EUROSITE POWER INC. - FORM 10-Q - November 16, 2015

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015

or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-54484
EUROSITE POWER INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
27-5250881
(State or Other Jurisdiction of Incorporation or Organization)
(IRS Employer Identification No.)
 
 
45 First Avenue
 
Waltham, Massachusetts
02451
(Address of principal Executive Offices)
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (781) 522-6000
____________________________________________________________________________

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non –accelerated filer o
Smaller reporting company x
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Title of each class
 
Outstanding at November 12, 2015
Common Stock, $0.001 par value
 
65,747,100




EUROSITE POWER INC.


QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2015

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
References in this Form 10-Q to “we”, “us”, “our”, the “Company” and “EuroSite Power” refer to EuroSite Power Inc. and its consolidated subsidiaries, unless otherwise noted.

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

EUROSITE POWER INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Current assets:
 

 
 

Cash and cash equivalents
$
1,201,870

 
$
3,776,852

Accounts receivable
204,269

 
152,664

 UK energy tax incentives receivable
—

 
648,917

Value added tax receivable
81,433

 
72,202

Inventory of finished goods
109,983

 
99,925

Other current assets
63,824

 
33,655

Total current assets
1,661,379

 
4,784,215

Property, plant and equipment, net
7,628,973

 
6,348,905

Other assets, long-term
12,444

 
16,764

TOTAL ASSETS
$
9,302,796

 
$
11,149,884

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
516,769

 
$
338,067

Accrued expenses and other current liabilities
262,604

 
130,252

Note payable related party
2,000,000

 
—

Total current liabilities
2,779,373

 
468,319

Long-term liabilities:
 
 
 
Convertible debentures
1,600,309

 
1,645,444

Convertible debentures due to related parties
960,185

 
987,266

     Note payable related party
—

 
3,000,000

Total liabilities
5,339,867

 
6,101,029

Commitments and contingencies (note 5)


 


Stockholders’ equity:
 

 
 

Common stock, $0.001 par value; 100,000,000 shares authorized; 65,747,100 issued and outstanding at September 30, 2015 and December 31, 2014
65,747

 
65,747

Additional paid-in capital
12,204,222

 
12,147,005

Accumulated deficit
(8,307,040
)
 
(7,163,897
)
Total stockholders' equity
3,962,929

 
5,048,855

 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
9,302,796

 
$
11,149,884


See Notes to Condensed Consolidated Financial Statements (Unaudited)

3

EUROSITE POWER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended
 
September 30,
2015
 
September 30,
2014
 
 
 
 
Revenues
 
 
 
Energy revenues
$
410,055

 
$
277,335

Turnkey & other revenues
11,936

 
73,226

 
421,991

 
350,561

Cost of sales
 

 
 

Fuel, maintenance and installation
365,097

 
319,461

Depreciation expense
102,485

 
83,430

 
467,582

 
402,891

Gross profit (loss)
(45,591
)
 
(52,330
)
 
 
 
 
Operating expenses
 

 
 

General and administrative
194,053

 
174,786

Selling
122,826

 
133,720

Engineering
87,853

 
17,617

 
404,732

 
326,123

Loss from operations
(450,323
)
 
(378,453
)
Other income (expense)
 

 
 

Interest and other income
965

 
1,951

Interest expense, net of debt premium amortization
(8,599
)
 
(2,146
)
 
(7,634
)
 
(195
)
 
 
 
 
Loss before income taxes
(457,957
)
 
(378,648
)
Benefit for income taxes
—

 
—

Net loss
$
(457,957
)
 
$
(378,648
)
 
 
 
 
Net loss per share - basic and diluted
$
(0.01
)
 
$
(0.01
)
Weighted-average shares outstanding - basic and diluted
65,747,100

 
56,747,100

 
See Notes to Condensed Consolidated Financial Statements (Unaudited)

4

EUROSITE POWER INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Nine Months Ended
 
September 30,
2015
 
September 30,
2014
 
 
 
 
Revenues
 
 
 
Energy revenues
$
1,473,307

 
$
1,117,980

Turnkey & other revenues
39,711

 
81,324

 
1,513,018

 
1,199,304

Cost of sales
 

 
 

Fuel, maintenance and installation
1,192,276

 
972,088

Depreciation expense
289,621

 
226,892

 
1,481,897

 
1,198,980

Gross profit (loss)
31,121

 
324

 
 
 
 
Operating expenses
 

 
 

General and administrative
627,798

 
603,196

Selling
359,298

 
365,884

Engineering
162,008

 
71,585

 
1,149,104

 
1,040,665

Loss from operations
(1,117,983
)
 
(1,040,341
)
Other income (expense)
 

 
 

Interest and other income
5,277

 
4,760

Interest expense, net of debt premium amortization
(32,625
)
 
(17,630
)
Loss on extinguishment of convertible debt
—

 
(713,577
)
 
(27,348
)
 
(726,447
)
 
 
 
 
Loss before income taxes
(1,145,331
)
 
(1,766,788
)
Benefit for income taxes
2,188

 
—

Net loss
$
(1,143,143
)
 
$
(1,766,788
)
 
 
 
 
Net loss per share - basic and diluted
$
(0.02
)
 
$
(0.03
)
Weighted-average shares outstanding - basic and diluted
65,747,100

 
56,747,100

 
See Notes to Condensed Consolidated Financial Statements (Unaudited)


5



EUROSITE POWER INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
 
September 30,
2015
 
September 30,
2014
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net loss
$
(1,143,143
)
 
$
(1,766,788
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation and amortization
291,465

 
231,514

Loss on extinguishment of debt
—

 
713,577

Amortization of deferred financing costs
—

 
784

Amortization of convertible debt premium
(72,216
)
 
(109,332
)
Stock-based compensation
57,217

 
123,419

Accrued UK tax energy incentives
636,661

 
—

Changes in operating assets and liabilities
 

 
 

(Increase) decrease in:
 

 
 

   Accounts receivable
(51,605
)
 
(16,217
)
   Value added tax receivable
3,025

 
(136,446
)
   Inventory of finished goods
(10,058
)
 
305,036

   Prepaid and other current assets
(27,289
)
 
(55,361
)
   Other assets, long- term
1,440

 
(10,932
)
Increase (decrease) in:
 

 
 

   Accounts payable
178,702

 
248,988

   Accrued expenses and other current liabilities
132,352

 
94,355

Net cash used in operating activities
(3,449
)
 
(377,403
)
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of property, plant and equipment
(1,571,533
)
 
(1,993,153
)
Net cash used in investing activities
(1,571,533
)
 
(1,993,153
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds (payment) on note payable to related party
(1,000,000
)
 
3,000,000

Proceeds from convertible debentures
—

 
1,450,000

Net cash provided by (used in) financing activities
(1,000,000
)
 
4,450,000

 
 
 
 
Net increase (decrease) in cash and cash equivalents
(2,574,982
)
 
2,079,444

Cash and cash equivalents, beginning of the period
3,776,852

 
1,519,602

Cash and cash equivalents, end of the period
$
1,201,870

 
$
3,599,046

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Taxes paid
$
—

 
$
—

Interest paid
$
—

 
$
80,000

 
See Notes to Condensed Consolidated Financial Statements (Unaudited)

6

EUROSITE POWER INC.


Notes to Unaudited Condensed Consolidated Financial Statements for the period ending September 30, 2015.

Note 1. Description of Business and Basis of Presentation
 
Description of Business
 
EuroSite Power Inc., or the Company, we, our or us, distributes, owns and operates clean, on-site energy systems that produce electricity, hot water, heat and cooling in the United Kingdom. The Company’s business model is to own the equipment it installs at customers’ facilities and to sell the energy produced by these systems to the customers on a long-term contractual basis at prices guaranteed to the customer to be below conventional utility rates. The Company calls this business the EuroSite Power “On-Site Utility”.
 
The Company was incorporated as a Delaware corporation on July 9, 2010 as a subsidiary of American DG Energy Inc., or American DG Energy, to introduce American DG Energy’s business model into the United Kingdom and Europe, although as of September 30, 2015, we operated in the United Kingdom only.

The Company has experienced total net losses since inception of approximately $8.3 million. For the foreseeable future, the Company expects to experience continuing operating losses and negative cash flows from operations as its management executes its current business plan. The Company believes that its existing resources, including cash and cash equivalents, future cash flow from operations, its ability to control certain costs, including those related to general and administrative expenses, and the use of capital from its parent company, will be sufficient to meet the working capital requirements of its existing business for the foreseeable future; however, as the Company continues to grow its business by adding more energy systems, the cash requirements will increase. The Company may need to raise additional capital through a debt financing. There can be no assurance, however, that the Company will be successful in these fund-raising efforts or that additional funds will be available on acceptable terms, if at all.

Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015.

The condensed consolidated balance sheet at December 31, 2014 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, or the Annual Report.

There have been no significant changes in accounting principles, practices or inherent estimates.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary EuroSite Power Limited, a United Kingdom registered company.

The Company’s operations are comprised of one business segment. The Company’s business is to sell energy in the form of electricity, heat, hot water and cooling to its customers under long-term sales agreements.
 

7

EUROSITE POWER INC.


Note 2. Loss Per Common Share
 
The Company computes basic loss per share by dividing net loss for the period by the weighted-average number of shares of Common Stock outstanding during the period. The Company computes its diluted earnings per common share using the treasury stock method. For purposes of calculating diluted earnings per share, the Company considers its shares issuable in connection with stock options, warrants and debentures to be dilutive Common Stock equivalents when the exercise price is less than the average fair market value of the Company’s Common Stock for the period. For the three and nine months ended September 30, 2015, the Company excluded 11,165,000 potentially dilutive shares resulting from stock options, warrants and convertible debentures. For the three and nine months ended September 30, 2014, the Company excluded 13,288,333 potentially dilutive shares resulting from stock options, warrants and convertible debentures. All shares issuable for both periods were anti-dilutive as a result of the reported net loss.

Note 3. Income Taxes

The provision (benefit) for income taxes in the accompanying consolidated statements of operations for three and nine months ended September 30, 2015 and 2014 differs from that which would be expected by applying the federal and foreign statutory tax rate primarily due to losses for which no benefit is recognized.
 
Note 4. Related Parties
 
American DG Energy, Tecogen and Ilios, are affiliated companies by virtue of common ownership and common leadership.

The Company purchases the some of its energy equipment from American DG Energy, its parent. American DG Energy purchases energy equipment primarily from Tecogen, an affiliate of the Company, which manufactures natural gas, engine-driven commercial and industrial cooling and cogeneration systems, and from Ilios Inc., or Ilios, a majority-owned subsidiary of Tecogen which is developing a line of ultra-high-efficiency heating products, such as a high efficiency water heater, for commercial and industrial applications utilizing advanced thermodynamic principles.
 
Elias Samaras is the Company's Chief Executive Officer, President, and a member of the board of directors. He is also a member of the board of directors of American DG Energy. His Company salary is $1.00 per year. On average, Mr. Samaras spends approximately 20% of his business time on the affairs of the Company, but such amount varies widely depending on the needs of the business and is expected to increase as the business of the Company develops.

John N. Hatsopoulos is the chairman of the Company's board of directors and is also the Co-Chief Executive Officer of American DG Energy and Tecogen. He is also a member of the board of directors of Tecogen. His Company salary is $1.00 per year. On average, Mr. Hatsopoulos spends approximately 20% of his business time on the affairs of the Company, but such amount varies widely depending on the needs of the business and is expected to increase as the business of the Company develops.

Bonnie Brown is the Chief Financial Officer, treasurer and secretary of the Company and American DG Energy. Her salary is paid by American DG Energy, however a portion was reimbursed by the Company according to the requirements of the business. On average, Ms. Brown spends approximately 20% of her business time on the affairs of the Company, but such amount varied widely depending on the needs of the business.

Gabriel J. Parmese, was the Chief Financial Officer, treasurer and secretary of the Company and American DG Energy until August 12, 2015. His salary was paid by American DG Energy but a portion was reimbursed by the Company according to the requirements of the business. On average, Mr. Parmese spent approximately 15% of his business time on the affairs of the Company, but such amount varied widely depending on the needs of the business.

During the first quarter of 2015, the Company prepaid $1,000,000 of a related party note according to the terms of the agreement.

On July 7, 2015, the Company entered into a Revolving Line of Credit Agreement, (or the "Agreement"), with Elias Samaras, who is the Company's Chief Executive Officer, President, and a member of the board of directors. Under the terms of the Agreement, Mr. Samaras has agreed to lend the Company up to an aggregate of $1 million, at the written request of the Company. Any amounts borrowed by the Company pursuant to the Agreement will bear interest at 6% per year. Interest is due and payable quarterly in arrears. The term of the Agreement is from June 30, 2015 to June 30, 2017. Repayment of the principal amount borrowed pursuant to the Agreement will be due on June 30, 2017. Prepayment of any amounts due under

8

EUROSITE POWER INC.


the Agreement may be made at any time without penalty. As of September 30, 2015, no amounts have been drawn on this line.

The Company’s headquarters are located in Waltham, Massachusetts and consist of 3,282 square feet of office and storage space that are leased from Tecogen and shared with American DG Energy. American DG Energy is not currently charging the Company for utilizing its share of office space in the United States since it believes it is insignificant. The Company currently does not occupy any office space in the United Kingdom or Europe but intends to do so in the future. The Company believes that its facilities are appropriate and adequate for its current needs.

Note 5. Commitments and Contingencies

The Company has certain commitments through its agreements with Tecogen, Ilios, and other related parties. See Note 4 "Related Parties" for more detail.    

Note 6. Subsequent Events

The Company has evaluated subsequent events through the date of this filing and determined that no subsequent events occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto.
     

9

EUROSITE POWER INC.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements
 
Forward-looking statements are made throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements include, among other things, statements regarding our current and future cash requirements, our expectations regarding suppliers of cogeneration units, and statements regarding potential financing activities in the future. While the Company may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the Company’s estimates change. Readers should not rely on those forward-looking statements as representing the Company’s views as of any date subsequent to the date of the filing of this Quarterly Report on Form 10-Q, or the Quarterly Report. There are a number of important factors that could cause the actual results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading “Risk Factors” in this Quarterly Report.

Overview

The Company’s business model is to implement the American DG On-Site Utility model in Europe, which consists of the on-site installation of equipment owned by the Company, together with the sale to the customer of the electricity, heat and/or chilling of the equipment. Generally, this is done on a long-term contractual basis at prices guaranteed to the customer to be below conventional utility rates. The Company calls this business the EuroSite Power “On-Site Utility”. The implementation of this model may result in additional operational costs to the Company because of efforts to adjust a business model designed for United States utilities to the utilities of Europe. Additional capital expenditures may be required to ensure that energy systems function properly. If energy systems are not able to function properly in Europe, this may decrease revenue. In addition, an uncertainty exists where the American DG On-Site Utility model is largely unproven.

The profitability of our business model is highly dependent on the functionality of our energy equipment, the price of electricity, the demand for electricity, and to a lesser extent, the price of natural gas. Increase in demand for electricity tends to cause prices to rise. Higher electricity prices increase the Company’s revenue and liquidity. Lower natural gas prices decrease operational cost. The Company does not have a primary source of natural gas or a principal supplier. The Company buys its natural gas from its customers and its customers contract with various local suppliers of natural gas. The Company does not hedge or lock in local natural gas prices, therefore, it is exposed to some natural gas cost risk. In addition, an uncertainty in the Company’s business model exists where the pricing model of electricity and natural gas in Europe differs from the pricing model in the United States. To mitigate the risk of low electrical rates, the Company pursues energy system projects in areas with higher electrical rates.

The Company is engaged in continual fundraising efforts. The primary purpose of these efforts is to raise capital for the installation of energy systems. Generally, fundraising causes liquidity to increase. When the Company spends these funds to add new energy systems, its liquidity decreases and its capital expenditures increase. Generally, when the Company’s new energy systems begin producing energy, the Company’s revenue increases.

There is an ongoing consideration of how to access and lower the cost of capital. The Company regularly assesses the cost and availability of debt capital, preferred stock, convertible debentures, private equity financing, and public common stock offerings. The effect these fundraising efforts have on the business will depend on the type of fundraising. Generally, debt and convertible debenture financing will increase interest expense. Generally, convertible debentures, private equity, and public equity have the potential to dilute shareholder’s earnings per share. To date, the Company has largely financed its growth through the private placements of convertible debt and equity.


Third Quarter 2015 Compared to Third Quarter 2014
 
Revenues
 
Revenues in the third quarter of 2015 were $421,991 compared to $350,561 for the same period in 2014, an increase of $71,430 or 20.4%. The revenues increased primarily due to new sites and more sites being fully operational for a longer period of time in the third quarter of 2015 as compared to the third quarter of 2014. At September 30, 2015, we had 28 systems operational compared to 19 systems as of September 30, 2014 .

10

EUROSITE POWER INC.



Cost of Sales
 
Cost of sales, including depreciation expense, in the third quarter of 2015 was $467,582 compared to $402,891 for the same period in 2014, the increase is primarily attributable to an increase in the number of installed operating systems.

 Gross Profit (Loss)

Gross profit (loss) in the third quarter of 2015 was $(45,591), compared to $(52,330) for the same period in 2014. The principal reason for the reduction in loss was the 2.6% decrease in fuel costs .

Operating Expenses
 
General and administrative expenses were $194,053 in the third quarter of 2015, compared to $174,786 for the same period in 2014, an increase of $19,267 or 11.0%. The increase in general and administrative expenses was primarily due to increased travel and insurance expenses.

Selling expenses were $122,826 in the third quarter of 2015, compared to $133,720 for the same period in 2014, a decrease of $10,894 or 8.1%. The decrease was primarily due to lower commission expenses.
 
Engineering expenses were $87,853 in the third quarter of 2015, compared to $17,617 for the same period in 2014. The increase in expense of $70,236 or 398.7% was due to higher payroll for new engineering staff, consulting and travel expenses.
 
Other Income (Expense)
 
Interest and other income was $965 in the third quarter of 2015, compared to $1,951 for the same period in 2014, which is interest on our cash balance. Interest and other expense was $8,599 in the third quarter of 2015, compared to income of $2,146 for the same period in 2014. The increase is primarily due to premiums from the exchange of convertible debt that offset interest expense in the third quarter of 2014.

Net Loss
 
Net loss was $457,957 in the third quarter of 2015, compared to a net loss of $378,648 for the same period in 2014, a increase of 20.9% from the prior year. This increase was due primarily to higher engineering expenses.

First Nine Months of 2015 Compared to First Nine Months of 2014
 
Revenues
 
Revenues in the first nine months of 2015 were $1,513,018 compared to $1,199,304 for the same period in 2014. This was an increase of $313,714 or 26.2%. The revenues during the period increased due to the installation, start and expansion of energy generation at several sites. At September 30, 2015, we had 28 sites operational compared to 19 sites as of September 30, 2014 .

Cost of Sales
 
Cost of sales including, depreciation expense and expense for fuel, maintenance, and installation, in the first nine months of 2015 was $1,481,897 compared to $1,198,980 for the same period in 2014. This is an increase of $282,917 or 23.6%, which is due to more sites operating and higher depreciation expense associated with more operating sites.

 Gross Profit

Gross profit, in the first nine months of 2015, was $31,121, compared to $324 for the same period in 2014. The principal reason for the improvement in gross profit was increased energy production due to more active sites.
 

11

EUROSITE POWER INC.


Operating Expenses
 
General and administrative expenses were $627,798 in the first nine months of 2015, compared to $603,196 for the same period in 2014, an increase of $24,602 or 4.1%. The increase was primarily due to salary and insurance increases.
 
Selling expenses were $359,298 in the first nine months of 2015, compared to $365,884 for the same period in 2014, a decrease of $6,586 or 1.8%. Higher professional fees in 2015 were more than offset by lower commission expenses.
 
Engineering expenses were $162,008 in the first nine months of 2015, compared to $71,585 for the same period in 2014. The increase is due to higher payroll, consulting and travel costs.
 
Other Income (Expense)
 
Other income (expense) was an expense of $27,348 for the first first nine months of 2015, compared to an expense of $726,447 for the same period in 2014, a reduction in expense of $699,099. The principal reason for lower expense in 2015, was the absence of the loss on the extinguishment of debt of $713,577 that was incurred in 2014.

Net Loss
 
Net loss was $1,143,143 in the first nine months of 2015, compared to net loss of $1,766,788 for the same period in 2014. The decrease in the net loss is primarily due to the absence of the loss on the extinguishment of debt that was incurred in 2014.

Liquidity and Capital Resources
 
Consolidated working capital was ($1,117,994) as of September 30, 2015, compared to $4,315,896 at December 31, 2014. Included in working capital were cash and cash equivalents of $1,201,870 as of September 30, 2015, compared to $3,776,852 at December 31, 2014. The decrease in working capital was primarily a result of a $1,000,000 loan repayment on a note with a related party, the classification of $2,000,000 due to the same related party to short term liabilities from long term liabilities,, and $1,571,533 of capital expenditures.
 
Cash used in operating activities was $3,449 in the first nine months of 2015. A net loss of $1,143,143 was somewhat offset by depreciation of $291,465 and the receipt of $636,661 of cash for UK tax energy incentives.
 
The primary investing activities of the Company’s operations included the purchase of equipment. During the nine months ended September 30, 2015, the Company used $1,571,533 for purchases of equipment.

From time-to-time, the Company has relied and may continue to rely on John Hatsopoulos, the Company's Chairman of the Board of Directors, or its parent company, American DG Energy, for resources.
    
The Company owns the energy-producing equipment at the customer’s site; therefore, the business is capital intensive. The Company believes that its existing resources, including cash and cash equivalents, future cash flow from operations, its ability to control certain costs, including those related to general and administrative expenses, and the use of capital from its parent company, will be sufficient to meet the working capital requirements of its existing business for the foreseeable future, including the next 12 months; however, as the Company continues to grow its business by adding more energy systems, the cash requirements will increase. Beyond September 30, 2016, if the Company cannot raise capital by the existing equity fundraising effort, it may need to raise additional capital through a debt financing or use capital provided by its parent to meet its operating and capital needs. There can be no assurance, however, that the Company will be successful in these fund-raising efforts or that additional funds will be available on acceptable terms, if at all.

Our ability to continue to access capital could be impacted by various factors including general market conditions and the continuing slowdown in the economy, interest rates, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us. If these conditions continue and we cannot raise funds through a public or private debt financing, or an equity offering, our ability to grow our business may be negatively affected, and the Company may need to suspend any new installation of energy systems and significantly reduce its operating costs until market conditions improve.


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EUROSITE POWER INC.


Significant Accounting Policies and Critical Estimates
 
The Company's significant accounting policies are discussed in “Note 1 - Description of Business and Summary of significant accounting policies” to its Condensed Consolidated Financial Statements which are incorporated in the Company's Annual Report filed with the Securities and Exchange Commission, or the SEC. The accounting policies and estimates that can have a significant impact upon the operating results, financial position and footnote disclosures of the Company are described in “Note 1 - Description of Business and Basis of Presentation” to the Condensed Consolidated Financial Statements described above.

Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements, including any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Emerging Growth Company
 
We are and we will remain an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, until the earliest to occur of (i) the last day of the fiscal year during which our total annual gross revenues equal or exceed $1 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of our initial public offering, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed a large accelerated filer under the Securities Exchange Act of 1934, as amended.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we chose to “opt out” of any extended transition period, and as a result we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.


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EUROSITE POWER INC.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures
 
Management’s evaluation of disclosure controls and procedures:
 
Based on our management’s evaluation (with the participation of our principal executive officer and our acting principal financial officer), as of the end of the period covered by this report, our principal executive officer and acting principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are ineffective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our principal executive officer and our acting principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting:
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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EUROSITE POWER INC.


PART II – OTHER INFORMATION

Item 1A. Risk Factors
 
In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in our most recent Annual Report. The risks discussed in our Annual Report could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.

Because the Company relies on its parent company, American DG Energy Inc., you should also carefully read American DG Energy's most recent Annual Report on Form 10-K and its most recent Quarterly Report on Form 10-Q.
 


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EUROSITE POWER INC.


Item 6. Exhibits
 
Exhibit
 
 
Number
 
Description of Exhibit
 
 
 
3.1
–
Certificate of Incorporation, as amended and restated February 17, 2012 (incorporated by reference to Exhibit 3.2 to the Company’s Form 10, as amended, originally filed with the SEC on August 16, 2011).
 
 
 
3.2
–
Bylaws as amended and restated January 27, 2012 (incorporated by reference to Exhibit 3.4 to the Company’s Form 10, as amended, originally filed with the SEC on August 16, 2011).
 
 
 
10.1
–
Revolving Line of Credit Agreement between the Company and Elias Samaras, dated as of June 30, 2015 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the SEC on July 9, 2015).
 
 
 
31.1*
–
Rule 13a-14(a) Certification of Chief Accounting Officer
 
 
 
31.2*
–
Rule 13a-14(a) Certification of Chief Executive Officer
 
 
 
32.1**
–
Section 1350 Certifications of Acting Principal Executive Officer and Chief Accounting Officer
 
 
 
101.1*
–
The following materials from the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2015, are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements, tagged as blocks of text and in detail.

* Filed herewith
** Furnished herewith

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EUROSITE POWER INC.


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
EUROSITE POWER INC.
 
 
 
By: /s/ ELIAS SAMARAS
 
Chief Executive Officer
 
(Principal Executive Officer)
 
Date: November 16, 2015
 
 
 
By: /s/ BONNIE J. BROWN
 
Chief Financial Officer
 
(Principal Finance Officer)
 
Date: November 16, 2015
 

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EUROSITE POWER INC. Reports