<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
X Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
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of 1934
For the quarterly period ended March 31, 1995 or
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Transition report pursuant to Section 13 or 15 (d) of the Securities
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Exchange Act of 1934
For the transition period from to
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Commission file number 0-15472
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Environmental Power Corporation
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(Exact name of registrant as specified in its charter)
Delaware 04-2782065
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
31 Raynes Avenue, Portsmouth, New Hampshire 03801
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (603) 431-1780
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- - - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
Number of shares of Common Stock outstanding
at May 12, 1995 - 10,662,179
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The Exhibit Index appears on Page 10.
Total number of pages is 11.
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<PAGE>
ENVIRONMENTAL POWER CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited)
March 31, 1995 and December 31, 1994................... 3
Condensed Consolidated Statements of Operations
(unaudited) for the Three Months Ended
March 31, 1995 and March 31, 1994...................... 4
Condensed Consolidated Statements of
Cash Flows (unaudited) for the Three
Months Ended March 31, 1995 and March 31, 1994......... 5
Notes to Condensed Consolidated Financial
Statements............................................. 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................................. 7-9
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.............. 10
Signatures............................................. 11
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<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1995 1994
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(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 991,243 $ 356,527
Receivable from utility 1,108,311 5,370,098
Receivable from sale of affiliate 1,453,724 4,165,900
Other current assets 1,397,311 2,093,051
------------ -----------
TOTAL CURRENT ASSETS 4,950,589 11,985,576
PROPERTY, PLANT AND EQUIPMENT, NET 7,043,181 7,026,804
DEFERRED INCOME TAX ASSETS 6,493,245 4,995,245
LEASE RIGHTS, NET 3,167,265 3,204,531
NOTES RECEIVABLE 3,246,275 3,263,164
ACCRUED POWER GENERATION REVENUE 6,379,428 5,311,324
OTHER ASSETS 175,000 175,000
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$ 31,454,983 $35,961,644
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 5,971,198 $ 6,969,386
Other current liabilities 1,138,662 3,559,851
------------ -----------
TOTAL CURRENT LIABILITIES 7,109,860 10,529,237
DEFERRED GAIN, NET 6,553,727 6,630,830
SECURED PROMISSORY NOTES PAYABLE
AND OTHER BORROWINGS 5,933,771 5,971,270
ACCRUED LEASE EXPENSE 6,379,428 5,311,324
DEFERRED REVENUE 2,878,646 2,825,972
MAINTENANCE RESERVE 375,000 250,000
SHAREHOLDERS' EQUITY
Preferred Stock ($.01 par value; 981,260 shares authorized;
18,740,shares issued at December 31, 1993) -- 187
Common Stock ($.01 par value; 20,000,000 shares authorized;
10,762,179 shares issued; 10,662,179 shares and
10,582,179 shares outstanding at March 31, 1995 and
December 31, 1994, respectively) 107,622 106,822
Additional paid-in capital 13,082,520 13,963,993
Unearned compensation (127,196) (147,281)
Accumulated deficit (10,361,519) (8,112,974)
------------ -----------
2,701,427 5,810,747
Less: 100,000 common shares held in Treasury, at cost (75,000) (75,000)
18,740 preferred shares, at cost -- (890,860)
Notes receivable from officers (401,876) (401,876)
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2,224,551 4,443,011
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$ 31,454,983 $35,961,644
============ ===========
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
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<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1995 1994
----------- -----------
<S> <C> <C>
POWER GENERATION REVENUES $ 7,943,959 $ 4,411,469
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Costs and expenses:
Operating expenses 5,620,642 1,892,264
Lease expense 5,375,173 --
General and administrative expenses 811,313 285,994
Depreciation and amortization 41,680 970,992
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11,848,808 3,149,250
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OPERATING (LOSS) INCOME (3,904,849) 1,262,219
Other Income (Expense):
Interest income 108,698 258,050
Interest expense (27,497) (2,853,994)
Minority interest -- 213,951
Other income 77,103 --
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158,304 (2,381,993)
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LOSS BEFORE INCOME TAXES (3,746,545) (1,119,774)
INCOME TAX BENEFIT - Note B 1,498,000 391,921
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NET LOSS $ (2,248,545) $ (727,853)
============ ===========
NET LOSS PER SHARE - Note C $ (0.21) $ (0.07)
============ ===========
</TABLE>
No dividends were paid or declared during the periods presented.
See notes to condensed consolidated financial statements.
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<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1995 1994
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(2,248,545) $ (727,853)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 41,680 970,992
Deferred income taxes (1,498,000) (576,913)
Amortization of deferred gain (77,103) --
Minority interest -- (354,452)
Amortization of unearned compensation 20,085 --
Accrued power generation revenue (1,068,104) --
Accrued lease expense 1,068,104 --
Changes in operating assets and liabilities:
(Increase) decrease in receivable from utility 4,261,787 (2,096,542)
Decrease in receivable from sale of affiliate 2,712,176 --
Decrease in other current assets 712,629 68,625
Increase (decrease) in accounts payable and
accrued expenses (998,188) 2,474,817
Increase in deferred revenue 52,674 --
Decrease in other current liabilities (2,421,189) --
Increase in maintenance reserve 125,000 --
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Cash provided by (used in) operating activities 683,006 (241,326)
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of office equipment -- (2,038)
Proceeds from sale of office equipment 7,320 --
Lease rights expenditures -- (60,921)
Property, plant & equipment expenditures -- (4,607,419)
Capitalized facility under development expenditures (28,111) (27,978)
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Cash used in investing activities (20,791) (4,698,356)
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from tax exempt borrowings and equity
bridge loans -- 5,320,310
Payment of secured promissory notes payable
and other borrowings (37,499) (55,703)
Proceeds from sale of common stock 10,000 --
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Cash (used in) provided by financing activities (27,499) 5,264,607
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INCREASE IN CASH AND CASH EQUIVALENTS 634,716 324,925
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 356,527 9,065,413
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 991,243 $ 9,390,338
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Environmental Power Corporation ("EPC") and its subsidiaries (the "Company")
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for annual financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of operations
for the three months ended March 31, 1995 are not necessarily indicative of
results to be expected for the full fiscal year. For further information, refer
to the consolidated financial statements and footnotes included in the Company's
annual report on Form 10-K for the year ended December 31, 1994.
NOTE B--PROVISION FOR INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". This standard
requires, among other things, recognition of future tax benefits, measured by
enacted tax rates, attributable to deductible temporary differences between
financial bases of assets and liabilities, and net operating loss carryforwards
to the extent that realization of such benefits is more likely than not.
Deferred income taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities and net operating loss
carryforwards for which the Company expects income tax benefits will be realized
in future years.
NOTE C--LOSS PER SHARE
The Company computes its earnings per common share using the modified treasury
stock method ("modified method") in accordance with Accounting Principles Board
Opinion No. 15. The modified method is used when the number of shares
obtainable upon exercise of outstanding options, warrants and their equivalents
exceeds 20% of the Company's outstanding common stock. Under this method, all
options, warrants and their equivalents are assumed exercised (whether dilutive
or antidilutive) with aggregate proceeds used to purchase up to 20% of the
Company's outstanding common stock and the remainder invested in U.S. government
securities. If the combined effect of the assumed exercise is dilutive, all
options, warrants and their equivalents are included in the computation.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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Financial Condition
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On March 31, 1995, the Company had cash and cash equivalents of $991,243 as
compared to $356,527 at December 31, 1994. The increase is primarily due to the
receipt in 1995 of a portion of the proceeds from the 1994 sale of the Company's
remaining interest in the Sunnyside project.
On March 31, 1995, the Company had a deficit in working capital of
$2,159,271 compared to working capital of $1,456,339 at December 31, 1994. The
decrease is primarily the result of an increase in current liabilities arising
from first quarter operating losses of approximately $3.4 million related to the
Scrubgrass project. Neither the Company nor its subsidiary, Buzzard Power
Corporation, are obligated to utilize current assets to fund such liabilities
for which payment is expected to be made from future operations. The Company has
included for accounting purposes, both at March 31, 1995 and December 31, 1994,
certain obligations included in current liabilities aggregating approximately
$.5 million which either are in dispute or are expected to be paid from funds
provided from noncurrent assets rather than from current assets.
Receivable from utility relates to the Scrubgrass project and was
$1,108,311 at March 31, 1995 as compared to $5,370,098 at December 31, 1994. The
receivable at December 31, 1994 represents electric generation for the months of
November and December. The receivable at March 31, 1995 represents electric
generation for the month of March and was lower than expected due to
unscheduled outage.
Receivable from sale of affiliate relates to the Sunnyside project as
mentioned above and was $1,453,724 and $4,165,900 at March 31, 1995 and December
31, 1994, respectively. On January 5, 1995 the Company received approximately
$2.8 million in cash representing a portion of its proceeds from the sale.
Other current assets were $1,397,311 at March 31, 1995 as compared to
$2,093,051 at December 31, 1994. The decrease is primarily due to the
collection of receivables for the reimbursement of overhead expenses related to
the Scrubgrass project.
Deferred income tax asset at March 31, 1995 was $6,493,245 as compared to
$4,995,245 as of December 31, 1994. The increase is due to the federal income
tax benefit recorded for 1995.
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<PAGE>
Accrued power generation revenue increased to $6,379,428 at March 31, 1995
as compared to $5,311,324 at December 31, 1994. This relates to the Scrubgrass
project and represents the receivable recorded as a result of the straight-line
accounting treatment of certain revenues under the power purchase agreement.
Accounts payable and accrued expenses decreased to $5,971,198 at March 31,
1995 from $6,969,386 at December 31, 1994. The decrease is due to the payment of
such liabilities during the quarter.
Other current liabilities decreased to $1,138,662 at March 31, 1995 from
$3,559,851 at December 31, 1994. The decrease is primarily due to the settlement
payment in full of approximately $1.5 million to the DBL Liquidating Trust
together with a $900,000 repayment of the Scrubgrass working capital loan.
Accrued lease expense was $6,379,428 at March 31, 1995 as compared to
$5,311,324 at December 31, 1994. This relates to the Scrubgrass project and
represents accrued lease expense recorded as a result of the straight-line
accounting treatment of the lease expense over the 22 year lease term.
Results of Operations
- - - ---------------------
Revenues & Expenses
Power generation revenues for the quarter ended March 31, 1995 were
$7,943,959 and represent power generation at the Scrubgrass project, which the
Company began leasing on June 30, 1994. Power generation revenues for the
quarter ended March 31, 1994 were $4,411,469 and represent power generation at
the Sunnyside project in which the Company sold its remaining interest on
December 31, 1994.
Lease expense relates to the Scrubgrass project and was $5,375,173 for the
quarter ended March 31, 1995 as compared to the absence of such expenses for the
first quarter of 1994.
Operating expenses for the quarter ended March 31, 1995 relate to the
Scrubgrass project and were $5,620,642. Operating expenses for the quarter ended
March 31, 1994 relate to the Sunnyside project and were $1,892,264.
General and administrative expenses for the quarter ended March 31, 1995
were $811,313 as compared to $285,994 for the quarter ended March 31, 1994. The
increase is primarily due to third-party management expenses related to the
Scrubgrass project.
Depreciation and amortization expenses for the quarter ended
March 31, 1995 were $41,680 as compared to $970,992 for the quarter ended March
31, 1994. The decrease is primarily due to the sale in 1994 of the Sunnyside
project as mentioned above.
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<PAGE>
Interest income for the quarter ended March 31, 1995 was $108,698 and is
primarily related to notes receivable in connection with the 1994 sale of the
Sunnyside project. Interest income for the quarter ended March 31, 1994 was
$285,994 and is primarily due to investment earnings on assets held by trustee
and reserves related to the Sunnyside project.
Interest expense declined to $27,497 for the quarter ended March 31, 1995
from $2,853,994 for the quarter ended March 31, 1994 primarily as a result of
the 1994 sale of the Sunnyside project as mentioned above.
Minority interest relates to the Sunnyside project and for the quarter
ended March 31, 1994 was $213,951 as compared to the absence of such expense
during the first quarter of 1995.
Other income for the quarter ended March 31, 1995 was $77,103 and
represents the current period amortization of the deferred gain of $6,785,035
arising from the original sale of the Scrubgrass project in 1990. The deferred
gain is being amortized over the 22 year minimum lease term, which commenced on
June 30, 1994.
Liquidity and Capital Resources
- - - -------------------------------
The Company's principal sources of cash to continue its general corporate
activities in 1995 will be from current cash balances, additional proceeds
received pursuant to the 1994 sale of the Sunnyside project, interest income on
short-term investments and from cash flows which may become available from the
Scrubgrass project. Various contractual obligations or potential obligations may
require that any cash flows from the Scrubgrass project be used to increase
certain reserve accounts and/or be used to fund contractual obligations of the
project, and, therefore, may not be available to the Company. During the first
quarter of 1995, management has undertaken a cost reduction program to
significantly reduce general corporate overhead.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Computation of earnings per share
(b) Reports on Form 8-K - None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENVIRONMENTAL POWER CORPORATION
May 12, 1995 Bayard R. Kraft III
--------------------------------
Bayard R. Kraft III
Treasurer and
Chief Financial Officer
(principal accounting officer
and authorized officer)
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<PAGE>
EXHIBIT 11
Environmental Power Corporation
Computation of Loss Per Share
March 31, 1995
Weighted Average number of shares outstanding 10,635,512
==========
Net loss for the three months ended
March 31, 1995 $ (2,248,545)
Loss Per share - primary and fully diluted $ (.21)
============
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Condensed Consolidated Financial Statements of the Company at March 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 991,243
<SECURITIES> 0
<RECEIVABLES> 2,562,035
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,950,589
<PP&E> 7,088,213
<DEPRECIATION> 45,032
<TOTAL-ASSETS> 31,454,983
<CURRENT-LIABILITIES> 7,109,860
<BONDS> 0
<COMMON> 107,622
0
0
<OTHER-SE> 2,116,929
<TOTAL-LIABILITY-AND-EQUITY> 31,454,983
<SALES> 7,943,959
<TOTAL-REVENUES> 8,129,760
<CGS> 6,473,635
<TOTAL-COSTS> 6,473,635
<OTHER-EXPENSES> 5,375,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,497
<INCOME-PRETAX> (3,746,545)
<INCOME-TAX> (1,498,000)<F1>
<INCOME-CONTINUING> (2,248,545)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,248,545)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
<FN>
<F1> Income tax expense is shown as a benefit
</FN>
</TABLE>
