24th Dec 2015 12:00
Mercom Oil Sands plc
("Mercom" or "the Company")
Interim results
Chairman's Statement
I am pleased to present my Chairman's statement for Mercom Oil Sands plc ("the Company") for the six month period ended 30 September 2015.
Despite the challenging environment in the resources sector, the Directors continue to believe there are opportunities to create value for shareholders. The Board is working to identify and evaluate potential opportunities, and will make further investments when it is satisfied that all its demanding criteria are met.
Dr Patrick Cross
Chairman
24 December 2015
For further information, contact:
Mercom Oil Sands plc John Zorbas | 001 416 504 3978 |
Northland Capital Partners Limited Nominated Adviser and Broker Edward Hutton / Matthew Johnson | +44 (0) 20 7382 1100 |
Beaufort Securities Limited Joint Broker
Jon Levinson | +44 (0) 20 7382 8300 |
Condensed Interim Consolidated Statement of Comprehensive Income
For the six month period ended 30 September 2015
6 months ended 30 September | 6 months ended 30 September | ||
2015 | 2014 | ||
Note | Unaudited | Unaudited | |
Continuing Operations | £ | £ | |
Expenses | |||
General and administrative expenses | 180,876 | 108,010 | |
Exploration and evaluation expenses | 6 | - | - |
Loss from Operations |
| (180,876) | (108,010) |
Other items | |||
Investment revenue | - | - | |
Loss for the period before taxation |
| (180,876) | (108,010) |
Taxation | - | - | |
Loss for the period attributable to equity holders |
| (180,876) | (108,010) |
Other comprehensive income | - | - | |
Total comprehensive loss for the period | (180,876) | (108,010) | |
Loss per Ordinary share | |||
Basic - continuing and total operations | 11 | (0.01) | (0.01) |
Diluted - continuing and total operations | 11 | (0.01) | (0.01) |
Condensed Interim Consolidated Statement of Financial Position
As at 30 September 2015
Note | As at 30 September | As at 30 September | As at 31 March | |
2015 | 2014 | 2015 | ||
Unaudited | Unaudited | Audited | ||
£ | £ | £ | ||
Non-current assets | ||||
Investments | 5 | 568,632 | 700,000 | 568,632 |
Exploration and evaluation assets | 6 | - | - | - |
568,632 | 700,000 | 568,632 | ||
Current assets | ||||
Cash and cash equivalents | 539,041 | 627,816 | 609,450 | |
Trade and other receivables | 7 | 499,900 | 575,848 | 499,900 |
Total current assets | 1,038,941 | 1,203,664 | 1,109,350 | |
TOTAL ASSETS | 1,607,573 | 1,903,664 | 1,677,982 | |
LIABILITIES AND EQUITY | ||||
Current liabilities | ||||
Trade and other payables | 8 | 219,594 | 192,709 | 249,490 |
Total liabilities | 219,594 | 192,709 | 249,490 | |
Equity | ||||
Share capital | 10 | 556,247 | 551,940 | 553,213 |
Share premium | 10 | 3,204,426 | 2,986,120 | 3,067,097 |
Shares to be issued reserve | 10 | 1,000,000 | 1,000,000 | 1,000,000 |
Warrant reserve | 10 | 62,000 | 62,270 | 62,000 |
Accumulated deficit | (3,434,694) | (2,889,375) | (3,253,818) | |
Total equity | 1,387,979 | 1,710,955 | 1,428,492 | |
TOTAL EQUITY AND LIABILITIES | 1,607,573 | 1,903,664 | 1,677,982 | |
Approved by the Board on 24 December 2015
K Appleby
Director
Condensed Interim Consolidated Statement of Cash Flows
For the six month period ended 30 September 2015
6 months ended 30 September | 6 months ended 30 September | |
2015 | 2014 | |
Unaudited | Unaudited | |
£ | £ | |
Cash flow from operating activities | ||
Loss for the period before tax | (180,876) | (108,010) |
Adjustments for: | ||
Decrease/(increase) in trade and other receivables | - | 31,344 |
(Decrease)/increase in trade and other payables | 110,467 | (12,986) |
Cash used in operations | (70,409) | (89,652) |
Cash flow from investing activities | ||
Purchase of investments | - | (700,000) |
Net cash used in investing activities | - | (700,000) |
Decrease in cash and cash equivalents | (70,409) | (789,652) |
Cash and cash equivalents at the beginning of the period | 609,450 | 1,417,468 |
Cash and cash equivalents at the end of the period | 539,041 | 627,816 |
Condensed Interim Consolidated Statement of Changes in Equity
For the 6 months ended 30 September 2015
| Share capital | Share premium | Shares to be issued | Warrant reserve | Retained earnings | Total |
| |
£ | £ | £ | £ | £ | £ |
| ||
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As at 31 March 2014 (Audited) | 551,840 | 2,986,120 | 1,000,000 | 62,270 | (2,781,365) | 1,818,865 | ||
Shares issued on exercise of stock options | 100 | - | - | - | - | 100 |
| |
Total comprehensive loss for the year | - | - | - | - | (108,010) | (108,010) |
| |
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As at 30 September 2014 (Unaudited) | 551,940 | 2,986,120 | 1,000,000 | 62,270 | (2,889,375) | 1,710,955 |
| |
| Share capital | Share premium | Shares to be issued | Warrant reserve | Retained earnings | Total |
| |
£ | £ | £ | £ | £ | £ |
| ||
| ||||||||
As at 31 March 2015 (Audited) | 553,213 | 3,067,097 | 1,000,000 | 62,000 | (3,253,818) | 1,428,492 | ||
Shares issued on settlement of debt | 3,034 | 137,329 | - | - | - | 140,363 |
| |
Total comprehensive loss for the year | - | - | - | - | (180,876) | (180,876) |
| |
| ||||||||
As at 30 September 2015 (Unaudited) | 556,247 | 3,204,426 | 1,000,000 | 62,000 | (3,434,694) | 1,387,979 |
| |
Notes to Condensed Interim Consolidated Financial Statements
For the six month period ended 30 September 2015
1. BASIS OF PRESENTATION
Basis of presentation and statement of compliance
These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial statements as at and for the year ended 31 March 2015. These interim financial statements were authorised for issue by the Company's Board of Directors on 24 December 2015.
Basis of consolidation
The Group financial statements include the financial statements of the Company and its subsidiary undertaking Mercom Oil Sands Canada Inc., a company incorporated in Canada. The results of subsidiary undertakings sold or acquired are included in the Consolidated Statement of Comprehensive Income up to, or from the date control passes. Intra group sales and profits are eliminated fully on consolidation.
Functional currency
The presentational and functional currency of the Group and Company is U.K Sterling.
Significant accounting estimates and judgments
The preparation of these financial statements requires management to make judgments and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these judgments and estimates. The financial statements include judgments and estimates which, by their nature, are uncertain. The impacts of such judgments and estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognised in the period in which the estimate is revised and the revision affects both current and future periods.
Significant assumptions about the future and other sources of judgments and estimates that management has made at the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:
· Management's position that there are no income tax considerations required within these audited financial statements; and
· The carrying value of trade and other receivables.
Going concern
These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to a going concern, which assume that the Company will be able to realise its assets and discharge its liabilities in the normal course of operations. The Company has no current source of operating revenues and its capacity to operate as a going concern in the near-term will likely depend on its ability to continue raising equity or debt financing. There can be no assurance that the Company will be able to continue to raise funds in which case the Company may be unable to meet its obligations. Should the Company be unable to realise on its assets and discharge its liabilities in the normal course of business, the net realisable value of its assets may be materially less than the amounts recorded in the Consolidated and Company Statements of Financial Position. The financial statements do not include adjustments to amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations.
2. SIGNIFICANT ACCOUNTING POLICIES
Except as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 March 2015. The following changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 31 March 2016.
Changes in accounting policies
The following new standards, amendments to standards or interpretations are mandatory for the Group for the first time for the financial year beginning 1 April 2015, but are not currently considered to be relevant to the Group (although they may affect the accounting for future transactions and events):
· IFRS 9, 'Financial Instruments', issued in November 2009 and effective from 1st January 2018. IFRS 9 represents the first phase of the IASB's project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. It sets out the classification and measurement criteria for financial assets and liabilities and requires all financial assets, including assets currently classified under IAS 39 as available for sale, to be measured at fair value through profit and loss unless the assets can be classified as held at amortised cost. Qualifying equity investments held at fair value may have their fair value changes taken through other comprehensive income by election.
· IAS 19 (Revised), 'Employee Benefits' effective for periods beginning on or after 1st July 2014. These amendments are intended to provide a clearer indication of an entity's obligations resulting from the provision of defined benefit pension plan and how those obligations will affect its financial position, financial performance and cash flow.
The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1April 2015 and have not been early adopted:
· IFRS15, 'Revenue from Contracts with Customers', effective for periods commencing on or after 1st January 2018 but not yet adopted by the EU. This standard replaces IAS18, 'Revenue Recognition' and revenue recognition standards under US GAAP and aims to unify revenue recognition under IFRS and US GAAP. The standard focuses on entitlement to consideration as opposed to percentage completion under existing IFRS and introduces a five step approach to recognising income.
3. CAPITAL AND FINANCIAL RISK MANAGEMENT
The capital of the Group consists of shareholders' equity. The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to pursue the development of its mineral properties and to maintain optimal returns to shareholders and benefits for other stakeholders.
The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Group may attempt to issue new shares or debt, dispose of assets, or adjust the amount of cash and cash equivalents.
The investments in which the Group currently has an interest are in the exploration and evaluation stage; as such the Group is dependent on external financing to fund its activities. In order to carry out the planned exploration and pay for administrative costs, the Group will spend its existing working capital and raise additional amounts as needed. The Group will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Group, is reasonable. There were no changes in the Group's approach to capital management during the period ended 30 September 2015. The Group is not subject to externally imposed capital requirements.
Credit risk
All the Group's cash and cash equivalents are held with well-known and established financial institutions. As such, management considers credit risk related to these financial assets to be minimal. The Group's maximum credit risk exposure is limited to the carrying value of its cash and subscriptions receivable. At 30 September 2015, the Group had no material amounts deemed to be uncollectible.
Commodity price risk
Commodity price risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in oil and natural gas commodity prices. The nature of the Group's operations will result in exposure to fluctuations in commodity prices. The Group is currently in its development stage and as such the exposure to fluctuations in commodity prices is not actively managed. In the future, the Group may use commodity price contracts to manage exposure to fluctuations in pricing.
Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Group does not have a material exposure to this risk as there are no outstanding debt facilities.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they come due. The Group ensures, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or harm to the Group's reputation.
The Group utilises authorisation for expenditures to further manage capital expenditures and attempts to match its payment cycle with available cash resources.
Foreign currency risk
The Group is exposed to foreign currency fluctuations on its cash which is denominated in U.K. Sterling and Canadian Dollars.
4. SEGMENTAL REPORTING
The Directors consider that the primary reporting business format is by business segment which in the period was the acquisition of investments only, as this formed the basis of internal reports regularly reviewed by the Board in order to allocate resources to the segment and assess its performance. Therefore the disclosures for the primary segment have already been provided in these financial statements.
The secondary reporting format is by geographical analysis. However there is no revenue and no customers in the period and no non-current assets at 30 September 2015 and thus no geographical analysis disclosure has been presented in these financial statements. |
5. INVESTMENTS
The Company has a shareholding in the following company incorporated in Canada: | ||||||
Proportion | Nature of | |||||
Subsidiary undertakings | Holding | held | Business | |||
Mercom Oil Sands Canada Inc. | Common shares (Nil Par Value) | 100% | Investment company |
Other investments
Cost | |||||
At 1 April 2015 | - | ||||
Additions | 768,632 | ||||
30 September 2015 | 768,632 | ||||
Impairment | |||||
At 1 April 2015 | 200,000 | ||||
Impairment in year | - | ||||
30 September 2015 | 200,000 | ||||
Net book value | |||||
31 March 2015 | 568,632 | ||||
30 September 2015 | 568,632 | ||||
The additions represent the investment in the following companies:
County of Incorporation | Holding | Proportion held | Nature of business | |
Lion Natural Resources Limited | England & Wales | Ordinary | 30% | Direct exploration and development of natural resources |
NWT Coal Limited | Cyprus | Ordinary | 35% | Direct exploration and development of natural resources |
Maverick Petroleum Ltd | Republic of Seychelles | Ordinary | 2% | Direct and indirect exploration and development of natural resources |
The impairment in the year is in respect of Lion Natural Resources Limited as explained below.
The accounting treatment of the investments in Lion Natural Resources Limited and NWT Coal Limited as available for sale financial assets and not as associates as detailed in note 1 of the audited financial statements for the year ended 31 March 2015. These investments have measured at cost less impairment as also detailed in note 1 of the audited financial statements for the year ended 31 March 2015 as it was not possible to reliably measure a fair value.
6. EXPLORATION AND EVALUATION ASSETS
Group and company
2015 | 2014 | |||||
Cost | £ | £ | ||||
At 1 April | 64,490 | 64,490 | ||||
Disposal in year | (64,490) | - | ||||
At 31 March | - | 64,490 | ||||
Impairment | ||||||
At 1 April | 64,490 | 64,490 | ||||
Disposal in year | (64,490) | - | ||||
At 31 March | - | 64,490 | ||||
Net book value | ||||||
31 March and 30 September | - | - |
In 2014 the Company finalised an out of court settlement with Nordic Petroleum ASA with regard to its dispute over the Farm-in agreement to acquire a 50% working interest in four Alberta Crown Oil Sands Leases 'the Leases'. The cost of the Canadian $100,000 deposit was fully impaired in the year ended 31 March 2013. The deposit has now been disclosed as disposed of as the Company has no further legal rights or obligations in respect of the Leases.
7. TRADE AND OTHER RECEIVABLES
30 September 2015 Unaudited £ | 30 September 2014 Unaudited £ | 31 March 2015 Audited£ |
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Other receivables | 499,900 | 575,848 | 499,900 |
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On 10 January 2013, the Group entered into a contract to purchase 20,000 cubic meters of Gasoil at a price of US$775 per cubic meter. On entering the contract the Group paid a refundable deposit of £499,900. If the Group chooses not to perform on the contract, the deposit will be refunded. The contractor, at their sole discretion, has the right to impose a 2.25% fee for any amounts refunded for non-performance.
On 4 November 2013, the Company entered into a convertible debt agreement with Maverick Petroleum Ltd, a company incorporated in the Republic of Seychelles, in the principal amount of CAD$125,000. The loan had a term of 12 months and accrued interest at 7% per annum until maturity, and was convertible at the option of the Company into shares of the borrower at $1.95 per share. On 30 October 2014, the principal amount and interest CAD$3,750 were converted into 66,026 common shares of Maverick Petroleum Ltd.
The balance was transferred to available for sale financial assets as detailed in note 5. |
8. TRADE AND OTHER PAYABLES
30 September 2014 Unaudited £ | 30 September 2014 Unaudited £ | 31 March 2015 Audited £ | ||||||
Trade payables | 145,094 | 192,809 | 178,990 | |||||
Accruals and deferred income | 74,500 | - | 70,500 | |||||
219,594 | 192,809 | 249,490 | ||||||
9. RELATED PARTY TRANSACTIONS AND BALANCES
The Group's related parties, as defined by International Accounting Standard 24 (revised), the nature of the relationship and the amount of transactions with them during the 6 months ended 30 September 2015 were as follows: The Group was charged £12,000 (2014 - £12,000) in consulting fees by CFO Advantage Inc., a company that is controlled by K. Appleby (Finance Director). At 30 September 2015, the Company owed CFO Advantage Inc. £24,000 (2015 - £12,000). |
The Group was charged £nil (2014 - £7,500) in consulting fees by AT Investments, a company of which A.E. Taubi (former Non-executive Director in the period) was a director of.
The Group was charged £12,000 (2014 - £12,000) in consulting fees by Dr P.H. Cross (Non-executive Chairman). At 30 September 2015 the Company owed Dr. P.H. Cross £4,000 (2015 - £16,363). On 6 May 2015, the Company allotted a total of 440,291 Ordinary shares at 4.625p per share to Dr P.H. Cross in settlement of director's fees and expenses of £20,363 for the period from 1 July 2014 to 30 April 2015.
The Group was charged £60,000 (2014 - £12,000) in consulting fees by Zorcorp Capital Holdings, a company that is controlled by J. Zorbas (Chief Executive Officer). At 30 September 2015 the Company owed Zorcorp Capital Holdings £60,000 (2015 - $111,150). On 6 May 2015, the Company allotted a total 2,594,595 Ordinary shares to J. Zorbas in settlement of invoices totaling £120,000 in respect of his consultancy contract with the Company, for the period 1 April 2014 to 31 March 2015.
10. SHARE CAPITAL
a) Shares authorised On 16 July 2014 the Company consolidated its share capital so that every 50 Ordinary shares of £0.001 in the issued share capital of the Company be consolidated into one Ordinary share of £0.05 (New Ordinary share). Each New Ordinary share would have the same rights and would be subject to the same restrictions as an existing Ordinary share. Following the consolidation the New Ordinary shares were sub divided into one Ordinary share of £0.001 and one Deferred share of £0.049.
b) Shares issued Called up, allotted and fully paid:
|
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| 30 September 2015 £ | 31 March 2015 £ | |||||||
15,644,515 ((March 31, 2015 -12,609,629) New Ordinary shares of £0.001 and 15,444,479 (March 31, 2015 - 11,238,797) Deferred shares of £0.049 (11,238,797) | 556,247 | 553,212 | |||||||
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(i) On 6 May 2015, the Company allotted a total of 3,034,886 Ordinary shares at 4.625p per share (being the mid-market closing price at the close of business on 5 May 2015). Of these shares, 440,291 Ordinary shares have been allotted to Dr P.H. Cross in settlement of director's fees and expenses of £20,363 for the period from 1 July 2014 to 30 April 2015 and 2,594,595 Ordinary shares have been allotted to J. Zorbas in settlement of invoices totaling £120,000 in respect of his consultancy contract with the Company, for the period 1 April 2014 to 31 March 2015.
200,000 Ordinary shares of £0.001 and 200,000 Deferred shares of £0.049 have been fully paid but not yet allotted. The par value and premium paid for these shares are held in the shares to be issued reserve. |
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c) Share purchase warrants The following summarises the activity to 30 September 2015: |
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Warrants outstanding | Value £ |
| |||||||
Balance at 31 March 2015 | 20,000 | 60,000 |
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Expired 29 May 2015 | (20,000) | (60,000) |
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Balance at 30 September 2015 | - | - |
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No warrants were issued during the six months ended 30 September 2015.
d) Stock options On 16 July 2014 the Company granted an option to J. Zorbas, the Company's Chief Executive Officer in the period, to subscribe at any time during the 10 year period from the date of grant for 100,049 (pre-consolidation) Ordinary Shares at an exercise price of 0.1p per share (pre consolidation price). J. Zorbas exercised this option and 100,049 Ordinary Shares were issued on 16 July 2014 by the Company credited as fully paid.
The following summarises the activity: |
The fair value of the options issued during the period ended 30 September 2014, was estimated at £nil using the Black-Scholes option pricing model with the following assumptions:
Risk free interest rate 2.20 %
Expected dividend yield nil
Expected volatility 100 %
Expected life 0 years
Option pricing models require the input of subjective assumptions regarding the expected volatility. Volatility is difficult to ascertain given that the company is still in the development stage, therefore it has been set at 100%. Changes in assumptions can materially affect the estimate of fair value, and therefore, the use of the Black-Scholes option pricing model, as required by IFRS, may not provide a realistic measure of the fair value of the Company's warrants at the date of issue.
There were no options issued in the six month period ended 30 September 2015.
11. LOSS PER ORDINARY SHARE
Basic loss per share is calculated by dividing the loss attributable to equity holders of the Group by the weighted average number of Ordinary shares in issue during the period.
2015 | |
Loss attributable to equity holders of the Group | £(180,876) |
Weighted average number of Ordinary shares in issue | 15,060,833 |
Basic loss per share | £ (0.01) |
Diluted loss per share is calculated by adjusting the weighted average number of Ordinary shares in issue to assume the conversion of all dilutive potential Ordinary shares at the start of the period. The Group's dilutive potential Ordinary shares arise from warrants. In respect of the warrants a calculation is performed to determine the number of shares that could have been acquired at fair value, based upon the monetary value of the subscription rights attached to the outstanding warrants. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the warrants.
There were no potentially dilutive warrants as the exercise price exceeded the average market price of the Ordinary shares during the period. Any potentially dilutive Ordinary shares would have been anti-dilutive because the Group was loss-making.
12. EVENTS AFTER THE REPORTING DATE
The Company issued a total of 1,782,294 New Ordinary Shares in settlement of director fees and other advisory fees and charges pursuant to a board resolution dated 30 September 2015. Of these shares, 523,415 New Ordinary Shares have been allotted to Kyle Appleby, a non-executive director of the Company, at 3.63p per share in settlement of fees charged under his letter of appointment. The remaining 1,258,879 New Ordinary Shares have been allotted at an average price of 3.97p per share in settlement of advisory fees and charges. The Company on December 3rd notified its intent not to perform on the Gasoil contract and has requested to be refunded the amount owing. These funds will be received in early January 2016.
13. ULTIMATE CONTROLLING PARTY
In the opinion of the Directors there is no ultimate controlling party.
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