U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to ________________
Commission File Number: 0-29780
SOLPOWER CORPORATION
(Name of Small Business Issuer in Its Charter)
Nevada 87-0384678
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
7309 East Stetson Drive, Suite 102, Scottsdale, Arizona 85251
(Address of Principal Executive Offices) (Zip Code)
(480) 947-6366
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were $280,309.
The aggregate market value of the common stock held by non-affiliates
computed based on the closing price of such stock on March 31, 2000 was
approximately $17,151,125.
The number of shares outstanding of the registrant's classes of common
stock, as of March 31, 2000 was 27,316,066.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
Except for historical information contained herein, this Form 10-KSB
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"). We intend that
the forward-looking statements be subject to the safe harbors created by these
statutory provisions. 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. Wherever possible, we have identified the
forward-looking statements by words such as "ANTICIPATES," "BELIEVES,"
"CONTEMPLATES," ESTIMATES," "EXPECTS," "INTENDS," "PLANS," "PROJECTS,"
"FORECASTS" and similar expressions.
Our forward-looking statements reflect only our current views with respect
to future events and financial performance or operations and speak only as of
the date the statements are made. Our 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 "DESCRIPTION OF BUSINESS -
FACTORS AFFECTING FUTURE PERFORMANCE" and "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 we believe 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
"DESCRIPTION OF BUSINESS - FACTORS AFFECTING FUTURE PERFORMANCE," our business
and operations are subject to substantial risks which increase the uncertainties
inherent in the forward-looking statements included in this Form 10-KSB.
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. We disclaim
any obligation to subsequently revise forward-looking statements to reflect
subsequent events or circumstances or the occurrence of unanticipated events.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
We are in the business of producing, marketing and distributing a
proprietary enzyme-based fuel enhancing product, SOLTRON(TM), and an ozone safe
alternative refrigerant, SP34E(TM). Our business plan contemplates distribution
of these products throughout the United States, Canada and Mexico. We distribute
SOLTRON(TM) through traditional channels, including fuel wholesalers, oil
distributors for bulk treatment and marine and automotive after-market stores,
and directly to end users. Manufacturing of SP34E(TM) commenced in Canada in
May, 1999 and we expect distribution to be through wholesale distributors of
refrigeration products and automotive aftermarket air conditioning service
centers. We also have the right to acquire certain other international Solpower
operations and marketing territories.
We were originally incorporated in Utah in 1982 with the name Dynafuel
Corporation and our original business involved research and development of an
experimental fuel using alcohol and other chemicals in a proprietary combination
to produce a gasoline-like motor fuel. We ceased those operations in 1988 and
remained dormant until 1995, at which time we acquired the marketing rights to a
virtual reality motion based simulator and changed our name to Virtual
Technologies, Inc. In July 1996, we merged into a newly-formed subsidiary
incorporated in Nevada in order to change our domicile to the State of Nevada.
During the fiscal year ended March 31, 1997, we sold the motion based simulator
contract and related assets.
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In November 1996, we entered into a licensing agreement with Dominion
Capital Pty Ltd. ("DOMINION Capital") to acquire the exclusive manufacturing,
distribution, marketing and sales rights for SOLTRON(TM) in the United States,
Canada and Mexico. As a result of entering into this licensing agreement,
Dominion Capital and its affiliates gained control of the Company and a new
Board of Directors and new management were installed. A corporate philosophy of
acquiring and commercializing environmentally friendly products was initiated.
In June 1998, we entered into a second licensing agreement with Dominion Capital
and acquired the exclusive manufacturing, distribution, marketing and sales
rights for the product SP34E(TM) in the United States, Canada and Mexico.
PRODUCTS
SOLTRON(TM). SOLTRON(TM) 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. Use data has shown that, when added to fossil
fuels, SOLTRON(TM) reduces particulate exhaust emissions and smoke, improves
fuel economy, controls fuel sludge and other impurities and ultimately lowers
engine maintenance costs. In addition, when mixed with liquid fuels, SOLTRON(TM)
changes the fuel's molecular structure and improves its oxygen absorption and
combustion efficiency. The enzymes contained in SOLTRON(TM) essentially "FEED"
on the contaminants that cause fuel degradation. SOLTRON(TM) 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. We are continuing to conduct field and
objective laboratory testing of SOLTRON(TM) and we are developing a database of
independent test data regarding the effects of use of SOLTRON(TM) as a fossil
fuel additive.
We are marketing SOLTRON(TM) in North America as a natural enzyme product
that will reduce emissions, improve fuel economy and reduce engine maintenance.
SOLTRON(TM) has been sold commercially in Japan since 1993 and in Australia
since 1996 and was awarded the 1997 Best New Aftermarket Product Award
(Chemical) by the Australian Automotive Aftermarket Association.
SP34E(TM). SP34E(TM) is a refrigerant developed in Japan by the
Kinoh-Kinzohu Company as a replacement for ozone-depleting fluorinated
refrigerants commonly used today. SP34E(TM) is currently sold in Japan,
Australia and other Asian rim countries. We currently market SP34E(TM) in Canada
and will commence marketing in the United States upon obtaining Environmental
Protection Agency approvals, expected by October 2000. See, "REGULATION" below.
Applications of this product include automotive, domestic, commercial and
transport refrigeration and air conditioning systems as an alternative to Freon
(R-12) and other fluorinated refrigerants. SP34E(TM) generally does not require
replacement of mechanical components or removal of mineral oils that are found
in older refrigeration systems and it has a lower discharge pressure and a much
shorter atmospheric life span than other commonly used refrigerants.
SP34E(TM) is currently marketed to various companies in Australia, New
Zealand, Japan and Canada. Significant use data has been developed for this
product, the results of which have consistently shown that SP34E(TM) is an
acceptable near "DROP-IN" replacement for R-12 in mineral oil based refrigerant
applications. In March of 1999, the Company entered into a joint venture with
Protocol Resource Management, Inc., a Canadian company, to manufacture and
distribute SP34E(TM) in Canada. Sales of SP34E(TM) did not commence in Canada
until the summer of 2000.
SUPPLIERS
SOLTRON(TM) consists of natural organic enzymes mixed with low odor base
solvent. The enzyme concentrate used in the manufacture of SOLTRON(TM) is
produced exclusively by Neway Japan K.K. of Tokyo, Japan and supplied to us
through our licensing agreement with Dominion Capital. Neway Japan K.K. has
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informed us that it currently has sufficient inventory of enzyme concentrate on
hand to supply our anticipated needs through 2000 and 2001. Low odor base
solvent is readily available through numerous local suppliers. We have also
developed our own proprietary bottle design for retail packaging and have
selected manufacturers that can produce our bottles in quantities sufficient to
meet our anticipated needs.
The components of SP34E(TM) are not unique and are readily available from
numerous local and national suppliers.
MARKETING STRATEGIES
The fuel market may be divided into distinct groups such as gasoline,
diesel, bunker and aviation fuel users. These groups can be further subdivided
into distinct user segments, such as commercial transport fleets, government
fleets, marine transport fleets, retail distribution and industrial. We believe
that SOLTRON(TM) is able to greatly benefit fuel consumers in all of these
markets.
The United States Environmental Protection Agency ("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. We believe that this
increased regulation will create opportunities for consumer acceptance of
SOLTRON(TM) and we are focusing on all North American markets. Our objective is
to penetrate the fuel treatment market and increase fuel treatment usage of
SOLTRON(TM) over a five year period while establishing consumer recognition of
the SOLTRON(TM) brand name. We intend to exploit our SOLTRON(TM) manufacturing,
marketing, sales and distribution rights in the United States, Canada and Mexico
initially through the appointment of distributors.
Until recently, we were party to licensing agreements with Masters
Marketing Group, Inc. for the Great Lakes Territory (Ohio, Indiana, Michigan,
Illinois and Wisconsin), Solpower Southeast Corporation for the Southeast
Territory (Alabama, Arkansas, Florida, Georgia, Louisiana and Mississippi) and
with Houston Mercantile Exchange, Inc. for the South (Oklahoma, New Mexico and
Texas) and Mexico Territories. We terminated these licensing arrangements in
May, September and November of 1999, respectively, and we now manage all our
manufacturing and distribution systems at the company level, with no outsourcing
or licensing to third parties. See "NOTES TO THE FINANCIAL STATEMENTS - Note 2."
We are currently marketing SOLTRON(TM) using traditional marketing channels to
develop sales and product awareness.
We began distribution of SOLTRON(TM) in June 1998. We are currently
utilizing oil marketers, independent sales representatives and direct sales
activities to provide a focused marketing effort, which we believe will expose
SOLTRON(TM) directly to prospective customers. We also anticipate utilizing
other traditional distribution channels including an Internet Web site, resale
distribution through small retail chains, resale distribution through large
retail chains, mass merchandising, multi-level free-enterprise systems, home
network sales, catalogue and direct mailing, and telemarketing to develop a
national marketing effort. Our goal is to successfully penetrate and create a
substantial demand for SOLTRON(TM) in each user market segment.
We employ an area sales manager for the southern California region whose
sales orders are serviced from our Phoenix, Arizona production facility. We are
developing new and improving existing products through direct contact with end
users. Other activities to promote our products include the identification and
development of operations, marketing, accounting and administrative systems, all
of which we also hope will increase our efficiency, the establishment of a
corporate communications system supported by an in-house desktop publishing
department and redesign and upgrade of our corporate image with new logos, web
site, product brochures, trade show materials, product labeling and packaging
and all related marketing materials.
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SP34E(TM) is a near "DROP-IN" refrigerant that replaces R-12 refrigerants
in mineral oil based refrigerant applications. SP34E(TM) can, in most cases, be
used simply in place of conventional refrigerants, without requiring
modifications to the refrigeration or cooling equipment. Refrigerants are widely
used in motor vehicle 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 refrigerants. CFCs used as
refrigerants include R-12, HCFCs include R-406A, and HFCs include R-134a.
Emissions of CFCs and HCFCs 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 2030. Although HFCs also contain gases that have global warming
potential, HFCs have not yet been banned or scheduled for phase-out. HFCs,
however, are generally less effective as a refrigerant than CFCs or HCFCs. We
intend to market SP34E(TM) as an environmentally safe replacement for R-12
refrigerants with greater efficiency and less environmental impact.
We have entered into a joint venture with Protocol Resource Management,
Inc. ("PROTOCOL") of Aurora, Ontario Canada, to manufacture and distribute
SP34E(TM) in Canada. Protocol was founded in 1993 and provides a full range of
refrigerant management services. It has expanded to become the largest R-134a
repackaging operation in Canada and has established a number of innovative
refrigerant programs for some of the largest original equipment manufacturers in
the Canadian and U.S. refrigerant industry. We anticipate developing a marketing
strategy for certain market segments and that we will also market this product
directly. The joint venture is a Canadian corporation equally owned by us and
Protocol.
PRODUCT RIGHTS ACQUISITION AGREEMENTS
In 1996, we acquired the exclusive rights to produce, market and distribute
SOLTRON(TM) in North America through an agreement with Dominion Capital in
consideration for 5,000,000 shares of our 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 may be renewed at our option for an
additional five year term. We also have a right of first refusal to
commercialize SOLTRON(TM) and other products controlled by Dominion Capital on a
global basis, except Japan, on terms to be negotiated on a territory by
territory and product by product basis.
In June 1998, we acquired the exclusive rights to produce, market and
distribute SP34E(TM) in North America through an agreement with Dominion Capital
in consideration for 6,000,000 shares of our common stock and the payment to
Dominion Capital of a royalty of $2.25 per kilogram of SP34E(TM) that we sell.
The initial term of the agreement was for five years and was amended in June
1999 to commence on the date we first achieved sales of SP34E(TM) sufficient to
establish a predictable growth rate or July 1, 2000, whichever came first. This
agreement may also be renewed for an additional five years at our option.
PROPRIETARY RIGHTS
We rely on a combination of trade secret and copyright laws and
confidentiality and non-compete agreements to establish and protect our
proprietary rights in our products. However, there can be no assurance that any
confidentiality or non-compete agreement between us and our employees or
consultants will provide meaningful protection for our proprietary information
in the event of any unauthorized use or disclosure of such proprietary
information.
We have applied with the United States Patent and Trademark Office
("USPTO") for a trademark registration for SOLTRON(TM) and have received
acceptance for service mark registration for the mark SOLPOWER. We have also
registered SOLTRON(TM) with the EPA for use as an aftermarket additive and for
bulk fuel treatment. Dominion Capital has applied with the USPTO for trademark
registration for SP34E(TM).
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COMPETITION
We compete with numerous well-established fuel additive and chemical
products companies that possess substantially greater experience and financial,
marketing, personnel and other resources than we do. Many of our 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.
Some products already in the marketplace that may compete directly with
SOLTRON(TM) include STP Gas Treatment, STP Diesel Treatment and STP Smoke
Treatment (all produced by First Brands Corporation), Slick 50 (produced by
Slick 50 Products Corporation), Valvtect VT-5000 (produced by Valvtect Petroleum
Products Corp.) and Fuelon (produced by Fuelon International, Inc.). We believe
that we can successfully compete with these products and penetrate the fuel
additive market due to the unique environmentally friendly characteristics and
multi-function applications of SOLTRON(TM). See, "DESCRIPTION OF
BUSINESS-PRODUCTS" above.
With respect to SP34E(TM), we will compete with numerous national and
international companies that produce refrigerants, including DuPont, Elf
Autochem, ICI and Allied Signal, among others. Certain of our competitors'
products contain HCFCs, the production of which is scheduled to be phased out.
With respect to other products containing HFCs, SP34E(TM) may be used in
existing R-12 mineral oil based systems with less costly conversions of such
systems. We believe that the regulatory ban and phase-out of certain
refrigerants combined with the environmentally safe characteristics and product
utility of SP34E(TM) will allow us to compete successfully in the refrigerant
market. However, there can be no assurance that we will be able to successfully
market SP34E(TM) as a viable alternative to the refrigerants that currently
enjoy widespread market acceptance.
Our ability to compete successfully will depend on our success at
penetrating each targeted market segment with our products, consumer acceptance
of our products and our ability to license and develop new and improved
products. There can be no assurance that we will be able to successfully
compete, that our products will meet with consumer approval, that competitors
will not develop and market products that are similar or superior to our
products or that we will be able to successfully enhance our products or develop
new products meeting with consumer approval.
PRODUCTION FACILITIES
Our primary production facility is housed in an approximately 12,000 square
foot industrial facility in Phoenix, Arizona. This facility serves as our
production, warehousing and distribution plant for SOLTRON(TM), as well as our
sales office. The facility has capacity to produce up to 1,000,000 gallons of
SOLTRON(TM) per year and is currently being expanded to increase our capacity to
3,000,000 gallons of SOLTRON(TM) per year. We expect that this increased
capacity will meet our needs for SOLTRON(TM) into the foreseeable future. See
"DESCRIPTION OF PROPERTY" and "NOTES TO THE FINANCIAL STATEMENTS - Note 5."
Our SP34E(TM) product is currently produced in Canada by Protocol through
our joint venture with it AT Protocol's facilities. We anticipate that this
production arrangement will produce sufficient product for the Canadian market
in the foreseeable future.
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
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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. Since our products utilize chemicals that are classified under
applicable laws as combustible and hazardous chemicals or substances, we have
incurred costs of approximately $300,000 to ensure that the Phoenix facility is
in compliance with state and local requirements for the chemicals utilized in
the production of SOLTRON(TM). In addition, we also provide all required warning
labeLS and instructions for the handling of these substances.
Aftermarket fuel additives are required to be registered with the EPA Fuels
and Energy Division. We have registered SOLTRON(TM) both as an additive and for
the bulk treatment of fuels.
Like all companies, we are also subject to regulation by the Federal Trade
Commission ("FTC") with respect to the marketing of our products. Although the
FTC has a long history of pursuing enforcement actions against fuel saving, fuel
additive and oil additive products, we believe we have sufficient research,
independent testing, use data and scientific evidence to substantiate our
advertising and promotional claims regarding Soltron(TM).
We have filed an Information Notice with the EPA under the Significant New
Alternatives Policy ("SNAP") program in order to categorize the acceptable uses
of SP34E(TM). We anticipate this approval process will BE completed by October
2000. Once EPA/SNAP approval has been obtained, we intend to commence marketing
SP34E(TM) IN the United States.
We believe that we are in substantial compliance with all laws and
regulations governing our material business operations and we have obtained all
required licenses and permits for the operation of our business. There can be no
assurance, however, that we will be able to comply with, or continue to comply
with, current or future government regulations in every jurisdiction in which we
may conduct material business operations without substantial cost or
interruption of our operations, or that any present or future federal, state,
provincial or local environmental protection regulations or other laws may not
restrict our present and future activities. In the event that we are unable to
comply with such requirements, we could be subject to substantial sanctions,
including restrictions on our business operations, monetary liability and
criminal sanctions, any of which could have a material adverse effect upon our
business.
EMPLOYEES
At June 1, 2000, we employed six full time personnel, including three
administrative, one production and two marketing employees. Our employees are
not covered by any collective bargaining agreements and we consider our
relationship with our employees to be good.
FACTORS AFFECTING FUTURE PERFORMANCE
LIMITED OPERATING HISTORY. Our current operations have been implemented
since November 1996, but our business plan has not yet been fully implemented.
Accordingly, we have only a limited operating history with respect to the
distribution and marketing of SOLTRON(TM) and we are still in the process of
developing our marketiNG strategies with respect to SP34E(TM).
HISTORY OF LOSSES. We have consistently had negative cash flow, operating
losses and insufficient liquidity with respect to current operations, all of
which we expect to continue until our sales revenues increase substantially.
There can be no assurance that we will be able to achieve, or maintain,
profitable operations or positive cash flow at any time in the future.
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ADDITIONAL CAPITAL REQUIREMENT. We will require significant additional
capital to meet our growth objectives and to fully implement our business plan
and expand our operations. While we have received capital infusions from
Dominion Capital in the past, there can be no assurance that Dominion Capital's
investments in our business will continue. We may also seek additional debt or
equity financing through banks, other financial institutions, companies or
individuals, but no assurance can be given that we will be able to obtain any
such additional equity or debt financing on satisfactory terms or at all.
Further, even if such financing is obtained, no assurance can be given that such
would be adequate to meet our needs for the foreseeable future. If we are
unsuccessful in obtaining sufficient additional capital, our ability to continue
as a viable business enterprise will be substantially impaired.
NEED TO DEVELOP SALES AND PRODUCT AWARENESS. Establishment of a
distribution network sufficient to supply customer demand for SOLTRON(TM) will
be critical to our success. We anticipate developing this netwoRK primarily
through traditional marketing channels, such as distributors, in the fuel, oil
chemical and automotive aftermarket industries. We have not yet implemented our
strategies with respect to SP34E(TM). Numerous factorS, including lack of
sufficient inventory or capital, or failure of our products to generate
sufficient demand and lack of sufficient qualified, experienced personnel may
contribute to the difficulties we will face in establishing an efficient
distribution network for our products. While we intend to engage qualified
personnel to assist in establishing our distribution network, no assurance can
be given that our products will be accepted by industrial or retail consumers,
that a satisfactory distribution network can be established or that our
operations will ever be profitable.
UNCERTAINTY OF WIDESPREAD MARKET ACCEPTANCE OF PRODUCTS, LIMITED MARKETING
EXPERIENCE. We are still in the early stages of marketing SOLTRON(TM) and have
only just recently commenced marketing our second producT, SP34E(TM). As is
typical with new products, demand and market acceptance for our products is
subject to a high degrEE of uncertainty. Achieving widespread market acceptance
for our 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 our products. The
prospects for our product line will be largely dependent upon our ability to
achieve market penetration, which will require significant efforts on our part
to create awareness of and demand for our products. Our ability to build our
customer base will depend in large part on our ability to locate, hire and
retain sufficient qualified marketing personnel and to fund marketing efforts,
including advertising. There can be no assurance that our products will achieve
widespread market acceptance or that our marketing efforts will result in
profitable operations.
VARIABILITY OF OPERATING RESULTS AND VOLATILITY OF COMMON STOCK PRICES. Our
quarterly operating results have in the past been, and are anticipated in the
future to be, highly volatile. While we anticipate that increased sales of our
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. Significant variances
in operating results from period to period could result in high volatility of
the market price for our common stock.
LIMITED PRODUCT LINE. We currently hold the marketing and distribution
rights to only two products, SOLTRON(TM) and SP34E(TM). Our future success and
profitability will, to a very high degree, depend upon the mARket acceptance of
these products and our ability to improve these products and develop additional
products to meet consumer approval.
SUPPLY, CAPACITY AND DISTRIBUTION CONSTRAINTS. To successfully market our
products, we must be able to fill orders promptly for our sales. Our ability to
meet our supply requirements promptly will depend on numerous factors including
our ability to establish successfully an effective distribution network and to
maintain adequate inventories as well as the ability of our sole supplier to
adequately produce the chemicals needed to produce SOLTRON(TM) in volumes
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sufficient to meet demand. Failure to adequately supply products to distributors
aND retailers or of our supplier to produce sufficient materials to meet our
demand would materially adversely impact our operations.
DEPENDENCE UPON RAW MATERIALS AND SUPPLIERS. We are dependent on a single
supplier of the enzyme concentrate needed to make SOLTRON(TM). This 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 in
currency values could adversely affect our cost. Interruption of our 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 our supplier. Any increase in the costs of our raw
materials or disruption of our supplier could severely and adversely affect our
business operations.
RELIANCE ON MANAGEMENT; LIMITED PERSONNEL. Attracting and retaining
qualified personnel is critical to our business plan. In particular, our success
is highly dependent on the services of our executive officers, Mark S. Robinson
and James H. Hirst. We have employment agreements in place with Messrs. Robinson
and Hirst, but we do not maintain key man life insurance on either of them.
There can be no assurance that we will not lose the benefit of their services.
The loss of Mr. Robinson's or Mr. Hirst's services or our inability to attract
or retain alternative or additional qualified personnel would have a materially
adverse affect on our business. No assurances can be given that we would be able
to retain or attract such qualified personnel or agents, or to successfully
implement our business plan.
MANAGEMENT OF GROWTH. We anticipate rapid growth in the future, which will
require effective management of all aspects of our business. If achieved, this
rapid growth will place significant strains on our financial, managerial,
personnel and other resources. Failure to effectively manage our anticipated
growth could have a materially adverse effect on our business and profitability.
SEASONAL FLUCTUATIONS. Our limited experience in the refrigerant market
suggests that a greater demand for SP34E(TM) will occur in summer months, which
is anticipated to result in higher revenues in our first and secoND fiscal
quarters ending June 30 and September 30, respectively. Fluctuations in our
quarterly operating results may impact the market for our common stock and could
cause high volatility in its trading price.
COMPETITION. The markets for fuel additives and refrigerants are highly
competitive. We believe that our products and our management's qualifications
will enable us to compete effectively in these markets, but we cannot give any
assurance that we will be successful. We will be competing with established
manufacturers and distributors that have already developed brand recognition and
gained consumer acceptance. Many of these competitors have significantly greater
financial, marketing, personnel, managerial and other resources than we do. New
competitors may also enter these markets. Even though we believe our products
are superior to those of our competitors, our lack of financial strength and
brand recognition will be significant disadvantages to our ability to penetrate
and compete in our target markets.
LIMITED PATENT AND PROPRIETARY INFORMATION PROTECTION. We do not believe
that our products or our proprietary production processes infringe on anyone
else's proprietary rights, but we cannot give any assurance that infringement
claims will not be made against us. If it is determined that our products or
processes do infringe someone else's proprietary rights, we could be required to
modify our products or processes or obtain a license to continue our use of
them. There can be no assurance that we would be able to do this in a timely
manner, upon acceptable terms and conditions or at all. Our failure to do so
would have a material adverse effect on our business. In addition, there can be
no assurance that we would have the financial or other resources necessary to
prosecute or defend a patent infringement or other proprietary rights action.
Moreover, if any of our products or processes were held to infringe patents or
proprietary rights of others, we could, under certain circumstances, be held
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liable for damages, which could be significant in amount and which could
materially and adversely effect our operations. We rely on confidentiality
agreements, trade secret protection and other methods to protect our processes,
concepts, ideas, documentation and other information related to our products and
proprietary processes. However, these methods may not afford complete protection
and there can be no assurance that others will not independently develop similar
products and processes. All of our employees are required to sign
non-disclosure, non-competition and inventions agreements, but there can be no
assurance that such agreements would be enforced by a court or that they would
provide us with any meaningful protection. There can be no assurance that we
will be able to adequately protect our trade secrets or that other companies
will not acquire information that we consider proprietary.
PRODUCT ACQUISITION AGREEMENT. Our rights to manufacture and distribute
SOLTRON(TM) and SP34E(TM), as weLL as the process, formulae and other
proprietary rights related to such products, are contained in product
acquisition agreements with Dominion Capital. Any termination or impairment of
the rights of Dominion Capital to such proprietary rights or to our rights under
these agreements would materially adversely affect our operations. Additionally,
our rights with respect to our products under these agreements are limited to
terms of five years, each of which are extendable.
NEED FOR ADDITIONAL PRODUCT DEVELOPMENT. We believe that our development
work on SOLTRON(TM) and SP34E(TM) is substantially complete, but testing of
these products in the United States has been limited. We anticipate that our
future research and development activities, combined with experience we hope to
gain from commercial production and use of SOLTRON(TM) and SP34E(TM) will result
in the need for further refinement of these productS and development of new
products. Such refinements and development may be required for our products to
remain competitive. There can be no assurance that we will have the experience
or the resources necessary to make such improvements to our product line, which
could have a significant negative impact on our business.
ADEQUACY OF PRODUCT LIABILITY INSURANCE. The use of our products entails
inherent risks that could expose us to product liability claims, which could
have a material adverse effect on our business and financial condition. While we
do maintain product liability insurance to cover these types of claims, there
can be no assurance that we will be able to maintain such insurance on
acceptable terms or, even if maintained, that such insurance would be sufficient
to cover all potential claims.
CONTROL BY EXISTING SHAREHOLDERS/FOREIGN SHAREHOLDERS. Our principal
shareholder, Dominion Capital, and its affiliates own or control a substantial
block of our outstanding common stock. Accordingly, these shareholders, acting
together, would be able to effectively control matters requiring approval by our
shareholders, including the election of our board of directors and approval of
certain significant transactions. Dominion Capital is domiciled in Australia and
if we or our shareholders were to bring legal action against it, its domicile in
a foreign country may prevent it from being subject to jurisdiction of a United
States court. While we or our shareholders may be able to proceed against
Dominion Capital in an Australian court, such actions may be prohibitively
expensive and an Australian court may not recognize claims or provide remedies
similar to those available in United States courts.
INTERNATIONAL TRADE. We anticipate selling SOLTRON(TM) and SP34E(TM) in
both Canada and Mexico, as weLL as importing SOLTRON(TM) concentrate from Japan.
This will expose our business to certain additional risks related TO doing
business internationally, which could include, among others, fluctuations in
currency exchange rates, changes in both U.S. and foreign import and export laws
and regulations, increases in tariffs, customs, foreign tax liabilities and
other adverse U.S. and foreign tax consequences and potential difficulty in
contract enforcement. Risks of conducting international business operations
could have a negative impact on our overall business.
10
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SECURITIES LAW COMPLIANCE. We have been involved in several complex
transactions and offerings of our securities. While we believe we have complied
with all applicable securities laws, there can be no assurance that compliance
defects will not be alleged by the Securities and Exchange Commission or one or
more of our shareholders. Our current management's involvement with the Company
began in November 1996 or even more recently in some cases. While management is
not aware of any failures by the Company to comply with applicable securities
laws prior to November 1996, they are not aware of everything that may have
occurred prior to that time and no assurance can be given that prior
transactions were in compliance with applicable federal and state securities
laws or that a claim with respect to non-compliance will not be made. We may
incur costs to defend any such claims which could severely affect our operations
and financial condition.
ITEM 2. DESCRIPTION OF PROPERTY
We currently lease approximately 1,400 square feet of office space, which
we use as our corporate offices at 7309 East Stetson Drive, Suite 102,
Scottsdale, Arizona 85251 on a month-to-month basis. Current rental payments are
approximately $2,000 per month.
We also lease approximately 12,000 square feet of space at 4247 West Adams,
Suite 2, Phoenix, Arizona 85009, which houses our manufacturing, warehousing and
distribution plant and serves as our corporate sales office. Monthly lease
payments are approximately $4,900 and the lease expires on September 14, 2002.
ITEM 3. LEGAL PROCEEDINGS
We have been and currently are involved in various legal proceedings
arising in the normal course of business. While the ultimate outcome of these
various legal proceedings cannot be predicted with certainty, it is the opinion
of management that the resolution of these legal actions should not have
material effect on our financial position, results of operation or liquidity.
There are no legal proceedings pending, or to our knowledge, threatened, which
we expect to have any material impact on our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our 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 for the fiscal
years indicated. On March 31, 2000, there were approximately 350 beneficial
holders of our common stock.
FISCAL YEAR QUARTER ENDED HIGH LOW
----------- ------------- ---- ---
1998 June 30, 1997 $1.50 $1.50
September 30, 1997 $0.4062 $0.4062
December 31, 1997 $0.625 $0.625
March 31, 1998 $2.75 $2.625
1999 June 30, 1998 $3.50 $2.25
September 30, 1998 $2.687 $1.375
December 31, 1998 $2.50 $1.187
March 31, 1999 $2.625 $1.281
2000 June 30, 1999 $2.125 $1.25
September 30, 1999 $1.75 $1.125
December 31, 1999 $1.1562 $0.25
March 31, 2000 $1.75 $0.375
We have not paid, and do not currently intend to pay, cash dividends on our
common stock in the foreseeable future. The current policy of the board of
directors is to retain all earnings, if any, to provide funds for operation and
expansion of our business. In addition to statutory requirements, the
declaration of dividends, if any, will be subject to the discretion of the board
of directors, which may consider such factors as our results of operations,
financial condition, capital needs and acquisition strategies, among others.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with our financial
statements and related notes included herein. Certain statements are not based
on historical facts, but are forward-looking statements that are based upon
assumptions about our future conditions that could prove to be inaccurate.
Actual events, transactions and results may materially differ from the
anticipated events, transactions or results described. Our ability to consummate
transactions and achieve events or results is subject to certain risks and
uncertainties, which include, but are not limited to, the existence of demand
for and acceptance of our products, regulatory approvals and developments,
economic conditions, the impact of competition and pricing, and other factors
affecting our business that are beyond our control. See, "DESCRIPTION OF
BUSINESS - FACTORS AFFECTING FUTURE PERFORMANCE" above.
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We undertake no obligation and do not intend to update, revise or otherwise
publicly release the result of any revisions to forward-looking statements that
may be made to reflect future events or circumstances.
INTRODUCTION
Although we continue to report significant losses, the current trend of
increasing SOLTRON(TM) produCT sales and the introduction of SP34E(TM) provides
an expectation that we will achieve profitability during fiscAL year 2001. The
past year was a year of reorganization. We have diverted our focus for
SOLTRON(TM) away frOM globalization and our licensing program to identifying
distributors and developing direct sales activities. We have also made
significant progress on obtaining requisite approvals for and expect to commence
marketing of SP34E(TM) in the United States in the fourth quarter of 2000.
In September 1999, we closed our SOLTRON(TM) production facility in
Elkhart, Indiana and moved all tHE equipment to our Phoenix facility in order to
expand production capacity at that location. By mutual consent with Dominion
Capital, we did not proceed with the intended acquisition of Solpower Australia
and devoted our resources to establishing the North American market for our
products. In January, 2000 we were offered the opportunity to build a plant in
Syracuse, New York, to be financed by privately funded tax exempt bonds.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 2000 COMPARED TO YEAR ENDED MARCH 31, 1999
Revenues for the year ended March 31, 2000 were $280,309 as compared to
$82,192 for 1999, a 241% increase. All revenues for 2000 resulted from product
sales. General and administrative costs for the year ended March 31, 2000 were
$2,188,549 as compared to $2,077,692 for the same period ended March 31, 1999.
The 5% increase resulted primarily from increased marketing efforts and
administrative expenses at our corporate offices in Scottsdale, Arizona.
Cash flow of $880,000 was provided from shareholder advances in the form of
convertible notes that were subsequently converted to our common stock during
the year ended March 31, 2000. For the year ended March 31, 1999 $1,465,994 was
provided from shareholder advances and placement of our Common Stock.
As of March 31, 2000, we had no material commitments for capital
expenditures. For the year ended March 31, 2000, we incurred a net operating
loss of $2,139,788 compared to a net operating loss of $2,239,646 for the year
ended March 31, 1999, which contributed to net cash used in operating activities
of $1,414,979 and $1,308,452 for the years ended March 31, 2000 and 1999,
respectively.
SEASONALITY
Sales of our SP34E(TM) product may be subject to higher volumes in the
summer months resulting in highER revenues in our first and second fiscal
quarters. However, no pattern of sales volumes has yet been established.
IMPACT OF INFLATION
We do not believe that inflation will have any material impact on its
commercial activities for the ensuing year as our products do not fall under
categories that are traditionally affected.
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<PAGE>
LIQUIDITY AND CAPITAL RESERVES
Product sales did not provide sufficient working capital to fund our
operations during the period ended March 31, 2000, and we offered convertible
notes totaling $3,500,000 during September, 1999 and December, 1999 to offset
shareholder and other advances to fund the balance of our financial operating
requirements and future needs. A total of $1,700,000 of these notes were issued
and subsequently converted to 3,500,000 of our common shares.
PLAN OF OPERATIONS FOR FISCAL YEAR 2001
On completion of a full review of our entire operations with the objective
to eliminate the current loss situation and accelerate profitability in fiscal
year 2001, we intend to conduct a complete reorganization. This review will also
consider product range, distribution channels and corporate structure.
We are in the final stages of completing the EPA/SNAP requirements in order
to offer SP34E(TM) for sale IN the United States. Early sales of this product in
Canada confirm the demand for a non-ozone depleting alternative in R12 mineral
oil based refrigerant applications. Sales of SP34E(TM) in fiscal year 2001 are
expectED to play a significant role in bringing us to profitability.
Acquisitions of related businesses may also play a key role in the expansion and
growth strategy that management has under review.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX
Independent Auditors'Report................................................. 16
Balance Sheets at March 31, 2000 and 1999................................... 17
Statements of Operations for the Years Ended
March 31, 2000 and 1999..................................................... 18
Statements of Stockholders' Equity for the Years Ended
March 31, 2000 and 1999..................................................... 19
Statements of Cash Flows for the Years Ended
March 31, 2000 and 1999..................................................... 20
Notes to the March 31, 2000 and 1999
Financial Statements........................................................ 22
15
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INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Solpower Corporation
We have audited the accompanying balance sheet of Solpower Corporation as of
March 31, 2000 and 1999, and the related statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Solpower Corporation as of
March 31, 2000 and 1999, and the results of their operations, changes in
stockholders' equity, and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Semple & Cooper, LLP
Semple & Cooper, LLP
Phoenix, Arizona
July 13, 2000
16
<PAGE>
SOLPOWER CORPORATION
BALANCE SHEETS
MARCH 31, 2000 AND 1999
ASSETS
2000 1999
----------- -----------
Current Assets:
Cash and cash equivalents (Note 1) $ 34,299 $ 2,228
Accounts receivable (Note 1) 79,726 50,145
Inventory (Note 1) 21,624 92,178
----------- -----------
Total Current Assets 135,649 144,551
----------- -----------
Property & Equipment, net (Notes 1 and 3) 377,762 399,262
----------- -----------
Other Assets:
Marketing rights (Notes 1 and 4) 2,558,333 2,658,333
Security deposits -- 13,922
License fee receivable (Note 2) -- 2,400,000
----------- -----------
Total Other Assets 2,558,333 5,072,255
----------- -----------
Total Assets $ 3,071,744 $ 5,616,068
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Obligation under capital lease
- current portion (Note 6) $ -- $ 4,060
Loans payable to related parties
- current portion (Note 9) 130,390 98,500
Accounts payable
-trade 330,093 344,409
-related parties (Note 9) 107,118 --
Accrued expenses (Note 5) 309,929 213,792
----------- -----------
Total Current Liabilities 877,530 660,761
----------- -----------
Long-Term Liabilities:
Loans payable to related parties
- long-term portion (Note 9) 212,114 407,219
Accrued expenses -- 70,000
Deferred revenue (Note 1) -- 2,400,000
----------- -----------
Total Long-Term Liabilities 212,114 2,877,219
----------- -----------
Total Liabilities 1,089,644 3,537,980
----------- -----------
Commitments and Contingencies (Note 5)
Stockholders' Equity: (Note 10)
Preferred stock; $.001 par value, 5,000,000
shares authorized; -- --
none issued or outstanding
Common stock; $.01 par value, 30,000,000
shares authorized; 27,316,066 and 23,456,560
issued and outstanding at March 31, 2000
and 1999, respectively 273,161 234,566
Additional paid in capital 8,741,730 6,736,525
Accumulated deficit (7,032,791) (4,893,003)
----------- -----------
Total Stockholders' Equity 1,982,100 2,078,088
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,071,744 $ 5,616,068
=========== ===========
The Accompanying Notes are an Integral Part of the Financial Statements
17
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SOLPOWER CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2000 and 1999
2000 1999
------------ ------------
Product Revenues $ 280,309 $ 82,192
Cost of Sales 231,408 244,874
------------ ------------
Gross Profit ( Loss ) 48,901 (162,682)
General and Administrative Expenses 2,188,549 2,077,692
------------ ------------
Loss from Operations (2,139,648) (2,240,374)
------------ ------------
Other Income (Expense)
Interest income -- 2,249
Interest expense (140) (1,521)
------------ ------------
Net Loss Before Provision for Income Taxes (2,139,788) (2,239,646)
Provision for Income Taxes -- --
------------ ------------
Net Loss $ (2,139,788) $ (2,239,646)
============ ============
Basic Loss Per Share $ (0.09) $ (0.10)
============ ============
Weighted Average Number
of Shares Outstanding 23,498,729 22,146,765
============ ============
The Accompanying Notes are an Integral Part of the Financial Statements
18
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
Common Stock Additional Stock
----------------------- Paid In Subscription Accumulated
Shares Amount Capital Receivable Deficit Total
----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998 17,391,560 $ 173,916 $ 4,220,904 $(400,000) $(2,653,357) $ 1,341,463
Issuance of common stock
for SP34E marketing rights 6,000,000 60,000 2,340,000 -- -- 2,400,000
Issuance of common stock for
marketing services 50,000 500 149,500 -- -- 150,000
Receipt of stock subscription
receivable funds 400,000 -- 400,000
Issuance of common stock for
marketing services 15,000 150 26,121 -- -- 26,271
Loss, Year Ended March 31, 1999 -- -- -- -- (2,239,646) (2,239,646)
----------- --------- ----------- --------- ----------- -----------
Balance, March 31, 1999 23,456,560 234,566 6,736,525 -- (4,893,003) 2,078,088
Issuance of common stock for lease
terminations 35,000 350 39,640 -- -- 39,990
Issuance of common stock for license
terminations 50,000 500 55,740 -- -- 56,240
Issuance of common stock for investor
relation services 120,000 1,200 118,800 -- -- 120,000
Cancellation of stock certificate (11,824) (118) (236) -- -- (354)
Conversion of debt to equity 166,330 1,663 126,261 -- -- 127,924
Conversion of convertible notes to
common stock 3,500,000 35,000 1,665,000 -- -- 1,700,000
Loss, Year Ended March 31, 2000 -- -- -- -- (2,139,788) (2,139,788)
----------- --------- ----------- --------- ----------- -----------
Balance, March 31, 2000 27,316,066 $ 273,161 $ 8,741,730 $ -- $(7,032,791) $ 1,982,100
=========== ========= =========== ========= =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
19
<PAGE>
SOLPOWER CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
2000 1999
----------- -----------
Cash Flows From Operating Activities:
Net loss $(2,139,788) $(2,239,646)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 207,175 166,154
Non-cash transactions 343,800 176,271
Changes in operating assets and liabilities
Accounts receivable (29,581) (50,145)
Inventory 70,554 9,728
Prepaid expenses -- 2,917
License fee receivable 2,400,000 (240,000)
Security deposits 13,922 500
Accounts payable - trade (14,316) 341,977
- related parties 107,118 --
Accrued expenses 26,137 283,792
Deferred revenue (2,400,000) 240,000
----------- -----------
Net Cash Used by Operating Activities (1,414,979) (1,308,452)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (85,675) (333,474)
----------- -----------
Net Cash Used by Investing Activities (85,675) (333,474)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock -- 1,000,000
Payment on capital lease (4,060) (5,682)
Proceeds from convertible notes payable 820,000 --
Proceeds from short-term notes payable 67,500 --
Loans from related parties 969,473 465,994
Payments on short-term notes payable (67,500) --
Payments to related parties (252,688) --
----------- -----------
Net Cash Provided by Financing Activities 1,532,725 1,460,312
----------- -----------
Net Change in Cash and Cash Equivalents 32,071 (181,614)
Cash and Cash Equivalents, Beginning of Year 2,228 183,842
----------- -----------
Cash and Cash Equivalents, End of Year $ 34,299 $ 2,228
=========== ===========
The Accompanying Notes are an Integral Part of the Financial Statements
20
<PAGE>
SOLPOWER CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
2000 1999
-------- ----------
SUPPLEMENTAL INFORMATION:
Cash Paid for:
Interest $ 140 $ 1,521
Income Taxes -- --
Noncash Investing and Financing:
Issuance of 6,000,000 shares of
common stock for marketing rights $2,400,000
Issuance of 50,000 shares of
common stock for services $ 150,000
Issuance of 15,000 shares of common
stock for marketing fees $ 26,271
Issuance of 35,000 shares of common
stock for lease terminations $ 39,990
Issuance of 50,000 shares of common
stock for license terminations $ 56,240
Issuance of 120,000 shares of common
stock for investor relations services $120,000
Cancellation of 11,824 share common
stock certificate $ 354
Issuance of 166,330 shares of common stock
for conversion of debt $127,924
The Accompanying Notes are an Integral Part of the Financial Statements
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF
OPERATIONS AND USE OF ESTIMATES
NATURE OF OPERATIONS:
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.
The Company was originally incorporated 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 authorizing preferred stock of
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 was in the development stage through March 31, 1997. The principal
business purpose of the Company is the sales and distribution of SOLTRON and
other environmentally friendly products throughout the world.
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 and SP34E, a replacement refrigerant.
PERVASIVENESS OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION:
Revenues from sales to distributors and resellers are recognized when related
products are shipped. Revenues from consignment sales are recognized when
payments are received. Revenues from corporate license programs are recognized
based on the terms of the license agreement with a license fee receivable and
deferred revenue recorded at the inception of the agreement.
CASH AND CASH EQUIVALENTS:
All short-term investments purchased with an original maturity of three months
or less are considered to be cash equivalents. Cash and cash equivalents include
cash on hand and amounts on deposit with a financial institution.
ACCOUNTS RECEIVABLE:
The Company follows the allowance method of recognizing uncollectible accounts
receivable. The allowance method recognizes bad debt expense as a percentage of
accounts receivable based on a review of the individual accounts outstanding,
and the Company's prior history of uncollectible accounts receivable. At March
31, 2000 and 1999 no allowance has been provided for uncollectible accounts
22
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receivable as, in the opinion of management, all accounts receivable are
considered fully collectible.
INVENTORY:
Inventory at March 31, 2000 and 1999 consists, primarily, of the SOLTRON fuel
additive concentrate and is stated at the lower of cost or market using the
first-in, first-out (FIFO) method. The Company periodically reviews its
inventory and makes provisions for damaged or obsolete inventory, if necessary.
No provision for damaged or obsolete inventory has been included in the
accompanying financial statements.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is provided for on the
straight-line method over the estimated useful lives of the assets. Maintenance
and repairs that neither materially add to the value of the property nor
appreciably prolong its life are charges to expense as incurred. Betterments or
renewals are capitalized when incurred.
Estimated useful lives of the assets are as follows:
Computer and Office Equipment 5 years
Furniture 7 years
Vehicles 5 years
Plant Equipment 7 years
Leasehold Improvements 5 years or lease term
The Company was the lessee of a vehicle under a capital lease agreement expiring
in September, 1999. The asset and liability under the capital lease agreement
were recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset at March 31, 1999. The asset is depreciated over the
life of the lease. Depreciation of the asset under the capital lease agreement
is included in depreciation expense, as noted above.
IMPAIRMENT OF LONG-LIVED ASSETS:
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeded the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
INCOME TAXES:
Deferred income taxes are provided on an asset and liability method, whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, there is uncertainty of the utilization of the operating
losses in future periods. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
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BASIC LOSS PER COMMON SHARE:
Basic loss per common share is computed based on weighted average shares
outstanding and excludes any potential dilution from stock options, warrants and
other common stock equivalents. Basic loss per share is computed by dividing
loss available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted net loss per common share reflects
potential dilution from the exercise or conversion of securities into common
stock or from other contracts to issue common stock. As of March 31, 2000
diluted net loss per common share is not included, as the effect of including
these shares is antidilutive.
ADVERTISING:
Advertising costs are expensed as incurred. Advertising expense for the years
ended March 31, 2000 and 1999 were $27,862 and $14,689, respectively.
STOCK-BASED COMPENSATION:
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and the related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123).
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Accounts receivable, accounts and loans payable and accrued liabilities are
substantially current or bear reasonable interest rates. As a result, the
carrying values of these financial instruments approximate fair value.
RECLASSIFICATIONS:
Certain prior year amounts in the accompanying 1999 financial statements have
been reclassified to conform to the 2000 presentation.
NOTE 2
LICENSE FEE RECEIVABLE
On May 14, 1999, the Company terminated its Master License Agreement with
Masters Marketing Group, holder of the Great Lakes (Ohio, Indiana, Illinois,
Michigan, and Wisconsin) license. The Company regained the right to operate the
Great Lakes territory as a corporate sales territory in exchange for
cancellation of the Promissory Note in the amount of $1,080,000, issuance of
15,000 shares of common stock and repayment of the license fee down payment of
$120,000. The down payment is to be repaid at $5,000 per month without interest.
This transaction is reflected in the financial statements as of March 31, 1999
and the refundable down payment is included in accrued expenses. As of March 31,
2000 the balance due in relation to the repayment of the down payment is
$115,000. The Company is currently in default of the agreement.
On September 7, 1999, the Company terminated its Master License Agreement with
Solpower Southeast Corporation. The Company regained the right to operate the
Southeast territory (Alabama, Arkansas, Florida, Georgia and Mississippi) as a
24
<PAGE>
corporate sales territory in exchange for cancellation of a promissory note in
the amount of $1,080,000, repayment of the license fee down payment of $120,000
and the issuance of 20,000 shares of common stock. The down payment was to be
refunded by October 30, 1999 of which only $30,000 has been paid as of March 31,
2000. The Company is currently in default of this agreement and payment of the
balance is currently being renegotiated. This transaction is reflected in the
financial statements as of March 31, 1999 and the refundable down payment is
included in accrued expenses.
On November 7, 1999, the Company terminated its Master License Agreement with
Houston Mercantile Exchange, Inc., holder of the South (Texas, Oklahoma and New
Mexico) and Mexico licenses. The Company regained the right to operate these
territories as corporate sales territories in exchange for the issuance of
30,000 shares of common stock and cancellation of promissory notes totaling
$2,160,000.
NOTE 3
PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31, 2000 and 1999:
2000 1999
--------- ---------
Furniture and Fixtures $ 52,359 $ 52,359
Computer and Office Equipment 66,584 66,584
Vehicles -- 15,172
Plant Equipment 109,181 106,435
Leasehold Improvements 337,872 254,943
--------- ---------
565,996 495,493
Less: Accumulated Depreciation (188,234) (96,231)
--------- ---------
$ 377,762 $ 399,262
========= =========
Depreciation expense charged to operations for the years ended March 31, 2000
and 1999, was $107,175 and $66,154, respectively.
NOTE 4
MARKETING RIGHTS
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 shares of common stock valued at
$500,000. The contract is for a period of five years. The Company is amortizing
the marketing rights over the period of contract. Management will reassess
annually the estimated useful life and impairment, if any, will be recognized
when expected future operating cash flows from the marketing rights are less
than their carrying value. Amortization charged to operations for each of the
years ended March 31, 2000 and 1999 was $100,000.
On June 17, 1998, the Company acquired the exclusive sales, distribution,
marketing and manufacturing rights to the Solpower product, SP34E (a
refrigerant) encompassing the North American Market (United States, Mexico and
Canada), in exchange for the issuance of 6,000,000 shares of common stock valued
at $2,400,000. The contract is for a period of five years, and pursuant to an
25
<PAGE>
addendum to the agreement, the term of the agreement shall commence on the
Company achieving ratable sales of SP34E and in no event later than July 1,
2000. The Company intends to amortize these marketing rights over the period of
contract. As of the balance sheet date, March 31, 2000, no sales have been
recorded, therefore no amortization was recorded in relation to this
transaction. Management will reassess annually the estimated useful life and
impairment, if any will be recognized when expected future operating cash flows
from the marketing rights are less than the carrying value.
NOTE 5
COMMITMENTS
CONSULTING AGREEMENT:
In June 1999 the Company entered into an agreement with Covered Bridges
Resources to provide financial consulting services. Compensation to Covered
Bridges Resources is to be paid as a percentage of funding procured. Payment may
be in the form of warrants for common stock to be calculated by taking three
percent (3%) of the funding value and dividing by the closing bid price of the
stock on June 29, 1999, with the warrants exercisable at $.01 each at any time
within three years hereof. As of March 31, 2000 no funding has been provided
under this agreement.
OPERATING LEASES:
The Company leases office space for its executive offices in Scottsdale,
Arizona. The lease expires in June 2000 and has a minimum monthly rental
obligation of approximately $2,000. On November 8, 1999, the Company negotiated
an early termination of the executive office lease to January 31, 2000 from June
30, 2000 in exchange for the issuance of 15,000 shares of common stock, and is
presently renting the offices on a month-to-month basis through August 31, 2000.
The Company leases warehouse space for its production facility located in
Phoenix, Arizona. The term of the lease is five years, expiring September 2002.
Base rent is approximately $3,900 per month, plus CAM charges and property
rental tax. The Company had an option to purchase the real property and
improvements. The option to purchase the property was not completed during the
specified time periods and costs of $35,000 incurred for the purchase efforts
were expensed during the year ended March 31, 1999.
The Company leases office equipment under a 39-month lease expiring March 2002.
Rental payments are $566 per month plus rental taxes. The lease expires March
2002.
During the year ended March 31, 2000, the Company leased two vehicles under
thirty-six month lease agreements. The monthly rental obligation under these
agreements is $965.
On September 1, 1999, the Company terminated its commercial lease with D.I.
South, Inc. for commercial premises located in Elkhart, Indiana in exchange for
20,000 shares of common stock.
26
<PAGE>
Minimum future rental payments for all non-cancelable operating leases having
original or remaining lease terms in excess of one year as of March 31, 2000 are
as follows:
For the Year Ended
March 31,
---------
2001 $ 91,068
2002 78,429
2003 31,920
--------
$201,417
========
Lease expense charged to operations for the years ended March 31, 2000 and 1999,
was $194,814 and $112,790, respectively.
JOINT VENTURE INTEREST:
On March 29, 1999, the Company entered into a joint venture with Protocol
Resource Management, Inc. in Aurora, Ontario, Canada to manufacture, distribute,
market and sell SP34E, the Company's refrigerant product and other such products
as are agreed to, in North America. There has been no significant activity with
the joint venture during the fiscal year ended March 31, 2000.
OTHER COMMITMENTS:
Effective March 1, 2000, the Company entered into an employment agreement with
Mark S. Robinson for an initial term of three (3) years. The agreement provides
for a base salary of $130,000 per annum; accommodation, automobile, medical,
social security allowances and such other terms and conditions as may be agreed
upon from time to time; 500,000 stock options pursuant to the terms and
conditions of the Solpower Corporation Stock Option and Incentive Plan and such
vesting requirements as established by the compensation committee; a stock grant
of 50,000 common shares effective March 1, 2000; and monthly stock grants of
10,000 shares effective the first day of each month for the term of the
agreement, such shares to be issued quarterly provided agreed upon performance
requirements are fulfilled.
Effective April 1, 2000, the Company entered into an employment agreement with
James H. Hirst for an initial term of three (3) years. The agreement provides
for a base salary of $126,000 per annum; automobile, medical, social security
allowances and such other terms and conditions as may be agreed upon from time
to time; 500,000 stock options pursuant to the terms and conditions of the
Solpower Corporation Stock Option and Incentive Plan and such vesting
requirements as established by the compensation committee; a stock grant of
50,000 common shares effective April 1, 2000; and monthly stock grants of 10,000
shares effective the first day of each month for the term of the agreement, such
shares to be issued quarterly provided agreed upon performance requirements are
fulfilled.
27
<PAGE>
NOTE 6
OBLIGATION UNDER CAPITAL LEASE
The Company leased a motor vehicle under a capital lease agreement expiring
September 1999, at a monthly rate of approximately $500. The vehicle is included
in property and equipment at March 31, 1999, and is being depreciated over the
life of the lease. The Company did not exercise its option to purchase the
vehicle at the end of the lease term. The lease was extended to May 16, 2000,
and the vehicle was returned to the dealer at that time.
NOTE 7
NOTES PAYABLE
CONVERTIBLE NOTES PAYABLE:
During the year ended March 31, 2000 the Company issued $1,500,000 in 6%
Convertible Notes Payable of which $975,000 were issued to entities related to
Dominion Capital Pty Ltd., the Company's majority stockholder. The notes were to
mature on September 30, 2000, and were convertible into common shares of the
Company at the issue price of $1.00 per share for each $1.00 of principal owed.
On December 31, 1999, the Note Agreement was amended to $0.50 per share for each
$1.00 of principal owed. The notes would automatically convert in the event the
Company's shares traded at $1.75 or higher for ten consecutive days. At the
election of the Note Holders, the Convertible Notes Payable were converted to
3,000,000 common shares of the Company during April, 2000. The transaction has
been reflected in the financial statements as of March 31, 2000. (See Notes 9
and 10)
In addition, during the year ended March 31, 2000 the Company issued a $200,000
6% Convertible Note Payable to Dominion Capital Pty Ltd., the Company's majority
stockholder. The note was to mature on December 31, 2000, and was convertible
into common shares of the Company at the issue price of $0.40 per share for each
$0.40 of principal owed. The note would automatically convert in the event the
Company's shares traded at $1.75 or higher for ten consecutive days. At the
election of the Note Holder, the Convertible Note Payable was converted to
500,000 common shares of the Company during April 2000. This transaction has
been reflected in the financial statements as of March 31, 2000. (See Notes 9
and 10)
NOTE 8
INCOME TAXES
Deferred income taxes will be determined using the liability method for the
temporary differences between the financial reporting basis and income tax basis
of the Company's assets and liabilities. Deferred income taxes will be measured
based on the tax rates expected to be in effect when the temporary differences
are included in the Company's tax return. Deferred tax assets and liabilities
are recognized based on anticipated future tax consequences attributable to
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases.
28
<PAGE>
At March 31, 2000 and 1999, deferred tax assets consist of the following:
2000 1999
----------- ---------
Net operating loss carryforwards $ 1,055,000 $ 734,000
Less: valuation allowance (1,055,000) (734,000)
----------- ---------
$ -- $ --
=========== =========
At March 31, 2000 and 1999, the Company had federal and state net operating loss
carryforwards in the approximate amount of $7,000,000 and $4,900,000,
respectively, available to offset future taxable income expiring through 2020
and 2011, respectively.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management believes that
the inability to utilize net operating loss carryforwards to offset future
taxable income within the carryforward periods is more likely than not.
Accordingly, a 100 percent valuation allowance has been recorded against the net
deferred tax assets.
NOTE 9
RELATED PARTY TRANSACTIONS
LOANS PAYABLE TO RELATED PARTIES:
On November 4, 1996, the Company entered into an agreement with the majority
stockholder of the Company, Dominion Capital Pty Ltd., (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. 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. 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. As of March 31, 2000 and 1999, the
Company had a balance due to Dominion of $110,718 and $407,219, respectively.
(See Note 10)
In July 1998, the Company entered into an investor relations agreement with
Dominion Capital Securities, Inc., a related entity, for a six month period to
provide investor relations activities in exchange for $125,000 in cash, 50,000
shares of common stock, and 100,000 stock options at an exercise price of $3.00
per share. The Company renewed the agreement in consideration of monthly
payments of $30,000 per month for the period July 1, 1999 through December 31,
1999. The agreement provided for payment in cash of $90,000 and common stock in
the amount of $90,000 for services. In addition, the agreement provides for
payments for services of $15,000 per month for January 1, 2000 through June 30,
2000, payable in cash of $60,000 and common stock of $30,000. (See Note 10)
29
<PAGE>
As of March 31, 2000 and 1999, the Company had a balance payable under the
agreement of $130,390 and $98,500 respectively which included additional
expenses incurred by Dominion Capital Securities, Inc during the year ended
March 31, 2000. For the years ended March 31, 2000 and 1999, the company
recorded investor relations expenses in relation to this agreement in the
amounts of $225,000 and $275,000, respectively.
During the year ended March 31, 2000, Intavest Pty Ltd. (Intavest), a related
party entered into an investment banking services agreement with National
Capital Merchant Group, Inc. for the benefit of the Company. During May 2000
Intavest transferred 45,000 shares of the Company's common stock held by
Intavest as payment under the agreement. The agreement was cancelled in December
1999 and as of March 31, 2000 the company agreed to repay Intavest and has a
payable to Intavest in the amount of $90,000.
As of March 31, 2000 the company has a balance due to Peter Voss, a stockholder
and director, in the amount of $11,396.
ACCOUNTS PAYABLE - RELATED PARTIES:
Accounts payable - related parties consists of the following:
Solpower Australia $ 48,510
James Hirst 58,608
--------
$107,118
========
NOTE 10
EQUITY
STOCK ISSUED FOR SERVICES AND DEBT:
On June 17, 1998, the Company agreed to issue 6,000,000 shares of common stock
in exchange for marketing rights for 5 years to SP34E, at $.40 per share or
$2,400,000. (See Note 4)
On July 1, 1998, the Company agreed to issue 50,000 shares of common stock to
Dominion Capital Securities, Inc., a related entity, in exchange for marketing
services for six months, at $3.00 per share or $150,000.
On May 14, 1999, the Company agreed to issue 15,000 shares of common stock in
exchange for marketing services, at $1.75 per share, or $26,271.
On September 1, 1999, the Company agreed to issue 20,000 shares of common stock
in exchange for cancellation of a commercial lease and other settlement
consideration, at $1.50 per share, or $30,000.
On September 7, 1999, the Company agreed to issue 20,000 shares of common stock
in exchange for cancellation of a license agreement and other settlement
consideration, at $1.687 per share, or $33,740.
On November 7, 1999, the Company agreed to issue 30,000 shares of common stock
in exchange for cancellation of a license agreement and other settlement
consideration, at $.75 per share, or $22,500.
30
<PAGE>
On November 8, 1999, the Company agreed to issue 15,000 shares of common stock
in exchange for early termination of a commercial lease agreement and other
settlement consideration, at $.67 per share, or $9,990.
On March 13, 2000, the Company agreed to issue 120,000 shares of common stock to
Dominion Capital Securities, Inc., a related entity, in exchange for investor
relations services for eight months, at $1.00 per share or $120,000.
Subsequent to March 31, 2000, the Company agreed to issue 166,330 shares of
common stock in settlement of various outstanding accounts payable in the
aggregate amount of $127,924. This transaction was reflected in the financial
statements as of March 31, 2000.
On April 19, 2000, the Company issued 3,500,000 shares of common stock in
relation to the conversion of the $1,700,000 Convertible Notes Payable This
transaction was reflected in the financial statements at March 31, 2000.
STOCK WARRANTS:
The Company issued warrants in connection with a private placement offering in
1998. As of March 31, 1999, there were 4,000,000 warrants outstanding including
2,000,000 warrants at an exercise price of $1.50 and 2,000,000 warrants at an
exercise price of $3.00 per share. These warrants expired January 7, 2000.
STOCK OPTIONS:
On November 24, 1997, an addendum to the agreement with Dominion Capital Pty
Ltd., a related entity, to provide financing (Note 9) was signed by the Company
which grants the following options to Dominion based solely on the gross sales
figures, for a five year period, 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 Company 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.
31
<PAGE>
INCENTIVE STOCK OPTION PLAN:
The Company has adopted the 1997 Solpower Corporation Stock Option and Incentive
Plan (the "Plan"). Pursuant to the Plan, options to purchase shares of the
Company's common stock may be granted to employees and directors. The Plan
provides that the option price shall not be less than the fair market value of
the shares on the date of grant, and that the options expire ten years after
grant. Options generally vest ratably over 3 to 5 year periods. At March 31,
2000, there were 2,500,000 shares reserved for options to be granted under the
Plan.
On January 30, 1998, the Company granted options to purchase shares of the
Company's common stock to certain individuals at a purchase price equal to or
greater than the fair market value of such stock as determined under 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.
On May 18, 1998, Mr. Joshua Ward was terminated as a service provider to the
Company and the 150,000 options were cancelled.
On May 28, 1998, the Company granted options under the Plan to certain directors
at a purchase price for each share that, with the exception of the
non-qualifying options, is equal to or greater than 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 non-qualifying, Mr. Naoya Yoshikawa
was granted 100,000, Mr. Jerry Goddard was granted 100,000 and Mr. James H.
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.
On January 4, 1999, R. L. (Beau) Van Deren, the corporate Secretary/Treasurer
and a member of the Board of Directors was granted 400,000 options under the
Plan. The terms of such options commenced on January 9, 1999 and expire on
January 9, 2004 or the termination of employment of Mr. Van Deren. The terms are
similar to those options granted to other members of the board of directors in
1998.
On February 15, 2000, R. L. (Beau) Van Deren resigned as corporate
Secretary/Treasurer and a member of the Board of Directors, however he continues
to provide consulting services to the Company. Consequently 250,000 of the
options granted to Mr. Van Deren were cancelled and 150,000 options were
retained.
On March 1, 2000, the Company entered into an employment agreement with Mr. Mark
Robinson. The agreement provides for the issuance of 500,000 options at an
exercise price of $1.00 per share which expire April, 2005. The options vest
based on minimum market price and reported gross revenue levels.
As of the date of the employment agreement, the Plan had 2,500,000 shares
reserved for option under the Plan and 2,100,000 options issued. Therefore, the
stock options referred to in the aforementioned employment agreement are subject
to the amendment and approval authorizing the Solpower Corporation Stock Option
and Incentive Plan to increase the shares reserved for option under the Plan.
32
<PAGE>
The aforementioned options 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 following:
Hirst 33 1/3% $ 1.00 $ 2.00 $ 6 million January, 2003
33 1/3% $ 1.75 $ 3.00 $ 9 million January, 2003
33 1/3% $ 2.50 $ 4.00 $ 12 million January, 2003
Matteson and 33 1/3% $ 1.00 $ 2.00 $ 6 million January, 2003
Ward 33 1/3% $ 2.00 $ 3.00 $ 9 million January, 2003
33 1/3% $ 2.00 $ 3.00 $ 12 million January, 2003
Moffat - Incentive 40% $ 3.00 $ 3.00 $ 6 million May, 2003
options 40% $ 5.00 $ 5.00 $ 9 million May, 2003
20% $ 7.00 $ 7.00 $ 12 million May, 2003
Non-qualifying options 100% $ 2.00 $ 2.00 $ 4 million May, 2003
Yoshikawa, Hirst 50% $ 3.00 $ 3.00 $ 6 million May, 2003
and Goddard 50% $ 7.00 $ 7.00 $ 12 million May, 2003
Van Deren 100% $ 1.30 $ 2.00 $ 6 million May, 2003
Robinson 20% $ 1.00 $ 1.00 $ 1 million April, 2005
20% $ 1.00 $ 2.00 $ 2 million April, 2005
20% $ 1.00 $ 3.00 $ 3 million April, 2005
20% $ 1.00 $ 4.00 $ 4 million April, 2005
20% $ 1.00 $ 5.00 $ 5 million April, 2005
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. As of March 31, 2000 none of the above
options have vested.
A summary of the activity of the Plan is as follows:
Weighted
Number of Average
Options Exercise Price
------- --------------
Outstanding at March 31, 1998 1,350,000 $3.17
Granted 1,150,000 3.63
Forfeited (150,000) (2.00)
----------
Outstanding at March 31, 1999 2,350,000 3.47
Granted 650,000 1.07
Forfeited (400,000) (2.56)
----------
Outstanding at March 31, 2000 2,600,000 $3.01
========== =====
Additional information about outstanding options to purchase the Company's
common stock as of March 31, 2000 is as follows:
33
<PAGE>
OUTSTANDING EXERCISABLE
WEIGHTED AVERAGE WEIGHTED AVERAGE
--------------------------------------------- --------------------------
Exercise Remaining
Price Per Number Contractual Exercise Number
Share of Shares Life (In Years) Price of Shares
----- --------- --------------- ----- ---------
$1.00 - $2.50 750,000 3.74 $1.00 - $2.50 100,000
$3.00 - $4.50 800,000 2.42 $3.00 - $4.50 500,000
$5.00 - $7.00 550,000 2.59 $5.00 - $7.00 250,000
The stock options issued to employees have an exercise price not less than the
fair market value of the Company's common stock on the date of grant. In
accordance with accounting for such options utilizing the intrinsic value
method, there is no related compensation expense recorded in the Company's
financial statements for the year ended March 31, 2000 and 1999. Had
compensation cost for stock-based compensation been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS 123,
the Company's net loss for the years ended March 31, 2000 and 1999 would have
been reduced to the pro forma amounts presented below:
2000 1999
------------ ------------
Net Loss:
As reported $ (2,139,788) $ (2,239,646)
Pro forma $ (2,139,788) $ (2,321,646)
Loss per common share:
As reported $ (0.09) $ (0.10)
Pro forma $ (0.09) $ (0.10)
The fair value of option grants is estimated as of the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for all grants, expected life of options of four (4) years,
risk-free interest rates of eight percent (8%), and a zero percent (0%) dividend
yield.
The full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net loss amounts presented above
because compensation cost is reflected over the vesting period.
COMMON STOCK GRANTS:
On October 26, 1998, a grant of 25,000 shares under the Plan was made to a
former employee. The former employee was employed by the Company on each of the
Vesting Dates and is therefore vested in all shares granted. As of March 31,
2000 no shares have been issued as the result of this grant and a liability has
been recorded for the value of the shares at the vesting dates.
34
<PAGE>
On March 1, 2000, subject to an employment agreement, a grant of 50,000
restricted common shares was made to Mark Robinson, President. In addition, the
employment agreement provides for a grant of 10,000 shares of restricted common
stock at the first of each month, commencing April 1, 2000, during the term of
Mr. Robinson's employment. Such shares are to be issued quarterly provided
agreed performance requirements are fulfilled. On June 28, 2000, 80,000 shares
of restricted common stock were issued to Mr. Robinson under this agreement. As
of the balance sheet date, March 31, 2000, the company has recorded a liability
for the value of the shares at the date of grant.
NOTE 11
CONCENTRATIONS
Major suppliers for Solpower Corporation include the Japanese company that
produces the SOLTRON enzyme concentrate. Supply of the SOLTRON concentrate could
be interrupted due to work stoppages, strikes, and governmental or international
regulations. The solvent used as the suspension agent for SOLTRON, is currently
supplied by a major North American chemical company. If a supply interruption
should occur, other readily available solvents, can be substituted. The
specially designed, single measure bottles for retail sales of Soltron are
currently being produced in Australia. These unique bottles are being shipped to
the United States until a more locally available supply is established. Other
United States manufacturers have the capability to produce the molds and
bottles. All other materials for production of SOLTRON are available from a
variety of local providers.
During the year ended March 31, 2000 the Company had one customer representing
approximately 62% of sales. As of March 31, 2000 the accounts receivable for
this customer was $ 73,034.
NOTE 12
SUBSEQUENT EVENT
Effective April 1, 2000, the Company entered into an employment agreement with
James H. Hirst for an initial term of three (3) years. The agreement provides
for a base salary of $126,000 per annum; automobile, medical, social security
allowances and such other terms and conditions as may be agreed upon from time
to time; 500,000 stock options pursuant to the terms and conditions of the
Solpower Corporation Stock Option and Incentive Plan and such vesting
requirements as established by the compensation committee; a stock grant of
50,000 restricted common shares effective April 1, 2000; and monthly stock
grants of 10,000 restrictive common shares effective the first day of each month
for the term of the agreement, such shares to be issued quarterly provided
agreed performance requirements are fulfilled. On June 28, 2000, 70,000 shares
of common stock were issued to Mr. Hirst under this grant.
The stock options referred to in the aforementioned employment agreement are
subject the amendment and approval authorizing the Solpower Corporation Stock
Option and Incentive Plan to increase the shares reserved for option under the
Plan.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
35
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Solpower, their ages and positions
are as follows:
NAME AGE POSITIONS HELD(1)
---- --- --------------
Fraser M. Moffat III 70 Director & Chairman
Peter D. Voss 52 Director & Vice Chairman
Mark S. Robinson 46 Director, President & CEO
James H. Hirst 53 Director, Secretary & Treasurer
Jerry W. Goddard 60 Director
Naoya Yoshikawa 54 Director
----------
(1) All current directors serve until the next annual shareholders meeting or
their earlier resignation or removal.
FRASER M. MOFFAT III joined Solpower 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. in Hamburg, Germany.
From October 1971 to December 1984, Mr. Moffat was a Vice President at Merrill
Lynch, Inc. 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.
PETER D. VOSS joined Solpower as a Director and Vice Chairman in September
1999. From 1988 to the present, Mr. Voss has been Chairman and Managing Director
of Dominion Capital Pty Ltd., part of the Voss Group of Companies, that have
diversified, international financial interests and have owned and operated
companies involved in food, beverage, forestry, viticulture, livestock,
international trading and real estate. From 1981 to 1987, Mr. Voss held a senior
management role as general manager of Coca-Cola Amital. Mr. Voss has been a
consultant to industry and government bodies in Australia, Canada, China,
Indonesia, Japan, Korea and the United States.
MARK ROBINSON has served as President, Chief Executive Officer and as a
Director of Solpower since March 2000. As Chief Executive Officer and President,
Mr. Robinson is responsible for all operations, product development, sales and
marketing. From May 1999 to present, Mr. Robinson has been a Director of
Dominion Wines Ltd., an entity affiliated with Dominion Capital Pty Ltd. From
November 1994 to July 1996, he served as Managing Director of National Australia
Finance (Asia) Limited, based in Hong Kong. From 1985 to 1987, Mr. Robinson held
executive positions with the National Australia Bank in Australia, New Zealand,
Hong Kong, China, Macao, Japan and Singapore. Mr. Robinson was a member of the
Australian Institute of Affiliated Accountants and has attended the Australia
Graduate School of Management, Sydney, Australia and the International Banking
School of Finance, Tokyo, Japan.
JAMES H. HIRST has served as Secretary/Treasurer since March 2000, as Chief
Executive Officer of Solpower from September 1997 to March 2000, as President
from May 1998 to March 2000 and as a Director from May 1998 to present. 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
36
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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 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.
JERRY W. GODDARD has served as Director of Solpower 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 Solpower 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.
(b) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following information relates to reports under Section 16(a) of the
Exchange Act that were not timely filed by officers, directors and beneficial
owners of 10% or more of Solpower's common stock during the fiscal year ended
March 31, 2000. This information is based on a review of Section 16(a) reports
furnished to Solpower.
R.L. "Beau" Van Deren, a former director of Solpower, failed to timely file
a report on Form 4 in connection with the cancellation and issuance of certain
options which occurred in February 2000. A Form 5 to report the delinquent Form
4 also was not timely filed. The required report was filed on August 16, 2000.
Mark S. Robinson failed to timely file a report on Form 3 upon becoming the
President and a director of Solpower. A Form 5 to report the delinquent Form 4
was also not timely filed. The required report was filed on August 16, 2000.
Dominion Capital failed to timely file five reports related to four
transactions. These reports related to the purchase of a note convertible into
shares of Solpower common stock in September 1999, the sale of 183,000 shares of
Solpower common stock in October 1999, the sale of 500,000 shares of Solpower
common stock in December 1999 and the purchase of an additional convertible note
in December 1999. Dominion Capital failed to timely file a Form 4 related to
37
<PAGE>
these transactions and a Form 5 to report the delinquent Form 4 filings. The
required report was filed on August 16, 2000. Dominion Capital has also agreed
to disgorge profits, if any, related to any of these transactions as required
under Section 16 of the Exchange Act.
Peter Voss failed to timely file six reports related to five transactions.
As a control person of Dominion Capital, Mr. Voss was required to file reports
related to the Dominion Capital transactions described above. Additionally, Mr.
Voss failed to timely file a Form 4 related to the issuance of 120,000 shares to
Dominion Capital, Inc. in March 2000 in payment of certain services. The
required report was filed on August 16, 2000.
ITEM 10. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for the fiscal years
ended March 31, 2000, 1999 and 1998 for the Chief Executive Officer. No other
person received salary or bonus in excess of $100,000 for any of these fiscal
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
OTHER STOCK
FISCAL ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION (SHARES)
--------------------------- ---- ------ ------------ --------
<S> <C> <C> <C> <C>
James H. Hirst 2000 -- $100,000(1) --
Chief Executive Officer 1999 -- $100,000(1) 100,000(2)
1998 -- $ 58,333(1) 300,000(2)
</TABLE>
----------
(1) During the fiscal year ended March 31, 2000, 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 grants of options
to executive officers for the fiscal year ended March 31, 2000.
38
<PAGE>
OPTION GRANTS IN FISCAL YEAR 2000
OPTION EXERCISES AND VALUES
The following table sets forth information regarding the exercise and
values of options held by executive officers as of March 31, 2000.
AGGREGATE OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT MARCH 31, 2000 AT MARCH 31, 2000
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- -------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
James H. Hirst 0 0 0/400,000 $0/$0
</TABLE>
EMPLOYMENT AGREEMENTS
Solpower has been authorized to enter into employment agreements with Mr.
Robinson and Mr. Hirst. These agreements are intended to be for an initial term
of three years. Base salary of $130,000 has been set for Mr. Robinson and of
$126,000 for Mr. Hirst. In addition, Mr. Robinson and Mr. Hirst are each to
receive options to purchase 500,000 shares at $1.00 per share, subject to
vesting, and stock grants initially of 50,000 shares and 10,000 shares per month
thereafter. The stock grants to Mr. Robinson commenced as of March 1, 2000 and
to Mr. Hirst as of April 1, 2000. The shares were issued in June 2000. The
option grants were effective April 7, 2000.
DIRECTOR COMPENSATION
All authorized out-of-pocket expenses incurred by a director on behalf of
Solpower are subject to reimbursement.
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 to attract employees and
service providers and to reward those persons upon whom the responsibilities for
the successful administration and management of Solpower. Another purpose of the
Plan is to provide such persons with additional incentive and reward
opportunities designed to enhance profitable growth. 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. In 1999,
the Plan was amended by the Board of Directors to increase the number of shares
that can be granted under the Plan. The Plan, as amended, provides for the
granting of options to acquire up to 2,500,000 shares of Solpower common stock.
As of March 31, 2000, all stock options had been granted under the Plan and an
additional 100,000 options had been committed at exercise prices ranging from
$1.00 to $7.00 per share. The Board intends to amend the Plan to increase the
shares covered by the Plan and to submit the amendment for shareholder approval.
39
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 1, 2000, 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.
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER OF OWNERSHIP PERCENT OF CLASS(1)
------------------- ------------ -------------------
Fraser M. Moffat III(2) 0 0%
18 Lake Avenue
Montrose, Pennsylvania
Mark S. Robinson(2) 80,000 0.29%
7309 East Stetson Drive
Scottsdale, Arizona
James H. Hirst(2) 70,100 0.26%
7309 East Stetson Drive
Scottsdale, Arizona
Jerry W. Goddard 135,000(3) 0.49%
7309 East Stetson Drive
Scottsdale, Arizona
Naoya Yoshikawa 100 (4)
2-16-42 Takanawa
Minato-Ku, Japan
PICO Holdings, Inc.(5) 2,500,000 9.1%
875 Prospect Street, Suite 301
La Jolla, California 92037
Dominion Capital Pty Ltd. (6)(7) 8,291,650 30.2%
39 De Havilland Road
Mordialloc 3195
Victoria, Australia
Peter Voss 11,131,550 40.5%
39 De Havilland Road
Mordialloc 3195
Victoria, Australia
All Directors and Officers 11,416,750 41.6%
as a Group (6 persons)
40
<PAGE>
----------
(1) Based upon 27,466,066 shares of common stock being issued and outstanding
on July 31, 2000.
(2) Messrs. Robinson and Hirst have each been granted options to purchase up to
an additional 500,000 shares of common stock at prices ranging from $1.00
to $5.00 per share upon the market price of the common stock attaining
certain levels. Mr. Moffat has been granted options to purchase up to
350,000 shares of common stock at prices ranging from $2.00 to $7.00 per
share upon the market price of the common stock attaining certain levels.
Messrs. Goddard and Yoshikawa have each been granted options to purchase up
to 100,000 shares of common stock at prices ranging from $3.00 to $7.00 per
share upon the market price of the common stock attaining certain levels.
These options have not vested, are not exercisable until vested and are not
included in the total above.
(3) Includes 100,000 shares held by an entity associated with Mr. Goddard over
which he has an exercisable control.
(4) Less than 0.1%.
(5) Pico holdings, Inc. is a diversified holding company listed on Nasdaq under
trading symbol PICO.
(6) Mr. Voss holds 100 shares directly and controls Dominion Capital Pty Ltd
which holds 8,291,650 shares, A1 Financial Planners Pty Ltd. which holds
1,140,200 shares and Intavest Pty Ltd. which holds 1,130,000 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. The
total also reflects 120,000 shares held by Dominion Capital, Inc., an
entity controlled by Mr. Voss.
(7) Dominion capital has been granted an option to acquire 750,000 shares of
common stock at prices ranging from $2.50 to $5.00 per share upon
SOLTRON(TM) sales revenues attaining certain levels. These options have not
vested, are not exercisable until vested and are not included in the total
above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 4, 1996, we entered into an Acquisition Agreement with Dominion
Capital for the acquisition of the exclusive North American manufacturing,
distribution, marketing and sales rights SOLTRON(TM). The originAL term of the
agreement was for five years and provided that we issue 5,000,000 shares of our
common stock, issue preferred stock and grant certain options to Dominion
Capital as consideration for these rights. On November 22, 1997 we renegotiated
the terms of the Acquisition Agreement to extend its term for an additional five
year period and eliminate the required option grants and preferred share
issuances. The amended agreement provided that options and performance bonuses
would be payable to Dominion Capital as follows: (i) upon gross revenues from
sales of SOLTRON(TM) 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 revenues from sales of SOLTRON(TM) 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 revenues
from sales of SOLTRON(TM) 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 revenues from sales of SOLTRON(TM) 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 we entered into an addendum to the Acquisition Agreement in which we were
granted a right of first refusal to acquire manufacturing, distribution,
marketing and sales rights to SOLTRON(TM) in all other territories (other than
JapaN) where SOLTRON(TM) and certain other products and services are currently
being commercialized by Dominion CapitaL. The terms and conditions of any such
acquisitions are to be negotiated on a product by product and a territory by
territory basis.
On November 4, 1996, we issued 3,520,000 shares of our common stock to
Dominion Capital at a price of $0.125 per share. On April 1, 1997, we issued an
additional 4,160,000 shares of our common stock to Dominion Capital in exchange
for cancellation of advances payable to Dominion Capital in the amount of
$520,000 ($0.125 per share).
On June 17, 1998, we entered into a second Acquisition Agreement with
Dominion Capital for the acquisition of the exclusive North American
manufacturing, distribution, marketing and sales rights to SP34E(TM). We agreed
to issue 6,000,000 shares of its Common Stock and pay a royalty of $2.25 for
each kilogram of SP34E(TM) sold in North America. The term of this Acquisition
Agreement is for five years, beginning when we achieve specified sales volumes
of SP34E(TM). We have an option to extend the term of this agreement for an
additional fiVE years. Effective January 1, 1999, we entered into an addendum to
the Acquisition Agreement delaying the commencement of the Acquisition Agreement
41
<PAGE>
until we achieve certain sales volumes of SP34E(TM), but not later thAN July 1,
2000.
On July 1, 1998, we entered into a Client Service Agreement with Dominion
Capital, Inc. (formerly Dominion Capital Securities, Inc.), an Arizona
corporation ("DCI"), for the provision of all of our required investor and
corporate communications services. DCI is wholly-owned by Mr. Peter Voss, who is
also one of our directors and the controlling shareholder of Dominion Capital,
our principal shareholder. The term of the agreement is renewable every six
months. For its services, DCI initially received $275,000 of which $125,000 was
paid in cash with the balance paid with 50,000 shares of our common stock. We
renewed our agreement with DCI in consideration of monthly payments of $30,000
per month for six months, payable $90,000 in cash and by issuance of 90,000
shares of common stock for services rendered through December 31, 1999. We have
agreed to make payments of $15,000 per month, payable $60,000 in cash and by
issuance of 30,000 shares of common stock for services for the period of January
2000 through June 2000.
On September 30, 1999, we issued $1,500,000 in 6% Convertible Notes Payable
to Dominion Capital and various other accredited investors as consideration for
prior advances and payment of certain of our operating expenses. These notes
were converted to 3,000,000 shares of our common stock on April 28, 2000.
On December 31, 1999, we issued a $200,000 6% Convertible Note Payable to
Dominion Capital as consideration for prior advances and payment of certain of
our operating expenses. This note was converted to 500,000 shares of our common
stock on April 28, 2000.
Our general policy for entering into transactions with directors, officers
and affiliates 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 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
2.1(1) 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(TM)
Product.
10.2(1) Acquisition Agreement amendment dated November 24, 1997
outlining clarifications and extensions of original
Acquisition Agreement dated November 4, 1996.
42
<PAGE>
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(TM)Product.
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 and amendments
between Scottsdale Stetson Corporation and Virtual
Technologies, Inc.
10.10(1) Second Amendment to Property Lease Agreement and amendments
between Scottsdale Stetson Corporation and Virtual
Technologies, Inc.
10.12(1) Solpower Corporation Stock Option and Incentive Plan dated
November 22, 1997.
10.16(1) Client Services Agreement between Solpower Corporation and
Dominion Capital Securities, Inc. dated July 1, 1998.
10.17(2) Addendum to June 17, 1998 Acquisition Agreement effective
January 1, 1999.
10.18(2) Joint Venture Agreement between Solpower Corporation and
Protocol Resource Management, Inc. dated March 29, 1999.
10.19(2) Heads of Agreement between Solpower Corporation and Solpower
Australia Pty Ltd. dated June 7, 1999.
10.20(3) Note Agreement for the Issuance of up to $1,500,000 of 6%
Convertible Notes, between Solpower, Dominion Capital and
other signatories thereto, dated September 24,1999.
43
<PAGE>
10.21(3) Amendment to the Note Agreement for the Issuance of up to
$1,500,000 of 6% Convertible Notes, between Solpower,
Dominion Capital and other signatories thereto, dated
December 31,1999.
10.22(3) Note Agreement for the Issuance of up to $200,000 of 6%
Convertible Notes, between Solpower and Dominion Capital,
dated December 31,1999.
21.1(2) Subsidiaries
23.1 Auditor's Consent from Semple & Cooper, LLP
27.1 Financial Data Schedule.
99.1(2) Assignment, Settlement and Release between Solpower
Corporation and Masters Marketing Group, Inc. dated May 14,
1999.
99.2(2) Assignment, Settlement and Release between Solpower
Corporation and D. I. South, Inc. of Indiana dated September
1, 1999.
99.3(2) Assignment, Settlement and Release between Solpower
Corporation and Solpower Southeast Corporation dated
September 7, 1999.
99.4 Assignment, Settlement and Release between Solpower
Corporation and Houston Mercantile Exchange, Inc. dated
November 7, 2000.
----------
(1) Incorporated by reference from the Company's Form 10-SB as filed on August
21, 1998.
(2) Incorporated by reference from the Company's Form 10-KSB as filed on
September 24, 1999.
(3) Incorporated by reference from the Company's Form 10-QSB as filed on
December 10, 1999.
(b) REPORTS ON FORM 8-K.
None.
44
<PAGE>
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOLPOWER CORPORATION
Dated: August 16, 2000 By /s/ Mark S. Robinson
-------------------------------------
Mark S. Robinson,
Chief Executive Officer
BOARD OF DIRECTORS
Dated: August 16, 2000 /s/ Fraser M Moffat III
-------------------------------------
Fraser M. Moffat III, Chairman
Dated: August 16, 2000 /s/ James H. Hirst
-------------------------------------
James H. Hirst
Dated: August 16, 2000 /s/ Mark S. Robinson
-------------------------------------
Mark S. Robinson
Dated: August 16, 2000 /s/ Jerry W. Goddard
-------------------------------------
Jerry W. Goddard
Dated: August 16, 2000 /s/ Naoya Yoshikawa
-------------------------------------
Naoya Yoshikawa
Dated: August 16, 2000 /s/ Peter D. Voss
-------------------------------------
Peter D. Voss
45
