1.     Accounting Policies

Reporting entity

Ascent Resources plc ('the Company') is a company domiciled in England.  The address of the Company's registered office is 5 New Street Square, London EC4A 3TW.  The unaudited consolidated interim financial statements of the Company as at 30 June 2015 comprise the Company and its subsidiaries (together referred to as the 'Group').

Basis of preparation

The interim financial statements have been prepared using measurement and recognition criteria based on International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board (IASB) as adopted for use in the EU.  The interim financial information has been prepared using the accounting policies which will be applied in the Group's statutory financial statements for the year ended 31 December 2015 and were applied in the Group's statutory financial statements for the year ended 31 December 2014.

All amounts have been prepared in British pounds, this being the Group's presentational currency.

The interim financial information for the six months to 30 June 2015 and 30 June 2014 is unaudited and does not constitute statutory financial information.  The comparatives for the full year ended 31 December 2014 are not the Group's full statutory accounts for that year.  The information given for the year ended 31 December 2014 does not constitute statutory financial statements as defined by Section 435 of the Companies Act.  The statutory accounts for the year ended 31 December 2014 have been filed with the Registrar and are available on the Company's web site www.ascentresources.co.uk. The auditors' report on those accounts was unqualified and included an emphasis of matter drawing attention to the importance of disclosures made in the annual report regarding going concern.  It did not contain a statement under Section 498(2)-(3) of the Companies Act 2006

Going Concern

The financial statements of the Group are prepared on a going concern basis.

In July 2015 the Company drew £250,000 from a working capital facility provided by Henderson.  In order to continue to operate as a going concern the Company is currently wholly reliant on this facility.  The Directors are pursuing a range of funding options, including a strategic investor or a farm-in arrangement. The Company is also wholly reliant on the support from shareholders to meets its current liabilities as recorded in trade and other payables, the majority of which are owed to partners in Slovenia.

However, there can be no guarantee over the outcome of these negotiations and as a consequence there is a material uncertainty of the Group's ability to raise additional finance, which may cast significant doubt on the Group's ability to continue as a going concern.  Further, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

The Directors, however, remain confident of the Group's ability to operate as a going concern given the funding discussions that have and continue to take place and in light of the recent support from existing shareholders.

Liquidity and Capital Resources:

The Company continues to be an emerging business and currently has no production cash flows; consequently, it manages its working capital and liquidity position by balancing the timing of critical expenditure with available funds.  Further information on future funding arrangements and the Directors' assessment of the Group's going concern position is set out above.

Principal Risks and Uncertainties:

The principal risks and uncertainties affecting the business activities of the Group remain those detailed on pages 50-52 of the Annual Review 2014, a copy of which is available on the Company's website at www.ascentresources.co.uk. 

2.     Operating loss is stated after charging

3.     Finance income and costs recognised in loss

4.     Loss per share

Potential shares to be issued are antidilutive so the basic earnings per share is equivalent to the diluted earnings per share.

5.     Exploration and Evaluation Costs

6.     Borrowings

2013 & 2014 Convertible Loan Notes ("CLNs")

On 19 February 2015 the shareholders and note holders approved the variation of the terms on the 2013 and 2014 CLNs.  In total £4.95 million had been drawn under the 2013 CLNs and £4.0 million had been drawn under the 2014 CLNs:  the final £0.5 million having been drawn on 4 February 2015.  In total, including accrued interest, some £10 million in aggregate was due for repayment under the 2013 and 2014 CLNs, in part on 23 December 2014 and in part on 31 January 2015.  In return for extending the maturity date of the Loan Notes to 19 November 2015 and terminating the accrual of further interest, the Board of Ascent agreed to adjust the conversion price in respect of both the 2013 and 2014 CLNs from 0.5p and 0.2p respectively to 0.1p for all loan notes.

The 2013 and 2014 CLNs were extinguished and replaced with another convertible loan.  On initial recognition the liability and equity element of the CLNs have been fair valued.  As part of this transaction, a loss on extinguishment of £0.85m was recognised as a finance costs.  The loan has been recognised at a discount rate of 15% and the interest charge will accrete over the loan period.  The loan amount is convertible at any time into ordinary shares of the Company.  The loan matures on 19 November 2015 and is repayable in full on that date.

Conversion of convertible loan notes ("CLNs")

During the period under review there have been two drawdown requests received by loan note holders to convert loan notes and the interest accrued thereon into ordinary shares.

·      On 26 March 2015 the Company issued 138,520 ordinary shares of 0.1pence each pursuant to a conversion notice received from the holder of 123 CLNs of £1 each.

·      On 30 April 2015 the Company issued 473,030 ordinary shares of 0.1pence each pursuant to a conversion notice received from the holder of 123 CLNs of £1 each.

Subsequent to the end of the period on 27 July 2015 the Company issued 244,392 ordinary shares of 0.1pence each pursuant to a conversion notice received from the holder of 217 CLNs of £1 each.

£7million short term funding facility

On 12 May 2015 the Company announced that it had agreed a £7million loan facility (the "Loan") for general corporate purposes with Henderson Global Investors Limited ("Henderson").

The Loan can be drawn at any time from signing to 30 June 2016 at the discretion of Henderson.  The Loan accrues interest at the rate of 7.5% per annum on the amount drawn and this is added to the amount of the Loan.  The Loan is subject to a drawdown fee of 1.75% per tranche which is deducted from the funds advanced.  The Loan is also subject to a repayment fee of 1.25% on any amounts repaid by the Company.  The balance outstanding is repayable on demand at any time.

The first £250k was drawn on the 21 August 2015 and the Company is currently reliant on this facility for working capital funding going forward.

7.     Other current liabilities

The other current liability of £2,779,000 (December 2014: £2,417,000) relates to the grant in 2011 of a nil cost option over 29,686,000 new ordinary shares of 0.1p each in the Company to EnQuest.  Where the share price of the Company is below 10 pence on the exercise date the agreement provided for the liability to be settled in cash for £2,968,000; given the current share price, the Company considers it to be likely that the option will be settled in cash rather than through the issue of equity.  As a result this was reclassified in 2012 from equity to current liabilities.  This is held at a discounted rate and repayment is due in December 2015.

The discount rate used for the purposes of calculating accretion interest is 15% and the interest accreted for the period was £161,831.

Subsequent to the end of the reporting period the Company entered into an agreement to restructure this liability as detailed in Note 8 below.

8.     Events subsequent to the reporting date

a)     EnQuest restructuring

As detailed in Note 8 above, in December 2010 Ascent entered into an agreement with EnQuest to acquire their 48.75% interest in the Petišovci Project in Slovenia.  The consideration consisted of:

·      150,903,958 new ordinary shares of 0.1p each in the Company, which were issued fully paid to EnQuest at closing;

·      £14,830 payable in cash for each year between closing and the fifth anniversary of the date of closing payable on 20 December 2015 in total £74,150; and

·      £2,968,000 consideration payable in cash on 20 December 2015 contingent on the share price being lower than 10 pence per share.

The total of £3,042,150 was to become due for payment to EnQuest on 20 December 2015 and has now been restructured into £2,038,241 of CLNs.  The terms of these CLNs are identical to the £4million of notes issued in 2014 to Henderson Global Investors ("Henderson") and will benefit from security over the Company's shareholding in Ascent Slovenia Limited which owns an interest in the Petišovci concession.  The notes accrue no interest, are redeemable on 19 November 2015 or can be converted at the option of the noteholder at the rate of 1,000 shares for every £1 of Loan Note.

b)     Authority to allot shares

On 3 September 2015 the Company held a General Meeting at which the Directors received the authority to allot shares in the Company for a nominal value of up to £1,500,000.  This was intended to give Directors the flexibility to raise additional funding for working capital or for the development of the project from sources other than the £7m Henderson facility.

c)     Management changes

On 11 September 2015 the Company announced that CEO Len Reece, Ascent's CEO had resigned as a director of the Company.  Following further discussions, the Company and Len Reece have entered into a settlement agreement to terminate his employment effective from 10 September 2015.  Colin Hutchinson, Finance Director, has become interim Chief Executive and with the support of the Non-executive Directors will lead the day-to-day activities of the Company.

DIRECTORS AND ADVISERS