SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 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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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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
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 No X.
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 December 31, 1998 was $664,000 based on the closing price
of $.187 per share. The number of shares outstanding of the registrant's Common
Stock as of December 31, 1998 was 3,552,512.
DOCUMENTS INCORPORATED BY REFERENCE:
<PAGE>
Table of Contents
PART I Page
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 11
Item 6. Management's Discussion and Analysis
of Results of Operations 12
Item 7. Financial Statements 14
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 15
PART III
Item 9. Directors and Executive Officers of the
Registrant 16
Item 10. Executive Compensation 19
Item 11. Security Ownership of Certain
Beneficial Owners and Management 22
Item 12. Certain Relationships and Related
Transactions 23
PART IV
Item 13. Exhibits and Reports on Form 8-K
Index to Consolidated Financial Statements and F-1
Financial Statement Schedule
Signatures S-1
<PAGE>
PART 1
ITEM 1. BUSINESS
I. INTRODUCTION
The New World Power Corporation ("New World" or the "Company") owns and
operates electric power generating facilities. The Company has traditionally
focused and will continue to focus on renewable energy, including wind farms,
hydroelectric plants and wind/diesel hybrids, with power output sold to major
utility companies under long term contracts. The Company conducts business
internationally.
The Company is organized as a holding company. Each electric power
generating facility or discreet group of facilities is owned by a separate
corporate entity. Executive management, legal, accounting, financial and
administrative matters are provided at the holding company level. Operations are
conducted at the subsidiary level.
The Company currently operates two wholly owned subsidiaries, Michigan
based Wolverine Power Corporation ("Wolverine") and The New World Power Company
(Caton Moor) Limited ("Caton Moor") in the UK. Wolverine is a 10.5-megawatt
hydroelectric plant and Caton Moor is a 3-megawatt wind farm. The Company also
owns a 25% interest in a hydroelectric power plant now under construction in
Fujian, China ("Fujian").
This report contains "forward looking statements" within the purview of
the federal securities laws. There are numerous risks and uncertainties
surrounding the Company and management's business plan. There can be no
assurance that the Company will be successful in implementing its business plan,
nor can it be determined with certainty whether the Company will have sufficient
capital to fund operations. In addition, there can be no assurance, however,
that the Company can maintain profitability or complete any acquisitions on
terms acceptable to the Company, if at all.
1
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II. HISTORY
The Company was incorporated in Delaware in 1989. Following an initial
public offering of its securities in 1993, the Company pursued an aggressive
expansion strategy as a premier developer of renewable energy projects
worldwide. From offices in the USA, UK, Mexico, Brazil and Argentina, New World
attempted to manage more than 30 development projects in North, South and
Central America, Europe and Asia. Twelve of these projects were completed.
By late 1995, the Company experienced severe liquidity and cash flow
problems due to unforeseen delays in project start up and higher than expected
development expenses. These problems led to default in certain indebtedness
incurred by the Company in September 1995, causing the Company's Board of
Directors to dismiss the entire senior management team on December 31, 1995.
Asset sales, cost reductions and a restructuring of the Company's secured debt
to avoid bankruptcy became the highest priority.
As part of the business plan adopted by the Board of Directors in early
1996 and to comply with the covenants of the debt restructuring, a work out team
was put in place. The Company faced numerous challenges, including selling
assets in a difficult environment. In addition to the project asset sales listed
below, the Company sold its investment in Photocomm, a publicly traded US
distributor and integrator of photovoltaic products in 1996. It also exchanged
its controlling interest in New World Vermont, integrator of renewable power
generating systems, for debt in 1997.
From 1996 through 1998, the Company has repaid over $20 million in non-project
related debt and over $8 million in project debt without resort to a bankruptcy
reorganization or liquidation. And although the Company's securities were
delisted from NASDAQ due to non-compliance, the Company's stock remains publicly
traded on the so-called pink sheets.
Completed asset sales
<TABLE>
<CAPTION>
Approximate Power
Name Location Type Capacity Purchaser Year of sale
---- -------- ---- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Painted Hills San Gorgonio Pass, California Wind 1.00 MW SCE 1996
San Jacinto San Gorgonio Pass, California Wind 9.30 MW SCE 1996
Dyffryn Brodyn Dyfed, Wales Wind 5.50 MW SWALEC 1997
Bellacorick Bellacorick, Ireland Wind 6.45 MW ESB 1997
Four Burrows Cornwall, England Wind 4.50 MW SWEB 1997
Tierras Morenas Arenal, Costa Rica Wind 20.0 MW ICE 1997
Los Vaqueros Altamont Pass, California Wind 2.90 MW PG&E 1997
Dona Julia Heredia, Costa Rica Hydro 16.00 MW ICE 1997
Big Spring Big Spring, Texas Wind 40.0 MW TU 1997
Makani Uwila Oahu, Hawaii Wind 10.30 MW HECO 1999
Altamont Altamont Pass, Calif Wind 20.00 MW PG&E 1999
</TABLE>
As a consequence of the Company's restructuring, as well as its
analysis of current market conditions in the electric power industry, the
Company has temporarily suspended its power plant development activities. As
part of its short-term strategy, the Company intends to focus its resources on
the operation of its projects and identification and evaluation of targeted
operating projects for future acquisition.
2
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III. CURRENT STATUS
At the present time, the Company owns the following electric power
generating facilities, which are currently in operation or under construction.
<TABLE>
<CAPTION>
Approximate Power
Name Location Type Capacity Purchaser Status
---- -------- ---- -------- --------- ------
<S> <C> <C> <C> <C> <C>
Projects in Operations:
Wolverine Midland, Michigan Hydro 10.50 MW Consumers (Operating)
Caton Moor Lancashire, England Wind 3.00 MW NORWEB (Operating)
Project under
Construction:
Fujian I Fujian, People's Republic of Hydro 39.00 MW* State Utility (Under Development)
China
<FN>
- ---------------------
*The "approximate capacity" of the project under construction reflects the
estimated total capacity of the site that is capable of being completed within
the next four years, as to which there can be no assurance.
</FN>
</TABLE>
Projects in Operation
The Company currently owns two electric power-generating facilities.
Each facility is located on a site that is owned or leased on a long-term basis
by a project company subsidiary. The facilities produce electricity that is sold
to utilities under long-term power sales contracts.
U.S. Facility
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-megawatt ("MW"). The Company's current ten-year moving average
hydroelectric production rate for these facilities is approximately 32.7
million-kilowatt hours ("kWh") per year.
The power generated at Wolverine is sold to Consumers Power Company
("Consumers") pursuant to a power purchase agreement that expires in May 2023,
but provides for re-negotiation of the energy and capacity prices every ten
years. Commencing in 1996, when the Wolverine contract was up for
re-negotiation, the Company declined to enter into a new, ten-year price
agreement with Consumers, believing that it would be able to negotiate better
rates in the future.
At this time, the implementation of the deregulation process in Michigan is
delayed primarily on account of a regulatory challenge by the utilities. The
prevailing retail consumer rates are eight to nine cents per kWh, while
Consumers signed the majority of the important industrial customers to long
term, direct supply agreements. The prevailing non utility generators ("NUG")
rates are six cents per kWh, whereby approximately 90 % of NUG capacity in the
territory is owned by the parent of Consumers, following a conversion of a
suspended in construction nuclear plant into fossil fuel plant.
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The Company believes that the current Wolverine rates of approximately three
cents per kWh are the lowest among the NUGs in the state. In 1996, at the time
of the most recent price renegotiations, Consumers was purchasing power from
Hydro Ontario at approximately 2.5 cents per kWh, which adversely affected the
outcome of the negotiations for Wolverine. At this time, the Company does not
intend to renegotiate the rates with Consumers until approval of deregulation in
Michigan and completion of the proposed Ontario Hydro break-up.
The development and ownership of hydroelectric power facilities, like Wolverine,
in the United States is governed by the Federal Energy Regulatory Commission
(the "FERC"). In general, all hydroelectric facilities on navigable waterways
must apply for, and receive, licenses. Wolverine applied for its licenses in
1989 and in September 1998, 30-year licenses to own and operate the facilities
were granted. The licenses stipulate certain operating and water flow regime
conditions. According to these conditions, the Company is required to modify its
method of operation to release a minimum daily flow of water. The effect of the
required modifications is not material on the future results of operations.
Wolverine employees perform the operations, maintenance and management of the
plant, while major repairs are contracted out.
U.K. Facility
Caton Moor Wind Farm. The Company owns and operates a 3 MW
wind farm at Caton Moor, Lancashire in northwest England. The project,
commissioned in 1994, uses 10 Windmaster 300 kW wind turbine generators. The
Company believes that the wind resource at this site is the best among the wind
farms developed by the Company in the UK, averaging 8.38 meters per second at
hub height.
The project was developed 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 expired on December 31, 1998. Caton Moor has
entered into a new, 27 month power purchase agreement ("PPA") with NORWEB,
following a competitive bid process with utilities and power marketers. The
effective rates under this agreement are approximately three pence per kWh.
The equipment maintenance is outsourced to Border Wind, an independent
contractor under annual agreements. In 1997, the equipment suffered two gearbox
failures and in both instances the cost of repairs was passed onto the insurance
company, together with lost revenue recovery claims. Since commissioning, the
project experienced no environmental or permitting problems.
Projects under Construction
Fujian, China. In Feb. 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 NanPing 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 and project financing delays, the
operating date has been postponed beyond the end of 1999.
4
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Shortly after the Company's initial investment, concern arose in 1996
in regards to adequacy of approvals, under Chinese law, required for the
acceptance of New World Power Corporation shares as payment for the Company's
interest in Fujian. These concerns, together with suspension of construction
activities during the same period were the basis for Company's decision to write
its investment in Fujian down to nil during the years ended December 31, 1996
and 1995.
Approximately 50 % of the civil work is now complete. The funding for the work
has been provided through local debt secured by MinBei, a company affiliated
with the local Water Conservation Bureau.
Other Investments
The Company previously owned an 11% interest in Northern Power.
Northern Power 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. In 1999, the Company interest in Northern Power
was redeemed under the terms of the investment, whereby the Company received
$1.00 per share for each of its Preferred Shares. A total of $129,643 was
received by the Company.
Strategic Alliances
In June 1994, the Company entered into a 15-year business alliance agreement
with Westinghouse Electric Corporation ("Westinghouse"). Westinghouse owns
158,000 shares (4.4%) 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.
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.
5
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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 included
further development of wind opportunities in North America. The joint venture
was terminated in April 1998.
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, but Mr. Jordan continues
to be employed by the Company as Chief Executive Officer.
On June 30,1998, the Company entered into a loan agreement with Synex
Energy Resources Ltd. ("Synex") that provided the Company with up to $1.0
million convertible debt facility required to complete its restructuring and
pursue its business plan. At December 31, 1998, the Company had only drawn down
$400,000 and the remaining balance of $600,000 is still available under the
facility. In early 1999, the Company increased its amount outstanding to Synex
by another $100,000.
In addition, the Company entered into a participation agreement with
Synex, whereby New World can access the engineering expertise and personnel of
Synex in assisting in project management and evaluation of potential acquisition
candidates. The services are available in accordance with the rates established
in the agreement.
SEASONALITY OF PROJECT REVENUES
Hydroelectric and wind farm electric generating revenues are seasonal.
The spring in North America is the time of maximum hydroelectric output, while
fall and winter also experience reasonable flows; the summer months are dry and
generally unproductive. The best season wind season in the United Kingdom is
typically from October to March. Both hydroelectric and wind power production
can also vary from year to year based on changes in meteorological conditions.
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.
6
<PAGE>
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 at 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 by
allowing utilities and other independent power producers to develop such
facilities which are not subject to the constraints of PUHCA.
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.
7
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Local Permits. Local governments in certain jurisdictions 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, 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 exempted therefrom, 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.
International Regulation
The Company only engages in business in countries that have statutes
which currently 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 Company believes that 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.
8
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Competition
Revenue derived from the Company's existing electrical generating
facilities is sold under long-term power contracts. Therefore, competition with
respect to an existing electric generating facility with a long-term power
contract in place is generally not a significant business risk, with the notable
exception of future energy prices.
However, competition for acquisitions of operating electric power
facilities is significant. This competition may significantly reduce the
Company's opportunity to make any such incremental acquisitions. There are other
companies in the business of owning, operating and acquiring electric power
generation facilities that are larger and have more financial resources than the
Company. Furthermore, other large, well-capitalized entities may choose to enter
the industry, creating the potential for significant additional competition.
Employees
As of December 31, 1998, the Company and its subsidiaries employed 8
people on a full time basis. New World also contracts with veteran industry
consultants from time to time for project evaluation, restructuring and
financing services and advice.
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 was located on approximately
4,000 acres of leased land in the Altamont Pass, California. The Company owned
approximately 305 miles of power lines, one substation and a 5,000 square foot
maintenance building on the property. This property was sold in 1999.
Makani Uwila Wind Farm. The Makani Uwila Wind Farm was located on
approximately 65 acres of leased land on Oahu, Hawaii. (Operations at this
facility discontinued in 1996 and the project interest was sold in 1999)
Caton Moor Wind Farm. The Caton Moor Wind Farm is located on
approximately 100 acres of leased land in Caton Moor, Lancashire, England.
9
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ITEM 3. LEGAL PROCEEDINGS
On November 12, 1996, Dwight Kuhns, ex president and brother of the
former Chairman of the Board, commenced an action against New World 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.
After trial, the plaintiff was awarded $967,000 in contractual damages
and $1,000,000 in punitive damages on July 24, 1998. The Company filed a notice
of appeal of the judgment. In addition, the Company filed a malpractice action
against its counsel of record from inception to November 8, 1997.
While the judgment was under appeal, the Company was unable to post the
required bond with the court 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 on January 1, 1999. An agreement was made that upon payment of
$375,000 and delivery of a $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
NONE.
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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.
In July 1997 the Common Stock was delisted from the Small Cap Market and is
trading since on the pink sheets under the symbol NWPCE.
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 March 31, 1997 1.00 .28
Quarter ended June 30, 1997 .44 .31
Quarter ended September 30, 1997 .25 .031
Quarter ended December 31, 1997 .25 .031
Quarter ended March 31, 1998 .25 .062
Quarter ended June 30, 1998 .312 .062
Quarter ended September 30, 1998 .375 .125
Quarter ended December 31, 1998 .187 .187
* Price adjustments have been made to reflect the 1 for 5 reverse stock
split effected on November 4, 1996.
The foregoing represents inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
As of December 31, 1998, there were approximately 300 holders of record of
Common Stock.
The Company has not paid any cash dividends on its Common Stock since
its incorporation in June 1989.
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ITEM 6. MANAGEMENT DISCUSSION AND PLAN OF OPERATIONS
SHORT TERM STRATEGY
Over the next 12 months New World intends to apply its available resources to
maintain positive earnings from its operating projects, while further attempting
to consummate at least two targeted acquisitions in its core markets.
The Company's current profitability results from management's steady reductions
in overhead, debt and development costs, combined with increased focus on
existing project operations and production. The Company believes that this
approach will remain the foundation of New World's short-term strategy. But
while focused on its bottom line through projects in operation and construction,
the Company will also use its in-place personnel to negotiate small and
mid-sized wind farm and hydroelectric plant acquisitions in North America and
Europe.
Using its existing resources, personnel and market presence, the Company has
identified a variety of acquisition candidates. Showing perhaps the most promise
are mid sized wind farms in the UK which have recently completed their
guaranteed 10 year term of highly subsidized tariffs. The Company believes that
any new acquisitions would be funded by debt or a hybrid security. This
financing instrument would minimize the "dilution effect" to existing
shareholders. Upon successfully achieving a reasonable market price per share,
the Company may look to the equity market for additional capital.
Additionally, the historic profitability of New World's Wolverine hydro plant
indicates the Company's expertise in low cost hydroelectric plant operations in
North America. And as North American power purchase tariffs have been reduced
over the past few years by the forces of continued deregulation, similar to the
events driving the UK wind market, the Company believes there are a variety of
hydro plant acquisitions available to a focused and capable buyer. New World
will apply its hydro acquisition program in the Northeast, Mid West and Canada,
where it believes there are attractive investment opportunities available in a
generally overlooked sector.
12
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In summary, the Company will continue to maintain its efforts to hold down
overheads and generate profits from existing operations. It also expects to
complete at least 2 acquisitions within the next 12 months: a windfarm in the UK
of up to 10 megawatts, and a hydro project in the Northeast US or Canada, also
expected to be in the 10 megawatt range. There can be no assurance, however,
that the Company can maintain profitability or complete any acquisition on terms
acceptable to the Company, if at all. In addition, there can be no assurance
that the Company will be able to close any financings to enable it to make
acquisitions.
Both acquisitions should be achievable at very attractive multiples of EBITDA.
And due to New World's demonstrated low cost operations and management
abilities, these new project additions should add significant incremental
profits without increased costs, thereby maximizing earnings per share.
13
<PAGE>
General
The results of operations for 1998 compared to 1997 reflect continuity
at the operating level, however the effects of the corporate restructuring are
quite notable at the selling, general and administartive expense level.
The summarized balance sheet and statement of operations information for the
Company of December 31, 1998 and 1997 is as follows:
1998 1997
---- ----
Balance sheet:
Current assets $ 800,736 $2,535,621
Total assets 4,739,462 7,121,603
Current liabilities 1,140,109 4,218,876
Total liabilities 3,420,741 6,290,813
Stockholders' equity 1,318,721 830,790
Statement of operations:
Sales $2,574,465 $2,369,724
Cost of Sales 1,333,765 1,322,862
Selling, general & administrative 1,171,699 2,688,889
Net income 163,231 (2,782,319)
Revenues
The revenues increased to $2.57 million from $2.368 million in 1997 on account
of improved wind resource in the UK combined with an increase in price per kWh.
The revenues in the United States remained constant between the years.
14
<PAGE>
Cost of operations
The costs of operations remained relatively constant in 1998 at $1.33 million,
as compared to $1.32 million during the previous year.
Project development expense
The Company continued curtailing its development efforts during the year to
$93,354, as compared to $390,167 during the previous year, in line with the
strategy of reducing the development risk formulated in the 1996 restructuring
plan.
Selling, general and administrative
These expenses were reduced during the year to $1.17 million, as compared to
$2.69 million during the previous year. The 1997 expenses included the fees and
expenses associated with the repayment of project indebtness and asset sales.
Other income and expenses
During the year, the Company recorded other income-net of $201,591, as compared
to an expense of $1,062,875 during the previous year. The 1997 expense is a
result of losses due to asset sales, while the current year income is the result
of gains on 1998 sales.
Interest expenses were reduced to $148,035 from the previous year's $797,834, in
line with the debt repayment and the 1997 year end debt to equity conversion.
In 1998, the Company recorded a gain of $335,073 on sale of the Texas project.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements for the Company begin on page
F-1.
ITEM 8. 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.
15
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table contains the name, position, biographical
information and age of each executive officer of the Company who is not a
director.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS AGE
- ---- AND CURRENT PUBLIC DIRECTORSHIPS ---
--------------------------------
Chief Executive Officer/President
<S> <C> <C>
VITOLD JORDAN From May 1998 to present, Mr. Jordan serves as Chief Executive 44
Officer/President of the Corporation and since August 1996,
Mr. Jordan was the Interim CEO pursuant to a management
services contract with Dominion Bridge, where from January
1995 till April 1998, Mr. Jordan was 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. Mr. Jordan is a graduate
of Laval University and a chartered accountant.
FREDERIC A. MAYER Vice President-Finance 40
From May 1998 to present, Mr. Mayer serves as Vice-President-Finance/
Treasurer/Secretary of the Company. Prior to May 1998. Mr. Mayer
acted as the managing director of Mayer and Associates and prior to
1995, Mr. Mayer was president of O'Brien Energy Services Company and
prior to that was a manager of Coopers and Lybrand. Mr. Mayer graduated
from Pennsylvania State University and is a certified public
accountant.
SAM NOTT, P.E. General Manager, Wolverine 41
From 1993 to present, Mr. Nott has served as General Manager of
Wolverine Power Corporation. From 1988 to 1993, Mr. Nott
served as manager of operations at Nanpil River Hydroelectric
Project for the U.S. Army Corp of Engineers. From 1985 to 1988,
Mr. Nott oversaw final construction and commissioning of two
Hydro facilities. Mr. Nott graduated from University of Tulsa
with honors in Electrical Engineering. He is President of the
Michigan Hydro Association.
CHUAN ZHANG, PH.D. General Manager, Caton Moor 36
From 1995 to present, Mr. Zhang has served as General Manager
of The New World Power Ltd. performing duties including
project development, operations and asset acquisition and disposal.
From 1985 to 1995, Mr. Zhang served as a lecturer for universities
in China and the UK. He is a Chartered Engineer and a member of the
Institution of Electrical Engineers. He has a B.Sc. from Taiyuan
University in China, a Mphil from the Northeast Institute of Electric
Power Eng. in China and a Ph.D. from the University of Strathclyde in the UK.
</TABLE>
16
<PAGE>
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 72 1990
has been a director since October 1990 and a
private investor and independent business
consultant for more than five years. He 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 received a bachelor's
degree from Manhattan College.
HERBERT L. OAKES, JR. 52 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 BA in Economics from the
University of the South.
GERARD PREVOST DIRECTOR AND VICE CHAIRMAN OF THE BOARD. Mr. 59 1996
Prevost is an independent business investor and
business advisor. Prior to July 1997 and since
August 1996, Mr. Prevost was Managing Partner of
Dominion World Power; the energy projects
Independent Joint Venture between the Company and
Dominion Bridge Power, Inc. During the previous
33 years Mr. Prevost served in many positions
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 an MBA from Laval University
in Quebec City.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS FIRST YEAR BECAME
NAME AND CURRENT PUBLIC DIRECTORSHIPS AGE A DIRECTOR
- ---- ---------------------------------- --- ----------
<S> <C> <C> <C>
ALAN W. STEPHENS DIRECTOR. During the past five years, Mr. 70 1998
Stephen's served as the Chairman of the Board and
CEO of Synex International Inc, TSE company
which is active in development and operation of
electrical power facilities and development and
marketing of computer software products. Mr.
Stephens received B Eng. from western Australia
in 1951 and completed BA studies at Mcgill
University in 1964 and is a member of professional
Engineers and Geoscientists of British Columbia
GREGORY J. SUNELL DIRECTOR. During the last five years, Mr. Sunell 46 1998
acted as Vice-president and Secretary-Treasurer of
Synex International Inc, TSE company. Mr. Sunell
received B Eng. from University of British
Columbia in 1995 and is a member of the
Professional Engineers and Geoscientists of
British Columbia
LUCIEN RUBY DIRECTOR. Since 1985, Mr. Ruby has been the 55 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 MBA from Harvard University.
</TABLE>
18
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth, for the
fiscal years indicated, all compensation awarded to, earned by or paid to 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, 1998 and who were employed by the Company during the fiscal
year ended December 31, 1998 (together with the CEO, the "Named Executive
Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
--------------------------------------
Name and
Principal Position Year Salary Bonus
- --------------------------- ------ -------- -------
<S> <C> <C> <C>
Vitold Jordan 1998 $ 73,000 $ 25,000
CEO/President 1997 (1) --
1996 (1) --
Fred A Mayer 1998 $ 63,000 $ 25,000
Vice President-Finance/
Secretary/Treasurer
(1) From August 1996 to April 1998, Mr. Jordan served as Interim CEO of the
Company pursuant to a management services contract. From August 1996 to June
1997, the Company paid Dominion $440,000 in cash and common stock for the
services rendered. The agreement was terminated, however, Mr. Jordan
continues to be employed as CEO/President.
</TABLE>
Option Grants Table. The following table sets forth certain information
regarding stock option grants made to each of the Named Executive Officers
during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants Potential
----------------------------------------------------------- Realizable Value at
Number of % of Total Assumed Annual
Securities Options Rates of Stock
Underlying Granted to Price Appreciation
Options Employees Exercise Expiration for Option Term
Name Granted (#) Fiscal Year Price ($/sh) Date 5%($) 10%($)
---- ----------- ----------- ------------ ---- ----- ------
<S> <C> <C> <C>
Vitold Jordan 125,000 55.56% $ .30 (1)
Fred Mayer 100,000 44.44% $ .30 (1)
(1) Earlier of seven years or termination from the Company.
</TABLE>
19
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Value
The Company accounts for its stock based compensation using the intrinsic value
method prescribed by APB Opinion No. 25, whereby no compensation cost for stock
options is recognized for stock option awards granted at or above market value.
The weighted average fair value of options granted during 1998 estimated on the
date of grant using Black-Sholes option pricing model was $.06. The estimate was
computed using dividend yield of 0%, expected volatility of .70%, risk free
interest rate of 5.4% and expected life of seven years.
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. Vitold Jordan is the CEO/President of the Company pursuant to a renewable,
two-year, employment contract commencing May 1, 1998. The compensation is set at
$125,000 base per annum plus an annual bonus based upon performance determined
by the Board. Upon execution of the employment contract, Mr. Jordan received
past performance bonus of $25,000 and was awarded 120,000 options to purchase
common shares at 30 cents each, one third vesting at signature and the balance
over two years. Prior to May 1, 1998 and since August 1996 Mr. Jordan was acting
as the Interim CEO of the Company pursuant to a management services contract
between the Company and Dominion Bridge Corp. During that time, being an
employee and officer of Dominion Bridge, Mr. Jordan did not receive any direct
compensation from the Company.
20
<PAGE>
Mr. Fred Mayer is the Vice President-Finance of the Company pursuant to a
renewable, two-year, employment contract commencing May 1, 1998. The
compensation is set at $108,000 base per annum plus an annual bonus based upon
performance determined by the Board. Upon execution of the employment contract,
Mr. Mayer received past performance bonus of $25,000 and was awarded 100,000
options to purchase common shares at 30 cents each, one third vesting at
signature and the balance over two years. Prior to May 1, 1998 and since January
1996, Mr. Mayer was employed as managing director with Mayer and Associates; an
accounting firm founded by Mr. Mayer.
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, 1998.
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 1998.
21
<PAGE>
ITEM 11. SECURITY OWNERSHIP.
The following table sets forth information concerning ownership of the
Common Stock of the Company outstanding as at December 31, 1998, 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) 123,719 3.5
c/o Euro Canadian Trust Company Limited
P.O. Box 393750, Shirley Street
Nassau, Bahamas
Robert Fleming Nominees (4) 987,412 27.8
25 Copthall Ave
London, England
Alan Stephens 10,000
Greg Sunell 10,000
Synex International Inc (5) 155,000 4.4
Herbert L. Oakes, Jr.(6)) 451,851 12.7
Gerald R. Cummins 20,024 *
Gerard Prevost 20,000 *
Lucien Ruby 84,420 2.4
Vitold Jordan (7) 341,763 9.6
Fred Mayer (8) 33,333 1.0
All Directors and Executive Officers as a Group
(8 persons) 971,381 27.1
<FN>
* less than one percent.
** Adjusted to reflect the 1 for 5 reverse stock split
</FN>
</TABLE>
22
<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 3,552,512 shares of Common Stock outstanding on
December 31, 1998.
(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 117,719 shares issuable upon exercise of
currently exercisable warrants and 6,000 shares, whereby 6,000 shares
and 10,000 warrants are held by Mr. Jan Sundt, a principal of the fund.
(4) Not including 95,400 common shares held by Robert Fleming in its escrow
accounts on behalf of the Company and including 365,203 warrants.
(5) Messrs. Stephens and Sunell are respectively CEO and Secretary-Treasure
of Synex International.
(6) Consists of 260,528 common shares and 191,323 warrants a to purchase
common shares held by Mr. Oakes directly or through ventures controlled
by him.
(7) Includes 40,000 shares issuable upon exercise of currently exercisable
options.
(8) Includes 33,333 shares issuable upon exercise of currently exercisable
options.
ITEM 12. 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 was now due in four payments due December 1, 1996, March 1, 1997, June 1,
1997 and July 31, 1997. the indebtness was repaid in full in April 1997.
In February 1995, the Company issued a warrant to purchase 150,000
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 $7.50
per share. The warrant entitles OFLSA to purchase the units at $7.20 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 120,000 units from the Company.
23
<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.
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 787,500 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.
24
<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.
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.
Effective December 1997, the Company restructured the remaining
indebtedness of the Fleming Agreement. See Note 9 of the Consolidated Financial
Statements for Due to Related Parties and a detailed explanation of the
restructuring.
25
<PAGE>
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, 1998, all filing requirements applicable to its executive
officers, directors and owners or more than ten percent of the Company's stock
were complied with.
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
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")).
<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).
<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).
<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).
<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).
<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).
<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)
<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)
10.49 Restructured loan agreements with the Holders of the
Convertible Subordinated Debentures, dated December 1997.
10.50 Convertible Loan Agreement with Synex Energy Resources, Ltd.
dated June 30, 1998.
10.51 Settlement Agreement with Condor/Dwight Kuhns, dated January 1,
1999.
10.52 Employment Agreements with Vitold Jordan and Fred Mayer, dated
May 1998.
22.1 Subsidiaries of the registrant. (3)
(3) Incorporation by reference herein to the 1995 10-K
- -------------------
* Filed herewith.
(b) Reports on Form 8-K
NONE
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FORM 10-KSB
FOR YEARS ENDED DECEMBER 31, 1998 AND 1997
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
<S> <C>
Independent Auditors' Report on the Financial Statements for the Years Ended
December 31, 1998 and 1997 F - 2
Consolidated Balance Sheet as of December 31, 1998 F - 3
Consolidated Statements of Operations for the Years Ended December 31, 1998 and 1997 F - 4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998 and 1997 F - 5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997 F - 6
Notes to Consolidated Financial Statements F - 7
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The New World Power Corporation
We have audited the consolidated balance sheet of The New World Power
Corporation and subsidiaries listed in the accompanying index as of December 31,
1998 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years ended December 31, 1998 and 1997. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying 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, 1998, and the
results of their operations and their cash flows for the years ended December
31, 1998 and 1997 in conformity with generally accepted accounting principles.
LAZAR LEVINE & FELIX LLP
New York, New York
April 30, 1999
F - 2
<PAGE>
<TABLE>
<CAPTION>
NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
- ASSETS -
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 170,543
Cash restricted in use (Note 4) 173,035
Accounts receivable 426,891
Other current assets 30,267
-------------
TOTAL CURRENT ASSETS 800,736
Property, plant and equipment, net (Note 5) $ 3,269,460
Investments (Note 7) 129,643
Goodwill, net of accumulated amortization (Note 6) 352,453
Deferred project costs 187,170
-------------
3,938,726
TOTAL ASSETS $ 4,739,462
=============
- LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note 8) $ 391,948
Due to related parties (Note 9) 373,161
Current portion of settlement obligations (Note 11) 375,000
--------------
TOTAL CURRENT LIABILITIES 1,140,109
Long-term portion of due to related parties (Note 9) $ 730,632
Long-term portion of settlement obligations (Note 11) 275,000
Other non-current liabilities 1,275,000
-------------
2,280,632
--------------
TOTAL LIABILITIES 3,420,741
COMMITMENTS AND CONTINGENCIES (NOTES 10, 11, 12, 18 AND 19)
STOCKHOLDERS' EQUITY:
Common stock $.01 par value, 40,000,000 shares authorized, 3,552,512
shares issued and outstanding (Notes 14 and 15) 35,525
Currency translation adjustments 134,029
Additional paid-in capital 83,151,595
Accumulated deficit (82,002,428)
------------
TOTAL STOCKHOLDERS' EQUITY 1,318,721
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,739,462
==============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 3
<PAGE>
<TABLE>
<CAPTION>
NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended
December 31, December 31,
1998 1997
------------ -------------
<S> <C> <C>
OPERATING REVENUE (NOTE 16) $2,574,465 $ 2,369,724
COST OF OPERATIONS 1,333,765 1,322,862
------------ -------------
GROSS PROFIT 1,240,700 1,046,862
Project development expenses 93,354 390,167
Selling, general and administrative expenses 1,171,699 2,688,889
------------ -------------
OPERATING LOSS (24,353) (2,032,194)
------------ -------------
OTHER INCOME (EXPENSE):
Interest expense (148,035) (797,834)
Interest income 14,553 16,868
Other 335,073 (281,909)
------------ -------------
TOTAL OTHER INCOME (EXPENSE) 201,591 (1,062,875)
------------ -------------
INCOME (LOSS) BEFORE TAXES 177,238 (3,095,069)
Provision for income taxes (Note 13) 14,007 14,320
------------ -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 163,231 (3,109,389)
DISCONTINUED OPERATIONS:
Income from discontinued operations (Note 3) - 73,740
Gain on disposal of discontinued operations (Note 3) - 253,330
------------ -------------
LOSS FROM DISCONTINUED OPERATIONS - 327,070
------------ -------------
NET INCOME (LOSS) $ 163,231 $ (2,782,319)
============ =============
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Net earnings (loss) from continuing operations available to common stockholders $0.05 $(1.24)
Income from discontinued operations - 0.13
------------ -------------
NET EARNINGS (LOSS) ATTRIBUTABLE TO COMMON SHARES $0.05 $(1.11)
============ =============
AVERAGE NUMBER OF BASIC COMMON SHARES OUTSTANDING 3,479,012 2,502,831
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 4
<PAGE>
<TABLE>
<CAPTION>
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
Common Stock Preferred Stock Additional
Number Amount of Number Amount of paid-in
of Shares Par Value of Shares Par Value Capital
----------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 2,226,830 $22,268 - $ - $81,426,239
Currency translation adjustments on international
subsidiaries consolidation - - - - -
Issuance of common stock 1,199,682 11,997 - - 1,602,003
Net loss - - - - -
----------- ---------- ---------- --------- -----------
Balance, December 31, 1997 3,426,512 34,265 - - 83,028,242
Currency translation adjustments on international
subsidiaries consolidation - - - - -
Issuance of common stock 126,000 1,260 - - 123,353
Net income - - - - -
----------- ---------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1998 3,552,512 $ 35,525 - $ - $83,151,595
----------- ---------- ---------- --------- -----------
----------- ---------- ---------- --------- -----------
<CAPTION>
Other Comprehensive Income
-----------------------------
Currency Retained
Translation Earnings
Adjustments (Deficit) Total
----------- -------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1996 $(473,522) $(79,383,340) $ 1,591,645
Currency translation adjustments on international
subsidiaries consolidation 407,464 - 407,464
Issuance of common stock - - 1,614,000
Net loss - (2,782,319) (2,782,319)
--------- ------------- -----------
Balance, December 31, 1997 (66,058) (82,165,659) 830,790
Currency translation adjustments on international
subsidiaries consolidation 200,087 - 200,087
Issuance of common stock - - 124,613
Net income - 163,231 163,231
--------- ------------- -----------
BALANCE, DECEMBER 31, 1998 $ 134,029 $(82,002,428) $ 1,318,721
--------- ------------- -----------
--------- ------------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
<TABLE>
<CAPTION>
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Year ended
December 31, December 31,
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 163,231 $(2,782,319)
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 732,147 737,420
Amortization of goodwill 10,050 10,000
Amortization of debt discount - 1,396,232
Amortization of debt issue costs - 311,878
Loss on sale of assets, net - 396,462
Loss (gain) on disposal of discontinued operations - (253,330)
Amortization of deferred costs 6,455 -
Change in assets and liabilities, net of effect of acquisitions/disposals:
(Increase) decrease in accounts receivable 1,145,162 566,528
Increase in inventories - (90,898)
(Increase) decrease in other current assets 66,570 562,319
Increase (decrease) in accounts payable and accrued liabilities (1,630,135) (3,792,742)
(Decrease) increase in non-current liabilities (208,003) 83,581
Other 375,270 -
------------- -----------
NET CASH FLOWS PROVIDED (USED) IN OPERATING ACTIVITIES 660,747 (2,854,869)
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment - 5,733,067
Capital expenditures (101,126) -
Investments in and advances to affiliates (270) (103,889)
------------- -----------
NET CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES (101,396) 5,629,178
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in due to related parties - (4,014,453)
Increase in long-term debt 275,000 -
Repayment of long-term debt (1,382,504) (719,014)
Proceeds from issuance of common stock 25,000 -
(Increase) in restricted cash 466,416 1,737,656
------------- -----------
NET CASH FLOWS (USED IN) FINANCING ACTIVITIES (616,088) (2,995,811)
------------- -----------
Net change in cash and equivalents (56,737) (221,502)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 227,280 448,782
------------- -----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 170,543 $ 227,280
------------- -----------
------------- -----------
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Change in minority interest due to sale of subsidiary's stock $ - $ 641,536
Common stock issued for restructuring of long term debt - 1,350,000
Common stock issued for payables 98,353 252,003
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $148,035 $797,834
Interest income 14,553 16,868
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<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.
(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 4).
(D) 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.
(E) 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 - 7
<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 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 goodwill, 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. 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
In March of 1995, the Financial Accounting Standards 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 - 8
<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.
(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. Provisions for doubtful accounts are made
when losses are anticipated.
(J) FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries whose functional currency is the local
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.
(K) INCOME TAXES
Effective October 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). 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.
F - 9
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(L) EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings Per Share". SFAS 128
requires the disclosure of basic and diluted earnings per share
(EPS). Basic EPS is calculated using income available to common
shareholders divided by the weighted average number of common
shares outstanding during the period. Diluted EPS is similar to
basic EPS except that the weighted average number of common
shares, outstanding is increased to include the number of
additional common shares that would have been outstanding if
the dilutive potential common shares, such as options, had been
issued. All prior year earnings per share have been restated in
accordance with the provisions of SFAS 128 and did not have a
material effect on historically disclosed earnings per share.
Options to purchase 225,000 shares of common stock at $.30 were
outstanding during 1998 but were not included in the
computation of the diluted EPS because the options exercise
price was greater than the average market price of the common
shares.
(M) STOCK OPTIONS
The Company continues to account for its stock-based
compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees," under which no compensation cost
for stock options is recognized for stock option awards granted
at or above market value. In addition, the Company has adopted
the disclosure requirement of Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-based
Compensation."
(N) RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts
to conform with the current year presentation.
(O) COMPREHENSIVE INCOME
In 1997, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes rules for the
reporting of comprehensive income and its components.
Comprehensive income consists of net income and foreign
currency translation adjustments and is presented in the
Consolidated Statement of Stockholders' Equity. The adoption of
SFAS 130 had no impact on total stockholders' equity. Prior
year financial statements have been reclassified to conform to
the SFAS 130 requirements.
(P) 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.
F - 10
<PAGE>
NOTE 2 - FILINGS WITH 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.
NOTE 3 - SIGNIFICANT BUSINESS CHANGES:
Renewable Energy Ireland Limited
In April 1997, the Company signed an agreement and sold its
investment in Renewable Energy Ireland Limited ("REIL"), the
owner and operator of a 6.45NW Wind Farm in Bellacorick,
Ireland which the Company had acquired in 1995, 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, which is included in the 1997 Consolidated Statement of
Operations under the caption "Other Income (Expense)". 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 currently on hand at the
Company, were used to pay off the remaining indebtedness due to
a related party, including all accrued interest and fees.
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 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 interest in San Jacinto in 1997 for $87,500
and recorded a gain of approximately $62,000 which is included
in the 1997 consolidated statement of operations under the
caption "Other Income (Expenses)."
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, which is included in
the 1997 Consolidated Statement of Operations under the caption
"Other Income (Expense)". 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
Flemings Group (see Note 9 for Due to Related Parties). (See
also Note 12 for other Commitments and Contingencies regarding
Dominion Bridge).
F - 11
<PAGE>
NOTE 3 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
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. Due to financial difficulties, the Company
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 development of the project. The purchaser
subsequently informed the Company that due to significant
concerns about the project which arose during the due diligence
phase, 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 which is included in the 1997
Consolidated Statement of Operations under the caption of
"Other Income (Expense)".
Sale of Dyffryn Brodyn and Four Burrows (UK Windfarms)
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 which is included in the
1997 Consolidated Statement of Operations under the caption of
"Other Income (Expenses)". 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 Bank
included a cross-collateral position between Four Burrows,
Dyffryn Brodyn and Caton Moor. In February 1997, the Company
paid 892,922 pounds sterling (approximately $1.4 million US) to
a related party as a partial repayment of its indebtedness and
892,922 pounds sterling (approximately $1.4 million US) as a
partial repayment of Long Term Debt (See Note 9 for Due to
Related Parties).
Sale of Tierras Morenas
The Company had been undertaking, through a Costa Rican
subsidiary in which it had a 35% minority interests, 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% minority
partner in the project entered into an agreement to sell its
minority interest to a US alternative energy development
company. As a result of the 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 its own 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 which is included in the 1998
consolidated statement of operations under the caption "Other
Income (Expenses)."
F - 12
<PAGE>
NOTE 3 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
DISCONTINUED OPERATIONS
New World Power Vermont
During December 1997, the Company entered into an agreement
with certain holders of the Company's long term debt and
disposed of the operations of New World Power Vermont ("NWPV")
in exchange for outstanding indebtedness. NWPV manufactured,
assembled and installed renewable power generating systems.
NWPV operations reflected the remaining operations relating to
the Company's Wireless Power Sales segment. The Company
recorded a $253,330 gain on the disposal of this segment in
1997.
NOTE 4 - CASH RESTRICTED IN USE:
As a result of the restructuring of the long-term indebtedness
in December 1997, as well as the Synex International financing,
restricted cash at December 31, 1998 in the amount of $173,035
was restricted to making payments for long-term obligations.
(See Note 9 for Due to Related Parties).
NOTE 5 - PLANT, PROPERTY AND EQUIPMENT:
Property, plant and equipment consists of the following as of
December 31, 1998 (000's omitted):
<TABLE>
<CAPTION>
Useful Life
(Years)
-----------
<S> <C> <C>
Power generation facilities and equipment:
Hydroelectric $3,204 40
Wind:
Owned 4,495 25
Land 401
------
Total 8,100
Less accumulated depreciation and amortization 4,831
------
$3,269
------
------
</TABLE>
Depreciation and amortization expense, for the years ended
December 31, 1998 and 1997 was $732,147 and $747,420,
respectively.
Maintenance and repair expense for the years ended December 31,
1998 and 1997 was $179,294 and $166,661, respectively.
F - 13
<PAGE>
NOTE 6 - GOODWILL:
Goodwill relates to the Company's subsidiary, Wolverine Power
Corp.'s operations and consists of the following as of December
31, 1998 (000's omitted):
Subject to 40 yr. Straight-line amortization $402
Less accumulated amortization 50
----
Total $352
====
NOTE 7 - INVESTMENTS:
The Company's investments in, and advances to, unconsolidated
affiliates consists of the following as of December 31, 1998
(000's omitted):
Ownership %
-----------
Fujian Hydro Project 12% $ -
Northern Power Systems (Notes 9 and 19) 11% 129
----
$129
====
The Company recorded no equity (earnings) loss in
unconsolidated affiliates for the years ended December 31, 1998
and 1997.
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the
following as of December 31, 1998 (000's omitted):
Accounts payable $261
Accrued interest expense 18
Accrued liabilities 113
----
Total $392
====
NOTE 9 - DUE TO RELATED PARTIES:
Amounts due to related parties consists of the following at
December 31, 1998 (000's omitted):
<TABLE>
<S> <C>
(a) Convertible Subordinated Debentures Flemings Group $ 93
(b) Convertible Subordinated Debentures Flemings Group 611
(c) Synex International 400
-------
Total 1,104
Less current portion 373
-------
Long-term portion $ 731
=======
</TABLE>
F - 14
<PAGE>
NOTE 9 - DUE TO RELATED PARTIES (CONTINUED):
The Company had defaulted on its 8% Convertible Subordinated
Notes in July 1997. The default resulted in a significant
restructuring of the indebtedness and the maturity date of the
indebtedness with the lender which was completed in December
1997.
Starting in July 1997, the Company was negotiating with the
holders of the 8% Subordinated Convertible Notes, which had a
maturity date under the above restructuring of July 31, 1997.
In December 1997, the Company reached an agreement with the
holders of the Subordinated Convertible Notes regarding the
restructuring/repayment of the indebtedness. The agreement
consisted of two parts, one with the 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 the Company's wholly owned subsidiary, New World
Power Vermont (subsequently changing its name to Northern Power
Systems), to Arete Ventures (holders of a portion of the
Subordinated Convertible Notes) in exchange for the elimination
of the total outstanding obligations to that group of
Subordinated Convertible Debt holders. In addition, the Company
retained an 11% interest in the form of a Series A Redeemable
Preferred Stock in Northern Power Systems. The preferred stock
consists of 129,643 shares with a $1.00 redemption value per
share (see Note 19 for Subsequent Events).
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, "Flemings"). The Company agreed to amortize $1,935,000
of indebtedness before December 1998 in varying monthly
installments of principal and interest as agreed by the parties
(see (a) above). 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 (see (b)
above). The monthly payment is $26,636 including principal and
interest. The interest rate on the two notes is fixed at 8% per
annum. 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 subsidiary), and a first
lien position on the Company's investment in China. The second
note is collateralized by a second mortgage position on
Wolverine (subject to a Subordination to a new investor in New
World up to $1.5 million (see Note 19 for Subsequent Events).
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 when the market price of
the Company's common shares trading on the pink sheets was
approximately $0.25 per share. Accordingly, the Company issued
approximately 897,400 shares of common stock to the
Noteholders. As a result of this restructuring and the issuance
of stock, the Company reclassified the indebtedness due to the
Flemings Group as amounts due to related parties at December
31, 1998. The entire debt discount of the original notes was
written off in 1997 as a result of the debt restructuring.
F - 15
<PAGE>
NOTE 9 - DUE TO RELATED PARTIES (CONTINUED):
In February and March 1996, the Company defaulted on its loan
agreements, and as a result, was required to restructure those
obligations. The more significant terms of those restructured
agreements were as follows:
8% Secured Subordinated Notes Due July 31, 2000
* The maturity date was changed from July 31, 2000 to July
31, 1997 or sooner if sinking fund balance is sufficient
to redeem notes.
* 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 shares 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 per $1,000
of outstanding subordinated notes
July 31, 1996 $70 of notes and 10 warrants 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, 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 and maximum price
of $16.25. The New Notes are callable by the Company after
the common stock closes above $35 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. The Company was not successful attaining this
provision, however, the default was waived as a result of
the sales of the two UK windfarms and the Irish windfarm.
See Note 4 for Significant Business Changes.
* 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.
* 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.
F - 16
<PAGE>
NOTE 9 - DUE TO RELATED PARTIES (CONTINUED):
(c) 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
has been 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. As part of
the agreement, Synex purchased 100,000 shares of common
stock from the Company for $25,000 and, accordingly, their
debt is classified as Due to Related Parties.
Per the restructured agreement, the aggregate scheduled
maturities and sinking fund requirements of long-term debt due
to related parties as of December 31, 1998 for each of the next
three years, are as follows (000's omitted):
Year Amount
---- ------
1999 $ 373
2000 331
2001 400
------
Total $1,104
======
NOTE 10 - LEASES:
Operating Leases
The Company's wind power generation facilities are located on
land that was leased by the Company under various
non-cancelable operating lease agreements. Such leases
generally contained provisions that allowed the landowners to
terminate the leases for failure to pay due to lack of revenues
produced. The land leases were terminated during 1997. Rental
expense for the years ended December 31, 1998 and 1997 was
zero.
F - 17
<PAGE>
NOTE 11 - 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. During
1998, 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, subsequent to the
balance sheet date, the Company and plaintiff 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 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 the 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 payable at 7.5%, secured by a third
position on Wolverine. Payments under that 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. The Company recorded a liability for the
settlement of $650,000 in the financial statements under the
captions of Current and Long-term portions of settlement
obligations.
In November 1998, the Company filed suit in California against
the legal firm that represented it in the Dwight Kuhns et al
litigation. The allegations include, among other things,
misrepresentation of the Company in the legal proceedings
pertaining to the professional handling of that litigation. The
Company is seeking unspecified damages.
F - 18
<PAGE>
NOTE 12 - 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.
On October 16, 1998, the Federal Energy Regulatory Commission
("FERC") issued licenses for all four hydroprojects 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.
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 19 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 - 19
<PAGE>
NOTE 12 - OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED):
Agreements with Dominion Bridge
In August 1996, the Company terminated their existing interim
services agreement with Glass & Associates and entered into a
new interim services agreement with Dominion Bridge. Under the
interim services agreement, Dominion Bridge 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 which was sold in December 1997.
In April 1998, the Company terminated its interim management
contract with Dominion Bridge as well as other agreements and
associations between the two companies. No additional
compensation was given to terminate those agreements.
Employment Agreements
In May 1998, the Company entered into employment agreements
with the Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO") of the Company. The terms of the
employment agreements are for two years with an automatic
renewal for two additional years unless terminated by mutual
consent. Under the agreement, the CEO shall receive $125,000
salary per annum, 125,000 stock options exercisable at $.30
(vesting over two years) and an annual bonus at the discretion
of the Board of Directors. The CFO shall receive $108,000
salary per annum, 100,000 stock options exercisable at $.30
(vesting over two years) and an annual bonus at the discretion
of the Board.
NOTE 13 - 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
-------- ---------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
U.S. FEDERAL $ - $ - $ -
STATE AND LOCAL (1,500) - (1,500)
FOREIGN 15,507 - 15,507
-------- ---------- --------
$ 14,007 $ - $ 14,007
======== ========== ========
Year Ended December 31, 1997:
U.S. federal $ - $ - $ -
State and local (1,500) - (1,500)
Foreign 15,820 - 15,820
-------- ---------- --------
$ 14,320 $ - $ 14,320
======== ========== ========
</TABLE>
Differences between the effective income tax rate and the
statutory U.S. federal income tax rate for the year ended
December 31, 1998 are as follows:
F - 20
<PAGE>
NOTE 13 - INCOME TAXES (CONTINUED):
<TABLE>
<CAPTION>
1998 1997 1996
PERCENTAGE Percentage Percentage
---------- ---------- ----------
<S> <C> <C> <C>
Statutory U.S. Federal Income Tax benefit (34.0%) (34.0%) (34.0%)
Loss without benefit - 31.6% 33.1%
Temporary difference without benefit 34.0% 2.4% .9%
---------- ---------- ----------
- - -
========== =========== ==========
</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.
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, 1998 are as follows:
Non-current assets:
Net operating loss carryforwards $ 14,831,148
Tax credit carryforwards 595,000
Valuation allowance (14,751,168)
-------------
Net non-current asset 674,980
-------------
Non-current liabilities:
Depreciation 674,980
-------------
Net non-current liabilities 674,980
-------------
Net deferred tax $ -
=============
The tax credit carryforwards of $595,000 expire by 2002. At
December 31, 1998, the Company has net operating loss
carryforwards of approximately $42,600,000 which expires at
various dates through 2018.
A full valuation allowance has been recorded against the
deferred taxes as realization is considered not more likely
than not as of December 31, 1998 and 1997.
F - 21
<PAGE>
NOTE 14 - CAPITAL STOCK:
Common Stock
At the annual meeting of the stockholders 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.
At December 31, 1998, the Company had outstanding warrants of
1,255,446 of which 163,956 were not exercisable at that date.
The outstanding warrants' exercise prices range from $8.75 to
$75.00 at December 31, 1998.
NOTE 15 - 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 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. The 1993 Stock
Incentive Plan replaced the Company's 1989 Stock Incentive
Plan, except as to options for 116,813 shares which were then
outstanding under the 1989 Plan. Options to purchase Common
Stock at December 31, 1998 and 1997 are shown below.
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Options outstanding, beginning of year - -
Forfeitures during the year - -
Granted during the year (at $.30 per share) 225,000 -
-------- ---------
Outstanding, end of year (at a price of $.30) 225,000 -
======== =========
Eligible for exercise, end of year - -
======== =========
</TABLE>
Had compensation expense for the Company's stock- based
compensation plan been determined based on fair value at the
grant date for awards under those plans in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," the
Company's net earnings and earnings per share would have been
reduced. However the fair value at the grant date for the
options issued in 1998 was deemed to be immaterial. The effects
of applying SFAS 123 are not indicative of future amounts
because this statement does not apply to awards granted prior
to fiscal year 1998. Additional stock option awards are
anticipated in future years.
The weighted average fair value of options granted during 1998
estimated on the date of grant using the Black-Scholes option
pricing model was $.06. The fair value of the 1998 options is
estimated on the date of grant using the following assumptions:
dividend yield of 0%, expected volatility of 70%, risk-free
interest rate range of 5.49% and an expected life of seven
years.
F - 22
<PAGE>
NOTE 16 - 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, which was discontinued during 1997 (Note
3). The other products and services segment designs, develops,
manufactures and installs wind turbines, and are included
within corporate, eliminations and others.
The following table shows assets and other financial
information by segment and geographical area for the years
ended December 31, 1998 and 1997, (000's omitted).
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------- --------------
<S> <C> <C>
Operating Revenue:
Grid Power Production $ 2,574 $ 2,370
Wireless Power Sales - -
Corporate, eliminations and others - -
--------- ---------
TOTAL OPERATING REVENUE $2,574 $ 2,370
========= =========
Operating (Loss) Profit:
Grid Power Production $ 635 $ 1,047
Wireless Power Sales - -
Corporate, eliminations and others (659) (3,079)
--------- ---------
TOTAL OPERATING PROFIT (LOSS) $ (24) $ (2,032)
========= =========
Assets at December 31:
Grid Power Production $ 4,028 $ 5,023
Wireless Power Sales - -
Corporate, eliminations and others 711 2,099
--------- ---------
CONSOLIDATED ASSETS $ 4,739 $ 7,122
========= =========
Capital Expenditures:
Grid Power Production $ 101 $ -
Wireless Power Sales - -
Corporate, eliminations and others - -
--------- ---------
CONSOLIDATED CAPITAL EXPENDITURES $ 101 $ -
========= =========
Depreciation and Amortization:
Grid Power Production $ 732 $ 737
Wireless Power Sales - -
Corporate, eliminations and others 10 10
--------- ---------
CONSOLIDATED DEPRECIATION AND
AMORTIZATION EXPENSE $ 742 $ 747
========= =========
Impairment Charge:
Grid Power Production $ - $ -
Wireless Power Sales - -
Corporate, eliminations and others - -
--------- ---------
CONSOLIDATED IMPAIRMENT CHARGE $ - $ -
========= =========
Geographic Revenue:
North America $1,002 $ 1,204
Central and South America - -
Europe 1,572 1,166
--------- ---------
REVENUE CONSOLIDATED GEOGRAPHIC $2,574 $ 2,370
========= =========
Geographic Assets:
North America $3,052 $ 4,608
Central and South America - -
Europe 1,687 2,514
--------- ---------
CONSOLIDATED GEOGRAPHIC ASSETS $4,739 $ 7,122
========= =========
</TABLE>
In 1998 and 1997 no customer accounted for more than 10% of
total revenue.
F - 23
<PAGE>
NOTE 17 - 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.
Statement 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.
1998
-----------------------------
Carrying Estimated Fair
Amount Value
---------- ---------------
(000's omitted)
Assets:
Cash and cash equivalents $ 171 $171
Cash restricted in use 173 173
Liabilities:
Debt due related parties 1,103 -
Settlement obligations 650 -
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 Settlement Obligations - It
was not practicable to estimate the fair value of these
financial instruments for 1998. See Note 9 for debt and
settlement obligation terms.
The fair value estimates presented herein are based on
pertinent information available to management as of December
31, 1998. 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 18 - 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 - 24
<PAGE>
NOTE 19 - SUBSEQUENT EVENTS:
(A) CONSUMERS POWER COMPANY POWER PURCHASE CONTRACT
The rates under this power purchase contract were subject to
renegotiation on December 31, 1995. The Company has abandoned
its attempt 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.
(B) REDEMPTION OF PREFERRED STOCK OF NORTHERN POWER SYSTEMS
In December 1997, the Company reached an agreement with the
holders of the Subordinated Convertible Notes whereby New World
retained an 11% interest in the form of a Series A Redeemable
Preferred Stock in Northern Power Systems (formerly New World
Power Vermont). The preferred stock consists of 129,643 shares.
On February 25, 1999, the Board of Directors of Northern Power
Systems elected to redeem al 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.
(C) DEBT REPAYMENT
The Company fully extinguished Convertible Subordinated
Debentures due to the Flemings Group under the restructured
first note by December 1998 and the balance remaining on the
restructured second note as of March 31, 1999 is approximately
$520,000 (see Note 9 for due to related parties.) Accordingly,
the holders of the long term debt are in the process of
releasing their lien on Caton Moor in accordance with the
provisions of the debt agreements.
(D) PERFORMANCE BOND
In February 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,
thereby eliminating any and all potential contingencies to the
Company under the performance bond.
(E) 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.
F - 25
<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-KSB for the year
ended December 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 170543
<SECURITIES> 0
<RECEIVABLES> 426891
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 800736
<PP&E> 3269460
<DEPRECIATION> 732147
<TOTAL-ASSETS> 4739462
<CURRENT-LIABILITIES> 1140109
<BONDS> 0
0
0
<COMMON> 35525
<OTHER-SE> 1283196
<TOTAL-LIABILITY-AND-EQUITY> 4739462
<SALES> 2574465
<TOTAL-REVENUES> 2574465
<CGS> 1333765
<TOTAL-COSTS> 1265053
<OTHER-EXPENSES> (349626)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148035
<INCOME-PRETAX> 177238
<INCOME-TAX> 14007
<INCOME-CONTINUING> 163231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 163231
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
