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

                                   FORM 10-QSB


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

     For the quarterly period ended March 31, 1999

                                       OR

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

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

                         Commission file number 0-28968


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


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

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

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

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

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

     The  number  of  outstanding  common  shares,  without  par  value,  of the
registrant at March 31, 1999 was 18,479,425.

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


<PAGE>



                               IQ POWER TECHNOLOGY

                            INDEX TO THE FORM 10-QSB
                  For the quarterly period ended March 31, 1999

<TABLE>


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

   ITEM 1.    FINANCIAL STATEMENTS

    iQ Power Technology Inc.

            Balance Sheet                                                              1

            Statement of Loss and Deficit                                              2

            Statement of Cash Flow                                                     3

            Notes to the Financial Statements                                          4

    iQ Battery Research & Development GmbH

            Balance Sheet                                                              9

            Statement of Operations                                                   10

            Statement of Cash Flows                                                   11

            Notes to the Financial Statements                                         12

   Selected Unaudited Pro Forma Consolidated Financial Information                    21

   ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS                                     28

Part II - Other Information

   ITEM 1.    LEGAL PROCEEDINGS                                                       31

   ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS                               31

   ITEM 3.    DEFAULTS UPON SENIOR SECURITIES                                         32

   ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                     32

   ITEM 5.    OTHER INFORMATION                                                       32

   ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K                                        32

SIGNATURES                                                                            33

</TABLE>



<PAGE>

PART I -  FINANCIAL INFORMATION

          ITEM 1. FINANCIAL STATEMENTS


IQ POWER TECHNOLOGY INC.
(a development stage company)
Balance Sheet
(Expressed in U.S. Dollars)


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

<TABLE>

                                                          March 31               March 31
                                                   ------------------     ------------------
                                                           1999                   1998
                                                   ------------------     ------------------
                                                         (Unaudited)            (Unaudited)
ASSETS
<S>                                                  <C>                    <C>
CURRENT
Cash                                                 $       27,010         $       22,714
Accounts receivable                                          13,643                 22,976
Prepaids and deposits                                            --                  4,600
Advances to iQ Germany (Note 4)                           1,012,965                454,798
--------------------------------------------------------------------------------------------
                                                     $    1,053,618         $      505,088
Investment (Note 5)                                       3,200,000                     --
--------------------------------------------------------------------------------------------
                                                     $    4,253,618         $      505,088
--------------------------------------------------------------------------------------------

LIABILITIES

CURRENT
Accounts payable                                     $      205,460         $       57,572
Loans from iQ Germany                                       169,126                  4,626
Accrued liabilities                                          46,514                  5,000
--------------------------------------------------------------------------------------------
                                                     $      421,100         $       67,198
--------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY (DEFICIT)

Capital stock (Note 5)                               $    4,619,856         $      619,943
Accumulated deficit, during development stage             (787,339)              (182,035)
--------------------------------------------------------------------------------------------
                                                          3,832,518                437,890
--------------------------------------------------------------------------------------------
                                                     $    4,253,618         $      505,088
--------------------------------------------------------------------------------------------
</TABLE>

     CONTINUANCE OF OPERATIONS (Note 2)



                                       1

<PAGE>



IQ POWER TECHNOLOGY INC.
(a development stage company)
Statement of Loss and Deficit
(Expressed in U.S. Dollars)

--------------------------------------------------------------------------------
<TABLE>



                                                           Cumulative
                                                           from date of          Three months         Three months
                                                           inception to          ended March          ended March
                                                             March 31                 31                   31
                                                      -------------------  -------------------- --------------------
                                                               1999                  1999                 1998
                                                      -------------------  -------------------- --------------------
                                                          (Unaudited)           (Unaudited)          (Unaudited)

<S>                                                     <C>                   <C>                  <C>
     Expenses
        Automobile                                      $      1,794          $       222          $        --
        Advertising and promotion                              7,173                   --                4,463
        Loss on foreign exchange                              33,256                   --                   --
        Management fees                                      276,988               88,500               10,476
        Office                                                45,220                8,501                2,494
        Professional fees                                    306,802               73,455                6,233
        Technical reports                                      5,878                   --                   --
        Travel                                               110,228                   --               12,629
------------------------------------------------------------------------------------------------------------------
                                                        $    787,339          $   170,678          $    36,295
------------------------------------------------------------------------------------------------------------------
     Net loss                                               (787,339)            (170,678)             (36,295)

Accumulated deficit during development stage,
   beginning of period                                                           (616,660)            (145,740)
------------------------------------------------------------------------------------------------------------------
Accumulated deficit during development stage,
   end of period                                        $   (787,339)          $ (787,339)          $ (182,035)
------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share                                              $     (0.03)          $    (0.01)
------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding                                   5,679,425            2,479,700
------------------------------------------------------------------------------------------------------------------

</TABLE>



                                       2

<PAGE>


IQ POWER TECHNOLOGY INC.
(a development stage company)
Statement of Cash Flow
(Expressed in U.S. Dollars)

<TABLE>

                                                         Cumulative
                                                         from date of          Three months         Three months
                                                         inception to          ended March          ended March
                                                           March 31                 31                   31
                                                    -------------------  -------------------- --------------------
                                                        (Unaudited)           (Unaudited)          (Unaudited)
<S>                                                   <C>                    <C>                  <C>
   OPERATING ACTIVITIES
    Net loss                                          $    (787,339)         $  (170,678)         $   (36,295)
    Items not affecting cash:
      Increase in accounts receivable                       (13,643)              (2,681)             (19,916)
      (Decrease) increase in prepaid and deposits                --                   --                   --
      Increase in accounts payable                          205,460               18,409                  731
      Increase in loans payable                             169,126               70,500                4,626
      (Decrease) increase in accrued liabilities             46,514               23,257              (10,725)
------------------------------------------------------------------------------------------------------------------
                                                           (379,882)             (61,193)             (61,579)
------------------------------------------------------------------------------------------------------------------
   INVESTING ACTIVITY
     Increase in advances to iQ Germany                  (1,012,965)            (150,001)             (86,722)
------------------------------------------------------------------------------------------------------------------
   FINANCING ACTIVITIES
    (Decrease) increase in due to shareholder                    --                   --                   --
    Increase in share subscriptions
      (equity)                                                   --                   --              127,490
    Increase in share subscriptions                                                   --                   --
      (liability)                                                --
    Issuance of common shares                                    --                   --                   --
------------------------------------------------------------------------------------------------------------------
                                                          1,419,856                   --              127,490
------------------------------------------------------------------------------------------------------------------
DECREASE) INCREASE IN CASH
     AND CASH EQUIVALENTS                                    27,010             (211,194)             (20,811)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                   --              238,204               43,525
--------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF
     PERIOD                                             $    27,010         $     27,010         $     22,714
--------------------------------------------------------------------------------------------------------------------
</TABLE>

See Note 5 for non-cash investing and financing activity





                                       3
<PAGE>


IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------

1.   NATURE OF BUSINESS

     iQ Power Technology Inc. (the "Company") was incorporated  under the Canada
     Business  Corporations  Act on December  20,  1994.  The Company  commenced
     operations on June 21, 1996. The Company's  current business strategy is to
     acquire  100%  interest  in iQ  Battery  Research  &  Development  GmbH (iQ
     Germany)  which is  legally  domiciled  in Floha,  Germany.  The  Company's
     strategic   objectives  include  the  commercial   exploitation  of  a  new
     generation of computer optimized vehicle batteries researched and developed
     by iQ Germany.


2.   CONTINUANCE OF OPERATIONS

     These financial statements have been prepared on a going concern basis. The
     company's  ability to continue  as a going  concern is  dependent  upon the
     ability of the Company to attain  future  profitable  operations  and/or to
     obtain  the  necessary  financing  to meet its  obligations  and  repay its
     liabilities arising from normal business operations when they come due. The
     Company plans to raise a maximum of $4,690,000 to a minimum of  $2,440,000,
     net of commissions and costs of issue, through the issuance of 5,500,000 or
     3,000,000  shares of common stock pursuant to a  Registration  Statement on
     Form SB-1.  The Company  intends to use the  proceeds to fund  research and
     development of iQ Germany,  expansion of the Company's  marketing and sales
     activities and general working capital.


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     These financial  statements have been prepared in accordance with generally
     accepted  accounting  principles  in  Canada,  which  for  these  financial
     statements  conform with those in the United  States  except as outlined in
     Note 9.

     (a)  Foreign currency translation

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

          i) All  equity  financings  to this date have been  denominated  in US
          funds. The Company's  proposed financing as disclosed in Note 10(a) is
          also denominated in US funds.

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

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

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

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



                                       4

<PAGE>


IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     (a)  Foreign currency translation (continued)

     The exchange rates between the Canadian and US dollars were:


                                    Balance Sheet Date          Average
                                    ------------------          -------

          March 31, 1999            1.5092               1.5080-- moving average
          March 31, 1998            1.4166               1.4321-- moving average

            Bank of Canada

     (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.

     (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   $1,012,965,   the  amount  of  DM  1,489,974
     ($1,012,965) is supported by promissory notes.  Promissory notes receivable
     are unsecured, do not bear interest and are payable on demand. The advances
     are  intended to provide  interim  financing  until all  conditions  of the
     business combination are satisfied.



                                       5


<PAGE>

IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------


5.   SHARE CAPITAL

     Authorized: an unlimited number of common shares

<TABLE>

                                                          March 31, 1999
                                               -------------------------------------
                                                  Number of
                                                Common shares            Amount
                                               -----------------  ------------------

<S>                                                 <C>            <C>
Balance, beginning of period                        5,679,425      $    1,419,856
Shares contingently issued                         12,800,000           3,200,000
------------------------------------------------------------------------------------
                                                   18,479,425      $    4,619,856
------------------------------------------------------------------------------------
</TABLE>


     During  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 4).  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 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.


6.   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  $937,930,  based on a
     discount factor of 8% and an anticipated term of 1 year.



                                       6


<PAGE>

IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------


7.   RELATED PARTY TRANSACTIONS

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

     (a)  management  fees for the three  months ended March 31, 1999 of $18,000
          paid to a company with a common director;

     (b)  accounts payable and accrued  liabilities include at March 31, 1999 of
          $34,892 due to a company with a common director.

     In  addition,  the  Company  has  entered  into the  following  contractual
     arrangements:

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

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

     (c)  an employment  agreement  with the  Vice-President,  Finance and Chief
          Financial  Officer.  Under the terms of the agreement,  the Company is
          obligated to pay this employee  $7,000 per month for a term of 3 years
          commencing September 1, 1998.

8.   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.


9.   DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
     ACCOUNTING PRINCIPLES

     (a)  Accounting for income taxes

          U.S.  GAAP  requires,  pursuant to Statement  of Financial  Accounting
          Standards  ("SFAS")  No.  109,  that a  deferred  tax asset  amount be
          recognized for loss carry-forwards.  Although the Company has Canadian
          non-capital  tax  loss  carry-forwards,   due  to  uncertainty  as  to
          utilization  prior to their  expiry,  the deferred  tax asset  amounts
          would  have been  completely  offset in these  consolidated  financial
          statements by a valuation provision.

     (b)  Recent accounting pronouncements

     (i)  In June 1997, the Financial Accounting Standards Board issued SFAS No.
          130,  "Reporting   Comprehensive   Income,"  which  requires  that  an
          enterprise  report,  by major  components  and as a single total,  the
          change in its net assets during the period from non-owner sources; and
          SFAS No. 131,



                                       7


<PAGE>

IQ POWER TECHNOLOGY INC.
Notes to the Financial Statements
(Expressed in U.S. Dollars)
--------------------------------------------------------------------------------



          "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.

10.  SUBSEQUENT EVENTS

     Subsequent  to March 31,  1999,  the  Company  entered  into the  following
     transactions   that  are  not  disclosed   elsewhere  in  these   financial
     statements:

     (a)  issued an aggregate of 5,500,000 common shares at US$1.00 per share on
          June 18, 1999 pursuant to a public offering.

     (b)  granted  495,000 stock options at an exercise  price of $1. All shares
          vested on the date of grant.






                                       8


<PAGE>



iQ BATTERY Research & Development GmbH
Balance Sheet
(DM in Thousands)


<TABLE>

                                                                         March 31,              March 31,
                                                                           1999                   1998
                                                                            DM                     DM
                                                                   -----------------      -----------------
                                                                      (Unaudited)            (Unaudited)
  Assets
<S>                                                                          <C>                   <C>
  Current assets
      Cash                                                                   78                    288
      Receivable from original shareholders                                  68                     40
      Other receivables, primarily refundable value added taxes             138                    280
      Prepaid expenses                                                        2                     15
                                                                   -----------------      -----------------
      Total current assets                                                  286                    623
  Non-current assets
      Equipment-net                                                         275                    102
                                                                   =================      =================
  Total assets                                                              561                    725
                                                                   =================      =================
  Liabilities and Shareholders' Deficit

  Current liabilities
      Short-term bank debt                                                  548                    221
      Trade accounts payable                                                858                    419
      Due to original shareholders                                          202                     66
      Accrued payroll                                                       195                    124
      Due to Parent Company                                                 818                     --
      Advances                                                              913                    812
      Other accrued liabilities                                             101                    170
                                                                   -----------------      -----------------
      Total current liabilities                                           3,635                  1,812
  Long-term bank debt                                                         8                      8
  Non-Current liabilities due to original shareholders                        0                    155
                                                                   -----------------      -----------------
  Total liabilities                                                       3,643                  1,975
                                                                   -----------------      -----------------
  Commitments and Contingencies

  Temporary atypical equity                                                  --                     --

  Shareholders' deficit
  Registered capital                                                        100                    100
  Accumulated deficit
      Attributable to voting shareholders                                (3,182)                (1,350)
                                                                   -----------------      -----------------
  Total shareholders' deficit                                            (3,082)                (1,250)
                                                                   -----------------      -----------------
Total liabilities, temporary equity and
   shareholders' deficit                                                    561                    725
                                                                      =================      =================

</TABLE>

     See Notes to Financial Statements



                                        9


<PAGE>


iQ BATTERY Research & Development GmbH
Statement of Operations
(DM in Thousands)

<TABLE>

                                                                           Three months
                                                                         ended March 31,
                                                                   1999                   1998
                                                                    DM                     DM
                                                          -------------------    -------------------
<S>                                                                 <C>                   <C>
Revenues                                                                   (Unaudited)
  Sales                                                               --                    --
  Other revenues                                                      --                    --
                                                          -------------------    -------------------
                                                                      --                    --
                                                          -------------------    -------------------
Operating Expenses
  Research and development expenses                                  350                   287
  General administrative and other expenses                           52                    68
                                                          -------------------    -------------------
Operating loss                                                      (402)                 (355)

Interest income                                                       --                    --
Interest and other finance expense                                    --                    17
                                                          -------------------    -------------------
Loss before taxes                                                   (402)                 (372)
Income taxes                                                          --                    --
                                                          -------------------    -------------------
Net loss                                                            (402)                 (372)

Accumulated deficit beginning of period                               --                  (372)
Adjustment to state temporary atypical
  equity at redemption amount                                         --                   400
                                                          -------------------    -------------------
Accumulated deficit end of period                                   (402)                   28
                                                          ===================    ===================

</TABLE>


     See Notes to Financial Statements




                                       10


<PAGE>


iQ BATTERY Research & Development GmbH
Statement of Cash Flows
(DM in Thousands)


<TABLE>

                                                                            Three months ended
                                                                                 March 31,
                                                                       1999                  1998
                                                                        DM                    DM
                                                               --------------------  -------------------
                                                                                (Unaudited)
<S>                                                                   <C>                      <C>
Operating activities:
Net loss (income)                                                     (402)                    28
Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation and amortization                                       15                     --
    Loss on disposal of equipment                                       --                     --
Changes in assets and liabilities:
    Other receivables and prepaid expenses                             (18)                   (55)
    Accounts payable and other current
    liabilities                                                        (28)                    29
                                                               --------------------  -------------------
Net cash used in operating activities                                 (433)                     2
                                                               --------------------  -------------------
Investing Activities:
Proceeds from sales of equipment                                        --                     --
Additions to property, plant and equipment                            (162)                   (27)
                                                               --------------------  -------------------
Net cash used in investing activities                                 (162)                   (27)
                                                               --------------------  -------------------
Financing Activities:
Increase (decrease) in short-term debt                                 340                    133
Increase (decrease) in debt due to shareholders                        (23)                    --
Received from Parent Company                                           255                     --
Advances received from external parties                                 --                    149
Increase in other long-term debt                                         2                     --
                                                               --------------------  -------------------
Net cash used in financing activities                                  574                    282
                                                               --------------------  -------------------
Increase (decrease) in cash                                            (21)                   257
Cash, beginning of period                                               78                     31
                                                               ====================  ===================
Cash, end of period                                                     57                    288
                                                               ====================  ===================

</TABLE>



                                       11


<PAGE>


IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(DM in Thousands)



1    Description of Business

iQ BATTERY Research & Development  GmbH ("iQ BATTERY"),  established in 1991, is
developing a chargeable  battery which allows an improved  current output at low
outside  temperatures.  The process  engineering for this chargeable battery and
the know-how is based on a patent acquired from the founding  shareholders of iQ
BATTERY Research & 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 three months ended March 31, 1999 and March 31, 1998, the
Company incurred net losses of DM 402 and DM 372 and had operating cash flows of
DM (21) and DM 257, respectively.  The shareholders capital deficit of March 31,
1999 was DM 3,082. 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  believes that iQ BATTERY will obtain sufficient funds from financing
activities during the next twelve months to continue its operations.

     b)   Use of Estimates

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

     c)   Equipment

Equipment is 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.



                                       12


<PAGE>

IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(DM in Thousands)



     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.

     h)   Supplemental cash flow information

     Cash  paid for  interest  and  income  taxes for the  periods  ended was as
     follows:



                                                  March 31
                                     --------------------------------------
                                          1999                1998
                                     ------------------  ------------------

     Interest                              --                  17
     Income taxes                          --                  --


3    Equipment

     Equipment was as follows:

<TABLE>

                                                           March 31          March 31
                                                       ------------------  ----------------
                                                             1999               1998
                                                       ------------------  ----------------

<S>                                                           <C>                 <C>
     Equipment - at cost                                      359                 165
     Less accumulated depreciation                            (84)                (63)
     --------------------------------------------------------------------------------------
     Equipment - net                                          275                 102
     --------------------------------------------------------------------------------------

</TABLE>

     Depreciation   expense  is   calculated   on  an  annual  basis   therefore
     depreciation  expense was DM Nil for the three  months ended March 31, 1999
     and DM Nil for the three months ended March 31, 1998.


                                       13


<PAGE>

IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(DM in Thousands)



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'















                                       14


<PAGE>

IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(DM in Thousands)



4    Shareholders' Equity and Temporary Atypical Equity (Continued)

     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>

                                                                            March 31
                                                                ----------------------------------
                                                                     1999              1998
                                                                ---------------- -----------------
      <S>                                                        <C>                 <C>
       Opening balance                                                --                --
       Capital contributions                                          --               400
       Adjustments to state equity at redemption amount
                                                                      --              (400)
       --------------------------------------------------------------------------------------------
       Redemption amount                                              --                --
       --------------------------------------------------------------------------------------------
</TABLE>


     The  Company  has  received  a total of DM 1,842 with  respect to  atypical
     equity with the redemption amount at March 31, 1999 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.






                                       15


<PAGE>

IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(DM in Thousands)



4    Shareholders' Equity and Temporary Atypical Equity (Continued)

     The following  table presents the changes in  shareholders  deficit for the
     period from January 1, 1995 to March 31, 1999 (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                                                                       (1,803)         (1,803)
----------------------------------------------------------------------------------------------------------

December 31, 1998                                                100           (2,787)         (2,687)
Adjustments to redemption value of atypical equity
Net loss                                                                         (402)           (402)
----------------------------------------------------------------------------------------------------------

March 31, 1999                                                                 (3,183)         (3,083)
----------------------------------------------------------------------------------------------------------
</TABLE>


5    Short-term Bank Debt

     Short-term bank debt is summarized as follows (amounts in DM):

<TABLE>

                                                                        March 31
                                                              ------------------------------
                                                                    1999          1998
                                                              --------------  --------------
<S>                                                                  <C>             <C>
     Commerzbank AG, Ottobrunn                                       331             200
     Dresdner Bank AG, Dresden                                       201              19
     Current portion of Behncke                                       14              --
     Bank GmbH, Hamburg                                                2               2
     ------------------------------------------------------------------------------------------
     Total short-term bank debt                                      548             221
     ------------------------------------------------------------------------------------------

</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 0 for the three
     months  ended March 31, 1999 and to DM 17 for the three  months ended March
     31, 1998. The weighted average interest rates were 11%.




                                       16

<PAGE>

IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(DM in Thousands)



6        Long-term bank debt

       Long-term bank debt is determined as follows (amounts in DM):

<TABLE>

                                                                        March 31
                                                              ------------------------------
                                                                    1999          1998
                                                              --------------  --------------
<S>                                                                    <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.

     Payments to be made for the years ending December 31 (amounts in DM):

             1999                                        2
             2000                                        2
             2001                                        2
             2002                                        2


7    Non-Current Liabilities Due to Original Shareholders

     Non-current  liabilities  due to  shareholders  are  summarized  as follows
     (amounts in DM):

                                                         March 31
                                               ------------------------------
                                                     1999          1998
                                               --------------  --------------

     Due to shareholders                                --             155
     -------------------------------------------------------------------------

     Interest,  which has to be repaid only in case the  company  has  generated
     sufficient  net assets or  liquidation  proceeds,  has been accrued for the
     three months ended March 31, 1999.

     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 4 for the three months ended March 31, 1999.  As of
     December 31, 1997 obligations to make future minimum lease payments were as
     follows:



                                       17

<PAGE>

IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(DM in Thousands)



8    Leases

     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



9    Income Taxes

     The  components  of the  provision  for income taxes are as follows for the
     years ended December 31:

<TABLE>

                                                               1998               1997            1996
                                                          ----------------    -------------   -------------
<S>                                                           <C>                <C>             <C>
German
   Current                                                       0                 0               0
   Deferred                                                      0                 0               0
   Change in valuation allowance                                 0                 0               0
-----------------------------------------------------------------------------------------------------------
                                                                 0                 0               0
-----------------------------------------------------------------------------------------------------------
</TABLE>


     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, 1997 and 1998. The tax rate has been reduced to 40%
     for income taxes in 1999.

     As of March 31, 1999 and March 31, 1998, the Company had total deferred tax
     assets  relating  to  loss   carryforwards   of  DM  2,133  and  DM  1,108,
     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 March 31, 1999, the Company had net operating loss  carryforwards  of
     approximately  DM 3,119  for  corporation  income  taxes  and DM 4,981  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, 1998 and 1997  because of  immediate  or  short-term
     maturities. The carrying amount reported for non-current liabilities due to
     shareholders  approximates  fair value  because the  interest  rate of 5.5%
     provided for the accrued interest in 1998 approximates the market rate.



                                       18


<PAGE>

IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(DM in Thousands)



11   Related Party Transactions

     The Company paid  management fees of DM 78 for the three month period ended
     March  31,  1999  to the  company's  two  founding  shareholders  based  on
     contracts dated October 11, 1991, March 28, 1992 and August 28, 1994.








                                       19

<PAGE>

IQ BATTERY Research & Development GmbH
Notes to the Financial Statements
(DM in Thousands)



11   Related Party Transactions (Continued)

     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.

12   Commitments and Contingencies

     The  Company is not  currently  involved  in any legal  proceedings  in the
     ordinary course of business.









                                       20

<PAGE>



Selected Unaudited Pro forma
Consolidated Financial Information


The selected  unaudited pro forma  consolidated  financial  information  for the
Company  set forth  below gives  effect to the  acquisition  of the shares of IQ
Power  Technology Inc. (IQ Canada) and IQ Battery  Research and Development GmbH
(IQ Germany).  The  historical  financial  information  set forth below has been
derived from, and is qualified by reference to, the financial  statements of the
Company and IQ Germany and should be read in  conjunction  with those  financial
statements and the notes thereto included elsewhere herein.

The  March  31,  1999  pro  forma  balance  sheet  has been  prepared  as if the
transactions  described  in Notes 1 and 2 had  occurred on March 31,  1999,  and
represents the  consolidation  of the March 31, 1999 balance sheet of IQ Germany
with the March 31, 1999 balance sheet of the Company.

The pro forma  statements of net loss for the three month period ended March 31,
1999 and the three  months  ended  March 31,  1998 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 three  months  ended March 31, 1999 and the three  months  ended
March 31, 1998 with the  statement  of loss of the Company for the three  months
ended March 31, 1999 and the three months ended March 31, 1998.

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.







                                       21

<PAGE>


IQ POWER TECHNOLOGY INC.
(a development stage company)
Unaudited Pro Forma Consolidated Balance Sheet
As at March 31, 1999
(Expressed in Thousands of United States Dollars)

--------------------------------------------------------------------------------
<TABLE>

                                                                    Pro forma
                                                                       after
                                                                     business     Minimum      Pro forma
                            IQ Canada   iQ Germany   Acquisition    combination   Offering    Consolidated
                            ----------- ----------  ------------  --------------  ----------  -------------
                                                     (Note 1)                    (Note 3)
<S>                             <C>            <C>      <C>              <C>        <C>            <C>
ASSETS

CURRENT
   Cash                      $     27    $     43                  $      70     $  3,000     $    2,510
                                                                                     (560)
   Prepaid Expenses                             1                          1                           1
   Accounts receivable             13          76                         89                          89
   Receivable from
    Shareholders                               37                         37                          37
   Advances to IQ Germany       1,013        (103)      (910)
-----------------------------------------------------------------------------------------------------------
                                1,053          54       (910)            197        2,440          2,637
INVESTMENT
EQUIPMENT, net                  3,200         152     (3,200)            152                         152
-----------------------------------------------------------------------------------------------------------
                             $  4,253    $    206    $(4,110)      $     349     $  2,440    $     2,789
-----------------------------------------------------------------------------------------------------------

LIABILITIES

CURRENT
   Accounts payable          $    205    $    474    $             $     679     $            $      679
   Accrued liabilities             47          56                        103                         103
   Share subscriptions
   Current portion of bank
    debt                                      303                        303                         303
   Due to shareholders                        112                        112                         112
   Advances from IQ Canada        169         957     (1,126)
-----------------------------------------------------------------------------------------------------------
                                  421       1,902     (1,126)          1,197                       1,197
BANK DEBT                                       4                          4                           4
NON-CURRENT
  LIABILITIES DUE TO
     SHAREHOLDERS
-----------------------------------------------------------------------------------------------------------
Temporary equity                  421       1,906     (1,126)          1,201                       1,201
-----------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY

Capital stock                   4,619          55     (3,987)            687        3,000          3,687
Share subscriptions
Cumulative foreign
  exchange adjustment                           3        216             219                         219
Deficit                          (787)     (1,758)       787          (1,758)        (560)        (2,318)
-----------------------------------------------------------------------------------------------------------
                                3,833       (1,700)   (2,984)           (852)       2,440          1,588
-----------------------------------------------------------------------------------------------------------
                             $  4,253    $    206    $(4,110)      $     349     $  2,440     $    2,789
-----------------------------------------------------------------------------------------------------------
</TABLE>



                                       22

<PAGE>


 IQ POWER TECHNOLOGY INC.
(a development stage company)
Unaudited Pro Forma Statement of Loss
For the three months ended March 31, 1999
(Expressed in United States Dollars)

--------------------------------------------------------------------------------
<TABLE>

                                                                     Business Combination
                                                                         of iQ Germany
                                                              -------------------------------

                                                                    March 31     Adjustments      Pro forma
                                                  IQ Canada           1999       Acquisition    Consolidated
                                               -------------  ---------------- -------------- ----------------
                                                                    (Note 2)
<S>                                                 <C>            <C>           <C>             <C>
OPERATING EXPENSES

Research and development expenses                $               $     193                        $    193

General administrative and other expenses              171              29                             200
--------------------------------------------------------------------------------------------------------------
                                                      (171)           (222)                           (393)
INTEREST INCOME

INTEREST AND OTHER
  FINANCE EXPENSE
--------------------------------------------------------------------------------------------------------------

NET LOSS FOR THE PERIOD                          $    (171)       $   (222)                        $  (393)
--------------------------------------------------------------------------------------------------------------

Loss per share                                   $   (0.03)                                        $   N/A
--------------------------------------------------------------------------------------------------------------

Weighted average
  common shares outstanding                      5,679,425                                      18,479,425
--------------------------------------------------------------------------------------------------------------

</TABLE>



                                       23


<PAGE>



IQ POWER TECHNOLOGY INC.
(a development stage company)
Unaudited Pro Forma Statement of Loss
For the three months ended March 31, 1998
(Expressed in United States Dollars)

--------------------------------------------------------------------------------
<TABLE>

                                                                    Acquisition of iQ Germany
                                                               --------------------------------
                                                                     March 31      Adjustments      Pro forma
                                                   IQ Canada           1998        Acquisition    Consolidated
                                                -------------- ----------------- -------------- ----------------
                                                                     (Note 2)
<S>                                               <C>            <C>               <C>             <C>
REVENUE                                           $              $                                $
----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
  Research and development expenses                                    155                              155
  General administrative                                36              37                               73
----------------------------------------------------------------------------------------------------------------
                                                       (36)           (192)                            (228)
INTEREST AND OTHER
  FINANCE EXPENSE                                                        9                                9
----------------------------------------------------------------------------------------------------------------
                                                       (36)           (201)                            (237)
----------------------------------------------------------------------------------------------------------------

NET LOSS FOR THE PERIOD                           $    (36)      $    (201)                       $    (237)
----------------------------------------------------------------------------------------------------------------


Loss per share                                    $  (0.01)                                       $     N/A
----------------------------------------------------------------------------------------------------------------


Weighted average
  common shares outstanding                      2,479,700                                       18,479,425
----------------------------------------------------------------------------------------------------------------

</TABLE>




                                       24


<PAGE>


Notes to the Unaudited Pro Forma Consolidated Financial Information


1.   BUSINESS COMBINATION

     On August 25, 1998, the Company exchanged 10,000,000 common shares for 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 $632,000  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 March 31, 1999 is summarized below:

<TABLE>

<S>                                                                                            <C>
    Common stock held by IQ Power Technology Inc. shareholders                                 $       632
    ------------------------------------------------------------------------------------------------------------
    Allocation of purchase price
      Current assets                                                                           $     1,053
      Current liabilities                                                                              421
    ------------------------------------------------------------------------------------------------------------
                                                                                               $       632
    ------------------------------------------------------------------------------------------------------------
    Elimination of IQ Power Technology Inc.
      Capital stock                                                                            $     3,987
      Deficit                                                                                         (787)
      Investment in IQ Germany                                                                      (3,200)
      Advances to IQ Germany                                                                         1,126
      Advances to IQ Canada                                                                           (910)
      Cumulative foreign exchange adjustment                                                          (216)
</TABLE>


     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:

                                                        Period Ended
                                              ----------------------------------
                                                March 31, 1999    March 31, 1998
                                              ----------------   ---------------
     Revenue                                   $                  $
     Operating expenses                              (222)             (192)
     Interest income
     Interest expense                                                    (9)
     ---------------------------------------------------------------------------
                                               $     (222)        $    (201)
     ---------------------------------------------------------------------------




                                       25

<PAGE>



3.   MINIMUM OFFERING OF SHARES OF COMMON STOCK

     The pro forma  balance  sheet  reflects  the public  offering of  3,000,000
     shares  of  common  stock  for net  proceeds,  estimated  at a  minimum  of
     $2,440,000.  The offering  agreement  entered  into with IPO Capital  Corp.
     contemplates the issuance of a minimum of 3,000,000 shares and a maximum of
     5,500,000  shares.  The pro forma balance sheet reflects  completion of the
     minimum  offering  (see Note 5 for the  effect of  completing  the  maximum
     offering).

     The pro  forma  financial  statements  reflect  the  following  adjustments
     related to the public offering and related transactions:

<TABLE>


<S>                                                                                            <C>
       Balance Sheet
         Cash
         Gross proceeds from offering                                                          $    3,000,000
         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
       ---------------------------------------------------------------------------------------------------------

</TABLE>


4.   CAPITAL STOCK

     Capital stock  subsequent to the reverse  takeover and the pro forma effect
     of share issuances can be summarized as follows:

<TABLE>

                                                                                    Number             Amount
                                                                               -----------------   ----------------

       <S>                                                                         <C>              <C>
        Share capital of IQ Germany                                                        100      $       62
        Effect of reverse takeover                                                   9,999,900               -
        Issued to acquire IQ Canada                                                  2,843,225             349
        -----------------------------------------------------------------------------------------------------------
                                                                                    12,843,225             411
        Exchange of shares for Atypical shares                                       2,800,000               -
        Issued on public placement                                                     436,000             108
        -----------------------------------------------------------------------------------------------------------
                                                                                    16,079,225             519
        Minimum public offering                                                      3,000,000           3,000
        -----------------------------------------------------------------------------------------------------------
                                                                                    19,079,225      $    3,519
        -----------------------------------------------------------------------------------------------------------
</TABLE>




                                       26


<PAGE>


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:

<TABLE>

                                                                    Pro forma          Maximum           Adjusted
                                                                  Balance sheet        offering        Balance Sheet
                                                                ------------------ ----------------- ------------------
       <S>                                                       <C>                <C>              <C>
       Assets
         Cash                                                    $      2,510       $     2,250      $      4,760
         Other current assets                                             127                 -               127
         Equipment (net)                                                  152                 -               152
       ----------------------------------------------------------------------------------------------------------------
                                                                 $      2,789       $     2,250      $      5,039
       ----------------------------------------------------------------------------------------------------------------
       Liabilities and shareholders' equity
         Current liabilities                                     $      1,197       $         -      $      1,197
         Non-current liabilities                                            4                 -                 4
         Temporary Atypical equity                                                            -
         Capital stock                                                  3,687             2,500             6,187
         Cumulative foreign exchange adjustment                           219                 -               219
         Deficit                                                       (2,318)             (250)           (2,568)
       ----------------------------------------------------------------------------------------------------------------
                                                                 $      2,789       $     2,250      $      5,039
       ----------------------------------------------------------------------------------------------------------------

</TABLE>



                                       27


<PAGE>



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

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

Overview

     iQ Power Technology Inc. (the "Company") was organized in December 1994 and
commenced  operations  in June 1996.  The Company  develops  and  commercializes
batteries and electric power technology for the automotive industry. Its primary
product  is  a  "smart"   automotive  starter  battery  which  combines  several
proprietary features designed to optimize automotive starter battery efficiency.

     The Company is an early stage  company and its  principal  activity to date
has been the acquisition of all the issued and outstanding  shares of iQ Battery
Research & Development  GmbH ("iQ Germany").  Neither the Company nor iQ Germany
have derived  revenues  from  operations,  and the Company  does not  anticipate
having material  revenues from operations until 2000, if at all. The Company and
iQ  Germany  have  incurred  substantial  losses  to date,  and  there can be no
assurance that the Company will attain any particular  level of revenues or that
the Company will achieve profitability.

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

Acquisition of iQ Germany

     On August 25, 1998,  the Company  acquired  all the issued and  outstanding
common stock of iQ Germany in exchange for  10,000,000 of the  Company's  common
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 the Company.  Due to this  acquisition  of control,  iQ
Germany was identified as the acquiror (reverse  acquisition),  and the business
combination was accounted under the purchase method.


The Company's  Results of  Operations  for the Three Months Ended March 31, 1999
Compared to the Three Months Ended March 31, 1998

     The Company was organized in December 1994 and commenced operations in June
1996. Its 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 three month period ended March 31,
1999 or the three month period ended March 31, 1998.

     As of March 31, 1999, the Company had an accumulated deficit of US$787,339.
The Company  incurred a net loss of US$170,678  for the three month period ended
March 31, 1999, compared to a net loss of US$36,295



                                       28

<PAGE>

for the  comparable  period of the prior year  primarily  as result of increased
management and professional  fees and increased  employment  expenses related to
the hiring of additional employees during 1998.

     The  Company   anticipates   that  the  level  of  spending  will  increase
significantly  in  future  periods  as we  undertake  research  and  development
activities related to the  commercialization of the iQ technology.  In addition,
the Company  anticipates that its 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 the Company.

iQ  Germany's  Results of  Operations  for the Three Months Ended March 31, 1999
Compared to the Three Months Ended March 31, 1998

     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 March 31, 1999, iQ Germany had an accumulated  deficit of DM3,182,000
(US$1,758,532). iQ Germany incurred a net loss of DM402,000 (US$222,165) for the
three month period  ending March 31, 1999  compared with a net loss of DM372,000
(US$201,066) for the comparable period of the prior year.

     iQ Germany had no revenues for the three month period ending March 31, 1999
and the three month period ending March 31, 1999.

     For the three  month  period  ended  March 31,  1999,  iQ Germany  incurred
research  and  development  expenses of  DM350,000  (US$193,427)  compared  with
DM287,000 (US$155,123) for the comparable period of the prior year. The increase
in research and  development  expenses  reflects the cost of supporting a higher
level  of  activity,   principally  research,   product  development,   building
prototypes and product testing.

     iQ  Germany  incurred  general  and  administrative  expenses  of  DM52,000
(US$28,738)  for the three  month  period  ended March 31,  1999  compared  with
DM68,000  (US$36,754) for the comparable  period of the prior year. The decrease
in administrative  and general  corporate  expenses was due primarily to reduced
consulting fees.

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

Liquidity and Capital Resources

     Since inception,  the Company has financed its operations primarily through
sales of its equity  securities.  As of March 31, 1999, the Company had cash and
cash equivalents of  US$1,053,618.  As of March 31, 1999, the Company had raised
approximately  $1,420,050  (net  of  issuance  costs)  from  the  sale  of  such
securities,  excluding  the  issuance  of  10,000,000  common  shares for deemed
proceeds of $2,500,000 on the business  combination with iQ Germany. On June 18,
1999,  the Company  completed its initial public  offering  pursuant to which it
received net proceeds of 4,690,000.

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

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



                                       29

<PAGE>

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

Year 2000 Issue

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

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

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

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

Foreign Currency Translation Risk

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




                                       30
<PAGE>


Recent Accounting Pronouncements

Accounting for Derivative Instruments and Hedging Activities.

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

Part II -  OTHER INFORMATION

     ITEM 1. Legal Proceedings

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

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


     ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

          a)   Sales of Unregistered Securities

               None

          b)   Use of Proceeds from Sales of Registered Securities

     On June 18, 1999, the Company  completed an initial public  offering of its
common  shares.  The selling  agent in the offering was IPO Capital  Corp.  (the
"Agent").  The common  shares sold in the  offering  were  registered  under the
Securities  Act of 1933, as amended,  on a  Registration  Statement on Form SB-1
(the "Registration  Statement") (Reg. No. 333-68649) that was declared effective
by the SEC on May 10, 1999.  The offering  commenced on May 10, 1999 after which
time, all 5,500,000 common shares  registered  under the Registration  Statement
were sold at a price to the  public of $1.00 per  common  share.  The  aggregate
offering amount registered was $5,500,000.  In connection with the offering, the
Company paid an aggregate of $105,000 in  commissions  and fees to the Agent and
also issued to the Agent warrants to purchase  55,000 common  shares.  The Agent
may exercise the warrants for US$1.00 per common share during the first year and
for US$1.50 per common share during the second year after issuance.





                                       31
<PAGE>


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

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

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

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

     ITEM 3. DEFAULTS UPON SENIOR SECURITIES

          None.

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

          None.

     ITEM 5. OTHER INFORMATION

          None.

     ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

          None


                                       32

<PAGE>



                                   SIGNATURES


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



                                         IQ POWER TECHNOLOGY INC.


Date: July 5, 1999                       By:  /s/ Peter E. Braun
                                             -----------------------------------
                                             Name:    Peter E. Braun
                                             Title:   President




Date: July 6, 1999                       By:  /s/ Gerhard K. Trenz
                                             -----------------------------------
                                             Name:    Gerhard K. Trenz
                                             Title:   Vice President Finance and
                                                      Chief Financial Officer
                                                      (Principal Financial and
                                                      Accounting Officer)