AFC Energy PLC
Developer of alkaline fuel cells
Report and Accounts
for the year ended 31 October 2007
AFC Energy plc
AFC Energy develops low-cost alkaline fuel cells for industries that
produce hydrogen as a by-product. This hydrogen is used by AFC Energy's
fuel cells to produce clean electricity.
AFC Energy's fuel cells have been developed with a focus on three
key criteria:
• reduced precious metal content;
• operable at low temperatures to allow the use of plastic mouldings;
• high efficiency levels with an approximate conversion rate of 60%.
Having achieved these three objectives, AFC Energy has significantly
reduced the cost of its technologies and thereby ensured the continuing
commercialisation of its fuel cells.
CONTENTS
About AFC Energy
Chairman's Statement
Operating and Financial Review
Board of Directors
Directors' Report
Statement of Directors' Responsibilities
Independent Auditors' Report
Income Statement
Balance Sheet
Cash flow Statement
Statement of Changes in Equity
Notes forming part of the Financial Statements
Directors, Company Secretary and Advisers
Notice of Annual General Meeting
Form of Proxy
1
2
3
7
9
13
14
15
16
17
18
19
28
29
32
Financial statements for the year ended 31 October 2007
AFC Energy plc
ABOUT AFC ENERGY PLC
Target markets
•
AFC Energy targets industrial companies that produce hydrogen as a by-product from their operations. The
chlorine industry produces large amounts of hydrogen each year, a substantial quantity of which is often
vented off and lost into the atmosphere.
Commercialisation
•
AFC Energy targets end-users directly. It is not reliant on intermediaries.
Akzo Nobel, one of Europe's largest chlorine producers, is AFC Energy's first customer, with shipments due
to begin in August 2008.
•
Energy produced by AFC Energy's fuel cells can be used on-site or sold to the national grid.
AFC Energy's 50kW fuel cells have a two-year payback period.
Low-cost technology
•
AFC Energy has reduced the amount of precious metals required in the manufacture of its electrodes.
•
The fuel cells have been engineered with a minimal number of components to reduce cost
of production and maintenance. Key parts of the fuel cells are housed in cartridges which can be
removed, repaired and recycled.
Fuel cell prototypes
•
A prototype of the fuel cell to be sold to Akzo Nobel has been developed and tested.
During fuel cell trials, performances have met, and often exceeded, expectations.
•
Development schedules for the fuel cells have been completed on time.
Surrey University works alongside AFC Energy to independently verify the progress of the
technology.
Multiple cartridges assembled
together form AFC Energy's 3.5kW
system. Initially five 3.5kW systems
have been ordered, with delivery
scheduled to start in August 2008 to
Akzo Nobel's site in Bitterfeld,
Germany.
Financial statements for the year ended 31 October 2007
1
AFC Energy plc
CHAIRMAN'S STATEMENT
It is a pleasure to report our first full year results, to 31 October 2007, which were in line with our forecasts at the time of
admission to AIM.
Introduction
In a year of highly satisfactory progress, the Company secured its first contract with Akzo Nobel. During the year, Akzo Nobel
made on-account payments to AFC Energy to cover part of the development costs of our technology.
AFC Energy will begin shipping its fuel cells to Akzo Nobel during August 2008.
The Company has a strong technical team to complete the development of its fuel cells and begin the first shipments.
Group strategy
The Company is focused on developing fuel cells for industrial companies that produce hydrogen as a by-product from their
activities. This hydrogen is currently vented off and released into the atmosphere.
By taking our fuel cells to this energy source and capturing the hydrogen, we will be able to provide these companies with a
method of generating electricity in an environmentally friendly manner.
Customers will then be able to sell this electricity or reduce their own energy costs by using the electricity themselves.
Payback for AFC Energy's fuel cells therefore is approximately two years.
In order to ensure timely execution of AFC Energy’s budgeted development plans, the Company intends to raise additional
funds in the coming months. To this end shareholders are being asked to authorise the directors to issue and allot shares for
cash. Your attention is drawn to Resolutions 11 and 12 being proposed at the Company's AGM on 10 April 2008.
Market opportunity
With mounting pressure to expand renewable energy sources there are an increasing number of companies developing
different types of fuel cells for different markets and different applications.
AFC Energy targets industries that produce waste hydrogen. The directors estimate that the chlor-alkali industry alone has
approximately 3,000 MW per annum of generating capacity.
Companies in this sector often use electrolysis as part of their own operation, a reverse of the process that AFC Energy uses in
its own fuel cells. Consequently the adoption and management of our systems by a customer is relatively easy and familiar to
them.
In addition, installing our fuel cells into large single sites within a controlled environment provides greater efficiencies than,
for example, installing fuel cells into individual residential locations. This is more costly and vulnerable to misuse.
Employees
We are grateful to every employee, all of whom have worked extremely hard during our first full year as a listed company.
The work ethic at AFC Energy has been a major factor in our ability to achieve all our milestones within this targeted
timeframe.
We have also strengthened the board during the year and welcomed Otto Carlisle as Technical Director. In addition, it is
intended that Mitchell Field be proposed at the AGM for appointment to the board.
Otto has responsibility for the development of our fuel cells and ensuring that AFC Energy meets all aspects of its agreement
with Akzo Nobel, and Mitchell has substantial business experience from which we hope to benefit.
Tim Yeo
Chairman
17 March 2008
Financial statements for the year ended 31 October 2007
2
AFC Energy plc
OPERATING AND FINANCIAL REVIEW
Introduction
AFC Energy is involved in the cost engineering of an existing technology, not the development of a new one. This is an
important point of differentiation for the Company. Our focus is to produce alkaline fuel cells at a commercial price point.
Consequently, it has been essential for us to hire the right calibre people who understand the connection between product
development and cost engineering. The successful IPO and listing of the Company has allowed us to expand our team and
accelerate our product development, enabling us to complete our cell configuration and testing work in our own labs. Tests
run in parallel by Surrey University have confirmed our results and show that we can manufacture our cells and all their
components at the cost we projected, using technology that is currently available. This is a major step forward in the
commercialisation of fuel cells.
TECHNOLOGY DEVELOPMENT
AFC's technological objectives
During the year, the majority of our work has been concentrated on the electrode development and the final system design
with repeatability and reliability of product our main priorities.
We have set the performance criterion for the electrode at a modest 100mA/cm2. Our aim, central to our business plan, is to
achieve this target output at the set production price, based on a production rate of 1,000kW per annum.
The AFC Energy team has a strong background in production engineering, which has been the key to developing the
Company's strong manufacturing control processes. We have a very tightly defined programme plan and have been able to
stick with this throughout our current workload and projections, meeting all the milestones set out in the Admission
Document.
Summary of development programme:
Milestone
Description
Target Completed
1
2
3
4
5
6
Small scale single cell 500 hours operation
May 2007 - ACHIEVED
First scaled single cell operation
August 2007 - ACHIEVED
Scaled single cell 500 hours operation
October 2007 - ACHIEVED
First prototype system operation
January 2008 - ACHIEVED
System operation 500 hours
February 2008 - ACHIEVED
Delivery of multiple systems to customer
August 2008
Catalyst
AFC Energy's core technology is the production of a non-precious metal catalyst at a price point that makes commercial sense.
We have achieved notable success with the development of this technology and have also established a reliably reproducible
cathode and anode substrate to complement it.
Work on the catalyst is still ongoing as we finalise processes and combinations and at the same time test it for longevity and
mechanical strength. We will also carry out further research to explore the possible application of our technology in the
chlorate industry. This work will attract funding under the EU FP7 programme, which AFC Energy will investigate in the next
few months.
Financial statements for the year ended 31 October 2007
3
AFC Energy plc
Electrode
An integral part of the development of the electrode is to balance the desired output against the cost of manufacture, the
catalyst loading, the binder volume and the electrode conductor material. This process is now well on the way with
clearly defined pathways to apply, test and confirm a series of performance steps. Tests already undertaken have produced, in
many cases, better than projected results.
Work is still ongoing and we are well on course to complete this within the timeframe set for these tasks to be finalised.
Through its cartridges
AFC Energy has developed
a 'plug and power' system
that is easy to maintain,
ensures the fuel cells are
commercial and makes
mass production a more
simple operation.
To ensure their viability,
AFC Energy has reduced the
fuel cells system's costs by
eliminating the need for the
life of electrodes to exceed
8,000 hours. Electrodes are
easily replaceable and
recyclable by housing them
in a series of exchangeable
cartridges.
Reduced complexity of fuel cell system
Reducing the complexity of the fuel cell system is an essential requirement and primary objective in the development of a
reliable and cost-effective product. Our design departments have sought to minimise the number of components to be
assembled, to reduce the electrical and mechanical losses in the peripheral systems, to develop the components for
automated assembly and to ensure by design that components that are being serviced cannot be assembled incorrectly. This
demonstrates AFC Energy's recognition of the importance of product design to company profitability.
Testing and validation
Surrey University works alongside AFC Energy to help the Company achieve its targets, and provides independent validation
reports on half-cell testing progress and electrode analysis. This has contributed greatly to the successful completion of
our programme so far, and the Company expects to continue its relationship with Surrey University.
In addition the appointment of Gasketel as our after sales service partner in Germany strengthens our development plans
and further underlines our commitment to Akzo Nobel. AFC Energy is considering extending its single cell test programme to
Gasketel in Germany for third party validation.
Financial statements for the year ended 31 October 2007
4
AFC Energy plc
FINANCIAL HIGHLIGHTS
The Company was successfully admitted to AIM in April 2007 raising £3.0 million before expenses.
The Company incurred direct and administrative costs of approximately £2 million in the year, as it consolidated its team of
technical experts tasked with the development and testing of the company's products and their commercialisation.
Monthly payments have been received from Akzo Nobel, our first customer. We have delivered on time the various
development programme milestones outlined in the Admission Document.
As our relationship with Akzo Nobel develops and further opportunities with our client are identified, AFC Energy will
commit further capital and resource to the project, as detailed in the Admission Document.
The Company's net assets at 31 October 2007 were £2.948 million and the cash balance was £2.128 million.
Akzo Nobel
First prototype
The first commercial application of our system and its technology will be at Akzo Nobel's chlor-alkali plant in Bitterfeld,
Germany.
We will install a unit comprising five 3.5kW systems and integrate this unit with the factory's own control and safety
systems. This arrangement will allow for the in-house and remote monitoring of system up-time, efficiency of conversion,
temperatures, reliability, and interface aspects.
We have agreed safety controls to comply with Akzo Nobel's in-house requirements will shortly receive full HAZOP
certification of our system.
AFC Energy's first fuel cells will fully
integrate with Akzo Nobel's own complex
control systems. Connecting directly to the
hydrogen created as a by-product, AFC
Energy will generate clean energy for
Akzo Nobel. This 15kW prototype provides
valuable operating data which will be
used to assist the successful integration
of the fuel cells into the client’s central
control room inside the Bitterfeld factory.
50kW system
In line with its agreement with Akzo Nobel, AFC Energy has started the Product Design Specification of the 50kW system,
which will be based around the current electrode and cartridge frame design.
Modelling of the 50kW system is underway in preparation for the final system design.
Financial statements for the year ended 31 October 2007
5
AFC Energy plc
COMMERCIAL OUTLOOK
Chlorate industry
We have also identified a very large opportunity within the chlorate industry as well as the chlorine industry. This sector
is at least as large as the chlor-alkali industry and currently does not use any of the hydrogen produced in its processes.
There are more contaminants in their hydrogen which will provide an additional technical challenge for the AFC team.
Our product, with its unique electrode design and cost structure, is ideally suited to providing a novel solution to this industry,
allowing them to recover a large cost element rather than almost completely losing the value of the hydrogen produced.
Power and water applications
During the year we explored other interesting avenues for our product, combining power generation with the production
of potable water. We have commissioned Element Energy to carry out a study on our behalf that will further define this space.
We received an order for three thousand 3.5kW systems from the Indonesian government but the internal political situation
is such that it may be a while before this order is formally ratified. Until the order is confirmed, with the receipt of an initial
payment, AFC Energy will not be allocating any resources to this opportunity.
Revenue-sharing model
We are currently working on the last phase of our future business model, where we provide our customers in the chlorine
industry with a complete leasing solution. AFC Energy will install and maintain its equipment on site, in exchange for a
long-term contract to share the revenue generated by the conversion of excess hydrogen to electric power. This model is
highly attractive as it allows AFC to benefit from any rise in electricity prices in the future, and at the same time provides us
with a regular income.
Chlor-alkali industry
We continue to discuss opportunities with a number of major players in the chlor-alkali industry, mostly larger by size and
volume of hydrogen produced than Akzo Nobel, with a view to building on our existing customer base.
We are in active discussions and look forward to updating shareholders about these opportunities in due course.
Gerard Sauer
Chief Executive Officer
17 March 2008
Financial statements for the year ended 31 October 2007
6
AFC Energy plc
BOARD OF DIRECTORS
Tim Yeo - Non-executive Chairman (Aged 63)
Tim Yeo has been Member of Parliament for South Suffolk since 1983. Prior to 1997 he served as a Minister in the Conservative
Government, latterly as Minister of State for the Environment. From 1998 to 2005 he was a member of the Shadow Cabinet,
and since 2005 has been Chairman of the Conservative Party's Environmental Audit Committee.
He is Chairman of Univent plc, a nursing home operator, and a director of ITI Energy, which supplies gasifiers,Chairman of
Eco City Vehicles plc, an AIM-quoted supplier of London taxis, and a non-executive director of Groupe Eurotunnel SA,
the Paris-listed operator of the Channel Tunnel.
Gerard Sauer - Ing-MVT – Chief Executive Officer (Aged 62)
Educated and trained in Holland and Germany, Gerard established a prototype engineering business in the UK in 1971,
working exclusively in the motor sport arena. During the latter part of the 1980s an increasing amount of design and
development work involved integrating advanced drive systems and fuel cell based integration work. Gerard worked
increasingly on development and design work in the fields of SOFC, PEM and alkaline fuel cell system integration involving
cars, vans, buses, boats and static generators.
From 2001 onwards, Gerard instigated and led Eneco's “Own Electrode Project” to establish the creation of a low-cost
electrode and fuel cell system.
Simon Walters - ACA - Finance Director (Aged 44)
Simon qualified as a chartered accountant in 1986 and joined the corporate finance department of Stoy Hayward. In 1990 he
left to join Fuller Peiser, a national property consultancy, as Finance Partner where he stayed for two years before becoming
Finance Director of the privately-held Molyneux property group, whose interests included 52% of quoted PLC Molyneux
Estates. In 1997, he became FD of the operating companies of Shani, a fully-listed UK clothing manufacturer.
In 1999, Simon became Finance Director of Wood Hall Securities, a private equity group with funds invested in a range of
private high-growth businesses and a significant property portfolio. Simon has also been a non-executive director of Bilston
& Battersea Enamels plc, and a director of many companies. Simon is currently managing director of FD Solutions and
provides finance director services to listed and unlisted companies in various sectors.
Otto Carlisle - Technical Director (Aged 34)
In 2000, Otto joined Eneco to work on its alkaline fuel cell system having completed a degree in Mechanical Engineering
with Automotive Design at Brunel University. He soon became Design Manager and responsible for the fuel cell design,
development and testing program. He is a member of the IMechE, a Chartered Engineer, and completed a Masters in
Renewable Energy Systems Technology at the University of Loughborough in 2005.
Otto has been with AFC Energy since its inception in 2006, has been fundamental in the set up of the Company and has been
responsible for all aspects of the technical development program.
Brian Wilson - Non-executive Director (Aged 59)
Rt Hon. Brian Wilson is a Privy Councillor and former UK Energy Minister who was a Member of Parliament from 1987
to 2005. In all, he held five Ministerial posts and latterly acted as the Prime Minister's Special Representative on Overseas
Trade. Since leaving politics, he has maintained a strong interest in the energy sector on which he writes and broadcasts
extensively, as well as holding several non-executive positions. Married with three children, Brian lives in Glasgow where
he is a director of Celtic Football Club.
Financial statements for the year ended 31 October 2007
7
AFC Energy plc
Dr Michael Mangan - Non-executive Director (Aged 66)
Michael has a PhD in plasma behaviour in very high current electrical discharges from the University of Liverpool. He has
extensive experience of electricity application projects for electric road vehicles gained from work at the Electricity Council,
Lucas and more latterly Chloride Silent Power (CSPL), which he joined in 1986 as team leader for the US DOE-sponsored
sodium sulphur battery development programme.
Michael joined the fuel cell company Zevco (later ZeTek Power plc) in 1998 as General Manager, based in Belgium, and
transferred to the Fuel Cell Systems subsidiary of ZeTek Power plc in 2000 as technology director, responsible for the
development of operational fuel cell systems and third-party training programmes. Following the closure of ZeTek Power plc
in 2001, he continued with similar work for Eneco.
Harry Epstein - Non-executive Director (Aged 48)
Harry is the US-based VP Innovation for Havi Global Solutions, the provider of packaging, promotions and supply chain
management globally to some of the world's leading brand owners in the food service industry. Harry has been responsible
for leading major brands into a sustainable solution, not only for packaging but sustainable architecture and energy, and has
advised and developed proposals for creating as comprehensive a carbon neutral footprint in all areas as is feasible.
Harry sits on various committees associated with environmentally responsible solutions. Harry has over 18 years of senior
management experience, most of it spent in the telecommunications and computer industries.
Financial statements for the year ended 31 October 2007
8
AFC Energy plc
DIRECTORS' REPORT
The directors present their report together with the audited financial statements for the year ended 31 October 2007. The
comparative period was from incorporation on 9 January 2006 to 31 October 2006.
Principal activities and review of business developments
The principal activity of AFC Energy plc (or “the Company”) was the development of fuel cells. The Company's shares were
admitted to listing on the Alternative Investment Market (“AIM”) of the London Stock Exchange on 23 April 2007.
Reviews of operations, business developments and current projects are included in the Chairman's Statement and the
Operating and Financial Review.
Results and dividend
The results for the year are set out in the income statement on page 15. No dividends were paid in the year. The directors do
not intend to declare a dividend in respect of the year.
Directors and their interests
The directors who served during the year were:
Tim Yeo MP
Gerard Sauer
Simon Walters
Otto Carlisle
Brian Wilson
Chairman (appointed 14 December 2006)
Chief Executive Officer
Finance Director (appointed 7 February 2007)
Technical Director (appointed 23 July 2007)
Non-Executive (appointed 16 February 2007)
Dr Michael Mangan
Non-executive (appointed 19 February 2007)
Harry Epstein
Howard White
Non-executive (appointed 22 February 2007)
Non-executive (resigned 13 July 2007)
On 31 October 2007 the directors' interests in the equity share capital of the Company were:
Number of
Ordinary shares
of 0.1p
2007
Number of
Ordinary shares
of 1p
2006
Number of
options and
warrants over
Ordinary shares
of 0.1p
2007
Number of
options and
warrants over
Ordinary shares
of 1p
2006
-
1,600,000
-
1,600,000
-
-
7,000,000
-
160,000
-
-
-
-
-
1,117,490
2,934,670
-
560,000
350,000
350,000
-
-
293,467
-
-
-
-
-
Tim Yeo MP
Gerard Sauer
Simon Walters
Otto Carlisle
Brian Wilson
Dr Michael Mangan
Harry Epstein
In accordance with the Company's Articles of Association, at least one third of the directors must retire by rotation at
each Annual General Meeting, and they may stand for re-appointment at the Meeting. Additionally, a director appointed
during the year must stand for re-appointment at the first Annual General Meeting after such appointment. Accordingly
the directors retiring by rotation are Gerard Sauer and Michael Mangan. Both, being eligible, offer themselves for
reappointment.
A resolution is being proposed at the Annual General Meeting for the appointment of Mitchell Field to the board of the
Company.
Financial statements for the year ended 31 October 2007
9
AFC Energy plc
Directors' remuneration
Name
Tim Yeo MP
Gerard Sauer
Salary
£
15,583
88,398
£
42,931
35,985
Simon Walters (see note 23)
-
-
Otto Carlisle
Brian Wilson
Dr Michael Mangan
Harry Epstein
Howard White
21,250
10,389
10,389
10,389
22,414
5,254
23,312
23,312
-
16,374
Share-based Other
Total
payment compensation 2007
expense
Total
2006
£
-
-
26,794
-
-
-
-
-
£
£
58,514 -
124,383
26,794
26,504
33,701
33,701
10,389
38,788
54,422
-
-
-
-
-
2,591
Directors' service contracts
•
Tim Yeo MP was appointed as Chairman and non-executive director under the terms of a non-executive letter dated 20
February 2007 for an indefinite term, subject to a minimum of six months' notice.
•
•
•
•
•
•
Gerard Sauer has a service contract with the Company which commenced on 19 February 2007 for an indefinite term,
subject to six months' notice by either party.
Simon Walters entered into a consultancy agreement with the Company on 19 February 2007, subject to two months'
notice by either party (see also note 23).
Otto Carlisle has a service contract with the Company which commenced on 23 July 2007 for an indefinite term, subject
to six months' notice by either party.
Brian Wilson's services as a non-executive Director are provided under the terms of a non-executive letter of
appointment dated 14 December 2006 for an indefinite term, subject to a minimum of six months' notice.
Dr Michael Mangan's services as a non-executive Director are provided under the terms of a non-executive letter of
appointment dated 14 December 2006 for an indefinite term, subject to a minimum of six months' notice.
Harry Epstein's services as a non-executive Director are provided under the terms of a non-executive letter of
appointment dated 14 February 2007 for an indefinite term, subject to a minimum of six months' notice.
Share capital
Details of the Company's share capital are disclosed in note 16 of the financial statements.
On 31 October 2007, the Company was aware of the following holdings of three per cent or more in the Company's issued
share capital:
Age of Reason Foundation
Eturab Trade Corporation
Harry Epstein
Credit Suisse
Adam White
Sinjul Nominees
Number of shares
Approximate
percentage of
the Company's
issued share capital
22,602,420
8,000,000
7,000,000
4,261,827
3,500,000
2,700,000
25.78%
9.12%
7.98%
4.86%
3.99%
3.08%
Financial statements for the year ended 31 October 2007
10
AFC Energy plc
Charitable donations
Charitable donations in the year amounted to £3,000.
Corporate Governance
The directors seek, as far as is considered appropriate having regard to the size and nature of activities of the Company, to
comply with the Combined Code on Corporate Governance applicable to listed companies. The board is assisted in this regard
by a number of committees with delegated authority.
Audit Committee
The Company's audit committee comprises Tim Yeo MP and Brian Wilson. The committee meets at least twice a year and at
any other time when it is appropriate to discuss audit, accounting or control issues. The committee will meet the external
auditors, without the executive board members being present, to review accounting and internal control matters. The
committee's principal objectives are to review annual and interim financial statements; to review accounting policies; to
review with management and the Company's external auditors the effectiveness of internal controls; to oversee the
publication of reserve and resource statements to ensure compliance with best practice under the new AIM rules; and to
review with the Company's external auditors the scope and results of their audit. Tim Yeo MP chairs the audit committee.
Remuneration Committee
The remuneration committee's members are Tim Yeo MP, Brian Wilson and Michael Mangan who review the performance of
the executive directors and set the scale and structure of their remuneration and the basis of their service agreements. In
determining remuneration, the committee seeks to enable the Company to attract and retain executives of the highest
calibre. The committee also makes recommendations to the board concerning allocation of share options to employees. No
directors participate in discussions or decisions concerning their own remuneration. This committee is also responsible for
nominating candidates, for the approval of the board, to fill either executive or non-executive vacancies or additional
appointments to the board.
Details of the Directors' remuneration, service agreements and their interests in the share capital of the Company are
disclosed in the Directors' Report.
AIM Rules Compliance Committee
The AIM rules compliance committee comprises Tim Yeo MP, Brian Wilson and Michael Mangan and meets at least twice a
year and at any other time when it is appropriate. The committee monitors internal procedures, resources and controls to
enable the company to comply with AIM rules.
Payments to creditors
The Company's policy is to settle the terms of payment with its suppliers when agreeing the terms of each transaction,
either by accepting the suppliers' terms or by making the suppliers aware of alternative terms, and to abide by the agreed
terms. Trade creditors of the Company at 31 October 2007 represented 56 days of annual purchases.
Liability insurance for company officers
The Company has in place a Directors’ and Officers’ insurance policy.
Research and development
The Company invests substantially in research and development, and makes claims under the government’s R&D tax credit
scheme. In the periods to 31 October 2006 and 2007, expenditure totalled £259,050 and £647,057 respectively.
Going concern
Based on a review of the Company's budgets and cash flow plans, the directors are satisfied that the Company has sufficient
resources to continue its operations and to meet its commitments for the foreseeable future.
Financial statements for the year ended 31 October 2007
11
AFC Energy plc
Relations with shareholders
The board attaches great importance to maintaining good relationships with shareholders. The board regards the Annual
General Meeting as an opportunity to communicate directly with investors, who are encouraged to attend and participate.
Auditors
A resolution to re-appoint the auditors of the Company, Jeffreys Henry LLP, will be proposed at the forthcoming Annual
General Meeting. Jeffreys Henry LLP have expressed their willingness to continue as auditors of the Company.
This report was approved and authorised for issue by the board of directors on 17 March 2008.
ROGER POWLEY
Company Secretary
Financial statements for the year ended 31 October 2007
12
AFC Energy plc
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the
financial position of the company, for safeguarding the assets, for taking reasonable steps for the prevention and detection
of fraud and other irregularities and for the preparation of financial statements which comply with the requirements of the
Companies Act 1985. The Directors are also responsible for ensuring that all relevant audit information of which they are
aware is presented to the auditors.
The Directors have prepared the financial statements in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs).
International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's
financial position, financial performance and cash flows. This requires the faithful representation of the effects of
transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities,
income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and
presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with
all applicable International Financial Reporting Standards. A fair presentation also requires the Directors to:
•
•
•
consistently select and apply appropriate accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information; and
provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the entity's financial
position and financial performance.
So far as the Directors are aware,
•
•
there is no relevant information of which the Company's auditors are unaware, and
the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit
information and to establish that the auditors are aware of that information.
Financial statements are published on the Company's website. The maintenance and integrity of the Company's website is
the responsibility of the Directors. The Directors' responsibility also extends to the financial statements contained therein.
Financial statements for the year ended 31 October 2007
13
AFC Energy plc
INDEPENDENT AUDITORS'
REPORT TO THE SHAREHOLDERS OF AFC ENERGY PLC
We have audited the Company financial statements (the ''financial statements'') of AFC Energy plc for the year ended 31
October 2007 which comprise the Company Income Statement, the Company Balance Sheet, the Company Cash Flow
Statement, the Company Statement of Changes in Shareholders' Equity and the related notes. These financial statements
have been prepared under the accounting policies set out therein.
This report is made solely to the Company’s members, as a body, in accordance with Section 235 of Companies Act 1985. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
The Directors' responsibilities for preparing the Report and the financial statements in accordance with applicable law
and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of
Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and have been properly
prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors' report is
consistent with the financial statements, and if, in our opinion, the company has not kept proper accounting records, or if we
have not received all the information and explanations we require for our audit.
We read other information contained in the Report and consider whether it is consistent with the audited financial
statements. The other information comprises only the Highlights, Chairman's Statement, Operating and Financial Review
and the Directors' Report. We consider the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
Basis of Audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in
the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion
•
•
•
the financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the
state of the Company's affairs as at 31 October 2007 and of its loss for the year then ended;
the Company financial statements have been properly prepared in accordance with the Companies Act 1985;
the Directors' Report is consistent with the Company financial statements.
Jeffreys Henry LLP
Chartered Accountants & Registered Auditors
Finsgate, 5-7 Cranwood Street, London, EC1V 9EE
17 March 2008
Financial statements for the year ended 31 October 2007
14
AFC Energy plc
INCOME STATEMENT
Note
Year ended
31 October
2007
Period from 9 January
to 31 October
2006
Revenue
Direct expenses
Gross loss
Administrative expenses
analysed as:
Administrative expenses
Equity-settled share-based payments
Operating loss
Financial income
Financial expense
Net financial income
Loss before tax
Taxation
£
-
(116,228)
(116,228)
(1,840,802)
(1,562,298)
(278,504)
(1,957,030)
90,158
-
90,158
(1,866,872)
17
5
8
9
10
155,294
Loss for the year attributable to equity holders
(1,711,578)
Basic loss per share
11
(2.1)p
Diluted loss per share
11
(2.1)p
All amounts relate to continuing operations.
£
-
-
-
(617,158)
(605,612)
(11,546)
(617,158)
14,013
(27)
13,986
(603,172)
60,679
(542,493)
(1.2)p
(1.2)p
Financial statements for the year ended 31 October 2007
15
AFC Energy plc
BALANCE SHEET
Assets
Non-current assets
Intangible assets
Property and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Equity attributable to ordinary shareholders
Share capital
Share premium
Other reserve
Retained loss
Total equity
Current liabilities
Trade and other payables
Total equity and liabilities
Note
31 October
2007
£
31 October
2006
£
12
13
14
15
16
298,874
472,601
771,475
461,567
2,128,350
2,589,917
3,361,392
87,683
4,825,189
290,050
(2,254,071)
2,948,851
18
412,541
412,541
3,361,392
287,051
152,184
439,235
114,735
396,244
510,979
950,214
70,000
1,334,935
11,546
(542,493)
873,988
76,226
76,226
950,214
These financial statements were approved and authorised for issue by the Board on 17 March 2008.
GERARD SAUER
Chief Executive Officer
SIMON WALTERS
Finance Director
Financial statements for the year ended 31 October 2007
16
AFC Energy plc
CASH FLOW STATEMENT
Note Year ended
31 October
2007
Period from
9 January
to 31 October 2006
Cash flows from operating activities
Loss before tax for the period
Adjustments for:
Depreciation and amortisation
Equity-settled share-based payment expenses
17
Interest paid
Interest received
Cash flows from operating activities before
£
£
(1,866,872)
(603,172)
145,275
278,504
-
(90,158)
44,154
11,546
27
(14,013)
changes in working capital and provisions
(1,533,251)
(561,458)
Increase in trade and other receivables
Increase in trade and other payables
Cash absorbed by operating activities
(191,538)
336,315
(1,388,474)
Cash flows from investing activities
Investment in plant and equipment
Acquisition of patents
Net cash absorbed by investing activities
13
12
(452,592)
(24,923)
(477,515)
Cash flows from financing activities
Net proceeds from the issue of share capital
Interest paid
Interest received
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents
at start of period
Cash and cash equivalents at 31 October
15
3,507,937
-
90,158
3,598,095
1,732,106
396,244
2,128,350
(54,056)
76,226
(539,288)
(184,207)
(299,182)
(483,389)
1,404,935
(27)
14,013
1,418,921
396,244
-
396,244
Financial statements for the year ended 31 October 2007
17
AFC Energy plc
Total
Equity
£
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 October 2007
Share
Capital
Share
Premium
Other
Reserve
Retained
Loss
Balance at 9 January 2006
Loss after tax for the period
Total recognised income and expense for the period
£
-
-
-
£
£
£
-
-
-
-
-
-
(542,493)
(542,493)
-
-
(542,493)
(542,493)
Issue of equity shares
Capitalisation issue
7,000
1,397,935
63,000
(63,000)
-
-
-
1,404,935
-
-
Equity-settled share-based payments
-
-
11,546
-
11,546
Balance at 31 October 2006
70,000
1,334,935
11,546
(542,493)
873,988
Balance at 1 November 2006
Loss after tax for the year
70,000
1,334,935
11,546
(542,493)
873,988
-
-
-
(1,711,578)
(1,711,578)
Total recognised income and expense for the year
(1,711,578)
(1,711,578)
Shares issued in the year
Share issue expenses
Equity-settled share-based payments
Balance at 31 October 2007
17,683
4,015,731
-
-
4,033,414
-
-
(525,477)
-
-
(525,477)
-
278,504
-
278,504
87,683
4,825,189
290,050 (2,254,071)
2,948,851
Share capital is the amount subscribed for shares at nominal value.
Share premium represents the excess of the amount subscribed for share capital over the nominal value of these shares net
of share issue expenses.
Other reserve represents the credit to equity in respect of equity-settled share-based payments.
Retained loss represents the cumulative loss of the Company attributable to equity shareholders.
Financial statements for the year ended 31 October 2007
18
AFC Energy plc
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
1. Corporate information
AFC Energy plc (“the Company”) is a public limited company incorporated in England & Wales and quoted on the Alternative
Investment Market of the London stock exchange.
The address of its registered office is Finsgate, 5-7 Cranwood Street, London EC1V 9EE.
2. Basis of preparation and accounting policies
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs and
IFRIC interpretations) as adopted by the European Union and also in accordance with the Companies Act 2006.
The accounting policies set out below have, unless otherwise stated, been applied consistently in these financial statements.
Judgements made by the Directors in the application of these accounting policies that have significant effect on the financial
statements and estimates with a significant risk of material adjustment in the next year are discussed in note 3.
a.
Amendments to published standards and interpretations to existing standards effective in 2007 adopted by the
Company
- IFRIC 4, Determining whether an Arrangement contains a Lease (effective from 1 January 2006). IFRIC 4 requires the
determination of whether an arrangement is or contains a lease to be based on the substance of the arrangement. It requires
an assessment of whether: (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets ('the asset');
and (b) the arrangement conveys a right to use the asset. Management assessed the impact of IFRIC 4 on the Company's
operations by reviewing all the existing arrangements. There was no impact of the adoption of IFRIC 4 on the results or net
assets of the Company.
- IFRIC 11, IFRS2 Company and Treasury Share Transactions (effective for periods beginning on or after 1 March 2007). The
amendment requires that all share-based payment transactions in which an entity receives services as consideration for
equity instruments shall be accounted for as equity-settled. This applies regardless as to whether the equity instruments have
to be acquired from a third party (“treasury shares”). The Company has adopted this amendment. The policy is consistent
with past practice of the Company and the amendment has no impact on the results or net assets of the Company.
b.
Standards, interpretations and amendments to published standards effective in 2006 and 2007 but are not relevant to
the Company
The following standards, amendments and interpretations to published standards are mandatory for accounting periods
beginning on or after 1 July 2006 but are currently not relevant to the Company's operations:
- IAS 19 (Amendment), Employee Benefits (effective from 1 January 2006). This amendment introduces the option of an
alternative recognition approach for actuarial gains and losses arising from defined benefit pension schemes. It may impose
additional recognition requirements for multi-employer plans where insufficient information is available to apply defined
benefit accounting. It also adds new disclosure requirements. This amendment is not relevant to the Company's operations,
as the Company did not have any defined benefit pension schemes as at 31 October 2007 or 31 October 2006.
c.
Standards, amendments and interpretations to published standards which have not been endorsed by the EU and are
not yet effective
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for
the Company's accounting periods beginning on or after 31 October 2006 or later periods but the Company has decided not
to adopt early. These are:
The amendment to IAS 1 introduces disclosures about the level of an entity's capital and how it manages capital. The
Company has assessed the impact of IFRS7 and the amendment to IAS 1 and concluded that the main additional disclosures
would be the sensitivity analysis to market risk and the capital disclosures required by the amendment of IAS 1. The
Company will apply FRS 7 and the amendment to IAS 1 to the accounts for the year beginning on 1 November 2007. This
amendment will not result any impact on the results or net assets of the Company.
Financial statements for the year ended 31 October 2007
19
AFC Energy plc
- IFRS 8, Operating Segments (effective from 1 January 2009). This standard sets out requirements for disclosure of information
about an entity's operating segments and also about the entity's products and services, the geographical areas in which
it operates, and its major customers. It replaces IAS 14, Segmental Reporting. The Company will apply this standard in the
accounting period beginning on 1 January 2009 and the application will not result in any impact on the results or net assets
of the Company.
- IFRIC 12, Service Concession Arrangements (effective for accounting periods beginning on or after 1 January 2008). IFRIC 12
gives guidance on the accounting by operators for public-to-private service concession arrangements. IFRIC 12 is not relevant
to the Company's operations due to the absence of such arrangements.
d.
Revenue
Revenue is recognised on delivery of the products, primarily fuel cells, or services provided by the Company.
e.
Foreign currency
In accordance with IAS21, transactions entered into by the Company in a currency other than the currency of the primary
economic environment in which it operates (the functional currency) are recorded at the rates ruling when the transactions
occur.
f.
Trade and other receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They arise principally through the provision by the Company of goods and services to customers (trade debtors). They also
include other types of contractual monetary assets. These assets initially recognised at fair value and are subsequently
measured at amortised cost less any provision for impairment.
g.
Property and equipment
Property and equipment are stated at cost less any subsequent accumulated depreciation and impairment losses. Where
parts of an item of property and equipment have different useful lives, they are accounted for as separate items of
property and equipment.
Depreciation is charged to the income statement within cost of sales and administrative expenses on a straight-line basis over
the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
•
•
Leasehold improvements
Life of the lease
Fixtures, fittings and equipment
1 to 3 years
Expenses incurred in respect of the maintenance and repair of property and equipment are charged against income when
incurred. Refurbishment and improvement expenditure, where the benefit is expected to be long lasting, is capitalised as
part of the appropriate asset.
h.
Intangible assets
Expenditure on research activities is recognised in the income statement as an expense as incurred.
Other intangible assets that are acquired by the Company are stated at cost less accumulated amortisation and impairment
losses.
Amortisation of intangible assets is charged to administrative expenses over the following periods:
•
Patents
20 years
Financial statements for the year ended 31 October 2007
20
AFC Energy plc
i.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with major banking institutions realisable within 90 days.
j.
Other financial liabilities
Trade payables and other short-term monetary items are recognised at amortised cost.
k.
Share-based payment transactions
The Company awards share options and warrants to certain Directors and employees to acquire shares of the Company. The
fair value of options and warrants granted is recognised as an employee expense with a corresponding increase in equity. The
fair value is measured at grant date and spread over the period during which the Directors and employees become
unconditionally entitled to the options or warrants. The fair value of the options and warrants granted is measured using a
binomial option valuation model, taking into account the terms and conditions upon which the options and warrants were
granted. The amount recognised as an expense is adjusted to reflect the actual number of share options and warrants
that vest only where vesting is dependent upon the satisfaction of service and non-market vesting conditions or where the
vesting periods themselves are amended by the introduction of new schemes and the absorption of earlier schemes by
agreement between the Company and the relevant Directors and employees. Where options or warrants granted are
cancelled, all future charges arising in respect of the grant are charged to the income statement on the date of cancellation.
l.
Financing costs
Financing costs comprise interest payable on bank loans and finance leases. Interest payable is recognised in profit or loss as
it accrues, using the effective interest method.
m.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or recoverable on the taxable income for the year, using tax rates enacted or
substantively enacted at the balance sheet date together with any adjustment to tax payable in respect of previous years.
Deferred tax assets are not recognised due to the uncertainty of the period over which they will be recovered
Accounting estimates and judgments
3
Carrying values of property, equipment and patents
The Company monitors internal and external indicators of impairment relating to its property, equipment and property.
Management has considered whether any indicators of impairment have arisen over certain assets relating to these assets.
After assessing these, management has concluded that no impairment has arisen in respect of these assets during the year
and subsequent to 31 October 2007.
Useful lives of intangible assets, and property and equipment
Intangible assets, and property and equipment are amortised or depreciated over their useful lives. Useful lives are based on
the management's estimates of the period that the assets will generate revenue, which are periodically reviewed for
continued appropriateness.
Income taxes and withholding taxes
The Company believes that its receivables for tax recoverable are adequate for all open audit years based on its assessment of
many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions
and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these
matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such
determination is made.
Share-based payments
In order to calculate the charge for share-based payments as required by IFRS2, the Company makes estimates principally
relating to assumptions used in its option-pricing model as set out in note 17.
Financial statements for the year ended 31 October 2007
21
AFC Energy plc
4
Segmental analysis
A segment is a distinguishable component of the Company that is engaged in providing products or services in a particular
business sector (business segment) or in providing products or services in a particular economic environment (geographic
segment), which is subject to risks and rewards that are different in those other segments. The Company operated in the
year in one segment, the development of fuel cells, and in one principal geographic area, the United Kingdom.
5
Operating loss (2006: loss)
Year ended 31 October Period ended 31 October
This has been stated after charging:
Depreciation of property and equipment
Amortisation of intangible assets
Equity-settled share-based payment expense
Auditors' remuneration - audit
Auditors' remuneration - other services
2007
£
132,175
13,100
278,504
20,000
52,286
2006
£
32,023
12,131
11,546
20,000
-
6
Staff numbers and costs
Year ended 31 October Period ended 31 October
The average number of employees in the period were:
Support, operations and technical
Administration
The aggregate payroll costs for these persons were:
Wages and salaries (including Directors' emoluments)
Social security
Share-based payment expense
2007
Number
11
5
16
£
555,609
58,710
278,504
892,823
2006
Number
6
3
9
£
207,189
23,080
11,546
241,815
7
Directors' remuneration
Year ended 31 October
Period ended 31 October
Wages and salaries (including bonus)
Social security
Equity-settled share-based payment expense
Other compensation (see note 23)
The emoluments of the Chairman were:
2007
£
178,812
13,209
147,168
26,794
365,983
58,414
2006
£
51,831
6,258
-
5,182
63,271
-
The emoluments of the highest-paid Director were:
124,383
51,831
The remuneration, details of share options and interests in the Company's shares of each Director is shown in the Directors'
Report on page 9 to 12.
Financial statements for the year ended 31 October 2007
22
AFC Energy plc
8 Financial income
Bank interest receivable
Year ended
31 October 2007
Period ended
31 October 2006
£
90,158
90,158
£
14,013
14,013
9
Financial expense
Year ended 31 October
Period ended 31 October
Bank interest payable
2007
£
-
-
2006
£
27
27
10
Taxation
Year ended 31 October
Period ended 31 October
Recognised in the income statement
Research and development tax credit
Total tax credit
Reconciliation of effective tax rates
Loss before tax
2007
£
155,294
155,294
2006
£
60,679
60,679
(1,866,872)
(603,172)
Tax using the domestic rate of corporation tax of 30%
(560,062)
(180,952)
Effect of:
Expenses not deductible for tax purposes
Research and development allowance
Research and development tax credit
Depreciation in excess of capital allowances
Losses surrendered for research and development
Unutilised losses carried forward
Total tax credit for the period
11
Loss per share
89,561
(97,058)
155,294
(24,536)
291,176
300,919
155,294
8,667
(37,924)
53,095
(6,248)
-
102,683
60,679
The calculation of the basic loss per share is based upon the net loss after tax attributable to ordinary shareholders of
£1,711,578 (2006: loss of £542,493) and a weighted average number of shares in issue for the year of 80,067,752 (2006:
45,144,125).
Basic loss per share
Loss attributable to equity shareholders
Weighted average number of shares in issue
Diluted earnings per share
Year ended
31 October
2007
(2.1)p
£1,711,578
Number
80,067,752
Period ended
31 October
2006
(1.2)p
£542,493
Number
45,144,125
The diluted loss per share is the same as the basic loss per share, as the loss for the year has an anti-dilutive effect.
Financial statements for the year ended 31 October 2007
23
AFC Energy plc
12
Intangible assets
Cost
Balance at 1 November 2006
Additions
Balance at 31 October 2007
Amortisation
Balance at 1 November 2006
Charge for the year
Balance at 31 October 2007
2007
Patents
£
299,182
24,923
324,105
12,131
13,100
25,231
2006
Patents
£
-
299,182
299,182
-
12,131
12,131
Net book value
298,874
287,051
13
Property and equipment
Leasehold
improvements
Fixtures, fittings
and equipment
Cost
At 9 January 2006
Additions
At 31 October 2006
At 1 November 2006
Additions
At 31 October 2007
Depreciation
At 9 January 2006
Charge for the period
At 31 October 2006
At 1 November 2006
Charge for the year
At 31 October 2007
Net book value
At 31 October 2007
At 31 October 2006
£
-
62,208
62,208
62,208
64,384
126,592
-
9,090
9,090
9,090
41,085
50,175
76,417
53,118
£
-
121,999
121,999
121,999
388,208
510,207
-
22,933
22,933
22,933
91,090
114,023
396,184
99,066
There are no assets held under finance leases. No assets have been revalued.
14
Trade and other receivables
Trade receivables
Other receivables
Prepayments
2007
£
20,289
267,185
174,093
461,567
Total
£
-
184,207
184,207
184,207
452,592
636,799
-
32,023
32,023
32,023
132,175
164,198
472,601
152,184
2006
£
-
114,735
-
114,735
Financial statements for the year ended 31 October 2007
24
AFC Energy plc
15
Cash and cash equivalents
Cash at bank
Bank deposits
2007
£
86,226
2,042,124
2,128,350
2006
£
396,244
-
396,244
Cash at bank and bank deposits consist of cash. There is no material foreign exchange movement in respect of cash and cash
equivalents.
16a
Authorised share capital
Number
Number
2007
2006
£
2007
£
2006
Ordinary Shares of 0.1p
700,000,000
70,000,000
700,000
700,000
On 23 March 2007, the authorised share capital of the Company was changed from 70,000,000 ordinary shares of 1p each to
700,000,000 ordinary shares of 0.1p each.
16b
Issued share capital
At 9 January 2006
Issue of shares
At 31 October 2006
At 1 November 2006
Issue of shares on 13 February 2007
1
Issued shares at 23 March 2007
Converted to ordinary shares of 0.1p on 23 March 2007
2
Issue of shares on 24 April 2007
At 31 October 2007
Number
-
7,000,000
7,000,000
7,000,000
449,982
7,449,982
74,499,820
13,183,034
87,682,854
£
-
70,000
70,000
70,000
4,500
74,500
74,500
13,183
87,683
1
2
449,982 ordinary shares with a par value of 1p per share were issued at £2.23p per ordinary share by way of a sale to
private investors. Proceeds from the issue amounted to £1,003,460.
13,183,034 ordinary shares with a par value of 0.1p per share were issued at 23p per ordinary share in connection
with the Company's admission to the Alternative Investment Market (“AIM”). Proceeds from the issue amounted to
£3,029,954, together with associated costs of issue amounting to £525,477.
17a
Share options
At 9 January 2006
Options granted in period
Options lapsed in period
At 31 October 2006
At 1 November 2006
Amendment to share options following share sub-division
on 23 March 2007
Options granted in the year
At 31 October 2007
17b Warrants
At 1 November 2006
Warrants granted in the year
At 31 October 2007
Number of options
Exercise price (p)
-
490,000
(70,000)
420,000
420,000
4,200,000
3,179,660
7,379,660
-
100
100
100
100
10
22-23
Number of warrants
Exercise price (p)
-
4,039,980
4,039,980
-
10-22
Financial statements for the year ended 31 October 2007
25
AFC Energy plc
17c
Equity-settled share-based payments charge
Share options
Average
grant date
share
price
(p)
Option
price
(p)
Average
expected
volatility
(pa)
10
22
23
9
20
21
46%
46%
46%
Average
risk-free
interest
rate
(pa)
4.4%
4.4%
4.4%
Total charge for the year (2006: £11,546)
Warrants
Average
grant date
share
price
(p)
warrant
price
(p)
Average
expected
volatility
(pa)
Average
risk-free
interest
rate
(pa)
Average
dividend
yield
(pa)
Average
implied
option life
(years)
Average
Amount
expensed
fair value in the 2007
accounts
£
per option
(p)
0.0%
0.0%
0.0%
3.5
3.5
3.5
2.5
6
6
39,402
39,225
2,008
-
80,635
Average
dividend
Average
implied
yield warrant life per warrant
(p)
(years)
Amount
expensed
fair value in the 2007
accounts
£
Average
(pa)
Adjustment for changes in assumptions in respect of vesting conditions
10
22
20
20
46%
46%
4.4%
4.4%
0.0%
0.0%
3.5
3.5
10
6
100,563
97,306
Adjustment for changes in assumptions in respect of vesting conditions
Total charge for the year (2006: £nil)
Total equity-settled share-based payment charge (2006: £11,546)
-
197,869
278,504
Details of share options and warrants awarded to Directors are set out in the Directors' Report (page 9).
The weighted average fair value of the options over 490,000 ordinary shares granted in the period to 31 October 2006, as
estimated at the date of the grant, was £122,500. The fair value of options granted to employees during the period to 31
October 2006 was measured on the basis of the exercise price of the Company's shares at the date of the grant.
18 Trade and other payables
Trade payables
Deferred income
Other payables
Accruals
19 Total operating lease commitments
Non-cancellable operating leases are as follows:
Between one and two years
Between two and five years
2007
£
207,615
111,219
27,613
66,094
412,541
2007
£
49,134
-
2006
£
40,976
-
12,333
22,917
76,226
2006
£
68,531
34,265
49,134
102,796
Financial statements for the year ended 31 October 2007
26
AFC Energy plc
20
Risk and sensitivity analysis
The Company is exposed through its operations to one or more of the following financial risks:
Liquidity risk
The liquidity risk of the Company is managed centrally. New borrowings are taken on where additional funds are required.
Surplus funds not allocated to future investment and working capital requirements would be hard used to repay loans and
borrowings or would be held on deposit. The Company intends to maintain a balance of funding designed to reduce
liquidity risks whilst also seeking to minimise the costs of borrowing. Where appropriate the Board will seek additional
funds from the issue of share capital and warrants.
Market operational risks
The value of the company is dependent on successful commercialisation of its alkaline fuel cell technology. There is no
guarantee these objectives will be achieved. This could be due to unforeseeable issues with the technical programme,
or problems arising from scaling up the manufacture process. In addition, new technology, changing commercial
circumstances and new entrants to the market in which the company operates may adversely affect the company's value.
21
Capital commitments
The Company had no capital commitments outstanding at 31 October 2007.
22
Post-balance sheet events
There are no events after the balance sheet date which require disclosure in the financial statements.
23
Related-party transactions
During the year ended 31 October 2007, £26,794 (plus VAT) was invoiced by FD Solutions, the trading name of DFM Limited
(a company registered in England & Wales) for services including Simon Walters acting as a director of AFC Energy plc
(2006: nil). Mr Walters is also a director and shareholder of DFM Limited. At 31 October 2007, the sum owing to DFM Limited
was £7,356 (2006: nil).
In January 2007 the company paid £11,274 to Gerard Sauer (2006: nil), being a percentage of the investment raised through
his efforts during a pre-flotation fundraising.
During the year ended 31 October 2007, £7,340 was paid to Ben Sauer, son of Gerard Sauer, for website design and maintenance
services (2006: nil). The sums paid were billed at arms-length commercial rates. At 31 October 2007, the sum owing to Mr Sauer
was £60 (2006: nil).
Financial statements for the year ended 31 October 2007
27
AFC Energy plc
DIRECTORS, COMPANY SECRETARY AND ADVISERS
Directors
Tim Yeo MP
Gerard Sauer
Simon Walters
Otto Carlisle
Brian Wilson
Dr Michael Mangan
Harry Epstein
Secretary
Roger Powley
Registered office
Finsgate
5-7 Cranwood Street
London EC1V 9EE
Registered in England: 5668788
Financial Adviser, NOMAD and Broker
Blue Oar Securities plc
30 Old Broad Street
London EC2N 1HT
Principal place of business
Unit 71.4 Dunsfold Park
Stovolds Hill
Cranleigh
Surrey GU6 8TB
Tel: 01483 276726
Fax: 01483 266839
e-mail: info@afcenergy.com
Registrars
Computershare Investor Services PLC
PO Box 1075
The Pavilions
Bridgwater Road
Bristol BS99 7NH
Media and communications
Madano Partnership
4th floor
South Harling House
47-51 Great Suffolk Street
London SE1 0BS
Solicitors
Eversheds LLP
Senator House
85 Queen Victoria Street
London SW1W 0BD
Auditors
Jeffreys Henry LLP
Finsgate
5-7 Cranwood Street
London EC1V 9EE
Bankers
Barclays Bank plc
2 High Street
Chelmsford
Essex CM1 1DS
Financial statements for the year ended 31 October 2007
28
AFC Energy plc
AFC ENERGY plc
NOTICE OF ANNUAL GENERAL MEETING
Registered in England and Wales No. 05668788
Notice is hereby given to all members that the ANNUAL GENERAL MEETING of the above-named Company will be held at Jeffreys Henry,
Finsgate, 5-7 Cranwood Street, London, EC1V 9EE on 10 April 2008 at 3 p.m. for the following reasons:
ORDINARY BUSINESS
To consider and if thought fit, adopt the following resolutions as ordinary resolutions:
1.
2.
3.
4.
5.
6.
7.
8.
9.
To receive and approve the Financial Statements for the period ended 31 October 2007 with the reports of the Directors and
Auditors thereon.
To re-appoint Jeffreys Henry LLP as auditors to hold office from the conclusion of the meeting to the conclusion of the next meeting
at which Financial Statements are laid before the Company at a remuneration to be determined by the Directors.
To re-elect G Sauer as a Director.
To re-elect M Mangan as a Director.
To re-elect O Carlisle as a Director.
To re-elect H Epstein as a Director.
To re-elect S Walters as a Director.
To re-elect B Wilson as a Director.
To re-elect T Yeo MP as a Director.
10.
To elect M Field as a Director.
SPECIAL BUSINESS
To consider and if thought fit, adopt the following resolution as an ordinary resolution:
11.
That, subject to and in accordance with Article 16 of the Company's Articles of Association, in substitution for all existing
authorities, to the extent unused, the Directors shall have general and unconditional authority for the purposes of section 80 of the
Companies Act 1985 (as amended) (the “Act”) to exercise all the powers of the Company to allot relevant securities (as defined in
section 80(2) of the Act) of the Company up to a maximum nominal amount of £40,000 provided that such authority shall expire on
9 July 2009 unless previously renewed, varied or revoked by the Company in General Meeting and the Directors shall be entitled
under the authority hereby conferred or under any renewal thereof to make at any time prior to the expiry of such authority any
offer or agreement, which would or might require securities as a foresaid to be allotted after the expiry of such authority.
To consider and if thought fit, adopt the following resolution as a special resolution:
12.
(i)
(ii)
That subject to and conditional upon the passing of resolution 11 and in accordance with Article 17 of the Company's Articles of
Association, the Directors shall be and are hereby empowered pursuant to section 95 of the Companies Act 1985 (the “Act”) to allot
equity securities (as defined in section 94(2) of the Act) for cash pursuant to the authority given in accordance with section 80 of the
Act by Resolution 5 and/or allot equity securities where such allotment constitutes an allotment of securities by virtue of section
94(3A) of the Act as if section 89(1) of the Act did not apply thereto provided that this authority shall be limited to allotments of
equity securities and the sale of treasury shares:
in connection with or pursuant to an offer by way of rights, open offer or other pre-emptive offer to the holders of shares in the
Company and other persons entitled to participate therein in proportion (as nearly as practicable) to their respective holdings,
subject to such exclusions or other arrangements as the Directors may consider necessary or expedient to deal with fractional
entitlements or legal or practical problems under the laws of any territory or the regulations or requirements of any regulatory
authority or any stock exchange in any territory;
otherwise than pursuant to sub-paragraph (i) above, up to an aggregate nominal amount of £40,000, and such power shall expire
on the conclusion of the Annual General Meeting of the Company to be held in 2009 or on 9 July 2009, whichever is earlier, but so
that the Company may before such expiry make an offer or agreement which would or might require equity securities to be
allotted or treasury shares to be sold after such expiry, and the Directors may allot equity securities or sell treasury shares in
pursuance of such offer or agreement as if the power conferred by this resolution had not expired.
By Order of the Board
ROGER POWLEY
17 March 2008
Financial statements for the year ended 31 October 2007
29
AFC Energy plc
AFC ENERGY plc
NOTICE OF ANNUAL GENERAL MEETING
Registered in England and Wales No. 05668788
Notes:
1.
2.
3.
4.
5.
6.
Any member entitled to attend and vote at the Annual General Meeting is entitled to appoint one or more proxies
(who need not be a member of the Company) to attend and to vote instead of the member.
Completion and return of a form of proxy does not preclude a member from attending and voting at the meeting in
person should he so wish.
A form of proxy is enclosed and to be valid must be completed and returned so as to reach the Company's registrars,
Computershare Investor Services PLC, PO Box 1075, The Pavilions, Bridgwater Road, Bristol BS99 7NH (together
with a letter or power of attorney or other written authority, if any, under which it is signed or a notarially certified
or office copy of such power or written authority) not later than 48 hours (excluding any part of a day which is a
non-working day) before the time fixed for holding the meeting or any adjournment thereof.
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, only those members registered in the
Register of Members of the Company as at close of business on 8 April 2008 being not more than 48 hours before
the time fixed for the meeting, are entitled to attend or vote at this meeting in respect of the number of shares
registered in their name at close of business on 8 April 2008. Changes to entries in the Register after close of
business on 8 April 2008 shall be disregarded in determining the right to attend or vote at the meeting.
Copies of the service contracts and letters of appointment of each of the Directors will be available for inspection at
the registered office of the Company during usual business hours on any weekday (Saturdays and public holidays
excluded) and at the place of the Annual General Meeting from at least 15 minutes prior to and until the conclusion
of the Annual General Meeting.
In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the
meeting so that (i) if a corporate shareholder has appointed the Chairman of the meeting as its corporate
representative with instructions to vote on a poll in accordance with the directions of all of the other corporate
representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting
directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate representative in
accordance with those directions, and (ii) if more than one corporate representative for the same corporate
shareholder attends the meeting but the corporate shareholder has not appointed the Chairman of the meeting as
its corporate representative, a designated corporate representative will be nominated, from those corporate
representatives who attend, who will vote on a poll and the other corporate representatives will give voting
directions to that designated corporate representative. Corporate shareholders are referred to the guidance
issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives -
www.icsa.org.uk - for further details of this procedure. The guidance includes a sample form of representation
letter if the Chairman is being appointed as described in (i) above. A letter in this form would be acceptable to the
Company and its Registrars.
Financial statements for the year ended 31 October 2007
30
AFC Energy plc
AFC ENERGY plc
NOTICE OF ANNUAL GENERAL MEETING
Registered in England and Wales No. 05668788
Explanation of Special Business
The Companies Act 1985 provides that Directors shall only allot unissued shares with the authority of shareholders in general
meeting.
Resolution 11 will be proposed as an ordinary resolution for the renewal of the Directors' general authority to issue relevant
securities up to an aggregate nominal amount of £40,000 of the current issued share capital of the Company (excluding
treasury shares). The Directors have no present intention of exercising this authority. The Company held no shares in treasury
as at 12 March 2008 being the last practicable date prior to publication of this document.
The Companies Act 1985 also provides that any allotment of new shares for cash must be made pro rata to individual
shareholders' holdings, unless such provisions are disapplied under section 95 of the Companies Act 1985. The authority given
to the Directors at the Extraordinary General Meeting held on 23 March 2007 to allot shares for cash pursuant to section 95 of
the Companies Act 1985 expired on 28 February 2008.
Resolution 12 will be proposed as a special resolution for the renewal of the Directors' authority to allot equity securities for
cash, without first offering them to shareholders pro rata to their holdings. This authority facilitates issues made by way of
rights to shareholders which are not strictly in accordance with section 89 of the Companies Act and authorises other
allotments of up to a maximum aggregate nominal amount of £40,000 of shares, representing approximately 46 per cent of
the current issued ordinary share capital of the Company. This authority also allows the Directors, within the same aggregate
limit, to sell for cash shares that may be held by the Company in treasury. The Directors have no present intention of exercising
this authority.
The authorities granted under resolutions 11 and 12 will expire at the earlier of the next Annual General Meeting or on 9 July
2009.
Financial statements for the year ended 31 October 2007
31
AFC Energy plc
AFC ENERGY plc - FORM OF PROXY
Registered in England and Wales No. 05668788
For use at the Annual General Meeting to be held on 10 April 2008
(PLEASE PRINT YOUR NAME AND ADDRESS IN FULL IN BLOCK CAPITALS)
I/We
Of
Hereby appoint the Chairman of the meeting *
*If you wish to appoint someone other than the Chairman as your proxy, please delete these words and insert the desired
name
to act as my/our proxy to vote on my/our behalf upon any matter proposed at the Annual General Meeting of the Company to
be held on 10 April 2008 and at any adjournment thereof, in such manner as my/our proxy shall think proper, and if expedient
to demand a poll. I/We request such proxy to vote on the following resolutions as indicated below:
Please tick here if this proxy appointment is one of multiple proxies being made (and refer to note 5 below)
ANNUAL GENERAL MEETING
Vote
Against For
Withheld
Resolution 1
To receive and approve the Financial Statements
Resolution 2
To re-appoint the auditors
Resolution 3
To re-elect G Sauer as a Director
Resolution 4
To re-elect M Mangan as a Director
Resolution 5
Resolution 6
Resolution 7
Resolution 8
Resolution 9
To re-elect O Carlisle as a Director
To re-elect H Epstein as a Director
To re-elect S Walters as a Director
To re-elect B Wilson as a Director
To re-elect T Yeo MP as a Director
Resolution 10
To elect M Field as a Director
Resolution 11
To authorise the directors to allot relevant securities pursuant to
section 80 of the Companies Act 1985 (as amended)
Resolution 12
To approve the allotment of equity securities as if section 89(1) of the
Companies Act 1985 (as amended) did not apply to such allotment
Signature
NOTES:
Date
Number of shares (see notes)
1.
2.
3.
4.
5.
6.
7.
To be valid, this form must be signed and received at the offices of the Registrars of the Company not less than 48 hours (excluding any part of the day which is a non-working day)
before the time appointed for holding the meeting. In the case of joint holders any one holder may sign. If both joint holders sign conflicting proxies, the wishes of the holder
first named on the register will be accepted.
A proxy need not be a member of the Company.
If the form of proxy is signed on behalf of a shareholder, the copy of the relevant authority of the signatory to act should also be forwarded to the Registrars. In the case of a
corporation, the form must be under seal or under hand of a duly authorised officer.
Completion and return of this form of proxy does not prevent a shareholder from attending the meeting and voting in person in which case any votes cast by the proxy will be
excluded.
If any other proxy is preferred, delete the words “the Chairman of the Meeting”, insert the full name of the proxy or proxies you wish to appoint and initial the alteration. If you
are appointing more than one proxy you must indicate the number of shares in respect of which you are making this appointment, you should include the number in the box
provided for your first named proxy and either obtain (an) additional proxy form(s) from the Registrars (0870 707 1302) or you may photocopy this form. Please return all
the forms together and tick the box to indicate each form is one of multiple instructions being given. Please take care when completing the number of shares; if the total
number of shares exceeds the total held by the member, all appointments may be invalid.
The “vote withheld” option is provided to enable you to abstain on any particular resolution. However, it should be noted that a “vote withheld” is not a vote in law and will not
be counted in the calculation of the proportion of votes “For” and “Against” a resolution.
Any alterations made in this form of proxy should be initialled.
Financial statements for the year ended 31 October 2007
32
AFC Energy plc
Third Fold
BUSINESS REPLY SERVICE
Licence No SWB1002
Computershare Investor Services PLC
PO Box 1075
The Pavilions
Bridgwater Road
Bristol
BS99 7NH
Second Fold
1
F
i
r
s
t
F
o
d
l
AFC Energy plc
Unit 71.4 Dunsfold Park
Stovolds Hill
Cranleigh
Surrey
GU6 8TB
01483 276726
01483 266839
info@afcenergy.com
www.afcenergy.com