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Ensign Energy ServicesISLE OF MAN ‐ COMPANY NUMBER 6969V ENGLAND AND WALES ‐ COMPANY NUMBER FC022829 TomCo Energy plc Annual report and financial statements 2012 Board of Directors and Company Information Isle of Man Company number 6969V England and Wales FC022829 Country of incorporation Isle of Man Board of Directors Sir Nicholas Bonsor – non executive chairman Paul Rankine – chief executive officer Miikka Haromo – finance director Secretary and Registered Office Stuart J Adam CPFA, Chartered MCSI 2nd Floor Sixty Circular Road Douglas Isle of Man IM1 1SA Nominated adviser and broker NUMIS Securities Ltd The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Registrars Computershare Investor Services plc PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH Auditors BDO LLP 55 Baker Street London W1U 7EU Solicitors Wallace LLP 1 Portland Place London W1B 1PN Bankers Investec Bank 2 Gresham Street London EC2V 7QP Barclays Bank plc Park House Newbrick Road Stoke Gifford Bristol BS3Y 8ZJ Wachovia Bank NA 1525 West W.T. Harris Boulevard Charlotte NC 28262 USA 2 Directors’ report The Directors submit their report and the financial statements of the Company and of the Group for the year ended 30 September 2012. Principal activity The principal activity of the Group is that of developing oil shale leases for future production. Risk assessment The Group’s oil and gas activities are subject to a range of financial and operational risks which can significantly impact on its performance. Operational risk The Group has entered into a license with Red Leaf Resources Inc, which owns the EcoShale™ extraction process, to use this unique and environmentally sensitive technology to extract oil from the Group’s leases. Having built and tested a small pilot plant, Red Leaf is now planning production with a full scale plant producing 9,800 barrels of oil per day (bopd). The technology produced by Red Leaf is currently unique within the marketplace and until extraction commences, the viability of this technology will not be determinable. Once the viability of this technology has been determined, the Group intends to build and operate a similar EcoShale™ plant on its Holliday Block lease, Liquidity and interest rate risks Cash forecasts identifying the liquidity requirements of the Group are produced frequently. These are reviewed regularly by management and the Board to ensure that sufficient financial headroom exists for at least a twelve month period. This strategy will continually be reviewed in the light of developments with existing projects and new project opportunities as they arise. Currency risk Due to the limited income and expenses denominated in foreign currencies, it was not considered cost effective to manage transactional currency exposure on an active basis. However, as the financial statements are reported in sterling and the Group’s revenue and the majority of its exploration costs are in US dollars, movements in the exchange rate of the US dollar against sterling may significantly affect the Group’s statements of comprehensive income and financial position. Financial instruments It was not considered an appropriate policy for the Group to enter into any hedging activities or trade in any financial instruments. Further information can be found in Note 12. Results and dividends The statement of comprehensive income is set out on page 8. The Directors do not propose the payment of a dividend (2011: £Nil). The Group made no charitable or political donations in the year (2011: £Nil). Review of the key events during the year and post reporting date Financing On 28 January 2013, the Group announced it had entered into a Liquidity Facility Agreement and an associated Promissory Note (together the “Liquidity Facility”) with Windsor Capital Partners Limited (“Windsor Capital”). Under the Liquidity Facility TomCo has issued and allotted 100 million ordinary shares of 0.5p each (“Ordinary Shares”), representing an increase of 6% on the then current number of shares in issue, to Windsor Capital in exchange for the Promissory Note. The Liquidity Facility allows the Company to access capital using the natural liquidity that is available in the Company’s shares in a more cost-effective manner than a traditional equity line product (Note 23). On 7 March, the Group announced that it had successfully raised £1.781 million, before expenses, through a share placing of 148,406,526 new ordinary shares of 0.5p each at a price of 1.2p per share. The Placing was supported by a number of new financial institutions as well as other existing shareholders. The gross proceeds from the Placing are to be used by TomCo for advancing permitting required for commercial production at the Company’s Holliday project and for general working capital purposes. Oil Shale During the year the Group announced that SRK Consulting (UK) Limited (“SRK”) had reviewed recent work carried out by TomCo on the Company’s Holliday Block and issued an updated mineral resource statement. In doing this, SRK upgraded the 123 million barrels previously reported in the Indicated category to 126 million barrels in the measured category. SRK’s Mineral Resource Estimate has been reported using the terms and definitions defined in the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, (the JORC Code). It also includes mineralisation in the Four Senators, Upper and Lower Mahogany Zones and Mahogany Bed within the Holliday Block and mineralisation in the Mahogany Zone outside of the Holliday Block, which now has an Inferred Resource of a further 12 million barrels. 3 Directors’ report The analysis is based on information from 9 drill holes and 732 assays. The drilling and assaying was coordinated and supervised by SRK and the results are now supported by a programme of check assays completed during 2012. The oil shale horizons are continuous across the TomCo licence area and dip gently to the northwest. Within the reporting period the Group also announced that it had commenced measures to secure the necessary approvals and permits required for commercial production by appointing EPIC Engineering (“EPIC”) to prepare a ‘Waters of the United States Jurisdictional Assessment’ report. A draft of this was received from EPIC and the Group later submitted the final report to the United States Army Corps of Engineers, to determine the environmental permitting route the Company would be required to take in order to comply with all state requirements. The United States Army Corps of Engineers has subsequently issued the Group a nationwide 401 permit so the Group will need to prepare an Environmental Assessment (“EA”) under Utah state environmental law and not an Environmental Impact Statement (“EIS”) under United States federal environmental law. The EA is a far more expedient and economic option to prepare than an EIS. The Directors believe that the Utah government is supportive of the development of oil shale in the state, which should aid the EA process. TomCo will also submit the same EPIC report to the Utah Division of Water Quality (“DWQ”) as part of its base line assessment, which is required for the DWQ to approve a Groundwater Discharge Permit. Red Leaf’s focus is on executing the Early Production System (‘EPS’) phase of its joint venture with Total. The goal of the EPS is the construction of a large scale capsule. Questerre Energy Corporation has reported that capsule construction is planned for late 2013 with first oil expected in 2014. Directors Directors who served on the Board during the year to 30 September 2012 were as follows: N Bonsor S A Komlosy (resigned 6 March 2012) Paul Rankine Miikka Haromo Directors’ interests in the shares of the Group, including family interests, were as follows: S A Komlosy (resigned 6 March 2012) N Bonsor * M Haromo** P Rankine 30 September 2012 30 September 2011 Ordinary 0.5 pence Ordinary Share 0.5 pence shares warrants shares Share warrants - - - 1,295,301 - 25,250,000 10,000,000 2,278,647 7,595,492 - - - - 2,278,647 7,595,492 - 1,295,301 9,874,139 25,250,000 19,874,139 Details of the share warrants can be found in note 20. *Sir Nicholas Bonsor has an option to acquire 10 million Ordinary Shares from Kenglo One Limited at a price of 3p per Ordinary Share. The option period commenced on 1 April 2010 and ends on 31 March 2013. ** Miikka Haromo has an option to acquire 15 million Ordinary Shares from Kenglo One Limited at a price of 3p per Ordinary Share. The option period commenced on 21 July 2012 and ends on 31 December 2014. Payments of payables The Group’s policy is to negotiate payment terms with its suppliers in all sectors to ensure that they know the terms on which payment will take place when the business is agreed and to abide by those terms of payment. The Group’s payment days as at 30 September 2012 for trade payables was 23 days (2011: 36 days). 4 Directors’ report Going concern The Directors are confident that the Group has sufficient funds to meet its working capital requirements and commitments for a period of not less than twelve months from the date of signing of these financial statements. The Group’s working capital and commitments are closely monitored by the directors and monthly forecasts are prepared in order to ensure that the Group has cash available to meet planned development expenditure. There are no contractual commitments for minimum development spend within any of the Group’s licences and therefore the pace of development of the asset can be adjusted within the availability of cash resources to contract with the relevant consultants. As a result of the review performed by the directors, the monitoring of the cash position and the forecast cash at the end of the twelve month period under review from the date of signing the directors have confirmed that it is appropriate for the financial statements to be prepared on the going concern basis. Insurance of key management The Group maintains Directors’ and officers’ liability insurance cover for TomCo Energy Plc’s Directors in respect of their duties as Directors of the Group. Directors’ responsibilities The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and Group and enable them to ensure that the financial statements comply with the requirements of the Isle of Man Companies Act 2006. They are also responsible for taking steps for the prevention and detection of fraud and other irregularities. The Directors are also required to prepare financial statements for the Group in accordance with International Financial Reporting Standards. International Accounting Standard 1 requires that financial statements present fairly for each financial year the Group's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. A fair presentation also requires the directors to: consistently select and apply appropriate accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements. The Directors confirm that they have complied with these requirements, and, having a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and continue to adopt the going concern basis in preparing the financial statements. 5 Directors’ report Auditors All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company's auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware. The external auditors are required to rotate the Senior Statutory Auditor responsible for the company audits every five years. In certain circumstances, it is permissible to extend that tenure by up to two years. The board believes that due to significant strategic change the group has undergone over the last 18 months and the developments anticipated by the Group merits having a continuity of the Senior Statutory Auditor that this extension provides. BDO LLP and the Company have agreed to extend the term of the Senior Statutory Auditor for a sixth year in line with the guidance as to how long a responsible individual may remain the Senior Statutory Auditor for a client as set out in Ethical Standard 3 ‘Long Association with the Audit Engagement’ issued by the Audit Practices Board. There are specific provisions relating to the extension of tenure for listed companies with which the Company complies. BDO LLP have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the annual general meeting. By order of the Board Sir Nicholas Bonsor Non-Executive Chairman 20 March 2013 6 Independent auditors’ report to the shareholders of TomCo Energy Plc We have audited the financial statements of TomCo Energy plc for the year ended 30 September 2012 which comprise the consolidated statement of comprehensive income, the consolidated and company statement of financial position, the consolidated and company statement of changes in equity, the consolidated and company statement of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable Isle of Man company law and International Financial Reporting Standards as adopted by the European Union (IFRS). This report is made solely to the Company’s members as a body, in accordance with Section 80C of the Isle of Man 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 opinion we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors’ responsibilities, 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 Isle of Man company 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. Scope of the audit of the financial statements A description of www.frc.org.uk/apb/scope/private.cfm the scope of an audit of Opinion on the financial statements In our opinion the financial statements: financial statements is provided on the APB’s website at • • give a true and fair view of, in all material respects the state of the company’s affairs as at 30 September 2012 and of its loss for the year then ended; and have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union. BDO LLP Chartered Accountants London United Kingdom 20 March 2013 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). 7 Consolidated statement of comprehensive income for the financial year ended 30 September 2012 2012 2011 Note £’000 £’000 Revenue Cost of sales Gross profit Administrative expenses Operating loss Finance income Finance costs Derivative expense Loss on ordinary activities before taxation Taxation Loss for the year attributable to equity shareholders of the parent Total comprehensive loss attributable to equity shareholders of the parent Loss per share attributable to the equity shareholders of the parent Basic & diluted loss per share from total and continuing operations 2 2 5 3 4 4,16 6 13 (4) 9 (1,013) (1,004) 1 (9) (556) (1,568) - (1,568) 16 (5) 11 (1,687) (1,676) 131 (356) (295) (2,196) - (2,196) (1,568) (2,196) 2012 Pence 2011 Pence per share per share 8 (0.10) (0.25) The Company has elected to take exemption under the Companies Act not to present the parent company’s statement of comprehensive income. The loss for the parent company for the year was £1,530,787 (2011: £2,248,251). 8 Consolidated and Company Statement of Financial Position as at 30 September 2012 Group Company 2012 2012 Group Company 2011 2011 Note £’000 £’000 £’000 £’000 Assets Non-current assets Intangible assets Property, plant and equipment Investment in subsidiaries Available for sale financial assets Current assets Trade and other receivables Cash and cash equivalents TOTAL ASSETS Liabilities Current liabilities Trade and other payables Convertible loan Derivative liability Net current assets Non current liabilities Other liabilities TOTAL LIABILITIES Total net assets Shareholders’ equity Share capital Share premium Warrant reserve Retained deficit Total equity 9 10 11 12 13 14 15 16 16 15 18 19 20 8,095 1,314 7,945 9 - 3,262 9 6,781 3,262 13 - - 1,314 13 6,631 - 11,366 11,366 7,958 7,958 52 411 463 52 396 448 11,829 11,814 (41) (41) - - (41) 422 - (41) - - (41) 407 - (41) 202 1,363 1,565 9,523 (327) (888) (295) 202 1,348 1,550 9,508 (327) (888) (295) (1,510) (1,510) 55 - 40 (37) (1,510) (1,547) 11,788 11,773 8,013 7,961 8,105 8,105 13,629 13,629 361 361 6,555 10,573 492 6,555 10,573 492 (10,307) (10,322) (9,607) (9,659) 11,788 11,773 8,013 7,961 The accounts on pages 8 to 28 were approved and authorised for issue by the Board of Directors on 20 March 2013. Paul Rankine Director M Haromo Director 9 Consolidated statement of changes in equity for the financial year ended 30 September 2012 Group Company Share capital Share Warrant Retained premium reserve Deficit Total Share capital Share Warrant premium reserve Retained deficit Total Note £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1 October 2010 3,798 7,907 928 (7,854) 4,779 3,798 7,907 928 (7,854) 4,779 Total comprehensive loss for the year Issue of warrants Expired warrants - - - - - - Issue of share capital 18,19 2,757 2,666 - 7 (443) - (2,196) (2,196) - 443 7 - - - - - - - - 5,423 2,757 2,666 - 7 (443) - (2,248) (2,248) - 443 7 - - 5,423 Balance at 30 September 2011 6,555 10,573 492 (9,607) 8,013 6,555 10,573 492 (9,659) 7,961 Total comprehensive loss for the year Warrants exercised and expired Issue of share capital Conversion of loan 20 18,19 18,19 - 173 872 505 - - (1,568) (1,568) 347 (131) 2,205 504 - - 131 - 737 520 3,077 1,746 - 173 872 505 - - (1,531) (1,531) 347 (131) 2,205 504 - - 131 - 737 520 3,077 1,746 At 30 September 2012 8,105 13,629 361 (10,307) 11,788 8,105 13,629 361 (10,322) 11,773 The following describes the nature and purpose of each reserve within owners' equity: Reserve Descriptions and purpose Share capital Amount subscribed for share capital at nominal value. Share premium Amount subscribed for share capital in excess of nominal value. Warrant reserve Amounts resulting from the issue of warrants. Retained deficit Cumulative net gains and losses recognised in the consolidated statement of comprehensive income. 10 Consolidated and company statements of cash flows. for the financial year ended 30 September 2012 Note Group Company Group Company 2012 £’000 2012 2011 £’000 £’000 2011 £’000 Cash flows from operating activities Loss after tax Depreciation Share-based payments Non-cash transactions settled as shares Finance income Finance costs Decrease/(increase) in trade and other receivables 2 10 20 18 3 4 13 (Decrease)/increase in trade and other payables 15/18 Cash used in operations Cash flows from investing activities Purchase of technology licence Investment in oil & gas assets Direct costs incurred in purchase of available for sale financial assets Purchase of available for sale financial assets Net cash used in investing activities Cash flows from financing activities 9 9 12 12 (1,568) (1,531) (2,196) (2,248) 4 - 120 (1) 565 150 (246) (976) - (150) (114) (190) (454) 4 - 120 (1) 565 150 4 7 - (131) 651 (164) 4 7 - (131) 651 (164) (283) 109 151 (976) (1,720) (1,730) - (150) (114) (190) (454) (647) (249) (647) (249) - - - - (896) (896) Issue of share capital 18,19 478 478 3,435 16 16 16 - - - 478 (952) 1,000 3,435 1,000 (1,000) (1,000) (68) (68) - - - 478 3,367 3,367 (952) 751 741 Proceeds from issue of loan note Loan repayment Loan interest paid Net cash generated from financing activities Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at beginning of financial period Cash and cash equivalents at end of financial period 1,363 1,348 612 607 411 396 1,363 1,348 11 Notes to the financial statements for the financial year ended 30 September 2012 1. Accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 1.1 Basis of preparation The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations and with those parts of the Isle of Man Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historic cost convention modified by the revaluation of certain financial instruments to fair value including derivatives and available for sale financial assets. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reporting amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Details of the Group’s significant accounting judgments and critical accounting estimates are set out in these financial statements and include: - Commercial reserves estimates; (see Note 9) - Impairment of intangible assets (Note 9); - Convertible Loan Note - The carrying value of the derivative financial instrument in the Statement of Financial Position is derived from a valuation model. Assumptions used in this model are subject to inherent uncertainties and may change significantly if the volatility in the Company’s share price changes (see Note 16). - Share based payments (Note 20); - Available for sale financial assets (Note 12) The Group has consistently applied all applicable accounting standards. The Directors are confident that the Group has sufficient funds to meet its working capital requirements and commitments for a period of not less than twelve months from the date of signing of these financial statements. The Group’s working capital and commitments are closely monitored by the directors and monthly forecasts are prepared in order to ensure that the Group has cash available to meet planned development expenditure. There are no contractual commitments for minimum development spend within any of the Group’s licences and therefore the pace of development of the asset can be adjusted within the availability of cash resources to contract with the relevant consultants. As a result of the review performed by the directors, the monitoring of the cash position and the forecast cash at the end of the twelve month period under review from the date of signing the directors have confirmed that it is appropriate for the financial statements to be prepared on the going concern basis. 1.2 Future changes in accounting standards The IFRS financial information has been drawn up on the basis of accounting standards, interpretations and amendments effective at the beginning of the accounting period. There were no new standards, interpretations and amendments to published standards effective in the year which had a significant impact on the Group. Standards, Interpretations and amendments, which are effective for future reporting periods: International Accounting Standards (IAS/IFRS) IAS 12 IAS 1 IAS 19 IFRS 13 IAS 1 IFRS 10 IFRS 11 IFRS 12 IAS 32 IFRS 9 Deferred Tax: Recovery of Underlying Assets Amendment - Presentation of Items of Other Comprehensive Income Employee Benefits Fair Value Measurement Annual Improvements to IFRSs (2009 - 2011 cycle) Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Offsetting Financial Assets and Financial Liabilities Financial instruments These standards are not expected to have a material impact on future financial statements. Effective date (periods beginning on or after) 1 Jan 2012 1 July 2012 1 Jan 2013 1 Jan 2013 1 Jan 2013 1 Jan 2014 1 Jan 2014 1 Jan 2014 1 Jan 2014 1 Jan 2015 12 Notes to the financial statements for the financial year ended 30 September 2012 1.3 Basis of consolidation The Group accounts consolidate the accounts of the parent company, TomCo Energy Plc, and all its subsidiary undertakings drawn up to 30 September 2012. All intra-group transactions, balances, income and expenses are eliminated on consolidation. The acquisition of subsidiaries is accounted for on the purchase basis. A subsidiary is consolidated where the Company has the power, either directly or indirectly, to govern the financial and operating activities of another entity or business, so it is able to obtain benefits from its activities. On acquisition all the subsidiary’s assets and liabilities which existed at the date of acquisition are recorded at their fair values reflecting their condition at the time. If, after re-assessment, the Group’s interest in the net fair value of the identifiable assets liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the statement of comprehensive income. 1.4 Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision- maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer, and the Finance Director. Based on an analysis of risks and returns, the Directors consider that the Group has one principle business segment based on geographical location. The Group’s revenue arises within the US. The profit /(loss) before taxation arises within the UK and US. Net assets are in the UK and the US. 1.5 Revenue Turnover represents the Group’s share of sales of oil during the year, excluding sales tax and royalties. Income arises from the US and is recognised when the oil is delivered to the customer, and is net of taxes and royalty interests. 1.6 Finance income Finance income is accounted for on an effective interest basis. 1.7 Property, plant and equipment Office fixtures, fittings and equipment are stated at cost of purchase. Depreciation of office fixtures, fittings and equipment is provided at 33.3% straight line per annum on cost. Oil & Gas development and production assets are accumulated on a field-by-field basis and represent the cost of developing the commercial reserves discovered and bringing them into production, together with any decommissioning asset. They are presented as oil properties in Note 9. The net book values of producing assets are depreciated on a field-by-field basis using the unit of production method by reference to the ratio of production in the period to the related commercial reserves of the field, taking into account estimated future development expenditures necessary to bring those reserves into production. The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. Impairments are charged to administrative expenses within the statement of comprehensive income. 1.8 Intangible assets The Company applies the full cost based method of accounting for oil and gas operations. For evaluation properties, all lease and licence acquisition costs, geological and geophysical costs and other direct costs of exploration appraisal and development are capitalised as intangible fixed assets in appropriate cost pools. Costs relating to unevaluated properties are held outside the relevant cost pool, and are not amortised until such time as the related property has been fully appraised. When a cost pool reaches an evaluated and bankable feasibility stage, the assets are transferred from intangible to oil properties within property, plant and equipment. Depreciation is not charged on the technology licences as the technology is not yet available for use. The technology produced by Red Leaf is currently unique within the marketplace and until extraction commences, the viability of this technology will not be determinable. 1.9 Impairment An impairment test on intangible assets is performed whenever events and circumstances arising during the development or production phase indicate that the carrying value of a development or production asset may exceed its recoverable amount. The aggregate carrying value is compared against the expected recoverable amount of the cash generating unit, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves. The cash generating unit applied for impairment test purposes is generally the field, except that a number of field interests may be grouped as a single cash generating unit where the cash flows of each field are interdependent. 13 Notes to the financial statements for the financial year ended 30 September 2012 1.10 Asset disposals Proceeds from the disposal of an asset, or part thereof, are taken to the statement of comprehensive income together with the requisite net book value of the asset, or part thereof, being sold. 1.11 Taxation Taxation expense represents the sum of current tax and deferred tax. Current tax is based on taxable profits for the financial period using tax rates that have been enacted or substantively enacted by the reporting date. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. If deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss, it is not accounted for. Deferred tax is determined using tax rates that have been enacted or substantively enacted at the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversals of the temporary differences is controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. 1.12 Foreign currencies The accounts have been prepared in pounds sterling being the presentational currency of the Group and Company. The functional currency of the holding Company is also pounds sterling. Assets and liabilities held in the Company or overseas subsidiaries in US dollars are translated into pounds sterling at the rate of exchange ruling at the reporting date and statement of comprehensive income items are translated at the average rate for the year. The exchange difference arising on the retranslation of the opening capital and reserves are recognised as a separate component of equity. On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity and accumulated in the foreign exchange reserve. Exchange differences arising from the settlement of monetary items are included in the statement of comprehensive income for that period. 1.13 Operating leases Rentals payable under operating leases, net of lease incentives, are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. 1.14 Available-for-sale financial assets The Group classifies its investments as available-for-sale financial assets. They are carried at fair value with changes in fair value recognised directly in equity within the available-for-sale reserve; exchange differences on available-for-sale financial assets denominated in a foreign currency are recognised in other comprehensive income. Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously recognised directly in equity within the available-for-sale reserve, is recognised in profit or loss. Purchases and sales of available for sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the cumulative gain or loss recognised in other comprehensive income is reclassified from the available-for-sale reserve to profit or loss. 14 Notes to the financial statements for the financial year ended 30 September 2012 1.15 Loans and receivables These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group or Company will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated balance sheet. 1.16 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at the bank and other short term liquid investments with original maturities of three months or less. 1.17 Trade payables Trade payables, defined as financial liabilities in accordance with IAS 39, are recognised at amortised cost. All of the trade payables are non-interest bearing. 1.18 Convertible bond – hybrid financial instruments Following a deed of amendment signed in August 2010 the terms of the convertible loan arrangement were modified such that the option was not settled by the Company exchanging a fixed number of its own equity instruments for a fixed amount of cash. The impact of this was that the convertible loan no longer met the definition of a compound financial instrument and was reclassified as a hybrid financial instrument with the option to convert classified as an embedded derivative. The embedded derivatives are separated from the host contract as their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value. The embedded derivatives are measured at fair value with changes in fair value recognised in the statement of comprehensive income as they arise. The host contract carrying value on initial recognition is based on the net proceeds of issuance of the convertible loan reduced by the fair value of the embedded derivatives and is subsequently carried at each reporting date at amortised cost. The embedded derivatives and host contract are presented under separate headings in the statement of financial position and the fair values of any embedded derivative are calculated using Black-Scholes or other simulation models depending on the characteristics of the loan notes. At the year end, the value of the embedded derivative has been separately disclosed on the face of the statement of financial position to due to material nature of the balance. Where the terms and conditions of conversion are substantially modified before the instrument matures, the difference, at the date the terms are amended, between the carrying value of the instrument and the fair value of the instrument under the revised terms is recognised as a loss in the statement of comprehensive income. Upon conversion of the loan, the liability, including the derivative liability, is derecognised in the statement of financial position. At the same time, an amount equal to the cash redemption value is recognised within share capital and share premium. Any resulting difference is recognised in reserves. Warrants issued in consideration as part of the arrangement fee are valued in accordance with the share based payment policy and considered as part of the overall convertible loan note financing costs. Direct finance costs are charged against the loan and amortised over the life of the loan. 1.19 Share capital Ordinary shares are classified as equity. 1.20 Share based payments and warrants For equity-settled share-based payments, the fair value determined at the date of grant is expensed on a straight-line basis over the vesting period. Fair value is measured by the use of the Black Scholes model. The calculation of this fair value is detailed in Note 20. 1.21 Investments in subsidiaries Investments in subsidiary undertakings are stated at cost less impairment provisions. 15 Notes to the financial statements for the financial year ended 30 September 2012 2. Segmental reporting - Analysis by geographical segment The Group’s revenue arises within the US. The loss before taxation arises within the UK and US. Net assets are in the UK and US. Based on an analysis of risks and returns, the Directors consider that the Group has one principle business segment based on geography, with the UK representing head office costs of the Group. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer, and the Finance Director. The Directors therefore consider that no further segmentation is appropriate. Year ended 30 September Revenue Cost of sales Gross profit Depreciation Administrative expenses Operating (loss)/profit Financial income Finance costs Profit/(Loss) for the year Total profit/(loss) Non-Current assets: – property, plant and equipment – exploration and development licences – technology licence - Available for sale financial assets Current assets: Trade and other receivables Cash and cash equivalents Total assets Current liabilities: Trade and other payables Convertible loan Total liabilities United States 2012 £’000 United Kingdom 2012 £’000 13 (4) 9 - 9 - - 9 9 - 6,781 1,314 - 8,095 - 15 8,110 - - - - - - (4) (1,009) (1,013) 1 (565) (1,577) (1,577) 9 - - 3,262 3,271 52 396 3,719 (41) - (41) Total 2012 £’000 13 (4) 9 (4) (1,009) (1,013) 1 (565) (1,568) (1,568) 9 6,781 1,314 3,262 11,366 52 411 11,829 (41) - (41) United States 2011 £’000 16 (5) 11 - 11 - - 11 11 - 6,631 1,314 - 7,945 - 15 7,960 - - - United Kingdom 2011 £’000 - - - (4) (1,683) (1,687) 131 (651) (2,207) (2,207) 13 - - - 13 202 1,348 1,563 (327) (1,009) (1,336) Total 2011 £’000 16 (5) 11 (4) (1,683) (1,676) 131 (651) (2,196) (2,196) 13 6,631 1,314 - 7,958 202 1,363 9,523 (327) (1,009) (1,336) 16 Notes to the financial statements for the financial year ended 30 September 2012 3. Finance income Bank interest Gain on derivative element of loan note (Note 16) 4. Finance costs Interest on loan note Bank charges Derivative expense (Note 16) 5. Operating loss 2012 £’000 1 - 1 2012 £’000 7 2 9 556 565 2011 £’000 - 131 131 2011 £’000 352 4 356 295 651 2012 2011 The following items have been charged in arriving at operating loss: £’000 £’000 Depreciation of property, plant and equipment Directors’ fees (Note 7) Share-based payments charge – statement of comprehensive income Auditors’ remuneration: – audit services –non audit services Rentals payable in respect of land and buildings 4 449 - 29 - 66 4 489 7 62 36 60 17 Notes to the financial statements for the financial year ended 30 September 2012 6. Taxation There is no tax charge in the year due to the loss for the year. Factors affecting the tax charge: Loss on ordinary activities before tax Loss on ordinary activities at standard rate of corporation tax in the UK of 25% (2011 - 26%) Effects of: Excess management expenses carried forward Expenses not deductible for tax purposes Tax charge for the financial year 2012 2011 £’000 (1,568) (392) 392 - - £’000 (2,196) (571) 571 - - The Company has tax losses in respect of excess management expenses of £7,532,122 (2011: £6,001,335) available for offset against future Company income. This gives rise to a potential deferred tax asset at the reporting date of £1,883,030 (2011: £1,560,347). No deferred tax asset has been recognised in respect of the tax losses carried forward as the recoverability of this benefit is dependent on the future profitability of the Company, the timing of which cannot reasonably be foreseen. 7. Employees and Directors The Group has no employees other than the directors, whose emoluments comprise fees paid for services. Share-based payments relate to warrants issued, further details of which are included in Note 20. The amounts paid for their services are detailed below: Salaries Compensation payments Total Salaries 2012 £’000 71 70 57 104 - - 302 N Bonsor P Rankine S A Komlosy* M Haromo J J May** P Hughes** Total remuneration 2012 £’000 - - 147 - - - 2012 £’000 2011 £’000 71 70 204 104 - - 69 - 121 83 85 21 147 449 379 Share based payments 2011 £’000 1 - - 3 - 1 5 Compensation payments 2011 £’000 - - - - 98 7 105 Total 2011 £’000 70 - 121 86 183 29 489 * Resigned as director on 6 March 2012. Under a 3 month consultancy agreement entered into on resignation, £20,000 was paid in shares. ** Resigned during 2011 18 Notes to the financial statements for the financial year ended 30 September 2012 8. Loss per share Basic loss per share is calculated by dividing the losses attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Reconciliations of the losses and weighted average number of shares used in the calculations are set out below. Financial year ended 30 September 2012 Basic and Diluted EPS Losses attributable to ordinary shareholders on continuing operations Weighted average Number of shares ‘000 Losses £’000 Per share Amount Pence (1,568) 1,517,977 (0.103) Total losses attributable to ordinary shareholders (1,568) 1,517,977 (0.103) Financial year ended 30 September 2011 £’000 ‘000 Pence Basic and Diluted EPS Losses attributable to ordinary shareholders on continuing operations (2,196) 877,371 (0.250) Total losses attributable to ordinary shareholders (2,196) 877,371 (0.250) The warrants which were in issue at the year end (Note 20) are considered anti-dilutive. As the options and warrants would be anti-dilutive a separate diluted loss per share is not presented. 9. Intangible assets Cost At 1 October 2010 Additions At 30 September 2011 Additions Net book value At 30 September 2012 At 30 September 2011 At 30 September 2010 Oil & Gas Oil & Gas Oil & Gas Exploration and development licence Technology licence Total £’000 £’000 £’000 6,382 249 6,631 150 6,781 6,631 6,382 667 647 1,314 - 1,314 1,314 667 7,049 896 7,945 150 8,095 7,945 7,049 The exploration and development licences comprise two State of Utah oil shale leases covering approximately 2,919 acres and independent natural resources consultants SRK Consultants Ltd, part of the internationally recognised SRK Group, has declared a surface mineable JORC compliant Measured Resource of 126 million barrels on the main tract of TomCo's Holliday Block lease. The claim areas and the Group’s interest in them is: Asset ML 49570 ML 49571 Per cent Interest 100 100 Licence Status Prospect Prospect Expiry Date 31/12/2024 31/12/2024 Licence Area (Acres) 1,638.84 1,280.00 19 Notes to the financial statements for the financial year ended 30 September 2012 9. Intangible assets (continued) In performing an assessment of the carrying value of the licences at the reporting date, the Directors concluded that, although no exploration activity has been undertaken during the year ended 30 September 2012, it was not appropriate to book an impairment. The Directors do not consider the asset to be impaired as there is a planned programme of development work for the next year which will add to the Company's knowledge and understanding of the asset. As the data from this programme is collated and analysed we will inform our shareholders through the Regulatory News Service of the results. As shareholders you are aware of the potential for these assets but the directors draw your attention to the likely need to raise additional funds in the future in order to continue to explore and develop the asset and bring it into commercial production. At this early stage of the project the Directors do not consider that there is any need for any impairment of the valuation of the asset. If the required additional funding was not to be made available to the company, the carrying value of the asset might need to be impaired. 10. Property, plant and equipment Group Cost At 1 October 2010 At 30 September 2011 At 30 September 2012 Depreciation At 1 October 2010 Charge in year At 30 September 2011 Charge in year At 30 September 2012 Net book value At 30 September 2012 At 30 September 2011 At 30 September 2010 Oil properties Fixtures, fittings and equipment £’000 102 102 102 102 - 102 - 102 - - - £’000 32 32 32 15 4 19 4 23 9 13 17 Total £’000 134 134 134 117 4 121 4 125 9 13 17 20 Notes to the financial statements for the financial year ended 30 September 2012 10. Property, plant and equipment (continued) Company Cost At 1 October 2010, 2011 and 2012 Depreciation At 1 October 2010 Depreciation At 1 October 2011 Depreciation At 30 September 2012 Net book value At 30 September 2012 At 30 September 2011 At 30 September 2010 11. Company investment in subsidiaries Shares in Group undertakings Cost At 1 October 2010 Additions At 30 September 2011 Additions At 30 September 2012 Fixtures, fittings and equipment £’000 32 15 4 19 4 23 9 13 17 Total £’000 32 15 4 19 4 23 9 13 17 Total £’000 6,382 249 6,631 150 6,781 TomCo Energy PLC holds interests in the following subsidiaries: Subsidiary Undertaking Country of incorporation or registration LKH Limited Isle of Man, UK Luton-Kennedy Ltd Israel Proportion of voting rights and ordinary share capital held Nature of business 100% 100% Dormant Participation in oil production in Israel The Oil Mining Company Inc Utah, USA 100% Holding of oil shale leases TomCo I LLC Delaware, USA 100% Holding company of TomCo II TomCo II LLC Delaware, USA 100% indirect holding TomCo II is engaged in the exploration and extraction of oil and gas through joint investment in oil leases During the year the company transferred ownership of Bury Street Services Limited. Following the year end, application has been made to the relevant Company Registries to dissolve Luton Kennedy Ltd. LKH Limited was dissolved on 15 January 2013. 21 Notes to the financial statements for the financial year ended 30 September 2012 12. Available-for-sale financial assets Cost or valuation At 30 September 2011 Additions At 30 September 2012 Provisions At 30 September 2011 and 2012 Fair value At 30 September 2012 At 30 September 2011 Unlisted investments £’000 180 3,262 3,442 180 180 3,262 - During the year the Company invested $5 million (£3,147,735) in Red Leaf Resources Inc (Equity securities US (3)) at $1,500 per share as part of a $100 million raising by Red Leaf in conjunction with the closing of a Joint Venture ("JV") with Total E&P USA Oil Shale, LLC, an affiliate of Total SA, the 5th largest international integrated oil and gas company. The purchase of the investment in Red Leaf was funded partly by the subscription by Altima Global Special Situations Master Fund Ltd , Dominic Redfern and Mark Donegan of 169 million TomCo shares at 1.75p per ordinary share for £2,957,500 (Note 18). The balance of the Investment was financed from TomCo's existing cash resources. Direct costs associated with the investment amounted to £113,976, of which £100,000 was paid in shares (Note 18). The value attributable to the investment is stated at fair value. Red Leaf is currently completing its permitting for Seep Ridge. Following this they are expected to start constructing an Early Production System capsule. The Directors therefore have concluded there has been no material change in the fair value of the investment since acquisition. Details of unlisted investments Name Equity securities US (1) Equity securities UK Equity securities US (2) Equity securities US – Red Leaf Share holding number 9,751 471,070 1,000,000 3,333.33 Percentage Average cost holding per share % 0.78 3.47 8.12 0.43 31pence 20 pence 5 pence 1,500 dollars Cost £’000 30 94 56 3,148 The Directors provided in full for the investment in equity securities in the US (1) in 2007 due to the uncertain future of the Company. The Equity securities, US (2) and UK, classed as investing activities, were also provided in full in 2008 due to uncertainties about the future of those Companies. 13. Trade and other receivables Trade receivables Other receivables Prepayments and accrued income Total Receivables Group 2012 £’000 - 19 33 52 Company 2012 £’000 - 19 33 52 Group 2011 £’000 33 148 21 202 Company 2011 £’000 33 148 21 202 As at 30 September 2012 there were no receivables considered past due (2011: £Nil). Having considered the carrying value of amounts owing from Group undertakings against net realisable value, the Board has made a provision against these amounts in the year of £nil (2011: £nil). The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable including cash and cash equivalents as disclosed in Note 21. All current receivable amounts are due within 6 months. 22 Notes to the financial statements for the financial year ended 30 September 2012 14. Cash and cash equivalents Cash at bank and in hand Group 2012 £’000 411 Company 2012 £’000 396 Group 2011 £’000 1,363 Company 2011 £’000 1,348 The Group earns 0.05% (2011: 0.05%) interest on their cash deposits, consequently the Group’s exposure to interest rate volatility is not considered material. 15. Trade and other payables Current Trade payables Other payables Accruals Non-Current Payables Amounts owed to Group undertakings Total Payables Group 2012 £’000 Company 2012 £’000 2 8 31 41 - 41 2 8 31 41 - 41 Group 2011 £’000 268 17 42 327 - 327 Company 2011 £’000 268 17 42 327 37 364 All current amounts are payable within 6 months and the Board of Directors considers that the carrying values adequately represent the fair value of all payables. In the opinion of the directors the carrying value of the financial liabilities approximates to their fair value. 16. Financial liabilities In January 2010, TomCo issued a Convertible Loan of £2m to Kenglo One Ltd with a term of 12 months and convertible at any time, at 1.5p per share (a total of 133,333,333 shares), with an interest rate of 12% per annum. The terms of this Agreement were varied in August 2010 whereby the conversion price was redefined as the lower of (i) 3p per share (ii) the IPO price, defined as the price per share offered pursuant to a public offering or (iii) the investment price, being defined as the lowest price per share paid by any party investing any amount into TomCo between the date of signing the agreement and date of admission to AIM. This amendment resulted in the conversion option no longer meeting the fixed or fixed criteria for a convertible bond (compound financial instrument) and being reclassified as a hybrid financial instrument with an embedded derivative element. As the terms of the convertible loans were modified the accounting was re-assessed which resulted in a premium being charged to the consolidated statement of comprehensive income of £110,591, representing the difference between the carried and fair value of the loan note. The equity reserve was credited (£313,765) to the retained deficit reserve for the modified instrument. In August 2010, TomCo issued a further Convertible Loan of £500,000 to Kenglo One Ltd on the same terms as those varied for the initial Convertible Loan and on 31 December 2010, the terms of the Agreements were further varied whereby the repayment date applicable of 29 December 2010 was extended to 31 May 2011 for both the £2m and £500,000 convertible loans. In July 2011, £1,490,795 of the bonds, together with £429,205 of unpaid interest were converted into ordinary shares at 1p per share in accordance with the terms of the bond. On the same date, another deed of amendment was issued which resulted in the final repayment date being extended until December 2014. This extension resulted in the difference at the date the terms were amended between the carrying value of the instrument and the fair value of the extended contractual payments being in excess of 10% which is an IAS 39 trigger for de-recognition of the convertible bond and re-recognition at the adjusted value under the modified terms. This resulted in a gain on modification for the year of £131,224 which has been recognised within the consolidated statement of comprehensive income and the recognition of a derivative liability which has been recognised on the face of the Statement of Financial Position. In October 2011 the remaining convertible loan, together with all accrued interest, was converted into ordinary shares at 1p per share, in accordance with the August 2010 Variation Agreement described above. Immediately prior to conversion the derivative liability was revalued resulting in an expense of £556k recognised in the statement of comprehensive income. Upon conversion the liability was derecognised in the statement of financial position and an amount of £1,009k, being the cash redemption value, was recognised within share capital and share premium. 23 Notes to the financial statements for the financial year ended 30 September 2012 16. Financial liabilities (continued) The convertible bond recognised in the Statement of Financial Position is calculated as follows: Group and Company Group and Company Convertible loan brought forward Derivative liability brought forward Repayment Interest expense Gain on modification Derivative expense Settlement for shares Convertible loan carried forward Derivative liability carried forward 17. Deferred tax Unrecognised losses 2012 £’000 888 295 - 6 - 556 (1,745) - - 2011 £’000 2,689 - (1,920) 250 (131) 295 - 888 295 The Company has not provided deferred tax for excess management expenses. These remain un-provided as it is not anticipated that the Company will make qualifying profits against which these may be offset in the foreseeable future but they are available indefinitely for offset against future taxable income. Losses carried forward 2012 £’000 7,532 2011 £’000 6,001 24 Notes to the financial statements for the financial year ended 30 September 2012 18. Share capital Number of shares 2012 £ 2011 £ Authorised 2,000,000,000 (2011: 2,000,000,000) ordinary shares of 0.5p each Issued and fully paid At 1 October Allotted during year: July 2011 at 1p per share October 2011 - Loan conversion at 1p per share January 2012 - Warrant conversion at 1.5p per share January 2012 - Warrant conversion in lieu of expenses at 1.5p per share * 551,346,803 100,920,548 31,866,667 2,800,000 March 2012 - Subscription at 1.75p per share (Note 12) 169,000,000 April 2012 - In lieu of expenses at 2.2p per share* July 2012 - In lieu of expenses at 1.8p per share * 4,454,938 1,111,111 1,621,049,218 (2011: 1,310,895,954) ordinary shares of 0.5p each * These are non-cash transactions 10,000,000 10,000,000 10,000,000 10,000,000 6,554,480 3,797,746 - 2,756,734 504,603 159,333 14,000 845,000 22,275 5,555 1,550,766 8,105,246 - - - - - 2,756,734 6,554,480 Following the year end (Note 23), the Group announced the issue of 100 million ordinary shares in exchange for a Promissory Note and 148,406,526 ordinary shares through a share placing. The issued share capital at the date of signing of these accounts is 1,869,455,744 ordinary shares. 19. Share premium At 1 October Premium on shares issued in the year Expenses on shares issued in the year At 30 September 2012 2011 £’000 10,573 3,056 - 13,629 £’000 7,907 2,757 (91) 10,573 25 Notes to the financial statements for the financial year ended 30 September 2012 20. Share-based payments At 30 September 2012, the following share warrants granted for services and shares are outstanding in respect of the ordinary shares: 2012 2012 2011 2011 Outstanding at 1 October 126,309,364 number Granted during the year Lapsed during the year Exercised during the year Outstanding at 30 September Exercisable at 30 September - (26,217,919) (34,666,667) 65,424,778 65,424,778 Weighted average exercise price Pence 2.2 - - - 2.5 2.5 Weighted average exercise price number pence 146,177,802 31,451,714 (51,320,152) - 126,309,364 126,309,364 2.5 2.5 - - 2.2 1.6 Each warrant is governed by the provisions of warrant instruments representing the warrants which have been adopted by the Company. The rights conferred by the warrants are transferable in whole or in part subject to and in accordance with the transfer provisions set out in the Articles. The holders of warrants have no voting right, pre-emptive right or other right attaching to Ordinary Shares. All warrants issued vest in full. The warrants outstanding at 30 September 2012 had a weighted average exercise price of 2.5p (2011: 2.2p) and a weighted average remaining contractual life of 0.65 years (2011: 1.11 years). Following the placing announced following the year end (Note 23) 7,420,326 warrants were issued at an exercise price of 1.2p with an expiry date of 12 March 2016. The inputs into the Black-Scholes model for calculating estimated fair value were: Weighted average share price (pence) Weighted average exercise price (pence) Expected volatility Risk-free rate Weighted average remaining contractual life (years) 2012 - - - - - 2011 0.83 2.80 55% 3% 1.11 Expected volatility was determined by calculating the historical volatility of the Company’s share or the volatility of a basket of similar listed companies where the historic volatility was not available. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. 21. Financial instruments The Group and Company’s financial instruments, other than its investments, comprise cash and items arising directly from its operation such as trade receivables, and trade payables. Management review the Group and Company’s exposure to currency risk, interest rate risk, liquidity risk and credit risk on a regular basis and consider that through this review they manage the exposure of the Group and Company. No formal policies have been put in place in order to hedge the Group and Company’s activities to the exposure to currency risk or interest risk, however, this is constantly under review. There is no material difference between the book value and fair value of the Group and Company’s cash and other financial instruments. 26 Notes to the financial statements for the financial year ended 30 September 2012 21. Financial instruments (continued) Currency risk The Group has overseas subsidiaries which operate in the United States and whose expenses are mainly denominated in US$. Foreign exchange risk is inherent in the Group and Company’s activities and is accepted as such. The majority of Company expenses are denominated in pounds sterling. The effect of a 10% strengthening or weakening of the US dollar against sterling at the reporting date on the sterling denominated balances would, all other variables held constant, not result in a significant exchange gain or loss in the period. Interest rate risk The Group and Company manage the interest rate risk associated with the Group cash assets by ensuring that interest rates are as favourable as possible, whether this is through investment in floating or fixed interest rate deposits, whilst managing the access the Group requires to the funds for working capital purposes. The Group has no interest rate exposure on its convertible loan which is issued at a fixed rate. The Company’s cash and cash equivalents are subject to interest rate exposure due to changes in interest rates. Short-term receivables and payables are not exposed to interest rate risk. A 1% increase or decrease in the floating rate attributable to the cash balances held at the year end would not result in a significant difference on interest receivable. Liquidity risk At the year end the Group and Company had cash balances comprising of the following: Current British Pounds US Dollars Total Group 2012 £’000 396 15 411 Company Group Company 2012 £’000 396 - 396 2011 £’000 1,347 16 1,363 2011 £’000 1,347 1 1,348 Liquidity risk arises from the Group and Company’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group and Company will encounter difficulty in meeting its financial obligations as they fall due. The Group and Company policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances (or agreed facilities) to meet expected requirements for a period of at least 90 days. The group seeks to reduce liquidity risk by fixing interest rates (and hence cash flows) on any long term borrowings. Credit Risk Credit risk is the risk of financial loss to the Group and Company if a customer or a counter party to a financial instrument fails to meet its contractual obligations. The Group and Company is exposed to credit risk from its relationship with its partners and is mainly exposed to credit risk from credit sales. It is Group and Company policy, implemented locally, to assess the credit risk of new customers before entering contracts in accordance with best local business practices, and seek external credit ratings where applicable and when available. Credit risk of existing customers is assessed when deemed necessary. Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with an acceptable rating are utilised. Price Risk The Group is exposed to commodity price risk on its income and assets relating to oil exploration and production. Capital management policies In managing its capital, the Group and Company’s primary objective is to maintain a sufficient funding base to enable the Group and Company to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, through new share issues or debt, the Group and Company considers not only its short-term position but also its long-term operational and strategic objectives. 27 Notes to the financial statements for the financial year ended 30 September 2012 22. Related party disclosures The Directors are considered to be Key Management and information in respect of key management is given in note 7. Transactions between the Company and its subsidiaries and related parties during the year are summarised below: Inter-group payable outstanding at year end Shareholder loans payable Fees paid to shareholder and advisor under project finance and management agreement 2012 £ - - 62,000 2011 £ 36,515 1,009,205 26,838 Amounts outstanding at 30 September 2011 were settled during the year. 23. Post reporting events On 28 January 2013 the Group announced it had entered into a Liquidity Facility Agreement and an associated Promissory Note (together the “Liquidity Facility”) with Windsor Capital Partners Limited (“Windsor Capital”). Under the Liquidity Facility TomCo has issued and allotted 100 million ordinary shares of 0.5p each (“Ordinary Shares”), representing an increase of 6% on the current number of shares in issue, to Windsor Capital in exchange for the Promissory Note. The Liquidity Facility allows the Company to access capital using the natural liquidity that is available in the Company’s shares in a more cost-effective manner than a traditional equity line product. At the closing mid-market share price of 1.575p on 25 January 2012, the value of the Ordinary Shares issued to Windsor Capital was estimated at £1.575 million. The Promissory Note delivers to TomCo the proceeds of the sale of the Ordinary Shares over the life of the Promissory Note based on the occurrence of “Liquidity Trigger Days”. Liquidity Trigger Days are those days on which the volume of shares traded is greater than 80% of the trailing 90 day weighted average daily trading volume. On Liquidity Trigger Days, Windsor Capital will seek to sell Ordinary Shares, up to a maximum of 10% of the daily volume averaged over any 5 day period, on a best effort basis at the AIM Market offer-price or higher. The Liquidity Facility can be suspended at the Company’s discretion in periods of adverse market conditions and minimum share prices can also be stipulated. To date the Group has raised a gross amount of £153,275 under the facility at an average price of 1.67p. On 7 March the Group also announced that it has successfully raised £1.781 million before expenses through a share placing on admission, of 148,406,526 new ordinary shares of 0.5p each at a price of 1.2p per share. The Placing was supported by a number of new financial institutions as well as other existing shareholders. The gross proceeds from the Placing are to be used by TomCo for advancing permitting required for commercial production at the Company’s Holliday project, and for general working capital purposes. Following the placing, 7,420,326 warrants were issued at an exercise price of 1.2p with an expiry date of 12 March 2016. 28
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