Final Results
15 June 2016
Highlands Natural Resources plc ('Highlands' or 'the Company')
Final Results
Highlands, the London listed natural resources company, is pleased to provide its Final Results for the period ended 31 March 2016.
Highlights
· Successful listing of shares on the Main Market of the London Stock Exchange
· Rapidly commercialising 75% owned patents of DT Ultravert, a disruptive diverter "re-fracking" technology with significant potential to transform the multi-billion dollar oil and gas industry
o Agreements in place with Schlumberger and CalFrac to accelerate market penetration and industry adoption
o First testing of DT Ultravert technology to commence in Q3 2016, at no cost to the Company
· Diversifying project portfolio following several low cost, strategic acquisitions in line with strategy to capitalise on depressed oil market, with total acreage holding now ~64,300 acres in the USA
o Acquired large acreage position which includes the shallow natural gas Gravity Prospect, North Dakota, USA in May 2016 and in discussions to acquire and complete well from Strata-X
o Natural gas and helium prospect in Montana, where numerous shows of gas have been encountered across this target region covering 59,000 acres
· Heads of Terms today entered into with Opera Investments plc ('Opera') by which Opera will acquire, Highlands Helium Development Limited, the owner of Highlands' Helios Two helium and natural gas project in Montana, USA, for a consideration of approximately £4.0 million to be satisfied by the issue of shares in Opera
o Filed 67 unpatented in-situ mining claims in Grand County, Utah, in an area which has exhibited potential high concentrations of uranium with production royalty agreements in place
· Bolstered management team to drive through commercialisation of DT Ultravert technology
Highlands Chairman Robert Price said, "Our first year on the London Stock Exchange has been incredibly exciting. By taking advantage of depressed markets we have been able to grow our portfolio from nothing to a number of highly prospective assets from which we intend to deliver significant results. I look forward to the remainder of 2016 as we continue to grow whilst commercialising DT Ultravert, which could be a disruptive force in the oil and gas market, alongside leading oil field services companies."
Chairman's Statement
The period under review saw Highlands successfully list the Company's shares on the Main Market of the London Stock Exchange, following which we rapidly delivered on our strategy to capitalise on the depressed oil price environment by building an integrated resources company with exposure to exploration, development and related technologies positioned for the current commodity price environment. We believe that by pursuing this path now, when we benefit from low acquisition costs, we will be in a strong position to capitalise when oil prices recover. By following this strategy, we now have 75% ownership in patents for DT Ultravert, a diverter "re-fracking" technology with the potential to transform the US oil and gas industry by increasing production without the cost of drilling a new well. Building on this intellectual property, post period end Highlands has signed an Indicative Terms Agreement with leading oil and gas services provider Schlumberger and secured a licence agreement with CalFrac, which we believe will facilitate commercialisation of the technology subject to successful testing.
Additionally, Highlands has also acquired 1,972 acres of land targeting the Niobrara and Muddy formations in Emmons County, North Dakota, USA which includes the shallow natural gas prospect, "Gravity," and we continue discussions with Strata-X to acquire and complete a well on the acreage, and will provide further updates if and when discussions advance.
Highlands has also acquired approximately 1,384 acres in Grand County, Utah which presents us with an in-situ uranium mining opportunity, and we are currently in discussions with suitable organisations to commission a competent person's report for this opportunity.
In June 2016, Highlands acquired approximately 59,033 acres located in Custer, Carter and Fallon Counties, Montana, USA representing the potential natural gas and helium prospect, "Helios Two," which is the subject of a pending competent person's report by RPS Knowledge Reservoir. In line with our stated strategy reported on acquisition, we have entered into a heads of terms agreement with Opera by which Opera will acquire this prospect (the 'Acquisition'), with completion anticipated during the summer of this year. The consideration for the Acquisition will be the issue of new ordinary shares by Opera representing approximately 55 per cent. of its enlarged capital. The heads of terms also stipulate that Opera will reimburse us for all of the professional costs incurred by Highlands on this project, the majority of which occurred post year end, as well as any costs of further leases that could be acquired for the project (with any such further leases also being the subject of the proposed disposal). This transaction validates our ability to acquire assets at low cost and rapidly organise a deal whereby we retain exposure, but at no direct cost to the Company.
With test work due to commence for DT Ultravert in the coming months, and discussions on-going in relation to a number of our assets, we anticipate that the year ahead will be positive and we are confident that we are well positioned to continue delivering value to shareholders.
DT Ultravert represents a very exciting component of our portfolio given its potential to be a disruptive technology within the oil and gas sector. We acquired our stake in the pending patents in May 2015 and following acquisition, experienced a period of suspension from the LSE while we completed the transaction. We were readmitted to the Official List of the UK Listing Authority by way of a Standard Listing in February 2016, which was a highlight for Highlands and shareholders alike.
Given a broad reduction in CAPEX budgets across the oil and gas industry, operators are searching for a diverter technology that can re-stimulate existing horizontal wells, thereby increasing production without the cost of new drilling. Well stimulation (fracking) is a US$50 billion per year industry and re-stimulation is an emerging part of the industry due to the current depressed oil and gas pricing environment. Therefore, a successful technology will have excellent recurring revenue potential by way of a licensing agreement and on-going royalty payments. An independent report by RPS Knowledge Reservoir highlighted a series of unique advantages which differentiates DT Ultravert from other competitive solutions and confirmed that, if the technology is successful, it has the ability to revolutionise the way certain wells are stimulated. The independent report asserted that our technology, which is gas-based, could deliver a step increase in well productivity, reduce formation damage, offer a net increase in reservoir contact by individual wells and their associated fracture stages, facilitate ease of use and deployment in the right formation, and provide superior well production and large bottom line profit potential. The report assessed the economic returns for the investment in the DT Ultravert technology and confirmed that modelling shows a rapid payback of the initial investment and a NPV (10.5%) project value of US$58.3 million considering per job revenue of 2% royalty based on fracturing ticket pricing.
Testament to its potential, we have significantly advanced discussions with two parties in relation to potentially commercialising this prospective technology. Under the terms of these agreements, we act as a third party technology provider. During the period we signed an Indicative Terms Agreement with Schlumberger Technology Corporation ('Schlumberger'), a 100% owned subsidiary of Schlumberger Limited, the world's leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry. The Indicative Terms specify Schlumberger's role in conducting five field trials to test DT Ultravert at no cost to Diversion Technologies or Highlands. Together, Highlands and Schlumberger are in on-going discussions with over 20 exploration and production companies in the US to commercialise DT Ultravert. These discussions relate to acquiring refrac candidate wells in the USA's Piceance Basin, the Denver-Julesburg Basin, the Appalachian Basin, the Williston Basin and the Permian Basin. The first of these tests will be held between July and September 2016 focused on the Piceance Basin. We look forward to receiving the test results, which will be an important milestone towards our roll out of Highlands' technology asset.
Post period end, we also signed a licence agreement with CalFrac Well Services Corp. ('CalFrac'), a leading pressure-pumping provider in the US, in relation to DT Ultravert. CalFrac has licensed DT Ultravert on a shared exclusivity basis for use in connection with its commercial Hydraulic Fracturing operations, activities and services in seven states of the United States of America. The licence agreement has an initial term of two years and will then automatically renew for consecutive one-year periods, unless and until terminated. Additionally, Highlands has the exclusive right to market nitrogen gas to CalFrac at current market rates for all fracking operations undertaken by CalFrac using DT Ultravert throughout the term of the licence agreement. CalFrac will endeavour to provide certain data to Highlands, which the Company and Diversion may use with a view to the further development of the DT Ultravert re-fracking technology. Highlands and Diversion are also entitled to a 2% royalty based on the revenue received by CalFrac from each fracking operation during the term of the licence agreement which uses the DT Ultravert re-fracking technology.
These agreements highlight the industry's demand for a new technology to disrupt current processes and the economics associated with them.
Adding further endorsement to DT Ultravert is the appointment of Mr. Domingo Mata, who agreed to join Highlands as lead Marketing Manager of DT Ultravert post period end in June 2016. Mr. Mata was formerly the Senior Production Engineer and Stimulation Domain Manager of Schlumberger and is a very highly regarded member of the well stimulation technology community. We are therefore very pleased to have him on board and I am confident that his involvement will successfully deliver us a range of exciting new leads and will help to solidify the range of discussions with oil and gas companies already underway.
Highlands now benefits from a suite of 19 DT Ultravert patent filings, and these will be marketed jointly by Schlumberger and Calfrac alongside Highlands' own marketing efforts. In addition to Highlands' core diversion technology, our expanded patent filings enable the use of DT Ultravert technology to protect existing wells (known as 'parent wells') from damage caused by a new threat that has emerged to the industry, known as 'bashing'.
Well bashing has become a serious threat to the US shale industry. A significant population of mature wells (known as parents) has resulted from the industry's initial rush to drill and hold leases before their expiration during the shale revolution from approximately 2006 up until the oil price slump in 2015. Thousands of parent wells exist in the US. Rather than completely develop all the infill well locations, the industry focused instead on drilling the minimum number of wells required to hold each lease. The infill locations were booked as Proved Undeveloped Reserves and reserved for later development. During the past few years some of these infill locations have been drilled (known as a child well). The industry has learned that in many cases the fracking of the child wells results in damage to the parent wells. Frack fluids and sand often enter the parent fracture network and well bores flooding the system with water.
DT Ultravert offers a potential solution to the industry's emerging challenges of minimising and defending against the effects of well bashing. Using DT Ultravert technology, it may be possible to preferentially pressurize a portion of parent wells adjacent to planned child wells in advance of drilling the child well. In this way, DT Ultravert may serve the dual purpose of protecting existing wells from bashing and introducing a preferentially lower pressured zone to facilitate and target new fractures. Ultimately, employment of DT Ultravert in order to protect a parent well may become an emerging new application of the technology. If a cost effective solution to well bashing is not discovered, potential reserves which have already been booked by the industry as Proven Undeveloped, may in fact be subject to revisions due to the cost associated with protective measures and from potential loss of production.
The Company plans its first test for this application in the Denver Basin, USA later this year and is currently in discussions with parties to secure an arrangement for this.
Oil and Gas Acreage Acquisition Strategy
In tandem with our focus on commercialising DT Ultravert, we are also actively acquiring assets at low cost to capitalise on the current depressed pricing environment.
Gravity Prospect, Emmons County, North Dakota, USA
In November 2015, we acquired approximately 1,972 net acres in the Williston Basin for US$19,728 on a shallow natural gas prospect targeting both the Niobrara and Muddy formations of Emmons County, North Dakota. We consolidated our acreage position in May 2016 via the acquisition of exploration licences covering approximately 1,979 acres in the same area, bringing the Company's total acreage holding in the area to approximately 3,951 acres. We satisfied the total consideration of US$34,139 via cash payments. We are now in discussions to acquire and complete a well from Strata-X. Whilst there can be no certainty that these discussions will be successful, we expect that the cost to complete the well would be approximately US$50,000. Highlands is targeting completion of the well by mid-June 2016, subject to concluding the acquisition. The target formations in the well are relatively shallow beginning at 1,300 feet. The Company plans to perform an extended test on the Niobrara formation for both gas and water production to define rates and gas-to-water ratio behaviour over the test period. We expect high initial water production and believe that over the test period, gas will climb to commercial rates.
"Helios Two" Helium Prospect, USA
In line with our strategy to evaluate value adding acquisitions, post period end Highlands acquired exploration licences covering approximately 59,033 acres located in Custer, Carter and Fallon Counties, Montana representing the project, "Helios Two." The consideration of US$91,050.73 was satisfied through a cash payment.
As mentioned previously in the statement, we reported today that we have successfully entered into heads of terms with Opera by which Opera will acquire this prospect, with completion anticipated during the summer of this year. The consideration for the Acquisition will be the issue of new ordinary shares by Opera representing approximately 55 per cent. of its enlarged capital. The heads of terms also stipulate that Opera will reimburse us for all of the professional costs incurred by Highlands on this project, the majority of which occurred post year end, as well as any costs of further leases that could be acquired for the project (with any such further leases also being the subject of the proposed disposal).
Both parties believe that the Helios Two assets represent a significant opportunity to take advantage of a potentially significant helium resource, at a time of global concerns around helium scarcity and helium price increases. Via this deal, we retain exposure to this exciting prospect at no direct cost, thereby enabling us to focus on commercialising DT Ultravert and advancing our additional assets.
It is the intention to establish a team dedicated to the development and commercialisation of the Helios Two project. Numerous shows of gas have been encountered across the Helios Two target region. Historic gas analysis confirmed the gas contains elevated concentrations of helium (0.36 per cent) similar to the producing US Hugoton helium field, which is the largest natural accumulation of helium in the United States. Consequently, Highlands and Opera believe that a significant volume of gas containing helium could exist in this region which, if correct, would represent a significant helium resource in North America. Further investigations are required and Highlands has commissioned RPS Knowledge Reservoir to prepare a competent person's report in this regard.
Helium is an essential feedstock for numerous industrial, medical, scientific and commercial applications including nuclear power generation, magnetic resonance imaging ('MRI'), industrial fabrication and welding, fundamental sciences and research, fiber optics, space and defence applications, semiconductor manufacturing, and many other applications. Significantly, helium currently has no substitute in cryogenic applications requiring temperatures below -220 degrees Celsius. Highlands believes that helium's role as a critical and irreplaceable component of numerous modern industries will underpin future global demand.
To support Helios Two, we are very pleased that Mr. Ben Reinoehl has joined our Advisory Board given his 40 years of experience from Air Products & Chemicals, Inc., where he was responsible for the worldwide helium and hydrogen product lines and the development of new sources of these gasses. Specifically, Mr. Reinoehl negotiated all crude and refined helium supply contracts for Air Products and also developed the first liquid helium supply in Algeria from LNG tail gasses.
The competent persons report commissioned with RPS Knowledge Reservoir is already well advanced and we are working together with Opera to finalise the other conditions precedent ahead of the Acquisition completing. The parties will update their respective shareholders in due course but, at the present time, we expect that Opera will publish its shareholder documentation during the summer with its shareholder meeting being convened, and the Acquisition completing, shortly thereafter.
In Situ Solution Mining Prospect, Grand County, Utah, USA
In March and May 2016, Highlands acquired 67 unpatented mining claims covering approximately 1,384 acres in Grand County, Utah. The Company became interested in the potential of this project while evaluating an anomalous well log in the region which indicated potential high concentrations of uranium. Gamma log readings are generally considered elevated when the American Petroleum Institute ('API') units exceed 1,000 in a sandstone. Highlands' prospect reveals API units ranging from 3,000 to over 8,000 throughout several feet in the formation.
In situ solution mining is a more cost effective and environmentally acceptable technique of extracting uranium, as compared to conventional methods. Conventional methods typically excavate rock from the ground and treat it on the surface to extract the minerals. In situ solution mining allows the operator to leave the rock in the ground and extract the uranium by dissolving the minerals with a solution and pumping them to the surface where they can be processed. Highlands' mining claims in Utah may contain significant quantities of uranium, which if proven, could be an ideal candidate for in situ solution mining.
Highlands has agreed to pay Ticaboo a production royalty of 2% from 34 of the mining claims covering approximately 702 acres and a royalty of 1% on the 33 Mining Claims staked by Highlands covering approximately 681 acres.
Highlands has commenced discussions with suitable organisations to commission a competent person's report with the preparation of this report scheduled to be completed in the coming months. The Company has also identified potential partners for the next work stages on these mining claims.
Financial Review
This is the first period of operation for the Group and has been one of net cash outflow as the Group acquires assets and bears the costs of its staff, advisers and consultants for carrying out the various projects, reporting and acquisitions.
Funding
Highlands successfully raised £1,000,000 before costs on its formation and admission to the Standard List of the London Stock Exchange in March 2015. This was followed by raising a further £765,000 via a placing of shares in February 2016 and an additional £145,000 from the exercise of warrants by investors in February and March 2016 (all figures stated before the costs of the transactions).
A further share placing post period end together with additional warrant exercises has realised an extra £641,000 before costs.
Revenue
The Group has generated no revenue in the period. The transactions undertaken so far have focussed on the acquisition of assets and rights that will be capable of generating revenue for the Group in future years.
Administrative Expenses
Administrative expenses during the period amounted to £1,818,000. However, this figure includes non-cash charges of £636,000 in respect of the warrants issued during the period along with substantial legal and professional costs incurred in obtaining and maintaining the listing for the Group's shares.
Liquidity, cash and cash equivalents
At 31 March 2016, the Group held £717,000 in cash and cash equivalents. This was increased post period end via a placing of the Group's shares which raised £519,000 before costs plus further warrant exercises providing £112,500 and at 31 May 2016 the Group's cash position had increased to £996,000.
The net cash outflow from operating activities during the period was £1,108,000 against an operating loss of £1,818,000, primarily reflecting the impact of non-cash items such as amortisation and share option charges of £696,000.
Outlook
Highlands benefits from a strong and committed management team and exposure to a range of assets which we believe have the potential to deliver value to Highlands and its shareholders. The current oil and gas market has enabled us to purchase a range of assets at low cost in line with our strategy, and while capitalising on this environment, we are also focused on enabling lower cost production by testing, proving and potentially commercialising DT Ultravert. If this is successful, this technology's ability to disrupt the multi-billion dollar oil and gas industry is clearly evident.
The coming months are anticipated to be a very busy period for the Company, including the commencement of testing DT Ultravert, the advancement of our current acreage, as well as the potential acquisition of additional low cost projects where we believe that our experienced team can add value. Having recently raised some money, we have a solid cash position and look forward to the months ahead, which we believe will bear fruit for shareholders, to which the Directors are significantly aligned.
I would like to take this opportunity to thank our shareholders, Board and advisers for their support during the period.
Robert Price
Executive Chairman
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD FROM 13 NOVEMBER 2014 TO 31 MARCH 2016
|
|
Notes |
Period ended 31 March 2016 £ |
|
Revenue |
|
- |
|
|
|
|
|
Administrative expenses |
|
(1,818,049) |
|
|
|
|
|
Operating loss |
5 |
(1,818,049) |
|
|
|
|
|
Finance income |
|
1,378 |
|
|
|
|
|
Loss on ordinary activities before taxation |
|
(1,816,671) |
|
|
|
|
|
Taxation on loss on ordinary activities |
8 |
- |
|
|
|
|
|
Loss for the period |
|
(1,816,671) |
|
|
|
|
|
Foreign exchange adjustment on consolidation |
|
(10,581) |
|
|
|
|
|
Total comprehensive loss for the period attributable to the equity holders |
|
(1,827,252) |
|
|
|
|
|
|
|
|
|
Loss per share (basic and diluted) attributable to the equity holders (pence) |
9 |
(10.88) p |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2016
|
|
Notes |
At 31 March 2016 £ |
|
NON-CURRENT ASSETS |
|
|
|
Intangible assets |
10 |
682,530 |
|
|
|
682,530 |
|
|
|
|
|
CURRENT ASSETS |
|
|
|
Trade and other receivables |
12 |
47,316 |
|
Cash and cash equivalents |
13 |
717,427 |
|
|
|
764,743 |
|
|
|
|
|
TOTAL ASSETS |
|
1,447,273 |
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
Trade and other payables |
14 |
53,348 |
|
TOTAL LIABILITIES |
|
53,348 |
|
|
|
|
|
|
|
|
|
NET ASSETS |
|
1,393,925 |
|
|
|
|
|
EQUITY |
|
|
|
Share capital |
16 |
1,491,175 |
|
Share premium account |
17 |
643,575 |
|
Share based payments reserve |
18 |
1,077,582 |
|
Foreign currency translation reserve |
19 |
(10,581) |
|
Retained loss |
|
(1,807,826) |
|
|
|
|
|
TOTAL EQUITY |
|
1,393,925 |
|
|
|
|
COMPANY STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2016
|
|
Notes |
At 31 March 2016 £ |
|
NON-CURRENT ASSETS |
|
|
|
Intangible assets |
10 |
647,625 |
|
Investment in subsidiary |
11 |
66 |
|
Loan to group undertaking |
11 |
238,566 |
|
|
|
886,247 |
|
|
|
|
|
CURRENT ASSETS |
|
|
|
Trade and other receivables |
12 |
47,316 |
|
Cash and cash equivalents |
13 |
502,428 |
|
|
|
549,744 |
|
|
|
|
|
TOTAL ASSETS |
|
1,435,991 |
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
Trade and other payables |
14 |
42,000 |
|
TOTAL LIABILITIES |
|
42,000 |
|
|
|
|
|
|
|
|
|
NET ASSETS |
|
1,393,991 |
|
|
|
|
|
EQUITY |
|
|
|
Share capital |
16 |
1,491,175 |
|
Share premium account |
17 |
643,575 |
|
Share based payments reserve |
18 |
1,077,582 |
|
Retained loss |
|
(1,818,341) |
|
|
|
|
|
TOTAL EQUITY |
|
1,393,991 |
|
|
|
|
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 13 NOVEMBER 2014 TO 31 MARCH 2016
|
|
Share capital |
|
Share Premium account |
|
Share based payment reserve |
|
Foreign Currency Translation Reserve |
|
Retained loss |
|
Total |
|
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
At incorporation |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
- |
|
- |
|
- |
|
- |
|
(1,816,671) |
|
(1,816,671) |
|
Other comprehensive income |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
Translation adjustment |
- |
|
- |
|
- |
|
(10,581) |
|
- |
|
(10,581)- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the period attributable to the equity holders |
- |
|
- |
|
- |
|
(10,581) - |
|
(1,816,671) |
|
(1,827,252) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of warrants |
- |
|
- |
|
1,086,427 |
|
|
|
- |
|
1,086,427 |
|
Exercise of warrants |
|
|
|
|
(8,845) |
|
|
|
8,845 |
|
- |
|
Shares issued in the period |
1,491,175 |
|
681,825 |
|
- |
|
- |
|
- |
|
2,173,000 |
|
Cost relating to share issues |
|
|
(38,250) |
|
- |
|
- |
|
- |
|
(38,250) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2016 |
1,491,175 |
|
643,575 |
|
1,077,582 |
|
(10,581) |
|
(1,807,826) |
|
1,393,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD FROM 13 NOVEMBER 2014 TO 31 MARCH 2016
|
|
Share capital |
|
Share Premium account |
|
Share based payment reserve |
|
Retained loss |
|
Total |
|
|
£ |
|
£ |
|
£ |
|
£ |
|
£ |
|
At incorporation |
- |
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
- |
|
- |
|
- |
|
(1,827,186) |
|
(1,827,186) |
|
Other comprehensive income |
- |
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the period attributable to the equity holders |
- |
|
- |
|
- |
|
(1,827,186) |
|
(1,827,186) |
|
|
|
|
|
|
|
|
|
|
|
|
Issue of warrants |
- |
|
- |
|
1,086,427 |
|
- |
|
1,086,427 |
|
Exercise of warrants |
|
|
|
|
(8,845) |
|
8,845 |
|
- |
|
Shares issued in the period |
1,491,175 |
|
681,825 |
|
- |
|
- |
|
2,173,000 |
|
Cost relating to share issues |
|
|
(38,250) |
|
- |
|
- |
|
(38,250) |
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2016 |
1,491,175 |
|
643,575 |
|
1,077,582 |
|
(1,818,341) |
|
1,393,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASHFLOW STATEMENTS
FOR THE PERIOD FROM 13 NOVEMBER 2014 TO 31 MARCH 2016
|
|
|
Group |
|
Company |
|
|
|
2016 |
|
2016 |
|
Cash flow from operating activities |
|
£ |
|
£ |
|
|
|
|
|
|
|
Loss for the period |
|
(1,816,671) |
|
(1,827,186) |
|
|
|
|
|
|
|
Adjustments for: |
|
|
|
|
|
Depreciation and amortisation charges |
|
59,915 |
|
58,875 |
|
Charge for the period in respect of Share-based payments |
|
636,427 |
|
636,427 |
|
Cost settled by issue of shares |
|
6,500 |
|
6,500 |
|
Provision against loan to subsidiary |
|
- |
|
569,216 |
|
|
|
|
|
|
|
Operating cashflow before working capital movements |
|
(1,113,829) |
|
(556,168) |
|
|
|
|
|
|
|
Increase in trade and other receivables |
|
(47,316) |
|
(47,316) |
|
Increase in trade and other payables |
|
53,348 |
|
42,000 |
|
|
|
|
|
|
|
Net cash outflow from operating activities |
|
(1,107,797) |
|
(561,484) |
|
|
|
|
|
|
|
Cashflows from investing activities |
|
|
|
|
|
Purchase of Intangible and mineral rights |
|
(742,445) |
|
(706,500) |
|
Less: settled by issue of share based payments |
|
706,500 |
|
706,500 |
|
Investment in subsidiary |
|
- |
|
(807,838) |
|
|
|
|
|
|
|
Net cash absorbed by investing activities |
|
(35,945) |
|
(807,838) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashflows from financing activities |
|
|
|
|
|
Net proceeds from issue of shares |
|
1,871,750 |
|
1,871,750 |
|
|
|
|
|
|
|
Net cash generated by financing activities |
|
1,871,750 |
|
1,871,750 |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
|
|
As above |
|
728,008 |
|
502,428 |
|
Foreign exchange |
|
(10,581) |
|
- |
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
|
717,427 |
|
502,428 |
|
|
|
|
|
|
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 13 NOVEMBER 2014 TO 31 MARCH 2016
1 GENERAL INFORMATION
1.1 Group
Highlands Natural Resources plc ("Highlands Natural Resources" or "the Company") and its subsidiary (together "the Group") are primarily involved in the oil and gas sector. Highlands Natural Resources plc, a public limited company incorporated and domiciled in England and Wales, is the Group's ultimate parent company. The Company was incorporated on 13 November 2014 with Company Registration Number 09309241 and its registered office and principal place of business is 9 Limes Road, Beckenham, Kent BR3 6NS.
1.2 Company income statement
The Company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own profit and loss account in these financial statements. The loss for the financial period dealt with in the accounts of the Company, including provision against the loans to and investment in subsidiary companies, amounted to £1,827,186.
2. PRINCIPAL ACCOUNTING POLICIES
2.1 Basis of preparation
The Consolidated Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The Consolidated Financial Statements have been prepared under the historical cost convention. The principal accounting policies are set out below and have, unless otherwise stated, been applied consistently for all periods presented in these Consolidated Financial Statements. The financial statements are prepared in pounds sterling and presented to the nearest pound.
2.2 Basis of consolidation
The Group financial information incorporates the financial information of the Company and its controlled subsidiary undertakings, drawn up to 31 March 2016. Control is achieved where the Company:
· has power of the investee;
· is exposed, or has rights, to variable return from its involvement with the investee; and
· has the ability to use its power to affect its returns.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary.
Where necessary, adjustments are made to the financial information of subsidiaries to bring accounting policies into line with those used for reporting the operations of the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
2.3 Going concern
The financial statements have been prepared on a going concern basis which assumes that the Group will continue in operational existence for the foreseeable future.
The Group had a net cash outflow from operating activities for the period of £1,108,000 and at 31 March 2016 had cash balances of £717,000. In April and May 2016, the Group raised £519,000 (before costs) through a share placement plus £112,000 from the exercise of warrants, helping to increase the cash position at 31 May 2016 to £996,000.
The Directors have reviewed the working capital requirements of the Group for the next 12 months and are confident that these can be met. The Directors have a reasonable expectation that further finances will become available during the course of the year through royalties and exploitation income relating to either new or existing agreements and the issue of further shares either through investor placings or the exercise of warrants. The Directors note that whilst there is an uncertainty as to the exact timing and source of these funds, and that the failure to receive sufficient funding from these sources would cast doubt on the Group's ability to continue as a going concern, nonetheless the Directors are cautiously confident that such funds can be obtained.
The Directors consider that the continued adoption of the going concern basis is appropriate and the accounts do not reflect any adjustments that would be required if they were to be prepared on any other basis.
2.4 Business combinations
There were no Business Combinations as defined by IFRS 3 (revised) during the period.
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair values at the acquisition date.
In arriving at the cost of acquisition, the fair value of the shares issued by the Company is taken to be the mid-market price of those shares at the date of issue. Where this figure exceeds the nominal value of the shares, the excess amount is treated as an addition to the share premium account.
2.5 Revenue recognition
The Group has received no revenue during the period.
The Group's future income could consist of licence fees, milestone and option payments. Income is measured at the fair value of the consideration received or receivable.
Licence fees, option and milestone payments are recognised in full on the date that they are contractually receivable in those circumstances where:
• the amounts are not refundable;
• the licencee has unrestricted rights to exploit the technology within the terms set by the licence; and
• the Group has no further contractual duty to perform any future services.
Where such fees or receipts require future performance or financial commitments on behalf of the Group, the revenue is recognised pro rata to the services or commitments being performed. Funds received that have not been recognised are treated as deferred revenue and recognised in trade and other payables.
Revenues from work or other research and testing carried out for third parties are recognised when the work to which they relate has been performed.
2.6 Foreign currency translation
Highlands Natural Resources' consolidated financial statements are presented in Sterling (£), which is also the functional currency of the parent company. The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency).
In preparing the financial statements of the individual entities, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. When a gain or loss on a non-monetary item is recognised directly in equity, any exchange component of that gain or loss is also recognised directly in equity. When a gain or loss on a non-monetary item is recognised in the income statement, any exchange component of that gain or loss is also recognised in the income statement.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations (including comparatives) are expressed in Sterling using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised in equity. Cumulative translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
2.7 Defined contribution pension funds
From time to time the Group may pay contributions related to salary to certain UK employees' individual pension schemes. The pension cost charged against profits represents the amount of the contributions payable to the schemes in respect of the accounting period. No separate provision is made in respect of non-UK employees.
2.8 Investment in subsidiary
Investment in subsidiary comprises shares in the subsidiary stated at cost less provisions for impairment.
2.9 Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets can be divided into the following categories: loans and receivables, financial assets at fair value through profit or loss, available-for-sale financial assets and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the instruments were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available.
Derecognition of financial instruments occurs when the rights to receive cash flows from investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each balance sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.
Trade receivables
Trade receivables are measured at initial recognition at fair value plus, if appropriate, directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at an effective interest rate computed at initial recognition.
Loans receivable
Loans receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group or Company provides money directly to a debtor with no intention of trading the receivables. Loans receivable are measured at initial recognition at fair value plus, if appropriate, directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in the income statement.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.
Financial liabilities and equity
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. A financial liability is a contractual obligation to either deliver cash or another financial asset to another entity or to exchange a financial asset or financial liability with another entity, including obligations which may be settled by the Group using its equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.
Financial liabilities
At initial recognition, financial liabilities are measured at their fair value plus, if appropriate, any transaction costs that are directly attributable to the issue of the financial liability. After initial recognition, all financial liabilities are measured at amortised cost using the effective interest method.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received net of direct issue costs.
2.10 Property, plant and equipment
The Group holds no property or other plant and equipment.
When the Group acquires any plant and equipment it will be stated in the accounts at its cost of acquisition less a provision for depreciation.
Depreciation will be charged to write off the cost less estimated residual values of plant and equipment on a straight line basis over their estimated useful lives. Estimated useful lives and residual values are reviewed each year and amended if necessary.
2.11 Intangible assets
Patent rights
Intangible assets include acquired intellectual property in the form of patent rights used in oil and gas operations. These assets are stated at cost less amortisation.
Intellectual property rights acquired during the period are capitalised on the basis of the fair value of equity instruments issued to acquire the specific rights.
Costs associated with prosecuting and maintaining these intellectual property rights are treated as an expense in the period in which they are incurred.
Amortisation is applied to write off the cost less residual value of the intangible assets on a straight line basis over their estimated useful life. The principal rate used is 10% per annum.
Lease & Mining rights
Leases and claims relating to mineral mining rights are stated at cost less amortisation.
The rights acquired during the period are capitalised on the basis of the costs incurred to acquire the specific rights. Any costs associated with prosecuting or maintaining these rights are treated as an expense in the period in which they are incurred.
Amortisation is applied to write off the cost less residual value of the intangible assets on a straight line basis over their estimated useful life. The principal rate used is 20% per annum.
2.12 Impairment testing of intangible assets and property, plant and equipment
At each balance sheet date, the Group assesses whether there is any indication that the carrying value of any asset may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
In the case of goodwill and any intangible asset with either an indefinite useful life or which is not yet ready for use, the Group tests for impairment at each balance sheet date.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management controls the related cash flows.
Individual assets or cash-generating units that include goodwill and other intangible assets with an indefinite useful life, or those not yet available for use, are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal discounted cash flow evaluation. Impairment losses recognised for cash-generating units to which goodwill has been allocated are credited initially to the carrying amount of goodwill. Any remaining impairment loss is charged pro rata to the other assets in the cash generating unit.
2.13 Operating leases
Leases where substantially all the risks and rewards of ownership remain with the lessor are accounted for as operating leases and are accounted for on a straight line basis over the term of the lease and charged to the income statement.
2.14 Equity
Share capital is determined using the nominal value of shares that have been issued.
The Share premium account includes any premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from the Share premium account, net of any related income tax benefits.
Equity-settled share-based payments are credited to a Share-based payment reserve as a component of equity until related options or warrants are exercised.
Retained loss includes all current and prior period results as disclosed in the income statement.
2.15 Share-based payments
The Group has issued warrants to the initial investors and certain counterparties and advisers.
Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value so determined is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.
Fair value is measured using a Black Scholes pricing model. The key assumptions used in the model have been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
2.16 Taxation
Tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
2.17 Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the entity's accounting policies, management makes estimates and assumptions that have an effect on the amounts recognised in the financial information. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates. The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, are those relating to:
• the ability of the Group to operate as a "going concern";
• the carrying value of the Group's investment in intellectual property and patent rights;
· the estimation of the fair value of the shares and warrants issued during the period;
· the carrying value of the investment in the subsidiary.
Going concern
As explained in Note 2.3 above, the financial information is drawn up on the going concern basis which assumes that the Group will be able to access sufficient funds to continue to operate for the foreseeable future. The key assumptions are around the forecast of working capital required for, primarily, the development and commercialisation of the Group's intellectual property and patent rights and the methods of funding those requirements. The Directors have reviewed the forecasts for the coming 18 months and consider that the Group's existing working capital and sources of finance are adequate for its purposes. If the financial information was to be drawn up on the basis that this assumption was not valid then there could be material changes to the carrying values of both assets and liabilities.
Carrying value of intangible assets
During the period the Company acquired certain patent rights as well as lease and mining rights, as set out in Note 10 below. The key assumptions concerning the carrying value, or otherwise, for the intangible assets relate to the continuing progress of the Group's exploitation programmes, which are subject to risks common to all oil and gas businesses. These risks include the impact of competition in the specific areas of intellectual property, the potential failure of the projects in development or testing stages and the possible inability to progress projects due to regulatory, manufacturing or intellectual property issues or the lack of available funds or other resources. Furthermore, the crystallisation of any of these risks could have a significant impact on the assessment of the value of the intangible assets. The carrying value is stated at cost incurred, including the fair value of the shares and warrants issued in respect of the acquisition, see below.
Estimation of fair value of warrants issued in the period
The fair value of the warrants issued during the period have been calculated using a Black Scholes model which requires a number of assumptions and inputs, see Note 18 below.
Carrying value of investment in subsidiary and loan to group undertaking
The Company has made loans to the subsidiary company which is not yet profitable or cash generative. The Company has made provision against the loans made to the subsidiary equivalent to the losses to date suffered by the subsidiary. No provision has been made against the investment in share capital or possible future costs or losses of the subsidiary, see Note 11 below.
2.18 Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group
The following standards, interpretations and amendments to existing standards have been published by the IASB but are yet to be endorsed by the EU or are not effective for the period presented in the financial information and the Group has decided not to early adopt them:
|
Standard |
Effective date, annual period beginning on or after |
|
|
|
|
Annual Improvements 2012-2014 cycle |
1 January 2016 |
|
IFRS 11 (amendments) Accounting for acquisitions of interests in joint operations |
1 January 2016 |
|
IFRS 14 Regulatory Deferral accounts |
1 January 2016* |
|
Amendments to IFRS 10, IFRS 12 & IAS 28: Investment entities: Applying the consolidation exception |
1 January 2016 |
|
IAS 16 Property, Plant & Equipment and IAS 38 - Intangible assets (amendments) |
1 January 2016 |
|
IAS 16 Property, Plant & Equipment and IAS 41 - Bearer Plants (amendments) |
1 January 2016 |
|
IAS 1 (amendments) Disclosure initiative |
1 January 2016 |
|
IAS 27 (amendments) Equity Method in Separate Financial Statements |
1 January 2016 |
|
Amendment to IAS 12 - Recognition of Deferred Tax for unrealised losses |
1 January 2017 |
|
Amendment to IAS 7 - Disclosure Initiative |
1 January 2017 |
|
IFRS 9 Financial instruments: Classification and Measurement |
1 January 2018 |
|
IFRS 15 Revenue from contracts with Customers including amendments to IFRS 15: Effective date of IFRS 15 |
1 January 2018 |
|
Clarification to IFRS 15 Revenue from contracts with customers |
1 January 2018 |
|
IFRS 16 Leases |
1 January 2019 |
* The European Commission has decided not to launch the endorsement process of this interim standard but to wait for the final standard.
The Directors are evaluating the impact that these standards will have on the financial statements of the Group.
2.19 Segmental 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, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as Robert Price.
All operations and information are reviewed together so that at present there is only one reportable operating segment.
3. REVENUE
There was no revenue generated in the period.
4. SEGMENT REPORTING
In the opinion of the Directors, during the period ended 31 March 2016 the Group only operated in the single business segment of oil and gas development.
|
5. |
OPERATING LOSS |
|
|
|
2016 |
|
|
|
|
|
|
£ |
|
|
This is stated after crediting: |
|
|
|
|
|
|
and after charging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment |
|
|
|
- |
|
|
Amortisation of intangibles |
|
|
|
59,915 |
|
|
Share-based payments charge |
|
|
|
636,427 |
|
|
Auditors' remuneration |
|
|
|
|
|
|
- audit of parent company |
|
|
|
25,000 |
|
|
- non-audit services |
|
|
|
31,250 |
|
|
Directors'remuneration |
|
|
|
617,357* |
|
|
|
|
|
|
|
* of which £510,460 is included in respect of the share-based payments charge for the year
|
|
|
|
2016 |
|
|
6. |
DIRECTORS AND STAFF COSTS |
|
£ |
|
|
|
|
|
|
|
|
|
There were no staff during the period except the Directors and the average number of employees, including Directors, during the period was 2. Management remuneration paid and other benefits supplied to the Directors during the period was as follows: |
|
|
|
|
|
|
|
|
|
|
|
Salary |
|
60,969 |
|
|
|
Social security costs |
|
- |
|
|
|
Healthcare costs |
|
20,928 |
|
|
|
Pension contribution to defined contribution scheme (1 Director) |
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
106,897 |
|
|
|
Charge in respect of share-based payments |
|
510,460 |
|
|
|
|
|
|
|
|
|
|
|
617,357 |
|
|
|
|
|
|
|
|
|
The amounts set out above include remuneration to the highest paid director as follows: |
|
|
|
|
|
|
|
|
|
|
|
Salary |
|
60,969 |
|
|
|
Social security costs |
|
- |
|
|
|
Healthcare costs |
|
20,928 |
|
|
|
|
|
|
|
|
|
|
|
81,897 |
|
|
|
Charge in respect of share-based payments |
|
489,250 |
|
|
|
|
|
|
|
|
|
|
|
571,147 |
|
|
|
|
|
|
|
|
7. |
FINANCE INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
The finance income comprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank interest receivable |
|
|
|
1,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
8. |
TAXATION |
|
|
|
2016 |
|
|||||
|
|
|
|
|
|
£ |
|
|||||
|
|
The charge/credit for the period is made up as follows: |
|
|
|
|
|
|||||
|
|
Corporate Taxation on the results for the period |
|
|
|
|
|
|||||
|
|
UK |
|
|
|
- |
|
|||||
|
|
Non-UK |
|
|
|
- |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
Taxation charge/credit for the period |
|
|
|
- |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
A reconciliation of the tax charge/credit appearing in the income statement to the tax credit that would result from applying the standard rate of tax to the results for the period is: |
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
Loss per accounts |
|
|
|
(1,816,671) |
|
|||||
|
|
Tax credit at the standard rate of corporation |
|
|
|
|
|
|||||
|
|
tax in the UK (20%): |
|
|
|
(363,334) |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
Impact of costs disallowable for tax purposes |
|
|
|
134,294 |
|
|||||
|
|
Deferred tax in respect of temporary differences |
|
|
|
- |
|
|||||
|
|
Impact of unrelieved tax losses carried forward |
|
|
|
229,040 |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
Taxation credit for the period |
|
|
|
- |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
Estimated tax losses of £1,145,000 are available for relief against future profits. |
|
|||||||||
|
|
|
|
|
|
|
|
|||||
|
|
The deferred tax asset not provided for in the accounts based on the estimated tax losses and the treatment of the equity settled share based payments, net of any other temporary differences, is approximately £117,000. The Directors have not considered any potential deferred tax asset in respect of losses in the US due to the uncertainty over the applicable future tax rate. |
|
|||||||||
9. LOSS PER SHARE
The calculation of the loss per share is based on the loss for the financial period after taxation of £1,816,671 and on the weighted average of 16,690,632 ordinary shares in issue during the period.
The options outstanding at 31 March 2016 are considered to be non-dilutive in that their conversion into ordinary shares would not increase the net loss per share. Consequently, there is no diluted loss per share to report for the period.
10. INTANGIBLE ASSETS
|
|
Group |
Patent |
|
Leases & |
|
Total |
|
|
|
Rights |
|
Mining |
|
|
|
|
|
|
|
Rights |
|
|
|
|
|
£ |
|
£ |
|
£ |
|
|
Cost |
|
|
|
|
|
|
|
At 13 November 2014 |
- |
|
- |
|
- |
|
|
Additions |
706,500 |
|
35,945 |
|
742,445 |
|
|
|
|
|
|
|
|
|
|
At 31 March 2016 |
706,500 |
|
35,945 |
|
742,445 |
|
|
|
|
|
|
|
|
|
|
Amortisation |
|
|
|
|
|
|
|
At 13 November 2014 |
- |
|
- |
|
- |
|
|
Charge for the period |
58,875 |
|
1,040 |
|
59,915 |
|
|
|
|
|
|
|
|
|
|
At 31 March 2016 |
58,875 |
|
1,040 |
|
59,915 |
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
At 13 November 2014 |
- |
|
- |
|
- |
|
|
At 31 March 2016 |
647,625 |
|
34,905 |
|
682,530 |
|
|
|
|
|
|
|
|
|
|
Company |
Patent |
|
|
|
|
|
|
|
Rights |
|
|
|
|
|
|
|
£ |
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
At 13 November 2014 |
- |
|
|
|
|
|
|
Additions |
706,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2016 |
706,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation |
|
|
|
|
|
|
|
At 13 November 2014 |
- |
|
|
|
|
|
|
Charge for the period |
58,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 March 2016 |
58,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
At 13 November 2014 |
- |
|
|
|
|
|
|
At March 2016 |
647,625 |
|
|
|
|
The patent rights included above have finite useful lives estimated to be of 10 years from date of initial acquisition, over which period the assets are amortised.
The Group tests for possible impairment of definite-lived intangible assets on a regular basis. If indicators of possible impairment exist, such as a change of use of the asset, a reduction in operating cash flow or a change in technology, the Group compares the discounted cash flows related to the asset to the carrying value of the asset. If the carrying value is greater than the discounted cash flow amount, an impairment charge is recorded for the amount necessary to reduce the carrying value of the asset to fair value. Fair value for the purpose of the impairment tests is determined based on current market value or discounted future cash flows. In determining the fair value, certain assumptions are made concerning, for example, estimated cash flow and growth of the Group's operations.
|
11. |
INVESTMENT IN SUBSIDIARY AND LOAN TO GROUP UNDERTAKING |
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
Company |
|
|
|
|
£ |
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary |
|
|
|
|
66 |
|
|
|
|
|
|
|
|
Subsidiary Company:
The Company has one Subsidiary whose principal activity is oil and gas development. All Subsidiary companies are consolidated in the Group's financial statements.
|
Name |
Place of incorporation and operation |
Proportion of ownership interest |
Loss for the period |
Aggregate capital and reserves at 31 March 2016 |
|
|
|
|
|
|
|
Highlands Natural Resources Corporation |
USA |
100% |
£554,629 |
£(569,220) |
During the period the Company established and made investment in its USA based operating subsidiary Highlands Natural Resources Corporation. As all group entities are still in the exploratory stages and not yet generating profits the Company has made an impairment provision against the loans to the subsidiary to the extent that they are deemed to be not recoverable upon demand.
|
|
Loan to group undertaking |
Loan |
|
Impairment |
|
Net |
|
|
|
at cost |
|
Provision |
|
Total |
|
|
|
£ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 13 November 2014 |
- |
|
- |
|
- |
|
|
Additions |
807,772 |
|
569,216 |
|
238,556 |
|
|
|
|
|
|
|
|
|
|
At 31 March 2016 |
807,772 |
|
569,216 |
|
238,556 |
|
|
|
|
|
|
|
|
|
12. |
TRADE & OTHER RECEIVABLES |
|
|
|
|
Group |
|
Company |
|
|
|
|
|
|
|
£ |
|
£ |
|
|
Trade receivables |
|
|
|
|
- |
|
- |
|
|
Other receivables |
|
|
|
|
41,634 |
|
41,634 |
|
|
Prepayments |
|
|
|
|
5,682 |
|
5,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,316 |
|
47,316 |
|
|
|
|
|
|
|
|
|
|
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. Fair values have been calculated by discounting cash flows at prevailing interest rates. See also note 23.
|
13. |
CASH & CASH EQUIVALENTS |
|
|
|
|
Group |
|
Company |
|
|
|
|
|
|
|
£ |
|
£ |
|
|
Cash at bank |
|
|
|
|
417,427 |
|
202,428 |
|
|
Cash held at brokers |
|
|
|
|
300,000 |
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
717,427 |
|
502,428 |
|
|
|
|
|
|
|
|
|
|
Cash at bank comprises of balances held by the Group in current bank accounts. The carrying amount of these assets approximates to their fair value. The cash held at brokers is held in an instantly accessible account.
|
14. |
TRADE & OTHER PAYABLES |
|
|
|
|
Group |
|
Company |
|
|
|
|
|
|
|
£ |
|
£ |
|
|
Trade payables |
|
|
|
|
- |
|
- |
|
|
Accruals and other payables |
|
|
|
|
53,348 |
|
42,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,348 |
|
42,000 |
|
|
|
|
|
|
|
|
|
|
Trade payables and accruals principally comprise amounts outstanding for trade purchases and continuing costs. The Directors consider that the carrying amount of trade and other payables approximates to their fair value. Fair values have been calculated by discounting cash flows at prevailing interest rates. See also note 23.
15. DEFERRED TAXATION
|
|
|
|
|
2016 |
|
|
|
|
|
£ |
|
Deferred tax asset: |
|
|
|
|
|
In respect of available tax losses in the UK |
|
|
|
117,000 |
|
|
|
|
|
|
|
Deferred tax asset |
|
|
|
117,000 |
|
Less: provision against asset |
|
|
|
(117,000) |
|
|
|
|
|
|
|
Asset |
|
|
|
- |
|
|
|
|
|
|
No deferred tax asset has been recognised by the Group due to the uncertainty of generating sufficient future profits and tax liability against which to offset the tax losses. The Directors have not considered any potential deferred tax asset in respect of losses in the US due to the uncertainty over the applicable future tax rate.
|
16. |
SHARE CAPITAL |
|
|
|
2016 |
|
|
|
|
|
|
£ |
|
|
Allotted called up and fully paid: |
|
|
|
|
|
|
29,823,500 ordinary 5p shares |
|
|
|
1,491,175 |
|
|
|
|
|
|
|
The Company has only one class of share. All ordinary shares have equal voting rights and rank pari passu for the distribution of dividends and repayment of capital.
|
|
Number |
|
Par value of shares issued |
|
|
|
|
£ |
|
Shares issued on incorporation: |
|
|
|
|
Issue of 50,000 £1 ordinary shares at par on incorporation |
50,000 |
|
50,000 |
|
Increase in number on conversion to 5p ordinary shares |
950,000 |
|
- |
|
Revised number upon incorporation |
1,000,000 |
|
50,000 |
|
|
|
|
|
|
Shares issued in the period |
|
|
|
|
18 March 2015 - issue of shares for cash at 5p per share |
19,000,000 |
|
950,000 |
|
21 May 2015 - issue of shares for intellectual property and patent rights at 13.5p |
1,900,000 |
|
95,000 |
|
21 May 2015 - issue of shares to settle adviser fees |
98,500 |
|
4,925 |
|
3 February 2016 - issue of shares for cash at 12p per share |
6,375,000 |
|
318,750 |
|
February and March 2016 - various issues of shares on exercise of warrants at 10p per share |
1,450,000 |
|
72,500 |
|
Total issued in the period |
29,823,500 |
|
1,491,175 |
|
Number of shares in issue at 31 March 2016 |
29,823,500 |
|
1,491,175 |
At 31 March 2016 there were warrants outstanding over 61,600,000 unissued ordinary shares.
Details of the warrants outstanding are as follows:
|
Issued |
Exercisable from |
Exercisable until |
Number |
Exercise price (p) |
|
25 March 2015 |
Any time until |
24 March 2020 |
28,000,000 |
5 |
|
25 March 2015 |
Any time until |
24 March 2018 |
2,050,000 |
10 |
|
27 May 2015 |
Any time until |
29 May 2018 |
30,000,000 |
25 |
|
27 May 2015 |
Any time until |
29 May 2020 |
50,000 |
10 |
|
3 February 2016 |
3 August 2016 |
3 February 2019 |
1,500,000 |
25 |
|
|
|
|
61,600,000 |
|
The Directors held the following warrants at the beginning and end of the period:
|
Director |
|
At Formation |
Granted in the period |
At 31 March 2016 |
Exercise price |
Earliest date of exercise |
Latest date of exercise |
|
|
|
|
|
|
Pence |
|
|
|
R B Price
|
|
- |
23,750,000
|
23,750,000
|
5p |
25/03/15
|
24/03/20
|
|
J M Davies
|
|
-
|
1,000,000 100,000
|
1,000,000 100,000 |
5p 10p |
25/03/15 25/03/15 |
24/03/20 24/03/18
|
|
|
|
|
|
|
|
|
|
|
Total |
|
- |
24,850,000 |
24,850,000 |
|
|
|
|
|
|
|
|
|
|
|
|
The market price of the shares at the period end was 15.125p per share.
During the period, the minimum and maximum prices were 5p and 18p per share respectively.
|
17. Share premium account |
|
||
|
|
|
2016 |
|
|
|
|
£ |
|
|
On shares issued during the period |
|
|
|
|
13 November 2014 - issue of shares at par on incorporation |
|
|
|
|
18 March 2015 - issue of shares for equity placing |
|
|
|
|
21 May 2015 - issue of shares for intellectual property and patent rights |
|
161,500 |
|
|
21 May 2015 - issue of shares to settle adviser fees |
|
1,575 |
|
|
3 February 2016 - issue of shares for equity placing |
|
446,250 |
|
|
February and March 2016 - on various exercises of warrants |
|
72,500 |
|
|
|
|
681,825 |
|
|
Less: costs relating to share issues |
|
(38,250) |
|
|
At 31 March 2016 |
|
643,575 |
|
|
|
|
|
|
18. EQUITY-SETTLED SHARE-BASED PAYMENTS
The Company has issued warrants to investors, counterparties and advisers during the period. The details of the exercise price and exercise period are given above.
Details of the warrants outstanding at the period end are as follows:
|
|
|
|
|
2016 |
2016 |
|
Warrants |
|
|
|
Number |
Weighted average exercise price - pence |
|
Outstanding at the beginning of the period
|
|
|
|
- |
- |
|
Granted during the period |
|
|
|
63,050,000 |
15.27p |
|
Lapsed during the period |
|
|
|
- |
- |
|
Exercised during the period
|
|
|
|
(1,450,000) |
10.00p |
|
Outstanding at the period end |
|
|
|
61,600,000 |
15.40p |
|
|
|
|
|
|
|
|
Exercisable at the period end |
|
|
|
60,100,000 |
15.16p |
The warrants were exercised on a number of dates between 8 February and 11 March 2016 during which time the share price varied between 13.625p and 15.625p.
The warrants outstanding at the period end have a weighted average remaining contractual life of 3.0 years. The exercise price of the warrants outstanding at the period end range from 5p to 25p per share. Full details of the exercise price and potential exercise dates are given in Note 16 above.
The fair values of warrants granted during the period were calculated using a Black Scholes pricing model and the inputs into the model were as follows:
|
|
|
|
|
Share price at date of issue of warrants |
|
5 - 14.5p |
|
Exercise price |
|
5 - 25p |
|
Expected volatility |
|
56 - 57% |
|
Risk free rate |
|
0.203 - 1.11% |
|
Expected dividend yield |
|
Nil |
The Group recognised total charges of £636,427 related to equity-settled share-based payment transactions during the period.
19. FOREIGN CURRENCY TRANSLATION RESERVE
|
|
|
|
Period ended 31 March 2016 |
|
|
|
|
£ |
|
Balance at start of period |
|
|
- |
|
Movement in the year |
|
|
(10,581) |
|
|
|
|
|
|
At 31 March 2016 |
|
|
(10,581) |
|
|
|
|
|
20. CAPITAL COMMITMENTS
There were no capital commitments at 31 March 2016.
21. CONTINGENT LIABILITIES
There were no contingent liabilities at 31 March 2016.
22. COMMITMENTS UNDER OPERATING LEASES
There were no commitments under operating leases at 31 March 2016.
23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group's financial instruments comprise primarily cash and various items such as trade debtors and trade creditors which arise directly from its operations. The main purpose of these financial instruments is to provide working capital for the Group's operations. The Group does not utilise complex financial instruments or hedging mechanisms in respect of its non-sterling operations.
Financial assets by category
The categories of financial assets (as defined by International Accounting Standard 39: Financial Instruments: Recognition and Measurement - IAS39) included in the balance sheet and the heading in which they are included are as follows:
|
|
|
|
|
|
|
Group |
|
Company |
|
|
|
|
|
|
|
2016 |
|
2016 |
|
|
|
|
|
|
|
£ |
|
£ |
|
Non current assets |
|
|
|
|
|
|
|
|
|
Loan to group undertaking |
|
|
|
|
|
- |
|
238,556 |
|
Current assets |
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
|
|
|
47,316 |
|
47,316 |
|
Cash and cash equivalents |
|
|
|
|
|
717,427 |
|
502,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
764,743 |
|
788,300 |
|
|
|
|
|
|
|
|
|
|
The loan to group undertaking has no fixed repayment date although it is not repayable within twelve months and its future repayment will depend upon the financial performance of the subsidiary.
All other amounts are short term and none are past due at the reporting date.
Financial liabilities by category
The categories of financial liabilities (as defined by IAS39) included in the balance sheet and the heading in which they are included are as follows:
|
|
|
|
|
|
Group |
|
Company |
|
|
|
|
|
|
2016 |
|
2016 |
|
|
|
|
|
|
£ |
|
£ |
|
Current liabilities |
|
|
|
|
|
|
|
|
Trade and other payables |
|
|
|
|
53,348 |
|
42,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Categorised as financial liabilities measured at amortised cost |
|
|
|
|
53,348 |
|
42,000 |
|
|
|
|
|
|
|
|
|
All amounts are short term and payable in 0 to 3 months.
Credit risk
The maximum exposure to credit risk at the reporting date by class of financial asset was:
|
|
|
|
|
|
Group |
|
Company |
|
|
|
|
|
|
2016 |
|
2016 |
|
|
|
|
|
|
£ |
|
£ |
|
Bank balances and receivables |
|
|
|
|
759,061 |
|
544,062 |
|
|
|
|
|
|
|
|
|
Capital management
The Group considers its capital to be equal to the sum of its total equity. The Group monitors its capital using a number of key performance indicators including cash flow projections, working capital ratios, the cost to achieve development milestones and potential revenue from partnerships and ongoing licensing activities. The Group's objective when managing its capital is to ensure it obtains sufficient funding for continuing as a going concern. The Group funds its capital requirements through the issue of new shares to investors.
Interest rate risk
The nature of the Group's activities and the basis of funding are such that the Group has significant liquid resources. The Group uses these resources to meet the cost of future development activities. Consequently, it seeks to minimise risk in the holding of its bank deposits while maintaining a small rate of interest during this period of very low interest rates. The Group is not financially dependent on the income earned on these resources and therefore the risk of interest rate fluctuations is not significant to the business and the Directors have not performed a detailed sensitivity analysis. Nonetheless, the Directors take steps to secure rates of interest which generate a return for the Group by depositing sums which are not required to meet the immediate needs of the Group in interest-bearing deposits. Other balances are held in interest-bearing, instant access accounts. All deposits are placed with main clearing banks to restrict both credit risk and liquidity risk. The deposits are placed for the short term, between one and three months, to provide flexibility and access to the funds and to avoid locking into potentially unattractive interest rates.
Credit and liquidity risk
Credit risk is managed on a Group basis. Funds are deposited with financial institutions with a credit rating equivalent to, or above, the main UK clearing banks. The Group's liquid resources are invested having regard to the timing of payments to be made in the ordinary course of the Group's activities. All financial liabilities are payable in the short term (between 0 and 3 months) and the Group maintains adequate bank balances to meet those liabilities as they fall due.
Currency risk
The Group operates in a global market with income possibly arising in a number of different currencies, principally in Sterling or US Dollars. The majority of the operating costs are incurred in Sterling with the rest predominantly in US Dollars. The Group does not hedge potential future income or costs, since the existence, quantum and timing of such transactions cannot be accurately predicted.
Financial assets and liabilities denominated in US Dollars and translated into Sterling at the closing rate were:
|
|
|
|
|
|
Group |
|
Company |
|
|
|
|
|
|
2016 |
|
2016 |
|
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
Financial assets |
|
|
|
|
214,999 |
|
238,556 |
|
Financial liabilities |
|
|
|
|
11,348 |
|
- |
|
|
|
|
|
|
|
|
|
|
Net financial assets |
|
|
|
|
203,651 |
|
238,556 |
|
|
|
|
|
|
|
|
|
The following table illustrates the sensitivity of the net result for the period and the reported financial assets of the Group in regards to the exchange rate for Sterling:US Dollar
|
|
|
|
2016 |
|
|
|
|
|
|
As reported |
if Sterling |
if Sterling |
|
|
|
|
|
rose 20% |
fell 20% |
|
|
|
|
£ |
£ |
£ |
|
|
|
|
|
|
|
|
Group result for the period |
|
|
(1,816,671) |
1,767,444 |
1,865,675 |
|
US Dollar denominated net financial assets |
|
|
569,216 |
474,347 |
683,079 |
|
Total equity at 31 March 2016 |
|
|
1,393,925 |
1,350,30 |
1,441,643 |
|
|
|
|
|
|
|
24. RELATED PARTY TRANSACTIONS
Between the date of incorporation and 31 March 2016, the Company entered into the following related party transactions:
As part of the formation and initial equity placing of the Company, 12,200,000 Ordinary Shares of 5p each were subscribed for and issued to the following Directors:
|
|
Number |
Cash subscribed (£ per share) |
|
|
|
|
|
R B Price |
12,000,000 |
0.05 |
|
J M Davies |
200,000 |
0.05 |
On 18 March 2015, the Company constituted Founder Warrants on the terms of an instrument under which the Company issued Warrants in respect of 23,750,000 shares to R B Price and in respect of 1,000,000 shares to J M Davies. The Warrants entitle the holders to subscribe for 23,750,000 and 1,000,000 Ordinary Shares respectively at 5 pence per Ordinary Share. The Warrants are exercisable at any time up to and including the 25 March 2020.
R B Price (a Director of the Company) and P Mendell (a member of the Advisory Board) are also directors of and holders of 37.5% each of the issued share capital of Diversion Technologies LLC ("Diversion"). During the period, the Group acquired a 75% stake in intellectual property and patent rights owned by Diversion for £706,500 which the Group paid by the issue of 1,900,000 Ordinary Shares to Diversion along with the granting to Diversion of warrants over a further 30,000,000 Ordinary Shares exercisable within three years at an exercise price of 25p per share. At the time of the acquisition the shares in the Company were trading at 13.5p per share.
25. EVENTS AFTER THE REPORTING PERIOD
On 26 April, agreement was reached to place a further 2,883,849 new ordinary shares at a price of 18p per share, raising approximately £519,000 before costs. In addition, since the period end further warrants were exercised by the holders resulting in the issue of 1,270,000 shares and generating new funds of £117,500 for the Company. These transactions increased the issued share capital to 33,977,349 ordinary 5p shares.
On 14 June 2016, the Company reached heads of terms with London-listed Opera Investments plc ("Opera") by which Opera will acquire all of the issued share capital of Highlands' subsidiary Highlands Helium Developments Limited, incorporated post year end to acquire the Helios Two helium and natural gas project in Montana, USA. The transaction is conditional upon approval by the Opera shareholders and a number of pre-conditions on which both parties are actively working. The consideration of approximately £4.0 million is to be satisfied by the issue of shares in Opera following which the Company will be approximately a 55% shareholder in Opera. The heads of terms also stipulate that Opera will reimburse the Company all of the professional costs incurred by Highlands on this project, the majority of which occurred post year end as well as any costs of further leases that could be acquired for the project (with any such further leases also being the subject of the proposed disposal).
26. CONTROL
In the opinion of the Directors there is no single ultimate controlling party.
**ENDS**
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