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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1994

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number: 1-9208

O'BRIEN ENVIRONMENTAL ENERGY, INC.
(Exact name of registrant as specified in its charter)

Delaware 59-2076187
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)

225 South Eighth Street
Philadelphia, Pennsylvania 19106
(Address of principal executive offices) (Zip Code)

Registrant's telephone number including area code: (215) 627-5500
____________

Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class: on which registered:

Class A Common Stock, Philadelphia Stock Exchange
$.01 par value

Securities registered pursuant to Section 12(g) of the Act:

NONE
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, and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
---- ----

Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]

As of September 20, 1994, there were outstanding 13,055,597
shares of Class A Common Stock and 4,070,770 shares of Class B
Common Stock. Based on the price at which such stock was sold on that
date, the approximate aggregate market value of such shares held by
non-affiliates was $8,913,710. Subsequent to September 20, 1994,
trading in the Company's securities on the American Stock Exchange was
halted and delisting proceedings were commenced. See "Business--
Significant Factors--Liquidity; Chapter 11 Bankruptcy Filing."

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ITEM 1. BUSINESS.

A. General Development of Business.

a. General

On September 28, 1994, O'Brien Environmental Energy, Inc., the
parent company, filed a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code. See "Business --
General Development of Business -- Significant Factors --
Liquidity; Chapter 11 Bankruptcy Filing". The Company was
originally formed in Florida in 1981 and subsequently merged with
a Delaware corporation in 1984. Prior to the merger, the Company
was part of a group of several other companies owned by members of
the family of Frank L. O'Brien III, Chairman of the Board, Chief
Executive Officer and controlling shareholder of the Company, which
had served the power generation market since 1915. On July 1,
1991, the Company changed its name from O'Brien Energy Systems,
Inc. to O'Brien Environmental Energy, Inc.

The Company is mainly in the business of developing cogeneration,
waste heat recovery and biogas projects which produce electricity
and thermal energy for sale under long-term contracts with
industrial and commercial users and public utilities. In its role
as a developer of energy projects the Company has developed the
following projects, which it currently has an ownership interest
in:

(a) The 32 megawatt California Milk Producers Project (in
which the Company has a 3% general partnership interest)
began operations in February 1990;

(b) The 52 megawatt Newark Boxboard Project (which is owned
100% by the Company) began operations in November 1990;

(d) Totalling 9.2 megawatts, the Company currently owns 100%
of and operates four biogas projects in Pennsylvania and
California;

(e) During 1993, the Company expanded into the area of
standby/peak shaving projects which utilize the Company's
power generation equipment as a backup source of
electricity for large customers and has developed and
operates a 22 megawatt project in Pennsylvania (which is
owned 83% by the Company).

Currently the Company has in excess of 140 megawatts of
cogeneration, biogas and standby/peak shaving projects in the stage
of development where certain key contracts and permits are already
in place. The Company also has in excess of 200 megawatts of
projects which it is currently evaluating or bidding on.

In addition to the portfolio of projects which it currently has
an ownership percentage in, the Company has developed in excess of
200 megawatts of other projects which it has since sold or divested
of in various stages of the development process.

The Company expanded its equipment sales, rentals and services
business by acquiring Puma Power Plant Limited ("Puma"), a United
Kingdom company, in 1988 and Mobile Power Rental Company (now
operating under the name O'Brien Energy Services Company) ("O'Brien
Energy Services") in 1990.

In 1989, the Company acquired American Hydrotherm Corporation
("American Hydrotherm") and a related company to engineer,
manufacture, install and service waste heat recovery systems based
upon patented technology for industrial processing applications.

References in this Report to the "Company" mean O'Brien
Environmental Energy, Inc. and, where relevant, its wholly-owned
subsidiaries.

b. Significant Factors

The items discussed in this "Significant Factors" section have had
a negative impact on the Company's cash flow, its ability to meet
current obligations and its ability to finance operations and
ongoing development activities, and should be carefully considered:

(i) Liquidity; Chapter 11 Bankruptcy Filing

On September 28, 1994, O'Brien Environmental Energy, Inc., the
parent company, filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code with the
U.S. Bankruptcy Court for the District of New Jersey to pursue
financial restructuring efforts under the protection afforded by
the U.S. bankruptcy laws. The decision to seek Chapter 11 relief
was based on the conclusion that action had to be taken to
preserve its relationships and maintain the operational strength
and assets of the Company, and to restructure its debt and utilize
its assets in a manner consistent with the interests of all
creditors and shareholders rather than liquidate to satisfy the
demands of a particular group of creditors. The Company expects
to continue its normal activities, including project development
and the sale and/or refinancing of existing projects.

Subsequent to September 28, 1994, the Company is operating as
debtor-in-possession under the Bankruptcy Code. As such, the Company
is authorized to operate its business, but may not engage in
transactions outside the ordinary course of business without approval,
after notice and hearing, of the Bankruptcy Court. There can be no
assurance that the Company will be able to obtain such approval to
continue its normal operations and restructure its debt and otherwise
engage in project development and the sale or refinancing of existing
projects.

As a result of this action, pending litigation against the
Company (but not its subsidiaries) will be stayed and consolidated
with this bankruptcy proceeding. The Company has also been advised
that its securities are being delisted from the American Stock
Exchange, however, the Common Stock continues to be listed on the
Philadelphia Stock Exchange. The Company intends to have its
Debentures included in either the OTC Bulletin Board or the "pink
sheets." There can be no assurance that a trading market will
develop for any of the Company's securities even if they are listed
on any of the foregoing exchanges or quotation systems. See "Market
for Registrant's Common Equity and Related Stockholder Matters."

(ii) Defaults Under Indentures; Proposed Exchange Offer

On August 22, 1994, the trustees for each of the 1987
Debentures, 1990 Debentures and 1991 Debentures delivered
acceleration notices to the Company, notifying the Company that
the total principal amount of $49,174,000 and past due interest
in the amount of $5,243,000 as of September 20, 1994, is due and
payable by the Company immediately based on the following factors:

The Board of Directors elected not to make the March 15, 1994 or
the September 15, 1994 semi-annual required interest payments on
the Debentures which total $5,037,000. Each semi-annual required
interest payment consists of $442,000, $632,500 and $1,444,000 for
the 1987 Debentures, 1990 Debentures and 1991 Debentures,
respectively.

As a result of the losses experienced by the Company, the
Company's Consolidated Stockholders' Equity (as defined in the
1987 Indenture, 1990 Indenture and 1991 Indenture) was $136,000
and $8,066,000 at June 30, 1994 and March 31, 1994, respectively.
As a result, the covenant in the 1990 Indenture and 1991 Indenture
requiring the Company to purchase 7.5% of the outstanding 1990
Debentures and 1991 Debentures if the Company's Consolidated
Stockholders' Equity is less than $10,000,000 at the end of each
of any two consecutive fiscal quarters has been triggered.
Additionally, there is a covenant in the 1987 Indenture which
requires the Company to purchase 7.5% of the outstanding 1987
Debentures if the Company's Consolidated Stockholders' Equity is
less than $7,500,000 at the end of each of any two consecutive
fiscal quarters. Purchasing Debentures pursuant to these
covenants would cause severe liquidity problems for the Company.
The Company does not presently expect to be in a position to
comply with these covenants.

The Company is currently in default under the 1987 Indenture's
Funded Indebtedness covenant (as defined in the 1987 Indenture).
Such covenant prohibits the Company from incurring or creating any
Funded Indebtedness if after giving effect to such incurrence or
creation, the total outstanding Funded Indebtedness of the Company
on a consolidated basis would exceed 75% of the sum of
Consolidated Stockholders' Equity and Funded Indebtedness.

In May 1994, the Company filed a Registration Statement on Form
S-4 (the "Registration Statement") with the Securities and
Exchange Commission relating to (a) an exchange offer of 40 shares
of Series A Cumulative Senior Preferred Stock, 120 Warrants to
purchase Class A Common Stock and 20 shares of Class A Common
Stock for each $1,000 principal amount of 1987 Debentures, 1990
Debentures and 1991 Debentures outstanding and (b) a solicitation
of consents to certain proposed amendments to the indentures (the
"Indentures") governing each of the 1987 Debentures, 1990
Debentures and 1991 Debentures as well as the waiver of all
defaults under each of the Indentures. In June 1994, an amendment
to the Registration Statement was filed. Subsequent to such
amendment, the Company began discussions with an ad hoc committee
(the "Ad Hoc Committee") of debentureholders representing holders
of the 1987 Debentures, 1990 Debentures and 1991 Debentures. The
Company entered into a standstill agreement with the Ad Hoc
Committee pursuant to which the Company agreed, among other
things, to assist the Ad Hoc Committee in its due diligence
efforts. The failure to reach an agreement with the Ad Hoc
Committee was one of the factors upon which the Company's decision
to file for protection under the Bankruptcy Code was based.

Certain of the Company's loan agreements require the Company to
comply with the terms of all other loan agreements. As a result
of the Company's defaults under the Indentures, defaults were
triggered under certain of the Company's recourse debt loan
agreements. At June 30, 1994, $5,320,000 of the Company's long
term debt was reclassified as a current liability solely because
of these cross-defaults. Additionally, it is an Event of Default
under the 1987 Indenture, 1990 Indenture and 1991 Indenture if the
Company defaults on any indebtedness which results in the
acceleration of the maturity of at least an aggregate of
$1,000,000, $2,000,000 and $2,000,000, respectively, of
indebtedness which is not cured within 60 days, 90 days and 90
days, respectively, after notice to the Company. See "Defaults
under Recourse Debt".

(iii) Losses

The Company has incurred losses in the amounts of $16,501,000
and $13,711,000 for the fiscal years ended June 30, 1994, and June
30, 1993, respectively. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The Company
may continue to incur losses from operations for the fiscal year
ending June 30, 1995.

(iv) Capital Requirements

The Company's business is capital intensive. The long-term
growth of the Company, which involves the development and
acquisition of additional projects, will require the Company to
seek substantial funds through various forms of financing. There
can be no assurance that the Company will be able to arrange the
financing needed for these additional projects. If the Company
is unable to secure financing, its business would be materially
adversely affected. See "Business--Energy Segment."

(v) Energy Price Fluctuations and Fuel Supply

The Company's power purchase agreements with utilities typically
contain price provisions which in part are linked to the utility's
cost of generating electricity. In addition, the Company's fuel
supply prices may be fixed in some cases or may be linked to
fluctuations in energy prices. As a result, in the event of
significant fluctuations in energy prices, the operating margins
of certain projects may be reduced or increased depending upon the
terms of the project agreements. In addition, in the event of a
significant continuing decline or increase in energy prices, there
can be no assurance that the Company's existing customers or
suppliers will not attempt to renegotiate existing power purchase
or supply agreements on terms less favorable to the Company. To
date, renegotiation of the Company's agreements has had no
material adverse impact on its operations. In addition, the
Company seeks to enter into long-term gas supply arrangements for
certain of its cogeneration projects under development. To date,
the Company has not obtained long-term supply arrangements that
directly track project revenue. The operation of the Company's
projects may be more vulnerable to interruption in times of fuel
shortage. While it is impossible to predict how such developments
will affect the Company's overall business, the Company's profit
margins on certain of its projects may be reduced if the increased
cost of fuel used to operate those projects exceeds the adjustment
to the amounts received by the Company from the utilities pursuant
to the related power purchase agreements. Fuel risk may be
reduced by entering into a long-term gas supply arrangement or
hedge which the Company has explored from time to time. However,
there can be no assurance that any of the foregoing will improve
or maintain gross profit margins in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Costs and Expenses."

(vi) Defaults Under Recourse Debt

As a result of defaults, consisting of defaults in the payment
of interest under each of the Indentures as well as defaults under
certain of the Company's loan agreements, including the filing for
bankruptcy, the Company reclassified $21,914,000 out of a long-
term to a current classification resulting in a total of
$39,042,000 of its recourse debt as a current liability. Of this
amount, approximately $5,320,000 was triggered solely by defaults
under the Indentures, $3,066,000 by cross defaults and the non
payment of principal subsequent to year end and the remainder,
$13,528,000 was solely reclassified because of the bankruptcy
filing. The Company was having discussions with its various
lenders regarding the defaults and was developing a program to
restructure this debt. The program was intended to provide, among
other things, an extended amortization of the debt and the sale
of equipment which is not currently being utilized in an operating
project or which has not been designated for a project under
development. Also, as a result of this program, the Company
recorded a non-cash charge of $6,250,000 in the fourth quarter of
1994 to adjust the carrying value of these collateralized assets
to an estimated sales value. Prior to the filing of the Chapter
11 Bankruptcy, the program had been met with approval by several
of the Company's lenders and no lender had accelerated the payment
of the loans. As a result of the Chapter 11 Bankruptcy filing,
there can be no assurance that the program will continue to be
accepted by the Company's lenders.

(vii) Defaults Under Non-Recourse Debt

At June 30, 1994, both the Newark and Parlin projects were in
default of the covenant which requires the maintenance of positive
working capital. On September 26, 1994, the project lenders
agreed to waive this covenant through July 1, 1995, for the Parlin
Project only, provided that during the period that this waiver is
in effect no distribution of any nature whatsoever will be made
to the Company. This waiver will cease to be effective in the
event that the Parlin Project is in compliance with the
requirement to maintain positive working capital at any time prior
to June 30, 1995. The lenders were not willing to provide a
similar waiver for the Newark project. As a result of the Newark
project not getting the waiver, $25,010,000 of non-recourse debt
has been reclassified from long-term to short-term debt.

(viii) Fire

In December 1992, a fire occurred at the Company's Newark
cogeneration plant. The damage to the plant caused by the fire
has been repaired. The plant returned to partial operation in
August 1993 and resumed full operation in October 1993. The
Company received the sum of $36,000,000 which covered a
substantial majority of the Company's cost of repair and loss of
net profits due to business interruption. In addition, the
Company has the right to receive up to an additional $1,400,000
upon the recovery by the insurance carrier of its claims against
third parties. See "Business--Energy Segment--Projects in
Operation" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

(ix) Audit Report - Uncertainty

During the years ended June 30, 1994 and June 30, 1993, the
Company experienced significant operating problems and setbacks
which have contributed significantly to the Company's losses and
liquidity problems in fiscal 1994 and fiscal 1993. Additionally,
O'Brien Environmental Energy, Inc., the parent company, filed a
voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code on September 28, 1994. All of these have had
a negative impact on the Company's cash flow and its ability to
finance operations and ongoing development activities. Therefore, the
Company's independent accountants have included an explanatory paragraph
relative to a going concern uncertainty in their audit report. See Note
1 to the Company's Consolidated Financial Statements.

(x) III Enterprises, Inc. Bankruptcy

In October 1993, III Enterprises, Inc., ("III Enterprises")
which owns the controlling voting interest in the Company, filed
for bankruptcy protection under Chapter 11 of the Federal
Bankruptcy Code. III Enterprises is wholly owned by Frank L.
O'Brien III, Chairman of the Board and Chief Executive Officer of
the Company. In connection with any reorganization of III
Enterprises, the stock ownership of III Enterprises which owns the
controlling shares of Class B Common Stock of the Company may be
sold to a third party. III Enterprises has advised the Company
that improper actions by one of III Enterprises' lenders forced
III Enterprises to seek protection under the Federal Bankruptcy
Code. In April 1994, III Enterprises and its creditors entered
into a stipulation which set forth certain key dates for
implementing a plan of reorganization. The debtor sought and
obtained an extension of certain time periods in the stipulation
to September 30, 1994. The debtor has since filed motions to
extend the time periods in the stipulation. On October 6, 1994,
the bankruptcy court ordered that the matter be converted to a
proceeding under Chapter 7 of the Federal Bankruptcy Code. On
October 7, 1994, the debtor appealed this order.

In addition, such proceeding could cause a change in control
of the Company, which could, among other things, significantly affect
the direction of the management of the Company and limit the
utilization of the Company's net operating loss carryforwards available
at June 30, 1994 in accordance with IRS regulations. See Note 23 to the
Consolidated Financial Statements.

(xi) Stock Price

For the fiscal quarter ended June 30, 1994, the high and low
sale prices for the Company's Class A Common Stock as reported on
the American Stock Exchange were $13/8 and $7/16, respectively, as
compared to $415/16 and $311/16, respectively, for the fiscal
quarter ended June 30, 1993. The Company was notified on October
4, 1994 that its securities would be delisted by the American
Stock Exchange. See "Market for Registrant's Common Equity and
Related Stockholder Matters."

c. Recent Developments

The following are certain of the Company's recent developments:

(i) Hackensack Meadowlands Project

In September 1993, the Company was awarded (pursuant to a
competitive bidding process) gas recovery rights by the Hackensack
Meadowlands Development Commission for two landfill sites located
in New Jersey. The Company is considering alternatives including
developing and producing the landfill gas from this project to
supply fuel for the Newark Boxboard project. Development of this
project is not expected to be completed until 1996, at the
earliest. See "Business--Energy Segment--Projects in
Development."

(ii) Philadelphia Water Department Project

On August 5, 1994, the Company repurchased an 83% interest in
the Philadelphia Water Department project from an unrelated
private investor for $5,000,000. This repurchase was funded by
a loan from a third party. The Company is negotiating to resell
this project to a third party in fiscal 1995. The Company sold
its interest in this project for a price of $5,000,000 in November
1993 and retained the right to repurchase an 83% interest in the
project for $5,000,000. In connection with the November 1993
sale, the Company issued a total of 5,500,000 warrants to purchase
the Company's Class A Common Stock including 2,500,000 warrants
having an exercise price of $4.00 per share and are exercisable
through November 10, 1995; 2,000,000 warrants having an exercise
price of $5.00 per share and are exercisable through November 10,
1996; and the balance of such warrants (1,000,000) have an
exercise price of $6.00 per share and are exercisable through
November 10, 1997. Following the issuance of the warrants, the
private investor filed a Schedule 13D with the SEC disclosing the
acquisition of the warrants. See "Business--Energy Segment--
Projects in Operation--Standby/Peak Shaving." See Note 31 to the
Company's Consolidated Financial Statements for a discussion of
these transactions.

(iii) Stewart & Stevenson Credit Facility

In November 1993, the Company entered into a letter of intent
and then in March 1994, the Company entered into a $7,000,000
subordinated loan agreement with Stewart & Stevenson, a major
equipment supplier and operation and maintenance company. The
first disbursement of $1,000,000 was funded on January 13, 1994.
The second disbursement of $3,500,000 was funded on March 16,
1994. The availability of a third disbursement of $2,500,000 has
expired. This third disbursement was intended to be utilized for
prepayment of debt at the Newark Boxboard project level and to
satisfy the $1,000,000 million note between the Company and
Stewart & Stevenson. The Company currently intends to repay the
proceeds of the Stewart & Stevenson credit facility upon the
refinancing of the Newark Boxboard term loan. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources--Working Capital Requirements."

(iv) Tinicum Project

In December 1993, the Company executed an energy service
agreement with the City of Philadelphia for a 14 megawatt standby
electric facility project at the Philadelphia International
Airport. On September 27, 1994, the Company sold its rights to
this project for net cash proceeds of $1,652,000. See "Business--
Energy Segment--Sale of Projects in Development."

(v) SmithKline Project

In February 1994, the Company executed an energy service
agreement with SmithKline Beecham Corporation for a 21 megawatt
standby electric facility project in Montgomery County,
Pennsylvania. On June 30, 1994 the Company entered into an
Amended Energy Service Agreement Transaction with SmithKline
Beecham Corporation and PECO Energy Company whereby the Company
sold its rights in the 21 megawatt facility to PECO. The amended
agreement also includes provisions for the Company to construct
an 8 megawatt standby power facility for SmithKline Beecham. The
Company will be paid $2,500,000 in installments through June 1995,
for the 8 megawatt facility which must be completed no later than
December 31, 1995. See "Business--Energy Segment--Projects in
Development."

B. Financial Information About Industry Segments.

During the fiscal year ended June 30, 1994, the Company operated
principally in two industry segments: (i) energy - the development,
ownership and operation of biogas projects and the development and
ownership of cogeneration and waste heat recovery projects through
wholly-owned subsidiaries and limited partnerships; and (ii)
equipment sales, rentals and service - the selling and renting of
power generating, cogenerating and standby/peak shaving equipment
and services. Fees recognized in connection with the development
and construction of cogeneration projects formed as limited
partnerships are related to energy projects.

See Note 25 to the Consolidated Financial Statements of the
Company for financial information with respect to industry
segments.

C. Narrative Description of Business.

General

The Company develops, owns and operates cogeneration, waste heat
recovery and biogas projects which produce electricity and thermal
energy for sale under long-term contracts with industrial and
commercial users and public utilities. Cogeneration involves the
sequential production of two or more forms of usable energy (i.e.
electricity and thermal energy) using a single fuel source, thereby
substantially increasing fuel efficiency. A waste heat recovery
project utilizes heat resulting from industrial processes as the
energy source for the simultaneous production of steam and
electricity in a manner similar to cogeneration. Biogas projects
such as the Company's landfill and sewage digester gas projects
collect otherwise wasted and unproductive methane gas and convert
it into usable energy. These projects offer an industrial user
potential cost savings and, where electricity is sold to the user,
increased reliability and added security against power failures.

As a project developer, the Company serves as a single source
responsible for the evaluation, design, installation and operation
of a project. The Company also assumes the responsibility for
evaluating project alternatives; obtaining financing, insurance,
all necessary licenses, permits and certifications; conducting
contract negotiations with local utilities and arranging turnkey
construction. In connection with obtaining financing, the Company
may negotiate for credit support facilities with equipment
suppliers, large turnkey construction firms and financial
institutions. Potential project structures include sole ownership,
general partnerships, limited partnerships, sale leaseback
arrangements and other forms of joint ventures or debt
arrangements. To date, other than the limited partnership
substantially owned by a subsidiary of Chrysler Capital
Corporation, the Company's projects in operation have been
structured as wholly-owned subsidiaries.

The Company sells the electricity produced by its projects
pursuant to long-term contracts either on a "wholesale" basis to
local public utilities or on a "retail" basis directly to specific
industrial and commercial users. Presently, substantially all of
the electricity produced by the Company's projects in operation is
sold on a wholesale basis. The mix of future energy sales may
differ based upon future economic conditions and other
circumstances.

A large portion of the Company's business relates to design and
assembly of power generation systems for sale and rental,
electrical control and distribution subsystems, and high
temperature heat transfer equipment and subsystems.

During 1993, the Company expanded into the area of standby/peak
shaving projects which utilize the Company's power generation
equipment as a back-up source of electricity for large customers.
These projects are intended to fill a need between large electrical
users and the requirements of local utilities. The availability of
an alternative energy source allows these customers to benefit from
significantly discounted interruptible energy tariffs. The
standby/peak shaving generators typically will be required to
provide a limited amount of electricity during peak periods.

At present, the Company has eight projects in operation totalling
approximately 237 megawatts of electric generating capacity
including seven wholly-owned projects developed by the Company
totalling approximately 205 megawatts and one approximately 32
megawatt project which was developed by the Company and is
presently owned substantially by a subsidiary of Chrysler Capital
Corporation.

Independent Power Market

The independent power market (the market for power generated by
companies other than traditional utilities) has evolved and is
expected by the Company to continue to expand as a result of the
growing need for new and replacement power capacity by electric
utilities and industrial customers. Historically, regulated
utilities in the United States have been the only producers of
electric power intended primarily for sale to third parties. The
increase in oil prices during the late 1970s and the increasing
cost of constructing and financing large coal-fired or nuclear
generating facilities along with the enactment in 1978 of the
Public Utilities Regulatory Policies Act ("PURPA"), created a
favorable regulatory environment and favorable market conditions
for the development of energy projects by companies other than
electric utilities. The basic policy judgment behind the
encouragement of the development of biogas and cogeneration
facilities is that the United States' dependence on oil and natural
gas resources should be reduced and that the very high incremental
costs of large centralized power production facilities should be
avoided. However, economic considerations remain the central issue
affecting a decision to install a cogeneration project.

PURPA provided significant incentives to developers of qualifying
facilities. It designated certain small power production (those
utilizing renewable fuels and having a capacity of less than 80
megawatts) and cogeneration facilities as qualifying facilities
exempt from many of the regulatory requirements applicable to
electric utilities and eligible for various benefits under federal
law. In accordance with PURPA, the Company's projects are exempt,
and its proposed projects are intended to be exempt, from rate,
financial and similar regulation as a utility as long as they meet
the requirements of a qualifying facility. These projects also
benefit from regulations that require public utilities to purchase
power generated by qualifying projects either at the utilities'
"avoided cost" (determined in accordance with a formula which
varies from state to state but which is generally calculated based
upon what the cost to the utility would be to generate the power
itself or to purchase it from another source). Power purchase
contracts generally must be approved by state public utility
commissions. Since the Company benefits from PURPA, the Company's
business could be adversely affected by a significant change in
PURPA and could otherwise be materially impacted by decisions of
federal, state and local legislative, judicial and regulatory
bodies. See "Business--Regulation."

The Company believes that independent power producers will become
increasingly more important to electric utilities as alternative
long-term sources of electric power. According to the North
American Electric Reliability Council's 1991-2000 Electricity
Supply and Demand Report, electric utilities have forecasted that
they will need an additional 87,700 megawatts of new generating
capacity between 1991 and the year 2000 to meet peak demand. The
U.S. Department of Energy's Spring 1991 "National Energy Strategy"
projects this need at up to 200,000 megawatts between 1991 and the
year 2010. According to this report, $100 billion to $200 billion
in new capital investment will be needed to meet the nation's
growing electricity needs during the period from 1991 to 2001.
Since the independent development and ownership of cogeneration
projects requires little, if any, capital investment by those
public utilities utilizing this power, and requires these public
utilities to pay only for capacity and energy actually produced and
delivered, utilities may avoid the cost and risk of building new
plants as demand grows by purchasing needed power from independent
power producers.

Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other
organizations similar to the Company, have entered the market of
the ownership and operation of cogeneration and biogas projects.
Many of these companies have substantially greater resources than
the Company. In addition, obtaining power contracts with utilities
has become more competitive with the increased use of competitive
bidding procedures. This increased competition may make it more
difficult for the Company to secure future projects, may increase
project development costs and may reduce the Company's operating
margins on any future projects.

Products and Markets

Cogeneration. Cogeneration involves the sequential production of
two or more forms of usable energy (i.e. electricity and thermal
energy) using a single fuel source, thereby substantially
increasing fuel efficiency. The key elements of a cogeneration
project are permit applications, contracts for sales of electricity
and thermal energy, contracts or arrangements for fuel supply, and
project financing and construction. The Company attempts to design
and develop its projects so that they qualify for the benefits of
PURPA, which exempts qualifying projects from rate, financial and
similar utility regulation and requires public utilities to
purchase power generated by these projects. Electricity may be
sold to utilities and end users of electrical power, including
large industrial facilities. Thermal energy from cogeneration
plants may be sold to commercial enterprises and other
institutions. Large industrial users of thermal energy include
plants in the chemical processing, food processing, pharmaceuticals
and paper industries.

Standby/Peak Shaving. Standby/Peak Shaving projects utilize the
Company's power generation equipment as a back-up source of
electricity for large electrical demand customers. The
availability of an alternative energy source allows these customers
to benefit from significantly discounted interruptible energy
tariffs. The standby/peak shaving generators typically will be
required to provide a limited amount of electricity during peak
periods.

Waste Heat Recovery. A waste heat recovery project utilizes heat
resulting from industrial processes as the energy source for the
simultaneous production of steam and electricity in a manner
similar to cogeneration. The Company believes that waste heat
recovery projects, which do not rely on a traditional fuel source,
will allow the Company to reduce or eliminate the cost of fuel to
the project. While the recovery of continuously released waste
heat is not a new process, the Company's patented heat storage
technology developed by its subsidiary, American Hydrotherm enables
it to capture waste heat released intermittently and convert it
into continuous usable energy. These projects are well suited to
steel, glass, paper, cement and other industries which generate
high quantities of intermittent waste heat from their industrial
processes.

Biogas. Biogas projects use a renewable non-fossil fuel as their
fuel source. The Company's biogas projects retrieve otherwise
unproductive and environmentally harmful methane gas generated by
landfills or sewage digester processes and convert it into usable
energy. Landfill gas production will generally continue as long as
suitable anaerobic (oxygen-deficient) conditions exist or until the
organic components of the refuse placed at the site are entirely
decomposed. This process may continue for approximately 20 years
after the closing of a landfill site. Sewage digester gas is
produced continuously during the sewage treatment process. The key
elements of biogas projects are permit applications, contracts for
gas rights, sales of gas and electricity, and thermal energy if
appropriate, and project financing and construction.

Equipment Sales, Rentals and Services. The Company sells and
rents power generation and cogeneration equipment. The Company
provides related services, including the design, assembly, repair
and maintenance of permanent or standby power generation equipment.
In addition, the Company sells equipment manufactured by others to
turnkey contractors in connection with the construction of the
Company's projects. The Company also sells equipment purchased by
it for projects unrelated to those being developed by the Company.
From time to time, it purchases equipment for reconditioning and
sale. In its rental business the Company serves the construction,
industrial, military, transportation, mining, utility and
entertainment markets.

The Company also designs and manufactures custom electrical
control and distribution subsystems. These include medium voltage
cubicle switchboards, main distribution systems, control
instrumentation panels and packaged substations. This equipment
receives and distributes power through a building, ship or other
self-contained structure.

The Company, through its American Hydrotherm subsidiary, is also
in the business of custom designing, engineering, constructing,
installing and servicing high temperature liquid heat transfer
systems for industrial processing applications. Each system is
designed by American Hydrotherm to meet precise temperature and
other specifications for processing equipment. These systems are
used in various industries such as steel, plastics, wood, rubber,
paper, chemical, petrochemical and electronics.

Energy Segment

Projects in Operation. Set forth below are descriptions of the
Company's eight projects currently in operation. Each of these
projects is currently producing revenues through the sale of energy
under long-term contracts. In connection with the obtaining of
financing for its three cogeneration projects in operation, the
Company has obtained business interruption insurance and
performance guarantees by the operators of its cogeneration
projects. These arrangements are negotiated and secured prior to
commencement of operations of a project. Taken as a whole, these
arrangements reduce the risks associated with any past and future
equipment problems or unscheduled plant shutdowns. For example in
the event of an unscheduled breakdown, the Company is entitled,
pursuant to its business interruption policy, to the net profit
which it is prevented from earning from the particular project,
including all charges and expenses which continue during the period
of interruption, less the applicable deductible amounts. There can
be no assurance that such insurance or guarantees will sufficiently
mitigate the risk of unforeseen contingencies.

Name and Location Rated Approximate Date of Power Company's
Of Project Capacity (1) Capital Cost Operation Purchaser Lender Interest
- - ----------------- ------------ ------------ --------- --------- ------ ---------
(in megawatts) (in thousands)

Cogeneration

E.I. du Pont 122.0 $103,350 June 1991 Jersey Central National 100%
Parlin (NJ) Power & Light Westminster Bank
Company P.L.C. (2)

Newark Boxboard 52.0 51,000 November 1990 Jersey Central National 100%
(NJ) (3) Power & Light Westminster Bank
Company P.L.C. (2)

California Milk 32.0 40,000 February 1990 Southern Sakura Bank (2) 3%(4)
Producers (CA) California Edison

Biogas

Mazarro (PA) 2.4 2,000 February 1990 Duquesne Light (5) 100%
Company

Duarte (CA) 1.1 2,000 October 1987 Southern (5) 100%
California Edison

SmithKline 2.5 5,000 March 1986 SmithKline (5) 100%
Beecham (PA) Beecham

Corona (CA) 3.2 5,000 March 1986 Southern (5) 100%
California Edison

Standby/Peak
Shaving

Philadelphia Water
Department (PA)(6) 22.0 11,000 May 1993 Philadelphia (5) 83%
Municipal
Authority

------- --------
237.2 $219,350
======= ========
<FN>
- - --------------------------
(1) See discussion of each particular project which follows for current contract production, which may be less than the stated
rated capacity.
(2) These loans are nonrecourse to the Company.
(3) On December 25, 1992, a fire occurred at the plant. The plant returned to partial operation in August 1993 and resumed
full operation in October 1993.
(4) Owned in partnership as more fully described in the project descriptions in "Business--Energy Segment--Projects in Operation."
(5) These projects are financed by various lenders through equipment credit facilities.
(6) On November 12, 1993, the Company sold its Philadelphia Water Department project. This sale did not include the physical
facilities and related generation equipment, which the Company continued to rent to the project. The Company repurchased
this project from the purchaser, subject to certain rights of the purchaser, on August 5, 1994.

Cogeneration

E.I. du Pont--Parlin. This 122 megawatt project, which commenced
operation in June 1991, is 100%-owned by a subsidiary of the
Company. This project is designed to operate continuously and to
provide up to 120,000 lbs./hr. of steam to a photochemical
manufacturing plant in Parlin, New Jersey owned by E.I. du Pont de
Nemours and Company ("E.I. du Pont"), under a 30-year agreement,
and 92 megawatts of electricity to Jersey Central Power & Light
("JCP&L"), under a 20-year agreement. In addition to providing up
to 9 megawatts of electricity to E.I. du Pont under a 20-year
agreement, the Company sells additional electricity to JCP&L on an
"as requested" basis under the contract's dispatch agreement. See
Note 16 to the Company's Consolidated Financial Statements for a
discussion of this project's nonrecourse financing.

For the fiscal year ended June 30, 1994, this project accounted
for approximately $38 million in gross revenues, representing
approximately 36% of the Company's consolidated gross revenues.

During the fiscal year ended June 30, 1994, this project
experienced two unscheduled outages. In September 1993 a blade on
the first stage of one of the two gas turbines (Gas Turbine #2) in
the project, broke off at the base sending pieces of metal through
the remaining rows of blades. The cause of this failure was due to
a manufacturers' defect in the strength of the blade. All of the
damaged blading has been repaired or replaced. The turbine went
back into service in mid December 1993 and has been performing at
satisfactory levels since the repair. In May 1994, the gear
connecting Gas Turbine #1 to its generator failed, due to a
metallurgical weakness. A new gear was installed and the turbine
was brought back on-line in mid August 1994. The failed gear is
being repaired, and will be used as a spare for both the Newark and
Parlin plants.

Natural gas is provided by Public Service Electric & Gas Company
("PSE&G") under a 15-year service contract. The project is
operated and maintained under agreement with a third party who is
responsible for the care, custody and control of the facility. The
Company and a subsidiary of Stewart & Stevenson, Inc. ("Stewart &
Stevenson") executed an Operation and Maintenance Contract, which
became effective in April 1994 and has a term lasting through June
30, 2002.

In May 1994, the Company and the turnkey contractor settled
certain litigation regarding delays in project completion. See
"Legal Proceedings."

Newark Boxboard. This 52 megawatt project, which commenced
operation in November 1990, is 100%-owned by a subsidiary of the
Company. This project is designed to operate continuously and to
provide up to 75,000 lbs./hr. of steam to a recycled paper boxboard
manufacturing plant owned by Newark Boxboard Company, a subsidiary
of the Newark Group, Inc., and 52 megawatts of electricity to
JCP&L, each under 25-year agreements. See Note 16 to the Company's
Consolidated Financial Statements for a discussion of this
project's nonrecourse financing.

For the fiscal year ended June 30, 1994, this project accounted
for approximately $23 million in gross revenues, representing
approximately 22% of the Company's consolidated gross revenues.

On December 25, 1992, a fire occurred at this project's facility
in Newark, New Jersey. The fire resulted in the death of three
workers employed by the operator of the project and in damage to
the plant. The facility returned to partial operation in August
1993 and resumed full operation in October 1993. The fire has been
classified by the local fire commissioner as accidental. As a
result of lost revenues, the Company's 1994 and 1993 Income from
Operations has been adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." The Company carries both property damage and business
interruption insurance. The Company received the sum of
$36,000,000 which covered a substantial majority of the Company's
costs of repair and loss of net profits due to business
interruption. In addition, the Company has the right to receive up
to an additional $1,400,000 upon recovery by the insurance carrier
of its claims against third parties. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--
Capital Resources--Working Capital Requirements."

Natural gas is provided by PSE&G under a 15-year service contract.
Although it is uncertain at this time, the Company may use the
landfill gas obtained in connection with its Hackensack Meadowlands
project, which is currently in development, to supply fuel for this
project in the future. See "Business--Energy Segment--Projects in
Development."

The project is operated and maintained under agreement with a
third party who is responsible for the care, custody and control of
the project. In January 1994, the Company and a subsidiary of
Stewart & Stevenson executed an Operation and Maintenance Contract,
replacing the current operator of the project, which became
effective in April 1994. The term of the new Operation and
Maintenance Contract goes through June 30, 2002.

In November 1993, the Company entered into a letter of intent and
then in March 1994, the Company entered into a $7,000,000
subordinated loan agreement with Stewart & Stevenson. The first
disbursement of $1,000,000 was funded on January 13, 1994. The
second disbursement of $3,500,000 was funded on March 16, 1994.
The availability of a third disbursement of $2,500,000 has expired.
This third disbursement was intended to be utilized for prepayment
of debt at the Newark Boxboard project level and to satisfy the
$1,000,000 note between the Company and Stewart & Stevenson. All
outstanding principal and interest on the credit facility is to be
satisfied by a percentage of all distributions made by O'Brien
Newark. The Company currently intends to repay the proceeds of the
Stewart & Stevenson credit facility upon the refinancing of
the Newark Boxboard term loan.

In April 1994, the Company and NatWest Advisory Services, a
subsidiary of NatWest Markets ("NatWest") executed an engagement
letter pursuant to which NatWest was engaged as financial advisor
to the Company and O'Brien Newark in connection with identifying
and assisting the Company and O'Brien Newark in negotiating and
entering into agreements to refinance this project and sell equity
therein.

In May 1993, the Company and the turnkey construction contractor
settled certain litigation regarding delays in project completion.
See "Legal Proceedings."

California Milk Producers. This 32 megawatt project, which
commenced operation in February 1990, was developed and structured
by the Company as a limited partnership in which a subsidiary of
the Company is the general partner. This project is designed to
operate principally during peak demand periods and to provide up to
60,000 lbs./hr. of steam to California Milk Producers, Artesia,
California and 32 megawatts of electricity to Southern California
Edison ("SCE"), each under 30-year agreements. The Company has an
initial partnership interest of 3% (subject to adjustment to 50%
based upon future investment returns of the limited partner). A
wholly-owned subsidiary of Chrysler is the limited partner of the
partnership and has an initial interest in partnership
distributions of 97%. It is not anticipated that there will be any
increase in the percentage interest in partnership distributions of
the general partner for the foreseeable future.

For the fiscal year ended June 30, 1994, the Company received a
management fee as a general partner of approximately $130,000. No
partnership distributions were received. Until the occurrence of
a major increase in the percentage interest in partnership
distributions of the general partner, the Company does not expect
its share of profits or losses of the partnership to be
significant.

Natural gas is provided by the Company and is purchased from
independent brokers. Through a fuel management agreement with
Chrysler, the Company is entitled to receive a percentage of any
price savings between certain mandated gas price rates and the
prices obtained by the Company. Under the agreement, the Company's
earnings during the fiscal year ended June 30, 1994 were nominal.
The project is operated and maintained under agreement with Stewart
& Stevenson which agreement provides for certain performance
guarantees.

Biogas

Mazzaro. This landfill methane gas project produces approximately
1.8 megawatts of electricity which the Company sells to Duquesne
Light Company under a 20-year contract expiring in 2009.

Duarte. This landfill methane gas project generates 0.8 megawatts
of electricity for sale to SCE under an agreement which expires in
1997. An extra generator is fueled with natural gas to produce up
to .54 megawatts during the summer months to take advantage of the
special peak demand rates.

SmithKline Beecham. The Company uses landfill methane gas to fuel
a cogeneration plant which provides up to 1.5 megawatts of
electricity and 3,600 lbs./hr. of steam for sale to SmithKline
Beecham Corporation under an agreement which expires in 2004.

Corona. The Company uses landfill methane gas to fuel two
generators which currently provide approximately 1.2 megawatts of
electricity to the SCE under a 20-year contract. An additional
generator fueled with natural gas produces approximately 2.0
megawatts during summer months to take advantage of special peak
demand rates.

Standby/Peak Shaving

Philadelphia Water Department. This 22 megawatt project commenced
operations in May 1993. Pursuant to a 20-year energy service
agreement, the Philadelphia Municipal Authority (the "Authority")
has the right to be supplied with 20 megawatts of electricity from
the project at any time on one hour's notice. In addition, the
project is required to use excess digester gas collected at the
Authority's northeast and southwest Philadelphia plants to generate
up to an approximate 2 megawatts of electricity which is sold to
the Authority pursuant to a 10-year power generation agreement.
The Company rents facilities and all related generation and
associated equipment to the project. The annual rent is
approximately $2,350,000. The Company also operates and maintains
the project for an annual fee of approximately $250,000, subject to
adjustment. In November 1993, the Company sold its interest in
this project for a price of $5,000,000 and retained the right to
repurchase an 83% interest in it for $5,000,000. On August 5,
1994, the Company repurchased an 83% interest in this project from
an unrelated private investor for $5,000,000, subject to certain
rights of such investor.

Projects in Development

Development of cogeneration, biogas, standby/peak shaving and
waste heat recovery projects often require many months or years to
complete and involve a high degree of risk that any given single
project will not be completed. To reduce this risk, the Company
has since its inception sought to simultaneously develop multiple
projects in anticipation that some projects added to its
development portfolio will not be completed.

Among the principal items involved in developing projects are the
selecting of a site, the obtaining of commitments from others to
purchase electrical power and steam, negotiating fuel supply
arrangements, obtaining environmental and other governmental
permits and approvals, arranging project financing and turnkey
construction. These items are often obtained independently of one
another and success in obtaining one item does not necessarily
result in success in obtaining any others. There is no assurance
that the Company will be able to obtain satisfactory project
agreements, construction contracts, necessary licenses and permits
or satisfactory financing commitments and, therefore, that any of
the projects discussed below will ultimately be completed. If a
project is not completed the Company may neither generate revenue
from the project nor be able to recover its investment in the
project.

The Company has secured some project agreements for certain
projects discussed below. Unless otherwise indicated, no
definitive agreements have been executed in connection with these
projects.

Schuylkill/Grays Ferry (cogeneration). The Company has executed
a partnership agreement with an affiliate of the Philadelphia
Electric Company (the "Affiliate") to jointly develop and own this
proposed 118 megawatt project. The partnership intends to develop
this project in two phases, Phase 1 of which will consist of
approximately 40 megawatts. On August 12, 1994, the partnership
received a commitment letter for a $62,000,000 loan from Canadian
Imperial Bank of Commerce to finance Phase I of this project.
The Company expects that the expiration date of the commitment letter
will be extended beyond October 30, 1994, although there can be no
assurance that such extension will be granted or that if granted,
will provide sufficient time to close. The commitment letter also
provides for the Company's reduction of its ownership interest in the
project from 50% to 25%. The partnership has executed a 25-year
agreement with the Trigen-Philadelphia Thermal Energy Corporation for
the sale of steam and a 20-year agreement for the sale of electric output
with PECO Energy Company, formerly the Philadelphia Electric Company.

Edgeboro (biogas). In February 1989 the Company executed a gas
rights agreement with the owners of the landfill. The landfill is
capable of fueling a 15 megawatt generating facility. In April
1992, the Company entered into a 15-year power purchase agreement
with PSE&G for the purchase of 9.5 megawatts of electricity. The
Company is currently reviewing this project with other potential
investors for the purpose of a sale of the project or as equity
investors.

Hackensack Meadowlands (Biogas). In September 1993 the Company
was awarded (pursuant to a competitive bidding process) gas
recovery rights by the Hackensack Meadowlands Development
Commission (the "Development Commission") for two landfill sites
located in North Arlington and Lyndhurst, New Jersey, respectively.
The Company and the Development Commission have executed a Gas
Rights Agreement. The Company intends to utilize the gas recovered
from these sites to supplement natural gas at its Newark Boxboard project.

Other potential projects. The Company has identified and is
considering potential opportunities to develop additional projects
as well as to acquire projects in operation or under development
and owned by third parties. If these projects are not completed
the Company may neither generate revenue from the projects nor be
able to recover its investment in the projects.

Sale of Projects in Operation

In June 1992, the Company sold its Hamms and Amity biogas
projects, exclusive of certain equipment, for an aggregate of
$2,048,000, of which $1,725,000 was being paid pursuant to a
promissory note. See Notes 6 and 20 of the Consolidated Financial
Statements. In addition, the Company is entitled to receive $.01
for each kilowatt hour of electricity sold in excess of the
respective projects' target production as long as the projects
remain in commercial operation. Pursuant to the contracts of sale,
the Company has a right of first refusal for the operation and
maintenance of each project on the buyers' behalf if the buyers'
present contracts concerning the operation and maintenance of the
project are terminated. The Company also entered into equipment
rental agreements that provide for removal of power generation
equipment if gas from the landfill decreases. The annual rent is
$75,000 and $110,000, respectively, for initial terms extending
through December 31, 2002 but may be reduced if power generation
equipment is removed from the site.

Sale of Projects in Development

In September 1994, the Company sold its rights to the Tinicum
(Philadelphia Airport) project for net cash proceeds of $1,652,000.
The Company executed an energy service agreement with the City of
Philadelphia in December 1993 for a 14 megawatt standby electrical
facility project at the Philadelphia International Airport.

In June 1994, the Company sold its rights to develop a standby
project with SmithKline Beecham in Montgomery County, Pennsylvania.
See Note 20 to the Consolidated Financial Statements.

In August 1993, the Company sold its rights to develop coal-bed
methane reserves at a 15,000 acre site in Indiana County,
Pennsylvania together with other assets relating to the site for
$6,500,000. See Notes 6 and 7 to the Consolidated Financial
Statements and Legal Proceedings regarding BBC/DRI Blacklick Joint
Venture.

In December 1992, the Company sold its Rowley biogas project for
$821,000, of which $331,000 was being paid pursuant to a promissory
note. The promissory note was paid in full in October 1993,
subject to a discount for early payment offered by the Company.
See Notes 6 and 20 to the Consolidated Financial Statements.

In December 1992, the Company and a utility entered into an
agreement pursuant to which the electric contract previously
entered into by the parties was terminated in consideration of the
payment by the utility of $4,000,000 payable over five years
(commencing on June 29, 1993) and secured by a standby letter of
credit. See Notes 6 and 20 to the Consolidated Financial
Statements.

In September 1992, the Company sold a 50% interest in its SPSA
biogas project pursuant to a stock purchase agreement. The
remaining 50% interest was sold on June 30, 1993. The aggregate
purchase price was $625,000, of which $555,000 is being paid
pursuant to a promissory note. During 1994, the promissory note
was paid in full, subject to a discount for early payment offered
by the Company. See Notes 6 and 20 to the Consolidated Financial
Statements.

Equipment Sales, Rentals and Services Segment

In addition to the energy business, the Company sells and rents
power generation and cogeneration equipment. A significant portion
of the Company's equipment rental business is attributable to the
operations of its subsidiary, O'Brien Energy Services. The Company
provides related services, including the design, assembly, repair
and maintenance of permanent or standby power generation equipment.
In addition, the Company sells equipment manufactured by others to
turnkey contractors in connection with the construction of the
Company's projects. The Company also sells equipment purchased by
it for projects unrelated to those being developed by the Company.
From time to time, it purchases equipment for reconditioning and
sale. In its rental business the Company serves the construction,
industrial, military, transportation, mining, utility and
entertainment markets. On a national level the Company competes
principally with one other company. In addition there are numerous
local competitors in each of the geographic areas in which the
Company operates. The Company competes on the basis of experience,
service, price and depth of its rental fleet.

Puma, a wholly-owned United Kingdom subsidiary, designs and
assembles diesel and gas fueled power generation systems ranging in
size from 5 kilowatts to 5 megawatts. These products are
engineered and sold for use in prime power base load applications
as well as for standby or main failure emergency situations. Major
markets for these products include commercial buildings,
governmental institutions such as schools, hospitals and public
facilities, industrial manufacturing or production plants,
shipyards, the entertainment industry and offshore drilling
operations. The Company exports many of its products primarily
through established distributors and dealers in local areas for
delivery to markets such as the Far East, including Hong Kong and
mainland China, together with the Middle East and South America.

Regulation

In connection with the development and operation of its projects,
the Company is substantially affected by federal, state and local
energy and environmental laws and regulations.

The enactment in 1978 of PURPA and the adoption of regulations
thereunder by Federal Energy Regulatory Commission ("FERC")
provided incentives for the development of small power production
facilities (those utilizing renewable fuels and having a capacity
of less than 80 megawatts) and cogeneration facilities
(collectively referred to as "Qualifying Facilities"). Electric
utilities are required to purchase power from such facilities at
rates based on the incremental cost of electrical energy (so-called
"avoided cost"). Under regulations adopted by FERC and upheld by
the United States Supreme Court, such rates are based upon "the
incremental cost to an electric utility of electrical energy or
capacity or both which, but for the purchase from the qualifying
facility or qualifying facilities, such utility would generate
itself or purchase from another source." Avoided cost is generally
a function of the cost of fuel required to generate electricity and
of the cost of capital required to construct a power plant to
supply such capacity.

All of the Company's existing electric generating facilities are
designed to be qualifying small power production facilities or
qualifying cogeneration facilities, as these terms are defined in
PURPA. Pursuant to authority granted to FERC under PURPA, FERC has
promulgated regulations which at present exempt most of these
facilities from the Federal Power Act, the Public Utility Holding
Company Act of 1935 and, except under certain circumstances, state
laws respecting the rates charged by electric utilities.

In order to qualify for the benefits provided by PURPA, the
Company's facilities must meet certain size, efficiency, fuel and
ownership requirements. For its major cogeneration projects, it is
the Company's practice to obtain an order from FERC confirming the
qualification of its facilities. For its biogas projects, the
Company's practice is to utilize the self-certification procedure
authorized by PURPA and FERC regulation. However, the standards
for qualification and the regulations described above are subject
to amendment. If the regulations were to be amended, the Company
cannot predict the effect of any such amendment on the extent of
regulation to which the Company may thereby become subject. The
Company is not currently aware of any proposed amendments to PURPA
or regulations promulgated by FERC thereunder to materially alter
the standards for qualification.

In the event that one of the Company's cogeneration facilities
failed to meet the requirements of being a "Qualified Facility,"
that entity would be materially adversely impacted.

The Company is also subject to the Powerplant and Industrial Fuel
Use Act of 1978 ("FUA"), which limits the ability of power
producers to burn natural gas in new generation facilities unless
such facilities also have the capability to use coal or any other
alternate fuel as a primary energy source. All of the Company's
existing cogeneration projects are designed to qualify for
permanent exemption from FUA.

In addition to the regulations described above, the Company's
projects must comply with applicable federal, state and local
environmental regulations, including those related to water and air
quality. These laws and regulations in many cases require a
lengthy and complex process of obtaining licenses, permits and
approvals from federal, state and local agencies. The
environmental regulations under which the Company's projects
operate are subject to amendment. The Company cannot predict what
effect compliance with such amendments may have on the Company's
business or operations. Compliance could require modification of
a project and thereby increase its costs, extend its completion
date or otherwise adversely affect a project.

All projects in operation and under development are believed to
be operating in substantial compliance with or designed to meet
currently applicable environmental requirements. To date,
compliance with these environmental regulations has not had a
material effect on the Company's earnings nor has it required the
Company to expend significant capital expenditures.

Employees

As of September 20, 1994, the Company had approximately 176 full-
time employees, including executive officers of the Company. Of
these, approximately 69 are involved with the Company's overseas
equipment sales, rental and service operations. The Company has
reduced its staff of employees for the purpose of reducing overhead
expenses. None of the Company's employees are members of a union
or are subject to a collective bargaining agreement. The Company
considers its employee relations to be satisfactory.

The Company expects that as each of its projects is constructed
and becomes operational, it will either have to hire additional
employees to staff these projects or enter into operation and
maintenance agreements with unrelated third parties. The Company
believes that these project personnel will be readily available.

Competition

Many organizations, including equipment manufacturers and
subsidiaries of utilities and contractors, as well as other organizations
similar to the Company, have entered the cogeneration and biogas market.
Many of these organizations have substantially greater resources than the
Company. In addition, obtaining power contracts with utilities has become
more competitive with the increased use of competitive bidding
procedures. This increased competition may make it more difficult
for the Company to secure future projects, may increase project
development costs and may reduce the Company's operating margins.
Even though many of its potential competitors have substantially
greater resources than the Company, the Company believes that its
experience, particularly if combined with a strategic alliance with
a third party with regard to larger projects, will enable it to
compete effectively.

Significant Customers

The Company derived 53%, 65% and 67% of its revenues in fiscal
1994, 1993 and 1992, respectively, from JCP&L as a result of the
operation of the Newark, Parlin and Hamms projects. (The Hamms
project was sold on June 30, 1992.)

Patents

The Company owns patents and trademarks relating to its waste heat
storage technology which are expected to contribute to the business
activities of the Company.

Backlog

The order backlog of Puma as of March 31, 1994 was approximately
$2,611,000, compared with approximately $6,000,000 as of March 31,
1993. The order backlog for American Hydrotherm at June 30, 1994
and 1993 was $1,024,000 and $1,300,000, respectively. The order
backlog for O'Brien Energy Services, in regard to its equipment
sales operations, at June 30, 1994 was $2,051,000. There was no
significant backlog for O'Brien Energy Services at June 30, 1993
during its startup period in its equipment sales operations.
Management expects that the backlog amounts will be delivered
during each of Puma's and American Hydrotherm's and O'Brien Energy
Services' current fiscal years, as applicable. There is no
significant seasonal influence to the order backlog. See
"Business--Energy Segment--Projects in Development."

D. Financial Information About Foreign and Domestic Operations
and Export Sales.

1994 1993 1992
---- ---- ----
(In thousands)
Revenues:
United States $ 93,090 $ 83,797 $ 84,560
United Kingdom 13,499 13,895 15,555
-------- -------- ---------
$106,589 $ 97,692 $ 100,115
======== ======== =========

Net Income (Loss):
United States $(14,570) $(13,350) $ 1,535
United Kingdom (1,931) (361) (123)
-------- -------- ---------
$(16,501) $(13,711) $ 1,412
======== ======== =========

Identifiable Assets:
United States $230,343 $252,863 $ 249,544
United Kingdom 7,473 9,666 9,510
-------- -------- ---------
$237,816 $262,529 $ 259,054
======== ======== =========

The revenues and operations of the Company's foreign operations
in the United Kingdom disclosed above are attributable solely to
the equipment sales and services segment of the Company's business.
The revenues from such operations accounted for in excess of 50% of
that particular segment's revenue in 1994.

The Company's foreign operations are subject to the additional
risks inherent in doing business in foreign countries, including
changes in currency exchange rates, currency restrictions,
political changes and expropriation. Although it is impossible to
predict the likelihood of such occurrences or their effect on the
Company, management believes these risks to be acceptable and, in
view of the fact that the Company's foreign activities historically
have been largely concentrated in Europe and not in any single
country and the fact that the Company attempts to secure payment
for export sales with commercial letters of credit or other secured
means, does not consider them a factor materially adverse to its
operations as a whole.

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ITEM 2. PROPERTIES.

The Company's offices located at 225 and 231 South Eighth Street,
Philadelphia, which cover approximately 16,000 square feet, are
leased from Pennsport Partnership, a Pennsylvania partnership in
which Frank L. O'Brien III has a 50% ownership interest. The lease
term expires in November 1999 with an option to renew for a five-
year term at the option of the Company. The rental expense for the
premises was approximately $289,000 in 1994. The Company also
leases office and warehouse space from Christiana River Holdings,
Ltd., an entity owned by Frank L. O'Brien III. Rental expense for
1994 was $150,000, plus real estate taxes.

In September 1993, Puma purchased its executive offices and its
principal manufacturing facility located in Ash, Canterbury, Kent,
United Kingdom from III Enterprises, Limited, an entity owned by
Frank L. O'Brien III for approximately $800,000. Rental expense
for the five months prior to the purchase in fiscal 1994 was
approximately $66,000. See Note 24 to the Consolidated Financial
Statements.

The executive and engineering offices of American Hydrotherm are
located in New York City. American Hydrotherm leases this 8,000
square foot facility under the terms of a ten-year lease executed
in 1990. Burr Controls, Inc. leases approximately 10,000 square
feet for its assembly and manufacturing operations on Long Island,
New York.

The headquarters of O'Brien Energy Services are located on
approximately 4 acres in Wilmington, Delaware. The premises are
owned, subject to a mortgage, in fee simple and include an
approximately 55,000 square foot building. In addition, O'Brien
Energy Services owns, subject to a mortgage, office and warehouse
space in Houston, Texas, on approximately two acres of land.
O'Brien Energy Services leases space for similar purposes in each
of Bakersfield and Benecia, California. The office and warehouse
space in Texas and in the California locations range from
approximately 5,000 to 10,000 square feet.

The Company leases, typically for a nominal fee, property on the
site of its proposed cogeneration facilities from the commercial
user of thermal energy. The term of the lease equals or exceeds
that of each respective thermal supply agreement. The Company
believes that the leased premises are suitable and adequate for the
Company's projects.

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ITEM 3. LEGAL PROCEEDINGS.

CHAPTER 11 REORGANIZATION PROCEEDINGS

As a result of this action, pending litigation against the Company
(but not its subsidiaries) will be stayed and consolidated with
this bankruptcy proceeding. The Company has also been advised that its
securities are being delisted from the American Stock Exchange, however,
the Common Stock continues to be listed on the Philadelphia Stock
Exchange. The Company intends to have its Debentures included in either
the OTC Bulletin Board or the "pink sheets." There can be no assurance
that a trading market will develop for any of the Company's securities
even if they are listed on any of the foregoing exchanges or quotation
systems. See "Market for Registrant's Common Equity and Related
Stockholder Matters."

Although the Company cannot give definitive assurance regarding
the ultimate resolution of the various remaining claims described
below, the Company does not presently believe the resolution will
have a material adverse impact on the Company's consolidated
financial statements. However, attorney costs of defending against
these litigations have impacted the Company's financial statements
in 1994 and 1993.

HAWKER SIDDELEY PROCEEDINGS

In May 1994, actions entitled (i) Hawker Siddeley Power
Engineering Inc. v. O'Brien (Parlin) Cogeneration, Inc. (the
"Parlin Action"), and (ii) Hawker Siddeley Power Engineering Inc.
v. O'Brien California Cogen Limited, a California Limited
Partnership, O'Brien Cogeneration, Inc. II and O'Brien Energy
Systems Inc. (the "Salinas Action") were settled pursuant to an
agreement entered into by the parties (the "Hawker Settlement
Agreement"). Pursuant to the Hawker Settlement Agreement, other
than the Company issuing a promissory note for $1,500,000 to Hawker
Siddeley (the "Note"), no money was exchanged; O'Brien (Parlin)
Cogeneration, Inc. was not required to pay the approximately
$5,100,000 contract price withheld and all parties dismissed their
claims related to the Parlin action. Pursuant to the Hawker
Settlement Agreement, the Salinas Action, prior to being dismissed,
required that the first payment under the Note be paid by October
6, 1994. Therefore, as the payment was not made, the Salinas
Action remains open. See Note 29 to the Consolidated Financial
Statements.

In May 1993, actions entitled (i) O'Brien (Newark) Cogeneration,
Inc. v. Hawker Siddeley Power Engineering Inc. and Hawker Siddeley
Group, P.L.C. and (ii) Hawker Siddeley Power Engineering Inc. v.
O'Brien (Newark) Cogeneration, Inc. and O'Brien Newark Supply
Corporation were settled pursuant to an agreement entered into by
the parties (the "Newark Settlement Agreement"). Pursuant to the
Newark Settlement Agreement, no money was exchanged, O'Brien
(Newark) Cogeneration, Inc. was not required to pay the $3,800,000
contract price withheld and all parties dismissed their claims.

As of September 1993, actions entitled (i) Hawker Siddeley Power
Engineering Inc. v. O'Brien Cogeneration (Hartford), Inc., (ii)
O'Brien Cogeneration (Hartford), Inc. and O'Brien (Hartford)
Cogeneration Limited Partnership v. Hawker Siddeley Power
Engineering Inc. and Hawker Siddeley Group, P.L.C. and (iii) Hawker
Siddeley Power Engineering, Inc. v. Energy Networks, Inc., O'Brien
(Hartford) Cogeneration Limited Partnership and Connecticut
National Bank were settled pursuant to an agreement entered into by
the parties (the "Hartford Settlement Agreement"). Pursuant to the
Hartford Settlement Agreement, the Company relinquished its
interest in the project and its general partner responsibilities,
paid Hawker Siddeley $250,000 and issued a promissory note for
$250,000 to the succeeding general partner, which resulted in a
total charge of $1,121,000 for fiscal 1993. See Note 21 to the
Consolidated Financial Statements.

OTHER PROCEEDINGS

In September 1993, an action entitled Gulfgen Limited and
TransAndean International, S.A. v. O'Brien Environmental Energy,
Inc. was commenced in the United States District Court, District of
Delaware. The complaint alleged the Company repudiated its
obligation to close a proposed transaction which, among other
things, involved a proposed transfer by Gulfgen Limited ("Gulfgen")
and TransAndean International, S.A. ("TransAndean") of an interest
in a pipeline project to the Company (and an agreement to contract
for project development services from the Company in connection
therewith) in exchange for certain stock of the Company and an
option to purchase additional stock of the Company. No closing
documents were negotiated or executed. Gulfgen and TransAndean,
however, claim that an officer of the Company with authority to
bind the Company sent the agreement with a transmittal letter dated
July 30, 1993 containing a statement that constituted an agreement
by the Company. The complaint also alleges that the Company is now
obligated to pay a break-up fee of $200,000 and that the Company
has repudiated its alleged contractual obligation to pay such
$200,000 break-up fee. The Company has settled the action by
paying Gulfgen $25,000.

In December 1993, an action entitled Pueblo Chemical, Inc. v.
O'Brien Environmental Energy, Inc. was commenced in the Court of
Chancery of the State of Delaware - New Castle County. The
Complaint alleges that Pueblo (allegedly, the owner of record of
100 shares of the Class A Common Stock of the Company) has the
right to inspect the Company's stock ledger, list of stockholders
and certain books and records. This action was settled by the
Company providing the information requested.

In January 1994, an action entitled Pueblo Chemical, Inc. v.
O'Brien Environmental Energy, Inc., Frank L. O'Brien, III, Joel D.
Cooperman, William Forman and Charles L. Andes was commenced in the
Court of Chancery of the State of Delaware - New Castle County.
The Complaint alleges, among other things, fraud and breach of
fiduciary duties in connection with a certain agreement allegedly
entered into by Pueblo and an affiliate of Frank L. O'Brien III.
The Company believes that these allegations are without merit and
intends to vigorously contest them. In a decision rendered in U.S.
Bankruptcy Court on February 4, 1994, in a companion case involving
the aforementioned affiliate of Frank L. O'Brien III, the Judge has
determined that these claims are without merit and no contract
existed between the parties. Pueblo appealed the decision to the
United States District Court, which Court denied the appeal and
reaffirmed the decision of the Bankruptcy Court which, in effect,
terminated the plaintiff's cause of action in the case, although
the case remains on the docket as dormant.

By letter dated September 20, 1993, the Securities and Exchange
Commission (the "SEC") commenced an informal inquiry into trading
in the securities of the Company. The SEC requested information
from the Company for the period of March 1, 1993 to September 20,
1993. The SEC has indicated that this inquiry should not be
construed as an indication by the SEC or its staff that any
violations have occurred, or as an adverse reflection upon any
person, entity or security. The Company sent an initial written
response to the SEC on October 21, 1993, and a subsequent response
on November 12, 1993. Since such time, the SEC has not contacted
the Company for any additional information with respect to the
inquiry.

In June 1993, the Company received a Citation and Notification of
Penalty (the "Citations") under the Occupational Safety and Health
Act of 1970 from the United States Department of Labor ("DOL") for
each of its Newark and Parlin Cogeneration plants. The penalties
listed for the Newark and Parlin plants are $44,650 and $10,000,
respectively. In September 1994, the Company entered into a
settlement agreement with the DOL in which the Company, citing
responsibility of the turnkey contractor of the plants to Hawker
Siddeley Power Engineering Inc. and the Operations and Maintenance
Contractor of the plants to John Brown Engineering, accepted a
single citation at the Newark and Parlin plants and accepted
penalties in the amount of $7,000 and $5,000, respectively.

In September 1993, October 1993 and November 1993, respectively,
actions entitled (i) BRIDGET E. McLOUGHLIN, Individually and as
Administrator of the estate of MICHAEL A. McLOUGHLIN, deceased, et
al., v. O'BRIEN COGENERATION INC., HAWKER SIDDELEY CONSTRUCTION
CO., et al.; (ii) GEORGIE ANN ELEY, Individually and as
Administratrix on behalf of the Estate of JOSEPH ELEY, JR.,
deceased, et al. v. O'BRIEN COGENERATION INC., HAWKER SIDDELEY,
JOHN BROWN INC. (for discovery purposes only), et al.; and (iii)
KELLY ANN MOTICHKA, Individually and as Administrator on behalf of
the Estate of Andrew Motichka, deceased, et al. v. O'BRIEN
COGENERATION INC., HAWKER SIDDELEY, JOHN BROWN INC., (for discovery
purposes only), et al. were commenced in the Superior Court of New
Jersey Law Division - Essex County. These actions were filed by
the survivors of three employees of John Brown Power Limited, the
operator of the Company's Newark Cogeneration facility, who were
killed as the result of a fire which occurred at the facility in
December 1992. The actions seek the recovery of damages in an
unspecified amount. Insurance counsel estimates that each of the
pending claims could have a value in excess of $1,000,000. The
amount allocable to the Company, if any, is not determinable at
this time. The Company's insurer has recently disputed the maximum
amounts of coverage under the Company's policies. If a
satisfactory resolution of this dispute cannot be reached, the
Company may be required to file an action in court to obtain an
adjudication of its rights under its insurance policies. The
Company believes that these claims will not have a material adverse
financial effect on the Company because (i) the Company has
sufficient liability insurance coverage and (ii) the operator of
the facility has agreed to indemnify the Company for any liability
arising out of the operator's operation and maintenance of the
facility.

In January 1993, an action entitled Resolution Trust Corporation
as receiver for Atlantic Financial Savings, F.A. v. Clarence J.
O'Brien, II, Frank L. O'Brien III, O'Brien Energy Systems, Inc.,
O'Brien Mobile Power Rental Company, III Enterprises, Inc., III
Enterprises, Inc. I, Puma Manufacturing, Ltd., Puma Power Plant,
Ltd., O'Brien Power Equipment, Inc. and Powerhouse Contractors,
Inc. was commenced in the District Court for the Eastern District
of Pennsylvania. The Complaint alleges that certain transactions
between the Company and a separate group of individuals and
companies jeopardized and harmed the ability of the second group of
companies to repay loans to their creditor, Atlantic Financial
Savings, F.A., an entity which had fallen into Resolution Trust
Corporation ("RTC") receivership. The plaintiffs sought damages in
excess of $75,000. In May 1993, the case was dismissed without
prejudice and the parties entered into an agreement whereby the
Company would pay a total of $930,000 to the RTC in installments
including a final payment in the amount of $590,000 on January 15,
1995, unless otherwise extended, in exchange for the RTC's position
in certain collateralized assets.

In May 1994, BBC/DRI Blacklick Joint Venture (the "Joint Venture")
filed a complaint for arbitration against O'Brien Methane
Production Inc. with the American Arbitration Association in
Philadelphia, Pennsylvania. The complaint alleges, among other
things, breach of contract, fraud and conversion in connection with
an agreement between the parties concerning the sale by the Company
of rights to develop coalbed methane properties in Indiana County,
Pennsylvania. The Joint Venture seeks damages in the amount of
approximately $550,000 and the cancellation of all remaining
payments due under a promissory note in favor of the Company in the
current outstanding amount of $4,500,000. In its answer, the
Company has denied the allegations and counterclaimed against the
Joint Venture for breach of contract in such amount as is necessary
to repay the balance of the promissory note with interest. The
Company has, further, requested that a receiver be appointed to
ensure the performance of the Joint Venture with regard to its
contractual obligations to the Company.

David B. Zlotnick, individually and on behalf of himself and all
persons similarly situated v. O'Brien Environmental Energy, Inc.,
Court of Common Pleas, Philadelphia County, April Term 1994, No.
3224. This Complaint alleges that the defendants did not pay
interest that was due March 15, 1994 or September 15, 1994 to the
three series of bondholders of the 7 3/4% of Convertible Senior
Subordinated Debentures due March 15, 2002, the 11% Convertible
Senior Subordinated Debentures due on March 15, 2010 and the 11%
Convertible Senior Subordinated Debentures due on March 15, 2011.

Allan G. Stevens, on behalf of himself and all persons similarly
situated v. O'Brien Environmental Energy, Inc., Frank L. O'Brien,
III, Joel D. Cooperman, William Forman, Bruce L. Levy, Sanders D.
Newman and Morgan Guaranty Trust Co. This Complaint was served on
August 10, 1994. The Complaint alleges that the defendants other
than Frank L. O'Brien, III, sold stock while in possession of
material adverse, non-public information and all defendants
participated in disseminating misleading information to
artificially inflate the value of the Company's stock. The Company
believes these allegations to be totally without merit.

James M. Blackman and Virginia Frantz v. O'Brien Environmental
Energy, Inc., Frank L. O'Brien, III, Joel D. Cooperman, William
Forman, Bruce L. Levy, and Sanders Newman. On September 15, 1994
a class action suit was filed against the Company and others by a
class allegedly consisting of all persons who purchased the
Company's debentures from September 28, 1992 through April 12,
1994. The Complaint alleges that the defendants made misleading
statements and omitted to state material facts in certain public
disclosures made by the Company. The Company believes these
allegations to be totally without merit.

See Notes 7, 21 and 29 to the Company's Consolidated Financial
Statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

The Company's Class A Common Stock is principally traded on the
AMEX under the symbol "OBS" and is also listed on the Philadelphia
Stock Exchange. As of September 28, 1994, the AMEX halted trading
in the Company's securities due to, among other things, the
Company's filing of a voluntary petition for protection under the
U.S. Bankruptcy Code. On October 4, 1994, the AMEX advised the
Company that it had initiated proceedings to delist the Company's
securities therefrom.

The following table sets forth, for each of the quarterly periods
indicated, the high and low sale prices for the Class A Common
Stock as reported on the AMEX.

High Low
---- ---

Fiscal year Ended June 30, 1992
Quarter ended September 30, 1991 6 1/4 4 1/2
Quarter ended December 31, 1991 5 7/8 3 3/4
Quarter ended March 31, 1992 5 5/8 3 3/4
Quarter ended June 30, 1992 5 1/4 3 7/8

Fiscal Year Ended June 30, 1993
Quarter ended September 30, 1992 4 15/16 3 7/8
Quarter ended December 31, 1992 5 1/4 4 1/8
Quarter ended March 31, 1993 5 1/4 3 1/2
Quarter ended June 30, 1993 4 15/16 3 11/16

Fiscal Year Ended June 30, 1994
Quarter ended September 30, 1993 4 5/16 2
Quarter ended December 31, 1993 3 5/16 2
Quarter ended March 31, 1994 2 13/16 15/16
Quarter ended June 30, 1994 1 3/8 7/16

Fiscal Year Ending June 30, 1995
Quarter ending September 30, 1994 (through
September 20, 1994) 7/8 3/8

On September 20, 1994, the closing sale price of the Company's
Class A Common Stock on the AMEX was $11/16 per share and there
were 13,055,597 shares of Class A Common Stock outstanding.

The approximate number of stockholders of record of the Class A
Common Stock of the Company at September 20, 1994 was 1,471 not
including beneficial owners whose shares are held by banks, brokers
and other nominees. Frank L. O'Brien III, through his ownership of
III Enterprises, Inc., is the owner of all of the outstanding
voting shares of Class B Common Stock of the Company. In October
1993, III Enterprises filed for bankruptcy protection under Chapter
11 of the Federal Bankruptcy Code. In April 1994, III Enterprises
and its creditors entered into a Stipulation which set forth
certain key dates for implementing a Plan of Reorganization. The
Debtor sought and obtained an extension of certain time period in
the Stipulation to September 30, 1994. The debtor has since filed
motions to extend the time periods in the Stipulation. On October 6,
1994, the bankruptcy court ordered that the matter be converted to a
proceeding under Chapter 7 of the Federal Bankruptcy Code. On
October 7, 1994, the debtor appealed this order.

In addition, this proceeding could cause a change of control of the
Company, which could, among other things, significantly affect the
direction of the management of the Company and limit the utilization
all the Company's net operating loss carryforwards available at June 30,
1994 in accordance with IRS regulations. See Note 23 to the Consolidated
Financial Statements.

The Company presently intends to retain all earnings for the
operation and expansion of its business and does not anticipate
paying cash dividends on its common stock in the foreseeable
future. Any future determination as to the payment of dividends on
the common stock will depend upon future earnings, results of
operations, capital requirements, the financial condition of the
Company and any other factors the Board of Directors of the Company
may consider.

Some of the Company's commercial bank lines of credit restrict the
payment of dividends.

In addition, the Indenture governing the Company's 7 3/4% Convertible
Senior Subordinated Debentures due March 15, 2002 (the "1987
Indenture") restricts the Company from declaring or paying any
dividend or making any distribution on its capital stock or to its
stockholders other than dividends and distributions payable solely
in shares of its capital stock (such dividends being referred to as
"Stock Payments"), unless (a) at the time of such Stock Payments no
Event of Default under the 1987 Indenture (as defined therein) has
occurred and is continuing, and (b) after giving effect thereto the
aggregate amount expended for all Stock Payments subsequent to
December 31, 1986 does not exceed the sum of: (i) 25% of the
Consolidated Net Income (as defined in the 1987 Indenture) accrued
on a cumulative basis subsequent to December 31, 1986 (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit); (ii) the aggregate net proceeds received by the Company
from the issue or sale subsequent to December 31, 1986 of its
capital stock (including capital stock issued upon the conversion
of Indebtedness (as defined in the 1987 Indenture)); and (iii)
$500,000.

The indentures governing the Company's 11% Convertible Senior
Subordinated Debentures due March 15, 2010 (the "1990 Indenture")
and 11% Convertible Senior Subordinated Debentures due March 15,
2011 (the "1991 Indenture") impose similar restrictions on the
payment of dividends by the Company. The reference dates used for
the 1990 and 1991 Indentures are December 31, 1989 and December 31,
1990, respectively. With respect to the 1990 and 1991 Indentures,
the parenthetical information in (b)(i) above is qualified to
indicate that in the event that the Company's Consolidated
Stockholders' Equity (as defined in the 1990 and 1991 Indentures,
respectively) is $60,000,000 or more, such percentage shall be 50%.
The amount set forth in (b)(iii) above for each of the 1990 and
1991 Indentures is $2,000,000.

The Company's project subsidiaries may declare and pay dividends
to the Company only to the extent of surplus cash flow and subject
to certain other restrictions.

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ITEM 6. SELECTED FINANCIAL DATA.

The consolidated selected financial data as of and for each
of the five years in the period ended June 30, 1994 have been
derived from the audited financial statements of the Company.
Due to the uncertainty concerning the Company's ability to continue
as a going concern and the outcome of certain pending litigation,
no provision has been made for any liabilities which may result from
these uncertainties. This data should be read in conjunction with, and
is qualified in its entirety by reference to, the related financial
statements and notes included elsewhere in this Report.

Year Ended June 30,
------- --------------------------------------------------------
1994 1993 1992 1991 1990(2)
------- -------- -------- ------- --------
(in thousands, except per share data)

Statements of Operations Data:
Revenues:
Energy $ 62,647 $ 65,136 $ 71,638(1) $19,881(1) $ 4,931
Equipment sales and services 24,304 18,955 21,854 25,321 24,634
Rental 5,372 3,636 3,191 3,663 4,005
Related parties -- 515 378 899 --
Development fees and other 14,266 9,450 3,054 1,616 3,941
-------- -------- -------- ------- --------
Total 106,589 97,692 100,115 51,380 37,511
Cost of revenues 84,174 71,750 66,996 37,383 27,581
Gross profit 22,415 25,942 33,119 13,997 9,930
Provision for loss on equipment
held for sale 6,250 -- -- -- --
Selling, general and
administrative expenses 19,680 21,872 13,133 13,311 9,184
-------- -------- -------- ------- -------
Income (loss) from operations (3,515) 4,070 19,986 686 746
Involuntary conversion gain 6,066 -- -- -- --
Interest and other income 874 993 1,204 1,377 2,409
Interest and debt expense (18,013) (15,696) (17,340) (8,434) (4,855)

Litigation settlement cost -- -- -- (538) --
-------- -------- -------- ------- --------

Income (loss) before income
taxes and cumulative effect
of change in accounting
principle (14,588) (10,633) 3,850 (6,909) (1,700)
Provision for (benefit from)
income taxes 1,913 3,078 2,438 1,676 (280)
-------- -------- -------- ------- --------

Income (loss) before
cumulative effect of
change in accounting
principle (16,501) (13,711) 1,412 (8,585) (1,420)
Cumulative effect of change
in accounting principle -- -- -- -- (2,329)
-------- -------- -------- ------- --------
Net income (loss) $ (16,501) $(13,711) $ 1,412 $(8,585) $ (3,749)
======== ======== ======== ======= ========
Net income (loss) per share:
Income (loss) before
cumulative effect of change
in accounting principle $ (.98) $ (.82) $ .09 $ (.67) $ (.11)
Cumulative effect of change in
accounting principle -- -- -- -- (.19)
-------- -------- -------- ------- --------
Net income (loss) $ (.98) $ (.82) $ .09 $ (.67) $ (.30)
======== ======== ======== ======= ========

Weighted average shares
outstanding 16,871 16,821 14,911 12,756 12,427

As of June 30,
-------- ----------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- --------- ------- ----------

Balance Sheet Data:
Working capital (deficiency)(3) $(125,683) $(11,119) $ 816 $(14,629) $(10,126)
Property, plant and equipment, net 176,514 194,217 195,677 195,452 165,233
Total assets 237,816 262,529 259,054 249,207 216,494
Recourse long-term debt, net(3) 7,073 28,012 20,003 16,950 22,566
Convertible senior subordinated
debentures(3) -- 49,174 49,174 49,254 22,999
Nonrecourse project financing, net(3) 60,310 97,140 107,898 117,817 100,166
Stockholders' equity 136 15,675 29,405 14,235 22,302

<FN>
- - ----------------------
(1) Includes revenues attributable to the du Pont Parlin Project which commenced operations on June 26, 1991 and the Newark
Boxboard project which commenced operations in November 1990.
(2) In 1993, the Company adopted Statement of Accounting Standards #109, "Accounting for Income Taxes" (SFAS #109) and elected
to apply the provisions of SFAS #109 retroactively to July 1, 1989. Accordingly, the Consolidated Financial Satements
for the year ended 1990 includes the cumulative effect of a change in accounting principle.
(3) As of June 30, 1994, recourse long-term debt, net, nonrecourse project financing, net, and Convertible Senior
Subordinated Debentures excludes $21,914, $25,010 and $49,174, respectively, of amounts with long-term repayment terms.
These amounts have been included in current liabilities (thereby included in Working Capital Deficiency) due to defaults
under the respective debt agreements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

On September 28, 1994, O'Brien Environmental Energy, Inc., the
parent company, filed a voluntary petition (No. 94-26723(RG)) for
reorganization under Chapter 11 of the United States Bankruptcy
Code with the U.S. Bankruptcy Court for the District of New Jersey
to pursue financial restructuring efforts under the protection
afforded by the U.S. bankruptcy laws. The decision to seek Chapter
11 relief was based on the conclusion that action had to be taken
to preserve its relationships and maintain the operational strength
and assets of the Company, and to restructure its debt and utilize
its assets in a manner consistent with the interests of all
creditors and shareholders rather than liquidate to satisfy the
demands of a particular group of creditors. The Company expects to
continue its normal activities, including project development and
the sale and/or refinancing of existing projects. There can be no
assurance that the Company, in the future, will have adequate cash
flow to finance operations and ongoing development activities or to
meet current obligations. Subsequent to September 28, 1994, the
Company is operating as debtor-in-possession under the Bankruptcy Code.
As such, the Company is authorized to operate its business, but may not
engage in transactions outside the ordinary course of business without
approval, after notice and hearing, of the Bankruptcy Court. There can
be no assurance that the Company will be able to obtain such approval to
continue its normal operations and restructure its debt and otherwise
engage in project development and the sale or refinancing of existing
projects. In addition, the bankruptcy of an affiliate of the Company's
principle stockholder may cause a change of control of the Company. Any
discussion herein respecting the plans of management concerning the Company's
business is accordingly qualified. See "Significant Factors--Liquidity;
Chapter 11 Bankruptcy Filings" and "-- III Enterprises, Inc. Bankruptcy."

The Company develops cogeneration, waste heat recovery and biogas
projects ("Energy business"). In addition, the Company sells and
rents power generation equipment ("Equipment sales, rental and
services business"). Included in the Equipment sales, rentals and
services business is the Company's demand-side management business,
through which the Company provides standby power equipment to a
customer for a fee.

At present, the Company has eight projects in operation totalling
approximately 237 megawatts of electric generating capacity,
including seven wholly-owned projects developed by the Company
totalling approximately 205 megawatts and one 32 megawatt project
developed by the Company but presently owned substantially by a
subsidiary of Chrysler Capital Corporation.

The Company's energy revenues and gross profits are subject to
seasonal variations as a result of power sales agreements which
contain peak and off-peak energy pricing provisions and fuel costs
which fluctuate based upon seasonal demand and other factors.

The Board of Directors elected not to make the March 15, 1994 or
the September 15, 1994 interest payments due on the 1987, 1990 and
1991 Indentures. The Company is also in default of certain other
debt. See "Recent Developments" and "Liquidity and Capital
Resources".

In December 1992, a fire disabled the Company's Newark Boxboard
cogeneration plant. The damage to the plant has been repaired.
The plant returned to partial operation in August 1993 and full
operation in October 1993. The Company received $36,000,000 from
its insurance carrier which covered a substantial majority of the
Company's cost of repair and loss of net profits due to business
interruption. See "Results of Operations for the Years ended June
30, 1994, 1993 and 1992" and "Liquidity and Capital Resources" for
further discussion and analysis of the impact of the fire.

During May 1993, operations commenced at the Company's initial
demand side management facilities (collectively, the "Philadelphia
Water Department project"). The Philadelphia Water Department
project consists of two ten megawatt standby power generating
plants. In November 1993, the Company entered into a transaction
under which it sold its interest in the Philadelphia Water
Department project to entities controlled by an unrelated private
investor. The Company continued to rent facilities and all related
generation and associated equipment to the project. The Company
repurchased the project on August 5, 1994 subject to a minority
interest retained by the private investor. See "Recent
Developments", "Results of Operations for the Years ended June 30,
1994, 1993 and 1992" and "Liquidity and Capital Resources".

In January 1994, the Company ceased operations at one of its of
United Kingdom subsidiaries which was in the business of
manufacturing low voltage switchgear. Pretax losses associated
with this United Kingdom subsidiary in fiscal 1994 were $1,200,000
which includes costs of $319,000 associated with the closure of the
business.

In May 1994, actions entitled (i) Hawker Siddeley Power
Engineering v. O'Brien (Parlin) Cogeneration, Inc. (the "Parlin
Action") and (ii) Hawker Siddeley Power Engineering, Inc. v.
O'Brien California Cogen Limited, a California Limited Partnership,
O'Brien Cogeneration, Inc. II and O'Brien Energy Systems, Inc. (the
"Salinas Action") were settled pursuant to an agreement entered
into by the parties (the "Hawker Settlement Agreement"). Pursuant
to the Hawker Settlement Agreement, other than the Company issuing
a promissory note for $1,500,000 to Hawker Siddeley, no money was
exchanged. O'Brien (Parlin) Cogeneration, Inc. was not required to
pay the approximately $5,100,000 contract price withheld and all
parties dismissed their claims related to the Parlin Action.
Pursuant to the Hawker Settlement Agreement, the Salinas Action,
prior to being dismissed, required that the first payment under the
notes be made by October 6, 1994. Therefore, as the payment was
not made, the Salinas Action remains open. See "Recent
Developments" and "Liquidity and Capital Resources".

In September 1993, the Company reached an agreement to settle the
Hartford Steam project litigation with the project's turnkey
contractor, Hawker Siddeley Power Engineering, Inc. Under the
terms of the settlement, the Company relinquished its interest in
the project and its general partner responsibilities. As the
Company's interest in the project was only 5%, management does not
believe the settlement will have a significant impact on the
Company's future results of operations. See "Results of Operations
for the Years ended June 30, 1994, 1993 and 1992".

Results of Operations for the Years ended June 30, 1994, 1993 and
1992

Revenues

Energy revenues for the years ended June 30, 1994, 1993 and 1992
were $62,647,000, $65,136,000 and $71,638,000, respectively. Energy
revenues primarily reflect billings associated with the Company's
Newark Boxboard and du Pont Parlin cogeneration projects as well as
the Company's biogas facilities. The decrease in energy revenues
from 1993 to 1994 was primarily attributable to two separate
mechanical failures at the Company's du Pont Parlin Project while
the decrease in energy revenues from 1992 to 1993 was primarily
attributable to the December 25, 1992 fire at the Newark Boxboard
facility, each of which is separately discussed below.

Revenues recognized at the du Pont Parlin Project were
$37,910,000, $43,729,000 and $40,915,000 for the fiscal years ended
June 30, 1994, 1993 and 1992, respectively. In late September
1993, a gas turbine generator was shut down for unscheduled repairs
until mid-December 1993. In late May 1994, a gas turbine was also
shut down for unscheduled repairs until mid-August 1994. The
Company estimates that these shut downs resulted in lost revenues
of approximately $3,300,000 and $2,300,000 for the fiscal 1994
second and fourth quarters, respectively. Fiscal 1994 revenues
include business interruption proceeds of $726,000 for the second
quarter period. No amounts are recognized for the fourth quarter
interruption because of a 30 day deductible period before insurance
coverage applies.

Revenues at the Newark Boxboard project were $23,082,000,
$19,629,000 and $27,532,000 for the fiscal years ended June 30,
1994, 1993 and 1992, respectively. A fire at the Newark Boxboard
project on December 25, 1992 disabled the plant until full
operations resumed in October 1993. Fiscal 1994 revenues consisted
of business interruption insurance proceeds of $980,000, partial
operations from August to September 1993 and from full operations
beginning in October 1993 through June 30, 1994. In comparison,
fiscal 1993 revenues consist of full operations from July 1992
through December 1992 and $5,880,000 of business interruption
proceeds through June 30, 1993.

In February 1994, the Company and its insurance carrier for the
Newark project reached an agreement concerning the property damage
and business interruption insurance claims submitted in connection
with the fire. Under the terms of the agreement, the insurance
carrier agreed to a minimum settlement of $36,000,000 which covered
a substantial majority of the Company's costs of repair and loss of
net profits due to business interruption. In addition, the Company
has the right to receive up to an additional $1,400,000 upon the
recovery by the insurance carrier of its claims against third
parties. As a result of the insurance property settlement and the
subsequent repairs made to the project, the Company recognized an
involuntary conversion gain of $6,066,000 in the fiscal year ending
June 30, 1994, representing the amount by which the replacement
cost (insurance proceeds) exceeded the net book value of assets
lost.

Energy revenues from the Company's biogas projects for the fiscal
year ended June 30, 1994, 1993 and 1992 were $1,655,000, $1,679,000
and $2,825,000, respectively. Fiscal 1992 revenues included the
Orange County, Amity, Hamms and Republic projects, each of which
was sold or affected by termination of contracts in June 1992.

Equipment sales and services for the years ended June 30, 1994,
1993 and 1992 were $24,304,000, $18,955,000 and $21,854,000,
respectively. Equipment sales and services principally reflect the
operations of O'Brien Energy Services, Puma and American
Hydrotherm. O'Brien Energy Services revenues for the years ended
June 30, 1994, 1993 and 1992 were $7,789,000, $3,067,000 and
$144,000, respectively. The increases are primarily attributable
to the Company expanding its domestic business in the design and
assembly of generator sets and switchgear.

Equipment sales of Puma in the years ended June 30, 1994, 1993 and
1992 were $13,499,000, $12,971,000 and $15,119,000, respectively.
Revenues from 1992 to 1993 decreased primarily as a result of
substantial utilization of Puma's production facilities in 1993 for
internal projects such as the design and assembly of the standby
power systems used in the Philadelphia Water Department project.
Dollar-denominated revenues also declined as a result of a
strengthening of the dollar versus the pound sterling. Fiscal 1994
revenues remain depressed from 1992 levels because of continued
recessionary pressures and increased competition in the European
market.

Equipment sales and services for the years ended June 30, 1994,
1993 and 1992 by American Hydrotherm were $2,990,000, $2,912,000
and $5,742,000, respectively. The decrease in revenues from 1992
levels was primarily due to recessionary pressures and a change in
product mix towards smaller projects.

The balance of equipment sales and services for the years ended
June 30, 1994, 1993 and 1992 consisted of nonproject-related
equipment activities and operation and maintenance activities with
third parties.

Rental revenues were $5,372,000, $3,636,000 and $3,191,000 for the
years ended June 30, 1994, 1993 and 1992, respectively. The
increase in rental revenues in 1994 and 1993 was attributable to
the completion in May 1993 of the Philadelphia Water Department
project. The Company sold its interest in the Philadelphia Water
Department project in November 1993 but continued to own and lease
power generation equipment to the project which in fiscal 1994
amounted to approximately $2,187,000.

Revenues from related parties for the years ended June 30, 1993
and 1992 were $515,000 and $378,000, respectively. These revenues
consisted principally of equipment sales and services. Management
does not anticipate significant revenues from related parties in
the future.

Development fees and other revenues were $14,266,000, $9,450,000
and $3,054,000 for the years ended June 30, 1994, 1993 and 1992,
respectively. Development fees and other revenues for fiscal 1994
include $5,121,000 of revenues recognized in connection with the
sale of the Company's contractual rights to develop certain coalbed
methane reserves. The selling price consisted of a $2,000,000 cash
payment and a production note of $4,500,000. The Company
discounted the note to reflect its estimated net realizable value
in consideration of the Company's plan to monetize certain assets
and accelerate cash flow. Most significantly, included in
development fees and other revenues, in June 1994, the Company sold
its recently acquired rights to develop a standby electric facility
project for $5,000,000. The costs associated with the development
of these rights were insignificant.

Development fees and other revenues for 1993 and 1992 consist of
the sale of certain contractual rights associated with various
projects either under development ($4,866,000 in 1993) or in
operation ($2,048,000 in 1992). Development fees and other
revenues also increased in 1994 and 1993 as a result of the Company
supplying $4,015,000 and $3,989,000 in fiscal 1994 and 1993,
respectively, of fuel under a fuel management contract to the
California Milk Producers project at a negligible profit. In
addition, the Company recognized $480,000 and $779,000 of revenues
for equipment supply agreements associated with the Hartford Steam
project for the years ended June 30, 1993 and 1992, respectively.
The balance of development fees and other consists primarily of
revenues recognized in connection with management fee agreements
associated with the California Milk Producers and Hartford Steam
projects.

Costs and Expenses

Cost of sales for the years ended June 30, 1994, 1993 and 1992
include direct costs associated with the operation of projects of
$49,961,000, $44,889,000 and $46,101,000, respectively. Cost of
energy revenues increased in 1994 versus 1993 as a result of the
Newark Boxboard project resuming full operations in October 1993
after completing repairs caused by the December 1992 fire. The
project operated over nine months in fiscal 1994 as compared to six
months in fiscal 1993. Energy cost increases in 1994 over 1993
were also impacted by gas swap and futures contract gains
recognized in the 1993 fiscal year.

In fiscal 1993, the Company entered into a short term gas swap
agreement intending to levelize the cost of natural gas for the
three month period ended December 31, 1992 (fiscal 1993) and the
three month period ended September 30, 1993 (fiscal 1994). The
Agreement covered approximately 100% of the natural gas consumed by
the Newark Boxboard and du Pont Parlin projects and established a
fixed unit price for contracts in each period. The Company
realized a $1,000,000 gain on the December 1992 contracts and
credited fuel costs for the $1,000,000 cash proceeds received from
the broker. Actual market prices then increased slightly above the
fixed gas swap prices for the September 1993 quarter contracts
thereby eliminating any potential obligation pursuant to the gas
swap agreements for the September 1993 quarter.

A Gas Swap Agreement was also negotiated for the fiscal 1994
second and third quarter fuel costs which resulted in a reduction
of fuel costs of approximately $157,000. Presently, the Company
has no active gas swaps or hedges.

The Company further hedged its gas position against price
increases on a portion of its gas requirements for the remainder of
the fiscal 1993 year through the use of gas futures which resulted
in gains of $510,000 also recognized as an offset to fuel expense
in fiscal 1993.

Approximately seventy percent of the operating costs of the Newark
Boxboard and du Pont Parlin projects consist of natural gas fuel
costs. The Company continues to evaluate strategies to reduce the
risk associated with the volatile nature of natural gas prices and
their impact on gross profit levels. Cost of energy revenues in
fiscal 1994 also increased because the Newark and Parlin projects
were required to operate on an alternative (more expensive) fuel
source for a portion of the third quarter because of natural gas
shortages caused by severe winter conditions.

Cost of equipment sales and services for the years ended June 30,
1994, 1993 and 1992 were $21,890,000, $16,431,000 and $17,746,000,
respectively. Cost of equipment sales and services increased in
1994 primarily as a result of the increase in sales volume at
O'Brien Energy Services. Fiscal 1993 cost of equipment sales and
services increased as a percentage of sales as a result of the
previously discussed change in American Hydrotherm's product mix as
well as the utilization of Puma's facilities for internal projects
such as the Philadelphia Water Department.

Cost of rental revenues for the years ended June 30, 1994, 1993
and 1992 was $2,730,000, $2,458,000 and $1,421,000, respectively.
The increase in fiscal 1994 cost of rental revenues is attributable
to costs associated with a full year's rental to the Philadelphia
Water Department. The Company sold the project to a private
investor in November 1993 but continued to own and lease the
facilities and generation equipment to the project. Cost of rental
revenues increased as a percentage of revenue in 1993 primarily as
a result of depreciation charges on equipment idled while being
modified for use in the Philadelphia Water Department project, as
well as depreciation charges associated with equipment recently
placed in service.

Cost of revenues from related parties for the years ended June 30,
1993 and 1992 was $452,000 and $320,000, respectively. These costs
consist principally of costs associated with equipment sales and
services.

Cost of development and other fee revenue was $9,593,000,
$7,520,000 and $1,408,000, in the years ended June 30, 1994, 1993
and 1992, respectively. These costs consist principally of costs
associated with the sale of various projects either under
development or in operation, costs associated with a gas supply
agreement with the California Milk Producers project, and costs
associated with equipment supply agreements for the Hartford Steam
project and costs of management agreements for the Hartford Steam
and California Milk Producers projects.

Provision for Loss on Equipment Held For Sale

As part of the Company's debt restructuring program and its
efforts to improve both short-term and long-term liquidity, the
Company has actively begun seeking buyers for specific energy
equipment not currently being used in an operating project nor
critical to the completion of any projects in development. These
assets, consisting mainly of gas and steam turbines are being held
for sale in order to raise cash and reduce debt levels. The value
of these assets sold in a secondary market is less than if they
were incorporated into an internally developed operating project.
Accordingly, the Company recorded a non-cash charge against
earnings in the fourth quarter of $6,250,000 to write down the
carrying value of these assets to an estimated resale value of
$8,458,000 based upon appraisals made by the Company.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the years ended
June 30, 1994, 1993 and 1992 were $19,680,000, $21,872,000 and
$13,133,000, respectively. Selling, general and administrative
expenses increased substantially in fiscal 1994 and 1993 over 1992
primarily as a result of increased litigation costs and other
professional services. Total professional fees were $4,955,000,
$4,934,000 and $1,788,000 for 1994, 1993 and 1992 respectively.
Fiscal 1994 and 1993 also included the expensing of certain project
development costs (See Note 8 to the Company's Consolidated
Financial Statements). Additionally, in fiscal 1993, a $1,121,000
charge associated with the Company's relinquishing general partner
responsibilities at the Hartford Steam Project was included in
selling, general and administrative expenses.

Involuntary Conversion Gain

In fiscal 1994, the Company recognized an involuntary conversion
gain of $6,066,000 from the property settlement with the insurance
carrier resulting from the December 25, 1992 fire at the Newark
project. The gain represents the amount by which the insurance
proceeds (replacement cost) exceeded the net book value of the
equipment lost in the fire.

Other Income

Other income for the years ended June 30, 1994, 1993 and 1992 was
$874,000, $993,000 and $1,204,000, respectively. Fluctuations in
other income were primarily attributable to interest income earned
on escrow accounts established in connection with the Newark
Boxboard and du Pont Parlin projects.

Interest and Debt Expense

Interest and debt expense for the years ended June 30, 1994, 1993
and 1992 was $18,013,000, $15,696,000 and $17,340,000,
respectively. The increase in fiscal 1994 interest expense is
attributable to a full year's impact from additional borrowings in
fiscal 1993 as well as from new borrowings in fiscal 1994 incurred
primarily in connection with the Philadelphia Water Department
project. The decrease in interest and debt expense in 1993 was
primarily the result of interest rate decreases on the Company's
floating rate debt as well as debt amortization on the Newark
Boxboard and du Pont Parlin projects. For the years ended June 30,
1994, 1993 and 1992, interest and debt expense includes $8,211,000,
$9,145,000 and $11,284,000, respectively, associated with the
nonrecourse financing on the Newark Boxboard and du Pont Parlin
projects.

Interest Swap

A 1988 non-recourse project loan required that the Company enter
into an Interest Swap Agreement to reduce the risk associated with
a floating interest rate. As required, the Company negotiated an
interest swap agreement with a third party in 1988 fixing the
interest rate at 11% on 65% of the outstanding loan balance. At
June 30, 1994 the floating rate was approximately 5.75%. Interest
expense include costs associated with the interest swap of
approximately $3,253,000, $3,544,000 and $2,912,000 in fiscal 1994,
1993 and 1992, respectively.

Income Taxes

Income tax expense for the years ended June 30, 1994, 1993 and
1992 resulted primarily from not recognizing the future benefit of
net operating losses ("NOLs"). As the Company continues to
generate tax losses due mainly to excess tax over book
depreciation, future utilization of these NOLs is not anticipated
and therefore, these NOLs are not currently being recognized as
deferred tax assets.

Liquidity and Capital Resources

Cash and cash equivalents at June 30, 1994 totalled approximately
$5,681,000 as compared to $5,213,000 at June 30, 1993. Cash and
cash equivalents consist primarily of short-term money market
instruments. However, as described in Note 3 to the Consolidated
Financial Statements, not all such cash balances were available to
the Company due to provisions of the Newark Boxboard and du Pont
Parlin financing agreements.

Restricted cash at June 30, 1994 was $4,594,000 compared to
$5,064,000 at June 30, 1993.

The Company's working capital deficiency at June 30, 1994 was
approximately $125,683,000 as compared to $11,119,000 at June 30,
1993. The substantial increase in the Company's working capital
deficiency is primarily due to the reclassification to current
liabilities of the $49,174,000 balance of all outstanding
Debentures as a result of the Company not making its March 15, 1994
interest payment on its Debentures, $25,010,000 of nonrecourse debt
because of a working capital default and $21,914,000 of recourse
debt because of defaults attributable to cross defaults and the
filing of bankruptcy on September 28, 1994. See "Business--General
Development of Business" and "Legal Proceedings".

As a result of defaults, consisting of defaults in the payment of
interest under each of the Company's three bond Indentures, as well
as defaults under certain of the Company's loan agreements and the
bankruptcy filing the Company reclassified an additional
$21,914,000 for a total of $39,042,000 of its recourse debt as a
current liability. Of this amount, approximately $5,320,000 was
triggered solely by defaults under the Indentures, $3,066,000 by
cross defaults and the non-payment of principal subsequent to year
end and the remainder, $13,528,000, was reclassified because of the
bankruptcy filing on September 28, 1994. The Company was having
discussions with its various lenders regarding the defaults and was
developing a program to restructure this debt. The program was
intended to provide, among other things, an extended amortization
of the debt and the sale of equipment, which is not currently being
utilized in an operating project or which has not been designated
for a project under development. No lender had accelerated the
payment of its loans with Company. The program had met with
approval by several of the Company's lenders. See Note 5 to the
Company's Consolidated Financial Statements.

At June 30, 1994, both the Newark and Parlin projects were in
default of the covenant which requires the maintenance of positive
working capital. On September 26, 1994, the project lenders agreed
to waive this covenant through July 1, 1995, for the Parlin Project
only, provided that during the period that this waiver is in effect
no distribution of any nature whatsoever will be made to the
Company. This waiver will cease to be effective in the event that
the Parlin Project is in compliance with the requirement to
maintain positive working capital at any time prior to June 30,
1995. The lenders were not willing to provide a similar waiver for
the Newark project. As a result of the Newark project not getting
the waiver, $25,010,000 of non-recourse debt has been reclassified
from long-term to short-term debt.

Working Capital Requirements--Capital Resources

During the years ended June 30, 1994 and June 30, 1993, the
Company has suffered significant setbacks. Among these were the
Newark Boxboard project fire, the expenses and significant
diversion of management focus required to repair the Newark
Boxboard plant, the intensification of the Hawker Siddeley
litigation and the Debenture defaults. All of these have made it
difficult for the Company to refinance or sell equity in its Newark
Boxboard project and thus deprived the Company of access to
significant capital which would otherwise have been available for
project development. Additionally, the Indenture governing one
series of the Company's Debentures restricts the ability of the
Company to incur new long-term indebtedness under certain
circumstances.

In response to these developments, the Board of Directors of the
Company initiated a plan to address the short, intermediate and
long-term working capital needs of the Company. Management expects
the short-term (fiscal 1995) needs of the Company to be met through
the monetization of assets or other means of accelerating cash
flow, for example, the sale of operating projects and/or projects
in development.

In order to further enhance short-term cash flow, management has
also offered discounts to certain debtors of the Company for early
payment. In the aggregate, during the period July 1, 1993 through
June 1994, the Company has received $1,400,000 in early
satisfaction of notes receivable of $1,695,000. Under the terms of
the notes, cash would not have been received until periods ranging
from three months to over two years from the date of actual
funding.

In November 1993, the Company entered into a letter of intent and
then in March 1994, the Company entered into a $7,000,000
subordinated loan agreement with Stewart & Stevenson Services,
Inc., a major equipment supplier and operation and maintenance
company to be disbursed upon the completion of certain milestones.
The first disbursement of $1,000,000 was funded January 13, 1994.
The second disbursement of $3,500,000 was funded on March 16, 1994.
Of this amount, $2,300,000 was disbursed to the Company and
$1,200,000 remained in the Newark Boxboard project to prepay
project debt, pay certain expenses of the project and create a
capital improvement fund. The availability of a third disbursement
of $2,500,000 has expired. This third disbursement was intended to
be utilized for prepayment of debt at the Newark Boxboard project
level and to satisfy a $1,000,000 note between the Company and
Stewart & Stevenson. All outstanding principal and interest on the
credit facility is to be satisfied by a percentage of all
distributions made by O'Brien Newark. The Company currently intends
to repay the proceeds of the Stewart & Stevenson credit facility
upon the refinancing or sale of the Newark Project term loan.

NatWest Markets has been retained to evaluate and market
a partial sale, together with a concurrent or subsequent refinancing
of the Newark Boxboard project term loan. The current debt outstanding
on this project is approximately $29,580,000. In addition, management is
currently evaluating a partial sale of the Company's du Pont Parlin project.
Management's objective is to complete these transactions in the near future
in order to generate additional cash flow, and to enter into a strategic
alliance with a project "partner" to enhance refinancing efforts. There can
be no assurance that the above mentioned transactions will occur. In order
to facilitate these financing arrangements, or other financing alternatives,
the Company reacquired in January 1994, a twelve and one-half percent equity
interest in the Newark Boxboard project which it had previously
sold in March 1993.

Furthermore, the Company retained an investment banking firm to develop
plans to enhance shareholder value, including an evaluation of the merits of
selling or merging the Company or forming a strategic alliance. Subsequently,
the Company engaged Jefferies & Company, Inc. to complete the implementation of
the Company's plans to maximize shareholder value. Although the Company has
received indications of interest, the Company's efforts to implement a
restructuring plan ("Restructuring Plan") have been hampered by,
among other things, the ongoing litigation with the Company's
previous principal project turnkey construction contractor (the
"Hawker Siddeley litigation"), the Newark fire, the defaults in the
Debentures and the Company's liquidity problems, and most recently the filing
under Chapter 11 of the Federal Bankruptcy Code.

There can be no assurance that the Company, in the future, will
have adequate cash flow to finance operations and ongoing
development activities or to meet current obligations.

Cogeneration and Waste Heat Recovery Projects - Capital Resources

The Company has previously and expects to continue to arrange for
the construction and permanent funding of its projects through
long-term nonrecourse debt. Depending upon the specifics of the
project and the economic alternatives available, the Company either
retains all of the ownership of a project or participates in
project finance structures involving leases, corporate joint
ventures, and limited partnerships. In the latter instances, the
Company sells all or a portion of a project during its development
or construction stage to third parties, and then participates in
the various profit centers of such projects throughout the
construction stage as well as the life of the project.

Alternatively, the Company may use a debt/equity structure,
whereby the Company retains 100% ownership of the project. In such
instances, the Company's equity position in the project funded
either internally, from borrowings or the sale of securities, or
from financial arrangements with other parties, will enable it to
retain all of the revenues of the project.

Capital Resources - Other Capital Requirements

In addition to the development and construction of projects, the
Company's principal nonoperating expenditures over the next twelve
months are expected to consist of the repayment of various short-
term and long-term debt instruments primarily associated with
equipment activities. In such instances, management anticipates
that the sale of the underlying equipment or the refinancing of
such equipment will provide the funds for repayment.

Standby/Peak Shaving and Biogas Fuel Projects - Capital Resources

Generally, because the capital requirements of standby/peak
shaving and biogas fuel projects are substantially less than those
required by most industrial cogeneration and waste heat recovery
projects, the Company finances the construction and permanent
funding of these standby/peak shaving and biogas projects primarily
through the use of recourse lines of credit or loans with
commercial banks and other lending institutions. Financing terms
generally extend from one to seven years. Project assets are also
leased by the Company on a medium to long-term basis. In most
cases, wholly-owned subsidiaries are established for each project.
Projects may also be structured in such a fashion as to allow the
Company, or other participants, to take advantage of various tax
credits that continue to exist.

At June 30, 1994, the Company had nominal availability under
existing lines of credit. Although the Company had refinanced over
$6,000,000 of debt subsequent to June 30, 1993, there can be no
assurance that the Company will be successful in extending its
current lines of credit or obtaining new lines of credit.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Page

Financial Statements

(i) Consolidated Financial Statements of O'Brien Environmental
Energy Inc.

Index to Consolidated Financial Statements. . . . . . . . . . . . F-1

Report of Independent Accountants . . . . . . . . . . . . . . . . F-2

Consolidated Balance Sheets as of June 30, 1994 and 1993. . . . . F-3

Consolidated Statements of Operations
for the years ended June 30, 1994, 1993 and 1992. . . . . . . . F-5

Consolidated Statements of Stockholders' Equity
for the years ended June 30, 1994, 1993 and 1992. . . . . . . . F-6

Consolidated Statements of Cash Flows
for the years ended June 30, 1994, 1993 and 1992. . . . . . . . F-9

Notes to Consolidated Financial Statements. . . . . . . . . . . . F-10

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required for this item is incorporated by
reference to the Company's 1994 Definitive Proxy Statement which
the Company will file with the Securities and Exchange Commission
no later than 120 days subsequent to June 30, 1994.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.

(a) Documents filed as part of this report.

1. Financial Statements

Index to Consolidated Financial Statements

Report of Independent Accountants

Consolidated Balance Sheets as of June 30, 1994 and 1993

Consolidated Statements of Operations for the years ended June
30, 1994, 1993 and 1992

Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1994, 1993 and 1992

Consolidated Statements of Cash Flows for the years ended June
30, 1994, 1993 and 1992

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Index to Financial Statement Schedules

Schedule II--Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees other than Related
Parties

Schedule III -- Condensed Financial Information of Registrant
(to be filed by amendment)

Schedule V--Property, Plant and Equipment

Schedule VI--Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment

Schedule IX--Short-Term Borrowings

3. Exhibits

1.1(20) Form of Letter to Debentureholders
3.1(14) Restated Certificate of Incorporation of the Company and
amendments thereto
3.2(19) Amended Bylaws of the Company
4.1(1) Loan and Security Agreement with First Pennsylvania Bank
N.A. dated August 5, 1985
4.1.1(10) Amendments to Loan and Security Agreement with First
Pennsylvania Bank N.A.
4.2(2) Loan and Security Agreement with Fidelity Bank dated
December 31, 1986
4.3(6) Revolving Credit and Security Agreement with Carteret
Savings Bank, F.A. dated February 3, 1989
4.4(6) Revolving Term Loan Commitment Letter from First Peoples
Bank of New Jersey dated February 16, 1989
4.4.1(6) Amendment to Commitment Letter from First Peoples
Bank of New Jersey dated April 21, 1989
4.4.2(18) Amendment No. 2 to Commitment Letter from First
Peoples Bank of New Jersey dated January 21, 1992
4.4.3(18) Equipment Credit Facility Commitment Letter from
Heller Financial, Inc. dated February 6, 1992
4.5(13) Loan and Security Agreement with Barclays Bank of New
York, N.A. dated July 30, 1990
4.5.1(18) Amendment to Loan and Security Agreement with
Barclays Bank of New York, N.A. dated February 24,
1992
4.6(19) Letter of Credit Agreement with Meridian Bank dated as of
January 21, 1993
4.6.1(19) Loan and Security Agreement with Meridian Bank
dated as of September 29, 1992
4.8(19) Term Loan Agreement dated as of February 26, 1993 with
The Bank of New York
4.10(19) Master Security Agreement dated as of December 23,
1992 with General Electric Capital Corporation
4.13(2) Indenture under which the Company's 7 3/4% Convertible
Senior Subordinated Debentures due March 15, 2002 are
issued
4.13.1(6) Indenture under which the Company's 11% Convertible
Senior Subordinated Debentures due March 15, 2010
are issued
4.13.2(13) Indenture under which the Company's 11% Convertible
Senior Subordinated Debentures due March 15, 2011
are issued
4.14(2) Specimen of Debenture Certificate relating to Indenture
dated as of March 15, 1987
4.14.1(6) Specimen of Debenture Certificate relating to
Indenture dated as of March 15, 1990
4.14.2(12) Specimen of Debenture Certificate relating to
Indenture dated as of March 14, 1991
4.15(21) Subordinated Loan Agreement with Stewart &
Stevenson Services, Inc. dated as of March 11, 1994
10.1 Gas Rights Agreements
10.1.1(1) Gas Rights Agreement between City of Corona and
Watson Biogas Systems ("Watson") dated December 31,
1981 (Corona Project)
10.1.2(1) Assignment of Gas Rights Agreement between Watson
and O'Brien Energy Products, Inc. ("OEP") dated
December 20, 1983 (Corona Project)
10.1.3(1) Assignment of Gas Rights Agreement between Watson
and the Company dated December 31, 1984 (Corona
Project)
10.1.4(1) Methane Gas Agreement between SmithKline Beckman
Corporation, Montgomery County and OEP dated
October 13, 1983 (SmithKline Project)
10.1.5(1) Landfill Gas Lease between FR&S Landfill, AVM
Nursery Corporation ("AVM") and OEP dated December
11, 1982 (Atochem Project-Phase I)
10.1.6(1) Gas Rights Agreement between the Redevelopment
Agency of the City of Duarte and Watson dated
November 11, 1980 (Duarte Project)
10.1.7(1) Assignment of Gas Rights Agreement between Watson
and the Company dated December 30, 1985 (Duarte
Project)
10.1.8(1) Permit Agreement between the City of New York and
Wehran Energy Corporation ("Wehran") dated
September 1, 1981 with attached Amendment dated
January 10, 1986 (Pelham Bay Project)
10.1.9(1) Subpermit Agreement between the Company and Wehran
dated January 10, 1986 (Pelham Bay Project)
10.1.10(1) Assignment Agreement between Wehran and the Company
dated January 10, 1986 (Pelham Bay Project)
10.1.11(2) Landfill Gas Agreement between SCA Disposal
Services of New England, Inc. ("SCA") and the
Company dated March 1986 (Amesbury Project)
10.1.12(1) Landfill Gas Purchase and Sales Agreement between
Manus Corporation and the Company dated April 2,
1986 (Mazzaro Project)
10.1.13(2) Amendment to Landfill Gas Purchase and Sales
Agreement dated November 5, 1986 (Mazzaro Project)
(See 10.1.12)
10.1.14(2) Landfill Gas Rights Agreement between the County of
Volusia and the Company dated April 1986 (Volusia
Project)
10.1.15(2) Landfill Gas Agreement between Joseph R. Amity &
the Company dated September 4, 1986 (Amity Project)
10.1.16(2) Landfill Gas Agreement between Northwest Jersey
Development Company and the Company dated September
2, 1986 (Hamms Project)
10.1.17(3) Amended and Restated Landfill Gas Agreement between
SCA and the Company dated March 27, 1987 (Amesbury
Project)
10.1.18(6) Landfill Gas Agreement between Harold Herbert and
the Company dated February 8, 1989 (Edgeboro
Project)
10.1.19(6) Landfill Gas Agreement among Nuodex, Inc.,
Industrial Land Reclaiming, Incorporated and the
Company dated February 25, 1988 (ILR-Edison
Project)
10.1.20(18) Landfill Gas Agreement between Southwestern Public
Service Authority of Virginia ("SPSA") and the
Company dated October 23, 1991 (SPSA Project)
10.1.21(18) Gas Supply Agreement between The Philadelphia
Municipal Authority ("PMA") and the Company dated
June 30, 1992 regarding the NE Plant (Philadelphia
Water Project)
10.1.22(18) Gas Supply Agreement between the PMA and the
Company dated June 30, 1992 regarding the SW Plant
(Philadelphia Water Project)
10.2 Thermal Supply Agreements
10.2.1(1) Steam Supply Agreement between the Hartford Steam
Company and the Company dated September 19, 1985
(Hartford Steam Project)
10.2.2(18) Steam Purchase Agreement among Philadelphia Thermal
Energy Corporation, Adwin Equipment Corporation,
Grays Ferry Cogeneration Partnership and the
Company dated November 11, 1991 (Schuylkill
Project)
10.3 Power Purchase Agreements
10.3.1(1) Power Purchase Contract between Southern California
Edison Company ("SCE") and the Company dated
October 2, 1984 (Corona Project)
10.3.2(1) Parallel Generation Agreement between Watson and
SCE dated December 31, 1981 (Duarte Project)
10.3.3(1) Amendment to Power Purchase Agreement between SCE
and Watson dated May 20, 1985 (Duarte Project)
10.3.3.2(19) Amendment No. 3 to Power Purchase Agreement between
SCE and the Company dated June 16, 1993 (Duarte
Project)
10.3.4(1) Assignment between Watson and the Company dated
December 30, 1985 (Duarte Project) (See 10.1.7)
10.3.5(1) Purchased Power Contract between the Company and
Unitil Power Corp. dated December 17, 1985
(Amesbury Project)
10.3.6(1) Electricity Purchase Agreement between the
Connecticut Light and Power Company and the Company
dated September 18, 1985 (Hartford Steam Project)
10.3.7(1) Power Purchase Agreement between the Company and
SCE dated June 14, 1985 (California Milk Project)
10.3.8(1) Power Purchase Agreement between the Company and
Pacific Gas and Electric Company ("PG&E") dated
June 18, 1985 (Salinas Project)
10.3.9(1) First Amendment to Power Purchase Agreement between
the Company and PG&E dated January 2, 1986 (Salinas
Project)
10.3.10(2) Power Purchase Agreement between County Sanitation
District No. 1 and the Company dated October 1,
1986 (Orange County Project)
10.3.11(2) Long Term Power Purchase Contract for Cogeneration
and Small Power Production between the Company and
Jersey Central Power and Light ("JCP&L") dated
March 10, 1986 (Newark Boxboard Project)
10.3.12(2) Agreement for Purchase and Sale of Electric Power
between the Company and JCP&L dated October 20,
1986 (E.I. du Pont Parlin Project)
10.3.13(2) Agreement for Purchase and Sale of Electric Power
between the Company and JCP&L dated January 15,
1987 (Hamms Project)
10.3.14(3) Amended and Restated Power Purchase Agreement
between the Company and SCE dated April 15, 1987
(California Milk Project)
10.3.14.1(6) Amendment No. 1 to the Amended and Restated Power
Purchase Contract between SCE and the Company dated
October 4, 1988 (California Milk Project)
10.3.15(3) Agreement between Pennsylvania Power & Light
Company ("PP&L") and the Company dated April 15,
1987 (Amity Project)
10.3.15.1(7) Agreement between PP&L and the Company dated July
20, 1989 (Amity Project)
10.3.16(6) Parallel Generation Agreement between the Company
and Long Island Lighting Company dated February 2,
1990 (Ruco Polymer Project)
10.3.17(18) Power Purchase and Interconnection Agreement
between Public Service Electric and Gas ("PSE&G")
and the Company dated April 9, 1992 (ILR-Edison
Project)
10.3.18(18) Power Purchase and Interconnection Agreement
between PSE&G and the Company dated April 9, 1992
(Edgeboro Project)
10.3.19(18) Agreement for the Sale of Electrical Output to
Virginia Electric and Power Company ("VEPC")
between VEPC and the Company dated April 15, 1992
(SPSA Project)
10.3.20(18) Energy Service Agreement between PMA and the
Company dated June 30, 1992, regarding the NE Plant
(Philadelphia Water Project)
10.3.21(18) Energy Service Agreement between PMA and the
Company dated June 30, 1992 regarding the SW Plant
(Philadelphia Water Project)
10.3.22(18) Agreement for Purchase of Electric Output between
Philadelphia Electric Company and Grays Ferry
Cogeneration Partnership dated July 28, 1992
(Schuylkill Project)
10.3.23(18) Power Purchase Agreement among Non-Fossil
Purchasing Agency Limited,
Norweb plc and the Company dated November 6, 1991
10.3.24(19) Energy Service Agreement dated December 24, 1993
between the City of Philadelphia and O'Brien
(Tinicum) Standby Power, Inc. (Tinicum Project)
10.3.25(19) Energy Service Agreement dated February 28, 1994
between SmithKline Beecham Corporation and O'Brien
Standby Power Energy, Inc. (SmithKline Project)
10.4 Employment Agreements
10.4.1(14) Employment Agreement with Sanders D. Newman, dated
January 1, 1985 and amendment thereto
10.4.2(6) Employment Agreement with Robert Shinn dated May
25, 1989
10.5 Stock Option Plans
10.5.1(1) 1984 Stock Option Plan
10.5.2(4) 1987 Stock Option Plan
10.5.3(16) 1991 Stock Option Plan
10.6 Leases
10.6.1(1) Lease Agreement for premises located at 225 South
Eighth Street, Philadelphia, Pennsylvania dated
August 14, 1984
10.6.2(6) Lease Agreement for premises located at 231 South
Eighth Street, Philadelphia, Pennsylvania dated
March 17, 1989
10.6.3(13) Lease Agreement for premises located at 470 Park
Avenue South, New York, New York dated May 1, 1990
10.6.4(13) Lease Agreement for premises located at 37 Sandwich
Road, Ash, Canterbury, Kent dated June 1, 1990
10.6.5(14) Lease Agreement for premises located in Indiana
County, Pennsylvania dated January 30, 1991
10.8 Construction and Term Loan Agreements
10.8.1(6) Construction and Term Loan Agreement between the
CIT Group/Equipment Financing, Inc. and O'Brien
California Cogen Limited dated March 1, 1988
(California Milk Project)
10.8.2(6) Construction and Term Loan Agreement between the
CIT Group/Equipment Financing, Inc. and O'Brien
California Cogen II Limited dated June 30, 1988
(Salinas Project)
10.8.3(6) Construction and Term Loan Agreement between
National Westminster Bank PLC and O'Brien (Newark)
Cogeneration, Inc. dated July 18, 1988 (Newark
Boxboard Project)
10.8.3.1(13) Amendment No. 1 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Newark) Cogeneration, Inc. dated April 1,
1989 (Newark Boxboard Project)
10.8.3.2(21) Amendment No. 2 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Newark) Cogeneration, Inc. dated as of
June 1, 1989 (Newark Boxboard Project)
10.8.3.3(21) Amendment No. 3 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Newark) Cogeneration, Inc. dated as of
March 11, 1994 (Newark Boxboard Project)
10.8.4(6) Construction and Term Loan Agreement between
National Westminster Bank PLC and O'Brien (Parlin)
Cogeneration, Inc., dated December 1, 1988 (E.I. du
Pont Parlin Project)
10.8.4.1(13) Amendment No. 1 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Parlin) Cogeneration, Inc. dated March 1,
1989 (E.I. du Pont Parlin Project)
10.8.4.2(13) Amendment No. 2 to Construction and Term Loan
Agreement between National Westminster Bank PLC and
O'Brien (Parlin) Cogeneration, Inc. dated January
1, 1990 (E.I. du Pont Parlin Project)
10.8.5(14) Term Loan and Working Capital Agreement between The
Mitsui Bank, Limited, New York Branch and O'Brien
California Cogen Limited dated March 29, 1990
(California Milk Project)
10.9 Turnkey Construction Agreements
10.9.1(6) Turnkey Construction Agreement between Hawker
Siddeley Power Engineering Inc. and O'Brien
California Cogen Limited Partnership dated February
18, 1988 (California Milk Project)
10.9.2(6) Turnkey Construction Agreement between Hawker
Siddeley Power Engineering Inc. and O'Brien
California Cogen II Limited dated June 23, 1988
(Salinas Project)
10.9.3(6) Turnkey Construction Agreement between Hawker
Siddeley Power Engineering Inc. and O'Brien
(Newark) Cogeneration, Inc. dated July 8, 1988
(Newark Boxboard Project)
10.9.4(6) Turnkey Construction Agreement between Hawker
Siddeley Power Engineering Inc. and O'Brien
(Parlin) Cogeneration, Inc. dated November 30, 1988
(E.I. du Pont Parlin Project)
10.9.5(13) Turnkey Construction Agreement between Century
Contractors West Inc. and O'Brien California Cogen
II Limited dated August 14, 1990 and Amendment
thereto dated October 26, 1990 (Salinas Project)
10.10 Operation and Maintenance Contracts
10.10.1(6) Operation and Maintenance Contract between
California Cogeneration Operators Inc. and O'Brien
California Cogen Limited dated April 6, 1988
(California Milk Project)
10.10.2(6) Operation and Maintenance Contract between
California Cogeneration Operators Inc. and O'Brien
Cogeneration, Inc. I dated June 1, 1988 (Salinas
Project)
10.10.3(6) Operation and Maintenance Contract between John
Brown Power Limited and O'Brien (Newark)
Cogeneration, Inc. dated October 24, 1988 (Newark
Boxboard Project)
10.10.4(6) Operation and Maintenance Contract between John
Brown Power Limited and O'Brien (Parlin)
Cogeneration, Inc. dated October 24, 1988 (E.I. du
Pont Parlin Project)
10.10.5 Operation and Maintenance Contract between John Brown
Power Limited and O'Brien (Hartford) Cogeneration Limited
Partnership dated October 12, 1988 (Hartford Project)
10.10.6(18) Partnership Agreement of Grays Ferry Cogeneration
Partnership dated October 29, 1991 (Schuylkill
Project)
10.10.7(21) Operation and Maintenance Contract between Stewart
& Stevenson Operations, Inc. and O'Brien (Parlin)
Cogeneration, Inc. dated April 1, 1994 (E.I. du
Pont Parlin Project)
10.11 Agreements for the Sale of Project Assets or Stock
10.11.1(18) Agreement for the Sale and Purchase of Certain
Assets of Westwanda Energy, Inc. ("Westwanda")
among Westwanda, Lafayette Energy Partners, L.P.
and the Company dated June 30, 1992 (Hamms Project)
10.11.2(18) Agreement for the Sale and Purchase of Certain
Assets of O'Brien Environmental Energy, Inc.
between Taylor Energy Partners, L.P. and the
Company dated June 30, 1992 (Amity Project)
10.11.3(19) Supplemented and Restated Agreement between O'Brien
Methane Production, Inc. and BBC/DRI Blacklick
Joint Venture dated August 27, 1993 (Coalbed
Methane)
10.11.4(19) Exclusive Option Agreement dated as of December 16,
1993 with Zahren Financial Corporation and
Memorandum of Understanding related thereto dated
January 31, 1994
10.11.5(19) Stock Purchase Agreement dated November 12, 1993 by
and among OPC Acquisition, Inc., BioGas
Acquisition, Inc. and the Company (Philadelphia
Water Department Project)
10.11.6(19) Stock Purchase Agreement dated September 30, 1992
with Zahren Financial Corporation (SPSA Project)
10.11.7(19) Stock Purchase Agreement dated June 30, 1993 with
ZFC Energy, Inc. (SPSA Project)
10.11.8(19) Agreement of Sale and Purchase dated December 31,
1992 between O'Brien Energy Europe Limited,
Combined Landfill Projects Limited and the Company
(Rowley Project)
10.12 Miscellaneous
10.12.1(6) Amended and Restated Agreement between Atochem,
Inc. and the Company dated October 12, 1987
10.12.2(21) Rights Assignment Agreement dated as of March 31,
1993 between the Company and Bradley Resources
Company
10.12.3(21) Repurchase Agreement dated January 18, 1994 between
the Company and Bradley Resources Company
10.12.4(21) Master Equipment Lease Agreement dated as of
November 19, 1992 between O'Brien Energy Services
Company and Financing For Science and Industry
10.12.5(21) Equipment Lease dated July 28, 1993 between the
Company and BLT Leasing Corp.
10.12.6(21) Fairbanks Purchase Agreement dated June 30, 1994
between the Company and SmithKline Beecham
Corporation
18.1(6) Letter re change in accounting principles
21.1(19) List of Subsidiaries of Registrant
23.1(21) Consent of Coopers & Lybrand
27.1(21) Financial Data Schedule
_____________________________

(1) Incorporated by reference to the Company's Registration
Statement (File No. 33-6463) ordered effective by the
Commission on July 25, 1986.
(2) Incorporated by reference to the Company's Registration
Statement (File No. 33-11789) ordered effective by the
Commission on March 19, 1987.
(3) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1987.
(4) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1988.
(5) Incorporated by reference to the Company's Current Report on
Form 8-K filed on September 22, 1989.
(6) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1989.
(7) Incorporated by reference to the Company's Registration
Statement (File No. 33-32338) ordered effective by the
Commission on March 14, 1990.
(8) Incorporated by reference to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1990.
(9) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1990.
(10) Incorporated by reference to Amendment No. 3 to the Company's
Registration Statement (File No. 33-38940) ordered effective
by the Commission on March 7, 1991.
(11) Incorporated by reference to the Company's Registration
Statement (File No. 33-38940) filed with the Commission on
February 7, 1991.
(12) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement (File No. 33-38940) filed with the
Commission on February 12, 1991.
(13) Incorporated by reference to Amendment No. 2 to the Company's
Registration Statement (File No. 33-38940) filed with the
Commission on March 1, 1991.
(14) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1991.
(15) Incorporated by reference to the Company's Registration
Statement (File No. 33-43733) filed with the Commission on
November 1, 1991.
(16) Incorporated by reference to Amendment No. 2 to the Company's
Registration Statement (File No. 33-43733) filed with the
Commission on December 17, 1991.
(17) Incorporated by reference to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 30,
1991.
(18) Incorporated by reference to the Company's Annual Report on
Form 10-K filed for the fiscal year ended June 30, 1992.
(19) Incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993.
(20) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement (File No. 33-53631) filed with the
Commission on June 7, 1994.
(21) Filed herewith.

(b) Reports on Form 8-K

The Company did not file a Current Report on Form 8-K during the
last quarter of the period covered by this Report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned
thereunto, duly authorized on the 10th day of October, 1994.

O'BRIEN ENVIRONMENTAL ENERGY, INC.

By: /s/ FRANK L. O'BRIEN III
----------------------------------
Frank L. O'Brien III
Chairman of the Board
and Chief Executive Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:

Signature Title Date
--------- ----- ----

s/ FRANK L. O'BRIEN III Chairman of the Board, October 10, 1994
- - ---------------------------- Chief Executive Officer,
Frank L. O'Brien III Class B Director

/s/ ROBERT J. SMALLACOMBE President, October 10, 1994
- - ---------------------------- Chief Operating Officer
Robert Smallacombe Class A Director

/s/ RONALD R. ROMINIECKI Vice President/Finance and October 10, 1994
- - ---------------------------- Chief Financial Officer
Ronald R. Rominiecki

/s/ JOEL D. COOPERMAN Vice President, Treasurer October 10, 1994
- - ---------------------------- Class B Director
Joel D. Cooperman

/s/ GEORGE L. BERNSTEIN Class B Director October 10, 1994
- - ----------------------------
George Bernstein

/s/ SANDERS D. NEWMAN Class A Director October 10, 1994
- - ----------------------------
Sanders D. Newman

O'BRIEN ENVIRONMENTAL ENERGY, INC.
INDEX TO FINANCIAL STATEMENTS

Index to Consolidated Financial Statements . . . . . . . . . .F-1

Independent Accountants Report . . . . . . . . . . . . . . . .F-2

Consolidated Balance Sheets as of June 30, 1994 and 1993 . . .F-3

Consolidated Statements of Operations for the years ended
June 30, 1994, 1993, and 1992. . . . . . . . . . . . . . . .F-5

Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1994, 1993 and 1992 . . . . . . . . . .F-6

Consolidated Statements of Cash Flows
for the years ended June 30, 1994, 1993 and 1992 . . . . . .F-9

Notes to Consolidated Financial Statements . . . . . . . . . F-10

INDEPENDENT ACCOUNTANTS REPORT

The Board of Directors and Stockholders
O'Brien Environmental Energy, Inc.

We have audited the consolidated financial statements and the
financial statement schedules of O'Brien Environmental Energy,
Inc. and subsidiaries ("Company") listed in the indexes on pages
F-1 and S-1, respectively. These financial statements and
financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedules based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of O'Brien Environmental Energy,
Inc. and subsidiaries as of June 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended June 30, 1994 in
conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all
material respects, the information required to be included
therein.

As discussed in Note 29 to the consolidated financial
statements, the Company is a defendant in several lawsuits. The
ultimate outcome of the litigations cannot presently be
determined. Accordingly, no provisions for any liabilities that
may result has been made in the accompanying consolidated
statements.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial
statements, the Company has experienced significant operating
problems and setbacks which have contributed to its losses and
liquidity problems. Further, O'Brien Environmental Energy, Inc.
filed a voluntary petition for reorganization under Chapter 11 of
the Federal Bankruptcy Code in the United States Bankruptcy Court
on September 28, 1994. These events and circumstances, including
the Company's highly leveraged capital structure, raise
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are
described in Note 1 to the consolidated financial statements.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 7, 1994

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993
(Dollars in thousands)

ASSETS

1994 1993

Current assets:
Cash and cash equivalents $ 5,681 $ 5,213
Restricted cash and cash equivalents 4,594 5,064
Accounts receivable, net 12,100 12,394
Receivable from related parties 633 1,175
Notes receivable, current 780 2,564
Inventories 3,241 4,196
Insurance claims receivable -- 5,255
Other current assets 3,167 1,631
------ -------
Total current assets 30,196 37,492

Property, plant and equipment, net 176,514 194,217

Equipment held for sale 8,458 --

Coalbed methane gas properties held
for sale -- 4,464

Project development costs 5,126 5,136

Notes receivable, noncurrent 5,026 9,315

Notes receivable from officers 238 246

Investments in equity affiliates 3,175 2,515

Excess of cost of investment in
subsidiaries over net assets
at date of acquisition, net 1,987 2,085

Deferred financing costs, net 5,269 5,728

Other assets 1,827 1,331
-------- --------
$237,816 $262,529
======== ========

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and 1993
(Dollars in thousands)

LIABILITIES AND STOCKHOLDERS' EQUITY

1994 1993

Current liabilities:
Accounts payable $ 18,358 $ 19,175
Convertible senior subordinated
debentures 49,174 --
Current portion of recourse
long-term debt 39,042 10,419
Current portion of nonrecourse
project financing 35,830 10,758
Accrued interest payable 5,145 2,314
Short-term borrowings 2,386 2,199
Other current liabilities 5,944 3,746
------- ------
Total current liabilities 155,879 48,611

Recourse long-term debt,
net of current portion 7,073 28,012
Convertible senior subordinated
debentures -- 49,174
Nonrecourse project financing,
net of current portion 60,310 97,140
Construction costs payable -- 5,100
Deferred income taxes 12,808 10,895
Other liabilities 1,610 7,922
------- -------
237,680 246,854
------- -------
Commitments and contingencies

Stockholders' equity:
Preferred stock, par value $.01;
shares authorized, 10,000,000; none
issued
Class A common stock, par value $.01,
one vote per share; 40,000,000 shares
authorized; issued 13,055,597;
outstanding - 12,965,397 in 1994
and 1993 130 130

Class B common stock, par value $.01,
ten votes per share; 10,000,000 shares
authorized; issued 4,070,770;
outstanding - 3,905,770 in 1994
and 1993 39 39
Additional paid-in capital 41,353 40,053
Accumulated deficit (40,735) (23,932)
Other (651) (615)
-------- -------
Total stockholders' equity 136 15,675
-------- -------
Total liabilities and stockholders'
equity $237,816 $262,529
======== ========

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1994, 1993 and 1992
(Dollars and shares in thousands, except per share data)

1994 1993 1992

Energy revenues $62,647 $ 65,136 $ 71,638
Equipment sales and services 24,304 18,955 21,854
Rental revenues 5,372 3,636 3,191
Revenues from related parties -- 515 378
Development fees and other 14,266 9,450 3,054
------- ------- -------
106,589 97,692 100,115
------- ------- -------
Cost of energy revenues 49,961 44,889 46,101
Cost of equipment sales and services 21,890 16,431 17,746
Cost of rental revenues 2,730 2,458 1,421
Cost of revenues from related parties -- 452 320
Cost of development fees and other 9,593 7,520 1,408
------- ------- -------
84,174 71,750 66,996
------- ------- -------
Gross profit 22,415 25,942 33,119

Provision for loss on equipment
held for sale 6,250 -- --
Selling, general and administrative
expenses 19,680 21,872 13,133
------- ------- -------
Income (loss) from operations (3,515) 4,070 19,986

Involuntary conversion gain 6,066 -- --
Interest and other income 874 993 1,204
Interest and debt expense (18,013) (15,696) (17,340)
------- ------- -------
Income (loss) before income taxes (14,588) (10,633) 3,850

Provision for income taxes 1,913 3,078 2,438
-------- ------- ------
Net income (loss) $ (16,501) $(13,711) $1,412
======== ======= ======
Net income (loss) per share $ (.98) $ (.82) $ .09
======== ======= ======
Weighted average shares outstanding 16,871 16,821 14,911
======== ======= ======

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1994, 1993 and 1992
(Dollars in thousands)

Class A Class B Additional Total
Common Common Paid-In Accumulated Stockholders'
Stock Stock Capital Deficit Other Equity
-------- ------- ---------- ----------- ----- ------------

Balances, June 30, 1991 $ 82 $ 47 $ 25,761 $ (11,633) $ (22) $ 14,235

Issuance of 3,858,028
shares of Class A Common
Stock in connection with an
offering, net of issuance
costs 38 13,562 13,600

Conversion of 515,620
shares of Class B Common
Stock into Class A
Common Stock in
connection with an offering 5 (5) -

Issuance of 65,464 shares
of Class A Common Stock
upon the exercise of stock
options 1 261 262

Issuance of 16,840 shares
of Class A Common Stock
upon the conversion of
debentures, net of deferred
financing costs 75 75

Currency translation
adjustment (179) (179)

Net income 1,412 1,412
------- ------ -------- --------- ------ --------
Balances, June 30, 1992 $ 126 $ 42 $ 39,659 $(10,221) $ (201) $ 29,405
======= ====== ======== ======== ====== ========

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1994, 1993 and 1992
(Dollars in thousands)

Class A Class B Additional Total
Common Common Paid-In Accumulated Stockholders'
Stock Stock Capital Deficit Other Equity
-------- ------- ---------- ----------- ----- ------------

Balances, June 30, 1992 $ 126 $ 42 $ 39,659 $ (10,221) $ (201) $ 29,405

Issuance of 94,365 shares
of Class A Common Stock
upon the exercise of stock
options 1 386 387

Conversion of 250,000
shares of Class B Common
Stock into Class A
Common Stock 3 (3)

Currency translation
adjustment (414) (414)

Other 8 8

Net Loss (13,711) (13,711)
------- ------ ------- --------- ------ -------

Balances, June 30, 1993 $ 130 $ 39 $ 40,053 ($23,932) $ (615) $15,675
======= ====== ======== ======== ====== ========

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1994, 1993 and 1992
(Dollars in thousands)

Class A Class B Additional Total
Common Common Paid-In Accumulated Stockholders'
Stock Stock Capital Deficit Other Equity
-------- ------- ---------- ----------- ----- ------------

Balances, June 30, 1993 $ 130 $ 39 $ 40,053 $ (23,932) $ (615) $ 15,675

Currency translation
adjustment (36) (36)

Excess of purchase
price over predecessor
cost of facilities acquired
(Note 24) (302) (302)

Stock warrants issued 1,300 1,300

Net loss (16,501) (16,501)
------- ------ ------- --------- ------ --------

Balances, June 30, 1994 $ 130 $ 39 $ 41,353 $ (40,735) $ (651) $ 136
======= ====== ======== ========= ====== ========

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1994, 1993 and 1992
(Dollars in thousands)

1994 1993 1992
---- ---- ----

Cash flows from operating activities:
Net income (loss) $(16,501) $(13,711) $ 1,412
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 10,550 10,098 8,996
Amortization of debt discount
and deferred financing costs 1,752 452 452
Deferred income tax expense 1,913 3,078 2,303
Project development costs expensed 539 1,782 125
Provision for loss on equipment
held for sale 6,250 - -
Involuntary conversion gain (6,066) - -
Gain on sale of projects - (1,691) -
Non-cash litigation costs - 621 -
Other 1,625 2,602 1,078
Changes in operating assets and
liabilities:
Accounts receivable 294 4,424 (5,661)
Inventories 805 (766) (94)
Receivables from related parties 542 97 (444)
Notes receivable 1,784 (314) (1,725)
Accounts payable (2,892) 508 4,886
------- -------- ------
Net cash provided by
operating activities 595 7,180 11,328
------- -------- ------
Cash Flows from investing activities:
Capital expenditures (2,496) (7,207) (7,534)
Capital expenditures and costs to
repair Newark Plant (21,041) (2,641) -
Insurance proceeds for Newark
Plant 27,000 2,000 -
Project development costs (529) (764) (2,752)
Proceeds from the sale of projects,
net of notes receivable 2,000 1,318 -
(Deposits into) withdrawals from
restricted cash accounts 470 (1,856) (1,685)
Other 622 (437) (1,894)
------- -------- ------
Net cash provided by (used for)
investing activities 6,026 (9,587) (13,865)
------- -------- ------

Cash flows from financing activities:
Proceeds from long-term debt 15,622 21,816 13,501
Repayments of long-term debt (21,660) (23,708) (24,485)
Proceeds from stock issuances 387 13,862
Net proceeds (repayments) of short-term
borrowings 187 301 (1,964)
Other (302) - (176)
------- -------- ------
Net cash provided by (used for)
financing activities (6,153) (1,204) 738
------- -------- ------
Net increase (decrease) in cash and cash
equivalents 468 (3,611) (1,799)
Cash and cash equivalents at beginning of
year 5,213 8,824 10,623
------- -------- ------
Cash and cash equivalents at end of year $ 5,681 $ 5,213 $ 8,824
======= ======== ======

See accompanying notes to consolidated financial statements.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

1. Business; Liquidity and Capital Resources:

O'Brien Environmental Energy, Inc. and its subsidiaries (the
"Company") develop, own and operate biogas projects and develops
and owns cogeneration, and waste-heat recovery projects which
produce electricity and thermal energy for sale to industrial
and commercial users and public utilities. In addition, the
Company sells and rents power generation cogeneration and
standby/peak shaving equipment and services.

On September 28, 1994, O'Brien Environmental Energy, Inc., the
parent company, filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code with the
U.S. Bankruptcy Court for the District of New Jersey to pursue
financial restructuring efforts under the protection afforded by
the U.S. bankruptcy laws. The decision to seek Chapter 11 relief
was based on the conclusion that action had to be taken to
preserve its relationships and maintain the operational strength
and assets of the Company, and to restructure its debt and utilize
its assets in a manner consistent with the interests of all
creditors and shareholders rather than liquidate to satisfy the
demands of a particular group of creditors. The Company expects
to continue its normal activities, including project development
and the sale and/or refinancing of existing projects.

There is negative working capital of $125,683 at June 30,
1994. Furthermore, the Company is severely restricted in
accessing the cash flows of its major operating wholly-owned
subsidiaries (Newark and Parlin) because of certain
restrictive debt covenants and technical and legal
requirements, including an adequate level of distributable
reserves, that arise from these subsidiaries having non-
recourse project financing.

There can be no assurance that the Company's restructuring
efforts will be successful, or that the Company can present a
plan of reorganization which will be accepted by the
bankruptcy court and creditors, consistent with the Company's
requirements in restructuring the obligations. Furthermore,
there can be no assurance that sales of assets can be
successfully accomplished on terms acceptable to the Company.
Under current circumstances, the Company's ability to continue
as a going concern depends upon the successful restructuring
of the Company's obligations and the further redeployment of
assets.

2. Summary of Significant Accounting Policies:

Basis of Presentation:

The consolidated financial statements include the accounts of
the Company and all significant subsidiaries which are more
than 50 percent owned and controlled. Intercompany
transactions and unrealized intercompany profits and losses on
transactions with equity method investees have been eliminated
in consolidation. Foreign subsidiaries with fiscal years
ending on March 31 are included in the consolidated financial
statements. If events occurred between March 31 and June 30
which materially affect the consolidated financial position or
results of operations, they would be reflected in the
consolidated financial statements. Investments in less than
majority-owned entities are recorded at cost plus equity in
their undistributed earnings or losses since acquisition.

Certain reclassifications have been made to conform prior
years' data to the current presentation.

Revenue Recognition:

Energy revenues from cogeneration and biogas projects are
recognized as billed over the term of the contract. Profits
and losses from sales and rental of power generation
equipment, including sales to projects in which the Company
retains less than a 100% interest, are recognized as the
equipment is sold or over the term of the rental. Development
fee revenue is recognized on a cost recovery basis as cash is
received (without future lending provisions), or equity
interest in the partnership increases, whereby revenues are
recognized subsequent to the recovery of all project
development costs.

Inventories:

Inventories, consisting principally of power generation
equipment and related parts held for sale, are valued at the
lower of cost (determined primarily by the specific
identification method) or market.

Property, Plant and Equipment:

Property, plant and equipment are stated at cost and are
depreciated using the straight-line method over the estimated
useful lives of the assets which range from five to thirty
years. Depreciation on equipment held for future projects is
not provided until the equipment is placed in service. For
income tax purposes, the Company uses accelerated depreciation
methods.

Cost of maintenance and repairs is charged to expense as
incurred. Renewals and improvements are capitalized. Upon
retirement or other disposition of items of plant and
equipment, cost of items and related accumulated depreciation
are removed from the accounts and any gain or loss is included
in operations.

Equipment Held For Sale:

Equipment held for sale consists of power generation equipment
not currently being used in an operating project and is valued
at the lower of cost or net realizable value.

Project Development Costs:

Project development costs consist of fees, licenses and
permits, site testing, bids and other charges, including
salary and interest charges, incurred by the Company in
developing projects. For wholly-owned projects, these costs
are transferred to property, plant and equipment upon
commencement of construction and depreciated over the contract
term upon commencement of operations. For projects structured
as partnerships, these costs may be recovered through
development cost reimbursements from the partnership or third
parties, or may be transferred to an investment in the
partnership. It is the Company's policy to expense these
costs in any period in which management determines the costs
to be unrecoverable.

Deferred Financing Costs:

Deferred financing costs are being amortized on a
straight-line basis over the terms of the related financing.

Recourse Long-term Debt and Nonrecourse Project Financing:

Recourse long-term debt consists of collateralized long-term
debt for which repayment is a general obligation of the
Company. Nonrecourse project financing consists of long-term
debt for which repayment obligations are limited to specific
project subsidiaries.

Income Taxes:

Income Taxes are provided based upon the provisions of
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" which requires the recognition
of deferred income taxes for the tax consequences of
"temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities. Under SFAS No. 109, the
effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment
date.

Gas Swap Agreements:

The Company enters into gas swap agreements from time to time
to reduce the impact of changes in gas prices on its operating
income. The differentials to be paid or received under such
agreements are accrued and are recorded as increments or
decrements to gas expense.

Interest Rate Swap Agreement:

The Company has entered into an interest rate swap agreement
to reduce the impact of changes in interest rates on certain
of its variable rate nonrecourse debt. The differentials to
be paid or received under such agreements are accrued and are
recorded as increments or decrements to interest and debt
expense.

Amortization of Excess Cost:

Excess of cost of investment in subsidiaries over net assets
at date of acquisition is being amortized by charges to
operations on a straight-line basis over twenty-five years.

Net Income (Loss) per Share:

Net Income (Loss) per share is calculated by dividing net
income (loss) by the weighted average shares of Common Stock
and Common Stock equivalents outstanding. Fully diluted net
income (loss) per share is not presented because conversion of
the convertible senior subordinated debentures and other
Common Stock equivalents would be antidilutive.

Foreign Currency Accounting:

The financial statements of foreign subsidiaries have been
translated in accordance with Statement of Financial
Accounting Standards No. 52, whereby assets and liabilities
are translated at year-end rates of exchange and statements of
operations are translated at the average rates of exchange for
the year. Currency translation adjustments are accumulated in
the other component of stockholders' equity until the entity
is substantially sold or liquidated.

Transaction gains and losses associated with foreign
activities are reflected in operations.

Statements of Cash Flows:

For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with
maturities of three months or less at the time of purchase to
be cash equivalents.

Concentration of Credit Risk:

The Company primarily sells electricity and steam to public
utilities and corporations on the east and west coasts of the
United States under long-term contractual agreements. Also,
the Company services, sells and rents equipment to various
entities worldwide. The Company performs ongoing credit
evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential
credit losses and such losses have been within management's
expectations.

The Company invests its excess cash in deposits with financial
institutions. Those securities typically mature within ninety
days and, therefore, bear minimal risk. The Company has not
experienced any losses on these deposits.

3. Cash and Restricted Cash:

Due to restrictions in the Newark and Parlin project financing
agreements, $2,346 and $2,822 of cash and cash equivalents at
June 30, 1994 and 1993, respectively, is generally available
for use only by those projects.

Additionally, the Company has classified certain cash and cash
equivalents that are not fully available for use in its
operations as restricted. The restricted cash and cash
equivalents relate to debt service reserve accounts for
O'Brien (Newark) Cogeneration, Inc. and O'Brien (Parlin)
Cogeneration, Inc. (See Note 16), and compensating balances
maintained by the Company at financial institutions in
connection with lines of credit extended to its United Kingdom
subsidiaries (See Note 13).

The restricted cash and cash equivalents consist of the following:

1994 1993
---- ----

O'Brien (Newark) Cogeneration, Inc. $ 1,503 $ 2,500
O'Brien (Parlin) Cogeneration, Inc. 1,701 1,233
United Kingdom subsidiaries 1,246 1,280
Other 144 51
------- -------
$ 4,594 $ 5,064
======= =======

4. Property, Plant and Equipment:

Property, plant and equipment consist of the following:

1994 1993
---- ----

Equipment related to energy revenues $170,346 $171,515

Rental equipment 31,050 34,737

Furniture and fixtures 1,631 1,649

Land, buildings and improvements 2,631 1,663

Other equipment 530 823
-------- --------
205,886 210,387

Accumulated depreciation and
amortization (32,630) (27,911)
-------- --------
173,256 182,476

Equipment held for future projects 3,258 11,741
-------- --------
$176,514 $194,217
======== ========

Depreciation expense was $9,717, $9,643 and $8,561 in 1994,
1993 and 1992, respectively.

Equipment related to energy revenues includes the property and
equipment of the Newark and Parlin cogeneration plants and the
biogas projects.

The Newark project consists of a 52 megawatt cogeneration
power plant in Newark, New Jersey which commenced operations
in November 1990 and is supplying electricity and steam
pursuant to 25-year supply contracts. The facility was
financed utilizing nonrecourse project financing.

The Parlin project consists of a 122 megawatt cogeneration
power plant in Parlin, New Jersey which commenced operations
on June 26, 1991 and is supplying 101 megawatts of electricity
pursuant to a 20-year electric supply contracts and steam
pursuant to a 30-year supply contract. The facility was
financed utilizing nonrecourse project financing.

5. Equipment Held for Sale:

As part of the Company's debt restructuring program and its
efforts to improve both short-term and long-term liquidity, it
has actively begun seeking buyers for specific energy equipment
not currently being used in an operating project nor critical to
the completion of any projects in development. These assets,
consisting mainly of gas and steam turbines are being held for
sale in order to raise cash and reduce debt levels.

The value of these assets sold in a secondary market is less
than if they were incorporated into an internally developed
operating project. Accordingly, the Company recorded a noncash
charge in the fourth quarter in the amount of $6,250 to adjust
the carrying value of these assets to an estimated resale value
of $8,458 based upon appraisals made by the Company.

6. Notes Receivable

Notes receivable consist of the following:

1994 1993
---- ----

Note receivable with interest
at 7.25% due August 30, 2003(a) $3,121 --

Note receivable with interest
payments due annually at 8% in
May, and a principal payment of
$6,250 due May 12, 1996 (b) -- $6,250

Note receivable, non-interest
bearing, due in annual principal
installments of $800 through June
1996 (c) 2,137 2,770

Notes receivable originally due in
quarterly installments of $110(d) -- 1,438

Other (e) 548 1,421
------ ------
5,806 11,879
Current portion 780 2,564
------ ------
$5,026 $9,315
====== ======

(a) Note receivable associated with the sale of coalbed
methane properties in August 1993. Principal and
interest payments are due monthly only to the extent of
a percentage of net revenues generated from the
properties until the earlier of (1) the note is paid in
full or (2) 10 years. The Company discounted the note
to its estimated net realizable value in consideration
of the Company's plans to monetize the note and
accelerate cash flow. During 1994, the Company did not
recognize interest income or amortize the discount
due to disputes with the other party. (See Notes 7 and
20). At June 30, 1994, the note has a face value of
$4,500 and has been discounted by $1,379.

(b) Note receivable associated with the sale of a 12.5%
interest in O'Brien (Newark) Cogeneration, Inc. The
note was used to repurchase the 12.5% interest in
O'Brien (Newark) Cogeneration, Inc. in January 1994.
(See Note 28).

(c) Note receivable associated with the termination of a
power purchase contract (See Note 20). The note is
collateralized by an irrevocable letter of credit. At
June 30, 1994, face value and discount are $2,400 and
$263, respectively, assuming an interest rate of 5.95%

(d) Notes receivable associated with the sale of two biogas
projects in 1992. (See Note 20). In January 1994,
these notes were satisfied with a payment based on an
offer by the Company to discount the notes by $186 for
early repayment.

(e) Notes receivable associated primarily with a direct
finance lease relating to power generation equipment and
with the sale of two biogas projects in development in
1993 (See Note 20). In October 1993, a $331 note
receivable was satisfied with a payment of $265 based on
an offer by the Company to discount the notes for early
repayment.

7. Coalbed Methane Gas Properties Note:

In August 1993, the Company entered into an agreement with an
unrelated third party joint venture to sell substantially all
proved and unproved coalbed methane gas properties for $6,500.
The Company received $2,000 in cash and a production payment
note receivable of $4,500. In addition, the Company has
agreed to contribute up to $800 to complete non-producing
wells into commercial wells which is included in other current
liabilities at June 30, 1994. The production payment note
receivable will be paid from a percentage of net revenues from
the coalbed methane properties until the earlier of (1) the
note is paid in full or (2) 10 years. The Company discounted
the note to its estimated net realizable value in
consideration of the Company's plans to monetize the note and
accelerate cash flow. (See Note 6). Development fees and
other includes $5,121 of revenues recognized in connection
with this sale. (See Note 20).

In May 1994, the joint venture to which the Company sold its
coalbed methane properties, filed a complaint with the
American Arbitration Association. The complaint alleges,
among other things, breach of contract, fraud and conversion
in connection with the agreement between the parties. The
joint venture seeks damages in the amount of approximately
$550 and the cancellation of all remaining payments due under
the promissory note in favor of the Company in the amount of
$4,500. In its answer, the Company has denied the allegations
and counterclaimed against the Joint Venture for breach of
contract in such amount as is necessary to repay the balance
of the promissory note with interest. The Company has,
further, requested that a receiver be appointed to ensure the
performance of the Joint Venture with regard to its
contractual obligations to the Company. The Company does not
feel that a settlement of this arbitration will impair the
net book value of the note receivable.

8. Project Development Costs:

During the years ended June 30, 1994, 1993 and 1992, the
Company determined that certain project development costs
should be expensed. The resulting charges, net of any
recoveries, of $539, $1,782 and $125 for 1994, 1993 and 1992,
respectively, are included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations.

9. Notes Receivable from Officers:

At June 30, 1994 and 1993, the Company had notes receivable
totalling $238 and $246, respectively, from an officer of the
Company. The notes are unsecured, and bear interest at 8.25%
per annum.

10. Investments in Equity Affiliates:

Investment in equity affiliates consist of the following:

1994 1993
---- ----

Gray's Ferry $ 2,293 $ 1,590

Artesia 337 356

PoweRent Limited 438 342

Intrag, Joing Venture 107 227
------- -------
$ 3,175 $ 2,515
======= =======
Gray's Ferry:

In October 1991, O'Brien (Schuylkill) Cogeneration, Inc.,
(O'Brien Schuylkill) a wholly-owned subsidiary, executed a
partnership agreement with Adwin Equipment Company (Adwin) to
develop a qualifying cogeneration facility located in
Philadelphia, Pennsylvania. The partnership will be known as
Grays Ferry Cogeneration Partnership and will develop, own and
operate the cogeneration facility. The partnership intends to
develop this project in two phases, Phase 1 of which will
consist of approximately 40 megawatts. The partnership has a
25-year steam supply contract and a 20-year electric supply
contract. On August 12, 1994, the partnership received a
commitment letter for a $62,000 loan from Canada Imperial Bank
at Commerce to finance Phase I. The Company expects that the
expiration date of the commitment letter will be extended beyond
October 30, 1994, although there can be no assurance that such
extension will be granted or that if granted, will provide
sufficient time to close.

Artesia:

The Artesia project consists of a 32 megawatt cogeneration
facility in Artesia, California which commenced operations in
1990 and is supplying electricity and steam pursuant to 30
year supply contracts. The project is owned and operated by
O'Brien California Cogen Limited, a limited partnership.
O'Brien Cogeneration, Inc. II, a wholly-owned subsidiary of
the Company, is the managing general partner. The Company's
initial equity interest of 3% can increase to a maximum of 50%
on the basis of project performance and returns to the limited
partner. In addition to its share of the limited
partnership's operations, the Company receives annual
management fees of approximately $130 and participates in a
fuel supply partnership.

PoweRent Limited:

PoweRent Limited, an entity in which a subsidiary of the
Company owns a 50% interest, is a United Kingdom company that
sells and rents power generation equipment. The remaining 50%
of PoweRent is owned by an officer of a wholly-owned United
Kingdom subsidiary.

Intrag, Joint Venture:

Intrag, Joint Venture was formed for the purpose of developing
power generation projects in Pakistan; and the manufacture,
sale and/or rental of power generation equipment in Pakistan.
The joint venture agreement expires in June 1995.

The Company's investment in the equity affiliates has been
accounted for using the equity method.

11. Cost in Excess of Net Assets Acquired:

Excess of cost of investment in subsidiaries over net assets
at date of acquisition consists of the following:

1994 1993
---- ----

Excess of investment in subsidiaries
over net assets at date of
acquisition $ 2,466 $ 2,466

Accumulated amortization (479) (381)
------- -------
$ 1,987 $ 2,085
======= =======

Amortization expense amounted to $98 in each of 1994, 1993
and 1992, respectively.

12. Deferred Financing Costs:

Deferred financing costs relate to the Subordinated Debentures
and nonrecourse debt and consist of the following:

1994 1993
---- ----

Deferred financing costs $ 7,080 $ 7,087

Accumulated amortization (1,811) (1,359)
------- -------
$ 5,269 $ 5,728
======= =======

Amortization expense amounted to $452 in each fiscal year
ending June 30, 1994, 1993 and 1992 and is included in
interest and debt expense in the accompanying consolidated
statements of operations.

13. Short-term Borrowings:

As of June 30, 1994 and 1993 short-term borrowings consist of
foreign lines of credit payable to financial institutions
bearing interest at foreign (U.K.) short term rates.
Collateral for the lines of credit consists primarily of
certain restricted cash balances.

14. Recourse Long-Term Debt:

Recourse long-term debt consist of the following:

1994 1993
---- ----

Notes payable to financial
institutions, due in monthly
installments of principal plus
interest at floating rates ranging
from 1% to 4.5% over the prime
rate (prime rate at June 30, 1994
was 7.25%) maturing at various
dates through December 1999,
collateralized by certain energy
equipment having a net book value
of $32,182 at June 30, 1994 $30,481 $27,113

Note payable to unrelated third party,
due in monthly installments with
interest at 12% (a) 5,000

Capital lease obligations, due in
monthly installments at rates up to
13.25%, maturing at various dates
through December 2000,
collateralized by certain energy
and rental equipment having a net
book value of $12,067 at June 30,
1994 9,134 10,828

Other 1,500 490
------- -------
46,115 38,431
Less amount classified as current (b) (39,042) (10,419)
------- -------
$ 7,073 $28,012
======= =======

(a) The Company has reclassified a $5,000 current liability
to long-term debt at June 30, 1994. The $5,000
repurchase option for the Philadelphia Water Department
project reacquired on August 5, 1994 was funded by
long-term financing from an unrelated third party
subsequent to year end. The loan is collateralized by
the common stock of the reacquired subsidiary.

(b) As a result of defaults, consisting of defaults in the
payment of interest under each of the Indentures as
well as defaults under certain of the Company's loan
agreements, the Company reclassified $21,914 out of a
long-term classification for a total of $39,042 of its
recourse debt as a current liability. Of this amount,
approximately $5,320 was triggered solely by defaults
under the Indentures, $3,066 by cross defaults and by
the non-payment of principal subsequent to year end and
the remainder, $13,528 was reclassified because of the
Chapter 11 Bankruptcy filing on September 28, 1994.

Scheduled maturities, including the impact of defaults, of
recourse long-term debt and capital lease obligations,
including interest, for the next five years and thereafter are
as follows:

Year ending June 30 Recourse Long-term debt Capital Leases
- - ------------------- ----------------------- --------------

1995 31,929 9,154
1996 930 865
1997 1,039 848
1998 1,163 484
1999 1,298 79
Thereafter 622 159

Interest component on
capital leases -- (2,455)
------- ------
$36,981 $9,134
======= ======

The Company incurred interest charges, exclusive of interest
charges on nonrecourse project financing, of $9,802, $8,265
and $8,423 in 1994, 1993 and 1992, respectively. Of these
amounts, $403, $1,873 and $2,690 were capitalized.

Certain of the recourse long-term debt agreements contain
requirements that the Company will (1) not incur a net loss
during any fiscal year; and (2) not default on other debt
agreements. In addition, the agreements prohibit the
declaration of dividends on common stock.

15. Convertible Senior Subordinated Debentures:

Convertible senior subordinated debentures consist of the
following:

1994 1993
---- ----

7 3/4% Convertible
Senior Subordinated
Debentures due in
March 2002. Conversion
price $4.75 per share $11,419 $11,419

11% Convertible
Senior Subordinated
Debentures due in
March 2010. Conversion
price $5.55 per share 11,500 11,500

11% Convertible
Senior Subordinated
Debentures due in
March 2011. Conversion
price $5.46 per share 26,255 26,255
------- -------
$49,174 $49,174
======= =======

On August 22, 1994, the trustees for each of the 1987
Debentures, 1990 Debentures and 1991 Debentures delivered
acceleration notices to the Company, notifying the Company
that the total principal amount of $49,174 and past due
interest in the amount of $5,243 as of September 20, 1994, is
due and payable by the Company immediately based on the
following factors:

(bullet) The Board of Directors elected not to make the March 15, 1994
or the September 15, 1994 semi-annual required interest
payments on the Debentures which total $5,037. Each semi-
annual required interest payment consists of $442, $632 and
$1,444 for the 1987 Debentures, 1990 Debentures and 1991
Debentures, respectively.

(bullet) The Company is currently in default under the 1987 Indenture's
Funded Indebtedness covenant (as defined in the 1987
Indenture). Such covenant prohibits the Company from
incurring or creating any Funded Indebtedness if after giving
effect to such incurrence or creation, the total outstanding
Funded Indebtedness of the Company on a consolidated bases
would exceed 75% of the sum of Consolidated Stockholders'
Equity and Funded Indebtedness.

Additionally, the Company is in default under the 1987
Indenture, 1990 Indenture and 1991 Indenture due to defaults
on other indebtedness which results in the acceleration of the
maturity of at least an aggregate of $1,000, $2,000 and
$2,000, respectively, of other indebtedness which is not cured
within 60 days, 90 days and 90 days, respectively, after
notice to the Company.

As a result of the losses experienced by the Company, the
Company's Consolidated Stockholders' Equity (as defined in the
1987 Indenture, 1990 Indenture and 1991 Indenture) was $136
and $8,066 at June 30, 1994 and March 31, 1994, respectively.
As a result, the covenant in the 1990 Indenture and 1991
Indenture requiring the Company to purchase 7.5% of the
outstanding 1990 Debentures and 1991 Debentures if the
Company's Consolidated Stockholders' Equity is less than
$10,000 at the end of each of any two consecutive fiscal
quarters has been triggered. Additionally, there is a
covenant in the 1987 Indenture which requires the company to
purchase 7.5% of the outstanding 1987 Debentures if the
Company's Consolidated Stockholders' Equity is less than
$7,500 at the end of each of any two consecutive fiscal
quarters. Purchasing Debentures pursuant to these covenants
would cause severe liquidity problems for the Company. The
Company does not presently expect to be a position to comply
with these covenants.

In May 1994, the Company filed a Registration Statement on
Form S-4 (the "Registration Statement") with the Securities
and Exchange Commission relating to (a) an exchange offer of
40 shares of Series A Cumulative Senior Preferred Stock, 120
Warrants to purchase Class A Common Stock and 20 shares of
Class A Common Stock for each $1 principal amount of 1987
Debentures, 1990 Debentures and 1991 Debentures outstanding
and (b) a solicitation of consents to certain proposed
amendments to the indentures (the "Indentures") governing each
of the 1987 Debentures, 1990 Debentures and 1991 Debentures as
well as the waiver of all defaults under each of the
Indentures. In June 1994, an amendment to the Registration
Statement was filed. Subsequent to such amendment, the
Company began discussions with an ad hoc committee (the "Ad
Hoc Committee") of debentureholders representing holders of
the 1987 Debentures, 1990 Debentures and 1991 Debentures. The
Company entered into a standstill agreement with the Ad Hoc
Committee pursuant to which the Company has agreed, among
other things, to assist the Ad Hoc Committee in its due
diligence efforts. The failure to reach an agreement with the
Ad Hoc Committee was one of the factors upon which the
Company's decision to file for protection under the Bankruptcy
Code was based. (See Note 1).

The debentures are subordinated in right of payment, in the
manner and to the extent set forth in the indenture
agreements, to the prior payment in full of all Senior
Indebtedness, as defined in the indenture agreements, whether
outstanding on the date the debentures were issued or
thereafter created, incurred or assumed.

The debentures are convertible, at any time prior to maturity,
into shares of Class A Common Stock of the Company as provided
in the Indenture agreements. Prior to maturity, the debentures
may be redeemed at the option of the Company, subject to
certain conditions.

The Indentures contain sinking fund requirements that would
require cash payments in 1999 if the events of default
discussed above are resolved.

In accordance with the terms of the Indenture agreements, the
Company is restricted, under certain circumstances, from
declaring or paying cash dividends, making cash distributions,
or acquiring or retiring for value any capital stock of the
Company.

During 1992, $80 of the 7 3/4% debentures were converted into
Class A Common Stock. No debentures were converted during
1994 or 1993.

16. Nonrecourse Project Financing:

Nonrecourse project financing consists of the following:

1994 1993
---- ----
Newark project (a) $29,580 $35,088

Parlin project (b) 66,560 72,810
------- -------
96,140 107,898
Less current portion (35,830) (10,758)
------- -------
$60,310 $97,140
======= =======

The nonrecourse project financing agreements contain various
covenants, the most restrictive of which are the maintenance of
positive working capital, limitation on the payment of dividends
or other distributions to the Company and a restriction on
additional borrowings by the project subsidiaries.

At June 30, 1994, both the Newark and Parlin projects were in
default of the covenant which requires the maintenance of
positive working capital. On September 26, 1994, the project
lenders agreed to waive this covenant through July 1, 1995, for
the Parlin project only, provided that during the period that
this waiver is in effect no distribution of any nature whatsoever
will be made to the Company by the Parlin wholly-owned subsidiary
and that this waiver will cease to be effective in the event that
the wholly-owned subsidiary is in compliance with the requirement
to maintain positive working capital at any time prior to June
30, 1995. The lenders were not willing to provide a similar
waiver for the Newark project. As a result of the Newark project
not getting the waiver, $25,010 of non-recourse debt has been
reclassified from long-term to short-term debt.

(a) The Newark project financing is an obligation of O'Brien
(Newark) Cogeneration, Inc., a wholly-owned subsidiary
of the Company. The project financing was converted
from a nonrecourse construction loan to a nonrecourse
12-year term loan in October 1990. The term loan
provides for a variable interest rate tied to either
LIBOR or the prime rate. The subsidiary has the option
to fix the interest rate for this term loan at
prevailing long-term market rates. At June 30, 1994,
the subsidiary had $29,580 outstanding under the term
loan. The floating rate as of that date was 5.75%.
During 1994, 1993 and 1992, $1,578, $1,759 and $2,790,
respectively, of interest costs were incurred pursuant
to the project financing. The sole collateral for the
term loan is the common stock of O'Brien (Newark)
Cogeneration, Inc., which has net assets of
approximately $46,908 excluding the nonrecourse
financing at June 30, 1994.

(b) The Parlin financing is an obligation of O'Brien
(Parlin) Cogeneration, Inc., a wholly-owned subsidiary
of the Company. The project financing was converted
from a nonrecourse construction loan to a nonrecourse
12-year term loan in December 1990. Through the use of
an interest rate swap agreement, $47,419 of the term
loan has a fixed interest rate of approximately 11% per
annum for a period of 10 years. The Company is exposed
to credit loss in the event of nonperformance by the
other party to the swap. However, the Company does not
anticipate nonperformance. The balance of the loans
have a variable interest rate tied to LIBOR or the prime
rate unless the Company chooses to fix the interest rate
at prevailing long-term market rates. At June 30, 1994,
approximately $19,141 of this loan had a floating rate
of 5.75%. During 1994, 1993 and 1992 $6,633, $7,166 and
$8,357 of interest costs were incurred pursuant to the
term loan which included $3,253, $3,544 and $2,912 for
1994, 1993 and 1992, respectively, of costs associated
with the interest rate swap agreement. The sole
collateral for the term loan is the common stock of
O'Brien (Parlin) Cogeneration, Inc., which has net
assets of approximately $72,176 excluding the
nonrecourse financing at June 30, 1994.

Scheduled maturities of nonrecourse project financing for
the next five years are as follows:

1995 $ 35,830
1996 6,530
1997 6,780
1998 7,900
1999 7,900
Thereafter 31,200
-------
$96,140
=======

17. Stockholders' Equity:

Preferred Stock

The Board of Directors of the Company is authorized to issue
shares of Preferred stock in one or more series and to
determine the rights and preferences of each series.

Common Stock

In January 1992, the Company completed an offering of
3,858,028 shares of Class A Common Stock at $4.00 per share.
Proceeds from the offering amounted to $13,600, net of
issuance costs. In addition, a principal stockholder,
controlled by the Chairman and Chief Executive Officer of the
Company, converted 515,620 shares of Class B Common Stock into
Class A Common Stock and sold the Class A Common Stock shares
at $4.00 per share in connection with this offering.

Except for voting and conversion privileges, shares of Class A
and Class B common stock are identical. Class A stockholders
are entitled to one vote per share while Class B stockholders
are entitled to ten votes per share. Class B common stock is
convertible into Class A common stock on the basis of one
share of Class A common stock for each share of Class B common
stock. All outstanding shares of Class B common stock are
owned by III Enterprises, Inc., a company wholly-owned by the
Chairman and Chief Executive Officer of the Company, which has
controlling voting interest in the Company.

In October 1993, III Enterprises, Inc. filed for bankruptcy
protection under Chapter 11 of the Federal Bankruptcy Code.
On October 6, 1994, the bankruptcy court ordered that the
matter be converted to a proceeding under Chapter 7 of the
Federal Bankruptcy Code. On October 7, 1994, the debtor
appealed this order. In connection with any reorganization
of III Enterprises, Inc., the stock ownership of III Enterprises
which owns the controlling shares of Class B Common Stock of the
Company may be sold to a third party. A change in control of
the Company could significantly affect the direction of management
of the Company and limit the utilization of net operating losses.
(See Note 23).

Outstanding shares amounted to the following:

1994 1993
---- ----
Class A common stock 12,965,397 12,965,397
========== ==========
Class B common stock 3,905,770 3,905,770
========== ==========

At June 30, 1994, the Company had 16,926,574 Class A common
stock shares reserved for issuance in connection with its
stock option plans (2,141,894) and its convertible senior
subordinated debentures (9,284,680) and for options granted
with the sale of the Philadelphia Water Department Project
(5,500,000).

Other

The other component of stockholders' equity includes a foreign
currency translation adjustment of ($587), ($551) and ($137)
at June 30, 1994, 1993 and 1992, respectively, and treasury
stock of $64 at June 30, 1994, 1993 and 1992. Treasury stock
is recorded at cost and consists of 90,200 shares of Class A
common stock and 165,000 shares of Class B common stock,
including 75,000 shares of Class A common stock and 165,000
shares of Class B common stock held by O'Brien Energy Services
at the date of its acquisition by the Company.

18. Stock Options:

The Company's stock option plans provide for the granting of
qualified and/or nonqualified options on Class A common stock
to officers, directors and key employees. Qualified options
are exercisable after one year from the date of the grant and
expire no more than ten years after grant. These options
become exercisable over a 48 month period. Pertinent
information concerning the option plans is as follows:

1994 1993 1992
---- ---- ----

Outstanding at beginning
of year 1,416,874 1,400,868 1,279,832

Options exercised -- (94,365) (65,464)

Options expired (707,000) (258,075) (142,500)

Options granted-nonqualified 1,180,000 316,213 160,000

Options granted-qualified -- 52,233 169,000
--------- --------- ---------
Outstanding at end of year 1,889,874 1,416,874 1,400,868
========= ========= =========
Exercisable 1,846,949 1,279,516 1,246,779
========= ========= =========

Exercise prices range from $1.50 to $5.00 per share for
options granted in 1994 and $4.25 to $4.75 per share for
options granted in 1993 and 1992. The price of options
exercised ranged from $3.75 to $4.75 per share in 1993 and
$1.87 to $4.75 per share in 1992. No options were exercised
in 1994.

19. Business Interruption Insurance Claims:

During 1994, 1993 and 1992, energy revenues include $1,706,
$6,247 and $483 received under net business interruption
insurance claims associated with the Newark and Parlin
cogeneration plants.

20. Development Fees and Other:

In June 1994, the Company sold its recently acquired rights to
develop a standby/peak shaving project for a $5,000 cash
payment which is included in development fees and other
income. The costs associated with the development rights were
insignificant.

In August 1993, the Company sold its contractual rights to
develop certain coalbed methane reserves. The selling price
consisted of a $2,000 cash payment and a production note of
$4,500 with an interest rate of 7.25% payable in monthly
installments only to the extent of a percentage of net
revenues from the properties until the earlier of (1) the note
is payable in full, or (2) a term of ten (10) years. The
Company has discounted the note by $1,379 to reflect a lower
estimated net realizable value in consideration of the
Company's plans to monetize the note and accelerate cash flow.
The previously capitalized costs and remaining drilling
obligation amounted to approximately $5,100 resulting in no
gain on this transaction.

In December 1992, the Company and a utility entered into an
agreement pursuant to which the electric contract previously
entered into was terminated for $4,000 from the utility,
payable in five annual installments of $800 without interest.
The payments are collateralized by a standby letter of credit.
The net present value of the $4,000 was determined to be
$3,462, assuming an interest rate of 5.95%, and is reflected
as development fees and other in the accompanying consolidated
statements of operations. The associated project development
costs amounted to $2,386 which resulted in a net gain of
$1,076.

In December 1992, the Company sold a biogas project located in
the United Kingdom for $821, of which $331 was paid pursuant
to a promissory note with an interest rate of 8% and is
reflected as development and other fees in the accompanying
consolidated statements of operations. The associated project
development costs amounted to $564 which resulted in a net
gain of $257. In October 1993, the promissory note was
satisfied for $265, which reflects a $66 discount for early
payment offered by the Company.

In September 1992, the Company sold a 50% interest in a biogas
project pursuant to a stock purchase agreement. The remaining
50% interest was sold on June 30, 1993. The aggregate sale
price was $625 of which $555 was paid pursuant to a promissory
note with an interest rate of 8%. The costs associated with
the sale amounted to $267 which resulted in a net gain of
$358.

In June 1992, the Company sold the power purchase, landfill
gas and other agreements associated with two biogas projects
that were operated by the Company to two unrelated limited
partnerships for $323 in cash and $1,725 in notes receivable
with interest rates of 9.5% and 10%. The cost associated with
the agreements sold amounted to $503 which resulted in a gain
of $1,545. The sales price of $2,048 and the related costs of
$503 are reflected in development and other fees and cost of
development fees and other, respectively, in the accompanying
consolidated statements of operations. In addition, the
Company entered into equipment rental agreements with the
respective buyers of those projects to lease certain power
generation equipment for annual rentals of $185 through
December 31, 2002. The leases may be extended for six years
at the option of the lessee. Also, the annual rentals may be
reduced if equipment is removed from the project sites by the
Company in accordance with provisions in the rental
agreements. In January 1994, these notes receivable were
satisfied for $1,100, which reflects a $202 discount for early
payment offered by the Company.

During 1994 and 1993 the Company recognized approximately
$4,015 and $3,989, respectively, of revenues associated with
the sale of natural gas to the Artesia project under a fuel
management contract. The costs associated with the fuel
transactions amounted to $4,015 and $3,989, respectively.

In 1992, the Company recognized revenues of $779 in connection
with equipment agreements associated with the Hartford
project. Associated costs were $701. During 1993 and 1992,
the Company also recognized $125 and $227, respectively, of
revenues pursuant to management fee and other agreements with
the Hartford and Artesia projects. Associated costs were $112
and $204, respectively.

21. Litigation Settlement Costs:

In May 1993, O'Brien (Newark) Cogeneration, Inc. and O'Brien
Newark Supply Corporation, wholly-owned subsidiaries, entered
into a settlement agreement with Hawker Siddeley Power
Engineering Inc. and related entities, the turnkey contractor
for the Newark cogeneration project, with regards to
litigation relating to the construction of the Newark
cogeneration plant. The settlement agreement dismissed all
claims between all parties. As a result of the settlement,
the $3,800 construction costs payable relating to retained
payment under the construction contract has been adjusted by
reducing property, plant and equipment by $3,200 with the
remainder representing payments made by the Company.

In September 1993, the Company and certain subsidiaries and an
equity affiliate entered into a settlement agreement with
Hawker Siddeley Power Engineering, Inc. and related entities,
the turnkey contractor for the Hartford cogeneration plant,
with regards to litigation relating to the construction of the
Hartford cogeneration plant. Pursuant to the settlement
agreement, the Company relinquished its 5 percent general
partner interest, paid Hawker $250 and issued a promissory
note for $250 to the succeeding general partner, which
resulted in a total charge of $1,121 for 1993, which is
included in selling, general and administrative expenses in
the accompanying Consolidated Statement of Operations.

22. Involuntary Conversion Gain:

On December 25, 1992, a fire disabled the Newark cogeneration
plant. The damage to the plant caused by the fire has been
repaired. The plant returned to partial operations in August
1993 and resumed full operation in October 1993. The Newark
cogeneration plant generated revenues of $23,082 (including
net business interruption proceeds of $980), $19,629
(including net business interruption proceeds of $5,880), and
$27,532 in 1994, 1993 and 1992, respectively. The capital
expenditures to repair the plant are offset by the property
insurance claim proceeds and is reflected as insurance claims
receivable in the accompanying balance sheet at June 30, 1993.
The Company received $36,000 from its insurance carrier which
covered a substantial majority of the Company's cost of repair
and loss of net profits due to business interruption.
Additionally, the Company recognized an involuntary conversion
gain of $6,066 in fiscal 1994.

23. Income Taxes:

Income (loss) from continuing operations before income taxes
consists of:

1994 1993 1992
---- ---- ----

United States $(12,659) $(10,272) $ 3,973
Foreign (1,931) (361) (123)
------- ------- -------
$(14,588) $(10,633) $ 3,850
======= ======= =======

The income tax provision consists of:

1994 1993 1992
---- ---- ----

Current income taxes:
Federal $ -- $ -- $ 100

State -- -- 35

Foreign -- -- --
-------- ------- ------
-- -- 135
Deferred income taxes 1,913 3,078 2,303
-------- ------- -------
$ 1,913 $ 3,078 $ 2,438
======== ======= =======

The components of the net deferred income tax liabilities are
as follows:

1994 1993
---- ----

Deferred income tax liabilities:

Property, plant and equipment $18,964 $15,073
------- -------
Deferred income tax assets:

Net operating loss carryforwards 25,235 18,325
Alternative minimum tax credits 110 110
Investment tax credits 1,623 1,623
Miscellaneous 458 328
Valuation allowance (20,354) (16,208)
------- -------
Total deferred tax assets 6,156 4,178
------- -------
Net deferred income tax liabilities $12,808 $10,895
======= =======

The increase in the valuation allowance from June 30, 1993 to June 30, 1994
is due primarily to the uncertainty of realizing the benefit of loss carry-
forwards generated in 1994.

A reconciliation between the U.S. Federal statutory tax rate and the
effective tax rate follows:

1994 1993 1992
---- ---- ----

Income tax (benefit) on the
amount at federal
statutory rate $(4,959) $(3,615) $ 1,309

State income taxes 387 282 538

Operating income tax losses with
no current tax benefit 5,759 6,248 419

Other 726 163 172
------- ------- -------
Total income tax provision $ 1,913 $ 3,078 $ 2,438
======= ======= =======

At June 30, 1994, the Company has tax basis net operating loss
carryforwards available to offset future regular taxable
income, and investment tax credit carryforwards available to
offset future regular or alternative minimum federal income
taxes payable. The amount of these carryforwards available
for future utilization could be significantly limited based on
a change in control of the Company in accordance with IRS
regulations. (See Notes 1 and 17). These carryforwards
expire as follows:

Net Operating Investment Tax Credit
Loss Carryforwards Carryforwards
------------------ ---------------------
1998 -- 58

1999 -- 138

2000 400 255

2001 792 240

2002 2,325 409

2003 3,733 82

2004 2,071 174

2005 5,022 52

2006 12,677 215

2007 4,002 --

2008 16,430 --

2009 18,356 --
------- ------
$65,808 $1,623
======= ======

In addition, the Company has $1,685 of unused net operating
loss carryforwards for United Kingdom income tax purposes.
These credits can be carried forward for United Kingdom tax
purposes indefinitely.

An alternative minimum tax is imposed at a 20% rate on the
Company's alternative minimum taxable income which is
determined by making statutory adjustments to the Company's
regular taxable income. Net operating loss carryforwards may
be used to offset only 90% of the Company's alternative
minimum taxable income. The net operating loss carryforwards
for alternative minimum tax purposes are approximately $34,458
for income tax purposes at June 30, 1994. The Company is
subject to the alternative minimum tax resulting in an
alternative minimum tax expense of $100 in 1992. This amount
will be allowed as a credit carryover against regular tax in
the future in the event the regular tax expense exceeds the
alternative minimum tax expense.

24. Transactions with Related Parties:

PoweRent Limited is 50% owned by the Company and 50% by an
officer of a wholly-owned subsidiary. Amounts receivable from
or payable to related parties are noninterest-bearing and are
classified as current, as settlement is expected to occur
within one year.

A summary of activity with related parties is as follows:

(1) The Company leases office space from Pennsport Partnership,
a Pennsylvania partnership in which the Chief Executive
Officer and Principal Stockholder (CEO) of the Company has
a 50% ownership interest. Rental expense for 1994, 1993
and 1992 was $289, $293 and $290, respectively. The
Company also leases office space from Christiana River
Holdings, Ltd., an entity owned by the CEO of the Company.
Rental expense for 1994 was $150.

(2) In 1993 and 1992, the Company recognized $156 and $143,
respectively, of revenue by selling equipment and related
services to PoweRent. The cost of the equipment and
related services was $130 and $96, respectively.

(3) The Company also was charged commissions by O'Brien Power
Systems, Inc. of $647 in 1994 in connection with equipment
sales and services provided to third parties. In 1993 and
1992, the Company recognized $346 and $235, respectively,
of revenue by selling equipment and related services to
O'Brien Power Systems, Inc., a company controlled by a
relative of the CEO of the Company. The cost of the
equipment and related services was $322 and $224,
respectively.

(4) In September 1993, Puma purchased its executive offices and
its principal facility located in Ash, Canterbury, Kent,
United Kingdom from III Enterprises Limited, an entity
owned by the CEO of the Company for approximately $800.
The Company has estimated a fair value of these facilities
indicating a value of approximately $1,100. However,
predecessor cost of $498 has been used to record the assets
purchased and the excess of the purchase price over III
Enterprises Limited's historical net book value of these
facilities has been reflected as an increase in the
accumulated deficit. Prior to September 1993, Puma leased
the facility from III Enterprises Limited with rental expense
amounting to $66, $156 and $155 in 1994, 1993 and 1992, respectively.

In addition, the Company has had transactions with projects
structured as partnerships in which the Company had or retains a
general partnership interest (Note 10).

25. Segment Information and Major Customers:

The Company operates principally in two industry segments: the
developing, owning and operating biogas projects and the
development and ownership of cogeneration and waste heat
recovery projects (energy) and the selling and renting of
power generation, cogeneration and standby/peak shaving
equipment and services (equipment sales, rental and services).
Information with respect to the segments of the business is as follows:

1994 1993 1992
---- ---- ----

Revenues:
Energy $ 76,913 $ 74,587 $ 74,692
Equipment sales,
rental and services 29,676 23,105 25,423
-------- -------- ---------
$106,589 $ 97,692 $ 100,115
======== ======== =========

Identifiable assets:
Energy $180,329 $224,352 $ 222,070
Equipment sales,
rental and services 47,329 29,557 26,722
Corporate assets 10,158 8,620 10,262
-------- -------- ---------
$237,816 $262,529 $ 259,054
======== ======== =========

Operating income (loss):
Energy $ 10,280 $ 14,468 $ 24,520
Equipment sales,
rental and services (4,874) (1,799) 1,283
General corporate
expenses (8,921) (8,599) (5,817)
-------- -------- ---------
$ (3,515) $ 4,070 $ 19,986
======== ======== =========

Depreciation and
amortization expense:
Energy $ 7,345 $ 8,008 $ 8,106
Equipment sales,
rental and services 2,171 1,446 751
Not allocable 1,486 1,096 591
-------- -------- --------
$ 11,002 $ 10,550 $ 9,448
======== ======== ========

Revenue by segment consists of sales to unaffiliated
customers; intersegment sales are not significant. For the
purposes of this presentation, development and other fees are
considered revenues of the energy segment.

Identifiable assets by segment are those assets that are used
in the operations of each segment. Corporate assets are those
assets not used in the operations of a specific segment and
consist primarily of cash, notes receivable from officers and
deferred financing costs. Investments in limited partnerships
are included in the identifiable assets of the energy segment.

Selling, general and administrative expenses have been
allocated to the individual segments on the basis of segment
revenues and geographical location.

Capital expenditures for 1994 and 1993 are primarily
associated with the equipment sales, rental and services
segment. Capital expenditures for 1992 are primarily
associated with the energy segment.

Information with respect to the Company's geographical areas
of business is as follows:

1994 1993 1992
---- ---- ----

Revenues:
United States $ 93,090 $ 83,797 $ 84,560
United Kingdom 13,499 13,895 15,555
-------- -------- ---------
$106,589 $ 97,692 $ 100,115
======== ======== =========

Net income (loss):
United States $(14,570) $(13,350) $ 1,535
United Kingdom (1,931) (361) (123)
-------- -------- ---------
$(16,501) $(13,711) $ 1,412
======== ======== =========

Identifiable assets:
United States $230,343 $252,863 $ 249,544
United Kingdom 7,473 9,666 9,510
-------- -------- ---------
$237,816 $262,529 $ 259,054
======== ======== =========

Revenues from one energy customer accounted for 53%, 65% and 67% of 1994, 1993
and 1992 revenues, respectively.

26. Operating Leases:

The Company leases equipment and primarily conducts its
operations in leased facilities which expire on various dates
through the year 2000. Under the terms of most of the lease
agreements, the Company is required to pay taxes, insurance,
maintenance and other operating costs of the facilities. The
total minimum annual lease payments under non-cancellable
operating lease agreements are as follows:

Year ending June 30,

1995 $ 848

1996 789

1997 788

1998 640

1999 518

Thereafter 528
------
$4,111
======

Total rental expense under various operating leases was approximately
$1,308, $1,434 and $1,182, in 1994, 1993 and 1992.

27. Statements of Cash Flows:

Supplemental disclosure of cash flow information:

1994 1993 1992
---- ---- ----

Interest paid during the
year, net of amounts
capitalized $13,027 $ 15,287 $16,898

Income taxes paid - - 63

Supplemental schedule of noncash investing and financing activities:

1994 1993 1992
---- ---- ----

Transfer of project
development costs to
property, plant and
equipment $ 176 - $ 230

Capital expenditures
included in accounts
payable and
construction costs
payable 875 $ 6,986 (74)

Project development costs
recovered by receipt
of equipment - - 1,501

Other assets included in
accounts payable and
other liabilities - - 719

Conversion of 7 3/4%
convertible
subordinated debentures - - 80

Reduction of property,
plant and equipment
resulting from the
settlement of
litigation 2,400 3,232 -

Notes receivables in
connection with the
sale of projects 3,121 3,590 -

Capital expenditures
acquired by capital
leases - 4,546 -

Exchange of note
receivable for note
payable - 655 -

28. Quarterly Financial Information (Unaudited):

Quarter End September 30 December 31 March 31 June 30
----------- ------------------------------------------------------------

Fiscal 1994
-----------

Total revenue $29,650(1)(2) $22,491(3) $26,876 $27,572(4)
Gross profit 7,223 3,146 4,602 7,444
Net (loss) (2,190) (5,765) (902) (7,644)(5)
Net (loss)
per share $ (.13) $ (.34) $ (.05) $ (.46)
======= ======= ======= =======
Fiscal 1993
-----------

Total revenue $27,184 $29,285 $20,036(1) $21,187(1)
Gross profit 10,632 6,092 5,384 3,834
Net income (loss) 2,944 (1,759) 1,471(6) (16,367)(6)(7)
Net income (loss)
per share: $ .18 $ (.10) $ .09 $ (.98)
======= ======= ======= =======

(1) Revenues for the quarters ended March 31, 1993, June
30, 1993 and September 30, 1993 were negatively
impacted by the Newark Boxboard Project fire which
occurred on December 25, 1992. The plant returned to
partial operation in August 1993 and full operation in
October 1993.
(2) Includes $5,121 of revenues recognized in connection
with the sale of the Company's contractual rights to
develop certain coalbed methane reserves.
(3) Revenues were negatively impacted by an unscheduled
turbine outage at the du Pont Parlin project which
lasted from September 1993 through mid-December 1993.
(4) Revenues include $5,000 from the sale of rights to
develop a standby electric facility project. The costs
associated with this sale were insignificant. Revenues
were negatively impacted by an unscheduled outage at
the du Pont Parlin project which lasted from late May
1994 to mid-August 1994.
(5) Includes the impact of a $6,250 non-cash charge
resulting from a market valuation of equipment being
held for sale in connection with the Company's
restructuring of its recourse debt.
(6) During the quarter ended March 31, 1993, the Company
recognized a net gain of $4,583 in connection with the
sale of a 12 1/2% interest in the Newark Cogeneration
project. On January 18, 1994, Company repurchased the
12 1/2% interest and recorded a charge of $4,583 in the
quarter ended June 30, 1993 to defer the net gain
previously recognized on the sale.
(7) Includes charges for $1,782 for certain project
development costs, $1,121 associated with the Hartford
litigation settlement with Hawker Siddeley and $600
associated with bad debt expense.

29. Litigation:

Hawker Siddeley:

The Company was involved in litigation with Hawker
Siddeley Power Engineering, Inc. ("Hawker"), the
turnkey contractor for the Parlin (the "Parlin Action")
and former Salinas projects (the "Salinas Action"). In
the aggregate, Hawker's lawsuits, as amended, sought
compensatory damages of $15,000 and $3,000 from the
Parlin and former Salinas Projects, respectively. In
May 1994, O'Brien (Parlin) Cogeneration, Inc., O'Brien
Cogeneration Inc. II, wholly owned subsidiaries, and
O'Brien Energy Systems, Inc., entered into a settlement
agreement with Hawker Siddeley Power Engineering, Inc.;
the "Hawker Settlement Agreement". Other than a $1,500
Promissory Note ("the Note") issued by the Company to
Hawker Siddeley, no money was exchanged and O'Brien
(Parlin) Cogeneration, Inc. was not obligated to pay
the $5,100 contract price withheld and all parties
dismissed their claims related to the Parlin Action.
Pursuant to the Hawker Settlement Agreement, the
Salinas Action, prior to being dismissed, required that
the first payment under the note be paid by October 6,
1994. Therefore, as payment was not made, the Salinas
Action remains open.

Other Proceedings:

During September 1993 to November 1993, three actions
were filed against O'Brien (Newark) Cogeneration, Inc.,
a wholly-owned subsidiary, by survivors of three
employees of the operator of the Newark Cogeneration
facility who were killed as the result of a fire which
occurred at the facility in December 1992. The actions
seek the recovery of damages in an unspecified amount.
Insurance counsel estimates that each of the pending
claims could have a value in excess of $1,000. The
amount allocable to the Company, if any, is not
determinable at this time. The Company's insurer has
recently disputed the maximum amounts of coverage under
the Company's policies. If a satisfactory resolution
of this dispute cannot be reached, the Company may be
required to file an action in court to obtain an
adjudication of its rights under its insurance
policies. The Company believes that these claims will
not have a material adverse financial effect on the
Company because (1) the Company has sufficient
undisputed liability insurance coverage and (2) the operator
of the Facility has agreed to indemnify the Company for
any liability arising out of the operator's operation
and maintenance of the facility.

On July 27, 1994, an alleged stockholder of O'Brien
Environmental Energy, Inc. filed suit seeking money
damages in an amount allegedly sustained by the
stockholder. On September 15, 1994, two alleged
debentureholders filed suit seeking money damages in an
amount allegedly sustained by debentureholders who
purchased debentures from September 28, 1992 through
April 12, 1994. The complaints name as defendants
O'Brien Environmental Energy, Inc. and certain of its
officers and directors. The complaints allege that
O'Brien Environmental Energy, Inc. and the other
defendants violated the Securities Exchange Act of 1934
and disseminated or were responsible for the
disseminating of a series of false and misleading
statements concerning the Company's business, results
of operations and future prospects. The suits purport
to be class actions on behalf of all stockholders and
debentureholders, respectively. The Company and other
defendants believe the suits to be without merit and
intend to defend them vigorously.

Although the Company cannot give definitive assurance
regarding the ultimate resolution of the various claims
described above, the Company does not presently believe
the matters described above or the resolution thereof
will have a material adverse impact on the Company's
financial statements.

30. Disclosures about Fair Value of Financial Instruments

The Company has adopted Statement of Financial
Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" which requires certain
disclosures concerning the estimated fair value of
financial instruments. The following disclosures of
the estimated fair value amounts have been determined
based on the Company's assessment of available market
information and appropriate valuation methodologies.

Carrying Fair
June 30, 1994 Amount Value
------------- -------- -----
Assets:

Cash and cash equivalents (1) $ 5,681 $ 5,681
Restricted cash and cash
equivalents (1) 4,594 4,594
Accounts receivable (1) 12,100 12,100
Receivable from related parties (1) 633 633
Notes receivable (1) 5,806 5,806
Notes receivable from officers (1) 238 238

Liabilities:

Accounts payable (1) 12,737 12,737
Short-term borrowings (1) 2,386 2,386
Recourse long-term debt (1) 46,115 46,115
Non-recourse long-term debt (1) 96,140 94,140
Convertible senior subordinated
debentures (2) 49,174 21,996

Off-balance Sheet
Financial Instruments:

Interest Rate Swap (3) -- 4,889

(1) The carrying amount of these items are a reasonable estimate
of their value as of June 30, 1994.

(2) The fair value of convertible senior subordinated debentures
are determined based on market quotes as of June 30, 1994.
The fair value of the Company's convertible senior
subordinated debentures as of September 20, 1994 was
$19,981.

(3) The fair value of interest rate swap in the amount at which
it could be settled based on an estimate obtained from the
dealer.

Fair value estimates are made at a specific point in time,
based on relevant market information about the financial
instruments. These estimates are subjective in nature and
involve uncertainties and matter of significant judgment and
therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates,
including the bankruptcy filing of O'Brien Environmental
Energy, Inc., the parent company, on September 28, 1994.
(See Note 1).

31. Sale of Philadelphia Water Department Project:

On November 12, 1993, the Company sold the capital stock of
O'Brien (Philadelphia) Cogeneration, Inc. ("OPC") and
Philadelphia BioGas Supply, Inc. ("Biogas"), wholly-owned
subsidiaries and issued 5.5 million warrants for Class A
Common Stock to entities controlled by an unrelated private
investor for $5,000 in cash. The warrants are exercisable
at prices ranging from $4.00 to $6.00 per share, and have
been assigned a value of $1,300 which has been reflected in
additional paid in capital. The primary assets of OPC and
Biogas consist of a 20-year energy service agreement and a
digester gas supply agreement with the Philadelphia
Municipal Authority ("Authority"). The Company continues to
own and rent to OPC and Biogas the facilities and all
related generation and associated equipment for the project.
Fiscal 1994 revenues were approximately $2,187. On August
5, 1994, the Company exercised its option to repurchase 83%
of OPC and Biogas for $5,000. The Company is negotiating to
resell this project to a third party in 1995.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES

Index to Financial Statement Schedules . . . . . . . . . . . . S-1

Schedule II - Amounts Receivable From Related Parties and
Underwriters, Promoters and Employees Other Than Related
Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . S-2

Schedule III - Condensed Financial Information of Registrant S-3
(to be filed by amendment)

Schedule V - Property, Plant and Equipment . . . . . . . . . . S-4

Schedule VI - Accumulated Depreciation, Depletion
and Amortization of Property, Plant and Equipment. . . . . . S-5

Schedule IX - Short-Term Borrowings. . . . . . . . . . . . . . S-6

O'BRIEN ENVIRONMENTAL ENERGY, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS SCHEDULE II
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
(dollars in thousands)

- - -------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- - -------------------------------------------------------------------------------------------------------------------------------
For
the
Year Balance at
Ended Beginning
June 30 Name of Debtor of Period Additions Deductions Balance at End of Period
------- -------------- ---------- --------- ---------- ------------------------
(1)
Amounts (2) (2)
Collected/ Amounts (1) Non
Settled Written-Off Current Current
- - -------------------------------------------------------------------------------------------------------------------------------

1992 O'Brien Machinery Co. 477 646 1,048 75 -
Joel D. Cooperman (A) 140 - - 140
Sanders D. Newman 591 49 - 640
III Enterprises, Inc.
and affiliates 94 262 307 49
Hartford Partnership 81 1,073 539 615
Artesia Partnership 40 342 40 342

1993 Joel D. Cooperman (A) 140 98 238
Sanders D. Newman 640 15 655 -
III Enterprises, Inc.
and affiliates 49 122 57 114
Hartford Partnership 615 559 1,105 69
Artesia Partnership 342 4,791 4,896 237
O'Brien Power Systems, - 839 465 374
Inc.

1994 Joel D. Cooperman (A) 238 238
III Enterprises Inc.
and afilliates 114 523 403 234
Hartford Partnership 69 19 88 -
Artesia Partnership 237 4,150 4,042 345
O'Brien Power Systems, 374 11 410 (25)
Inc.
<FN>
(A) The loan is an unsecured, full recourse loan bearing interest at 8 1/4% per annum and maturing in May 1996.

CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT SCHEDULE III
(To be filed by Amendment)

O'BRIEN ENVIRONMENTAL ENERGY, INC.
PROPERTY, PLANT AND EQUIPMENT SCHEDULE V
(dollars in thousands)

- - ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - ------------------------------------------------------------------------------------------------------------------------------------
For
the
Year Balance at
Ended Beginning Addition Other Balance at End
June 30 Classification of Period at Cost (1) Retirements Changes of Period
- - ------------------------------------------------------------------------------------------------------------------------------------

1992 Equipment related to Energy
Revenues $174,705 $ 6,699 $ (789) (2) $ (609) $179,925
Furniture and Fixtures 1,476 134 (17) 1,593
Rental Equipment 11,570 746 (35) 3,361 15,642
Equipment held for future
projects 15,391 1,950 (2,601) 14,740
Land, Building and
Improvements 1,376 155 (254) (2) 1,277
Other Equipment 2,170 30 (15) 2,185
-------- ------- -------- ------- --------
TOTAL $206,688 $ 9,714 $ (1,110) $ 70 $215,362
======== ======= ======== ======= ========

1993 Equipment related to Energy
Revenues $179,925 $ 1,948 $ (1,263) $(9,095) (1) $171,515
Furniture and Fixtures 1,593 133 (13) (64) (1) 1,649
Rental Equipment 15,642 9,049 (1,128) 11,174 (1) 34,737
Equipment held for future
projects 14,740 1,783 (122) (4,660) (1) 11,741
Land, Building and
Improvements 1,277 188 (18) 216 (1) 1,663
Other Equipment 2,185 189 (334) (1,217) (1) 823
-------- ------- -------- ------- --------
TOTAL $215,362 $13,290 $ (2,878) $(3,646) $222,128
======== ======= ======== ======= ========

1994 Equipment related to Energy
Revenues $171,515 $ 1,208 (190) $(2,187) (3) $170,346
Furniture and Fixtures 1,649 66 (1) (83) 1,631
Rental Equipment 34,737 697 (665) (3,719) (3) 31,050
Equipment held for future
projects 11,741 1,105 (9,588) (3) 3,258
Land, Building and
Improvements 1,663 728 (48) (14) 2,329
Other Equipment 823 48 (279) (62) 530
-------- ------- -------- -------- --------
TOTAL $222,128 $ 3,852 $ (1,183) $(15,653) $209,144
======== ======= ======== ======== ========

<FN>
(1) Include transfers between classifications, $3,232 adjustment as a result of the Newark litigation settlement and
fluctuation in exchange rates.
(2) Includes building and equipment sales.
(3) Reflects reclassification of equipment held for sale ($15,767), the Hawker Siddley Settlement ($2,400) and the
increase in basis attributable to the insurance proceeds from the Newark fire property settlement $3,020.

O'BRIEN ENVIRONMENTAL ENERGY, INC.
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF SCHEDULE VI
PROPERTY, PLANT AND EQUIPMENT
(dollars in thousands)

- - ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - ------------------------------------------------------------------------------------------------------------------------------------
For
the
Year Balance at
Ended Beginning Other Balance at End
June 30 Classification of Period Additions Retirements Changes of Period
- - ------------------------------------------------------------------------------------------------------------------------------------

1992 Equipment related to Energy
Revenues $ 6,399 $ 7,564 $ (149) $ (404) $ 13,410
Furniture and Fixtures 742 171 (2) 911
Rental Equipment 2,749 505 (2) 404 3,656
Land, Building and
Improvements 519 100 619
Other Equipment 827 221 (10) 51 1,089
-------- ------- -------- ------- --------
TOTAL $ 11,236 $ 8,561 $ (163) $ 51 $ 19,685
======== ======= ======== ======= ========

1993 Equipment related to Energy
Revenues $ 13,410 $ 8,008 $ (864) $ (556) (1) $ 19,998
Furniture and Fixtures 911 188 (42) (1) 1,057
Rental Equipment 3,656 1,149 (251) 1,011 (1) 5,565
Land, Building and
Improvements 619 150 (4) 28 (1) 793
Other Equipment 1,089 148 (310) (429) (1) 498
-------- ------- -------- ------- --------
TOTAL $ 19,685 $ 9,643 $ (1,429) $ 12 $ 27,911
======== ======= ======== ======= ========

1994 Equipment related to Energy
Revenues $ 19,998 $ 7,345 (105) $(3,883) (2) $ 23,355
Furniture and Fixtures 1,057 201 (40) (2) 1,218
Rental Equipment 5,565 1,885 (279) (541) (2) 6,630
Land, Building and
Improvements 793 198 (2) 4 993
Other Equipment 498 88 (139) (13) 434
-------- ------- -------- ------- --------
TOTAL $ 27,911 $ 9,717 $ (525) $(4,473) $ 32,630
======== ======= ======== ======= ========

<FN>
(1) Includes transfers between classifications, $(127) adjustment as a result of the Newark litigation settlement
and difference in exchange rates at the end of prior period to beginning of current period. Also includes differences
between average exchange rate and the exchange rate at the end of the related period.
(2) Relates primarily to the adjustment as a result of Newark fire insurance proceeds ($2,530) and for the reclassification of
equipment held for sale ($1,450). Other items include exchange rate fluctuations and reductions resulting from
intercompany transfers.

O'BRIEN ENVIRONMENTAL ENERGY, INC. SCHEDULE IX

SHORT-TERM BORROWINGS
(dollars in thousands)

- - -----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- - -----------------------------------------------------------------------------------------------------------------------------------
For the Weighted Maximum Amount Average Amount Weighted Average
Year Ended Category of Aggregate Balance at Average Outstanding Outstanding Interest Rate
June 30 Short-Term Borrowings End of Period Interest Rate During the Period During the Period During the Period
- - ---------- --------------------- ------------- ------------- ----------------- ----------------- -----------------

1992 Banks $ 1,898 13.4% $ 3,862 $ 2,100 14.9%
1993 Banks $ 2,199 9.1% $ 2,620 $ 2,213 11.7%
1994 Banks $ 2,386 8.3% $ 2,760 $ 2,438 8.3%

<FN>
____________________

The average borrowings were determined based on amounts outstanding at each month's end.

The weighted average interest rates during the period were computed by dividing actual interest expense for the period by average
short-term borrowings for the period.