UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2006
Commission file number 000-51968
MMC ENERGY, INC.
(Name of small business issuer in its charter)
Nevada 26 Broadway New York NY 10004 98-0493819
(State or other jurisdiction of incorporation (Address of principal executive offices)(zip (IRS Employer Identification No.)
or organization) code)
Issuer's telephone number: (212) 977-0900
Check whether the issuer (1) filed all reports 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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes |_| No |X|
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 14, 2006 the registrant had 47,625,968 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2006
(unaudited) and December 31, 2005 1
Condensed Consolidated Statements of Operations (unaudited) for
the three and six month periods ended June 30, 2006 and 2005 2
Condensed Consolidated Statements of Cash Flows (unaudited) for
the six months ended June 30, 2006 and 2005 3
Condensed Consolidated Statement of Stockholders' Equity
(unaudited) for the six months ended June 30, 2006 4
Notes to Condensed Consolidated Financial Statements (unaudited) 5
ITEM 2 Management's Discussion and Analysis or Plan of Operation 22
ITEM 3 Controls and Procedures 30
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 31
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 31
ITEM 3 Defaults Upon Senior Securities 32
ITEM 4 Submission of Matters to a Vote of Security Holders 32
ITEM 5 Other Information 32
ITEM 6 Exhibits 32
SIGNATURES 33
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking statements
regarding our Company and our plans, goals, strategies, intent, beliefs or
current expectations. These statements are expressed in good faith and based
upon a reasonable basis when made, but there can be no assurance that these
expectations will be achieved or accomplished. These forward-looking statements
can be identified by the use of terms and phrases such as "believe," "plan,"
"intend," "anticipate," "target," "estimate," "expect," and the like, and/or
future-tense or conditional constructions ("will," "may," "could," "should,"
etc.). Items contemplating or making assumptions about, actual or potential
future sales, market size, collaborations, and trends or operating results also
constitute such forward-looking statements.
Although forward-looking statements in this report reflect the good faith
judgment of management, forward-looking statements are inherently subject to
known and unknown risks, business, economic and other risks and uncertainties
that may cause actual results to be materially different from those discussed in
these forward-looking statements. Readers are urged not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
report. We assume no obligation to update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
report, other than as may be required by applicable law or regulation. Readers
are urged to carefully review and consider the various disclosures made by us in
our reports filed with the Securities and Exchange Commission (the "SEC") which
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, results of operation and cash flows. If one
or more of these risks or uncertainties materialize, or if the underlying
assumptions prove incorrect, our actual results may vary materially from those
expected or projected.
EXPLANATORY NOTE
On May 3, 2006, High Tide Ventures, Inc. ("High Tide") changed its name to MMC
Energy, Inc. On May 15, 2006, High Tide completed a reverse merger (the
"Merger") with MMC Energy Acquisition Corp., a wholly-owned subsidiary of High
Tide ("Acquisition Sub"), with and into MMC Energy North America, LLC, a
Delaware limited liability company ("MMC North America"). High Tide acquired the
business of MMC North America pursuant to the Merger and, with the proceeds of
the Offering, will continue the existing business operations of MMC North
America as a publicly-traded company under the name MMC Energy, Inc. (the
"Company"). Unless otherwise indicated, the terms "the Company," "we," "us," and
"our," refer to MMC Energy, Inc. after giving effect to the Merger unless the
context clearly indicates otherwise. The term "High Tide" refers to MMC Energy,
Inc. (f/k/a High Tide Ventures, Inc.) before giving effect to the Merger, and
the term "MMC North America" refers to MMC North America, LLC, before giving
effect to the Merger.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MMC ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2006 2005
------------ ------------
(unaudited)
Assets
Current assets:
Cash and equivalents $ 10,071,831 $3,009,010
Restricted cash 311,090 --
Receivables, net of allowance for doubtful accounts of $0 208,900 --
Prepaids 490,815 200,000
------------ ----------
Total current assets 11,082,636 3,209,010
Property, plant and equipment, net 3,227,602 --
Deferred acquisition costs -- 379,624
Long-term deposits 75,000 --
------------ ----------
Total Assets $ 14,385,238 $3,588,634
============ ==========
Liabilities & Stockholders' equity
Current Liabilities:
Current maturities of long-term debt $ 407,418 $ --
Accounts payable 940,017 381,554
Other accrued expenses 337,846 12,000
Deposits for subscribed membership interests -- 3,008,333
------------ ----------
Total current liabilities 1,685,281 3,401,887
------------ ----------
Long-term debt 2,592,582 --
Commitments & contingent liabilites -- --
Stockholders' Equity
Common stock; 300,000,000 shares authorized with
47,625,968 issued and outstanding as of June 30, 2006
and 1,411,013 shares issued and outstanding as of
December 31, 2005, $.001 par value 47,626 1,411
Additional paid-in capital 15,022,523 208,561
Accumulated deficit (4,962,774) (23,225)
------------ ----------
Total stockholders' equity 10,107,375 186,747
------------ ----------
Total liabilities and stockholders' equity $ 14,385,238 $3,588,634
============ ===========
the accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements
MMC ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
From
Six Months February 7, 2005
Three Months Ended (date of inception)
Ended June 30, June 30, to June 30,
2006 2005 2006 2005
------------ ------ ------------ ------
Revenues $ 270,947 $ -- $ 270,947 $ --
Cost of sales 50,808 -- 50,808 --
------------ ------ ------------ ------
Gross Profit 220,139 -- 220,139 --
Operating expenses
Operations and maintenance 425,720 -- 732,672 --
Re-commissioning expenses 1,814,213 -- 2,143,164 --
General and administrative expenses 1,948,409 -- 2,221,279 --
------------ ------ ------------ ------
Total operating expenses 4,188,342 -- 5,097,115 --
------------ ------ ------------ ------
Loss from operations (3,968,203) -- (4,876,976) --
------------ ------ ------------ ------
Other expenses (income)
Interest expense, net 37,134 -- 62,573 --
------------ ------ ------------ ------
Total other expense 37,134 -- 62,573 --
------------ ------ ------------ ------
Net loss before provision for income taxes (4,005,337) -- (4,939,549) --
------------ ------ ------------ ------
Provision for income taxes -- -- -- --
------------ ------ ------------ ------
Net loss $ (4,005,337) $ -- $ (4,939,549) $ --
------------ ------ ------------ ------
Basic and diluted loss per common share
Net loss per share $ (0.11) $ (0.17)
Weighted average shares outstanding 35,899,725 -- 29,656,768 --
============ ====== ============ ======
the accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements
MMC ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
From
February 7, 2005
Six Months Ended (date of inception)
June 30, 2006 to June 30, 2005
---------------- ----------------
Operating Activities of Continuing Operations
Net Loss $ (4,939,549) $--
Adjustments to reconcile net (loss) to cash from operating activities
Depreciation and amortization 306,044 --
Stock-based compensation 26,750 --
Acquisition costs 11,750 --
Changes in current assets & liabilities
(Increase) in current assets (1,143,559) --
Increase in current liabilities 1,289,297 --
------------ ------
Net cash used by operations (4,449,267) --
------------ ------
Investing Activities of Continuing Operations
Purchases of property, plant and equipment (3,311,228) --
------------ ------
Net cash used in investing activites of operations (3,311,228) --
------------ ------
Financing Activities of Continuing Operations
Proceeds from issuance of long-term debt 3,000,000 --
Proceeds from member interest issued 175,000 --
Proceeds from issuance of stock, net 11,648,316 --
------------ ------
Net cash provided by financing activities of operations 14,823,316 --
------------ ------
Net increase in cash and cash equivalents 7,062,821
Beginning cash and cash equivalents at beginning of period 3,009,010 --
Cash and cash equivalents at end of period $ 10,071,831 $--
Supplemental Disclosures:
Cash paid for taxes $ -- $--
Cash paid for interest 83,270 --
Non-cash investing and financing activities
Subscription agreements for member interests of that
were subscribed and paid up in 2005 but not accepted
by the company till January 3, 2006 $ 2,998,361 --
Stock-based compensation 26,750 --
Acquisition costs in reverse merger with High
Tide Ventures, Inc. 11,750 --
the accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements
MMC ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(Unaudited)
MMC Common Common Additional Total
North America Shares Stock Paid-in Accumulated Stockholders'
Member Interest $.001 Par Value Amount Capital Deficit Equity
--------------- --------------- ----------- ---------- ----------- -------------
Balance at December 31, 2005 $ 209,972 -- $ -- $ -- $ (23,225) $ 186,747
Capital subscribed 2,998,361 -- -- -- -- 2,998,361
Cash contribution 175,000 -- -- -- -- 175,000
High Tide Shares retained by High
Tide stockholders in connection with
merger with MMC North America on
May 15, 2006, as restated -- 11,750,000 11,750 -- -- 11,750
Shares issued to MMC North America
members in relation to merger with
High Tide on May 15, 2006 (3,383,333) 23,875,000 23,875 3,359,458 -- --
Stock options issued -- -- -- 26,750 -- 26,750
Common shares issued for cash -- 12,000,968 12,001 11,636,315 -- 11,648,316
Net loss -- -- -- -- (4,939,549) (4,939,549)
------------ ------------ ----------- ---------- ---------- ----------
Balance at June 30, 2006 $ -- 47,625,968 $ 47,626 $15,022,523 $(4,962,774) $10,107,375
the accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements
MMC ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
(Unaudited)
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
General
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Regulation S-X, and therefore, do not include all
the information necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Accordingly, the results from operations for the three-month period ending June
30, 2006 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2006. The unaudited consolidated financial
statements should be read in conjunction with the Form 8-K Current Report filed
on May 15, 2006, which includes the audited financial statements of MMC Energy
North America and notes thereto for the period from February 7 to December 31,
2005.
Organization and Line of Business
The Company is a North American energy acquisition company, which primarily
acquires and operates deep value power generation and associated energy
infrastructure assets. The Company's mission is to create long-term value from
deep discount acquisitions through a dual focus on structuring disciplined
acquisitions and hands on post-acquisition asset management.
The Company is the successor company to High Tide Ventures, Inc. ("High Tide").
On May 3, 2006, High Tide Ventures, Inc. ("High Tide") changed its name to MMC
Energy, Inc. On May 15, 2006, High Tide completed a reverse merger (the
"Merger") with MMC Energy Acquisition Corp., a wholly-owned subsidiary of High
Tide ("Acquisition Sub"), with and into MMC Energy North America, LLC, a
Delaware limited liability company ("MMC North America"). High Tide acquired the
business of MMC North America pursuant to the Merger and, with the proceeds of
its $12 million private placement offering, will continue the existing business
operations of MMC North America as a publicly-traded company under the name MMC
Energy, Inc. (the "Company"). This transaction is accounted for as a reverse
takeover of High Tide by MMC North America, which survives as a wholly-owned
subsidiary of the Company.
MMC North America was formed under the laws of the state of Delaware on February
7, 2005 for the purpose of acquiring power generating assets in the U.S. On
January 9, 2006, MMC North America acquired substantially all of the assets of
Dispersed Generating Company, LLC (the "Seller"), consisting primarily of two
power generating facilities (the "Facilities") located in the San Diego,
California area. MMC North America was in the development stage, as defined by
Statement of Financial Accounting Standards No. 7 ("SFAS No. 7") until June 12,
2006 at which time it completed the re-commissioning of the Facilities and
commenced normal operations and revenue recognition. MMC North America in turn
formed wholly-owned subsidiaries MMC Chula Vista, LLC and MMC Escondido, LLC,
both of which are Delaware limited liabilities companies, to hold each of the
two Facilities, respectively. All significant inter-company transactions and
balances have been eliminated in consolidation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
Revenue Recognition
For revenue from products and services, the Company recognizes revenue in
accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the selling price is fixed and determinable; and (4) collectibility is
reasonably assured. Determination of criteria (3) and (4) are based on
management's judgments regarding the fixed nature of the selling prices of the
products delivered/services rendered and the collectibility of those amounts.
Provisions for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period the
related sales are recorded. The Company defers any revenue for which the product
has not been delivered or services have not been rendered or is subject to
refund until such time that the Company and the customer jointly determine that
the product has been delivered or services have been rendered or no refund will
be required.
On December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition. The staff updated and revised the existing revenue
recognition in Topic 13, Revenue Recognition, to make its interpretive guidance
consistent with current accounting guidance, principally EITF Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables." Also, SAB 104 incorporates
portions of the Revenue Recognition in Financial Statements - Frequently Asked
Questions and Answers document that the SEC staff considered relevant and
rescinds the remainder. The Company's revenue recognition policies are
consistent with this guidance; therefore, this guidance will not have an
immediate impact on the Company's financial statements.
The Company records revenues in connection with delivering electric power and
"ancillary services", generally being on call to provide power on 10 minute
notice, to the California Independent System Operator ("CAISO"), or such other
third parties as it may contract with directly from time to time. The Company
commenced earning revenues during June 2006.
Income Taxes
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
deferred income taxes are the result of the expected future tax consequences of
temporary differences between the financial statement and tax bases of assets
and liabilities. Generally, deferred income taxes are classified as current or
non-current in accordance with the classification of the related asset or
liability. Those items not related to an asset or liability are classified as
current or non-current depending on the periods in which the temporary
differences are expected to reverse. A valuation allowance is provided against
deferred income tax assets in circumstances where management believes the
recoverability of a portion of the assets is not reasonably assured. The Company
has no history of earnings and losses and will not recognize any tax benefit on
losses incurred currently. In the event of earnings in the future, losses
incurred will be carried forward as applicable per SFAS and the Internal Revenue
Code.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all time
deposits and highly liquid debt instruments purchased that mature in three
months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed principally
by the straight-line and accelerated methods at rates based on estimated useful
lives as follows:
Automobiles 5 years
Office equipment 3 years
Machinery and equipment 5 years
Long-Lived Assets
The Company reviews, as circumstances dictate, the carrying amount of its
property and equipment and patents. The purpose of these reviews is to determine
whether the carrying amounts are recoverable. Recoverability is determined by
examining and comparing respective carrying amounts versus expected revenue
streams from the related businesses. The amount of impairment, if any, is
measured based on the excess of the carrying value over the fair value.
Concentrations of Credit Risk
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash and cash equivalents
and accounts receivable. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit.
Concentration of credit risk with respect to accounts receivable is high due to
the geographic distribution of the entities comprising the Company's customer
base. The Company's revenues earned on contracts for the three and six month
periods ending June 30, 2006 were comprised of 100% (one customer) and 100% (one
customer), respectively.
Seasonal Nature of Business
The Company's business is seasonal, with a relatively high proportion of
revenues and operating cash flows generated during the third quarter of the
fiscal year, which include the peak summer months for energy demand. As the
Company derives most of its revenues from selling energy and ancillary services
at spot market prices, as opposed to under longer term fixed-price contracts,
its revenues and operating income are highly exposed to the seasonal fluctuation
in commodity pricing, that corresponds to the peak demand.
Geographical Concentration Risk
The Company's Facilities are located in greater San Diego, California, and
generally provide power only in that state. Accordingly, the Company's
operations are highly regulated by the local San Diego Air Permit Control Board,
the California Independent System Operator ("CAISO") and other related state and
local agencies, as well as the Federal Energy Regulation Commission ("FERC").
Such organizations establish certain rules and limitations on operations and
require that the Company maintain in good standing several required licenses and
permits, such as limits on air emissions. These organizations may from time to
time change the rules under which the Company operates and derives its revenues.
The Company's licenses and permits were, generally, transferred with the
Facilities from the Seller, and the Company believes it has all such required
licenses and permits to conduct its operations.
Advertising
The Company follows the policy of charging the costs of advertising to expenses
incurred. The Company incurred no advertising costs for the period ended June
30, 2006.
Comprehensive Income
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in the period presented.
Segment Information
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosures about
products and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The Company currently has only one operating segment.
Use of Estimates
In the normal course of preparing financial statements in conformity with
accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates made
by management include the collectibility of accounts receivable, the
realizability of inventories, the amounts due under accounts payable and the
valuation allowance of deferred tax assets. Actual results could differ from
those estimates.
Basic and Diluted Income (Loss) Per Share
Basic and diluted loss per common share is based upon the weighted average
number of common shares outstanding during the fiscal year under the provisions
of SFAS No. 128, Earnings Per Share and as amended/superseded in SFAS No.
123(R), Share-Based Payment. During the current period the Company had a net
loss and therefore there is no dilutive effect from any equity instruments
outstanding.
The following table is a reconciliation of the share amounts used in computing
earnings per share:
Three Months Six Months
Ended Ended
June 30, 2006 June 30, 2006
Weighted average shares outstanding - Basic 35,899,725 29,656,768
Dilutive effect of assumed exercise of
employee stock options and stock settled
appreciation rights -- --
---------- ----------
Weighted average shares outstanding - Diluted 35,899,725 29,656,768
Stock-Based Compensation
As of the Merger, MMC adopted SFAS No. 123(R) which no longer permits the use of
the intrinsic value method under APB No. 25. The Company uses the modified
prospective method to adopt SFAS No. 123(R), which requires compensation expense
to be recorded for all stock-based compensation granted on or after January 1,
2006, as well the unvested portion of previously granted options. The Company is
recording the compensation expense on a straight-line basis, generally over the
explicit service period of three years (except for retirement eligible employees
and retirees). The Company made no stock-based compensation grants before
January 1, 2006 and therefore has no unrecognized stock compensation related
liabilities or expense unvested or vested prior to 2006.
The following tables illustrates the effect that adoption of SFAS No. 123(R) had
on the Company's six months ending June 30, 2006 results and cash flows as well
as the parameters used in the valuation of options granted in the first six
months of 2006.
Under Pre- SFAS No. Actual Six
SFAS No.123 123(R) Months Ended
(R) Accounting Impact June 30, 2006
- ---------------------------------------- -------------- -------- -------------
(Losses) Earnings before taxes $ (4,912,799) $(26,750) $(4,939,549)
Net Earnings (losses) (4,912,799) (26,750) (4,939,549)
Net Earnings (losses)
Basic EPS (0.17) -- (0.17)
Diluted EPS (0.17) -- (0.17)
Cash Flows
Operating Activities (4,449,267) -- (4,449,267)
Financing Activities 14,823,316 -- 14,823,316
The following table summarizes the changes in options outstanding and the
related prices for the shares of the Company's common stock issued to employees
of the Company under a non-qualified employee stock option plan.
Options Outstanding Options Exercisable
- ---------------------------------------------- ---------------------------------
Weighted Weighted
Weighted Average Average Average
Exercise Number Remaining Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
- -------- ----------- --------------------- -------- ----------- --------
$ 1.00 1,070,000 9.87 $1.00 -- $1.00
Transactions involving stock options issued to employees are summarized as
follows:
Weighted Average
Number of Shares Price Per Share
---------------- ----------------
Outstanding at December 31, 2005 -- $ --
Granted 1,070,000 1.00
Exercised -- --
Cancelled or expired -- --
--------- -----
Outstanding at June 30, 2006 1,070,000 $1.00
========= =====
Based on the Company's closing stock price of $ 2.50 at June 30, 2006,
which would have been received by the option holders had all option holders
exercised their options as of that date. The total number of in-the-money
options exercisable was nil as of June 30, 2006.
As of June 30, 2006, stock options vested and expected to vest totaled
approximately 1,070,000 shares, with weighted-average remaining contractual life
of 9.87 years and weighted-average exercise price of $1.00 per share.
The weighted-average fair value of stock options and warrants granted to
employees during the six months ended June 30, 2006 and the weighted-average
significant assumptions used to determine those fair values, using a
Black-Scholes option pricing model are as follows:
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 5.06%
Expected stock price volatility 59%
Expected dividend payout 0.00
Expected option life-years (a) 6.00
Fair value of options $0.60
(a)The expected option/warrant life is based on vested dates.
Derivative Instruments
The Company accounts for freestanding derivative financial instruments
potentially settled in its own common stock under Emerging Issues Task Force
("EITF") Issue No. 00-19, Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock. Pursuant to EITF
Issue No. 00-19, the Company is required to recognize the initial fair value of
the applicable contracts (consisting primarily of non-employee stock warrants
and options to purchase common stock) as an asset or liability, and subsequently
measure the change in the fair value (based on a Black-Scholes computation),
with gains and losses included in a statement of operations.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash, trade payables, accrued expenses,
and notes payable approximate their estimated fair value due to the short-term
nature of those financial instruments. Warrants were issued in lieu of cash as
payment for professional services received. These warrants were valued at the
fair value of the professional services received as determined by usual and
customary fees associated with such services in transactions between unrelated
parties.
Reclassifications
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
NOTE 3 - ACCOUNTS RECEIVABLE
At June 30, 2006, trade accounts receivable consist of the following:
June 30
2006
--------
Accounts receivable on net revenues earned $208,900
Allowance for doubtful accounts --
--------
Accounts receivable, net $208,900
--------
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
At June 30, 2006, property, plant and equipment consist of the following:
June 30
2006
----------
Land $ 375,000
Automobile 20,427
Office equipment 7,381
Machinery, equipment & other 3,130,838
----------
3,533,646
Accumulated depreciation (306,044)
----------
Total $3,227,602
----------
Depreciation for the six months ended June 30, 2006 was $306,044
NOTE 5 - LONG-TERM DEBT
On January 31, 2006, MMC North America entered into a Loan and Security
Agreement (the "Loan Agreement") with TD Banknorth (the "Bank"), for a $3.5
million senior debt facility including a $3.0 million term loan (the "Term
Loan") and $500,000 revolving loan (the "Revolver", together with the Term Loan,
the "Loans"). The Term Loan provides for interest payments only for the first
six months, and 84 equal principal payments in the amount of $37,038 thereafter,
with a final maturity date of May 3, 2013. The Term Loan bears interest at a
variable rate equal to the Federal Home Loan Bank Rate plus 2.50%. $2.055
million of the Term Loan proceeds were funded into an escrow account under
control of the Bank and restricted in use to valid repair and re-commissioning
costs in accordance with a re-commissioning plan agreed to between MMC North
America and the Bank, with any remaining cash released to MMC North America once
the plants are operational. The remaining proceeds, net of related transaction
costs, were intended to be used for general working capital purposes. As of June
30, 2006, the balance held in escrow was $311,090, all of which was expanded
during July, 2006.
Advances against the Revolver are payable on demand and bear interest at the
Prime Rate plus 1.00%. Beginning in 2007, amounts outstanding under the Revolver
must be repaid in full and a zero balance maintained for at least 30 consecutive
days at any time during the year. MMC North America has not made any borrowings
under the Revolver.
The Loan Agreement places certain restrictions on MMC North America's ability to
make distributions to Members and on transactions with affiliates. The Loan
Agreement further subjects MMC North America to certain financial and other
covenants, including maintaining a minimum Net Worth and minimum Debt Service
Coverage ratio, and requiring that the Facilities be operational by no later
than June 30, 2006. MMC North America is not in violation of any such covenants.
The Loans are collateralized by substantially all assets of MMC North America
and are personally guaranteed, jointly and severally, by the three principal
officers of the Company. Any losses sustained by any officer under such guaranty
shall be indemnified by the Company.
NOTE 6 - COMMITMENTS AND CONTINGENT LIABILITIES
MMC North America has issued an irrevocable letter of credit in the amount of
$175,000 (the "Letter of Credit") to a counterparty under an energy services
agreement entered into in May 2006 (the "ESA"). The counterparty may draw upon
the Letter of Credit to recover liquidated damages suffered by the counterparty
in connection with any energy sales it may make on behalf of MMC North America
in the event MMC North America fails to meet its obligations, or for any other
unsatisfied obligations under the ESA. The Letter of Credit expires on February
28, 2007. The Letter of Credit was issued by the Bank, and availability under
the Revolver is reduced from $500,000 to $325,000 while the Letter of Credit
remains outstanding.
Neither the Company nor any subsidiary has any involvement in any legal
proceeding as of the report date.
NOTE 7 - EQUITY COMPENSATION
Prior to the Merger, the 2006 Equity Incentive Plan was adopted by the Board of
Directors and High Tide Stockholders. Under the Plan, 2,000,000 shares of Common
Stock are reserved for issuance as incentive awards granted by the Board to
executive officers, key employees and directors, and outside consultants. As of
June 30, 2006, 1,070,000 shares have been granted to employees in the form of
stock option grants, with a strike price of $1.00 per share, the market value at
time of issue.
NOTE 8 - STOCKHOLDERS' EQUITY
Common Stock
On the Closing Date, the holders of MMC North America's issued and outstanding
capital stock before the Merger (the "MMC North America Stockholders")
surrendered all of their issued and outstanding capital stock of MMC North
America and received 23,875,000 shares of common stock of the Company, par value
$0.001 per share ("Common Stock"). The stockholders of High Tide before the
Merger (the "High Tide Stockholders") retained 11,750,000 shares of Common
Stock. Concurrently with the Merger, the Company closed a private offering of
10,000,968 shares of Common Stock, par value $0.001 (the "Offering") for total
consideration of $10,000,968. On May 26, 2006, the Company closed on an
additional 2,000,000 shares of Common Stock under the same terms as the
Offering. The Company realized total cash proceeds of $11,648,316 net of direct
financing costs of $802,650, of which $450,000 was settled in the form of
warrants to purchase 450,000 shares of the Company's common stock at a strike
price of $0.01 per share. The warrants expire on May 15, 2011. As of the report
date the Company had authorized 300,000,000 shares and had issued and
outstanding 47,625,968 shares of common stock at par value $.001
In connection with the issuance of the 12,000,000 shares of common stock in May,
2006, the Company is obligated to register the shares with the Securities &
Exchange Commission ("SEC") by September 15, 2006. If the registration is not
effective by 120 days from the registration date, the Company is subject to
liquidated damages paid in cash equal to 1% per month on the value of the shares
issued, or $120,000 per month, until 12 months after the date of issue. From
that point forward, penalties are limited to only those shares that are not
otherwise freely tradable under SEC Rule 144 which limits the volume of shares
tradable by each Holder for a period from 12 to 24 months after date of issue.
Under Rule 144, such restriction would apply to no more than 1,442,500 of the
12,000,000 shares, such that the maximum penalty would drop to $14,425 per
month, for an additional twelve months. Accordingly, the maximum penalty to the
Company would be $653,000 in the aggregate, or 5.8% of the net proceeds from the
stock issue.
During 2006, prior to the Merger, MMC North America issued an additional
$3,173,361 of Merger Interests, of which, $2,998,361 was subscribed and fully
paid up in 2005, and the remaining $175,000 subscribed and paid in 2006.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company paid management fees of $260,000, inclusive of a $60,000 transaction
fee capitalized as a component of the acquisition costs of the Facilities, and
$200,000 in quarterly management fees expensed as incurred, in the six months
ended June 30, 2006 to MMC Energy Management, LLC, ("MMC Management"), an
affiliate controlled by the three executive officers of the Company. Effective
July 1, 2006, the management services agreement between MMC North America and
MMC Management was terminated, and replaced by a new management services
agreement between MMC North America and the Company, such that there will be no
future impact on the Company's consolidated earnings and cash flows from the
management fee. As required by the Merger Agreement, no further business has
been transacted between the Company and MMC Management subsequent to the Merger,
and MMC Management will be dissolved as soon as practical.
NOTE 10 - MERGER AND CORPORATE RESTRUCTURE
On May 15, 2006, the Company entered into an Agreement of Plan and
Reorganization ("Agreement" or "Merger") with High Tide Ventures, Inc. ("High
Tide"). As a result of the Merger, there was a change in control of the public
entity. In accordance with SFAS No. 141, MMC was the acquiring entity. While the
transaction is accounted for using the purchase method of accounting, in
substance the Agreement is a recapitalization of High Tide's capital structure.
For accounting purposes, the Company accounted for the transaction as a reverse
merger and the Company is the surviving entity. The total purchase price and
carrying value of net assets acquired was $11,750. The Company did not recognize
goodwill or any intangible assets in connection with the transaction. From
January 1, 2005 until the date of the Agreement, High Tide was an inactive
corporation with no significant assets and liabilities.
Effective with the Agreement, all previously outstanding membership interests
owned by the Company's members were exchanged for an aggregate of 23,875,000
shares of the Company's common stock. The value of the stock that was issued was
the historical cost of the Company's net tangible assets, which did not differ
materially from their fair value.
The total consideration paid was $11,750 and the significant components of the
transaction are as follows:
Common stock retained $ 11,750
Assets acquired (--)
--------
Liabilities assumed --
Cash paid --
--------
Total consideration paid/organization cost $ 11,750
--------
In accordance with SOP 98-5, the Company expensed $11,750 as organization costs.
NOTE 11 - SUBSEQUENT EVENTS
On August 8, 2006 the Company formed MMC Mid-Sun, LLC as a wholly-owned
subsidiary of the Company. Also on August 8, 2006, MMC Mid-Sun, LLC entered into
a binding purchase and sale agreement with Taft Partner Energy Partners, LP
("the Seller") for the purchase of Seller's Mid-Sun power generation facility,
including various power generation equipment and the assignment of a land lease,
permits, and other contracts as required to operate this facility. The Company
expects to close the transaction by September 30, 2006 upon satisfying certain
closing conditions, including the mandatory approval of the FERC. The Company
expects to acquire the jet turbine required to power this facility in a separate
transaction, and to re-commission the facility during the fourth quarter of
2006.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our financial statements and the notes thereto. This discussion should not be
construed to imply that the results discussed herein will necessarily continue
into the future, or that any conclusion reached herein will necessarily be
indicative of actual operating results in the future.
This discussion and analysis contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors.
Critical Accounting Policies
The Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of our financial statements in conformity with accounting principles generally
accepted in the United States requires the Company to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
costs and expenses, and related disclosure. The Company bases its estimates and
assumptions on historical experience and on various others assumptions that it
believes to be reasonable under the circumstances. Future events, however, may
differ markedly from the Company's current expectations and assumptions. While
there are a number of significant accounting policies affecting the Company's
consolidated financial statements, the Company believes the following critical
accounting policies involve the most complex, difficult and subjective estimates
and judgments:
Revenue Recognition
Revenue is recognized when all of the following circumstances are satisfied: a)
persuasive evidence of an arrangement exists, b) price is fixed or determinable,
c) collectibility is reasonably assured, and d) delivery has occurred. Revenues
are recognized upon delivery of energy or service. The energy rates the Company
collects fluctuate with rates approved for use by utilities and municipalities
local to the respective venues of service or energy delivery.
RESULTS OF OPERATIONS
Since the Company's operations commenced in October 27, 2005 and was considered
a development stage enterprise until June 12, 2006, period to period comparisons
of results of operations are either not applicable or not comparable.
Revenues
Revenues for the six months ended June 30, 2006 of $271,000 consisted primarily
of ancillary services revenue, which the Company earns by having its capacity
available on ten minutes notice to provide critical real time balancing services
to the power grid.
Cost of Sales
Cost of sales for the six months ended June 30, 2006 was approximately $51,000,
yielding a gross profit of $220,000 and a gross margin of 81%. The relatively
high gross margin resulted from very low direct variable costs, consisting of
fees charged by the CAISO, attributable to the ancillary services described
above. Cost of sales also includes a fixed monthly charge under an energy
services management agreement.
Operations and Maintenance
Operations and maintenance expenses consist of the direct overhead expenses for
operating and maintaining the Facilities. For the six months ended June 30,
2006, operations and maintenance expenses of $733,000 consisted primarily of
fixed charges such as leases, property taxes and depreciation expenses, all of
which accrue even when the Facilities are off line, as was the case through most
of the period. As the Facilities have now been re-commissioned, the Company
expects higher operations and maintenance expenses in future periods, which
expenses will include customary facility operating costs such as contracted
labor costs and actual repairs, both planned and unplanned.
Re-commissioning Expenses
Re-commissioning expenses consist of the non-recurring initial planned repairs
and re-commissioning costs required to restore the Facilities and all related
equipment to operating condition, including fuel and other costs relating to
initial test runs of the Facilities. For the six months ended June 30, 2006
re-commissioning expenses of approximately $2,143,000 reflected the total costs
of re-commissioning, including an estimate for final unbilled repairs, for the
Facilities which commenced operations at the end of the period. Accordingly, no
future re-commissioning expenses are anticipated for the Facilities, although
the Company expects to incur such costs again with respect to future
acquisitions such as the Mid-Sun facility.
General and Administrative Expenses
For the six months ended June 30, 2006, general and administrative expenses of
approximately $2,221,000 consisted primarily of non-recurring organizational
expense and investor relations fees in connection with merger of approximately
$1,402,000, with the balance attributable to professional fees and compensation.
MANAGEMENT'S PLAN OF OPERATION
The Company is an energy management company formed in February 2005 to acquire
and actively manage deep value assets in the U.S. power generation industry.
The U.S. power generation sector is fragmented and has recently suffered a
cyclical downturn in most regions, which presents many deep discount acquisition
opportunities. An oversupply of electric generation capacity exists in many
regions of the U.S., which is the result of significant investments in new power
generation over the past decade. As a result, power prices have declined in many
of these overbuilt regions, reducing the value of generation assets. Also, the
increased volatility in fuel prices has had an adverse effect on the few asset
owners that can still trade electricity. The owners and financiers of these
assets, who originally relied on flawed fundamentals and unrealistic
expectations, have experienced considerable financial distress, often leading to
bankruptcy, debt restructuring, asset repossession by lenders, or asset sales.
The Company expects that these companies will continue to divest assets at
discounted prices to obtain liquidity and retire project debt, leading to a
substantial number of high-quality, yet financially distressed assets that are
available for sale.
The Company strives to create long-term value from deep discount acquisitions
through a dual focus on financial structuring and post-acquisition asset
management. It's target market consists of small to medium-sized "merchant"
power generating facilities, located in California, Texas and the Northeastern
U.S., where many "red zones" (high electricity demand relative to limited
available capacity) are present. The US Department of Energy named Southern
California and the Atlantic coastal area from New York City to northern Virginia
"critical congestion areas" for electricity transmission.
Merchant power facilities, as opposed to "contracted" facilities, compete in the
highly volatile unregulated wholesale markets for power and lack the stability
of long term contracts at fixed prices for both revenues and fuel costs
(typically gas or coal). Merchant assets require an experienced owner, operator
and risk manager who is capable of executing and administering all of the
necessary oversight and controls. On the cost side, such assets are often
burdened with the typical high cost structure of regulated plants, which include
high labor costs, outdated utility supply agreements, and out-of-the-money tax
treatments. The Company believes it will realize a significant amount of value
through restructuring the plant's operations and maintenance, repair and
overhaul contracts, supply and off-take agreements, and re-aligning the plant's
cost structure to its new market-based environment.
The Company believes that it can compete effectively for deals in its niche
market. It believes that most large energy investment firms focus primarily on
acquiring larger regulated and contracted assets. Equipped primarily with
financial engineering skills as opposed to asset operating experience such as
that enjoyed by the Company, such firms have a limited universe of acquisition
targets and greater competition for them. The assets acquired, therefore,
typically have capped cash flows whose primary value drivers are characterized
by low rates of return and lower weighted average cost of capital. The Company
does not believe that such firms will be able to extract sufficient returns on
investment by only employing leverage and exchanging cash flow risk for credit
risk. Competitors for small merchant assets, such as the two power generating
facilities (the "Facilities") and future Company targets, are typically more
lacking in management depth and access to capital and deal flow.
The Company launched its strategy with its acquisition of the Facilities in the
San Diego, California region in January, 2006. It is leveraging the acquisition
to enter the California wholesale power and electricity market, and in
particular, the San Diego region, which is currently a "red zone." The Company
acquired the formerly idle Facilities for what it believes to be a deeply
discounted value and believes the Facilities are likely to appreciate
substantially in value following their repair and re-commissioning. The Company
successfully re-commissioned the Facilities and began earning revenue from them
on June 12, 2006.
The Company intends to add further value through expanding the Facilities. The
Chula Vista Facility, one Facility acquired, was originally developed with a
view towards supporting two distinct generating units, and presents an
attractive expansion opportunity. The Company has obtained a preliminary quote
to purchase two General Electric LM-6000 turbines, additional ancillary
equipment and construction services to build out a second unit on site - a
combined investment of approximately $60 million. The combined 94 MW LM-6000
units would represent over twice the capacity of the existing unit (94 MW), and
operate much more efficiently. Accordingly, the LM-6000 units can be expected to
sell energy profitably during virtually all "peak hours," greatly enhancing
expected revenues and profitability from the Facility. Further growth from the
Escondido Facility may come from replacing the existing units with additional
LM-6000 units.
The Company believes additional transactions will be derived from mergers of
large utilities that will require divestitures in regions where the combined
entity would otherwise exert excessive market power. Additionally, many assets
are held by purely financial investors where long-term fixed contracts for
revenues, fuel supply and operations, shield them from operation risk. As those
profitable contracts expire or are monetized, such financial owners generally
will seek to immediately liquidate their investment. The Company's strategy is
to acquire such assets that are often available at a deep discount and create
long-term value by restructuring, refinancing, managing and operating those
assets.
The Company believes its access to deal flow, primarily from proprietary
sources, provides an additional advantage. It continues to screen deal
opportunities received through such sources.
The Company currently has six full time employees based at the Company's
headquarters in New York. The Company has contracted for third party labor for
on-site management of the Facilities as well as 24 hour a day energy management
and trading support, and generally expects to manage any future facilities
acquired in a similar fashion for the foreseeable future. To support the
Company's future growth plans, we expect to hire additional professional staff
in the New York office to support increased acquisition activity and asset
management responsibilities.
Liquidity and Capital Resources
As of June 30, 2006, the Company had $10.1 million in cash and equivalents. The
Company believes this balance will be sufficient to satisfy its cash
requirements under current operating conditions for at least three years.
However, such proceeds may also be used to acquire additional assets consistent
with its growth strategy. Such acquisitions could result in the Company
requiring additional funding in a significantly shorter period should such
assets not be immediately cash flow generating. Additionally, the Company's
growth plan, including the Chula Vista expansion, will require substantially
more capital. The Company expects to raise substantially more debt and equity
capital within the next twelve months to finance this targeted growth. The
extent and timing of the capital requirements will be contingent on the specific
acquisition targets the Company is able to source.
In connection with the issuance of the 12,000,000 shares of common stock in May,
2006, the Company is obligated to register the shares with the Securities &
Exchange Commission ("SEC") by September 15, 2006. If the registration is not
effective by 120 days from the registration date, the Company is subject to
liquidated damages paid in cash equal to 1% per month on the value of the shares
issued, or $120,000 per month, until 12 months after the date of issue. From
that point forward, penalties are limited to only those shares that are not
otherwise freely tradable under SEC Rule 144 which limits the volume of shares
tradable by each Holder for a period from 12 to 24 months after date of issue.
Under Rule 144, such restriction would apply to no more than 1,442,500 of the
12,000,000 shares, such that the maximum penalty would drop to $14,425 per
month, for an additional twelve months. Accordingly, the maximum penalty to the
Company would be $653,000 in the aggregate, or 5.8% of the net proceeds from the
stock issue.
The Company believes that it will be successful in obtaining the working capital
it needs to fund its planned level of operating activities, capital expenditures
and debt and other obligations through the next 12 months. However, if during
that period or thereafter, the Company is not successful in obtaining sufficient
capital resources on terms acceptable to the Company, this could have a material
adverse effect on the Company's plans to make additional acquisitions and expand
the Facilities, and/or on the Company's current business, results of operations,
liquidity and financial condition. If the Company issues additional equity
and/or debt securities to meet its future capital requirements, the terms of any
future equity financings may be dilutive to the Company's stockholders and the
terms of any debt financings may contain restrictive covenants negatively
affecting the Company's stockholders. The Company's ability to successfully
effect future financings will depend on the status of its business prospects as
well as conditions prevailing in the capital markets.
On January 31, 2006, MMC North America entered into a Loan and Security
Agreement (the "Loan Agreement") with TD Banknorth (the "Bank"), for a $3.5
million senior debt facility including a $3.0 million term loan (the "Term
Loan") and $500,000 revolving loan (the "Revolver", together with the Term Loan,
the "Loans"). The Term Loan provides for interest payments only for the first
six months, and 84 equal principal payments in the amount of $37,038 thereafter,
with a final maturity date of May 3, 2013. The Term Loan bears interest at a
variable rate equal to the Federal Home Loan Bank Rate plus 2.50%. $2.055
million of the Term Loan proceeds were funded into an escrow account under
control of the Bank and restricted in use to valid repair and re-commissioning
costs in accordance with a re-commissioning plan agreed to between MMC North
America and the Bank, with any remaining cash released to MMC North America once
the plants are operational. The remaining proceeds, net of related transaction
costs, are intended to be used for general working capital purposes.
Advances against the Revolver are payable on demand and bear interest at the
Prime Rate plus 1.00%. Beginning in 2007, amounts outstanding under the Revolver
must be repaid in full and a zero balance maintained for at least 30 consecutive
days at any time during the year. MMC North America has not made any borrowings
under the Revolver.
The Loan Agreement places certain restrictions on MMC North America's ability to
make distributions to Members and on transactions with affiliates. The Loan
Agreement further subjects MMC North America to certain financial and other
covenants, including maintaining a minimum Net Worth and minimum Debt Service
Coverage ratio, and requiring that the Facilities be operational by no later
than June 30, 2006. MMC North America is not in violation of any such covenants.
The Loans are collateralized by substantially all assets of MMC North America
and are personally guaranteed, jointly and severally, by the three principal
officers of the Company. Any losses sustained by any officer under such guaranty
shall be indemnified by the Company. MMC North America has issued an irrevocable
letter of credit in the amount of $175,000 (the "Letter of Credit") to a
counterparty under an energy services agreement entered into in May 2006 (the
"ESA"). The counterparty may draw upon the Letter of Credit to recover
liquidated damages suffered by the counterparty in connection with any energy
sales it may make on behalf of MMC North America in the event MMC North America
fails to meet its obligations, or for any other unsatisfied obligations under
the ESA. The Letter of Credit expires on February 28, 2007. The Letter of Credit
was issued by the Bank, and availability under the Revolver is reduced from
$500,000 to $325,000 while the Letter of Credit remains outstanding.
Off- Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that are reasonably
likely to have a current or future effect on its financial condition, revenues,
results of operations, liquidity or capital expenditures, nor does the Company
participate in non-exchange traded contracts requiring fair value accounting
treatment.
Inflation
The effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are located in North America and there are
no seasonal aspects that would have a material effect on its financial condition
or results of operations.
Recent Accounting Pronouncements
SFAS 156. On March 31, 2006 the Financial Account Standards Board (the "FASB")
issued its Statement of Financial Accounting Standards 156 ("FAS 156") to amend
FASB Statement No. 140 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("FAS 140"). FAS 156 requires an
entity to recognize a servicing asset or servicing liability on its statement of
financial position each time it undertakes an obligation to service a financial
asset. FAS 156's required effective date of adoption is for the first fiscal
year beginning after September 15, 2006. The Company does not expect adoption of
this standard will have a material impact on its financial position, operations
or cash flows.
SFAS 123R. On March 31, 2005 the FASB issued its exposure draft, "Share-Based
Payments" ("SFAS 123(e)"), which is a proposed amendment to SFAS 123,
"Accounting for Stock-Based Compensation." The exposure draft would require all
share-based payments to employees, including grants of employee stock options
and purchases under employee stock purchase plans, to be recognized in the
statement of operations based on their fair value. The FASB issued the final
standard in December 2005 that is effective for public companies for interim and
annual periods beginning after December 15, 2005. The Company has recorded a
charge of $26,750 to expense stock options issued by the Company during the
quarter ended June 30, 2006 in accordance with SFAS 123(R).
SFAS 153. On December 16, 2005, FASB issued Statement of Financial Accounting
Standards No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion
No. 29, Accounting for Non-monetary Transactions ("SFAS 153"). This statement
amends APB Opinion 29 to eliminate the exception for non-monetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance. Under SFAS 153, if
a non-monetary exchange of similar productive assets meets a
commercial-substance criterion and fair value is determinable, the transaction
must be accounted for at fair value resulting in recognition of any gain or
loss. SFAS 153 is effective for non-monetary transactions in fiscal periods that
begin after June 15, 2005. The Company does not expect the adoption of this
standard will have a material impact on its financial position, results of
operations or cash flows.
FIN 47. In March 2005, the FASB issued FASB Interpretation (FIN) No. 47,
"Accounting for Conditional Asset Retirement Obligations, an interpretation of
FASB Statement No. 143," which requires an entity to recognize a liability for
the fair value of a conditional asset retirement obligation when incurred if the
liability's fair value can be reasonably estimated. The Company is required to
adopt the provisions of FIN 47 no later than the end of its fiscal 2006. The
Company does not expect the adoption of this Interpretation to have a material
impact on its consolidated financial position, results of operations or cash
flows.
SFAS 154. In May 2005 the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 154, "Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS 154 requires
retrospective application to prior periods' financial statements for changes in
accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. SFAS 154 also
requires that retrospective application of a change in accounting principle be
limited to the direct effects of the change. Indirect effects of a change in
accounting principle, such as a change in non-discretionary profit-sharing
payments resulting from an accounting change, should be recognized in the period
of the accounting change. SFAS 154 also requires that a change in depreciation,
amortization, or depletion method for long-lived, non-financial assets be
accounted for as a change in accounting estimate effected by a change in
accounting principle. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
Early adoption is permitted for accounting changes and corrections of errors
made in fiscal years beginning after the date this Statement is issued. The
Company does not expect the adoption of this SFAS to have a material impact on
its consolidated financial position, results of operations or cash flows.
SFAS 155. On February 16, 2006 the FASB issued SFAS 155, "Accounting for Certain
Hybrid Instruments," which amends SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 155
allows financial instruments that have embedded derivatives to be accounted for
as a whole (eliminating the need to bifurcate the derivative from its host) if
the holder elects to account for the whole instrument on a fair value basis.
SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS
140. This statement is effective for all financial instruments acquired or
issued in fiscal years beginning after September 15, 2006. The Company does not
expect its adoption of this new standard to have a material impact on its
financial position, results of operations or cash flows.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed or submitted pursuant
to the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that information required to be disclosed in
our Exchange Act reports is accumulated and communicated to our management,
including the our chief executive officer and chief financial officer, to allow
timely decisions regarding required disclosure.
As of June 30, 2006, we conducted an evaluation of effectiveness of the design
and operation of our disclosure controls and procedures, under the supervision
and with the participation of our chief executive officer and chief financial
officer of our disclosure controls and procedures (as defined in Rule 13a-15(e)
and Rule 15d-15(e) of the Exchange Act). Based upon that evaluation, our chief
executive officer and chief financial officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SECs rules and forms. Upon closing of the Merger, the Company adopted the
internal controls and accounting systems of MMC North America. There was no
other change in our internal controls or in other factors that could affect
these controls during our last fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting
identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter
that have materially affected, or are reasonably likely to materially affect our
internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm the Company's business. The
Company is currently not aware of nor has any knowledge of any such legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse affect on our business, financial condition or
operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On the Closing Date, the holders of MMC North America's issued and outstanding
capital stock before the Merger (the "MMC North America Stockholders")
surrendered all of their issued and outstanding capital stock of MMC North
America and received 23,875,000 shares of common stock of the Company. The
stockholders of High Tide before the Merger (the "High Tide Stockholders")
retained 11,750,000 shares of Common Stock. Concurrently with the Merger, as
previously disclosed by the Company in its Current Report on Form 8-K filed with
the Securities and Exchange Commission on May 15, 2006, on such date the Company
conducted an initial closing of a private placement offering (the "Offering") of
its common stock deriving gross proceeds of $10,000,966. On May 26, 2006, the
Company conducted a final closing of the Offering deriving additional gross
proceeds of $2,000,000 from the sale of 2,000,000 additional shares of its
common stock. The Company realized total proceeds of $11,648,316 net of direct
financing costs of $802,650, of which $450,000 was settled in the form of
warrants to purchase 450,000 shares of the Company's common stock at a strike
price of $0.01 per share. The warrants expire on May 15, 2011. Such issuances
were conducted pursuant to the exemption from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), provided by
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder. The common stock was offered and sold only to "accredited
investors," as that term is defined by Rule 501 of Regulation D.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 26, 2006, 86% of the shares held by Company's stockholders
approved by written consent an Amendment to its Certificate of Incorporation
("Amendment") with the Secretary of State of the State of Nevada that was
effective April 28, 2006 The Amendment was filed for the following purposes:
1. To change the name of the Company from "High Tide Ventures, Inc." to
"MMC Energy, Inc."; and
2. To increase the Company's authorized capital stock from 75,000,000
shares of common stock, par value $0.001, to 300,000,000 shares of
common stock, par value $0.001, and 10,000,000 shares of preferred
stock, par value $0.001.
ITEM 5. OTHER INFORMATION
On August 8, 2006, the Company formed MMC Mid-Sun, LLC as a wholly-owned
subsidiary of the Company. Also on August 8, 2006, MMC Mid-Sun, LLC entered into
a binding purchase and sale agreement with Taft Partner Energy Partners, LP
("the Seller") for the purchase of Seller's Mid-Sun power generation facility,
including various power generation equipment and the assignment of a land lease,
permits, and other contracts as required to operate this facility for a purchase
price of $1.5 million, subject to adjustment for certain recommissioning costs.
The Company expects to close the transaction by September 30, 2006 upon
satisfying certain closing conditions, including the mandatory approval of the
FERC. The Company expects to acquire the jet turbine required to power this
facility in a separate transaction, and to re-commission the facility during the
fourth quarter of 2006.
ITEM 6. EXHIBITS
(a) Exhibits.
10.9 Scheduling and Asset Optimization Services Agreement, dated June 7,
2006, between the Company and PPM Energy, Inc. ***
31.1 Certification pursuant to Rules 13a - 14(a) and 15d - 14(a) under
the Securities Exchange Act of 1934, as amended
31.2 Certification pursuant Rules 13a - 14(a) and 15d - 14(a) under the
Securities Exchange Act of 1934, as amended
32.1 Certification pursuant to 18 U.S. C. Section 1350
32.2 Certification pursuant to 18 U.S. C. Section 1350
*** Portions of this Exhibit were omitted and have been filed separately with
the Secretary of the Commission pursuant to the Company's Application requesting
Confidential Treatment under Rule 24b-2 of the Securities Exchange Act of 1934
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MMC ENERGY, INC.
BY: /s/ Karl W. Miller
------------------------------------
Karl W. Miller
CHIEF EXECUTIVE OFFICER
BY: /s/ Denis Gagnon
------------------------------------
Denis Gagnon
CHIEF FINANCIAL OFFICER and PRINCIPAL
ACCOUNTING OFFICER
DATE: August 14, 2006