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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
(AMENDMENT NO. 1)
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
SOLPOWER CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
COMMISSION FILE NUMBER: 0-29780
NEVADA 87-0384678
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7309 EAST STETSON DRIVE, SUITE 102
SCOTTSDALE, ARIZONA 85251
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (602) 947-6366
SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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PART I
Except for historical information contained herein, this Form 10-SB
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "SECURITIES ACT") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and Solpower
Corporation (the "COMPANY") intends that such forward-looking statements be
subject to the safe harbors created thereby. Wherever possible, the Company has
identified these forward-looking statements by words such as "ANTICIPATES,"
"BELIEVES," "ESTIMATES," "EXPECTS," "INTENDS" and similar expressions. Such
forward-looking statements involve risks and uncertainties and include, but are
not limited to, statements regarding future events and the Company's plans and
expectations. The Company's actual results may differ materially from such
statements. Factors that may cause or contribute to such differences include,
but are not limited to, those discussed in "ITEM 1. DESCRIPTION OF BUSINESS -
FACTORS AFFECTING FUTURE PERFORMANCE" and "ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," as well as those
discussed elsewhere herein and in the exhibits hereto and incorporated by
reference. Although the Company believes that the assumptions underlying the
forward-looking statements herein are reasonable, any of the assumptions could
prove inaccurate and, therefore, there can be no assurance that the results
contemplated in such forward-looking statements will be realized. In addition,
as disclosed under "ITEM 1. BUSINESS - FACTORS AFFECTING FUTURE PERFORMANCE,"
the business and operations of the Company are subject to substantial risks
which increase the uncertainties inherent in the forward-looking statements
included in this Form 10-SB. The inclusion of such forward-looking information
should not be regarded as a representation by the Company or any other person
that the future events, plans or expectations contemplated by the Company will
be achieved.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
The Company has licensed the rights to distribute and market SOLTRON,
an enzyme based fuel enhancing product, and SP34E, an ozone safe refrigerant
gas, throughout North America. The Company intends to distribute these products
directly and to sub-license the sales and distribution rights to the SOLTRON
product on a regional basis throughout the United States, Canada and Mexico.
The Company was incorporated in Utah on June 7, 1982 as Dynafuel
Corporation. The Company originally conducted limited research and development
of an experimental fuel using alcohol and other chemicals in a proprietary
combination to produce a gasoline like motor fuel. The Company ceased these
operations in 1988 and remained dormant until 1995. In November 1995, the
Company acquired the marketing rights to a virtual reality motion based
simulator and, in December 1995, changed its name to Virtual Technologies, Inc.
In July 1996, the Company merged into a newly formed subsidiary incorporated in
Nevada to change its domicile to the State of Nevada. During the fiscal year
ended March 31, 1997 the Company sold the motion based simulator contract and
related assets.
In November 1996, the Company entered into a licensing agreement with
Dominion Capital Pty., Ltd. ("DOMINION CAPITAL") to acquire the exclusive
manufacturing, distribution, marketing and sales rights for the product SOLTRON
in the United States, Canada and Mexico. As a result of entering into the
licensing agreement, Dominion Capital and its affiliates gained control of the
Company. A new Board of Directors was then elected and new management installed.
A corporate philosophy of acquiring and commercializing environmentally friendly
products was initiated. In June 1998 the Company entered into a second licensing
agreement with Dominion Capital and acquired the exclusive manufacturing,
distribution, marketing and sales rights for the product SP34E in the United
States, Canada and Mexico.
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PRODUCTS
SOLTRON. SOLTRON is an enzyme based liquid fuel enhancing product that
was developed over a period of 18 years by a group of scientists at the Japanese
Institute of Bio-Energy. When added to fossil fuels SOLTRON reduces particulate
exhaust emissions, improves fuel economy, dispenses fuel sludge and other
impurities and ultimately lowers engine maintenance costs. When mixed with
liquid fuels, Soltron changes the molecular structure of fuel and improves
oxygen absorption. The enzymes "FEED" on the damaging contaminants that cause
fuel degradation. SOLTRON can be added to all liquid fossil fuels including
gasoline, diesel and light and heavy oils either at the fuel pump or in bulk
fuel tanks. SOLTRON has been sold commercially in Japan since 1993 and in
Australia since 1996. SOLTRON was awarded the 1997 Best New Aftermarket Product
Award (Chemical) by the Australian Automotive Aftermarket Association. SOLTRON
will be marketed by the Company in North America as a natural enzyme product
that will reduce emissions and improve fuel economy.
Testing of SOLTRON has been conducted on behalf of Ford Motor Company
of Australia Limited, Cetec Pty Ltd. (an independent science and technology
laboratory and consulting firm in Australia), the Thailand Department of Marine
Engineering - Marine Diesel Engine Laboratory and by various other independent
end users. The results of such tests have shown that use of SOLTRON caused
increased fuel economy, reduction of emissions and control of diesel sludge. The
Company intends to conduct extensive field testing and objective laboratory
testing of SOLTRON once the Phoenix, Arizona production facility is fully
operational.
SP34E. SP34E is a refrigerant gas developed in Japan by the
Kinoh-Kinzohu Company as a replacement gas for ozone-depleting fluorinated
refrigerants. SP34E is currently being sold in Japan, Australia and other Asian
rim countries. Its applications include utilization in automotive, domestic,
commercial and transport refrigeration and air-conditioning systems as an
alternative to FREON(R) (R-12) and other fluorinated refrigerants. SP34E
generally does not require replacement of mechanical components or removal of
mineral and synthetic oils that are found in older refrigeration systems and has
a lower discharge pressure and a much shorter atmospheric life span than other
commonly used refrigerant gases.
Testing of SP34E has been conducted by the Army Technology &
Engineering Agency, Mechanical Laboratory, Victoria, Australia and various
independent refrigeration companies in Australia, New Zealand, Japan, Thailand
and Taiwan. The results of these tests consistently show that SP34E is an
acceptable direct drop-in replacement gas for R-12 and R-134a with improved
operating characteristics over other refrigerant replacement gases. The Company
intends to conduct extensive field testing, objective laboratory testing and
make the necessary Environmental Protection Agency ("EPA") applications in
connection with development of its marketing strategy for this product.
SUPPLIERS
SOLTRON. SOLTRON consists of natural organic enzymes mixed with
kerosene. SOLTRON enzyme concentrate is supplied exclusively to the Company by
Neway Japan K.K. of Tokyo, Japan. Neway Japan K.K. has informed the Company that
it currently has sufficient inventory of enzyme concentrate on hand to supply
the Company's anticipated needs through 1999. Kerosene is readily available
through local suppliers. The Company has produced its own proprietary bottle
design for retail packaging and has selected a manufacturer that can produce in
both the eastern and western United States in quantities to meet the Company's
and its licensees' anticipated needs.
SP34E. The components of SP34E are readily available through a variety
of local suppliers.
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MARKETING STRATEGIES
SOLTRON. The fuel market can be divided into distinct groups such as
diesel, gasoline, bunker and aviation fuel. These groups can be further
sub-divided into distinct user segments: commercial transport fleets, government
fleets, marine transport fleets, retail distribution and industrial. The EPA
recently quadrupled the number of "NON-ATTAINMENT ZONES" in areas with severe
emission problems resulting in certain fleet operators being forced to test or
to start using alternative fuels such as propane or natural gas. New regulations
such as restricted hours of service are also being considered. The Company
believes that this increased regulation creates opportunities for consumer
acceptance of its SOLTRON product and intends to focus on all North American
markets with a major emphasis on commercial transport fleets. The Company's
objective is to penetrate the fuel treatment market and increase fuel treatment
usage of SOLTRON over a five year period while establishing consumer recognition
of the SOLTRON brand name.
The Company intends to exploit its SOLTRON manufacturing, marketing,
sales and distribution rights in the United States, Canada and Mexico through
the operation of a retained corporate territory and by granting exclusive
licenses to an additional eight territories. The territories are as follows:
SOLPOWER NORTHEAST Maine, Vermont, Massachusetts, Connecticut, Rhode Island,
New Hampshire, New York, New Jersey and Pennsylvania.
SOLPOWER MID-ATLANTIC Delaware, Washington DC, Maryland, West Virginia,
Virginia, North Carolina, South Carolina, Tennessee
and Kentucky.
SOLPOWER CENTRAL Minnesota, Iowa, Missouri, North Dakota, South Dakota,
Nebraska, Kansas, Wyoming and Colorado.
SOLPOWER SOUTHEAST Alabama, Arkansas, Florida, Georgia, Louisiana and
Mississippi.
SOLPOWER SOUTH Oklahoma, New Mexico and Texas.
SOLPOWER GREAT LAKES Ohio, Indiana, Michigan, Illinois and Wisconsin.
SOLPOWER NORTHWEST Alaska, Canada, Idaho, Oregon, Montana and Washington.
SOLPOWER SOUTHWEST Arizona, California, Hawaii, Nevada and Utah.
SOLPOWER MEXICO Mexico.
The Company will retain all commercial marine applications throughout
North America and the Southwest Territory (California, Utah, Arizona, Nevada and
Hawaii) for sales and distribution by the Company. The Company has entered into
license agreements with Masters Marketing Group, Inc. for the Great Lakes
Territory, Solpower Southeast Corporation for the Southeast Territory and
Houston Mercantile Exchange, Inc. for the South and Mexico Territories. The
Company is currently in negotiation with other parties related to two additional
territories.
The license agreements define the territory in which the licensees can
manufacture, distribute, market and sell SOLTRON for a period of five years and
require the licensees to purchase minimum annual amounts of SOLTRON enzyme
concentrate from the Company. The agreements may be extended once by either
party for additional five year periods. The license fee for each territory
varies from $600,000 to $1,800,000. A 10% down payment on the licensee fee is
required on entering into the agreement and the balance, which is evidenced by a
promissory note payable over a two year period, is payable by charging a premium
to the licensees on the SOLTRON enzyme concentrate price. The licensees are
required to contribute to a national and territorial marketing fund that is
administered by the Company to ensure that adequate marketing funds are
dedicated to promotion of the product. Annual sales targets are set to encourage
licensees to maximize sales efforts. Licensees have the right to appoint
independent operators in their territory or utilize a direct sales force similar
to that of the Company.
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Distribution of SOLTRON in the Company's Southwest territory commenced
in June 1998. Within its territory, the Company intends to deploy sales
personnel to attempt to create a demand for SOLTRON in all market segments. The
Company intends to coordinate a direct sales force to provide a focused
marketing effort, which it believes will expose SOLTRON directly to the
prospective customers more rapidly than by independent sales representatives
offering multiple product lines. The Company also anticipates developing a
national marketing effort focused on trade shows, trade journals and direct
solicitations to potential major customers. The Company's overall goal is to
successfully penetrate and create a substantial demand for SOLTRON in each
market user segment.
The Company retained Master Marketing Group, Inc. to develop a
marketing plan for the national product launch of SOLTRON. To initiate such
plan, the Company has employed two Area Sales Managers ("ASMS") for the southern
California and Phoenix regions of the Company's territory. The marketing plan
contemplates six ASMs in the Company's territory whose sales efforts will be
serviced from the Company's Phoenix, Arizona production facility. The Great
Lakes and Southeast Territories are being developed under a similar marketing
plan by the individual licensees. The Company is developing product awareness at
the national level through advertising in trade journals and participation in
transportation and other industry related trade shows. Other activities to
promote the Company's products include the identification and development of
operations, marketing, accounting and administrative systems to achieve
efficiency for the Company and licensees, the establishment of a corporate
communications system supported by an in-house desktop publishing department and
redesign and upgrading of the corporate image with new logos, web site, product
brochures, trade show materials, product labeling and packaging and all related
marketing materials.
SP34E. SP34E is a direct drop-in refrigerant gas that replaces R-12 and
R-134a refrigerant gases in existing air-conditioning and refrigerant units.
Refrigerant gas is widely used in air-conditioning and refrigeration units in
the residential, automotive, commercial and transportation sectors.
Historically, chlorofluorocarbons ("CFCS"), hydrochlorofluorocarbons ("HCFCS")
and hydrofluorocarbons ("HFCS") have been utilized as refrigerant gasses. CFCs
used as refrigerant gases include R-12, HCFCs include R- 406A and HFCs include
R-134a. Emissions of these gases have been proven to cause depletion of the
ozone layer resulting in global warming. The EPA has banned production or
importation of CFCs and production of HCFCs is scheduled to be phased-out in the
United States by 2029. HFCs have not been banned or scheduled for phase-out, but
contain gases that have global warming potential and are generally less
effective as a refrigerant gas than CFCs or HCFCs. The Company intends to market
SP34E as an environmentally safe replacement for R-12 refrigerants with greater
efficiency and less environmental impact than R-134a.
The Company has only recently acquired the distribution and marketing
rights related to the SP34E and has not fully developed its marketing strategy
for this product. The Company anticipates that it will develop a territorial
strategy for certain market segments and also market this product directly,
similar to the strategy developed for its SOLTRON product.
PRODUCT RIGHTS ACQUISITION AGREEMENTS
SOLTRON. The Company acquired the exclusive rights to produce, market
and distribute SOLTRON in North America through an agreement with Dominion
Capital in consideration for 5,000,000 shares of the Company's Common Stock and
the grant of certain options and payment of cash consideration upon meeting
certain sales levels. The agreement is for a period of five years and is
renewable for an additional five year term. The Company also has a right of
first refusal to commercialize SOLTRON and other products controlled by Dominion
Capital on a global basis, except Japan.
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SP34E. The Company acquired the exclusive North American manufacturing,
distribution, marketing and sales rights to SP34E from Dominion Capital in
consideration of the issuance of 6,000,000 shares of the Company's Common Stock
and the payment to Dominion Capital of a royalty of $2.25 per kilogram of SP34E
sold by the Company. The term of the agreement is for five years and the Company
has an option to renew the agreement for an additional five year term.
PROPRIETARY RIGHTS
The Company intends to rely on a combination of trade secret and
copyright laws, license agreements and confidentiality and non-compete
agreements to establish and protect its proprietary rights in its products.
There can be no assurance that any license, confidentiality or non-compete
agreement between the Company and its employees, consultants and licensees will
provide meaningful protection for the Company's proprietary information in the
event of any unauthorized use or disclosure of such proprietary information.
The Company has applied with the United States Patent and Trademark
Office ("USPTO") for a trademark registration for SOLTRON and a service mark
registration for the mark SOLPOWER. Registration of the SOLTRON product has also
been made with the EPA. Dominion Capital has applied with the USPTO for
tradename registration for SP34E.
COMPETITION
The Company will compete with numerous well-established fuel additive
and chemical products companies that possess substantially greater experience,
financial, marketing, personnel and other resources than the Company. Many of
the Company's competitors have achieved significant national, retail and local
brand name and product recognition and engage in extensive advertising and
promotional programs, both generally and in response to efforts by additional
competitors to enter new markets and to introduce new products.
The Company's ability to compete successfully will depend on the
Company's success at penetrating each targeted market segment with its product,
the consumer acceptance of its product and the Company's ability to license and
develop new and improved products. There can be no assurance that the Company
will be able to compete successfully, that its products will meet with consumer
approval, that competitors will not develop and market products that are similar
or superior to the Company's products or that the Company will be able to
successfully enhance its products or develop new products meeting with consumer
approval. The Company intends to focus on the environmentally friendly
characteristics of its products in comparison to its competitors' products.
Some products that may compete directly with the Company's SOLTRON
product include STP Fuel Stabilizer and STP Diesel Fuel Treatment produced by
First Brands Corporation, Slick 50 produced by Slick 50 Products Corporation,
Valutect VT-5000 produced by Valutect Petroleum Products Corp. and Fuelen
produced by Fuelen International, Inc. The Company believes that it can
successfully compete with these products and penetrate the fuel additive market
due to the unique environmentally friendly characteristics and multi-function
applications of its SOLTRON product.
The Company will compete with numerous national and international
companies that produce refrigerant gas including DuPont, Elf Autochem, ICI and
Allied Signal. The Company believes that the ban and phase-out of other
refrigerant gases combined with the environmentally safe characteristics and
product utility of its SP34E product will allow it to compete successfully in
the refrigerant gas market.
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PRODUCTION FACILITIES
The Company has an approximate 12,000 square foot industrial facility
in Phoenix, Arizona that serves as its production, warehousing and distribution
plant for its SOLTRON product as well as its territorial sales office. The
facility has capacity to produce 1,000,000 gallons of SOLTRON product per year
which is expected to meet the Company's anticipated needs for product for the
foreseeable future. The Company anticipates that the production facility will be
operational in August 1998. See, "DESCRIPTION OF PROPERTY" and "NOTES TO THE
FINANCIAL STATEMENTS - Note 8."
The Company has an approximate 2.25 acre production facility in
Elkhart, Indiana with an approximate 10,000 square foot warehouse. The facility
is sufficient to accommodate an SP34E tank farm and production area with an
annual capacity of 20,000 tons of finished product. The Company anticipates
additional production facilities will be acquired or leased as the marketing and
distribution of SP34E is developed. See, "DESCRIPTION OF PROPERTY" and "NOTES TO
THE FINANCIAL STATEMENTS - Note 13."
REGULATION
The use of certain chemicals and other substances is subject to
extensive and frequently changing federal, state, provincial and local laws and
substantial regulation under these laws by governmental agencies, including the
EPA, the Occupational Health and Safety Administration, various state agencies
and county and local authorities acting in conjunction with federal and state
authorities. Among other things, these regulatory bodies impose requirements to
control air, soil and water pollution, to protect against occupational exposure
to chemicals, including health and safety risks, and to require notification or
reporting of the storage, use and release of certain hazardous chemicals and
substances. The Company has incurred costs of approximately $300,000 to cause
its Phoenix facility to meet state and local requirements for the utilization of
these products in the production of its SOLTRON product at this site. The
Company's products utilize chemicals that are classified under applicable laws
as flammable and hazardous chemicals or substances. The Company provides all
required label warnings and instructions for the handling of these substances.
The EPA has established the EPA Motor Vehicle Aftermarket Retrofit
Device Evaluation Program to evaluate the effects of fully developed aftermarket
devices on vehicle emissions and fuel economy. Participation in the program by
manufacturer of devices is voluntary. EPA evaluations of engines, retrofit
devices, emission control devices and related products are conducted for the
purpose of keeping policy makers, technical personnel in government and
industry, and the general public abreast of developments in the field of
automotive fuel economy and pollutant emission control. Aftermarket fuel
additives are also included in the evaluation program and are required to be
registered with the EPA Fuels and Energy Division. The Company has registered
its SOLTRON product under this program.
The Company will also be subject to regulation by the Federal Trade
Commission ("FTC") with respect to the marketing of its products. Although the
FTC has a long history of pursuing enforcement actions against fuel saving, fuel
additive and oil additive products, the Company believes that it has sufficient
research, independent testing and scientific evidence to substantiate the
Company's advertising and promotional claims regarding its SOLTRON product.
The Company will be subject to making application to the EPA under the
Significant New Alternatives Policy ("SNAP"), the American Society of Heating
and Air Conditioning Engineers, Inc. ("ASHRAE") and Underwriters Laboratories,
Inc. ("UL(R)") in order to categorize the acceptable uses of its SP34E product.
The Company intends to make all the necessary EPA-SNAP, ASHRAE and UL(R)
submissions prior to marketing SP34E in the United States and estimates the cost
of obtaining these approvals will be approximately $100,000.
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The Company believes that it is in substantial compliance with all laws
and regulations governing its material business operations and has obtained all
required licenses and permits for the operation of its business. There can be no
assurance that the Company in the future will be able to comply with, or
continue to comply with, current or future government regulations in every
jurisdiction in which it will conduct its material business operations without
substantial cost or interruption of its operations, or that any present or
future federal, state, provincial or local environmental protection regulations
may not restrict the Company's present and possible future activities. In the
event that the Company is unable to comply with such requirements, the Company
could be subject to substantial sanctions, including restrictions on its
business operations, monetary liability and criminal sanctions, any of which
could have a material adverse effect upon the Company's business.
EMPLOYEES
At August 1, 1998, the Company employed five full time personnel,
including two administrative, one production and two marketing employees. The
Company's employees are not covered by any collective bargaining agreements. The
Company considers its relationship with its employees to be good.
FACTORS AFFECTING FUTURE PERFORMANCE
LIMITED OPERATING HISTORY. The Company's current operations have only
been implemented since November 1996. Accordingly, the Company has a limited
operating history with respect to the distribution and marketing of fuel
additives and has not yet commenced its marketing strategies with respect to its
refrigerant gas product. The Company's immediate strategy with respect to its
SOLTRON product is to enter into licensing agreements for territories covering
substantially all of North America and to expand its sales and marketing efforts
through direct sales personnel and independent sales representatives. The
Company may require significant additional capital to fully implement its
business plan and expand its operations. There can be no assurance that the
Company will be able to achieve, or maintain, profitable operations or positive
cash flow at any time in the future.
NEED TO DEVELOP LICENSEE NETWORK. The Company has only recently
commenced sub-licensing the sales and distribution rights to its SOLTRON product
for its North American territories. Establishment of a distribution network
sufficient to supply customer demand for the Company's SOLTRON product will be
critical to the success of the Company. The Company anticipates developing this
network primarily through its licensees and secondarily through direct sales and
marketing efforts. The Company has not yet fully developed its strategies with
respect to its SP34E product. Numerous factors, including lack of sufficient
inventory or capital, failure of the Company's products to generate sufficient
demand and lack of sufficient qualified, experienced personnel may contribute to
the difficulties the Company will face in establishing an efficient distribution
network for its products. While the Company intends to engage qualified
personnel and believes it is sufficiently capitalized, no assurance can be given
that the Company's products will be accepted by industrial or retail consumers,
that a satisfactory distribution network can be established or that the
Company's proposed operations will be profitable.
UNCERTAINTY OF WIDESPREAD MARKET ACCEPTANCE OF PRODUCTS, LIMITED
MARKETING EXPERIENCE. The Company has just commenced marketing SOLTRON and only
recently acquired the North American rights to its second product SP34E. The
Company has conducted limited marketing activities and has limited marketing
experience with respect to its products. As is typical with new products, demand
and market acceptance for the Company's products is subject to a high level of
uncertainty. Achieving widespread market acceptance for its products will
require substantial marketing efforts and the expenditure of sufficient funds to
create brand recognition and customer demand and to cause potential customers to
consider the potential benefits of the Company's products. The prospects for the
Company's product line will be
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largely dependent upon the Company's ability to achieve market penetration.
Achieving market penetration will require sufficient efforts by the Company to
create awareness of and demand for the Company's products. The Company's ability
to build its customer base will depend in part on the Company's ability to
locate, hire and retain sufficient qualified marketing personnel and to fund
marketing efforts, including advertising. There can be no assurance that the
Company's products will achieve widespread market acceptance or that the
Company's marketing efforts will result in profitable operations.
LICENSE FEE RECEIVABLES. Except for sales in its retained territory,
the Company intends to primarily market is SOLTRON product through licensees.
The Company's license agreements require each licensee to pay an initial license
fee which is payable 10% by a cash down payment and the balance by delivery of a
promissory note secured by the licensee's rights in the license agreement and
generally all other assets of the licensee. The promissory note is payable over
a two year period and the Company charges a premium on the SOLTRON enzyme
concentrate price sold to the licensee and applies the premium to the amounts
due under the promissory note. If minimum sales volumes of a licensee are not
sufficient to make scheduled payments on the promissory note, the licensee is
responsible for the balance.
The Company records license fee receivables as an asset. Of the total
amount of $4,557,762 of the license fee receivable as of June 30, 1998,
$1,077,762 (24%) of such amount was due from Masters Marketing Group, Inc.,
$1,080,000 (24%) was due from Solpower Southeast Corporation (a non- affiliate
of the Company) and $2,400,000 (52%) was due from Houston Mercantile Exchange,
Inc. If minimum sales volumes are not met and a licensee is required to pay the
balance of any scheduled payment, the ability of such license to make payment
would depend upon several factors affecting the credit worthiness of a licensee.
Because the current licensees are generally new entities with minimal assets,
the licensee fee receivables may be uncollectible from the licensee if sales
expectations are not met. Collection of payment of the license fee receivable
will be substantially dependent upon the success of the licensee in marketing
the SOLTRON product in its territory. The risk of failure of any licensee is
also enhanced due to the concentration of only three licensees comprising the
total obligors on the entire receivable amount.
While failure of performance or payment by any one licensee could have
a substantial impact on the license fee receivable amount in the short-term,
default by a licensee would result in cancellation of the license for the
particular territory with the ability of the Company to remarket the territory
or to engage in sale of its SOLTRON product directly in such territory.
VARIABILITY OF OPERATING RESULTS AND VOLATILITY OF COMMON STOCK PRICES.
Due to the Company's accounting policy of recognizing revenues upon the sale of
a licensed territory, the Company's quarterly operating results have in the past
and are anticipated in the future to be highly volatile. While the Company
anticipates additional sales of licensed territories and increased sales of its
products will continue to generate revenue, the operating results of any
quarterly period as compared to the previous quarter or the same quarter for the
prior period will, in all likelihood, vary significantly. Default by a licensee
resulting in a write-off of the associated license fee receivable could
dramatically and adversely affect the operating results for the period in which
such event occurred. Significant variances in operating results from period to
period could result in high volatility of the market price for the Company's
Common Stock.
LIMITED PRODUCT LINE. The Company currently holds the marketing and
distribution rights to two products, SOLTRON and SP34E. The Company's
profitability will be dependent upon the market acceptance of these products and
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the Company's ability to improve these products and develop additional products
to meet consumer approval.
SUPPLY, CAPACITY AND DISTRIBUTION CONSTRAINTS. In order for the Company
to successfully market its products, the Company must be able to timely fill
orders for its sales distributions as well as supplying its licensees with the
SOLTRON concentrate. Additionally, the licensees will have to likewise timely
meet their order demands. The ability of the Company and its licensees to timely
meet their supply requirements will depend on numerous factors including their
ability to successfully establish an effective distribution network and to
maintain adequate inventories and the ability of the Company's sole supplier to
adequately produce the SOLTRON product in volumes sufficient to meet demand.
Failure of the Company and its licensees to adequately supply product to
retailers or of the Company's supplier to adequately produce product to meet
demand could materially adversely impact the operations of the Company.
DEPENDENCE UPON RAW MATERIALS AND SUPPLIERS. The SOLTRON concentrate
will be subject to price fluctuations based upon supply and demand of such
product. In addition, because the product is produced in Japan, fluctuations of
the relative value of the yen and dollar could adversely affect the cost of the
product to the Company. The Company's sole supplier of its SOLTRON product is
Neway Japan K.K. Interruption of the Company's product supply could result from
several factors, such as disruption of supply of raw product, work stoppages,
strikes or other labor difficulties, changes in governmental or international
regulations or natural or man caused disasters occurring with respect to its
supplier. Any increase of costs of the Company's raw products or disruption of
its supplier could severely affect the Company's business operations.
RELIANCE ON MANAGEMENT; LIMITED PERSONNEL. The Company is highly
dependent on the services of its executive officers, James H. Hirst and R.L.
(Beau) Van Deren. Neither Messrs. Hirst nor Van Deren are subject to an
employment agreement and the Company does not maintain any key man life
insurance on these officers. In addition to his position with the Company, Mr.
Van Deren also is employed as the Managing Director - Corporate Development for
Dominion Capital, an affiliate of the Company. The loss of the services of Mr.
Hirst or Mr. Van Deren or the inability to attract or retain alternative or
additional qualified personnel will have a materially adverse affect on the
Company. Attracting and retaining qualified personnel is critical to the
Company's business plan. No assurances can be given that the Company will be
able to retain or attract such qualified personnel or agents, or to successfully
implement its business plan.
CAPITAL REQUIREMENTS. The Company anticipates that additional funding
will be required to meet management's growth objectives and fully implement its
business plan. The Company may seek additional debt or equity financing through
banks, other financial institutions, companies or individuals.
No assurance can be given that the Company will be able to obtain any such
additional equity or debt financing on satisfactory terms or at all. No
assurance can be given that any such financing, if obtained, will be adequate to
meet the Company's needs for the foreseeable future. If the Company is not able
to successfully obtain sufficient capital, the Company's ability to continue as
a viable business enterprise will be substantially impaired.
MANAGEMENT OF GROWTH. The Company anticipates rapid growth in the
future if its marketing efforts are successful. In such event it will require
effective management and resources. This growth, if achieved, will place
significant strains on the Company's financial, managerial and other resources.
Failure to effectively manage growth could have a materially adverse effect on
the Company's business and profitability.
7
<PAGE>
SEASONAL FLUCTUATIONS. The Company's limited experience suggests that a
greater demand for its SP34E product will occur in summer months, which is
anticipated to result in more revenues in the Company's third and fourth fiscal
quarters ending June 30 and September 30, respectively. Fluctuations in
quarterly operating results may impact the market for the Company's Common Stock
and result in high volatility the price of the Company's Common Stock.
COMPETITION. The markets for fuel additives and refrigerant gases are
highly competitive. The Company believes that its products can compete and that
its management's qualifications will enable it to compete effectively. There is
no assurance that the Company's business plan can be successfully implemented.
The Company will compete with established manufacturers and distributors that
have developed brand recognition, many of which will have significantly greater
operating history, name recognition and resources than the Company. Other
companies and vendors may also enter into competition with the Company as a
result of the Company's increased marketing efforts. The lack of financial
strength of the Company may be a negative factor for the Company's ability to
penetrate its product markets even if the Company's products are superior.
LIMITED PATENT AND PROPRIETARY INFORMATION PROTECTION. The Company
believes that the proprietary processes used in production of its products does
not infringe on the proprietary rights of others. In the event that the
Company's products infringe the patent or proprietary rights of others, the
Company may be required to modify its process or obtain a license. There can be
no assurance that the Company would be able to do so in a timely manner, upon
acceptable terms and conditions or at all. The failure to do so would have a
material adverse effect on the Company. In addition, there can be no assurance
that the Company will have the financial or other resources necessary to
prosecute or defend a patent infringement or proprietary rights action.
Moreover, if any of the Company's products infringe patents or proprietary
rights of others, the Company could, under certain circumstances, become liable
for damages, which could have a material adverse effect on the Company. The
Company also relies on proprietary know-how and confidential information and
employs various methods to protect the processes, concepts, ideas and
documentation associated with its proprietary rights. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop such processes, concepts, ideas and documentation.
Although the Company requires all of its employees to sign non-disclosure,
non-competition and inventions agreements, there can be no assurance that such
agreements will be enforceable or will provide meaningful protection to the
Company. There can be no assurance that the Company will be able to adequately
protect its trade secrets or that other companies will not acquire information
that the Company considers proprietary. Moreover, there can be no assurance that
other companies will not independently develop know-how comparable to or
superior to that of the Company.
PRODUCT ACQUISITION AGREEMENT. The Company's rights to a substantial
portion of its product lines are dependent upon its rights under the product
acquisition agreements with and the rights of Dominion Capital with respect to
its SOLTRON and SP34E products and the process, formulae and other proprietary
rights related to such products. Any termination or impairment of the rights of
Dominion Capital to such proprietary rights or to the rights of the Company
under the agreements would materially adversely affect the Company.
Additionally, the Company's rights to the products under the agreements are
limited to a term of five years, each of which are extendable for an additional
five years.
NEED FOR ADDITIONAL DEVELOPMENT OF CERTAIN PRODUCTS. The Company
believes that development work on its SOLTRON and SP34E products is
substantially complete. However, testing of these products in the United States
has been limited. The Company anticipates that its future research and
development activities combined with experience gained from commercial
production and use of the SOLTRON and SP34E products could result in the need
for further refinement and development. There can be no assurance that
11
<PAGE>
unforeseen circumstances will not require expensive additional development of
the Company's products and their applications. In addition, the Company may in
the future need to make improvements in its product line in order for such
products to remain competitive.
ADEQUACY OF PRODUCT LIABILITY INSURANCE. The use of the Company's
products entails inherent risks of adverse effects that could expose the Company
to product liability claims. Product liability claims could have a material
adverse effect on the business and financial condition of the Company. While the
Company has obtained $5,000,000 in product liability insurance, there can be no
assurance that the Company will be able to maintain such product liability
insurance on acceptable terms or if maintained that such insurance will provide
adequate coverage against all potential claims.
CONTROL BY EXISTING SHAREHOLDERS/FOREIGN SHAREHOLDERS. The Company's
principal shareholder, Dominion Capital, and its affiliates own or control a
substantial voting block of the Company's outstanding Common Stock. As a result,
these shareholders, when acting together, would be able to effectively control
matters requiring approval by the shareholders of the Company, including the
election of the Company's Board of Directors.
Dominion Capital is domiciled in Australia and one other shareholder
holding more than five percent of the Company's outstanding stock is domiciled
in the Channel Island of Guernsey. If the Company or a shareholder were to bring
legal action against any of these shareholders, the domicile of these
shareholders in foreign jurisdictions may result in the Company or a shareholder
being unable to cause the foreign shareholders to be subject to the jurisdiction
of a court in the United States. While a shareholder may be able to proceed
against a foreign shareholder in the jurisdiction of that shareholder's
domicile, such suits may be prohibitively expense and such jurisdictions may not
recognize claims or provide remedies similar to United States courts.
INTERNATIONAL TRADE. The Company anticipates engaging in sales in both
Canada and Mexico and will import SOLTRON concentrate from Japan. Currency
fluctuation and other normal risks of conducting business internationally,
including regulatory changes and requirements, fluctuating exchange rates,
tariffs and other barriers, management difficulties, potentially adverse tax
consequences and potentially difficult legal enforcement and collection problems
could have a materially adverse impact on the financial condition of the
Company.
ILLIQUIDITY AND LACK OF PUBLIC MARKET. At the present time there is
only a limited public market for any of the Company's securities through its
listing on the OTC Bulletin Board. The Company intends to list its Common Stock
on the NASDAQ SmallCap Market when the applicable listing criteria is satisfied.
The Company also is seeking to attract additional qualified broker/dealers to
make a market in its Common Stock. There can be no assurance that an active
trading market in the Company's Common Stock will develop or be sustained. If a
market for the Company's Common Stock does develop, the market price of the
Common Stock may be highly volatile. Any broker/dealer that makes a market in
the Company's securities may have a significant influence over the market for
the Company's Common Stock, if such market develops, and the price and liquidity
of the Common Stock may be affected by the degree of participation of any person
in such market. Even if a market develops, there can be no assurance that all
market making activity may cease at any time. As a result, purchasers of the
Company's Common Stock may be unable to liquidate their investment readily or at
all.
SECURITIES LAW COMPLIANCE. The Company has been involved in complex
transactions and in offerings of securities which may have associated compliance
defects by the Company or one or more of its shareholders. While management is
not aware that the Company has failed to comply with applicable rules and
12
<PAGE>
regulations, no assurances can be made that all such transactions were in
complete compliance with applicable federal and state securities laws or that a
claim with respect to non-compliance will not be made. Costs may be incurred by
the Company to defend any claim of non-compliance and the Company may be
required to offer rescission rights with respect to sales of its securities
which would severely affect the operations and financial condition of the
Company.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
Company's consolidated financial statements and related notes included herein.
Certain statements contained herein are not based on historical facts, but are
forward-looking statements that are based upon assumptions about future
conditions that could prove to be inaccurate. Actual events, transactions and
results may materially differ from the anticipated events, transactions or
results described in such statements.
The Company's ability to consummate such transactions and achieve such
events or results is subject to certain risks and uncertainties. Such risks and
uncertainties include, but are not limited to, the existence of demand for and
acceptance of the Company's products and services, regulatory approvals and
developments, economic conditions, the impact of competition and pricing, and
other factors affecting the Company's business that are beyond the Company's
control.
The Company undertakes no obligation and does not intend to update,
revise or otherwise publicly release the result of any revisions to these
forward-looking statements that may be made to reflect future events or
circumstances.
RESULTS OF OPERATIONS
Management anticipates a material rise in revenue, during the next
fiscal year, as a result of the contracted performance required under existing
Master License Agreements and from sales in the Company's corporate territory.
During the past year sales were entirely related to the sale of licenses and
costs were related to organization of the corporate offices and business plan;
organization and production of licensing agreements and related materials;
identification and qualification of territory licensees; locating, leasing,
permitting and equipping the Phoenix production facility; financing and investor
relations activities; technology transfer and requisite trademark, service mark
and product registrations.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997.
Revenues for the three months ended June 30, 1998, were $2,425,802 as
compared to no revenue for the three months ended June 30, 1997. Of the
$2,425,802 total revenues, $2,400,000 (99%) resulted from recognition of sales
of territorial licenses and the balance of $25,802 resulted from sales of
SOLTRON product and SOLTRON enzyme concentrate. General and administrative costs
for the three months ended June 30, 1998, were $396,279 as compared to $59,196
for the same period ending June 30, 1997. The 669% increase was mainly a result
of management's increased activities, including devoting substantial efforts to
defining and implementing its business plan, finalizing a comprehensive
licensing agreement and finalizing the SP34E product rights acquisition.
At June 30, 1998, the Company had a positive working capital of
$4,462,739 as compared to a positive working capital of $458 at June 30, 1997.
The increase in working capital was primarily due to a private placement of the
Company's Common Stock and the sale of two licensed territories. Operating
activities for the three months ended June 30, 1998 utilized cash of $396,279 as
compared to $59,196 for the same period ended June 30, 1997. The increased
13
<PAGE>
utilization of cash resulted primarily from the expansion of the Company's
territory licensing activity, systems development and establishment of the
corporate manufacturing and distribution facility in Phoenix, Arizona.
Cash flow of $229,111 was provided from shareholder advances, placement
of the Company's Common Stock and the sale of two licenses during the three
months period ended June 30, 1998 as compared to negative cash flow of $465,360
for the three months period ended June 30, 1997 which resulted from repayments
of shareholder advances.
As of June 30, 1998 the Company had no material commitments for capital
expenditures. For the three months period ended June 30, 1998, the Company had
net profits of $1,218,840 compared to a net loss of $59,196 for the three months
period ended June 30, 1997. The net profits for the three months period ended
June 30, 1998 resulted solely from the sale of two territorial licenses. For the
same period in 1997, no revenues were generated with operating expenses being
incurred in the amount of the net loss.
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997.
Revenues for the year ended March 31, 1998, were $2,400,000 as compared to no
revenue for the year ended March 31, 1997. All of the revenues for 1998 resulted
from recognition of sales of territorial licenses. General and administrative
costs for the year ended March 31, 1998, were $975,379 as compared to $857,879
for the same period ending March 31, 1997. The 14% increase was mainly a result
of expansion of the Company's territory licensing activity, development of
managerial and accounting systems and establishment of the corporate production
and distribution facility in Phoenix, Arizona.
At March 31, 1998, the Company had a positive working capital of
$3,026,744 as compared to a positive working capital of $437 at March 31, 1997.
The increase in working capital was primarily due to a private placement of the
Company's Common Stock and the sale of two licensed territories.
Cash flow of $524,106 was provided from shareholder advances, placement
of the Company's Common Stock and the sale of two licenses for the year ended
March 31, 1998 as compared to $465,360 for the year ended March 31, 1997 which
was provided by shareholder advances.
As of March 31, 1998 the Company had no material commitments for
capital expenditures. For the year ended March 31, 1998, the Company incurred
net profits of $1,411,928 compared to a net loss of $976,764 for the year ended
March 31, 1997, which contributed to net cash used in operating activities of
$290,332 and $524,902 for each of the years ended March 31, 1998 and 1997
respectively.
SEASONALITY. Sales of the Company's SP34E product may be subject to
higher volumes in the summer months resulting in higher revenues in the
Company's first and second fiscal quarters.
However, no pattern of sales volumes has yet been established.
IMPACT OF INFLATION. The Company does not believe that inflation will
have any material impact on its commercial activities for the ensuing year as
its products do not fall under categories that are traditionally affected.
14
<PAGE>
YEAR 2000 COMPLIANCE. Management has utilized the latest versions of
recognized computer software and therefore believes it will not encounter any of
the computer software problems contemplated or predicted to occur at the
entrance into the year 2000.
OUTLOOK. The year ended March 31, 1998 was a year of organization and
planning for the Company as it devoted its focus to defining and implementing
its corporate plan; finalizing a comprehensive and workable Master License
Agreement; identifying, negotiation and execution of Master License Agreements
with qualified licensees; negotiation and finalization of financing; and the
negotiation and finalization of the SP34E product rights acquisition.
Management foresees that implementation of the marketing plan at the
corporate level and by all licensees will result, by the end of the 1999 fiscal
year, in increased revenues and product acceptance. An important milestone will
be acceptance of the product by any one of the tier one participants (100
million gallons of fuel consumed per annum) in the North American transport
industry. Sale of the remaining licensed territories and development of the
corporate Marine Division are also anticipated to enhance revenues and corporate
development. The introduction of SP34E and other environmentally friendly
products are expected to increase revenues and diversify its product line.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases approximately 1,400 square feet of office space
utilized as its corporate offices at 7309 East Stetson Drive, Suite 102,
Scottsdale, Arizona 85251. The lease is for a term through June 30, 2001, with
current monthly rental payments of $1,845 that increases to approximately $1,960
per month in March 1999.
The Company also leases approximately 12,000 square feet of space at
4247 West Adams, Suite 2, Phoenix, Arizona 85009 that is utilized as its
corporate manufacturing, warehousing and distribution plant and as a corporate
territory sales office. Monthly lease payments are approximately $4,900 and the
lease expires on September 14, 2002. The Company has exercised an option to
purchase the building for $639,000. The Company is in the process of arranging
permanent financing for the purchase. The purchase is scheduled to be completed
on or before January 15, 1999.
The Company leases an approximate 2.25-acre production facility in
Elkhart, Indiana. The property improvements include an approximate 10,000 square
foot warehouse and sufficient outside area to accommodate an SP34E tank farm and
production area with an annual capacity of 20,000 tons of finished product. The
lease is for a term through May 31, 2003 and monthly rental payments are $2,500
through the term. The Company intends to sublease 3,500 square feet of the
warehouse space to the Solpower Great Lakes and Solpower Southeast licensees for
SOLTRON production.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 1998, the ownership
of each person known by the Company to be the beneficial owner of five percent
or more of the Company's Common Stock, each officer and director individually,
and all officers and directors as a group. The Company has been advised that
each person has sole voting and investment power over the shares listed below
unless otherwise indicated.
15
<PAGE>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL OWNERSHIP OF OWNERSHIP CLASS(1)
- ----------------------- ------------ --------
Fraser M. Moffat III 0 0%
18 Lake Avenue
Montrose, Pennsylvania
James H. Hirst 100 (2)
7309 East Stetson Drive
Scottsdale Arizona
R.L. (Beau) Van Deren 100 (2)
3330 East Colter Street
Phoenix, Arizona 85018
Jerry W. Goddard 135,000(3) 0.6%
7309 East Stetson Drive
Scottsdale Arizona
Naoya Yoshikawa 100 (2)
2-16-42 Takanawa
Minato-Ku, Japan
Angelus Inc.(4) 8,000,000(5) 29.2%
Suite IA Hirzel Court
Hirzel Street, St. Peter Port
Guernsey, Channel Islands GY1 2NN
Peter Voss 8,494,950(6) 35.9%
Level 11, Dominion Building
533 Little Lourdale Street
Melbourne, Victoria 3000
Australia
Dominion Capital Pty. Ltd.(6)(7) 7,114,650 30.4%
3 Hewitt Street,
Cheltenham, Australia
All Directors and Officers 135,300 0.6%
As a Group (5 persons)
- ----------
(1) Based upon 23,391,560 shares of Common Stock being issued and outstanding
on September 30, 1998.
(2) Less than 0.1%.
(3) Includes 100,000 shares held by an entity associated with Jerry W. Goddard
over which he has an exercisable control.
(4) The beneficial owners of this entity are unknown to the Company's
management and are not known to be affiliated with any other officers,
directors or principal shareholders of the Company.
(5) Includes 4,000,000 shares of Common Stock issued and outstanding, 2,000,000
shares purchasable by exercise of an A Warrant on or before January 7, 1999
at $1.50 per share and 2,000,000 shares purchasable by exercise of a B
Warrant on or before January 7, 2000 at $3.00 per share. As of September
30, 1998, Angelus, Inc. had paid a total of $1,700,000 and owed the Company
an additional $300,000 for the 4,000,000 shares held by it which are
currently issued and outstanding.
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<PAGE>
(6) Mr. Peter Voss holds 100 shares directly and controls Dominion Capital Pty.
Ltd which holds 7,114,650 shares and A1 Financial Planners Pty. Ltd. which
holds 980,200 shares. The total reflected includes 300,000 shares held by
Mr. Voss' wife and two adult children and in which Mr. Voss disclaims all
beneficial interest and 100,000 shares subject to purchase options at $3.00
per share held by Dominion Capital Securities, Inc., an entity controlled
by Mr. Voss.
(7) Dominion Capital has been granted options to purchase up to an additional
750,000 shares of Common Stock at prices ranging from $2.50 to $5.00 per
share upon Soltron sales revenues attaining certain levels. These options
have not vested, are not exercisable until vested and are not included in
the total above.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company, their ages and
positions held in the Company are as follows:
NAME AGE POSITIONS HELD(1)
---- --- -----------------
Fraser M. Moffat III 69 Director & Chairman
James H. Hirst 51 Director, President & CEO
R.L. (Beau) Van Deren 50 Director & Secretary/Treasurer
Jerry W. Goddard 58 Director
Naoya Yoshikawa 52 Director
- ----------
(1) All current directors serve until the next annual shareholders meeting or
their earlier resignation or removal.
FRASER M. MOFFAT III joined the Company as a Director and Chairman of
the Board in May 1998. Since 1995, Mr. Moffat has primarily managed his personal
investments. From January 1985 through February 1995, Mr. Moffat was First Vice
President of Institutional Sales at Lehman Brothers, Inc. Hamburg, Germany
office. From October 1971 to December 1984, Mr. Moffat was a Vice President at
Merrill Lynch Pierce & Fenner. Previously, Mr. Moffat served in the United
States Navy from 1953 to 1956 where he attained the rank of Lieutenant
Commander. Mr. Moffat graduated from Williams College in 1951 with a BA degree.
JAMES H. HIRST has served as Chief Executive Officer of the Company
since September 1997, and a Director and President since May 1998. As Chief
Executive Officer and President of the Company, Mr. Hirst is responsible for all
Company operations, licensing arrangements, product sales and marketing and
devotes approximately 40-50 hours per week to those activities. Mr. Hirst has
served as President of Mesquite Management Ltd. from March 1986 to present where
he has provided consulting services to early stage companies in connection with
their operations, financial information systems and legal compliance. In
performing his consulting services, Mr. Hirst served as a director of Rock
Resources Inc. from November 1996 to October, 1998, as director and President of
Consolidated Bahn Foods Ltd. from April 1998 to present, as a vice president
from January 1991 to 1996 and President to October 1996 of Parisco Foods
Limited, as the Chief Executive Officer from January 1991 to 1997 and director
from November 1997 to October 1998 of Global Tree Technologies, Inc., as a
director of Consolidated Shoshoni Gold Inc. from August 1996 to August 1997, as
the president and director of Consolidated Newgate Resources Ltd. from October
1990 to May 1992 and as the president and director of Yuma Gold Mines Ltd. from
17
<PAGE>
October 1990 to August 1994. From 1966 to 1980, Mr. Hirst was a member of the
Royal Canadian Mounted Police - Commercial Crime Section. Mr. Hirst attended the
Canadian Police College, Ottawa, Ontario, Canada in 1980 and completed the
Computer Crime Investigation Course and Senior Investigators Course. He achieved
the rank of Sergeant after only 13 years of service and in 1981 resigned to
establish his private consulting business. In 1979, Mr. Hirst graduated with a
Bachelor of Commerce (Accounting and Management Information Systems) from the
University of British Columbia.
R.L. (BEAU) VAN DEREN has served as Director as well as the Company's
Secretary and Treasurer since December 1, 1998. Mr. Van Deren has been the
Managing Director - Corporate Development for Dominion Capital Pty Ltd., an
affiliate of the Company, since November 8, 1998, and has undertaken his role
with the Company while also an employee of Dominion Capital. From 1992 until
December 1998, Mr. Van Deren was primarily involved in advising emerging
businesses and real estate operators and investors as a financial advisor along
with practicing law and accounting on a limited basis. From 1991 to 1992, Mr.
Van Deren was the Chief Financial Officer and General Counsel of MaxiCare, Inc.,
a seller of medical products and Medicare billing services to nursing homes.
Prior to 1992, Mr. Van Deren practiced tax and corporate law with the law firm
of Scult, Lazarus & French, P.C. in Phoenix, Arizona after practicing public
accounting with the Phoenix offices of Laventhal & Horvath and Touche, Ross &
Co. Mr. Van Deren received a Juris Doctorate in 1976 and a Bachelor of Science -
Business Administration in 1973 from the University of Arizona.
JERRY W. GODDARD has served as Director of the Company since November
1996. Mr. Goddard has been the Managing Director of Prime Mortgage Group Limited
(Australia) from 1991 to present and is directly responsible for the
implementation of strategies including fund raising and marketing of the group's
products to the financial community. Mr. Goddard has served as director of
Golden Triangle Resources Ltd., an Australian mining company from 1994 through
present.
NAOYA YOSHIKAWA has served as Director of the Company since November
1996. Mr. Yoshikawa served as President of Crest Japan Inc. from 1987 to
present. Mr. Yoshikawa has served as a director of several companies in the past
decade, including the Japan - America Friendship Association from 1989 to
present, Japan Environmental Protection Organization from 1991 to present. Mr.
Yoshikawa also served as Chief Executive Officer of Dominion Capital Japan Ltd.
from 1996 to present. In his capacity as General Manager and Chief Executive
Officer of Dominion Capital Japan Ltd., Mr. Yoshikawa represents Solpower
Australia Pty. Ltd. and SOLTRON operations in Japan. Mr. Yoshikawa has a Masters
Degree in Economics and Business Administration and is Honorary Professor of the
University of Mindanao for Environment and Protection, as well as holding the
position of President of the Association of Clean Air Devices.
ITEM 6. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to
the Company for the fiscal years ended March 31, 1998, 1997 and 1996 for the
Chief Executive Officer of the Company. No officer of the Company received
salary or bonus in excess of $100,000 for any of these fiscal years.
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SUMMARY COMPENSATION TABLE
LONG
TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER STOCK
FISCAL ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION (SHARES)
- --------------------------- ---- ------ ------------ --------
James H. Hirst 1998 -- $58,333(1) 300,000(2)
Chief Executive Officer 1997 -- -- --
1996 -- -- --
- ----------
(1) During the fiscal year ended march 31, 1998, Mr. Hirst acted as a
consultant to the Company for the compensation stated.
(2) The options have not yet vested and have been allotted pursuant to an
option plan with requisite vesting requirements to be achieved.
OPTION GRANTS
The following table sets forth information regarding the grant and exercise
of options to the Company's executive officers for the fiscal year ended March
31, 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1998
NUMBER OF SHARES OF PERCENT OF TOTAL EXERCISE ON
COMMON STOCK UNDERLYING OPTIONS GRANTED TO BASE PRICE EXPIRATION
NAME OPTIONS GRANTED EMPLOYEES IN FISCAL YEAR ($/SH) DATE
---- --------------- ------------------------ ------ ----
<S> <C> <C> <C> <C>
James H. Hirst 100,000 16.67% $1.00 Jan. 30, 2003
100,000 16.67% $1.75 Jan. 30, 2003
100,000 16.67% $2.50 Jan. 30, 2003
</TABLE>
OPTION EXERCISES AND VALUES
The following table sets forth information regarding the exercise and
values of options held by the Company's executive officers as of March 31, 1998.
19
<PAGE>
AGGREGATE OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-
UNEXERCISED OPTIONS THE-MONEY OPTIONS AT
AT MARCH 31, 1998 MARCH 31, 1998
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
James H. Hirst 0 0 0/300,000 0/$300,000
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has no employment agreements with its executive officers.
DIRECTOR COMPENSATION
All authorized out-of-pocket expenses incurred by a Director on behalf
of the Company are subject to reimbursement. The Company has agreed to
compensate all of the directors in the amount of $500 per month commencing July
1, 1998.
STOCK OPTION PLAN
In November 1997, the Board of Directors adopted a Stock Option and
Incentive Plan (the "Plan"), which the shareholders approved on November 22,
1997. The purpose of the Plan is to provide a means through which the Company
may attract able persons to enter the employ of and provide services for the
Company and to provide a means whereby those persons upon whom the
responsibilities for the successful administration and management of the Company
rest, and whose present and potential contributions to the welfare of the
Company are of importance, can acquire and maintain an ownership interest,
thereby strengthening their commitment to the welfare of the Company and the
desire to remain in the employ or service of the Company. A further purpose of
the Plan is to provide such persons with additional incentive and reward
opportunities designed to enhance the profitable growth of the Company. So that
the appropriate incentive can be provided, the Plan provides for granting
options, incentive stock options, stock appreciation rights, restricted stock
awards, performance shares and dividend equivalents, or any combination of the
foregoing. As of July 1, 1998, 1,200,000 stock options had been granted under
the Plan at exercise prices ranging from $1.00 to $7.00 per share.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 4, 1996 the Company entered into an Acquisition Agreement
with Dominion Capital for the acquisition of the exclusive manufacturing,
distribution, marketing and sales rights in North America to the product
SOLTRON. The original term of the original agreement was for five years and
provided that the Company issue 5,000,000 shares of its Common Stock, issue
preferred stock and grant certain options to Dominion Capital as consideration
for such rights. On November 22, 1997 the Company renegotiated the terms of the
20
<PAGE>
Acquisition Agreement to extend its term for an additional five year period and
eliminate the option and preferred share issuance granting to Dominion Capital.
The amended agreement provided that options and performance bonuses would be
payable to Dominion Capital as follows: (i) upon gross sales for SOLTRON
equaling $10,000,000, Dominion Capital has the option to purchase 100,000 shares
at $2.50 per share, plus a cash performance bonus of $400,000; (ii) upon gross
sales for SOLTRON equaling $20,000,000, Dominion Capital has the option to
purchase 150,000 shares at $3.50 per share, plus cash performance bonus of
$400,000; (iii) upon gross sales for SOLTRON equaling $50,000,000 Dominion
Capital has the option to purchase 250,000 shares at $4.50 per share, plus cash
performance bonus of $500,000; and (iv) upon gross sales for SOLTRON equaling
$100,000,000, Dominion Capital has the option to purchase 250,000 shares at
$5.00 per share, plus a cash performance bonus of $1,000,000. Effective May 13,
1998 the Company and Dominion Capital agreed to an addendum to the Acquisition
Agreement of November 4, 1996 by allowing the Company, on a first right of
refusal basis, an interest in all other territories, except Japan, where SOLTRON
and other products and services area currently being commercialized by the
Dominion Capital, on terms and conditions to be negotiated on a product by
product and a territory by territory basis.
On November 4, 1996, the Company issued 3,520,000 shares of Common
Stock to Dominion Capital at a price of $0.125 per share. On April 1, 1997, the
Company issued 4,160,000 shares of Common Stock to Dominion Capital in exchange
for cancellation of advances payable to Dominion Capital in the amount of
$520,000.
On June 17, 1998 the Company and Dominion Capital entered into a second
Acquisition Agreement for the acquisition of the exclusive manufacturing,
distribution, marketing and sales rights in North American to the product SP34E.
The Company agreed to issue 6,000,000 shares of its Common Stock and pay a
royalty of $2.25 for each kilogram of SP34E sold in the Company's territory. The
term of the Acquisition Agreement was for five years with an option renew for an
additional five years.
On July 1, 1998 the Company entered into a Client Service Agreement
with Dominion Capital Securities, Inc., ("DCSI") an Arizona corporation, for the
provision of all investor and corporate communications services required by the
Company. DCSI is wholly-owned by Peter Voss, who also controls Dominion Capital,
the principal shareholder of the Company. The term of the agreement is for six
months and is renewable for further six month periods. In consideration for DCSI
providing the services it will receive $275,000 of which $125,000 is payable in
cash and the balance in the form of 50,000 shares of the Company's Common Stock.
As further consideration DCSI has been granted an option to buy 100,000 shares
of the Company's Common Stock at the exercise price of $3.00 per shares for a
period of two years.
The Company's general policy for entering into transactions with
directors, officers and affiliates of the Company that have a financial interest
in the transaction is to adhere to Nevada corporate law regarding the approval
of such transactions. In general, a transaction between a Nevada corporation and
a director, officer or affiliate of the Corporation in which such person has a
financial interest is not void or voidable if the interest is disclosed and
approved by disinterested directors or shareholders or if the transaction is
otherwise fair to the corporation.
ITEM 8. DESCRIPTION OF SECURITIES
The following statements with respect to the Company's securities are
qualified by and subject to the detailed provisions of the Company's Articles of
Incorporation and Bylaws, which are filed as exhibits hereto.
21
<PAGE>
The Company is authorized to issue up to 30,000,000 shares of Common
Stock, $0.01 par value, of which 23,391,560 shares are issued and outstanding
and 5,000,000 shares of preferred stock, $0.001 par value, undesignated as to
class, powers, designations, preferences, limitations, restrictions or relative
rights of which none are issued and outstanding. The Board of Directors of the
Corporation is authorized to fix and determine any class or series of preferred
stock and the number of shares of each class or series and to prescribe the
powers, designations, preferences, limitations, restrictions and relative rights
of any class or series established, all by resolution of the Board of Directors
and in accordance with Section 78.1955 of the Nevada Revised Statutes, as the
same may be amended and supplemented.
The Company has issued 2,000,000 A Warrants exercisable at $1.50 per
share that expire on January 7, 1999, and 2,000,000 B Warrants exercisable at
$3.00 per share that expire on January 7, 2000. The Company also granted certain
warrants, subject to vesting requirements, to Dominion Capital pursuant to the
SOLTRON Acquisition Agreement to purchase up to 750,000 shares of the Company's
Common Stock at prices ranging from $2.50 to $5.00 per share. Under its Stock
Option Plan the Company has granted options to acquire a total of 1,200,000
shares, subject to certain vesting requirements, at the exercise prices ranging
from $1.00 to $7.00 per share. The vesting requirements for the Warrants granted
to Dominion Capital and the options granted under the Stock Option Plan have not
been satisfied and neither these Warrants nor the options can be exercised until
the vesting requirements are satisfied.
All holders of Common Stock are entitled to one vote per share on any
matter coming before the stockholders for a vote, unless the matter is one upon
which by express provision of law a different vote is required. The Common Stock
does not have cumulative voting rights, which means that holders of more than
50% of the shares can elect all the directors. Each holder of Common Stock is
entitled to share ratably in distributions to stockholders and to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor and, in the event of the liquidation, dissolution or
winding up of the Company, is entitled to share ratably in all assets of the
Company remaining after payment of liabilities. Holders of Common Stock have no
conversion, preemptive or other rights to subscribe for additional shares, and
there are no redemption rights with respect to the Common Stock. The outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "SLPW." The following table sets forth the quarterly high and low bid
prices per share for the Common Stock, as reported by the OTC Bulletin Board. On
March 31, 1998, there were approximately 350 beneficial holders of the Common
Stock.
HIGH LOW
---- ---
1996 Quarter ended March 31, 1996 (1) (1)
Quarter ended June 30, 1996 (2) $5.75 $4.00
Quarter ended September 30, 1996 $5.109 $1.25
Quarter ended December 31, 1996 $1.25 $0.25
1997 Quarter ended March 31, 1997 $1.75 $1.125
Quarter ended June 30, 1997 $1.50 $1.50
Quarter ended September 30, 1997 $0.4062 $0.4062
Quarter ended December 31, 1997 $0.625 $0.625
1998 Quarter ended March 31, 1998 $2.75 $2.625
Quarter ended June 30, 1998 $3.50 $2.25
Quarter ended September 30, 1998 $2.687 $1.375
- ----------
(1) No data available.
(2) First report is May 30, 1996.
22
<PAGE>
The Company has not paid, and the Company does not currently intend to
pay cash dividends on its Common Stock in the foreseeable future. The current
policy of the Company's Board of Directors is to retain all earnings, if any, to
provided funds for operation and expansion of the Company's business.
The declaration of dividends, if any, will be subject to the discretion
of the Board of Directors, which may consider such factors as the Company's
results of operations, financial condition, capital needs and acquisition
strategies, among others.
ITEM 2. LEGAL PROCEEDINGS
The Company is not currently a party to any pending litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On November 4, 1995, the Company issued 4,000,000 shares of Common
Stock to 16 persons in exchange for control of Quantum Motion, Inc., a Colorado
corporation. Current management is unaware of all facts and circumstances of the
issuance, but believes the Company relied upon the exemption from registration
of the shares issued in this transaction afforded by Section 4(2) of the
Securities Act.
On November 4, 1995, the Company issued 4,000,000 shares of its Common
Stock, at the issue price of $0.125 per share, to 24 persons in exchange for a
note receivable in the amount of $500,000. Current management is unaware of all
facts and circumstances of the issuance, but believes the offering was exempt
from registration under Rule 504 of Regulation D and Section 4(2) of the
Securities Act.
On April 19, 1996, the Company issued 1,600,000 shares of its Common
Stock to Philmont A.V.P., at the issue price of $5.00 per share, in exchange for
a promissory note in the amount of $8,000,000. This offering was made in
reliance upon the exemption from registration provided under Regulation S of the
Securities Act. On June 12, 1996 the 1,600,000 shares issued to Philmont A.V.P.
were cancelled for non- payment.
On November 4, 1996, the Company acquired the North American
manufacturing, marketing, distribution and sales rights to the Solpower product
SOLTRON in exchange for the issuance of 5,000,000 shares of its Common Stock to
Dominion Capital. The Company relied upon the exemption from registration of the
shares issued in this transaction afforded by Section 4(2) of the Securities
Act.
On November 4, 1996, the Company issued 3,520,000 shares of its Common
Stock, at $0.125 per share, to Dominion Capital, in exchange for a promissory
note in the amount of $440,000. This offering was conducted by the Company and
was made in reliance upon the exemption from registration provided under Rule
504 of Regulation D.
23
<PAGE>
On April 1, 1997, the Company issued 4,160,000 shares of its Common
Stock, at $0.125 per share, to Dominion Capital, in exchange for cancellation of
advances payable to Dominion Capital in the amount of $520,000. This offering
was conducted by the Company and was made in reliance upon the exemption from
registration provided under Rule 504 of Regulation D.
On January 7, 1998, the Company issued 4,000,000 shares of its Common
Stock, 2,000,000 A Warrants and 2,000,000 B Warrants to Angelus, Inc., for
$2,000,000. Each A Warrant entitles the holder to acquire a share of Common
Stock at $1.50 per share on or before January 7, 1999. Each B Warrant entitles
the holder to acquire a share of Common Stock at $3.00 per share on or before
January 7, 2000.
This offering was made in reliance upon the exemption from registration
provided under Regulation S of the Securities Act.
On June 17, 1998, the Company agreed to issue 6,000,000 shares of its
Common Stock to Dominion Capital and its assigns in exchange for the sales,
distribution and marketing rights in North America to SP34E. The shares have not
yet been issued, but are required to be issued with the agreement of the Company
to register such shares after issuance.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of the Company eliminate the personal
liability of the Directors and officers of the Company to the fullest extent
permitted by the General Corporation Law of the State of Nevada (the "NEVADA
CORPORATION LAW"). In addition, the Articles provide that the Company shall, to
the fullest extent permitted by the Nevada Corporation Law, indemnify any and
all persons that it has the power to indemnify thereunder from and against any
and all expenses, liabilities or other matters referred to in or covered by the
Nevada Corporation Law. The Articles further provide that the indemnification
provided therein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any Bylaw, agreement, vote of
stockholders or disinterested Directors or otherwise. The Bylaws of the Company
also provide for indemnification to the fullest extent permitted by the Nevada
Corporation Law.
24
<PAGE>
PART F/S
INDEX
Independent Auditors' Report .......................................... 26
Balance Sheet at March 31, 1998 and 1997 .............................. 27
Statement of Operations for the Years Ended
March 31, 1998, 1997 and 1996 ......................................... 28
Statement of Stockholders' Equity for the Period
From Inception (June 7, 1982) Through March 31, 1998 .................. 29
Statement of Cash Flows for the Years Ended
March 31, 1998, 1997 and 1996 ......................................... 32
Notes to the March 31, 1998 and 1997
Financial Statements .................................................. 34
Balance Sheet at June 30, 1998 (Unaudited) and March 31, 1998.......... 47
Statement of Operations for the Three Months Period Ended
June 30, 1998 and 1997 (Unaudited).................................... 48
Statement of Cash Flows for the Three Months Period Ended
June 30, 1998 and 1997 (Unaudited).................................... 49
Notes to the June 30, 1998 and 1997 Financial Statements (Unaudited)... 50
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Solpower Corporation
Scottsdale, Arizona 85251
We have audited the accompanying balance sheet of Solpower Corporation (the
Company), as of March 31, 1998 and 1997 and the related statements of
operations, stockholders' equity and cash flows for the years ended March 31,
1998, 1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the financial statements provides a reasonable
basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company at March 31, 1998 and 1997 and
the results of its operations and its cash flows for the years ended March 31,
1998, 1997 and 1996, in conformity with generally accepted accounting
principles.
/s/ Clancy & Co.
Clancy and Co., P.L.L.C.
Phoenix, Arizona
July 22, 1998
26
<PAGE>
SOLPOWER CORPORATION
BALANCE SHEET
MARCH 31, 1998 AND 1997
ASSETS
1998 1997
---- ----
Current Assets
Cash $ 183,842 $ 437
Inventory (Note 3) 101,906 0
License Fee Receivable (Note 4) 2,160,000 0
Stock Subscription Receivable (Note 5) 600,000 0
Prepaid Expenses 2,917 0
----------- -----------
Total Current Assets 3,048,665 437
Property and Equipment, Net (Note 6) 131,942 49,050
Other Assets
Marketing Rights (Note 7) 35,833 45,833
Security Deposits 14,422 2,162
----------- -----------
Total Other Assets 50,255 47,995
----------- -----------
Total Assets $ 3,230,862 $ 97,482
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 2,432 0
Capital Lease Obligation, Current
Portion (Note 8) 4,575 0
Income Taxes Payable (Note 9) 14,914 0
----------- -----------
Total Liabilities 21,921 0
Long Term Liabilities
Capital Lease Obligation, Noncurrent
Portion (Note 8) 5,167 0
Advances Payable, Related Party (Note 10) 39,725 465,361
----------- -----------
Total Long Term Liabilities 44,892 465,361
----------- -----------
Total Liabilities 66,813 465,361
Commitments and Contingencies (Note 8)
Stockholders' Equity
Preferred Stock; $0.001 Par Value,
5,000,000 Authorized;
Issued and Outstanding, NONE NONE NONE
Common Stock; $0.01 Par Value,
30,000,000 Authorized;
Issued and Outstanding, 17,391,560 Shares
at March 31, 1998 and 9,231,560 Shares
at March 31, 1997 173,916 92,316
Additional Paid In Capital 3,410,904 972,504
Less Stock Subscriptions Receivable (Note 5) (400,000) 0
Accumulated Deficit (20,771) (1,432,699)
----------- -----------
Total Stockholders' Equity 3,164,049 (367,879)
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,230 862 $ 97,482
=========== ===========
The accompanying notes are an integral
part of these financial statements.
27
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
For the For the For the
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1998 1997 1996
---- ---- ----
Revenues (Note 4) $ 2,400,000 $ 0 $ 1,995
Expenses
General and Administrative 975,379 857,879 442,143
----------- ---------- ----------
Operating Income (Loss) 1,424,621 (857,879) (440,148)
Other Income (Expense)
Interest Income 3,405 0 19,908
Interest Expense (1,184) 0 0
Loss From Discontinued Operations 0 (118,885) 0
----------- ---------- ----------
Total Other Income (Expense) 2,221 (118,885) 19,908
----------- ---------- ----------
Net Income (Loss) Before Provision
For Income Taxes 1,426,842 (976,764) (402,240)
Provision For Income Taxes (Note 9) 14,914 0 0
----------- ---------- ----------
Net Income (Loss) Available to Common
Stockholders $ 1,411,928 $ (976,764) $ (402,240)
=========== ========== ==========
Earnings (Loss) Per Common Share
Equivalents $ 0.09 $ (0.23) $ (.21)
=========== ========== ==========
Weighted Number of Common Shares and
Common Share Equivalents Outstanding 14,982,469 4,261,560 1,882,500
=========== ========== ==========
The accompanying notes are an integral
part of these financial statements.
28
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JUNE 7, 1982)
THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid In (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Inception June 7, 1982 $ $ $ $ $
Issuance of Common Stock to Related
Parties for Cash at $0.01 Per Share 2,579,800 25,798 25,798
Issuance of Common Stock to Related
Parties for Services at $0.01 Per Share 67,700 677 677
Loss From Inception (June 7, 1982)
Through March 31, 1987 (232) (232)
---------- ------- ------ -------- --------
Balance, March 31, 1987 2,647,500 26,475 0 (232) 26,243
Loss, Year Ended March 31, 1988 (10,823) (10,823)
---------- ------- ------ -------- --------
Balance, March 31, 1988 2,647,500 26,475 0 (11,055) 15,420
Contribution to Capital 5,645 5,645
Loss, Year Ended March 31, 1989 (21,065) (21,065)
---------- ------- ------ -------- --------
Balance, March 31, 1989 2,647,500 26,475 5,645 (32,120) 0
Contribution of Capital 1,000 1,000
Loss, Year Ended March 31, 1990 (605) (605)
---------- ------- ------ -------- --------
Balance, March 31, 1990 2,647,500 26,475 6,645 (32,725) 395
Contribution to Capital 100 100
Loss, Year Ended March 31, 1991 (440) (440)
---------- ------- ------ -------- --------
Balance, March 31, 1991 2,647,500 26,475 6,745 (33,165) 55
Contribution to Capital 300 300
Loss, Year Ended March 31, 1992 (1,272) (1,272)
---------- ------- ------ -------- --------
Balance, March 31, 1992 2,647,500 26,475 7,045 (34,437) (917)
Contribution to Capital 500 500
Loss, Year Ended March 31, 1993 (343) (343)
---------- ------- ------ -------- --------
Balance, March 31, 1993 2,647,500 26,475 7,545 (34,780) (760)
Contribution to Capital 300 300
Loss, Year Ended March 31, 1994 (350) (350)
---------- ------- ------ -------- --------
Balance, March 31, 1994 2,647,500 26,475 7,845 (35,130) (810)
Contribution to Capital 500 500
</TABLE>
The accompanying notes are an integral
part of these financial statements.
29
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JUNE 7, 1982)
THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid In (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Loss, Year Ended March 31, 1995 (565) (565)
---------- -------- -------- ----------- ----------
Balance, March 31, 1995 2,647,500 26,475 8,345 (35,695) (875)
Issuance of Common Stock for Notes
Receivable at $.125 Per Share,
November 4,1995 1,363,000 13,630 156,745 170,375
Issuance of Common Stock for Notes
Receivable at $.125 Per Share,
November 4, 1995 2,637,000 26,370 303,255 329,625
Issuance of Common Stock for
Marketing Rights at $.01 Per
Share, December 11, 1995 4,000,000 40,000 40,000
3:1 Reverse Split, February 29,1996 (7,090,000) (70,900) 70,900 0
Loss, Year Ended March 31, 1996 (420,240) (420,240)
---------- -------- -------- ----------- ----------
Balance, March 31, 1996 3,557,500 35,575 539,245 (455,935) 118,885
Issuance of Common Stock for Note
Receivable at $5.00 Per Share,
April 19, 1996 1,600,000 16,000 7,984,000 8,000,000
Cancellation of Common Stock for Note
Receivable for Nonperformance,
June 12, 1996 (1,600,000) (16,000)(7,984,000) (8,000,000)
5:1 Reverse Split, October 30, 1996 (2,845,940) (28,459) 28,459 0
Issuance of Common Stock in Exchange
for Promissory Note at $.125 Per
Share, November 4, 1996 3,520,000 35,200 404,800 440,000
Issuance of Common Stock for
Marketing Rights at $.01 Per Share, 5,000,000 50,000 50,000
November 4, 1996
Loss, Year Ended March 31, 1997 (976,764) (976,764)
---------- -------- -------- ----------- ----------
Balance, March 31, 1997 9,231,560 92,316 972,504 (1,432,699) (367,879)
Issuance of Common Stock Under Reg
D Private Offering at $.125 Per Share
in Exchange for Cancellation of
Advances Made to April 1, 1997 4,160,000 41,600 478,400 520,000
</TABLE>
The accompanying notes are an integral
part of these financial statements.
30
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JUNE 7, 1982)
THROUGH MARCH 31, 1998
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid In (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock Under
Reg S Placement at $.50 Per
Share, January 9, 1998 4,000,000 40,000 1,960,000 2,000,000
Income, Year Ended March 31, 1998 1,411,928 1,411,928
---------- -------- ---------- ---------- ----------
Balance, March 31, 1998 17,391,560 $173,916 $3,410,904 $ (20,771) $3,564,049
========== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
31
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
For The For The For The
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ 1,411,928 $(976,764) $(420,240)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Used In
Operating Activities:
Depreciation and Amortization 37,477 6,767 2,203
Other Noncash Items 520,000 440,000 0
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 0 1,995 (1,995)
(Increase) Decrease in License Fee Receivable (2,160,000) 0 0
(Increase) Decrease in Inventory (101,906) 0 0
(Increase) Decrease in Prepaid Expenses (2,917) 16,994 (16,994)
(Increase) Decrease in Security Deposits (12,260) (2,162) 0
Increase (Decrease) in Accounts Payable 2,432 (11,732) 10,824
Increase (Decrease) in Income Taxes Payable 14,914 0 0
----------- --------- ---------
Total Adjustments (1,702,260) 451,862 (5,962)
----------- --------- ---------
Net Cash Used In Operating Activities (290,332) (524,902) (426,202)
Cash Flows From Investing Activities:
Capital Expenditures (110,369) (51,650) (61,000)
Sale of Equipment and Marketing Rights 0 98,797 0
----------- --------- ---------
Net Cash Flows Provided By (Used In)
Investing Activities (110,369) 47,147 (61,000)
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock 1,000,000 0 500,000
Capital Lease Obligations 9,742 0 0
Notes Receivable From Stock Sale 0 0 (500,000)
Proceeds From Notes Receivable and Interest 0 0 500,000
Net Advances (Repayments) From Stockholders (425,636) 465,361 0
----------- --------- ---------
Net Cash Provided by Financing Activities 584,106 465,361 500,000
----------- --------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
32
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
For The For The For The
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1998 1997 1996
---- ---- ----
Increase (Decrease) in Cash and
Cash Equivalents $ 183,405 $(12,394) $12,798
Cash and Cash Equivalents,
Beginning of Year 437 12,831 33
---------- -------- -------
Cash and Cash Equivalents,
End of Year $ 183,842 $ 437 $12,831
========== ======== =======
SUPPLEMENTAL INFORMATION
Cash Paid For:
Interest $ 1,184 $ 0 $ 0
========== ======== =======
Income Taxes $ 0 0 $ 0
========== ======== =======
Noncash Investing and Financing:
Issuance of 4,000,000 Shares of
Common Stock for Marketing Rights,
December, 1995 $ 0 $ 0 $40,000
========== ======== =======
Issuance of 3,529,000 Shares of
Common Stock in Exchange for a
Promissory Note, November 4, 1996 $ 0 $440,000 $ 0
========== ======== =======
Issuance of 5,000,000 Shares of
Common Stock for Marketing Rights,
November 4, 1996 $ 0 $ 50,000 $ 0
========== ======== =======
Issuance of Common Stock in Exchange
for Stock Subscription Receivable $1,000,000 $ 0 $ 0
========== ======== =======
Issuance of Common Stock in Exchange
for Cancellation of a Portion of
Advances Payable $ 520,000 $ 0 $ 0
========== ======== =======
The accompanying notes are an integral
part of these financial statements.
33
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 1 - ORGANIZATION
Solpower Corporation (the Company), formerly known as Virtual
Technologies, Inc. and Dynafuel Corporation, was incorporated under the
laws of the State of Utah on June 7, 1982, with an authorized capital of
30,000,000 shares of common stock with a par value of one cent ($0.01) per
share. On December 12, 1995, the Company amended its articles of
incorporation, changing its name to Virtual Technologies, Inc. and
increasing the authorized preferred stock to 5,000,000 shares at $.25 par
value. On July 22, 1996, the Company changed its legal domicile to the
State of Nevada. On November 22, 1997, the Company restated the articles
of incorporation, changing its name to Solpower Corporation and changing
its preferred stock par value to one-tenth of one cent ($.001) per share.
The Company has the exclusive sales, distribution, marketing and
manufacturing rights for the United States, Mexico and Canada to the
Solpower product, SOLTRON, a fuel enhancing product.
On November 1, 1995, the Company issued 4,000,000 shares of common stock
at $0.125 per share in exchange for a note receivable in the amount of
$500,000.
On December 11, 1995, the Company issued 4,000,000 shares of common stock
at $0.01 per share in exchange for marketing rights, or $40,000.
On February 29, 1996, the Company authorized a reverse split of common
stock of 3:1.
On April 19, 1996, the Company issued 1,600,000 shares of common stock at
$5.00 per share in exchange for a note receivable in the amount of
$8,000,000. On June 12, 1996, the agreement and the shares issued were
canceled for nonperformance.
On October 30, 1996, the Company authorized a reverse split of common
stock of 5:1.
On November 4, 1996, the Company issued 3,520,000 shares of common stock
at $0.125 per share or $440,000 in exchange for a promissory note. The
promissory note was paid in full under its terms on November 24, 1997.
On November 4, 1996, the Company issued 5,000,000 shares of common stock
at $0.01 per share in exchange for marketing rights.
On April 1, 1997, the Company issued 4,160,000 share of common stock under
a Reg D private offering in exchange for cancellation of advances payable
at $.125 per share, or $520,000.
On January 9, 1998, the Company issued 4,000,000 shares of common stock
under a Reg S placement at $.50 per share, or $2,000,000.
34
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 1 - ORGANIZATION (CONTINUED)
The Company was formed on June 7, 1982, and was in the development stage
through March 31, 1997. The fiscal year ended March 31, 1998, is the first
year during which it is considered an operating company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. METHOD OF ACCOUNTING
The Company's financial statements are prepared using the accrual method
of accounting.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity
of three months or less to be cash and cash equivalents.
C. INVENTORY
Inventory is stated at the lower of cost or market using the first-in,
first-out (fifo) method.
D. PROPERTY, EQUIPMENT, AND DEPRECIATION
Property and equipment, stated at cost, is depreciated over their
estimated useful lives as follows:
Computer and Office Equipment 5 years
Furniture 7 years
Vehicles 5 years
Plant Equipment 7 years
Depreciation is computed under the straight-line method for financial
statement purposes and under accelerated methods for income tax purposes.
Repairs and maintenance expenses are charged to operations as incurred.
E. REVENUE RECOGNITION
Revenues from sales to distributors and resellers are recognized when
related products are shipped. Revenues from corporate license programs or
franchises are recognized in accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 45, "Accounting for Franchise Fee
Revenue." Revenue is recognized from an area franchise sale (geographical
area) when the Company has substantially performed or satisfied all
material services or conditions relating to the sale. Substantial
performance has occurred when the franchisor has no remaining obligation
or intent to refund any cash received or to forgive any unpaid notes or
receivables, performed substantially all of the initial services required
by the franchise agreement and met all other material conditions or
obligations.
35
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. EARNINGS OR (LOSS) PER COMMON SHARE
Earnings or (loss) per common share is computed based on weighted average
number of shares outstanding at the date of the financial statements.
Stock options are included as common share equivalents using the treasury
stock method. The number of shares used in computing earnings (loss) per
share was 14,982,469, 4,261,560, 1,882,500 for the years ended March 31,
1998, 1997 and 1996, respectively.
G. INCOME TAXES
The Company accounts for income taxes under the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." See Note 9.
H. USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results may vary from the estimates
that were assumed in preparing the financial statements.
I. PENDING ACCOUNTING ANNOUNCEMENTS
It is anticipated that current pending accounting pronouncements will not
have an adverse impact on the financial statements of the Company.
J. PRESENTATION
Certain accounts from prior years have been reclassified to conform with
the current year's presentation.
NOTE 3 - INVENTORY
Inventory at March 31, 1998 of $101,906 consists of a small quantity of
twenty five 55 gallon drums of fuel additive concentrate.
36
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 4 - LICENSE FEE RECEIVABLE
During the year ended March 31, 1998, the Company entered into two
licensing agreements for the sole and exclusive use and distribution of
its product, SOLTRON, in the territories as defined below:
SOLPOWER GREAT LAKES - Ohio, Indiana, Michigan, Illinois, and Wisconsin
SOLPOWER SOUTHEAST - Florida, Mississippi, Alabama, Georgia, Arkansas, and
Louisiana
On February 6, 1998, the Company entered into an agreement with Masters
Marketing Group, Inc. (licensee) for the exclusive use and distribution of
its product, SOLTRON, in the Great Lakes territory as defined above. The
license fee is $1,200,000, with a down payment of $120,000 due upon
signing the agreement. The licensee signed a promissory note for the
balance of $1,080,000 of the license fee due. The note bears interest at
one half percent (0.5%) on the unpaid principal balance, with all unpaid
principal and interest due on or before February 6, 2000.
On March 18, 1998, the Company entered into an agreement with Solpower
Southeast Corporation (licensee) for the exclusive use and distribution of
its product, SOLTRON, in the Southeast territory as defined above. The
license fee is $1,200,000, with a down payment of $120,000 due upon
signing the agreement. The licensee signed a promissory note for the
balance of $ 1,080,000 of the license fee due. The note bears interest at
one half percent (0.5%) on the unpaid principal balance, with all unpaid
principal and interest due on or before March 18, 2000.
The licensees are required to pay the Company the greater of the amount
payable per the payment schedule in the agreement or the product of $5.50
times the number of liters of concentrate shipped by the Company to the
licensee during the immediately preceding calendar month.
At a minimum, future annual principal payments due the Company under both
notes are as follows at March 31:
1999 $ 520,000
2000 $1,640,000
NOTE 5 - STOCK SUBSCRIPTION RECEIVABLE/STOCK WARRANTS
On January 7, 1998, the Company issued 4,000,000 shares of common stock
and 4,000,000 warrants under a REG S placement for total consideration of
$2,000,000. Cash in the amount of $1,000,000 was received upon
subscription and the balance was recorded as a stock subscription
receivable of $600,000, which was the amount received as of the date of
issuance of the financial statements. The remaining balance due was
recorded as a reduction in stockholder's equity of $400,000. Each unit
consisted of two shares of common stock of the Company, and two
nontransferable share purchase warrants. The warrants were designated as
an A Warrant and B Warrants. The 2,000,000 A Warrants entitle the holder
to purchase an additional 2,000,000 shares of the common stock of the
Company on or before 12 months from the date of subscription at a price of
$1.50 per share, after which they expire. The 2,000,000 B Warrants entitle
the holder to purchase an additional 2,000,000 shares of the common stock
of the Company on or before 24 months from the date of the subscription at
a price of $3.00 per share, after which it expires.
37
<PAGE>
NOTE 6 - PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following at March 31, 1998 and
1997:
1998 1997
---- ----
Furniture and Fixtures $ 47,436 $35,284
Computer and Office Equipment 59,872 16,366
Vehicles 15,172 0
Plant Equipment 39,538 0
-------- -------
Total 162,018 51,650
Less Accumulated Depreciation 30,076 2,600
-------- -------
Net Book Value $131,942 $49,050
======== =======
Depreciation expense charged to operations for the years ended March 31,
1998, 1997, and 1996 was $30,076 $27,477, $2,600, and $774, respectively.
NOTE 7 - LONG-LIVED ASSETS
On December 11, 1995, the Company acquired the marketing rights to a
virtual reality motion based simulator in exchange for 4,000,000 shares of
common stock or $40,000. The contract was for a period of 25 years, from
October, 1995, and required that the Company purchase one simulator per
month commencing April, 1996. The transaction was accounted for in
accordance with the process for valuation of intangible assets as
described in Statement No. 17 of the Accounting Principles Board. During
the fiscal year ended March 31, 1997, the Company sold the contract and
related assets.
On November 4, 1996, the Company acquired the exclusive sales,
distribution, marketing and manufacturing rights to the Solpower product,
SOLTRON, a fuel enhancing product, encompassing the North American Market
(United States, Mexico and Canada), in exchange for 5,000,000 of common
38
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 7- LONG-LIVED ASSETS (CONTINUED)
stock or $50,000. The contract is for a period of five years. The
transaction was accounted for in accordance with the process for valuation
of intangible assets as described in Statement No. 17 of the Accounting
Principles Board. The Company intends to amortize the marketing rights
over the period of contract. Management will reassess annually the
estimated useful life. Such amortization will result in charges against
earnings of $10,000 per year. Amortization charged to operations for the
years ended March 31, 1998 and 1997 was $10,000 and $4,167, respectively.
NOTE 8 - LEASE COMMITMENTS
OPERATING LEASES - The Company leases 1,364 square feet of office space
for its executive offices at 7309 E. Stetson Drive, Suite 102, Scottsdale,
Arizona, 85251. The lease is for a period of one year beginning March 12,
1997, and expires March 11, 1998. The monthly rent is $1,614.67. On
December 22, 1997, the Company's first amendment to the lease agreement
extended the term to March 11, 1999 with the guaranteed minimum monthly
rental being increased to $1,845.33. On March 31, 1998, the Company's
second amendment extended the lease from March 12, 1999 to June 30, 2000,
with the guaranteed minimum monthly rental being increased to $1,960.67
On August 25, 1997, the Company entered into a lease for approximately
11,879 square feet of a 14,859 warehouse on 87,000 square feet of land,
for its production facility located at 4247 W. Adams, Suite 2, Phoenix,
AZ, 85009. The term of the lease is for five years commencing on September
1, 1997 and ending on August 31, 2002. Base rent is $3,920.07, plus
property rental tax (currently 2.15%), for a total of $4,004.35. The
Company has the option to lease the remainder of the warehouse,
approximately 2,980 square feet at a lease rate of $.58 per square foot,
with 180 days prior written notice of exercise to expand. On August 25,
1997, an addendum to the lease signed by the Company extends the lease
period to September 14, 2002 and grants an option to purchase the real
property and improvements for $600,000 if exercised between September 15,
1997 and March 15, 1998, or $639,000 if the option is exercised between
March 15, 1998 through September 14, 1998.
Additionally, the Company leases additional space located at 8270 N.
Hayden Road, #2021, Scottsdale, Arizona, 85251, on a month to month basis,
at the rate of $2,500 per month.
On March 25, 1998, the Company entered into a rental agreement for a
copier/printing machine for a term of 39 months, at $566.37 per month.
Future minimal rental commitments are as follows at March 31:
1999 $76,993
2000 $78,377
2001 $60,731
2002 $49,751
2003 $24,026
39
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 8 - LEASE COMMITMENTS (CONTINUED)
CAPITAL LEASES - On September 16, 1997, the Company entered into a motor
vehicle lease agreement for a 1997 Ford Explorer for 24 months, at a
monthly payment of approximately $508. Total payments due under the lease
are $15,172, with $2,981 representing interest. The vehicle is included in
property and equipment and is being depreciated over the life of the
lease.
Future minimum lease payments for the vehicle under capital lease at March
31, 1998 are as follows:
1999 $ 6,096
2000 5,521
-------
Total 11,617
Less Amount Representing Interest 1,875
-------
Present Value of Net Obligations 9,742
Capital Lease Obligation, Current Portion 4,575
-------
Capital Lease Obligation, Noncurrent Portion $ 5,167
=======
Lease expense charged to operations for the years ended March 31, 1998,
1997, and 1996 was $106,932, $12,722, and $0, respectively.
NOTE 9 - PROVISION FOR INCOME TAXES
The current year net income of $1,426,842 is offset by prior year net
operating losses of $1,397,004. The components of the provision for income
taxes using the U.S. and state statutory tax rates are as follows:
Provision/ Tax
Payable Rate
------- ----
Current
Federal $11,553 34%
State 3,361 9%
-------
Total $14,914
=======
NOTE 10 - ADVANCES PAYABLE, RELATED PARTIES
During the years ended March 31, 1998 and 1997, the majority stockholder
of the Company, Dominion Capital Pty., Ltd. , (Dominion) made net advances
to the Company of $94,363 and $465,361. On April 1, 1997, the Company
issued 4,160,000 shares of common stock at $.125 per share, or $520,000 to
Dominion, in exchange for cancellation of a portion of the advances
payable.
40
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 10 - ADVANCES PAYABLE, RELATED PARTIES (CONTINUED)
On November 4, 1996, the Company entered into an agreement with Dominion
for a period of five years. Dominion agreed to provide up to $1,000,000 on
an "as needed" basis for operational costs and for the development and
construction of manufacturing facilities. Dominion was to be repaid for
the advances with convertible preferred shares of the Company. The note
payable was originally convertible into convertible preferred stock of the
Company. On November 24, 1997, an addendum was signed by the Company
deleting this from the agreement. The addendum grants stock options and
pay performance bonuses based solely on gross sales figures of the
Solpower product SOLTRON in the North American market. See Note 11.
Additionally, the Company has the option to extend the term of this
agreement for an additional period of five years, unless canceled by
notice in writing, by either party, with a thirty day notice of
cancellation.
NOTE 11 - STOCK OPTIONS
On November 24,1997, an addendum to the agreement was signed by the
Company which grants the following options to Dominion based solely on the
gross sales figures of the Solpower product SOLTRON in the North American
Market as follows:
a. Gross sales for the product equaling $10,000,000, option to purchase
100,000 shares of common stock at $2.50 per share, plus a cash
performance bonus of $400,000.
b. Gross sales for the product equaling $20,000,000, option to purchase
150,000 shares of common stock at $3.50 per share, plus a cash
performance bonus of $400,000.
c. Gross sales for the product equaling $50,000,000, option to purchase
250,000 shares of common stock at $4.50 per share, plus a cash
performance bonus of $500,000.
d. Gross sales for the product equaling $100,000,000, option to
purchase 250,000 shares of common stock at $5.00 per share, plus a
cash performance bonus of $1,000,000.
The contract has an anti-dilution provision, that in the event that the
Company shall at any time subdivide the outstanding shares of common
stock, or shall issue a stock dividend on its outstanding stock, the
conversion price in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately decreased, and in the
case the corporation shall at any time combine the outstanding shares of
common stock, the conversion price in effect immediately prior to such
combination shall be proportionately increased, effective at the close of
business on the date of such subdivision, dividend or combination, as the
case may be.
41
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 11 - STOCK OPTIONS (CONTINUED)
On January 30, 1998, the Company granted the option to purchase shares of
the Company's common stock to certain individuals at a purchase price for
each share subject to a fixed price per individual, that is equal to or
greater than 100% of the fair market value of such stock as determined
under the Solpower Corporation Stock Option and Incentive Plan (the Plan)
as of this date. Mr. James H. Hirst was granted 300,000, Mr. Trond
Matteson was granted 150,000 and Mr. Joshua Ward was granted 150,000
shares. The terms of such options shall commence as of January 30, 1998,
and expire on January 30, 2003 or the termination of employment of Mr.
Hirst or the services of Mr. Matteson or Mr. Ward.
The options shall vest independently with respect to each grantee based
upon two factors: (a) the minimum market price and (b) the minimum
reported gross revenues being achieved as illustrated in the table below:
Percentage Exercise Minimum Minimum Reported
Amount Price Market Price Gross Revenues
------ ----- ------------ --------------
Hirst 33 1/3% $1.00 $2.00 $6 million
33 1/3% $1.75 $3.00 $9 million
33 1/3% $2.50 $4.00 $12 million
Matteson/ 33 1/3% $1.00 $2.00 $6 million
Ward 33 1/3% $2.00 $3.00 $9 million
33 1/3% $3.00 $4.00 $12 million
The Minimum Reported Gross Revenues shall have been achieved during a
reporting period which is the lesser of (i) the four quarterly reporting
periods preceding any date on which the Minimum Market Price exists, and
(ii) that number of quarterly reporting periods occurring subsequent to
the date on which both Vesting Requirements last were achieved and any
date on which the next Minimum Market Price requirement is achieved.
Additionally, the options of Mr. Matteson shall not vest before August 1,
1998.
A Company's stock option transactions for the years ended March 31, 1998,
1997, and 1996 are summarized as follows:
Number of Option
Shares Price
------ -----
Options Granted Under Marketing Agreement 1,500,000 $0.20
During Fiscal Year Ended 2,000,000 0.25
March 31, 1997 7,500,000 0.30
5,000,000 0.32
---------
42
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 11 - STOCK OPTIONS (CONTINUED)
Number of Option
Shares Price
------ -----
Options Outstanding and Exercisable at
March 31, 1997 16,000,000 $0.20-$0.32
Cancellation of Options Per Amendment
Marketing Agreement (16,000,000)
Options Granted Under Amended 100,000 $2.50
Marketing Agreement 150,000 $3.50
250,000 $4.50
250,000 $5.00
Options Granted Under Stock Option 200,000 $1.00
and Incentive Plan 100,000 $1.75
100,000 $2.00
100,000 $2.50
100,000 $3.00
Options Outstanding and Exercisable
at March 31, 1998 1,350,000 $1.00-$5.00
===========
The Company has granted options to certain individuals subsequent to March
31, 1998. See Note 13.
NOTE 12 - DISCONTINUED OPERATIONS
The Company sold its virtual reality motion based simulator business in
early fiscal 1997 and recorded a loss of $118,885. No revenues or expenses
are included in the financial statements for the year ended March 31,
1997.
NOTE 13 - SUBSEQUENT EVENTS
MAY 28, 1998 - The Company granted the option to purchase shares of the
Company's common stock to certain directors at a purchase price for each
share subject to a fixed price per individual, that, with the exception of
the nonqualifying options, is equal to or greater than 100% of the fair
market value of such stock as determined under the Plan as of this date.
Mr. Fraser Moffat III was granted 350,000, 100,000 of which are
nonqualifying, Mr. Naoya Yoshikawa was granted 100,000, Mr. Jerry Goddard
was granted 100,000 shares and Mr. Jim Hirst was granted 100,000. The
options may be exercised in whole or in part at any time after the vesting
requirements with respect to any option shares has been achieved. The
terms of such options shall commence as of May 28, 1998, and expire on May
28, 2003, or the termination as directors of the Company.
43
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
The options shall vest independently with respect to each grantee,
provided each grantee is a director of the Company on such vesting date,
based upon two factors: (a) the minimum market price and (b) the minimum
reported gross revenues being achieved as illustrated in the table below:
Percentage Exercise Minimum Minimum Reported
Amount Price Market Price Gross Revenues
Moffat ------ ----- ------------ --------------
(Incentive Stock Options)
40% $3.00 $3.00 $6 million
40% $5.00 $5.00 $9 million
20% $7.00 $7.00 $12 million
(Nonqualifying Options)
Yoshikawa/ 100% $2.00 $2.00 $4 million
Goddard/ 50% $3.00 $3.00 $6 million
Hirst 50% $7.00 $7.00 $12 million
With respect to Mr.'s Yoshikawa, Goddard, and Hirst, the Minimum Reported
Gross Revenues shall have been achieved during a reporting period which is
the lesser of (i) the four quarterly reporting periods preceding any date
on which the Minimum Market Price exists, and (ii) that number of
quarterly reporting periods occurring subsequent to the date on which both
Vesting Requirements last were achieved and any date on which the next
Minimum Market Price requirement is achieved.
On May 18, 1998, Mr. Joshua Ward was terminated as a service provider to
the Company and the 150,000 nonqualifying options granted to Mr. Ward on
January 30, 1998, terminated on May 18, 1998.
JUNE 1, 1998 - The Company has leased a 2.24 acre site located in Elkhart,
Indiana, for activities including the manufacture and production of
SOLTRON, to service the Solpower Great Lakes and Solpower Southeast
licensees. The lease commences on June 1, 1998 and expires on May 31,
2003, at $2,500 per month. The Company has an option to renew this lease
for an additional period of five years commencing with the expiration of
the term granted.
JUNE 17,1998 - The Company entered into an agreements with Dominion
Capital Pty., Ltd. that gives the Company the exclusive North American
sales, distribution, marketing and manufacturing rights for SP34E, a
direct drop-in replacement refrigerant gas for R-12 and R-134a, in
exchange for the issuance of 6,000,000 common shares of the Company's
common stock and payment of a royalty of $2.25 per kilogram of SP34E sold.
44
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
JUNE 30, 1998 - The Company entered into two separate agreements with
Houston Mercantile Exchange, Inc. (licensee) for the exclusive use and
distribution of its product, SOLTRON, in the South territory, which
includes Texas, Oklahoma, and New Mexico, and the Mexico territory, which
includes Mexico exclusively.
The South license fee is $600,000, with a down payment of $60,000 due upon
signing the agreement. The licensee signed a promissory note for the
balance of $540,000 of the license fee due. The note bears interest at one
half percent (0.5%) on the unpaid principal balance, with all unpaid
principal and interest due on or before June 30, 2000.
The licensee is required to pay the Company the greater of the amount
payable per the payment schedule in the agreement or the product of $5.50
times the number of liters of concentrate shipped by the Company to the
licensee during the immediately preceding calendar month.
The Mexico license fee is $1,800,000, with a down payment of $180,000 due
upon signing the agreement. The licensee signed a promissory note for the
balance of $1,620,000 of the license fee due. The note bears interest at
one half percent (0.5%) on the unpaid principal balance, with all unpaid
principal and interest due on or before June 30, 2000.
The licensee is required to pay the Company the greater of the amount
payable per the payment schedule in the agreement or the product of $5.50
times the number of liters of concentrate shipped by the Company to the
licensee during the immediately preceding calendar month.
JULY 1, 1998 - The Company entered into an agreement with a related party,
Dominion Capital Securities, Inc., (an Arizona Corporation) to perform
investor relations and shareholders relations services commencing as of
this date and continuing until completion, which is expected to be within
the next six months. This agreement shall automatically renew for
successive six month periods, on terms and conditions yet to be agreed
upon, subject to termination by either party on thirty days written
notice. The Company agrees to pay Dominion Capital Securities, Inc. as
follows: (i) $125,000 in cash and 50,000 free trading shares upon
execution of this agreement, for a total of $275,000; and (ii) an option
to purchase 100,000 free trading shares valued at $3.00 per share. The
option term shall expire 24 months from the day this date.
JULY 1, 1998 - The Company granted the option to purchase 100,000 shares
of the Company's common stock to Dominion Capital Securities, Inc., at a
purchase price for each share subject to a fixed price, that is equal to
45
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
or greater than 100% of the fair market value of such stock as determined
under the Plan as of this date. The options may be exercised in whole or
in part at any time after the vesting requirements with respect to any
option shares that has been achieved. The terms of such options shall
commence as of July 1, 1998, and expire on July 1, 2000, or the
termination of grantee's service to the Company.
The options shall vest with respect to the grantee, provided grantee is
providing services to the Company on such vesting date, based upon two
factors: (a) the minimum market price and (b) the minimum reported gross
revenues being achieved as illustrated in the table below:
Percentage Exercise Minimum Minimum Reported
Amount Price Market Price Gross Revenues
------ ----- ------------ --------------
100% $3.00 $3.00 $6 million
The Minimum Reported Gross Revenues shall have been achieved during a
reporting period which is the lesser of (i) the four quarterly reporting
periods preceding any date on which the Minimum Market Price exists, and
(ii) that number of quarterly reporting periods occurring subsequent to
the date on which both Vesting Requirements last were achieved and any
date on which the next Minimum Market Price requirement is achieved.
46
<PAGE>
SOLPOWER CORPORATION
BALANCE SHEET
JUNE 30, 1998 (UNAUDITED) AND MARCH 31, 1998
ASSETS
June 30, 1998
(Unaudited) March 31, 1998
----------- --------------
Current Assets
Cash $ 305 $ 183,842
Inventory 94,830 101,906
License Fee Receivable 4,557,762 2,160,000
Stock Subscription Receivable 600,000 600,000
Accounts Receivable 38,803 0
Prepaid Expenses 0 2,917
----------- -----------
Total Current Assets 5,291,700 3,048,665
Property and Equipment, Net 147,455 131,942
Other Assets
Marketing Rights 93,333 35,833
Security Deposits 14,422 14,422
----------- -----------
Total Other Assets 107,755 50,255
----------- -----------
Total Assets $ 5,546,910 $ 3,230,862
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 0 $ 2,432
Capital Lease Obligation, Current Portion 3,517 4,575
Income Taxes Payable 825,444 14,914
----------- -----------
Total Liabilities 828,961 21,921
Long Term Liabilities
Capital Lease Obligation, Noncurrent Portion 5,167 5,167
Advances Payable, Related Party 169,891 39,725
----------- -----------
Total Long Term Liabilities 175,058 44,892
----------- -----------
Total Liabilities 1,004,019 66,813
Commitments and Contingencies
Stockholders' Equity
Preferred Stock; $0.001 Par Value, 5,000,000
Authorized; Issued and Outstanding, 0 0
Common Stock; $0.01 Par Value, 30,000,000
Authorized; Issued and Outstanding, 23,391,560
Shares at June 30, 1998 and 17,391,560 Shares
at March 31, 1998 233,916 173,916
Additional Paid in Capital 3,410,904 3,410,904
Less: Stock Subscription Receivable (300,000) (400,000)
Retained Earnings 1,198,071 (20,771)
----------- -----------
Total Stockholders' Equity 4,542,891 3,164,049
----------- -----------
Total Liabilities and Stockholders' Equity $ 5,546,910 $ 3,230,862
=========== ===========
The accompanying notes are an integral part of
these financial statements.
47
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS PERIOD ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
Three Months Ended
---------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Revenues
Sale of Licensed Territories $ 2,400,000 0
Product and Enzyme Sales 25,802 0
----------- -----------
Total Revenues $ 2,425,802 0
Expenses
General and Administrative 396,279 59,196
----------- -----------
Operating Income (Loss) 2,029,523 (59,196)
----------- -----------
Other Income (Expense)
Interest Income 309 0
Interest Expense (462) 0
Loss From Discontinued Operations -- 0
----------- -----------
Total Other Income (Expense) (153) 0
Net Income (Loss) Before Provision
For Income Taxes 2,029,370 (59,196)
Provision For Income Taxes 810,530 0
----------- -----------
Net Income (Loss) Available to
Common Stockholders $ 1,218,840 $ (59,196)
=========== ===========
Earnings (Loss) Per Common Share
Equivalents $ 0.07 $ (.006)
=========== ===========
Weighted Number of Common Shares and
Common Share Equivalents Outstanding 17,891,560 10,271,560
=========== ===========
The accompanying notes are an integral part of
these financial statements
48
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS PERIOD ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
For the Three Months Period Ended
---------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Cash Flows From Operating Activities
Net Income (Loss) $ 1,218,840 $ (59,196)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided By (Used in)
Operating Activities
Depreciation and Amortization 9,369 4,577
Other Non-Cash Items -- 520,000
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (38,803) --
(Increase) Decrease in License Fee Receivable (2,397,762) --
(Increase) Decrease in Inventory 7,076 --
(Increase) Decrease in Prepaid Expenses 2,917 --
(Increase) Decrease in Security Deposits -- --
Increase (Decrease) in Accounts Payable (2,432) --
Increase (Decrease) in Income Taxes Payable 810,530 --
----------- ---------
Total Adjustments (1,609,105) $ 524,577
----------- ---------
Net Cash (Used In) Provided By Operating
Activities (390,265) 465,381
Cash Flows From Investing Activities:
Capital Expenditures (22,383) --
Sale of Equipment and Marketing Rights -- --
----------- ---------
Net Cash Flows Used In Investing Activities (22,383) --
Cash Flows From Financing Activities -- --
Proceeds From Stock Subscription Receivable 100,000 --
Capital Lease Obligations (1,058) --
Net Advances (Repayments) From Stockholders 130,169 (465,360)
----------- ---------
Net Cash Provided by (Used in)
Financing Activities 229,111 (465,360)
----------- ---------
Increase (Decrease) in Cash and Cash Equivalents (183,537) 21
Cash and Cash Equivalents, Beginning of Period 183,842 437
----------- ---------
Cash and Cash Equivalents, End of Period $ 305 $ 458
=========== =========
Supplemental Information
Cash Paid For:
Interest $ 462 $ --
=========== =========
Income Taxes $ -- $ --
=========== =========
Non-Cash Investing and Financing:
Issuance of Common Stock for Marketing
Rights (Note 2) $ 60,000 $ 0
=========== =========
Issuance of Common Stock In Exchange for a
Cancellation of Notes Payable $ 0 $ 520,000
=========== =========
The accompanying notes are an integral part of
these financial statements.
49
<PAGE>
SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998 AND 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, such statements do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months period ended June 30, 1998, are not
necessarily indicative of the results that may be expected for the year
ended March 31, 1999. The unaudited condensed financial statements should
be read in conjunction with the financial statements and footnotes thereto
included in the Company's annual report included on Form 10-SB for the
year ended March 31, 1998.
NOTE 2 - MARKETING RIGHTS
On June 17, 1998, the Company issued 6,000,000 shares of common stock at
$.01 per share, or $60,000 in exchange for the exclusive North America
sales, distribution, marketing, and manufacturing rights for SP34E, a
direct drop-in replacement refrigerant gas for R-12 and R-134a. The
Company also will make royalty payments of $2.25 per kilogram of SP34E
sold.
50
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
2.11 Articles of Merger, merging Virtual Technologies Inc., a Utah
Corporation, into Virtual Technologies Inc., a Nevada Corporation,
dated July 26, 1996.
2.2(1) Plan of Merger of the Company, merging Virtual Technologies Inc., a
Utah Corporation into Virtual Technologies Inc., a Nevada
Corporation, dated July 19, 1996.
3.1(1) Restated Articles of Incorporation of Solpower Corporation dated
November 24, 1997.
3.2(1) Amended and Restated Bylaws of Solpower Corporation dated November
24, 1997.
10.1(1) Acquisition Agreement dated November 4, 1996 between Dominion Capital
Pty. Ltd. and Virtual Technologies, Inc. for the Distribution &
Manufacturing Rights of SOLTRON Product.
10.2(1) Acquisition Agreement amendment dated November 24, 1997 outlining
clarifications and extensions of original Acquisition Agreement dated
November 4, 1996.
10.3(1) Addendum to Acquisition Agreement dated May 13, 1998.
10.4(1) Acquisition Agreement dated June 17, 1998 between Dominion Capital
Pty. Ltd. and Solpower Corporation for the Distribution and
Manufacturing Rights of SP34E Product.
10.5(1) Form of Master License Agreement.
10.6(1) Form of Security Agreement.
10.7(1) Property Lease Agreement between Arizona Industrial Capital Limited
Partnership and Virtual Technologies, Inc. dated August 25, 1997.
10.8(1) Property Lease Agreement and amendments between Scottsdale Stetson
Corporation and Virtual Technologies, Inc. dated March 12, 1997.
10.9(1) First Amendment to Property Lease Agreement between Scottsdale
Stetson Corporation and Virtual Technologies, Inc.
10.10(1) Second Amendment to Property Lease Agreement between Scottsdale
Stetson Corporation and Virtual Technologies, Inc.
10.11(1) Commercial Lease between D.I. South, Inc. and Solpower Corporation
dated June 1, 1998
10.12(1) Solpower Corporation Stock Option and Incentive Plan dated November
22, 1997.
10.13(1) Territory Licensee Finders Fee Agreement between Virtual
Technologies, Inc. and Charles C. Van Zee dated November 5, 1997.
10.14(1) Territory Licensee Finders Fee Agreement between Solpower Corporation
and Josh Ward dated February 1, 1998.
51
<PAGE>
10.15(1) Territory Licensee Finders Fee Agreement between Solpower Corporation
and Trond Matteson dated February 1, 1998.
10.16(1) Client Services Agreement between Solpower Corporation and Dominion
Capital Securities, Inc. dated July 1, 1998.
11.1 Statement re Computation of Per Share Earnings.
23.1 Auditor's Consent.
27.1 Financial Data Schedule.
- ----------
(1) Incorporated by reference from the Company's Form 10-SB as
filed on August 21, 1998.
52
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
SOLPOWER CORPORATION
(Registrant)
Dated: December 31, 1998 By:/s/ James H. Hirst
---------------------------------------
James H. Hirst, Chief Executive Officer
53
SOLPOWER CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
FULLY DILUTED QUARTER ENDED QUARTER ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997 MARCH 31, 1998 MARCH 31, 1997
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Common Shares outstanding
Beginning of year 17,391,560 9,231,560 9,231,560 3,557,500
Effect of weighting shares:
Stock Options 0 0 590,909 0
Issuance of Common Stock 6,000,000 4,160,000 5,160,000 3,550,000
Reverse Split 0 0 0 (2,845,940)
----------- ----------- ----------- ----------
Weighted average number of
Common Shares and Common
Share equivalents Outstanding 17,891,562 10,271,560 14,982,469 4,261,560
=========== =========== =========== ==========
Net Income (Loss) available
for common Stock $ 1,218,840 $ (59,196) $ 1,411,928 $ (976,764)
=========== =========== =========== ==========
Earnings per Common and
Common Equivalent Share $ 0.07 $ (0.006) $ 0.09 $ (0.23)
=========== =========== =========== ==========
</TABLE>
AUDITOR'S CONSENT
The undersigned, Certified Public Accountants, do hereby consent to the
use of the certified financial statements as of March 31, 1998 and 1997,
prepared by the undersigned as appearing in the disclosure documents of Solpower
Corporation, a Nevada corporation, in connection with the filing of its Form
10-SB/A.
Dated: December 31, 1998
CLANCY AND CO., P.L.L.C.
2601 East Thomas Road, Suite 110
Phoenix, Arizona 85016
/s/ Clancy and Co., P.L.L.C.
----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998 MAR-31-1998 MAR-31-1997
<PERIOD-START> APR-01-1998 APR-01-1997 APR-01-1997 APR-01-1996
<PERIOD-END> JUN-30-1998 JUN-30-1997 JUN-30-1998 JUN-30-1997
<EXCHANGE-RATE> 1 1 1 1
<CASH> 305 0 183,842 437
<SECURITIES> 0 0 0 0
<RECEIVABLES> 5,496,565 0 3,160,000 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 94,830 0 101,906 0
<CURRENT-ASSETS> 5,591,700 0 3,448,665 437
<PP&E> 147,455 0 131,942 49,050
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 5,846,910 0 3,630,862 97,482
<CURRENT-LIABILITIES> 828,961 0 21,921 0
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 233,916 0 173,916 92,316
<OTHER-SE> 3,410,904 0 3,410,904 972,504
<TOTAL-LIABILITY-AND-EQUITY> 5,846,910 0 3,630,862 97,482
<SALES> 25,802 0 0 0
<TOTAL-REVENUES> 2,425,802 0 2,400,000 0
<CGS> 0 0 0 0
<TOTAL-COSTS> 396,279 59,196 975,379 857,879
<OTHER-EXPENSES> 153 0 2,221 118,885
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 153 0 2,221 0
<INCOME-PRETAX> 2,029,370 (59,196) 1,426,842 (976,764)
<INCOME-TAX> 810,530 0 14,914 (976,764)
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 (118,885)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,218,840 (59,196) 1,411,928 (976,764)
<EPS-PRIMARY> 0 0 0 0
<EPS-DILUTED> .07 (.006) .09 (0.23)
</TABLE>
