-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KiZoY7rJgu0ttNWElc4oFEoVmbWR/+vdgM+a0qQzbxWdfzyPa1lBZhCokb2n6y2P TmUXZkn6yCIT0u9UzyW8Mg== 0000950137-01-503090.txt : 20010815 0000950137-01-503090.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950137-01-503090 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTIVE IQ TECHNOLOGIES INC CENTRAL INDEX KEY: 0000912875 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 412004369 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12401 FILM NUMBER: 1712753 BUSINESS ADDRESS: STREET 1: 601 CARLSON PARKWAY STREET 2: SUITE 1500 CITY: MINNETONKA STATE: MN ZIP: 55305 BUSINESS PHONE: 9524495000 MAIL ADDRESS: STREET 1: 601 CARLSON PARKWAY STREET 2: SUITE 1500 CITY: MINNETONKA STATE: MN ZIP: 55305 FORMER COMPANY: FORMER CONFORMED NAME: METEOR INDUSTRIES INC DATE OF NAME CHANGE: 19960313 10-Q 1 c64270e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2001 1 ================================================================================ U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER 0-27968 --------- ACTIVE IQ TECHNOLOGIES, INC. ----------------------------------------------------------------- (Exact Name of Small Business Issuer as specified in Its Charter) MINNESOTA 41-2004369 ------------------------------- ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 601 CARLSON PARKWAY, SUITE 1550, MINNETONKA, MN 55305 ----------------------------------------------------- (Address of Principal Executive Offices) 952.449.5000 ------------------------------------------------ (Issuer's Telephone Number, Including Area Code) (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of August 9, 2001, there were 9,943,488 shares of common stock, $.01 par value, outstanding. ================================================================================ 2 FORWARD-LOOKING STATEMENTS Certain of the matters discussed in the following pages constitute "forward-looking statements" within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. Forward-looking statements involve a number of risks and uncertainties, and, in addition to the factors discussed in this Form 10-Q, other factors that could cause actual results to differ materially are the following: the economic conditions in the new markets into which the Company expands and the possible uncertainties in the customer base in these areas; competitive pressures from other providers of Internet eBusiness services; ability to raise additional capital required to support the Company's operations and enable the Company to pursue its business plan; government regulation of the Internet; business conditions, such as inflation or a recession, and growth in the general economy; changes in monetary and fiscal policies, other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. 2 3 ACTIVE IQ TECHNOLOGIES, INC. FORM 10-Q INDEX JUNE 30, 2001
Page ---- PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets -- As of June 30, 2001 and December 31, 2000 4 Condensed Consolidated Statements of Operations -- For the three months and six months ended June 30, 2001 and June 30, 2000 5 Condensed Consolidated Statements of Cash Flows -- For the six months ended June 30, 2001 and June 30, 2000 6 Notes to the Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds 16 ITEM 6. Exhibits and Reports on Form 8-K 16 Signatures 17
3 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS Cash and equivalents $ 5,288,845 $ 1,349,457 Accounts receivable, net 85,603 -- Note receivable 500,000 -- Inventories 57,638 -- Prepaid expenses 35,460 57,285 ------------ ----------- Total current assets 5,967,546 1,406,742 PROPERTY and EQUIPMENT, net 547,728 549,116 ACQUIRED SOFTWARE DEVELOPMENT 435,838 -- PREPAID ROYALTIES -- 500,001 OTHER ASSETS, net 74,745 216,072 GOODWILL and OTHER INTANGIBLES, net 5,879,998 -- ------------ ----------- $ 12,905,855 $ 2,671,931 ============ =========== LIABILITIES and STOCKHOLDERS' EQUITY CURRENT LIABILITIES Bank line of credit $ 35,998 $ 97,529 Current portion notes payable - shareholders 827,322 -- Accounts payable 350,472 257,509 Accrued expenses 375,787 83,141 Current portion of capital lease obligations -- 19,058 ------------ ----------- Total current liabilities 1,589,579 457,237 DEFERRED REVENUE 759,609 306,000 LONG-TERM OBLIGATIONS, less current maturities 737,663 27,158 ------------ ----------- Total liabilities 3,086,851 790,395 ------------ ----------- COMMITMENTS and CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $.01 par value, 40,000,000 shares authorized; 9,749,988 and 3,835,911 shares issued and outstanding 97,500 38,359 Series B Convertible Preferred Stock, $1.00 par value, 365,000 shares authorized, issued and outstanding 365,000 -- Additional paid-in capital 15,799,738 5,633,040 Stock subscription receivable -- (312,500) Deferred compensation (269,852) (172,813) Warrants 262,199 170,881 Accumulated deficit (6,435,581) (3,475,431) ------------ ----------- Total stockholders' equity 9,819,004 1,881,536 ------------ ----------- $ 12,905,855 $ 2,671,931 ============ ===========
The accompanying notes are an integral part of these condensed consolidated financial statements 4 5 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Six months ended ---------------------------------------- ---------------------------------------- June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 ------------------- -------------------- ---------------------------------------- REVENUES $ 372,950 $ -- $ 408,261 $ -- OPERATING EXPENSES: Selling, general and administrative 1,473,656 204,364 2,255,965 466,940 Depreciation and amortization 514,586 -- 703,570 10,000 Product development 192,068 169,864 390,264 558,342 Loss on disposal of assets 57,678 -- 57,678 -- ----------- ---------- ------------ ----------- Total operating expenses 2,237,988 374,228 3,407,477 1,035,282 LOSS FROM OPERATIONS (1,865,038) (374,228) (2,999,216) (1,035,282) OTHER INCOME (EXPENSE): Interest income 24,485 22 48,343 44 Interest expense (3,863) (4,844) (9,277) (11,027) ----------- ---------- ------------ ----------- Total other expense over income 20,622 (4,822) 39,066 (10,983) ----------- ---------- ------------ ----------- NET LOSS $(1,844,416) $ (379,050) $ (2,960,150) $(1,046,265) =========== ========== ============ =========== BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.25) $ (0.95) $ (0.49) $ (2.73) =========== ========== ============ =========== BASIC AND DILUTED WEIGHTED AVERAGE OUTSTANDING SHARES 7,499,353 400,668 5,994,188 383,822 =========== ========== ============ ===========
The accompanying notes are an integral part of these condensed consolidated financial statements 5 6 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30, 2001 June 30, 2000 ---------------- ---------------- OPERATING ACTIVITIES: Net loss $ (2,960,150) $ (1,046,265) Adjustments to reconcile net loss to cash flows from operating activities: Depreciation and amortization 703,570 10,000 Deferred compensation expense 47,961 -- Loss on disposal of assets 57,678 -- Issuance of options in lieu of severance -- 25,800 Common stock issued in lieu of services -- 22,682 Changes in operating assets and liabilities: Accounts receivable (4,777) -- Inventories 2,554 -- Prepaid expense 533,063 -- Accounts payable (54,203) 21,278 Accrued expenses (19,638) 149,287 Other assets 110,404 (100,000) Deferred revenue (283,130) -- ------------ ------------ Net cash used in operating activities (1,866,668) (917,218) ------------ ------------ INVESTING ACTIVITIES: Acquisition of Red Wing Business Systems (291,228) -- Acquisition of Edge Technologies (308,016) -- Purchases of property and equipment (60,833) (128,943) ------------ ------------ Net cash used in investing activities (660,077) (128,943) ------------ ------------ FINANCING ACTIVITIES: Payments on bank line of credit (17,529) (100,000) Payments on obligations under capital leases (78,976) -- Payments on short-term notes payable (2,133) -- Payments on long-term debt (2,730) -- Cash proceeds from issuance of common stock, 6,567,501 913,394 Cash proceeds from short-term notes payable -- 50,000 ------------ ------------ Net cash provided by financing activities 6,466,133 863,394 ------------ ------------ INCREASE (DECREASE) IN CASH and EQUIVALENTS 3,939,388 (182,767) CASH AND EQUIVALENTS, Beginning of period 1,349,457 409,917 ------------ ------------ CASH AND EQUIVALENTS, end of period $ 5,288,845 $ 227,150 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 9,277 $ 11,027 Non-cash financing and investing activities: Common stock issued in acquisitions $ 3,290,500 $ --
The accompanying notes are an integral part of these condensed consolidated financial statements 6 7 ACTIVE IQ TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements have been prepared by Active IQ Technologies Inc. (the "Company" or "Active IQ"), in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Form 8-K (filed May 14, 2001 under Meteor Industries, Inc., "METR"). In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year as a whole. Nature of Business Active IQ was incorporated in Minnesota on April 11, 1996, and was considered a development stage company until January 2001, when it began to recognize revenues as a result of an acquisition (see Note B - Business Combinations). The Company was formed to develop and provide Internet eBusiness application software and services for the small to mid-sized accounting software customers. Since its inception, the Company's efforts have been devoted to the development of its principal product and raising capital. Through its Red Wing Business Systems, Inc. subsidiary, the Company also develops and markets accounting financial management software to small to mid-sized businesses. The Company is in the early stages of introducing its products to the market. During the period required to develop significant revenue, the Company may require additional funds that may not be available. The Company is subject to risks and uncertainties common to growing technology-based companies, including rapid technological change, growth and commercial acceptance of the Internet, dependence on suppliers and users for product, new product development, new product introductions and other activities of competitors, dependence on key personnel, security and privacy issues, dependence on strategic relationships and limited operating history. Net Loss Per Common Share Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the periods presented. The impact of common stock equivalents has been excluded from the computation of weighted average common shares outstanding, as the net effect would be antidilutive. Use of Estimates Preparing financial statements in conformity with US GAAP requires 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes The Company accounts for income taxes using the liability method to recognize deferred income tax assets and liabilities. Deferred income taxes are provided for differences between the financial reporting and tax bases of the Company's assets and liabilities at currently enacted tax rates. 7 8 As of June 30, 2001, the Company had approximately $3,500,000 in net operating loss carryforwards for federal tax purposes. The Company has recorded a full valuation allowance against the net deferred tax asset due to the uncertainty of realizing the related benefits. Software Development Costs Effective January 1, 1999, the Company implemented Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Pursuant to SOP 98-1, software development costs are expensed during the preliminary project stage. For the six months ended June 30, 2000 and 2001, the Company expensed all software or other development costs (certain software development was acquired and capitalized as part of the Red Wing Business Systems, Inc., acquisition, See Note B - Business Combinations) as research and development since such costs were incurred during the preliminary project stage. NOTE B - BUSINESS COMBINATIONS Edge Technologies, Inc. On January 16, 2001, the Company completed its merger with privately held Edge Technologies, Incorporated ("Edge"), the creator of a fully integrated eBusiness website service called Account Wizard, which has been subsequently branded as part of the Epoxy Network. The merger was accounted for under the purchase method of accounting with the operations of Edge included in the Company's consolidation as of that date. The former stockholders of Edge received $300,000 in cash and 325,000 shares of the Company's common stock. Terms of the merger agreement required an additional cash payment and issuance of stock upon a capital raising event. With the completion of the Meteor Industries, Inc. merger on April 30, 2001, the former stockholders of Edge received the final consideration as specified in the merger agreement of 225,000 shares of the Company's common stock on April 30, 2001, and $400,000 in cash on May 2, 2001, in settlement of the earnout provisions. With closing costs, the total consideration plus the fair value of the net liabilities assumed is approximately $2,264,000, consisting primarily of goodwill and other intangibles. The Company is amortizing the acquired goodwill and other intangibles on a straight-line basis over a two-year period. Meteor Industries, Inc. On April 30, 2001, the Company completed its merger with Meteor Industries, Inc. Pursuant to an Agreement and Plan of Merger dated as of January 11, 2001, as amended April 27, 2001 (the "Merger Agreement"), by and among Meteor Industries, Inc. ("Meteor"), activeIQ Technologies Inc., a Minnesota corporation ("AIQ") and MI Merger, Inc., Minnesota corporation and a wholly-owned subsidiary of Meteor ("Merger Sub"), AIQ merged with and into Merger Sub (the "Merger"). The surviving corporation in the Merger was renamed AIQ, Inc. In addition, pursuant to the Merger Agreement, Meteor was reincorporated under Minnesota law by merging with and into AIQ Acquisition Corp., a Minnesota corporation (the "Reincorporation Merger"). The surviving corporation in the Reincorporation Merger was renamed Active IQ Technologies, Inc., a Minnesota corporation. Meteor's shareholders approved both the Merger and the Reincorporation Merger on March 27, 2001, and both transactions became effective on April 30, 2001. Since Meteor had only monetary assets and no operations, the merger was accounted for as the issuance of stock by AIQ in exchange for monetary assets of Meteor. Pursuant to the Merger Agreement, in exchange for shares of AIQ common stock, each stockholder of AIQ common stock was entitled to receive one share of Meteor's common stock (after giving effect to the reincorporation Merger). At the time of the Merger there were 4,385,911 shares of common stock of AIQ outstanding, excluding 400,000 shares held by Meteor, which were cancelled upon the effective time of the Merger. In addition to receiving shares of Meteor's common stock, each of the former AIQ stockholders was entitled to receive a warrant to purchase two shares of Meteor's common stock for every three shares of AIQ common stock held by such stockholder. The warrants, which expire on April 30, 2006, are exercisable at a price of $5.50 share upon notice to the holders thereof after the closing price of Meteor's common stock (as quoted on the Nasdaq Small Cap Market) has averaged $7.50 for 14 consecutive days. 8 9 Red Wing Business Systems, Inc. On June 6, 2001, the Company completed its acquisition of Red Wing Business Systems, Inc. ("Red Wing"), a Minnesota corporation. Red Wing, which operates as a wholly-owned subsidiary of the Company, produces and sells accounting and financial management software for small to mid-sized businesses, farm and agricultural producers. Pursuant to a Stock Purchase Agreement (the "Agreement") dated June 6, 2001, the Company purchased all of the outstanding capital stock from the shareholders of Red Wing (the "Sellers"). The Sellers received an aggregate of 400,000 shares of the Company's common stock and cash in the aggregate of $1,600,000, of which $400,000 was delivered at the closing. Under the Agreement, the Company is obligated to pay the remaining $1,200,000 of cash in three future payments of $400,000 due on the 6-, 12- and 18-month anniversaries of the closing date. As security for the Company's obligations to make the first two future cash payments of $400,000 each, the Company granted a security interest in the newly-acquired shares of Red Wing to the Sellers pursuant to a pledge agreement by and among the Company and the Sellers dated as of June 6, 2001. With closing costs, the total consideration plus the fair value of the net liabilities assumed is approximately $4,214,000, consisting primarily of goodwill and other intangibles. The Company is amortizing the acquired goodwill and other intangibles on a straight-line basis over a two-year period. The accompanying unaudited pro forma condensed results of operations for the six months ended June 30, 2001 and 2000, give effect to the acquisitions of Edge and Red Wing, as if such transactions had occurred on January 1, 2000. The unaudited pro forma information does not purport to represent what the Company's results of operations would actually have been if such transactions in fact had occurred at such date or to project the Company's results of future operations:
Pro Forma for the Six Months Ended June 30, - ----------------------------------------------------------- --------------- --- -------------- 2001 2000 - ----------------------------------------------------------- --------------- --- -------------- Revenues $ 1,581,026 $ 1,019,732 - ----------------------------------------------------------- --------------- --- -------------- Loss from operations 2,639,586 2,453,661 - ----------------------------------------------------------- --------------- --- -------------- Net loss 2,615,362 2,499,880 - ----------------------------------------------------------- --------------- --- -------------- Basic and diluted net loss per common share $ 0.44 $ 1.87 - ----------------------------------------------------------- --------------- --- --------------
NOTE C - DEBT Bank Line of Credit In June 2000, the Company paid down a portion of the revolving line of credit and refinanced the balance of $100,000 under a term note which was due June 2001. In May 2001, the Company paid off the line of credit. The Company has a $275,000 revolving line of credit with a bank of the subsidiary Red Wing. Outstanding borrowings were $257,123 as of June 30, 2001. 9 10 Notes Payable Notes payable consist of the following:
June 30, December 31, 2001 2001 ------------- ------------- Note Payable - former Red Wing stockholders (a) $ 1,200,000 -- Notes Payable (b) $ 143,860 -- ------------- ------------ $ 1,343,860 -- ============= ============
(a) Pursuant to a Stock Purchase Agreement dated June 6, 2001, the Company purchased all of the outstanding capital stock from the shareholders of Red Wing. Under the Agreement, the Company is obligated to pay the remaining $1,200,000 of cash in three future payments of $400,000 due on the 6-, 12- and 18-month anniversaries of the closing date. (b) Three investors in Red Wing receive monthly principal and interest payments. Two of the investors are current employees, the other is a related party. Note balances as of June 30,2001 were $71,930, $57,544 and $14,386. NOTE D - DEFERRED REVENUE In December 2000, the Company signed an agreement with one of its stockholders to exchange the Company's $300,000 promissory note and $6,000 of accrued interest for an advance on fees payable upon the resale of the Company's products. Accordingly, such amounts have been recorded as deferred revenue as of December 31, 2000. Also in December 2000, the Company modified its software licensing agreement with this same stockholder and entered into a reseller arrangement which allows the Company to resell the third party's software. In conjunction with the agreement, the Company paid $150,000 in cash and issued 127,273 shares of common stock valued at $2.75 per share as consideration for a nonrefundable, prepaid minimum royalty. This total amount of $500,001 is recorded as other assets as of December 31, 2000. In April 2001, the Company sold the full right, title and interest in and to the intellectual property of its Content Categorizer to the stockholder for the consideration of $400,000 cash and the satisfaction of the deferred revenue liability. In addition, the Company accelerated the recognition of the above-prepaid royalty in conjunction with the sale of Content Categorizer by recording as a reduction to the revenues recorded on the sale. Red Wing has a software maintenance program, which collects yearly fees in advance from its customers. These fees are amortized over the periods which service and support is provided to the customer, generally one year. The deferred revenue balance was $759,609 at June 30, 2001. NOTE E - STOCKHOLDERS' EQUITY Series B Convertible Preferred Stock Part of the monetary assets acquired with Meteor, were 365,000 shares of convertible preferred stock. Meteor issued these share in June 2000. Each share is: (1) not entitled to dividends, (2) entitled to a liquidation preference of $2.00, (3) entitled to one vote, (4) not redeemable, and (5) convertible. Holders of the Series B Convertible Preferred Stock have the right to convert all or a portion of their shares into units, each unit consisting of one share of Common Stock and one warrant to purchase Common Stock. The warrants to be issued as part of the units upon conversion shall be in a form determined by the Board of Directors and shall be exercisable until May 15, 2005, at an exercise price of $2.50 per share. Stock Subscription Receivable In October 1999, a director of the Company purchased 8,333 shares of the Company's common stock at $37.50 per share in exchange for a non-recourse note totaling $312,500. The note was due and payable in full 90 days following the date the individual ceased to be a director of the Company and is recorded as stock subscription receivable as of December 31, 2000. In March 2001, the director resigned from the board. In June 2001, the Company redeemed 8,333 shares and cancelled the note. 10 11 Private Placement In June 2000, the Company completed a private placement offering of 10 Units priced at $150,000 per Unit with net proceeds of $1,500,000. Each Unit consisted of 50,000 shares of the Company's common stock, par value $.01 per share, and one five-year warrant to purchase 30,000 shares of the Company's common stock with an exercise price of $5.50. The Company recorded a warrant charge to equity of $114,000, representing the fair value of the warrants using the Black-Scholes pricing model. NOTE F - IMPACT OF NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment test in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. During January 1, 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets and determine what the effect of these tests will be on the earnings and financial position of the Company. NOTE G - SUBSEQUENT EVENTS In December 2000, the Company entered into a subscription receivable for the purchase of 100,000 shares of common stock at a price of $2.75 per share with a director of the Company. On July 30, 2001, the director delivered to the Company a cash payment in the amount of $75,000 and a two-month promissory note in the principal amount of $200,000. Interest accrues on the principal balance of the prime rate as of the date of the note. Employment agreements Effective May 1, 2001 the Company entered into employment agreements with two of its officer. Under the agreement between the Company and Kenneth W. Brimmer, the Chairman, CEO and CFO: in addition to his annual salary of $125,000, Mr. Brimmer is entitled to an annual bonus of up to 75 percent of his salary upon the achievement of certain corporate objectives and a $250,000 bonus when our company has raised an aggregate of $12 million in equity financings, of which approximately $9 million has been raised to date. Mr. Brimmer was also awarded an option to purchase up to 250,000 shares of our common stock at a price of $5.00 per share, which option vests in equal installments over four years. Under the agreement between the Company and D. Bradly Olah, the President, COO and Secretary: Mr. Olah is entitled to an annual salary of $150,000 and is eligible for an annual bonus of up to 100 percent of his salary upon the achievement of certain corporate objectives. Mr. Olah was also awarded options to purchase up to 300,000 shares of our common stock at a price of $5.00 per share, which option vests in equal installments over four years. Stock Transfer Agent Effective August 13, 2001, the Company terminated the services of Computershare Trust Company, Inc. and transferred all stock related record keeping responsibilities to Firstar Bank, N.A. located in Milwaukee, WI. 11 12 ITEM 2. ACTIVE IQ TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following management's discussion and analysis of financial condition and results of operations should be read in connection with the accompanying unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report, the audited financial statements and notes thereto included in the Company's Form 8-K (filed May 14, 2001 under Meteor Industries, Inc., "METR") for the fiscal year ended December 31, 2000, and the unaudited condensed consolidated financial statements and notes thereto included in the Company's Form 8-K (filed June 15, 2001 under Meteor Industries, Inc., "METR") for the quarter ended March 31, 2001. OVERVIEW We were originally incorporated under Minnesota law in April 1996 under the name Trakehner Holdings, Incorporated in April 1996. Since the Company's inception in April 1996, our efforts have been devoted to the development of its principal product and raising capital. Initially, we focused on a plan to develop "connectivity products" for small businesses enabling legacy accounting software systems to access their larger trading partners via XML (extensible markup language) or EDI (electronic data interchange) through the World Wide Web. Following successful testing of this product, we concluded to broaden our e-services offering through an array of services called the Epoxy Network and we expect to introduce the Epoxy Network in series of steps over the next 12 months starting September 1, 2001. Active IQ Technologies, Inc. provides business management software and services to the small to medium-sized business community, referred to as the "SME market." We offer the SME market an affordable, service-based product line providing easy to use integrated eBusiness functionality ranging from website creation tools to more sophisticated e-business solutions. Active IQ has offices in Minnesota and Las Vegas, Nevada. The Company was considered a development stage company until January 2001, when we began to recognize revenues as result of the acquisition of Edge Technologies, Incorporated ("Edge"). On January 16, 2001, we completed the acquisition of privately held Edge, a Nevada corporation engaged in fully integrated e-commerce website services for businesses. The Edge service offering allows users to build a dynamic, secure, interactive e-commerce websites offering the benefits of direct access to a variety of existing legacy-system maintained critical information. Our Edge subsidiary has developed connectivity to more than 40 separate accounting systems representing over 250,000 small business and currently provides integrated website services to approximately 250 customers. We have completed a re-branding of the former Edge product and it is now a part of the Epoxy Network. On April 30, 2001, as Old AIQ, we merged into a subsidiary of Meteor Industries, Inc., ("METR") a Colorado corporation, which concurrent with the merger, completed the sale of its operating assets to one of its major shareholders, Capco Energy, Inc. For accounting purposes, the merger was treated as an issuance of stock by Old AIQ because the only assets held by Meteor were the cash and notes it received in the sale of its operating assets to Capco Energy. Upon completion of the merger, our common stock commenced trading on the Nasdaq Small Cap Market under the symbol "AIQT." We recently acquired Red Wing Business Systems, Inc. ("Red Wing"), located in Red Wing, Minnesota. Since 1979, Red Wing Accounting Software has provided the SME market with accounting software solutions. Red Wing currently serves more the 10,000 businesses including more that 5,000 agricultural users. Red Wing software solutions address the gap between inexpensive, ultra-simple "starter" accounting software and the significant cost and complexity of high-end software, offering a stable, secure and flexible base for growing small business users. Our future additional revenues and profits, if any, will depend upon various factors, including the ability to successfully expand, our ability to raise additional financing as required, and general economic conditions. The Company is in the early stages of introducing its products to the market. We may require additional funds that may not be available. We are subject to risks and uncertainties common to growing technology-based companies, 12 13 including rapid technological change, growth and commercial acceptance of the Internet, dependence on suppliers and users for product, new product development, new product introductions and other activities of competitors, dependence on key personnel, security and privacy issues, dependence on strategic relationships and limited operating history. RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000. Net Revenues Revenues for the three months ended June 30, 2001 were $372,950 compared to no revenue for the same period in 2000. Our net revenues are as follows: we generated $3,500 from our Epoxy Network, $48,597 from Edge, $206,000 net from the sale of Content Categorizer and $114,853 from Red Wing. The Red Wing acquisition closed on June 6, 2001. During 2000, our company was in the development stage and had not yet generated any revenue. The Company developed a software application in conjunction with one of its stockholders, IntraNet Solutions, Inc. In April 2001, the Company sold the full right, title and interest in and to the intellectual property of its Content Categorizer to the stockholder for the consideration of $400,000 cash and the satisfaction of a $306,000 deferred revenue liability. In addition, the Company reduced the revenue attributable to the sale of Content Categorizer by the $500,001 prepaid royalty, as a determination was made to no longer pursue the sale of these products. Our ability to continue our present operations and successfully implement our expansion plans is contingent upon our ability to increase our revenues and ultimately attain and sustain profitable operations. Without additional financing, the cash generated from our current operations may not be adequate to fund operations and service our indebtedness during the next four quarters of operations. Costs and Expenses Selling, general and administrative expenses for the three months ended June 30, 2001 were $1,473,656 compared to $204,364 for the same period in 2000. The $1,269,292 increase in selling, general and administrative expenses was primarily due to the increased corporate overhead structure for the development of our Internet eBusiness software and services. Selling, general and administrative expenses for the six months ended June 30, 2001 were $2,255,965 compared to $466,940 for the same period in 2000. Again, the $1,789,025 increase in selling, general and administrative expenses was primarily due to the increased corporate overhead structure for the development of our Internet eBusiness software and services. The Company expects to incur operating losses throughout 2001. Depreciation and amortization for the three months ended June 30, 2001 was $514,586 compared to zero for the same period in 2000. Depreciation and amortization expenses of property, equipment and other intangibles were $52,178 and goodwill amortization expense was $462,408. Goodwill amortization represents the excess of the purchase price and related costs over the fair value of the net assets that the Company acquires through its mergers and acquisitions. The Company amortizes acquired goodwill on a straight-line basis over a two-year period. Depreciation and amortization for the six months ended June 30, 2001 was $703,570 compared to $10,000 for the same period in 2000. Depreciation and amortization expenses of property, equipment and other intangibles were $95,075 and goodwill amortization expense was $608,495. There was no goodwill amortization expense for the 2000 periods, as no acquisitions were completed prior to January 1, 2001. Future quarterly goodwill amortization expense will be $833,649. At that time, the Company will address the new accounting standards. See NOTE F - IMPACT OF NEW ACCOUNTING STANDARDS. 13 14 Product development expenses for the three months ended June 30, 2001 were $192,068 compared to $169,864 for the same period in 2000. The $22,204 increase in product development expenses was due to continued development for our Internet eBusiness application software. Product development expenses for the six months ended June 30, 2001 were $390,264 compared to $558,342 for the same period in 2000. The $168,078 decrease in product development expenses relates to the initial development of projects. Effective May 23, 2001, the Company closed its office located in Boston, Massachusetts, and transferred all core application projects to our Las Vegas, Nevada location. With this closure, we booked a loss on disposal of assets of $57,678 relating to the Boston office. In order to facilitate an early release from our office lease, a mutual arrangement was agreed upon with the landlord regarding the furniture and fixtures located within our space. The Company shipped the office equipment, computer hardware and software back to its Minnesota location. The Company's other income and expense consists of interest income and interest expense. Interest income for the three months ended June 30, 2001 was $24,485 compared to $22 for the same period in 2000. Interest income for the six months ended June 30, 2001 was $48,343 compared to $44 for the same period in 2000. This income represents interest earned on our short-term investments. The Company expects interest income to decrease in the future as cash is used to fund operations and for investments in infrastructure. Interest expense for the three months ended June 30, 2001 was $3,863 compared to $4,844 for the same period in 2000. Interest income for the six months ended June 30, 2001 was $9,277 compared to $11,027 for the same period in 2000. This expense relates primarily to our capital lease obligations. The Company expects interest expense to remain consistent over the remainder of the next two quarters. Liquidity and Capital Resources The Company had working capital of $4,377,967 at June 30, 2001, compared to working capital of $949,505 on December 31, 2000. Cash and equivalents were $5,288,845 at June 30, 2001, representing an increase of $3,939,388 from the cash and equivalents of $1,349,457 at December 31, 2000. The Company's principal commitment consists of payments to the former Red Wing Business Systems shareholders. The remaining notes payable of $1,200,000 (three payments of $400,000 each), are due December 2001, June 2002 and December 2002. Although the Company has no material commitments for capital expenditures, it anticipates continued capital expenditures consistent with its anticipated growth in operations, infrastructure and personnel. In January 2001, the Company sold 400,000 shares of common stock for net proceeds of $1,100,000 as part of the Meteor merger. On January 16, 2001, we completed our merger with privately held Edge Technologies Incorporated, the creator of a fully integrated eBusiness website service called Account Wizard. The merger was accounted for under the purchase method of accounting with the operations of Edge included in our company's financial statements as of that date. The former stockholders of Edge received $300,000 in cash and 325,000 shares of our common stock. Terms of the merger agreement required an additional cash payment and issuance of stock upon a capital raising event. With the completion of the Meteor Industries, Inc. merger on April 30, 2001, the former stockholders of Edge Technologies received the final consideration as specified in the merger agreement of 225,000 shares of our common stock on April 30, 2001, and $400,000 in cash on May 2, 2001, in settlement of the earnout provisions. With the completion of the Meteor merger and acquisition on April 30, 2001, (less closing fees), we received approximately $3,967,500 in cash and a secured promissory note of $500,000 due January 30, 2002. The promissory note accrues interest at a rate of 10% per annum, compounded annually. The note is secured by a stock pledge agreement dated April 27, 2001, by SEDCO INC., pledging 1,500,000 shares of common stock of Capco Energy, Inc. On June 6, 2001, the Company completed its acquisition of Red Wing Business Systems, Inc. ("Red Wing"), a Minnesota corporation. Red Wing, which will operate as a wholly-owned subsidiary of the Company, produces and sells accounting and financial management software for small to mid-sized businesses, farm and agricultural producers. Pursuant to a Stock Purchase Agreement (the "Agreement") dated June 6, 2001, the Company purchased all of the outstanding capital stock from the shareholders of Red Wing (the "Sellers"). The Sellers received 14 15 an aggregate of 400,000 shares of the Company's common stock and cash in the aggregate of $1,600,000, of which $400,000 was delivered at the closing. Under the Agreement, the Company is obligated to pay the remaining $1,200,000 of cash in three future payments of $400,000 due on the 6-, 12- and 18-month anniversaries of the closing date. As security for the Company's obligations to make the first two future cash payments of $400,000 each, the Company granted a security interest in the newly-acquired shares of Red Wing to the Sellers pursuant to a pledge agreement by and among the Company and the Sellers dated as of June 6, 2001. In June 2001, the Company raised cash proceeds of $1,500,000 from the private placement of 10 Units at a purchase price of $150,000 per Unit. Each Unit consisted of 50,000 shares of the Company's common stock, par value $.01 per share, and one five-year warrant to purchase 30,000 shares of the Company's common stock with an exercise price of $5.50. The Company anticipates that it will continue to experience growth in its operating expenses for the foreseeable future and that its operating expenses will be a material use of the Company's cash resources. The Company believes that the existing sources of liquidity and the results of its operations will provide cash to fund operations for at least the next twelve months, although the Company may seek to raise additional capital during that period. There can be no assurance that additional capital will be available on terms acceptable to the Company or on any terms whatsoever. 15 16 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The following table lists recent sales of unregistered securities by the Company:
- ------------- --------------------- ------------------ -------------------------- ----------------- TITLE AND CASH OR DESCRIPTION OF AMOUNT OF CONSIDERATION DATE SECURITIES SECURITIES ISSUED TO RECEIVED - ------------- --------------------- ------------------ -------------------------- ----------------- 4/30/2001 Common Stock 4,385,911 Shareholders of Old AIQ In consideration of a Merger - ------------- --------------------- ------------------ -------------------------- ----------------- Warrants 2,923,991 - ------------- --------------------- ------------------ -------------------------- ----------------- - ------------- --------------------- ------------------ -------------------------- ----------------- 6/4/2001 Common Stock 400,000 Shareholders of Red Wing In consideration Business Systems, Inc. of a Merger - ------------- --------------------- ------------------ -------------------------- ----------------- - ------------- --------------------- ------------------ -------------------------- ----------------- 6/27/01 Common Stock 500,000 Certain Investors in a $1,500,000 private placement - ------------- --------------------- ------------------ -------------------------- ----------------- Warrants 300,000 Certain Investors in a private placement - ------------- --------------------- ------------------ -------------------------- -----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 4.1 Form of Warrant to Purchase 500,000 Shares.
(B) REPORTS ON FORM 8-K On May 14, 2001, the Company filed a Current Report on Form 8-K dated April 30, 2001, under Items 2, 4, 5 and 7, (1) announcing the completion of the merger by and between Meteor Industries, Inc., active IQ Technologies, Inc., and MI Merger, Inc.; (2) announcing the disposition of the assets of Meteor Industries, Inc. to Capco Energy, Inc.; (3) announcing a change of accountants; (4) announcing the extension of the expiration date of the Company's outstanding public warrants; and (5) filing the Audited Financial Statements of active IQ Technologies, Inc. for the fiscal year ended December 31, 2000. On June 15, 2001, the Company filed a Current Report on Form 8-K dated June 6, 2001, under Items 2 and 5, announcing the completion of the merger by and among the Company, Red Wing Business Systems, Inc. and the shareholders of Red Wing Business Systems, Inc. and filing the financial statements for active IQ Technologies, Inc. for the quarter ended March 31, 2001. 16 17 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACTIVE IQ TECHNOLOGIES, INC. By: /s/ Kenneth W. Brimmer ------------------------------------- Kenneth W. Brimmer Chairman of the Board, Chief Executive Office and Chief Financial Officer Date: August 13, 2001 17 EX-4.1 3 c64270ex4-1.txt WARRANT TO PURCHASE COMMON SHARES 1 EXHIBIT 4.1 THE WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS ("BLUE SKY LAWS"). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS WARRANT OR THE SECURITIES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE BLUE SKY LAWS OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH BOTH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT NO REGISTRATION IS REQUIRED BECAUSE OF THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY LAWS, AND ASSURANCES THAT THE TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION WILL BE MADE ONLY IN COMPLIANCE WITH THE CONDITIONS OF ANY SUCH REGISTRATION OR EXEMPTION. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF ACTIVE IQ TECHNOLOGIES, INC. WARRANT NO. F-1 Minnetonka, Minnesota April 30, 2001 This certifies that, for value received, XXXXXXXXXXXXXXXXXXXXX, or its successors or assigns (the "Holder") is entitled to purchase from Active IQ Technologies, Inc. (the "Company") FIVE HUNDRED THOUSAND (500,000) fully paid and nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par value (the "Common Stock"), at an exercise price of $3.00 per share (the "Exercise Price"), subject to adjustment as herein provided. This Warrant may be exercised by Holder at any time after the date hereof; provided, however, that, Holder shall in no event have the right to exercise this Warrant or any portion thereof later than the five (5) year anniversary of the date hereof, at which time all of Holder's rights hereunder shall expire. This Warrant is subject to the following provisions, terms and conditions: 1. Exercise of Warrant. The rights represented by this Warrant may be exercised by the Holder, in whole or in part (but not as to a fractional share of Common Stock), by the surrender of this Warrant (properly endorsed, if required, at the Company's principal office in Minnetonka, Minnesota, or such other office or agency of the Company as the Company may designate by notice in writing to the Holder at the address of such Holder appearing on the books of the Company at any time within the period above named), and upon payment to it by certified check, bank draft or cash of the purchase price for such Shares. The Company agrees that the Shares so purchased shall have and are deemed to be issued to the Holder as the record owner of such Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such Shares as aforesaid. Certificates for the Shares of Common Stock so purchased shall be delivered to the Holder within a reasonable time, not exceeding ten (10) days, after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the Holder within such time. The Company may require that any such new Warrant or any certificate for Shares purchased upon the exercise hereof bear a legend substantially similar to that which is contained on the face of this Warrant. 2 2. Transferability of this Warrant. This Warrant is issued upon the following terms, to which Holder consents and agrees: (a) Until this Warrant is transferred on the books of the Company, the Company will treat the Holder of this Warrant registered as such on the books of the Company as the absolute owner hereof for all purposes without being affected by any notice to the contrary. (b) This Warrant may not be exercised, and this Warrant and the Shares underlying this Warrant shall not be transferable, except in compliance with all applicable state and federal securities laws, regulations and orders, and with all other applicable laws, regulations and orders. (c) The Warrant may not be transferred, and the Shares underlying this Warrant may not be transferred, without the Holder obtaining an opinion of counsel satisfactory in form and substance to the Company's counsel stating that the proposed transaction will not result in a prohibited transaction under the Securities Act of 1933, as amended ("Securities Act"), and applicable Blue Sky laws. By accepting this Warrant, the Holder agrees to act in accordance with any conditions reasonably imposed on such transfer by such opinion of counsel. (d) Neither this issuance of this Warrant nor the issuance of the Shares underlying this Warrant have been registered under the Securities Act. 3. Certain Covenants of the Company. The Company covenants and agrees that all Shares which may be issued upon the exercise of the rights represented by this Warrant, upon issuance and full payment for the Shares so purchased, will be duly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue hereof, except those that may be created by or imposed upon the Holder or its property, and without limiting the generality of the foregoing, the Company covenants and agrees that it will from time to time take all such actions as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective purchase price per share of the Common Stock issuable pursuant to this Warrant. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 4. Adjustment of Exercise Price and Number of Shares. The Exercise Price and number of Shares are subject to the following adjustments: (a) Adjustment of Exercise Price for Stock Dividend, Stock Split or Stock Combination. In the event that (i) any dividends on any class of stock of the Company payable in Common Stock or securities convertible into or exercisable for Common Stock ("Common Stock Equivalents") shall be paid by the Company, (ii) the Company shall subdivide its then outstanding shares of Common Stock into a greater number of shares, or (iii) the Company shall combine its outstanding shares of Common Stock, by reclassification or otherwise, then, in any such event, the Exercise Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (a) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Exercise Price, by (b) the total number of shares of Common Stock outstanding 2 3 immediately after such event, and the resulting quotient shall be the adjusted Exercise Price per share. No adjustment of the Exercise Price shall be made if the amount of such adjustment shall be less than $.05 per share, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than $.05 per share. (b) Adjustment of Number of Shares Purchasable on Exercise of Warrants. Upon each adjustment of the Exercise Price pursuant to this Section, the Holder shall thereafter (until another such adjustment) be entitled to purchase at the adjusted Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in the Exercise Price in effect prior to such adjustment) by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (c) Notice as to Adjustment. Upon any adjustment of the Exercise Price and any increase or decrease in the number of shares of Common Stock purchasable upon the exercise of the Warrant, then, and in each such case, the Company within thirty (30) days thereafter shall give written notice thereof, by first class mail, postage prepaid, addressed to each Holder as shown on the books of the Company, which notice shall state the adjusted Exercise Price and the increased or decreased number of shares purchasable upon the exercise of the Warrants, and shall set forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (d) Effect of Reorganization, Reclassification, Merger, etc. If at any time while this Warrant is outstanding there should be (i) any capital reorganization of the capital stock of the Company (other than the issuance of any shares of Common Stock in subdivision of outstanding shares of Common Stock by reclassification or otherwise and other than a combination of shares provided for in Section 4(a) hereof), (ii) any consolidation or merger of the Company with another corporation, or any sale, conveyance, lease or other transfer by the Company of all or substantially all of its property to any other corporation, which is effected in such a manner that the holders of Common Stock shall be entitled to receive cash, stock, securities, or assets with respect to or in exchange for Common Stock, or (iii) any dividend or any other distribution upon any class of stock of the Company payable in stock of the Company of a different class, other securities of the Company, or other property of the Company (other than cash), then, as a part of such transaction, lawful provision shall be made so that Holder shall have the right thereafter to receive, upon the exercise hereof, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such consolidation or merger, or of the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred, as the case may be, which the Holder would have been entitled to receive upon such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer, if this Warrant had been exercised immediately prior to such capital reorganization, reclassification of capital stock, consolidation, merger, sale, conveyance, lease or other transfer. In any such case, appropriate adjustments (as determined by the Board of Directors of the Company) shall be made in the application of the provisions set forth in this Warrant (including the adjustment of the Exercise Price and the number of Shares issuable upon the exercise of the Warrant) to the end that the provisions set forth herein shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter deliverable upon the exercise of the Warrant as if the Warrant had been exercised immediately prior to such capital reorganization, reclassification of capital stock, such consolidation, merger, sale, conveyance, lease or other transfer and the Holder had carried out the terms 3 4 of the exchange as provided for by such capital reorganization, consolidation or merger. The Company shall not effect any such capital reorganization, consolidation, merger or transfer unless, upon or prior to the consummation thereof, the successor corporation or the corporation to which the property of the Company has been sold, conveyed, leased or otherwise transferred shall assume by written instrument the obligation to deliver to the Holder such shares of stock, securities, cash or property as in accordance with the foregoing provisions such Holder shall be entitled to purchase. 5. Redemption of Warrants (a) Redemption Price. This Warrant may be redeemed at the option of the Company, at any time after the first anniversary of the date hereof following a period of fourteen (14) consecutive trading days where the per share average closing bid price of the Common Stock exceeds Seven and 50/100 Dollars ($7.50), on notice as set forth in Section 5(b) hereof, and at a redemption price equal to One Cent ($.01) for each Share purchasable under this Warrant; provided, however, that this Warrant may not be redeemed by the Company unless the Shares purchasable hereunder have been registered with the Securities and Exchange Commission or are otherwise freely tradable. For purposes of this Section, the closing bid price of the Common Stock shall be determined by the closing bid price as reported by Nasdaq so long as the Common Stock is quoted on the Nasdaq National Market or SmallCap Market Systems and, if the Common Stock is listed on a national securities exchange, shall be determined by the last reported sale price on the primary exchange on which the Common Stock is traded. (b) Notice of Redemption. In the case of any redemption of this Warrant, the Company shall give notice of such redemption to the Holder hereof as provided in this Section 5(b). Notice of redemption to the Holder of this Warrant shall be given by mailing by first-class mail, postage prepaid, a notice of such redemption not less than thirty (30) days prior to the date fixed for redemption. Any notice which is given in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. Each such notice shall specify the date fixed for redemption, the place of redemption and the redemption price of $.01 per Share at which this Warrant is to be redeemed, and shall state that payment of the redemption price of the Warrant will be made up on surrender of this Warrant at such place of redemption, and that if not exercised by the close of business on the date fixed for redemption, the exercise rights of the Warrant shall expire unless extended by the Company. Such notice shall also state the current Exercise Price and the date on which the right to exercise the Warrant will expire unless extended by the Company. (c) Payment of Redemption Price. If notice of redemption shall have been given as provided in Section 5(b), the redemption price of $.01 per Share shall, unless the Warrant is theretofore exercised pursuant to the terms hereof, become due and payable on the date and at the place stated in such notice. On and after such date of redemption, the exercise rights of this Warrant shall expire. On presentation and surrender of this Warrant at such place of payment in such notice specified, this Warrant shall be paid and redeemed at the redemption price of $.01 per Share within tem (10) days thereafter. 6. No Rights as Shareholders. This Warrant shall not entitle the Holder as such to any voting rights or other rights as a shareholder of the Company. 4 5 7. Registration Rights. If at any time the Company shall propose to file any registration statement (other than any registration on Form S-4, S-8 or any other similarly inappropriate form, or any successor forms thereto) under the 1933 Act covering a public offering of the Company's Common Stock (the "Registration Statement"), it will notify the Holder hereof at least thirty (30) days prior to each such filing (the "Registration Notice") and will use its best efforts to include in the Registration Statement (to the extent permitted by applicable regulation), the Shares purchased or purchasable by the Holder upon the exercise of the Warrant to the extent requested by the Holder hereof within twenty (20) days after receipt of notice of such filing (which request shall specify the interest in this Warrant or the Shares intended to be sold or disposed of by such Holder and describe the nature of any proposed sale or other disposition thereof); provided, however, that if a greater number of Shares is offered for participation in the proposed offering than in the reasonable opinion of the managing underwriter of the proposed offering can be accommodated without adversely affecting the proposed offering, then the amount of Shares proposed to be offered by such Holder for registration, as well as the number of securities of any other selling shareholders participating in the registration, shall be proportionately reduced to a number deemed satisfactory by the managing underwriter. The Company shall bear all expenses and fees incurred in connection with the preparation, filing, and amendment of the Registration Statement with the Commission, except that the Holder shall pay all fees, disbursements and expenses of any counsel or expert retained by the Holder and all underwriting discounts and commissions, filing fees and any transfer or other taxes relating to the Shares included in the Registration Statement. The Holder of this Warrant agrees to cooperate with the Company in the preparation and filing of any Registration Statement, and in the furnishing of information concerning the Holder for inclusion therein, or in any efforts by the Company to establish that the proposed sale is exempt under the 1933 Act as to any proposed distribution. The Holder understands that if the Company has not received such information requested by the Company in the Registration Notice within 20 days after Holder's receipt thereof, the Company shall have no obligation to include any of Holder's Shares in the Registration Statement. 8. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of Minnesota. 9. Amendments and Waivers. The provisions of this Warrant may not be amended, modified or supplemented, and waiver or consents to departures from the provisions hereof may not be given, unless the Company agrees in writing and has obtained the written consent of the Holder. 10. Notices. All notices or communications hereunder, except as herein otherwise specifically provided, shall be in writing and if sent to the Holder shall be mailed, delivered, or telefaxed and confirmed to the Holder at his or her address set forth on the records of the Company; or if sent to the Company shall be mailed, delivered, or telefaxed and confirmed to Active IQ Technologies, Inc., 601 Carlson Parkway, Suite 1500, Minnetonka, Minnesota 55305-5224, or to such other address as the Company or the Holder shall notify the other as provided in this Section. IN WITNESS WHEREOF, Active IQ Technologies, Inc. has caused this Warrant to be signed by its duly authorized officer in the date set forth above. ACTIVE IQ TECHNOLOGIES, INC. By: /s/ Kenneth W. Brimmer -------------------------------------- Kenneth W. Brimmer Chairman of the Board and Chief Executive Officer 5 6 SUBSCRIPTION FORM To be signed only upon exercise of Warrant. The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ____________________ of the shares of Common Stock of Active IQ Technologies, Inc. (the "Shares") to which such Warrant relates and herewith makes payment of $_____________ therefor in cash, certified check or bank draft and requests that a certificate evidencing the Shares be delivered to, ____________________________, the address for whom is set forth below the signature of the undersigned: Dated: ____________________ --------------------------------------------- (Signature) --------------------------------------------- --------------------------------------------- (Address) ~ ~ ~ ASSIGNMENT FORM To be signed only upon authorized transfer of Warrant. FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto _____________________________________ the right to purchase shares of Common Stock of Active IQ Technologies, Inc. to which the within Warrant relates and appoints ____________________ attorney, to transfer said right on the books of _________________ with full power of substitution in the premises. Dated: ____________________ --------------------------------------------- (Signature) --------------------------------------------- --------------------------------------------- (Address) -----END PRIVACY-ENHANCED MESSAGE-----