TIDMQOGT
RNS Number : 8081R
Quorum Oil and Gas Tech. Fund Ld
27 August 2010
Not for release, publication or distribution in, or into, the United States,
Canada, Australia or Japan.
+------------------------------------+------------------------------+
| Press Release | 27 August 2010 |
+------------------------------------+------------------------------+
Quorum Oil and Gas Technology Fund Limited
(the "Company")
Half-yearly Financial Report
Quorum Oil and Gas Technology Fund Limited (LSE:QOGT), a registered closed-ended
investment company incorporated in Guernsey, today presents its 2010 unaudited
half yearly report for the six months ended 30 June 2010.
Highlights
+---+----------------------------------------------------------------+
| · | Net asset value per Share of $10.66 |
| | |
+---+----------------------------------------------------------------+
| · | Declared dividends of $0.20 per share in respect of the first |
| | half of 2010 |
+---+----------------------------------------------------------------+
| · | Continuing work to ensure that each of the investee companies |
| | reduces any need for working capital injections and that they |
| | start to pay interest to the Company |
+---+----------------------------------------------------------------+
Tom Price, Chairman of Quorum Oil and Gas Technology Fund Limited, said: "We
are very aware that the Company's shares trade at a discount to the Net Asset
Value of $10.66. We believe that when the issues relating to the investment
management arrangements are resolved, then that discount should close and are
working diligently, together with the company's advisers, to achieve that. We
intend to issue a document shortly to all shareholders, the purpose of which is
to draw these issues to a close."
For further information:
+----------------------------------------+---------------------+
| Corporate Broker | |
+----------------------------------------+---------------------+
| Numis Securities | |
+----------------------------------------+---------------------+
| Nathan Brown, Corporate Broking | Tel: +44 (0) 20 |
| | 7260 1426 |
+----------------------------------------+---------------------+
| n.brown@numiscorp.com | |
+----------------------------------------+---------------------+
Media enquiries:
+----------------------------------------+------------------------+
| Abchurch | |
+----------------------------------------+------------------------+
| Henry Harrison-Topham / Mark Dixon | Tel: +44 (0) 20 |
| | 7398 7729 |
+----------------------------------------+------------------------+
| mark.dixon@abchurch-group.com | www.abchurch-group.com |
+----------------------------------------+------------------------+
Notes to editors:
Quorum Oil and Gas Technology Fund Limited ("Q-OGT") is a registered
closed-ended investment company incorporated in Guernsey to provide expansion
capital to companies which own and/or are developing proven proprietary
technology which may have a potentially significant effect on the oil and gas
industry. Q-OGT was admitted to the Official List of the UK Listing Authority
and to trading on the London Stock Exchange on 7 January 2008. Its stock market
EPIC is QOGT.L. Further information can be found at www.q-ogtfund.com.
Chairman's Statement
I am pleased to introduce the 2010 half-yearly report for the Quorum Oil and Gas
Technology Fund Limited ("the Company").
I note that the Company has declared dividends amounting to $0.20 per share in
respect of the first half of 2010. The Board understands the importance of
these dividends to shareholders.
We are very aware that the Company's shares trade at a discount to the Net Asset
Value of $10.66. We believe that when the issues relating to the investment
management arrangements are resolved, then that discount should close and are
working diligently, together with the company's advisers, to achieve that. We
intend to issue a document shortly to all shareholders, the purpose of which is
to draw these issues to a close.
We very much hope to continue our constructive dialogues with shareholders and
others involved in the company.
Tom Price
Chairman
27 August 2010
Interim Investment Manager's statement
On behalf of Sefton Partners LLP, we are pleased to introduce the half-yearly
report of 2010 for the Quorum Oil and Gas Technology Fund Limited.
Notwithstanding other events that are currently happening in respect of the
Company and its management arrangements, and which we understand will be the
subject of a new shareholder circular to be produced very shortly, we remain
focused on the investee companies.
Specifically, we are working hard to ensure that each of the investee companies
reduces any need for working capital injections and that they start to pay
interest to the Company again as soon as possible. This requires a focus on
core businesses and growth opportunities and a determination on our part and
that of the investee company management teams to take the difficult but positive
decisions which ultimately strengthen all involved.
We have also worked to advance realisation plans and look forward to an
opportunity to share these with you in the very near future.
Sefton Partners LLP
27 August 2010
Statement of Operations
for the period ended 30 June 2010 (in U.S. Dollars)
+-------------------+------+--------------+---------------+-------------+
| | | 30 June 2010 | 31 December | 30 June |
| | | | 2009 | 2009 |
+-------------------+------+--------------+---------------+-------------+
| |Note | US$ | US$ | US$ |
+-------------------+------+--------------+---------------+-------------+
| | | | | |
+-------------------+------+--------------+---------------+-------------+
| Investment Income | | | | |
+-------------------+------+--------------+---------------+-------------+
| Portfolio | 2 | 2,586,477 | 4,772,295 | 2,240,984 |
| interest income | | | | |
+-------------------+------+--------------+---------------+-------------+
| Unrealised change | | | | |
+-------------------+------+--------------+---------------+-------------+
| Non-portfolio | | 831 | 611 | 267 |
| interest income | | | | |
+-------------------+------+--------------+---------------+-------------+
| Realised gain / | | | | |
| (loss) on foreign | 2 | 4,844 | (30,775) | (18,470) |
| exchange | | | | |
+-------------------+------+--------------+---------------+-------------+
| | | 2,592,152 | 4,742,131 | 2,222,781 |
+-------------------+------+--------------+---------------+-------------+
| Expenses | | | | |
+-------------------+------+--------------+---------------+-------------+
| Management fees | 3,4 | 887,780 | 1,220,828 | 588,463 |
+-------------------+------+--------------+---------------+-------------+
| Marketing | | 64,270 | 301,391 | 148,618 |
| expenses | | | | |
+-------------------+------+--------------+---------------+-------------+
| Advisory board | | | | |
| fees and expenses | | 125,000 | 247,784 | 112,500 |
+-------------------+------+--------------+---------------+-------------+
| Legal and | | 373,445 | 149,919 | 52,153 |
| professional fees | | | | |
+-------------------+------+--------------+---------------+-------------+
| Administration | | 73,822 | 193,944 | 72,171 |
| fees | | | | |
+-------------------+------+--------------+---------------+-------------+
| Stock based | | - | 151,912 | - |
| compensation | | | | |
+-------------------+------+--------------+---------------+-------------+
| Directors fees | | 50,000 | 111,680 | 51,147 |
| and expenses | | | | |
+-------------------+------+--------------+---------------+-------------+
| Insurance expense | | 13,885 | 87,758 | 43,638 |
| | | | | |
+-------------------+------+--------------+---------------+-------------+
| Registrar and | | 38,199 | 40,051 | 30,590 |
| custodian fees | | | | |
+-------------------+------+--------------+---------------+-------------+
| Audit and | | 150,105 | 65,755 | 41,393 |
| taxation fees | | | | |
+-------------------+------+--------------+---------------+-------------+
| Other expenses | | 93,130 | 18,780 | 10,100 |
+-------------------+------+--------------+---------------+-------------+
| Listing and | | 31,924 | 27,421 | 6,643 |
| license fees | | | | |
+-------------------+------+--------------+---------------+-------------+
| | | 1,901,560 | 2,617,223 | 1,157,416 |
+-------------------+------+--------------+---------------+-------------+
| | | | | |
+-------------------+------+--------------+---------------+-------------+
| Net Investment | | 690,592 | 2,124,908 | 1,065,365 |
| Income | | | | |
+-------------------+------+--------------+---------------+-------------+
| | | | | |
+-------------------+------+--------------+---------------+-------------+
| Unrealised | | | | |
| (losses) gains on | | | | |
| investments | | | | |
+-------------------+------+--------------+---------------+-------------+
| Unrealised loss | | | | |
| on investments | | | | |
| held at fair | | (7,561,350) | (18,251,195) | - |
| value through | | | | |
| profit or loss | | | | |
+-------------------+------+--------------+---------------+-------------+
| Foreign currency | | (4,428) | 87,946 | 45,444 |
| translation | | | | |
+-------------------+------+--------------+---------------+-------------+
| | | | | |
+-------------------+------+--------------+---------------+-------------+
| Change in | | | | |
| unrealised | | | | |
| (losses) gains on | | (7,565,778) | 18,339,141 | 45,444 |
| investments | | | | |
+-------------------+------+--------------+---------------+-------------+
| | | | | |
+-------------------+------+--------------+---------------+-------------+
| Net (Deficit) | | (6,875,186) | 20,464,049 | 1,110,809 |
| Income | | | | |
+-------------------+------+--------------+---------------+-------------+
| | | | | |
+-------------------+------+--------------+---------------+-------------+
| Weighted average | | | | |
| number of | | | | |
| preferred shares | | 8,156,348 | 6,373,221 | 6,122,471 |
| outstanding | | | | |
+-------------------+------+--------------+---------------+-------------+
| Basic earnings | 8 | (0.84) | 3.21 | 0.18 |
| per share | | | | |
+-------------------+------+--------------+---------------+-------------+
| Diluted weighted | | | | |
| average number of | | | | |
| preferred shares | | 8,156,348 | 6,373,221 | 6,122,471 |
| outstanding | | | | |
+-------------------+------+--------------+---------------+-------------+
| Diluted earnings | 8 | (0.84) | 3.21 | 0.18 |
| per share | | | | |
+-------------------+------+--------------+---------------+-------------+
| Dividends paid | 7 | 0.10 | 0.40 | 0.20 |
| per share | | | | |
+-------------------+------+--------------+---------------+-------------+
The accompanying notes are integral to these financial statements
Balance sheet as at 30 June 2010
+--------+--------+--------+--------+--------+------------+------------+------------+
| | | | | | 30 | 31 | 30 |
| | | | | | June | December | June |
| | | | | | 2010 | 2009 | 2009 |
+--------+--------+--------+--------+--------+------------+------------+------------+
| | | | | Note | US$ | | US$ |
| | | | | | | US$ | |
+--------+--------+--------+--------+--------+------------+------------+------------+
| ASSETS | | | | | |
+--------------------------+--------+--------+------------+------------+------------+
| Cash and cash | | | 4,159,731 | 5,024,318 | 1,188,057 |
| equivalents | | | | | |
+--------------------------+--------+--------+------------+------------+------------+
| Accounts receivable and | | | 1,893,292 | 186,034 | 505,163 |
| prepaid expenses | | | | | |
+--------------------------+--------+--------+------------+------------+------------+
| Investments | | 2,9 | 82,718,124 | 81,949,125 | 57,729,771 |
+--------------------------+--------+--------+------------+------------+------------+
| | | | | | 88,771,147 | 87,159,477 | 59,422,991 |
+--------+--------+--------+--------+--------+------------+------------+------------+
| | | | | | | | |
+--------+--------+--------+--------+--------+------------+------------+------------+
| LIABILITIES | | | | | |
+--------------------------+--------+--------+------------+------------+------------+
| Accounts payable and | | 10 | 763,643 | 203,754 | 283,762 |
| accrued liabilities | | | | | |
+--------------------------+--------+--------+------------+------------+------------+
| Deferred interest income | | 10 | 370,638 | 309,158 | 451,832 |
+--------------------------+--------+--------+------------+------------+------------+
| | | | | | 1,134,281 | 512,912 | 735,594 |
+--------+--------+--------+--------+--------+------------+------------+------------+
| | | | | | | | |
+--------+--------+--------+--------+--------+------------+------------+------------+
| SHAREHOLDERS' EQUITY | | | | | |
+--------------------------+--------+--------+------------+------------+------------+
| Common (founder) shares of US$1 | 11 | 2 | 2 | |
| par. Authorized 2 shares; issued | | | | 2 |
| 2 shares | | | | |
+-----------------------------------+--------+------------+------------+------------+
| Participating redeemable | | 11 | 8,156,346 | 7,186,707 | |
| preferred shares | | | | | |
| Authorized 50,000,0000 | | | | | |
| shares; issued 8,156,348 | | | | | |
| shares (December 2009 | | | | | 6,122,469 |
| 7,186,707; June 2009 | | | | | |
| 6,122,469 shares) | | | | | |
+--------------------------+--------+--------+------------+------------+------------+
| Contributed surplus | | | 69,865,923 | 60,497,266 | 51,577,104 |
+--------------------------+--------+--------+------------+------------+------------+
| Warrants | | | - | 987,822 | 987,822 |
+--------------------------+--------+--------+------------+------------+------------+
| Reserves | | | 9,614,595 | 17,974,768 | - |
+--------------------------+--------+--------+------------+------------+------------+
| | | | | | 87,636,866 | 86,646,565 | 58,687,397 |
+--------+--------+--------+--------+--------+------------+------------+------------+
| | | | | | 88,771,147 | 87,159,477 | 59,422,991 |
+--------+--------+--------+--------+--------+------------+------------+------------+
The accompanying notes are integral to these financial statements
APPROVED BY THE BOARD OF DIRECTORS AND SIGNED ON ITS BEHALF BY:
+----------------------------------+---------------------------------+
| Tom Price | Christopher Hill |
| Chairman | Director |
+----------------------------------+---------------------------------+
Statement of cash flows
for the period ended 30 June 2010 (in U.S. Dollars)
+--------+--------+---+---+-----------------+--------+-------------+--------------+-------------+
| | | | | | | |
+--------+--------+-------------------------+--------+-------------+--------------+-------------+
| | | | | 30 June | 31 December | 30 June |
| | | | | 2010 | 2009 | 2009 |
+--------+--------+-------------------------+--------+-------------+--------------+-------------+
| | | | Note | US$ | US$ | US$ |
+--------+--------+-------------------------+--------+-------------+--------------+-------------+
| NET INFLOW (OUTFLOW) OF CASH RELATED | | | | |
+-------------------------------------------+--------+-------------+--------------+-------------+
| | TO THE FOLLOWING ACTIVITIES | | | | |
+--------+----------------------------------+--------+-------------+--------------+-------------+
| | | | | | | |
+--------+----------------+-----------------+--------+-------------+--------------+-------------+
| OPERATING | | | | | |
+-------------------------+-----------------+--------+-------------+--------------+-------------+
| | Net investment income | | 690,592 | 2,124,908 | 1,110,808 |
+--------+----------------------------------+--------+-------------+--------------+-------------+
| | Stock based compensation | | - | 151,912 | - |
+--------+----------------------------------+--------+-------------+--------------+-------------+
| | Net change in non-cash working | | | | |
| | capital | 10 | (1,054,849) | (1,725,719) | (1,853,907) |
+--------+----------------------------------+--------+-------------+--------------+-------------+
| | | | | (364,257) | 551,101 | (743,099) |
+--------+------------+---------------------+--------+-------------+--------------+-------------+
| | | | | | | |
+--------+------------+---------------------+--------+-------------+--------------+-------------+
| INVESTING | | | | | |
+---------------------+---------------------+--------+-------------+--------------+-------------+
| | Purchase of investments | 9 | (8,334,777) | (12,201,884) | (1,970,267) |
+--------+----------------------------------+--------+-------------+--------------+-------------+
| | Sale of investments | | - | 4,319,663 | - |
+--------+----------------------------------+--------+-------------+--------------+-------------+
| | | | | (8,334,777) | (7,882,221) | (1,970,267) |
+--------+------------+---------------------+--------+-------------+--------------+-------------+
| | | | | | | |
+--------+------------+---------------------+--------+-------------+--------------+-------------+
| FINANCING | | | | | |
+---------------------+---------------------+--------+-------------+--------------+-------------+
| | Issuance of share capital | 11 | 9,722,514 | 10,206,042 | - |
+--------+----------------------------------+--------+-------------+--------------+-------------+
| | Share issuance costs | 11 | (403,079) | (527,532) | - |
+--------+----------------------------------+--------+-------------+--------------+-------------+
| | Dividends paid | 7 | (1,484,988) | (2,448,989) | (1,224,494) |
+--------+----------------------------------+--------+-------------+--------------+-------------+
| | | | | 7,834,447 | 7,229,521 | (1,224,494) |
+--------+--------+-------------------------+--------+-------------+--------------+-------------+
| | | | | | | |
+--------+--------+-------------------------+--------+-------------+--------------+-------------+
| NET INCREASE IN CASH | | | | |
| DURING THE PERIOD | | (864,587) | (101,599) | (3,937,860) |
+-------------------------------------------+--------+-------------+--------------+-------------+
| | | | | | | |
+--------+--------+-------------------------+--------+-------------+--------------+-------------+
| CASH, BEGINNING OF PERIOD | | 5,024,318 | 5,125,917 | 5,125,917 |
+-------------------------------------------+--------+-------------+--------------+-------------+
| CASH, END OF PERIOD | | 4,159,731 | 5,024,318 | 1,188,057 |
+-------------------------------------------+--------+-------------+--------------+-------------+
| | | | | | | | | |
+--------+--------+---+---+-----------------+--------+-------------+--------------+-------------+
The accompanying notes are integral to these financial statements
Statement of changes in shareholder's equity
For the period 30 June 2010 (in U.S. Dollars)
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| | | | | | | |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| | | Share | | Contributed | Retained | |
| | | | | | | |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| |Note | Capital | Warrants | Surplus | Earnings | Total |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| As at 1 January 2010 | | 7,186,707 | 987,822 | 60,497,266 | 17,974,768 | 86,646,563 |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Issuance of shares | 11 | 969,641 | - | 8,783,914 | - | 9,753,555 |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Reclassification of | | - | (987,822) | 987,822 | - | - |
| expired warrants | | | | | | |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Share issuance costs | 11 | - | - | (403,079) | - | (403,079) |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Net income / deficit | | - | - | - | (6,875,186) | (6,875,186) |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Dividends paid | 7 | - | - | - | (1,484,987) | (1,484,987) |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| As at 30 June 2010 | | 8,156,348 | - | 69,865,923 | 9,614,595 | 87,636,866 |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| | | | | | | |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| As at 1 January 2009 | | 6,122,471 | 987,822 | 51,731,082 | (40,292) | 58,801,083 |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Issuance of shares | | 1,064,236 | - | 9,141,804 | - | 10,206,040 |
| and warrants | | | | | | |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Share issuance costs | | - | - | (527,532) | - | (527,532) |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Stock option expense | | - | - | 151,912 | - | 151,912 |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Net income | | - | - | - | 20,464,049 | 20,464,049 |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Dividends paid | | - | - | - | (2,448,989) | (2,448,989) |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| As at 31 December, | | 7,186,707 | 987,822 | 60,497,266 | 17,974,768 | 86,646,563 |
| 2009 | | | | | | |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| | | | | | | |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| As at 1 January 2009 | | 6,122,471 | 987,822 | 51,731,082 | (40,292) | 58,801,083 |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Net income | | - | - | - | 1,110,808 | 1,110,808 |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| Dividends paid | | - | - | (153,978) | (1,070,516) | (1,224,494) |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
| As at 30 June, 2009 | | 6,122,471 | 987,822 | 51,577,104 | - | 58,687,397 |
+----------------------+------+------------+-----------+-------------+-------------+--------------------+
Statement of Investment Portfolio
For the period 30 June 2010 (in U.S. Dollars)
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | Par Value / |Dividend | | |
| | | | / | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | Number of |Interest | | Estimated |
| | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| Company | Security Held | Securities | Rate | Cost | Fair |
| | | | | | Value |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | $ | | $ | $ |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| 1482747 Alberta | Convertible | 3,150,000 | 8.5% | 3,150,000 | 2,492,583 |
| Ltd. | secured | | | | |
| | debenture | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| (Holding | Loan | 400,000 | 10% | 400,000 | |
| company for | | | | | - |
| AmbercoreSoftware | | | | | |
| Inc.) | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | Promissory notes | 135,167 | 10% | 135,167 | |
| | | | | | - |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| Ambercore | Secured | 1,200,000 | 8% | 1,200,000 | 100,000 |
| Software Inc. | convertible loan | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | Loan | 600,000 | 10% | 600,000 | |
| | | | | | - |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| Quorum MENA | Convertible | 6,896,000 | 8.5% | 6,896,000 | 2,711,733 |
| Limited | secured | | | | |
| | debentures | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | Promissory notes | 427,168 | 8.5% | 427,168 | 427,168 |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| SR2020 Inc. | Convertible | 900,000 | 8.5% | 900,000 | 900,000 |
| | secured | | | | |
| | debentures | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | Promissory notes | 700,000 | 8.5% | 700,000 | 700,000 |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| SQFive | Convertible | 12,568,361 | 8% - | 12,568,361 | 11,111,728 |
| Intelligent | secured | | 8.5% | | |
| Oilfield | debentures | | | | |
| Solutions Ltd. | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | Redeemable | 2,783,471 | 8% - | 2,783,471 | |
| | convertible | | 8.5% | | - |
| | preferred shares | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| Strata Energy | Convertible | 20,000,000 | 8% | 20,000,000 | 41,890,372 |
| Services Inc. | secured | | | | |
| | debentures | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | Secured | 4,850,000 | 12% | 4,850,000 | 4,850,000 |
| | promissory note | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| Wellpoint | Convertible | 17,538,968 | 8% - | 17,538,968 | 17,534,540 |
| Systems | secured | | 8.5% | | |
| | debentures | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | | | | |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
| | | | | 72,149,135 | 82,718,124 |
+-------------------+------------------+--------------------------+----------+-----------------------+--------------------------+
The accompanying notes are integral to these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the period from 1 January 2010 to 30 June 2010 and comparatives for the
period
from 1 January 2009 to 30 June 2009 and the year ending 31 December 2009.
1.BUSINESS OPERATIONS AND REGISTRATION
Quorum Oil and Gas Technology Fund Limited (the "Company") is an authorised
closed ended investment company incorporated in Guernsey on 20 November 2007.
The Company's participating redeemable preference shares are listed on the
London Stock Exchange.
The nature of the Company's operations and its principal activities are set out
in the Investment Manager's Strategy/Investment Process. The address of the
Company's registered office is set out in the interim report.
The Investment Management Advisory Agreement appointing QOGT Inc. and Sefton
Partners LLP as Investment Managers (the "Investment Managers") ceased on 1 July
2010. Pending the appointment of a new investment manager, the Company
appointed Sefton Partners LLP ("Sefton Partners") to provide sole discretionary
investment management services. Under the terms of this appointment, for a
fixed period from 1 July 2010, Sefton Partners was entitled to a management fee
equivalent to 1.0% of the Company's net asset value and was not entitled to
charge transaction fees on any investments in investee companies
These financial statements are presented in United States Dollars as that is the
currency of the primary economic environment in which the Company operates.
The Directors believe it is appropriate to adopt the going concern basis in
preparing the financial statements as, after due consideration, the Directors
consider that the Company has adequate resources to continue in operational
existence for the foreseeable future. In making this assessment, the Directors
note that the investments are income generating, the Company has cash reserves,
no gearing and the shares are only redeemable at the discretion of the Company.
The Company is designated as authorised pursuant to the Authorised Closed-Ended
Investment Scheme Rules 2008.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements have been prepared by the Company in accordance with
Canadian generally accepted accounting principles ("GAAP").
The Company is an investment company and accounted for in accordance with the
Canadian Institute of Chartered Accountants Accounting Guideline 18 - Investment
Companies. All amounts are in the currency of the United States Dollar unless
otherwise stated.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, income and expenses during the reporting period.
Significant estimates and judgments in these financial statements are required
principally in determining the reported estimated fair value of investments
since these determinations include estimates of expected future cash flows,
rates of return and the impact of future events. Actual results could differ
significantly from those estimates.
Changes in Accounting Policy and Recent Pronouncements
In January 2009, the Emerging Issues Committee ("EIC") issued Abstract No. 173,
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities
(EIC-173). EIC-173 requires an entity to take into account its own credit risk
and that of the relevant counterparties when determining the fair value of
financial assets and financial liabilities, including derivative instruments.
This EIC had no impact on the Company's financial position or results of
operations.
NOTES TO THE FINANCIAL STATEMENTS (continued)
For the period from 1 January 2010 to 30 June 2010 and comparatives for the
period
from 1 January 2009 to 30 June 2009 and the year ending 31 December 2009.
The Company adopted the amendment to Canadian Institute of Chartered Accountants
("CICA") Handbook Section 3862 Financial Instruments - Disclosures ("Section
3862"). This amendment establishes a hierarchical disclosure framework which
prioritises and ranks the level of market price observability used in measuring
investments at fair value. Market price observability is impacted by a number
of factors, including the type of investment and the characteristics specific to
the investment. Investments with readily available quoted prices or for which
fair value can be measured from actively quoted prices generally will have a
higher degree of market price observability and a lesser degree of judgment used
in measuring fair value. Investments measured and reported at fair value are
classified and disclosed in one of the following categories:
Level I - Unadjusted quoted prices in an active market for identical assets or
liabilities provides the most reliable evidence of fair value and is used to
measure fair value whenever available.
Level II - Inputs other than unadjusted quoted prices in active markets, which
are either directly or indirectly observable as of the reporting date, and fair
value is determined through the use of models or other valuation methodologies.
Level III - Inputs that are unobservable for the investment and include
situations where there is little, if any, market activity for the investment.
The inputs into the determination of fair value require significant management
judgment or estimation.
All of the investments for the Company are classified as Level III.
The CICA has announced that Canadian GAAP for publicly accountable enterprises
will be replaced with International Financial Reporting Standards ("IFRS") over
a transition period expected to end in 2011. The Company may begin reporting
its financial statements in accordance with IFRS on 1 January 2011, subject to
the developments or results from Canada's Accounting Standards Board's (the
"ACSB") June 2010 exposure draft, 'Adoption of IFRS by Investment Companies
which proposes that this process should be delayed and be adopted for accounting
periods beginning on or after 1 January, 2012.
Valuation of Investments
- Generally, a combination of two methods, including a market multiple
approach that considers one or more financial measures, such as revenues,
EBITDA, adjusted EBITDA, EBIT, net income, net asset value, discounted cash flow
or liquidation analysis, are used to determine the estimated value of an
investment. Consideration may also be given to such factors as:
- The company's historical and projected financial data;
- Valuations given to comparable companies;
- The size and scope of the company's operations;
- Expectations relating to the market's receptivity to an offering of a
company's securities;
- Any control associated with interests in a company that are held by the
Company;
- Information with respect to transactions or offers for a company's
securities (including the transaction pursuant to which the investment was made
and the year of time that has elapsed from the date of the investment to the
valuation date);
- Applicable restrictions on transfer;
- Industry information and assumptions;
- General economic and market conditions; and
- Other factors deemed relevant.
The Company notes that the valuations assume the ongoing operations of the
investee companies. In certain cases this may require refinancing of existing
debt or additional financing from the Company or other investors.Because of the
inherent uncertainty of the valuation process, the fair value may differ
materially from the actual value that would be realised if such investments were
sold in an orderly disposition.
Further information regarding the Company's investments can be found in Note 9.
Other Financial Assets and Liabilities
Other financial assets and financial liabilities are recorded at cost. Since
these assets and liabilities are short-term in nature, their carrying values
approximate fair values.
Investment Transactions and Income
Investment transactions are accounted for as of the trade date. Interest income
is recorded on an accrued basis. Realised and unrealised gains and losses from
investment transactions are calculated on an average cost basis. Interest income
received in advance is recorded as deferred interest income on the balance sheet
as a liability.
Translation of Foreign Currencies
Investments and other financial assets and liabilities denominated in foreign
currencies are translated into United States Dollars at the exchange rates
prevailing on each valuation day. Purchases and sales of investments, income
and expenses are translated into United States Dollars at the exchange rate
prevailing on the respective dates of such transactions.
Issuance Costs
Issuance costs incurred to form the Company are deducted directly from
contributed surplus.
Stock-Based Payments
The Company has granted stock options to the former Investment Managers and
Investment Advisory Committee. CICA Handbook Section 3870-Stock-based
Compensation and other Stock-based Payments requires recognition of an expense
of option awards using the fair value method of accounting. Under this method,
the fair value of an award at the grant date is recognized as an expense. The
effects of actual forfeitures of previously granted options are recognized as
they occur.
3.MATERIAL AGREEMENTS
Under the terms of the Investment Management Advisory Agreement dated 27
December 2007, a management fee is payable to the Investment Managers, acting
during the period, for investment management services. These are paid monthly
in arrears and are subject to a maximum of 2% per annum of the net asset value.
The Investment Management Advisory Agreement was terminated on 1 July 2010 by
the Board of Directors as both Investment Managers were deemed to have
materially breached the terms of the Agreement. On termination, the fees of the
Investment Managers were paid up to the date of the termination together with
any outstanding expenses.
Sefton Partners LLP was appointed as the sole Investment Manager in the interim,
up until the Board nominate a suitable replacement, to be approved by the
Shareholders of the Company. Under the terms of a separate Investment
Management Advisory Agreement, dated 1 July 2010, a management fee is payable to
the Interim Investment Manager for investment management services. These are
paid monthly in arrears and are subject to a maximum of 1% per annum of the net
asset value.
4.RELATED PARTY TRANSACTIONS
The Investment Managers for the period and the Directors are regarded as related
parties. For certain investments other funds managed by the Quorum Group, the
previous Investment Managers, co-invest alongside the Company. These are
described in the review of Principal Investments.
The fees and expenses payable to the Investment Managers are explained in Note 3
and are detailed in the Statement of Operations.
5.SEGMENT INFORMATION
The Directors are of the opinion that the Company is engaged in a single segment
of business, being investment management, therefore no segment reporting is
required.
6.TAX
The Company has been granted exemption from income tax in Guernsey under the
Income Tax (Exempt Bodies) (Bailiwick of Guernsey) Ordinance, 1989 for which it
pays an annual fee of GBP600 (2008 - GBP600). As such it will not be liable for
income tax in Guernsey other than on Guernsey source income (excluding deposit
interest on funds deposited with a Guernsey bank). No withholding tax is
applicable to distributions to shareholders by the Company. With effect from 1
January 2008, Guernsey abolished some aspects of the exempt company regime. As a
publicly available fund, it will continue to be eligible to apply for exempt
status however, and liable to the annual fee if it chooses to do so. The Company
has taken advantage of this exemption for the current period and expects to do
so for future years.
7.DIVIDENDS
Dividends of $0.10 per participating redeemable preference share were paid on 23
April 2010 and 13 August 2010 respectively. Total dividends paid during the
period ending 30 June 2010 were $1,484,998 (31 December 2009 - $2,448,989; 2008
- $1,463,860).
Under Guernsey Law, companies can pay dividends in excess of accounting profit
provided they satisfy the solvency test prescribed under the Companies
(Guernsey) Law, 2008. The solvency test considers whether a company is able to
pay its debts when they fall due; and whether the value of a company's assets is
greater than its liabilities. The Company has passed the solvency test for each
dividend payment in 2010.
8. BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share is computed by dividing net income available to preferred
shareholders by the weighted average number of preferred shares outstanding for
the period. Diluted earnings per share reflects the potential dilution that
could occur if additional preferred shares are issued under warrants and stock
options that entitle their holders to obtain common shares in the future, to the
extent such entitlement is not subject to unresolved contingencies. The number
of additional shares for inclusion in diluted earnings per share calculations is
determined using the treasury stock method. Under this method, warrants and
stock options whose exercise price is less than the average market price of the
preferred shares are assumed to be exercised with the proceeds used to
repurchase preferred shares at the average market price for the period. The
incremental number of preferred shares issued under warrants and stock options
and repurchased from proceeds is included in the calculation of diluted earnings
per share. For each of the periods ended 30 June 2010 and 30 June 2009 and the
year ended 31 December 2009 the Company excluded potential share equivalents
comprised of stock options and warrants for the diluted earnings per share as
these would be considered anti-dilutive.
+---------------------------------------------------+-------------+-------------+-------------+
| BASIC | 30 | 31 | 30 |
| EARNINGS | June | December | June |
| PER | 2010 | 2009 | 2009(USD) |
| SHARE | (USD) | (USD) | |
+---------------------------------------------------+-------------+-------------+-------------+
| _________________________________________________ | ___________ | ___________ | ___________ |
+---------------------------------------------------+-------------+-------------+-------------+
| Net | (6,875,186) | 20,464,049 | 1,110,808 |
| (deficit) | | | |
| income | | | |
+---------------------------------------------------+-------------+-------------+-------------+
| Average | 7,759,022 | 6,373,221 | 6,122,471 |
| number | | | |
| of | | | |
| preferred | | | |
| shares | | | |
+---------------------------------------------------+-------------+-------------+-------------+
| Basic | (0.84) | 3.21 | 0.18 |
| (loss) | | | |
| earnings | | | |
| per | | | |
| share | | | |
+---------------------------------------------------+-------------+-------------+-------------+
| _________________________________________________ | ___________ | ___________ | ___________ |
+---------------------------------------------------+-------------+-------------+-------------+
| | | | |
| DILUTED | | | |
| EARNINGS | | | |
| PER | | | |
| SHARE | | | |
+---------------------------------------------------+-------------+-------------+-------------+
| _________________________________________________ | ___________ | ___________ | ___________ |
+---------------------------------------------------+-------------+-------------+-------------+
| Net | (6,875,186) | 20,464,049 | 1,110,808 |
| (deficit) | | | |
| income | | | |
+---------------------------------------------------+-------------+-------------+-------------+
| Warrants | | - | - |
+---------------------------------------------------+-------------+-------------+-------------+
| Stock | - | - | - |
| options | | | |
+---------------------------------------------------+-------------+-------------+-------------+
| Average | 7,759,022 | 6,373,221 | 6,122,471 |
| number | | | |
| of | | | |
| diluted | | | |
| preferred | | | |
| shares | | | |
+---------------------------------------------------+-------------+-------------+-------------+
| _________________________________________________ | ___________ | ___________ | ___________ |
+---------------------------------------------------+-------------+-------------+-------------+
| Diluted | (0.84) | 3.21 | 0.18 |
| (loss) | | | |
| earnings | | | |
| per | | | |
| share | | | |
+---------------------------------------------------+-------------+-------------+-------------+
| _________________________________________________ | ___________ | ___________ | ___________ |
+---------------------------------------------------+-------------+-------------+-------------+
9.INVESTMENTS
(a) Ambercore Software Inc. and 1482747 Alberta Ltd.
1482747 Alberta Ltd. is a non-operating company used solely as an investment
vehicle through which the Company invests indirectly into Ambercore. At 31
December 2008 SQFive had underlying investments in Ambercore, SR2020 and LxData.
After a restructuring at the SQFive level in 2009, the Ambercore investment is
now held through 1482747 Alberta Ltd. The convertible secured debenture in the
principal amount of $3,150,000 matures on 29 May 2013 and bears an annual
interest rate of 8.5%. The Company also has an additional $585,167 invested
directly in 1482747 Alberta Ltd. in the form of a $400,000 loan and a $135,167
promissory notes both of which bear interest rates of 10%. The 1482747 Alberta
Ltd. investment was valued at fair value and as such a provision has been made
for $1,192,584 at 30 June 2010.
The Company also has a direct investment in Ambercore with a secured convertible
loan in the principal amount of $1,200,000 which bears an annual interest rate
of 8% and is repayable upon the sale of certain assets of Ambercore along with a
bonus payment of $250,000 which has not been recognized by the Company. The
Company also has an additional
$600,000 invested directly into Ambercore in a promissory note which also bears
an annual interest rate of 10%. The Ambercore investment was valued at fair
value and as such a provision has been made for $1,700,000 at 30 June 2010.
(b) Quorum MENA Ltd. ("QMENA")
The convertible secured debenture in the principal amount of $6,896,000 matures
on17 December 2013 and bears an annual interest rate of 8.5%. The debenture is
convertible at the Company's option at any time into common shares of QMENA at a
conversion price of $1.00 per share. The promissory note in the principal amount
of $427,168 bears an annual interest rate of 8.5% and has the same terms and
conditions as the convertible secured debenture. The QMENA investment has been
valued at fair value and as such a provision has been made for $4,184,267 at 30
June 2010.
(c) SQFive Intelligent Oilfield Solutions Ltd. ("SQFive")
The convertible secured debentures in the aggregate principal amount of
$11,518,361 mature on dates ranging from 25 April 2013 to 31 December 2013, and
bear annual interest rates ranging from 8% to 8.5%. The debentures are
convertible at the Company's option at any time into common shares of SQFive at
a conversion price ranging from $0.52 to $0.78 per share. The convertible
preferred shares in the aggregate par value of $3,833,471 bear annual dividend
rates ranging from 8% to 8.5%. The preferred shares are convertible at the
Company's option at any time into common shares of SQFive at a conversion price
ranging from $0.52 to $0.78 per share. The SQFive investment was valued using a
comparable company multiples approach of the two underlying companies, SR2020
and LxData. This approach led to a partial write down of the SR2020 and LxData
components in 2009 of $775,053 and $1,984,683 respectfully. A write down of
$995,758, which represented the total funds left at the SQFive level, was also
taken due to the winding up of the SQFive operations, leading to a total write
down in SQFive of $3,755,494 for 2009. For the first half of 2010 a write down
of $484,610 was taken which included the write down of additional capital
employed as part of the investee company's capital restructuring. The write
downs are marked against the convertible preference shares in the first
instance, and the remaining write down against the debentures in line with
security ranking. SQFive is now solely a vehicle through which the Company
invests into underlying companies. .
On 16 March 2009 a claim was filed against Seismic Reservoir 2020, Inc., SR2020
Inc. (the successor company to Seismic Reservoir 2020, Inc.), a director of the
Quorum Oil and Gas Technology Fund Limited, and against two other individuals
employed by SQFive and SR2020 Inc. The claim was filed by a former employee and
shareholder of Seismic Reservoir Inc. in the amount of $2.2 million seeking
relief for wrongful dismissal and deprivation of shareholders' rights. The
Company believes that the claim is without merit and accordingly is defending
the claim vigorously. As the claim is not considered likely to succeed by the
Company and it and its directors have in force directors' and officers'
liability insurance coverage of $5 million, no accrual has been recorded for the
potential liability as a result of this claim.
(d) SR 2020 Inc. ("SR2020")
The convertible secured debenture in the principal amount of $900,000 matures on
29 May 2013 and bears an annual interest rate of 8.5%. The Company also has an
additional investment of $700,000 in the form of promissory notes which bear an
interest rate of 8.5%.
The SR2020 investment was valued using a comparable company multiples approach
which led to a valuation equal to the cost of the investment. As this investment
was made after the time of the SR2020 investment through SQFive, a more
favourable conversion price was granted. For is the reason, there was no write
down of the direct SR2020 investment as opposed to the SR2020 investment held
through SQFive, which was partially written down.
(e) Strata Energy Services Inc. ("Strata")
The convertible secured debenture in the principal amount of $15,000,000 matures
on 25 February 2013, bearing an annual interest rate of 8% is convertible into
31.4% of the Strata common shares.
The convertible secured debenture in the principal amount of $5,000,000 matures
on 1 August 2013, bearing an annual interest rate of 8% is convertible into
10.5% of the Strata common shares.
The convertible secured promissory note in the principal amount of $4,850,000
matures on 30 September 2010, bearing an annual interest rate of 12%. The
promissory note is, at the option of the Company, exchangable into a secured
convertible debenture which is convertible into approximately 5% of the Strata
common shares.
The Strata investment was valued using both a comparable company multiples
approach as well as a discounted cash flow approach. The combination of these
two approaches led to a substantial write up of the investment in the amount of
$21,890,372 at 31 December 2009. The Company continues to value the investment
using this method with no incremental change to the value at 30 June 2010.
(g) WellPoint Systems Inc. ("WellPoint")
The convertible secured debentures in the principal amounts of $15,200,000,
$2,000,000 and Cdn$300,000 mature on 10 April 2013, 30 January 2014, and 1
October 2010, bearing an annual interest rate of 8.5%. The debentures are
convertible at the Company's option at any time into common shares of WellPoint.
The conversion price for the common shares range from $0.2872 to $0.35 per share
for the United States Dollar denominated debentures and $0.35 per common share
for the Canadian Dollar denominated debenture. Under certain circumstances,
WellPoint may prepay the entire principal amount of the debentures, subject to a
right by the Company to exercise its conversion right into common shares of
WellPoint. Additionally, under certain circumstances, WellPoint may compel a
conversion of its debentures into common shares.
The promissory note in the amount of Cdn$55,000 matures on 30 September 2010 and
bears an annual interest rate of 8%.
The WellPoint investment was valued using a comparable company multiples
approach which led to a valuation equal to the cost of the investment.
WellPoint has a working capital deficit of $15.9 million. Approximately $14.4
million ofthis working capital deficit is related to debt that is coming due in
2010, of which $5.5 million is due to other funds managed by the Quorum Group.
WellPoint will likely not generate enough cash from operations in order to fund
these debt obligations. The other major lenders have extended the due date from
June to August 2010 to October 1, 2010 and are in negotiations with both the
Company and Wellpoint to renegotiate the current debt or find new capital.
During the year ending 31 December 2009, the reconciliation of investments
measured at fair value using unobservable inputs (Level III) is presented as
follows:
+----------------------------------+---------------------------+---------------------------+
| FAIR | 30 | 31 |
| VALUE | June | DECEMBER |
| DISCLOSURE | 2010 | 2009 |
| BY | | |
+----------------------------------+---------------------------+---------------------------+
| FAIR | LEVEL | LEVEL |
| VALUE | 3 | 3 |
| HIERARCHY | (USD) | (USD) |
| LEVEL: | | |
+----------------------------------+---------------------------+---------------------------+
| ________________________________ | _________________________ | _________________________ |
+----------------------------------+---------------------------+---------------------------+
| Investments | 82,718,124 | 81,949,125 |
+----------------------------------+---------------------------+---------------------------+
| ________________________________ | _________________________ | _________________________ |
+----------------------------------+---------------------------+---------------------------+
| RECONCILIATION | 30 | 31 |
| OF | June | DECEMBER |
| | 2010 | 2009 |
+----------------------------------+---------------------------+---------------------------+
| LEVEL | TRADING | TRADING |
| 3 FAIR | SECURITIES | SECURITIES |
| VALUES: | (USD) | (USD) |
+----------------------------------+---------------------------+---------------------------+
| ________________________________ | _________________________ | _________________________ |
+----------------------------------+---------------------------+---------------------------+
| Opening | 81,949,125 | 55,727,763 |
| balance | | |
+----------------------------------+---------------------------+---------------------------+
| Total | | |
| unrealised | | |
| gains | | |
| (losses) | | |
+----------------------------------+---------------------------+---------------------------+
| in net | (7,565,778) | 18,251,195 |
| income | | |
| (footnote | | |
| 1) | | |
+----------------------------------+---------------------------+---------------------------+
| Additions | 8,334,777 | 12,201,884 |
+----------------------------------+---------------------------+---------------------------+
| Disposals | - | (4,231,717) |
+----------------------------------+---------------------------+---------------------------+
| ________________________________ | _________________________ | _________________________ |
+----------------------------------+---------------------------+---------------------------+
| | 82,718,124 | 81,949,125 |
+----------------------------------+---------------------------+---------------------------+
| | _________________________ | _________________________ |
+----------------------------------+---------------------------+---------------------------+
Footnote 1: Total unrealised gains in net income are presented in the Statement
of Operations under unrealised change in valuation of investments.
The key valuation assumption is the multiple used. A change in the EBITDA factor
of +/- 1.0 would result in an aggregate change in the unrealised gains in
investments of approximately +/- $1.45 million.
The valuation of WellPoint has been prepared assuming that WellPoint will
continue as a going concern. This assumes that WellPoint will continue in
operation for the foreseeable future and accordingly will be able to realize its
assets and discharge its liabilities in the normal course of operations. The
valuation does not include any adjustments that might be necessary should
WellPoint be unable to continue future operations.
10. LIABILITIES
+-------------------------------------------------+-------------+-------------+-------------+
| | 30 | 31 | 30 |
| | June | December | June |
| | 2010 | 2009 | 2009 |
| | (USD) | (USD) | (USD) |
+-------------------------------------------------+-------------+-------------+-------------+
| _______________________________________________ | ___________ | ___________ | ___________ |
+-------------------------------------------------+-------------+-------------+-------------+
| Accounts | 763,643 | 203,754 | 471,563 |
| payable | | | |
| and | | | |
| accrued | | | |
| liabilities | | | |
+-------------------------------------------------+-------------+-------------+-------------+
| Deferred | 370,638 | 309,158 | 1,664,789 |
| interest | | | |
| income | | | |
+-------------------------------------------------+-------------+-------------+-------------+
| _______________________________________________ | ___________ | ___________ | ___________ |
+-------------------------------------------------+-------------+-------------+-------------+
| | 1,134,281 | 512,912 | 2,136,352 |
+-------------------------------------------------+-------------+-------------+-------------+
| | ___________ | ___________ | ___________ |
+-------------------------------------------------+-------------+-------------+-------------+
The deferred interest income relates to interest payments received from investee
companies in advance.
11. SHAREHOLDERS' EQUITY
+-----------------------------+-------------+--------------+-------------+--------------+
| | | 30 | | 31 |
| | | June | | December |
| | | 2010 | | 2009 |
+-----------------------------+-------------+--------------+-------------+--------------+
| | | NOMINAL | | NOMINAL |
+-----------------------------+-------------+--------------+-------------+--------------+
| AUTHORISED | NUMBER | VALUE | NUMBER | VALUE |
| | | (USD) | | (USD) |
+-----------------------------+-------------+--------------+-------------+--------------+
| ___________________________ |___________ | ____________ |___________ | ____________ |
+-----------------------------+-------------+--------------+-------------+--------------+
| Common | 2 | 2 | 2 | 2 |
| (founder) | | | | |
| shares | | | | |
+-----------------------------+-------------+--------------+-------------+--------------+
| Unclassified | 50,000,000 | 50,000,000 | 50,000,000 | 50,000,000 |
| shares | | | | |
+-----------------------------+-------------+--------------+-------------+--------------+
| ___________________________ | ___________ | ____________ | ___________ | ____________ |
+-----------------------------+-------------+--------------+-------------+--------------+
| ISSUED | | | | |
+-----------------------------+-------------+--------------+-------------+--------------+
| ___________________________ | ___________ | ____________ | ___________ | ____________ |
+-----------------------------+-------------+--------------+-------------+--------------+
| Common | 2 | 2 | 2 | 2 |
| (founder) | | | | |
| shares | | | | |
+-----------------------------+-------------+--------------+-------------+--------------+
| Participating | | | | |
| redeemable | | | | |
+-----------------------------+-------------+--------------+-------------+--------------+
| preference | 8,156,348 | 8,156,348 | 7,186,707 | 7,186,707 |
| shares | | | | |
+-----------------------------+-------------+--------------+-------------+--------------+
| Warrants | | | 851,571 | 987,822 |
+-----------------------------+-------------+--------------+-------------+--------------+
| ___________________________ | ___________ | ____________ | ___________ | ____________ |
+-----------------------------+-------------+--------------+-------------+--------------+
The shares may be allotted and issued as one of more classes of shares, being
participating redeemable preference shares in the Company. To qualify as
participating redeemable preference shares, the shares are required under
Guernsey Law to have a preference over another class of share capital. The
participating redeemable preference shares may be redeemed at the option of the
Company subject to the discretion of the Directors. The common or founder shares
have been created so that the participating redeemable preference shares may be
issued. The common or founder shares are not redeemable and do not carry any
right to vote or receive dividends and are only entitled to participate in the
assets of the Company on a winding-up. On 6 October 2009, the Company issued an
additional 1,064,238 participating redeemable preference shares at an issuance
price of $9.59 per share for total gross subscription proceeds of $10,206,042.
On 24 February and 1 March, the Company issued for cash 476,458 participating
redeemable preference shares, of $1 each, which rank pari passu with the
existing shares in issue. The issuance price of $10.12 per share raised total
gross subscription proceeds of $4,821,755.
On 25 July 2008, the Company issued 851,571 warrants to record holders of the
same date on the basis of one warrant for every five participating redeemable
preference shares held. Upon the issuance of the warrants, a reclassification
was made in the amount of $987,822 from contributed surplus to warrants. The
warrants were exercisable at a price of $10.00 on each of 1 April 2009 and 1
April 2010 following which date rights under the warrants will lapse. The key
assumptions used in the pricing of the warrants were a risk free interest rate
of 3.53%, expected dividend yield of 4.00% and expected share volatility of 18%.
On 18 March 2010, 493,180 warrants were exercised as at the final exercise date
of 1 April 2010 at a conversion price of $10.0, raising approximately $4,931,800
of new capital for the Company.
12. STOCK-BASED PAYMENTS
The Company has the ability to issue stock options representing 20% of the fully
diluted capital of the Company under its stock option plan. As at 30 June 2010,
options had been granted to the Investment Managers in respect of 20% of the
fully diluted share capital of the Company at exercise prices of $10.00,
$10.35 and $9.59 per share increasing by 8% per annum subject to reductions in
any dividends paid. The options are exercisable in three equal tranches on the
first three anniversaries of the grant date and have a 10 year life. As at 30
June 2010, 865,045 (31 December 2009 - 865,045) of the options were exercisable,
with a weighted average exercise price of $10.20.
SUMMARY OF STOCK OPTION ACTIVITY
+---------------------------+-------------+-------------------------+
| | NUMBER | WEIGHTED |
| | | AVERAGE |
+---------------------------+-------------+-------------------------+
| | OF | EXERCISE |
| | OPTIONS | PRICE |
| | | (USD) |
+---------------------------+-------------+-------------------------+
| _________________________ | ___________ | _______________________ |
+---------------------------+-------------+-------------------------+
| As at | 1,530,618 | 10.28 |
| 31 | | |
| December | | |
| 2008 | | |
+---------------------------+-------------+-------------------------+
| Granted | 266,059 | 9.59 |
+---------------------------+-------------+-------------------------+
| Exercised | - | - |
+---------------------------+-------------+-------------------------+
| Cancelled | - | - |
+---------------------------+-------------+-------------------------+
| _________________________ | ___________ | _______________________ |
+---------------------------+-------------+-------------------------+
| As at | 1,769,677 | 10.17 |
| 31 | | |
| December | | |
| 2009 | | |
+---------------------------+-------------+-------------------------+
| Granted | - | - |
+---------------------------+-------------+-------------------------+
| Exercised | - | - |
+---------------------------+-------------+-------------------------+
| Cancelled | - | - |
+---------------------------+-------------+-------------------------+
| _________________________ | ___________ | _______________________ |
+---------------------------+-------------+-------------------------+
| As at | 1,769,677 | 10.16 |
| 30 | | |
| June | | |
| 2010 | | |
+---------------------------+-------------+-------------------------+
| _________________________ | ___________ | _______________________ |
+---------------------------+-------------+-------------------------+
Options that could be granted during the period, but are yet to be granted as at
30 June 2010, were estimated to be a total number of 193,928. The weighted
average fair value of options granted during the prior year were estimated to be
$151,912.
13.FINANCIAL RISK MANAGEMENT
In the normal course of business, the Company is exposed to a variety of
financial risks: credit risk, liquidity risk and market risk (including interest
rate risk, currency risk and other price risk). The value of investments within
the Company's portfolio can fluctuate on a daily basis as a result of changes in
interest rates, economic conditions, the market and company news related to
specific securities within the Company. The level of risk depends on the
Company's investment objective and the type of securities it invests in. The
investment objective of the Company is to provide interest income and capital
appreciation by investing in secured convertible debentures, convertible loans,
and promissory notes of public and private companies. On a quarterly basis, the
Company performs a formal review of its investments, which includes, but not
limited to, an assessment of the global macro environment, the outlook for
credit, and the amount of active risk being taken in the Company. The Company's
overall risk management program seeks to minimize the potentially adverse effect
of risk on the Company's financial performance in a manner consistent with the
Company's investment objective.
Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with the
Company.
The Company is exposed to credit risk in respect of the investment portfolio,
with a maximum exposure equal to the value of the loans advanced. Credit risk is
mitigated by the Company's Interim Investment Managers performing satisfactory
due diligence on prospective investments. Under the terms of the convertible
secured debenture, should the principal not be repaid by the maturity date or if
there is a default in the debenture covenants, the debenture is secured by a
charge of the investee companies' assets or may be converted into ordinary
shares of the borrower. However, the Company may not be able to recover all or
some of the value of the debenture through realisation of each investee
companies' assets or shares. Given the current status of each investee companies
and their respective financial positions, the recoverability of these
investments is, in some cases, predicated on the performance of the companies.
As of 30 June 2010 $1.7m was due from investee companies in respect to interest
payments.
The Company's investments are focused solely in the oil and gas technology
sector. The Company attempts to mitigate its exposure by investing in companies
that sell their products internationally.
The Company is exposed to credit risk in respect to its cash and cash
equivalents, arising from possible default of the relevant counterparty, with a
maximum exposure equal to the carrying value of those assets. The credit risk on
liquid funds is limited because the counterparties are banks with high
credit-ratings assigned by international credit-rating agencies. The Company
monitors the placement of cash balances on an ongoing basis. The Company only
invests its cash and cash equivalents with its banker and custodian, the Royal
Bank of Canada (Channel Islands) Ltd.
Liquidity Risk
Liquidity risk is defined as the risk that the Company may not be able to settle
or meet its obligations on time or at a reasonable price.
The Company's exposure to liquidity risk is concentrated in the investments of
private secured convertible debentures, convertible loans and promissory notes.
The Company primarily invests in securities that are not traded in active
markets and cannot be readily disposed. To compensate for this, the Company
retains sufficient cash and cash equivalent positions to maintain liquidity to
meeting operating expenses and distributions. Furthermore, it is mitigated by
the fact that the participating redeemable preference Shares of the Company are
redeemable only at the Company's discretion.
The Company has sufficient cash on hand to meet all current liabilities as at 30
June 2010 and for the foreseeable future.
Interest Rate Risk
Interest rate risk arises from the possibility that changes in interest rates
will affect future cash flows or fair values of financial instruments. Interest
rate risk arises when the Company invests in interest-bearing financial
instruments. The Company is exposed to the risk that the value of such financial
instruments will fluctuate due to changes in the prevailing levels of market
interest rates. The Company seeks to mitigate this risk by monitoring the
placement of cash balance on an ongoing basis in order to maximise the interest
rates obtained.
Sensitivity to movements in interest rates is limited by the fact that the
Company's investments bear interest at a fixed rate and the fair value of the
debt is not sensitive to changes in interest rates.
To gauge the duration of the debt instruments, their maturities on a fair value
basis are as follows:
+------------------+-------+---------------------------------------------+----------------------------------------+
| DEBT | 30 June 2010 | 31 December 2009 |
| INSTRUMENTS | | |
+--------------------------+---------------------------------------------+----------------------------------------+
| BY MATURITY | ESTIMATED FAIR VALUE (US$ | ESTIMATED FAIR VALUE (US$ |
| DATE | EQUIVALENT) | EQUIVALENT) |
+--------------------------+---------------------------------------------+----------------------------------------+
| _____________________ |___________________________________________ |______________________________________ |
+--------------------------+---------------------------------------------+----------------------------------------+
| Less than 1 | 6,380,546 | 1,489,045 |
| year | | |
+--------------------------+---------------------------------------------+----------------------------------------+
| 1 - 3 years | - | - |
+--------------------------+---------------------------------------------+----------------------------------------+
| 3 - 5 | | 62,976,696 | 59,491,919 |
| years | | | |
+------------------+-------+---------------------------------------------+----------------------------------------+
| Greater |years | - | - |
| than 5 | | | |
+------------------+-------+---------------------------------------------+----------------------------------------+
| _______________ |_____ | ___________________________________________ | ______________________________________ |
+------------------+-------+---------------------------------------------+----------------------------------------+
| Total | | 69,357,242 | 60,980,964 |
+------------------+-------+---------------------------------------------+----------------------------------------+
| _______________ | | __________________________________________ | ______________________________________ |
+------------------+-------+---------------------------------------------+----------------------------------------+
** Excludes cash and cash equivalents and preferred shares, as applicable
Other Price Risk
Other price risk is the risk that the market value or future cash flows of
financial instruments will fluctuate because of changes in market prices other
than those arising from interest rate risk. It represents the potential loss
that the Company might suffer through holding interests in unquoted private
companies whose value may fluctuate and which may be difficult to value and/or
to realise.
All investments represent a risk of loss of capital. The Investment Managers
moderate this risk through a careful selection and diversification of securities
and other financial instruments within the limits of the Company's investment
objective and strategy, as well as by establishing a clear exit strategy for all
potential investments. The Company's overall market positions are monitored on a
quarterly basis by the portfolio manager. Financial instruments held by the
Company are susceptible to market price risk arising from uncertainties about
future prices of the instruments. If the value of the
Company's investment portfolio were to decline by 10%, it would represent a loss
of $8.3 million. This would cause the net asset value of the Company to fall by
9.3%.
Currency Risk
Currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. Currency risk arises from
financial instruments (including cash and cash equivalents) that are denominated
in a currency other than United States dollars, which represents the functional
currency of the Company. The Company has 1.4% of its investments not denominated
in the functional currency. As such, currency risk is not considered to be a
material risk to the Company.
14. CAPITAL MANAGEMENT
The Company considers Shareholders' Equity to be its capital. The Company does
not have any externally imposed capital requirements. The capital is to be used
by the Company to invest in accordance with its investment objective. The
Company though does have specific restrictions on how it can deploy its
shareholders' capital; the Company will not invest more than 30 percent of its
total assets in any one company (this restriction is calculated at the time of
the relevant investments).
The investment objective of the Company is to seek long-term capital
appreciation with a target return of 20 percent over a five-year time horizon.
The Company aims to deliver its objective by investing available cash and
generating portfolio interest income whilst maintaining sufficient liquidity to
meet ongoing expenses and dividend payments.
15. SUBSEQUENT EVENTS
A dividend of $0.10 per participating redeemable preference share was declared
on 26 July 2010 and will be paid on 13 August 2010.
On 10 August 2010, copy of a notice from the Quorum Investment Pool Limited
Partnership ("QIP"), an investment fund controlled by an affiliate of QOGT Inc,
one of the former investment managers, was received by the company. This notice
was a notice of default given by QIP to 1482747 Alberta Limited, the company
through which all of QIP's (and a portion of the Company's) interests are held
in Ambercore. On 12 August 2010, and in response to the above notice and in
order to protect and preserve the security and position of the Company, the
Company's investment in Ambercore, the company served notices under the laws
applicable in Canada in regards to the enforcement of secured rights on 1482747
Alberta Limited, Ambercore and its subsidiaries Terrapoint Canada and Terrapoint
USA.
Subsequent to 30 June 2010 an investment in SR2020 was made in the form of a
promissory note in the amount of $200,000. The investment bears an interest
rate of 10% and matures on 20 September 2010. This investment is part of an
overall $750,000 commitment made in early 2010 and has been traunched to the
company over the last two quarters.
Subsequent to 30 June 2010 an investment in Ambercore was made in the form of a
promissory note for the amount of $100,000. The investment will bear an
interest rate of 10% and is due on demand. The proceeds of the investment were
used as general working capital.
Subsequent to 30 June 2010 an investment in Lxdata was made in the form of a
secured convertible loan in the amount of CA$275,107. The investment bears an
interest rate of 12% and is due on 31 December 2010. The proceeds of the
investment was used for ongoing development and working capital for the pressure
and temperature sensors.
As previously set out in the circular of 30 July 2010, QOGT Inc, the former
investment manager, stated on 8 July 2010 that it had "instructed it's legal
advisors to give notice of it's intention to issue proceedings for damages
against [the company]..." and that "The damages are likely to be substantial and
to include: damages for failure to give 36 months' contractual notice to QOGT
Inc under [the Original IMAA]; compensation in respect of the damage to QOGT
Inc's reputation; and associated legal costs."
The Company does not agree with many of the points made in the statements by
QOGT Inc. The Company's decision to terminate the Original IMAA was made after
full consideration of it's contractual rights and obligations in light of the
factual position and with the interests of it's shareholders as the paramount
consideration. Should QOGT Inc. decide to articulate claims against the
Company, the Company will of course vigorously defend and act consistently with
it's duties to shareholders in responding to those claims.
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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