SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-QSB/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended February 28, 1999
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 87-044639
(State of 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)
914-666-5800
(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 PROCEEDING
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 April 5, 1999, the issuer has 3,013,750 shares of its Common
Stock outstanding.
<PAGE>
INDEX PAGE(S)
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheet as of February 28, 1999
(unaudited)...................................... F-2 -F-3
Consolidated Statements of Operations for the three
and six months ended February 28, 1999 and 1998
(unaudited)....................................... F-4
Consolidated Statements of Stockholders' Equity for
the year ended August 31, 1998 and for the six
months ended February 28, 1999 (unaudited)........ F-5
Consolidated Statements of Cash Flows for the six
months ended February 28, 1999 and 1998 (unaudited) F-6
Selected Notes to the Consolidated Financial Statements F-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS F-8 - F-10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings F-11
Signature Pages F-13
F-1
<PAGE>
HALSTEAD ENERGY CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
February 28, 1999
(Unaudited)
<TABLE>
A S S E T S
-----------
<CAPTION>
CURRENT ASSETS
<S> <C>
Cash................................................. $ 43,683
Accounts Receivable - Trade, Net of Allowance
for Doubtful Accounts of $57,710................... 807,589
Inventories.......................................... 233,663
Note Receivable...................................... 170,055
Note Receivable - Related Party...................... 856,617
Prepaid Expenses and Other Current Assets............ 288,971
Deferred Tax Asset................................... 27,000
----------
TOTAL CURRENT ASSETS.......................... 2,427,578
PROPERTY PLANT AND EQUIPMENT - NET
Land................................................. 944,000
Property Plant and Equipment......................... 10,188,493
-----------
TOTAL PROPERTY PLANT AND EQUIPMENT............ 11,132,493
OTHER ASSETS
Net Deferred Tax Asset........................... 355,000
Intangible Assets - Net.......................... 917,883
------------
TOTAL OTHER ASSETS............................ 1,272,883
------------
TOTAL ASSETS.................................. $ 14,832,954
============
<FN>
See Accompanying Notes.
</FN>
</TABLE>
F-2
<PAGE>
HALSTEAD ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28, 1999
(Unaudited)
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<CAPTION>
<S> <C>
CURRENT LIABILITIES
Accounts Payable - Trade.............................. $ 2,557,227
Notes Payable - Related Party......................... 229,662
Current Portion of Long-Term Debt..................... 2,526,173
Deferred Revenue ..................................... 120,413
Accrued Expenses and Other Current Liabilities........ 839,473
-----------
TOTAL CURRENT LIABILITIES.................... 6,272,948
Long-Term Debt - Net of Current Portion.................... 1,917,073
Security Deposits Payable.................................. 270,535
Deferred Revenue........................................... 111,084
-----------
TOTAL LIABILITIES............................ 8,571,640
-----------
Preferred Stock, $.001 Par Value, 168,020 Shares
Authorized-Series A 7.5% Cumulative Convertible
Redeemable 168,020 Shares Issued and Outstanding
($1,008,120 aggregate liquidation preference)..... 168
Paid In Capital: Preferred................................. 1,064,001
-----------
1,064,169
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 Par Value,
580,646 Shares Authorized-Series B
Convertible Redeemable 560,125
Shares Issued and Outstanding
($4,338,580 aggregate liquidation preference).... 560
Common Stock, $00.1 Par Value, 25,000,000 Shares
Authorized, 3,013,750 Issued and Outstanding 3,013
Paid in Capital: Preferred................................ 3,614,800
Common................................... 6,845,197
Accumulated Deficit....................................... (5,166,425)
Subscription Receivable................................... ( 100,000)
-----------
TOTAL STOCKHOLDERS' EQUITY 5,197,145
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,832,954
===========
<FN>
See Accompanying Notes.
</FN>
</TABLE>
F-3
<PAGE>
HALSTEAD ENERGY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Unaudited Unaudited
Three Months Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
---- ---- ---- ----
<CAPTION>
<S> <C> <C> <C> <C>
Revenues.........................$ 2,986,276 $3,734,051 $5,993,816 $7,715,799
Cost of Revenues................. 1,745,932 2,669,714 3,938,243 5,677,071
GROSS PROFIT..................... 1,240,344 1,064,337 2,055,573 2,038,728
OPERATING EXPENSES
Selling General & Adm. Expenses. 902,947 1,049,648 1,987,024 1,826,215
Management Fee, Related Party... 90,000 90,000 180,000 180,000
Loss on early termination of lease 0 0 174,707 0
Net Rental Income............... (95,174) (179,031) (134,548) (333,798)
Depreciation and Amortization... 242,445 298,379 484,890 577,059
INCOME (LOSS) FROM OPERATIONS 100,126 (194,659) (636,500) (210,748)
Interest Expense, Net 217,176 167,244 409,365 337,509
LOSS BEFORE TAX PROVISION (117,050) (361,903)(1,045,865) (548,257)
PROVISION FOR INCOME TAXES 0 0 0 0
Net Loss ....................... (117,050) (361,903)(1,045,865) (548,257)
Preferred Stock Dividends (18,906) (157,813) (37,812) (644,529)
Net Loss Available to Common
Share.......................... (135,956) $(519,716)(1,083,677)$(1,192,786)
Basic and Diluted Loss Per Share ($0.05) ($0.11) ($0.37) ($0.27)
Average Number of Common Shares 3,013,750 4,564,898 2,947,138 4,436,749
========= ========== ========= ==========
<FN>
See Accompanying Notes.
</FN>
</TABLE>
F-4
<PAGE>
HALSTEAD ENERGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
RETAINED
PREFERRED STOCK COMMON STOCK EARNINGS STOCK
$.001 PAR VALUE .001 PAR VALUE PAID IN (ACCUMULATED SUB. TOTAL
ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT) REC. EQUITY
--------------- ------------- ------- ------------ ------ ------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----- ------ ------ ----- ------ ---------- --- ---------
Balance
at August 31,
1997 567,085 567 2,059,301 2,060 9,545,257 (873,978) (100,000) 8,573,906
Dividends
Declared:
Preferred
Series A 0 0 0 0 0 (75,609) 0 (75,609)
Dividends
Declared:
Preferred
Series B 0 0 0 0 0 (467,814) 0 (467,814)
Common Shares
Issued on
Conversion of
Options 0 0 200,000 200 163,800 0 0 164,000
Common Shares
Issued to
Consultant for
Services
Rendered 0 0 172,495 172 232,761 0 0 232,933
Conversion of
Series B Preferred
Stock to Debt
(6,960) (7) 0 0 (56,261) 0 0 (56,268)
Restructuring of
Series B Preferred
Stock 0 0 0 0 (75,881) 0 0 (75,881)
Exercise of
Warrants 0 0 25,000 25 11,535 0 0 11,560
Common Shares
Issued in Exchange
for Dividends 0 0 67,285 67 269,000 (269,067) 0 0
Net Loss -
August 31,
1998 0 0 0 0 0 (2,396,280) 0 (2,396,280)
---- ---- ------- ------- ------- ---------- -- ---------
Balances at
August 31,
1998 560,125 $560 2,524,081 $2,524 $10,090,211($4,082,748)($100,000)$5,910,547
Coimmon Shares
Issued on Debt
Conversion 399,669 399 292,595 292,994
Common Shares
Issued to
Consultant for
Services
Rendered 90,000 90 77,191 77,281
Dividends
Declared:
Preferred
Series A (37,812) (37,812)
Net Loss -
February 28,
1999 (1,045,865) (1,045,865)
Balance at
February 28,
1999 560,125 $560 3,013,750 $3,013 $10,459,997 ($5,166,425)($100,000)$5,197,145
======= ==== ========= ====== =========== ========== ======== ========
F-5
<FN>
See Accompanying Notes.
</FN>
</TABLE>
<PAGE>
HALSTEAD ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
Six Months Ended
February 28,
1999 1998
---- ----
<CAPTION>
<S> <C> <C>
Cash flows from Operating Activities:
Net Income (Loss)............................ (1,045,865)($548,257)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Non Employee Compensation Expense from Common
Stock Issued During the Period............. 77,281 0
Depreciation & Amortization................. 484,890 577,059
Loss of Early Termination of Lease.......... 174,707 0
Deferred Income Tax Expense................. 0 45,000
Change in Operating Assets and Liabilities:.
Accounts Receivable......................... (53,661) 26,573
Inventory................................... (38,339) (7,738)
Prepaid Expenses and other Current Assets... 25,173 68,309
Accounts Payable, Accrued Expenses and Other
Current Liabilities......................... 458,193 (220,382)
Deferred Revenue............................ (127,145) (54,282)
Income Tax Payable.......................... 0 (241,000)
---------- ---------
Net Cash Used in Operating Activities (44,766) (354,718)
Cash Flows From Investing Activities:
Net Proceeds from Sale of Customer List..... 265,193 0
Acquisition of property and Equipment....... (95,943) (135,004)
Advances in Note Receivable................. 0 124,013
Net Repayment (Advance) Note Receivable-ATI. (87,652) 66,380
Security Deposits Payable................... 41,425 85,759
---------- ---------
Net Cash Provided By Investing Activities 123,023 141,148
Cash Flows From Financing Activities:
Increase (Decrease) in Cash Overdraft....... 0 (74,265)
Net Proceeds from the Issuance of Common Stock 0 149,415
Proceeds from Short Term Borrowings......... 0 14,690
Proceeds from Long Term Borrowings.......... 598,627 664,616
Repayment of Long Term Borrowings........... (622,576) 0
Net Borrowings from Related Parties......... 27,187 79,100
Preferred Stock Dividends................... (37,812) (644,529)
---------- ---------
Net Cash Provided By Financing Activities (34,574) 189,027
Net Increase (Decrease) in Cash.................. 43,683 (24,543)
Cash and Cash Equivalents at Beginning of Period 0 63,295
---------- ---------
Cash and Cash Equivalents at End of Period... 43,683 $ 38,752
---------- ---------
---------- ---------
Supplement Disclosure of Cash Flow Information
Cash Paid During the Period For:
Interest Expense............................. 332,905 $ 359,577
Supplemental Schedule of Non Cash Investing and
Financing Activities:
Exchange of Related Party Debt for Common Stock 292,994 $ 0
Preferred Stock Issued for Unpaid Dividends.. 0 $ 546,066
Conversion of Preferred Stock to Long Term Debt 0 $ 600,000
Common Stock Issued for Unpaid Dividends 0 $ 138,911
<FN>
See Accompanying Notes.
</FN>
</TABLE>
F-6
<PAGE>
Selected Notes to the Consolidated Financial Statements
(Unaudited)
(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 February 28, 1999.
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, 1998 contained in the Company's
Annual Report on Form 10-KSB dated November 25, 1998.
The results reflected for the three month period ended February 28, 1999,
are not necessarily indicative of the results for the entire fiscal year ending
August 31, 1999.
(2) Options and Warrants:
The following table sets forth the options and warrants of the Company
as of February 28, 1999.
Amount Term Issue Date Exercise Price ($)
123,563 5 yrs. 03/05/96 40% of market
5,000 5 yrs. 11/04/96 .625
9,774 5 yrs. 11/05/96 1.534
600,000 5 yrs. 11/14/96 .625
112,500 5 yrs. 01/10/97 .625
45,000 5 yrs. 02/18/97 .625
104,500 5 yrs. 08/12/97 1.260
85,000 5 yrs. 07/30/98 1.06
(3) Earnings (Loss)Per Share
On October 16, 1998 the Company effected a 1 for 2 reverse stock split.
All share and per share data have been restated.
During the year ended August 31, 1998, the Company adopted Statement of
Financial Accounting Standard No. 128 (SFAS 128) "Earnings Per Share."
This statement requires the presentation of basic and diluted earnings per
share ("EPS"). Basic EPS excludes dilution and is computed by dividing
income (loss) less preferred dividends by the weighted average number of
common shares outstanding for the period. Diluted EPS gives effect to all
dilutive potential common shares that were outstanding during the period.
The effect on loss per share of the Company's outstanding stock options
and convertible warrants is anti dilutive for all periods presented and
accordingly not included in the calculation of the weighted average number
of common shares outstanding.
(4) Certain Reclassifications were made in the prior year to conform to the
current year presentation.
F-7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Results of Operations
Three Months Ended February 28, 1999
Revenues for the three months ended February 28, 1999, decreased by
$747,775 to $2,986,276 from $3,734,051 for the three months ended February 28,
1998. The decrease is primarily due to the loss of customers in the commercial
gasoline business, which has experienced competitive pricing and from lower
retail pricing at our station chain due to a lower product cost. Propane and
retail gasoline product revenues were flat quater to quarter.
Cost of revenues for the three months ended February 28, 1999 decreased by
$923,782 to 1,745,932 or (58.4% of revenue)from $2,669,714 (or 73.1% of revenue)
for the three months ended February 28, 1998. This decrease is due to the
lower cost of product and to the other factors described above.
Selling, General and Administrative Expenses for the three months
ended February 28, 1999 decreased by $146,701 to $902,947 from $1,049,648
for the three months ended February 28, 1998. The decrease is primarily due to
reduction of salaries, decreased insurance expense and maintenance and repair
expenses, telephone, uniform and selling expenses.
Net Rental Income for the three months ended February 28, 1999 decreased by
$83,857 to $95,174 from $179,031 for the three months ended February 28, 1998.
This decrease is primarily due to the loss of rental income from the sale of
White Plains Fuel and the temporary closing of gasoline stations due to cosmetic
and environmental upgrades.
Depreciation and amortization expense for the three months ended February
28, 1999 decreased by $55,934 to $242,445 from $298,379 for the three months
ended February 28, 1998. This decrease is mainly due to certain property, plant
and equipment being fully depreciated.
Interest Expense, net for the three months ended February 28, 1999,
increased $49,932 to $217,176 from $167,244 for the three months ended February
28, 1998 due to an increase in certain indebtedness of the Company.
Six Months Ended February 28, 1999
Revenues for the six months ended February 28, 1999, decreased by
$1,721,974 to $5,993,816 from $7,715,790 for the six months ended February 28,
1998. The decrease is primarily due to the loss of customers in the commercial
gasoline business, which has experienced competitive pricing and from lower
retail pricing at our station chain due to a lower product cost. Propane and
retail gasoline product revenues were flat quater to quarter.
Cost of revenues for the six months ended February 28, 1999 decreased by
$1,738,828 to $3,938,243 (or 65.7% of revenue)from $5,677,071 (or 73.5%of
revenue) for the six months ended February 28, 1998. This decrease is due to
lower cost of product and to the other factors described above.
Selling, General and Administrative Expenses for the six months ended
February 28,1999 increased by $160,809 to $1,987,024 from $1,826,215 for the six
months ended February 28, 1998. This increase results from higher professional
fees amd salaries.
In October of 1998, the Company sold its White Plains Fuel customer list.
As a result, the Company realized a $174,707 loss on the early termination of
its lease.
Depreciation and amortization expense for the six months ended February 28,
1999 decreased by $92,169 to $484,890 from $577,059 for the six months ended
February 28, 1998. This decrease is mainly due to the certain property,
plant and equipment being fully depreciated.
Interest expense , net for the six months ended February 28, 1999,
increased by $71,856 to $409,365 from $337,509 for the six months ended
February 28, 1998 due to an increase in certain indebtedness of the Company.
Liquidity and Capital Resources
Management has seen a recent decline in the cost of petroleum products
which has resulted in decreased sales revenues. While the Company has achieved
increased efficiencies in its core businesses, the Company is not in a position
to meet its working capital, capital expenditure and acquisition requirements
through operations. Without additional financing, there can be no assurance that
the Company will be able to meet its cash requirements for the next twelve
months. In this regard, management believes that its underlying assets have been
significantly underutilized for quite some time due to the Company's lack of
success in obtaining the desired level of financing. The Company will continue
to pursue additional financing from a lending facility or an offering of its
securities to enable the Company to meet the above-referenced cash requirements.
There can be no assurance that the financing will occur or that the Company can
find suitable acquisitions in the foreseeable future.
Halstead Quinn Gasoline Division will have to invest approximately $200,000
in order to meet certain Federal EPA and State Regulations for underground
storage tanks. Through February 28, 1999, the Company has partially completed
the requirements for the 11 gasoline stations where upgrades are necessary under
applicable law. The Company is in compliance and/or has completed all of the
relevant upgrades at all of its other facilities. Failure to complete the
required upgrades in a timely fashion may have a material adverse effect on the
business, financial condition and operations of the Company.
In addition, with additional financing, the Company plans to rebuild 11 of
25 gasoline stations which will generally require $20,000 to $750,000 per
location for an aggregate of $2,500,000 (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.
On January 10, 1996, a total of 325,000 shares of the Company's common
stock was reserved for the 1996 stock option incentive plan for officers and
employees. Common stock which had been granted under such plan through August
31, 1998 was 242,000 (all of which are five year options granted in either
November 1996, August 1997 or July 1998), at exercise prices ranging from $.6250
per share to $1.26 per share, leaving a balance of 83,000 options in reserve
under such plan as of August 31, 1998. Additionally, certain officers and
employees of the Company were granted five year options (outside of such plan)
to purchase a total of 600,000 shares of the Company's common stock in November
1996, at an exercise price of $.6250 per share (500,000 of which were assigned
to Infinity (as described below) in March 1998), and five year options (also
outside of such plan) to purchase 60,000 shares of the Company's common stock in
July 1998 at an exercise price of $1.06 per share.
During the year ended August 31, 1998, the Company granted ten year
options, in partial payment of the purchase price for a propane customer list
and certain other assets acquired in April 1998, to acquire 10,000 shares of the
Company's common stock at an exercise price of $1.12 per share. Prior thereto,
the Company issued, for certain consulting services, 50,000 five year warrants
(5,000 in November 1996 and 45,000 in February 1997) at an exercise price of
$.6250 per share, and 9,773 five year warrants (in November 1996) at an exercise
price of $1.534 per share.
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. The Company is recording this sale on an installment
basis. In connection with this sale, since the related receivable is collectible
over an extended period of time and collectibility is uncertain, profit is
recognized under the installment method as the receivable is collected. The
Company will recognize profit when payments are received.
On June 9, 1997, the Company obtained a one-year revolving credit facility
in the maximum principal amount of $1,000,000. The maturity date has been
extended to September 4, 1998, and thereafter, such indebtedness is payable on
demand. Interest accrues on outstanding balances at the prime rate plus 10% per
annum, subject to a minimum of 17% per annum until June 1, 1998, at which time
the minimum increased to 20% per annum. The credit facility is secured by a
security interest in all of the Company's accounts receivables, general
intangibles, contract rights and inventory, as well as by the guarantees of
Claire E. Tarricone, Joseph A. Tarricone, and Anthony J. Tarricone. As of
February 28, 1999 the outstanding principal balance was $1,060,353.
The Company has advanced funds to A. Tarricone, Inc. ("ATI") its former
parent and brother-sister corporation with the same majority shareholders, for
necessary and ordinary gasoline and diesel purchases. ATI is currently operating
under Chapter 11 of the Federal Bankruptcy Laws.Such advances are secured by a
first lien of 50% of all of the ATI's post-petition assets and a second lien on
the balance of ATI's post petition assets.In addition, the Company reimburses
ATI, under a management agreement which expired on August 31, 1998, which is now
month to month, for clerical, administrative, payroll and other costs incurred
by ATI. Such management fee is accrued monthly and is recorded as a reduction of
the amount due to ATI. For six months ended February 18, 1999 and 1998, the
Company was charged $180,000 in connection with such expenses.
F-9
During the quarter ending February 28, 1999, the Company made additional
advances to ATI of $1,455,245 of which $1,441,395 was repaid. At February 28,
1999 the Company was owed $815,185.
On September 24, 1997, the Company, Claire E. Tarricone, Anthony J.
Tarricone and Joseph A. Tarricone and Infinity Investors Limited ("Infinity")
entered into a certain Restructuring Agreement (the "Restructuring Agreement").
Under the terms of the Restructuring Agreement, Infinity agreed to exchange
6,960 shares of Series B Preferred Stock in the Company, all accrued and unpaid
dividends on the outstanding shares of Series B Preferred Stock and
appriximately $78,000 of indebtedness owing to Infinity for the Company's
Subordinated Promissory Note in the principal amount of $600,000 (the "Note").
The Note accrues interest at 12% per annum compounded quarterly through
September 24, 1999 and accrues simple interest at 12% per annum after September
24, 1999. The note matures on September 24, 2002, although the Company is
required to make mandatory prepayment upon the occurrence of certain events. The
Company is disputing the indebtedness evidenced by the Note in the bankruptcy
proceeding referenced in Part II, Item 1(c). The terms of the balance of the
560,125 shares of Series B Preferred Stock owned by Infinity were amended to
provide, among other things, for (i) a fixed conversion price of $4.00 per share
of Series B Preferred Stock, (ii) the removal of certain limitations on the
rights of holders of the Series B Preferred Stock to convert those shares into
the Company's Common Stock( which the Company also agreed to register), and
(iii) an increase in the dividend rate of the Series B Preferred Stock to 12%
from 8% per annum. In March 1998, pursuant to the applicable provisions of the
Restructuring Agreement, Infinity elected to further amend the terms of the
Series B Preferred Stock to the effect that dividends would cease accuring
(i.e., the dividend rate would decrease from 12% per annum to 0% per annum), and
in connection therewith, Infinity elected to cause certain of the Company's
officers/directors to transfer to Infinity five year options to acquire 500,000
shares of the Company's common stock at an exercise price of $.6250 per share
(as referenced above).
At February 28, 1999, certain parties were owed an aggregate of $328,686 by
the Company, which are non-interest bearing, payable on demand at any time on or
after September 1, 1998. In October 1998, $292,994 of this amount was exchanged
for common stock in the company.
The Company had a working capital deficiency of approximately $3,845,370
and a ratio of current assets to current liabilities of approximately 39% or
1:2.58 as at February 28, 1999.
Year 2000 Computer Software Conversions. The Company relies on numerous
computer programs in its day to day business. Older computer programs use only
two digits to identify a year in its date field. As a result, when the Company
has to identify the year 2000, the computer will think it means the year 1900
and the operation attempting to be performed may fail or crash thus resulting in
the potential interference in the operations of the Company's business. The
Company has completed the Year 2000 conversion in March 1999. The cost of the
implementation of the Year 2000 safeguards will not be material to the Company.
F-10
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) On June 10, 1997, A. Tarricone, Inc. ("ATI"), the former parent of the
Company's operating subsidiaries and divisions (ATI is wholly-owned by Claire E.
Tarricone, Anthony J. Tarricone, and Joseph A. Tarricone, the Company's
directors and principal executive officers), 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. In
connection with the bankruptcy proceeding, the Company has asserted (and ATI has
acknowledged) pre-petition claims arising under a receivable from ATI in the
amount of $3,877,563 and pre-petition liens on certain leasehold interests. The
proceeding is before the United States Bankruptcy Court, Southern District of
New York, and is referred as "A. TARRICONE, INC., 97B21488." The Company has
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. 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. The Company is pursuing all appropriate avenues
to protect its interest in this regard. However, 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, that all or any portion of such indebtedness will be repaid
to the Company or that the Company will otherwise be successful in protecting
its interests. In this regard, management has written-off, and has taken as a
charge against earnings as a bad debt expense for the fiscal year ended August
31, 1997, the entire amount of the receivable due from ATI at June 10, 1997,
i.e., $3,877,563. Additionally, all executory contracts between ATI and the
Company are susceptible to rejection, at the election of ATI, under the
applicable provisions of the Code. Furthermore, any transfers from ATI to the
Company on account of antecedent debt (of ATI to the Company) during the one
year period prior to the date of filing of ATI's voluntary petition may be
subject to avoidance under the applicable provisions of the Code. The occurrence
of any such circumstances may have a material adverse effect on the Company.
The Company's principal terminal facility is currently being operated by
ATI pending the ultimate resolution of the above-referenced bankruptcy
proceeding. The Company has withdrawn its most recent application with the State
of New York for a terminal operator's and diesel motor fuel license based on its
belief that approval of the same would not be granted at the present time(due to
the circumstances which are the subject of the preceding paragraph). If the
Company determines to resubmit such application in the future, there can be no
assurance about the prospect of obtaining the approval of the same. The Company
has been advised by counsel that pending the conclusion of ATI's bankruptcy
proceeding, ATI will continue to maintain such licenses and will be able to
continue operating the Company's terminal and diesel motor fuel businesses.
There can be no assurance that at the conclusion of such proceeding, if the
result were a liquidation of ATI (which the Company believes is the likely
result),and therefore, a termination of such licenses, that the Company, by that
time, would have received its own licenses or would have been able to contract
with another entity to operate such businesses. The occurrence of any of these
circumstances could have a material and adverse effect on these businesses and
on the Company.
<PAGE>
F-11
(b) On March 22, 1999, Infinity Investors Limited ("Infinity"), a creditor
and shareholder of Halstead Energy Corp. (the "Registrant"), filed a Motion for
Ex Parte Appointment of Receiver against the Registrant, corporation, Claire E.
Tarricone, Anthony J. Tarricone, Joseph A. Tarricone, Edwin Goldwasser, Joseph
Gatti and Does 1 through 10 (the "Defendants"), with the Second Judicial
District Court of the State of Nevada in and for the County of Washoe. On March
23, 1999, the Second Judicial District Court of the State of Nevada in and for
the County of Washoe granted the Motion for Ex Parte Appointment of Receiver and
further ordered that Bernard A. Katz ("Katz"), a partner of J.H. Cohn LLP ("J.H.
Cohn"), be appointed receiver of the Registrant to (i) preserve the assets of
the Registrant for the benefit of its shareholders and creditors; (ii) possess
and control the accounts, funds, monies and books and records of the Registrant;
and (iii) undertake the daily business operations of the Registrant pursuant to
the function, powers and duties conferred on receivers as provided under Nevada
State Law. Upon the issuance of the order, the Receiver entered upon and secured
possession of the premises of Halstead Quinn Propane, Inc., a New York
coporation and a wholly-owned operating subsidiary of the Registrant ("HQ"), by
changing the locks of, answering the phones of, and denying HQ management entry
onto the premises owned by, HQ.
Unable to conduct its business,on March 26, 1999, HQ filed a motion for
order to show cause with temporary restraining order against the Receiver in
Part 1 of the Supreme Court of the State of New York ("New York State"). On that
same day, an order to show cause with temporary restraining order was granted
enjoining and restraining the Receiver, its agents, employees, affiliates,
subsidiaries or any other entity or person acting under and/or of its authority
or direction from taking any action with respect to HQ's property in New York
and (i) enjoining the Receiver, directly or indirectly, from exercising or
attempting to exercise possession, custody or control over HQ's property in New
York; (ii) enjoining the Receiver, directly or indirectly, from interfering with
the management and operation of HQ's business or its property in New York;
(iii)enjoining the Receiver, directly or indirectly, from restraining, impeding
or interfering with the officers, directors and/or employees of HQ from managing
or operating the business and affairs in New York; (iv) compelling the Receiver
to surrender all of HQ's property in their custody, possession or control
derived from their entry upon HQ's premises in Mt. Kisco, including copies of
any books, records or information made or obtained by the Receiver thereof; and
(v) compelling the Receiver to surrender to HQ all keys, passes, combinations,
locks or other physical restraints placed or imposed directly or indirectly by
the Receiver over or upon HQ's property in Mt. Kisco. HQ also on that same date
commenced a lawsuit in New York State Court against Katz and J.H. Cohn to
recover damages sustained by HQ as a result of what management believes was
Katz's and J.H. Cohn's illegal and tortious interference with HQ and its
property.
(c) On April 1, 1999, the Registrant filed a petition requesting relief
under Chapter 11 of the Bankruptcy Code (title 11 of the United States Code)
with the United States Bankruptcy Court for the Southern District of New York.
The Bandruptcy Court, in response, ordered that the Registrant, as debtor-in-
possession, as of the date of filing its Chapter 11 petition, shall retain
control of a bank account with the Hudson Valley National Bank (the "Account")
for operational purposes conditional upon the Registrant's making appropriate
notations in its books and records related to the Account to reflect the
commencement of this Chapter 11 case and all checks issued by the Registrant
shall include the Designation "Debtor-in-Possession" or "DIP" on the face of
such checks. The order further authorized and directed the Bank of New York to
continue to serve and administer the Account and enjoined the Bank of New York
from offsetting, freezing or otherwise impeding the use of a transfer or, or
access to, funds deposited by the Registrant in the Account by reason of any
claim, as defined in 11 U.S.C. 101(5), of the Bank of New York against the
Registrant that was prior to the filing of the Chapter 11 Petition.
Additionally, the order operated to stay all of the Nevada receivership
proceedings pursuant to automatic stay provisions of the Bankruptcy Code 11
U.S.C. 362.
On April 5, 1999, Infinity filed a motion in the Debtor's bankruptcy case
seeking, among other things, to have the Receiver remain in possession of the
Registrant's property (subsequent to April 5, 1999, Infinity withdrew this
motion) or, in the alternative, to appoint a Chapter 11 trustee for the
Registrant, pursuant to Section 1104 of the Bankruptcy Code. The Bankruptcy
Court has set a hearing date of April 26, 1999 to consider and decide Infinity's
motion. The Registrant intends to contest Infinity's motion. Furthermore, the
Registrant is disputing the indebtedness evidenced by the Infinity Note (as
referenced in Part I, Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," above).
(d)The Company is not a party to any other material litigation and is not
aware of any threatened litigation that would have a material adverse effect on
its business.
F-12
<PAGE>
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: April 19, 1999 By: /s/ Claire E. Tarricone
------------------------
President
Dated: April 19, 1999 By: /s/ Joseph A. Tarricone
------------------------
Vice President/Treasurer
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE THREE MONTH PERIOD
ENDED FEBRUARY 28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. </LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> DEC-1-1998
<PERIOD-END> FEB-28-1999
<CASH> 43,683
<SECURITIES> 0
<RECEIVABLES> 807,589
<ALLOWANCES> 57,710
<INVENTORY> 233,633
<CURRENT-ASSETS> 2,427,578
<PP&E> 11,132,493
<DEPRECIATION> 484,890
<TOTAL-ASSETS> 14,832,954
<CURRENT-LIABILITIES> 6,272,948
<BONDS> 0
1,064,169
3,614,800
<COMMON> 6,845,197
<OTHER-SE> (5,166,425)
<TOTAL-LIABILITY-AND-EQUITY> 14,832,954
<SALES> 2,986,276
<TOTAL-REVENUES> 3,081,450
<CGS> 1,745,932
<TOTAL-COSTS> 3,198,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217,176
<INCOME-PRETAX> (117,050)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (117,050)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
