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 November 30, 2002.
THE NEW WORLD POWER CORPORATION
- FORM 10QSB - INDEX -
PAGE(S)
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at September 30, 2002
(unaudited) and December 31, 2001 3
Consolidated Condensed Statements of Operations for the
Three and Nine Month Periods Ended September 30, 2002
and 2001 (unaudited) 4
Consolidated Condensed Statements of Cash Flows for the Nine
Month Periods Ended September 30, 2002 and 2001 (unaudited) 5
Notes to Interim Consolidated Condensed Financial Statements 6
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 -
SEPTEMBER 30, December 31,
2002 2001
-------------- --------------
(UNAUDITED) (RESTATED)
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 38,462 161,776
-------------- --------------
Property, plant and equipment, net 1,660,066 2,396,487
Goodwill, net of accumulated amortization - 467,875
Net assets from discontinued operations - 3,312,202
Other assets 267,678 272,520
-------------- --------------
1,927,678 6,449,084
-------------- --------------
TOTAL ASSETS $ 1,966,206 $ 6,610,860
============== ==============
- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,689,347 $ 671,709
Due to related parties 2,345,740 2,012,861
Current portion of lease obligations - -
Current portion of long-term debt - 59,243
-------------- --------------
TOTAL CURRENT LIABILITIES 4,035,087 2,743,813
-------------- --------------
TOTAL LIABILITIES 4,035,087 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 (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 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.
- 3 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2001
-------------
2002 (Restated)
--------------- -------------
OPERATING REVENUE $ 775,950 $ 686,461
COST OF OPERATIONS 337,672 358,585
--------------- -------------
GROSS PROFIT 438,278 327,876
Selling, general and administrative expenses 1,857,711 550,910
--------------- -------------
OPERATING INCOME (LOSS) (1,419,433) 223,034
--------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (116,978) (149,927)
Interest income 27
Loss from impairment of property, plant and equipment (637,438) -
Other 13,146
--------------- -------------
TOTAL OTHER INCOME (EXPENSE) (754,389) (136,781)
--------------- -------------
LOSS BEFORE TAXES (2,173,822) 359,815
Provision for income taxes - -
--------------- -------------
LOSS FROM CONTINUING OPERATIONS (2,173,822) (359,815)
(Loss) income from discontinued operations
(net of income taxes) (861,583) 1,703,720
Loss on disposal of subsidiary (2,578,069) -
--------------- -------------
NET (LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (5,613,474) 1,343,905
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
-GOODWILL IMPAIRMENT CHARGE (322,453)
--------------- -------------
NET (LOSS) INCOME $ (5,935,927) $ 1,343,905
============== =============
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
- Basic from continuing operations $ (0.40) $ (0.07)
============== =============
- Diluted from continuing operations $ (0.40) $ (0.06)
============== =============
- Basic from discontinued operations $ (0.16) $ 0.32
============== =============
- Diluted from discontinued operations $ (0.16) $ 0.30
============== =============
- Basic and diluted from disposal of subsidiary $ (0.47) $ -
============== =============
- Basic and diluted from cumulative effect of change in
accounting principle $ (0.06) $ -
============== =============
AVERAGE NUMBER OF BASIC COMMON SHARES OUTSTANDING 5,439,813 5,406,828
============== =============
AVERAGE NUMBER OF DILUTED COMMON SHARES OUTSTANDING 5,439,813 5,700,831
============== =============
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.
- 4 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2001
-----------------
2002 (Restated)
------------- ----------------
OPERATING REVENUE $ 98,198 $ 86,737
COST OF OPERATIONS 117,247 115,756
------------- ----------------
GROSS PROFIT (LOSS) (19,049) (29,019)
Selling, general and administrative expenses 1,031,348 163,200
------------- ----------------
OPERATING INCOME (LOSS) (1,050,397) (192,219)
------------- ----------------
OTHER INCOME (EXPENSE):
Interest expense (53,039) (48,585)
Interest income -
Loss from impairment of property, plant and equipment -
Other (977) 82,122
------------- ----------------
TOTAL OTHER INCOME (EXPENSE) (54,016) 33,537
------------- ----------------
LOSS BEFORE TAXES (1,104,413) (158,682)
Provision for income taxes -
------------- ----------------
LOSS FROM CONTINUING OPERATIONS (1,104,413) (158,682)
(Loss) Income from discontinued operations
(net of income taxes) - 1,265,391
Loss on disposal of subsidiary -
------------- ----------------
NET LOSS $ (1,104,413) $ 1,106,709
============= ================
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
- Basic from continuing operations $ (0.20) $ (0.03)
============= ================
- Diluted from continuing operations $ (0.20) $ (0.03)
============= ================
- Basic from discontinued operations $ (0.00) $ 0.23
============= ================
- Diluted from discontinued operations $ (0.00) $ 0.23
============= ================
- Basic and diluted from sale of subsidiary $ (0.00) $ -
============= ================
AVERAGE NUMBER OF BASIC COMMON SHARES OUTSTANDING 5,439,813 5,439,813
============= ================
AVERAGE NUMBER OF DILUTED COMMON SHARES OUTSTANDING 5,439,813 5,520,803
============= ================
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.
- 5 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
2001
--------------
2002 (Restated)
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (5,935,927) $ 1,343,905
Adjustments to reconcile net (loss) earnings to net cash
(used in) operating activities:
Depreciation and amortization 123,541 119,821
Amortization of goodwill - 13,395
Loss on disposal of subsidiary 2,578,069
Other, net -
Property, Plant, and Equipment impairment charge 637,438
Goodwill impairment loss 467,875 -
Amortization of deferred project costs 16,369
Change in assets and liabilities, net of effect of
acquisitions/disposals:
Decrease (Increase) in accounts receivable 85,313 22,963
Decrease (increase) in other current assets 8,695 1,086
Decrease in other assets 4,841 -
Increase (decrease) in accounts payable and
accrued liabilities 1,017,638 111,106
(Decrease) in deferred revenue
Decrease (Increase) in net assets from
discontinued operation 734,133 (1,269,621)
-------------- --------------
NET CASH FLOWS PROVIDED BY (USED BY)
OPERATING ACTIVITIES (278,384) 359,024
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24,558) (1,354,896)
-------------- --------------
NET CASH FLOWS (USED IN) INVESTING ACTIVITIES (24,558) (1,354,896)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in due to related parties 332,879 1,143,521
Increase (decrease) of long-term debt (59,243) (63,938)
Payment of capital lease obligations 37,000 (132,559)
Proceeds from issuance of common stock, net
Decrease (increase) in restricted cash 4,910 11,363
-------------- --------------
NET CASH FLOWS PROVIDED BY (USED BY)
FINANCING ACTIVITIES 278,546 995,387
-------------- --------------
Net change in cash and cash equivalents (24,396) (485)
Cash and cash equivalents at beginning of period 25,265 597
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 869 $ 112
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest paid $ - $ 149,927
Income taxes paid - -
Non-cash transactions:
During the nine month period ended September 30, 2001, the Company
issued 7,000 shares of common stock valued at $7,000 for services
rendered.
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.
- 6 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September
30, 2002 and the results of operations and cash flows for the nine
month period ended September 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 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 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
SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
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 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 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.
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.
- 8 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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
- 9 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
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.
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. The new owner of Modular is now handling
this matter.
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 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
SEPTEMBER 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").
NOTE 5 - OTHER DEBT (CONTINUED):
(A) CAPITAL LEASE OBLIGATIONS DEFAULT (CONTINUED):
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
SEPTEMBER 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 nine-month period ended
September 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, 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 September 30 For Nine Months Ended September 30
-------------------------------------- ---------------------------------
2002 2001 2002 2001
------------- ------------------- ---------------- -------------
Revenues $ -0- $ 3,324,473 $ -0- $ 5,214,144
------------- ------------------- ---------------- -------------
Income (loss) before income taxes $ (359,951) $ 1,074,827 $ (861,583) $ 1,848,720
Provision for taxes - 133,000 - 145,000
------------- ------------------- ---------------- -------------
Net income (loss) $ (359,951) $ 941,827 $ (861,583) $ 1,703,720
============= =================== ================ =============
Net income (loss) per share $ (0.07) 0.17 $ (0.16) $ .31
Diluted income (loss) per share $ (0.07) $ 0.17 $ (0.16) $ .30
- 12 -
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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. At this time, the Company has
no Chief Executive Officer or Chief Financial Officer.
(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, 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.
Prior to July 15, 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, 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.
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,
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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.
The Company's financial statements included in this Report, have not been
reviewed by the Company's independent public accountants. The accountants are
unwilling to perform the review without being paid for past work and the
Company's financial condition does not permit payment at this time. The Company
expects cash to become available, either upon sale of the Wolverine subsidiary
or completion of a financing package, within the next three months. At that
time, the Company expects to pay the accountants and have the financial
statements reviewed. An amended Form 10-Q will be filed that will include the
reviewed statements.
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 $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 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 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 $1,031,348,
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 Parent company.
OTHER INCOME AND EXPENSES
During the nine months ended September 30 2002, the Company recorded other
expense-net of approximately $754,389 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 $54,016 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 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 $ (24,296) 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.
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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
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 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.
THE NEW WORLD POWER CORPORATION
December 19, 2002 by: /s/ John D. Kuhns
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John D. Kuhns
Chairman of the Board of Directors