Environmental Power needs more financing to continue operations

By Caroline Salls

Pittsburgh, March 31 - Environmental Power Corp.'s current cash balance will not be sufficient to fund all of its corporate overhead requirements through the second quarter of 2010, according to a 10-K filed with the Securities and Exchange Commission.

The company said it will require substantial additional financing at the project and parent company levels to continue operations and complete the construction of currently planned facilities.

Environmental Power will also need additional funding for ongoing debt service, dividend payments and general and administrative expenses.

As a result, the company has engaged independent financial advisers to explore corporate and project financing opportunities and other strategic alternatives.

If it is unable to obtain adequate financing, Environmental Power said it would most likely need to severely curtail or cease its business operations.

As a result of its failure to make payments, the company said it and its subsidiaries are in default under various obligations, including their 14% convertible notes due Jan. 1, 2014, a Xergi cooperation agreement, Texas tax-exempt bonds and California tax-exempt bonds.

In addition, the company said its Microgy Grand Island, LLC subsidiary failed to make a Dec. 1 interest payment on its Nebraska tax-exempt bonds, but it has not received a notice of default on those bonds.

According to the 10-K, there is currently $560,000 past due on the 14% convertible notes, $23.09 million on the Texas tax-exempt bonds, $8.36 million on the California tax-exempt bonds, $300,000 on the cooperation agreement and $1.33 million in dividends on the company's series A preferred stock.

Environmental Power said it does not currently have enough funds to pay any of these amounts.

The company said the holders of the Texas, California and Nebraska tax-exempt bonds could take steps to foreclose on their collateral in connection with the non-payments, although to date none has done so.

Environmental Power's creditors could also file an involuntary bankruptcy case, or the company may decide to make a voluntary bankruptcy filing, the 10-K said.

During early 2010, the company said it expects to fund its business activities with available cash balances, raising additional funds through debt and/or equity financings or other financing or strategic transactions.

To that end, subsidiary Microgy, Inc. formed a joint development company called HMI Energy, LLC in January under which assets were contributed in connection with the Bar 20 California project and Weld County Colorado project.

In addition, assets could be contributed for up to five additional future projects.

In exchange, Microgy will receive $1.5 million from Homeland Renewable Energy, Inc. and a 30% interest in HMI.

Environmental Power said the requirement for additional financing will be in direct proportion to the number of projects on which it begins construction as well as its construction schedule.

With the closing on a tax-exempt bond issue for the Microgy Grand Island project in July 2008, the company said the initial debt financing of that project is complete, but it will need to raise additional money to complete the project.

The company said it will also need to resolve the existing default under the bonds for this project.

As of Dec. 31, Environmental Power had a $663,000 unrestricted cash balance and a $1.79 million restricted cash balance.

Tarrytown, N.Y.-based Environmental Power is a developer, owner and operator of biogas renewable energy projects.

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