Active Energy : Download Annual Report 2019

ACTIVE ENERGY GROUP PLC

ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2019

Company Registration Number: 03148295

ANNUAL REPORT
FOR THE YEAR ENDED 31 DECEMBER 2019
CONTENTS	PAGE
Company Information	1
Chief Executive Officer's Statement	2
Operations Review	8
Strategic Report	12
Report of the Directors	19
Independent Auditors Report to the Members	22
Consolidated Statement of Income and Other Comprehensive Income	30
Consolidated and Company Statement of Financial Position	31
Consolidated and Company Statement of Cash Flows	32
Consolidated Statement of Changes in Equity	33
Company Statement of Changes in Equity	34
Notes to the Consolidated Financial Statements	35

COMPANY INFORMATION Country of Incorporation Directors

SecretaryRegistered OfficeCorporate Head OfficeRegistered Number Auditors

BankersSolicitorsNominated Adviser & BrokerJoint BrokerFinancial Public Relations & Investor Relations

England and Wales

T M S Rowan

J Leahy

M Aitken

J Zimmermann A Esposito

Cargill Management Services Ltd 27-28 Eastcastle Street

London

W1W 8DH

27-28 Eastcastle Street London

W1W 8DH

12 Hay Hill, Mayfair London

W1J 8NR 03148295

Jeffreys Henry LLP

Chartered Accountants and Registered Auditors London

EC1V 9EE

HSBC Bank Plc 69 Pall Mall London SW1Y 5EYDWF LLP

20 Fenchurch Street London

EC3M 3AG

SP Angel Corporate Finance LLP

Prince Frederick House, 35 - 39 Maddox Street London

W1S 2PP

Allenby Capital Limited

5th Floor, 5 St Helen's Place London

EC3A 6AB

Camarco,

107 Cheapside, London

EC2V 6DN

CHIEF EXECUTIVE OFFICER'S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019

In 2019, Active Energy Group ("AEG" or "Active Energy") continued its development to become a producer of biomass products focused on the utilisation of low cost and waste biomass materials that create higher value, energy efficient and carbon neutral fuels. To achieve this, Active Energy has focused on re-establishing business operations in the lumber sector which provide not only consistent revenue streams but also open up new business relationships for the forthcoming production of biomass pellets, which include its proprietary CoalSwitchTM technology. As I write this, the business has enhanced its position in the market since year end by strengthening its board and management team and expanding operations at the Lumberton site in North Carolina ("Lumberton" or the "Lumberton Site") as we move into our next phase of growth.

Lumberton - A significant strategic step

The foundations for the Company's achievements in 2019 were laid in late 2018 with the strategic decision to move the operations from Utah to Lumberton. After entering into our initial joint venture with Georgia Renewable Power LLC ("GRP") in October 2018, the Company identified the Lumberton Site which is adjacent to GRP's power facility In March 2019 AEG acquired the Lumberton Site which consists of covered factory space up to 415,000 sq ft and 151 acres of surrounding land. Lumberton also had a number of additional benefits including water treatment facilities, a laboratory for analysis of future biomass fuels and existing facilities capable of accommodating not only a functioning lumber operation but also a laboratory facility to produce and test biomass pellets, including CoalSwitchTM pellets.

The Directors believe that Lumberton's size can accommodate expansion both in the short and medium term, both for lumber operations and the scaled production of second-generation biomass fuels, including CoalSwitchTM pellets. The commercial goal for the production of biomass fuels, including CoalSwitchTM to be in operation as soon as possible, remains the Board's prime focus. Having acquired the Lumberton Site and completed the transaction during the second quarter of 2019, Active Energy focussed on establishing commercial activities at Lumberton. Certain inherited business activities have remained operational at Lumberton during the last 12 months, in line with our plans to create a carbon neutral hub at Lumberton. Requisite equipment (including the relevant CoalSwitchTM reactors) was transferred from Utah to Lumberton during the summer of 2019 and preparatory works commenced for the reconstruction of the existing CoalSwitchTM plant to operate at the Site. As the facility at Utah had never been completed or commissioned to production targets, Active Energy has had to spend additional time and money in preparation work toward the installation and construction of the first CoalSwitchTM facility. Vendor and construction contracts and additional equipment identification have been completed in order to minimize the time required toward first production from this CoalSwitchTM facility.

As an existing "brownfield site", Lumberton already owned certain permits to allow operational activities to commence. Nonetheless, after joint analysis of the new project with the North Carolina Department of Environmental Quality ("DEQ") and given that no relevant permits had ever been applied for in Utah, a recommendation was made to require an application for an air and construction permit in order to ensure the optimal production potential and the full scale operation of the existing CoalSwitchTM plant at Lumberton.

Active Energy and the DEQ worked together to comply with the local procedures and Active Energy utilised locally qualified personnel to assist in organisation of the application process. The relevant permit application was completed and submitted in November 2019. The approval process anticipated a standard review process, including drafting of the specific permit to take up to 90 days. Unfortunately, this review and approval process has been subject to delays, owing to the DEQ determining the need to hold a public hearing meeting in Lumberton and more recently, the imposition on restrictions to hold such public meetings as a result of the COVID 19 pandemic. In spite of these difficulties, the Board remains confident that the requisite permits will be issued by the DEQ.

The establishment of an operating centre at Lumberton has been highly significant for Active Energy's future development. The Company's goal for Lumberton is to develop facilities for a carbon neutral operational facility which, not only produces second generation carbonised biomass pellets, but can also become a research and development centre for future biomass fuels using a variety of residual feedstock resources. In addition, Active Energy intends to create additional timber & lumber activities with new commercial partners. The Lumberton Site is uniquely placed with an abundance of local feedstock resources immediately available in North Carolina and in close proximity to all existing transportation infrastructure for the delivery of biomass and lumber products globally. As such, Active Energy is working hard with the local communities to establish an economic centre at Lumberton.

Active Energy intends to accelerate the lumber activities at Lumberton as quickly as possible and the announcement of the joint venture with Renewable Logistics Systems LLC ("RLS") in July 2019 was a significant part of the Company's growth strategy. Following the announcement of the joint venture with RLS, work commenced at Lumberton to establish lumber operations and the first revenues were achieved during Q4 2019. This was a significant milestone for the Company as it meant that by the end of 2019 operating sawmill activities had commenced at Lumberton with firm plans to scale up the production volumes during 2020. RLS's input to date, combined with the ramp up in production following the recent acquisition by AEG, has helped to create a meaningful business with many potential industry partners and prospective customers, both locally and internationally. In addition, the current operations at Lumberton will benefit from the forthcoming preparations for the production from the CoalSwitchTM facility of biomass pellet fuels.

CoalSwitchTM Technology - Continuing Development

Active Energy has continued to work on complementary business opportunities from the CoalSwitchTM technology. As was stated in 2019, Active Energy has focussed on accelerating the commercial strategy with the establishment of commercial partnerships. One example of this has included working with prospective partners who wish to licence some of the core technology to build their own CoalSwitchTM production facilities. It was with great pleasure that Active Energy announced its first licence with RMD Environmentals, Inc ("RMDE"), a British Columbia based forestry management and environmental engineering and consultancy business, for the production of CoalSwitchTM in the Provinces of Alberta and British Columbia on 28 November 2019. Active Energy has granted to RMDE an exclusive licence for the production of CoalSwitchTM in these territories. Since the licence was granted to RMDE, representatives from Active Energy have provided technical assistance to RMDE in regard to its plans for the commencement of construction of CoalSwitchTM production facilities in Alberta.

Another partnership had involved working with Cobant Sp. z.o.o., a Polish research, development and environmental waste coal recovery company, regarding the development and production of a fuel blend, involving reclaimed coal from coal slurry dumps in Upper Silesia in Poland and CoalSwitchTM. Initial testing had provided favourable results and an application was made to the EU for an additional grant to continue this research and development. In April 2019, it was confirmed that the application had been unsuccessful. Active Energy has no immediate plans to resubmit an application in regard to this blended fuel.

Throughout 2019, Active Energy has continued to maintain and develop its intellectual property portfolio around CoalSwitchTM and some of the underlying production processes. All filings and requisite procedures have been maintained in the US and the EU. The Company has further extended the portfolio to include submission of additional patent applications in Malaysia, Thailand and Canada in 2019 and 2020. At the Lumberton Site, once the Permits are issued, the Company is keen to commence testing of alternative waste materials in laboratory conditions to examine potential other constituents which could create steam exploded biomass pellets with improved heat and environmental performance over existing white pellets.

Complementary Focus on Timber and Feedstock Opportunities