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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended December 31, - 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 No. 0-3689
NRG INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 23-1682488
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4433 W. Touhy Ave., Suite 310, Lincolnwood, IL 60646
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 568-9246
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non affiliates
of the Registrant as of March 31, 1999: $58,926
CLASS OUTSTANDING AT MARCH 1, 1999
Common Stock, $.10 par value 255,311 shares
PART I
ITEM 1. DESCRIPTION OF BUSINESS
NRG is a majority-owned subsidiary of Telco Capital Corporation ("Telco").
In prior years all excess cash was loaned to Telco, payable on demand, as more
fully described in Note C of the Notes to Consolidated Financial Statements.
The Company's business activities (or investments) during the past five
years are as follows:
ENERGY-RELATED ACTIVITIES
(i) ENERGY GENERATION FROM SOLID WASTE. During 1975 and prior, the Company
developed a unique system for collecting energy from sanitary landfills. In its
present application the system involved drilling wells for the extraction of
methane from specially selected landfill sites. At present, there are several
plants in actual production. However, during the past five years the Company's
interest in such activities was limited to a net profits participation in plants
operated be GSF Energy, Inc. ("GSF"), a subsidiary of Air Products and
chemicals, Inc. Under the net profit participation, the Company was entitled to
receive certain specified percentages of the net profits realized by GSF plus a
return of certain previously paid-in capital. No payments were received in the
last five years. In December1994, the Company's remaining interest in this
activity was purchased by GSF. As a part of the transaction each party released
the other from all future claims under the participation agreement and NRG
received $75,000.
Any revenues realized by the Company from the arrangement with GSF were
subject to the cash receipts participation rights of TELCO as described in Note
B of the Notes to Consolidated Financial Statements contained herein.
(ii) MINING ACTIVITIES. Until May, 1995, the Company held interest in
mining claims located in the State of Arizona, containing types of zeolite,
known as chabazite, a crystalline absorbent filtering substance determined to
have various gas filtration and other unique applications, including agriculture
feed, odor absorption and fertilizers. No revenues were received from this
activity during the last five years.
Although the Company has sizeable estimates of zeolite reserves -
approximately 132,000 tons of high-grade chabazite and over 1,300,000 tons of
lower grade material - the Company lacks the financial resources to actively
pursue the market development of this material. The Company is also subject to
strong competition from both other grades of natural zeolite and synthetic
zeolites marketed by competitors of the Company. The mining claims are on
government-owned land and consist of 15 claims encompassing a total of 300
acres.
In May, 1995, the Company sold its mining rights in exchange for a future
royalty of $2.00 per ton of zeolite mined, however, there is no assurance that
the purchaser will be able to sell any significant amounts of zeolite. The
purchaser, who owns other mining rights in the same area, will absorb all costs
of maintaining the claims and will attempt to develop the market for this type
of zeolite. The Company retained ownership of approximately 20 acres of land in
close proximity to the mining claims.
INVESTMENT IN AFFILIATED COMPANY
The Company owned 20,000 shares (representing approximately 1.4% of all
outstanding shares) of Wisconsin Real Estate Investment Trust ("WREIT"). Hickory
Furniture Company, a majority owned subsidiary of Telco, owned the majority of
the outstanding stock of WREIT. The Company's shares were purchased in 1980 at
cost of $93,836. The Company used the equity method of accounting for this
investment which had a book value of $-0- as the Company's share of WREIT losses
had exceed the original cost. WREIT was dissolved by operation of law in April
1996 with no distribution to shareholders.
EMPLOYEES
The Company has not had any employees since 1989.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company has no plants or other materially important physical
properties, except the property described below.
Reference is made to Item (b) (ii) regarding ownership of certain mining
rights which were sold in 1995 and land. Revenues generated from these assets
are subject to the cash receipts participation rights of TELCO.
ITEM 3. LEGAL PROCEEDING
There are no known legal proceedings to which the Company or any of its
subsidiaries are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
NRG's common shares are traded through brokers who have registered with the
National Association of Securities Dealers to make a market in these shares. The
following table sets forth for the periods indicated the range of high and low
bid prices as reported by the primary market maker, Mesirow Financial. These
quotations do not reflect retail mark-ups, markdowns or commissions and do not
represent actual transactions. There is no significant trading market for NRG
common stock.
Bid Prices
LOW HIGH
All Quarters 1997 No Known Trades
All Quarters 1998 No Known Trades
3. Approximate number of shareholders
December 31, 1998 607
4. Dividends
There are no restrictions on the payment of dividends, but the Company has never
paid dividends and has no plans for paying dividends in the foreseeable future.
5. Number of shares authorized and outstanding
A. Common Stock $.10 par value
-Authorized 15,000,000
-Outstanding (new shares) 255,311*
* In December 1983, the Company's Board of Directors approved a reverse stock
split effective as of the close business of December 19, 1983 pursuant to which
one new share of common stock, par value $.10 per share, was issued for every 20
shares of old common stock, par value $.005 per share, then outstanding. No
other changes in the attributes of the common shares were made.
The Company undertook to repurchase fractional shares resulting from the
implementation of the reverse stock split at the rate of $.25 for each old
share. Through oversight, certain of the corporate actions necessary to
implement fully the reverse stock split have not yet been competed; however, the
Company intends to complete the action as soon as practicable. All comments
relating to common shares have been adjusted to reflect the full implementation
of the reverse stock split. Since December 19, 1983 no matters have been
submitted to the Company's stockholders for their approval, nor has the Company
taken any action requiring the submission of any matter to the stockholders for
approval.
After giving consideration to the Company's commitment to purchase all
fractional shares resulting from the reverse stock split, the Company has
255,311 new shares of stock outstanding. As of December 31, 1996, 305,619 new
shares (including 50,518 new shares held in treasury) were issued, which
represents a 100% conversion of old shares into new shares.
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER
1998 1997 1996 1995 1994
Revenues $ -0- $ -0- $ -0- $ -0- $ -0-
Loss before Extraordinary credit (29,000)(29,367) (33,288) (32,149) (135,712)
Net loss (29,000) (29,367) (33,288)(32,149) (135,712)
Total Assets a) 2,489 2,489 2,489 9,800 41,949
Per Common Share:
Loss before extraordinary credit $ (.11) $ (.12) $ (.13) $ (.13) $(.53)
(a) See Note C of Notes to Consolidated financial Statements
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company reported a net loss of $(29,000) ($.11 per share) in 1998
compared to $(29,367) ($.12 per share) and $(33,228) ($.13 per share) in 1997
and 1996, respectively. In 1994, the Company recorded a $75,000 loss on the sale
of the gas purification venture and a $20,000 writedown of zeolite mining
claims. In May 1995 the Company sold its mining rights in exchange for future
royalty of $2.00 per ton of zeolite mined, however, there is no assurance that
the purchaser will be able to sell any significant amount of zeolite. General
and administrative expenses were $29,000, $29,367, and $33,288 in 1998, 1997 and
1996 respectively. These amounts include fees of $29,000, $29,000, $29,000,
respectively, charged by Telco and Hickory for management services (accounting,
shareholder services, legal, etc.) provided.
LIQUIDITY AND CAPITAL RESOURCES
The Company has no cash generating activities. Substantially all the
Company's cash surpluses were loaned in 1980's to its major stockholder, TELCO,
in the form of a demand note carrying interest at the rate of 2% over prime.
This note had a balance of $1,523,441 as of December 31, 1998, December 31, 1997
and December 31, 1996. Through January 1994, administrative expenses of NRG were
paid for by Telco and charged against the note and management service fees from
Telco were also charged against the note. Interest income was not received in
cash during the last years. No schedule for payment of the amounts advances has
been established and no significant collection on the amount due, including
interest, are anticipated within the next year. Because of the uncertainty as to
the period for recovery that exists due to the illiquidity of Telco, at December
31, 1991 the Company classified the loan with stockholders' equity and effective
January 1, 1992 suspended recognition of interest in its financial statements
with respect to the loan. The receivable balance includes accrued interest
receivable of $455,879. At December 31, 1998, interest earned but not accrued
was an additional $1,656,000.
Effective February 1994, the administrative expenses and management
services were paid for/provided by Hickory. Amounts paid be NRG to Hickory
totaled $75,000 in 1994. This represented reimbursements to Hickory of $35,540
for 1994 expenses and a prepayment of expenses in the amount of $39,460. The
$75,000 was received by NRG from the windup of the gas purification venture. In
1995 and 1996, the management service fees of $29,000 for each year eliminated
the prepaid balance. As of December 31, 1998, NRG owes Hickory $84,737 for
administrative expenses and management service fees.
The Company has current liabilities of $2,154 along with a liability to
Telco of $1,805, which is payable only from actual future cash receipts realized
by the Company from the sale of vacant land.
The Company has no plans for capital expenditures or borrowing funds.
TELCO intends to develop a proposal whereby NRG would merge with a newly
formed subsidiary of TELCO and then all shares of NRG now owned by Telco would
be acquired by Telco as a result of the merger.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to Item 8 is submitted on pages 12 to 20 of this report.
Pursuant to Regulation S-X Rule 3-11 of the Securities Exchange Act of 1934 NRG
met the definition of an inactive entity in 1998, 1997, and 1996. Therefore, its
financial statements for these five years are unaudited.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
The following sets forth the names and ages of all directors and executive
officers of the registrant, all positions and offices with the registrant held
by each such person and the year in which each such person was first elected a
director of the registrant. Directors of the registrant are elected to serve
until their successors have been elected and qualified.
Year First Positions and Offices with NRG Inc.
Became and Business Experience
NAME AGE DIRECTOR DURING LAST FIVE YEARS
Clyde Wm. Engle 56 1979 Chairman of the Board of Directors
and Chief Executive Officer of
NRG, Inc.
Chairman of the Board of Directors and Chief Executive Officer of TELCO;
Chairman of the Board and President of RDIS Corporation; General Partner of
Sierra Associates, itself the General Partner of Sierra Capital Group (an
investment partnership); Chairman of the Board and Chief Executive Officer of
GSC Enterprises, Inc. (a one-bank holding company), and Chairman of the Board of
its subsidiary, Bank of Lincolnwood; Chairman, Chief Executive Officer and
Director of Hickory furniture Company; Director of Wellco Enterprises, inc.
(until December, 1995); Director and Chairman of Alba-Waldensian, Inc.; Trustee
and Chairman of WisconsinReal Estate Investment Trust (until April, 1996);
Director and Chief Executive Officer (since July 1, 1992) of Indiana Financial
Investors, Inc.; Chairman of the Board of Directors and Chief Executive Officer
of Sunstates Corporation; Director of Rocky Mountain Chocolate Factory, Inc.
(until September, 1995).
Lee N Mortenson 63 1987 Director of NRG, Inc.
President, Chief Operating Officer and a Director of Telco Capital
Corporation; Director of Hickory Furniture Company; President, Chief Operating
Officer and Director of Sunstates Corporation; President and Chief Executive
Officer of Alba-Waldensian, Inc.; Director of Normandy Insurance Agency, Inc.;
Director (January, 1988 to October, 1992) of Sun Electric Corporation; and
Director of Rocky Mountain Chocolate Factory, Inc.
(1) The following information is provided voluntarily by Mr. Engle although it
is not deemed material information as that term is used in Item 401 of
Regulation S-K. Mr. Engle is the subject of Cease and Desist Order dated October
7, 1993, issued by the Securities and Exchange Commission (the Commission)
requiring Mr. Engle and certain of his affiliated companies to permanently cease
and desist from committing any further violations of Section 16(a) of the
Securities Exchange Act o 1934 as amended and the rules promulgated thereunder,
which requires monthly and other periodic reports of transactions in certain
securities. The Commission found some of the reports of such transactions to
have been filed delinquently although many of these transactions were between
affiliated entities or had been publicly reported in other reports filed with
the Commission or had been otherwise publicly announced.
COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT OF 1934
No Forms 3 and 4 have been filed and no Forms 5 have been furnished to the
Company during the fiscal year ended December 31, 1998. To the best of the
Company's knowledge, no person who was a director, officer or beneficial owner
of more that ten percent of any class of equity securities of the Company (a
reporting person) failed to file on a timely basis, reports required by Section
16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
(a) No officer received compensation during 1995-1998 (b) No director
received compensation during 1995-1998
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the name, address, relationship to the Company,
and record and beneficial ownership, as of March 1, 1999, of each person known
to the Company to be either the record or beneficial owner of more that five
percent (5%) of its outstanding, $.10 par value, common stock:
Name, Address, and Company Amount and Nature
Affiliation of Beneficial of Beneficial Percent of Class
OWNER OWNERSHIP OUTSTANDING (1)
Clyde Wm. Engle, Director (2)
And
RDIS Corp., and TELCO 216,027 84.62 (2)
Suite 310 (of record
4433 W. Touhy Avenue and beneficially)
Lincolnwood, IL 60646
All officers and directors 216,027 84.62
As a group (three persons) (beneficially)
NOTE (1)
At March 1, 1999 the Company has 255,311 shares of new common stock
outstanding (excluding 50,518 shares held in treasury), after consideration of
the implementation of a 1 for 20 reverse stock split authorized by the Company's
Board of Directors on December 19, 1983, and subsequent purchase of related
fractional shares by the Company.
NOTE (2)
Mr. Clyde Wm. Engle, who is a director of the Company, is the Chairman of
the Board of directors of RDIS Corporation ("RDIS") and is the beneficial owner
of in excess of 50% of the outstanding common stock of RDIS. RDIS presently owns
100% of the outstanding common stock of TELCO. Mr. Engle is Chairman of the
Board and Chief Executive Officer of TELCO. As of March 1, 1998, TELCO owned
beneficially 84.62%of the Company's common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1979 TELCO and the Company entered into a certain cash receipts
participation arrangement. Under this arrangement, which was principally to
compromise certain indebtedness owed be the Company, TELCO will receive 75% of
the cash receipts realized by the Company from specific enumerated areas of
activity, until such time as the total amount realized by TELCO is $992,853.
Thereafter TELCO will receive 25% of any further cash receipts realized by the
Company from the indicated areas of activity. The cumulative payments since 1979
have amounted to $785,060, which included $56,250 in 1994, upon the sale of the
gas purification venture, which was offset against the note receivable from
Telco.
See discussion of investment in affiliated company under Description of
Business. See discussion of balances due to and from affiliates in Management
Discussion and in Note C of the Notes to Consolidated Financial Statements.
All transactions with affiliates are done on terms as fair as those that
would exist for transactions with non-affiliates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
(1) Financial Statements and (2) Financial Statement Schedules - The
response to this portion of Item 14 is submitted on page 12 to 20 as a
separate section of this report.
(3) Exhibits - Exhibit 21, Subsidiaries of the Registrant
Exhibit 27, Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
(c) EXHIBIT - Exhibit 21, Subsidiaries of the
Registrant Exhibit 27, Financial Data Schedule
(d) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or the required information is included in the Consolidated
Financial Statements and notes thereto and therefore have been omitted.
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEG INCORPORATED
By: /s/ CLYDE WM. ENGLE
Chairman, Chief Executive
Officer and Director
Date: March 31, 1999
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 dated indicated.
By: /s/ CLYDE WM. ENGLE
Clyde Wm. Engle
Chairman, Board of Directors
Chief Executive, Financial and
Accounting Officer
Date: March 31, 1999
By:
Lee N Mortenson
Director
Date: March 31, 1999
Annual Report on Form 10-K
Item 8, Item 14 (a) (1) and (2), and Item 14 (d)
List of Financial Statements and Financial Statement Schedules
Financial Statements
Year Ended December 31, 1998
NRG INCORPORATED
Lincolnwood, Illinois
FORM 10-K ITEM 14 (a) (1) AND (2)
NRG INCPORATED
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of the Registrant are
included in Item 8: Consolidated Financial Statements of NRG incorporated:
Consolidated Balance Sheets-
December 31, 1998 and December 31, 1997................12
Consolidated Statements of Operations - Years Ended
December 31, 1998, 1997, 1996..........................13
Consolidated Statements of Changes in Stockholder's Equity
Years Ended December 31, 1998, 1997, 1996..............14
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998, 1997, 1996........................ .15
Notes to Consolidated financial Statements...................16
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or the required information is included in the Consolidated
Financial Statements and notes thereto and therefore have been omitted.
Pursuant to Regulation S-X Rule 3-11 of the Securities Exchange Act of 1934, NRG
has met the definition of an inactive entity in 1998, 1997, and 1996. Therefore
its 1998, 1997 and 1996 financial statements for those three years are
unaudited.
NRG INCORPORATED
Consolidated Balance Sheets
(Unaudited)
December 31, December 31,
1998 1997
-------- -------------
ASSETS
Cash $ 81 $ 81
Other assets 2,408 2,408
----------- -----------
2,489 2,489
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses 2,154 2,154
Payable to affiliates 84,737 55,737
Estimated amount payable to stockholder 1,805 1,805
---------- ----------
Total liabilities 88,696 59,696
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, par value $.10 per share-authorized 15,000,000 shares;
issued, including shares held in treasury,
305,829 shares 30,583 30,583
Additional paid-in capital 4,541,845 4,541,845
Retained earnings (deficit) (2,576,335) (2,547,335)
Treasury stock, at cost - 50,518 shares (102,980) (102,980)
---------- ----------
Total stockholders' equity 1,893,113 1,922,113
---------- ----------
Less receivable from majority
stockholder (1,979,320) (1,979,320)
---------- ----------
$ 2,489 $ 2,489
========== ==========
See notes to consolidated financial statements
NRG INCORPORATED
Consolidated Statements of Operations
(Unaudited)
YEAR ENDED DECEMBER 31,
1998 1997 1996
---------------------------------------------------------------------
REVENUES: $ --- $ --- $ ---
EXPENSES:
Loss from sale of gas
purification --- --- ---
Writedown of mining claims --- --- ---
General and administrative 29,000 29,365 33 ,288
------------ ------------- -------------
29,000 29,365 33,288
----------- -------------- ------------
NET LOSS (29,000) (29,365) (33,288)
======= ======== =======
PER SHARE INFORMATION
Weighted average number of
Common shares outstanding 255,311 255,311 255,311
======= ======== ========
Net Loss $ (.11) (.12) (.13)
======= ======== ========
See notes to consolidated financial statements
NRG INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(UNAUDITED)
Additional Retained
Common Stock Paid-in Earnings Treasury Stock
Shares Amount Capital (DEFICIT) Shares Amount
Balance at Jan 1, 1996 305,829 $30,583 $4,541,845 $(2,484,682) 50,518 $(102,980)
Net Loss (33,288)
---------- --------- --------- ----------- ---------- ------------
Balance at Dec 31, 1996 305,829 $30,583 $4,541,845 $(2,517,970) 50,518 (102,980)
Net Loss (29,365)
---------- ----------- ------------ ------------ ----------- -------------
Balance at Dec 31, 1997 305,829 $30,583 $4,541,845 $(2,547,335) 50,518 $(102,980)
Net Loss (29,000)
---------- ---------- ------------ ----------- --------- ------------
Balance at Dec 31, 1998 305,829 $30,583 $4,541,845 $2,576,335 $50,518 $(102,980)
See notes to consolidated financial statements
NRG INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
YEAR ENDED DECEMBER 31,
1998 1997 1996
OERATING ACTIVITIES:
Net loss (29,000) $ (29,365) $ (33,288)
Adjustments to reconcile net
income to net cash used in
operating activities:
Loss on sale of gas purification - - -
Writedown of mining claims - - -
(Increase) Decrease in prepaid
expenses-affiliate - - 7,311
Increase (Decrease) in accounts payable
and accrued expenses - - 102
Increase in payable to affiliate 29,000 29,365 25,875
------ ------- --------
NET CASH USED IN
OPERATING ACTIVIES -0- -0- -0-
INVESTING ACTIVITIES:
Proceeds from sale of gas
purification venture - - -
Payments received on
Stockholder loans - - -
------------- -------------- ---------------
NET CASH PROVIDED BY -0- -0- -0-
INVESTING ACTIVITIES
DECREASE IN CASH -0- -0- -0-
Cash at beginning of year 81 81 81
------------- -------------- -------------
CASH AT END OF YEAR 81 81 81
========= ========= =========
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY 0F SIGNIFICANT ACCOUNTING POLICIES
PARENT COMPANY: The Company is a majority-owned subsidiary of Telco Capital
Corporation ("Telco") and TELCO is a wholly owned subsidiary of RDIS CORPORATION
("RDIS"). Hickory Furniture Company ("Hickory") is a majority owned subsidiary
of TELCO.
PRINCIPLES OF CONSOLIDATION: The accompanying financial statements include
the accounts of the Company and its subsidiaries. All material intercompany
balances have been eliminated.
CASH: Cash consists of cash in non-interest bearing and money market
checking accounts.
INCOME TAXES: Beginning with the year ended December 31, 1990, the Company is
included in the consolidated federal income tax return of RDIS as the result of
Telco becoming the owner of greater than 80% of the Company's common stock in
late 1989. Prior to 1990, the Company filed a separate federal income tax
return. The Company continues to calculate its income tax provision as if it
filed a separate return.
EARNINGS PER SHARE: Earnings per share is based on the weighted average
number of common shares outstanding during the year. There are no common stock
equivalents.
NOTE B - ESTIMATED AMOUNT PAYABLE TO STOCKHOLDER
In 1979, the Company entered into an agreement with TELCO whereby TELCO was
granted a contingent right to a major portion of the new cash receipts realized
by the Company from defined participating assets in consideration for the
cancellation of certain debt obligations and the return of 1,000,000 shares of
the Company's common stock owned by TELCO.
This transaction resulted in the recording of an estimated amount payable
to TELCO in the amount of 75% of the book value of the participating assets at
December 31, 1979.
Under the terms of the agreement, the remaining participating assets as of
December 31, 1993 were defined as follows:
(a) The Company's participating interest in certain methane and other gas
purification activities of GSF Energy Inc., a subsidiary of Air Products and
Chemicals, Inc. (sold in 1994).
(b) All mining claims owned or held by the Company in Graham County, Arizona
(sold in 1995).
(c) Twenty acres of rural vacant land owned by the Company in Cochise County,
Arizona.
A summary of the estimated amount payable to stockholder follows for the years
ended December 31:
1998 1997 1996
Balance at beginning of year 1805 $ 1805 1805
Payment from sale of gas
Purification venture ----- ----- -----
Change in estimate to adjust
Liability to 75% of remaining
Underlying net book value of
The applicable assets ----- ----- -----
------- ------- -------
Balance at end of year 1805 $ 1805 $ 1805
==== ==== ====
Changes in estimate are accounted for as a change to paid-in capital. The 1994
change in estimate includes $56,250, which represents 75% of the $75,000 loss
from the sale of the gas purification venture, and $15,000, which represents 75%
of the writedown of the mining claims. The mining claims were sold in 1995 in
exchange for a future royalty of $2.00 per ton of zeolite mined, however there
is no assurance that the purchaser will be able to sell any significant amount
of zeolite.
TELCO has the right to receive 75% of the cash realized from the participating
assets until the total of such receipts reaches $992,853. The payment of $56,250
in 1994, was reflected as a reduction of the note from stockholder as discussed
below. The potential unpaid balance under the agreement is $207,793 at December
31, 1996. This contingent liability is recorded at a lower amount of $1,805 in
the Company's balance sheet, representing 75% of the remaining underlying net
book value of the applicable assets described above.
In the event that 75% of the future cash realized from the remaining
participating assets exceeds the recorded amount of $1,805, the company has an
obligation to continue making payments up to the potential unpaid balance. If
the potential unpaid balance is ever paid in full, TELCO is entitled to receive,
in perpetuity, 25% of any further cash realized from the participating assets.
NOTE C - NOTE AND INTEREST RECEIVABLE FROM STOCKHOLDER
A summary of the note and interest receivable from Telco for the years ended
December 31 follows:
1998 1997 1996
Balance at beginning of year $1,979,320 $1,979,320 $1,979,320
Reductions --- --- ---
-------------- -------------- ----------
Balance at end of year $1,979,320 $1,979,320 $1,979,320
======== ======== ========
No schedule for payment of the amounts advanced has been established and no
significant collection on the amount due, including interest, are anticipated
within the next year. Because of the uncertainty as to the period for recovery
that exists due to the illiquidity of Telco, at December 31, 1991 the Company
classified the loan with stockholders' equity and effective January 1, 1992
suspended recognition of interest in its financial statements with respect to
the loan.
The receivable balance includes accrued interest receivable of $455,879. At
December 31, 1998 interest earned but not accrued was an additional $1,656,000.
The note is payable upon demand and bears interest at the prime rate of interest
plus two percent.
Reductions to the note represent administrative expenses of NRG paid for by
Telco and management service fees (for accounting, shareholder relations, legal,
etc.) through January 1994. The reduction in 1994 to the note also reflects the
offset of the payable to Telco of $56,250 per Note B. Effective February 1994,
the administrative expenses and management service fees were paid for/provided
by Hickory. Amounts paid by NRG to Hickory totaled $75,000 in 1994. This
represents reimbursements to Hickory of $35,540 for 1994 expenses and a
prepayment of expenses in the amount of $39,460. In 1996, 1997 and 1998 the
management service fees of $29,000 for each year eliminated the prepaid balance.
As of December 31, 1998, NRG owes Hickory $84,737 for administrative expenses
and management service fees. Total management service fees expenses by NRG were
$29,000, $29,000, $29,000 for 1998, 1997 and 1996, respectively.
NOTE D - INVESTMENT IN AFFILIATED COMPANY
In 1980, the Company acquired 20,000 shares, or approximately 1.4% of the
outstanding common shares of beneficial interest of Wisconsin Real Estate
Investment Trust ("WREIT"). WREIT is a majority owned subsidiary of Hickory
Furniture Company, which is a majority owned subsidiary of TELCO. Since January
1984 the Company has accounted for its investment in WREIT under the equity
method of accounting. Equity in the losses of WREIT reduced NRG's investment to
zero during 1991 as cumulative equity in WREIT's losses exceeded NRG's original
investment. The investment balance has not changed since 1991.
WREIT was dissolved by operation of law in April 1996 with no distribution to
shareholders.
NOTE E - INCOME TAXES
The Company adopted Financial Accounting Standards Boards ("FASB") Statement No.
109, "Accounting for Income Taxes", effective January 1, 1993. The only current
impact of this statement of the Company is that the utilization of net operating
loss carryforwards will no longer be reported as an extraordinary item in the
statement of operations but instead the provision for income taxes will be
presented bet of any benefit recognized from the utilization of existing net
operating loss carryforwards.
Following is a reconciliation of NRG's provision for income taxes to the amount
determined by applying the statutory federal rated of 34% to pretax income:
1998 1997 1996
Tax computed at statutory rate (9,960) $(9,984) $(11,318)
Interest from stockholder not
recognized for financial
reporting purposes ---- ---- ----
Effect of losses not utilized
in the provision 9,660 9,984 11,318
---------- ----------- -----------
$ --- $ ---- $ ----
======= ======= ======
At December 31, 1996, the Company had net operating loss carryforward for
financial reporting and federal income tax purposes of approximately $7,000,000
expiring from 1998 through 2011.
NOTE F -REVERSE STOCK SPLIT
In December 1983, the company's board of directors approved a reverse stock
split effective as of the close of business on December 19, 1983, pursuant to
which one new share of common stock, par value $.10 per share, would be issued
for every 20 shares of old common stock, par value $.005 per share, then
outstanding. No other change in the attributes of the common shares would be
made.
The Company undertook to repurchase fractional shares resulting from the
implementation of the reverse stock split at the rate of $.25 for each old
share. Through oversight, certain of the corporate actions necessary to
implement fully the reverse stock split have not yet been completed; however,
the Company intends to complete the actions as soon as practicable. All the
information relating to common shares has been adjusted to reflect the full
implementation of the reverse stock split.
NOTE G -CANCELLATION OF PENDING MERGER
Telco Capital Corporation ("Telco"), NRG's majority stockholder, has advised NRG
that its announced plan to merge NRG into a wholly owned subsidiary of Telco has
had to be abandoned owing to financial reversals experienced at Telco's
principal, indirect subsidiary, Coronet Insurance Company.
NRG INCORPORATED
Form 10K Annual Report
For the Year Ended December 31, 1998
(21) Subsidiaries of the Registrant
(22) Financial Data Schedule