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 March 31, 2004
Commission File Number 0-18260
DISTRIBUTED POWER, INC.
(FORMERLY THE NEW WORLD POWER CORPORATION)
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(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 16,411,737 shares of the registrant's common stock
outstanding as of March 31, 2004.
DISTRIBUTED POWER, INC.
- FORM 10QSB - INDEX -
Page(s)
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2004 3
(unaudited) and December 31, 2004 (audited)
Condensed Consolidated Statements of Operations for the Three 4
Months Ended March 31, 2004 and 2003 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Three 5
Months Ended March 31, 2004 and 2003 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Plan of Operations 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Controls and Procedures 19
Item 4. Defaults Upon Senior Securities 19
Item 5. Submission of Matters to a Vote of Security Holders 19
Item 6. Other Information 19
Item 7. Exhibits and Reports on Form 8-K 19
Signatures 20
-2-
PART I. Financial Information
Item 1. Financial Statements
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2004 (UNAUDITED) AND DECEMBER 31, 2003 (AUDITED)
ASSETS
(UNAUDITED) (AUDITED)
MARCH 31, DECEMBER 31,
2004 2003
-------------- --------------
CURRENT ASSET
Cash and cash equivalents $ 1,207 $ 2,873
------------ --------------
Total current asset 1,207 2,873
Intangible assets 300,000 300,000
------------ --------------
TOTAL ASSETS $ 301,207 $ 302,873
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 325,312 $ 301,365
Liability for stock to be issued 33,320 1,302,616
Due to related parties 267,834 1,316,502
------------ ------------
Total current liabilities 626,466 2,920,483
------------ ------------
TOTAL LIABILITIES 626,466 2,920,483
------------ ------------
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 50,000,000 and
20,000,000 shares; 46,576,060
and 1,329,576 shares issued and
outstanding 465,760 13,296
Additional paid-in capital 86,222,965 84,352,113
Accumulated deficit (87,013,984) (86,983,019)
------------ ------------
Total stockholders' equity (deficit) (325,259) (2,617,610)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 301,207 $ 302,873
============ ============
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-3-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
2004 2003
---- ----
OPERATING REVENUE $ - $ -
COST OF OPERATIONS - -
------------- -----------
GROSS PROFIT - -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 25,828 23,527
------------- -----------
OPERATING (LOSS) (25,828) (23,527)
------------- -----------
OTHER INCOME (EXPENSE)
Interest expense (5,137) (29,310)
------------- -----------
Total other income (expense) (5,137) (29,310)
------------- -----------
LOSS BEFORE INCOME TAXES (30,965) (52,837)
Provision for income taxes - -
------------- -----------
LOSS FROM CONTINUING OPERATIONS (30,965) (52,837)
(Loss) from discontinued operations
(net of income taxes) - (81,500)
Income on disposal of subsidiary - 115,387
------------- -----------
NET LOSS $ (30,965) $ (18,950)
============= ===========
BASIC AND DILUTED INCOME (LOSS) PER SHARE
Basic and diluted from continuing operations $ (0.00) $ (0.97)
============= ===========
Basic and diluted from discontinued
operations $ - $ (1.50)
============= ===========
Basic and diluted from disposal of
subsidiary $ - $ 2.12
============= ===========
POST - REVERSE STOCK SPLIT
AVERAGE NUMBER OF BASIC AND DILUTED
COMMON SHARES OUTSTANDING 16,411,737 54,398
============= ===========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
-4-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
2004 2003
-------------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (30,965) $ (18,950)
-------------- ----------
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Common stock issued for compensation - -
Gain on disposal of subsidiary - (115,387)
Loss on discontinued operations - 81,500
Changes in assets and liabilities
Increase in accounts payable and accrued
liabilities 23,947 29,348
------------- ----------
Total adjustments 23,947 (4,539)
------------- ----------
Net cash (used in) operating activities (7,018) (23,489)
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in due to related parties 5,352 23,489
------------- ----------
Net cash provided by financing activities 5,352 23,489
------------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (1,666) -
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 2,873 355
------------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,207 $ 355
============= ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Conversion of payables to equity $ 1,269,296 $ -
============= ==========
Common stock issued in exchange for
related party debt $ 1,054,020 $ -
============= ==========
The accompanying notes are an integral part of the
condensed consolidated financial statements.
-5-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
(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 three months ended March 31, 2004 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.
Distributed Power, Inc. formerly 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 three month period
ended March 31, 2004 are not necessarily indicative of
the results to be expected for a full year since in
prior periods the Company sold its subsidiary
Wolverine Power Corporation. The Company has
reclassified its 2003 condensed consolidated financial
statements to reflect retroactive treatment for this
disposal.
The 2003 statements have been reclassified to January
1, 2003 to reflect the Wolverine 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".
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The unaudited condensed consolidated balance sheet for
March 31, 2004 and 2003, unaudited condensed
consolidated statements of operations for the three
months ended March 31, 2004 and 2003 and unaudited
statements of cash flows for the three months ended
March 31, 2004 and 2003 include the Company and its
wholly-owned subsidiaries, Wolverine Power Corporation
and Resource. Wolverine was disposed of during 2003
and its operations are reflected as discontinued
operations in the consolidated statements of
operations for the three months ended March 31, 2003
in accordance with FASB 144.
Intercompany transactions and balances have been
eliminated in consolidation.
-6-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Office furniture and
equipment 5 -7 years
Power generation
facilities and equipment 25 - 40 years
Revenue Recognition
The Company's former subsidiary Wolverine recognized
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 agreements that were in effect. Provisions
for doubtful accounts were made when losses were
anticipated.
Currently, the Company has no revenues and is
negotiating agreements with partners on joint venture
projects that the Company will manage for a fee. The
Company does not believe that they are a development
stage company under the provisions of FASB 7, due to
the fact that they are not developing their business.
Instead, they are restructuring their business.
-7-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 three months ended March 31, 2004 and
2003, 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.
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.
-8-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) Per Share of Common Stock
Historical net 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:
2004 2003
-------- --------
Net loss $ (30,965) $ (18,950)
Weighted-average common
shares outstanding (Basic) 16,411,737 54,398
Weighted-average common
stock Equivalents
Stock options and
warrants - -
---------- ---------
Weighted-average common
shares outstanding
(diluted) 16,411,737 54,398
========== =========
Options and warrants outstanding to purchase stock
were not included in the computation of diluted EPS
because inclusion would have been antidilutive.
Stock-Based Compensation
The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25), and
related interpretations, in accounting for their
employee stock options rather than the alternative
fair value accounting allowed by SFAS No. 123,
"Accounting for Stock-Based Compensation", and has
adopted the enhanced disclosure provisions of SFAS
No. 148, "Accounting for Stock Based Compensation -
Transition and Disclosures", an amendment of SFAS No.
123. APB No. 25 provides that the compensation
expense relative to the Company's employee stock
options is measured based on the intrinsic
value of the stock option. SFAS No. 123
requires companies that continue to follow APB
No. 25 to provide a pro-forma disclosure of
the impact of applying the fair value method of
SFAS No. 123.
-9-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
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.
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.
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. The Company has had
recurring operating deficits in the past few years and
has large accumulated deficits. In addition, the
Company disposed of one of its subsidiaries in 2003,
Wolverine, which formerly comprised of its operations.
These items raise substantial doubt about the
Company's ability to continue as a going concern.
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 sales of Modular and
Wolverine. The Company's plans also included retention
of new management. New management is negotiating the
acquisition of cogeneration facilities in California
and New York currently, and is attempting to acquire
additional facilities in these regions. In addition,
the Company is currently attempting to raise
additional capital to fund their operations.
-10-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(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 - 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 $241,403
and $310,000 in repairs were all outstanding, but were
reclassified out due to the disposal of Wolverine in
August 2003.
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 $65,556 in accrued
interest for a total outstanding of $992,556 due as of
March 31, 2003. The Strategic notes had a maturity
date of December 31, 2002. These amounts are currently
in default and classified as current liabilities. In
March 2004, the Company converted this debt totaling
$1,053,805 to equity (including interest) in exchange
for common stock.
The Company has $95,427 due at March 31, 2004 and 2003
to another related party which includes accrued
interest and $172,407 and $114,994 outstanding to
another related entity through common ownership. All
amounts are due on demand.
-11-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(Unaudited)
NOTE 5- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the
following at March 31, 2004:
Furniture and fixtures $ 278
Computer and office equipment 12,704
--------
12,982
Less: accumulated depreciation (12,982)
--------
Net property, plant and equipment $ -
========
There was no depreciation expense for the three
months ended March 31, 2004 and 2003. All property,
plant and equipment from 2003 relating to Wolverine
was reclassified in accordance with the provisions of
FASB 144, and is reflected in the condensed
consolidated statements of operations as disposal
gain or loss, below the line.
NOTE 6- STOCKHOLDERS' EQUITY (DEFICIT)
Common and Preferred Stock
The Company has 50,000,000 shares of common stock
authorized, and as of March 31, 2004, there are
46,576,060 shares issued and outstanding. The par
value of this stock is stated at $.01 per share. The
Company's Board of Directors approved the increase of
the authorized shares to 50,000,000 from 20,000,000 on
March 26, 2004.
The Company did not issue any common stock in 2003
through September 12, 2003. On September 12, 2003 the
Company's Board of Directors approved a resolution for
a reverse 1:100 stock split which brought the issued
and outstanding shares from 5,439,813 to 54,398.
In the Company's fourth quarter of 2003, the Company
issued 1,275,178 shares of common stock to certain
shareholders of Resource Energy, Inc. The Company
acquired Resource Energy, Inc. for a maximum of
2,322,969 shares of common stock in a share exchange.
Of the 2,322,969 shares, 1,275,000 were physically
issued on October 27, 2003. The remaining 1,047,969
shares were issued in March 2004 and recorded as a
liability for stock to be issued on the consolidated
balance sheet at December 31, 2003.
The other 178 shares of common stock issued in the
fourth quarter of 2003 by the Company were fractional
shares issued with respect to the reverse stock split.
-12-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(Unaudited)
NOTE 6- STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Common and Preferred Stock (continued)
In addition, the Company in December 2003, issued a
board resolution to issue certain shares to officers
and directors for compensation relating to 2003
services, and other existing shareholders with respect
to anti-dilution agreements in place. The Company has
reflected these transactions in its consolidated
financial statements for the year ended December 31,
2003 as a liability for stock to be issued, as the
resolution was dated in December 2003 and the services
rendered were in 2003, but the certificates were not
physically issued in 2003. The total number of shares
reflected as a liability for stock to be issued are:
1,047,969 (acquisition of Resource Energy, Inc.);
525,000 (compensation to officers and directors); and
919,334 (for existing stockholders under anti-dilution
agreements). Additionally, the Company agreed to pay
certain parties a consulting fee for completing the
disposal of the subsidiaries. The Company and these
parties agreed to be paid in the form of stock, which
has not been issued as of December 31, 2003. In 2003,
the Company agreed to issue 188,568 shares of stock in
private equity transactions.
All of these shares - except 159,324 of these r shares
were issued in March 2004.
In addition, the Company issued 296,320 shares of
stock in conversions of accounts payable to
consultants.
On March 26, 2004 at the time the Company's Board of
Directors approved the increase in the authorized
level the Board of Directors approved a 10:1 forward
stock split. This stock split increased the then
issued and outstanding shares of stock of 4,498,783 to
46,576,060.
The Company has 4,000,000 shares of preferred stock
authorized, and as of March 31, 2004, there are no
shares issued and outstanding. The par value of this
stock is stated at $.01 per share.
NOTE 7 - OTHER DEBT
Default on Mortgage
The Company was in default of its obligation under the
Mortgages Payable included in due to related parties
aggregating $1,528,555. The Company was in discussion
with Synex and other parties regarding various
alternatives to cure the default and repay/restructure
the obligation. This amount was eventually foreclosed
by Synex and the real property which collateralized
this debt was taken in return. The real property had a
value of $401,122. This amount is no longer reflected
in the condensed consolidated balance sheets as the
subsidiary responsible for this debt has been sold.
-13-
DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(Unaudited)
NOTE 8 - 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 9 - DISPOSAL OF BUSINESS
In August 2003, the Company sold Wolverine Power
Corporation in 2003. The Company's condensed
consolidated financial statements have been restated
to reflect these sales as discontinued operations for
all periods presented. Summarized operating results of
discontinued operations are as follows:
For Three Months Ended
March 31
----------------------
2004 2003
Revenues $ - $ 123,719
---------- ----------
Income (loss) before
income taxes $ - $ (81,500)
Provision for taxes - -
---------- ----------
Net income (loss) $ - $ (81,500)
========== ==========
Net income (loss) per
share $ - $ (.01)
========== ==========
Diluted income (loss)
per share $ - $ (.01)
========== ==========
NOTE 10 - PROVISION FOR INCOME TAXES
Deferred income taxes will be determined using the liability
method for the temporary differences between the financial
reporting basis and income tax basis of the Company's assets and
liabilities. Deferred income taxes will be measured based on the
tax rates expected to be in effect when the temporary differences
are included in the Company's consolidated tax return. Deferred
tax assets and liabilities are recognized based on anticipated
future tax consequences attributable to differences between
financial statement carrying amounts of assets and liabilities and
their respective tax bases.
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DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(Unaudited)
NOTE 10 - PROVISION FOR INCOME TAXES (continued)
At March 31, 2004, deferred tax assets consist of the following:
Net operating loss carryforwards $ 15,980,000
Less: valuation allowance (15,980,000)
-------------
$ -
=============
At March 31, 2004, the Company had federal net operating loss
carryforwards in the approximate amounts of $47,000,000, available
to offset future taxable income. The Company established valuation
allowances equal to the full amount of the deferred tax assets due
to the uncertainty of the utilization of the operating losses in
future periods.
NOTE 11 - RESTATEMENT OF FINANCIAL STATEMENTS
Included in net liabilities from discontinued operations at March
31, 2003, are the net liabilities of Wolverine at that balance
sheet date. These liabilities include property, plant and
equipment, net of obligations due on these assets. The disposal of
net liabilities in the amount of $33,887 was reflected in the 2003
consolidated statements of income as loss on discontinued
operations or loss on disposal, in accordance with the provisions
of FASB 144.
NOTE 12 - PENDING ACQUISITIONS
In January 2004, the Company signed a Memorandum of Understanding
(MOU) to purchase two cogeneration facilities. The Company will
purchase each facility for cash through a special purpose project
investment entity, in each case funded by third party investors
acting as partners with the Company.
The assets to be purchased include two separate operating electric
power generation units. One project is in Los Angeles and the
other project is in New York City. Each project contains equipment
manufactured and packaged by Hess Microgen, LLC, as well as the
project's related cogeneration energy purchase agreements (CEPAs).
Each CEPA has approximately four years remaining.
The Company is also in negotiations to acquire additional
operating facilities located in the California and New York
regions.
The Company is still in the due diligence process with respect to
these acquisitions.
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DISTRIBUTED POWER, INC. AND SUBSIDIARIES
(FORMERLY THE NEW WORLD POWER CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
(Unaudited)
NOTE 13 - SUBSEQUENT EVENTS
On April 27, 2004, the Company has reached tentative agreement
with an investment fund for up to $7 million of project financing.
The project financing will pay for the costs of acquiring and
developing approximately 15 cogeneration facilities. The
investment fund will advance 100% of the financing and become
partners with the Company in the ownership of the 15 projects.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Introduction
Distributed Power, formerly known as The New World Power Corporation, was
incorporated in the State of Delaware in 1989. In October 2003, the Company
formally changed its name to Distributed Power, Inc. The Company owns and
manages distributed power projects. The Company's projects sell electric and
heat and energy directly from cogeneration facilities to industrial customers
under long-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 operated 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 7 of Notes to Financial Statements). In August
2003, the Company sold Wolverine (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.
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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, 2003.
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
fiscal year ended December 31, 2003.
Revenues
The Company sold its two operating subsidiaries, including Modular in July 2002
and Wolverine in August 2003. Revenues from these operations are not included as
sale from ongoing activities. The Company generated no revenues from its new
business activities in the three months ended March 31, 2004.
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Cost of Operations
The Company sold its two operating subsidiaries, including Modular in July 2002
and Wolverine in August 2003. The Company generated no revenues from its new
business activities in the three months ended March 31, 2004. Accordingly, the
Company had no cost of operations from its ongoing activities during the period.
Selling, General and Administrative
These expenses increased for the three months ended March 31, 2004 to $25,828,
as compared to $23,527 during the three months ended March 31, 2003. The
increase is not material.
Other Income and Expenses
During the three months ended March 31 2004, the Company recorded other
expense-net of approximately $5,137 as compared to other expense-net of $29,310
during the three months ended March 31, 2003. Other expense-net consisted of
interest expense with respect to both periods. Interest expense for the three
months ended March 31, 2004 decreased due to the foreclosure by Synex of its
loan and the conversion of the majority of the Company's remaining debt to
common stock.
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 $7,018 for the three month period ended March 31, 2004, as
compared to $23,489 used in operations in the three month period ending March
31, 2003.
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.
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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 was in default with respect to a loan issued to a senior lender,
Synex, whose loan was collateralized by a first mortgage in the aggregate of
approximately $1,574,679 and secured by Wolverine. Synex foreclosed on its
collateral in May of 2003. The Company has $123,400 due at March 31, 2004 to
another related party which includes accrued interest and $117,370 outstanding
at March 31, 2004 to another related entity. These amounts are due on demand.
The Strategic notes in the amount of $1,054,020 as of December 31, 2003 were in
default and classified as current liabilities. This debt was converted into
3,513,400 shares of common stock in March of 2004.
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:
31.01 Certification under Section 302 of the Sarbanes/Oxley Act
32.01 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.
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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.
DISTRIBUTED POWER, INC.
June 14, 2004 by: /s/ John D. Kuhns
-----------------
John D. Kuhns
Chairman of the Board of Directors
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