Annual Report & Financial Statements 2009 c o n t e n t s Chairman’s Statement Company Information Report of the Directors 2 4 5 Statement of Directors’ Responsibilities 10 Corporate Governance Statement Independent Auditor’s Report Income Statement 11 13 15 Balance Sheet 16 Cash Flow Statement 17 Statement of Changes In Equity 18 Notes to the Financial Statements 19 Annual Report & Financial Statements 09 c h a i r m a n ’ s s t a t e m e n t Dear Shareholder, Professor Richard Conroy Chairman I have pleasure in presenting your Company’s Annual Report and Financial Statements for the 12 months ended 31 May 2009, a year of considerable progress for your Company. Highlights included the definition of a gold resource of over one million ounces on an area representing 20 per cent of your Company’s Clontibret target area in Co. Monaghan and the discovery at Clay Lake in Co. Armagh of a gold-in-soil anomaly larger than Clontibret. Since the financial year-end, we have also discovered an extensive zinc-in-soil anomaly south of Clay Lake and completed a €564,000 fundraising. Clontibret Clay Lake The gold resource currently delineated at the Clontibret target now stands at over one million ounces. Your Directors believe this is the first time that a gold resource of this magnitude has been documented in Ireland or the UK. The resource estimates have been prepared in accordance with the standards of the JORC Code. The resource of over one million ounces, at a cut off grade of 0.75 gramme/tonne, has been established on less than 20 per cent of the overall Clontibret target area. Initial testing of the remaining 80 per cent suggests potential for a much larger deposit. Gold mineralisation at Clontibret occurs in two styles, one being a high-grade lode-style mineralisation and the disseminated gold associated with sulphites in a stockwork zone. Four more lode zones have been discovered in the past year bringing the total to 38 high-grade lode zones as well as the extensive stockwork zone. Preliminary in-house technical and economic studies suggest that the Clontibret resource has the potential to be an economically viable mining project. These in-house studies are, however, at a very early stage and must be treated with caution as they are based on a resource as estimated to date over half of which is in the inferred category at this stage. Before proceeding to mine development scoping, pre-feasibility and feasibility studies must be completed, together with obtaining planning and mining applications and permissions. The new gold find at Clay Lake in Co. Armagh is located approximately 7km north-east of the Company’s Clontibret discovery. The anomaly is named after the Clay Lake nugget containing 28g of gold, which was found in a local stream bed in the 1980s. We have long held the view that the Clay Lake nugget is evidence of the area’s gold potential and we have been actively seeking the source of this nugget for a number of years. These latest results, with the highest gold-in-soil values encountered anywhere in our licence area (up to 1.53 grammes per tonne), may well indicate that the source of the nugget lies within the new anomaly. The Clay Lake gold discovery could become the Jewel in the Crown for the Company. 30 Mile Gold Trend The new discovery lies within the 30 mile (50km) long gold bearing trend delineated by the Company on its 1,200km2 licence area, which straddles the border between Northern Ireland and the Republic of Ireland. The licences extend from Co. Armagh, through Co. Monaghan and into Co. Cavan, following the surface expression of the Orlock Bridge Fault, a major geological structure believed to have influenced mineralisation in the area. Though obviously conceptual in nature at this stage, the overall gold potential in the area is estimated to be in the 15-20 million ounce range. Whilst there has been insufficient exploration to date to define 2 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . such a mineral resource, and there is no certainty that further exploration will result in a resource of this magnitude being realised, the Directors believe that the potential is clear and the possibilities exciting. Zinc Discovery An extensive zinc anomaly extending over several square kilometres has been discovered south of the large gold anomaly at Clay Lake. The Longford-Down Massif, in which the Company’s gold trend is located, also has a history of base metals mining. Antimony was mined at Clontibret where the first gold discovery in the Massif was made, and shallow lead and zinc mines near Keady, South Armagh, were worked in the nineteenth century. Historic mines in the immediate area included the Annaglogh (lead, zinc, copper) mine, just west of the newly discovered zinc anomalies, and the College and Clay mines which are 4.5 km and 2.5 km to the north west of those anomalies, respectively. The new zinc discovery lies to the south of the Orlock Bridge Fault, and the anomalies overlie fine to coarse-grained massive greywacke sandstones and micro-conglomerates. This sequence is comparable to parts of the Caledonian geology in Scandinavia, which hosts major stratabound base-metal sulphide deposits. These base metal occurrences provide further support for the presence of a significant metalliferous system in the Clay Lake and Clontibret areas of the Longford-Down Massif, part of a zoned system ranging from gold occurrences to base metals. The size of this system enhances the significance of the Clay Lake gold target. Your Company, therefore, plans a follow-up base metals exploration programme, in addition to its ongoing gold programme which continues to be the Company’s priority. Finance The loss after taxation for the year ended 31 May 2009 was €298,119 (2008: €374,874) and the net assets as at 31 May 2009 were €6,159,903 (2008: €6,308,996). Cash at bank as at 31 May 2009 was €61,744 (2008: €109,432) As in previous years, I have supported the working capital requirements of the Company and in the period under review have advanced loans to the value of €588,029 and the balance of the loans due to me at the period end was €1,928,473. The loans have been made on normal commercial terms. The other Directors consider, having consulted with the Company’s Nominated Adviser, that the terms of the loan are fair and reasonable in so far as the Company’s shareholders are concerned. Following the year-end, a fundraising of €564,000 was completed and I converted €325,000 of the loans outstanding to me into shares As we move from the exploration phase towards delineation and development, the Directors are considering how best to fund your Company’s activities. Options being studied include joint venture and farm-out, as well as other such arrangements which may be appropriate for advancing the interests of your Company. Auditors I would like to take the opportunity of thanking the partners and staff of Deloitte & Touche for their services to your Company during the course of the year. Directors, Consultants and Staff I would also like to express my deep appreciation of the support and dedication of the Directors, Consultants and Staff, which has made possible the continued progress and success which your Company has achieved. Future Outlook The potential is clear, the possibilities exciting. I look forward to the future with confidence. Professor Richard Conroy Chairman 4 November 2009 Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 3 c o m p a n y i n f o r m a t i o n Directors Registrars Capita Registrars (Ireland) Limited Unit 5 Manor Street Business Park Manor Street Dublin 7 www.capitacorporateregistrars.ie Nominated Adviser Merchant John East & Partners Limited 10 Finsbury Square London EC2A 1AD Stockbroker City Capital Corporation Ltd 29 Farm Street London W1J 5RL Dublin Stockbrokers Dolmen Stockbrokers 75 St. Stephen’s Green Dublin 2 Principal Banker National Irish Bank 138 Lower Baggot Street Dublin 2 Professor Richard Conroy Chairman* Maureen T.A. Jones Managing Director* James P. Jones FCA Finance Director*+ Louis J. Maguire Non-Executive Director*+§ Michael E. Power Non-Executive Director§ Seamus P. FitzPatrick Non-Executive Director+§ C. David Wathen Non-Executive Director Henry H. Rennison Non-Executive Director* * Member of the Executive Committee + Member of the Remuneration Committee § Member of the Audit Committee Company Secretary and Registered Office James P. Jones FCA 10 Upper Pembroke Street Dublin 2 Ireland Auditors Deloitte & Touche Chartered Accountants Deloitte & Touche House Charlotte Quay Limerick Legal Advisers William Fry Solicitors Fitzwilton House Wilton Place Dublin 2 Roschier-Holmberg Keskuskatu 7A 00 100 Helsinki Finland Head Office Conroy Diamonds and Gold P.l.c. 10 Upper Pembroke Street Dublin 2 Tel: +353-1-661 8958 Fax: +353-1-662 1213 For further information visit the Company’s website at: www.conroydiamondsandgold.com or contact: Lothbury Financial Triton Court Finsbury Square London EC2A 1BR Tel: +44-20-7011-9411 Professor Richard Conroy Chairman Maureen T.A. Jones Managing Director James P. Jones Finance Director Louis J. Maguire Non-Executive Director Michael E. Power Non-Executive Director Seamus P. FitzPatrick Non-Executive Director C. David Wathen Non-Executive Director Henry H. Rennison Non-Executive Director 4 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . r e p o r t o f t h e D i r e c t o r s The Directors present their annual report, together with the audited financial statements of Conroy Diamonds and Gold P.l.c. for the year ended 31 May 2009. Principal Activities and Business Review The Company’s exploration programme in Ireland is focused on the Longford-Down Massif. It is engaged in active exploration there, which has already led to the discovery of a series of gold targets along a 30 mile (50 km) area stretching from County Armagh across Counties Monaghan and Cavan. At the most advanced of these targets, Clontibret in County Monaghan, a mineral resource of over one million ounces of gold (Indicated 440,000 ounces, Inferred 590,000) has been estimated for an area representing less than 20% of the target. Drilling has commenced on the remaining 80% of the Clontibret anomaly, which is expected to further increase this resource. This is the largest gold resource reported to date in Ireland or the UK. The Company has also acquired licences in Finland’s Central Lapland Greenstone Belt, which it believes to be highly prospective for gold and has an ongoing exploration programme there. Further information concerning the activities of the Company and its future prospects is contained in the Chairman’s Statement. Future Development of the Business It is the intention of the Directors to continue to develop the activities of the Company, concentrating particularly on gold. Further strategic opportunities in mineral resources, both in Ireland and abroad, will be sought by the Company. Risks and Uncertainties The Company’s activities are directed towards the discovery, evaluation and development of mineral deposits. Exploration for and development of mineral deposits is speculative. Whilst the rewards can be substantial, there is no guarantee that exploration on the Company’s properties will lead to the discovery of commercially extractable mineral deposits. The future net asset value is therefore, inter alia, dependent on the success or otherwise of the Company’s future exploration programmes. Whether a mineral deposit will be commercially viable in a mining operation depends on a number of factors, such as the grade of the deposit, prices of the commodities being exploited, currency fluctuations, proximity to infrastructure, financing costs and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, import and export regulations and environmental protection. The Company needs equity capital and financing for working capital and exploration and development of its properties. Due to continuing operating losses, the Company’s continuance as a going concern is dependant upon its ability to obtain adequate financing and reach profitable levels of operation. It is not possible to predict whether financing efforts will be successful, or if the Company will attain profitable levels of operations. Therefore the Company is exposed to the risk of not being able to raise the appropriate finance to see a project to fruition. Key Performance Indicators Currently the Company’s main KPI is in relation to the estimated resource potential on the discovery and development of economic deposits of gold in Ireland and Finland. In addition, the Company reviews expenditure incurred on exploration projects together with maintaining review of ongoing operating costs. Results for the Year and State of Affairs at 31 May 2009 The income statement for the year ended 31 May 2009 and the balance sheet at that date are set out on pages 15 and 16 respectively. The Company recorded a loss for the financial year of €298,119 (2008: Loss €374,874). Taking account of the current year loss the shareholders’ funds decreased to €6,159,903 at 31 May 2009 from €6,308,996 at 31 May 2008. No dividends or transfers to reserves are recommended by the Directors. Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 5 Important events since the year end For important events which have occurred since year end, refer to Note 19 which accompany these financial statements. Going Concern As explained in Note 2 to the financial statements, the Directors have reviewed cashflow projections and other relevant information and are satisfied that the Company will be able to continue in operation for the foreseeable future. Accordingly, the financial statements have been prepared on the going concern basis. Directors The Directors who served during the year are as follows: R.T.W.L. Conroy J.P. Jones M.T.A. Jones H.H. Rennison S.P. FitzPatrick L.J. Maguire M.E. Power C.D. Wathen In accordance with the Company’s Articles of Association, Mr. Michael E. Power and Mr. C. David Wathen will retire by rotation and, being eligible, will offer themselves for re-election at the Annual General Meeting. Details of Directors Professor Richard Conroy, Chairman of the Board, has been involved in natural resources for many years. He established Trans – International Oil in 1974, which was primarily involved in Irish offshore oil exploration, and initiated the Deminex Consortium which included Deminex, Mobil, Amoco & DSM. Trans – International Oil was merged with Aran Energy Plc in 1979. Professor Conroy founded Conroy Petroleum and Natural Resources Plc which in 1986 made the very significant discovery of the Galmoy zinc deposit in Co. Kilkenny which is now in production as a major base metal mine. Conroy Petroleum was also a founding member of the Stoneboy consortium, an exploration group which discovered the POGO gold field in Alaska, now in production as a major gold mine. Conroy Petroleum acquired Atlantic Resources Plc in 1992 and was renamed ARCON International Resources Plc (ARCON). Professor Conroy was Chairman and Chief Executive of ARCON from 1980 to 1994. Professor Richard Conroy is an Emeritus Professor of Physiology in the Royal College of Surgeons in Ireland. His research has included pioneering work on the effects of Circadian Rhythms including Jet Lag, Shift Working and Decision Taking in Business after Intercontinental Flights. Professor Conroy served for two terms in the Irish Parliament as a member of the Senate. As a Senator he was at various times front bench spokesman for the Government party in the Upper House on Energy, Industry and Commerce, Foreign Affairs and Northern Ireland. Miss Maureen Jones, Managing Director, has many years experience in natural resources. She also has a medical background, as a radiographer specialising in Nuclear Medicine. She became a manager with International Medical Corporation in 1977 and joined Conroy Petroleum and Natural Resources Plc in 1980. She served as a director of that company from 1986 to 1994, when she joined Professor Conroy in the formation of Conroy Diamonds and Gold P.l.c. She has been managing director since 1998. Mr. James Jones, Finance Director, has been associated with the natural resources industry for over 20 years. He is a chartered accountant by profession and a Lecturer in Accountancy at Limerick Institute of Technology. He served as finance director of Conroy Petroleum and Natural Resources Plc from its formation until 1994, when he joined with Professor Conroy to create Conroy Diamonds and Gold P.l.c. He has served as finance director of the Company since its inception in 1995. He is also a director of Karelian Diamond Resources Plc. Mr. Séamus FitzPatrick, Non-executive Director, has worked in both corporate finance and private equity in London and New York with Morgan Stanley, J. P. Morgan and Bankers’ Trust. In 1999 he co-founded CapVest, which advises funds with in excess of £2.0 billion assets under management. He is chairman of 6 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . the Mater Private Hospital and a member of the supervisory board at Drie Mollen. He is also a member of the board of Karelian Diamond Resources Plc. Mr. Louis Maguire, Non-executive Director, is an Auctioneer by profession and land valuation expert with particular expertise in the purchase of mineral rights and in land acquisition for mining. He is a founding director of the Company. Mr. Henry Rennison, Non-executive Director, is a geologist. He worked with Burmah Oil for thirty years and later as a consultant with the international petroleum consultancy firm – DeGolyer and McNaughton. He was also a director of Conroy Petroleum and Natural Resources Plc and its subsidiaries including ARCON Mines Limited for number of years. He is a founding director of the Company. Mr. Michael Power, Non-executive Director, has over forty years experience in the mining industry in Canada and internationally. A chartered financial analyst, and a professional engineer he was formerly vice-president of Corporate Development at Hemlo Gold Mines Inc. (now Newmont Gold Corporation). Mr. David Wathen, Non-executive Director, has been involved in business and finance throughout his career, most recently as a stockbroker managing private client portfolios for Redmayne-Bentley Stockbrokers. He has previously served as a director of several quoted and private companies in the UK, the Republic of Ireland and the USA, including a number of natural resource companies. Directors’ and Secretary’s Shareholdings and Other Interests The interests of the Directors and Secretary, all of which were beneficially held, in the ordinary share capital of the Company at 31 May 2009 and 31 May 2008 were as follows: At 31 May 2009 At 31 May 2008 Ordinary shares of €0.03 each Options Warrants Ordinary shares of €0.03 each Options Warrants R.T.W.L. Conroy 29,544,306* 2,225,000 34,934,765 28,544,306* 2,225,000 34,934,765 M.T.A. Jones 880,010 1,150,000 22,507,028 880,010 1,150,000 22,507,028 J.P. Jones 475,010 825,000 13,188,420 475,010 825,000 13,188,420 H.H. Rennison 330,010 50,000 2,457,288 330,010 50,000 2,457,288 S.P. FitzPatrick 179,000 - 359,593 4,000 - 359,593 L. J. Maguire 310,010 50,000 2,457,288 310,010 50,000 2,457,288 M.E. Power 175,000 C.D. Wathen 87,500 - - 1,307,893 175,000 507,641 87,500 - - 1,307,893 507,641 * Of the 29,544,306 (2008: 28,544,306) Ordinary Shares beneficially held by Professor Conroy, 19,294,286 (2008: 19,294,286) are held by Conroy P.l.c., a company in which Professor Conroy has a controlling interest. Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 7 Details of warrants, all of which are exercisable currently, are as follows: Directors At 31 May 2009 Granted During Year At 31 May 2008 Price € Expiry Date R.T.W.L. Conroy 22,814,920 R.T.W.L. Conroy 12,119,845 M.T.A. Jones M.T.A. Jones J.P. Jones J.P. Jones H.H. Rennison H.H. Rennison S.P. FitzPatrick L.J. Maguire L.J. Maguire M.E. Power M.E. Power C.D. Wathen 13,839,858 8,667,170 8,058,129 5,130,291 1,450,427 1,006,861 359,593 1,450,427 1,006,861 301,032 1,006,861 507,641 - - - - - - - - - - - - - - 22,814,920 0.037 15 November 2015 12,119,845 0.0433 16 November 2017 13,839,858 0.037 15 November 2015 8,667,170 0.0433 16 November 2017 8,058,129 0.037 15 November 2015 5,130,291 0.0433 16 November 2017 1,450,427 0.037 15 November 2015 1,006,861 0.0433 16 November 2017 359,593 0.0433 16 November 2017 1,450,427 0.037 15 November 2015 1,006,861 0.0433 16 November 2017 301,032 0.037 15 November 2015 1,006,861 0.0433 16 November 2017 507,641 0.0433 16 November 2017 Details of options, all of which are exercisable currently, are as follows: Directors R.T.W.L. Conroy R.T.W.L. Conroy R.T.W.L. Conroy M.T.A. Jones M.T.A. Jones M.T.A. Jones J.P. Jones J.P. Jones J.P. Jones H.H. Rennison L.J. Maguire At 31 May 2009 Granted During Year At 31 May 2008 Price € Expiry Date 1,125,000 500,000 600,000 325,000 375,000 450,000 275,000 275,000 275,000 50,000 50,000 - - - - - - - - - - - 1,125,000 0.2539 4 December 2010 500,000 0.08 14 March 2013 600,000 0.10 26 November 2013 325,000 0.2539 4 December 2010 375,000 0.08 14 March 2013 450,000 0.10 26 November 2013 275,000 0.2539 4 December 2010 275,000 0.08 14 March 2013 275,000 0.10 26 November 2013 50,000 0.2539 4 December 2010 50,000 0.2539 4 December 2010 Except as disclosed above, neither the Directors nor their families had any beneficial interest in the share capital of the Company. Apart from loans from shareholders (Note 12) there have been no contracts or arrangements entered into during the financial year in which a Director of the Company had a material interest and which were significant in relation to the Company’s business. 8 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . Substantial Shareholdings Political Donations So far as the Board is aware, no person or company, other than the Directors’ interests disclosed above and the shareholders listed below, held 3% or more of the issued ordinary share capital of the Company at 31 May 2009. Name Number of Ordinary Shares % Professor Conroy 29,544,306* 27.95 Mr. Bruce Rowan 10,450,000 9.89 HSBC Global Custody 9,321,281 8.82 TD Waterhouse Nominees (Europe) 3,310,949 3.13 *Of the 29,544,306 Ordinary Shares beneficially held by Professor Conroy, 19,294,286 are held by Conroy P.l.c., a company in which Professor Conroy has a controlling interest. There were no political donations during the year. Books of Account The measures which the Directors have taken to ensure that proper books of account are kept are the adoption of suitable policies for recording transactions, assets and liabilities, the employment of appropriately qualified staff and the use of computer and documentary systems. The Company’s books of account are kept at 10 Upper Pembroke Street, Dublin 2. Auditors The auditors, Deloitte & Touche, Chartered Accountants, continue in office in accordance with Section 160 (2) of the Companies Act, 1963. On behalf of the Board R.T.W.L. Conroy Director 4 November 2009 J.P. Jones Director Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 9 s t a t e m e n t o f D i r e c t o r s ’ r e s p o n s i B i L i t i e s Irish company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the loss of the company for that period. In preparing those financial statements, the directors are required to: n select suitable accounting policies for the financial statements and then apply them consistently; n make judgments and estimates that are reasonable and prudent; and n prepare the financial statements on the going concern basis unless it is inappropriate to presume that he company will continue in business. The directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union and comply with Irish statute comprising the Companies Acts, 1963 to 2009. They are also responsible for safeguarding the assets of 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 company’s website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 10 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . c o r p o r a t e G o v e r n a n c e s t a t e m e n t Introduction As the Company is quoted on London’s AIM market, the board bases its policies and practices in relation to corporate governance on the Combined Code on Corporate Governance, published by the UK Financial Reporting Council (the Code). The board supports standards in corporate governance and endeavours to implement the principles of the Combined Code constructively and in a sensible and pragmatic fashion with the objective of enhancing and protecting shareholder value. This is always harder in a small Company than in the larger organisations with which the Combined Code is chiefly concerned. It is particularly problematic for a company such as this which is both small and engaged in mineral exploration and development rather than more routine trading operations. Regular board meetings are scheduled to take place throughout the year. During the year five meetings were held. All major policies are approved by the board. Remuneration committee The remuneration committee comprises Mr. Louis Maguire, Mr. Séamus FitzPatrick and Mr. David Wathen. It is responsible for making recommendations to the board on the company's executive remuneration. The committee determines any contract terms, remuneration and other benefits, including share options, for each of the executive directors. The board itself determines the remuneration of the non-executive directors. Audit committee The committee’s terms of reference have been approved by the board. The audit committee comprises Mr. Louis Maguire, Mr. Michael Power and Mr. Séamus FitzPatrick. The audit committee reviews the interim and annual financial statements before they are presented to the board, focusing in particular on accounting policies and areas of management judgment and estimation. The committee is responsible for monitoring the controls which are in force to ensure the information reported to the shareholders is accurate and complete. The committee considers internal control issues and contributes to the board’s review of the effectiveness of the Company’s internal control and risk management systems. It also considers the need for an internal audit function, which it believes is not required at present due to the limited staff and operations of the Company. The members of the committee have agreed to make themselves available should any member of staff wish to make representations to them about the conduct of the affairs of the Company. The committee advises the board on the appointment of external auditors and on their remuneration and discusses the nature and scope of the audit with the external auditors. It meets formally at least once a year with the Company’s external auditors. An analysis of the fees payable to the external audit firm in respect of audit services during the year is set out in Note 4 to the financial statements. The audit committee also undertakes a formal assessment of the auditors’ independence each year which includes: a review of any non-audit services provided to the Company; discussion with the auditors of all relationships with the Company and any other parties that could affect independence or the perception of independence; a review of the auditors’ own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit including the regular rotation of the audit partner; and obtaining written confirmation from the auditors that, in their professional judgement, they are independent. Internal control The board of directors is responsible for, and annually reviews, the Company’s systems of internal control, financial and otherwise. Such systems provide reasonable but not absolute assurance of the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information. The board considers it inappropriate to establish an internal audit function at present because of the Company’s limited operations, however this decision is reviewed annually. Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 11 There are no significant issues disclosed in the report and financial statements for the year ended 31 May 2009 and up to the date of approval of the report and financial statements that have required the board to deal with any related material internal control issues. The directors confirm that the board has reviewed the effectiveness of the system of internal control as operated during the year. Risks and uncertainties In reviewing the risks facing the Company, the board considers it is reasonably close to the Company’s operations and aware of its activities to be able to adequately monitor risk without the establishment of any formal process. The Company may become subject to risks against which it cannot insure or against which it may elect not to insure because of high premium costs or other reasons. The board believes the significant risks facing the Company are adequately disclosed in these financial statements and that there are no other risks of comparable magnitude which need to be disclosed. Communication with shareholders Extensive information about the Company and its activities is given in the annual report and financial statements. Further information is available on the Company’s website, conroydiamondsandgold.com, which is promptly updated whenever announcements or press releases are made. The Company encourages communication with private shareholders throughout the year and welcomes their participation at general meetings. All Board members attend the Annual General Meeting and are available to answer questions. Separate resolutions are proposed on substantially different issues and the agenda of business to be conducted at the Annual General Meeting includes a resolution to receive and consider the Annual Report and financial statements. The chairman of the Board’s committees will also be available at the Annual General Meeting. The Board regards the Annual General Meeting as a particularly important opportunity for shareholders, directors and management to meet and exchange views. 12 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . i n D e p e n D e n t a U D i t o r ’ s r e p o r t To the Members of Conroy Diamonds and Gold P.l.c. We have audited the financial statements of Conroy Diamonds and Gold P.l.c. for the year ended 31 May 2009 which comprise the Income Statement, the Balance Sheet, the Cash Flow Statement, the Statement of Changes in Equity and the related notes 1 to 20. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company’s members, as a body, in accordance with Section 193 of the Companies Act, 1990. 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. Respective responsibilities of directors and auditors The Directors are responsible, as set out in the Statement of Directors’ Responsibilities for, preparing the Annual Report including the preparation of the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Our responsibility, as independent auditor, is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, and are properly prepared in accordance with Irish statute comprising the Companies Acts, 1963 to 2009. We also report to you whether in our opinion: proper books of account have been kept by the company; whether, at the balance sheet date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and whether the information given in the Report of the Directors is consistent with the financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purpose of our audit and whether the company’s balance sheet and its income statement are in agreement with the books of account. We also report to you if, in our opinion, any information specified by law regarding directors’ remuneration and directors’ transactions is not disclosed and, where practicable, include such information in our report. Although not required to do so, the directors have voluntarily chosen to make a corporate governance statement. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the company’s corporate governance statement. We read the other information contained in the annual report and consider the implications for our report if we become aware of any apparent misstatement or material inconsistencies with the financial statements. The other information comprises only the Chairman’s Statement, the Report of the Directors and the Corporate Governance Statement. Our responsibilities do not extend to other further information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 13 We have obtained all the information and explanations we considered necessary for the purpose of our audit. In our opinion proper books of account have been kept by the company. The company’s balance sheet and income statement are in agreement with the books of account. In our opinion the information given in the Report of the Directors is consistent with the financial statements. The net assets of the company, as stated in the balance sheet are more than half the amount of its called-up share capital and, in our opinion, on that basis there did not exist at 31 May 2009 a financial situation which, under Section 40(1) of the Companies (Amendment) Act, 1983, would require the convening of an extraordinary general meeting of the company. Deloitte & Touche Chartered Accountants and Registered Auditors Limerick 4 November 2009 or error. In forming our opinion we evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements: n give a true and fair view, in accordance with IFRSs as adopted by the European Union of the state of the affairs of the company as at 31 May 2009 and of the loss for the year then ended; and n have been properly prepared in accordance with the Companies Acts, 1963 to 2009. Emphasis of Matter–Valuation of Intangible Assets Without qualifying our opinion, we draw your attention to the disclosures made in Notes 2 and 7 concerning the realisation of exploration and evaluation assets included as intangible assets in the balance sheet. The realisation of these assets is dependent on the successful further development and ultimate production of the mineral reserves and the continued availability of adequate finance. The financial statements do not include any adjustments in relation to these uncertainties and the ultimate outcome cannot at present be determined. 14 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . i n c o m e s t a t e m e n t For the Year Ended 31 May 2009 Operating Expenses Other Income Loss Before Tax Taxation Loss retained for the Year Loss per ordinary share R.T.W.L. Conroy Director J.P. Jones Director Approved by the Directors on 4 November 2009 Notes 2009 € 2008 € 3 4 5 6 (298,155) (374,890) 36 16 (298,119) (374,874) - - (298,119) (374,874) (€0.0025) (€0.0032) Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 15 B a L a n c e s h e e t As at 31 May 2009 ASSETS Non-current Assets Intangible assets Financial assets Property, plant and equipment Current Assets Trade and other receivables Cash and cash equivalents Total Assets EQUITY AND LIABILITIES Capital and Reserves Called up share capital Share premium Capital conversion reserve fund Share based payments reserve Retained losses Total Equity Notes 2009 € 2008 € 7 8 9 10 13 13 13 8,736,915 7,830,219 2 2 24,791 29,934 8,761,708 7,860,155 24,982 61,744 86,726 36,229 109,432 145,661 8,848,434 8,005,816 3,170,649 5,491,037 30,617 433,630 3,170,649 5,491,037 30,617 284,604 (2,966,030) (2,667,911) 6,159,903 6,308,996 Non-current Liabilities Trade and other payables: Amounts falling due after more than one year Total non-current liabilities 12 1,928,473 1,928,473 1,340,444 1,340,444 Current Liabilities Trade and other payables: Amounts falling due within one year 11 Total Current Liabilities Total Liabilities Total Equity and Liabilities R.T.W.L. Conroy Director J.P. Jones Director Approved by the Directors on 4 November 2009 760,058 760,058 356,376 356,376 2,688,531 1,696,820 8,848,434 8,005,816 16 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . c a s h f L o w s t a t e m e n t For the Year Ended 31 May 2009 Cash generated by/(used in) operations 14 155,856 (159,261) Notes 2009 € 2008 € Tax paid - - Net cash generated by/(used in) operating activities 155,856 (159,261) Cash flows from investing activities Investment in exploration and evaluation (786,164) (561,640) Payments to acquire property, plant and equipment (5,409) (10,401) Net cash used in investing activities (791,573) (572,041) Cash flows from financing activities Shareholder loans Net cash generated from financing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 588,029 588,029 (47,688) 109,432 61,744 734,780 734,780 3,478 105,954 109,432 Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 17 s t a t e m e n t o f c h a n G e s i n e Q U i t y For the Year Ended 31 May 2009 Share capital € Share Conversion Premium reserve fund € Capital Share-based Retained Earnings Payment (Deficit) Reserve € € € Total Equity € At 1 June 2007 3,170,649 5,491,037 30,617 121,250 (2,293,037) 6,520,516 Share-based payments Loss for the year - - - - - - 163,354 - 163,354 - (374,874) (374,874) At 31 May 2008 3,170,649 5,491,037 30,617 284,604 (2,667,911) 6,308,996 At 1 June 2008 3,170,649 5,491,037 30,617 284,604 (2,667,911) 6,308,996 Share-based payments Loss for the year - - - - - - 149,026 - 149,026 - (298,119) (298,119) At 31 May 2009 3,170,649 5,491,037 30,617 433,630 (2,966,030) 6,159,903 Share Capital The share capital comprises of share capital issued for cash and non-cash consideration. Share premium The share premium reserve comprises of the excess consideration received in respect of share capital over the nominal value of shares issued. Capital conversion reserve fund The ordinary shares of the company were renominalised from €0.03174435 each to €0.03 each in 2001 and the amount by which the issued share capital of the company was reduced was transferred to capital conversion reserve fund. Share based payment reserve The share based payment reserve represents the amount expensed to the income statement and the amount capitalised as part of intangible assets of share-based payments granted which are not yet exercised and issued as shares. 18 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . n o t e s t o t h e f i n a n c i a L s t a t e m e n t s For the Year Ended 31 May 2009 1. ACCOUNTING POLICIES The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and interpretations adopted by the International Accounting Standards Board. These financial statements have also been prepared in accordance with the Companies Acts, 1963 to 2009. The financial statements are prepared under the historical cost convention. Adoption of new and revised standards Three interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 11 IFRS 2 Group and Treasury Share Transactions IFRIC 12 Service Concession Agreements IFRIC 14 IAS19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Standards and interpretations in issue not yet adopted At the date of authorisation of these financial statements, other than the standards and interpretations adopted by the company in advance of their effective dates, the following Standards and Interpretations were in issue but not yet adopted: IAS 1 IAS 23 IAS 27 (Amendment) Presentation of Financial Statements (effective for accounting periods beginning on or after 1 January 2009) (Amendment) Borrowing Cost (effective for accounting periods beginning on or after 1 January 2009) (Amendment) Consolidated and Separate Financial Statements (effective for accounting periods beginning on or after 1 July 2009) IAS 32 & (Amendment) Puttable Financial Instruments and Obligations Arising on Liquidation IAS 1 (effective for accounting periods beginning on or after 1 January 2009) IAS 32 (Amendment) Classification of rights issues (effective for accounting periods beginning on or after 1 February 2010) IFRS1 & IAS 27 (Amendment) Cost of investment in subsidiary, jointly controlled entity or Associates (effective for accounting periods beginning on or after 1 January 2009) IAS 39 (Amendment) Eligible hedged items (effective for accounting periods beginning on or after 1 July 2009) IFRS1 IFRS2 (Amendment) First time adoption of Financial Reporting Standards (effective for accounting periods on or after 1 July 2009) Amendments to IFRS1 Additional Exemptions for First-Time Adopters (effective for accounting periods on or after 1 January 2010) (Amendment) Vesting conditions and cancellations (effective for accounting periods on or after 1 January 2009) Amendments to IFRS2 Group Cash-settled Share-based payment Transactions (effective for accounting periods on or after 1 January 2010) IFRS3 Business Combinations (effective for accounting periods beginning on or after 1 July 2009) Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 19 IFRS7 (Amendment) Improving Disclosures about Financial Instruments (effective for accounting periods on or after January 2009) IFRIC 13 Customer Loyalty Programmes (effective for accounting periods beginning on or after 1 July 2008) IFRIC 15 Agreements for the Construction of Real Estate (effective for accounting periods beginning on or after 1 January 2009) IFRIC 16 Hedges of Net Assets in a Foreign Operation (effective for accounting periods beginning on or after 1 October 2008) IFRIC 17 Distribution of Non-Cash Assets to Owners (effective for accounting periods beginning on or after 1 July 2009) IFRIC 18 Transfers of Assets from Customers (effective for accounting periods on or after 1 July 2009) The directors have completed an initial assessment of the impact in relation to the adoption of these Standards and Interpretations for future periods of the Company. The Directors are currently assessing the impact which IFRS 8 – Operating Segments, will have on the company. Initial discussions have taken place to identify the relevant operating segments. On adoption of the standard, the reportable segments will be identified for all future financial statements. Apart from IFRS 8, in the opinion of the Directors, the other standards and interpretations will have no material impact on the financial statements of the Company in the period of initial application. A. Intangible Assets The Company accounts for mineral expenditure in accordance with International Financial Reporting Standard 6 – Exploration For and Evaluation of Mineral Resources. (i) Capitalisation Certain costs (other than payments to acquire the legal rights to explore) incurred prior to acquiring the rights to explore are charged directly to the income statement. Exploration, appraisal and development expenditure incurred on exploring, and testing exploration prospects are accumulated and capitalised as intangible exploration and evaluation (E&E) assets. Capitalised costs include geological and geophysical costs, and other direct costs of exploration (drilling, trenching, sampling and technical feasibility and commercial viability activities). In addition, capitalised costs includes an allocation from operating expenses, including share based payments, all such costs are directly related to exploration and evaluation activities. E&E costs are not amortised prior to the conclusion of appraisal activities. At completion of appraisal activities if technical feasibility is demonstrated and commercial reserves are discovered, then the carrying amount of the relevant E&E asset will be reclassified as a development and production asset, once the carrying value of the asset has been assessed for impairment. If following completion of appraisal activities in an area, it is not possible to determine technical feasibility and commercial viability, or if the right to explore expires, then the costs of such unsuccessful exploration and evaluation is written off to the income statement in the period in which the event occurred. 20 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . (ii) Impairment If facts and circumstances indicate that the carrying value of an E&E asset may exceed its recoverable amount, an impairment review is performed. The following are indicators of impairment. - The right to explore in an area has expired, or will expire in the near future, without renewal. - No further exploration or evaluation is planned or budgeted for. - - A decision has been made to discontinue exploration and evaluation in an area, because of the absence of commercial reserves. Sufficient data exists to indicate that the book value will not be fully recovered from future development and production. For E&E assets, where the above indicators exist, an impairment test is carried out. The E&E assets are categorised into Cash Generating Units (“CGU”). The carrying value of the CGU is compared to its recoverable amount and the resulting impairment loss is written off to the income statement. The recoverable amount of the CGU is assessed as the higher of its fair value, less costs to sell, and its value in use. B. Issue Expenses Issue expenses arising on the issue of equity securities are accounted for as a deduction from equity, against the share premium account, net of any related income tax benefit. C. Property, Plant and Equipment Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is provided on a straight line basis to write off the cost less estimated residual value of the assets over their estimated useful lives as follows: Motor vehicles Plant and office equipment 5 years 10 years D. Taxation The tax expense represents the sum of the current and deferred tax charge. The tax currently payable is based on taxable profits for the year. Taxable profit differs from net profit or loss as reported in the income statement because it excludes items of income or expenditure that are taxable or deductible in other years and it further excludes items that are not taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base used in the computation of taxable profit and is accounted for using the balance sheet liabilities method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also taken directly to equity. Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 21 E. Share Based Payments The Company has applied the requirements of IFRS 2 “Share-Based Payments”. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 June 2006. For equity-settled share based payment transactions (i.e. the granting of share options and share warrants), the Company measures the services and the corresponding increase in equity at fair value at the measurement date (which is the grant date) using a recognised valuation methodology for the pricing of financial instruments (Binomial Lattice Model). Given that the share options, and warrants granted do not vest until the completion of a specified period of service the fair value is determined on the basis that the services to be rendered by employees as consideration for the granting of share options and warrants will be received over the vesting period, which is assessed as the grant date. The fair value determined at the grant date of the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the company’s estimate of equity instruments that will eventually vest. F. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. G. Trade and other receivables and payables Trade and other receivables and payables are measured at initial recognition at fair value, and subsequently measured at amortised cost. H. Cash and cash equivalents Cash and cash equivalents consist of cash at bank held by the company and short term bank deposits with a maturity of three months or less. Cash and cash equivalents are held for the purpose of meeting short term cash commitments. I. Pension costs The company provides for certain employees through defined contribution pension schemes. The amounts charged to the income statement and balance sheet is the contribution payable in that year. Any difference between amounts charged and contributions paid to the pension scheme is included in receivables or payables in the balance sheet. J. Critical accounting judgments and key sources of estimation uncertainty Critical judgments in applying the Company’s accounting policies In the process of applying the Company’s accounting policies above, management has identified the judgmental areas that have the most significant effect on the amounts recognised in the financial statements (apart from those involving estimations, which are dealt with below): Exploration and evaluation The assessment of whether general administration costs and salary costs are capitalised or expensed involves judgment. Management consider the nature of each cost incurred and whether it is deemed appropriate to capitalise it within intangible assets. In addition there is uncertainty as to whether the exploration activity will yield any economical viable discovery. 22 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . Impairment of intangible assets If an indicator of impairment exists (as outlined in the Intangible Assets accounting policy), the exploration and evaluation assets need to be allocated into Cash Generating Units. The determination of what constitutes a cash generating unit requires judgment. Once this is decided, the carrying value of each Cash Generating Unit is compared to its recoverable amount. The recoverable amount of the CGU is assessed as the higher of its fair value less costs to sell and its value in use. The determination of value in use requires the following judgments: - - - Estimation of future cash flows expected to be derived from the asset. Expectation about possible variations in the amount or timing of the future cash flows. The determination of an appropriate discount rate. Going concern The preparation of financial statements requires an assessment on the validity of the going concern assumption. The validity of the going concern assumption is dependent on finance being available for the continuing working capital requirements of the company and finance for the development of the company’s projects becoming available. Based on the financial support received to date from the shareholders, and their financial commitment to continue to support the company for a period of at least twelve months from the date of approval of these financial statements, the directors believe that the going concern basis is appropriate for these financial statements. Should the going concern basis not be appropriate, adjustments would have to be made to reduce the value of the company’s assets, in particular the intangible assets, to their realisable values. Key sources of estimation uncertainty The preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the balance sheet date and the amounts reported for revenues and expenses during the year. The nature of estimation means that actual outcomes could differ from those estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Share-based payments The estimation of share-based payment costs requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The Company has made estimates as to the volatility of its own shares, the probable life of options granted and the time of exercise of those options. The model used by the Company is the Binomial Lattice Model. 2. Going Concern Mineral exploration and evaluation costs capitalised as intangible assets amounted to €8,736,915 (Note 7) at the balance sheet date. The directors recognise that the future realisation of intangible assets is dependent on the successful further development and ultimate production of the mineral reserves and the availability of sufficient finance to bring the reserves to economic maturity and profitability. The directors have reviewed the projected cash flows for the company and on the basis of the capital funding achieved to date, the additional capital of €564,000 subscribed in August and September 2009 and existing commitments for further capital funding received from the shareholders, together with the very encouraging results obtained from the exploration programme, they consider it appropriate to prepare the financial statements on a going concern basis. The financial statements do not include any adjustments to the carrying amount, or classification of assets and liabilities, if the company was unable to continue as a going concern. Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 23 3. Operating Expenses Operating expenses Transfer to intangible assets (Note 7) Operating expenses is analysed as follows: Wages and salaries Share based payments Depreciation Loan interest Auditors remuneration Other operating expenses 2009 € 832,906 (534,751) 298,155 2009 € 379,183 149,026 10,552 131,852 12,500 149,793 832,906 2008 € 742,765 (367,875) 374,890 2008 € 387,251 163,354 12,571 81,504 15,500 82,585 742,765 Of the above costs a total of €534,751 (2008: €367,875) is allocated to intangible assets. (a) Wages and salaries cost as disclosed above is analysed as follows: Wages and salaries Social welfare costs Pension costs 2009 € 321,617 19,147 38,419 379,183 2008 € 333,864 30,325 23,062 387,251 The company had nine employees during the year (2008: ten). The total share based payment charge of €149,026 (2008: €163,354) is accounted for as shown below: Share based payment charge expensed to income statement 28,494 Share based payment charge transferred to intangible assets 120,532 149,026 2009 € 2008 € 31,652 131,702 163,354 In the opinion of the directors, eighty per cent of the share based payment charge is directly related to exploration and evaluation activities, and has been capitalised within intangible assets. (b) During the previous year, the directors agreed that actual remuneration due up to 30 November 2007 be waived. Fees and other remuneration for the six months from 1 December 2007 have been accrued in the previous year and in full for the current year. 24 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . 4. Loss Before Tax The loss before tax is arrived at after charging the following items, which are stated at amounts prior to the transfer to intangible assets: Directors’ remuneration • Fees • Other emoluments (including pension) 2009 € 88,882 174,750 2008 € 44,441 99,937 Share based payments 149,026 163,354 Depreciation Auditor's remuneration – audit services 10,552 12,500 12,571 15,500 The directors' remuneration charged during the year included stock option costs of €142,308 (2008: €115,069). 5. Taxation (a) Analysis of the tax charge for the year Irish corporation tax Based on adjusted loss for the year Total current tax 2009 € 2008 € - - - - - - No taxation charge arises in the financial year due to a loss being incurred in the current year. (b) Factors affecting the tax charge for the year: The tax due for the year is different to the standard rate of Irish corporation tax. This is due to the following: 2009 € 2008 € Loss on ordinary activities before tax (298,119) (374,874) Loss on ordinary activities multiplied by the standard rate of Irish corporation tax of 12.5% (2008: 12.5%) (37,265) (46,859) Effects of: Losses carried forward for future utilisation 37,265 46,859 Tax charge for the year - - No deferred tax asset has been recognised on accumulated tax losses as it cannot be considered probable that future taxable profit will be available against which the deferred tax asset can be utilised. The amount not recognised amounts to €2,318,402 (2008: €2,167,796). Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 25 6. Loss Per Ordinary Share The calculation of the loss per ordinary share of €0.0028 (2008: €0.0035) is based on the loss for the financial year of €298,119 (2008: €374,874) and the weighted average number of ordinary shares in issue during the year of 105,688,297 (2008: 105,688,297). In August 2009, 10,833,333 ordinary shares were issued in return for capitalisation of shareholder’s loans amounting to €325,000. The loss per share is adjusted retrospectively for this. The revised loss per share is €0.0025 (2008 (Adjusted): €0.0032). The effect of share options and warrants is anti-dilutive. 7. Intangible Assets Exploration and Evaluation Cost At 1 June Expenditure during the year - licence and appraisal costs - other operating expenses (Note 3) - equity settled share based payments (Note 3) At 31 May 2009 € 2008 € 7,830,219 7,136,877 371,945 414,219 120,532 325,467 236,173 131,702 8,736,915 7,830,219 Exploration and evaluation assets relate to expenditure incurred in the development of mineral exploration opportunities. The directors are aware that by its nature there is an inherent uncertainty in exploration and evaluation, and, consequently, in relation to the carrying value of capitalised exploration and evaluation assets. The realisation of these intangible assets is dependent on the successful discovery and development of economic reserves. The Directors have considered the proposed work programmes for these mineral reserves. They are satisfied that there are no indications of impairment, but none the less recognise that future realisation of the intangible assets, is dependent on further successful exploration and appraisal activities and the subsequent economic production of the mineral reserves. Mineral interests are categorised as follows: Ireland Cost At 1 June Expenditure during the year - licence and appraisal costs - other operating expenses - equity settled share based payments At 31 May 2009 € 2008 € 6,683,224 6,103,213 335,689 352,086 102,452 287,115 180,950 111,946 7,473,451 6,683,224 26 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . Finland Cost At 1 June Expenditure during the year - licence and appraisal costs - other operating expenses - equity settled share based payments 2009 € 2008 € 1,146,995 1,033,664 36,256 62,133 18,080 38,352 55,223 19,756 At 31 May 1,263,464 1,146,995 8. Financial Assets Shares in subsidiary company (Unlisted shares) at cost: Trans International Mineral Exploration Limited % Owned 2009 € 2008 € 100% 2 2 The registered office of the above non trading subsidiary is 10 Upper Pembroke Street, Dublin 2. The above subsidiary has not been consolidated on the basis that it is not trading, and the assets of the entity are €2. 9. Property, Plant and Equipment Cost At 1 June 2008 Additions At 31 May 2009 Accumulated Depreciation At 1 June 2008 Charge for the year At 31 May 2009 Net Book Amount at 31 May 2009 Motor Vehicles € Plant & Office Equipment € 12,804 - 12,804 12,804 - 12,804 - 100,110 5,409 105,519 70,176 10,552 80,728 24,791 Total € 112,914 5,409 118,323 82,980 10,552 93,532 24,791 Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 27 Vehicles € Motor Equipment € Plant & Office Total € Cost At 1 June 2007 Additions At 31 May 2008 Accumulated Depreciation At 1 June 2007 Charge for the year At 31 May 2008 12,804 - 12,804 10,244 2,560 12,804 89,709 10,401 100,110 60,165 10,011 70,176 Net Book Amount at 31 May 2008 - 29,934 10. Trade and Other Receivables VAT receivable Other debtors 11. Trade and Other Payables (Amounts falling due within one year) Accrued directors’ remuneration –fees and other emoluments –pension contributions Other accruals 2009 € 802 24,180 24,982 2009 € 369,945 38,419 351,694 760,058 102,513 10,401 112,914 70,409 12,571 82,980 29,934 2008 € 3,190 33,039 36,229 2008 € 121,316 23,062 211,998 356,376 It is the Company’s normal practice to agree terms of transactions, including payment terms, with suppliers and provided suppliers perform in accordance with the agreed terms, it is the company’s policy that payment is made according to the agreed terms. The company has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. The carrying value of the trade and other payables approximates to their fair value. 28 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . 12. Trade and Other Payables: (Amounts falling due after more than one year) Shareholder loans Opening balance Funds advanced Loan amount repaid 2009 € 2008 € 1,340,444 785,000 687,168 678,276 (196,971) (25,000) 1,928,473 1,340,444 The immediate funding requirements of the Company have been financed by advances from the principal shareholder. None of the above loans are repayable on demand. Interest at a rate of 8.25% per annum is accrued on all amounts advanced. The accrued interest for the year ended 31 May 2009 is €213,356 (2008: €81,504). The accrued interest is included within other accruals in Note 11 above. 13. Called Up Share Capital And Premium Authorised: 750,000,000 ordinary shares of €0.03 each (2008: 400,000,000 shares of €0.03 each) 2009 € 22,500,000 2008 € 12,000,000 During the year the authorised share capital of the company was increased to 750,000,000 ordinary shares of €0.03 each. Issued and Fully Paid: Capital conversion reserve fund € Share capital € Share premium € Number Start and end of year 105,688,297 3,170,649 30,617 5,491,037 (a) At 31 May 2008 and 31 May 2009 warrants over 49,064,188 shares exercisable at €0.037 per share at any time up to 15 November 2015 were outstanding. (b) At 31 May 2008 and 31 May 2009, options had been issued over 7,195,000 shares. These options are exercisable at prices ranging from €0.048 to €0.2539 and expire between 4 December 2010 and 14 January 2018. (c) At 31 May 2008 and 31 May 2009 warrants over 29,805,123 shares exercisable at €0.0433 per share at any time up to 16 November 2017 were outstanding. (d) On 20 January 2009, 20,000,000 share warrants exercisable at 3.75p sterling lapsed. (e) The share price at 31 May 2009 was 2.625p sterling. During the year the price ranged from 1.6p to 4.75p sterling. Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 29 14. Notes to the Cash Flow Statement Reconciliation of Operating Loss to Net Cash generated by/(used in) Operations: 2009 € (298,119) 2008 € (374,874) 10,552 12,571 28,494 403,682 11,247 155,856 31,652 169,912 1,478 (159,261) Operating loss Depreciation Expense recognised in income statement in respect of equity settled share based payments Increase in creditors Decrease in debtors Cash generated by/(used in) operations 15. Commitments and Contingencies Obligations under Mineral Interests The Company has received prospecting licences under the Republic of Ireland Mineral Development Acts 1940 to 1995 for areas in Monaghan and Cavan. It has also received licences in Northern Ireland for areas in Armagh and Down in accordance with the Mineral Development Act (Northern Ireland) 1969. The Company has certain obligations in respect of these licences at year end which comprise total expenditure commitments as follows: Commitments for expenditure: - due within one year - due between two and five years 2009 € 2008 € 150,000 250,000 500,000 500,000 650,000 750,000 16. Related Party Transactions The Company shares accommodation with Conroy P.l.c. and Karelian Diamond Resources Plc. For the year ended 31 May 2009, Conroy Diamonds and Gold P.l.c. incurred rental and related costs of €45,711. The total cost incurred was €61,185. 30 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c . 17. Share Based Payments The company operates a share option scheme for employees who devote a substantial amount of their time to the business of the company. Options granted generally have a vesting period of ten years. Details of the share options outstanding during the year are as follows: 2009 Weighted Average Exercise Price € No. of Share Options 2008 Weighted Average Exercise Price € No. of Share Options 7,195,000 - - - 7,195,000 0.1254 6,295,000 - 1,000,000 - - 100,000 - 7,195,000 0.1254 0.1368 0.0480 - 0.0670 0.1254 At 1 June Granted during year Exercised during year Lapsed during year At 31 May Warrants granted generally have a vesting period of ten years. Details of the warrants outstanding during the year are as follows: 2009 Weighted Average Exercise Price € No. of Share Options 2008 Weighted Average Exercise Price € No. of Share Options 78,869,311 - - - 78,869,311 0.0394 49,064,188 - 29,805,123 - - - - 0.0394 78,869,311 0.0370 0.0433 - - 0.0394 At 1 June Granted during year Exercised during year Lapsed during year At 31 May The company estimated the fair value of employee stock options and warrants awards using the Binomial Lattice Model. The determination of the fair value of share based payment awards on the date of grant using the Binomial Lattice Model is affected by Conroy Diamonds and Gold P.l.c. stock price as well as assumptions regarding a number of subjective variables. These variables include the expected term of the awards, the expected stock price volatility over the term of the awards, the risk free interest rate associated with the expected term of the awards and the expected dividends. The company’s Binomial Lattice Model included the following weighted average assumptions for the company’s employee stock option and warrants. Dividend yield Expected volatility Risk free interest rate Expected life (in years) 2008 Stock 2008 Stock Options Warrants 2007 Stock 2007 Stock Options Warrants 0% 90% 4.0% 10 0% 90% 3.2% 10 0% 90% 4.0% 10 0% 90% 3.2% 10 This calculation results in a share based payments reserve movement of €149,026 (2008: €163,354). Annual Repor t and Financial State me nts 2009 Conroy Diamonds and Gold P.l.c . 31 18. Controlling Party The control of Conroy Diamonds and Gold P.l.c. is held by the following shareholders: Name Professor Conroy Mr. Bruce Rowan HSBC Global Custody TD Waterhouse Nominees (Europe) Ashdale Investment Trust Services Number of ordinary shares 29,544,306* 10,450,000 9,321,281 3,310,949 2,525,000 % 27.95 9.89 8.82 3.13 2.39 *Of the 29,544,306 ordinary shares held by Professor Conroy, 19,294,286 are held by Conroy P.l.c., a company in which Professor Conroy has a controlling interest. 19. Post Balance Sheet Events In August 2009, 8,800,000 ordinary shares of €0.03 were issued at par, raising additional share capital of €264,000. In addition 400,000 shares were issued at a price of 3.75p (€0.04293) per share in lieu of fees for the provision of research and access to a subscribed database. In September 2009, 10,000,000 ordinary shares of €0.03 were issued at par which raised capital of €300,000. Also, in September 2009, 10,833,333 shares were issued at par in return for capitalisation of shareholder’s loans amounting to €325,000. In October 2009, the company announced that very encouraging results had been obtained relating to a possible zinc discovery in Clontibret. Latest sampling results obtained suggest the possibility that a significant discovery is within an area which the company are currently exploring. 20. Approval of Financial Statements. These financial statements were approved by the board on 4 November 2009. 32 An nual Repo r t and Finan cial Stat em ent s 2 0 09 Conroy D iam ond s and Gold P.l. c .