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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from _____________ to _______________
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Commission File Number 001-14439
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SOLPOWER CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 87-0384678
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
7309 East Stetson Drive, Suite 102
Scottsdale, Arizona 85251
(Address of Principal Executive Offices)
(480) 947-6366
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
equity was 28,250,691 shares of common stock, par value $.01, as of September
30, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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<PAGE>
SOLPOWER CORPORATION
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements................................................ 2
Balance Sheet
September 30, 2000 (unaudited) and March 31, 2000.................... 2
Statements of Operations
For the Three and Six Months Ended September 30, 2000 (unaudited)
and 1999 (unaudited)................................................. 3
Statement of Stockholders' Equity
For the Six Months Ended September 30, 2000 (unaudited).............. 4
Statements of Cash Flows
For the Six Months Ended September 30, 2000 (unaudited)
and 1999 (unaudited)................................................. 5
Notes to the Financial Statements...................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 8
PART II
OTHER INFORMATION
Item 2. Changes in Securities............................................... 9
Item 6. Exhibits and Reports on Form 8-K.................................... 9
SIGNATURES.................................................................. 10
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOLPOWER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 184,355 $ 34,299
Accounts receivable 130,924 79,726
Receivable from related party 15,362 --
Tax credit receivable 17,787 --
Prepaid expenses 68,340 --
Inventory 498,593 21,624
----------- -----------
Total Current Assets 915,361 135,649
----------- -----------
Property & Equipment, net 700,661 377,762
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Other Assets:
Marketing licenses, net 2,388,333 2,558,333
Goodwill, net 373,656 --
----------- -----------
2,761,989 2,558,333
----------- -----------
$ 4,378,011 $ 3,071,744
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 156,781 $ --
Loans payable to related parties 226,390 130,390
Accounts payable - trade 457,457 330,093
- related parties 155,249 107,118
Accrued expenses 133,243 309,929
Customer deposits 68,991 --
----------- -----------
Total Current Liabilities 1,198,111 877,530
Long-Term Liabilities:
Loans payable to related parties, less current portion 1,415,299 212,114
Loan payable - bank 127,846 --
Deferred income taxes 14,366 --
----------- -----------
Total Liabilities 2,755,622 1,089,644
----------- -----------
Minority Interest in Subsidiary 134,344 --
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $0.001 par value, 5,000,000 shares
authorized; issued and outstanding, none -- --
Common stock; $0.01 par value, 30,000,000 shares authorized;
issued and outstanding 28,250,691 and 27,316,066, respectively 282,507 273,161
Additional paid in capital 9,196,292 8,741,730
Accumulated deficit (7,990,754) (7,032,791)
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1,488,045 1,982,100
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$ 4,378,011 $ 3,071,744
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS
2
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SOLPOWER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales - fuel additive $ 78,093 $ 47,818 $ 199,432 $ 73,257
Sales - refrigerant 113,650 -- 113,650 --
------------ ------------ ------------ ------------
191,743 47,818 313,082 73,257
------------ ------------ ------------ ------------
Cost of Sales:
Fuel additive 77,188 76,669 169,722 209,634
Refrigerant 75,405 -- 75,405 --
------------ ------------ ------------ ------------
152,593 76,669 245,127 209,634
------------ ------------ ------------ ------------
Gross Profit (Loss) 39,150 (28,851) 67,955 (136,377)
Operating Expenses:
General and administrative 490,354 755,687 878,108 1,091,615
------------ ------------ ------------ ------------
Loss from Operations (451,204) (784,538) (810,153) (1,227,992)
------------ ------------ ------------ ------------
Other Income (Expense):
Interest income 124 -- 357 --
Foreign currency transaction gain 7,533 -- 15,327 --
Settlement costs -- -- (60,000) --
Interest expense (88,493) -- (103,843) (140)
------------ ------------ ------------ ------------
Total Other Income (Expense) (80,836) -- (148,159) (140)
------------ ------------ ------------ ------------
Net Loss Before Minority Interest
and Provision for Income Taxes (532,040) (784,538) (958,312) (1,228,132)
Minority Interest 349 -- 349 --
Provision for Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Net Loss $ (531,691) $ (784,538) $ (957,963) $ (1,228,132)
============ ============ ============ ============
Basic Loss Per Share $ (0.02) $ (0.03) $ (0.03) $ (0.05)
============ ============ ============ ============
Weighted Average Number of
Shares Outstanding 27,841,321 23,456,560 27,582,588 23,456,560
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS
3
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SOLPOWER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, March 31, 2000 (audited) 27,316,066 $273,161 $8,741,730 $(7,032,791) $ 1,982,100
Issuance of common stock for license
terminations, interest and property 784,625 7,846 306,004 -- 313,850
Issuance of common stock pursuant to
employment agreements 150,000 1,500 68,558 -- 70,058
Issuance of warrants pursuant to debt
agreements -- -- 80,000 -- 80,000
Loss for the six months ended
September 30, 2000 (unaudited) -- -- -- (957,963) (957,963)
---------- -------- ---------- ----------- -----------
Balance, September 30, 2000 (unaudited) 28,250,691 $282,507 $9,196,292 $(7,990,754) $ 1,488,045
========== ======== ========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS
4
<PAGE>
SOLPOWER CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended September 30,
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2000 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (957,963) $(1,228,132)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 226,622 100,486
Non-cash transactions 428,908 11,250
Changes in operating assets and liabilities:
Accounts receivable - trade 93,881 (13,814)
Receivable from related party (15,362) --
Tax credit receivable 246 --
Prepaid expenses (36,871) --
Inventory 103 20,146
License fee receivable -- 2,400,000
Bank overdraft 96,558 --
Accounts payable - trade (184,461) (38,585)
- related party 48,131 --
Accrued expenses (230,573) 134,893
Customer deposits (82,785) --
Minority interest in subsidiary (349) --
Deferred revenue -- (2,400,000)
Deferred income taxes (35) --
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Net Cash Used by Operating Activities (613,950) (1,013,756)
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Cash Flows from Investing Activities:
Capital expenditures (92,582) (16,107)
Cash acquired with acquisition 72,819 --
Investment in subsidiary (508,350) --
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Net Cash Used by Investing Activities (528,113) (16,107)
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Cash Flows From Financing Activities:
Advances from related parties 1,317,450 (354,061)
Payment on capital lease obligation -- (2,398)
Proceeds from convertible notes payable -- 1,500,000
Payments on note payable bank (7,066) --
Payments to related parties (18,265) --
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Net Cash Provided by Financing Activities 1,292,119 1,143,541
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Increase (Decrease) in Cash and Cash Equivalents 150,056 113,678
Cash and Cash Equivalents, Beginning of Period 34,299 2,228
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Cash and Cash Equivalents, End of Period $ 184,355 $ 115,906
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</TABLE>
(Continued)
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS
5
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SOLPOWER CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
2000 1999
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SUPPLEMENTAL INFORMATION:
Cash Paid for:
Interest $ 1,179 $ --
Non-cash Investing and Financing:
Issuance of shares of common stock for conversion of debt $203,500 $ --
Issuance of shares of common stock for settlement costs $ 75,350 $ --
Issuance of shares of common stock for equipment $ 35,000 $ --
Issuance of shares of common stock pursuant to
employment agreements $ 70,058 $ --
Issuance of warrants pursuant to debt agreements $ 80,000 $ --
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS
6
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SOLPOWER CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDING SEPTEMBER 30, 2000
NOTE 1 - BASIS OF PREPARATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. These 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 six-month period ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ended March 31,
2001. The unaudited condensed consolidated financial statements should be read
in conjunction with the audited financial statements and footnotes thereto for
the year ended March 31, 2000 included in the Company's report on form 10-KSB.
NOTE 2 - REAL ESTATE LEASE
On August 14, 2000, the Company entered into a lease for 1,364 feet of
office space for its executive offices in Scottsdale, Arizona. The lease expires
in June 30, 2001 and has a minimum monthly rental obligation of approximately
$2,100.
NOTE 3 - CONVERTIBLE PROMISSORY NOTE
On September 18, 2000, the Company issued a $250,000 Convertible Promissory
Note to Dominion Capital Pty Ltd. The note matures on September 18, 2001, is
convertible into common shares of the Company at the lesser of the market price
on the date conversion notice is given to the Company or $0.40 per share for the
amount of principal outstanding at conversion. The note bears interest at 8%
percent per annum payable quarterly in arrears.
NOTE 4 - ACQUISITION OF PROTOCOL RESOURCE MANAGEMENT INC.
On August 30, 2000, the Company acquired 50% of the outstanding stock of
Protocol Resource Management, Inc., a private Ontario corporation with offices
in Aurora, Ontario, Canada. PICO Holdings, In., a NASDAQ listed California
corporation, acquired the remaining 50% interest in Protocol under the same
agreement. Protocol and the Company were previously engaged in a joint venture
for the manufacture and distribution of SP34E(TM) through Solpower Canada Inc.,
an Ontario corporation, owned equally by Protocol and the Company.
The amount paid for the acquisition was $1,500,000 (CAN) $1,016,700 (US) in
the form of $1,000,000 (CAN) $677,800 (US) cash at closing, of which half was
paid by the Company and half by PICO Holdings, Inc., and promissory notes due on
the second and third anniversaries of the closing date. The promissory notes
were issued by PICO. Solpower issued a note in the amount of $250,000 (CAN)
$173,974 (US) to PICO which represented one-half of the amount of the note
issued by PICO Holdings Inc. in the Protocol acquisition. In the event that the
annual average EBITDA (Earnings Before Interest, Taxes, Depreciation,
Amortization) of Protocol for the first two years following closing is not at
least $250,000 (CAN) $173,974 (US), the amount of the second anniversary payment
will be reduced based on a formula. In the event that the annual EBITDA of
Protocol for third year following closing is not at least $250,000 (CAN)
$173,974 (US), the amount of the third anniversary payment will also be subject
to reduction based on a formula.
7
<PAGE>
The funds used by the Company to complete its portion of acquisition were
provided in the form of two working capital loans from PICO in the aggregate
amount of US$669,450. The shares of Protocol held by the Company as a result of
the acquisition secure the loans. The Company granted PICO a warrant to purchase
1,000,000 shares of its common stock at $0.43 (110% of the market price on the
date funds were advanced). The term of the promissory note is for three years,
with interest at LIBOR plus 2% payable semi-annually.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1999
Revenues for the six months ended September 30, 2000 were $313,082 as
compared to $73,257 for the six months ended September 30, 1999. This 327%
increase in revenues resulted primarily from improved Soltron sales in several
expanding regional markets and the inclusion of the Protocol's refrigerant sales
of $113,650 for the month of September 2000.
General and administrative costs were $878,108 for the six months ended
September 30, 2000 compared to $1,091,615 for the six months ended September 30,
1999. The 20% decrease in costs were due to a decrease in expenses associated
with administration and a reduction in other non-recurring expenses associated
with a reorganization of operations.
We experienced a net loss of $957,963 for the six-month period ended
September 30, 2000 as compared with $1,228,132 for the six-month period ended
September 30, 1999. The 22% decrease was due to increased sales and a reduction
in marketing and administrative personnel and other reorganization efficiencies.
This decrease would have been greater except for the commencement of
amortization of intangible assets in the amount of $120,000 and a non-cash item
classified as interest expense resulting from the Black-Scholes option pricing
model applied to the warrant issued to PICO Holdings, Inc. in the amount of
$80,000.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues for the three months ended September 30, 2000 were $191,743 as
compared to $47,818 for the three months ended September 30, 1999. This 301%
increase in revenues resulted primarily from improved Soltron sales in several
expanding regional markets and the inclusion of the Protocol refrigerant sales
of $113,650 for the month of September 2000.
General and administrative costs were $490,354 for the three months ended
September 30, 2000 compared to $755,687 for the three month period ended
September 30, 1999. The 35% decrease in costs were due to a decrease in expenses
associated with administration and a reduction of other non-recurring expenses
associated with a reorganization of operations.
We experienced a net loss of $531,691 for the three months ended September
30, 2000 as compared with $784,538 for the three months ended September 30,
1999. The 32% decrease was due to increased sales and a reduction in marketing
and administrative personnel and other reorganization efficiencies. This
decrease would have been greater except for the commencement of amortization of
intangible assets in the amount of $120,000 and a non-cash item classified as
interest expense resulting from the Black-Scholes option pricing model applied
to the warrant issued to PICO Holdings, Inc. in the amount of $80,000.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had cash and cash equivalents, net of bank
overdrafts, of $27,574 as compared to $34,299 as of March 31, 2000. Cash
utilized in operations was $613,950 for the six months ending September 30, 2000
as compared to $1,013,756 for the same period in 1999. We utilized $528,113 cash
in investing activities for the six months ended September 30, 2000, a
significant increase over the cash used in investment activities in the amount
of $16,107 for the six months ended September 30, 2000. The primary use of cash
in investing activities related to our acquisition of Protocol.
We generated $1,292,119 cash from net financing activities in the six
months ending September 30, 2000, primarily due to advances from related
parties. This compares to $1,143,541 of cash generated from net financing
activities during the period ended September 30, 1999, the major component of
which resulted from the placement of a $1,500,000 convertible note.
We anticipate future liquidity needs for product production and operations
will be met through increased product sales supplemented by equity and debt
financings primarily from our major shareholder, Dominion Capital Pty Ltd.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On August 23, 2000, we issued a warrant to PICO Holdings, Inc. to purchase
1,000,000 shares of our common stock at $0.43 per share. This price equals 110%
of the market price of the shares of the date of issuance of the warrant. The
warrant was issued in conjunction with a working capital loan in the amount of
$500,000 we received from PICO Holdings. The proceeds of the loan were partially
used for the purchase of our 50% interest in Protocol Resource Management, Inc.
We also issued a note in the amount of $250,000 (CAN) $173,947 (US) as
additional consideration for the Protocol acquisition. The warrant was issued in
reliance on the exemption from registration of the security provided by section
4(2) of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.23 Share Purchase Agreement dated August 21, 2000 among Solpower and
Pico Holdings, Inc. ("Pico") and James W. Flowers, Patricia G.
Flowers and Florcor, Inc.
10.24 Shareholders Agreement dated August 28, 2000 among Protocol
Resource Management, Inc., Pico and Solpower
10.25 Nonnegotiable Secured Promissory Note in the principal amount of
$500,000 dated August 28, 2000 issued by Solpower to Pico
10.26 Nonnegotiable Secured Promissory Note in the principal amount of
$250,000 dated August 28, 2000 issued by Solpower to Pico
10.27 Warrant dated August 28, 2000 issued by Solpower to Pico
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
One Form 8-K was filed during the three months ended September 30, 2000.
The Form 8-K reported the acquisition of Protocol.
9
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
SOLPOWER CORPORATION
(Registrant)
Dated: November 17, 2000 By /s/ James H. Hirst
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James H. Hirst
Chief Executive Officer
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