, investigation or action before or by any court, regulatory
authority or governmental agency or body pending or, to the best of the
knowledge of the Company, threatened, which might affect the performance of this
Agreement or the consummation of the transactions herein contemplated or
described in the Prospectus or which might result in any material adverse change
in the condition (financial or otherwise), earnings, business affairs or
business prospects of the Company or iQ Battery, or which would materially
affect any of their properties or assets.
(k) Any certificate signed by the President and the Secretary of the
Company and delivered to the Agent or its counsel that refers to this Agreement
and any certificate signed by said officers of the Company and delivered to the
Agent or its counsel shall be deemed to be a representation and warranty by the
Company to the Agent as to the matters covered thereby with the same effect as
if such representation and warranty were set forth herein.
(l) The Company has not granted or authorized nor made prior arrangements
to grant or authorize any options, warrants or rights to purchase the Company's
capital stock other than as described in the Prospectus.
(m) This Agreement has been duly authorized, executed and delivered by the
Company and is the legal, valid and binding agreement of the Company enforceable
in accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights, to general principles of equity and
to the extent that rights to indemnity hereunder may be limited under applicable
laws.
(n) Each lease of real property (together with any improvements thereon)
and personal property to which the Company or iQ Battery is a party has been
duly authorized, executed and delivered, and is the legal, valid and binding
agreement of the Company or iQ Battery, as the case may be, enforceable in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization, moratorium and other laws of general applicability
relating to or affecting creditors rights, to general principles of equity and
to the extent that rights to indemnity thereunder may be limited under
applicable laws.
(o) The Company has not taken and shall not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the Shares to facilitate the sale of the Shares.
(p) Except as disclosed in the Prospectus, there is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental body or agency, domestic or foreign, now pending or, to the
knowledge of the Company, threatened, against or affecting the Company or any
subsidiary, which is required to be described in the Prospectus, or which might
reasonably be expected to have a material adverse effect on the financial
condition, results of operations, properties, or conduct of business of the
Company or any subsidiary (a "Material Adverse Effect").
(q) There are no contracts or documents which are required to be described
in the Registration Statement or the Prospectus or filed as exhibits thereto
which have not been so described and filed as required.
(r) The Company and each subsidiary has filed all tax returns on or before
the date such returns are required to be filed or has filed for an extension as
permitted by applicable law, and has paid all taxes due on or before the date
due.
(s) No relationship, direct or indirect, exists between the Company, on one
hand, and the directors, officers, shareholders, customers or suppliers of the
Company on the other hand, which is required to be described in the Prospectus
and is not so described.
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<PAGE>
(t) Except as described in the Registration Statement and Prospectus, there
are no persons with registration rights or similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered by the
Company under the 1933 Act.
(u) The Company and each of its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective business and as is customary for companies engaged in
similar businesses.
(v) Upon their issuance, the Agent's option, any Shares issued on exercise
of the Agent's option and any Shares issued in payment of the Corporate Finance
Fee will be validly created, issued and outstanding, fully paid and
non-assessable shares of the Company, free and clear of all voting restrictions,
trading restrictions other than _____, liens, charges, or encumbrances of any
kind whatsoever.
(w) All of the material transactions of the Company have been promptly and
properly recorded or filed in or with the books or records of the Company and
the minute books of the Company contain all records of the meetings and
proceedings of the Company's directors, shareholders and other committees, if
any, since its incorporation.
(x) There are no material liabilities of the Company, whether direct,
indirect, absolute, contingent or otherwise which are not disclosed or reflected
in the Company's Financial Statements except those incurred in the ordinary
course of business of the Company since _____ which are recorded in the books
and records of the Company; and
(y) No order ceasing or suspending trading in securities of the Company nor
prohibiting the sale of such securities has been issued to the Company or its
directors, officers or promoters or to any other companies that have common
directors, officers or promoters and no investigations or proceedings for such
purposes are pending or threatened.
SECTION 5. Representations and Warranties of the Agent.
The Agent represents and warrants to, and covenants with, the Company as
follows:
(a) IPO is registered, to the extent registration is required, with the
appropriate governmental agency in each jurisdiction in which the Agent intends
to offer or sell the Shares and will use its best efforts to maintain such
registrations, qualifications and memberships throughout the term of the
Offering.
(b) To the knowledge of the Agent, no action or proceeding is pending
against the Agent or any of its officers or directors concerning the Agent's
activities as a broker or dealer that would materially adversely affect the
Company's offering of the Shares.
(c) The Agent, in connection with the offer and sale of the Shares and in
the performance of its duties and obligations under this Agreement, agrees to
comply with all applicable laws of the jurisdictions in which the Shares are
offered and sold, and will not, in connection with its efforts hereunder to sell
the Shares, make any representation or give any information other than as
contained in the Prospectus or in any marketing materials prepared by the
Company with the assistance of Agent, which materials must be approved for use
by Agent.
(d) The Agent is a corporation duly organized, validly existing and in good
standing under the laws of the Province of British Columbia. The Agent has all
requisite power and authority to enter into this Agreement and to carry out its
obligations hereunder.
(e) This Agreement has been duly authorized, executed and delivered by the
Agent and is a valid agreement on the part of the Agent, subject, as to
enforceability, to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applicability relating to or affecting creditors rights, to
general principles of equity and to the extent that rights to indemnity
thereunder may be limited under applicable laws.
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<PAGE>
(f) Neither the execution of this Agreement nor the consummation of the
transactions contemplated hereby will result in any breach of any of the terms
or conditions of, or constitute a default under, the articles of incorporation
or bylaws of the Agent or any indenture, agreement or other instrument to which
the Agent is a party or violate any order directed to the Agent of any court or
any provincial or federal or state regulatory body or administrative agency
having jurisdiction over the Agent or its affiliates.
(g) The Agent knows of no person who rendered any services in connection
with the introduction of the Company to the Agent who will be entitled to
receive from the Agent or from the Company any finder's fees or similar
payments.
(h) The Agent agrees that it will not offer or sell the Agent's options or
Shares issuable upon exercise of the Agent's option or in satisfaction of the
Corporate Finance Fee except (i) pursuant to an effective registration statement
under the United States Securities Act of 1933, as amended, (ii) en exemption
from such registration is available, or (iii) the Shares are offered and sold
outside the United States in accordance with Regulation S under the Act, if
available.
SECTION 6. Covenants of the Company.
The Company hereby covenants with you as follows:
(a) In the United States, the Company will only offer the Shares in the
states of New York and California and any other states mutually agreeable to the
Company and the Agent. The Company will to the extent required, use its best
efforts to have the Offering approved in those states; and will notify you (i)
of the receipt of any comments from the SEC or any other regulatory authority
with respect to the Offering or any other matter referred to in the Registration
Statement, (ii) of any request by the SEC or any other regulatory authority for
any amendment or supplement to the Registration Statement, the Blue Sky
Materials (as hereinafter defined) or for additional information, (iii) of the
issuance by the SEC or any other regulatory authority of any order or other
action suspending the Offering or the use of the Prospectus or any other filing
of the Company under applicable state law or the threat of any such action, and
(iv) of the issuance by the SEC or any regulatory authority of any stop order
suspending the use of the Prospectus or of the initiation or threat of
initiation of any proceedings for that purpose. The Company will make every
reasonable effort to prevent the issuance by the SEC or any regulatory authority
of any such order, and if any such order shall at any time be issued, to obtain
the lifting thereof at the earliest possible time. The Company shall file with
the state securities authorities of the states listed above, to the extent
necessary, appropriate registration materials in order to comply with the laws
of such states applicable to the sale of the Shares ("Blue Sky Materials").
(b) The Company will give you notice of its intention to amend or file any
amendment or supplement to the Prospectus which differs from the Prospectus most
recently filed with the SEC and will not amend or file any such amendment or
supplement to the Prospectus to which you shall reasonably object.
(c) The Company has or will deliver to you and to your counsel at least one
(1) conformed copy of the Registration Statement and the Blue Sky Materials, as
originally filed, and each amendment thereto or correspondence in connection
therewith.
(d) The Company will furnish to you, from time to time, such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the respective applicable rules and
regulations of the NASD.
(e) As of the effective date of the Registration Statement and continuing
through each Closing Date, the Company will comply, at its own expense, with all
requirements imposed upon it by the SEC, state securities regulators and by any
other applicable regulatory authority, so far as necessary to permit the
continuance of sales or dealing in Common Shares during such period in
accordance with the provisions hereto and the Prospectus, provided, however,
that the Company may, in its sole discretion, withdraw from selling Shares in
any state listed in (a) above after prior written notice to and consultation
with Agent.
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<PAGE>
(f) If any event relating to or affecting the Company shall occur, as a
result of which it is necessary, in the reasonable opinion of counsel for the
Company to amend or supplement the Prospectus in order to make the Prospectus
not misleading in light of the circumstances existing at the time it is
delivered to a purchaser, the Company will forthwith prepare and furnish to you
a reasonable number of copies of an amendment or amendments of, or a supplement
or supplements to, the Prospectus (in form and substance satisfactory to each of
Company's counsel and your counsel) which will amend or supplement the
Prospectus so that, as amended or supplemented, it will not contain any untrue
statement of any material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a prospective purchaser or a
purchaser, not misleading. For the purpose of this subsection (f), the Company
will furnish to you such information with respect to itself as you may from time
to time reasonably request; provided, however, that any information which is of
a confidential or proprietary nature shall not be delivered to any third party
other than your legal counsel or accountants in connection with the Offering, or
as otherwise required by law.
(g) During the period of eighteen (18) months from the last Closing Date,
the Company will furnish to you as soon as practicable after the end of each
fiscal year, but not later than one hundred and twenty (120) days after the end
of such fiscal year, a balance sheet and statements of income, shareholders'
equity and cash flows of the Company and its subsidiaries, if any, as of the end
of and for such year, audited by independent public accountants.
(h) During the period of eighteen (18) months from the Closing Date, the
Company will furnish to its shareholders as soon as practicable after the end of
each fiscal year, but not later than one hundred and twenty (120) days after the
end of such fiscal year, an annual report including a consolidated balance sheet
and statements of consolidated income, shareholder's equity and cash flows of
the Company and its subsidiaries, if any, as of the end of and for such year,
audited by independent public accountants.
(i) During the period of eighteen (18) months from the Closing Date , the
Company will furnish to you as soon as available, a copy of each report of the
Company furnished generally to shareholders of the Company or, to the extent
required, filed with the SEC, or any national securities exchange or system on
which any class of securities of the Company may be listed or quoted.
(j) The Company will use the net proceeds from the sale of the Shares in
the manner set forth in the Prospectus under the caption, "Use of Proceeds".
(k) Other than the Prospectus or as permitted by applicable law, the
Company will not distribute any prospectus, offering circular or other offering
material in connection with the offer and sale of the Shares and will not
publish any writing which constitutes an offer or prospectus.
(l) The Company will use all reasonable efforts to comply with such
requirements as may be necessary for brokerage firms to make an active market
for the Common Shares.
(m) The Company shall not be deemed to have accepted any subscription offer
accompanied by a check or comparable instrument until final payment has been
made on such check or instrument and the Company accepts the subscription by
executing the Subscription Agreement.
(n) The Company will timely file such reports pursuant to the 1934 Act as
are necessary in order to make generally available to its security holders as
soon as practicable an earnings statement for the purposes of, and to provide
the benefits contemplated by the last paragraph of Section 11 of the 1933 Act.
(o) The Company further covenants with the Agent that unless this Agreement
is terminated by the Agent, neither the Company nor iQ Battery shall solicit or
accept any offer for debt or equity financing not approved by the Agent until
the earlier of July 31, 1999 and four months from the date of the Company's Form
8-A is filed with the SEC.
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(p) In the event of a breach of paragraph 6(o) by the Company or iQ
Battery, the Company will immediately pay to Agent a fee in the amount of
US$200,000.
(q) The Company will reserve or set aside sufficient Common Shares in its
treasury to issue the Shares to be issued in the Offering, all shares which may
be issued on exercise of the Agent's option and, in the event that the Agent
elects to receive any portion of the Corporate Finance Fee in Shares, the Shares
in payment of the Corporate Finance Fee.
(r) The Company covenants not to place a U.S. securities law restrictive
legend on the certificates representing the Agent's options or any Shares issued
on exercise thereof or in satisfaction of the Corporate Finance Fee.
(s) The Company will use its best efforts to have its Registration
Statement on Form 8-A be declared effective by the SEC and have its Common
Shares listed on the OTC Bulletin Board.
(t) If, after the Registration Statement is first filed with the SEC but
before the conclusion of the distribution of all the Shares under the
Registration Statement, a material change (as defined in the Securities Act
(British Columbia)) occurs in the affairs of the Company, the Company will:
(i) notify the Agent immediately, in writing, with full particulars of
the change;
(ii) file with the SEC as soon as practicable, and in any event no
later than 10 days after the change occurs, an amendment to the
Registration Statement in a form acceptable to the Agent disclosing
the material change; and
(iii) provide as many copies of that amendment to the Agent as the
Agent may reasonably request.
SECTION 7. Payment of Expenses.
The Company agrees to pay to the Agent on the earlier of the Closing and
the termination of this Agreement all expenses in connection with the Offering
and otherwise incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, the following: (i) the
preparation, issuance and delivery of certificates for the Shares to the
subscribers in the Offering, (ii) the fees and disbursements of the Company's
legal counsel and accountants, (iii) the filing fees, if any, incurred in
connection with the qualification of the Shares under all applicable securities
or Blue Sky laws, (iv) the printing and delivery to you, in such quantities as
you shall reasonably request, of copies of the Prospectus and all other
documents in connection with the Offering and this Agreement, (v) the cost of
preparing and printing marketing materials, advertising expenses and expenses
relating to meetings with prospective subscribers, (vi) the cost of printing all
stock certificates and all other documents related to the Offering, and the fees
and charges of any transfer agent, registrar and other similar agents, if any,
(vii) documented out-of-pocket expenses incurred by you in connection with the
Offering and this Agreement, and (viii) fees, disbursements and other expenses
of your counsel, in addition to amounts specified in clause (iii)above. The
Company authorizes the Agent to deduct its expenses in connection with the
Offering from the proceeds of the Offering, except expenses for which an account
has not yet been rendered to the Company
SECTION 8. Indemnification.
(a) The Company agrees to indemnify and hold harmless you, your officers,
directors, agents, employees and each person, if any, who controls you within
the meaning of Section 15 of the 1933 Act, against all losses, claims, damages
or liabilities, joint or several, to which you or any of them may become subject
under all applicable federal and state laws or otherwise, and to reimburse you
and such persons for any expenses (including reasonable fees and disbursements
of counsel) incurred by you or any of them in connection with
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investigating, preparing or defending any actions, to the extent such losses,
claims, damages, liabilities or actions (i) arise out of or are based upon any
untrue statement or alleged untrue statement contained in the Registration
Statement (or any amendment or supplement thereto), or any Blue Sky application
or other instrument executed by the Company or based upon written information
supplied by the Company filed in any state or jurisdiction to qualify any or all
of the Shares under the securities laws thereof (collectively the "Blue Sky
Application"), or (ii) arise out of or are based upon the omission or alleged
omission to state in any of the foregoing documents a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (iii) arise from or
are based upon any Prospectus or any other documentation distributed in
connection with the offering and this Agreement or any oral representation made
by the Company to an investor or potential investor in connection with the
Offering, or (iv) arising directly or indirectly out of any order made by any
regulatory authority based upon an allegation that any such untrue statement or
omission exists (except information and statements referring solely to the
Agent) including, without limitation, an order that trading in or distribution
of the Shares is to cease, or (v) resulting from the failure by the Company to
file an amendment to the Registration Statement, or (vi) resulting from the
breach by the Company of any of the terms of this Agreement, or (vii) resulting
from any representation or warranty made by the Company herein not being true or
ceasing to be true, or (viii) if the Company fails to issue and deliver the
certificates for the Shares in the form and denominations satisfactory to the
Agent at the time and place required by the Agent with the result that any
completion of a sale of the Shares does not take place, or (ix) if, following
the completion of a sale of any of the Shares, a determination is made by any
competent authority setting aside the sale unless that determination arises out
of an act or omission by the Agent.; provided, however, that the Company shall
not be liable in any such case to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact in, or material omission or alleged
material omission from, the Prospectus (or any amendment or supplement thereto)
made in reliance upon and in conformity with information furnished in writing to
the Company by you regarding you expressly for use in the Prospectus or if you
fail to deliver a Prospectus that corrects a deficient disclosure if such
corrected Prospectus was made available to you on a timely basis. The Company
agrees that the only information furnished by you for use in the Prospectus is
set forth on the cover page of the Prospectus and under section entitled "Plan
of Distribution" in the Prospectus.
(b) You agree to indemnify and hold harmless the Company, its directors,
officers, employees, agents and each person, if any, who controls the Company
within the meaning of section 15 of the 1933 Act against all losses, claims,
damages or liabilities, joint or several, to which they, or any or them, may
become subject under all applicable federal and state laws or otherwise, and to
reimburse the Company and such persons for any expenses(including reasonable
fees and disbursements of counsel) incurred by them, in connection with
investigating, preparing or defending any actions, to the extent such losses,
claims, damages, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in the
Prospectus (or any amendment or supplement thereto), or based upon the omission
or alleged omission to state in the Prospectus a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that your obligations under this
Section 8(b) shall exist only if and only to the extent that such untrue
statement or alleged omitted material fact was contained in the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
information furnished in writing to the Company by you regarding you expressly
for use in the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
claim or the commencement of that action; provided, however, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party. If any such claim or action shall be brought
against an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel satisfactory to
the indemnified party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such claim or action,
the indemnifying party shall not be liable to the indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, that any indemnified party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof but the fees and expenses of such counsel shall be at the
expense of such
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indemnified party unless (i) the employment thereof has been specifically
authorized by the indemnifying party in writing, (ii) such indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party and in the reasonable judgment of such
counsel it is advisable for such indemnified party to employ separate counsel or
iii) the indemnifying party has failed to assume the defense of such action and
employ counsel reasonably satisfactory to the indemnified party, in which case,
if such indemnified party notifies the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party. Each indemnified party, as a condition of
the indemnity agreements contained in Sections 8(a) and 8(b) shall use its best
efforts to cooperate with the indemnifying party in the defense of any such
action or claim. No indemnifying party shall be liable for any settlement of any
such action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(d) The agreements contained in this Section 8 and in Section 9 hereof and
the representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of you or your officers, directors or
controlling persons, or by or on behalf of the Company or any officers,
directors or controlling persons of the Company, (ii) delivery of and payment
for the Shares, or (iii) any termination of this Agreement.
SECTION 9. Contribution.
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in Section 8 is due in accordance with
its terms but is for any reason held by a court to be unavailable from the
Company, the Company and you shall contribute to the aggregate losses, claims,
damages and liabilities (including any investigation, legal and other expenses)
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claims asserted, (but after deducting any contribution
received by the Company from persons other than you, who may also be liable for
contribution) to which the Company may be subject in such proportion so that you
are responsible for that portion represented by the percentage that the fees
paid to the Agent pursuant to Section 1 of this Agreement (not including
expenses) bears to the gross proceeds received by the Company from the sale of
the Shares in the Offering, and the Company shall be responsible for the
balance. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and you on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and you on the other hand shall be deemed to be in the
same proportion as total net proceeds from the sale of Shares (before deducting
expenses) received by the Company bear to the total fees (not including
expenses) received by the Agent. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to written information supplied by the Company on the one hand or you on
the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and you agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
considerations referred to above in this Section 9. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section
9shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, you shall not
be required to contribute any amount in excess of the amount by which the
aggregate price of Shares sold by the Agent in the Offering exceeds the amount
of any damages which you would have otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of any fraudulent misrepresentation (within the meaning of
section11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not
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guilty of such fraudulent misrepresentation. The obligations of the Company
under this Section 9 and under Section 8 shall be in addition to any liability
which the Company may otherwise have. For purposes of this Section 9, each of
your officers and directors and each person, if any, who controls you within the
meaning of the 1933 Act shall have the same rights to contribution as you and
each person, if any, who controls the Company within the meaning of the 1933
Act, and each officer and director of the Company shall have the same rights to
contribution as the Company. Any party entitled to contribution, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect to which a claim for contribution may be made against another
party under this Section 9, will notify such party from whom contribution may
besought, but the omission to so notify such party shall not relieve the party
from whom contribution may be sought from any other obligation it may have
hereunder or otherwise than under this Section 9.
SECTION 10. Conditions to Closing.
Unless otherwise agreed upon by you and the Company, the consummation of
this Offering is subject to the condition that all representations and
warranties and other statements of the Company herein are, as applicable, at and
as of the commencement of the Offering or as of each Closing Date, true and
correct in all material respects, the condition that the Company shall have
performed in all material respects all its obligations hereunder to be performed
on or before such dates, and to the following further conditions:
(a) The Registration Statement shall have been declared effective and no
stop order suspending the use of the Prospectus shall have been issued under any
applicable law or proceedings thereof initiated or threatened by any regulatory
authority, and no order or other action suspending the consummation of the
transactions described in the Prospectus shall have been issued or proceeding
therefor initiated or threatened by the SEC or any other regulatory authority.
(b) On each Closing Date you shall have received:
(1) The opinion addressed to you, as of the Closing Date, from counsel for
the Company, in form and substance satisfactory to your counsel, including
opinions to the effect that:
(i) The Company and iQ Battery have been duly incorporated and is validly
existing and in good standing under the laws of Canada.
(ii) The Company has the corporate power and authority to conduct its
business and to own, lease and operate its properties as described in the
Prospectus and as otherwise contemplated.
(iii) All Shares offered pursuant to the Offering or to be issued upon
exercise of the Agent's option or in payment of the Corporate Finance Fee have
been duly and validly authorized for issuance, and when issued, sold and
delivered by the Company pursuant to the terms of the Offering against payment
of the consideration set forth in the Prospectus, the Shares will be duly and
validly issued and fully paid and nonassessable.
(iv) The Agent's option has been duly and validly created and authorized
for issuance;
(v) All of the capital stock of the Company to be issued and outstanding
immediately following the conclusion of the Offering has been duly authorized
and, upon payment of consideration therefor in accordance with the description
set forth in the Prospectus, will be validly issued, fully paid, and
nonassessable.
(vi) This Agreement, and each lease of real property of the Company or iQ
Battery described in the Prospectus, if any, has been duly authorized, executed
and delivered by the Company and is the legal, valid and binding agreement of
the Company enforceable in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applicability
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relating to or affecting creditors' rights, to general principles of equity and
to the extent that rights to indemnity thereunder may be limited under
applicable laws.
(vii) No stop order suspending the use of the Prospectus has been issued
or, to the best of such counsel's knowledge, proceedings therefor initiated or
threatened by any regulatory authority respecting the issuance of the Shares.
(viii) No further approval, registration, authorization, consent or other
order of any public board or body is required in connection with the execution
and delivery of this Agreement, the issuance of the Shares and the consummation
of the transactions described in the Prospectus.
(ix) In the course of the preparation of the Registration Statement and the
Prospectus, we participated in conferences with officers and representatives of
the Company, with the Company's independent public accountants, at which
conferences the content of the Registration Statement and the Prospectus were
discussed and at which conferences we made inquiries of such officers,
representatives and accountants, and, on the basis of the foregoing, nothing has
come to our attention that would lead us to believe that either the Registration
Statement or any amendment thereto, as of the date the Registration Statement or
such amendment is or was declared effective, and as of the Closing Date, or the
Prospectus as of the date thereof and as of the Closing Date, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that we do not express any belief with respect
to the financial statements, and the notes and schedules related thereto and
other financial information or statistical data included in the Registration
Statement, any amendment thereto, or the Prospectus). Without limiting the
generality of the foregoing, we assume no responsibility for the accuracy,
completeness or fairness of any statements contained in the Registration
Statement or Prospectus, other than statements insofar as they relate to legal
matters under the captions "Description of Capital Stock" and "Shares Available
for Future Sale."
(x) The information in the Prospectus under the captions: "Description of
Capital Stock," and "Securities Eligible for Future Sale," to the extent such
information purports to summarize provisions of law or summarizes legal
conclusions, are accurate summaries in all material respects.
(xi) The terms and provisions of the Shares conform to the description
thereof contained in the Prospectus, and the form of certificate to be used to
evidence the Shares is in due and proper form.
(xii) There are no pending or, to the best of counsel's knowledge,
threatened legal or governmental proceedings which are required to be disclosed
in the Prospectus, other than those disclosed therein, and all pending or, to
the best of counsel's knowledge, threatened legal and governmental proceedings
to which the Company is a party are described in the Prospectus other than
ordinary routine litigation incidental to the business of the Company which are,
considered in the aggregate, not material.
(xiii) To the best of such counsel's knowledge after reasonable inquiry,
there are no material contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments of the Company required to be described or referred
to in the Registration Statement or to be included as exhibits thereto other
than those described or referred to therein or included exhibits thereto, the
descriptions thereof or references thereto are correct in all material respects.
(xiv) The Company and iQ Battery have all material licenses, permits and
other governmental authorizations currently required for the conduct of its
business as described in the Prospectus, all such licenses, permits and other
governmental authorization are or will be in full force and effect, and the
Company is in all material respects in compliance therewith.
(xv) Neither the Company or iQ Battery is in violation of its articles of
incorporation or bylaws, or to the best of such counsel's knowledge, in
violation of any material obligation,
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agreement, covenant or condition contained in any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it is a party
other than loans it makes in the ordinary course of business or by which it or
its properties may be bound; the execution and delivery of this Agreement, the
incurrence of the obligations herein set forth and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate action and do not conflict with or constitute a material breach of, or
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or iQ Battery pursuant to
its articles of incorporation, or, to the best of such counsel's knowledge, any
material contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company or iQ Battery is a party or by which it may be
bound or any applicable law, regulation or order.
In rendering the foregoing opinions, counsel may rely, as to factual
matters, on certificates of officers of the Company and on certificates of
appropriate public officials. In addition, any opinion given by the Company's
United States counsel may be limited to the laws of the United States of
America.
(c) At each Closing Date, you shall receive a joint certificate of the
Chief Executive Officer, and the Chief Financial Officer of the Company, dated
as of such Closing Date, to the effect that (i) since the respective dates as of
when information was given in the Prospectus, there has been no material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, whether or not arising in the
ordinary course of business, (ii) the representations and warranties in Section
4 are true and correct with the same force and effect as though expressly made
at and as of the Closing Date, (iii) the Company has complied with all
agreements and satisfied all conditions relating to the Offering and this
Agreement on its part to be performed or satisfied at or prior to the applicable
Closing Date, (iv) no stop order suspending the use of the Prospectus has been
issued and no proceedings for that purpose have been initiated or threatened
and, (v) no order suspending the Offering or the authorization for final use of
the Prospectus has been issued and no proceedings for that purpose have been
initiated or threatened.
(d) An opinion of the auditor of the Company, dated as of the date of the
Registration Statement and addressed to you and your counsel, relating to the
accuracy of the financial statements forming part of the Registration Statement
and the accuracy of the financial, numerical and certain other information
disclosed in the Registration Statement.
(e) At each Closing Date your counsel shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the sale of Shares as herein contemplated and related
proceedings or in order to evidence the accuracy or completeness of any of the
representations or warranties, or the fulfillment of any of the conditions
herein contained; and all proceedings taken by the Company in connection with
the Offering, this Agreement and the sale of the Shares as herein contemplated
shall be satisfactory in form and substance to you and your counsel.
(f) Neither the Company nor iQ Battery shall have sustained, since the date
of the latest audited financial statements included in the Prospectus, any
material loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and since the respective dates as of which
information is given in the Prospectus, there shall not have been any change or
any development involving a prospective change in, or affecting the general
affairs, management, financial position, shareholders' equity or results to
operations of the Company or iQ Battery, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case described
above, is in your judgment so material and adverse as to make it impracticable
or inadvisable to proceed with the Offering or the delivery of the Shares on the
terms and in the manner contemplated in the Prospectus.
(g) Subscriptions for at least 3,000,000 Shares (and payment therefor)
shall have been received by the Agent and accepted by the Company.
(h) The Company shall have completed all necessary steps such that its
Common Shares are eligible for quotation on the NASD over-the-counter Bulletin
Board.
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If any of the conditions specified in this section shall not have been
fulfilled when and as required by this Agreement, this Agreement and all of your
obligations hereunder may be cancelled by you by notifying the Company of such
cancellation in writing or by telegram at any time at or prior to the Closing
Date, and any such cancellation shall be without liability of any party to any
other party except as otherwise provided in Sections 1, 7, 8, and 9 hereof.
SECTION 11. Garnishing Orders
(a) If at any time, up to and including the final date of payment for the
Shares, the Agent receives a garnishing order or other form of attachment
purporting to attach or garnish a part of all of the sale price of the Shares,
the Agent will be free to pay the amount purportedly attached or garnished into
court.
(b) Any payment by the Agent into court contemplated by this Agreement will
be deemed to have been received by the Company as payment by the Agent against
the sale price of the Shares to the extent of the amount paid, and the Company
will be bound to issue and deliver the Securities proportionately to the amount
paid by the Agent.
(c) The Agent will not be bound to ascertain the validity of any garnishing
order or attachment, or whether in fact it attaches any monies held by the
Agent, and the Agent will be free to act with impunity in replying to any
garnishing order or attachment.
(e) The Company will release, indemnify and save harmless the Agent in
respect of all damages, costs, expenses or liability arising from any acts of
the Agent under this Article.
SECTION 12. Right of First Refusal
(a) The Company will notify the Agent of the terms of any further public
equity financing that it requires or proposes to obtain during the 12 months
following the Closing Date and the Agent will have the right of first refusal to
provide any such financing.
(b) The right of first refusal must be exercised by the Agent within 15
days following the receipt of the notice by notifying the Issuer that it will
provide such financing on the terms set out in the notice.
(c) If the Agent fails to give notice within the 15 days that they will
provide such financing upon the terms set out in the notice, the Issuer will
then be free to make other arrangements to obtain financing from another source
on the same terms or on terms no less favorable to the Company.
(d) The right of first refusal will not terminate if, on receipt of any
notice from the Company under this Section, the Agent fails to exercise the
right.
(e) The right of first refusal granted under this Section will terminate if
the Offering is not made by the Agent within the period provided in this
Agreement.
SECTION 13. Termination.
(a) Upon the occurrence of any of the following events, Agent, at its
election, may terminate this Agreement and neither party to this Agreement shall
thereafter have any obligation to the, other hereunder, except for obligations
of the Company to the Agent as set forth in Sections 1,7, 8, and 9 hereof, if:
(i) at any time prior to the Closing Date, Agent in its sole discretion
determines that a material adverse change has occurred in the financial
condition or operations of the Company; (ii) prior to the commencement of the
Offering, Agent, in its sole discretion, determines that the Prospectus and/or
related disclosure documents do not accurately and satisfactorily disclose all
relevant information of and concerning the Company and that the sale of the
Shares based on such information is not advisable; (iii) Agent, in its sole
discretion, determines that due to the market
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conditions prevailing at the time the Offering is to be commenced it is
inadvisable to proceed with the Offering, (iv) any order to cease or suspend
trading (including communicating with persons in order to obtain expressions of
interest) in the securities of the Company, or an order to cease or suspend
trading by a director, office or promoter of the Company, or any one of them, is
issued by any competent regulatory authority; (v) the Company is in breach of
any term of this Agreement; (vi) the Agent determines that any of the
representations or warranties made by the Company in this Agreement are false or
have become false; (vii) an inquiry or investigation (whether formal or
informal) in relation to the Company, or the Company's directors, officers or
promoters, is commenced or threatened by an officer or official of any competent
authority, (viii) there should develop, occur, or come into effect any
catastrophe of national or international consequence or event, accident,
governmental law, or regulation or other occurrence of any nature which, in the
opinion of the Agent, seriously affects or will seriously affect the financial
markets or the business of the Company or any subsidiary of the Company or the
ability of the Agent to perform its obligations under this Agreement, or an
investor's decision to purchase Shares, even if the investor has already
executed a subscription agreement; or (ix) following a consideration of the
history, business, products, property or affairs of the Company or its
principals, or of the state of the financial markets in general, or the state of
the market for the Company's securities in particular, the Agent determines, in
its sole discretion, acting reasonably, that it is not in the interest of the
investors to complete the purchase and sale of the Shares or that the Shares
cannot be profitably marketed.
(b) In the event the Company fails to meet the conditions specified in
Section 10 hereof within the period specified in, and in accordance with the
Prospectus, at the election of either party hereto this Agreement shall
terminate and neither party to this Agreement shall thereafter have any
obligation to the other hereunder, except for obligations of the Company to the
Agent as set forth in Sections 1, 7, 8, and 9 hereof.
(c) This Agreement may only be terminated by Agent, with respect to Agent's
obligations hereunder and the obligations of any subscribers to the offering, by
notifying the Company in writing of the same, and neither party to this
Agreement shall thereafter have any obligation to the other, except for
obligations of the Company to the Agent as set forth in Sections 1, 7, 8, and 9
hereof.
SECTION 14. Survival.
The respective indemnities, agreements, representations, warranties and
other statements of or respecting the Company and you, as set forth in this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of you or any of your officers or directors or any person controlling you, or
the Company, and shall survive delivery of and payment for the Shares.
SECTION 15. Counterparts.
This Agreement may be executed simultaneously in one or more counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one instrument.
SECTION 16. Miscellaneous.
(a) Notices hereunder, except as otherwise provided herein, shall be given
in writing or by telegraph, addressed (i) to the Agent at (Attention Paul
Weibe), with a copy to: Catalyst Corporate Finance Lawyers 1100-1055 West
Hastings Street, Vancouver, British Columbia, Canada, V6E 2E9, (Attention:
Charlotte Bell) and (ii) to the Company at the Company's principal office
(Attention: Russell French).
(b) This Agreement in made solely for the benefit of and will be binding
upon the parties hereto and their respective successors and the controlling
persons, directors and officers referred to in Section 8 hereof, and no other
person will have any right or obligation hereunder. The term "successor" shall
not include any purchaser, as such, of any of the Shares.
-16-
<PAGE>
(c) This Agreement shall be governed by and construed in accordance with
the laws of the Province of British Columbia.
If the foregoing correctly sets forth the arrangement between the Company
and the Agent, please indicate acceptance thereof in the space provided below
for that purpose, whereupon this letter and your acceptance shall constitute a
binding agreement.
Very truly yours,
iQ Power Technology Inc.
By: ------------------------------------
Accepted as of the date first above written IPO Capital Corp.
By: ------------------------------------
-17-
Exhibit 3.1
INCORPORATED PURSUANT TO THE CANADA BUSINESS CORPORATIONS ACT
IQ POWER TECHNOLOGY INC.
NUMBER SHARES
44985N 10 6
THIS CERTIFIES THAT
Is the registered holder of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES WITHOUT PAR VALUE
In the Capital of the above named Corporation subject to the Articles and
By-laws of the Corporation transferable on the books of the Corporaiton by the
registered holder in person or by Attorney duly authorized in writing upon
surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and
Registrar of the Corporation.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be signed on
its behalf by the facsimile signatures of its duly authorized officers at
Vancouver, British Columbia.
DATED -----------------------------
- --------------------------------
President
COUNTERSIGNED AND REGISTERED
MONTREAL TRUST COMPANY OF CANADA VANCOUVER
TRANSFER AGENT AND REGISTRAR
- --------------------------------
Secretary By --------------------------------
Authorized Officer
The Shares represented by this Certificate are
transferable at the offices of Montreal Trust
Company of Canada, Vancouver B.C.
Exhibit 4.1
SUBSCRIPTION AGREEMENT
SUBSCRIPTION OFFER
TO: IQ POWER TECHNOLOGY INC. (the "Issuer")
a corporation incorporated under the laws of Canada 1111 West
Hastings Street, Suite 708-A
Vancouver, BC, Canada, V6E 2J3
AND TO: IPO CAPITAL CORP. (the "Agent")
The undersigned purchaser ("Purchaser") hereby irrevocably subscribes for and
agrees to purchase on the Private Placement Subscription Terms and Conditions
set out in Sections 1 through 6 attached:
- ----------- common shares (the "Shares") of the Issuer, at a price per Share of
US$1.00 (the "Subscription Price"), for an aggregate purchase price (the
"Purchase Price") of US$ ---------------
The execution by the Purchaser of this Agreement will constitute an irrevocable
offer by the Purchaser to the Issuer to subscribe for the Shares. The acceptance
of such offer by the Issuer, as evidenced by the signature of its authorized
officer below, will constitute an agreement between the Purchaser and the Issuer
for the Purchaser to purchase from the Issuer and for the Issuer to issue and
sell to the Purchaser the Shares upon the terms and conditions contained herein
and to issue the Shares in accordance with the Registration Instructions and
Delivery Instructions indicated below.
DATED at --------------, in the ----------- of ------------------, on
- --------------------, 1999.
<TABLE>
<S> <C>
- --------------------------------------------- -------------------------------------------------
(Name of Purchaser - please print) (Purchaser's Address)
By:
- --------------------------------------------- -------------------------------------------------
Authorized Signature
( )
- --------------------------------------------- -------------------------------------------------
(Official Capacity or Title - please print) (Telephone and Telecopier Numbers)
- --------------------------------------------- -------------------------------------------------
(Please print name of individual whose (Please print name of individual whose
signatures appears above if different than signatures appears above if different than
the name of the Purchaser printed above) the name of the Purchaser printed above)
- --------------------------------------------------------------
(Print the jurisdiction of incorporation for a corporate
Purchaser)
==================================================================================================
Registration Instructions: Delivery Instructions:
- --------------------------------------------- -------------------------------------------------
Registered Owner Address
-------------------------------------------------
- --------------------------------------------- -------------------------------------------------
Account reference, if applicable Account reference, if applicable
- --------------------------------------------- -------------------------------------------------
Address Contact Name
( )
- --------------------------------------------- -------------------------------------------------
Share Certificate Splits Telephone Number
==================================================================================================
SUBSCRIPTION ACCEPTANCE
The Subscription Offer is hereby accepted The obligations of the Agent under this Agreement
by the Issuer are effective --------, 1999. are hereby accepted and agreed to by the Agent
effective ---------------------, 1999.
IQ POWER TECHNOLOGY INC. IPO CAPITAL CORP.
Per: ---------------------------------- Per: ----------------------------------
</TABLE>
<PAGE>
Page 2
PRIVATE PLACEMENT SUBSCRIPTION TERMS AND CONDITIONS
1. PURCHASE AND SALE OF SHARES
1.1 The Purchaser, as principal, hereby subscribes for and agrees to purchase,
and the Issuer agrees to issue to the Purchaser, the Shares for the Subscription
Price per Share (the "Private Placement").
1.2 The Private Placement is part of an offering of up to 5,500,000 Shares by
the Issuer (the "Offering") having a minimum subscription per Purchaser of
25,000 Shares (US$25,000) although the Issuer may, in its sole discretion,
accept a lesser amount.
1.3 The Purchaser shall pay the aggregate acquisition cost of the Shares (the
"Purchase Price"), being the Subscription Price multiplied by the number of
Shares, to the Agent on the date of execution of this Agreement (the "Payment
Day") and the Agent shall hold those funds in escrow and release them to the
Issuer at closing (the "Closing") in accordance with subsections 1.4 through
1.7.
1.4 The Purchase Price will be held in escrow by the Agent and will be released
to the Issuer after
a. the Issuer receives subscriptions for at least 3,000,000 Shares in the
aggregate from all subscribers on terms equivalent to the Private
Placement; and
b. the registration statement of the Issuer on Form 8-A under the Shares and
Exchange Act of 1934, as amended, has been declared effective by the United
States Securities and Exchange Commission.
1.5 The Closing of the purchase and sale of the Shares will take place upon
acceptance by the Issuer of the Subscription Offer of the Purchaser and the
release of the Purchase Price to the Issuer by the Agent from escrow.
1.6 At the Closing, the Issuer shall deliver one or more share certificates
representing the number of Shares purchased in accordance with the registration
instructions and delivery instructions provided on the subscription form
attached.
1.7 The Issuer and the Purchaser also hereby agree to execute and deliver at
Closing such other documents as may be necessary or appropriate to complete such
Closing.
1.8 The Purchaser acknowledges that although a number of other subscriptions for
Shares may be closed concurrent with the Closing, there may also be other
separate closings under the Offering, some or all of which may occur before or
after the Closing. As a result, there may be several Closings. To the extent
that the Closing forms part of the initial closings of subscriptions under the
Offering, the Purchaser is aware of the risk that insufficient further funds may
be raised to meet the objectives of the Issuer.
1.9 The Subscription Offer attached shall be deemed an offer to acquire up to
the number of Shares indicated thereon and the Issuer may accept or reject any
Subscription Offer in whole or in part or may elect to allot to the Purchaser
less than the number of Shares applied for by the Purchaser in which event the
Subscription Offer shall be deemed amended to be for the number of Shares
allotted by the Issuer without the need to obtain an amendment or any consent
thereto from the Purchaser. If the Issuer rejects the Subscription Offer of the
Purchaser or elects to allot to the Purchaser less than the number of Shares
applied for, the Agent will return to the Purchaser that part of the Purchase
Price not required to purchase the Shares allotted without interest or deduction
forthwith after determining the allotment of Shares hereunder.
2. ACKNOWLEDGMENTS OF THE SUBSCRIBER
The Purchaser acknowledges and declares that:
a. the Purchaser is aware that the Shares have not been qualified under the
Shares Act, R.S.B.C. 1996, c.418 (the "Act"), or the Securities Rules (the
"Rules") or the Securities Regulation (the "Regulation") promulgated under
the Act (collectively the Act, the Rules, and the Regulation shall be
referred to as the "Legislation") for distribution to the public, that no
prospectus has been filed by the Issuer under the Act in connection with
the distribution of the Shares, and that the Issuer is relying on
exemptions from the registration and prospectus requirements of the
Legislation in respect of the distribution of the Shares, and that as a
result:
i. the Purchaser is restricted from using most of the civil remedies
available under the Legislation,
ii. the Purchaser may not receive information that would be otherwise
available to him under the Legislation in connection with his purchase
of the Shares, and
iii. the Purchaser is relieved from certain obligations that would
otherwise apply under the Legislation;
b. the Purchaser is aware that the Shares form a part of a private placement
offering of up to an aggregate of 5,500,000 Shares by the Issuer, as more
particularly described in the Offering Memorandum, and that there is no
minimum subscription for such offering and therefore any subscription funds
may be accepted and used by the Issuer;
c. the Purchaser is aware and has been advised that his subscription funds
will represent "risk" capital for the Issuer at a speculative stage of the
development of the Issuer;
d. no person has made to the Purchaser any written or oral representations:
<PAGE>
Page 3
i. that any person will resell or repurchase the Shares,
ii. that any person will refund the purchase price of the Shares except in
accordance with this Agreement, or
iii. as to the future price or value of the Shares;
e. no information or representation concerning the Issuer has been provided to
the Purchaser by the Issuer or the Agent other than those contained in this
Agreement and in the Offering Memorandum, and that the Purchaser is relying
entirely upon information or documents made available by the Issuer to make
a decision to purchase the Shares subscribed for hereunder;
f. there are restrictions on the ability of the Purchaser to resell the Shares
and it is the responsibility of the Purchaser to find out what those
restrictions are and to comply with them before selling the Shares and it
is not the obligation of the Issuer or the Agent or their respective
solicitors to keep the Purchaser informed in this regard and, without
limiting the generality of the foregoing, the resale of the Shares will be
subject to resale restrictions, including a hold period, which will make it
very difficult if not impossible, to resell the Shares in British Columbia;
g. where the sale of the Shares is exempted under paragraph (a), (b), or (c)
of section 128 of the Rules or under section 76 of the Act in circumstances
requiring delivery of an Offering Memorandum, the Purchaser has been
provided with and has read and understood the offering memorandum of the
Issuer (the "Offering Memorandum") prepared and delivered in connection
with the sale of the Shares, and has based its decision to invest in the
Issuer solely on the disclosure set out therein;
h. the Issuer has recommended the Purchaser seek and obtain independent legal
advice from the solicitor for the Purchaser with respect to this Agreement
prior to its execution and has provided the Purchaser with sufficient
opportunity to do so and the Purchaser further acknowledges that it
understands the terms, and its rights and obligations under this Agreement;
i. no securities commission or similar regulatory authority has reviewed or
passed on the merits of the Shares;
j. there is no government or other insurance covering the Shares; and
k. there are risks associated with the purchase of the Shares.
3. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER
The Purchaser represents and warrants to the Issuer as of the date of the
Subscription Offer and at the Closing that:
a. the Purchaser is resident at the address set forth on the Subscription
Offer;
b. the Purchaser is purchasing the Shares as principal and no other person,
firm or corporation will have a beneficial interest in the Shares;
c. the statements of fact set out in any Form 20A (IP) or Form 20A (NIP)
delivered to the Issuer by the Purchaser with the Subscription Offer are
true and correct;
d. the Purchaser is either:
i. a person exempted under section 74(2)(1) of the Act,
ii. designated by the Executive Director under the Act (the "Executive
Director") as an exempt purchaser under section 74(2)(3) of the Act,
iii. purchasing as a principal where the Purchase Price exceed Cdn$97,000
under section 74(2)(4) of the Act and, where the Purchaser is a
resident of Ontario, Cdn $150,000,
iv. a person exempted under section 74(2)(9) of the Act who was not
induced to purchase the Shares by expectation of employment or
continued employment,
v. a person exempted under paragraph (a) of section 128 of the Rules by
virtue of being
A. a "sophisticated purchaser" as defined in Appendix A to the Form
20A (NIP) attached hereto (a "Sophisticated Purchaser"),
B. a spouse, parent, brother, sister or child of a senior officer or
director of the Issuer, or of an affiliate of the Issuer, or
C. a company, all the voting securities of which are beneficially
owned by one or more of a senior officer or director of the
Issuer, or of an affiliate of the Issuer, or a spouse, parent,
brother, sister or child of a senior officer or director of the
Issuer, or of an affiliate of the Issuer,
vi. a person exempted under paragraph (b) of section 128 of the Rules by
virtue of being a Sophisticated Purchaser where the Purchase Price are
not less than Cdn$25,000,
<PAGE>
Page 4
vii. a person exempted under paragraph (c) of section 128 of the Rules by
virtue of an authorized signatory having spoken to a person (the
"Registered Person") who has advised that signatory that the
Registered Person is registered to trade or advise in the Shares and
that the purchaser of the Shares is a suitable investment for the
Purchaser where the Purchase Price are not less than Cdn$25,000,
viii.a person exempted under section 76 of the Act by reason of BOR #97/4
or otherwise;
e. the Subscription Offer was not solicited in any manner contrary to the
Legislation;
f. the Shares are being purchased for investment purposes only and not with a
view to resale or distribution;
g. the Purchaser is not acquiring the Shares as a result of any material
information about the affairs of the Issuer that has not been publicly
disclosed, save knowledge of this particular transaction;
h. the Purchaser will sell, assign or transfer the Shares only in accordance
with the requirements of all applicable legislation;
i. where the Purchaser is a corporation, the Purchaser is duly incorporated
and validly subsisting under the laws of its jurisdiction of incorporation
and all necessary approvals by its directors, shareholders and others have
been given to authorize execution of this Agreement on behalf of the
Purchaser and the entering into of this Agreement, and the transactions
contemplated hereby will not result in the violation of any of the terms
and provisions of any law applicable to, or the constating documents of,
the Purchaser or of any agreement, written or oral, to which the Purchaser
may be a party or by which he is or may be bound;
j. this Agreement has been duly executed and delivered by the Purchaser and
constitutes a valid and binding agreement of the Purchaser enforceable
against the Purchaser;
k. the Purchaser is not purchasing the Shares as a result of any advertisement
of the Shares or the Offering; and
l. if the Purchaser is more than one person, the obligations of the Purchaser
hereunder shall be joint and several and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed to be made
by and be binding upon each such person and his/her heirs, executors,
administrators, successors, legal representatives and permitted assigns.
4. REPRESENTATIONS AND WARRANTIES OF THE ISSUER
The Issuer represents and warrants to the Purchaser that the Shares issued to
the Purchaser pursuant to this Agreement will be duly authorized, validly
issued, fully paid and non-assessable.
5. GENERAL
5.1 The parties hereto agree to do or cause to be done all acts or things
necessary to implement and carry into effect the provisions of and the intent of
this Agreement including executing any undertakings required by the regulatory
authorities or exchanges and furnishing, executing and delivering such documents
and instruments and taking such other action as a party may reasonably request
of the other as necessary or desirable to carry out the transactions
contemplated herein, and the Purchaser specifically agrees to execute and
deliver to the Issuer the Form 20A Acknowledgement and Undertaking as required
under the Rules, copies of which have been provided to the Purchaser.
5.2 All funds referred to under the terms of this Agreement shall be funds
designated in the lawful currency of the United States of America.
5.3 This Agreement, including all matters of construction, validity and
performance, shall be governed by and construed and enforced in accordance with
the internal laws of the Province of British Columbia, Canada, without giving
effect to any laws or principles that would apply the laws of any other
jurisdiction. Any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, this Subscription Agreement may be brought
against either of the parties in the courts of British Columbia, Canada, and
each of the parties irrevocably consents to the non-exclusive jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on either
party anywhere in the world.
5.4 For valuable consideration received, the Purchaser waives the need for the
Issuer to communicate acceptance of the Subscription Offer of the Purchaser for
the Shares and agrees that the Subscription Offer is irrevocable by the
Purchaser and, except as required by law, the Purchaser is not entitled to
cancel, terminate or revoke this Agreement, and this Agreement shall survive the
death or disability of the Purchaser and shall be binding upon and inure to the
benefit of the parties and their heirs, executors, administrators, successors,
legal representatives and permitted assigns once executed by the Purchaser.
5.5 This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective heirs, administrators, successors and assigns.
5.6 The obligations of the Issuer under this Agreement are subject to and
conditional upon the Exchange providing the Issuer with written notice that it
has accepted the Private Placement for filing within 3 months of the reference
date of this Agreement, failing which this Agreement may be declared null and
void by the Issuer at any time prior to Closing.
<PAGE>
Page 5
5.7 This subscription, upon acceptance by the Issuer, will represent the entire
agreement of the parties hereto with respect to the subject matter hereof and
there are no representations, warranties, covenants, other agreements or
understandings, oral and written, relating to the subject matter hereof except
as stated or referred to in this subscription. It supersedes and merges within
it all prior agreements or understandings between the parties, whether written
or oral. In interpreting or construing this Agreement, the fact that one or the
other of the parties may have drafted this Agreement or any provision shall not
be given any weight or relevance.
5.8 Neither this subscription agreement nor any provision hereof shall be
modified, changed, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought.
5.9 Time is of the essence of this Agreement and will be calculated in
accordance with the provisions of the Interpretation Act (British Columbia).
5.10 The Purchaser will have the contractual rights of action described in the
Offering Memorandum which rights are incorporated by reference herein.
5.11 Any notice under this Agreement must be in writing, delivered, telecopied
or mailed by prepaid post, addressed to the party to which notice is to be given
at the address for such party indicated herein or at another address designated
by either party in writing. Notice which is delivered or telecopied will be
deemed to have been given at the time of transmission or delivery. If notice is
by mail it will be deemed to have been given 48 hours following the date of
mailing. If there is an interruption in normal mail service at or prior to the
time a notice is mailed, the notice must be delivered or telecopied.
5.12 The representations, warranties and covenants of the parties contained in
this Agreement will survive the Closing of the purchase and sale of the Shares.
6. POWER OF ATTORNEY TO COMPLETE
PRIVATE PLACEMENT DOCUMENTS
(If the Purchaser does not want to grant the following power of attorney,
please cross out section 6 and initial at either end of the cross-out lines).
Effective upon the execution of this Agreement by the Issuer, the Purchaser:
a. irrevocably appoints the President of the Issuer (the "Attorney") as the
attorney and agent for the Purchaser, with a full power of substitution, to
execute, swear to, acknowledge, deliver, make, file, amend and record when,
and as, necessary any instrument, acknowledgment, undertaking, direction or
other document required to be filed by the Issuer or the Purchaser with any
competent securities regulatory authority or stock exchange in connection
with the purchase and sale of the Shares or necessary, in the opinion of
the Attorney, to complete or perfect the transactions contemplated by this
subscription, including, without limitation, any Form 20A required under
the Rules;
b. declares that the power of attorney hereby granted is irrevocable and will
survive the death, incapacity or bankruptcy of the Purchaser and will
extend to and bind the Purchaser and the heirs, assigns, executors,
trustees in bankruptcy or other legal representatives or successors of the
Purchaser; and
c. agrees to be bound by any representations made or actions taken by the
Attorney if such representations or actions are made or taken in good faith and
in accordance with the power of attorney hereby granted, and the Purchaser
waives any and all defences which may be available to the Purchaser to deny,
contest, or disaffirm any such representations or actions.
Exhibit 6.37
POOLING AGREEMENT NO. 2
THIS AGREEMENT dated for reference _________________________, 1998.
AMONG:
iQ Power Technology Inc.
(hereinafter called the "Issuer")
OF THE FIRST PART
AND:
MONTREAL TRUST COMPANY OF CANADA
(hereinafter called the "Pooling Agent")
OF THE SECOND PART
AND:
The undersigned shareholders of iQ Power Technology Inc.
(hereinafter called the "Shareholders")
OF THE THIRD PART
WHEREAS:
A. The Shareholders are the holders of, have subscribed for, or have agreed to
purchase shares (the "Shares") of iQ Power Technology Inc. (the "Issuer") as
described in Schedule "A" hereto;
B. The Shareholders have agreed to place the Shares in pool with the Pooling
Agent on the terms and conditions herein contained.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the sum of TEN
DOLLARS ($10.00) now paid by the parties hereto, each to the other (the receipt
whereof is hereby acknowledged) and in further consideration of the mutual
covenants and conditions hereinafter contained, the parties hereto agree as
follows:
1. In this Agreement, "Effective Date" shall mean the day the Shareholders have
acquired Shares of the Issuer.
2. The Shareholders hereby agrees with the Issuer and the Pooling Agent that
they will respectively deliver or cause to be delivered to the Pooling Agent
certificates for their Shares in the Issuer as set out in Schedule "A" hereto to
be held by the Pooling Agent and released, subject as hereinafter provided, as
provided in Schedule "A".
3. The Shareholders shall be entitled to a letter or receipt from the Pooling
Agent stating the number of Shares represented by certificates held for them by
the Pooling Agent subject to the terms of this Agreement, but such letter or
receipt shall not be assignable.
4. The Shareholders shall not sell, deal in, assign, transfer in any manner
whatsoever or agree to sell, deal in, assign or transfer in any manner
whatsoever any of the said Shares or beneficial ownership of or any interest in
them; and the Pooling Agent shall not accept or acknowledge any transfer,
assignment, declaration of trust or any other document evidencing a change in
legal or beneficial ownership of or interest in the said Shares, except as may
be required by reason of the death or bankruptcy of any one or more of the
Shareholders, in which case the Pooling Agent shall hold the said certificates
for Shares subject to this Agreement for whatever person or persons, firm or
corporation that may thus become legally entitled thereto.
5. The Parties agree that the Shares are being pooled in the best interests of
the Issuer and its shareholders and have not been pooled due to duress or undue
influence.
6. This Agreement shall enure to the benefit of and be binding upon the parties
hereto, their and each of their heirs, executors, administrators, successors and
permitted assigns.
7. This Agreement may be executed in several parts in the same form and such
parts so executed shall together constitute one original Agreement and such
parts, if more than one, shall be read together and construed as if all the
signing parties hereto had executed one copy of this Agreement.
<PAGE>
Pooling Agreement
Page 2
8. Each of the signatories hereby agree that new shareholders of the Issuer may
agree to be bound as parties to this Agreement from time to time and pool their
shareholdings in the Issuer from time to time by amendments hereto which need
only be signed by the Issuer, the Pooling Agent and the shareholders joining the
Agreement from time to time.
9. The parties hereto agree that in consideration of the Pooling Agent agreeing
to act as Pooling Agent as aforesaid, the Issuer and the Shareholders do hereby
covenant and agree from time to time and at all times hereafter, well and truly
to save, defend and keep harmless and fully indemnify the Pooling Agent, its
successors and assigns, from and against all loss, costs, charges, damages and
expenses which the said Pooling Agent, its successors and assigns may at any
time or times hereafter bear, sustain, suffer or be put to for or by reason or
on account of its acting as Pooling Agent pursuant to this Agreement.
10. It is further agreed by and between the parties hereto and, without
restricting the foregoing indemnity, that in case proceedings should hereafter
be taken in any Court respecting the Shares hereby pooled, the Pooling Agent
shall not be obliged to defend any such action or submit its rights to the Court
until it shall have been indemnified by other good and sufficient security in
addition to the indemnity hereinbefore given against its costs of such
proceedings.
IN WITNESS WHEREOF the Issuer, the Pooling Agent, and the Shareholders, have
executed these presents as of the day and year first above written.
SIGNED, SEALED AND DELIVERED ) iQ Power Technology Inc.
by the Issuer in the presence of: ) Name of Issuer
)
- --------------------------------------) Per:-------------------------------
Witness ) signature
- --------------------------------------) Suite 708, 1111 West Hastings Street
Address ) Vancouver, British Columbia, Canada
- --------------------------------------) V6E 2J3
City and Postal Code ) Address for service
)
SIGNED, SEALED AND DELIVERED ) Montreal Trust Company of Canada
by the Pooling Agent in the )
presence of: ) Name of Pooling Agent
)
- --------------------------------------) Per:-------------------------------
Witness ) signature
- --------------------------------------) -----------------------------------
Address ) -----------------------------------
- --------------------------------------) -----------------------------------
City and Postal Code ) Address for service
SIGNED, SEALED AND DELIVERED )
by a Shareholder in the presence ) -----------------------------------
of: ) Name of Shareholder
)
- --------------------------------------) -----------------------------------
Witness ) signature
- --------------------------------------) -----------------------------------
Address ) -----------------------------------
- --------------------------------------) -----------------------------------
City and Postal Code ) Address for service
<PAGE>
SCHEDULE "A"
The Shares shall be released as to:
a. 1/4 of the Shares on the earlier of September 1, 1999, and the date
that the Issuer has closed a financing raising not less than
US$3,000,000 following the initial date of this agreement as certified
by the auditor of the Issuer (the "First Release Date");
b. 1/4 of the Shares three months following the First Release Date; c. 1/4 of
the Shares six months following the First Release Date; and d. 1/4 of the
Shares nine months following the First Release Date
except that where the number of pooled shares of any Shareholder as at a Release
Date are less than or equal to 25,000, then all such shares of that Shareholder
shall be released on that date.
- ---------------------------------------- --------------------------------------
Shareholder Shares Pooled
- ---------------------------------------- --------------------------------------
Noble Larsen 75,000
- ---------------------------------------- --------------------------------------
Ronald Nichols 75,000
- ---------------------------------------- --------------------------------------
Erin French 25,000
- ---------------------------------------- --------------------------------------
Jeffery French 25,000
- ---------------------------------------- --------------------------------------
Victor French 25,000
- ---------------------------------------- --------------------------------------
Margo French 25,000
- ---------------------------------------- --------------------------------------
Gregory A. Sasges 25,000
- ---------------------------------------- --------------------------------------
Dawn B. Sasges 25,000
- ---------------------------------------- --------------------------------------
Helga Fisher 25,000
- ---------------------------------------- --------------------------------------
Terry Fields 25,000
- ---------------------------------------- --------------------------------------
William Mairs 25,000
- ---------------------------------------- --------------------------------------
Christiane Bauer 54,000
- ---------------------------------------- --------------------------------------
Alexa Schluren 54,000
- ---------------------------------------- --------------------------------------
Janice Irving 53,200
- ---------------------------------------- --------------------------------------
Dunkirk Investments Ltd. 328,380
- ---------------------------------------- --------------------------------------
Abu B. Khan 100,000
- ---------------------------------------- --------------------------------------
Gary O. Khan 200,000
- ---------------------------------------- --------------------------------------
TOTAL: 1,164,580
- ---------------------------------------- --------------------------------------
Shareholder Shares to be Pooled on
Exercise of Special Warrants
- ---------------------------------------- --------------------------------------
Haliun Hongorzul 900,000
- ---------------------------------------- --------------------------------------
Noni Wee 900,000
- ---------------------------------------- --------------------------------------
Che Wai Ho 250,000
- ---------------------------------------- --------------------------------------
Marjorie Pollard 100,000
- ---------------------------------------- --------------------------------------
Highland Resources Ltd. 150,000
- ---------------------------------------- --------------------------------------
TOTAL: 230,000
- ---------------------------------------- --------------------------------------
Exhibit 6.38
LEASE AGREEMENT
Between
Dr. Arne Curt Berger
Buchfinkenweg 9
87527 Sonthofen
Fax: 040/2 80 64 99
-Lessor-
and
IQ Battery Research & Development GmbH
Erlenhof Park, Inselkammerstrasse 4, D-82008 Unterhaching
Fax: 089/61 44 83 40
-Lessee-
a lease agreement with the following terms is concluded:
ss. 1 Leased property:
1. The lessor is leasing to the lessee in 09227 Chemnitz/Einsiedel,
Niederwaldstrasse 3, first floor, work-, office-, workshop and sanitary space
covering an area of 508.50 m2 and, outside of the building, 10 parking spaces
for cars, as shown in the enclosed area plan (enclosure 1) and plot plan
(enclosure 2). The leased area is marked with a red line.
2. The outer areas of the property (within the leased space) are included in the
lease. The lessee is entitled to install advertising material, such as signs or
neon lighting and to embellish the outer areas as needed. The lessee has to
obtain all permits required.
3. The leased property is at the lessee's disposal as seen. The lessee is
informed about the condition of the leased property. In order to improve the use
of the leased space and in accordance with the specifications (enclosure 3), the
lessee is entitled to carry out or have carried out structural changes at his
expense. All structural work to be performed by the lessor is stated in
enclosure 4. All structural measures are to be performed in compliance with the
respective DIN-standards, VOB part C, notes for suppliers, and the guidelines
for associations and technical regulations.
(Signatures illegible)
Lessor Lessee
<PAGE>
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ss. 2 Lease purpose
1. The lease shall facilitate the business activities of the lessee (use of
office space, laboratory work with workshop and storage).
2. It is the responsibility of the lessee to obtain all officially required
permits for the use of the leased space, including the organization of the
required personal or operational prerequisites. The lessee carries the
costs attached to the compliance with official conditions resulting from
his person or the nature of his business.
3. Further changes of the utilization require the lessor's consent in writing.
ss. 3 Term of lease and period of notice
1. The lease begins on 16.02.1999 and is concluded for the period of two years
and 10 1/2 months (fixed lease term), that is until 31.12.2001.
2. The lease will be extended for another year unless it is terminated by one
of the contracting parties prior to the end of the lease contract, subject
to six months' notice.
3. All declarations regarding the notice of termination require the written
form to be effective; a faxed notice is acceptable.
4. Decisive for timeliness is the delivery of the notice to the recipient.
ss. 4 Delivery of the leased space
1. For the time of the structural changes, the lessee may use the space free
of charge. During the time prior to the start of the lease (ss. 3, item 1),
the lessee will pay to the lessor a not accountable lump-sum for
operational costs of monthly DM 700.00, plus 16% added value tax.
2. At the time of the delivery, a record will be made of the property's
present state.
3. The lessee is entitled to have a personal locking device installed.
4. The lessee agrees to handle and maintain the leased space with care and to
return it to the lessor upon the end of the leased term.
(Signatures illegible)
Lessor Lessee
<PAGE>
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ss. 5 Rental costs
<TABLE>
<S> <C> <C>
1. The monthly rent for the leased property is for year 1 and 2
For office-, work-, and sanitary space (301.30 m2) DM 2,410.40 (DM 8.00)
For workshop and hallways (207.20 m2) DM 1,243.20 (DM 6.00)
For 10 parking spaces DM 300
------
TOTAL DM 3,953.60
Year 3 and the following years:
For office-, work-, and sanitary space (301.30 m2) DM, 3,013.00 (DM 10.00)
For workshop and hallways (207.20 m2) DM 1,657.60 (DM 8.00)
For 10 parking spaces DM 300
TOTAL DM 4,970.60
</TABLE>
2. The added value tax needs to be added to the monthly rent.
3. The rent is payable in advance until the fifth working day of each month to
the lessor's account
Bank: Landesbank Berlin
Account no.: 2970009415
Banking route: 100 500 00
The first payment is due on 16.02.1999.
ss. 6 Stable value clause
If the cost-of-living index determined monthly in Germany by the Federal
Statistical Office in Wiesbaden, and valued in the base year 1991 at 100 points,
changes compared with the rate at the begin of the third lease-year or compared
with the last rent adjustment according to this clause by more than 5%, the
parties agree to negotiate a change of the rent payment that reflects the
index-change. If the parties are unable to reach an agreement, the Chamber of
Industry and Commerce in Chemnitz shall appoint an expert as arbitrator. The
decision shall consider the change of the cost-of-living index in all private
German households, which was valued in 1991 at 100 points. The expert's decision
shall be binding for both parties. Both parties shall carry the cost of the
proceedings in equal parts.
ss. 7 Heating and ancillary costs
1. According to this contract, heating and ancillary costs are the operational
costs pursuant to enclosure 3, re: ss. 27, item 3 of the Second Calculation
Provision in its currently valid form. The lessee carries the proportional
costs of heating and ancillary costs for the leased and jointly utilized
space.
(Signatures illegible)
Lessor Lessee
<PAGE>
-4-
2. As far as possible, the lessee will conclude supply contracts directly with
the public utilities and will make his own arrangements for direct payment.
This does not apply for utility services which can be considered as
operational costs pursuant to enclosure 3, re: ss. 27, item 3 of the Second
Calculation Provision in its currently valid form.
3. The remaining operational costs will be, as far as possible, determined by
separate meters or calculated in proportion to the leased area.
4. The formation of a tenants' association is planned. Rights and duties of
members of such an association need to be set out in a separate agreement
between the lessee, the respective association, and, if required, the
lessor.
5. The lessee has to pay, in advance, the monthly amount of DM 1,017.00 (DM
2.00/m2), which includes DM 1.10/m2 heating costs) to cover above heating
and ancillary costs. The amount of DM 1,017.00 plus the applicable added
value tax, plus the due rent has to be paid into the lessor's account.
6. Heating and ancillary costs are settled once a year, with the cut-off date
on December 31. The lessor has a period of six months from the respective
cut-off date to settle the accounts.
7. Payment of arrears or refund of balances need to be settled within a month
following the receipt of the statement. If the statement shows an amount
outstanding, the lessor is entitled to adjust the amount of advance payment
accordingly. If the statement shows an overpayment, the lessee is entitled
to request an according reduction of the advance payment from the lessor.
ss. 8 Setting-off and right of retention
1. The retention right for rent or the set-off against rent can only be
exercised with an uncontested or legally recognized counterclaim of the
lessee.
2. In any case, the lessee needs to inform the lessor at least one month prior
to the due date of the rent payment of his intention to exercise these
rights.
ss. 9 Occupier's obligation to make the premises safe for persons and vehicles
1. For the duration of the lease, the lessee has the obligation to make the
premises safe for persons and vehicles.
2. The lessor has the obligation to make the commonly used areas, including
the yard and access road safe for persons and vehicles.
3. During the winter months, the lessee has the duty to remove ice and snow
from the premises, including the strewing of ashes, salt, gravel etc. on
icy pavements.
(Signatures illegible)
Lessor Lessee
<PAGE>
-5-
4. The costs resulting from the compliance with the obligations stated under
2.) and 3.) are carried by the lessee in proportion to the areas used by
him and the leasable total area and are included in the ancillary costs to
be paid by the lessee (ss. 7).
ss. 10 Insurance
1. The lessor assures that the house and property, including the leased
property, is covered by insurance against the usual angers (liability for
house and property, joint building insurance). The lessor agrees to prove
to the lessor immediately upon conclusion of this lease agreement, that he
has in fact obtained the respective insurance coverage.
2. It is the lessee's responsibility to effect the usual business insurance,
especially coverage for his equipment, in the appropriate amount. For
burglary and housebreaking insurance and the water-damage insurance, the
lessee has to obtain insurance coverage for damages at the leased property.
The lessee carries the risk for broken glass.
ss. 11 Maintenance of the leased property
1. The lessee has to pay for any measures regarding the beautification of the
leased space during the lease period.
2. All other repairs are carried by the lessee up to the amount of DM 300.00
plus added value tax, per individual case.
3. The lessor will pay for any roof and wall-repairs and maintenance,
including the outer areas.
4. The lessee is liable for damages inside of the leased rooms and at the
building, as well as damages to the leased space or to facilities and
equipment that are part of the building, if these damages are the result of
use contrary to the contract, and if these damages have been caused by the
lessee, his vicarious agents, clients, sub-lessees, visitors, suppliers,
handymen, etc.
5. The lessee has to inform the lessor immediately of any damage to the leased
space, insofar as he is not obligated to remove the damage himself. The
lessee is liable for any damage caused by his failure to report it in due
time.
ss. 12 Sub-lease
With prior consent of the lessor, the lessee may sub-lease the property. The
lessor must not withhold his consent without good reason.
ss. 13 Rent security/Bank guarantee
1. The lessee deposits a security in the amount of three monthly rent
payments, e.g. DM 3,953.60 x 3 = DM 11.860.80 plus the applicable added
value tax.
(Signatures illegible)
Lessor Lessee
<PAGE>
-6-
2. The rent security can also be paid in form of a bank guarantee.
3. The rent security has to conform with the content of the form attached as
enclosure 5; unlimited, irrevocable surety of a German bank or savings
bank, payable upon first request by the lessor, waiving the plea of
voidability, setting-off and the defense of failure to pursue remedies, and
payable to the lessor until 16.02.1999.
4. In case the lessor rightfully uses the surety during the lease period, the
lessee is obligated to replenish it immediately.
5. The security/surety is to be refunded when the lease period is terminated,
all ancillary costs have been settled and the lessor does not have any more
claims arising from the lease.
ss. 14 Structural changes performed by the lessor
1. Upon consultation with the lessee, the lessor is entitled to perform
repairs and structural changes required for the maintenance of the building
or the leased space, provided this does not disturb the lessee's business
operation.
2. In case of imminent danger, the lessor does not need to obtain the lessee's
consent.
3. Structural changes increasing the property's value do not entitle the
lessor to increase the rent, unless these structural changes are performed
upon the lessee's request.
4. Insofar as the lessee has to tolerate the work, he is not entitled to
rent-deduction nor can he claim damages.
ss. 15 Structural changes performed by the lessee
1. The lessee can perform structural changes only after he has obtained the
lessor's prior written consent. All changes need to support the contractual
use of the leased space and must not jeopardize the building's static.
2. For all structural changes performed by the lessee and listed in enclosure
3, the consent is given at the time of the conclusion of this contract. The
plot of the leased space following the structural changes performed by the
lessee is shown in enclosure 3a.
3. The lessee carries the costs incurring through the work pursuant to item 1
and 2.
4. After the end of the lease term, the lessee is obligated to return the
leased space to its original state, unless the lessor had agreed in writing
already at the time of his consent to the structural changes that the
lessee does not need to reverse the structural changes.
(Signatures illegible)
Lessor Lessee
<PAGE>
-7-
ss. 18 Self-Information
This lease agreement is based on the information given by the lessee about
himself in enclosure 6. If it becomes apparent that essential information
provided by the lessee is not correct, the lessor is entitled to immediately
rescind the contract. Basis and condition of this contract is the true and
correct information provided by the lessee about his person.
ss.19 Final clause
1. Changes and amendments to this contract have to be applied in writing to be
effective. This includes changes to this clause.
2. Should some provisions of this contract prove to be ineffective or should
the contract be incomplete, this shall not affect the effectiveness of the
remaining provisions. In such a case, the effective provision reflecting
the intent and purpose of the ineffective clause shall replace it. In case
of missing provisions, the clause reflecting the intent and purpose of this
contract shall be considered as agreed.
3. The parties of this contract are familiar with the special legal
requirements of writing, as set out in ss.ss.566, sentence 1, 126 BGB. They
herewith mutually agree to perform acts and provide declarations at any
time upon the other party's request that are necessary to comply with the
legal requirement of writing and to not early terminate the lease contract
pleading non-compliance with this legal requirement. This is applicable not
only for the conclusion of the original/main contract, but also for any
additional-supplementary contracts or amendments to this contract.
4. The lessor is granting the lessee in case of the lease of further areas on
the same floor the right of first refusal, in correspondence with the
respective right of preemption.
5. This contract is executed in two identical copies, with each contact party
receiving one copy. Enclosures 1-6 form part of this contract.
ss. 20 Place of jurisdiction
Place of jurisdiction for disputes possible arising from this contract is
Chemnitz.
ss.21 Term of legal commitment to the offer of contract for unilaterally signed
leased contracts
If only one of the parties signs this lease contract and hands it to the other
party, this is to be considered as an offer to conclude a lease contract, by
which the offering party is bound for a period of two weeks.
(Signatures illegible)
Lessor Lessee
Exhibit 6.39
RESCISSION AGREEMENT
Between
SPIMA Spitzenmanufaktur GmbH
Heinrich Heine Strasse 5
09557 Floha
in the following referred to as "SPIMA"
and
IQ Battery Research & development GmbH
Inselkammer Str. 4
82004 Unterhaching
in the following referred to as "IQ"
the following agreement is concluded:
0. IQ makes to SPIMA the single payment of DM 393.75 until 28.02.1999.
1. The parties mutually agree to cancel the lease agreement of 09.12.1997 on
31.01.1999.
2. Condition for this cancellation is the lease of the premises
Heinrich-Heine-Str. 5, IV floor, 09557 Floha used formerly by IQ through the
company EUROSPACE.
3. IQ hands the rooms over in well-swept condition. IQ did not make any
structural changes. Structural defects have not been noticed. Upon prior
notification, IQ grants SPIMA access to the leased property to corroborate the
proper condition of the leased space.
4. On the cut-off date, which is set to for 341.01.99, SPIMA will deliver a
final statement regarding outstanding lease payments and ancillary costs to be
paid by IQ. The parties mutually agree to release each other from any further
claims.
On behalf of SPIMA On behalf of IQ
(Illegible) Unterhaching, 13.01.99
Place, date Signature Place, date Signature
Stamp: IQ Battery Research Development GmbH
Erlenhof Park, Inselkammerstrasse 4, D-82008 Unterhaching
Tel: Illegible
Exhibit 10.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report relating to iQ Power Technology Inc. dated October 28, 1998,
in the Registration Statement on Form SB-1, Amendment No. 1, and the related
Prospectus of iQ Power Technology Inc.
/s/ Deloitte & Touche LLP
3/15/99
Exhibit 10.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report relating to iQ Battery Research and Development GmbH dated
October 28, 1998, in the Registration Statement on Form SB-1, Amendment No. 1,
and the related Prospectus of iQ Power Technology Inc.
/s/ Deloitte & Touche GmbH
3/15/99
Exhibit 11.1
WERBES SASGES & COMPANY
BARRISTERS AND SOLICITORS
A Law Partnership 1111 WEST HASTINGS STREET, SUITE 708
VANCOUVER, BC, CANADA, V6E 2J3
==============================
TELEPHONE: (604) 669-3233
TELECOPIER: (604) 689-4626
E-MAIL: [email protected]
March 16, 1999
iQ Power Technology Inc.
Suite 708-A, 1111 West Hastings Street
Vancouver, British Columbia
Canada V6E 2J3
Dear Sirs:
Re: iQ Power Technology Inc. - Issue and Sale of Common Shares
- --------------------------------------------------------------------------------
We have acted as Canadian counsel to iQ Power Technology Inc. (the
"Corporation") in connection with the issue and sale by the Corporation using as
its agent IPO Capital Corp. (the "Agent") of up to 5,500,000 common shares (the
"Common Shares") in the capital of the Corporation.
For the purpose of this opinion, we have considered such questions of law and
examined such statutes, regulations, corporate documents, records and
certificates, opinions and instruments and have made such other investigations
as we have deemed necessary or desirable.
We have examined original or copies, certified or indemnified to our
satisfaction, of the constating documents and by-laws of the Corporation, and of
such corporate records of the Corporation, certificates of public officials and
officers of the Corporation and of such other documents as we have deemed
necessary or desirable as a basis for the opinions hereinafter expressed.
We have assumed the genuineness of all signatures, the legal capacity of all
individuals and the authenticity of all documents submitted to us as originals
and the conformity to authentic original documents of all documents submitted to
us as certified, conformed or photostatic copies or facsimiles thereof.
We are solicitors qualified to carry on the practice of law in the Province of
British Columbia only and we express no opinion as to any laws, or matters
governed by any laws other than the laws of the Province of British Columbia and
the federal laws of Canada applicable therein.
Based on and subject to the foregoing, it is our opinion at the date hereof that
the Common Shares, when the share certificate or share certificates with respect
thereto are duly countersigned by the Corporation's transfer agent and registrar
and delivered to the purchasers upon receipt of payment therefor, shall be
validly issued, as fully paid and non-assessable.
We hereby consent to the reference to our firm in the Prospectus forming a part
of the Registration Statement filed in connection with the sale of Common Shares
and to the filing of this opinion with the Securities and Exchange Commission as
an exhibit to the Registration Statement.
<PAGE>
WERBES SASGES & COMPANY
BARRISTERS AND SOLICITORS
iQ Power Technology, Inc.
March 16, 1999
Page 2
Yours truly,
WERBES SASGES & COMPANY
/s/Kjeld Werbes
KW/nt
DELIVERED
Exhibit 13.1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form F-X
APPOINTMENT OF AGENT FOR SERVICE OF PROCESS AND
UNDERTAKING
A. Name of issuer or person filing ("Filer"): IQ POWER TECHNOLOGIES INC.
B. This is
[ ] an original filing for the Filer
[|X| ] an amended filing for the Filer
C. Identify the filing in conjunction with which this Form is being filed:
Name of registrant: IQ POWER TECHNOLOGIES INC.
Form type: Form SB-1 Registration Statement
File Number: 333-68649
Filed by: IQ POWER TECHNOLOGIES INC.
Dated Filed: December 10, 1998
D. The Filer is incorporated or organized under the laws of the Canada and has
its principal place of business at Suite 708-A, 1111 West Hastings Street,
Vancouver, British Columbia V6E 2J3. Its phone number at that location is (604)
669-3132.
E. The Filer designates and appoints Evergreen Corporate Services, Inc., 31635
36th Avenue S.W., Federal Way, Washington 98023-2105 as the agent of the Filer
upon whom may be served any process, pleadings, subpoenas, or other papers in
(a) any investigation or administrative proceeding conducted by the
Commission; and
(b) any civil suit or action brought against the Filer or to which the
Filer has been joined as defendant or respondent, in any appropriate court in
any place subject to the jurisdiction of any state or of the United States or of
any of its territories or possessions or of the District of Columbia, where the
investigation, proceeding or cause of action arises out of or relates to or
concerns (i) any offering made or purported to be made in connection with the
securities registered or qualified by the Filer on Form SB-1 on December 10,
1998 or any purchase or sales of any security in connection therewith; (ii) the
securities in relation to which the obligation to file an annual report on Form
40-F arises, or any purchases or sales of such securities; (iii) any tender
offer for the securities of a Canadian issuer with respect to which filings are
made by the Filer with the Commission on Schedule 13E-4F, 14D-1F or 14D-9F; or
(iv) the securities in relation to which the Filer acts as trustee pursuant to
an exemption under Rule 10a-5 under the Trust Indenture Act of 1939. The Filer
stipulates an agrees that any such civil suit or action or administrative
proceeding may be commenced by the service of process upon, and that service of
an administrative subpoena shall be effected by service upon such agent for
service of process, and that service as aforesaid shall be taken and held in all
courts and administrative tribunals to be valid and binding as if personal
service thereof had been made.
F. Each person filing this Form in connection with:
(a) the use of Form F-9, F-10, 40-F, or SB-2 or Schedule 13K-4F, 14D-1F or
14D-9F stipulates and agrees to appoint a successor agent for service of process
and file an amended Form F-X if the Filer
<PAGE>
discharges the Agent or the Agent is unwilling or unable to accept service on
behalf of the Filer at any time until six years have elapsed from the date the
issuer of the securities to which such Forms and Schedules relate has ceased
reporting under the Exchange Act;
(b) the use of Form F-8 or Form F-80 stipulates and agrees to appoint a
successor agent for service of process and file an amended Form F-X if the Filer
discharges the Agent or the Agent is unwilling or unable to accept service on
behalf of the Filer at any time until six years have elapsed following the
effective date of the latest amendment to such Form F-8 or Form F-80;
(c) its status as trustee with respect to securities registered on Form
F-7, F-8, F-9, F-10, F-80, or SB-2 stipulates and agrees to appoint a successor
agent for service of process and file an amended Form F-X if the Filer
discharges the Agent or the Agent is unwilling or unable to accept service on
behalf of the Filer at any time during which any of the securities subject to
the indenture remain outstanding; and
(d) the use of Form 1-A or other Commission form for an offering pursuant
to Regulation A stipulates and agrees to appoint a successor agent for service
of process and file an amended Form F-X if the Filer discharges the Agent or the
Agent is unwilling or unable to accept service on behalf of the Filer at any
time until six years have elapsed from the date of the last sale of securities
in reliance upon the Regulation A exemption.
Each filer further undertakes to advise the Commission promptly of any change to
the Agent's name and address during the applicable period by amendment of this
Form, referencing the file number of the relevant form in conjunction with which
the amendment is being filed.
G. Each person filing this Form, other than a trustee filing in accordance with
General Instruction I(e) of this Form, undertakes to make available, in person
or by telephone, representatives to respond to inquiries made by the Commission
staff, and to furnish promptly, when requested to do so by the Commission staff,
information relating to: the Forms, Schedules and offering statements described
in General Instructions I. (a), I. (b), I. (c), I. (d) and I. (f) of this Form,
as applicable; the securities to which such Forms, Schedules and offering
statements relate; and the transactions in such securities.
The Filer certifies that it has duly caused this power of attorney,
consent, stipulation and agreement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Vancouver, Province of
British Columbia, Country of Canada, this 16th day of March, 1999.
IQ POWER TECHNOLOGIES INC.
By: /s/ Russell French
---------------------------------
Russell French
Its: Director
This statement has been signed by the following persons and on the dates
indicated.
EVERGREEN CORPORATE SERVICES, INC.
/s/ Elizabeth M. Stone
--------------------------------------
Signature Elizabeth Stone
Assistant Secretary
Title
March 17, 1999
Date
