UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: MARCH 31, 2001
Commission file Number: 0-24989
AMERICAS POWER PARTNERS, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 05-0499526
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
710 NORTH YORK ROAD, HINSDALE, IL 60521
(Address of Principal Executive Offices) (Zip code)
(630) 325-9111
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [ ] NO [ X ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, no par value - 7,078,100 shares as of March 31, 2001.
Transitional Small Business Disclosure Format: YES [X] NO [ ]
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FORWARD LOOKING STATEMENTS
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THIS FORM 10-QSB AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY
AMERICAS POWER PARTNERS, INC. (HEREINAFTER REFERRED TO AS "APPI"AND/OR
"COMPANY" AND/OR "REGISTRANT") OR ITS REPRESENTATIVES CONTAIN STATEMENTS
WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, FIFTEEN U.S.C.A.
SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF APPI AND MEMBERS OF
ITS MANAGEMENT TEAM AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE
BASED.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED IN
FORWARD-LOOKING STATEMENTS INCLUDE:SUPPLY/DEMAND FOR PRODUCTS, COMPETITIVE
PRICING PRESSURES, AVAILABILITY OF CAPITAL ON ACCEPTABLE TERMS, CONTINUING
RELATIONSHIPS WITH STRATEGIC PARTNERS, DEPENDENCE ON KEY PERSONNEL, CHANGES
IN INDUSTRY LAWS AND REGULATIONS, COMPETITIVE TECHNOLOGY, AND FAILURE TO
ACHIEVE COST REDUCTION TARGETS OR COMPLETE CONSTRUCTION PROJECTS ON
SCHEDULE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE
FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF
UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED BALANCE SHEET
March 31, 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 229,740
Accounts receivable 268,277
Receivable from related parties - Note D 345,021
Current portion of net investment in leases 141,011
Inventory - fuel oil 187,390
Prepaid expenses and deferred contract costs 60,782
----------
TOTAL CURRENT ASSETS 1,232,221
EQUIPMENT AND FIXTURES
Computer equipment 120,482
Office equipment 55,997
Equipment leased to clients 922,848
Leasehold improvements 8,729
----------
1,108,056
Less accumulated depreciation and amortization (66,452)
----------
TOTAL EQUIPMENT AND FIXTURES 1,041,604
OTHER ASSETS
Net investment in leases, less current portion 613,005
Deposits 50,904
Deferred contract costs, net of accumulated
amortization of $225,789 154,908
----------
TOTAL OTHER ASSETS 818,817
----------
TOTAL ASSETS $3,092,642
==========
See accompanying Notes to Consolidated Financial Statements.
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED BALANCE SHEET
March 31, 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 550,155
Due to related party in connection with client contracts 478,803
Note payable to related party 17,500
Current maturities of long-term debt 129,142
----------
TOTAL CURRENT LIABILITIES 1,175,600
LONG-TERM DEBT - net of current maturities
10 1/2 % note payable to bank, due May 2005 - Note B 436,674
Capital leases 26,694
----------
TOTAL LIABILITIES 1,638,968
MINORITY INTEREST 417,110
STOCKHOLDERS' EQUITY - Note D
Preferred Stock, no par value,
10,000,000 shares authorized;
2,725,000 Series A authorized;
2,709,519 shares issued and outstanding 3,952,250
Common Stock, no par value,
40,000,000 shares authorized;
7,078,100 shares issued and outstanding 1,567,101
Retained earnings deficit (4,482,787)
----------
TOTAL STOCKHOLDERS' EQUITY 1,036,564
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,092,642
==========
See accompanying Notes to Consolidated Financial Statements.
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months
Nine Months Ended
Ended March 31, 2000 -
MARCH 31, 2001 NOTE D
-------------- ----------------
Contract revenues $ 606,808 $ 30,437
Cost of client services 445,825 32,437
------------- --------------
Gross profit (loss) 160,983 (2,000)
Costs and expenses:
Payroll and employee benefits 1,157,941 308,822
Management and consulting fees - Note D 209,426 739,582
Write-off project contract costs 89,880 -
Other professional fees 146,262 288,861
General and administrative 630,144 434,430
------------ --------------
Total expenses 2,233,653 1,771,695
------------ --------------
LOSS FROM OPERATIONS (2,072,670) (1,773,695)
Interest income (59,344) (19,034)
Interest expense 45,909 1,528
Gain on sale of assets (394,766) -
------------- --------------
Total other income, net (408,201) (17,506)
LOSS BEFORE MINORITY INTEREST (1,664,469) (1,756,189)
Minority interest in earnings of limited
liability corporation (29,364) -
------------- -------------
NET LOSS ($ 1,693,833) ($1,756,189)
============= =============
Net loss per share - basic and diluted ($0.14) ($0.21)
Weighted average number of common
shares outstanding - Note G 12,256,581 8,489,259
See accompanying Notes to Consolidated Financial Statements.
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Three Months
Three Months Ended
Ended March31, 2000 -
MARCH 31, 2001 NOTE D
Contract revenues $ 271,853 $ 30,437
Cost of client services 252,494 32,437
------------ -------------
Gross profit (loss) 19,359 (2,000)
Costs and expenses:
Payroll and employee benefits 303,290 135,243
Management and consulting fees - Note D 75,000 349,582
Write-off project contract costs 4,015 -
Other professional fees 1,888 132,384
General and administrative 166,721 209,162
------------ -------------
Total expenses 550,914 826,371
------------ -------------
LOSS FROM OPERATIONS (531,555) (828,371)
Interest income (10,297) (17,772)
Interest expense 17,659 182
Gain on sale of assets (394,766) -
Total other income, net (387,404) 17,590
------------- -------------
LOSS BEFORE MINORITY INTEREST (144,151) (810,781)
Minority interest in earnings of limited
liability corporation 17,195 -
------------- -------------
NET LOSS ($ 126,956) ($810,781)
============= =============
Net loss per share - basic and diluted ($0.01) ($0.08)
Weighted average number of common
shares outstanding - Note G 12,186,761 9,616,483
See accompanying Notes to Consolidated Financial Statements.
AMERICAS POWER PARTNERS, INC.
STATEMENTS OF CASH FLOWS
Nine Months
Nine Months Ended
Ended March 31, 2000-
MARCH 31, 2001 NOTE D
Cash Flows from Operating Activities:
Net loss ($1,693,833) ($1,756,189)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Provision for depreciation and
amortization 276,291 3,297
Loss on sale of equipment and
fixtures 47,662 -
Redemption of Common Stock in
exchange for assets (291,480) -
Common Stock issued for services 37,500 -
Minority interest 29,364 -
Change in accounts receivable 23,304 (62,499)
Change in receivable from related
parties (151,418) (300,000)
Change in inventory (187,390) -
Change in prepaid expenses and
deferred contract costs (2,043) (44,521)
Change in accounts payable (43,899) 40,627
Change in accrued expenses (3,432) 81,936
Change in deferred revenues - 32,060
----------- -----------
Total adjustments (265,541) (249,100)
----------- -----------
Net cash used in operating activities (1,959,374) (2,005,289)
Cash Flow from Investing Activities:
Purchase of equipment and fixtures (844,784) (22,168)
Purchase of equipment underlying lease
agreements (488,600) -
Payments from lessees regarding finance
lease receivables 116,075 -
Increase in deposits (16,938) (7,770)
Payment of deferred contract costs (179,053) -
Repayments from related parties 308,000 (34,515)
---------- ----------
Net cash used in investing activities (1,105,300) (64,453)
Cash Flow from Financing Activities:
Payments on capital leases (11,138) (2,877)
Payments on long-term debt (59,202) -
Minority interest investment in limited
liability company 387,745 -
Payments on insurance financing - (17,635)
Payments for redemption of Common Stock (592,000)
Proceeds of related party note/advance 17,500 10,000
Proceeds from issuance of note payable to
bank 600,000 -
Proceeds from issuance of Common Stock 2,000,000 551,350
Proceeds from issuance of Preferred Stock - 3,000,000
---------- ----------
Net cash provided by financing activities 2,342,905 3,540,838
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents (721,769) 1,471,096
Cash and cash equivalents at beginning of
period 951,509 306,658
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 229,740 $ 1,777,754
========== ==========
See accompanying Notes to Consolidated Financial Statements.
AMERICAS POWER PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS AND DEVELOPMENT STAGE ACTIVITIES
The Company was in the development stage since its inception on January 27,
1998. There was no financial statement activity between the date of
inception and June 30, 1998, except for the issuance of Common Stock,
resulting in a credit to Common Stock of $100. During the third quarter of
the fiscal year ended June 30, 2000, the Company emerged from its
development stage with the signing of two client contracts, billings under
these contracts and the raising of additional capital through a private
placement Preferred Stock offering.
The Company was formed to develop, optimize, own and operate power plant
systems (steam, electric, compressed air, water, waste water and condensate
return) for industrial, commercial and institutional clients. The Company
has formed strategic alliances with several recognized energy companies in
the areas of power plant optimization, operations and maintenance, fuel
supply and electric power marketing. The Company's strategic partners bring
key skill sets to the development process and have provided the Company with
project opportunities from their established customer bases. The Company
generates revenue primarily from fees produced from structuring and
financing these energy projects. All of the Company's customers are in the
United States.
The Company is prepared to participate in the private energy market through
two distinct avenues, namely, financing upgrades, or purchasing powerhouse
assets and selling utilities back to clients through long-term contracts.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its newly-formed, 50%-owned limited liability corporation, Armstrong-
Americas I, LLC. The limited liability corporation agreement provides that
the Company has management control over the operations of the LLC. All
material intercompany accounts and transactions are eliminated.
USE OF ESTIMATES AND BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on
informed estimates and judgments of management. Changes in such estimates
may affect amounts reported in future periods.
The interim financial information presented in the accompanying financial
statements reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. Results shown for interim
periods are not necessarily indicative of the results for a full fiscal
year. The interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
Form 10-KSB for the fiscal year ended June 30, 2000.
AMERICAS POWER PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company evaluates the terms of the energy services agreements (ESA) and
operation and maintenance agreements (O&M) which it executes with clients to
determine the applicable accounting treatment on an individual case basis.
To the extent that ESA's provide for fixed minimum payments and terms that
qualify as a capital lease as defined in Statement of Financial Accounting
Standards No. 13, "Accounting for Leases", the net investment in the
contract is recorded on the balance sheet and unearned income is amortized
over the term of the agreement using the interest method. Revenue from
ESA's that qualify as operating leases under SFAS No. 13 is recorded on a
straight-line basis over the term of the contract. O&M revenue also is
recognized on a straight-line basis, which coincides with the monthly
payments to vendors that provide the operations and maintenance service.
Revenue from sale of commodities that the Company inventories is recognized
as the products are delivered. The Company grants credit to all of its
customers.
PER SHARE OF COMMON STOCK
Primary earnings (loss) per share of Common Stock are computed based on the
weighted average number of shares of Common Stock and common stock
equivalents outstanding during the year. For fiscal 2001 and 2000, the
fully diluted loss per share computation was antidilutive; therefore, the
amount reported for primary and fully diluted loss per share is the same.
NOTE B - NOTE PAYABLE
On August 9, 2000, the Company obtained a loan in the amount of $606,000
from a bank to finance an optimization project. The note is payable in 57
monthly installments of $13,593, including interest at a rate of 10.651% per
annum.
NOTE C - DISPOSITION OF CERTAIN ASSETS AND
TERMINATION OF EMPLOYMENT AGREEMENTS
On January 24, 2001, the Company entered into an agreement that provided for
the following, effective on that date:
1 The redemption of 1,699,000 shares of Common Stock from the Company's
chief executive officer/chairman of the board of directors and another
employee in exchange for the transfer of certain of the Company's
assets to a newly formed company. The assets included all accounts
receivable, development rights, and engineering and environmental
studies related to client prospects in the carbon black and calcined
coke industries (net of all related liabilities), as well as certain
office equipment and fixtures, plus cash and a note totaling $592,000.
AMERICAS POWER PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2001
NOTE C - DISPOSITION OF CERTAIN ASSETS AND
TERMINATION OF EMPLOYMENT AGREEMENTS (CONTINUED)
2 The resignation of the chief executive officer and four other employees,
effective January 15, 2001. These former employees formed the new
company referred to above. The chief executive officer's employment and
deferred compensation agreements were terminated, and the Company
accepted and returned to the treasury 1,200,000 shares of Common Stock
in full satisfaction of the chief executive officer's $1,000,000
promissory note payable to the Company.
3 Provisions for cooperation between the two companies on certain future
joint projects, as well as non-compete provisions on others.
The Company realized a gain of $394,766 on this transaction, which included
the elimination of all deferred contract costs relating to the transferred
business and the deferred compensation and interest applicable to the former
chief executive officer's agreements.
NOTE D - RELATED PARTY TRANSACTIONS AND PRIOR PERIOD ADJUSTMENT
On April 24, 1999, the Company entered into a three-year contract with a
management consulting firm owned by two officers and directors of the
Company that provides for payment of various consulting fees. The contract
provided for minimum monthly consulting fees of $15,000 and an annual
expense allowance of $125,000. The agreement also provided for additional
minimum consulting fees totaling $150,000 upon completion of a reverse
merger, such as that described in Note F, plus 550,000 shares of the
Company's Common Stock. Subsequent to June 30, 2000, this contract was
amended and extended, as further described below.
The Company also had independent contractor agreements with three
individuals who are officers and directors of the Company. These agreements
provided for consulting services related to business development and the
day-to-day management of the Company. Each agreement provided for a monthly
payment to the independent contractor of $10,000. Subsequent to June 30, 2000,
these contracts were voluntarily cancelled, as further described below.
On October 13, 2000, the board of directors of the Company authorized a
special committee of the board to review prior related party transactions
that occurred during a period when all of the Company's directors also were
consultants or employees of the Company. The special committee reported
the following matters, among others, to the board of directors on November
13, 2000:
a. 2,848,186 options previously granted to purchase Common Stock for
one-cent per share were deemed to be invalid, as the full board of
directors had not approved an option plan or the issuance of the
options. The special committee recommended and the full board agreed
to adopt an omnibus option plan as of November 13, 2000 and to grant
1,140,645 options at the market price of $1.25 per share on that date
to partially substitute for the invalid options.
AMERICAS POWER PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2001
NOTE D - RELATED PARTY TRANSACTIONS AND
PRIOR PERIOD ADJUSTMENT (CONTINUED)
All persons holding the one-cent options voluntarily agreed to return
those options and acknowledged that they were not valid.
The Company had not previously recorded any expense related to the
granting of the 2,848,186 options and, because they were not validly
issued, the Company did not restate expenses for the respective prior
quarterly periods.
In addition, the board granted 994,101 options on November 13, 2000 at
$1.25 per share to new employees and other parties.
b. 930,000 shares of Common Stock were awarded to related party
consultants and employees subsequent to the Company raising outside
capital, and these shares were not properly approved by the board of
directors. The individuals who received these shares have agreed
to voluntarily return the shares to the treasury. In return, the board
agreed to grant options to purchase 597,000 shares of stock at the
market price on November 13, 2000 of $1.25 per share.
The Company had not previously recorded any expense in connection with
the above shares and, in light of their issuance subsequently being
determined invalid, prior quarterly results will not be restated.
The Company had issued 60,000 shares of Common Stock to vendors in
consideration of services rendered that were previously valued at
$155,000. The committee determined that 25,000 of these shares were
not authorized and these shares have been returned to the treasury.
c. Under the valid contract referred to above, the Company had paid
consulting fees of $505,770 in connection with the raising of equity
in the third quarter of fiscal 2000 and a reverse merger in the first
quarter of fiscal 2000 (see Note F). However, the special committee
found that provisions of a Preferred Stock Purchase Agreement did not
allow the Company to pay fees on that issue, and, accordingly, the
Company will receive a refund of $300,000. Management and consulting
fee expense for the periods of nine and three months ended March 31,
2000 has been restated to record this reduction of consulting
expense, and the Company was reimbursed for this amount in fiscal
2001.
1) The board has agreed to renegotiate payments for past services, and
amend and extend the contract (at $25,000 per month, cancelable by
either party on 30 days notice) with the related party consulting firm
referred to above. In consideration of this, the consulting firm has
agreed to reduce its past consulting fees by $306,639. The employment
contract of another officer/director also was renegotiated, resulting
in a recovery by the Company of
AMERICAS POWER PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2001
NOTE D - RELATED PARTY TRANSACTIONS AND
PRIOR PERIOD ADJUSTMENT (CONTINUED)
$93,000. This amount was partially satisfied in fiscal 2001 by the
transfer of 40,000 shares of Common Stock to the treasury.
On April 19, 2001, the board agreed to forgive the aforementioned
receivable from the related party consulting firm in consideration for
cancellation of past due rent on the Company's corporate office space,
early termination of the related office lease, and the cancellation of
250,000 options for Company stock owned by the firm. In addition, the
consulting firm agreed to transfer to the Company treasury shares of
Common Stock it owned as final satisfaction of the outstanding balance
of the officer/director's receivable, and 40,000 shares were forfeited
on April 23, 2001.
On September 13, 2000, the Company signed an executive employment agreement
with its former chief executive officer. Concurrently, the former officer
acquired 2,400,000 shares of Common Stock for $2,000,000 cash and a
$1,000,000 promissory note. The note was secured by 1,200,000 of the
underlying shares. The agreement also provided that the former officer's
first year salary and bonus would be earned and accrued ratably during the
period, but payment would be deferred, with interest accruing and paid
annually, until the earlier of the former officer's termination or tenth
anniversary. See Note C regarding the subsequent termination of these
agreements in January 2001.
NOTE E - CUSTOMER CONCENTRATION
On September 1, 2000, the Company signed a contract with a food processing
corporation to purchase certain of its utility generation assets and, in
turn, provide the company's full requirement energy services for the next
sixteen years at estimated annual billings of $4 million, of which
approximately $400,000 will be recognized as annual revenues (excluding
potential revenues from the direct sale of commodities). The Company's 50%-
owned limited liability corporation began recognizing revenue from this
contract in the second quarter of fiscal 2001. In April, 2001, a credit for
prior rental payments was issued to the customer in recognition of mutually
agreed upon schedule changes in the installation of certain equipment. The
portion of the credit applicable to periods prior to March 31 has been
recorded as a reduction of revenue in the third quarter of fiscal 2001, and
the customer has agreed to increase future rentals by a corresponding
amount, plus interest, over the term of the lease agreement.
NOTE F - MERGER AND EXCHANGE OF COMMON STOCK
On August 17, 1999, the Company completed a reverse merger with Oak Brook
Capital II, Inc., a fully reporting public "shell" company under the
Securities and Exchange Commission's Securities
AMERICAS POWER PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2001
NOTE F - MERGER AND EXCHANGE OF COMMON STOCK (CONTINUED)
Act of 1934. Upon completion of the merger, Oak Brook Capital II, Inc.
changed its name to Americas Power Partners, Inc., and issued 10,000 shares
of common stock for each share of the former Americas Power Partners, Inc.
then outstanding. All shares of the former Americas Power Partners, Inc.
were retired.
The merger was accounted for as a pooling of interests. At the time of the
merger, Oak Brook Capital II, Inc. had no assets, had recognized no revenue,
and had incurred expenses of $11,925. All other expenses up to the date of
the combination were incurred by the original Americas Power Partners, Inc.
NOTE G - RECLASSIFICATION
For comparability, the fiscal 2000 financial statements reflect
reclassifications where applicable to conform to the financial statement
presentation used in fiscal 2001. The weighted average number of common
shares outstanding for fiscal 2000 has been adjusted to reflect the
adjustments for options referred to in Note D and the equivalent number of
shares after the effect of the reverse merger referred to in Note F.
NOTE H - SUBSEQUENT EVENT
On April 16, 2001, Armstrong-Americas I, LLC ("LLC"), the Company's 50%-
owned limited liability corporation, signed the first of several interim
promissory notes with a bank that provided for the sale to the bank of the
equipment previously purchased from a customer. The LLC received 80% of the
value of the note ($571,295) and will continue to finance approximately
$2,300,000 in planned improvements to the client facility as they are
installed over the ensuing eight month period. Upon completion of the
project, the LLC will lease the energy generation facility from the bank
under a master lease arrangement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the historical
financial information and the notes thereto included in Item 1 of this
Quarterly Report.
During the period from January 27, 1998 (date of inception) through December
31, 1999, the Company engaged in no significant operations other than
organizational activities, acquisition of capital and preparation for
registration of its securities under the Securities Exchange Act of 1934, as
amended. The Company recorded no revenues during this period.
During the third quarter of fiscal 2000, the Company signed its first two
contracts for the monetization and optimization of steam generation
facilities, and recognized revenue and expenses associated with the
contracts. Three additional contracts were signed in the quarter ended
September 30, 2000, with two of these resulting in revenues and costs
recorded in that quarter. Services provided under the third contract, signed
between Armstrong-Americas I, LLC, the Company's majority controlled limited
liability corporation, and a food processing company, began in October 2000
and generated revenues of approximately $93,700 through March 31, 2001,
after the prorated effect of a credit memorandum issued as a result of a
mutually agreed to change in the schedule for installation of certain
equipment (see Note E of Notes to Consolidated Financial Statements).
During the period of nine months ended March 31, 2001, the Company incurred
a net loss of $1,693,833, compared to a net loss of $1,756,189 for the
corresponding prior year period (see Note D of Notes to Consolidated
Financial Statements regarding a prior period adjustment recorded for the
nine month period ended March 31, 2000). For the current three-month
period, the Company recorded a net loss of $126,956, compared to a net loss
of $810,781 for the fiscal 2000 third quarter. The reduction in the
aforementioned fiscal 2001 net losses is partially attributable to a gain of
$394,766 realized on the sale of assets and termination of a deferred
compensation agreement in January 2001.
In the nine and three month fiscal 2001 periods, the Company recorded the
following expenses that were either not present in or changed over the
corresponding amounts recorded during the respective periods of fiscal 2000.
PAYROLL AND BENEFITS: Payroll and benefit expense for the nine and three
month periods ended March 31, 2001 increased $849,000 and $169,000 over the
corresponding periods of the prior fiscal year. The Company's first
employee was hired and placed on the payroll in October 1999. As of the end
of December 2000, payroll expense included ten employees. As a result of
the sale of assets and the resignations of four employees effective January
15, 2001 (refer to Note C of Notes to Consolidated Financial Statements)
there were six employees on the payroll for most of the third quarter of
fiscal 2001. In addition, payroll expense for the nine months ended March
31, 2001 increased approximately $357,000 over the corresponding previous
period as a result of a provision for deferred compensation required by an
agreement signed in September 2000 and terminated in January 2001 (see Notes
C and D of Notes to Consolidated Financial Statements).
MANAGEMENT AND CONSULTING FEES: Management and consulting fees decreased
approximately $530,000 for the nine months ended March 31, 2001, compared to
the corresponding period of the prior year, principally as a result of the
renegotiation of a contract with the venture capital/management firm
responsible for organizing the August 1999 reverse merger with a publicly-
traded corporate entity and certain other capital formation activities (see
Note F of Notes to Consolidated Financial Statements). A decrease of
approximately $315,000 was realized between the three month periods ended
March 31, 2001 and 2000 for the same reason.
WRITE-OFF PROJECT CONTRACT COSTS: During the period of three months ended
September 30, 2000, management concluded that several client projects were
no longer economically feasible or did not justify further investment of
resources and, accordingly, approximately $104,200 of previously deferred
development costs relating to these projects was written-off. In subsequent
periods, the Company received a $20,000 vendor retainer credit to apply
against the aforementioned charge and also determined that an additional
$4,000 should be written off in the quarter ended March 31, 2001.
OTHER PROFESSIONAL FEES: Professional fees decreased approximately $142,600
and $130,500 during the current nine and three month periods, respectively,
compared to the corresponding prior year periods as a result of the
decisions in the fourth quarter of the prior fiscal year to internally
perform the Company's legal function and to reduce public relation
activities in the second and third quarters of fiscal 2001.
GENERAL AND ADMINISTRATIVE: General and administrative expenses for the
nine month period ended March 31, 2001 increased approximately $195,700 over
the corresponding prior year period with the additional expenditures
relating to increased personnel, rental of new office facilities,
depreciation of Company-owned and client-leased equipment, accounting fees
associated with the reporting requirements of a publicly-held company, and
the initiation of marketing programs. However, these expenses decreased
$42,400 between the three month periods ended March 31, 2001 and 200,
respectively, as a result of the decrease in general and administrative
expenses associated with the previously described reduction in staff
effective January 15, 2001 (see Note C of Note to Consolidated Financial
Statements).
INTEREST INCOME: Interest income increased approximately $40,300 in the
nine month period ended March 31, 2001 over the corresponding prior year
period as a result of the higher cash balances available from the sale of
Common Stock in September 2000, and the outside investment made in
Armstrong-Americas I, LLC, the Company's majority controlled 50%-owned
limited liability company. However, for the three-month period ended March
31, 2001 interest income was $7,500 less than the corresponding prior year
period as a result of the investment of the proceeds from the issuance of
Preferred Stock in January 2000.
INTEREST EXPENSE: Interest expense in the nine and three month fiscal 2001
periods increased $44,000 and $17,500, respectively, as a result of a bank
loan entered into early in the current fiscal year and capital leases for
equipment signed subsequent to December 1999.
LIQUIDITY AND CAPITAL RESOURCES
The working capital of the Company at March 31, 2001 was $56,621, compared
to $1,350,423 and $743,482 at December 31, 2000 and June 30, 2000,
respectively. Cash balances at March 31, 2001 decreased $721,700 from the
prior year-end principally as a result of payments totaling $592,000 made in
connection with the disposition of the business associated with the
Company's previous initiatives in the carbon black industry.
The Company has signed one bank note, in the amount of $606,000, relating to
the financing of a client project. The Company's 50%-owned limited
liability corporation has a $700,000 line of credit at March 31, 2001, which
use is restricted to paying client utility invoices and is secured by
receivables related to those billings.
The Company has experienced liquidity difficulties during the latter part of
the quarter ended March 31, 2001 and subsequently. Certain unneeded assets
have been sold and expenses have been reduced where possible. In addition, the
Company has entered into an agreement with Sanders Morris Harris, Inc., an
investment banking firm, to raise $7 to $10 million of additional equity through
the sale of stock or other securities, the proceeds of which are to be used as
working capital for ongoing operations and to fund future projects. It is
anticipated that this equity raise will take between 60 and 150 days. In the
interim, a related party company and strategic partner, Armstrong International,
Inc., has agreed to support the Company's efforts to obtain short-term working
capital, if necessary, to meet essential business requirements on a temporary
basis.
Management believes that, in order to attract and finance additional
optimization and monetization projects, significant amounts of new capital
will be needed. In addition, working capital financing will be needed to
facilitate the Company's utility invoice processing service for current and
future clients. The Company intends to secure such additional capital to
sustain its project development plans, which may include acquisition of
client energy facilities, through bank financing or equity markets. The
Company cannot be certain that it will be successful in efforts to raise
such new funds.
On April 16, 2001, Armstrong-Americas I, LLC ("LLC"), the Company's 50%-
owned limited liability corporation, signed the first of several interim
promissory notes with a bank that provided for the sale to the bank of the
equipment previously purchased from a customer. The LLC received 80% of the
value of the note ($571,295) and will continue to finance approximately
$2,300,000 in planned improvements to the client facility as they are
installed over the ensuing eight month period. Upon completion of the
project, the LLC will lease the energy generation facility from the bank
under a master lease arrangement.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This statement established standards for reporting
comprehensive income in the financial statements. The Company's adoption of
this new standard in June 2000 did not result in material changes to the
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement established
standards for the way companies report information about operating segments
and requires that those enterprises report selected information about
operating segments in the financial reports issued to shareholders. The
Company's operations are deemed to be one reportable segment for purposes of
this disclosure.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to recognize
all derivatives as assets and liabilities measured at their fair value. The
accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and whether it qualifies for hedge
accounting. The Company believes adoption of this statement as amended by
SFAS No. 137, which will occur by July 2001, will not have an affect on the
financial statements, as the Company currently does not hold any derivative
instruments.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
Neither the Registrant nor any of its affiliates are a party, nor is any of
their property subject, to material pending legal proceedings or material
proceedings known to be contemplated by governmental authorities.
ITEM 2. Changes in Securities
During the period of nine months ended March 31, 2001, there were no changes
in the Company's outstanding securities.
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
* Exhibits:
27.0 Financial Data Schedule
* Reports on Form 8-K:
Form 8-K dated January 26, 2001 regarding redemption of Common
Stock and sale of development rights related to projects in the
carbon black and calcined carbon industries.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAS POWER PARTNERS, INC.
/s/ Thomas W. Smith
May 15, 2001 THOMAS W. SMITH,
President
May 15, 2001 /s/ Tom F. Perles
TOM F. PERLES,
Chief Accounting Officer