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 March 31, 2005
[ ] 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
March 31, 2005
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
------
March 31,
2005
-------------
(Unaudited)
CURRENT ASSETS
Cash - restricted $ 2,007
-------------
Total Current Assets 2,007
-------------
EQUIPMENT, NET -
-------------
TOTAL ASSETS $ 2,007
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 2,504,207
Accrued expenses 9,953,744
Notes payable - related parties 1,033,469
Notes and convertible debentures payable - current portion 8,674,884
-------------
Total Current Liabilities 22,166,304
-------------
Total Liabilities 22,166,304
-------------
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 (57,895,261)
-------------
Total Stockholders' Equity (Deficit) (22,164,297)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 2,007
=============
The accompanying notes 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 Inception on
Three Months Ended March 26,
March 31, 1992 Through
---------------------------------- March 31,
2005 2004 2005
--------------- ---------------- ---------------
REVENUES $ - $ - $ -
--------------- ---------------- ---------------
EXPENSES
General and administrative 14,581 10,480 432,298
Depreciation and amortization - - 15,964
--------------- ---------------- ---------------
Total Expenses 14,581 10,480 448,262
--------------- ---------------- ---------------
LOSS FROM OPERATIONS (14,581) (10,480) (448,262)
--------------- ---------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 27 35 308
Gain (loss) on sale of assets - - 1,736,986
Interest expense (8,880) (8,980) (8,877,768)
--------------- ---------------- ---------------
Total Other Income (Expense) (8,853) (8,945) (7,140,474)
--------------- ---------------- ---------------
INCOME (LOSS) BEFORE
INCOME TAXES (23,434) (19,425) (7,588,736)
Income tax expense - - 114,229
--------------- ---------------- ---------------
INCOME (LOSS) BEFORE
DISCONTINUED OPERATIONS (23,434) (19,425) (7,702,965)
(Loss) from discontinued
operations - - (50,192,296)
--------------- ---------------- ---------------
NET INCOME (LOSS) $ (23,434) $ (19,425) $ (57,895,261)
=============== ================ ===============
BASIC AND DILUTED LOSS PER
SHARE
Income (loss) before discontinued
operations $ (0.00) $ (0.00)
Discontinued operations 0.00 0.00
--------------- ----------------
Net loss $ (0.00) $ (0.00)
=============== ================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 56,182,746 56,182,746
=============== ================
The accompanying notes 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, 2004 56,182,746 561,827 35,169,137 - - (57,871,827)
Net income for the three months ended
March 31, 2005 (Unaudited) - - - - - (23,434)
------------ ------------ ------------ --------------- ------------ -------------
Balance, March 31, 2005 (Unaudited) 56,182,746 $ 561,827 $ 35,169,137 $ - $ - $ (57,895,261)
============ ============ ============ =============== ============ =============
The accompanying notes 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 Three Months Ended March 26,
March 31, 1992 Through
------------------------------------- March 31,
2005 2004 2005
----------------- ----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (23,434) $ (19,425) $ (57,895,261)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization - - 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 - - (1,736,986)
Impairment loss - - 12,302,123
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 - - (5,772,221)
Increase (decrease) in accounts payable (180,902) 8,980 5,487,874
Increase (decrease) in accrued expenses 8,880 8,980 13,727,984
----------------- ----------------- ------------------
Net Cash Used by Operating Activities (195,456) (1,465) (21,685,415)
----------------- ----------------- ------------------
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 - - 93,501
Purchase of fixed assets - - (1,164,570)
Equipment procurement costs - - (564,110)
----------------- ----------------- ------------------
Net Cash Used by Investing Activities - - (1,897,638)
----------------- ----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - - 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 $ - $ - $ 23,585,060
----------------- ----------------- ------------------
The accompanying notes are an integral part of these consolidated financial
statements.
5
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Unaudited) (Continued)
From
Inception on
For the Three Months Ended March 26,
March 31, 1992 Through
--------------------------------------- March 31,
2005 2004 2005
----------------- ----------------- ------------------
NET INCREASE (DECREASE) IN CASH $ (195,456) $ (1,465) $ 2,007
CASH AT BEGINNING OF PERIOD 197,463 185,326 -
----------------- ----------------- ------------------
CASH AT END OF PERIOD $ 2,007 $ 183,861 $ 2,007
================= ================= ==================
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 notes 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
March 31, 2005
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, 2004 Annual Report on Form 10-KSB. Operating results for
the three months ended March 31, 2005 are not necessarily indicative
of the results that may be expected for the year ending December 31,
2005.
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:
March 31,
2005
-----------------
(Unaudited)
Accrued payroll taxes payable $ 60,266
Accrued interest payable - payroll 52,717
Accrued payroll tax penalty 98,845
Accrued taxes payable 274,288
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 1,439,328
Accrued contingency for additional post
Petition claims 222,411
-----------------
Total $ 9,953,744
=================
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 March 31,
2005 of approximately $57,895,261. The Company does not have an
established source of funds sufficient to cover its operating costs,
has a working capital deficit of approximately $22,164,000, has relied
exclusively on debt and equity financing. Additionally the Company's
wholly-owned subsidiary Sigma was forced into bankruptcy because of
non-payment of employee salaries. Accordingly, there is substantial
doubt about its ability to continue as a going concern.
7
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2005
NOTE 3 - GOING CONCERN (Continued)
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 March 31, 2005.
These options expire on various dates beginning in April 2005 and
ending in January 2012.
The following table summarizes information about employee stock
options outstanding at March 31, 2005:
Number of Weighted
Options Average Weighted Number of
Outstanding Remaining Average Exercisable at
Exercise March 31, Contractual Exercise March 31,
Price 2005 Life Price 2005
- ----------- ----------- ----------- --------- --------------
$ 1.00 3,007,456 6.75 years $ 1.00 3,007,456
$ 0.05 387,694 7.25 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
March 31,
--------------------------------
2005 2004
-------------- --------------
Net income (loss) as reported $ (23,434) $ (19,425)
Proforma (23,434) (19,425)
Basic and diluted income (loss)
per share as reported (0.00) (0.00)
Pro forma (0.00) (0.00)
8
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2005
NOTE 4 - DILUTIVE INSTRUMENTS (Continued)
There were no stock options granted during the three months ended
March 31, 2005.
b. Warrants
A summary of the Company's outstanding warrants as of March 31, 2005,
and changes during the three months then ended is presented below:
Weighted
Average
Exercise
Shares Price
----------- --------
Outstanding, December 31, 2004 8,264,613 $ 0.85
Granted - -
Expired/Cancelled (100,000) (1.10)
Exercised - -
----------- --------
Outstanding, March 31, 2005 8,164,613 $ 0.85
=========== ========
Exercisable, March 31, 2005 8,164,613 $ 0.85
=========== ========
Outstanding Exercisable
------------------------------------------- --------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at March Contractual Exercise at March Exercise
Exercise Prices 31, 2005 Life Price 31, 2005 Price
- --------------------- ------------- ------------ ------------- ------------- ----------
$ 1.50 120,000 1.25 $ 1.50 120,000 $ 1.50
0.90-1.00 4,739,668 1.75 0.97 4,739,668 0.97
0.50-0.75 3,304,945 1.76 0.65 3,304,945 0.65
- --------------------- ------------- ------------ ------------- -------------- ----------
$ 0.50-1.50 8,164,613 1.72 $ 0.85 8,164,613 $ 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
9
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2005
NOTE 5 - BANKRUPTCY (Continued)
terminated substantially all of its employees. 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
10
OCEAN POWER CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
March 31, 2005
NOTE 5 - BANKRUPTCY (Continued)
and SEC filings current from the last filing date of June 30, 2002.
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 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 quarter ending March 31, 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, 2004.
Three Month Periods Ended March 31, 2005 and 2004
- -------------------------------------------------
The business of the Company during the quarter ended March 31, 2005 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 2003. The
administrative activities of the Company are performed by outside consultants
and advisors. Direct administrative expenses of the Company totaled $14,581 and
$10,480 for the three-month periods ended March 31, 2005 and 2004, respectively.
The increase in the current period compared to the same period in the prior year
is due primarily to legal and consulting fees as the Company attempts to
complete and exit bankruptcy.
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.
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.
12
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 March 31, 2005 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.
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
13
INDEX TO EXHIBITS
Exhibit Description of Exhibit
- ------- ----------------------
Number
- ------
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.