UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: September 30, 2002
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Commission file Number: 0-24989
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AMERICAS POWER PARTNERS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Colorado 05-0499526
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(State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identification Number)
710 North York Road, Hinsdale, IL 60521
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(Address of Principal Executive Offices) (Zip code)
(630) 325-9101
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date: Common Stock, no par value -
7,138,100 shares as of September 30, 2002.
Transitional Small Business Disclosure Format: YES [_] NO [X]
PART I - FINANCIAL INFORMATION
Disclosure Regarding Forward-Looking Statements
This Quarterly Report on Form 10-QSB includes historical information as well as
statements regarding the Company's future expectations which may constitute
"forwarding-looking statements" within the meaning of the Securities Act of 1933
and the Securities Act of 1934, as amended 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 Quarterly 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 - FINANCIAL STATEMENTS
AMERICAS POWER PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 401,947
Accounts receivable:
Trade 1,058,072
Retainer held by bank 576,060
Current portion of net investment
in finance leases 360,808
Reserve for doubtful accounts (254,337)
Inventory 95,273
Prepaid expenses and other current assets 24,896
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TOTAL CURRENT ASSETS 2,262,719
FIXED ASSETS
Leased equipment 3,929,169
Office equipment and leasehold improvements 119,390
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4,048,559
Accumulated depreciation (170,078)
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TOTAL FIXED ASSETS 3,878,481
OTHER ASSETS
Construction in process 60,821
Net investment in finance leases
less current portion 2,317,888
Deposits and deferred costs net of amortization 673,306
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TOTAL OTHER ASSETS 3,052,015
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TOTAL ASSETS $ 9,193,215
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See accompanying Notes to Consolidated Financial Statements.
AMERICAS POWER PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 2002
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable $1,240,837
Due to related parties 1,447,523
Accrued expenses:
Related party 64,114
Other 49,996
Notes payable:
Interim construction loan 2,047,868
Related party 960,500
Current maturities of long-term debt
and capital leases 391,363
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TOTAL CURRENT LIABILITIES 6,202,201
LONG-TERM OBLIGATIONS
Debt 243,345
Capital lease 3,440,115
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TOTAL LONG-TERM OBLIGATIONS 3,683,460
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TOTAL LIABILITIES 9,885,661
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MINORITY INTEREST 326,630
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STOCKHOLDERS' (DEFICIT) EQUITY
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
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;
Issued and outstanding - 7,138,100 shares 1,983,249
Accumulated deficit (7,659,338)
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TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (1,019,076)
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TOTAL LIABILITIES AND
STOCKHOLDERS' (DEFICIT) EQUITY $9,193,215
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See accompanying Notes to Consolidated Financial Statements.
AMERICAS POWER PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended September 30,
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2002 2001
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Revenues provided by services $3,023,618 $1,171,424
Costs of services 2,682,840 1,065,740
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Gross Profit 340,778 105,684
Costs and Expenses:
Payroll and employee benefits 171,716 177,646
General and administrative 17,427 183,102
Depreciation expense 63,857 10,554
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Total Expenses 253,000 371,302
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PROFIT (LOSS) FROM OPERATIONS 87,778 (265,618)
Other items:
(Loss) on disposition of assets and other (22,363) -
Interest income 7,661 11,212
Interest (expense) (106,521) (37,198)
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TOTAL OTHER (EXPENSE) INCOME (121,223) (25,986)
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LOSS BEFORE MINORITY INTEREST (33,445) (291,604)
Less minority shareholder's interest in earnings
of limited liability corporation 63,818 35,326
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NET PROFIT (LOSS) ($97,263) ($326,930)
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Net loss per share - basic and diluted ($0.01) ($0.05)
Weighted average number of common
shares outstanding 7,138,100 7,138,100
See accompanying Notes to Consolidated Financial Statements.
AMERICAS POWER PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended September 30,
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2002 2001
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Cash flow from operating activities:
Net loss $ (97,263) $ (326,930)
Adjustments to reconcile net loss
to net cash used in operations:
Provision for depreciation and amortization 63,857 34,321
Provision for doubtful accounts (55,059) -
Loss on disposition of equipment 22,363 -
Minority interest's profit 63,818 35,326
Change in accounts receivable and
net investment in finance leases 39,499 78,009
Change in prepaid expenses and deferred items (249,023) (26,829)
Change in accounts payable 32,437 (132,494)
Change in accounts payable to related party (278,222) -
Change in accrued expenses 17,175 (62,039)
Change in deferred revenue (56,443) (21,946)
Other, net (3,715) -
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Total adjustments (403,313) (95,652)
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Net cash used in operations (500,576) (422,582)
Cash flow from investing activities:
Purchase of fixed assets (60,821) (125,344)
Payments from lessees under finance leases 209,091 56,676
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Net cash generated (used) in investing activities 148,270 (68,668)
Cash flow from financing activities:
Proceeds from bank financings 624,693 106,660
Proceeds from notes payable to related party - 388,000
Repayment of obligation to related party (305,841) -
Repayment of debt obligations (111,775) (35,486)
Distribution to minority shareholder (150,000) -
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Net cash generated from financing activities 57,077 459,174
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Net decrease in cash (295,229) (32,076)
Cash at beginning of period 697,176 276,687
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Cash at end of period $ 401,947 $ 244,611
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See accompanying Notes to Consolidated Financial Statements
AMERICAS POWER PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
Americas Power Partners, Inc. (the "Company") was incorporated in April 1998
with a charter to provide on-site utilities for industrial, commercial and
institutional customers. The Company intends to become a leading independent
power producer engaged in the business of developing, acquiring, owning and
managing the operation of energy systems, including existing facilities and
cogeneration plants which produce electricity and thermal energy for sale under
long-term contracts. These contracted projects, each anticipated to range from
approximately 5 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. The Company
seeks long-term all-requirements contracts generally in the range of 12 to 25
years for energy and utility services.
The Company employs and partners with on-site utility specialists whose skills
include design, operation and financing of combined heat and power generation,
waste heat recovery, thermal and electrically based cooling/refrigeration,
steam, electric, chilled water distribution, energy storage, measurement,
automation, process water treatment, wastewater treatment and pollution control.
The Company has formed strategic alliances with 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. 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 (the
"LLC"). The LLC owns the Company's interests in assets relating to power plant
system projects in place or in progress for the Company's largest customer. The
other member of the LLC is Armstrong Service Inc. ("ASI"), a wholly owned
subsidiary of Armstrong International ("Armstrong"), an 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 in consolidation.
Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to SEC rules and regulations;
nevertheless, the Company believes that the disclosures are adequate to make the
information presented not misleading.
The interim financial information presented in the accompanying consolidated
financial statements reflects all adjustments which are, in the opinion of
management, necessary to present the consolidated financial position of the
Company as of September 30, 2002 and the results of its operations and cash
flows for the three months then ended. Results shown for interim periods are not
necessarily indicative of the results for a full fiscal year. These interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report of Form 10-KSB for the fiscal year ended June 30, 2002.
Change in Accounting Treatment
Beginning in April 2002, the Company began to account for certain billings for
operations and maintenance costs and utilities costs differently than it had
prior to that time. The Company has elected to reclassify those billings to its
customers as revenue and to expense costs incurred for those services as costs
of services. Prior to April 2002, it had been the Company's policy to net these
revenues and costs with the resultant amount, if any, included as revenue or
expense as the case may be. The Company believes that this method of recognizing
revenue and expense more accurately reflects the operations of the business. As
a result of this prior year reclassification, the Statement of Operations for
the three months ended September 30, 2001 has been restated. Both revenues and
costs of services have been increased by $983,309 (which includes approximately
$110,000 for operations and maintenance costs and approximately $873,000 for
utilities costs) to give effect to this change. The net loss reported for
September 30, 2001 has not been affected by this change.
Revenue Recognition
Most of the revenue recognized by the Company is earned pursuant to energy
service and utility requirement agreements as well as operations and maintenance
agreements that the Company executes with its customers. The Company evaluates
the terms of these agreements individually to determine the applicable
accounting treatment. Utilities and operations and maintenance revenue are
recognized as they are earned. To the extent that these agreements provide for
fixed minimum payments and terms, they are accounted for as leases. To the
extent that an agreement provides 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 (SFAS 13"), 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 agreements that qualify
as operating leases under SFAS 13 is recorded on a straight-line basis over the
term of the contract. The Company grants credit to all of its customers.
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 the three months ended September 30, 2002 and
2001, the diluted loss per share computation was anti-dilutive; therefore, the
amount reported for basic and diluted loss per share is the same.
NOTE B - NOTES PAYABLE
In June 2002, the Company entered into a "sale and leaseback" of one of its
power plant equipment projects with a bank. The assets were sold for $3,800,000
resulting in a loss of approximately $17,000. This loss has been deferred and is
being amortized over the life of the lease. No cash was realized from the sale
as the initial purchase of the assets by the Company had previously been
financed in the same amount by the same bank using interim notes. As of
September 30, 2002, 92 monthly rent payments of $44,290 remained with a balloon
payment of $1,140,000 due after the last payment. The Company has accounted for
the leaseback portion of the transaction as a capital lease obligation. The
interest rate implicit in the lease is 7.7% per annum. The assets are included
in Leased Equipment and the capital lease obligation is included in Long-term
obligations on the Condensed Consolidated Balance Sheet of the Company.
The LLC has signed interim promissory notes with a bank, totaling $2,047,868,
which provide for the eventual sale to the bank of the equipment previously
purchased from a customer along with certain improvements being made to the
facilities where this equipment is located. The notes provide for monthly
interest only payments computed at the bank's prime rate. The LLC has received
72% of the value of the notes and expects to continue to finance approximately
$1.95 million more in additional planned improvements using similar interim note
financing.
The Company has borrowed $810,500 for working capital purposes from a company
that is the investor in the Company's Preferred Stock. In addition, the LLC has
borrowed $150,000 from the same investor. Both loans are evidenced by notes that
mature on December 15, 2002 and bear interest at prime plus 2%.
The Company has a loan from a bank with a principal balance of $378,443 as of
September 30, 2002. This loan is being used to finance an optimization project.
During the third quarter the loan was re-financed and the interest rate was
reduced from 10.5% p.a. to 5.75% p.a. Monthly payments of $12,798 are due under
this loan. There are 32 monthly payments remaining.
NOTE C - LIQUIDITY
Since its inception in April 1998, the Company has incurred aggregate net losses
of $7,659,338. At September 30, 2002, the Company has a working capital
deficiency of approximately $3,939,000. But $2,472,000 (approximately 40% of
current liabilities) of this deficit is attributable and due to related parties
that are also significant investors in the Company's preferred stock. In
addition, $2,047,868 of interim construction notes are technically classified as
current liabilities. These notes are not expected to be called by the Bank in
the next year. Rather, the Company has definitive plans to re-finance and/or
convert these notes into long-term obligations later in fiscal 2003.
Notwithstanding these mitigating factors, the Company, nevertheless, has been
forced to rely in part on advances from a related party and distributions from
the LLC to finance its operations and sales development activities. Future
projects are anticipated to require debt financing and equity capital
investment. Historically, the Company has not had difficulty finding bank
financing for its projects as the cash flow coverage relative to the loans have
been adequate to induce lenders to finance the Company's projects on a long term
basis. The Company has actively been searching for and has identified certain
potential strategic partners. In addition, the Company has made specific plans
and is attempting to execute a thermal and electrical generation acquisition
strategy to increase its future cash flow. In connection therewith, as of
September 30, 2002, the Company has made a $250,000 deposit on a co-generation
facility that the Company expects to purchase by December, 2002. This
transaction would likely generate considerable future cash flow for the Company.
If this transaction fails to be consummated, the Company could lose this deposit
under certain circumstances. The deposit is included in Deposits and deferred
costs net or amortization in the accompanying Condensed Consolidated Balance
Sheet
The Company is confident that it will be able to execute its plans and be able
to attract and retain strategic and equity partners, but there can be no
assurance that it will do so.
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company is
expending its best efforts to consummate the raising of equity capital. But
there can be no assurance that it will be successful in doing so. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the historical
financial information and the notes thereto included in Item 1 of this Quarterly
Report.
During the three months ended September 30, 2002, the Company incurred a net
loss of $97,263 compared to a net loss of $326,930 for the corresponding prior
year period.
Revenues and Costs of Services: Revenues and costs of services in the three
months ended September 30, 2002 increased approximately $1,852,000 and
$1,617,000, respectively over the same period last year. This resulted in an
approximate $235,000 increase in gross profit from $106,000 in the quarter ended
September 30, 2001 to $341,000 in the quarter ended September 30, 2002. This
increase is due to the Company adding two more significant energy monetization
contracts. One was added in October 2001 and the other was added in April 2002.
Payroll and employee benefits expense: Payroll and employee benefit expenses
decreased approximately $6,000 for the three months ended September, 2002
compared to the corresponding period of the prior fiscal year. The decrease can
be attributed to a reduction in personnel
General and administrative expenses: This category decreased approximately
$166,000 during the quarter ended September 30, 2002 compared to the quarter
ended September 30, 2001. Virtually every category of expense declined. However,
the major decreases included a decrease in the provision for doubtful accounts
of approximately $55,000, a reduction of $45,000 in investment banker fees, a
reduction in travel expenses of approximately $19,000 and a reduction in
equipment rental of approximately $12,000.
Depreciation expense: Depreciation increased approximately $53,000 during the
quarter ended September 30, 2002 versus the same period in 2001. During the
quarter ended September 30, 2002, the Company depreciated a $3.8 Million project
that had been installed over a period from September 2000 to May 2002. During
that time, costs attributable to this project had been recorded as construction
in progress on the Company's balance sheet, however, no depreciation expense was
recognized until the project was completed in June 2002.
Loss on Disposition of Assets: During the quarter ended September 30, 2002, the
Company recorded a loss from a disposition of certain leased telephone equipment
assets. Those assets were returned to the lessor and the remaining lease
obligation repaid during the quarter.
Interest Income: Interest income decreased approximately $3,500 in the
three-month period ended September 30, 2002 over the corresponding prior year
period as a result of the lower cash balances available in the current fiscal
quarter.
Interest Expense: Interest expense for the quarter ended September 30, 2002
period increased approximately $69,000 as a result of increased borrowings. The
Company's outstanding debt increased from approximately $2.5 Million as of
September 30, 2001 to $7.1 Million as of September 30, 2002.
Liquidity and Capital Resources Since its inception in April 1998, the Company
has incurred aggregate net losses of $7,659,338. However, approximately
$6,610,000 of these losses occurred during the first 27 months of the Company's
operations from April 1998 through June 2001. Only approximately $1,049,000 of
these losses have occurred in the last 15 months of the Company's operations.
At September 30, 2002, the Company has a working capital deficiency of
approximately $3,939,000. But $2,472,000 (approximately 40% of current
liabilities) of this deficit is attributable and due to related parties that are
also significant investors in the Company's preferred stock. In addition,
$2,047,868 of interim construction notes are technically classified as current
liabilities. But, these notes are not expected to be called by the bank in the
next year. Rather, the Company has definitive plans to re-finance and/or convert
these notes into long-term obligations later in fiscal 2003.
Notwithstanding these mitigating factors, the Company, nevertheless, has been
forced to rely in part on advances from related parties to finance its
operations and sales development activities. Future projects are anticipated to
require debt financing and equity capital investment. Historically, the Company
has not had difficulty finding bank financing for its projects as the cash flow
coverage relative to the loans have been adequate to induce lenders to finance
the Company's projects on a long term basis. The Company has actively been
searching for and has identified certain potential strategic and equity
partners. In addition, the Company has made specific plans and is attempting to
execute a thermal and electrical generation acquisition strategy to increase its
future cash flow. The Company is confident that it will be able to execute its
plans and be able to attract and retain strategic and equity partners. But,
there can be no assurance that it will do so.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." In June
2000,the FASB issued SFAS No. 138, "Accounting for Derivative Instruments and
Certain Hedging Activities an amendment of SFAS No. 133," (SFAS No. 138), which
was required to be adopted in years beginning after June 15, 2000. One of the
primary amendments to SFAS No. 133 establishes a "normal purchases and normal
sales" exception. This exception permits companies to exclude contracts, which
provide for the purchase or sale of something other than a financial derivative
instrument that will be delivered in quantities that are expected to be used or
sold by the entity over a reasonable period of time in the normal course of
business operations. The adoption of SFAS No.
133 as amended by SFAS No. 138 will not have an impact on the financial
statements, as the Company does not currently hold any derivative instruments.
In July 2001, the FASB issued SFAS No. 142, " Goodwill and Other Intangible
Assets," effective for years beginning after December 15, 2001. Under the new
rules, goodwill and certain intangible assets will no longer be amortized, but
will be subject to annual impairment tests in accordance with the Statements.
Other intangible assets will continue to be amortized over their useful lives.
Adoption is required for fiscal years beginning after December 15, 2001. The
company does not believe that the adoption of this SFAS will have an effect on
its financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,"
which is effective for years beginning after May 15, 2002. Under the new
pronouncement, an inconsistency between the required accounting for
sale-leaseback transactions was eliminated. The Company does not believe that
the adoption of this SFAS will have an effect on its financial statements.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
Neither the Registrant nor any of its affiliates are a party, nor is any of
their property subject, to material pending legal proceedings or material
proceedings known to be contemplated by governmental authorities.
ITEM 2. Changes in Securities
During the period of three months ended September 30, 2002, there were no
changes in the Company's outstanding securities.
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits:
None
b. Reports on Form 8-K:
None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAS POWER PARTNERS, INC.
/s/ Mark A. Margason
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November 14, 2002 Mark A. Margason
Chief Executive Officer
/s/ Jerome P. Frett
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November 14, 2002 Jerome P. Frett
Chief Accounting Officer