Invinity Energy Regulatory News (IES)

29 September 2020

Invinity Energy Systems plc

("Invinity" or the "Group")

Interim Results 2020

Invinity Energy Systems plc (AIM:IES), manufacturer of vanadium flow batteries for the large-scale energy storage requirements of businesses, industry and electricity networks, is pleased to announce its consolidated results for the six months ended 30 June 2020.

HIGHLIGHTS

Operational

Merger with Avalon was completed on 2 April 2020. Significant progress was made during the period toward the three primary strategic priorities set out in the Admission Document. Key achievements summarised below:

Commercial

Further to previous commercial updates communicated via RNS on 15 June and 16 July, the Company's latest commercial opportunity pipeline as at 23 September 2020, is summarised below

*see Commercial Update section below for commentary, definitions of the categories used and further information on how these management estimates are derived.

Financial

· Revenue £0.3m (H1 2019 £0.2m)

· Operating loss, including £1m of merger transaction costs, from continuing operations £5.0m (H1 2019 £3.9m)

· Half year end free cash £4.5m (31 December 2019 £1.2m)

· Net Assets £38.7m (31 December 2019 £12.6m)

· Borrowings £0.1m (31 December 2019 £1.1m) before 1 July 2020 £1.0m RiverFort debt facility drawdown

· Current cash £2.9m, current debt £0.9m and £2.0m still available under facility which, along with expected customer receipts, is sufficient to fund current production ramp up and overheads.

Outlook

With the merger completed and corporate integration activity in its final stages, the Company is beginning to capitalise on its leading position within the sector and expects a number of positive developments to occur during the fourth quarter and beyond. The immediate focus for Invinity is to progress a number of important commercial deals from final contracting stages to signed, closed orders. Alongside this, the Company remains focussed on the manufacture, delivery and commissioning of both the Energy Superhub Oxford project and the 1.7MWh of orders received during the first half of the year.

CHIEF EXECUTIVE OFFICER'S REPORT

I had hoped to be in a position to outline a number of new and important contracts closed by our commercial team, but a combination of delays due to COVID-19 and the timing of our financial calendar means that these deals remain imminent rather than signed at the time of this writing.

That said, sitting at my desk in California, with smoke from wildfires keeping everyone indoors and blackouts occurring across the state, I'm optimistic about the next quarter and beyond.

- I've seen a significant uptick in our sector since our merger. Just last month, California's governor was discussing the path toward greater use of renewable energy in our state and said that it is "our capacity on storage in particular that substantially needs to be improved". This is just one example. There have been myriad other "storage-positive" developments in our other key markets of the UK, Australia, and Asia.

- Future energy storage requirements will not be met by one single technology. Most battery storage today is provided by lithium batteries, but the market is demanding alternatives. There are some well-known issues with lithium-based systems, and we regularly hear about "thermal runaway incidents," a euphemism for fires, the most recent of which occurred a matter of weeks ago in Liverpool, UK.

- Although there will always be a place for lithium-ion batteries in our consumer electronics, electric vehicles and for certain grid-scale applications, our increasingly renewable-based energy systems require heavy-cycling, long duration energy storage solutions to sustain and accelerate the global energy transition. That's where Invinity, with our proven flow battery based on vanadium chemistry, comes in.

Together, these opportunities provide ample justification for my optimism.

Lawrence A. Zulch

Chief Executive Officer

STRATEGIC UPDATE

Without a viable alternative, project developers interested in large-scale energy storage have looked almost exclusively to lithium-ion systems, even when they aren't the optimum fit. Invinity's strategy is to make Invinity the commercially viable complement or alternative to lithium-ion batteries.

The Company has made significant commercial progress in the months following the merger as the June 2020 Trading Update detailed with over £1m of orders signed. Since then, Invinity's late stage project pipeline has continued to expand in terms of both project quality and scale. Thanks to the ongoing work of Invinity's transatlantic commercial team, the Company remains confident in its ability to close a significant number of these opportunities into confirmed orders over the coming months.

Significant progress has also been made on other fronts with the successful integration of Invinity's predecessor companies and the launch of the new Invinity brand. The Company's new VS3 module is now in manufacturing and combines the best of both redT and Avalon's development experience into a next generation product. The first shipments have now left the factory in China for use in the Energy Superhub Oxford project. These achievements are made more remarkable by the fact they were accomplished in the midst of a global pandemic.

COVID-19 has presented challenges but, thanks in part to Invinity's diversified footprint, the Company has at no point experienced the near total shutdown that affected others in the energy industry. The pandemic affected Invinity's ability to raise capital at the time of the merger which led to an adjustment in growth plans. However, the level of investment received, in light of the circumstances, speaks to the confidence of our shareholders, to whom the Company are thankful for their continuing support.

Key strategic priorities for Q4

1) Energy Superhub Oxford: Continue to progress towards delivery and commissioning in line with project plans;

2) Advance commercial opportunities: through each of the deal stages to eventual completion; and

3) Deliver on signed deals: to build out VS3 operating base and demonstrate product performance to the wider market.

Alongside these priorities is an ongoing product development strategy to maintain a relentless focus on reducing costs without compromising quality and drive iterative improvements of product performance.

The fundamental objective of Invinity's Executive Team is the creation of a profitable, growing business. We can and will build that business by securing the place of vanadium flow batteries in this dramatically expanding market.

COMMERCIAL UPDATE

The two months since the last update have seen an increasing number of deals move towards close. Three key external factors are driving strong demand in the VS3 product:

· Increased volatility across global energy markets

· Growth in renewables has necessitated energy storage projects to support national electric grids; and

· Increased willingness of energy consumers to provide their own power through resilient, distributed energy solutions such as Invinity's Vanadium Flow Batteries (VFBs).

Volatility in energy markets has been particularly challenging to the status quo: taking California as an example (but this trend is equally true of the UK and other parts of Europe in recent months), the combination of lower loads on the electric grid through the pandemic with increasing quantities of low-cost renewable generation has regularly yielded extremely low or even negative electricity market prices. The availability of clean, low-cost power has, for the first time, directly challenged the business models of conventional fuel-based generators. As those generators become uneconomic, their operators cease bidding them into the state's energy markets. This means less power available at peak times, contributing to the rolling blackouts starting in California on August 14th. Regulators, grid operators and energy asset owners alike are now realizing that storage can help stabilize this situation, not only by helping fulfil peak demand, but also to guard against potential downsides - both at a micro level, by adding value to midday solar generation from an individual producer; and at a macro level, by balancing supply and demand when market prices dip.

With the need for rapid change to global electrical infrastructure, the amount of renewable generation that can be deployed is becoming increasingly limited without incorporating storage. Grid constraint issues such as this are prevalent all over the world (Ireland, Australia and Canada are prominent examples) and force grid operators to limit the megawatts of power that new renewable energy plants can deliver at a particular point to the network. Energy storage is a natural fit for maximizing revenue for project owners in this situation - with solar, for example, by using a battery to optimise delivery through a grid connection of a set size for eight hours per day, as opposed to one or two. Doing so can significantly increase revenue while also increasing returns on capital for a given site.

Finally, the biggest change in the electric grid over the last decades - the shift to a system that is distributed, decarbonized and digitized - is pushing electricity consumers to take matters into their own hands, building their own resilient, clean, low-cost power generation sources, and using energy storage to manage that self-generated power most effectively. This is especially prevalent in California, but also in Australia and South Africa, where grid outages combined with very high electricity tariffs are making a compelling case for such "grid defection".

These trends are directly contributing to Invinity's robust pipeline of commercial opportunities. Only projects that meet the following criteria are included in the Company's quoted pipeline figures:

1. There is an economic case to be made for storage,

2. The potential customer has the capabilities and funding to execute the project, and

3. There is a reason why Invinity's products are unambiguously the best choice for the job.

Having passed that filter, Invinity's commercial team formally start to track, and report on, opportunities. As projects mature, they evolve through the stages of the commercial process:

· Pipeline opportunities are those that have passed the qualification thresholds noted above

· Upside opportunities are those where funds are allocated, and management estimate that there is a strong chance of close in the immediate term; and

· Base opportunities are opportunities in final contracting stage, and for which Invinity's business is built on - including working capital, manufacturing capacity and ability to deliver - in the immediate term.

· Closed opportunities are those with firm contracts in place, and where financial commitments have been made by customers for delivery.

Based on the above, Invinity's latest opportunities are as follows, as at September 23rd 2020:

The most significant movement is the increased number of opportunities in the "Base" category since the last report, which reflects a significant increase in the number of deals now within reach. Similarly, Upside figures have been bolstered by additional opportunities that will fill in once Base opportunities are closed, fully supporting Invinity's plans to ramp up manufacturing capacity. Pipeline has decreased, reflecting deals that have moved to either Upside or Base, or that are no longer expected to close in the near term.

Closing near term opportunities requires permits, funding, developer leadership and a clear economic case; these complexities can, and have, caused delays, especially as Invinity's commercial partners adapt to the reality of operating during a pandemic. However, we remain confident on converting current pipeline projects into confirmed orders during the fourth quarter. Electricity producers' and consumers' need for Invinity's reliable, economical, renewable battery storage solutions has never been more clear. We are looking forward to providing positive updates on our commercial successes in the near future.

FINANCIAL REPORT

The six months under review were dominated by the merger with Avalon Battery Corporation (Avalon) and simultaneous equity fundraise. The fundraise was approved by shareholders on 1 April 2020 along with the renaming of the new group to Invinity Energy Systems plc. These activities explain the significant movements within the primary statements, with the two largest being the £28.8m issue of equity and the £21.3m creation of goodwill.

The £28.8m of equity was issued via a placing and open offer to fund the new group post-merger, shares were issued to both existing shareholders of Avalon in return for 100% of their share capital and voting equity and to Bushveld Minerals Ltd (Bushveld) to discharge its loan to Avalon.

The £21.3m of goodwill arises because the fair value of the consideration paid to complete the transaction exceeded the provisional net identified liabilities acquired and book value of the Bushveld loan discharged. The book value of the loan exceeded the value of the equity issued to discharge it by £1.8m.

The goodwill is attributable to the creation of an enlarged group with a combined product, the VS3, and team to support and promote it in the key energy storage markets.

Statement of financial position movements

The largest movements since 31 December 2019 are movement in equity and goodwill, as discussed above. Further details on the financial terms of the merger are set out within note 15.

Additional significant movements in the net assets since 31 December 2019 are an increase of £1.0m in contract liabilities, which relates to customer deposits, a £0.5m increase in provisions, and an increase in cash and cash equivalents of £3.2m, which is discussed below.

Statement of comprehensive income

The statement of comprehensive income includes Avalon's from 1 April 2020 which contributed a loss of £0.8m between 1 April to 30 June 2020. The three notable movements for the period are revenue of £0.2m, most of which relates to a government grant for R&D; £1.0m of other losses, all of which relates to merger transaction costs, and administrative expenses of £3.9m.

Cash flow

As discussed above, the material movement, the net fundraising proceeds of £7.4m, relates to the merger. Excluding the merger transaction costs, the adjusted loss is similar to the loss for comparative period of the prior year.

Production ramp up of the VS3 began towards the end of the period which, under existing terms of trade, explains the negative working capital movement.

Going concern

As previously stated, the £8.1m (before expenses) raised was less than originally planned due to the COVID-19 lockdown. As disclosed at the time, the Board took prompt action securing a £3.0m debt facility from RiverFort and reducing the trading plan to a level sufficient to trade as a going concern for at least the next eighteen months, subject to sales closing within two months, and deposits being no less than 50%, of expectations. Any acceleration of this plan is likely to require additional funding, which the directors are confident will be available.

Current cash and borrowings are £2.9m and £0.9m respectively, with a further £2.0m available under the RiverFort facility. Monthly cash burn will depend on the extent to which customer receipts exceed the payments for the production ramp up but, along with the debt, are expected to cover total overheads, which are expected to be about £0.5m to £0.6m per month for the next eighteen months.

Having taken all the above factors into account, the directors continue to believe it is appropriate to prepare these financial statements on a going concern basis, noting the material uncertainty that exists arising from the need to secure sales deposits or long-term funding within the coming months.

COVID-19

Measures introduced to limit the impact of COVID-19, including work-from-home regulations, did affect Invinity's operations in the UK, Canada, the US and its outsourced manufacturing in China.

However, since the initial outbreak of COVID-19, the Group's facility in China has returned to normal capacity and the manufacturing facilities in Vancouver and UK have restarted operations. Supply of components and assembly of flow battery modules for the fulfilment of orders is occurring and the Group has resumed delivery of energy storage systems.

Invinity's staff continue to work remotely where able and others where required have now returned to the facilities in the UK and Canada whilst adhering to local regulations and following best practices as advised by regional and national health authorities.

Whilst the full impact of COVID-19 is uncertain at this stage it is not anticipated that it will result in any impairment of any assets in this financial year.

Expectations for the second six months of the financial year

The post-merger integration process is largely complete and with significant combined investment since 2015 into flow battery development by the merged Group, the VS3 is well placed for commercial deployment. The standard unit of sale will be the VS3 comprising six Invinity VFB modules fitted into the form factor of a 20-foot container.

VS3 production will focus exclusively on the ESO project for this half-year and beyond. Manufacturing of the battery stacks will continue in Canada and the remaining elements in China. These components will then be assembled in Scotland for onward transport to Oxford.

Revenue for the second half-year is expected to increase to reflect the shipping of the remaining pre-merger Avalon AFB's and the redT Gen3. As this will be the final Gen3 manufactured, the related intangible asset, of £6.2m, see note 7, will therefore be recognised in full during the six months to 31 December 2020.

Draw down of the £3.0m of funding provided by the RiverFort facility began with a £1.0m drawdown on 1 July 2020 and a further £1.0m scheduled for next month. The capital and interest repayments for the loan can be made by way of cash or conversion into ordinary shares. Since 1 July, RiverFort have made three such conversions and a total of 239,887 shares have consequently been issued.

With the merger completed and corporate integration activity in its final stages, the Company is beginning to capitalise on its leading position within the sector and expects a number of positive developments to occur during the fourth quarter and beyond. The immediate focus for Invinity is to progress a number of important commercial deals from final contracting stages to signed, closed orders. Alongside this, the Company remains focussed on the manufacture, delivery and commissioning of both the Energy Superhub Oxford project and the 1.7MWh of orders received during the first half of the year.

Enquiries:

Notes to Editors

Invinity Energy Systems plc (AIM:IES) manufactures vanadium flow batteries for the large-scale energy storage requirements of businesses, industry and electricity networks.

Developed specifically for high-utilisation applications, Invinity's highly scalable, factory-built flow battery products make low-carbon renewable generation reliable and can run continually with no degradation, charging and discharging for over 25 years. Energy storage systems based on Invinity's batteries are safe, reliable, and economical, and range in size from less than 250 kilowatt-hours to tens of megawatt-hours.

Invinity was created in April 2020 through the merger of two flow battery industry leaders: redT energy plc and Avalon Battery Corporation. With over 10MWh of systems deployed to date across 40 sites in 14 countries, Invinity is active in all major global energy storage markets and has operations in the UK, Canada, USA, China and South Africa. Invinity Energy Systems plc is listed on the London Stock Exchange.

To find out more, visit invinity.com or call Investor Relations on +44 (0) 207 121 6111.

Consolidated Statement of Financial Position

 At 30 June 2020

* See note 14 for details of restatement

Consolidated Statement of Comprehensive Income

For the 6 months to 30 June 2020

* See note 14 for details of restatement

Consolidated Statement of Changes in Equity

For the 6 months to 30 June 2020 (unaudited)

For the 6 months to 30 June 2019 (unaudited)

* See note 14 for details of restatement

For the year ending 31 December 2019 (audited)

Consolidated Statement of Cash Flow

For the 6 months to 30 June 2020

* See note 14 for details of restatement

Notes

Significant accounting policies

Invinity Energy Systems plc (the "Company") is a public company incorporated in Jersey under Companies (Jersey) Law 1991. The address of its registered office is 3rd floor, Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ. The consolidated interim financial report of the Company for the period from 1 January 2019 to 30 June 2019 comprises the Company and its subsidiaries (together the "Group").

Basis of preparation

The annual financial statements of the Group for the year ended 31 December 2019 have been prepared in accordance with IFRSs as adopted by the EU ("Adopted IFRSs"). The interim set of financial statements included in this half-yearly report has been prepared in accordance with the recognition and measurement requirements of IFRSs as adopted by the EU. The interim set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2019. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at, and for, the year ended 31 December 2019.

This interim financial information has been prepared on the historical cost basis. The accounting policies applied are consistent with those adopted and disclosed in the annual financial statements for the period ended 31 December 2019. The accounting policies have been consistently applied across all Group entities for the purpose of producing this interim financial report.

The financial information included in this document does not comprise of statutory accounts within the meaning of Companies (Jersey) Law 1991. The comparative figures for the financial year ended 31 December 2019 are not the company's statutory accounts for that financial year within the meaning of Companies (Jersey) Law 1991. Those accounts have been reported on by the company's auditors and delivered to the Jersey Financial Services Commission. The report of the auditors was unqualified.

Estimates

The preparation of the interim financial report in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Going Concern Basis 

On 1 April 2020 the Company managed to secure an investment of £8.1m (before expenses), which was supplemented with an additional £3.0m funding from the RiverFort Facility. This was despite the most turbulent equity market conditions in decades caused by the COVID-19 pandemic. The Group recognises that the amount raised was less than the funds needed to pursue the original business plan prepared at the start of the fundraise process and has amended its plans accordingly. This includes keeping costs to a level that enables the Group to deliver the existing contracts whilst continuing to develop market opportunities for its products, albeit on a more limited basis than had been planned originally. The updated business plan envisages a ramp up in closed sales orders, paying deposits, in the final quarter of 2020. These orders will be satisfied from production capacity that will increase during the second half of 2020, the initial output of which will be deployed onto the Energy Superhub Oxford project in late 2020 early 2021. Whilst the latest available information regarding the impact of COVID-19 pandemic has been incorporated into the updated the business plan, there still remains some uncertainty as to what the full impact might be on future sales orders and production.

The cash and borrowings balances at the time of writing this review, were £2.9m and £0.9m, respectively. The Group's latest cash flow forecasts indicate that, provided sales orders close as forecast, this cash combined with the remaining capacity on the RiverFort Facility will be sufficient to fund the business for at least the next 18 months. Based on encouraging ongoing discussions with potential customers, the Group is confident of meeting, if not exceeding its sales order forecast.

Should the closing of sales orders be delayed by two months, or the level of deposits be more than 50% less than forecast, assuming the Group maintains its current operational capacity it will be necessary to raise further equity or debt funding before the end of February 2021 to continue trading and deliver on its strategic objectives. Discussions with potential investors and debt providers are ongoing.

Based on the ongoing discussions with potential customers, investors and debt providers, the Board is optimistic that the necessary sales orders or, if delayed, additional funding will be secured in the appropriate time scale. It therefore considers it appropriate to present these financials on a going concern basis. However, the Group's need to secure sales orders or raise additional funding, creates a material uncertainty that casts significant doubt about its ability to continue as a going concern. In addition to the issues discussed above, the Directors have also reviewed other varying, and wide-ranging information relating to both present and future conditions when reaching their conclusion regarding going concern. These included:

· the opportunity presented by the rapidly emerging energy storage market;

· the commercial viability of Invinity's vanadium flow batteries within this market; and

· contracts being delivered and projects currently in the pipeline.

The Group also has established relationships with a number of customers and suppliers and has the continuing support of existing investors, as evidenced by recent fundraises.

Having taken all the above factors into account, the Directors continue to believe it is appropriate to prepare these financial statements on a going concern basis, noting the material uncertainty that exists arising from the need to secure sales deposits or long-term funding within the coming months.

The financial statements do not include any adjustments that would be necessary if the Group was unable to continue as a going concern.

1 Segmental Reporting

Following the disposal of the Camco USA business in April 2019 the Group comprises one reporting segment that provides energy storage solutions.

2. Revenue

The group derives the following types of revenue:

3. Net finance income / (costs)

4. Other losses

5. Share based payments

The expense comprises a charge of £126k (including £21k to cover potential employer national insurance contributions) offset by a £333k (including £40k for employer national insurance contributions) reversal of prior year charge due to options forfeited.

6. Loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the period.

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential shares. Where the inclusion of potentially issuable shares decreases the loss per share (anti-dilutive), the potentially issuable shares have not been included. This was the situation for both the 2020 and 2019 calculations. The weighted average number of shares not included in the diluted share calculation because they were anti-dilutive was 3,549,529 (FY 2019* 1,171,035, HY2019* 1,179,438)

*Shares issued or options granted before the 50:1 share consolidation on 1 April have been consolidated 50:1 for comparative purposes.

7. Intangible assets and goodwill

*See note 15

8. Inventories

9. Other assets

(a) Cash and cash equivalents

(b) Trade receivable(s) and accrued income

(c) Other current assets

*See note 14

The carrying value of all financial assets above approximate their fair values due to the short-term maturity of these instruments.

For the period ending 30 June 2019 the group has reclassified the current assets within the financial statement line items to ensure better presentation. £117k net has been reclassified to "other current assets", previously titled "prepayments and accrued income" from "trade receivables and accrued income", previously titled "trade and other receivables".

10. Other Financial Liabilities

(d) Trade and other payables

The carrying value of all financial liabilities above approximate their fair values due to the short-term maturity of these instruments.

11. Provisions

The provision is for warranty claims in respect of products sold and unavoidable net costs relating to onerous contracts at the period-end.

£369k additional provision includes £358k loss on the contract to supply energy storage systems to the Energy Superhub Oxford project.

12. Borrowings

Avalon

On 1 November 2019 the Company entered into a loan agreement with Avalon Battery Corporation ("ABC"), a US registered company. Under this agreement ABC made a loan available up to US$2.5m. The Company had drawn down USD1,500,000 (GBP1,142,677) of this loan as at 31 Dec 2019. The loan bears an interest of 12%. The loan was secured by way of the ordinary shares of certain of the Company's subsidiaries.

On 1 April, 2020, this loan became an inter-company loan between the Company and Avalon as a result of the acquisition of Avalon by the Company. The loan therefore eliminates on consolidation from 1 April 2020.

Premium Credit Ltd

On 2 June 2020, the Company entered a loan agreement with Premium Credit Ltd for £123k to fund corporate insurance policy payments. The loan bears an interest of 10.25% and is repayable in monthly instalments over the period to 1 February 2021. The loan is secured by any funds, up to the outstanding loan balance, for which the Company is entitled in relation to the associated insurance policies. The loan balance at 30 June 2020 is £99k.

RiverFort

On 13 March 2020 the Company entered into an Investment Agreement with YA II PN Ltd and RiverFort Global Opportunities PCC Limited, which was subsequently amended by a Deed of Variation on 1 July 2020. Under this agreement YA II PN Ltd and RiverFort Global Opportunities PCC Limited agreed to lend £3.0m (the "Principal amount") to the Company (the "RiverFort Facility").

The RiverFort Facility incurs interest at a rate of 12% per annum and is subject to an implementation fee of £225k. The implementation fee can be satisfied by the issue of €0.50 ordinary shares at £1.0685. The Principal amount is advanced in three tranches with the final tranche due on 22 January 2021.

Interest shall not accrue on advances for the following month, if on the first trading of a month during the term of the advance, the average of the 20 trading day daily value trade of the Company exceeds £100k.

The Principal amount and all interest accrued is convertible into ordinary shares in Company at the lower of (i) 90% of the volume weighted average price in the ten days immediately preceding the date of the relevant conversion notice and (ii) 130% of the volume weighted average price for the five days immediately prior to the relevant advance.

In addition, the Company has agreed to issue, at drawdown, warrants over ordinary shares equal to 50% of the Principal amount, exercisable over a period of four years at a price of £1.07 per €0.50 ordinary share.

The RiverFort facility shall, at drawdown, be secured by the Company granting a fixed and floating charge over its assets.

13. Issued share capital and reserves

(a) Share capital and share premium

*See note 14

(b) Share based payment reserve

Share based payment reserve

*See note 14

14. Restatement of financial statements for the 6 months to 30 June 2019

As explained in note 1 and 22 of the audited annual financial statements for the year ending 31 December 2019 the group has adopted IFRS 16 Leases retrospectively from 1 January 2019. Management did not adopt IFRS 16 in the 30 June 2019 financial statements published 27 September 2019 as it considered the impact immaterial. As shown in the table below the impact on net assets at 30 June 2019 is a decrease of £3k. In the consolidated statement of cash flow for the period to 30 June 2019, the net cash from operating activities and net cash from financing activities has increased and decreased, respectively, by £42k.

Also, the gain on sale of Camco International Group Inc. of £578k was incorrectly classified in the 30 June 2019 financial statements published 27 September 2019 under continuing operations in the statement of comprehensive income. The correct classification under IFRS 5 Non-current assets held for sale under discontinued operations is presented in these financial statements for the period ending 30 June 2019. The resulting classification adjustment in the statement of comprehensive income is shown below. In the consolidated statement of cash flow for the period to 30 June 2019, proceeds from the sale of discontinued activities of £476k has also been re-classified from financing to investing activities.

*£521k is after a reclassification of £117k to "other current assets", previously titled "prepayments and accrued income". See note 9.

As a result of the above adjustments basic and diluted earnings per share for continuing operations and continuing and discontinued operations has also been restated. The amount of the restatement for both basic and diluted earnings per share on a 50:1 consolidation basis for continuing operations, and continuing and discontinued operations, is a decrease of 3.36 and 0.02 pence per share, respectively.

15. Business combination and fund raising

Business combination

The merger with Avalon was completed on 1 April 2020. On 1 April 2020 the Company acquired 100% of the share capital and voting equity of Avalon Battery Corporation in exchange for 1,735,397,545 €0.01 ordinary shares in the Company.

To fund the Company and Avalon through the merger, Avalon had received a US$5.0m loan from Bushveld to fund each others costs in relation to the merger and trading cash requirement up to the merger. Half of which was on-lent by Avalon to a redT group company. As part of the merger transaction the loan from Bushveld to Avalon was discharged by issuing 302,978,063 €0.01 ordinary shares in the Company to Bushveld.

The market price of the Company's shares on 1 April 2020 was 1.05p per €0.01 ordinary share (52.5p per consolidated €0.50 ordinary share). The fair value of the shares issued was £21,402k of which £16,404k has been allocated to the fair value of the equity purchase price.

Outstanding employee held options to acquire Avalon shares were also rolled over into options to acquire ordinary shares of €0.01 in the Company at exercise prices of 0.087p (61,009,238 €0.01 ordinary shares) and 0.137p (52,789,430 €0.01 ordinary shares). The fair value of these replacement options allocated to the equity purchase price is £906k. The fair value of these replacement options at 1 April 2020 is calculated using an appropriate model and the amount allocated to the equity purchase price is the portion earned by the employees up to 1 April 2020.

Therefore, the total fair value of the consideration for acquiring Avalon and discharging its loan from Bushveld was £22,309k, of which £17,310k is allocated to the fair value of the equity purchase price and £4,999 to discharging the loan.

The provisional assets and liabilities recognised as a result of the acquisition of the equity are as follows. The amounts are provisional as the purchase price allocation exercise is ongoing.

Goodwill is attributable to the creation of an enlarged international group, with activities in several major energy storage markets, and possessing the necessary resources, in the form of both product and people, to compete in the multi-billion-pound opportunity those markets present. The assessment of the tax deductibility of goodwill across the group is to be completed.

As the functional currency of the consolidated Avalon group is USD the currency denomination of the goodwill is USD which at 1 April 2020 is USD26,383k.

Avalon contributed revenues of £nil and net loss of £846k to the group for the period from 1 April to 30 June 2020. If the merger of Avalon including the Bushveld debt discharge had occurred on 1 January 2020 consolidated pro-forma revenue and loss for the period ending 30 June 2020 would have been £409k and £7,648k, respectively.

The provisional fair value and gross contractual amount of trade receivables due is £112k. The cash inflow from the merger is £1,279k.

Merger related costs of £1,047k for the period to 30 June 2020 that were not directly attributable to the issue of shares are included in other gains/(losses) in the consolidated statement of comprehensive income and in operating cash flows in the consolidated statement of cash flow.

Placing and Open Offer

Simultaneous with the merger with Avalon on 1 April 2020, the Company raised £8.1m (before expenses) via a placing and open offer of 488,771,236 €0.01 ordinary shares at a price of 1.65p.

Warrants - VSA Capital

As part of VSA Capital's role as adviser on the merger with Avalon and associated fundraising on 1 April 2020 the Company issued to VSA Capital 17,00,000 warrants to subscribe for €0.01 ordinary shares. The warrants are exercisable at 1.65p at any time for five years.

Ordinary Share Consolidation

On 1 April 2020 the Company consolidated each ordinary share of €0.01 nominal value on a 50 to 1 basis, such that every 50 ordinary shares consolidated into one consolidated ordinary share of €0.50.

16. Covid-19

Measures introduced to limit the impact of COVID-19, including work-from-home regulations, have affected Invinity's operations in the UK, Canada, the US and its outsourced manufacturing in China.

However, since the initial outbreak of COVID-19, the Group's facility in China has returned to normal capacity and the manufacturing facilities in Vancouver and UK have restarted operations. Supply of components and assembly of flow battery modules for the fulfilment of orders is occurring and the Group has resumed delivery of energy storage systems.

Invinity's staff continue to work remotely where able and others where required have now returned to the facilities in the UK and Canada whilst adhering to local regulations and following best practices as advised by regional and national health authorities.

Whilst the full impact of COVID-19 is uncertain at this stage it is not anticipated that it will result in any impairment of any assets in this financial year.

17. Post balance sheet events

RiverFort facility

Under the RiverFort facility, on 1 July the Company was advanced £1.0m. Also, on 1 July 2020, the implementation fee of £250k was settled with 210,576 ordinary shares.

On 14 August, 25 August and 14 September, a total of 239,887 ordinary shares were issued reducing the principal loan balance by £200k.

Vanadium Electrolyte Rental Limited

On 17 July 2020, Vanadium Electrolyte Rental Limited (England) was incorporated. Invinity Energy (UK) Ltd, an indirect subsidiary of the Company, owns 50% of the voting equity and 30% of the total equity of Vanadium Electrolyte Rental Limited.

Share Options

The grant of 2,649,000 share options to subscribe for ordinary shares in the company were approved by the Company's board on 26 August 2020. The share options will be awarded under the 2018 Employee Share Options Plan which was adopted by the Board on 14 May 2018 an amended on 1 April 2020.

Intangible asset

The final redT Gen3 battery system was shipped to a customer in September. As this will be the final Gen3 manufactured, the related intangible asset, which is £6.2m at 30 June 2020, carried in the pre-merger redT balance sheet will therefore be recognised in full in the statement of comprehensive income in 6 months to 31 December 2020.