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Active Energy Group PLC

27 May 2022

Active Energy Group Plc / EPIC: AEG / Sector: Alternative Energy

27 May 2022

Active Energy Group Plc

("Active Energy", "AEG", or the "Company")

Audited results for the year ended 31 December 2021

Active Energy, the London quoted international biomass based renewable energy business, is pleased to announce the publication of its audited results for the year ended 31 December 2021.

Operational Highlights

-- Independent burn testing completed on CoalSwitch(R) which confirms its superior performance to alternate biomass fuels.

-- Completed construction of the Company's first reference plant at the Ashland Facility and subsequently began production of commercial volumes of CoalSwitch(R).

-- Commenced negotiations with potential customers both in the United States, Japan and worldwide for the sale of CoalSwitch(R).

-- Supplied CoalSwitch(R) samples to twelve prospective customers worldwide (both power generators and industrial partners), with ongoing discussions to establish long-term supply agreements.

-- Significantly advanced the Company's strategy towards the commercial rollout of CoalSwitch(R) as a next generation biomass fuel.

Financial Highlights

-- Successful financial restructuring of the Company's balance sheet and raising of additional equity funding to complete the construction of the first CoalSwitch(R) reference plant at the Ashland Facility.

   --    Revenue for the year of US$644,914 (2020: US$1,588,140). 
   --    Loss for the year of US$5,881,768 (2020: US$8,757,919). 
   --    Basic and diluted loss per share of 0.16 cents (2020: 0.65 cents). 

Activities after the year end:

-- Positive co-firing test results received from Utah, USA, further proving the benefits of co-firing CoalSwitch(R) with coal, including:

o a minimal impact on heating values when co-fired with coal in furnaces;

o a material reduction of ash compared to burning 100% coal;

o a significant reduction in Nitrogen Oxide (NOx) and Sulphur Dioxide (SO2) emissions compared to burning 100% coal; and

o CoalSwitch(R), when blended with coal, can be milled in an unmodified bowl mill and burnt in existing coal-fired burners without significant additional capital expenditure and with lower energy consumption.

-- Test results further demonstrated the premium qualities of the pellet compared to existing white pellet, including:

o increased heating value of 9,313 British Thermal Units per pound (BTU/lb), which represents a 12.9% premium to traditional white pellets;

o its hydrophobic properties allow easier logistics and storage options

-- Received certification confirming compliance with the Forest Stewardship Council(R) ("FSC") standards for its CoalSwitch(R) fuel, confirming that the fuel is responsibly sourced.

   --    Sale of the Lumberton site for US$4.65 million, subject to due diligence and closing. 
   --    Commercial conversations continuing with potential customers to purchase CoalSwitch(R). 

Outlook:

-- Positive outlook for the business with CoalSwitch(R) successfully transitioned from a concept to a proven product.

-- The Company is well positioned to deliver on the increasing market demand for biomass globally.

   --    The Company is in discussions with a number of interested commercial partners for the sale of CoalSwitch(R). 

Michael Rowan, CEO, Active Energy Group, said:

"2021 was an important year for AEG. We have restructured the balance sheet, extinguished former financial restrictions and raised monies to start to develop CoalSwitch (R) to commercial production. CoalSwitch (R) was delivered to potential customers in 2021 and this has continued during 2022. Prospective customer tests and independent tests are proving the superior qualities of CoalSwitch (R) to alternate biomass pellets currently available.

"Prospective customers have indicated that they would like CoalSwitch (R) to be delivered as soon as possible and the current market conditions are emphasising this demand. AEG is solely focused on attaining industrial scale production from Ashland at the earliest opportunity. The last 6 months has seen finalization of elements required to produce CoalSwitch (R) , namely design, engineering and permit approvals and we now look forward to completion of the plant."

Regulatory information

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

 
 Enquiries 
 Active Energy Group       Michael Rowan (Chief                  info@aegplc.com 
  Plc                       Executive Officer) 
                            Andrew Diamond ( Chief 
                            Financial Officer) 
                          ---------------------------------  ------------------- 
 Allenby Capital Limited   Nick Naylor / James                 Office: +44 (0)20 
  Nominated Adviser         Reeve / Freddie Wooding                    3328 5656 
  and Joint Broker          (Corporate Finance) 
                            Amrit Nahal (Sales/Corporate 
                            Broking) 
                          ---------------------------------  ------------------- 
 Panmure Gordon & Co       John Prior / James Sinclair-Ford    Office: +44 (0)20 
  Joint Broker              / Harriette Johnson (Corporate             7886 2500 
                            Finance) 
 
                            Hugh Rich (Corporate 
                            Broking) 
                          ---------------------------------  ------------------- 
 Camarco                   Gordon Poole / Tom Huddart          aeg@camarco.co.uk 
  Financial PR Adviser      / Emily Hall                       Office: +44 (0)20 
                                                                       3757 4980 
                          ---------------------------------  ------------------- 
 

About Active Energy Group:

Active Energy Group plc is a London listed (AIM: AEG) renewable energy company that has developed a proprietary technology which transforms low-cost biomass material into high-value green fuels. Its patented product CoalSwitch(R) is the world's only drop-in biomass fuel that can be mixed at any ratio with coal or completely replace coal in existing coal-fired power stations without requiring significant plant modification. Active Energy Group's immediate strategic focus is the production and commercialisation of CoalSwitch(R).

CHAIRMAN'S STATEMENT

In last year's letter I informed you that the Board had sharpened the Group's strategy for the development and commercial roll-out of CoalSwitch(R). We believe that we can differentiate CoalSwitch(R) as a 'next generation' biomass product which is distinct from existing biomass products, both in terms of feedstock sourcing and in the manufacture of a renewable fuel which exceeds existing performance parameters for pelletised fuels. We believe strongly in the positive environmental impact this product can have on the operations of current coal consumers, and at the same time assisting the lumber industry in making strides in utilising residual waste products as feedstock. Our aim is to create an environmental win-win for both industries as the world transitions towards energy consumption within strict sustainable criteria.

In the year that has passed, we have worked hard to stay focussed on this objective. Timber cutting permits in Ukraine and Newfoundland, which were not aligned with the strategy, were abandoned or relinquished. The saw log and sawmill operations in Lumberton, which would have required significant additional investment to scale up to profitable operations, and which were also not directly aligned with the biomass strategy, were exited.

An important landmark in February 2021 saw the completion of the balance sheet restructuring of the Convertible Loan Notes (the "CLNs"). We were grateful for the support of the CLN holders throughout the process to allow the Company to restructure the balance sheet and release the Group from onerous financial restrictions which were increasingly restricting the Company's strategy. We are also grateful to those shareholders and new investors who contributed toward the simultaneous GBP7.0 million (gross) capital raise. The Company immediately deployed those funds toward the construction of future CoalSwitch(R) production facilities.

Developing a new technology brings inevitable challenges and CoalSwitch(R) has been no exception. The permit issues which suspended construction activities in Lumberton in May 2021, and later in the year the suspension of production in Ashland following a component failure, were the most significant issues faced by the management team during 2021. The Company relocated production from Lumberton to Ashland in Maine and, during Q2 2021 the Company achieved its long-stated goal of scaled CoalSwitch(R) production as well as delivering CoalSwitch(R) to PacifiCorp Inc. as part of its STEP Program. The subsequent co-firing test program, completed in Q4 2021, co-ordinated by Brigham Young University and Utah University, provided considerable encouraging performance data and know-how for CoalSwitch(R).

CoalSwitch(R) has moved from being a concept to become a viable new biomass fuel with proven co-firing benefits and a proven industrial process for scaled manufacture. Product and design enhancements have already been identified to improve the CoalSwitch(R) fuel alongside additions towards the manufacturing process to create further efficiencies for future production volumes. In addition to the pellet analysis program in Utah (the "STEP Program"), the Group established new partnerships to accelerate the analysis of CoalSwitch(R) and its properties. The positive independent product testing results from the University of New Brunswick in Q3 2021 continue to assist the Group's sales activities providing additional product credibility.

The last quarter of the year saw continued product and manufacturing developments for CoalSwitch(R) co-ordinated by the Company and working closely with Player Design Inc. ("PDI") in Maine. In addition, the Company continued its capital raising activities. The completion of the GBP3.0 million (gross) equity fundraise at the end of the year allowed the planning and engineering for the CoalSwitch(R) program to continue in 2022 as the work with the State of Maine moves forward for permitting to allow full scale production at the Ashland facility. The Board were particularly pleased that Tyler Player participated in this fundraising (by both investing funds and converting certain liabilities into new shares in the Company).

The current global environment and the terrible events in Ukraine have continued to shift customer objectives towards security of supply, sustainability and reducing pricing volatility. This has created a positive backdrop for the launch of CoalSwitch(R) into the commercial marketplace as a next generation black pellet fuel. New supply sources of biomass fuels have become of critical importance and the Company's plan to establish production volumes in the next 12 months could not be more opportune.

On behalf of the Company, I also wish to express our ongoing concern for the safety and wellbeing of former employees, advisers and their families who worked for Active Energy in its former Ukrainian operations over the last few years. All at Active Energy support Ukraine during this unfortunate conflict.

2021 was a challenging year for Active Energy and its operations. Working within the continuing COVID restrictions, both in the UK and the US, resulted in additional delays and obstructions to travel into the US which impacted the decision-making timelines in Lumberton. However, I would like to thank the members of the Board for each of their contributions and tireless support through these unprecedented times. I would also like to share the key reasons why I believe in the future of this Company:

-- AEG is now singularly focused on its strategic goal to deliver CoalSwitch(R) to coal burning industries and existing biomass facilities.

-- AEG has produced CoalSwitch(R) at industrial scale and independent analysis has validated its superior properties, and its ability to co-fire with coal. These achievements are attracting prospective customers both in North America and internationally.

-- Working with PDI as an engineering partner has created strong alignment of goals and brought necessary engineering expertise within the Company.

-- A restructured, unencumbered balance sheet has allowed AEG to open additional financing discussions to fund the Group's future development and growth.

In 2021, the Company has built the necessary foundations for AEG and its business. The Company's start-up phase is nearing its end and now the goals of production delivery and securing orders are the prime focus for the management team. This will include establishing a base in Maine which can represent the forefront of all AEG's forthcoming activities.

Post year-end, encouraging discussions have been held with potential customers from both industry and power generators worldwide, which continues to provide us with confidence that future orders for CoalSwitch(R) will be forthcoming. As a result, the ability to supply CoalSwitch(R) in commercial volumes remains our highest priority. The Board remains confident about the future for AEG and I remain grateful for the ongoing support of all our stakeholders and look forward to the future with confidence.

James Leahy

Non-executive Chairman

CHIEF EXECUTIVE OFFICER'S STATEMENT

Introduction

AEG is focussed on developing next generation biomass products and on the manufacturing processes and technologies required to produce them. The Directors believe that CoalSwitch(R) represents a step change for the biomass pellet industry, due to its utilising steam treatment technologies to produce a superior biomass fuel, thereby addressing both environmental and energy concerns for industry in the immediate future.

In 2021, AEG achieved a number of significant milestones:

-- the successful financial restructuring of the Company's balance sheet and raising of additional equity funding to complete the construction of the first CoalSwitch(R) reference plant;

-- completed construction of a plant at Ashland, Maine (the "Ashland Facility') and commenced production of CoalSwitch(R);

-- established sales and marketing activities in North America, Japan and in other countries to promote future sales of CoalSwitch(R);

-- supplied CoalSwitch(R) samples to twelve prospective customers worldwide (both power generators and industrial partners), with discussions ongoing to establish long term supply agreements; and

-- completed independent testing of first CoalSwitch(R) production to show that CoalSwitch(R) is a superior biomass pellet fuel to existing white pellets in terms of heating value, bulk density and its ability to be co-fired with coal within existing infrastructure without the need for additional capital expenditure.

Future role of biomass in energy supply

In recent months, economies have had to contemplate the possibilities of energy shortages and reconsider their fossil fuel policies. The world is continuing to examine their alignment with the goals surrounding sustainability. To add to the complexity, energy security has now become a material issue that every country is now forced to re-assess. Within these agendas, biomass as an alternative fuel source is also being re-examined.

The tragic conflict in Ukraine has highlighted questions surrounding fossil fuel dependency, but more importantly, it has had a significant impact on pricing for all fossil fuels. Biomass has seen a dramatic increase in price with prices for white pellet rising over 110% in the last 12 months and 32% within the last 4 months. In addition, given that Russia was the fourth largest biomass producer by volume in 2021, the biomass market is now having to plan for a reduction of up to 4 million tonnes (circa 6% of the global market) of future supply to take effect by mid-2022. These supply constraints affect both short term and long-term contractual commitments for biomass, mainly in Europe.

The biomass market is currently looking for all forms of additional capacity to accommodate existing demand, without even considering the opportunities presented in the new growth markets, notably Japan. New capacity will arise from identified future production projects for white pellet coming on stream over the next 24 months. Nonetheless, given that much of this future production is already under off-take contract, there will remain a shortage of supply.

Black Pellets, including CoalSwitch(R), are increasingly being recognised as a future source of additional biomass supply. The market is acknowledging the operational and environmental benefits, including the ability to utilise waste residual feedstocks, increase bulk density and provide greater energy. The balance between economics and sustainability remains the industry driver.

In the long term, the future for the biomass industry remains robust. The International Energy Agency's ("IEA") "Net Zero by 2050" report shows a scenario of a global increase of 20 exajoules in biomass power to 2050 (equivalent to 12% of China's current annual electricity consumption) up from 7 exajoules to date. The Glasgow Declaration on Sustainable Bioenergy stated that sustainable wood bioenergy would be projected to reduce net global emissions by 600 million tonnes of CO(2) equivalent annually by 2030.

To date, Europe has led the way in the future use of biomass in power generation and this will remain the case in the short term. Nonetheless, a number of Asian countries, including Japan and South Korea, are adopting similar policies toward biomass which is expected to lead to future growth in these markets. Their focus is already upon next generation pellets, such as CoalSwitch(R), which meet modern demands for improved heating values and improved sustainability. North America faces similar challenges to accommodate consistent fuel supply on economic terms and to start to decrease the dependence on coal consumption amidst forthcoming emissions legislation. Next-generation biomass fuels, including CoalSwitch(R), have never had a greater opportunity.

Strategy

Our strategy is to commercialise CoalSwitch(R), a proprietary technology which transforms waste biomass material into high-value sustainable fuel which can co-fire with existing fossil fuels to produce immediate environmental and emissions benefits or replace existing biomass feedstock.

The Board believes that CoalSwitch(R)'s proprietary qualities and development program, have reached important milestones. CoalSwitch(R) has:

   --        utilised waste biomass material as a core feedstock for the fuel; 

-- validated its steam treatment technology on an industrial scale from running the test reactors at Ashland;

-- acquired additional technical product knowledge and manufacturing know-how during the first production cycles at Ashland;

-- verified the properties of CoalSwitch(R) pellets, both as a next generation fuel, and in its performance to co-fire with coal and reduce emissions; and

   --        produced positive market interest in CoalSwitch(R) as an alternative renewable fuel. 

Next generation biomass fuels (such as CoalSwitch(R)) will play an important part in addressing the increasing legislative and regulatory requirements being imposed on power generators and heavy industry worldwide. This, combined with increasing public awareness of sustainability provides commercial opportunities for CoalSwitch(R).

Production of CoalSwitch(R) from the first reference plant at Ashland in the summer of 2021 provided considerable manufacturing data and know-how. As a result of this data, the Board decided to commence construction of an industrial scale facility to produce CoalSwitch(R). The market requires a scalable solution to produce next generation pellets in volume and the Directors believe that AEG now has the technical solutions to deliver black pellets, in commercial quantities, via its steam treatment technology.

CoalSwitch(R) - a fuel with solid credentials

To date, AEG has supplied fuels to twelve prospective clients and universities for their own independent analysis in North America and Japan. Each customer is assessing the fuel to meet its own individual consumption requirements.

The first test results from production volumes were published by the Wood Science and Technology Center at the University of New Brunswick on 2 September 2021 and demonstrated the premium qualities of CoalSwitch(R) as a biomass pellet compared to existing white pellets. The pellets were analysed for their proprietary qualities, namely the quality of the pellet produced from the Ashland Facility using waste feedstock, its heating value and organic elemental analysis in a laboratory environment.

The results from the analysis of these CoalSwitch(R) pellets were as follows:

-- produced to industry standard size and met the initial hydrophobic tests set by the Pellet Fuels Institute;

-- bulk density of 42.17 lb/ft3 (or 672 kg/m3) - a substantial premium to existing white pellets;

-- produced less ash (circa 3% inorganic ash) - a significant reduction to customary ash content for coal;

-- the elemental analysis contained circa 55% carbon and less than 0.5% sulphur content - a significant improvement from white pellet; and

-- an increased heating value over white pellet, namely 10,042 btu/lb (with the potential for even greater heating value yields by reducing the underlying moisture content which had been attained during first production runs).

In addition, CoalSwitch(R) was delivered to PacifiCorp in June 2021 as part of the STEP Program in Utah. The program has been funded by Rocky Mountain Power's Sustainable Transportation and Energy Plan to analyse next generation fuels. The STEP Program was designed to evaluate the burning and material handling properties of various black pellets including CoalSwitch(R). The STEP Program involved an analysis of each phase of the pellet burning process, including materials handling as well as co-firing and emissions properties.

CoalSwitch(R) was tested through a bowl mill to better understand materials handling when combining with coal and subsequently co-fired into a pulverised coal research furnace operating at 1.3 megawatt of thermal output. The coal research furnace, operated by Brigham Young University, has a firing system and direct operational representation of industrial-scale utility boilers used by power generators throughout the United States. As part of this assessment, CoalSwitch(R) was tested over a one-week period both on its own, as well as blended with Utah bituminous coal at various ratios. CoalSwitch(R) and coal were successfully milled, with the milled fuel blends subsequently used for combustion testing with a reduction in energy consumption.

The STEP Program was co-ordinated by Brigham Young University, Rocky Mountain Power (a subsidiary of PacifiCorp), the University of Utah, Chalmers University of Technology and Reaction Engineering International. The STEP Program completed the materials analysis and burn testing in Q4 2021. The first conclusions were reported in January 2022. The testing results were very encouraging for AEG and demonstrate that CoalSwitch(R) is a viable solution for coal consumers seeking to reduce their emissions.

The summary of key findings from the report on the testing were as follows:

-- CoalSwitch(R) can be milled in an unmodified mill with only small changes required to the mill settings;

-- a material reduction in mill power requirements occurs when milling CoalSwitch(R) compared to pure coal or other alternative biomass fuels;

-- heating value of CoalSwitch(R) alone was 9,313 BTU/lb, represented a 12.9% premium to traditional white pellets currently produced for the market by the Company's competitors;

-- on a blended mix of 75% coal and 25% CoalSwitch(R), the heating value increased to 11,807 BTU/lb, representing only a 7% drop from normal coal burning values used in conventional coal fired facilities;

   --        CoalSwitch(R) consumed in the furnace produced 77% less ash than coal; 

-- CoalSwitch(R) burnt in the furnace reduced NOx emissions by 20% versus existing coal consumption; and

   --        CoalSwitch(R) reduced sulphur dioxide emissions by 60% vs coal. 

The results of these independent testing programmes have proven the superior performance credentials of CoalSwitch(R) which AEG had always believed to be the case. More importantly, this independent research is important for prospective customers as they commence their analysis toward testing and evaluating CoalSwitch(R) and look toward long-term supply contracts. Following the year end, AEG has been reviewing test burn data received from prospective customers and these conclusions mirror all the analysis completed in 2021. This provides a favourable backdrop towards commercial discussions.

CoalSwitch(R) meets established sustainability criteria

Post year end, in April 2022, AEG obtained Chain of Custody ("CoC") and Controlled Wood certification compliant with the Forest Stewardship Council(R) ("FSC(R)") standards for its CoalSwitch(R) fuel produced in Maine. The application process commenced in Q4 2021 to attain market standard accreditation for both CoalSwitch(R) and AEG. The certification process included an audit by an independent accredited certification body, which examined the full CoalSwitch(R) production process, encompassing the entire supply chain from feedstock source to final production of fuel. AEG's certification to these FSC(R) standards confirms that the production of CoalSwitch(R) will use forest-based materials from responsible sources and that the Company's suppliers have committed to the strictest standards currently governing forest management.

The FSC(R) certification is the basic market prerequisite to permit any biomass products to be sold into many of AEG's target markets, notably Japan. Certification for AEG from FSC(R) represents another significant milestone as the Company seeks to establish CoalSwitch(R) as a 'true alternative fuel' and engages with a wider range of prospective customers who also share our commitment toward sustainability.

Sales and marketing activities for CoalSwitch(R) fuel

Signing trial orders and long term off-take agreements with prospective customers both from the power generation sector and heavy industry is the priority for AEG. Since first production was completed in Q3 2021, the Group has focussed its sales activities both in North America and worldwide. Personnel have been retained both in the USA and Japan to develop sales and marketing opportunities in each region.

Within the USA, the prime focus has been to examine opportunities with existing power utilities and other coal-consuming industries such as cement and aggregate industries. Their interest is focussed on co-firing opportunities needing to address the immediate environmental concerns over the current consumption of coal or alternate biomass products. The team are currently working with various prospective customers who wish to receive trial volumes at specified locations in the USA. Based upon this success, these customers will look to conclude long term supply contracts and AEG is already receiving additional enquiries as to planned additional production facilities in the USA. Whilst the current discussions are positive, AEG anticipates that many of these off-take agreements will not be signed until later this year or early next year.

The sales opportunity in Japan is on a greater scale. Japan has publicly stated its goals for future biomass consumption, with a need to examine various types of fuels. Black pellet, particularly CoalSwitch(R), has been identified as a potential fuel. AEG's marketing efforts in Japan are focussed on specific future biomass plant projects and working with engineering, procurement and construction ("EPC") partners to supply fuel on long term contracts. First samples of CoalSwitch(R) fuel were delivered to prospective customers and EPC partners in H2 2021 and in 2022 where testing produced suitably favourable results compared with white pellet. Once again, AEG is working towards securing long term supply contracts with fuel deliveries commencing no earlier than 2024 and contractual negotiations have already commenced to work within these infrastructure project deadlines.

Financial results for 2021

Following the ceasing of activities, the sawmill and sawlog businesses have been accounted for as discontinued operations.

Losses for the year ended 31 December 2021 amounted to US$5.9 million (2020: US$8.8 million). The current year losses included an impairment of US$2.0 million relating to the damaged reactors following the component failure at Ashland. The basic and diluted loss per share for total operations was 0.16 cents (2020: 0.65 cents).

The balances restructuring in February 2021, during which the full CLN obligation was redeemed or converted into equity, and GBP7.0 million (gross) of equity was raised, resulted in a net cash position at 31 December 2021 of US$2,087,402 (2020: net debt of US$21,467,000). This allowed the Group to progress with the construction of the CoalSwitch(R) reference plants. In addition, the restructuring resulted in the release of the corporate debenture which was held as security for the CLN's. The Group was fully unencumbered at 31 December 2021. Further analysis of the results for the period are set out in the financial review below.

Operational update

During 2021, AEG's operational activities were focussed in two centres on the US East Coast, namely Ashland, Maine and Lumberton, North Carolina. AEG remains focussed on developing manufacturing capacity in the USA, which is at the heart of the current global biomass manufacturing industry. The locations were chosen to allow association with the relevant wood baskets of New England and the Appalachia and to allow AEG to make the greatest impact toward the industry changes required of the biomass industry.

Operations at Ashland, Maine

During construction of the Lumberton reference plant, AEG and Player Design Inc. ("PDI") received additional commercial enquiries about the possibility of combining CoalSwitch(R) production facilities within existing lumber mill operations in north-eastern USA. In April 2021, AEG and PDI worked with the State of Maine to obtain a temporary operating permit to allow a second CoalSwitch(R) reference plant to be constructed at PDI's existing facility at Ashland.

In April 2021, a joint venture arrangement was established to combine AEG's existing CoalSwitch(R) manufacturing equipment with PDI's existing operating infrastructure at the site to construct a reference plant at the Ashland Facility. The Board decided to proceed with this second development before the permitting issues arose in Lumberton during May 2021.

With the subsequent events at Lumberton (which are described below), resources within AEG and PDI were refocussed toward completion of construction of the reference plant and for it to become operational within the existing timetables agreed under the STEP Program. As a result, the reference plant at the Ashland Facility was completed and operational within 14 weeks from the date of issuance of the relevant temporary operating permit. First CoalSwitch(R) fuel production commenced in May 2021 and first deliveries of CoalSwitch(R) to the STEP Program were made in June 2021.

The Ashland Facility reference plant continued to produce volumes of CoalSwitch(R) and operate to capacity until 5 August 2021 when a monitoring component failure resulted in a suspension of production. The Board, together with PDI, completed a detailed analysis of the manufacturing failure during Q3 2021 and were able to conclude that, save for the component failure, the steam treatment technology within the reactors had performed as planned and that the process could be expanded towards an industrial scale production system. The component failure rendered both reactors inoperable but all other production equipment at Ashland remained fully operable and capable of recommencing CoalSwitch(R) production operations.

The reference plant at Ashland had validated the steam treatment technology to produce next generation biomass fuels on an industrial scale and identified the requirements to build larger scale facilities. Further, AEG has acquired valuable manufacturing and product data necessary for the future development of production facilities both in North America and elsewhere.

Since the beginning of 2022, both PDI and AEG have been working on the engineering and permit activities to complete construction of a CoalSwitch(R) production facility at Ashland. PDI is in a regular dialogue with the State of Maine to address all relevant permit issues, including all permits required for land use, water disposal and emissions. This process is ongoing and will continue until the CoalSwitch(R) production facility is fully operational.

As this work has progressed, PDI and AEG have also been developing and redesigning new larger scale CoalSwitch(R) production reactors and a larger industrial scale manufacturing process. The intention is to build out an industrial scale facility which should accommodate expansion of production capacity with minimal disruption to production in the medium term. The new production facility will also reuse equipment formerly at Lumberton, in order to accelerate the current construction process. The current environment for sourcing equipment is challenging in the USA and PDI are working to resolve these issues to deliver an operational facility as soon as possible.

Operations at Lumberton, North Carolina

The property in Lumberton was purchased in 2019 to become the initial production hub for CoalSwitch(R) and a variety of associated lumber activities, including the production of rail ties and other lumber products. These activities were believed to be complementary given AEG's primary aim was to demonstrate that biomass fuel production could achieve sustainability goals for the existing activities of the lumber operations. This operating model attracted interest from prospective lumber partners throughout the USA and Canada during 2021 and continues to attract the attention of the lumber industry.

In respect of the lumber activities during the year, there were a number of operational issues for Active Energy Renewable Power LLP ("AERP"), the Company's operating subsidiary at Lumberton. These issues included adverse weather conditions during Q1 2021 which disrupted log supplies to the Lumberton Site, ongoing supply chain and logistics disruption globally for product distribution and continuing operational limitations occurring in North Carolina and the US as a result of COVID-19 through 2021 (including preventing the Company's management being able to visit the site on a regular basis).

During Q1 2021, the Board undertook a review of the lumber and saw log activities at the Lumberton Site and determined that they neither aligned with the Group's strategic intent of utilising residual materials in the production of biomass fuels, nor could the investment required to achieve scale for these businesses be justified at the expense of developing CoalSwitch(R). As a result, in the first half of the year the Board took the decision to cease the Company's lumber and saw log activities in AERP at Lumberton.

Since Q4 2020, AEG's focus at Lumberton was the production of CoalSwitch(R) after relevant permits had been issued by the North Carolina Department of Environmental Quality ("NCDEQ") in August 2020. Preparatory engineering work was completed late in 2020 and AEG hired the engineering services of PDI. Following completion of the fund raising and balance sheet reconstruction in February 2021, engineering and construction activities accelerated in early February 2021, with regular monitoring carried out by the NCDEQ.

In May 2021, AEG received a "notice of violation" from NCDEQ in respect of the installation of additional control devices to enhance emissions reduction which required an amendment to the existing air quality permits issued by NCDEQ in 2020. AEG and its representatives immediately submitted the relevant amendments to ensure construction might remain on schedule. No commercial activity has taken place at the Lumberton Site since the issuance of this notice. However, the NCDEQ then requested additional information on emissions including data from an operational facility in order to revise and re-issue the permits. During this period, AEG was required to suspend all construction activities of the first reference plant at the Site. NCDEQ made it clear that AEG could not resume the permit approval process without independent emissions analysis being submitted. This resulted in AEG having to refocus its efforts toward Ashland to ensure that such data might be presented to the NCDEQ. As a result of the events at Ashland during Q3 2021, independently analysed emissions data was not acquired and accordingly no further effort has been made to amend the original permit.

In addition to these operational issues at Lumberton, AEG received a series of legal challenges from the Southern Environmental Law Center ("SELC") based in North Carolina during 2021 regarding alleged operational permit breaches from an existing wastewater treatment plant located within the facility. The alleged action correlates to the period when the Group first assumed ownership of the property. Throughout the time of ownership of Lumberton, the Company has complied with all federal and state environmental regulations imposed at the facility and ensured that all reporting obligations and records have been correctly maintained. Accordingly, the Directors are confident that the Group has fully complied with its environmental and permit obligations and wholly refutes SELC's claims. Based on the legal advice that it has received the Company strongly believes that there is no merit in any of the SELC's claims and allegations and will continue to vigorously defend its position.

In late 2021, the Board reviewed the options for Lumberton. Our operational experience at Ashland had demonstrated the exact site requirements any future CoalSwitch(R) facility may require and it was agreed that other options should be considered given the existing circumstances. As part of the options, Lumberton was placed on the market during Q4 2021, either to sell or for lease to third parties. On 31 March 2022, AEG announced that it had entered into a sale and purchase agreement with Phoenix LLC for the sale of the Lumberton Site for gross cash proceeds of US$4.65 million. The sale is subject to a 75-day due diligence and closing period, with closing of the transaction and receipt of sale proceeds expected in June 2022. At present, the sale and due diligence process continue as expected.

As part of this process, all production equipment acquired in 2020 and 2021 for future CoalSwitch(R) manufacture will be transferred to the Ashland facility for use in the new scaled manufacturing plant including the former proprietary CoalSwitch(R) reactors which may continue to be used for further product development activities.

Intellectual property and registered trademarks

During 2021, AEG continued to develop its intellectual property portfolio and production know-how regarding CoalSwitch(R) and its manufacture. The award of the patent in the USA in December 2020 (Patent No: 10,858,607) has accelerated additional patent applications in the USA. Complimentary patent applications surrounding the beneficiation process have been submitted in the USA to further protect the manufacture process during 2021.

On 4 June 2021, AEG was notified by the Canadian Intellectual Property Office of the grant of notice of allowance confirming the award of the Canadian patent. On 1 November 2021, AEG announced the formal award of the Canadian patent (Canadian Patent No. 2,999,447). These patents follow in substance the patents already issued in the USA. The Company continues to file further patent applications around the world with complementary patent applications currently in progress in South-East Asia and the EU.

Production data and the future manufacturing plans for larger scale reactors necessitate the development of additional activities for CoalSwitch(R) intellectual property program within North America and internationally.

Post year end, in April 2022, AEG was awarded the registered trademark of CoalSwitch(R) for use on all future black pellet production created by AEG or its authorised licencees in the USA. This approval process has taken over 18 months to complete. Additional trademark applications have commenced for registration of the trademark in international markets.

Technology licensing

Finally, throughout the year, AEG has continued to focus on opportunities for production joint ventures and partners for production licensing, using AEG's proprietary intellectual property and manufacturing know how. Ongoing conversations continue with prospective partners in South-East Asia and South Africa. Completion and operation of the first manufacturing plant in Ashland will demonstrate the opportunities that CoalSwitch(R) and its production technologies represent

Going concern

The Directors have given careful consideration to the appropriateness of the going concern basis in the preparation of the Annual Report and Account for the year ended 31 December 2021. Further details of our current financial position and material uncertainties which may affect the Company's ability to continue operating as a going concern are to be found in the Financial Review and in Note 1 of the Financial Statements.

At the time of completion of the equity fundraise in December, shareholders were advised that the funding required to complete the production facility in Ashland was more than the proceeds raised. The net proceeds from the sale of the Lumberton Site, will allow the Company to further the development of the Ashland Facility, but additional sources of funding will be required for its completion.

Whilst there can be no guarantee that funding will be available on terms that will be acceptable to the Company, or at all, the directors are confident that the funding required for the Group to continue as a going concern will be secured within a period of 12 months from the date of approval of the financial statements and have therefore prepared the financial statements on a going concern basis.

Outlook

In the current economic and geopolitical environment, the role of biomass has increased in importance as an alternative renewable fuel in recent months. The sharp spikes in the pricing for biomass fuel in recent weeks may prove to be short term, but the tragic events in Ukraine have highlighted energy security concerns across Europe, US and Asia. Biomass, sourced from North America, has clear advantages in terms of energy security and this fact is proving an important consideration for our potential customers.

To add to this, the questions surrounding sustainability, particularly amongst industrial companies, continue to gather momentum. The consumption of coal continues but the legislative pressure increases to seek immediate solutions towards reduction in coal usage and corresponding reduction in emissions. With this backdrop, accelerating level of enquiries from prospective customers worldwide continue to seek volumes of CoalSwitch(R) fuel as soon as possible. In spite of the current disruption, global conditions have never been better for a next generation biomass fuel with the capacity to be co-fired in coal operations without the need for additional capital expenditure.

The priority for AEG is to begin commercial production of CoalSwitch(R) at the earliest opportunity. Technical design for the new production facility has been completed, encapsulating the current requests from the State of Maine and AEG is currently negotiating equipment and plant delivery schedules. By re-deploying the equipment formerly at Lumberton and reinvesting the proceeds from the sale of the Lumberton site, AEG is examining all optimum ways to accelerate toward that first date of commercial production.

The medium-term strategic focus will subsequently evolve to locating and developing additional production sites in the US and Canada to meet future customer offtake commitments. Current discussions with prospective customers are proving invaluable in planning this strategy.

We look forward to delivering CoalSwitch(R) to customers in North America and worldwide.

Michael Rowan

Chief Executive Officer

FINANCE REVIEW

FOR THE YEARED 31 DECEMBER 2021

The Consolidated Financial Statements for the year ended 31 December 2021 ("current year") is compared to the year ended 31 December 2020 ("prior year").

Positioning to move forward - a restructured balance sheet

In January 2021, Advanced Biomass Solutions Plc ("ABS"), a subsidiary of the Company, agreed a debt facility up to GBP1 million and drew down GBP550,000. The loan allowed the Company to manage its working capital requirements in advance of the February fundraising. The debt was repayable within twelve months with monthly capital repayments following a four-month repayment holiday. Initiation fees of 7% were payable, and interest was charged at 10% per annum payable quarterly in arrears. The Company provided a corporate guarantee as security. ABS had fully repaid the obligation at 31 December 2021, and the securities had been released. Following that, in February 2021, the CLN holders agreed to either convert their CLN's or have them redeemed and agreed to a release of the corporate debenture previously held over the Group's assets by the CLN holders.

These actions restructured the Group's balance sheet, positioning it to advance CoalSwitch(R) production. The group reports a net cash position at 31 December 2021 of US$1.8 million (2020: net debt position of US$21.5 million). In addition to this improvement, the Group's balance sheet was unencumbered at year end, as opposed to the stringent securities in place in the prior year. As the Group looks forward to developing CoalSwitch(R), after completion of the first production facility in Ashland, it will have the option to debt finance future developments.

Fundraising activities through 2021

At the same time as the CLN conversion, the Company raised GBP7.0 million (gross) in an equity fundraising. The proceeds received by the Company, after certain CLN redemptions, were used to progress the construction of the reference plants at Lumberton and Ashland.

In December 2021, the Company raised a further GBP3.0 million (gross) in an equity fundraising. The proceeds of this fundraise have been used to:

   --        Complete engineering and design work required for the Ashland Facility; 

-- Complete the application for the necessary operational and construction permits for the Ashland Facility;

-- Order additional engineering equipment with long lead-times required for the construction of the Ashland Facility; and

   --        To accommodate the Company's general working capital requirements. 

The December fundraise included a subscription of US$1.0 million by Tyler Player, owner of PDI, the Company's technology partner for construction and design of CoalSwitch(R) plants. The Group is very pleased to have Tyler Player as a significant shareholder of the Company, and PDI as its technology partner as it readies itself for CoalSwitch(R) commercialisation and production expansion. As at 31 December 2021, Tyler Player held 6.64% of the Company's ordinary share capital.

We thank the new shareholders who participated in the two fundraisings for their confidence in the Group, and our existing shareholders for their ongoing support.

Going concern

The Financial Statements have been prepared on a going concern basis. Note 1 of the Financial Statements lays out the material uncertainties relating to the Company's ability to continue as a going concern.

At the time of the December fundraise, shareholders were advised that the funding required to complete the production facility in Ashland was considerably more than the amount raised.

The nature of the Company's strategy, which is focussed on delivery of the first CoalSwitch(R) production facility in Ashland, means that the precise timing of milestones and funds generated during the early years of development projects are difficult to predict. The Directors have prepared financial forecasts to estimate the likely cash requirements of the Group over the next twelve months from the date of approval of the financial statements. The forecasts show that the Group requires the near-term disposal of the Lumberton facility to be successful as well as additional external funding within the 12-month forecast period to be able to continue as a going concern. At the date of approval of the financial statements the buyer is in the due diligence phase prior to completion and no additional funding is as yet committed.

Whilst there can be no guarantee that funding will be available on terms that will be acceptable to the Company, or at all, the directors are confident that the funding required for the Group to continue as a going concern will be secured within a period of 12 months from the date of approval of the financial statements and have therefore prepared the financial statements on a going concern basis. The Directors are considering a number of options for securing the additional funding including via the sale of assets, the raising of debt or equity or a combination of both. The directors have also identified alternative options which could be pursued to provide additional working capital to enable the Group to meet its liabilities as they fall due over the next 12-month period.

The financial statements do not include any adjustments that would arise if the Group were unable to continue as a going concern.

CoalSwitch(R) development

Having suspended construction activities for a CoalSwitch(R) reference plant in Lumberton, on 20 May 2021, the Company announced its 50/50 joint venture arrangement with PDI. Under this joint venture, AEG and PDI jointly owned a CoalSwitch(R) plant in Ashland, Maine. This reference plant construction was completed and production commenced in May 2021 under a temporary production permit obtained by PDI and AEG.

On 5 August 2021, a monitoring component failure resulted in an unexpected interruption in production cycles. As a result of this failure, both reactors at the Ashland Facility were rendered inoperable, resulting in an impairment charge of US$2.0 million (see Note 4). All other equipment remains operable and will be incorporated in the Ashland CoalSwitch(R) production facility along with other plant and equipment currently located in Lumberton.

Subsequent events

The Company announced the sale of the Lumberton site in March 2022 for gross cash proceeds of US$4.65 million. The sale is subject to a 75-day due diligence and closing period, with the closing of the transaction and receipt of sale proceeds expected in June 2022.

During 2021, the Southern Environmental Law Center has commenced a legal action against the Group for alleged permit breaches in operational activities at the Lumberton Site. Upon receipt of legal advice, the Directors are confident that the Group has fully complied with its environmental and permit obligations since ownership of the Site and strongly believes that there is no merit in any of the SELC's claims and allegations and will continue to vigorously defend its position.

Performance

In the first half of 2021, the Board reassessed AEG's strategy and determined that the saw log export business, which involved loading saw logs into containers to be shipped to South-East Asia, did not align with AEG's environmental strategy to focus on the use of residual and waste forestry products from the lumber industry. In addition, the Company was not able to operate the saw log export business at a scale to produce profitable returns. Furthermore, the equipment operated by the sawmill business restricted production expansion, and the business struggled to operate profitably. The level of capital investment required to scale up and operate both businesses profitably, to the detriment of CoalSwitch(R) development, was deemed unacceptable and the Board decided it was in the best interests of the Company to cease the operations of these businesses. In accordance with IFRS 5, the results for these businesses have been accounted for as discontinued operations.

Continuing operations

Gross loss in the current year of US$517,238 (2020: US$nil) reflects the non-capitalised expenses of the Ashland reference plant during the period of production.

Impairment charges of US$2,000,000 (2020: US$4,758,707) account for the two reactors which were damaged following the component failure at Ashland.

Administrative costs were US$3,191,554 (2020: US$1,644,480). The increase reflects the non-cash share-based payment charge of US$639,746 (2020: US$56,382) arising from LTIP and warrant awards. Certain administrative costs previously transferred to operating entities and reflected in cost of goods sold are now fully reflected within administrative costs.

Other income of US$361,237 (2020: US$96,405) reflects the forgiveness of CLN indebtedness.

Finance costs reflects the impact of the CLN conversion and redemption, as well as the foreign exchange impacts on funds raised during the year.

Discontinuing operations

The termination of the saw log and sawmill businesses is disclosed in the loss from discontinued operations of US$919,211 (2020: US$1,923,593). The losses reflect the difficult trading conditions and the impact of operating below optimal scale operations. Costs associated with the closure of the saw log and sawmill businesses have been fully accounted for. The Group does not currently have any revenue generating operations.

Loss for the year was US$5,881,768 (2020: US$8,757,919), and total basic and diluted loss per share was 0.16 cents (2020: 0.65 cents).

Financial position

Non-current assets

As part of the December fundraising, AEG acquired the remaining 50% of the joint venture from PDI. Know-how of US$400,000, acquired during the CoalSwitch(R) production period, was recognised. Going forward with the construction of the CoalSwitch(R) facility in Ashland, AEG will own 100% of the assets and operations of the facility.

Additions to plant and production equipment of US$3,957,944 (2020: US$1,323,499) relate to the development of the Lumberton and Ashland CoalSwitch(R) plants. The termination of leases following the cessation of the sawmill business resulted in a deemed disposal of US$253,788 of plant and equipment.

Current assets

Trade and other receivables of US$1,628,959 (2020: US$270,755) consist mainly of US$1,190,315 of project advances to PDI for the development of the Ashland Facility.

Current liabilities

Trade and other payables were US$1,222,030 (2020: US$2,241,657). An accrual of approximately US$700,000 for Lumberton and Ashland construction costs was included in 2020 with the remaining reduction owing largely to the cessation of timber trading activities and stringent cost management.

Non-current liabilities

Loans and borrowings of US$143,931 (2020: US$22,105,551) reflects the impact of the removal of the CLN obligation. The removal of all securities accompanied the CLN removal.

Cashflow

Operating cash outflows were US$5,618,404 (2020: US$1,302,560). The increased outflow of US$4,315,844 comprises US$2,236,562 relating to operating performance, and US$2,079,282 attributable to working capital reduction.

Investing outflows of US$4,375,624 (2020: US$1,400,932) relate to the purchase of relevant equipment related to the CoalSwitch(R) facilities in Lumberton and Ashland.

Financing activities included US$12,722,200 of net equity raised in the fundraisings in February 2021 and December 2021, less US$1,571,222 of CLNs redeemed as part of the balance sheet restructuring process.

US$1,940,871 of cash and cash equivalents was on hand at year end (2020: US$999,631).

Section 172 Statement

The Directors are well aware of their duty under Section 172 of the Companies Act 2006 to act in the way which they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole and, in doing so, to have regard (amongst other matters) to:

   --        The likely consequences of any decision in the long term; 
   --        The interests of the Company's employees; 

-- The need to foster the Company's business relationships with suppliers, customers and others;

   --        The impact of the Company's operations on the community and the environment; 

-- The desirability of the company maintaining a reputation for high standards of business conduct; and

   --        The need to act fairly between members of the Company. 

The Board recognises that the long-term success of Active Energy Group requires positive interaction with its stakeholders, including customers, suppliers, governmental and regulatory authorities. The Directors seek to actively identify and positively engage with key stakeholders in an open and constructive manner. The Board believes that this strategy enables our stakeholders to better understand the activities, needs and challenges of the business and enables the Board to better understand and address relevant stakeholder views which will assist the Board in its decision making and to discharge its duties under Section 172 of the Companies Act 2006.

Andrew Diamond

Finance Director

CONSOLIDATED STATEMENT OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE YEARED 31 DECEMBER 2021

 
                                                         2021          2020 
                                                          US$           US$ 
 CONTINUING OPERATIONS 
 REVENUE                                                    -             - 
                                                 ------------  ------------ 
 
 GROSS LOSS                                         (517,238)             - 
 Impairment charges                               (2,000,000)   (4,191,039) 
 Administrative expenses                          (3,191,554)   (1,644,480) 
 Other income                                         361,237        96,405 
                                                 ------------  ------------ 
 
 OPERATING LOSS                                   (5,347,555)   (5,739,114) 
 
 Net finance costs                                    382,208   (1,309,388) 
 
 
 LOSS BEFORE TAXATION                             (4,965,347)   (7,048,502) 
 
 Taxation                                               2,790       214,176 
 
 
 LOSS FROM CONTINUING OPERATIONS                  (4,962,557)   (6,834,326) 
 
 LOSS FROM DISCONTINUED OPERATIONS                  (919,211)   (1,923,593) 
 
 
 LOSS FOR THE YEAR - ATTRIBUTABLE 
  TO THE PARENT COMPANY                           (5,881,768)   (8,757,919) 
                                                 ============  ============ 
 
 Basic and Diluted loss per share 
  (US cent) - Continuing operations                    (0.13)        (0.51) 
 Basic and Diluted loss per share 
  (US cent) - Discontinued operations                  (0.03)        (0.14) 
 Basic and Diluted loss per share 
  (US cent) - Total operations                         (0.16)        (0.65) 
 
 OTHER COMPREHENSIVE LOSS 
 Items that may be subsequently reclassified 
  to profit or loss 
 Exchange differences on translation 
  of operations                                   (2,239,354)     (117,701) 
 Revaluation of other financial 
  assets                                                    -     (539,327) 
                                                 ------------  ------------ 
 
 Total other comprehensive loss                   (2,239,354)     (657,028) 
                                                 ------------  ------------ 
 
 TOTAL COMPREHENSIVE LOSS FOR 
  THE YEAR                                        (8,121,122)   (9,414,947) 
                                                 ============  ============ 
 
 

CONSOLIDATED AND COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2021

 
                                        Group          Group        Company        Company 
                                         2021           2020           2021           2020 
                                          US$            US$            US$            US$ 
 NON-CURRENT ASSETS 
 Intangible assets                  5,659,024      5,259,024              -              - 
 Property, plant & equipment       11,512,953     10,443,641          2,573            900 
 Investment in subsidiaries                 -              -      6,417,741      1,495,943 
 Long term loans                            -              -     25,296,460     23,204,528 
 Other financial assets               922,275        931,312        922,275        931,312 
                                                              ------------- 
                                   18,094,252     16,633,977     32,639,049     25,632,683 
                                -------------  -------------  -------------  ------------- 
 CURRENT ASSETS 
 Inventory                             27,250        237,506              -              - 
 Trade and other receivables        1,628,959        270,755        432,041              - 
 Cash and cash equivalents          1,940,871        999,631      1,915,571        811,901 
                                -------------  ------------- 
                                    3,597,080      1,507,892      2,347,612        811,901 
 TOTAL ASSETS                      21,691,332     18,141,869     34,986,661     26,444,584 
                                =============  =============  =============  ============= 
 CURRENT LIABILITIES 
 Trade and other payables           1,222,030      2,241,657        602,062      1,183,827 
 Lease liabilities                          -        136,891              -              - 
 Loans and borrowings                  14,013         21,772         13,015         21,772 
                                    1,236,043      2,400,320        615,077      1,205,599 
                                -------------  -------------  -------------  ------------- 
 NON-CURRENT LIABILITIES 
 Deferred taxation                    147,349        150,139              -              - 
 Lease liabilities                          -        202,417              -              - 
 Loans and borrowings                 143,931     22,105,551         47,029     21,961,104 
                                -------------  -------------  -------------  ------------- 
                                      291,280     22,458,107         47,029     21,961,104 
                                -------------  -------------  -------------  ------------- 
 TOTAL LIABILITIES                  1,527,323     24,858,427        662,106     23,166,703 
                                -------------  -------------  -------------  ------------- 
 NET ASSETS/(LIABILITIES)          20,164,009    (6,716,558)     34,324,555      3,277,881 
                                =============  =============  =============  ============= 
 EQUITY 
 Share capital - Ordinary 
  shares                              786,867        219,436        786,867        219,436 
 Share capital - Deferred 
  shares                           18,148,898     18,148,898     18,148,898     18,148,898 
 Share premium                     55,349,883     18,711,637     55,349,883     18,711,637 
 Merger reserve                     2,350,175      2,350,175      2,350,175      2,350,175 
 Foreign exchange reserve         (2,424,329)      (184,975)    (2,004,424)      (124,920) 
 Own shares held reserve            (268,442)      (268,442)      (268,442)      (268,442) 
 Convertible debt/warrant 
  reserve                           1,165,911      3,701,803      1,165,911      3,701,803 
 Retained earnings               (55,449,600)   (49,899,736)   (41,204,313)   (39,460,706) 
 Revaluation reserve                  504,646        504,646              -              - 
                                -------------  -------------  -------------  ------------- 
 TOTAL EQUITY                      20,164,009    (6,716,558)     34,324,555      3,277,881 
                                =============  =============  =============  ============= 
 

GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEARED 31 DECEMBER 2021

 
 
                                                                            Own   Convertible 
                                                            Foreign      shares      debt and 
                       Share        Share      Merger      exchange        held       warrant       Retained   Revaluation         Total 
                     capital      premium     reserve       reserve     reserve       reserve       earnings       Reserve        equity 
                         US$          US$         US$           US$         US$           US$            US$           US$           US$ 
 At 31 December 
  2019            17,265,379   17,303,159   2,350,175      (67,274)   (268,442)     3,490,621   (40,206,405)       504,646       371,859 
 Loss for the 
  year                     -            -           -             -           -             -    (8,757,919)             -   (8,757,919) 
 Other 
  comprehensive 
  income                   -            -           -     (117,701)           -             -      (539,327)             -     (657,028) 
                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------  ------------ 
 Total 
  comprehensive 
  income                   -            -           -     (117,701)           -             -    (9,297,246)             -   (9,414,947) 
                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------  ------------ 
 Issue of share 
  capital            835,801    1,381,401           -             -           -             -      (452,467)             -     1,764,735 
 Conversion of 
  CLN                267,154       27,077           -             -           -             -              -             -       294,231 
 Embedded 
  derivative on 
  CLN issue                -            -           -             -           -       211,182              -             -       211,182 
 Share based 
  payments                 -            -           -             -           -             -         56,382             -        56,382 
                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------  ------------ 
 At 31 December 
  2020            18,368,334   18,711,637   2,350,175     (184,975)   (268,442)     3,701,803   (49,899,736)       504,646   (6,716,558) 
                 ===========  ===========  ==========  ============  ==========  ============  =============  ============  ============ 
 Loss for the 
  year                     -            -           -             -           -             -    (5,881,768)             -   (5,881,768) 
 Other 
  comprehensive 
  income                   -            -           -   (2,239,354)           -             -              -             -   (2,239,354) 
                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------  ------------ 
 Total 
  comprehensive 
  income                   -            -           -   (2,239,354)           -             -    (5,881,768)             -   (8,121,122) 

                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------  ------------ 
 Issue of share 
  capital            334,391   13,087,809           -             -           -             -              -             -    13,422,200 
 Conversion of 
  CLN                233,040   23,550,437           -             -           -   (2,843,734)              -             -    20,939,743 
 Share based 
  payments                 -            -           -             -           -       307,842        331,904             -       639,746 
 At 31 December 
  2021            18,935,765   55,349,883   2,350,175   (2,424,329)   (268,442)     1,165,911   (55,449,600)       504,646    20,164,009 
                 ===========  ===========  ==========  ============  ==========  ============  =============  ============  ============ 
 

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEARED 31 DECEMBER 2021

 
 
                                                                            Own   Convertible 
                                                            Foreign      shares      debt and 
                       Share        Share      Merger      exchange        held       warrant       Retained         Total 
                     capital      premium     reserve       reserve     reserve       reserve       earnings        equity 
                         US$          US$         US$           US$         US$           US$            US$           US$ 
 At 31 December 
  2019            17,265,379   17,303,159   2,350,175     (468,793)   (268,442)     3,490,621   (31,791,515)     7,880,584 
 Loss for the 
  year                     -            -           -             -           -             -    (6,733,779)   (6,733,779) 
 Other 
  comprehensive 
  income                   -            -           -       343,873           -             -      (539,327)     (195,454) 
                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------ 
 Total 
  comprehensive 
  income                   -            -           -       343,873           -             -    (7,273,106)   (6,929,233) 
                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------ 
 Issue of share 
  capital            835,801    1,381,401           -             -           -             -      (452,467)     1,764,735 
 Conversion of 
  CLN                267,154       27,077           -             -           -             -              -       294,231 
 Embedded 
  derivative on 
  CLN 
  issue                    -            -           -             -           -       211,182              -       211,182 
 Share based 
  payments                 -            -           -             -           -             -         56,382        56,382 
                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------ 
 At 31 December 
  2020            18,368,334   18,711,637   2,350,175     (124,920)   (268,442)     3,701,803   (39,460,706)     3,277,881 
                 ===========  ===========  ==========  ============  ==========  ============  =============  ============ 
 Loss for the 
  year                     -            -           -             -           -             -    (2,075,511)   (2,075,511) 
 Other 
  comprehensive 
  income                   -            -           -   (1,879,504)           -             -              -   (1,879,504) 
                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------ 
 Total 
  comprehensive 
  income                   -            -           -   (1,879,504)           -             -    (2,075,511)   (3,955,015) 
                 -----------  -----------  ----------  ------------  ----------  ------------  -------------  ------------ 
 Issue of share 
  capital            334,391   13,087,809           -             -           -             -              -    13,422,200 
 Conversion of 
  CLN                233,040   23,550,437           -             -           -   (2,843,734)              -    20,939,743 
 Share based 
  payments                 -            -           -             -           -       307,842        331,904       639,746 
 At 31 December 
  2021            18,935,765   55,349,883   2,350,175   (2,004,424)   (268,442)     1,165,911   (41,204,313)    34,324,555 
                 ===========  ===========  ==========  ============  ==========  ============  =============  ============ 
 

CONSOLIDATED AND COMPANY STATEMENT OF CASH FLOWS

FOR THE YEARED 31 DECEMBER 2021

 
                                     Group         Group       Company       Company 
                                      2021          2020          2021          2020 
                                       US$           US$           US$           US$ 
 Cash (outflow)/inflow 
  from operations              (5,618,404)   (1,302,560)   (3,416,684)   (1,761,243) 
 Income tax paid                         -             -             -             - 
                              ------------  ------------  ------------  ------------ 
 Net cash (outflow)/inflow 
  from operating activities    (5,618,404)   (1,302,560)   (3,416,684)   (1,761,243) 
 Cash flows from investing 
  activities 
 Purchase of intangible                  -     (661,939)             -             - 
  assets 
 Advances to acquire             (800,000)             -             -             - 
  property, plant and 
  equipment 
 Purchase of property, 
  plant and equipment          (3,957,944)     (738,993)       (2,979)       (1,222) 
 Sale of property,                 382,320             -             -             - 
  plant and equipment 
                              ------------  ------------  ------------  ------------ 
 Net cash outflow 
  from investing activities    (4,375,624)   (1,400,932)       (2,979)       (1,222) 
 Cash flows from financing 
  activities 
 Issue of equity share 
  capital, net of share 
  issue costs                   12,722,200     1,754,489    12,722,200     1,754,489 
 Issue of CLN                            -     1,467,778             -     1,467,778 
 Redemption of CLN             (1,571,222)                 (1,571,222) 
 Intercompany loans 
  advanced                               -             -   (6,617,719)   (1,076,176) 
 Unsecured debt repaid         (1,040,400)             -       (8,547)             - 
 Unsecured debt proceeds           885,234       212,600             -        68,153 
 Principal elements 
  of lease payments               (57,900)      (95,758)             -             - 
 Finance expenses                               (37,842)             -             - 
                              ------------  ------------  ------------  ------------ 
 Net cash inflow from 
  financing activities          10,937,912     3,301,267     4,524,712     2,214,244 
                              ------------  ------------  ------------  ------------ 
 Net increase in cash 
  and cash equivalents             943,884       597,775     1,105,049       451,779 
 Cash and cash equivalents 
  at beginning of the 
  year                             999,631       397,323       811,901       360,622 
 Exchange losses on 
  cash and cash equivalents        (2,644)         4,533       (1,379)         (500) 
                              ------------  ------------  ------------  ------------ 
 Cash and cash equivalents 
  at end of the year             1,940,871       999,631     1,915,571       811,901 
                              ============  ============  ============  ============ 
 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARED 31 DECEMBER 2021

   1.    PUBLICATION OF NON-STATUTORY ACCOUNTS 

The financial information, for the year ended 31 December 2021, set out in this announcement does not constitute statutory accounts. This information has been extracted from the Group's 31 December 2021 statutory financial statements upon which the auditors' opinion is unqualified. However, the auditors' report highlights material uncertainty relating to going concern and includes the following additional key audit matters:

   --    Carrying value of intangible assets; 
   --    Carrying value of property, plant and equipment; and 
   --    Carrying value of investments and intercompany loans (Company only). 
   2.    BASIS OF PREPARATION 

The financial information, for the year ended 31 December 2021, set out in this announcement, has been:

-- presented in accordance with International Financial Reporting Standards ("IFRSs"), however this preliminary announcement does not contain sufficient information to comply with IFRSs. The IFRS compliant Consolidated Financial Statements is published in the Annual Report and Accounts for the year ended 31 December 2021, available on the Company's website;

-- prepared on the going concern basis, however the Directors have highlighted a number of material uncertainties which may affect the Company's ability to continue operating as a going concern; and

-- prepared on the basis of the accounting policies as stated in the Report and Accounts for the year ended 31 December 2020, with the exception of those changes required in the application of new and revised IFRSs, none of which has a material impact on the Group.

   3.    GOING CONCERN 

The Directors are required to give careful consideration to the appropriateness of the going concern basis in the preparation of the Financial Statements.

In February 2021, the Company restructured its balance sheet by securing the conversion and redemption of the entire convertible loan note obligation ("CLN"). Furthermore, the securities in place for the CLN holders were revoked. The Group had loans of US$0.2 million at 31 December 2021, consisting of government support loans on favourable terms, with a low annual repayment burden. The balance sheet is entirely unencumbered.

At the same time as the balance sheet restructuring, the Company recapitalised the business by raising equity of GBP7.0 million (gross) and in December 2021 it raised a further GBP3.0 million (gross). The earlier fundraise proceeds were used for the construction of the Lumberton and Ashland CoalSwitch(R) reference plants, certain CLN redemptions and improvement of the working capital position. The December proceeds were used principally to enhance the CoalSwitch(R) reactor design and engineering and initiation of the permitting process in Ashland for the construction of a production facility.

At the time of the December fundraise, shareholders were advised that the funding required to complete the production facility in Ashland was considerably more than the amount raised.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

The nature of the Company's strategy, which is focussed on delivery of the first CoalSwitch(R) production facility in Ashland, means that the precise timing of milestones and funds generated during the early years of development projects are difficult to predict. The directors have prepared financial forecasts to estimate the likely cash requirements of the Group over the next twelve months from the date of approval of the financial statements.

The cash forecast includes the following assumptions:

-- the requisite permits are obtained to commence with construction of the Ashland facility. At the time of reporting an application for air and construction permits has been submitted to the State of Maine;

-- the near-term disposal of the Lumberton facility. As announced on 31 March 2022, the sale of the property has been agreed and the buyer is in the due diligence phase prior to completion. The sale will provide funding for the Ashland facility and reduce overhead costs at Lumberton;

-- a suitable long-term off-take agreement for CoalSwitch(R) will be secured enhancing the Company's ability to secure investors to provide development funding for completion of the Ashland facility; and

   --      the current overhead cost run rate. 

The forecasts show that the Group requires the near-term disposal of the Lumberton facility to be successful as well as additional external funding within the 12-month forecast period to be able to continue as a going concern. However, as stated above, at the date of approval of these financial statements the buyer is in the due diligence phase prior to completion and no additional funding is as yet committed.

Whilst there can be no guarantee that funding will be available on terms that will be acceptable to the Company, or at all, the directors are confident that the funding required for the Group to continue as a going concern will be secured within a period of 12 months from the date of approval of the financial statements and have therefore prepared the financial statements on a going concern basis. The directors are considering a number of options for securing the additional funding including via the sale of assets, the raising of debt or equity or a combination of these. The directors have also identified alternative options which could be pursued to provide additional working capital to enable the Group to meet its liabilities as they fall due over the next 12-month period.

Should additional funding not be secured within 12 months from the date of approval of these financial statements, the Group would not be a going concern. As such, these conditions indicate the existence of a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern.

The financial statements do not include any adjustments that would arise if the Group were unable to continue as a going concern.

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May 27, 2022 02:01 ET (06:01 GMT)