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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 [FEE REQUIRED]
For the quarterly period ended November 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________.
WORLDCALL CORPORATION
------------------------------------------------
(Name of small business issuer in its charter)
Delaware 0-14873 84-0897771
(State of incorporation) (Commission (I.R.S. Employer
File Number) Identification No.)
Address of principal executive offices: 321 W. Lake Lansing Road
Asher Court, Suite 100
E. Lansing, MI 48823
Issuer's telephone number: (517) 333-5277
Former names: PowerTel USA, Inc.
Nevada Energy Company, Inc.
Munson Geothermal, Inc.
Former addresses: 510 Castillo Street
Santa Barbara, CA 93101
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Phone (805) 884-8350; Fax (805)
884-9221
77-564 B Country Club Drive, Suite 340
Palm Dessert, CA 92260
Phone (619) 772-3100; Fax (619)
772-3132
1000 Bible Way, Suite 40
Reno, Nevada 89502
Phone (702) 324-0922 and
(702) 324-5064
989 Bible Way
Reno, NV 89502
Phone (702) 786-7979;
Fax (702) 786-7989
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes No X
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 9,573,487
Transitional Small Business Disclosure Format (check one): Yes _________
No___________
Securities registered under Section 12(b) of the Act: NONE
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TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION.....................................................................................1
Item 1. Financial Statements............................................................................24
Item 2. Management's discussion and analysis of financial condition and results
of operation....................................................................................24
RISK FACTORS......................................................................................................24
LIQUIDITY AND CAPITAL RESOURCES...................................................................................25
RESULTS OF OPERATIONS.............................................................................................26
GENERAL COMMENTS..................................................................................................26
PART II - Other Information.......................................................................................26
FORWARD LOOKING STATEMENTS........................................................................................26
Item 1. Legal Proceedings...............................................................................26
Item 2. Changes in Securities and Use of Proceeds.......................................................29
Item 3. Defaults Upon Senior Securities.................................................................33
Item 4. Submission of Matters to a Vote of Security Holders.............................................33
Item 5. Other Information...............................................................................34
Risk Factors......................................................................................................39
Description of Business...........................................................................................40
COMPANY HISTORY...................................................................................................41
Brady Hot Springs Geothermal Associates..................................................................42
Brady Geo Park Power Partners 1996.......................................................................42
Brady Power Partners.....................................................................................43
Nevada Geothermal Power Partners.........................................................................44
Nevada Energy Partners I L.P.............................................................................44
San Jacinto Power Company................................................................................44
Combustion Energy Company................................................................................45
Oreana Power Partners....................................................................................45
CHANGE IN CONTROL.................................................................................................46
FORMATION OF NEW SUBSIDIARIES.....................................................................................47
San Jacinto Energy Corporation...........................................................................47
Central Communications Corporation.......................................................................47
MANAGEMENT CHANGES................................................................................................49
INVOLUNTARY BANKRUPTCY............................................................................................50
INTERVENING EVENTS................................................................................................50
CORPORATE OBJECTIVES..............................................................................................51
POWER MARKETS.....................................................................................................52
COMPETITION.......................................................................................................52
GOVERNMENT REGULATION.............................................................................................53
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FEDERAL ENERGY REGULATORY COMMISSION ("FERC") LAW.................................................................53
POWER CONTRACT REGULATIONS........................................................................................53
EXEMPTIONS FROM FEDERAL AND STATE REGULATIONS.....................................................................53
TELECOMMUNICATIONS MARKET, COMPETITION
AND GOVERNMENT REGULATION................................................................................54
RESEARCH AND DEVELOPMENT..........................................................................................54
EMPLOYEES.........................................................................................................55
DESCRIPTION OF PROPERTY...........................................................................................55
ELECTRIC POWER GENERATING EQUIPMENT......................................................................55
BINARY-CYCLE POWER PLANTS................................................................................55
RAFT RIVER POWER PLANT...................................................................................55
LEGAL PROCEEDINGS.................................................................................................55
MUNSON LAWSUIT...........................................................................................55
ANTISDEL LITIGATION......................................................................................56
CASCARILLA LITIGATION....................................................................................56
SMITH, KATZENSTEIN LITIGATION............................................................................56
HARTMAN, KASSOUFF, MODESITT LITIGATION...................................................................56
NEVADA ENERGY PARTNERS 1-LP LITIGATION...................................................................57
SHAREHOLDER DERIVATIVE SUIT.......................................................................................58
SANTA BARBARA OFFICE SPACE...............................................................................58
JUDGMENT AGAINST WATERFORD TRUST AND GOLDEN CHANCE, LTD..................................................59
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................................59
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS..................................................................................................60
MARKET INFORMATION................................................................................................60
HOLDERS..................................................................................................62
DIVIDENDS................................................................................................62
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS........................................................63
PLAN OF OPERATIONS................................................................................................63
RISK FACTORS......................................................................................................63
LIQUIDITY AND CAPITAL RESOURCES...................................................................................65
DEBT .........................................................................................................65
RESULTS OF OPERATIONS.............................................................................................66
GENERAL COMMENTS..................................................................................................66
REVENUES AND EXPENSES.............................................................................................66
COSTS AND EXPENSES COMPARISON OF 1997 AND 1996....................................................................66
INCOME TAXES......................................................................................................67
NET INCOME (LOSS).................................................................................................67
FINANCIAL STATEMENTS..............................................................................................68
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................................................68
CHANGES IN ACCOUNTANTS............................................................................................87
DIRECTORS.........................................................................................................89
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EXECUTIVE OFFICERS................................................................................................90
REPORTS UNDER SECTION 16(a) OF THE EXCHANGE ACT...................................................................91
EXECUTIVE COMPENSATION............................................................................................91
DIRECTOR COMPENSATION.............................................................................................91
CHANGE-IN-CONTROL ARRANGEMENTS,
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ......................................................92
PART II - EXHIBIT LIST............................................................................................94
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
In February, 1997, an involuntary Petition for Reorganization was filed
pursuant to Section 1103 of the United States Bankruptcy Code. The following
unaudited Financial Statements reflect the financial condition of the company
for the nine months ended November 30, 1998. The Company is unable to provide
comparable financial statements for the nine months ended November 30, 1997, due
to the pendency of the Chapter 11 proceeding and the absence of accurate and,
complete books and records for the period May 1, 1996 through February, 1997.
The Company is in the process of attempting to reconstruct these records and
intends, to the extent feasible, to amend this quarterly report in the near
future in order to include comparable financial statements for the nine months
ended November 30, 1997. While the following financial statements are, in the
opinion of management, a reasonable compilation of the financial condition of
the Company as at November 30, 1998, these financial statements are derived, in
part, from books and records maintained by the Company prior to February, 1998.
In this context, during the period May, 1996 through January, 1997, there were
substantial operational and financial problems with the Company (see discussion
below and in the Debtor's Second Amended Disclosure Statement as filed in the
Bankruptcy proceeding, a copy of which is enclosed as EXHIBIT (2)A). The Company
does not have access to all of its books and records for that period and is in
the process of attempting to reconstruct financial events which took place
during that time frame. Accordingly, the following financial statements are
subject to revision and modification on the basis of information ascertained by
management during the course of its reconstruction.
In addition, on or about September 15, 1998, the United States
Bankruptcy Court confirmed a Plan of Reorganization ("Plan of Reorganization" or
"Plan") pursuant to which the claims of creditors of the Company will be
compromised and/or discharged pursuant to the terms of the Plan on various dates
through the first quarter of 1999. In addition, pursuant to the terms of the
Plan, there will be substantial changes with respect to the number of shares of
Class A Common Stock which are issued and outstanding. These revisions are
discussed below in more detail.
Accordingly, while the following financial statements represent
management's best effort to present the financial condition of the Company as at
November 30, 1998, it is anticipated that there will be substantial
modifications to the Company's balance sheet and to its shareholders'
capitalization prior to the close of its fiscal year on February 28, 1999.
For the nine months ended November 30, 1998, the Company's only
operating unit consisted of Herth Printing and Business Supply, a Division of
Combustion Energy Company, a wholly owned subsidiary of the Company. Following
the Company's unaudited financial statements (consolidated) as at November 30,
1998, the Company is submitting a compilation of the assets and liabilities of
Herth Printing and Business Supply and the related statements of revenue and
expenses and cash flows for this operation as at November 30, 1997 and as at
November 30, 1998.
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WORLDCALL CORPORATION
CONSOLIDATED BALANCE SHEETS
AT
NOVEMBER 30, 1998
(UNAUDITED)
ASSETS
------
November 30, 1998
-----------------
CURRENT ASSETS:
Cash $ 94,156
Receivables 206,357
Inventory 12,010
Deposits and prepaid expenses 15,254
----------
Total Current Assets 327,777
==========
PROPERTY AND EQUIPMENT, at cost (Notes 1 & 2)
Furniture, equipment and vehicles 478,071
Building 253,156
Power generation equipment -0-
Idle power generation equipment (Net of obsolescence 5,700,000
of $2,532,472)
Land 70,000
----------
6,501,227
Less - Accumulated depreciation and amortization (379,800)
----------
Net Property and Equipment 6,121,427
==========
OTHER ASSETS (Note 2):
Investments in partnerships -0-
Investments in subsidiaries (14,500)
Deposits (Note 4) -0-
Power Purchase Agreements, net of Amortization -0-
Organization Expense, net of amortization -0-
----------
(14,500)
TOTAL ASSETS $6,434,700
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WORLDCALL CORPORATION
CONSOLIDATED BALANCE SHEETS
AT
NOVEMBER 30, 1998
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS EQUITY
-----------------------------------
November 30, 1998
-----------------
CURRENT LIABILITIES:
Accounts Payable $ 275,485
Current Portion - Long Term Debt 31,033
Payable to related party 4,000
Accrued payroll 903
Other liabilities 42,948
Liabilities subject to compromise (Note 1) -0-
Accounts Payable - Post-Chapter 11 647,000
-----------
Total Current Liabilities $ 1,001,369
===========
NON-CURRENT LIABILITIES:
Long Term Debt (Note 3) $ 183,775
-----------
Total Non-Current Liabilities $ 183,775
===========
COMMITMENTS AND CONTINGENT LIABILITIES (Note 3) -0-
-----------
Total Liabilities $ 1,185,144
===========
MINORITY INTEREST IN SUBSIDIARY (Note 2) -0-
SHAREHOLDERS' EQUITY (Notes 1, 4, 5, 6, 7 and 8):
Preferred stock, $.001 Par Value, Authorized 2,000,000 shares; )
Issued and outstanding - )
Series A - 0 shares at Nov. 30, 1998, 1,960,745 at February 28, 1998 )
Class A Common Stock, $.001 par value, Authorized 25,000,000 shares: )
Issued pursuant to the Plan of Reorganization and outstanding 9,573,487 )
shares at Nov. 30, 1998, 8,808,485 shares at February 29, 1996 )
Class B Common Stock, $.001 par value, Authorized 25,000,000 shares: ) 5,756,962
Issued pursuant to the Plan of Reorganization and outstanding 12,568,465 )
shares at Nov. 30, 1998, (Note 10) and 4,437,473 shares at )
February 28, 1998 )
Additional paid-in capital )
Series A - note receivable
Accumulated deficit
Treasury stock -
Class A, 16,785 shares at Nov. 30, 1998 and ) (498,301)
16,785 shares at February 28, 1998 ) (9,101)
Total Shareholders' Equity $ 5,249,560
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,434,704
===========
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WORLDCALL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
NOVEMBER 30, 1998
(UNAUDITED)
November 30, 1998
-----------------
REVENUES:
Energy Sales -0-
Printing and Business Supply Sales $ 640,562
Total Revenues 640,562
COSTS AND EXPENSES:
Costs of Sales 461,683
Costs of Operations -0-
Depreciation and Amortization (Note 1) 51,938
Provision for Obsolescence (Note 1) -0-
Professional Fees 289,938
General and Administrative 159,364
---------
Total Costs and Expenses 962,923
=========
OTHER INCOME AND (EXPENSES):
Interest Income -0-
Other Income -0-
Gain on disposition of assets (Note 2) -0-
Interest Expense (16,585)
Minority Interests (Notes 1 and 2) -0-
---------
Total other income and (expenses) (16,585)
LOSS BEFORE TAXES AND EXTRAORDINARY ITEM $(338,946)
=========
PROVISION FOR INCOME TAXES (Note 9) -0-
---------
NET INCOME (LOSS) $(338,946)
=========
NET INCOME (LOSS) PER SHARE (Notes 1 and 6) (.04)
=========
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WORLDCALL CORPORATION
STATEMENTS OF CASH FLOW
FOR
NOVEMBER 30, 1998
(UNAUDITED)
November 30, 1998
-----------------
CASH FLOWS FROM OPERATING ACTIVITIES: $ 338,946
Net Income (Loss)
Adjustments to reconcile net income (loss) -0-
to net cash used in operating activities 51,938
Depreciation and Amortization (Note 1) -0-
Provision for Obsolescence (Note 1) -0-
Minority Interest in Subsidiary Profit (Loss) -0-
Stock issued to Directors/Officers/Employees -0-
Changes in assets and liabilities
Decrease (Increase) in Receivables 4,324
Decrease (Increase) in Receivables from related party -0-
Decrease (Increase) in Inventories 712
Decrease (Increase) in Deposits and Prepaids -0-
Increase (Decrease) in Accounts Payable 237,551
Increase (Decrease) in Payable to related party -0-
Increase (Decrease) in Other Liabilities 7,254
Increase (Decrease) in Liabilities subject to compromise -0-
---------
Net cash used in operating activities (37,167)
=========
CASH FLOW FROM INVESTING ACTIVITIES:
Deposit on print equipment -0-
Investment in Subsidiaries 14,500
(Advances) to and Repayments from Partnerships -0-
---------
Net cash provided by investing activities 14,500
=========
CASH FLOW FROM FINANCING ACTIVITIES:
Loans from Shareholders 4,000
Principal repayments on financing -0-
Net proceeds from cash sales of common and preferred stock -0-
Repayment of Long-Term Debt (21,375)
Minority Interest -0-
---------
Net cash used in financing activities (17,375)
=========
NET INCREASE (DECREASE) IN CASH (40,042)
CASH AT BEGINNING OR PERIOD 134,198
CASH AT END OF PERIOD 94,156
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Note 1)
Cash expenditures during the nine months for -
Interest
Taxes, including taxes paid through payments on liabilities subject to
compromise of approximately $26,000 in 1997 and $16,015 in 1996 and
$13,386 in 1995
(The accompanying notes are an integral part of these statements)
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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.,
a Nevada corporation and Yerington Acquisition Company.
ORGANIZATION AND OPERATIONS:
PowerTel USA, 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.
Subsequently, the Company's name was changed to PowerTel USA, Inc. on January
21, 1997. The Company filed Chapter 11 bankruptcy on February 13, 1997, and was
approved to operate as debtor-in-possession on September 24, 1997. The Company's
Plan of Reorganization was approved by the Court on September 15, 1998. (SEE,
PLAN OF RE-ORGANIZATION)
IDLE POWER GENERATION EQUIPMENT:
Idle power generation equipment includes ten Ormat power plants capable
of producing up to an estimated maximum 3,700 KW average output and the
relocated Raft River Power Plant with an estimated capacity of up to 7,200 KW of
output. Total net book value of these assets is $5,700,000. A May 1996 appraisal
of these assets determined the fair market value to be approximately $5,700,000.
DEPRECIATION AND AMORTIZATION:
The Company provides for depreciation of furniture and office equipment
utilizing straight-line and accelerated methods over the useful lives of three
to seven years beginning when assets are placed in service.
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 the remaining economic life estimated
to be 18 years at that time. Based on the May 1996 appraisal, an additional
$83,288 of obsolescence was provided on the Ormat power plants reducing their
net book value to the then appraisal value of approximately $5,700,000.
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. Shares issued as
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dividends (Note 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 year
ended November 30, 1998 and 1,463,451 in the year ended February 29, 1996.
Shares issuable upon exercise of warrants or 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 did not historically participate in the earnings of the Company and
this class of stock was extinguished under the plan.
RECAPITALIZATION
Pursuant to the Plan of Reorganization as approved by the Bankruptcy
Court, there will be a significant change with respect to the shareholder
capitalization of the Company. See Note 7.
NOTE 2 - Business Segment Information
COMBUSTION ENERGY COMPANY
The Company formed a wholly-owned subsidiary, Combustion Energy
Company, Inc. ("CEC"), a Nevada corporation, on February 12, 1993 for the
purpose of being a general partner of Oreana Power Partners ("OPP") (See OREANA
POWER PARTNERS below). The Company is also a limited partner in OPP.
On November 30, 1994, the Company caused CEC to merge with Herth
Printing and Business Supplies, Inc. ("Herth"), in exchange for Class A Common
Stock of the Company. The Company, through its ownership of CEC, owned 100% of
the post-merger business and consolidated the financial results of CEC in its
reported results. In an agreement entered into on September 1, 1996, the Company
exchanged its interest in CEC, and thereby Herth, in a transaction which
included the reacquisition of all right, title and interest in the Company's
then outstanding Class B Common shares, which was later the subject of a
settlement agreement between NEP, NEPC and the Company which modified the
substance of the NEP September 1996 Settlement Agreement. (See EXHIBIT (10) A).
SAN JACINTO POWER CORPORATION
San Jacinto Power Corporation, a Nevada Corporation, ("SJPC") was
formed on December 15, 1993.The Company 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. The New World
Power Corporation ("New World") contributed 48,000 shares of its Common Stock,
with market value of $516,000 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 were in exchange for its 49.99% ownership interest in SJPC.
The Company and New World subsequently engaged in negotiations to
acquire, and did acquire, the operating assets of Smith Wind Energy Company and
six affiliated limited partnerships known collectively as Triad. The purchase
price of $1,038,029 was equal to the agreed value of the shares plus assumed
liabilities totaling approximately $293,957 for long-term secured debt and
certain delinquent property taxes.
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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
----------
The Company managed the operations of San Jacinto Power Corporation
and the wind farm until June 27, 1997. On June 27, 1997 the sale of the
Company's 50.01% interest in its consolidated subsidiary, San Jacinto Power
Corporation, was completed by the court appointed bankruptcy trustee. The
Company's interest, represented by 50,010 shares of common stock, was sold at
bid for $200,000 cash. The successful bidder, SeaWest Corporation of San
Diego, CA also agreed to pay all outstanding debts of San Jacinto Power
Corporation, estimated in excess of $175,000.
In its most recently filed financial report, the 10-QSB for the quarter
ended November 30, 1996, the Company had reported consolidated San Jacinto Power
Corporation assets of approximately $1,105,986, consolidated liabilities of
approximately $159,287 and minority interest of $632,720. The transaction will
result in a reported net loss of approximately $113,979.
At the time of the sale, San Jacinto Power Corporation was one of two
operating properties held by the Company. This Company is not included in the
current financial statements.
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 $590.
BRADY GEO PARK POWER PROJECT, 1986, LTD.
The Company's investment in Brady Geo Park Power Project, 1986, Ltd.,
("BGPPP") 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. Except for the residual partnership interest, the Company
transferred all of its interest in the assets of BGPPP to its wholly owned
subsidiary effective December 1, 1995. (See Note 2, Yerington Acquisition
Company.) The Company has classified this asset as Idle Power Generation
Equipment in the accompanying consolidated balance sheet.
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NEVADA ENERGY PARTNERS - I
In February 1991, the Company received a 60% interest as a limited
partner in Nevada Energy Partners I, a Nevada limited partnership (NEP-I LP),
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-I LP. 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 was no
other basis for valuing the interest acquired. An additional 548,043 shares were
issued to NEP-I LP in conjunction with the Company's 5% stock dividends made in
July and October 1994 and January 1995. Class B common shares have full voting
rights, but have no cash dividend participation. In a transaction completed on
September 1, 1996, the Company exchanged its interest in NEP-I LP together with
its interest in Combustion Energy Company, Inc. (a previously wholly owned
subsidiary) for all right, title and interest in the Company's Class B common
shares held by NEP-I LP. Pursuant to a settlement agreement entered into
December 1, 1997, the September 1996 Agreement was rescinded and modified to,
among other things, allocate 99% of all NEP gains resulting from the sale of
NGPP's interests in BPP from 1995 to date to the Company, together with all
outstanding Class B Common Stock and Class B Common Stock rights to future
issuances, in consideration of the Company's issuance of new common shares
pursuant to the Company's Plan of Reorganization. (See EXHIBIT (10)A).
The Company's interest in NEP-I LP was valued at $3,080 based on the
par value of the shares issued, less amounts recorded as treasury stock due to
the Company's then effective ownership of 60% of the Class B shares held by
NEP-I LP, plus subsequent cash investments, less estimated partnership losses.
As a general partner of NGPP, NEP-I LP had been 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
share of BPP's distributable cash flow. BPP was a Nevada general partnership
whose general partners were NGPP and ESIBH Limited Partnership, a Delaware
limited partnership. The Company had been entitled to receive sixty percent
(60%) of NEP-I LP's distributable cash flow. There has been no cash available
for distribution through February 28, 1997.
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 received $508,018 in July
1995 as its share of the distribution of these proceeds. The balance due of
$77,493 was recorded as a receivable. However, the receivable has subsequently
been charged to bad debts as it is believed to be uncollectible. As a result of
the Settlement Agreement with NEP, the Company has adjusted its gain upwards to
reflect the assumption of 99% of all gains from NEP from January 1, 1995 to the
present.
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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 $46 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 year ending February 29, 1996. OPP was
subsequently dissolved.
YERINGTON ACQUISITION COMPANY, INC.
Yerington Acquisition Company, Inc., a Nevada corporation ("YAC") was
formed on December 8, 1994 for the purpose of acquiring the assets of Tad's
Geothermal, a non-related owner/operator of a geothermal power generating
facility located near Yerington, Nevada. The acquisition was not completed. In
December 1995, the Company transferred all of its right, title and interest in
10 Ormat power generating units (classified as idle power generating equipment
in the financial statements) to YAC. In April 1995, the Company entered into an
agreement through a non-binding letter of intent, to transfer, through merger
with YAC, to Pollution Controls, International, all of its right, title and
interest in the 10 Ormat units together with any remaining interest in
acquiring the assets of Tad's. Aggregate consideration to be received by the
Company, in the form of convertible preferred stock and convertible debt would
have exceeded the net book value of the assets.
CENTRAL COMMUNICATIONS CORPORATION
Central Communications Corporation, a Nevada corporation ("CCC"), was
formed for the purpose of acquiring interests in the telecommunications
business. On May 21, 1996, the Company announced that it had signed a binding
letter of intent to acquire, through CCC, all of the outstanding shares of
Telecom Technologies, Inc. an Oregon corporation ("TTI"), and certain other
related assets. The terms of the acquisition provided for the payment of
$500,000 in cash and issuance of 2,000,000 Class A common shares. The Company
advanced to CCC $492,000 in cash in the quarter ended August 31, 1996 in
anticipation of the completion of the acquisition. The acquisition was completed
on June 21, 1996, however, it was subsequently reversed. The cash payment and
stock issued were never returned. Certain shareholders have filed an action in
Delaware in an attempt to recover some or all of the Company's investment. (See
Item 1. Legal Proceedings) There is no assurance that such recovery will occur.
10
16
NOTE 3 - Commitments and Contingencies:
The Company's wholly owned subsidiary CCC, entered into a long-term
lease for office space in Santa Barbara, California. The Company occupied the
space for approximately three months in the fiscal year ended February
28, 1997. The space has been vacated and the landlord filed suit for recovery of
earned rents of $64,687, interest thereon, costs and damages. Estimated payments
on the original terms of the lease as of February 28, 1997 are as follows:
1997 $ 228,408
1998 228,408
1999 228,408
2000 228,408
2001 152,272
-----------
Total $1,065,904
===========
The claim for payment by the lessor against the Company was withdrawn in its
entirety. Accordingly, this commitment is no longer an obligation of the
Company.
NOTE 4 - Short-Term Borrowings and Mortgage Payable:
There is no short-term borrowing at November 30, 1998. The Company's
subsidiary, Combustion Energy Company, which operates Herth Printing and
Business Supply, has a long term debt (8 years) on the purchase of a printing
press in May, 1996. Monthly payments are $4,218 with interest at 9.75%.
NOTE 5 - Related Transactions:
During the fiscal year ended February 28, 1998, the Company sold its
50.01% interest in San Jacinto Power Corporation (then the Company's majority
owned consolidated subsidiary) sold its interest of 50.01% for $200,000.00 plus
assumption of debt in excess of $175,000.00
NOTE 6 - Preferred Stock:
The Court approved Plan of Reorganization provides that all existing
Series A and Series C preferred stock shall be extinguished promptly after the
Confirmation Date of September 15, 1998. The five (5) Series B shares held by
the prior directors were repurchased by the Corporation for 100,000 new Class A
common shares, per B share for a total of 500,000 shares. The repurchase was
approved by the Court and the shares were issued pre-split. All preferred shares
have been extinguished. The Plan further provided for the authorization of seven
(7) shares of "Special Stock." Three shares have been issued, one to each of the
current directors. These shares have no cash value, will not receive dividends
and are for the sole purchase of electing two (2) directors to the Board.
11
17
NOTE 7 - Class A and Class B Common Stock:
The Plan of Reorganization as confirmed and ratified by the United
States Bankruptcy Court effects substantial changes with respect to the
Company's capitalization. In summary, the Plan of Reorganization provides that
the Company will repurchase 100% of the issued and outstanding Series B
Preferred Stock. Thereafter, the Company will amend its Articles of
Incorporation in order to extinguish the Series A, Series B and Series C
Preferred Stock. The Class B Common Stock will be converted into Class A Common
Stock pursuant to the terms of an Amended and Restated Settlement and Release
Agreement entered into by and among the Company, Nevada Energy Partners II, a
Nevada Limited Partnership, Nevada Energy Corporation and sixteen Bahamian
corporations (See EXHIBIT (10)A).
In addition, pursuant to the Plan, certain creditors holding claims
totaling $64,000.00 will be converted into Class A Common Stock totaling 512,000
shares. Class A Common Stock has also been issued to Members of the Board of
Directors.
The Plan further provides that all holders of Class A Common Stock will
be reinstated to the exact same share ownership which existed as of May 3, 1996
plus shareholders who (1) are a bona fide purchaser for value, and (2) filed a
Proof of Interest on or before November 10, 1997 with evidence of consideration
paid, and (3) is not contested by the Corporation. All other shares purchased
after May 3, 1996 are deemed to be void ab initio. As of May 3, 1996 there were
8,808,487 Class A Shares issued and outstanding. The allowed equity holders
filing claims that were not contested by the Corporation is 2,483,008; however,
these shares are to be issued at a later date. The only Class A Common Shares
issued as of November 30, 1998 consists of (i) 500,000 Class A Common for the
repurchase of the Class B Preferred and an additional (ii) 265,000 Class A
Common to the directors for services rendered prior to September 15, 1998, and
(iii) 8,808,475 issued and outstanding as of May 3, 1996.
In addition, pursuant to the Plan of Reorganization, an Agreement has
been reached with Mr. Jeffrey Antisdel, the former President of the Company, to
issue a promissory note in the amount of $239,000, which is convertible into
1,500,000 shares of Class A Common Stock. Also pursuant to the Plan of
Reorganization, the Company may issue Class A Common Stock to Mr. David Wallace
in an amount not to exceed 35.0% of the Class A Common Stock of the Company.
Subsequent to November 15, 1998, the Company's Board of Directors,
pursuant to the Plan of Reorganization, adopted a resolution to affect a 1:15
reverse stock split which will be effective as of the resumption of trading,
which is expected to resume in March, 1999.
NOTE 8 - Stock Option Plans:
All stock options plans in existence prior to Confirmation on September
15, 1998 have been extinguished.
The Corporation's repurchase of the five (5) Series B preferred shares
also included a twenty-four (24) month option to purchase an additional 100,000
shares, per Series B share held, of Class A Common Stock at an exercise price of
$ .10 per share. The options are effective December 8, 1998. The Series B
Preferred shares were held by Richard A. Cascarilla (2), Michael R. Kassouff
(1), Jeffrey L. Hartman (1) and Jeffrey Modesitt, Sr. (1). The options are not
transferrable other than by will or the laws of descent and distribution. Copies
of the Stock Option are attached and marked as Exhibit 4(A-D).
The Plan of Reorganization also provided that three current and former
directors, Richard A. Cascarilla and Michael R. Kassouff (current directors) and
H. Lawrence Herth, a former director, shall be entitled to compensation for
service rendered to the Corporation prior to Confirmation on September 15, 1998.
The options allow each director to purchase 5,000 shares of Class A Common Stock
per month at $.10 per share. Mr. Cascarilla and Mr. Herth's option rights
commenced on May 19, 1997. Mr. Kassouff's option rights commenced on January 1,
1997. The options shall be exercisable for a twenty four (24) month period
effective December 10, 1998. The options are not transferrable except by will or
the laws of descent and distribution. Copies of the Stock Option are attached as
Exhibit 4(H-J).
The Plan of Reorganization also provided that the current directors of
the Corporation, Richard A. Cascarilla, Michael R. Kassouff and Jeffrey L.
Hartman are to be given stock options to purchase 2,500 shares of Class A Common
Stock, per director, per quarter, at $.10 per share. These
12
18
options are effective December 10, 1998 and are exercisable for a period of
twenty-four (24) months. The options are not transferrable except by will or the
laws of descent and distribution. Copies of the Stock Options are attached as
Exhibit 4(E-F).
NOTE 9 - 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 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 $ 809,795
Net operating loss carry forward $ 2,637,611
Energy credit carry forward -
-----------
Total deferred tax asset $ 3,443,406
Valuation allowance $(3,443,406)
-----------
Net deferred tax asset $ -
===========
No provision for Federal income taxes was recorded during the years
ended February 28, 1997 and February 29, 1996 due to the net losses of the
Company.
As of February 28, 1998 the Company has potential federal income tax
loss carry forwards available to offset future taxable income for income tax
purposes of $6,140,428 which expire in 2006 through 2010.
The Company has no energy credit carry forwards as of February 28,
1998.
There is no assurance or guaranty that the net operating loss carry
forward has not been adversely affected by the Plan of Reorganization, the
issuance of Class A Common Stock, or other developments.
Pursuant to the Settlement Agreement of December 1997, by and among the
Company, NEP, NEPC and others, the Company has reallocated 99% of the
profits of NEP retroactive to 1995, which may result in a taxable event to the
Company.
NOTE 10 - CLASS B STOCK
As of November 30, 1998, a total of 12,568,495 shares of Class B
Common Stock were issued and outstanding. Pursuant to the Plan of
Reorganization, these shares are to be converted into Class A Common Stock in an
amount equal to 50.0% of the issued and outstanding Class A Common Stock
subsequent to implementation of the Plan of Reorganization. This conversion had
not occurred as of November 30, 1998.
13
19
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
(UNAUDITED)
ASSETS
CURRENT ASSETS
CASH $ 91,717
ACCOUNTS RECEIVABLE 112,357
INVENTORY 12,010
PREPAID EXPENSES 12,500
--------
TOTAL CURRENT ASSETS 228,584
OTHER ASSETS
DEPOSITS 2,754
--------
PROPERTY AND EQUIPMENT
FURNITURE AND FIXTURES 17,433
MACHINERY AND EQUIPMENT 455,938
VEHICLES 4,700
BUILDING 253,156
LAND 70,000
--------
801,227
LESS ACCUMULATED DEPRECIATION 379,800
--------
TOTAL PROPERTY AND EQUIPMENT 421,427
--------
$652,765
========
14
20
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 10,927
CUSTOMER DEPOSITS 18,343
CONTRACT - CURRENT PORTION 31,033
ACCRUED PAYROLL COSTS 903
ACCRUED PROFESSIONAL FEES 22,000
ACCRUED SALES TAX 2,547
--------
TOTAL CURRENT LIABILITIES 85,753
--------
LONG TERM DEBT
NET OF CURRENT PORTION 183,775
--------
HOME OFFICE EQUITY 384,220
CURRENT PERIOD REVENUE
OVER EXPENSES 12,017
--------
383,237
$652,765
========
15
21
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF REVENUES AND EXPENSES
ONE MONTH AND NINE MONTHS ENDED
NOVEMBER 30, 1998
(UNAUDITED)
(IN $) (IN $)
CURRENT YEAR TO
MONTH PERCENT DATE PERCENT
----------------------------------------------------------------
SALES
SALES-OFFICE SUPPLIES 783 1.29 70,594 11.02
SALES-PRINTING 59,936 98.69 573,585 89.54
SALES RETURNS AND ALLOW (120) 0.20 (4,096) 0.64
OTHER INCOME 133 0.22 479 0.07
------ ------ ------- ------
60,732 100.00 640,562 100.00
------ ------ ------- ------
COST OF SALES
BEGINNING INVENTORY 2,164 12,722
PURCHASES 19,828 235,733
LABOR SALARIES 11,833 113,972
SALES SALARIES 10,549 105,495
SUPPLIES & FREIGHT 28 5,771
DEPRECIATION 5,748 51,741
ENDING INVENTORY (12,010) (12,010)
------ -------
48,140 79.27 513,424 80.15
------ ------ ------- ------
GROSS PROFIT 12,592 20.73 127,138 19.85
------ ------ ------- ------
OPERATING EXPENSES
ADVERTISING 0 0.00 32 0.00
AUTOMOBILE 101 0.17 641 0.10
CASH VARIANCE 0 0.00 161 0.03
DEPRECIATION 22 0.04 197 0.03
DUES AND SUBSCRIPTIONS 0 0.00 266 0.04
16
22
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF REVENUES AND EXPENSES
ONE MONTH AND NINE MONTHS ENDED
NOVEMBER 30, 1998
(UNAUDITED)
(IN $) (IN $)
CURRENT YEAR TO
MONTH PERCENT DATE PERCENT
--------------------------------------------------
OPERATING EXPENSES
(CONTINUED)
FREIGHT OUT 122 0.20 5,182 0.81
INSURANCE 956 1.57 8,476 1.32
INTEREST 0 0.00 16,585 2.59
JANITORIAL 0 0.00 180 0.03
LAUNDRY AND LINEN 177 0.29 1,508 0.24
LEGAL AND ACCOUNTING 500 0.82 9,815 1.53
MAINTENANCE AND REPAIR 59 0.10 10,418 1.63
OFFICE EXPENSE 59 0.10 3,112 0.49
OFFICE AND ADMINISTRATIVE 1,812 2.98 17,426 2.72
SECURITY 0 0.00 365 0.06
SUPPLIES 0 0.00 7 0.00
TAXES AND LICENSES 3,754 6.18 4,224 0.66
TAXES-PAYROLL 2,173 3.58 26,872 4.20
TELEPHONE 290 0.48 2,032 0.32
UTILITIES 1,012 1.67 7,622 1.19
------ ----- ------- -----
11,037 18.17 115,121 17.97
EXPENSES OVER
REVENUES 1,555 2.56 12,017 1.88
====== ===== ======= =====
17
23
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF CASH FLOWS
ONE MONTH AND NINE MONTHS ENDED
NOVEMBER 30, 1998
(UNAUDITED)
CURRENT YEAR TO
MONTH DATE
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $ 1,555 $ 12,017
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES
DEPRECIATION 5,770 51,938
(INCREASE) IN RECEIVABLES (496) (8,676)
DECREASE IN INVENTORY 154 712
INCREASE (DECREASE) IN ACCOUNTS PAYABLE 2,008 (17,006)
(DECREASE) IN ACCRUED LIABILITIES (5,973) (8,235)
INCREASE IN CUSTOMER DEPOSITS 0 17,968
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,018 48,718
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
PAYMENTS ON LONG TERM DEBT 0 (21,375)
-------- --------
NET CASH (USED) BY
FINANCING ACTIVITIES 0 (21,375)
-------- --------
NET INCREASE
IN CASH & EQUIVALENTS 3,018 27,343
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 88,699 64,374
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 91,717 $ 91,717
======== ========
18
24
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS
CASH $ 40,547
ACCOUNTS RECEIVABLE 147,350
INVENTORY 23,168
PREPAID EXPENSES 12,500
--------
TOTAL CURRENT ASSETS 223,565
--------
OTHER ASSETS
DEPOSITS 2,734
--------
PROPERTY AND EQUIPMENT
FURNITURE AND FIXTURES 17,433
MACHINERY AND EQUIPMENT 455,078
VEHICLES 4,700
BUILDING 253,156
LAND 70,000
--------
800,367
LESS ACCUMULATED DEPRECIATION 304,551
--------
TOTAL PROPERTY AND EQUIPMENT 495,816
--------
$722,135
========
19
25
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
(UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 14,144
CUSTOMER DEPOSITS 375
CONTRACT - CURRENT PORTION 28,162
ACCRUED PAYROLL COSTS 554
ACCRUED PROFESSIONAL FEES 22,000
ACCRUED SALES TAX 3,307
--------
TOTAL CURRENT LIABILITIES 68,542
========
LONG TERM DEBT
NET OF CURRENT PORTION 214,807
--------
HOME OFFICE EQUITY 435,897
CURRENT PERIOD REVENUE
OVER EXPENSES 2,889
--------
438,786
========
$722,135
========
20
26
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF REVENUES AND EXPENSES
NOVEMBER 30, 1997
(UNAUDITED)
CURRENT YEAR TO
MONTH DATE
(IN $) PERCENT (IN $) PERCENT
----- ------- ---- -------
SALES
SALES-OFFICE SUPPLIES 2,650 3.95 35,078 4.62
SALES-PRINTING 64,471 96.02 724,456 95.36
SALES RETURNS & ALLOW 0 0.00 (271) 0.04
OTHER INCOME 23 0.03 436 0.05
------- ----- ------- -----
67,144 100.00 759,699 100.00
COST OF SALES
BEGINNING INVENTORY 22,945 31,516
PURCHASES 14,988 291,050
LABOR SALARIES 12,467 126,500
SALES SALARIES 6,674 69,877
SUPPLIES & FREIGHT 3,163 27,397
DEPRECIATION 7,670 67,249
OUTSIDE SERVICES 0 12,848
ENDING INVENTORY (23,168) (23,168)
------- -------
44,739 66.63 603,269 79.41
------- ----- ------- -----
GROSS PROFIT 22,405 33.37 156,430 20.59
------- ----- ------- -----
OPERATING EXPENSES
ADVERTISING 0 0.00 45 0.01
AUTOMOBILE 193 0.29 1,482 0.20
BAD DEBTS 0 0.00 919 0.12
CONTRIBUTIONS 0 0.00 60 0.01
DEPRECIATION 43 0.06 389 0.05
DUES AND SUBSCRIPTIONS 0 0.00 341 0.04
21
27
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF REVENUES AND EXPENSES
NOVEMBER 30, 1997
(UNAUDITED)
CURRENT YEAR TO
MONTH DATE
(IN $) PERCENT (IN $) PERCENT
----- ------- ---- -------
OPERATING EXPENSES
(CONTINUED)
EQUIPMENT RENTAL 264 0.39 2,376 0.31
FREIGHT OUT 337 0.50 2,341 0.31
INSURANCE 1,100 1.64 4,440 0.59
INTEREST 1,992 2.97 19,091 2.51
JANITORIAL 0 0.00 609 0.08
LAUNDRY AND LINEN 181 0.27 1,621 0.21
LEGAL AND ACCOUNTING 475 0.71 5,659 0.74
MAINTENANCE & REPAIR 25 0.04 5,703 0.75
OFFICE EXPENSE 45 0.07 1,657 0.22
OFFICE & ADMINISTRATIVE 6,346 9.45 59,703 7.86
SECURITY 0 0.00 477 0.06
SUPPLIES 0 0.00 178 0.02
TAXES AND LICENSES 0 0.00 4,347 0.57
TAXES-PAYROLL 2,383 3.55 30,187 3.97
TELEPHONE 260 0.39 1,967 0.26
TRAVEL-LODGING 0 0.00 370 0.05
UTILITIES 1,071 1.60 9,571 1.26
------ ----- ------- -----
14,715 21.92 153,541 20.21
------ ===== ======= =====
REVENUES OVER
EXPENSES 7,690 11.45 2,889 0.38
====== ===== ======= =====
22
28
HERTH PRINTING AND BUSINESS SUPPLY
(A DIVISION OF COMBUSTION ENERGY COMPANY)
STATEMENT OF CASH FLOWS
NOVEMBER 30, 1997
(UNAUDITED)
CURRENT YEAR TO
MONTH DATE
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME $7,690 $ 2,889
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
DEPRECIATION 7,713 67,638
DECREASE IN RECEIVABLES 5,696 1,183
(INCREASE) DECREASE IN INVENTORY (224) 8,346
(INCREASE) IN PREPAID EXPENSES 0 (12,500)
(DECREASE) IN ACCOUNTS PAYABLE (12,942) (19,579)
------- -------
(DECREASE) IN ACCRUED LIABILITIES (5,837) (6,712)
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,096 41,267
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
PURCHASES OF MACHINERY AND
EQUIPMENT 0 (19,268)
------- -------
NET CASH (USED) BY
INVESTING ACTIVITIES 0 (19,268)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
PAYMENTS ON LONG TERM DEBT (2,226) (35,085)
------- -------
NET CASH (USED) BY
FINANCING ACTIVITIES (2,226) (35,085)
------- -------
NET (DECREASE)
IN CASH & EQUIVALENTS (130) (13,086)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 40,677 53,633
------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $40,547 $40,547
======= =======
23
29
Item 2. Management's discussion and analysis of financial condition
-----------------------------------------------------------
and results of operation.
- -------------------------
The Company has an asset base which includes several electric power
generating units (currently not in service and with a net book value as of
November, 1998 of $5,700,000)(which does not include obsolescence from May,
1996) unencumbered by debt, from which the Company plans to develop revenues
and earnings. Management hopes to deploy all of its idle power generating
assets in one or more projects which are currently under review. If the Company
is unable to sell or deploy these generating units, there may be a material
negative impact on the financial position of the Company (See "RISK FACTORS").
During the period June 1997 to date, financial liquidity for on-going
operations was provided primarily from the sale of the Company's 50.01%
interest in San Jacinto Power Corporation ("SJPC") on June 27, 1997 by the
Court appointed Trustee. The Company received $200,000 in cash (See Item 5,
Description of Business). Dividends from the operation of its wholly owned
subsidiary, Combustion Energy Company d/b/a Herth Printing and Business Supply
Company, were also utilized.
The Company's current monthly operating expenses are less than $10,000.
Under the Court approved Plan of Reorganization (See EXHIBIT (2)B), payments to
the allowed unsecured creditors will not commence until September 16, 1999. The
monthly payments to these creditors will be approximately $5,700 for sixty (60)
months. This debt is in addition to normal operating expenses. The Company also
has allowed administrative claims of approximately $250,000 which are due on the
Effective Date unless otherwise agreed between the parties. The allowed Class 6
creditors total $30,000 and are also due on the Effective Date unless other
agreements are reached. The allowed Class 3 Priority Tax claim is less than
$27,000 (See the Debtor's First Amended Plan of Reorganization and Disclosure
Statement, EXHIBITS (2)A and (2)B). The Company is negotiating with one creditor
(Mr. Jeffrey Antisdel) whose claim of $239,000 may be liquidated by the issuance
of a promissory note that would be convertible into Class A Common Stock. If
this occurs, the Company will incur additional debt in the amount of $239,000.
RISK FACTORS
The Company has historically been unable to finance operations from
revenues and cash flow. In the past, the Company has been financing operations
from the sale of its Class A common stock, asset sales, litigation recoveries
and management fees. If such financing should not be available, for any reason,
there would be a material adverse effect on the 12 month operations of the
Company. If the new business plan is successfully implemented, the Company
believes it will be able to pay normal operating expenses from the revenue
generated. There is no guarantee that the Company will be successful. (See RISK
FACTORS and Section XI of the Disclosure Statement, EXHIBIT (2)A).
24
30
Since the Company maintains a holding company structure, the Company
does not intend to enter into direct purchases of capital equipment at the
parent company level in order to complete the deployment of its idle power
equipment in any proposed project. However, any capital expenditures required
for project development will be completed at the subsidiary level and will most
likely require equity, debt or project financing for which the Company will need
to seek additional funding.
The Company intends to evaluate, from time to time, prospective
acquisitions in the telecommunication industry. If such an acquisition were to
occur and the Company were to suffer a material negative event, the Company's
financial performance could be adversely and materially impacted. Significant
acquisitions outside the Company's primary energy business may have the effect
of reducing or eliminating certain tax benefits associated with prior net
operating losses, as well as negative financial impacts associated with possible
accruals of goodwill and potential increased depreciation charges against
earnings.
Presently, there are no plans for product research and development at
the parent company level over the coming twelve (12) months.
LIQUIDITY AND CAPITAL RESOURCES
Due to working capital constraints encountered during the course of the
fiscal year, the Company has not yet met its goal of covering all of its
operational costs with internally generated cash flows.
To date, the Company's ownership stake in Nevada Energy Partners, a
Nevada limited partnership ("NEP") had provided no recurring equity returns,
primarily due to costs associated with certain credit enhancements and loan
guarantee costs provided by ESI Energy, Inc. and NEP's continuing litigation
with HSP. During the year ending February 29, 1996, the Company had received
through NEP $508,018 in cash from the sale of NEP's interest in the Brady Power
Project (held by NEP through its 50% interest in NGPP), plus an additional gain
of $77,493 from NEP as a result of the above referenced sale, and additional
gains of $508,018 resulting from the settlement agreement between NEP, NEPC and
the Company. However, the $77,493 has subsequently been charged to bad debts as
it is believed to be uncollectible. (See Nevada Energy Partners I L.P. for
detailed summary.)
The Company expects no further income from NEP and effective September
1, 1996, the Company had disposed of its interest in NEP through a reacquisition
of the general partners interest in the Class B common shares held by NEP.
As a result of the difficulties caused by the change in control which
was initiated on May 1, 1996, the Company had not timely met its debt
obligations during the year ending February 28, 1997. As a result, its creditors
initiated an involuntary Chapter 11 proceeding on February 13, 1997. The Company
operated as debtor in possession from September 24, 1997 until the Court
approved its Plan of Reorganization on September 15, 1998.
25
31
Currently, the majority of the Company's ongoing expenses are for
auditing fees, legal fees, trustee fees and consulting services.
RESULTS OF OPERATIONS
General Comments
The Company has, during fiscal year 1998 undergone a severe financial
crisis as a result of the now aborted change in control which took place early
in the fiscal year. As a result the Company was unable to look for and bid upon
opportunities to deploy its current core of idle power generating equipment. The
Company had previously sought to deploy the power generation plants and
equipment where little resource development risk was present. Development
opportunities in the Philippines, the Caribbean and Central America had been
evaluated from the standpoint of seeking least risk opportunities. More
specifically, the Company had sought to either acquire a fully developed
geothermal resource or a fully developed geothermal plant to which its assets
could be deployed with reduced risk. These efforts were set aside this period.
New management expects to re-explore these opportunities with new vigor and
resolve.
PART II - Other Information
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements. All
statements, other than statements of historical fact, included in this Form
10-QSB are Forward-Looking Statements. Although the Company believes that the
expectations reflected in the Forward-Looking Statements are reasonable, there
is no assurance that those expectations will be achieved.
Item 1. Legal Proceedings
-----------------
On February 13, 1997, three of the Company's creditors filed a petition
for involuntary bankruptcy pursuant to Chapter 11 of the United States
Bankruptcy Code. The case was filed in the United States Bankruptcy Court
situated in Reno, Nevada and is styled In Re PowerTel USA, Inc., Case No.
BK-97-30265-BMG.
The Creditors who filed the petition were Richard A. Cascarilla (who
has subsequently been elected to the Company's Board of Directors and functions
as its president, see discussion below), Geothermal Development Associates, Inc.
and UniShippers, Inc. The involuntary petition was supported by affidavits from
Mr. Jeffrey Antisdel, former president and director of the Company, and Mr.
Kenton Bowers, former controller and chief financial officer of the Company. The
Creditors were represented a Jeffrey L. Hartman, Esq., a former and current
Director of the Company.
A preliminary hearing was held in Reno, Nevada on March 3, 1997, and
the Court appointed Mr. Barry L. Solomon as Trustee ("Trustee"). A formal order
confirming the bankruptcy was issued on April 7, 1997.
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On or about September 24, 1997, the Trustee consented to a petition
filed by the Company to resume operations functioning as Debtor-in-Possession
pursuant to Section 1107 of the United States Bankruptcy Code. The Court
approved that petition on September 24, 1997. On or about June 29, 1998, the
Company filed with the Bankruptcy Court a proposed Disclosure Statement
containing detailed information regarding the proposed plan. Thereafter, the
Bankruptcy Court entered an order finding that the Disclosure Statement complied
with the provisions of Section 11 USC Section 1125 of the United States
Bankruptcy Code and authorized the Disclosure Statement to be transmitted to all
creditors and shareholders of record for the purpose of soliciting votes in
favor of or against the proposed Plan of Reorganization.
On or about August 25, 1998, a hearing was held in the United States
Bankruptcy Court for the District of Nevada (Reno Division) in which the company
reported that the Plan had been approved by both shareholders and Creditors in
conformance with the terms and provisions of the United States Bankruptcy Code.
On September 15, 1998, the United States Bankruptcy Court entered an
order confirming the proposed Plan of Reorganization. (See discussion below).
Prior to the commencement of the Chapter 11 proceeding, on December 12,
1996, the Company was named as a nominal Defendant in a Shareholder Derivative
Action filed in the Court of Chancery of the State of Delaware in and for New
Castle County, Docket No. 15421-NC. The Plaintiffs were Richard A. Cascarilla
and Michael R. Kassouff, both former and current directors of the Company. Named
as Defendants in that proceeding were Charles A. Cain, Peter J. Cannell, Stefan
Tevis and John C. Goold (all former members of the Company's Board of
Directors). The Complaint sought damages on the basis of alleged breach of
fiduciary duty, usurping corporate opportunity, misappropriation, conversion and
breach of the duty of loyalty. The Complaint alleged, in pertinent part, that
the Defendants diverted corporate funds to non-corporate purposes and that the
Defendants breached their duty of loyalty by failing to take action against
Waterford Trust Company and Golden Chance Limited arising out of defaults with
respect to a $5,000,000 note issued in May, 1996 by Golden Chance guaranteed by
Waterford in connection with the purchase of Series A preferred shares by Golden
Chance. This transaction is discussed in detail in the Company's quarterly
report for the three months ended May 30, 1996 as reported on Form 10-QSB.
Subsequent to confirmation of the Plan of Reorganization, the Company
has entered into a Settlement and Release Agreement with Messrs. Charles Cain
and Peter J. Cannell. Pursuant to the terms of this Settlement Agreement, the
terms of which are confidential, the settling Defendants have agreed to continue
to fully cooperate with the Company. The litigation remains pending with respect
to claims against Defendants Tevis and Goold.
Also prior to the filing of the Chapter 11 proceeding, five additional
lawsuits had been initiated against the Company. In one proceeding, Mary Kay
Robinson, Trustee, sued Central Communications Company and Nevada Energy Company
for alleged breach of a lease to occupy a building situated in Santa Barbara,
California. The Plaintiff alleged damages of $1,200,000. The proceeding was
initiated in Superior Court, Santa Barbara, California (Docket No. 216651).
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During the Chapter 11 case, the Plaintiff withdrew the Proof of Claim which had
been filed, thereby waiving this cause of action.
In another proceeding, Mr. Jeffery Antisdel, the former President of
the Company, sued the Company in the County of Washoe, Nevada alleging breach of
contract and seeking damages of approximately $380,000. This action was settled
for $239,000 without interest with Mr. Antisdel to be a general unsecured
creditor for purposes of the Plan of Reorganization.
The third case was initiated by Jeffrey L. Hartman, Michael Kassouff
and Jeffrey Modesitt in the County of Washoe, Nevada alleging breach of contract
and seeking damages of approximately $13,200 per individual. During the Chapter
11 proceeding, these matters were settled for $13,200 per claim with interest
and Messrs. Hartman, Kassouff and Modesitt were deemed to be general unsecured
creditors for purposes of Plan of Reorganization.
In a transaction entered into on September 1, 1996 between Nevada
Energy Partners I, Limited Partnership, a Nevada limited partnership ("NEP")
and the Company, the Company exchanged its 60% limited partnership interests in
NEP and CEC, plus the promise to deliver Class A Common stock in exchange for
all of the right, title and interest to 100% of its outstanding Class B Common
shares, plus the rights to future share issuances owing to NEP, which were held
by NEP and its general partner, Nevada Electric Power Company. The agreement
was the subject of litigation between NEP and the Company, which has since been
resolved.
Nevada Energy Partners, a Nevada Limited Partnership, sued the Company
(then known as Nevada Energy Company) in the County of Washoe, Nevada (Docket
No. CV 96-07487) alleging breach of contract, specific performance and damages
in excess of $6,000,000 arising out of an agreement entered into on or about
August 16, 1996. During the Chapter 11 case, the Company negotiated a resolution
and settlement of this lawsuit. In summary, the August 16, 1996 agreement was
deemed to be null and void and all assets transferred to Nevada Energy Partners
as a result of that document were reconveyed to the parties from whom such
assets were transferred. In addition, the Nevada Energy Partners Partnership
Agreement was amended to reallocate profits and losses between the General
Partner and Limited Partner. (The settlement is discussed in detail under
Sections VIII and X Settlement of Claims and Interest in the Disclosure
Statement. A copy of the Settlement Agreement is attached as EXHIBIT (10)A).
Smith Katzenstein & Furlow sued Nevada Energy Company in the Superior
Court, County of New Castle, Delaware (Docket No. 96-12-004-JEB) alleging a
delinquent account payable in seeking damages in the amount of $78,731. This
matter has been settled with a Stipulated Judgment for $78,731 plus interest. As
of the Plan of Reorganization, Smith Katzenstein & Furlow was deemed to be a
general unsecured creditor and its claim has been settled.
In addition, the Company was the Plaintiff in a civil matter filed
against Nevada Energy Partners in Superior Court, Santa Barbara, California
(Docket No. 216568) in which the Company alleged that the August 16, 1996
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Agreement referenced above should be declared null and void. The Company's
claims were compromised and settled as of a comprehensive agreement entered
into with Nevada Energy Partners as summarized above.
The Company also sued Waterford Trust Company and Golden Chance Limited
in Superior Court, New Castle County, Delaware (Case No. 96C-12-150) alleging
breach of contract arising out of the purchase in May, 1996 of a Series A
preferred shares by Golden Chance, Ltd. The Company obtained a default judgment
for approximately $5,000,000 and is in the process of seeking to collect on that
judgment.
As part of its Plan of Reorganization, the Company identified claims
and potential claims which it had against numerous individuals and entities
arising out of activities of the Company, its officers and directors and third
parties during the period May, 1996 through February, 1997. These claims are
discussed in detail on pages 37 through 39 of the Company's Disclosure
Statement.
On December 16, 1998, PowerTel USA, Inc., now WorldCall Corporation,
filed a civil claim in the United States District Court for the District of
Nevada alleging violations of the Racketeer Influenced and Corrupt Organizations
Act ("RICO") and common law conversion and fraud. Defendants include Mr.
Pattison Hayton; Mr. Roderick R. McCloy, individually and practicing law as
Roderick R. McCloy, P.C. and Jones, McCloy, Peterson, affiliated law practices;
Mr. Kevin Quinn; Golden Chance Limited, an Isle of Man Private Company Limited
by Shares; Waterford Trust Company, an Irish corporation; and Mortlake Venture
Capital Fund, a California corporation. The complaint requests damages in excess
of $1,000,000 and alleges that the defendants participated in a scheme of
taking over small publicly-traded companies, illegally looting them for their
own profit, and then leaving them on the verge of bankruptcy.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
As part of the Plan of Reorganization confirmed by the United States
Bankruptcy Court, all securities issued by the Company from and after May 3,
1996 have been declared null and void with certain limited exceptions as
follows: The Plan of Reorganization specifically reinstates the shareholder
ledger in effect as of May 3, 1996, with the exception that any shareholder who
purchased Class A common shares subsequent to May 3, 1996 will be permitted to
retain such shares if (1) a Proof of Interest is filed with the United States
Bankruptcy Court on or before November 10, 1997, (2) the shareholder is a bona
fide purchaser for value and (3) the Company does not contest or otherwise
object to the validity of the proof of interest. Approximately 170 shareholders
filed a Proof of Interest representing about 2,200,000 shares of Class A Common
Stock.
In or about January, 1997, the then Board of Directors for the Company
attempted to affect a 1:6 reverse stock split, increase authorized shares and
create a new class of common equity. The Plan of Reorganization specifically
rescinds and voids that reverse stock split. The Company's trading symbol was
changed to PWLUA.
As part of the Plan of Reorganization, there were significant changes
with respect to the capitalization of the Company. In summary, as of a
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35
compromise settlement and release agreement entered into by and among Nevada
Energy Partners, Mr. Jeffery Antisdel, the Company and 16 Bahamian Corporations
(the "Corporations"), the Company agreed to recognize a conveyance of interest
affected subsequent to August 16, 1996 between Nevada Energy Partners, Mr.
Jeffery Antisdel and the Corporations. As a result of recognizing this
conveyance, the Company in the Plan of Reorganization, stipulated and consented
that the Corporations would be issued restricted Class A Common Stock such that
they collectively would own 50% of the issued and outstanding Class A Common
Stock as of the date computed to be 10 days after the effective date of the
Plan of Reorganization.
In addition, during the course of the Bankruptcy Proceeding, the
Company entered into an Agreement to acquire 100% of the issued and outstanding
common stock of Diego Telecommunications, Inc. ("DiegoTel"), a Nevada
Corporation, from Mr. David Wallace. Under the terms of this transaction, Mr.
Wallace will receive Class A Common Stock based upon a formula which takes into
consideration the revenue generated by DiegoTel in its telecommunications
business (See Amended and Restated Agreement for Exchange of Stock VivaTel
Agreement), which is attached as Exhibit 10(C), over a period of 30 months.
Under the terms of the acquisition agreement, Mr. Wallace may receive Class A
Common Shares in an amount not to exceed 35% of the issued and outstanding
common stock computed on the effective date of the Plan of Reorganization
taking into consideration the shares to be issued to the Corporations.
As a result the two events summarized above, there will be significant
dilution with respect to the shareholders of record as of May 3, 1996. In
addition to these two transactions, pursuant to the Plan of Reorganization, the
Company has committed to issue Class A Common Stock to certain general unsecured
creditors who, at their election, may receive Class A Common Stock in lieu of
cash payments.
The Plan of Reorganization also provides that the Company intends to
affect a reverse stock split at least 20 days prior to the Effective Date of the
Plan of Reorganization. On the Effective Date of the Plan, the Company will
issue Class A Common Shares to certain creditors who have elected to accept
Class A Common Shares in lieu of cash or deferred cash payments, will issue
Class A Common Shares to the Corporations and will issue new Class A Common
Shares to the shareholders of record as of May 3, 1996 together with those
allowed shareholders who have filed an appropriate proof of interest.
On the Effective Date, the Company will also reserve a sufficient
number of treasury shares equal to 35% of the issued and outstanding Common
Stock for potential issuance to Mr. Wallace as earned pursuant to the DiegoTel
Acquisition Agreement.
Finally, 10 days after the Effective Date, the Company will recompute
the number of shares issued to the Corporations such that they will own, on a
pro rata basis, an amount to 50% of the issued and outstanding Class A Common
Stock of the Company.
The following table sets forth the anticipated capitalization of the
Company computed as pursuant to the Plan of Reorganization.
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36
Pro Forma Capitalization
------------------------
Class A Common Stock
Issued and Outstanding
Held by Shareholders of Record
on May 3, 1996 8,808,487 35.04%
Issued to Allowed Equity Claimants 2,483,008 9.88%
Issued to Directors 265,000 1.05%
Issued to Repurchase Series B 500,000 1.99%
Issued to Creditors pursuant to
Plan of Reorganization (N. 1) 512,000 .04%
Subtotal 12,568,495 12,568,495 50.00%
Issued to the 16 Bahamian
Corporations 12,568,495 50.00%
Subtotal 12,568,495 50.00%
Total Issued and Outstanding 25,136,990 100.00%
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Assuming that Mr. Wallace were to receive 29,338,119 shares of Class A
Common Stock, the following would occur:
Issued and Outstanding
Held by Shareholders of Record
on May 3, 1996 8,808,487 10.51%
Issued to Allowed Equity Claimants 2,483,008 2.96%
Issued to Directors 265,000 0.32%
Issued to Repurchase Series B 500,000 0.60%
Issued to Mr. Wallace 29,338,119 35.00%
Issued to Creditors pursuant to
Plan of Reorganization (N. 1) 512,000 0.61%
Subtotal 41,906,614 49.99%
Issued to the 16 Bahamian
Corporations 41,911,599 50.00%
Subtotal 41,911,599 50.00%
Total Issued and Outstanding 83,823,198 100.00%
The Company has issued Options to its Directors as compensation for
services rendered. As at January 18, 1999, options were issued which
authorize the three Directors to purchase a total of 7,500 shares per
Director per quarter of Class A Common Stock at $.10 per share. (See
Note 8 to the unaudited financial statements of the Company for the
nine months ended November 30, 1998.
Pursuant to the Plan of Reorganization, the Company is authorized to
effect a reverse stock split prior to the issuance of Class A Common
Stock to creditors or the Corporations, and the Board of Directors
adopted a resolution to effect a 1:15 reverse stock split at a date to
be established, currently predicted to be in March 1999.
Assuming a 1:15 stock split, the results would be as follows:
Issued and Outstanding
Held by Shareholders of Record
on May 3, 1996 587,232 10.37%
Issued to Allowed Equity Claimants 180,000 3.18%
Issued to Directors 17,667 0.31%
Issued to Repurchase Series B 33,333 0.59%
Issued to Mr. Antidel (N. 2) 0 0.00%
Issued to Creditors pursuant to
Plan of Reorganization (N. 1) 2,012,000 35.54%
Subtotal 2,830,232 50.00%
Issued to the 16 Bahamian
Corporations 2,830,232 50.00%
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Subtotal 2,830,232 50.00%
Total Issued and Outstanding 5,660,465 100.00%
Assuming that (1) Mr. Wallace were to be issued the maximum number of
shares possible pursuant to the Plan of Reorganization, (i.e.
29,338,119), and (2) the Company effects a 1:15 reverse stock split,
the results would be as follows:
Issued and Outstanding
Held by Shareholders of Record
on May 3, 1996 587,232 6.69%
Issued to Allowed Equity Claimants 165,534 1.89%
Issued to Directors 17,667 0.20%
Issued to Repurchase Series B 33,333 0.38%
Issued to Mr. Antisdel (N. 2) 0 0.00%
Issued to Mr. Wallace 3,070,000 35.0%
Issued to Creditors pursuant to
Plan of Reorganization (N. 1) 512,000 5.84%
Subtotal 4,385,766 50.00%
Issued to the 16 Bahamian
Corporations 4,385,766 50.00%
Subtotal 4,385,766 50.00%
Total Issued and Outstanding 18,728,199 100.00%
Note 1: The Creditors holding claims totaling $64,000 have agreed to
accept Class A Common Stock valued at a price of $.25 per share pursuant to a
formula approved by the Court as part of the Plan of Reorganization. As of
January 18, 1999, trading in Class A Common Stock had been suspended at the
Company's request. The last trade was at $.06 per share. One shareholder will
receive warrants. In addition, Mr. Jeffrey Antisdel, the former President of the
Company has agreed to accept a promissory note in the principal amount of
$239,000 to be paid over a 60 month term without interest. The Company has the
right to prepay this note at any time without penalty. The note is convertible
into 1,500,000 of Class A Common Stock, pursuant to the Plan of Reorganization.
The Company has agreed upon meeting certain conditions to issue Class A
Common Stock to Mr. David Wallace as part of the consideration for the
acquisition of two corporations. (See EXHIBIT 10(C)). The amount of Class A
Common Stock to be issued to Mr. Wallace will be computed on the basis of a
formula approved by the Bankruptcy Court as part of the Plan of Reorganization.
Mr. Wallace could receive up to 35.0% of the issued and outstanding Class A
Common Stock. Based upon the table set forth above, Mr. Wallace could receive up
to 32,514,590 shares of Class A Common Stock. In the event that Class A Common
Stock is issued to Mr. Wallace, the 16 Bahamian Corporations are entitled to
receive additional shares of Class A Common Stock such that they continue to own
50.0% of the issued and outstanding Class A Common Stock. The nondilution clause
of the 16 Bahamian Corporations does not apply in the event that the Company
issues Class A Common Stock to any person or entity other than Mr. Wallace or
Mr. Antisdel.
Note 2: Mr. Antisdel owns additional shares of Class A Common Stock
which he acquired subsequent to the commencement of the Chapter 11 proceeding,
which shares are included in the 8,808,487 shares of Class A Common Stock issued
and outstanding as of May 3, 1996.
The Company, pursuant to the Plan of Reorganization, has also granted stock
options to the Directors, as follows:
2,500 per Director, per quarter @ $.10 per share for total issued to
date of 7,500.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
On August 16, 1996, the Company held its annual meeting of
Shareholders. At that time, various matters were submitted for a vote of the
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Shareholders. The Company's Certificate of Incorporation in effect as of that
date provided that certain matters required the affirmative vote of
shareholders of record entitled to vote at least 80% of the Class A Common
Stock. For purposes of this requirement, the Class B Common Stock at all times
had equal voting rights and was deemed to be converted into Class A Common
Stock with equal voting privileges.
Subsequent to the annual meeting, the Company reported that the
shareholders had approved various actions.
In or about January 1997, the then Board of Directors approved a filing
with the Secretary of State for the State of Delaware in which the Directors
voided the "supermajority" provision requirement set forth in the Company's
Articles of Incorporation had not been validly adopted and, therefore, a
majority of the issued and outstanding Class A Common Stock was sufficient to
amend the Articles of Incorporation and initiate certain actions. In reliance
upon this position, the then Board of Directors authorized the Company to
prepare and file various documents with the Secretary of State for the State of
Delaware increasing authorized number of shares and taking other corporate
action.
The Plan of Reorganization specifically provides that the action taken
for the Board of Directors in January, 1997 was inaccurate, illegal and rescinds
all such filings.
The Plan of Reorganization, as confirmed by the United States
Bankruptcy Court, authorized the Company to file Amended Articles of
Incorporation which, among other things, established a new class of stock, to be
known as "Special Shares." The Amended Articles of Incorporation authorize the
issuance of seven shares of Special Stock, of which, three have been issued. The
Shareholders owning the Special Stock are entitled to elect two members to the
Board of Directors, the remaining Directors to be elected by the Class A
Shareholders. The three shares of Special Stock elected Messrs. Richard
Cascarilla and Jeff Hartman as members of the Company's Board of Directors. The
remaining Director, was elected by the owners of the Class B Common Stock,
pursuant to certain preferential voting rights, which have since been rescinded.
Pursuant to the Amended Articles of Incorporation, the Board of
Directors, which is currently fixed at three, can be increased to no more than
seven members. The number of Directors can be increased only by the affirmative
vote of the Board of Directors.
The rights of the "Special Stock" can be modified only by consent of
the majority of the Directors.
Item 5. Other Information.
------------------
The Company's last filing with the Securities and Exchange Commission
was its quarterly report for the nine months ended November 30, 1996 on Form
10-QSB. As noted above, on February 13, 1997 an involuntary petition for
reorganization was filed pursuant to Section 1103 of the United States
Bankruptcy Code and a Trustee was appointed. Subsequent to the commencement of
the bankruptcy proceeding, no filings have been made with the Securities and
Exchange Commission. The Company is delinquent with respect to the filing of two
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annual reports (Form 10-KSB) for the fiscal years ended February 28, 1997 and
February 28, 1998 together with several quarterly reports (Form 10-QSB) for the
three, six and nine month periods ending May 30, August 30 and November 30,
1997 and for the three and six months ending May 30 and August 30, 1998.
The Company is in the process of preparing these reports and intends to
file them prior to the filing of its annual report for the fiscal year ending
February 28, 1999 on Form 10-KSB. In the interim, accompanying this quarterly
report as Exhibits are the monthly operating statements filed by the Company
with the United States Bankruptcy Court for the period February, 1997 to date.
The Company's management and Board of Directors are incurring
substantial difficulties in the preparation of the required SEC reports. As
disclosed in the Company's Quarterly Report for the three months ended May 30,
1996 on Form 10-QSB, on or about May 1, 1996 there was a change of control with
respect to the Company. The change of control occurred because the company sold
Series A Preferred Shares to Golden Chance, Limited, an Isle of Mann company
limited by shares, which served as nominee for Waterford Trust Company, an Irish
Corporation. As of that transaction, Golden Chance issued to the Company a
promissory note in the principal amount of approximately $5,000,000 ("the Golden
Chance Note") which was guaranteed by Waterford.
As of that transaction, there was a change in the Company's Board of
Directors by which all of the directors resigned and were replaced by three
representatives of Golden Chance, consisting of Messrs. Charles Cain, Peter J.
Cannell and John Goold. On September 26, 1996, Mr. Goold resigned as a director
and was replaced by Mr. Stefan Tevis.
The Golden Chance Note called for certain minimum payments commencing
in July, 1996. The directors appointed by Waterford took the position that
payments had been made by Golden Chance on a timely basis and, therefore,
released from escrow approximately 762,000 shares of Series A preferred stock,
which were immediately converted into more than 5,500,000 shares of Class A
Common Stock.
The then President and Secretary of the Company (Messrs. Jeffery
Antisdel and Richard Cascarilla, respectively) did not concur with the position
taken by the Golden Chance board. It was their position that a substantial
portion of the funds distributed by Golden Chance had not been received by the
Company and, therefore, Golden Chance was delinquent with respect to its payment
obligations pursuant to the Golden Chance Note.
On September 13, 1996, Messrs. Antisdel and Cascarilla tendered written
notice to Golden Chance and Waterford of their default on payments due to the
Company pursuant to the Golden Chance Note. Neither Waterford nor Golden Chance
responded to the Notices of Default; however, the Company's Board of Directors
terminated Messrs. Antisdel and Cascarilla on September 26, 1996 without cause
and solely because they filed a Notice of Default with the Securities and
Exchange Commission.
During the period September 26, 1996 through December 4, 1996 there
were continual confrontations among and between the then Board of Directors of
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the Company and Antisdel and Cascarilla, former officers of the Company who
continued to assert that Golden Chance was in default. On December 4, 1996, the
Series B Preferred Shareholders tendered a written notice of default and
invoked their right to elect a representative, Michael Kassouff, to the
Company's Board of Directors. At or about the same time, a Shareholders
derivative action was initiated (See discussion below) and litigation was
commenced on behalf of the Company against both Waterford and Golden
Chance.
On or about January 23, 1997, by majority vote of the Board of
Directors, Mr. Stefan Tevis was relieved as President of the Company. He
retained his position as a director pending negotiating agreement for his
resignation. Mr. Pattison Hayton, III commenced to act as President effective
January 23, 1997. Mr. Hayton had served as a consultant to the Company since May
3, 1996 and was also an advisor to the Company's Board of Directors, to
Waterford Trust Company, to Golden Chance Limited, and others.
During the course of the bankruptcy proceeding, the Company conducted
an investigation into the activities of Mr. Hayton and others. As a result of
this investigation, the Company has announced its intent to pursue the claims
against Mr. Hayton an others arising out of conduct which transpired during the
period May, 1996 through February 1997. (See Item 1. Legal Proceedings.)
During the Bankruptcy proceeding on or about May 9, 1997, Mr. Peter
Cannell and Charles Cain tendered resignations from their position on the Board
of Directors, which resignations were accepted by the sole remaining director,
Mr. Michael R. Kassouff. Immediately thereafter, Mr. Kassouff terminated Mr.
Pattison Hayton as President of the Company and Mr. Quinn as Secretary,
replacing him with Mr. Richard A. Cascarilla (as a Director and President) and
Mr. L. Herth (as Director and Corporate Secretary). Mr. Cascarilla had been
Secretary and Treasurer to the Company from November 20, 1990 until he was
terminated by the Board of Directors in September, 1996. Mr. Herth was the
founder and manager of Herth Printing and Business Supply in Reno, Nevada, which
had previously been acquired by the Company and was owned by the Company's
former subsidiary, Combustion Energy Company. Mr. Michael Kassouff remained as a
Director and Chairman of the Board.
Subsequent to confirmation of the Plan of Reorganization, Mr. Herth
resigned from the Board of Directors and was replaced by Mr. Jeffrey Hartman, a
former Director.
During the pendency of the bankruptcy, the Company's newly elected
Board of Directors evaluated the Company's activities and adopted a new business
strategy for the Company, as discussed in Section VI, The Reorganized Debtor's
Business Plan, at EXHIBIT (2)A of the Disclosure Statement. In summary, during
the period May 1990 through May 1996 the debtor functioned as a non-regulated
utility holding company primarily engaged in the development, financing,
construction and operation of geothermal, wind and biomass energy resources used
primarily to generate electric power. In 1994, the Company (through one of its
then subsidiaries) acquired by merger Herth Printing and Business Supply,
Inc., a custom printing and catalog based retail office supply business.
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In general, the Company's operations, were conducted through a variety
of joint ventures, partnerships and subsidiaries.
During the course of the Chapter 11 proceeding, the new Board of
Directors reevaluated the Company's previous business plan and determined it was
in the best interest of the Company to adopt a new business plan to consist of
three segments:
#1.) Functioning as a non-regulated utility holding company, the
Company will seek to identify and develop an application for its energy
co-generation units in the operation of geothermal, wind and biomass energy
projects, primarily through joint ventures and partnerships with third parties.
At this time, no specific project has been identified.
#2.) The development of its current printing and business supply
operation situated in Reno, Nevada, conducted under the name "Herth Printing and
Business Supply." The Company may consider a sale of this business if it is
determined that it is not consistent with the Company's overall business plan.
#3.) The creation, development and implementation of an international
long distance telecommunication business initially focusing exclusively upon the
sale of international long distance services from the United States on a
wholesale basis.
With respect to the development of an energy cogeneration business, the
Company is anticipated to have substantial physical resources, consisting of its
energy cogeneration units. Management believes that the Company will be
successful in negotiating joint venture or partnership relationships in which
the Company will contribute its energy cogeneration equipment, but it is also
likely that the Company will require additional working capital in order to
implement that line of business.
In the event that management is not successful in identifying an
application for its currently idle energy cogeneration equipment, the Board of
Directors may determine that it is in the best interest of the company to
liquidate those assets and to reapply the net sale proceeds into other business
ventures.
With respect to its printing and business supply operation, management
anticipates that the Company will continue to function largely as it has done in
the past. However, the Company will be mindful of opportunities to expand the
business and printing supply operation, perhaps through the acquisition of other
companies or operations. At this time, no such acquisition has been identified
or is under consideration. In the event the Board of Directors determines that
continued operation of the printing and supply business is not consistent with
the long-term objectives of the Company, consideration will be given to the sale
or disposition of that portion of the Company's business. At this time, the
Company has entered into negotiations with Mr. Lawrence Herth, a former director
and the founder of Herth Printing and Business Supply, in order to determine
whether a sale of that business segment to Mr. Herth is appropriate.
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With respect to its entry into the long distance telecommunication
market, the Company has done so through the acquisition of 100% of the issued
and outstanding stock of Viva Telecommunications, Inc. ("Viva Tel") and Diego
Telecommunications, Inc. ("Diego Tel"), as discussed in more detail in Section
VI, The Reorganized Debtor's Business Plan of the Disclosure Statement at
EXHIBIT (2)A. When acquired by the Company, VivaTel and DiegoTel had no revenue,
modest assets, no operating history and minimal debt. Each company owned, or had
rights to, a license issued by the Federal Communication Commission pursuant to
Section 214 of the Federal Communications Act.
A Section 214 authority permits the holder to market and sell long
distance telecommunication services in the United States on condition that the
ultimate destination of the long distance call is to a country which is outside
the United States. At this time, a Section 214 license permits long distance
telephone calls to over 100 countries. To the best of management's knowledge, no
additional license or permit is required in order to conduct such business
within the United States; however, licenses or permits may be required and
depending upon the country to which the long distance telephone call will be
made.
In addition, DiegoTel has leased or otherwise acquired fiber optic
cables suitable for the transmission of long distance telecommunication services
to its point of presence in California. In addition, according to Mr. Wallace,
former president of DiegoTel, the Company has purchased or leased appropriate
equipment in order that DiegoTel can function as aggregator of long distance
telecommunication services. Finally, DiegoTel has entered into a five-year
agreement with a Mexican carrier to provide services into Mexico. The Directors
of DiegoTel are Richard A. Cascarilla, Esq. and Michael Kassouff. Mr. Cascarill
also serves in the capacity of President and Mr. Kassouff serves as President.
The Mexican carrier (Servicios, S. de R.L. de CV, a corporation of the
State of Baha, California, Mexico) ("VSS"). VSS is owned or controlled by Mr.
Wallace. Under the terms of the agreement entered into between DiegoTel and VSS,
VSS is to receive approximately 80% of the gross revenue of all
telecommunication services sold by DiegoTel. In addition, depending upon the
gross revenue generated by the Company, Mr. Wallace is to receive Class A common
stock in an amount not in excess of 35% of the issued and outstanding common
stock of the Company following the Effective Date.
The Plan of Reorganization, as approved by the Court, has established
various classes for the claims of secured and unsecured creditors of the
Company. The certain classes of general unsecured creditors are entitled to
receive, at the election of each individual creditor, Class A common stock in
lieu of a cash payment.
The following table summarizes the allowed claims and the disposition
of such claims by class.
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Class Amount Status
----- ------ ------
Class 1: Administrative Claims $250,000.00 45,000 paid in
Dec. 1998 -
Balance still
due
Class 2: Allowed Wage Claim $ -0- -0-
-----------
Class 3: Allowed Munson Priority Tax Claims $ 26,000.00 Pending
-----------
Class 4: Allowed Priority Tax Claims $ -0- -0-
------------
Class 5: Allowed Secured Creditors $ -0- -0-
------------
Class 6: Unsecured Claims of
less than $1,200.00 $ 30,000.00 Pending
-----------
Class 7: Unsecured Claims in $64,000 in claims
excess of $1,200.00 $607,876.95 choose all stock
payment option
and/or note
-----------
Class 8: NEP Claim $6,000,000.00 Settled
-----------
Class 9: Disputed Claim $ -0- -
------------
Class 10: Claims of Equity Interest 11,291,495 Claims recognized for
Number of shares of Class A approximately 170
Common Stock shareholders owning
2,700,000 shares of
Class A Common Stock
- -----------------------
The Plan of Reorganization will have a significant impact upon the
Company, its financial statements and his future business operations.
Accordingly, interested shareholders are encouraged to read and review the Plan
of Reorganization together with the Disclosure Statement which discusses that
Plan. A copy of the Plan of Reorganization and Disclosure Statement is enclosed.
Risk Factors
- ------------
There are substantial risks associated with the business plan as
adopted by the new Board of Directors. These risk factors are discussed in
detail in the Disclosure Statement on pages 80-96, and
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shareholders are encouraged to review these pages carefully, which are hereby
incorporated by reference.
The Company has not been successful in fully implementing its Plan of
Reorganization as approved by the Court. Unexpected delays were incurred with
respect to installation of telecommunications cabling, lines and equipment.
At this time, however, management reports that:
- The Mexican carrier has reported the successful implementation of all
equipment needed to function as a telecommunications carrier, with dial
tone available at its principal point of contact,
- The Mexican carrier has received the appropriate license to conduct
business in Mexico,
- DiegoTel has ordered and paid for five T-1 telecommunication lines
which have been installed into a California facility,
- The Company has entered into a lease agreement for a DS-3 cable which
will give the Company access to 672 telephone lines,
- In January, 1999, the system was tested for the purpose of confirming
that the equipment installed in the United States has functional
capability to communicate long distance messages to Mexico. The test
was successfully completed.
In addition, DiegoTel has entered into negotiations to sell 1,500,000
minutes per month to a single user situated in California.
In the event that no further unanticipated delays occur, the Company
anticipates that it will be able to generate revenue from these
telecommunication services in the near future.
As noted above, the Company has not filed all of the periodic reports
required to be made pursuant to applicable provisions of the Federal Securities
Laws. The Company intends to bring these filings current in the near future. In
an attempt to provide updated information with respect to the affairs of the
Company, the following supplemental information is being provided.
February, 1996 - January, 1999
As noted above, the Company's last annual report was submitted for the
fiscal year ended February 28, 1996, as reported in Form 10KSB as filed with the
Securities and Exchange Commission. The following information is being submitted
as supplemental information. In order to discuss events which have transpired
subsequent to February 28, 1996.
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Description of Business
- -----------------------
PowerTel USA, Inc. n.k.a. WorldCall Corporation, a Delaware
corporation, (the "Company") has been an independent, non-regulated utility
holding company which had acquired and operated electric power facilities and
other non-related business enterprises. The Company is not encumbered by
internal rate of return regulation as are traditional retail electric utility
companies. The Company has historically focused on developing environmentally
sound electric power facilities which utilize geothermal energy and wind energy
resources as the primary source of fuel for such facilities.
Prior to October, 1996, the Company had been located in Reno, Nevada In
October, 1996 it was moved to Santa Barbara, California. Subsequently, the
Company relocated to Palm Desert, California, which was its location at the time
of the involuntary commencement of the Chapter 11 proceedings. The Company's
operations were placed under the control of a Court appointed Trustee in March
of 1997.
The Trustee took actions to liquidate assets to fund the operation of
the Company. On June 27,1997 the Trustee completed the sale of the Company's
50.01% ownership interest in one of it's subsidiary, San Jacinto Power
Corporation ("SJPC"), a Nevada corporation, in consideration of payment by a
third party of $200,000 in cash, plus the assumption of debts estimated to
exceed $175,000. On September 4, 1997, the Court approved an order allowing the
Company to operate as a "Debtor in Possession" ("DIP").
The Company owns idle geothermal power generating assets which include
10.7 MW of power generating plants, fixtures and equipment. As a component
element of the Company's Plan, the Company intends to deploy, sell, lease or
liquidate these currently idle binary cycle power generating assets as a of its
Reorganization Plan. These assets were originally acquired by the Company in
1984-85 for the purpose of developing the geothermal resources then controlled
by the Company at Brady's Hot Springs. They are currently stored in Fernley,
Nevada
In addition to the Company's energy related business assets, the
Company owns a non-energy related business known as Combustion Energy
Corporation ("CEC") which conducts its business as Herth Printing and Business
Supply, Inc. ("Herth"). Herth was acquired on November 30, 1994, by merger (see
Combustion Energy Company below). Herth, was established in 1983 in Reno,
Nevada and has historically averaged annual gross sales of approximately $1.0
million dollars. Herth is located in its own warehouse/office space on
approximately .67 acres of land near downtown Reno. The Company had engaged the
former proprietor to continue managing the business under a two year employment
agreement which has currently expired. The merger was accounted for as a pooling
of interests.
In addition to the Company's core assets, the Company has acquired the
business interests of two developmental international long distance carriers,
DiegoTel and VivaTel (see Managements Discussion and Analysis). DiegoTel and
VivaTel are the holders of a Section 214 authorization from the FCC which allows
it to sell international long distance services out of the United States.
Finally, the Company maintains extensive litigation rights against
certain individuals and professional firms, as well as a judgment in the
principal amount of $5,000,000 against Golden
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Chance Limited, an Isle of Man corporation limited by shares, and Waterford
Trust Company Limited, an Irish corporation. There can be no assurance that any
monetary recovery may will be obtained from the above mentioned judgments
parties (See Litigation).
COMPANY HISTORY
The Company was originally organized on December 2, 1982 under the laws
of the State of Delaware as "Munson Geothermal, Inc." ("Munson"). The Company
changed its name to Nevada Energy Company, Inc. on November 20, 1990. On January
21, 1997, the Company subsequently changed its name to PowerTel USA, Inc. (See
Disclosure Statement).
Historically, the Company had sought to develop geothermal power
projects. To accomplish this objective, the Company first acquired a known
geothermal resource area ("KGRA") approximately 60 miles east of Reno, Nevada
known as Brady's Hot Springs ("Brady") in 1983. The Brady site consisted of
leaseholds from Southern Pacific Land Company (now Catellus Development) and the
United States Dement of the Interior, Bureau of Land Management ("BLM"). The
leases were for long-term development with minimum annual lease payments and
production royalties. After acquiring the Brady leases, the Company expended
substantial funds to determine the potential of the resources on the Brady
leases in order to initiate their development.
Subsequent to initial development efforts, the Company secured several
long term contracts to sell electrical energy produced to Sierra Pacific Power
Company, a subsidiary of Sierra Pacific Resources and embarked upon a plan to
secure debt and equity financing sufficient to establish recurring revenue from
Brady. The Company invested significant capital investment in the development of
the Brady resources, however, the Company did not secure adequate project
development funding sufficient to establish recurring revenues from Brady.
Brady Hot Springs Geothermal Associates
---------------------------------------
In 1984, the Company identified a power project under development by
the United States Dement of Energy ("USDOE") at Raft River, Idaho. The site
included a binary cycle power plant with a generator nameplate rating of 7,200
kilowatts or 7.2 MW (the "Raft River Plant"). The project was sold at auction by
the USDOE. The Company was selected by the purchaser, a subsidiary of Niagra
Mohawk Power known as HydraCo Associates ("HydraCo") to move the Raft River
Plant to the Brady Hot Springs site.
On September 30,1985, the Company entered into a partnership agreement
with a group led by HydraCo whereby the Company became the partner of a single
purpose development entity known as Brady Hot Springs Geothermal Associates,
Ltd. ("BHSGA").
The Company executed and delivered to BHSGA an assignment of a 6.6 MW
Power Purchase Agreement ("PPA") with Sierra, (which was owned by the Company),
together with a sublease of geothermal resources which had an agreed value of
$1,400,000. BHSGA assumed responsibility for relocating the Raft River Plant to
the Brady Hot Springs property. On December 18, 1986, the Company entered into a
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48
second agreement with BHSGA to acquire the Raft River Plant, related equipment
and other tangible and intangible assets. In July 1991 the Company completed the
acquisition of the Raft River Plant which is currently idle and located in
Fernley, Nevada.
Brady Geo Park Power Partners 1996
----------------------------------
In 1986, the Company formed a Nevada Limited Partnership known as Brady
Geo Park Power Partners 1996 ("BGPPP") for the purpose of developing a small
scale power plant operation at the Brady site. As a component of forming BGPPP,
the Company sold 3.38 Ormat power plants to BGPPP in exchange for cash and a
non-recourse note in the amount of $584,000, which accrued interest at 9% per
annum (accelerating to 18% on default). BGPPP successfully initiated limited
operations of the power project but later discontinued operations in 1987.
To date, BGPPP has not made payment of principal or interest to the
Company and is in default of its promissory note to the Company, plus is in
arrears on moving fees and storage fees exceeding, in the aggregate, $1,000,000.
BGPPP's interest is to be terminated because of their default provided for in
the Plan. The Company had previously notified the owners of BGPPP of the need
for reimbursement and noticed payment for the non-recourse note. No response was
received. Since the note has been in default, the Company has recorded its
interest as though the equipment was owned. At present, the BGPPP Ormat power
generating plants in which BGPPP has an interest in are idle and are in storage
at Fernley, Nevada (at the Company's cost) with other Company power generating
assets.
In December 1995, the Company transferred all of its right title and
interest, except the limited and general partnership interests, in BGPPP,
together with its other idle power generating assets, to its wholly owned
subsidiary Yerington Acquisition Company, Inc. ("YAC") in exchange for shares of
YAC's no par Common stock (See Yerington Acquisition Company).
Brady Power Partners
--------------------
Brady Power Partners ("BPP"), a Nevada general partnership, was formed
by Nevada Geothermal Power Partners, Limited Partnership, ("NGPP") a Nevada
Limited Partnership, (see NEVADA GEOTHERMAL POWER PARTNERS) and ESI BH Limited
Partnership ("ESI-BH") in July, 1991, for purposes of developing the Brady KGRA.
In July, 1991, BPP agreed to purchase the assets of BHSGA, including
rights to a 6.6 MW Power Purchase Agreement with Sierra, and assume the
Company's debts with BHSGA.
BPP and the Company thereafter entered into an agreement ("BPP
Agreement") whereby the Company sold to BPP certain geothermal power assets in
exchange for BPP's payment of $2,000,000 to the Company, a Gross Revenue
Interest in the completed project assigned to creditors of the Company and
forgiveness of the claims BHSGA had against the Company. The BPP Agreement
provided the Company the means to complete financial reorganization of the
Company in 1991.
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49
Beginning on July 19, 1991, BPP developed, financed, constructed and
now operates the Brady Hot Springs Power Plant and services power purchase
agreements for 20.5 MW of power with Sierra.
On August 1991, the Company received cash consideration totaling
$2,000,000 and project construction commenced and BPP transferred a Gross
Revenue Interest ("GRI") in the Brady Hot Springs Power Plant Project to pay
certain indebtedness of the Company.
The revenues generated by the GRI are utilized to satisfy certain debts
payable prior to reorganization, until paid in full or until there is no further
revenue payable under the GRI. To date, the GRI services the indebtedness
previously accrued by the Company in accordance with the BPP Agreement.
Nevada Geothermal Power Partners
--------------------------------
Nevada Geothermal Power Partners ("NGPP") is a Nevada limited
partnership whose general partners are Hot Springs Power Company ("HSP") and
Nevada Energy Partners-I, LP ("NEP") and whose limited partners are certain cash
investors and contractors. NGPP previously owned a 50% interest in BPP until
May 1995, when NGPP interests in BPP were sold. NEP owned 31% of NGPP, and the
Company owned 60% of NEP (see Nevada Energy Partners-I, LP below).
Nevada Energy Partners-I, LP
----------------------------
Nevada Energy Partners I, Limited Partnership ("NEP") is a Nevada
limited partnership whose general partner is Nevada Electric Power Company, Inc.
("NEPC") (40% interest) and whose limited partner (60% interest) was the
Company. NEPC is a Nevada corporation wholly owned by Jeffrey E. Antisdel, the
Company's former president and chief executive officer. The Company obtained its
limited partnership interest in NEP through its issuance of 4,437,473 shares of
the Company's Class B Common Stock (representing 100% of all Class B Common
Stock issued and outstanding). As a result, NEP previously owned a fully diluted
ownership interest in Brady Power Partners project totaling 9%.
Through the sale by NGPP of its 50% interest in BPP in May 1995, NEP's
interest in BPP was liquidated. The Company realized a net gain of $585,511 in
May 1995 as a result of its interest in NEP. Cash in the amount of $508,018
was received in July 1995. The remaining $77,493 receivable has been charged as
uncollectible. Pursuant to the terms of a settlement agreement entered into
between NEP, NEPC and the Company in 1998, and ratified by the Bankruptcy Court
as part of the Plan or Reorganization, net gains resulting from the sale of BPP
were reallocated to the Company.
As a limited partner of NEP, the Company was entitled to sixty percent
(60%) of NEP's net distributable cash flow. Pursuant to the terms of the
settlement agreement between NEP, NEPC and the Company, the 60% allocation of
gain was reallocated to increase the gains to 99%. The Company
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50
received no cash flow from recurring revenues from its interest in NEP.
Distributable cash flow from NEP to the Company consisted of non-recurring
developer fees, cost reimbursements, litigation recoveries and proceeds
resulting from liquidation of NEP's BPP interest.
San Jacinto Power Corporation
-----------------------------
The Company formed San Jacinto Power Corporation, a Nevada Corporation,
("SJPC") on December 15, 1993. SJPC was formed for the purpose of acquiring,
holding and operating the Assets to be acquired from Smith and Triad. On
December 15, 1993, the Company contributed 222,267 shares of Class A Common
Stock and cash of $275,055 in exchange for its 50.01% Common Stock ownership
interest in SJPC. On December 15, 1993, The New World Power Corporation ("New
World") contributed 48,000 shares of its Common Stock to SJPC. On February 10,
1994, New World contributed cash of $149,970 to SJPC and contributed additional
cash of $124,975 on March 8, 1994. New World owns a 49.99% ownership interest in
SJPC.
SJPC acquired in July, 1994 the operating assets of Smith Wind Energy
Company ("Smith") and six affiliated limited partnerships operated by Smith
which are known as the Triad Partnerships (collectively "Triad"). As a result of
the acquisition, SJPC operated a wind turbine energy park in North Palm Springs,
California. Energy sales were pursuant to a contract with Southern California
Edison Company that had approximately 20 years remaining. A total of 64 wind
turbines were available for operation, together with associated infrastructure,
additional turbine sites, turbine towers, parts and service equipment and a
long-term land lease with the BLM.
In its last filed financial report, the Form 10-QSB for the nine months
ended November 30, 1996, the Company had reported consolidated San Jacinto Power
Corporation assets of approximately $1,105,986, consolidated liabilities of
approximately $159,287 and minority interest of $632,720. The transaction
resulted in a reported net loss of approximately $113,979.
At the time of the sale, San Jacinto Power Corporation was one of two
operating properties held by the Company. Results of SJPC operations have been
removed from the reported results in the accompanying financial reports.
Combustion Energy Company
-------------------------
The Company formed a wholly-owned subsidiary, Combustion Energy
Company, Inc. ("CEC"), a Nevada corporation, on February 12, 1993 for the
purpose of being a general partner of Oreana Power Partners ("OPP") (See Oreana
Power Partners below). The Company is also a limited partner in OPP.
On November 30, 1994, the Company caused CEC to merge with Herth, in
exchange for Class A Common Stock of the Company. The Company, through its
ownership of CEC, owned 100% of the post-merger business and consolidated the
financial results of CEC in its reported results. In an agreement entered into
on September 1, 1996, the Company exchanged its interest in CEC, and thereby
Herth, in a transaction which included the
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51
reacquisition of all right, title and interest in the Company's then outstanding
Class B Common shares, which was later the subject of a settlement agreement
between NEP, NEPC and the Company (See NEP Settlement Agreement at EXHIBIT
(10)A).
Oreana Power Partners
---------------------
On February 12, 1993, the Company formed a Nevada limited partnership
known as Oreana Power Partners ("OPP"). The partnership is currently equally
owned by CEC and Geothermal Development Associates ("GDA") subsidiary, Energy
Development Associates ("EDA"). OPP was formed for the purpose of developing,
financing and constructing a gas turbine electric generating facility to provide
power to Sierra pursuant to power sales contracts to be obtained. OPP's primary
development site is near Sierra's Oreana substation and electric transmission
lines. OPP has been dissolved.
CHANGE IN CONTROL
On February 29, 1996 the Company executed a binding letter of intent
(the "Waterford Agreement") with Waterford Trust Company, Limited, an Irish
corporation ("Waterford"), in which the Company agreed to sell to Waterford or
its nominee approximately 2,000,000 shares of Series A preferred shares. On May
1, 1996 the Company announced the completion of this transaction in which
Waterford's nominee, Golden Chance, Limited ("Golden Chance"), an Isle of Man
private company limited by shares, agreed to purchase 1,960,795 shares of Series
A Preferred stock at $2.50 per share and 152,381 shares of Class A common stock
at $0.643125 per share. The Company received a cash payment for the Class A
common shares in the amount of $100,000 and a $4,900,000 promissory note was
executed and delivered by Golden Chance. The promissory note was secured by the
corporate guarantee of Waterford Trust Company. The Series A Preferred shares
acquired by Golden Chance were held in escrow for the benefit of the registrant.
The promissory note was payable in monthly installments. The first
installment was payable July 1, 1996 in the amount of $400,000. Subsequent
installments of $500,000 were payable every thirty days thereafter until paid in
full. The total principal amount of the promissory note was due and payable on
April 1, 1997. Upon payment of each installment under the promissory note, a
portion of the Series A Preferred shares were to be converted to the registrants
class A common stock pursuant to the Certificate of Designation of the Series A
Preferred shares. The converted shares would then be released from escrow.
On or about May 3, 1996, the Company received a cash payment in the
amount of $100,000 for the first conversion of the Class A preferred common
stock which resulted in the issuance of 152,381 shares on May 7, 1996.
Additional monies were paid into a bank account in Palm Desert, California
opened in the Company's name; however, this account was never under the control
of the corporation or its officers. Under the direction and approval of the
Waterford Board of Directors, the Company improperly acknowledged receipt of as
much as $1,242,000 in additional funds, however, the Company never received
these funds. The Waterford Board authorized the issuance of approximately
9,327,844 additional shares of Class A common stock in conversion of the Series
A
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52
Preferred shares as more fully set forth below. The current Board of Directors
disputes the validity of all of the above share issuances and receipt of the
note payments. The rejection is based on the fact that the Company never had
control of the funds, which were directed to bank accounts not under the control
or care of Company officers. In addition, the substantial majority of the
funds were used for non-corporate purposes. Monies distributed from the Palm
Desert account were directed to persons and entities who had not performed
services or provided valid consideration to the benefit of the Company.
On or about October 1, 1996, Class A shares totaling 1,061,729 were
issued under an S-3 registration which had been originally filed in July 1996
and amended in August 1996. As a result, the shares were issued without
restrictive legend even though the original agreement with Waterford Trust
required that all shares carry a restrictive legend.
On July 30, 1996 a legal opinion pursuant to Regulation "S" of the
Securities Act of 1933, as amended, ("Reg S") was provided by Kevin J. Quinn.
The opinion was issued on behalf of Golden Chance Limited ("Golden Chance") and
resulted in the Company's transfer agent issuing 2,543,734 free trading shares
of Class A common stock. Mr. Quinn's license to practice law was suspended by
the State of California on April 17,1993 and he was subsequently disbarred on
April 25, 1997.
On or about January 24, 1997, Mr. Quinn prepared and issued to the
Company's stock transfer agent a Form S-8 Registration Statement which resulted
in the issuance of 1,330,000 shares of free trading Class A common stock on
February 3, 1997 and an additional 600,000 shares on February 18, 1997. The
shares were distributed to various attorneys, law firms, affiliates of the
Waterford Board and related parties. Mr. Quinn issued a legal opinion dated
December 17, 1996 representing that the shares to be issued under the S-8 were
legally and validly issued, fully paid and nonassessable.
The current board has disputed the validity of all shares issued to
Golden Chance and those resulting from legal opinions issued by Mr. Quinn for
the reason he was not a licensed attorney and the shares were not issued for
valid legal consideration.
On January 31, 1997, Mr. Quinn issued another "Reg S" opinion on behalf
of the Company authorizing the issuance of 2,508,040 free trading shares of
Class A common stock. The shares were issued on February 6, 1997 and returned to
the Company on February 13, 1997 when the Bankruptcy was filed.
In connection with the Waterford Agreement, pursuant to a letter
agreement ("Letter of Intent") dated February 29, 1996, and conditional to the
sale of Series A Preferred Shares, the former control group Chairman, Jeffrey
Antisdel, and Director, Richard Cascarilla, voluntarily resigned their
respective Board of Director positions, with nominee Directors, Charles Cain and
Peter Cannell becoming elected to the Board of Directors. The remaining former
members of the Board subsequently resigned and John Goold was nominated to the
Board. The active size of the Board was reduced from five directorships to three
directorships.
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FORMATION OF NEW SUBSIDIARIES
Under the Waterford Board, the Company announced the formation of two
wholly owned subsidiaries for purposes of increasing Company growth through
strategic acquisitions.
San Jacinto Energy Corporation
- ------------------------------
On May 9, 1996, the Board of Directors initiated the formation of San
Jacinto Energy Corporation ("SJEC") for purposes of controlling applicable
shareholdings, debt instruments, partnership interests and power generating
assets of the Company. SJEC was also formed for purposes of completing mergers
and acquisitions within the geothermal and wind energy sectors with the intent
of acquiring additional energy reserves.
Central Communications Corporation
- ----------------------------------
On May 9, 1996, the Board of Directors initiated the formation of
wholly owned subsidiary Central Communications Corporation ("CCC"). CCC was
formed for purposes of controlling applicable rights, shareholdings, debt
instruments, partnership interests and technologies to be acquired by the
Company. CCC was also formed for purposes of pursuing mergers and acquisitions
of telecommunication companies and business operating in related sectors.
On May 21, 1996, the Waterford Board announced that it had signed a
binding letter of intent to acquire, through CCC, all the outstanding shares of
Telecom Technologies, Inc. ("TTI," an Oregon corporation) and certain other
related assets. The agreement was with Telecom (AE), Limited ("TAE"), a
subsidiary of Wina Associates, an Isle of Man company limited by shares
("Wina").
TTI was a telephone service provider which operated twenty (20) retail
communications centers known as "Casetas." Casetas cater to the Latin American
community and provide customers the means to purchase telephone service debit
cards, complete money transfers, send and receive telecopier transmissions and
complete local and long distance telephone calls.
The agreement provided for payment of $500,000 cash and issuance of
2,000,000 shares of Class A common stock through CCC to TAE. The consideration
was paid and the transaction was reported as completed on May 21, 1996.
Subsequently, it was learned that the shares in TTI, held by TAE/Wina,
were previously purchased from the founders of TTI and had not been fully paid
for by TAE and Wina. In addition, it was learned that the only payment which had
been made was $45,000 from Company funds under the control of persons retained
and authorized by the Waterford Board which consisted of Charles A. Cain, Peter
J. Cannell and John C. Goold. The other related assets were not owned or
controlled by TTI, as was represented to the Company's officers.
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54
After receiving a qualified audit opinion review of the TTI
acquisition, the reported acquisition was incorrectly reported as reversed in
the Company's Form 10-QSB filed for the nine months ending November 30, 1996.
Also, in reports filed with the Securities and Exchange Commission, it was
incorrectly reported that the TTI acquisition had been rescinded. The
transaction consideration was not returned to the Company and the transaction
was therefore not voided. The TTI acquisition was subsequently recorded and
reported as a total loss.
Company shareholders filed a derivative lawsuit in Delaware against
former officers and directors in an effort to recover the Company's losses. (See
Item 1. Legal Proceedings.)
MANAGEMENT CHANGES
Subsequent to the change in control which occurred on May 1, 1996, a
series of management changes followed. Mr. John C. Goold resigned as director on
August 16, 1996 and was replaced by Mr. Stefan Tevis. Mr. Tevis was appointed by
the two remaining directors Charles Cain and Peter Cannell. Mr. Tevis had
previously been employed in the specialty magazine publishing business.
On September 26, 1996, directors Cain and Cannell authorized the
termination of the President, Mr. Jeffrey Antisdel and the secretary/treasurer,
Mr. Richard Cascarilla. Mr. Antisdel and Mr. Cascarilla had previously resigned
as directors in May of 1996. Mr. Antisdel and Mr. Cascarilla were in the process
of filing notices of default for non-payment of the note by Golden Chance (see
Change of Control, above) and were terminated without cause. Mr. Tevis was
appointed President and Mr. Kenton Bowers, was appointed secretary.
In December 1996, Mr. Michael R. Kassouff was appointed director
pursuant to the Certificate of Designations of the Series B Preferred stock.
This stock had no voting rights except in the event that Golden Chance failed to
pay $500,000 of the principal due under the Note issued in the change of control
transactions by Golden Chance and its Guarantor, Waterford Trust. In the event
of a Default the holders of a majority of the outstanding shares of Series B
Preferred stock then have the power and authority to elect, either at a meeting
or by written consent, one director to the Company's board of directors (the
"Series B Director"), to serve for so long as a Default exists.
On December 18, 1996, Mr. Kassouff authorized, on behalf of the
Company, the filing of a Complaint in the Superior Court of the State of
Delaware In and For New Castle County, C.A. No. 96C-12-150-JEB, against Golden
Chance and Waterford Trust Company. (See the Legal Proceedings section for
specific details.)
In December 1996, Mr. Bowers resigned as secretary, retaining his
position as controller. Mr. Kevin Quinn, then acting as legal and securities
counsel to the Company, was appointed secretary.
On January 23, 1997, Mr. Stefan Tevis was terminated as President of
the Company. He retained his position as Director pending a negotiated
settlement agreement.
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Mr. Pattison Hayton commenced acting as President effective January 23,
1997. Mr. Pattison Hayton had essentially been managing the Company since May
1, 1996 with the full approval of the Waterford Board in his capacity as advisor
to Waterford Trust Company and its Directors.
On February 3, 1997, pursuant to the terms of an "Agreement for
Settlement and General Mutual Release" of even date, Mr. Stefan Tevis resigned
as a director of the Company. The Company is unsure whether the Agreement was
ever finalized due to the lack of corporate records. The agreement allegedly
provided for:
1. Issuance of 41,666 post split Class A shares in settlement of his
employment agreement.
2. Indemnification of Mr. Tevis from claims by any third parties asserted
against Mr. Tevis, in connection with, or arising from, Mr. Tevis'
tenure as President and/or Director of the Company, including pending
lawsuits against the Company in which Mr. Tevis had been named as a
defendant.
3. Assumption of the remaining liability for Mr. Tevis' residential lease
by the Company's majority owned subsidiary, San Jacinto Power
Corporation and guaranteed by Mr. Pattison Hayton.
4. Payment of a finders fee to Mr. Tevis in event of completion of the
"Theme" acquisition.
5. Severance payment of $33,600 to $50,000 in the event that the "Theme"
acquisition was not completed.
6. Non-interference agreement by Mr. Tevis.
On February 7, 1997 Mr. Bowers was terminated due to allegations that
he was working with creditors and others to place the Company in involuntary
bankruptcy.
On May 9, 1997 Mr. Charles Cain and Mr. Peter Cannell resigned as
directors of the Company.
On May 19, 1997, Mr. Richard A. Cascarilla and H. Lawrence Herth were
appointed as Directors of the Company by Mr. Michael Kassouff.
On May 19,1997 Mr. Pattison Hayton, President and Mr. Kevin J. Quinn,
Secretary, were terminated from their respective positions by Mr. Michael R.
Kassouff in his capacity as director and on behalf of the board of directors of
the Company.
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INVOLUNTARY BANKRUPTCY
On February 13, 1997, three of the Company's creditors filed a petition
for involuntary bankruptcy under Chapter 11 in Federal Bankruptcy Court in Reno,
Nevada. The creditors were supported by affidavits filed by Mr. Jeffrey E.
Antisdel, former director, chairman and CEO of the Company and Mr. Kenton H.
Bowers, former controller. The creditors were represented by Mr. Jeffrey L.
Hartman, former and current director of the Company.
INTERVENING EVENTS
During the period May 1, 1996 to May 9, 1997, under the management
which controlled the Company as a result of the change of control which took
place on May 1, 1996, a series of events transpired which led to the Company's
current circumstance.
These include, among others; (1) failure of Golden Chance/Waterford to
make payments on the notes issued in the transaction,(2) issuance of shares
under direction of Directors, even though there was no evidence that payments
had been made, (3) sale of such shares in the open market in contravention of
the terms of the May 1, 1996 agreements and applicable law, (4) the attempted
issuance of Class B Common Shares for no valid consideration, (5) payments to
affiliates for non corporate debts, (6) failure to pay legitimate creditors, (7)
amendment to the certificate of incorporation on the basis of alleged missing
documents (later found to exist), (8) use of fraudulent legal opinions by an
unlicensed lawyer, (9) issuance of unrestricted shares without proper
registration, (10) subsequent sale in the market of those shares, and (11)
issuance of false or misleading news releases.
CORPORATE OBJECTIVES
The Company is in the process of restructuring itself as an
independent, non-regulated utility holding company. To be engaged in the
development, financing, construction and operation of electric power facilities
which generate electricity for sale to regulated utilities.
As an independent electric power producer serving the utility industry,
the Company hopes to specialize in the acquisition, development, financing,
construction and operation of electric power generating facilities which
utilize renewable energy resources such as geothermal, biomass or wind energy
resources.
In addition to the Company's expertise in geothermal and wind energy
development, the Company continues to actively seek the merger, acquisition,
development, financing and operation of various telecommunication companies and
related businesses for purposes of better positioning the Company for
accelerated growth.
The corporate objectives of the Company are to:
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(1) Acquire, develop, finance, construct and operate electric power
generating facilities and deploy Company owned power generating assets
where risks are lowest;
(2) Seek to expand Company owned print communications business;
(3) Seek litigation recoveries; and,
(4) Acquire telecommunication companies and related business operations
which offer the Company increased growth opportunities.
The Company must be considered a development stage company subject to
all risks inherent in the establishment of new lines of business which are
financed through equity financing, debt financing, partnership distributions,
asset sales, litigation recoveries and management fees.
In the past the Company has been unable to finance operations from cash
flow from operating revenues. The Company's only cash generating operating
activity is Herth Printing, however, management anticipates that the
telecommunications operations will commence operating in the near future.
Depending upon the extent of its operations, the Company may be required to sell
equity to finance operations, or, the Company may seek to raise additional
capital through debt financing(s) sufficient to satisfy its operational needs
over the next fiscal year. However, there can be no assurance that such
financing will be available on terms acceptable to the Company during the coming
twelve months of operation.
POWER MARKETS
Led by the California Public Utility Commission, over twenty (20)
utilities commissions and the Federal Energy Regulatory Commission are
considering the proposed restructuring and deregulation of electric power
production and deliveries of electric power to utility customers.
Today, electricity generation is no longer a monopoly in which the
cheapest power is generated by the most capital intensive plants. Moreover,
smaller, more fuel efficient technologies such as gas-fired combustion turbines
and wind turbines have effectively reduced the traditional barriers to entry
into markets dominated by coal fired and nuclear power production.
In addition, legislators, regulators and individual states are
increasing economic competition with adjacent states due to their realization of
the overall importance which electricity prices have in creating, or destroying,
regional competitive business advantages.
Secondary to these issues, are increasingly environmentally conscious
customers supporting "green power" options such as geothermal, wind, biomass or
solar energy producers otherwise legally known as Qualifying Facilities ("QF").
Presently, regulated electric utilities must purchase all power
produced by qualifying renewable energy producers which are essentially
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wholesale utilities, known as "Qualifying Facilities" or "QFs" (See
"Government Regulation"). These utilities must buy all power produced from
renewable energy sources at the retail utilities' highest incremental power
cost, known as "avoided costs." These are the costs retail utilities would have
to pay for the next future increment of power to go on-line. The avoided costs
are those not incurred or costs "avoided" by the utilities because of plants
constructed by renewable energy developers. The retail utilities avoid the
costs of building new power plants while reselling the power to their normal
customers at markups allowed by state regulatory agencies.
COMPETITION
Competitors of the Company include major oil companies, independent oil
and gas concerns, other independent power companies and power marketers. Most of
the major competitors are much larger and better capitalized than the Company
and have been in business from ten to fifteen years longer than the Company.
Competition for long-term power sales contracts has increased due to the
implementation of competitive bidding processes at most retail utilities.
GOVERNMENT REGULATION
The following is a summary of the regulatory requirements, permits and
approvals the Company must obtain, and other requirements that are relevant to
the operation of the Company's business.
FEDERAL ENERGY REGULATORY COMMISSION ("FERC") LAW
FERC legislation is enforced nationally, specifically to cause a shift
from retail utility reliance upon polluting forms of non-renewable fossil fuels
to more desirable domestic sources of clean power from renewable energy. This
legislation was enacted to reduce the previous trend toward ever larger,
centralized fossil and nuclear power plants and increasing reliance on foreign
energy sources. FERC also recognized that utility system overall reliability may
be increased by fuel and plant diversification of smaller size up to a desired
system-specific mix of small and large plants.
POWER CONTRACT REGULATIONS
The operations of the Company's developments will be directly affected
by federal and state statutes, regulations and rules relating to the ownership
of electrical generating facilities and the production and sale of electric
power. The primary federal law determining the extent to which the current and
future power plant projects will be subject to federal energy regulation is the
Public Utilities Regulatory Policies Act of 1978 ("PURPA"). If an electrical
power generating facility is a QF within the meaning of the regulations
promulgated pursuant to PURPA by the FERC, and within the meaning of rules
promulgated pursuant to both PURPA and the NPSC, then such facility and its
owners will be able to take advantage of provisions designed to encourage
alternative sources of electric power production. A facility will meet existing
standards for a QF if it produces electricity primarily from a "renewable
resource," such as geothermal, does not use oil, natural gas and coal for more
than 25% of its energy input, and is not owned more than 50% by an electric
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utility or electric utility holding company. Section 210 of PURPA provides the
framework for the promulgation of federal and state regulations, which would
exempt a QF from existing state and federal regulation, and would require an
electric utility to interconnect with a QF to purchase its power at a
prescribed rate.
EXEMPTIONS FROM FEDERAL AND STATE REGULATIONS
Regulations issued by FERC exempt (with certain exceptions) any QF
using geothermal energy as a primary source under the Federal Power Act from the
provisions of the Public Utility Holding Company Act of 1935 relating to
electric utilities and from state laws regulating electric utility rates and
financial organization. While the FERC regulations provide that FERC may limit
the applicability of this broad exemption from state laws, upon request of a
state regulatory authority or non-regulated electric utility, the NPSC has not
requested FERC to limit the applicability of the exemption.
While PURPA exempts certain QFs from federal and state laws regulating
electric utilities, such QFs are not exempt from environmental laws and must
comply with all applicable federal, state and local zoning, air and other
environmental quality laws. In addition, PURPA's exemption from state regulation
for QFs does not extend to exemption from state laws or regulations enacted to
implement the FERC rules on Co-generation and Small Power Production, such as
the SPP Rules provisions described above.
TELECOMMUNICATIONS MARKET, COMPETITION
AND GOVERNMENT REGULATION
The Company has no experience in the telecommunications marketplace but
has acquired two companies (DiegoTel and VivaTel) and is presently engaged in
evaluating several business opportunities related to the proposed merger and/or
acquisition of telecommunication companies and related businesses. The
telecommunication markets are competitive, with companies such as AT&T, MCI and
Sprint dominating the communications marketplace. However, the Company is
currently focused upon acquiring and developing smaller "niche" companies
engaged in providing specialty communications services and/or technologies
associated with long distance services, switching, telephone debit card
sales, retail service centers, and other related marketing services from the
United States to other countries.
Government regulation by the Federal Communications Commission and
regional Public Service Commissions regulate various facets of such
communications business. However, the Company is presently unable to fully
quantify the extent of regulation to which it will ultimately be subject until
such time operations as are established.
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RESEARCH AND DEVELOPMENT
The Company has not incurred any expense for research and development
activities in the last two fiscal years. The Company has focused its efforts on
the development of additional business opportunities.
EMPLOYEES
There are currently 12 employees working at the Herth printing business
in Reno, Nevada under Combustion Energy Company ("CEC"), its consolidated
subsidiary. The Company currently has two employees, Mr. Richard A. Cascarilla
and Mr. Michael R. Kassouff.
DESCRIPTION OF PROPERTY
ELECTRIC POWER GENERATING EQUIPMENT
-----------------------------------
BINARY-CYCLE POWER PLANTS
- -------------------------
In the mid-1980's, the Company acquired a total of ten Ormat power
plants with a gross nameplate rating of 3.7 MW. The Company owns six of these
binary-cycle power plants and holds a secured interest in the other four plants
(for financial statement purposes all ten units are treated as Company owned).
These units can be utilized with lower temperature geothermal or waste heat
energy sources. The Company has focused upon the profitable sale or deployment
of these currently idle power plants in geothermal, biomass or heat recovery
projects. These plants are presently located at Fernley, Nevada, awaiting sale
or field deployment. (See Brady Geo Park Power Partners above.)
RAFT RIVER POWER PLANT
- ----------------------
In the mid 1980's the Company acquired a 7.2 MW electric power
generator together with its associated geothermal turbine, gear box, generator,
fluid storage vessels, heat exchange vessels, pumps and other essential
accessories which are identified herein as the Raft River Power Plant. This
currently idle Raft River Power Plant is presently located at Fernley, Nevada,
awaiting sale or field deployment. (See Brady Hot Springs Geothermal Associates
above).
LEGAL PROCEEDINGS
MUNSON LAWSUIT
On October 5, 1992, the Company, as plaintiff, initiated litigation in
the Chancery Court of New Castle 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"). The allegations against the Defendants include
numerous breaches of fiduciary duty, invalid issuance of Company shares,
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breaches of fiduciary duty arising out of improper issuance of Company stock,
and failure to value the services for which stock was awarded. (See page 28).
On October 13, 1992, a sequestrator was appointed and the shares of the
Company standing in the names of Leland Mink, Walter MacKenzie, Donald Selfridge
and Frank Carigula were seized by the Company until further order of the Court.
On or about June 9, 1994, the Delaware Court assessed sanctions against Stephen
Munson for his failure to attend for his deposition. A default judgment against
Frank Carigula has since been obtained in the amount of approximately $59,000.
The Company executed garnishments and attachments to satisfy the judgment.
The trial of the case against the remaining defendants Munson,
Selfridge and MacKenzie was completed in September of 1996. Post-trial briefs
were to be submitted to the Court by both parties on legal issues raised during
the trial. An advisor to the Waterford Board, Mr. Pattison Hayton, negotiated
with all the defendants. A settlement agreement was reached and dismissal
documents were filed with the Court. The Company is unaware of the settlement
terms due to the missing documents retained by the Waterford Board. During this
period, enforcement of the judgment against Carigula was suspended. The
agreement may have never been finalized. In the intervening period the Company
lost its opportunity to obtain a judgment against Munson, Selfridge and
MacKenzie. The legal disposition of the case is currently under review by the
Company. It is probable that legal time limits have expired and significant
litigation rights previously existing under the case may have been lost by the
Company as a result of these actions.
ANTISDEL LITIGATION
On October 28, 1996, Jeffrey E. Antisdel, former president of Nevada
Energy Company, filed suit in Washoe County, Nevada. The suit relates to various
matters of compensation, including the Company's default on a two year
employment agreement which was to take effect after Mr. Antisdel's termination
on September 26, 1996. The plaintiff obtained a default judgment which the
Company has set aside. Plaintiff filed a lien on the Company's idle geothermal
assets, which was later voluntarily removed.
CASCARILLA LITIGATION
On October 23,1996, Richard A. Cascarilla, former secretary, treasurer
and general counsel of Nevada Energy Company, filed suit in the Ingham County
Circuit Court, Case No. 96-84695-CK in Lansing, Michigan. The suit alleged
breach of contract based on a two year employment agreement which was to take
effect after Mr. Cascarilla's termination on September 26, 1996. The Company
failed to defend the suit and a default judgment was entered on November 21,
1996 in the amount of $143,078.39 plus statutory accrued interest until paid.
The Company never retained counsel in this matter. The Plaintiff filed a lien on
the Company's idle geothermal assets, which was later voluntarily removed.
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SMITH, KATZENSTEIN LITIGATION
On December 2, 1996, the Company's former Delaware law firm of Smith,
Katzenstein & Furlow, filed suit in New Castle County, Delaware against the
Company and Mr. Pattison Hayton alleging non-payment of fees in the approximate
amount of $70,000, breach of contract, fraud and tortious interference with
contractual relationship. The Plaintiff has obtained a default judgement. The
Company and Mr. Hayton failed to retain an attorney or take any steps, to date,
to set aside the judgment.
HARTMAN, KASSOUFF, MODESITT LITIGATION
On November 15, 1996, three former directors of the Company, Messrs.
Jeffrey L. Hartman, Michael R. Kassouff and Jeffrey E. Modesitt, filed suit in
Washoe County, Nevada alleging non-payment of directors' fees and accrued
interest under promissory notes in the amount of $10,000 each dated May 1, 1996.
The notes bear interest at the rate of 18% per annum. The Company has settled
this litigation.
NEVADA ENERGY PARTNERS I, LIMITED PARTNERSHIP LITIGATION
On August 16, 1996, Nevada Energy Company, Inc., ("NEC") executed an
agreement ("Agreement") with Nevada Energy Partners I, Limited Partnership, a
Nevada Limited Partnership, ("NEP") and Nevada Electric Power Company ("NEPC"),
a Nevada corporation. NEP is controlled by its General Partner, NEPC. NEPC is a
corporation wholly owned by NEC's president, Jeffrey E. Antisdel. Principals
utilized in determining the amount and type of consideration for the Agreement
were based upon an arms-length negotiation between members of NEC's Board of
Directors and legal counsel representing NEPC. The effective date ("Effective
Date") of the transaction(s) contemplated under the Agreement was scheduled for
September 1, 1996, with the Agreement and all related documentation to be held
in escrow pending completion of post-closing events. Terms of the Agreement
provide that NEC and NEP will exchange, in a non-cash transaction(s), an
exchange of common stock, assets and rights. The Agreement is summarized as
follows:
(i) NEC shall withdraw as a limited partner from NEP and waive all
present and future rights to all assets, litigation rights or other attributes
of NEP, (ii) NEC will transfer to NEP all rights and ownership to Combustion
Energy Corporation ("CEC"), a Nevada corporation and wholly owned subsidiary of
NEC, and (iii) NEC will redeem all 4,437,473 Class B Common Shares owned
by NEP, in exchange for an equal number of Class A Common Shares of NEC. Items
described in items (i), (ii), and (iii) above, are to be delivered in
consideration of NEP and NEPC's release of all ownership in 4,437,473 Class B
Common Shares and, NEP and NEPC's release of all present rights for the
issuance of 8,865,774 additional Class B Common Shares, and NEP and NEPC's
release of all future Class B Common Share issuances resulting from future
Class A Common Stock issued. In addition, NEP and NEPC agree to indemnify NEC
for any present or future litigation expenses, obligations or damages resulting
from litigation in which NEP is the plaintiff and counter defendant in the
Second District Court in Washoe County, State of Nevada, in Case No.
CV92-04609, Department 1. NEP is controlled by its General Partner, NEPC, a
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corporation wholly owned by NEC's former president, Jeffrey E. Antisdel. NEP
is a limited partnership in which its primary assets are NEC Class B Common
Stock, rights to future Class B Share issuances, and NEP's litigation (Case No.
CV92-04609) rights set forth above. The Company's wholly owned subsidiary, CEC,
conducts its business under the name of Herth Printing and Business Supplies, a
company engaged in the manufacture and sale of printed materials. A copy of the
Agreement is attached as Exhibit 10A.
Pursuant to this Agreement, on September 1, 1996, the Company's
interest in its wholly owned consolidated subsidiary, Combustion Energy Company,
Inc., dba Herth Printing and Business Supplies, together with a 60% limited
partnership interest in Nevada Energy Partners I, Limited Partnership ("NEP"), a
Nevada limited partnership, were transferred to NEP, an entity under the control
of Jeffrey E. Antisdel, former president and Chairman of the Company. The
Agreement was executed by a majority of the Company's Board of Directors
including then Chairman, Charles A. Cain and Director Peter J. Cannell.
On November 19, 1996, Nevada Energy Partners I-Limited Partnership
("NEP") filed suit against the Company to seek enforcement of the Agreement
entered into on August 16, 1996. The Company engaged counsel to defend its
position. Preliminary briefs and discovery were initiated. The case was
currently stayed due to the filing of the involuntary Bankruptcy Petition on
February 13, 1996.
SHAREHOLDER DERIVATIVE SUIT
The Company was nominally named in a shareholder derivative action
filed on December 12, 1996 in Delaware Chancery Court, Docket No.15421-NC. The
primary defendants are Stefan Tevis, John Goold, Charles Cain and Peter Cannell.
The lawsuit alleges Usurpation of Corporate Opportunities by defendants Cannell,
Cain and Goold; Misappropriation, Conversion and Breach of Duty of Loyalty
against defendants Tevis, Cannell, Cain and Goold. The plaintiffs were Richard
A. Cascarilla and Michael R. Kassouff, both former directors of the Company.
The litigation specifically alleges and requests in Count 1, that
judgements be entered against defendants Cannell, Cain and Goold for usurpation
of corporate opportunity in taking for themselves (through Telecom Limited and
Wina Associates, in which they had an ownership interest), a valuable corporate
opportunity. Specifically, the opportunity to acquire TTI and later selling TTI
to the Company at a vastly higher price; Count 2, damages for misappropriation,
conversion and breach of duty of loyalty against defendants, Tevis, Cannell,
Cain and Goold for the diversion of approximately $1,242,000 in Company funds to
non-corporate purposes, and Count 3, damages for breach of duty of loyalty
against defendants Tevis, Cannell and Cain for failure to take action against
Waterford and Golden Chance Limited with respect to their breaches of
contractual agreements to make payments to the Company under notes, subscription
agreements and other transaction documents relating the a change in control of
the Company on May 1, 1996.
The Company reached a settlement with Defendants Cain and Cannell. The
terms are confidential. The settling Defendants agreed to cooperate with the
Company in its continuing investigation and litigation. The case against
Defendants Goold and Tevis is still pending.
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SANTA BARBARA OFFICE SPACE
The Company's wholly owned subsidiary, Central Communications Company
("CCC") entered into a five year lease for an office space in Santa Barbara,
California which provided for monthly payments of $19,034, plus taxes. The
Company was compelled to vacate the property after a couple months when its
initial entry into telecommunications became unsuccessful. The landlord filed
suit in Santa Barbara County, California seeking compliance with the agreement.
The Company asserts that it had no legal obligations under the lease as a
guarantor and therefore no provision was made in the lease accounts, and the
claim relating to this lease was later withdrawn in its entirety by the lessor.
The case was ultimately dismissed without payment by the Company.
JUDGMENT AGAINST WATERFORD TRUST AND GOLDEN CHANCE, LTD.
The Company filed an action on December 18, 1996 in Delaware Chancery
Court, Docket No. 96C-12-150-JEB against Waterford Trust Company and its nominee
Golden Chance Limited seeking to recover moneys due the Company under a change
of control agreement, related notes and subscription agreements which had been
entered into in February 1996 and implemented on May 1, 1996.
A default judgment in the amount of $5,075,450.28 was entered on
January 21, 1997. The defendants have not contested the lawsuit to date.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 21, 1997 the Company notified its Shareholders, by mail,
pursuant to Section 228(d) of the Delaware General Corporation Law of certain
actions allegedly taken by written consent of the majority of the Shareholders
of the Company.
The notice stated that:
On January 21, 1997 by majority consent of the Shareholders,
the Shareholders of the Corporation approved a Restated Certificate of
Incorporation, which restated and amended the Certificate of
Incorporation of the Corporation. A copy of such Restated Certificate
of Incorporation, which will be filed with the Office of the Secretary
of State of Delaware shortly, is enclosed with this letter
A copy of the Restated Certificate of Incorporation of PowerTel USA,
Inc. is attached.
The significant changes were:
1. Change of the corporate name from Nevada Energy Company, Inc. to
PowerTel USA, Inc.
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2. Restatement of certificate to eliminate previous super-majority vote
requirement for certain amendments to the Certificate of Incorporation,
including super-majority vote requirement for approval to changes in
capital, including stock splits.
3. Added Class C Common Stock.
4. Added provision of Series A Convertible Preferred Stock, including
conversion details and terms of Certificate of Designations related
thereto.
5. Added provisions of Series B Convertible Preferred Stock including
conversion details and terms of Certificate of Designations related
thereto.
6. Incorporation of a one-for-six reverse split of shares of all classes
outstanding upon the date of filing of the restated certificate.
The basis of the filing was a decision by the Waterford Board, that the
previous requirement for a super-majority vote of shareholders to make all of
the above changes had not been properly approved. All items, except No.2 had
been voted upon at the annual shareholder meeting held in Santa Barbara on
August 16, 1996 and had received majority approval, but not the then required
80% super-majority approval. The Restated Certificate of Incorporation was used
as a basis for implementing a one-for-six reverse split of shares outstanding as
of January 21, 1997.
Subsequently, 2,508,040 Class A Common Shares were Registered for
issuance (on a post-reverse split basis) pursuant to the terms of an S-8
registration statement filed on or about December 17, 1996 without
applying the reverse split. This action, if completed in its entirety, would
have significantly diluted the interest of pre-split shareholders. The current
Board of Directors disputed the validity of these issuances on the grounds that
the Company never received the funds, that any funds were directed to
non-corporate uses by persons under the direction of or reporting to the
Directors and that payments were directed to persons who had not performed
services to the benefit of the Company. These shares were returned to the
Company on February 13, 1998.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Class A Common Shares, thereafter listed under the symbol
PTUSA, were delisted from "The Nasdaq SmallCap Market" system on March 5, 1997.
Delisting was initiated as a result of Nasdaq's belief that the Company failed
to meet voting rights requirements as set forth in Rule 4310(c)(21), other
NASDAQ staff concerns raised in accordance with Rules 4330(a)(3) and 4330(f),
and the Company's failure to pay current annual fees.
Rule 4310(c)(21) sets forth the following voting rights criteria:
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"(21) Voting Rights -Voting rights of existing shareholders of publicly
traded common stock registered under Section 12 of the Act cannot be
disparately reduced or restricted through any corporate action or
issuance. Examples of such corporate action or issuance include, but
are not limited to, the adoption of time-phased voting plans, the
adoption of capped voting rights plans, the issuance of super-voting
stock, or the issuance of stock with voting rights less than the per
share voting rights of the existing common stock through an exchange
offer."
Rule 4330(a)(3) sets forth the following suspension or termination of
inclusion criteria:
"(a) The Association (NASDAQ) may, in accordance with Rule 9000 Series,
deny inclusion or apply additional or more stringent criteria for the
initial or continued inclusion of particular securities or suspend or
terminate the inclusion of an otherwise qualified security if: (3) the
Association deems it necessary to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
or to protect investors and the public interest."
Rule 4330(f) sets forth the following suspension or termination of
inclusion criteria:
"(f) Securities issued in connection with the merger, consolidation, or
other type of acquisition of at least one issuer of qualifying
securities shall be promptly included in Nasdaq, provided that the
conditions of Rule 4310(c) or Rule 4320(e) for securities that have
already been included are satisfied. The Association shall require a
Nasdaq SmallCap Market issuer to comply with all applicable
requirements for initial inclusion under this Rule 4330 Series and
shall require a Nasdaq National Market issuer to comply with all
applicable requirements for initial inclusion under the Rule 4300
Series and Rule 4400 Series in the event that such issuer enters into a
merger, consolidation, or other type of acquisition with a non-Nasdaq
entity (including domestic and foreign corporations and limited
partnerships), which results in a change of control and either a change
in business or change in the financial structure of the Nasdaq SmallCap
Market or Nasdaq National Market issuer."
The concerns raised by Nasdaq Market Listing Qualification staff
resulted largely from information provided by the Waterford Board and its
appointed officers, Stefan Tevis and Kenton Bowers.
Information provided included concerns relating to improper issuance of
unrestricted shares and extreme dilution of existing shareholders' interests
under Delaware corporate law, and subsequent issuance of shares on an unsplit
basis. In addition, shares which had been acquired for investment purposes and
were to be held for a two year period were being sold in alleged violation of
state and Federal securities laws, resulting in artificially depressed prices.
It was also believed that shares were being issued without required financial
consideration.
An oral hearing was scheduled for February 13, 1997 at Nasdaq offices
in Washington, DC. Current management has no knowledge as to the results of that
hearing or whether any of the then
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management group of Pattison Hayton and Kevin Quinn actually attended such
meeting. It is known that the Company retained Mr. Joseph S. Allerhand of the
New York City law firm of Weil, Gotshal & Manges LLP. A response to the issues
raised by NASDAQ was addressed on the company's behalf in a letter dated
February 13, 1997.
The Company's listing had been effective from September 1, 1992. There
was, and remains, no established public trading market for the Company's Common
Stock, Series A Preferred stock or Series B Preferred stock.
The range of high and low bid information for the Company's Class A
Common Stock (adjusted for the one-for-six reverse split effective January 21,
1997) is set forth in the following table:
HIGH BID LOW BID
1996 First Quarter 1.062 0.25
Second Quarter 2.75 0.6875
Third Quarter 1.875 0.4375
Fourth Quarter .5625 0.125
1997 First Quarter 1.25 0.062
Second Quarter .15 0.062
Third Quarter .062 0.062
Fourth Quarter .10 0.062
1998 First Quarter .10 0.062
Second Quarter .02 0.062
Third Quarter .05 0.062
Fourth Quarter .01 0.062
The above trading data is provided on a calendar basis.
In or about December, 1998, the Company requested that trading in its
Class A Common Stock be suspended pending implementation of certain components
of its Plan of Reorganization. Management anticipates that trading will resume
in February, 1999.
HOLDERS
There were 970 holders of record of the Company's Class A Common Stock
as of February 28,1997, excluding holders in street name. Estimated shareholders
in street name as of February 28, 1997 are 1,300. There was one holder of the
Company's Class B Common Stock. In addition, there was one holder of the
Company's Series A Preferred Stock and 4 holders of the Company's Series B
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Preferred stock. The Series A Preferred, Class B Common and Series B Preferred
were all extinguished pursuant to the Plan.
The Plan of Reorganization materially changes the Company's
capitalization. See EXHIBIT (2)B.
DIVIDENDS
The Company has never paid cash dividends on any class of stock and has
no plans to do so in the foreseeable future. The payment of cash dividends by
the Company on the Company's Common Stock will continue to be restricted and
otherwise limited due to the Company's need to finance its on-going operations
and future growth.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
PLAN OF OPERATIONS
The Company has an asset base which includes several electric power
generating units (currently not in service and with a net book value of
$5,700,000), unencumbered by debt, from which the Company plans to develop
revenues and earnings. Management plans to deploy all of its idle power
generating assets in one or more projects which are currently under review. If
the Company is unable to sell or deploy these generating units there may be a
material negative impact on the financial position of the Company (See "Risk
Factors").
During the year ended February 28, 1997, financial liquidity for
on-going operations was provided primarily from the sale of Preferred Stock and
Class A Common Stock. Management fees received from San Jacinto Power Company
and cash liquidity resulting from the operation of Herth Printing and Business
Supply.
During the year ended February 29, 1996, financial liquidity for
on-going operations was provided primarily from sale of the Company's interest
in the Brady Power Project, sales of Class A Common Stock through private
placement and cash distributions and management fees received from San Jacinto
Power Company. Additionally, an increase in cash liquidity resulted from the
acquisition by merger of Herth Printing and Business Supplies, Inc.
Cash used in operating activities in the fiscal year ended February 28,
1997 was $2,727,396.
Cash used in operating activities in the fiscal year ended February 29,
1996 was $501,757. The after-tax loss from operations was $628,638, which
included $66,375 of non-cash charges for depreciation and amortization and
$462,527 in non-cash provisions for obsolescence on idle power generation
equipment.
Investing activities used $1,325,907 in cash in fiscal year ending
February 28, 1997.
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69
Investing activities provided $504,944 in cash in fiscal year ending
February 29, 1996, including asset sale proceeds of $585,512, proceeds of
$25,000 forfeited by a purchaser of certain wind power generating equipment from
SJPC and net of purchases of new equipment of $35,130 and advances to and
investments in partnerships.
Cash flow from financing activities in fiscal year ending February 28,
1997 provided net cash of $4,031,682.
Cash flow from financing activities in fiscal year ending February 29,
1996 provided net cash of $91,171, with receipts from cash sales of stock
totaling $149,752. Net proceeds from new financing borrowings were $41,182 and
related to insurance premium financing. Repayments on financing debt totaled
$99,763.
Investing activities provided $67,554 in cash in fiscal year ending
February 28, 1996, including asset purchases of $156,398 and asset sales
proceeds of $232,656.
As a result of the settlement with Nevada Energy Partners, the
allocation of taxable gains and losses was allocated 99% to the Company (as
general partner) and 1% to the limited partner, however, cash distributions were
allocated 60% to the General Partner and 40% to the limited partner. When tax
returns are filed, it is anticipated that the Company will incur taxable income
for calendar years 1995, 1996, 1997. It is management's opinion that the
Company's net operating losses will offset or reduce the tax impact of the
Nevada Energy Partners partnership. There is no assurance or guarantee that the
net operating losses remain valid or have not been adversely affected as a
result of the Internal Revenue Code.
RISK FACTORS
Historically, 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, litigation recoveries and management
fees. If such financing should not be available, for any reason, there would be
a material adverse effect on the 12 month operations of the Company.
Since the Company maintains a holding company structure, the Company
does not intend to enter into direct purchases of capital equipment at the
parent company level in order to complete the deployment of its idle power
equipment in any proposed project. However, any capital expenditures required
for project development will be completed at the subsidiary level and will most
likely require equity, debt or project financing for which the Company will need
to seek additional funding.
The Company seeks to evaluate, from time to time, prospective
acquisitions in the telecommunication industry. If such an acquisition were to
occur and the Company were to suffer a material negative event, the Company's
financial performance could be adversely and materially impacted. Significant
acquisitions outside the Company's primary energy business may have the effect
of reducing or eliminating certain tax benefits associated with prior net
operating losses, as well
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as negative financial impacts associated with possible accruals of goodwill and
potential increased depreciation charges against earnings.
Presently, there are no plans for product research and development at
the parent company level over the coming twelve (12) months.
The Company maintains offices at 321 W. Lake Lansing Rd., Asher Court,
Suite 100, E. Lansing, MI 48823. The telephone number is (517) 333-5277 and the
fax number is (517) 333-9869.
LIQUIDITY AND CAPITAL RESOURCES
Due to working capital constraints encountered during the course of the
fiscal year ended 1997, the Company has not yet met its goal of covering all of
its operational costs with internally generated cash flows.
As of February 28, 1997, the Company had $557,062 in current assets.
Cash was $110,622 and trade receivables of approximately $407,000 were available
for ongoing operations. Prepaids were $2,072.
To date, the Company's ownership stake in NEP had provided no recurring
equity returns, primarily due to costs associated with certain credit
enhancements and loan guarantee costs provided by ESI Energy, Inc. and NEP's
continuing litigation with HSP. During the year ending February 29, 1996, the
Company had received through NEP $508,018 in cash from the sale of NEP's
interest in the Brady Power Project (held by NEP through its 50% interest in
NGPP), plus an additional gain of $77,493 from NEP as a result of the above
referenced sale, and additional gains resulting from the settlement agreement
between NEP, NEPC and the Company.
The Company expects no further income from NEP and effective September
1, 1996, the Company disposed of its interest in NEP through a reacquisition of
the general partners interest in the Class B Common Shares held by NEP. The
August 16, 1996 Agreement was rescinded pursuant to a settlement reached and
deemed effective on December 1, 1997. (For the detailed discussion see the Legal
Proceedings Section, Nevada Energy Partners I - LP Litigation.)
As a result of the difficulties caused by the change in control which
was initiated on May 1, 1996, the Company has not timely met its debt
obligations during the year ending February 28, 1997. As a result, its creditors
initiated an involuntary Chapter 11 proceeding under which the Company is now
operating.
Currently, the majority of the Company's ongoing expenses are for
auditing fees, legal fees, trustee fees and consulting services.
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DEBT
At fiscal year end February 28, 1997, the Company's total actual liabilities
were $6,766,321.47. The liabilities subject to compromise represent the
long-term settlement amount for withholding taxes, related penalties and
interest due to the Internal Revenue Service, less payments made to date and
other amounts due creditors upon which settlement has not been agreed.
RESULTS OF OPERATIONS
GENERAL COMMENTS
- ----------------
The Company has, during fiscal year 1997 undergone a severe financial
crisis as a result of the now aborted change in control which took place early
in the fiscal year. As a result the Company was unable to look for and bid upon
opportunities to deploy its current core of idle power generating equipment. The
Company had previously sought to deploy the power generation plants and
equipment where little resource development risk was Present. Development
opportunities in the Philippines, the Caribbean and Central America had been
evaluated from the standpoint of seeking least risk opportunities. More
specifically, the Company had sought to either acquire a fully developed
geothermal resource or a fully developed geothermal plant to which its assets
could be deployed with reduced risk. These efforts were set aside this period.
New management expects to re-explore these opportunities with new vigor and
resolve.
REVENUES AND EXPENSES
As a result of the disposition of one of its two operating assets, the
print and office supply businesses held by Combustion Energy Company, the
Company's reported revenues for 1997 have been adjusted to eliminate the
previously reported power sales.
The Company had interest income of $8,198.00 and interest expense of
$19,767.00 for the fiscal year ending February 29, 1996.
Other income in the year ended February 29, 1996 included $585,299
received from Nevada Energy Partners I, Limited Partnership ("NEP") as a result
of the sale of its interest in the Brady Power Project and $25,000 from a
non-refundable deposit retained by SJPC in connection with the proposed sale of
some of its wind power generating equipment. Interest income was $8,198,
representing earnings on funds invested in money market accounts. Other income
was principally from scrap sales. Loss from partnership interests of $46,015
resulted from advances to NEP primarily to fund NEP's litigation with HSP,
NGPP's managing partner, relating to internal NGPP partnership disputes interest
expense of $19,767 related to insurance premium financing, the Herth mortgage
note and the settlement proceeds payable to the IRS.
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COSTS AND EXPENSES COMPARISON OF 1997 AND 1996
Costs and expenses of operations for fiscal year 1997 were $2,789,229
compared to $2,897,988 in fiscal year 1996.
Depreciation expense was $112,913 in 1997, versus $65,929 in fiscal
year 1996. Fiscal year 1996 included provisions for obsolescence on idle
company electric power generation equipment. These assets are carried at the
lower of cost, net of accumulated obsolescence charges, of $2.7 million, or
estimated appraised value as of February 28, 1997. An independent appraisal
completed in May of 1996 placed a value of $5,700,000 on these assets
and the obsolescence charges for 1997 included $83,288 of additional charges to
adjust the net value of the Ormat units to the fair market appraisal value.
Professional fees for fiscal year 1997 included $409,914 for general
legal expenses, accounting and audit fees of $40,501.75.
Professional fees for fiscal year 1996 were $372,148 (including
$109,426 for general legal expenses), accounting and audit fees of $67,995,
financial consulting services of $180,000 (principally related to a
non-competition agreement with the former owner of Smith Wind), other outside
professional services of $14,723 (including professional appraisal costs of
$9,500), engineering fees related to project development of $5,223, public
relations consulting fees of $21,000 and $25,722 in various other services.
General and administrative expenses for fiscal year ending February 29,
1996 were $758,015. This included $361,245 in salaries, wages and related
payroll taxes, $117,644 for public and shareholder relations, $182,521 in
general office expenses, $85,602 in directors fees and expenses, $23,313 in
travel and related expenses, a credit of $12,866 for various taxes and fees and
$555 for miscellaneous office expenses.
INCOME TAXES
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes", which
requires tax computations different from those currently used by the Company.
The Company adopted this Statement in fiscal year 1994. The Company believes
that the adoption of this Statement will not have an impact on future financial
statements.
As of February 28, 1997, the Company had Federal income tax loss
carryforwards available to offset future taxable income for financial reporting
and tax purposes of $5,006,777 expiring in 2006 through 2010. There is no
assurance that the issue tax carryforwards have not been adversely affected due
to the Internal Revenue Code.
The Company has no remaining energy credit carryforwards as of
February 28, 1997.
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There can be no assurance that the available tax loss carryforwards
will be utilized by the Company or that such tax loss carryforwards will be
allowed by the Internal Revenue Service.
NET INCOME (LOSS)
The total operating loss for fiscal year 1997 was $1,335,049. The
operating loss for fiscal year 1996 was $628,638.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed to provide financial
information for the fiscal years ending February 29, 1996 and February 28, 1997.
Consolidated Balance Sheets as of February 28, 1997.
Consolidated Statements of Operations for the Years ended February 28,
1997, and February 29, 1996.
Consolidated Statements of Cash Flows for the Years ended February 28,
1997, and February 29, 1996.
Consolidated Statements of Shareholders' Equity for the Years ended
February 28, 1997, and February 29, 1996.
Notes To Consolidated Financial Statements.
The financial statements for the fiscal year ending February 29, 1996
have been audited. The financial statements for the fiscal year ending February
28, 1997 are unaudited.
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WORLDCALL CORPORATION
CONSOLIDATED BALANCE SHEET
February 28, 1997
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 110,622
Receivables (net of allowance for doubtful
accounts of $0) 407,291
Inventory
Deposits and prepaid expenses 37,077
Total Current Assets 577,062
PROPERTY AND EQUIPMENT, at cost - Note 1
Net Property and Equipment 6,740,365
OTHER ASSETS - Note 2
Investments in partnerships 2,975
Investments in subsidiaries 1,077,203
Other assets 1,080,178
----------
Total Assets $8,377,605
==========
The accompanying notes are an integral of these consolidated statements.
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WORLDCALL CORPORATION
February 28, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
CURRENT LIABILITIES
Accounts payable $ 808,673
Short-term borrowing - Note 3 $ 278,053
Payable to related - Note 4 -
Accrued payroll -
Other liabilities $ 61,848
------------
Total Current Liabilities $ 1,148,574
------------
NON-CURRENT LIABILITIES
Mortgage payable - Note 3 $ 27,000
------------
Total Non-Current Liabilities $ 27,000
------------
COMMITMENTS AND CONTINGENT
LIABILITIES - Note 10 and Note 11 ------------
Total Liabilities $ 1,175,574
------------
MINORITY INTEREST IN SUBSIDIARY - Note 2 $ 673,073
------------
SHAREHOLDERS' EQUITY - Notes 1, 5, 6, and 7
Preferred stock, $.001 par value;
authorized 2,000,000 shares, issued
and outstanding February 28, 1997,
Series A,1,198,281 shares -
Series B, 5 shares -
Class A common stock, $.001 par value;
authorized 50,000,000 shares, issued
and outstanding 15,808,710 shares at
February 28, 1997
Class B common stock, $.001 par value;
authorized 50,000,000 shares, issued
and outstanding 4,437,473 shares at
February 28, 1997 4,071
Class C common stock, $.001 par value;
authorized 50,000,000 shares, issued
and outstanding at February 28, 1997,
none -
Additional paid-in capital $ 15,408,967
Accumulated deficit ($8,883,900)
Treasury stock, Class A,16,785 shares
at February 28, 1997; Class B,
16,785 shares at February 28,1997 (9,101)
------------
Total Shareholders' Equity $ 6,528,958
------------
Total Liabilities and
Shareholders' Equity $ 8,377,605
------------
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POWERTEL USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED February 28, 1997 and February 29, 1996
(UNAUDITED)
FEBRUARY 28, FEBRUARY 29,
1997 1996
----------- -----------
REVENUES $ 1,452,867 $ 1,697,258
COSTS AND EXPENSES - Note 11
Cost of operations $ 1,009,163 543,149
Depreciation and amortization $ 112,913
- Note 1 66,375
Provision for obsolescence - Note 1 - 462,527
Professional fees 372,148
General and administrative $ 1,652,052 758,015
----------- -----------
Total Costs and Expenses $ 2,774,128 2,897,988
----------- -----------
OTHER INCOME AND (EXPENSES)
Interest income $ 1,313 8,198
Other income - 24,130
Gain on disposition of assets (1,783,300) 610,299
Loss from partnership interests - (46,015)
Interest expense (26,584) (19,767)
----------- -----------
Total Other Income and (Expenses) (1,808,571) 576,845
----------- -----------
(Loss) before Taxes (3,129,832) -
Provision for Income Taxes - Note 8 0 933
----------- -----------
Net (Loss) $(3,129,832) $(1,770,654)
=========== ===========
Net (Loss) Per Share-Notes 1 and 6 $ (0.07) $ (0.03)
=========== ===========
The accompanying notes are an integral of these consolidated statements.
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POWERTEL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED February 28, 1997 AND February 29, 1996
(UNAUDITED)
FEBRUARY 28, FEBRUARY 29,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(3,129,832) $ (628,638)
Adjustments to reconcile:
Depreciation and amortization 115,410 66,375
Reserve for obsolescence - 462,527
(Gain) on disposition of
Assets, net - (610,299)
Equity in loss from partnership
interests - 46,015
Stock issued to
directors/officers/employee - 18,362
Stock issued for services - 50,000
Minority interest in subsidiary's
earnings and (losses) (32,357) (67,802)
Changes in assets and liabilities:
(Increase) decrease in receivables (270,017) 111,126
Decrease in receivables from
related - 37,500
(Increase) decrease in inventory (1,702) (10,312)
(Increase) decrease in deposits
and prepaids $ 114,549 6,437
Decrease in other assets - 10,035
Increase in accounts payable $ 621,218 42,314
Increase (decrease) in accounts
payable to related (37,965) (20,156)
Increase (decrease) in
other liabilities (63,493) 26,532
(Decrease) in liabilities subject
to compromise (43,207) (41,773)
----------- -----------
Net Cash Provided (Used) in
Operating Activities $(2,727,396) $ (501,757)
----------- -----------
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FEBRUARY 28, FEBRUARY 29,
1997 1996
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property
and equipment - 585,512
Forfeited non-refundable deposit on
offer - 25,000
Purchase of property and equipment (323,149) (35,130)
Advances to and investments in
partnerships (2,731) (70,438)
-------- --------
Net Cash Provided (Used) in
Investing Activities (325,880) 504,944
-------- --------
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POWERTEL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED February 28, 1997 AND February 29, 1996
FEBRUARY 28, FEBRUARY 29,
1997 1996
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on financing (99,763)
Proceeds from new financing 247,324 41,182
Proceeds from cash sales of
common stock 3,777,358 149,752
Contribution from (payment to)
minority interest 7,000 -
Cash dividends - Note 10 - -
----------- -----------
Net Cash Provided (Used) in
Financing Activities 4,031,682 91,171
----------- -----------
Net Increase (Decrease) in Cash (21,621) 94,358
CASH, Beginning of Year 132,243 37,885
----------- -----------
CASH, End of Year $ 110,622 $ 132,243
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid - Note 12 $(unknown) $ 19,737
----------- -----------
----------- -----------
Taxes paid through payments on liabilities
subject to compromise - Note 12 $(unknown) $ 41,773
----------- -----------
----------- -----------
The accompanying notes are an integral of these consolidated statements.
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POWERTEL USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED February 28, 1997 AND February 29, 1996
CLASS A COMMON CLASS B COMMON PREFERRED STOCK
----------------------------------- -------------------- -----------------------
NUMBER NUMBER NUMBER
OF OF OF
SHARES AMOUNT SUBSCRIBED SHARES AMOUNT SHARES AMOUNT
----------- -------- ---------- ---------- ------- --------- -------
BALANCES, February 28, 1995 5,558,798 $ 5,559 $ - 3,476,875 $3,477 - $ -
Shares issued for cash - Note 6 442,867 443 - - - - -
Shares issued for services - Note 6 612,573 612 - - - - -
Shares issued for asset
acquisition - Notes 2 and 6 - - - - - - -
Stock dividends at market
value - Note 6 895,243 895 - 548,043 548 - -
Transfer of surplus for stock
dividend - - - - - - -
Stock subscribed - Note 6 - - 250,000 - - - -
Cash dividend - Note 10 - - - - - - -
Net (loss) for the year ended
February 29, 1996 - - - - - - -
--------- ------- -------- --------- ------ -------- ------
BALANCES, February 29, 1996 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 - -
Transfer of surplus for stock
dividend - - - - - - -
Net (loss) for the year ended
February 28, 1997 - - - - - - -
--------- ------- -------- --------- ------ -------- ------
8,808,485 $ 8,808 $ - 4,437,473 $4,437 - $ -
--------- ------- -------- --------- ------ -------- ------
--------- ------- -------- --------- ------ -------- ------
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ADDITIONAL TOTAL
PAID-IN ACCUMULATED TREASURY SHAREHOLDERS'
CAPITAL DEFICIT STOCK EQUITY
----------- ------------ ---------- -------------
BALANCES, February 28, 1995 $10,060,347 $(3,252,174) $(230,789) $6,586,420
Shares issued for cash - Note 6 273,930 - - 274,373
Shares issued for services - Note 6 971,818 - - 972,430
Shares issued for asset
acquisition - Notes 2 and 6 - - 222,267 222,267
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 - -
Stock subscribed - Note 6 - - - 250,000
Cash dividend - Note 10 (90,213) - - (90,213)
Net (loss) for the year ended
February 29, 1996 - (1,770,654) - (1,770,654)
------------- ------------ --------- ------------
BALANCES, February 29, 1996 11,214,439 (5,022,828) (8,853) 6,444,292
Shares issued for cash - Note 6 247,331 - - (2,336)
Shares issued for services - Note 6 68,216 - - 68,362
Stock dividends at market
value - Note 6 802,321 (803,553) (248) (248)
Transfer of surplus for stock
dividend (803,553) 803,553 - -
Net (loss) for the year ended
February 28, 1997 - (628,638) - (628,638)
------------- ------------ --------- ------------
$11,528,754 $(5,651,466) $ (9,101) $5,881,432
------------- ------------ --------- ------------
------------- ------------ --------- ------------
The accompanying notes are an integral of these consolidated statements.
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PowerTel USA, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1997 AND February 29, 1996
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 Yerington Acquisition Company,
Inc., a Nevada corporation and Combustion Energy Company, a Nevada company.
ORGANIZATION AND OPERATIONS:
PowerTel USA, 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. Subsequently, the Company's name was changed to PowerTel USA, Inc. on
January 21, 1997. The Company is currently in Chapter 11 bankruptcy, operating
under an order for debtor-in-possession. The Company is preparing a plan of
re-organization. (SEE, PLAN OF RE-ORGANIZATION)
IDLE POWER GENERATION EQUIPMENT:
Idle power generation equipment includes ten Ormat power plants capable
of producing up to an estimated maximum 3,700 KW average output and the
relocated Raft River Power Plant with an estimated capacity of up to 7,200 KW of
output. Total net book value of these assets is $5,226,063. A May 1996 appraisal
of these assets determined the fair market value to be $5.7 million.
DEPRECIATION AND AMORTIZATION:
The Company provides for depreciation of furniture and office equipment
utilizing straight-line and accelerated methods over the useful lives of three
to seven years beginning when assets are placed in service.
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 the remaining economic life estimated
to be eighteen years at that time. Based on the May 1996 appraisal, an
additional $83,288 of obsolescence was provided on the Ormat power plants
reducing their net book value to the then appraisal value of $2,700,000.
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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. Shares issued as dividends (Notes 6 and 12) have been treated as
issued at February 28, 1993. Weighted average shares of Class A Common Stock
outstanding were 8,808,485 in the year ended February 28, 1997 and 1,463,451 in
the year ended February 29, 1996. Shares issuable upon exercise of warrants or
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 the earnings of the
Company.
BUSINESS SEGMENT INFORMATION
COMBUSTION ENERGY COMPANY
The Company formed a wholly-owned subsidiary, Combustion Energy
Company, Inc. ("CEC"), a Nevada corporation, on February 12, 1993 for the
purpose of being a general partner of Oreana Power Partners ("OPP") (See OREANA
POWER PARTNERS below). The Company is also a limited partner in OPP.
On November 30, 1994, the Company caused CEC to merge with Herth
Printing and Business Supplies, Inc. ("Herth"), in exchange for Class A Common
Stock of the Company. The Company, through its ownership of CEC, owned 100% of
the post-merger business and consolidated the financial results of CEC in its
reported results. In an agreement entered into on September 1, 1996, the Company
exchanged its interest in CEC, and thereby Herth, in a transaction which
included the reacquisition of all right, title and interest in the Company's
then outstanding Class B Common shares, which was later the subject of a
settlement agreement between NEP, NEPC and the Company (see NEP Settlement
Agreement).
SAN JACINTO POWER CORPORATION
San Jacinto Power Corporation, a Nevada Corporation, ("SJPC") was
formed on December 15, 1993. The Company 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. The New World
Power Corporation ("New World") contributed 48,000 shares of its Common Stock,
with market value of $516,000 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 were in exchange for its 49.99% ownership interest in SJPC.
The Company and New World subsequently engaged in negotiations to
acquire, and did acquire, the operating assets of Smith Wind Energy Company and
six affiliated limited partnerships know collectively as Triad. The purchase
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price of $1,038,029 was equal to the agreed value of the shares plus assumed
liabilities totaling approximately $293,957 for long-term secured debt and
certain delinquent property taxes.
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
----------
The Company managed the operations of San Jacinto Power Corporation
and the wind farm until June 27, 1997. On June 27, 1997 the sale of the
Company's 50.01% interest in its consolidated subsidiary, San Jacinto Power
Corporation, was completed by the court appointed bankruptcy trustee. The
Company's interest, represented by 50,010 shares of common stock, was sold at
bid for $200,000 cash. The successful bidder, SeaWest Corporation of San Diego,
CA also agreed to pay all outstanding debts of San Jacinto Power Corporation,
estimated in excess of $175,000.
In its most recently filed financial report, the 10-QSB for the quarter
ended November 30, 1996, the Company had reported consolidated San Jacinto Power
Company assets of approximately $1,105,986, consolidated liabilities of
approximately $159,287 and minority interest of $632,720. The transaction will
result in a reported net loss of approximately $113,979.
At the time of the sale, San Jacinto Power Corporation ("SJPC") was
one of two operating properties held by the Company. SJPC is not included in
the current financial statements.
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 $590.
BRADY GEO PARK POWER PROJECT, 1986, LTD.
The Company's investment in Brady Geo Park Power Project, 1986, Ltd.,
("BGPPP") 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. Except for the residual partnership interest, the Company
transferred all of its interest in the assets of BGPPP to its wholly owned
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subsidiary effective December 1, 1995. (See Note 2, YERINGTON ACQUISITION
COMPANY.) The Company has classified this asset as Idle Power Generation
Equipment in the accompanying consolidated balance sheet.
NEVADA ENERGY PARTNERS - I
In February 1991, the Company received a 60% interest as a limited
partner in Nevada Energy Partners 1, a Nevada limited partnership (NEP-I, LP),
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-I LP. 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 was no
other basis for valuing the interest acquired. An additional 548,043 shares were
issued to NEP-I LP in conjunction with the Company's 5% stock dividends made in
July and October 1994 and January 1995. Class B Common Shares have full voting
rights, but have no cash dividend participation. In a transaction completed on
September 1, 1996, the Company exchanged its interest in NEP-I LP together with
its interest in Combustion Energy Company, Inc. (a previously wholly owned
subsidiary) for all right title and interest in the Company's Class B Common
Shares held by NEP-I, LP. Pursuant to a settlement agreement entered into
December 1, 1997, the 99% of all NEP gains resulting from the sale of NGPP's
interests in BPP from 1995 to date were allocated to the Company, together with
all outstanding Class B Common Stock and Class B Common Stock rights to future
issuances, in consideration of the Company's issuance of new common shares
pursuant to the Company's Plan of Reorganization.
The Company's interest in NEP-I LP was valued at $3,080 based on the
par value of the shares issued, less amounts recorded as treasury stock due to
the Company's then effective ownership of 60% of the Class B Shares held by
NEP-I LP, plus subsequent cash investments, less estimated partnership losses.
As a general partner of NGPP, NEP-I LP had been 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
share of BPP's distributable cash flow. BPP was a Nevada general partnership
whose general partners were NGPP and ESIBH Limited Partnership, a Delaware
limited partnership. The Company had been entitled to receive sixty percent
(60%) of NEP-I LP's distributable cash flow. There has been no cash available
for distribution through February 28, 1997.
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 received $508,018 in July
1995 as a return of its share of the distribution of theses proceeds. The
balance due of $77,493 was recorded as a receivable. However, the receivable
has subsequently been charged to bad debts as it is believed to be
uncollectible. As a result of the Settlement Agreement with NEP, the Company
has adjusted its gains upward to reflect the assumption of 99% of all gains
from NEP, from January 1, 1995 to the present.
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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 $46 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. This company has been
dissolved.
YERINGTON ACQUISITION COMPANY, INC.
Yerington Acquisition Company, Inc. ("YAC"), a Nevada corporation was
formed on December 8, 1994 for the purpose of acquiring the assets of Tad's
Geothermal, a non-related owner/operator of a geothermal power generating
facility located near Yerington, Nevada. The acquisition was not completed. In
December 1995, the Company transferred all of its right title and interest in 10
Ormat power generating units (classified as idle power generating equipment in
the financial statements) to YAC. In April 1995, the Company entered into an
agreement through a non-binding letter of intent, to transfer, through merger
with YAC, to Pollution Controls International, all of its right title and
interest in the 10 Ormat units together with any remaining interest in acquiring
the assets of Tad's. Aggregate consideration to be received by the Company, in
the form of convertible preferred stock and convertible debt would exceed the
net book value of the assets.
CENTRAL COMMUNICATIONS CORPORATION
Central Communications Corporation ("CCC"), a Nevada corporation, was
formed for the purpose of acquiring interests in the telecommunications
business. On May 21, 1996, the Company announced that it had signed a binding
letter of intent to acquire, through CCC, all of the outstanding shares of
Telecom Technologies, Inc. ("TTI"), an Oregon corporation, and certain other
related assets. The terms of the acquisition provided for the payment of
$500,000 in cash and issuance of 2,000,000 Class A Common Shares. The Company
advanced to CCC $492,000 in cash in the quarter ended August 31, 1996 in
anticipation of the completion of the acquisition. The acquisition was completed
on June 21, 1996, however, it was subsequently reversed. Certain shareholders
have filed an action in Delaware in an attempt to recover some or all of the
Company's investment. There is no assurance that such recovery will occur.
NOTE 3 - Short-Term Borrowings and Mortgage Payable:
There is no short-term borrowing as of February 28, 1997. The Company's
subsidiary, Combustion Energy Company, which operates as Herth Printing and
Business Supply, has long term
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debt (8 years) on the purchase of a printing press in May, 1996. Monthly
payments are $4,218 with an interest rate of 9.75%.
NOTE 4 - Related Transactions:
During the year ended February 29, 1996, San Jacinto Power Corporation
(then 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 minority owner of San Jacinto Power Corporation. Services provided
included repair and maintenance, refurbishment and on-site operations oversight
and were valued at approximately $296,511. A balance of $37,965 was payable to
the New World Grid Power Company for the services as of February 28, 1997.
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.
On May 1, 1996, the Company entered into an agreement providing for the
issuance of 1,960,745 Series A Preferred Shares at $2.50 per share to Golden
Chance Limited ("Golden Chance"), an Isle of Man private company limited by
shares. The terms of the Series A Preferred Shares provide that no dividends of
any kind or nature shall be paid or declared. Series A Preferred Shares have a
right to convert to the Company's Class A Common Shares. Liquidation preference
rights of Series A Preferred Shares are limited to the par value of $.001 per
outstanding share. Voting rights for each Series A Preferred Share are equal to
all classes of common stock. The Company accepted a note in the amount of
$4,899,988 payable over a one year period as consideration for issuance of the
Series A Preferred Shares. The present value of this note has been offset
against paid-in equity in the accompanying financial statements. The Series A
Preferred Shares are to be held in escrow until payment is received. Golden
Chance retains the right to vote the escrowed shares. On May 1, 1996, the
Company also entered into an agreement providing for the issuance of 5 Series B
Preferred Shares at $2.50 per share to four of the five directors of the
Company. Terms of the Series B Preferred Shares provide that no dividends of any
kind or nature shall be paid or declared. Series B Preferred Shares have a right
to convert to the Company's class A Common Shares. Liquidation preference rights
of Series B Preferred Shares are limited to the par value of $.001 per
outstanding share. Holders of Series B Preferred Shares have the right to
appoint a temporary director in the event that Golden Chance defaults in the
payment of the first $500,000 on its purchase of Series A Preferred Shares.
Alleged payments totaling $1,320,745, net of related expenses for the
Series A Preferred Shares, had been received as of February 28, 1997 and under
the terms of the agreement 762,464 preferred shares had been converted to
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4,847,844 Class A Common Shares. The balance of the shares were converted to
Class A Common Stock on the instruction of the Board of Directors. The payment
of the $1,960,745 is alleged to have been fraudulent.
At February 28, 1997, there were 16,058,715 Series A and 5 Series B
Preferred Shares issued and outstanding.
NOTE 6 - Class A and Class B Common Stock:
The Company issued 222,267 shares of Class A Common Stock to its
subsidiary San Jacinto Power Corporation to be used by San Jacinto in the
acquisition of certain Assets (see Note 2). 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. Upon consummation of the
acquisition in June 1994, the shares were removed from treasury and issued.
In the year ended February 28, 1997, 333,333 shares of Class A Common
Stock were issued for cash in the amount of $250,000, and 145,842 shares of
Class A Common Stock were issued for services valued at $68,216, 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 the year ended February 29, 1996, 442,867 shares of Class A Common
Stock were issued for cash in the amount of $274,373, and 612,573 shares of
Class A Common Stock were issued for services valued at $972,430, including
27,500 shares issued to directors in lieu of cash for annual fees and 18,230
shares issued to officers and an employee as bonuses.
Included in the shares issued for services on December 27, 1994, the
Company issued 500,000 shares of its Class A Common Stock registered under the
Form S-8 filed August 2, 1994, and having Registration No. 33-82318. The shares
were valued at $1.75 per share based upon the closing NASDAQ price of the
Company's common stock on June 24, 1994. These shares were for services provided
under an agreement dated June 27, 1994, and were later substantially voided
pursuant to the order of the Federal Bankruptcy Court entered September 15,1998.
In conjunction with its acquisition of Herth Printing and Business
Supply, the Company issued 641,784 shares of its Class A Common Stock during
the year ending February 29, 1996, in exchange for all of the outstanding
shares of HPBS. The Company's shares were valued at $.6582 per share based on
the value of the net assets acquired. These shares were treated as if issued on
February 28, 1993. The Company subsequently disposed of its interest in Herth
Printing and Business Supply in a transaction completed on September 1, 1996.
On February 16, 1995, the Company entered into an agreement for the
sale of 333,333 shares of restricted Class A Common Stock at a price of $0.75
per share for a total sale price of $250,000. Payment of $100,000 was received
prior to February 29, 1996, with the balance being received subsequent to that
date (Note 12).
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On December 20, 1994, the Company entered into two (2) irrevocable
subscription agreements for the sale of 500,000 Class A Common shares at a
purchase price of $2.00 per share. The agreements, which provided for payment
within 60 days of the execution, were extended to September 20, 1995. The
subscribers subsequently failed to fulfill their obligation under the agreement.
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.
The Company filed an S-3 (SEC File No. 333-7513) for the registration
of 9,194,282 shares of Class A Common Stock on July 26, 1996. The purpose of the
registration was for shares that had been previously purchased under private
placements over the preceding two years and to cover shares to be issued in
conjunction with the acquisition of TTI (Note 1, Central Communications
Corporation) and shares to be issued in conversion of Series A Preferred Shares
to be acquired by Golden Chance (Note 5, Preferred Stock). A total of 7,152,381
net new shares were issued under this registration.
The Company filed an S-8 registration (Number 333-18621) with the
Securities and Exchange Commission on December 23, 1996, which provided for the
issuance of up to 3,000,000 shares of Class A Common Stock pursuant to the
Company's informal consulting/compensation plan. Subsequently, at the
instruction of the Board of Directors, and after the implementation of the
one-for-six reverse split applied to shares outstanding at January 21, 1997,
the full number of shares were issued on an unrestricted basis.
In the year ending February 29, 1996, 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
411,555 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 entitled to share in the
distribution of assets of the corporation upon liquidation or dissolution,
either partial or final.
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.
No options have been exercised through February 28, 1995.
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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. No options have
been exercised through February 29, 1996.
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.
No options have been exercised through February 28, 1995.
On December 31, 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 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 31, 2003.
No options have been exercised through February 28, 1997.
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 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. During 1995, 500,000 shares were
exercised at a price of $1.75 per share. There were no options outstanding as
of February 29, 1996 under this Plan. This plan was voided pursuant to the
order of the Federal Bankruptcy Court entered September 15, 1998.
NOTE 8 - Income Taxes:
The Company 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 has been recorded in the financial statements
because the Company has assessed a valuation account to the full
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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 $ 809,795
Net operating loss carry forward 2,637,611
Energy credit carry forward -
-----------
Total deferred tax asset 3,443,406
Valuation allowance (3,443,406)
-----------
Net deferred tax asset $ -
===========
During the year ended February 28, 1997, the Company's potential
deferred tax asset has increased by $890,665 and the valuation account has been
increased accordingly.
No provision for Federal income taxes was recorded during the years
ended February 28, 1997 and February 29, 1996 due to the net losses of the
Company.
As of February 28, 1997, the Company had Federal income tax loss
carryforwards available to offset future taxable income for income tax purposes
of $6,140,428 which expire in 2006 through 2010.
The Company has no energy credit carryforwards as of February 28, 1997.
NOTE 9 - Supplemental Noncash Investing and Financing Activities:
During the year ended February 29, 1996, 145,842 shares of Class A
Common Stock were issued for compensation of $68,216 to certain officers,
directors and an employee.
NOTE 10 - Commitments and Contingencies:
The Company's wholly owned subsidiary CCC, has entered into a long-term
lease for office space in Santa Barbara, California. The Company occupied the
space for approximately three months in the fiscal year ended February
28,1997.The space has been vacated and the landlord had filed suit for recovery
of earned rents of $64,687, interest thereon, costs and damages. Estimated
payments on the original terms of the lease as of February 28, 1997 are as
follows:
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1997 $ 228,408
1998 228,408
1999 228,408
2000 228,408
2001 152,272
-----------
Total $1,065,904
===========
The claim for payment by the lessor against the Company has been withdrawn in
its entirety.
NOTE 11 - Chapter 11 Proceeding
On February 13, 1997, creditors of the Company, petitioned the Federal
Bankruptcy court to have the Company placed in involuntary Bankruptcy under
Chapter 11 of Federal Bankruptcy Law. Immediate injunctive relief was granted. A
preliminary hearing was held in Reno on March 3, 1997 and the court appointed
Mr. Barry L. Solomon as Trustee, which effectively transferred formal control
of the Company from the then management to the Trustee. A formal order
confirming the bankruptcy was issued on April 7, 1996.
Thereafter, the Company's Board of Directors was reconstituted and new
officers were reinstituted. A petition for Debtor-in-Possession was filed. The
hearing was held on September 4, 1997, and the court approved the petition. The
Company has been operating since that date as a Debtor-in-Possession and in
preparing a plan of reorganization.
CHANGES IN ACCOUNTANTS
The Company's accountants, Deloitte & Touche ("Deloitte") resigned on
March 23, 1994, and were replaced by Certified Public Accountants Kafoury
Armstrong & Company.
The change of independent auditors and the resignation of Deloitte &
Touche was not the result of any disagreements between the Company and the
former accountants on any matter of accounting principles or practices,
financial disclosures or auditing scope or procedures, and there have been no
such disagreements within the past two (2) fiscal years and any prior or
subsequent period. The audit opinions of Deloitte & Touche for fiscal years 1992
and 1993 did not contain any adverse opinion or disclaimer of opinion, and their
opinion was not qualified or modified as to uncertainty, audit or accounting
principles.
The Company has been advised that neither Kafoury, Armstrong & Company,
nor any of its partners hold any direct or indirect financial interest in the
securities of the Company, or its subsidiaries, nor have they had any connection
with the Company or its subsidiaries during the past three years.
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NOTE 12 - Incomplete Records
The Company's Board of Directors appointed new independent accountants
on April 22, 1994, as follows:
Kafoury, Armstrong & Company
6140 Plumas Street
Reno, NV 89509
(702) 689-9100
Kafoury, Armstrong & Company is the largest statewide independent
accounting firm operating in the state of Nevada and is qualified under the
requirements of the SEC Practice Section Division of firms of the American
Institute of Certified Public Accountants.
The appointment of Kafoury, Armstrong & Company as auditors was
subsequently ratified by vote of the shareholders in 1994 and 1995 and 1996.
On February 20, 1997, the Company was notified by its auditors,
Kafoury, Armstrong and Company of Reno, NV that they were withdrawing as the
Company's independent auditors, a relationship which they had enjoyed since
April 1994. They simultaneously withdrew their consent to inclusion of their
audit report in the Company's financial statements as of and for the period
ended February 29, 1996, and in the S-8 Registration filed with the Securities
and Exchange Commission on December 23, 1996.
Their resignation expressed concern over pending litigations against
the Company as set forth in its quarterly report (10KSB November 30,1996) the
Company's apparent inability or unwillingness to meet its obligations to
Kafoury, and the Company's failure to pay its outstanding obligations to
Kafoury, including making good on a dishonored check in the amount of $23,850.
There were no disputes over accounting matters.
The Company has not appointed new auditors at this time.
The Company is unable to provide comparable financial information
regarding the amount of interest and taxes paid for years ended February 28,
1997, and February 29, 1996, due to the pendency of the Chapter 11 proceeding
and the absence of accurate and complete books and records for the period May 1,
1996, through February, 1997.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
The current Directors of the Company as of November 30, 1998, are as follows.
Richard A. Cascarilla
Director since May, 1997
Age 46
Jeffrey L. Hartman
Director since September 15, 1998
Age 45
Michael R. Kassouff
Director since December, 1996
Age 41
The Directors of the Company as of February 28, 1997, are listed below.
- --------------------------------------------------------------------------------
Name, Principal Occupation
During the Last Five Years
and Additional Information
- --------------------------------------------------------------------------------
Michael R. Kassouff Director
Chairman of the Board
Age 41
Director since 12/96
Mr. Kassouff is a former director of the Company having served from July 1991 to
May 1996. Mr. Kassouff is currently one of the owners of Guaranteed Builders Co.
in Houston, Texas.
- --------------------------------------------------------------------------------
Peter Cannell, BA Director
Director and Secretary of Directors
Director since 5/96
Resigned 5/9/97
Mr. Cannell is a graduate of the University of Glasgow and an Associate of the
Institute of Chartered Secretaries & Administrators.
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- --------------------------------------------------------------------------------
Charles Cain Director
Director since 5/96
Resigned 5/9/97
MA-ACIB, is a graduate of Cambridge University and was the founder of the
corporate and management trust firm formerly known as Charles Cain & Company.
Mr. Cain is an affiliate of the American Bar Association, member of the American
Tax Institute in Europe and member of the Offshore Institute.
- --------------------------------------------------------------------------------
John C. Goold Director
Director since 5/96
Resigned 9/26/96
Mr. Goold is a private investor specializing in research and
development with energy companies, computer technology and telecommunications in
Asian, European and United States capital markets.
The Company's Certificate of Incorporation was amended in 1990 to
provide that the number of directors will be no less than three (3) and no more
than seven (7), with a board size of five(5)until that number is changed by the
board of directors.
EXECUTIVE OFFICERS
Presented below are the names, ages and positions held during the past
five years of the Company's executive officers as of November 30,1998.
- --------------------------------------------------------------------------------
Name Age Position
- --------------------------------------------------------------------------------
Richard A. Cascarilla, Esq. 46 Secretary and Treasurer
11/20/90 to 9/26/96
5/19/97 to Present President
Michael Kassouff 41 Secretary
9/24/97 to Present
Jeffrey E. Antisdel 42 President
11/20/90 to 9/26/96
Stefan Tevis 44 President
9/26/96 to 1/23/97
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Kenton Bowers 57 Secretary
9/26/96 to 12/18/96
Pattison Hayton III 46 President
1/23/97 to 5/19/97
Kevin Quinn 51 Secretary
12/18 to 5/19/97
- --------------------------------------------------------------------------------
REPORTS UNDER SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires directors, officers and
persons who are beneficial owners of more than 10% of the Company's Common Stock
to file with the Securities and Exchange Commission (the "Commission") reports
of their ownership of the Company's securities and change in that ownership. To
the Company's knowledge, based upon review of the copies of reports filed with
the Commission with respect to the fiscal year ended February 28, 1997, all
reports required to be filed under Section 16(a) by the Company's directors,
officers and persons who are beneficial owners of more than 10% of the Company's
Common Stock have been timely filed.
EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Directors are entitled to receive annual compensation of $10,000 paid
quarterly and $500 for each Board of Directors meeting attended in person, plus
related travel expenses to meetings.
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 February 29, 1996.
On December 31, 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 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 31, 2003,
and no options have been exercised through February 28, 1997.
Pursuant to the Order of Confirmation entered by the Reno Federal
Bankruptcy Court of September 15, 1998, the above option grants are rescinded.
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CHANGE-IN-CONTROL ARRANGEMENTS,
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
On February 29, 1996 the Company executed a binding letter of intent
with Waterford Trust Company, Limited an Irish corporation ("Waterford"), in
which the Company agreed to sell to Waterford or its nominee approximately
2,000,000 shares of Series A preferred shares. On May 1, 1996 the Company
announced the completion of this transaction in which Waterford's nominee,
Golden Chance, Limited ("Golden Chance"), an Isle of Man private company limited
by shares, agreed to purchase 1,960,795 shares of Series A Preferred stock at
$2.50 per share and 152,381 shares of Class A common stock at $0.643125 per
share. A cash payment for the Class A common shares in the amount of $100,000
and a $4,900,000 promissory note made and delivered by Golden Chance. The
promissory note is secured by the corporate guarantee of Waterford Trust
Company, Limited, an Irish corporation ("Waterford") and an escrow of the shares
of registrants series A preferred shares acquired by Golden Chance.
The promissory note is requires installment payments. The first
installment was payable July 1, 1996 in the amount of $400,000. Subsequent
installments of $500,000 are payable every thirty days thereafter until paid in
full. The total principal amount of the promissory note was due and payable on
April 1,1997. Waterford has guaranteed the obligation of Golden Chance. The
Series A Preferred shares acquired by Golden Chance are held in escrow with an
escrow agent for the benefit of the registrant. Upon payment of each installment
under the promissory note, a portion of the Series A Preferred shares will
convert to the registrants class A common stock pursuant to the certificate of
designation of the Series A Preferred shares, which is on file with the Delaware
Secretary of State. The converted shares will be released from escrow.
Subsequent to May 1, 1996, cash payments in the amount of $100,000 for
the Class A common stock and $780,255 in cash payment on the note secured by the
Series A preferred shares was deposited in accounts which were substantially
outside the control of the Company's officers. The money deposited in these
accounts was substantially diverted or paid to persons who had no legal right to
the funds.
In connection with this agreement, pursuant to a letter agreement
("Letter of Intent") dated February 29, 1996, and conditional to the sale of
series A preferred shares, the former control group Chairman, Jeffrey Antisdel,
and Director, Richard Cascarilla, voluntarily resigned their respective Board of
Director positions, with nominee Directors, Charles Cain and Peter Cannell
elected by the Board of Directors. The remaining former members of the Board
subsequently resigned and John Goold was nominated to the Board. The active size
of the board was reduced from five directorships to three directorships.
In conjunction with the agreements relating to the change in control,
the Company entered into prospective consulting agreements with Mr. Antisdel and
Mr. Cascarilla. These two year agreements were to take effect upon termination
from the Company as an employee. Mr. Antisdel and Mr. Cascarilla were terminated
without cause as President and Secretary respectively on September 26, 1996 due
to their intent to make public disclosures of the default by Waterford and
92
98
Golden Chance Limited on payments owing to the Company. Subsequently, the
Company failed to make payments under the consulting agreements and both Mr.
Antisdel and Mr. Cascarilla filed suit with respect to their rights under the
agreements, including acceleration of payment. (See "Litigation")
[INTENTIONALLY LEFT BLANK.]
93
99
Pursuant to the requirements 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.
WORLDCALL CORPORATION
Date: March 19, 1999 /s/ Richard A. Cascarilla
------------------------------ ----------------------------------
Richard A. Cascarilla, Director
Date: March 19, 1999 /s/ Jeffrey L. Hartman
------------------------------ ----------------------------------
Jeffrey L. Hartman, Director
Date: March 19, 1999 /s/ Michael R. Kassouff
------------------------------ ----------------------------------
Michael R. Kassouff, Director
94
100
PART II
EXHIBITS
(2) Plan of Acquisition, Reorganization,
Arrangement, Liquidation or Succession
A. Debtor's Second Amended Disclosure Statement,
filed with the United States Bankruptcy Court,
District of Nevada, July 24, 1998............................................. Page
B. Debtor's First Amended Plan of Reorganization
filed with the United States Bankruptcy Court,
District of Nevada, July 24, 1998............................................. Page
C. Order Approving and Confirming Debtor's First
Amended Plan of Reorganization, as Revised and
Amended, issued September 15, 1998............................................ Page
(3)(i) Articles of Incorporation
A. Certificate of Correction of the Restated Certificate
of Incorporation of Nevada Energy Company, Inc.,
filed November 25, 1998....................................................... Page
B. Certificate of Correction of the Certificate of Amendment
to the Certificate of Incorporation of PowerTel USA, Inc.,
filed November 25, 1998....................................................... Page
C. Certificate of Correction of the Certificate of
Correction of the Restated Certificate of Incorporation
of PowerTel USA, Inc., filed November 25, 1998................................ Page
D. Certificate of Correction of the Certificate of Correction
to the Certificate of Amendment of PowerTel USA, Inc.,
filed November 25, 1998....................................................... Page
E. Certificate of Correction of the Restated Certificate
of Incorporation of PowerTel USA, Inc.,
filed November 25, 1998....................................................... Page
101
F. Certificate of Correction of the Certificate of
Correction to the Restated Certificate of Incorporation
of PowerTel USA, Inc., filed November 25, 1998................................ Page
G. Certificate of Correction of the Restated Certificate
of Incorporation of PowerTel USA, Inc.,
filed November 25, 1998....................................................... Page
H. Certificate of Renewal, Restoration and
Revival of Certificate of Incorporation of
Nevada Energy Company, Inc., filed
November 25, 1998............................................................. Page
J. Restated Certificate of Incorporation of Nevada
Energy Company, Inc, filed December 15, 1998.................................. Page
(3)(ii) By-Laws
A. PowerTel USA, Inc. Amended and Restated
ByLaws, dated November 25, 1998. ............................................. Page
(4) Instruments Defining the Rights of Security Holders,
including Indentures
A. Stock Option and Purchase Agreement between
Richard A. Cascarilla and Nevada Energy
Company, Inc., dated December, 1998........................................... Page
B. Stock Option and Purchase Agreement between
Jeffrey Modesitt and Nevada Energy
Company, Inc., dated December, 1998........................................... Page
C. Stock Option and Purchase Agreement between
Michael Kassouff and Nevada Energy
Company, Inc., dated December, 1998........................................... Page
D. Stock Option and Purchase Agreement between
Jeffrey Hartman and Nevada Energy
Company, Inc., dated December, 1998........................................... Page
102
E. Stock Option Agreement between
Nevada Energy Company, Inc. and Richard
A. Cascarilla, dated December, 1998........................................... Page
F. Stock Option Agreement between
Nevada Energy Company, Inc. and Jeffrey
L. Hartman, dated December, 1998.............................................. Page
G. Stock Option Agreement between
Nevada Energy Company, Inc. and Michael
Kassouff, dated December, 1998................................................ Page
H. Stock Option Agreement between
Nevada Energy Company, Inc. and Richard
A. Cascarilla, dated December, 1998........................................... Page
I. Stock Option Agreement between
Nevada Energy Company, Inc. and Michael
Kassouff, dated December, 1998................................................ Page
J. Stock Option Agreement between
Nevada Energy Company, Inc. and Lawrence
Herth, dated December, 1998................................................... Page
(10) Material Contracts
A. First Amended and Restated Settlement and
Release Agreement among PowerTel USA, Inc.,
Nevada Energy Partners I, Nevada Electric Power
Company, and Sixteen Bahamian Corporations,
effective December 1, 1997.................................................... Page
i. Receipts by Sixteen Bahamian Corporations
of Class A Common Stock Pursuant to the
Plan of Reorganization of PowerTel,
dated March 16, 1998.................................................. .Page
B. Settlement and Mutual Release Agreement among
PowerTel USA, Inc., Viva Telecommunications, Inc.,
David L. Wallace, Jeffrey Antisdel, John Vogel, and
Dean Chamberlain, effective January 25, 1998.................................. Page
103
C. Amended and Restated Agreement for Exchange
of Stock between David Wallace and PowerTel,
USA, Inc. Regarding Viva Telecommunications, Inc.,
effective February 12, 1998................................................... Page
D. Amended and Restated Agreement for Exchange
of Stock between David Wallace and PowerTel
USA, Inc. Regarding Diego Tel, Inc.,
effective February 12, 1998................................................... Page
E. Employment Agreement between PowerTel USA,
Inc. and Richard Cascarilla, dated August 26, 1998............................ Page
F. Employment Agreement between PowerTel USA,
Inc. and Michael R. Kassouff, dated August 26, 1998........................... Page
G. Telecommunications Services Agreement between
Viva Servicos, S. de R.L. de C.V. and Diego Tel, Inc.
effective June 8, 1998 (a portion of this document
has been redacted because it contains confidential
information).................................................................. Page
(11) Statement re: Computation of Per Share Earnings...................................... Page
(15) Letter re: Unaudited Interim Financial Information................................... Not Applicable
(18) Letter re: Change in Accounting Principles........................................... Not Applicable
(19) Report Furnished to Security Holders................................................. Not Applicable
(22) Published Report Regarding Matters Submitted
to Vote of Security Holders.......................................................... Not Applicable
(23) Consents of Experts and Counsel...................................................... Not Applicable
(24) Power of Attorney.................................................................... Not Applicable
(26) Invitations for Competitive Bids..................................................... Not Applicable
(27) Financial Data Schedule.............................................................. Unavailable
104
(99) Additional Exhibits
A. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for April, 1997...................................... Page
B. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for May, 1997........................................ Page
C. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for June, 1997....................................... Page
D. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for July, 1997....................................... Page
E. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for August, 1997..................................... Page
F. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for September, 1997.................................. Page
G. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for October, 1997.................................... Page
H. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for November, 1997................................... Page
I. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for December, 1997................................... Page
J. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for January, 1998.................................... Page
K. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for February, 1998................................... Page
L. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for March, 1998...................................... Page
M. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for April, 1998...................................... Page
N. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for May, 1998........................................ Page
105
O. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for June, 1998....................................... Page
P. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for July, 1998....................................... Page
Q. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for August, 1998..................................... Page
R. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for September, 1998.................................. Page
S. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for October, 1998.................................... Page
T. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for November, 1998................................... Page
U. PowerTel USA, Inc., 97-30265, Chapter 11,
Monthly Operating Report for December, 1998................................... Page