Environmental Power Corporation (Environmental Power) has reported revenues of $2.9 million for the year-end 2008, compared with the revenues of $1.2 million in the previous year-end. It has also reported a net loss applicable to common shareholders of $17.3 million, or $1.11 loss per share, for the year-end 2008, compared with the net loss applicable to common shareholders of $18.9 million, or $1.66 loss per share, in the previous year-end.
During the last quarter, the company undertook a number of initiatives in its transformation from a development based company to a sustainable operating company. These initiatives include the following, which will be further described later in this press release:
Confirm Huckabay Ridge Operating Performance – Completed system modifications to Huckabay Ridge, and are presently in the performance test period set forth in the California bond draw conditions, as we have achieved targeted RNG production levels.
Enhanced Capital Structure – Pursued a parallel strategy to raise the necessary funds for our equity commitments related to our announced projects, specifically:
-Closed on the sale of $5.0 million of our convertible notes, and are seeking further corporate-level financing.
-Hired Marathon Capital, LLC to assist us in identifying and managing discussions with entities interested in investing in our projects.
-Evaluating the availability of funds under the federal stimulus package and other federal programs for our shovel-ready projects.
Seek Parity with Other Renewables and Biofuels – Supporting recently introduced legislation creating tradable tax-credits for the production of renewable natural gas from waste products.
Project Costs – Taking advantage of the decrease in the cost of commodities to reduce our project capital costs and therefore improve project returns.
Reduce G&A Costs – Reduced G&A costs by 25% and maintain reductions for 2009.
These initiatives formed the framework for our decision making and focused the organization at the inflection point in its growth cycle, as the company transform our company into a sustainable operating entity and maintain its leadership position in the RNG sector.
The company continues to experience very positive market conditions for our RNG product as a source of carbon neutral gas for utilities and industrials, and the company also expects that the new administration with its focus on increasing renewable energy production and addressing the nation’s carbon footprint through a mandatory cap and trade program will enhance our business prospects. We anticipate federal renewable energy incentives, increased demand for our RNG(R) product with the establishment of a national Renewable Electricity Standard, and a further enhancement of the value of our greenhouse gas offset credits due to the anticipated mandatory cap and trade program.
The company recent announcement of the Xcel RNG sales agreement further reinforces the value of our carbon neutral gas as a long term solution for utilities to meet their renewable goals at appropriate renewable energy prices even during times of low natural gas prices. The increased desire to improve environmental stewardship by a broad range of industries, which have chosen to voluntarily reduce their carbon footprint, has also increased the demand for our RNG product. While focusing on greenhouse gas offset credits in the past, the availability of our RNG product has also generated a new market potential for their use of our RNG as their energy source to lower their carbon footprint.
The company believes the market for our unique product which addresses the environmental needs of the agriculture 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.
The net loss in 2008 includes income of $7.0 million on discontinued operations in 2008, as compared to a loss from discontinued operations of $6.2 million in 2007. The net income from discontinued operations in 2008 is due to an $8.0 million gain, substantially non-cash in nature, from the disposal of discontinued operations in February 2008. This gain was partially offset by a loss from discontinued operations of $1.0 million in 2008.
The company’s net loss from continuing operations was $23.0 million for the year ended December 31, 2008, as compared to a net loss from continuing operations of $11.2 million for the year ended December 31, 2007. The net loss for 2008 includes a non-recurring, non-cash charge for impairment of goodwill of $4.9 million. Previously, the market price of the company’s common stock and, consequently, its market capitalization were relatively high compared to the book value per share of its common stock. However, this year the company’s market value is substantially below its book value, due principally to the current market price of its common stock. As a result, accounting requirements require the company to determine whether there is enough market value after covering other net assets on a book basis to cover any of its goodwill. The company determined that market value was insufficient to cover goodwill, and determined that the write-off was required. The write-off of goodwill is not a reflection on the economics of the company’s projects, which the company continues to stand behind, but is simply the result of the application of accounting requirements associated with goodwill impairment.
Other factors that affected our operating results from continuing operations in 2008 include:
Operations and maintenance expenses increased from $0.9 million for the year ended December 31, 2007 to $7.1 million in 2008. The increase was due to activity at Huckabay Ridge and included a substantial amount of non-recurring expenses and start up costs relating principally to the repairs and upgrades mentioned above.
General and administrative expenses declined to $12.0 million in 2008 from $12.4 million in 2007. The reduction was due primarily to reductions in payroll expenses and non-cash compensation expense from the issuance of stock options and stock appreciation rights.
Depreciation and amortization expense increased to $1.4 million for the year ended December 31, 2008 from $0.3 million for the year ended December 31, 2007, reflecting principally eleven months of depreciation expense for 2008 on the Huckabay Ridge facility, which we began depreciating following its completion in February 2008.
Other income and expense declined from income of $1.4 million in 2007 to expense of $0.5 million in 2008. The components of the change include:
Decline in interest income in 2008 of $0.3 million from $0.8 million in 2007 to $0.5 million in 2008 due to lower investment earnings rates.
Interest expense increased to $1.0 million in 2008 from $0.01 million in 2007 because, beginning in February 2008, the company began to expense the interest costs related to the construction of Huckabay Ridge, when this facility began commercial operations.
The results for 2007 include a one time income amount of $0.6 million from the expiration of the statute of limitations on a contingent obligation.
On February 29, 2008, Buzzard Power Corporation, a wholly owned subsidiary of Environmental Power, completed an agreement with Scrubgrass Generating company, L.P., to terminate Buzzard’s leasehold interest in the Scrubgrass waste coal facility. The company recognized a gain of $8.0 million for accounting purposes, of which all but $375,000 was non-cash.