Distributed Energy Systems Shares Plunge

The Wallingford, Conn.-based company's stock dropped 72 cents, or 26.1 percent, to $2.04 in midday trading on the Nasdaq Stock Market. Earlier in the session, the stock dropped as low as $1.99, beneath its prior 52-week low of $2.61 set on Monday.

The company said late Wednesday fourth-quarter loss widened to $33.2 million, or 84 cents per share, from $3.4 million, or 9 cents per share, in the prior-year period. The recent quarter included a charge worth 65 cents per share for non-cash goodwill and intangible asset impairments related to its Northern Power subsidiary.

Revenue grew to $13.8 million from $11 million from the prior-year quarter.

Wall Street, on average, expected a quarterly loss of 14 cents per share on $15.6 million in revenue, according to an analyst poll by Thomson Financial.

Full-year losses widened to $53.4 million, or $1.38 per share, from $16.2 million, or 45 cents per share, in the prior year. Annual revenue grew to $45.6 million from $45 million.

Distributed Energy expects its accounting firm to include a paragraph in its 2006 audit report that highlights "substantial doubt about its ability to continue as a going concern" due to significant recurring losses and cash outflows.

"The results for the fourth quarter and the full year were well below our expectations and were clearly unsatisfactory," Chief Executive Ambrose L. Schwallie said in a statement.

Schwallie said the company's previously announced reorganization will help to cut costs and boost performance.

Distributed Energy also announced on Wednesday a joint venture with Morgan Stanley to develop and finance power generation projects.

Morgan Stanley plans to contribute most of the capital for project financing and will also receive warrants to buy up to 10 percent of Distributed Energy's stock. Most of the warrants vest immediately, with the balance vesting when the combined investment reaches $100 million.

Merriman Curhan Ford Managing Director Brion D. Tanous wrote in a research report that the Morgan Stanley deal is a positive for Distributed Energy, but he still downgraded the stock to "Neutral" from "Buy."

He cited its negative cash flow and lean cash position, among other factors. In particular, he highlighted Distributed Energy's weakening backlog, which he called worrisome.