TARRYTOWN, N.Y., Nov. 10 /PRNewswire-FirstCall/ -- Environmental
Power Corporation (NASDAQ:EPG) ("we", "us", "EPC", or the
"Company") announced results for the third quarter ended September
30, 2009 and is providing the following business update. Business
Commentary During the last quarter, the Company continued to pursue
a number of initiatives aimed at moving from a development stage
company to a sustainable operating company. Accomplishments
included the following, which will be further described later in
this press release: -- Huckabay Ridge operations are performing at
or exceeding targeted reliability levels and producing our RNG®
product in accordance with expectations. -- We entered into an
on-site energy services agreement with Alcor Energy Services to
allow us to redirect 147,000 MMBtus of RNG now used as parasitic
load at Huckabay Ridge into saleable RNG® product, which is
expected to result in improved operating margins. -- The Company
has been working with Marathon Capital, LLC to obtain final
financing proposals from prospective investors in support of its
announced project pipeline. As a result of these activities,
Environmental Power and its subsidiary, Microgy Holdings, LLC, have
entered into a non-binding letter of intent with a potential
investor relating to, among other things, the purchase of newly
issued equity interests in Microgy Holdings. -- We reduced G&A
costs by more than 25%, and expect to maintain these reductions for
the remainder of 2009. We are presently negotiating with our tax
exempt bondholders to establish a new agreement related to the
build out of our Texas and California portfolios. In addition, we
continue to actively seek interim financing which will be required
during the fourth quarter of 2009 in order for us to meet our
financial obligations. Market Update We continue to experience very
positive market conditions for our RNG® product as a source of
carbon neutral gas for utility and industrial companies and we
anticipate that federal renewable energy incentives, a national
Renewable Electricity Standard ("RES"), and a mandatory
cap-and-trade program will increase the demand and value of our
RNG® product and associated greenhouse gas offset credits. Demand
for our RNG® product remains high because it can be used as a fuel
in existing plant assets, is available 24/7, does not require new
electric transmission capacity and does not impact the market for
food-related crops. While "brown" natural gas prices remain
relatively low, we believe that our principal competition is not
this form of gas but rather the cost of other renewables such as
wind and solar on an equivalent energy basis and our agreements
support this pricing. In July 2008, the California PUC published an
analysis showing that biogas is still the most competitive form of
renewable energy available in the market today. As such, we have
been able to secure long term sales agreements with PG&E and
Xcel, both of which have received their respective PUC approvals.
Utilities are becoming more proactive in pursuit of renewable
options as they prepare for a new carbon constrained world and the
requirement of a national RES. We expect demand for our RNG®
product to remain high and even increase as both utilities and
industrial organizations strive to improve environmental
stewardship and address the new regulatory regime related to
renewables and carbon. We believe the market for our unique
product, which addresses the environmental needs of the
agricultural and food processing sectors while creating a versatile
and renewable energy product with greenhouse gas offset credits,
will be a key component in addressing the future energy and
environmental needs of the US. Financial Results The Company had a
net loss applicable to common shareholders of $8.3 million, or a
loss per common share of $0.53, for the quarter ended September 30,
2009, as compared to a net loss applicable to common shareholders
of $5.1 million, or loss per common share of $0.33 for the quarter
ended September 30, 2008. The results for the third quarter 2009
included a one-time, non-cash write-down of certain assets of $5.9
million required by applicable accounting rules as a result of the
expected redemption of a portion of the California and Texas bonds.
Without this write-down, our net loss applicable to common
shareholders would have been $2.4 million, a substantial
improvement over the loss for the third quarter of 2008 of $5.1
million. The reduction in net loss for the third quarter of 2009 as
compared to the third quarter of 2008, before impairment of assets,
was $2.7 million. The reduction in the net loss in 2009 is
primarily due to a reduction in general and administrative expenses
in 2009 as a result of management's cost reduction program and
improved operating results at the Huckabay Ridge facility.
Revenues. Revenues for the three months ended September 30, 2009
increased to $1.4 million, as compared to $0.5 million during the
third quarter of 2008. The increase in revenues is principally due
to increased revenues at Huckabay of $0.9 million as a result of
substantially reduced down time and increased productivity.
Operations and maintenance expenses. Operations and maintenance
expenses declined by $1.0 million in the third quarter of 2009 to
$0.7 million, as compared to $1.8 million for the third quarter of
2008. The reduction in operations and maintenance expenses
principally reflects lower operating expenses at Huckabay Ridge. In
the third quarter of 2009, start-up and non-recurring expenses at
Huckabay Ridge were significantly reduced from 2008 levels.
Insurance proceeds received in the third quarter of 2009 also
resulted in lower operations and maintenance costs in the third
quarter of 2009. General and administrative expenses. General and
administrative expenses were $1.6 million for the three months
ended September 30, 2009, as compared to $2.9 million for the three
months ended September 30, 2008, a reduction of $1.3 million. This
reduction reflects lower salary expenses as a result of the
Company's cost reduction program, lower non-cash compensation
expenses in 2009 and reduced development expenses in 2009 as we
slowed development efforts in order to conserve cash pending our
fundraising initiatives. Excluding the decline in non-cash
compensation expenses, general and administrative expenses declined
to $1.5 million in the third quarter of 2009 as compared to $2.8
million for the third quarter of 2008, a reduction of $1.3 million.
Depreciation and amortization expenses. Depreciation and
amortization expense was $0.4 million for the third quarters of
both 2009 and 2008. Operating loss. As a result of the factors
described above, the operating loss from continuing operations
during the third quarter of 2009 was $7.2 million (or $1.4 million
before the non-cash write-down for the impairment of assets
described above), as compared to an operating loss of $4.6 million
for the third quarter of 2008. Interest income. Interest income
declined to $0.02 million in the third quarter of 2009, as compared
to $0.1 million in the third quarter of 2008. Interest income
declined due both to lower invested cash balances and lower
interest rates on such balances. Interest expense. Interest expense
increased by $0.4 million to $0.7 million for the third quarter of
2009, as compared to $0.3 million for the third quarter of 2008.
The increase in interest expense was due principally to the fact we
accrued $0.3 million in interest expense on $8.0 million original
principal amount of our 14% convertible notes which were issued in
March and May 2009. Interest expense in the third quarter of 2009
also increased because we expensed $0.1 million related to our
Swift facility in Grand Island, Nebraska in connection with our
temporary suspension of construction as of April 1, 2009, whereas
we had capitalized these costs in the third quarter of 2008. A
complete presentation of the Company's financial results for the
three months ended September 30, 2009, and management's discussion
and analysis thereof, is included in the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2009, which was
filed with the Securities and Exchange Commission on November 9,
2009 and is available on the Company's web site. Our accountants,
Caturano & Company, P.C., noted in their audit opinion included
in our annual report on Form 10-K that the financial statements
included in the 10-K were prepared assuming that the Company will
continue as a going concern. This qualification continues to apply
to our financial statements set forth in our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2009. The Company's
recurring losses from operations, its need to raise substantial
additional capital and its current cash balance relative to
obligations, contractual commitments, and corporate overhead
requirements raise substantial doubt about its ability to continue
as a going concern. The consolidated financial statements included
in our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009 do not include any adjustments that might result
from the outcome of this uncertainty. Financing Initiatives As of
September 30, 2009, the Company's unrestricted cash and cash
equivalents amounted to $1.1 million. The Company continues to
aggressively pursue capital from a number of sources, with the goal
of securing financing during the fourth quarter of 2009. The level
of funds that the Company is able to raise, if any, will determine
the level of development and construction activity that it can
pursue and whether it will be able to continue as a going concern.
Currently, our facility at Huckabay Ridge, Texas, which is
operating reliably, is anticipated to generate cash flow over the
balance of the year. However, the cash we project to be generated
from Huckabay Ridge, by itself, will be insufficient to meet our
short-term and long-term corporate and project-related capital
requirements. As previously announced, the Company has been working
with Marathon Capital, LLC to obtain final financing proposals from
prospective investors in support of its announced project pipeline.
As a result of these activities, Environmental Power and its
subsidiary, Microgy Holdings, LLC, have entered into a non-binding
letter of intent with a potential investor relating to, among other
things, the purchase of newly issued equity interests in Microgy
Holdings, the proceeds of which would be used for the completion of
certain projects currently under development and construction by
Microgy Holdings and its subsidiaries, as well as reimbursement of
certain intercompany receivables owed by Microgy Holdings to
Environmental Power. The letter of intent also addresses the
development and funding of future projects based on Microgy's
technology. The letter of intent is not binding, and the
transactions contemplated thereby remain subject to investor
due-diligence and the negotiation, execution and delivery of
definitive agreements. We cannot assure you that any such
definitive agreements will be entered into or that the transactions
contemplated by the letter of intent will be executed. The
potential investor has the right to terminate the non-binding
letter of intent at any time for any reason. In addition,
Environmental Power will need to continue to seek interim financing
to fund operations while it seeks to finalize and close the
transactions contemplated by the letter of intent. Tax Exempt
Bondholder Negotiations Microgy Holdings and the holders of the
California tax-exempt bonds (the "Bondholders") have entered into a
series of agreements to extend the time in which the Bondholders
may redeem the California bonds in anticipation of a modified
agreement described below. We currently anticipate signing this
amended agreement on or about November 15, 2009. If executed, we
expect that the amended and restated agreement would have the
following significant terms: -- 50% of the California bonds would
be redeemed (representing bonds allocable to one of the two
projects originally financed) or $31,212,500. -- 25% of the Texas
bonds would be redeemed (representing bonds allocable to the
Mission project) or $15,000,000. -- Microgy Holdings would be
required to raise at least $32,500,000 by March 31, 2010, with
certain specified amounts dedicated to capitalized interest and
equity contributions in respect of the remaining Texas and
California facilities. If Microgy Holdings fails to raise the
required capital, the Bondholders would have the right to demand on
or before April 15, 2010, redemption of all of the remaining
California bonds and repayment of the remaining Texas bonds except
for those bonds allocable to Huckabay Ridge. Upon successful
negotiations, the redemption and repurchase would be funded solely
out of restricted cash. Our unrestricted cash balances will be
unaffected, except for the payment of certain transactional fees
and expenses. Because we believe that the transaction will be
completed on or about November 15, 2009, and a portion of our Texas
and California tax-exempt bonds will be redeemed, we are required
to record non-cash impairments, basically writing-off the
respective projects construction-in-progress on our financial
statements for the quarter and nine months ended September 30,
2009, as set forth in our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009. The majority of this write-off is
capitalized interest, totaling $5.9 million for our Mission Dairy,
Texas project and one of our three California projects. It should
be noted that the recording of these impairments is required by the
accounting rules and does not mean we that we may not complete
these projects at a future date. We still retain valid permits at
these sites and other items of value to us, such as relationships
with local farms and preliminary designs and plans, which we may
utilize when we are able to obtain financing for these projects and
proceed with their development. Project Status Huckabay Ridge Our
previously reported comprehensive upgrades to
process-instrumentation and controls, the gas conditioning system
and the gas-collection system at Huckabay Ridge continue to deliver
improved online reliability. Indeed, during the period from July
through September, we were producing product between 90% and 96% of
the time versus a targeted level of 90%. After an outage in early
October to repair and modify elements in the gas processing system,
the Huckabay Ridge facility produced RNG® product 97% of the time
with production averaging 87% of target for the period. RNG®
production for the last 11 days of the month averaged 95% of target
as the system stabilized. We achieved this level of performance
while meeting or exceeding pipeline-quality standards for the
removal of C02, H2S, and H2O. These results confirm our confidence
in our operating model and give us added confidence in our ability
to manage the biogas-generation process as we look forward to our
next generation of operating units. We continue to experience
biogas production at or above expected levels based on substrate
characteristics. We have successfully managed through the
recessionary conditions experienced earlier in 2009, which had
resulted in our suppliers curtailing operations or experiencing
lower quantities of materials, which in turn had caused us to
transport substrate material from greater distance, impacting our
cost to transport. As a result, we established a substrate sourcing
plan to address our needs, have executed on the plan and have
achieved the results we expected - reduced costs, increased biogas
production and more consistent supply. Our budgeted net substrate
cost was $30,000 for the month of September and $25,000 for
October. Our actual performance was much better, as we had net
substrate costs of $4,000 in September and $2,000 in October. A
positive result of expanding our reach of suppliers based on this
sourcing plan is the improvement in the pool of suppliers for
Huckabay Ridge as well as an enlarged and secure pool of suppliers
for our other Texas projects. In addition, as the biodiesel
industry turns around we are prepared to take delivery of glycerin,
an excellent form of substrate, as project economic conditions
dictate. As part of our continuing efforts to optimize RNG® product
sales, we entered into an energy services agreement with Alcor
Energy Solutions, which will install a combined heat and power
(CHP) plant at our Huckabay Ridge project to provide efficient
thermal and electrical energy under a long term agreement. This
arrangement will allow us to increase sales of our RNG® by
redirecting gas now used for the facility's parasitic load, which
had increased due to modifications required by the gas conditioning
process, to revenue generating product. The net effect is expected
to be an increase in revenue, as we now anticipate producing an
estimated annual sales volume of 782,000 MMBtus per year, an
estimated increase of 147,000 MMBtus per year of RNG® product sales
above the previously announced target. We expect that this enhanced
sales volume and the resulting increased revenue will be partially
offset by increased thermal costs, but at a lower value than our
RNG® product sales under the long term PG&E contract. We expect
that overall operating margins will further be enhanced due to
reduced electric costs for the facility. The CHP facility is
expected to be in operation during the first quarter of 2010, as
Alcor has begun permitting initiatives and procuring major
equipment to support project implementation. As previously noted,
we are actively assessing the benefits of producing or purchasing
lower cost energy for our parasitic requirements at all our
development projects, either by utilizing a similar CHP process as
at Huckabay Ridge or other means which would result in an
additional increase in RNG® product sales volume, offset by the net
cost of energy procured. Other Texas Facilities The Rio Leche and
Cnossen projects are slated to resume site construction activities
upon successful completion of our financing initiatives presently
underway. Both facilities are fully permitted and have undergone
partial site preparation and other precursor steps to construction.
Engineering work is underway for these projects and we are in the
process of preparing RFPs for the procurement of long lead-time
equipment packages. California We are presently awaiting final
resolution of the Tax Exempt Bondholder agreement and the capital
raise contemplated by the Marathon initiatives to determine the
next course of action with regards to the scheduling of the
build-out of our California projects. All material permits are in
place for three projects and full engineering specifications are
being completed. Nebraska Construction at Microgy's Grand Island
biogas facility progressed through the first quarter of 2009, with
major equipment procurement nearly complete. We temporarily
suspended construction on this facility effective April 1, 2009,
pending the results of our financing initiatives. Operations are
expected to commence in 2010, pending the Company securing the
equity funds necessary for the completion of this project. The
plant is expected to produce 235,000 MMBtu per year of biogas that
will be purchased by Swift under a fifteen year gas purchase
agreement to offset natural gas consumption at Swift Grand Island.
Swift will be providing all the necessary feedstock material, both
manure and substrate, required by our process. Federal Initiatives
Update As part of our continuing pursuit of grants, credits, loans
and loan-guarantees available under federal and state programs, we
applied for and have been approved to receive payments under a new
program administered by the U.S. Department of Agriculture Rural
Business Cooperative Service known as the "Advanced Biofuel Payment
Program." The objective of this USDA program is to accelerate the
investment in and production of biofuel to increase America's
energy independence and spur rural economic development. The
program will operate for four years, offering payment incentives to
encourage the production and use of verifiable quantities of
biofuel meeting certain criteria. The Huckabay Ridge facility met
the definition of being an advanced biofuel producer because it
produces pipeline-grade renewable gas from cellulosic biomass and
other feedstocks including waste material from animals, animal
byproducts, and food waste. Payments are expected to begin this
month and under present program terms are expected to amount to
approximately $400,000 over four years. As we track the many
pending legislative initiatives at the federal level, we are of
course gratified by the growing recognition of biogas as a valued
byproduct of biomass. For example, HR 2454, the American Clean
Energy and Security Act of 2009, specifically includes biogas
produced from biomass as a renewable energy resource for purposes
of the proposed federal renewable electricity standard as proposed
therein. More, however, needs to happen at the federal level, and
we therefore continue to pursue parity for renewable gas production
under the Internal Revenue Code. The existing tax-credit and grant
programs as currently interpreted by Treasury are not helpful to
our sector, as those programs require the production of electricity
to qualify. Biomass sources such as those that we use are located
in remote areas where power rates do not support on-site
generation, where air permits may be difficult to obtain depending
on state rules, and/or where electrical interconnection may not be
feasible. We and others in our sector - along with major users of
our renewable product -- are thus working diligently to secure an
appropriate tax credit and grant program for pipeline-quality
renewable gas production. Closing Statement The organization has
been focused and committed to transforming itself from a late stage
development company to a sustainable operating entity and leader in
its field. We believe that our RNG® product continues to be one of
the most reliable, cost effective renewable sources of energy that
can be used in existing electric production facilities. The
uniqueness of our Company, the shovel-ready nature of our projects,
and our leadership present a unique opportunity for others to
participate in our projects. While we face serious financial
challenges in both the short and long-term, we are aggressively
pursuing the financing we need. We like to thank all the investors
who have supported our organization, especially during these
challenging economic times. ABOUT ENVIRONMENTAL POWER CORPORATION
Environmental Power Corporation is a developer, owner, and operator
of renewable energy production facilities. Our principal operating
subsidiary, Microgy, Inc., develops and operates proven large
scale, commercial anaerobic digestion based projects which produce
a versatile methane-rich biogas from livestock waste and other
organic sources. For more information visit the Company's web site
at http://www.environmentalpower.com/. CAUTIONARY STATEMENT The
Private Securities Litigation Reform Act of 1995, referred to as
the PSLRA, provides a "safe harbor" for forward-looking statements.
Certain statements contained in this press release, such as
statements concerning financing, our planned manure-to-energy
systems, our sales pipeline, our backlog, our projected sales and
financial performance, statements containing the words "may,"
"assumes," "forecasts," "positions," "predicts," "strategy,"
"will," "expects," "estimates," "anticipates," "believes,"
"projects," "intends," "plans," "budgets," "potential," "continue,"
"targets" "proposed," and variations thereof, and other statements
contained in this press release regarding matters that are not
historical facts are forward-looking statements as such term is
defined in the PSLRA. Because such statements involve risks and
uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors
that could cause actual results to differ materially include, but
are not limited to: uncertainties involving development-stage
companies; uncertainties regarding corporate and project financing
and our ability to continue as a going concern, the lack of binding
commitments and/or the need to negotiate and execute definitive
agreements for the construction and financing of projects, the sale
of project output, the supply of substrate and other requirements
and for other matters; financing and cash flow requirements and
uncertainties; inexperience with the development of multi-digester
projects; risks relating to fluctuations in the price of commodity
fuels like natural gas, and our inexperience with managing such
risks; difficulties involved in developing and executing a business
plan; difficulties and uncertainties regarding acquisitions;
technological uncertainties; including those relating to competing
products and technologies; risks relating to managing and
integrating acquired businesses; unpredictable developments;
including plant outages and repair requirements; the difficulty of
estimating construction, development, repair and maintenance costs
and timeframes; the uncertainties involved in estimating insurance
and implied warranty recoveries, if any; the inability to predict
the course or outcome of any negotiations with parties involved
with our projects; uncertainties relating to general economic and
industry conditions, and the amount and rate of growth in expenses;
uncertainties relating to government and regulatory policies and
the legal environment; uncertainties relating to the availability
of tax credits, deductions, rebates and similar incentives;
intellectual property issues; the competitive environment in which
Environmental Power Corporation and its subsidiaries operate and
other factors, including those described in our most recent Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, well as in
other filings we make with the Securities and Exchange Commission.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date that
they are made. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise. CONTACT: Company Contact
Public Relations Contact Scott Tetenman John Abrashkin Manager of
Project Financing and Treasury Ricochet Public Relations
Environmental Power Corporation (212) 679-3300 x121 914 631-1435
x42 DATASOURCE: Environmental Power Corporation CONTACT: Company
Contact: Scott Tetenman, Manager of Project Financing and Treasury,
of Environmental Power Corporation, +1-914-631-1435 ext. 42, ; or
Public Relations Contact, John Abrashkin of Ricochet Public
Relations, +1-212-679-3300 ext. 121, Web Site:
http://www.environmentalpower.com/
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