05.05.06

5.5.2006: Meldung: Polaris Geothermal Reports 2005 Year End Results

Polaris Geothermal Inc. ("Polaris Geothermal" or the "Company"), an emerging renewable energy geothermal power producer, announced its financial results for the year ended December 31, 2005. Polaris Geothermal reports its results in U.S. dollars. Polaris Geothermal is currently developing a 66 MW project on its San Jacinto-Tizate ("SJT") concession in Nicaragua. The SJT project is being developed in two phases. Phase I involves the development of 31.4 MW in two stages through the installation and construction of a power generating facility using proven production wells already existing on the concession. The first 10 MW of Phase I (Stage 1) is currently in production at a rate of 7 to 7.5 MW and is expected to increase to 9.5MW by 2006. The Company is currently in the process of awarding the construction contract for the next 21.4 MW expansion. The second phase will see the Company expand its production to 66 MW. This phase is expected to be completed in 36 months.

Business Highlights

- On June 1, 2005, Polaris Geothermal announced that it had received a final report covering exploration on the SJT concession in Nicaragua. The report, completed by Sinclair Knight Merz, ("SKM"), world leading independent geoscientific consultants, indicated that the western and eastern resource sectors of this concession are spatially connected and that the combined resource area is larger than previously estimated. SKM assigned a 90 percent probability that the entire resource contains energy sufficient to support production of 203 MW of power over a 20-year period. This new technical report substantially improves the resource from the initial estimates of 75MW at 90 percent probability for the eastern sector of the concession and a further possible 60MW for the western sector, which was the base of reserves used to obtain the power purchase agreement.

- Pursuant to the terms of the Company"s power purchase agreement with Distribuidora De Electricidad Del Norte, S.A. ("Disnorte"), a subsidiary of Union Fenosa ("UF"), Polaris Energy Nicaragua S.A. ("Polaris Energy"), a wholly owned subsidiary of the Company, is obligated to sell its first 66MW of power at a price per Kilowatt hour ("kwh") of US$0.0595 for a period of 20 years, which term is extendable by the parties for a further 10 year period. All power sold beyond the 66MW could yield higher prices per kwh. Current spot prices average 14 cents per kwh. The SJT power project represents a real benefit to energy consumers residing in Nicaragua as the country has a severe shortage of electrical power and has been forced to conduct rolling blackouts during 2005 as demand exceeded supply.

- On June 20, 2005, the official inauguration of the SJT Power Plant was held at the plant site in Nicaragua, and attended by senior government officials including members of the energy, economics, and foreign investment ministries. The inauguration ceremony was presided over by Enrique Bolanos Geyer, President of the Republic of Nicaragua and acknowledged the successful completion of construction on the initial 10 MW phase of the project.

- On July 7, 2005, the Company commenced commercial production at a rate of 5MW from its SJT concession. Initial production was restricted due to re-injection capacity, these restrictions are currently being resolved and current production rates are between 7 and 7.5 MW.

- In January 2006, the Company engaged SKM to complete a Field Performance Review for the SJT concession. In their report SKM stated that the geothermal reservoir was performing very well after its first six months of production. They went on to add that the field shows very little pressure drawdown and recovers pressure to almost pre-production levels.

- On January 19, 2006, the Company announced that the power purchase agreement entered into between Polaris Energy and Disnorte has been activated. The activation recognized several changes which occurred with privatization relating to spinning reserve and wheeling charges which are to be passed to the tariff and paid by the final consumer. The addendum has been endorsed by the Nicaraguan electricity regulator, Instituto Nicaraguense de Energia.

- On March 3, 2006, the Company completed a $7,000,000 debenture financing which has 3,5000,000 warrants attached exercisable at a price of $1.50 per share. These funds were used to make debt repayments and provide working capital.

- On April 28, 2006, the Company announced that Polaris Energy is now registered to sell its carbon credits produced from its SJT geothermal project. For the first year of production, which concludes at the end of June 2006, over 20,000 tonnes of carbon credits will be produced. Eventually, when the Company generates 66 MW annually, it will generate approximately 340,000 tons of carbon credits each year. Carbon credits are currently being sold for up to US$20 per tonne depending on the terms and conditions of delivery. At these prices carbon credit revenue would generate in excess of $6 million per annum for the Company at a 66MW level of production. The SJT geothermal power project is the 157th project in the world to qualify and be registered to sell carbon credits and ranks as the 16th largest to be so registered.

- On April 2, 2006, Polaris Energy entered into an agreement with Disnorte, governing payment of $1,101,101 owed by Disnorte for the power generated and delivered to Disnorte during the period between September 4, 2005 and February 28, 2006, the period prior to the finalization of the power purchase agreement between the two companies. On May 2, 2006 the Company received the first payment of $165,000 in terms of this agreement.

Financial Highlights

Comparative summary results for the year ended December 31, 2004 are shown in US dollars in the following tables. Additional information is contained in the Company"s financial statements and MD&A, which are available for review on the SEDAR website (www.sedar.com).

Condensed Summary Balance Sheet as at:

--------------------------------------------------------------------- In US dollars Dec 31, Dec 31, 2005 2004 ---------------------------------------------------------------------

Current assets $ 2,245,243 $ 3,635,187 ---------------------------------------------------------------------

Total assets 43,394,239 37,214,806 ---------------------------------------------------------------------

Current liabilities 18,520,880 4,613,968 ---------------------------------------------------------------------

Long term debt 1,336,761 7,673,522 ---------------------------------------------------------------------

Non-controlling interest 2,580,903 3,816,700 ---------------------------------------------------------------------

Total Liabilities 22,438,544 16,104,190 ---------------------------------------------------------------------

Condensed Summary Statements of Operations

--------------------------------------------------------------------- In US dollars For the year ended For the three months Dec 31 Dec 31 Dec 31 Dec 31 2005 2004 2005 2004 ---------------------------------------------------------------------

Energy Sales $ 769,725 $ Nil $ 593,947 $ Nil ---------------------------------------------------------------------

Direct costs of energy 1,140,370 Nil 417,592 Nil ---------------------------------------------------------------------

Gross Margin (370,645) Nil 176,355 Nil ---------------------------------------------------------------------

Expenses 4,335,829 2,660,024 1,503,858 891,790 ---------------------------------------------------------------------

Loss before controlling interest 4,625,958 2,598,024 1,282,967 879,726 ---------------------------------------------------------------------

Net Loss 4,080,318 2,073,273 1,093,777 603,702 ---------------------------------------------------------------------

Shares outstanding 35,628,814 21,012,550 36,668,771 21,346,143 ---------------------------------------------------------------------

Loss per share $ 0.11 $ 0.10 $ 0.03 $ 0.03 ---------------------------------------------------------------------

Operating Results

Polaris Energy started generating and delivering power in July 4, 2005. From that date until December 31, 2005, the total value of the energy generated and delivered was $1,042,725. As noted in the MD&A, as at June 30, 2005, the Company"s switchyard contractor installed incorrect metering which, although the independent international metering system auditor employed by the government has stated to be equivalent, does not specifically comply to government specifications. The metering has been remedied and the Company and its contractor have been taking action to obtain a dispensation for any power generated, delivered and invoiced in July and August. At this stage the matter remains unresolved and as a result the revenue related to the energy generated and delivered during July and August in the amount of $273,000 has not been recognized in the financial statements reducing revenue for the year to $769,725. Direct costs associated with energy production amounted to $1,140,370 for the year ended December 31, 2005. This resulted in a negative gross margin of $370,645 from energy production for the year.

During the three months ended December 31, 2005, Polaris Energy"s sales amounted to $593,947. Direct costs associated with energy production amounted to $417,592 for the same three-month period. This resulted in a gross margin from energy production of $176,355 for the quarter. The improved results for the fourth quarter over the previous quarter are a result of one-time start up costs incurred on the commencement of production in July.

Power Production

During the year the Company experienced some restriction of re-injection capacity which initially limited production to a maximum level of 5MW. This limitation is being resolved and by Q3 of 2006 production is expected to increase to 8.5 MW and by the end of the year to 9.5 MW. This level of availability is expected to be attainable on a permanent basis. As the Company optimised its operations, plant availability (operating with one 5MW unit) increased from 63% in July, to 93% in October, slightly over the 92% forecast. As of the date of this report the Company is currently producing between 7MW and 7.5 MW on a consistent basis.

--------------------------------------------------------------------- Month July August September October November December --------------------------------------------------------------------- Power Production (kwh) 2,485,700 2,104,763 2,921,375 3,409,355 2,831,823 3,813,792 ---------------------------------------------------------------------

Expenses

Year ended December 31 2005

Total expenses incurred have increased by $1,675,805 in the year ended December 31, 2005. These increases are attributable to two major factors. Firstly, during 2004 the Company started to actively construct the first 10MW of its proposed 66MW power plant. Secondly, during 2004 Polaris Geothermal became a publicly listed company on the TSX Venture Exchange through an amalgamation with Iriana Resources. These events have caused increases in costs as follows:

Interest and bank charges have increased from $543,439 to $1,564,932 as a result of Polaris Energy"s bank borrowings increasing by approximately $5,000,000 as it completed the construction of its first 10 MW plant. In addition, the supplier credit financing of $2,673,522 became interest bearing on the commencement of commercial production in July;

Amortisation of deferred financing charges related to the current debt financing has increased from $77,683 to $225,027. These costs are being amortised over the term of the loan;

The capital costs and geothermal concessions in production are now being amortised over their useful lives, as a result there is an amortisation charge of $828,763 for 2005 which was not there in 2004;

The issuance of 925,000 options on June 16, 2004 to Directors and Officers resulted in $377,000 being recognised as stock-based compensation expense in 2004. In 2005 only 100,000 new options were issued and as a result the stock-based compensation expense fell to $27,100;

Insurance has been put in place to cover the construction of the entire phase 1 of the plant. This resulted in an increase of $162,160 in the insurance expense over 2004;

During 2004, Polaris Energy paid a one time consulting fee of $140,000 in connection with tax services in Nicaragua, this expense was not incurred in 2005;

General administration expenses have increased by $141,442 in line with the increased activity in the Company, including the inauguration of the plant;

Professional fees have increased by $228,119 partly as a result of the Company"s participation in an unsuccessful bid for additional exploration concessions and partly as a result of activity related to the implementation of the power purchase agreement.

2004 expenses include $400,173 of amalgamation costs which relate to the amalgamation between the Company and Iriana which occurred in the second quarter of 2004. These expenses offset the increases noted above.

Three months ended December 31, 2005

For the three months ended December 31, 2005, the total expenses have increased by $540,084 over the same prior year period. This is primarily due to:

Higher interest and bank charges, and amortization of deferred financing charges of $267,683;

The $140,000 tax services consulting fee incurred in 2004 which was not incurred in 2005;

Higher insurance charges of approximately $23,000;

The capital costs and geothermal concessions in production are now being amortised over their useful lives, as a result there is an amortisation charge of $414,239 for 2005 which was not there in 2004.

Liquidity

At December 31, 2005, Polaris Energy had US$156,772 in cash and short-term investments and a working capital deficiency of $16,275,637. The principal components of which give rise to the working capital deficiency are the $2,000,000 bridge loan provided by a syndicate which includes one of the Company"s shareholders and is more fully described in Note 10(b) to the annual financial statements and $10,455,430 representing the current portion of the bank loan and $1,336,761 being the current portion of the equipment financing. The initial instalment on the loan of $2,338,513, due on January 9, 2006 was repaid on March 9, 2006, using proceeds from the debenture issue described below. Under the terms of the credit agreement, the Company must satisfy certain restrictive covenants as to minimum financial ratios. As of December 31, 2005, the Company was not in compliance with the covenants related to the credit facilities; however, no event of default has been declared by the lenders. As a result, all the debt has been reclassified as a current liability, however, the repayment terms remain the same. Subsequent to the year end the $2,000,000 bridge loan referred to above was converted into long term debentures as part of the $7,000,000 debenture financing noted in the next paragraph.

On March 3, 2006, as more fully described in Note 13 to the annual financial statements, the Company closed a $7,000,000 debenture financing of units at a price of US$100,000 per unit. Each unit consists of US$100,000 principal amount of 9% secured, redeemable, subordinated debenture and 50,000 common shares purchase warrants and has a term of five years with no interest or principal payments being required until the third year. These funds enabled the Company to make the principal payment due on January 9, 2006 and have provided the Company with bridge financing while it seeks to arrange financing for the balance of the project.

In other news, the Company wishes to announce that it has completed the previously announced debt settlement with Dr. Erwin Kruger pursuant to which the Company issued 125,000 class A common shares to Dr. Kruger to settle certain indebtedness. The securities issued have a four month hold period expiring August 19, 2006.

FORWARD-LOOKING STATEMENTS

This press release includes certain "forward-looking statements". All statements regarding the ability of the Company to increase production to 9.5 MW by year end, to expand production to 66 MW within 36 months, to generate and sell carbon credits at anticipated levels and prices, to resolve the metering dispute in a favourable manner, to satisfactorily resolve re-injection problems which have limited production levels and the ability of the Company to successfully arrange for financing for the balance of the project, are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. All statements that are not historical facts, including without limitation statements regarding future estimates, plans, objectives, assumptions or expectations of future performance, are "forward-looking statements". We caution you that such "forward looking statements" involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Such risks and uncertainties include unpredictable results of exploration activities, uncertainties inherent in the estimation of geothermal resources, fluctuations in the costs of goods and services, problems associated with production operations, changes in legal, social or political conditions in the jurisdictions where the Company operates, lack of appropriate funding and other risk factors, as discussed in the Company"s filings with Canadian securities regulatory agencies. The Company expressly disclaims any obligation to update any forward-looking statements.


Contact:

John Clark
Polaris Geothermal Inc.
Director and CFO
(416) 367-0150 x 22
john@itmcorp.ca

at: www.polarisgeothermal.com

Source: Polaris Geothermal Inc.
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