SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended May 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25660
HALSTEAD ENERGY CORP.
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 87-0446395
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
33 Hubbells Drive, Mt. Kisco, New York 10549
(Address of principal Executive Offices)
914-666-3200
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
after the distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 1, 1997, the issuer had 4,073,601 shares of its Common Stock
outstanding.
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.
INDEX PAGE(S)
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of May 31, 1997 F-2 to F-3
(unaudited) and August 31, 1996
Consolidated Statements of Operations for the F-4
three and nine months May 31, 1997 and May 31,
1996, respectively (unaudited)
Consolidated Statement of Stockholders' Equity F-5 to F-6
the years ended August 31, 1995 and 1996, and
for the nine months ended May 31, 1997 (unaudited)
Consolidated Statement of Cash Flows for the nine F-7
months ended May 31, 1997 and May 31, 1996,
respectively (unaudited)
Notes to the Financial Statements F-8 to F-10
ITEM. 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION F-11 to F-17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings F-18
Signature Pages F-19
F-1
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Selected Notes to the Financial Statements
Nine Months Ended May 31, 1997
(1) Summary of Significant Accounting Policies:
The accompanying condensed financial statements are not audited for
the interim period, but include all adjustments (consisting of only normal
recurring accruals) which management considers necessary for the fair
representation of results at May 31, 1997.
Moreover, these financial statements do not purport to contain
complete disclosures in conformity with generally accepted accounting principles
and should be read in conjunction with the Company's audited financial
statements at, and for the fiscal year ended, August 31,1996 contained in the
Company's Annual Report on Form 10-KSB dated January 15, 1997.
The results reflected for the nine month period ended May 31, 1997
are not necessarily indicative of the results for the entire fiscal year ending
August 31, 1997.
(2) Options and Warrants:
The following table sets forth the options and warrants of the Company as
of May 31, 1997:
Amount Term Issue Date Exercise Price ($)
297,125 5 yrs. 03/05/96 60% of market
10,000 5 yrs. 11/04/96 .3125
15,000 5 yrs 11/05/96 1.000
1,200,000 5 yrs. 11/14/96 .3125
225,000 5 yrs. 01/10/97 .3125
90,000 5 yrs. 02/18/97 .3125
200,000 5 yrs. 02/27/97 .4100
200,000 5 yrs. 02/27/97 .4100
F-8
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Selected Notes to the Financial Statements
Nine Months Ended May 31, 1997
(4) Note Receivable - Related Party:
On June 10, 1997, A. Tarricone, Inc. (ATI) filed a voluntary petition for
reorganization pursuant to Chapter 11 of the Bankruptcy Code (the "Code"). ATI
has continued in possession of its property and in the management of its affairs
as a debtor-in-possession under the applicable provisions of the Code. The
proceeding is before the United States Bankruptcy Court, Southern District of
New York, and is referenced as "A. TARRICONE, INC., 97B21488." In connection
therewith, the Company has asserted (and ATI has acknowledged) pre-petition
claims arising under the note receivable from ATI in the approximate amount of
$2,963,563 and pre-petition liens on certain leasehold interests. As the
voluntary petition was only recently filed by ATI, and as the schedules which
would provide full disclosure of all of the assets and liabilities of ATI have
not yet been filed with the court, it would be difficult to determine at this
time the likelihood of recovery by the Company of such indebtedness. In any
event, there can be no assurance that the indebtedness and the liens asserted by
the Company in this proceeding will be recognized or given full effect, that the
same will not be challenged, modified or reduced, or that all or any portion of
such indebtedness will be repaid to the Company. Furthermore, the Company has
recently determined that its asserted pre-petition liens may not have been
properly "perfected," in which case the Company would be deemed an unsecured
creditor (rather than a secured creditor) in the proceeding. The Company intends
to pursue all appropriate avenues (if any) to protect its interests in this
regard. If it were ultimately determined by the court that the Company's status
in the proceeding is that of an unsecured creditor, the Company's legal basis
for recovery would be materially, adversely affected.
F-10
<PAGE>
Item 6 . MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
Three Months Ended May 31, 1997
Revenues for the three months ended May 31, 1997, increased by $352,983 to
$4,210,356 from $3,857,373 for the three months ended May 31, 1996. The increase
is due to additional gasoline sales revenue totaling $1,047,892 resulting
primarily from the Dino Oil acquisition, and increased propane sales revenue
totaling $44,246. These increases in revenues were partially offset by a
decrease in home heating oil revenues in the amount of $739,155 due in part to a
20% warmer winter as compared to the same period last year.
Cost of sales for the three months ended May 31, 1997 increased by
$338,994 to $3,189,471 from $2,850,477 for the three months ended May 31, 1996.
This increase is due to additional gasoline product purchase requirements
primarily relating to the Dino Oil acquisition of $948,282. These cost increases
were partially offset by lower product purchases for home heating oil in the
amount of $598,684 primarily due to a 20% warmer winter as compared to the same
period last year and lower propane costs of $10,604. The percentage of cost of
goods to sales for the three months ended May 31, 1997 and 1996 are 75.8% and
73.9% respectively. The increase is due in part, to the Dino Oil acquisition
which new commercial business division is characterized by high volume and low
gross profit.
Selling , General and Administrative Expenses for the three months ended
May 31, 1997 increased by $219,119 to $953,136 from $734,017 for the three
months ended May 31, 1996. The increase is primarily due to increased salaries
of $140,306, increased equipment leases of $32,226, increased telephone, uniform
and selling expenses of $11,997, increased real estate taxes of $58,301,
increased professional fees of $9,586, and all other expense increases totaling
$41,586. These increased costs were partially offset by decreases in advertising
expense of $37,700 and all other expenses totaling $37,183 as compared to the
same period last year.
Interest income for the three months ended May 31, 1997 decreased by
$16,175 to $7,821 from $23,996 for the three months ended May 31, 1996. This
decrease is primarily due to an adjustment in the interest income relating to
the note receivable due from ATI as compared to the same period last year.
Interest Expense for the three months ended May 31, 1997 decreased by $607
to $94,634 from $95,241 for the three months ended May 31, 1996. This decrease
is attributable to payments on certain indebtedness.
Rental Income for the three months ended May 31, 1997 increased by $7,027
to $93,397 from $86,370 for the three months ended May 31, 1996. The increase is
due to an increase in gasoline station rental income and other rental income.
F-11
<PAGE>
Depreciation and amortization for the three months ended May 31, 1997
increased by $46,310 to $208,109 from $161,799 for the three months ended May
31, 1996. This increase is due to the additions in fixed assets of $571,921,
leasehold additions of $690,000 and customer lists totaling $627,966 for fiscal
1997.
Royalty Expense for the three months ended My 31, 1997 increased by $1,250
to $26,250 from $25,000 for the three months ended May 31, 1996. The increase is
primarily due to the expense associated with warrants issued to ATI. in exchange
for use of the trademark "ATI".
Other Income for the three months ended May 31, 1997 decreased $617 to
$12,953 from $13,570 for the three months ended May 31, 1996. This decrease is
due to a decline in earned rebates under those available programs.
Extraordinary income for the three months ended May 31, 1997 increased by
$113,815 (net of taxes). The increase is due to the sale of a retail fuel oil
customer list to an independent third party distributor.
Net Income for the three months ended May 31, 1997 decreased by $66,513 to
a Net Loss of $43,826 from a Net Profit of $22,687 for the three months ended
May 31, 1996. The decrease is due to an increase in selling, general and
administrative expenses of $219,119, primarily as a result of additional
expenses incurred in connection with the Dino Oil acquisition and additional
equipment lease expenses of $32,226 for capital expenditures predominantly made
in connection with the upgrade of two gasoline stations, an increase in
depreciation and amortization of $46,310, a reduction in interest expense of
$16,175, an increase in royalty expense of $1,250 and a reduction in other
income of $617, all totaling $283,417. These increases in expenses are partially
reduced by the extraordinary gain connected to the sale of a retail fuel oil
customer list of $113,815 (net of taxes) a decrease in income tax expense of
$81,519, an increase in gross profit of $13,989, an increase in rental income of
$7,027 and a reduction in interest expense of $607, all totaling $216,957.
Nine Months Ended May 31, 1997
Sales for the nine months ended May 31, 1997, increased by $2,578,549 to
$14,610,917 from $12,032,368 for the nine months ended May 31, 1996. The
increase is due to additional gasoline sales revenue totaling $4,204,596
resulting primarily from the Dino Oil acquisition, and increased propane sales
revenue totaling $224,181. These increases in revenues were partially offset by
a decrease in home heating oil sales in the amount of $1,850,228 primarily due
to a warmer winter as compared to the previous year.
Cost of sales for the nine months ended May 31, 1997 increased by
$2,820,354 to $11,315,668 from $8,495,314 the nine months ended May 31, 1996.
This increase is due to additional gasoline product purchase requirements
primarily relating to the Dino Oil acquisition of $4,186,467, and increased
propane costs of $95,408. These cost increases were partially off-set by lower
product purchases for home heating oil in the amount of $1,461,521 primarily
attributable to a 20% warmer winter as compared to last year. The percentage of
cost of sales to sales for the nine month period ending May 31, 1997 and
F-12
<PAGE>
1996 are 77.4% and 70.6% respectively. The increase in the percentage cost of
sales to sales of 6.8% is due, in part to the Dino Oil acquisition which new
commercial business division is characterized by high volume and low gross
profit. In addition, 7 year record price increases in the cost of product have
sharply reduced gross profit, particularly in the Company's non-residential
markets.
Selling , General and Administrative Expenses for the nine months ended
May 31, 1997 increased by $586,212 to $2,646,056 from $2,059,844 for the nine
months ended May 31, 1996. The increase is primarily due to increased salaries
of $355,562, increased equipment leases of $100,870, increased insurance of
$50,310, increased real estate taxes of $107,131 and all other expense totaling
a net decrease of $27,661 as compared to the same period in the previous year.
Depreciation and Amortization for the nine months ended May 31, 1997
increased by $113,440 to $595,432 from $461,992 for the nine months ended May
31, 1996. The increase is attributable to fixed asset additions of $571,921,
leasehold additions of $690,000 and customer lists totaling $627,960 for fiscal
1997.
Interest Income for the nine months ended May 31, 1997 increased by
$41,612 to $85,446 from $43,834 for the nine months ended May 31, 1996. This
increase is primarily due to increased note receivable from ATI in addition to
interest income resulting from invested funds.
Interest Expense for the nine months ended May 31, 1997 decreased by
$22,691 to $272,742 from $295,443 for the nine months ended May 31, 1996. This
decrease is primarily due to the paying down of certain indebtedness of the
Company.
Rental Income for the nine months ended May 31, 1997 increased by $122,458
to $431,801 from $309,343 for the nine months ended May 31, 1996. The increase
is due to increased gasoline station and other rent income of $52,458 and the
collection of additional rents due under a third party lease agreement of
$70,000.
Royalty Expense for the nine months ended May 31, 1997 increased by
$14,226 to $78,750 from $64,524 for the nine months ended May 31, 1996. The
increase is primarily due to the expense associated with the warrants issued to
ATI in exchange for use of the trademark "ATI".
Other Income for the nine months ended May 31, 1997 decreased $4,832 to
$13,513 from $18,345 for the nine months ended May 31, 1996. This decrease is
due to no earned rebates under those available programs.
Extraordinary income for the nine months ended May 31, 1997 increased by
$113,815. The increase is due to the sale of a retail fuel oil customer list to
an independent third party distributor.
Net Income for the nine months ended May 31, 1997 decreased by $395,647 to
$96,845 from $492,492 for the period ended May 31, 1996. The decrease is due to
a reduction in gross profit of $241,805 resulting from lower gross profits in
the Company's non-residential markets and decreased home heating oil sales due
to a 20% warmer winter
F-13
<PAGE>
as compared to last year. Selling general and administrative expenses also
increased by $586,212 primarily as a result of additional expenses incurred in
connection with the Dino Oil acquisition and an equipment lease expense of
$100,870 for capital expenditures made in connection with the upgrade of 2
gasoline stations, increases in depreciation and amortization of $113,440,
increases in royalty expense of $14,226 and a reduction in other income of
$4,831, all totaling $960,514. These increases in total expenses are partially
reduced by a decrease in income tax expense of $264,291, an extraordinary gain
on the sale of the retail fuel oil customer list of $113,815 (net of taxes), an
increase in rental income of $122,458, an increase in interest income of $41,612
and a reduction in interest expense of $22,691, all totaling $564,867.
Liquidity and Capital Resources
Management believes that the Company's diversified business operations and
continued growth will result in increased sales revenues and gross profits
(subject, of course, to the effects of price increases which are not
sufficiently passed through to the customers as referenced below) and result in
greater amounts of working capital being generated from operations. However, the
Company's acquisition of the customer list and certain other assets of Dino Oil
has significantly increased the Company's working capital requirements due to
increased gasoline purchase requirements, increases in accounts receivable, and
increased operating expenses (including salary). Additionally, recent rises in
the cost of petroleum products by as much as 50% as well as recent expenditures
relating to the rebuilding of certain of the Company's gasoline stations and
certain other capital expenditures has further increased the Company's working
capital requirements and has adversely effected the Company's ability to meet
the same. Though management is starting to see indications that the cost of
petroleum products is declining, there can be no assurance as to the extent to
which this will continue. As a result, without additional financing, there can
be no assurance that the Company will be able to meet its cash requirements for
the next twelve months for such increased supply requirements, and for its
proposed capital improvements and mandated capital improvements for underground
storage tanks. In this regard, the Company will continue to pursue additional
financing from a lending facility or an offering of its securities to enable the
Company to meet such cash requirements and to accomplish growth through
acquisition which the Company is actively pursuing. There can be no assurance
that the financing will occur or that the Company can find a suitable
acquisition in the foreseeable future.
HQ Gasoline will have to invest approximately $325,000 over the next
eighteen months in order to meet Federal EPA and State Regulations for
underground storage tanks by December 1998. Through May 31, 1997, the mandatory
requirements for six locations have been completed.
In addition the Company plans to rebuild 10 of 25 gasoline stations which
will generally require $20,000 to $550,000 per location for an aggregate of
$1,600,000 (inclusive of the environmental upgrades referenced above). The
rebuilds will be phased in over two years in order to minimize volume losses due
to "downtime" encountered while each station location is under construction.
The capital expenditures for the nine months ended May 31, 1997 were
$1,261,921. Included in this amount are expenditures for propane and other
equipment, improvements to gas stations and the terminal facility, and
improvements and/or purchases of trucks and auto totaling $571,921, and
leaseholds totaling $690,000.
F-14
<PAGE>
HQ Propane, an operating subsidiary of the Company, has obtained from
lending institutions a $500,000 mortgage loan and a $500,000 line of credit
which the Company completed during May 1994. The mortgage loan has a term of
five years at a rate of interest equal to 8.5% per annum with principal and
interest payable monthly. The line of credit is available until September 15,
1997 at a floating rate of interest equal to 2.5% above the bank's prime rate in
effect from time to time with interest only payable monthly on the advances
outstanding under the line of credit. The loan and the line of credit are
secured by the Company's headquarters and the terminal facility at Alexander
Street. HQ Propane, Claire Tarricone, Anthony Tarricone and Joseph Tarricone are
guarantors on the loans.
On June 8, 1995 the Company acquired all of the capital stock of White
Plains Fuel, inc. in an exchange of stock valued at $1,008,128. The shareholders
of White Plains Fuel, Inc. received 168,020 shares of newly created Series A -
7.5% Cumulative Convertible Redeemable Preferred Stock of the Company. Through
the nine months ended May 31, 1997, the Company declared dividends on the Series
A Preferred for $.3375 per share totaling $56,706. The fuel oil business of
White Plains Fuel, Inc. is conducted by a third party operator under the terms
of a four (4) year lease under which HQ Propane receives annual rental income of
$288,000.
On September 29, 1995, two short term demand notes of HQ Propane in the
amount of $300,000 and $200,000 from a financial institution were converted to a
5 year commercial mortgage at a prime commercial lending rate plus 1% and a five
year balloon payment with a 15 year amortization schedule. The commercial
mortgage is guaranteed by the Company, Claire E. Tarricone, Anthony J. Tarricone
and Joseph A. Tarricone, and is secured by certain commercial properties. In
addition, on December 20, 1995, HQ Propane obtained a 5 year mortgage loan in
the amount of $200,000 from the same financial institution at prime plus 1%. The
commercial mortgage is guaranteed by Claire E. Tarricone and secured by certain
commercial properties.
On January 10, 1996, a total of 650,000 shares of the Company's common
stock was reserved for the 1996 stock incentive plan for officers, employees,
and consultants. The total options granted through February 28, 1997 are
225,000, leaving a balance of 425,000 shares in reserve as of February 28, 1997.
Additionally, the Company granted to certain of its officers and employees a
total of 1,200,000 options (outside of such plan) on November 14, 1996.
On March 5, 1996, the Company issued warrants to purchase 297,125 shares
of the Company's common stock to A. Tarricone, Inc. in exchange for the
Company's exclusive use of the "ATI" trademark. The exercise price is equal to
the lessor of $2.60 per share or a 40% discount from the average closing bid
price. The warrants provide that 59,425 are immediately vested, 59,425 vested on
March 5, 1997, and the balance become vested in three equal annual installments.
The market price at issuance was $4.30 per share.
In May 31, 1996 the Company issued 580,646 shares of Series B 8%
Cumulative Convertible Redeemable Preferred Stock with a stated value of $7.75
per share totaling $4,500,000 in a private placement pursuant to Regulation S.
The Company received proceeds, net of commissions, of $3,870,000. On July 23 and
November 20, 1996, the
F-15
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Private Placement Holder converted $65,100 (8,400 shares) and $39,998 (5,161
shares) of the Series "B" Preferred stock plus accrued dividends of $756.23 and
$1,472.79 respectively, into 18,815 and 162,261 shares of the Company's common
stock. Through May 31, 1997, there have been no further conversions.
On August 30, 1996, Claire Tarricone loaned to the Company $80,000, with
interest at 8% per annum, payable on demand.
On September 5, 1996, the Company acquired the customer list of Dino Oil,
Inc. in exchange for 200,000 shares of the Company's common stock at $1.9375 per
share, $100,000 cash in addition to other costs of $56,957. The acquisition was
accounted for as a purchase and resulted in the recognition of a customer list
in the amount of $544,457. Subsequent to the September 5, 1996 acquisition, the
Company acquired 4 trucks of Dino Oil at a fair market value of $166,226. This
amount was financed through a capital lease.
On November 29, 1996 and February 28,1997, ATI transferred to HQ Propane
four (4) leaseholds in partial satisfaction of the note receivable due from ATI.
The appraised value of these leaseholds was $160,000, $175,000, $210,000, and
$145,000 respectively. As of May 31, 1997, the note receivable due from ATI was
$2,963,563. On June 10, 1997, ATI filed a voluntary petition for reorganization
pursuant to Chapter 11 of the Bankruptcy Code (the "Code"). ATI has continued in
possession of its property and in the management of its affairs as a
debtor-in-possession under the applicable provisions of the Code. The proceeding
is before the United States Bankruptcy Court, Southern District of New York, and
is referenced as "A. TARRICONE, INC., 97B21488." In connection therewith, the
Company has asserted (and ATI has acknowledged) pre-petition claims arising
under the note receivable from ATI in the approximate amount of $2,963,563 and
pre-petition liens on certain leasehold interests. As the voluntary petition was
only recently filed by ATI, and as the schedules which would provide full
disclosure of all of the assets and liabilities of ATI have not yet been filed
with the court, it would be difficult to determine at this time the likelihood
of recovery by the Company of such indebtedness. In any event, there can be no
assurance that the indebtedness and the liens asserted by the Company in this
proceeding will be recognized or given full effect, that the same will not be
challenged, modified or reduced, or that all or any portion of such indebtedness
will be repaid to the Company. Furthermore, the Company has recently determined
that its asserted pre-petition liens may not have been properly "perfected," in
which case the Company would be deemed an unsecured creditor (rather than a
secured creditor) in the proceeding. The Company intends to pursue all
appropriate avenues (if any) to protect its interests in this regard. If it were
ultimately determined by the court that the Company's status in the proceeding
is that of an unsecured creditor, the Company's legal basis for recovery would
be materially, adversely affected.
On December 31, 1996 the Company entered into an agreement with a third
party distributor to lease four (4) gasoline stations for a period of 10 years
with an option for renewal. The distributor prepaid the Company $149,080 for the
first year of rental expense and the Company is carrying $125,500 as deferred
income. Simultaneously, the Company terminated the previous third party
agreement for $192,497 which resulted in a note receivable and additional rental
income of approximately $70,000.
F-16
<PAGE>
On May 16, 1997 the Company entered into an agreement for the sale of its
retail fuel oil customer list to an independent third party distributor. The
terms of the sale were $200,000 at closing, $200,000 on the first anniversary,
and $127,000 on the second anniversary, with interest on outstanding amounts at
a rate of 6% per annum. As a result, the Company has recognized extraordinary
income to the extent of $113,815 (net of applicable income taxes of $61,852).
During the quarter ended February 28, 1997, the Company issued for certain
consulting services 400,000 five (5) year warrants dated 2/27/97 at $.41 per
warrant exercise price, 100,000 five (5) year warrants (10,000 dated 11/04/96,
and 90,000 dated 2/18/97) at $.3125 per warrant exercise price, and 15,000 five
(5) year warrants dated 11/05/96 at $1.00 per warrant exercise price.
The Company had working capital of $155,163 and a ratio of current assets
to current liabilities of 1.06:1 as at May 31, 1997.
Inflation
There was no significant impact on the Company's operations as a result of
inflation during fiscal 1995 and fiscal 1996.
F-17
<PAGE>
Part II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On June 10, 1997, A. Tarricone, Inc. (ATI) filed a voluntary petition for
reorganization pursuant to Chapter 11 of the Bankruptcy Code (the "Code"). ATI
has continued in possession of its property and in the management of its affairs
as a debtor-in-possession under the applicable provisions of the Code. The
proceeding is before the United States Bankruptcy Court, Southern District of
New York, and is referenced as "A. TARRICONE, INC., 97B21488." In connection
therewith, the Company has asserted (and ATI has acknowledged) pre-petition
claims arising under the note receivable from ATI in the approximate amount of
$2,963,563 and pre-petition liens on certain leasehold interests. As the
voluntary petition was only recently filed by ATI, and as the schedules which
would provide full disclosure of all of the assets and liabilities of ATI have
not yet been filed with the court, it would be difficult to determine at this
time the likelihood of recovery by the Company of such indebtedness. In any
event, there can be no assurance that the indebtedness and the liens asserted by
the Company in this proceeding will be recognized or given full effect, that the
same will not be challenged, modified or reduced, or that all or any portion of
such indebtedness will be repaid to the Company. Furthermore, the Company has
recently determined that its asserted pre-petition liens may not have been
properly "perfected," in which case the Company would be deemed an unsecured
creditor (rather than a secured creditor) in the proceeding. The Company intends
to pursue all appropriate avenues (if any) to protect its interests in this
regard. If it were ultimately determined by the court that the Company's status
in the proceeding is that of an unsecured creditor, the Company's legal basis
for recovery would be materially, adversely affected.
As previously disclosed, Halstead Quinn Propane, Inc.'s (a wholly-owned
subsidiary of the Company; hereinafter, HQ) principal terminal facility is
currently being operated by ATI pending the approval of the HQ application with
the State of New York for a terminal operator's and diesel motor fuel license.
While the Company's management is still optimistic about the prospects of
obtaining the approval of such licenses, there can be no assurance in this
regard. The Company has been advised by counsel that pending the conclusion of
ATI's bankruptcy proceeding, ATI will continue to maintain such licenses, and
thus that ATI will be able to continue operating the Company's terminal and
diesel motor fuel businesses. However, there can be no assurance that at the
conclusion of such proceeding, if the result were a liquidation of ATI (and
therefore a termination of such licenses), that the Company would by that time
have received its own licenses or would have been able to have retained another
entity to operate such businesses on its behalf. The occurrence of any of these
circumstances could have a material and adverse effect on these businesses and
on the Company.
F-18
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SIGNATURES
In accordance with the requirements of the Securities and Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
HALSTEAD ENERGY CORP.
Dated: July 21, 1997 By: /s/ Claire E. Tarricone
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President
Dated: July 21, 1997 By: /s/ Joseph A. Tarricone
--------------
Vice President/Treasurer
F-19
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Halstead Energy Corp.
Consolidated Balance Sheets
May 31, August 31,
1997 1996
(Unaudited)
ASSETS
CURRENT ASSETS
Cash......................................... $0 $2,061,474
Accounts Receivable - Trade, Net of
Allowances for Uncollectible Accounts
of $227,869..................................$2,084,291 1,628,070
Rent Receivable.............................. 0 122,497
Other Receivable............................. 14,756 4,798
Inventory.................................... 297,526 251,450
Prepaid Expense.............................. 209,329 195,361
Prepaid Income Taxes......................... 6,558 6,558
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TOTAL CURRENT ASSETS.................... 2,612,461 4,270,208
NET DEFERRED TAX ASSET.................. 612,406 612,406
PROPERTY PLANT AND EQUIPMENT - NET
Land...................................... 894,000 894,000
Property Plant and Equipment..............11,715,092 10,952,437
---------- ----------
TOTAL PROPERTY PLANT AND EQUIPMENT 12,609,092 11,846,437
OTHER ASSETS
Notes Receivable.......................... 377,902 80,000
Note Receivable - Related Party........... 2,963,563 1,355,576
Intangible Assets - Net................... 1,650,429 1,098,629
Deposits.................................. 2,045 2,045
--------- ---------
TOTAL OTHER ASSETS................. 4,993,939 2,536,250
--------- ---------
TOTAL ASSETS......................$20,827,897 $19,265,301
See selected notes to financial statements
F-2
<PAGE>
Halstead Energy Corp.
Consolidated Balance Sheets
May 31, August 31,
1997 1996
(Unaudited)
LIABILITIES & STOCKHOLDERS'EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts Payable - Trade................. $838,087 $545,595
Cash Overdraft........................... 97,244 $0
Current Portion of Long Term Debt........ 325,189 284,802
Customer Credit Balances Payable......... 67,251 105,791
Accrued Expenses......................... 111,674 171,740
Sales Tax payable........................ 20,555 17,371
Deferred Revenues - Service Contracts/
Rental Income........................... 451,262 13,760
Security Deposits Payable................ 253,995 259,558
Income Taxes Payable..................... 9,855 10,454
Note Payable - Officer................... 77,900 80,000
Notes Payable............................ 189,000 0
Pension Payable.......................... 15,288 5,097
------- -----
TOTAL CURRENT LIABILITIES 2,457,298 1,494,168
LONG-TERM LIABILITIES
Private Placement
Notes................................... 318,426 321,426
Long-Term Debt.......................... 2,334,641 2,348,565
---------- ---------
TOTAL LONG TERM LIABILITIES.......... 2,653,067 2,669,991
---------- ---------
TOTAL LIABILITIES.................... 5,110,365 4,164,159
---------- ---------
Preferred Stock, $001. Par Value 168,020
Shares Authorized-Series A 7.5% Cuulative
Convertible Redeemable, 168,020 Shares
Issued and Outstanding ($1,008,120
aggregate liquidation preference)........ 168 168
Paid in Capital: Preferred.............. 1,064,001 1,064,001
---------- ---------
STOCKHOLDERS'EQUITY
Preferred Stock, $.001 Par Value,
5,000,000 Shares Authorized
Preferred Stock, $-001 Par Value,
580,646 Shares Authorized-Series B
8.0 % Cumulative Convertible Redeemable,
567,085 and 572,246 Shares Issued and
Outstanding as of May 31, 1997 and
August 31, 1996, Respectively ($4,394,908
aggregate liquidation preference)......... 567 572
Common Stock, $.001 Par Value,
50,000,000 Shares Authorized,
4,073,601 and 3,491,340 Shares Issued
and Outstanding as of May 31, 1997 and
August 31, 1996, Respectively............. 4,074 3,492
Paid in Capital: Preferred................3,802,633 3,815,328
Common...................5,486,788 4,896,947
Retained Earnings...........................5,359,301 5,320,634
TOTAL STOCKHOLDERS'EQUITY.............14,653,363 14,036,973
---------- ----------
TOTAL LIABILITIES &
STOCKHOLDERS'EQUITY..................$20,827,897 $19,265,301
----------- -----------
See selected notes to financial statements
F-3
<PAGE>
HALSTEAD ENERGY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited Unaudited
Three Months Ended Nine Months Ended
May 31, May 31,
------------------- ------------------
1997 1996 1997 1996
------------------- ------------------
Sales........................$4,210,356 $3,857,373 $14,610,917 $12,032,368
Cost of Sales................ 3,189,471 2,850,477 11,315,668 8,495,314
---------- ---------- ----------- -----------
GROSS PROFIT................. 1,020,885 1,006,896 3,295,249 3,537,054
Selling General &
Administrative Expenses...... 953,136 734,017 2,646,056 2,059,844
Net Rental Expense (Income).. (93,397) (86,370) (431,801) (309,343)
Management Fee,
Related Party................ 90,000 90,000 270,000 270,000
Royalty Fee.................. 26,250 25,000 78,750 64,524
Depreciation & Amortization.. 208,109 161,799 575,432 461,992
INCOME FROM OPERATIONS..... (163,213) 82,450 156,812 990,037
OTHER INCOME AND EXPENSES:
Interest Income....... 7,821 23,996 85,446 43,834
Interest Expense...... (94,634) (95,241) (272,742) (295,433)
Other Income.......... 12,953 13,570 13,513 18,345
--------- -------- -------- --------
INCOME BEFORE TAXES........ (237,072) 24,775 (16,970) 756,783
PROVISIONS FOR INCOME TAXES
Current............... 0 1,104 0 257,307
Deferred.............. (79,431) 984 0 6,984
-------- ------ ------- -------
INCOME BEFORE
EXTRAORDINARY ITEM.... (157,641) 22,687 (16,970) 492,492
EXTRAORDINARY ITEM-Gain
from the sale of
customer list less
applicable income
taxes of $61,852..... 113,815 0 113,815 0
NET INCOME ($43,826) $22,687 $96,845 $492,492
-------- ------- ------- --------
NET INCOME PER SHARE
Primary EPS........... ($0.03) $0.01 ($0.04) $0.13
------- ----- ------- -------
Fully Diluted EPS..... ($0.03) $0.01 ($0.04) $0.13
------- ----- ------- -------
Weighted Average Number
of Common and Equivalent
Shares Outstanding PEPS 4,840,228 3,354,766 4,756,895 3,342,874
--------- --------- --------- ---------
FDEPS 5,030,445 4,947,112
--------- ---------
See selected notes to financial statements
F-4
<PAGE>
HALSTEAD ENERGY CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS'EQUITY
COMMON STOCK TOTAL
PREFERRED STOCK $.001 PAR STOCK-
$.001 PAR VALUE VALUE ISSUED PAID IN RETAINED HOLDERS'
ISSUED AMOUNT ISSUED AMOUNT CAPITAL EARNINGS EQUITY
------ -------- ------ ------ ------- -------- ------
Balances at 8/31/94
(As Previously
Reported) 0 0 2,779,050 2,779 2,484,741 5,018,724 7,506,244
Adjustment for
omission of Paid
In Capital 0 0 0 0 984,477 0 984,477
Adjustment for the
understatement of
deferred income
tax liability 0 0 0 0 0 (46,865) (46,865)
Balances at August
31, 1994 (as ----- ------ ---------- ----- --------- --------- ---------
restated in 1995) 0 0 2,779,050 2,779 3,469,218 4,971,859 8,443,856
October 1994,
Pursuant to private
Placements, $1.75
per share 0 0 115,000 115 201,135 0 201,250
December 1994
through February
1995, Pursuant to
Private Placement,
$1.75 per share 0 0 90,000 90 157,410 0 157,500
March 1995 through
May 1995, Pursuant
to Private Placement,
$1.75 per share 0 0 352,142 352 615,897 0 616,249
Employee Compensa-
tion March 1995,
$2.50 per share 0 0 1,925 2 4,811 0 4,813
Private Placement
Costs 0 0 0 0 (83,750) 0 (83,750)
Net Income -
August 31, 1995 0 0 0 0 0 256,648 256,648
Cash Dividends
Declared: Preferred,
$0.45 per share 0 0 0 0 0 (12,601) (12,601)
--- --- ------ ---- ------ -------- --------
Balances at
August 31, 1995
(As restated in
1995) 0 0 3,338,117 3,338 4,364,721 5,215,906 9,583,965
Cash Dividends
Declared:
Preferred,
Series A $0.45
per share 0 0 0 0 0 (75,610) (75,610)
Cash Dividends
Declared:
Preferred,
Series B 0 0 0 0 0 (756) (756)
Debentures
Converted at an
average price of
$3.48 Per Share 0 0 104,647 105 363,740 0 363,845
Employee
Compensation March
1996, $5.38 per
share 0 0 2,250 2 12,092 0 12,094
Preferred Stock
Issued at $7.75
per share 580,646 580 0 0 4,499,420 0 4,500,000
Private
Placement
Costs
Commissions 0 0 0 0 (625,246) 0 (625,246)
Conversion of
Preferred Shares
to Common (8,400) (8) 18,816 19 745 0 756
Conversion of
Note Payable to
Common Shs. 0 0 27,510 28 46,398 0 46,426
Issuance of
stock warrants
for 297,125 shares
March 1996
0 0 0 0 511,055 0 511,055
Deferred Expense
Stock Warrants 0 0 0 0 (460,650) 0 (460,650)
Net Income -
August 31,1996 0 0 0 0 0 181,094 181,094
------- ------- ------- ---- -------- ------- --------
Balances at
August 31,
1996 572,246 572 3,491,340 3,492 8,712,275 5,320,634 14,036,973
<PAGE>
HALSTEAD ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
May 31,
1997 1996
---- ----
Cash Flows from Operting Activities:
Net Income $96,845 $492,493
Adjustments to Reconcile Net Income
to Net Cash Used in Operating
Activities Depreciation and Amortization 575,432 461,992
Amortization of Deferred Expense
- Trademark 78,750
Bad Debts Provisions 0
(Increase) Decrease in Accounts
Receivable (343,685) (396,782)
(Increase) Decrease in Stock Subscription
Receivable 0 (4,500,000)
(increase) Decrease In Inventory (46,076) (53,118)
(increase) Decrease in Prepaid Expenses (13,968) (221,550)
(Increase) Decrease in Deposits 0 (325)
Increase (Decrease) in Accounts Payable
- Trade & Accrued Expenses 232,426 (14,947)
Increase (Decrease) Sales Taxes 3,184 6,131
Increase (Decrease) in Customer Credit
Balances Payable (38,540) (4,251)
Increase (Decrease) in Pension Plan
Payable 10,191
Increase (Decrease) in Excise and Other
Taxes Payable (599)
Increase (Decrease) in Deferred Revenues 437,502 (6,798)
Increase (Decrease) in Income Taxes Payable 17,791
Increase (Decrease) in Note Payable -
Officer 186,900
(Increase) Decrease in Deferred
Registration Cost
(Increase) Decrease in Discount on Notes
Payable 12,363
Increase (Decrease) in Security
Deposits Payable (5,563)
------- --------
TOTAL ADJUSTMENTS 1,075,954 (4,699,494)
Net Cash Provided (Used) By Operations 1,172,799 (4,207,001)
Cash Flows From Investing Activities:
Intangible Assets (627,966)
Acquisition of Property and Equipment (1,261,921) (1,876,569)
Acquisition of Land
Advances in Note Receivable - ATI (1,607,987) 1,189,082
Repayment in Note Receivable - ATI 0
---------- ---------
Net Cash Provided (Used) by Investing
Activities (3,497,874) (687,487)
Cash Flows From Financing Activities:
Preferred Dividends (58,178) (56,707)
Increase(Decrease) in Long Term Debt 260,489 0
Payments of Long Term Debt (237,024) 223,546
Proceeds From Capital Contribution 201,070 4,744,512
Increase(Decrease) in Cash
Overdraft 97,244 0
---------- ---------
Net Cash provided by Financing Activities 263,601 4,911,351
---------- ---------
Net Increase (Decrease) in Cash (2,061,474) 16,863
Cash and Cash Equivalent at Beginning
of Period 2,061,474 0
---------- --------
Cash and Cash Equivalent at End of Period 0 $16,863
---------- --------
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest Expense $272,742 $295,433
Income Taxes 0 0
Acquisition of Property & Equipment $1,261,921 $436,569
Acquisition of Land 0 0
Non Cash Transaction:
Acquisition of Property & Equipment $387,500 0
Acquisition of Land 0 0
F-7
<PAGE>
Selected Notes To Financial Statements
Nine Months Ended May 31,1997
(3) COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of not income (loss) per common
share for Halstead Energy Corp. as contained in the consolidated statement of
operations for the nine months ended May 31, 1997
Three Months ended, Nine Months ended,
May 31, May 31,
1997 1996 1997 1996
----- ---- ---- ----
Net income (loss)
applicable to
common
shares: (43,826) 22,687 96,845 492,492
Preferred stock
Dividends declared (18,902) (18.902) (58,178) (56,706)
Preferred stock
dividends undeclared (87,898) 0 (263,694) 0
Interest expense
reduction 4,979 0 14,937 0
Net income (loss)
applicable to
common shares (145,647) 3,785 (210,090) 435,786
--------- ------- -------- -------
Weighted average
shares of common
stock outstanding 4,011,369 3,354,766 3,928,036 3,342,874
Common Stock
Equivalents (3) 1,387,600 0 1,387,600 0
Less - Shares assumed
to be repurchased
under the modified
treasury stock
method (558,741) 0 (558,741) 0
Other potentially
dilutive securities: 0 0 0 0
Weighted average
shares of common stock
outstanding and common
stock equivalents 4,840,228 3,354,766 4,756,895 3,342,874
Primary Earnings Per
Share ($0.03) $0.00 ($0.04) $0.13
Net income (loss)
applicable to common
shares: (43,826) 22,687 96,845 492,492
Preferred stock
divdends declared 0 0 (58,178) (56,706)
Preferred stock
dividends undeclared (87,871) 0 (263,613) 0
Interest expense
reduction 2,348 0 4,697 0
Net income (loss)
applicable to
common shares (129,349) 22,687 (220,249) 435,786
--------- ------- --------- -------
Weighted average
shares of common
stock outstanding 4,011,369 3,354,766 3,928,036 3,342,874
Common Stock
Equivalents (3) 1,387,600 0 1,387,600 0
Less - Shares
assumed to be
repurchased
under the modified
treasury stock
method (558,741) 0 (558,741) 0
Other potentially
dilutive
securities(1) 190,217 0 190,217 0
Weighted average
shares of common
stock outstanding
and common stock
equivalents 5,030,445 3,354,766 4,947,112 3,342,874
Fully Diluted
Earnings Per
Share (2) ($0.03) $0.01 ($0.04) $0.13
(1) Assumes conversion of 168,020 shs. of series A preferred stock into 168,020
shares of common stock and also assumes conversion of Series B preferred
stock into 22,197 shares of common stock based on 4.99% Limit of the
outstanding amount of common shares of 4,073,601 for a total of 203,273
shares minus the shares previously issued of 18,815 and 162,261
respectively.
(2) For fully diluted earnings per share the converted preferred stock is
antidilutive and conversion is not assumed because the amount of the
dividend paid or declared for the current pehod per common share obtainable
on conversion exceeds the earnings per share amount without conversion.
(3) Only options and warrants that have had their exercise pdce below the
closing market price for three consecutive months are included as common
stock equivalents.
F-9
<PAGE>
HALSTEAD ENERGY CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS'EQUITY
TOTAL
PREFERRED STOCK COMMON STOCK STOCK-
$.001 PAR VALUE $.001 PAR VALUE PAID IN RETAINED HOLDERS'
ISSUED AMOUNT ISSUED AMOUNT CAPITAL EARNINGS EQUITY
------ -------- ------ -------- ------- -------- --------
Balances at
August 31,
1996 572,246 $572 3,491,340 $3,492 $8,712,275 $5,320,634 $14,036,973
Cash Divi-
dends
Declared:
Preferred,
Series A
$0.2250 per
share 0 0 0 0 0 (56,706) (56,706)
Cash Divi-
dends
Declared:
Preferred,
Series B 0 0 0 0 0 (1,472) (1,472)
Employee
Compensation
January 1997,
$.50 per
share 0 0 20,000 20 9,980 0 10,000
Common Shs.
issued for
acquisition
on Sept. 1,
1996 at
$1.9375 per
share 0 0 200,000 200 387,300 0 387,500
Conversion of
Preferred
Shares to
Common (5,161) (5) 162,261 162 1,315 0 1,472
Deferred
Expense
Stock
Warrants 0 0 0 0 78,750 0 78,750
Common Shs.
issued to an
employee for
future
services 0 200,000 200 99,800 0 100,000
Net Income
- May 31,
1997 0 0 0 0 0 96,845 96,845
------ ------ ------- ---- ------ ------- -------
Balances
at May 31,
1997 567,085 567 4,073,601 4,074 9,289,420 5,359,301 14,653,362
