CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED 30 JUNE 2021

Note 1: General information

MAST Energy Developments PLC ('MAST' or 'MED' or the 'Company') is incorporated in England & Wales as a public limited company. The Company's registered office is located at 55 Ludgate Hill, London, United Kingdom, EC4M 7JW.

The principal activity of MAST, through its subsidiaries (together the 'Group'), is to acquire and develop a portfolio of flexible power plants in the UK and become a multi-asset operator in the rapidly growing Reserve Power market.

The Group has acquired its first site which will comprise a 5MW gas-fuelled power generation plant supported by a Grid Connection Offer and a Gas Connection Offer.  The second Site acquired has immediate phased in approach to operate the engines on load with 24/7 availability (subject to planned maintenance) to be synchronous with the terms of the power off-take agreement, and be installed as operational in steady state status.

The third site acquired has planning consent with the capability to be developed as a Reserve Power Gas Reciprocating facility, a hybrid Reserve Power ("RP") and battery site or preferably as a long duration battery storage site due to its unique location with access to both District Network Operator ("DNO") and Private Wire.

Note 2: Statement of Preparation

The condensed consolidated financial statements are prepared on the historical cost basis, unless otherwise stated. The Group's accounting policies used in the preparation of these financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2020 of the ultimate holding Company, except for the adoption of new or amended standards applicable from 1 January 2021, which had no material impact on the financial statements of the Group.

The condensed consolidated financial statements of the Company have been prepared in compliance with the framework concepts and the measurement and recognition requirements of IAS 34, IFRS as issued by the International Accounting Standards Board.

The condensed consolidated financial statements of the Group is presented in Pounds Sterling, which is the functional and presentation currency for the Group and its related subsidiaries.

The condensed consolidated financial statements do not represent statutory accounts within the meaning of section 435 of the Companies Act 2016.

The condensed consolidated financial statements have not been audited or reviewed by the Group's auditors, thus no assurance is provided therein.

The Directors acknowledge they are responsible for the fair presentation of these condensed consolidated financial statements.

Note 3: Consolidation

On 14 September 2020, the Company became the legal parent of Sloane Developments Limited following completion of the Acquisition. The comparative results for the year ended 31 December 2020 represent the consolidated position of Sloane Developments Limited and its Subsidiaries (the Sloane SubGroup) prior to the Acquisition.

The Acquisition of the Sloane SubGroup by MAST Energy Developments PLC is deemed to be outside the scope of IFRS 3 and not considered a business combination as the Acquisition is seen as a common control transaction, following from the fact that Kibo Energy PLC continues to retain control over the Sloane SubGroup subsequent to the disposal of the Sloane SubGroup to MAST Energy Developments PLC.

On this basis, the Directors have developed an accounting policy for the Acquisition, applying the principles set out in IAS 8.10-12, in that the policy adopted is:

·    relevant to the users of the financial information;

·    more representative of the financial position, performance and cash flows of the Group;

·    reflects the economic substance of the transaction, not merely the legal form; and

·    free from bias, prudent and complete in all material aspects.

As MAST Energy Developments PLC is only an investment holding company, incorporated for the purposes of raising capital funding for its investee projects, and the majority shareholder before and after the Acquisition continue to be Kibo Energy PLC, the transaction is considered to be a common control transaction, outside the scope of IFRS 3, seen as a capital reorganisation, where predecessor valuation accounting was applied with regard to the incorporation of historic financial information.

Accordingly, the following accounting treatment and terminology has been applied in respect of the acquisition:

·    the assets and liabilities of the legal subsidiary the Sloane SubGroup are recognised and measured in the Group financial statements at the pre-combination carrying amounts, without reinstatement to fair value;

·    the retained earnings recognised in the Group financial statements reflect the retained earnings of the Sloane SubGroup immediately before the Acquisition, being 17 September 2020, are those of the Sloane SubGroup.

·    However, the equity structure appearing in the Group financial statements reflects the equity structure of the legal parent (MAST Energy Developments PLC), including the equity instruments issued under the share for share exchange to effect the Acquisition.

·    Comparative financial results include are those of Sloane Developments Limited and its Subsidiaries for the 12 month period ended 31 December 2020, as these results are considered the most comparable in nature to the operations of MAST Energy Developments PLC post acquisition.

Note 4: Going concern

The financial results have been prepared on the going concern basis which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the normal course of business.

In performing the going concern assessment, the Board considered various factors, including the availability of cash and cash equivalents; data relating to working capital requirements for the foreseeable future; cash-flows from operational commencement, available information about the future, the possible outcomes of planned events, changes in future conditions, the current global economic situation due to the Covid-19 pandemic and Ukraine conflict and the responses to such events and conditions that would be available to the Board.

The Board has, inter alia, considered the following specific factors in determining whether the Group is a going concern:

·    The total comprehensive loss for the fifteen-month financial period of £1,408,958 compared to £657,564 for the preceding 12 month-financial period;

·    Cash and cash equivalents readily available to the Group in the amount of £1,805,461 in order to pay its creditors and maturing liabilities in the amount of £3,491,699 as and when they fall due and meet its operating costs for the ensuing twelve months; and

·    Whether the Group has available cash resources, or equivalent short term funding opportunities in the foreseeable future, to deploy in developing and growing existing operations or invest in new opportunities.

Following from the losses incurred in the current financial period, coupled with the net current liability position the Group finds itself in as at December 2021, these conditions, together with those mentioned above are considered to indicate that a material uncertainty exists which may cast significant doubt on the Groups ability to continue as a going concern.

This is largely attributable to its short-term liquidity position the Group finds itself in as a result of the staggered implementation approach with regard to the underlying operations, to a point where they can positively contribute to the cash requirements of the larger Group.

The Directors have evaluated the Groups liquidity requirements to confirm whether the Group has adequate cash resources to continue as a going concern for the foreseeable future, taking into account the net current liability position, and consequently prepared a cash flow forecast covering a period of 12 months from the date of these financial statements, concluding that the Group would be able to continue its operations as a as a going concern.

In response to the net current liability position, to address future cash flow requirements, detailed liquidity improvement initiatives have been identified and are being pursued, with their implementation regularly monitored in order to ensure the Group is able to alleviate the liquidity constraints in the foreseeable future.

Therefore, the ability of the Group to continue as a going concern is dependent on the successful implementation or conclusion of the below noted matters in order to address the liquidity risk the Group faces on an ongoing basis;

·    Successful conclusion of funding requirements of the Group in order to complete construction of the remaining sites by the Group;

·    Successful commissioning of the remaining power generation facilities in order to achieve net-cash positive contributions toward the larger Group; and

·    Successful negotiations with Kibo Mining (Cyprus) Limited relating to the potential deferral of loans payable in the foreseeable future beyond a 12 month period after year end.

As the Board is confident it would be able to successfully implement the above matters, it has adopted the going concern basis of accounting in preparing the consolidated financial statements.

Note 5: Segmental Reporting

The Group discloses segmental analysis based on its different operations, being Bordesley, Rochdale and Pyebridge.

As the Group currently operates solely from the United Kingdom, consequently there is no segmented disclosure with regard to different geographic areas of operation.

Note 6: Loss per share

Basic loss per share

The basic loss and weighted average number of ordinary shares used for calculation purposes comprise the following:

The Group has no dilutive instruments in issue as at year end.

Note 7: Property, plant and equipment

The Group has one lease contract for land it shall utilise to construction a 5MW gas-fuelled power generation plant. The land is located at Bordesley, Liverpool St. Birmingham.

The lease of the land has a lease term of 20 years, with an option to extend for 10 years which the Group has opted to include due to the highly likely nature of extension as at the time of the original assessment.

The Group's obligations under its leases are secured by the lessor's title to the leased assets. The Group's incremental borrowing is 8.44%.

Note 8: Intangible assets

Intangible assets consist of separately identifiable assets or intellectual property (Bordesley Power) acquired either through business combinations or through separate asset acquisitions. These intangible assets are recognised at the respective fair values of the underlying asset acquired, or where the fair value of the underlying asset acquired is not readily available, the fair value of the consideration.

The following reconciliation serves to summarise the composition of intangible assets as at period end:

Sloane Developments Limited (Sloane) initially acquired a direct 100% equity interest in shovel-ready reserve power generation project, Bordesley, which will comprise a 5MW gas-fuelled power generation plant for the consideration of £175,000 settled through the issue of shares.

Thereafter, Sloane acquired all of St. Anderton on Vaal's direct and indirect interests (Royalty Agreements) in the Bordesley power project described above giving it a 100% economic and 100% equity interest in Bordesley (the 'Acquisition').  Consideration for the Acquisition consists of the allotment and issue of 46,067,206 ordinary shares in the capital of Kibo Energy plc (Kibo) to St' Anderton at an issue price of £0.0525 per share and payable in five tranches ('Consideration Shares') such that the full consideration is only payable in the event that Bordesley is progressively derisked.

The issue price of the Consideration Shares and the associated number to be issued to St' Anderton was determined by using the methodology set out in the original MED vendor agreement as guidance, and was calculated as c. £2,420,000 comprising:

·      100% of the net present value of the Project Royalties (being the royalty equal to 5% of the gross revenue less gas and trading costs) amounting to c. £370,000; and

·      40% of the net present value of the Project Revenue (being net profit before tax) flowing to St' Anderton from Bordesley through MED amounting to c. £2,050,000.

Note 9: Acquisition of interests in other entities

Bordersley Power Ltd - 2019

MAST Energy PLC initially acquired an indirect 100% equity interest in shovel-ready reserve power generation project, Bordesley, which will comprise a 5MW gas-fuelled power generation plant for the consideration of £175,000 settled through the issue of shares.

Thereafter,  MAST acquired all of St' Anderton's direct and indirect interests (Royalty Agreements) in the Bordesley power project described above giving it a 100% economic and 100% equity interest in Bordesley (the 'Acquisition').  Consideration for the Acquisition consists of the allotment and issue of 46,067,206 ordinary shares in the capital of MAST to St' Anderton at an issue price of £0.0525 per share and payable in five tranches ('Consideration Shares') such that the full consideration is only payable in the event that Bordesley is progressively derisked.

As there were no separately identifiable assets and/or liabilities acquired, the purchase price was allocated toward the Intellectual Property acquired, in the amount of £2,595,000.

Pyebridge Power Ltd - 2021

Sloane Developments (Sloane) acquired a 100% equity interest in Pyebridge Power Limited ("Pyebridge") for £2,500,000 in cash which is settled as follows:

·    An initial £1,485,500 to be paid in cash at completion date on the 10th of August 2021;

·    Repayment of the loan outstanding of £14,500 by Sloane to Pyebridge;

·    Deferred consideration of £1,000,000 to be paid in two tranches 8 months and 12 months respectively from the date of completion.

The acquisition of PyeBridge comprise of the following:

·     An installed and commissioned synchronous gas-powered standby generation facility; and

·    The land on which the gas-powered facility stands.      

The acquisition of land and gas-powered generation facility will be accounted for as assets purchased at  consolidated level, and not as a business combination in accordance with IFRS 3. Therefore the purchase price has been allocated between land and the PPE based on their respective fair values as at the date of acquisition, as disclosed in Note 8.

Rochdale Power Ltd - 2021

Sloane Developments (Sloane) acquired a 100% interest in Rochdale Power Limited ("Rochdale"), from Balance Power Projects Limited, for the installation of a 4.4 MW flexible gas power project in Dig Gate Lane, Rochdale, OL 16 4NR.The acquisition purchase price totals £239,523 of which the freehold site amounts to £90,750 excluding VAT and the property rights amount to £150,273. The acquisition purchase price is to be paid in cash. The freehold site purchased is the property at Dig Gate Lane, Kingsway Business Park, Rochdale, OL16 4NR.

The acquisition of land and gas-powered generation facility will be accounted for as assets purchased at  consolidated level, and not as a business combination in accordance with IFRS 3. Therefore the purchase price has been allocated to the property, plant and equipment and intangible assets, as disclosed in Note 8 and Note 10 respectively.

Note 10: Share Capital

The called-up and fully paid share capital of the Company is as follows:

All ordinary shares issued have the right to vote, right to receive dividends, a copy of the annual report, and the right to transfer ownership of their shares.

During the year the Company issues shares as settlement of professional expenses in the amount of £172,710.

Note 11: Reserves

Common control reserve

On 17 September 2020, the Company became the legal parent of Sloane Developments Limited following completion of the acquisition of the entire issued share capital of Sloane Developments Limited, from Kibo Mining Cyprus Limited, a wholly owned subsidiary of Kibo Energy PLC. Following the completion of the acquisition, the ultimate holding Company, being Kibo Energy PLC, retained control over Sloane Developments Limited.

As MED is only an investment holding company, incorporated for the purposes of raising capital funding for its investee projects, and the majority shareholder before and after the Acquisition continue to be Kibo Energy PLC, the transaction is considered to be a common control transaction, outside the scope of IFRS 3, seen as a capital reorganisation, where predecessor valuation accounting was applied with regard to the incorporation of historic financial information.  

The common control reserve is the result of the predecessor valuation accounting which was applied as a result of the common control transaction.

Non-controlling interest acquired

On 31 July 2020, the Sloane Developments Limited,  MAST Energy Projects Limited and St. Anderton on Vaal Limited entered into the Share Exchange Agreement relating to the acquisition by Sloane Developments Limited of the remaining 40% of the issued share capital of MAST Energy Projects Limited. Under the Share Exchange Agreement, the Company will pay St Anderton on Vaal Limited the sum of £4,065,586 payable by the issue of 36,917,076 ordinary shares of £0.001 each in the Company. Completion of the Share Exchange Agreement was subject to and conditional upon the Admission of Mast Energy Developments Limited to the London Stock Exchange.

Following completion of the IPO on 14 April 2021, the Group acquired the remaining equity interest in MAST Energy Projects Ltd for the consideration equal to 36,917,076 shares at a total value of £4,065,586.

As the controlling stake in the entity had already been acquired, the transaction was seen as a transaction with owners, and the financial impact recognised directly in equity of £4,065,586.

The rationale for the transaction was to acquire the remaining equity within MAST Energy Projects Limited in order to have the exclusive see-through equity interest in the Bordesley project, held in the form of royalty and revenue agreements between MAST Energy Projects Limited and Bordesley Power Limited, from which MED could restructure the Group through its SPV's.

Note 12: Loan from related parties

The loan is unsecured, carries interest at 0%, and is repayable on demand. The carrying value of loans from related parties equals their fair value due mainly to the short term nature of the liability.

Note 13: Other financial liabilities

Deferred vendor liability

The amount due to vendors represents the balance of the purchase consideration owing in respect of the acquisition of Pyebridge Power Limited. The liability will be settled in cash as follows:

·   £500,000 payable within 8 months after the signing of the SPA represents: and

·   £500,000 payable within 12 months after the signing of the SPA represents.

The fair value of the deferred vendor liability is based on the anticipated purchase consideration payable, at the fair value thereof on the date of the transaction. The carrying value of current other financial liability equals their fair value due mainly to the short-term nature of these payables.

Short term loans

Short term loans relate to the unsecured interest free loan facility from Sanderson Capital Partners Limited which is repayable either through the issue of ordinary shares or payment of cash by the Company.

Note 14: Related Parties

Related parties of the Group comprise subsidiaries, significant shareholders and the Directors.

Relationships

Board of Directors/ Key Management

Other entities over which Directors/key management or their close family have control or significant influence:

MAST Energy Developments PLC is a shareholder of the following companies and as such are considered related parties:

Directly held subsidiaries:                       Sloane Developments Limited

                                                                       MAST Energy Projects Limited

                                                                        Bordesley Power Limited

Pyebridge Power Limited

Rochdale Power Limited

Balances and transactions

St Anderton on Vaal Limited was paid £169,603 (2020: £Nil) during the year for the settlement of the amounts owing by MAST Energy Projects Limited for consulting services rendered, which resulted in an other income on the debt write-off of £355,397.

On 31 July 2020, the Sloane Developments Limited, Mast Energy Projects Limited and St. Anderton on Vaal Limited entered into the Share Exchange Agreement relating to the acquisition by Sloane Developments Limited of the remaining 40% of the issued share capital of Mast Energy Projects Limited. Under the Share Exchange Agreement, the Company will pay St Anderton on Vaal Limited the sum of £4,065,586 payable by the issue of 36,917,076 ordinary shares of £0.001 each in the Company. Completion of the Share Exchange Agreement was subject to and conditional upon the Admission of Mast Energy Developments Limited to the London Stock Exchange. Following completion of the IPO on 14 April 2021, the Group acquired the remaining equity interest in Mast Energy Projects Ltd for the consideration equal to 36,917,076 shares at a total value of £4,065,586.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation. The transactions during the period between the Company and its subsidiaries included the settlement of expenditure to/from subsidiaries, working capital funding, and settlement of the Company's liabilities through the issue of equity in subsidiaries. The loans from related parties do not have fixed repayment terms and are unsecured.

Note 15: Subsequent events

As at the date of this report, no significant post statement of financial position events or conditions were identified which required further disclosure or adjustment to the financial results.

Note 16: Commitments and contingencies

The Group does not have identifiable material commitments and contingencies as at the reporting date.

Note 17: Principal risks

The realisation of the various projects is dependent on the successful completion of technical assessments, project development and project implementation and is subject to a number of significant potential risks summarised as follows, and described further below:

•     Funding risk;

•     Regulatory risk;

•     Commodity risk;

•     Development and construction risk;

•     Staffing and key personnel risk; and

•     Information technology risk.

Funding risk

Following the successful conclusion of an Initial Public Offering ("IPO") on 14 April 2021, the Group was able to raise £5.54 million in cash resources which has been utilised to further advance the various projects of the Group for the period to date.

There can be no assurance that such funds will continue to be available on reasonable terms, or at all in future, and that projects will be completed within the anticipated timeframes to supplement cashflows through operational activities.

The Group generated revenue of £3,245 for the period ended 31 December 2021 and had net assets of £3,849,744 as at 31 December 2021 (31 December 2020: (£274,032)). As at the year end, the Group had liquid assets in the form of cash and cash equivalent and other receivables of £1,805,461 (31 December 2020: £204) and £181,845 (31 December 2020: £-) respectively.

The Directors have reviewed budgets, projected cash flows and other relevant information, and on the basis of this review and the rationale set-out below, they are confident that the Group will have adequate financial resources to continue in operational existence for the foreseeable future.  

The Group has sufficient funds for its present working capital requirements for the foreseeable future due to the successful initial public offering and capital raising completed during the year.

The Directors continue to review the Group's options to secure additional funding for its general working capital requirements as well as project financing for commercial production ready sites, alongside its ongoing review of revenue generation from existing operations, potential acquisition targets and corporate development needs. 

The Directors are confident in this light that such funding will be available, although there is no guarantee as to the terms of such funding. In addition, any equity funding may be subject to shareholder approvals in line with legal and regulatory requirements as appropriate.

As a result, the Directors continue to monitor and manage the Group's cash and overheads carefully in the best interests of its shareholders and believe that the Company and the Group will remain a going concern for the foreseeable future.

Regulatory risk

The United Kingdom ("UK") power sector has undergone a number of considerable regulatory changes over the last few years and is now at a state of transition from large fossil-fuel plants to a more diverse range of power generation sources including renewables, small distributed plants and new nuclear. As a result, there is greater regulatory involvement in the structure of the UK power marker than has been the case over the last 20 years. Therefore, there remains a risk that future interventions by Ofgem or Government could have an adverse impact on the underlying assets that the Group manages and/or owns.

Commodity Risk

The assets that the Group manages and owns will receive revenue from the sale of energy onto the wholesale market or to end users at a price linked to the wholesale power market price. Fluctuations in power prices going forward will affect the profitability of the underlying reserve power assets. The Group will also use its skills, capabilities and knowledge of the UK power market in order to optimise these wholesale revenues. The Group's ability to effectively manage price risk and maximise profitability through trading and risk management techniques will have a considerable impact on the revenues and returns.

Development and Construction Risk

The Group will continue to develop new project sites which includes obtaining planning permission, securing land (under option to lease or freehold), and obtaining gas and grid connections. The Group will also oversee the construction of these projects where needed.

Risks to project delivery include damage or disruption to suppliers or to relevant manufacturing or distribution capabilities due to weather, natural disaster, fire, pandemic, strikes, or other reasons could impair our ability to deliver projects on time.

Failure to take adequate steps to mitigate the likelihood or potential impact of development and construction setbacks, or to effectively manage such events if they occur, could adversely affect our business or financial results. There are inherent risks that the Group may not ultimately be successful in achieving the full development and construction of every site and sunk costs could be lost. However, the risk is mitigated as the Group targets shovel ready sites that adhere to specific requirements, coupled with experienced senior management team.

Staffing and Key Personnel Risks

Personnel are our only truly sustainable source of competitive advantage and competition for key skills is intense, especially around science, technology, engineering and mathematics (STEM) disciplines. While the Group has good relations with its employees, these relations may be impacted by various factors. The Group may not be successful in attracting, retaining, developing, engaging and inspiring the right people with the right skills to achieve our growth ambitions, which is why staff are encouraged to discuss with management matters of interest to the employees and subjects affecting day-to-day operations of the Group.

Information Technology Risks

The Group relies on IT in all aspects of its business. Any significant disruption or failure, caused by external factors, denial of service, computer viruses or human error could result in a service interruption, accident or misappropriation of confidential information. Process failure, security breach or other operational difficulties may also lead to revenue loss or increased costs, fines, penalties, or additional insurance requirements. The Group continues to implement more cloud-based systems and processes, and improve cyber security protocols and facilities in order to mitigate the risk of data loss or business interruption.

Note 18: Use of Estimates and Judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources.

In particular, there are significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements.

Estimation uncertainty:

Information about estimates and assumptions that may have the most significant effect on recognition and measurement on assets, liabilities and expenses is provided below:

Impairment assessment of non-financial assets

In applying IAS 36, impairment assessments are performed whenever events or changes in circumstances indicate that the carrying amount of an asset or CGU may not be recoverable. Estimates are made in determining the recoverable amount of assets which includes the estimation of cash flows and discount rates used. In estimating the cash flows, management bases cash flow projections on reasonable and supportable assumptions that represent management's best estimate of the range of economic conditions that will exist over the remaining useful life of the assets. The discount rates used reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted. Refer to Note 11 for detailed sensitivity analysis related to a potential change in the key estimation uncertainties inherent in the impairment assessment.

Useful life of Intangible assets

Amortisation is charged on a systematic basis over the estimated useful lives of the assets after taking into account the estimated residual values of the assets. Useful life is either the period of time over which the asset is expected to be used or the number of production or similar units expected to be obtained from the use of the asset.

Leases - Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the  right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group 'would have to pay', which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates.