SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
AMENDED REPORT
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1995
[ ] 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: 0-14873
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NEVADA ENERGY COMPANY, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0897771
- --------------------------------------------- ---------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
989 Bible Way, Reno, Nevada 89502
---------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(702) 786-7979
---------------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (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 X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required
to be filed by Sections 12, 13 of 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 8,808,485 shares of the registrant's Class A Common Stock, $.001
par value, outstanding as of January 18, 1996.
NEVADA ENERGY COMPANY, INC.
INDEX
Part I. Financial Information Page Number
- ----------------------------- -----------
Item 1. Financial Statements
Consolidated Balance Sheets -
November 30, 1995 and February 28, 1995 3 - 4
Consolidated Statements of Operations -
for the three months ended November 30, 1995
and the nine months ended November 30, 1995
for the three months ended November 30, 1994
and the nine months ended November 30, 1994 5
Consolidated Statements of Shareholders' Equity -
for the year ended February 28, 1995 and the
nine months ended November 30, 1995 6
Consolidated Statements of Cash Flows -
for the nine months ended November 30, 1995
and the nine months ended November 30, 1994 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Part II. Other Information
- -----------------------------
Item 1. Legal Proceedings. 28
Item 4. Submission of Matters to a Vote of
Security Holders. 30
Item 5. Other Information. 31
Item 6. Exhibits and Reports on Form 8-K. 32
2
NEVADA ENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
------
(Unaudited)
NOVEMBER 30 FEBRUARY 28
1995 1995
----------- -----------
CURRENT ASSETS:
Cash $ 304,597 $ 37,885
Receivables (Note 1) 188,263 248,400
Stock Subscription Receivable - 150,000
Receivable from related party - Note 4 - 37,500
Inventory 24,235 25,063
Deposits and prepaid expenses 63,423 125,811
----------- -----------
Total Current Assets 580,517 624,659
----------- -----------
PROPERTY AND EQUIPMENT, at cost - Note 1:
Furniture, equipment and vehicles 244,096 210,140
Building 249,602 249,602
Construction in progress 3,554 -
Power generation equipment 1,048,405 1,075,471
Idle power generation equipment (Net of
obsolescence of $2,469,934 at November
30, 1995 and $2,185,505 at February 28,
1995) 5,404,161 5,688,590
Land 70,000 70,000
----------- -----------
7,019,816 7,293,803
Less - Accumulated depreciation and
amortization (319,638) (270,549)
----------- -----------
Net Property and Equipment 6,700,178 7,023,254
----------- -----------
OTHER ASSETS - Note 2
Investments in partnerships 2,551 3,350
Power Purchase Agreements, net of Amortization 48,904 50,788
Other assets 19,152 11,440
----------- -----------
70,607 65,578
----------- -----------
TOTAL ASSETS $ 7,351,302 $ 7,713,491
----------- -----------
----------- -----------
(The accompanying notes are an integral part of these statements.)
3
NEVADA ENERGY COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
----------- --- ------------- ------
(Unaudited)
NOVEMBER 30 FEBRUARY 28
1995 1995
-------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 115,229 $ 145,141
Short-term borrowings - Note 3 52,251 73,275
Payable to related party - Note 4 24,092 58,121
Accrued payroll 19,060 46,284
Other liabilities 77,508 52,525
Liabilities subject to compromise -
Note 10 47,872 84,980
------------ ------------
Total Current Liabilities 336,012 460,326
------------ ------------
NON-CURRENT LIABILITIES:
Mortgage Payable 23,221 43,036
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES -
Note 9 - -
------------ ------------
Total Liabilities 359,233 503,362
------------ ------------
MINORITY INTEREST IN SUBSIDIARY - Note 2 739,825 765,837
------------ ------------
SHAREHOLDERS' EQUITY - Notes 1, 4, 5, 6
and 7:
Preferred stock, $.001 Par Value:
Authorized 2,000,000 shares; issued
and outstanding None at November 30,
1995 and February 28, 1995 - -
Class A Common Stock, $.001 par value.
Authorized 25,000,000 shares; issued
and outstanding 8,808,485 shares at
November 30, 1995 and 7,509,481
shares at February 28, 1995 8,808 7,509
Class B Common Stock, $.001 Par Value,
Authorized 25,000,000 Shares; issued
and outstanding 4,437,473 shares at
November 30, 1995
4,024,918 shares at February 28, 1995 4,437 4,025
Common stock subscribed - Note 12 - 250,000
Additional paid-in capital 11,528,755 11,214,439
Accumulated deficit (5,280,654) (5,022,828)
Treasury stock, Class A, 17,419 shares
at November 30, 1995 and 16,785 shares
at February 28, 1995; Class B,
2,414,951 shares at November 30, 1995
and 2,299,953 shares at February 28,
1995 at cost (9,102) (8,853)
------------ ------------
Total Shareholders' Equity 6,252,244 8,444,292
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,351,302 $ 7,713,491
------------ ------------
------------ ------------
(The accompanying notes are an integral part of these statements.)
4
NEVADA ENERGY COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
NOVEMBER 30 NOVEMBER 30 NOVEMBER 30 NOVEMBER 30
1995 1995 1994 1994
----------- ------------ ----------- -------------
REVENUES:
Energy Sales $ 105,666 $ 649,899 $ 242,352 $ 594,134
Printing and Business Supply Sales 250,078 753,218 221,814 744,537
----------- ----------- ----------- -----------
Total Revenues 355,744 1,403,117 464,166 1,338,671
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of Sales 170,879 523,599 128,127 483,141
Cost of Operations 166,128 502,432 62,983 254,319
Depreciation and Amortization (Note 1) 15,330 49,363 26,741 36,578
Provision for Obsolescence (Note 1) 94,810 284,429 94,809 284,429
Professional Fees 95,688 327,042 145,864 392,237
General and Administrative 153,419 468,829 385,643 732,735
----------- ----------- ----------- -----------
Total Costs and Expenses 696,255 2,155,695 744,167 2,183,439
----------- ----------- ----------- -----------
OTHER INCOME AND (EXPENSES):
Interest Income 3,387 6,649 1,663 6,615
Other Income 80,298 9,080 78 39,926
Gain on Sale of Project interest (Note 2) - 508,015 - -
Loss from Partnership interests (18,418) (38,418) (1,103) (3,247)
Interest Expense (3,972) (17,059) (6,611) (28,290)
Minority Interests (Notes 1 and 2) 60,522 13,014 (37,728) (72,132)
----------- ----------- ----------- -----------
Total other income and (expense) 121,817 481,285 (43,701) (57,128)
----------- ----------- ----------- -----------
LOSS BEFORE TAXES (218,694) (271,293) (323,702) (901,896)
PROVISION FOR INCOME TAXES (Note 8) 200 (13,467) 5,600 11,167
----------- ----------- ----------- -----------
NET LOSS $ (218,893) $ (257,826) $ (329,302) $ (913,063)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER SHARE (Note 1) $ (0.02) $ (0.03) $ (0.05) $ (0.15)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(The accompanying notes are an integral part of these statements.)
5
NEVADA ENERGY COMPANY, INC.
DATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR AND NINE MONTHS ENDED NOVEMBER 30, 1995
CLASS A COMMON CLASS B COMMON PREFERRED STOCK
---------------------------------- ------------------- ----------------
NUMBER NUMBER NUMBER
OF OF OF
SHARES AMOUNT SUBSCRIBED SHARES AMOUNT SHARES AMOUNT
--------- -------- ----------- --------- ------- ------- ------
BALANCES - FEBRUARY 28, 1994 558,798 $ 5,559 $ - 3,476,875 $ 3,477 - $ -
Shares issued for cash - Note 5 442,867 443
Shares issued for services - Note 6 612,573 612
Shares issued for asset acquisition -
Notes 2 and 6
Stock subscribed - Note 6 250,000
Stock dividends at market value -
Note 6 895,243 895 548,043 548 -
Transfer of surplus for stock dividend
Cash dividend - Note 6
Net (Loss) for the Year
Ended February 28, 1995
--------- -------- ----------- --------- ------- ------- ------
BALANCES - FEBRUARY 28, 1995 7,509,481 7,509 250,000 4,024,918 4,025 - -
Shares issued for cash - Note 6 333,333 333 (250,000)
Shares issued for services - Note 6 145,842 146
Stock dividends at market value - Note 6 819,829 820 412,555 412 802
Transfer of surplus for stock dividend
Net income for the nine months
Ended November 30, 1995 803
--------- -------- ----------- --------- ------- ------- ------
BALANCES - NOVEMBER 30, 1995 8,808,485 $ 8,808 $ - 4,437,473 $ 4,437 - $ -
--------- -------- ----------- --------- ------- ------- ------
--------- -------- ----------- --------- ------- ------- ------
(The accompanying notes are an integral part of these statements.)
6
NEVADA ENERGY COMPANY, INC.
DATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEAR AND NINE MONTHS ENDED NOVEMBER 30, 1995
ADDITIONAL TOTAL
PAID-IN ACCUMULATED TREASURY SHAREHOLDER
----------- ------------ ---------- ------------
BALANCES - FEBRUARY 28, 1994 $10,060,347 $ (3,252,174) $ (230,789) $ 6,586,420
Shares issued for cash - Note 5 273,930 274,373
Shares issued for services - Note 6 971,878 972,430
Shares issued for asset acquisition -
Notes 2 and 6 222,267 222,267
Stock subscribed - Note 6 250,000
Stock dividends at market value -
Note 6 1,057,940 (1,059,383) (331) (331)
Transfer of surplus for stock dividend (1,059,383) 1,059,383
Cash dividend - Note 6 (80,213) (80,213)
Net (Loss) for the Year
Ended February 28, 1995 (1,770,654) (1,770,654)
----------- ------------ ---------- ------------
BALANCES - FEBRUARY 28, 1995 11,214,439 (5,022,828) (8,853) 6,444,292
Shares issued for cash - Note 6 246,918 (2,749)
Shares issued for services - Note 6 68,216 64,362
Stock dividends at market value - Note 6 802,735 (803,553) (249) 165
Transfer of surplus for stock dividend (803,553) 803,553
Net income for the nine months
Ended November 30, 1995 (257,826) (257,826)
----------- ------------ ---------- ------------
BALANCES - NOVEMBER 30, 1995 $11,528,755 $ (528,654) $ (9,102) $ 6,252,244
----------- ------------ ---------- ------------
----------- ------------ ---------- ------------
(The accompanying notes are an integral part of these statements.)
7
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994
(UNAUDITED)
NOVEMBER 30 NOVEMBER 30
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (257,826) $ (913,063)
Adjustments to reconcile net income (loss)
to net cash used in operating activities -
Depreciation and Amortization 49,363 36,578
Provision for Obsolescence 284,429 284,429
(Gain)Loss on Disposition of Assets - 9,941
Minority Interest in Subsidiary Profit (Loss) (13,014) 72,132
Equity in Loss from Partnership Interests 38,418 3,244
Stock issued to Directors/Officers/Employee 68,362 27,500
Stock issued to others - 55,930
Changes in assets and liabilities -
Decrease (Increase) in Receivables 60,155 (188,379)
Decrease (Increase) in Stock Subscription Receivable 150,000 -
Decrease (Increase) in Receivable from Related Party - 124,975
Decrease (Increase) in Inventories 828 3,765
(Increase) in Deposits and Prepaids 62,388 (33,726)
Increase (Decrease) in Accounts Payable (29,912) 338,280
Increase (Decrease) in Payable to Related Party (34,029) 84,505
Increase (Decrease) in Other Liabilities (17) 77,699
Increase (Decrease) in Liabilities Subject to Compromise (37,108) (39,978)
----------- -----------
Net cash used in operating activities 342,037 (56,198)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (50,955) (256,165)
(Advances) to and Repayments from Partnerships (45,626) 1,349
Proceeds from sale of assets - 2,500
Non-refundable deposit on proposed sale of assets 25,000 -
Dividend paid minority holder in San Jacinto Power - (49,990)
----------- -----------
Net cash provided by investing activities (71,581) (302,306)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings 45,467 46,064
Proceeds from cash sales of stock - 247,546
Repayment of short-term debt (29,396) (133,243)
Repayment of long-term debt (19,815) (24,471)
Cash dividend (note 4) - (90,213)
----------- -----------
Net cash used in financing activities (3,744) 45,683
----------- -----------
NET INCREASE (DECREASE) IN CASH 266,712 (312,821)
CASH AT BEGINNING OF PERIOD 37,885 562,396
----------- -----------
CASH AT END OF PERIOD $ 304,597 $ 249,575
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Note 8):
Cash expenditures during the nine months for-
Interest $ 22,720 $ 31,000
Taxes 600 467
Taxes paid through payments on liabilities
subject to compromise 40,772 38,032
(The accompanying notes are an integral part of these statements.)
8
NEVADA ENERGY COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary Combustion
Energy Company, Inc. ("CEC"), a Nevada corporation and its majority
owned subsidiary San Jacinto Power Company ("SJPC"), a Nevada
corporation (See Note 2). On November 30, 1994, the Company's wholly
owned subsidiary CEC completed a merger with Herth Printing and
Business Supplies, Inc. ("HPBS" - see notes 2 and 6). This
acquisition has been treated as a pooling of interests and the
financial statements presented herein reflect the combined results of
the pooled businesses. All significant intercompany accounts and
transactions have been eliminated in consolidation.
ORGANIZATION AND OPERATIONS:
Nevada Energy Company, Inc. ("the Company") was organized on
December 2, 1982, and incorporated under the laws of Delaware on
December 20, 1982, under the name Munson Geothermal, Inc. Pursuant to
an action of the Board of Directors, the Company's name was changed to
Nevada Energy Company, Inc. on December 3, 1990. The Company is
primarily engaged in the development, financing, construction and
operation of geothermal, wind and biomass energy resources which are
used primarily to generate electric power.
The Company filed for reorganization under provisions of Chapter
11 of the Federal Code on March 7, 1988. The Company operated under
the supervision of a trustee from May 8, 1988 until November 20, 1990.
On November 20, 1990, the Company's Plan of Reorganization ("the
Plan") was approved and the Company resumed operation as a reorganized
debtor under the new management, which had developed the
reorganization plan. The Plan was not consummated because the
intended construction financing did not close. The Plan was amended
and re-approved by creditors and shareholders on July 8, 1991 and the
Company emerged from bankruptcy on that date. The Company has
9
continued to operate in accordance with the amended Plan and received
a final order and decree in January 1995 which concluded the
proceedings.
POWER GENERATION EQUIPMENT IDLE POWER GENERATION EQUIPMENT:
Power generation equipment is carried at of cost and consists of
64 wind turbine generators operated in California by SJPC. On June
30, 1995, SJPC entered into an agreement Wind Power Technologies, Inc.
of Grafton, Wisconsin to sell twenty of its wind turbine generators
together with some associated infrastructure for $650,000. An initial
non-refundable deposit payment of $25,000 was received in July 1995,
with the balance due by November 30, 1995. Subsequently, terms were
revised to provide for payment of $400,000 by November 30, 1995 with
the balance due prior to removal of the assets in December 1995 from
their California location. In a third revision, full payment plus an
additional $50,000 fee was to be payable by February 28, 1996 or all
prior payments would be forfeited (prior payments totaled $25,000).
Subsequently the transaction was cancelled due to non-payment and the
SJPC took the deposit into income. The assets continue to be held and
operated, in addition to other turbines, by SJPC.
Idle power generation equipment includes ten Ormat power plants
capable of producing up to an estimated maximum 3,700 KW average
output valued at $2,751,604 and the dismantled Raft River Power Plant
valued at of $3,031,796 and estimated to be capable of up to 7,200 KW
of output. Total net book value of these assets is $5,404,161. A
recent appraisal (May 1995) of these assets determined the value to be
$6.0 million. Any impairment of these assets could result in a loss
to the Company.
LAND AND BUILDINGS
Included in the assets of HPBS (see above) was a ten thousand
eight hundred (10,800) square foot building containing office space,
print shop and warehouse space valued at $249,600 located on .775
acres of fee land valued at $70,000 located in downtown Reno, NV.
10
DEPRECIATION AND AMORTIZATION:
The Company provides for depreciation of buildings, furniture and
field equipment utilizing straight-line and accelerated methods over
the useful lives of three to twenty-one years beginning when assets
are placed in service. Costs of power generation equipment represents
44 wind turbines together with related infrastructure, in use by the
Company's majority owned subsidiary San Jacinto Power Company, which
has been recorded at acquisition cost and is being depreciated over
the remaining 21 year life of the related Power Purchase Agreement
acquired in the same transaction. Idle geothermal power generation
equipment was adjusted to the lower of cost or appraisal value at
February 29, 1992. Subsequently, provisions for obsolescence have
been provided based on remaining economic life estimated to be
eighteen years at that time. The HPBS building is recorded at
acquired book value and is being depreciated over its useful life of
31 years.
NET INCOME (LOSS) PER COMMON SHARE:
The net income (loss) per common share is computed based upon the
weighted average number of shares of Class A Common Stock outstanding
during each period. Class A shares issued in conjunction with the
merger of HPBS and CEC (See Notes 1 and 6) have been treated as issued
at February 28, 1993. Weighted average shares of Class A Common Stock
outstanding were 8,808,485 in the three months ended November 30, 1995
and 3,473,471 in the three months ended November 30, 1994. Weighted
average shares of Class A Common Stock outstanding were 8,771,448 in
the nine months ended November 30, 1995 and 5,964,613 in the nine
months ended November 30, 1994. Shares issuable upon exercise of
options are excluded from the computation since the effect of their
inclusion would be antidilutive. Shares of Class B Common Stock are
excluded from the computation since Class B shareholders do not
participate in cash dividends or earnings of the Company. Shares
issued in the Smith acquisition, but held in escrow between the date
issued, December 15, 1993 and the date of completion of the
acquisition, June 24, 1994, were not included in the computation of
loss per share during the period they were held in escrow.
11
BUSINESS SEGMENT INFORMATION
The Company currently classifies its business activities in two
segments: (1) electric power production and development and (2)
printing and business supply sales. Information concerning the
Company's business segments in fiscal 1995 and 1994 is as follows
(amounts in thousands):
ELECTRIC PRINTING
POWER AND OFFICE
($000) PRODUCTION SUPPLIES CONSOLIDATED
- ------ ----------- ---------- ------------
QUARTER ENDING
NOVEMBER 30, 1995
Sales *$ 106 $ 250 $ 356
Operating Income (Loss) (310) 15 (295)
Identifiable assets ** 7,291 478 7,769
Depreciation/amortization 10 3 13
Provision for obsolescence 95 - 95
Capital expenditures 3 - 3
($000)
- ------
NINE MONTHS ENDING
NOVEMBER 30, 1995
Sales $ 650 $ 753 $ 1,403
Operating Income (Loss) (602) 19 (583)
Identifiable assets ** 7,291 478 7,291
Depreciation/amortization 34 9 43
Provision for obsolescence 284 - 284
Capital expenditures 50 1 51
($000)
- ------
QUARTER ENDING
NOVEMBER 30, 1994
Sales *$ 242 $ 222 $ 464
Operating Income (Loss) (292) (37) (1,771)
Identifiable assets ** 7,411 444 7,855
Depreciation/amortization 22 5 27
Provision for obsolescence 95 - 95
Capital expenditures 211 - 211
12
($000)
- ------
NINE MONTHS ENDING
NOVEMBER 30, 1994
Sales ***$ 594 $ 745 $ 1,339
Operating Income (Loss) (938) 25 (913)
Identifiable assets ** 7,411 444 7,855
Depreciation/amortization 22 15 37
Provision for obsolescence 284 - 284
Capital expenditures 256 - 256
Intra-segment transactions, which are not material, have been eliminated.
* Substantially all revenues from the electric power production were
generated from sales to Southern California Edison Company (SCE) under
the Power Purchase Agreement, which will expire in 2015. Pursuant to
the agreement, SCE will purchase all electricity generated by the
Company's wind system at the price computed based on the forecast of
annual as-available capacity and a standard rate approved by the
Public Commission of the State of California. The Company's revenue
from SCE of approximately $650,000 represents 43% of the total revenue
of the Company through November 30, 1995.
** Includes $5,404,000 of net idle power generation equipment in 1995 and
$5,783,000 of net idle power generation equipment in 1994.
*** Revenues from the Company's majority owned wind power facility did not
begin until June 25, 1994 (i.e. the quarter ending August 31, 1994).
13
NOTE 2 - Investments in Partnerships and Consolidated Subsidiaries:
COMBUSTION ENERGY COMPANY, INC.
Combustion Energy Company, Inc., a Nevada corporation, ("CEC")
was formed on February 12, 1993 for the purpose of being a general
partner of Oreana Power Partners (see below). CEC's assets consist of
its one percent (1%) partnership interest in Oreana Power Partners,
currently valued at $925 based on its initial cash investment less
accumulated losses, and its ownership of the assets of HPBS (See notes
1 and 5).
COMBUSTION ENERGY COMPANY MERGER WITH HERTH PRINTING
On November 30, 1994 the Board of Directors of the Company and
the shareholders of Herth Printing and Business Supplies, Inc.
approved the merger of NEC's subsidiary CEC with HPBS which resulted
in HPBS becoming a wholly-owned subsidiary of NEC. Under the terms of
the agreement, HPBS share holders received 641,784 shares of the
Company's Class A Common stock in exchange for all of the outstanding
shares of HPBS. HPBS was established in 1983 as a sole proprietorship
as a printing and retail office supply business. The proprietors
incorporated the business on November 1, 1994.
The merger qualifies as a tax-free reorganization and was
accounted for as a pooling of interests. Accordingly, the Company's
financial statements have been restated to include the results of HPBS
for all period presented. Separate and combined results of NEC and
HPBS during the periods presented were as follows (in thousands):
Three months ended
November 30, 1995 NEC HPBS Combined
(Unaudited)
------------------------------------------------------------
Net revenues $ 105.6 $ 250.1 $ 355.7
Extraordinary income - - $ -
Net income (loss) $ (310.6) $ 15.4 $ (295.2)
------------------------------------------------------------
Nine months ended
November 30, 1995 NEC HPBS Combined
14
(Unaudited)
------------------------------------------------------------
Net revenues $ 649.9 $ 753.2 $ 1,403.1
Extraordinary income 585.5 - $ 585.5
Net income (loss) $(16.4) $ 18.8 $ 2.4
------------------------------------------------------------
Three months ended
November 30, 1994 NEC HPBS Combined
(Unaudited)
------------------------------------------------------------
Net revenues $ 242.4 $ 221.8 $ 464.2
Extraordinary income $ - - $ -
Net income (loss) $ (361.2) $ 31.9 $ (329.3)
------------------------------------------------------------
Nine months ended
November 30, 1994 NEC HPBS Combined
(Unaudited)
------------------------------------------------------------
Net revenues $ 594.2 $ 744.5 $ 1,338.7
Extraordinary income $ - - $ -
Net income (loss) $ (1,002.3) $ 89.2 $ (913.1)
------------------------------------------------------------
The combined financial results presented above include
adjustments made to conform accounting policies of the two companies.
There were no adjustments which impacted net income. Intercompany
transactions between the two companies, which were not material, have
been eliminated.
In connection with the merger, the Company recorded one-time
charges for in the third quarter of 1994 for legal and professional
fees of approximately $30,000. There have been no significant costs
of combing the operations of the two companies, although the Company
contemplates relocating its headquarters to the building owned by
HPBS. Cost of relocating, should it occur, are expected to be less
than $50,000, including office space design and construction. No
current provision has been made for this expense.
SAN JACINTO POWER COMPANY
San Jacinto Power Corporation, a Nevada Corporation, ("SJPC") was
formed on December 15, 1993. Under the terms of an "Escrow Agreement"
dated December 15, 1993, the Company
15
contributed 222,267 shares of its Class A Common Stock, valued at
$222,267, based on 50% of market price at the time of issue due to
resale restrictions imposed pursuant to Rule 144, and total cash of
$275,055 in exchange for its 50.01% ownership interest in SJPC.
Also under the terms of the Escrow Agreement, on December 15,
1993, the New World Power Corporation ("New World") contributed 48,000
shares of its Common Stock, with market value of $500,000 at time of
issue, to SJPC. On February 10, 1994, New World contributed cash of
$149,970 to SJPC and delivered a balance of cash of $124,975 on March
8, 1994. New World's contribution of Common Stock and cash of
$274,945 to SJPC are in exchange for its 49.99% ownership interest in
SJPC. The shares of Class A Common Stock contributed to SJPC by the
Company and the Common Stock of New World are collectively referred to
herein as the "Shares". The number of shares to be issued by the
Company and New World were established in an Asset Purchase Agreement
dated July 1, 1993 with no adjustment required due to stock price
variations to date of issue. The Escrow Agreement provides for the
shares of the Company and New World to be held for a two year period
from December 15, 1993, prior to distribution to the sellers. During
the two year period, certain costs arising in connection with the
purchase transaction could result in the number of shares finally
transferred to the seller being reduced. Such costs include
unassessed claims for property taxes, prior environmental infractions,
prior BLM assessments, limited partner claims and other contingent
costs to be assessed against the sellers. There is no provision for
an increase in the number of shares to be distributed.
The Company and New World subsequently engaged in negotiations to
acquire the operating assets of Smith Wind Energy Company ("Smith")
and six affiliated limited partnerships operated by Smith which are
known as Triad A, Triad B, Triad C, Triad D, Triad E, and Triad F
Limited Partnerships (collectively "Triad"). Smith and Triad were
operating a wind turbine energy park in North Palm Springs,
California. Energy sales were pursuant to a long-term contract with
Southern California Edison Company. A total of 77 wind turbines were
then available for operations, together with associated
infrastructure, additional turbine sites,
16
turbine towers, parts and service equipment and a long-term land lease
with the BLM (collectively, the "Assets"). There are 44 turbines
currently being operated with 20 having been sold in June 1995. Three
turbines were previously sold to NWGP, with the remaining ten (10)
turbines being utilized for operating spare parts reserves.
SJPC was formed for the purpose of acquiring, holding and
operating the Assets to be acquired from Smith and Triad. The
acquisition of the Smith/Triad assets by SJPC was completed and
effective on June 24, 1994. The purchase price was equal to the agreed
value of the shares plus assumed liabilities totalling approximately
$293,957 for long-term secured debt and certain delinquent property
taxes and totaled $1,038,029.
The total cost was allocated based on managements estimate of
fair market value of assets acquired, except for prepaid BLM rent
which was valued at cost, as follows:
Field Equipment $ 21,177
Prepaid BLM Rent 46,892
Power Sales Contract 52,500
Power Generation Equipment 917,460
------------
Total $ 1,038,029
------------
------------
SJPC also entered into a non-competition agreement with the
former owner/general partner of Smith which provided for payment of
$15,000 month for two years and a non-competition period of two years
to begin at the closing date of June 24, 1994.
MT. APO CORPORATION
Mount Apo Corporation, a Nevada corporation ("MAC") was formed on
May 9, 1994. MAC is a joint venture of NEC and Geothermal Development
Associates and was formed for the purpose of submitting a competitive
bid on a 40 MWe geothermal project in the Philippines. The bid was
unsuccessful. The Company's investment in MAC is carried at cost of
$633.
BRADY GEO PARK POWER PROJECT, 1986, LTD.
17
The Company's investment in Brady Geo Park Power Project, 1986,
Ltd., including note and related interest receivable and advances for
property taxes were written down to a combined book value
substantially equal to the appraised value of the Ormat energy
converter interests held by the partnership. The Company has
classified this asset as Power Generation Equipment in the
accompanying balance sheets.
NEVADA ENERGY PARTNERS - 1
In February 1991, the Company received a 60% interest as a
limited partner in Nevada Energy Partners 1, a Nevada limited
partnership (NEP-1LP), which holds a 31.66% interest in the equity of
Nevada Geothermal Power Partners ("NGPP"). NGPP is a Nevada limited
partnership whose general partners are Hot Springs Power Company and
NEP-1LP. The Company issued a total of 3,476,875 shares of Class B
common shares for this interest. The shares were valued at par of
$0.001 per share, as there is no market for these shares and there is
no other basis for valuing the interest acquired. An additional
960,598 shares have been issued to NEP-1LP in conjunction with the
Company's 5% stock dividends made in 1994 and 1995. Class B common
shares are entitled to all of the rights and privileges pertaining to
Class A Common stock without any limitations, prohibitions,
restrictions or qualifications, except that each share of such class B
common stock shall not be entitled to receive any cash dividends
declared and paid by the corporation and shall be entitled to share in
the distribution of assets of the corporation upon liquidation or
dissolution, either partial or final.
The Company's interest in NEP-1LP is valued at $3,154 based on
the par value of the shares issued, less amounts recorded as treasury
stock due to the Company's effective ownership of 60% of the Class B
shares held by NEP-1LP, plus subsequent cash investments, less
estimated partnership losses.
As a general partner of NGPP, NEP-1LP is entitled to a share in
NGPP's distributable cash flow. As a general partner in Brady Power
Partners ("BPP"), NGPP held a fifty percent (50%) ownership interest
in the completed Brady project and was also entitled to receive
project development fees and a
18
share of BPP's distributable cash flow. BPP was a Nevada general
partnership whose general partners are NGPP and ESI-BH Limited
Partnership, a Delaware limited partnership. The Company is entitled
to receive sixty percent (60%) of NEP-1LP's distributable cash flow.
There has been no distributable cash for the quarter ending November
30, 1995.
On May 8, 1995, NGPP sold its 50% interest in the Brady Power
Project for approximately $5.5 million dollars. NGPP has received net
cash distributions of approximately $4,3 million dollars. The Company
computed share of the proceeds is approximately $585,511. The Company
received $508,018 in July 1995 and believes the remaining balance to
be uncollectible. No receivable has been recorded at November 30,
1995. NGPP's sale of it 50% interest in the Brady Power Project is
related to litigation between NGPP and ESI-BH (the other general
partner of BPP) and represents full and final settlement of the
litigation.
OREANA POWER PARTNERS
Oreana Power Partner ("OPP") is a limited partnership which was
formed in February 1993 for the purpose of developing and financing
gas turbine electricity generating facilities to provide power to
Sierra Pacific Power Company ("Sierra") pursuant to power sales
contracts to be obtained. The Company is a limited partner and its
interest is valued at $292 based on its initial cash investment, less
expenses and returned capital. The general partners of OPP are Energy
Development Associates ("EDA", a Nevada corporation and a
wholly-owned subsidiary of Geothermal Development Associates) and CEC,
a wholly-owned subsidiary of the Company. EDA is the Managing General
Partner and CEC is the Financial General Partner. Geothermal
Development Associates is a privately owned Nevada company, not
related to the Company. There was no activity with respect to
development in the quarter ending November 30, 1995.
NOTE 3 - SHORT-TERM BORROWINGS:
The following summarizes short-term borrowings at November 30,
1995:
AFCO $14,646
19
Cananwill, Inc. 9,623
Mortgage note - current 27,982
-------
Total $52,251
-------
-------
The note payable to AFCO represents the balance due on financing
the Company's insurance and is payable in monthly installments of
$2,505.
The note payable to Cananwill, Inc. represents the balance due on
financing of San Jacinto Power Company's general liability and
umbrella insurance coverage and is payable in monthly installments of
$1,955.
There is a mortgage in the amount of $51,203 secured by the land
and building acquired by CEC in its merger with HPBS (See Note 1).
The current portion is $27,982 and monthly installments are $2,718
with interest at 10% per annum.
NOTE 4 - Related Party Transactions:
During the nine months ended November 30, 1995, San Jacinto Power
Company (the Company's majority owned consolidated subsidiary)
received services under a maintenance agreement from The New World
Grid Power Company. The New World Grid Power Company is a wholly
owned subsidiary of the New World Power Company, the minoruity owner
of San Jacinto Power Company. Services provided included repair and
maintenance, refurbishment and on-site operations oversight and were
valued at approximately $369,262. A balance of $24,092 was payable to
the New World Grid Power Company for the services as of November 30,
1995. Services valued during the period ending November 30, 1994 were
valued at approximately $418,731 and a balance of $160,592 was payable
to New World Grid Power at November 30, 1994. In addition, the New
World Grid Power Company purchased three wind turbines for $37,500
from the Company, which was reflected as a receivable as of February
28, 1995.
NOTE 5 - Preferred Stock:
On December 14, 1985, the stockholders of the Company authorized
the creation of 2,000,000 shares of $1.00 par value preferred stock.
The board of directors has the authority to issue the stock in series
and to determine all terms and preferences for each individual series.
At the annual meeting, the Company's shareholders approved an
amendment of the Company's certificate of incorporation reducing the
par value of the preferred stock to $.001 per share.
At November 30, 1995, there are no preferred shares
20
issued or outstanding.
NOTE 6 - Class A and Class B Common Stock:
In the year ended February 28, 1995, 442,827 shares of Class A
Common Stock were issued for cash in the amount of $274,373, 612,573
shares of Class A Common Stock were issued for services valued at
$972,430.
In the year ended February 28, 1995 the Company issued 222,267
shares of Class A Common Stock to its subsidiary San Jacinto Power
Company to be used by San Jacinto in the acquisition of certain Assets
(see Note 3). The shares were valued at $222,267 and were recorded as
treasury shares at February 28, 1994 as the proposed acquisition had
not been consummated at that time.
In the nine months ended November 30, 1995, 333,333 shares of
Class A Common Stock were issued for cash in the amount of $247,251,
net of cash expenses of $2,749, and 145,842 shares of Class A Common
Stock were issued for services valued at $68,362, including 106,670
shares issued to directors in lieu of cash for annual fees and 39,172
shares issued to officers and an employee as bonuses.
In conjunction with CEC's merger with HPBS (see notes 1 and 3),
the Company issued 641,784 shares of its Class A Common stock during
the quarter ending November 30, 1994, in exchange for all of the
outstanding shares of HPBS. The Company's shares were valued $.6582
per share based on the value of the net assets acquired. These shares
were treated as if issued at February 28, 1993.
In the year ending February 28, 1995 stock dividends of 5% on
Class A and Class B Common Stock were declared for shareholders of
record as of July 11, 1994, October 3, 1994 and January 20, 1995. The
aggregate shares issued are 895,243 Class A and 548,043 Class B,
respectively.
In the nine months ended November 30, 1995 stock dividends of 5%
on Class A and Class B Common Stock were declared for shareholders of
record as of April 20, 1995 and July 31, 1995. The aggregate shares
issued are 819,829 Class A and 412,555 Class B, respectively.
Each share of Class B common stock is entitled to all of the
rights and privileges pertaining to Class A common stock without any
limitations, prohibitions, restrictions or qualifications, except that
each share of such Class B common stock shall not be entitled to
receive any cash dividends declared and paid by the corporation and
shall be entitles to share in the distribution of assets of the
corporation upon liquidation or dissolution, either partial or final.
21
22
NOTE 7 - Stock Option Plans:
On December 29, 1993, the Company adopted the 1993 Directors'
Stock Option Plan for the Company's directors. Under the terms of
this stock option plan, each of the five directors of the Company was
granted an option to purchase 25,000 shares of the Company's Class A
Common Stock or a total of 125,000 shares at a price of $2 per share,
equal to the market price of the stock at the date of grant. The
option is exercisable until December 31, 2001, and no options have
been exercised through November 30, 1995.
On June 27, 1994, the Company adopted the 1994 Directors' Stock
Option Plan for the Company's directors. Under the terms of this
stock option plan, each of the five directors of the Company was
granted an option to purchase 12,500 shares of the Company's Class A
Common Stock or a total of 62,500 shares at a price of $1.625 per
share, equal to the market price of the stock at the date of grant.
The option is exercisable until May 31, 2002, and no options have been
exercised through November 30, 1995.
On January 14, 1995, the Company adopted an additional 1994
Directors' Stock Option Plan for the Company's directors. Under the
terms of this stock option plan, each of the five directors of the
Company was granted an option to purchase 17,500 shares of the
Company's Class A Common Stock or a total of 87,500 shares at a price
of $0.9375 per share, equal to the market price of the stock at the
date of grant. The option is exercisable until December 31, 2002, and
no options have been exercised through November 30, 1995.
On December 31, 1995, the Board of Directors approved the
issuance of additional shares under the terms of this stock option
plan. Each of the five directors of the Company was granted an option
to purchase 30,000 shares of the Company's Class A Common Stock or a
total of 150,000 shares at a price of $0.3125 per share, equal to the
market price of the stock at the date of grant. The option is
exercisable until December 30, 2003.
On June 28, 1994, the Company's Board of Directors adopted an
Employee and Consultant Stock Option Plan (the "Plan") and registered
the shares available under the Plan on Form S-8 in accordance with the
Securities Act of 1933 filed August 2, 1994, having Registration No.
33-82318 . The purpose of the Plan is to provide compensation for
services rendered to the Company and to promote the success of the
Company by providing "Eligible Participants" (employees and
consultants) with incentives for performance on behalf of the Company.
The Plan is accomplished by providing for the granting of options to
purchase Class A Common Stock to eligible participants. The Board of
Directors may suspend or terminate the Plan at any
23
time but no such action shall adversely affect the rights of any
person granted an option under the Plan prior to that date of
suspension or termination. The maximum number of shares available for
option under the Plan are 1,125,000 Class A Common, subject to
adjustment by reason of reorganization, merger, consolidation,
recapitalization, dividends, stock split, changes in par value and the
like occurring or effective while any such shares of Class A Common
Stock are subject to the options under the Plan. As of November 30,
1994, there were no options exercised. Currently there are no options
outstanding and the Plan has been terminated.
NOTE 8 - Income Taxes:
The Company has adopted FASB 109 in the fiscal year 1994. Due to
uncertainty of realization in light of the Company's continuing
operating losses, no deferred tax asset or liability has been recorded
in the financial statements because the Company has assessed a
valuation account to the full extent of its potential deferred tax
asset. The following is a summary of the potential deferred tax asset
and the valuation allowance:
Property and equipment due to differences
in depreciation and reserve for obsolescence $ 813,459
Net operating loss carry forward 1,680,104
------------
Total deferred tax asset 2,493,563
Valuation allowance (2,493,536)
------------
Net deferred tax asset $ -
------------
------------
During the nine month period ended November 30, 1995, the
Company's potential deferred tax asset has increased by $478,315 and
the valuation account has been increased accordingly.
No provision for Federal income taxes was recorded during the
nine month period ended November 30, 1995 or the nine months ended
November 30, 1994 due to the net losses of the Company. Income taxes
included in the financial statements represent California state income
taxes on the net income of San Jacinto Power Company, the Company's
majority owned consolidated subsidiary.
As of November 30, 1995 the Company had federal income tax loss
carryforwards available to offset future taxable income for financial
reporting and tax purposes of $4,173,385 expiring through 2001.
The Company's energy credit carryforwards of $25,000 as of
February 28, 1995 had expired at November 30, 1995.
24
25
NOTE 9 - Commitments and Contingencies:
The Company's wholly owned subsidiary CEC, has entered into a two
year employment agreement with one of the former owners and manager of
HPBS commencing November 30, 1994 which provides for annual
compensation of $35,468 plus commissions. For purposes of the
consolidated financial statements, owner withdrawals during the period
of proprietorship of HPBS have been shown as dividends (see Note 2).
The Company's wholly owned subsidiary SJPC leases its wind
turbine generator sites under a long-term lease with the United States
Bureau of Land Management ("BLM"). Pursuant to the agreement, SJPC
has the right of usage of the land for windmill operations until March
2014 and for an approximate annual fee of $89,658. Such expense is
included in the cost of operations in the accompanying financial
statements. Pursuant to the lease agreement, the Company's estimated
payments to the BLM as of November 30, 1995 are as follows:
1996 $ 89,658
1997 89,658
1998 89,658
1999 89,658
2000 89,658
Thereafter 1,255,212
-----------
Total $ 1,703,502
-----------
-----------
The BLM has undertaken a study of its land rental agreements with
wind energy producers. The BLM has approved a 50% payment of its
standardized lease rate for the 1996 lease period, subject to upward
or downward adjustment pending the results of the current study. The
Company believes this study may result in a reduction of the rental
rates. There can be no assurance of any such reduction.
NOTE 10 - Liabilities Subject to Compromise:
The liabilities subject to compromise of $47,872 at November 30,
1995 and $84,980 at February 28, 1995 represent priority tax claims
that are presently in the process of negotiation with the Internal
Revenue Service. Monthly payments of $4,940 have been made and
interest is being computed at 7% per annum by the Company in
accordance with its settlement proposal offered in October 1993.
NOTE 11 - Supplemental Noncash Investing and Financing Activities:
During the nine months ended November 30, 1995, 145,842 shares of
Class A Common Stock were issued for compensation of $68,362 to
certain officers, directors and an employee.
26
27
During the nine months ended November 30, 1994, 43,230 shares of
Class A Common Stock were issued for compensation of $43,230 to
certain officers, directors and an employee. Also, 41,343 shares of
Class A Common stock were issued for services valued at $40,200.
In the year ended February 28, 1994, 222,267 shares of Class A
Common Stock were issued to obtain a 50.01% of SJPC (see Note 2). The
shares were valued at $1 per share for a total of $222,267, which was
recorded as treasury stock. Additionally, New World made an initial
cash contribution of $149,970, a subsequent cash payment of $124,975,
and 48,000 shares of New World Power Corporation valued at $516,000.
For financial reporting purposes, the SJPC's assets and liabilities
are consolidated with those of the Company and the New World's 49.99%
interest in SJPC is included in the Company's consolidated financial
statements as minority interest in subsidiary. During the nine months
ended November 30, 1995, San Jacinto Power Company acquired
substantially all of the assets of Smith and Triad by issuing 222,267
shares of Common Stock valued at $222,267, 48,000 shares of The New
World Power Company valued at $516,000 in addition to assuming various
liabilities totalling $293,957 (See Note 3).
(REMAINDER THIS OF PAGE INTENTIONALLY LEFT BLANK)
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY
Due to working capital constraints encountered during the course of the
current operating period, the Company has not yet met its goal of covering all
of its operational costs with internally generated cash flows.
As of November 30, 1995, the Company had $580,517 in current assets.
Cash of $304,597, including $121,502 held by San Jacinto Power, was available
for on-going operations.
Cash provided from operating activities in the nine months ended November
30, 1995 was $324,037. The after-tax loss from operations was ($257,826) which
included $49,363 of non-cash charges for depreciation and $284,429 for
obsolescence on idle equipment. Investing activities used $71,581 during the
period ending November 30, 1995, after expenditures for refurbishing wind
power equipment of $50,955, advances to, and investments in, partnerships
were $45,626. A non-refundable deposit on the proposed sale of assets
generated $25,000 in cash. Cash flows from financing activities in the
quarter ended November 30, 1995 used $3,744 in cash. Net short-term
borrowings were $44,467, with repayments of $29,396 on short-term borrowings
and $19,815 on long-term debt.
Cash used in operating activities in the nine months ended November 30,
1994 was $56,198, after-tax loss from operations were $913,063 which included
$36,578 of non-cash charges for depreciation and $284,429 for obsolescence on
idle equipment. Investing activities used $302,306 in cash in during the
period ending November 30, 1994, including purchase expenditures for
refurbishing wind power equipment of $256,165, advances to, and investments
in, partnerships were $1,349 and a cash distribution of $49,990 was paid to
the minority holder in San Jacinto Power. Sales of assets generated $2,500
in cash. Cash flows from financing activities in the quarter ended November
30, 1994 provided $45,683 in net cash in-flow. Receipts from cash sales of
stock were $247,546. Net short-term borrowings were $46,064, with repayments
of $133,243 on short-term borrowings and $24,471 on long-term debt.
Withdrawals by owners from the acquired HPBS were $90,213 prior to the
acquisition and were treated as cash dividends.
To date, the Company has enjoyed liquidity from receipt of management fees,
receipt of dividend income (from the Company's majority owned subsidiary San
Jacinto Power Company), through the sale of shares of Class A Common Stock and
litigation recoveries.
HERE
The majority of ongoing expenses have been incurred in initiating the
expansion of the San Jacinto Power Company wind project, development of future
business, professional fees and operating overhead.
29
CAPITAL RESOURCES
The Company has been unable to finance operations from revenues and cash
flow. The Company has been financing operations from the sale of its Class A
Common stock, asset sales and litigation recoveries. The Company has acquired
non-energy related businesses for purposes of increasing cash flow.
The Company has an asset base which includes several electric power
generating units and related assets (currently not in service and with a net
book value of $5,404,161), unencumbered by debt, from which the Company plans to
increase revenues and earnings. The profitable utilization of these generating
units is likely to be a major factor in determining the future of the Company
and its underlying share value. Management is continually developing an
reviewing proposals to deploy its idle power generating assets.
Historically, the Company has conducted its business affairs as a
development stage enterprise which has been subject to all of the risks inherent
to establishing new lines of business. To date, all such development has been
financed through the sales of assets, equity financings, litigation recoveries,
non-recurring development fees received from partnership interests and
management fees. The Company has only recently commenced limited operations
associated with its interests in operating subsidiaries.
The Company will require substantial amounts of capital to meet its goal of
acquiring, developing, constructing and operating a portfolio of power plant(s).
The Company may seek to raise additional funds through the sales of debt and/or
equity, asset sales, bank borrowings or other collaborative arrangements with
corporate partner(s) or other sources. There are presently no commitments for
any such financing and there can be no assurance that such financing will be
available when needed or on terms acceptable to the Company. Further,
insufficient funding may require the Company to delay, scale back or eliminate
its planned expansion, acquisition, development and corporate activities.
DEBT
As of November 30, 1995, the Company's total current liabilities were
$336,012, including $72,897 of San Jacinto Power. Current accounts payable
were $115,229 and $24,092 was payable to New World Grid Power ("NWGP") for
maintenance and refurbishment of wind turbines owned by the Company's
consolidated subsidiary San Jacinto Power. (NWGP is a subsidiary of the
minority owner of San Jacinto.) Short-term borrowings of $52,251 include
insurance premium finance notes of $24,269 and $27,982 assumed in the CEC
acquisition of HPBS. Other liabilities of $77,508 included accrued audit
expenses of $36,000, $25,000 deposit as proposed equipment sale, $4,271 in
collected sales taxes payable and other miscellaneous accruals of $11,980.
The short-term borrowings of $52,251 at November 30, 1995 compared to
short-term borrowings of $73,275 at February 28, 1994. February 1995 borrowings
were related to business insurance financing and the current
30
portion of the HPBS mortgage note payable. The long-term debt is related to the
mortgage on land and building acquired by the Company's wholly owned subsidiary
CEC. Remaining liabilities subject to compromise represent the long-term
settlement amount for withholding taxes and related penalties and interest due
to the IRS associated with prior bankruptcy proceedings. Under the terms of a
settlement proposed by the Company, this amount is being repaid over a term of 3
years, in monthly installments of $4,940, accruing interest at the rate of 7%
per annum. The Company remained current on its payment schedule since this
proposal was made in October 1993.
RESULTS OF OPERATIONS
REVENUES
Revenues for the quarter ended November 30, 1995 totaled $355,744 and
consisted of energy sales from San Jacinto Power Company of $105,666, HPBS
printing and business supply sales of $250,078. Comparable revenues for the
quarter ended November 30, 1994 were $242,352 from energy sales and $221,814
from printing and business supply sales. Revenue from energy sales were
adversely impacted by lower average wind speeds and a reduced number of turbines
in service.
Revenues for the nine months ended November 30, 1995 totaled $1,403,117 and
consisted of energy sales from San Jacinto Power Company of $649,899, HPBS
printing and business supply sales of $753,218. Comparable revenues for the
nine months ended November 30, 1994 totaled $1,338,671 with $594,134 from energy
sales and $744,537 from printing and business supply sales.
The decline in printing and business supply revenues is attributed to a
shift in emphasis from office supply sales, which is more competitive and less
susceptible to cost control, to more emphasis on custom print work. The outside
office supply sales position was left unfilled for most of the year.
Costs and Expenses
Cost of Sales
Cost of sales for the three months ended November 30, 1995 were $170,879 or
68.3% of sales versus $128,127 or 57.8% of sales for the comparable quarter
ended November 30, 1994. The cost increase was a direct result of a substantial
increase in the cost of paper stock which occurred over several months. This
trend also affected costs in the nine months ended November 30, 1995 which were
$523,599 or 69.5% of sales for the period versus $483,141 or 64.9%.
Cost of Operations
Th cost of operations for the three months ended November 330, 1995 were
$166,218, of which $146,128 represented the cost of operations of the San
Jacinto Power Company wind turbine site, including $98,089 in
31
repairs and maintenance cost, $22,353 in BLM land lease cost, $4,371 in property
taxes and $21,315 in other site expenses. Comparable costs in 1994 were
$62,983, including $27,536 in repairs and maintenance costs, $22,342 in BLM land
rent, $3,625 in property taxes and $9,480 in other site costs.
Cost of operations for the nine months ended November 30, 1995 were
$502,432, of which $463,832 represented the cost of operations of the San
Jacinto Power Company wind turbine site, including $316,397 in repairs and
maintenance cost, $67,551 in BLM land lease cost, $10,9684 in property taxes and
$68,916 in other site expenses. Comparable costs for the nine months ended
November 30, 1994 were $254,319, of which $247,016 represented the cost of
operating the wind turbine site and included $194,408 for repairs and
maintenance, $39,281 in BLM land rent, $5,474 in property taxes and $7,853 in
other site expenses. SJPC repairs and maintenance costs were higher in the nine
months ending November 30, 1995 as compared to the nine months ending November
30, 1994 because 1994 included only five (5) months of actual activity. SJPC
acquired the assets and began its actual operations on June 24, 1994.
Maintenance services have been provided on a fixed fee plus cost basis by NWGP.
NWGP was notified October 8, 1995 of termination of its service agreement. SJPC
has executed an agreement with a new service provider, Desertron Electric,
effective January 1996. NWGP will no longer provide operation and maintenance
services. Desertron is a proprietorship formed by a former employee of NWGP.
SJPC's minority interest holder has approved this agreement. The Company
anticipates significant savings in the area of operations and maintenance as a
result of this new agreement.
The changes in Herth operating expenses from prior periods were a result of
normal fluctuations in business activity.
Other Costs and Expenses
In each of the three months periods ended November 30, 1995 and November
30, 1994, depreciation and amortization expense included $94,810 in provisions
for obsolescence of idle equipment. Depreciation on field and office equipment
was $15,330 in 1995, including $11,837 of depreciation on the wind turbines and
related infrastructure, and $26,741 in 1994, including $12,132 of depreciation
on wind turbines and related infrastructure.
In each of the nine months periods ended November 30, 1995 and November 30,
1994, depreciation and amortization expense included $284,429 in provisions for
obsolescence of idle equipment. Depreciation on field and office equipment was
$43,410 in 1995, including $32,7721 of depreciation on the wind turbines and
related infrastructure, and $36,578 in 1994, including $20,456 of depreciation
on wind turbines and related infrastructure. The wind farm was only under
control of the Company and included in operating expenses for five months of the
nine months period ending November 30, 1994.
Professional fees for the quarter ended November 30, 1995 were
32
$95,688, including $28,998 in legal fees, $13,875 in audit fees and $52,815 in
other outside services. Other outside services included $45,000 in the quarter
ended November 30, 1995 paid to the former owner/general partner of Smith/Triad
under a two year $15,000 per month agreement. Comparable quarter ending
November 30, 1994 amounts were professional fees of $145,864, principally for
general legal fees $39,706, accounting and audit fees $27,231 and other outside
services $75,666, also including $45,000 paid to the former owner/general
partner of Smith/Triad.
Professional fees for the nine months ended November 30, 1995 were
$327,042, including $145,864 in legal fees, $52,420 in accounting and audit fees
and $185,030 in other outside services including $135,000 for services under an
agreement with the former owner/general partner of Smith/Triad. Comparable
November 30, 1994 amounts totaled $392,237, including $144,920 in legal fees,
$77,257 in accounting and audit fees and $170,160 in other outside services
including $32,000 for financial consulting and $138,160 for public relations.
Administrative expenses totaling $145,864 for the three months ending
November 30, 1995 were principally for salaries, wages and benefits of $88,990,
public and shareholder relations $7,246, general office expenses $20,481,
directors' fees and expenses $24,675 and other miscellaneous expenses $12,027.
Administrative expenses totaling $285,643 for the three months ending November
30, 1994 were principally for salaries, wages and benefits of $79,916, public
and shareholder relations $156,328, general office expenses $35,696, directors'
fees and expenses $9,992 and other miscellaneous expenses $3,711. Interim
fiscal 1995 public and shareholder relations cost were significantly higher
than in fiscal 1996 because in fiscal 1995 the Company had entered into a
contract, estimated to cost approximately $72,000 per month, with a public
relations firm. The contract was for eighteen months for various public and
shareholder relations services and the development of the Company's markets and
potential merger candidates. Payment was in the form of the Company's Class A
common shares. The program proved ineffective and as a consequence, a
significant portion of the contract amount was expensed in fiscal 1995.
Administrative expenses totaled $468,829 for the nine months ending
November 30, 1995 were principally for salaries, wages and benefits of $273,581,
public and shareholder relations $19,861, general office expenses $86,409,
directors' fees and expenses $60,999 and other miscellaneous expenses $132,337.
Administrative expenses totaling $732,735 for the nine months ending November
30, 1994 were principally for salaries, wages and benefits of $265,0977, public
and shareholder relations $258,771, general office expenses $123,238, directors'
fees and expenses $50,838, travel expenses of $33,075 and other miscellaneous
expenses $1,716.
OTHER INCOME AND EXPENSES
Consolidated interest of $3,387 was earned on cash carried in money market
funds in the quarter ended November 30, 1995 compared to $1,663
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in the same period of 1994. Interest income for the nine months ended November
30, 1995 was $6,649 compared to $6,615 in 1994. Interest income increased due
to funds available from the Company's sale of its interest in the Brady Power
Project in May 1995.
Other income of $508,018 in the nine months ending November 30, 1995 was a
result of the Company's sale of its interest in the Brady Power Project.
Constructed in 1991 and 1992, the plant became operational in 1992. As a result
of the high total cost to complete the project (approximately $74 million as
compared to original proposed cost of $46 million), the project had not
generated the cumulative cash flows from operations that had been expected. As
a result, the Company had received no cash distributions as had originally been
anticipated. The Company is to receive total proceeds of $585,511 ($508,138
having been received to date and the balance having subsequently been determined
to be uncollectible). The Company had no cost basis in this investment. Other
than certain developer fees received in prior years, the Company had received no
income or cash flow from its investment in BPP through NEP-1LP. There will be
no impact on future results of the Comapany as a result of the sale of its
interest in BPP, because no income or cash flow had been anticipated for the
forseeable future.
Other income in other comparable periods is primarily from sales of scrap,
except in the nine months ended November 30, 1994 it included $38,621 in
developer fees received from the Brady Power Project.
Interest expense of $3,972 for the quarter ending November 30, 1995 and
$6,611 for the quarter ended November 30, 1994 was related to interest accrued
at statutory rates on the remaining liability to the IRS on prior payroll tax
withholding, short-term borrowings related to insurance premium financing and
the mortgage note on the building owned by Herth Printing and Business Supply.
Interest for the nine months ending November 30, 1995 was $17,059 compared to
$28,290 for the nine months ending November 30, 1994. Interest expense was
related to similar debt as for the quarter end periods with totals declining due
to reduced debt levels.
Minority interests
Minority interests represent the share of (income) or loss allocable to the
49.99% minority holder in the Company';s consolidated subsidiary SJPC. For the
quarter ended November 30, 1995 the amount was income of $60,522 resulting from
losses by San Jacinto of $120,923 for the period. The comparable amount for the
quarter ended November 30, 1994 was an expense of $37,728 resulting from SJPC's
income of $75,471. In the nine months ended November 30, 1995 the expense was
$13,104 as a result of SJPC's income of $26,182 compared to expense of $72,132
in the quarter ended November 30, 1994 resulting from SJPC income for the period
of $144,292.
Income Taxes
Income taxes of $200 for the three months ended November 30, 1995 and
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$5,600 for the nine months ended November 30, 1994 were for taxes payable to the
state of California on income earned by San Jacinto Power Company on its
California operations. There were no Federal income taxes payable for the three
months and nine ending November 30, 1995 or 1994 as there was no Federal taxable
income for these periods. As of November 30, 1995, unused net operating losses
available to offset future taxable income was $4,263,385. The Company's
investment and energy tax credit carryforwards of $25,000 had expired on
November 30, 1995.
Net Loss
In the three months ending November 30, 1995, there was a total net loss of
$218,893, or $0.02 per share on 8,808,485 average shares outstanding. For the
three months ending November 30, 1994, there was a loss of $329,302 or $0.05 per
share on 6,473,471 average shares outstanding. In the nine months ending
November 30, 1995 there was a loss of $257,826 or $0.03 per share on 8,771,448
average shares outstanding and for the comparable nine months ending November
30, 1994 there was a loss of $913,063 or $0.15 per share on 5,964,613 average
shares outstanding.
PART II--OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS.
On October 5, 1992, the Company, as Plaintiff, initiated litigation in the
Chancery Court of Newcastle County, Delaware, (the "Munson Lawsuit"), against
former officers and directors of the Company. The Defendants are Stephen Munson,
Leland Mink, Walter Mackenzie, Frank Carigula and Donald Selfridge, (the
"Defendants").
Allegations against the Defendants include numerous breaches of fiduciary
loyalty to the Company, which include invalid issuance of Company shares,
breaches of fiduciary duty arising out of improper issuance of Company stock,
and breaches of fiduciary duty arising out of failure to value the services for
which stock was issued.
On October 13, 1992, a sequestrator was appointed and certain shares issued
by the Company standing in the names of Leland Mink, Walter Mackenzie, Donald
Selfridge and Frank Carigula were seized to hold the shares until further order
of the Court.
On June 18, 1993 a default judgement against defendant Carigula was
obtained by the Company in the amount of $57,834. Subsequently, the Company sold
the shares sequestered from defendant Carigula at a Sheriff's sale to partially
satisfy the judgement against defendant Carigula. The Company has since
retained the law firm of Merrill, O'Sullivan, MacRitchie, Peterson and Dixon
which are located in Bend, Oregon, to pursue collection of the judgement
attained against Frank Carigula.
On November 27, 1995, a foreign judgement was entered in Deschutes
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County, Oregon. On December 11, 1995, Vulcan Power Company, which is the
employer of Frank Carigula, was served with a Writ of Garnishment. Vulcan failed
to answer the Writ by completing and returning a certificate of garnishee as
required by Oregon law and the required time to do so has now expired. The
Company is continuing to investigate any assets which may be attributable to
Frank Carigula for purposes of satisfying the remaining balance of the
judgement. To date, $4,863 has been obtained from the sale of securities then
owned by Carigula, leaving a judgement balance of $52,971 outstanding. However,
there can be no assurance that the collection efforts will be successful.
The deposition for defendant Munson was scheduled by the Company's attorney
for April 8, 1994. Defendant Munson's failure to appear at the scheduled
deposition resulted in the Court assessing defendant Munson with $3,500 as
reimbursement for cost incurred by the Company. This amount was paid by Munson
on July 1, 1994.
The Company is in the process of seeking a trial date against all remaining
defendants in this matter and have been advised by Delaware legal counsel that
this matter should come to trial during 1996.
On November 30, 1995, a request was submitted to the Second Judicial
District Court for the State of Nevada to join the Company as a defendant to
litigation known as Nevada Energy Partners I, Limited Partnership vs. Hot
Springs Power Company, et. al., Case No. CV92-04609. Nevada Energy Partners I,
Limited Partnership is a Nevada limited partnership in which the Company is the
sole limited partner. Allegations against the Company in the counterclaim state
that the Company misrepresented that $2 million dollars were necessary to
satisfy creditor claims during the Company's prior bankruptcy proceedings and
that the Company breached a fiduciary duty to counterclaimants by disclosing
unspecified confidential information. The Company was by legal counsel that
subject claims were vague and proceedurally deficient.
The Company responded to attorney representing the counterclaimants that
there was no misrepresentation of $2 million dollars which was required to
successfully reorganize the Company. This was evidenced both by a review
payments made in accordance with the Company's Amended Disclosure Statement, in
summaries of payment made to creditors, in six month reports filed with the
Federal Bankruptcy Court for the District of Nevada, and by review of quarterly
and annual filings made by the Company in Forms 10-Q, 10-Q SB, 10-K, and 10 K
SB, filed with the Securities and Exchange Commission available in the public
domain. The Company also responded to the attorneys representing the claimants
that there could be no alleged breach of fiduciary duty to the claimants, as the
Company is a limited partner of Nevada Energy Partners I, Limited Partnership,
and has no direct contract with the counterclaimants. The Company maintained
the contention that the counterclaim was vexatious in nature, without merit, and
intended to damage the Company.
The claim has since been dismissed without prejudice.
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With respect to subscription agreements previously reported to be held by
the Company for an aggregate sale of $1,000,000 in Class A common shares, the
subscribers failed to perform in accordance with the terms of the agreement and
within the time of subsequent extensions mutually agreed. The Company is
considering its options with respect to enforcement of the terms of the
agreement which contains provisions for arbitration. There is currently no
litigation relating to this matter.
There are no outstanding litigation claims filed against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 11, 1995, the Annual Meeting of Stockholders for the Company was
held and the matters were voted upon by a majority of vote of the stockholders
were as follows:
1. The re-election of Michael R. Kassouff as directors was approved;
2. The ratification of appointment of the Company's auditors, Kafoury,
Armstrong & Company was approved;
3. The amendment of the Company's Certificate of Incorporation to
prohibit ownership of the Company's Common Stock by an electric
utility or electric utility holding company or affiliate thereof was
not approved.
4. The amendment of the Company's Certificate of Incorporation to reduce
authorized share capital of Class B common shares, par value, $.001,
from 100,000,000 to 25,000,000 Class B common shares authorized, par
value $.001, was approved;
5. The amendment of the Company's Certificate of Incorporation to reduce
the authorized par value of preferred stock to $.001 was approved; and
6. The amendment of the Company's Certificate of Incorporation to
prohibit Class B common stockholders from receiving cash dividends was
approved.
Item 5. Other Information.
S-8 REGISTRATION STATEMENT
On June 28, 1994, the Company's Board of Directors adopted an Employee and
Consultant Stock Option Plan (the "Plan") registered on Form S-8 in accordance
with the Securities Act of 1933. This S-8 was filed with the Securities and
Exchange Commission on August 2, 1994, Registration No. 33-82318. The purpose
of the Plan is for the express purpose of providing compensation for services
rendered to the Company and to promote the success of the Company by providing
Eligible Participants (employees and consultants) with incentives for
performance
37
on behalf of the Company. The Plan is accomplished by providing for the granting
of options to purchase certain numbers of Class A Common Stock to Eligible
Participants. The Board of Directors may suspend or terminate the Plan at any
time but no such action shall adversely affect the rights of any person granted
an option under the Plan prior to that date of suspension or termination. The
maximum number of shares available for option under the Plan are 1,125,000 Class
A Common, subject to adjustment by reason of reorganization, merger,
consolidation, recapitalization, dividends, stock split, changes in par value
and the like occurring or effective while any such shares of Class A Common
Stock are subject to the options under the Plan. The terms and conditions of
each option will specify the number of shares optioned, the period during which
each option is exercisable and the exercise price per share. The Plan has been
terminated.
STOCK DIVIDENDS
During the quarter ending November 30, 1995, the Board of Directors had not
approved the payment a stock dividend. Stock dividends are approved and issued
solely at the discretion of the Company's Board of Directors.
PLAN OF OPERATIONS - SAN JACINTO POWER COMPANY
On June 24, 1994, the Company, through its majority owned subsidiary, San
Jacinto Power Company ("SJPC") completed financial closing of the acquisition of
the assets of Smith Wind Energy Corporation and six affiliated limited
partnerships known as the Triad American Energy Partnerships, (Series A, B, C,
D, E and F). As a result of this financial closing, the Company is
consolidating the financial results of SJPC in its financial statements. Fully
audited financial statements of Smith Wind Energy Corporation and the Triad
American Energy Partnerships have since been submitted and filed with on
Form 8-K in compliance with Securities and Exchange Commission requirements.
Presently, the Company is engaged in selling non-productive and/or
maintenance intensive assets of SJPC. SJPC is presently exploring the option of
selling all presently operating wind turbines on site and thereafter seeking to
replace and "build-out" SJPC's power generating facilities located near Palm
Springs, California to a rated capacity level of 18.955 MW utilizing
non-recourse, project financing or other similar financing techniques.
Representatives of a Danish wind turbine manufacturer are currently engaged
in due diligence associated with a proposed expansion of its power production
facilities up to a rated capacity level of 18.955 MW.
Due diligence information has also been circulated to a second development
group also expressing interest in preparing and delivering an expansion
proposal. There can be no assurance that the proposed expansion will be
completed.
PLAN OF OPERATIONS - DEPLOYMENT OF (6) ORMAT POWER PLANTS
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The Company discussed the possible deployment of six (6) Ormat power plants
with the owner/operators of an existing geothermal power facility which is
currently operating below its contracted amount of electrical power. Technical
requirements, principally relating to the availability of adequate cooling water
resources, prevented further pursuit of this opportunity.
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PLAN OF OPERATIONS - POWER PLANT AND ETHANOL PLANT ACQUISITION
The Company previously executed certain closing documentation related to
the acquisition of a geothermal power generating facility, power purchase
agreements, related geothermal energy reserves an ethanol facility and other
fixtures and equipment. The Company has delayed final closure pending
completion of remaining due diligence requisite to achieving debt financing for
the retrofit of the facilities. There can be no assurance that final closure
will be achieved.
PLAN OF OPERATIONS - REVERSE TAKEOVER DISCUSSIONS
The Company has been engaged in on-going discussions regarding two proposed
transactions that, if consummated, would have the Company issue additional
common stock to acquire a significant ownership interest in an unrelated
business enterprise. Based upon financial information supplied to the Company
by the Targets, each candidate has demonstrated operating profitability. The
transactions contemplated would involve the Company issuing additional shares of
common stock that would result in owners of the acquired business controlling
the Company and owning substantially more than a majority of outstanding common
stock of the Company. If consummated, the transaction may result in substantial
dilution to the Company's shareholders. The Company's Board of Directors are
seeking advice concerning the potential effect upon, or value to the Company's
common stockholders. It is not known at this time whether the Company will find
either proposal advisable and there can be no assurance that such a transaction
will be completed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
(3)(i) Amendment to Certificate of Incorporation to reduce par value
of Authorized (but unissued) Preferred shares from $1.00 to $.001 has
been filed with the State of Delaware, but not returned. Amended
10-QSB will be filed when certified amended document is received.
(b) No reports on Form 8-K have been filed during the quarter for which
this Form 10-QSB:
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEVADA ENERGY COMPANY, INC.
Date July 3, 1996 /s/ Jeffrey E. Antisdel
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Jeffrey E. Antisdel, President
Date July 5, 1996 /s/ Kenton H. Bowers
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Kenton H. Bowers, Controller