Attached files
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10-K - FORM 10-K - US GEOTHERMAL INC | form10k.htm |
EX-31.2 - EXHIBIT 31.2 - US GEOTHERMAL INC | exhibit31-2.htm |
EX-31.1 - EXHIBIT 31.1 - US GEOTHERMAL INC | exhibit31-1.htm |
EX-21.1 - EXHIBIT 21.1 - US GEOTHERMAL INC | exhibit21-1.htm |
EX-32.2 - EXHIBIT 32.2 - US GEOTHERMAL INC | exhibit32-2.htm |
EX-23.2 - EXHIBIT 23.2 - US GEOTHERMAL INC | exhibit23-2.htm |
EX-32.1 - EXHIBIT 32.1 - US GEOTHERMAL INC | exhibit32-1.htm |
EX-23.1 - EXHIBIT 23.1 - US GEOTHERMAL INC | exhibit23-1.htm |
U.S. GEOTHERMAL INC.
________
Consolidated Financial Statements
December 31, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
U.S. Geothermal Inc.
We have audited the accompanying consolidated balance sheet of U.S. Geothermal Inc. (the Company) as of December 31, 2015 and the related consolidated statements of income and comprehensive income, cash flows, and changes in stockholders equity for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of U.S. Geothermal Inc. as of December 31, 2015, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Moss Adams LLP
Seattle, Washington
March 10, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
U.S. Geothermal,
Inc.
We have audited the accompanying consolidated balance sheet of U.S. Geothermal, Inc. as of December 31, 2014 and the related consolidated statements of operations, stockholders equity, and cash flows for the year then ended. U.S. Geothermal, Inc.s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of U.S. Geothermal, Inc. as of December r 31, 2014 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 16 to the financial statements, U.S. Geothermal, Inc. has included segment reporting of the 2014 financial information for comparison purposes. Our opinion is not modified with respect to this matter.
Fruci & Associates II, PLLC (fka-MartinelliMick PLLC)
Spokane, Washington
March 13, 2015, except for Note 16, as to which the
date is March 10, 2016
U.S. GEOTHERMAL INC.
CONSOLIDATED BALANCE SHEETS
December 31, | ||||||
2015 | 2014 | |||||
ASSETS | ||||||
Current: | ||||||
Cash and cash equivalents | $ | 8,654,375 | $ | 12,994,975 | ||
Restricted cash and bonds | 4,696,007 | 3,320,781 | ||||
Trade accounts receivable | 3,766,517 | 3,774,133 | ||||
Other current assets | 1,680,819 | 1,550,359 | ||||
Total current assets | 18,797,718 | 21,640,248 | ||||
Restricted cash and bond reserves | 17,495,789 | 18,690,096 | ||||
Property, plant and equipment, net | 167,736,792 | 166,859,446 | ||||
Intangible assets, net of amortization | 15,265,828 | 15,417,514 | ||||
Net deferred income tax asset | 8,921,000 | 10,307,000 | ||||
Total assets | $ | 228,217,127 | $ | 232,914,304 | ||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||
Current Liabilities: | ||||||
Accounts payable and accrued liabilities | $ | 2,703,226 | $ | 1,886,947 | ||
Related party accounts payable | - | 5,195 | ||||
Convertible promissory note | 1,597,000 | - | ||||
Current portion of capital lease obligations | - | 20,919 | ||||
Current portion of notes payable | 4,412,012 | 4,336,271 | ||||
Total current liabilities | 8,712,238 | 6,249,332 | ||||
Long-term Liabilities: | ||||||
Asset retirement obligations | 1,204,930 | 1,400,000 | ||||
Notes payable, less current portion | 89,887,052 | 94,376,351 | ||||
Total long-term liabilities | 91,091,982 | 95,776,351 | ||||
Total liabilities | 99,804,220 | 102,025,683 | ||||
Commitments and Contingencies (note 12) | ||||||
STOCKHOLDERS EQUITY | ||||||
Capital stock (authorized: 250,000,000
common shares with a $0.001 par value; issued and outstanding shares at December 31, 2015 and 2014 were: 107,601,425 and 107,018,029; respectively) |
107,601 | 107,018 | ||||
Additional paid-in capital | 118,131,013 | 103,669,371 | ||||
Accumulated deficit | (17,437,631 | ) | (19,284,860 | ) | ||
100,800,983 | 84,491,529 | |||||
Non-controlling interests | 27,611,924 | 46,397,092 | ||||
Total stockholders equity | 128,412,907 | 130,888,621 | ||||
Total liabilities and stockholders equity | $ | 228,217,127 | $ | 232,914,304 |
The accompanying notes are an integral part of these
consolidated financial statements.
-F-1-
U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE
INCOME
For the Year Ended December 31, | ||||||
2015 | 2014 | |||||
Plant Revenues: | ||||||
Energy sales | $ | 30,842,196 | $ | 30,596,261 | ||
Energy credit sales | 357,902 | 372,521 | ||||
Total plant operating revenues | 31,200,098 | 30,968,782 | ||||
Plant Expenses: | ||||||
Plant production expenses | 9,572,707 | 9,701,506 | ||||
Depreciation and amortization | 6,299,405 | 6,241,354 | ||||
Total plant operating expenses | 15,872,112 | 15,942,860 | ||||
Gross Profit | 15,327,986 | 15,025,922 | ||||
Operating Expenses: | ||||||
Corporate administration | 1,087,675 | 1,136,849 | ||||
Professional and management fees | 1,067,939 | 986,742 | ||||
Employee compensation | 2,882,105 | 3,197,919 | ||||
Travel and promotion | 215,591 | 199,894 | ||||
Exploration costs | 82,316 | 508,500 | ||||
Operating Income | 9,992,360 | 8,996,018 | ||||
Interest Expense | 3,797,155 | 4,060,133 | ||||
Other (income) expense | (141,293 | ) | 346,588 | |||
Income Before Income Tax Expense | 6,336,498 | 4,589,297 | ||||
Income Tax (Expense) Benefit | (1,386,000 | ) | 10,307,000 | |||
Net Income | 4,950,498 | 14,896,297 | ||||
Net income attributable to the non-controlling interests | (3,103,269 | ) | (3,282,586 | ) | ||
Net Income Attributable to U.S. Geothermal Inc. | 1,847,229 | 11,613,711 | ||||
Other Comprehensive Income: | ||||||
Unrealized income on investment in equity securities | - | 27,321 | ||||
Comprehensive Income Attributable to U.S. Geothermal Inc. | $ | 1,847,229 | $ | 11,641,032 | ||
Basic Earnings Per Share Attributable to U.S. Geothermal Inc. | $ | 0.02 | $ | 0.11 | ||
Diluted Earnings Per Share Attributable to U.S. Geothermal Inc. | $ | 0.02 | $ | 0.11 | ||
Weighted average number of shares used in the calculation of income per share: | ||||||
Basic | 106,970,812 | 103,765,537 | ||||
Diluted | 108,313,601 | 106,457,846 |
The accompanying notes are an integral part of these
consolidated financial statements.
-F-2-
U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, | ||||||
2015 | 2014 | |||||
Operating Activities: | ||||||
Net Income | $ | 4,950,498 | $ | 14,896,297 | ||
Adjustments to reconcile net income to total cash provided by operating activities: | ||||||
Depreciation and amortization | 6,409,818 | 6,367,817 | ||||
Stock based compensation | 1,107,828 | 1,339,496 | ||||
Loss on sale of securities | - | 27,967 | ||||
Gain on software refund | - | (13,239 | ) | |||
Loss on disposal of geothermal water rights | - | 451,299 | ||||
Change in deferred income taxes | 1,386,000 | (10,307,000 | ) | |||
Net changes in: | ||||||
Trade accounts receivable | 7,616 | 332,673 | ||||
Accounts payable and accrued liabilities | 59,510 | 178,158 | ||||
Prepaid expenses and other | (130,460 | ) | (471,097 | ) | ||
Total cash provided by operating activities | 13,790,810 | 12,802,371 | ||||
Investing Activities: | ||||||
Purchases of property, plant and equipment | (6,602,974 | ) | (3,746,083 | ) | ||
Acquisition of additional interests in subsidiaries | (3,500,000 | ) | (6,842,281 | ) | ||
Proceeds from sale of equities held for investment | - | 41,528 | ||||
Proceeds from software refund | - | 31,120 | ||||
Net funding of restricted cash reserves and bonds | (180,919 | ) | (4,712 | ) | ||
Total cash used by investing activities | (10,283,893 | ) | (10,520,428 | ) | ||
Financing Activities: | ||||||
Issuance of common stock | 49,549 | 1,634,918 | ||||
Contributions from non-controlling interest | - | 7,360 | ||||
Distributions to non-controlling interest | (3,462,589 | ) | (15,048,334 | ) | ||
Principal payments on notes payable and other obligations | (4,413,558 | ) | (4,569,726 | ) | ||
Principal payments on capital leases | (20,919 | ) | (48,120 | ) | ||
Total cash used by financing activities | (7,847,517 | ) | (18,023,902 | ) | ||
Decrease in Cash and Cash Equivalents | (4,340,600 | ) | (15,741,959 | ) | ||
Cash and Cash Equivalents, Beginning of Period | 12,994,975 | 28,736,934 | ||||
Cash and Cash Equivalents, End of Period | $ | 8,654,375 | $ | 12,994,975 | ||
Supplemental Disclosures: | ||||||
Non-cash investing and financing activities: | ||||||
Accrual for purchases of property and equipment | $ | 8,230 | $ | 84,208 | ||
Company acquisition by issuance of common stock | - | 318,674 | ||||
Convertible promissory note issued for additional subsidiary interest | 1,597,000 | - | ||||
Non-cash distributions to non-controlling interest | 24,000 | 24,000 | ||||
Other Items: | ||||||
Interest paid | 3,819,585 | 4,080,396 |
The accompanying notes are an integral part of these
consolidated financial statements.
-F-3-
U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS EQUITY
For the Years
Ended December 31, 2015 and 2014
Additional | Accumulated | Non- | |||||||||||||||||||
Number of | Common | Paid-In | Accumulated | Comprehensive | controlling | ||||||||||||||||
Shares | Shares | Capital | Deficit | Income (Loss) | Interest | Totals | |||||||||||||||
Balance at January 1, 2014 | 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 | - | - | - | - | - | (15,048,334 | ) | (15,048,334 | ) | ||||||||||||
Non-controlling equity contributions | - | - | - | - | - | 7,360 | 7,360 | ||||||||||||||
Stock issued to shareholders of acquired company | 692,769 | 693 | 317,981 | - | - | - | 318,674 | ||||||||||||||
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 | 1,338,936 | - | - | - | 1,339,495 | ||||||||||||||
Unrealized loss and reclassification to net income | - | - | - | - | 27,321 | - | 27,321 | ||||||||||||||
Net income | - | - | - | 11,613,711 | - | 3,282,586 | 14,896,297 | ||||||||||||||
Balance at December 31, 2014 | 107,018,029 | 107,018 | 103,669,371 | (19,284,860 | ) | - | 46,397,092 | 130,888,621 | |||||||||||||
Distributions to non-controlling interest entities | - | - | - | - | - | (3,486,589 | ) | (3,486,589 | ) | ||||||||||||
Acquisition of additional interest in subsidiary | - | - | 13,304,848 | - | - | (18,401,848 | ) | (5,097,000 | ) | ||||||||||||
Stock issued by the exercise of employee stock options | 155,000 | 155 | 49,395 | - | - | - | 49,550 | ||||||||||||||
Stock compensation | 428,396 | 428 | 1,107,399 | - | - | - | 1,107,827 | ||||||||||||||
Net income | - | - | - | 1,847,229 | - | 3,103,269 | 4,950,498 | ||||||||||||||
Balance at December 31, 2015 | 107,601,425 | $ | 107,601 | $ | 118,131,013 | $ | (17,437,631 | ) | $ | - | $ | 27,611,924 | $ | 128,412,907 |
The accompanying notes are an integral part of these
consolidated financial statements.
-F-4-
U.S. GEOTHERMAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
U.S. Geothermal Inc. (the Company) 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, owns, manages and operates power plants that utilize geothermal resources to produce renewable energy. The Companys operations have been, primarily, focused in the United States and Central America.
Basis of Presentation
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) |
USG Mayacamas Inc. (incorporated in the State of Delaware); | |
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); | |
xx) |
Earth Power Resources Inc. (incorporated in the State of Delaware); and | |
xxi) |
Idaho USG Holdings LLC (organized in the State of Delaware). |
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 consolidated statements of income and comprehensive income will consolidate the subsidiarys full operations, and will separately disclose the elimination of the non-controlling interests allocation of profits and losses.
-F-5-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Companys consolidated financial statements have been prepared accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The consolidated financial statements include the accounts of U.S. Geothermal and its consolidated subsidiaries.
Use of Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as reported amounts of revenues and expenses during the reporting periods. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Companys consolidated financial statements; accordingly, actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all unrestricted cash and short-term deposits, with original maturities of no more than ninety days when acquired to be cash and cash equivalents.
Trade Accounts Receivable Allowance for Doubtful Accounts
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 December 31, 2015 and December 31, 2014, there were no balances that were over 90 days past due and no balance in allowance for doubtful accounts was recognized.
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 December 31, 2015, the Companys total cash balance, excluding money market funds and a deposit held by a major customer, was $1,453,190 and bank deposits amounted to $1,699,254. The difference was due to outstanding checks and deposits. Of the bank deposits, $518,845 was not covered by or was in excess of FDIC insurance guaranteed limits. At December 31, 2015, the Companys money market funds invested, primarily, in government backed securities totaled $27,921,666 and were not subject to deposit insurance. A security bond that totaled $1,468,898 at year end was held under contracted terms by a major customer.
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 typically 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 and are included in construction in progress until the project has been placed into service. 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.
-6-
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 is 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.
-F-7-
Impairment of Long-Lived Assets
The Company evaluates the carrying value of its long-lived assets for impairment when factors and circumstances indicate that the carrying values may not be recoverable. Factors which could trigger an impairment include, among others, significant underperformance relative to historical or projected future operating results, significant changes in the Companys use of assets or its overall business strategy, negative industry or economic trends, a determination that a project will not support commercial operations, a determination that a suspended project is not likely to be completed, a significant increase in costs necessary to complete a project, legal factors relating to its business or when it concludes that it is more likely than not that an asset will be disposed of or sold. The Company tests its long-lived assets for impairment at the operating plants or site location. Recoverability of assets held and used is determined by comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment recognized is measured by the amount in which the carrying amount of the assets exceeds their fair value. The estimate of future cash flows required significant judgments of factors that include future sales, gross profit and operating expenses.
Stock Compensation
The Company accounts for stock based compensation by recording the estimated fair value of stock-based awards granted as compensation expense over the vesting period, net of estimated forfeitures. The fair value of restricted stock awards is determined based on the number of shares granted and the quoted price of the Companys common stock on the date of grant. The fair value of stock option awards is estimated at the grant date as calculated by the Black-Scholes-Merton option pricing model. Stock-based compensation expense is attributed to earnings for stock options and restricted stock on the straight-line method. The Company estimates forfeitures of stock-based awards based on historical experience and expected future activity.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Using this method, deferred tax assets and liabilities are recorded based on the differences between the financial reporting and tax basis of assets and liabilities. The deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company routinely evaluates the likelihood of realizing the benefit of its deferred tax assets and may record a valuation allowance if, based on all available evidence, it is determined that it is more likely than not that all or some portion of the deferred tax benefit will not to be realized.
The Company regularly evaluates the likelihood of realizing the benefit for income tax positions in various federal, state and foreign filings by considering all relevant facts, circumstances and information available. If the Company believes it is more likely than not that its positions will be sustained, a benefit is recognized at the largest amount that is cumulatively greater than 50% likely to be realized. Interest and penalties related to income tax matters are classified as a component of income tax expense. Unrecognized tax benefits are recorded in other liabilities and long-term debt and other liabilities on the consolidated balance sheets.
Earnings Per Share
Basic income or loss per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as options and restricted stock awards. Restricted stock awards (RSAs) are considered outstanding and included in the computation of basic income or loss per share when underlying restrictions expire and the awards are no longer forfeitable. Diluted income per share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive. In a period where the Company is in a net loss position, the diluted loss per share is computed using the basic share count. Common stock purchase warrants, broker warrants and options excluded from the diluted share calculations because their effect is anti-dilutive for the years ended December 31, 2015 and 2014 totaled 1,148,699 and 2,228,049; respectively.
-F-8-
The weighted average number of shares used in the calculation of common and diluted shares outstanding have been modified from the prior year presentation to account for a correction of an error in applying the treasury stock method. Basic and diluted earnings per share for the year ended December 31, 2014 as previously presented were $0.11 and $0.09, respectively, compared to $0.11 and $0.11, as corrected. The error was not material to the interim or annual financial statements.
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
Foreign Currency Translation
The Companys functional currency is the U.S. dollar. Monetary items are converted into U.S. dollars at the rate prevailing at the consolidated balance sheet date. Resulting translation adjustments are included in other comprehensive income (loss) and accumulated other comprehensive income (loss), a separate component of shareholders equity.
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 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 consolidated statement of income and comprehensive income
(loss).
Revenue Source
All of the Companys operating revenues (energy sales and renewable energy credit sales) originate from energy production from its interests in three geothermal power plants located in the states of Idaho, Oregon and Nevada. The plants located in Oregon and Idaho sell their energy to the same electric power utility that primarily serves Idaho and eastern Oregon. For the years ended December 31, 2015 and 2014, the percentage of operating revenues from the major customer to total operating revenues was 75.4% and 76.1%; respectively. At December 31, 2015 and 2014, the percentage of trade accounts receivable balance from the major customer was 80.7% and 77.1%; respectively.
-F-9-
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 income, total assets, or stockholders equity as previously reported.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements. The following pronouncements were deemed applicable to our financial statements:
Leases
In February 2016, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update No.
2016-02 (Update 2016-02), Leases (Topic 842). Update 2016-02 recognizes
lease assets and lease liabilities on the balance sheet and requires disclosing
key information about leasing arrangements. Under previous standards, assets and
liabilities were only recognized for leases that met the definition of a capital
lease. Our preliminary review indicates that many of the Companys lease
contracts would be subject to the reporting requirements defined by this Update.
The Update is effective for public companies with fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early
adoption is permitted. In transition, the Company would be required to recognize
and measure leases at the beginning of the earliest period being presented using
a modified retrospective approach. Management is still evaluating the possible
impact this Update may have on the financial presentation of the Companys
consolidated financial statements.
Income Taxes
In November 2015, the
FASB issued Accounting Standards Update No. 2015-17 (Update 2015-17),
Balance Sheet Classification of Deferred Taxes (Topic 740). Update
2015-17 eliminates the requirement of classifying deferred tax liabilities and
assets in current and noncurrent amounts. This Update requires that
deferred tax liabilities and assets be classified as noncurrent in a classified
statement of financial position. Update 2015-17 is effective, for public
entities, for financial statements issued for annual periods beginning after
December 15, 2016 and interim periods within those annual periods. Earlier
application is permitted for all entities as of the beginning of an interim or
annual reporting period. We adopted the new guidance retrospectively beginning
with the year ended December 31, 2014, and applied such guidance consistently
for the year ended December 31, 2015. The adoption of this update resulted in
the reclassification of a current deferred tax asset of $1,803,000 to a
noncurrent deferred tax asset on our accompanying consolidated balance sheets as
of December 31, 2014.
-F-10-
Consolidation
In February 2015, FASB
issued Accounting Standards Update No. 2015-02 (Update 2015-02), Amendments
to the Consolidation Analysis, Consolidation (Topic 810). Update
2015-02 provides modifications to the evaluation of variable interest entities
that may impact consolidation of reporting entities. Update 2015-02 is effective
for public business entities for fiscal years, and for interim periods within
those fiscal years, beginning after December 15, 2015. The Company currently
consolidates variable interest entities and may create or acquire variable
interest entities for future endeavors. Management is still evaluating the
possible impact this Update may have on the financial presentation of the
Companys consolidated financial statements.
Business Combinations
In September
2015, FASB issued Accounting Standards Update No. 2015-16 (Update 2015-16),
Business Combinations (Topic 805), Simplifying the Accounting
Measurement-Period Adjustments. Update 2015-16 provides additional guidance
on how to account for provisional costs of business combinations that are
incomplete at the end of a reporting period. The amendment to this Update is
effective for public business entities for fiscal years beginning after December
15, 2015, including interim periods within those fiscal years. The specific
circumstances addressed in this Update do not currently apply to the Company.
However, the Company may engage in transactions subject to the guidance of this
Update in future periods. Management will continue to evaluate the possible
impact that this guidance may have on future consolidated financial
statements.
Presentation of Debt Issuance Costs
In
April 2015, FASB issued Accounting Standards Update No. 2015-03, Simplifying
the Presentation of Debt Issuance Costs, Interest-Imputation of Interest
(Subtopic 835-30). In August 2015, FASB issued Accounting Standards Update
No. 2015-15, Interest Imputation of Interest, Presentation and Subsequent
Measurement of Debt Issuance Costs Associated with Line-of-Credit
Arrangements (Topic 835-35). These Updates require that debt issuance
costs related to a recognized debt liability, including some costs related to
line of credit arrangements, be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability. For public business
entities, the Updates are effective for financial statements issued for fiscal
years beginning after December 15, 2015, and interim periods within those fiscal
years. Early adoption is permitted for financial statements that have not been
previously issued. Management is still evaluating the impact and the timing of
adoption of these Updates.
Revenue Recognition
In May 2014, FASB
issued Accounting Standards Update No. 2014-09 (Update 2014-09), Revenue
from Contracts with Customers (Topic 606). Update 2014-09 amends the revenue
recognition guidance and requires more detailed disclosures to enable financial
statement users to understand the nature, amount, timing and uncertainties of
revenue and cash flows arising from contracts with customers. In August 2015,
FASB issued Accounting Standards Update No. 2015-14 (Update 2015-14),
Revenue from Contracts with Customers (Topic 606), Deferral of the Effective
Date. Update 2015-14 extends the effective date of this guidance for annual
and interim reporting periods beginning after December 15, 2017, with early
adoption permitted for public companies effective for annual and interim
reporting periods beginning after December 15, 2016. Management is currently
evaluating the impact the guidance defined by Update 2014-09 will have on our
consolidated financial statements.
-F-11-
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:
December 31, | |||||||
Restricting Entities/Purpose |
2015 | 2014 | |||||
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, Revenue Account | 2,259 | 188,930 | |||||
Prudential Capital Group, Debt Service Reserves | 1,595,555 | - | |||||
Bureau of Land Management, Geothermal Rights Lease Bond | 10,000 | 10,000 | |||||
U.S. Department of Energy, Debt Service Payment Account | 2,118,193 | 2,151,851 | |||||
State of California Division of Oil, Gas and Geothermal Resources, Well Cash Bond | 100,000 | 100,000 | |||||
$ | 4,696,007 | $ | 3,320,781 |
Long-term restricted cash and bond reserves:
December 31, | |||||||
Restricting Entities/Purpose | 2015 | 2014 | |||||
Nevada Energy, PPA Security Bond | $ | 1,468,898 | $ | 1,468,898 | |||
Prudential Capital Group, Debt Service Reserves | - | 1,594,605 | |||||
Prudential Capital Group, Maintenance Reserves | 708,300 | 604,529 | |||||
Prudential Capital Group, Well Reserves | 314,590 | 212,298 | |||||
U.S. Department of Energy, Operations Reserves | 270,000 | 270,000 | |||||
U.S. Department of Energy, Debt Service Reserves | 2,542,058 | 2,582,606 | |||||
U.S. Department of Energy, Short Term Well Field Reserves | 4,507,110 | 4,505,150 | |||||
U.S. Department of Energy, Long-Term Well Field Reserves | 4,966,543 | 4,761,927 | |||||
U.S. Department of Energy, Capital Expenditure Reserves | 2,718,290 | 2,690,083 | |||||
$ | 17,495,789 | $ | 18,690,096 |
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. 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 December 31, 2015 and 2014.
-F-12-
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
During the year ended December 31, 2015, the Company focused development activities on the San Emidio Phase II; Guatemala, Crescent Valley and WGP Geysers projects with development. Drilling and testing costs of approximately $665,000 were incurred on the San Emidio Phase II. Drilling costs exceeded $1,526,000 in Guatemala. Drilling costs of approximately $1,096,000 were incurred on the first production well at Crescent Valley. Costs were incurred at WGP Geysers for site preparation, an interconnection study and well field testing that totaled approximately $1,551,000. In September 2015, the Company disposed of the fully depreciated old power plant located in San Emidio, Nevada at its historical cost of $2,275,475. In November 2015, the Company purchased all of the long lead equipment for the construction of three binary geothermal power plants for $1.5 million.
During the year ended December, 2014, the Company engaged in development activities for San Emidio, Nevada and the Guatemala projects. Two new exploration wells for the San Emidio Phase II project were drilled, and one other well drilled in 2013 was placed into production during the year for approximately $2.03 million. A portion of the drilling and development costs were offset by grant proceeds of $632,210. The new production well was connected to the existing Phase I power plant and is producing fluid to the plant as part of a long term test of the South Zone reservoir. During the year, costs that exceeded $924,000 were incurred at Guatemala for the construction of nine temperature gradient wells.
On December 12, 2014, the Company completed an acquisition of Earth Power Resources Inc. After acquisition, the Company incurred approximately $133,000 on the drilling of a new production well (see note 15 for details).
Effective April 22, 2014, the Company acquired a group of companies (The Geysers, California) that included long-term assets that totaled $7.8 million (land of $1.6 million, wells and other construction in progress of $6.2 million). After acquisition, the Company incurred development costs of approximately $259,000 for design and study work for a new power plant, transmission line and well field (see note 15 for details).
-F-13-
Property, plant and equipment, at cost, are summarized as follows:
December 31, | |||||||
2015 | 2014 | ||||||
Land | $ | 3,074,052 | $ | 3,211,010 | |||
Power production plant | 159,800,893 | 162,076,367 | |||||
Grant proceeds for power plants | (52,965,236 | ) | (52,965,236 | ) | |||
Wells | 67,621,167 | 67,621,167 | |||||
Grant proceeds for wells | (3,464,555 | ) | (3,464,555 | ) | |||
Furniture and equipment | 3,668,984 | 1,796,807 | |||||
177,735,305 | 178,275,560 | ||||||
Less: accumulated depreciation | (31,021,494 | ) | (27,068,836 | ) | |||
146,713,811 | 151,206,724 | ||||||
Construction in progress | 21,022,981 | 15,652,722 | |||||
$ | 167,736,792 | $ | 166,859,446 |
Depreciation expense charged to plant operations and administrative costs for the years ended December 31, 2015 and 2014, was $6,228,133 and $6,186,132; respectively.
Changes in construction in progress are summarized as follows:
For the Year Ended December 31, | |||||||
2015 | 2014 | ||||||
Beginning balances | $ | 15,652,722 | $ | 6,354,503 | |||
Development/construction | 5,370,259 | 3,730,371 | |||||
Grant reimbursements and rebates | - | (632,210 | ) | ||||
Acquisitions | - | 6,200,058 | |||||
Ending balances | $ | 21,022,981 | $ | 15,652,722 |
-F-14-
Constructions in Progress, at cost, consisting of the following projects/assets by location are as follows:
December 31, | |||||||
2015 | 2014 | ||||||
Raft River, Idaho: | |||||||
Unit I, well improvements | $ | 105,160 | $ | - | |||
Unit II, power plant, substation and transmission lines | 750,493 | 750,493 | |||||
Unit II, well construction | 2,146,531 | 2,127,547 | |||||
3,002,184 | 2,878,040 | ||||||
San Emidio, Nevada: | |||||||
Unit II, power plant, substation and transmission lines | 426,942 | 383,536 | |||||
Unit II, well construction | 3,798,563 | 3,133,873 | |||||
4,225,505 | 3,517,409 | ||||||
Neal Hot Springs, Oregon: | |||||||
Power plant and facilities | 50,297 | 6,477 | |||||
Well construction | 314,360 | - | |||||
364,657 | 6,477 | ||||||
WGP Geysers, California: | |||||||
Power plant and facilities | 325,989 | 319,988 | |||||
Well construction | 7,690,748 | 6,139,421 | |||||
8,016,737 | 6,459,409 | ||||||
Crescent Valley, Nevada: | |||||||
Well construction | 1,228,888 | 133,058 | |||||
El Ceibillo, Republic of Guatemala: | |||||||
Well construction | 4,176,510 | 2,649,829 | |||||
Plant and facilities | 8,500 | 8,500 | |||||
4,185,010 | 2,658,329 | ||||||
$ | 21,022,981 | $ | 15,652,722 |
-F-15-
NOTE 5 INTANGIBLE ASSETS
In June 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. On December 12, 2014, the Company completed an acquisition of Earth Power Resources Inc. The acquisition included 26,017 acres of geothermal water rights in located in the Crescent Valley area in the State of Nevada valued at $451,608 on the acquisition date. During the year ended December 31, 2014, the Company abandoned the Granite Creek, Nevada area and released the geothermal water and mineral rights originally purchased for $451,299.
Intangible assets, at cost, are summarized by project location as follows:
December 31, | |||||||
2015 | 2014 | ||||||
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 | (1,299,119 | ) | (1,117,434 | ) | |||
4,151,438 | 4,333,123 | ||||||
Inactive: | |||||||
Raft River, Idaho: | |||||||
Surface water rights | 146,342 | 146,343 | |||||
Geothermal water and mineral rights | 1,281,540 | 1,251,540 | |||||
Guatemala City, Guatemala: | |||||||
Geothermal water and mineral rights | 625,000 | 625,000 | |||||
Gerlach, Nevada: | |||||||
Geothermal water and mineral rights | 997,000 | 997,000 | |||||
Crescent Valley, Nevada: | |||||||
Geothermal water and mineral rights | 451,608 | 451,608 | |||||
The Geysers, California: | |||||||
Geothermal water rights | 278,872 | 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 | ) | |||
11,114,390 | 11,084,391 | ||||||
$ | 15,265,828 | $ | 15,417,514 |
Amortization expense was charged to plant operations for the years ended December 31, 2015 and 2014 that amounted to $181,685 and $181,685; respectively.
-F-16-
NOTE 6 INCOME TAXES
The significant components of the deferred income taxes are:
December 31, | ||||||
2015 | 2014 | |||||
Long-term deferred tax assets: | ||||||
Net operating loss carry forward | $ | 34,928,000 | $ | 32,353,000 | ||
Stock based compensation | 1,432,000 | 1,518,000 | ||||
Long-term deferred tax liabilities: | ||||||
Depreciation and amortization | (26,227,000 | ) | (21,811,000 | ) | ||
10,133,000 | 12,060,000 | |||||
Deferred tax asset utilized in current period | (1,212,000 | ) | (1,753,000 | ) | ||
Net deferred income tax assets | $ | 8,921,000 | $ | 10,307,000 |
The Companys estimated effective income tax rate is as follows:
For the Year Ended December 31, | ||||||
2015 | 2014 | |||||
U.S. Federal statutory rate | 34.0% | 34.0% | ||||
Average State and foreign income tax, net of federal tax effect | 3.5 | 3.7 | ||||
Valuation allowance | - | - | ||||
Consolidated tax rate before non-controlling interest | 37.5 | 37.7 | ||||
Tax effect of non-controlling interests | (18.4 | ) | (27.0 | ) | ||
Net effective tax rate | 19.1% | 10.7% |
The provision for income taxes reflects an estimated effective income tax rate attributable to U.S. Geothermal Inc.s share of income. Our provision for income taxes for the year ended December 31, 2015, reflects a reported effective tax rate of 19.1% which differs from the statutory federal income tax rate of 34.0% primarily due to the impact of the non-controlling interest and state income taxes.
At December 31, 2015, the Company had net income tax operating loss carry forwards of approximately $87,921,000 ($81,166,000 at December 31, 2014), which expire in the years 2023 through 2035. Approximately $82,970,000 of the operating losses were generated by the Company, the residual originated from acquired subsidiaries. In 2014, the Company purchased a group of companies. Federal and applicable state net operating losses that totalled approximately $5.8 million were included in the acquisition. These NOLs are scheduled to expire in the years ending 2024 through 2034. The use of these net operating losses is restricted by the Companys basis (acquisition price) and the applicable federal rate as defined by Section 382 of federal tax law. The estimated available net operating losses from the acquired companies were approximately $4,950,000 at December 31, 2015.
Accounting for Income Tax Uncertainties and Related
Matters
The Company files income tax returns in the U.S.
federal jurisdiction and in the States of Idaho, California and Oregon. These
filings are generally subject to a three year statute of limitations. The
Companys evaluation of income tax positions included the years ended December
31, 2015, 2014, and 2013. No filings are currently under examination. No
adjustments due to tax uncertainties have been made to reduce the estimated
income tax benefit at year end. Any valuations relating to these income tax
provisions will comply with U.S. Generally Accepted Accounting
Principles.
-F-17-
The Company currently does not have any uncertain tax positions to disclose. In the event that the Company is assessed interest or penalties on uncertain tax positions at some point in the future, it will be classified in the financial statements as tax expense.
NOTE 7 SHORT-TERM CONVERTIBLE PROMISSORY NOTE
On December 16, 2015, the Company executed a convertible promissory note in the amount of $1,597,000 due to Goldman Sachs as a partial payment for their ownership interest in the Raft River project. The note bears interest at 8% per annum and is due March 31, 2016. Up to $1.0 million of the note may be satisfied, at the election of the Company, with cash or shares of the Companys stock priced at the 10 day weighted average closing price at the time of conversion.
NOTE 8 LONG TERM 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). 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. 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. The loan principal is scheduled
to be paid over 21.5 years with semi-annual installments including interest
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 started at $1,709,963 on February 10, 2014 and are scheduled
to be reduced to $1,626,251 on February 10, 2017 and continue through February
12, 2035. The loan balance at December 31, 2015 totaled $63,546,722 (current
portion $3,375,448).
As of March 10, 2016, the Company was not in compliance with two non-financial covenants included in the loan agreement relating to 1) the substitution of a replacement index into a PPA document for a discontinued index and 2) the transfer of an operating lease agreement between the company and an independent third party into a family trust. Neither of these matters are substantive and the Company believes that each is readily curable. Legal counsel is assisting the Company in documenting a remedy for these two issues.
-F-18-
Loan advances/tranches and effective annual interest rates are details as follows:
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 December 31, 2015 | (19,511,243 | ) | |||||
Loan balance at December 31, 2015 | $ | 63,546,722 |
* - 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 10.0
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 and is scheduled to be repaid by September 2018. The loan balance
at December 31, 2015 totaled $1,086,383 (current portion $412,135).
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 projected operating results made at the loan
origination date 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 December 31, 2015, the balance of the loan was $29,665,959
(current portion $624,428).
-F-19-
Based upon the terms of the notes payable and expected conditions that may impact some of those terms, the total estimated annual principal payments were calculated as follows:
For the Year Ended | Principal | |||
December 31, | Payments | |||
2016 | $ | 4,412,012 | ||
2017 | 4,079,217 | |||
2018 | 3,759,756 | |||
2019 | 3,638,585 | |||
2020 | 3,751,359 | |||
Thereafter | 74,658,135 | |||
$ | 94,299,064 |
NOTE 9 - 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 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 December 31, 2015, the Company can issue stock option grants totaling up to 16,140,214 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.
The following table reflects the summary of stock options outstanding at January 1, 2014 and changes for the years ended December 31, 2015 and 2014:
Weighted | |||||||||
Average | |||||||||
Number of | Exercise | Aggregate | |||||||
shares under | Price Per | Intrinsic | |||||||
options | Share | Value | |||||||
Balance outstanding, January 1, 2014 | 11,888,250 | $ | 0.61 | $ | 4,542,715 | ||||
Forfeited/Expired | (1,886,250 | ) | 0.53 | - | |||||
Exercised | (1,077,000 | ) | 0.32 | - | |||||
Granted | 2,883,500 | 0.74 | - | ||||||
Balance outstanding, December 31, 2014 | 11,808,500 | 0.62 | 4,273,243 | ||||||
Forfeited/Expired | (1,550,000 | ) | 0.86 | - | |||||
Exercised | (155,000 | ) | 0.32 | - | |||||
Granted | 2,510,000 | 0.49 | - | ||||||
Balance outstanding, December 31, 2015 | 12,613,500 | $ | 0.57 | $ | 3,940,061 | ||||
Vested and expected to vest at December 31, 2015 | 12,588,400 | $ | 0.57 | $ | 3,904,620 |
-F-20-
The fair value of the stock options granted was estimated using the Black-Scholes-Merton 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 Year Ended December 31, | ||||||
2015 | 2014 | |||||
Dividend yield | 0 | 0 | ||||
Expected volatility | 65% | 81-100% | ||||
Risk free interest rate | 0.58% | 0.69-0.82% | ||||
Expected life (years) | 3.26 | 2.94 |
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.
The following table summarizes information about the stock options outstanding at December 31, 2015:
OPTIONS OUTSTANDING | ||||||||||||||
REMAINING | NUMBER OF | |||||||||||||
EXERCISE | NUMBER OF | CONTRACTUAL | OPTIONS | |||||||||||
PRICE | OPTIONS | LIFE (YEARS) | EXERCISABLE | INTRINSIC VALUE | ||||||||||
$ | 0.83 | 2,290,000 | 0.43 | 2,290,000 | $ | 1,122,100 | ||||||||
0.60 | 100,000 | 0.70 | 100,000 | 36,072 | ||||||||||
0.31 | 1,720,000 | 1.65 | 1,720,000 | 267,571 | ||||||||||
0.46 | 1,885,000 | 2.56 | 1,885,000 | 457,867 | ||||||||||
0.41 | 15,000 | 2.67 | 15,000 | 3,012 | ||||||||||
0.35 | 1,250,000 | 7.30 | 1,250,000 | 338,000 | ||||||||||
0.74 | 2,843,500 | 3.25 | 2,843,500 | 1,148,928 | ||||||||||
0.48 | 2,060,000 | 4.37 | 1,030,000 | 210,841 | ||||||||||
0.53 | 450,000 | 4.48 | 225,000 | 57,263 | ||||||||||
$ | 0.57 | 12,613,500 | 3.02 | 11,358,500 | $ | 3,641,654 |
-F-21-
Common Stock Compensation Plan (Restricted Shares)
Restricted shares are issued to the recipients when granted and held by the Company until vested. The recipients meet 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.
The following table summarizes restricted stock activity under the Stock Plan for 2015 and 2014:
Shares | Issue Price | |||||
Unvested at January 1, 2014 | - | $ | - | |||
Granted | 559,122 | 0.74 | ||||
Unvested at December 31, 2015 | 559,122 | 0.74 | ||||
Granted | 428,396 | 0.50 | ||||
Vested | (559,122 | ) | 0.74 | |||
Unvested December 31, 2015 | 428,396 | $ | 0.50 | |||
Expected to vest after December 31, 2015 | 428,396 | $ | 0.50 |
At December 31, 2015, total compensation cost related to restricted stock granted under the Stock Plan but not yet recognized was $357,040, net of estimated forfeitures. This cost will be amortized on the straight-line method over a period of approximately 0.5 years.
Stock PurchaseWarrants
At December 31, 2015, 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 | ||||||||
May 23, 2017 | 255,721 | $ | 0.44 | - | $ | - | ||||||
December 21, 2017 | - | - | 3,310,812 | 0.50 |
On September 3, 2014, share purchase warrants that totaled 2,459,460 were exercised by an investor at the warrant exercise price of $0.50.
NOTE 10 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.
Level 2 Directly or
indirectly market based inputs or observable inputs used in models or other
valuation methodologies.
Level 3 Unobservable inputs that are not
corroborated by market data. The inputs require significant management judgement
or estimation.
-F-22-
The following table discloses, by level within the fair value hierarchy, the Companys assets and liabilities measured and reported on its Consolidated Balance Sheet at fair value on a recurring basis:
At December 31, 2015:
Total | Level 1 | Level 2 | Level 3 | |||||||||
Assets: | ||||||||||||
Money market accounts * | $ | 27,921,666 | $ | 27,921,666 | $ | - | $ | - |
At December 31, 2014:
Total | Level 1 | Level 2 | Level 3 | |||||||||
Assets: | ||||||||||||
Money market accounts * | $ | 30,515,067 | $ | 30,515,067 | $ | - | $ | - |
* - Money market accounts include both restricted and unrestricted funds.
NOTE 11 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. The contract allows power sales up to 13 megawatts annual average.
The price of energy sold under the Idaho Power PPA is split into three seasons:
power produced during the peak periods of July, August, November and December
will be purchased at 120% of the set price; power produced in the three month
low demand season (March, April, May) will be purchased at 73.50% of the set
price; and power produced in the remaining five months of the year will be
purchased at 100% of the set price. The PPA sets a first year average purchase
price of $53.60 per megawatt hour. The $53.60 purchase price is escalated each
year at a compound annual rate of 2.1% until year 15. From years 16 to 25 of the
contract the escalation rate will drop to 0.6% per year.
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 December 31, 2015, the Company had
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.
-F-23-
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
The Company incurred total lease expenses for the years ended December 31, 2015 and 2014, of $523,658 and $ 321,557; respectively. Included in the total lease expense are minimum lease payments of $164,405 and $108,798, and royalty based contingent lease expense of $359,253 and $212,759 for the years ended December 31, 2015 and 2014; respectively.
BLM Lease Agreements
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 2,986
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.
Other Lease Agreements
Neal Hot Springs, Oregon
The Company holds 3 lease
contracts for approximately 7,429 acres of geothermal water rights located in
the Neal Hot Springs area near Vale, Oregon. The contracts have stated terms of
10 years with expiration dates that range from May 2015 to November 2019. The
two major contracts are royalty based. One of the agreements defines a royalty
rate based upon 3% of the gross proceeds for the first 5 years of commercial
production, 4% of gross proceeds for the next 10 years, and 5% of the gross
proceeds thereafter. The second agreement defines a royalty rate based upon 2%
of the actual revenue for the first 10 years of commercial production and 3%
thereafter. As of January 2013, USG Oregon LLC began paying monthly royalties
under both royalty based contracts based on electricity delivery under the Idaho
Power Purchase Agreement.
-F-24-
Raft River Energy I LLC
The Company has entered into
several lease contracts for approximately 5,144 acres of land and geothermal
water rights located in the Raft River area located in Southern Idaho. Two
contracts renew automatically upon receipt of annual payment, the residual have
expiration terms from 5 to 30 years with expiration dates that range from
January 2016 to December 2034. Six contracts have a royalty rate provision of
10% of net income calculated with specified depreciation methods.
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).
Crescent Valley, Nevada
On December 12, 2014, the
Company acquired Earth Power Resources Inc. that held 63 lease contracts for
approximately 26,017 acres located in the central area of the State of Nevada.
The contracts have stated terms of 10 to 40 years with expiration dates that
range from February 2015 to June 2054.
Office Lease
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 years ended December 31, 2015 and 2014, the office lease costs totaled $106,178 and $86,873; respectively.
The following is the total remaining contracted lease operating obligations (operating leases, BLM lease agreements and office leases) for the next five years and thereafter:
Years Ending | ||||
December 31, | Amount | |||
2016 | $ | 1,004,517 | ||
2017 | 994,906 | |||
2018 | 1,019,465 | |||
2019 | 914,152 | |||
2020 | 886,704 | |||
Thereafter | 14,805,095 |
Parental Guaranty Agreement
Under the terms of PPA, Raft River Energy I, LLC (RREI) is required to provide a Sellers Performance Assurance. On April 29, 2011, U.S. Geothermal Inc. (Guarantor) signed a Parental Guaranty Agreement with RREIs energy purchaser (Beneficiary) that extends credit to RREI (Debtor). The agreement provides for assurances related to possible obligations related to purchases, exchanges, sales or transportation of energy from contacts entered into by the Beneficiary and Debtor. The agreement insures the Beneficiary for damages up to a maximum of $750,000.
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. The Company matches 50% 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 $100,872 and $97,785 for the years ended December 31, 2015 and 2014,
respectively.
-F-25-
NOTE 13 ASSET RETIRMENT OBLIGATIONS
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 $598,930. Obligations related to
decommissioning four existing wells were estimated to total $606,000. These
obligations are initially estimated based upon discounted cash flows estimates
and are accreted to full value over time. At December 31, 2015, the Company has
not considered it necessary to specifically fund these obligations. During the
year ended December 31, 2015, the Company engaged in activities that reduced the
estimated liability related to the sites impacted soil. Since the Company is
still evaluating the development plan for this project that could eliminate or
significantly reduce the remaining obligations, no charges directly associated
the asset retirement obligations have been charged to operations. All of the
obligations were considered to be long-term at December 31, 2015.
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 December 31, 2015
and 2014, no retirement obligations have been recognized.
December 31, | ||||||
2015 | 2014 | |||||
Beginning balance | $ | 1,400,000 | $ | - | ||
Obligation from the Geysers Company acquisition | - | 1,400,000 | ||||
Soil remediation | (209,070 | ) | - | |||
Accretion of post closure obligation | 14,000 | - | ||||
Ending Balance | $ | 1,204,930 | $ | 1,400,000 |
-F-26-
NOTE 14 JOINT VENTURES/NON-CONTROLLING INTERESTS
Non-controlling interests included on the consolidated balance sheets of the Company are detailed as follows:
December 31, | ||||||
2015 | 2014 | |||||
Gerlach Geothermal LLC interest held by Gerlach Green Energy, LLC | $ | 213,882 | $ | 230,539 | ||
Oregon USG Holdings LLC interest held by Enbridge Inc. | 25,353,058 | 24,818,443 | ||||
Raft River Energy I LLC interest held by Goldman Sachs | 2,044,984 | 21,348,110 | ||||
$ | 27,611,924 | $ | 46,397,092 |
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 owned a 60% interest and GGE owned 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 first nine months of the year ended December
31, 2014, contributions were made to Gerlach by the Company and GGE that totaled
$11,040 and $7,360; respectively. These contributions maintained the existing
ownership interests of the two partners in Gerlach. During the year ended
December 31, 2014, the Company contributed $400,000 for the projects drilling
costs that were not proportionally matched by GGE. These contributions
effectively reduced GGEs ownership interest to 32.65%, and increased the
Companys interest to 67.35% as of December 31, 2014. During the year ended
December 31, 2015, the Company contributed $11,000 to support the projects
operations that were not proportionally matched by GGE. These contributions
effectively further reduced GGEs ownership interest to 32.49%, and increased
the Companys interest to 67.51% .
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 income and comprehensive income 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 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 years ended December 31, 2015 and 2014,
distributions were made to the Company that totaled $5,193,883 and $12,388,606;
respectively. During the years ended December 31, 2015 and 2014, distributions
were made to Enbridge that totaled $3,462,588 and $15,024,334.
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 income and comprehensive income with the elimination of the non-controlling interest identified.
-F-27-
Raft River Energy I LLC (RREI)
Raft River
Energy I is a joint venture between the Company and Goldman Sachs. An Operating
Agreement governs the rights and responsibilities of both parties. At December
31, 2015, the Company had contributed approximately $17.9 million in cash and
property, and Goldman Sachs has contributed approximately $34.1 million in cash.
Profits and losses are allocated to the members based upon contractual terms.
The initial contracted terms stated that the Company would be allocated 70% of
energy credit sales and 1% of the residual income/loss excluding energy credit
sales. Under the terms of the amended agreement that became effective December
16, 2015, the Company will receive a 95% interest in RREIs cash flows. Under
the terms of both agreements, Goldman Sachs receives a greater proportion of the
share of profit or losses for income tax purposes/benefits. This includes the
allocation of profits and losses as well as production tax credits, which will
be distributed 99% to Goldman Sachs and 1% to the Company during the first 10
years of production, which ends December 31, 2017.
The consolidated financial statements reflect 100% of the assets and liabilities of RREI, and report the current non-controlling interest of Goldman Sachs. The full results of RREIs operations are reflected in the statement of income and comprehensive income with the elimination of the non-controlling interest identified.
NOTE 15 ACQUISITIONS
Additional Interest in Raft River Energy I LLC/Promissory
Note
On December 16, 2015, the Company signed a purchase
agreement with Goldman Sachs for the acquisition of the majority of the cash
flow interest in Raft River Energy I LLC (RREI). Effective December 31, 2015,
the Company will receive 95% of the available cash flows from the project for
the total purchase price of $5.1 million. The agreement includes an option to
purchase residual interest in the RREI for fair market value in December 2017.
The purchase consisted of a $3.5 million cash payment plus a promissory note of
$1.6 million that bears interest at 8% per annum that is due March 31, 2016. Up
to $1.0 million of the note may be satisfied with shares of the Companys stock
priced at the 10 day weighted average closing price at the time of conversion.
Allocations of profits and losses will remain 99% to the non-controlling
interest and 1% to the Company until December 31, 2017, after which the Company
will receive 95% of the allocation of profits and losses and the non-controlling
interest will receive 5%.
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 continue to evaluate whether to construct a power
plant or sell the steam to one of the existing power companies in the area.
-F-28-
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 and casing | 6,139,420 | ||
Plant and facilities | 60,637 | ||
8,182,445 | |||
Liabilities: | |||
Asset retirement obligations | (1,400,000 | ) | |
Net acquisition cost | $ | 6,782,445 |
Earth Power Resources Inc. (EPR)
On October
16, 2014, the Company signed an Agreement and Plan of Merger with EPR. The
transaction was approved by EPR shareholder approval on November 18, 2014. The
Acquisition was completed on December 12, 2014. Under the terms of the
Agreement, the EPR shareholders received a total of 692,769 shares of U.S.
Geothermal Inc. common shares and $42,934 in cash in exchange for all
outstanding shares of EPR stock. Under the terms of the Acquisition agreement,
50% of the issued shares will be held in reserve by the Company to cover
potential undisclosed liabilities against EPR. The remaining non-reserved shares
will be delivered to EPR shareholders upon surrender of their EPR share
certificates. Trading of the non-reserve shares will be restricted for 6 months
under SEC Rule 144. Acquired assets include geothermal leases covering 26,017
acres in the State of Nevada representing three potential projects. A loan of
$100,000 was made from the Company to its wholly owned subsidiary EPR to fund
operating costs that were due prior to the acquisition. The loan accrues
interest at a rate of 7.0% per annum and is due on December 11, 2019.
The total acquisition cost was allocated as follows:
Acquisition Costs | |||
Assets: | |||
Restricted cash, bond | $ | 10,000 | |
Geothermal water rights | 451,608 | ||
461,608 | |||
Liability: | |||
Note payable, intercompany | (100,000 | ) | |
Net acquisition cost | $ | 361,608 |
-F-29-
NOTE 16 BUSINESS SEGMENTS
The Company has two reporting segments: Operating Plants and Corporate and Development. These segments are managed and reported separately due to dissimilar economic characteristics. Operating plants engaged in the sale of electricity from the power plants pursuant to long-tern PPAs. Corporate and development costs are intended to produce additional revenue generating projects. A summary of financial information concerning the Companys reportable segments is shown in the following table:
Corporate & | ||||||||||
Operating Plants | Development | Consolidated | ||||||||
For the Year Ended December 31, 2015: | ||||||||||
Operating Revenues | $ | 31,200,098 | $ | - | $ | 31,200,098 | ||||
Net Income (Loss) | 10,849,514 | (5,899,016 | ) | 4,950,498 | ||||||
Total Assets | 162,824,188 | 65,392,939 | 228,217,127 | |||||||
For the Year Ended December 31, 2014: | ||||||||||
Operating Revenues | $ | 30,968,782 | $ | - | $ | 30,968,782 | ||||
Net Income (Loss) | 10,116,902 | 4,779,395 | 14,896,297 | |||||||
Total Assets | 156,007,340 | 76,906,964 | 232,914,304 |
-F-30-