Final Results
9 October 2012
PowerHouse Energy Group Plc
("PowerHouse" or "the Company")
Final results for the year ended 31 December 2011
Chairman's Report
As the recently appointed Executive Chairman of PowerHouse Energy Group plc
(PHEG) I share your disappointment and concern about the turbulence this past
year has witnessed for the Company and the shareholders.
The Company's intent when listing on AIM was to leverage the skills, experience
and technology to which it had access to manufacture and distribute Ultra High
Temperature (UHT) Waste-to-Energy facilities. That objective subsequently
included the acquisition of the remaining 70% interest in Pyromex Holding, AG
("Pyromex"), the owner of a patented UHT technology, of which the Group already
owned 30%. Through the US-based subsidiary, PowerHouse Energy, Inc., the
Company planned to manufacture and sell Pyromex units in the United States and
in certain other areas of the world.
The challenges of finalizing the Pyromex technology and bringing it to a
commercial level of completion, as well as difficulties in the capital market,
made the obtaining of further funding for the Company unachievable, despite
holding discussions with various third parties. On 12 April 2012 the Company
requested the suspension of trading in its shares pending clarification of its
financial position and on 8 May 2012, the Company announced that the option to
acquire the remaining 70% interest in Pyromex had lapsed.
On 19 June 2012, the Company announced that it has entered into a convertible
loan agreement with Linc Energy Limited ("Linc") under which Linc has agreed to
advance $250,000 to the Company. The loan is unsecured, repayable on 18 June
2014 and carries interest of 15 per cent. per annum. Linc has the option at any
time to convert the loan in part or whole at a conversion price of 1p per
share. This loan has allowed the Company to reorganize its management team,
re-prioritize its objectives and resolve outstanding issues with its creditors.
It has also allowed the Company get to a position whereby it has negotiated an
additional financing facility to operate as a going concern for the foreseeable
future. On 8 October 2012, Linc advised the Company that it had assigned all
its rights under the above convertible loan agreement to Hill Grove Investments
Pty Limited ("Hill Grove") (see below).
Since its listing on the AIM market in June 2010, PHEG has not achieved the
success it envisioned. However, the Directors believe there remains significant
opportunity for the Company. By ensuring there are sufficient cash resources in
place to maintain the operational costs (which have been minimised through an
80% reduction of head-count, the mothballing of the US subsidiary, elimination
of unnecessary services, and certain of the Directors and the former Directors
agreeing to release any claim to their accrued fees and salaries) we are
positioned to fully evaluate the Pyromex technology (of which the Group is
still a 30% owner) and to make further headway into several other strategic
relationships we have been pursuing over the past few months. These potential
relationships are extremely exciting and promising and will be discussed in
greater detail as they progress.
I bring a background of emerging technology, rapidly growing organisations, and
international management to the role of Executive Chairman of PHEG. My former
employers include Apple, Yahoo, and PWC among others during my 30 year career.
I have worked in the semi-conductor, computer, biotechnology and the energy
sectors. I can also see, as do others, the revolution that is beginning to
appear in the Waste-to-Energy Market.
With worldwide multi-million pound projects being announced regularly, it is
clear that recovering energy from the existing waste stream is a sustainable,
scalable and expandable business model, one which can deliver significant
returns to the shareholders of those companies involved. It's our intention to
be in the forefront of this industry and to deliver highly efficient, clean,
environmentally sustainable, energy through future PHEG projects.
The annual accounts for the year ended 31 December 2011 show separate financial
statements for both the Company and the Group. The Company financial statements
have been presented prior to the Group financial statements as the Board of
Directors believes that this more accurately represents the ongoing position of
PHEG. The Company has significantly reduced the value of its investment in US
subsidiary, PowerHouse Energy, Inc. - a result of the inability of the
subsidiary to execute its business plan i.e. manufacture and sell Pyromex UHT
units. The lack of progress with the Pyromex technology has also resulted in an
impairment of the value of the Company's 30% holding in Pyromex.
The Group accounts also include the results of the Pyromex Group due to the
fact that the Group held an option to acquire the remaining 70% of Pyromex
throughout the accounting period. That option subsequently lapsed without PHEG
exercising its right to acquire the remainder of Pyromex. Due to challenges
with the Pyromex technology, assets previously recognized and related to the
Pyromex valuation have been significantly written down to reflect the current
status of the technology. Pyromex will no longer be included in Group accounts
with effect from 7 May 2012.
Settlement of US legal proceedings
As announced on 22 May 2012, certain former employees of the Company's
subsidiary, PowerHouse Energy, Inc., filed a lawsuit in the US District Court
(Nevada) against PowerHouse Energy, Inc. and the Company for amounts due under
their service contracts. The Board is pleased to announce that the litigation
has been conditionally settled by the agreement to issue 520,000 new Ordinary
Shares and pay $37,000 in cash to the claimants. The settlement is conditional,
amongst other things, on the suspension of the trading in the Company's shares
on the AIM market being lifted.
Hill Grove loan
Hill Grove has provided the Company with a convertible loan agreement amounting
to £380,000 ("Convertible Loan Agreement"). The loan is unsecured, repayable on
8 October 2014 and carries interest of 15 per cent. per annum. Hill Grove has
the option at any time to convert the loan in part or whole at a conversion
price of 1p per share. The convertible loan, which is additional to the
convertible loan agreement provided by Linc on 19 June 2012, has been provided
to the Company for working capital purposes.
Hill Grove is beneficially owned by Peter Bond, who holds approximately 40 per
cent of the issued share capital of Linc, of which he is Chief Executive and
Managing Director. Under the AIM Rules, Hill Grove and its associates are
treated as a related party to the Company. The independent Directors, Brent
Fitzpatrick and James Greenstreet, having consulted with Merchant Securities
Limited, consider that the terms of the Convertible Loan Agreement are fair and
reasonable insofar as the shareholders of the Company are concerned.
The Company has also been advised that Linc has assigned its rights in
connection with the convertible loan agreement dated 19 June 2012 to Hill
Grove. This convertible loan note agreement was for $250,000 and, to date, the
Company has drawn down $80,000 but intends to fully draw down the loan in the
near future.
Going concern
The principal risks of the Company are included in note 12 of the Company
financial statements. A key risk for the Company, that of maintaining the cash
resources necessary to operate as a going concern, has been mitigated through
the provision of the convertible loan agreement provided by Hill Grove.
The Directors have a reasonable expectation that the Company will have adequate
resources to continue as a going concern for the foreseeable future. Thus we
continue to adopt the going concern basis of accounting for the preparation of
the annual financial statements.
Over the past few months, while we have reorganised the Company, we have
achieved a number of other significant objectives. The Company's balance sheet
is in a far stronger state. We have negotiated a favourable settlement for the
Company in regard to the lawsuit brought against it by a Group of former
employees in the United States and we have negotiated on-going funding for the
Company for the foreseeable future. The Directors are currently in productive
negotiations with RenewMe regarding the existing licensing agreement.
Lifting of the suspension of trading of the Company's shares on the AIM Market
On 12 April 2012 the Company requested the suspension of trading in the
Company's ordinary shares on the AIM market pending clarification of the
Company's financial position. These accounts have been prepared on a going
concern basis and accordingly, following the publication of the accounts for
the year ended 31 December 2011 and the announcement of the interim results for
the six months ended 30 June 2012, which will immediately follow the
announcement of these results, the Directors intend to request that the
suspension of trading of the Company's shares on the AIM Market is lifted.
It is the Directors' belief that the strategic discussions, assessments and
negotiations in which we are currently engaged will afford PHEG a clear,
powerful and successful future. The Waste-to-Energy market is poised for
tremendous growth and we are positioning ourselves to be a major factor. We
realise that this will require capital, expertise and dedication. Our objective
is to deliver a clearly defined, cash-generating, business model to our
shareholders over the next few months. I hope that you will continue to be a
part of the journey on which we're ready to embark.
Keith Allaun
Chairman
8 October 2012
Further enquiries:
PowerHouse Energy Group Plc T: +44 (0) 753 513 8974
Keith Allaun, Director
Merchant Securities Limited (Nomad/Broker) T: +44 (0) 20 7628 2200
David Worlidge / Simon Clements
Company Statement of Comprehensive Income
For the year ended 31 December 2011
31 December 31 December
2011 2010
£ £
Note
Revenue 25,000 -
Administrative expenses (2,045,178) (89,216)
Operating loss (2,020,178) (89,216)
Finance income 77 174
Finance costs (3,231) (112)
Impairments (47,830,451) -
Loss before taxation (49,853,783) (89,154)
Income tax expense - -
Total comprehensive expense (49,853,783) (89,154)
Loss per share (pence) 3 (33.39) (0.09)
Company Statement of Changes in Equity
for the year ended 31 December 2011
Share Share Deferred Deferred Retained Total
capital premium shares shares earnings £
£ £ (4.0p) (4.5p) £
£ £
Balance at 1 486,868 714,948 781,808 - (1,803,482) 180,142
January 2010
Total comprehensive - - - - (89,154) (89,154)
expense
Balance at 31 486,868 714,948 781,808 - (1,892,636) 90,988
December 2010
Transactions with
equity
participants:
Consolidation and (389,494) - - 389,494 - -
subdivision
Equity issued for 2,737,665 45,171,464 - - - 47,909,129
acquisition
Shares issued for 1,666 28,333 - - - 29,999
services received
Shares issue to 6,000 66,737 - - - 72,737
settle subsidiary's
liability
Conversion of 7 115 - - - 122
warrants
Total comprehensive - - - - (49,853,783) (49,853,783)
expensive
Balance at 31 2,842,712 45,981,597 781,808 389,494 (51,746,419) (1,750,808)
December 2011
Company Statement of Financial Position
for the year ended 31 December 2011
Note 2011 2010
£ £
ASSETS
Non-current assets
Property, plant and equipment 2,843 -
Other non-current assets 120,000 -
Total non-current assets 122,843 -
Current Assets
Trade and other receivables 4 116,820 308,350
Cash and cash equivalents 74,522 120,772
Total current assets 191,342 429,122
Total assets 314,185 429,122
LIABILITIES
Current liabilities
Trade and other payables 5 (202,510) (43,172)
Loans (1,862,483) (294,962)
Total current liabilities (2,064,993) (338,134)
Net (liabilities) / assets (1,750,808) 90,988
EQUITY
Share capital 2,842,712 486,868
Share premium 45,981,597 714,948
Deferred shares 1,171,302 781,808
Accumulated losses (51,746,419) (1,892,636)
Total (deficit) / equity (1,750,808) 90,988
Company Statement of Cash Flows
for the year ended 31 December 2011
2011 2010
£ £
Cash flows from operating activities
Loss after taxation (49,853,783) (89,154)
Adjustments for:
Shares issued for services 29,999 -
Depreciation and amortisation 359 -
Finance income (77) (174)
Finance costs 3,231 112
Impairment of non-current assets 47,830,451 -
Changes in working capital:
Decrease / (increase) in trade and other 191,530 (306,831)
receivables
Increase in trade and other payables 159,338 297,439
Increase in loans - intercompany 1,598,936 -
Net cash used in operations (40,016) (98,608)
Cash flows from investing activities
Purchase of tangible assets (3,202) -
Net cash flows used in investing activities (3,202) -
Cash flows from financing activities
Share issue 122 -
Finance income 77 174
Finance costs (3,231) (112)
Net cash flows (used in) / from financing (3,032) 62
activities
Net decrease in cash and cash equivalents (46,250) (98,546)
Cash and cash equivalents at beginning of 120,772 219,318
period
Cash and cash equivalents at end of period 74,522 120,772
Notes to the financial statements
1. Basis of preparation
This financial information is for the year ended 31 December 2011 and has been
prepared in accordance with International Financial Reporting Standards
("IFRS") adopted for use by the European Union and the Companies Act 2006.
These accounting policies and methods of computation are consistent with the
prior year.
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts in the financial statements. The
areas involving a higher degree of judgements or complexity, or areas where
assumptions or estimates are significant to the financial statements such as
the impairment of investments and going concern are disclosed within the
relevant notes.
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2010 or the year ended 31
December 2011, but is derived from those accounts. Statutory accounts for 2010
have been delivered to the Registrar of Companies and those for 2011 will be
delivered shortly. The Auditors have reported on those accounts; their reports
were unqualified and did not contain statements under the Companies Act 2006,
sections 498(2) or (3).
2. Going concern
The Directors have considered all available information about the future events
when considering going concern. The Directors have reviewed cash flow forecasts
for twelve months following the date of these accounts. The cash flow forecasts
assume no further funding of PowerHouse Energy, Inc. and Pyromex by the
Company. The £380,000 convertible loan obtained from Hill Grove, secured prior
to these accounts being signed, together with the $250,000 convertible loan
advanced by Linc Energy Limited on 19 June 2012 is considered sufficient to
settle outstanding creditors of the Company and maintain the Company's reduced
overhead and other limited unforeseen events for at least the next twelve
months. In addition, the company is in receipt of a letter of intention of
financial support from Hill Grove to ensure the company continues to meet its
obligations as they fall due and to ensure it operates as a going concern for a
period of at least 12 months. Based on this, the Directors continue to adopt
the going concern basis of accounting for the preparation of the annual
financial statements.
3. Loss per share
2011 2010
Total comprehensive loss (£) (49,853,783) (89,154)
Weighted average number of shares 149,285,334 97,373,523
Loss per share (pence) (33.39) (0.09)
As the Company incurred a loss, potential ordinary shares are anti-dilutive and
accordingly no diluted earnings per share has been presented.
4. Trade and other receivables
2011 2010
£ £
Other receivables 122 304,541
Prepayments 16,745 3,809
VAT receivable 99,952 -
Pyromex 1 -
116,820 308,350
5. Trade and other payables
2011 2010
£ £
Trade payables 62,841 -
Salary and wages accrual 57,855 -
Other accruals 81,814 43,172
202,510 43,172
6. Post balance sheet events and contingent liabilities
6.1. Warrant holders
Since 31 December 2011, 243,229 instruments were exercised and converted into
ordinary shares at an exercise price of 18p per share.
6.2. Share suspension
On 12 April 2012 the Company's shares were suspended from trading on the AIM
market. The Directors intend to seek the lifting of the suspension of trading
in the Company's shares as soon as possible following the publication of these
accounts and the announcement of the interim results for the six months ended
30 June 2012.
6.3. Legal action
On 7 May 2012 certain former employees of the Company's subsidiary, PowerHouse
Energy, Inc. filed a lawsuit in the US District Court (Nevada) against
PowerHouse Energy, Inc. and PowerHouse Energy Group plc for accrued salaries
and amounts due to the end of their service contracts to the value of
$1,961,938, plus interest, damages and legal costs. On 1 October 2012 a
conditional settlement agreement was reached with the claimants whereby in
exchange for a cash settlement of $37,000 and the issue of 520,000 shares in
the Company the case would be withdrawn and the Company and its subsidiary
released from obligations to the claimants. The case was withdrawn on 1 October
2012. The settlement agreement was conditional, amongst other things, on the
suspension of the trading in the Company's shares on the AIM market being
lifted.
6.4. Lapse of Pyromex option
On 7 May 2012 the Company's option to acquire 70% of Pyromex Holdings AG,
expired. The Company indirectly holds 30% of Pyromex Holdings AG through its
subsidiary, PowerHouse Energy, Inc.
6.5. Aspermont loan
Aspermont Ltd, Dilato Holdings Pty Ltd and Tesla Nominees Pty Ltd collectively
provided a facility of £100,000 to the Company repayable on demand, which
incurs interest at 1 per cent. per month. The Company has fully utilised the
facility and is currently in productive negotiations to revise the terms of the
loan.
6.6. Hill Grove loan
On 19 June 2012 the Company entered into a convertible loan agreement with Linc
under which Linc agreed to advance $250,000 to the Company. The loan is
unsecured, repayable on 18 June 2014 and carries interest of 15 per cent. per
annum. Linc has the option at any time to convert the loan in part or whole at
a conversion price of 1p per share. On 8 October 2012, the Company was advised
that all rights under this agreement have been assigned to Hill Grove.
On 8 October 2012, the Company entered into a further convertible loan
agreement with Hill Grove under which Hill Grove has agreed to advance £380,000
to the Company. The loan is unsecured, repayable on 8 October 2014 and carries
interest of 15 per cent. per annum. Hill Grove has the option at any time to
convert the loan in part or whole at a conversion price of 1p per share.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2011
Note Year ended Year ended
31 December 31 December
2011 2010
US$ US$
Revenue 62,379 299,712
Cost of sales (73,416) (439,529)
Gross loss (11,037) (139,817)
Administrative expenses (7,790,179) (1,911,402)
Operating loss (7,801,216) (2,051,219)
Finance income 848 11,761
Other income - 12,324
Fair value gain on step acquisition 3 6,209,876 -
Finance expenses (310,231) (138,028)
Impairment of non-current assets (33,387,720) (219,000)
Loss before taxation (35,288,443) (2,384,162)
Income tax credit 3,028,883 -
Loss after taxation (32,259,560) (2,384,162)
Foreign exchange arising on consolidation (3,621,791) -
Total comprehensive expense (35,881,351) (2,384,162)
Total comprehensive expense attributable to:
Owners of the Company (13,588,143) (2,384,162)
Non-controlling interests (22,293,208)
Loss per share (US$) (0.05) (0.02)
Consolidated Statement of Changes in Equity
For the year ended 31 December 2011
Shares and Accumulated Other Non-controlling Total
stock losses reserves interests US$
US$ US$ US$ US$
Balance at 1 January 1,819,645 (3,132,506) - - (1,312,861)
2010
Transactions with
equity participants:
Issue of common stock 4,590,620 - - - 4,590,620
Costs related to (191,900) - - - (191,900)
issue of common stock
Total comprehensive
expense:
Loss after taxation - (2,384,162) - - (2,384,162)
Balance at 31 6,218,365 (5,516,668) - - 701,697
December 2010
Transactions with
equity participants:
Issue of common stock 10,199,941 - - - 10,199,941
Costs related to (1,521,802) - - - (1,521,802)
issue of common stock
Common stock issued 206,250 - - - 206,250
for services received
Equity issued for - - 2,019,736 - 2,019,736
acquisition
Equity 64,780,459 (64,780,459) - -
reclassification
arising from reverse
takeover
Shares issued for 167,492 - - - 167,492
services received
Acquisition of - - - 23,951,661 23,951,661
Pyromex
Exercise of warrants 188 - - - 188
Total comprehensive
income:
Loss after taxation - (12,574,238) (19,685,322) (32,259,560)
Foreign exchange - (1,020,946) (2,600,845) (3,621,791)
arising on
consolidation
Balance at 31 80,050,893 (18,090,906) (63,781,669) 1,665,494 (156,188)
December 2011
Consolidated Statement of Financial Position
For the year ended 31 December 2011
Note 31 December 31 December
2011 2010
US$ US$
ASSETS
Non-current assets
Intangible assets 5 2,062,838 454,167
Property, plant and equipment 1,825,636 42,753
Other non-current assets - 4,005,121
Total non-current assets 3,888,474 4,502,041
Current Assets
Inventories 637,601 -
Trade and other receivables 6 278,384 467,866
Cash and cash equivalents 382,455 197,170
Total current assets 1,298,440 665,036
Total assets 5,186,914 5,167,077
LIABILITIES
Non-current liabilities
Deferred taxation (372,277) -
Loans 7 (376,973) -
Trade and other payables 8 (777,000) -
Total non-current liabilities (1,526,250) -
Current liabilities
Loans 7 (57,996) (2,980,432)
Trade and other payables 8 (3,758,856) (1,484,948)
Total current liabilities (3,816,852) (4,465,380)
Total liabilities (5,343,102) (4,465,380)
Net (liabilities) / assets (156,188) 701,697
EQUITY
Shares and stocks 80,050,893 6,218,365
Other Reserves (63,781,669) -
Accumulated losses (18,090,906) (5,516,668)
Non-controlling interests 1,665,494 -
Total (deficit) / equity (156,188) 701,697
Consolidated Statement of Cash Flows
For the year ended 31 December 2011
Year ended Year ended
31 December 31 December
2011 2010
US$ US$
Cash flows from operating activities
Loss before taxation (35,288,443) (2,384,162)
Adjustments for:
Finance income (848) (11,761)
Finance costs 310,231 138,028
Fair value gain on step acquisition (6,209,876) -
Impairment of non-current assets 33,387,720 219,000
Depreciation and amortisation 1,824,241 51,955
Common stock and shares issued for services 373,742 -
Foreign exchange revaluations 140,581 -
Changes in working capital:
(Increase) / decrease in trade and other (178,542) 278,490
receivables
(Decrease) / increase in trade and other 1,588,261 480,509
payables
Taxation paid (800) -
Net cash used in operations (4,053,733) (1,227,941)
Cash flows from investing activities
Purchase of other non-current assets (85,000) (3,224,122)
Purchase of tangible and intangible assets (494,429) -
Reverse acquisition (949,660) (461,213)
Net cash flows used in investing activities (1,529,089) (3,685,335)
Cash flows from financing activities
Common stock issue (net of issue costs) 8,678,326 4,398,720
Finance income 848 11,761
Finance costs (310,231) (138,028)
Loans (repaid) / received (2,596,592) 851,773
Net cash flows from financing activities 5,772,351 5,124,226
Net increase in cash and cash equivalents 189,529 210,950
Cash and cash equivalents at beginning of 197,170 (13,780)
period
Foreign exchange on cash balances (4,244) -
Cash and cash equivalents at end of period 382,455 197,170
1. Basis of Preparation
The following accounting policies have been applied consistently in dealing
with items which are considered material in relation to the Group financial
information.
This consolidated financial information is for the year ended 31 December 2011
and has been prepared in accordance with International Financial Reporting
Standards ("IFRS") adopted for use by the European Union and the Companies Act
2006. These accounting policies and methods of computation are consistent with
those used in the Prospectus issued pursuant to the proposed acquisition of
PowerHouse Energy, Inc. by PowerHouse Energy Group plc ("the Listing
Document").
The Group's date of transition to IFRS is 1 January 2007, being the beginning
of the period for which historical IFRS financial information was prepared for
the Listing Document This consolidated financial information is the first
prepared by the Group in accordance with accounting standards as adopted for
use in the EU and as such take account of the requirements and options in IFRS
1 "First-time adoption of International Financial Reporting Standards" as they
relate to the comparative financial information.
The financial information set out above does not constitute the Group's
statutory accounts for the year ended 31 December 2010 and the year ended 31
December 2011, but is derived from those accounts. Statutory accounts for 2010
have been delivered to the Registrar of Companies and the statutory Group
accounts for 2011 will be delivered shortly. The auditors have reported on
those accounts: their report was qualified and contained a disclaimer of
opinion and contained statements under section 498(2) or (3) of the Companies
Act 2006 as follows:
"Basis for disclaimer of opinion on financial statements
The audit evidence available to us was limited because we were unable to obtain
accounting records in respect of PowerHouse Energy, Inc. and Pyromex Holding
AG. As a result of this we have been unable to obtain sufficient appropriate
audit evidence concerning the state of the Group's affairs as at 31 December
2011 and of its loss of the year then ended.
Disclaimer of opinion on financial statements
Because of the significance of the matter described in the basis for disclaimer
of opinion on financial statements paragraph, we have not been able to obtain
sufficient appropriate audit evidence to provide a basis for an audit opinion.
Accordingly we do not express an opinion on the financial statements.
Opinion on other matter prescribed by the Companies Act 2006
Notwithstanding our disclaimer of an opinion on the financial statements, in
our opinion the information given in the Directors' Report for the financial
year for which the Group financial statements are prepared is consistent with
the Group financial statements.
Matters on which we are required to report by exception
Arising from the limitation of our work referred to above:
* we have not obtained all the information and explanations that we
considered necessary for the purpose of our audit; and
* we were unable to determine whether adequate accounting records have been
kept.
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
* certain disclosures of Directors' remuneration specified by law are not
made.
Other matters
As the comparative figures relate to the results of PowerHouse Energy, Inc. and
this Company was exempt from audit in the prior year, we have not audited the
corresponding amounts for that year.
We have reported separately on the parent Company financial statements of
PowerHouse Energy Group plc for the year ended 31 December 2011. The opinion in
that report is unqualified."
2. Reverse takeover
On 29 June 2011, PowerHouse Energy Group plc acquired 100 per cent of the
common stock holding of PowerHouse Energy, Inc. by issuing 273,766,453
PowerHouse Energy Group plc shares to the common stockholders of PowerHouse
Energy, Inc. ("the Reverse Takeover").
The Reverse Takeover has been treated as a reverse acquisition under IFRS3
(2008) "Business combinations" whereby PowerHouse Energy, Inc. has been treated
as the acquirer PowerHouse Energy Group plc. Accordingly the Group's results
for the year ended 31 December 2011 constitute the full year's trading by
PowerHouse Energy, Inc. and 6 months trading of PowerHouse Energy Group plc.
Comparative figures relate to the results of PowerHouse Energy, Inc. The
comparative figures are unaudited as PowerHouse Energy, Inc. was exempt from
audit.
A reverse takeover reserve (included with other reserves) has been created to
account for the fair value of the consideration for the reverse acquisition and
to account for the change in the equity structure from that of PowerHouse
Energy, Inc. to that of the legal holding Company, PowerHouse Energy Group plc.
Cash flows related to funds provided by PowerHouse Energy, Inc. to PowerHouse
Energy Group plc, prior to the reverse acquisition by way of loans have been
presented in the statement of cash flows in the line item called `Reverse
acquisition'. To ensure consistency for all periods presented, the cash flows
for the year ended 31 December 2010 have been restated from those disclosed in
the Listing Document. The restatement of the cash outflow relating to the loan
of US$461,213 was reclassified from `cash used in operations' to `cash used in
investing activities' and has also been included in the line item called
`Reverse acquisition'.
Fair values attributable to PowerHouse Energy Group plc's assets and
liabilities acquired ($):
Property, plant and equipment 3,453
Trade and other payables (880,628)
Trade and other receivables 102,589
Loan payable to PowerHouse, Inc. (1,411,465)
Cash and cash equivalents 170,431
Net liabilities acquired (2,015,620)
Fair value of equity issued for reverse acquisition 2,019,736
Goodwill recognised 4,035,356
3. Pyromex acquisition
In August 2010, PowerHouse Energy, Inc. acquired a 30 per cent shareholding in
Pyromex Holding AG ("Pyromex"). In January 2011, PowerHouse Energy, Inc.
purchased a call option for US$50,000 to acquire up to an additional 21 per
cent of Pyromex's shareholding (the Initial Option"). The Initial Option was
exercisable in two tranches; the first tranche of 1.8 per cent shareholding was
exercisable before 30 June 2011 (subsequently extended to 31 August 2011) and
the second tranche, which was conditional upon the exercise of the first
tranche, was exercisable on or before 30 June 2012. The Initial Option was
conditional upon the successful completion of the reverse acquisition and
listing on the AIM market.
On 3 August 2011, the Initial Option was cancelled and replaced with the New
Option to acquire the remaining 70 per cent interest in Pyromex for payment of
£2.5 million (US$4.0 million) in cash over the 18 months following completion
and a maximum potential further payment of £30.5 million (US$48.8 million)
dependent on the achievement of certain market capitalisation or profit targets
of the Group. The New Option was exercisable before 31 December 2011
(subsequently extended monthly thereafter until it expired on 7 May 2012).
Management have assessed the above options and the potential voting rights
attributable to the additional shareholding in Pyromex it could have acquired
and have determined control existed from the date of the AIM listing, 29 June
2011.
The Pyromex acquisition has been achieved in stages, (30 per cent voting rights
acquired in August 2010 and the additional potential voting rights acquired on
29 June 2011) the Group re-measured its previously held equity interest in
Pyromex at its fair value and recognised the resulting gain of US$6,209,876 in
comprehensive income for the period.
Fair values attributable to Pyromex Holding AG's assets and liabilities
acquired ($):
Intangible assets 30,389,655
Property, plant and equipment 7,883,306
Inventory 719,278
Trade and other payables (952,601)
Deferred taxation (3,822,980)
Net assets acquired 34,216,658
Attributable to:
* Non-controlling interests 23,951,661
* Owners of the Company 10,264,997
Carrying value of investment - 31 December 2010 4,005,121
Purchase of call option 50,000
Fair value gain recognised 6,209,876
10,264,997
4. Loss per share
2011 2010
Loss after (12,581,950) (2,384,162)
taxation-attributable to
owners of the Company
(US$)
Weighted average number of 245,331,092 117,474,385
shares
Loss per share (US$) (0.05) (0.02)
The reverse acquisition has had the effect of converting 7,869,114 common stock
and 45,298 preferred stock instruments in PowerHouse Energy, Inc. into
273,766,453 ordinary shares in PowerHouse Energy plc. This has, effectively,
resulted in the increasing the number of equity instruments held by the
existing stockholders of PowerHouse Energy, Inc. for no additional
consideration. Therefore, the weighted average number of shares before the
reverse acquisition has been adjusted proportionately to reflect the number of
ordinary shares that would have been outstanding if the reverse acquisition had
occurred on 1 January 2010.
5. Intangible assets
Goodwill Pyromex Licence Total
technology agreements
At 1 January 2010
Cost - - 500,000 500,000
Accumulated - - (20,833) (20,833)
amortisation
Opening carrying - - 479,167 (479,167)
value
* Amortisation - - (25,000) (25,000)
* Closing - - 454,167 454,167
carrying
value
At 31 December 2010
Cost - - 500,000 500,000
Accumulated - - (45,833) (45,833)
amortisation
Opening carrying - 454,167 454,167
value
* Pyromex - 30,389,655 - 30,389,655
acquisition
* Reverse 4,035,356 - - 4,035,356
acquisition
* Purchases - 1,961 490,840 492,801
* Amortisation (1,448,642) (344,652) (1,793,294)
* Impairments (4,035,356) (23,537,175) (600,355) (28,172,886)
* Foreign (3,342,961) (3,342,961)
exchange
fluctuations
* Closing - 2,062,838 - 2,062,838
carrying
value
At 31 December 2011
Cost 4,035,356 27,931,414 990,840 32,957,610
Accumulated (4,035,356) (25,868,576) (990,840) (30,894,772)
amortisation and
impairment
Net carrying - 2,062,838 - 2,062,838
value
Goodwill was recognised as the excess of the fair value of the consideration
determined in accordance with IFRS 3 accounting for reverse acquisitions over
the fair value of the net liabilities acquired.
The initial recognition of the Pyromex technology asset was determined taking
into account information available around the time of including the Pyromex
results in the consolidated results. The value of the intangible asset was
determined by discounting net future cash flows of customers who had expressed
an interest in acquiring the Pyromex technology. Cash flows were adjusted for
probabilities of their ultimate outcome. In addition to the probabilities
associated with each customer, estimates were made for the ultimate selling
price, costs associated with each sale and the timescales to produce and
install the systems.
Licence agreements represent the capitalised licence fees paid by PowerHouse
Energy, Inc. to Pyromex and RenewMe for rights associated with the Pyromex
technology.
Following the results of the trials from the plant in Munich, the judgements,
estimates and assumptions were re-examined resulting in reducing the expected
cash flows associated with the technology. This has resulted in impairments
being recognised to the Pyromex technology asset and the related licence
agreements assets.
Due to the impairment of the Group's primary intangible asset, the Pyromex
technology, the entire amount of goodwill recognised from the reverse
acquisition has been impaired.
6. Trade and other receivables
2011 2010
US$ US$
Other receivables 69,235 6,653
Prepayments 54,693 -
VAT receivable 154,456 -
PowerHouse Energy Group plc - 461,213
Total trade and other 278,384 467,866
receivables
7. Loans
2011 2010
US$ US$
Preferred stock - 275,000
Accrued dividends on preferred 33,000 24,750
stock
EnviroEnergy Resources Limited - 526,216
Credal Trust Management - 1,793,166
Management loans 349,885 284,215
Citibank business loan 52,084 77,085
Total loans 434,969 2,980,432
Classified as:
* Current 57,996 2,980,432
* Non-current 376,973 -
8. Trade and other payables
2011 2010
US$ US$
Trade creditors 856,924 99,069
Salary and wage accruals 1,445,926 799,397
RenewMe 1,036,000 -
Customer deposits 939,236 100,000
Other accruals 257,770 486,482
Total trade and other payables 4,535,856 1,484,948
Classified as:
Current 3,758,856 1,484,948
Non-current 777,000 -
9. Post balance sheet events and contingent liabilities
9.1. Warrant holders
Since 31 December 2011, 243,229 were exercised and converted into ordinary
shares at an exercise price of 18p per share.
9.2. Share suspension
On 12 April 2012 the Company's shares were suspended from trading on the AIM
market. The Directors intend to seek the lifting of the suspension of trading
in the Company's shares as soon as possible following the publication of these
accounts and the announcement of the interim results for the six months ended
30 June 2012.
9.3. Legal action
On 7 May 2012 certain former employees of the Company's subsidiary, PowerHouse
Energy, Inc. filed a lawsuit in the US District Court (Nevada) against
PowerHouse Energy, Inc. and PowerHouse Energy Group plc for accrued salaries
and amounts due to the end of their service contracts to the value of
$1,961,938, plus interest, damages and legal costs. On 1 October 2012 a
conditional settlement agreement was reached with the claimants whereby in
exchange for a cash settlement of $37,000 and the issue of 520,000 shares in
the Company the case was withdrawn and the Company and its subsidiary released
from obligations to the claimants. The case was withdrawn on 1 October 2012.
The settlement agreement was conditional, amongst other things, on the
suspension of the trading in the Company's shares on the AIM market being
lifted.
9.4. Lapse of Pyromex option
On 7 May 2012 the Group's option to acquire 70% of Pyromex Holdings AG,
expired. The Group still holds 30% of Pyromex Holdings AG.
9.5. Aspermont loan
Aspermont Ltd, Dilato Holdings Pty Ltd and Tesla Nominees Pty Ltd collectively
provided a facility £100,000 to the Group repayable on demand, which incurs
interest at 1 per cent. per month. The Group has fully utilised the facility
and is currently in productive negotiations to revise the terms of the loan.
9.6. Hill Grove Loan
On 19 June 2012 the Group entered into a convertible loan agreement with Linc
Energy Limited under which Linc agreed to advance $250,000 to the Group. The
loan is unsecured, repayable on 18 June 2014 and carries interest of 15 per
cent. per annum. Linc has the option at any time to convert the loan in part or
whole at a conversion price of 1p per share. On 8 October 2012, the Group was
advised that all rights under this agreement have been assigned to Hill Grove.
On 8 October 2012, the Group entered into a further convertible loan agreement
with Hill Grove under which Hill Grove has agreed to advance £380,000 to the
Group. The loan is unsecured, repayable on 5 October 2014 and carries interest
of 15 per cent. per annum. Hill Grove has the option at any time to convert the
loan in part or whole at a conversion price of 1p per share.
10. Availability of Report & Accounts
Copies of the report and accounts will be posted to shareholders shortly and
will be available for the Company's registered office at 16 Great Queen Street,
London, WC2 5DG and from the Company's website www.powerhouseenergy.net.
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