SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999 Commission file number 0-18260
--------------------
THE NEW WORLD POWER CORPORATION
(Exact name of registrant as specified in its charter)
--------------------
DELAWARE 52-1659436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
740 ST MAURICE, SUITE 604
MONTREAL, CANADA H3C 1L5
(514) 390-1333
(Address and telephone number of principal executive offices)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number 0-18260
The New World Power Corporation
(Exact name of registrant as specified in its charter)
Delaware 52-1659436
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
740 St Maurice, Suite 604, Montreal, Quebec, Canada H3C 1L5
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (514) 390-1333
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 No X.
The number of shares outstanding of the registrant's Common Stock as of
September 30, 1999 was 3,797,912.
Table of Contents
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements (Introduction) 1
Consolidated Balance Sheet as of September 30, 1999
(Unaudited) and December 31, 1998 2
Consolidated Statements of Operations for the Quarter
Ended September 30, 1999 and 1998 (Unaudited) 3
Consolidated Statements of Operations for the Nine Months
Ended September 30, 1999 and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 (Unaudited) 5
Notes to Interim Consolidated Financial Statements
(Unaudited) 6
Item 2. Management's Discussion and Analysis 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures S-1
Exhibit Index
Exhibit 27 -Financial Data Schedule
PART 1 FINANCIAL INFORMATION
I. INTRODUCTION
The New World Power Corporation ("New World" or the "Company") owns and
operates electric power generating facilities. The Company has traditionally
focused and will continue to focus on renewable energy, including wind farms,
hydroelectric plants and wind/diesel hybrids, with power output sold to major
utility companies under long term contracts. The Company conducts business
internationally.
The Company is organized as a holding company. Each electric power
generating facility or discreet group of facilities is owned by a separate
corporate entity. Executive management, legal, accounting, financial and
administrative matters are provided at the holding company level. Operations are
conducted at the subsidiary level.
The Company currently operates two wholly owned subsidiaries, Michigan
based Wolverine Power Corporation ("Wolverine") and The New World Power Company
(Caton Moor) Limited ("Caton Moor") in the UK. Wolverine is a 10.5-megawatt
hydroelectric plant and Caton Moor is a 3-megawatt wind farm. The Company also
owns a 25% interest in a hydroelectric power plant now under construction in
Fujian, China ("Fujian"), which recently was petitioned into the Chinese version
of involuntary reorganization.
This report contains "forward looking statements" within the purview of
the federal securities laws. There are numerous risks and uncertainties
surrounding the Company and management's business plan. There can be no
assurance that the Company will be successful in implementing its business plan,
nor can it be determined with certainty whether the Company will have sufficient
capital to fund operations. In addition, there can be no assurance, however,
that the Company can maintain profitability or complete any acquisitions on
terms acceptable to the Company, if at all.
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS September 30, December 31,
1999 1998
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 81,952 $ 170,543
Cash restricted in use (Note 3) 22,419 173,035
Accounts receivable 187,836 426,891
Other current assets 39,284 30,267
------------ ------------
TOTAL CURRENT ASSETS 331,491 800,736
Property, plant and equipment, net 3,387,487 3,269,460
Investments (Note 6) - 129,643
Goodwill, net of accumulated amortization 344,953 352,453
Deferred project costs 299,200 187,170
------------ ------------
4,031,640 3,938,726
TOTAL ASSETS $ 4,363,131 $ 4,739,462
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 225,395 $ 391,948
Due to related parties (Note 6) 510,381 373,161
Current portion of settlement obligations 207,836 375,000
------------ ------------
TOTAL CURRENT LIABILITIES 943,612 1,140,109
Long-term portion of due to related parties (Note 6) 750,000 730,632
Long-term portion of settlement obligations (Note 7) 171,106 275,000
Other non-current liabilities 1,050,000 1,275,000
------------ ------------
1,971,106 2,280,632
TOTAL LIABILITIES 2,914,718 3,420,741
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.01 par value, 40,000,000 shares
authorized, 3,797,912 and 3,552,512 shares
issued and outstanding 37,979 35,525
Currency translation adjustments (29,295) 134,029
Additional paid-in capital 83,210,751 83,151,595
Accumulated deficit (81,771,022) (82,002,428)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,448,413 1,318,721
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,363,131 $ 4,739,462
============ ============
See accompanying notes to interim consolidated condensed financial statements.
2
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter ended Quarter ended
September 30, September 30,
1999 1998
---- ----
OPERATING REVENUE $ 239,994 $ 414,399
COST OF OPERATIONS 181,668 398,878
---------- ----------
GROSS PROFIT 58,326 15,521
Project development expenses 12,673 28,082
Selling, general and administrative expenses 135,071 189,480
---------- ----------
OPERATING INCOME (89,418) (202,041)
OTHER INCOME (EXPENSE):
Interest expense (32,857) (35,109)
Interest income 127 1,865
Other 275,048 -
---------- ----------
TOTAL OTHER INCOME (EXPENSE) 242,318 (33,244)
INCOME (LOSS) BEFORE TAXES 152,900 (235,285)
Provision for income taxes 503 -
---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 152,397 (235,285)
NET INCOME (LOSS) $ 152,397 $ (235,285)
========== ==========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Net earnings (loss) from continuing operations
available to common stockholders $0.04 $(0.07)
NET EARNINGS (LOSS)
ATTRIBUTABLE TO COMMON SHARES $0.04 $(0.07)
===== ======
AVERAGE NUMBER OF BASIC COMMON SHARES
OUTSTANDING 3,797,912 3,468,512
========== ==========
See accompanying notes to interim consolidated condensed financial statements.
3
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months ended Nine Months ended
September 30, September 30,
1999 1998
---- ----
OPERATING REVENUE $1,013,809 $1,889,445
COST OF OPERATIONS 494,452 996,068
---------- ----------
GROSS PROFIT 519,357 893,377
Project development expenses 43,353 87,403
Selling, general and administrative expenses 532,749 966,775
---------- ----------
OPERATING (LOSS) (56,745) (160,801)
OTHER INCOME (EXPENSE):
Interest expense (98,977) (123,930)
Interest income 1,745 10,597
388,387 335,073
---------- ----------
TOTAL OTHER INCOME (EXPENSE) 291,155 221,740
INCOME BEFORE TAXES 234,410 60,939
Provision for income taxes 3,004 14,007
---------- ----------
INCOME FROM CONTINUING OPERATIONS 231,406 46,932
NET INCOME $ 231,406 $ 46,932
========== ==========
BASIC AND DILUTED EARNINGS PER SHARE:
Net earnings from continuing operations
available to common stockholders $0.06 $0.01
NET EARNINGS
ATTRIBUTABLE TO COMMON SHARES $0.06 $0.01
===== =====
AVERAGE NUMBER OF BASIC COMMON SHARES
OUTSTANDING 3,797,912 3,468,512
========== ==========
See accompanying notes to interim consolidated condensed financial statements.
4
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended
September 30,
1999
----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 231,407
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 202,213
Amortization of goodwill 7,500
Other, net (91,235)
Amortization of deferred costs (17,613)
Change in assets and liabilities, net of effect of acquisitions/disposals:
(Increase) decrease in accounts receivable 239,055
(Increase) decrease in other current assets (9,017)
Increase (decrease) in accounts payable and
accrued liabilities (167,553)
(Decrease) increase in non-current liabilities (328,894)
NET CASH FLOWS PROVIDED BY (USED
IN) OPERATING ACTIVITIES 65,863
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment 129,643
Capital expenditures (320,243)
NET CASH FLOWS (USED IN) PROVIDED --------
BY INVESTING ACTIVITIES (190,600)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due to related parties 156,588
Payment of settlement obligation (271,058)
Proceeds from issuance of common stock -
Decrease in restricted cash 150,616
--------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 36,146
--------
Net change in cash and equivalents (88,591)
Cash and equivalents at beginning of period 170,543
--------
CASH AND EQUIVALENTS AT END OF PERIOD $ 81,952
--------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $ 98,977
Interest income 1,745
See accompanying notes to interim consolidated condensed financial statements.
5
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The New World Power Corporation ("the Company") was incorporated
in the State of Delaware in 1989. The Company is a global
developer and producer of electricity generated from wind energy,
solar energy and hydropower. The Company also develops,
manufactures and markets electrical gathering systems powered by
renewable resources and provides related services.
Basis Of Presentation
In the opinion of management, the accompanying unaudited interim
consolidated condensed financial statements of The New World Power
Corporation ("the Company") and its subsidiaries contain all
adjustments necessary to present fairly the Company's financial
position as of September 30, 1999 and December 31, 1998 and the
results of operations for the quarter ended September 30, 1999 and
1998 and the results of operations for the nine months ended
September 30, 1999 and 1998 and cash flows for the nine month
period ended September 30, 1999.
The accounting policies followed by the Company are set forth in
Note 1 to the Company's consolidated financial statements included
in its Annual Report on Form 10-K for the year ended December 31,
1998, which is incorporated herein by reference. Specific
reference is made to that report for a description of the
Company's securities and the notes to the consolidated financial
statements included therein.
The results of operations for the nine month period and quarter
ended September 30, 1999 are not necessarily indicative of the
results to be expected for a full year.
NOTE 2 - FILINGS WITH UNITED STATES SECURITY AND EXCHANGE COMMISSION ("SEC"):
The Company did not file in a timely manner certain reports (March
31, 1999 Form 10QSB, which was filed late) required by the
Securities and Exchange Act of 1934, which could jeopardize its
status as a public company.
NOTE 3 - CASH RESTRICTED IN USE
As a result of the restructuring of the long-term indebtedness in
December 1997, as well as the Synex International financing,
certain cash was restricted to making payments for long-term
obligations. (See Note 6 for Due to Related Parties).
6
NOTE 4 - PLANT, PROPERTY AND EQUIPMENT
Property, plant and equipment consists of the following as of
September 30, 1999 (000's omitted):
Useful Life
(Years)
-------
Power generation facilities and equipment:
Hydroelectric $3,683 40
Wind:
Owned 4,352 25
Land 401
Total ------
8,436
Less accumulated depreciation and
amortization 5,049
------
$3,387
======
NOTE 5 - EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings Per Share". SFAS 128
requires the disclosure of basic and diluted earnings per share
(EPS). Basic EPS is calculated using income available to common
shareholders divided by the weighted average number of common
shares outstanding during the period. Diluted EPS is similar to
basic EPS except that the weighted average number of common
shares, outstanding is increased to include the number of
additional common shares that would have been outstanding if the
dilutive potential common shares, such as options, had been
issued. All prior year earnings per share have been restated in
accordance with the provisions of SFAS 128 and did not have a
material effect on historically disclosed earnings per share.
Options to purchase 225,000 shares of common stock at $.30 were
outstanding as well as the convertible debt during 1999 and 1998
but were not included in the computation of the diluted EPS
because the strike price was greater than the average market price
of the common shares.
7
NOTE 6 - DUE TO RELATED PARTIES:
Amounts due to related parties consists of the following at
September 30, 1999 (000's omitted):
(a) Convertible Subordinated Debentures Flemings Group $ 0
(b) Convertible Subordinated Debentures Flemings Group 510
(c) Synex International 750
------
Total 1,260
Less current portion 510
------
Long-term portion $ 750
======
During the third quarter of 1999, the company defaulted on its
Convertible Subordinated Debentures. Accordingly, the Company has
reclassified the entire indebtedness as current. The Company has
not received the written notice from the lender acknowledging the
default as required by the debenture agreements.
NOTE 7 - LITIGATION
In January 1999, the Company and plaintiff reached a settlement
which provided for Dwight Kuhns ("plaintiff") to receive a $75,000
payment upon signing of the agreement and a $25,000 payment due
March 1, 1999. The Company made both of those payments. In
addition, the Company executed a promissory note in the principal
amount of $275,000 with interest accruing at 9% per annum. Under
the promissory note, the Company is required to make a $30,000
payment April 1, 1999 (paid), a $60,000 payment on July 1, 1999
(paid), a $60,000 payment on October 1, 1999 (paid September 1999)
and the remaining principal and interest on December 31, 1999.
Further the Company executed a mortgage note in the principal
amount of $275,000 with interest payable at 7.5%, secured by a
third position on Wolverine. Payments under that mortgage note are
to be made in six equal installments due on June 30 and December
31, of each year in the amount of approximately $52,000. The
Company also issued 150,000 unregistered shares to plaintiff and a
warrant to purchase 75,000 shares of the Company's common stock at
$2 per share.
In November 1998, the Company filed suit in California against the
legal firm that represented it in the Dwight Kuhns et al
litigation. The allegations include, among other things,
misrepresentation of the Company in the legal proceedings
pertaining to the professional handling of that litigation. The
Company is seeking unspecified damages.
8
NOTE 8 - COMMITMENTS AND CONTINGENCIES
(A) Consumers Power Company Power Purchase Contract
The rates under this power purchase contract were subject to
renegotiation on December 31, 1995. The Company has abandoned its
attempt to renegotiate its contract with Consumers Power Company
and, as a result, its contract is continued on a year to year
basis under the conditions of the original contract.
(B) Performance Bond
In February 1999, the Company entered into an agreement to sell
its 60% interest in the Salto Andersen Project to an Argentine
company for approximately $7,000. The agreement provides for an
option period to complete the transaction and resolve all
outstanding regulatory issues within 135 days from January 27,
1999. Due to political elections in Argentina, resolution of
regulatory issues was not received by the Argentine Company and
the Argentine company notified New World of its inability to
complete the transaction. However, management believes that
another company with other projects in Argentina will purchase the
project shortly, thereby eliminating any and all potential
contingencies to the Company under the performance bond.
9
ITEM 2. MANAGEMENT DISCUSSION AND PLAN OF OPERATIONS
SHORT TERM STRATEGY
New World continues to apply its available resources to maintain positive
results from its operating projects, while further attempting to consummate at
least two targeted acquisitions in its core markets.
The Company's current profitability results from management's steady
reductions in overhead, debt and development costs, combined with increased
focus on existing project operations and production as well as gains from sale
of certain assets. The Company believes that this approach will remain the
foundation of New World's short-term strategy. But while focused on its bottom
line through projects in operation, the Company will also use its in-place
personnel to negotiate small and mid-sized wind farm and hydroelectric plant
acquisitions in North America and Europe.
Using its existing resources, personnel and market presence, the Company
has identified a variety of acquisition candidates in Europe, Canada and the
United States. The Company believes that any new acquisitions would be funded by
debt or a hybrid security. This financing instrument would minimize the
"dilution effect" to existing shareholders. Upon successfully achieving a
reasonable market price per share, the Company may look to the equity market for
additional capital.
Additionally, the historic profitability of New World's Wolverine hydro
plant indicates the Company's expertise in low cost hydroelectric plant
operations in North America. And as North American power purchase tariffs have
been reduced over the past few years by the forces of continued deregulation,
similar to the events driving the UK wind market, the Company believes there are
a variety of hydro plant acquisitions available to a focused and capable buyer.
New World will apply its hydro acquisition program in the Northeast, Mid West
and Canada, where it believes there are attractive investment opportunities
available in a generally overlooked sector.
In summary, the Company will continue to maintain its efforts to hold
down overheads and generate profits from existing operations. It also expects to
complete at least 2 acquisitions within the next 12 months. There can be no
assurance, however, that the Company can maintain profitability or complete any
acquisition on terms acceptable to the Company, if at all. In addition, there
can be no assurance that the Company will be able to close any financings to
enable it to make acquisitions.
Both acquisitions should be achievable at very attractive multiples of
EBITDA. And due to New World's demonstrated low cost operations and management
abilities, these new project additions should add significant incremental
profits without increased costs, thereby maximizing earnings per share.
10
General
The results of operations for the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998 reflect continuity at the
operating level regarding production yet reductions due to changes in the power
purchase agreement in the United Kingdom. The effects of the corporate
restructuring are quite notable, however, at the selling, general and
administrative expense level.
Revenues
The revenues decreased to $1,013,809 in 1999 from $1,889,445 in 1998 due
primarily to the UK operations decrease in price per kWh as a result of the end
of the premium pricing structure of the NFFO power purchase contract. The
revenues in the United States remained relatively constant between the years.
Seasonality of Project Revenues
Hydroelectric and wind farm electric generating revenues are seasonal.
The spring in North America is the time of maximum hydroelectric output, while
fall and winter also experience reasonable flows; the summer months are dry and
generally unproductive. The best season wind season in the United Kingdom is
typically from October to March. Both hydroelectric and wind power production
can also vary from year to year based on changes in meteorological conditions.
Cost of operations
The costs of operations decreased in the nine months period ended
September 30, 1999 to $494,452, as compared to $996,068 during the previous
year's nine month period, primarily as a result of the company's downsizing
efforts in the UK as well as some reductions in the US.
Project development expense
The Company continued curtailing its development efforts for the nine
months ended September 30, 1999 to $43,353, as compared to $87,403 during the
previous year's corresponding nine month period. This reduction is in line with
the strategy of reducing the development risk formulated in the 1996
restructuring plan and the Company's focus on acquisitions of existing projects.
Selling, general and administrative
These expenses were reduced during the nine months ended September 30,
1999 to $532,749, as compared to $966,775 during the previous year's nine months
period. The 1998 expenses included the fees and expenses associated with the
repayment of project indebtedness and asset sales.
11
Other income and expenses
During the nine months ended September 30, 1999, the Company recorded
other income-net of $388,387, as compared to income of $335,073 during the
previous year. The nine months ended September 30, 1999 other income is a result
of asset sales and a one time gain from settlement negotiations surrounding the
Texas Renewable Energy Partnership. The previous year's nine month period's
other income is the result of gains on 1998 sales, primarily the gain of
approximately $300,000 from the sale of the Texas Renewable Energy project.
Interest expense for the nine month period ended September 30, 1999 were
reduced to $98,977 from the previous year's nine month period of $123,930, in
line with the debt repayment, offset by the interest on the settlement
obligations.
17
PART II
ITEM 1. LEGAL PROCEEDINGS
On November 12, 1996, Dwight Kuhns, ex president and brother of the
former Chairman of the Board, commenced an action against New World in the
Superior Court, Alameda County, California. The action sought damages under a
consulting agreement that Mr. Kuhns had entered into with the Company at the
start of January, 1996, following the termination of his employment with the
Company on December 31, 1995.
After trial, the plaintiff was awarded $967,000 in contractual damages
and $1,000,000 in punitive damages on July 24, 1998. The Company filed a notice
of appeal of the judgment. In addition, the Company filed a malpractice action
against its counsel of record from inception to November 8, 1997.
While the judgment was under appeal, the Company was unable to post the
required bond with the court to stay the execution of the judgment. The
plaintiff has obtained several garnishee orders against the Company and has
caused the court to issue subpoenas for the Company and its officers. Wishing to
avoid the distraction from the operations and delays in implementation of the
new business plan, the Company entered into a settlement agreement with the
plaintiff on January 1, 1999. An agreement was made that upon payment of
$375,000 and delivery of a $275,000 note together with 150,000 common shares and
75,000 warrants to purchase shares at $2 each, the Company will obtain full
satisfaction of the judgement.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the third quarter of 1999, the Company defaulted on its Senior
Subordinated Convertible Notes. The Company is currently in discussions with
parties to refinance the existing indebtedness. As a result of the default, the
company has classified the entire indebtedness as current.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
13
ITEM 5. OTHER INFORMATION.
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits
Exhibit Description
Number
27 Financial Data Schedule
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE NEW WORLD POWER CORPORATION
November 15, 1999 By: /s/ Vitold Jordan
..............................
Vitold Jordan
Chief Executive Officer
November 15, 1999 By: /s/ Frederic A. Mayer
..............................
Frederic A. Mayer
Chief Financial Officer
S-1