Date: August 25, 2008
Source: Alter NRG Corp.
Alter NRG Corp. (the "Company", the "Corporation" or "Alter NRG") is pleased to report on its corporate activities and financial results for the three and six month periods ended June 30, 2008. The following are the highlights for the second quarter of 2008 and the period up to August 25, 2008:
Q2 HIGHLIGHTS
Announced Coskata Inc.'s (Coskata) selection of Alter NRG's Westinghouse Plasma Corporation (WPC) plasma gasification technology for a cellulosic ethanol commercial pilot facility in Madison, Pennsylvania. Coskata, which is partnering with General Motors on this project, will utilize its proprietary synthesis-gas-to-ethanol conversion technology. Synthesis gas (syngas) will be generated by our WPC gasifier, using biomass as the feedstock. Alter NRG will earn approximately $2.7 million in revenue for operating our gasifier and feeding syngas to Coskata's demonstration facility. (April 2008)
Strengthened our executive team with the addition of Ken Willis as Vice President of Project Development. Mr. Willis brings over 20 years of senior power industry experience to Alter NRG. (April 2008)
Closed a bought deal financing of $46 million, including the over- allotment option, at a price of $4.40 per share. (April 2008)
Executed engineering service agreements for proposed project in Thailand (200 tonnes/day), California (750 US tons/day) and Minnesota (100-200 tons/day).
Sale of our Hinton coal lease to a junior TSX Venture mining company for $1 million cash and a 5% net profits royalty on future coal sales. This represents a 466% cash return on investment in less than two years, with significant potential for net profits interest upon successful development of the mine. (June 2008)
Created a new subsidiary - Alter NRG Gasification Solutions (AGS) - to provide dedicated resources focused on technology sales of plasma gasification. (June 2008)
Announced Canada's first Coal-To-Liquids (CTL) project, which also involves CO2 capture. Issued preliminary documents, including the Fox Creek Public Disclosure Document and Draft Terms of Reference. (July 2008)
Advanced engineering and logistics on Canada's first Integrated Gasification Combined Cycle (IGCC) facility. IGCC is a next- generation, low-cost fossil-fuel power facility. The Company expects to close on the acquisition of the Bruderheim, Alberta project site in September 2008, which has existing infrastructure for development of a 100 to 120 MW project. The Company was successful in acquiring initial equipment, such as a steam turbine that would normally have a two year delivery time frame.
Continued pilot testing and engineering on the NRG Energy Somerset Massachusetts coal power plant retrofit which is the first commercial scale plasma gasification project to obtain regulatory approval in North America. In August 2008, the Department of Environmental Protection of Massachusetts overturned an appeal and upheld regulatory approval on the project.
For more information on the Company's activities please visit www.alternrg.ca or www.sedar.com to view Alter NRG's 2008 Second Quarter Report.
PRESIDENT'S MESSAGE
By all indications, Alter NRG is in the right place, with the right solution, at the right time. With energy prices escalating - along with the demand for reliable sources of clean energy - the world is looking to gasification as an economically and environmentally viable option. Interest in Alter NRG's commercially proven gasification technology continues to grow. The bought deal financing in the second quarter provides additional financial strength as we move forward with our business plan.
The door is open for Alter NRG to play a leading role in this industry, and we are tremendously excited. We're currently spearheading two important firsts: Canada's first Coal-To-Liquids (CTL) project at Fox Creek, Alberta, and Canada's first Integrated Gasification Combined Cycle (IGCC) facility at Bruderheim, Alberta. Both projects have potential for strong financial returns using commercially proven processes that have been operational worldwide for many years.
The Fox Creek plant is a project that can profitably provide energy products from coal in an environmentally sustainable manner. Announced in July, the project involves gasification of the extensive coal reserves we own in central Alberta. The 468-million-tonne reserve holds enough coal to produce 40,000 barrels per day of sulfur-free diesel and naphtha for at least 50 years. The location is ideal with excellent infrastructure in place. The nearby oil fields suitable for enhanced oil recovery will provide an additional revenue stream through the sale of captured CO2, which will also reduce the carbon footprint of the project.
The next stage of Fox Creek development will be finalization of the strategic partner selection process. Alter NRG is looking to formalize strategic relationships to support development of the project and determine a financing plan. This project is large in scale up to $4.5 billion for a 40,000 barrels per day facility and has a long development timeframe with commercial production expected between 2014 to 2015. The Company intends to take a phased approach to the project.
The project at Bruderheim, Alberta represents the first IGCC facility in North America involving CO2 capture, and is truly the future model for environmentally sustainable energy production. The facility will turn petroleum coke (a waste product of upgrading) and refining and oilfield waste into useful energy, which in this case will be electricity. The project is expected to produce approximately 100 MW of power, along with CO2 for enhanced oil recovery. This project is on a fast timeline, with potential for first cash flow as early as 2010. It is also a manageable size for current market capitalization, giving us an opportunity to operate the facility ourselves - another first for Alter NRG.
A recent provincial government initiative could give our Bruderheim and Fox Creek projects a significant financial boost. Recently, the Alberta government created a $2 billion fund to support commercial projects involving CO2 capture and sequestration. This is indicative of the social and regulatory push for projects like ours, which provide a smaller environmental footprint than many conventional energy sources.
South of the border, another one of our "firsts" is evolving in Somerset, Massachusetts. In January 2008, the Somerset coal retrofit project became the first commercial-scale plasma gasification project to receive regulatory approval. This coal retrofit project continues to be steered through a regulatory appeal by our partner, NRG Energy, a leading U.S. independent power producer. We are optimistic that the project will proceed as planned, leading the way in the development of cleaner coal alternatives.
The sale of our Hinton coal reserve was our first corporate sale of an asset. Our analysis showed that the reserve base was not large enough to support a CTL plant and we determined to focus our efforts on Fox Creek. As such, the asset was sold at a significant profit to a conventional coal producer with potential upside through a 5% royalty.
Another project that demonstrates the commercial viability of our plasma gasification technology is underway in Madison, Pennsylvania. At our Westinghouse Plasma Corporation pilot facility, Coskata, a leading developer of next-generation ethanol production facilities, has chosen Alter NRG's gasifier to generate synthetic gas for its groundbreaking, biotech-based syngas-to-ethanol process. The process promises to revolutionize the efficiency and economy of ethanol production from a variety of renewable, non-food materials. The project is scheduled for completion in early 2009 and will then operate for up to one year.
We are proud to be associated with Coskata on this innovative project, and delighted to have teamed up with Coskata and its partners, an innovative group that shares our commitment to creating clean, low-cost energy from renewable resources.
Our gasification solution is also proving to be a market leader elsewhere in the U.S. and in the international arena. This quarter, we added clients from Thailand, Minnesota and California.
With so many developments unfolding - and more prospects on the horizon - our executive team decided to establish Alter NRG Gasification Solutions (AGS), a new subsidiary of Alter NRG. AGS was created to efficiently deliver our plasma gasification technology into the energy markets. We expect this subsidiary to focus and maximize technology sales to provide shorter term cash flow, which can then be invested in longer-term, high-return development projects.
By dedicating resources exclusively to technology sales, we will be better able to support our clients and their projects, and further strengthen our position as the leading supplier of plasma gasification technology and services.
Alter NRG is excited about the future, and the second quarter demonstrates successful execution of our business plan through leading-edge project developments and continued advancement of technology sales. By staying execution-focused, I am confident we can continue to match or exceed the milestones we have achieved in our very active second quarter.
I would like to thank our staff and consultants, who, through their perseverance and dedication, keep attaining positive results in an increasingly busy environment. Going forward, we expect solid progress with projects and technology sales. We will also continue to seek strategic partnerships to accelerate our growth and prove - and improve - our capabilities.
FINANCIAL RESULTS ($) June 30, December 31, 2008 2007 ------------------------------------------------------------------------- Total Assets $ 120,709,784 $ 78,506,274 Total Liabilities 21,856,749 21,289,213 Total Equity $ 98,853,035 $ 57,217,061 ------------------------------------------------------------------------- Three months Three months ended ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Revenue, interest and other income $ 2,141,876 $ 583,727 Loss (2,454,308) (3,603,240) Loss per unit/share - basic and diluted $ (0.04) $ (0.10) ------------------------------------------------------------------------- Six months Six months ended ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Revenue, interest and other income $ 3,205,724 $ 657,192 Loss (4,263,441) (3,914,622) Loss per unit/share - basic and diluted $ (0.08) $ (0.15) -------------------------------------------------------------------------
For the complete financial statements please visit www.alternrg.ca or www.sedar.com to view Alter NRG's 2008 Second Quarter Report.
MANAGEMENT'S DISCUSSION AND ANALYSIS EXCERPTS
Corporate overview
Alter NRG provides and pursues alternative energy solutions through gasification to meet the growing demand for energy in world markets. The Corporation's vision is to become a leader in the development of economically viable and environmentally sustainable gasification projects for the commercial production of energy. Alter NRG creates revenues by selling plasma gasification technology and through equity participation in gasification projects that fit its strategic growth plan.
Alter NRG's mission is to participate in financially accretive projects in the emerging alternative energy market, through technology sales and project interests, to maximize returns for its investors. Alter NRG endeavors to be a leader in innovative gasification related technologies applied to produce profitable and clean alternative energy solutions.
The Corporation invests in the skills of its people who will provide the creativity, determination and passion to generate growth in stakeholder value. The Corporation continues to strive to be transparent and fair in its activities and work to form positive relationships with the communities in which it operates and with all of its stakeholders.
Alter NRG continues to be focused on project development through its two core assets, its Plasma Gasification Technology and our Coal Reserves. The Corporation has the following announced projects which it has an option to participate or is the operator of the project, as follows:
Somerset, Massachusetts - NRG Energy is converting a 120 MW coal-fired power plant in Somerset into a plasma gasification facility which reduces many harmful emissions such as SOx and Mercury by 95% and NOx by 60%. The project will gasify both coal and biomass which also will reduce the overall CO2 footprint. The coal power plant retrofit received regulatory approval from the State of Massachusetts on January 25, 2008 and, subject to an existing appeal, plans to proceed with the project in the third quarter of 2008. Alter NRG has an option to invest from 10% to 25% in the $200 million project. Successful construction would also translate into approximately $40 million in plasma gasification system technology revenues for the Corporation.
Bruderheim, Alberta - The Corporation anticipates purchasing a project site in Bruderheim, Alberta in September 2008 which would be Canada's first Integrated Gasification Combined Cycle ("IGCC") project with carbon capture. The site has existing infrastructure to host a plasma gasification facility which would gasify petroleum coke and oilfield waste from the nearby area and produce approximately 120 MW of power. The first phase of the project is expected to cost approximately $130 million which will convert natural gas into power. The second phase of the project will convert petroleum coke and oilfield waste into syngas. The lower cost syngas will replace the natural gas as the feedstock at approximately $2 per gigajoule as compared to a current price of approximately $8 per gigajoule. The Corporation intends to sequester the CO2 produced by the project for use in nearby conventional oilfields for enhanced oilfield recovery.
Fox Creek, Alberta - Alter NRG has direct ownership of 468 million tonnes of sub-bituminous coal in the Fox Creek area of Alberta and in July of 2008 filed its public disclosure document providing details on Canada's first coal-to-liquids project (see reserve report and public disclosure document filed at www.sedar.com). The coal reserve is capable of producing 40,000 bbls/d of liquid fuels (diesel fuel and naphtha) for over 50 years through a successful gasification and coal to liquids project. The project involves CO2 sequestration and sale to nearby oilfields for enhanced oil recovery. The Corporation is currently formally engaged in a strategic partner selection process with a major investment baking representative to find suitable project partners and structure to move forward with a large scale coal gasification project. The Corporation expects to complete this process in late 2008.
St Lucie County, Florida - Geoplasma LLC continues to advance the waste-to-energy ("WTE") project in St. Lucie, Florida. The WTE facility will use Alter NRG's plasma gasification technology and is to be located on an existing landfill site. The ground lease with St. Lucie County and an off take agreement for the syngas, steam or power are currently being finalized. The operator of the project has been experiencing operational difficulties and Alter NRG is taking a more active role in the project at this time to determine its viability. Alter NRG has an option to participate up to a 25% equity investment in this project. The Corporation has a leading plasma gasification technology solution which provides additional benefits including:
Near term cash flows from technology sales; - Operational control of the technology for Alter NRG projects;
The opportunity to invest (as a project partner) in additional projects that plan to use the Alter NRG plasma gasification technology; and
Ability to license the technology and create joint ventures worldwide with companies that provide financial strength, existing market knowledge, and project development expertise.
Alter NRG's most significant achievements in the year to date include:
A $2 million plasma torch system sale to Kiplasma Industries and Trade Inc. which will be used in their waste facility in Turkey, scheduled for completion in 2009;
Receipt of regulatory approval and advancement of NRG Energy, Inc.'s Somerset, Massachusetts coal powered retrofit project for which Alter NRG will supply gasification systems and in which Alter NRG has the option to participate from 10% to 25%;
Selection of the Westinghouse Plasma Corporation ("WPC") plasma gasification pilot facility for a cellulosic ethanol commercial demonstration project. The project will utilize Coskata Inc.'s ("Coskata") proprietary synthesis gas-to-ethanol conversion technology. In the third quarter of 2008, Coskata, in partnership with General Motors, plans to begin construction of a 40,000-gallon per year commercial demonstration facility. The WPC pilot plant is expected to generate approximately $2.5 million in revenues in 2009;
Closing a bought deal financing for $46 million in gross proceeds, including the over-allotment option, at a price of $4.40 per share;
Execution of engineering services agreements for proposed projects in Greece, Minnesota, Florida, Kentucky, Thailand and Southern California;
Initiated the regulatory process, and a strategic partner selection process and filed its public disclosure document for the Fox Creek polygeneration project, which will utilize the Corporation's 468 million tonne coal reserves. This will be Canada's first coal-to- liquids project;
Continuing to make gasification design and engineering advancements to our proprietary gasification systems, resulting in the Company applying for two additional patents;
Sale of our Hinton coal lease to a junior TSX Venture mining company for $1 million cash and a 5% net profits royalty on future coal sales. This represents a 466% cash return on the investment in less than two years and the potential for significant net profit royalties upon successful development of the mine;
Creation of a new subsidiary, Alter NRG Gasification Solutions ("AGS"), to provide dedicated resources focused on plasma gasification technology sales.
The Corporation is also pursuing various site acquisition opportunities in Canada for Alter NRG operated WTE projects and further strategic partnerships in various market segments.
Results from plasma system sales and services Three month Three month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Sales revenue $ 853,305 $ 448,820 Direct cost of sales (390,354) (152,235) ------------------------------------------------------------------------- Gross margin $ 462,951 $ 296,585 ------------------------------------------------------------------------- Six month Six month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Sales revenue $ 1,564,892 $ 448,820 Direct cost of sales (835,252) (152,235) ------------------------------------------------------------------------- Gross margin $ 729,640 $ 296,585 -------------------------------------------------------------------------
Plasma technology sales and service revenues during the three and six month periods ended June 30, 2008 are from engineering services provided for reactor design and process engineering, replacement parts for existing gasification customers and plasma gasification testing services at the Corporation's U.S. testing centre pilot facility.
Revenues for the three month period ended June 30, 2008 increased over the prior year period by 90% or $404,485. These revenues consisted of $87,078 in plasma torch parts sales and $766,227 in engineering and testing services. Revenues for the three month period ended June 30, 2007 are primarily related to a sale of four plasma torches completed in 2007.
Revenues for the six month period ended June 30, 2008 include $194,335 in plasma torch parts sales and $1,370,557 for engineering and testing services. Revenues for the six month period ended June 30, 2007 include sales from the date the Corporation acquired its commercially operating U.S. subsidiary on April 17, 2007 to June 30, 2007 and therefore revenues for the six month period ended June 30, 2007 are not comparative to the current year period.
Going forward, management expects revenues to increase as increased sales, marketing and business development processes move forward and as the plasma gasification market grows. The Corporation has a portfolio of customers that have projects in various stages of development. The project development timeframe extends over several years and the first project to receive regulatory approval was a coal power plant retrofit project in Massachusetts in January of 2008. This project is expected to begin construction in late 2008; however, it remains subject to a regulatory appeal process and final NRG Energy board approval. The coal power plant retrofit is expected to be an approximate $40 million technology sale, with equipment being ordered as soon as late 2008, and revenues earned over a period of about 18 months. During 2008, the Corporation also expects to continue to advance pilot plant testing, engineering services, and has the potential for licensing income.
The sale of a single plasma gasification island would generate approximately $30 to $35 million in revenues for the Corporation. However, the majority of revenues are not realized until the point in time the sale of equipment occurs after regulatory approval of a project and project financing has been received. As such, plasma gasification island sales have a long lead time. The Corporation has consistently increased its customers under contract over the last year from five, when it purchased WPC in April 2007, to more than 18 today. The Corporation also works with other project developers worldwide that are in the early stages of developing plasma gasification projects.
Direct costs of sales relate to direct materials and expenditures for products and services and reflect standard rates. Costs for the three and six month periods ended June 30, 2008 were $390,354 and $835,252, respectively, versus costs of $152,235 during the three month period ended June 30, 2007. The increase in direct cost of sales is consistent with the increase in sales. Cost of sales for the six month period ended June 30, 2008 includes $145,675 for plasma torch parts and $689,577 for engineering and testing services.
General and administrative expenses
Three month Three month
period ended period ended
June 30, 2008 June 30, 2007
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General & administrative expenses ("G&A") $ 2,914,666 $ 1,714,441
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Six month Three month
period ended period ended
June 30, 2008 June 30, 2007
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General & administrative expenses $ 4,868,249 $ 2,047,081
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Consolidated G&A increased by $1,200,225 and $2,821,168, respectively, for the three and six month periods ended June 30, 2008 versus the prior three and six month periods ended June 30, 2007. The increase in G&A reflects the growth of Alter NRG, which included WPC as of April 17, 2007. The major components of G&A include additions to the Alter NRG team for salaries and wages from increased staffing as part of Alter NRG's corporate growth strategy; increased rent for the new head office space (lease acquired August 2007) to accommodate growth; management investment in its U.S. business operations; and consulting fees related to recruitment and business development activities. At June 30, 2008, the Alter NRG team included 37 full time employees, 21 in the Calgary office and 16 at the Corporation's facility in the United States. As at August 21, 2008 staffing has increased to 23 full time employees in Calgary and 17 in the United States. The increase in staff is consistent with Alter NRG's corporate growth and strategy.
The largest G&A expenses in the six month periods ended June 30, 2008 relate to salaries and accrued bonuses of $2,625,829; consulting costs of $560,684 and professional fees of $405,866 primarily for corporate growth and business development efforts; office costs of $612,893; and travel costs of $315,999 for business development and investor relations. The remaining G&A is for information technology costs, public reporting and the general costs of setting up and maintaining an office.
Interest and other income Three month Three month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Interest income $ 510,166 $ 134,907 Other income - - ------------------------------------------------------------------------- Total interest and other income $ 510,166 $ 134,907 ------------------------------------------------------------------------- Six month Six month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Interest income $ 787,967 $ 208,372 Other income 74,461 - ------------------------------------------------------------------------- Total interest and other income $ 862,428 $ 208,372 -------------------------------------------------------------------------
Interest income relates to funds invested in short-term, interest-bearing investments with a major Canadian chartered bank. Interest income increased by 278% for both the three and six month periods ended June 30, 2008 versus the prior three and six month periods ending June 30, 2007. The increase reflects interest earned on a significantly higher average cash balance in 2008 from equity issuances net proceeds in the second and fourth quarter of 2007 and the second quarter of 2008 (refer to the "Liquidity and Capital Resources" section).
Other income relates to Jacoby Energy's contribution, equal to general and administrative costs, to the joint venture for the six month periods ended June 30, 2008. No income was incurred for the three month period ended June 30, 2008 as the Jacoby Energy joint venture license became non-exclusive and under the amended agreement Jacoby Energy is required to contribute a total of $1 million USD of general and administrative costs, which had been fulfilled by March 31, 2008. There were no amounts recorded as other income for the prior period ended June 30, 2007 as the joint venture was not established until August 2, 2007. Alter NRG will retain its interest in any joint venture projects developed to date, including a 25% option in the WTE project in St. Lucie, Florida.
Gain on sale
The Corporation sold one of its non-core coal resource properties located in the Hinton area of Alberta for cash consideration of $1,000,000 and a 5% royalty on any net profits earned from the property in the future. The carrying value of the property was $221,596 for a gain of $778,404 on the disposition. The consideration excluded the future 5% royalty as the amount and potential realization of this royalty is dependent on successful mine construction and will be recognized as revenue at the point in time it is received.
Depreciation and amortization Three month Three month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Depreciation $ 73,804 $ 13,883 Amortization 369,929 332,046 Amortization of deferred compensation expense - 1,632,150 ------------------------------------------------------------------------- Total depreciation and amortization $ 443,733 $ 1,978,079 ------------------------------------------------------------------------- Six month Six month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Depreciation $ 105,647 $ 18,684 Amortization 737,661 332,046 Amortization of deferred compensation expense - 1,632,150 ------------------------------------------------------------------------- Total depreciation and amortization $ 843,308 $ 1,982,880 -------------------------------------------------------------------------
Depreciation for the six month period ended June 30, 2008 relates to corporate assets, including computer equipment and furniture, and the U.S. facility upgrade completed in the first quarter of 2008. For the three month period ended June 30, 2007, deprecation was on corporate assets only. Amortization is on the intangible assets acquired on purchase of the Corporation's U.S. subsidiary on April 17, 2007. The deferred compensation also stemmed from the acquisition and was fully amortized over an eight month period ending December 2007.
Loss and cash flow used in operations Three month Three month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Loss $ 2,454,308 $ 3,603,240 ------------------------------------------------------------------------- Cash flow used in operations $ 2,326,796 $ 1,535,106 ------------------------------------------------------------------------- Six month Six month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Loss $ 4,263,441 $ 3,914,622 ------------------------------------------------------------------------- Cash flow used in operations $ 3,523,080 $ 2,139,669 -------------------------------------------------------------------------
The consolidated loss for the three month period ended June 30, 2008 was lower by $1,148,932 versus the three month period ended June 30, 2007 and higher by $348,819 for the six month period ended June 30, 2008 versus the same period ended June 30, 2007. The decrease in the loss for the three month period is due to the gain on sale of the Corporation's Hinton property, the increase in revenue and interest, and the decrease in non-cash depreciation and amortization as deferred compensation from the WPC acquisition was fully amortized in 2007; which offset increases in G&A and non-cash stock-based compensation. Income taxes were consistent for the three month periods ended June 30, 2008 and June 30, 2007. The increase in the loss for the six month period ended June 30, 2008 versus the same period ended June 30, 2007 is due to the overall increase in G&A expenditures from corporate growth since the acquisition of its U.S. subsidiary which over a six month period offset the gain on sale, increase in revenue and interest as compared to the six month period ended June 30, 2007. The six month period ended June 30, 2007 only includes the acquired U.S. subsidiaries operations from April 17, 2007 to June 30, 2007.
Consolidated cash flow used in operations for the three and six month periods ended June 30, 2008 was $2,326,796 and $3,523,080, respectively. This represents an increase of $791,690 and $1,383,411 in the cash flow used for the three and six month period ended June 30, 2008 versus June 30, 2007. The increase is due to increased cash expenditures on G&A which offset cash received from increased net sales revenues and interest income. Refer to the respective sections for G&A, plasma technology sales and services (revenue and cost of sales), interest and other income and gain on sale.
Capital expenditures A breakdown of the capital additions for the three and six month periods ended June 30, 2008 and June 30, 2007 is as follows: Three month Three month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Deferred costs $ 376,499 $ - Internally generated intangible assets 299,930 347,891 Resource properties 341,340 133,804 Property, plant and equipment 4,876,436 112,390 ------------------------------------------------------------------------- Total capital expenditures $ 5,894,205 $ 594,085 ------------------------------------------------------------------------- Six month Six month period ended period ended June 30, 2008 June 30, 2007 ------------------------------------------------------------------------- Deferred costs $ 1,047,949 $ - Internally generated intangible assets 604,694 585,687 Resource property assessment 708,532 203,941 Property, plant and equipment 5,501,631 125,598 ------------------------------------------------------------------------- Total capital expenditures $ 7,862,806 $ 915,226 -------------------------------------------------------------------------
Capital expenditures for deferred costs relate to potential acquisition costs expected to be realized by the end of 2008. Potential acquisition costs will be amortized upon successful completion of an acquisition; if an acquisition is unsuccessful, the costs will be written off at that time. No deferred acquisition costs have been written off up to this point in time. Internally generated intangible assets consist of internal project development work on plasma gasification systems and will be amortized at the point in time a project is in commercial operations.
Resource property expenditures for the six month period ended June 30, 2008 were higher than costs incurred for the same period ended June 30, 2007 due to the Fox Creek core hole program completed in the first quarter of 2008 and environmental assessment costs incurred in the second quarter of 2008. These costs have been incurred to advance the coal resource asset owned by the Corporation, Fox Creek. The Corporation has initiated the regulatory approval process and is progressing with a formal partner selection process in 2008 to further advance the Fox Creek coal-to-liquids project.
For the three and six month periods ended June 30, 2008, property, plant and equipment spending consisted of plant and facility costs of $4,825,530 and $5,339,462 (June 30, 2007 - $nil and $nil) and corporate asset spending of $50,906 and $162,169 (June 30, 2007 - $112,390 and $125,598). Plant and facility costs related to an upgrade on the Corporation's U.S. facility upgrade completed in February 2008 and a turbine purchased in June 2008 for approximately $4.8 million for the Bruderheim IGCC project. Corporate asset costs, including office and computer equipment, have increased in line with the increase in personnel at the Corporation's U.S. facility and the head office in Calgary (see "G&A" section).
Deferred costs A break down of deferred costs incurred for the three month period ended June 30, 2008 is as follows: Balance as at Six month period Balance as at December 31, 2007 ended June 30, 2008 June 30, 2008 ------------------------------------------------------------------------- Deferred project development costs $ 99,323 $ 1,047,949 $ 1,147,272 -------------------------------------------------------------------------
Deferred project development costs incurred in the six month period ended June 30, 2008 relate to professional fees incurred for potential acquisitions. The majority of costs relate to due diligence, site holding costs and preliminary engineering for Bruderheim and costs incurred for a potential WTE site in Ontario. Alter NRG is performing due diligence on the Bruderheim site which is expected to be completed and the purchase finalized early in the third quarter of 2008.
Quarterly information 2006 Q2 Q3 Q4 Total(x) ------------------------------------------------------------------------- Capital expenditures $ 514,822 $ 1,484,248 $ 804,267 $ 2,803,337 Total revenues, interest and other income - 32,724 50,642 83,366 Interest income - 32,724 50,642 83,366 Loss (384,038) (428,985) (844,868) (1,657,891) ------------------------------------------------------------------------- Net loss per Unit basic and diluted $ (0.04) $ (0.03) $ (0.06) $ (0.16) ------------------------------------------------------------------------- (x) Period from inception (March 9, 2006) to June 30, 2006. The Fund had no significant activity in Q1 2006 from inception on March 9 to March 31, 2006. 2007 Q1 Q2(x) Q3(x) Q4 Total ------------------------------------------------------------------------- Capital expendit- ures $ 321,141 $ 594,085 $ 637,753 $ 1,155,482 $ 2,708,461 Total revenues, interest and other income 73,465 583,727 1,156,115 777,563 2,590,870 Interest and other income 73,465 134,907 210,388 627,255 1,046,015 Loss (311,382) (3,276,859) (3,467,523) (4,460,779) (11,516,543) ------------------------------------------------------------------------- Loss per Unit/Share - basic and diluted $ (0.02) $ (0.10) $ (0.09) $ (0.11) $ (0.35) ------------------------------------------------------------------------- (x) Q2 and Q3 have been amended for the impact of the reallocation of goodwill to intangible assets and the related cumulative translation adjustment and amortization, net of taxes. 2008 Q1 Q2 Total ------------------------------------------------------------------------- Capital expenditures $ 1,968,600 $ 5,894,205 $ 7,862,805 Total revenues, interest and other income 1,063,849 2,141,875 3,205,724 Interest and other income 352,262 510,166 862,428 Gain on sale - 778,404 778,404 Loss (1,809,133) (2,454,308) (4,263,441) ------------------------------------------------------------------------- Loss per Share - basic and diluted $ (0.04) $ (0.04) $ (0.08) -------------------------------------------------------------------------
The loss for the three and six month periods ended June 30, 2008 relates primarily to G&A expenditures of $2,914,666 and $4,868,249, respectively; amortization of intangible assets acquired through the purchase of the Corporation's U.S. subsidiary of $369,929 and $737,661; stock based compensation of $1,219,280 and $1,630,355; and depreciation of $73,804 and $105,647. The loss is offset by sales revenue for the three and six month periods ended June 30, 2008 of $853,305 and $1,564,892 (less related cost of sales of $390,354 and $835,252), interest income of $510,166 and $787,967, income from the joint venture of $74,461 and an income tax recovery of $371,850 and $707,999. These results are higher than the three and six month periods ended June 30, 2007 due to the acquisition of WPC and growth consistent with Alter NRG's corporate strategy occurring after the first quarter of 2007. Looking forward, management is implementing sales, marketing and business development processes to increase technology revenues from WPC in the short-term. Over the long-term management plans to generate income from gasification projects, technology sales and has opportunities in both areas, as described in the Corporate Overview.
Credit facility
The Corporation has a line of credit agreement with a major bank in the United States for $500,000 USD. The line of credit is due on demand and secured by the assets of its U.S. subsidiary, WPC. The credit facility bears interest at the lender's rate. No amounts have been drawn on the credit facility as at June 30, 2008.
Liquidity and capital resources
At June 30, 2008, the Corporation had $62,638,188 in cash and cash equivalents which is an increase in cash of $32,545,705 from December 31, 2007. The increase is attributed to a private placement common share financing on April 3, 2008 in which the corporation received net proceeds of $43 million offsetting this increase is cash spending on capital, G&A and direct cost of sales, net of revenues received and deferred revenues for future projects. The net working capital surplus of $62,084,745 is primarily attributable to the cash and cash equivalents balances. The working capital balance provides the Corporation with capital to continue to invest in its resource base, provide for general and administrative support for its team, fund engineering development to provide a strong technical foundation, to evaluate investment opportunities and allow for potential strategic acquisition opportunities.
Equity
As at June 30, 2008 the Corporation had 56,131,384 shares and 4,659,934 options outstanding and as at August 21, 2008, 56,161,051 shares and 4,612,934 options outstanding.
The Corporation entered into an agreement with a syndicate of underwriters for a $40 million financing, which included an over-allotment for an additional $6 million exercisable within 30 days after closing. On April 3, 2008, the deal was closed, including the over-allotment, for 10,454,545 common shares at $4.40 per common share and gross proceeds of approximately $46 million.
At June 30, 2008 the Corporation had 4,659,934 stock options outstanding, of which 883,500 were granted and 76,166 exercised at a weighted average exercise price of $5.53 and $2.20 per share, respectively, in the three and six month periods ended June 30, 2008.
The authorized share capital of the Corporation consists of an unlimited number of Common Shares.
For the complete management's discussion and analysis please visit www.alternrg.ca or www.sedar.com to view Alter NRG's 2008 Second Quarter Report.
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.
ADVISORIES: Certain statements in this disclosure may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this disclosure, such statements use such words as "may", "would", "could", "will", "intend", "expect", "believe", "plan", "anticipate", "estimate", and other similar terminology. These statements reflect the Corporation's current expectations regarding future events and operating performance and speak only as of the date of this disclosure. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Although the forward-looking statements contained in this disclosure are based upon what Management believes are reasonable assumptions, the Corporation cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this disclosure, and, subject to applicable securities laws, the Corporation assumes no obligation to update or revise them to reflect new events or circumstances. This disclosure may contain forward-looking statements pertaining to the following: capital expenditure programs; supply and demand for the Corporation's services and industry activity levels; commodity prices; income tax considerations; treatments under governmental regulatory regimes.
For further information:
Mark Montemurro
President and Chief Executive Officer
(403) 806-3877
mmontemurro@alternrg.ca.
Daniel Hay
Chief Financial Officer
(403) 806-3881
dhay@alternrg.ca.
Investor Relations
(403) 806-3875
info@alternrg.ca.
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