Iofina Regulatory News (IOF)

19 May 2017

Iofina plc

("Iofina", the "Group" or the "Company")

(LSE AIM: IOF)

AUDITED 2016 FINAL RESULTS

NOTICE OF AGM

Revenue Increase, Iodine Production Costs Decrease

Iofina, specialists in the exploration and production of iodine and iodine specialty chemical derivatives, announces its audited final results for the 12 months to 31 December 2016. The Group increased revenue in 2016 and has continued to reduce the cost of iodine production at the Group's IOsorb® plants despite challenges of falling iodine prices and brine supply due to regulations and diversion for fracking operations. The Group is expecting to produce 215-230 metric tonnes ("MT") of iodine in the first half of 2017.

2016 Financial Highlights:

· Revenue increased by 11% to US$22.5m (2015: US$20.3m)

· Gross profit of US$2.7m (2015: US$4.3m), despite a 20% fall in iodine prices

· Convertible loan notes restructured and reissued and a US$10 million debt facility added

· Cash and cash equivalents at 31 December 2016 of US$2.8m

Operational Highlights:

· Produced 474.2 MT of crystalline IOflo® iodine

· Continued reduction in the cost of iodine production

· Halogen derivative producer Iofina Chemical performed well including a record year for non-iodine products

· Global IOflo® iodine sales at record levels for the Group

· Oklahoma seismic activity has declined which reduces further potential regulatory action

Post Period Highlights:

· Iodine prices show signs of stabilising and are moving higher from late 2016 lows

· Iofina Chemical continues to realise strong non-iodine derivative sales and this trend is expected to continue

· Execute an IO#3 solution to increase output and reduce cost, likely at a new site

· Continue to evaluate operating own brine wells and disposal sites

The Company is posting notice of its AGM to shareholders 19 May 2017. The AGM will be held at 200 Strand, London WC2R 1DJ, on 14 June 2017 at 09.30 a.m.

Commenting on today's results, President and CEO Dr. Thomas Becker stated: 

"The Board is pleased with the Company's 2016 performance, which saw revenue increase 11%, record sales of IOflo® iodine and record sales of non-iodine derivatives. During the year Iofina and its partners faced regulatory changes affecting brine disposals at Arbuckle disposal wells, and where practical, made improvements to our systems to provide as much iodide rich brine to our production facilities as possible.

In a year where iodine prices continued to fall some iodine mines in Chile have now slowed production or closed altogether. Iofina is committed to controlling existing plant operational costs as well as looking to produce at new sites to expand production and reduce our overall production costs. Importantly, in 2016 Iofina successfully renegotiated and reissued the US$20m convertible debt and added a new US$10m debt facility. This will assist the Group in executing its business objectives.

The Group remains on track to produce 215-230 MT of iodine in the first half of 2017."

Enquiries:

Dr. Tom Becker, CEO & President

Iofina plc

Tel: +44 (0)20 3006 3135

Christopher Raggett/Giles Rolls/Emily Morris

finnCap Ltd

Tel: +44 (0)20 7220 0500

Media Contact:

Charles Goodwin/Harriet Jackson

Yellow Jersey PR Limited

Tel: +44 (0)7544 275 882

 About Iofina:

Iofina specialises in the exploration and production of iodine, iodine specialty chemical derivatives and produced water. Iofina's business strategy is to identify, develop, build, own and operate iodine extraction plants currently focused in North America based on Iofina's WET® IOsorb® technology. Iofina has operations in the United States, specifically in Montana, Kentucky and Oklahoma. It has complete vertical integration from the production of iodine in the field to the manufacture of the chemical end-products derived from iodine to the consumer and the recycling of iodine using iodinated side-streams from waste chemical processes. Iofina utilises its portfolio of patented and patent pending technology, proprietary methods and trademarks throughout all business lines.

www.iofina.com

Contents

COMPANY INFORMATION........................................................................................................ 2

CHAIRMAN'S STATEMENT........................................................................................................ 3

FINANCIAL REVIEW.................................................................................................................. 7

DIRECTORS' BIOGRAPHIES……................................................................................................... 9

STRATEGIC REPORT.................................................................................................................. 11

DIRECTORS' REPORT................................................................................................................. 16

CORPORATE GOVERNANCE STATEMENT................................................................................... 18

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF IOFINA PLC......................................... 21

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ...................................................... 23

CONSOLIDATED BALANCE SHEET .............................................................................................. 24

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY...................................... 25

CONSOLIDATED CASH FLOW STATEMENT ................................................................................. 26

COMPANY BALANCE SHEET ...................................................................................................... 27

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY.............................................. 28

COMPANY CASH FLOW STATEMENT ......................................................................................... 29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS........................................................... 30

COMPANY INFORMATION

Directors L J Baller

T M Becker

W D Bellamy

M T Lewin

Secretary Simon Holden

Company number 05393357

Registered office 200 Strand

London WC2R 1DJ

Auditor RSM UK Audit LLP

25 Farringdon Street

London EC4A 4AB

Nominated Adviser finnCap Ltd

60 New Broad Street

London EC2M 1JJ

Brokers finnCap Ltd

60 New Broad Street

London EC2M 1JJ

Solicitors Kerman & Co LLP

200 Strand

London WC2R 1DJ

Registrar Capita Registrars

34 Beckenham Road

Kent BR3 4TU

Financial PR Yellow Jersey PR Limited

22 Upper Ground

London SE1 9PD

IOFINA PLC CHAIRMAN'S STATEMENT

Introduction

The period under review proved to be a year of operational success at our plants based on the Group's Wellhead Extraction Technology® ("WET®") with IOsorb®. The success gained in operational efficiencies was partially hindered by the continued decline in iodine prices, and reduction of brine volumes due to the Oklahoma Corporation Commission's ("OCC") action to limit the amount of brine being injected in a vast area of northwest Oklahoma where production facilities are located. These factors had a direct impact on the Group's loss for the period. The brine reductions were implemented to address the increase in seismic activity in Oklahoma over the last few years as the oil and gas fields have expanded and the amount of water injected into the Arbuckle formation has significantly increased. The number of earthquakes in Oklahoma fell in 2016 and has fallen even more dramatically in 2017, likely as a result of these reductions of brine injection volumes into the Arbuckle formation.

These injection volumes curtailments, which have affected our partners' salt water disposal ("SWD") sites, began in late 2015 and have continued to evolve into early 2017 and affected many Arbuckle formation disposal sites. The result was that the operators' SWDs associated with our IOsorb® plants were required to reduce their overall injection volumes at some sites by 25%-35%. Working with our operators, we were able to mitigate much of this reduction at most of our facilities. Some of these mitigation steps were not implemented until late 2016. The Group had five IOsorb® plants in operation at the end of 2016, and continued optimisation of production processes and design. The Group's current raw iodine production rates extend beyond the organic requirements for raw iodine at Iofina Chemical, enabling outside sales of raw iodine.

Iofina Resources

Despite significant actions by the OCC in 2016, our iodine production was only 9% shy of the 520 metric tonnes ("MT") we expected at the start of the year as the Group produced 474.2 MT of IOflo® iodine in 2016. Iofina Resources has continued to reduce its production costs. In 2016 the average production cost per kilo of crystalline iodine was reduced by 5.2% when compared to the cost of production in 2015. By having reduced our per kilo costs of iodine production, this will enable the Group to be more profitable once iodine prices return to historic price levels. We continue to investigate and implement ways to reduce our overall production costs at our current facilities while we explore new operations to reduce costs and increase output at new sites.

While the OCC's order affected our plants, the measures imposed apparently had a positive effect on reducing earthquakes in Oklahoma, thus reducing the risk of further action. Oklahoma Geological Survey (OGC) data indicates there were 85 earthquakes with a 2.7 magnitude or greater in Oklahoma during the first two months of 2017 compared to 374 earthquakes with a 2.7 or greater magnitude during those two months in 2016 and 288 in January and February of 2015. An approximately 77% decrease year-over-year ("YOY") in that period of 2.7 or greater earthquakes has been realized and currently in 2017 there is an average of less than one small quake per day compared to over five in 2015. These numbers show the OCC's effort has apparently been successful in correcting the issues.

The Group continues to aggressively pursue additional locations for iodine rich brine streams. Our focus continues to be in Oklahoma although we continue to explore other areas. The relatively new oil and gas plays in Oklahoma have matured to a level that we can more accurately identify regions and potential partners. The new plays are dominated by partners that the Group has built relationships with over the years. Additionally, the Group is actively working with our existing partners to locate additional IOsorb® plants in our core area. As a result of our data gathering, the Group is investigating operating its own SWD wells, with the potential of drilling our own brine only wells to tap into some of the more prospective areas where iodine levels remain high and we can control all aspects of our production.

In August a final legal order was entered denying Atlantis Water Solutions' ("AWS") request to appeal the Montana Department of Natural Resources and Conservation decision to deny the AWS water permit. There are no further plans for this project. The assets of AWS were impaired and the costs associated with AWS have been written off by the Group. 

Iofina Chemical

Iofina Chemical ("IC") continued its successful growth in 2016. IC ended the year with sales that exceeded 2015 revenue by more than 10% and volume by approximately 29%. This was aided by record sales of IOflo® iodine into strategic commercial markets. This is quite impressive since the average price of iodine continued to drop in 2016 as iodine prices were approximately 20-25% lower than the previous year. The growth was also aided by the strong derivative sales of our iodine based products as well as our non-iodine based products. IC eclipsed the 2015 record sales of the Company's fluorinated compounds strengthening our customer relationships in these key products. With this diversification, the stability of Iofina Chemical's derivative business has continued even as iodine and its derivatives have continued to become more competitive. The growth of iodine sales, as well as other key derivatives, have strengthened our global position as the Group is now doing about 56% of sales domestically and 44% throughout Europe, Asia and South America. 

IC's safety program continues to improve each year. As of December 31, 2016 we had gone 633 days since our last lost time accident. IC continues to look at ways to improve its safety culture and has implemented a near miss program to document and look at trends that could potentially cause incidents to occur. IC will continue to focus on safety policies in 2017 along with starting a new Group wide safety committee to tackle issues we may encounter.

The 2017 outlook for Iofina Chemical is good and we are focusing on margin growth while at the same time investing in new product development.

Iodine Market

Iodine pricing continues to be well below historical levels. In 2016 iodine pricing continued to fall while finally appearing to stabilize in Q4. Typical pricing late in 2016 for large purchases of prilled iodine ended near to $20/kg and slightly lower in Asia. This is over a 20% decrease in price YOY. Demand for iodine and iodine derivatives remained typical with approximately 2-3% growth globally with X-ray contrast media and LCD applications leading demand. 

The Group believes that iodine prices are likely to rise gently in 2017 as demand continues to grow at a modest pace and several Chilean producers have taken mines off-line or reduced output. Inventory levels and indications from the largest iodine producer that it intends to increase market share from current levels are likely to keep any iodine price increases modest in the near term. Iodine prices in Q1 2017 moved slightly higher relative to late 2016 and this trend, of a modest increase in pricing, has continued in Q2. While not certain, in the long term the Board expects prices to recover towards historic trends. Revenues and earnings for Iofina are directly affected by iodine pricing. 

Debt Restructuring

The Group restructured its 6% convertible loan notes in the amounts of US$15 million to Stena Investment S.á.r.l. ("Stena") and US$5 million to Panacea Limited as 5% secured convertible loan notes with a redemption date of 1 June 2019. A new US$10 million secured facility has also been arranged with Stena with interest payable at 6% and a repayment date of 1 June 2019. Details of these arrangements are given in Notes 19 and 20 to the accounts.

The restructuring of the convertible debt with our previous partners, who are significant shareholders, was an important accomplishment in 2016 as the debt was due in 2017. With the restructuring of the legacy convertible debt and the new debt facility obtained, the Group now has flexibility to execute its business objectives, including growth plans, even as iodine prices recover from lower than expected levels

Safety and Environmental

Iofina is committed to run our operations in a safe, efficient and environmentally friendly manner. The Group is committed to the highest standards of safety for our employees and our community. Iofina's iodine production utilizes a produced brine stream, which without Iofina, would simply dispose of the contained iodide. Isolation of this valued resource from a produce stream is accomplished in contrast to other major US based iodine production which requires the drilling of new brine wells which serve no other purpose than iodine production and come at an additional environmental cost. 

The Group is constantly striving towards continuous improvements in our Environment, Health and Safety ("EHS") policies and programs. Iofina Chemical is a Chemstewards® certified facility. Iofina Resources and Iofina Chemical each have an EHS manager to oversee our practices, and upper management personnel are regularly updated on EHS performance matrices.

Outlook

The Group is looking forward to a strong 2017 and an even stronger 2018. Iofina has been able to control costs of production during a period where iodine prices have been under pressure. These pricing challenges have caused our competitors to shut down plants or cease operations. While others are looking to shut down or reduce operations, Iofina is looking to expand operations in order to continue to reduce our production costs. Certain plants were built in the right areas while others were not. Our desire to shut down and relocate a plant, such as IO#3, that was plagued with low brine volumes and low iodine content, illustrates this strategy. The Group has focused on growth opportunities in high iodine content areas with static operating costs. We are excited with the future locations that we have under contract and the other ones we are pursuing. We continue to evaluate operating our own brine wells and disposal sites to control more of the variables while reducing costs. Our Chemical group continues to perform well under the current management team. Our employees are truly what sets Iofina apart from any of its competitors. Our employees continue to innovate, reduce costs, find new target areas, and create new chemical compounds, all while maintaining a safe working environment.

I would like to thank all our shareholders for their patience as the Group has steered around the environment of record historically low iodine prices and less than ideal locations of a few of the Group plants. The Group feels that iodine prices have stabilized and will slowly begin to recover which in turn will increase the Group's earnings and EBITDA growth.

Lance J Baller

Non-Executive Chairman

Iofina plc

18 May 2017

FINANCIAL REVIEW

Summary year on year

· Revenue increased by 11% from $20.3m to $22.5m

· Gross profit declined from $4.3m to $2.7m

· An impairment expense of $0.5m has been recognised in respect of the Montana Water Depot project

· A revaluation credit of $2.1m has been recognised in respect of share conversion rights relating to convertible notes

· Loss before tax increased by 14% from $3.3m to $3.8m

· Cash balances declined by $1.3m from $4.1m to $2.8m

· Capital investment was $0.8m (2015: $1.4m)

· Convertible loan notes of $20m were restructured and reissued

· A term loan facility of $10m was negotiated

Trading results

Revenue increased primarily as a result of increased sales of iodine, partly reflecting a significant reduction in inventories accumulated at the end of 2015. Non-iodine sales increased by 6% and margins were improved. However there was approximately a 20% fall in prices achieved for iodine and iodine derivatives that significantly outweighed a further 5% reduction in the cost of iodine production, resulting in a net decline of $1.6m in gross profit.

Revaluation credit in respect of share conversion rights

The numbers of shares potentially available on conversion of the convertible notes issued 29 September 2016 depend on the USD/GBP exchange rate. In these circumstances accounting standards require that share conversion rights are valued at fair value as derivative liabilities, and that changes in valuation amounts are credited or charged to profit and loss account. Black Scholes valuations of these rights resulted in amounts of $4.6m at 29 September 2016 and $2.5m at 31 December 2016. The difference of $2.1m between these valuations has been credited to the profit and loss account.

Loss before tax

Administrative expenses were overall in line with 2015, though professional services costs increased by $0.6m, the principal factor being litigation costs relating to action to protect the Group's trade secrets. There was also an impairment expense of $0.5m to write off all costs capitalised in respect of the Montana Water Depot project, following the refusal of a water permit. 

Working capital

Inventories fell by $2.6m to $4.0m, reflecting both the iodine destocking referred to above and a stronger last quarter's trading compared to 2015. Changes in working capital produced a net $1.7m benefit to cash flow, and non-cash expense items, principally depreciation and amortisation, totalled $2.5m, with the result that there was net operating cash inflow of $0.5m. After capital expenditure of $0.8m and interest payments of $1.0m there was an overall net cash outflow of $1.3m.

Capital investment

The Group incurred $0.5m of expenditure on leasehold interests to secure brine supply to its iodine plants, and $0.2m on plant and equipment improvements at both its iodine extraction plants and its chemical processing plant. A further $0.1m was spent on additional leaseholds in other prospective areas.

Funding

The Group's $20m Convertible loan notes were restructured and reissued during the year with a redemption date of 1 June 2019. At the same time a $10m term loan facility was negotiated with the principal noteholder, with amounts drawn also repayable on 1 June 2019. Comprehensive details of these arrangements are set out in Notes 19 and 20.

Malcolm Lewin

Chief Financial Officer

Iofina plc

18 May 2017

DIRECTORS' BIOGRAPHIES

Lance J. Baller, Non-Executive Chairman

Mr. Baller was co-founder, CEO and President of Iofina Plc prior to his departure for health reasons in June 2013. Mr. Baller was the Group's Finance Director from 2007 until his appointment as CEO in 2010. Mr. Baller returned as Chairman in April 2014. Mr. Baller is the former managing partner of The Elevation Fund and Elevation Capital Management. Mr. Baller is the former managing partner of Shortline Equity Partners, Inc., a mid-market merger and acquisitions consulting and investment company in the United States. He has actively served on the investment, audit, corporate governance and compensation committees, while on the board of directors of companies in Asia and North America. Mr. Baller is also a former vice president of mergers and acquisitions, financing and corporate development at Integrated Biopharma, Inc., and prior to this a vice president of the investment banking firms UBS AG and Morgan Stanley. He has served as Chairman to various companies and has led successful restructurings. Mr. Baller is on the board of trustees of Index Funds and also serves as the chairman of the audit committee and as the audit committee financial expert under the Sarbanes-Oxley Act of the United States for Index Funds.

Dr. Thomas M. Becker, Chief Executive Officer

Dr. Becker has served as President/CEO of Iofina plc since 2014 and has led Iofina Chemical since March 2010. Previously, Dr. Becker was the Vice President of Research and Development at H&S/Iofina Chemical. Iofina bought H&S in July 2009. Dr. Becker has conducted extensive research in both inorganic and organic halogen based chemistry. Dr. Becker has written a magnitude of published technical papers in his career. Prior to H&S Dr. Becker worked as an Oak Ridge Scholar on behalf of the US EPA and for various other chemical manufacturing companies. Dr. Becker earned a BS in Chemistry from Indiana University, and a PhD in Chemistry from the University of Cincinnati. He has extensive experience in scale-up of chemical processes from laboratory to pilot to full scale production. Dr. Becker is a former member of the Board of Governors of the Society of Chemical Manufacturers and Affiliates ("SOCMA").

Dr. William D. Bellamy, Non-Executive Director

Dr. Bellamy is the former Senior Vice President of the Water Business Group at CH2M HILL, Inc. ("CH2M"), a company he has worked at for 30 years until his recent retirement. CH2M is one of the largest consulting engineering companies in the world, providing leadership and strategic direction for the water business and application of technologies worldwide. Dr. Bellamy has participated in energy and sustainability forums, including as a panellist at the World Future Energy Conference in Abu Dhabi, the World Bank Sustainable Cities Symposium and the Future of Water Economic Forum. Dr. Bellamy serves as Professor of Practice at the University of Wyoming, where he teaches graduate courses and is responsible for securing grants and research funding in the areas of water resources, water treatment and sustainable energy development. Dr. Bellamy has a PhD in Civil Engineering from Colorado State University, an MSc in Civil (Environmental) Engineering from the University of Wyoming and a BSc in Electrical (Bio-Medical) Engineering from the University of Wyoming. 

Malcolm T. Lewin, Chief Financial Officer

Mr. Lewin was named CFO and a director of the Group in November 2016 after having joined Iofina as interim CFO in February 2016. Mr. Lewin is based in the UK and has over 30 years of experience in finance and accounting for both public and private companies. As well as being a partner in a chartered accounting firm for 11 years, he has acted for various companies listed on AIM and other exchanges. In particular, from 2000 to 2003 he was the Finance Director of Oxford Metrics plc, an AIM company supplying motion capture and visual geometry systems. From 2004 to 2006 he was the Finance Director of Real Estate Investors plc, an AIM property investment company with interests in quality commercial and industrial properties. From 2006 to 2011 he was a Director and CFO of Hunter Bay Minerals plc, a junior mining company listed on the Toronto Venture Exchange with interests in South America and Canada. From 2011 to 2014 he was CFO and Treasurer of VolitionRX Limited, an OTC life sciences company focused on developing blood tests for a broad range of cancer types and other conditions. Mr. Lewin has an MA in Classics from Oxford University and qualified as a chartered accountant with Coopers & Lybrand. 

STRATEGIC REPORT

Principal activities and review of the business

Iofina plc ("Iofina" or the "Company") is the holding company of a group of companies (the "Group") involved in the exploration and production of iodine with complete vertical integration into the specialty chemical iodine derivatives business. Iodide in brine water is sourced from partnerships with oil and gas operators in the United States and is used as a raw material for the production of iodine at the Group's five IOsorb® plants. Iodine containing or other halogen based products are produced at and sold through the Company's wholly owned subsidiary Iofina Chemical, Inc., with the major raw material being the Group's produced iodine. Additionally, the Group's crystalline IOflo® iodine is sold directly to other iodine end-users.

Iodine is a rare element that is produced only in a few countries in the world, with approximately 90 percent produced from Chile (60 percent) and Japan (30 percent, including recycled waste streams). The Group produces iodine in the United States where the overall global iodine production is only a small percentage of the world's total production, but where there is a large consumption (approximately 23%) of the world's iodine by various manufacturers.

Iofina Resources, Inc. is the Group's wholly owned subsidiary which uses proprietary Wellhead Extraction Technology® (WET®) and WET® IOsorb® methods for the production of iodine from brine. The Directors of the Company believe that Iofina's unique business model for the production of iodine by utilizing produced brine from third party oil and gas producers is advantageous for long term raw material sourcing and minimized production and expansion costs.

The main focus of Iofina's current business model is the production of iodine from brine and the creation and sales of halogen derivatives through Iofina Chemical. The Directors feel strongly that diversification of the business while focusing on our core expertise is important. Iofina Resources diversifies its iodine production through five IOsorb® production plants with different brine suppliers in our core area in Oklahoma. Iofina Chemical produces many iodine based products with applications in various industries including agricultural, pharmaceutical, biocides and others. Additional diversification is realised by the production of non-iodine based products. Markets for various products can change, and Iofina Chemical's ability to produce a variety of products allows the Group to take advantage of growing markets while not being as affected by temporarily depressed or declining markets.

Although iodine prices continued to fall in 2016, which had a significant impact on the Group's gross profit margins, global iodine consumption was marginally higher. Demand for the Group's non-iodine halogen derivatives rose in 2016. The Group continues to invest in iodine exploration as Iofina Resources' focus on improving efficiencies and reducing costs in 2016 transitions to growth plans to increase iodine production at new sites in the future. Additional investment in R&D for new products and applications, and expansion of current product capacities at Iofina Chemical, position the Group well for future success. 

Key Performance Indicators

The directors review a range of financial indicators to assess and manage the Group's performance, including the following relating to revenue and iodine production:

Commentary on the above indicators is to be found in the Chairman's Statement on pages 3 to 6.

Further commentary on the results for the year and the financial position at the year end is to be found in the Financial Review on pages 7 to 8.

Objectives

At the end of 2016 the Group had five operating iodine production facilities in the Group's core area in Oklahoma. While the theoretical capacity of these plants is very high, the practical capacity of the plants is somewhat lower. Practical capacity takes into account multiple causes of downtime, including weather, repairs and maintenance, inadequate brine (low parts per million of iodine, heavily contaminated brine or little to no supply), power outages and other conditions. As we have proven our technology and continue to improve operations at current facilities, more accurate practical capacity operating targets have been realised as well as improvements for maximising practical capacity.

Iofina Resources' continued focus in 2016 was to maximise brine supply, reduce costs, and increase iodine production efficiencies. Regulatory challenges, implemented to reduce seismic activity in the state of Oklahoma, restricted volumes of brine disposal at certain SWDs. This affected our oil and gas partners' operations, and proved to be a major focus in 2016 for the Group and its partners in order to cooperatively ensure the Group's IOsorb® plants were supplied with large volumes of brine. Exploration planning continued in 2016 as Iofina Resources begins its transition from a focus of reducing operational costs to production expansion opportunities.

Timing of future iodine production growth will be dependent on various factors including the stability or increase of iodine prices (which was seen at the end of 2016 and into early 2017), availability of and costs to produce iodine at new sites, partnership agreements, and the regulatory landscape with respect to brine injection. One such opportunity has arisen as a result of the cessation of operations at IO#3 plant described in Note 28. The Group is planning to relocate this plant to a new site with good prospects for significantly increasing overall iodine production at lower cost. The Group is also exploring alternative brine sourcing opportunities which may allow the Group to better control brine supply at future sites. In 2016 the Group restructured its convertible debt and added a $10,000,000 debt facility to allow the Group flexibility for future opportunities.

Iofina Chemical has invested in projects to increase capacities and increase the safety of its processes while reducing production costs of some of the Group's halogen derivatives, and continues to prudently invest in these opportunities. The R&D and the sales groups continue to investigate and create new opportunities for and applications of our existing portfolio of products, as well as identify and produce new halogen based derivatives for the Group in order to grow our halogen derivatives business.

Principal risks and uncertainties

Iofina plc is subject to a number of risks and uncertainties, which could have a material effect on its business, operations or future performance, including but not limited to:

Exploration:  Exploration for resources involves significant risk. There is no assurance that commercial quantities of resources can be recovered from the Group's current acreage or that resources will be discovered from the Group's future acreage. The Group continues to evaluate opportunities to integrate its IOSorb® process into its own hydrocarbon operations, as well as others throughout the world. By continuing an aggressive water testing program and active exploration utilising geology and data analytics, we are constantly evaluating new potential locations for iodine extraction in our core area and in other locations.

Environmental:  The Group's operations are subject to the environmental risks inherent in the exploration industry. The Group is subject to environmental laws and regulations in connection with all of its operations. Although the Group intends to be in compliance in all material respects with all applicable environmental laws and regulations, there are certain risks inherent to its activities, such as accidental spills, leakages or other circumstances that could expose the Group to extensive liability. Accordingly, the Group promotes wherever possible environmental sustainability in its working practices and seeks to minimise, mitigate or remedy any harmful effects from the Group's operations on the environment at each of its operational sites. The regulations on brine injections into the Arbuckle geological formation in the Group's core area due to seismic activity have affected Iofina's partners' brine disposal near some of our sites, and this has reduced some brine availability to Iofina. The Group and its partners have implemented and continue to implement strategies to minimise the effect on the availability of iodine rich brine to Iofina due to these regulations. Moving forward the Group and its partners will continue to monitor these risks and act accordingly. While the frequency and intensity of earthquakes have significantly reduced in Oklahoma, and this reduction is likely a result of regulated changes in brine disposal into the Arbuckle formation, there is still risk of additional earthquakes and regulation moving forward.

Price volatility: The demand for, and prices of, iodine are highly dependent on a variety of factors including international supply and demand, the level of consumer product demand, the price and availability of alternatives, actions taken by governments and global economic and political developments. International prices have fluctuated widely in recent years and may continue to fluctuate significantly in the future. Fluctuations in iodine prices and, in particular, a material decline in the price of iodine would have a material adverse effect on the Group's business, financial condition and operations. Price fluctuations of other major raw materials used by Iofina would likely impact its operations as well. Declining iodine prices in 2016 had a significant impact on margins. Recent stabilisation of iodine prices in late 2016 and increases in iodine prices in early 2017 are a positive sign for the Group but are not guaranteed to continue. The Group stands to benefit directly from increases in iodine prices. Current low natural gas and iodine prices have prevented us from capitalising on the properties in Montana.

Key customers:  There are a limited number of potential customers who purchase many of the products of the Group's chemical business, which makes relationships with these customers, as well as the success of those customers' businesses, critical to the Group's success. The loss of one or more major customers could harm the business, operating results and financial condition of the Group. Iofina is continuing to diversify its customer base in its Chemical subsidiary. In addition, Iofina works closely with all of its customers to develop strong relationships, with a significant focus on ensuring that its products and services meet the needs of its customers and are of the highest quality. In 2016, 20 percent (2015: 26 percent) of revenue recognised was attributable to one long term customer, a distributor. Relations with this customer are good.

Key partners: Iofina partners with third party oil and gas producers to process iodine rich brine they extract with oil and gas production. With the recent fluctuation of oil and gas prices in the US, the financial stability of oil and gas producers is less certain than a few years ago. Any changes in operator status is a risk to brine production and availability. The Group has agreements with our partners to reduce any risk of change in status.

Regulation: The businesses are subject to various significant international, federal, state and local regulations currently in effect and scheduled to become effective in the near future, including but not limited to environmental, health and safety and import/export regulations. These regulations are complex, change frequently, can vary from country to country, and have increased over time. Iofina may incur significant expense in order to comply with these regulations or to remedy violations of them.

Any failure by Iofina to comply with applicable government regulations could result in non-compliant portions of our operations being shut down, product recalls or impositions of civil and criminal penalties and, in some cases, prohibition from distributing our products or performing our services until the products and services are brought into compliance, which could significantly affect our operations.

The Group closely monitors regulations across its businesses to ensure that it complies with the relevant laws and regulations. While Iofina does not believe that it is non-compliant with any laws or regulations, any instances of non-compliance would be brought to the attention of the appropriate authorities as soon as possible. 

Going concern

The refinancing during the year of the Company's $20,000,000 Convertible Loan Notes and the arrangement of a new $10,000,000 Term Loan Facility are set out in Notes 19 and 20 respectively. On the basis of the terms of these arrangements the directors consider that at its current stage of development the Group does not need to raise additional funds in order to realise its business plan. The Group has prepared forecasts and projections that indicate there are adequate resources to continue in operational existence for the foreseeable future. For these reasons, the Directors consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.

On behalf of the board

Lance J. Baller

Non-Executive Chairman

Iofina plc

18 May 2017

DIRECTORS' REPORT

The directors present their report and financial statements for the year ended 31 December 2016.

Strategic report

In accordance with S414C (11) of the Companies Act 2006: included in the Strategic Report on pages 11 to 15 is the review of the business and principal risks and uncertainties. This information would have otherwise been required by Schedule 7 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 to be contained in the Directors' Report.

Post balance sheet events

Post balance sheet events are set out in note 28.

Directors' responsibilities for the preparation of the financial statements

The directors are responsible for preparing the Strategic Report and the Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and Company financial statements for each financial year. The directors are required by the AIM Rules of the London Stock Exchange to prepare Group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and have elected under company law to prepare the Company financial statements in accordance with IFRS as adopted by the EU.

The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the Group and the Company and the financial performance of the Group. The Companies Act 2006 provides, in relation to such financial statements, that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing the Group and Company financial statements, the directors are required to:

a. select suitable accounting policies and then apply them consistently;

b. make judgements and accounting estimates that are reasonable and prudent;

c. state whether they have been prepared in accordance with IFRSs adopted by the EU;

d. Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Iofina plc website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Results and dividends

The results for the year are set out in the consolidated statement of comprehensive income and detailed in the Financial Review.

The directors do not recommend payment of a dividend.

Financial instruments and risk management

Note 14 details the risk factors for the Group and how these risks are managed, including the degree to which it is appropriate to use financial instruments to mitigate risks.

Directors

The directors who served during the year and subsequently were as follows:

Lance J. Baller, Non-Executive Chairman

Dr. William D. Bellamy Non-Executive Director

Dr. Thomas M. Becker, Chief Executive Officer and President

Malcolm T. Lewin, Chief Financial Officer, appointed 4 November 2016

Neil K.Hekking, Chief Financial Officer, appointed 28 October 2015, resigned 15 February 2016.

Statement as to disclosure of information to the auditor

The directors who were in office on the date of approval of these financial statements have confirmed that, as far as they are aware, there is no relevant audit information of which the auditor is unaware. Each of the directors has confirmed that they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor.

Auditor

RSM UK Audit LLP has indicated its willingness to continue in office.

On behalf of the Board

Dr. Thomas M. Becker

Chief Executive Officer and President

18 May 2017

CORPORATE GOVERNANCE STATEMENT

The Board of Directors of the Company ("Board") acknowledges that adhering to rules of good corporate governance is in the best interests of the Company and its shareholders. All the Directors remain committed to high standards of corporate governance and consider that the Board progressively adopts best practices. The following sections describe how the Board has applied the principles that they consider relevant to a company of Iofina's size and stage of development.

Board structure and committees

The Board currently comprises two executive directors and two 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.

Non-executive directors, with the exception of the Chairman, are appointed on a contract with a three month notice period. The Chairman and the executive directors are appointed on a contract with a twelve month notice period. 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.

At the year end, the Board comprised the Non-Executive Chairman, the Chief Executive, the Chief Financial Officer, and one other non-executive director.

Remuneration Committee and policy

The Remuneration Committee is composed of two non-executive directors: L J Baller (Chairman), and W D Bellamy. 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: L J Baller (Chairman) and W D Bellamy. 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.

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 

Remuneration provided to each director was as follows:

No pension contributions were paid on behalf of the directors in 2015 or 2016.

Directors' and officers' insurance is in place as regards the directors.

The interests of the directors in office as at 31 December 2016 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 2016 1 January 2016

L J Baller (1) 4,500,000 4,500,000

Dr. T M Becker - -

W D Bellamy - -

M T Lewin - -

(1) Comprised of beneficial ownership of shares.

In addition to these shares Dr. T M Becker was granted options for 250,000 shares on 2 July 2010 with an exercise price of 30 pence. No other director has any interests in options in the Company. No directors exercised options in 2016.

On behalf of the Board

Dr. Thomas M. Becker

Chief Executive Officer and President

18 May 2017

Opinion on financial statements

We have audited the Group and parent Company financial statements ("the financial statements") on pages 23 to 63. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion

· the financial statements give a true and fair view of the state of the Group's and the parent's affairs as at 31 December 2016 and of the Group's loss for the year then ended;

· the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

· the parent financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the Companies Act 2006; and

· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at http://www.frc.org.uk/auditscopeukprivate.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements and based on the work undertaken in the course of our audit, the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors' report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

· adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

· the parent company financial statements are not in agreement with the accounting records and returns; or

· certain disclosures of directors' remuneration specified by law are not made; or

· we have not received all the information and explanations we require for our audit. 

As more fully explained in the Directors' Responsibilities Statement set out on page 16 to 17, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report or for the opinions we have formed.

GRAHAM RICKETTS (Senior Statutory Auditor)

For and on behalf of RSM UK AUDIT LLP, Statutory Auditor

Chartered Accountants

25 Farringdon Street

London

EC4A 4AB

18 May 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

All activities are classed as continuing.

The accompanying notes form part of these financial statements.

CONSOLIDATED BALANCE SHEET

The financial statements on pages 23 to 63 were approved and authorised for issue by the Board and were signed on its behalf on 18 May 2017.

Dr. Thomas M. Becker

Chief Executive Officer and President

Company number: 05393357

The accompanying notes form part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

CONSOLIDATED CASH FLOW STATEMENT

COMPANY BALANCE SHEET

The loss for the financial year dealt with in the financial statements of the parent company was $610,887 (2015 loss $2,376,983).

The financial statements on pages 23 to 63 were approved and authorised for issue by the Board and were signed on its behalf on 18 May 2017.

Dr. Thomas M Becker

Chief Executive Officer and President

Company number: 05393357

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

COMPANY CASH FLOW STATEMENT

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 200 Strand, London, WC2R 1DJ. The principal activities of the Company have been and continue to be investment in subsidiaries engaged in the production of iodine and iodine derivatives, including the arrangement of finance for and the provision of management services to subsidiaries.

a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and IFRS Interpretations Committee ('IFRIC') 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.

New standards, amendments to published standards and interpretations to existing standards effective in 2016 and adopted by the Group:

The implementation of these standards did not have a material impact on the Group's consolidated financial statements.

Standards, amendments and interpretations, which are effective for reporting periods beginning after the date of these financial statements which have not been adopted early:

*not yet endorsed in the EU

Management is still evaluating these standards but does not currently expect their implementation to have a material impact on the consolidated financial statements.

c) Presentation of financial statements

The financial statements have been prepared on the historical cost convention as modified by the revaluation of financial liabilities at fair value through profit and loss.

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, iodine, 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 2016, all research and development expenditures were expensed as incurred.

f) Going concern

The refinancing during the year of the Company's $20,000,000 Convertible Loan Notes and the arrangement of a new $10,000,000 Term Loan Facility are set out in Notes 19 and 20 respectively. On the basis of the terms of these arrangements the directors consider that at its current stage of development the Group does not need to raise additional funds in order to realise its business plan. The Group has prepared forecasts and projections that indicate there are adequate resources to continue in operational existence for the foreseeable future. For these reasons, 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 2016. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from their 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 main operating subsidiaries. U.S. Dollars is the presentational currency for the Group financial statements.

Transactions denominated in foreign currencies are translated 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.

On disposal of a foreign operation for which the presentational and functional currencies were different in previous periods, 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 1.324 in 2016 and at 31 December 2016 was 1.234 (2015: 1.476).

j) Intangible assets

Exploration and evaluation 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.

Capitalised exploration costs are carried at historical cost less any impairment losses recognised. If an exploration 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 capitalised exploration and evaluation 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.

Undeveloped leasehold costs

Undeveloped leasehold costs relate to the costs of acquiring brine leases in respect of the surface and mineral rights of landowners in areas of interest outside of those currently connected to the Group's operating plants.

These costs are capitalised as exploration and evaluation assets and are carried at historical cost less any impairment losses recognised. If areas leased provide brine to operating plants, the related costs are transferred to the relevant plants and amortized over the lives of those plants.

Other 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:

§ Montana Atlantis plant and equipment: 10-20 percent per annum

§ Buildings: 2.5 percent per annum

§ Equipment and machinery:

§ IOSorb plants - 5 percent per annum

§ Vehicles and office equipment - 20 percent per annum

§ Computer equipment - 33 percent per annum

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 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.

Instruments where the holder has the option to redeem for cash or convert into a variable quantity of equity shares are classified separately as a loan and a derivative liability.

Where conversion results in a fixed number of equity shares, the fair value of the liability component at the date of issue 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. Where conversion is likely to result in a variable quantity of equity shares the related derivative liability is valued and included in liabilities.

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.

Derivative liabilities are revalued at fair value at the balance sheet date, and changes in the valuation amounts are credited or charged to the profit and loss account.

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. At the end of 2016 and 2015, all cash accounts were in 100 percent liquid accounts.

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 exploration and evaluation 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 liability component of the instrument.

§ "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 according to the likelihood of their recoverability in the foreseeable future.

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 Halogen Derivatives and Iodine segment include the production of raw iodine and the production of iodine derivatives and other non-iodine based chemical derivatives. The Montana segment includes a) the Atlantis Field project for the exploration and production of natural gas, iodine and water for use in various applications, and b) the Montana Water Depot project, which includes large volumes of water retrieved, stored and shipped to customers in close proximity to be used mainly for fracking.

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 and tangible assets are tested for impairment where there is an indication that they may be impaired. In accordance with IAS 36 - Impairment of Assets, an intangible or tangible 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, goodwill and property, plant and equipment are provided in notes 10, 11 and 12. Details of impairment reviews carried out are set out in note 12.

b. Management reviews the useful lives of depreciable and amortisable assets at each reporting date. 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. Management's estimate of the useful lives of plant and equipment as detailed in note 1k are common life expectancies for the industry. In particular, the expected useful life attributed to each IOsorb® plant is 20 years. Changes in the expected level of usage or other technological developments could impact the life and residual value of these assets. 

c. Certain intangible and tangible assets are regarded as Exploration and Evaluation Assets. Details of these assets are shown in notes 10 and 12. The principal assets so treated are those relating to the Montana Atlantis Field, which has an aggregate carrying amount of $3,729,927, and the basis of the Group's judgement as regards the classification of those assets is set out in note 12. An impairment review of these assets was carried out and it was determined that the recoverable amount exceeded the aggregate carrying amount of $3,729,927, and therefore no impairment was considered to be required. The Group's rationale for carrying out this review and details of the assumptions, methodology and sensitivities relating to the calculation of the recoverable amount are set out in note 12.

d. The carrying amounts of the parent company's investment in and loans to its subsidiary Iofina Resources, Inc. total $44,410,553 whereas carrying amounts of the subsidiary's net assets excluding loans from the parent company amount to $19,713,738. There is therefore a shortfall of $24,696,815 between the parent company carrying amounts and the carrying amounts of the net assets of Iofina Resources, Inc., reflecting accumulated losses to date in that company. In view of this shortfall an assessment has been made of the present values of the cash flows related to the projects being undertaken by Iofina Resources, Inc. to determine whether any impairment losses should be recognised. The assets concerned are the IOsorb® plants in Oklahoma and the Montana Atlantis Field project. These assessments assume 20 year project lives and discount rates of 6.5% and 8% respectively have been used. Initial iodine prices assumed are within the range of market prices experienced by the Group at the end of 2016. The Group has concluded that the present values of the cash flows related to these assets exceed the shortfall in net asset carrying amounts of $24,696,814, and therefore there is no need to recognise any impairment losses.

e. The derivative liability relating to share conversion rights attaching to the convertible loan notes has been valued using the Black Scholes model.

3. Segment reporting

a. Business segments - The Group reports its business segments in line with IFRS 8 - Operating Segments, which requires reporting based on the information that is presented to the chief operating decision maker. This is determined to be the Board. The Board receives consolidated management accounts for the companies within the Group. The costs of Iofina plc are included within unallocated corporate expenses.

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 gas 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 amortization related to the USA segment are reported. In presenting information on the basis of geographical segments, segment assets and the cost of acquiring them are based on the geographical location of the assets.

c. Significant customers - Iofina Chemical had three significant customers in 2016; one customer represents 20 percent of sales, another customer 11 percent and the third accounts for 7 percent. In 2015, the three most significant customers represented 26 percent, 12 percent and 11 percent of the total sales.

4. Loss before taxation

Loss before taxation is stated after charging:

Cost of sales - analysis by nature

Administrative expenses - analysis by nature

Research and development expenses recognised during the period were $157,872 (2015: $231,219), and are included in administrative expenses above.

5. Staff numbers and costs

The average number of Group employees, including executive directors, and their costs were:

Of the total staff costs above, $3,759,794 (2015: $4,171,881) is included within cost of sales and $1,845,132 (2015: $1,858,293) is included within administrative expenses.

Payments to directors (considered to be key management personnel) for their services during the year were as follows:

Included within wages and salaries above is $208,000 (2015: $207,692) in respect of the highest paid director. No options were exercised by a director in 2016.

6. Finance expense

The convertible loan notes are described in note 19 below.

7. Finance income

8. Taxation

The Group has accumulated tax losses of approximately $30,000,000 (2015: $27,400,000) that may be deductible from future taxable profits subject to agreement with the relevant tax authorities. To the extent tax losses are not utilised to offset current income taxes they will begin to expire in 2026.

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 $3,664,274 (2015: $2,976,488) and the weighted average number of ordinary shares outstanding of 127,569,398 (2015: 127,569,398). Due to the loss in the year, there is no difference between the diluted loss per share and the basic loss per share because the 1,075,000 outstanding share options and the two convertible notes (see note 19) would have the effect of reducing the loss per ordinary share and would therefore not be dilutive under the terms of IAS 33.

10. Intangible assets (Group)