U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended April 30, 2000
--------------
[ ] Transition Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________to_________________.
Commission file number 0-29356
------------------------------------------------
Southern States Power Company, Inc.
-------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 33-0312389
------------------------------- ------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
830 Havens Road, Shreveport, Louisiana 71107
-------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (318) 221-5703
---------------
Securities Registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
------------------- -----------------------------------------
1
<PAGE>
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
----------------------------------------
(Title of Class)
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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
-----
The Company had $55,501. in revenues from operations during the fiscal year
ended April 30, 2000.
The aggregate market value of the voting stock held by nonaffiliates of the
registrant (8,475,909 shares) is approximately $3,644,641. The aggregate market
value has been computed by reference to the average bid and ask prices of such
stock ($0.43 per share) as of July 28, 2000 (which date is within 60 days of the
filing of this Form 10-KSB).
The number of shares outstanding of the issuer's Common Stock as of April 30,
2000 was 8,730,919. Of these shares, 2,023,100 were freely tradable and
6,707,819 were restricted.
2
<PAGE>
PART I
ITEM 1. BUSINESS OVERVIEW
THE COMPANY
Southern States Power Company, Inc. ("SSPC" or the "Company") was formed in
March 1998 as a private Louisiana corporation to develop and market innovative
energy and power technologies with a concentration on those products and
services that either improve or preserve the environment on a global basis.
After formation of the private company, Company Management sought out a public
vehicle and executed a merger with Pascal Ventures, Inc., a public reporting
company organized under the laws of the state of Delaware. The merger was
consummated on July 13, 1998. Pascal Ventures, Inc. then changed its name to
Southern States Power Company, Inc. and the private Louisiana corporation was
dissolved. The Company then set out to execute its business plan.
During fiscal year 2000, the Company decided to stake a position in the
burgeoning biodiesel fuel market. Company management has recognized that sector
as the most promising of the Company's current ventures and as such has decided
to dedicate all the Company's resources to this division.
Biodiesel fuel is produced by combining vegetable or animal oils with
standard diesel fuel in an effort to eliminate or reduce particulates and other
emissions associated with the burning of straight diesel fuels.
One such blending oil is soybean oil. During fiscal year 1999, the Company
acquired two soybean oil extraction facilities in Culiacan, Mexico. The
facilities were acquired on behalf of the Company by Southern States Gas & Oil,
Ltd., a private Louisiana corporation and an agent of the Company. A collection
of factors led to a decision by the Company to abandon the facility
acquisitions, chief among them being the complicated Mexican law requirements
regarding title to the facilities, the cost of soybean oil processing versus
other blending options, and drought conditions affecting the quality of the
soybean crops. The last of the financial data concerning this investment was
recorded in Fiscal Year 2000 and the Mexican venture has been written off
completely.
Another such blending oil is "yellow grease," a waste product generated
mainly by restaurant operations. During fiscal year 2000, the Company entered
into a custom blending arrangement with NOPEC Corporation of Lakeland, Florida.
NOPEC manufactures the Company's proprietary "Oxy-GB 60" biodiesel. A state of
the art facility, the NOPEC plant represents the ideal biodiesel processing
operation. An agreement is in place with NOPEC that will allow the Company to
purchase a 51% interest in NOPEC.
3
<PAGE>
In addition to the potential acquisition of NOPEC, the Company plans to
construct its own facilities based on the NOPEC model. Proposed locations
include Shreveport, Louisiana; Phoenix, Arizona; and Riverside, California.
The Shreveport location is attractive for several reasons. First, the
Company maintains its headquarters in that city. Second, a new river port has
been constructed and many incentives are offered by the port commission that
will reduce the Company's overall costs. Third, the port site is an ideal
location for an "EcoEnergy Park." The EcoEnergy Park concept is a Company
development plan that seeks to place environmentally-friendly operators in
proximity to one another so that they might share resources, personnel, space
and the like. Further, the concept seeks to pair operations that can consume
each others' by-products, reducing the amount of waste generated by the overall
project. The Shreveport EcoEnergy Park project is in the early stages of
development. At the time of this report, negotiations are underway with an
environmental waste remediation company to create a partnership with a future
biodiesel plant. It is anticipated that the parties will reach an agreement to
construct two facilities at the Shreveport river port, sharing resources and
planning costs.
The Phoenix location is warranted by the strong potential for extraordinary
growth in demand for biodiesel in that metropolitan area. Heavy pollution
problems and an environmentally-conscious public are creating a market for the
Company's Oxy-GB 60 biodiesel fuel. The Company's first customer in the
biodiesel market was the Deer Valley Unified School District, the largest in
Phoenix. The Company continues to supply biodiesel to DVUSD and has recently
submitted bids to other school districts in the Phoenix area. The Interstate
Clean Transportation Corridor includes Arizona (along with California, Nevada
and Utah) so the Phoenix location is ideal.
The Riverside location is warranted by the strict regulatory requirements
extant in Southern California. The Company has an option to purchase a 90-acre
tract in the Agua Mansa development, which is reserved for environmental
development companies. An EcoEnergy Park is planned for this location, as well.
Production from this proposed facility could supply California and Nevada
customers.
Several laws and air quality management agreements are in effect that will
help spur the growth of the Company's biodiesel division. Some of these
regulations and agreements are the California Air Resources Board (recently
ruled that small particulates are a toxic health hazard; fines for exceeding
smoke limits went into effect in April, 1999); the Transportation Equity Act of
the 21st Century (allows fleets or heavy duty equipment affected by alternative
fuel mandates to meet requirements with a diesel engine vehicle operating on 20%
biodiesel, 80% petroleum; off-road heavy-duty equipment using alternative fuels
will be given bid preferences and equipment operating advantages on highway
construction contracts); and the Interstate Clean Transportation Corridor
(consists of interstate highway systems in four Western states {CA, AZ, NV, UT};
the states are working together to provide alternative fuel stations for trucks
in the ICTC).
4
<PAGE>
Biodiesel fuel can be used in existing diesel engines with little or no
modifications as an alternative fuel. Use of the fuel leads to much lower
emissions while also improving engine lubricity and providing other benefits.
The recent change in the alternative fuel requirements that allows 20% biodiesel
to qualify will create a strong demand among the more than 8 million fleet
vehicles in the U.S. All of these fleet vehicles will be impacted in the near
future by alternative fuel rules. Some fleets such as federal, state and utility
fleets must purchase 75-90% alternative fuel vehicles starting this year.
Biodiesel is the lowest cost alternative fuel option for many fleets
because diesel vehicles can be utilized and fueling infrastructure costs are
very low compared to natural gas, ethanol, methanol or electricity. Over 12
million gallons of diesel fuel is consumed daily in California alone. Even a
very small shift in the consumption of diesel represents a tremendous market
opportunity for biodiesel.
At present, government regulations, both state and federal, mandate
deployment of alternative fuel vehicles for certain operators. In certain cases,
government agencies will subsidize the purchase of alternative fuels by
consumers in an effort to offset the increased costs associated with their
manufacture. Over time, as the number of alternative fuel producers and users
increases and a stable market is established, the standard price should
stabilize at a competitive level such that the subsidies can be removed without
adverse effects on this new market.
The Company's other operations, consisting of fuel cells and natural
gas/crude oil production, have been placed on hold until the biodiesel business
plan can be implemented.
TECHNOLOGY PROTECTION POLICY AND DISCLAIMERS
It is the Company's policy to protect its technology by, among other means,
filing patent applications to protect technology which it considers important to
the development of its business. The Company will also rely upon trade secrets
and improvements, unpatented know-how, and continuing technological innovation
to develop and maintain its competitive position. Despite the Company's policy
to seek patent protection wherever appropriate, there can be no assurance that
the Company's patent applications will result in further patents being issued or
that, if issued, the patents will afford protection against competitors with
similar technology. There can also be no assurance that any patent issued to the
Company will not be infringed or circumvented by others or that others will not
obtain patents that the Company would need to license or circumvent. There can
be no assurance that licenses, which might be required for the Company's
processes or products, would be available on reasonable terms or that patents
issued to others would not prevent the Company from developing and marketing its
products. In addition, there can be no assurance that the patents, if issued,
would be held valid by a court of competent jurisdiction. To the extent the
Company also relies upon unpatented trade secrets, there can be no assurance
that others will not independently develop
5
<PAGE>
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets or disclose such technology.
CONFIDENTIALITY POLICY AND DISCLAIMERS
Company agents and officials interact with many different technology
development entities and concerns. It is the policy of the Company to obtain
executed confidentiality agreements from those persons or entities to whom
Company trade secrets are revealed. The standard agreement includes provisions
prohibiting disclosure of proprietary information, both patented and unpatented.
With respect to Company employees and consultants, the agreements include
provisions prohibiting competition with the Company. It should be noted that
these agreements do not provide an absolute protection against the
misappropriation of Company information and secrets.
EMPLOYEES AND OFFICERS
The officers of the Company are Lawrence W. Taggart, President & Director,
Harrison A. McCoy, III, Executive Vice-President & Director, William O.
Shaeffer, Director, and Antoinette Fowler, Secretary/Treasurer. None devotes
their full time to Company affairs. Generally, the officers of the Company have
not been paid any regular salaries or bonuses, although the Company occasionally
has authorized compensation to certain officers for services rendered and
expenses personally incurred on the Company's behalf. Both Mr. McCoy and Ms.
Fowler have received stock in the Company as compensation for their services.
The Company employs a small staff at the Shreveport headquarters (receptionist,
investor relations director, corporate counsel).
ITEM 2. PROPERTIES
The Company's principal place of business is located at 830 Havens Road,
Shreveport, Louisiana. This space is leased from Consolidated Energy
Investments, Inc. and includes an executive suite, a conference room, a file
area, and kitchen/bath facilities. The lease is month to month with automatic
reconduction absent notice from either the lessor or lessee of an intent to
terminate the lease.
ITEM 3. LEGAL PROCEEDINGS
Emerson Nichols v. B.A.T. International, et al.; #GIC 739 485; Superior
Court, State of California, County of San Diego; filed 11/99. SSPC was named as
a defendant because B.A.T. was at one time a shareholder of SSPC. When the
plaintiff sought recovery from the defendant for breach of contract and fraud,
he also named SSPC in an attempt to achieve some form of recovery for his
alleged damages. Since the SSPC stock was essentially the only real asset B.A.T.
owned, the plaintiff formulated a loose allegation concerning possible
involvement in the torts on the part of SSPC. SSPC filed a demurrer for no cause
of action which was sustained. The plaintiff then amended his claim to an even
broader allegation to which SSPC responded with a general denial and several
affirmative defenses. The case is in the discovery phase and trial is set for
6
<PAGE>
October 13, 2000. SSPC plans a vigorous defense. SSPC was not involved in any of
the alleged conduct and indeed has had no involvement with the plaintiff. There
is no privity of contract between SSPC and the plaintiff; therefore, prospects
for successful outcome are high and the exposure for potential loss is minimal.
In any event, plaintiff is seeking damages for breach of contract, punitive
damages, attorney fees and costs.
Norman F. Alvis and Team Alvis, LLC v. B.A.T. International, et al.;
#99AS06972; Sacramento Superior Court; filed 12/99; Similar facts as above;
however, in this case former SSPC President Heber C. Bishop was named as a
defendant. Additionally, this plaintiff alleges that SSPC and Bishop interfered
with plaintiff's dealings with the stock transfer agent when B.A.T. assigned
some of its SSPC shares to plaintiff to pay a debt to plaintiff then proceeded
to cancel the assignment by telling the transfer agent to hold the issuance.
SSPC personnel and officers were in no way involved; indeed, SSPC personnel and
officers were never aware of the transactions until the lawsuit was served on
SSPC/Bishop in May 2000. A vigorous defense if planned but no answer has been
filed as of this date. The Company has filed a demurrer to the claims and a
hearing is set for August 21, 2000. Prospects for successful outcome are high
and the exposure for potential loss is minimal. No trial date has been set.
Plaintiff is seeking damages for breach of contract, punitive damages, attorney
fees and costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the over-the-counter ("OTC") system
under the symbol "SSPC.". The following table sets forth, for the periods
indicated, the closing high and low bid prices for the Common Stock. The prices
represent inter-dealer prices, without adjustment for retail markups, markdowns,
or commissions and may not represent actual transactions. The National Quotation
Bureau, Inc. has provided the information.
BID PRICE
--------------------
HIGH LOW
----- ------
Fiscal Year Ended April 30, 2000
-----------------------------------------
First quarter $4.75 $1.25
Second quarter $4.75 $1.375
Third quarter $4.00 $2.00
Fourth quarter $4.50 $.001
7
<PAGE>
BID PRICE
---------------------
HIGH LOW
----- -------
Fiscal Year Ended April 30, 1999
-----------------------------------------
First quarter* $ n/a $ n/a
Second quarter* n/a n/a
Third quarter* n/a n/a
Fourth quarter $7.50 $3.25
*The Company's stock was not approved for trading until February 2, 1999.
On April 30, 2000, there were approximately 88 record owners of the
Company's Common Stock.
The Company has never paid a cash dividend and does not anticipate the
payment of cash dividends in the foreseeable future. Earnings are expected to be
retained to finance the Company's growth. Declaration of dividends in the future
will remain within the discretion of the Company's Board of Directors, which
will review its dividend policy from time to time.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
RESULTS OF OPERATIONS: FISCAL YEAR 2000
The Company had minimal revenue from business operations during fiscal year
2000, compared to zero in fiscal year 1999. The Company incurred research and
development expenses in the amount of $101,616 and consulting fees in the amount
of $1,490,552, consisting of primarily of noncash compensation. By comparison,
in fiscal year 1999, research and development expenses totaled $326,770 and
consulting fees were $881,287. The Company experienced a loss of $13,680 on its
joint venture automobile manufacturing operation in Mexico, compared to
$1,183,598 in fiscal year 1999. The Company has recorded a valuation allowance
of $1,700,000 for investment in Gamm Project #2-9, LLC and Gamm Project #3-24,
LLC. The Gamm Projects are oil and gas production companies operating in
Northwest Louisiana. They employ a proprietary swabbing recovery technique.
(Please refer to the Private Placements Closed section for more information).
General operating expenses totaled $946,287 for fiscal year 2000, compared to
$612,654 in fiscal year 1999.
LIQUIDITY.
The Company's net working capital position (current assets less current
liabilities) is negative $402,848 compared to $33,089 in fiscal year 1999. Of
the Company's liabilities, approximately $76,900 results from accounts payable
and accrued
8
<PAGE>
expenses and approximately $375,000 results from notes payable to OceanAir
Environmental. Of these two groups (holding a total of approximately $451,900 in
current liabilities) only OceanAir Environmental has made a demand for cash
payments. The remaining groups are not expected to make a demand for cash
payments until the Company's cash position improves.
The Company's liquidity needs have historically been met through the sale
of equity securities, or through the issuance of equity securities in exchange
for services, research and development or technology rights. These transactions
have given rise to operating losses that in the past have been primarily
non-cash losses. The Company has not, nor does it expect in the near future to
generate significant cash flows from operations.
In connection with the acquisition of NOPEC (see Item 1 above), the Company
has committed to purchase a 51% interest in that corporation, the owner of a
production facility in Lakeland, Florida, for a total purchase price of
$11,500,000 of which $1,500,000 is in cash and the balance is in stock. As of
April 30, 2000, the Company has paid installments of $625,000 in cash with the
balance due as follows: $135,000 by April 1, 2000 ($10,000 was paid); $105,000
by May 1, 2000; $85,000 by June 1, 2000; $75,000 by July 1, 2000; $50,000 by
August 1, 2000; $50,000 by September 1, 2000; and the balance of $500,000 by
September 30, 2000. The purchase price has been financed, in part, by secured
loans from unrelated parties and management believes that the balance will be
financed through a combination of loans and private placements of the Company's
common stock. Should NOPEC place the Company in default under the terms of the
agreement, the Company and/or its assignees can opt to exercise the security
devices issued by NOPEC in connection with the advancement of funds.
PRIVATE PLACEMENTS CLOSED.
The Company closed the following private placements during fiscal year
2000:
On May 5, 1999, the Company issued 485,447 shares of Common Stock to
various members of two privately owned oil and gas limited liability companies
in exchange for all the membership units in the LLC's.
On June 3, 1999, the Company issued 130,000 shares of Common Stock to the
Hemisphere Group pursuant to an option agreement. Other issuances during the
year to Hemisphere Group pursuant to the option were November 8, 1999 (110,000
shares); November 8, 1999 (79,000 shares); January 4, 2000 (139,500 shares);
January 10, 2000 (2,000 shares); and February 15, 2000 (458,000 shares).
On November 8, 1999, the Company issued shares of Common Stock to Robert
Deustch (3,286 shares); Ronald H. Holland (50,000 shares); Ray Enassi (25,000
shares); Jim Buchannon (6,000 shares); William Wason (100,000 shares); and
William Hu (1,500 shares). These placements were made to BAT International Inc.
associates for work performed by them on SSPC projects. The issuances were part
of a settlement with BAT
9
<PAGE>
wherein its personnel were paid with stock upon cancellation of BAT's shares in
the Company due to BAT's nonperformance under the terms of its agreement with
the Company. On February 1, 2000, the shares in the Company formerly held by BAT
International, Inc. were cancelled due to nonperformance by BAT under the terms
of its agreement with the Company. After a lengthy series of negotiations with
the management of BAT, the Board of Directors of the Company voted to enter into
the settlement agreement with BAT whereby BAT would surrender its stock held in
SSPC due to lack of performance under the terms of the original agreement
between the two companies. Pursuant to the terms of that agreement BAT was to
provide technology and prototype equipment employing their "pulse charge" system
for use in SSPC projects. Reasonable time extensions were granted to BAT by SSPC
throughout the term of the agreement; however, it was apparent that BAT would
not be able to perform within those extended limits. The negotiated settlement
called for BAT to surrender its SSPC shares to the Company treasury. This
terminated the rights and obligations between the companies with the sole
exception that SSPC management agreed to consider the option of accepting
performance of the original terms by BAT in exchange for an unspecified number
of SSPC shares should BAT be able to perform by July 31, 2000. At the time of
preparation of this report, no such performance had been received by the
Company.
On January 10, 2000, the Company issued 250,000 shares of Common Stock to
Harrison A. McCoy, III for services rendered as a Director and Officer of the
Company.
Also on January 10, 2000, the Company issued 72,728 shares of Common Stock
to the Jacques S. Yeager Family Trust in exchange for $90,910 in cash. At that
time, the Company also issued 127,280 shares of Common Stock to OceanAir
Environmental in exchange for $159,100.00 in cash. The transaction proceeds were
loaned to NOPEC Corporation as part of a loan/purchase agreement.
On February 15, 2000, the Company issued 15,273 shares of Common Stock to
OceanAir Environmental in exchange for $19,091 in cash pursuant to an option
agreement.
Also on February 15, 2000, the Company issued 458,000 shares of Common
Stock to Hemisphere Group pursuant to the option agreement between Hemisphere
Group and the Company. The funds had been tendered previously and this issuance
brought the account current.
On February 22, 2000, the Company issued 45,134 shares of Common Stock
to the Desai Living Trust in exchange for 4 membership units each in Southern
States Oil Production, LLC and Southern States Gas Gathering, LLC.
During April and May 2000, the Company issued 25,000 shares of Common Stock
to OceanAir Environmental in exchange for $50,000 pursuant to an option
agreement. Also, the Company issued 62,272 shares of Common Stock to OceanAir
Environmental for consulting services rendered.
10
<PAGE>
Also, on April 25, 2000, the Company issued 5,656 shares of Common Stock to
Mike McDaniel & Associates for consulting services rendered. Also on that date,
the Company issued 5,000 shares of Common Stock to Bruce Austin Productions for
video production services.
JOINT VENTURE ACTIVITIES
The Company began a joint project in fiscal year 2000 with Enertech
Environmental for the creation and development of the EcoEnergy Park concept.
Both parties supplied personnel, expertise and funds to the effort which
resulted in business models the parties hope to realize in Shreveport, Louisiana
and other locations throughout the country.
PATENT ACTIVITY
No patent applications were made during fiscal year 2000; however, research
was underway that should lead to patentable results especially in the areas of
fuel development. The Company will aggressively pursue any patent opportunities
as they arise.
ADDITIONAL FUNDING IS REQUIRED.
The Company's business plan will require additional funding for future
development. The funds to be raised will be used in the following areas: 1)
acquisition of an existing biodiesel processing facility, 2) buildout of the
Company's biodiesel processing facilities, and 3) at such time as funds become
available, commencement of payment of salaries to Company officers.
YEAR 2000 ISSUE
The Company experienced no adverse circumstances as a result of the Year
2000 issue.
FORWARD-LOOKING STATEMENTS.
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers regarding certain forward looking statements in the
following discussion and elsewhere in this report and in any other statement
made by, or on the behalf of the Company, whether or not in future filings with
the Securities and Exchange Commission. Forward-looking statements are
statements not based on historical information and which relate to future
operations, strategies, financial results or other developments. Forward-looking
statements are necessarily based upon estimates and assumptions that are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which, with respect to future business decisions, are subject to
change. These uncertainties and
11
<PAGE>
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company. These forward-looking statements can generally be
identified as such because the context of the statement will include words such
as the Company "believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives or
goals are also forward-looking statements. Such statements may address future
events and conditions concerning, among other things, the Company's results of
operations and financial condition; the consummation of acquisition and
financing transactions and the effect thereof on the Company's business; capital
expenditures; litigation; regulatory matters; and the Company's plans and
objectives for future operations and expansion. The Company disclaims any
obligation to update forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are filed at the end of this report and are
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table identifies the name, ages, and positions of all
directors, officers, and persons nominated by management to become a director.
NAME AGE POSITION
------------------------ --- -------------------------------------
Lawrence W. Taggart 58 President, Director
Harrison A. McCoy, III 53 Director
William O. Shaeffer 65 Director
Antoinette Fowler 38 Secretary/Treasurer
All current directors are serving one-year terms and are subject to
re-election at the annual meeting of shareholders. Officers are elected to
serve, subject to the discretion of the Board, until their successors are
appointed.
Lawrence W. Taggart, is an attorney with a strong background in corporate
and business law. Additionally, from 1992 to 1998, Mr. Taggart served as Vice
President,
12
<PAGE>
Counsel and Director for Basic Research Corp., a research and development
corporation operating in the telecommunications and power generation fields.
From 1995 to 1996, Mr. Taggart served as Vice President and Corporate Counsel
for Advanced Automotive Tech, Inc. He is a graduate of University of California,
Berkeley and Western State University School of Law.
Harrison A. McCoy, III is a former member of the US Army Corps of
Engineers. Upon his return from serving in Vietnam, Mr. McCoy obtained a BS in
Chemical Engineering from Cal Poly-Pomona. He also holds an AS degree in
Water/Wastewater Treatment from San Bernardino Valley College. Mr. McCoy has
enjoyed a twenty-five year career in environmental/alternative
fuels/engineering/waste management fields. Most recently, Mr. McCoy started and
manages his own entrepreneurial firm, Bioenergy Engineering and Technologies
Corporation. This entity specializes in developing technology and site plans for
regional integrated liquid/solid, urban/industrial waste treatment management.
William O. Shaeffer joined the Company as Director in 2000. Mr. Shaeffer is
a cum laude graduate of USC with an MBA from Pepperdine University. Since 1996,
Mr. Shaeffer has served as Vice President of Marketing & Managing Director for
Chemical Products, Inc. Prior to that, he served as Senior Marketing and
Business Consulting to IMPCO/KRACO from 1993 to 1996. Between 1992 and 1994, Mr.
Shaeffer served as Vice President of Marketing and Sales for Harvey Universal, a
dealer of industrial and retail products. From 1990 to 1992, he served as
Executive Vice President of Calculated Industries, a consumer and commercial
electronics concern. Mr. Shaeffer's vast marketing and sales experience will
prove extremely valuable to the Company.
Antoinette Fowler, has been Secretary/Treasurer of Southern States Power
Company, Inc. since its inception of 1998. She received her Fine Arts Degree
from Northwestern Michigan College in Traverse City, Michigan in 1981. In 1987
she joined the staff of the Crescent Hotel in Phoenix, Arizona as Special Events
Manager and On-Site Recycling Coordinator. From 1990 to 1997 Ms. Fowler owned
and managed East of Phoenix, a full-service laundry facility located in
Cedarville, Michigan. In 1998 she moved to Shreveport, Louisiana and joined
Southern States.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's stock, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten-percent owners are required
by applicable regulations to furnish the Company with copies of all Section
16(a) forms that they file.
Based solely on a review of the copies of such forms furnished to the
Company or written representations from certain persons, the Company believes
that during the 2000
13
<PAGE>
fiscal year all filing requirements applicable to its current officers and
directors were complied with.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation for services
rendered by certain officers for the fiscal years indicated.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
---------------------------------------
Other
Annual
Name and Position Year Salary Bonus Comp
--------------------- --------- ------ ----- ------
Lawrence W. Taggart Fiscal 00 -0- -0- -0-
President and Fiscal 99 N/A N/A N/A
Director Fiscal 98 N/A N/A N/A
Harrrison A. McCoy Fiscal 00 -0- -0- -0-(1)
Vice President & Fiscal 99 N/A N/A N/A
Director Fiscal 98 N/A N/A N/A
William O Shaeffer Fiscal 00 -0- -0- -0-
Director Fiscal 99 N/A N/A N/A
Fiscal 98 N/A N/A N/A
Antoinette Fowler Fiscal 00 -0- -0- -0-(2)
Secretary/Treasurer Fiscal 99 N/A N/A N/A
Fiscal 98 N/A N/A N/A
-----------------------
(1) During fiscal year 2000, a total of 250,000 shares of stock in the Company
were issued to Mr. McCoy.
(2) During fiscal year 1999, a total of 5,000 shares of stock in the Company
were issued to Ms. Fowler.
There are no long-term compensation arrangements for officers and
directors.
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth the holdings of Common Stock (the Company's
sole class of stock) as of April 30, 2000 by (i) each person who held of record,
or was known by the Company to own beneficially, more than five percent of the
outstanding Common Stock of the Company, (ii) each director, (iii) each director
nominee, and (iv) all directors and officers as a group. Unless otherwise
indicated, all shares are owned directly. Common Stock that is "beneficially
owned" includes all the Common Stock that the person has the right to acquire
within 60 days of April 30, 2000, and stock for which the person has voting
rights alone. The percentage ownership for any person assumes that all the stock
that could be acquired by that person, by option or warrant exercise or
otherwise, is in fact outstanding and that no other stockholder has exercised a
similar right to acquire additional shares. The number of shares of stock in
this table is 8,594,491 which includes 8,594,491 shares outstanding on April 30,
2000 plus all shares represented by options or warrants currently held by the
directors listed in the table.
BENEFICIAL OWNERS OF COMMON STOCK
Names and Addresses Amount of Percentage
of Certain Beneficial Owners Beneficial Ownership of Class
---------------------------- -------------------- ------------
Harrison A. McCoy, III 250,000 2.86%
Antoinette Fowler 5,000 Less than 1%
Norman F. Alvis 630,000 7.22%
Southern States Gas 1,150,000 13.17%
Gathering System, LLC
Southern States Oil 700,000 8.02%
Production, LLC
Hemisphere Group 1,918,500 21.97%
All Officers and 255,000 2.92%
Directors as a
Group (2 persons)
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
15
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601 of Regulation S-B.
The following exhibits were filed with the Company's Form 10-SB on or
about July 2, 1997, and are incorporated herein by reference.
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------
3.1 Articles of Incorporation, as amended May 27, 1998.
3.2 Bylaws
The following exhibit was filed with the Company's Form 10-KSB for the
fiscal year ended April 30, 1999, on or about August 9, 1999, and is
incorporated herein by reference:
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------
3.3 Certificate of Amendment of Certificate of Incorporation
The following are exhibits to this Form 10-KSB:
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------
27 Financial Data Schedule
(b) Form 8-K Filings
On February 8, 2000, the Company filed a Form 8-K Current Report to
disclose the details of a settlement agreement with B.A.T. International, Inc.
16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Southern States Power Company, Inc.
/s/ Lawrence W. Taggart
----------------------------------------
Lawrence W. Taggart, President
Date: August 7, 2000
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signatures Capacity in Which Signed Date
------------------------------- ------------------------ ----------------
/s/ Antoinete Fowler Secretary/Treasurer August 7, 2000
-------------------------------
Antoinette Fowler
17
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
FINANCIAL STATEMENTS
YEAR ENDED APRIL 30, 2000
CONTENTS
Page
----
Independent Auditors' Report 1
Financial Statements:
Balance Sheet 2
Statements of Operations 3
Statements of Stockholders' Equity 4-5
Statements of Cash Flows 6-7
Notes to Financial Statements 8-15
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Southern States Power Company, Inc.
Shreveport, Louisiana
We have audited the accompanying balance sheet of Southern States Power Company,
Inc. as of April 30, 2000, and the related statements of operations,
stockholders' equity and cash flows for the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southern States Power Company,
Inc. as of April 30, 2000, and the results of its operations and its cash flows
for the two years then ended in conformity with generally accepted accounting
principles.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
July 26, 2000
1
19
<PAGE>
<TABLE>
SOUTHERN STATES POWER COMPANY, INC.
BALANCE SHEET - APRIL 30, 2000
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,000
Accounts receivable 32,079
Other receivables 15,973
---------------
Total current assets $ 49,052
Property and equipment, net of
accumulated depreciation 9,468
Goodwill, net of accumulated amortization 564,000
Notes receivable:
B.A.T. and Subsidiaries, related parties 11,314
Y2k Superstore, related party 15,000
NOPEC Corporation 625,000
---------------
651,314
Less allowance for doubtful accounts 26,314
---------------
625,000
--------------
$ 1,247,520
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 76,900
Notes payable, OceanAir Environmental, LLC,
due on demand 375,000
---------------
Total current liabilities $ 451,900
Common stock subscribed 33,000
Stockholders' equity:
Common stock; $0.001 par value, 50,000,000
shares authorized, 8,730,919 shares issued
and outstanding $ 8,730
Additional paid-in capital 8,113,569
Accumulated deficit (7,246,844)
Accumulated other comprehensive loss (112,835)
---------------
Total stockholders' equity 762,620
--------------
$ 1,247,520
==============
See accompanying independent auditors' report and notes to financial statements.
</TABLE>
2
20
<PAGE>
<TABLE>
SOUTHERN STATES POWER COMPANY, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Year ended Year ended
April 30, 2000 April 30, 1999
-------------- --------------
<S> <C> <C>
Revenue $ 55,501 $ -
Cost of revenue 82,903 -
----------------- ---------------
Gross profit (27,402) -
----------------- ---------------
Operating expenses:
Research and development 101,616 326,770
Consulting fees (principally non-cash compensation) 1,490,552 881,287
Loss on investment in joint venture in Mexico
with related party 13,680 1,183,598
Valuation allowance for investment in GAMM projects 1,700,000 -
General and administrative expenses 946,287 612,654
----------------- ---------------
4,252,135 3,004,309
----------------- ---------------
Loss from operations (4,279,537) (3,004,309)
----------------- ---------------
Interest and dividend income 14,020 27,148
Interest expense (4,166) -
----------------- ---------------
9,854 27,148
----------------- ---------------
Net loss $ (4,269,683) $ (2,977,161)
================= ===============
Net loss per share - basic and diluted $ (0.43) $ (0.30)
================ ===============
Weighted average number of shares outstanding -
basic and diluted 9,926,807 9,910,123
================= ===============
See accompanying independent auditors' report and notes to financial statements.
</TABLE>
3
21
<PAGE>
<TABLE>
SOUTHERN STATES POWER COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 2000 AND 1999
<CAPTION>
Common stock Additional Accumulated other Total
------------ paid-in comprehensive stockholder
Shares Amount capital loss Deficit equity
---------- -------- ---------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1998 6,010,000 $ 6,010 $1,003,990 $ - $ - $1,010,000
Issuance of stock in exchange for oil and
gas volume purchase rights at inception 1,850,000 1,850 (1,850)
Sale of common stock 387,000 387 386,613 387,000
Issuance of stock in exchange for services 235,500 235 825,015 825,250
Issuance of common stock per stock
exchange agreement 2,000,000 2,000 1,398,000 1,400,000
Exercise of common stock options 425,000 425 449,575 450,000
Net loss for the year ended April 30, 1999 (2,977,161) (2,977,161)
---------- -------- ---------- ----------------- ----------- ----------
Balance at April 30, 1999 10,907,500 10,907 4,061,343 - (2,977,161) 1,095,089
See accompanying independent auditors' report and notes to financial statements.
4
22
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED APRIL 30, 2000 AND 1999
<CAPTION>
Common stock Additional Accumulated other Total
------------ paid-in comprehensive stockholder
Shares Amount capital loss Deficit equity
---------- -------- ---------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock in exchange for oil and
gas rights related to GAMM project 485,447 485 1,699,515 1,700,000
Exercise of common stock options 557,000 557 563,033 563,590
Issuance of common stock from private
placement 215,281 215 274,795 275,010
Issuance of stock in exchange for services 519,057 520 1,329,012 1,329,532
Issuance of common stock on behalf of
related party 22,300 22 69,060 69,082
Shares revoked for non-performance by
related party (4,020,800) (4,021) 4,021
Shares of common stock issued per
purchase of available for sale securities 45,134 45 112,790 112,835
Unrealized loss on available for sale
securities (112,835) (112,835)
Net loss for the year ended April 30, 2000 (4,269,683) (4,269,683)
---------- -------- ---------- ----------------- ----------- -----------
Balance at April 30, 2000 8,730,919 $ 8,730 $8,113,569 (112,835) $(7,246,844) $ 762,620
========== ======== ========== ================= =========== ============
See accompanying independent auditors' report and notes to financial statements.
</TABLE>
5
23
<PAGE>
<TABLE>
SOUTHERN STATES POWER COMPANY, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Year ended Year ended
April 30, 2000 April 30, 1999
-------------- --------------
<S> <C> <C>
Cash flows provided by (used for) operating activities:
Net loss $ (4,269,683) $ (2,977,161)
-------------- --------------
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation 1,789 -
Amortization of goodwill 466,000 370,000
Stocks issued in exchange for services 1,329,532 825,250
Bad debts 95,396 -
Valuation allowance for investment in GAMM projects 1,700,000 -
Loss on abandonment of property and equipment 32,000 -
Write off of organization costs - 10,000
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (32,079) -
Prepaid expenses 375 (375)
Other receivables (15,974) -
Notes receivable, NOPEC Corporation (250,000) -
Notes receivable, related parties (26,314) -
Increase (decrease) in liabilities -
accounts payable and accrued expenses 59,461 17,439
-------------- ---------------
Total adjustments 3,360,187 1,222,314
-------------- ---------------
Net cash used for operating activities (909,496) (1,754,847)
-------------- ---------------
Cash flows used for investing activities -
acquisition of property and equipment (11,257) (32,000)
-------------- --------------
Cash flows provided by financing activities:
Proceeds from issuance of common stock - 1,837,000
Proceeds from private placement 275,010 -
Proceeds from exercise of options 563,590 -
Common stock subscribed 33,000 -
-------------- --------------
Net cash provided by financing activities 871,600 1,837,000
-------------- --------------
Net increase (decrease) in cash (49,153) 50,153
Cash, beginning of year 50,153 -
-------------- --------------
Cash, end of year $ 1,000 $ 50,153
============== ==============
See accompanying independent auditors' report and notes to financial statements.
6
24
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Year ended Year ended
April 30, 2000 April 30, 1999
-------------- --------------
<S> <C> <C>
Supplemental disclosure of cash flow information -
income taxes paid $ 2,881
==============
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock in exchange for services $ 1,329,532 $ 825,250
============== ==============
Issuance of common stock during business combination $ - $ 1,400,000
============== ==============
Issuance of common stock for investment in
GAMM projects $ 1,700,000 $ -
============== ==============
Issuance of common stock for purchase of available for
sale securities $ 112,835 $ -
============== ==============
Direct payments made by OceanAir Environmental, LLC
to NOPEC Corporation on behalf of the Company $ 375,000 $ -
============== ==============
See accompanying independent auditors' report and notes to financial statements.
</TABLE>
7
25
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED APRIL 30, 2000
(1) Summary of Significant Accounting Policies:
General:
Southern States Power Company, Inc. (the "Company") was
incorporated in the State of Louisiana on March 13, 1998 and has
elected April 30 as its year-end.
Merger with Pascal Ventures, Inc.:
On July 13, 1998, the Company entered into a Share Exchange
Agreement and Plan of Reorganization with Pascal Ventures, Inc.
Pursuant to this share exchange agreement, the Company merged
into Pascal Ventures, Inc. a publicly held corporation with no
material assets and liabilities, and no operations, in a stock
for stock exchange. The shareholders of Southern States Power
Company maintained effective control through ownership of shares
outstanding after the merger with Pascal Ventures, Inc. and
therefore, for accounting purposes, Southern States Power
Company, Inc. was treated as the acquirer. The name of Pascal
Ventures, Inc. was then changed to Southern States Power Company,
Inc. and is the surviving company.
This acquisition was accounted for using the purchase method of
accounting, and accordingly, the purchase price was allocated to
the assets purchased and liabilities assumed based upon their
estimated fair values on the date of acquisition. The excess of
the purchase price over the estimated fair values of the net
assets acquired was approximately $1.4 million, and was recorded
as goodwill, which is being amortized straight line over 3 years
from the date of purchase.
Business Activity:
The Company plans to utilize agricultural products and "yellow
grease" reclamation by-products to produce and distribute
bio-diesel fuels in exchange for fees from customers. The Company
also plans to generate and distribute energy efficient electric
power supply to individual consumers and industrial markets in
exchange for fees from customers.
The Company is principally involved in four areas of product
development:
1. The distribution of biodiesel fuels under the name brand
OxyG B-60 Biodiesel utilizing agricultural products and used
vegetable oils from restaurants to produce biodiesel;
2. Research and development of products to reduce diesel engine
emissions, and development of fuel cell technology;
3. Manufacturing of alternative fuel vehicles for niche or
specialty markets not serviced by major automakers; and 4.
Electric power generation for the new energy deregulation
utility markets, and improved energy production from
renewable energy sources. The United States Environmental
Protection Agency (USEPA) and the California Air Resources
Board (CARB) have approved OxyG B-60 Biodiesel for sales and
marketing in California and the United States.
See accompanying independent auditors' report.
8
26
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED APRIL 30, 2000
(1) Summary of Significant Accounting Policies, Continued:
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
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. Actual results could differ from those
estimates.
Fair Value:
Unless otherwise indicated, the fair values of all reported
assets and liabilities which represent financial instruments,
none of which are held for trading purposes, approximate
carrying values of such amounts.
Cash:
Equivalents
-----------
For purposes of the statement of cash flows, cash equivalents
include all highly liquid debt instruments with original
maturities of three months or less which are not securing any
corporate obligations.
Concentration
-------------
The Company maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of:
The Company evaluates the recoverability of its long-lived
assets in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of."
SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of these assets exceeds
the future undiscounted cash flows attributable to these
assets. The Company assesses potential impairments to its
long-lived assets when there is evidence that events or
changes in circumstances have made recovery of the asset's
carrying value unlikely. Should an impairment exist, the
impairment loss would be measured based on the excess of the
carrying value of the asset over the asset's fair value or
discounted estimates of future cash flows.
See accompanying independent auditors' report.
9
27
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED APRIL 30, 2000
(1) Summary of Significant Accounting Policies, Continued:
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of, Continued:
During the two years ended April 30, 2000, the Company
recorded aggregate losses of approximately $1,200,000, related
to its Otay Mesa, Mexico joint venture. The Company had
entered into a joint venture with a subsidiary of B.A.T.
International, Inc., a founding shareholder, providing cash
investments for the development of an electric vehicle and
fuel efficient manufacturing plant. Due to operating
difficulties, the plant ceased operations in early 1999, and
all investments were written off to expense. The Company
believes that it can utilize the experience gained with the
Otay Mesa plant, to re-establish facilities at the former
Norton Air Force Base in San Bernardino, California.
In May of 1999, the Company issued approximately 485,447
shares in exchange for lease rights to thirty-five stripper
wells, including three miles of new gas pipeline and
refurbished storage, separation and oil facilities on 135
acres of land in Louisiana. The investment was recorded at
cost, measured by the trading value of common shares at the
date of acquisition.
Subsequently, based on information obtained from independent
sources on the "swabbing" technique of gas and oil production,
management concluded that an impairment existed. The
"swabbing" technique is in its experimental stages and based
on preliminary engineering reports, modifications and
perfection of this technique would be expensive. Accordingly,
the Company's management has recorded a valuation allowance of
$1,700,000 related to the GAMM Project.
On September 25, 1998, the Company entered into a joint
venture with ANUVU, Inc., Rancho Cordova, California to
commercialize the technology for fuel cells. The joint venture
was formed with a cash contribution of $200,000 for a 50%
non-controlling interest in the joint venture by the Company
and technology contributed by ANUVU. Net profits and losses
were to be shared equally between the Company and ANUVU.
Included in research and development expense in the
accompanying statement of operations for the year ended April
30, 1999 is approximately $326,000, including the $200,000
conveyed to ANUVU and approximately $126,000 relating to an
unrelated new project in Culiacan, Mexico.
During fiscal 2000, the joint venture discontinued its
activities and the Company does not expect distribution of
profits in the future.
Other Comprehensive Income (Loss):
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes new
rules for the reporting and display of comprehensive income
and its components; however, the adoption had no impact on the
Company's net loss. SFAS 130 requires unrealized gains or
losses on the Company's available for sale securities, which
prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive loss. Other
comprehensive loss amounted to $112,835 for the year ended
April 30, 2000.
See accompanying independent auditors' report.
10
28
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED APRIL 30, 2000
(1) Summary of Significant Accounting Policies, Continued:
Income Taxes:
Deferred income taxes are reported using the liability method.
Deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
As of April 30, 2000, the Company had net federal operating
loss carryforwards totaling approximately $4,800,000, expiring
through 2019. Deferred tax assets resulting from the net
operating losses are reduced in full by a valuation allowance.
Major Customer:
During May 1999, the Company entered into an agreement with an
Arizona school district bus service to provide OxyG B-60
bio-diesel fuel for all buses in Deer Valley School District.
During the year ended April 30, 2000, substantially all of the
revenues were generated from Deer Valley School District.
Net Loss Per Share:
Common stock equivalents have been excluded from the net loss
per share calculations because their effect would reduce loss
per share.
Accounting For Stock-Based Compensation:
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, which applies the fair value method
of accounting for stock-based compensation plans. In
accordance with this recently issued standard, the Company
expects to continue to account for stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Proforma information
regarding net income and earnings per share under the
fair-value method has not been presented as the amounts are
immaterial.
New Accounting Pronouncements:
The Financial Accounting Standards Board has issued Statement
No. 133, Accounting for Derivative Instruments and Hedging
Activities, effective for fiscal quarters beginning after June
15, 2000. Management believes that due to its limited use of
derivative instruments, the adoption of this pronouncement
will not have a material effect.
See accompanying independent auditors' report.
11
29
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED APRIL 30, 2000
(2) Property and Equipment:
A summary is as follows:
Leasehold improvements $ 6,468
Machinery and equipment 4,789
--------------
11,257
Less accumulated depreciation 1,789
--------------
$ 9,468
==============
(3) Goodwill:
A summary is as follows:
Goodwill $ 1,400,000
Less accumulated amortization 836,000
--------------
$ 564,000
==============
Amortization expense amounted to $466,000 and $370,000 for the
years ended April 30, 2000 and 1999, respectively.
(4) Notes Receivable, Related Parties and Others:
The notes to related parties bear no interest and are due on demand.
Management believes that the amounts will not be collected within a
year.
The notes from NOPEC Corporation ("NOPEC") bear interest at 10% per
annum and are due on September 30, 2001. Pursuant to the terms of the
agreement, the Company intends to acquire NOPEC and will advance NOPEC
a total of $1,500,000 through September 30, 2001, which amount will be
applied to the purchase price.
Subsequent to April 30, 2000, the Company advanced an additional
$65,000 to NOPEC. Payments were made from OceanAir Environmental, LLC
("OceanAir") directly to NOPEC on behalf of the Company (see Note 5).
(5) Notes Payable, OceanAir Environmental, LLC:
The notes bear interest at 8-1/2% per annum, are due on demand and are
secured up to $500,000 by the notes receivable from NOPEC.
See accompanying independent auditors' report.
12
30
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED APRIL 30, 2000
(6) Stockholders' Equity:
During January 2000, the Company sold 215,281 shares of its common
stock for approximately $275,000 through a private placement offering
with exemption from registration under Regulation D of the Securities
Act of 1933.
During the year ended April 30, 2000, The Hemisphere Group exercised
544,500 options at approximately $1.00 each. Subsequent to April 30,
2000, the Hemisphere Group exercised an additional 58,000 options for
gross proceeds of $58,000.
During August 1999, the Company issued 45,134 shares for an 8% interest
in two oil and gas exploration ventures, which investments were valued
at the trading price of the Company's shares at date of acquisition.
During the year ended April 30, 2000, the Company issued 519,057 shares
of its restricted common stock to various individuals in exchange for
services which were recorded at the fair value of the shares at date of
issuance. Compensation expense resulting from these issuances amounted
to $1,329,532.
In May of 1999, the Company issued approximately 485,447 shares in
exchange for lease rights to thirty-five stripper wells, including
three miles of new gas pipeline and refurbished storage, separation and
oil facilities on 135 acres of land in Louisiana. The investment was
recorded at cost, measured by the trading value of common shares at the
date of acquisition.
At inception, the Company had issued 5,000,000 shares to B.A.T.
International, Inc. in exchange for exclusive worldwide rights to
utilize the B.A.T. Dolphin Pulse Charge Technology for uses in the
power generation and natural gas pumping application. During fiscal
2000 issues had arisen with respect to the feasibility of this
technology and B.A.T. agreed to convey 4,020,800 of these shares to the
treasury, which shares were then cancelled. Inasmuch as there was no
cost basis at inception to the transfers of the technology or oil and
gas rights, no amounts were recorded in the accompanying financial
statements.
(7) Stock Options:
During March 1998, the Company raised $1,000,000 through the issuance
of 1,000,000 shares of its common stock to The Hemisphere Group. An
option to purchase an additional 1,500,000 shares of the Company's
common stock were also granted, with an exercise price of $1.00 each
which equaled fair value at the date of grant, and expires in March
2001 (after an extension of 1 year).
During March 2000, the Company granted 310,000 options to OceanAir to
purchase 310,000 shares of restricted common stock at an exercise price
of $2.00 per share which equaled fair value at the date of grant.
See accompanying independent auditors' report.
13
31
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED APRIL 30, 2000
(7) Stock Options, Continued:
The number and weighted average exercise prices of options granted for
the years ended April 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
----------------- -------------------
Average Average
Exercise Exercise
Number Price Number Price
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Outstanding at beginning of the year 1,050,000 $1.00 1,500,000 $1.00
Granted during the year 310,000 2.00 - -
Outstanding at end of the year 803,000 1.37 1,050,000 1.00
Exercisable at end of the year 803,000 1.37 1,050,000 1.00
Exercised during the year 557,000 1.02 425,000 1.00
Cancelled during the year - - 25,000 1.00
</TABLE>
(8) Commitments:
Rent
The Company leases its office space in Shreveport, Louisiana on a
monthly basis. The Company also leases on a month-to-month basis a
manufacturing plant in San Bernardino, California.
Rent expense under all leases amounted to $20,400 and $3,250 for the
years ended April 30, 2000 and 1999, respectively.
Land Purchase Agreement
During July 1999, the Company entered into an agreement to purchase 90
acres of land in the City of Rialto and State of California Recycle
Market Development Zone. The total purchase price of approximately
$4,700,000 consists of $2,050,000 in future cash payments and
$2,650,000 in common stock issuance to be distributed over 18 months.
The Company planned to use this site for multiple environmental energy
projects including production of biofuels from recycled vegetable oils
and electric power generation from waste products. During fiscal 2000,
the Company recorded an expense of $50,000 related to this land
purchase agreement since management does not plan to acquire this
property.
See accompanying independent auditors' report.
14
32
<PAGE>
SOUTHERN STATES POWER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED APRIL 30, 2000
(8) Commitments, Continued:
Purchase of 51% Interest in NOPEC Corporation
During fiscal 2000, the Company agreed to acquire a 51% interest in
NOPEC Corporation, a Lakeland, Florida based state of the art facility
for processing bio-diesel fuel. The purchase price is $11,500,000, of
which $1,500,000 is in cash and the balance in the Company's common
stock. As April 30, 2000, the Company has paid $625,000 of the cash
obligation, which is characterized as secured notes receivable in the
accompanying balance sheet. Upon payment of the balance ($65,000 of
which was paid subsequent to year end), the company will issue its
stock, offset the notes against the purchase price, and receive its 51%
interest in NOPEC. If the Company is unable to fulfill its remaining
obligation for the cash portion of the purchase price, it will be
required to foreclose its security interests on the notes, as NOPEC
does not have sufficient cash flows for repayment.
Exclusive Distribution
During the year ended April 30, 2000, the Company entered into five
one-year agreements through assignment with NOPEC, a Florida
Corporation, to process, market and exclusively distribute up to four
million gallons of bio-diesel fuel in Arizona, California, Louisiana,
New Mexico, Nevada, Texas, Utah and Mexico. Pursuant to this agreement,
the Company will pay NOPEC a fixed price per pound of "yellow grease"
processed during the initial one-year period and the volume and price
will be renegotiated for each succeeding one-year term, thereafter. The
Company plans to sell its bio-diesel fuel in the industrial markets in
the above mentioned states and Mexico. During the year ended April 30,
2000, the Company purchased $82,903 (100%) of its bio-diesel product
from NOPEC. The Company owed approximately $28,000 as of April 30, 2000
to NOPEC.
See accompanying independent auditors' report.
15
33
