<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
---
of 1934
For the quarterly period ended June 30, 1995 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 0-15472
------------------------------------------------------
Environmental Power Corporation
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2782065
------------------------------ --------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
31 Raynes Avenue, Portsmouth, New Hampshire 03801
-----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (603) 431-1780
--------------------
-----------------------------------------------------------------------------
(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 August 9, 1995 - 10,662,179
-----------------------------
The Exhibit Index appears on Page 10.
Total number of pages is 11.
-1-
<PAGE>
ENVIRONMENTAL POWER CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
-------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1995 (unaudited) and December 31, 1994... 3
Condensed Consolidated Statements of Operations
(unaudited) for the Three and Six Months Ended
June 30, 1995 and June 30, 1994.................... 4
Condensed Consolidated Statements of
Cash Flows (unaudited) for the Six
Months Ended June 30, 1995 and June 30, 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 4. Submission of Matters to a Vote of
Security Holders........................... 10
Item 6. Exhibits and reports on Form 8-K.......... 10
Signatures......................................... 11
</TABLE>
-2-
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1995 1994
----------------- -----------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,736,456 $ 356,527
Receivable from utility 5,696,777 5,370,098
Receivable from sale of
affiliate 666,587 4,165,900
Other current assets 1,735,014 2,093,051
-------------- ---------------
TOTAL CURRENT ASSETS 9,834,834 11,985,576
PROPERTY, PLANT AND EQUIPMENT, NET 7,048,837 7,026,804
DEFERRED INCOME TAX ASSET 6,628,245 4,995,245
LEASE RIGHTS, NET 3,130,029 3,204,531
NOTES RECEIVABLE 3,229,950 3,263,164
ACCRUED POWER GENERATION REVENUE 7,417,790 5,311,324
OTHER ASSETS 175,000 175,000
-------------- ---------------
$ 37,464,685 $ 35,961,644
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
expenses $ 10,556,626 $ 6,969,386
Other current liabilities 2,214,028 3,559,851
-------------- ---------------
TOTAL CURRENT LIABILITIES 12,770,654 10,529,237
DEFERRED GAIN, NET 6,476,624 6,630,830
SECURED PROMISSORY NOTES PAYABLE
AND OTHER BORROWINGS 5,896,270 5,971,270
ACCRUED LEASE EXPENSE 7,417,790 5,311,324
DEFERRED REVENUE 2,942,651 2,825,972
MAINTENANCE RESERVE 500,002 250,000
SHAREHOLDERS' EQUITY
Preferred Stock ($.01 par value;
981,260 shares authorized;
18,740 shares issued at
December 31, 1994) --- 187
Common Stock ($.01 par value;
20,000,000 shares authorized;
10,762,179 shares issued;
10,662,179 shares and
10,582,179 shares outstanding
at June 30, 1995 and December
31, 1994, respectively) 107,622 106,822
Additional paid-in capital 13,082,520 13,963,993
Unearned compensation (107,111) (147,281)
Accumulated deficit (11,145,461) (8,112,974)
-------------- ---------------
1,937,570 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)
-------------- ---------------
1,460,694 4,443,011
-------------- ---------------
$ 37,464,685 $ 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.
-3-
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
---------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
POWER GENERATION REVENUES $ 9,126,623 $ 4,091,185 $ 17,070,582 $ 8,502,654
---------------- -------------- --------------- -------------
Costs and expenses:
Operating expenses 4,715,783 2,196,932 10,336,425 3,905,215
Lease expense 5,123,830 --- 10,499,003 ---
General and administrative expenses 945,658 414,169 1,756,971 908,317
Depreciation and amortization 41,752 864,607 83,432 1,832,053
---------------- -------------- --------------- -------------
10,827,023 3,475,708 22,675,831 6,645,585
---------------- -------------- --------------- -------------
OPERATING LOSS (1,700,400) 615,477 (5,605,249) 1,857,069
Other Income (Expense):
Interest income 119,724 261,989 228,422 520,039
Interest expense (23,295) (2,779,527) (50,792) (5,612,894)
Minority interest --- 371,889 --- 585,840
Other income 685,028 --- 762,131 ---
---------------- -------------- --------------- -------------
781,457 (2,145,649) 939,761 (4,507,015)
---------------- -------------- --------------- -------------
LOSS BEFORE INCOME TAXES (918,943) (1,530,172) (4,665,488) (2,649,946)
INCOME TAX BENEFIT -- Note B 135,000 535,560 1,633,000 927,481
---------------- -------------- --------------- -------------
NET LOSS $ (783,943) $ (994,612) $ (3,032,488) $ (1,722,465)
================ ============== =============== =============
NET LOSS PER SHARE -- Note C $ (0.07) $ (0.09) $ (0.28) $ (0.16)
================ ============== =============== =============
</TABLE>
No dividends were paid or declared during the periods presented.
See notes to condensed consolidated financial statements.
-4-
<PAGE>
ENVIRONMENTAL POWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (3,032,488) $ (1,722,465)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 83,432 1,839,409
Deferred income taxes (1,633,000) (1,216,778)
Amortization of deferred gain (154,206) ---
Minority interest --- (805,560)
Amortization of unearned compensation 40,170 ---
Accrued power generation revenue (2,106,466) ---
Accrued lease expense 2,106,466 ---
Changes in operating assets
and liabilities:
Increase in receivable from utility (326,679) (514,079)
Decrease in receivable from sale 3,499,313 ---
of affiliate
Decrease in other current assets 391,251 114,044
Increase (decrease) in accounts
payable and accrued expenses 3,587,240 (1,853,438)
Increase in deferred revenue 116,679 ---
Increase (decrease) in other
current liabilities (1,345,823) 490,897
Increase in maintenance reserve 250,002 ---
-------------- -------------
Cash provided by (used in)
operating activities 1,475,891 (3,667,970)
-------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of office equipment --- (5,364)
Proceeds from sale of office equipment 1,000 ---
Lease rights expenditures --- 225,981
Restricted deposits and other assets --- 468,185
Property, plant & equipment expenditures 2,960 ---
Capitalized facility under
development expenditures (34,922) (106,550)
-------------- -------------
Cash (used in) provided by
investing activities (30,962) 582,252
-------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from tax exempt borrowings and
equity bridge loans --- 5,788,449
Payment of secured promissory notes
payable and other borrowings (75,000) (565,917)
Proceeds from sale of common stock 10,000 ---
-------------- -------------
Cash (used in) provided by
financing activities (65,000) 5,222,532
-------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,379,929 2,136,814
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 356,527 9,065,413
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,736,456 $ 11,202,227
============== =============
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
ENVIRONMENTAL POWER CORPORATION
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 and six months ended June 30, 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.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
----------------------------------------------------------
FINANCIAL CONDITION
-------------------
On June 30, 1995, the Company had cash and cash equivalents of $1,736,456
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 sale of the Company's
remaining interest in the Sunnyside project on December 31, 1994.
On June 30, 1995, the Company had a deficit in working capital of
$2,935,820 as 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 and second quarter operating losses aggregating approximately
$4.65 million related to the Scrubgrass project. The Company itself is not
obligated to pay such liabilities and its subsidiary, Buzzard Power Corporation,
the lessee of the Scrubgrass project, is only obligated to pay such liabilities
out of future operations or project refinancing. The Company has included for
accounting purposes, both at June 30, 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
$5,696,777 at June 30, 1995 as compared to $5,370,098 at December 31, 1994.
Receivable from sale of affiliate relates to the Sunnyside project as
mentioned above and was $666,587 and $4,165,900 at June 30, 1995 and December
31, 1994, respectively. Through June 30, 1995 the Company has received
approximately $3.5 million in cash representing a portion of its proceeds from
the sale.
Other current assets were $1,735,014 at June 30, 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 June 30, 1995 was $6,628,245 as compared to
$4,995,245 as of December 31, 1994. The increase is due to the federal income
tax benefit recorded for 1995.
Accrued power generation revenue increased to $7,417,790 at June 30, 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.
-7-
<PAGE>
Accounts payable and accrued expenses increased to $10,556,626 at June 30,
1995 from $6,969,386 at December 31, 1994. The increase is primarily related to
Scrubgrass operating losses during the first and second quarter.
Other current liabilities decreased to $2,214,028 at June 30, 1995 from
$3,559,851 at December 31, 1994. The decrease is primarily due to the settlement
payment in full during the first quarter of approximately $1.5 million to the
DBL Liquidating Trust.
Accrued lease expense was $7,417,790 at June 30, 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 three and six months ended June 30, 1995
were $9,126,623 and $17,070,582, respectively and represent power generation
at the Scrubgrass project, which the Company began leasing on June 30, 1994.
Power generation revenues for the three and six months ended June 30, 1994
were $4,091,185 and $8,502,654, respectively and represent power generation at
the Sunnyside project in which the Company sold its remaining interest on
December 31, 1994.
Operating expenses for the three and six months ended June 30, 1995 relate
to the Scrubgrass project and were $4,715,783 and $10,336,425, respectively.
Operating expenses for the three and six months ended June 30, 1994 relate to
the Sunnyside project and were $2,340,408 and $4,232,672, respectively.
Lease expense relates to the Scrubgrass project and was $5,123,830 and
$10,499,003 for the three and six months ended June 30, 1995 as compared to the
absence of such expenses for the first and second quarters of 1994.
General and administrative expenses for the three and six months ended June
30, 1995 were $945,658 and $1,756,971, respectively as compared to $270,693 and
$580,860, respectively for the three and six months ended June 30, 1994. The
increase is primarily due to third-party management expenses related to the
operation of the Scrubgrass project, which the Company began leasing on June 30,
1994. These are significantly greater than general and administrative expenses
related to the Company's management of the Sunnyside project, which the Company
sold on December 31, 1994. The increase is also due to interim period
expenditure timing differences and a significant decrease in capitalized general
and administrative expenses, which is partially offset by a decline in the
Company's general corporate overhead.
-8-
<PAGE>
Depreciation and amortization expenses for the three and six months ended
June 30, 1995 were $41,752 and $83,432, respectively as compared to $864,607 and
$1,832,053 for the three and six months ended June 30, 1994. The decrease is
primarily due to the sale in 1994 of the Sunnyside project as mentioned above.
Interest income for the three and six months ended June 30, 1995 was
$119,724 and $228,422, respectively and is primarily related to notes receivable
in connection with the 1994 sale of the Sunnyside project. Interest income for
the three and six months ended June 30, 1994 was $261,989 and $520,039,
respectively and is primarily due to investment earnings on assets held by
trustee and reserves related to the Sunnyside project.
Interest expense for the three and six months ended June 30, 1995 was
$23,295 and $50,792, respectively as compared to $2,779,527 and $5,612,894 for
the three and six months ended June 30, 1994. The decline is 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 three and
six months ended June 30, 1994 was $371,889 and $585,840 as compared to the
absence of such expense during 1995.
Other income for the three and six months ended June 30, 1995 was $685,028
and $762,131, respectively as compared to the absence of such income through
June 30, 1994. In 1995 other income consists of a $608,781 sales tax refund
related to the Sunnyside project construction period together with 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 on
a straight-line basis 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. Since the first
quarter of 1995, management has undertaken a cost reduction program to
significantly reduce general corporate overhead. The Company is not directly
able to control such costs attributable to operation of the Scrubgrass project
under the terms of its contractual relationship with the lessors and lenders for
that project.
-9-
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held Thursday, June 29, 1995,
the following action was taken:
1. Election of Directors as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
FOR WITHHELD AUTHORITY
--- ------------------
<S> <C> <C>
Joseph E. Cresci 9,529,803 201,390
Donald A. Livingston 9,529,803 201,390
Peter J. Blampied 9,531,603 199,590
Edward B. Koehler 9,531,903 199,290
Robert I. Weisberg 9,531,903 199,290
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Computation of earnings per share
(b) Reports on Form 8-K - None
-10-
<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
August 9, 1995 By:/s/ Bayard R. Kraft III
----------------------------------
Bayard R. Kraft III
Treasurer and
Chief Financial Officer
(principal accounting officer
and authorized officer)
-11-
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
Environmental Power Corporation
Computation of Loss Per Share
June 30, 1995
Weighted average number
of shares outstanding 10,648,846
============
<S> <C>
Net loss for the three months ended
June 30, 1995 $ (783,943)
Loss per share - primary and fully diluted $ (.07)
============
Net loss for the six months ended
June 30, 1995 $(3,032,488)
Loss per share - primary and fully diluted $ (.28)
============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AT JUNE 30, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,736,456
<SECURITIES> 0
<RECEIVABLES> 6,363,364
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,827,023
<PP&E> 7,053,896
<DEPRECIATION> 48,534
<TOTAL-ASSETS> 37,464,685
<CURRENT-LIABILITIES> 10,529,237
<BONDS> 0
<COMMON> 107,622
0
0
<OTHER-SE> 1,353,072
<TOTAL-LIABILITY-AND-EQUITY> 37,464,685
<SALES> 17,070,582
<TOTAL-REVENUES> 18,061,135
<CGS> 10,336,425
<TOTAL-COSTS> 22,592,399
<OTHER-EXPENSES> 83,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,792
<INCOME-PRETAX> (4,665,488)
<INCOME-TAX> (1,633,000)<F1>
<INCOME-CONTINUING> (3,032,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,032,488)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
<FN>
<F1> INCOME TAX EXPENSE IS SHOWN AS A BENEFIT.
</FN>
</TABLE>
