Final Results

RNS Number : 7441X

Proton Power Systems PLC

27 June 2008

 



Press Release

27 June 2008

Proton Power Systems plc

('the Group')

Final Results

Proton Power Systems plc (AIM: PPS), a leading designer, developer and producer of fuel cells and fuel cell electric hybrid systems for the 'back to base' market, announces its final audited results for the year ended 31 December 2007.

Highlights

·	Turnover increased by 74% to £661,000 (2006: £490,000 excluding the £576,000 'one off' licence fee income from L3 Communications, USA)
·	Incurred a net loss of £2.369m (2006: £1.8m)
·	Completed Placing to raise £3.0million (before expenses)
·	Secured milestone orders for fuel cell hybrid systems (passenger ferry for the City of Hamburg, City Bus for Prague and street cleaning vehicle in Switzerland)
·	Secured memorandum of understanding with Wilhelm Karmann GmbH, a leading worldwide supplier of full-service vehicles
·	Jointly presented, with Karmann, the first prototype of a range of zero-emission, light-duty commercial vehicles at the largest industry fair in Hanover
·	Signed a framework contract for hybrid system and related diagnostic technology with AVL, one of the largest Austrian automotive engineering companies
·	Unveiled the world’s first triple-hybrid forklift system
·	Appointed Achim Loecher as Finance Director
·	Established an after-sales division, to generate recurring revenue from servicing and spare parts activities

John Wall, Executive Chairman, commented on the results: 'We are delighted with securing £3 million, before expenses, to take the Group to the next level. Although we will need to secure further capital at a later date, the Placing has put us in a favourable position for future growth. Proton is well placed to benefit from the ever-increasing price of oil and will be capitalising on the opportunities this will bring. We continue to review cost saving measures and look forward to announcing good news for the future.'

- ENDS -

For further information:

Proton Power Systems plc	www.protonpowersystems.com
Felix Heidelberg, CEO	Tel: [phone]
[e-mail]
Noble & Company Limited	www.noblegp.com
Andy Yeo / Nick Athanas	Tel: [phone]

Media enquiries:

Abchurch Communications Limited	Tel: [phone]
Monique Tsang / Stephanie Cuthbert	Tel: [phone]
[e-mail]	www.abchurch-group.com

  Chairman and Chief Executive's report

Overview

We are pleased to report our results for the year ended 31 December 2007, which is the first full year as a public company on the Alternative Investment Market of the London Stock Exchange ('AIM').

Over the last year Proton Motor has secured and progressed work on key European orders for fuel cell hybrid systems, specifically; for a passenger ferry for the City of Hamburg, a City Bus for Prague and for a street cleaning vehicle in Switzerland. In addition Proton Motor succeeded in gaining acceptance for a fuel cell product for an Austrian OEM in the field of small scale power supply and, after achieving the design freeze, 7 units were shipped to this customer. With these contracts in place the order book for the Group now exceed 6 million Euros.

We carried out the successful identification of, and subsequent move to, suitable premises in July 2007. The premises are located at the western city limit of Munich, in Puchheim and provide circa 35,000 ft² of production and office area. The lease provides for the buildings to be extended to allow the plant production capacity to increase from 1,500 to 10,000 fuel cell systems a year.

In September 2007 we presented a world premiere: the first Triple-Hybrid© fuel cell system which we designed and retrofitted in a 3 ton forklift truck. For stop-and-go operated systems like forklifts, buses, delivery vans, etc. we see this hybrid configuration as the market leader in terms of investment and operational costs.

Furthermore we are pleased to announce two significant partnership arrangements with key players in our market:

• We have signed a framework contract for the development of hybrid system technology and related diagnostic technology with AVL, one of the largest and leading Austrian automotive engineering companies.

• We have reached a memorandum of understanding with Wilhelm Karmann GmbH, a leading worldwide supplier of full-service vehicles, to build and market zero-emission, light-duty commercial vehicles and jointly presented the first prototype at the largest industry fair in Hanover.

We have continued to build up our extensive customer relationship portfolio based on substantial interest in our fuel cell systems raised in our target markets.

Focus has also been given to the transition of our business from project to product driven sales with key employee recruitment in initiating standard product processes like PLM (product lifecycle management) and general ISO 9001. 

Finance

The outcome for the year was a loss of £2.369m and reflects the expenses of moving to new premises in July 2007.

In 2007 the turnover increased by 74% to £661,000 compared to 2006, which was £490,000 (excluding £576,000 in relation to the 'one off' licence fee income from L3 Communications, USA). This outcome was in line with expectations. 

The future development of the Group was in danger of slowing. However having secured further funds of £3m in May of this year, by the Placing of new share capital, the progress which has been achieved over the last 12 months can now continue. The Board, however, recognises that further fundraising will be required to meet the Group's planned development.

Outlook

The world faced an increase in the price of crude oil from $60 to more than $130 per barrel. This trend has been ongoing for 7 years with an average price increase of more than 30% p.a.. This price will have a detrimental effect on the world-wide economy. The hydrogen fuel cell is now, more than ever, considered to be an essential component of the solution to this crisis. As a logical consequence we could see the certification of the NIP (National Innovation Program) in Germany, which increases the existing funding programs for fuel cells and hydrogen by €500 million to €700 million, and the scheduled commencement of the first funded market introduction projects for fuel cell products in 2008. Proton Motor has an excellent chance of obtaining funding for their products through this program.

Our customer relations database highlights some very encouraging prospects with the potential to increase sales significantly, especially given the focus on standard production processes and sales as well as on the related activity of the business to convert the developed fuel cell hybrid system technology into standard products. This includes:

• implementation of standard industrial product lifecycle management;

• enlargement of the production capacity;

• carrying out a continuous cost reduction program;

• focusing on key OEM in our markets for our bespoke products;

• improving and enlarging our test and quality control bench field; and

• setting up after-sales services, such as servicing and spare parts as a part of the revenue stream.

We are looking forward to this approach and believe that these measures will assure our position as a leading fuel cell system manufacturer.

On behalf of the Board we would take this opportunity to thank the Proton Motor team and our advisors for their hard work and effort and our customers and suppliers for their confidence and support throughout the year. 

John Wall FCA Chairman

F.W.G.A.P. Heidelberg Chief Executive

  Consolidated income statement

for the year ended 31 December 2007 

	Note		2007		2006
			£'000		£'000
Continuing operations
Revenue	1,2,3		661		1,057
Cost of sales			(1,594)		(1,030)
Gross (loss)/profit			(933)		27
Other operating income			48		12
Administrative expenses			(1,504)		(1,836)
Operating loss			(2,389)		(1,797)
Finance income			89		8
Finance costs			(69)		(11)
Loss for the year attributable to equity holders of the Company	4		(2,369)		(1,800)
Loss per share (expressed as pence per share)
Basic	5		(7.6)		(6.8)
Diluted	5		(7.6)		(6.8)

  Consolidated balance sheet

as at 31 December 2007

	Note	2007	2006
		£'000	£'000
Non-current assets
Intangible assets	6	398	99
Property, plant and equipment	7	176	55
		574	154
Current assets
Inventories		108	21
Trade and other receivables	8	934	956
Cash and cash equivalents	9	682	1,886
		1,724	2,863
Total assets		2,298	3,017
Capital and reserves
Ordinary shares	12	1,570	1,570
Share premium		4,735	4,735
Merger reserve		15,656	15,656
Reverse acquisition reserve		(13,862)	(13,862)
Share option reserve		430	147
Foreign translation reserve		44	30
Capital contributions		1,002	916
Retained earnings		(9,444)	(7,007)
Total equity		131	2,185
Non-current liabilities
Borrowings	11	514	-
Current liabilities
Trade and other payables	10	1,653	832
Total liabilities		2,167	832
Total equity and liabilities		2,298	3,017

These financial statements were approved by the Board of Directors on 26 June 2008 and were signed on its behalf by:

J Wall FCA

Director

  Statement of changes in consolidated equity

	Attributable to equity holders of the Company
Group	Share Capital	Share Premium	Merger Reserves	Reverse Acquisition Reserves	Share Option Reserve	Translation reserve	Capital contribution Reserves	Retained Earnings	Total Equity
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Balance at 1 January 2006	93	3,158	-	-	-	23	936	(5,297)	(1,087)
Loss for the year	-	-	-	-	-	-	-	(1,800)	(1,800)
Currency translation differences	(2)	(68)	-	-	-	7	(20)	90	7
Total recognised income and expense for the year	(2)	(68)	-	-	-	7	(20)	(1,710)	(1,793)
Share based payments credit	-	-	-	-	147	-	-	-	147
Proceeds from share issues	329	4,924	-	-	-	-	-	-	5,253
Share issue costs	-	(335)	-	-	-	-	-	-	(335)
Reverse acquisition	1,150	(2,944)	15,656	(13,862)	-	-	-	-	-
Balance at 31 December 2006	1,570	4,735	15,656	(13,862)	147	30	916	(7,007)	2,185
Balance at 1 January 2007	1,570	4,735	15,656	(13,862)	147	30	916	(7,007)	2,185
Loss for the year	-	-	-	-	-	-	-	(2,369)	(2,369)
Currency translation differences	-	-	-	-	-	14	86	(68)	32
Total recognised income and expense for the year	-	-	-	-	-	14	86	(2,437)	(2,337)
Share based payments credit	-	-	-	-	283	-	-	-	283
Balance at 31 December 2007	1,570	4,735	15,656	(13,862)	430	44	1,002	(9,444)	131

Share premium account

On Admission to the Alternative Investment Market of the London Stock Exchange the Company issued 6,190,863 shares at 80p, generating £4,952,690. Costs directly associated with the issue of the new shares totalled £335,000 and have been set off against the premium generated on issue of new shares.

Merger reserve

The merger reserve of £15,656,000 arises as a result of the acquisition of Proton Motor Fuel Cell GmbH during the year. The merger reserve represents the difference between the nominal value of the share capital issued by the Company and their fair value at 31 October 2006, the date of the acquisition.

Reverse acquisition reserve

The reverse acquisition reserve arises as a result of the method of accounting for the acquisition of Proton Motor Fuel Cell GmbH by the Company. In accordance with IFRSs the acquisition has been accounted for as a reverse acquisition.

  Consolidated cash flow statement

for the year ended 31 December 2007

	Note	Year ended 31 December
		2007	2006
		£'000	£'000
Cash flows from operating activities
Net cash used in operations	13	(1,486)	(2,299)
Interest received		86	6
Interest paid		(64)	(60)
Net cash used in operating activities		(1,464)	(2,353)
Cash flows from investing activities
Investment in subsidiary		-	(138)
Purchase of intangible assets		(422)	(98)
Purchase of property, plant and equipment		(150)	(9)
Net cash used in investing activities		(572)	(245)
Cash flows from financing activities
Proceeds from issue of share capital		-	3,644
Increase in loan balances	13	1,000	1,195
Loan repayments		(168)	(372)
Net cash generated from financing activities		832	4,467
Net (decrease)/increase in cash and cash equivalents		(1,204)	1,869
Opening cash and cash equivalents		1,886	17
Closing cash and cash equivalents		682	1,886

  Notes to the results statement

1.    Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied.

Development of the Group

Proton Power Systems plc was incorporated on 7 February 2006 and on 31 October 2006 acquired the entire share capital of Proton Motor Fuel Cell GmbH. As a result of this transaction, the shareholders in Proton Motor Fuel Cell GmbH received shares in the Company. 

In preparing the consolidated financial statements, Proton Motor Fuel Cell GmbH has been deemed to be the acquirer and the Company, the legal parent, has been deemed to be the acquiree. Under IFRS 3 'Business Combinations', the acquisition of Proton Motor Fuel Cell GmbH by the Company has been accounted for as a reverse acquisition and the consolidated IFRS financial information of the Company is therefore a continuation of the financial information of Proton Motor Fuel Cell GmbH.

As permitted by Section 230 of the Companies Act 1985, no separate income statement is presented in respect of the parent Company. The loss for the financial period dealt with in the accounts of the parent Company was £6,193,000.

Basis of preparation

The consolidated financial statements of Proton Power Systems plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and with those parts of the Companies Act 1985 applicable to those companies under IFRS. The consolidated financial statements have been prepared under the historical cost convention and on the basis that the Group continues to be a going concern. Until such time as the Group achieves operational cash inflows through becoming a volume producer of its products to a receptive market it will remain dependant on its ability to raise cash to fund its operations from existing and potential shareholders and the debt market.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 3.

New accounting standards

The only new accounting standards and interpretations which have been adopted in this year and their impact on the Group financial statements were IFRS 7 'Financial instruments: disclosures' and the complementary amendment to IAS 1 'Presentation of financial statements - capital disclosures' which introduce new disclosure requirements relating to financial instruments. There is no impact on the classification and valuation of the Group's financial instruments, though it has impacted on certain disclosures.

Basis of consolidation

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Share-based payments

The Company issues equity-settled share-based payments to certain employees of the Group companies. A fair value for the equity settled share awards is measured at the date of grant. The Group measures the fair value using the valuation technique most appropriate to value each class of award; either a Black-Scholes, Monte Carlo or Binomial pricing model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest and adjusted for the effect of non-market based vesting conditions. 

The value of shares issued to settle fees and finance costs has been measured by reference to the fair value of services provided.

Foreign currency translation

(a)    Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in the British Pound ('Sterling'), which is the Group's presentation currency. Given the Company's listing on the Alternative Investment Market of the London Stock Exchange, the Directors consider that it is more appropriate to present the financial statements in Sterling.

(b)     Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

(c)    Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

• all resulting exchange differences are recognised as a separate component of equity.

Cost of investment

The cost of an acquisition is measured at the fair values, on the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issues, plus any costs directly attributable to the acquisition.

Property, plant and equipment

Property, plant and equipment are stated at acquisition cost or, as the case may be, production cost, reduced by accumulated depreciation and impairment losses. Costs of acquisition / costs of production include the expenses directly attributable to the acquisition. All repairs and maintenance are reported in the income statement as expenditure in the financial year in which they were incurred. The costs of production include all directly attributable costs, as well as the appropriate proportion of the overheads relating to production. 

Depreciation is charged on the basis of the economic life of the assets on a straight line basis as follows:

	Office equipment, furniture & equipment: 10%-33%
	Technical equipment & machinery: 20%
	Leasehold property improvements: over the life of the lease

Additions in the financial year are depreciated from the time of their acquisition. 

The residual values and the useful lives of property, plant and equipment are reviewed at each financial year-end and, if applicable, are adjusted. When the carrying amount of an asset exceeds its recoverable amount, the carrying amount is reduced to the recoverable amount. To determine the recoverable amount, the Group's management estimates expected future cash flows from each cash generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows.

Gains and losses arising from the disposal of assets are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognized in the income statement.

Intangible assets

Intangible assets are capitalised at acquisition cost and amortised over their estimated economic life of the assets of 3 years, on a straight-line basis.

A self-developed intangible asset is recognized if the following criteria are fulfilled:

• identification of the self-developed asset is possible;

• probability that the expected future economic benefits that are attributable to the self-developed intangible asset will flow to the entity; and

• the development costs of the asset can be measured reliably.

Self-developed intangible assets are amortized over the assumed economic life of the assets, on a straight-line basis. If a self-developed intangible asset is not recognized in accordance with IAS 38, the development costs are expensed in the period in which they are incurred.

Amortization starts at the first-time usage of the asset. The capitalized costs include all directly attributable costs, as well as reasonable parts of the overheads relating to production. If applicable, received government grants are deducted from the capitalized development costs in accordance with IAS 20.24.

Self-developed intangible assets are tested for impairment annually. Insofar as there are indications of an impairment for other intangible assets, the planned amortizable intangible assets shall be subjected to an impairment test and, if necessary, the carrying amount reduced to the recoverable amount within the meaning of IAS 36. 

Impairment of non-financial assets

At each balance sheet date, the Group reviews the carrying amount of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an identifiable life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than the carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount in which case the reversal of the impairment loss is treated as a revaluation increase. 

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

Customer-specific contracts

Accounting for customer-specific contracts is carried out in accordance with IAS 11. If the result of a construction contract can be reliably estimated, the revenue and expenses are reported in accordance with the percentage of completion as per the reporting date. This is usually determined from the ratio of the costs of the contract incurred up to the reporting date in comparison with the estimated overall costs of the contract, unless this would lead to a distortion in the presentation of the percentage of completion. Insofar as the result of a contract cannot be reliably estimated, the proceeds of the contract are to be recorded only in the amount of the costs of the contract incurred which are likely to be collectible. 

Where it is probable that the total cost of the construction contract will exceed the total contract revenue the expected loss is recognised immediately as an expense in the income statement.

Trade receivables

Trade and other receivables are recorded at the time of their initial recognition at fair value and subsequently at amortized cost less any impairment in value that may be necessary. An impairment in value in the case of trade and other receivables is recognized if there are objective indications that the amount of the debt due cannot be collected in full. The impairment in value is recognized in the income statement. Insofar as the reasons for value adjustments made in previous periods no longer exist, corresponding write-ups shall be made. 

Deposits with financial institutions

Deposits with financial institutions are measured at the nominal amount.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Trade and other payables

Trade and other payables, payables in respect of shareholders as well as other payables, are initially valued at fair value and subsequently at amortised cost.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

  Taxes on income and revenue

Tax expenses are the aggregate amount of current taxes and deferred taxes. Current taxes are measured in respect of the taxable profit (tax loss) for a period. Current tax is measured using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax liabilities are the future tax expense (tax income) on the differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. However deferred tax is not provided at the initial recognition of goodwill.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Deferred tax liabilities and assets are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred taxes are recognized in the income statement, except to the extent that it relates to items previously charged or credited to equity.

Employee benefits

The Company makes discretionary contributions to the personal pension plans of employees. The contributions are expensed on an accruals basis.

Other provisions

Other provisions are made insofar as there is a constructive obligation arising from past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. The valuation of the provisions is reviewed at each reporting date. Provisions for guarantees are made in relation to individual cases.  

Recognition of revenue and expenses

Sales revenues are included affecting net income in compliance with IAS 11 and IAS 18. Recognition of revenues from interest and interest expenses is made on an accrual basis. Financing costs are recorded as expenses in the period in which they are incurred. Research costs are expensed in the period in which they are incurred in accordance with IAS 38.54. Expenses for development costs that fulfil the criteria of IAS 38.57 are capitalized (see Intangible assets above). Amortization over the assumed economic life begins when the asset is available for use in accordance with IAS 38.97. 

Royalty income

Royalty income is recognised on an accrual basis in accordance with the substance of the relevant agreements.

Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants for expenses already incurred are recognized as income in the period in which the corresponding claim is created. 

Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

  Standards, amendments and interpretations not yet applied by Proton Power Systems plc

New standards and interpretations currently in issue but not effective for accounting periods commencing on 1 January 2007 are: 

• IAS 1 Presentation of Financial Statements (revised 2007) (effective 1 January 2009); 

• IAS 23 Borrowing Costs (revised 2007) (effective 1 January 2009); 

• Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation (effective 1 January 2009); 

• IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (effective 1 July 2009); 

• Amendment to IFRS 2 Share-based Payment - Vesting Conditions and Cancellations (effective 1 January 2009); 

• Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements - Costs of Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective 1 January 2009); 

• Improvements to IFRSs (effective 1 January 2009 other than certain amendments effective 1 July 2009); 

• IFRS 3 Business Combinations (Revised 2008) (effective 1 July 2009); 

• IFRS 8 Operating Segments (effective 1 January 2009); 

• IFRIC 11 IFRS 2 - Group and Treasury Share Transactions (effective 1 March 2007); 

• IFRIC 12 Service Concession Arrangements (effective 1 January 2008); 

• IFRIC 13 Customer Loyalty Programmes (effective 1 July 2008); 

• IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective 1 January 2008).

Based on the Group's current business model and accounting policies, management does not expect material impacts on the Group's financial statements when these standards or interpretations become effective, with the exception of IAS 1 (revised 2007). The adoption of IAS 1 (revised 2007) will result in a change in presentation of the primary statements as the statement of changes in equity will no longer be a primary statement. Instead a statement of comprehensive income will be presented.

2.    Critical accounting estimates and judgements

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below.

Estimated useful life of property, plant and equipment and impairment

The Group estimates the useful life of property, plant and equipment and reviews this estimate at each financial period end. The Group also tests for impairment whenever a trigger event occurs. See Note 7.

Recognition of development costs

Self developed intangible assets are recognised where the Group can estimate that it is probable that future economic benefits will flow to the entity. See Note 6.

Revenue recognition

The Group uses the percentage-of-completion method in accounting for its fixed-price contracts to deliver project services. Use of the percentage-of-completion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed. 

  3    Segmental information

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

Based on an analysis of risks and returns, the Directors consider that the Group has only one identifiable business segment, green energy and one geographical segment as the geographical location of its customers is incidental to the Group's operations.

Geographical analysis of turnover

	2007	2006
	£'000	£'000
Europe	637	422
USA	24	635
	661	1,057

4    Loss on ordinary activities before taxation

	2007	2006
	£'000	£'000
Loss on ordinary activities before taxation is stated
after charging
Depreciation and other amounts written off property, plant and equipment and intangible fixed assets:
Owned	197	40
Hire of plant and machinery - rentals payable under operating leases	-	2
Hire of other assets - operating leases	167	119
Exceptional costs associated with the Company's listing	-	310
Pension contributions	17	7
after crediting
Foreign exchange gains	-	(1)
Grants from public bodies	(383)	(50)
Release of negative goodwill on acquisition	-	(198)

Exceptional costs

Exceptional items are events or transactions that fall within the activities of the Group and which by virtue of their size or incidence have been disclosed in order to improve a reader's understanding of the financial statements.

Admission to the London Stock Exchange

During the period ended 31 December 2006 costs relating to the Company's Admission to the Alternative Investment Market of the London Stock Exchange amounted to £645,000 and includes taxation and restructuring advice, legal and professional fees and other advisory services relating to printing costs, marketing and public relations all of which related to the Admission. £335,000 of these fees has been set off against the share premium account and the remainder has been charged as an administrative expense.

5    Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary share. The Company has one category of dilutive potential ordinary share, share options; however, these have not been included in the calculation of loss per share because they are anti dilutive for these periods. 

	2007		2006
	Basic	Diluted	Basic	Diluted
	£'000	£'000	£'000	£'000
Loss attributable to equity holders of the Company	(2,369)	(2,369)	(1,800)	(1,800)
Weighted average number of ordinary shares in issue (thousands)	31,391	31,391	26,370	26,370
Shares issuable (weighted) - share options (thousands)	-	1,261	-	121
Adjusted weighted average number of ordinary shares	31,391	32,652	26,370	26,491
	Pence per share	Pence per share	Pence per share	Pence per share
Loss per share (pence per share)	(7.6)	(7.6)	(6.8)	(6.8)

Post year end the Company cancelled share options over 200,000 ordinary shares.

6    Intangible assets 

	Copyrights, trademarks and other intellectual property rights	Development costs	Total
	£'000	£'000	£'000
Cost
At 1 January 2006	28	-	28
Exchange differences	(1)	-	(1)
Additions	7	90	97
At 31 December 2006	34	90	124
At 1 January 2007	34	90	124
Exchange differences	3	42	45
Additions	5	417	422
At 31 December 2007	42	549	591
Amortisation
At 1 January 2006	21	-	21
Exchange differences	(1)	-	(1)
Charged in year	5	-	5
At 31 December 2006	25	-	25
At 1 January 2007	25	-	25
Exchange differences	3	11	14
Charged in year	5	149	154
At 31 December 2007	33	160	193
Net book value
At 31 December 2007	9	389	398
At 31 December 2006	9	90	99
At 1 January 2006	7	-	7

Self-developed intangible assets in the amount of £417,000 (2006: £90,000) are recognized in the reporting year, because the prerequisites of IAS 38 have been fulfilled.

The useful life of self-developed intangible assets is 3 years from completion of the asset.

No indications of impairment in value that would trigger an impairment test arose in the reporting year.

There are no individually significant intangible assets.

7    Property, plant and equipment 

	Leasehold property	Technical equipment & machinery	Office & other equipment	Plant & machinery in the process of construction	Total
	£'000	£'000	£'000	£'000	£'000
Cost
At 1 January 2006	21	164	443	27	655
Exchange differences	(1)	(3)	(9)	(1)	(14)
Additions	-	3	5	1	9
At 31 December 2006	20	164	439	27	650
At 1 January 2007	20	164	439	27	650
Exchange differences	5	15	37	18	75
Additions	33	9	57	51	150
At 31 December 2007	58	188	533	96	875
Depreciation
At 1 January 2006	20	137	411	-	568
Exchange differences	(1)	(3)	(9)	-	(13)
Charge for year	1	16	23	-	40
At 31 December 2006	20	150	425	-	595
At 1 January 2007	20	150	425	-	595
Exchange differences	2	15	33	11	61
Charge for year	1	10	10	22	43
At 31 December 2007	23	175	468	33	699
Net book value
At 31 December 2007	35	13	57	71	176
At 31 December 2006	-	14	14	27	55
At 1 January 2006	1	27	32	27	87

The economic life of leasehold property improvements as well as of technical equipment and machinery is 5 years. 

8    Trade and other receivables

		Group
	2007	2006
	£'000	£'000
Trade receivables	795	560
Loan to related parties	-	200
Amounts owed by subsidiary undertakings	-	-
Other debtors	50	97
Prepayments and accrued income	89	99
	934	956

The loan to related parties relates to an amount loaned to Mr. Karl Watkin. The loan was disclosed in the Placing and Admission to AIM prospectus and was to be repaid within 30 days of the admission of the Company's shares to the Alternative Investment Market of the London Stock Exchange. The loan was not repaid within the 30 day period; however, since the year end the loan has been repaid with interest of £5,000. The fair value of this loan at 31 December 2006 was £183,000 based on estimated market cost of similar debt of 7.5% per annum and expected repayment of the loan within one year.

The Directors consider that the carrying amount of trade and other receivables approximates to their fair values.

In addition some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows:

				Group
			2007	2006
			£'000	£'000
Not more than 3 months			94	42
More than 3 months but not more than 6 months			115	106
			209	148

9    Cash and cash equivalents

		Group
	2007	2006
	£'000	£'000
Cash at bank and on hand	72	233
Short term bank deposits	610	1,653
	682	1,886

  10    Trade and other payables

		Group
	2007	2006
	£'000	£'000
Trade payables	836	440
Loan	317	-
Payments on account on contracts	187	166
Social security and other taxes	6	2
Other creditors	27	17
Accruals and deferred income	280	207
	1,653	832

The Directors consider that the carrying amount of trade and other payables approximates to their fair values.

11    Borrowings

	2007	2006
	£'000	£'000
Loan
Current borrowings	317	-
Non-current borrowings	514	-
Total borrowings	831	-

The total aggregate repayments, including interest, in respect of the above borrowings are £954,000.

The Group has the following committed fixed rate borrowing facilities:

	2007	2006
	£'000	£'000
Total facilities	2,000	2,000

On 17 October 2006, the Company entered into a loan and asset finance facility agreement to borrow up to £2 million for working capital and asset finance facilities (the ''Loan Facility''). The Loan Facility is available for draw down for a period of 36 months from the date of the agreement. If it is determined that some or all of the amount so drawn down is to be utilised for the purchase of fixed plant or equipment outside the UK, then the lender may require that such amounts are advanced to the Company as a hire purchase or finance lease facility. Interest on the Loan Facility is payable at a rate of 12.01% per annum. The Company will repay the Loan Facility by 36 fixed monthly capital and interest instalments. The agreement also contains event of default provisions. All these facilities incur commitment fees at market rates. See also note 14.

  12    Called up share capital

	2007	2006
	£'000	£'000
Authorised
Equity: 65,000,000 Ordinary shares of 5p each	3,250	3,250
Allotted, called up and fully paid
Equity: 31,390,863 Ordinary shares of 5p each	1,570	1,570

13    Cash generated from operating activities

		Group
	Year ended 31 December
	2007	2006
	£'000	£'000
Loss for the period	(2,369)	(1,800)
Adjustments for:
Depreciation and amortisation	197	44
Negative goodwill credit	-	(198)
Interest income including loan waivers	(89)	(57)
Interest expenses	69	60
Share based payments	283	147
Operating loss before changes in net working capital	(1,909)	(1,804)
Inventories	(87)	(21)
Receivables	25	(454)
Payables	485	(20)
Net cash used in operations	(1,486)	(2,299)

Loans of £1 million were received during the year. 

14    Post balance sheet events

On 27 May 2008 the Company placed 30,000,000 new ordinary shares of 5 pence each in the capital of the Company (the 'Placing Shares') at 10 pence per Placing Share to raise £3.0 million (before expenses). The net proceeds of the Placing will be used by the Company to provide additional working capital and to enable repayment of existing indebtedness.

The Placing Shares were admitted to trading on the Alternative Investment Market of the London Stock Exchange on 28 May 2008.  Following Admission, the total number of ordinary shares of 5 pence each in issue will be 61,390,863.

On 27 May 2008 General Capital Venture Finance Limited gave notice that it was seeking repayment of the outstanding balance of its loan account with the Company alleging breaches in the loan agreement. While the Company neither accepts nor denies the breaches it intends to make repayment of the outstanding loan balance out of the proceeds of the Placing Shares. At 27 May 2008 this amounted to £703,000.

 

END

 

 

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