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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-18260
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THE NEW WORLD POWER CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 52-1659436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
740 ST MAURICE, SUITE 604
MONTREAL, CANADA H3C 1L5
(514) 390-1333
(Address and telephone number of principal executive offices)
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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 0-18260
The New World Power Corporation
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(Exact name of registrant as specified in its charter)
Delaware 52-1659436
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
740 St Maurice, suite 604, Montreal, Quebec, Canada H3C 1L5
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (514) 390-1333
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None Not Applicable
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 31, 1997 was $540,701 based on the closing price of
$.28 per share. The number of shares outstanding of the registrant's Common
Stock as of March 31, 1997 was 2,225,967.
DOCUMENTS INCORPORATED BY REFERENCE:
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Table of Contents
PART I Page
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 19
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 20
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 21
Item 8. Financial Statements and Supplementary
Data 24
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 38
PART III
Item 10. Directors and Executive Officers of the
Registrant 41
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain
Beneficial Owners and Management 46
Item 13. Certain Relationships and Related
Transactions 48
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 52
Index to Consolidated Financial Statements and F-1
Financial Statement Schedule
Signatures S-1
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
The New World Power Corporation (the "Company") produces and sells
electric power generated from renewable resources, including wind and hydro, and
develops renewable power generating projects.
The Company's operations are conducted through subsidiaries which are
organized into three segments: grid power production, wireless power sales and
other products and services.
The grid power production division develops, owns and operates wind
farms and hydroelectric facilities which produce electricity (kilowatt hours)
for sale to electric utilities. Several of the Company's operating wind projects
were sold in the first semester of 1997.
The grid power services division was discontinued and certain assets
were sold during 1995.
The wireless power division assembles, distributes and sells
integrated renewable power generating systems for commercial and industrial use
where no service from an electric utility is available or in areas where
purchasing electricity is not economical. In addition, the wireless power
division includes village power which develops, owns and operates integrated
renewable power generating systems which produce kilowatt hours for sale to
small, electric utilities which are generally diesel-powered and removed from
the main grid. Aportion of the assets in the wireless division was sold in 1996
and the remaining principal assets in the wireless division were exchanged for
debt in an 1997 debt restructuring and, as a result of the restructuring, the
wireless power was discontinued in 1997.
The other products and services division manufactures and develops
wind turbines and related products. Supplementary industry segment information
may be found in the notes and schedules to the Company's Consolidated Financial
Statements.
Due to cash used in operating and investing activities as well as
unforeseen delays in two of its major projects (China and Texas), in late 1995,
the Company experienced severe liquidity and cash flow problems. This
necessitated, in early 1996, a revision of the business plan for the Company
calling for certain core and non-core asset sales, significant overhead and
other cost reductions, and a restructuring of the Company's secured debt with
its two principal lenders after events of default.
In the first quarter of 1996, the Board of Directors thoroughly
evaluated the Company's business, projects and personnel to refocus the Company
in areas which would solve short and long term liquidity problems and optimize
economic return. As a result of this evaluation, significant changes where made
in terms of project priority. In concert with its revised and focused business
plan, and to further alleviate cash flow pressure, the Company substantially
reduced administrative and overhead expenses through downsizing of its corporate
staff and international offices to bare minimums necessary to sustain project
operations and development.
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The Company has proceeded with its primary course of action of asset
sales with the full cooperation of the principal lenders and as per its
covenants under the restructured loan agreements with said principal secured
lenders. Short-term capital needs to fund the Company's operations during 1996,
were made available from an escrow account held by one of the principal lenders.
The Company marketed units that were developed and operating to pay down the
restructured debt and provide capital to fund new development activities. The
Company, in 1996, sold its wireless assets, in a less than favorable market
environment given the time constraints put on those sales by the secured
lenders.
In early 1997, the Company completed the sale of two of its windfarms
in the United Kingdom and its investment in an Irish windfarm. Proceeds from
those sales were used to payoff one of the Company's secured lenders while
paying down a portion of the indebtedness to the other secured lender, thus
eliminating the difficulties of intercreditor arrangements from the future
restructuring effoerts.
As a cautionary note it must be stressed that this report contains
"forward looking statements" within the purview of the federal securities laws.
There are numerous risks and uncertainties surrounding management's plans,
principally the risk that management will not be able to sell the assets
identified in its business plan within the time frame required by the
restructured loan agreements, or for the amounts estimated by management. There
can no assurance that the Company will be successful in implementing this plan,
nor can it be determined with certainty whether the Company will have sufficient
available short-term capital to fund operations in the time necessary to effect
such sales.
For a discussion of the development of the Company see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview."
GRID POWER PRODUCTION DIVISION
Power Production
The following tables set forth the projects, greater than 1 MW in
generating capacity, acquired or developed by the Company and currently in
operation, those under construction, and those in development. Projects in
operation are those where construction and financing have been completed and are
operational. Projects in development are those in which the Company has a letter
of intent or other firm understanding with the site owner or the joint venture
partners, or has been awarded a bid and is in the process of negotiating the
basic contracts.
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The Company generally develops new generating capacity only when it has
a commitment from a specific power purchaser, and, therefore, the capacity of
each project is usually committed only to a specified power purchaser.
Completion of projects under construction, any pending acquisition or project in
development is subject to the Company's obtaining suitable financing. There can
be no assurance that such financing will be obtained or that the Company will be
able to fund any project development activities in the future.
<TABLE>
<CAPTION>
Approximate Power
Name Location Type Capacity Purchaser Status
---- -------- ---- -------- --------- ------
Projects in Operations:
<S> <C> <C> <C> <C> <C>
Painted Hills San Gorgonio Pass, California Wind 1.00 MW SCE (Sold 1996)
Los Vaqueros Altamont Pass, California Wind 2.90 MW PG&E (Sold 1996)
Wolverine Midland, Michigan Hydro 10.50 MW Consumers (Operating)
Altamont Altamont Pass, California Wind 20.00 MW PG&E (Sold 1999)
Makani Uwila Oahu, Hawaii Wind 10.30 MW HECO (Sold 1999)
San Jacinto San Gorgonio Pass, California Wind 9.30 MW SCE (Sold 1997)
Dyffryn Brodyn Dyfed, Wales Wind 5.60 MW SWALEC (Sold 1997)
Caton Moor Lancashire, England Wind 3.00 MW NORWEB (Operating)
Bellacorick Bellacorick, Ireland Wind 6.40 MW ESB (Sold 1997)
Four Burrows Cornwall, England Wind 4.50 MW SWEB (Sold 1997)
Project under Construction:
Dona Julia Heredia, Costa Rica Hydro 16.00 MW ICE (Sold in 1997)
Fujian I Fujian, People's Republic of Hydro 39.00 MW State Utility (Under Development)
China
Projects in Development:*
Eolos I Mexico Wind 20.0 MW Government (Suspended)
Lerma Mexico City, Mexico Hydro 8.5 MW DGCOH (Held for Sale)
Big Spring Big Spring, Texas Wind 40.0 MW TU (Sold 1997)
Tierras Morenas Arenal, Costa Rica Wind 20.0 MW ICE (Sold 1998)
<FN>
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*The "approximate capacity" of projects in development reflects the estimated
total capacity of the sites which is capable of being completed within the next
four years.
</FN>
</TABLE>
Projects in Operation
General. The Company currently owns or leases the following renewable
energy generating facilities. Each facility is located on a site which is owned
or leased on a long-term basis by a project subsidiary. The facilities produce
electricity which is sold to utilities and other power consumers under long-term
power sales contracts.
U.S. Facilities
Painted Hills Wind Farm. The Company's eight wind turbines aggregating
approximately 1.0 megawatt ("MW") of capacity at the Painted Hills Wind Farm in
the San Gorgonio Pass near Palm Springs, California were all sold in February
1996.
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Los Vaqueros Wind Farm. The Company owns and operates 38 wind turbines
and the related electrical infrastructure and leases 101 acres at its Los
Vaqueros Wind Farm in the Altamont Pass in California. The wind farm has a total
capacity of approximately 2.9 MW, which is available under a subcontract with
the owner of the power purchase contract. The power produced at the wind farm is
sold to Pacific Gas & Electric ("PG&E") pursuant to the Company's Standard Offer
No. 4 ("SO4") power purchase agreement which expires in March 2015. The Los
Vaqueros windfarm was sold in August 1996.
Wolverine Hydroelectric Facilities. The Company owns four hydroelectric
facilities on the Tittabawassee River near Midland, Michigan. The facilities
were constructed between 1923 and 1925. One of the facilities was substantially
rebuilt in 1945. The others contain original turbine-generators and power plant
equipment. The facilities have a combined generating capacity of approximately
10.5 MW. The power is sold to Consumers Power Company ("Consumers") pursuant to
a power purchase agreement which expires in May 2023, but provides for
renegotiation of the energy and capacity prices every ten years commencing in
1996. The Company's current ten-year moving average hydroelectric production
rate for these facilities is approximately 32.7 million kilowatt hours ("kW")
per year. License applications for the facilities are currently pending before
the Federal Energy Regulatory Commission (the "FERC"), and the Company does not
know when the licenses will be granted. Although it is not possible to predict
what conditions will be imposed by the FERC, the Company believes that the FERC
may require a change in the method of operation within the next three to five
years so as to release a minimum daily flow of water. See Subsequent Event note
to the Consolidated Financial Statements.
Altamont Wind Farm. The Company is currently operating approximately
250 first generation wind turbines at the Altamont Wind Farm. The Company is
operating the site to mitigate some of the fixed costs at the wind farm. The
power generated by these turbines is sold to PG&E pursuant to the Company's
Standard Offer No. 1 ("SO1") Contract pursuant to which PG&E is obligated to
purchase annually 150 MW of electricity. The SO1 Contracts provide for a price
which is based upon the utility's short-term avoided cost of energy and the
avoided capital cost (the cost of generating equipment). The Company had plans
to retrofit the site as soon as the rate based on avoided cost of energy
increased. Due to low avoided cost tariffs in the PG&E territory, the Wind Farm
was placed for sale and sold in March 1999.
Makani Uwila Wind Farm. The Company owns the Makani Uwila Wind Farm
located at Kahuku on the north shore of Oahu in Hawaii. The wind farm includes
the MOD-5B wind turbine, the world's largest operating wind turbine of the
traditional horizontal axis type, which has a capacity of approximately 3.2 MW.
In addition, the wind farm includes eight, 600 kilowatt Westinghouse wind
turbines. The electricity from this wind farm is sold to The Hawaiian Electric
Company, Inc. ("HECO") pursuant to an existing power purchase contract. The
Company was negotiating an amendment to its power purchase contract with HECO.
Soon after the negotiations had commenced, the Company's cash flow shortages as
well as other external factors, resulted in the Wind Farm being offered for
sale. In January 1997, the land owner, Campbell Estate, foreclosed on the
property and put the site up for bid. The equity interest in this project was
sold in March 1999.
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San Jacinto Wind Farm. The Company owns an approximately 50% interest
in San Jacinto Power Company, Inc. ("San Jacinto Power"), a joint venture
between the Company and Nevada Energy Company, Inc. The 50 % interest was sold
in August 1997.
U.K. Facilities
The following three wind farms represent the entire portfolio of sites
located in the United Kingdom. All three projects were offered for sale
throughout 1996. The Company received two bonafide offers and elected to sell
two of the facilities to a U. K. based wind farm developer RES, Ltd. Due to
mechanical problems associated with the Caton Moor facility, RES final offer was
for Dyffryn Brodyn and Four Burrows only. In 1997, the Company elected to accept
the RES offer and retain ownership of Caton Moor. As part of the sale, all bank
project debt on Caton Moor was repaid and the Company continues owning 100% of
Caton Moor, subject to a lien from the Company`s principal lender.
Dyffryn Brodyn Wind Farm. The Company owns and operates a 5.6 MW wind
farm on a 166 acre site near Whitland, Dyfed, Wales. The power generated at the
wind farm is sold pursuant to a 1991 renewable non-fossil fuel obligation power
purchase agreement with the Non-Fossil Fuel Purchasing Agency Limited ("NFPA")
and South Wales Electricity plc ("SWALEC"). The fixed, premium price period of
the contract expires in December 1998. The project was sold in February 1997.
Caton Moor Wind Farm. The Company owns and operates a 3 MW wind farm at
Caton Moor, Lancashire in northwest England. The power generated at the wind
farm is sold pursuant to a 1991 renewable non-fossil fuel obligation power
purchase agreement with NFPA and NORWEB plc. The fixed, premium price period of
the contract expires in December 1998.
Four Burrows Wind Farm. The Company owns and operates a 4.5 MW wind
farm located at Four Burrows, near Truro, Cornwall, England. The power generated
at the wind farm will be sold pursuant to a 1991 renewable non-fossil fuel
obligation power purchase agreement with NFPA and South West Electricity plc.
The fixed, premium price period of the contract expires in December 1998. The
project was sold in February1997.
Other Facilities
Bellacorick Wind Farm. The Company owns approximately 87.5% of the
ordinary shares of Renewable Energy Ireland Limited, the owner and operator of
Ireland's first wind farm, which is located in Bellacorick, Ireland. During
April 1997, the Company sold its interest in the project to the minority
shareholder, Bord na Mona.
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Projects Under Construction
Andersen Falls Hydroelectric Facility. The Company owns 60% of Andersen
("Project Company") which has entered into a concession contract with Energia
Rio Negro Socieded del Estado ("ERSE"), the state utility of the State of Rio
Negro, Argentina, to design, reconstruct, operate and maintain a hydroelectric
facility to be located at Andersen Falls, State of Rio Negro, Argentina. In
connection with the proposal to construct this facility, the Project Company
posted a performance bond for $1 million, which was guaranteed on a joint and
several basis by the Project partners and the Company. Because of the Company's
limited capital resources, there is a risk that the Company will have to pay
under the terms of this performance bond. However, the facility was abandoned in
1996 and the status of bond obligations remains currently unclear. See
Subsequent Events note in the Consolidated Financial Statements.
Dona Julia Hydroelectric Facility. The Company, on behalf of a Costa
Rican company in which it has a minority interest, developed a hydroelectric
facility located in Heredia, Costa Rica. The project is expected to have a
capacity of 16 MW of electricity, all of which is to be sold to the Costa Rican
state utility ICE under a 15-year power purchase contract. The Company has sold
its interest in the project in 1997 for approximately $475,000.
Fujian I, China. In May 1995, the Company signed an agreement with
China Chang Jiang Energy Corporation ("CCJEC") to acquire an interest in Fujian
Chang Ping Hydro Project Company. Fujian Chang Ping Hydro Project Company is
constructing the 39 MW Fujian Nan Ping Xiayang Hydro Power Plant on the upper
Ming River in Xiayang, Fujian Province, People's Republic of China. The project
was originally expected to be operational by September 1997, but as a result of
significant flooding at the construction site, the operating date has been
postponed.
Subsequent to the Company's initial investment, concern arose as to
whether adequate approvals had been obtained, under Chinese law, for the
acceptance of New World Power Corporation shares as payment for the Company's
interest in Fujian.. Due to uncertainties involving, among other things,
significant project construction delays and Fujian's lack of liquidity, the
Company has recorded an other than temporary decline at December 31, 1995, to
adjust the carrying value of its investment to the estimated net realizable
value of the Company's continued interest in Fujian. Continued delays in 1996
and lack of capital for the project resulted in the Company writing its
investment in the project to nil. The impact of this writedown is included as
part of the impairment charge in the accompanying Consolidated Statement of
Operations at December 31, 1996 and 1995 (see Note 3 and 10).
Projects In Development
The Company is currently undertaking to develop the following projects.
Unless otherwise stated below, development of each of these projects is subject
to obtaining suitable financing. There can be no assurance that such financing
will be obtained. See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" for a
discussion of the financing of development projects.
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Eolos I. The Company had secured the development rights to
approximately 37,500 acres of land for the development of a wind farm in the La
Ventosa region of the State of Oaxaca, Mexico. Power from this first phase 20 MW
development will be sold to, CFE, the Mexican federal electric utility. The
power purchase agreements are in the preliminary stages of negotiation and are
subject to approval by the federal Ministry of Energy. This project is expected
to be developed through a Mexican company in which the Company will have a
minority interest. All work on this project was supended in early 1997.
Lerma Hydroelectric Facility. The Company, through Entec S.A. de C.V.,
has a contract with the Mexican Federal District Water Commission to develop an
8.5 MW hydroelectric facility powered by the flow of water from an aqueduct
which supplies part of the drinking water needs of Mexico City. Entec will be
paid for the electricity generated by the project by the Federal District Water
Commission under a long-term power purchase agreement. All work on this project
was supended in early 1997.
Big Spring Wind Farm. The Company, through its limited partnership New
World Power Texas Renewable Energy Limited Partnership, has entered into a
15-year power purchase agreement with Texas Utilities Electric Company ("TU
Electric") to purchase power from a 40 MW wind farm which is to be built near
Big Spring, Texas. The agreement has been approved by the Public Utility
Commission of Texas. Despite improving the financial feasibility of the project
by substituting the new wind turbine generator technology, the Company was
unable to finance the project and, as a result the rights to the project were
sold to York Research of New York in late 1997.
Tierras Morenas Wind Farm. The Company had been undertaking, through a
Costa Rican subsidiary in which it has a 35% minority interest, to develop a
wind farm to be located in Tierras Morenas near Lake Arenal, Costa Rica. The
project is expected to have a capacity of 20 MW of electricity, all of which is
to be sold to the Costa Rican state utility ICE under a 15-year power purchase
contract. In May, 1996 the Company's Costa Rican 65% majority partner in the
project entered into negotiations with a U.S. alternative energy development
company to sell its majority interest and take over development of the project.
This project was sold in 1998.
Carrickabrock Wind Farm. The Company, through a joint venture with Bord
Na Mona, is seeking to develop a 15 MW wind farm in the County of Tipperary,
Ireland, to be owned and operated by the joint venture. The joint venture, in
which the Company will have a 50% interest, will sell electricity to the ESB,
the government-owned electric utility of Ireland, under a 15-year power purchase
agreement. The joint venture has been attempting to resite the project nearby.
An unfavorable outcome to these resiting efforts forced the Company to abandon
the project in 1997.
Drumlough Hill Wind Farm. The Company has entered into a joint venture
with Bord Na Mona to develop a 5 MW wind farm at Drumlough Hill, Innishowen,
County Donegal, Ireland. The joint venture, in which the Company will have a 50%
interest, will sell electricity to the ESB, the government-owned electric
utility of Ireland, under a 15-year power purchase agreement awarded through an
Irish AER bid process. The joint venture has been unable to secure the essential
site rights from a third party that are necessary to complete the project.
Inability to obtain these rights forced the Company to abandon the project.
7
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Seasonality of Revenues
Wind farm revenues are seasonal, with the wind season in North American
locations typically running from March to November. The European wind season
typically runs from October to March. Hydroelectric production is also seasonal
with spring, fall and winter providing proportionally higher revenues than the
summer. Both wind power and hydroelectric production can also vary from year to
year based on variations in meteorological conditions.
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GRID POWER SERVICES DIVISION
During 1995, as a result of continued losses and erosion of its
customer base, the Company discontinued its production services operations in
California. The operations, which constituted the Grid Power Services segment,
were sold in December 1995.
WIRELESS POWER DIVISION
The Company's Wireless Power Division sells and assembles solar
systems. These solar systems are powered by photovoltaic panels. Photovoltaic
panels are composed of silicon, semi conductor material applied in various forms
including wafers or films, to a flat panel. The photovoltaic panel directly
converts sunlight to electric current.
The Company was involved in assembling and selling two basic types of
systems using photovoltaic panels. "Photovoltaic Systems" are those in which the
sole form of power production is solar energy; these systems range from a basic
panel and controller to varied applications involving lighting, water pumping
and more sophisticated packages. Integrated Renewable Power Generating Systems
are those which also use photovoltaic power for a portion of their power
generation, but additionally incorporate other forms of renewable generation
like wind and battery power. These systems are typically complex and much more
expensive than the Company's Photovoltaic Systems.
The Company distributes its Photovoltaic Systems through three
partially-owned subsidiaries and distributes its Integrated Renewable Power
Generating Systems through a wholly-owned subsidiary.
Photovoltaic Systems
Photovoltaic Systems are solar power systems assembled and sold by the
Company through its partially-owned subsidiaries. Photovoltaic Systems use
photovoltaic power to produce electricity, and range from simple panel
applications to more sophisticated, expensive packages.
The Company distributes its Photovoltaic Systems through Photocomm,
Inc. ("Photocomm"), Solartec, Inc. ("Solartec") and Entec ("Entec"), all
partially-owned subsidiaries. The Company sold both Photocomm and Solartec in
1996 in order to fulfill a portion of its obligations to its lenders and
concentrate on its core development business. The Company wrote down its
investment in Entec, which is experiencing significant financial hardship,to nil
in 1995.
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At December 31, 1995, the Company owns 6,612,447 shares (representing
approximately 48.8%) of the issued and outstanding voting stock of Photocomm
which is a publicly traded company engaged in the development, manufacture and
marketing of photovoltaic systems and related products. The Company had an
option to purchase an additional 1,500,000 shares at $3.00 per share expired at
December 31, 1996. As of June 18, 1996, the closing price of these shares was $
2.56 per share. The Company is also a party to an agreement with other
shareholders of Photocomm under which, the Company is assured of the election of
three of Photocomm's seven directors. The Company also owns 51% of the issued
and outstanding capital stock of Solartec, an Argentine corporation which is a
fabricator and distributor of photovoltaic products in Argentina, and 50% of the
issued and outstanding stock of Entec, a power developer in Mexico. During the
fourth quarter of 1996, the Company has concluded the sale of the Photocomm
shares together with its interest in Solartec for a consideration of $12.5
million. The proceeds from the sale were used to reduce the Company's
obligations under the 8% Convertible Subordinate Notes.
Integrated Renewable Power Generating Systems
The Company designs, manufactures, assembles and installs Integrated
Renewable Power Generating Systems, including remote site and stand-alone
electric generating systems, for a wide variety of applications. Remote site and
stand-alone generating systems are generally complex, integrate many forms of
available power generation including not only photovoltaic power but also wind
is utilized for electric power generation at remote locations that are not
connected to an electric power grid.
The Company's Integrated Renewable Power Generating Systems are
distributed through its 100%-owned subsidiary New World Vermont, located in
Waitsfield, Vermont.
The Company has installed remote site and stand-alone generating
systems for commercial and residential customers in over 30 countries and on all
7 continents. These systems provide power where reliability is crucial and power
is a necessary commodity that was not previously available. The primary
applications in the commercial sector are telecommunications, navigational aids,
offshore platforms, area lighting and SCADA power equipment. In addition, the
Company provides larger systems where renewable energy sources augment the
energy provided through the utility grid which would normally be purchased from
local utilities. The Company exchanged 89% interest in New World Vermont for
debt with one of its secured lenders in December 1997, while the remaining 11%
interest was redeemed in 1999
Village Power
The Company develops, owns and operates integrated generating systems,
powered by renewable and traditional sources, which produce kilowatt hours for
sale to small electric utilities removed from the main grid. These systems use
proprietary software for integration and control and utilize indigenous
renewable resources, augmented by batteries, to replace existing base-load
diesel generators, which are then converted into backup power sources. This
division was closed during 1996.
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Wireless Backlog
As of December 31, 1996, the Company had a backlog of existing purchase
orders and government contracts, which it believes to be firm, for products and
development services representing approximately $2.2 million in revenues. This
compares to a backlog of approximately $688,000 as of December 31, 1995.
Management expects that a majority of the current backlog will be filled in
fiscal 1997. The current backlog is not necessarily indicative of the backlog,
if any, in future periods.
Concentration
Sales of the Company's generating systems to customers outside of the
continental United States accounted for approximately 20% of product sales for
the last fiscal year. These sales are accomplished through the Company's own
sales force. In view of the diverse locations of the Company's foreign
customers, the Company does not believe there are any special risks attributable
to foreign sales beyond the normal business risks of sales abroad.
Key Suppliers
The Company's manufacturing operations require a number of mechanical,
electrical and electronic components and raw materials. The Company has multiple
commercial sources of supplies for most components and raw materials that it
uses.
Manufacturing Regulation
The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment. In management's opinion,
compliance with these laws and regulations has not had and will not have a
material effect on the capital expenditures, earnings or competitive position of
the Company.
OTHER PRODUCTS AND SERVICES DIVISION
The Company currently manufactures a full line of wind turbines
including 1 kW, 3 kW, 12 kW and 100 kW machines, all in limited quantities, and
is developing a prototype for a 250 kW turbine. The Company maintains a
continuing development program for new turbines and related products and for
continued engineering of its existing products to improve efficiency and
reliability. Development has been concentrated on wind turbine machine design
(including blade design) and electronic system design. The Company's predecessor
began developing wind turbine technology in the mid-1970s.
Pursuant to government contracts and initiatives issued by the
Department of Energy ("DOE"), and through various agencies via the Small
Business Innovative Research Program, the Company and its predecessor have
engaged in advanced turbine design studies since the late 1970s. These
conceptual design studies involve practical improvements, including advancing
the state-of-the-art for wind farms and the development of a 100 kW polar
turbine for extremely cold temperature applications.
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The Company is a sub-contractor with the National Renewable Energy
Laboratory ("NREL") to develop "Advanced Wind Turbines" under a series of
contracts. The first contract calls for development of the "Near Term Turbine,"
and is designed to produce hardware for sales and distribution in 1999. This
contract is aimed at the development of an advanced, commercial-scale wind
turbine to be manufactured in the United States. This turbine is designed for
use in large-scale wind farm developments and other similar applications. The
first Advanced Wind Turbine which the Company is developing will have a
nameplate capacity of 250 kW with blades of 82 feet in diameter. The first
prototype began operation in the San Gorgonio Pass in the spring of 1994.
Continued improvements and redesign aimed at cost cutting is ongoing at this
time. The information and technology advances developed by the Company in
connection with the 250 kW Advanced Wind Turbine will be available for use by
the Company in all of its products. Three patents related to the aileron control
system were issued by the U.S. Patent and Trademark Office during late 1995 and
early 1996.
The Company owns several patents and patent applications relating to
wind turbine technology. Although these patents and patent applications have
value to the Company, they are not considered to be of material importance to
its business as a whole. The Company's patents will expire during the period
from 1996 to 2014.
The New World Vermont is also involved with the development and
deployment of large tracking PV array structures, grid connected PV applications
and standalone wind/PV village power systems. Multiple projects are on-going at
this time and the technology and experience can be used by the Company in the
pursuit of it's business objectives. The Company sold 89% interest in New World
Vermont in exchange for debt with one of its secured lenders in 1997.
DOMESTIC GOVERNMENT INCENTIVES
Federal Incentives. The Federal government encourages the use of
renewable energy resources through various financial and other incentives. The
most recent incentives at the Federal level were included in the Energy Policy
Act of 1992. The purposes of the Act include the promotion of (i) increases in
the production and utilization of energy from renewable energy resources; (ii)
further advances of renewable energy technologies; and (iii) exports of
renewable energy technologies and services.
The Federal Energy Regulatory Commission ("FERC") has authority under
the Energy Policy Act, in certain circumstances, to order any transmitting
utility to provide transmission service to independent power producers for the
purpose of selling electricity at wholesale. If adequate transmission capacity
is unavailable, the transmitting utility may be required to enlarge its
facilities. The FERC may not issue such an order if providing transmission
service would impair the reliability of the interconnected system, or if the
utility cannot obtain approval for new facilities that are necessary to provide
the service. These provisions could benefit the Company and other independent
(non-utility) power producers by facilitating access to utility transmission
systems and thus the transmission and sale of electrical power to purchasers
other than the local electric utility. With improved transmission access, the
number of potential customers for power produced by the Company's facilities
will be significantly increased.
12
<PAGE>
Under the Clean Air Act Amendments of 1991, the Environmental
Protection Agency ("EPA") has established sulfur dioxide ("SO2") emission levels
for each utility system that must be met by the year 2000, as well as specific
emission levels for certain coal-fired plants that must be met by 1995. In order
to facilitate the transition to these new emission levels, a trading mechanism
has been created so that SO2 allowances can be traded. The result of these
regulatory initiatives is that wind energy is valuable to utilities since wind
generated electricity reduces fossil fuel generation by the utilities and
increases emission allowances which can be sold in the market.
State Incentives. Under the Energy Policy Act, states must work with
regulated public utilities to develop an integrated resource plan which
implicitly includes development of renewable energy resources. Even prior to
enactment of the Energy Policy Act, a number of States had undertaken to develop
renewable energy policies and initiatives in response to increasing pressure
from environmental groups which have focused on the air and water pollution
associated with the development of new fossil fuel generating facilities.
REGULATION
The Company is subject to federal and state energy laws and regulations
and federal, state and local environmental laws and regulations in connection
with the development and operation of its generating facilities.
Domestic Regulation
Federal Regulation. Pursuant to authority granted to the FERC under
PURPA, the FERC has promulgated regulations which generally exempt small power
production facilities with capacities of less than 30 MW from the provisions of
the Federal Power Act ("FPA") (except for licensing requirements applicable to
hydroelectric projects and certain other matters), the Public Utility Holding
Company Act ("PUHCA"), and state laws respecting rates and financial and
organizational regulation of electric utilities. All of the Company's
hydroelectric and wind power generating facilities are believed to be entitled
to the full range of regulatory exemptions available under PURPA. The Wolverine
Hydroelectric Facilities are subject to licensing regulation pursuant to the
Federal Power Act.
The Energy Policy Act amended PUHCA to allow independent power
producers, under certain circumstances, to own and operate eligible facilities
not exempted by PURPA in the United States or foreign countries without
subjecting these producers to registration or regulation under PUHCA and without
jeopardizing the qualifying status of their existing exempt projects. A company
exclusively in the business of owning or operating generating facilities and
selling electricity at wholesale or retail in a foreign country is also eligible
for this exemption, as long as neither the company nor its subsidiaries sell
electricity retail within the United States. These provisions are expected to
enhance the development of facilities not exempted by PURPA in the United States
which do not have to meet the fuel, production and ownership requirements of
PURPA, as well as the development of foreign generating companies. The Energy
Policy Act could benefit the Company by expanding its ability to own and operate
facilities not exempted by PURPA but may also result in increased competition.
13
<PAGE>
In the absence of exemptions from the regulations discussed above, the
activities of the Company would be subject to a pervasive framework of federal
and state regulation applicable to public utilities, including regulation of
power sales prices, encumbrances of property, accounting practices and all other
activities deemed necessary and convenient in the regulation of public
utilities. Should this occur, the Company could be subject to regulation as a
public utility holding company under PUHCA, which would have a material adverse
effect on the Company's business. The Company intends to conduct its operations
so that it continues to qualify for the applicable exemptions under PUHCA and
has no reason to believe that these exemptions will be changed by legislative or
regulatory action. Congress now has under consideration legislation that would
reduce or eliminate the PUCHA restrictions.
State Regulation. State public utility commissions ("PUCs") have broad
authority to regulate both the price and financial performance of electric
utilities. Since a power sales contract will become a part of a utility's cost
structure (and therefore is generally reflected in its rates), power sales
contracts between an independent power producer, such as the Company, and a
regulated utility, some PUC's assert and exercise the right to approve these
contracts at the outset.
Local Permits. County governments in California and other states
require wind farm operators to apply for and obtain permits before erecting and
installing wind turbine generators. Applications may be considered at a public
hearing. The permits generally terminate after a fixed period of time, twenty
years from the date of approval in California, although the permits are
revocable for cause. Permits frequently contain numerous conditions, including
safety setback requirements, noise setback requirements, environmental
requirements and annual reporting requirements. The Company believes that it has
or will be able to obtain and renew all necessary permits subject to any
requirements relating to the siting and operation of each individual wind farm.
Environmental Regulation. The Company is subject to environmental laws
and regulation at the federal, state and local levels in connection with the
development, ownership and operation of its electrical generating facilities.
The laws and regulations applicable to the Company primarily involve
environmental concerns associated with the siting of wind power generating
facilities such as noise, visibility of wind turbines and threats to endangered
or migratory birds or wildlife. Many of such laws and regulations require that
wind turbines be located in remote areas or shielded from view, that turbines
not be located in flyways or in areas where endangered species might be
threatened, or that other mitigating actions be implemented. The Company
believes that its existing electric generating facilities are in compliance with
such environmental laws and regulations. If such laws and regulations are
altered, however, and the Company's facilities are not grandfathered, the
Company may be required to incur significant expenses to comply with such laws
and regulations. Furthermore, the existence of certain environmental laws and
regulations may have an adverse effect on the Company's ability to find suitable
sites for new renewable energy generating facilities, although generally
speaking suitable wind resource areas are not near residential areas.
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<PAGE>
International Regulation
The Company only engages in business in countries that have statutes
which permit the private production and sale of electricity. All the countries
in which the Company is currently doing business have such laws. Certain
countries have restrictions on the percentage of a stock a foreign corporation
may own of a domestic corporation and certain countries require permission of
the government to own more than a designated percentage of stock in a domestic
corporation. The Company complies with all such requirements.
The Company believes that the countries in which it is seeking to do
business are encouraging independent power producers to supply the electrical
power needs their growing economies face. The relatively short time periods for
construction as well as the modular nature of wind farms permit the Company to
comply with construction and environmental regulations in a more expeditious
fashion and with lower construction risks than power produced through
traditional thermal methodologies.
STRATEGIC ALLIANCES
In June 1994, the Company entered into a 15-year business alliance
agreement with Westinghouse Electric Corporation ("Westinghouse"). Westinghouse
owns 158,659 shares (7.1%) of the Company's Common Stock. The alliance has not
been as beneficial as both parties originally envisioned and, accordingly, the
Company and Westinghouse have suspended joint pursuit of opportunities pursuant
to this agreement. In 1998, the agreement was cancelled altogether by mutual
consent, with no additional consideration being paid.
In October 1994, the Company entered into a joint venture contract with
China Chang Jiang Energy Corporation (Group) ("CCJEC") and Metropolitan
Enterprise Corporation ("MEC"). CCJEC is a manufacturer of electric generating
equipment and owns and operates numerous hydroelectric facilities, not only in
China but in the Philippines and other countries in Asia. The joint venture
contract is for a period of twenty-five years after the date of issuance of the
business license for the joint venture company. The parties have agreed to deal
exclusively with one another during the term of such contract in connection with
the development of wind, solar and hydroelectric power generating projects in
the PRC, and in the manufacturing and distribution in the PRC of renewable power
generating products developed by the Company. Any pursuit of opportunities under
this agreement is subject to successful renegotiation of the Company's
investment position in the Fujian project.
The Company, effective as of October 31, 1996 entered into a joint
venture agreement with Dominion Bridge Corporation (Dominion Bridge) to jointly
develop selected projects in its inventory. These projects include further
development of wind opportunities in North America. Pursuant to the agreement,
Dominion Bridge may invest up to $2.5 million in the projects in exchange for
50% of the Company's interest in such projects. In addition, the Company has
given an option to convert Dominion Bridge interest in the joint venture into
its common stock. In the event that all such interest was earned and converted,
Dominion Bridge's ownership of the Company would reach 41% of the common stock.
The joint venture was terminated in April 1998 and none of the joint venture
interest was converted into Company shares.
15
<PAGE>
Finally, effective August 5, 1996, the Company has entered into a
management services contract with Dominion Bridge, whereby one of its vice
presidents, Vitold Jordan, was appointed to the position of Interim CEO of the
Company and Nicholas Matiossian, COO of Dominion Bridge is acting as senior
advisor to the Company. This agreement was terminated in April 1998.
COMPETITION
Revenue derived from the Company's existing electrical generating
facilities is sold under long-term power contracts, therefore competition is not
a significant business risk. New utility power sales contracts are, however,
generally subject to an arduous, expensive and competitive process. Many states
require power sales contracts to be awarded by competitive bidding, and the
Company competes with other independent power producers, subsidiaries of fuel
supply companies, engineering companies, equipment manufacturers and affiliates
of other industrial companies in the process. In addition, a number of regulated
utilities have created subsidiaries, utility affiliates, which compete with
independents such as the Company.
Competition for acquisitions of existing power projects and development
of new ones may significantly reduce the Company's opportunity to acquire or
develop any such projects. There are other companies in the power generation
industry that are larger and have more financial resources than the Company.
Furthermore, other large, well-capitalized entities from outside the power
generation industry may choose to enter the industry, creating the potential for
significant additional competition.
The markets for the Company's wireless power products are highly
competitive. The Company faces a number of competitors in this market, some of
which may have significantly greater financial resources than the Company.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries employed
approximately 30 people.
16
<PAGE>
ITEM 2. PROPERTIES
ADMINISTRATIVE
The Company leases office space for executive and administrative
functions at various locations around the country:
Grid Power
Wolverine. The Company owns approximately 4,000 acres of land, most of
which is under water, in Gladwin and Midland counties in Michigan. The Company's
dikes, dams, spillways and power plants are located on this property. Operating
and maintenance personnel are based in a 1,000 square foot Company-owned
building and a 5,000 square foot maintenance and storage facility in Edenville,
Michigan.
Altamont Wind Farm. The Altamont Wind Farm is located on approximately
4,000 acres of leased land in the Altamont Pass, California. The Company owns
approximately 305 miles of power lines, one substation and a 5,000 square foot
maintenance building on the property. (Sold in 1999.)
Makani Uwila Wind Farm. The Makani Uwila Wind Farm is located on
approximately 65 acres of leased land on Oahu, Hawaii. (Discontinued in 1996 and
sold in 1999)
Los Vaqueros Wind Farm. The Los Vaqueros Wind Farm is located on
approximately 101 acres of leased land in the Altamont Pass, California. (Sold
in 1996)
San Jacinto Wind Farm. The San Jacinto Wind Farm is located on
approximately 165 acres of leased land in the San Gorgonio Pass, California.
(Sold in 1997)
Dyffryn Brodyn Wind Farm. The Dyffryn Brodyn Wind Farm is located on
approximately 166 acres of leased land near Whitland, Dyfed, Wales. (Sold in
1997)
Caton Moor Wind Farm. The Caton Moor Wind Farm is located on
approximately 100 acres of leased land in Caton Moor, Lancashire, England.
Bellacorick Wind Farm. The Bellacorick Wind Farm is located on
approximately 300 acres of leased land in Bellacorick, Ireland. (Sold in 1997)
Four Burrows Wind Farm. The Four Burrows Wind Farm is located on
approximately 500 acres of leased land in Truro, Cornwall, England. (Sold in
1997)
Production (Wind Farm) Services. The Company's production (wind farm)
services facilities are located in a 28,000 square foot leased facility in North
Palm Springs, California. The facility includes offices, warehouse space and a
machine shop. The Company terminated this lease in early 1996.
The Company's manufacturing facilities for renewable power generating
systems, including its design and system assembly departments, are housed in a
7,200 square foot Company-owned facility in Waitsfield, Vermont. (Exchanged in
1997 for debt).
17
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On January 30, 1995, Kenetech Windpower, Inc. ("Kenetech") filed a
patent infringement suit in the United States District Court for the Northern
District of California against the Company and Enercon GmbH ("Enercon") relating
to the proposed use of Enercon E-40 wind turbines at the Company's planned wind
power generating facility in Big Spring, Texas. The suit alleges that the use of
the Enercon turbines in the United States would violate certain Kenetech patents
and seeks an injunction and unspecified damages. The Company reviewed the
Kenetech patents in detail and thoroughly investigated the Enercon technology
well before the suit was filed and, based on such reviews and investigations,
believes that neither the Enercon turbine nor its mode of operation infringes on
any claim of any of Kenetech's patents. In January 1996 the Court granted the
Company's motion and dismissed Kenetech's claim for relief based on actual
patent infringement.
Kenentech has also initiated proceedings against the Company and
Enercon before the International Trade Commission. On May 31, 1996, an
Administrative Law Judge of the U.S. International Trade Commission rendered an
Initial Determination decision in which he held that the Commission has subject
matter jurisdiction over the Company and its co-respondent, Enercon, in
Investigation No. 337-TA-376 because the Company has purchased for importation,
and Enercon has sold to the Company for importation, certain wind turbines, the
use of which in the United States would infringe one claim of one Kenetech
patent. This Initial Determination is subject to review by the Commission, which
must be requested on or before June 13, 1996, and to further appeal thereafter.
The Company and Enercon have requested review by the Commission. The
Company believes that both Kenetech suits are without merit.
Subsequently, in 1997, and notwithstanding all of the above, the
Company has proposed alternate wind turbine equipement for the Big Springs
project and with approval by Texas Utilities all plans to deploy Enercon
equipement in the United Sates were abandoned. As a result, the Company is no
longer a party to the Kenetech litigation with Enercon.
On November 12, 1996, Dwight Kuhns, ex president and brother of the
former Chairman of the Board, commenced an action against New World Power
Corporation in the Superior Court, Alameda County, California. The action sought
damages under a consulting agreement that Mr. Kuhns had entered into with the
Company at the start of January, 1996, following the termination of his
employment with the Company on December 31, 1995.
As a result of weak defense, the Court brought terminating sanction
against the Company, thus striking all of the Company representations from the
records and under the judgement by default, the plaintiff was awarded $967,000
in contractual damages and $1,000,000 in punitive damages on July 24, 1998. The
Company has filed a notice of appeal of the judgment and a malpractice action
against its counsel of record until November 8, 1997.
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<PAGE>
While the judgment was under appeal, the Company was unable to post
with the Court the required bond to stay the execution of the judgment. The
plaintiff has obtained several garnishee orders against the Company and has
caused the court to issue subpoenas for the Company and its officers. Wishing to
avoid the distraction from the operations and delays in implementation of the
new business plan, the Company entered into a settlement agreement with the
plaintiff in January 1999. Upon payment of $375,000 and delivery of $275,000
note together with 150,000 common shares and 75,000 warrants to purchase shares
at $2 each, the Company will obtain full satisfaction of the judgement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the shareholders held October 21, 1996, the
shareholders approved the sale of the Company's wireless division interests, the
five for one reverse split of the Company`s common stock as well as the current
Board of Directors.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There was no established public trading market for the Company's Common
Stock prior to October 23, 1992. Since that date, the Common Stock has been
quoted on the National Association of Securities Dealers Automated Quotation
("NASDAQ") System under the symbol NWPC. On March 23, 1994, the Common Stock was
approved for listing on the NASDAQ National Market System. In November, 1996,
the Common Stock was approved for listing on the NASDAQ Small Cap Market System.
The following table sets forth the high and low closing prices for the Common
Stock as reported by NASDAQ during the periods shown below.
*High *Low
------- ------
Quarter ended December 31, 1993 64 45
Quarter ended March 31, 1994 69 51
Quarter ended June 30, 1994 59 45
Quarter ended September 30, 1994 56 46
Quarter ended December 31, 1994 53 30
Quarter ended March 31, 1995 38 23
Quarter ended June 30, 1995 33 22
Quarter ended September 30, 1995 31 12
Quarter ended December 31, 1995 19 8
Quarter ended March 31, 1996 12 5
Quarter ended June 30, 1996 4 3/4 2 1/2
Quarter ended September 30, 1996 3 3/4 1 1/4
Quarter ended December 31, 1996 2 3/4
Quarter ended March 31, 1997 1 9/32
* Price adjustments have been made to reflect the 1 for 5 reverse stock
split.
The foregoing represents inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
As of March 31, 1997, there were approximately 367 holders of record of Common
Stock.
The Company has not paid any cash dividends on its Common Stock since
its incorporation in June 1989. The Company is currently prohibited from
declaring or paying any cash dividends on the Common Stock under the Company's
loan restructuring agreements entered into early 1996. In addition, the
Company's United Kingdom project subsidiaries including Bellacorick and
Wolverine subsidiary are prohibited from declaring or paying dividends and
making cash advances or loans to the parent Company pursuant to loan documents
entered into by the Company.
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's statements of operations for the year ended December 31, 1996, 1995
and 1994 and its balance sheets as of December 31, 1996, 1995 and 1994 are
derived from the Company's audited Consolidated Financial Statements (000's
omitted). The Company's statements of operations for the year ended December 31,
1996, 1995 and 1994 and such balance sheets as of December 31, 1995 and 1994,
and the auditors' report thereon, are included elsewhere in this report. Such
data should be read in conjunction with the Company's Consolidated Financial
Statements, the related notes and the independent auditors' reports and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
21
<PAGE>
<TABLE>
<CAPTION>
Ended
Year Ended December 31, December 31, Year Ended September 30,
1996 1995 1994 1993 1993 1992
---------- -------- -------- ------------- ------------------------------
STATEMENT OF OPERATIONS DATA: Three Months (In thousands, except per
share data)
<S> <C> <C> <C> <C> <C> <C>
Operating revenue:
Grid Power Production $8,033 $ 7,735 $ 3,129 $ 275 $ 1,730 $ 1,955
Wireless Power Sales 6,112 8,647 18,878 430 1,432 1,785
Other Products and Services 1,240 (9) 901 (15) 810 -
---------- ------- -------- ----------- ------------- --------------
---------- ------- -------- ----------- ------------- --------------
Total operating revenue 15,385 16,373 22,908 690 3,972 3,740
---------- ------- -------- ----------- ------------- --------------
Operating expenses:
Cost of operations 12,576 13,102 17,237 689 2,516 2,488
Research & Development 6 426 339 165 52 -
Project development 706 4,361 2,052 259 779 -
Selling, general and
administrative expenses 6,768 7,627 9,222 1,023 2,841 3,332
Equity loss of non-consolidated
affiliates (77) 4,199 912 112 - -
Impairment charge 6,359 24,431 - - - -
---------- ------- -------- ----------- ------------- --------------
Operating loss (10,952) (37,773) (6,854) (1,558) (2,216) (2,080)
---------- ------- -------- ----------- ------------- --------------
---------- ------- -------- ----------- ------------- --------------
Net (loss) income from continuing
operations before
extraordinary items $(19,659) $(39,851) $(6,240) $ (1,464) $67 $1,153
---------- ------- -------- ----------- ------------- --------------
---------- ------- -------- ----------- ------------- --------------
Net (loss) income attributable
to common shares $(19,659) $(41,751) $(7,793) $ (1,576) $ 537 $ 1,153
---------- ------- -------- ----------- ------------- --------------
---------- ------- -------- ----------- ------------- --------------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, December 31 Year Ended September 30,
1996 1995 1994 1993 1993 1992
----------- --------- ---------- ------------ ------------- -------------
STATEMENT OF OPERATIONS DATA (CONTINUED): (In thousand, except per
share data)
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) per common and
common equivalent share:
Net loss from Continuing operations
attributable
to common shares $(8.83) $(19.14) $(3.78) $ (1.35) $ 0.20 $ 3.15
(Loss) income from discontinued
operations -- (0.70) (0.72) (0.05) 0.45 -
------ -------- -------- -------- -------- ------
Primary and fully diluted** $(8.83) $ (19.84) $ (4.50) $ (1.40) $ 0.65 $ 3.15
======== ======== ======== ======== ======
Weighted average number of shares** 2,227 2,105 1,730 1,142 852 335
====== ======== ======== ======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of September 30,
1996 1995 1994 1993 1992 1991
---------- --------- --------- ---------- ---------- --------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Cash $449 $ 681 $ 3,889 $ 1,985 $ 210 $ 292
Cash restricted in use 2,377 4,670 - - - -
Working capital (deficiency) (10,311) (16,762) 2,535 3,386 (8,946) (10,069)
Plant, property & equipment, net 21,118 29,375 35,730 9,018 5,983 5,815
Deferred Series B preferred stock offering costs - - 121 171 1,014 -
Total assets 29,820 65,396 74,173 22,978 19,054 20,916
Current portion of long-term debt 6,658 17,966 187 250 5,247 4,493
Due to related parties 4,014 4,628 3,585 - - -
Current portion of capital lease obligations 14 84 12 3,182 4,307 6,267
Long-term portion of long-term debt 5,394 7,650 7,905 451 1,343 649
Long-term portion of capital lease obligations 8 76 17 118 3,379 8,366
Redeemable preferred stock - - 3,184 2,827 - -
Stockholders' equity (deficiency) 1,592 21,023 46,366 12,063 (2,877) (5,836)
**Adjustment made to reflect 1 for 5 reverse stock split.
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is engaged in the production and sale of electric power generated
from renewable sources and, to a lesser extent, the sale of products related to
the renewable energy industry. The Company focuses on the acquisition and
development of renewable power generating facilities from wind, solar and
hydroelectric sources.
Business Environment
The Company adopted a new business strategy and plan which was approved
by the Board of Directors in January of 1996. After abandoning its previous
strategy of aggressive expansion through acquisition of existing renewable
energy projects and the development of new projects throughout the world, the
Company embarked on a 1996 campaign to sell assets to satisfy its debt
obligations. Partly in connection with this previous strategy of acquisitions,
the Company issued approximately $15 million of debt.
In the latter part of 1995, liquidity became extremely constrained and
it became apparent to management that operating cash flow would not be
sufficient for the Company to meet its debt service payments due in the early
part of 1996. As a result, the Board of Directors appointed a new Interim Chief
Executive Officer and management developed a revised business strategy with the
objectives to reduce debt, increase equity and alleviate the Company's
short-term liquidity problems and improve long-term liquidity. Key elements of
the revised business plan include:
* The Company is focusing on a selected, limited number of
development projects.
* The Company is selling off certain of its existing
hydroelectric and wind projects currently under development or
construction.
* The Company used the proceeds from the sale its ownership
interests to meet its current and other debt service
requirements.
* The Company did not pursue any new wind farm development
projects in the United States. This element of the business
plan does not affect projects for which the Company has
completed the bidding process or has been selected through a
competitive process to operate a wind farm.
* The Company sold a majority of its wireless business or sell
its Photocomm subsidiary.
* The Company reduced administrative staff.
Management believes that its revised business plan will achieve the
Company's objectives of reducing debt, increasing equity and improving both
short-term and long-term liquidity. However there are numerous risks and
uncertainties surrounding management plans, principally the risk that management
will not be able to sell investments identified in its business plan within the
time frame required by the restructured loan agreement, or for the amounts
estimated by management
24
<PAGE>
Shortly after management approved the revised business plan, the
Company defaulted on several of its debt obligations and restructured those
obligations with its lenders. Part of the terms of the restructured loans
included a release of up to $3.3 million cash collateral held by the lender,
additional collateral, additional finance charges and the requirement that the
Company raise $10 million in net proceeds from the sale of assets or securities
by July 31, 1996 and raise an additional $17 million in net proceeds from the
sale of assets or securities by November 30, 1996. Further, a significant
portion of the proceeds from the sale of assets or securities will be placed in
a sinking fund for the purpose of debt retirement.
Throughout 1996 and into early 1997, management continues to operate
under constrained liquidity and operating cash flow. As of April 15, 1997 the
Company has completed the sales of Photocomm and Solartec interests, two UK
windfarms and the Irish windfarm. Proceeds from asset sales of approximately
$19.3 million were used to reduce the Company's obligations to Fleming and
Sundial debt holders and to pay the expenses associated with the sale. As of
April 16, 1997 approximately $4.5 million of debt obligation remains in favor of
Fleming while the Sundial debt holders have been paid in full..
In 1996, the Company made its interest payments, due January 31, 1996
and July 31, 1996, on its Secured Subordinated Notes in the form of additional
notes and warrants rather that cash as permitted under the restructured loan
agreements. Those interest notes as well as the interest payment due January 31,
1997 were paid by the Company from proceeds of asset sales.
Brief History
The Company was formed in 1989 through the acquisition of hydroelectric
facilities in Michigan and a wind farm in the Altamont Pass in California. The
Company expanded into renewable energy technology through its 1991 acquisition
of Northern Power Systems, Inc., a manufacturer of wind turbines and remote site
and stand-alone renewable power generating systems. In 1992, the Company
acquired Field Service Maintenance & Supply, Inc. in Palm Springs, California
(subsequently renamed "Grid Power Services Division"), which provides
engineering, installation and operation services to owners of wind turbines and
related equipment. See "Discontinued Operations" in Notes to Financial
Statements.
The Company continued to expand in 1993 through the acquisition and
development of several wind farms; the acquisition of 49% of Entec S.A. de C.V.,
a Mexican corporation engaged in the rural electrification industry; and the
acquisition of 29% of Photocomm, Inc., a manufacturer and distributor of solar
electric systems and related products. In 1994, the Company increased its
ownership in Photocomm to a majority of its voting stock and increased its
ownership in Entec to approximately 50%, while also purchasing 51% of Solartec
S.A., the solar products distributor in Argentina. During 1995, the Company's
ownership in Photocomm decreased to below 50% of the outstanding stock.
25
<PAGE>
In 1994 the Company signed a business alliance with Westinghouse to
jointly develop, market, construct and own renewable power projects, such as
utility-scale wind farms, off-grid generating systems and wireless photovoltaic
systems as well as jointly market the Company's renewable power projects and
products. Westinghouse will also have the option to participate with the Company
in renewable power projects. The alliance has not been as beneficial as both
parties originally visioned and, accordingly, the Company and Westinghouse are
discussing the mutual cessation of the business relationship.. During 1994, the
Company entered into a joint venture with China Chang Jiang Energy Company Ltd.
to develop renewable energy projects in China.
The Company completed construction in December 1994 of the Dyffryn
Brodyn and Caton Moor wind farms in the United Kingdom which have a combined
capacity of 8.6 MW, and completed in March 1995 the Four Burrows wind farm in
the United Kingdom which has a capacity of 4.5 MW. Also, the Company was
selected in 1994 by Texas Utilities to develop a 40 MW wind power facility in
Big Spring, Texas, and commenced the development of a 16 MW hydroelectric
facility in Costa Rica.
In January 1995, the Company acquired approximately 87% of the stock of
an Irish wind farm having a capacity of 6.4 MW. Also, during 1995, the Company
commenced development of a 16 MW hydroelectric facility and commenced
development of a 22 MW wind power facility both in Costa Rica. In addition, the
Company purchased an equity interest in the 39 MW hydroelectric facility located
in the Fujian province of China.
During 1996, the Company embarked upon a new business plan that required, among
other things, the sale of many of the Company's assets to repay its principal
lenders. In 1996, the Company entered into an agreement to sell its interest in
the 16 MW hydroelectric facility in Costa Rica. That sale is expected to close
in early 1997. In addition, the Company closed on the sale of its investments in
Los Vaqueros, Solartec, New World Power do Brazil and Photocomm during 1996 for
gross proceeds of approximately $13 million. All proceeds were paid to the
secured lenders.
In early 1997, the Company closed on the sale of two of its windfarms
in the United Kingdom and the sale of its investments in the windfarm in
Ireland. Proceeds form the sale of approximately $6.4 million were repaid to the
principal secured lenders. With the sales completed in Ireland and the United
Kingdom, two of the Company's three secured lenders have been repaid in full.
26
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OTHER RISKS
Increasing Competition and Regulatory Developments Affecting the Domestic
Electric Utility Industry
The electric utility industry in the United States is in the midst of a
transition to a more competitive wholesale power market in which numerous states
are considering granting independent power producers direct access to retail
customers. This transition is being implemented by changes in regulations and
policies of the FERC and state utility commissions. Congress is considering the
termination of power purchase mandates under PURPA and FERC has acted to negate
some state approved power contracts. Due to the increasing competition and
regulatory uncertainty in the domestic markets coupled with the downward
pressure on the price utilities will pay for electric power based upon their
avoided cost, management believes that the most attractive opportunities for
independent power development in the immediate future are outside of the United
States.
Risks of International Project Development Activities
Participation in the development and acquisition of foreign facilities
may expose the Company to the effects of potentially adverse economic, political
and labor developments, including political instability, nationalization of
assets, local inflation, and currency fluctuations and restrictions. The Company
will attempt to minimize these risks through various measures but there can be
no assurance that it will be able to successfully reduce or eliminate them. In
addition, the application of foreign environmental, tax and labor laws to the
operations of foreign facilities may adversely affect any foreign facility
earnings of the Company.
General Risks of Project Acquisition and Development
The Company's acquisition and development projects are subject to
normal development risks, including locating suitable sites, negotiation of
definitive agreements, obtaining favorable power purchase contracts, final
permitting, the availability of financing on acceptable terms, and construction
risks. The Company is currently engaged in the process of developing and
acquiring renewable power generating facilities in foreign countries.
The Company expects that many of its power production projects will be
outside the United States, and will be subject to all of the factors above.
Resource Variability
The Company's wind and hydroelectric generating facilities are located
at sites where, based on the average wind speed and water flow gathered over an
extended period, the Company has determined that there are favorable energy
resources available. Operating results, however, can vary significantly from
year to year and from the historical average.
27
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Renewable energy resources also vary from place to place during the
same season of each year. The Company's existing domestic wind farms are located
primarily in California where the strongest winds occur during the spring and
summer. The Company began operation of its wind farms in the United Kingdom in
December 1994. The wind is generally strongest in the United Kingdom during the
fall and winter. As a result of the increasing geographic diversity of the
Company's power production operations, power production revenue of the Company
is more balanced throughout the year than in prior years.
Inflation
The electricity produced by the Company's power production facilities
is sold under long-term fixed rate power sales contracts. The effects of
inflation on the Company's income are partially offset by periodic adjustments
to the rates set forth in the contracts which give effect, in part, to changes
in operating and capital costs incurred by the utilities as a result of
inflation. Because the majority of operating expenses related to power
production are relatively stable, management does not feel any special concern
about the long-term impact of inflation in the United States or the United
Kingdom. Local inflation in countries the Company does business can vary widely,
in particular Mexico and Costa Rica have experienced historical high inflation.
RESULTS OF OPERATIONS
1996
Revenues
Revenues decreased $1.0 million (6%) during 1996, as compared to 1995.
The grid power production grew 4% to $8.0 million; the well above average year
generation at Wolverine was offset by continued weak wind resource in England.
The Wireless power sales of $6.1 million were $2.5 million or 29% below the
previous year, primarily on account of weak revenues from Solartec.
Cost of Operations
Cost of operations in 1996 of $12.5 million decreased $0.5 million (4%)
as compared to 1995.
Research and Development Expense
Research and development expenses of $6,000 in 1996 in comparison to
$426,000 are in line with Company's efforts to reduce its spending during the
restructuring.
Project Development Expenses
Project development expenses were contained to $.7 million in 1996 as
compared to $4.3 million during the previous year. Following a substantial
curtailment of spending during the first semester, during the third quarter, the
Company has transferred its project in development portfolio to a joint venture
with Dominion Bridge, effectively transferring the project funding obligations
to its joint venture partner.
28
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Selling, general and administrative
Selling, general and administrative expenses were $6.8 million, a
decrease of $0.9 million or 11%. The effects of corporate costs elimination were
offset by external consulting and legal restructuring fees.
Impairment Charge
In 1996, the Company recorded an impairment charge of $6.4 million as
compared to impairment charges of $24.4 million in 1995. The charges were
reflected as a reduction of the following financial statement captions:
1995 1996
Property, plant and equipment, net $1.4 million $ 13.4 million
Goodwill, net 4.1 million
Investments 3.5 million 5.9 million
Inventories and other non-current assets 1.5 million 1.0 million
------------ --------------
$6.4 million $ 24.4 million
------------ --------------
------------ --------------
As previously described, the Company has undertaken a business plan to
sell certain of its assets and investments and to abandon various development
projects. The following investments have been written-down, as applicable, to
their estimated fair value at December 31, 1996 an 1995. The aggregate carrying
value of assets held for sale as of December 31, 1996 is approximately $ 3.6
million and includes:
Photocomm Makani Uwila Wind Farm
United Kingdom Wind Farms Arcadian Wind Farm
Tierras Morenas, Development Project Los Vaqueros
Solartec S.A. San Jacinto
Dona Julia, Development Project Bellacorick
Andersen Falls Painted Hills Wind Farm
In determining the amount of impairment charge for assets held for
sale, the Company's policy is to compare the carrying value of its assets and
investments to the estimated fair value. In determining fair value, the Company
used market values for publicly traded investments (i.e., Photocomm), or
correspondence with potential buyers as an indication of market value. In
circumstances where the Company's negotiations to sell assets and investments
have not included correspondence with potential buyers in sufficient detail to
indicate a market value, the Company has used the projected future cash flows
from these investments and assets. These projected cash flows have been
discounted at rates commensurate with the risk of the respective investment, and
generally range from rates of 16% to 21%.
The Company has estimated the December 31, 1996 and 1995 impairment
charges based upon the best information available to management. It is at least
reasonably possible that actual losses may be materially higher or lower than
the amounts recognized following execution of management's plans, based on the
actual agreements the Company negotiates with potential buyers, etc.
29
<PAGE>
Equity loss of non-consolidated affiliates. These equity losses of
$77,000 in 1996 were practically eliminated following a suspension in funding of
New World Entec SA. The prior year loss of $4.2 million includes $4.3 million of
losses related to Entec investment.
Operating Loss
Operating loss decreased $26.8 million to $11million, due primarily to
reductions in impairment charges and decreases in losses from non-consolidated
affiliates.
Other Income (Expense)
Interest expense increased by $4.1 million during 1996 to $6.6 million,
which was attributable to an increase in indebtedness of the Company and the
rates charged on the Company's debt under the default provisions.
1995
Revenues
Revenues decreased $6.5 million (29%) during 1995 compared to 1994. The
de-consolidation of Photocomm was attributable for $15.7 million of the
decrease. This decrease was partially offset by a $3.0 million increase in
Solartec revenues resulting from the first full year of consolidation of
Solartec. Additionally, Grid Power reported a $4.6 million increase in revenues,
resulting primarily from the acquisition of REIL (Bellacorick Wind Farm) and the
first full year of operations for the U.K. windfarms.
Cost of Operations
Cost of operations decreased $4.1 million (24%) during 1995 as compared
to 1994. De-consolidation of Photocomm was attributable for $11.9 million of the
fluctuation. This decrease was partially offset by an increase of $2 million
reported by Solartec resulting from the first full year of consolidation.
Additionally, the acquisition of Bellacorick and the first full year of
operations for the Company's U.K. wind farms resulted in increased cost of
operations during 1995.
Research and Development Expense
Research and development expenses increased $88,000 during 1995 over
1994 related primarily to the Company's research into developing a new high
capacity advanced wind turbine.
Project Development Expenses
Development of a power production facility requires extensive
preparatory work that includes identifying and acquiring the rights to suitable
wind or hydroelectric sites, obtaining an economically viable power purchase
contract, fulfilling all legal requirements and obtaining financing for the
project on favorable terms.
Project development expenses increased by $2.3 million (113%) during 1995 over
1994 which was primarily attributable to the Company's investigation into
potential projects in China and, to a lesser extent, various domestic projects
and Chile and Argentina.
30
<PAGE>
Selling, general and administrative
Selling, general and administrative expenses decreased $1.6 million
(17%) primarily due to the deconsolidation of Photocomm ($3.3 million). This
decrease was partially offset by Solartec which reported an increase of $.6
million and the acquisition of Bellacorick and the first full year of operations
for the U.K. wind farms which will attribute for $.3 million in aggregate.
Corporate selling, general and administrative expenses decreased $.4 million
while Other Products and Services increased $.3 million.
Impairment Charge
In 1995, the Company recorded an impairment charge of $24.4 million.
The impairment charge was reflected as a reduction of the following financial
statement captions:
Property, plant and equipment, net $ 13.4 million
Goodwill, net 4.1 million
Investments 5.9 million
Inventories and other non-current assets 1.0 million
--------------
$ 24.4 million
--------------
--------------
As previously described, the Company has undertaken a business plan to
sell certain of its assets and investments and to abandon various development
projects. The following investments have been written-down, as applicable, to
their estimated fair value at December 31, 1995. The aggregate carrying value of
assets held for sale as of December 31, 1995 is approximately $25.6 million and
includes:
Photocomm Makani Uwila Wind Farm
United Kingdom Wind Farms Arcadian Wind Farm
Tierras Morenas, Development Project Los Vaqueros
Solartec S.A. San Jacinto
Dona Julia, Development Project Bellacorick
Andersen Falls Painted Hills Wind Farm
In determining the amount of impairment charge for assets held for
sale, the Company's policy is to compared the carrying value of its assets and
investments to the estimated fair value. In determining fair value, the Company
used market values for publicly traded investments (i.e., Photocomm), or
correspondence with potential buyers as an indication of market value. In
circumstances where the Company's negotiations to sell assets and investments
have not included correspondence with potential buyers in sufficient detail to
indicate a market value, the Company has used the projected future cash flows
from these investments and assets. These projected cash flows have been
discounted at rates commensurate with the risk of the respective investment, and
generally range from rates of 16% to 21%.
The Company has estimated the December 31, 1995 impairment charge based
upon the best information available to management. It is at least reasonably
possible that actual losses may be materially higher or lower than the amounts
recognized following execution of management's plans, based on the actual
agreements the Company negotiates with potential buyers, etc.
31
<PAGE>
Equity loss of non-consolidated affiliates. The increase of $3,287,441
to $4,199,184 relates primarily to the equity loss of $4,331,000 related to the
Company's New World Entec S.A. investment. See further discussion in Item 1 and
Segment Analysis.
Operating Loss
Operating loss increased $30.9 million to $37.8 million including an
impairment charge of approximately $24.4 million. Exclusive of the impairment
charge, the 1995 operating loss increased $6.5 million. The increase in equity
loss of non-consolidated affiliates of $3.3 million was primarily attributable
to the equity loss in Entec and increased project development expense.
Other Income (Expense)
Interest expense increased by $2.0 million during 1995 which was
attributable to approximately $15 million of debt the Company issued during the
year as well as to the first full year of consolidation of the U.K. windfarms
and the acquisition of Bellacorick.
1994
Revenues
Revenues increased $18.9 million during 1994 compared to fiscal 1993.
The Wireless segment contributed $17.4 million of the increase with the
remainder coming substantially from Grid Power. See further discussion under
Segment Analysis.
Cost of Operations
The cost of operations increased $14.7 million during 1994 over fiscal
1993. The increase resulted principally from the consolidation of Photocomm and
Solartec for the first time in 1994.
Research and Development expense
Research and development expense increased approximately $286,000
during 1994 compared to fiscal 1993. The increase is primarily attributable to
research and development project to improve the wind turbine's blade
performance. This project has a net cost of $115,701 in 1994. The remainder of
the increase in research and development expense in 1994 was attributable to
costs relating to the completion of the Advanced Wind Turbine prototype by the
Technology Company.
Project Development expense
Project development expense increased $1.3 million during 1994 over
fiscal 1993 which is related to (a) compensation and travel expenses of
employees who are directly involved in project development, which totaled
$1,038,199; (b) expenses of operating offices in Canada and Brazil, totaling
$351,744; (c) amounts written off for previously deferred project costs for
projects that were abandoned during the year, which totaled $562,439; (d)
expenses incurred in connection with projects that more likely than not will be
abandoned; and (e) amounts for employee termination costs.
32
<PAGE>
Selling, general and administrative
Selling, general and administrative expenses increased $6.4 million
during 1994 in comparison to fiscal 1993. The increase results principally from
the consolidation of Photocomm and Solartec for the first time in 1994,
including an increase of $3,278,093 due to the consolidation of Photocomm, and
$530,848 due to the consolidation of Solartec. The remaining $3,743,912 of the
increase in 1994 came from existing operations, of which $2,144,231 was
attributable to general corporate activities other than direct project
development, including a reserve of $189,000 for staff reductions and other
personnel matters.
Operating Loss
Operating loss increased $4.6 million during 1994 from fiscal 1993.
Corporate items, eliminations and other was attributable for $4.9 million of the
increase, while Grid Power contributed $1.2 million of the increase. These
increases were partially offset by Wireless which reported an increase in
operating profit of $564,000. See further discussion under Segment Analysis.
Other Income (Expense)
Due to the consolidation of Photocomm and Solartec in 1994, the
minority shareholders of each of these companies has been allocated their
proportionate share of their net income, which aggregated $328,375 in 1994. This
corresponds to the amount added to minority interest on the Company's
consolidated balance sheet.
Equity loss on non-consolidated affiliates were as follows: (i) the
Company's portion of the losses at Entec in 1994 was $950,258 and (ii) $38,515
for the Company's interest in the 1994 net income of San Jacinto Power
Corporation. Neither of these categories existed in fiscal 1993.
Other income decreased by $1,925,129 in 1994, primarily due to the
inclusion in fiscal 1993 of $1,330,859 from a settlement of litigation.
Impact of Foreign Operations Currency Translation
The Company continues to pursue overseas development opportunities, and
is affected by changes to the net investment value of its activities as the
functional currency denominated financial statements of its foreign subsidiaries
are translated into U.S.
dollars for purposes of consolidation.
In the year ended December 31, 1996, 1995 and 1994, the Company
recognized in the stockholders' equity section of the balance sheet currency
translation adjustments of approximately $(473,522), $778,838 and $646,580,
respectively, related primarily to the United Kingdom and Mexico. The currency
has remained stable in those other countries where the Company has significant
local currency denominated investments.
33
<PAGE>
Segment Analysis
Grid Power Production
Revenue. Power production revenue is dependent upon the Company's
installed capacity, the availability of the renewable resources used to produce
the power, and the rate at which the produced electricity is sold.
For the year 1996, the grid power generation revenue increased 4% to
$8.0 million, as compared to $7.7 million in 1995. The results of the UK and
Irish windfarms continued below expectations, as the weak wind resource
conditions persisted but the results at Wolverine were substantially above
historical averages.
Grid Power Production revenue increased by $4.6 million (147%) during
1995 over 1994. The increase in revenues is attributed to the first full year of
operation of the U.K. wind farms as well as the acquisition of the Bellacorick.
Power production revenue increased in 1994 by $742,000 (31%) compared
to Fiscal 1993. Wind speeds at the Company's wind farms increased to more normal
levels during 1994, while water flow at its Michigan hydroelectric facilities
was much lower in 1994 than in the prior fiscal year. This increase principally
reflect the increase in revenue attributable to the increase from one wind farm
in service in fiscal 1993 to six in service in 1994.
Operating (Loss) Profits.
Segment loss for the year 1996 of $3.2 million includes impairment charge of
$1.4 million, as compared to $26.5 million during the previous year, which
included $20.9 million in impairment charges and $4.5 million in charges related
to the Mexican operations. In 1996, the Company stopped the funding of Entec in
Mexico, thus reducing the segment losses.
1995 segment operating loss increased $26.5 million including a $20.9 million
impairment charge. Additionally, the Company recorded approximately $4.5 million
related to the Company's Mexican operation. The change is further impacted by
$2.0 million of project development expenses related to China, the U.K. and
Chile, partially offset by operating profits of the Company's U.K. and Irish
wind farms. See geographic discussion below.
Segment operating profits decreased $1.2 million during 1994 from 1993,
primarily attributable to the operating results of the Arcadian wind farm and
Makani wind farm.
Wireless Power Sales
Revenue.
Revenue from Wireless power in 1996 of $6.1 million was $2.5 million below the
1995 sales of $8.6 million due to lower than expected sales from Entec and lack
of new projects in Argentina.
Revenues in 1995 decreased by $10.2 million (54%) from 1994. The decrease in
revenues is attributable primarily to the de-consolidation of Photocomm ($15.7
million). This decrease was partially offset by Solartec which reported an
increase of $3.0 million due to the first full year of operation under the
Company's control for both subsidiaries. An additional $900,000 was generated by
the Company's new Santa Fe Argentina project.
34
<PAGE>
The Company increased revenues in 1994 over fiscal 1993 by $17.4
million, which included $11.9 million from Photocomm, which was consolidated for
the first time.
Operating Income (Loss).
Operating loss in 1996 of $.3 million represents $1.1 million reduction from the
previous year loss of $1.4 million. The 1995 loss includes $2.3 million
impairment charge, while no such charges were included in the 1996 results. The
resulting increase in the segment loss, prior to the impairment charges results
from lower than expected business activity in the segement.
In 1995, the income (loss) decreased $1.8 million during 1995 including an
impairment charge of $2.3 million. Excluding the impairment charge, the
operating income increased $500,000. The increase was primarily attributable to
Solartec ($383,000). The remaining increase was primarily attributable to the
Company's NPS subsidiary.
Operating income increased $564,000 during 1994 over fiscal 1993 which
was substantially attributable to the inclusion of Photocomm in the Company's
results for the first time.
Geographic
Due to poor business conditions in Mexico and the poor financial
performance of Entec, the Company recorded a loss of $4.3 million and
approximately $950,000 for Entec in 1995 and 1994, respectively. Prior to 1994,
$113,385 in losses were recorded. The Company, in late 1995, recognized that
Entec would not generate profits and began negotiations for a new partner which
would provide the Company with the capability to retain its rights and develop
wind projects in Mexico. In early 1996, a preliminary agreement was reached
providing for the formation of a new company which will be owned 42% by the
Company. As part of their agreement, the new company assumed a $1.5 million loan
(repayment contingent on future profits) from New World to Entec in exchange for
the rights to develop wind projects. The new company will be managed by the
Mexican partners. As a result of the above, in 1995, the Company wrote off its
remaining investment in Entec ($131,000) as well as the remaining balance of its
loan receivable from Entec ($3,700,000) during 1995. Management believes that
there is significant long term potential for development of independent power
production facilities in Mexico. Demand for electrical power is substantially in
excess of the current capacity in Mexico, and that country's need for clean
power is especially pressing.
In May of 1995, the Company entered into a Share Transfer Agreement
with China Chang Jiang Electric Company (CCJEC) which provided for CCJEC to
transfer 40% of its shares in the Fujian Chang Ping Hydro Project Company Ltd.
to the Company in exchange for Rmb 120,720,000 (approximately $15 million). This
transfer would represent 40% ownership of Fujian by the Company. The total
consideration is payable in three trauches of 30%, 30% and 40% and the Company
may contribute 50% of its consideration in the form of New World Power
Corporation shares of common stock. In August 1995, the Company contributed $8.4
million (the first two trauches), half in cash and half in New World Power
Corporation stock. The final trauch of cash and shares was held in escrow, the
cash included in the balance sheet as "Restricted Cash.".
Late in the fourth quarter of 1995, the Company was experiencing cash
flow problems and, at the same time, the Fujian project was experiencing delays
in construction resulting from unusual flooding of the construction area. At the
Board of Directors of CCJEC meeting held January 31, 1996, a formal plan was
adopted to complete the project in early 1998. As a result of the delay in
completion and other events, the Company has recorded a charge against the
Company's investment in China. The impairment charge, included within the grid
power production, approximately $6,400,000, was recorded in December 1995. See
Note 4 to the Consolidated Financial Statements.
Subsequently, in July 1996, the Company has entered into a modified
joint venture agreement with CCJEC, consenting to retraction of the NWPC share
contribution into the project capitalization. As a result the common shares
previously issued to CCJEC were canceled prior to the Company's Annual Meeting.
In January 1997, the Company was advised of the Board resolution of the
Fujian Chang Ping Hydro Project Company Ltd. calling for conversion of the
Company's project entity equity holding into project company debt. The Company
is contesting such proposal while attempting to arrive at a mutually beneficial
business solution.
35
<PAGE>
Notwithstanding, as of December 31, 1996 the remaining investment of $3.5
million was written down to zero on the Company's books.
LIQUIDITY AND CAPITAL RESOURCES
In December 1995, The New World Power Company Ltd. sold 0% Senior
Secured Note due March 31, 1996 in the original amount of $550,000 to Sundial
International Fund LTD., a significant stockholder in the Company. The proceeds
of the Note were used as working capital. Subsequent to December 31, 1995, the
due date of the Note was extended and the Note was exchanged for a new Note due
on or before December 1, 1996.
On December 1, 1995, in accordance with the terms of Series B
Preferred, the Company transferred and endorsed to Sundial International Fund
Ltd. a First Mortgage Note collateralized by the property of Wolverine Power
Company in the principal amount of $3,615,370 along with the Mortgage and
Security Agreements in exchange for its Class B Preferred Stock. The Note is
payable together with interest at the LIBOR+2% points in full on December 31,
1997. Principal and interest are due in seven quarterly installments of
principal (each equal to five percent of the principal balance). The Note was
restructured subsequent to December 31, 1995 and is now due in four payments due
December 1, 1996, March 1, 1997, June 1, 1997 and July 31, 1997.
On August 15, 1995, the Company entered into an agreement to issue
$15,750,000 of its 8% Convertible Subordinated Notes due July 31, 2000 and
warrants to purchase up to 787,500 shares of its common stock pursuant to the
terms of the Note and Warrant Purchase Agreement. The notes are payable
semi-annually on January 31 and July 31 of each year commencing on January 31,
1996. The proceeds of the notes were used as follows: $6,500,000 for a 24%
interest in the Fujian Chang Ping Hydro Power Company, Ltd. (of which $3,300,000
was held in escrow and later (1996) used for working capital), $2,200,000 for
loan repayment to Sundial International Fund Ltd., $1,000,000 to repay loan to
stockholder, $397,490 to pay construction costs in Costa Rica, $128,665 for
legal fees and $5,523,845 for general working capital.
In February 1995, the Company completed the sale of 1,500,000 units of
common stock and 3,000,000 common stock purchase warrants and received net
proceeds of $8,259,279.
In 1995 and 1994, the Company completed project financings for the
Dyffryn Brodyn, Caton Moor and Four Burrows wind farms in the United Kingdom.
The net proceeds from these loans was $3,440,221 in 1995 and $6,150,450 in 1994
which was used to complete the construction of those wind farms. The loan
agreements for these loans require repayment over a four year period and contain
various covenants restricting the use of project revenue during this period.
This revenue must be applied first to fund a reserve account in an amount equal
to debt service payable during the next six months. Amounts available after the
payment of debt service and normal operating expenses of the respective wind
farms and other costs, provided in the loan agreement are available for
semi-annual distributions to the Company, subject to certain restrictions.
During 1996, the Company restructured its debt agreements with two
lenders that restrict upstreaming of available amount to the parent Company.
36
<PAGE>
Throughout 1996 and into early 1997, management continued to operate
under constrained liquidity and operating cash flow. As of April 15, 1997 the
Company has completed the sales of Photocomm and Solartec interests, two UK
windfarms and the Irish windfarm. Proceeds from asset sales of approximately
$19.3 million were used to reduce the Company's obligations to Fleming and
Sundial debt holders and to pay the expenses associated with the sale. As of
April 16, 1997 approximately $4.5 million of debt obligation remains in favor of
Fleming while the Sundial debt holders have been paid in full.
In 1996, the Company made its interest payments, due January 31, 1996
and July 31, 1996, on its Secured Subordinated Notes in the form of additional
notes and warrants rather that cash as permitted under the restructured loan
agreements. Those interest notes as well as the interest payment due January 31,
1997 were paid by the Company from proceeds of asset sales.
During 1996, the Company embarked upon a new business plan that required, among
other things, the sale of many of the Company's assets to repay its principal
lenders. In 1996, the Company entered into an agreement to sell its interest in
the 16 MW hydroelectric facility in Costa Rica. That sale is expected to close
in early 1997. In addition, the Company closed on the sale of its investments in
Los Vaqueros, Solartec, New World Power do Brazil and Photocomm during 1996 for
gross proceeds of approximately $12.6 million. All proceeds were paid to the
secured lenders.
In early 1997, the Company closed on the sale of two of its windfarms
in the United Kingdom and the sale of its investments in the windfarm in
Ireland. Proceeds form the sale of approximately $6.4 million were repaid to the
principal secured lenders. With the sales completed in Ireland and the United
Kingdom, al but one of the Company's secured lenders have been repaid in full.
The Company received net proceeds of $27,198,146 in 1994 from the sale
of common stock and common stock purchase warrants and options, and received an
additional $5,880,400 during the three-month transition period following the end
of the Company's prior fiscal year on September 30, 1993. In December 1994, the
Company received net proceeds of $2,037,200 from the sale by its English
subsidiary of a $2.2 million exchangeable guaranteed secured promissory note.
During fiscal 1993, the Company completed a public offering and several
additional rounds of equity financing resulting in net proceeds of $16.5
million. These funds were used to settle liabilities associated with the
Company's initial acquisitions and begin pursuing domestic and international
renewable resource development opportunities.
At December 31, 1996, the Company had a working capital deficit of $
10.3 million as compared to $16.7 million in 1995. In both years, the deficit in
working capital is the result of inclusion of certain debt obligations on which
the Company defaulted subsequent to December 31, 1995 and for which the
Company's restructured debt agreements require certain levels of assets sales to
be completed by certain dates. Uncertainties exist as to whether the
aforementioned provisions can be met. Net working capital at December 31, 1994,
was $2,535,034, giving a current ratio of 1.20. During 1996, net cash flows used
in operating activities was$4,215,815, as compared to $4,794,191 in 1995 and as
compared to net cash flows used in operating activities of $2,940,379 during
1994.
37
<PAGE>
In 1996, 1995 and 1994, $15,114,556, $16,679,309 and $31,971,650 was
used in investing activities, principally for property plant and equipment, and
the acquisition of the interest in Solartec and the additional stock in
Photocomm. These amounts were significant increases over the previous years.
In 1996, $11,131,328 was used in financing activities as compared to
$18,027,183, which was provided by financing activities in 1995 primarily from
the net proceeds from the issuance of common stock and the net increase in
long-term debt. In 1994, $35,726,352 was provided by financing activities. In
addition to the proceeds from the equity offerings, the Company received net
proceeds of $6,150,450 in 1994 from project financings of its two United Kingdom
wind farms. Lesser amounts were provided in the two previous fiscal years.
The data for 1995 is affected by the consolidation of Solartec and 1994
is affected by the consolidation of Photocomm and Solartec, which significantly
increased inventory, accounts receivable and accounts payable over 1993
financial information. Entec, which is 50% owned by the Company is reducing the
size of its rural electrification business and focusing on project development,
and the production services group is moving to a support role for the Company's
project development. Losses experienced by Entec exceeded management's
expectations, and the Company reduced its project development efforts at Entec
during 1995. Entec continues to experience significant financial hardship, which
results in concerns as to its ability to continue as a going concern. As the
Company has no ability to continue to fund the operating losses of Entec,
management wrote-off its remaining investment in, and advances to, Entec as of
December 31, 1995.
The Company expects to need financing for the construction of wind farm
and hydroelectric facilities in 1997, which will require project equity and debt
financing. The Company plans to raise substantially all of the financing for
these projects from external sources, through equity syndications and
non-recourse debt financing based at the operating subsidiary level. There can
be no assurance, however, that the Company will succeed in obtaining such
financing. If the Company's operating subsidiaries do not have access to capital
markets on a substantially non-recourse basis, the Company itself may have to
make larger equity investments in or provide more financial support for its
projects, however, there is uncertainty as to the ability of the Company to make
such investments, if needed. If the Company was unable to finance a project on a
non-recourse basis, its ability to obtain other types of debt financing may be
adversely affected by the Company's history of operating losses. If adequate
financing were not available it would be likely to adversely affect the future
of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants, consolidated financial
statements and financial statement schedules that are listed in the Index to
Consolidated Financial Statements and Financial Statements Schedule on page F-1
are included here.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants
required to be reported herein, except as set forth below:
38
<PAGE>
On October 30, 1995, The Company notified the firm of KPMG Peat Marwick
LLP ("Peat Marwick") that they were being dismissed as the Company's independent
accountants. The Company engaged Price Waterhouse LLP ("Price Waterhouse") as
its new independent accountants as of October 30, 1995. The Company's Audit
Committee and its Board of Directors participated in and approved the decision
to change independent accountants.
The report of Peat Marwick on the Company's financial statements for
the fiscal years ended December 31, 1994 and September 30, 1993 and the three
month period ended December 31, 1993 did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. In connection with the audits of the Company's
financial statements for each of its two most recent fiscal years and in the
fiscal period subsequent to the Company's most recent fiscal year and through
November 3, 1995, there were no disagreements with Peat Marwick on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of Peat Marwick,
would have caused Peat Marwick to make reference to the matter in their reports
with respect to such periods, other than the following:
During the fiscal year ended December 31, 1995, the Company discussed
with Peat Marwick an accounting matter which as of the date of Peat Marwick's
termination remained unresolved.
The particular matter discussed related to certain wind farm facilities
("Facilities") owned by the Company in the UK. These facilities are currently
operating under contract with the Non-Fossil Purchasing Agency, Limited, as
agent for and on behalf of the Public Electricity Suppliers of England and Wales
("PESs"), which purchases the power generated by the Facilities. The contractual
rate per kWh through December 1998 is benefited by certain UK government
incentive payments, which promote the operation of renewable power projects in
the UK. Incentive payments are currently scheduled to expire in December of
1998. If the incentive payments are not renewed by the UK government, the
contracts will continue with the Public Electricity Suppliers at avoided cost
rates unless terminated at the option of either the Company or the PESs due to
the occurrence of certain specified events.
The Company consulted with Peat Marwick regarding the accounting for
the Facilities, and the related power purchase contracts. This consultation
concluded the Facilities should either use an "accelerated" method of
depreciation for the underlying wind farm assets or defer some portion of the
contractual revenues received during the portion of the contracts in which
incentive payments are received, with a related amortization of those deferred
revenues over the estimated useful life of the Facilities.
The Company agreed with the successor accountant as to the appropriate
accounting practices to be applied , which resulted in recording accelerated
depreciation for the Facilities. The Company had recorded an adjustment in its
financial statements at the quarter ended September 30, 1995.
39
<PAGE>
During the Company's two most recent fiscal years and in the fiscal
period subsequent to the Company's most recent fiscal year end, there were no
"reportable events" as defined in subparagraph (a)(1)(v) of Item 304 of
Regulation S-K.
During the Company's two most recent fiscal years and through October
30, 1996, the Company has not consulted with Lazar, Levine & Felix, LLP on
items which (1) were or should have been subject to SAS 50 or (2) concerned the
subject matter of a disagreement or reportable event with the former auditors,
as described in Regulation S-K, Item 304(a)(2).
In September 1996, Price Waterhouse resigned as the Company's auditors.
In March 1997, the Company's Board of Directors authorized a resolution
appointing Lazar, Levine & Felix, LLP as the Company's auditors for the year
ended December 31, 1996.
40
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following sets forth certain information with respect to the
Directors of the Company:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS FIRST YEAR BECAME
NAME AND CURRENT PUBLIC DIRECTORSHIPS AGE A DIRECTOR
- ----- -------------------------------- --- ----------
<S> <C> <C> <C>
Gerald R. Cummins DIRECTOR AND CHAIRMAN OF THE BOARD. Mr. Cummins 70 1990
has been a director since October 1990 and a
private investor and independent business
consultant for more than five years. He is a
political strategist who has served as chairman
of The New York State Thruway Authority. He was
the campaign manager for the Honorable Hugh L.
Carey, the former Governor of New York. Mr.
Cummins is also a director of Photocomm. Mr.
Cummins received a bachelor's degree from
Manhattan College.
Nazir Memon, M.D. DIRECTOR. Dr. Memon has been a practicing 51 1992
physician for more than the last five years. He
is a pulmonologist on the medical staff of Shore
Memorial Hospital in Somers Point, New Jersey;
Bettry Bacharach Rehabilitation Hospital,
Popmona, New Jersey; and Kessler Memorial
Hospital, Hammonton, New Jersey. Dr. Memon is
also the President of the Atlantic Pulmonary
Critical Care Association. Dr. Memon is a
graduate of Liaquat Medical College in Pakistan
and the Government Science College, Pakistan.
Herbert L. Oakes, Jr. 50 1993
DIRECTOR. Mr. Oakes has served as Managing
Director of Oakes, Fitzwilliams & Co. Limited, a
member of the Securities and Future Authority
Limited and the London Stock Exchange, since
1988. Mr. Oakes is also President of H.L. Oakes
& Co., Inc., a corporate advisor and dealer in
securities which he founded in 1982. He also
serves on the board of directors of Shared
Technologies, Inc. and Harcor Energy, Inc. Mr.
Oakes received a B.A. in Economics from the
University of the South.
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C> <C>
Gerard Prevost DIRECTOR AND VICE CHAIRMAN OF THE BOARD. Mr. 57 1996
Prevost is a Managing Partner of Dominion World
Power, the for energy projects Independent Joint
Venture between the Company and Dominion Bridge
Power, Inc., since August 1996. During the
previous 33 years Mr. Prevost had a distinguished
career with the Hydro Quebec, where he served as
the president of Nouveler, an investment arm of
the utility and vice president of operations and
equipment division of the utility. Mr. Prevost's
career with Hydro Quebec was interrupted for
four years starting in 1988 when he served as
deputy minister of energy for the Province of
Quebec. Mr. Prevost received a MBA from Laval
University in Quebec City.
Lucien Ruby DIRECTOR. Since 1985, Mr. Ruby has been the 53 1990
Managing General Partner of Quest Ventures, a San
Francisco-based venture capital firm. Currently,
Mr. Ruby serves on the board of directors of
various privately held corporations including
RESNA Industries, an environmental services
company, and Aqua Air Environmental, Inc., a
manufacturer of pollution control systems. Mr.
Ruby received a B.S.C.E. from Duke University and
an M.B.A. from Harvard University.
</TABLE>
EXECUTIVE OFFICERS
The following table contains the name, position and age of the
executive officer of the Company who is not director.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS AGE
- ---- AND CURRENT PUBLIC DIRECTORSHIPS ---
--------------------------------
<S> <C> <C>
Vitold Jordan Interim Chief Executive Officer. 42
Since January 1995, Mr. Jordan is a president of Dominion Bridge
Technology, Inc. and an officer of the parent, Dominion Bridge
Corp. Prior to 1995, Mr. Jordan served as a Managing Partner of
the Professional Services at AT&T GIS Canada and prior to
December 1993 he was an independent business consultant. Mr.
Jordan is a graduate of Laval University and a chartered
accountant.
</TABLE>
42
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth, for the
fiscal years indicated, all compensation awarded to, earned by or paid to (I)
the former chief executive officer ("CEO") of the Company (Mr. John D. Kuhns,
the Chairman of the Board of the Company) and (ii) the four most highly
compensated executive officers of the Company other than the CEO whose salary
and bonus exceeded $100,000 with respect to the fiscal year ended December 31,
1996 and who were employed by the Company during the fiscal year ended December
31, 1996 (together with the CEO, the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation Compensation
--------------------------------------------- -------------------
Name and Other Annual Securities Underlying All other
Principal Position Year Salary Bonus Compensation Options (#)(1) Compensation
------------------ ---- ------ ----- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
John D. Kuhns 1996 1,500,000
Chairman of the Board(3) 1995 $476,000(2) $0 $0 1,000,000 $0
1994 480,000(2) 0 0 0 0
1993 480,000(2) 0 0 0 0
Anthony J. Baratta, Jr.
Executive Vice President and
Chief Financial Officer(7) 1995 116,440 0 0 0 110,000(6)
Dwight C. Kuhns 1996 650,000
Former President(4) 1995 172,809 0 0 125,000 0
1994 175,000 0 0 0 0
1993 112,500 0 0 0 37,500(5)
Michael H. Best
Former Executive 1995 172,809 0 0 125,000 0
Vice President(8) 1994 175,000 0 0 0 0
1993 150,000 0 0 0 0
<FN>
(1) The options listed expired unexercised upon the named individual's
termination of employment with the Company.
(2) All of Mr. John Kuhns' compensation from the Company was paid in the form
of management fees to a company controlled by Mr. John Kuhns. This
arrangement was established prior to the Company's first underwritten
public offering. Effective August 1, 1995, the Company terminated the
related management agreements and entered into an employment agreement with
Mr. Kuhns. See "John D. Kuhns Employment Agreement."
(3) Mr. John Kuhns resigned as Chief Executive Officer of the Company on April
11, 1996.
(4) Mr. Dwight Kuhns resigned as President of the Company effective on December
31, 1995. Other compensation in 1996 represents the settlement of a
judgment against the Company granted by the Alameda County Court in favor
of Mr. Kuhns, as described in more detail in the notes to the financial
statements.
(5) Represents consulting fees paid to Mr. Dwight Kuhns prior to this
employment by the Company, which commenced in January 1993.
(6) Consists of a relocation expense.
(7) Mr. Baratta was appointed Executive Vice President and Chief Financial
Officer as of May 31, 1995. Mr. Baratta's ceased to be employed by the
Company on March 29, 1996.
(8) Mr. Best resigned his position with the Company in December 1995.
</FN>
</TABLE>
43
<PAGE>
Option Grants Table.
At December 31, 1996, pursuant to termination of employment of all executives
who were granted awards under the Company's Stock Incentive Plans, all
options to purchase Company's common shares expired upon termination of
each executive. As a result, at that date the Company had no options
outstanding, other than to the independent Directors of its Board.
Long-Term Incentive and Pension Plans.
In April 1993, the Company adopted the 1993 Stock Incentive Plan (the
"1993 Plan") which was approved by the Company's stockholders in May 1993. The
1993 Plan replaced the Company's previous stock option plan, the 1989 Stock
Incentive Plan (the "1989 Plan"), except as to options outstanding under the
1989 Plan. Under the 1993 Plan, the Company may reward to employees, directors
and consultants of the Company and its subsidiaries incentive and non-qualified
stock options, stock appreciation rights, restricted stock grants, performance
awards and any combination of any or all of such awards. The Board of Directors
has delegated its powers under the 1993 Plan to the Company's Compensation
Committee. Awards may not be granted under the 1993 Plan after December 31,
2003. An aggregate of 500,000 shares of Common Stock may be issued under the
1993 Plan, except that any shares as to which awards granted under the 1989 Plan
may lapse, expire or be canceled be available for issuance under the 1993 Plan.
If any awards expire or terminate for any reason, the shares subject to such
awards are again available for future awards under the 1993 Plan. Awards are not
transferable except by will or the laws of descent and distribution. Whether an
award may be exercised after termination of employment is determined by such
Committee, subject to certain limitations.
Employment Agreements.
Mr. John D. Kuhns was employed as Chief Executive Officer of the
Company and Chairman of the Board prior to April 11, 1996 and until October 1996
served only as Chairman of the Board.
Mr. Kuhns was compensated for his services as Chairman pursuant to an
employment agreement dated as of August 1, 1995 which has been amended on two
occasions. The initial Employment Agreement hired Mr. Kuhns to serve as Chief
Executive Officer for a five year term continuing through July 31, 2000, subject
to renewal unless terminated by either party. The Employment Agreement provided
Mr. Kuhns customary benefits and expense reimbursements and contained customary
confidentiality and noncompetition covenants. The initial Employment Agreement
further provided that as a "severance benefit" Mr. Kuhns might receive, upon
certain conditions, three years base salary and that, upon termination, Mr.
Kuhns had an option to purchase, and the Company had an option to sell to him,
the building and improvements that comprise its executive offices in Lime Rock,
Connecticut (the "Farmhouse Property") at a purchase price equal to the
Company's then depreciated cost basis. Effective March 1, 1996, Mr. Kuhns
44
<PAGE>
entered into Amendment No. 1 to the Employment Agreement ("Amendment No. 1")
which provided that until such time as the Company paid in full its 8%
Convertible Subordinated Notes, his base salary would be at the annual rate of
$220,000 and that the Company would use its best efforts to sell shares of
common stock to provide additional compensation, not to exceed $12,000 per
month. Amendment No. 1 further provided that Mr. Kuhns would receive a bonus
based upon a percentage of value received from the Company from the sale of a
certain of its assets, provided that his annual compensation from all sources
shall not exceed $480,000. In this amendment Mr. Kuhns also agreed to accept in
lieu of any severance benefit or other unpaid compensation due upon termination,
the Farmhouse Property. The amendment further provided that the Company shall
set aside 3,250 shares of common stock per month for Mr. Kuhns, for twelve
months, commencing March 1, 1996, for delivery on January 31, 1997, or, for
shares accruing after that date, on January 31, 1998. Effective March 1, 1996
Mr. Kuhns entered into Amendment No. 2 to his Employment Agreement with the
Company ("Amendment No. 2"), which superseded and replaced Amendment No. 1.
Pursuant to Amendment No. 2, Mr. Kuhns resigned as Chief Executive Officer and
agreed to serve as Chairman of the Company through October 1996. Mr. Kuhns' base
compensation under Amendment No. 2 is at the rate of $18,000 per month with
additional compensation at $12,000 per month and a bonus derived from the sale
of certain assets. The other compensation and severance benefits remain
substantially the same as in Amendment No. 1. Pursuant to Mr. Kuhn's decision to
not to seek reelection at the Company's Annual Meeting has employment agreement
was terminated as of October 31, 1996 and as a result the Farmhouse property was
transferred to Mr. Kuhns as the termination benefit.
Board of Directors Report on Executive Compensation.
This report, prepared by the Company's Board of Directors, addresses
the Company's compensation policies with respect to its executive officers for
the fiscal year ended December 31, 1996.
Salary. The Compensation Committee is responsible for determining the
salaries of all executive officers of the Company. Salaries paid to executive
officers reflect their responsibilities, diligence and determination in working
toward the achievement of established corporate objectives. Management
compensation guidelines were established by the Compensation Committee in
consultation with independent advisors with experience in the field.
Stock Incentives. The Compensation Committee has full power, discretion
and authority in administering the Company's 1993 Stock Incentive Plan. The
Committee believes that stock ownership by employees, including officers, of the
Company, is important as a means of rewarding outstanding performance and
promoting the achievement of long-term corporate goals by giving those persons a
greater proprietary interest in the Company. No options were granted to officers
or employees of the Company in 1996.
45
<PAGE>
TOTAL SHAREHOLDER RETURNS - DIVIDENDS REINVESTED
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the
Common Stock of the Company outstanding as at March 31, 1997, by (i) each person
known by the Company to be the beneficial owner of more than five percent of the
Common Stock, (ii) each director, (iii) each of the Named Executive Officers and
(iv) by all directors and executive officers of the Company as a group. Unless
otherwise indicated, each stockholder has sole voting power and sole dispositive
power with respect to the indicated shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
OF BENEFICIAL OWNER(1) SHARES BENEFICIALLY OWNED** OF CLASS(2)
------------------------ ---------------------------- ------------
<S> <C> <C>
Sundial International Fund Limited (3) 318,103 14.3
c/o Euro Canadian Trust Company Limited
P.O. Box 393750, Shirley Street
Nassau, Bahamas
Fleming Capital Management (4)
320 Park Avenue 237,749 10.6
New York, NY 10022
Westinghouse Electric Corporation(5) 158,159 7.1
11 Stanwix Street
Pittsburgh, Pennsylvania 15222
Herbert L. Oakes, Jr.(6) 233,625 10.5
Gerard Prevost 0
Frederic Mayer 0
Gerald R. Cummins(7) 1,997 *
Nazir Memon, M.D.(8) 2,673 *
Lucien Ruby(9) 65,179 2.9
Vitold Jordan 0 *
All Directors and Executive Officers as a Group (7 303,474 22.0
persons)(13.4)
<FN>
* less than one percent.
**Adjusted to reflect the 1 for 5 reverse stock split
</FN>
</TABLE>
46
<PAGE>
(1) Each director and executive officer has sole voting power and sole
investment power with respect to all shares beneficially owned by him,
unless otherwise indicated.
(2) Based upon 2,225,967 shares of Common Stock outstanding on March 31, 1997.
(3) Based upon a Statement on Schedule 13D Amendment No. 1 filed with the SEC
on February 21, 1995 by Sundial International Fund Limited ("Sundial").
Includes 302,103 shares issuable upon exercise of currently exercisable
warrants."
(4) Includes 237,749 shares issuable upon exercise of currently exercisable
warrants."
(5) Based upon a Statement on Schedule 13D Amendment No. 1 filed with the SEC
on September 14, 1994 by Westinghouse Electric Corp. ("Westinghouse").
(6) Consists of: (i) 1,429 shares issuable upon exercise of currently
exercisable options; (ii) 3,476 shares held in and 15,800 shares issuable
upon exercise of currently exercisable warrants held in Oakes, Fitzwilliams
& Co. Executive Death Benefit & Retirement Scheme No.2 (HLO) Mr. Oakes'
personal pension fund ("OFHLO"); (iii) 4,000 shares held by H.L. Oakes &
Co., Inc. ("HLO"); (iv) 4,400 shares issuableupon exercise of currently
exercisable warrants held by Oakes, Fitzwilliams & Co. Limited ("OFL"); (v)
3,500 shares owned by and 190,670 shares issuable upon exercise of
currently exercisable options held by Oakes, Fitzwilliams & Co. S.A.
("OFLSA"); and (vi) 1,420 shares owned by and 8,920 shares issuable upon
exercise of currently exercisable options held by Purbrook Corporation
("Purbrook"). Mr. Oakes is the Managing Director of, and owns a controlling
interest in, OFL and OFLSA. He is also President of HLO, a company owned
100% by his wife. Purbrook is owned by HLO. Mr. Oakes disclaims any
beneficial ownership in the shares described in (ii) through (vi).
(7) Includes 1,973 shares issuable upon exercise of currently exercisable
options.
(8) Consists of shares issuable upon exercise of currently exercisable options
and warrants.
(9) Includes 769 shares issuable upon exercise of currently exercisable
options. Also includes 38,141 shares of Common Stock owned by Quest
Ventures II and 26,069 shares of Common Stock owned by Quest Ventures
International, two investment partnerships of which Mr. Ruby is a general
partner, all of shares which Mr. Ruby disclaims beneficial ownership.
47
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995, The New World Power Company Ltd. sold 0% Senior
Secured Note due March 31, 1996 in the original amount of $550,000 to Sundial
International Fund LTD., a significant stockholder in the Company. The proceeds
of the Note were used as working capital. The note was reimbursed in full in
February 11, 1997.
On December 1, 1995, the Company transferred and endorsed to Sundial
International Fund Ltd. a First Mortgage Note in the principal amount of
$3,615,370 along with the Mortgage and Security Agreements in exchange for its
Class B Preferred Stock. The Note was payable together with interest at the
LIBOR+4% points in full on December 1, 1996. Principal and interest are due in
seven quarterly installments of principal (each equal to five percent of the
principal balance). The Note was restructured subsequent to December 31, 1995
and is now due in four payments due December 1, 1996, March 1, 1997, June 1,
1997 and July 31, 1997. The note was paid in full in April 1997
In June 1994, the Company entered into a 15-year business alliance
agreement with Westinghouse Electric Corporation ("Westinghouse"), a beneficial
owner of more than five percent of the Company's Common Stock, jointly to
develop, market, construct and own renewable power projects. Under the
agreement, the Company and Westinghouse will have the option to participate with
the Company in renewable power projects. In consideration of Westinghouse's
obligations under the agreement, the Company agreed to issue to Westinghouse up
to 91,954 shares of the Company's Common Stock, in installments, over a
four-year period (of which shares were to be but have not been issued) and an
Incentive Warrant which will enable Westinghouse to purchase up to 163,956
shares of the Company's Common Stock, based upon certain operating revenue
targets for the Company. The Company and Westinghouse are currently discussing
the mutual cessation of the business relationship.
In October 1994, the Company and Robert R. Kauffman, then a director of
the Company, entered into a short-term voting agreement pursuant to which Mr.
Kauffman agreed to vote certain shares of Photocomm preferred stock owned by him
in the same manner as the Company votes its shares of Photocomm common stock.
The voting rights of Photocomm preferred stock subject to the agreement were
equivalent to the voting rights of 503,052 shares of Photocomm common stock and
represented approximately 3.8% of the total voting power of Photocomm's capital
stock. The voting agreement terminated by its terms in 1995.
In February 1995, the Company issued a warrant to purchase 30,000 units
of the Company to Oakes, Fitzwilliams & Co. S.A. ("OFLSA"), a company controlled
by Herbert L. Oakes, Jr., in its capacity as the placement agent in connection
with the placement of 1,500,000 units in an offering to offshore investors. Each
unit consists of one share of Common Stock and two warrants, each to purchase
one share of Common Stock at an initial exercise price of $37.50 per share. The
warrant entitles OFLSA to purchase the units at $36,00 per unit and expires on
January 14, 2000. The Company also paid to OFLSA a fee of $720,000 in connection
with the offering which was subsequently used by OFLSA to purchase an additional
24,000 units from the Company.
48
<PAGE>
In connection with this offering, certain entities affiliated with F&C
purchased an aggregate of 325,000 units at $6.00 per unit plus the surrender of
a prior warrant to purchase one share of Common Stock at an initial exercise
price of $15.00 per share. In addition, certain entities affiliated with GIL
purchased an aggregate of 255,000 units of $6.00 per unit plus the surrender of
a prior warrant to purchase one share of Common Stock at an initial exercise
price of $15.00 per share.
The directors of the Company entered into an agreement to vote the
shares issued to them by the Company for services rendered to the Company,
including shares purchased under options granted under the 1993 Stock Incentive
Plan. The agreement provides that the shares will be voted in the manner that
John D. Kuhns directs and have granted Mr. Kuhns an irrevocable proxy in
connection with such voting agreement. In addition, the agreement grants to the
Company a right of first refusal and a purchase option prior to any transfer of
such shares and upon termination of employment or service on the Board.
As previously discussed under Liquidity and Capital Resources, the
Company entered into an agreement (the "Fleming Agreement") to issue $15,750,000
of its 8% Convertible Subordinated Notes due July 31, 2000 and warrants to
purchase up to 157,500 shares of its common stock pursuant to the terms of the
Note and Warrant Purchase Agreement. In connection therewith, the Company
granted a security interest in all the shares of common stock (both owned
beneficially or of record) of New World China Company Limited and Photocomm. The
Company also granted certain demand and registration rights. Approximately
$2,622,000 of the 8% Convertible Subordinated Notes were issued to OFLSA.
On December 28, 1995, the Company repaid its obligations to Sundial
International under its 0% Exchangeable Senior Secured Guaranteed Notes due
December 28, 1995 in the original principal amount of $2.2 million. Upon
repayment of this note, Sundial International released from escrow 2.9 million
shares of pledged Photocomm common stock which shares were then pledged and
delivered to Robert Fleming & Co., Ltd. as agent for the Fleming Purchasers.
On May 31, 1996, the Company entered into a Forbearance, Warrant
Exchange, Note Conversion and Amendatory Agreement (the "Sundial Amendment
Agreement"), dated as of March 1, 1996, among the Sundial International Fund
Limited ("Sundial"), the Company, The New World Power Company Limited ("NWP
Ltd."), and Wolverine Power Corporation ("Wolverine") regarding the Company's 0%
Senior Secured Note in the amount of $550,000, dated December 20, 1995 and due
March 31, 1996 issued by NWP Ltd. to Sundial (the "Senior Secured Note") and the
Wolverine Power Corporation First Mortgage Note in the outstanding principal
amount as of March 1, 1996 of $3,434,692, dated December 31, 1992, issued by
Wolverine to the Company and assigned by the Company to Sundial (the "Wolverine
Note" and together with the Senior Secured Note, the "Notes"). Pursuant to the
terms of the Sundial Amendment Agreement, the maturity of the Senior Secured
Note was extended to December 1, 1996 and the maturities of certain installments
of the Wolverine Note were extended. Also pursuant to the Sundial Amendment
Agreement certain warrants of which Sundial is the owner or the agent for the
owners have been re-priced from exercise prices ranging from $37.50 to $75.00
per share to an exercise of $8.75 per share. Also pursuant to the Sundial
Amendment Agreement, Sundial has been given an option to exchange the Notes for
certain Exchange Notes to be issued by the Company. The company is required also
to effect certain asset sales and offer to redeem the Notes with the proceeds
from such sales. Sundial also received additional security from the Company and
the right to nominate one member of the Board of Directors in connection with
the Sundial Amendment Agreement.
49
<PAGE>
The Company also entered into Amendment No. 3 to Note and Warrant
Purchase Agreement, and Modification of Letter Agreement, dated as of March 1,
1996 by and between NWP Corp. and each of the Purchasers thereto whereby the
Company and the Purchasers agreed to modify certain of the terms of the Note and
Warrant Purchase Agreement, dated as August 15, 1995, amended by Amendment No. 1
to Note and Warrant Purchase Agreement dated as of October 13, 1995 by and
between the Company and the Purchasers and by Amendment No. 2 to Note and
Warrant Purchase Agreement ("Amendment No. 2") dated as February 29, 1996 by and
between the Company and the Purchasers.
On June 11, 1996, the Company and Oakes, Fitzwilliams & Co. S.A.
("OFLSA") executed a financial advisory services letter agreement ("Financial
Advisory Services Agreement") pursuant to which the Company agreed that for (1)
services rendered during 1995 and 1996 relating to the restructuring of the
Company's management and capitalization ("Restructuring Services") and (2)
services to be rendered in connection with the anticipated negotiations with
Cedar Group, Inc. ("Cedar") or other entity ("Financial Advisory Services")
that: (a) OFLSA is be issued 240,000 shares of the Company's Common Stock (in
lieu of $125,000 in cash), (b) OFLSA would be paid its expenses already
incurred, some of which have been submitted to the Company but not paid, in the
approximate amount of $85,000 and (c) the warrants to purchase shares of Common
Stock of the Company received in the past of OFLSA as compensation would be
exchanged for New Warrants, and (d) at the closing of a transaction with Cedar,
the Company will pay to OFLSA a cash fee in an amount equal to 2.5% of the value
of the total consideration of the Transaction and reimburse OFLSA its reasonable
out-of-pocket expenses not incurred in the normal course of business. This
advisory services fee is still under negotiation for settlement
Effective as of February 29, 1996, the Company entered into Amendment
No. Two (the "Amendment") to the Fleming Agreement. Pursuant to the terms of the
Amendment, the maturity of the 8% Notes was accelerated to July 31, 1997, with
interest payments permitted in pay-in-kind securities prior to the interest
payment due January 31, 1997. Also pursuant to the Amendment the warrants
originally issued under the Fleming Agreement were repriced from an exercise
price of $7.50 per share to an exercise of $1.75 per share. Also pursuant to the
Amendment, the Company is required to effect certain asset sales and offer to
redeem the 8% Notes with the proceeds from such sales. The Noteholders also
received additional security from the Company in connection with the Amendment
in exchange for allowing the Company to access the $3.3 million held in escrow
as collateral, subject to certain restrictions.
50
<PAGE>
George P. Petrenko is an employee of Glass & Associates, Inc.
("Glass"). The Company has entered into a Consulting Agreement with Glass dated
February 7, 1996, pursuant to which Glass provides management consultation
services at an hourly rate for George Petrenko and one or more additional Glass
employees. The Consulting Agreement was amended effective April 15, 1996 to
provided for the services of Mr. Petrenko and another Glass employee at the rate
of $10,000 a week, plus out-of-pocket expenses. Under the revised agreement,
Glass may receive a bonus based upon the percentage of the net proceeds that the
Company receives from the sale of certain assets. The Company has paid Glass the
sum of $244,399 through June 15, 1996. This agreement terminated in 1996.
Effective January 1, 1996, the Company entered into a Consulting
Agreement with Condor Management Associates, Inc. ("Condor"), a corporation
owned by Dwight Kuhns, the brother of John D. Kuhns. The Consulting Agreement
provides for monthly compensation to Condor to supervise the shutdown and sale
of the Company's wind farms in California and Hawaii. The Consulting Agreement
further provides for commissions upon the sale of certain assets and upon the
favorable conclusion of negotiations with creditors of the Company's California
and Hawaii operations. Certain of these commissions may be paid in shares of the
Company's stock. The Consulting Agreement is terminable on thirty days notice.
The Company has paid Condor $81,000 through June 15, 1996. This agreement
terminated in 1996.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 and regulations of
the Securities Exchange Commission thereunder require the Company's executive
officers and directors and persons who own more than ten percent of the
Company's stock, as well as certain affiliates of such persons, to file initial
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers. Executive
officers, directors and persons owning more than ten percent of the Company's
stock are required by the Securities and Exchange Commission regulations to
furnish he Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of Forms 3, 4 and 5 and amendments thereto
received by the Company and written representations that no other reports were
required for those persons, the company believes that, during the fiscal year
ended December 31, 1995, all filing requirements applicable to its executive
officers, directors and owners or more than ten percent of the Company's stock
were complied with.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Schedules
The Report of Independent Accountants and consolidated financial
statements listed in the Index to Consolidated Financial Statements and
Financial Statement Schedule on page F-1 hereof are filed as part of this
report, commencing on page F-2 hereof.
(a)(3) Exhibits
Exhibit
Number Description
2.1 Agreement and Plan of Merger by and among Arcadian Power
Corporation, an Utah corporation, The New World Power
Corporation and Arcadian Power Corporation, a Delaware
corporation, dated as of January 13, 1994. (Incorporated
herein by reference to Exhibit 2.01 to the Company's Form 10-K
for the year ended September 30, 1993 (the "1993 10- K")).
2.2 Purchase Agreement, dated as of July 29, 1994, by and between
The New World Power Corporation and Westinghouse Electric
Corporation (Incorporated herein by reference to Exhibit 2.1
to Form 8-K dated August 30, 1994 (the "August 30, 1994
8-K")).
2.3 Exchange Agreement and Consent, dated as of July 29, 1994, by
and between The New World Power Corporation and Photocomm,
Inc. (Incorporated herein by reference to Exhibit 2.2 to the
August 30, 1994 8-K).
2.4 Stock Purchase Agreement, dated as of June 27, 1994, by and
among The New World Power Corporation and Solartec S.A., Jose
Emilo Salgado, Nilda Raquel Filoso de Salgado, Fernando J.
Salgado and Juan Esteban Zellner (Incorporated herein by
reference to Exhibit 2.1 to the August 30, 1994 8-K).
2.5 Amendment to Stock Purchase Agreement, dated as of July 1,
1994 (Incorporated herein by reference to Exhibit 2.2 to the
dated August 30, 1994 8-K).
2.6 Share Purchase Agreement, dated as of June 9, 1994, by and
among Nordtank af 1987 A/S, The New World Power Company
Limited and The New World Power Corporation. (Incorporated
herein by reference to Exhibit 2.04(a) to the Company's Form
10-K for the year ended December 31, 1994 (the "1994 10-K")).
52
<PAGE>
2.7 Deed of Variation, dated as of November 3, 1994, by and among
Nordtank af 1987 A/S, The New World Power Company Limited and
The New World Power Corporation. (Incorporated herein by
reference to Exhibit 2.04(b) to the 1994 10- K).
3.1 Third Amended and Restated Certificate of Incorporation of The
New World Power Corporation. (Incorporated herein by reference
to Exhibit 3.01 to the Company's Form 10-Q for the quarter
ended June 30, 1995 (the "June 30, 1995 10-Q")).
3.2 Amended and Restated By-laws of The New World Power
Corporation. (Incorporated by reference herein to the 1994
10-K.)
4.1 Specimen certificate for Common Stock of the Company.
(Incorporated herein by reference to Exhibit No. 4.01 to the
Company's Form S-1, Registration Statement No. 33-49576 ("Form
S-1")).
4.2 Preferred Stock and Warrant Purchase Agreement by and among
The New World Power Corporation, Wolverine Power Corporation
and Sundial International Fund Limited dated as of December
31, 1992. (Incorporated herein by reference to Exhibit 4.01 to
the Company's Form 10-Q for the quarter ended March 31, 1993
(the "March 31, 1993 10-Q")).
4.3 Form of Wolverine Power Corporation Fourteen Year Variable
Rate Subordinated Debenture Due 2000 and Schedule of Debenture
Holders. (Incorporated herein by reference to Exhibit No. 19.1
to the Company's Form 10-Q for the quarter ended June 30, 1989
(the "June 30, 1989 10-Q").
4.4 Facility Agreement by and between The New World Power Company
(Dyffryn Brodyn) Limited and Hambros Bank Limited, et. al.,
dated October 14, 1994. (Incorporated herein by reference to
Exhibit 4.04(a) to the 1994 10-K).
4.5 Debenture granted by The New World Power Company (Dyffryn
Brodyn) Limited to Hambros Bank Limited, dated October 14,
1994. (Incorporated herein by reference to Exhibit 4.04(b) to
the 1994 10-K).
4.6 Security Coordination Agreement by and among The New World
Power Company (Dyffryn Brodyn) Limited, The New World Power
Company (Caton Moor) Limited, The New World Power Company
(Four Burrows) Limited, The New World Power Company Limited
and Hambros Bank Limited, et. al., dated October 14, 1994.
(Incorporated herein by reference to Exhibit 4.04(c) to the
1994 10-K).
4.7 Mortgage of Shares by and between The New World Power Company
Limited and Hambros Bank Limited, dated October 14, 1994.
(Incorporated herein by reference to Exhibit 4.04(d) to the
1994 10-K).
53
<PAGE>
4.8 Inter-Creditor Deed by and among The New World Power Company
(Dyffryn Brodyn) Limited, The New World Power Corporation, The
New World Power Company Limited and Hambros Bank Limited, et.
al., dated October 14, 1994. (Incorporated herein by reference
to Exhibit 4.04(d) to the 1994 10-K).
4.9 Cross Guarantee and Debenture by and among The New World Power
Company (Dyffryn Brodyn) Limited, The New World Power Company
(Caton Moor) Limited, The New World Power Company (Four
Burrows) Limited and Hambros Bank Limited, dated October 14,
1994. (Incorporated herein by reference to Exhibit 4.04(f) to
the 1994 10-K).
4.10 Shortfall Undertaking by and between The New World Power
Corporation and The New World Power Company (Dyffryn Brodyn)
Limited, dated October 14, 1994. (Incorporated herein by
reference to Exhibit 4.04(g) to the 1994 10-K).
4.11 Acknowledgment of Notice of Assignment re: Shortfall
Undertaking by The New World Power Corporation, dated October
14, 1994. (Incorporated herein by reference to Exhibit 4.04(h)
to the 1994 10-K).
4.12 Additional Funding Agreement by and between The New World
Power Corporation and The New World Power Company (Dyffryn
Brodyn) Limited, dated October 14, 1994. (Incorporated herein
by reference to Exhibit 4.04(i) to the 1994 10-K).
4.13 Acknowledgment of Notice of Assignment re: Additional Funding
Agreement by The New World Power Corporation, dated October
14, 1994. (Incorporated herein by reference to Exhibit 4.04(j)
to the 1994 10-K).
4.14 Facility Agreement by and between The New World Power Company
(Caton Moor) Limited and Hambros Bank Limited, et. al., dated
November 11, 1994. (Incorporated herein by reference to
Exhibit 4.05(a) to the 1994 10-K).
4.15 Debenture granted by The New World Power Company (Caton Moor)
Limited to Hambros Bank Limited, dated November 11, 1994.
(Incorporated herein by reference to Exhibit 4.05(b) to the
1994 10-K).
4.16 Mortgage of Shares by and between The New World Power Company
Limited and Hambros Bank Limited, dated November 11, 1994.
(Incorporated herein by reference to Exhibit 4.05(c) to the
1994 10-K).
4.17 Inter-Creditor Deed by and among The New World Power Company
(Caton Moor) Limited, The New World Power Corporation, The New
World Power Company Limited and Hambros Bank Limited, et. al.,
dated November 11, 1994. (Incorporated herein by reference to
Exhibit 4.05(d) to the 1994 10-K).
54
<PAGE>
4.18 Cross Guarantee and Debenture by and among The New World Power
Company (Caton Moor) Limited, The New World Power Company
(Dyffryn Brodyn) Limited, The New World Power Company (Four
Burrows) Limited and Hambros Bank Limited, dated November 11,
1994. (Incorporated herein by reference to Exhibit 4.05(e) to
the 1994 10-K).
4.19 Additional Funding Agreement by and between The New World
Power Corporation and The New World Power Company (Caton Moor)
Limited, dated November 11, 1994. (Incorporated herein by
reference to Exhibit 4.05(f) to the 1994 10-K).
4.20 Acknowledgment of Notice of Assignment re: Additional Funding
Agreement by The New World Power Corporation, dated November
11, 1994. (Incorporated herein by reference to Exhibit 4.05(g)
to the 1994 10-K).
4.21 Facility Agreement by and between The New World Power Company
(Four Burrows) Limited and Hambros Bank Limited, et. al.,
dated March 21, 1995. (Incorporated herein by to Exhibit
4.06(a) reference to the 1994 10-K).
4.22 Debenture granted by The New World Power Company (Four
Burrows) Limited and Hambros Bank Limited, dated March 17,
1995. (Incorporated herein by reference to Exhibit 4.06(b) to
the 1994 10-K).
4.23 Side Letter, dated March 17, 1995, to Security Coordination
Agreement by and among The New World Power Company (Dyffryn
Brodyn) Limited, The New World Power Company (Caton Moor)
Limited, The New World Power Company (Four Burrows) Limited,
The New World Power Company Limited and Hambros Bank Limited,
et. al., dated October 14,1994. (Incorporated herein by
reference to Exhibit 4.06(c) to the 1994 10-K).
4.24 Mortgage of Shares by and between The New World Power Company
Limited and Hambros Bank Limited, dated March 17, 1995.
(Incorporated herein by reference to Exhibit 4.06(d) to the
1994 10-K).
4.25 Inter-Creditor Deed by and among The New World Power Company
(Four Burrows) Limited, The New World Power Corporation, The
New World Power Company Limited and Hambros Bank Limited, et.
al., dated March 17, 1995. (Incorporated herein by reference
to Exhibit 4.06(e) to the 1994 10-K).
4.26 Cross Guarantee and Debenture by and among The New World Power
Company (Four Burrows) Limited, The New World Power Company
(Dyffryn Brodyn) Limited, The New World Power Company (Caton
Moor) Limited and Hambros Bank Limited, dated March 17, 1995.
(Incorporated herein by reference to Exhibit 4.06(f) to the
1994 10-K).
55
<PAGE>
4.27 Additional Funding Agreement by and between The New World
Power Corporation and The New World Power Company (Four
Burrows) Limited, dated March 17, 1995. (Incorporated herein
by reference to Exhibit 4.06(g) to the 1994 10-K).
4.28 Acknowledgment of Notice of Assignment re: Additional Funding
Agreement by The New World Power Corporation, dated March 17,
1995. (Incorporated herein by reference to Exhibit 4.06(h) to
the 1994 10-K).
10.1 Management Agreement between Fayette Energy Corporation and
East Rock Partners, Inc. dated December 1, 1989. (Incorporated
herein by reference to Exhibit No. 10.05(b) to the Company's
Form 10-K for the year ended September 30, 1991 (the "1991
10-K")).
10.2 Management Agreement between Wolverine Hydroelectric
Corporation and East Rock Partners, Inc. dated December 1,
1989. (Incorporated herein by reference to Exhibit No.
10.05(d) to the 1991 Form 10-K).
10.3 The New World Power Corporation's 1989 Stock Incentive Plan.
(Incorporated herein by reference to Exhibit No. 10.09 to the
Company's Form 10-K for the year ended September 30, 1990 (the
"1990 10-K")).
10.4 The New World Power Corporation's 1993 Stock Incentive Plan.
(Incorporated herein by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 30, 1993 (the
"June 30, 1993 10-Q")).
10.5 Lease between White Hollow Farms, Inc. and The New World Power
Corporation, dated as of December 1, 1992. (Incorporated
herein by reference to Exhibit 10.33 to the 1993 10-K).
10.6 Stock Purchase Agreement among The New World Power
Corporation, Photocomm, Inc., Westinghouse Electric
Corporation, Programmed Land, Inc. and Robert R. Kauffman
dated as of October 15, 1993. (Incorporated herein by
reference Exhibit A to the Company's Form 8-K dated November
23, 1993 (the "November 12, 1993 8-K")).
10.7 Placement Agent Agreement by and between The New World Power
Corporation and Oakes, Fitzwilliams & Co. Limited, dated
November 8, 1993. (Incorporated herein by reference to Exhibit
10.35(a) to the 1993 10-K).
10.8 Warrant issued to Oakes, Fitzwilliams & Co. Limited.
(Incorporated herein by reference to Exhibit 10.35(b) to the
1993 10-K).
10.9 Form of Purchase Agreement by and between The New World Power
Corporation and Purchaser. (Incorporated herein by reference
to Exhibit 10.35(c) to the 1993 10-K).
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<PAGE>
10.10 Form of Warrant issued to Purchaser. (Incorporated herein by
reference to Exhibit 10.35(d)) to the 1993 10-K).
10.11 Schedule of Purchasers. (Incorporated herein by reference to
Exhibit 10.35(e) to the 1993 10-K).
10.12 Form of Management Shareholders' Agreement by and among The
New World Power Corporation; John D. Kuhns; Dwight C. Kuhns;
Robert W. MacDonald; Lucien Ruby; Herbert L. Oakes, Jr.;
Michael H. Best; Nazir Memon; Gerald R. Cummins and any other
person who agrees to be bound by the terms of the Agreement,
dated as of November 12, 1993. (Incorporated herein by
reference to Exhibit 10.38 to the 1993 10-K).
10.13 Placement Agent Agreement by and between The New World Power
Corporation and Oakes, Fitzwilliams & Co., Limited, dated
February 28, 1994. (Incorporated herein by reference to
Exhibit 10.01(a) to the Company's Form 10-Q for the quarter
ended March 31, 1994 (the "March 31, 1994 10-Q")).
10.14 Warrant issued to Oakes, Fitzwilliams & Co., Limited.
(Incorporated herein by reference to Exhibit 10.01(b) to the
March 31, 1994 10-Q).
10.15 Form of Purchase Agreement by and between The New World Power
Corporation and Purchaser. (Incorporated herein by reference
to Exhibit 10.01(c) to the March 31, 1994 10-Q).
10.16 Form of Warrant issued to Purchaser. (Incorporated herein by
reference to Exhibit 10.01(d) to the March 31, 1994 10-Q).
10.17 Schedule of Purchasers. (Incorporated herein by reference to
Exhibit 10.01(e) to the March 31, 1994 10-Q).
10.18 Business Alliance Agreement between The New World Power
Corporation and Westinghouse Electric Corporation dated as of
June 15, 1994. (Incorporated herein by reference to Exhibit
10.01 to the Company's Form 10-Q for the quarter ended June
30, 1994 (the "June 30, 1994 10-Q")).
10.19 Placement Agent Agreement by and between The New World Power
Corporation and Oakes, Fitzwilliams & Co. Limited, dated
August 22, 1994. (Incorporated herein by reference to Exhibit
10.01(a) to the Company's Form 10-Q for the quarter ended
September 30, 1994 (the "September 30, 1994 10-Q")).
10.20 Amendment to Placement Agent Agreement dated August 30, 1994.
(Incorporated herein by reference to Exhibit 10.01(b) to the
September 30, 1994 10-Q).
10.21 Warrant issued to Oakes, Fitzwilliams & Co., Limited.
(Incorporated herein by reference to Exhibit 10.01(c) to the
September 30, 1994 10-Q).
57
<PAGE>
10.22 Form of Purchase Agreement by and between The New World Power
Corporation and Purchaser. (Incorporated herein by reference
to Exhibit 10.01(d) to the September 30, 1994 10-Q). 10.23
Form of Warrant issued to Purchaser. (Incorporated herein by
reference to Exhibit 10.01(e) to the September 30, 1994 10-Q).
10.24 Schedule of Purchasers. (Incorporated herein by reference to
Exhibit 10.01(f) to the September 30, 1994 10-Q).
10.25 Option Agreement by and between The New World Power
Corporation and Robert R. Kauffman, dated as of October 7,
1994. (3) 10.26 0% Exchangeable Senior Secured Guaranteed Note
due 29 December 1995 in the original principal amount of Two
Million Two Hundred Thousand and No/100 U.S. Dollars issued by
The New World Power Company Limited. (3) 10.27 Option
Agreement by and among The New World Power Company Limited,
Sundial International Fund Limited and Oakes, Fitzwilliams &
Co., Limited, dated December 30, 1994. (3) 10.28 Guaranty
Agreement by The New World Power Corporation in favor of
Sundial International Fund Limited, dated December 30, 1994.
(3)
10.29 Stock Pledge Agreement by and among The New World Power
Corporation, Sundial International Fund Limited and Gilmartin,
Poster & Shafto, dated December 30, 1994. (3)
10.30 exchange Agreement by and between The New World Power
Corporation and Sundial International Fund Limited, dated
December 30, 1994. (3)
10.31 Warrant issued to Sundial International Fund Limited. (3)
10.32 Placement Agent Agreement by and between The New World Power
Corporation and Oakes, Fitzwilliams & Co. S.A., dated February
10, 1995. (3)
10.33 Warrant issued to Oakes, Fitzwilliams & Co. S.A. (3)
10.34 Form of Purchase Agreement by and between The New World Power
Corporation and Purchaser, dated February 10, 1995. (3)
10.35 Form of Amendment to Purchase Agreement by and between The New
World Power Corporation and Purchaser, dated February 10,
1995. (3)
10.36 Form of Warrant issued to Purchaser. (3)
10.37 Schedule of Purchasers. (3)
10.38 Subscription Agreement by and between The New World Power
Corporation and Oakes, Fitzwilliams & Co. S.A., dated February
10, 1995. (3)
10.39 Warrant issued to Oakes, Fitzwilliams & Co. S.A. (3)
58
<PAGE>
10.40 Employment Agreement, dated as of August 1, 1995, by and
between the Company and John D. Kuhns. (3)
10.41 Amendment No. 1 to Employment Agreement, dated as of March 1,
1996, by and between the Company and John D. Kuhns. (3)
10.42 Amendment No. 2 to Employment Agreement, dated as of March 31,
1996, by and between the Company and John D. Kuhns. (3)
10.43 Amendment Agreement, dated August 3, 1995, between China Chang
Jiang Energy (Group) and the Company. (3)
10.44 Share Transfer Agreement between China Chang Jiang Energy
Corporation (Group) and the Company for the Fujian Chang Ping
Hydro Power Company. (3)
10.45 Consulting Agreement, dated as of February 7, 1996, between
the Company and Glass & Associates, Inc. (3)
10.46 Agreement Engaging the Services of Glass & Associates, Inc. As
Interim Manager, dated April 18, 1996, between the Company and
Glass & Associates, Inc. (3)
10.47 Financial Advisory Services Agreement, dated June 11, 1996,
between the Company and Oakes Fitzwilliams & Co. (3)
10.48 Management Services Agreement with Dominion Bridge, dated
August 5, 1996 (3)
22.1 Subsidiaries of the registrant. (3)
*27 Financial Data Schedule
(3) Incorporation by reference herein to the 1995 10-K
- -------------------
* Filed herewith.
(b) Reports on Form 8-K
One report on Form 8-K dated October 31, 1996 was filed during
the quarter ended December 31, 1996.
59
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FORM 10-K
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
<S> <C>
Independent Auditors' Report on the Financial Statements for the Year Ended
December 31, 1996, Lazar Levine & Felix LLP F - 2
Independent Auditors' Report on the Financial Statements for the Year Ended
December 31, 1995, PriceWaterhouseCoopers LLP F - 3
Independent Auditors' Report on the Financial Statements for the Year Ended
December 31, 1994, KPMG Peat Marwick LLP F - 4
Independent Auditors' Report on Financial Statements of Photocomm, Inc. for
the Year Ended December 31, 1995, KPMG Peat Marwick LLP F - 5
Consolidated Balance Sheets at December 31, 1996 and 1995 F - 6
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1995 and 1994 F - 7
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 F - 8
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994 F - 9
Notes to Consolidated Financial Statements F - 11
F - 1
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The New World Power Corporation
We have audited the consolidated financial statements of The New World Power
Corporation and subsidiaries listed in the accompanying index as of and for the
year ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of The New World Power Corporation and subsidiaries as of December 31,
1996, and the results of their operations and their cash flows for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ LAZAR LEVINE & FELIX LLP
New York, New York
March 31, 1999
F - 2
<PAGE>
COPY - PREVIOUSLY FILED
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The New World Power Corporation
In our opinion, based upon our audit and the report of other auditors, the
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of The New World Power
Corporation and its subsidiaries at December 31, 1995, and the results of their
operations and their cash flows for the year, in conformity with generally
accepted accounting principles. 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 audit. We did not audit the
financial statements of Photocomm, Inc., a minority owned equity investment,
which statements reflect total assets of $10,361,409 at December 31, 1995 and
net income applicable to common shareholders of $687,966 for the year ended
December 31, 1995. Those statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Photocomm Inc., is based solely on the
report of the other auditors. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provides a reasonable
basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has limited capital resources which severely constrain liquidity and raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PriceWaterhouseCoopers LLP
Hartford, Connecticut
June 27, 1996
F - 3
<PAGE>
COPY - PREVIOUSLY FILED
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The New World Power Corporation
We have audited the consolidated financial statements of The New World Power
Corporation and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of Northern Power Systems, Inc., a wholly-owned subsidiary for the
year ended September 30, 1993, which statements reflect total revenue
constituting 20.7% for the year ended September 30, 1993. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Northern Power
Systems, Inc., is based solely on the report of the other auditors.
We conducted our auditors 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, based on our audits, and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The New World Power Corporation and
subsidiaries as of December 31, 1994, and the results of their operations and
their cash flows for the year ended December 31, 1994, the three-month period
ended December 31, 1993, and the year ended September 30, 1993, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 15, 1995
F - 4
<PAGE>
COPY - PREVIOUSLY FILED
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Photocomm, Inc.
We have audited the accompanying consolidated balance sheet of Photocomm, Inc.
and subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements (not presented separately herein)
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Photocomm, Inc. and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 23, 1996
F - 5
<PAGE>
NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ASSETS -
December 31,
1996 1995
---------------- --------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 448,782 $ 681,369
Cash restricted in use (Note 5) 2,377,107 4,669,554
Accounts receivable (Note 6) 2,472,533 4,269,360
Inventories (Note 7) 93,116 1,871,170
Other current assets 748,772 1,572,490
------------- -------------
TOTAL CURRENT ASSETS 6,140,310 13,063,943
Notes receivable - 185,600
Property, plant and equipment, net (Notes 8 and 15) 21,118,354 29,374,876
Investments (Note 10) 25,484 16,495,495
Goodwill, net of accumulated amortization (Notes 3 and 9) 1,366,307 1,549,234
Other non-current assets (Note 11) 1,169,935 4,726,555
------------- -------------
TOTAL ASSETS $ 29,820,390 $ 65,395,703
============= =============
- LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note 12) $ 5,764,682 $ 7,148,616
Current portion of long-term debt (Note 14) 6,658,216 17,965,610
Due to related parties (Note 13) 4,014,453 4,627,870
Current portion of capital lease obligations (Note 15) 14,079 83,537
------------- -------------
TOTAL CURRENT LIABILITIES 16,451,430 29,825,633
Long-term portion of long-term debt (Note 14) 5,393,819 7,649,979
Long-term portion of capital lease obligations (Note 15) 7,778 76,014
Other non-current liabilities (Notes 16 and 17) 5,734,182 5,497,644
------------- -------------
TOTAL LIABILITIES 27,587,209 43,049,270
------------- -------------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES (NOTE 18) 641,536 1,323,183
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTES 15, 16, 17, 23 AND 26)
SERIES B PREFERRED STOCK:
Cumulative redeemable exchangeable preferred stock (liquidity preference
$8.00 per share), $.01 par value, 5,000,000 and 1,000,000 shares
authorized, respectively (Note 20) - -
Accrued Series B preferred stock dividend (Note 20) - -
------------- -------------
TOTAL SERIES B PREFERRED STOCK - -
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock $.01 par value, 40,000,000 shares authorized, 2,226,830
and 2,226,830 shares issued and outstanding, respectively (Notes 21 and 22)* 22,268 22,268
Currency translation adjustments (473,522) 778,838
Additional paid-in capital 81,426,239 79,946,245
Accumulated deficit (79,383,340) (59,724,101)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,591,645 21,023,250
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,820,390 $ 65,395,703
============= =============
*Adjusted for 1 for 5 reverse split
See accompanying notes to consolidated financial statements.
</TABLE>
F - 6
<PAGE>
<TABLE>
<CAPTION>
NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUE (NOTE 24) $ 15,384,645 $ 16,373,598 $ 22,908,160
COST OF OPERATIONS 12,576,092 13,101,547 17,237,477
------------- ------------- ------------
GROSS PROFIT 2,808,553 3,272,051 5,670,683
Research and development expenses 5,680 426,447 338,879
Project development expenses 705,641 4,361,325 2,052,382
Selling, general and administrative expenses 6,767,857 7,627,217 9,222,098
(Equity) loss of non-consolidated affiliates (Note 10) (77,542) 4,199,184 911,743
Impairment charge (Note 3) 6,359,004 24,431,410 -
------------- ------------- ------------
OPERATING LOSS (10,952,087) (37,773,532) (6,854,419)
------------- ------------- ------------
OTHER INCOME (EXPENSE):
Interest expense (6,553,040) (2,442,540) (401,401)
Interest income 263,430 210,588 527,857
Minority interests in consolidated subsidiaries (Note 18) 209,100 283,665 (328,375)
Other (Notes 4 and 16) (2,594,507) (106,961) 920,482
------------- ------------- ------------
TOTAL OTHER (EXPENSE) INCOME (8,675,017) (2,055,248) 718,563
------------- ------------- ------------
LOSS BEFORE TAXES (19,627,104) (39,828,780) (6,135,856)
Provision for income taxes (Note 19) 32,135 22,596 104,427
------------- ------------- ------------
LOSS FROM CONTINUING OPERATIONS (19,659,239) (39,851,376) (6,240,283)
------------- ------------- ------------
DISCONTINUED OPERATIONS:
Loss from operations of discontinued Grid Power Services (Note 4) - (555,970) (1,263,408)
Loss on disposal of Grid Power Services (Note 4) - (912,609) -
------------- ------------- ------------
LOSS FROM DISCONTINUED OPERATIONS - (1,468,579) (1,263,408)
------------- ------------- ------------
NET LOSS (19,659,239) (41,319,955) (7,503,691)
------------- ------------- ------------
Series B preferred stock dividend (Note 20) - 227,282 214,429
Series B preferred discount amortization (Note 20) - 203,659 75,000
------------- ------------- ------------
NET LOSS ATTRIBUTABLE TO COMMON SHARES $ (19,659,239) $ (41,750,897) $ (7,793,120)
============= ============= ============
PRIMARY AND FULLY DILUTED (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE:
Net loss from continuing operations before discontinued
operations attributable to common shares (8.83) (19.14) (3.78)
Loss from discontinued operations 0.00 (0.70) (0.72)
------ ------- ------
NET LOSS ATTRIBUTABLE TO COMMON SHARES $(8.83) $(19.84) $(4.50)
====== ======= ======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES* 2,226,830 2,104,582 1,729,567
========= ========= =========
</TABLE>
* Adjusted for 1 for 5 stock split
See accompanying notes to consolidated financial statements.
F - 7
<PAGE>
<TABLE>
<CAPTION>
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Common Stock Preferred Stock
Number Amount of Number Amount of
of Shares* Par Value* of Shares Par Value
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 1,064,132 $10,641 $ - $ -
Issuance of common stock 674,132 6,741 - -
Dividends accrued on Series B preferred stock - - - -
Series B preferred stock discount amortization - - - -
Wolverine Power Corp. minority shareholder dividend - - - -
Currency translation adjustments on international
subsidiaries consolidation - - - -
Net loss - - - -
------------ ---------- ----------- -----------
Balance, December 31, 1994 1,738,264 17,382 - -
Issuance of common stock 488,566 4,886 - -
Issuance of common stock warrants - - - -
Change in minority interest due to sale of
subsidiary's stock - - - -
Dividends accrued on Series B preferred stock - - - -
Series B preferred stock discount amortization - - - -
Renewable Energy Ireland Limited minority
shareholder dividend - - - -
Currency translation adjustments on international
subsidiaries consolidation - - - -
Net loss - - - -
------------ ---------- ----------- -----------
Balance, December 31, 1995 2,226,830 22,268 - -
Currency translation adjustments on international
subsidiaries consolidation - - - -
Issuance of common stock warrants - - - -
Net loss - - - -
------------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996 2,226,830 $22,268 $ - $ -
------------ ---------- ----------- -----------
------------ ---------- ----------- -----------
<CAPTION>
Additional Retained
paid-in Earnings
Capital (Deficit) Total
------------- ------------- --------------
<S> <C> <C> <C>
Balance, December 31, 1993 $29,374,625 $(10,377,493) $19,007,773
Issuance of common stock 34,515,479 - 34,522,220
Dividends accrued on Series B preferred stock - (214,429) (214,429)
Series B preferred stock discount amortization (75,000) - (75,000)
Wolverine Power Corp. minority shareholder dividend - (17,647) (17,647)
Currency translation adjustments on international
subsidiaries consolidation - - 646,580
Net loss - (7,503,691) (7,503,691)
----------- ------------ -----------
Balance, December 31, 1994 63,815,104 (18,113,260) 46,365,806
Issuance of common stock 14,049,320 - 14,054,206
Issuance of common stock warrants 2,039,625 - 2,039,625
Change in minority interest due to sale of
subsidiary's stock 245,855 - 245,855
Dividends accrued on Series B preferred stock - (227,282) (227,282)
Series B preferred stock discount amortization (203,659) - (203,659)
Renewable Energy Ireland Limited minority
shareholder dividend - (63,604) (63,604)
Currency translation adjustments on international
subsidiaries consolidation - - 132,258
Net loss - (41,319,955) (41,319,955)
----------- ------------ -----------
Balance, December 31, 1995 79,946,245 (59,724,101) 21,023,250
Currency translation adjustments on international
subsidiaries consolidation - - (1,252,360)
Issuance of common stock warrants 1,479,994 - 1,479,994
Net loss - (19,659,239) (19,659,239)
----------- ------------ -----------
BALANCE, DECEMBER 31, 1996 $81,426,239 $(79,383,340) $ 1,591,645
----------- ------------ -----------
----------- ------------ -----------
* Adjusted for 1 for 5 stock split
</TABLE>
See accompanying notes to consolidated financial statements.
F - 8
<PAGE>
<TABLE>
<CAPTION>
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 1 of 2
-------------------------------------
Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
-------------- --------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(19,659,239) $(41,319,955) $ (7,503,691)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,632,309 3,980,408 955,722
Amortization of goodwill 183,002 216,013 180,000
Amortization of Series B preferred stock offering costs - 120,752 40,248
Minority interest in net income of consolidated subsidiaries 209,100 (283,665) 328,375
Net equity loss in non-consolidated affiliates (77,542) 4,199,184 911,743
Amortization of debt discount 1,970,415 152,972 -
Amortization of debt issue costs 668,201 - -
Loss on sale of assets, net 1,002,748 - -
Loss on disposal of discontinued operations - 912,609 -
Impairment charges 6,359,004 24,431,410 -
Write-offs of deferred project costs and fixed assets - 3,800,000 -
Change in assets and liabilities, net of effect of acquisitions/disposals:
(Increase) in accounts receivable (209,100) (780,819) (1,127,662)
Decrease in interest receivable - - 28,192
Increase (decrease) in inventories 59,963 (860,972) (542,555)
(Increase) decrease in other current assets 169,549 44,488 (656,722)
Increase (decrease) in accounts payable and accrued liabilities 1,198,525 786,425 4,445,971
Decrease in non-current liabilities 236,536 (925,793) -
Other 499,738 732,752 -
--------------- ---------------- ------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (4,215,815) (4,794,191) (2,940,379)
-------------- --------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (6,834,530) (24,339,779)
Acquisition of subsidiaries, net of cash acquired - (2,120,764) (2,920,470)
(Investments) disposals in and advances to affiliates 15,114,556 (4,823,645) (3,432,289)
Decrease in notes payable - 188,416 (230,197)
Deferred development expenditures - (3,088,786) (1,048,915)
------------- -------------- --------------
NET CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES 15,114,556 (16,679,309) (31,971,650)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due to related parties - 1,056,304 3,200,006
(Decrease) in due to related parties, net (151,000) (3,337,506) -
Increase in long-term debt 1,915,255 20,669,190 5,402,642
Deferred debt issue costs - (980,079) -
Repayment of long-term debt (15,188,030) (3,565,537) (114,295)
(Increase) decrease in restricted cash 2,292,447 (4,669,554) -
Proceeds from issuance of common stock - 8,917,969 27,198,146
Proceeds from exercise of stock options and warrants - - 57,500
Renewable Energy Ireland Limited minority dividend - (63,604) -
Wolvenine Power Corporation minority dividend - - (17,647)
------------- ------------- ------------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES (11,131,328) 18,027,183 35,726,352
------------- ------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS - 238,353 -
Net change in cash and equivalents (232,587) (3,207,964) 814,323
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 681,369 3,889,333 3,075,010
--------------- -------------- -------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 448,782 $ 681,369 $ 3,889,333
============== ============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 9
<PAGE>
<TABLE>
<CAPTION>
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 2 of 2
-------------------------------------
Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
--------------- -------------- -------------
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
<S> <C> <C> <C>
Common stock issued for majority interest in Photocomm Inc. $ - $ - $5,198,939
Common stock issued for majority interest in Solartec S.A. - - 281,253
Common stock issued for Westinghouse alliance - - 896,552
Common stock issued for portion of minority interest in Arcadian Power Corp. - - 941,050
Common stock exchanged for Wolverine Power Corp. subordinated debentures - - 6,280
Common stock issued for majority interest in Bellacorick - 637,500 -
Common stock issued for Fujian I Hydroelectric Project - 4,498,742 -
Common stock warrants issued 1,479,994 2,039,625 -
Change in minority interest due to sale of subsidiary's stock 681,647 245,855 -
Conversion of preferred stock to mortgage payable for Wolverine Power Corp. - 3,615,370 -
Series B preferred stock dividend accrual - 227,282 214,429
Series B preferred stock discount amortization - 203,659 75,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $3,914,424 $1,800,814 $534,869
Interest income - 30,936 58,345
Income taxes
</TABLE>
See accompanying notes to consolidated financial statements.
F - 10
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The New World Power Corporation ("the Company") was
incorporated in the State of Delaware in 1989. The Company is a
global developer and producer of electricity generated from
wind energy, solar energy and hydropower. The Company also
develops, manufactures and markets electrical gathering systems
powered by renewable resources and provides related services.
(A) BASIS OF PRESENTATION:
The financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
(B) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
The New World Power Corporation and its subsidiaries. All
intercompany balances and transactions have been eliminated.
The Company's policy is to consolidate all companies over which
it exercises control. Investments over which the Company has
significant influence, but does not control, are reported under
the equity method.
(C) CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, demand deposits
and short-term cash investments that are highly liquid in
nature and have original maturities of three months or less
(see Note 5).
(D) INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is
determined principally by the first-in, first-out method.
(E) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are carried at cost. Depreciation
is computed using accelerated methods for the Company's
operations in the United Kingdom, and the straight-line method
for all other property, plant and equipment, based upon the
estimated useful lives of the assets. Significant renewals and
betterments are capitalized. Maintenance and repair costs are
expensed.
(F) FACILITY DEVELOPMENT:
The Company develops new power production facilities and
acquires existing power production facilities for both
operation and development. Accounting for costs incurred in the
development phase is as follows:
New power production facilities. All costs (including
financing, legal and other professional costs, development
period interest on any financing, development period labor and
supply costs, and development period operating costs)
attributed to facilities developed by the Company are deferred,
until the facility is completed and placed in productive
service. At that time, deferred costs are amortized on a
straight-line basis over the expected useful life of the
facility, usually 25- 40 years.
F - 11
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(F) FACILITY DEVELOPMENT (CONTINUED):
Facilities acquired for operation. These facilities are
substantially ready to be placed in productive service when
acquired. The purchase price, along with other acquisition
costs, including financing, legal and other professional fees
are principally assigned to the facility and depreciated over
the expected useful life of the facility. Any identified
intangible recorded is amortized on a straight-line basis over
a period consistent with the period used for the related
facility depreciation, usually 10-40 years.
Facilities acquired for development. These facilities require
substantial investment in additional or retrofitted turbines,
equipment or infrastructure refurbishment before they can be
placed in productive service. The initial acquisition cost, as
well as subsequent development costs (including directly
related and incremental financing, legal and other professional
fees, development period interest on any financing, land rents
and property taxes, and development period labor and supply
costs) are deferred. Receipts for any power sales during the
development period are recorded as an offset to development
costs. After the facility is placed in service, any identified
intangible, representing the amount of the initial acquisition
cost in excess of the fair value of assets along with all
facility development costs, is amortized on a straight line
basis over the expected useful life of the facility, usually
10-40 years.
Redeveloped facilities. Redevelopment costs of owned facilities
are deferred and included in the asset value of the refurbished
facility. These deferred costs may include financing, legal and
other professional costs, and development period interest on
any financing. Land rents; property taxes and labor directly
attributable to the facility or portion of the facility, which
is redeveloped, are also deferred. Once the facility is placed
in service, the asset is amortized on a straight-line basis
over the expected useful life of the facility, usually 25-40
years.
Other project deferrals. The Company defers costs, including
professional services and direct labor, incurred for site
inspections, site permits and deposits related to specific
project activities. During the development phase, these
capitalized costs are included in other non-current assets (see
Note 11). When it is probable that future projects will not be
completed or cost may not be recovered, such costs are
written-off.
(G) ACCOUNTING FOR LONG-LIVED ASSETS:
The Company evaluates the recoverability of its carrying value
of long-lived assets and identifiable intangibles whenever
events or changes in circumstances occur which warrant such an
evaluation. The Company reports its long-lived assets at the
lower of cost (less depreciation) or fair value.
In March of 1995, the Financial Accounting Standard Board
("FASB") issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" ("FAS 121"). This
standard requires that the Company compare estimated expected
future cash flows (undiscounted and without interest charges)
identified with each asset to the carrying amount of such asset
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
F - 12
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(G) ACCOUNTING FOR LONG-LIVED ASSETS(CONTINUED):
For those assets to be disposed of whose estimated fair values
are less than the carrying amount, an impairment would be
recorded, based on the amount by which the carrying values
exceed the estimated fair values less cost to sell. The
estimated fair values are determined based upon market values,
where available, or on the basis of estimated expected future
cash flows discounted at a rate commensurate with the risks
involved. The Company adopted FAS 121 in the first quarter of
1996, with no material impact resulting on the financial
position or results of operations of the Company. (See Note 3
for Impairment Charge).
(H) GOODWILL:
Goodwill is the difference between the purchase price and the
fair value of net assets acquired in business combinations
treated as purchases. Goodwill is amortized on a straight-line
basis over the periods benefitted, generally in the range of 10
to 40 years. On a periodic basis or whenever events or changes
in circumstances warrant, the Company estimates the future
undiscounted cash flows of the businesses to which goodwill
relates to determine whether the carrying value of goodwill has
been impaired.
(I) REVENUE & SALES RECOGNITION:
The Company records revenue from the sale of electric power
generated upon the delivery of the electric power to the
purchasing utility. Revenue earned from the sale of
manufactured products is recorded upon the shipment of the
products or acceptance by the customer, depending on contract
terms. Service revenues are recognized as services are
rendered. Provisions for doubtful accounts are made when losses
are anticipated.
Included within other non-current liabilities are deferred
revenues of $4.3 million and $4.6 million at December 31, 1996
and 1995, respectively, relating to certain grant proceeds,
which are recognized as revenue over the life of the grant.
(See Note 4 regarding Renewable Energy Ireland Limited).
(J) RESEARCH AND DEVELOPMENT:
Expenditures for research and development costs are expensed as
incurred.
(K) FOREIGN CURRENCY TRANSLATION:
For foreign subsidiaries whose functional currency is the local
foreign currency, balance sheet accounts are translated at
exchange rates in effect at the end of the year and income
statement accounts are translated at average exchange rates for
the year. Translation gains and losses are included as a
separate component of stockholders' equity.
F - 13
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(L) INCOME TAXES:
Effective October 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). There was no cumulative effect of that
change in the method of accounting for income taxes. FAS 109
requires the asset and liability method of accounting for
income taxes rather than the deferred method previously used
under APB Opinion No. 11.
(M) EARNINGS PER SHARE:
Primary earnings (loss) per share is computed using the
weighted average number of shares of common stock and dilutive
common stock equivalents outstanding, if any. Fully diluted
earnings (loss) per share is computed using the weighted
average number of shares of common stock and all dilutive
convertible securities, stock options and warrants, if any. The
effect of common stock equivalents, including dilutive stock
options and warrants, is computed using the treasury stock
method. Earnings per share and all other references to share
prices and options/warrant pricing has been adjusted to reflect
the Company's 1 for 5 reverse stock split in November 1996.
(N) CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts receivable.
The Company, from time to time, maintains cash balances which
exceed the federal depository insurance coverage limit. The
Company performs periodic reviews of the relative credit rating
of their bank to lower their risk.
The Company believes that concentration with regards to
accounts receivable is limited due to its customer base being
regulated public utilities.
(O) RECLASSIFICATIONS:
Certain reclassifications have been made to prior year amounts
to conform with the current year presentation.
(P) RECENT PRONOUNCEMENTS:
In October 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). This standard is effective for
fiscal years beginning after December 15, 1995. The Company
implemented the statement as required and adopted FAS 123 using
the pro forma disclosure method described in the pronouncement.
NOTE 2 - FILINGS WITH THE UNITED STATES SECURITY AND EXCHANGE COMMISSION
("SEC")
The Company did not file in a timely manner certain reports
required by the Securities and Exchange Act of 1934, which
could jeopardize its status as a public company.
F - 14
<PAGE>
NOTE 3 - IMPAIRMENT CHARGE:
In 1996 and 1995, the Company recorded an impairment charge of
$6.4 million and $24.4 million, respectively in accordance with
the provisions of SFAS No. 121. The impairment charge was
reflected as a reduction of the following financial statement
captions:
<TABLE>
<CAPTION>
1996 1995
---------------- ------------------
<S> <C> <C>
Property, plant and equipment, net $1.4 MILLION $13.4 million
Goodwill, net - 4.1 million
Investments (see Note 10) 3.5 MILLION 5.9 million
Inventories and other non-current assets 1.5 MILLION 1.0 million
------------- ---------------
$6.4 MILLION $24.4 million
------------- ---------------
------------- ---------------
</TABLE>
The aggregate carrying value of assets held for sale as of
December 31, 1996 and 1995 is approximately $3.6 million and
$25.6 million, respectively (see Note 28 for Subsequent
Events). In determining the amount of impairment charge for
assets held for sale, the Company's policy is to compare the
carrying value of its assets and investments to the estimated
fair value. In determining fair value, the Company used market
values for publicly traded investments (i.e. Photocomm), or
correspondence with potential buyers as an indication of market
value. In circumstances where the Company's negotiations to
sell assets and investments have not included correspondence
with potential buyers in sufficient detail to indicate a market
value, the Company used the projected future cash flows from
these investments and assets. These projected cash flows have
been discounted at rates commensurate with the risk of the
respective investment, and generally range from rates of 16% to
21%. The Company has estimated the impairment charge based upon
the best information available to management. It is at least
reasonably possible that actual losses may be materially higher
or lower than the amounts recognized.
NOTE 4 - SIGNIFICANT BUSINESS CHANGES:
ACQUISITIONS
Fujian
In May of 1995, the Company signed an agreement with China
Chang Jiang Energy Corporation ("CCJEC") to acquire a 40%
interest in the Fujian Chang Ping Hydro Company, Ltd.
("Fujian"), a 39 MW hydroelectric project under development in
The Fujian Province of China, for approximately $15 million. In
August of 1995, the Company made payments totaling
approximately $8.7 million representing an approximately 24%
interest in Fujian. This consideration was comprised of
approximately $4.2 million in cash and the remainder in common
stock of New World Power Corporation (143,000 shares (715,000
shares before the reverse stock split) at the valuation date).
F - 15
<PAGE>
NOTE 4 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
ACQUISITIONS (CONTINUED)
Fujian (continued)
Subsequent to the Company's initial investment, concern arose
as to whether adequate approvals had been obtained, under
Chinese law, for the acceptance of New World Power Corporation
shares as payment for the Company's interest in Fujian. Due to
uncertainties involving, among other things, significant
project construction delays and Fujian's lack of liquidity, the
Company has recorded an other than temporary decline at
December 31, 1995, to adjust the carrying value of its
investment to the estimated net realizable value of the
Company's continued interest in Fujian. Continued delays in
1996 and lack of capital for the project resulted in the
Company writing off its investment in Fujian. The impact of
this writedown is included as part of the impairment charge in
the accompanying Consolidated Statement of Operations at
December 31, 1996 and 1995 (see Notes 3 and 10).
Renewable Energy Ireland Limited
In February 1995 the Company, through its wholly-owned
subsidiary, New World Power Company Limited, purchased
approximately 87.5% of Renewable Energy Ireland Limited
("REIL"), the owner and operator of a 6.45 MW wind farm in
Bellacorick, Ireland in exchange for $1.7 million in cash and
20,816 shares (104,082 shares before the reverse stock spilt)
of the Company's common stock. The Company incurred
approximately $400,000 in transaction costs relating to the
acquisition of REIL consisting of legal and other professional
fees. The acquisition has been accounted for under the purchase
method. As of the acquisition date, REIL had total assets of
approximately $9.4 million, and total liabilities of $7.5
million. Results of operations after the acquisition date are
included in the 1995 consolidated Statement of Operations.
The following unaudited pro forma information has been prepared
assuming that this acquisition had taken place at the beginning
of 1994. The unaudited pro forma information includes
adjustments for interest expense that would have been incurred
to finance the purchase and the amortization of goodwill
arising from the transaction. The unaudited pro forma financial
information is not necessarily indicative of the results of
operations as would have been reported had the transaction been
effected on the assumed dates (000's omitted, except per share
data).
<TABLE>
<CAPTION>
Year ended December 31 1994
---------------------- --------
<S> <C>
Gross profit $ 8,399
Loss from continuing operations (6,062)
Net loss attributable to common shares (7,615)
Loss per common share from continuing operations (.74)
Net loss per common share (.88)
</TABLE>
In April 1997, the Company signed an agreement to sell its
investment in REIL (See Subsequent Events Note 28).
F - 16
<PAGE>
NOTE 4 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
ACQUISITIONS (CONTINUED)
Photocomm
On November 8, 1993, the Company acquired 3,412,221, or 29%, of
the outstanding common shares of Photocomm. The Company also
acquired options to purchase 4.1 million additional common
shares and obtained rights of first refusal to purchase
additional shares of Photocomm common stock from three of
Photocomm's principal shareholders. The cost to the Company was
43,741 shares (218,703 shares before the reverse split) of its
common stock and approximately $2.6 million in cash. As
described below, some of the common shares and options were
purchased from Photocomm and three of its principal
shareholders, one of which is Westinghouse Electric Corporation
("Westinghouse"). Options to purchase approximately 2.6 million
shares expired on December 31, 1995. The remaining options to
purchase 1.5 million shares are exercisable at $3.00 per share
and expired on December 31, 1996.
On August 30, 1994, the Company acquired an additional
1,800,000 shares of common stock of Photocomm and other
Photocomm securities, principally from Westinghouse, in
exchange for 99,027 shares (495,137 shares before the reverse
split) of the Company's common stock. The Company immediately
converted these Photocomm securities into an aggregate of
360,226 shares of Photocomm common stock. The Company
subsequently purchased an additional 40,000 shares of Photocomm
common stock on the open market and purchased 600,000 shares
pursuant to a partial option exercise. As a result of these
transactions and after consideration of the short-term voting
agreement pursuant to which Photocomm's Chief Executive Officer
agreed to vote certain of his shares in the same manner as the
Company votes its shares, the Company had control of over 51%
of Photocomm's issued and outstanding common stock as of
December 31, 1994. The Company recorded the above described
transactions under the purchase method of accounting, and as a
result of obtaining control, began consolidation of Photocomm
into its financial statements.
On February 10, 1995, the Company purchased 400,000 additional
shares of Photocomm common stock. However, at December 31,
1995, the Company owned 6,612,447 shares of Photocomm,
representing only 48.8% of the issued and outstanding voting
shares of Photocomm. The decrease in the Company's ownership
percentage from December 31, 1994 results from various
Photocomm equity transactions in which the Company did not
participate. Additionally, the short-term voting agreement with
Photocomm's Chief Executive Officer expired during 1995.
As a result of the Company no longer having a controlling
interest in Photocomm, the investment in Photocomm is accounted
for on the equity method, effective January 1, 1995. The
summarized balance sheet and statement of operations
information for Photocomm at December 31, 1995 is as follows
(000's omitted):
<TABLE>
<CAPTION>
Balance Sheet Statement of Operations
----------------------------------------- ----------------------------------------------------
<S> <C> <C> <C>
Current assets $ 7,334 Sales $21,765
Total assets 10,361 Net income 839
Current liabilities 2,676 Net income applicable to
Total liabilities 3,069 common shareholders 689
</TABLE>
F - 17
<PAGE>
NOTE 4 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
ACQUISITIONS (CONTINUED)
Photocomm (continued)
On July 31, 1996, the Company entered into a letter of intent
to sell its investment in Photocomm and on August 16, 1996,
the Company signed a definitive agreement for the sale. In
October 1996, the Company sold its investment in Photocomm for
approximately $11.3 million. Proceeds from the sale were used
to pay off a portion of the outstanding debt obligations (See
Note 14 for Long Term Debt). The Company recorded a loss of
approximately $1.3 million on the sale of Photocomm, which is
included in the Consolidated Statement of Operations under the
caption "Other Income (Expense)".
Solartec
On August 30, 1994, the Company acquired 51% of the issued and
outstanding capital stock of Solartec S.A. ("Solartec").
Solartec is a fabricator and distributor of photovoltaic
products in Argentina. The Company purchased the Solartec stock
in exchange for approximately $1.7 million in cash and 5,357
shares (26,786 shares before reverse split) of the Company's
common stock. The Company also has an option to purchase the
remaining 49% of Solartec's issued and outstanding capital
stock at a price equal to three times the tangible net worth
per share of Solartec on December 31, 1996. In September 1996,
the Company sold its investment in Solartec for $1.6 million
and the proceeds from the sale were used to pay off a portion
of the outstanding debt obligations. (See Note 14 for Long Term
Debt).
San Jacinto
On December 15, 1993, the Company purchased a 49.99% interest
in the common stock of San Jacinto Company ("San Jacinto"). On
the same date, the Company contributed 9,600 shares (48,000
shares before reverse split) of New World Power Corporation
common stock and on June 29, 1994, the Company contributed
$274,945 in cash for its ownership interest. San Jacinto was
formed for the purpose of acquiring the operating assets and
liabilities of the Smith Wind Energy Company ("Smith") and six
affiliated limited partnerships operated by Smith and Six
Limited Partnerships known as Triad A, Triad B, Triad C, Triad
D, Triad E, and Triad F Limited Partnerships ("Triad"). Smith
and Triad operated a Wind Turbine Energy Park in North Palm
Springs, California. The Company accounts for this investment
under the equity method. The Company sold its investment in San
Jacinto in August 1997 (see Note 28 for Subsequent Events).
Entec
In June 1993, the Company acquired 49% of the outstanding
capital stock of Entec S.A. de C.V. ("Entec") for approximately
$1.5 million. In October 1995, the Company contributed an
additional $415,000 to purchase an additional 1% interest in
Entec. The Company accounts for this investment under the
equity method. Entec, located in Mexico, is engaged in project
development and rural electrification. During 1995, Entec
continued to experience significant financial hardships and as
a result the Company wrote-down its remaining investment in
Entec to zero.
F - 18
<PAGE>
NOTE 4 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
ACQUISITIONS (CONTINUED)
Los Vaqueros
In June 1993, the Company purchased the assets of Los Vaqueros,
an operating wind farm located in the state of California, for
$380,000. The acquisition was accounted for by the Company
under the purchase method. In August 1996, the Company sold its
investment in Los Vaqueros for $125,000.
Makani Uwila
In March 1993, the Company acquired all of the outstanding
capital stock of the Makani Uwila Power Corporation in exchange
for 9,600 shares (48,000 shares before the reverse split) of
the Company's common stock and $50,000. The acquisition has
been accounted for under the purchase method. In January 1997,
the Company was forced to abandon the windfarm as a result of
foreclosure proceeding from the landlord. Accordingly, the
Company wrote its investment down to zero at December 31, 1996.
See Note 28 for Subsequent Events.
DISCONTINUED OPERATIONS
New World Grid Power Company
During December 1995, the Company announced its intention to
discontinue operations at the New World Grid Power Company
("NWGPC") due to adverse industry trends in the service segment
of the wind power business. The NWGPC included all operations
relating to the Company's Grid Power Services segment. NWGPC
provided installation, operation, maintenance, repair and
retrofit services to various companies in the wind power
industry. The results of NWGPC are reported as discontinued
operations in the accompanying Consolidated Financial
Statements. During December 1995, the Company reached an
agreement to sell the remaining assets of NWGPC for
approximately $200,000. The Company recorded a $913,000 loss on
the disposal of this segment in 1995. In March 1999, the
Company sold its equity interest in NWGPC. (See Note 28 for
Subsequent Events.)
NOTE 5 - CASH RESTRICTED IN USE:
The United Kingdom and Ireland wind farms are required to
accumulate cash in escrow accounts to pay the next principal
and interest payments before cash flow from the wind farms is
available for general corporate purposes. Restricted cash
balances aggregating $2,377,107 and $857,046 are on deposit at
December 31, 1996 and 1995, for these purposes, and are not
currently available for general corporate purposes. Because
this cash will be used to pay the current portion of debt and
accrued interest the cash is reported as a current asset. See
Subsequent Event Note 28.
At December 31, 1995, the Company had $512,508 of restricted
cash representing collateral for outstanding letters of credit.
In addition, an amount of $3.3 million was held in escrow by
the Company at December 31, 1995 pursuant to a debt agreement
(see Note 14 for Long-Term Debt).
F - 19
<PAGE>
NOTE 6 - ACCOUNTS RECEIVABLE:
The components of accounts receivable as of December 31, 1996
and 1995 are as follows (000's omitted):
1996 1995
------ ------
Due from customers $2,501 $3,713
Due from employees 1 22
Due from others - 681
------ ------
2,502 4,416
Allowance for doubtful
accounts 30 147
------ ------
Total $2,472 $4,269
------ ------
------ ------
NOTE 7 - INVENTORIES:
Inventory consists of the following as of December 31,
1996 and 1995(000's omitted):
1996 1995
------ ------
Raw materials $ 75 $ 414
Work-in-progress - 164
Finished goods - 1,138
Supplies 48 228
------ ------
123 1,944
Less reserve for obsolescence 30 73
------ ------
Total $ 93 $1,871
------ ------
------ ------
NOTE 8 - PLANT, PROPERTY AND EQUIPMENT:
Property, plant and equipment consists of the
following as of December 31, 1996 and 1995 (000's
omitted):
<TABLE>
<CAPTION>
Useful Life
1996 1995 (Years)
-------- -------- -------------
<S> <C> <C> <C>
Power generation facilities and equipment:
Hydroelectric $ 3,204 $ 3,077 40
Wind:
Owned 26,517 30,775 25
Leased 82 82 10 to 20
Leasehold improvements - 1,661 Shorter of
term of lease
or useful life
Office furniture and equipment 1,834 2,075 3 to 5
Land 407 445
Facility development - 89 25 to 40
-------- -------
Total 32,044 38,204
Less accumulated depreciation and amortization 10,926 8,829
-------- -------
$21,118 $29,375
-------- -------
-------- -------
</TABLE>
F - 20
<PAGE>
NOTE 8 - PLANT, PROPERTY AND EQUIPMENT (CONTINUED):
Depreciation and amortization expense, including amortization
of assets held under capital leases, for the years ended
December 31, 1996, 1995 and 1994 was $3,632,309, $3,980,408,
and $955,722, respectively.
Maintenance and repair expense for the years ended December
31, 1996, 1995 and 1994, was $901,040, $603,971 and $774,071,
respectively.
NOTE 9 - GOODWILL:
Goodwill relates principally to the Company's Renewable
Energy Ireland Limited and Wolverine operations (see Note 1)
and consists of the following as of December 31, 1996 and
1995 (000's omitted) (see also Note 3 for Impairment Charge):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Subject to 40 yr. Straight-line amortization $ 402 $ 402
Subject to 20 yr. Straight-line amortization 1,167 1,167
------- -------
1,569 1,569
Less accumulated amortization 203 20
------- -------
Total $1,366 $1,549
------- -------
------- -------
</TABLE>
NOTE 10 - INVESTMENTS:
The Company's investments in, and advances to, unconsolidated
affiliates consists of the following as of December 31, 1996
and 1995 (000's omitted):
<TABLE>
<CAPTION>
Ownership % 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Photocomm, Inc. 46% Sold $12,895
Fujian Hydro Project 12 - 3,500
New World Entec S.A. 51 - -
San Jacinto Power Company 50 25 100
---- -------
$25 $16,495
---- -------
---- -------
</TABLE>
The equity (earnings) loss in unconsolidated affiliates is as
follows (000's omitted):
<TABLE>
<CAPTION>
Year ended Year ended Year ended
December 31, December 31, December 31,
1996 1995 1994
-------- -------- ----------
<S> <C> <C> <C>
Photocomm, Inc. $(152) $ (156) $ -
Fujian Hydro Project - - -
New World Entec S.A. - 4,331 950
San Jancinto Power Company 75 24 (39)
-------- -------- ------
$ (77) $4,199 $911
-------- -------- ------
-------- -------- ------
</TABLE>
F - 21
<PAGE>
NOTE 10 - INVESTMENTS (CONTINUED):
During 1996 and 1995, the Company recorded impairment charges
related to its equity investments as follows (000's omitted)
(See Note 3 for Impairment Charge and Note 4 for Significant
Business Changes):
<TABLE>
<CAPTION>
1996 1995
AMOUNT Amount
------ ------
<S> <C> <C>
Fujian Hydro Project $3,500 $5,342
San Jacinto Power Company - 646
</TABLE>
NOTE 11 - OTHER NON-CURRENT ASSETS:
At December 31, 1996 and 1995, other non-current assets
consists of the following (000's omitted):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred project costs $ 785 $3,080
Debt issue costs 312 980
Other 73 667
-------- --------
$1,170 $4,727
-------- --------
-------- --------
</TABLE>
NOTE 12 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the
following as of December 31, 1996 and 1995 (000's omitted):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accounts payable $3,565 $4,387
Accrued interest expense 776 599
Accrued warranty liabilities 102 102
Accrued liabilities 643 1,028
Other current liabilities 679 1,033
------- -------
$5,765 $7,149
------- -------
------- -------
</TABLE>
NOTE 13 - DUE TO RELATED PARTIES:
Amounts due to related parties consist of the following at
December 31, 1996 and 1995 (000's omitted):
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Sundial International Fund Ltd. (a) $3,434 $3,615
Sundial International Fund Ltd. (b) 580 550
Sundial International Fund Ltd. (c) - -
Due to Solartec stockholders (d) - 463
-------- -------
$4,014 $4,628
-------- -------
-------- -------
</TABLE>
F - 22
<PAGE>
NOTE 13 - DUE TO RELATED PARTIES (CONTINUED):
(a) On December 1, 1995, Sundial International Fund Limited
("Sundial"), a significant stockholder, exchanged its Class B
Preferred Stock for a First Mortgage Note in the principal
amount of $3,615,370 on the hydroelectric facilities of the
Company's subsidiary, Wolverine Power Corp. ("Wolverine"),
located in Michigan. The Company also pledged 200 shares of
Wolverine Power Corp., constituting all of the issued and
outstanding stock of Wolverine. The note is payable, together
with accrued interest at the LIBOR plus two percentage points
on December 31, 1997. Notwithstanding the foregoing, principal
and interest shall be due and payable upon written request
("Request Date") by the holder in seven equal quarterly
installments of principal, each equal to five percent of the
principal balance and a final installment in the amount of the
unpaid principal, payable on each three-month anniversary of
the Request Date. The Company received the written request in
accordance with the foregoing on December 1, 1995. In January
1996, the Company defaulted on this note and the loan was
restructured. Significant terms of the restructuring are as
follows:
First Mortgage on Wolverine Power Corporation
* The note was refinanced with principal payments
rescheduled from seven quarterly payments commencing
March 1, 1996 to four payments due December 1, 1996,
March 1, 1997, June 1, 1997 and July 31, 1997.
* Interest was reset to LIBOR plus 2%.
* An additional 500 shares of New World Power Company
Ltd. were pledged as collateral.
* The lender waived defaults under the old loan agreement.
* The lender surrendered approximately 220,000 (1.1
million before reverse stock split) warrants to purchase
common stock at exercise prices between $37.50 and
$75.00 ($7.50 and $15.00 before the reverse split) for
88,800 new warrants (444,000 new warrants before reverse
split) with an exercise price of $8.75 ($1.75 before the
reverse split).
As a result of the debt restructuring described above,
which requires the Company to make asset sales in 1996 in
order to pay its debt obligations, the Company reclassified
the 8% secured subordinated notes and First Mortgage on
Wolverine to current obligations as of December 31, 1995.
Because of uncertainties surrounding the Company's ability
to comply with all of the revised loan provisions, the
entire balance has been classified as current at December
31, 1995. At December 31, 1996, the Company was in default
on the above obligation, however, it had received an offer
to purchase two of its windfarms in the United Kingdom.
Half of the proceeds from that sale would be used to pay
down the aforementioned outstanding indebtedness with the
other half going to paying down the outstanding
Subordinated Notes (See Note 28 for Subsequent Events). In
addition, the Company received an offer to sell, and sold
in April 1997, its investment in Renewable Energy Ireland
Limited ("REIL"). The proceeds from that sale were used to
repay the remaining indebtedness due to Sundial
International under this First Mortgage indebtedness. (See
Note 28 for Subsequent Events). As a result of the above
offers, the lender extended the due date of the amounts due
and waived any defaults through April 30, 1997.
F - 23
<PAGE>
NOTE 13 - DUE TO RELATED PARTIES (CONTINUED):
(b) On December 20, 1995, The New World Power Company Limited
("NWPCL"), an English subsidiary of the Company, sold its 0%
Senior Secured Note due March 31, 1996 in the original amount
of $550,000 to Sundial. The note is secured by substantially
all of the assets of Wolverine Power Corporation. The Company
has also pledged 700,000 common stock shares of REIL, a
subsidiary of NWPCL, as collateral. Subsequent to December 31,
1995, the due date of the Note was extended. Significant terms
are as follows:
0% Senior Secured Note
* Face amount of the note was changed from $550,000 to
$579,851.
* The maturity date was changed from March 31, 1996 to
December 1, 1996.
In April 1997, the Company closed an agreement to sell its
investment in REIL and the proceeds were used to pay off
the remaining amounts due to Sundial International
regarding this 0% Senior Secured Note. (See Note 28 for
Subsequent Events).
(c) On December 30, 1994, NWPCL, sold its Exchangeable Senior
Secured Guaranteed Note due December 29, 1995 in the original
principal amount $2,200,000 and warrants to purchase 200,000
shares of the Company's common stock at an initial exercise
price of $7.50 per share expiring January 14, 2000 to Sundial
for $2,037,200 (as part of the transaction, Sundial
surrendered warrants to purchase 125,000 shares of the
Company's common stock at an initial exercise price of $15.00
per share expiring November 8, 1998). The effective interest
rate on this loan is 8%. The loan was guaranteed by the
Company, and secured by 2,900,000 shares of common stock
(subject to adjustment) of Photocomm, a subsidiary of the
Company prior to its sale. The Company used the majority of
the net proceeds of the loan to purchase 87.5% of the
outstanding stock of REIL, the owner of a 6.45 MW wind farm in
Bellacorick, Ireland. This note was paid in full in December
1995 with concurrent release of the pledged Photocomm shares.
(d) Relates to two unsecured notes payable to an officer and
stockholders of Solartec in the amount of $462,500 at December
31, 1995, bearing interest at an annual rate of 12% per annum.
F - 24
<PAGE>
NOTE 14 - LONG-TERM DEBT:
Long-term debt consists of the following at December
31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C> <C>
8% convertible subordinated notes in the original amount of
$15,750,000 due July 31, 2000, issued with warrants to
purchase 157,500 common shares (787,500 shares before reverse
split), net of unamortized debt discount of $1,396,232 and
$1,887,000 at December 31, 1996 and 1995, respectively, with
an effective interest rate of 9.19%. Note is secured by, among
other assets, the Company's investment in New World China,
including the Fujian Hydroelectric Project and Photocomm and a
charge over shares (lien) of New World Power Limited. $ 3,512 $13,863
Notes payable due June 30, 1999, bearing interest at LIBOR
plus 1.75, and secured by assets of the Company's U.K. wind
farms. 6,546 8,422
Notes payable due November 30, 2002, bearing interest at
Dublin Interbank Market plus 1.75%, and secured by
substantially all of the assets of Renewable Energy Ireland,
Ltd. 1,468 1,846
Short term notes payable to banks by Solartec. - 549
Various notes payable due from 1996 to 1998, interest rates
of 8 - 10%. 526 774
Other - 161
-------- --------
Total 12,052 25,615
Less current portion 6,658 17,966
--------- --------
Long-term portion $ 5,394 $ 7,649
======== ========
</TABLE>
Subsequent to December 31, 1995, the Company defaulted on its
8% convertible subordinated notes, and the debt was
restructured. As of December 31, 1996, the Company was in
default of its debt agreements, however, the defaults were
waived as a result of the pending offers for two of the
Company's UK windfarms and its Irish windfarm received in
early 1997.
In February and March 1996, the Company defaulted on three of
its loan agreements, and as a result, was required to
restructure those obligations. The more significant terms of
these restructured agreements are as follows:
F - 25
<PAGE>
NOTE 14 - LONG-TERM DEBT (CONTINUED):
8% Secured Subordinated Notes Due July 31, 2000
(a) The maturity date was changed from July 31,
2000 to July 31, 1997 or sooner if sinking
fund balance is sufficient to redeem notes.
(b) In addition to collateral in the Company's
Photocomm shares and New World China
investment, additional collateral was
pledged as follows:
- The Company's 51% share in
Solartec
- The Company's share in New
World Power Texas Company
- New World Power Company
Limited's shares (50%)
- 477,000 shares of the
Company's common stock
(held in escrow)
* Interest payments were restructured to
include payments in the form of interest
notes and warrants for the Company's common
shares, as follows:
January 15, 1996 $60 of notes and 8 warrants
(40 warrants before reverse split)
per $1,000 of outstanding
subordinated notes July 31, 1996 $70
of notes and 10 warrants (50 warrants
before reverse split) per $1,000 of
outstanding subordinated notes or
cash at an annual rate,
at the Company's option
January 31, 1997 Cash at an 8% annual rate
\
July 31, 1997 Cash at an 8% annual rate
The warrants will have a five year expiration date from
the date of issue and the exercise price will be $8.75
($1.75 before reverse split in November 1996), subject
to certain anti-dilution provisions.
* The 8% secured subordinated notes are
exchangeable into New Notes (as defined in
the agreement). The New Notes are unsecured
and mature on July 31, 2000 and are
convertible into common shares at 65% to 75%
of the common stock price, with a minimum
conversion price of $3.75 ($0.75 before
reverse split) and maximum price of $16.25
($3.25 before reverse split). The New Notes
are callable by the Company after the common
stock closes above $35 ($7 before reverse
split) for 20 days out of 30 trading days.
* The Company will raise $10 million of net
proceeds from the sale of assets or
securities by July 31, 1996. This was
successfully completed with the sale of
Photocomm in 1996, the proceeds going to
repay a portion of this indebtedness.
* The Company will raise an additional $17
million of proceeds from the sale of assets
or securities by November 30, 1996. This
date was extended as a result of the Company
receiving offers on two of its UK windfarms
and its Irish windfarm.
* 100% of the proceeds from the sale of
Photocomm shares, and the Company's Solartec
subsidiary and the New World Power Texas
Company must be placed in a sinking fund for
the purpose of retiring the debt.
F - 26
<PAGE>
NOTE 14 - LONG-TERM DEBT (CONTINUED):
8% Secured Subordinated Notes Due July 31, 2000 continued
* 50% of the proceeds from the sale of the
shares of the New World Power Company
Limited must be placed in a sinking fund for
purposes of retiring debt.
* The exercise price of warrants originally
issued with the debt was reset to $8.75 per
share ($1.75 per share before reverse stock
split).
The $3.3 million of original proceeds from the loan, held in
escrow, was released from escrow to the Company for purposes
of paying corporate expenses until July 15, 1996. The Company
must comply with certain debt covenants under the
restructured agreement, and due to uncertainties surrounding
the Company's ability to comply with certain of these
covenants during 1996, the entire balance has been classified
as current. Additionally, various of the Company's long-term
debt agreements contain numerous restrictive covenants
including in addition to others, the inability to upstream to
the Company revenue generated by the U.K. wind farms and
others.
Per the restructured agreement, the aggregate scheduled
maturities and sinking fund requirements of long-term debt as
of December 31, 1996 for each of the next two years, after
adjustment for certain mandatory prepayments as required by
the restructured lending agreements (See Note 28 for
Subsequent Events), are as follows (000's omitted):
Year Amount
-------- ---------
1997 $ 6,658
1998 5,394
---------
Total $12,052
---------
---------
NOTE 15 - LEASES:
Capital Lease Obligations
The Company is obligated under capital leases related to
wind turbines and other wind power generation and
transmission equipment. These leases expire on various
dates through 1998. The accompanying consolidated balance
sheet includes equipment leases aggregating $23,830 and
$29,035 as of December 31, 1996 and 1995.
F - 27
<PAGE>
NOTE 15 - LEASES (CONTINUED):
Capital Lease Obligations (continued)
The present value of future minimum capital lease
payments as of December 31, 1996 (000's omitted):
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ -----------
<S> <C>
1997 $15,854
1998 4,220
1999 2,584
2000 974
----------
Total minimum rent payments 23,632
Less amount representing interest 1,775
----------
Present value of future minimum capital lease payment 21,857
Less current installments 14,079
----------
Obligations under capital leases, excluding current installments $ 7,778
----------
----------
</TABLE>
Operating Leases
All of the Company's wind power generation facilities are
located on land leased by the Company under various
non-cancelable operating lease agreements that expire
through 2019. Such leases generally contain renewal
options, which give the Company the right to extend the
leases at lease rates to be negotiated at the time of lease
renewal. The leases provide for the Company to pay rent
based on wind power generation revenues but not less than a
fixed base rental payment. In addition, the Company has
certain equipment and buildings under non-cancelable
operating leases. Rental expense for the years ended
December 31, 1996, 1995 and 1994, was $237,365, $529,147,
and $566,039, respectively. See Note 28 for Subsequent
Events.
Future minimum rental commitments under non-cancelable
operating leases are as follows (000's omitted): See Note
28 for Subsequent Events.
<TABLE>
<CAPTION>
Year ending December 31: Amount
------------------------ ---------
<S> <C>
1997 $ 379
1998 351
1999 339
2000 327
2001 315
Thereafter 2,927
-------
Total minimum rent payment $4,638
-------
-------
</TABLE>
F - 28
<PAGE>
NOTE 16 - LITIGATION:
Dwight Kuhns et al
On November 12, 1996, Dwight Kuhns, former Chief Operating
Officer of the Company and a former member of the Company's
Board of Directors, commenced an action against the Company
in the Superior Court, Alameda County, California alleging
among other things the Company's failure to pay amounts due
to Mr. Kuhns under his consulting agreement entered into at
the start of January 1996. That agreement provided for a
stated monthly fee and additional incentive fees for
assisting in the restructuring/asset sales of the Company.
The Company hired counsel to represent it in the Courts of
California. This litigation was settled. The Company
recorded a liability for the settlement of $650,000 which
is included in Other Non Current Liabilities in the 1996
Consolidated Balance Sheet and included in Other Expense in
the Consolidated Statement of Operations (see Note 28 for
Subsequent Events).
Kenetech Windpower, Inc.
On January 30, 1995, Kenetech Windpower, Inc. ("Kenetech")
filed a patent infringement suit in the United States
federal court for the Northern District of California
against the Company and Enercon GmbH ("Enercon") relating
to the proposed use of Enercon E-40 wind turbines at the
Company's planned wind power generating facility in Big
Springs, Texas. The suit alleges that the use of the
Enercon turbines in the United States would violate certain
Kenetech patents and seeks an injunction and unspecified
damages. The Company reviewed the Kenetech patents in
detail and investigated the Enercon technology well before
the suit was filed and, based on such reviews and
investigations, believes that neither the Enercon turbine
nor its mode of operation infringes on any claims of any of
Kenetech's patents. Accordingly, the Company believes that
the Kenetech suit is without merit and therefore, the
ultimate resolution will not have a material adverse effect
on the Company's financial position. The Company intends to
vigorously contest the suit. There can be no assurance,
however, that the Company will prevail in its defense of
the suit and that an injunction and/or monetary damages
will not be imposed against the Company. A hearing was held
on January 12, 1996 relating to the patent infringement
suit filed by Kenetech against the Company on January 30,
1995, where two motions were filed by Enercon GmbH and the
Company. The first motion was granted and Kenetech's claim
for relief based on actual patent infringement was
dismissed. An initial determination decision was rendered
by the International Trade Commission on May 31, 1996 for
the second motion, denying the claim and affirming that
Enercon equipment, if used in the United States, would
infringe the asserted Kenetech patents. Final determination
reflected no liability on the part of the Company other
than incidental costs of defending. See Note 28 for
Subsequent Events.
Energy Unlimited
The Company has brought an arbitration proceeding against
Energy Unlimited, Inc. and its affiliates seeking damages
for breach of a settlement agreement entered into in 1993.
The respondents have asserted claims for rescission of the
settlement agreement and breach of contract. The Company
intends to pursue vigorously its claims in the arbitration
proceeding and believes that the defendants' claims and
defenses lack substantial merit. On February 29, 1996, the
Company entered into a Settlement and Asset Purchase
Agreement with Energy Unlimited, Inc. and its affiliates.
In connection with this agreement, the Company received
$350,000 representing the purchase price of certain wind
turbines and as full and final settlement of all claims
asserted in the arbitration.
F - 29
<PAGE>
NOTE 17 - OTHER COMMITMENTS AND CONTINGENCIES:
Wolverine License Applications
The Federal Power Act requires that all hydroelectric
facilities operating on navigable streams obtain a license
from the Federal Energy Regulatory Commission ("FERC"). The
Company's applications for licenses for its Michigan
hydroelectric facilities have been accepted and are pending
final action. In connection with the licensing process, the
Michigan Department of Natural Resources ("MDNR")
recommended that the Company be required to modify its
existing method of operation to the run-of-the-river
method. Although it is not possible to predict what
conditions will be imposed by the FERC, the Company
believes that the FERC will require a change in the method
of operation within the next three to five years so as to
release a minimum daily flow of water. If the FERC were to
require a change to the run-of-the-river method of
operation, it would adversely affect the Company's power
production from these facilities and materially reduce
power production revenue unless the Company retrofits these
facilities. Minimum flow operation would not affect power
production at the three upstream facilities but would
reduce peak-period energy capacity and revenue at the
downstream facility unless the Company retrofitted the
facility for minimum flow operation. Retrofitting the
downstream facility for minimum flow operation would cost
approximately $300,000 and take approximately one year to
complete. See Note 28 for Subsequent Events.
Performance Bond
In connection with the Company's proposal to construct a
hydroelectric facility at Anderson Falls, Argentina, the
Company was required to post a $1 million performance bond.
The Company was unable to complete the project financing
primarily due to the local utility credit downgrading and
as a result the construction of this facility was halted.
The Company faces the risk that this bond may be called.
Management is currently seeking a buyer for this
development project who would assume the Company's
obligations under the performance bond. The Company has
recorded a reserve for its estimated exposure with respect
to this project. See Note 28 for Subsequent Events.
Capital Expenditures
Under the power purchase contract with Consumers Power
Company ("Consumers"), which expires in 2023,the Company is
required to sell all the power generated from a specified
capacity to Consumers. The agreement provides for revision
of prices every ten years. In 1996, the Company failed to
reach an agreement with Consumers regarding new prices and
as a result the already existing prices continue unchanged.
However, the Company and Consumers have now a right to
request the price renegotiation each year.
In addition, as of December 31, 1995 the Company failed to
meet certain minimum capital expenditure commitments
stipulated in the agreement with Consumers. The under
expenditure of $385,000 at December 31, 1995 is disputed by
the Company.
F - 30
<PAGE>
NOTE 17 - OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED):
Agreements with Dominion Bridge
In August 1996, the Company terminated its existing interim
services agreement with Glass & Associates and entered into
a new interim services agreement with Dominion Bridge.
Under the interim services agreement, Dominion would
provide an interim Chief Executive Officer as well as a
consultant to the Company. The compensation under the
agreement would be $40,000 per month payable in a
combination of cash and common stock of the Company. At the
same time, the Company entered into a joint venture
agreement with Dominion Bridge to further develop the
projects currently in development in August 1996. Due to
various reasons, the two companies only pursued the New
World Texas Renewable Energy project. See Note 28 for
Subsequent Events.
Employment Agreement
Mr. John D. Kuhns was employed as Chief Executive Officer
of the Company and Chairman of the Board prior to April 11,
1996 and since then has served only as Chairman on the
Board. Mr. Kuhns did not seek re-election as Chairman of
the Board in October 1996. In accordance with the terms of
his employment agreement and its various amendments, Mr.
Kuhns agreed to accept in lieu of any severance benefit or
any other unpaid compensation due him upon termination the
leasehold improvements to certain property. Accordingly,
the property with improvements was distributed to Mr. Kuhns
at its net book value (approximately $1.5 million) in
October 1996.
NOTE 18 - MINORITY INTERESTS:
In May 1994, the Company acquired all of the common stock
held by the minority shareholders of two of the Company's
majority-owned subsidiaries, Arcadian and Wolverine,
eliminating the previous minority interest.
The remaining minority interest in consolidated subsidiary
companies is as follows (000's omitted):
<TABLE>
<CAPTION>
Minority Share
Minority December 31, of 1996 Net
Interest % 1996 Income (Loss)
---------- ------------ --------------
<S> <C> <C> <C>
REIL 12 1/2% $642 $ 7
Solartec S.A. 49% SOLD 202
---- -----
Total $642 $209
==== ====
<CAPTION>
Minority Share
Minority December 31, of 1995 Net
Interest % 1995 Income (Loss)
---------- ------------ --------------
<S> <C> <C> <C>
REIL 12 1/2% $ 634 $ 14
Solartec S.A. 49% 689 (298)
------ -----
Total $1,323 $(284)
====== =====
</TABLE>
F - 31
<PAGE>
NOTE 19 - INCOME TAXES:
As discussed in Note 1, the Company adopted FAS 109 as of
October 1, 1993.
Income tax expense (benefit) attributable to income from
continuing operations consists of:
<TABLE>
<CAPTION>
Current Deferred Total
-------- ---------- -------
YEAR ENDED DECEMBER 31, 1996:
<S> <C> <C> <C>
U.S. FEDERAL $ - $ - $ -
STATE AND LOCAL (1,500) - (1,500)
FOREIGN 33,635 - 33,635
-------- ---------- --------
$32,135 $ - $32,135
======== ========== ========
Year ended December 31, 1995:
U.S. federal $ - $ - $ -
State and local (1,315) - (1,315)
Foreign 23,911 - 23,911
-------- ---------- --------
$22,596 $ - $22,596
======== ========== ========
Year ended December 31, 1994:
U.S. federal $ - $ - $ -
State and local 44,427 - 44,427
Foreign 60,000 - 60,000
-------- ---------- --------
$104,427 $ - $104,427
======== ========== ========
</TABLE>
Differences between the effective income tax rate and the
statutory U.S. federal income tax rate for the year ended
December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- ------------- -------------
PERCENTAGE Percentage Percentage
<S> <C> <C> <C>
Statutory U.S. Federal Income Tax benefit (34.0%) (34.0%) (34.0%)
Loss without benefit 33.1% 31.9% 7.0%
Temporary difference without benefit .9% 2.0% 27.3%
Other 0% 0.1% 0.3%
--------- -------- -------
0% 0% 0%
========= ======== ========
</TABLE>
No current or deferred U.S. federal tax expense or benefit
has been recorded due to the significant consolidated tax
loss and the less than likely realization of deferred tax
benefits. The state, local and foreign tax expense relates
to tax expense in certain jurisdictions where one or more
of a Company's subsidiaries have generated net taxable
income on a separate company basis.
F - 32
<PAGE>
NOTE 19 - INCOME TAXES (CONTINUED):
The Company and subsidiaries have previously incurred net
operating losses for financial reporting purposes, some of
which may be available as carryforwards to offset future
taxable income. The tax effects of temporary differences
and carryforwards, which give rise to future income tax
benefits and payables at December 31, 1996, are as follows:
Non-current assets:
Net operating loss carryforwards $13,922,706
Loss on impairment 2,162,061
Tax credit carryforwards 595,000
Discontinued operations 77,700
Other -
Valuation allowance (16,244,048)
-----------
Net non-current asset 513,419
-----------
Non-current liabilities:
Depreciation 513,419
-----------
Net non-current liability 513,419
-----------
Net deferred tax $ -
===========
The tax credit carryforwards of $595,000 expire by 2002. At
December 31, 1996 the Company has net operating loss
carryforwards of approximately $44,000,000 which expire at
various dates through 2011.
A full valuation allowance has been recorded against the
deferred taxes, as realization is considered not more
likely than not as of December 31, 1996 and 1995.
Due in part to the transactions described in Note 4, where
stock of the Company was transferred, ownership changes
have occurred which will result in a limitation on the
utilization of net operating losses under Section 382 and
383 of the Internal Revenue Code. These Sections provide
that any future realization will be subject to annual
limitations based on the value of the Company at the time
an ownership change occurred. In addition, $2,296,398 of
the federal net operating loss carryforward relates to
losses of Northern Power Systems Inc. which was acquired in
1993. These acquired losses can only be utilized to offset
future income of Northern Power Systems. The federal net
operating loss carryforward may further be subject to
limitation based upon the consolidated tax return loss
disallowance rules which provide that any loss incurred
with respect to the sale or worthlessness of stock of a
subsidiary may be limited or disallowed.
F - 33
<PAGE>
NOTE 20 - SERIES B PREFERRED STOCK:
On December 31, 1992, the Company issued and sold 375,000
shares of the Company's Series B Cumulative Redeemable
Exchangeable Preferred Stock and warrants to purchase
75,000 shares (375,000 shares before reverse split) of the
Company's common stock. The warrants entitle the holder to
purchase common stock for $40.00 per share ($8.00 per share
before reverse split) (subject to anti-dilution adjustment)
until December 31, 1997. The Series B Preferred Stock is
exchangeable after January 1, 1996 into Wolverine's First
Mortgage Notes (at a rate of $8.00 in principal amount for
each share exchanged plus accrued dividends), and is
exchangeable prior to that date only in the event of a
material adverse change in the business or financial
condition of the Company or Wolverine. The Series B
Preferred Stock is redeemable by the Company at $8.00 per
share, plus accrued dividends, after January 1, 1996.
Dividends on the Series B Preferred Stock are cumulative at
the annual rate of 6.5% and payable through the issuance of
units (one unit for each $8.00 in accrued but unpaid
dividends) each consisting of one share of Series B
Preferred Stock and a warrant for one share of common stock
having the same terms as the warrant issued in connection
with the purchase of the Series B Preferred Stock. As of
December 31, 1994, the Company accrued $214,429 of Series B
Preferred Stock dividends. The transaction was valued so as
to allocate $2,625,000 to the Series B Preferred Stock and
$375,000 to the warrants. The resulting discount to the
$3,000,000 face value of the stock will be amortized over
five years.
On December 1, 1995, the holder of the Series B Preferred
Stock exercised its option to exchange the Series B
Preferred Stock for a Wolverine First Mortgage Note in the
amount of $3,615,370 and 76,921 warrants, expiring on
December 31, 1997, with interest at the LIBOR + 2% points
to purchase common stock at an exercise price of $8.00 per
share. At the date of the transaction, the Company charged
the remaining unamortized discount associated with the
Series B Preferred Stock issuance to additional
paid-in-capital. The value of the warrants issued with the
transaction was determined to be deminimus.
NOTE 21 - CAPITAL STOCK:
Common Stock
At the annual meeting of the stockholders held on October
21, 1996, a reverse stock split of 1 for 5 was approved.
The date of record for the reverse split was November 4,
1996.
At the annual meeting of stockholders held on June 22,
1995, the shareholders approved an increase of authorized
shares from 20,000,000 to 40,000,000.
On January 11, 1994, the Company agreed to acquire all
stock held by Fayette Manufacturing Corporation in Arcadian
Power Corporation and Wolverine. The acquisition of the
Arcadian stock took place in connection with the merger of
Arcadian into a wholly owned subsidiary of the Company. In
connection with the merger, the minority shareholders of
Arcadian received 18,701 shares (93,504 shares before
reverse split) of common stock issued by the Company. The
acquisition of the Wolverine shares occurred upon closing
of the Arcadian merger and required the payment of $400,000
to Fayette and the issuance of warrants for 5,000 shares
(25,000 shares before reverse split) of common stock.
F - 34
<PAGE>
NOTE 21 - CAPITAL STOCK (CONTINUED):
Common Stock (continued)
In March 1994, the Company sold 1,500,000 units, at $11.50
per unit, in an offshore offering pursuant to Regulation S
under the Securities Act of 1933. Each unit consists of
one-fifth share of common stock and a warrant to purchase
one-fifth share of common stock at an initial exercise
price of $75.00 per share expiring November 8, 1998. The
Company has the right to redeem the warrants at $.01 per
warrant upon not less than 30 days notice, if the closing
price of the common stock for the 20 consecutive trading
days immediately preceding the date of such notice equals
or exceeds 150% of the initial exercise price of the
warrants. The Company received approximately $15.7 million
in net proceeds after deducting fees for the placement
agent, legal fees and other expenses of approximately $1.5
million. The placement agent also received warrants to
purchase up to 30,000 units (150,000 units before reverse
split) at an initial exercise price of $69.00 per unit
($13.80 per unit before reverse split) expiring March 3,
1999.
In June 1994, the Company entered into a 15-year business
alliance agreement with Westinghouse, jointly to develop,
market, construct and own renewable power projects, such as
utility-scale wind farms, off-grid generating systems and
wireless photovoltaic systems. Under the agreement, the
Company and Westinghouse will jointly market the Company's
renewable power projects and products and Westinghouse will
have the option to participate with the Company in
renewable power projects. In consideration of
Westinghouse's obligations under the agreement, the Company
agreed to issue to Westinghouse up to 91,954 shares
(459,770 shares before reverse split) of the Company's
common stock, in installments, over a four-year period (of
which 18,701 shares (93,504 shares before reverse split)
were issued in 1994) and Incentive Warrants which will
enable Westinghouse to purchase up to 163,956 shares
(819,778 shares before reverse split) of the Company's
common stock, based upon certain operating revenue targets
for the Company. At December 31, 1995, management was
uncertain as to the future benefits to be derived from this
business alliance. As a result, previously recorded
goodwill of approximately $800,000 was written-off and
included within the 1995 impairment charge.
(See Note 3 for Impairment Charge). Additionally, the
Company had not issued approximately 18,000 shares (90,000
shares before reverse split) of common stock and other
securities issuable pursuant to this agreement pending
future discussions with Westinghouse.
In July 1994, Westinghouse and the Company entered into a
purchase agreement pursuant to which the Company issued
93,156 shares (465,780 shares before reverse split) of
common stock to Westinghouse in exchange for (i) 1,800,000
shares of common stock of Photocomm, (ii) 8,690 shares of
Series B Convertible Preferred Stock of Photocomm, and
(iii) a Subordinated Convertible Debenture in the original
principal amount of $250,000. In addition, the Company
issued 5,871 shares (29,357 shares before reverse split)
for an account receivable in the amount of $304,000 which
was owed to Westinghouse by Photocomm.
F - 35
<PAGE>
NOTE 21 - CAPITAL STOCK (CONTINUED):
Common Stock (continued)
In August 1994, the Company sold 1,150,000 units, at $11.00
per unit, in an offshore offering pursuant to Regulation S
under the Securities Act of 1933. Each unit consists of
one-fifth share of common stock and a warrant to purchase
one-fifth share of Common Stock at an initial exercise
price of $75.00 per share ($15.00 per share before reverse
split) expiring November 8, 1998. The Company has the right
to redeem the warrants at $.01 per warrant upon not less
than 30 days notice, if the closing price of the common
stock for the 20 consecutive trading days immediately
preceding the date of such notice equals or exceeds 150% of
the initial exercise price of the warrants. The Company
received approximately $11.5 million in net proceeds after
deducting the placement agent, legal fees and other
expenses of approximately $1.2 million. The placement agent
also received warrants to purchase up to 23,000 units
(115,000 units before reverse split) at an initial exercise
price of $75.00 per unit ($13.20 per unit before reverse
split) expiring November 8, 1998.
In February 1995, The New World Power Company Limited, a
wholly owned subsidiary of the Company, acquired 87.5% of
REIL, the owner and operator of a 6.45 MW wind farm in
Bellacorick, Ireland, in exchange for $1,700,000 and 20,816
shares (104,082 shares before reverse split) of the
Company's common stock valued at $637,500.
In February 1995, the Company sold 1,500,000 units, at
$6.00 per unit, plus the surrender of prior warrants to
purchase one share of common stock at an initial exercise
price of $15.00 per share expiring November 8, 1998 in an
offshore offering pursuant to Regulation S under the
Securities Act of 1933. Each unit consists of one-fifth
share of common stock and two warrants, each to purchase
one share of common stock at an initial exercise price of
$37.50 ($7.50 before reverse split) expiring January 14,
2000. The Company has the right to redeem the warrants at
$.01 per warrant upon not less than 30 days notice, if the
closing price of the common stock for the twenty
consecutive trading days immediately preceding the date of
such notice equals or exceeds $15.00. The Company received
approximately $8.2 million in net proceeds after deducting
fees for the placement agent of approximately $0.8 million
and legal fees and other expenses of approximately $80,000.
The placement agent also received warrants to purchase
30,000 units (150,000 units before reverse split) at an
initial exercise price of $36.00 per unit ($7.20 per unit
before reverse split) expiring January 14, 2000 as part of
the placement agent fee. The placement agent subsequently
purchased 240,000 units for $720,000 from the Company.
On August 15, 1995, in connection with its investment in
the Fujian Chang Ping Hydro Company, Ltd., the Company
issued 143,000 shares (715,000 shares before reverse split)
of common stock (see Note 4 for Significant Business
Changes).
At December 31, 1996 and December 31, 1995, the Company had
outstanding warrants of 1,754,231 and 1,609,390 (8,046,949
before the reverse split of November 4, 1996),
respectively, of which 163,956 (819,778 before adjustment
for the reverse split) were not exercisable at both dates.
The outstanding warrants' exercise price range from $8.75
to $75.00 ($1.75 to $15.00 before adjustment for the
reverse split) at both dates. Subsequent to December 31,
1995, the exercise price of certain of the warrants
pertaining to the Company's indebtedness were adjusted.
F - 36
<PAGE>
NOTE 22 - STOCK OPTION PLAN:
In May 1993, the Company adopted the 1993 Stock Incentive
Plan (the "Plan") pursuant to which it may issue awards and
options to purchase up to 100,000 shares (500,000 shares
before reverse split) of common stock to its employees,
directors and consultants. On January 31, 1995, the Plan
was amended, increasing the number of shares authorized for
options under the Plan to 400,000 shares (2,000,000 shares
before reverse split). The 1993 Stock Incentive Plan
replaced the Company's 1989 Stock Incentive Plan, except as
to options for 116,813 shares (584,067 shares before
reverse split) which were then outstanding under the 1989
Plan. Options to purchase Common Stock at December 31,
1996, 1995 and 1994, are shown below.
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding, beginning of year 407,217 115,684 113,642
Exercised during the year - - -
Forfeitures during the year 407,217 - -
Granted during the year - 291,533 2,042
------- ------- -------
Outstanding, end of year
(at prices ranging from $15.00 to $60.00) - 407,217 115,684
======= ======= =======
Eligible for exercise, end of year - 122,721 115,684
======= ======= =======
</TABLE>
NOTE 23 - RELATED PARTY TRANSACTIONS:
In addition to the related party transactions described in
Note 13, the Company had the following related party
transactions:
In fiscal 1989, Arcadian and Wolverine entered into
management agreements with a corporation controlled by a
major stockholder and principal officer of the Company to
provide certain management services. The Company and its
subsidiaries incurred management fees under these
agreements of $476,000,and $480,000 during the years ended
December 31, 1995 and 1994. There were no management fees
for 1996 since the management contract was terminated in
August 1995.
In May 1995, the Company entered into a ten-year lease
agreement with the same stockholder for it's new corporate
headquarters. The lease required annual payments of $42,000
with annual increases based on the Consumer Price Index. In
1995, the Company satisfied the annual rent payment, for
the new corporate headquarters, through the forgiveness of
a receivable from the same major stockholder and principal
officer. Since March 1991, the Company's former corporate
headquarters have been subleased from this same
stockholder. Lease payments of $12,000, $14,400 and $14,400
were made during the years ended December 31, 1996, 1995
and 1994, respectively. The lease was terminated on
November 15, 1996.
In fiscal 1993, the Company contracted with a construction
company owned by the same stockholder for leasehold
improvements to the Company's new corporate headquarters.
Through fiscal 1995, $1,515,532 of construction payments
were made under this agreement.
F - 37
<PAGE>
NOTE 23 - RELATED PARTY TRANSACTIONS (CONTINUED):
A company controlled by another major stockholder and
director of the Company acted as placement agent in the
offshore offerings completed by the Company in May 1993,
November 1993, March 1994, August 1994 and February 1995
(see Note 21). The Company paid the placement agent fees
totaling $4,236,000 in connection with these offerings. In
connection with the May 1993 offering, the placement agent
received warrants to purchase 17,000 shares (85,000 shares
before reverse split) of common stock at an initial
exercise price of $54.00 ($10.80 before reverse split) per
share expiring May 24, 1998. In connection with the
November 1993 offering, the placement agent received
warrants to purchase 64,000 units at an initial exercise
price of $12.00 per unit expiring November 8, 1998. In
connection with the March 1994 offering, the placement
agent received warrants to purchase 150,000 units at an
initial exercise price of $13.80 per unit expiring March 3,
1999. In connection with the August 1994 offering, the
placement agent received warrants to purchase 115,000 units
at an initial exercise price of $13.20 per unit expiring
August 30, 1999. In connection with the February 1995
offering, the placement agent received warrants to purchase
up to 150,000 units at $7.20 per unit expiring January 14,
2000. The placement agent fee related to this offering was
paid by the Company through the issuance of 24,000 shares
(120,000 shares before reverse split) of common stock. In
addition, during 1994 the Company paid the placement agent
a $61,116 fee in connection with the placement of the $2.2
million promissory note (see Note 13). Further, during
1995, the placement agent purchased $2,622,000 of the 8%
convertible subordinated notes. Subsequent to December 31,
1995, the Company entered into consulting agreements with
certain stockholders to perform services in connection with
the Company's restructuring plans. All such consulting
agreements were terminated in 1996.
NOTE 24 - SEGMENT INFORMATION:
The Company's operations are classified into three
segments: grid power production, wireless power sales and
other products and services. Facilities within the grid
power production segment sell electricity generated by wind
farms and hydroelectric plants to customers under long-term
power sales contracts. Operations within the wireless power
segment include the manufacture, assembly and installation
of renewable power generating systems. The other products
and services segment designs, develops, manufactures and
installs wind turbines, and are included within corporate,
eliminations and others.
F - 38
<PAGE>
NOTE 24 - SEGMENT INFORMATION (CONTINUED):
The following table shows assets and other financial
information by segment and geographical area for the years
ended December 31, 1996, 1995 and 1994, (000's omitted).
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
(000's omitted) 1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Operating Revenue:
Grid power production $ 8,033 $ 7,735 $ 3,129
Wireless power sales 6,112 8,647 18,878
Corporate, eliminations and others 1,240 (9) 901
-------- -------- -------
TOTAL OPERATING REVENUE $15,385 $16,373 $22,908
======== ======== =======
Operating (Loss) Profit:
Grid power production $ (3,248) $(26,562) $ (34)
Wireless power sales (303) (1,472) 332
Corporate, eliminations and others (7,401) (9,739) (7,152)
-------- -------- -------
TOTAL OPERATING PROFIT (LOSS) $(10,952) $(37,773) $(6,854)
======== ======== =======
Assets at December 31:
Grid power production $ 27,431 $ 31,791 $31,654
Wireless power sales 430 17,840 12,607
Corporate, eliminations and others 1,959 15,765 29,912
-------- -------- -------
CONSOLIDATED ASSETS $ 29,820 $ 65,396 $74,173
======== ======== =======
Capital Expenditures:
Grid power production $ - $ 5,281 $22,543
Wireless power sales - 161 2,773
Corporate, eliminations and others - 1,392 (227)
-------- -------- -------
CONSOLIDATED CAPITAL EXPENDITURES $ - $ 6,834 $25,089
======== ======== =======
Depreciation and Amortization:
Grid power production $ 3,428 $ 3,434 $ 389
Wireless power sales 73 18 124
Corporate, eliminations and others 131 528 442
-------- -------- -------
CONSOLIDATED DEPRECIATION AND
AMORTIZATION EXPENSE $ 3,632 $ 3,980 $ 955
======== ======== =======
Impairment Charge:
Grid power production $ 1,400 $ 20,905 $ -
Wireless power sales - 2,277 -
Corporate, eliminations and others 4,959 1,249 -
-------- -------- -------
CONSOLIDATED IMPAIRMENT CHARGE $ 6,359 $ 24,431 $ -
======== ======== =======
Geographic Revenue:
North America $ 4,599 $ 5,233 $20,641
Central and South America 4,840 5,831 1,939
Europe 5,946 5,309 328
-------- -------- -------
CONSOLIDATED GEOGRAPHIC REVENUE $ 15,385 $ 16,373 $22,908
======== ======== =======
Geographic Assets:
North America $ 5,187 $ 29,192 $47,321
Central and South America - 7,383 4,826
Europe 24,633 25,321 22,026
Asia - 3,500 -
-------- -------- -------
CONSOLIDATED GEOGRAPHIC ASSETS $ 29,820 $ 65,396 $74,173
======== ======== =======
</TABLE>
In 1996, 1995 and 1994, no customer accounted for more than
10% of total revenue.
F - 39
<PAGE>
NOTE 25 - FINANCIAL INSTRUMENTS:
By nature, all financial instruments involve risk, generally
market risk arising from change in interest rates and credit
risk. Financial instruments that potentially subject the
company to credit risk consist primarily of cash deposits,
accounts receivable, accounts payable and long-term debt.
Statements of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instruments", defines
the fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction
between willing parties, other than in a forced liquidation
sale.
<TABLE>
<CAPTION>
1996
----------------------------
Carry Estimate Fair
Amount Value
------- -------------
(000's omitted)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 449 $ 449
Cash restricted in use 2,377 2,377
Liabilities:
Debt due to Related Parties 4,014 -
Long-term Debt 526 -
</TABLE>
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and Cash Equivalents, Cash Restricted in use and Notes
Receivable - The carrying amount is a reasonable estimate of
fair value.
Debt Due to Related Parties and Long-term Debt - It was not
practicable to estimate the fair value of these financial
instruments for 1996. See Note 13 and Note 14 for debt terms.
The fair value estimates presented herein are based on
pertinent information available to management as of December
31, 1996. Although management is not aware of any factors that
would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates, and
estimates of fair value subsequent to those dates may differ
significantly from the amounts presented herein.
NOTE 26 - CONCENTRATIONS OF RISK:
The Company derives all of its revenue from the production and
sale of electric power generated from renewable sources and, to
a lesser extent, the sale of products related to the renewable
energy industry. As a result, the Company is subject to several
concentrations of risk. A significant majority of the Company's
revenues are derived from contracts for the sale of power to
regulated public utilities. Under many of these contracts, the
price for energy is subject to the utilities' "avoided cost".
"Avoided cost" is affected by, among other factors, the
availability and market price of oil, gas, and other energy
sources. Additionally, the Company will have to renegotiate
contracts with the utilities when the present contracts expire.
Further, the renewable energy industry has, in the past, been
subject to legislative and regulatory changes, and will likely
continue to be affected by such factors for the foreseeable
future.
F - 40
<PAGE>
NOTE 27 - CHANGE IN FISCAL YEAR:
The Company changed its fiscal year end from September to a
calendar year end in 1994.
NOTE 28 - SUBSEQUENT EVENTS:
(A) KENETECH LITIGATION
In light of the equipment supplier dispute, the Company
elected to use other equipment in the New World Texas
Renewable Energy Project. (See Note 16 for Litigation). The
company prepared and obtained all the necessary approvals to
change the equipment on the project. Prior to construction,
the project was sold to York Research Corporation (see below).
(B) CONSUMERS POWER COMPANY POWER PURCHASE CONTRACT
The rates under this power purchase contract were subject to
negotiation on December 31, 1995. The Company has abandoned
its attempts to renegotiate its contract with Consumers Power
Company and as a result, its contract is continued on a year
to year basis under the conditions of the original contract.
(C) DEBT RESTRUCTURING
Starting in July 1997, the Company was negotiating with the
holders of the 8% Subordinated Convertible Notes, which had a
maturity date under the original restructuring in 1996 of July
31, 1997 (See Note 14 for Long Term Debt). In December 1997,
the Company reached an agreement with the holders of the
Subordinated Convertible Notes. The agreement consisted of two
parts, one with holders of approximately $625,000 of Notes
including principal and interest. The second was with the
holders of the balance of the debt obligation of approximately
$4.3 million.
The first agreement involved the transferring of an 89%
interest in its wholly owned subsidiary, New World Power
Vermont, to Arete Ventures (holders of a portion of the
Subordinated Convertible Notes-see Note 14, "Arete") in
exchange for elimination of the total outstanding debt
obligations to that group. In addition, New World retained an
11% interest in the form of a Series A Redeemable Preferred
Stock in Vermont. The preferred stock consists of 129,643
shares. On February 25, 1999, the Board of Directors of
Northern Power Systems (formerly New World Power Vermont)
elected to redeem all of the 129,643 shares of Series A
Convertible Preferred Stock at the redemption price of $1.00
per share. The Redemption date was fixed at March 22, 1999. The
Company elected to not convert its Series A Preferred Stock
into Common Stock and accordingly received $129,643 in March
1999.
F - 41
<PAGE>
NOTE 28 - SUBSEQUENT EVENTS (CONTINUED):
(C) DEBT RESTRUCTURING (CONTINUED)
The second agreement involved the restructuring and reduction
of the remaining outstanding indebtedness to the Flemings Group
(holders of the remainder of the Subordinated Convertible
Notes-see Note 14, "Flemings"). The Company agreed to amortize
$1,935,000 before December 1998 in varying monthly installments
of principal and interest. In addition, the Company agreed to
amortize an additional $850,000 under a three year note
beginning in January 1998 and continuing through December 2000.
The monthly payment is $26,636 including principal and
interest. The interest rate on the two notes is fixed at 8% per
annum as agreed to by the parties. The first Note was
collateralized by a first lien position of New World Power
Texas Renewable Energy Partnership, a first lien position on
Caton Moor (a UK subsidiary), and a first lien position on the
Company's investment in China. The second note is
collateralerized by a first mortgage position on Wolverine
(subject to a subordination to a new investor in New World up
to $1.5 million). The Company fully extinguished the
indebtedness due under the first note by December 1998 and the
balance remaining on the second note as of March 31, 1999 is
approximately $520,000. The balance of the indebtedness at the
restructure date of approximately $1,346,000 was eliminated as
debt and converted by the Noteholders into New World Power
common stock at a conversion price of $1.50 per share.
Accordingly, in December 1997, the Company issued approximately
897,400 shares of common stock to the Noteholders.
(D) INVESTMENT BY SYNEX INTERNATIONAL
In July 1998, the Company closed a convertible debt investment
from Synex Energy Resources Ltd., the power project development
subsidiary of Vancouver-based Synex International, Inc.
(TSE:SXI). Synex will provide up to $1,000,000 to the Company
in the form of a convertible debenture, which matures on June
30, 2001. The debenture provides for the conversion into the
Company's stock at $1.00 per share and the interest rate is
10.3% per annum. In addition, the investment provided Synex
with warrants to purchase up to 500,000 shares of the Company's
common stock at $1.25 per share, which expire on June 30, 2000.
Vesting in the warrants only occurs after the entire $1.0
million is funded by Synex. The debenture is secured by a first
mortgage position on Wolverine. As of March 1999, the Company
has received approximately $500,000 from Synex under this
lending facility. The investment also provides for a strategic
alliance with Synex and a Participation Agreement for a minimum
term of 18 months, which would enable the Company to procure
resources for project assessment at rates detailed in the
agreement.
(E) ASSET SALES
In February 1997, the Company sold its investments in two
(Dyffryn Brodyn and Four Burrows) of its three windfarms in the
United Kingdom to Renewable Energy Systems Limited (a company
in the United Kingdom) for approximately 2.3 million pounds
sterling (approximately $3.7 million US) and recorded a loss of
approximately $580,000 on the sale. From the proceeds of the
sale, the Company had to pay off the entire remaining
indebtedness to Hambros Bank as the collateral position of
Hambros included a cross-collateral position between Four
Burrows, Dyffryn Brodyn and Caton Moor. In February 1997, the
Company paid approximately 892,922 pounds sterling
(approximately $1.4 million US) to Sundial International Fund
Ltd. as a partial repayment of indebtedness and approximately
892,922 pounds sterling (approximately $1.4 million US) to the
holders of the Subordinated Convertible Notes as a partial
repayment of its indebtedness (see Note 14 for Long-Term Debt).
F - 42
<PAGE>
NOTE 28 - SUBSEQUENT EVENTS (CONTINUED):
(E) ASSET SALES (CONTINUED)
In April 1997, the Company sold its investment in Renewable
Energy Ireland Limited to Bord Na Mona for approximately 1.6
million Irish pounds (approximately $2.7 million US) and
recorded a loss of approximately $70,000 on the sale. In
addition, the Company received a final dividend from its
investment in REIL of approximately 84,000 Irish pounds
(approximately $140,000 US) in March 1997. The net proceeds of
the transaction, along with funds on hand at the Company, were
used to pay off the remaining indebtedness to Sundial
International Fund Ltd., including all accrued interest and
fees. The repayment of the entire Sundial indebtedness provided
the Company with free and clear title to the assets of
Wolverine, which enabled it to restructure the Fleming
indebtedness as well as raise additional capital from Synex
International Inc. See Proforma financial information below.
In August 1997, the Company entered into a definitive agreement
of sale to sell its investment in San Jacinto for $87,500, and
recorded a gain of approximately $62,000 in 1997.
(F) TERMINATION OF DOMINION BRIDGE AGREEMENT
In April 1998, the Company terminated its interim management
contract with Dominion Bridge as well as all other agreements
and associations between the two companies. No additional
compensation was given to terminate those agreements.
(G) SALE OF NEW WORLD POWER TEXAS RENEWABLE ENERGY PARTNERSHIP
In October 1997, due to the inability to raise project
financing, the Company and its joint venture partner DB Power
Inc. entered into an agreement to sell its interests in the New
World Texas Renewable Energy Partnership to York Research
Corporation for $1,500,000. The proceeds under the sale were
split 50/50 between the parties in the joint venture and were
received in three installments after certain contingencies were
resolved. The final payment under the sale agreement was
received in 1998. The Company recorded a gain of approximately
$300,000 from the sale of the partnership. All of the proceeds
received by the Company were paid to the holders of the
Subordinated Notes as agreed to under the restructured debt
agreements with the Fleming group. (See Note 17 for Other
Commitments and Contingencies.)
F - 43
<PAGE>
NOTE 28 - SUBSEQUENT EVENTS (CONTINUED):
(H) SETTLEMENT OF LITIGATION
During 1998, Dwight Kuhns et al ("plaintiff") was granted a
judgement against the Company including penalties in the total
amount of approximately $1.9 million. In December 1998, the
Company and plaintiff entered into negotiations on which to
settle his judgement and avoid bankruptcy for the Company. In
January 1999, the Company and Mr. Kuhns reached a settlement
which provided for plaintiff to receive a $75,000 payment upon
signing of the agreement and a $25,000 payment due March 1,
1999. The Company has made both of those payments. In addition,
the Company executed a promissory note in the principal amount
of $275,000 with interest accruing at 9% per annum. Under that
promissory note, the Company is required to make a $30,000
payment April 1, 1999, a $60,000 payment on July 1, 1999, a
$60,000 payment on October 1, 1999 and the remaining principal
and interest on December 31, 1999. Further the Company executed
a mortgage note in the principal amount of $275,000 with
interest at 7.5% per annum, secured by a third position on
Wolverine. Payments under this mortgage note are to be made in
six equal installments due on June 30 and December 31 of each
year in the amount of approximately $52,000. The Company also
issued 150,000 unregistered shares to plaintiff and a warrant
to purchase 75,000 shares of the Company's common stock at $2
per share.
In November 1998, the Company filed suit in California against
the legal firm that represented it in the Kuhns litigation. The
allegations include, among other things, misrepresentation of
the Company in the legal proceedings pertaining to the Kuhns
litigation. The Company is seeking unspecified damages.
(I) WOLVERINE LICENSE APPLICATIONS
On October 16, 1998, the Federal Energy Regulatory Commission
("FERC") issued licenses for all four hydro projects of the
Wolverine Power Corporation. In addition, the FERC amended the
Sanford license rescinding its original order that Sanford
operate on a run-of-river basis in which outflow would equal
inflow and allow it to continue to operate in a peaking mode.
The licenses are valid for 30 years. (See Note 16 for
Litigation.)
(J) PERFORMANCE BOND
On January 27, 1999, the Company entered into an agreement to
sell its 60% interest in the Salto Andersen Project to an
Argentine company for approximately $7,000. The agreement
provides for an option period to complete the transaction and
resolve all outstanding regulatory issues within 135 days from
January 27,1999. Management believes that the Argentine Company
will exercise the option to purchase the project by June 13,
1999, or shortly thereafter, thereby eliminating any and all
potential contingencies to the Company under the performance
bond. (See Note 17 for Other Commitments and Contingencies.)
F - 44
<PAGE>
NOTE 28 - SUBSEQUENT EVENTS (CONTINUED):
(K) SALE OF ARCADIAN RENEWABLE POWER CORPORATION, MAKANI UWILA AND
NEW WORLD POWER GRID COMPANY
On March 15, 1999, the Company entered into a definitive
agreement to sell its investments in three subsidiaries to
American Powerhouse, Inc., a Delaware Corporation or its
successors and assigns. The agreement calls for the Company to
exchange its shares in each of the subsidiaries for $100,000
and 1,000,000 common shares (4.0% of the outstanding stock) of
American Powerhouse, Inc. The $100,000 is payable 30 days from
the effective date of the transaction and based upon completion
of an offering by American Powerhouse, Inc.
(L) SALE OF INTEREST IN TIERRAS MORENAS
The Company had been undertaking, through a Costa Rican
subsidiary in which it had a 35% minority interest, to develop
a windfarm near Lake Arenal, Costa Rica. In May 1996, as a
result of financial difficulties deferring the completion of
the development of the project, the Company's 65% majority
partner in the project entered into an agreement to sell its
majority interest to a US alternative energy development
company. As a result of that sale, the Company's position in
the project was weakened. In December 1997, the Company
received a capital call on the project, which it could not
answer as a result of financial difficulties. Accordingly, the
Company's ownership percentage was diluted to less than 5%. In
1998, the Company negotiated a sale of its interest to the
majority owner of the project for $295,000, recording a gain of
approximately $95,000 in 1998.
(M) SALE OF INTEREST IN DONA JULIA
The Company, on behalf of a Costa Rican company in which it had
a minority interest, was developing a hydroelectric facility in
Heredia, Costa Rica. The Company has entered into a letter of
intent to sell its interest in the project for $1.4 million
subject to a definitive stock purchase agreement. During the
due diligence and the preparation of the definitive stock
purchase agreement, the Company received approximately
$400,000, which it recorded as an offset to its costs incurred
on the project. The purchaser informed the Company that as a
result of its due diligence, it was not interested in
proceeding with the closing of the transaction. In 1997, after
significant negotiations, the companies agreed to enter into a
sale agreement for the interest in Dona Julia for $75,000
payable upon the successful financing of the significantly
downsized project. The Company received the $75,000 in 1997 and
recorded a gain from the sale of approximately $25,000.
F - 45
<PAGE>
NOTE 28 - SUBSEQUENT EVENTS (CONTINUED):
(N) PROFORMA INFORMATION
The following proforma condensed balance sheet and income
statement data reflects the changes in financial position and
results of operations as a result of the aforementioned asset
sales of the two United Kingdom Windfarms and Renewable Energy
Ireland Limited.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 As Adjusted
(000's Omitted) AS REPORTED Proforma
--------------- ----------------- -----------
<S> <C> <C>
Assets:
Current assets $ 6,140 $2,947
Property, plant and equipment, net 21,118 5,441
Goodwill 1,366 373
Liabilities:
Current liabilities 5,779 4,767
Long-term debt 16,074 3,733
Other non-current liabilities 5,734 1,457
Operating revenues 15,385 5,737
Cost of operations 12,576 4,492
</TABLE>
F - 46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE NEW WORLD POWER CORPORATION
June 29, 1999 By: /s/ Vitold Jordan
..................................
Vitold Jordan
Chief Executive Officer
June 29, 1999 By: /s/ Frederic A. Mayer
..................................
Frederic A. Mayer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- -------- -----
<S> <C> <C>
/s/ Gerald R. Cummins Chairman and Director June 29, 1999
...................................
Gerald R. Cummins
/s/ Gerard Prevost Director June 29, 1999
...................................
Gerard Prevost
Lucien Ruby Director June 29, 1999
...................................
Lucien Ruby
/s/ Herbert Oakes Director June 29, 1999
...................................
Herbert Oakes
/s/ Alan Stephens Director June 29, 1999
...................................
Alan Stephens
/s/ Gregory Sunell Director June 29, 1999
...................................
Gregory Sunell
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of New World Power included in Form 10-K for the year
ended December 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 448782
<SECURITIES> 0
<RECEIVABLES> 2502533
<ALLOWANCES> (30000)
<INVENTORY> 93116
<CURRENT-ASSETS> 6140310
<PP&E> 21118354
<DEPRECIATION> 3632309
<TOTAL-ASSETS> 29820390
<CURRENT-LIABILITIES> 16451430
<BONDS> 0
0
0
<COMMON> 22268
<OTHER-SE> 1569377
<TOTAL-LIABILITY-AND-EQUITY> 29820390
<SALES> 15384645
<TOTAL-REVENUES> 15384645
<CGS> 12576092
<TOTAL-COSTS> 13760640
<OTHER-EXPENSES> 2121977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6553040
<INCOME-PRETAX> (19627104)
<INCOME-TAX> 32135
<INCOME-CONTINUING> (19659239)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19659239)
<EPS-BASIC> (8.83)
<EPS-DILUTED> (8.83)
</TABLE>
