Final Results & Proposed Board Changes

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

                       

1.   ACCOUNTING POLICIES

 

General information

Active Energy Group plc is a company incorporated in England and Wales and quoted on the AIM market of the London Stock Exchange. The address of the registered office is disclose on page 1 of the annual report. The principal activity of the Group is described in the Strategic Report.

 

Basis of preparation

The principal accounting policies adopted in preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

Both the Company financial statements and the Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards, International Accounting Standards and IFRIC interpretations (collectively IFRS) as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared on the historical cost basis, as modified by the revaluation of property, plant and equipment, available for sale financial assets, and financial assets and liabilities, including derivative financial instruments, at fair value through profit or loss.

The preparation of financial statements in compliance with IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in the most appropriate application in applying the Group's accounting policies.  The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in note 29.

Going concern

The Group's primary revenue generating business segment, the Ukrainian wood fibre business, was discontinued during 2017. As a result this unit has not generated any revenues in 2018. Following the discontinuance of this operating segment, the group has focused its efforts on the Coalswitch™ and Forestry and Natural Resources business segments. Neither of these business segments have generated material revenues at the date of signing these financial statements.

The Directors have considered the cash requirements of the business for the following 12 months. As part of this process, they have taken into account existing liabilities, along with detailed operating cash flow requirements. The projections prepared include ongoing running costs of the Group and committed expenditure at the date of approving the financial statements.

The Directors have identified a variety of potential sources of funds including issue of additional equity and/or debt, shareholder loans, tax credits and sale of investments and/or plant. In addition, the Directors have identified additional cost reductions which may be implemented if necessary.

Taking this into account and following a detailed review by the Directors of the Group's cash flow requirements, the directors believe that the Group will have sufficient cash resources to continue to trade for a period of at least 12 months from the date that the financial statements are signed. Consequently, the financial statements have been prepared on a going concern basis.

However, as of the date of signing these financial statements, none of the potential sources of funds have been finalised and therefore there can be no guarantee that further funds will be received. These circumstances indicate the existence of a material uncertainty which may cast significant doubt on the Company's ability to continue as a going concern.

       Standards, interpretations and amendments to existing standards

At the date of authorisation of these financial statements, the IASB and IFRS Interpretations Committee have issued standards, interpretations and amendments which are applicable to the Company. These standards and interpretations are not effective for, and have not been adopted by the Company in the preparation of these financial statements. Management has not yet fully assessed the impact of these new standards.

·     IFRS 1: First-time Adoption - Annual improvements 2014 - 2016 cycle (from 1 January 2018)

 

·     IFRS 2: Amendments Share based payments - classification and measurement of share based payment transactions (from 1 January 2018)

 

·     IFRS 4: Insurance Contracts - interaction of IFRS 4 and IFRS 9 (from 1 January 2018)

 

·     IFRS 9: Financial Instruments - replaces IAS 39 in its entirety (from 1 January 2018)

 

·     IFRS 15: Revenue from Contracts with Customers (from 1 January 2018)

 

·     IFRS 16: Leases - replaces IAS 17 in its entirety (from 1 January 2019)

 

·     IAS 28 Amendments: Investments in Associates and Joint Ventures - amendments resulting from annual improvements 2014-2016 cycle - clarifying certain fair value measurements (from 1 January 2018)

 

·     IAS 39 Amendments: Financial Instruments -Recognition and measurement. Amendments to permit an entity to elect to continue to apply the hedge accounting requirements in IAS 39 for a fair value hedge of the interest rate exposure of a portion of a portfolio of financial assets or financial liabilities when IFRS 9 is applied and to extend the fair value option to certain contracts that meet the 'own use' scope exception (from 1 January 2018)

 

·     IAS 40 Amendments: Investment Property - amendments to clarify transfers of property to or from investment property (from 1 January 2018)

 

·     IFRIC 22 Amendments: Foreign currency transactions and advance consideration- amendments to clarify the accounting for transactions that include the receipt for payment of advance consideration in a foreign currency (from 1 January 2019)

 

Basis of consolidation

The financial information incorporates the results of the Company and entities controlled by the Company (its subsidiaries). Control is achieved when the Group has power over relevant activities, is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The consolidated financial statements present the financial results of the Company and its subsidiaries (the Group) as if they formed a single entity. Where necessary, adjustments are made to the results of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

In the Company's statement of financial position, investments in subsidiaries are stated at cost less provisions for any permanent diminution in value.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods supplied, stated net of discounts and value added taxes.  The Group recognises revenue when the following conditions have been satisfied:

·   the Group has transferred to the buyer the significant risks and rewards of ownership;

·   the Group does not retain either the continuing managerial involvement normally associated with ownership or effective control over the goods;

·   the amount of revenue can be reliably measured;

·   it is probable that the economic benefits associated with the transaction will flow to the Group; and

·   the costs to be incurred in respect of the transaction can be reliably measured.

Goodwill and business combinations

On acquisition, the assets and liabilities and contingent liabilities of subsidiaries are measured at their fair values at the date of acquisition.  Any excess of cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill.  Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition.

When the consideration transferred by the Group in a business combination includes assets or liabilities from a contingent consideration arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the consideration paid. Changes in the fair value of the consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill.

Goodwill arising on consolidation is recognised as an intangible asset and reviewed for impairment at least annually by comparing the carrying value of the asset to the recoverable amount. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.

 

Associates

Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. Subsequently associates are accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated statement of profit and loss and other comprehensive income (except for losses in excess of the Group's investment in the associate unless there is an obligation to make good those losses).

Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate.

Any premium paid for an associate above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is objective evidence that the investment in an associate has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

 

Joint arrangements

Profits and losses arising on transactions between the Group and its joint ventures are recognised only to the extent of unrelated investors' interests in the joint venture. The investor's share in the Joint Venture profits and losses resulting from these transactions is eliminated against the carrying value of the Joint Venture. Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is objective evidence that the investment in a joint venture has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

 

The Group accounts for its interests joint operations by recognising its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations.

 

       Impairment of non-financial assets (excluding inventories, investment properties and deferred tax assets)

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units ("CGUs"). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill. Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

 

Intangible assets

Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see note 29 related to critical estimates and judgements below).

 

 

Intangible assets

Internally generated intangible fixed assets are recognised if they meet the requirements set out by international accounting standards. Specifically,

·   the asset must be separately identifiable that is to say that either it is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged; or it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

·   The cost of the asset can be measured reliably;

·   the technical feasibility of completing the intangible asset;

·   the Group intends and is able to complete the intangible asset and use or sell it;

·   the intangible asset will generate probable future economic benefits;

·   there are available and adequate technical, financial and other resources to complete and to use or sell the intangible asset.

·   Expenditure attributable to the intangible asset is measurable.

 

The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are disclosed in note 10.

Property, plant and equipment

Property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and any recognised impairment loss. Cost includes the purchase price and all directly attributable costs.   Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.

Plant and equipment                                    - 2 to 10 years straight line

Furniture and office equipment                   - 2 to 5 years straight line

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less applicable selling expenses.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including Executive Directors.

Financial instruments

The Group classifies its financial instruments into one of the categories discussed below, depending on the purpose for which the asset was acquired.  The Group has not classified any of its financial assets as held to maturity, or at fair value through profit or loss.

The accounting policy for each category is as follows:

 

 

Loans and receivables

The Group's loans and receivables comprise trade and other receivables, loan to joint venture partner and cash and cash equivalents in the statement of financial position. These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and for the purpose of the statement of cash flows, bank overdrafts.

Available for sale financial assets

Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at fair value with changes in fair value recognised in other comprehensive income. When available for sale financial assets are sold or impaired, the accumulated fair value adjustments recognised in equity are transferred to the income statement. Dividends on available for sale equity instruments are recognised in the income statement as part of other income when the Group's right to receive payments is established.

     

Other financial liabilities

Other financial liabilities include the following items:

·   Borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument.  These are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the statement of financial position. The interest expense includes initial transaction costs and premiums payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

·   Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

 

Taxation

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantively enacted by the year-end date.

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

·   the initial recognition of goodwill;

·   the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

·   investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available to utilise the difference. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/assets are settled/recovered.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

·   the same taxable group company; or

·   different Group entities which intend either to settle current tax assets/liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled/recovered.

Foreign currencies

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 they operate (their "functional currency"). The Company and Consolidated financial statements are presented in United States Dollar ("US Dollar", "US$"), which is the Group's presentation currency as the Group's activities are ultimately linked to the US Dollar. The Company's functional currency is Pound Sterling.

Transactions entered into by Group entities in a currency other than their functional currency are recorded at the rates ruling when the transactions occur.  Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date.  Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.

On consolidation, the results of overseas operations are translated into the Group's presentation currency, US Dollars, at rates approximating to those ruling when the transactions took place.  All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve. Exchange differences recognised in the statement of comprehensive income of Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to the foreign exchange reserve on consolidation. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.

Convertible debt

The proceeds received on issue of the Group's convertible debt are allocated into their liability and equity components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the bond. The remainder of the proceeds are allocated to the conversion option and are recognised in the "Convertible debt reserve" within shareholders' equity, net of income tax effects.

Leased assets

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease"), the asset is treated as if it had been purchased outright.  The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease.  The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. 

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated income statement on a straight-line basis over the lease term.

          Share based payments

Where employees receive remuneration in the form of shares or share options, the fair value of the share-based employee compensation arrangement at the date of the grant is recognised as an employee benefit expense in the consolidated income statement. The total expense to be apportioned over the vesting period of the benefit is determined by reference to the fair value (excluding the effect of non-market-based vesting conditions) at the date of the grant.  The assumptions underlying the number of awards expected to vest are subsequently adjusted for the effects of non-market-based vesting to reflect the conditions prevailing at the year-end date. Fair value is measured by the use of a Monte Carlo (JSOP options) or Black Scholes (other options) simulations.  The expected life used in the model has been adjusted, based on management's best estimate, for the effects of the non-transferability, exercise restrictions and behavioural considerations.

Where equity instruments are granted to persons other than employees, the consolidated income statement is charged with the fair value of goods and services received; except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

          Own shares held

Consideration paid/received for the purchase/sale of shares held in escrow or in trust for the benefit of employees is recognised directly in equity. The nominal value of such shares held is presented within the "own shares held" reserve. Any excess of the consideration received on the sale of the shares over the weighted average cost of the shares sold is credited to retained earnings.

Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the Group consolidated income statement.

Investment in subsidiaries

Investments in subsidiaries are stated at cost less provision for impairment in the Company financial statements.

 

2.   SEGMENTAL INFORMATION

The Group reports two operating continuing business segments:

•              "Forestry & Natural Resources" denotes the Group's initiatives to secure ownership of the entire timber supply chain from forest to finished product

•              "CoalSwitch™/PeatSwitch denotes the Group's renewable wood pellet and soil replacement business.

Revenues and costs associated with the Ukrainian Wood Fibre business have been reclassified as discontinued operations.

 

Factors that management used to identify the Group's reportable segments

The Group's reportable segments are strategic business units that offer different products. During the business development stage they are managed separately because each business operates in different markets and locations. In future it is likely that these business segments may be combined into single operations and reporting structures will be revisited accordingly.

Measurement of operating segment profit or loss

The Group evaluates segmental performance on the basis of profit or loss from operations calculated in accordance with IFRS but excluding corporate overheads, non-recurring losses, such as goodwill impairment, the effects of share-based payments, and joint venture profit and losses.

 

		2017	2017	2017
		Forestry & Natural Resources	Coalswitch™/ Peatswitch	Total
		US$	US$	US$
Total Revenue		-	-	-
Operating segment (loss)		-	(3,260,588)	(3,260,588)
Segment (loss) before tax		-	(3,260,588)	(3,260,588)
Tax charge		-	346,522	346,522
Segment (loss) for the year		-	(2,914,066)	(2,914,066)
		2016	2016	2016
		Forestry & Natural Resources	Coalswitch™/ Peatswitch	Total
		US$	US$	US$
Total Revenue		-	-	-
Operating segment (loss)		(349,989)	-	(349,989)
Segment (loss) before tax		(349,989)	-	(349,989)
Tax charge		8,969	-	8,969
Segment (loss) for the year		(341,020)	-	(341,020)

 

 

Profits and losses associated with the Ukrainian wood fibre business have been reclassified as discontinuing in 2017 and have therefore be excluded from the above analysis. All other finance costs relate to Group funding and are not allocated to an individual segment.

 

Capital expenditure relating to the Coalswitch™ segment was US$3,877,226 and capital expenditure relating to the Forestry and natural resource segment was US$896,957.

 

Reconciliation of reportable segment profit or loss, assets and liabilities to the Group's corresponding amounts are as follows:

	2017	2016
	US$	US$
Total (loss) from reportable segments	(2,914,066)	(341,020)
Unallocated amount - corporate expenses	(1,683,222)	(1,280,476)
Unallocated amount - finance income	-	18,152
Unallocated amount - finance expense	(3,031,054)	(1,784,170)
Share based payments	(307,749)	(631,465)
Discontinued operations	(7,284,981)	1,528,339
Loss for the period	(15,221,072)	(2,490,640)

 

 

An analysis of non-current assets by location of assets is given below:

 

	2017	2016
	US$	US$
United Kingdom	4,741,653	6,623,193
Ukraine	2,170,583	4,858,530
Canada	2,179,584	1,282,627
United States	3,541,611	-
	12,633,431	12,764,350

 

3.   REVENUE

All revenues relate to the Ukrainian wood fibre business have been reclassified as discontinued and therefore are not shown on the face of the income statement.

	2017	2016
Group	US$	US$
Sale of goods	1,323,300	19,196,559

 

The following table analyses revenue by location of customer. All these revenues relate to the Ukrainian wood fibre business and have therefore been classified as discontinued in the 2017 financial statements.

	2017	2016
	US$	US$
Turkey	856,869	19,186,708
Ukraine	466,331	9,851
	1,323,200	19,196,559

 

Revenue derived from a single external customer amounted to US$856,869 (2016:US$19,186,708), which relate to the Ukrainian Wood Fibre segment.

 

4.   EMPLOYEE COSTS AND DIRECTORS

	2017	2016
Group	US$	US$
Wages and salaries	496,861	1,137,321
Social security costs	73,959	80,418
	570,820	1,217,739
Share based payments - others	59,240	75,756
Share based payments - directors (note 24)	248,509	555,709
	878,569	1,849,204

 

The average monthly number of employees during the year was as follows:

	2017	2016
Directors	3	4
Administration	11	14
Production	25	32
	39	50

Directors' and key management personnel remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group.  During the period these were considered to be the Directors of the Company listed on page 14.

	2017	2016
	US$	US$
Directors' emoluments	719,293	667,161
Compensation for the loss of office	-	16,940
	719,293	684,101
Share based payments (note 24)	248,509	555,709
	967,802	1,239,810

 

The emoluments of the highest paid Director for the year, including non-cash share based payments, were US$328,853 (2016: US$797,457).

 

5.   OPERATING LOSS

Group	2017	2016
The loss before income tax is stated after charging/(crediting):	US$	US$
Operating leases - premises	26,807	61,716
Operating leases - vehicles	2,886	11,347
Operating leases - equipment	29,045	38,709
Amortisation of intangible assets	44,845	44,845
Depreciation	280,473	344,495
Loss / (profit) on disposal of fixed assets/discontinued operations	5,600,464	(58,020)
Auditors' remuneration - parent company and consolidation	34,000	31,000
Auditors' remuneration - subsidiaries	20,500	9,000
Auditors' remuneration - taxation services	9,400	2,000
Share based payments	307,749	631,465
Foreign exchange (gains)/loss	(754,703)	37,864

 

 

 

6.   FINANCE INCOME AND COSTS

	2017	2016
Group	US$	US$
Finance income
Bank interest	-	18,152
Finance costs
Interest on convertible loan	958,299	160,447
Other loan interest and charges	929,083	671,069
Foreign exchange losses	1,143,672	952,654
Net finance costs	3,031,054	1,784,170

 

                                                                                   

Foreign exchanges losses primarily relate to movements in US$/Sterling exchange rates and resulting

 

7.   LOSS FROM DISCONTINUED OPERATIONS

During 2017 AEG plc discontinued its Wood fibre business in Ukraine. Details of the circumstances surrounding this exit are provided in the Chairman's report and operational review. The results of this business are disclosed as a single line item in the Group Income and Expenditure Statement in accordance with IRFS5. Details of the results of these operations are shown below.

 

		2017	2016
		US$	US$
REVENUE		1,323,200	19,196,559
Cost of sales		(2,925,138)	(16,344,727)
GROSS PROFIT		(1,608,938)	2,851,832
Administrative expenses		(719,519)	(1,132,326)
OPERATING (LOSS)/PROFIT		(2,321,457)	1,719,506
Finance income		641,126	-
Finance costs		-	(60,055)
(Loss)/profit for the Period		(1,680,331)	1,659,451
Loss on sale of discontinued operations		(5,600,464)	-
Income tax		(4,186)	(131,112)
(Loss)/profit attributable to the Parent Company		(7,284,981)	1,528,339

 

Discontinued operations cashflows from operating activities were US$124,081 outflow (2016: US$1,177,035 outflow); cash flows from investing activities were US$221,504 inflow (2016: US$282,215 outflow); and cashflows arising from financing activities were US$nil (2016: US$60,055 outflow).

 

8.   INCOME TAX

 

	2017		2016
Group	US$		US$
Current tax
Overseas tax charge on discontinued operations	4,187		131,112
R&D tax credit at 14.5% on continued operations	(346,522)		-
Deferred tax
Reversal of temporary differences	(8,969)		(8,969)
Total income tax (credit)/charge	(351,304)		122,143
Breakdown between continuing and discontinuing operations
Tax charge relating to discontinued operations	4,187		131,112
Tax (credit)/charge relating to continued operations	(355,491)		(8,969)
	(351,304)		122,143

 

 

Factors affecting the tax charge

The tax on the Group assessed for the year is higher than the standard rate of corporation tax in the UK. The difference is explained below:

	2017		2016
	US$		US$
Loss before income tax	(15,572,377)		(2,368,513)
Standard rate of corporation tax	19.25%		20%
Loss before tax multiplied by standard rate of corporation tax	(2,997,683)		(473,703)
Effects of:
Difference between R&D tax credit rate (14.5%) and effective rate	113,516		-
Non-deductible expenses	1,553,856		581,262
Overseas tax rate difference from UK rate	4,883		14,567
Income not taxable	(264,739)		-
Accelerated depreciation	15,839		-
Losses carried forward	1,223,022		-
Current tax (credit)/charge	(351,306)		122,126
Tax charge  relating to discontinued operations	4,187		131,112
Tax (credit) relating to Continued operations	(355,491)		(8,986)

 

The Finance Act 2017 confirmed that the main rate of corporation tax, which applies to most companies subject to UK tax, will be reduced from the 19% rate applying from 1 April 2017 to 17% from 1 April 2020.

 

Movements in the groups tax loss position can be summarised as follows:

	US$
Tax losses brought forward at 1 January 2017	16,261,619
Adjusted Loss per A/c's	8,743,174
Surrendered for R&D tax credit	(2,389,807)
Tax losses carried forward at 31 December 2017	22,614,986

 

This equates to a potential deferred tax asset of $4,296,847 at the year-end 2017, which has not been recognised due to uncertainties regarding the recoverability of this balance.

 

Tax effects of amounts which are not deductible/(taxable) in calculating taxable income are as follows:
			2017		2016
			US$		US$
Intercompany loan written off			399,295		541,483
Loss on disposal of investments			184,206		-
Impairment of investment			848,402		-
Share based payments			59,242		-
Legal and professional fees			70,556		30,717
Revaluation of assets held for sale			63,830		-
Revaluation gains			(-62,937)		-
Amortisation			-		8,969
Sundry items			(-8,738)		93
			1,553,856		581,262

 

 

9.   LOSS PER SHARE

Basic and diluted loss per share is calculated by dividing the loss attributable to equity holders of the company of US$14,783,962 (2016: US$2,490,640) by the weighted average number of ordinary shares in issue during the year, excluding own shares held, of 829,908,445(2016: 651,515,665).

 

At 31 December 2017, own shares held amounted to 33,212,841 (2016:33,212,841) ordinary shares. The weighted average number of own shares held by the company during the year are not included in the weighted average ordinary shares in issue during the financial year.

 

10. INTANGIBLE ASSETS

 

Group	Goodwill		Other intellectual property	Development	Total
	US$		US$	US$	US$
Cost
At 31 December 2015	2,212,930		104,124	2,936,252	5,253,306
Foreign exchange difference	-		(17,287)	-	(17,287)
Additions	-		2,659,910	-	2,659,910
At 31 December 2016	2,212,930		2,746,747	2,936,252	7,895,929
Foreign exchange difference	-		-	-	-
Additions	-		541,060	896,957	1,438,017
Disposals	(2,212,930)		-	-	(2,212,930)
Costs incurred by JV partner	-		1,911,121	-	1,911,121
Transfers from investment in associate		-	-	1,282,627	1,282,627
R&D costs transferred to income statement	-		(1,244,045)	-	(1,244,045)
At 31 December 2017	-		3,954,883	5,115,836	9,070,719
Accumulated amortisation
At 31 December 2015	-		362	925,720	926,082
Charge for year	-		-	44,845	44,845
At 31 December 2016	-		362	970,565	970,927
Charge for year	-		-	44,845	44,845
At 31 December 2017	-		362	1,015,410	1,015,772
Net book value
At 31 December 2017	-		3,954,521	4,100,426	8,054,947
At 31 December 2016	2,212,930		2,746,385	1,965,687	6,925,002

 

Company	Intellectual property
	US$
At 31 December 2015	103,762
Foreign exchange difference	(17,276)
Additions	2,659,910
At 31 December 2016	2,746,396
Transfers to other group companies	(2,746,396)
At 31 December 2017	-
Accumulated amortisation
At 31 December 2015, 2016 and 2017	-
Net book value
At 31 December 2017	-
At 31 December 2016	2,746,396

 

Goodwill

Goodwill arose from the acquisition of Nikofeso and was considered to relate solely to the underlying business acquired which is a single cash generating unit ("CGU"). The asset was reviewed at each balance sheet dates to assess if it had been impaired. This Company was sold at the end of 2017 and therefore the associated goodwill was included in loss on sale of discontinued operations in the Income and Expenditure Statement.

Other intellectual property

Other intellectual property comprises costs incurred to secure the rights and knowledge associated with the CoalSwitch™ and PeatSwitch technology. 

 

In 2015 the Group entered into a joint venture agreement with Biomass Energy Enhancements LLC ("BEE"), incorporated in the United States, for the joint commercial development and exploitation of intellectual property assets held by BEE in connection with biomass technologies.  A long term loan to BEE wasrecognised in the accounts to reflect monies loaned by AEG to the joint venture. An agreement was later reached with the other joint venture partners whereby AEG became the sole proprietor of this technology and as a result the loan balance was transferred to intangible fixed assets. 

 

Ongoing research costs associated with this activity have been recognised in the income statement in line with IAS38. Costs which specifically relate to future plant design have been capitalised an intangible fixed assets.

 

Development assets

Development assest relate to the following:

Ukraine: The Group is party to a supply contract granted by the Lyubomi Forestry, which is the administrator of the Lyubomi Forest in the Ukraine.  This contract was extended to October 2060 from 1 January 2015 and the Company is currently reviewing options to develop this asset as feedstock for CoalSwitch™ plants in Eastern Europe. The remaining useful life on the Ukrainian assets is assessed to be 42 years and the asset is being amortised over this period. Management undertakes

a review at each balance sheet date to assess whether these balances need to be impaired.

Northern Alberta: During 2014 the Group acquired a 45% interest in a joint venture, KAQUO Forestry & Natural Resources Development Corporation, incorporated in Canada, to exclusively commercialise forestry and agricultural land holdings belonging to the indigenous Métis Settlements of Alberta in Western Canada. Cost associated with this activity were originally recorded as Investments in Associates. This Joint Venture is no longer operational. However, AEG is continuing to work with the Canadian authorities and its partners in Northern Alberta to develop and secure title to these assets. As a result the costs incurred on the joint venture were transferred to intangible fixed assets during 2017, on the basis that these costs fulfil the definition of an internally generated intangible fixed asset under IAS38.

 

Newfoundland: On 22 May 2017, AEG announced that it had entered into an agreement in principle with the Canadian Province of Newfoundland and Labrador. This arrangement envisaged the award of a Crown Timber Licence ("CTL") and a forest management agreement ("FMA") for 20 years relating to two Forest Management Districts covering 1.2 million hectares. On 12 October 2017 AEG announced that it had submitted all final documents to the Ministry of Fisheries and Land Resources of the Crown Province of Newfoundland and Labrador associated with the CTL and the FMAs. During 2017 and 2018 AEG has continued to develop management and supplier capability as well as government relations. The Canadian authorities have informed AEG that all necessary documentation has now been received with regards to the final award of the FMAs and the Company is anticipating final award of the FMA's in due course.

 

Costs incurred in acquiring these potential licences (in Northern Alberta and Newfoundland) have been recorded as additions to intangible fixed assets in 2017. These costs will be amortised over the period of awarded licences. No amortisation has been recognised in the current accounting period pending licence awards and commencement of production. Management undertakes a review at each balance sheet date to assess whether these balances need to be impaired.

 

11. PROPERTY, PLANT AND EQUIPMENT

 

Group		Plant and equipment	Furniture and office equipment	Total
		US$	US$	US$
Cost
At 31 December 2015		2,967,931	29,488	2,997,419
Foreign exchange difference		(1,638)	-	(1,638)
Additions		282,255	2,858	285,113
Disposals		(60,939)	-	(60,939)
At 31 December 2016		3,187,609	32,346	3,219,955
Foreign exchange difference		(534,717)	768	(533,949)
Additions		4,219,081	-	4,219,081
Disposals		(3,080,362)	(24,154)	(3,104,516)
At 31 December 2017		3,791,611	8,960	3,800,571
Accumulated depreciation
At 31 December 2015		349,980	25,807	375,787
Foreign exchange difference		(1,533)	-	(1,533)
Elimination on disposal		(60,939)	-	(60,939)
Charge for year		341,125	3,370	344,495
At 31 December 2016		628,633	29,177	657,810
Foreign exchange difference		(155,592)	(20,737)	(176,329)
Elimination on disposal		(752,588)	(406)	(752,994)
Charge for year		279,547	926	280,473
At 31 December 2017		-	8,960	8,960
Net book value
At 31 December 2017		3,791,611	-	3,791,611
At 31 December 2016		2,558,976	3,169	2,562,145

 

The net book value of asset held under finance leases included within Property, Plant & Equipment above are US$345,600 (2016:nil). No depreciation (2016:nil) has been charged on these assets as the machinery had not been brought into use at the balance sheet date.

Additions in the year primarily relate to the construction of the inaugural Coalswitch™ plant in Utah. The exchange rates movements relate to the reduction in value of the Ukrainian Wood Fibre business, which was denominated in Ukrainian Hryvnia. This business was discontinued during 2017.

 

Company				Furniture and office equipment
				US$
Cost
At 31 December 2015				9,830
Foreign exchange difference				(1,637)
At 31 December 2016				8,193
Foreign exchange difference				767
At 31 December 2017				8,960
Accumulated depreciation
At 31 December 2015				8,887
Foreign exchange difference				(1,532)
Charge for year				576
At 31 December 2016				7,931
Charge for year				755
Foreign exchange difference				274
At 31 December 2017				8,960
Net book value
At 31 December 2017				-
At 31 December 2016				262

 

12.  INVESTMENTS IN SUBSIDIARIES

Company
Cost				US$
At 31 December 2015				4,933,491
Additions				581,801
Foreign exchange translation difference				(903,722)
At 31 December 2016				4,611,570
Additions				58,431
Disposals				(546,804)
Foreign exchange translation difference				431,848
At 31 December 2017				4,555,045
Provision for impairment
At 31 December 2015				728,628
Charge for the period				1,964,027
Foreign exchange translation difference				(121,377)
At 31 December 2016				2,571,278
Charge for the period				1,684,557
Foreign exchange translation difference				240,783
At 31 December 2017				4,496,618
Net book value
At 31 December 2017				58,427
At 31 December 2016				2,040,292

 

The exchange rates movements in 2017 reflect the appreciation of the British Pound against the US Dollar, which resulted in a corresponding increase in the value of investments denominated in Sterling.

At 31 December 2017 the Group held share capital of the following companies:

Subsidiary undertaking	Country of incorporation	Nature of business	Percentage Holding
			2017			2016
AE Ukraine	Ukraine	Woodchip processing and distribution			100	100
Nikofeso Holdings Limited	Cyprus	Wood chip distribution		100		100
Nikwood Company LLC*	Ukraine	Wood chip processing and distribution		-		100
AETrading (EMEA) SarL	Switzerland	Wood chip distribution		100		100
Active Energy Italia s.r.l.	Italy	Wood chip distribution		-		100
AEG Trading Limited	United Kingdom	Wood chip distribution		100		100
AEG Pelleting Limited	United Kingdom	Biomass for energy development		100		100
AEG Balkan	Montenegro	Dormant		-		100
AEG Biopower Limited	United Kingdom	Biomass for energy development		100		100
AEG Coalswitch Limited	United Kingdom	Biomass for energy development		100		-
ABS plc	United Kingdom	Biomass for energy development		85		-
Timberlands Int. Ltd	United Kingdom	Biomass for energy development		95		-
Alpha Prospects Ltd	United Kingdom	Energy/Natural resources investments holding company		4.2		4.1

 

13.  INVESTMENT IN ASSOCIATE

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Carrying value at beginning of the year	1,282,627	1,142,605	2,333,176	2,077,463
Contribution to associate arrangement	-	255,721	-	255,714
Share of loss for the year	-	(305,151)		-
Share of other comprehensive income for the year - translation of foreign operation	-	189,452	-	-
Transfer to intangible fixed assets	(1,282,627)	-	-	-
Transfer to other group companies	-	-	(2,333,176)	-
Carrying value at end of the year	-	1,282,627	-	2,333,177

During 2014 the Group acquired a 45% interest in a joint venture, KAQUO Forestry & Natural Resources Development Corporation (KAQUO), incorporated in Canada, to exclusively commercialise forestry and agricultural land holdings belonging to the indigenous Métis Settlements of Alberta in Western Canada.

 

This joint venture is no longer operational and the licences were not awarded as anticipated. However, AEG is continuing to work with the Canadian authorities and its partners in Alberta to develop and secure title to these assets. As a result the costs incurred on the joint venture have been transferred to intangible fixed assets.

 

Summarised financial information in relation to the joint venture is presented below:

	2017	2016
	US$	US$
At 31 December
Current assets	-	-
Current liabilities	-	(2,334,546)
Period ended 31 December
Revenues	-	-
Loss for the year	-	(678,113)
Other comprehensive income	-	421,000
Total comprehensive income	-	(257,113)

 

14.    LOAN TO JOINT VENTURE PARTNER

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Carrying value at beginning of the year	1,911,121	691,748	1,911,121	691,748
Foreign exchange differences	-	(132,531)	-	(132,531)
Advanced during the year	-	1,351,904	-	1,351,904
Transfer to intangible fixed assets	(1,911,121)	-	-	-
Transfer to other group companies	-	-	(1,911,121)	-
Carrying value at end of the year	-	1,911,121	-	1,911,121

 

 

In September 2015 the Group entered into a joint venture agreement with Biomass Energy Enhancements LLC ("BEE"), incorporated in the United States, for the joint commercial development and exploitation of intellectual property assets held by BEE in connection with biomass technologies.

 

A long term loan to BEE was recognised in the accounts to reflect monies loaned by AEG to the joint venture. An agreement was later reached with the other joint venture partners whereby AEG became the sole proprietor of this technology and as a result the loan balance was transferred to intangible fixed assets. 

 

15.    AVAILABLE FOR SALE FINANCIAL ASSET

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Fair value at beginning of the year	83,455	100,137	83,455	100,137
Revaluation to market value	786,393	-	786,393	-
Foreign exchange translation	(83,065)	(16,682)	(83,065)	(16,682)
Fair value at end of the year	786,873	83,455	786,873	83,455

 

 

Available for sale assets consist of an unquoted equity instrument which is classified as non- current assets. The asset was revalued in 2017 based on the proceeds received from issue of shares by this entity, less a discount to reflect the absence of a liquid market for these shares. The available-for-sale financial asset is denominated in Pound Sterling.

 

16.  INVENTORIES

Group	2017	2016
	US$	US$
Raw materials	20,349	143,855
Finished goods and goods for resale	-	281,143
Total inventories	20,349	424,998

 

                  

The cost of inventories recognised as an expense and included in 'cost of sales' within discontinued operations amounted to US$521,080 (2016: US$10,434,931).

 

17. TRADE AND OTHER RECEIVABLES

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Current
Trade receivables	128,136	268,980	128,136	-
Amounts due from group companies	-	-	13,629,890	275,589
Other receivables	1,198	381,111	-	15,449
VAT	42,046	233,713	14,642	33,064
Prepayments	-	1,766,528	-	-
Corporation tax credit receivable	346,522	-	-	-
Total	517,902	2,650,332	13,772,668	324,102

           

 

In the Directors' opinion the carrying values of trade and other receivables are stated at their fair value, after deduction of appropriate allowances for irrecoverable amounts as these assets are not interest bearing and receipts occur over a short period and are subject to an insignificant risk of changes in value.

Trade and other receivables that have not been received within the payment terms are classified as overdue. As at 31 December 2017 trade receivables of US$Nil (2016: US$Nil) were overdue.

As at 31 December 2017, Group trade receivables of US$NIL (2016: US$NIL) were overdue and impaired. The provision for impairment is analysed as follows:

	2017	2016
	US$	US$
At beginning of the period	-	838,984
Provided during the year	-	(838,984)
Provision (released)/utilised	-	-
	-	-

 

An analysis of the Group's trade and other receivables classified as financial assets by currency is provided in note 27.

 

18.  CASH AND CASH EQUIVALENTS

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Bank accounts	142,049	2,121,841	135,706	2,041,134
	142,049	2,121,841	135,706	2,041,134

 

19.  TRADE AND OTHER PAYABLES

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Current
Trade payables	936,111	799,816	200,512	268,549
Social security and other taxes	45,902	40,920	41,598	26,331
Accruals and deferred income	866,594	1,493,623	859,279	1,113,156
Other payables	96,069	686,793	21,069	-
	1,944,676	3,021,152	1,122,458	1,408,036

 

The carrying values of trade and other payables approximate their fair value as payments occur over a short period and the risk of material changes in value is insignificant. The following table analyses the maturity of the trade and other payables, excluding borrowings. These are classified as financial liabilities on the balance sheet and they are measured at amortised cost.

 

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Less than three months	1,944,676	3,021,152	372,458	1,408,036
Three to 12 months	-	-	750,000	-
	1,944,676	3,021,152	1,122,458	1,408,036

 

The amounts shown are undiscounted and represent the contractual cash-flows. An analysis of the Group's trade and other payables classified as financial liabilities by currency is provided in note 27.

    

20.  DEFERRED TAXATION

Deferred tax is calculated on temporary differences under the liability method using tax rates applicable in the respective Group entities' jurisdiction. The movement on the deferred tax account is shown below and the balance relates to deferred tax on fair value adjustments related to intangibles:

Group	2017	2016
	US$	US$
At beginning of the period	393,137	402,106
Reversal of temporary differences	(8,968)	(8,969)
At the end of the period	384,169	393,137

 

The deferred tax liability relates to temporary differences arising on the fair valuation of intangible assets acquired in 2011.

No provision for the deferred tax asset in respect of tax losses has been made in the Group or Company due to the uncertainty of the Group or Company being able to generate sufficient future taxable profits from which the future reversal of the timing difference can be deducted.  See note 8 for further details of this balance.

21.  FINANCE LEASES

The future minimum finance lease payments are as follows:

 

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Less than 1 year	89,607	-	-	-
Between 1 and 3 years	205,993	-	-	-
	295,600	-	-	-

 

The finance lease relates to a Pellet Mill leased from the manufacturer for use at the Utah CoalSwitch™ plant. The lease term is 3 years. At the end of the lease term the company has the option to purchase the asset for $1.

 

22.  LOANS AND BORROWINGS

The book value and fair value of loans and borrowings are as follows:

Group	Book value	Fair value	Book value	Fair value
	2017	2017	2016	2016
	US$	US$	US$	US$
Non-Current
Convertible debt	13,224,252	13,224,252	-	-
Unsecured loans	-	-	580,000	580,000
	13,224,252	13,224,252	580,000	580,000
Current
Convertible debt	-	-	1,233,600	1,233,600
Unsecured loans	-	-	5,829,130	5,829,130
	-	-	7,062,730	7,062,730
Total loans and borrowings	13,224,252	13,224,252	7,642,730	7,642,730

 

Company	Book value	Fair value	Book value	Fair value
	2017	2017	2016	2016
	US$	US$	US$	US$
Non-Current
Convertible debt	13,224,252	13,224,252	-	-
Unsecured loans	-	-	580,000	580,000
	13,224,252	13,224,252	580,000	580,000
Current
Convertible debt	-	-	1,233,600	1,233,600
Unsecured loans	-	-	2,890,000	2,890,000
	-	-	4,123,600	4,123,600
	13,224,252	13,224,252	4,703,600	4,703,600

Unsecured loans

During the year the Group repaid all outstanding unsecured short term loans.

 

Convertible debt

On the 14 March 2017 the company successfully completed a fund raising of £11.57 million before expenses (or $14.15 million) through the issue of convertible loan notes ('CLNs') to new and existing investors. The CLNs have a maturity date of 14 March 2022 and have been listed on the International Securities Exchange. The CLN can be converted into ordinary shares of AEG plc, at any time prior to the Maturity Date, at a 30% premium to 2.535p, being the Company's 10 day Volume Weighted Average Price immediately prior to the issue date. The fair value of the liability component at inception was calculated using a market interest rate for an equivalent instrument without conversion option. The CLN has a coupon rate of 8% and the imputed interest rate applied was 12%.

On 15 March 2017 the Convertible Loan Note to Brahma Finance for £1,000,000 was repaid in full and settled.

The following table analyses the maturity of loan and borrowings. The amounts shown are undiscounted and represent contractual cash-flows.

 

Group		Up to 3 months		Between 3 and 12 months		Between 1 and 2 years		Between 2 and 5 years		Total
		US$		US$		US$		US$		US$
At 31 December 2017
Convertible debt		-		-		-		13,224,252		13,224,252
		-		-		-		13,224,252		13,224,252
At 31 December 2016
Convertible debt		1,233,600		-		-		-		1,233,600
Unsecured loans		204,000		5,625,130		580,000		-		6,409,130
		1,437,600		5,625,130		580,000		-		7,642,730
	Company		Up to 3 months		Between 3 and 12 months		Between 1 and 2 years		Between 2 and 5  years		Total
			US$		US$		US$		US$		US$
	At 31 December 2017
	Convertible debt		-		-		-		13,224,252		13,224,252
			-		-		-		13,224,252		13,224,252
			US$		US$		US$		US$		US$
	At 31 December 2016
	Convertible debt		1,233,600		-		-		-		1,233,600
	Unsecured loans		204,000		2,686,000		580,000		-		3,470,000
			1,437,600		2,686,000		580,000		-		4,703,600

 

23.  CALLED UP SHARE CAPITAL

	2017	2017	2016	2016
	Number	US$	Number	US$
Allotted, called up and fully paid
Ordinary shares of 1p each
At 1 January	840,381,500	12,621,134	642,158,903	10,099,329
Issue of shares	142,689,776	1,872,112	198,222,597	2,521,805
As at 31 December	983,071,276	14,493,246	840,381,500	12,621,134

 

Shares issued for Cash

 

During 2017 the Company issued 142,689,776 ordinary shares for a total consideration of US$3.3m as follows:

 

·     On 27 June 2017 the company issued 17,623,110 ordinary shares at 1.6 US cents satisfying exercise notices over warrants in issue.

·     On 6 November 2017 the company issued 83,333,333 ordinary shares at 2.7 US cents following a new share placement.

·     On 21 December 2017 the company issued 40,000,000 ordinary shares at 1.6 US cents satisfying exercise notices over share options in issue.

·     On 21 December 2017 the company issued 1,733,333 ordinary shares at 1.6 US cents satisfying exercise notices over warrants in issue.

 

During 2016 the Company issued 198,222,597 ordinary shares for a total consideration of US$7.3m as follows:

 

·     On 29 June 2016 the company issued 1,554,666 ordinary shares at 1.6 US cent satisfying exercise notice over warrants in issue.

·     On 4 July 2016 the company issued 586,661 ordinary shares at 1.6 US cent satisfying exercise notice over warrants in issue.

·     On 3 August 2016 the company issued 77,358,491 ordinary shares at 3.5 US cent, being a new shareholder equity contribution.

·     On 24 November 2016 the company issued 88,722,779 ordinary shares at 3.3 US cent in settlement of existing debt and acquisition of an investment in the BEE joint venture. Of these shares 29,287,159 were issued from Treasury shares.

·     On 21 December 2016 the company issued 30,000,000 ordinary shares at 3.4 US cent in settlement of convertible debt.

 

 

24.  SHARE OPTIONS AND WARRANTS

From time to time the Company has entered into share option arrangements under which the holders are entitled to subscribe for a percentage of the Company's ordinary share capital. All options vest immediately with the exception of 14,166,667(2016: 95,500,000) options which are based on various market, service and performance conditions. The number of warrants and share options exercisable at 31 December 2017 was 127,325,099 (2016: 239,655,831).

The movements of warrants and share options during the period were as follows:

	Weighted average  exercise price                (UK pence)	Number of Warrants and Share Options	Weighted average  exercise price                (UK pence)	Number of Warrants and Share Options
Outstanding at beginning of the period	1.96	239,655,831	1.68	267,959,701
Cancelled	1.09	(54,707,622)	0.57	(26,162,543)
Granted	-	-	-	-
Exercised	1.25	(57,623,110)	1.25	(2,141,327)
Outstanding at end of the period	2.72	127,325,099	1.96	239,655,831

 

At 31 December 2017, the weighted average remaining contractual life of warrants and share options exercisable was 4.02 years (2016 - 5.02 years). There were no share options granted during the year (2016:nil). Therefore no information is provided regarding the weighted average assumptions associated with estimating the fair values of options granted.

 

There was charge for equity settled share based payments of US$307,749 (2016: US$631,465) in the income statement for the year ended 31 December 2017. In addition, during the year ended 31 December 2017 certain nil-cost options were cancelled. This resulted in a credit to equity settled share based payments of US$1,044,452.  This was not shown in the income statement for the year ended 31 December 2017, but was recorded as a reserve transfer.

Options and warrants outstanding at 31 December 2017 were exercisable as follows:

	2017	2016
Exercise price range (Pence, US cent in brackets)	Number	Number
0.000p (0 cent)	-	37,500,000
1.250p (1.686 cent)	56,500,000	117,616,448
1.500p (2.023 cent)	7,500,000	7,500,000
1.750p (2.360 cent)	19,047,619	19,047,619
3.000p (4.047cent)	13,450,000	25,950,000
5.000p (6.745 cent)	15,000,000	15,000,000
6.000p (8.094 cent)	4,500,000	4,500,000
6.375p (8.600 cent)	1,823,480	1,823,480
7.000p (9.444 cent)	-	1,214,284
7.500p (10.118 cent)	9,000,000	9,000,000
20.000p (26.982 cent)	504,000	504,000
At the end of the period	127,325,099	239,655,831

 

The above disclosures apply to both the Company and the Group.

 

JSOP awards

Under the JSOP, shares in the Company are jointly purchased at fair market value by the participating employee and the trustees of the JSOP trust, with such shares held in the JSOP trust.  For accounting purposes the awards are valued as employee share options.

The JSOP trust holds the shares of the JSOP until such time as the JSOP shares are vested and the participating employee exercises their rights under the JSOP.  The JSOP trust is granted an interest bearing loan by the Company in order to fund the purchase of its interest in the JSOP shares.  The loan held by the trust is eliminated on consolidation in the financial statements of the Group.  The Company funded portion of the share purchase price is deemed to be held in treasury until such time as the shares are transferred to the employee and is recorded as a reduction in equity in both the Group and Company financial statements.

The exercise price of the "option" is deemed to be the issue price of the shares.  The awards vest based on a market condition, which requires the shares to meet a specific share price hurdle, or a change in control condition, as defined by the plan.  Under the JSOP and subject to the vesting of the employee's interest, the participating employee will, when the JSOP shares are sold, be entitled to a share of the proceeds of sale equal to the growth in market value of the JSOP shares versus the exercise price, less simple interest on the original share purchase price, net of executives' cash contribution at inception, as agreed for each grant (the "Carry Charge").  The balance of proceeds will remain to the benefit of the JSOP trust and be applied to the repayment of the loan originally made by the Company to the JSOP trust.  Any funds remaining in the JSOP trust after settlement of the loan and any expenses of the JSOP trust are for the benefit of the Company.

The Group measures the fair value of the awards using the Monte Carlo (JSOP options) or Black Scholes (other options) simulations and the share based payment expense is recorded over the expected life of the option.  The full value of the JSOP awards is calculated using the Monte Carlo simulation and share based payment expenses are recognised in the income statement in accordance with the provisions of IFRS2. No awards were made in 2017. The share based payment charge for the year is US $Nil (2016: US$13,450) related to the JSOP awards.

The Group granted 15,000,000 JSOP awards on 4 July 2013. The JSOP awards granted during 2013 contained a share price hurdle of 3p per share. The awards vested in 2015, but all remain outstanding at year end. The above disclosures apply to both the Company and the Group.

 

25.  RESERVES

The following describes the nature and purpose of each reserve within equity:

Reserve	Description and purpose
Share premium	Amounts subscribed for share capital in excess of nominal value.
Merger reserve	Difference between fair value and nominal value of shares issued to acquire 90% or more interest in subsidiaries.
Foreign exchange reserve	Gains/losses arising on retranslating the net assets of overseas operations into US Dollars.
Own shares held reserve	Cost of own shares held by the employee benefit trust, the JSOP trust or the company as shares held in escrow.
Convertible debt and warrant reserve	Equity component of the convertible loan and the fair value of equity component of warrants issued that do not form part of a share based payment.
Retained earnings/ Accumulated loss	Cumulative net gains and losses recognised in the consolidated statement of comprehensive income.

26.  NOTES SUPPORTING THE STATEMENT OF CASH FLOWS

       Reconciliation of loss before taxation to cash outflows from operating activities

Group		2017	2016
		US$	US$
Loss for the period		(15,221,072)	(2,490,640)
Adjustments for:
Share of loss of associate		-	305,151
Share based payment expense		307,749	631,465
Depreciation		280,473	344,495
Amortisation of intangibles		44,835	44,845
R&D expensed to income statement		1,244,045	-
Write off of goodwill		2,212,930	-
Loss/ (profit) on disposal of PP&E		2,130,018	(58,020)
Revaluation of investments for resale		(454,928)	-
Foreign currency translations		(556,421)	(899,328)
Finance income		-	(18,152)
Finance expenses		3,031,054	1,844,225
Income tax		(4,781)	122,143
		(6,986,098)	(173,816)
Decrease/(increase) in inventories		404,649	(118,789)
Decrease/(increase) in trade and other receivables		2,132,430	(76,244)
(Decrease) in trade and other payables		(1,372,076)	(613,469)
Net cash outflow from operating activities		(5,821,095)	(982,318)

 

 

Company		2017	2016
		US$	US$
Loss for the period		(11,218,600)	(7,293,248)
Adjustments for:
Share based payment expense		307,749	631,465
Depreciation		755	576
Impairment of investments/ intercompany debtors		2,040,292	2,846,709
Revaluation of investments for resale		(454,928)	-
Foreign currency translations		702,918	(527,845)
Finance income		-	-
Finance expenses		1,648,174	1,661,491
		(6,973,640)	(2,680,852)
(Increase)/decrease in trade and other receivables		(6,457,872)	592,506
(Decrease)/increase in trade and other payables		(285,578)	2,636,972
Net cash inflow/(outflow) from operating activities		(13,717,090)	548,626

 

27.  FINANCIAL INSTRUMENTS    

The Group's treasury policy is to avoid transactions of a speculative nature.  In the course of trade the Group is exposed to a number of financial risks that can be categorised as market, credit and liquidity risks. The board reviews these risks and their impact on the activities of the Group on an ongoing basis.

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

·   Trade and other receivables

·   Cash and cash equivalents

·   Trade and other payables

·   Available-for-sale financial assets

·   Loans and borrowings

·   Loan to joint venture partner

 

A summary of the financial instruments held by category is provided below:

 

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Financial assets
Loans and receivables
Cash and cash equivalents	142,049	2,121,841	135,706	2,041,134
Trade and other receivables	129,334	650,091	13,758,026	291,038
Loan to joint venture partner	-	1,911,121	-	1,911,121
	271,383	4,683,053	13,893,732	4,243,293
Available-for-sale financial asset	786,873	83,455	786,873	83,455
Total financial assets	1,058,256	4,766,508	14,680,605	4,326,748

 

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables	2,240,276	3,021,152	1,122,458	1,408,036
Loans and Borrowings	13,224,252	7,642,730	13,224,252	4,703,600
	15,464,528	10,663,882	14,346,710	6,111,636

 

Fair value measurement

The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):

Level 1: Quoted prices in active markets for identical items (unadjusted)

Level 2: Observable direct or indirect inputs other than Level 1 inputs

Level 3: Unobservable inputs (i.e. not derived from market data).

 

The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item.

Transfers of items between levels are recognised in the period they occur.

The only financial asset carried at fair value consists of the available for sale financial asset, which is classified as level 3.

 

Market Risk

Currency risk

The Group's financial risk management objective is broadly to seek to make neither profit nor loss from exposure to currency or interest rate risks. The Group is exposed to transactional foreign exchange risk and takes profits and losses as they arise, as in the opinion of the directors, the cost of hedging against fluctuations would be greater than the potential benefits.

The carrying amounts of the group's trade and other receivable financial instruments are denominated in the following currencies:

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
US Dollar	-	574,952	13,629,890	275,589
UK Pound sterling	129,334	45,445	-	15,449
Euro	-	1,052	128,136	-
Ukrainian Hryvnia	-	28,642	-	-
	129,334	650,091	13,758,026	291,038

 

The carrying amounts of the group's cash and cash equivalents are denominated in the following currencies:

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
US Dollar	134,510	2,016,005	132,262	2,011,994
UK Pound sterling	3,945	33,005	3,244	28,786
Euro	2,214	1,881	200	354
Ukrainian Hryvnia	1,381	70,950	-	-
	142,050	2,121,841	135,706	2,041,134

 

Information about the Group's loans and borrowings are provided in note 22.

 

The carrying amounts of the group's trade and other payable financial instruments are denominated in the following currencies:

 

	Group	Group	Company	Company
	2017	2016	2017	2016
	US$	US$	US$	US$
US Dollar	1,106,200	2,498,548	-	1,113,156
UK Pound sterling	1,122,457	291,776	1,122,458	294,880
Euro	4,304	16,135	-	-
Ukrainian Hryvnia	7,315	214,693	-	-
	2,240,276	3,021,152	1,122,458	1,408,036

 

 

The effect of a 5 per cent strengthening of the US Dollar at the reporting date on the foreign denominated financial instruments carried at that date would, all variables held constant, would have resulted in a decrease in the net loss for the period and increased net assets by US$7,107 (2016: US$100,800). A 5 per cent weakening in the exchange rate would, on the same basis, have increased the net loss and decreased net assets by the same amount.

 

Interest rate risk

The Group and Company finances its operations through a mixture of equity and loans.  The Group and Company exposure to interest rate fluctuations on its borrowings has been limited by the terms of the Convertible Loan Notes described in note 22.

 

Credit risk

Operational

The Group is mainly exposed to credit risk from credit agreements and sales. It is the Group's policy, implemented locally, to assess the credit risk of new customers before entering contracts. Such credit ratings, taking into account local business practices are then factored into trading decisions. The Group does not enter into any derivatives to manage credit risk.  Further information on Trade and other receivables are presented in note 17.

Financial

Financial risk relates to non-performance by banks in respect of cash deposits and is mitigated by the selection of institutions with a strong credit rating.

 

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments.  It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

 

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.  The Group finances its operations through a mix of equity and borrowings. The Group's objective is to provide funding for future growth. The Group's policies aim to ensure sufficient liquidity is available to meet foreseeable needs through the preparation of short and long term forecasts.  Further disclosure of the Directors' consideration of going concern is included in note 1.

The Group had no bank loans or invoice finance facilities at 31 December 2017 (2016: Nil). The Group had no overdraft at 31 December 2017 (2016: Nil) and no personal guarantees were in place.

 

Capital risk management

The Group's objective when managing capital is to establish and maintain a capital structure that safeguards the Group as a going concern and provides a return to shareholders.

 

28.  RELATED PARTY DISCLOSURES

Details of Director's remuneration are given in the Report of the Directors.

Transactions between the Company and its subsidiaries, which are related parties to the Company, have been eliminated on consolidation. During the year in the Company's financial statements, the Company made net cash recoveries from fellow Group companies of US$nil (2016: net cash recoveries of US$2,702,684).

 

The Company's intercompany receivable balances at the year-end were as follows:

 

	2017	2016
	US$	US$
Amounts due from Group companies	13,629,890	275,589

 

 

 

 

 

29. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of financial information in conformity with International Financial Reporting Standards requires management to make estimates and judgements that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the year-end date and the reported amounts of revenues and expenses during the reporting period.

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 significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were as follows:

Impairment of goodwill, intangible fixed assets and other assets

The Group is required to test, on an annual basis, whether goodwill has suffered any impairment.  The recoverable amount of cash generating units is determined based on value in use calculations.  The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Actual outcomes may vary. Intangible fixed assets and other assets are considered for impairment where such indicators exist using value in use calculations or fair value and recoverability estimates. The use of these methods similarly requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows.

Share based payments

In determining the fair value of equity settled share based payments and the related charge to the income statement, the Group makes assumptions about future events and market conditions.  In particular, judgements must be made as to the fair value of each award granted.  The fair value is determined using a valuation model which is dependent on further estimates, including the Group's future dividend policy, the timing with which options will be exercised and the future volatility in the price of the Group' shares.  Such assumptions are based on publicly available information and reflect market expectations and advice taken from qualified personnel.  Different assumptions about these factors to those made by the Group could materially affect the reported value of share based payments.

Useful lives of intangible assets and property, plant and equipment

Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness.  Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated statement of comprehensive income in specific periods.

Recognition of development costs within intangible fixed assets

The Group undertakes certain development activity which is recognised within intangible fixed assets, if it meets certain criteria laid down by international accounting standards. This means that management is required to assess various factors associated with these assets to determine whether the asset is separately identifiable, that it is probable that future economic benefits attributable to will arise; the technical feasibility of completing the asset; that the Group intends and is able to complete the asset; and there are available and adequate technical, financial and other resources to complete the asset. All these matters involve technical and economic judgement and changes to these assessment can result in significant variations in the carrying value and amounts charged to the consolidated statement of comprehensive income in specific periods.

 

29. CAPITAL AND OPERATING COMMITMENTS

Capital commitments at the 31 December 2017 were $408,908 (2016: $436,220). Operating lease commitments at the 31 December 2017 were $11,142 (2016: $54,142). All amounts were due within one year.

 

30. SUBSEQUENT EVENTS

The key business developments since 31 December 2017 were as follows:

·     On 4 February 2018 the Group announced that its first commercial CoalSwitch™ plant in Utah, United States (the 'Plant'), would be officially opened later that week. 

·     On 13 March 2018 the Group announced that it has signed a joint venture agreement with Cobant Sp. z o.o. a Polish research, development and coal recovery/production company, to explore opportunities to commercialise the Company's CoalSwitch™ product in blends with reclaimed coal from coal slurry dumps in Upper Silesia, Poland.

·     On 17 May 2018 the Group announced that it had signed a Memorandum of Understanding to acquire a controlling interest  in PowerWood Canada Corp, a privately owned Canadian company which holds substantial forestry assets in Alberta, Canada.

·     On 11 June 2018 the Group announced the proposed sale of an advanced organic soil manufacturing facility to Young Living Farms, utilising the Company's proprietary PeatSwitch technology, for a total cash payment of US$3.4 million.

·     On 13 June 2018 the Group announced that two laboratories, including a Polish Government laboratory, had conducted independent tests of the new 'Super Fuel' product that utilises a blend of AEG's revolutionary CoalSwitch™ component with reclaimed and cleaned coal fines from Poland's legacy coal waste dumps. The results of these tests indicated that the new "Super Fuel" had a similar calorific value to coal (>23MJ/Kg), but with significantly low sulphur content <0.9%, low ash content, and low SOx and NOx emissions when combusted

·     In the period from the 31 December 2017 to the date of issue of this report Company issued 49,633,227 equity shares due to conversions of CLN to equity.

Further details are provided in the chairman's statement.

 

31. ULTIMATE CONTROLLING PARTY

 

In the opinion of the directors there is no one ultimate controlling party.

**ENDS**