RNS Number:3284E
Prometheus Energy Co
24 September 2007
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO
THE UNITED STATES OF AMERICA, CANADA, AUSTRALIA, THE REPUBLIC OF IRELAND, THE
REPUBLIC OF SOUTH AFRICA OR JAPAN.
Neither this announcement nor any copy of it may be taken, transmitted or
distributed, directly or indirectly, in or into the United States, Canada,
Australia, the Republic of Ireland, the Republic of South Africa or Japan. Any
failure to comply with this restriction may constitute a violation of United
States, Canadian, Australian, Republic of South Africa, Republic of Ireland or
Japanese securities laws.
Prometheus Energy Company
("Prometheus" or "the Company")
Unaudited Interim Financial Statements for the Six Months Ended 30 June 2007
First Half sees strengthening of commercial relationships and development of gas
supply sources
24 September 2007
Prometheus, the alternative and renewable energy company, today reports interim
results for the six months ended 30 June 2007
Financial highlights
* Turnover up over 200% at $304,000 ( 2006: $142,000)
* Operating loss $8.3 million (2006: $3.6 million)
* $12.5 million loan commitment from a current shareholder - PEC III
Holdings LLC
* Period end cash or near cash of $10.3 million
Operational highlights
* Established customer demand averaging 10,000 gallons of LNG per week
* Commissioning of three cryogenic tank trailers
* Conversion and operation of port tractor units for SSA Marine at Long
Beach
* Development of secure gas supply arrangements, offering capacity of up
to 32,000 gallons per day, from resources at a California landfill site,
and in Merced and Madera Counties, California
* Advancement of funding arrangements for the 10,000 gallon per day
Krupinski Coal Mine Project in Poland
* Continued progress at Bowerman, including production at in excess of 50%
of plant capacity
Since Period-end
* $15 million raised through convertible debt issue
Kirt Montague, Chief Executive Officer, commented:
"We have achieved a lot in the first half of the year, making important progress
in both the demand side and the supply side of our business. We are successfully
building a customer base and developing sources of demand for LNG and we are
putting in place arrangements for sourcing gas which will, in due course,
provide us with LNG to meet this demand. A range of projects in California will
give us access to gas resources capable of producing around 32,000 gallons of
LNG per day. In addition we have also advanced financing arrangements for our
10,000 gallon per day project in Poland."
"The development of our Bowerman site has reflected all the challenges of
bringing a complex manufacturing process into service. During the process, we
have seen production at levels in excess of 50% of the plant's 5,000 gallons per
day capacity and continuous operation for periods of up to 56 hours. The
development work we have undertaken, the final stage of which is now under way,
will be of great value for the commissioning of future installations both for
landfill and for other sources, such as our stranded well and coal mine methane
sources, where the purification processes required are not so complex.
"We remain focused on developing production as rapidly as possible to fully
exploit our operational and technological capability. Aside from the challenges
at Bowerman, sales and the development of the business are progressing in line
with the Board's expectations for long term growth and success"
For further information, please contact:
Prometheus Energy Company +1 206 267 0800
Kirt Montague (Chief Executive Officer)
Jeff Spencer (Chief Financial Officer)
Jefferies International Limited +44 20 7618 3500
Charles Cameron
Oliver Griffiths
Cubitt Consulting +44 20 7367 5100
Simon Brocklebank- Fowler
Michael Henman
Allison Reid
This press release does not constitute an offer for the sale of securities in
the United States. Prometheus' securities are restricted under United States
securities laws and may not be offered or sold in the United States absent a
registration statement or a valid exemption from registration.
Notes to Editors
Prometheus Energy Company is a public corporation with its shares traded on the
London Stock Exchange's AIM market. It is headquartered in Seattle, Washington.
Prometheus is a global alternative and renewable fuel company, specialising in
the production, distribution, and sale of liquid natural gas (LNG) from low-cost
waste and stranded sources of methane. The Company is an emerging leader in
distributed fuel production, integrating small-scale purification and
liquefaction systems that generate fuel near the end-user. For more information
concerning Prometheus please contact the company at +1 206 267-0800 or at
Info@Prometheus-Energy.com
Prometheus Energy Company
("Prometheus" or the "Company")
Unaudited Interim Financial Statements for the Six Months Ended 30 June 2007
24 September 2007
The Board of Prometheus, the alternative and renewable energy company, announces
today the Company's interim results for the six months ended 30 June 2007.
Chairman's Statement
Turnover of $304,000 for the period ended 30 June 2007 represents twice the
turnover for the same period the prior year of $142,000. However the Company's
financial performance still reflects the pre-profitability stage of the
development of its business plan. The increase in turnover for 2007 is primarily
driven by the commencement, in the second half of last year, of trading in the
LNG supply business with the procurement of LNG from third parties and sale and
delivery of LNG to fleet customers. We continue to build this business to
develop our customer base for sale of our own LNG production.
During the first six months of 2007, the Company has continued to advance
development of LNG production projects in California and Poland; of LNG sales
and distribution opportunities to fleet customers; and of the commissioning of
its LNG production plant at the Bowerman Landfill site in Orange County,
California. Accordingly, the group operating loss was $8.3 million as compared
to $3.6 million for the six months ended June 2006. The Company ended the period
with cash or near cash resources of $10.3 million, consisting of cash balances
of $0.3 million and $10 million of credit remaining on a $12.5 million
commitment obtained from one of its major shareholders, PEC III Holdings, LLC.
Since period end, the Company has secured $15 million of convertible debt
financing, which is described more fully below.
Business Development
Prometheus continued to build its LNG supply business of contract and spot
sales, with product sourced from third parties. At the mid year Prometheus was
supplying customers with an average of 10,000 gallons of LNG per week using
three cryogenic tank trailers commissioned during the period. The Company has
also advanced fleet implementation of natural gas fuelled vehicles in a
demonstration project with a major port operator, SSA Marine, at its facility in
Long Beach, California, converting two utility tractors that now operate daily
in normal service fuelled by LNG provided by Prometheus.
During the first half of this year Prometheus has worked to develop
opportunities to further establish and secure its own LNG production facilities.
This has included progressing negotiations for a landfill gas project in
California, as well as its recently announced stranded well projects in Merced
and Madera Counties in California. The Company has also secured $2.7 million in
Polish government supported financing for its coal mine methane project at the
Krupinski coal mine in Poland. Together these projects will provide the Company
with access to additional gas resources capable of producing approximately
42,000 gallons per day of LNG from diverse sources having methane quality of 45%
in the case of landfill gas, to 60% to 80% in respect of coal mine and stranded
well gas.
Bowerman Landfill Production Site
Commissioning has continued at our Bowerman Landfill production site, yielding
strong advances in our operational capabilities, while plant and engineering
personnel work through the challenges of bringing a complex manufacturing
process into service.
Over the course of the commissioning phase, we have achieved production in
excess of 50% of nameplate capacity, have operated non-stop for up to 56 hours
and produced and delivered high quality LNG to our customer. However, our
commissioning operations have identified a few premature component failures
which have been or are being addressed, and several gas purification challenges
at this site, resulting in delayed continuous high-volume production.
The low quality landfill gas we are handling at Bowerman has more moisture, less
nitrogen and more carbon dioxide than originally tested. Having identified the
impact of these constituents on the operations of the plant, our operators and
engineers have methodically designed solutions to address these issues and make
the purification process more robust. We expect that the installation of the
final phase of additional equipment required to fully resolve these purification
challenges will be completed by the end of October, which should allow the plant
to reach full production by the end of the calendar year.
Post Period Events -- Current Trading and Outlook
Prometheus is pursuing diversification in methane sources to build a mix of LNG
production projects across a wide spectrum of methane quality, as evidenced by
the recently announced contracts for sub-pipeline quality gas at the Merced
County and Madera County, California gas resources.
We are focused on putting production on the ground as soon as possible, and to
that end, in July the Company drew an additional $2,000,000 on its shareholder
provided credit line and in August, secured $15,000,000 in convertible debt
financing from Black River Commodity Clean Energy Investment Fund LLC, a fund
managed by Black River Asset Management LLC, a global asset management company.
The proceeds of the issue are being used to develop liquefied natural gas
production facilities mentioned above; to further develop infrastructure for the
storage and transportation of LNG to fleet customers in support of our LNG
supply business; and for general corporate purposes.
The Board believes that this diversified approach to LNG sourcing, production
and supply will balance production risks and advance the market for LNG as a
clean alternative transportation fuel allowing Prometheus to fully exploit its
operating and technological capability in the production and delivery of LNG
from renewable and otherwise wasted energy resources. Due to previous changes in
design approach that are already being implemented for future landfill gas
sourced production, the purification process will be simpler and more
manageable, reduce risk and lead to decreased commissioning time compared with
the experience at Bowerman, the world's first landfill-to LNG plant. Higher
quality gas sources such as that at Merced and Madera Counties and from coal
mine methane in Poland will not require as complex a purification process, and
this is likely to shorten commissioning times as well.
Aside from the impact of delay in continuous high-volume production at the
Bowerman facility, trading remains in line with expectations with increased
fleet sales continuing to add to turnover and with business development
progressing in line with the Board's expectations for long-term growth and
success.
The results for the six months ended 30 June 2007 are presented below and have
been prepared under accounting principles generally accepted in the United
States (US GAAP).
Dividend
As the Company has previously stated, dividends are not proposed at this time.
At such time as the Company begins generating profits, the Company intends to
retain earnings to finance growth and expansion.
Stanislas Yassukovich
Chairman
Consolidated Statement of Profit and Loss for the six months ended 30 June 2007
30 June 2007 30 June 2006 2006
Unaudited Unaudited Audited
-----------------------------------------
REVENUES $ 303,839 $ 141,654 $ 242,109
DIRECT COST OF REVENUES 208,030 24,557 123,074
-----------------------------------------
95,809 117,097 119,035
-----------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and Benefits
(including share-based compensation
expense of $1,001,503, and $602,000
for six months ended 2007 and 2006,
and $720,727 for the year ended 2006) 4,116,054 1,853,607 4,296,883
Travel 694,510 146,089 752,210
Rent and Facilities 270,676 182,468 409,274
Information Technology 93,982 60,155 124,449
Professional Services 995,517 352,313 2,895,514
Insurance 313,223 128,330 200,679
Advertising 17,611 72,237 211,139
Business Taxes and Licenses 12,970 48,077 140,603
Research and Development 42,039 25,757 73,620
Office Operating Expenses 58,490 79,992 151,620
Bad Debt - 6,983 56,883
Depreciation and Amortization 267,540 170,844 405,109
Loss on Sale of Equipment 535,823 (60,915) 451,367
Impairment of Assets - - 122,098
Impairment of Goodwill - - 1,818,000
Contract Buyout - - 750,000
Other 34,287 48,355 108,227
-----------------------------------------
7,452,724 3,114,291 12,967,675
-----------------------------------------
OPERATING LOSS (7,356,915) (2,997,194) (12,848,640)
OTHER INCOME AND EXPENSE
Interest Income 96,599 64,030 261,605
Interest Expense (Note 1(o)) (1,074,832) (658,094) (2,073,325)
Other 10,620 1,181 47,011
-----------------------------------------
(967,613) (592,883) (1,764,709)
-----------------------------------------
INCOME TAX PROVISION - - -
NET LOSS $(8,324,528) $(3,590,077) $(14,613,349)
==========================================
Net Loss attributable to common
stockholders $(8,324,528) $(3,590,077) $(14,613,349)
==========================================
Net loss per common share: basic
and diluted $(0.14) $(.60) $(0.52)
Weighted average shares used in
computing net loss per common share
- basic and diluted 59,765,369 5,986,044 28,232,761
Consolidated Balance Sheet at 30 June 2006
30 June 2007 30 June 2006 2006
Unaudited Unaudited Audited
------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 346,178 9,586,475 $ 5,544,053
Accounts receivable, net 200,880 1,345,332 371,285
Receivables from joint ventures 417,027 805,901 1,708,196
Debt issuance cost, net (Note 1(h)) 463,066 1,697,908 926,131
Prepaid and other current assets 492,360 134,472 838,783
------------------------------------------
Total current assets 1,919,511 13,570,088 9,388,448
------------------------------------------
FACILITIES AND EQUIPMENT, net 1,654,220 750,112 1,590,925
CONSTRUCTION IN PROGRESS (Note 2) 7,943,051 6,822,955 6,940,688
INVESTMENT IN JOINT VENTURES 3,278,300 1,412,500 2,428,300
INTANGIBLE ASSETS, net 2,185,087 2,371,220 2,307,180
OTHER ASSETS 650,536 1,228,750 53,345
------------------------------------------
$ 17,630,704 $ 26,155,624 $ 22,708,886
==========================================
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable $ 367,033 $ 435,385 $ 620,262
Accrued liabilities 1,239,869 1,030,777 2,097,791
Accrued interest 1,132,052 600,695 847,132
Deferred revenue from Apollo Energy
III, LLC 2,025,000 2,754,829 2,025,000
Notes payable 2,421 1,000,000 1,323,763
Capital lease obligation 21,649 208,665 25,445
------------------------------------------
Total current liabilities 4,788,024 6,030,351 6,939,393
------------------------------------------
LONG TERM LIABILITIES
Notes payable - Net of discount 6,937,669 3,295,480 3,532,228
Total liabilities 11,725,693 9,325,831 10,471,621
STOCKHOLDERS' EQUITY
Preferred Stock, Series A
convertible
$0.001 par value; 20,000,000 Series
A convertible preferred stock
designated; 2,200,000 shares
authorized; 0 and 1,302,126 shares
issued and outstanding; aggregate
liquidation preference of $0 and
$2,604,252 - 5,674 -
Common Stock
$0.001 par value; 80,000,000 shares
authorized; 59,752,545 and
2,468,095 shares issued and
outstanding 9,846 1,870 9,833
Additional paid in capital 33,819,875 25,399,159 31,827,614
Accumulated deficit (27,924,710) (8,576,911) (19,600,182)
Stock to be issued (stock
Subscription receivable) - - -
Total Stockholders' Equity 5,905,011 16,829,793 12,237,265
------------------------------------------
Total liabilities and stockholders'
equity $ 17,630,704 $ 26,155,624 $ 22,708,886
==========================================
30 June 2007 30 June 2006 2006
Unaudited Unaudited Audited
------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Loss $(8,324,528) $(3,590,077) $(14,613,349)
Adjustments to reconcile net loss
to net cash from operating
activities:
Stock based compensation 1,001,503 602,000 720,727
Depreciation and amortization 267,540 170,844 409,274
Impairment of Assets - - 122,098
Amortization of prepaid rent - - -
Amortization of debt discount and
debt issuance cost 735,903 578,538 1,587,063
Impairment of Goodwill - - 1,818,000
Allowance for Doubtful accounts - - 56,883
Gain on Sale of Equipment 6,138 (60,915) (60,915)
Changes in assets and liabilities
Accounts receivable 170,406 (1,334,629) (72,708)
Receivables from joint ventures 1,291,169 (696,389) (1,598,684)
Prepaid and other current assets 346,423 71,113 (633,198)
Other assets - - 9,137
Accounts payable (253,229) 276,443 461,320
Accrued liabilities and accrued
interest (573,001) 875,680 2,189,130
------------------------------------------
Net cash used in operating
activities (5,331,677) (3,107,392) (9,605,222)
------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of equipment and
construction costs (1,147,770) (3,230,313) (5,290,188)
Licenses acquired from related
party - - -
Patents acquired - (36,287) (93,090)
Investment in LNG Silesia (610,281) - 15,195
Investment in joint venture (850,000) (237,500) (1,253,300)
Acquisition of subsidiary - (550,000) (529,707)
Deferred revenue from Apollo Energy
III, LLC (joint venture) - 178,461 178,461
------------------------------------------
Net cash used in investing
activities (2,608,051) (3,875,639) (6,972,629)
------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds from issuance of
Series A preferred stock - - -
Proceeds from issuance of common
stock - - -
Proceeds from issuance of Series B
common stock - 14,658,615 19,933,373
Proceeds from borrowings on Line of
Credit 3,060,250 - -
Proceeds from borrowings on
promissory notes 7,057 1,263,477 1,263,477
Payments on promissory notes (328,399) (124,894) (441,897)
Borrowings on capital lease
obligations - 32,738 32,738
Payments on capital lease
obligations (4,112) (56,748) (87,729)
Financed portion of insurance
policy 7,057 - 625,623
------------------------------------------
Net cash provided by financing
activities 2,741,852 15,773,188 21,325,585
------------------------------------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (5,197,876) 8,790,157 4,747,735
CASH AND CASH EQUIVALENTS
Beginning of year 5,544,053 796,318 796,318
End of year $ 346,178 $ 9,586,475 $ 5,544,053
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 1,107 $ 64 $ 10,063
Statement of Changes in Shareholder Equity
12 months
6 months 6 months ended
ended ended 31 December
30 June 2007 30 June 2006 2006
(Unaudited) (Unaudited) (Audited)
----------------------------------------------
Income (Loss) for the period $(8,324,528) $(3,590,077) $(14,613,349)
Preferred stock - series A issued - 18 18
Preferred stock - series B issued - 4,354 6,075
Preferred stock - series B to be issued - (580,000) (580,000)
Common stock issued 25,140 - 569
Additional paid in capital 965,631 17,652,811 23,962,538
Stock based compensation 1,001,503 602,000 720,727
Opening shareholders' funds 12,237,265 2,740,687 2,740,687
----------------------------------------------
Closing shareholders' funds 5,905,011 16,829,793 12,237,265
----------------------------------------------
Note 1 - Summary of Significant Accounting Policies
(a) Description of Business
Prometheus Energy Company (the "Company" or "Prometheus") is a Washington
corporation headquartered in Seattle, Washington. Prometheus is a public
corporation, having been admitted for trading on the London Stock Exchange's
Alternative Investment Market ("AIM market") on September 14, 2006. Prometheus
was formed on May 27, 2003 ("inception") to design, build, install, operate and
maintain distributed-scale, integrated purification and liquefaction systems
that convert low-cost methane-bearing gas streams into high value liquid natural
gas ("LNG"). Prometheus is focused on capturing significant market share in the
growing LNG and liquid compressed natural gas ("LCNG") market through a
combination of product manufacturing, fuel supply management services, LNG and
LCNG project development and direct fuel sales to wholesale and retail
customers.
Prometheus operates three wholly-owned subsidiaries. Apollo Energy I, LLC ("AE
I") was formed on October 15, 2004. Clean Fuels LLC was acquired in March 2006.
Prometheus Energy Company U.K. was formed in October 2006. In addition, the
Company has formed Apollo Energy II ("AE II"), Apollo Energy IV ("AE IV"),
Apollo Energy V ("AEV"), Apollo Energy VI ("AEVI") and Apollo Energy VII
("AEVII") limited liability companies and Apollo Clean Fuel Company USA, a
Washington Corporation that will serve as project entities with respect to the
Company's LNG projects. Prometheus purchased a 66% interest in H2 Storage
Solutions on June 30, 2003. This acquisition does not meet the criteria of a
business combination under EITF 98-3.
Prometheus also operates within joint venture partnerships under strategic
relationships to secure gas rights, develop production and obtain distribution
contracts. The Company may contribute cash, equipment and services into the
joint ventures in return for an equity interest. As of June 30, 2007, the
Company has contributed $3,278,300 of cash into Apollo Energy III, LLC, a joint
venture with operations in California, $2,247,322 of cash into LNG Silesia, LLC,
a joint venture developing LNG production operations in Poland and is in
preliminary stages of entering into two additional joint ventures.
(b) Basis of Preparation
The financial statements have been prepared on a going concern basis in view of
the directors obtaining an ongoing funding commitment which will provide
sufficient funds to the Company to enable it to meet its liabilities as they
fall due for at least twelve months from the date of approval of these financial
statements. Based on this commitment, the directors believe that it remains
appropriate to prepare the financial statements on a going concern basis. The
financial statements do not include any adjustments that would result from the
basis of preparation being inappropriate.
(c) Management's Plan and Liquidity
The Company continues to generate operating losses as it continues to develop
its business, investing in technology research and development and project
development. The Company intends to continue to develop LNG production and
distribution opportunities as part of its growth plan. As of June 30, 2007, the
Company has cash and cash equivalents of $346,178 and $10,000,000 available
under total credit facilities of $12,500,000.
In order to successfully develop production opportunities, arrange for equipment
fabrication and complete construction and commissioning of production plant and
facilities, the Company will periodically need to raise additional capital or
incur additional debt. Future operations and benefits expected to be realized
from the Company's investments in such production capacity are dependant upon
the successful installation and operation of the liquefaction systems, and the
ability to raise additional finance.
(d) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Prometheus Energy Company, Inc. and its majority-owned subsidiaries
(collectively, the Company). In accordance with Financial Accounting Standards
Board (FASB) Interpretation No. 46(R), Consolidation of Variable Interest
Entities (FIN 46R), the Company also consolidates any variable interest entities
(VIE's) of which it is the primary beneficiary, as defined. When the Company
does not have a controlling interest in an entity, but exerts a significant
influence over the entity, the Company applies the equity method of accounting.
All significant inter-company balances and transactions have been eliminated on
consolidation.
(e) Statements of Cash Flows
The Company considers all highly liquid debt instruments with a final maturity
of three months or less when purchased to be cash equivalents. Cash and cash
equivalents include $346,178 in overnight deposit accounts and certificates of
deposit at June 30, 2007. Interest income from investment in cash equivalents
for the six months ended June 30, 2007 was $96,599.
(f) Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear
interest. Amounts collected on trade accounts receivable are included in cash
flows from operating activities in the consolidated statements of cash flows.
The allowance for doubtful accounts is the Company's best estimate of probable
credit losses in the Company's existing accounts receivable. The Company reviews
its allowance for doubtful accounts monthly. Past due balances over 90 days and
over a specified amount are reviewed individually for collectibility. Account
balances are written off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote.
Allowance for doubtful accounts for the six months ended June 30, 2007
approximated $49,900. The Company does not have any off-balance-sheet credit
exposure related to its customers.
(g) Receivables from Joint Ventures
Receivables from joint ventures represent expenses incurred by the Company that
have been or will be billed to its joint ventures. Joint venture receivables are
stated at the amount management expects to collect from balances outstanding at
year-end.
h) Debt Issuance Cost
Debt issuance cost represents the unamortized portion of the fair market value
of warrants issued to PEC III Holdings, LLC in conjunction with a Line of Credit
Letter Agreement. The warrant grants rights to purchase 4,834,158 shares of
common stock at an exercise price of $1.03 per share on or before February 1,
2012. The warrants had a fair market value of $2,083,796 on the date of
issuance. The fair market value of the warrants is being amortized to interest
expense on the effective interest rate method over the life of the agreement.
The amount recognized as amortization expense for the six months ended June 30,
2007 was $463,066. The Company reports debt issuance cost net of accumulated
amortization.
(i) Prepaids and Other Current Assets
Other current assets consist of equipment and rent deposits, prepaid insurance
cost, and employee receivables. Prepaid insurance included in other current
assets at June 30, 2007 was $168,932.
(j) Facilities and Equipment
Property, plant, and equipment are stated at cost. Plant and equipment under
capital leases are stated at the present value of minimum lease payments or fair
value of asset, whichever is less. Depreciation on plant and equipment is
calculated using the straight-line method over the estimated useful lives of the
assets. The estimated useful life of furniture and fixtures, computer hardware,
office equipment, and shop equipment is 5 years; of vehicles and tanker
trailers, 3 to 20 years; and of leasehold improvements, over remainder of lease
term. Equipment held under capital leases are amortized on a straight-line basis
over the shorter of the lease term or estimated useful life of the asset. Total
depreciation for the period ended June 30, 2007 was $288,077 all of which was
recorded in general and administrative expense.
(k) Construction in Progress
The Company designs and manufactures or contracts for the manufacture of
liquefaction units intended to be sold or contributed to joint ventures. Costs
incurred for design, component purchase, manufacturing and direct labor are
capitalized and the units will either be sold under purchase and sale agreements
or contributed to joint ventures in the form of equity contributions. The
Company receives progress payments at various points during equipment
manufacture, delivery and start-up, which are deferred and recognized upon the
completion of the project along with all related costs. Construction in progress
may also include the costs of design, permitting, construction, equipment
purchases and capitalized direct labor incurred in the development of specific
projects by affiliates that are either wholly-owned or partially-owned through
joint ventures, to the extent such entities are consolidated.
(l) Investment in Joint Ventures
The Company enters into joint ventures that are formed to produce and distribute
LNG and LCNG. Generally, the Company intends to enter into joint ventures with
strategic partners that hold rights to gas sources and/or distribution
infrastructure and facilities. The Company may contribute cash, liquefaction
units, technology and/or services in return for an equity share of the joint
ventures. Upon formation of the joint ventures, the Company expects to contract
with the entities to develop the project, and install, operate and maintain the
liquefaction units and related production operations. Income from the joint
ventures is distributed in accordance with the related joint venture agreements
and gas produced is sold at a price to be determined by the joint venture
manager. The Company evaluates joint ventures in accordance with FIN46R to
determine if the joint ventures are variable interest entities. As a result of
the Company's analysis Apollo Energy III joint venture is recorded on the equity
method of accounting and contributions of equipment and services are recorded at
cost as of June 30, 2007, and LNG Silesia LLC joint venture is recorded on the
consolidated method of accounting. Future investments may be accounted for under
the equity or consolidated method based upon the Company's ownership interest or
implied beneficial interest.
(m) Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair
value of the identifiable net assets acquired in a purchase business
combination. Goodwill is reviewed for impairment at least annually in accordance
with the provisions of FASB Statement (SFAS) No. 142, Goodwill and Other
Intangible Assets. The goodwill impairment test is a two-step test. Under the
first step, the fair value of the reporting unit is compared with its carrying
value (including goodwill). If the fair value of the reporting unit is less than
its carrying value, an indication of goodwill impairment exists for the
reporting unit and the enterprise must perform step two of the impairment test
(measurement). Under step two, an impairment loss is recognized for any excess
of the carrying amount of the reporting unit's goodwill over the implied fair
value of that goodwill. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit in a manner similar to a
purchase price allocation, in accordance with SFAS No. 141, Business
Combinations. The residual fair value after this allocation is the implied fair
value of the reporting unit goodwill. Fair value of the reporting unit is
determined using a discounted cash flow analysis. If the fair value of the
reporting unit exceeds its carrying value, step two does not need to be
performed.
(n) Revenue Recognition
The Company recognizes service revenues as the services are performed and
revenue is earned.
Revenues from equipment and liquefaction unit design, manufacture and sales are
recognized under the completed contract method upon delivery of the unit,
installation and customer acceptance, if applicable. Deposits and progress
payments received prior to final delivery are recorded as deferred revenues and
recognized upon completion. Deferred revenues as of June 30, 2007 amount to
$2,025,000 and will be recognized during future periods along with related
direct cost of revenues upon completion and delivery.
Anticipated losses on fixed price equipment construction and installation
contracts are recognized during the period identified. In for the six months
ended June 30, 2007 the Company recognized a loss in the amount of $550,112
related to equipment sales contracts.
(o) Interest Expense
Interest expense includes accrued interest as determined using the effective
interest rate method, plus the amortization of debt discount and debt issuance
costs incurred. Debt discount and debt issuance costs are amortized over the
life of the loan or the credit facility. The components of interest expense were
$338,928, $272,838, and $463,066 for accrued interest, debt discount
amortization and debt issuance cost amortization respectively for the six months
ended June 30, 2007.
(p) Net Loss per Common Share
The Company computed net loss per common share in accordance with SFAS No. 128,
Earnings per Share. Under the provisions of SFAS No. 128, basic net loss per
common share is computed by dividing the net loss attributable to common
stockholders for the period by the weighted average number of common shares
outstanding during the period. Diluted net loss per common share is computed by
dividing the net loss attributable to common stockholders for the period by the
weighted average number of common and dilutive equivalent shares outstanding
during the period. Warrants and options outstanding as of June 30, 2007 to
purchase 32,854,958 shares of common stock were not included in the computation
of diluted net loss per common share for the six months ended June 30, 2007 as
their inclusion would have been anti-dilutive. The Company had a net loss in
each of the periods presented, therefore, basic and diluted net loss per common
share are the same.
(q) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(r) Stock Option Plan
Effective January 1, 2006, the Company adopted FASB Statement No 123(R),
Share-Based Payment (Statement 123R). This statement replaces FASB Statement No.
123, Accounting for Stock-based Compensation (Statement 123) and supersedes APB
No 25. Statement 123R requires that all stock-based compensation be recognized
as an expense in the financial statements and that such cost be measured at the
fair value of the award. For stock-based awards granted after January 1, 2006,
the Company recognizes compensation expense based on estimated grant date fair
value using the Black-Scholes option-pricing model.
Statement 123R also requires that excess tax benefits related to stock option
exercises be reflected as financing cash inflows. Share-based compensation cost
that has been included in income from continuing operations amounted to
$1,001,503 for the six months ended June 30, 2007. The total income tax benefit
recognized in the income statement for share-based compensation arrangements was
-0- for the six months ended June 30, 2007. Share-based compensation cost
capitalized as part of inventory as of June 30, 2007 was nil.
(s) Use of Estimates
The preparation of the consolidated financial statements, in accordance with
generally accepted accounting principles in the United States of America,
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Significant items subject to such estimates and assumptions include the carrying
amount of property, plant and equipment, intangibles and goodwill; valuation
allowances for receivables and deferred income tax assets; and valuation of
share-based compensation. Actual results could differ from those estimates.
(t) Long-Lived Assets
In accordance with FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, long-lived assets, such as property, plant, and
equipment, and purchased intangible assets subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If circumstances require a
long-lived asset be tested for possible impairment, the Company first compares
undiscounted cash flows expected to be generated by an asset to the carrying
value of the asset. If the carrying value of the long-lived asset is not
recoverable on an undiscounted cash flow basis, an impairment is recognized to
the extent that the carrying value exceeds its fair value. Fair value is
determined through various valuation techniques including discounted cash flow
models, quoted market values and third-party independent appraisals, as
considered necessary.
(u) Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation,
fines, and penalties and other sources, are recorded when it is probable that a
liability has been incurred and the amount of the assessment and/or remediation
can be reasonably estimated. Legal costs incurred in connection with loss
contingencies are expensed as incurred.
(v) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash and cash equivalents. At times, the Company has cash
and cash equivalents deposited at financial institutions in excess of federally
insured limits. However, cash and cash equivalents are held on deposit in major
financial institutions and are considered subject to minimal credit risk.
Note 2 - Construction in Progress
Construction in progress consists of costs incurred to build liquefaction units,
the cost to refurbish two liquefaction units held by the Company for future
projects, and the initial purchase cost for such units totaling $2,000,000. The
Company has agreements with joint ventures to design and construct liquefaction
units, either to be sold or contributed to the joint ventures in the form of
equity contributions. The liquefaction units are in varying stages of completion
at June 30, 2007.
Liquefaction Unit Development and Joint Venture Installation
Construction in progress consists of the following:
June 30, December 31,
2007 2006
--------------------------
Liquefaction Equipment for Apollo Energy I, LLC $1,659,482 $1,553,723
Liquefaction Equipment for Apollo Energy II, LLC 704,035 692,435
Liquefaction Equipment for Apollo Energy III, LLC 2,367,993 2,025,000
Liquefaction Equipment and Site Development for
Bowerman II 2,985,482 2,669,530
Other Construction in Progress 226,059 -
--------------------------
$7,943,051 $6,940,688
==========================
Note 3 -Other Commitments
(a) Sales Commitment
The Company's subsidiary, Apollo Energy III, LLC ("AE III") has a sale
commitment with Apollo LNG, whereby the first 5,000 gallons per day of LNG
produced from the Bowerman landfill site is to be sold to Apollo LNG at a price
of $0.66 per gallon.
(b) Equipment Sales Agreements
The Company has entered into fixed-fee equipment sales agreements with two joint
ventures.
(c) Equipment Purchase Commitments
The Company has entered into an agreement to purchase four tanker trailers.
Three of the tanker trailers have been delivered and fully paid for. The Company
has an outstanding obligation to pay $95,000 upon delivery of the fourth tanker
trailer, with an expected delivery in August 2007. In 2007 the Company entered
into an additional agreement to purchase two additional cryogenic tank trailers.
The Company has an outstanding obligation to pay $344,147 upon delivery of the
trailers in September 2007.
Note 4 - Consolidated Subsidiaries
The Company's financial statements include the 100% consolidation of Apollo
Energy I, LLC as a limited liability company, Clean Fuels, LLC and Prometheus
Energy Company UK and 66% of H2 Storage Solutions, Inc.
Note 5 - Commitments and Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
Note 6 - Subsequent Events
In July 2007, the Company drew an additional $2,000,000 on the $12,500,000
credit line provided by a major shareholder - PEC III Holdings, LLC - bringing
the total amount outstanding under the facility to $4,500,000.
In August 2007, the Company entered into a $15,000,000 convertible loan
agreement with Black River Commodity Clean Energy Investment Fund LLC, a fund
managed by Black River Asset Management LLC, a global asset management Company.
Upon closing of the Black River financing, the commitment of PEC III Holdings,
LLC to lend under the credit facility noted above, was automatically reduced to
nil.
Note 7 - Nature of financial information
The interim financial information set out above is not audited and does not
represent statutory financial statements for the Company for the period ended
June 30, 2007.
The Board approved the interim financial information for the period ended June
30, 2007 on September 17, 2007.
These interim results will be available on the Company's website:
www.prometheus-energy.com. Further copies can be obtained from the office at
Jefferies International at Bracken House, One Friday Street, London EC4M 9JA.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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