CORPORATE GOVERNANCE STATEMENT
The Directors support high standards of corporate governance and acknowledge the importance of the UK Corporate Governance Code and apply its principles so far as is practicable and appropriate given the size of the Group and constitution of the board.
Board structure and committees
The Board comprises three executive directors and four non-executive directors. The roles of Chairman and Chief Executive Officer are separate, ensuring a division of responsibilities at the head of the Company. The Non-Executive Chairman conducts Board and shareholder meetings and ensures all directors are properly briefed. The Board is responsible for formulating, reviewing and approving the Company's strategy, budgets and major items of capital expenditure.
Board meetings are scheduled to take place at least quarterly, with additional meetings to review and approve significant transactions. The Board is provided with Board papers before each Board meeting, of which there were five in the year. The Company Secretary's services are available to all members of the Board. If required, the Directors are entitled to take independent advice and if the Board is informed in advance, the Company will reimburse the cost of the advice. The appointment and removal of the Company Secretary is a decision for the Board as a whole.
All Directors are subject to re-election. Each year, one third of the Directors are subject to re-election by rotation. New Directors are subject to re-election at the first AGM after their appointment.
In June 2013, Lance Baller stepped down as CEO, President and Director for health reasons. In September 2013 George Lantz was appointed CEO, President and Director and Gary Gatchell was appointed Finance Director and Director. Stuart Eaton resigned from the Board in November 2013. At the year end, the Board comprised the Non-Executive Chairman, the Chief Executive, the Chief Executive of Iofina Resources, and two other non-executive directors. Subsequent to year end, Dr. Fay resigned from the Board, Dr. William Bellamy was appointed as a Non-Executive Director and Mr. Baller was appointed Chairman and Non-Executive Director.
Remuneration Committee and policy
The Remuneration Committee is composed of two non-executive directors: J P Ploen (Chairman), and P S Chase-Gardener. It is responsible for the terms and conditions and remuneration of the executive directors and senior management. The Remuneration Committee's policy is that directors' remuneration be commensurate with services provided by them to the Company. The Remuneration Committee may consult external agencies when ascertaining market salaries. All matters concerning the remuneration of executive directors, including the award of bonuses and share options, are considered by the Remuneration Committee.
The remuneration and terms and conditions of appointment of the non-executive directors are set by the Board. No director or member of the senior management is permitted to participate in discussions or decisions concerning his own remuneration. A member of the Remuneration Committee will be available at the AGM to answer any shareholder questions.
Audit Committee
The Audit Committee is comprised of two non-executive directors: P S Chase-Gardener (Chairman) and J P Ploen. The Committee monitors the adequacy of the Group's internal controls and provides the opportunity for the external auditor to communicate directly with the non-executive directors.
The Audit Committee also ensures that the external auditor is independent via the segregation of audit related work from other accounting functions and measures applicable fees with similar auditors.
Relations with shareholders
The Group gives high priority to its communication with shareholders by means of an active investor relations programme. This is achieved through correspondence and extensive corporate information. In addition, the Group visits its main institutional investors on an ongoing basis and makes available to all shareholders, free of charge, its Interim and Annual Reports from the Group's head office and on its website. At the AGM the shareholders are given the opportunity to question members of the Board. The notice of the AGM is sent to shareholders at least 14 business days before the meeting (21 days where there is a special resolution).
Internal controls
The Board acknowledges its responsibility for the Group's system of internal control, including suitable monitoring procedures. There are inherent limitations in any system of internal control and accordingly even the most effective system can provide only reasonable, and not absolute, assurance with respect to the preparation of financial information and the safeguarding of assets.
The Group's control environment is the responsibility of the Group's directors and managers at all levels. The Group's organisational structure has clear lines of responsibility. Operating and financial responsibility for subsidiary companies is delegated to the operational management, including key risk assessment. Investment policy, acquisition and disposal proposals and major capital expenditure are authorised and monitored by the Board.
The Group operates a comprehensive budgeting and financial reporting system and, as a matter of routine, compares actual results with budgets, which are approved by the Board.
Management accounts are prepared for the Group on a monthly basis. Material variances from budget are thoroughly investigated. In addition updated forecasts are prepared, at least quarterly, to reflect actual performance and the revised outlook for the year.
The Board considered the usefulness of establishing an internal audit function and decided in view of the size of the Group it was not cost-effective to establish. This will be kept under review.
SOCIAL RESPONSIBILITY STATEMENT
The Group supports the growing awareness of social, environmental and ethical matters when considering business practices. See http://iofina.com/community/social-responsibility for an outline of the policies in place that guide the Group and its employees when dealing with social, environmental and ethical matters in the workplace.
Directors
Remuneration provided to each director was as follows:
|
2013 |
2012 |
|
Salary |
Bonus |
Total $ |
Salary |
Bonus |
Total $ |
Dr. Chris E. Fay |
125,778 |
- |
125,778 |
71,325 |
- |
71,325 |
Jeffrey P. Ploen |
67,880 |
- |
67,880 |
49,531 |
- |
49,531 |
Paul S. Chase-Gardener |
45,919 |
- |
45,919 |
35,663 |
- |
35,663 |
Forest D. Dorn |
150,000 |
- |
150,000 |
150,000 |
- |
150,000 |
George Lantz |
56,575 |
- |
56,575 |
|
|
|
Gary Gatchell |
66,667 |
- |
66,667 |
- |
- |
- |
Lance Baller |
103,600 |
50,000 |
153,600 |
200,000 |
6,000 |
206,000 |
Stuart M. Eaton |
39,930 |
- |
39,930 |
- |
- |
- |
Total |
656,349 |
50,000 |
706,349 |
506,519 |
6,000 |
512,519 |
No pension contributions were paid on behalf of the directors in 2013 or 2012.
The interests of the Directors in office as at 31 December 2013 in the shares of the Company at the end of the financial year and the beginning of the financial year or date of appointment, if later, were as follows:
31 December 2013 1 January 2013
Dr. C E Fay 1,400,000 1,230,000
J P Ploen (1) 9,361,600 9,440,000
P S Chase-Gardener (2) 350,000 350,000
F D Dorn - -
G D Gatchell - -
G E Lantz 26,433 26,433
L J Baller (3) 4,500,000 9,000,000
(1) Includes 1,200,000 shares held by J Paul Consulting in which Mr. Ploen is President and beneficial owner.
(2) Includes 283,900 shares held individually and 16,100 shares held in the Jane Chase-Gardener pension fund that Union Pension is Trustee.
(3) Comprised of beneficial ownership of shares.
In addition to these shares, Dr. C E Fay was granted options for 100,000 shares on 9 May 2008 with an exercise price of 55 pence, 250,000 shares on 2 July 2010 with an exercise price of 30 pence and 250,000 shares on 6 November 2013 with an exercise price of 163 pence. P S Chase-Gardener was granted options for 100,000 shares on 9 September 2008 with an exercise price of 55 pence. F D Dorn was granted options for 350,000 shares on 2 July 2010 with an exercise price of 30 pence. Gary Gatchell was granted options for 300,000 shares on 3 September 2013 with an exercise price of 146 pence. George E Lantz was granted options for 250,000 shares on 19 September 2013 with an exercise price of 151 pence. In addition, Mr. Baller and Mr. Ploen have each issued an option grant to Mr. Lantz for 125,000 shares with an exercise price of 151 pence. No other director has any interests in options in the Company.
On behalf of the Board
George Lantz
Chief Executive Officer and President
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting policies
The Company is a public limited company incorporated and domiciled in the United Kingdom. The Company is listed on the AIM Market of the London Stock Exchange.
The registered office is located at 70 Chancery Lane, London, WC2A 1AF. The principal activities of the Company are that of investment holdings in subsidiaries engaged in the production of iodine and iodine derivatives.
a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and IFRS Interpretations Committee (IFRS IC) as adopted by the European Union ('EU') and the Companies Act 2006 applicable to companies reporting under IFRS.
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
b) Adoption of new and revised standards
New standards, interpretations and amendments effective from 1 January 2013.
The following new standards, interpretations and amendments, are effective for the first time in these financial statements but none have had a material effect on the financial statements:
Title |
Subject |
Effective Date |
IFRS 7 - Financial Instruments |
Provides guidance on the meaning of "a legally enforceable right of set off" and situations where gross settlement systems may be considered equivalent to net settlement. |
1 Jan 2013 |
IFRS 13 - Fair Value Measurement |
Provides a definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS's |
1 Jan 2013 |
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 1 January 2014 (or later periods and which the Company has decided not to adopt early. These are:
Title |
Subject |
Effective Date |
IAS 32 - Financial Instruments |
Provides guidance on the meaning of "a legally enforceable right of set off" and situations where gross settlement systems may be considered equivalent to net settlement. |
1 Jan 2014 |
IAS 27 - Separate Financial Statements |
Largely replaced by IFRS 10 but retains existing guidance on group reorganisations where a new parent entity is established and sets out disclosure requirements in separate financial statements |
1 Jan 2014* |
IAS 28 - Investments in Associates and Joint Ventures |
Requires joint ventures and associates to be equity accounted |
1 Jan 2014* |
IFRS 10 - Consolidated financial statements |
Replaces IAS 27 "Consolidated and Separate Financial Statements" and SIC 12 "Consolidation - Special Purpose Entities". Retains the principle of control, but redefines control and provides further guidance on how to apply the control principle. |
1 Jan 2014* |
IFRS 11 |
Replaces IAS 31 "Interests in Joint Ventures" and SIC 13 "Jointly Controlled Entities - Non-monetary Contributions by Venturers" and establishes consistent principles for all types of jointly controlled arrangements. Retains a similar definition of joint control but clarifies that a joint arrangement will be either a "joint operations" or a "joint venture". |
1 Jan 2014* |
IFRS 12 - Disclosure of Interests in Other Entities |
Applies to entities with interests in subsidiaries, joint arrangements, associates and other unconsolidated structured entities and sets out disclosures in respect of such entities. |
1 Jan 2014* |
* Effective in the EU for financial years starting on or after 1 Jan 2014.
Adoption of the above is not considered to have a material impact on the Group financial statements.
c) Presentation of financial statements
The financial statements have been prepared on the historical cost convention.
As permitted by Section 408 of the Companies Act 2006, the parent company's income statement has not been included in these financial statements.
d) Revenue recognition
Revenue consists of sales of iodine derivatives, chemicals and ancillary products. Revenue is measured by reference to the fair value of consideration received or receivable by the Group for goods supplied, excluding VAT, rebates, and trade discounts.
Revenue is recognised when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Group, the costs incurred or to be incurred can be measured reliably and when specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
The Group manufactures and sells a range of iodine derivatives and specialty chemicals. Sales of goods are recognised when a Group entity has delivered products to the customer. Delivery does not occur until the products have been shipped to the specified location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the products in accordance with the sales contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied and collectability is reasonably assured.
e) Research and development expenditures
Expenditure on research (or the research phase of an internal project) is recognised as an expense in the period in which it is incurred. Costs that are directly attributable to the development phase of a new customised chemical manufacturing process or development of a natural gas/iodine field are recognised as intangible assets provided they meet the following recognition requirements:
§ completion of the intangible asset is technically feasible so it will be available for use or sale;
§ the Group intends to complete the intangible asset and use or sell it;
§ the Group has the ability to use or sell the intangible asset;
§ the intangible asset will generate probable future economic benefits;
§ there are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
§ the expenditure attributable to the intangible asset during its development can be measured reliably.
Among other things, this requires that there is a market for the output from the intangible asset or for the intangible asset itself, or, if it is to be used internally, the asset will be used in generating such benefits.
Development costs not meeting these criteria for capitalisation are expensed as incurred. In 2013, all research and development expenditures were expensed as incurred.
f) Going concern
The Group has historically completed equity and debt offerings to fund its developmental and growth activities as required. Major capital projects initiated in 2013 are expected to be completed in the first half of 2014. In 2013, 49% (2012: 36%) of revenue recognized was attributable to one long term customer, a distributor. Relations with this customer are good.
In May 2013, the Group raised $15.0 million of funding through a convertible note to complete construction of iodine extraction plants. At its current stage of development, the directors consider that the Group does not need to raise additional funds in order to realise its business plan. For this reason, the Directors consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.
g) Basis of consolidation and investments in subsidiary undertakings
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December 2013. Subsidiaries are wholly owned entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights. The acquisition method of accounting is used to account for the purchase of subsidiaries by the Group. On acquisition, the subsidiary's assets and liabilities are recorded at fair value reflecting their condition at the date of acquisition.
The financial statements of subsidiaries are included in the consolidated financial statements from the date control commences until the date control ceases.
Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements, unless the losses provide an indication of impairment of the assets transferred.
Amounts reported in the financial statements of the subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
Investments in subsidiary undertakings are stated in the parent company balance sheet at cost less provision for any impairment losses.
h) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The acquisition method involves the recognition of the acquiree's identifiable assets and liabilities, including contingent liabilities, regardless of whether they were recorded in the financial statements prior to acquisition. On initial recognition, the assets and liabilities of the acquired subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the basis for subsequent measurement in accordance with the Group's accounting policies. Acquisition costs are expensed as incurred.
Goodwill represents the excess of the fair value of consideration payable in a business combination over the fair value of the Group's share of the identifiable net assets of the acquiree at the date of acquisition. Any excess of identifiable net assets over the fair value of consideration is recognised in profit or loss immediately after acquisition.
i) Foreign currency
The vast majority of the Group's business is denominated in U.S. Dollars, which is the functional currency of the operating subsidiaries. Therefore, U.S. Dollars is the presentational currency for the Group financial statements. All transactions of Iofina plc are translated from Pound Sterling to U.S. Dollars.
Transactions denominated in foreign currencies are denominated at the rates of exchange ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Non-monetary items that are measured at historical cost in a foreign currency are translated at the exchange rate at the date of transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date the fair value was determined.
Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in profit and loss in the period in which they arise. Exchange differences on non-monetary items are recognised in other comprehensive income to the extent that they relate to a gain or loss on that non-monetary item taken to the statement of changes in equity, otherwise such gains and losses are recognised in profit and loss.
The assets and liabilities in the financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the balance sheet date. Income and expenses are translated at the average rate for the period. The exchange differences arising from the retranslation of the opening net investment in subsidiaries are recognised as other comprehensive income in the "Foreign currency reserve" in equity. On disposal of a foreign operation, the cumulative translation differences are transferred to profit and loss as part of the gain or loss on disposal. The US Dollar/Pounds Sterling exchange rate averaged 1.597 in 2013 and at 31 December 2013 was 1.648 (2012: 1.626).
j) Intangible assets
Undeveloped leasehold costs
All costs incurred prior to obtaining the legal right to undertake exploration and evaluation activities on a project are written off as incurred.
Once a legal right has been obtained, exploration and evaluation costs are capitalised on a project-by-project basis, pending determination of the technical feasibility and commercial viability of the project. Costs incurred include appropriate technical and administrative overheads.
Undeveloped leasehold costs are carried at historical cost less any impairment losses recognised. If a project is successful, the related expenditures will be transferred to development assets and amortised over the estimated life of the reserves on a unit of production basis.
The recoverability of undeveloped leasehold costs is dependent upon the discovery of economically recoverable reserves, the ability of the Group to obtain the necessary financing to complete the development of reserves and future profitable production or proceeds from the disposal thereof.
Other identifiable intangible assets
Other identifiable intangible assets arose from the acquisition of H&S Chemical in 2009. These assets were valued by an external, independent valuation firm. Based on the type of asset, the useful life of each asset was estimated. The value of each identifiable intangible asset is amortised evenly over its useful life. The following useful lives are applied:
§ WET® patent: 15 years
§ Customer relationships: 10 years
§ Patent portfolio: 8 years
§ EPA registrations: 2 years
Amortisation is included within administrative expenses.
Goodwill
Goodwill represents the excess of the fair value of consideration in a business combination over the fair value of the Group's share of the identifiable net assets acquired. Goodwill is carried at cost less accumulated impairment losses.
k) Property, plant and equipment
Property, plant and equipment are stated at historical cost, net of depreciation, and any provision for impairment. Cost includes purchase price and costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, such as employee costs relating to construction, site preparation, installation and testing.
Depreciation is provided at rates calculated to write off the depreciable amount of each asset on a straight line basis over its expected useful life, as follows:
§ Buildings: 2.5% per annum
§ Mobile iodine extraction units and computer equipment: 10-33.3% per annum
§ Equipment and machinery: 10-20% per annum
§ Drilling equipment and pipeline: 10-20% per annum
§ IOsorb Plants: 5% per annum (effective in both 2013 and 2012)
Reviews of the estimated remaining lives and residual values of individual productive assets are made annually.
Freehold land is not depreciated.
l) Financial instruments
Financial liabilities
Trade and other payables
Trade and other payables and convertible note are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method.
Convertible loan notes
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Interest-bearing loans are recorded initially at their fair value, net of direct transaction costs. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement, redemption or conversion, are recognised in profit or loss over the term of the instrument using the effective rate of interest.
Instruments where the holder has the option to redeem for cash or convert into a pre-determined quantity of equity shares are classified as compound instruments and presented partly as a liability and partly as equity.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. The difference between the proceeds of issue and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity.
Transaction costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.
The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar nonconvertible debt to the instrument. The difference between this amount and the interest paid is added to the carrying value of the convertible loan note.
Financial assets
Cash and cash equivalents represent short term, highly liquid investments with an original maturity of fewer than three months that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.
m) Impairment
Whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, that asset is reviewed for impairment. An asset's carrying value is written down to its estimated recoverable amount (being the higher of the fair value, less costs, to sell and value in use) if that is less than the asset's carrying amount.
Impairment reviews for undeveloped leasehold costs are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise, typically when one of the following circumstances applies:
i) unexpected geological occurrences that render the resource uneconomic;
ii) title to the asset is compromised;
iii) variations in prices that render the project uneconomic; or
iv) variations in the currency of operation.
Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combinations and represent the lowest level within the Group at which management monitors goodwill.
Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. An impairment loss is recognised for the amount by which the asset's or cash generating unit's carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value in use. To determine the value in use, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect their respective risk profiles as assessed by management.
Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash-generating unit's recoverable amount exceeds its carrying amount.
n) Equity
Equity comprises the following:
§ "Share capital" represents the nominal value of equity shares.
§ "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses for the share issue.
§ "Share-based payment reserve" represents the cumulative fair value of options and warrants issued by the Company and recognised in profit and loss.
§ "Equity reserve" represents the equity component assigned to the compound financial instrument after deducting the fair value of the instrument as a whole.
§ "Retained earnings" represents retained profits or accumulated losses.
§ "Foreign currency reserve" represents the cumulative differences arising from translation of foreign operations.
§ "Distributable reserves" represents the amount of equity that may be paid out as dividends.
o) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. When inventory is sold the cost is included in Cost of Sales on the Statement of Comprehensive Income.
p) Taxation
Tax expense recognised in profit or loss is the tax currently payable based on taxable profit for the year and deferred tax not recognised directly in equity.
Deferred income taxes are calculated using the balance sheet liability method. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward, as well as other income tax credits to the Group, are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in profit or loss, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
q) Operating leases
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to profit and loss on a straight-line basis over the period of the lease.
r) Share-based payments
The cost of equity settled transactions is measured at fair value at the grant date as measured by use of the Black Scholes model. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.
Charges made to profit or loss, in respect to share-based payments, are credited to the share-based payment reserve.
s) Segment reporting
In identifying its operating segments, management follows the Group's service lines, which represent the main products provided by the Group and are based on the information presented to the chief operating decision maker, which is the Board. The activities of the Iodine and Iodine Derivatives segment include the production of raw iodine and the production of iodine derivatives and other non-iodine based chemical derivatives The Montana segment includes the exploration and production of natural gas, iodine and water for use in various applications. This presentation has changed from the method used in previous reporting to better reflect changes in operations and strategy for the Group.
Each of these operating segments is managed separately as each of these service lines requires different technologies and other resources as well as marketing approaches. All inter-segment transfers are carried out at arm's length prices.
Corporate overheads, assets, and liabilities, which are not directly attributable to the business activities of any operating segment, are not allocated to a segment in arriving at segment result.
2. Significant judgements and estimates
Judgements and estimates are regularly evaluated based on historical experience, current circumstances and expectations of future events.
The critical estimates made in the preparation of the financial statements are set out below. The resulting accounting estimate may not equal the related actual result and management must also make judgements about current circumstances and expectations of future events. Significant judgements made by management include:
a. Intangible assets are tested for impairment where there is an indication that they may be impaired. In accordance with IAS 36, an intangible asset is considered impaired when its carrying amount exceeds its recoverable amount on an individual cash generating unit basis. The recoverable amounts of relevant cash generating units are based on value in use calculations using management's best estimate of future business performance. In carrying out impairment testing, management will make a number of significant estimates in relation to the assumptions incorporated into their calculations. This will include factors such as growth rates, discount rates and inflation. Details and carrying values of intangible assets and goodwill are provided in notes 10 and 11. The Board has reviewed the issues raised in the Preliminary Determination to Deny (see note 28), which may be considered an indicator of impairment, with legal counsel and recommends proceeding to the Show Cause Hearing. The Board believes the water is physically and legally available and the necessary "possessory interests" to install the water depot and associated infrastructure are established. The Board believes the permit meets all the criteria for the issuance of the water permit and is confident that the application will ultimately be successful. Following Board review and consideration of the indication of impairment, and the likelihood of success with the project, the Board does not consider the Atlantis project (Montana) to be impaired. See also the Chairman's statement above and note 3 below.
b. Management reviews the useful lives of depreciable and amortisable assets at each reporting date. At 31 December 2013 management assesses that the useful lives represent the expected utility of the assets to the Group. The carrying amounts are analysed in notes 10 and 12. Actual results, however, may vary due to technical obsolescence, particularly relating to software and IT equipment.
3. Segment reporting
a. Business segments - The Group reports its business segments in line with IFRS8, which requires reporting based on the information that is presented to the chief operating decision maker. This is determined to be the Board. This presentation has changed from the method used in previous reporting to better reflect changes in operations and strategy for the Group. The costs of Iofina plc are included within unallocated corporate expenses.
|
|
|
|
|
|
Iodine and Iodine Derivatives |
Montana |
Unallocated Corporate Expenses |
Total |
Year ended 31 December 2013 |
$ |
$ |
$ |
$ |
Revenue |
18,931,230 |
- |
- |
18,931,230 |
Gross (loss)/profit |
3,100,997 |
- |
- |
3,100,997 |
Segment result |
(1,185,886) |
(530,565) |
(2,027,842) |
(3,744,293) |
|
|
|
|
|
Year ended 31 December 2012 |
|
|
|
|
Revenue |
18,643,308 |
- |
- |
18,643,308 |
Gross (loss)/profit |
3,498,321 |
- |
- |
3,498,321 |
Segment result |
3,388 |
(609,209) |
(525,366) |
(1,131,187) |
|
31 December |
|
31 December |
|
2013 |
|
2012 |
Assets |
$ |
|
$ |
|
|
|
|
Iodine and Iodine Derivatives |
41,478,229 |
|
26,593,938 |
Montana |
6,558,213 |
|
6,813,507 |
Unallocated Corporate (plc) |
217,767 |
|
988,793 |
Total |
48,254,209 |
|
34,396,238 |
|
|
|
|
Liabilities |
|
|
|
Iodine and Iodine Derivatives |
4,653,130 |
|
3,009,248 |
Montana |
- |
|
- |
Unallocated Corporate (plc) |
14,795,028 |
|
141,848 |
Total |
19,448,158 |
|
3,151,096 |
|
|
|
|
Capital expenditure |
|
|
|
Iodine and Iodine Derivatives |
11,893,067 |
|
4,632,921 |
Montana |
280,100 |
|
- |
Total |
12,173,167 |
|
4,632,921 |
|
|
|
|
Depreciation/amortization |
|
|
|
Iodine and Iodine Derivatives |
929,083 |
|
768,445 |
Montana |
530,565 |
|
609,209 |
Total |
1,459,648 |
|
1,377,654 |
b. Geographical segments - The Group also reports by geographical segment. The Group's activities are related to exploration for, and development of, iodine and natural in certain areas of the USA and the manufacturing of specialty chemicals in the USA with support provided by the UK office. All revenue, capital expenditures and depreciation and amortisation related to the USA segment. In presenting information on the basis of geographical segments, segment assets are based on the geographical location of the assets and revenues are shown by the region products are sold into.
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Assets |
|
|
|
UK |
217,767 |
|
988,793 |
USA |
48,036,442 |
|
33,407,445 |
Total |
48,254,209 |
|
34,396,238 |
|
|
|
|
Liabilities |
|
|
|
UK |
14,795,028 |
|
141,848 |
USA |
4,653,130 |
|
3,009,248 |
Total |
19,448,158 |
|
3,151,096 |
|
|
|
|
Revenue |
|
|
|
North America |
6,889,734 |
|
7,617,802 |
Europe |
923,606 |
|
873,702 |
Asia |
10,935,372 |
|
9,976,714 |
Other |
182,518 |
|
175,090 |
Total |
18,931,230 |
|
18,643,308 |
c. Significant customers - Iofina Chemical had three significant customers in 2013; one distributor represents 49% of sales, another customer 9% and the third accounts for 8%. In 2012, the three significant customers represented 36%, 10% and 9% of the total sales.
4. Loss before taxation
Loss before taxation is stated after charging/(crediting):
|
Year ended |
|
Year ended |
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Depreciation expense |
1,191,273 |
|
1,109,279 |
Amortisation expense |
268,273 |
|
268,375 |
Share based expense |
592,648 |
|
- |
Profit on disposal of property, plant and equipment |
- |
|
(181,815) |
Operating lease expense - land and buildings |
55,329 |
|
77,204 |
|
|
|
|
Other: |
|
|
|
Annual audit fees |
98,280 |
|
103,275 |
Tax compliance |
3,360 |
|
3,060 |
Cost of sales - analysis by nature
|
Year ended |
|
Year ended |
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Raw materials |
13,146,161 |
|
12,950,427 |
Freight |
279,488 |
|
205,499 |
Sales commission |
82,204 |
|
95,701 |
Labour, manufacturing overhead and royalties |
2,322,380 |
|
1,893,360 |
|
15,830,233 |
|
15,144,987 |
Administrative expenses - analysis by nature
|
Year ended |
|
Year ended |
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Payroll and benefits |
2,620,968 |
|
1,960,835 |
Office expenses |
716,325 |
|
762,887 |
Professional services |
560,917 |
|
389,893 |
Travel |
252,123 |
|
145,711 |
Insurance |
169,535 |
|
179,827 |
Rent |
29,801 |
|
42,666 |
Other |
9,037 |
|
15,526 |
Share based expense |
592,648 |
|
- |
Depreciation |
935,802 |
|
1,109,279 |
Amortisation |
268,375 |
|
268,375 |
Profit on disposal of property, plant and equipment |
- |
|
(181,815) |
|
6,155,531 |
|
4,693,184 |
5. Staff numbers and costs
The Group averaged 73 employees for 2013 (2012: 39). Staff cost for these employees, which includes the directors, were:
|
|
Year ended |
|
Year ended |
|
|
31 December |
|
31 December |
|
|
2013 |
|
2012 |
|
|
$ |
|
$ |
Wages and salaries |
4,521,604 |
|
2,955,939 |
Social security costs |
667,219 |
|
414,389 |
Total staff costs |
5,188,823 |
|
3,370,329 |
Of the total staff costs above, $2,368,023 (2012: $635,429) is included within cost of sales; $2,620,968 (2012: $1,960,835) is included within administrative expenses and $199,832 (2012: $283,077) has been capitalised as additions to property, plant and equipment.
Of the total staff costs above, $727,290 (2012: $549,418) was paid to directors (considered to be key management personnel) for their services during the year.
|
Year ended |
|
Year ended |
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Wages and salaries |
706,349 |
|
512,519 |
Social security costs |
20,941 |
|
36,899 |
Total directors' cost |
727,290 |
|
549,418 |
Included within wages and salaries above is $153,600 (2012: $217,450) in respect of the highest paid director.
6. Finance expense
|
Year ended |
|
Year ended |
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
|
|
|
|
Interest expense |
764,352 |
|
- |
|
764,352 |
|
- |
Interest expense is on the convertible note described in note 20 below.
7. Finance income
|
Year ended |
|
Year ended |
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
|
|
|
|
Interest income |
14,593 |
|
12,058 |
|
14,593 |
|
12,058 |
8. Taxation
|
Year ended |
|
Year ended |
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Tax expense comprises: |
|
|
|
Current year tax expense |
- |
|
- |
Prior year tax expense |
- |
|
7,425 |
Deferred tax credit |
(60,000) |
|
(59,043) |
|
(60,000) |
|
(51,618) |
|
Year ended |
|
Year ended |
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Tax reconciliation: |
|
|
|
Loss on ordinary activities before tax |
(3,744,293) |
|
(1,182,805) |
Tax at UK income tax rate of 23.25% (2012: 24.50%) |
(870,548) |
|
(289,787) |
|
|
|
|
Effects of: |
|
|
|
Losses and other temporary differences not recognized for deferred tax purposes |
823,745 |
|
254,787 |
Deferred tax on amortisation of intangibles |
(60,000) |
|
(59,043) |
Effect of different tax rate of subsidiaries operating in other jurisdictions |
46,803 |
|
35,000 |
Adjustment to previous year's tax expense |
- |
|
7,425 |
Total tax credit |
(60,000) |
|
(51,618) |
The Group has accumulated tax losses of approximately $18,500,000 (2012: $15,022,804) which may be deductible from future taxable profits subject to agreement with the relevant tax authorities. To the extent tax losses are not utilized to offset current income taxes they will begin to expire in 2029.
A deferred tax asset has not been recognised in respect of losses due to uncertainty over the timing of the recovery of these tax losses.
9. Loss per share
The calculation of loss per ordinary share is based on a loss attributable to shareholders of $3,744,293 (2012: $1,131,187) and the weighted average number of ordinary shares outstanding of 127,284,398 (2012: 122,719,282). Due to the loss in the year, there is no difference between the diluted loss per share and the basic loss per share.
10. Intangible assets (Group)
|
Undeveloped Leasehold Costs |
WET® patent |
Customer relationships |
Patent portfolio |
EPA registrations |
Total |
|
|
|
$ |
$ |
$ |
$ |
$ |
$ |
Cost |
|
|
|
|
|
|
At 31 December 2011 |
3,147,477 |
2,700,000 |
660,671 |
187,000 |
271,000 |
6,966,148 |
|
|
|
|
|
|
|
Additions |
- |
- |
- |
25,000 |
- |
25,000 |
At 31 December 2012 |
3,147,477 |
2,700,000 |
660,671 |
212,000 |
271,000 |
6,991,148 |
|
|
|
|
|
|
|
Additions |
479,793 |
- |
- |
- |
- |
479,793 |
Disposals |
(26,614) |
- |
- |
- |
- |
(26,614) |
At 31 December 2013 |
3,600,656 |
2,700,000 |
660,671 |
212,000 |
271,000 |
7,444,327 |
|
|
|
|
|
|
|
Accumulated amortisation |
|
|
|
|
|
|
At 31 December 2011 |
- |
437,404 |
168,625 |
56,803 |
271,000 |
933,832 |
|
|
|
|
|
|
|
Charge for the year |
- |
180,000 |
65,000 |
23,375 |
- |
268,375 |
At 31 December 2012 |
- |
617,404 |
233,625 |
80,178 |
271,000 |
1,202,207 |
|
|
|
|
|
|
|
Charge for the year |
- |
180,000 |
65,000 |
23,375 |
- |
268,375 |
At 31 December 2013 |
|
797,404 |
298,625 |
103,553 |
271,000 |
1,470,582 |
|
|
|
|
|
|
|
Carrying amounts |
|
|
|
|
|
|
At 31 December 2011 |
3,146,927 |
2,262,596 |
492,046 |
130,197 |
- |
6,031,766 |
At 31 December 2012 |
3,146,927 |
2,082,596 |
427,046 |
131,822 |
- |
5,788,941 |
At 31 December 2013 |
3,600,656 |
1,902,596 |
362,046 |
108,447 |
- |
5,973,745 |
Undeveloped leasehold costs primarily relate to the costs of acquiring lease rights to produce iodine, co-produced water and natural gas at the original field as well as a pipeline rights of way which link its operations to the TransCanada pipeline system. Other intangible assets were acquired in the acquisition of H&S Chemical in 2009. The Board has reviewed the issues raised in the Preliminary Determination to Deny with legal counsel and recommends proceeding to the Show Cause Hearing. The Board believes the water is physically and legally available and the necessary "possessory interests" to install the water depot and associated infrastructure are established. The Board believes the permit meets all the criteria for the issuance of the water permit. See also note 2(a).
Impairment reviews for undeveloped leasehold costs are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indications of impairment arise. The assumptions used for the impairment testing are:
WET® Patent
The WET® Patent technology employs two different iodine extraction methods depending on brine chemistry for optimal efficiency. We utilized a with and without analysis, a variation of the discounted cash-flow method, to estimate the fair value of a WET® Patent at date of acquisition. The methodology compared the cash flow generating capacity of H&S assuming it was operating without the benefit of the WET® Patent to the projected cash flow with the benefit of the patent. The contractual life of the patent is in excess of 20 years, however the useful life of the patent was estimated as 15 years based on the following:
§ Management's expectation for the expected viability of the technology
§ Management's expectations regarding the timing of significant substitute technology
§ The lack of comparable substitute technologies as of the valuation date
§ The remaining amortisation period is 10.5 years
Customer relationships
The amount capitalized relates to the acquisition of Iofina Chemical and the then existing customer base. The initial useful was 10 years and the remaining amortisation period is approximately 5.5 years.
Patent portfolio
This includes all patents held by Iofina Chemical, Inc. related to the production of its iodine derivatives, specifically IPBC. The fair value of the general patent portfolio was estimated using the relief from royalty cash-flow methodology of the income approach. Based on our search for technology licensing agreements in the marketplace, we determined that a royalty rate of 1.5 percent was appropriate. An 8 year life was applied to the patent portfolio based on the historical life of the portfolio as well as the intended future use of the asset.
11. Goodwill (Group)
Carrying amounts |
|
|
At 31 December 2013, 31 December 2012, and 31 December 2011 |
|
$ 3,087,251 |
Goodwill arose on the acquisition of H&S Chemical in 2009 and is wholly allocated to the Iofina Chemical cash generating unit of the Group. Goodwill impairment testing is conducted annually, based on projected cash flow to be generated.
The Chemical business has been in operation for 29 years (2012: 28 years). Management believes that 20 years of cash flow generation should be used in the impairment review. For impairment testing, cash flows discounted at 8.5% per annum indicate that the goodwill valuation can be supported.
12. Property, plant and equipment (Group)
|
Freehold Land |
Buildings |
Equipment and Machinery |
Drilling Equipment & Pipeline |
Construction in Progress |
Total |
|
|
|
|
$ |
$ |
$ |
$ |
$ |
$ |
Cost |
|
|
|
|
|
|
At 31 December 2011 |
209,000 |
1,411,660 |
2,600,951 |
7,333,660 |
- |
11,555,271 |
|
|
|
|
|
|
|
Additions |
- |
13,948 |
2,009,050 |
194,470 |
2,415,453 |
4,632,921 |
Disposals |
- |
- |
(191,902) |
(929,138) |
- |
(1,121,040) |
Reclassifications |
- |
- |
2,035,234 |
(2,035,234) |
- |
- |
At 31 December 2012 |
209,000 |
1,425,608 |
6,453,333 |
4,563,758 |
2,415,453 |
15,067,152 |
|
|
|
|
|
|
|
Additions |
- |
39,895 |
4,661,176 |
- |
6,976,977 |
11,678,048 |
Disposals |
- |
- |
- |
(4,438) |
- |
(4,438) |
Reclassifications |
- |
- |
2,415,453 |
- |
(2,415,453) |
- |
At 31 December 2013 |
209,000 |
1,465,503 |
13,529,962 |
4,559,320 |
6,976,977 |
26,740,762 |
|
|
|
|
|
|
|
Accumulated Depreciation |
|
|
|
|
|
|
At 31 December 2011 |
- |
52,839 |
1,475,775 |
1,955,121 |
- |
3,483,735 |
|
|
|
|
|
|
|
Charges for the year |
- |
42,992 |
571,265 |
495,022 |
- |
1,109,279 |
Disposals |
- |
- |
(128,512) |
(307,193) |
- |
(435,705) |
Reclassifications |
- |
- |
597,492 |
(597,492) |
- |
- |
At 31 December 2012 |
- |
95,831 |
2,516,020 |
1,545,458 |
- |
4,157,309 |
|
|
|
|
|
|
|
Charges for the year |
- |
43,369 |
752,070 |
395,834 |
- |
1,191,273 |
At 31 December 2013 |
- |
139,200 |
3,268,090 |
1,941,292 |
- |
5,348,582 |
|
|
|
|
|
|
|
Carrying amounts |
|
|
|
|
|
|
At 31 December 2011 |
209,000 |
1,358,821 |
1,125,176 |
5,378,539 |
- |
8,071,536 |
At 31 December 2012 |
209,000 |
1,329,777 |
3,937,313 |
3,018,300 |
2,415,453 |
10,909,843 |
At 31 December 2013 |
209,000 |
1,326,303 |
10,261,872 |
2,618,028 |
6,976,977 |
21,392,180 |
The groupings used to report property plant and equipment have been revised from previous reporting to better reflect the change in segmentation of the business into Iodine and Iodine Derivatives and Montana related activities. Adjustments have been made to re-classify certain assets to more appropriately reflect the nature of the assets.
Construction in progress at December 31, 2012 included costs incurred in the construction of IO#2. Construction in progress at December 31, 2013 included costs incurred in the construction of IO#4, IO#5 and IO#6. Upon completion of construction IO plant costs are reclassified to equipment and machinery.
13. Inventories
Group |
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Raw materials |
3,419,291 |
|
1,694,268 |
Work in progress |
1,875,705 |
|
1,306,454 |
Finished goods |
1,607,231 |
|
1,055,096 |
|
6,902,227 |
|
4,055,818 |
At year end, there were no provisions against the carrying value of inventories (2012: nil). During the year, the cost of inventories recognised as expense and included in 'cost of sales' amounted to $14,825,788 (2012: $14,634,810).
14. Financial instruments
The Board of directors determines, as required, the degree to which it is appropriate to use financial instruments to mitigate risks. The main risks for which such instruments may be appropriate are interest rate risk, foreign currency risk, credit risk, liquidity risk and commodity risk. The Group's principal financial instrument is cash, which is invested with major banks.
Financial assets and liabilities
Group
|
Loans and receivables |
Financial liabilities at amortised cost |
Total |
|
$ |
$ |
$ |
2013 |
|
|
|
Cash and cash equivalents |
2,069,934 |
- |
2,069,934 |
Investments |
6,198,821 |
- |
6,198,821 |
Trade receivables |
2,630,051 |
- |
2,630,051 |
|
|
|
10,898,806 |
|
|
|
|
Trade payables |
- |
2,371,374 |
2,371,374 |
Accrued liabilities |
- |
1,346,797 |
1,346,797 |
Deferred consideration |
- |
400,000 |
400,000 |
Convertible note |
- |
14,608,674 |
14,608,674 |
|
|
|
18,726,845 |
2012 |
|
|
|
Cash and cash equivalents |
5,720,664 |
- |
5,720,664 |
Trade receivables |
4,144,457 |
- |
4,144,457 |
|
|
|
9,865,121 |
|
|
|
|
Trade payables |
- |
1,071,338 |
1,071,338 |
Accruals |
- |
698,445 |
698,445 |
Deferred consideration |
- |
600,000 |
600,000 |
|
|
|
2,369,783 |
Investment |
Maturity |
Amount |
Yield |
FDIC Guaranteed Certificates of Deposit (1) |
January 2014 |
240,000 |
0.25% |
FDIC Guaranteed Certificates of Deposit (4) |
February 2014 |
960,000 |
0.30% |
FDIC Guaranteed Certificates of Deposit (2) |
May 2014 |
480,000 |
0.30% |
FDIC Guaranteed Certificates of Deposit (4) |
August 2014 |
960,000 |
0.41% |
Commercial Paper (1) |
July 2014 |
497,906 |
0.46% |
Corporate Note (1) |
March 2014 |
516,319 |
0.27% |
Corporate Notes (2) |
April 2014 |
1,016,542 |
0.23% |
Corporate Notes (2) |
June 2014 |
1,022,372 |
0.35% |
Corporate Note (1) |
July 2014 |
505,682 |
0.25% |
|
|
6,198,821 |
|
Company
|
|
Loans and receivables |
Financial liabilities at amortised cost |
Total |
|
|
$ |
$ |
$ |
2013 |
|
|
|
|
Cash and cash equivalents |
|
207,544 |
- |
207,544 |
Loan to subsidiaries |
|
37,184,466 |
- |
37,184,466 |
|
|
|
|
37,392,010 |
|
|
|
|
|
Trade payables |
|
|
8,734 |
8,734 |
Accruals |
|
|
177,620 |
177,620 |
Convertible note |
|
|
14,608,674 |
14,608,674 |
|
|
|
|
14,795,028 |
|
|
|
|
|
2012 |
|
|
|
|
Cash and cash equivalents |
|
986,054 |
- |
986,054 |
Loan to subsidiaries |
|
22,633,233 |
- |
22,633,233 |
|
|
|
|
23,619,287 |
|
|
|
|
|
Trade payables |
|
- |
17,912 |
17,912 |
Accruals |
|
- |
123,936 |
123,936 |
|
|
|
|
141,848 |
Interest rate risk
Surplus funds are invested at either floating rates of interest or short-term fixed rates. The benefit of fixing rates for longer term is kept under review having regard to forecast cash requirements and the levels of return available. Given the short term nature of Iofina's financial instruments, the Group has limited interest rate risk, and most cash and cash equivalents are held in floating rate accounts. At 31 December 2013 the investment portfolio had a weighted average maturity of 4.37 months and a weighted average yield of 0.318%. The weighted average expected interest income from these investments is approximately $7,178. Approximately 40% of the investments are in guaranteed accounts. Considering the type and short term nature of these investments interest rate risk sensitivity is insignificant. Subsequent to 31 December 2013 the investments were converted to cash.
The interest rate on the convertible note was fixed at 6.5% at 31 December 2013. The annual interest on the note is approximately $975,000.
Foreign currency risk
The Group has potential transactional currency exposure in respect of items denominated in foreign currencies relating to the Group's administration in the UK. The Group occasionally makes use of dual currency deposits, derivative instruments that combine a money market deposit with a currency option, as a hedge against foreign currency risk.
The Group holds its cash balances in United States dollars to the extent considered appropriate to minimize the effect of adverse exchange rate fluctuations. Currently, sales transactions are denominated in US Dollars, which is the operating currency. Other impacts of foreign currency risk are not deemed material to these financial statements.
Credit risk
Because the counterparties to the majority of Iofina's financial instruments are prime financial institutions, Iofina does not expect any counterparty to fail to meet its obligations. Consequently, the maximum exposure is reflected by the carrying amount of financial assets.
Liquidity risk
The Group raises funds as required on the basis of forecast expenditure and cash inflows over the next twelve months. When necessary, the scope and rate of activity are adjusted to take account of the funds available. Given the short term nature of the Group's financial instruments and the current net asset position, liquidity risk is considered minimal at the current time.
Commodity risk
The Group is exposed to movements in the price of raw iodine. Given that there were no sales of raw iodine during 2013 and 2012, the Group was exposed to a nominal commodity risk.
15. Trade and other receivables
Group
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Trade receivables |
2,426,934 |
|
4,147,196 |
Other receivables and prepayments |
203,117 |
|
686,525 |
|
2,630,051 |
|
4,833,721 |
Company
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Prepayments and other receivables |
10,223 |
|
2,739 |
|
10,223 |
|
2,739 |
All receivables and prepayments are short term in nature. The carrying values are considered a reasonable approximation of fair value. All trade receivables were collected subsequent to the balance sheet date. There is no bad debt provision, and therefore no movement on the bad debt provision for the year.
The Group or Company has not received a pledge of any assets as collateral for any receivable or asset.
16. Cash and cash equivalents
Group
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Cash in US Dollar accounts |
1,862,390 |
|
4,734,610 |
Cash in GB Pound Sterling accounts |
207,544 |
|
986,054 |
|
2,069,934 |
|
5,720,664 |
Company
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Cash in GB Pound Sterling accounts |
207,544 |
|
986,054 |
|
207,544 |
|
986,054 |
17. Trade and other payables
Group
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Trade payables |
2,571,374 |
|
1,071,338 |
Accrued expenses and customer deposits |
1,146,797 |
|
698,445 |
|
3,718,171 |
|
1,769,783 |
Company
|
31 December |
|
31 December |
|
2013 |
|
2012 |
|
$ |
|
$ |
Trade payables |
8,734 |
|
17,912 |
Accrued interest and expenses |
177,620 |
|
123,936 |
|
186,354 |
|
141,848 |
All trade and other payables are considered short term. The carrying values are considered to be a reasonable approximation of fair value.
The Group and Company have not pledged any assets as collateral for any liabilities or contingent liabilities.
18. Deferred tax liability
|
$ |
At 31 December 2011 |
840,356 |
Credit to income for the year |
(59,043) |
At 31 December 2012 |
781,313 |
Credit to income for the year |
(60,000) |
At 31 December 2013 |
721,313 |
The deferred tax liability arises on recognition of intangible assets at fair value on acquisition of H&S Chemical in 2009.
19. Deferred consideration
Deferred consideration relates to additions to IOsorb plants within property, plant, and equipment.
|
$ |
At 31 December 2012 |
600,000 |
Recognized in year |
(200,000) |
At 31 December 2013 |
400,000 |
The deferred consideration represents management's best estimates of the amount to be payable based on expected production levels over a period of up to 5 years and is not discounted. Based upon 2013 production levels, $200,000 of deferred consideration was reclassified and included in trade payables at 31 December 2013. The maximum contractual amount that could be payable is $1 million.
20. Convertible Note
On 15 May 2013 the Group issued a $15,000,000 convertible note at par value which has an annual coupon of 6.5% payable quarterly in arrears. The note is convertible into fully paid ordinary shares at a conversion price of USD $3.21. If not converted or previously redeemed the note will be redeemed at par upon maturity two years from the issue date. The Company has the right to redeem the note without penalty at any time at which point the holder may elect to convert or receive repayment.
As at 31 December 2013 the loan note had a balance of $14,608,674 and accrued interest relating to the loan was $137.140. The convertible note has been split into its respective debt and equity component and a credit to equity in relation to the conversion of the option of $569,771 has been recognised using an 8.5% per annum discount rate. At maturity, absent conversion, $15,000,000 would be due to the note holder. The convertible note was modified in 2014 as discussed in note 28.
The note holder is a Substantial Shareholder in the Company and pursuant to AIM Rule 13, the issue of the note is a Related Party Transaction.
21. Share Capital
|
|
31 December |
|
31 December |
|
|
2013 |
|
2012 |
Authorised: |
|
|
|
|
Ordinary shares of £0.01 each |
- number of shares |
1,000,000,000 |
|
1,000,000,000 |
|
- nominal value |
£10,000,000 |
|
£10,000,000 |
|
|
|
|
|
Allotted, called up and fully paid: |
|
|
|
|
Ordinary shares of £0.01 each |
- number of shares |
127,284,398 |
|
127,284,398 |
|
- nominal value |
£1,272,844 |
|
£1,272,844 |
|
|
31 December |
|
31 December |
|
|
2013 |
|
2012 |
|
|
$ |
|
$ |
Issued share capital |
|
2,288,106 |
|
2,288,106 |
Share premium |
|
48,919,023 |
|
48,919,023 |
During the year ended 31 December 2012, the Company issued 11,571,300 new ordinary shares at a price of 37.5p per share.
The total number of voting rights in the Company's ordinary shares at 31 December 2013 was 127,284,398 (2012: 127,284,398).
|
|
Number of ordinary shares |
At 31 December 2011 |
|
115,713,098 |
Issue of shares |
|
11,571,300 |
At 31 December 2012 |
|
127,284,398 |
Issue of shares |
|
- |
At 31 December 2013 |
|
127,284,398 |
22. Share based payments
During the year ended 31 December 2013, the Company granted options of 800,000 shares to employees of the Group under the 2008 Iofina plc option plan.
The Group expensed to profit or loss a total of $592,648 in 2013 (2012: nil).
The inputs to the Black-Scholes based valuation model were as follows:
Weighted average share price at date of grant: £1.53
Weighted average exercise price £1.53
Weighted average expected volatility 67.7%
Weighted average expected life 3 years
Risk free rate 0.79%
Dividends none
Expected volatility is a measure of the amount by which the Group's shares are expected to fluctuate during the life of an option. The expected volatility is estimated based on the volatility of seven comparable companies. The expected life of the options is based on historic behaviour in the context of the contractual terms of the options. The risk free rate is based on long term LIBOR rate at the date of the grant. The weighted average contractual life of outstanding options grants is 7.4 years.
Details of the number of share warrants and options and the weighted average exercise price (WAEP) outstanding are as follows:
Date of Grant |
Number of Options |
Vesting Date |
Share Price |
Exercise Price |
Exercise Price |
Volatility |
Risk Free Rate |
|
|
|
£ |
£ |
$ |
|
|
9 May 2008 |
200,000 |
9 May 2009 |
0.55 |
0.55 |
0.91 |
67% |
1.2% |
2 July 2010 |
1,510,000 |
2 Jul 2011 |
0.30 |
0.30 |
0.50 |
50% |
1.2% |
2 January 2012 |
30,000 |
2 Jan 2014 |
0.21 |
0.21 |
0.35 |
50% |
1.2% |
2 June 2012 |
100,000 |
11 Jun 2014 |
0.34 |
0.34 |
0.56 |
50% |
1.2% |
3 September 2013 |
300,000 |
1/3 annually |
1.46 |
1.46 |
2.41 |
68% |
0.8% |
19 September 2013 |
250,000 |
1/3 annually |
1.51 |
1.51 |
2.49 |
68% |
0.8% |
6 November 2013 |
250,000 |
immediate |
1.63 |
1.63 |
2.69 |
68% |
0.8% |
Weighted average |
|
|
0.69 |
0.69 |
1.15 |
57% |
1.1% |
The weighted average exercise price of options forfeited/lapsed in the year was £0.21. The weighted average exercise price of options outstanding at the beginning of the year was £0.34. The weighted average exercise price of all options outstanding at year end was £0.70. The weighted average exercise price for all exercisable options at year end was £0.57. Exercise prices shown in USD are based on the US Dollar/Pounds Sterling exchange rate at 31 December 2013 of 1.648. Options outstanding at 31 December 2013 expire the earlier of ten years from grant date or the termination of service to the Company, the latter being subject to the administrator's discretion.
|
2013 |
|
Number of options |
Outstanding at the beginning |
1,840,000 |
Granted |
800,000 |
Lapsed/forfeited |
(30,000) |
Outstanding at the end of the year |
2,610,000 |
Exercisable at the end of the year |
2,192,500 |
|
2012 |
|
Number of options |
Outstanding at the beginning |
2,152,273 |
Granted |
130,000 |
Lapsed/forfeited |
(442,273) |
Outstanding at the end of the year |
1,840,000 |
Exercisable at the end of the year |
1,710,000 |
23. Related party transactions
In May 2013 Iofina plc executed a convertible note in the amount of $15,000,000 with with Stena Investment S.à.r.l, an owner of approximately 10% of the outstanding common shares. The transaction was deemed a related party transaction pursuant to AIM Rule 13. See note 20 for a description of the note.
There are intercompany transactions among the members of the Group. In 2013 the proceeds of the convertible note were transferred to Iofina Resources and iodine produced by Iofina Resources was sold to Iofina Chemical. Related party balances are as follows:
|
31 December 2013 $ |
|
31 December 2012 $ |
|
Due from |
Due to |
|
Due from |
Due to |
Iofina plc |
37,633,234 |
- |
|
22,633,234 |
- |
Iofina Resources |
3,211,259 |
37,633,234 |
|
4,360,256 |
22,633,234 |
Iofina Chemical |
- |
3,211,259 |
|
- |
4,360,256 |
Intercompany sales were $4.8 million in 2013 and $0.4 in 2012. Additional related party transactions are with key management personnel as detailed below. Option grants as described in note 22 are to employees and Directors.
|
31 December 2013 $ |
|
31 December 2012 $ |
Wages and salaries |
706,349 |
|
540,460 |
Share based expense |
592,648 |
|
- |
Social security costs |
20,941 |
|
44,574 |
Total |
1,319,938 |
|
585,034 |
The Company has entered into a number of unsecured related party transactions with its subsidiary undertakings. The most significant transactions carried out between the Company and its subsidiary undertakings are financing.
24. Leases
The Group leases space for administrative purposes under one agreement. The remaining life of the lease is 62 months. At the balance sheet date the minimum payments are $141,790 (2012: $69,425) for the next 12 months. The lease is strictly for the use of improved realty on a stated payment basis and contains no contingent, purchase or renewal clauses.
Future Minimum Lease Payments |
31 December 2013 $ |
|
31 December 2012 $ |
One year |
141,790 |
|
69,425 |
More than one and less than five years |
489,116 |
|
- |
More than five years |
16,240 |
|
- |
Total |
647,146 |
|
69,425 |
25. Capital management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. The Group defines capital as being share capital plus reserves. The Board monitors the level of capital as compared to the Group's commitments and adjusts the level of capital as is determined to be necessary by issuing new shares. Iofina plc is not subject to any externally imposed capital requirements.
26. Subsidiary undertakings
Investment in subsidiaries
|
Investment in |
|
subsidiaries |
|
$ |
Cost |
|
Balance at 31 December 2011 |
16,900,193 |
Exchange difference |
299,169 |
Balance at 31 December 2012 |
17,199,362 |
Exchange difference |
- |
Balance at 31 December 2013 |
17,199,362 |
Loans to subsidiaries
|
Loans to |
|
subsidiaries |
|
$ |
Cost |
|
Balance at 31 December 2011 |
16,688,401 |
Additions |
5,944,832 |
Balance at 31 December 2012 |
22,633,233 |
Additions |
14,551,233 |
Balance at 31 December 2013 |
37,184,466 |
Intra-group loans receivable are reviewed for impairment at least annually or when indicators of impairment arise. An impairment loss is recognised for the amount by which the asset's or cash generating unit's carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value in use. To determine the value in use, management estimates the present value of expected future cash flows.
Subsidiary undertakings
|
Country of incorporation and operation |
Principal activity |
Interest in ordinary shares and voting rights |
Iofina, Inc. |
United States/CO |
Holding company |
100% |
Iofina Resources, Inc. |
United States/CO |
Iodine production |
100% |
Iofina Chemical, Inc. |
United States/DE |
Specialty chemical |
100% |
Iofina Resources, LLC |
United States/CO |
Holding company (Dormant) |
100% |
Iofina Resources, LLC |
United States/TX |
Holding company |
100% |
Iofina Resources, LLC |
United States/OK |
Holding company |
100% |
Atlantis Water Solutions, Inc. |
United States/MT |
Holding company |
100% |
Atlantis Water Solutions, Inc. |
United States/ND |
Holding company (Dormant) |
100% |
Iofina, Inc. was established in February 2006 and is a wholly owned subsidiary of Iofina plc. Iofina, Inc. owns the whole of the issued share capital of Iofina Resources, Inc. and Iofina Chemical, Inc. Other entities are subsidiaries of Iofina Resources, Inc., the iodine production company.
27. Capital commitments
At 31 December 2013, the Group had capital commitments of approximately $3,500,000 (2012: $386,000).
28. Post balance sheet events
Following the reporting date, the Group entered into a modification of the terms of the outstanding $15,000,000 convertible bond with Stena Investment S.à.r.l. The redemption date was extended by two years to 15 May 2017. The coupon on the Bond was reduced to 6.0% per annum from 6.5%. The terms of conversion were modified such that Stena may convert at any time upon 28 days' notice to Iofina at a conversion price of $1.67.
On 18 April 2014 the Group was notified that the preliminary determination of DNRC was to deny the application for water rights. The Group is entitled to a hearing with the State to register its disagreement with the preliminary decision of the DNRC.
29. Contingent Liabilities
During 2013 Iofina Resources was subject to three legal actions. Two of the complaints relate to the operation of one of the Group's production facilities and the claim that the operation of the plant constitutes a nuisance to nearby residents. The Group has responded to the complaint, evaluated the sound emanating from its facility, a neighbouring facility and a nearby highway. Based upon this analysis the Group believes the complaint is without merit. The third complaint is for underpayment of wages to several Group employees. The case is in the discovery phase. The Group is vigorously defending these cases.