UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
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: 001-34023
U.S. GEOTHERMAL INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
84-1472231 |
(State or Other Jurisdiction of |
(I.R.S. Employer |
Incorporation or Organization) |
Identification No.) |
|
|
390 E. Parkcenter Blvd., Suite 250 |
|
Boise, Idaho |
83706 |
(Address of Principal Executive Offices) |
(Zip Code) |
208-424-1027
(Registrants Telephone
Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted
-1-
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
[X] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer [ ] |
Accelerated
filer [
] |
Non-accelerated filer [ ]
(Do not check if a smaller
reporting company) |
Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [
] No [X]
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable date.
Class |
Shares Outstanding as of August November 11,
2014 |
Common stock, par value $ 0.001 per
share |
106,325,260 |
-2-
U.S. Geothermal Inc.
Form 10-Q
For the Third Quarter Ended September 30, 2014
INDEX
-3-
Part I - Financial
Information
Item 1 - Financial Statements
The financial statements included herein have been prepared by
U.S. Geothermal Inc. (the Company), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles may have been condensed
or omitted. However, in the opinion of management, all adjustments (which
include only normal recurring accruals) necessary to present fairly the
financial position and results of operations for the periods presented have been
made. These financial statements should be read in conjunction with the
accompanying notes, and with the audited financial statements and notes to the
financial statements included in the Companys report on Form 10-K for the year
ended December 31, 2013. The results of operations for the nine months ended
September 30, 2014 are not necessarily indicative of the results to be expected
for the year ending December 31, 2014.
-4-
U.S. GEOTHERMAL INC.
________
Consolidated Financial Statements
(Unaudited)
September 30, 2014
U.S. GEOTHERMAL INC.
CONSOLIDATED BALANCE SHEETS
|
|
(Unaudited) |
|
|
|
|
|
|
September 30, 2014 |
|
|
December 31, 2013 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
Cash and cash equivalents
(note 2) |
$ |
10,695,122 |
|
$ |
28,736,934 |
|
Restricted cash and bonds (note 3) |
|
2,251,707
|
|
|
3,081,020 |
|
Trade accounts receivable
|
|
2,518,260 |
|
|
4,106,806 |
|
Other
current assets |
|
1,363,419 |
|
|
1,079,262 |
|
Total current assets |
|
16,828,508 |
|
|
37,004,022 |
|
|
|
|
|
|
|
|
Investment in equity securities (note 4)
|
|
- |
|
|
42,174 |
|
Costs on acquisition
|
|
187,794
|
|
|
- |
|
Restricted cash and bond reserves (note 3)
|
|
18,692,614 |
|
|
18,815,145 |
|
Property, plant and
equipment, net of accumulated depreciation (note 5) |
|
167,990,151
|
|
|
161,583,938 |
|
Intangible assets, net of accumulated
amortization (note 6) |
|
15,462,626 |
|
|
15,320,018 |
|
|
|
|
|
|
|
|
Total
assets |
$ |
219,161,693 |
|
$ |
232,765,297 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
Accounts
payable and accrued liabilities |
$ |
1,305,784 |
|
$ |
1,626,687
|
|
Related party accounts
payable |
|
11,473 |
|
|
3,089 |
|
Current
portion of capital lease obligations (note 8) |
|
33,227
|
|
|
48,118 |
|
Current portion of notes
payable (note 9) |
|
4,283,575 |
|
|
4,127,170 |
|
Total
current liabilities |
|
5,634,059 |
|
|
5,805,064 |
|
|
|
|
|
|
|
|
Long-term Liabilities:
|
|
|
|
|
|
|
Long-term portion of
capital lease obligations (note 8) |
|
- |
|
|
20,921 |
|
Asset
retirement obligations (note 14) |
|
1,400,000
|
|
|
- |
|
Notes payable, less
current portion (note 9) |
|
94,760,130 |
|
|
99,226,423 |
|
Total
long-term liabilities |
|
96,160,130 |
|
|
99,247,344 |
|
|
|
|
|
|
|
|
Total
liabilities |
|
101,794,189 |
|
|
105,052,408 |
|
|
|
|
|
|
|
|
Commitments and
Contingencies (note 14) |
|
- |
|
|
- |
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Capital stock (authorized: 250,000,000 common
shares with a $0.001 par value; issued and outstanding shares at September
30, 2014 and December 31, 2013 were: 106,325,260 and 102,094,542;
respectively) |
|
106,325 |
|
|
102,094 |
|
Additional paid-in capital
|
|
103,110,665
|
|
|
100,381,207 |
|
Accumulated other comprehensive loss |
|
- |
|
|
(27,321 |
) |
Accumulated deficit |
|
(30,630,183 |
)
|
|
(30,898,571 |
)
|
|
|
72,586,807 |
|
|
69,557,409 |
|
|
|
|
|
|
|
|
Non-controlling interests (note 15) |
|
44,780,697 |
|
|
58,155,480 |
|
Total
stockholders equity |
|
117,367,504 |
|
|
127,712,889 |
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity |
$ |
219,161,693 |
|
$ |
232,765,297 |
|
The accompanying notes are an integral part of these interim
consolidated financial statements.
-6-
U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales |
$ |
6,649,120 |
|
$ |
5,667,070 |
|
$ |
20,810,254 |
|
$ |
17,542,568 |
|
Energy credit sales |
|
87,885 |
|
|
93,425 |
|
|
274,590 |
|
|
277,992 |
|
Total plant operating revenues |
|
6,737,005 |
|
|
5,760,495 |
|
|
21,084,844 |
|
|
17,820,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Plant production expenses |
|
2,246,034 |
|
|
1,730,493 |
|
|
7,115,530 |
|
|
5,365,456 |
|
Depreciation and
amortization |
|
1,551,299 |
|
|
1,568,650 |
|
|
4,674,605 |
|
|
4,878,892 |
|
Total plant operating expenses |
|
3,797,333 |
|
|
3,299,143 |
|
|
11,790,135 |
|
|
10,244,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income from Plant Operations |
|
2,939,672 |
|
|
2,461,352 |
|
|
9,294,709 |
|
|
7,576,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses (Income): |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
administration |
|
216,386
|
|
|
240,761 |
|
|
808,489
|
|
|
737,630 |
|
Professional and management fees |
|
186,849 |
|
|
248,861 |
|
|
754,796 |
|
|
980,211 |
|
Salaries and
wages |
|
400,950
|
|
|
537,482 |
|
|
1,473,006
|
|
|
1,655,624 |
|
Stock based compensation |
|
321,306 |
|
|
307,408 |
|
|
1,098,771 |
|
|
571,160 |
|
Travel and
promotion |
|
60,362
|
|
|
48,940 |
|
|
160,356
|
|
|
168,154 |
|
Exploration costs |
|
27,221 |
|
|
(67,211 |
) |
|
70,709 |
|
|
509,174 |
|
Interest expense |
|
1,089,686
|
|
|
985,654 |
|
|
3,079,415
|
|
|
2,589,825 |
|
Other (income) expenses |
|
(58,905 |
) |
|
(26,741 |
) |
|
(85,412 |
) |
|
(90,217 |
) |
Total expenses (income) |
|
2,243,855 |
|
|
2,275,154 |
|
|
7,360,130 |
|
|
7,121,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Before Income Tax Expense
|
|
695,817 |
|
|
186,198 |
|
|
1,934,579 |
|
|
454,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Tax Expense (note 7): |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
266,000 |
|
|
71,000 |
|
|
739,000 |
|
|
174,000 |
|
Effect of net
deferred tax assets |
|
(266,000 |
) |
|
(71,000 |
) |
|
(739,000 |
) |
|
(174,000 |
) |
Net income tax expense |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
695,817 |
|
|
186,198 |
|
|
1,934,579 |
|
|
454,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to the non-controlling interests |
|
(614,037 |
) |
|
(214,335 |
) |
|
(1,666,191 |
) |
|
(470,624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to U.S. Geothermal
Inc. |
|
81,780 |
|
|
(28,137 |
) |
|
268,388 |
|
|
(15,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
income (loss) on investment
in equity
securities |
|
- |
|
|
(1,372 |
) |
|
27,321 |
|
|
(21,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) Attributable to U.S.
Geothermal Inc. |
$ |
81,780 |
|
$ |
(29,509 |
) |
$ |
295,709 |
|
$ |
(37,892 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income (Loss) Per Share
Attributable to U.S. Geothermal Inc. |
$ |
0.00
|
|
$ |
(0.00 |
) |
$ |
0.00
|
|
$ |
(0.00 |
) |
Diluted Net
Income (Loss) Per Share Attributable to U.S. Geothermal Inc.
|
$ |
0.00 |
|
$ |
(0.00 |
) |
$ |
0.00 |
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding for
Basic Calculations |
|
104,587,598 |
|
|
102,044,300 |
|
|
103,541,220 |
|
|
101,694,542 |
|
Weighted Average Number of Shares, Stock Options
and Warrants Outstanding for Diluted Calculations |
|
126,154,705 |
|
|
102,044,300 |
|
|
125,941,413 |
|
|
101,694,542 |
|
The accompanying notes are an integral part of these interim
consolidated financial statements.
-7-
U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Unaudited) |
|
|
|
For
the Nine Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
Net Income |
$ |
1,934,579 |
|
$ |
454,651 |
|
Adjustments to reconcile net
income to total cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
4,772,192 |
|
|
4,969,582 |
|
Stock based compensation |
|
1,098,771 |
|
|
571,160 |
|
Stock based officer bonus |
|
- |
|
|
100,000 |
|
Gain on software refund |
|
(13,239 |
) |
|
- |
|
Loss
on sale of securities |
|
27,967 |
|
|
- |
|
Net changes in: |
|
|
|
|
|
|
Trade accounts receivable, operating |
|
1,588,546 |
|
|
1,305,389 |
|
Accounts payable and accrued liabilities |
|
(1,320,909 |
) |
|
(582,841 |
) |
Prepaid expenses and other |
|
(284,157 |
) |
|
(144,526 |
) |
Total cash provided by operating activities |
|
7,803,750 |
|
|
6,673,415 |
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
Purchases of property,
plant and equipment |
|
(2,874,315 |
) |
|
(9,691,268 |
) |
Acquisition of subsidiaries (note 16) |
|
(6,782,446 |
) |
|
- |
|
Costs related to
acquisition |
|
(187,794 |
) |
|
- |
|
Proceeds
from ITC cash grants receivable |
|
- |
|
|
33,800,784 |
|
Proceeds from sale of
equities held for investment |
|
41,528 |
|
|
- |
|
Proceeds
from software refund |
|
31,120 |
|
|
- |
|
Release (funding) of
restricted cash reserves and bonds |
|
1,051,844 |
|
|
(12,724,097 |
) |
Total cash provided (used) by investing activities |
|
(8,720,063 |
) |
|
11,385,419 |
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
Issuance of share capital |
|
1,634,918 |
|
|
- |
|
Contributions from non-controlling interest |
|
7,360 |
|
|
7,460 |
|
Distributions to
non-controlling interest |
|
(15,048,334 |
) |
|
(89,221 |
) |
Principal
payments on convertible debt obligations |
|
- |
|
|
(2,125,000 |
) |
Principal payments on
notes payable and other obligations |
|
(3,683,631 |
) |
|
(4,602,607 |
) |
Principal
payments on capital leases |
|
(35,812 |
) |
|
(33,696 |
) |
Total cash used by financing activities |
|
(17,125,499 |
) |
|
(6,843,064 |
) |
|
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash
Equivalents |
|
(18,041,812 |
) |
|
11,215,770 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning of
Period |
|
28,736,934 |
|
|
12,908,779 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period |
$ |
10,695,122 |
|
$ |
24,124,549 |
|
|
|
|
|
|
|
|
Supplemental Disclosures: |
|
|
|
|
|
|
Non-cash investing and
financing activities: |
|
|
|
|
|
|
Purchase of property and
equipment on account |
$ |
425,529 |
|
$ |
1,066,271 |
|
Purchase
of property and equipment with notes payable |
|
71,245 |
|
|
- |
|
Construction and
development paid directly with construction loans |
|
- |
|
|
2,355,316 |
|
Property
and equipment costs reduced by settlement agreements |
|
- |
|
|
7,387,658 |
|
Grants receivable used to
decrease construction costs |
|
- |
|
|
1,719,216 |
|
|
|
|
|
|
|
|
Other Items: |
|
|
|
|
|
|
Interest
paid |
|
3,538,629 |
|
|
4,365,949 |
|
The accompanying notes are an integral part of these interim
consolidated financial statements.
-8-
U.S. GEOTHERMALINC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS EQUITY
For the Nine
Months Ended September 30, 2014 and the Year Ended
December 31, 2013
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Accumulated |
|
|
Non- |
|
|
|
|
|
|
Number of |
|
|
Common |
|
|
Paid-In |
|
|
Accumulated |
|
|
Comprehensive |
|
|
controlling |
|
|
|
|
|
|
Shares |
|
|
Shares |
|
|
Capital |
|
|
Deficit |
|
|
Income (Loss) |
|
|
Interest |
|
|
Totals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
101,516,764 |
|
$ |
101,516 |
|
$ |
99,524,850 |
|
$ |
(32,845,150 |
)
|
$ |
(3,944 |
)
|
$ |
56,081,198 |
|
$ |
122,858,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling equity
contribution from Gerlach Green Energy, LLC |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
7,460 |
|
|
7,460 |
|
Distributions to non-controlling interest
entity |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(117,248 |
) |
|
(117,248 |
) |
Stock issued under terms of
employment
agreement |
|
577,778 |
|
|
578 |
|
|
99,422 |
|
|
- |
|
|
- |
|
|
- |
|
|
100,000 |
|
Stock compensation |
|
- |
|
|
- |
|
|
756,935 |
|
|
- |
|
|
- |
|
|
- |
|
|
756,935 |
|
Unrealized loss on investment
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(23,377 |
)
|
|
- |
|
|
(23,377 |
)
|
Net income |
|
- |
|
|
- |
|
|
- |
|
|
1,946,579 |
|
|
- |
|
|
2,184,070 |
|
|
4,130,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
102,094,542 |
|
|
102,094 |
|
|
100,381,207 |
|
|
(30,898,571 |
) |
|
(27,321 |
) |
|
58,155,480 |
|
|
127,712,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interest
entities (note 15) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(15,048,334 |
) |
|
(15,048,334 |
) |
Non-controlling equity
contribution from Gerlach Green Energy, LLC |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
7,360 |
|
|
7,360 |
|
Stock issued by the exercise of employee
stock options |
|
1,077,000 |
|
|
1,077 |
|
|
336,544 |
|
|
- |
|
|
- |
|
|
- |
|
|
337,621 |
|
Stock issued by the exercise
of stock purchase warrants |
|
2,594,596 |
|
|
2,595 |
|
|
1,294,703 |
|
|
- |
|
|
- |
|
|
- |
|
|
1,297,298 |
|
Stock compensation |
|
559,122 |
|
|
559 |
|
|
1,098,211 |
|
|
- |
|
|
- |
|
|
- |
|
|
1,098,770 |
|
Unrealized loss and
reclassification to net income |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
27,321 |
|
|
- |
|
|
27,321 |
|
Net income |
|
- |
|
|
- |
|
|
- |
|
|
268,388 |
|
|
- |
|
|
1,666,191 |
|
|
1,934,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2014 - unaudited |
|
106,325,260 |
|
$ |
106,325 |
|
$ |
103,110,665 |
|
$ |
(30,630,183 |
) |
$ |
- |
|
$ |
44,780,697 |
|
$ |
117,367,504 |
|
The accompanying notes are an integral part of these interim
consolidated financial statements.
-9-
U.S. GEOTHERMAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Unaudited
September 30, 2014
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
U.S. Geothermal Inc. was incorporated on March 10, 2000 in the
State of Delaware. U.S. Geothermal Inc. Idaho was formed in February 2002, and
is the primary subsidiary through which the Company conducts its operations. The
Company constructs, manages and operates power plants that utilize geothermal
resources to produce energy. The Companys operations have been, primarily,
focused in the Western United States of America.
Basis of Presentation
These unaudited interim consolidated financial statements of
the Company and its subsidiaries have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission (SEC). Such rules
and regulations allow the omission of certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles in the United States of America,
so long as such omissions do not render the financial statements misleading.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
In the opinion of management, these financial statements
reflect all adjustments that are necessary for a fair statement of the results
for the periods presented. All adjustments were of a normal recurring nature.
These interim financial statements should be read in conjunction with the annual
financial statements of the Company included in its Report on Form 10-K.
The Company consolidates subsidiaries that it controls
(more-than-50% owned) and entities over which control is achieved through means
other than voting rights. These consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, as well as three
controlling interests. The accounts of the following companies are consolidated
in these financial statements:
|
i) |
U.S. Geothermal Inc. (incorporated in the State of
Delaware); |
|
ii) |
U.S. Geothermal Inc. (incorporated in the State of
Idaho); |
|
iii) |
U.S. Geothermal Services, LLC (organized in the State of
Delaware); |
|
iv) |
Nevada USG Holdings, LLC (organized in the State of
Delaware); |
|
v) |
USG Nevada LLC (organized in the State of
Delaware); |
|
vi) |
Nevada North USG Holdings, LLC (organized in the State of
Delaware); |
|
vii) |
USG Nevada North, LLC (organized in the State of
Delaware); |
|
viii) |
Oregon USG Holdings, LLC (organized in the State of
Delaware); |
|
ix) |
USG Oregon LLC (organized in the State of
Delaware); |
|
x) |
Raft River Energy I LLC (organized in the State of
Delaware); |
|
xi) |
Gerlach Geothermal LLC (organized in the State of
Delaware); |
|
xii) |
USG Gerlach LLC (organized in the State of
Delaware); |
|
xiii) |
U.S. Geothermal Guatemala, S.A. (organized in
Guatemala); |
|
xiv) |
Geysers USG Holdings Inc. (incorporated in the State of
Delaware); |
|
xv) |
Western GeoPower, Inc. (incorporated in the State of
California); |
|
xvi) |
Etoile Holdings Inc. (incorporated in the
Bahamas); |
|
xvii) |
Mayacamas Energy LLC (organized in the State of
California); |
|
xviii) |
Skyline Geothermal LLC (organized in the State of
Delaware); |
|
xix) |
Skyline Geothermal Holding, Inc. (incorporated in the
State of Delaware); and |
|
xx) |
USG Cresent Valley Inc. (incorporated in
Delaware). |
-10-
All intercompany transactions are eliminated upon
consolidation.
In cases where the Company owns a majority interest in an
entity but does not own 100% of the interest in the entity, it recognizes a
non-controlling interest attributed to the interest controlled by outside third
parties. The Company will recognize 100% of the assets and liabilities of the
entity, and disclose the non-controlling interest. The statements of operations
will consolidate the subsidiarys full operations, and will separately disclose
the elimination of the non-controlling interests allocation of profits and
losses.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are summarized accounting policies considered to
be significant by the Companys management:
Accounting Method
The Companys consolidated financial statements are prepared
using the accrual basis of accounting in accordance with generally accepted
accounting principles in the United States of America (U.S. GAAP) and have
been consistently applied in the preparation of the consolidated financial
statements.
Use of Estimates
The preparation of consolidated financial statements in
accordance with generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities known to exist as
of the date the consolidated financial statements are published, and the
reported amounts of revenues and expenses during the reporting period.
Uncertainties with respect to such estimates and assumptions are inherent in the
preparation of the Companys consolidated financial statements; accordingly, it
is possible that the actual results could differ from these estimates and
assumptions and could have a material effect on the reported amounts of the
Companys consolidated financial position and consolidated results of
operations.
Cash and Cash Equivalents
The Company considers all unrestricted cash, short-term
deposits, and other investments with original maturities of no more than ninety
days when acquired to be cash and cash equivalents for the purposes of the
statement of cash flows. Under the Loan Guarantee Agreement at Neal Hot Springs
with the Department of Energy, all funds for USG Oregon LLC are deposited into
PNC Bank subject to certain procedural restrictions on the use of the funds. The
waterfall of funds out of the Revenue account is processed semi-annually. At
September 30, 2014, $704,000 in USG Oregon LLC funds were deposited at PNC Bank
and $278,000 in Oregon USG Holdings LLC funds were deposited at Umpqua Bank, and
were unavailable for immediate corporate needs. Discussion regarding restricted
cash is included in Note 3.
Accounts Receivable Allowance for Doubtful
Accounts
Trade Accounts Receivable
Management
estimates the amount of trade accounts receivable that may not be collectible
and records an allowance for doubtful accounts. The allowance is an estimate
based upon aging of receivable balances, historical collection experience, and
the periodic credit evaluations of our customers financial condition.
Receivable balances are written off when we determine that the balance is
uncollectible. As of September 30, 2014 and December 31, 2013, there were no
balances that were over 90 days past due and no balance in allowance for
doubtful accounts was recognized.
-11-
Grant Accounts Receivable
For
receivables from grants from Federal or State agencies, the Company records the
receivable amounts net of the funds expected to be received. Therefore, no
allowance accounts are considered to be necessary for receivables from grants at
September 30, 2014 and December 31, 2013.
Concentration of Credit Risk
The Companys cash and cash equivalents, including restricted
cash, consisted of commercial bank deposits, money market accounts, and petty
cash. Cash deposits are held in commercial banks in Boise, Idaho and Portland,
Oregon. Deposits are guaranteed by the Federal Deposit Insurance Corporation
(FDIC) up to $250,000 per legal entity. At September 30, 2014, the Companys
total cash balance, excluding money market funds, was $4,187,430, and bank
deposits amounted to $4,453,398. The primary difference was due to outstanding
checks and deposits. Of the bank deposits, $2,999,632 was not covered by or was
in excess of FDIC insurance guaranteed limits. At September 30, 2014, the
Companys money market funds invested in government backed securities totaled
$27,448,313 and were not subject to deposit insurance.
Equity Securities
The Company determines the appropriate classification of
marketable securities at the time of purchase and reevaluates this designation
as of each balance sheet date. The Company classifies these securities as either
held-to-maturity, trading, or available-for-sale. All marketable securities and
restricted investments were classified as available-for-sale securities. The
Company classifies its investments as available for sale because it does not
intend to actively buy and sell for short-term profits. The Company's
investments are subject to market risk, primarily interest rate and credit risk.
The fair value of investments is determined using observable or quoted market
prices for those securities.
Available-for-sale securities are carried at fair value, with
unrealized gains and losses included as a component of accumulated other
comprehensive income (loss). Realized gains and losses, declines in value judged
to be other than temporary and interest on available-for-sale securities are
included in net income. The cost of securities sold is based on the specific
identification method.
Property, Plant and Equipment
Property, plant and equipment, including assets under capital
lease, are recorded at historical cost. Costs of acquisition of geothermal
properties are capitalized in the period of acquisition. Major improvements that
significantly increase the useful lives and/or capabilities of the assets are
capitalized. A primary factor in determining whether to capitalize construction
type costs is the stage of the potential projects development. Once a project
is determined to be commercially viable, all costs directly associated with the
development and construction of the project are capitalized. Until that time,
all development costs are expensed. A commercially viable project will have,
among other factors, a reservoir discovery well or other significant geothermal
surface anomaly, a power transmission path that is identified and available, and
an electricity off-taker identified. A valid reservoir discovery is generally
defined when a test well has been substantially completed that indicates the
presence of a geothermal reservoir that has a high probability of possessing the
necessary temperatures, permeability, and flow rates. After a valid discovery
has been made, the project enters the development stage. Generally, all costs
incurred during the development stage are capitalized and tracked on an
individual project basis. If a geothermal project is abandoned, the associated
costs that have been capitalized are charged to expense in the year of
abandonment. Expenditures for repairs and maintenance are charged to expense as
incurred. Interest costs incurred during the construction period of defined
major projects from debt that is specifically incurred for those projects are
capitalized. Funds received from grants associated with capital projects reduce
the cost of the asset directly associated with the individual grants. The offset
of the cost of the asset associated with grant proceeds is recorded in the
period when the requirements of the grant are substantially complete and the
amount can be reasonably estimated.
-12-
Direct labor costs, incurred for specific major projects
expected to have long-term benefits will be capitalized. Direct labor costs
subject to capitalization include employee salaries, as well as, related payroll
taxes and benefits. With respect to the allocation of salaries to projects,
salaries are allocated based on the percentage of hours that our key managers,
engineers and scientists work on each project and are invoiced to the project
each month. These individuals track their time worked at each project. Major
projects are, generally, defined as projects expected to exceed $500,000. Direct
labor includes all of the time incurred by employees directly involved with
construction and development activities. General and/or indirect management time
and time spent evaluating the feasibility of potential projects are expensed
when incurred. Employee training time is expensed when incurred.
Depreciation is calculated on a straight-line basis over the
estimated useful life of the asset. Where appropriate, terms of property rights
and revenue contracts can influence the determination of estimated useful lives.
Estimated useful lives in years by major asset categories are summarized as
follows:
|
|
Estimated Useful |
Asset Categories
|
|
Lives in Years |
|
|
|
Furniture, vehicle and other equipment |
|
3 to 5 |
Power plant, buildings and improvements |
|
3 to 30 |
Wells |
|
30 |
Well pumps and components |
|
5 to 15 |
Pipelines |
|
30 |
Transmission lines |
|
30 |
Intangible Assets
All costs directly associated with the acquisition of
geothermal and surface water rights are capitalized as intangible assets. These
costs are amortized over their estimated utilization period. There are several
factors that influence the estimated utilization periods as well as underlying
fair value that include, but are not limited to, the following:
|
- |
contractual expiration terms of
the right, |
|
- |
contractual terms of an
associated revenue contract (i.e., PPAs), |
|
- |
compliance with utilization and
other requirements, and |
|
- |
hierarchy of other right holders
who share the same resource. |
Currently, amortization expense is being calculated on a
straight-line basis over an estimated utilization period of 30 years for assets
placed in service. If an intangible water or geothermal right is forfeited or
otherwise lost, the remaining unamortized costs are expensed in the period of
forfeiture. An impaired right is reduced to its estimated fair market value in
the year the impairment is realized. Costs incurred that extend the term of an
intangible right are capitalized and amortized over the new estimated period of
utilization.
Impairment of Long-Lived Assets
The Company evaluates its long-term assets annually for
impairment and when circumstances/events occur that may impact the fair value of
the assets. An impairment loss would be recognized if the carrying amount of a
capitalized asset is not recoverable and exceeds its fair value. The most recent
assessment was performed based upon financial conditions and assumptions as of
December 31, 2013, and there have not been any significant changes in financial
conditions and assumptions subsequent to that assessment date. Management
believes that there have not been any circumstances that have warranted the
recognition of losses due to the impairment of long-lived assets.
-13-
Stock Options Granted to Employees and
Non-employees
The Company follows financial accounting standards that require
the measurement of the value of employee services received in exchange for an
award of an equity instrument based on the grant-date fair value of the award.
For employees, directors and officers, the fair value of the awards are expensed
over the vesting period. The current vesting period for all such options is
eighteen months.
Non-employee stock-based compensation is granted at the Board
of Directors discretion to reward select consultants for exceptional
performance. Prior to issuance of the awards, the Company was not under any
obligation to issue the stock options. Subsequent to the award, the recipient
was not obligated to perform any services. Therefore, the fair value of these
options was expensed on the grant date, which was also the measurement date.
Under the fair value recognition provisions, share-based
compensation cost is measured at the grant date based on the value of the award
and is recognized as expense over the vesting period. Determining the fair value
of share-based awards at the grant date requires judgment. In addition, judgment
is also required in estimating the amount of share-based awards that are
expected to be forfeited. If actual results differ significantly from these
estimates, stock-based compensation expense and our results of operations could
be materially impacted.
Stock Based Compensation Granted to Employees
The Company recognizes the value of common stock granted to
employees and directors over the periods in which the services are received. The
value of those services is based upon the estimated fair value of the common
stock to be awarded. Estimated fair value is adjusted each reporting period. At
the end of each vesting period, estimated fair value is adjusted to fair market
value. The adjustment is reflected in the reporting period in which the vesting
occurs.
Earnings (Losses) Per Share
The Company follows financial accounting standards, which
provides for calculation of "basic" and "diluted" earnings (losses) per share.
Basic earnings per share includes no dilution and is computed by dividing net
income available to common shareholders by the weighted average common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an entity similar to
fully diluted earnings per share. Both basic and diluted were presented for the
calculation of the income per share for the periods that reported income. Stock
equivalents were not included in the calculation for the periods that reported
losses since their inclusion would be considered anti-dilutive. Total common
stock equivalents on a fully diluted basis at September 30, 2014 and December
31, 2013 were 126,091,335 and 124,494,963; respectively.
Financial Instruments
The Companys financial instruments consist of cash and cash
equivalents, trade account and other receivables, refundable tax credits, and
accounts payable and accrued liabilities. Unless otherwise noted, it is
managements opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments. The fair
values of these financial instruments approximate their carrying values, unless
otherwise noted.
The Companys functional currency is the U.S. dollar. Monetary
items are converted into U.S. dollars at the rate prevailing at the balance
sheet date. Resulting gains and losses are generally included in determining net
income for the period in which exchange rates change.
-14-
Revenue
Revenue Recognition
Energy Sales
The energy sales revenue is recognized
when the electrical power generated by the Companys power plants is delivered
to the customer who is reasonably assured to be able to pay under the terms
defined by the Power Purchase Agreements (PPAs).
Renewable Energy Credits (RECs)
Currently, the
Company operates three plants that produce renewable energy that creates a right
to a REC. The Company earns one REC for each megawatt hour produced from the
geothermal power plant. The Company considers the RECs to be an inventory item
held for sale, and outputs that are an economic benefit obtained directly
through the operation of the plants. The Company does not currently hold any
RECs for our own use. Revenues from RECs sales are recognized when the Company
has met the terms and conditions of certain energy sales agreements with a
financially capable buyer. At Raft River Energy I LLC, each REC is certified by
the Western Electric Coordinating Council and sold under a REC Purchase and
Sales Agreement to Holy Cross Energy. At San Emidio and Neal Hot Springs, the
RECs are owned by our customer and are bundled with energy sales. At all three
plants, title for the RECs pass during the same month as energy sales. As a
result, costs associated with the sale of RECs are not segregated on the
statement of operations.
Revenue Source
All of the Companys
operating revenues (energy sales and energy credit sales) originate from energy
production from its interests in geothermal power plants located in the states
of Idaho, Oregon and Nevada.
Asset Retirement Obligations
The Company records the fair value of estimated asset
retirement obligations (AROs) associated with tangible long-lived assets in
the period incurred or acquired. AROs are legal obligations to settle under
existing or enacted law, statue, or contract. The value of these obligations are
originally based upon discounted cash flow estimates and are accreted to full
value over time through charges to operations. Costs associated with future
conditions are recognized as AROs in the period the condition occurs or is known
to the Company. Generally, costs associated with AROs are earthwork,
revegetation, well capping, and structure removal necessary to return the sites
to their original conditions.
Reclassification
Certain amounts in the prior period financial statements have
been reclassified to conform to the current period presentation. These
reclassifications had no effect on reported losses, total assets, or
stockholders equity as previously reported.
-15-
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements.
The following pronouncements were deemed applicable to our financial statements:
Stock Compensation
In June 2014, FASB
issued Accounting Standards Update No. 2014-12 (Update 2014-12),
Compensation-Stock Compensation, Accounting for Share-Based Payments When the
Terms of an Award Provide That a Performance Target Could Be Achieved after the
Requisite Service Period (Topic 718). Update 2014-12 provides guidance on
how to account for share-based payment awards that require a specific
performance target to be achieved in order for the employees to become eligible
to vest in the awards. Update 2014-12 is effective for annual periods and
interim periods within those annual periods beginning after December 15, 2015.
Management is still evaluating the applicability and possible impact this update
may have on the accounting treatment and its financial statement presentation.
Presentation of Property, Plant and Equipment
In April 2014, FASB issued Accounting Standards Update No. 2014-08
(Update 2014-08), Presentation of Financial Statements (Topic 205) and
Property, Plant, and Equipment (Topic 360), Reporting Discontinued Operations
and Disclosures of Disposals of Components of an Entity. Update 2014-08
provides guidance to address the issues surrounding the reporting of
discontinued operations and enhance the convergence of the FASBs and the
International Accounting Standard Boards reporting requirements for
discontinued operations. Update 2014-08 is effective for annual periods and
interim periods within those annual periods beginning after December 15, 2015.
Management is still evaluating the applicability and possible impact this update
may have on the accounting treatment and its financial statement presentation.
-16-
NOTE 3 RESTRICTED CASH AND BOND RESERVES
Under the terms of the loan agreements with the Department of
Energy and Prudential Capital Group, various bond and cash reserves are required
to provide assurances that the power plants will have the necessary funds to
maintain expected operations and meet loan payment obligations. Restricted cash
balances and bond reserves are summarized as follows:
Current restricted cash and bond reserves:
|
|
|
September 30, |
|
|
December 31, |
|
Restricting Entities/Purpose |
|
|
2014 |
|
|
2013 |
|
Idaho Department of Water
Resources, Geothermal Well Bond |
|
$ |
260,000 |
|
$ |
260,000 |
|
Bureau of Land Management, Geothermal Lease
Bond- Gerlach |
|
|
10,000 |
|
|
10,000 |
|
State of Nevada Division of
Minerals, Statewide Drilling Bond |
|
|
50,000 |
|
|
50,000 |
|
Bureau of Land Management, Geothermal Lease
Bonds- USG Nevada |
|
|
150,000 |
|
|
150,000 |
|
Oregon Department of Geology
and Mineral Industries, Mineral Land and Reclamation Program |
|
|
400,000 |
|
|
400,000 |
|
Prudential Capital Group, Cash Reserves |
|
|
420,981 |
|
|
19,848 |
|
U.S. Department of Energy,
Debt Service Reserve |
|
|
860,726 |
|
|
2,191,172 |
|
State of California Division of Oil, Gas and
Geothermal Resources, Well Cash Bond |
|
|
100,000 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,251,707 |
|
$ |
3,081,020 |
|
Long-term restricted cash and bond reserves:
|
|
|
September 30, |
|
|
December 31, |
|
Restricting Entities/Purpose |
|
|
2014 |
|
|
2013 |
|
Nevada Energy, PPA Security
Bond |
|
$ |
1,468,898 |
|
$ |
1,468,898 |
|
Prudential Capital Group, Debt Service
Reserves |
|
|
1,594,520 |
|
|
1,594,437 |
|
Prudential Capital Group,
Maintenance Reserves |
|
|
580,177 |
|
|
751,183 |
|
Prudential Capital Group, Well Reserves |
|
|
212,289 |
|
|
53,072 |
|
U.S. Department of Energy,
Operations Reserves |
|
|
270,000 |
|
|
270,000 |
|
U.S. Department of Energy, Debt Service
Reserves |
|
|
2,582,187 |
|
|
2,668,179 |
|
U.S. Department of Energy,
Short Term Well Field Reserves |
|
|
4,504,420 |
|
|
4,501,191 |
|
U.S. Department of Energy, Long-Term Well
Field Reserves |
|
|
4,761,156 |
|
|
4,507,391 |
|
U.S. Department of Energy,
Capital Expenditure Reserves |
|
|
2,718,967 |
|
|
3,000,794 |
|
|
|
|
|
|
|
|
|
|
|
$ |
18,692,614 |
|
$ |
18,815,145 |
|
The well bonding requirements ensure that the Company has
sufficient financial resources to construct, operate and maintain geothermal
wells while safeguarding subsurface, surface and atmospheric resources from
unreasonable degradation, and to protect ground water aquifers and surface water
sources from contamination. Other future costs of environmental remediation
cannot be reasonably estimated and have not been recorded. The debt service
reserves are required to provide assurance that the Company will have sufficient
funds to meet its debt payment obligations for the terms specified by the loan
agreements. The maintenance and capital expenditure reserves are required by the
lending entities to ensure that funds are available to acquire and maintain
critical components of power plants and related supporting structures to enable
the plants to operate according to expectations. Except for the PPA Security
Bond, all of the restricted funds consisted of cash deposits or money
market accounts held in commercial banks. Portions of the cash deposits are
subject to FDIC insurance. See note 2 for details. The PPA Security Bond is held
by the power purchaser. All of the reserve accounts were considered to be fully
funded at September 30, 2014 and December 31, 2013. As described in note 16, the
Geysers acquisition included a short term well bond of $100,000 at September
30, 2014.
-17-
NOTE 4 INVESTMENT IN EQUITY SECURITIES
During the quarter ended March 31, 2014, all of the Companys
holdings of equity securities (150,000 shares of Alterra Power Corp, a publicly
traded renewable energy company) were sold for $41,528, which resulted in a
realized loss of $27,967. The net change of $27,321 was reclassified from other
comprehensive income to net income as a result of the sale.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
During the quarter ended September 30, 2014, the Company
incurred well drilling costs that exceeded $942,000 and other development costs
that exceeded $545,000 for the San Emidio projects (located in Northwestern
Nevada). Two Phase II San Emidio exploration wells were started and completed
during the current quarter. A new production well was completed and connected to
the existing Phase I power plant. This well is still being evaluated, and has
not been transferred into plant operations. On August 21, 2014, the Company
purchased three trucks for the plants that totaled $118,245.
During the quarter ended June 30, 2014, the Company acquired a
group of companies that included long-term assets that totaled $7.74 million
(land of $1.6 million, well and drilling construction in progress of $6.14
million). See note 16 for details. The Company continued with development
activities for Phase II San Emidio and the Guatemala projects. For Phase II San
Emidio, over $206,000 was incurred for well drilling and permitting. At
Guatemala, over $353,000 was incurred on temperature gradient wells and plant
facilities. Costs of approximately $74,800 were incurred at Neal Hot Springs,
Oregon on a bridge.
During the quarter ended March 31, 2014, the Company continued
with development activities for Phase II San Emidio, Nevada and the Guatemala
projects. For Phase II San Emidio, over $81,000 was incurred on a seismic study,
well pad permitting, and well drilling, At Guatemala, over $395,000 was incurred
on temperature gradient wells.
Property, plant and equipment, at cost, are summarized as
follows:
|
|
September 30, |
|
|
December 31, |
|
|
|
2014
|
|
|
2013
|
|
Land |
$ |
3,207,025 |
|
$ |
1,603,509 |
|
Power production plant |
|
162,076,367 |
|
|
161,868,687 |
|
Grant proceeds for power
plants |
|
(52,965,236 |
) |
|
(52,965,236 |
) |
Wells |
|
67,621,167 |
|
|
67,620,661 |
|
Grant proceeds for wells |
|
(3,464,555 |
) |
|
(3,464,555 |
) |
Furniture and equipment |
|
1,762,280 |
|
|
1,462,312 |
|
|
|
178,237,048 |
|
|
176,125,378 |
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
(25,518,632 |
) |
|
(20,895,943 |
) |
|
|
152,718,416 |
|
|
155,229,435 |
|
Construction in progress |
|
15,271,735 |
|
|
6,354,503 |
|
|
|
|
|
|
|
|
|
$ |
167,990,151 |
|
$ |
161,583,938 |
|
-18-
Depreciation expense was charged to plant operations and
general expenses for the following periods:
|
|
September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Three months ended |
$ |
1,538,721 |
|
$ |
1,536,042 |
|
Nine months ended |
|
4,635,928 |
|
|
4,782,539 |
|
Changes in Construction in Progress are summarized as follows:
|
|
For the Nine |
|
|
For the Year |
|
|
|
Months Ended |
|
|
Ended December |
|
|
|
September 30, 2014 |
|
|
31,
2013 |
|
Beginning balances |
$ |
6,354,503 |
|
$ |
2,877,994 |
|
Development/construction
|
|
2,717,174 |
|
|
3,694,978 |
|
Grant
reimbursements and rebates |
|
- |
|
|
(33,325 |
) |
Acquisition (note 16) |
|
6,200,058 |
|
|
- |
|
Transfers
into production |
|
- |
|
|
(185,144 |
) |
Ending balances |
$ |
15,271,735 |
|
$ |
6,354,503 |
|
Construction in Progress, at cost, consisting of the following
projects/assets by location are as follows:
|
|
September 30, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Raft River, Idaho: |
|
|
|
|
|
|
Unit II,
power plant, substation and transmission lines |
$ |
750,493 |
|
$ |
750,493 |
|
Unit II, well construction |
|
2,127,355 |
|
|
2,121,502 |
|
|
|
2,877,848 |
|
|
2,871,995 |
|
San Emidio, Nevada: |
|
|
|
|
|
|
Unit II, power plant, substation and
transmission lines |
|
383,536 |
|
|
3,910 |
|
Unit II, well construction |
|
3,154,914 |
|
|
1,753,299 |
|
|
|
3,538,450 |
|
|
1,757,209 |
|
Neal Hot Springs, Oregon: |
|
|
|
|
|
|
Power plant and facilities |
|
450
|
|
|
- |
|
|
|
|
|
|
|
|
The Geysers, California (note 16): |
|
|
|
|
|
|
Power plant and facilities |
|
137,225 |
|
|
- |
|
Well construction
|
|
6,139,421 |
|
|
- |
|
|
|
6,276,646 |
|
|
- |
|
El Ceibillo, Republic of Guatemala: |
|
|
|
|
|
|
Well Construction |
|
2,569,841 |
|
|
1,725,299 |
|
Plant and
facilities |
|
8,500
|
|
|
- |
|
|
|
2,578,341 |
|
|
1,725,299 |
|
|
|
|
|
|
|
|
|
$ |
15,271,735 |
|
$ |
6,354,503 |
|
-19-
NOTE 6 INTANGIBLE ASSETS
During the quarter ended June 30, 2014, the Company acquired a
group of companies that included geothermal water rights located at The Geysers
in Northern California that amounted to $278,872 (see note 16 for details).
Intangible assets, at cost, are summarized by project location
as follows:
|
|
September 30, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
In operation: |
|
|
|
|
|
|
Neal Hot Springs, Oregon: |
|
|
|
|
|
|
Geothermal water and mineral rights |
$ |
625,337 |
|
$ |
625,337 |
|
San Emidio, Nevada: |
|
|
|
|
|
|
Geothermal water and mineral rights |
|
4,825,220 |
|
|
4,825,220 |
|
Less: accumulated amortization |
|
(1,072,013 |
) |
|
(935,749 |
) |
|
|
4,378,544 |
|
|
4,514,808 |
|
Inactive: |
|
|
|
|
|
|
Raft River, Idaho: |
|
|
|
|
|
|
Surface
water rights |
|
146,343 |
|
|
146,343 |
|
Geothermal water and mineral rights |
|
1,251,540 |
|
|
1,251,540 |
|
|
|
|
|
|
|
|
Granite Creek, Nevada:
|
|
|
|
|
|
|
Geothermal
water and mineral rights |
|
451,299 |
|
|
451,299 |
|
|
|
|
|
|
|
|
Guatemala City, Guatemala: |
|
|
|
|
|
|
Geothermal water and mineral rights |
|
625,000 |
|
|
625,000 |
|
|
|
|
|
|
|
|
Gerlach, Nevada: |
|
|
|
|
|
|
Geothermal
water and mineral rights |
|
997,000 |
|
|
997,000 |
|
|
|
|
|
|
|
|
The Geysers, California: |
|
|
|
|
|
|
Geothermal water rights (note 16) |
|
278,872 |
|
|
- |
|
|
|
|
|
|
|
|
San Emidio, Nevada: |
|
|
|
|
|
|
Surface
water rights |
|
4,323,520 |
|
|
4,323,520 |
|
Geothermal water and mineral rights |
|
3,440,580 |
|
|
3,440,580 |
|
Less: prior accumulated amortization |
|
(430,072 |
) |
|
(430,072 |
) |
|
|
11,084,082 |
|
|
10,805,210 |
|
|
|
|
|
|
|
|
|
$ |
15,462,626 |
|
$ |
15,320,018 |
|
Amortization expense was charged to plant operations for the
following periods:
|
|
September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Three months ended |
$ |
45,421 |
|
$ |
62,361 |
|
Nine months ended |
|
136,264 |
|
|
187,043 |
|
-20-
Estimated aggregate amortization expense for the next five
years is as follows:
|
|
Projected |
|
|
|
Amounts |
|
Years ending December 31, |
|
|
|
2014 |
$ |
34,066 |
|
2015 |
|
181,685 |
|
2016 |
|
181,685 |
|
2017 |
|
181,685 |
|
2018 |
|
181,685 |
|
|
|
|
|
|
$ |
760,806 |
|
NOTE 7 PROVISION FOR INCOME TAXES
Income taxes are recorded based upon the liability method.
Under this approach, deferred income taxes are recorded to reflect the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end. A valuation
allowance is recorded against deferred tax assets if management does not believe
the Company has met the more likely than not standard imposed by accounting
standards to allow recognition of such an asset.
At September 30, 2014, the Company had net deferred tax assets
calculated at an expected rate, noted in the table below, of approximately
$12,102,000 (December 31, 2013 - $10,435,000). As management of the Company
cannot determine that it is more likely than not that the Company will realize
the benefit of the net deferred tax asset, a valuation allowance equal to the
net deferred tax asset was recorded at September 30, 2014 and December 31, 2013.
For the current periods ended September 30, 2014 and 2013, the Company has
recognized the net deferred income tax asset to the extent of the impact created
from current book earnings. During the year ended December 31, 2013, the Company
engaged a tax matters consultant to evaluate the value and timing of adjusting
the deferred tax valuation allowance. The Company anticipates that any tax
obligations will be fully offset by the utilization of prior reserved deferred
tax benefits for the year ended December 31, 2014.
The significant components of the net deferred tax asset
calculated with the estimated effective income tax rate at September 30, 2014
and December 31, 2013 were as follows:
|
|
September 30, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
Deferred tax assets*: |
|
|
|
|
|
|
Net operating loss
carry forward |
$ |
31,658,000 |
|
$ |
28,478,000 |
|
Stock based compensation |
|
1,291,000 |
|
|
1,117,000 |
|
|
|
|
|
|
|
|
Deferred tax liabilities*:
|
|
|
|
|
|
|
Depreciation and amortization |
|
(20,847,000 |
) |
|
(19,160,000 |
) |
Net deferred income tax asset
|
|
12,102,000 |
|
|
10,435,000 |
|
Estimated deferred tax asset recognized and
utilized in current period |
|
(739,000 |
) |
|
(1,578,000 |
) |
Deferred tax asset valuation
allowance |
|
(11,363,000 |
) |
|
(8,857,000 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
$ |
- |
|
$ |
- |
|
* - significant components of
deferred assets and liabilities are considered to be long-term.
-21-
The Companys estimated effective income tax rate is as
follows:
|
|
For
the Years Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
U.S. Federal statutory rate |
|
34.0% |
|
|
34.0% |
|
Average State and foreign income tax, net of
federal tax effect |
|
4.2 |
|
|
4.2 |
|
Production tax credits |
|
- |
|
|
- |
|
Net
effective tax rate |
|
38.2% |
|
|
38.2% |
|
At September 30, 2014, the Company had net income tax operating
loss carry forwards of approximately $82,875,000 ($74,550,000 in December 31,
2013), which expire in the years 2023 through 2034. The change in the allowance
account from December 31, 2013 to September 30, 2014 was an increase of $640,000
for the anticipated deferred tax allocations based on 2014 income.
The net change in the deferred tax asset valuation allowance
account is detailed as follows:
|
|
For the Nine |
|
|
|
|
|
|
Months Ended |
|
|
For the Year |
|
|
|
September 30, |
|
|
Ended December |
|
|
|
2014 |
|
|
31,
2013 |
|
|
|
|
|
|
|
|
Change in net operating loss
|
$ |
3,180,000 |
|
$ |
16,258,000 |
|
Change in estimated effective tax rate |
|
- |
|
|
614,000 |
|
Net change in difference
between book and tax stock compensation costs |
|
174,000 |
|
|
251,000 |
|
Change in estimated deferred tax asset
recognized and utilized in current period |
|
839,000 |
|
|
(1,578,000 |
) |
Change in period book
to income tax depreciation |
|
(1,687,000 |
) |
|
(17,518,000 |
) |
|
|
|
|
|
|
|
Net change in deferred tax valuation allowance |
$ |
2,506,000 |
|
$ |
(1,973,000 |
)
|
At December 31, 2013, Raft River Energy I LLC has a book-to-tax
difference of $35.7 million due to the acceleration of intangible drilling costs
and depreciation. By contract, 99% percent of this book-to-tax difference has
been allocated to the non-controlling interest and would not be available to the
consolidated group to offset future tax liabilities. At December 31, 2013, USG
Oregon LLC has a book-to-tax difference of $38.1 million due to the acceleration
of depreciation.
On April 22, 2014, the Company purchased a group of companies
(see note 16 for details). Federal and applicable state NOLs that totaled
approximately $30 million were included in the acquisition. These NOLs are
scheduled to expire in the years ending 2028 through 2033. The use of these NOLs
is restricted by the Companys basis and the applicable federal rate as
defined by federal tax law. The estimated reduced value of approximately $4.8
million is included in the Companys calculated NOLs.
Although Management believes that its estimates are reasonable,
no assurance can be given that the final tax outcome of these matters will not
be different than that which is reflected in our tax provisions. Ultimately, the
actual tax benefits to be realized will be based upon future taxable earnings
levels, which are very difficult to predict.
Accounting for Income Tax Uncertainties and Related
Matters
The Company may be assessed penalties and interest related to
the underpayment of income taxes. Such assessments would be treated as a provision of income tax
expense on the financial statements. For the year ended December 31, 2013, nine
months ended December 31, 2012 and the fiscal year ended March 31, 2012, no
income tax expense has been realized as a result of operations and no income tax
penalties and interest have been accrued related to uncertain tax positions. The
Company files income tax returns in the U.S. federal jurisdiction and in the
States of Idaho, California and Oregon. These filings are subject to a three
year statute of limitations. The Companys evaluation of income tax positions
included the year ended December 31, 2013, the nine months ended December 31,
2012 and the fiscal year ended March 31, 2012 could be subject to agency
examinations as of December 31, 2013. No filings are currently under
examination. No adjustments have been made to reduce the estimated income tax
benefit at fiscal year end. Any valuations relating to these income tax
provisions will comply with U.S. Generally Accepted Accounting
Principles.
-22-
NOTE 8 - CAPITAL LEASE OBLIGATIONS
Effective May 10, 2012, the Company entered into two capital
lease obligations for the purchase of a boom lift and a telehandler from
Caterpillar Financial Services Corporation. The boom lift contract is payable in
36 monthly payments of $1,094 that began on June 11, 2012 and has an effective
annual interest rate of 5.985%. The telehandler contract is payable in 36
monthly payments of $3,155 that began on June 11, 2012 and has an effective
annual interest rate of 6.14%. Both contracts with Caterpillar Financial
Services Corporation have bargain purchase options at the end of the contracts
scheduled for May 2015. At September 30, 2014, all of the lease obligations were
considered to be current.
The scheduled future lease payments for the two contracts are
presented as follows:
|
|
|
Capital Lease |
|
Years ending
December 31, |
|
|
Amounts |
|
2014 |
|
$ |
12,749 |
|
2015 |
|
|
21,249 |
|
Total future payments |
|
|
33,998 |
|
|
|
|
|
|
Less: imputed interest portion |
|
|
(771 |
) |
|
|
$ |
33,227 |
|
At September 30, 2014, the net book value of the equipment
under capital lease amounted to $46,391 ($155,000, less $108,609 accumulated
amortization).
NOTE 9 NOTES PAYABLE
U.S. Department of Energy
On August
31, 2011, USG Oregon LLC (USG Oregon), a subsidiary of the Company, completed
the first funding drawdown associated with the U.S. Department of Energy (DOE)
$96.8 million loan guarantee (Loan Guarantee) to construct its power plant at
Neal Hot Springs in Eastern Oregon (the Project). The U.S. Treasurys Federal
Financing Bank, as lender for the Project, issues payments direct to vendors.
All loan advances covered by the Loan Guarantee have been made under the Future
Advance Promissory Note (the Note) dated February 23, 2011. Upon the
occurrence and continuation of an event of default under the transaction
documents, all amounts payable under the Note may be accelerated. In connection
with the Loan Guarantee, the DOE has been granted a security interest in all of
the equity interests of USG Oregon, as well as in the assets of USG Oregon,
including a mortgage on real property interests relating to the Project site.
The loan advances began August 31, 2011 and the last advance was taken on July
31, 2013. No additional advances are allowed under the terms of the loan. A
total of 13 draws were taken and each individual draw or tranche is considered
to be a separate loan. On August 12, 2013, proceeds of the ITC cash grant were distributed in
accordance with the loan agreement, with $11,870,137 of the proceeds being used
to prepay the Project loan, $11,167,473 of proceeds being used to fund a series
of Project reserves, and balance of $9,711,930 being distributed as equity to
the project owners. After the loan prepayment, the remaining final loan balance
was $70,386,576. The loan principal is scheduled to be paid over 21.5 years with
semi-annual installments including interest is calculated at an aggregate fixed
interest rate of 2.598%. The principal payment amounts are calculated on a
straight-line basis according to the life of the loans and the original loan
principal amounts. The principal portion of the aggregate loan payment is
adjusted as individual tranches are extinguished. The principal payments are
scheduled to start at $1,709,963 and are expected to be reduced to $1,626,251 on
February 10, 2017. The loan balance at September 30, 2014 totaled $66,974,610
(estimated current portion $3,419,927).
-23-
Loan advances/tranches and effective annual interest rates are
details as follows:
|
|
|
|
|
|
|
Annual Interest |
|
Description |
|
|
Amount |
|
|
|
Rate % |
|
Advances by date: |
|
|
|
|
|
|
|
|
August 31, 2011* |
|
$ |
2,328,422 |
|
|
|
2.997 |
|
September 28, 2011 |
|
|
10,043,467 |
|
|
|
2.755 |
|
October 27, 2011 |
|
|
3,600,026 |
|
|
|
2.918 |
|
December 2, 2011 |
|
|
4,377,079 |
|
|
|
2.795 |
|
December 21, 2011 |
|
|
2,313,322 |
|
|
|
2.608 |
|
January 25, 2012 |
|
|
8,968,019 |
|
|
|
2.772 |
|
April 26, 2012 |
|
|
13,029,325 |
|
|
|
2.695 |
|
May 30, 2012 |
|
|
19,497,204 |
|
|
|
2.408 |
|
August 27, 2012 |
|
|
7,709,454 |
|
|
|
2.360 |
|
December 28, 2012 |
|
|
2,567,121 |
|
|
|
2.396 |
|
June 10, 2013 |
|
|
2,355,316 |
|
|
|
2.830 |
|
July 3, 2013* |
|
|
2,242,628 |
|
|
|
3.073 |
|
July 31, 2013* |
|
|
4,026,582 |
|
|
|
3.214 |
|
|
|
|
83,057,965 |
|
|
|
|
|
Principal paid through September 30, 2014 |
|
|
(16,083,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance at September 30, 2014 |
|
$ |
66,974,610 |
|
|
|
|
|
* - Individual tranches have been
fully extinguished.
SAIC Constructors LLC
Effective August 27,
2010, the Companys wholly owned subsidiary (USG Nevada LLC) signed a
construction loan agreement with SAIC Constructors LLC (SAIC). The new 9.0 net
megawatt power plant was considered complete and operational for financial
reporting purposes on September 1, 2012. On February 15, 2013, USG Nevada LLC
signed a settlement agreement with SAIC that defined the terms of three separate
debt components to settle the obligations incurred under the construction loan
agreement. As of December 31, 2013, two components of the settlement agreement
were paid in full. On April 30, 2013, SAIC signed a loan agreement with Nevada
USG Holdings LLC (parent company of USG Nevada LLC and wholly owned subsidiary
of the Company), that further defined the terms of the remaining debt component
of $2 million. This remaining obligation will be repaid in quarterly
installments of $119,382, including interest at 7.0% per annum that began on
July 31, 2013. The loan balance at September 30, 2014 totaled $1,580,007
(estimated current portion $383,196).
Prudential Capital Group
On September 26,
2013, the Companys wholly owned subsidiary (USG Nevada LLC) entered into a note
purchase agreement with the Prudential Capital Groups related entities
(Prudential) to finance the Phase I San Emidio geothermal project located in
northwest Nevada. The term of the note is approximately 24 years, and bears interest at fixed rate of
6.75% per annum. Interest payments are due quarterly. Principal payments are due
quarterly based upon minimum debt service coverage ratios established according
to operating results and available cash balances. All amounts owing under the
notes and the note purchase agreement or any related financing document are
secured by USG Nevada LLCs right, title and interest in and to its real and
personal property, including the San Emidio project and the equity interests in
USG Nevada LLC. At September 30, 2014, the balance of the loan was $30,417,843
(estimated current portion $471,091).
-24-
Auto Loans
On August 21, 2014, the Companys
wholly owned subsidiaries (U.S. Geothermal Services, LLC, USG Nevada LLC and
Raft River Energy I, Inc.) purchased three trucks with down payments that
totaled $47,000 and three separate loan agreements with Chrysler Capital. The
loans require total monthly payments of $1,257, including interest at an average
rate of 7.9% per annum until September 2020. The notes are secured by the
vehicles. At September 30, 2014, the loan balances totaled $71,245 (estimated
current portion $9,361)
Based upon the terms of the notes payable and expected
conditions that may impact some of those terms, the estimated annual principal
payments were calculated as follows:
For the Fiscal Year Ended |
|
|
Principal |
|
September 30, |
|
|
Payments |
|
2015 |
|
$ |
4,283,575
|
|
2016 |
|
|
4,385,203 |
|
2017 |
|
|
4,342,385 |
|
2018 |
|
|
4,141,392 |
|
2019 |
|
|
3,998,006 |
|
Thereafter |
|
|
77,893,144 |
|
|
|
|
|
|
|
|
$ |
99,043,705 |
|
NOTE 10 - CAPITAL STOCK
The Company is authorized to issue 250,000,000 shares of common
stock. All shares have equal voting rights, are non-assessable and have one vote
per share. Voting rights are not cumulative and, therefore, the holders of more
than 50% of the common stock could, if they choose to do so, elect all of the
directors of the Company.
On September 3, 2014, the Company issued 2,459,460 shares of
common stock to an investor exercising stock purchase warrants at a price of
$0.50 per share.
On April 2, 2014, the Company issued 559,122 shares of common
stock (restricted shares) at a price of $0.74 per share to employees.
During the quarter ended June 30, 2014, the Company issued
352,500 shares of common stock as a result of employees and former employees
exercising stock options priced at $0.31 per share.
During the quarter ended March 31, 2014, the Company issued
724,500 shares of common stock as a result of employees and former employees
exercising stock options priced between $0.31 and $0.46 per share.
On March 14, 2014, the Company issued 135,136 shares of common
stock to an investor exercising stock purchase warrants at a price of $0.50 per
share.
-25-
During the year ended December 31, 2013, the Company issued
577,778 shares of common stock (300,000 restricted shares) to an employee of the
Company at prices between $0.35 and $0.36 per share under the terms of an
employment agreement.
NOTE 11 - STOCK BASED COMPENSATION
The Company has a stock incentive plan (the Stock Incentive
Plan) for the purpose of attracting and motivating directors, officers,
employees and consultants of the Company and advancing the interests of the
Company. The Stock Incentive Plan is a 15% rolling plan approved by shareholders
in December 2009 and September 2013, whereby the Company can grant options to
the extent of 15% of the current outstanding common shares. Under the plan, all
forfeited and exercised options can be replaced with new offerings. As of
September 30, 2014, the Company can issue stock option grants totaling up to
15,945,789 shares. Options are typically granted for a term of up to five years
from the date of grant. Stock options granted generally vest over a period of
eighteen months, with 25% vesting on the date of grant and 25% vesting every six
months thereafter. The Company recognizes compensation expense using the
straight-line method of amortization. Historically, the Company has issued new
shares to satisfy exercises of stock options and the Company expects to issue
new shares to satisfy any future exercises of stock options. At September 30,
2014, the Company had 11,848,500 options granted and outstanding.
On September 23, 2014, 68,000 stock options exercisable at a
price of $1.58 expired without exercise.
During the quarter ended September 30, 2014, 50,000 stock
options exercisable at the price of $0.83 issued to a contractor were forfeited
due to the termination of their contract.
On April 2, 2014, the Company awarded 2,883,500 stock options
at an exercise price of $0.74 expiring on April 2, 2019 to its employees and
directors.
During the quarter ended June 30, 2014, 352,500 stock options
exercisable at the price of $0.31 were exercised by employees and former
employees.
On May 26, 2014, 1,698,250 stock options exercisable at a price
of $0.92 expired without exercise.
During the quarter ended March 31, 2014, 724,500 stock options
exercisable at prices between $0.31 and $0.46 were exercised by employees and
former employees.
On February 22, 2014, 30,000 stock options exercisable at a
price of $0.46 issued to employees were forfeited due to the termination of
employment.
On September 25, 2013, 95,000 stock options exercisable at a
price of $1.78 expired without exercise.
On September 1, 2013, the Company granted 15,000 stock options
to an employee exercisable at a price of $0.41 until September 1, 2018.
On July 22, 2013, the Company granted 1,950,000 stock options
to employees exercisable at a price of $0.46 until July 22, 2018.
On May 26, 2013, 6,375 stock options exercisable at a price of
$0.92 were forfeited due to employee termination.
On May 19, 2013, 1,465,000 stock options exercisable at a price
of $2.22 expired without exercise.
-26-
On April 19, 2013, the Company granted 1,250,000 stock options
to employees exercisable at a price of $0.35 until April 19, 2023.
The following table reflects the summary of stock options
outstanding at December 31, 2012 and changes for the year ended December 31,
2013 and nine months ended September 30, 2014:
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted |
|
|
|
|
|
|
Number of |
|
|
Exercise |
|
|
Average |
|
|
Aggregate |
|
|
|
shares under |
|
|
Price Per |
|
|
Fair |
|
|
Intrinsic |
|
|
|
options |
|
|
Share |
|
|
Value |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding, December 31, 2012 |
|
10,239,625 |
|
$ |
0.91 |
|
$ |
0.55 |
|
$ |
5,606,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Expired |
|
(1,566,375 |
) |
|
2.18 |
|
|
1.20 |
|
|
(1,872,094 |
) |
Exercised |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Granted |
|
3,215,000 |
|
|
0.42 |
|
|
0.25 |
|
|
808,500 |
|
Balance outstanding, December 31, 2013 |
|
11,888,250 |
|
|
0.61 |
|
|
0.38 |
|
|
4,542,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited/Expired |
|
(1,846,250 |
) |
|
0.53 |
|
|
0.26 |
|
|
(1,251,738 |
) |
Exercised |
|
(1,077,000 |
) |
|
0.32 |
|
|
0.16 |
|
|
(171,134 |
) |
Granted |
|
2,883,500 |
|
|
0.74
|
|
|
0.40
|
|
|
1,153,400 |
|
Balance outstanding, September 30, 2014 |
|
11,848,500 |
|
$ |
0.62 |
|
$ |
0.36 |
|
$ |
4,273,243 |
|
The fair value of each option award is estimated on the date of
grant using the Black-Scholes option-pricing model using the assumptions noted
in the following table. Expected volatilities are based on historical volatility
of the Companys stock. The Company uses historical data to estimate option
volatility within the Black-Scholes model. The expected term of options granted
represents the period of time that options granted are expected to be
outstanding, based upon past experience and future estimates and includes data
from the Plan. The risk-free rate for periods within the expected term of the
option is based upon the U.S. Treasury yield curve in effect at the time of
grant. The Company currently does not foresee the payment of dividends in the
near term.
The fair value of the stock options granted was estimated using
the Black-Scholes option-pricing model and is amortized over the vesting period
of the underlying options. The assumptions used to calculate the fair value are
as follows:
|
|
For the Nine |
|
|
|
Months Ended |
For the Year |
|
|
September 30, |
Ended December |
|
|
2014 |
31,
2013 |
|
Dividend yield |
0 |
0 |
|
Expected volatility |
81-100% |
71-81% |
|
Risk free interest rate |
0.69-0.82% |
0.27-0.82% |
|
Expected life (years) |
3.19 |
4.63 |
Changes in the subjective input assumptions can materially
affect the fair value estimate and, therefore, the existing models do not
necessarily provide a reliable measure of the fair value of the Companys stock
options.
-27-
The following table summarizes information about the stock
options outstanding at September 30, 2014:
|
OPTIONS OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMAINING |
|
|
NUMBER OF |
|
|
|
|
|
EXERCISE |
|
|
NUMBER OF |
|
|
CONTRACTUAL |
|
|
OPTIONS |
|
|
|
|
|
PRICE |
|
|
OPTIONS |
|
|
LIFE (YEARS) |
|
|
EXERCISABLE |
|
|
INTRINSIC VALUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.86 |
|
|
1,300,000 |
|
|
0.95 |
|
|
1,300,000 |
|
$ |
752,207 |
|
|
0.83 |
|
|
2,540,000 |
|
|
1.68 |
|
|
2,540,000 |
|
|
1,244,600 |
|
|
0.60 |
|
|
100,000 |
|
|
1.95 |
|
|
100,000 |
|
|
36,072 |
|
|
0.31 |
|
|
1,865,000 |
|
|
2.90 |
|
|
1,865,000 |
|
|
290,128 |
|
|
0.46 |
|
|
1,895,000 |
|
|
3.81 |
|
|
1,421,250 |
|
|
345,222 |
|
|
0.41 |
|
|
15,000 |
|
|
3.92 |
|
|
11,250 |
|
|
2,259 |
|
|
0.35 |
|
|
1,250,000 |
|
|
8.55 |
|
|
937,500 |
|
|
253,500 |
|
|
0.74 |
|
|
2,883,500 |
|
|
4.50 |
|
|
720,875 |
|
|
287,232 |
|
$ |
0.62 |
|
|
11,848,500 |
|
|
3.77 |
|
|
8,895,875 |
|
$ |
3,211,220 |
|
The following table summarizes information about the stock
options outstanding at December 31, 2013:
|
OPTIONS OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REMAINING |
|
|
NUMBER OF |
|
|
|
|
|
EXERCISE |
|
|
NUMBER OF |
|
|
CONTRACTUAL |
|
|
OPTIONS |
|
|
|
|
|
PRICE |
|
|
OPTIONS |
|
|
LIFE (YEARS) |
|
|
EXERCISABLE |
|
|
INTRINSIC VALUE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.92 |
|
|
1,698,250 |
|
|
0.40 |
|
|
1,698,250 |
|
$ |
1,200,208 |
|
|
1.58 |
|
|
68,000 |
|
|
0.73 |
|
|
68,000 |
|
|
26,435 |
|
|
0.86 |
|
|
1,300,000 |
|
|
1.70 |
|
|
1,300,000 |
|
|
752,207 |
|
|
0.83 |
|
|
2,590,000 |
|
|
2.43 |
|
|
2,590,000 |
|
|
1,269,100 |
|
|
0.60 |
|
|
100,000 |
|
|
2.70 |
|
|
100,000 |
|
|
36,072 |
|
|
0.31 |
|
|
2,917,000 |
|
|
3.65 |
|
|
2,187,750 |
|
|
340,332 |
|
|
0.46 |
|
|
1,950,000 |
|
|
4.56 |
|
|
487,500 |
|
|
118,414 |
|
|
0.41 |
|
|
15,000 |
|
|
4.67 |
|
|
3,750 |
|
|
753 |
|
|
0.35 |
|
|
1,250,000 |
|
|
9.30 |
|
|
625,000 |
|
|
169,000 |
|
$ |
0.61 |
|
|
11,888,250 |
|
|
3.43 |
|
|
9,060,250 |
|
$ |
3,912,521 |
|
-28-
A summary of the status of the Companys nonvested stock
options outstanding at December 31, 2012 and changes during the year ended
December 31, 2013 and nine months ended September 30, 2014 are presented as
follows:
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Average Grant |
|
|
Average |
|
|
|
Number of |
|
|
Date Fair Value |
|
|
Grant Date |
|
|
|
Options |
|
|
Per
Share |
|
|
Fair
Value |
|
|
|
|
|
|
|
|
|
|
|
Nonvested, December 31, 2012
|
|
2,212,750 |
|
$ |
0.31 |
|
$ |
0.16 |
|
Granted |
|
3,215,000 |
|
|
0.42 |
|
|
0.25 |
|
Vested
|
|
(2,599,750 |
) |
|
0.35 |
|
|
0.23 |
|
Forfeited/Expired |
|
- |
|
|
-
|
|
|
-
|
|
Nonvested, December 31, 2013
|
|
2,828,000 |
|
|
0.39 |
|
|
0.23 |
|
Granted |
|
2,162,625 |
|
|
0.74 |
|
|
0.40 |
|
Vested
|
|
(2,038,000 |
) |
|
0.38 |
|
|
0.19 |
|
Forfeited/Expired |
|
- |
|
|
0.46
|
|
|
0.24
|
|
Nonvested, September 30, 2014
|
|
2,952,625 |
|
$ |
0.65 |
|
$ |
0.36 |
|
As of September 30, 2014, there was $924,876 of total
unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under the Plan. That cost is expected to be recognized over
a weighted-average period of 1.5 years. The total fair value of options vested
at September 30, 2014 and December 31, 2013 was $911,009 and $683,143,
respectively.
Stock Compensation Plan (Restricted Shares)
On April 19, 2013, the Company granted an officer and director
300,000 common shares valued at $0.35 per share, which were distributed at the
end of a one-year vesting period subsequent to period end. The recipient meets
the vesting requirements by maintaining employment and good standing with the
Company through the vesting period. After vesting, there are no restrictions on
the shares. These shares were issued in July 2013 to the recipient and held by
the Company until vested. The total fair value of options at the grant date was
$105,000 and the recognized cost through September 30, 2014 was $31,208.
On April 2, 2014, the Company issued 559,122 shares of Company
stock at a price of $0.74 that fully vest on April 2, 2015 to its employees and
directors. The total fair value at the grant date was $413,750 and the
recognized cost through September 30, 2014 was $156,554.
Stock Purchase Warrants
At September 30, 2014, the outstanding broker warrants and
share purchase warrants consisted of the following:
|
|
|
|
|
Broker |
|
|
|
|
|
|
|
|
|
|
|
|
Warrant |
|
|
Share |
|
|
Warrant |
|
|
|
Broker |
|
|
Exercise |
|
|
Purchase |
|
|
Exercise |
|
Expiration Date |
|
Warrants |
|
|
Price |
|
|
Warrants |
|
|
Price |
|
September 16, 2015 |
|
246,285 |
|
$ |
1.25 |
|
|
4,104,757 |
|
$ |
1.25 |
|
May 23, 2017 |
|
255,721 |
|
|
0.44 |
|
|
- |
|
|
- |
|
December 21, 2017 |
|
- |
|
|
- |
|
|
3,310,812 |
|
|
0.50 |
|
On September 3, 2014, 2,459,460 share purchase warrants were
exercised by an investor at the warrant exercise price of $0.50.
-29-
On March 14, 2014, 135,136 share purchase warrants were
exercised by an investor at the warrant exercise price of $0.50.
On February 2013, 500,000 stock purchase warrants at an
exercise price of $5.00 expired without exercise.
NOTE 12 FAIR VALUE MEASUREMENT
Current U.S. generally accepted accounting principles
establishes a fair value hierarchy that prioritizes the inputs used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as
follows:
Level 1 Quoted prices are available
in active markets for identical assets or liabilities. Active markets are those
in which transactions for the asset or liability occur with sufficient frequency
and volume to provide pricing information on an ongoing basis.
Level 2 Pricing inputs are other than
quoted prices in active markets included in Level 1, which are either directly
or indirectly observable as of the reporting date. Level 2 includes those
financial instruments that are valued using models or other valuation
methodologies. These models are primarily industry-standard models that consider
various assumptions, including quoted forward prices for commodities, time
value, volatility factors, and current market and contractual prices for the
underlying instruments, as well as other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace
throughout the full term of the instrument, can be derived from observable data
or are supported by observable levels at which transactions are executed in the
marketplace.
Level 3 Pricing inputs include
significant inputs that are generally unobservable from objective sources. These
inputs may be used with internally developed methodologies that result in
managements best estimate of fair value. Level 3 instruments include those that
may be more structured or otherwise tailored to the Companys needs.
Financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair
value measurement. The Companys assessment of the significance of a particular
input to the fair value measurement requires judgment, and may affect the
valuation of fair value assets and liabilities and their placement within the
fair value hierarchy levels.
The following table discloses by level within the fair value
hierarchy the Companys assets and liabilities measured and reported on its
Consolidated Balance Sheet as of September 30, 2014 at fair value on a recurring
basis:
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts * |
$ |
27,448,313 |
|
$ |
27,448,313 |
|
$ |
- |
|
$ |
- |
|
* - Money market accounts include both restricted and
unrestricted funds.
As allowed by current financial reporting standards, the
Company has elected not to implement fair value recognition and reporting for
all non-financial assets and non-financial liabilities, except for those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis, that is, at least annually.
-30-
NOTE 13 - RELATED PARTY TRANSACTIONS
At September 30, 2014 and December 31, 2013 the amounts of
$11,473 and $3,089; respectively, were payable to the officers of the Company
for routine expense reimbursement. These amounts are unsecured and due on
demand.
The Company paid directors fees for the nine months ended
September 30, 2014 and 2013 totalled $87,900 and $76,500; respectively.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
The Company
has entered into several lease agreements with terms expiring up to December 1,
2034 for geothermal properties in Washoe County Nevada; Republic of Guatemala;
Neal Hot Springs, Oregon and adjoining the Raft River properties in Raft River,
Idaho. The Company incurred total lease expenses for the nine months ended
September 30, 2014 and 2013, of $419,868 and $286,923; respectively.
BLM Lease Agreements
The Company
believes that it is in compliance with all of the following lease terms.
Idaho
On August 1, 2007, the Company signed a
geothermal resources lease agreement with the United States Department of the
Interior Bureau of Land Management (BLM). The contract requires an annual
payment of $3,502 including processing fees. The primary term of the agreement
is 10 years. After the primary term, the Company has the right to extend the
contract. BLM has the right to terminate the contract upon written notice if the
Company does not comply with the terms of the agreement.
San Emidio
The lease contracts are for approximately
21,905 acres of land and geothermal rights located in the San Emidio Desert,
Nevada. The lease contracts have primary terms of 10 years. Per federal
regulations applicable for the contracts, the lessee has the option to extend
the primary lease term another 40 years if the BLM does not need the land for
any other purpose and the lessee is maintaining production at commercial
quantities. The leases require the lessee to conduct operations in a manner that
minimizes adverse impacts to the environment.
Gerlach
The Gerlach Geothermal LLC assets are
comprised of two BLM geothermal leases and one private lease totaling 3,615
acres. Both BLM leases have a royalty rate which is based upon 10% of the value
of the resource at the wellhead. The amounts are calculated according to a
formula established by Minerals Management Service (MMS). One of the two BLM
leases has a second royalty commitment to a third party of 4% of gross revenue
for power generation and 5% for direct use based on BTUs consumed at a set
comparable price of $7.00 per million BTU of natural gas. The private lease has
a 10 year primary term and would receive a royalty of 3% gross revenue for the
first 10 years and 4% thereafter.
Granite Creek
The Company has three geothermal lease
contracts with the BLM for the Granite Creek properties. The lease contracts are
for approximately 2,443.7 acres of land and geothermal water rights located in
North Western Nevada. The lease contracts have primary terms of 10 years. Per
federal regulations applicable for the contracts, the lessee has the option to
extend the primary lease term another 40 years if the BLM does not need the land
for any other purpose and the lessee is maintaining production at commercial
quantities. The leases state annual lease payments of $2,444, not including
processing fees, and expire October 2017.
-31-
Raft River Energy I LLC
The Company has entered into
several lease contracts for approximately 1,298 acres of land and geothermal
water rights located in the Raft River area located in Southern Idaho. The
contracts expire from March 2013 to December 2033. The contracted lease payments
are scheduled for $31,287 for the year ended December 31, 2014.
The Geysers, California
On April 22, 2014, the
Company acquired companies that held five significant lease contracts for
approximately 3,809 acres (6.0 square miles) of land and geothermal water rights
in The Geysers area located in Northern California. The contracts have stated
expiration dates, expiring from February 2017 to October 2019. The remaining
contracts renew indefinitely with payments made within contracted terms (held by
payment). The contracted lease payments are scheduled for $274,000 for the year
ended December 31, 2014.
Office Lease
Park Center Boulevard
On August 12, 2013, the
Company signed a 5 year lease agreement for office space and janitorial
services. The lease payments are due in monthly installments starting February
1, 2014. The monthly payments that began February 1, 2014 have two components
which include a base rate of $3,234 that is not subject to increase and a rate
beginning at $6,418 that is adjusted annually according to the cost of living
index. The contract includes a 5 year extension option. For the nine months
ended September 30, 2014, the office lease costs totaled $86,873.
Tyrell Lane
Under the contract, the lease payments
were due in monthly installments of $6,535. The contract ended January 31, 2014.
The total office lease costs incurred under the contract and the prior contract
for year ended December 31, 2013 totaled $78,423 ($58,817 for the nine months
ended September 30, 2013).
Contracted Lease Obligation Schedule
The following is the total contracted lease operating
obligations (operating leases, BLM lease agreements and office leases) for the
next five years:
Year Ending |
|
|
|
|
December 31, |
|
|
Amount |
|
2014 |
|
$ |
188,891
|
|
2015 |
|
|
824,869 |
|
2016 |
|
|
856,156 |
|
2017 |
|
|
851,094 |
|
2018 |
|
|
807,751 |
|
Thereafter |
|
|
14,197,270 |
|
Power Purchase Agreements
Raft River Energy I LLC
The Company signed a power
purchase agreement with Idaho Power Company for the sale of power generated from
its joint venture Raft River Energy I LLC. The Company also signed a
transmission agreement with Bonneville Power Administration for transmission of
electricity from this plant to Idaho Power. These agreements will govern the
operational revenues for the initial phases of the Companys operating
activities.
-32-
USG Nevada LLC
As a part of the purchase of the
assets from Empire Geothermal Power, LLC and Michael B. Stewart acquisition
(Empire Acquisition), a power purchase agreement with Sierra Pacific Power
Company was assigned to the Company. The contract had a stated expected output
of 3,250 kilowatts maximum per hour and extended through 2017. During the year
ended March 31, 2012, the power purchase agreement was replaced by a new amended
and restated 25 year contract signed in December of 2011 that sets the new rate
at $89.75 per megawatt hour with a 1% annual escalation rate. The new contract
currently allows for a maximum of 73,444 megawatt hours annually that will be
paid for at the full contract price. Upon declaration of commercial operation
under the PPA, an Operating Security Deposit is required to be maintained at NV
Energy for the full term of the PPA. As of September 30, 2014, the Company has
funded a security deposit of $1,468,898.
USG Oregon LLC
In December of 2009, the Companys
subsidiary (USG Oregon LLC), signed a power purchase agreement with Idaho Power
Company for the sale of power generated by the Neal Hot Springs, Oregon project.
The agreement has a term of 25 years and provides for the purchase of power up
to 25 megawatts (22 megawatt planned annual average output level). Beginning
2012, the flat energy price is $96.00 per megawatt hour. The price escalates
annually by 3.9% in the initial years and by 1.0% during the latter years of the
agreement. The approximate 25-year levelized price is $117.65 per megawatt
hour.
Asset Retirement Obligations (AROs)
The Geysers, California
On April 22, 2014, the
Company completed the acquisition of a group of companies owned by Ram Power
Corp.s (Ram) Geysers Project located in Northern California. Two of the
acquired companies (Western GeoPower, Inc. and Etoile Holdings, Inc.) contained
asset retirement obligations that, primarily, originate with the environmental
regulations defined by the laws of the State of California. The liabilities
related to the removal and disposal of arsenic impacted soil and existing steam
conveyance pipelines are estimated to total $800,000. Obligations related to
decommissioning four existing wells were estimated to total $600,000. These
obligations are based upon the expected future value of the remedy or settlement
and the values have not been calculated at discounted rates. At September 30,
2014, the Company has not considered it necessary to specifically fund these
obligations. Since management is still evaluating the development plan for this
project that could eliminate or significantly reduce these obligations, no
charges directly associated the asset retirement obligations have been charged
to operations. All of the obligations are considered to be long-term at
September 30, 2014.
Raft River Energy I LLC, USG Nevada LLC, and USG Oregon LLC
These Companies operate in Idaho, Nevada and Oregon and are subject to
environmental laws and regulations of these states. The plants, wells, pipelines
and transmission lines are expected to have long useful lives. Generally, these
assets will require funds for retirement or reclamation. However, these
estimated obligations are believed to be less than or not significantly more
than the assets estimated salvage values. Therefore, as of September 30, 2014,
no retirement obligations have been recognized.
401(k) Plan
The Company offers a
defined contribution plan qualified under section 401(k) of the Internal Revenue
Code to all its eligible employees. All employees are eligible at the beginning
of the quarter after completing 3 months of service. Subsequent to June 30,
2013, the Company began matching 50% of the employees contribution up to 6%.
Prior to June 30, 2013, the plan required the Company to match 25% of the
employees contribution up to 6%. Employees may contribute up to the maximum
allowed by the Internal Revenue Code. The Company made matching contributions to
the plan that totaled $74,435 and $37,448 for the nine months ended September
30, 2014 and 2013, respectively.
-33-
NOTE 15 JOINT VENTURES/NON-CONTROLLING INTERESTS
Non-controlling interests included on the consolidated balance
sheets of the Company are detailed as follows:
|
|
September 30, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Gerlach Geothermal LLC interest held by
Gerlach Green Energy, LLC |
$ |
404,346
|
|
$ |
404,352 |
|
Oregon USG Holdings LLC interest held by
Enbridge Inc. |
|
23,162,048 |
|
|
35,926,826 |
|
Raft River Energy I LLC
interest held by Raft River I Holdings, LLC |
|
21,214,303 |
|
|
21,824,302 |
|
|
$ |
44,780,697 |
|
$ |
58,155,480 |
|
Gerlach Geothermal LLC
On April 28,
2008, the Company formed Gerlach Geothermal, LLC (Gerlach) with our
partner, Gerlach Green Energy, LLC (GGE). The purpose of the joint
venture is the exploration of the Gerlach geothermal system, which is located in
northwestern Nevada, near the town of Gerlach. Based upon the terms of the
members agreement, the Company owns a 60% interest and GGE owns a 40% interest
in Gerlach Geothermal, LLC. The agreement gives GGE an option to maintain its
40% ownership interest as additional capital contributions are required. If GGE
dilutes to below a 10% interest, their ownership position in the joint venture
would be converted to a 10% net profits interest. The Company has contributed
$757,190 in cash and $300,000 for a geothermal lease and mineral rights; and the
GGE has contributed $704,460 of geothermal lease, mineral rights and exploration
data. During the nine months ended September 30, 2014, contributions were made
to Gerlach by the Company and GGE that totaled $11,040 and $7,360; respectively.
The consolidated financial statements reflect 100% of the
assets and liabilities of Gerlach, and report the current non-controlling
interest of GGE. The full results of Gerlachs operations are reflected in the
statement of operations with the elimination of the non-controlling interest
identified.
Oregon USG Holdings LLC
In September
2010, the Companys subsidiary, Oregon USG Holdings LLC (Oregon Holdings),
signed an Operating Agreement with Enbridge Inc. (Enbridge) for the right to
participate in the Companys project in the Neal Hot Springs project located in
Malheur County, Oregon. On February 20, 2014, a new determination under the
existing agreement was reached with Enbridge that established their ownership
interest percentage at 40% and the Companys at 60%, effective January 1, 2013.
Oregon Holdings has a 100% ownership interest in USG Oregon LLC. Enbridge has
contributed a total of $32,801,000, including the debt conversion, to Oregon
Holdings in exchange for a direct ownership interest. During the nine months
ended September 30, 2014, distributions were made to the Company and Enbridge
that totaled $12,388,606 and $15,024,334; respectively.
The consolidated financial statements reflect 100% of the
assets and liabilities of Oregon Holdings and USG Oregon LLC, and report the
current non-controlling interest of Enbridge. The full results of Oregon
Holdings and USG Oregon LLCs operations are reflected in the statement of
operations with the elimination of the non-controlling interest identified.
Raft River Energy I LLC (RREI)
Raft River
Energy I is a joint venture between the Company and Raft River I Holdings, LLC a
subsidiary of the Goldman Sachs Group, Inc. An Operating Agreement governs the
rights and responsibilities of both parties. At fiscal year end, the Company had
contributed approximately $17.9 million in cash and property, and RREI has
contributed approximately $34.1 million in cash. Profits and losses are
allocated to the members based upon contractual terms. For income tax
purposes, Raft River I Holdings, LLC receives a greater proportion of the share
of losses and other income tax benefits. This includes the allocation of
production tax credits, which will be distributed 99% to Raft River I Holdings,
LLC and 1% to the Company during the first 10 years of production. During the
initial years of operations, Raft River I Holdings, LLC will receive a larger
allocation of cash distributions.
-34-
The consolidated financial statements reflect 100% of the
assets and liabilities of RREI, and report the current non-controlling interest
of Raft River I Holdings LLC. The full results of Raft River Energy I LLCs
operations are reflected in the statement of operations with the elimination of
the non-controlling interest identified.
Effective May 17, 2011, a repair services agreement (RSA) was
executed between RREI and U.S. Geothermal Services, LLC for the purpose of
funding repairs of two underperforming wells. The agreement defined terms of the
RSA repair costs and RSA repair management fees that would be funded by the
loan. The outstanding loan balance will accrue interest at 12.0% per annum. The
RSA payments will be made preferentially from project cash flow at a rate of 90%
of increased cash created by the repairs and cash availability on a quarterly
basis. The repairs were completed in January 2012. Based upon the financial
conditions applicable to the loan, RREI did not make any payments during the
year ended December 31, 2012. As of December 31, 2012, the loan balance amounted
to $2,136,150. During the nine months ended September 30, 2014 and the year
ended December 31, 2013, RREI made principal payments on the loan of $662,556
and $755,288; respectively. The balance of the loan at September 30, 2014 and
December 31, 2013 was $718,306 and $1,380,862; respectively. The loan balance
and related interest effects are fully eliminated during the consolidation
process.
NOTE 16 ACQUISITION OF RAM POWERS GEYSERS PROJECT
On April 22, 2014, the Company acquired all of the ownership
shares of a group of companies owned by Ram Power Corp.s (Ram) that hold all
interests in the Geysers Project located in Northern California for a total of
$6.78 million ($6.4 million purchase price, plus $0.38 million in other
acquisition costs). The acquisition included Rams subsidiaries: Western
GeoPower, Inc., Skyline Geothermal Holdings, Inc., and Etoile Holdings, Inc.
which includes all membership interests in Mayacamas Energy LLC and Skyline
Geothermal LLC. The assets acquired included 4 production/injection wells,
restricted cash, land and geothermal water rights. The Company assumed the
on-going liabilities of the companies which included an asset retirement
obligations with estimated value of $1.4 million. The Company will evaluate
whether to construct a power plant or sell the steam to one of the existing
power companies in the area. The total acquisition cost was allocated as
follows:
|
|
Acquisition Costs |
|
Assets: |
|
|
|
Restricted cash, short term well bond
|
$ |
100,000 |
|
Land |
|
1,603,516 |
|
Geothermal water rights |
|
278,872 |
|
Construction in
progress: |
|
|
|
Wells |
|
6,139,420 |
|
Plant and facilities |
|
60,637 |
|
|
|
8,182,445 |
|
Liabilities: |
|
|
|
Asset retirement obligations |
|
(1,400,000 |
) |
Net acquisition cost |
$ |
6,782,445 |
|
-35-
NOTE 17 - SUBSEQUENT EVENTS
The Company has evaluated events and transactions that have
occurred after the balance sheet date through November 13, 2014, which is
considered to be the issuance date. The following event was identified for
disclosure:
Earth Power Resources (EPR) Merger
Agreement
On October 16, 2014, the Company announced the signing of
an Agreement and Plan of Merger with EPR. Under the terms of the Agreement, the
EPR shareholders will receive a total of 692,700 shares of U.S. Geothermal Inc.
stock in exchange for all outstanding shares of EPR stock. The transaction is
expected to be completed by the end of November 2014 following EPR shareholder
approval. Acquired assets include geothermal leases covering 26,017 acres in the
State of Nevada representing three projects.
-36-
Item 2 - Managements Discussion and Analysis of
Financial Condition and Results of Operations
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This document contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve a number of risks and uncertainties. We
caution readers that any forward-looking statement is not a guarantee of future
performance and that actual results could differ materially from those contained
in the forward-looking statement. These statements are based on current
expectations of future events. You can find many of these statements by looking
for words like believes, expects, anticipates, intend, estimates,
may, should, will, could, plan, predict, potential, or similar
expressions in this document or in documents incorporated by reference in this
document. Examples of these forward-looking statements include, but are not
limited to:
-
our business and growth strategies;
-
our future results of operations;
-
anticipated trends in our business;
-
the capacity and utilization of our geothermal resources;
-
our ability to successfully and economically explore for and develop
geothermal resources;
-
our exploration and development prospects, projects and programs, including
timing and cost of construction of new projects and expansion of existing
projects;
-
availability and costs of drilling rigs and field services;
-
our liquidity and ability to finance our exploration and development
activities;
-
our working capital requirements and availability;
-
our illustrative plant economics;
-
market conditions in the geothermal energy industry; and
-
the impact of environmental and other governmental regulation.
These forward-looking statements are based on the current
beliefs and expectations of our management and are subject to significant risks
and uncertainties. If underlying assumptions prove inaccurate or unknown risks
or uncertainties materialize, actual results may differ materially from current
expectations and projections. The following factors, among others, could cause
actual results to differ from those set forth in the forward-looking
statements:
-
the failure to obtain sufficient capital resources to fund our operations;
-
unsuccessful construction and expansion activities, including delays or
cancellations;
-
incorrect estimates of required capital expenditures;
-
increases in the cost of drilling and completion, or other costs of
production and operations;
-
the enforceability of the power purchase agreements for our projects;
-
impact of environmental and other governmental regulation, including delays
in obtaining permits or ongoing impacts of the sequester;
-
hazardous and risky operations relating to the development of geothermal
energy;
-
our ability to successfully identify and integrate acquisitions;
-37-
-
the failure of the geothermal resource to support the anticipated power
capacity;
-
our dependence on key personnel;
-
the potential for claims arising from geothermal plant operations;
-
general competitive conditions within the geothermal energy industry; and
-
financial market conditions.
All subsequent written or oral forward-looking statements
attributable to us or any person acting on our behalf are expressly qualified in
their entirety by the cautionary statements contained or referred to in this
section. We do not undertake any obligation to release publicly any revisions to
these forward-looking statements to reflect events or circumstances after the
date of this document or to reflect the occurrence of unanticipated events,
except as may be required under applicable U.S. securities law. If we do update
one or more forward-looking statements, no inference should be drawn that we
will make additional updates with respect to those or other forward-looking
statements.
The U.S. dollar is the Companys functional currency. All
references to dollars or $ are to United States dollars.
General Background and Discussion
The following discussion should be read in conjunction with our
unaudited consolidated financial statements for the quarter ended September 30,
2014 and notes thereto included in this report.
U.S. Geothermal Inc. (the Company) is a Delaware corporation.
The Companys common stock trades on the NYSE MKT LLC under the trade symbol
HTM and on the Toronto Stock Exchange under the symbol GTH.
For the quarter ended September 30, 2014, the Company was
focused on:
|
1) |
Operating and optimizing the Neal Hot Springs, San Emidio
and Raft River power plants; |
|
2) |
Leasing additional lands, and constructing a new drill
pad at El Ceibillo; |
|
3) |
Drilling two new wells and constructing a tie in pipeline
at San Emidio for Phase II; |
|
4) |
Finalizing merger agreement for Earth Power
Resources; |
|
5) |
Pursuing PPA and steam sale opportunities at the WGP
Geysers project; and |
|
6) |
Evaluating potential new geothermal projects and
acquisition opportunities. |
Project Overview
The following is a list of projects that are in operation,
under development or under exploration. Projects in operation have producing
geothermal power plants. Projects under development have a geothermal resource
discovery or may have wells in place, but require the drilling of new or
additional production and injection wells in order to supply enough geothermal
fluid sufficient to operate a commercial power plant. Projects under exploration
do not have a geothermal resource discovery occurrence yet, but have significant
thermal and other physical evidence that warrants the expenditure of capital in
search of the discovery of a geothermal resource. Due to inflation and
marketplace increases in the costs of labor and construction materials, previous
estimates of property development costs may be low.
-38-
Projects in Operation
|
|
|
|
|
|
|
Generating |
|
|
|
Contract |
Project
|
|
Location |
|
Ownership |
|
Capacity (megawatts) |
|
Power Purchaser |
|
Expiration |
Raft River (Unit I) |
|
Idaho |
|
JV(2) |
|
13.0(1) |
|
Idaho Power |
|
2032 |
San Emidio (Unit I) |
|
Nevada |
|
100% |
|
9.0 |
|
Sierra Pacific |
|
2038 |
Neal Hot Springs |
|
Oregon |
|
JV(3) |
|
22.0 |
|
Idaho Power |
|
2036 |
(1) |
Based on the designed annual average net output. The
actual output of the Raft River Unit I plant currently is approximately
10.0 megawatts annual average. |
(2) |
As part of the financing package for Unit I of the Raft
River project, we have contributed $16.5 million in cash and approximately
$1.4 million in property to Raft River Energy I LLC, the Unit I project
joint venture company. Raft River I Holdings, LLC, a subsidiary of The
Goldman Sachs Group, contributed $34 million to finance the construction
of the project. |
(3) |
In September 2010, the Companys wholly owned subsidiary
(Oregon USG Holdings LLC) entered into agreements that formulated a
strategic partnership with Enbridge (U.S.) Inc. (Enbridge). Enbridge
contributed approximately $32.8 million to the Neal Hot Springs geothermal
project. Enbridges equity interest in the project is
40%. |
Projects Under Development |
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
Target |
|
Projected |
|
Capital |
|
|
|
|
|
|
|
|
Development |
|
Commercial |
|
Required |
|
|
Project
|
|
Location |
|
Ownership |
|
(Megawatts) |
|
Operation Date |
|
($million) |
|
Power Purchaser |
El Ceibillo Phase I |
|
Guatemala |
|
100% |
|
25 |
|
3rd Quarter 2017 |
|
$135 |
|
MOU |
San Emidio Phase II |
|
Nevada |
|
100% |
|
11 |
|
4th Quarter 2016 |
|
$66 |
|
TBD |
WGP Geysers |
|
California |
|
100% |
|
26 |
|
TBD |
|
TBD |
|
TBD |
Additional Properties |
Project
|
|
Location |
|
Ownership |
|
Target Development (Megawatts) |
Gerlach |
|
Nevada |
|
60% |
|
TBD |
Granite Creek |
|
Nevada |
|
100% |
|
TBD |
El Ceibillo Phase II |
|
Guatemala |
|
100% |
|
25 |
San Emidio Phase III |
|
Nevada |
|
100% |
|
17.2 |
Neal Hot Springs II |
|
Oregon |
|
100% |
|
28 |
Raft River Unit II |
|
Idaho |
|
100% |
|
26 |
Raft River Unit III |
|
Idaho |
|
100% |
|
32 |
Vale Butte |
|
Oregon |
|
100% |
|
TBD |
Resource Details |
|
|
Property Size |
|
|
|
|
|
|
Property
|
|
(square miles) |
|
Temperature (ºF) |
|
Depth (Ft) |
|
Technology |
Raft River |
|
10.8 |
|
275-302 |
|
4,500-6,000 |
|
Binary |
WGP Geysers |
|
6.0 |
|
500 |
|
6,000-10,000 |
|
Steam |
San Emidio |
|
35.8 |
|
289-316 |
|
1,500-3,000 |
|
Binary |
Neal Hot Springs |
|
9.6 |
|
285-300 |
|
2,500-3,000 |
|
Binary |
Gerlach |
|
5.6 |
|
338-352 |
|
2,000-3,000 |
|
Binary |
Granite Creek |
|
3.8 |
|
TBD |
|
TBD |
|
Binary |
El Ceibillo |
|
38.6 |
|
410-526 |
|
1,800-TBD |
|
Steam |
Vale Butte |
|
0.6 |
|
290-300 |
|
TBD |
|
Binary |
Neal Hot Springs, Oregon
Neal Hot Springs is located
in Eastern Oregon near the town of Vale, the county seat of Malheur County. The
Neal Hot Springs facility is a 22 megawatt net annual average power plant,
consisting of three separate, 7.33 net megawatt annual average modules. The facility achieved
commercial operation under the terms of the power purchase agreement on November
16, 2012. Generation from the facility during the third quarter of 2014 totaled
32,264 megawatt-hours with an average of 14.74 net megawatts per hour of
operation. Plant availability was 99.1% during the quarter.
The PPA for the project was signed on December 11, 2009 with
the Idaho Power Company. The PPA has a 25 year term with a starting annual
average price of $96.00 per megawatt-hour beginning in 2012 and escalates at a
variable percentage annually. On May 20, 2010, the Idaho Public Utilities
Commission approved the PPA with no changes to the terms and conditions. The
Idaho Power PPA has a seasonal pricing structure that pays 120% of the average price for four
months (July, August, November, December), 100% of the average price for five
months (January, February, June, September, October) and 73.3% of the average
price for three months (March, April, May). The average price paid under the PPA
for 2014 has increased to $102.78 per megawatt-hour.
-39-
San Emidio, Nevada
The Phase I power plant at San
Emidio is located approximately 100 miles north-east of Reno, Nevada near the
town of Gerlach, and achieved commercial operation on May 25, 2012. Generation
from the facility during the third quarter 2014 totaled 18,240 megawatt-hours,
with an average of 8.6 net megawatts per hour of operation. Plant availability
was 96.1% during the quarter.
On June 1, 2011, an amended and restated PPA was signed with
Sierra Pacific Power Company d/b/a NV Energy for the sale of up to 19.9
megawatts of electricity on an annual average basis. The PPA was approved by the
Public Utility Commission of Nevada on December 27, 2011. The PPA has a 25 year
term with a base price of $89.75 per megawatt-hour, and a 1% annual escalation
rate. The average price paid under the PPA for 2014 has increased to $91.17 per
megawatt-hour.
As a result of the delays experienced in permitting additional
wells on BLM administered leases, it has been determined that it is not possible
to complete the development of the Phase II project within the development time
frame required in the existing 19.9 megawatt NV Energy PPA. The Phase II
expansion is dependent on successful development of additional production and
injection well capacity. The cost of development for Phase II is estimated at
approximately $66 million. We expect that approximately 75% of the Phase II
development may be funded by project loans, with the remainder funded through
equity financing. We anticipate the project qualifying for the federal
investment tax credit.
A Small Generator Interconnection Agreement for 16 megawatts of
transmission capacity was executed with Sierra Pacific Power Company on December
28, 2010. An application to increase the interconnection agreement to the full
19.9 megawatts allowed under the PPA was submitted to NV Energy on January 9,
2014. A System Impact Study agreement, which is the next step in the
interconnection process mandated by the Federal Energy Regulatory Commission,
was signed on August 28.
On October 30, 2009, the Company was awarded $3.77 million in
Recovery Act funding for the exploration and development of its San Emidio
geothermal power project using advanced geophysical exploration techniques. This
award was categorized under the Innovative Exploration and Drilling Projects
section of the American Recovery and Reinvestment Act. The first stage of the
DOE project applied innovative, seismic and satellite imagery techniques along
with state-of-the-art structural modeling, to locate large aperture fractures
that represent high-productivity geothermal drilling targets and was completed
in 2011. Two zones along the 4.5 mile long San Emidio fault structure were
identified as high quality targets for drilling during the first phase of the
DOE program, a South Zone and a North Zone.
The second stage of the DOE program is a 50-50 cost shared
drilling plan that is intended to follow up on targets identified in the first
stage. Drilling started in the South Zone, and two wells were completed by the
Company. After approval of the drilling program by the DOE in November 2011, one
of the first two wells was deepened and three additional wells were completed in
the South Zone with the costs being shared on a 50-50 basis.
Permitting was initiated with the Bureau of Land Management
(BLM) for four new observation wells to be drilled in the South Zone to follow
up on the high temperatures found in wells 61-21 (302°F) and 45-21 (316°F). As
part of the permitting process, cultural and biological surveys were performed,
and the well design and drilling program were submitted during the quarter.
Permits for three wells were issued by the BLM on April 29th and a
drill rig was mobilized to the site on June 26th. Two additional
wells were completed on the BLM administered land during the third quarter. Well
OW-14 was drilled to a depth of 3,501 feet and had a bottomhole temperature of 265°F.
Well OW-15 was drilled to a depth of 3,716 feet and had a maximum downhole
temperature of 300°F. While the wells extended the high temperature outline of
the South Zone, neither well encountered the commercial permeability seen in
well 61-21 (OW-10). Geologic, geochemical and temperature data generated by the
drilling program is being evaluated to determine the next phase of drilling.
-40-
Well 61-21 (formerly OW-10) in the South Zone, was reworked
beginning on October 25, 2013 and was completed on November 2, 2013. Flow
testing of 61-21 was completed during the second quarter of 2014. To allow for
early, long term testing of the South Zone resource area, a cross tie pipeline
was constructed between the Phase I and Phase II project areas and a production
pump was installed in well 61-21 during the third quarter. Well 61-21 is
currently producing 630 gallons per minute of 298°F fluid to the San Emidio
Phase I power plant.
A Request for Proposal (RFP) from NV Energy for 100 megawatts
of renewable energy was issued on October 1, 2014. We are evaluating the RFP
requirements and anticipate submitting a bid for the Phase II project if it
qualifies. In parallel, we are investigating pursuing a power purchase agreement
with California power off-takers, where power prices are typically higher.
Raft River, Idaho
The Raft River project is located
in Southern Idaho, near the town of Malta, and achieved commercial operation in
January 2008. Generation from the facility during the third quarter 2014 totaled
18,500 megawatt-hours, with an average of 8.41 net megawatts per hour of
operation. Plant availability was 99.7% during the quarter.
The PPA for the project was signed on September 24, 2007 with
the Idaho Power Company. The PPA has a 25 year term with a starting average
price for the year 2007 of $52.50 that escalates at 2.1% per year. The Idaho
Power PPA has a seasonal pricing structure that pays 120% of the average price
for four months (July, August, November, December), 100% of the average price
for five months (January, February, June, September, October) and 73.5% of the
average price for three months (March, April, May). The average price paid under
the PPA for 2014 has increased to $60.72 per megawatt-hour. In addition to the
price paid for energy by Idaho Power, Raft River currently receives $4.75 per
megawatt-hour under a separate contract for the sale of Renewable Energy Credits
to Holy Cross Energy, a Colorado electric cooperative.
The project was awarded an $11.4 million cost-shared, thermal
fracturing program grant from the Department of Energy, with the goal of
creating an Enhanced Geothermal System (EGS) by creating fractures and
developing a corresponding increased permeability in low permeability rock. Well
RRG-9 was made available, and after installing four, 300 foot deep seismic
monitoring wells and seismic geophones, to allow for seismic monitoring, the
first stage of injection into the well began in June 2013, with the well capable
of receiving only 20 gallons per minute (gpm) of water due to the low
permeability of the rock. Injection continued through the quarter from power
plant injectate, with flow into the well seeing a moderate increase to now over
380 gpm, indicating that additional permeability is developing. The EGS
stimulation is expected to continue through 2015.
If the fracturing program is successful, and permeability is
improved to a commercial level, well RRG-9 may be utilized as a production or
injection well for the existing Raft River power plant. The Companys
contributions for the thermal fracturing program are made in-kind by the use of
the RRG-9 well, well field data, and monitoring support.
Republic of Guatemala
A geothermal energy rights
concession located 14 kilometers southwest of Guatemala City was awarded to U.S.
Geothermal Guatemala S.A., a wholly owned subsidiary of the Company in April
2010. The concession has a 5 year term for the development and construction of a
power plant. There are 24,710 acres (100 square kilometers) in the concession which is at the
center of the Aqua and Pacaya twin volcano complex.
-41-
An office and staff are located in Guatemala City, and 17 acres
of surface has been under lease. Recent temperature gradient drilling has
identified the primary area of interest to be larger than earlier anticipated,
so an additional surface lease of 80 acres was signed on October 15, 2014,
bringing the total surface leasehold interest to 97 acres. Construction of a
drill pad, pond and cellar on this new lease for proposed well EC-2, has been
completed. Drilling of EC-2 is expected to begin as soon as the approval to
extend the development schedule contained in the concession agreement has been
obtained from the Guatemalan Ministry of Energy and Mines. We are optimistic
that we will receive approval of our application shortly.
The El Ceibillo project, is located near the town of Amatitlan,
in a developed industrial zone immediately adjacent to the highway that connects
Guatemala City to the Port of San Jose on the Pacific coast. An initial
development of a 25 megawatt (Phase I) power plant is planned in the El Ceibillo
area of the concession, but the final size of the facility will be determined
after drilling and resource delineation has advanced. Initial transmission
studies have been completed, and have identified the grid interconnection point
approximately 1.2 miles (2 kilometers) from the site.
A temperature gradient (TG) drilling program was initiated
during the first quarter of 2014 with a series of 656 foot (200 meter) deep
wells planned. Nine TG wells have been completed with depths ranging from 656 to
1,312 feet (200 to 400 meters). Bottom-hole temperatures found in this shallow
drilling program range from 176 to 413°F (80 to 211°C) with two of the wells
encountering permeability and flowing brine. The data from these wells provided
a more accurate temperature gradient map of the underlying geothermal resource
which has assisted in identifying future drilling targets.
A first phase of drilling took place during the third quarter
of 2013 when well EC-1 was drilled to a depth of 4,829 feet (1,472 meters) and
encountered a bottom hole temperature of 491°F (255°C), with the temperature
gradient at the bottom of the hole rising at a rate of 7.1°F/100 Feet
(129.1°C/km). High temperatures in excess of 392°F (>200°C) were encountered
in the well beginning at a depth of 2,625 feet (800 meters), which represents a
potential high temperature reservoir interval in excess of 2,204 feet (672
meters) thick. Due to the high temperature gradient found in the lower section
of the well, the decision was made to deepen the well. The final depth of the
well is 5,650 feet (1,722 meters) with a measured bottom-hole temperature of
526°F (274°C). Clean out and short term flow tests were conducted along with
temperature surveys and have been incorporated in the geologic model of the
reservoir. Well EC-1 did not encounter commercial permeability.
In early September 2013, the Guatemalan Ministry of the
Environment and Natural Resources (MARN) issued the Environmental License for
the construction and operation of the planned, first phase, 25 megawatt power
plant at the El Ceibillo site. The license is based on the Environmental Impact
Assessment Study that was submitted in December 2012, describing the initial
design of the 25 megawatt facility, and requires the submittal of final design
specifications for review by MARN prior to starting physical construction of the
plant. Additionally, the license requires compliance with all legal and
regulatory requirements under Guatemalan law, submittal of an air quality
monitoring plan, and that final design comply with the strict guidelines for
noise, dust and hydrogen sulfide emissions. Prior to issuance of the license, an
environmental bond was posted with the Ministry of Environment and Natural
Resources.
A binding Memorandum of Understanding (MOU) was signed on
October 18, 2012 with one of the largest power brokers in Central America. The
MOU establishes the framework for a PPA that includes a 15-year term for an
initially estimated 25 megawatts of power generation up to a maximum of 50
megawatts of power generation. The MOU includes a project power price that the
Company believes is competitive with the prevailing energy prices in the region.
Several conditions precedent must be met before the PPA is negotiated and
becomes effective, including confirming the geothermal reservoir by an independent reservoir engineer, obtaining all required permits
and authorizations, and securing a project finance commitment.
-42-
The MOU may be terminated (i) as a result of the bankruptcy of
any of the parties, (ii) on January 1, 2015, unless such date is extended by
mutual agreement, because the construction of the project has not been initiated
and/or the commercial operation date has been moved beyond the date set out in
the PPA framework, or (iii) if the geothermal resource found lacks the
conditions to sustain a long-term commercial production that allows electric
power to be produced under the necessary conditions of profitability.
The El Ceibillo geothermal project area had nine previous wells
drilled into the geothermal concession during the 1990s which have depths
ranging from 560 to 2,000 feet (170 to 610 meters). A few of those wells had
adequate flow and temperature to support a direct use application. Six of the
wells had measured reservoir temperatures in the range of 365°F to 400°F and had
high conductive gradients that indicated rapidly increasing temperature with
depth. Fluid samples and mineralization from the wells indicated the existence
of a high permeability reservoir below or near the existing well field.
WGP Geysers
The WGP Geysers project is located in
the broader Geysers geothermal field located approximately 75 miles north of San
Francisco, California. The broader Geysers geothermal field is the largest
producing geothermal field in the world generating more than 850 megawatts of
power for more than 30 years. Acquisition of the WGP Geysers Project from Ram
Power was completed on April 22, 2014 for $6.4 million.
WGP Geysers is an advanced stage project that encompasses the
former Pacific Gas and Electric Unit 15, which once had a 62 megawatt (gross)
capacity geothermal power plant that was shut down in l989. The project includes
3,809 acres of geothermal leases and property, development design plans, and
permits for a proposed 26 (net) megawatt power plant. There are four existing
wells drilled in 2008-2009 which are immediately available for production or
injection, with a fifth, historic well that has temporary plugs installed but
can be reworked. The four new wells have been tested with an initial steam flow
totaling 462,000 pounds per hour. A report prepared in 2012 by a
third party reservoir engineering firm, states that the total initial power
capacity from these wells is estimated at about 30 megawatts (gross). The report
further estimated that the sustainable long-term production from the resource is
conservatively estimated at 26 megawatts (net) assuming 25% of the geothermal
fluid that is withdrawn is injected back into the reservoir.
A 12 month extension for the Sonoma County Conditional Use
Permit to construct the 26 megawatt power plant was applied for and was approved
on June 12, 2014. Additionally, an application was made to the Sonoma County Air
Quality Board for a permit to conduct flow tests on the four production wells
drilled in 2009. The Air Quality permit was approved on June 19, 2014.
We continue to evaluate the detailed design and project costs
for two development scenarios: 1) build a new power plant and sell electricity,
or 2) build pipelines and sell steam. Discussions are underway with
counterparties for both scenarios, and we are reviewing several California based
renewable energy contract solicitations for which the project may qualify.
Designs for each scenario are being optimized, and we are refining our detailed
cost estimates and associated economic models.
Gerlach Joint Venture
The Gerlach Joint Venture,
located adjacent to the town of Gerlach in Washoe County, Nevada is made up of
both private and BLM geothermal leases. The Peregrine well, a historic
exploration slim hole that encountered a lost circulation zone at a depth of 975
feet, was redrilled and the hole was opened from a 6.5 inch diameter well to a
12.5 inch diameter well. Lost circulation was confirmed with three zones through
the 900 to 1,024 foot interval. The well was stopped at 1,070 feet total depth.
Temperature surveys and a short clean out flow test were conducted on the well.
The well flowed at an estimated 300-400 gallons per minute with a flowing temperature of 208°F.
Geochemistry calculated from brine samples indicates an average potential source
temperature of 374°F for the Gerlach site.
-43-
To continue evaluation of the Gerlach resource, deepening of
well 18-10A commenced on October 29, 2014. The 18-10A well, which is a twin to a
previously drilled well, was drilled to a depth of 1,900 feet in 2012, but was
not completed at the time. The original 18-10 well was drilled to a total depth
of 2,868 feet in 1994 but was plugged and abandoned in 2006, before we acquired
the property. The original well encountered a very promising, total lost
circulation zone at a depth of 2,788 feet, but the well was not flow tested and
the resource temperature is undetermined. The current drilling plan has a
permitted depth of up to 3,000 feet. The U.S. Geological Survey considered the
Gerlach resource to be the 3rd largest geothermal resource in the
state of Nevada in their Assessment of Geothermal Resources of the United States
published in l975.
Operating Results
For the nine months ended September 30, 2014, the Company
reported net income attributable to the Company of $268,388 ($0.00 income per
share) which represented a $284,361 increase from the net loss of $15,973
reported in the same period in 2013 ($0.00 loss per share). For the three months
ended September 30, 2014, the Company reported net income attributable to the
Company of $81,780 ($0.00 income per share) which represented an increase of
$109,917 from the net loss of $28,137 reported in the same period in 2013 ($0.00
loss per share). Generally, favorable variances were reported related to the
operations of the Companys three power plants. Notable favorable variances were
reported in professional and management fees, salaries and wages, and
exploration costs. A notable unfavorable variance was reported in stock based
compensation.
Plant Operations
During the nine months ended
September 30, 2014, the Companys energy production revenues and related
operating costs originated from its three fully operational power plants. The
San Emidio plant (USG Nevada LLC) is located in the San Emidio Desert in the
northwestern part of the State of Nevada. The original San Emidio plant and
related water rights were purchased in 2008. The old plant ceased operations in
December 2011 and was replaced with a new plant that began commercial operations
in May 2012. The Raft River plant (Raft River Energy I LLC) is located in South
Eastern Idaho. The Raft River plant began operations in January of 2008. The new
plant at Neal Hot Springs, Oregon (USG Oregon LLC) is located by Vale, Oregon
and began commercial operations on November 16, 2012.
A summary of energy sales by plant location for the two
reporting periods are as follows:
|
|
For
the Nine Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
Energy sales by plant: |
|
|
|
|
|
|
|
|
|
|
|
|
Neal Hot Springs, Oregon |
|
12,381,761 |
|
|
59.5 |
|
|
9,508,241 |
|
|
54.2 |
|
San Emidio,
Nevada |
|
5,048,736 |
|
|
24.3 |
|
|
4,886,568 |
|
|
27.9 |
|
Raft River, Idaho |
|
3,379,757 |
|
|
16.2 |
|
|
3,147,758 |
|
|
17.9 |
|
|
|
20,810,254 |
|
|
100.0 |
|
|
17,542,567 |
|
|
100.0 |
|
% - represents the percentage of
total Company energy sales.
-44-
|
|
For
the Three Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
Energy sales by plant: |
|
|
|
|
|
|
|
|
|
|
|
|
Neal Hot Springs, Oregon |
|
3,712,988 |
|
|
55.9 |
|
|
2,875,686 |
|
|
50.8 |
|
San Emidio,
Nevada |
|
1,663,119 |
|
|
25.0 |
|
|
1,531,260 |
|
|
27.0 |
|
Raft River, Idaho |
|
1,273,013 |
|
|
19.1 |
|
|
1,260,124 |
|
|
22.2 |
|
|
|
6,649,120 |
|
|
100.0 |
|
|
5,667,070 |
|
|
100.0 |
|
% - represents the percentage of
total Company energy sales.
A quarterly summary of megawatt hours generated by plant are as
follows:
|
For
the Quarter Ended, |
|
September |
December 31, |
March 31, |
June 30, |
September |
|
30,
2013 |
2013 |
2014 |
2014 |
30,
2014 |
Neal Hot Spring, Oregon |
25,832 |
53,445 |
56,047 |
40,629 |
32,246 |
San Emidio, Nevada |
18,317 |
21,112 |
21,223 |
15,686 |
18,240 |
Raft River, Idaho |
18,687 |
21,951 |
21,614 |
18,069 |
18,501 |
|
62,836 |
96,508 |
98,884 |
74,384 |
68,987 |
Neal Hot Springs, Oregon (USG Oregon LLC) Plant
Operations
The Neal Hot Springs plant was considered to be commercially
operational on November 16, 2012. The quarter ended March 31, 2013, was the
plants first full quarter of operations. For the nine months ended September
30, 2014, net income was $5,678,878 which was an increase of $1,906,097 (50.5%
increase) from net income from the same period ended 2013. For the three months
ended September 30, 2014, net income was $1,412,124 which was an increase of
$583,290 (70.4% increase) from net income from the same period ended 2013.
For the nine months ended September 30, 2014, plant energy
revenues increased 30.2% (29.1% for the three months ended September 30, 2014)
from the same period ended 2013. The increase in energy sales for the current
periods compared to 2013 was primarily due to less down time at the plant. For
the third quarter of 2013, the plants three units experienced a total of 928
hours of lost production which was significantly less than the 59 hours of lost
production in the third quarter of 2014. The largest loss in third quarter of
2013 was due to the failure of the refrigerant pump at unit one (618 hours). In
April 2014, the plant lost a total of 400.5 hours due to the scheduled
maintenance shutdown. In 2013, the plant did not have a scheduled maintenance
shutdown since it was still undergoing commissioning and was experiencing
notable outages from February through June (1,417 total hours).
Plant operating costs increased $915,260 ($113,075 for the
three months ended September 30, 2014), which was a 21.0% increase (6.9%
increase for the three months ended September 30, 2014) for the nine months
ended September 30, 2014 from the same period ended 2013. The largest variances
were noted in administrative support, insurance, and plant and well field
maintenance costs. For the nine months ended September 30, 2014 administrative
and corporate support costs increased $219,789 ($65,559 for the three months
ended September 30, 2014), which was a 62.4% increase (56.2% increase for the
three months ended September 30, 2014) from the same period in 2013. Effective
2014, a contracted monthly corporate support fee of $13,750 was established.
Additional consulting fees related to the general plant maintenance that
amounted to over $40,600 were incurred for the nine months ended September 30,
2014.
For the nine months ended September 30, 2014, the plants
insurance costs totaled $303,847 ($94,347 for the three months ended September
30, 2014), which was an increase of $183,199 ($10,461 for the three months ended
September 30, 2014) from the same period in 2013. In July 2013, the plants
insurance coverage transferred from a builders risk policy to a full
property coverage policy which resulted in a significant increase in cost. In
May of 2014, an insurance rate adjustment was made that reduced premiums by
approximately 20%.
-45-
Plant and field maintenance costs increased $316,220 ($52,342
for the three months ended September 30, 2014), which was a 102.5% increase
(28.3 % for the three months ended September 30, 2014) for the nine months ended
September 30, 2014 from the same period ended 2013. In May 2014, a turbine seal
was replaced at a cost of 62,298. In the current quarter, costs that exceeded
$169,000 were incurred to repair a feed pump and an expansion joint for Unit 1,
repair piping modules for all three units, and rebuild a seal for Unit 2. In
July 2013, the plants Engineering, Procurement and Construction Company turned
over plant maintenance responsibilities to the Company; therefore, most of the
repair costs incurred after June 30, 2013, were not covered under warranty.
Summarized statements of operations for the Neal Hot Springs,
Oregon plant are as follows:
|
|
Nine
Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
Variance |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
%* |
|
Plant revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales |
|
12,381,761 |
|
|
100.0 |
|
|
9,508,241 |
|
|
100.0 |
|
|
2,873,520 |
|
|
30.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General operations |
|
2,838,259 |
|
|
22.9 |
|
|
1,962,217 |
|
|
20.6 |
|
|
(876,042 |
) |
|
(44.6 |
) |
Depreciation and amortization |
|
2,443,525 |
|
|
19.8 |
|
|
2,404,307 |
|
|
25.3 |
|
|
(39,218 |
) |
|
(1.6 |
) |
|
|
5,281,784 |
|
|
42.7 |
|
|
4,366,524 |
|
|
45.9 |
|
|
(915,260 |
) |
|
(21.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
7,099,977 |
|
|
57.3 |
|
|
5,141,717 |
|
|
54.1 |
|
|
1,958,260 |
|
|
38.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(1,436,902 |
) |
|
(11.6 |
) |
|
(1,395,112 |
) |
|
(14.7 |
) |
|
(41,790 |
) |
|
(3.0 |
) |
Other and interest
income |
|
15,803 |
|
|
0.1 |
|
|
26,176 |
|
|
0.3 |
|
|
(10,373 |
) |
|
(39.6 |
) |
|
|
(1,421,099 |
) |
|
(11.5 |
) |
|
(1,368,936 |
) |
|
(14.4 |
) |
|
(52,163 |
) |
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
5,678,878 |
|
|
45.8 |
|
|
3,772,781 |
|
|
39.7 |
|
|
1,906,097 |
|
|
50.5 |
|
|
% - |
represents the percentage of total plant operating
revenues. |
|
%* - |
represents the percentage of change from 2013 to
2014. Increases in revenues and decreases in expenses from
the prior period to the current period are considered to be
favorable and are presented as positive figures.
|
The intercompany elimination
adjustments for interest expense, management fees and lease costs are not
incorporated into the presentation of the subsidiarys operations.
-46-
|
|
Three
Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
Variance |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
%* |
|
Plant revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales |
|
3,712,988 |
|
|
100.0 |
|
|
2,875,686 |
|
|
100.0 |
|
|
837,302 |
|
|
29.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General operations |
|
953,313 |
|
|
25.7 |
|
|
835,161 |
|
|
29.0 |
|
|
(118,152 |
) |
|
(14.1 |
) |
Depreciation and amortization |
|
805,497 |
|
|
21.7 |
|
|
810,574 |
|
|
28.2 |
|
|
5,077 |
|
|
0.6 |
|
|
|
1,758,810 |
|
|
47.4 |
|
|
1,645,735 |
|
|
57.2 |
|
|
(113,075 |
) |
|
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
1,954,178 |
|
|
52.6 |
|
|
1,229,951 |
|
|
42.8 |
|
|
724,227 |
|
|
58.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(546,676 |
) |
|
(14.7 |
) |
|
(412,899 |
) |
|
(14.4 |
) |
|
(133,777 |
) |
|
(32.4 |
) |
Other and interest
income |
|
4,622 |
|
|
0.1 |
|
|
11,782 |
|
|
0.4 |
|
|
(7,160 |
) |
|
(60.8 |
) |
|
|
(542,054 |
) |
|
(14.6 |
) |
|
(401,117 |
) |
|
(13.9 |
) |
|
(140,937 |
) |
|
(35.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
1,412,124 |
|
|
38.0 |
|
|
828,834 |
|
|
28.9 |
|
|
583,290 |
|
|
70.4 |
|
|
% - |
represents the percentage of total plant operating
revenues. |
|
%* - |
represents the percentage of change from 2013 to
2014. Increases in revenues and decreases in expenses from
the prior period to the current period are considered to be
favorable and are presented as positive figures.
|
The intercompany elimination adjustments for interest
expense, management fees and lease costs are not incorporated into the
presentation of the subsidiarys operations.
Key quarterly production data for the Neal Hot Springs, Oregon
plant is summarized as follows:
|
|
Mega- |
|
|
|
Ave. Rate |
|
|
|
Depreciation |
|
|
watt |
|
Energy |
|
per |
|
|
|
& |
|
|
Hours |
|
Sales |
|
Megawatt |
|
Net Income* |
|
Amortization |
Quarter Ended:
|
|
Produced |
|
($) |
|
Hour
($) |
|
($) |
|
($) |
December 31, 2012 |
|
23,256 |
|
2,329,030 |
|
88.7 |
|
1,451,523 |
|
256,670 |
March 31, 2013 |
|
46,137 |
|
4,197,252 |
|
90.6 |
|
2,424,648 |
|
779,299 |
June 30, 2013 |
|
30,016 |
|
2,435,304 |
|
80.2 |
|
518,754 |
|
814,434 |
September 30, 2013 |
|
25,832 |
|
2,875,686 |
|
110.9 |
|
829,374 |
|
810,573 |
December 31, 2013 |
|
53,445 |
|
6,058,169 |
|
113.3 |
|
3,644,359 |
|
812,766 |
March 31, 2014 |
|
56,047 |
|
5,266,455 |
|
93.8 |
|
3,070,349 |
|
817,503 |
June 30, 2014 |
|
40,629 |
|
3,402,318 |
|
83.7 |
|
1,196,404 |
|
820,526 |
September 30, 2014 |
|
32,246 |
|
3,712,988 |
|
115.0 |
|
1,412,124 |
|
805,497 |
|
*- |
The intercompany elimination adjustments for
management fees are not incorporated into the presentation of the
subsidiarys net income. |
San Emidio, Nevada Plant Energy Sales and Plant Operating
Expenses (USG Nevada LLC)
For the nine months ended September 30, 2014,
the San Emidio plant reported net income of $329,441 which was a decrease of
$648,260 (66.3% decrease) from the $977,701 in net income reported in the same
period in 2013. For the three months ended September 30, 2014, the San Emidio
plant reported net income of $109,515 which was a decrease of $245,983 (69.2%
decrease) from the net income of $355,498 reported in the same quarter in 2013.
During the current quarter, the plant produced 18,240 megawatt hours, which was
consistent with the same quarter in 2013. The 8.6% increase in energy sales for
the quarter was primarily due to the annual contracted rate increase.
-47-
For the nine months ended September 30, 2014, operating
expenses, excluding depreciation, increased $590,825 (36.1% increase) from the
same period ended 2013. For the three months ended September 30, 2014, operating
expenses, excluding depreciation, increased $425,428 (143.3% increase) from the
same period ended 2013. The primary factors for the increases incurred in
regulatory testing and property taxes costs. In the second and third quarters of
2014, the plant incurred costs that exceeded $106,000 on regulatory testing of
injection well casing. In the second quarter of 2013, the plant collected a
property tax refund that totaled $226,860, which offset 2013 property tax costs.
In the quarter ended September 30, 2013, the Company collected a PEC revenue
shortfall charge refund of $283,000 that was originally paid and expensed in the
second quarter of 2013. This cost and subsequent refund did not impact total
expense for the nine months ended September 30, 2013.
For the nine months ended September 30, 2014, the plants
interest expense increased $352,413 (29.5% increase) from the same period ended
2013. During the quarter ended March 31, 2013, the plant loan had not been
finalized and most of the interest incurred under the contractors obligations
was capitalized. In the three months ended March 31, 2013, the plant incurred
interest costs that totaled $621,712.
Summarized statements of operations for the San Emidio, Nevada
plant are as follows:
|
|
Nine
Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
Variance |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
%* |
|
Plant revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales |
|
5,048,736 |
|
|
100.0 |
|
|
4,886,568 |
|
|
100.0 |
|
|
162,168 |
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations |
|
2,226,674 |
|
|
44.1 |
|
|
1,635,849 |
|
|
33.5 |
|
|
(590,825 |
) |
|
(36.1 |
) |
Depreciation and amortization |
|
945,828 |
|
|
18.7 |
|
|
1,080,228 |
|
|
22.1 |
|
|
134,400 |
|
|
12.4 |
|
|
|
3,172,502 |
|
|
62.8 |
|
|
2,716,077 |
|
|
55.6 |
|
|
(456,425 |
) |
|
(16.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
1,876,234 |
|
|
37.2 |
|
|
2,170,491 |
|
|
44.4 |
|
|
(294,257 |
) |
|
(13.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(1,546,958 |
) |
|
(30.6 |
) |
|
(1,194,545 |
) |
|
(24.4 |
) |
|
(352,413 |
) |
|
(29.5 |
) |
Other income |
|
165 |
|
|
0.0 |
|
|
1,755 |
|
|
0.0 |
|
|
(1,590 |
) |
|
(90.6 |
) |
|
|
(1,546,793 |
) |
|
(30.6 |
) |
|
(1,192,790 |
) |
|
(24.4 |
) |
|
(354,003 |
) |
|
(29.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
329,441 |
|
|
6.6 |
|
|
977,701 |
|
|
20.0 |
|
|
(648,260 |
) |
|
(66.3 |
) |
|
% - |
represents the percentage of total plant operating
revenues. |
|
%* - |
represents the percentage of change from 2013 to
2014. Increases in revenues and decreases in expenses from
the prior period to the current period are considered to be favorable
and are presented as positive figures. |
The intercompany elimination adjustments for management fees
are not incorporated into the presentation of the subsidiarys net operating
income/loss.
-48-
|
|
Three
Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
Variance |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
%* |
|
Plant revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales |
|
1,663,119 |
|
|
100.0 |
|
|
1,531,260 |
|
|
100.0 |
|
|
131,859 |
|
|
8.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations |
|
722,361 |
|
|
43.5 |
|
|
296,933 |
|
|
19.4 |
|
|
(425,428 |
) |
|
(143.3 |
) |
Depreciation and amortization |
|
316,638 |
|
|
19.0 |
|
|
307,854 |
|
|
20.1 |
|
|
(8,784 |
) |
|
(2.9 |
) |
|
|
1,038,999 |
|
|
62.5 |
|
|
604,787 |
|
|
39.5 |
|
|
(434,212 |
) |
|
(71.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
624,120 |
|
|
37.5 |
|
|
926,473 |
|
|
60.5 |
|
|
(302,353 |
) |
|
(32.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(514,693 |
) |
|
(30.9 |
) |
|
(572,710 |
) |
|
(37.4 |
) |
|
58,017 |
|
|
10.1 |
|
Other income |
|
88 |
|
|
0.0 |
|
|
1,735 |
|
|
0.1 |
|
|
(1,647 |
) |
|
(94.9 |
) |
|
|
(514,605 |
) |
|
(30.9 |
) |
|
(570,975 |
) |
|
(37.3 |
) |
|
56,370 |
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
109,515 |
|
|
6.6 |
|
|
355,498 |
|
|
23.2 |
|
|
(245,983 |
) |
|
(69.2 |
) |
|
% - |
represents the percentage of total plant operating
revenues. |
|
%* - |
represents the percentage of change from 2013 to
2014. Increases in revenues and decreases in expenses from
the prior period to the current period are considered to be favorable
and are presented as positive figures. |
The intercompany elimination adjustments for management fees
are not incorporated into the presentation of the subsidiarys net operating
income/loss.
Key quarterly production data for the San Emidio, Nevada plant
is summarized as follows:
|
|
Mega- |
|
|
|
Ave. Rate |
|
|
|
Depreciation |
|
|
watt |
|
Energy |
|
per |
|
Net Income |
|
& |
|
|
Hours |
|
Sales |
|
Megawatt |
|
(Loss)* |
|
Amortization |
Quarter Ended:
|
|
Produced |
|
($) |
|
Hour
($) |
|
($) |
|
($) |
December 31, 2012 |
|
16,231 |
|
1,459,078 |
|
90.0 |
|
(223,412) |
|
416,091 |
March 31, 2013 |
|
19,228 |
|
1,726,927 |
|
90.3 |
|
834,266 |
|
407,060 |
June 30, 2013 |
|
18,039 |
|
1,628,382 |
|
90.3 |
|
(212,058) |
|
365,314 |
September 30, 2013 |
|
18,317 |
|
1,531,260 |
|
83.6 |
|
355,498 |
|
307,854 |
December 31, 2013 |
|
21,112 |
|
1,905,813 |
|
90.3 |
|
180,931 |
|
312,273 |
March 31, 2014 |
|
21,223 |
|
1,935,091 |
|
91.2 |
|
423,350 |
|
312,908 |
June 30, 2014 |
|
15,686 |
|
1,450,526 |
|
92.5 |
|
(203,424) |
|
316,283 |
September 30, 2014 |
|
18,240 |
|
1,663,119 |
|
90.1 |
|
109,515 |
|
316,638 |
|
*- |
The intercompany elimination adjustments for
management fees are not incorporated into the presentation of the
subsidiarys net income/loss. |
Raft River, Idaho Unit I (Raft River Energy I LLC) Plant
Operations
The net loss from Raft River Energy I LLC (RREI) operations
of $400,539 for the nine months ended September 30, 2014, favorably decreased by
$248,611 (38.3% decrease) from the net loss for the same period ended in 2013.
The net income of $117,281 for the three months ended September 30, 2014,
increased $118,447 from the net loss for the same quarter ended 2013. For the
current quarter, both energy revenues ($1,273,013) and hours produced (18,501
hours) were consistent with the same quarter in ended 2013. For the nine months
ended September 30, 2014, energy sales increased $231,999 (7.4% increase) from
the same period ended 2013. The increase in energy sales for the nine months
ended September 30, 2014 from the same period in 2013 was primarily due to
increased production (14.9% increase) which was due to less downtime in the first and
second quarters of 2014 (128 hours less) from the same quarters in 2013.
-49-
The summarized statements of operations for RREI are as
follows:
|
|
Nine
Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
Variance |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
%* |
|
Plant revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales |
|
3,379,757 |
|
|
92.5 |
|
|
3,147,758 |
|
|
91.9 |
|
|
231,999 |
|
|
7.4 |
|
Energy credit
sales |
|
274,590 |
|
|
7.5 |
|
|
277,992 |
|
|
8.1 |
|
|
(3,402 |
) |
|
(1.2 |
) |
|
|
3,654,347 |
|
|
100.0 |
|
|
3,425,750 |
|
|
100.0 |
|
|
228,597 |
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General operations |
|
2,691,094 |
|
|
73.6 |
|
|
2,539,931 |
|
|
74.1 |
|
|
(151,163 |
) |
|
(6.0 |
) |
Depreciation and amortization |
|
1,285,251 |
|
|
35.2 |
|
|
1,394,356 |
|
|
40.7 |
|
|
109,105 |
|
|
7.8 |
|
|
|
3,976,345 |
|
|
108.8 |
|
|
3,934,287 |
|
|
114.8 |
|
|
(42,058 |
) |
|
(1.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
(321,998 |
) |
|
(8.8 |
) |
|
(508,537 |
) |
|
(14.8 |
) |
|
186,539 |
|
|
36.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(81,557 |
) |
|
(2.2 |
) |
|
(154,318 |
) |
|
(4.5 |
) |
|
72,761 |
|
|
47.2 |
|
Other and interest
income |
|
3,016 |
|
|
0.1 |
|
|
13,705 |
|
|
0.4 |
|
|
(10,689 |
) |
|
(78.0 |
) |
|
|
(78,541 |
) |
|
(2.1 |
) |
|
(140,613 |
) |
|
(4.1 |
) |
|
62,072 |
|
|
44.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
(400,539 |
) |
|
(10.9 |
) |
|
(649,150 |
) |
|
(18.9 |
) |
|
248,611 |
|
|
38.3 |
|
|
% - |
represents the percentage of total plant operating
revenues. |
|
%* - |
represents the percentage of change from 2013 to
2014. Increases in revenues and decreases in expenses from
the prior period to the current period are considered to be favorable
and are presented as positive figures. |
The intercompany elimination
adjustments for interest expense, management fees and lease costs are not
incorporated into the presentation of the subsidiarys operations.
-50-
|
|
Three
Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
Variance |
|
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
%* |
|
Plant revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales |
|
1,273,013 |
|
|
93.5 |
|
|
1,260,124 |
|
|
93.1 |
|
|
12,889 |
|
|
1.0 |
|
Energy credit
sales |
|
87,885 |
|
|
6.5 |
|
|
93,425 |
|
|
6.9 |
|
|
(5,540 |
) |
|
(5.9 |
) |
|
|
1,360,898 |
|
|
100.0 |
|
|
1,353,549 |
|
|
100.0 |
|
|
7,349 |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General operations |
|
795,172 |
|
|
58.5 |
|
|
856,455 |
|
|
63.2 |
|
|
61,283 |
|
|
7.2 |
|
Depreciation and amortization |
|
429,164 |
|
|
31.5 |
|
|
450,222 |
|
|
33.3 |
|
|
21,058 |
|
|
4.7 |
|
|
|
1,224,336 |
|
|
90.0 |
|
|
1,306,677 |
|
|
96.5 |
|
|
82,341 |
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
136,562 |
|
|
10.0 |
|
|
46,872 |
|
|
3.5 |
|
|
89,690 |
|
|
191.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
(21,830 |
) |
|
(1.6 |
) |
|
(48,122 |
) |
|
(3.6 |
) |
|
26,292 |
|
|
54.6 |
|
Other and interest
income |
|
2,549 |
|
|
0.2 |
|
|
84 |
|
|
0.0 |
|
|
2,465 |
|
|
# |
|
|
|
(19,281 |
) |
|
(1.4 |
) |
|
(48,038 |
) |
|
(3.6 |
) |
|
28,757 |
|
|
59.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
117,281 |
|
|
8.6 |
|
|
(1,166 |
) |
|
(0.1 |
) |
|
118,447 |
|
|
# |
|
|
% - |
represents the percentage of total plant operating
revenues. |
|
%* - |
represents the percentage of change from 2013 to
2014. Increases in revenues and decreases in expenses from
the prior period to the current period are considered to be
favorable and are presented as positive figures. |
|
#- |
Variance percentage was extremely high or
undefined. |
The intercompany elimination adjustments for interest
expense, management fees and lease costs are not incorporated into the
presentation of the subsidiarys operations.
Key quarterly production data for RREI is summarized as
follows:
|
|
Mega- |
|
|
|
Ave. Rate |
|
|
|
Depreciation |
|
|
watt |
|
Energy |
|
per |
|
Net Income |
|
& |
|
|
Hours |
|
Sales |
|
Megawatt |
|
(Loss)* |
|
Amortization |
Quarter Ended: |
|
Produced |
|
($) |
|
Hour
($) |
|
($) |
|
($) |
December 31, 2012 |
|
21,170 |
|
1,398,218 |
|
67.9 |
|
154,752 |
|
505,559 |
March 31, 2013 |
|
19,675 |
|
1,064,481 |
|
56.1 |
|
67,620 |
|
472,040 |
June 30, 2013 |
|
17,248 |
|
823,154 |
|
49.9 |
|
(715,605) |
|
472,094 |
September 30, 2013 |
|
18,687 |
|
1,260,124 |
|
69.5 |
|
(1,166) |
|
450,222 |
December 31, 2013 |
|
21,951 |
|
1,479,499 |
|
69.0 |
|
254,302 |
|
450,222 |
March 31, 2014 |
|
21,614 |
|
1,199,550 |
|
57.9 |
|
61,749 |
|
427,907 |
June 30, 2014 |
|
18,069 |
|
907,194 |
|
52.6 |
|
(579,569) |
|
428,180 |
September 30, 2014 |
|
18,501 |
|
1,273,013 |
|
71.6 |
|
117,281 |
|
429,164 |
|
*- |
Net income (loss) does not include intercompany
elimination adjustments for interest expense, management fees and
lease costs. |
-51-
Professional and Management Fees
For the nine months
ended September 30, 2014, the Company incurred professional and management fees
of $754,796, which was a decrease of $225,415 (23.0% decrease) from the same
period in 2013. For the three months ended September 30, 2014, the Company
incurred professional and management fees of $186,849, which was a decrease of
$62,012 (24.9% decrease) from the same period in 2013. In May 2013, the Company
entered into a contract with the former CEOs consulting firm. Consulting fees
were paid to the former CEO that totaled $155,393 in the second quarter of 2013
($182,284 for the nine months ended September 30, 2013). For the nine months
ended September 30, 2014, fees were paid to the former CEOs consulting firm
totaled $57,161 ($3,000 for the three months ended September 30, 2014). The
original contract ended April 2014, and was extended through December 2014 at a
reduced rate of $1,000 per month. Consulting costs of $135,356 ($39,653 for the
three months ended September 30, 2014) were paid to a geologist for the nine
months ended September 30, 2014, which was an increase of $77,193 ($14,935
increase for the three months ended September 30, 2014). In the quarter ended
March 31, 2013, the geologist was an employee and these costs were included in
the Company salaries and wages. During the nine months ended September 30, 2014,
the Company incurred audit/audit related, legal and SOX consulting costs that
amounted to approximately $186,000, $171,000 and $91,000; respectively. During
the nine months ended September 30, 2013, the Company incurred audit/audit
related, legal and SOX consulting costs that amounted to approximately $244,000,
$177,000 and $109,000; respectively. Audit fees were higher in the 2013 due the
Companys change in fiscal year end and two new audits of the Companys
subsidiaries.
Salaries and Wages
Salaries and wages include
payroll and related costs incurred for exploration, design and development costs
that cannot be capitalized, as well as general management and administration.
Payroll and related costs for plant operations are expensed as plant production
costs. For the nine months ended September 30, 2014, the Company reported
$1,473,006 in salaries and related costs which was a decrease of $182,618 (11.0%
decrease) from the same period in 2013. For the three months ended September 30,
2014, the Company reported $400,950 in salaries and related costs, which was a
decrease of $136,532 (25.4% decrease) from the same period in 2013. Salaries and
related costs for administration and development employees before allocations
were $1,859,175 ($493,056 in the three months ended September 30, 2014), which
was 19.1% (31.3% lower in the three months ended September 30, 2014) lower in
the nine months ended September 30, 2014 than in the same period ended 2013. In
the current nine months, fewer amounts of payroll costs ($311,977 less) were
allocated to capital projects than in the same period in 2013. For the nine
months ended September 30, 2013, the salary and related costs of approximately
$372,000 ($46,000 for the three months ended September 30, 2013) were
capitalized for design and other development activities for the Neal Hot
Springs, Oregon project. In April 2014, the Company awarded raises to its
employees that averaged 2.9%, and bonuses were awarded that totaled $376,750. In
April 2013 and July 2013, employee bonuses were awarded that totaled $171,000
and $237,800; respectively.
-52-
Management, administrative and development employee salaries
and related costs are as follows:
|
|
For
the Nine Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
Variance |
|
Financial
Element |
|
$ |
|
|
$ |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company salary and related costs,
excluding plant operations |
|
1,859,175 |
|
|
2,297,858 |
|
|
(438,683 |
) |
|
(19.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital projects |
|
(278,736 |
) |
|
(590,713 |
) |
|
311,977 |
|
|
52.8 |
|
Corporate
management and support for plant operations |
|
(107,432 |
) |
|
(51,520 |
) |
|
(55,912 |
) |
|
(108.5 |
) |
|
|
1,473,007 |
|
|
1,655,625 |
|
|
(182,618 |
) |
|
(11.0 |
) |
% - represents the percentage of change from 2013 to
2014.
# - variance percentage that is extremely high or
undefined.
|
|
For
the Three Months Ended September 30, |
|
|
|
2014 |
|
|
2013 |
|
|
Variance |
|
Financial
Element |
|
$ |
|
|
$ |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company salary and related costs,
excluding plant operations |
|
493,056 |
|
|
717,219 |
|
|
(224,163 |
) |
|
(31.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost allocations: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital projects |
|
(66,552 |
) |
|
(134,500 |
) |
|
67,948 |
|
|
50.5 |
|
Corporate
management and support for plant operations |
|
(25,554 |
) |
|
(45,237 |
) |
|
19,683 |
|
|
(43.5 |
) |
|
|
400,950 |
|
|
537,482 |
|
|
(136,532 |
) |
|
25.4 |
|
% - represents the percentage
of change from 2013 to 2014.
Stock Based Compensation
For the nine months ended
September 30, 2014, the Company reported $1,098,771 in stock based compensation,
which was an increase of $527,611 (92.4% increase) from the same period in 2013.
For the three months ended September 30, 2014, the Company reported $321,306 in
stock based compensation, which was an increase of $13,898 (4.5% increase) from
the same period in 2013. Stock based compensation includes the calculated values
for both Company stock and stock options granted to employees and board members.
The Company uses the Black-Scholes option-pricing model to value the cost of the
outstanding stock options. The higher value of the stock options for the current
nine months ended September 30, 2014 was directly impacted by the number of
outstanding options, the increase in the Companys stock price and the related
increase in the volatility of the Companys stock price. On April 2, 2014, the
Company awarded employees 2,883,500 stock options and 559,122 shares (restricted
shares). In the prior year, the Company did not issue stock options to employees
until July 22, 2013 (1,950,000 options, no restricted shares to employees).
During the current nine months ended September 30, 2014, the Companys common
stock price reached a high of $0.95 and a low of $0.38 ($0.62 average daily
closing price). During the nine months ended September 30, 2013, the Companys
common stock price reached a high of $0.59 and a low of $0.31 ($0.31 average
daily closing price).
-53-
The stock based compensation components are summarized as
follows:
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
Variances |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
% |
|
Total Stock Based Compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock option
compensation |
|
911,009 |
|
|
523,918 |
|
|
387,091 |
|
|
73.9 |
|
Stock compensation |
|
187,762 |
|
|
47,242 |
|
|
140,520 |
|
|
297.5 |
|
|
|
1,098,771 |
|
|
571,160 |
|
|
527,611 |
|
|
92.4 |
|
% - represents the percentage
of change from 2013 to 2014.
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
Variances |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
% |
|
Total Stock Based Compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock option
compensation |
|
248,619 |
|
|
281,458 |
|
|
(32,839 |
) |
|
(11.7 |
) |
Stock compensation |
|
72,687 |
|
|
25,949 |
|
|
46,738 |
|
|
180.1 |
|
|
|
321,306 |
|
|
307,407 |
|
|
13,899 |
|
|
4.5 |
|
% - represents the percentage
of change from 2013 to 2014.
Exploration Costs
For the nine months ended
September 30, 2014, the Company reported $70,709 in exploration costs
(non-capitalized), which was a decrease of $438,465 (86.1% decrease) from the
same quarter in 2013. For the three months ended September 30, 2014, the Company
reported $27,221 in exploration costs (non-capitalized), which was an increase
of $94,432 (95.3% increase) from the same quarter in 2013. During the nine
months ended September 30, 2013, the Company incurred drilling costs that
exceeded $473,000 ($472,000 for the three months ended September 30, 2013) on an
exploration well for Phase II of the San Emidio, Nevada project. During the
three months ended September 30, 2013, well drilling costs that exceeded
$1,354,000 incurred at the project in Guatemala were capitalized. These costs
were originally expensed in prior to the end of the third quarter 2013.
Net Income Attributable to the Non-Controlling
Interests
The net income attributable to the non-controlling interest
entities is the line item that removes the portion of the total consolidated
operations that are owned by the Companys subsidiaries. For the nine months
ended September 30, 2014, the Company reported $1,666,191 in net income
attributable to non-controlling interests, which was an increase of $1,195,567
from the $470,624 net income reported in the same period ended 2013. For the
three months ended September 30, 2014, the Company reported $614,037 in net
income attributable to non-controlling interests, which was an increase of
$399,702 from the $214,335 net income reported in the same quarter ended 2013.
The primary reason for the increase was due to the operations of the Neal Hot
Springs plant which reported net income of $5,678,877, which was an increase of
$1,906,097 for the nine months ended September 30, 2014 from the same period
ended 2013. For the three months ended September 30, 2014, the USG Oregon LLC
reported net income of $1,412,124, which was an increase of $583,290 for the
same quarter ended 2013. The impact of the USG Oregon LLCs operations on the
Companys reported income attributable to non-controlling entities was an
increase of $762,439 ($233,316 increase for the three months) from the nine
months ended September 30, 2013 as compared to the same period ended 2014.
-54-
The net income or (loss) attributable to the non-controlling
interest entities is detailed as follows:
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
Subsidiaries and Non-Controlling |
|
2014 |
|
|
2013 |
|
|
Variance |
|
Interest Entities |
|
$ |
|
|
$ |
|
|
$ |
|
|
% |
|
Oregon USG Holdings LLC interest held by
Enbridge Inc. |
|
2,259,557 |
|
|
1,312,348 |
|
|
947,209 |
|
|
72.2 |
|
Raft River Energy I LLC interest held by Raft River I
Holdings, LLC |
|
(585,999 |
) |
|
(834,472 |
) |
|
248,473 |
|
|
29.8 |
|
Gerlach Geothermal LLC interest held by
Gerlach Green Energy, LLC |
|
(7,367 |
) |
|
(7,252 |
) |
|
(115 |
) |
|
(1.6 |
) |
|
|
1,666,191 |
|
|
470,624 |
|
|
1,195,567 |
|
|
254.0 |
|
% - represents the percentage
of change from 2013 to 2014.
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
Subsidiaries and Non-Controlling |
|
2014 |
|
|
2013 |
|
|
Variance |
|
Interest Entities |
|
$ |
|
|
$ |
|
|
$ |
|
|
% |
|
Oregon USG Holdings LLC interest held by
Enbridge Inc. |
|
564,850 |
|
|
285,167 |
|
|
279,683 |
|
|
98.1 |
|
Raft River Energy I LLC interest held by Raft River I
Holdings, LLC |
|
55,467 |
|
|
(65,617 |
) |
|
121,084 |
|
|
184.5 |
|
Gerlach Geothermal LLC interest held by
Gerlach Green Energy, LLC |
|
(6,280 |
) |
|
(5,215 |
) |
|
(1,065 |
) |
|
(20.4 |
) |
|
|
614,037 |
|
|
214,335 |
|
|
399,702 |
|
|
186.5 |
|
% - represents the percentage
of change from 2013 to 2014.
-55-
The following is a summarized presentation of select financial
line items from the statement of operations and the impact of the related
non-controlling interests on each item presented:
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, 2014 |
|
|
September 30, 2014 |
|
|
|
|
|
|
Non- |
|
|
|
|
|
Non- |
|
|
|
|
|
|
Controlling |
|
|
|
|
|
Controlling |
|
Statement of Operations |
|
Consolidated |
|
|
Interest |
|
|
Consolidated |
|
|
Interest |
|
Element |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from plant operations |
|
2,939,672 |
|
|
856,227 |
|
|
9,294,709 |
|
|
2,331,746 |
|
Expenses (Income): |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
administration, professional fees
and promotion |
|
463,597 |
|
|
680 |
|
|
1,723,641 |
|
|
9,667 |
|
Salaries and wages |
|
400,950 |
|
|
384 |
|
|
1,473,006 |
|
|
463 |
|
Stock based
compensation |
|
321,306 |
|
|
- |
|
|
1,098,771 |
|
|
- |
|
Exploration costs |
|
27,221 |
|
|
5,217 |
|
|
70,709 |
|
|
6,218 |
|
Interest expense |
|
1,089,686 |
|
|
240,282 |
|
|
3,079,415 |
|
|
658,519 |
|
Other (income) expenses |
|
(58,905 |
) |
|
(4,373 |
) |
|
(85,412 |
) |
|
(9,312 |
) |
|
|
2,243,855 |
|
|
242,190 |
|
|
7,360,130 |
|
|
665,555 |
|
Net income before income taxes |
|
695,817 |
|
|
614,037 |
|
|
1,934,579 |
|
|
1,666,191 |
|
Off Balance Sheet Arrangements
As of September 30, 2014, the Company does not have any off
balance sheet arrangements.
Liquidity and Capital Resources
We believe our cash and liquid investments at September 30,
2014 are adequate to fund our general operating activities through December 31,
2015. Other project development, such as Guatemala, Geysers and the San Emidio
expansion, may require additional funding. In addition to government loans and
grants discussed below, we anticipate that additional funding may be raised
through financial and strategic partnerships, market loans, issuance of debt or
equity, and/or through the sale of ownership interest in tax credits and
benefits.
The recent financial credit crisis has not impacted the ability
of our customers, Idaho Power Company and Sierra Pacific Power (NV Energy), to
pay for their power. This power is sold under long-term contracts at fixed
prices to large utilities. The status of the credit and equity markets could
delay our project development activities while the Company seeks to obtain
economic credit terms or a favorable equity market price to further the drilling
and construction activities. The Company continues discussions with potential
investors to evaluate alternatives for funding at the corporate and project
levels.
On April 21, 2014, the Company completed the acquisition of Ram
Power Corp.s Geysers project for a total of $6.4 million in cash. The Ram
subsidiaries included in the acquisition are Western GeoPower, Inc., Skyline
Geothermal Holding, Inc., and Etoile Holdings Inc., which in turn includes all
membership interests in Mayacamas Energy LLC and Skyline Geothermal LLC. The
acquired Ram subsidiaries possess the full development interest in the project.
These interests include all geothermal leases (covering 3809 acres), development design plans, and permits
for a proposed 26 net megawatt power plant, and includes land and geothermal
mineral rights ownership of the Mayacamas property purchased by Ram in 2010.
This property contains 4 existing geothermal wells immediately available for
production or injection and one historic well available for use after reworking.
Finally, the acquisition includes a 50% undivided interest in the geothermal
mineral rights relating to the property that contains the 5th existing well also
purchased by Ram in 2010. The other 50% interest in this property is contained
within an acquired leasehold interest.
-56-
On November 29, 2013 the Company filed a replacement shelf
registration statement on Form S-3 with the SEC. The replacement shelf
registration statement was filed as routine course of business due to the
impending expiration of the Companys existing shelf registration statement
that, under SEC rules, would have expired on December 1, 2013. Pursuant to SEC
rules, the expiration date of the existing shelf registration statement has been
extended until the earlier of the effective date of the replacement shelf
registration statement or May 30, 2014. Upon effectiveness of the S-3 on
February 4, 2014, the Company may use the replacement shelf registration
statement to offer and sell from time to time for a period of three years in one
or more public offerings up to $50 million of common stock, warrants, or units
consisting of any combination thereof. The terms of any securities offered under
the replacement shelf registration statement, and the intended use of the
resulting net proceeds, will be established at the times of any future offerings
and will be described in prospectus supplements filed at such times with the
SEC. The Company has no immediate plans to sell any additional stock under the
replacement shelf registration statement at this time, but wishes to preserve
the option in support of its future growth and development of its projects as
well as strategic M&A opportunities.
Following the receipt of the Section 1603 Federal Investment
Tax Credit (ITC) cash grant payment, and the Oregon Business Energy Tax Credit
funds, and after the receipt and disbursement of all remaining construction
reserve funds, which was finalized on January 27, 2014, the final ownership
interest in the Neal Hot Springs project was calculated in accordance with the
terms of the partnership agreement. Ownership interest in the project is final
with 60% for U.S. Geothermal and 40% for Enbridge. As a result of the final
agreement, U.S. Geothermal has received a $6.2 million cash distribution from
the partnership.
Under the terms of the DOE loan agreement, project profits are
distributed to the equity partners semi-annually (February and August),
following Final Completion, which was achieved on August 1, 2013. U.S.
Geothermals share of this first distribution received March 5, 2014 was $4.6
million, out of a total distribution to the partners of $7.7 million, which
represents profits generated from the project since initial operation began in
November 2012.
Under the Loan Guarantee Agreement at Neal Hot Springs with the
Department of Energy, all funds for USG Oregon LLC are deposited into PNC Bank
subject to certain procedural restrictions on the use of the funds. The
waterfall of funds out of the Revenue account is processed semi-annually. At
September 30, 2014, $16.7 million in USG Oregon LLC funds were deposited at PNC
Bank, and were unavailable for immediate corporate needs.
For projects under construction before the end of 2010 and
online before the end of 2013, a project was eligible to take a 30% investment
tax credit (ITC) in lieu of the production tax credit (PTC). The ITC was
able to be converted into a cash grant within the first 90 days of operation of
the plant. Phase I at San Emidio attained commercial operation on May 25, 2012.
An application was submitted in July 2012 electing to take the ITC cash grant in
lieu of the PTC. The United States Department of Treasury notified the Company
that it would allow $10.65 million in cash grant. The cash grant proceeds were
received on November 10, 2012 and used to repay the Ares Capital bridge loan
facility, with the remaining balance payable to USG Nevada LLC. An additional
$1.05 million of cash grant items were subsequently approved and paid in March
2013. For the Neal Hot Springs project, an application was submitted in the
first quarter 2013 electing to take the ITC cash grant, in lieu of the PTC, for
approximately $35.9 million from U.S. Treasury and the funds would be used to
fund reserves required under the DOE Loan Guarantee Agreement and return funds to our partner in the
project, Enbridge. Due to federal sequestration in early 2013, the ITC cash
grant amount received in April 2013 was reduced by 8.7% to $32.7 million.
-57-
In July 2010, the Company applied to the Oregon Department of
Energy for the Business Energy Tax Credit (BETC), which allows an income tax
credit for up to $20 million in qualifying expenditures for a renewable energy
project. The Neal Hot Springs project completed final certification for the
credit and sold it to a pass-through partner, monetized at a cash value of $7.36
million (less a broker fee) in November 2013.
On May 21, 2012, the Company entered into a purchase agreement
(the Purchase Agreement) with Lincoln Park Capital Fund, LLC (LPC), pursuant
to which the Company has the right to sell to LPC up to $10,750,000 in shares of
the Companys common stock, (Common Stock), subject to certain limitations and
conditions set forth in the Purchase Agreement and imposed by the Companys
board of directors and pricing committee thereof. Pursuant to the Purchase
Agreement LPC initially purchased $750,000 in shares of Common Stock at $0.38
per share. Following this initial purchase, on any business day and as often as
every other business day over the 36-month term of the Purchase Agreement, and
up to an aggregate amount of an additional $10,000,000 (subject to certain
limitations) in shares of Common Stock, the Company has the right, from time to
time, at its sole discretion and subject to certain conditions to direct LPC to
purchase up to 250,000 shares of Common Stock, which amount may be increased in
accordance with the Purchase Agreement if the closing sale price of Common Stock
on the NYSE MKT exceeds certain specified levels. The purchase price of shares
of Common Stock pursuant to the Purchase Agreement will be based on prevailing
market prices of Common Stock at the time of sales without any fixed discount,
and the Company will control the timing and amount of any sales of Common Stock
to LPC. No sales of Common Stock under the Purchase Agreement will be made
through the TSX. The Purchase Agreement contains customary representations,
warranties and agreements of the Company and LPC, limitations and conditions to
completing future sale transactions, indemnification rights and other
obligations of the parties. There is no upper limit on the price per share that
LPC could be obligated to pay for Common Stock under the Purchase Agreement. LPC
shall not have the right or the obligation to purchase any shares of Common
Stock if the purchase price of those shares, determined as set forth in the
Purchase Agreement, would be below $0.25 per share. The Company has the right to
terminate the Purchase Agreement at any time, at no cost or penalty. Actual
sales of shares of Common Stock to LPC under the Purchase Agreement will depend
on a variety of factors to be determined by the Company from time to time,
including (among others) market conditions, the trading price of the Common
Stock and determinations by the Company as to available and appropriate sources
of funding for the Company and its operations. As consideration for entering
into the Purchase Agreement, the Company has issued to LPC 651,819 shares of
Common Stock. The Company will not receive any cash proceeds from the issuance
of these 651,819 shares. As of September 30, 2014, the Company has sold LPC an
aggregate of 4,625,506 shares of common stock pursuant to the Purchase Agreement
for net proceeds of approximately $1,343,639 (net of $86,911 broker and legal
fees). On December 21, 2012, the Company and LPC entered into an Amendment No. 1
to the Purchase Agreement (the Amendment) to reduce the total amount that can
be purchased under the Purchase Agreement, including amounts already purchased,
from $10,750,000 to $6,500,000.
In September 2010, Oregon USG Holdings, LLC (a wholly owned
subsidiary) entered into agreements with Enbridge (U.S.) Inc. that formed a
strategic and financial partnership to finance the Neal Hot Springs project
located in eastern Oregon. A component of these agreements included a $5 million
convertible promissory note, which converted. The DOE guaranteed project loan
was treated as an equity contribution by Enbridge to the project. The agreements
also provided for additional equity contributions of $13.8 million from Enbridge
that when combined with the $5 million convertible promissory note earned
Enbridge a 20% direct ownership in the project. As a result of cost overruns for
the project, and at the election of the Company, an additional payment
obligation of up to $8 million was contributed by Enbridge that increased their
direct ownership in the project by 1.5 percentage points for each $1 million
contributed. Added to their base 20% ownership, additional payments increased
Enbridges ownership to 27.5%. An additional $6 million cost overrun facility was
established by Enbridge to cover costs that resulted from unexpected poor
results from injection well drilling. The additional investment by Enbridge
increased their ownership in USG Oregon LLC based on running a project financial
model and determining what percentage of the forecasted project income would be
allocated to Enbridge to arrive at a predetermined rate of return for the
additional investment. In February 2014, the final ownership interest in the
Neal Hot Springs project was determined to be 60% for U.S. Geothermal and 40%
for Enbridge. As a result of the final agreement, U.S. Geothermal Inc. received
an approximate $6.2 million cash distribution from the partnership.
-58-
Potential Acquisitions and Acquisitions Completed
Subsequent to Period End
The Company intends to continue its growth through the
acquisition of ownership or leasehold interests in properties and/or property
rights that it believes will add to the value of the Companys geothermal
resources, and through possible mergers with or acquisitions of operating power
plants and geothermal or other renewable energy properties. The following
planned merger was in process at the end of the current reporting period:
Earth Power Resources (EPR) Merger
On
October 16, 2014, the Company announced the signing of an Agreement and Plan of
Merger with EPR. Under the terms of the Agreement, the EPR shareholders will
receive a total of 692,700 shares of U.S. Geothermal Inc. stock in exchange for
all outstanding shares of EPR stock. The transaction is expected to be completed
by the end of November 2014 following EPR shareholder approval. Acquired assets
include geothermal leases covering 26,017 acres in the State of Nevada
representing three projects.
Critical Accounting Policies
The discussion and analysis of our financial condition and
results of operations are based upon the consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. Certain accounting policies
involve judgments and uncertainties to such an extent that there is reasonable
likelihood that materially different amounts could have been reported under
different conditions, or if different assumptions had been made. We evaluate our
estimates and assumptions on a regular basis. We base our estimates on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for the
financial statements.
See Managements Discussion and Analysis and the financial
statements and related footnotes included in our Transition Report on Form 10-K
for the year ended December 31, 2013, for a description of our critical
accounting policies.
Item 3 Quantitative and Qualitative Disclosures about
Market Risk
Interest Risk on Investments
At September 30, 2014,
the Company held investments of $27,448,313 in money market accounts. These are
highly liquid investments that are subject to risks associated with changes in
interest rates. The money market funds are invested in governmental obligations
with minimal fluctuations in interest rates and fixed terms.
-59-
Foreign Currency Risk
The Company is subject to a
limited amount of foreign currency risks associated with cash deposits
maintained in Canadian currency. The Company has utilized and it is continuing
to utilize the Canadian markets for raising capital. By proper timing of the
transactions and then maintenance of adequate operating funds in other financial
resources, the Company has been able to mitigate some of the risks surrounding
foreign currency exchanges. At the quarter ended September 30, 2014, the Company
held deposits that amounted to less than $10,000 in U.S. dollar equivalents. As
a matter of standard operating practice, the Company does not maintain large
balances of Canadian currency, and substantially all operating transactions are
conducted in U.S. dollars.
Prior to April 1, 2007, the strike price for the Companys
stock option plan had been stated in Canadian dollars as the plan had been
administered through our Vancouver office and Pacific Corporate Trust Company.
This subjected the Company to foreign currency risk in addition to the normal
market risks associated with the stock price fluctuations. A long-term liability
had been established to reflect the fair value of the stock options payable. The
strike price on subsequent option grants is stated in U.S. dollars.
Commodity Price Risk
The Company is exposed to risks
surrounding the volatility of energy prices. These risks are impacted by various
circumstances surrounding the energy production from natural gas, nuclear,
hydro, solar, coal and oil. The Company has been able to mitigate, to a certain
extent, this risk by signing power purchase contracts that exceed 20 year
periods for the power plants currently in production and scheduled to go into
production. This type of arrangement will be the model for power purchase
contracts planned for future power plants.
Item 4 - Controls and Procedures
An evaluation was performed under the supervision and with the
participation of our management, including the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this report. Based on that evaluation, our management, including the CEO and
CFO, concluded that our disclosure controls and procedures were effective at the
end of this period covered by this report to ensure that information we are
required to disclose in the reports that we file or submit under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commissions rules and
forms relating to us, including our consolidated subsidiaries, and was
accumulated and communicated to our management, including our CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosure.
There has been no change to our internal control over financial
reporting during the nine months ended September 30, 2014 that has materially
affected, or is likely to materially affect, our internal control over financial
reporting.
-60-
PART II- OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 1A - Risk Factors
See Risk Factors in our transition report on Form 10-K for
the year ended December 31, 2013. There have been no material changes in the
risk factors during the nine months ended September 30, 2014.
Item 2 - Unregistered Sales Of Equity Securities And Use
Of Proceeds
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Mine Safety Disclosures
Not applicable.
Item 5 - Other Information
None.
Item 6 - Exhibits
See the exhibit index to this quarterly report on Form 10-Q.
SIGNATURES
Pursuant to the requirements 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.
|
U.S. GEOTHERMAL INC. |
|
(Registrant) |
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|
Date: November 13, 2014 |
By: /s/ Dennis J. Gilles |
|
Dennis J. Gilles |
|
Chief Executive Officer |
|
|
Date: November 13, 2014 |
|
|
By: /s/ Kerry D. Hawkley |
|
Kerry D. Hawkley |
|
Chief Financial Officer and Corporate Secretary
|
-62-
EXHIBIT INDEX
-63-
Exhibit 31.1
CERTIFICATION
I, Dennis J. Gilles, certify that:
|
1. |
I have reviewed this report on Form 10-Q of U.S.
Geothermal Inc.; |
|
|
|
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
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|
|
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3. |
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
report; |
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|
|
|
|
4. |
The Registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
|
|
|
|
|
|
a. |
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared; |
|
|
|
|
|
|
b. |
designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
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|
|
|
|
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c. |
evaluated the effectiveness of the Registrants
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
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|
|
|
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d. |
disclosed in this report any change in the Registrants
internal control over financial reporting that occurred during the
Registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the Registrants internal
control over financial reporting; and |
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|
|
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5. |
The Registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Registrants auditors and the audit committee
of the Registrants board of directors (or persons performing the
equivalent functions): |
|
|
|
|
|
|
a. |
all significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the Registrants ability to
record, process, summarize and report financial information;
and |
|
b. |
any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrants internal control over financial
reporting. |
Date: November 13, 2014
/s/ Dennis J. Gilles
Dennis J. Gilles
Chief
Executive Officer
Exhibit 31.2
CERTIFICATION
I, Kerry D. Hawkley, certify that:
|
1. |
I have reviewed this report on Form 10-Q of U.S.
Geothermal Inc.; |
|
|
|
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
|
|
|
|
|
3. |
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
report; |
|
|
|
|
|
4. |
The Registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
|
|
|
|
|
|
a. |
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared; |
|
|
|
|
|
|
b. |
designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
|
|
|
|
c. |
evaluated the effectiveness of the Registrants
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
|
|
d. |
disclosed in this report any change in the Registrants
internal control over financial reporting that occurred during the
Registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the Registrants internal
control over financial reporting; and |
|
|
|
|
|
5. |
The Registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the Registrants auditors and the audit committee
of the Registrants board of directors (or persons performing the
equivalent functions): |
|
|
|
|
|
|
a. |
all significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the Registrants ability to
record, process, summarize and report financial information;
and |
|
b. |
any fraud, whether or not material, that involves
management or other employees who have a significant role in the
Registrants internal control over financial
reporting. |
Date: November 13, 2014
/s/ Kerry D. Hawkley
Kerry D. Hawkley
Chief
Financial Officer
Exhibit 32.1
CERTIFICATION
In connection with the quarterly report of U.S. Geothermal Inc.
(the Registrant) on Form 10-Q for the period ended September 30, 2014, as
filed with the Securities and Exchange Commission on the date hereof (the
Report), I, Dennis J. Gilles, Chief Executive Officer of the Registrant,
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
1. |
The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and |
|
|
|
|
2. |
The information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of the Registrant. |
Date: November 13, 2014
/s/ Dennis J.
Gilles |
|
Dennis J. Gilles |
|
Chief Executive Officer |
|
Exhibit 32.2
CERTIFICATION
In connection with the quarterly report of U.S. Geothermal Inc.
(the Registrant) on Form 10-Q for the period ended September 30, 2014, as
filed with the Securities and Exchange Commission on the date hereof (the
Report), I, Kerry D. Hawkley, Chief Financial Officer of the Registrant
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
|
1. |
The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and |
|
|
|
|
2. |
The information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of the Registrant. |
Date: November 13, 2014
/s/ Kerry D. Hawkley
Kerry D. Hawkley
Chief
Financial Officer
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