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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number 0-18260
The New World Power Corporation
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(Exact name of registrant as specified in its charter)
Delaware 52-1659436
(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 X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 31, 1998 was $856,628 based on the closing price of
$.25 per share. The number of shares outstanding of the registrant's Common
Stock as of March 31, 1998 was 3,426,512.
DOCUMENTS INCORPORATED BY REFERENCE:
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Table of Contents
PART I Page
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 22
Item 8. Financial Statements and Supplementary
Data 39
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 39
PART III
Item 10. Directors and Executive Officers of the
Registrant 42
Item 11. Executive Compensation 44
Item 12. Security Ownership of Certain
Beneficial Owners and Management 46
Item 13. Certain Relationships and Related
Transactions 48
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 52
Notes to Consolidated Financial Statements and F-1
Financial Statement Schedule
Signatures S-1
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21
PART I
ITEM 1. BUSINESS
INTRODUCTION
The New World Power Corporation (the "Company") produces and sells
electric power generated from renewable resources, including wind and hydro, and
develops renewable power generating projects.
The Company's operations are conducted through subsidiaries which are
organized into three segments: grid power production, wireless power sales and
other products and services.
The grid power production division develops, owns and operates wind
farms and hydroelectric facilities which produce electricity (kilowatt hours)
for sale to electric utilities. Several of the Company's wind projects were sold
in the first quarter of 1997.
The grid power services division was discontinued and certain assets
were sold during the last quarter of 1995.
The wireless power division assembles, distributes and sells
integrated renewable power generating systems for commercial and industrial use
where no service from an electric utility is available, or in areas where
purchasing electricity is not economical. In addition, the wireless power
division includes village power which develops, owns and operates integrated
renewable power generating systems which produce kilowatt hours for sale to
small electric utilities which are generally diesel-powered and not
interconnected to the main grid. The other products and services division
manufactures and develops wind turbines and related products. The principal
assets in the wireless division were exchanged for debt in an 1997 debt
restructuring and as a result, the division was discontinued during the year.
Supplementary industry segment information is located in the notes and
schedules to the Company's Consolidated Financial Statements.
Due to cash used in operating and investing activities as well as
unforeseen delays in two of its major projects (China and Texas), in late 1995,
the Company experienced severe liquidity and cash flow problems. This
necessitated, in early 1996, a revision of the business plan for the Company
calling for certain core and non-core asset sales, significant overhead and
other cost reductions, and a restructuring of the Company's secured debt with
its two principal lenders after events of default.
During the first quarter of 1996, the Board of Directors thoroughly
evaluated the Company's business, projects and personnel in order to refocus the
Company to solve short and long term liquidity problems and optimize economic
return. As a result of this evaluation, significant changes where made regarding
the Company`s focus and priorities and to further alleviate cash flow pressure,
the Company substantially reduced administrative and overhead expenses through
downsizing of its corporate staff and international offices to bare minimums
necessary to sustain project operations and development.
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The Company has proceeded with its asset sales mandatewith the full
cooperation of the principal lenders and as per its covenants under the
restructured loan agreements with said principal secured lenders. Short-term
capital needs to fund the Company's operations during 1996, were made available
from an escrow account held by one of the principal lenders. The Company sold
operating projects to pay down the restructured debt and provide capital to fund
selected few development activities. The Company, in 1996, also sold its
wireless assets, in a less than favorable market environment due to the time
constraints imposed by the secured lenders.
In early 1997, the Company sold two of its windfarms in the United
Kingdom and its investment in an Irish windfarm. Proceeds from those sales were
used to payoff one of the Company's secured lenders and to pay down a portion of
the indebtedness to the other secured lender. In the late 1997, the remaining
long term debt obligations were restructured through conversion to equity,
assignment of assets in favor of the lender, and refinancing to a level more in
line with projected cashflow of the Company
As a cautionary note it must be stressed that this report contains
"forward looking statements" within the purview of the federal securities laws.
There are numerous risks and uncertainties surrounding management's plans,
principally the risk that management will not be able to sell the assets
identified in its business plan within the time frame required by the
restructured loan agreements, or for the amounts estimated by management. There
can no assurance that the Company will be successful in implementing this plan,
nor can it be determined with certainty whether the Company will have sufficient
available short-term capital to fund operations in the time necessary to effect
such sales.
For a discussion of the development of the Company see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview."
GRID POWER PRODUCTION DIVISION
Power Production
The following tables set forth the projects, greater than 1 MW in
generating capacity, acquired or developed by the Company and currently in
operation, those under construction, and those in development. Projects in
operation are those where construction and financing have been completed and are
operational. Projects in development are those in which the Company has a letter
of intent or other firm understanding with the site owner or the joint venture
partners, or has been awarded a bid and is in the process of negotiating the
basic contracts.
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The Company generally develops new generating capacity only when it has
a commitment from a specific power purchaser, and, therefore, the capacity of
each project is usually committed only to a specified power purchaser.
Completion of projects under construction, any pending acquisition or project in
development is subject to the Company's obtaining suitable financing. There can
be no assurance that such financing will be obtained or that the Company will be
able to fund any project development activities in the future.
<TABLE>
<CAPTION>
Approximate Power
Name Location Type Capacity Purchaser Status
---- -------- ---- -------- --------- ------
Projects in Operations:
<S> <C> <C> <C> <C> <C>
Painted Hills San Gorgonio Pass, California Wind 1.00 MW SCE (Sold 1996)
Los Vaqueros Altamont Pass, California Wind 2.90 MW PG&E (Sold 1996)
Wolverine Midland, Michigan Hydro 10.50 MW Consumers (Operating)
Altamont Altamont Pass, California Wind 20.00 MW PG&E (Sold 1999)
Makani Uwila Oahu, Hawaii Wind 10.30 MW HECO (Sold 1999)
San Jacinto San Gorgonio Pass, California Wind 9.30 MW SCE (Sold 1996)
Dyffryn Brodyn Dyfed, Wales Wind 5.60 MW SWALEC (Sold 1997)
Caton Moor Lancashire, England Wind 3.00 MW NORWEB (Operating)
Bellacorick Bellacorick, Ireland Wind 6.40 MW ESB (Sold 1997)
Four Burrows Cornwall, England Wind 4.50 MW SWEB (Sold 1997)
Project under Construction:
Dona Julia Heredia, Costa Rica Hydro 16.00 MW ICE (Sold 1997)
Fujian I Fujian, People's Republic of Hydro 39.00 MW State Utility (Under Development)
China
Projects in Development:*
Eolos I Mexico Wind 20.0 MW Government (Suspended)
Lerma Mexico City, Mexico Hydro 8.5 MW DGCOH (Held for sale)
Big Spring Big Spring, Texas Wind 40.0 MW TU (Sold 1997)
Tierras Morenas Arenal, Costa Rica Wind 20.0 MW ICE (Sold 1998)
<FN>
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*The "approximate capacity" of projects in development reflects the estimated
total capacity of the sites which is capable of being completed within the next
four years.
</FN>
</TABLE>
Projects in Operation
General. The Company currently owns or leases the following renewable
energy generating facilities. Each facility is located on a site which is owned
or leased on a long-term basis by a project subsidiary. The facilities produce
electricity which is sold to utilities and other power consumers under long-term
power sales contracts.
U.S. Facilities
Painted Hills Wind Farm. The Company's eight wind turbines aggregating
approximately 1.0 megawatt ("MW") of capacity at the Painted Hills Wind Farm in
the San Gorgonio Pass near Palm Springs, California were all sold in February
1996.
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Los Vaqueros Wind Farm. The Company owns and operates 38 wind turbines
and the related electrical infrastructure and leases 101 acres at its Los
Vaqueros Wind Farm in the Altamont Pass in California. The wind farm has a total
capacity of approximately 2.9 MW, which is available under a subcontract with
the owner of the power purchase contract. The power produced at the wind farm is
sold to Pacific Gas & Electric ("PG&E") pursuant to the Company's Standard Offer
No. 4 ("SO4") power purchase agreement which expires in March 2015. The Los
Vaqueros windfarm was sold in August 1996.
Wolverine Hydroelectric Facilities. The Company owns four hydroelectric
facilities on the Tittabawassee River near Midland, Michigan. The facilities
were constructed between 1923 and 1925. One of the facilities was substantially
rebuilt in 1945. The others contain original turbine-generators and power plant
equipment. The facilities have a combined generating capacity of approximately
10.5 MW. The power is sold to Consumers Power Company ("Consumers") pursuant to
a power purchase agreement which expires in May 2023, but provides for
renegotiation of the energy and capacity prices at any year commencing in 1996.
The Company's current ten-year moving average hydroelectric production rate for
these facilities is approximately 32.7 million kilowatt hours ("kW") per year.
License applications for the facilities were pending before the Federal Energy
Regulatory Commission (the "FERC"), and after year-end, on October 16, 1998 the
licenses were granted for a 30 year term.
Altamont Wind Farm. The Company is currently operating approximately
250 first generation wind turbines at the Altamont Wind Farm. The Company is
operating the site to mitigate some of the fixed costs at the wind farm. The
power generated by these turbines is sold to PG&E pursuant to the Company's
Standard Offer No. 1 ("SO1") Contract pursuant to which PG&E is obligated to
purchase annually 150 MW of electricity. The SO1 Contracts provide for a price
which is based upon the utility's short-term avoided cost of energy and the
avoided capital cost (the cost of generating equipment). The Company had plans
to retrofit the site as soon as the rate based on avoided cost of energy
increased. Due to low avoided cost tariffs in the PG&E territory, the Wind Farm
was placed for sale in 1996 and sold in 1999.
Makani Uwila Wind Farm. The Company owns the Makani Uwila Wind Farm
located at Kahuku on the north shore of Oahu in Hawaii. The wind farm includes
the MOD-5B wind turbine, the world's largest operating wind turbine of the
traditional horizontal axis type, which has a capacity of approximately 3.2 MW.
In addition, the wind farm includes eight, 600 kilowatt Westinghouse wind
turbines. The electricity from this wind farm is sold to The Hawaiian Electric
Company, Inc. ("HECO") pursuant to an existing power purchase contract. The
Company was negotiating an amendment to its power purchase contract with HECO.
Soon after the negotiations had commenced, the Company's cash flow shortages as
well as other external factors, resulted in the Wind Farm being offered for
sale. In January 1997, the land owner, Campbell Estate, foreclosed on the
property and put the site up for bid. The Company still owns the power purchase
agreement with HECO. The project was sold in 1999.
4
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San Jacinto Wind Farm. The Company owns an approximately 50% interest
in San Jacinto Power Company, Inc. ("San Jacinto Power"), a joint venture
between the Company and Nevada Energy Company, Inc. The 50 % interest was sold
in 1997.
U.K. Facilities
The following three wind farms represent the entire portfolio of sites
located in the United Kingdom. All three projects were offered for sale
throughout 1996. The Company received two bonafide offers and elected to sell
two of the facilities to a U. K. based wind farm developer RES, Ltd. Due to
technology risk associated with the Caton Moor facility, RES final offer was for
Dyffryn Brodyn and Four Burrows only. In 1997, the Company elected to accept the
RES offer and retain ownership of Caton Moor. As part of the sale, all bank
project debt on Caton Moor was reimbursed and the Company continues owning 100%
of Caton Moor.
Dyffryn Brodyn Wind Farm. The Company owns and operates a 5.6 MW wind
farm on a 166 acre site near Whitland, Dyfed, Wales. The power generated at the
wind farm is sold pursuant to a 1991 renewable non-fossil fuel obligation power
purchase agreement with the Non-Fossil Fuel Purchasing Agency Limited ("NFPA")
and South Wales Electricity plc ("SWALEC"). The fixed, premium price period of
the contract expires in December 1998. The project was sold in 1997.
Caton Moor Wind Farm. The Company owns and operates a 3 MW wind farm at
Caton Moor, Lancashire in northwest England. The power generated at the wind
farm is sold pursuant to a 1991 renewable non-fossil fuel obligation power
purchase agreement with NFPA and NORWEB plc. The fixed, premium price period of
the contract expires in December 1998.
Four Burrows Wind Farm. The Company owns and operates a 4.5 MW wind
farm located at Four Burrows, near Truro, Cornwall, England. The power generated
at the wind farm will be sold pursuant to a 1991 renewable non-fossil fuel
obligation power purchase agreement with NFPA and South West Electricity plc.
The fixed, premium price period of the contract expires in December 1998. The
project was sold in 1997.
Other Facilities
Bellacorick Wind Farm. The Company owns approximately 87.5% of the
ordinary shares of Renewable Energy Ireland Limited, the owner and operator of
Ireland's first wind farm, which is located in Bellacorick, Ireland. During
1997, the Company sold its interest in the project to the minority shareholder,
Bor Da Mona.
5
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Projects Under Construction
Andersen Falls Hydroelectric Facility. The Company owns 60% of Andersen
("Project Company") which has entered into a concession contract with Energia
Rio Negro Socieded del Estado ("ERSE"), the state utility of the State of Rio
Negro, Argentina, to design, reconstruct, operate and maintain a hydroelectric
facility to be located at Andersen Falls, State of Rio Negro, Argentina. In
connection with the proposal to construct this facility, the Project Company
posted a performance bond for $1 million, which was guaranteed on a joint and
several basis by the Project partners and the Company. Because of the Company's
limited capital resources, there is a risk that the Company will have to pay
under the terms of this performance bond. However, the facility was abandoned in
1996 and the bond obligations remain unclear. The Company reached an agreement
tosell its interest in this project, in February 1999, subject to obtaining the
required concessions and appoval from the governments.
Dona Julia Hydroelectric Facility. The Company, on behalf of a Costa
Rican company in which it has a minority interest, developed a hydroelectric
facility located in Heredia, Costa Rica. The project was expected to have a
capacity of 16 MW of electricity, all of which is to be sold to the Costa Rican
state utility ICE under a 15-year power purchase contract. The Company has sold
its interest in the project in 1997 for approximately $475,000.
Fujian I, China. In May 1995, the Company signed an agreement with
China Chang Jiang Energy Corporation ("CCJEC") to acquire an interest in Fujian
Chang Ping Hydro Project Company. Fujian Chang Ping Hydro Project Company is
constructing the 39 MW Fujian Nan Ping Xiayang Hydro Power Plant on the upper
Ming River in Xiayang, Fujian Province, People's Republic of China. The project
was originally expected to be operational by September 1997, but as a result of
significant flooding at the construction site, the operating date has been
postponed.
Subsequent to the Company's initial investment, concern arose as to
whether adequate approvals had been obtained, under Chinese law, for the
acceptance of New World Power Corporation shares as payment for the Company's
interest in Fujian. Due to uncertainties involving, among other things,
significant project construction delays and Fujian's lack of liquidity, the
Company has recorded an other than temporary decline at December 31, 1995, to
adjust the carrying value of its investment to the estimated net realizable
value of the Company's continued interest in Fujian. Continued delays in 1996
and lack of capital for the project resulted in the Company writing off its
investment in CCJEC. The impact of this write-down is included as part of the
impairment charge in the accompanying Consolidated Statement of Operations at
December 31, 1996 and 1995 (see Note 3 and 10).
Projects In Development
The Company is currently undertaking to develop the following projects.
Unless otherwise stated below, development of each of these projects is subject
to obtaining suitable financing. There can be no assurance that such financing
will be obtained. See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" for a
discussion of the financing of development projects.
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Eolos I. The Company has secured the development rights to
approximately 37,500 acres of land for the development of a wind farm in the La
Ventosa region of the State of Oaxaca, Mexico. Power from this first phase 20 MW
development will be sold to, CFE, the Mexican federal electric utility. The
power purchase agreements are in the preliminary stages of negotiation and are
subject to approval by the federal Ministry of Energy. This project is expected
to be developed through a Mexican company in which the Company will have a
minority interest. All work on this project was supended in 1997.
Lerma Hydroelectric Facility. The Company, through Entec S.A. de C.V.,
has a contract with the Mexican Federal District Water Commission to develop an
8.5 MW hydroelectric facility powered by the flow of water from an aqueduct
which supplies part of the drinking water needs of Mexico City. Entec will be
paid for the electricity generated by the project by the Federal District Water
Commission under a long-term power purchase agreement. All work on this project
was supended in 1997.
Big Spring Wind Farm. The Company, through its limited partnership New
World Power Texas Renewable Energy Limited Partnership, has entered into a
15-year power purchase agreement with Texas Utilities Electric Company ("TU
Electric") to purchase power from a 40 MW wind farm which is to be built near
Big Spring, Texas. The agreement has been approved by the Public Utility
Commission of Texas. Despite improving the financial feasibility of the project
by substituting the new wind turbine generator technology, the Company was
unable to finance the project and, as a result, the rights to the project were
sold to York Research of New York in the late 1997.
Tierras Morenas Wind Farm. The Company had been undertaking, through a
Costa Rican subsidiary in which it has a 35% minority interest, to develop a
wind farm to be located in Tierras Morenas near Lake Arenal, Costa Rica. The
project was expected to have a capacity of 20 MW of electricity, all of which is
to be sold to the Costa Rican state utility ICE under a 15-year power purchase
contract. In May 1996 the Company's Costa Rican 65% majority partner in the
project entered into negotiations with a U.S. alternative energy development
company to sell its majority interest and take over development of the project.
The Company sold its minority interest in the project to the controlling
shareholder in 1998.
Carrickabrock Wind Farm. The Company, through a joint venture with Bord
Na Mona, is seeking to develop a 15 MW wind farm in the County of Tipperary,
Ireland, to be owned and operated by the joint venture. The joint venture, in
which the Company will have a 50% interest, will sell electricity to the ESB,
the government-owned electric utility of Ireland, under a 15-year power purchase
agreement. The joint venture has been attempting to resite the project nearby.
Unfavorable outcome to the resiting efforts forced the Company to abandon the
project in 1997.
Drumlough Hill Wind Farm. The Company has entered into a joint venture
with Bord Na Mona to develop a 5 MW wind farm at Drumlough Hill, Innishowen,
County Donegal, Ireland. The joint venture, in which the Company will have a 50%
interest, will sell electricity to the ESB, the government-owned electric
utility of Ireland, under a 15-year power purchase agreement awarded through an
Irish AER bid process. The joint venture has been unable to secure the essential
site rights from a third party that are necessary to complete the project.
Inability to obtain these rights forced the Company to abandon the project.
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Seasonality of Revenues
Wind farm revenues are seasonal, with the wind season in North American
locations typically running from March to November. The European wind season
typically runs from October to March. Hydroelectric production is also seasonal
with spring, fall and winter providing proportionally higher revenues than the
summer. Both wind power and hydroelectric production can also vary from year to
year based on variations in meteorological conditions.
Strategic Alliances
In June 1994, the Company entered into a 15-year business alliance
agreement with Westinghouse Electric Corporation ("Westinghouse"). Westinghouse
owns 158,659 shares ( %) of the Company's Common Stock. The alliance has not
been as beneficial as both parties originally envisioned and, accordingly, the
Company and Westinghouse have suspended joint pursuit of opportunities pursuant
to this agreement. In 1998, the agreement was cancelled altogether by mutual
consent, with no additional consideration.
In October 1994, the Company entered into a joint venture contract with
China Chang Jiang Energy Corporation (Group) ("CCJEC") and Metropolitan
Enterprise Corporation ("MEC"). CCJEC is a manufacturer of electric generating
equipment and owns and operates numerous hydroelectric facilities, not only in
China but in the Philippines and other countries in Asia. The joint venture
contract is for a period of twenty-five years after the date of issuance of the
business license for the joint venture company. The parties have agreed to deal
exclusively with one another during the term of such contract in connection with
the development of wind, solar and hydroelectric power generating projects in
the PRC, and in the manufacturing and distribution in the PRC of renewable power
generating products developed by the Company. Any pursuit of opportunities under
this agreement is subject to successful renegotiation of the Company's
investment position in the Fujian project.
The Company, effective as of October 31, 1996 entered into a joint
venture agreement with Dominion Bridge Corporation (Dominion Bridge) to jointly
develop selected projects in its inventory. These projects include further
development of wind opportunities in North America. Pursuant to the agreement,
Dominion Bridge may invest up to $2.5 million in the projects in exchange for
50% of the Company's interest in such projects. In addition, the Company has
given an option to convert Dominion Bridge interest in the joint venture into
its common stock. In the event that all such interest was earned and converted,
Dominion Bridge's ownership of the Company would reach 41% of the common stock.
The joint venture was terminated in April 1998 and none of the joint venture
interest was converted into Company shares.
Finally, effective August 5, 1996, the Company has entered into a
management services contract with Dominion Bridge, whereby one of its vice
presidents, Vitold Jordan, was appointed to the position of Interim CEO of the
Company and Nicholas Matiossian, COO of Dominion Bridge is acting as senior
advisor to the Company. This agreement was terminated in April 1998.
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GRID POWER SERVICES DIVISION
During 1995, as a result of continued losses and erosion of its
customer base, the Company discontinued its production services operations in
California. The operations, which constituted the Grid Power Services segment,
were sold in December 1995.
WIRELESS POWER DIVISION
The Company's Wireless Power Division sells and assembles solar
systems. The photovoltaic systems sector of the division was sold in 1996 to
satisfy the Company's debt covenants, while the controlling interest in the
integrated renewable power generating systems was exchanged for debt in the 1997
restructuring.
OTHER PRODUCTS AND SERVICES DIVISION
The Division manufacturing a full line of wind turbines including 1 kW,
3 kW, 12 kW and 100 kW machines, all in limited quantities, and developing a
prototype for a 250 kW turbine was exchanged for debt in the 1997 restructuring.
DOMESTIC GOVERNMENT INCENTIVES
Federal Incentives. The Federal government encourages the use of
renewable energy resources through various financial and other incentives. The
most recent incentives at the Federal level were included in the Energy Policy
Act of 1992. The purposes of the Act include the promotion of (i) increases in
the production and utilization of energy from renewable energy resources; (ii)
further advances of renewable energy technologies; and (iii) exports of
renewable energy technologies and services.
The Federal Energy Regulatory Commission ("FERC") has authority under
the Energy Policy Act, in certain circumstances, to order any transmitting
utility to provide transmission service to independent power producers for the
purpose of selling electricity at wholesale. If adequate transmission capacity
is unavailable, the transmitting utility may be required to enlarge its
facilities. The FERC may not issue such an order if providing transmission
service would impair the reliability of the interconnected system, or if the
utility cannot obtain approval for new facilities that are necessary to provide
the service. These provisions could benefit the Company and other independent
(non-utility) power producers by facilitating access to utility transmission
systems and thus the transmission and sale of electrical power to purchasers
other than the local electric utility. With improved transmission access, the
number of potential customers for power produced by the Company's facilities
will be significantly increased.
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Under the Clean Air Act Amendments of 1991, the Environmental
Protection Agency ("EPA") has established sulfur dioxide ("SO2") emission levels
for each utility system that must be met by the year 2000, as well as specific
emission levels for certain coal-fired plants that must be met by 1995. In order
to facilitate the transition to these new emission levels, a trading mechanism
has been created so that SO2 allowances can be traded. The result of these
regulatory initiatives is that wind energy is valuable to utilities since wind
generated electricity reduces fossil fuel generation by the utilities and
increases emission allowances which can be sold in the market.
State Incentives. Under the Energy Policy Act, states must work with
regulated public utilities to develop an integrated resource plan which
implicitly includes development of renewable energy resources, such as wind and
solar power. Even prior to enactment of the Energy Policy Act, a number of
States had undertaken to develop renewable energy policies and initiatives in
response to increasing pressure from environmental groups which have focused on
the air and water pollution associated with the development of new fossil fuel
generating facilities.
REGULATION
The Company is subject to federal and state energy laws and regulations
and federal, state and local environmental laws and regulations in connection
with the development and operation of its generating facilities.
Domestic Federal Regulation. Pursuant to authority granted to the FERC
under PURPA, the FERC has promulgated regulations which generally exempt small
power production facilities with capacities of less than 30 MW from the
provisions of the Federal Power Act ("FPA") (except for licensing requirements
applicable to hydroelectric projects and certain other matters), the Public
Utility Holding Company Act ("PUHCA"), and state laws respecting rates and
financial and organizational regulation of electric utilities. All of the
Company's hydroelectric and wind power generating facilities are believed to be
entitled to the full range of regulatory exemptions available under PURPA. The
Wolverine Hydroelectric Facilities are subject to licensing regulation pursuant
to the Federal Power Act.
The Energy Policy Act amended PUHCA to allow independent power
producers, under certain circumstances, to own and operate eligible facilities
not exempted by PURPA in the United States or foreign countries without
subjecting these producers to registration or regulation under PUHCA and without
jeopardizing the qualifying status of their existing exempt projects. A company
exclusively in the business of owning or operating generating facilities and
selling electricity at wholesale or retail in a foreign country is also eligible
for this exemption, as long as neither the company nor its subsidiaries sell
electricity retail within the United States. These provisions are expected to
enhance the development of facilities not exempted by PURPA in the United States
which do not have to meet the fuel, production and ownership requirements of
PURPA, as well as the development of foreign generating companies. The Energy
Policy Act could benefit the Company by expanding its ability to own and operate
facilities not exempted by PURPA but may also result in increased competition by
allowing utilities and other independent power producers to develop such
facilities which are not subject to the constraints of PUHCA.
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In the absence of exemptions from the regulations discussed above, the
activities of the Company would be subject to a pervasive framework of federal
and state regulation applicable to public utilities, including regulation of
power sales prices, encumbrances of property, accounting practices and all other
activities deemed necessary and convenient in the regulation of public
utilities. Should this occur, the Company could be subject to regulation as a
public utility holding company under PUHCA, which would have a material adverse
effect on the Company's business. The Company intends to conduct its operations
so that it continues to qualify for the applicable exemptions under PUHCA and
has no reason to believe that these exemptions will be changed by legislative or
regulatory action. Congress now has under consideration legislation that would
reduce or eliminate the PUCHA restrictions.
State Regulation. State public utility commissions ("PUCs") have broad
authority to regulate both the price and financial performance of electric
utilities. Since a power sales contract will become a part of a utility's cost
structure (and therefore is generally reflected in its rates), power sales
contracts between an independent power producer, such as the Company, and a
regulated utility, some PUC's assert and exercise the right to approve these
contracts at the outset.
Local Permits. County governments in California and other states
require wind farm operators to apply for and obtain permits before erecting and
installing wind turbine generators. Applications may be considered at a public
hearing. The permits generally terminate after a fixed period of time, twenty
years from the date of approval in California, although the permits are
revocable for cause. Permits frequently contain numerous conditions, including
safety setback requirements, noise setback requirements, environmental
requirements and annual reporting requirements. The Company believes that it has
or will be able to obtain and renew all necessary permits subject to any
requirements relating to the siting and operation of each individual wind farm.
Environmental Regulation. The Company is subject to environmental laws
and regulation at the federal, state and local levels in connection with the
development, ownership and operation of its electrical generating facilities.
The laws and regulations applicable to the Company primarily involve
environmental concerns associated with the siting of wind power generating
facilities such as noise, visibility of wind turbines and threats to endangered
or migratory birds or wildlife. Many of such laws and regulations require that
wind turbines be located in remote areas or shielded from view, that turbines
not be located in flyways or in areas where endangered species might be
threatened, or that other mitigating actions be implemented. The Company
believes that its existing electric generating facilities are in compliance with
such environmental laws and regulations. If such laws and regulations are
altered, however, and the Company's facilities are not grandfathered, the
Company may be required to incur significant expenses to comply with such laws
and regulations. Furthermore, the existence of certain environmental laws and
regulations may have an adverse effect on the Company's ability to find suitable
sites for new renewable energy generating facilities, although generally
speaking suitable wind resource areas are not near residential areas.
11
<PAGE>
International Regulation
The Company only engages in business in countries that have statutes
which permit the private production and sale of electricity. All the countries
in which the Company is currently doing business have such laws. Certain
countries have restrictions on the percentage of a stock a foreign corporation
may own of a domestic corporation and certain countries require permission of
the government to own more than a designated percentage of stock in a domestic
corporation. The Company complies with all such requirements.
The Company believes that the countries in which it is seeking to do
business are encouraging independent power producers to supply the electrical
power needs their growing economies face. The relatively short time periods for
construction as well as the modular nature of wind farms permit the Company to
comply with construction and environmental regulations in a more expeditious
fashion and with lower construction risks than power produced through
traditional thermal methodologies.
COMPETITION
Revenue derived from the Company's existing electrical generating
facilities is sold under long-term power contracts, therefore competition is not
a significant business risk. New utility power sales contracts are, however,
generally subject to an arduous, expensive and competitive process. Many states
require power sales contracts to be awarded by competitive bidding, and the
Company competes with other independent power producers, subsidiaries of fuel
supply companies, engineering companies, equipment manufacturers and affiliates
of other industrial companies in the process. In addition, a number of regulated
utilities have created subsidiaries, utility affiliates, which compete with
independents such as the Company.
Competition for acquisitions of existing power projects and development
of new ones may significantly reduce the Company's opportunity to acquire or
develop any such projects. There are other companies in the power generation
industry that are larger and have more financial resources than the Company.
Furthermore, other large, well-capitalized entities from outside the power
generation industry may choose to enter the industry, creating the potential for
significant additional competition.
The markets for the Company's wireless power products are highly
competitive. The Company faces a number of competitors in this market, some of
which may have significantly greater financial resources than the Company.
EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries employed
approximately 8 people.
12
<PAGE>
ITEM 2. PROPERTIES
ADMINISTRATIVE
The Company leases office space for executive and administrative
functions at various locations around the country.
GRID POWER
Wolverine. The Company owns approximately 4,000 acres of land, most of
which is under water, in Gladwin and Midland counties in Michigan. The Company's
dikes, dams, spillways and power plants are located on this property. Operating
and maintenance personnel are based in a 1,000 square foot Company-owned
building and a 5,000 square foot maintenance and storage facility in Edenville,
Michigan.
Altamont Wind Farm. The Altamont Wind Farm is located on approximately
4,000 acres of leased land in the Altamont Pass, California. The Company owns
approximately 305 miles of power lines, one substation and a 5,000 square foot
maintenance building on the property. (Sold in 1999).
Makani Uwila Wind Farm. The Makani Uwila Wind Farm is located on
approximately 65 acres of leased land on Oahu, Hawaii. (Abandoned in 1996 and
sold in 1999)
Los Vaqueros Wind Farm. The Los Vaqueros Wind Farm is located on
approximately 101 acres of leased land in the Altamont Pass, California. (Sold
in 1996)
San Jacinto Wind Farm. The San Jacinto Wind Farm is located on
approximately 165 acres of leased land in the San Gorgonio Pass, California.
(Sold in 1997)
Dyffryn Brodyn Wind Farm. The Dyffryn Brodyn Wind Farm is located on
approximately 166 acres of leased land near Whitland, Dyfed, Wales. (Sold in
1997)
Caton Moor Wind Farm. The Caton Moor Wind Farm is located on
approximately 100 acres of leased land in Caton Moor, Lancashire, England.
Bellacorick Wind Farm. The Bellacorick Wind Farm is located on
approximately 300 acres of leased land in Bellacorick, Ireland. (Sold in 1997)
Four Burrows Wind Farm. The Four Burrows Wind Farm is located on
approximately 500 acres of leased land in Truro, Cornwall, England. (Sold in
1997)
Production (Wind Farm) Services. The Company's production (wind farm)
services facilities are located in a 28,000 square foot leased facility in North
Palm Springs, California. The facility includes offices, warehouse space and a
machine shop. The Company terminated this lease in early 1996.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On January 30, 1995, Kenetech Windpower, Inc. ("Kenetech") filed a
patent infringement suit in the United States District Court for the Northern
District of California against the Company and Enercon GmbH ("Enercon") relating
to the proposed use of Enercon E-40 wind turbines at the Company's planned wind
power generating facility in Big Spring, Texas. The suit alleges that the use of
the Enercon turbines in the United States would violate certain Kenetech patents
and seeks an injunction and unspecified damages. The Company reviewed the
Kenetech patents in detail and thoroughly investigated the Enercon technology
well before the suit was filed and, based on such reviews and investigations,
believes that neither the Enercon turbine nor its mode of operation infringes on
any claim of any of Kenetech's patents. In January 1996 the Court granted the
Company's motion and dismissed Kenetech's claim for relief based on actual
patent infringement.
Kenentech has also initiated proceedings against the Company and
Enercon before the International Trade Commission. On May 31, 1996, an
Administrative Law Judge of the U.S. International Trade Commission rendered an
Initial Determination decision in which he held that the Commission has subject
matter jurisdiction over the Company and its co-respondent, Enercon, in
Investigation No. 337-TA-376 because the Company has purchased for importation,
and Enercon has sold to the Company for importation, certain wind turbines, the
use of which in the United States would infringe one claim of one Kenetech
patent. This Initial Determination is subject to review by the Commission, which
must be requested on or before June 13, 1996, and to further appeal thereafter.
The Company and Enercon have requested review by the Commission. The
Company believes that both Kenetech suits are without merit.
Subsequently, during 1997, and notwithstanding all of the above, the Company has
proposed alternate wind turbine equipement for the Big Springs project and with
approval by Texas Utilities all plans to deploy Enercon equipement in the United
Sates were abandoned. As a result, the Company is no longer a party to the
Kenetech litigation with Enercon
On November 12, 1996, Dwight Kuhns, ex president and brother of the
former Chairman of the Board, commenced an action against New World Power
Corporation in the Superior Court, Alameda County, California. The action sought
damages under a consulting agreement that Mr. Kuhns had entered into with the
Company at the start of January, 1996, following the termination of his
employment with the Company on December 31, 1995.
As a result of weak defense, the Court brought terminating sanction
against the Company, thus striking all of the Company representations from the
records and under the judgement by default, the plaintiff was awarded $967,000
in contractual damages and $1,000,000 in punitive damages on July 24, 1998. The
Company has filed a notice of appeal of the judgment and a malpractice action
against its counsel of record until November 8, 1997.
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. Upon payment of $375,000 and delivery of $275,000
note together with 150,000 common shares and 75,000 warrants to purchase shares
at $2 each, the Company will obtain full satisfaction of the judgement.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the shareholders held October 21, 1996, the
shareholders approved the sale of the Company's wireless division interests, the
five for one reverse split of its common shares and the current Board of
Directors.
15
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There was no established public trading market for the Company's Common
Stock prior to October 23, 1992. Since that date, the Common Stock has been
quoted on the National Association of Securities Dealers Automated Quotation
("NASDAQ") System under the symbol NWPC. On March 23, 1994, the Common Stock was
approved for listing on the NASDAQ National Market System. In November 1996, the
Common Stock was approved for listing on the NASDAQ Small Cap Market System and
in July 1997 the Common Stock was transferred for trading on the Bulletin Board.
The following table sets forth the high and low closing prices for the Common
Stock as reported by NASDAQ during the periods shown below.
*High *Low
Quarter ended December 31, 1994 53 30
Quarter ended March 31, 1995 38 23
Quarter ended June 30, 1995 33 22
Quarter ended September 30, 1995 31 12
Quarter ended December 31, 1995 19 8
Quarter ended March 31, 1996 12 5
Quarter ended June 30, 1996 4 3/4 2 1/2
Quarter ended September 30, 1996 3 3/4 1 1/4
Quarter ended December 31, 1996 2 3/4
Quarter ended March 31, 1997 1 9/32
Quarter ended June 30, 1997 .438 .031
Quarter ended September 30, 1997 .25 .031
Quarter ended December 31, 1997 .25 .031
Quarter ended March 31, 1998 .25 .062
* Price adjustments have been made to reflect the 1 for 5 reverse stock
split.
The foregoing represents inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. As of March
31, 1998, there were approximately 374 holders of record of Common Stock.
The Company has not paid any cash dividends on its Common Stock since
its incorporation in June 1989. The Company is currently prohibited from
declaring or paying any cash dividends on the Common Stock under the Company's
loan restructuring agreements entered into early 1996 and late 1997.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's statements of operations for the year ended December 31, 1997, 1996and
1995 and its balance sheets as of December 31, 1997, 1996 are derived from the
Company's audited Consolidated Financial Statements. The Company's statements of
operations for the year ended December 31, 1997, 1996 and 1995 and such balance
sheets as of December 31, 1996 and 1995, and the auditors' report thereon, are
included elsewhere in this report. Such data should be read in conjunction with
the Company's Consolidated Financial Statements, the related notes and the
independent auditors' reports and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
17
<PAGE>
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended Year Ended September 30,
1997 1996 1995 December 31, 1993 1993 1992
------------- ------------- ------------- ----------------- ------------- -------------
STATEMENT OF OPERATIONS DATA: (In thousands, except per
share data)
<S> <C> <C> <C> <C> <C> <C>
Operating revenue:
Grid Power Production $ 2,370 $ 8,033 $ 7,735 $ 275 $ 1,730 $ 1,955
Wireless Power Sales - 3,554 6,560 430 1,432 1,785
Other Products and Services - 1,240 (9) (15) 810 -
------------- ------------- ------------- ----------- ------------- -------------
Total operating revenue $ 2,370 $12,827 $ 14,286 690 3,972 3,740
------------- ------------- ------------- ----------- ------------- -------------
Operating expenses:
Cost of operations 1,323 10,241 10,508 689 2,516 2,488
Research & Development - - 400 165 52 -
Project development 390 706 4,361 259 779 -
Selling, general and
administrative expenses 2,689 6,356 7,003 1,023 2,841 3,332
Equity loss of non-consolidated
affiliates - (77) 4,199 112 - -
Impairment charge - 6,359 24,431 - - -
------------- ------------- ------------- ----------- ------------- -------------
Operating loss (2,032) (10,757) (36,617) (1,558) (2,216) (2,080)
------------- ------------- ------------- ----------- ------------- -------------
------------- ------------- ------------- ----------- ------------- -------------
Net (loss) income from continuing
operations before discontinued
operations $(3,109) $(19,431) $(38,669) $ (1,464) $67 $1,153
------------ ------------ ------------- ----------- ------------ -------------
Income (loss) from discontinued
operations 327 (229) (2,651)
------------ ------------ -------------
Net (loss) income attributable
to common shares $(2,782) $(19,659) $(41,751) $ (1,576) $ 537 $ 1,153
------------ ------------ ------------- ----------- ------------ ------------
------------ ------------ ------------- ----------- ------------ ------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, December 31, Year Ended September 30,
1997 1996 1995 1993 1993 1992
------- ------- ------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (CONTINUED):
Earnings (loss) per common share:
Net loss from Continuing operations available
to common shareholders (1.24) $(8.73) $(18.58) $ (1.35) $ 0.20 $ 3.15
(Loss) income from discontinued operations 0.13 (0.10) (1.26) (0.05) 0.45 -
Basic and Diluted** (1.11) $ (8.83) $(19.84) $ (1.40) $ 0.65 $ 3.15
======= ======== ======== ====== =======
Average Number of Basic Common Shares 2,503 2,227 2,105 1,142 852 335
Outstanding**
======= ======== ======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of September 30,
1997 1996 1995 1993 1992
--------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash $227 $ 449 $ 681 $ 1,985 $ 210
Cash restricted in use 639 2,377 4,670 - -
Working capital (deficiency) (1,683) (10,311) (16,762) 3,386 (8,946)
Plant, property & equipment, net 3,900 21,118 29,375 9,018 5,983
Deferred Series B preferred stock offering costs - - - 171 1,014
Total assets 7,121 29,820 65,396 22,978 19,054
Current portion of long-term debt 2,197 6,658 17,966 250 5,247
Due to related parties 4,014 4,628 - -
Current portion of capital lease obligations 14 84 3,182 4,307
Long-term portion of long-term debt 589 5,394 7,650 451 1,343
Long-term portion of capital lease obligations 8 76 118 3,379
Redeemable preferred stock - - - 2,827 -
Stockholders' equity (deficiency) 831 1,592 21,023 12,063 (2,877)
<FN>
**Adjustment made to reflect 1 for 5 reverse stock split.
</FN>
</TABLE>
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in the production and sale of electric power generated
from renewable sources and, to a lesser extent, the sale of products related to
the renewable energy industry. The Company focuses on the acquisition and
development of renewable power generating facilities from wind, solar and
hydroelectric sources.
Business Environment
The Company adopted a new business strategy and plan which was approved
by the Board of Directors in January of 1996. After abandoning its previous
strategy of aggressive expansion through acquisition of existing renewable
energy projects and the development of new projects throughout the world, the
Company embarked on a 1996 campaign to sell assets to satisfy its debt
obligations. Partly in connection with this previous strategy of acquisitions,
the Company issued approximately $15 million of debt.
In the latter part of 1995, liquidity became extremely constrained and
it became apparent to management that operating cash flow would not be
sufficient for the Company to meet its debt service payments due in the early
part of 1996. As a result, the Board of Directors appointed a new Interim Chief
Executive Officer and management developed a revised business strategy with the
objectives to reduce debt, increase equity and alleviate the Company's
short-term liquidity problems and improve long-term liquidity. Key elements of
the revised business plan include:
* The Company is focusing on a selected, limited number of development
projects.
* The Company is selling off certain of its existing hydroelectric and wind
projects currently under development or construction.
* The Company used the proceeds from the sale its ownership interests to meet
its current and other debt service requirements.
* The Company did not pursue any new wind farm development projects in the
United States. This element of the business plan does not affect projects
for which the Company has completed the bidding process or has been
selected through a competitive process to operate a wind farm.
* The Company reduced administrative staff.
Management believes that its revised business plan will achieve the
Company's objectives of reducing debt, increasing equity and improving both
short-term and long-term liquidity. However there are numerous risks and
uncertainties surrounding management plans, principally the risk that management
will not be able to sell investments identified in its business plan within the
time frame required by the restructured loan agreement, or for the amounts
estimated by management.
22
<PAGE>
Shortly after the Board approved the revised business plan, the Company
defaulted on several of its debt obligations and restructured those obligations
with its lenders. Part of the terms of the restructured loans included a release
of up to $3.3 million cash collateral held by the lender, additional collateral,
additional finance charges and the requirement that the Company raise $10
million in net proceeds from the sale of assets or securities by July 31, 1996
and raise an additional $17 million in net proceeds from the sale of assets or
securities by November 30, 1996. Further, a significant portion of the proceeds
from the sale of assets or securities will be placed in a sinking fund for the
purpose of debt retirement.
Throughout 1996 and into early 1997, management continued to operate
under constrained liquidity and operating cash flow. As of April 15, 1997 the
Company has completed the sales of Photocomm and Solartec interests, two UK
windfarms and the Irish windfarm. Proceeds from asset sales of approximately
$19.3 million were used to reduce the Company's obligations to Fleming and
Sundial debt holders and to pay the expenses associated with the sale. As of
April 16, 1997 approximately $4.5 million of debt obligation remains in favor
of Fleming while the Sundial debt holders have been paid in full.
The Company made its interest payments, due January 31, 1996 and July
31, 1996, on its Secured Subordinated Notes in the form of additional notes and
warrants rather that cash as permitted under the restructured loan agreements.
Those interest notes as well as the interest payment due January 31, 1997 were
paid by the Company from proceeds of asset sales.
Brief History
The Company was formed in 1989 through the acquisition of hydroelectric
facilities in Michigan and a wind farm in the Altamont Pass in California. The
Company expanded into renewable energy technology through its 1991 acquisition
of Northern Power Systems, Inc., a manufacturer of wind turbines and remote site
and stand-alone renewable power generating systems. In 1992, the Company
acquired Field Service Maintenance & Supply, Inc. in Palm Springs, California
(subsequently renamed "Grid Power Services Division"), which provides
engineering, installation and operation services to owners of wind turbines and
related equipment. See "Discontinued Operations" in Notes to Financial
Statements.
The Company continued to expand in 1993 through the acquisition and
development of several wind farms; the acquisition of 49% of Entec S.A. de C.V.,
a Mexican corporation engaged in the rural electrification industry; and the
acquisition of 29% of Photocomm, Inc., a manufacturer and distributor of solar
electric systems and related products. In 1994, the Company increased its
ownership in Photocomm to a majority of its voting stock and increased its
ownership in Entec to approximately 50%, while also purchasing 51% of Solartec
S.A., the solar products distributor in Argentina. During 1995, the Company's
ownership in Photocomm decreased to below 50% of the outstanding stock.
23
<PAGE>
In 1994 the Company signed a business alliance with Westinghouse to
jointly develop, market, construct and own renewable power projects, such as
utility-scale wind farms, off-grid generating systems and wireless photovoltaic
systems as well as jointly market the Company's renewable power projects and
products. The alliance has not been as beneficial as both parties originally
visioned and, accordingly, the Company and Westinghouse are discussing the
mutual cessation of the business relationship.. During 1994, the Company entered
into a joint venture with China Chang Jiang Energy Company Ltd. to develop
renewable energy projects in China.
The Company completed construction in December 1994 of the Dyffryn
Brodyn and Caton Moor wind farms in the United Kingdom which have a combined
capacity of 8.6 MW, and completed in March 1995 the Four Burrows wind farm in
the United Kingdom which has a capacity of 4.5 MW. Also, the Company was
selected in 1994 by Texas Utilities to develop a 40 MW wind power facility in
Big Spring, Texas, and commenced the development of a 16 MW hydroelectric
facility in Costa Rica.
In January 1995, the Company acquired approximately 87% of the stock of
an Irish wind farm having a capacity of 6.4 MW. Also, during 1995, the Company
commenced development of a 16 MW hydroelectric facility and commenced
development of a 22 MW wind power facility both in Costa Rica. In addition, the
Company purchased a 12% equity interest in the 39 MW hydroelectric facility
located in the Fujian province of China.
During 1996, the Company embarked upon a new business plan that required, among
other things, the sale of many of the Company's assets to repay its principal
lenders. In 1996, the Company entered into an agreement to sell its interest in
the 16 MW hydroelectric facility in Costa Rica. That sale is expected to close
in early 1997. In addition, the Company closed on the sale of its investments in
Los Vaqueros, Solartec, New World Power do Brazil and Photocomm during 1996 for
gross proceeds of approximately $13 million. All proceeds were paid to the
secured lenders.
In early 1997, the Company closed on the sale of two of its windfarms
in the United Kingdom and the sale of its investments in the windfarm in
Ireland. Proceeds form the sale of approximately $6.4 million were repaid to the
principal secured lenders. With the sales completed in Ireland and the United
Kingdom, two of the Company's three secured lenders have been repaid in full.
24
<PAGE>
OTHER RISKS
Increasing Competition and Regulatory Developments Affecting the Domestic
Electric Utility Industry
The electric utility industry in the United States is in the midst of a
transition to a more competitive wholesale power market in which numerous states
are considering granting independent power producers direct access to retail
customers. This transition is being implemented by changes in regulations and
policies of the FERC and state utility commissions. Congress is considering the
termination of power purchase mandates under PURPA and FERC has acted to negate
some state approved power contracts. Due to the increasing competition and
regulatory uncertainty in the domestic markets coupled with the downward
pressure on the price utilities will pay for electric power based upon their
avoided cost, management believes that the most attractive opportunities for
independent power development in the immediate future are outside of the United
States.
Risks of International Project Development Activities
Participation in the development and acquisition of foreign facilities
may expose the Company to the effects of potentially adverse economic, political
and labor developments, including political instability, nationalization of
assets, local inflation, and currency fluctuations and restrictions. The Company
will attempt to minimize these risks through various measures but there can be
no assurance that it will be able to successfully reduce or eliminate them. In
addition, the application of foreign environmental, tax and labor laws to the
operations of foreign facilities may adversely affect any foreign facility
earnings of the Company.
General Risks of Project Acquisition and Development
The Company's acquisition and development projects are subject to
normal development risks, including locating suitable sites, negotiation of
definitive agreements, obtaining favorable power purchase contracts, final
permitting, the availability of financing on acceptable terms, and construction
risks. The Company is currently engaged in the process of developing and
acquiring renewable power generating facilities in foreign countries.
The Company expects that many of its power production projects will be
outside the United States, and will be subject to all of the factors above.
Resource Variability
The Company's wind and hydroelectric generating facilities are located
at sites where, based on the average wind speed and water flow gathered over an
extended period, the Company has determined that there are favorable energy
resources available. Operating results, however, can vary significantly from
year to year and from the historical average.
25
<PAGE>
Renewable energy resources also vary from place to place during the
same season of each year. The Company's existing domestic wind farms are located
primarily in California where the strongest winds occur during the spring and
summer. The Company began operation of its wind farms in the United Kingdom in
December 1994. The wind is generally strongest in the United Kingdom during the
fall and winter. As a result of the increasing geographic diversity of the
Company's power production operations, power production revenue of the Company
is more balanced throughout the year than in prior years.
Inflation
The electricity produced by the Company's power production facilities
is sold under long-term fixed rate power sales contracts. The effects of
inflation on the Company's income are partially offset by periodic adjustments
to the rates set forth in the contracts which give effect, in part, to changes
in operating and capital costs incurred by the utilities as a result of
inflation. Because the majority of operating expenses related to power
production are relatively stable, management does not feel any special concern
about the long-term impact of inflation in the United States or the United
Kingdom.
RESULTS OF OPERATIONS
1997
Revenues
Revenues decreased $10.5 million (81%) during 1997, as compared to
1996. The grid power production decreased by $5.7 million; the Wireless power
sales dropped by $3.6 million to nil, while the Other revenues decreased by $1.2
million to nil as well. The grid power production includes the results of the
two remining operating projects at year end, namely Wolverine and Caton Moor.
Cost of Operations
Cost of operations in 1997 of $1.3 million includes the expenses
associated with the two projects remaining at year end and is consistent with
prior years for those projects.
Project Development Expenses
Project development expenses were contained to $390,000 in 1997 as
compared to $706,000 during the previous year. Following a substantial
curtailment of spending during the first semester in 1996, the Company has
transferred during the second half of 1996 its project in development portfolio
to a joint venture with Dominion Bridge, effectively transferring the project
funding obligations to its joint venture partner. The 1997 expense on the
Company`s books pertains to selected few opportunities, the Company continued
during the year.
26
<PAGE>
Selling, general and administrative
Selling, general and administrative expenses were $2.7 million, a
decrease of $3.7 million or 58%. The Company continued during the year to
implement its cost reduction programme.
Impairment Charge
In 1996, the Company recorded an impairment charge of $6.4 million as
compared to no such charges during 1997. The charges were reflected as a
reduction of the following financial statement captions:
1996
Property, plant and equipment, net $ 1.4 million
Goodwill, net
--
Investments 3.5 million
Inventories and other non-current assets 1.5 million
-------------
$ 6.4 million
=============
As previously described, the Company has undertaken a business plan to
sell certain of its assets and investments and to abandon various development
projects. These investments have been written-down, as applicable, to their
estimated fair value at December 31, 1996. The aggregate carrying value of
assets held for sale as of December 31, 1997 was nil as compared to
approximately $ 3.6 million in 1996.
In determining the amount of impairment charge for assets held for
sale, the Company's policy is to compare the carrying value of its assets and
investments to the estimated fair value. In determining fair value, the Company
used market values for publicly traded investments (i.e., Photocomm), or
correspondence with potential buyers as an indication of market value. In
circumstances where the Company's negotiations to sell assets and investments
have not included correspondence with potential buyers in sufficient detail to
indicate a market value, the Company has used the projected future cash flows
from these investments and assets. These projected cash flows have been
discounted at rates commensurate with the risk of the respective investment, and
generally range from rates of 16% to 21%.
27
<PAGE>
Operating Loss
Operating loss decreased $8.7 million to $2.0 million, due primarily to
$6.4 million reduction in impairment charges and $2.3 million in corporate costs
eliminations.
Other Income (Expense)
Interest expense decreased by $7.6 million during 1997 to approximately
$1.1 million, which was attributable to a decrease in indebtedness of the
Company and resulting interest charges.
1996
Revenues
Revenues decreased $1.4 million (10%) during 1996, as compared to 1995.
The grid power production grew 4% to $8.0 million; the well above average year
generation at Wolverine was offset by continued weak wind resource in England.
The Wireless power sales of $3.5 million were $3.0 million or 46% below the
previous year, primarily on account of weak revenues from Solartec and exclusion
of Vermont revenue, representing a sale of a segment.
Cost of Operations
Cost of operations in 1996 of $10.2 million decreased $0.3 million (3%)
as compared to 1995.
Research and Development Expense
Research and development expenses of nil in 1996 in comparison to
$400,000 are in line with Company's efforts to reduce its spending during the
restructuring.
Project Development Expenses
Project development expenses were contained to $706,000 in 1996 as
compared to $4,3 million during the previous year. Following a substantial
curtailment of spending during the first semester, during the third quarter, the
Company has transferred its project in development portfolio to a joint venture
with Dominion Bridge, effectively transferring the project funding obligations
to its joint venture partner.
Selling, general and administrative
Selling, general and administrative expenses were $6.3 million, a
decrease of $0.7 million or 10%. The effects of corporate costs elimination were
offset by external consulting and legal restructuring fees.
28
<PAGE>
Impairment Charge
In 1996, the Company recorded an impairment charge of $6.4 million as
compared to impairment charges of $24.4 million in 1995. The charges were
reflected as a reduction of the following financial statement captions:
1995 1996
Property, plant and equipment, net $1.4 million $ 13.4 million
Goodwill, net -- 4.1 million
Investments 3.5 million 5.9 million
Inventories and other non-current assets 1.5 million 1.0 million
------------ --------------
$6.4 million $ 24.4 million
------------ --------------
------------ --------------
As previously described, the Company has undertaken a business plan to
sell certain of its assets and investments and to abandon various development
projects. The following investments have been written-down, as applicable, to
their estimated fair value at December 31, 1996 an 1995. The aggregate carrying
value of assets held for sale as of December 31, 1996 is approximately $ 3.6
million and includes:
Photocomm Makani Uwila Wind Farm
United Kingdom Wind Farms Arcadian Wind Farm
Tierras Morenas, Development Project Los Vaqueros
Solartec S.A. San Jacinto
Dona Julia, Development Project Bellacorick
Andersen Falls Painted Hills Wind Farm
In determining the amount of impairment charge for assets held for
sale, the Company's policy is to compare the carrying value of its assets and
investments to the estimated fair value. In determining fair value, the Company
used market values for publicly traded investments (i.e., Photocomm), or
correspondence with potential buyers as an indication of market value. In
circumstances where the Company's negotiations to sell assets and investments
have not included correspondence with potential buyers in sufficient detail to
indicate a market value, the Company has used the projected future cash flows
from these investments and assets. These projected cash flows have been
discounted at rates commensurate with the risk of the respective investment, and
generally range from rates of 16% to 21%.
The Company has estimated the December 31, 1996 and 1995 impairment
charges based upon the best information available to management. It is at least
reasonably possible that actual losses may be materially higher or lower than
the amounts recognized following execution of management's plans, based on the
actual agreements the Company negotiates with potential buyers, etc.
29
<PAGE>
Equity loss of non-consolidated affiliates. These equity losses of
$77,000 in 1996 were practically eliminated following a suspension in funding of
New World Entec SA. The prior year loss of $4.2 million includes $4.3 million of
losses related to Entec investment.
Operating Loss
Operating loss decreased $25.8 million to $10.8 million, due primarily
to reductions in impairment charges and decreases in losses from
non-consolidated affiliates.
Other Income (Expense)
Interest expense increased by $4.1 million during 1996 to $6.5 million,
which was attributable to an increase in indebtedness of the Company and the
rates charged on the Company's debt under the default provisions.
30
<PAGE>
Impact of Foreign Operations Currency Translation
The Company continues to pursue overseas development opportunities, and
is affected by changes to the net investment value of its activities as the
functional currency denominated financial statements of its foreign subsidiaries
are translated into U.S. dollars for purposes of consolidation.
In the year ended December 31, 1997, 1996 and 1995, the Company
recognized in the stockholders' equity section of the balance sheet currency
translation adjustments of approximately $407,464, $(1,252,360) and $132,258,
respectively, related primarily to the United Kingdom and Mexico. The currency
has remained stable in those other countries where the Company has significant
local currency denominated investments.
31
<PAGE>
Segment Analysis
Grid Power Production
Revenue. Power production revenue is dependent upon the Company's
installed capacity, the availability of the renewable resources used to produce
the power, and the rate at which the produced electricity is sold.
In 1997, the grid production revenue was down to $2.4 million, as all
but two of the generating projects of the Company were sold prior to the end of
the year.
During 1996, the grid power generation revenue increased 4% to $8.0
million, as compared to $7.7 million in 1995. The results of the UK and Irish
windfarms continued below expectations, as the weak wind resource conditions
persisted but the results at Wolverine were substantially above historical
averages.
Operating (Loss) Profits.
In 1997, the Segment recorded an operating profit of $1.0 million, as the
results incuded only the costs associated with the continuing operations.
Segment loss for the year 1996 of $3.2 million includes impairment charge of
$1.4 million, as compared to $26.6 million during the previous year, which
included $20.9 million in impairment charges and $4.5 million in charges related
to the Mexican operations. In 1996, the Company stopped the funding of Entec in
Mexico, thus reducing the segment losses
In 1995, the Segment operating loss increased $26.5 million including a $20.9
million impairment charge. Additionally, in 1995, the Company recorded
approximately $4.5 million related to the Company's Mexican operation. The
change is further impacted by $2.0 million of project development expenses
related to China, the U.K. and Chile, partially offset by operating profits of
the Company's U.K. and Irish wind farms. See geographic discussion below.
Wireless Power Sales
Revenue.
In 1997, the Company recorded no revenues in the Wireless Segment, as this
segment was discontinued during the year.
Revenue from Wireless power in 1996 of $3.5 million was $3.0 million below the
1995 sales of $6.5 million due to lower than expected sales from Entec and lack
of new projects in Argentina.
32
<PAGE>
Operating Income (Loss).
The Company has recorded no activities in the Segment during 1997.
Operating loss in 1996 of $.1 million represents $.2 million reduction from the
previous year loss of $.3 million.
Operating income (loss) decreased $1.8 million during 1995 including an
impairment charge of $2.3 million. Excluding the impairment charge, the
operating income increased $500,000. The increase was primarily attributable to
Solartec ($383,000). The remaining increase was primarily attributable to the
Company's NPS subsidiary.
33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In December 1997, The Company restructured its indebtness to its
principal lender. The lender agreed to convert approximately $1.3 million of
debt into common shares of the Company at $1.50 per share. Accordingly, the
Company issued approximately 897,400 shares to the lender in exchange for its
indebtness.
In December 1995, The New World Power Company Ltd. sold 0% Senior
Secured Note due March 31, 1996 in the original amount of $550,000 to Sundial
International Fund LTD., a significant stockholder in the Company. The proceeds
of the Note were used as working capital. Subsequent to December 31, 1995, the
due date of the Note was extended and the Note was exchanged for a new Note due
on or before December 1, 1996.
On December 1, 1995, in accordance with the terms of Series B
Preferred, the Company transferred and endorsed to Sundial International Fund
Ltd. a First Mortgage Note collateralized by the property of Wolverine Power
Company in the principal amount of $3,615,370 along with the Mortgage and
Security Agreements in exchange for its Class B Preferred Stock. The Note is
payable together with interest at the LIBOR+2% points in full on December 31,
1997. Principal and interest are due in seven quarterly installments of
principal (each equal to five percent of the principal balance). The Note was
restructured subsequent to December 31, 1995 and is now due in four payments due
December 1, 1996, March 1, 1997, June 1, 1997 and July 31, 1997.
On August 15, 1995, the Company entered into an agreement to issue
$15,750,000 of its 8% Convertible Subordinated Notes due July 31, 2000 and
warrants to purchase up to 787,500 shares of its common stock pursuant to the
terms of the Note and Warrant Purchase Agreement. The notes are payable
semi-annually on January 31 and July 31 of each year commencing on January 31,
1996. The proceeds of the notes were used as follows: $6,500,000 for a 24%
interest in the Fujian Chang Ping Hydro Power Company, Ltd. (of which $3,300,000
was held in escrow and later (1996) used for working capital), $2,200,000 for
loan repayment to Sundial International Fund Ltd., $1,000,000 to repay loan to
stockholder, $397,490 to pay construction costs in Costa Rica, $128,665 for
legal fees and $5,523,845 for general working capital.
In February 1995, the Company completed the sale of 1,500,000 units of
common stock and 3,000,000 common stock purchase warrants and received net
proceeds of $8,259,279.
In 1995 and 1994, the Company completed project financings for the
Dyffryn Brodyn, Caton Moor and Four Burrows wind farms in the United Kingdom.
The net proceeds from these loans was $3,440,221 in 1995 and $6,150,450 in 1994
which was used to complete the construction of those wind farms. The loan
agreements for these loans require repayment over a four year period and contain
various covenants restricting the use of project revenue during this period.
This revenue must be applied first to fund a reserve account in an amount equal
to debt service payable during the next six months. Amounts available after the
payment of debt service and normal operating expenses of the respective wind
farms and other costs, provided in the loan agreement are available for
semi-annual distributions to the Company, subject to certain restrictions.
During 1996, the Company restructured its debt agreements with two
lenders that restrict upstreaming of available amount to the parent Company.
34
<PAGE>
Throughout 1996 and into early 1997, management continues to operate under
constrained liquidity and operating cash flow. As of April 15, 1997 the Company
has completed the sales of Photocomm and Solartec interests, two UK windfarms
and the Irish windfarm. Proceeds from asset sales of approximately $19.3 million
were used to reduce the Company's obligations to Fleming and Sundial debt
holders and to pay the expenses associated with the sale. As of April 16, 1997
approximately $4.5 million of debt obligation remains in favor of Fleming while
the Sundial debt holders have been paid in full..
In 1996, the Company made its interest payments, due January 31, 1996
and July 31, 1996, on its Secured Subordinated Notes in the form of additional
notes and warrants rather that cash as permitted under the restructured loan
agreements. Those interest notes as well as the interest payment due January 31,
1997 were paid by the Company from proceeds of asset sales.
During 1996, the Company embarked upon a new business plan that required, among
other things, the sale of many of the Company's assets to repay its principal
lenders. In 1996, the Company entered into an agreement to sell its interest in
the 16 MW hydroelectric facility in Costa Rica. That sale is expected to close
in early 1997. In addition, the Company closed on the sale of its investments in
Los Vaqueros, Solartec, New World Power do Brazil and Photocomm during 1996 for
gross proceeds of approximately $12.6 million. All proceeds were paid to the
secured lenders.
In early 1997, the Company closed on the sale of two of its windfarms
in the United Kingdom and the sale of its investments in the windfarm in
Ireland. Proceeds form the sale of approximately $6.4 million were repaid to the
principal secured lenders. With the sales completed in Ireland and the United
Kingdom, two of the Company's three secured lenders have been repaid in full.
At December 31, 1997, the Company had a working capital deficit of $1.7
million as compared to $10.3 million in 1996. In both years, the deficit in
working capital is the result of inclusion of certain debt obligations on which
the Company defaulted subsequent to December 31, 1995 and for which the
Company's restructured debt agreements require certain levels of assets sales to
be completed by certain dates. Uncertainties exist as to whether the
aforementioned provisions can be met. During 1996, net cash flows used
in operating activities was $2,854,869, as compared to $4,215,815 in 1996 and as
compared to net cash flows used in operating activities of $4,794,191 during
1995.
35
<PAGE>
In 1997, 1996, and 1995, $5,629,178, $15,114,556 and $16,679,309 was
provided by or used in investing activities, principally for property plant and
equipment, and the acquisition and disposal of the interest in Solartec and the
additional stock in Photocomm. These amounts were significant increases over the
previous years.
36
<PAGE>
In 1995 $16,679,309 was used in investing activities, principally for property
plant and equipment, and the acquisition of the interest in Solartec and the
additional stock in Photocomm.
These amounts were significant increases over the previous years.
In 1995, $18,027,183 was provided by financing activities primarily
from the net proceeds from the issuance of common stock and the net increase in
long-term debt.
The data for 1995 is affected by the consolidation of Solartec.
Entec, which is 50% owned by the Company is reducing its
size. Entec continues to experience significant financial hardship, which
results in concerns as to its ability to continue as a going concern. As the
Company has no ability to continue to fund the operating losses of Entec,
management wrote its remaining investment in, and advances to, Entec to zero
as of December 31, 1995.
The Company expects to need financing for the construction of wind farm
and hydroelectric facilities in 1996, which will require project equity and debt
financing. The Company plans to raise substantially all of the financing for
these projects from external sources, through equity syndications and
non-recourse debt financing based at the operating subsidiary level. There can
be no assurance, however, that the Company will succeed in obtaining such
financing. If the Company's operating subsidiaries do not have access to capital
markets on a substantially non-recourse basis, the Company itself may have to
make larger equity investments in or provide more financial support for its
projects, however, there is uncertainty as to the ability of the Company to make
such investments, if needed. If the Company was unable to finance a project on a
non-recourse basis, its ability to obtain other types of debt financing may be
adversely affected by the Company's history of operating losses. If adequate
financing were not available it would be likely to adversely affect the future
of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Accountants, consolidated financial
statements and financial statement schedules that are listed in the Index to
Consolidated Financial Statements and Financial Statements Schedule on page F-1
will be filed by the Company upon completion of the audit.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants
required to be reported herein, except as set forth below:
37
<PAGE>
On October 30, 1995, The Company notified the firm of KPMG Peat Marwick
LLP ("Peat Marwick") that they were being dismissed as the Company's independent
accountants. The Company engaged Price Waterhouse LLP ("Price Waterhouse") as
its new independent accountants as of October 30, 1995. The Company's Audit
Committee and its Board of Directors participated in and approved the decision
to change independent accountants.
The report of Peat Marwick on the Company's financial statements for
the fiscal years ended December 31, 1994 and September 30, 1993 and the three
month period ended December 31, 1993 did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. In connection with the audits of the Company's
financial statements for each of its two most recent fiscal years and in the
fiscal period subsequent to the Company's most recent fiscal year and through
November 3, 1995, there were no disagreements with Peat Marwick on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of Peat Marwick,
would have caused Peat Marwick to make reference to the matter in their reports
with respect to such periods, other than the following:
During the fiscal year ended December 31, 1995, the Company discussed
with Peat Marwick an accounting matter which as of the date of Peat Marwick's
termination remained unresolved.
The particular matter discussed related to certain wind farm facilities
("Facilities") owned by the Company in the UK. These facilities are currently
operating under contract with the Non-Fossil Purchasing Agency, Limited, as
agent for and on behalf of the Public Electricity Suppliers of England and Wales
("PESs"), which purchases the power generated by the Facilities. The contractual
rate per Kwh through December 1998 is benefited by certain UK government
incentive payments, which promote the operation of renewable power projects in
the UK. Incentive payments are currently scheduled to expire in December of
1998. If the incentive payments are not renewed by the UK government, the
contracts will continue with the Public Electricity Suppliers at avoided cost
rates unless terminated at the option of either the Company or the PESs due to
the occurrence of certain specified events.
The Company consulted with Peat Marwick regarding the accounting for
the Facilities, and the related power purchase contracts. This consultation
concluded the Facilities should either use an "accelerated" method of
depreciation for the underlying wind farm assets or defer some portion of the
contractual revenues received during the portion of the contracts in which
incentive payments are received, with a related amortization of those deferred
revenues over the estimated useful life of the Facilities.
The Company agreed with the successor accountant as to the appropriate
accounting practices to be applied , which resulted in recording accelerated
depreciation for the Facilities. The Company had recorded an adjustment in its
financial statements at the quarter ended September 30, 1995.
38
<PAGE>
During the Company's two most recent fiscal years and in the fiscal
period subsequent to the Company's most recent fiscal year end, there were no
"reportable events" as defined in subparagraph (a)(1)(v) of Item 304 of
Regulation S-K.
During the Company's two most recent fiscal years and through October
30, 1995, the Company has not consulted with Price Waterhouse on items which (1)
were or should have been subject to SAS 50 or (2) concerned the subject matter
of a disagreement or reportable event with the former auditors, as described in
Regulation S-K, Item 304(a)(2).
In September 1996, Price Waterhouse resigned as the Company's auditors.
In March 1997, the Company's Board of Directors authorized a resolution
appointing Lazar, Levine & Felix LLP as the Company's auditors for the year
ended December 31, 1996 and subsequent years.
39
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following sets forth certain information with respect to the
Directors of the Company:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS FIRST YEAR BECAME
NAME AND CURRENT PUBLIC DIRECTORSHIPS AGE A DIRECTOR
- ---- -------------------------------- --- -----------------
<S> <C> <C> <C>
Gerald R. Cummins DIRECTOR AND CHAIRMAN OF THE BOARD. Mr. Cummins 71 1990
has been a director since October 1990 and a
private investor and independent business
consultant for more than five years. He is a
political strategist who has served as chairman
of The New York State Thruway Authority. He was
the campaign manager for the Honorable Hugh L.
Carey, the former Governor of New York. Mr.
Cummins is also a director of Photocomm. Mr.
Cummins received a bachelor's degree from
Manhattan College.
2
Herbert L. Oakes, Jr. 51 1993
DIRECTOR. Mr. Oakes has served as Managing
Director of Oakes, Fitzwilliams & Co. Limited, a
member of the Securities and Future Authority
Limited and the London Stock Exchange, since
1988. Mr. Oakes is also President of H.L. Oakes
& Co., Inc., a corporate advisor and dealer in
securities which he founded in 1982. He also
serves on the board of directors of Shared
Technologies, Inc. and Harcor Energy, Inc. Mr.
Oakes received a B.A. in Economics from the
University of the South.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C> <C>
Gerard Prevost DIRECTOR AND VICE CHAIRMAN OF THE BOARD. Mr. 57 1996
Prevost is a Managing Partner of Dominion World
Power, the for energy projects Independent Joint
Venture between the Company and Dominion Bridge
Power, Inc., since August 1996. During the
previous 33 years Mr. Prevost had a distinguished
career with the Hydro Quebec, where he served as
the president of Nouveler, an investment arm of
the utility and vice president of operations and
equipment division of the utility. Mr. Prevost's
career with Hydro Quebec was interrupted for
four years starting in 1988 when he served as
deputy minister of energy for the Province of
Quebec. Mr. Prevost received a MBA from Laval
University in Quebec City.
Lucien Ruby DIRECTOR. Since 1985, Mr. Ruby has been the 53 1990
Managing General Partner of Quest Ventures, a San
Francisco-based venture capital firm. Currently,
Mr. Ruby serves on the board of directors of
various privately held corporations including
RESNA Industries, an environmental services
company, and Aqua Air Environmental, Inc., a
manufacturer of pollution control systems. Mr.
Ruby received a B.S.C.E. from Duke University and
an M.B.A. from Harvard University.
</TABLE>
EXECUTIVE OFFICERS
The following table contains the name, position and age of the
executive officer of the Company who is not director.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS AGE
- ---- AND CURRENT PUBLIC DIRECTORSHIPS ---
--------------------------------
<S> <C> <C>
Vitold Jordan Interim Chief Executive Officer. 43
Since January 1995, Mr. Jordan is a president of Dominion Bridge
Technology, Inc. and an officer of the parent, Dominion Bridge
Corp. Prior to 1995, Mr. Jordan served as a Managing Partner of
the Professional Services at AT&T GIS Canada and prior to
December 1993 he was an independent business consultant. Mr.
Jordan is a graduate of Laval University and a chartered
accountant.
</TABLE>
41
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following sets forth, for the fiscal
years indicated, all compensation awarded to, earned by or paid to CEO of the
Company and (ii) the four most highly compensated executive officers of the
Company other than the CEO whose salary and bonus exceeded $100,000 with respect
to the fiscal year ended December 31, 1997 and who were employed by the Company
during the fiscal year ended December 31, 1997 (together with the CEO, the
"Named Executive Officers"):
During the year the Company had no such Named Executive Officers. The CEO of the
Company was retained under a Mnagement Services contract with Dominion Bridge
Corp, as described in more detail elsewhere in this Form
Option Grants Table
No options were outstanding at year end.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
No options were exercised during the year.
42
<PAGE>
Long-Term Incentive and Pension Plans.
In April 1993, the Company adopted the 1993 Stock Incentive Plan (the
"1993 Plan") which was approved by the Company's stockholders in May 1993. The
1993 Plan replaced the Company's previous stock option plan, the 1989 Stock
Incentive Plan (the "1989 Plan"), except as to options outstanding under the
1989 Plan. Under the 1993 Plan, the Company may reward to employees, directors
and consultants of the Company and its subsidiaries incentive and non-qualified
stock options, stock appreciation rights, restricted stock grants, performance
awards and any combination of any or all of such awards. The Board of Directors
has delegated its powers under the 1993 Plan to the Company's Compensation
Committee. Awards may not be granted under the 1993 Plan after December 31,
2003. An aggregate of 500,000 shares of Common Stock may be issued under the
1993 Plan, except that any shares as to which awards granted under the 1989 Plan
may lapse, expire or be canceled be available for issuance under the 1993 Plan.
If any awards expire or terminate for any reason, the shares subject to such
awards are again available for future awards under the 1993 Plan. Awards are not
transferable except by will or the laws of descent and distribution. Whether an
award may be exercised after termination of employment is determined by such
Committee, subject to certain limitations.
Employment Agreements.
Mr. John D. Kuhns was employed as Chief Executive Officer of the
Company and Chairman of the Board prior to April 11, 1996 and until October 1996
served only as Chairman of the Board.
Mr. Kuhns was compensated for his services as Chairman pursuant to an
employment agreement dated as of August 1, 1995 which has been amended on two
occasions. The initial Employment Agreement hired Mr. Kuhns to serve as Chief
Executive Officer for a five year term continuing through July 31, 2000, subject
to renewal unless terminated by either party. The Employment Agreement provided
Mr. Kuhns customary benefits and expense reimbursements and contained customary
confidentiality and noncompetition covenants. The initial Employment Agreement
further provided that as a "severance benefit" Mr. Kuhns might receive, upon
certain conditions, three years base salary and that, upon termination, Mr.
Kuhns had an option to purchase, and the Company had an option to sell to him,
the building and improvements that comprise its executive offices in Lime Rock,
Connecticut (the "Farmhouse Property") at a purchase price equal to the
Company's then depreciated cost basis. Effective March 1, 1996, Mr. Kuhns
entered into Amendment No. 1 to the Employment Agreement ("Amendment No. 1")
which provided that until such time as the Company paid in full its 8%
Convertible Subordinated Notes, his base salary would be at the annual rate of
$220,000 and that the Company would use its best efforts to sell shares of
common stock to provide additional compensation, not to exceed $12,000 per
month. Amendment No. 1 further provided that Mr. Kuhns would receive a bonus
based upon a percentage of value received from the Company from the sale of a
certain of its assets, provided that his annual compensation from all sources
shall not exceed $480,000. In this amendment Mr. Kuhns also agreed to accept in
lieu of any severance benefit or other unpaid compensation due upon termination,
the Farmhouse Property. The amendment further provided that the Company shall
set aside 3,250 shares of common stock per month for Mr. Kuhns, for twelve
months, commencing March 1, 1996, for delivery on January 31, 1997, or, for
shares accruing after that date, on January 31, 1998. Effective March 1, 1996
Mr. Kuhns entered into Amendment No. 2 to his Employment Agreement with the
Company ("Amendment No. 2"), which superseded and replaced Amendment No. 1.
Pursuant to Amendment No. 2, Mr. Kuhns resigned as Chief Executive Officer and
agreed to serve as Chairman of the Company through October 1996. Mr. Kuhns' base
compensation under Amendment No. 2 is at the rate of $18,000 per month with
additional compensation at $12,000 per month and a bonus derived from the sale
of certain assets. The other compensation and severance benefits remain
substantially the same as in Amendment No. 1. Pursuant to Mr. Kuhn's decision to
not to seek reelection at the Company's Annual Meeting has employment agreement
was terminated as of October 31, 1996 and as a result the Farmhouse property was
transferred to Mr. Kuhns as the termination benefit.
43
<PAGE>
TOTAL SHAREHOLDER RETURNS - DIVIDENDS REINVESTED
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the
Common Stock of the Company outstanding as at March 31, 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) 185,719 14.3
c/o Euro Canadian Trust Company Limited
P.O. Box 393750, Shirley Street
Nassau, Bahamas
Fleming Capital Management (4)
320 Park Avenue 987,412 10.6
New York, NY 10022
Westinghouse Electric Corporation(5) 158,159 7.1
11 Stanwix Street
Pittsburgh, Pennsylvania 15222
Herbert L. Oakes, Jr.(6) 518,329
Dominion Bridge 301,763
Lachine, Quebec
Gerard Prevost
Gerald R. Cummins(7) 1,997 *
Nazir Memon, M.D.(8) 2,673 *
Lucien Ruby(9) 65,179 2.9
Vitold Jordan 0 *
0 *
All Directors and Executive Officers as a Group (7 588,178 17.1
persons)(13.4)
<FN>
* less than one percent.
** Adjusted to reflect the 1 for 5 reverse stock split
</FN>
</TABLE>
44
<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 3,426,512 shares of Common Stock outstanding on March 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 302,103 shares issuable upon exercise of currently exercisable
warrants."
(4) Includes 237,749 shares issuable upon exercise of currently exercisable
warrants."
(5) Based upon a Statement on Schedule 13D Amendment No. 1 filed with the SEC
on September 14, 1994 by Westinghouse Electric Corp. ("Westinghouse").
(6) Consists of: (i) 1,429 shares issuable upon exercise of currently
exercisable options; (ii) 3,476 shares held in and 15,800 shares issuable
upon exercise of currently exercisable warrants held in Oakes, Fitzwilliams
& Co. Executive Death Benefit & Retirement Scheme No.2 (HLO) Mr. Oakes'
personal pension fund ("OFHLO"); (iii) 4,000 shares held by H.L. Oakes &
Co., Inc. ("HLO"); (iv) 4,400 shares issuableupon exercise of currently
exercisable warrants held by Oakes, Fitzwilliams & Co. Limited ("OFL"); (v)
3,500 shares owned by and 190,670 shares issuable upon exercise of
currently exercisable options held by Oakes, Fitzwilliams & Co. S.A.
("OFLSA"); and (vi) 1,420 shares owned by and 8,920 shares issuable upon
exercise of currently exercisable options held by Purbrook Corporation
("Purbrook"). Mr. Oakes is the Managing Director of, and owns a controlling
interest in, OFL and OFLSA. He is also President of HLO, a company owned
100% by his wife. Purbrook is owned by HLO. Mr. Oakes disclaims any
beneficial ownership in the shares described in (ii) through (vi).
(7) Includes 1,973 shares issuable upon exercise of currently exercisable
options.
(8) Consists of shares issuable upon exercise of currently exercisable options
and warrants.
(9) Includes 769 shares issuable upon exercise of currently exercisable
options. Also includes 38,141 shares of Common Stock owned by Quest
Ventures II and 26,069 shares of Common Stock owned by Quest Ventures
International, two investment partnerships of which Mr. Ruby is a general
partner, all of shares which Mr. Ruby disclaims beneficial ownership.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995, The New World Power Company Ltd. sold 0% Senior
Secured Note due March 31, 1996 in the original amount of $550,000 to Sundial
International Fund LTD., a significant stockholder in the Company. The proceeds
of the Note were used as working capital. The note was reimbursed in full in
February 11, 1997.
On December 1, 1995, the Company transferred and endorsed to Sundial
International Fund Ltd. a First Mortgage Note in the principal amount of
$3,615,370 along with the Mortgage and Security Agreements in exchange for its
Class B Preferred Stock. The Note was payable together with interest at the
LIBOR+4% points in full on December 1, 1996. Principal and interest are due in
seven quarterly installments of principal (each equal to five percent of the
principal balance). The Note was restructured subsequent to December 31, 1995
and is now due in four payments due December 1, 1996, March 1, 1997, June 1,
1997 and July 31, 1997.
In June 1994, the Company entered into a 15-year business alliance
agreement with Westinghouse Electric Corporation ("Westinghouse"), a beneficial
owner of more than five percent of the Company's Common Stock, jointly to
develop, market, construct and own renewable power projects, such as
utility-scale wind farms, off-grid generating systems and wireless photovoltaic
systems. Under the agreement, the Company and Westinghouse will have the option
to participate with the Company in renewable power projects. In consideration of
Westinghouse's obligations under the agreement, the Company agreed to issue to
Westinghouse up to 459,770 shares of the Company's Common Stock, in
installments, over a four-year period (of which shares were to be but have not
been issued) and an Incentive Warrant which will enable Westinghouse to purchase
up to 819,778 shares of the Company's Common Stock, based upon certain operating
revenue targets for the Company. The Company and Westinghouse are currently
discussing the mutual cessation of the business relationship.
In October 1994, the Company and Robert R. Kauffman, then a director of
the Company, entered into a short-term voting agreement pursuant to which Mr.
Kauffman agreed to vote certain shares of Photocomm preferred stock owned by him
in the same manner as the Company votes its shares of Photocomm common stock.
The voting rights of Photocomm preferred stock subject to the agreement were
equivalent to the voting rights of 503,052 shares of Photocomm common stock and
represented approximately 3.8% of the total voting power of Photocomm's capital
stock. The voting agreement terminated by its terms in 1995.
In February 1995, the Company issued a warrant to purchase 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.
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In connection with this offering, certain entities affiliated with F&C
purchased an aggregate of 325,000 units at $6.00 per unit plus the surrender of
a prior warrant to purchase one share of Common Stock at an initial exercise
price of $15.00 per share. In addition, certain entities affiliated with GIL
purchased an aggregate of 255,000 units of $6.00 per unit plus the surrender of
a prior warrant to purchase one share of Common Stock at an initial exercise
price of $15.00 per share.
The directors of the Company entered into an agreement to vote the
shares issued to them by the Company for services rendered to the Company,
including shares purchased under options granted under the 1993 Stock Incentive
Plan. The agreement provides that the shares will be voted in the manner that
John D. Kuhns directs and have granted Mr. Kuhns an irrevocable proxy in
connection with such voting agreement. In addition, the agreement grants to the
Company a right of first refusal and a purchase option prior to any transfer of
such shares and upon termination of employment or service on the Board.
As previously discussed under Liquidity and Capital Resources, the
Company entered into an agreement (the "Fleming Agreement") to issue $15,750,000
of its 8% Convertible Subordinated Notes due July 31, 2000 and warrants to
purchase up to 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.
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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.
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George P. Petrenko is an employee of Glass & Associates, Inc.
("Glass"). The Company has entered into a Consulting Agreement with Glass dated
February 7, 1996, pursuant to which Glass provides management consultation
services at an hourly rate for George Petrenko and one or more additional Glass
employees. The Consulting Agreement was amended effective April 15, 1996 to
provided for the services of Mr. Petrenko and another Glass employee at the rate
of $10,000 a week, plus out-of-pocket expenses. Under the revised agreement,
Glass may receive a bonus based upon the percentage of the net proceeds that the
Company receives from the sale of certain assets. The Company has paid Glass the
sum of $244,399 through June 15, 1996.
Effective January 1, 1996, the Company entered into a Consulting
Agreement with Condor Management Associates, Inc. ("Condor"), a corporation
owned by Dwight Kuhns, the brother of John D. Kuhns. The Consulting Agreement
provides for monthly compensation to Condor to supervise the shutdown and sale
of the Company's wind farms in California and Hawaii. The Consulting Agreement
further provides for commissions upon the sale of certain assets and upon the
favorable conclusion of negotiations with creditors of the Company's California
and Hawaii operations. Certain of these commissions may be paid in shares of the
Company's stock. The Consulting Agreement is terminable on thirty days notice.
The Company has paid Condor $81,000 through June 15, 1996.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 and regulations of
the Securities Exchange Commission thereunder require the Company's executive
officers and directors and persons who own more than ten percent of the
Company's stock, as well as certain affiliates of such persons, to file initial
reports of ownership and changes in ownership with the Securities and Exchange
Commission and the National Association of Securities Dealers. Executive
officers, directors and persons owning more than ten percent of the Company's
stock are required by the Securities and Exchange Commission regulations to
furnish he Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of Forms 3, 4 and 5 and amendments thereto
received by the Company and written representations that no other reports were
required for those persons, the company believes that, during the fiscal year
ended December 31, 1995, all filing requirements applicable to its executive
officers, directors and owners or more than ten percent of the Company's stock
were complied with.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Schedules
The Report of Independent Accountants and consolidated financial
statements listed in the Index to Consolidated Financial Statements and
Financial Statement Schedule on page F-1 hereof are filed as part of this
report, commencing on page F-2 hereof.
(a)(3) Exhibits
Exhibit
Number Description
2.1 Agreement and Plan of Merger by and among Arcadian Power
Corporation, an Utah corporation, The New World Power
Corporation and Arcadian Power Corporation, a Delaware
corporation, dated as of January 13, 1994. (Incorporated
herein by reference to Exhibit 2.01 to the Company's Form 10-K
for the year ended September 30, 1993 (the "1993 10- K")).
2.2 Purchase Agreement, dated as of July 29, 1994, by and between
The New World Power Corporation and Westinghouse Electric
Corporation (Incorporated herein by reference to Exhibit 2.1
to Form 8-K dated August 30, 1994 (the "August 30, 1994
8-K")).
2.3 Exchange Agreement and Consent, dated as of July 29, 1994, by
and between The New World Power Corporation and Photocomm,
Inc. (Incorporated herein by reference to Exhibit 2.2 to the
August 30, 1994 8-K).
2.4 Stock Purchase Agreement, dated as of June 27, 1994, by and
among The New World Power Corporation and Solartec S.A., Jose
Emilo Salgado, Nilda Raquel Filoso de Salgado, Fernando J.
Salgado and Juan Esteban Zellner (Incorporated herein by
reference to Exhibit 2.1 to the August 30, 1994 8-K).
2.5 Amendment to Stock Purchase Agreement, dated as of July 1,
1994 (Incorporated herein by reference to Exhibit 2.2 to the
dated August 30, 1994 8-K).
2.6 Share Purchase Agreement, dated as of June 9, 1994, by and
among Nordtank af 1987 A/S, The New World Power Company
Limited and The New World Power Corporation. (Incorporated
herein by reference to Exhibit 2.04(a) to the Company's Form
10-K for the year ended December 31, 1994 (the "1994 10-K")).
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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).
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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).
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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).
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4.27 Additional Funding Agreement by and between The New World
Power Corporation and The New World Power Company (Four
Burrows) Limited, dated March 17, 1995. (Incorporated herein
by reference to Exhibit 4.06(g) to the 1994 10-K).
4.28 Acknowledgment of Notice of Assignment re: Additional Funding
Agreement by The New World Power Corporation, dated March 17,
1995. (Incorporated herein by reference to Exhibit 4.06(h) to
the 1994 10-K).
10.1 Management Agreement between Fayette Energy Corporation and
East Rock Partners, Inc. dated December 1, 1989. (Incorporated
herein by reference to Exhibit No. 10.05(b) to the Company's
Form 10-K for the year ended September 30, 1991 (the "1991
10-K")).
10.2 Management Agreement between Wolverine Hydroelectric
Corporation and East Rock Partners, Inc. dated December 1,
1989. (Incorporated herein by reference to Exhibit No.
10.05(d) to the 1991 Form 10-K).
10.3 The New World Power Corporation's 1989 Stock Incentive Plan.
(Incorporated herein by reference to Exhibit No. 10.09 to the
Company's Form 10-K for the year ended September 30, 1990 (the
"1990 10-K")).
10.4 The New World Power Corporation's 1993 Stock Incentive Plan.
(Incorporated herein by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 30, 1993 (the
"June 30, 1993 10-Q")).
10.5 Lease between White Hollow Farms, Inc. and The New World Power
Corporation, dated as of December 1, 1992. (Incorporated
herein by reference to Exhibit 10.33 to the 1993 10-K).
10.6 Stock Purchase Agreement among The New World Power
Corporation, Photocomm, Inc., Westinghouse Electric
Corporation, Programmed Land, Inc. and Robert R. Kauffman
dated as of October 15, 1993. (Incorporated herein by
reference Exhibit A to the Company's Form 8-K dated November
23, 1993 (the "November 12, 1993 8-K")).
10.7 Placement Agent Agreement by and between The New World Power
Corporation and Oakes, Fitzwilliams & Co. Limited, dated
November 8, 1993. (Incorporated herein by reference to Exhibit
10.35(a) to the 1993 10-K).
10.8 Warrant issued to Oakes, Fitzwilliams & Co. Limited.
(Incorporated herein by reference to Exhibit 10.35(b) to the
1993 10-K).
10.9 Form of Purchase Agreement by and between The New World Power
Corporation and Purchaser. (Incorporated herein by reference
to Exhibit 10.35(c) to the 1993 10-K).
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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).
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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)
56
<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.
10.49 Restructed loan agreement with the Holders of the Convertible
Subordinated Debentures, dated December 1997.
22.1 Subsidiaries of the registrant. (3)
(3) Incorporation by reference herein to the 1996 10-K
- -------------------
* Filed herewith.
(b) Reports on Form 8-K
No Reports during 1997.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FORM 10-K
FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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, 1997 and 1996, Lazar Levine & Felix LLP F - 2
Independent Auditors' Report on the financial statements for the Year Ended
December 31, 1995, PriceWaterhouseCoopers LLP F - 3
Independent Auditors' Report on the financial statements of Photocomm, Inc. for
the Year Ended December 31, 1995, KPMG Peat Marwick LLP F - 4
Consolidated Balance Sheets at December 31, 1997 and 1996 F - 5
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 F - 6
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995 F - 7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 F - 8
Notes to Consolidated Financial Statements F - 10
F - 1
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The New World Power Corporation
We have audited the accompanying consolidated balance sheet of The New World
Power Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. 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 of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of The New World Power Corporation and subsidiaries as of December 31,
1997 and 1996, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
Lazar Levine & Felix LLP
New York, New York
March 31, 1999
F - 2
<PAGE>
COPY -- PREVIOUSLY FILED
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The New World Power Corporation
In our opinion, based upon our audit and the report of other auditors, the
consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of The New World Power
Corporation and subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for the year, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the
financial statements of Photocomm, Inc., a minority owned equity investment,
which statements reflect total assets of $10,361,409 at December 31, 1995 and
net income applicable to common shareholders of $687,966 for the year ended
December 31, 1995. Those statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Photocomm Inc., is based solely on the
report of the other auditors. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit and the report of other auditors provides a reasonable
basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has limited capital resources which severely constrain liquidity and raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PriceWaterhouse LLP
Hartford, Connecticut
June 27, 1996
F - 3
<PAGE>
COPY -- PREVIOUSLY FILED
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Photocomm, Inc.
We have audited the accompanying consolidated balance sheet of Photocomm, Inc.
and subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements (not presented separately herein)
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Photocomm, Inc. and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 23, 1996
F - 4
<PAGE>
<TABLE>
<CAPTION>
NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ASSETS (NOTE 14) -
December 31,
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 227,280 $ 448,782
Cash restricted in use (Note 5) 639,451 2,377,107
Accounts receivable (Note 6) 1,572,053 2,472,533
Inventories (Note 7) - 93,116
Other current assets 96,837 748,772
-------------- -------------
TOTAL CURRENT ASSETS 2,535,621 6,140,310
Property, plant and equipment, net (Notes 8 and 15) 3,900,481 21,118,354
Investments (Note 10) 129,373 25,484
Goodwill, net of accumulated amortization (Notes 3 and 9) 362,503 1,366,307
Other non-current assets (Note 11) 193,625 1,169,935
-------------- -------------
TOTAL ASSETS $ 7,121,603 $ 29,820,390
============== =============
- LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note 12) $ 2,022,083 $ 5,764,682
Current portion of long-term debt (Note 14) 2,196,793 6,658,216
Due to related parties (Note 13) - 4,014,453
Current portion of capital lease obligations (Note 15) - 14,079
-------------- -------------
TOTAL CURRENT LIABILITIES 4,218,876 16,451,430
Long-term portion of long-term debt (Note 14) 588,934 5,393,819
Long-term portion of capital lease obligations (Note 15) - 7,778
Other non-current liabilities (Notes 16 and 17) 1,483,003 5,734,182
-------------- -------------
TOTAL LIABILITIES 6,290,813 27,587,209
-------------- -------------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES (NOTE 18) - 641,536
-------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTES 15, 16, 17, 23 AND 26)
STOCKHOLDERS' EQUITY:
Common stock $.01 par value, 40,000,000 shares authorized, 3,426,512 and
2,226,830 shares issued and outstanding, respectively (Notes 21 and 22) 34,265 22,268
Currency translation adjustments (66,058) (473,522)
Additional paid-in capital 83,028,242 81,426,239
Accumulated deficit (82,165,659) (79,383,340)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 830,790 1,591,645
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,121,603 $29,820,390
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F - 5
<PAGE>
<TABLE>
<CAPTION>
NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended Year ended
December 31, December 31, December 31,
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
OPERATING REVENUE (NOTE 24) $ 2,369,724 $ 12,827,236 $ 14,285,536
COST OF OPERATIONS 1,322,862 10,241,138 10,508,172
-------------- ------------- -------------
GROSS PROFIT 1,046,862 2,586,098 3,777,364
Research and development expenses - - 400,000
Project development expenses 390,167 705,641 4,361,325
Selling, general and administrative expenses 2,688,889 6,356,467 7,002,291
(Equity) loss of non-consolidated affiliates (Note 10) - (77,542) 4,199,184
Impairment charge (Note 3) - 6,359,004 24,431,410
-------------- ------------- -------------
OPERATING LOSS (2,032,194) (10,757,472) (36,616,846)
-------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (797,834) (6,517,582) (2,442,540)
Interest income 16,868 261,792 210,588
Minority interests in consolidated subsidiaries (Note 18) - 209,100 283,665
Other (Notes 4 and 16) (281,909) (2,594,714) (81,589)
-------------- ------------- -------------
TOTAL OTHER (EXPENSE) (1,062,875) (8,641,404) (2,029,876)
-------------- ------------- -------------
LOSS BEFORE TAXES (3,095,069) (19,398,876) (38,646,722)
Provision for income taxes (Note 19) 14,320 31,835 22,596
-------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS (3,109,389) (19,430,711) (38,669,318)
-------------- ------------- -------------
DISCONTINUED OPERATIONS:
(Loss) income from discontinued operations (Note 4) 73,740 (228,528) (1,738,028)
(Loss) income on disposal of discontinued operations (Note 4) 253,330 - (912,609)
-------------- ------------- -------------
(LOSS) INCOME FROM DISCONTINUED OPERATIONS 327,070 (228,528) ( 2,650,637)
-------------- ------------- -------------
NET LOSS (2,782,319) (19,659,239) (41,319,955)
-------------- ------------- -------------
Series B preferred stock dividend (Note 20) - - 227,282
Series B preferred discount amortization (Note 20) - - 203,659
-------------- ------------- -------------
NET (LOSS) ATTRIBUTABLE TO COMMON SHARES $ (2,782,319) $(19,659,239) $(41,750,897)
============== ============ ============
BASIC AND DILUTED (LOSS) PER COMMON SHARE:
Net loss from continuing operations available to common stockholders $(1.24) $(8.73) $(18.58)
Income (loss) from discontinued operations 0.13 (0.10) (1.26)
------- ------- ---------
NET LOSS ATTRIBUTABLE TO COMMON SHARES $(1.11) $(8.83) $(19.84)
====== ====== =======
AVERAGE NUMBER OF BASIC COMMON SHARES OUTSTANDING 2,502,831 2,226,829 2,104,582
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F - 6
<PAGE>
<TABLE>
<CAPTION>
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Common Stock Preferred Stock Currency
Number Amount of Number Amount of Translation
of Shares Par Value of Shares Par Value Adjustments
----------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 1,738,264 $17,382 $ - $ - $ 646,580
Issuance of common stock 488,566 4,886 - - -
Issuance of common stock warrants - - - - -
Change in minority interest due to sale of
subsidiary's stock - - - - -
Dividends accrued on Series B preferred stock - - - - -
Series B preferred stock discount amortization - - - - -
shareholder dividend - - - - -
Currency translation adjustments on international
subsidiaries consolidation - - - - 132,258
Net loss - - - - -
----------- ---------- ---------- ----------- -----------
Balance, December 31, 1995 2,226,830 22,268 - - 778,838
Currency translation adjustments on international
subsidiaries consolidation - - - - (1,252,360)
Issuance of common stock warrants - - - - -
Net loss - - - - -
----------- ---------- ---------- ----------- -----------
Balance, December 31, 1996 2,226,830 22,268 - - (473,522)
Currency translation adjustments on international
subsidiaries consolidation - - - - 407,464
Issuance of common stock 1,199,682 11,997 - - -
Net loss - - - - -
----------- ---------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1997 3,426,512 $34,265 $ - $ - $ (66,058)
----------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ----------- -----------
<CAPTION>
Additional Retained
paid-in Earnings
Capital (Deficit) Total
----------- ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1994 $63,815,104 $(18,113,260) $ 46,365,806
Issuance of common stock 14,049,320 - 14,054,206
Issuance of common stock warrants 2,039,625 - 2,039,625
Change in minority interest due to sale of
subsidiary's stock 245,855 - 245,855
Dividends accrued on Series B preferred stock - (227,282) (227,282)
Series B preferred stock discount amortization (203,659) - (203,659)
Renewable Energy Ireland Limited minority
shareholder dividend - (63,604) (63,604)
Currency translation adjustments on international
subsidiaries consolidation - - 132,258
Net loss - (41,319,955) (41,319,955)
----------- ------------ ------------
Balance, December 31, 1995 79,946,245 (59,724,101) 21,023,250
Currency translation adjustments on international
subsidiaries consolidation - - (1,252,360)
Issuance of common stock warrants 1,479,994 - 1,479,994
Net loss - (19,659,239) (19,659,239)
----------- ------------ ------------
Balance, December 31, 1996 81,426,239 (79,383,340) 1,591,645
Currency translation adjustments on international
subsidiaries consolidation - - 407,464
Issuance of common stock 1,602,003 - 1,614,000
Net loss - (2,782,319) (2,782,319)
----------- ------------ ------------
BALANCE, DECEMBER 31, 1997 $83,028,242 $(82,165,659) $ 830,790
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 7
<PAGE>
<TABLE>
<CAPTION>
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 1 of 2
-------------------------------------
Year ended Year ended Year ended
December 31, December 31, December 31,
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) before discontinued operations $(2,782,319) $(19,659,239) $(41,319,955)
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 737,420 3,632,309 3,980,408
Amortization of goodwill 10,000 183,002 216,013
Amortization of Series B preferred stock offering costs - - 120,752
Minority interest in net income of consolidated subsidiaries - 209,100 (283,665)
Net (equity) loss in non-consolidated affiliates - (77,542) 4,199,184
Amortization of debt discount 1,396,232 1,970,415 152,972
Amortization of debt issue costs 311,878 668,201 -
Loss on sale of assets, net 396,462 1,002,748 -
Loss (gain) on disposal of discontinued operations (253,330) - 912,609
Impairment charges - 6,359,004 24,431,410
Write-offs of deferred project costs and fixed assets - - 3,800,000
Change in assets and liabilities, net of effect of acquisitions/disposals:
(Increase) decrease in accounts receivable 566,528 (209,100) (780,819)
(Increase) decrease in inventories (90,898) 59,963 (860,972)
Decrease in other current assets 562,319 169,549 44,488
Increase (decrease) in accounts payable and accrued liabilities (3,792,742) 1,198,525 786,425
Increase (decrease) in non-current liabilities 83,581 236,536 (925,793)
Other - 499,738 732,752
------------ ------------- -------------
NET CASH FLOWS (USED IN) OPERATING ACTIVITIES (2,854,869) (4,215,815) (4,794,191)
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 5,733,067 - -
Capital expenditures - - (6,834,530)
Acquisition of subsidiaries, net of cash acquired - - (2,120,764)
Investments in and advances to affiliates (103,889) 15,114,556 (4,823,645)
Decrease in notes payable - - 188,416
Deferred development expenditures - - (3,088,786)
------------ ------------- -------------
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,629,178 15,114,556 (16,679,309)
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in due to related parties - - 1,056,304
(Decrease) in due to related parties (4,014,453) (151,000) (3,337,506)
Increase in long-term debt - 1,915,255 20,669,190
Deferred debt issue costs - - (980,079)
Repayment of long-term debt (719,014) (15,188,030) (3,565,537)
(Increase) in restricted cash 1,737,656 2,292,447 (4,669,554)
Proceeds from issuance of common stock - - 8,917,969
Renewable Energy Ireland Limited minority dividend - - (63,604)
------------ ------------- -------------
NET CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES (2,995,811) (11,131,328) 18,027,183
------------ ------------- -------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS - - 238,353
Net change in cash and equivalents (221,502) (232,587) (3,207,964)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 448,782 681,369 3,889,333
------------ ------------- -------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 227,280 $ 448,782 $ 681,369
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F - 8
<PAGE>
<TABLE>
<CAPTION>
THE NEW WORLD POWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Page 2 of 2
-------------------------------------
Year ended Year ended Year ended
December 31, December 31, December 31,
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Common stock issued for majority interest in Bellacorick $ - $ - $ 637,500
Common stock issued for Fujian I Hydroelectric Project - - 4,498,742
Common stock warrants issued - 1,479,994 2,039,625
Change in minority interest due to sale of subsidiary's stock 641,536 681,647 245,855
Common stock issued for restructuring of long term debt 1,350,000 - -
Conversion of preferred stock to mortgage payable for Wolverine Power Corp. - - 3,615,370
Common stock issued for payables 252,003 - -
Series B preferred stock dividend accrual - - 227,282
Series B preferred stock discount amortization - - 203,659
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $797,834 $3,914,424 $1,800,814
Interest income 16,868 - 30,936
</TABLE>
See accompanying notes to consolidated financial statements.
F - 9
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The New World Power Corporation ("the Company") was
incorporated in the State of Delaware in 1989. The Company is a
global developer and producer of electricity generated from
wind energy, solar energy and hydropower. The Company also
develops, manufactures and markets electrical gathering systems
powered by renewable resources and provides related services.
(A) BASIS OF PRESENTATION
The financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP"). The
preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
The New World Power Corporation and its subsidiaries. All
intercompany balances and transactions have been eliminated.
The Company's policy is to consolidate all companies over which
it exercises control. Investments over which the Company has
significant influence, but does not control, are reported under
the equity method.
(C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits
and short-term cash investments that are highly liquid in
nature and have original maturities of three months or less
(see Note 5).
(D) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined principally by the first-in, first-out method.
(E) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation
is computed using accelerated methods for the Company's
operations in the United Kingdom, and the straight-line method
for all other property, plant and equipment, based upon the
estimated useful lives of the assets. Significant renewals and
betterments are capitalized. Maintenance and repair costs are
expensed.
F - 10
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(F) FACILITY DEVELOPMENT
The Company develops new power production facilities and
acquires existing power production facilities for both
operation and development. Accounting for costs incurred in the
development phase is as follows:
New power production facilities. All costs (including
financing, legal and other professional costs, development
period interest on any financing, development period labor and
supply costs, and development period operating costs)
attributed to facilities developed by the Company are deferred,
until the facility is completed and placed in productive
service. At that time, deferred costs are amortized on a
straight-line basis over the expected useful life of the
facility, usually 25- 40 years.
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.
Other project deferrals. The Company defers costs, including
professional services and direct labor, incurred for site
inspections, site permits and deposits related to specific
project activities. During the development phase, these
capitalized costs are included in other non-current assets (see
Note 11). When it is probable that future projects will not be
completed or the 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.
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.
F - 11
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(H) GOODWILL
Goodwill is the difference between the purchase price and the
fair value of net assets acquired in business combinations
treated as purchases. Goodwill is amortized on a straight-line
basis over the periods benefitted, generally in the range of 10
to 40 years. On a periodic basis or whenever events or changes
in circumstances warrant, the Company estimates the future
undiscounted cash flows of the businesses to which goodwill
relates, to determine whether the carrying value of goodwill
has been impaired.
(I) REVENUE & SALES RECOGNITION
The Company records revenue from the sale of electric power
generated upon the delivery of the electric power to the
purchasing utility. Revenue earned from the sale of
manufactured products is recorded upon the shipment of the
products or acceptance by the customer, depending on contract
terms. Provisions for doubtful accounts are made when losses
are anticipated.
Included within other non-current liabilities, are deferred
revenues of $4.3 million at December 31, 1996, relating to
certain grant proceeds, which are recognized as revenue over
the life of the grant. (See Note 4 regarding Renewable Energy
Ireland Limited).
(J) RESEARCH AND DEVELOPMENT
Expenditures for research and development costs are expensed as
incurred.
(K) FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries whose functional currency is the local
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.
(L) 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 - 12
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(M) 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.
(N) CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts receivable.
The Company, from time to time, maintains cash balances which
exceed the federal depository insurance coverage limit. The
Company performs periodic reviews of the relative credit rating
of their bank to lower their risk.
The Company believes that concentration with regards to
accounts receivable is limited due to its customer base being
regulated public utilities.
(O) RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts
to conform with the current year presentation. All references
to share amounts have been adjusted to reflect the Company's 1
for 5 reverse stock split in November 1996.
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.
F - 13
<PAGE>
NOTE 3 - IMPAIRMENT CHARGE:
In 1997, the Company did not record any impairment charges. In
1996 and 1995, the Company recorded an impairment charge of
$6.4 million and $24.4 million, respectively in accordance with
the provisions of SFAS No. 121. The impairment charge was
reflected as a reduction of the following financial statement
captions for the applicable years:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
<S> <C> <C>
Property, plant and equipment, net $1.4 MILLION $13.4 million
Goodwill, net - 4.1 million
Investments 3.5 MILLION 5.9 million
Inventories and other non-current assets 1.5 MILLION 1.0 million
-------------- ---------------
$6.4 MILLION $24.4 million
-------------- ---------------
-------------- ---------------
</TABLE>
Many of the above assets were sold during 1996 and 1997. The
aggregate carrying value of assets held for sale as of December
31, 1997 and 1996 was approximately $0 and $3.6 million,
respectively. In determining the amount of impairment charge
for assets held for sale, the Company's policy is to compare
the carrying value of its assets and investments to the
estimated fair value. In circumstances where the Company's
negotiations to sell assets and investments have not included
correspondences with potential buyers in sufficient detail to
indicate a market value, the Company used the projected future
cash flows from these investments and assets. These projected
cash flows have been discounted at rates commensurate with the
risk of the respective investment, and generally range from
rates of 16% to 21%. The Company has estimated the impairment
charge based upon the best information available to management.
It is at least reasonably possible that actual losses may be
materially higher or lower than the amounts recognized.
NOTE 4 - SIGNIFICANT BUSINESS CHANGES:
Fujian
In May of 1995, the Company signed an agreement with China
Chang Jiang Energy Corporation ("CCJEC") to acquire a 40%
interest in Fujian Chang Ping Hydro Company, Ltd. ("Fujian"), a
39 MW hydroelectric project under development in The Fujian
Province of China, for approximately $15 million. In August of
1995, the Company made payments totaling approximately $8.7
million representing an approximate 24% interest in Fujian.
This consideration was comprised of approximately $4.2 million
in cash and the remainder in common stock of New World Power
Corporation (143,000 shares at the valuation date).
Subsequent to the Company's initial investment, concern arose
as to whether adequate approvals had been obtained, under
Chinese law, for the acceptance of New World Power Corporation
shares as payment for the Company's interest in Fujian. Due to
uncertainties involving, among other things, significant
project construction delays and Fujian's lack of liquidity, the
Company recorded an other than temporary decline at December
31, 1995, to adjust the carrying value of its investment to the
estimated net realizable value of the Company's continued
interest in Fujian. Continued delays in 1996 and lack of
capital for the project resulted in the Company writing down
its entire investment in Fujian to zero. The impact of this
writedown is included as part of the impairment charge in the
accompanying Consolidated Statement of Operations at December
31, 1996 and 1995 (see Notes 3 and 10). The Company continues
to monitor its position in China.
F - 14
<PAGE>
NOTE 4 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
Renewable Energy Ireland Limited
In February 1995 the Company, through its wholly-owned
subsidiary, New World Power Company Limited, purchased
approximately 87.5% of Renewable Energy Ireland Limited
("REIL"), the owner and operator of a 6.45 MW wind farm in
Bellacorick, Ireland in exchange for $1.7 million in cash and
20,816 shares of the Company's common stock. The Company
incurred approximately $400,000 in transaction costs relating
to the acquisition of REIL consisting of legal and other
professional fees. The acquisition has been accounted for under
the purchase method. As of the acquisition date, REIL had total
assets of approximately $9.4 million, and total liabilities of
$7.5 million. Results of operations after the acquisition date
are included in the 1995 consolidated Statement of Operations.
In April 1997, the Company signed an agreement and sold its
investment in REIL 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 related parties (see Note
13), including all accrued interest and fees.
Photocomm
On November 8, 1993, the Company acquired 3,412,221, or 29%, of
the outstanding common shares of Photocomm. The Company also
acquired options to purchase 4.1 million additional common
shares and obtained rights of first refusal to purchase
additional shares of Photocomm common stock from three of
Photocomm's principal shareholders. The cost to the Company was
43,741 shares of its common stock and approximately $2.6
million in cash. As described below, some of the common shares
and options were purchased from Photocomm and three of its
principal shareholders, one of which is Westinghouse Electric
Corporation ("Westinghouse"). Options to purchase approximately
2.6 million shares expired on December 31, 1995. The remaining
options to purchase 1.5 million shares were exercisable at
$3.00 per share and expired on December 31, 1996.
On August 30, 1994, the Company acquired an additional
1,800,000 shares of common stock of Photocomm and other
Photocomm securities, principally from Westinghouse, in
exchange for 99,027 shares of the Company's common stock. The
Company immediately converted these other Photocomm securities
into an aggregate of 360,226 shares of Photocomm common stock.
The Company subsequently purchased an additional 40,000 shares
of Photocomm common stock on the open market and purchased
600,000 shares pursuant to a partial option exercise. As a
result of these transactions and after consideration of the
short-term voting agreement pursuant to which Photocomm's Chief
Executive Officer agreed to vote certain of his shares in the
same manner as the Company votes its shares, the Company had
control of over 51% of Photocomm's issued and outstanding
common stock as of December 31, 1994. The Company recorded the
above described transactions under the purchase method of
accounting, and as a result of obtaining control, began
consolidation of Photocomm into its financial statements.
F - 15
<PAGE>
NOTE 4 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
Photocomm (continued)
On February 10, 1995, the Company purchased 400,000 additional
shares of Photocomm common stock. However, at December 31,
1995, the Company owned 6,612,447 shares of Photocomm,
representing only 48.8% of the issued and outstanding voting
shares of Photocomm. The decrease in the Company's ownership
percentage from December 31, 1994 results from various
Photocomm equity transactions in which the Company did not
participate. Additionally, the short-term voting agreement with
Photocomm's Chief Executive Officer expired during 1995.
As a result of the Company no longer having a controlling
interest in Photocomm, the investment in Photocomm is accounted
for on the equity method, effective January 1, 1995. The
summarized statement of operations information for Photocomm at
December 31, 1995 is as follows (000's omitted):
Statement of Operations
-----------------------
Sales $21,765
Net income 839
Net income applicable
to common shareholders 689
On July 31, 1996, the Company entered into a letter of intent
to sell its investment in Photocomm and on August 16, 1996, the
Company signed a definitive agreement for the sale. In October
1996, the Company sold its investment in Photocomm for
approximately $11.3 million. Proceeds from the sale were used
to pay off a portion of the outstanding debt obligations (See
Note 14 for Long Term Debt). The Company recorded a loss of
approximately $1.3 million on the sale of Photocomm, which is
included in the Consolidated Statement of Operations under the
caption "Other Income (Expense)".
Solartec
On August 30, 1994, the Company acquired 51% of the issued and
outstanding capital stock of Solartec S.A. ("Solartec").
Solartec is a fabricator and distributor of photovoltaic
products in Argentina. The Company purchased the Solartec stock
in exchange for approximately $1.7 million in cash and 5,357
shares of the Company's common stock. The Company also has an
option to purchase the remaining 49% of Solartec's issued and
outstanding capital stock at a price equal to three times the
tangible net worth per share of Solartec on December 31, 1996.
In September 1996, the Company sold its investment in Solartec
for $1.6 million and the proceeds from the sale were used to
pay off a portion of the outstanding long-term debt
obligations. (See Note 14 for Long Term Debt).
F - 16
<PAGE>
NOTE 4 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
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 in 1997 which is
included in the 1997 Consolidated Statement of Operations under
the caption "Other Income (Expense)".
Entec
In June 1993, the Company acquired 49% of the outstanding
capital stock of Entec S.A. de C.V. ("Entec") for approximately
$1.5 million. In October 1995, the Company contributed an
additional $415,000 to purchase an additional 1% interest in
Entec. The Company accounts for this investment under the
equity method. Entec, located in Mexico, is engaged in project
development and rural electrification. During 1995, Entec
continued to experience significant financial hardships and as
a result the Company wrote-down its remaining investment in
Entec to zero.
Los Vaqueros
In June 1993, the Company purchased the assets of Los Vaqueros,
an operating wind farm located in the state of California, for
$380,000. The acquisition was accounted for by the Company
under the purchase method. In August 1996, the Company sold its
investment in Los Vaqueros for $125,000.
Makani Uwila
In March 1993, the Company acquired all of the outstanding
capital stock of the Makani Uwila Power Corporation in exchange
for 9,600 shares of the Company's common stock and $50,000. The
acquisition has been accounted for under the purchase method
(see Note 3). In January 1997, the Company was forced to
abandon the windfarm as a result of foreclosure proceeding from
the landlord. The Company wrote down its investment to zero at
December 31, 1996 (see Note 28 for Subsequent Events).
F - 17
<PAGE>
NOTE 4 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
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 14 for Long Term Debt). (See Note 17
for other Commitments and Contingencies regarding Dominion
Bridge).
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
"Other Income (Expense)". 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 (see Note 13) 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
14 for Long Term Debt).
F - 18
<PAGE>
NOTE 4 - SIGNIFICANT BUSINESS CHANGES (CONTINUED):
DISCONTINUED OPERATIONS
New World Grid Power Company
During December 1995, the Company announced its intention to
discontinue operations at the New World Grid Power Company
("NWGPC") due to adverse industry trends in the service segment
of the wind power business. The NWGPC included all operations
relating to the Company's Grid Power Services segment. NWGPC
provided installation, operation, maintenance, repair and
retrofit services to various companies in the wind power
industry. The results of NWGPC are reported as discontinued
operations in the accompanying Consolidated Financial
Statements. During December 1995, the Company reached an
agreement to sell most of the remaining assets of NWGPC for
approximately $200,000. The Company recorded a $913,000 loss on
the disposal of this segment in 1995. In early 1999, the
Company sold its equity interest in NWGPC. (See Note 28 for
Subsequent Events).
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. (See Note 28 for Subsequent Events regarding Northern
Power Systems.)
NOTE 5 - CASH RESTRICTED IN USE:
The United Kingdom and Ireland wind farms are required to
accumulate cash in escrow accounts to pay the next principal
and interest payments before cash flow from the wind farms is
available for general corporate purposes. Restricted cash
balances aggregating $2,377,107 were on deposit at December 31,
1996, for these purposes, and were included as part of the sale
of the windfarms in 1997. Because this cash will be used to pay
the current portion of debt and accrued interest the cash is
reported as a current asset. In February 1997, the Company sold
two of the three United Kingdom windfarms. A requirement of the
sale from the bank was to retire all indebtedness due to a
cross-collateralization that existed. In April 1997, the
Company sold its investment in the Ireland windfarm and the
cash balances held in escrow were included in the sale.
In addition, as a result of the restructuring of the Fleming
indebtedness in December 1997, restricted cash at December 31,
1997 in the amount of $639,451 was restricted to making
payments to the Convertible Subordinated Debt under the
restructured loan agreement (See Note 14 for Long Term Debt).
F - 19
<PAGE>
NOTE 6 - ACCOUNTS RECEIVABLE:
The components of accounts receivable as of December 31, 1997
and 1996 are as follows (000's omitted):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Due from customers $ 447 $2,501
Due from employees - 1
Due from others 1,125 -
-------- -------
1,572 2,502
Allowance for doubtful accounts - 30
-------- -------
Total $1,572 $2,472
======== =======
</TABLE>
NOTE 7 - INVENTORIES:
Inventory consists of the following as of December 31, 1996
(000's omitted):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials $ - $ 75
Work-in-process - -
Finished goods - -
Supplies - 48
------- -----
- 123
Less reserve for obsolescence - 30
------- -----
$ - $ 93
======= ====
</TABLE>
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following as of
December 31, 1997 and 1996 (000's omitted):
<TABLE>
<CAPTION>
Useful Life
1997 1996 (Years)
---------- -------- -------------
<S> <C> <C> <C>
Power generation facilities and equipment:
Hydroelectric $3,204 $ 3,204 40
Wind:
Owned 4,495 26,517 25
Leased - 82 10 to 20
Office furniture and equipment 6 1,834 3 to 5
Land 401 407
-------- ----------
Total 8,106 32,044
Less accumulated depreciation and amortization 4,206 10,926
-------- --------
$3,900 $21,118
-------- --------
-------- --------
</TABLE>
F - 20
<PAGE>
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT (CONTINUED):
Depreciation and amortization expense, including amortization
of assets held under capital leases, for the years ended
December 31, 1997, 1996 and 1995 was $737,420, $3,632,309, and
$3,980,408, respectively.
Maintenance and repair expense for the years ended December 31,
1997, 1996 and 1995, was $166,661, $901,040, and $603,971,
respectively.
NOTE 9 - GOODWILL:
Goodwill relates principally to the Company's Renewable Energy
Ireland Limited (1996) and Wolverine (1997 and 1996) operations
and consists of the following as of December 31, 1997 and 1996
(000's omitted) (see also Note 3 for Impairment Charge):
<TABLE>
<CAPTION>
1997 1996
----- --------
<S> <C> <C>
Subject to 40 yr. Straight-line amortization $402 $ 402
Subject to 20 yr. Straight-line amortization - 1,167
----- --------
402 1,569
Less accumulated amortization 39 203
----- --------
Total $363 $1,366
==== ========
</TABLE>
NOTE 10 - INVESTMENTS:
The Company's investments in, and advances to, unconsolidated
affiliates consists of the following as of December 31, 1997
and 1996 (000's omitted):
<TABLE>
<CAPTION>
Ownership % 1997 1996
----------- --------- -----
<S> <C> <C> <C>
Photocomm, Inc. 46% $ - $Sold
Fujian Hydro Project 12% - -
New World Entec S.A. 51% - -
Northern Power Systems (Note 14) 11% 129 -
San Jacinto Power Company 50% SOLD 25
---- ----
$129 $25
==== ===
</TABLE>
F - 21
<PAGE>
NOTE 10 - INVESTMENTS (CONTINUED):
The equity (earnings) loss in unconsolidated affiliates is as
follows (000's omitted):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
DECEMBER 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Photocomm Inc. $SOLD $ (152) $ (156)
New World Entec S.A. - - 4,331
San Jacinto Power Co. SOLD 75 24
Fujian Hydro Project - - -
--------- -------- -------
$ - $ (77) $ 4,199
========= ======== =======
</TABLE>
During 1997, the Company did not have any impairment charges
related to its equity investments. See Note 4 for significant
business changes. In addition, see Note 14 for restructured
debt agreements and the Company's equity investment in Northern
Power Systems. In 1996 and 1995, the Company recorded
impairment charges related to its equity investments (see Note
3 for Impairment Charges) as follows (000's omitted):
<TABLE>
<CAPTION>
1996 AMOUNT 1995 Amount
----------- -----------
<S> <C> <C>
Fujian Hydro Project $3,500 $5,342
San Jacinto Power Co. - 646
</TABLE>
NOTE 11 - OTHER NON-CURRENT ASSETS:
At December 31, 1997 and 1996, other non-current assets
consists of the following (000's omitted):
<TABLE>
<CAPTION>
1997 1996
------- ---------
<S> <C> <C>
Deferred project costs $194 $ 785
Debt issue costs - 312
Other - 73
------- ---------
$194 $1,170
------- ---------
------- ---------
</TABLE>
NOTE 12 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the
following as of December 31, 1997 and 1996 (000's omitted):
<TABLE>
<CAPTION>
1997 1996
------- ---------
<S> <C> <C>
Accounts payable $1,221 $3,565
Accrued interest expense 140 776
Accrued warranty liabilities - 102
Accrued liabilities 99 643
Other current liabilities 562 679
------- --------
Total $2,022 $5,765
====== ======
</TABLE>
F - 22
<PAGE>
NOTE 13 - DUE TO RELATED PARTIES:
Amounts due to related parties consist of the following at
December 31, 1997 and 1996 (000's omitted):
<TABLE>
<CAPTION>
1997 1996
------- ---------
<S> <C> <C>
Sundial International Fund Ltd. (a) $0 $3,434
Sundial International Fund Ltd. (b) - 580
---- --------
Total $0 $4,014
== ======
</TABLE>
(a) On December 1, 1995, Sundial International Fund Limited
("Sundial"), a significant stockholder, exchanged its Class
B Preferred Stock for a First Mortgage Note in the
principal amount of $3,615,370 on the hydroelectric
facilities of the Company's subsidiary, Wolverine Power
Corp. ("Wolverine"), located in Michigan. The Company also
pledged 200 shares of Wolverine Power Corp., constituting
all of the issued and outstanding stock of Wolverine. The
note is payable, together with accrued interest at the
LIBOR rate plus two percentage points on December 31, 1997.
Notwithstanding the foregoing, principal and interest shall
be due and payable upon written request ("Request Date") by
the holder in seven equal quarterly installments of
principal, each equal to five percent of the principal
balance and a final installment in the amount of the unpaid
principal, payable on each three-month anniversary of the
Request Date.
* The Company received the written request in accordance with
the foregoing on December 1, 1995. Subsequent to December
31, 1995, the Company defaulted on this note and the loan
was restructured. Significant terms of the restructuring
are as follows:
First Mortgage on Wolverine Power Corporation
* The note was refinanced with principal payments rescheduled
from seven quarterly payments commencing March 1, 1996 to
four payments due December 1, 1996, March 1, 1997, June 1,
1997 and July 31, 1997.
* Interest was reset to LIBOR plus 2%.
* An additional 500 shares of New World Power Company Ltd.
common stock were pledged as collateral.
* Defaults under the old loan agreement were waived by the
lender.
* The lender surrendered approximately 220,000 warrants to
purchase common stock at exercise prices between $37.50 and
$75.00 for 444,000 new warrants with an exercise price of
$8.75.
F - 23
<PAGE>
NOTE 13 - DUE TO RELATED PARTIES (CONTINUED):
Because of uncertainties surrounding the Company's ability to
comply with all of the revised loan provisions, the entire
balance has been classified as current at December 31, 1996. At
December 31, 1996, the Company was in default on the above
obligation, however, it had received an offer to purchase two
of its windfarms in the United Kingdom. Half of the proceeds
from that sale would be used to pay down the aforementioned
outstanding indebtedness with the other half going to paying
down the outstanding long term debt (See Note 4 for Significant
Business Changes). In addition, the Company received an offer
to sell, and sold in April 1997, its investment in Renewable
Energy Ireland Limited ("REIL"). The proceeds from that sale
were used to repay the remaining indebtedness due to Sundial
International under this First Mortgage indebtedness. (See Note
4 for Significant Business Changes).
(b) On December 20, 1995, The New World Power Company Limited
("NWPCL"), an English subsidiary of the Company, sold its
0% Senior Secured Note due March 31, 1996 in the original
amount of $550,000 to Sundial (see Note 21). The note is
secured by substantially all of the assets of Wolverine
Power Corporation. The Company has also pledged 700,000
common stock shares of REIL, a subsidiary of NWPCL, as
collateral. Subsequent to December 31, 1995, the due date
of the Note was extended. Significant terms are as follows:
0% Senior Secured Note
* Face amount of the note was changed from $550,000 to
$579,851.
* The maturity date was changed from March 31, 1996 to
December 1, 1996.
* The Company pledged additional collateral of 700,000 shares
of Renewable Energy Ireland Limited as security.
In April 1997, the Company closed an agreement to sell its
investment in Renewable Energy Ireland Limited and the proceeds
were used to pay off the remaining amounts due to Sundial
International regarding this 0% Senior Secured Note. See Note 4
for Significant Business Changes.
F - 24
<PAGE>
NOTE 14 - LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1997
and 1996 (000's omitted):
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
8% convertible subordinated notes of $15,750,000 due July 31,
2000, issued with warrants to purchase 157,500 common shares,
net of unamortized debt discount of $ 1,396,232 at December 31,
1996. Effective interest rate 9.19%. Note is secured by, among
other assets, the Company's investment in New World China,
including the Fujian Hydroelectric Project and Photocomm (1996)
and a charge over shares (lien) of New
World Power Limited and Wolverine (1997). $2,786 $ 3,512
Notes payable due June 30, 1999, interest at LIBOR plus
1.75%, secured by assets of the Company's U.K. wind farms. - 6,546
Notes payable due November 30, 2002, interest at Dublin
Interbank Market plus 1.75%, secured by substantially all of
the assets of Renewable Energy Ireland, LTD. - 1,468
Various notes payable due from 1996 to 1998, interest rates
of 8 - 10%. - 526
------- ----------
Total 2,786 12,052
Less current portion 2,197 6,658
------- ---------
Long-term portion $ 589 $ 5,394
======= ========
</TABLE>
The Company had defaulted on its 8% convertible subordinated
notes in February 1996 and March 1996. The default in 1996
resulted in a significant restructuring of the indebtedness and
the maturity date of the indebtedness. The more significant
terms of these restructured agreements are 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 share in New World Power Texas Company
- New World Power Company Limited's shares (50%)
- 477,000 shares of the Company's common stock (held in
escrow)
F - 25
<PAGE>
NOTE 14 - LONG-TERM DEBT (CONTINUED):
8% Secured Subordinated Notes Due July 31, 2000 (continued):
* 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.
The $3.3 million of original proceeds from the loan held in
escrow will be released from escrow to the Company for purposes
of paying corporate expenses until July 15, 1996. Thereafter,
any amounts remaining in escrow will be held as collateral
against the loan or may be released at the discretion of
lender. All monies in the escrow account were released by July
31, 1996. The Company must comply with certain debt covenants
under the restructured agreement, and due to uncertainties
surrounding the Company's ability to comply with certain of
these covenants during 1996, the entire balance has been
classified as current. Additionally, various of the Company's
long-term debt agreements contain numerous restrictive
covenants including in addition to others, the inability to
upstream to the Company revenue generated by the U.K. wind
farms and others.
F - 26
<PAGE>
NOTE 14 - LONG-TERM DEBT (CONTINUED):
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 28 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. In addition, the Company agreed to amortize an
additional $850,000 under a three year note beginning in
January 1998 and continuing through December 2000. The monthly
payment is $26,636 including principal and interest. The
interest rate on the two new notes is fixed at 8% per annum.
The first note was collaterallized by a first lien position of
New World Power Texas Renewable Energy Partnership, a first
lien position on Caton Moor (a UK subsidiary), and a first lien
position on the Company's investment in China. The second note
is collateralized by a first mortgage position on Wolverine
(subject to a subordination to a new investor in New World up
to $1.5 million). See Note 28 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. Accordingly, the Company
issued approximately 897,400 shares of common stock to the
Noteholders. The entire amount of debt discount on the original
notes was written off in 1997 as a result of the debt
restructuring.
F - 27
<PAGE>
NOTE 14 - LONG-TERM DEBT (CONTINUED):
Per the restructured agreement, the aggregate scheduled
maturities and sinking fund requirements of long-term debt as
of December 31, 1997 for each of the next three years, are as
follows (000's omitted):
Amount
Year (000's omitted)
1998 $2,197
1999 281
2000 308
-------
Total $2,786
=======
NOTE 15 - LEASES:
Capital Lease Obligations
The Company was obligated under capital leases related to wind
turbines and other wind power generation and transmission
equipment. These leases were included as part of the exchange
of New World Power Vermont in December 1997. (See Note 14 for
Long term debt restructuring/repayments).
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, 1997, 1996 and 1995
was $0, $237,365 and $529,147, respectively.
See Note 28 for Subsequent Events.
NOTE 16 - LITIGATION:
Dwight Kuhns et al
On November 12, 1996, Dwight Kuhns, former Chief Operating
Officer of the Company and a former member of the Company's
Board of Directors, commenced an action against the Company in
the Superior Court, Alameda County, California alleging among
other things the Company's failure to pay amounts due to Mr.
Kuhns under his consulting agreement entered into at the start
of January 1996. That agreement provided for a stated monthly
fee and additional incentive fees for assisting in the
restructuring/asset sales of the Company. The Company hired
counsel to represent it in the Courts of California. This
litigation was settled in January 1999. The Company recorded a
liability for the settlement of $650,000 which is included in
Other non-current Liabilities in the 1996 and 1997 Consolidated
Balance Sheets and included in Other Expenses in the 1996
Consolidated Statement of Operations (see Note 28 for
Subsequent Events).
F - 28
<PAGE>
NOTE 16 - LITIGATION (CONTINUED):
Energy Unlimited
The Company has brought an arbitration proceeding against
Energy Unlimited, Inc. and its affiliates seeking damages for
breach of a settlement agreement entered into in 1993. The
respondents have asserted claims for rescission of the
settlement agreement and breach of contract. The Company
intends to pursue vigorously its claims in the arbitration
proceeding and believes that the defendants' claims and
defenses lack substantial merit. On February 29, 1996, the
Company entered into a Settlement and Asset Purchase Agreement
with Energy Unlimited, Inc. and its affiliates. In connection
with this agreement, the Company received $350,000 representing
the purchase price of certain wind turbines as full and final
settlement of all claims asserted in the arbitration.
NOTE 17 - OTHER COMMITMENTS AND CONTINGENCIES:
Wolverine License Applications
The Federal Power Act requires that all hydroelectric
facilities operating on navigable streams obtain a license from
the Federal Energy Regulatory Commission ("FERC"). The
Company's applications for licenses for its Michigan
hydroelectric facilities have been accepted and are pending
final action. In connection with the licensing process, the
Michigan Department of Natural Resources ("MDNR") recommended
that the Company be required to modify its existing method of
operation to the run-of-the-river method. Although it is not
possible to predict what conditions will be imposed by the
FERC, the Company believes that the FERC will require a change
in the method of operation within the next three to five years
so as to release a minimum daily flow of water. If the FERC
were to require a change to the run-of-the-river method of
operation, it would adversely affect the Company's power
production from these facilities and materially reduce power
production revenue unless the Company retrofits these
facilities. Minimum flow operation would not affect power
production at the three upstream facilities but would reduce
peak-period energy capacity and revenue at the downstream
facility unless the Company retrofitted the facility for
minimum flow operation. Retrofitting the downstream facility
for minimum flow operation would cost approximately $300,000
and take approximately one year to complete. See Note 28 for
Subsequent Events.
Performance Bond
In connection with the Company's proposal to construct a
hydroelectric facility at Anderson Falls, Argentina, the
Company was required to post a $1 million performance bond. The
Company was unable to complete the project financing primarily
due to the local utility credit downgrading and as a result the
construction of this facility was halted. The Company faces the
risk that this bond may be called. Management is currently
seeking a buyer for this development project who would assume
the Company's obligations under the performance bond. The
Company has recorded a reserve for its estimated exposure with
respect to this project. See Note 28 for Subsequent Events.
F - 29
<PAGE>
NOTE 17 - OTHER COMMITMENTS AND CONTINGENCIES (CONTINUED):
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.
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. The New World Texas Renewable
Energy project was sold in December 1997. See Note 28 for
Subsequent Events.
Employment Agreement
Mr. John D. Kuhns was employed as Chief Executive Officer of
the Company and Chairman of the Board. During 1996, Mr. Kuhns
services as CEO were terminated and in October 1996, Mr. Kuhns
did not seek re-election as Chairman of the Board. In
accordance with the terms of his employment agreement and its
various amendments, Mr. Kuhns agreed to accept in lieu of any
severance benefit or any other unpaid compensation due upon
termination, the leasehold improvements to certain property.
Accordingly, the property with improvements was distributed to
Mr. Kuhns at its net book value (approximately $1.5 million) in
October 1996.
F - 30
<PAGE>
NOTE 18 - MINORITY INTERESTS:
The minority interest in consolidated subsidiary companies is
as follows (000's omitted):
<TABLE>
<CAPTION>
Minority Share
Minority December 31, of 1997 Net
Interest % 1997 Income (Loss)
---------- ------------ ---------------
<S> <C> <C> <C>
REIL 12 1/2% Sold $ -
---- -------
Total $ - $ -
==== =======
<CAPTION>
Minority Share
Minority December 31, of 1996 Net
Interest % 1996 Income (Loss)
---------- ------------ ---------------
<S> <C> <C> <C>
REIL 12 1/2% $642 $ 7
Solartec S.A. 49% Sold 202
---- ----
Total $642 $209
==== ====
</TABLE>
NOTE 19 - INCOME TAXES:
As discussed in Note 1, the Company adopted FAS 109 as of
October 1, 1993.
Income tax expense (benefit) attributable to income from
continuing operations consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
U.S. FEDERAL $ - $ - $ -
STATE AND LOCAL (1,500) - (1,500)
FOREIGN 15,820 - 15,820
-------- --------- --------
$14,320 $ - $14,320
======= ========= ========
Year Ended December 31, 1996:
U.S. federal $ - $ - $ -
State and local (1,500) - (1,500)
Foreign 33,335 - 33,335
-------- --------- --------
$31,835 $ - $31,835
======= ========= ========
Year Ended December 31, 1995:
U.S. federal $ - $ - $ -
State and local (1,315) - (1,315)
Foreign 23,911 - 23,911
-------- --------- --------
$22,596 $ - $22,596
======== ========= ========
</TABLE>
F - 31
<PAGE>
NOTE 19 - INCOME TAXES (CONTINUED):
Differences between the effective income tax rate and the
statutory U.S. federal income tax rate for the year ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
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% 31.9%
Temporary difference without benefit 2.4% .9% 2.0%
Other - - .1%
------------- ----------- ----------
- - -
============= =========== ==========
</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, 1997 are as follows:
Non-current assets:
Net operating loss carryforwards $14,779,956
Loss on impairment -
Tax credit carryforwards 595,000
Discontinued operations -
Other -
Valuation allowance (14,807,141)
-----------
Net non-current asset 567,815
-----------
Non-current liabilities:
Depreciation 567,815
-----------
Net non-current liabilities 567,815
-----------
Net deferred tax $ -
===========
The tax credit carryforwards of $595,000 expire by 2002. At
December 31, 1997 the Company has net operating loss
carryforwards of approximately $46,500,000 which expire at
various dates through 2017.
A full valuation allowance has been recorded against the
deferred taxes as realization is considered not more likely
than not as of December 31, 1997 and 1996.
F - 32
<PAGE>
NOTE 19 - INCOME TAXES (CONTINUED):
Due in part to the transactions described in Note 4, where
stock of the Company was transferred, ownership changes have
occurred which will result in a limitation on the utilization
of net operating losses under Section 382 and 383 of the
Internal Revenue Code. These Sections provide that any future
realization will be subject to annual limitations based on the
value of the Company at the time an ownership change occurred.
In addition, $2,296,398 of the federal net operating loss
carryforward relates to losses of Northern Power Systems Inc.
which was acquired in 1993. These acquired losses can only be
utilized to offset future income of Northern Power Systems. The
federal net operating loss carryforward may further be subject
to limitation based upon the consolidated tax return loss
disallowance rules which provide that any loss incurred with
respect to the sale or worthlessness of stock of a subsidiary
may be limited or disallowed.
NOTE 20 - SERIES B PREFERRED STOCK:
On December 31, 1992, the Company issued and sold 375,000
shares of the Company's Series B Cumulative Redeemable
Exchangeable Preferred Stock and warrants to purchase 75,000
shares of the Company's common stock. The warrants entitle the
holder to purchase common stock for $40.00 per share (subject
to anti-dilution adjustment) until December 31, 1997. The
Series B Preferred Stock is exchangeable after January 1, 1996
into Wolverine's First Mortgage Notes (at a rate of $8.00 in
principal amount for each share exchanged plus accrued
dividends), and is exchangeable prior to that date only in the
event of a material adverse change in the business or financial
condition of the Company or Wolverine. The Series B Preferred
Stock is redeemable by the Company at $8.00 per share, plus
accrued dividends, after January 1, 1996. Dividends on the
Series B Preferred Stock are cumulations at the annual rate of
6.5% and payable through the issuance of units (one unit for
each $8.00 in accrued but unpaid dividends). On December 1,
1995, the holder of the Series B Preferred Stock exercised its
option to exchange the Series B Preferred Stock for a Wolverine
First Mortgage Note in the amount of $3,615,370, with interest
at the LIBOR plus 2% points and 15,384 warrants, expiring on
December 31, 1997 to purchase common stock at an exercise price
of $40.00 per share.
NOTE 21 - 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.
F - 33
<PAGE>
NOTE 21 - CAPITAL STOCK (CONTINUED):
Common Stock (continued)
In June 1994, the Company entered into a 15-year business
alliance agreement with Westinghouse, jointly to develop,
market, construct and own renewable power projects, such as
utility-scale wind farms, off-grid generating systems and
wireless photovoltaic systems. Under the agreement, the Company
and Westinghouse will jointly market the Company's renewable
power projects and products and Westinghouse will have the
option to participate with the Company in renewable power
projects. In consideration of Westinghouse's obligations under
the agreement, the Company agreed to issue to Westinghouse up
to 91,954 shares of the Company's common stock, in
installments, over a four-year period (of which 18,701 shares
were issued in 1994) and Incentive Warrants which will enable
Westinghouse to purchase up to 163,956 shares of the Company's
common stock, based upon certain operating revenue targets for
the Company. At December 31, 1995, management was uncertain as
to the future benefits to be derived from this business
alliance. As a result, previously recorded goodwill of
approximately $800,000 was written-off and included within the
1995 impairment charge.
In February 1995, The New World Power Company Limited, a wholly
owned subsidiary of the Company, acquired 87.5% of REIL, the
owner and operator of a 6.45 MW wind farm in Bellacorick,
Ireland, in exchange for $1,700,000 and 20,816 shares of the
Company's common stock valued at $637,500.
In February 1995, the Company sold 1,500,000 units, at $6.00
per unit, plus the surrender of prior warrants to purchase a
one-fifth share of common stock at an initial exercise price of
$75.00 per share expiring November 8, 1998 in an offshore
offering pursuant to Regulation S under the Securities Act of
1933. Each unit consists of one-fifth share of common stock and
two warrants, each to purchase one share of common stock at an
initial exercise price of $37.50 expiring January 14, 2000. The
Company has the right to redeem the warrants at $.01 per
warrant upon not less than 30 days notice, if the closing price
of the common stock for the twenty consecutive trading days
immediately preceding the date of such notice equals or exceeds
$15.00. The Company received approximately $8.2 million in net
proceeds after deducting fees for the placement agent of
approximately $0.8 million and legal fees and other expenses of
approximately $80,000. The placement agent also received
warrants to purchase 30,000 units at an initial exercise price
of $36.00 per unit expiring January 14, 2000 as part of the
placement agent fee. The placement agent subsequently purchased
24,000 units for $720,000 from the Company.
On August 15, 1995, in connection with its investment in the
Fujian Chang Ping Hydro Company, Ltd., the Company issued
143,000 shares of common stock (See Note 4 for Significant
Business Changes).
At December 31, 1997 and December 31, 1996, the Company had
outstanding warrants of 1,643,846 and 1,754,231, respectively,
of which 163,956 were not exercisable at both dates. The
outstanding warrants' exercise prices range from $8.75 to
$75.00 at both dates.
F - 34
<PAGE>
NOTE 22 - STOCK OPTION PLAN:
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. Had compensation expense for the
Company's stock-based compensations 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 proforma effects of
applying SFAS 123 are not are not material and are not
indicative of future amounts because this statement does not
apply to awards granted prior to fiscal year 1996. Additional
stock option awards are anticipated in future years.
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, 1997, 1996 and 1995 are shown below.
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Options outstanding, beginning of year - 407,217 115,684
Forfeitures during the year - 407,217 -
Granted during the year - - 291,533
---------- --------- --------
Outstanding, end of year - - 407,217
---------- --------- --------
(at prices ranging from $3.00 to $12.00)
Eligible for exercise, end of year - - 122,721
---------- --------- --------
---------- --------- --------
</TABLE>
NOTE 23 - RELATED PARTY TRANSACTIONS:
In addition to the related party transactions described in Note
13, the Company had the following related party transactions:
In fiscal 1989, Arcadian and Wolverine entered into management
agreements with a corporation controlled by a major stockholder
and principal officer of the Company to provide certain
management services. The Company and its subsidiaries incurred
management fees under these agreements of $476,000 during the
year ended December 31, 1995. The management contract was
terminated in August 1995. There were no management fees during
1997 and 1996 since the management contract was terminated in
August 1995.
In May 1995, the Company entered into a ten year lease
agreement with the same stockholder for it's new corporate
headquarters. The lease requires annual payments of $42,000
with annual increases based on the Consumer Price Index. In
1995, the Company satisfied the annual rent payment, for the
new corporate headquarters, through the forgiveness of a
receivable from the same major stockholder and principal
officer. Lease payments of $12,000 and $14,400 were made for
the years ended December 31, 1996 and 1995. The lease was
terminated on November 15, 1996.
F - 35
<PAGE>
NOTE 23 - RELATED PARTY TRANSACTIONS (CONTINUED):
A company controlled by another major stockholder and director
of the Company acted as placement agent in the offshore
offerings completed by the Company in May 1993, November 1993,
March 1994, August 1994 and February 1995 (see Note 21). The
Company paid the placement agent fees totaling $4,236,000 in
connection with these offerings. In connection with the May
1993 offering, the placement agent received warrants to
purchase 17,000 shares (85,000 shares before reverse split) of
common stock at an initial exercise price of $54.00 ($10.80
before reverse split) per share expiring May 24, 1998. In
connection with the November 1993 offering, the placement agent
received warrants to purchase 64,000 units at an initial
exercise price of $12.00 per unit expiring November 8, 1998. In
connection with the March 1994 offering, the placement agent
received warrants to purchase 150,000 units at an initial
exercise price of $13.80 per unit expiring March 3, 1999. In
connection with the August 1994 offering, the placement agent
received warrants to purchase 115,000 units at an initial
exercise price of $13.20 per unit expiring August 30, 1999. In
connection with the February 1995 offering, the placement agent
received warrants to purchase up to 150,000 units at $7.20 per
unit expiring January 14, 2000. The placement agent fee related
to this offering was paid by the Company through the issuance
of 24,000 shares (120,000 shares before reverse split) of
common stock. In addition, during 1994 the Company paid the
placement agent a $61,116 fee in connection with the placement
of the $2.2 million promissory note (see Note 13). Further,
during 1995, the placement agent purchased $2,622,000 of the 8%
convertible subordinated notes. Subsequent to December 31,
1995, the Company entered into consulting agreements with
certain stockholders to perform services in connection with the
Company's restructuring plans. All such consulting agreements
were terminated in 1996.
In fiscal 1993, the Company contracted with a construction
company owned by the same stockholder for leasehold
improvements to the Company's new corporate headquarters.
Through fiscal 1995, $1,515,532 of construction payments were
made under this agreement.
Subsequent to December 31, 1995, the Company entered into
consulting agreements with certain stockholders to perform
services in connection with the Company's restructuring plans.
All such consulting agreements were terminated in 1996.
NOTE 24 - SEGMENT INFORMATION:
The Company's operations are classified into three segments:
grid power production, wireless power sales and other products
and services. Facilities within the grid power production
segment sell electricity generated by wind farms and
hydroelectric plants to customers under long-term power sales
contracts. Operations within the wireless power segment include
the manufacture, assembly and installation of renewable power
generating systems, which was discontinued during 1997 (Note
4). The other products and services segment designs, develops,
manufactures and installs wind turbines, and are included
within corporate, eliminations and others.
F - 36
<PAGE>
NOTE 24 - SEGMENT INFORMATION (CONTINUED):
The following table shows assets and other financial
information by segment and geographical area for the years
ended December 31, 1997, 1996 and 1995, (000's omitted).
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1997 1996 1995
------------- ---------- -------------
<S> <C> <C> <C>
Operating Revenue:
Grid Power Production $ 2,370 $ 8,033 $ 7,735
Wireless Power Sales - 3,554 6,560
Corporate, eliminations and others - 1,240 (9)
------- -------- --------
TOTAL OPERATING REVENUE $ 2,370 $ 12,827 $14,286
======= ======== ========
Operating (Loss) Profit:
Grid Power Production $ 1,047 $ (3,248) $(26,562)
Wireless Power Sales - (108) (316)
Corporate, eliminations and others (3,079) (7,401) (9,739)
------- -------- --------
TOTAL OPERATING PROFIT (LOSS) $(2,032) $(10,757) $(36,617)
======= ======== ========
Assets at December 31:
Grid Power Production $ 5,023 $ 27,431 $31,791
Wireless Power Sales - - 17,840
Corporate, eliminations and others 2,099 2,389 15,765
------- -------- --------
CONSOLIDATED ASSETS $ 7,122 $ 29,820 $65,396
======= ======== ========
Capital Expenditures:
Grid Power Production $ - $ - $ 5,281
Wireless Power Sales - - 161
Corporate, eliminations and others - - 1,392
------- -------- --------
CONSOLIDATED CAPITAL EXPENDITURES $ - $ - $ 6,834
======= ======== ========
Depreciation and Amortization:
Grid Power Production $ 737 $ 3,428 $ 3,434
Wireless Power Sales - 73 18
Corporate, eliminations and others - 131 528
------- -------- --------
CONSOLIDATED DEPRECIATION AND
AMORTIZATION EXPENSE $ 737 $ 3,632 $ 3,980
======= ======== ========
Impairment Charge:
Grid Power Production $ - $ 1,400 $20,905
Wireless Power Sales - - 2,277
Corporate, eliminations and others - 4,959 1,249
------- -------- --------
CONSOLIDATED IMPAIRMENT CHARGE $ - $ 6,359 $24,431
======= ======== ========
Geographic Revenue:
North America $ 1,204 $ 2,041 $ 3,146
Central and South America - 4,840 5,831
Europe 1,166 5,946 5,309
------- -------- --------
REVENUE CONSOLIDATED GEOGRAPHIC $ 2,370 $ 12,827 $14,286
======= ======== ========
Geographic Assets:
North America $4,608 $ 5,187 $ 29,192
Central and South America - - 7,383
Europe 2,514 24,633 25,321
Asia - - 3,500
------- -------- --------
CONSOLIDATED GEOGRAPHIC ASSETS $7,122 $ 29,820 $ 65,396
======= ======== ========
</TABLE>
In 1997, 1996 and 1995 no customer accounted for more than 10%
of total revenues.
F - 37
<PAGE>
NOTE 25 - FINANCIAL INSTRUMENTS:
By nature, all financial instruments involve risk, generally
market risk arising from change in interest rates and credit
risk. Financial instruments that potentially subject the
company to credit risk consist primarily of cash deposits,
accounts receivable, accounts payable and long-term debt.
Statements of Financial Accounting Standards No. 107,
"Disclosure about Fair Value of Financial Instruments", defines
the fair value of a financial instrument as the amount at which
the instrument could be exchanged in a current transaction
between willing parties, other than in a forced liquidation
sale.
1997
----------------------------------
Carrying Estimate Fair
Amount Value
------------ --------------
(000's omitted)
Assets:
Cash and cash equivalents $227 $227
Cash restricted in use 639 639
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
Cash and Cash Equivalents, Cash Restricted in use and Notes
Receivable - The carrying amount is a reasonable estimate of
fair value.
Debt Due to Related Parties and Long-Term Debt - It was not
practicable to estimate the fair value of these financial
instruments for 1997 (see Note 13 and 14 for debt term).
The fair value estimates presented herein are based on
pertinent information available to management as of December
31, 1997. Although management is not aware of any factors that
would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates, and
estimates of fair value subsequent to those dates may differ
significantly from the amounts presented herein.
NOTE 26 - CONCENTRATIONS OF RISK:
The Company derives all of its revenue from the production and
sale of electric power generated from renewable sources and,
to a lesser extent, the sale of products related to the
renewable energy industry. As a result, the Company is subject
to several concentrations of risk. A significant majority of
the Company's revenues are derived from contracts for the sale
of power to regulated public utilities. Under many of these
contracts, the price for energy is subject to the utilities'
"avoided cost". "Avoided cost" is affected by, among other
factors, the availability and market price of oil, gas, and
other energy sources. Additionally, the Company will have to
renegotiate contracts with the utilities when the present
contracts expire. Further, the renewable energy industry has,
in the past, been subject to legislative and regulatory
changes, and will likely continue to be affected by such
factors for the foreseeable future.
F - 38
<PAGE>
NOTE 27 - CHANGE IN FISCAL YEAR:
The Company changed its fiscal year end from September to a
calendar year end in 1994.
NOTE 28 - SUBSEQUENT EVENTS:
(A) KENETECH LITIGATION
In light of the equipment supplier dispute, the Company elected
to use other equipment in the New World Texas Renewable Energy
Project. The Company prepared and obtained all the necessary
approvals to change the equipment on the project. Prior to
construction, the project was sold to York Research
Corporation. The Company has no further liabilities or claims
under this litigation.
(B) CONSUMERS POWER COMPANY POWER PURCHASE CONTRACT
The rates under this power purchase contract were subject to
negotiation on December 31, 1995. The Company has abandoned its
attempts to renegotiate its contract with Consumers Power
Company and as a result, its contract is continued on a year to
year basis under the conditions of the original contract.
(C) 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 all of the 129,643 shares of Series A
Convertible Preferred Stock at the redemption price of $1.00
per share. The Redemption date was fixed at March 22, 1999. The
Company elected to not convert its Series A Preferred Stock
into common stock and accordingly received $129,643 in March
1999.
(D) DEBT REPAYMENT
The Company fully extinguished the indebtedness due to the
Subordinated Convertible Notes (see Note 14) 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 14 for Long- Term Debt.)
Accordingly, the holders of the long term debt are in the
process of releasing their lien on Caton Moor.
(E) INVESTMENT BY SYNEX INTERNATIONAL
In July 1998, the Company closed a convertible debt investment
from Synex Energy Resources Ltd., the power project development
subsidiary of Vancouver-based Synex International, Inc.
(TSE:SXI). Synex will provide up to $1,000,000 to the Company
in the form of a convertible debenture. 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. 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, which would enable the
Company to procure resources for project assessment at rates
detailed in the agreement.
F - 39
<PAGE>
NOTE 28 - SUBSEQUENT EVENTS (CONTINUED):
(F) TERMINATION OF DOMINION BRIDGE AGREEMENT
In April 1998, the Company terminated its interim management
contract with Dominion Bridge as well as all other agreements
and associations between the two companies. No additional
compensation was given to terminate those agreements.
(G) SETTLEMENT OF LITIGATION
During 1998, Dwight Kuhns et al ("plaintiff") was granted a
judgement against the Company including penalties in the total
amount of approximately $1.9 million. In December 1998, the
Company and plaintiff entered into negotiations on which to
settle his judgement and avoid bankruptcy for the Company. In
January 1999, the Company and plaintiff reached a settlement
which provided for Mr. Kuhns to receive a $75,000 payment upon
signing of the agreement and a $25,000 payment due March 1,
1999. The Company has made both of those payments. In addition,
the Company executed a promissory note in the principal amount
of $275,000 with interest accruing at 9% per annum. Under that
promissory note, the Company is required to make a $30,000
payment April 1, 1999, a $60,000 payment on July 1, 1999, a
$60,000 payment on October 1, 1999 and the remaining principal
and interest on December 31, 1999. Further the Company executed
a mortgage note in the principal amount of $275,000 with
interest at 7.5% per annum, secured by a third position on
Wolverine. Payments under this mortgage note are to be made in
six equal installments due on June 30 and December 31 of each
year in the amount of approximately $52,000. The Company also
issued 150,000 unregistered shares to Mr. Kuhns and a warrant
to purchase 75,000 shares of the Company's common stock at $2
per share.
In November 1998, the Company filed suit in California against
the legal firm that represented it in the Kuhns litigation. The
allegations include, among other things, misrepresentation of
the Company in the legal proceedings pertaining to the Kuhns
litigation. The Company is seeking unspecified damages.
(H) WOLVERINE LICENSE APPLICATIONS
On October 16, 1998, the Federal Energy Regulatory Commission
("FERC") issued licenses for all four hydro projects of the
Wolverine Power Corporation. In addition, the FERC amended the
Sanford license rescinding its original order that Sanford
operate on a run-of-river basis in which outflow would equal
inflow and allow it to continue to operate in a peaking mode.
The licenses are valid for 30 years. (See Note 16 for
Litigation.)
(I) 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.
F - 40
<PAGE>
NOTE 28 - SUBSEQUENT EVENTS (CONTINUED):
(J) 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.
(K) SALE OF INTEREST IN 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% majority
partner in the project entered into an agreement to sell its
majority interest to a US alternative energy development
company. As a result of that sale, the Company's position in
the project was weakened. In December 1997, the Company
received a capital call on the project, which it could not
answer as a result of financial difficulties. Accordingly, the
Company's ownership percentage was diluted to less than 5%. In
1998, the Company negotiated a sale of its interest to the
majority owner of the project for $295,000, recording a gain of
approximately $95,000 in 1998.
F - 41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE NEW WORLD POWER CORPORATION
June 29, 1999 By: /s/ Vitold Jordan
..................................
Vitold Jordan
Chief Executive Officer
June 29, 1999 By: /s/ Frederic A. Mayer
..................................
Frederic A. Mayer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- -------- -----
<S> <C> <C>
/s/ Gerald R. Cummins Chairman and Director June 29, 1999
...................................
Gerald R. Cummins
/s/ Gerard Prevost Director June 29, 1999
...................................
Gerard Prevost
Lucien Ruby Director June 29, 1999
...................................
Lucien Ruby
/s/ Herbert Oakes Director June 29, 1999
...................................
Herbert Oakes
/s/ Alan Stephens Director June 29, 1999
...................................
Alan Stephens
/s/ Gregory Sunell Director June 29, 1999
...................................
Gregory Sunell
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of New World Power included in Form 10-K for the year
ended December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 227280
<SECURITIES> 0
<RECEIVABLES> 1572053
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2535621
<PP&E> 3900481
<DEPRECIATION> 737420
<TOTAL-ASSETS> 7121603
<CURRENT-LIABILITIES> 4218876
<BONDS> 0
0
0
<COMMON> 34263
<OTHER-SE> 796525
<TOTAL-LIABILITY-AND-EQUITY> 7121603
<SALES> 2369724
<TOTAL-REVENUES> 2369724
<CGS> 1322862
<TOTAL-COSTS> 3079056
<OTHER-EXPENSES> 265041
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 797834
<INCOME-PRETAX> (3095069)
<INCOME-TAX> 14320
<INCOME-CONTINUING> (3109389)
<DISCONTINUED> 327070
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2782319)
<EPS-BASIC> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
