HFI Hydrogen Future Industries PLC

HYDROGEN FUTURE INDUSTRIES PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 JULY 2023

 

1.         General Information

The Company was incorporated on 13 July 2021 in England and Wales with Registered Number 13508782 under the Companies Act 2006. The principal activity of the Group is as a developer of proprietary wind-based green hydrogen production systems. The Group is currently in the research and development phase with the aims to look to begin producing a commercially viable product in the short to near future.

The address of its registered office is Eccleston Yards, 25 Eccleston Place, London SW1W 9NF, United Kingdom.

The Group commenced trading on the Aquis Stock Exchange ("AQSE") Growth Market on 1 December 2021.

2.         Accounting policies

The principal accounting policies applied in preparation of these consolidated financial statements ("financial statements") are set out below. These policies have been consistently applied unless otherwise stated.

2.1          Basis of preparation

The financial statements for the year ended 31 July 2023 have been prepared by Hydrogen Future Industries Plc in accordance with UK-adopted International Accounting Standards ('IFRS'). The financial statements have been prepared under the historical cost convention.

The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts in the financial statements. The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements, are disclosed in Note 2.22.

The financial statements present the results for the Group and Company for the year ended 31 July 2023. 

The principal accounting policies are set out below and have, unless otherwise stated, been applied consistently in the financial statements. The financial statements are prepared in Pounds Sterling, which is the Group's presentational currency, and presented to the nearest £'000.

2.2          Going concern

The financial statements have been prepared on a going concern basis, which assumes that the Group will continue to meet its liabilities as they fall due.

The Group has cash and cash equivalents of approximately £263k (2022: £1.383m) at 31 July 2023 as it approaches the 24 month anniversary of its initial fundraise. The Directors have prepared detailed forecasts and analysis that account for their best estimate of committed expenditure and expected cash inflows and are of the view this is sufficient to fund the Group's expenditure over the next 12 months from the date of approval of these financial statements.

Due to the timing in relation to the confirmation of the expected cashflows the auditors have identified a material uncertainty which may cast doubt over the Group's ability to continue as a going concern. The financial statements do not include any adjustments that would result if the Group were unable to continue as a going concern.

2.3          Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand, and demand deposits with banks and other financial institutions.

2.4          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 or lapse.

Retained losses includes all current and prior period results as disclosed in the income statement.

Foreign currency differences are recognised in other comprehensive income and accumulated in the foreign exchange reserve except to the extent that the translation difference is allocated to non-controlling interests. 

2.5          Foreign currency translation

(i) Transactions and balances in each entity's financial statements

 

Transactions in foreign currencies are translated into the functional currency on initial recognition using the exchange rates prevailing on the transaction dates.  Monetary assets and liabilities in foreign currencies are translated at the exchange rates at the end of each reporting period.  Gains and losses resulting from this translation policy are recognised in profit or loss.

 

Non-monetary items that are measured at fair values in foreign currencies are translated using the exchange rates at the dates when the fair values are determined.

 

When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss is recognised in other comprehensive income.  When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.

 

(ii) Translation on consolidation

 

The results and financial position of all the Group entities that have a functional currency different from the Company's presentation currency are translated into the Company's presentation currency as follows:

 

- Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position;

- Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the exchange rates on the transaction dates); and

- All resulting exchange differences are recognised in the foreign currency translation reserve.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities and of borrowings are recognised in the foreign currency translation reserve.  When a foreign operation is sold, such exchange differences are recognised in consolidated profit or loss as part of the gain or loss on disposal.

 

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

 

 

2.6          Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 July each year. Per IFRS 10, control is achieved when the Company:

·    has the power over the investee;

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

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

 

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.  When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:

·   the size of the Company's holding of voting rights relative to the size and dispersion of holdings of        the other vote holders;

·   potential voting rights held by the Company, other vote holders or other parties;

·   rights arising from other contractual arrangements; and

·   any additional facts and circumstances that indicate that the Company has, or does not have,     the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings.

 

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in profit or loss from the date the Company gains control until the date when the Company ceases to control the subsidiary.  Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group's accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.

2.7          Associates

Associates are entities over which the Group has significant influence.  Significant influence is the power to participate in the financial and operating policy decisions of an entity but is not control or joint control over those policies.  The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities, are considered when assessing whether the Group has significant influence.  In assessing whether a potential voting right contributes to significant influence, the holder's intention and financial ability to exercise or convert that right is not considered.

 

Investment in an associate is accounted for in the consolidated financial statements by the equity method and is initially recognised at cost.  Identifiable assets and liabilities of the associate in an acquisition are measured at their fair values at the acquisition date.  The excess of the cost of acquisition over the Group's share of the net fair value of the associate's identifiable assets and liabilities is recorded as goodwill.  The goodwill is included in the carrying amount of the investment and is tested for impairment together with the investment at the end of each reporting period when there is objective evidence that the investment is impaired.  Any excess of the Group's share of the net fair value of the identifiable assets and liabilities over the cost of acquisition is recognised in consolidated profit or loss.

 

The Group's share of an associate's post-acquisition profits or losses is recognised in consolidated profit or loss, and its share of the post-acquisition movements in reserves is recognised in the consolidated reserves.  The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.  When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.  If the associate subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.

 

The gain or loss on the disposal of an associate that results in a loss of significant influence represents the difference between (i) the fair value of the consideration of the sale plus the fair value of any investment retained in that associate and (ii) the Group's share of the net assets of that associate plus any remaining goodwill relating to that associate and any related accumulated foreign currency translation reserve.  If an investment in an associate becomes an investment in a joint venture, the Group continues to apply the equity method and does not remeasure the retained interest.

 

Unrealised profits on transactions between the Group and its associates are eliminated to the extent of the Group's interests in the associates.  Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.  Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

2.8          Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses.

When the Group acquires any plant and equipment it is stated in the accounts at its cost of acquisition less depreciation and any impairments.

Depreciation is charged to write off the costs less estimated residual value of plant and equipment on a straight line basis over their estimated useful lives being:

-    Plant and equipment                     5 - 7 years

-    Computer & IT equipment           3 years

Estimated useful lives and residual values are reviewed each year and amended as required.

2.9          Financial instruments

IFRS 9 requires an entity to address the classification, measurement and recognition of financial assets and liabilities.

a)  Classification

The Company classifies its financial assets in the following measurement categories:

·      those to be measured subsequently at fair value (either through OCI or through profit or loss);

·      those to be measured at amortised cost; and

·      those to be measured subsequently at fair value through profit or loss.

The classification depends on the Company's business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will be recorded either in profit or loss or in OCI. For investments in equity instruments that are not held for trading, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).

b)  Recognition

Purchases and sales of financial assets are recognised on trade date (that is, the date on which the Company commits to purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

c)   Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset.

Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Debt instruments

Amortised cost: Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses) together with foreign exchange gains and losses. Impairment losses are presented as a separate line item in the statement of profit or loss.

Equity instruments

The Company subsequently measures all equity investments at fair value. Where the Company's management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment.

d)  Impairment

The Company assesses, on a forward-looking basis, the expected credit losses associated with any debt instruments carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

2.10        Loss allowances for expected credit losses

The Group recognises loss allowances for expected credit losses on financial assets at amortised cost.  Expected credit losses are the weighted average of credit losses with the respective risks of a default occurring as the weights.

 

At the end of each reporting period, the Group measures the loss allowance for a financial instrument at an amount equal to the expected credit losses that result from all possible default events over the expected life of that financial instrument ("lifetime expected credit losses") for trade receivables, contract assets and lease receivables, or if the credit risk on that financial instrument has increased significantly since initial recognition.

 

If, at the end of the reporting period, the credit risk on a financial instrument (other than trade receivables, contract assets and lease receivables) has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to the portion of lifetime expected credit losses that represents the expected credit losses that result from default events on that financial instrument that are possible within 12 months after the reporting period.

 

The amount of expected credit losses or reversal to adjust the loss allowance at the end of the reporting period to the required amount is recognised in profit or loss as an impairment gain or loss.

 

2.11        Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

 

2.12        Leases

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. In all instances the leases were discounted using the incremental borrowing rate.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period. Right-of-use assets are measured at cost which comprises the following:

-    The amount of the initial measurement of the lease liability;

-    Any lease payments made at or before the commencement date less any lease incentives received;

-    Any initial direct costs; and

-    Restoration costs.

Right-of-use assets are depreciated over the shorter of the asset's useful life and the lease term on a straight line basis. If the Company is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

Payments associated with short-term leases (term less than 12 months) and all leases of low-value assets (generally less than £5k) are recognised on a straight-line basis as an expense in profit or loss. The short term lease exemption has been utilised by the Company in relation to property leases held in the US based subsidiary HFI Energy Systems US Inc. These leases are on a rolling month-month basis and hence there is no long term commitment entered into.

2.13        Intangible assets

Expenditure on internally developed products is capitalised if it can be demonstrated that:

-    it is technically feasible to develop the product for it to be sold

-    adequate resources are available to complete the development

-    there is an intention to complete and sell the product

-    the Group is able to sell the product

-    sale of the product will generate future economic benefits, and - expenditure on the project can be measured reliably.

 

Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. The amortisation expense is included within the administrative expenses, in the consolidated statement of comprehensive income.

Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated statement of comprehensive income as research and development costs as incurred.

Asset Acquisition

During the year, the Group, through its subsidiary HFI Energy Systems Ltd, acquired the remaining 49% of the share capital of HFI IP Holdings Ltd. In assessing the acquisition, the Group applied the concentration test under IFRS3 and determined that the acquired set of activities and assets at the time of acquisition did not constitute a business, hence considered it to be an asset acquisition.

Patents

During the period the Group acquired a suite of international patents related to the development of its wind and water-based hydrogen production systems. Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives.

Amortisation is charged to write off the cost less estimated residual value of patents on a straight line basis over their estimated useful lives which are:

-    Patents      30 years

Other intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or group of assets (cash-generating units). As of the end of the period none of the intangible assets show any indicators of impairment.

2.14        Taxation

Income tax represents the sum of the current tax and deferred tax.

 

The tax currently payable is based on taxable profit for the year.  Taxable profit differs from profit recognised in profit or loss 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 end of the reporting period.

 

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.  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, unused tax losses or unused tax credits can be utilised.  Such assets and liabilities are not recognised if the temporary difference arises from 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 the end of each reporting period 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 is realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period.  Deferred tax is recognised in profit or loss, except when it relates to items recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity.

 

The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

 

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.

 

2.15        Share based payments

The Group issues equity-settled and cash-settled share-based payments to certain employees and advisors.  Equity-settled share-based payments are measured at the fair value (excluding the effect of non market-based vesting conditions) of the equity instruments at the date of grant.  The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.

 

The Group issues equity-settled share-based payments to certain directors, employees and consultants.

 

Equity-settled share-based payments to directors and employees are measured at the fair value (excluding the effect of non market-based vesting conditions) of the equity instruments at the date of grant.  The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions.

Equity-settled share-based payments to consultants are measured at the fair value of the services rendered or if the fair value of the services rendered cannot be reliably measured, at the fair value of the equity instruments granted.  The fair value is measured at the date the Group receives the services and is recognised as an expense.

 

2.16        Segmental analysis

Operating segments and the amounts of each segment item reported in the financial statements are identified from the financial information provided regularly to the Group's most senior executive management for the purpose of allocating resources and assessing the performance of the Group's various lines of business.

 

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of productions processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment.  Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

 

 

2.17        Related parties

a.    A related party is a person or entity that is related to the Group.

I.     A person or a close member of that person's family is related to the Group if that person:

II.    has control or joint control over the Group;

III.   has significant influence over the Group; or

IV.  is a member of the key management personnel of the Company or of a parent of the Company.

 

b.    An entity is related to the Group if any of the following conditions applies:

I.     The entity and the Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

II.    One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

III.   Both entities are joint ventures of the same third party.

IV.  One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

V.    The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.  If the Group is itself such a plan, the sponsoring employers are also related to the Group.

VI.  The entity is controlled or jointly controlled by a person identified in (A).

VII. A person identified in (A)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

VIII.        The entity, or any member of a group of which it is a part, provides key management personnel services to the Company or to a parent of the Company.

 

2.18        Impairment of assets

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss.  If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss.  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.

 

Recoverable amount is the higher of fair value less costs of disposal and value in use.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

 

If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.  An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset or cash-generating unit in prior years.  A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

 

2.19        Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a present legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.  Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow is remote.  Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow is remote.

 

2.20        Events after reporting period

Events after the reporting period that provide additional information about the Group's position at the end of the reporting period or those that indicate the going concern assumption is not appropriate are adjusting events and are reflected in the financial statements.  Events after the reporting period that are not adjusting events are disclosed in the notes to the financial statements when material.

 

2.21        New standards and interpretations not yet adopted

In the current year, the group has adopted all the new and revised UK adopted international accounting standards that are relevant to its operations and effective for its accounting year beginning on 1 August 2022. The adoption of these new and revised UK adopted international accounting standards did not result in significant changes to the group's accounting policies, presentation of the group's financial statements and amounts reported.

2.22        Critical accounting judgements and key sources of estimation uncertainty

The preparation of the financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future periods affected. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed below:

Share based payments - Note 18

The Group issues options and warrants to its employees, directors, investors and advisors.  These are valued in accordance with IFRS 2 "Share-based payments".  In calculating the related charge on issuing shares and options the Group will use a variety of estimates and judgements in respect of inputs used including share price volatility, risk free rate, and expected life.  Changes to these inputs may impact the related charge.

Impairment of investments and loans to subsidiaries - Note 15 & 19

The Group and the Company assess at each reporting date whether there is any objective evidence that investments in and loans to subsidiaries are impaired.  To determine whether there is objective evidence of impairment, a considerable amount of estimation is required in assessing the ultimate realisation of these investments/receivables, including valuation, creditworthiness and future cashflows. As at the year end the Directors do not assess there to be any impairment of these amounts. 

Recoverable value of intangible assets - Note 10

Costs capitalised in respect of the Group's intangible assets are required to be assessed for impairment. Such an estimate requires the Group to exercise judgement in respect of the indicators of impairment and also in respect of inputs used in the models which are used to support the carrying value of the assets. Such inputs include estimates of production profiles, commodity prices, capital expenditure, inflation rates, and pre-tax discount rates that reflect current market assessments of (a) the time value of money; and (b) the risks specific to the asset for which the future cash flow estimates have not been adjusted. The Directors concluded that there was no impairment as at 31 July 2023.

3.         Segmental analysis

The Group manages its operations in two segments, being the development of proprietary wind and water-based green hydrogen production systems primarily in North America and corporate functions in the United Kingdom. The results of these segments are regularly reviewed by the board as a basis for the allocation of resources and to assess their performance.

The Group generated no revenue during the year ended 31 July 2023 (2022: £0)

	United Kingdom		North America		Consolidated
	£'000		£'000		£'000
Revenue	-		-		-
Directors fees	(108)		-		(108)
Salaries and wages	(48)		-		(48)
Professional fees	(207)		(1)		(208)
Research and development	(180)		(222)		(402)
Share based payments	(13)		-		(13)
Other administrative expenses	(178)		(75)		(253)
Foreign exchange	(2)		(25)		(27)
Depreciation & amortization	(36)		(8)		(44)
Operating loss	(772)		(331)		(1,103)
Finance expenses	(3)		-		(3)
Share of (loss) of equity accounted associates	(7)		-		(7)
Operating loss before taxation	(782)		(331)		(1,113)
Reportable segment assets	946		33		979
Reportable segment liabilities	(170)		-		(170)
	776		33		809

4.    Administrative expenses

Administrative expense for the Group are detailed below:

	Audited Year ended 31 July 2023		Audited Year ended 31 July 2022
	£'000		£'000
Salaries & wages	(48)		(90)
Travel & business development	(78)		(7)
Insurance	(11)		(34)
Other administrative expenses	(164)		(242)
Foreign exchange	(27)		-
Exclusivity fees	-		(15)
	(328)		(388)

 

5.         Employees

The average number of persons employed by the Group (including Directors) during the year ended 31 July 2023 was:

			No of employees 2023		No of employees 2022
Management			5		3
			5		3

 

The aggregate payroll costs of these persons (including Directors) were as follows:

			£'000		£'000
Management			156		160
Research and development (technical staff)			180		-
			336		160

 

6.         Auditor's Remuneration

			Year ended 31 July 2023                      £'000		Year ended 31 July 2022                      £'000
In respect of the audit of the Group accounts			22		35
Other non-audit services			-		20
			22		55

 

7.         Taxation

A reconciliation of the value from the statement of comprehensive income is detailed below:

		Year ended 31 July 2023                      £'000		Year ended 31 July 2022                      £'000
Corporation tax on the results for the year		-		-
A reconciliation of tax charge is provided below:
Loss before taxation per the financial statements		(1,113)		(700)
Tax credit at the weighted average of the standard rate of corporation tax in UK of 19% (31 July 2022: 19%)		(211)		(133)
Tax effect of capital items disallowed for corporation tax purposes		-		44
Current year losses for which no deferred tax asset is recognised		211		89
Income tax charge for the year		-		-

The Company has total carried forward losses of approximately £1,580,000. The taxed value of the unrecognised deferred tax asset is approximately £300,000 and these losses do not expire. No deferred tax assets in respect of tax losses have not been recognised in the accounts because there is currently insufficient evidence of the timing of suitable future taxable profits against which they can be recovered.

On 23 September 2022, the Chancellor announced that he has cancelled the planned corporation tax increase and rather than rising to 25 per cent from April 2023, the rate will remain at 19 per cent for all firms, regardless of the amount of profit made.

8.         Earnings per share

The calculation of the basic and diluted earnings per share is calculated by dividing the profit or loss for the year by the weighted average number of ordinary shares in issue during the year.

	Audited		Audited
	Year ended 31 July 2023		Year ended 31 July 2022
Net loss for the year attributable to ordinary equity holders for continuing operations (£'000)	(1,113)		(700)
Weighted average number of ordinary shares in issue	35,463,562		20,388,381
Basic and diluted earnings per share for continuing operations (pence)	(3.14)		(3.433)

There is no difference between the diluted loss per share and the basic loss per share presented. Share options and warrants could potentially dilute basic earnings per share in the future but were not included in the calculation of diluted earnings per share as they are anti-dilutive for the year presented.

9.         Fixed assets

Group Total

		PP&E £'000	Computer equipment £'000		Total £'000
Cost
Opening balance		-	-		-
Additions in the year		3	15		18
At 31 July 2022		3	15		18
Additions in the year		15	-		15
At 31 July 2023		18	15		33
Depreciation
Opening balance		-	-		-
Charge for the year		-	-		-
At 31 July 2022		-	-		-
Charge for the year		1	7		8
At 31 July 2023		1	7		8
Net book value 31 July 2022		3	15		18
Net book value 31 July 2023		17	8		25

 

10.       Intangible assets

		Patents £'000		Total £'000
Cost
Opening balance		-		-
At 31 July 2022		-		-
Additions in the year		492		492
At 31 July 2023		492		492
Amortization
Opening balance		-		-
At 31 July 2022		-		-
Charge for the year		(16)		(16)
At 31 July 2023		(16)		(16)
Net book value 31 July 2022		-		-
Net book value 31 July 2023		476		476

On 5 October 2022 the Group successfully completed the acquisition of a suite of international patents which are relevant to the systems being developed by the Company. The board believes the patents may have commercial applications within both the Group's future wind based green hydrogen production systems and the wider wind energy generation sector.

 

 

 

 

 

11.       Leases

Company

		As at  31 July 2023 £'000		As at  31 July 2022 £'000
Right-of-use assets
Motor vehicles		15		22
Property		57		-
		72		22
Lease liabilities
Current		43		5
Non-current		24		17
		67		22

Right of use assets

A reconciliation of the carrying amount of the right-of-use asset is as follows:

		As at  31 July 2023 £'000		As at  31 July 2022 £'000
Motor vehicles
Opening balance		-		-
Additions		22		22
Depreciation		(7)		-
		15		22
Property
Opening balance		-		-
Additions		69		22
Depreciation		(12)		-
		57		22

 

Lease liabilities

A reconciliation of the carrying amount of the lease liabilities is as follows:

		As at  31 July 2023 £'000		As at  31 July 2022 £'000
Opening balance		22		-
Additions		69		22
Repayments		(27)		-
Finance charge		3		-
		67		22

 

 

 

12.       Investment in associates

The following entities have been included in the consolidated financial statements using the equity method:

	Country of incorporation	Proportion of ownership interest held as at 31 July 2023
Tower Green Holdings limited1	United Kingdom	20%

 

¹  On 23 January the Group acquired a 20% interest in Tower Green Holdings Limited ("TGH") over which the Group has determined that it holds significant influence as:

-    HFI & TGH have one mutual director

-    Material shareholding of 20%

Based on this the Group considers that they have the power to exercise significant influence.

Summarised financial information (material associates):

 

	As at 23 January 2023 £'000
Current assets	35
Net assets total	35
Group share of net assets (20%)	7
Period from investment to 31 July 2023
Revenues	-
Loss from continuing operations	(34)
Group share of loss (20%)	(7)
Investment in TGH	100
Investors share of net assets at acquisition	7
Implied goodwill	93
Share of net loss	(7)
Carrying value of investment - 31 July 2023	93

 

 

 

 

 

 

13.       Cash and cash equivalents

	Company 31 July 2023 £'000	Group 31 July 2023 £'000	Company 31 July 2022 £'000	Group 31 July 2022 £'000
Cash at bank	248	262	1,294	1,383
	248	262	1,294	1,383

 

Majority of the cash is held with Alpha FX foreign exchange trading platform who utilise the banking facilities of Lloyds Banking Group Plc (credit ratings: S&P's BBB+, A3, Fitch A). Daily working capital amounts are held through the Wise online banking platform in the UK and Rocky Mountain Online Bank in the US. These online banking platforms do not currently have credit ratings available.

The denomination of amounts in foreign currencies is as follows:

 

	Company 31 July 2023 £'000	Group 31 July 2023 £'000	Company 31 July 2022 £'000	Group 31 July 2022 £'000
USD	-	10	32	71
GBP	248	252	1,262	1,312
	248	262	1,294	1,383

 

 

14.       Trade and other receivables

	Company 31 July 2023 £'000	Group 31 July 2023 £'000	Company 31 July 2022 £'000	Group 31 July 2022 £'000
Prepayments	10	20	140	140
Lease deposit	13	13	-	-
VAT receivable	18	18	70	70
	41	51	210	210

 

 

15.       Intercompany receivables

	Company 31 July 2023 £'000	Group 31 July 2023 £'000	Company 31 July 2022 £'000	Group 31 July 2022 £'000
Loans to subsidiaries	2,791	-	326	-
	2,791	-	326	-

 

 

 

 

16.       Trade and other payables

	Company 31 July 2023 £'000	Group 31 July 2023 £'000	Company 31 July 2022 £'000	Group 31 July 2022 £'000
Trade payables	48	48	36	36
Accruals	22	22	42	46
Employer obligations	7	33	-	-
	77	103	78	82

 

 

17.       Share capital and share premium

	Ordinary shares	Share       capital	Share premium	Total
	£'000	£'000	£'000	£'000
Issue of ordinary shares on incorporation1	50,000	1	-	1
Issue of ordinary shares	5,850,000	58	-	58
Issue of ordinary shares	1,600,000	16	-	16
Issue of ordinary shares	22,300,000	223	2,007	2,230
Share issue costs	-	-	(107)	(107)
At 31 July 2022	29,800,000	298	1,900	2,198
Issue of ordinary shares 2	3,450,000	35	311	345
Issue of ordinary shares 3	500,000	5	45	50
Issue of ordinary shares4	14,000,000	140	1,260	1,400
Share issue costs	-	-	(34)	(34)
At 31 July 2023	47,750,000	478	3,482	3,959

 

¹ On 5 October 2022, the Company issued 3,450,000 ordinary shares of £0.01 at their nominal value of £0.01.

² On 16 January 2023, the Company issued 500,000 ordinary shares of £0.01 at a price of £0.1 per share.

³ On 23 May 2023, the Company issued 14,000,000 ordinary shares of £0.01 at a price of £0.1 per share.

There is currently an authorised share capital limit in place for the Company which is subject to review at the next Annual General Meeting.

 

 

 

 

18.       Share based payment reserves

	Company £'000	Group £'000
At 13 July 2021	-	-
Broker warrants issued	6	6
Advisor warrants	25	25
At 31 July 2022	31	31
Employee options issued 1	13	13
At 31 July 2023	44	44

 

¹ On 4 November 2022, the Company issued 6 million employee options to the directors, the CEO of HFI Energy Systems Ltd (Tim Blake) and a consultant. The options are exercisable at the price of £0.10 per ordinary share and are exercisable, either in whole or part, for a period of 5 years from the date of issue. All options vest immediately apart from 1.5 million options issued to Tim Blake which have separate performance conditions.

The estimated fair values of warrants & options which fall under IFRS 2, and the inputs used in the Black-Scholes pricing model to calculate those fair values are as follows:

 

Date of grant	Number of warrants	Share price	Exercise price	Expected volatility	Expected life	Risk free rate	Expected dividends
5 October 2022	1,625,000	£0.065	£0.12	15%	3	4.25%	0.00%

 

Date of grant	Number of options	Share price	Exercise price	Expected volatility	Expected life	Risk free rate	Expected dividends
4 November 2022	6,000,000	£0.065	£0.10	15%	5	4.25%	0.00%

Warrants

	As at 31 July 2023
	Weighted average exercise price	Number of warrants
Brought forward at 1 August 2022	5p	8,050,000
Granted in year	12p	1,625,000
Vested in year	12p	1,625,000
Outstanding at 31 July 2023	6.25p	9,675,000
Exercisable at 31 July 2023	6.25p	9,675,000

The average weighted time to expiry of the warrants is 1.62 years

 

 

Options

	As at 31 July 2023
	Weighted average exercise price	Number of options
Brought forward at 1 August 2022	-	-
Granted in year	10p	6,000,000
Vested in year	10p	4,500,000
Outstanding at 31 July 2023	10p	6,000,000
Exercisable at 31 July 2023	10p	4,500,000

The average weighted time to expiry of the options is 4.27 years

 

19.       Investments - Subsidiaries

Name	Holding	Business Activity	Country of Incorporation	Registered Address
HFI Energy Systems Ltd	100%	Research & development	England & Wales	Eccleston Yards, 25 Eccleston Place, London SW1W 9NF
HFI Energy Systems US Inc	100%	Research & development	United States of America	16 Nugget Court, Whitehall, MT 59759
HFI IP Holdings Ltd	100%	IP holding company	England & Wales	Eccleston Yards, 25 Eccleston Place, London SW1W 9NF
HFI Development Ltd	100%	Research & development	England & Wales	Eccleston Yards, 25 Eccleston Place, London SW1W 9NF
HFI Consulting Ltd	100%	Consulting	England & Wales	Eccleston Yards, 25 Eccleston Place, London SW1W 9NF

 

20.       Financial Instruments and Risk Management

Principal financial instruments

Capital management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders. The overall strategy of the Company and the Group is to minimise costs and liquidity risk while simultaneously executing its business strategy.

The capital structure of the Group consists of equity attributable to equity holders of the parent, comprising issued share capital, share premium, foreign exchange reserves and retained earnings as disclosed in the Consolidated Statement of Changes of Equity.

The Group is exposed to a number of risks through its normal operations, the most significant of which are credit, foreign exchange and liquidity risks.

The management of these risks is vested to the Board of Directors. The sensitivity has been prepared assuming the liability outstanding was outstanding for the whole year. In all cases presented, a negative number in profit and loss represents an increase in expense/decrease in income.

General objectives and policies

As alluded to in the Directors report the overall objective of the Board is to set policies that seek to reduce risk as far as practical without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are detailed below.

Principal financial instruments

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

Policy on financial risk management

The Group's principal financial instruments comprise cash and cash equivalents, other receivables, trade and other payables. The Group's accounting policies and methods adopted, including the criteria for recognition, the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are set out in note 2 - "Accounting Policies".

The Group does not use financial instruments for speculative purposes. The carrying value of all financial assets and liabilities approximates to their fair value.

Derivatives, financial instruments and risk management

The Group does not use derivative instruments or other financial instruments to manage its exposure to fluctuations in foreign currency exchange rates, interest rates and commodity prices.

Foreign currency risk

The Group operates in a global market with costs arising in multiple currencies and is exposed to foreign currency risk arising from commercial transactions, translation of assets and liabilities and net investment in foreign subsidiaries. Exposure to commercial transactions arise from purchases by operating companies in currencies other than the Group's functional currency. Currency exposures are reviewed regularly.

The Group has a limited level of exposure to foreign exchange risk through its foreign currency denominated cash balances:

$USD		31 Jul 2023 $'000
Cash and cash equivalents		10
		10

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties. The Group's exposure and the credit ratings of its counterparties are monitored by the Board of Directors to ensure that the aggregate value of transactions is spread amongst approved counterparties.

The Group applies IFRS 9 to measure expected credit losses for receivables, these are regularly monitored and assessed. Receivables are subject to an expected credit loss provision when it is probable that amounts outstanding are not recoverable as set out in the accounting policy.

The Group's principal financial assets are cash and cash equivalents. Cash equivalents include amounts held on deposit with financial institutions.

The credit risk on liquid funds held in current accounts and available on demand is limited because the Group's counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The Group has zero trade receivables and therefore there is no risk relating to a 3^rd party being unable to service its obligations.

No financial assets have indicators of impairment.

Liquidity risk

During the year ended 31 July 2023, the Group was financed by cash raised through equity funding. Funds raised surplus to immediate requirements are held as cash deposits in Sterling except for minor working capital requirements held in subsidiary bank accounts.

In managing liquidity risk, the main objective of the Group is to ensure that it has the ability to pay all of its liabilities as they fall due. The Group monitors its levels of working capital to ensure that it can meet its liabilities as they fall due.

The table below shows the undiscounted cash flows on the Group's financial liabilities as at 31 July 2023 on the basis of their earliest possible contractual maturity.

	Total  £'000	Within 2 months £'000	Within 2-6 months £'000
At 31 July 2023
Trade payables	48	48	-
Employer obligations	33	33	-
	81	81	-

 

21.       Financial assets and liabilities

 

	Financial assets at amortised cost £'000	Financial liabilities at amortised cost £'000	Total £'000
At 31 July 2023
Trade and other receivables*	31	-	31
Cash and cash equivalents	262	-	262
Trade and other payables	-	(103)	(103)
	393	(103)	190
	Financial assets at amortised cost £'000	Financial liabilities at amortised cost £'000	Total £'000
At 31 July 2022
Trade and other receivables*	70	-	70
Cash and cash equivalents	1,383	-	1,383
Trade and other payables	-	(82)	(82)
	1,453	(82)	1,371

*Trade and other receivables exclude prepayments

22.       Related Party Transactions

Directors Remuneration

See the Directors Remuneration Report prior to the financial statements for details on Director remuneration.

Related party - Consultants

Dr Nick Blake provides consulting services to the Company's US based subsidiary "HFI Energy Systems US Inc". Dr Nick Blake is the brother of the CEO of HFI Energy Systems Ltd and hence classified as a related party as defined in Note 2.17.a. During the year Dr Nick Blake received consulting fees amounting to USD$91,114 for consulting related specifically to the development of electrolyser prototype development.

Service Agreements

Orana Corporate LLP, of which Director Daniel Maling is a partner, has a service agreement with the Company for the provision of accounting and company secretarial services. In the year, Orana Corporate LLP accrued £61,033 for these services from the Company of which £6,120 was owed at year end.

23.       Ultimate Controlling Party

As at 31 July 2023, Timothy Blake is a person with significant control as he controls ownership of between 25-50% of the share capital of the Company.

24.       Capital Commitments

The Company does not have any other capital or contingent liabilities at year end.

25.       Events Subsequent to period end

Directorate change - 8 September 2023

On 8 September 2023 the Company appointed Mr Neil Ritson as Non-executive Chairman with immediate effect replacing David Ormerod.

Issue of equity - 6 October 2023

On 6 October 2023 the Company issued ,750,000 new ordinary shares at a price of 10 pence per new ordinary share and warrants over 875,000 new ordinary shares with an exercise price of 12 pence per new ordinary share (which can be exercised immediately and will expire three years from the date of issue) as the second tranche of consideration payable to the vendors of various patents acquired by the Company as announced on 5 October 2022.