CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

During the financial year the Group issued shares to its shareholder Kibo Mining (Cyprus) Limited in lieu of partial settlement of its loan account. The issued shares amounted to £1,000,000.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

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 two new sites which will comprise 7.5MW and 2.4MW gas-fuelled power generation plants supported by a Grid Connection Offer and a Gas Connection Offer.

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 2021 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

The consolidated annual financial statements comprise the financial statements of MAST Energy Developments PLC and its subsidiaries for the year ended 31 December 2022, over which the Company has control.

Control is achieved when the Company:

·    has the power over the investee;

·    is exposed, or has rights, to variable return from its involvement with the investee; and

·    has the ability to use its power to affect its returns.

In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. Subsidiaries are fully consolidated from the date that control commences until the date that control ceases. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Intragroup balances and any unrealised gains or losses or income or expenses arising from intragroup transactions are eliminated in preparing the Group financial statements, except to the extent they provide evidence of impairment.

The Group accounts for business combinations using the acquisition method of accounting. The cost of the business combination is measured as the aggregate of the fair values of assets given, liabilities incurred or assumed and equity instruments issued. Costs directly attributable to the business combination are expensed as incurred, except the costs to issue debt which are amortised as part of the effective interest and costs to issue equity which are included in equity.

The acquiree's identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3 Business Combinations are recognised at their fair values at acquisition date.

During the financial year two acquisition occurred where ADV 001 Limited (Hindlip Lane) and ARL 018 Limited were acquired and IFRS 3 recognition conditions were applied.

The Group applied merger accounting for the common control transaction that occurred during the creation of the group between Kibo Mining (Cyprus) Limited, Kibo Energy Plc and MAST Energy Projects Limited. In terms of this:

·    the assets and liabilities of the acquiree are recorded at their existing carrying amounts (not fair value);

·    if necessary, adjustments are made to achieve uniform accounting policies;

·    intangible assets and contingent liabilities are recognised only to the extent that they were recognised by the acquiree in accordance with applicable IFRS;

·    no goodwill is recognised. Any difference between the acquirer's cost of investment and the acquiree's equity is presented separately directly in equity as a common control reserve (CCR) on consolidation;

·    any non-controlling interest is measured as a proportionate share of the carrying amounts of the related assets and liabilities (as adjusted to achieve uniform accounting policies); and

·    any expenses of the combination are written off immediately in profit or loss, except for the costs to issue debt which are amortised as part of the effective interest and costs to issue equity which are recognised within equity.

Note 4: Going concern

The financial results have been prepared on the going concern basis that contemplates the continuity of normal business activities, 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, cashflows from operational commencement, available information about the future, the possible outcomes of planned events, changes in future conditions, the 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 year of £2,733,000 compared to £1,408,958 for the preceding 15 month-financial period;

·    Cash and cash equivalents readily available to the Group in the amount of £132,184 in order to pay its creditors and maturing liabilities in the amount of £1,911,031 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 on from the losses incurred in the current financial period, coupled with the net current liability position the Group finds itself in as at December 2022, these conditions, together with those mentioned above, are considered to indicate that a material uncertainty exists that may cast significant doubt on the Group and Company's ability to continue as a going concern. This is largely attributable to the short-term liquidity position that the Group finds itself in as a result of the staggered implementation approach regarding the underlying operations to a point where the operations can positively contribute to the cash requirements of the larger Group.

The Directors have evaluated the Group's liquidity requirements to confirm whether the Group has adequate cash resources to continue as a going concern for the foreseeable future. By considering the net current liability position, and consequently preparing a cash flow forecast covering a period of 12 months from the date of approval of these financial statements, the Directors have concluded that the Group would be able to continue its operations as a going concern.

In response to the net current liability position and to address future cashflow 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 Group's remaining sites;

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

·    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 Bordersley, Rochdale . ADV 001 (Hindlip Lane), ARL 018 (Stather Road) 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 two lease contracts for land it shall utilise to construct gas-fuelled power generation plants. The land is located at Bordesley, Liverpool St. Birmingham and Stather Road, Flixborough.

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 ranges between 8.44% and 10.38%.

Note 8: Intangible assets

Intangible assets consist of separately identifiable assets, property rights or intellectual property (Bordersley 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) acquired a direct 100% equity interest in two projects namely ARL 018 Ltd and ADV 001 Ltd during the financial year. The purchase was treated as an acquisition of assets in terms of IFRS 3 - Business Combinations.

The acquired assets included an intangible asset relating to the property rights for the location where the gas generation peaker plants are planned to be constructed.

The directors performed value in use assessments on each of the projects. The basis for the assessments is the view that each of the projects are distinctive cash generating units. A cash-generating unit or CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

The assessment of the value in use of the intangible assets resulted in an impairment of £1,288,578 being recognised relating to the Bordersley Project. The most significant contributor to the impairment required was the increase of the weighted average cost of capital due to increase in market interest rates.

Note 9: Acquisition of interests in other entities

ADV 001 Ltd - 2022

Sloane Developments (Sloane) acquired a 100% interest in ADV 001 Limited ("Hindlip Lane"), from DKE Flexible Energy Limited, for the installation of a 7.5 MW gas-peaker plant in Buildings Farm, Hindlip Lane, Hindlip, Worcester, WR3 8SB.  

The acquisition purchase price totals £262,500 of which £88,817 is utilised to settle a shareholders loan of the same amount and the remainder of £173,683 is allocated towards purchasing all issued shares of the business. The acquisition purchase price is to be paid from a credit loan obtained from Riverfort Global Opportunities PCC Limited and Sanderson Capital Partners Limited. A further £10,694was paid in cash by Mast Energy Developments Plc ("MED") of which £8,020 is allocated to the purchase price of Hindlip Lane.

The acquisition of land and gas-powered generation facility was accounted for as an asset acquisition at  consolidated level, and not as a business combination in accordance with IFRS 3. Therefore the purchase price has been allocated to assets and liabilities acquired based on their respective fair values as at the date of acquisition.

ARL 018 Ltd - 2022

Sloane Developments (Sloane) acquired a 100% interest in ARL 015 Limited ("Stather Road"), from DKE Flexible Energy Limited, for the installation of a 2.4 MW gas-peaker plant on Land lying on the south side of Stather Road, Flixborough.

The acquisition purchase price totals £87,500 of which £54,882is utilised to settle a shareholders loan of the same amount and the remainder of £32,618 is allocated towards purchasing all issued shares of the business. The acquisition purchase price is to be paid from a credit loan obtained from Riverfort Global Opportunities PCC Limited and Sanderson Capital Partners Limited. A further £10,694 was paid in cash by Mast Energy Developments Plc ("MED") of which £2,673 is allocated to the purchase price of Stather Road.

The acquisition of land and gas-powered generation facility was accounted for as an asset acquisition at  consolidated level, and not as a business combination in accordance with IFRS 3. Therefore the purchase price has been allocated to assets and liabilities acquired based on their respective fair values as at the date of acquisition.

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 issued shares in partial settlement of shareholders loan in the amount of £1,000,000.

Note 11: Reserves

Common control reserve

The common control reserve is the result of the capital reorganisation between the company, its holding and ultimate holding company during the 2020 financial year. As the reorganisation was outside the scope of IFRS 3, predecessor valuation accounting was applied as a result of the common control transaction.

Non-controlling interest acquired

On 31 July 2020, 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 paid 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 Borderley project, held in the form of royalty and revenue agreements between MAST Energy Projects Limited and Bordersley 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. The loan from Kibo Mining (Cyprus) Ltd was partially settled to the value of £1,000,000 by way of share issue.

Note 13: Other financial and derivative liabilities

Deferred vendor liability

The deferred vendor liability was settled during the year by mutual agreement between the seller of Pyebridge and MED plc. The settlement took place following agreed costs incurred by MED on behalf of the seller and the eventual waiver of the remaining amounts due in the amount of £421,041.

The settlement was reached as a result of the seller not reaching certain contractual milestones originally agreed to in the purchase agreement of Pyebridge. The deferred payment liability for the purchase was linked to the seller reaching these milestones.

The resulting waiver is treated as price adjustment to the underlying assets for the Company and Group respectively as the fair value of the consideration paid for the assets were reduced by the waiver.

Convertible loan notes

Short term loans relate to two unsecured loan facilities from the institutional investor which are repayable either through the issue of ordinary shares or payment of cash by the Company.

These facilities have repayment periods of 18 and 24 months respectively for each drawdown from the facility. The facilities may be converted at the option of the note holders once certain milestones have been met. At the financial year end 31 December 2022, none of these milestones have been met and no conversion may take place. The earliest conversion may occur during October 2023.

Derivatives

The derivative liability is derived from the convertible credit note loans. The convertible feature within the credit notes enable the noteholders to convert into a fixed number of shares at the Fixed Premium Payment Price (FPPP). This price does have variability, although the FPPP is set at the Reference price, in the event that a share placing occurs at below the Reference price, the FPPP will be the share placing price ("round down" feature). The conversion includes and embedded derivative, as its value moves in relation the share price (through a placing price) and it is not related to the underlying host instrument, the debt. The effect is that the embedded derivative is accounted for separately at fair value.

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:

Balances and transactions

Kibo Mining (Cyprus) Limited was issued shares in exchange for partial settlement of £1,000,000 of its loan with the MED Group.

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

The Group generated revenue of £1,036,743 for the period ended 31 December 2022 and had net assets of £2,116,744 as at 31 December 2022 (31 December 2021: £3,849,744). As at the year end, the Group had liquid assets in the form of cash and cash equivalent and other receivables of £268,985 (31 December 2021: £1,987,306).

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, terrorism, 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 property plant and equipment and intangible 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.