SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
Amendment No. 1 to:
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24989
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AMERICAS POWER PARTNERS, INC.
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(Name of small business issuer in its charter)
Colorado 05-0499526
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
710 North York Road, Hinsdale, Illinois 60521
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 630/325-9111
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
--------------------------
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 [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $ 927,054
---------
As of September 1, 2001, the registrant had 7,138,100 shares of
its Common Stock, no par value, outstanding. The aggregate
market value of the voting stock held by non-affiliates of
the registrant as of that date is $710,424.
Americas Power Partners, Inc. (the "Company"), is filing this Amendment No. 1 on
Form 10-KSB/A solely to provide the information required by Part III, Items 10,
11, 12 and 13, of the Form 10-KSB, which information was omitted from the
Company's original Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission on October 5, 2001, as provided in General Instruction E(3)
of the instructions to Form 10-KSB.
TABLE OF CONTENTS
Page
PART I
Disclosure Regarding Forward-Looking Statements 2
Item 1. Description of Business 2
Item 2. Description of Property 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 10
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7. Financial Statements 17
Item 8. Changes in and Disagreements with Accountants
On Accounting and Financial Disclosure 17
PART III
Item 9. Directors and Executive Officers of the Company 17
Item 10. Executive Compensation 20
Item 11. Security Ownership of Certain Beneficial Owners and Management 24
Item 12. Certain Relationships and Related Transactions 26
PART IV
Item 13. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K 27
Index to Financial Statements and Financial Statement Schedules F-1
Part I
Disclosure Regarding Forward-Looking Statements
This Annual Report includes historical information as well as statements
regarding the Company's future expectations. 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 believes in
good faith that the forward-looking statements in this Annual Report have a
reasonable basis, including without limitation, management's examination of
historical operating trends, data contained in records and other data available
from third parties, but such forward looking statements are not guarantees of
future performance and actual results may differ materially from any results
expressed or implied by such forward looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Americas Power Partners, Inc. (the "Company" or "APP") was incorporated in April
1998 with a mission to reduce the cost and environmental impact of on-site
utilities for industrial, commercial and institutional clients. The Company
intends to become a leading independent power producer engaged in the business
of developing, owning and managing the operation of energy systems, including
cogeneration plants which produce electricity and thermal energy for sale under
long-term contracts with industrial and commercial users. The Company seeks
long-term all-requirements contracts for energy and utility services and bases
those contracts upon open-book partnerships with its clients. In return, the
Company's business strategy is to build, purchase and/or manage the existing
utility plants. For existing facilities, APP will develop and finance additions,
replacements and improvements that increase reliability and efficiency while
reducing the environmental impact.
The Company is developing the capacity to serve domestic and international
clients from its headquarters in Hinsdale, Illinois and regional offices in
Pittsburgh, Pennsylvania, and Orlando and Stuart, Florida. In addition, the
Company has the ability to provide services to its customers through six US
service offices and 325 global distributorships of its strategic partner,
Armstrong International, Inc. ("Armstrong"). The Company's current clients and
those under letter of intent or term sheet are located in approximately 20
states.
The Company will employ and partner with on-site utility specialists whose
skills include design, operation and financing of combined heat and power
generation, waste heat
2
recovery, thermal and electrically based cooling/refrigeration, steam, electric,
chilled water distribution, energy storage, measurement, automation, wastewater
treatment and pollution control. The Company's key alliance is with Armstrong
Services Inc. ("ASI"), a wholly owned subsidiary of Armstrong, a company with a
100-year history as a supplier of steam equipment and services to the power
industry. Armstrong distributors and representatives are in frequent contact
with virtually every North America steam user as providers of product and
technical solutions to steam distribution issues. Armstrong has invested in APP
and has expanded the role of its distributors and representatives to lead
generation and development of energy services contracts.
APP offers three distinct products that target the energy requirements of the
industrial, institutional and commercial market:
. Utility Optimization
. Utility Monetization.
. Cogeneration Projects
APP seeks to utilize its knowledge and expertise to fulfill client energy needs,
while using less fossil fuel, and thereby lowering fuel costs. APP finances the
capital improvements, enabling clients to avoid capital expenditures in non-core
activities. Customers can focus on their core business, while APP focuses on
providing energy and utility services. This outsourcing arrangement allows the
customer to focus their capital and management efforts on their products while
relying on APP for more reliable, less costly operations of their utility
systems. The Company may assist its customers with fuel supply and electric
power purchasing. Although the customer maintains all responsibility and risk
related to energy commodities pricing, APP may share in certain energy cost
savings.
APP achieves energy savings with a variety of approaches, but seeks to combine
heat and power generation in each case, in order to capture fuel energy that is
wasted in conventional central generation of electricity only. APP's approach is
not limited to any specific fuel or technology, but is instead based on the
needs of the individual customer, and the need to reduce fossil fuel consumption
and related costs.
Utility Optimization
--------------------
The APP utility optimization program is designed for clients who prefer to
continue owning and operating their own steam, electric, air, water and
condensate return utility systems. In these cases, APP provides intellectual
capital and financial resources to upgrade the systems. The Company relies on
ASI personnel where appropriate to supervise the installation of improvements
and to provide maintenance. In this way, APP is able to apply its intellectual
capital in many markets without having its own local sales and service forces.
The Company earns a return on its funds through utility optimization and
services agreements, which provide for the following:
. A thorough review of a client's entire energy usage system to
identify specific projects that will improve the utility system.
3
. An agreement for a maintenance contract covering 3 to 10 years which
provides for recovery of the capital costs and other expenses and a
profit on the contract.
. APP will purchase the asset additions and improvements necessary to
achieve the identified energy savings and will utilize their own
capital for this purpose.
. The customer is typically provided a net positive cash flow from
reduced utility operating budgets and avoidance of any up front
capital outlays.
. At the termination of the agreement, the customer owns the system
improvements.
. Additional system improvements will be analyzed and implemented at the
client's discretion.
Utility Monetization
--------------------
Under the Utility Monetization program, the Company purchases the client's
existing power plant assets, typically for book value, and incorporates
improvements in the utility and distribution system (which could include the
building of cogeneration power plants), and assumes ownership and operation of
the plant. APP enters long-term agreements to sell steam, electricity,
compressed air, water and wastewater treatment to the facility at a discount to
the cost of conventional thermal production and electricity purchase.
This program provides benefits to the customer, including:
. The Company purchases the existing power plant, invests in efficiency
and reliability enhancements and operates and maintains the entire
utility system.
. The Company pays for needed fuel, electricity, water, and wastewater,
produces final energy products on site, and sells those products under
an open book contract for an initial period of 10 to 25 years.
. The Company takes responsibility for those risks it can control
including conversion efficiency, labor productivity, reliability, and
steam and power quality. The customer remains at risk for inflation
and changes in purchased commodity prices, but will generally need
less purchased commodities per unit of production or other benchmark,
due to the Company's efficiency improvements. APP is compensated for
all energy and utility costs.
The Company's focused expertise in substituting knowledge and capital for fossil
fuel and purchased electricity enables clients to:
. Contain or reduce costs
. Reduce production downtime
4
. Increase reliability
. Increase overall return on assets
. Decrease pollution
. Avoid future capital expenditures
Cogeneration
------------
The Company plans on expanding its utility monetization relationships by
developing, owning, operating and maintaining inside the fence cogeneration
power plants to improve electricity reliability and availability for these and
other customers. APP also plans to develop cogeneration power plants independent
of the utility optimization and monetization programs, and is developing
projects in multiple cities in the domestic United States.
The Company believes that the restructuring of the electric utility industry
will open significant new opportunities to companies like APP in the development
of cogeneration projects that free customers from the need to rely on local
utilities, as well as provide the customer the advantages of reliability and
cost savings that result from having captive, on-site, distributed generation
facilities. Furthermore, APP's management believes that the environmental
benefits of cogeneration will translate into an increasingly attractive
competitive advantage as the markets place increases monetary values on
emissions credits. In addition, the Company plans to capitalize on the
efficiency benefits that current cogeneration technology provides relative to
conventional power plants, which generally operate at 25% to 50% less
efficiency. The Company plans to initially focus their cogeneration project
development in the "middle market" by developing projects of less than 100 MW
rated capacity, in comparison to the typical range of 500 MW to 1,000 MW for
their large competitors.
The Company believes it will have many opportunities to develop small,
inside-the-fence cogeneration projects at the plant facilities where it has
utility optimization or monetization programs. Conversations have commenced with
its major client and other prospects for small, inside-the-fence projects in
which the entire output would be utilized by the contracting facility. In these
cases, the customer will enter into long-term contracts at favorable rates while
still enjoying significant savings from retail rates charged by the local
utility companies and the substantial benefits from reliability of operating its
own project.
APP also expects to develop, own and operate dedicated cogeneration plants at
various locations throughout the United States and internationally where
long-term contracts for the sale of electricity and thermal energy can be
negotiated at favorable rates in the open market. These projects, anticipated to
range from approximately 10 MW to 100 MW, may be dedicated to selling all of the
electrical and thermal output to a single end-user, selling all of the output to
one or more wholesale marketing organizations, or a combination thereof. In all
cases, at least initially, the Company plans to avoid the risks associated with
merchant power plants, which sell their output on a spot basis without
contracts, by entering into 10 to 15 year term contracts at rates which will
anticipate
5
recovering all capital costs and provide APP with attractive returns on the
project during that base initial term.
MARKET AND INDUSTRY
The U.S. market currently spends an estimated $220 billion on electricity and
produces an amount of thermal energy valued at $170 billion annually. Consumers
for the most part still separately convert purchased energy to steam, chilled
water and compressed air, and employ personnel and capital resources to
distribute steam, chilled water, electricity and compressed air throughout their
facilities. U.S. spending for the full utility process, from fuel and commodity
procurement to provision of comfort and process energy, exceeds $500 billion per
year.
In the early days of electricity development, governments believed that the
generation of electricity was a natural monopoly, and to induce rapid deployment
of electric power, awarded exclusive franchises for each territory. By 1977, 96%
of U.S. electric power was produced by one of the 2,800 monopoly electric
company plants. In 1978, Congress passed the Public Utility Regulatory Policies
Act ("PURPA"), enabling non-monopoly generation by Independent Power Producers.
Subsequent federal legislation further weakened the monopoly protection afforded
electric utilities and, on March 1, 1998, Massachusetts became the first state
to open its entire electric market to competition. California followed on March
30, 1998, and by June 30, 2000, over half of the states had legislatively or
administratively eased restrictions to competition in electric power generation.
The earliest electric generation plants converted only about 8% of the fuel
energy to electric power (a term referred to as "efficiency"). Over time,
efficiencies rose to approximately 33% in the standard single cycle fossil
fueled plants, with 67% of the energy in the fuel wasted at these generating
plants. By the 1970s, industry participants had developed combined cycle heat
and power plants which achieve efficiencies of 65% to 97% by generating power
near thermal users and then providing normally wasted heat to those users. These
highly efficient cogeneration power plants operate with a "heat rate" as low as
7,000 to 8,000 BTUs which is more than twice as efficient as the old gas fired
plants and results in the more efficient cogeneration plants being able to sell
their output when the less efficient plants may be shut in when demand is low.
The Company believes that historic monopoly protection of generation and
distribution, and the resulting barriers to efficient generation, will continue
to be eased, making on-site combined heat and power generation more financially
attractive, leading in turn to significant shifts from central to distributed
generation.
The generation of hot water and/or low-pressure steam needed for process heating
is less complex and capital intensive than the combined generation of heat and
power. Consequently, processing industries, commercial establishments and
institutions such as hospitals and universities generate their own thermal
energy, using their own capital and labor. Under historic regulation of
third-party electric generation, these firms and
6
institutions opted to generate only thermal energy within their facilities while
purchasing electric power from the local utility, but this fails to extract the
full value potential of fuel. With easing of monopoly restrictions, combined
heat and power production has risen from 4% of U.S. power production in 1977 to
9% in 1999. The U.S. Department of Energy has set a goal of doubling U.S.
combined heat and power production over the next ten years, to 18-19% of total
generation.
The Company believes that it is economically feasible to generate 50 to 60% of
all U.S. power at combined heat and power plants located at or near large
thermal users' sites. However, the conversion of existing thermal only power
plants to more efficient and cleaner combined heat and power plants is complex
and capital intensive. Global competition has forced most firms and institutions
to focus on their core activities rather than expending resources on thermal and
electric generation and distribution, leading to some outsourcing of these
activities. This creates, in the Company's view, an opportunity to develop
combined heat and power plants and optimize the combined generation and
distribution of energy products within its customer's facilities.
The Company believes that the market for the power management service industry
is expanding at a rapid rate, and that both competitive pressure to reduce costs
and government mandates to reduce pollution will increase the use of third party
energy professionals to manage campus utility plants. In addition, many firms
and institutions depend on boilers that are technically and economically
obsolete, difficult to operate and maintain, and polluting. A great deal of the
power generation equipment at U.S. process plants must soon be upgraded or
replaced to avoid costly downtime and environmental fines. APP believes it can
continue to find significant opportunities to achieve cost savings in most
utility systems while meeting all environmental requirements.
STRATEGIC ALLIANCES
The Company has a strategic alliance with ASI, a subsidiary of Armstrong
International, Inc., a 100-year-old, privately held U.S. multi-national
manufacturer of steam specialty products and provider of steam system services
to improve system efficiency. Armstrong personnel have extensive experience in
steam distribution, energy management, project management and construction of
on-site utility plants. Armstrong has certified boiler specialists with
experience in process and design engineering, power generation/boiler design and
cogeneration.
ASI provides the Company with business development support through ASI's
worldwide network of direct sales and independent representatives. Upon
completion of a transaction, ASI typically coordinates and/or implements all of
the site projects, along with providing operations, maintenance and sustaining
engineering for the Company's customers.
7
COMPETITION
In the past decade, many companies have formed corporate divisions to manage
their plants' utility and energy systems and purchasing requirements, in order
to better control energy requirements and cost. For the immediate future, the
Company's principal competition will continue to be the in-house operation of
the utility plant with most electricity purchased from the grid. More recently,
some companies are beginning to outsource portions or all of these
responsibilities to third parties like APP. The Company believes that effective
energy management involves expertise not only in energy supply and production,
but also in its distribution within the end user facility. The Company believes
that many potential competitors have an interest only in supplying the
electricity, fuel or water required by a plant and that some may assist with
energy generation and production, but most stop short of distribution skills.
APP believes that, as a result of its alliance with ASI, it is in a unique
position and may benefit from its understanding of energy distribution within a
process plant. Competitors most likely will refine their strategies and grow,
and other firms will enter the market, offering competitive services. Several of
the Company's competitors have higher market profile and significantly greater
financial resources than the Company.
DOMINANT PLAYERS
The Company believes that no firm yet has what could be termed a dominant role
in the emerging market of utility outsourcing and energy services. Various
strategies are being offered by several companies, based on a single existing
strength such as commodity management or trading, in operations, or in specific
technologies. APP differentiates itself by focusing on energy savings, thus
reducing overall utility costs. This strategy is complemented with the ability
to co-generate electricity for the industrial user with the most efficient use
of fuel.
Furthermore, the easing of monopoly protection will continue to subject electric
utility managements to possible loss of market share, and may, in the Company's
opinion, encourage these utilities to enter the energy services market,
especially in other utility territories.
PROPRIETARY RIGHTS
The Company has no patents, trademarks, licenses or royalty agreements. The
Company relies on trade secrets and proprietary know-how. There can be no
assurance that the trade secret or propriety nature of such information will not
wrongfully be breached by employees, consultants, advisors or others, or that
the Company's trade secrets or propriety know-how will not otherwise become
known or be independently developed by competitors in such a manner that the
Company has no practical recourse.
8
BACKLOG
As of June 30, 2001, the Company had signed long-term contracts for the
optimization and monetization of client power plants that represent future
minimum service revenue of $7,530,640 over the next 15 years.
RAW MATERIALS AND SUPPLIERS
In providing its optimization and monetization services, the Company is not
directly dependent upon raw materials or supplies, specifically electric, gas,
steam or water energy sources. However, since the Company's services to most
clients involve consulting as to the most inexpensive sources of such energy,
changes in the supply and pricing of these commodities may have an impact on the
Company's operations. Client reliance on sole or limited sourcing for some
commodities does present risk that adequate alternative supplies or timely
deliveries will interfere with successful new project development.
HUMAN RESOURCES
As of September 1, 2001, the Company had five full-time employees situated in
offices in Hinsdale, Illinois, Pittsburgh, Pennsylvania, and Orlando and Stuart,
Florida. None of the Company's employees are covered by collective bargaining
agreements. The Company's success will depend in part on its continued ability
to attract and retain high quality employees. The Company considers its
relations with employees to be good.
Effective July 1, 2001, the Company's president and chief operating officer is
working in that capacity under a leased employee arrangement from the Company's
strategic partner.
During the year ended June 30, 2001, the Company had an agreement with a
consulting firm, that is owned by a current and a former director, to provide
management consulting and financial/accounting advisory services with respect to
client projects and Company administration. Three individuals assisted the
Company in this manner. The management consulting portion of the agreement was
cancelled as of June 30, 2001.
ENVIRONMENTAL COMPLIANCE
Under the terms of the Company's contracts with clients, responsibility for
environmental matters relating to purchased assets is retained by the clients
for a stipulated period of time. Accordingly, there were no environmental
matters that would have a material effect on the financial statements as of June
30, 2001.
9
DISPOSITION OF ASSETS
On January 24, 2001, the Company entered into an agreement that provided for the
transfer of certain of the Company's assets to a newly formed company (see Note
E of Notes to Consolidated Financial Statements). 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.
ITEM 2. DESCRIPTION OF PROPERTY
As of June 30, 2001, the Company leases approximately 1,350 square feet of
office space in Hinsdale, Illinois under a month-to-month lease arrangement. The
lessor of this building is a firm partially owned by one of the Company's
directors.
There are no formal lease arrangements in connection with the Company's offices
in Pittsburgh, Pennsylvania or Orlando and Stuart, Florida. The Company believes
that all of the facilities are adequate to meet its needs for the foreseeable
future, and that suitable replacement space is readily available.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings involving the Company or any of
its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year ended June 30, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on the over-the-counter Bulletin
Board market under the symbol "APPN" on January 24, 2000.
10
QUARTERLY COMMON STOCK PRICE RANGES
Fiscal
Quarter High Low
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Year ended June 30, 2001:
-------------------------
1st (July 1- Sept 30) $ 3 1/4 $ 7/8
2nd (Oct.1 - Dec. 31) $ 2 7/8 $ 3/4
3rd (Jan.1-Mar. 31) $ 1 1/2 $ 1/8
4th (Apr.1-Jun. 30) $ 5/8 $ 1/8
Year ended June 30, 2000:
-------------------------
3rd (Jan. 1-Mar. 31) $ 6 $ 1 1/8
4th (Apr. 1-Jun. 30) $ 4 7/8 $ 7/8
Such over-the-counter market quotations reflect inter-dealer prices, without
retail markup, markdown or commission, and may not necessarily represent actual
transactions.
As of June 30, 2001, the approximate number of holders of record of the Common
Stock of the Company was 157.
The Company has never paid any cash dividends on its Common Stock in the past
and anticipates that, for the foreseeable future, all earnings, if any, will be
retained to finance growth and to meet working capital requirements.
The following discussion outlines all Common Stock securities sold by the
Company for cash or services rendered during the year ended June 30, 2001:
During the period of three months ended September 30, 2000, the Company sold in
a private transaction to an individual 2,400,000 shares of its 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. In addition, the Company issued 37,500
shares of its Common Stock in exchange for certain public relation services, and
recorded the issuance in the financial statements at the fair market value of
the shares at the time the services were performed.
During the period of three months ended March 31, 2001, the Company issued
100,000 shares of its Common Stock, no par value, in exchange for certain
investor relations services, and recorded the issuance in the financial
statements at the fair market value of the shares at the time the services were
approved by the board.
On June 28, 2001, the board of directors approved an amendment to the Company's
Articles of Incorporation authorizing the issuance of 3 million shares of Series
B Preferred Stock and, in a private transaction, exchanged those shares for
sales development and financing services valued at $468,000 and $236,763,
respectively.
11
On June 28, 2001, the board of directors granted 1,200,000 options to three
employees under the Company's Equity Incentive Plan.
The Company relied on the registration exemptions provided in Section 4(2) of
the Securities Act of 1933 and Regulation D thereunder in connection with each
of the foregoing sales of its securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of the Company, including the notes thereto, which appear elsewhere
in this annual report.
Results of Operations.
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 during the year ended June 30, 2001. Services
provided under one of these contracts, signed between Armstrong-Americas I, LLC,
("LLC") the Company's majority controlled limited liability corporation, and a
food processing company, began in October 2000 and generated revenues of
approximately $442,900 through June 30, 2001, after the 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 I of Notes to Consolidated Financial
Statements).
During the year ended June 30, 2001, the Company incurred a net loss of
$3,820,980 compared to a net loss of $2,225,971 for the prior fiscal year.
During the current fiscal year, the Company recorded the following expenses that
were either not present in or changed significantly in relation to the
corresponding amounts recorded during fiscal 2000 and 1999.
Payroll and employee benefits
Fiscal 2001 compared to Fiscal 2000
-----------------------------------
Payroll and employee benefit expense for the year ended June 30, 2001 increased
$1,141,000 over the prior fiscal year. The Company began fiscal 2001 with seven
employees, had ten employees as of December 2000, and, as a result of the sale
of assets and the resignations of four employees effective January 15, 2001
(refer to Note E of Notes to Consolidated Financial Statements), as well as
other terminations, there were
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four employees on the payroll at June 30, 2001. Payroll expense for the year
ended June 30, 2001 increased approximately $357,000 over the previous year as a
result of a provision for deferred compensation required by an agreement signed
with an officer in September 2000 and terminated in January 2001 (see Note E of
Notes to Consolidated Financial Statements). In addition, the Company recorded a
provision as of June 30, 2001 for future payroll and benefit costs of $286,000
associated with the employment contract of another terminated officer.
Fiscal 2000 compared to Fiscal 1999
-----------------------------------
The Company's first employee was hired and placed on the payroll in October
1999. At the end of fiscal 2000, the payroll included seven employees.
Sales Development and Financing Expense
Fiscal 2001 compared to Fiscal 2000
-----------------------------------
On June 28, 2001, the board of directors approved the issuance of 3 million
shares of Series B Preferred Stock and the signing of the Series B Preferred
Stock Purchase Agreement in exchange for certain sales development and financing
costs, valued at $468,000 and $236,763, respectively, from Armstrong. In
addition, the LLC paid sales development costs of $30,000 to the same firm
during fiscal 2001. The aforementioned financing expense represents the fees
associated with funds advanced by the investor to the Company for working
capital purposes and in connection with client monetization projects and the
guarantee of a line of credit.
Management and consulting fees
Fiscal 2001 compared to Fiscal 2000
-----------------------------------
Management and consulting fees decreased approximately $102,700 for the year
ended June 30, 2001, compared to the prior year, principally as a result of the
following (see Note H of Notes to Consolidated Financial Statements):
. Cancellation in November 2000 of independent contractor agreements
with three individuals who were officers and directors of the Company.
. 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.
As further described in Note H of Notes to Consolidated Financial Statements, as
of June 30, 2000, the venture capital/management firm agreed to reduce and
refund to the Company $306,600 of the consulting fees it received in fiscal
2000. The board of directors subsequently forgave the outstanding balance of
this receivable in consideration for the firm canceling the Company's corporate
office lease, and, accordingly, $298,400 was written-off in fiscal 2001.
Fiscal 2000 compared to Fiscal 1999
-----------------------------------
Management and consulting fees increased $400,000 in fiscal 2000 over fiscal
1999 as a result of the following (see Note H of Notes to Consolidated Financial
Statements):
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. A full year of consulting fees under an agreement with a venture
capital/management firm that was effective in April 1999 represented
$232,000 of the increase.
. Consulting fee payments were made to the venture capital/management
firm responsible for orchestrating the August 1999 merger with a
publicly-traded corporate entity and certain other capital formation
activities. Under terms of the consulting agreement with the firm, the
Company recorded consulting expense of $505,770, which subsequently
was reduced by $300,000 to $205,770.
Write-off project contract costs
Fiscal 2001 compared to Fiscal 2000
-----------------------------------
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 $25,600 should be written off in the third and fourth
quarters of 2001.
Other professional fees
Fiscal 2001 compared to Fiscal 2000
-----------------------------------
For the year ended June 30, 2001, professional fees decreased approximately
$235,200 compared to the prior year 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 subsequent to the first
quarter of fiscal 2001.
Fiscal 2000 compared to Fiscal 1999
-----------------------------------
Professional fees increased $250,000 during the fiscal year ended June 30, 2000
from the corresponding amount for fiscal 1999 as a result of increased legal
costs associated with the Preferred Stock private placement agreement in January
2000 and an increase in public relations expenses as the Company emerged from
its development stage.
General and administrative
Fiscal 2001 compared to Fiscal 2000
-----------------------------------
General and administrative expenses for the year ended June 30, 2001 increased
approximately $136,300 over the prior year amount with the additional
expenditures relating to increased personnel during the middle of the year,
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 for the period of three months ended June 30, 2001 were the lowest of
the year's four quarters 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 E of Note to Consolidated Financial
Statements).
14
Fiscal 2000 compared to Fiscal 1999
-----------------------------------
General and administrative expenses for fiscal 2000 increased $580,000 over the
total for fiscal 1999 with the additional expenditures relating to increased
personnel, rental of the Company's first corporate office facilities, accounting
fees associated with the merger of the Company with a "public reporting shell"
company, and the initiation of sales development efforts.
Interest Income
Fiscal 2001 compared to Fiscal 2000
-----------------------------------
Interest income increased approximately $35,000 during the year ended June 30,
2001 over the corresponding prior year amount as a result of the higher cash
balances provided from the proceeds from the sale of $2 million of Common Stock
to a new chief executive officer in September 2000, and the outside investment
made in Armstrong-Americas I, LLC in that same month.
Fiscal 2000 compared to Fiscal 1999
-----------------------------------
Interest income increased $27,700 in fiscal 2000 over the prior year as a result
of the higher cash balances available after closing on the sale of the
$3,000,000 Series A Preferred Stock issue in January 2000.
Interest Expense
Fiscal 2001 compared to Fiscal 2000
-----------------------------------
Interest expense for the year ended June 30, 2001 increased $74,900 as a result
of a bank loan used to finance a client project early in the current fiscal year
and capital leases for equipment signed subsequent to December 1999.
Fiscal 2000 compared to Fiscal 1999
-----------------------------------
Interest expense in fiscal 2000 was $2,532 and resulted from capital leases for
equipment entered into during the year.
Liquidity and Capital Resources
The Company had a working capital deficiency at June 30, 2001 of $1,944,751,
compared to working capital of $1,350,423 and $743,482 at December 31, 2000 and
June 30, 2000, respectively. The initiation of additional monetization and
optimization projects during fiscal 2001 resulted in an increase in accounts
payable and amounts due to a related party in connection with these client
contracts. As further described below, the improvements for one of these
projects are included under an interim financing agreement with a bank, which
provides for short-term notes (totaling $1,224,687 at June 30, 2001) that
ultimately will be converted into a sale and leaseback transaction in fiscal
2002. Cash balances at June 30, 2001 decreased $674,822 from the prior year-end.
The Company has signed a bank note, in the amount of $606,000, relating to the
financing of a client project. In addition, the Company's LLC has a commitment
from a bank to sell and leaseback steam generation and air compression
facilities previously purchased from a customer and improvements being installed
thereto, totaling
15
$2,730,712. During the period of construction, the improvements are being
financed under an interim financing agreement with the bank, which provides for
interest-bearing notes to be executed in support of each construction
installment disbursement. The notes, which totaled $1,224,687 at June 30, 2001,
mature on September 30, 2001. The bank is reviewing the Company's request to
increase the line to $3.8 million and extend the notes for six months. Upon
completion of the project, the LLC will lease the energy generation facility
from the bank under a master lease arrangement. Armstrong has guaranteed the
interim financing, the LLC's subsequent lease payments after the sale-leaseback
transaction is closed, and other performance criteria.
In addition, the LLC has a $500,000 line of credit with a bank at June 30, 2001,
which use is restricted to paying client utility invoices and is secured by the
receivables related to those billings and a guarantee from Armstrong.
The Company has experienced severe liquidity difficulties during the latter part
of the year ended June 30, 2001 and subsequently. Certain unneeded assets of the
Company were sold and expenses have been reduced where possible. The Company has
entered into an agreement with Sanders Morris Harris, Inc., an investment
banking firm, to raise $12 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 client projects. In the
interim, Armstrong has agreed to support the Company's efforts to obtain
short-term working capital to meet its essential business requirements on a
short-term basis, and has advanced the Company $237,500 as of June 30, 2001
under an interest-bearing note arrangement. The notes matured in August 2001,
and the maturity date was extended to October 15, 2001.
Management believes that, in order to attract and finance additional projects,
which may include the acquisition of client energy facilities, significant
amounts of new debt facilities and/or 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 cannot be
certain that it will be successful in efforts to raise such new funds.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("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
16
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. 138, 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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB
101 summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company's adoption of SAB 101 did not have an effect on its financial
statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which is effective for years beginning after December 15, 2001. Under
the new pronouncement, other intangibles will continue to be amortized over
their respective useful lives. Early adoption is permitted for companies with
fiscal years beginning after March 15, 2001, provided that the first quarter
financial statements have not been issued. The Company does not believe that the
adoption of this SFAS will have an effect on its financial statements.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements and the report of Blackman Kallick
Bartelstein LLP, independent auditors, with respect thereto, referred to in the
Index to Financial Statements, appear elsewhere in this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Form 8-K filed with the Securities and Exchange Commission on July 7, 2000
and the disclosures made therein under Item 4. are incorporated herein by
reference. There were no disagreements with accountants on accounting and
financial disclosures during the fiscal year ended June 30, 2001.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors consists of a total of seven members, whose term of
office is the earlier of one-year or until their successor is elected. The
following table sets forth information concerning executive officers and
directors of the Company, including their ages and positions with the Company as
of September 1, 2001:
17
Name Age Position
---- --- --------
Mark A. Margason 45 Chairman of the Board of Directors and
Chief Executive Officer
Gordon B. Mendelson 57 Chief Operating Officer, President,
and Director
Douglas V. Bloss 43 Director
Theodore Bogard 47 Director
Don A. Etheredge 51 Director
James F. Purser 51 Director
Thomas W. Smith 43 Director
Tom F. Perles 57 Chief Accounting Officer
Mark A. Margason was elected to serve as Chairman of the Board of Directors of
Americas Power Partners, Inc. on April 19, 2001 and Chief Executive Officer of
the Company on June 27, 2001. Mr. Margason previously resigned his position as
Chief Executive Officer of APP on September 12, 2000, but continued as a
Director, which he has served as since the Company's inception. Previously, Mr.
Margason was a Vice President at Citicorp North America from 1986 to 1991, and a
Vice President at Mellon Bank N.A. from 1982 to 1986. He was employed at
American National Bank and Trust Company of Chicago from 1979 to 1982. Mr.
Margason currently is a director of MPI Investment Management, Inc., MPI Venture
Management, LLC, and Livestock Direct, Inc.
Gordon B. Mendelson was appointed to the board of directors on April 19, 2001
and was elected President and Chief Operating Officer on June 14, 2001.
Previously he was Senior Vice President - Finance and Business Development of
Armstrong Service, Inc. from 1999 to 2001 and, in this capacity, he consulted
with APP since January 2001. As an executive with LTV from 1995 to 1998, he lead
a team responsible for developing greenfield manufacturing facilities in China
and Trinidad, as well as being a member of the Iron Carbide Plant (Trinidad)
Operating Board. From 1989 to 1995, he was director of worldwide independent
power at Babcock & Wilcox Company, where his accomplishments included the
purchase and development of several independent power projects totaling 150 MW.
He began his professional career at Westinghouse Electric Corporation in 1966,
where he worked in various managerial positions until 1988 and was responsible
for total contract management of $2 billion of international fossil and nuclear
turnkey power projects. Mr. Mendelson is a member of the Pennsylvania Bar
Association.
Douglas V. Bloss has been a director of APP since September 11, 2000. He is
President of Armstrong Service, Inc., and Director and Corporate Vice President
of Marketing and Sales for Armstrong International, Inc. Mr. Bloss has been
employed with Armstrong International, Inc. in various marketing capacities
since 1980.
18
Theodore Bogard has been a director of APP since its inception and was Vice
President of Project Development of the Company until October 31, 2000. Mr.
Bogard is president of F. Drake and Company, Inc., an independent consulting
firm that specializes in cogeneration projects, bio-mass projects and wind
projects. F. Drake and Company has strategic power development relationships
with Native American Counsels. From 1996 to 1999, he was an officer of a
predecessor company to Americas Power Partners, Inc., responsible for power
development in South America. Prior to 1996, he was a partner in a commercial
real estate development company in Atlanta, Georgia for eight years.
Don A. Etheredge was elected a director of Americas Power Partners, Inc. on June
27, 2001. He presently is President of ExoLink Corporation, which he founded in
1996 and has grown into a profitable business with over 90 employees and
clients. ExoLink Corporation provides transaction and business process services
to trading companies operating in competitive energy markets. Mr. Etheredge has
been actively engaged in assessing, developing and implementing solutions in
both regulated and deregulated utility markets since 1989. He has also provided
information systems consulting services to small and medium sized businesses
engaged in agri-business, oil and gas production, and public accounting.
James F. Purser was elected a director of Americas Power Partners, Inc. on June
27, 2001. Since 1997, Mr. Purser has been an independent financial consultant
and a partner with Tatum CFO Partners, LLP and Chief Financial Officer of Cross
Continent Auto Retailers, Inc., a publicly traded automobile-retailing firm.
Prior to that, Mr. Purser was with Atmos Energy Corporation, where he served in
several capacities including Executive Vice President and Chief Financial
Officer. From 1973 and 1986, Mr. Purser was employed by Southern Union Company,
Inc. as Executive Vice President of Oil & Gas Operations.
Thomas W. Smith was employed as President of APP from May 1999 to June 2001. He
was elected to serve as a director of the Company on September 13, 2000. Since
June 2001, he has been an independent consultant to companies in the energy
field. From 1996 to 1998, Mr. Smith was a partner with Alternative Energy
Consultants and from 1993 to 1995 he was Vice President of Business Development
for Polsky Energy Corporation. Previous experience includes Vice President Sales
and Marketing for U. S. Turbine, Vice President Sales and Marketing of
International Power Technology, and Sales Manager of Westinghouse Electric
Corporation.
Tom F. Perles is Chief Financial Officer of MPI Venture Management, LLC, and has
served as Chief Accounting Officer of Americas Power Partners, Inc. since March
2000. Mr. Perles previously was a financial consultant to computer software and
real estate development companies for ten years. From 1982 to 1990, he was the
chief financial officer and treasurer of Miller Building Systems and controller
of Ball Seed Company. Prior to 1982, Mr. Perles was on the professional staff of
Ernst & Young for 15 years.
19
There are no family relationships between any of the directors or officers of
the Company.
With respect to the other information required by this item, the sections
entitled "Election of Directors - Nominees" and "Section 16(a) Beneficial
Ownership Reporting Compliance" of the Company's Information Statement pursuant
to Section 14(c) of the Securities Exchange Act of 1934 for the Company's Annual
Meeting of Stockholders to be held in February 2002 and to be filed with the SEC
by October 29, 2001, are incorporated by reference herein.
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the total annual
compensation paid or accrued by the Company to or for the account of the chief
executive officer and each other executive officer whose total cash compensation
exceeded $100,000 for any of the past three fiscal years (the Company had no
payroll for the fiscal year ended June 30, 1999):
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------
Name and Other
Principal Position Year Salary Bonus Compensation
------------------ ---- ------ ----- ------------
Mark A. Margason (1) 2001 -- -- $ 43,000
Chairman and CEO 2000 -- -- 130,140
1999 -- -- 30,000
Thomas R. Casten (2) 2001 $174,904 $182,192 --
Chairman and CEO 2000 -- -- --
1999 -- -- --
Gordon B. Mendelson (3) 2001 -- -- --
COO and President 2000 -- -- --
1999 -- -- --
Thomas W. Smith (4) 2001 271,667 -- --
President 2000 160,000 -- --
1999 -- -- --
John K. Leach 2001 176,538 -- --
Vice President and 2000 -- -- --
General Counsel 1999 -- -- --
Tom F. Perles (5) 2001 -- -- --
Chief Accounting Officer 2000 -- -- --
1999 -- -- --
20
Long-term Compensation
-----------------------------------------------
Awards Payouts
------------------------ -------
Securities
Restricted Underlying
Name and Stock Options / LTIP All Other
Principal Position Year Awards SARs Payouts Compensation
------------------ ---- ------ ---- ------- ------------
Mark A. Margason (1) 2001 -- 100,000 -- --
Chairman and CEO
Thomas R. Casten (2)(6) 2001 -- 400,000 -- --
Chairman and CEO
Gordon B. Mendelson (3) 2001 -- 600,000 -- --
COO and President
Thomas W. Smith (4)(6) 2001 -- 341,445 -- --
President
John K. Leach (6) 2001 -- 140,000 -- --
Vice President and
General Counsel
Tom F. Perles (5) 2001 -- 5,000 -- --
Chief Accounting Officer
(1) Mark A. Margason was elected to serve as chief executive officer of the
Company on June 27, 2001. Mr. Margason previously resigned his position as
chief executive officer of the Company on September 11, 2000, but continued
as a director. Mr. Margason was compensated during this period under a
three year Independent Contractor Agreement dated July 1, 1999, which
provided for monthly compensation of $10,000 and an automobile allowance
that amounted to $3,000 and $10,140 in fiscal 2001 and 2000, respectively,
and is included in reported other compensation. The Independent Contractor
Agreement was terminated in November 2000. Effective July 1, 2001, Mr.
Margason's annual compensation was established at $180,000.
(2) Thomas R. Casten was employed September 11, 2000 as chief executive officer
in accordance with the terms of a three year employment agreement with the
Company, which also provided he would be named as a member and the chairman
of the Company's board of directors. Mr. Casten's employment agreement
provided that he was to earn a base compensation during the first year of
$480,000 and a bonus of $500,000 ratably over the period, and that the
salary and bonus, plus interest thereon, would be paid pursuant to a
non-qualified deferred compensation plan. Mr. Casten resigned effective
January 15, 2001, and his employment agreement and the non-qualified
deferred compensation plan were terminated on that date. No obligation to
pay the aforementioned amounts survived the termination.
(3) Gordon B. Mendelson was elected president and chief operating officer on
June 14, 2001, and received no compensation during the fiscal year ended
June 30, 2001. Effective July 1, 2001, the Company entered into an
agreement to lease Mr. Mendelson's services from Armstrong Services, Inc.
at $16,875 per month.
(4) Thomas W. Smith entered into an employment agreement with the Company dated
May 1, 1999, which was superceded by an employment agreement dated
September 18, 2000 and provided that he would be employed as president of
the Company for annual compensation of $280,000. Mr. Smith's contract was
terminated by the board effective June 14, 2001.
(5) Tom F. Perles is chief financial officer of MPI Venture Management, LLC and
serves as chief accounting officer of the Company under a leased employee
arrangement.
(6) Options were forfeited 90 days after the employees' termination of
employment during the fiscal year ended June 30, 2001.
21
The following table sets forth the individual grants of stock options made by
the Company during the fiscal year ended June 30, 2001 to its chief executive
officer and other named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees In Base Price Expiration
Name Granted Fiscal Year ( $ / Share) Date
---- ------- ----------- ------------ ----
Mark A. Margason (1) 100,000 2.54% $1.25 2010
Thomas R. Casten (2) 400,000 10.17% $1.25 2001
Gordon B. Mendelson 100,000 2.54% $0.25 2011
500,000 12.72% $0.50 2011
Thomas W. Smith (2) 341,445 8.68% $1.25 2001
John K. Leach (2) 140,000 3.56% $1.25 2001
Tom F. Perles 5,000 .13% $1.25 2010
(1) Mark A. Margason is a partner in MPI Venture Management, LLC, which was
granted options to purchase 350,000 shares of Common Stock (8.90% of the
total options granted) at $1.25 per share. MPI Venture Management, LLC
subsequently rescinded 250,000 of the aforementioned options (see Item 12.
Certain Relationships and Related Transactions).
(2) Options were forfeited 90 days after the employees' termination of
employment during the fiscal year ended June 30, 2001.
22
The following table summarizes for each of the chief executive officer and other
named executive officers (i) the total number of shares received upon exercise
of stock options during the fiscal year ended June 30, 2001, (ii) the aggregate
dollar value realized upon such exercise, (iii) the total number of unexercised
options, if any, held at June 30, 2001 and (iv) the value of unexercised
in-the-money options, if any, held at June 30, 2001. In-the-money options are
options where the fair market value of the underlying securities exceeds the
exercise or base price of the option. The aggregate value realized upon exercise
of a stock option is the difference between the aggregate exercise price of the
option and the fair market value of the underlying stock on the date of
exercise. The value of unexercised, in-the-money options at fiscal year-end is
the difference between the exercise price of the option and the fair market
value of the underlying stock on June 30, 2001, which was $0.65 per share. With
respect to unexercised, in-the-money options, the underlying options have not
been exercised, and actual gains, if any, on exercise will depend on the value
of the Company's Common Stock on the date of exercise.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
Shares at FY-end at FY-end
Acquired On Value Exercisable/ Exercisable/
Name Exercise Realized Unexcisable Unexcisable
---- ----------- -------- ------------ ------------
Mark A. Margason .......... -- -- 100,000/ 0/
0 0
Thomas R. Casten (1)....... -- -- -- --
Gordon B. Mendelson ....... -- -- 300,000/ $70,000/
300,000 45,000
Thomas W. Smith (1)........ -- -- -- --
John K. Leach (1).......... -- -- -- --
Tom F. Perles ............. -- -- 5,000/ 0/
0 0
(1) Options were forfeited 90 days after the employees' termination of
employment during the fiscal year ended June 30, 2001.
Compensation of Directors
-------------------------
The Company had no arrangements pursuant to which directors receive compensation
for serving as a director or for committee participation at June 30, 2001.
23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of September 30, 2001
regarding the beneficial ownership of the Company's capital stock for (a) each
person known by the Company to own beneficially five percent or more of its
voting capital stock, and (b) each director and executive officer listed in the
Summary Compensation Table (earning in excess of $100,000 annually). Except
pursuant to applicable community property laws and except as otherwise
indicated, each shareholder identified in the table possesses sole voting and
investment power with respect to his or her shares. Unless otherwise indicated,
the address of the beneficial owners is: c/o Americas Power Partners, Inc., 710
North York Road, Hinsdale, Illinois 60521.
Number of Shares Beneficially Owned and Percent of Class
Percent of Percent of
Name and Address of Preferred Preferred Common Common
Beneficial Owner Stock Stock Stock Stock
------------------- --------- --------- ---------- ----------
Five Percent Stockholders:
Armstrong International, Inc.(1) 4,931,230 77.1% 4,931,230 40.9%
2081 S. East Ocean Blvd.
Stuart, FL 34996
Merrill Armstrong (2) 970,183 15.2% 970,183 12.0%
2081 S. East Ocean Blvd.
Stuart, FL 34996
Armstrong International, Inc.
Employees Pension Plan (3) 333,807 5.2% 333,807 4.5%
2081 S. East Ocean Blvd.
Stuart, FL 34996
Boza Management Co. -- -- 435,193 6.1%
6299 Paseo de Republica
Mira Flores, Lima 18 Peru
David W. Pequet (5) -- -- 2,257,233 30.8%
710 North York Road
Hinsdale, IL 60521
MPI Venture Management, LLC (6) -- -- 1,746,737 24.1%
710 North York Road
Hinsdale, IL 60521
Officers and directors:
Douglas V. Bloss (7) 156,488 2.4% 156,488 2.2%
Theodore Bogard -- -- 808,269 11.3%
Thomas R. Casten (4) -- -- -- --
Don A. Etheredge -- -- -- --
John K. Leach (4) -- -- -- --
Mark A. Margason (8) -- -- 2,257,235 30.8%
Gordon B. Mendelson (9) -- -- 302,000 4.1%
James F. Purser -- -- -- --
Thomas W. Smith -- -- 900,000 12.6%
Tom F. Perles -- -- -- --
Officers and directors
as a group (includes
eight individuals) (10)
710 North York Road
Hinsdale, IL 60521 156,488 2.4% 4,423,992 34.8%
24
(1) The shares of Common Stock and percent thereof reported for Armstrong
International, Inc. include 4,931,230 shares of Preferred Stock held by
such person that are convertible within 60 days into an equal number of
shares of Common Stock.
(2) The shares of Common Stock and percent thereof reported for Merrill
Armstrong include 970,183 shares of Preferred Stock held by such person
that are convertible within 60 days into an equal number of shares of
Common Stock.
(3) The shares of Common Stock and percent thereof reported for Armstrong
International, Inc. Employees Pension Plan include 333,807 shares of
Preferred Stock held by such person that are convertible within 60 days
into an equal number of shares of Common Stock.
(4) The indicated individual's employment with the Company has terminated
during the fiscal year ended June 30, 2001.
(5) Shares reported for David W. Pequet include 400,000 shares held by the
Pequet Family Limited Partnership, options for 100,000 shares of Common
Stock, and 1,646,737 shares and options for an additional 100,000 shares in
the name of MPI Venture Management LLC. The general partner of the Pequet
Family Limited Partnership is David W. Pequet.
(6) Messrs. Margason and Pequet are controlling members of MPI Venture
Management, LLC. The shares reported include options for 100,000 shares of
Common Stock.
(7) The shares of Common Stock and percent thereof reported for Douglas V.
Bloss include 156,488 shares of Preferred Stock held by such person that
are convertible within 60 days into an equal number shares of Common Stock.
(8) Shares reported for Mark A. Margason include 410,496 shares held by the
Margason Family Limited Partnership, options for 100,000 shares of Common
Stock, and 1,646,737 shares and options for an additional 100,000 shares in
the name of MPI Venture Management LLC. The general partner of the Margason
Family Limited Partnership is Mark A. Margason.
(9) Shares reported for Gordon B. Mendelson include options for 300,000 shares
of Common Stock.
(10) The shares of Common Stock and percent thereof reported for the officers
and directors as a group include 156,488 shares of Preferred Stock that are
convertible within 60 days into an equal number of shares of Common Stock
and options for 400,000 shares of Common Stock that are exercisable within
60 days.
25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into certain transactions with major shareholders,
directors and officers during the last two most recent fiscal years, which are
summarized in Notes D and H of Notes to Consolidated Financial Statements
included elsewhere in this Form 10-KSB. Furthermore, the Company disposed of
certain assets during the fiscal year ended June 30, 2001 through an agreement
with a former chief executive officer, which transaction is further described in
Note E of Notes to Consolidated Financial Statements.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16 of the Securities Exchange Act of 1934 ("Exchange Act") requires
directors, executive officers, and persons who own more than 10 percent of a
registered class of equity securities to file with the Commission initial
reports of beneficial ownership (Form 3) and reports of changes in beneficial
ownership (Forms 4 and 5) of the Company's Common Stock and other equity
securities. Officers, directors, and greater than 10 percent shareholders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) reports they file.
To the Company's knowledge, all directors, officers, and holders of more than 10
percent of Common Stock filed all reports required by Section 16(a) of the
Exchange Act during the Company's most recent fiscal year, except that the
Company has been unable to confirm that certain of the current and former
directors and officers have completed all filings required by Section 16A.
26
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
The following documents are filed as part of this report:
Independent Auditors' Report
Consolidated Balance Sheets - June 30, 2001 and 2000
Consolidated Statements of Operations - For the Fiscal Years Ended June
30, 2001, 2000 and 1999
Consolidated Statements of Changes in Stockholders' Equity - For the
Fiscal Years Ended June 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - For the Fiscal Years Ended June
30, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
(b) Reports on Form 8-K:
27
No reports on Form 8-K were filed by the Registrant during the fourth
quarter ended June 30, 2001.
(c) Exhibits.
Exhibit
Number Description
------ -----------
3(i) Articles of Amendment to Articles of Incorporation.
10.7 Series B Preferred Stock Purchase Agreement
11. Statement re: computation of per share earnings.
21. Subsidiaries of Issuer
23 Consent of Independent Accountants
28
Independent Auditor's Report
----------------------------
Board of Directors and Stockholders
Americas Power Partners, Inc.
Hinsdale, Illinois
We have audited the accompanying consolidated balance sheets of Americas Power
Partners, Inc. as of June 30, 2001 and 2000 and the related consolidated
statements of operations, changes in 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 audit. The financial
statements of Americas Power Partners, Inc. as of and for the eighteen months
ended June 30, 1999 were audited by other auditors whose report dated October
17, 1999 expressed an unqualified opinion on those statements.
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 consolidated 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 consolidated 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 Americas Power
Partners, Inc. as of June 30, 2001 and 2000, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in Note K to the
consolidated financial statements, the company has incurred significant losses
from operations and has a deficit that raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note K. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Blackman Kallick Bartelstein, LLP
Chicago, Illinois
September 14, 2001
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
June 30
2001 2000
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents - Note B $ 276,687 $ 951,509
Accounts receivable:
Trade 575,445 75,588
Retainer held by bank - Note C 244,937 -
Receivable from related parties - Note H - 548,221
Current portion of net investment in leases - Note D 145,129 108,811
Inventory - fuel oil 95,273 -
Prepaid expenses and deferred contract costs 77,015 27,057
----------- -----------
TOTAL CURRENT ASSETS 1,414,486 1,711,186
EQUIPMENT AND FIXTURES
Computer equipment 119,388 77,013
Office equipment 33,137 29,935
Equipment leased to clients 843,288 56,743
----------- -----------
995,813 163,691
Less accumulated depreciation (75,623) (8,338)
----------- -----------
TOTAL EQUIPMENT AND FIXTURES 920,190 155,353
OTHER ASSETS
Client construction projects in process 868,051 -
Net investment in leases, less current portion - Note D 575,140 488,673
Deposits and fees 32,255 28,703
Deferred rent 151,897 -
Deferred contract costs, net of accumulated
amortization of $248,456 and $1,819 113,813 220,652
----------- -----------
TOTAL OTHER ASSETS 1,741,156 738,028
----------- -----------
TOTAL ASSETS $ 4,075,832 $ 2,604,567
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
1
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
June 30
2001 2000
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 782,711 $ 299,496
Due to related party in connection with client contracts 690,360 655,995
Accrued expenses:
To related party - Note H 286,000 -
Other 4,288 3,432
Notes payable - Note C:
To bank in connection with client construction 1,224,687 -
To related party 237,500 -
Current maturities of long-term debt and capital leases 133,691 8,781
----------- -----------
TOTAL CURRENT LIABILITIES 3,359,237 967,704
LONG-TERM DEBT - net of current maturities - Note C
10.5 % note payable to bank, due May 2005 407,353 -
Capital leases 21,346 13,868
----------- -----------
TOTAL LIABILITIES 3,787,936 981,572
MINORITY INTEREST 257,569 -
STOCKHOLDERS' EQUITY - Notes E, G, H and J
Convertible Preferred Stock, no par value,
10,000,000 shares authorized;
Series A: authorized - 2,725,000 shares;
Issued and outstanding - 2,709,519 shares 3,952,250 3,952,250
Series B: authorized - 3,000,000 shares;
Issued and outstanding - 3,000,000 shares 704,763 -
Common Stock, no par value,
Authorized - 40,000,000 shares;
Shares issued and outstanding - 7,138,100 in 2001,
7,579,600 in 2000 1,983,249 459,700
Retained earnings deficit (6,609,935) (2,788,955)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 30,327 1,622,995
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,075,832 $ 2,604,567
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
2
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30
2001 2000 1999
---- ---- ----
Contract revenues - Note I $ 1,078,951 $ 124,213 $ --
Cost of client services 667,159 106,447 --
----------- ----------- -----------
Gross profit 411,792 17,766 --
Costs and expenses:
Payroll and employee benefits - Note H 1,617,239 476,048 --
Sales development fees - Note H 499,481 -- --
Management and consulting fees - Note H 582,828 685,529 285,507
Write-off project contract costs 109,864 -- --
Financing expense - Note H 355,391 -- --
Other professional fees 223,600 458,830 209,114
General and administrative 786,493 650,204 70,065
----------- ----------- -----------
Total expenses 4,174,896 2,270,611 564,686
----------- ----------- -----------
LOSS FROM OPERATIONS (3,763,104) (2,252,845) (564,686)
Interest income 64,422 29,406 1,702
Interest expense (77,473) (2,532) --
----------- ----------- -----------
Total other income, net (13,051) 26,874 1,702
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (3,776,155) (2,225,971) (562,984)
Minority interest in earnings of limited liability
corporation 44,825 -- --
----------- ----------- -----------
NET LOSS ($3,820,980) ($2,225,971) ($562,984)
=========== =========== ===========
Net loss per share - basic and diluted - Note L ($ 0.46) ($ 0.31) ($ 0.08)
Weighted average number of common
shares outstanding 8,291,393 7,094,321 7,166,477
See accompanying Notes to Consolidated Financial Statements.
3
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
Years Ended June 30, 2001, 2000 and 1999
Convertible Preferred Stock
-------------------------------
Series A Series B Common Stock Retained Total
-------- -------- ------------ Earnings Stockholders'
Shares Amount Shares Amount Shares Amount Deficit Equity
Balance at July 1, 1998 709.7500 $ 100 $ 100
Common Stock issued for cash 44.1694 752,150 752,150
Net loss for year $ (562,984) (562,984)
---------- ------- ---------- -------
BALANCE AT JUNE 30, 1999 753.9194 752,250 (562,984) 189,266
Common Stock (no par value)
of Oak Brook Capital II,
Inc. - Note G 1,228,000
Correction of founders'
shares issued (210.)
Common Stock retired at
time of merger - Note G (543.9194) (752,250) (752,250)
Common Stock issued at
time of merger - Note G 5,439,194 752,250 752,250
Shares issued to founders 1,175,000 11,750 11,750
Shares issued for
compensation and services 35,000 92,500 92,500
Preferred Stock issued and
exchanged for Common
Stock - Note H 2,709,519 $3,952,250 (521,694) (952,250) 3,000,000
Common Stock issued for cash 224,100 555,450 555,450
Net loss for year (2,225,971) (2,225,971)
-------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 2,709,519 $3,952,250 7,579,600 $459,700 $(2,788,955) $1,622,995
See accompanying Notes to Consolidated Financial Statements.
4
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
Years Ended June 30, 2001, 2000 and 1999
Convertible Preferred Stock
--------------------------------
Series A Series B Common Stock Retained Total
-------- -------- ------------ Earnings Stockholders'
Shares Amount Shares Amount Shares Amount Deficit Equity
Balance at July 1, 2000 2,709,519 $3,952,250 7,579,600 $ 459,700 $(2,788,955) $1,622,995
Common Stock issued for:
Cash - Note H 1,600,000 2,000,000 2,000,000
Promissory note - Note H 800,000 1,000,000 1,000,000
Services 137,500 105,500 105,500
Purchase of Common Stock in
exchange for:
Promissory note and
Company assets - Note E (2,899,000) (1,488,714) (1,488,714)
Receivable from
related party - Note H (80,000) (93,237) (93,237)
Preferred Stock issued for
sales development and
financing fees - Note H 3,000,000 $704,763 704,763
Net loss for year (3,820,980) (3,820,980)
-----------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2001 2,709,519 $3,952,250 3,000,000 $704,763 7,138,100 $1,983,249 $(6,609,935) $ 30,327
========= ========== ========= ======== ========== ========== =========== ==========
See accompanying Notes to Consolidated Financial Statements.
5
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30
2001 2000 1999
---- ---- ----
Cash Flows from Operating Activities:
Net loss ($3,820,980) ($2,225,971) ($562,984)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for depreciation and amortization 218,083 10,157 --
Loss on sale of equipment and fixtures 65,325 -- --
Minority interest 44,823 -- --
Preferred Stock issued for sales development
and financing 704,763 -- --
Common Stock issued for compensation and
services - net of Common Stock to be returned
in 2000 valued at $62,500 105,500 104,250 --
Redemption of Common Stock in exchange for assets 103,286 -- --
Change in accounts receivable (36,873) (75,588) --
Change in inventory (95,273) -- --
Change in prepaid expenses and deferred contract costs 23,172 (18,945) --
Change in deferred rent (151,897) -- --
Change in accounts payable 638,893 182,004 117,492
Change in accrued expenses 290,680 3,432 --
----------- ----------- -----------
Total adjustments 1,910,482 205,310 117,492
----------- ----------- -----------
Net cash used in operating activities (1,910,498) (2,020,661) (445,492)
Cash Flow from Investing Activities:
Purchase of equipment and fixtures (96,045) (136,115) --
Purchase of equipment underlying lease agreements (2,048,601) (666,219) --
Proceeds from sale of equipment and fixtures 12,475 -- --
Payments from lessees regarding finance lease receivables 146,424 68,735 --
Decrease (increase) in deposits 29,759 (28,703) --
Payment of deferred contract costs (86,893) (230,483) --
Net repayments from related parties 107,774 --
----------- ----------- -----------
Net cash used in investing activities (2,042,881) (885,011) --
Cash Flow from Financing Activities:
Proceeds from notes payable to banks, net of fees 1,552,442 -- --
Proceeds from note payable to related party 237,500 -- --
Minority interest investment in limited liability company 212,746 -- --
Payments on note payable to bank (85,542) -- --
Payments on capital leases (14,918) (4,927) --
Payments on insurance financing (31,671) -- --
Proceeds from issuance of Common Stock 2,000,000 555,450 752,150
Payment for redemption of Common Stock (342,000) -- --
Payment on note relating to assets exchanged (250,000) -- --
Proceeds from issuance of Preferred Stock -- 3,000,000 --
----------- ----------- -----------
Net cash provided by financing activities 3,278,557 3,550,523 752,150
----------- ----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents (674,822) 644,851 306,658
Cash and cash equivalents at beginning of year 951,509 306,658 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 276,687 $ 951,509 $ 306,658
=========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
6
AMERICAS POWER PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended June 30
2001 2000 1999
---- ---- ----
SUPPLEMENTAL DISCLOSURES
Interest paid $ 73,185 $ 2,532 $ --
Additional non-cash financing and investment activities:
Capital lease obligations for equipment 34,200 27,578 --
Common Stock acquired in exchange for reduction
of receivable from related party (93,237) -- --
Common Stock issued in exchange for promissory note 1,000,000 -- --
Common Stock acquired in exchange for
cancellation of promissory note (1,000,000) -- --
See accompanying Notes to Consolidated Financial Statements.
7
AMERICAS POWER PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 2001, 2000 and 1999
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. 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its 50%-owned limited liability corporation, Armstrong-Americas I, LLC, which
was incorporated early in fiscal 2001. The LLC was formed for the purpose of
holding the Company's interests in certain of the projects relating to its
largest client. The other 50% member of the LLC is the investor in the Company's
Preferred Stock. 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
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States, and, as such, include
amounts based on informed estimates and judgments of management. Changes in such
estimates may affect amounts reported in future periods.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, all short-term investments in
interest-bearing accounts and other instruments with an original maturity of
three months or less are considered to be the equivalent of cash. The Company
maintains all its cash and cash equivalents in bank accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit risk
on its cash and cash equivalents.
8
Inventory
Inventory is valued at the lower of cost or market, using the first-in,
first-out (FIFO) method.
Deferred Contract Costs
Initial direct costs associated with negotiating the Company's contracts are
capitalized and amortized over the life of the respective agreements.
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 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 maintains
as inventories is recognized as the products are delivered. The Company grants
credit to all of its customers.
Equipment and Fixtures
Equipment and fixtures, including capitalized equipment acquired by leases and
improvements that significantly add to productive capacity or extend useful
life, are recorded at cost. Depreciation expense, including the amortization of
capital lease assets, is calculated for financial reporting purposes using the
straight-line method based on the estimated useful lives of the assets as
follows: computer equipment (including software) - five years; office equipment
- seven years; equipment leased to clients - the respective lease period.
Per Share of Common Stock
Income (loss) per common share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding during the period. When
dilutive, stock options, warrants and convertible Preferred Stock are included
as share equivalents using the treasury stock method in the calculation of
diluted earnings per share. For fiscal 2001, 2000 and 1999, the diluted loss per
share computation was antidilutive; therefore, the amount reported for basic and
diluted loss per share is the same.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("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
9
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. 138, 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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company's adoption of SAB 101 did not have an effect on its financial
statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which is effective for years beginning after December 15, 2001. Under
the Statement, other intangibles will continue to be amortized over their
respective useful lives. Early adoption is permitted for companies with fiscal
years beginning after March 15, 2001, provided that the first quarter financial
statements have not been issued. The Company does not believe that the adoption
of this SFAS will have an effect on its financial statements.
NOTE B - CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
June 30
-------
2001 2000
Cash $ (63,351) $ 622,874
Money market accounts 340,038 328,635
--------- ---------
$ 276,687 $ 951,509
========= =========
NOTE C - NOTES 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 10.5% per annum.
Armstrong-Americas I, LLC ("LLC"), the Company's 50%-owned limited liability
corporation, has signed four interim promissory notes with a bank, totaling
$1,224,687, which provide for the eventual sale to the bank of the equipment
previously purchased from a client, along with certain improvements to be made
to the facilities. The notes provide for monthly interest payments computed at
the bank's prime rate and mature on September 30, 2001; however, the Company and
the bank currently are negotiating to extend the term of the agreement. The LLC
has received 80% of the value of the notes and will continue to finance with
similar obligations approximately $2,300,000 in planned improvements as they are
installed at the client facility. Upon completion of
10
the project, the LLC will lease the energy generation facility from the bank
under a master lease arrangement.
During the fourth quarter of fiscal 2001, the Company borrowed $237,500 for
working capital purposes from a company that is the investor in the Company's
Preferred Stock. The loans are evidenced by notes that mature in August 2001
(subsequently extended to October 15, 2001) and bear interest at prime plus 2%.
Annual maturities for the Company's long-term debt for the next four fiscal
years are as follows:
Year Ending June 30
2002 $ 113,106
2003 125,752
2004 139,755
2005 141,846
The LLC has a line of credit with a bank in the amount of $500,000 which expires
November 22, 2001, and is expected to be renewed. The investor in the Company's
Preferred Stock guarantees the line and interest on borrowings under the line is
computed at .5% above the bank's prime rate.
NOTE D - LEASES
Equipment Leased to Others
At June 30, 2001, the Company leased equipment to two clients under optimization
and service agreements that meet the criteria of a financing lease and to other
clients for which the respective agreements are classified as operating leases,
one of which provides for contingent rentals based on cost savings realized.
Future minimum lease payments receivable under financing leases and
non-cancelable operating leases as of June 30, 2001 and the net investment in
the financing leases on that date are as follows:
Financing Operating
Year Ending June 30 Leases Leases *
------------------- ------ --------
2002 $ 226,704 $ 445,736
2003 226,704 445,736
2004 226,704 445,736
2005 157,969 445,736
2006 61,740 445,736
Thereafter 61,740 4,411,652
--------- ----------
961,561 $6,640,332
==========
Less unearned interest income 241,292
----------
Net investment in financing leases $ 720,269
==========
* Principally represents one lease associated with the Company's largest client
(see Note A).
11
Accumulated depreciation on equipment leased to clients was $46,620 at June 30,
2001 and $1,618 at June 30, 2000. Contingent rentals included in income from an
operating lease were $3,048 and $1,883 during the fiscal years ended June 30,
2001 and 2000, respectively.
Office Space and Equipment Leased from Others
The Company has entered into leases for computer equipment that are classified
as capital leases and certain other leases for office space and a vehicle that
are operating leases. At June 30, 2001, the future minimum lease payments under
these leases are as follows:
Operating Capital
Year Ending June 30 Leases Leases
------------------- ------ ------
2002 $ 13,584 $ 23,936
2003 12,337 17,313
2004 6,101 5,466
2005 6,101 -
2006 2,034 -
-------- --------
Total minimum lease payments $ 40,157 46,715
========
Less amounts representing interest 4,784
--------
Present value of net minimum lease payments 41,931
Less current maturities 20,585
--------
Long-term capital lease obligations $ 21,346
========
Rental expense incurred for operating leases was $124,279, $44,300 and $624 for
the years ended June 30, 2001, 2000 and 1999, respectively. During fiscal 2001,
the Company initiated a five-year corporate office lease with a related-party
management consulting firm owned by two directors (see Note H), which provides
for annual rentals of $122,500 plus annual increases equal to the greater of 3%
or the annual increase in the Consumer Price Index. The Company received $11,000
in office sub-rental income from a transaction further described in Note E. As
discussed in Note H, this office lease was cancelled effective June 30, 2001,
and a reduced amount of space will be rented on a month-to-month basis.
NOTE E - 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:
. 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
12
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.
. 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 (which
were effective with his employment in September 2000 - see Note H)
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.
. Provisions for cooperation between the two companies on certain
future joint projects, as well as non-compete provisions on others.
NOTE F - INCOME TAXES
The deferred tax assets, net of valuation allowances, in the accompanying
balance sheets includes the following components:
June 30
-------
2001 2000
Deferred tax assets $ 2,465,414 $ 1,171,615
Deferred tax asset valuation allowance (2,465,414) (1,171,615)
------------ -------------
Net deferred tax assets $ - $ -
============ =============
The Company has loss carryforwards totaling $6,326,492 that may be offset
against future taxable income. If not used, the carryforwards will expire as
follows:
Year Ending June 30
-------------------
2019 $ 115,140
2020 2,302,299
2021 3,909,053
-----------
$ 6,326,492
===========
Deferred tax assets are comprised of net operating loss carryforwards, fixed
assets, deferred rent and capital leases.
The income tax provision differs from the expense that would result from
applying federal statutory rates to income (loss) before income taxes because
the aforementioned valuation allowance has been provided to reduce the deferred
tax assets to the amount that is more likely than not to be realized.
13
NOTE G - 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 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 H - RELATED PARTY TRANSACTIONS
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 provided 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 G, plus 550,000 shares of the Company's Common Stock. This contract was
amended in fiscal 2001 to provide for a monthly consulting fee, effective
January 1, 2001, of $25,000 cancelable by either party on 30-days notice, and
the agreement was subsequently terminated effective June 30, 2001.
The Company also entered into independent contractor agreements on July 1, 1999
with three individuals who were officers and directors of the Company. These
agreements provide 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, plus an automobile allowance.
These contracts were voluntarily cancelled in November 2000.
On November 13, 2000, the board of directors of the Company approved the report
of a special committee of the board which was appointed 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. Among other
matters, the report authorized the following:
. Under the contract referred to above, the Company had paid during the
year ended June 30, 2000 a consulting fee of $300,000 in connection
with the raising of preferred equity and fees of $205,770 relating to
the reverse merger discussed in Note G. However, the board found that
a provision of the Preferred Stock Purchase Agreement did not allow
the Company to pay a fee on that issue, and, accordingly, the Company
was entitled to recover $300,000, which amount was accrued as of June
30, 2000.
14
The Company was reimbursed for this amount in fiscal 2001.
. The board agreed to renegotiate payments for past services, and amend
and extend the contract with the related party consulting firm referred
to above. In consideration of this, the consulting firm agreed to
reduce its past consulting fees by $306,639, the recovery of which the
Company accrued at June 30, 2000.
On April 19, 2001, the board agreed to forgive the outstanding balance
of the aforementioned receivable from the related party consulting firm
in consideration for cancellation of past due rent on the Company's
corporate office space (see Note D), early termination of the related
office lease, and the cancellation of 250,000 options for Company stock
owned by the firm.
. The employment contract of another officer/director was renegotiated,
resulting in a receivable to the Company of $93,237.
This amount was satisfied in fiscal 2001 by the transfer of 80,000
shares of Common Stock to the treasury.
During the fiscal years ended June 30, 2001, 2000 and 1999, the Company incurred
the following expense (net of recoveries in fiscal 2000 referred to above) in
connection with the aforementioned consulting agreements:
Years Ended June 30
-------------------
2001 2000 1999
Management consulting fees and expenses $ 276,466 $ 163,480 $ 130,833
Consulting regarding merger - 205,770 75,000
Independent contractor fees 84,500 353,000 135,707
Write-off of receivable from related party 298,402 - -
--------- --------- ---------
TOTAL $ 659,368 $ 722,250 $ 341,540
========= ========= =========
On January 31, 2000, the Company issued 2,709,519 shares of its Series A
Preferred Stock to a company, and certain of that company's officers and an
affiliate, with which Americas Power Partners, Inc. has entered into
"partnering" arrangements when signing certain contracts with its clients. In
exchange for the Preferred Stock, the Company received 521,694 shares of its
previously issued Common Stock, plus $3 million in cash. The Series A Preferred
Stock Purchase Agreement provides that the Series A Preferred Stock is
convertible into the Company's Common Stock at a conversion price ($1.16634 at
June 30, 2001) that ensures that, upon conversion, the previous preferred
stockholders retain the same 21.55% Common Stock ownership interest upon the
issuance of an additional $2 million in Common Stock and/or equivalents, as
existed at the time the Agreement was signed. Each share of Series A Preferred
Stock will automatically convert into Common Stock, if not previously converted,
on the earlier of January 31, 2005 or a change in control of the investor
company.
15
On June 28, 2001, the board of directors approved an amendment to the Company's
Articles of Incorporation authorizing the issuance of 3 million shares of Series
B Preferred Stock and the signing of the Series B Preferred Stock Purchase
Agreement on that date with the same investor referred to above, in exchange for
sales development and financing costs (relating to loans and guarantees) valued
at $468,000 and $236,763, respectively. The terms of the Series B Preferred
Stock Purchase Agreement are similar to the aforementioned Series A agreement,
except the anti-dilution provision provides that the Series B preferred
stockholders retain the same19.6% Common Stock ownership interest upon the
issuance of common shares and/or equivalents aggregating at least $5 million
through February 28, 2002 as existed at the time the Agreement was signed, and
the automatic conversion provision is effective, if not previously converted, on
the earlier of June 28, 2006 or a change in control of the investor company.
Optimization and monetization projects that the Company performed for its
clients during the fiscal years ended June 30, 2001 and 2000 included $1,410,383
and $693,434, respectively, of material and services acquired from the
aforementioned investor company.
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 E regarding the subsequent
termination of these agreements in January 2001.
At June 30, 2001, the Company accrued the future payroll and benefit costs of
$286,000 associated with the employment contract of a former officer/director.
NOTE I - CUSTOMER CONCENTRATION
Sales to each of the Company's two largest customers amounted to 47.8% and 30.2%
of total sales for the year ended June 30, 2001 and 69.4% and 30.6% for the year
ended June 30, 2000. The two largest trade receivable balances were 73.2% and
17.2% of total customer receivables at June 30, 2001 and 57.6% and 42.4% at June
30, 2000.
NOTE J - STOCK OPTIONS
The Company has granted stock options to certain key employees and consultants
in connection with the 2000 Equity Incentive Plan ("Plan"), which provides for
the grant of incentive stock options, nonqualified stock options, restricted
stock options and other stock awards. Under the Plan, a maximum of 3,500,000
options to purchase shares may be granted at prices not less than 100% of the
fair market value of the Common Stock subject to option on the date of grant.
The
16
vesting terms range from immediate to two and five years. The following
summarizes the options granted, forfeited and outstanding during the year ended
June 30, 2001:
Number Weighted Average
of Shares Exercise Price
--------- --------------
Outstanding at
beginning of year - -
Options granted 2,731,746 $ 1.25
Options granted 1,100,000 .50
Options granted 100,000 .25
Options forfeited (1,789,101) $ 1.25
-----------
Outstanding at
end of year 2,142,645 $ 0.82
=========
Exerciseable at
end of year 1,248,400 $ 0.93
=========
In addition, 620,045 of the options granted in fiscal 2000 will be forfeited
prior to September 30, 2001 based on employee terminations prior to June 30,
2001 and the market price of the Company's Common Stock.
The options outstanding and exercisable by price range as of June 30, 2001 were
as follows:
Options Outstanding Options Exercisable
---------------------------------------------------------------- -------------------
Weighted
Outstanding Average Weighted Weighted
Range of as of Remaining Average Average
Exercise Prices June 30, 2001 Contractual Life Exercise Price Shares Exercise Price
$ 0.25 100,000 3.00 $ 0.25 100,000 $ 0.25
0.50 1,100,000 4.31 0.50 400,000 0.50
1.25 942,645 5.02 1.25 748,400 1.25
--------- ---- ------ --------- ------
2,142,645 4.56 $ 0.82 1,248,400 $ 0.93
========= ==== ====== ========= ======
The Company has elected to continue to account for stock-based compensation
using the intrinsic value method under Accounting Principles Opinion No. 25,
Accounting for Stock Issued to Employees. Consequently, compensation expense for
employees and consultants relative to stock issuances represents the excess, if
any, of the fair market value of the stock at grant date or other measurement
date over the amount an employee must pay to acquire the stock. If compensation
expense for the Company's stock options issued in the fiscal year ended June 30,
2001 had been determined based on the fair value method of accounting, as
defined in Statement of Financial Accounting Standards No, 123, Accounting for
Stock-Based Compensation, the Company's net loss and net loss per share would
have increased, as indicated in the following pro forma amounts:
Net loss - as reported $(3,820,980)
Net loss - pro forma $(4,633,346)
Net loss per share - as reported:
Basic and diluted $ (0.46)
Net loss per share - pro forma:
Basic and diluted $ (0.56)
The fair value of issued stock options is estimated on the date of grant using
the Black-Scholes Option Pricing Method with the following assumptions:
Expected dividend yields 0.00%
Expected stock price volatility 2.53%
Risk-free interest rates 9.38 - 12.0%
Expected life of options (in years) 2-7
The weighted average fair value of the options granted was $0.74 for the year
ended June 30, 2001.
17
NOTE K - LIQUIDITY
Since its inception, the Company has incurred a net loss of $6,609,935 and at
June 30, 2001 it has a working capital deficiency of $1,944,751. In light of
current results of operations and cash flow, the Company recently has relied on
advances from and Preferred Stock issued to a related party firm to finance its
operations and sales development activities. In addition, client projects are
anticipated to require substantial capital investment and additional third-party
financing. The Company has retained a financial advisor and presently is seeking
to raise $12 million in private equity from one or more institutional investors.
Management believes proceeds from the equity offering would provide the
Company's capital requirements to develop various client projects and meet its
working capital requirements.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. While the Company is
expending its best efforts to consummate the above equity offering, there can be
no assurance that it will be successful in this regard. The aforementioned
losses and deficit raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
NOTE L - PER SHARE RESTATEMENT
The basic and diluted net loss per share for the year ended June 30, 2000 has
been restated to exclude the antidilutive common stock equivalents previously
included in the calculation. The net effect of this restatement increased the
previously reported net loss per share for the year ended June 30, 2000 by
$0.04.
18
SIGNATURES
Pursuant to 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 thereunto duly authorized.
AMERICAS POWER PARTNERS, INC.
Date: October 31, 2001 /s/ Mark A. Margason
-----------------------------
Mark A. Margason
Chairman of the Board and
Chief Executive Officer
October 31, 2001 /s/ Tom F. Perles
-----------------------------
Tom F. Perles
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title
/s/ Mark A. Margason Chairman of the Board and Chief
--------------------------- Executive Officer and Director
Mark A. Margason (Principal Executive Officer)
/s/ Gordon B. Mendelson Chief Operating Officer, President
--------------------------- and Director
Gordon B. Mendelson
/s/ Douglas V. Bloss Director
---------------------------
Douglas V. Bloss
/s/ Theodore Bogard Director
---------------------------
Theodore Bogard
Director
----------------------------
Don A. Etheredge
Director
-----------------------------
James F. Purser
Director
-----------------------------
Thomas W. Smith
/s/ Tom F. Perles Chief Accounting Officer
------------------------------
Tom F. Perles