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 June 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
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(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
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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 July 31, 2002.
THE NEW WORLD POWER CORPORATION
- FORM 10QSB - INDEX -
PAGE(S)
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at June 30, 2002 (unaudited)
and December 31, 2001 3
Consolidated Condensed Statements of Operations for the Three and Six
Month Periods Ended June 30, 2002 and 2001 (unaudited) 4
Consolidated Condensed Statements of Cash Flows for the Six
Month Periods Ended June 30, 2002 and 2001 (unaudited) 6
Notes to Interim Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Plan of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
- ASSETS -
JUNE 30, December 31,
2002 2001
------------ ------------
(UNAUDITED) (RESTATED)
CURRENT ASSETS:
Cash and cash equivalents $ 969 $ 25,265
Cash restricted in use 49,431 19,108
Accounts receivable 68,388 108,708
Other current assets -- 8,695
------------ ------------
TOTAL CURRENT ASSETS 118,788 161,776
------------ ------------
Property, plant and equipment, net 1,700,000 2,396,487
Goodwill, net of accumulated amortization -- 467,875
Net assets from discontinued operations -- 3,312,202
Other assets 269,292 272,520
------------ ------------
1,969,292 6,449,084
------------ ------------
TOTAL ASSETS $ 2,088,080 $ 6,610,860
============ ============
- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 759,847 $ 671,709
Due to related parties 2,292,700 2,012,861
Current portion of lease obligations -- --
Current portion of long-term debt -- 59,243
------------ ------------
TOTAL CURRENT LIABILITIES 3,052,547 2,743,813
------------ ------------
TOTAL LIABILITIES 3,052,547 2,743,813
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
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 (85,102,897) (80,271,383)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (964,467) 3,867,047
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,088,080 $ 6,610,860
============ ============
See accompanying notes to interim consolidated condensed financial statements.
- 3 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 2002 AND 2001
(UNAUDITED)
2001
-----------
2002 (Restated)
----------- -----------
OPERATING REVENUE $ 677,752 $ 599,724
COST OF OPERATIONS 220,425 242,829
----------- -----------
GROSS PROFIT 457,327 356,895
Selling, general and administrative expenses 826,363 387,710
----------- -----------
OPERATING LOSS (369,036) (30,815)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (63,939) (101,342)
Interest income 27 --
Loss from impairment of property, plant and equipment (637,438) --
Other 977 (68,976)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (700,373) (170,318)
----------- -----------
LOSS BEFORE TAXES (1,069,409) (201,133)
Provision for income taxes -- --
----------- -----------
LOSS FROM CONTINUING OPERATIONS (1,069,409) (201,133)
(Loss) income from discontinued operations (net of income taxes) (861,583) 438,329
Loss on disposal of subsidiary (2,578,069) --
NET (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
$(4,509,061) 237,196
----------- -----------
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -GOODWILL
IMPAIRMENT CHARGE (322,453)
----------- -----------
NET (LOSS) INCOME $ 4,831,514 $ 237,196
=========== ===========
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
- Basic from continuing operations $ (0.20) $ (0.04)
=========== ===========
- Diluted from continuing operations $ (0.20) $ (0.03)
=========== ===========
- Basic from discontinued operations $ (0.16) $ 0.08
=========== ===========
- Diluted from discontinued operations $ (0.16) $ 0.07
=========== ===========
- Basic and diluted from disposal of subsidiary $ (0.42) $ --
=========== ===========
- Basic and diluted from cumulative effect of
change in accounting principle $ (0.06) $ --
=========== ===========
AVERAGE NUMBER OF BASIC COMMON SHARES OUTSTANDING 5,439,813 5,389,786
=========== ===========
AVERAGE NUMBER OF DILUTED COMMON SHARES OUTSTANDING 5,439,813 5,988,788
=========== ===========
See accompanying notes to interim consolidated condensed financial statements.
- 4 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
JUNE 30, 2002 AND 2001
(UNAUDITED)
2001
-----------
2002 (Restated)
----------- -----------
OPERATING REVENUE $ 357,511 $ 339,711
COST OF OPERATIONS 106,077 127,676
----------- -----------
GROSS PROFIT 251,434 212,035
Selling, general and administrative expenses 477,440 238,572
----------- -----------
OPERATING LOSS (226,006) (26,537)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (51,623) (45,476)
Interest income 27 -
Loss from impairment of property, plant and equipment (637,438) -
Other 682 (10,065)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (688,352) (55,541)
----------- -----------
LOSS BEFORE TAXES (914,358) (82,078)
Provision for income taxes - -
----------- -----------
LOSS FROM CONTINUING OPERATIONS (914,358) (82,078)
Loss from discontinued operations (net of income taxes) (359,951) 761,893
Loss on disposal of subsidiary (2,578,069) -
----------- -----------
NET LOSS $(3,852,378) $ 679,815
=========== ===========
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
- Basic from continuing operations $ (0.17) $ (0.02)
=========== ===========
- Diluted from continuing operations $ (0.17) $ (0.01)
=========== ===========
- Basic from discontinued operations $ (0.07) $ 0.14
=========== ===========
- Diluted from discontinued operations $ (0.07) $ 0.13
=========== ===========
- Basic and diluted from sale of subsidiary $ (0.47) $ -
=========== ===========
AVERAGE NUMBER OF BASIC COMMON SHARES OUTSTANDING 5,439,813 5,439,813
=========== ===========
AVERAGE NUMBER OF DILUTED COMMON SHARES OUTSTANDING 5,439,813 5,982,289
=========== ===========
See accompanying notes to interim consolidated condensed financial statements.
- 5 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 2002 AND 2001
(UNAUDITED)
2001
-----------
2002 (Restated)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $(4,831,514) $ 237,196
Adjustments to reconcile net (loss) earnings to net cash
(used by) operating activities:
Depreciation and amortization 349,438 953,553
Amortization of goodwill -- 8,930
Loss on disposal of subsidiary 2,578,069
Other, net -- 7,000
Property. Plant, and Equipment impairment charge 637,438
Goodwill impairment loss 467,875 --
Change in assets and liabilities, net of effect of
acquisitions/disposals:
Decrease (Increase) in accounts receivable 40,320 (42,050)
Decrease (increase) in other current assets 8,695 82
Decrease in other assets 3,228 --
Increase (decrease) in accounts payable and accrued 555,200 (45,315)
liabilities
Decrease in net assets from discontinued operation -- 202,263
----------- -----------
NET CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES (191,251) 1,321,659
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (23,318) (829,950)
Deferred project costs and other -- 14,756
----------- -----------
NET CASH FLOWS (USED IN) INVESTING ACTIVITIES (23,318) (815,194)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in due to related parties 279,839 (350,000)
Increase (decrease) of long-term debt (59,243) (152,177)
Decrease (increase) in restricted cash (30,323) (4,101)
----------- -----------
NET CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES 190,273 (506,278)
----------- -----------
Net change in cash and cash equivalents (24,296) 187
Cash and cash equivalents at beginning of period 25,265 597
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 969 $ 784
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest paid $ -- $ 426,175
Income taxes paid -- --
Non-cash transactions:
During the six month period ended June 30, 2001, the Company
issued 7,000 shares of common stock valued at $7,000 for
services rendered
See accompanying notes to interim consolidated condensed financial statements.
- 6 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
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.
In the opinion of the Company, the accompanying unaudited interim
consolidated condensed financial statements of The New World Power
Corporation ("the Company") and its subsidiaries, contain all
adjustments of a recurring nature considered necessary for a fair
presentation of the Company's financial position as of June 30, 2002
and the results of operations and cash flows for the six month period
ended June 30, 2002.
The consolidated condensed balance sheet presented as of December 31,
2001 has been derived from the consolidated financial statements that
have been audited by the Company's independent public accountants. The
consolidated financial statements and notes are condensed as permitted
by Form 10-QSB and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated
condensed financial statements and notes included herein should be read
in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-KSB.
The results of operations for the six month period ended June 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 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, subsequent to the balance sheet date, 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 7). Finally, the
Company has entered into a Memorandum of Understanding to acquire 100%
of the shares of Utility Solutions, Inc. ("USI"), an organization
engaged in providing customers with electric tariff consulting and
other electric power options including the provision of electric
capacity and energy from third-party owned, on-site electric generating
facilities.
- 7 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
RECENT ACCOUNTING PRONOUNCEMENT:
In June 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 3 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 subsidiary in the consolidated
statements of operations for the three and six months ended June 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
it's book value, the company recorded a goodwill impairment charge of
$322,453.
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 six months ended June 30,
2002.
- 8 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(UNAUDITED)
NOTE 2 - GOING CONCERN UNCERTAINTY:
The accompanying 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, Wolverine is 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 have agreed to a forbearance agreement between
the parties whereby Synex will 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 make certain interest
payments if available from Wolverine cash flow beginning September 2002
and continuing on a monthly basis. If not fully repaid by December 31,
2002, Synex will have the right to either continue its foreclosure or
to purchase Wolverine on a basis to be negotiated, but on substantially
the same terms and conditions as proposed by Synex to Wolverine in
Synex's proposal dated April 25, 2002 (the `Forbearance Agreement").
The Company has also engaged Marathon Capital ("Marathon"), an
investment banking firm that specializes in securing debt financing for
electric power projects, to assist it with the refinancing of
Wolverine's mortgage loans aggregating approximately $2,200,000. While
Marathon has received one preliminary term sheet proposal with respect
to this refinancing, there is no guarantee that the proposal will be
solidified or result on a successful refinancing.
Management of the Company has determined that, as a result of the poor
power markets in Michigan and its dispute with Consumers, the Company
should seek new business direction. The Company's plans include
retention of new management, the acquisition of USI, and refinancing or
selling of Wolverine.
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 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 3 - 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 6 -
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
- 9 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(UNAUDITED)
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.
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 year ended December 31, 2001.
NOTE 3 - MODULAR POWER SYSTEMS CONTRACT:
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. This matter is now
being handled by the new owner of Modular.
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 which originally matured on July 1, 2001. The
convertible debenture is secured by a first mortgage position on
Wolverine. The Company and Synex have 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 is currently in default. The
Company and Synex have entered into the Forbearance Agreement.
In connection with the acquisition of Modular in March 2000, the
Company issued a bridge note in the amount of $700,000 (the "Strategic
Bridge Note") to the Strategic Electric Power Fund, LLC and certain
related investors ("Strategic"). The Strategic Bridge Note had an
original maturity date
- 10 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(UNAUDITED)
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 this
transaction, Strategic advanced the Company an additional amount of
approximately $125,000. The Strategic notes currently have a maturity
date of December 31, 2002.
NOTE 5 - OTHER DEBT:
(A) CAPITAL LEASE OBLIGATIONS DEFAULT
As a result of the contract dispute with Consumers described in Note
3 above, 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.
(B) DEFAULT ON MORTGAGE:
The Company is in default of its obligation under the Mortgages
Payable included in due to related parties aggregating $1,136,827.
The Company is in discussion with Synex and other parties regarding
various alternatives to cure the default and repay/restructure the
obligation.
NOTE 6 - DEFERRED REVENUE:
On December 27, 2000, the Company received a payment of $2,784,000 from
Consumers with respect to Modular 2 (See Note 3) 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.
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 represent the
annual
-11 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(UNAUDITED)
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. Accordingly, the Company recorded the payment as deferred revenue
and has recognized it as operating revenues in the periods earned. See
Note 3 regarding dispute with Consumers on the Modular I PPAs.
The Company did not recognize any operating revenues under the Modular
I PPAs described above for the six month period ended June 30, 2002.
NOTE 7 - 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, New World 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,
subsequent to the balance sheet date, 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 shares at an exercise
price of $1.00 per share. The warrants expire in 5 years.
NOTE 8 - DISPOSAL OF MODULAR:
On July 15, 2002, subsequent to the balance sheet date, the Company
executed a settlement agreement and transferred 100% of is ownership in
Modular to the Modular Contractors (see Note 7). The Company's
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 June 30 For Six Months Ended June 30
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenues $ -0- $ 1,889,671 $ -0- $ 1,849,151
----------- ----------- ----------- -----------
Income (loss) before
income taxes $ (359,951) $ 773,893 $ (861,583) $ 450,329
Provision for taxes -- 12,000 -- 12,000
----------- ----------- ----------- -----------
Net income (loss) $ (359,951) $ 761,893 $ (861,583) $ 438,329
----------- ----------- ----------- -----------
Net income (loss) per
share $ (0.07) $ 0.14 $ (0.16) $ 0.08
Diluted income (loss)
per share $ (0.07) $ 0.13 $ (0.16) $ 0.07
- 12 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(UNAUDITED)
NOTE 9 - EMPLOYMENT CONTRACTS:
(A) TERMINATION OF EMPLOYMENT CONTRACT:
Effective May 1, 2002, the Company terminated the employment
agreement with its President. The Company has negotiated the terms
of a severance agreement.
(B) OTHER COMPENSATION:
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 10 - SUBSEQUENT EVENTS:
(a) On July 15, 2002, subsequent to the balance sheet date, the Company
transferred 100% of its ownership of Modular represented by the
entirety of the Modular membership interests to a party controlled
by the Modular Contractors (the `modular Sale"). As part of this
transaction, the Modular Contractors agreed to withdraw all claims
related litigation including judgments received, against the
Company, with prejudice.
- 13 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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,
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 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.
As of June 30, 2002, the Company owned and operated two subsidiaries, Wolverine
and Modular. Each subsidiary owns and operates electric generation facilities.
Wolverine owns a 10.50 megawatt hydroelectric plant near Edenville, Michigan;
Modular owns 43 megawatts of mobile, trailer mounted and containerised
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, subsequent to the balance
sheet date, 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).
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 ISSUES
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities at the date of the financial statements, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. We believe the following critical accounting policies affect our more
significant estimates and assumptions used in the preparation of our
consolidated financial statements. Our significant estimates and assumptions are
reviewed and any required adjustments are recorded on a monthly basis.
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.
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 financial statements and notes thereto for the fiscal year
ended December 31, 2001.
REVENUES
Revenues increased to $677,752 for the six months ended June 30, 2002 from
$599,724 for the six months ended June 30, 2001 and increased to $357,511 for
the three months ended June 30, 2002 from $339,711 for the three months ended
June 30, 2001. Such increases in revenues were due primarily to the increase in
the operating revenues generated at the Wolverine hydroelectric generating
facility.
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.
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COST OF OPERATIONS
The costs of operations decreased for the six months ended June 30, 2002 to
$220,425 as compared to $242,829 during the six months ended June 30, 2001 and
decreased for the three months ended June 30, 2002 to $106,077 as compared to
$127,676 during the three months ended June 30, 2001 mainly as a result of the
Company's Modular facilities being dormant. Wolverine's cost of operations
remained relatively constant between the years.
SELLING, GENERAL AND ADMINISTRATIVE
These expenses increased for the six months ended June 30, 2002 to $826,363, as
compared to $ 387,710 during the six months ended June 30, 2001 and increased
for the three months ended June 30, 2002 to $447,440, as compared to $238,572
during the three months ended March 31, 2001. The increase is primarily due to
the increase in consulting and professional fee expenses for the Parent company.
OTHER INCOME AND EXPENSES
During the six months ended June 30 2002, the Company recorded other income-net
of approximately $977 as compared to other expense-net of $68,976 during the six
months ended June 30, 2001 and the Company recorded other income-net of
approximately $682 as compared to other expense-net of $10,065 during the six
months ended June 30, 2001 which represented expenses incurred in the
unsuccessful attempt to acquire the Block Island Power Company during those
periods in 2001. Interest expense for the six months ended June 30, 2002
decreased to $63,939 from $101,342 for the six months ended June 31, 2001 and
for the three months ended June 30, 2002 increased to $51,623 from $ 45,476 for
the three months ended June 30, 2001. The changes were the result of changes in
the parent company obligations causing change of parent company interest expense
net of a decrease caused by Modular interest expense reclassified to
discontinued operations. The Company also recorded a goodwill impairment charge
of $322,453 during the six months ended June 30, 2002, an a loss from fixed
asset impairment of $637,438.
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 $ (24,296) for the six-month period ended June 30, 2002.
Restrictions on the Company's cash flow from operations and due to the
Forebearance Agreement could force the Company to experience liquidity
difficulties.
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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
disposal, this litigation with dismissed with prejudice.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 5. OTHER INFORMATION.
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS:
99.1 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
August 19, 2002 by: /s/ John D. Kuhns
John D. Kuhns
Chairman of the Board of Directors