-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J60DIGbU2axQnks0XGao9rtAjCXNtA9g/fgbsKSAvD2oIiX6K7tTYNUH1hRy5Ca0 R31VXIEYTWUQ2ZUF6+MAMg== 0000791350-99-000002.txt : 19990114 0000791350-99-000002.hdr.sgml : 19990114 ACCESSION NUMBER: 0000791350-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HALSTEAD ENERGY CORP CENTRAL INDEX KEY: 0000791350 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 870446395 STATE OF INCORPORATION: NV FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25660 FILM NUMBER: 99505694 BUSINESS ADDRESS: STREET 1: 33 HUBBELLS DR STREET 2: PO BOX 660 CITY: MOUNT KISCO STATE: NY ZIP: 10549 BUSINESS PHONE: 9146663200 MAIL ADDRESS: STREET 1: 33 HUBBELLS DR STREET 2: PO BOX 660 CITY: MT KISCO STATE: NY ZIP: 10549 FORMER COMPANY: FORMER CONFORMED NAME: LMD ACQUISITIONS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: TECHNICAL ANALYSIS INC DATE OF NAME CHANGE: 19870811 10-Q 1 QUARTERLY REPORT FOR HALSTEAD ENERGY CORP. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-QSB (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended November 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _____________________ Commission file number 0-25660 HALSTEAD ENERGY CORP. (Exact Name of Small Business Issuer as Specified in Its Charter) NEVADA 87-044639 (State of Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 33 Hubbells Drive, Mt. Kisco, New York 10549 (Address of principal Executive Offices) 914-666-5800 (Issuer's Telephone Number, Including Area Code) N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 _______ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS: Check whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes _______ No _______ APPLICABLE ONLY TO CORPORATE ISSUERS: As of January 4, 1999, the issuer has 3,013,750 shares of its Common Stock outstanding. INDEX PAGE(S) PART 1. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheet as of November 30, 1998 (unaudited).................... F-2 -F-3 Consolidated Statements of Operations for the three months ended November 30, 1998 and 1997 (unaudited)....................................... F-4 Consolidated Statements of Stockholder's Equity for the year ended August 31, 1998 and for the three months ended November 30, 1998 (unaudited)........ F-5 Consolidated Statements of Cash Flows for the three months ended November 30, 1998 and 1997 (unaudited) F-6 Selected Notes to the Consolidated Financial Statements F-7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS F-8 - F-10 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings F-11 Signature Pages F-12 F-1 HALSTEAD ENERGY CORP. AND SUBSIDIARIES Consolidated Balance Sheet November 30, 1998 (Unaudited) A S S E T S -----------
CURRENT ASSETS Accounts Receivable - Trade, Net of Allowance for Doubtful Accounts of $54,654................... $ 976,117 Inventories.......................................... 164,540 Note Receivable...................................... 170,055 Note Receivable - Related Party...................... 801,335 Prepaid Expenses and Other Current Assets............ 244,778 Deferred Tax Asset................................... 27,000 ----------- TOTAL CURRENT ASSETS.......................... 2,383,825 PROPERTY PLANT AND EQUIPMENT - NET Land................................................. 944,000 Property Plant and Equipment......................... 10,370,779 ----------- TOTAL PROPERTY PLANT AND EQUIPMENT............ 11,314,779 OTHER ASSETS Net Deferred Tax Asset........................... 355,000 Intangible Assets - Net.......................... 938,940 ------------ TOTAL OTHER ASSETS............................ 1,293,940 ------------ TOTAL ASSETS.................................. $ 14,992,544 ============ See Accompanying Notes.
F-2 HALSTEAD ENERGY CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET November 30, 1998 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
CURRENT LIABILITIES Accounts Payable - Trade.............................. $2,471,266 Notes Payable - Related Party......................... 220,671 Current Portion of Long-Term Debt..................... 2,586,341 Deferred Revenue ..................................... 177,499 Accrued Expenses and Other Current Liabilities........ 816,314 ----------- TOTAL CURRENT LIABILITIES.................... 6,272,091 Long-Term Debt - Net of Current Portion.................... 1,982,989 Security Deposits Payable.................................. 229,110 Deferred Revenue........................................... 111,084 ----------- TOTAL LIABILITIES............................ 8,595,274 ----------- Preferred Stock, $.001 Par Value, 168,020 Shares Authorized-Series A 7.5% Cumulative Convertible Redeemable 168,020 Shares Issued and Outstanding ($1,008,120 aggregate liquidation preference)..... 168 Paid In Capital: Preferred................................. 1,064,001 ----------- 1,064,169 STOCKHOLDERS' EQUITY Preferred Stock, $.001 Par Value, 5,000,000 Shares 580,646 Shares Authorized-Series B 12.0% Cumulative Convertible Redeemable 560,125 Shares Issued and Outstanding ($4,338,580 aggregate liquidation preference).... 560 Common Stock, $00.1 Par Value, 25,000,000 Shares Authorized, 3,013,750 Issued and Outstanding as of November 30, 1998.......................... 3,013 Paid in Capital: Preferred................................ 3,614,800 Common................................... 6,845,197 Accumulated Deficit....................................... (5,030,469) Subscription Receivable................................... (100,000) ----------- TOTAL STOCKHOLDERS' EQUITY 5,333,101 ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,992,544 =========== See Accompanying Notes.
F-3 HALSTEAD ENERGY CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For The Three Months Ended November 30, 1998 1997 --------------------
Revenues.......................................... $3,007,540 $3,981,754 Cost of Revenues.................................. 2,192,311 3,008,587 ---------- ---------- GROSS PROFIT...................................... 815,229 973,167 OPERATING EXPENSES Selling General & Adm. Expenses.................. 1,084,020 954,970 Management Fee, Related Party.................... 90,000 90,000 Loss on Early Termination of Lease............... 174,707 0 Net Rental Income................................ (39,374) (155,990) Depreciation and Amortization.................... 242,502 278,680 --------- ---------- Operating Expenses 1,551,855 1,167,660 --------- ---------- Loss from Operations............................. (736,626) (194,493) Interest Expense, Net 192,189 170,264 --------- ---------- Loss Before Tax Provision........................ (928,815) (364,757) Provision for Taxes 0 0 --------- ---------- Net loss......................................... (928,815) (364,757) Preferred Stock Dividends 18,906 573,172 --------- ----------- Net Loss Available to Common Share .............. $ (947,721) $ (937,929) --------- ----------- --------- ----------- Basic and Diluted Loss Per Share.................. $ (0.33) $ (0.44) ---------- ----------- ---------- ----------- Average Number of Common Shares 2,880,527 2,154,301 ---------- ----------- ---------- ----------- See Accompanying Notes.
F-4 HALSTEAD ENERGY CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) RETAINED PREFERRED STOCK COMMON STOCK EARNINGS STOCK $.001 PAR VALUE .001 PAR VALUE PAID IN (ACCUMULATED SUB. TOTAL ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT) REC. EQUITY --------------- ------------- ------- ------------ ------ ------
----- ------ ------ ----- ------ ---------- --- --------- Balance at August 31, 1997 567,085 567 2,059,301 2,060 9,545,257 (873,978) (100,000) 8,573,906 Dividends Declared: Preferred Series A 0 0 0 0 0 (75,609) 0 (75,609) Dividends Declared: Preferred Series B 0 0 0 0 0 (467,814) 0 (467,814) Common Shares Issued on Conversion of Options 0 0 200,000 200 163,800 0 0 164,000 Common Shares Issued to Consultant for Services Rendered 0 0 172,495 172 232,761 0 0 232,933 Conversion of Series B Preferred Stock to Debt (6,960) (7) 0 0 (56,261) 0 0 (56,268) Restructuring of Series B Preferred Stock 0 0 0 0 (75,881) 0 0 (75,881) Exercise of Warrants 0 0 25,000 25 11,535 0 0 11,560 Common Shares Issued in Exchange for Dividends 0 0 67,285 67 269,000 (269,067) 0 0 Net Loss - August 31, 1998 0 0 0 0 0 (2,396,280) 0 (2,396,280) ---- ---- ------- ------- ------- ---------- -- --------- Balances at August 31, 1998 560,125 $560 2,524,081 $2,524 $10,090,211($4,082,748)($100,000)$5,910,547 Coimmon Shares Issued on Debt Conversion 399,669 399 292,595 292,994 Common Shares Issued to Consultant for Services Rendered 90,000 90 77,191 77,281 Dividends Declared: Preferred Series A (18,906) (18,906) Net Loss - November 30, (928,815) (928,815) 1998 Balances at November 30, 1998 560,125 $560 3,013,750 $3,013 $10,459,997 ($5,030,469)($100,000)$5,333,101 ======= === ========= ====== ========== ========== ======== ========== See Accompanying Notes.
F-5 HALSTEAD ENERGY CORP. CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) Three Months Ended November 30, 1998 1997 ---- ----
Cash flows from Operating Activities: Net Loss..................................... (928,815) ($364,757) Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities: Non-Employee Compensation Expense from Common Stock Issued During the Quarter..... 77,281 0 Depreciation & Amortization................. 242,502 278,680 Loss on Early Termination of Lease.......... 174,707 0 Change in Operating Assets and Liabilities:. Accounts Receivable......................... (222,189) (108,769) Inventory................................... 30,784 (33,102) Prepaid Expenses and other Current Assets... 69,366 (33,940) Accounts Payable, Accrued Expenses and Other Current Liabilities....................... 216,188 365,426 Deferred Revenue............................ (70,059) (145,059) --------- --------- Net Cash Used In Operating Activities (410,235) (41,521) Cash Flows From Investing Activities: Net Proceeds from Sale of Customer List..... 265,193 0 Acquisition of Property and Equipment...... (56,898) (81,605) Net Repayment (Advance) Note Receivable-ATI. (32,370) (12,111) Security Deposits Payable................... 0 (8,211) ---------- --------- Net Cash Provided By (Used in) Investing Activities 175,925 (101,927) Cash Flows From Financing Activities: Decrease in Cash Overdraft.................. 0 (3,106) Proceeds from Long Term Borrowings.......... 235,020 696,734 Proceeds from Related Parties............... 18,196 118,532 Repayment of Long Term Debt................ 0 (109,200) Repayment of Stockholders Loan.............. 0 (18,526) Preferred Stock Dividends................... (18,906) (543,052) ---------- --------- Net Cash Provided By Financing Activities 234,310 141,382 Net Decrease in Cash............................. 0 (2,066) Cash at Beginning of Period.................. 0 63,295 ---------- --------- Cash at End of Period ....................... $ 0 $ 61,229 ---------- ---------- ---------- ---------- Supplement Disclosure of Cash Flow Information Cash Paid During the Period For: Interest Expense............................. $136,508 $ 181,841 Income Taxes................................. $ 32,400 $ 0 Non Cash Transactions: Preferred Stock Issued for Unpaid Dividends.. $ 0 $ 546,066 Conversion of Preferred Stock to Long Term Debt $ 0 $ 600,000 Exchange of Related Party Debt for Common Stock $292,994 $ 0 See Accompanying Notes.
F-6 Selected Notes to the Consolidated Financial Statements (Unaudited) (1) Summary of Significant Accounting Policies: The accompanying condensed financial statements are not audited for the interim period, but include all adjustments (consisting of only normal recurring accruals) which management considers necessary for the fair representation of results at November 30, 1998. Moreover, these financial statements do not purport to contain complete disclosures in conformity with generally accepted accounting principles and should be read in conjunction with the Company's audited financial statements at, and for the fiscal year ended, August 31, 1998 contained in the Company's Annual Report on Form 10-KSB dated November 25, 1998. The results reflected for the three month period ended November 30, 1998 are not necessarily indicative of the results for the entire fiscal year ending August 31, 1999. (2) Options and Warrants: The following table sets forth the options and warrants of the Company as of November 30, 1998. Amount Term Issue Date Exercise Price ($) 123,563 5 yrs. 03/05/96 40% of market 5,000 5 yrs. 11/04/96 .625 9,774 5 yrs. 11/05/96 1.534 600,000 5 yrs. 11/14/96 .025 112,500 5 yrs. 01/10/97 .025 45,000 5 yrs. 02/18/97 .025 104,500 5 yrs. 08/12/97 1.260 85,000 5 yrs. 07/30/98 1.06 (3) Earnings (Loss)Per Share On October 16, 1998 the Company effected a 1 for 2 reverse stock split. All share and per share data have been restated. During the year ended August 31, 1998, the Company adopted Statement of Financial Accounting Standard No. 128 (SFAS 128) "Earnings Per Share." This statement requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is computed by dividing income (loss) less preferred dividends by the weighted average number of common shares outstanding for the period. Diluted EPS gives effect to all dilutive potential common shares that were outstanding during the period. The effect on loss per share of the Company's outstanding stock options and convertible warrants is anti dilutive for all periods presented and accordingly not included in the calculation of the weighted average number of common shares outstanding. (4) Certain Reclassifications were made in the prior year to conform to the current year presentation. F-7 Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Results of Operations Three Months Ended November 30, 1998 Revenues for the three months ended November 30, 1998 decreased to $3,007,540 from $3,981,754 for the three months ended November 30, 1997. The decrease is primarily due to the loss of customers in the commercial gasoline business which has experienced competitive pricing and from lower retail pricing at our station chain due to a lower product cost. Propane and retail gasoline product revenues were flat quarter to quarter. Cost of revenues for the three months ended November 30, 1998, decreased to $2,192,311 (or 72.9% of revenue)from $3,008,587 (or 75.6% of revenue)for the three months ended November 30, 1997. This decrease of cost of revenue is due to the lower cost of product and to the other factors described above. Gross profit margin as a percentage of revenues increased to 27.1% from 24.4%. This increase in margin as a percentage of revenues resulted in part from improved margins in the propane business and lower product costs. Selling, General and Administrative Expenses for the three months ended November 30, 1998 increased to $1,084,020 from $954,970 for the three months ended November 30, 1997. This increase results from higher professional fees and salaries. Depreciation and amortization expense for the three months ended November 30, 1998 decreased to $242,502 from $278,680 for the three months ended November 30, 1997. This decrease is mainly due to certain property, plant and equipment being fully depreciated.. Interest Expense, net for the three months ended November 30, 1998, increased to $192,189 from $170,264 for the three months ended November 30, 1997 due to an increase in certain indebtedness of the Company. Liquidity and Capital Resources Management has seen a recent decline in the cost of petroleum products which has resulted in decreased sales revenues. While the Company has achieved increased efficiencies in its core businesses, the Company is not in a position to meet its working capital, capital expenditure and acquisition requirements through operations. Without additional financing, there can be no assurance that the Company will be able to meet its cash requirements for the next twelve months. In this regard, management believes that its underlying assets have been significantly underutilized for quite some time due to the Company's lack of success in obtaining the desired level of financing. The Company will continue to pursue additional financing from a lending facility or an offering of its securities to enable the Company to meet the above-referenced cash requirements. There can be no assurance that the financing will occur or that the Company can find suitable acquisitions in the foreseeable future. HQ Gasoline will have to invest a minimum of approximately $283,000 by the end of December 1998 in order to meet Federal EPA and State Regulations for underground storage tanks. Through August 31, 1998, the mandatory requirements for 5 of the Company's locations have been completed. In addition, the Company plans to rebuild 13 of 25 gasoline stations which will generally require $20,000 to $750,000 per location for an aggregate of $2,500,000 (inclusive of the environmental upgrades referenced above). The rebuilds will be phased in over two years in order to minimize volume losses due to "downtime" encountered while each station location is under construction. Capital expenditures for the year ended August 31, 1998 were $270,797 and for the quarter ended November 30, 1998 was $56,898. Included in this amount were expenditures for propane and other equipment, improvement to gas stations and the terminal facility, and improvements and/or purchases of trucks and auto. F-8 On June 8, 1995 the Company acquired all of the capital stock of White Plains Fuel, Inc. in exchange for Company stock valued at $1,008,120. The shareholders of White Plains Fuel, Inc. received 168,020 shares of newly created Series A - 7.5% Cumulative Convertible Redeemable Preferred Stock of the Company. For the fiscal year ended August 31, 1998, the Company declared dividends on the Series A Preferred Stock totaling $75,609. The Company sold the customer list and certain other assets of White Plains Fuel, Inc. in October 1998 (to the third party that had operated such business since June 1995) for a purchase price of $361,000. On January 10, 1996, a total of 325,000 shares of the Company's common stock was reserved for the 1996 stock option incentive plan for officers and employees. Common stock which had been granted under such plan through August 31, 1998 was 242,000 (all of which are five year options granted in either November 1996, August 1997 or July 1998), at exercise prices ranging from $.6250 per share to $1.26 per share, leaving a balance of 83,000 options in reserve under such plan as of August 31, 1998. Additionally, certain officers and employees of the Company were granted five year options (outside of such plan) to purchase a total of 600,000 shares of the Company's common stock in November 1996, at an exercise price of $.6250 per share (500,000 of which were assigned to Infinity (as described below) in March 1998), and five year options (also outside of such plan) to purchase 60,000 shares of the Company's common stock in July 1998 at an exercise price of $1.06 per share. During the year ended August 31, 1998, the Company granted ten year options, in partial payment of the purchase price for a propane customer list and certain other assets acquired in April 1998, to acquire 10,000 shares of the Company's common stock at an exercise price of $1.12 per share. Prior thereto, the Company issued, for certain consulting services, 50,000 five year warrants (5,000 in November 1996 and 45,000 in February 1997) at an exercise price of $.6250 per share, and 9,773 five year warrants (in November 1996) at an exercise price of $1.534 per share. On December 31, 1996 the Company entered into an agreement with a third party distributor pursuant to which it is leasing to such distributor eight gasoline stations for a period of 10 years with an option for renewal. In the second year of the lease, the distributor prepaid the rent to the Company.The Company is carrying $138,413 as deferred income at August 31, 1998. On May 16, 1997 the Company entered into an agreement for the sale of its retail fuel oil customer list to an independent third party distributor. The terms of the sale were $200,000 at closing, $200,000 on the first anniversary, and $127,000 on the second anniversary with interest on outstanding amounts at a rate of 6% per annum. The Company is recording this sale on an installment basis. In connection with this sale, since the related receivable is collectible over an extended period of time and collectibility is uncertain, profit is recognized under the installment method as the receivable is collected. The Company will recognize profit when payments are received. On June 9, 1997, the Company obtained a one-year revolving credit facility in the maximum principal amount of $1,000,000. The maturity date has been extended to September 4, 1998, and thereafter, such indebtedness is payable on demand. Interest accrues on outstanding balances at the prime rate plus 10% per annum, subject to a minimum of 17% per annum until June 1, 1998, at which time the minimum increased to 20% per annum. The credit facility is secured by a security interest in all of the Company's accounts receivables, general intangibles, contract rights and inventory, as well as by the guarantees of Claire E. Tarricone, Joseph A. Tarricone, and Anthony J. Tarricone. As of August 31, 1998 the outstanding principal balance was $797,500. The Company has advanced funds to A. Tarricone, Inc. ("ATI") its former parent and brother-sister corporation with the same majority shareholders, for necessary and ordinary gasoline and diesel purchases. ATI is currently operating under Chapter 11 of the Federal Bankruptcy Laws.Such advances are secured by a first lien of 50% of all of the ATI's post-petition assets and a second lien on the balance of ATI's post petition assets.In addition, the Company reimburses ATI, under a management agreement which expired on August 31, 1998, which is now month to month, for clerical, administrative, payroll and other costs incurred by ATI. Such management fee is accrued monthly and is recorded as a reduction of the amount due to ATI. For each of the years ended August 31, 1998 and 1997, the Company was charged $360,000 in connection with such expenses. During the quarter ending November 30, 1998, the Company made additional advances to ATI of $1,756,943 of which $1,724,573 was repaid. At November 30, 1998 the Company was owed $801,335. F-9 On September 24, 1997, the Company, Claire E. Tarricone, Anthony J. Tarricone and Joseph A. Tarricone and Infinity Investors Limited ("Infinity") entered into a certain Restructuring Agreement (the "Restructuring Agreement"). Under the terms of the Restructuring Agreement, Infinity agreed to exchange 6,960 shares of Series B Preferred Stock in the Company, all accrued and unpaid dividends on the outstanding shares of Series B Preferred Stock and appriximately $78,000 of indebtedness owing to Infinity for the Company's Subordinated Promissory Note in the principal amount of $600,000 (the "Note"). The Note accrues interest at 12% per annum compounded quarterly through September 24, 1999 and accrues simple interest at 12% per annum after September 24, 1999. The note matures on September 24, 2002, although the Company is required to make mandatory prepayment upon the occurrence of certain events. The terms of the balance of the 560,125 shares of Series B Preferred Stock owned by Infinity were amended to provide, among other things, for (i) a fixed conversion price of $4.00 per share of Series B Preferred Stock, (ii) the removal of certain limitations on the rights of holders of the Series B Preferred Stock to convert those shares into the Company's Common Stock( which the Company also agreed to register), and (iii) an increase in the dividend rate of the Series B Preferred Stock to 12% from 8% per annum. In March 1998, pursuant to the applicable provisions of the Restructuring Agreement, Infinity elected to further amend the terms of the Series B Preferred Stock to the effect that dividends would cease accuring (i.e., the dividend rate would decrease from 12% per annum to 0% per annum), and in connection therewith, Infinity elected to cause certain of the Company's officers/directors to transfer to Infinity five year options to acquire 500,000 shares of the Company's common stock at an exercise price of $.6250 per share (as referenced above). At November 30, 1998, certain parties were owed an aggregate of $220,671 by the Company, which are non-interest bearing, payable on demand at any time on or after September 1, 1998. In October 1998, $292,994 of this amount was exchanged for common stock in the company. The Company had a working capital deficiency of approximately $3,888,266 and a ratio of current assets to current liabilities of approximately 38% or 1:2.64 as at November 30, 1998 F-10 Part II. OTHER INFORMATION Item 1. Legal Proceedings On June 10, 1997, A. Tarricone, Inc. ("ATI"), the former parent of the Company's operating subsidiaries and divisions (ATI is wholly-owned by Claire E. Tarricone, Anthony J. Tarricone, and Joseph A. Tarricone, the Company's directors and principal executive officers), filed a voluntary petition for reorganization pursuant to Chapter 11 of the Bankruptcy Code (the "Code"). ATI has continued in possession of its property and in the management of its affairs as a debtor-in-possession under the applicable provisions of the Code. In connection with the bankruptcy proceeding, the Company has asserted (and ATI has acknowledged) pre-petition claims arising under a receivable from ATI in the amount of $3,877,563 and pre-petition liens on certain leasehold interests. The proceeding is before the United States Bankruptcy Court, Southern District of New York, and is referred as "A. TARRICONE, INC., 97B21488." The Company has determined that its asserted pre-petition liens may not have been properly "perfected," in which case the Company would be deemed an unsecured creditor (rather than a secured creditor) in the proceeding. If it were ultimately determined by the court that the Company's status in the proceeding is that of an unsecured creditor, the Company's legal basis for recovery would be materially, adversely affected. The Company is pursuing all appropriate avenues to protect its interest in this regard. However, there can be no assurance that the indebtedness and the liens asserted by the Company in this proceeding will be recognized or given full effect, that the same will not be challenged, modified or reduced, that all or any portion of such indebtedness will be repaid to the Company or that the Company will otherwise be successful in protecting its interests. In this regard, management has written-off, and has taken as a charge against earnings as a bad debt expense for the fiscal year ended August 31, 1997, the entire amount of the receivable due from ATI at June 10, 1997, i.e., $3,877,563. Additionally, all executory contracts between ATI and the Company are susceptible to rejection, at the election of ATI, under the applicable provisions of the Code. Furthermore, any transfers from ATI to the Company on account of antecedent debt (of ATI to the Company) during the one year period prior to the date of filing of ATI's voluntary petition may be subject to avoidance under the applicable provisions of the Code. The occurrence of any such circumstances may have a material adverse effect on the Company. The Company's principal terminal facility is currently being operated by ATI pending the ultimate resolution of the above-referenced bankruptcy proceeding. The Company has withdrawn its most recent application with the State of New York for a terminal operator's and diesel motor fuel license based on its belief that approval of the same would not be granted at the present time(due to the circumstances which are the subject of the preceding paragraph). If the Company determines to resubmit such application in the future, there can be no assurance about the prospect of obtaining the approval of the same. The Company has been advised by counsel that pending the conclusion of ATI's bankruptcy proceeding, ATI will continue to maintain such licenses and will be able to continue operating the Company's terminal and diesel motor fuel businesses. There can be no assurance that at the conclusion of such proceeding, if the result were a liquidation of ATI (which the Company believes is the likely result),and therefore, a termination of such licenses, that the Company, by that time, would have received its own licenses or would have been able to contract with another entity to operate such businesses. The occurrence of any of these circumstances could have a material and adverse effect on these businesses and on the Company. The Company is not a party to any other material litigation and is not aware of any threatened litigation that would have a material adverse effect on its business. F-11 SIGNATURES In accordance with the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HALSTEAD ENERGY CORP. Dated: January 13, 1999 By: /s/ Claire E. Tarricone ------------------------ President Dated: January 13, 1999 By: /s/ Joseph A. Tarricone ------------------------ Vice President/Treasurer F-12 EX-27 2 FDS FOR FORM 10QSB
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE THREE MONTH PERIOD ENDED MAY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS AUG-31-1999 SEP-1-1998 NOV-30-1998 0 0 976,117 54,654 164,540 2,383,825 11,314,779 417,209 14,992,544 6,272,091 0 1,064,169 3,614,800 6,845,197 (5,030,469) 14,992,544 3,007,540 3,046,914 2,192,311 3,744,166 0 0 192,189 (928,815) 0 0 0 0 0 (928,815) (.33) (.33)
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