UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to ____
Commission File Number: 1-5742
OCEAN POWER CORPORATION
(Name of small business issuer in its charter)
Delaware 94-3350291
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Halperin Battaglia Raicht, LLP
555 Madison Avenue, 9th Floor
New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 765-9100
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
[ ] Yes [X] No
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
Check whether the issuer has 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 a court. [ ] Yes [X] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
56,182,746 shares outstanding as of January 28, 2008
Transitional Small Business Disclosure Format: [ ]Yes [X] No
NOTE: Unless otherwise indicated, this Form 10-QSB of Ocean Power Corporation
(the "Company") speaks as of the date of the filing thereof with the Securities
and Exchange Commission ("SEC"). On March 1, 2002, due to non-payment of
applicable taxes the Company's original charter became inoperative and void. On
October 25, 2007, the Company filed a certificate of renewal and revival of its
charter in the state of Delaware. During the period from March 1, 2002 to
October 25, 2007, the name Ocean Power was obtained by an unrelated entity upon
proper filing with the State of Delaware. As such, as part of the Company's
renewal and revival of its charter, the Company changed its name from Ocean
Power Corporation to OPC Liquidation Corporation.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
------
September 30,
2004
------------
(Unaudited)
CURRENT ASSETS
Cash - restricted $ 183,929
------------
Total Current Assets 183,929
------------
EQUIPMENT, NET --
------------
TOTAL ASSETS $ 183,929
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 2,672,301
Accrued expenses 9,934,641
Notes payable - related parties 1,033,469
Notes and convertible debentures payable - current portion 8,674,884
------------
Total Current Liabilities 22,315,295
------------
Total Liabilities 22,315,295
------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 20,000,000 shares authorized of
$0.001 par value; no shares outstanding --
Common stock: 500,000,000 shares authorized of
$0.01 par value; 56,182,746 shares issued
and outstanding 561,827
Additional paid-in capital 35,169,137
Deficit accumulated during the development stage (57,862,330)
------------
Total Stockholders' Equity (Deficit) (22,131,366)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 183,929
============
The accompanying footnotes are an integral part of these
consolidated financial statements
2
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations (Unaudited)
From
For the For the Inception on
Three Months Ended Nine Months Ended March 26,
September 30, September 30, 1992 Through
---------------------------- ---------------------------- September 30,
2004 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------
REVENUES $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
EXPENSES
General and administrative 12,284 18,299 26,079 321,690 404,565
Depreciation and amortization -- -- -- 15,964 15,964
------------ ------------ ------------ ------------ ------------
Total Expenses 12,284 18,299 26,079 337,654 420,529
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (12,284) (18,299) (26,079) (337,654) (420,529)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 34 44 103 100 247
Gain (loss) on sale of assets -- 80,000 -- 1,723,486 1,723,486
Interest expense (9,077) (9,078) (27,036) (24,729) (8,859,809)
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) (9,043) 70,966 (26,933) 1,698,857 (7,136,076)
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES (21,327) 52,667 (53,012) 1,361,203 (7,556,605)
Income tax expense -- -- -- -- 113,429
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS (21,327) 52,667 (53,012) 1,361,203 (7,670,034)
(Loss) from discontinued
operations -- -- -- -- (50,192,296)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (21,327) $ 52,667 $ (53,012) $ 1,361,203 $(57,862,330)
============ ============ ============ ============ ============
BASIC AND DILUTED INCOME (LOSS) PER
SHARE
Income (loss) before discontinued
operations $ (0.00) $ 0.00 $ (0.00) $ 0.02
Discontinued operations 0.00 0.00 0.00 0.00
------------ ------------ ------------ ------------
Net income (loss) $ (0.00) $ 0.00 $ (0.00) $ 0.02
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 56,182,746 56,182,746 56,182,746 56,182,746
============ ============ ============ ============
The accompanying footnotes are an integral part of these
consolidated financial statements
3
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Deferred Deficit
Consulting Accumulated
Common Stock Additional Other Expense During the
--------------------------- Paid-In Comprehensive and Asset Development
Shares Amount Capital Income (Loss) Acquisition Stage
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2003 56,182,746 561,827 35,169,137 -- -- (57,809,318)
Net income for the nine months ended
September 30, 2004 (Unaudited) -- -- -- -- -- (53,012)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 2004 (Unaudited) 56,182,746 $ 561,827 $ 35,169,137 $ -- $ -- $(57,862,330)
============ ============ ============ ============ ============= ============
The accompanying footnotes are an integral part of these
consolidated financial statements
4
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Unaudited)
From
Inception on
For the Nine Months Ended March 26,
September 30, 1992 Through
---------------------------- September 30,
2004 2003 2004
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (53,012) $ 1,361,203 $(57,862,330)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization -- 15,964 2,820,779
Deferred consulting expense -- -- 2,486,798
Value of common stock, warrants, options
and discounts on equity instruments issued
for services -- -- 7,962,847
Loss on sale of assets -- -- 387,649
Amortization of debenture discount and debt issue costs -- -- 4,628,538
Gain on disposition of debt and write off of subsidiary -- -- (6,085,539)
Gain on sale of assets -- (1,723,486) (1,723,486)
Impairment loss -- -- 12,302,123
Bad debt expense -- -- --
Change in operating asset and liability accounts,
net of amounts acquired in business combination:
(Increase) decrease in advances to employees,
prepaid expenses, deposits and debt offering costs -- 18,402 (5,772,221)
Increase (decrease) in accounts payable 24,579 214,849 5,655,967
Increase (decrease) in accrued expenses 27,036 18,855 13,708,882
------------ ------------ ------------
Net Cash Used by Operating Activities (1,397) (94,213) (21,489,993)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash lost in discontinued operation -- -- (4,713)
Payments on license agreement -- -- (400,000)
Cash acquired in Sigma acquisition -- -- 142,254
Proceeds from sale of assets -- 80,000 80,001
Purchase of fixed assets -- -- (1,164,570)
Equipment procurement costs -- -- (564,110)
------------ ------------ ------------
Net Cash Provided (Used) by Investing Activities -- 80,000 (1,911,138)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable -- 136,818 4,951,818
Repayment of related party notes payable -- -- (1,640,226)
Repayment of notes payable -- -- (1,519,062)
Loans from related parties -- -- 7,462,787
Issuance of convertible debentures -- -- 3,100,000
Common stock issued for cash -- -- 11,256,032
Stock offering costs -- -- (26,289)
------------ ------------ ------------
Net Cash Provided by Financing Activities -- 136,818 23,585,060
------------ ------------ ------------
The accompanying footnotes are an integral part of these
consolidated financial statements
5
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
From
Inception on
For the Nine Months Ended March 26,
September 30, 1992 Through
---------------------------- September 30,
2004 2003 2004
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH $ (1,397) $ 122,605 $ 183,929
CASH AT BEGINNING OF PERIOD 185,326 62,271 --
------------ ------------ ------------
CASH AT END OF PERIOD $ 183,929 $ 184,876 $ 183,929
============ ============ ============
CASH PAID FOR:
Interest $ -- $ -- $ 16,488
Income taxes $ -- $ -- $ --
NON-CASH FINANCING ACTIVITIES
Value of common stock, warrants, options and
discounts on equity instruments issued for services $ -- $ -- $ 7,962,847
Equity instruments issued for deferred consulting
expense/asset acquisition $ -- $ -- $ 740,000
Common stock issued for recapitalization $ -- $ -- $ 2,761,773
Common stock issued for conversion of debt $ -- $ -- $ 2,963,511
Acquisition of licenses through license agreement
Payable $ -- $ -- $ 6,940,000
Warrants granted in conjunction with debt instruments $ -- $ -- $ 3,261,386
The accompanying footnotes are an integral part of these
consolidated financial statements
6
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted in accordance with such rules and regulations. The
information furnished in the interim condensed consolidated financial
statements includes normal recurring adjustments and reflects all
adjustments, which, in the opinion of management, are necessary for a
fair presentation of such financial statements. Although management
believes the disclosures and information presented are adequate to make
the information not misleading, it is suggested that these interim
condensed consolidated financial statements be read in conjunction with
the Company's most recent audited financial statements and notes
thereto included in its December 31, 2003 Annual Report on Form 10-KSB.
Operating results for the nine months ended September 30, 2004 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2004.
On December 1, 2002, the Company filed a voluntary petition under
Chapter 11 of the bankruptcy code with the United States Bankruptcy
Court Southern District of New York. See Note 5 for the discussion
regarding the bankruptcy filing.
NOTE 2 - ACCRUED EXPENSES
The Company's accrued expenses are comprised of the following items:
September 30,
2004
------------
(Unaudited)
Accrued payroll taxes payable $ 60,266
Accrued interest payable - payroll 52,717
Accrued payroll tax penalty 98,845
Accrued taxes payable 273,144
Accrued payroll payable 2,103,656
Aquamax/Keeran license fee payable 3,600,000
Accrued STM license fee payable 2,000,000
Due to third parties 35,550
Accrued legal settlement - Mchargue 66,683
Accrued interest payable 1,421,369
Accrued contingency for additional post
petition claims 222,411
------------
Total $ 9,934,641
============
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. The Company has had limited
activities since inception and is considered a development stage
company because it has no operating revenues, and planned principal
operations have not yet commenced.
The Company has incurred losses from its inception through September
30, 2004 of approximately $57,862,330. The Company does not have an
established source of funds sufficient to cover its operating costs,
has a working capital deficit of approximately $22,131,000, has relied
exclusively on debt and equity financing. Additionally the Company's
wholly-owned subsidiary Sigma was forced
7
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
NOTE 3 - GOING CONCERN (Continued)
into bankruptcy because of non-payment of employee salaries.
Accordingly, there is substantial doubt about its ability to continue
as a going concern.
In October of 2006, the Company signed a term sheet with a company to
sponsor a plan of reorganization. Prior to confirmation of the Chapter
11 plan of reorganization, the plan sponsor will identify a merger
candidate to be merged into the Company. Before the merger can take
place, the Company is required to bring all of its financial, tax and
SEC filings current from the last filing date of 6/30/02. Pursuant to
orders of the United States Bankruptcy Court for the Southern District
of New York, the Company has engaged accountants, auditors and SEC
counsel to complete this task. Under the terms of the proposed plan,
creditors of the Company will receive a cash payment and stock
consideration in the new merged entity. The aforementioned
consideration will be distributed to creditors of the Company under the
plan of reorganization.
The ability of the Company to continue as a going concern is dependent
upon its ability to successfully accomplish the plan described in the
preceding paragraph and eventually attain profitable operations. The
accompanying consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
NOTE 4 - DILUTIVE INSTRUMENTS
a. Stock Options
The Company had outstanding stock options to purchase 487,132 shares of
the Company's common stock to non-employees as of September 30, 2004.
These options expire on various dates beginning in October 2004 and
ending in January 2012.
The following table summarizes information about employee stock options
outstanding at September 30, 2004:
Number of Weighted
Options Average Weighted Number of
Outstanding Remaining Average Exercisable at
Exercise September 30, Contractual Exercise September 30,
Price 2004 Life Price 2004
------------ ------------ ------------ ------------ ------------
$ 1.00 3,007,456 7.25 years $ 1.00 3,007,456
$ 0.05 387,694 7.75 years $ 0.05 387,694
Had compensation cost for the Company's stock-based compensation plan
been determined based on the fair value at the grant dates for awards
under such plan consistent with the method of FASB Statement 123,
"Accounting for Stock-Based Compensation," the Company's net income
(loss) and earnings (loss) per share would have been reduced to the pro
forma amounts indicated below:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net income (loss) as reported $ (21,327) $ 52,667 $ (53,012) $ 1,361,203
Proforma (21,327) 52,667 (53,012) 1,361,203
Basic and diluted income
(loss) per share as reported (0.00) 0.00 (0.00) 0.02
Pro forma (0.00) 0.00 (0.00) 0.02
8
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
NOTE 4 - DILUTIVE INSTRUMENTS (Continued)
There were no stock options granted during the nine months ended
September 30, 2004.
b. Warrants
A summary of the Company's outstanding warrants as of September 30,
2004, and changes during the nine months then ended is presented below:
Weighted
Average
Exercise
Shares Price
------------ ------------
Outstanding, December 31, 2003 8,985,343 $ 0.91
Granted -- --
Expired/Cancelled (720,730) (1.50)
Exercised -- --
------------ ------------
Outstanding, September 30, 2004 8,264,613 $ 0.85
============ ============
Exercisable, September 30, 2004 8,264,613 $ 0.85
============ ============
Outstanding Exercisable
-------------------------------------------- ----------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at September Contractual Exercise at September Exercise
Prices 30, 2004 Life Price 30, 2004 Price
------------ ------------ ------------ ------------ ------------ ------------
$ 1.50 120,000 1.75 $ 1.50 120,000 $ 1.50
0.90-1.10 4,839,668 2.21 0.97 4,839,668 0.97
0.50-0.75 3,304,945 2.23 0.65 3,304,945 0.65
------------ ------------ ------------ ------------ ------------ ------------
$ 0.50-1.50 8,264,613 2.19 $ 0.85 8,264,613 $ 0.85
============ ============ ============ ============ ============ ============
NOTE 5 - BANKRUPTCY
In September 2002, the Company was without sufficient capital to
continue to operate and had been unable to identify sources of
additional financing. The Board of Directors of the Company was
concerned that a sudden cessation of operations would not provide the
best means to maximize asset values. Therefore, at an October 3, 2002
meeting of the Company's Board of Directors, the Board approved a
resolution to commence negotiations with the Company's secured
creditors, Algonquin Capital Management, L.L.C. and Hibernia Capital
Management, L.L.C., to commence a voluntary bankruptcy filing under
chapter 11 of the Bankruptcy Code and immediately thereafter a sale of
the Company's assets pursuant to section 363 of the Bankruptcy Code.
The Company has a history of being financed primarily by raising
capital through private placements of its stock and/or loans from third
parties. The proceeds from the financing have been used to develop the
Company's technologies, pursue acquisitions and make strategic
alliances and pay operating costs. Over the past twelve months, the
Company has endeavored to stem severe cash flow shortages through,
among other things, workforce and overhead reductions, and the
consolidation of its business operations. Due to persistent cash flow
shortages the Company terminated substantially all of its employees.
9
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
NOTE 5 - BANKRUPTCY (Continued)
As a result of a confluence of events, including a general contraction
of available financing from capital markets and the recent bankruptcy
in Norway of Sigma Elektroteknisk, AS, a wholly owned subsidiary, at a
Special Meeting of the Board of Directors on November 27, 2002, the
Board unanimously consented to authorizing the Company to file a
voluntary petition under Chapter 11 of the Bankruptcy Code.
On December 1, 2002, the Company filed a voluntary petition under
Chapter 11 of the bankruptcy Code with the United States Bankruptcy
Court Southern District of New York. On December 16, 2002, the United
States Trustee appointed a creditors' committee pursuant to section
1102(a) of the Bankruptcy Code (the "Committee").
Simultaneously with filing the Chapter 11 petition, the Company filed
an emergency motion to authorize it to obtain loans and advances under
a Debtor-In-Possession Loan Agreement with Algonquin Capital
Management, L.L.C. in order to continue operations so that the Company
could attempt to maximize the value of its assets. The Bankruptcy Court
entered an interim order approving the financing on December 5, 2002
and a final order was entered on December 20, 2002. In addition, the
Company filed a motion in the bankruptcy case to approve the proposed
sale of substantially all of its assets to Algonquin Capital
Management, L.L.C. and Hibernia Capital Management, L.L.C., subject to
higher and better offers. By order dated February 6, 2003, the
Bankruptcy Court authorized the asset sale agreement with Algonquin
Capital Management L.L.C. and Hibernia Capital Management L.L.C. as
modified by the Creditor Settlement Agreement and assumption and
assignment of certain executory contracts, licenses and intellectual
property rights for a credit bid of $2,000,000. As part of the Creditor
Settlement Agreement, Algonquin Capital Management L.L.C. and Hibernia
Capital Management L.L.C. reconveyed to the bankruptcy estate a 60%
ownership in the Water Assets of the Company. The Bill of Sale
consummating the sale was signed on February 19, 2003. During September
2003, an additional $80,000 was paid to the Company by PowerPlay Energy
pursuant to the creditor settlement agreement.
Having sold its assets and ceased operations, the Company was not in a
financial position to support the on-going operations needed to develop
the Water Assets. On May 20, 2003, the Bankruptcy Court approved the
sale of the Company's interest in the Water Assets to Oases
Desalination International, Ltd. in exchange for their covenant to
commercialize those assets and make certain royalty payments. Since
that time, and although they have made certain minimal payments, Oases
has been in default. Subsequently, Oases Desalination International,
Ltd. and ReEnergy Group entered into an asset purchase agreement in
which Oases Desalination International, Ltd. would sell all of its
assets, including the Water Assets, to ReEnergy Group. Because Oases
Desalination International, Ltd. is in default with the Company and has
not paid for the Water Assets, Oases Desalination International, Ltd.
and Renergy Group sought the Company's consent wherein ReEnergy Group
would directly purchase the Water Assets from the Company. After
significant negotiations, the Creditors' Committee, Oases Desalination
International, Ltd. and ReEnergy Group entered into the Consent
Agreement, in order to, among other things, provide the Company's
consent to transfer the Water Assets to ReEnergy Group for a modified
consideration of $750,000 for the Water Assets. On October 26, 2005, an
application was filed with the Bankruptcy Court to approve this
arrangement and the arrangement was approved by order dated November
16, 2005. The Company has received all of the funds in this transaction
and is being held in an account maintained by bankruptcy counsel for
the Committee.
In October of 2006, the Company signed a term sheet with Trinad Capital
Master Fund Ltd. (the Sponsor) to sponsor a plan of reorganization.
Prior to confirmation of the Chapter 11 plan of reorganization, the
Sponsor will identify a merger candidate to be merged into the Company.
The Sponsor is currently in negotiations with NorthStar Systems
International, Inc. as the potential merger candidate. Before the
merger can take place, the Company is required to bring all of its
financial, tax and SEC filings current from the last filing date of
June 30, 2002. Pursuant to orders of the United States Bankruptcy Court
10
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
September 30, 2004
NOTE 5 - BANKRUPTCY (Continued)
for the Southern District of New York, the Company has engaged
accountants, auditors and SEC counsel to complete this task. Under the
terms of the proposed plan, creditors of the Company will receive a pro
rata cash payment and stock consideration in the new merged entity. The
aforementioned consideration will be distributed to creditors of the
Company under the proposed plan of reorganization.
NOTE 6 - SALE OF ASSETS
During the six months ending June 30, 2003, the Company filed a motion
in the bankruptcy case to approve the proposed sale of substantially
all of its assets to Algonquin Capital Management, L.L.C. and Hibernia
Capital Management, L.L.C., subject to higher and better offers. By
order dated February 6, 2003, the Bankruptcy Court authorized the asset
sale agreement with Algonquin Capital Management L.L.C. and Hibernia
Capital Management L.L.C. as modified by the Creditor Settlement
Agreement and assumption and assignment of certain executory contracts,
licenses and intellectual property rights for a credit bid of
$2,000,000. As part of the Creditor Settlement Agreement, Algonquin
Capital Management L.L.C. and Hibernia Capital Management L.L.C.
reconveyed to the bankruptcy estate a 60% ownership in the Water Assets
of the Company. The Bill of Sale consummating the sale was signed on
February 19, 2003. As a result of this asset sale the Company
recognized a gain on sale of assets in the amount of $1,723,486. The
Company had no basis in the water assets prior to the original sale and
therefore recognized no gain on the subsequent return of those assets.
NOTE 7 - DEBTOR-IN-POSSESSION FINANCING
During the six months ending June 30, 2003, the Company received
$136,818 from the issuance of notes and advances pursuant to a
debtor-in-possession financing facility, approved pursuant to an order
by the United States Bankruptcy Court for the Southern District of New
York. The applicable interest rate was 15%.
NOTE 8 - SUBSEQUENT EVENTS
During the quarter ended December 31, 2005, the Company sold its
ownership interest in the water assets pursuant to an order dated
November 16, 2005, by the United States Bankruptcy Court for the
Southern District of New York. As consideration for this ownership
interest the Company received total cash proceeds of $750,000 paid in
three installments. The first two installments were made prior to
December 31, 2005, and totaled $100,000. The remaining $650,000 was
recorded as a receivable balance at December 31, 2005, and was
subsequently received during January 2006.
During August 2007 the Company entered into a settlement agreement in
connection with the debtor-in-possession financing whereby the total
balance of principal and accrued interest was settled for a one time
payment of $380,000. As a result of the settlement the Company
recognized a gain on settlement of debt of approximately $21,700.
11
Item 2. Management's Discussion and Analysis of Results of Operations
Readers should refer to the description of the Company's bankruptcy case (the
"Bankruptcy Case") described in the Notes to the Financial Statements included
in Item 1 of this Form 10-QSB and in the Company's Form 10-KSB for the annual
period ended December 31, 2003.
Three Month Periods Ended September 30, 2004 and 2003
- -----------------------------------------------------
The business of the Company during the quarter ended September 30, 2004 included
only its consideration of various plan of reorganization opportunities and
incurring administrative expenses in connection with the Bankruptcy Case, e.g.,
related to legal, accounting and administrative activities. There were no
revenue-generating activities. The Company has had no employees since February
2003. The administrative activities of the Company are performed by outside
consultants and advisors. Direct administrative expenses of the Company totaled
$12,284 and $18,299 for the three-month periods ended September 30, 2004 and
2003, respectively. The decrease in the current period compared to the same
period in the prior year is due to lack of operations resulting from the
Company's bankruptcy filing.
Nine Month Periods Ended September 30, 2004 and 2003
- ----------------------------------------------------
The business of the Company during the nine months ended September 30, 2004
included only its consideration of various plan of reorganization opportunities
and incurring administrative expenses in connection with the Bankruptcy Case,
e.g., related to legal, accounting and administrative activities. There were no
revenue-generating activities. The Company has had no employees since February
2003. The administrative activities of the Company are performed by outside
consultants and advisors. Direct administrative expenses of the Company totaled
$26,079 and $337,654 for the nine-month periods ended September 30, 2004 and
2003, respectively. The decrease in the current period compared to the same
period in the prior year is due to lack of operations resulting from the
Company's bankruptcy filing.
Liquidity and Capital Resources
- -------------------------------
Primary sources of liquidity since the Company ceased operations have been
cash balances that have been used to pay administrative expenses. Operating
expenses of the Company have been funded with available cash retained from the
two asset sales effected as part of the Bankruptcy Case. As of the date of the
filing of this Form 10-QSB with the SEC, cash totals approximately $227,210.
Based on such balance and management's forecast of activity levels during the
period that it may remain without operations, the Company is uncertain as to
whether the present cash balance will be sufficient to pay its current
liabilities and its administrative expenses as such expenses become due;
provided that, if the Plan is confirmed, the Company believes that the present
cash balance will be sufficient to pay its current liabilities and its
administrative expenses as such expenses become due.
Uncertainties Relating to Forward Looking Statements
- ----------------------------------------------------
"Item 2. Management's Discussion and Analysis or Plan of Operation" and other
parts of this Form 10-QSB contain certain "forward-looking statements" within
the meaning of the Securities Act of 1934, as amended. While the Company
believes any forward-looking statements it has made are reasonable, actual
results could differ materially since the statements are based on current
management expectations and are subject to risks and uncertainties. These risks
and uncertainties include, but are not limited, to the following:
o There can be no assurance that the plan of reorganization filed with
the United States Bankruptcy Court for the Southern District of New
York ("Bankruptcy Court") on January 15, 2008, or any other plan of
reorganization, will be approved by the Bankruptcy Court and effected.
o There can be no assurance that Trinad Capital Master Fund Ltd. (the
"Plan Sponsor") will reach agreement on definitive documentation for a
merger with NorthStar Systems International Inc. ("NorthStar"), or any
other potential merger candidate.
o Even if a plan of reorganization is approved by the Bankruptcy Court
and effected, there can be no assurance as to the terms of any such
plan, including without limitation as to the distributions, if any, to
be made to existing creditors and stockholders of the Company.
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o The Plan Sponsor may withdraw at any time prior to confirmation of a
plan of reorganization, including without limitation, due to
unsatisfactory results of its due diligence on NorthStar. In such
event, the Company may substitute the Plan Sponsor with another person
or entity offering to purchase stock in the newly merged entity under
the plan of reorganization on terms and conditions that may not be the
same, or as economically favorable to the Company's estate, as those
are being offered by the Plan Sponsor. In such event, the recovery for
unsecured creditors would likely be dramatically reduced.
o No public market exists for stock in the merged entity, and it is not
anticipated that any will necessarily develop in the foreseeable
future. Therefore, notwithstanding the legal ability to trade such
stock, any recipient thereof should expect that it might have to hold
the stock for an indefinite period of time.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our principal executive officer and
principal financial officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
as of the end of the period covered by this quarterly report. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that these disclosure controls and procedures are effective and
designed to ensure that the information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the requisite time periods.
(b) Changes in internal controls.
There was no change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended) identified in connection with the evaluation of our internal control
performed during the quarter ended September 30, 2004 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits
Exhibits filed herewith are set forth in the Index to Exhibits and are
incorporated herein by reference.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
/s/ MICHAEL HOPPER
- ---------------------------
Name: Michael Hopper
Title: Authorized Signatory
Date: January 31, 2008
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INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- ------ ----------------------
31.01 Certification pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of
the Sarbanes Oxley Act of 2002).**
32.01 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.**
** Filed herewith.