U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2002
Commission File Number 0-18260
THE NEW WORLD POWER CORPORATION
(Exact name of small business issuer as specified
in its charter)
Delaware 52-1659436
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
The Farmhouse, 558 Lime Rock Road, Lime Rock CT. 06039
(Address and Zip Code of Principal Executive Offices)
(860) 435-7000
Issuer's Telephone Number
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 X No .
There were 5,439,813 shares of the registrant's common stock
outstanding as of September 30, 2002.
THE NEW WORLD POWER CORPORATION
- FORM 10QSB - INDEX -
Page(s)
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2002
(unaudited) and December 31, 2001(audited) 3
Condensed Consolidated Statements of Operations for the Nine
and Three Months Ended September 30, 2002 and 2001
(unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2002 and 2001 (unaudited) 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Plan of Operations 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Controls And Procedures 24
Item 4. Defaults Upon Senior Securities 24
Item 5. Submission of Matters to a Vote of Security Holders 24
Item 6. Other Information 24
Item 7. Exhibits and Reports on Form 8-K 24
Signatures 25
The interim consolidated condensed Financial Statements have not been reviewed
by the Company's independent public accountant. See Management's Discussion and
Analysis and accompanying notes.
PART I. Financial Information
Item 1. Financial Statements
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Restated)
September 30, December 31,
2002 2001
(Unaudited) (Audited)
------------ -----------
CURRENT ASSETS
Cash and cash equivalents $ 869 $ 25,265
Cash restricted in use 14,198 19,108
Accounts receivable 23,395 108,708
Other current assets - 8,695
------------- -----------
Total current assets 161,776 161,776
------------- -----------
Property, plant and equipment, net 1,660,066 2,396,487
Goodwill, net of impairment - 467,875
Net assets from discontinued operations - 3,312,202
Other assets 267,678 272,520
------------ -----------
1,937,744 6,449,084
------------ -----------
TOTAL ASSETS $ 1,966,206 $ 6,610,860
=========== ===========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
The interim consolidated condensed financial statements have not been reviewed
by the Company's independent public accountant. See Management's Discussion and
Analysis and accompanying notes.
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 1,689,347 $ 671,709
Due to related parties 2,345,740 2,072,104
----------- -----------
Total current liabilities 4,035,087 2,743,813
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value; authorized
4,000,000 shares; 0 shares issued and
outstanding - -
Common stock, $.01 par value; authorized
40,000,000 shares; 5,439,813 shares issued
and outstanding 54,398 54,398
Additional paid-in capital 84,084,032 84,084,032
Accumulated deficit (86,207,311) (80,271,383)
------------ -----------
Total stockholders' equity (deficit) ( 2,068,881) 3,867,047)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,966,206 $ 6,610,860
============ ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
The interim consolidated condensed financial statements have not been reviewed
by the Company's independent public accountant. See Management's Discussion and
Analysis and accompanying notes.
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NINE MONTHS (RESTATED)
ENDED THREE MONTHS ENDED
------------- -----------------------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
OPERATING REVENUE $ 775,950 $ 686,461 $ 98,198 $ 86,737
COST OF OPERATIONS 337,672 358,585 117,247 115,756
---------------- ------------ ------------ -----------
GROSS PROFIT (LOSS) 438,278 327,876 (19,049) (29,019)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,857,711 550,910 1,032,325 163,200
---------------- ------------ ------------ ----------
OPERATING LOSS (1,419,433) (223,034) (1,051,374) (192,219)
---------------- ------------ ------------ -----------
OTHER INCOME (EXPENSE)
Interest expense (116,978) (149,927) (53,039) (48,585)
Interest income 27 - - -
Loss from impairment
of property, plant
and equipment (637,438) - - -
Impairment of
goodwill (322,453) - - -
Other - 13,146 - 82,122
---------------- ------------- ------------ -----------
Total other
income (expense) (1,076,842) (136,781) (53,039) 33,537
---------------- ------------- ------------ -----------
LOSS BEFORE INCOME
TAXES (2,496,275) (359,815) (1,104,413) (158,682)
Provision for
income taxes - - - -
---------------- ------------- ----------- -----------
LOSS FROM CONTINUING
OPERATIONS (2,496,275) (359,815) (1,104,413) (158,682)
Income (Loss) from
discontinued
operations (net of
income taxes) (861,583) 1,703,720 - 941,827
Loss on disposal of
subsidiary (2,578,069) - - -
----------------- ------------- ------------ -----------
NET INCOME (LOSS) $ (5,935,927) $ 1,343,905 $ (1,104,413) $ 783,145
================= ============= ============ ===========
BASIC AND DILUTED INCOME (LOSS)
PER SHARE
Basic from
continuing
operations $ (0.46) $ (0.07) $ (0.20) $ (0.03)
============= ================ ============= ===========
Diluted from
continuing
operations $ (0.46) $ (0.06) $ (0.20) $ (0.03)
============= ================ ============= ===========
Basic from
discontinued
operations $ (0.16) $ 0.32 $ - $ 0.17
============= =============== ============= ===========
Diluted from
discontinued
operations $ (0.16) $ 0.30 $ - $ 0.17
============= =============== ============ ===========
Basic and
diluted from )
disposal of
subsidiary $ (0.47) $ - $ - $ -
============= =============== ============ ===========
AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING
Basic 5,439,813 5,406,828 5,439,813 5,439,813
============= =============== ============ ===========
Diluted 5,439,813 5,700,831 5,439,813 5,520,803
============= =============== ============ ===========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
The interim consolidated condensed financial statements have not been reviewed
by the Company's independent public accountant. See Management's Discussion and
Analysis and accompanying notes.
THE NEW WOLRD POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(RESTATED)
2002 2001
----------- ----------
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (5,935,927) $ 1,343,905
------------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Common stock issued for services rendered and
compensation - 37,000
Depreciation and amortization 123,541 119,821
Amortization of goodwill - 13,395
Loss on disposal of subsidiary 2,578,069 -
Property, plant and equipment impairment charge 637,438 -
Goodwill impairment loss 467,875 -
Amortizaition of deferred project costs - 16,369
Changes in assets and liabilities
Decrease in accounts receivable 85,313 22,963
Decrease in other current assets 8,695 1,086
Decrease in other assets 4,841 -
Increase in accounts payable and accrued
liabilities 1,017,638 111,106
Decrease (increase) in net assets from
discontinued operation 734,133 (1,269,621)
--------- ----------
Total adjustments 5,657,543 (947,881)
--------- ----------
Net cash provided by (used in) operating
activities (278,384) 396,024
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (24,558) (1,354,896)
---------- ----------
Net cash (used in) investing activities (24,558) (1,354,896)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in amounts due to related parties 273,636 1,084,278
Payments of long-term debt - (4,695)
Payment of capital lease obligations - (132,559)
Decrease in restricted cash 4,910 11,363
---------- ----------
Net cash provided by financing activities 278,546 958,387
---------- ----------
NET DECREASE IN
CASH AND CASH EQUIVALENTS (24,396) (485)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 25,265 597
---------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 869 $ 112
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest paid $ - $ 149,927
========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Common stock issued for services and
compensation $ - $ 37,000
========== ===========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
The interim consolidated condensed financial statements have not been reviewed
by the Company's independent public accountant. See Management's Discussion and
Analysis and accompanying notes.
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated unaudited interim financial statements
included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
The consolidated financial statements and notes are presented as
permitted on Form 10-QSB and do not contain information included
in the Company's annual consolidated statements and notes. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have
been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to
make the information presented not misleading. The results for the
nine and three months ended September 30, 2002 may not be
indicative of the results for the entire year.
These statements reflect all adjustments, consisting of normal
recurring adjustments which, in the opinion of management, are
necessary for fair presentation of the information contained
herein.
The New World Power Corporation ("the Company", or "New World")
was incorporated in the State of Delaware in 1989. The Company is
an independent power producer that focuses on distributed
generation solutions, including renewable and mobile, modular
generation facilities. The Company sells electric capacity energy
to regulated electric utilities and industrial customers under
long-term and mid-term contracts.
The results of operations for the nine month period ended
September 30, 2002 are not necessarily indicative of the results
to be expected for a full year since in prior periods the Company
recognized revenues from the two power sales agreements between
the facilities of its Modular Power Systems, LLC subsidiary
("Modular") and the Consumers Power Company ("Consumers"), known
as the "Modular I Power Purchase Agreements" ("Modular I PPAs"),
only during the second and third quarters of the year when the
Modular I PPAs are in force. However, it recognized certain costs
relating to its Modular business in the period that expenses are
incurred, generally each quarter. Furthermore, in July 2002, the
Company transferred 100% of its ownership interest in Modular,
representing the entirety of Modular's membership interests, to a
third party as part of a litigation settlement (see Note 10).
The condensed consolidated financial statements for the nine
months ended September 30, 2001 include reclassifications of the
operations of the Company to reflect the disposal of Modular,
which took effect July 15, 2002. The 2002 and 2001 statements have
been reclassified to January 1, 2001 to reflect the Modular
operations below the line as discontinued operations in accordance
with the provisions of FASB 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". In addition, the financial
statements for the nine months ended September 30, 2001 include
certain other reclassifications to conform to the presentation for
the nine months ended September 30, 2002.
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The unaudited condensed consolidated balance sheet for September
30, 2002, unaudited condensed consolidated statements of
operations for the nine and three months ended September 30, 2002
and 2001 and unaudited statements of cash flows for the nine
months ended September 30, 2002 and 2001include New World Power
Corporation and its wholly-owned subsidiaries, Wolverine Power
Corporation and Modular.
Intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other
short-term investments with an initial maturity of three months or
less to be cash or cash equivalents.
The Company maintains cash and cash equivalent balances at several
financial institutions which are insured by the Federal Deposit
Insurance Corporation up to $100,000.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed primarily using the straight-line method over the
estimated useful life of the assets.
Automobiles and Trucks 3-5 years
Office Furniture and Equipment 5-7 years
Power Generation Facilities and Equipment 25-40 years
Revenue Recognition
The Company records revenue from the sale of electric power generated
upon the delivery of the electric power to the purchasing utility or
in accordance with the terms of the power purchase THE NEW WORLD
POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
agreements. Provisions for doubtful accounts are made when losses
are anticipated.
Facility Development
The Company may develop new power production facilities or acquire
existing power production facilities for both operation and
development. Accounting for costs incurred in the development
phase is as follows:
New power production facilities: All costs (including financing,
legal and other professional costs, development period interest on
any financing, development period labor and supply costs, and
development period operating costs) attributed to facilities
developed by the Company are deferred, until the facility is
completed and placed in productive service. At that time, deferred
costs are amortized on a straight-line basis over the expected
useful life of the facility, usually 25-40 years.
Facilities acquired for operation: These facilities are
substantially ready to be placed in productive service when
acquired. The purchase price, along with other acquisition costs,
including financing, legal and other professional fees are
principally assigned to the facility and depreciated over the
expected useful life of the facility. Any identified intangible
recorded, is amortized on a straight-line basis over a period
consistent with the period used for the related facility
depreciation, usually 10-40 years.
Other project deferrals: The Company defers costs, including
professional services and direct labor, incurred for site
inspections, site permits, interconnection costs and deposits
related to specific project activities. These costs are
capitalized until deemed to be unrecognizable, at which time they
are written off.
Advertising
Advertising costs are typically expensed as incurred and included
in selling, general and administrative expenses for the nine
months ended September 30, 2002 and 2001, respectively.
Income Taxes
The income tax benefit is computed based on the current tax law.
Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end
based on enacted tax laws and statutory tax rates.
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The carrying amount reported in the condensed consolidated balance
sheets for cash and cash equivalents, notes receivable, and
accounts payable approximate fair value because of the immediate
or short-term maturity of these financial instruments.
Earnings (Loss) Per Share of Common Stock
Historical net income (loss) per common share is computed using
the weighted average number of common shares outstanding. Diluted
earnings per share (EPS) includes additional dilution from common
stock equivalents, such as stock issuable pursuant to the exercise
of stock options and warrants.
The following is a reconciliation of the computation for basic and
diluted EPS:
2002 2001
------- ------
Net income $ (5,935,927) $ 1,343,905
Weighted-average common shares
outstanding (Basic) 5,439,813 5,406,828
Weighted-average common stoci Equivalents
Stock options and warrants - 294,003
--------- ---------
Weighted-average common shares
outstanding (Diluted) 5,439,813 5,700,831
========= =========
Options and warrants outstanding to purchase stock were not
included in the computation of diluted EPS in 2002 because
inclusion would have been antidilutive.
Recent Accounting Pronouncement
In September 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001.
Under the new rules, the pooling of interests method of
accounting for business combinations is no longer allowed and
goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful
lives. The Company adopted these new standards effective January
1, 2002 and based on the recent contract dispute with Consumers as
fully described in Note 4 and the subsequent disposal of Modular,
wrote off in the first quarter of 2002 all goodwill in the
aggregate amount of $145,422 related to the purchase of Modular.
As a result of the disposal of Modular, this impairment charge is
included in the loss from discontinued operations of a subsidiary
in the consolidated statements of operations for the three and
nine months ended September 30, 2002. In July 2002, the Company
completed the transitional impairment test for goodwill related to
the acquisition of Wolverine Power Corporation ("Wolverine").
Since the fair value of Wolverine exceeded its book value, the
Company recorded a goodwill impairment charge of $322,453.
THE NEW WORLD POWER CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncement (Continued)
On October 3, 2001, the FASB issued Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), that is applicable to
financial statements issued for fiscal years beginning after
December 15, 2001. The FASB's new rules on asset impairment
supersede SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and portions
of Accounting Principles Board Opinion 30, "Reporting the Results
of Operations." This Standard provides a single accounting model
for long-lived assets to be disposed of and significantly changes
the criteria that would have to be met to classify an asset as
held-for-sale. Classification as held-for- sale is an important
distinction since such assets are not depreciated and are stated
at the lower of fair value and carrying amount. This Standard also
requires expected future operating losses from discontinued
operations to be displayed in the period (s) in which the losses
are incurred, rather than as of the measurement date as presently
required. As a result of the adoption of FASB No. 142, the Company
obtained an independent third party appraisal of the fair value of
the property plant and equipment of Wolverine. The fair value of
these assets was determined using a future cash flow evaluation
approach. The book value of these assets exceeds their appraisal
value by $637,438. Accordingly, the Company has recorded an
impairment loss of $637,438 in the consolidated statements of
operations for the nine months ended September 30, 2002.
NOTE 3 - GOING CONCERN UNCERTAINTY
The accompanying condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America, which contemplates
continuation of the Company as a going concern. However, the
Company's sole remaining subsidiary, as of September 30, 2002,
Wolverine, was in default on its first mortgage of approximately
$1,250,000 owed to Synex International ("Synex") and its second
mortgage loan of approximately $80,000 owed to an individual. The
Company and Synex agreed to a forbearance agreement between the
parties whereby Synex would not foreclose on its first mortgage
until after December 31, 2002, subject to Wolverine using its best
efforts to refinance the debt owed Synex plus making interest
payments if available from Wolverine cash flow beginning September
2002 and continuing on a monthly basis. These payments did not
occur, and the mortgages were in default. In July 2003, the
Company sold Wolverine Power Corporation, with the mortgages
assumed by the acquirer (See Note 16).
Management of the Company determined that, as a result of the poor
power markets in Michigan and its dispute with Consumers, the
Company should seek new business direction, which included the
sale of Wolverine. The Company's plans also included retention of
new management (See Note 16).
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 3 - GOING CONCERN UNCERTAINTY (CONTINUED)
In view of these matters, realization of the assets of the Company
is dependent upon the Company's ability to meet its financial
requirements and the success of future operations. These condensed
consolidated financial statements do not include adjustments
relating to the recoverability and classification of recorded
asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
NOTE 4 - MODULAR POWER SYSTEMS CONTRACT
On December 14, 2000, Modular signed a new, one-year PPA to
provide 46.4 MW of capacity and related energy to Consumers (the
"Modular II PPA"). Under the Modular II PPA, the Company received
$2,784,000 and recorded that amount as deferred revenues (See Note
9 - Deferred Revenues). The Company hoped to extend the Modular II
PPA for an incremental five years and with such extended PPA in
place, finance and build permanent facilities. The Company
retained agents to petition Consumers for an extension of the
Modular II PPA. During 2001, the Company expended funds to pay for
the development, procurement and construction of permanent Modular
II
facilities, including the acquisition of the necessary permits
to begin construction of the facilities as well as the procurement
of essential long lead-time equipment and other items for the
facilities, totaling approximately $2.0 million. The Company tried
to obtain the right to a five-year extension of the Modular II
PPA. The Company was unable to successfully complete the above
tasks for Modular II, and was forced to cancel the planned
construction of the Modular II facility and reduce the cost of its
development and procurement expenditures to date to net realizable
value. The Company recorded approximately $1,820,000 in 2001 to
reflect the write-down to net realizable value of these assets.
These amounts are reflected in the income from discounted
operations.
In late July and early August 2001, Michigan suffered through
extremely hot conditions. Accordingly, Modular received notice to
provide electricity to Consumers pursuant to the PPAs (both
Modular I and Modular II). Because Modular II was not fully
operational and also because of certain equipment failures at
Modular I, Modular is subject to liquidated damages payable to
Consumers in the amount of approximately $750,000 which was
reflected as an expense in the Company's financial statements for
the nine months ended September 30, 2001, also reflected in the
income from discounted operations.
In January 2002, Consumers withheld the payment due to Modular
under one of the Modular I PPAs. The payment of approximately
$1,080,000 was due on January 5, 2002. In April 2002, Consumers
notified Modular that it was electing to terminate the Modular I
PPAs. The Company does not believe that Consumers has any grounds
to terminate the PPAs, and has informed Consumers of their
position on this matter. The new owner of Modular is now handling
this matter.
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 5 - DUE TO RELATED PARTIES
In July 1998, the Company obtained a convertible debt investment
from Synex. Synex provided the Company with $1,000,000 in the form
of a convertible debenture that originally matured on July 1,
2001. The convertible debenture was secured by a first mortgage
position on Wolverine. The Company and Synex had been discussing
terms under which the convertible debenture maturity date could be
extended. In August 2001, the Company and Synex reached an
agreement whereby the maturity date of the convertible debenture
was extended to November 1, 2001 and a further extension to
November 30, 2001 was agreed to by the Company and Synex. The
convertible debenture was in default. At that time, the Company
and Synex had entered into a Forbearance Agreement. The $1,000,000
plus interest of $196,128 are both included in due to related
parties on the condensed consolidated balance sheet at September
30, 2002.
In connection with the acquisition of Modular in March 2000, the
Company was issued a bridge note in the amount of $700,000 (the
"Strategic Bridge Note") from Strategic Electric Power Fund, LLC
and certain related investors ("Strategic"). The Strategic Bridge
Note had an original maturity date of December 31, 2000, which was
extended to July 1, 2001. In August 2001, the Company and
Strategic reached a new agreement whereby the Strategic Bridge
Note was extended to November 1, 2001 and further extended to
November 30, 2001 in exchange for the Company issuing warrants and
the collateralization of the Strategic Bridge Notes using
Wolverine and Modular as collateral. In connection with these
transactions, Strategic advanced the Company additional amounts
totaling $227,000 in the aggregate, with an additional $26,765 in
accrued interest for a total outstanding of $953,765 due as of
September 30, 2002. The Strategic notes had a maturity date of
December 31, 2002. These amounts are currently in default and
classified as current liabilities.
The Company has $85,349 due at September 30, 2002 to another
related party which includes accrued interest and $110,500
outstanding to another related entity through common ownership.
All amounts are due on demand.
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 6- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at
September 30, 2002:
Land $ 401,211
Plant Generation Facilities and Equipment 3,854,907
Automobiles and Trucks 72.587
Office Furniture and Equipment 25,817
-----------
Less: accumulated depreciation (2,694,456)
-----------
Ner property, plant and equipment $ 1,660,066
===========
NOTE 7- STOCKHOLDERS' EQUITY (DEFICIT)
Common and Preferred Stock
The Company has 40,000,000 shares of common stock authorized, and
as of September 30, 2002, there are 5,439,813 shares issued and
outstanding. The par value of this stock is stated at $.01 per
share.
The Company in the nine months ended September 30, 2002 has not
had any issuances of common stock.
In January 2001, the Company issued 7,000 shares of common stock
valued at $7,000 to an independent contractor for services
rendered. On March 31, 2001, the Company issued 100,000 shares of
common stock as a result of its President exercising certain of
his options.
The Company has 4,000,000 shares of preferred stock authorized,
and as of September 30, 2002, there are no shares issued and
outstanding. The par value of this stock is stated at $.01 per
share.
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 8 - OTHER DEBT
Capital lease obligations default
As a result of the contract dispute with Consumers described in
Note 4, the Company was unable to make the January 2002 payment
under its capital lease obligation with Caterpillar Financial
Services Corporation ("Caterpillar").
The payment was due on January 15, 2002 in the amount of
approximately $589,000. As a result of the transfer of 100%
ownership interest in Modular, the Company has no further
obligation to Caterpillar.
In addition, all other capital lease obligations associated with
the Modular subsidiary were reclassified in 2001 and reflected in
the total for net assets from discontinued operations when the
Modular contractors took over the company. As a result, in the
restated consolidated balance sheet, these liabilities are no
longer obligations of the Company.
Default on Mortgage
The Company was in default of its obligation under the Mortgages
Payable included in due to related parties aggregating $1,196,128
(see Note 5). The Company was in discussion with Synex and other
parties regarding various alternatives to cure the default and
repay/restructure the obligation. This never materialized, and the
payable from Wolverine was assumed in the transaction when
Wolverine was sold by the Company in August 2003.
NOTE 9 - DEFERRED REVENUE
On December 27, 2000, the Company received a payment of $2,784,000
from Consumers with respect to Modular 2 (See Note 4) in
accordance with the provisions of the Call Option Agreement
between the parties dated December 14, 2000. The payment
represented revenues for having available capacity from May 1 to
September 30, 2001. Accordingly, the Company recorded the payment
as deferred revenue and recognized it as operating revenues in the
periods earned between May 1 and September 30, 2001. However, in
the restatement, this activity is not reflected due to the
retroactive presentation of the disposal of Modular.
In January and May of 2001, the Company received two payments from
Consumers in accordance with the provisions of the Modular I PPAs
between the parties regarding the Company's existing Modular I
projects at Alma, Coldwater and Chelsea, Michigan. The payments
represented the annual revenues to the Company for having
installed capacity available from May 1 to September 30, at the
Company's Modular I for each year through 2005. However, in the
restatement, this activity is not reflected due to the retroactive
presentation of the disposal of Modular.
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 10 - LITIGATION
As a result of the non payment of certain amounts owed to various
contractors associated with its Modular II facilities (the
"Modular Contractors"), Modular was a defendant in litigation
commenced by the Modular Contractors. In addition, the Company was
named a defendant in other legal actions initiated by the Modular
Contractors. Two of the Modular Contractors obtained judgments
against the Company in the amount of approximately $3.0 million.
These amounts have previously been included in accounts payable
and long-term debt. On July 15, 2002, the Company executed a
settlement agreement and transferred 100% of its ownership in
Modular to the Modular Contractors. In addition, the Company paid
$15,000 and issued warrants to acquire 100,000 shares of its
common stock at an exercise price of $1.00 per share. The warrants
expire in 5 years.
NOTE 11 - DISPOSAL OF MODULAR
On July 15, 2002, the Company executed a settlement agreement and
transferred 100% of is ownership in Modular to the Modular
Contractors (see Note 10). The Company's condensed consolidated
financial statements have been restated to reflect Modular as a
discontinued operation for all periods presented. Summarized
operating results of Modular's discontinued operations are as
follows:
For Three Months Ended For Nine Months Ended
2002 2001 2002 2001
Revenues $ -0- $ 3,324,473 $ -0- $ 5,214,144
Income (loss) before
income taxes $ -0- $ 1,074,827 $ (861,583) $ 1,848,720
Provision for taxes - 133,000 - 145,000
---------- ----------- ----------- ------------
Net income (loss) $ -0- $ 941,827 $ (861,583) $ 1,703,720
Net income (loss)
per share $ -0- $ 0.17 $ (0.16) $ .31
========== =========== =========== ============
Diluted income
(loss) per share $ -0- $ 0.17 $ (0.16) $ .30
========== =========== =========== ============
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2002 AND 2001
(Unaudited)
NOTE 12 - EMPLOYMENT CONTRACTS
Termination of Employment Contract
Effective May 1, 2002, the Company terminated the employment
agreement with its President. The Company had negotiated the terms
of a severance agreement. As a result of the termination of the
Company's President, effective May 8, 2002, the board of directors
of the Company approved that John D. Kuhns, Chairman, and Mary
Fellows, Secretary, be compensated by Wolverine for their direct
management services at the levels of $120,000 and $60,000 per
annum, respectively.
NOTE 13 - COMMITMENTS
In January 2001, the Company signed an agreement to acquire all of
the outstanding shares of Block Island Power Company, a Rhode
Island regulated utility. The acquisition was contingent upon the
Company's completion of due diligence and the execution of a
definitive agreement. In April 2001, the parties mutually agreed
to terminate discussions. As part of the initial agreement, the
Company made a deposit of $100,000 and incurred costs of
approximately $32,000. Upon termination of the agreement, the
Company executed a mutual release and settlement agreement and
$40,000 of the deposit was retained by Block Island Power Company.
Accordingly, the Company included the total costs of the due
diligence of approximately $72,000 in the Consolidated Statements
of Operations as Other income (Expense) in 2001.
The Federal Power Act requires that all hydroelectric facilities
operating on navigable streams obtain a license from the FERC. The
Company's applications for licenses for its Michigan hydroelectric
facilities have been accepted and on October 16, 1998, the Federal
Energy Regulatory Commission issued licenses for all four hydro
projects of the Wolverine Power Corporation, a subsidiary of the
Company. In addition, the FERC amended one license rescinding its
original order that this license operates on a run-of-river basis
in which outflow would equal inflow and allow it to continue to
operate in a peaking mode. The licenses are valid for 30 years.
The Company is subject to federal and state energy laws and
regulations and federal, state and local environmental laws and
regulations in connection with the development and operation of
its generating facilities.
NOTE 14 - CONCENTRATION OF CREDIT RISK
The Company derives all of its revenue from the production and
sale of electric power generated from renewable sources. As a
result, the Company is subject to several concentrations of risk.
A significant majority of the Company's revenues are derived from
contracts for the sale of power to regulated public utilities.
Under many of these contracts, the price for energy is subject to
the utilities' avoided cost. Avoided cost is affected by, among
other factors, the availability and market prices of oil, gas and
other energy sources. Additionally, the Company will have to
renegotiate contracts with the utilities when the present
contracts expire. Further, the renewable energy industry has, in
the past, been subject to legislative and regulatory changes, and
will likely continue to be affected by such factors for the
foreseeable future.
NOTE 15 - RESTATEMENT OF FINANCIAL STATEMENTS
Included in net assets from discontinued operations at December
31, 2001, are the net assets of Modular at that balance sheet
date. These assets include property, plant and equipment, net of
obligations due on these assets. The disposal of net assets in the
amount of $3,312,202, was reflected in the 2002 consolidated
statements of income as loss on discontinued operations or loss on
disposal, in accordance with the provisions of FASB 144.
NOTE 16 - SUBSEQUENT EVENTS
In August 2003, the Company sold Wolverine Power Corporation, its
wholly owned subsidiary located in Michigan.
In October 2003, the Company formally changed its name to
Distributed Power, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN
OF OPERATIONS
Introduction
New World was incorporated in the State of Delaware in 1989. The Company is an
independent power producer that focuses on distributed generation solutions. The
Company sells electric capacity energy to regulated electric utilities and
industrial customers under long-term and mid-term contracts. The Company is
organized as a holding company. Each electric power generating facility or
discreet group of facilities is owned by a separate corporate entity. Executive
management, legal, accounting, financial and administrative matters are provided
at the holding company level. Operations are conducted at the subsidiary level.
Prior to July 15, 2002, the Company owned and operated two subsidiaries,
Wolverine and Modular. Each subsidiary owned and operateed electric generation
facilities. Wolverine owned 4 hydroelectric generating facilities with an
aggregate capacity of a 10.50 megawatts, headquartered near Edenville, Michigan;
Modular owned 43 megawatts of mobile, trailer mounted and containerized
diesel-fired electric generating facilities constituting the Modular I project
at three sites in Coldwater, Chelsea and Alma, Michigan. In December 2000, the
Company signed the Modular II PPA for an additional 46 MW under a one-year PPA
with Consumers for what was expected to be the Modular II project. The Company
was negotiating to purchase certain interests, including an existing 5-year
contract and certain equipment, sites and interconnection rights to permanently
develop and construct the Modular II project. The Company was not successful in
completing this transaction and accordingly, has written down to net realizable
value the expenditures and obligations incurred on Modular II to date. (See Note
3 of Notes to Financial Statements). On July 15, 2002, the Company transferred
100% of its ownership in Modular to the Modular Contractors as part of a
litigation settlement (see Note 10 of Notes to Financial Statements). Finally,
the Company in August 2003 sold its subsidiary Wolverine Power Corporation. (see
Note 16 of Notes to Financial Statements).
This quarterly report of Form 10QSB discusses certain matters that may be
considered "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, including statements regarding the intent, belief or
current expectations of the Company and its management. Prospective investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve a number of risks and uncertainties that could
materially affect actual results such as, but not limited to, (i) changes in
government regulations, including the anticipated deregulation of the electric
energy industry, (ii) commercial operations of new plants that may be delayed or
prevented because of various development and construction risks, such as failure
to obtain financing and the necessary permits to operate, (iii) cost estimates
are preliminary and actual cost may be higher than estimated, (iv) the assurance
that the Company will be able to acquire or develop additional plants, and (v)
the risks associated with selling power from power plants in the newly
competitive energy market. Prospective investors are also referred to the other
risks identified from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission.
Historically, the Company's financial statements previously filed for the period
ending September 30, 2002 were not reviewed by the Company's former independent
public accountant. The Company's former independent public accountants were
unwilling to perform their review of said filing without being paid for past
work, and the Company's financial condition did not permit payment at that time.
The Company has retained a new independent public accountant, and is hereby
filing an amended, reviewed Form 10QSB for the period. The Company's former
independent public accountant has been terminated, but has not been paid for its
prior work.
Critical Accounting Policies And Estimates
Management's Discussion and Analysis of Financial Condition and Plan of
Operations discusses the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition,intangible assets, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The most significant
accounting estimates inherent in the preparation of the Company's financial
statements include estimates as to the appropriate carrying value of certain
assets and liabilities which are not readily apparent from other sources,
primarily allowance for doubtful accounts and accruals for other liabilities.
These accounting policies are described at relevant sections in this discussion
and analysis and in the notes to the consolidated financial statements included
in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001.
Property, Plant and Equipment
Depreciation is computed using the straight-line method for all property, plant
and equipment based upon estimated useful lives of the assets. The estimated
useful life of these assets vary from time to time based on the extent of their
usage. This can result in potential overstatement or understatement of
depreciation expense recorded in the consolidated financial statements. We
evaluate the useful lives of all equipment on a quarterly basis to ascertain any
need for impairment.
Impairment
The Company evaluates its fixed and intangible assets on quarterly basis, and in
accordance with FASB 142, will impair its fixed or intangible assets on an as
needed basis.
Results of Operations
The following discussion should be read in conjunction with the attached
consolidated condensed financial statements and notes thereto and with the
Company's audited consolidated financial statements and notes thereto for the
year ended December 31, 2001.
Revenues
Revenues increased to $775,950 for the nine months ended September 30, 2002 from
$686,461 for the nine months ended September 30, 2001 and increased to $98,198
for the three months ended September 30, 2002 from $86,737 for the three months
ended September 30, 2001. Such increases in revenues were due primarily to the
increase in the operating revenues generated at the Wolverine hydroelectric
generating facilities.
Seasonality of Project Revenues
Hydroelectric generating revenues are seasonal. The spring in North America is
the time of maximum hydroelectric output, while fall and winter also experience
reasonable flows; the summer months are dry and generally unproductive.
Hydroelectric power production can also vary from year to year, based on changes
in meteorological conditions. Operating revenues at Modular are generally
recognized in the periods earned, usually the second and third quarters.
Cost of Operations
The costs of operations decreased for the nine months ended September 30, 2002
to $337,672 as compared to $358,585 during the nine months ended September 30,
2001 and increased for the three months ended September 30, 2002 to $117,247 as
compared to $115,756 during the three months ended September 30, 2001. These
changes are minor as Wolverine's cost of operations remained relatively constant
between the years.
Selling, General and Administrative
These expenses increased for the nine months ended September 30, 2002 to
$1,857,711, as compared to $550,910 during the nine months ended September 30,
2001 and increased for the three months ended September 30, 2002 to $1,032,325,
as compared to $163,200 during the three months ended September 30, 2001. The
increase is primarily due to the increase in consulting and professional fee
expenses for the holding company.
Other Income and Expenses
During the nine months ended September 30 2002, the Company recorded other
expense-net of approximately ($1,076,842) as compared to other expense-net of
$136,781 during the nine months ended September 30, 2001 and the Company
recorded other expense-net of approximately $53,039 as compared to other
income-net of $33,537 during the three months ended September 30. Interest
expense for the nine months ended September 30, 2002 decreased to $116,978 from
$149,927 for the nine months ended September 30, 2001 and for the three months
ended September 30, 2002 increased to $53,039 from $ 48,585 for the three months
ended September 30, 2001. The changes were the result of additional interest
recognized related to unpaid payments of parent company obligations causing an
increase of parent company interest expense net of a decrease caused by Modular
interest expense reclassifies to discontinued operations. The Company recorded a
loss from the impairment of property, plant and equipment of $637,438 during the
nine months ended September 30, 2002. The Company also recorded a goodwill
impairment charge of $322,453 during the nine months ended September 30, 2002.
Liquidity and Capital Resources
Historically, the Company finances its operations primarily from internally
generated funds and third party credit facilities. Net cash flow used in
operations was $ 278,384 for the nine-month period ended September 30, 2002.
Restrictions on the Company's cash flow from operations due to the Forebearance
Agreement could force the Company to experience liquidity difficulties.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Modular Contractors had previously commenced various legal actions against
Modular and the Company, including obtaining judgments against the Modular
Company in the amount of approximately $3.0 million. As part of the Modular
Sale, this litigation with dismissed with prejudice.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE.
ITEM 3. CONTROLS AND PROCEDURES
Based on the evaluation of the Company's disclosure controls and procedures by
John D. Kuhns, the Company's Chairman, as of a date within 90 days of the filing
date of this quarterly report, such officer has concluded that the Company's
disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities and Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported, within the time period specified by the
Securities and Exchange Commission's rules and forms. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
ITEM 4. DEFAULTS UPON SENIOR SECURITIES
The Company is currently in default with respect to senior loans issued to two
lenders and collateralized by a first and second mortgage in the aggregate of
approximately $1,300,000 secured by Wolverine.
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 6. OTHER INFORMATION.
NONE.
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
99.1 Certification under Section 302 of the Sarbanes/Oxley Act
99.2 Certification under Section 906 of the Sarbanes/Oxley Act
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter for which this report has been filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE NEW WORLD POWER CORPORATION
Date: January 23, 2004 by: /s/ John D. Kuhns
-----------------
John D. Kuhns
Chairman of the Board of Directors