FOR IMMEDIATE RELEASE                                                         7.00am on 8 February 2012

 

TXO PLC

("TXO" or the "Company")

 

ANNUAL REPORT AND ACCOUNTS TO 30 SEPTMBER 2011

NOTICE OF AGM

EXERCISE OF WARRANTS

 

Annual Report and Accounts and Notice of AGM

 

The Board of TXO is pleased to announce that it has posted its audited Annual Report and Accounts for the year ended 30 September 2011 to Shareholders today along with a Notice of AGM. Contained in the Notice of AGM is a covering letter to Shareholders setting out the Company's proposed new Investing Policy (Set out in Appendix 2 to this Announcement). Copies of these documents are available from the Company's website, www.txoplc.co.uk. The Company's AGM will be held at 2nd Floor Suite, 30 Clarendon Road, Watford, Hertfordshire, WD17 1JJ on Monday 5 March 2012 at 11.00am. 

 

The Chairman's Statement is set out below whilst the further extracts from the Accounts are contained in Appendix 1 to this Announcement.

 

CHAIRMAN'S STATEMENT

 

This set of Annual Accounts is the first presented since I took over as Chairman of TXO PLC.  In the last financial year the board has been restructured and strengthened; the Company has established an investment policy following the disposal of its main operating subsidiary in the United States; the Company has completed two fund raisings (one during the financial year and one after), and three investments have been made (one in the year under review and two after) under the new investment policy. We are enclosing a Circular with these Accounts to seek Shareholder's approval to widen our investing policy to include all fossil fuels, such as oil and gas, coal and coal bed methane.

 

These Annual Accounts represent half a year of operations under the stewardship of the previous management and half a year under the new board. The company started the year in a loss-making position with significant debts and with significant overdue creditors and was suspended until March due to the lack of publication of results. Conversely, by the year end the Company had discharged its creditors, made investments and had cash in the bank to the tune of $409,000. 

 

Under the current investment policy the Company is deliberately putting together a portfolio of assets at varying stages of the development cycle.  The style of investment is to consider relatively distressed situations which are underpinned by solid opportunities that can be enhanced by better management practices and/or more capital.  In this respect the Company deliberately intends to play an active part where necessary or requested in assisting its investee companies operationally with a view to maximising returns for shareholders.

 

To date, the Company has taken minority stakes in its investee companies but does not rule out taking majority control through any further investment if necessary or where we believe such a deal represents value. However, we are mindful of working within the constraints of AIM rules.

 

Outlook

 

Grand Bahamas Group

 

During the year TXO made an investment of $781,400 for a 10% share in the Grand Bahamas Group (GBG).  Since year end this has been increased to 14.4% on the same terms. Since our initial investment GBG has steadily increased production in its US oil and gas fields to around 40bopd. The company has identified further upside to production via further development using modern technology such as tracking and horizontal drilling. The company has completed an upgrade to its independent Competent Persons Report and upgraded the Net Present Value (NPV) "10" on the field to circa $28m ($4m net to TXO). The majority of the investment in GBG has been used on business planning and applications for licenses.  These licences cover the distribution of new lubricants in the Bahamas and recycling of waste marine oil through a port side facility in Freeport. The Directors expect that the final application will be approved by Grand Bahama Port Authority subject to Government's notation. The company intends to start developing this activity and generating revenue over the coming year. We remain excited at the opportunity presented by GBG.

 

Empire Energy

 

We concluded post year end an investment into a convertible loan to Empire Energy giving us conversion rights into 19.9% of the fully diluted equity.  Empire has advised they have secured drilling and seismic contractors and permits to carry out the drilling in Tasmania and that they are in the process securing funds to do so. In addition, Empire has other related and unrelated opportunities with investment potential that they are looking to exploit.

 

 

East African Oil Company

 

Post year end, we concluded a modest seed investment of £50,000 in the form of a convertible loan (giving us conversion rights into 67% of ordinary share capital) to bid on certain oil and gas interests within the East African Rift System. It brings together funding partners with a track record of investment in East Africa, geo-technical data and analysis historically conducted by the company, operational expertise to execute the business plan and multiple relationships at a high political level in respective countries.

 

New Opportunities

 

The Company is looking at new opportunities to invest as well as further investment into its current portfolio. Further disclosures will be made in due course. Subject to Shareholder's agreeing the widen investing policy, given the opportunities the Board sees in the coal sector, the Company is to seek shareholder approval for an amendment to the investing policy to include fossil fuels and clean technology as well as to widen the geographical area of focus.

 

 

 

Exercise of Warrants

 

In addition, the Board of TXO has also issued and allotted 10,000,000 new Ordinary Shares of 0.1p each at a price of 0.5p per Ordinary Share following receipt of a form of notice of exercise of warrants. The funds received by the Company on exercise of the warrants totalled £50,000.

 

The new Ordinary Shares will rank, pari passu, with the existing ordinary shares. Application has been made for these new Ordinary Shares to be admitted to trading on AIM and admission is expected to take place on or around 13 February 2012.

 

This brings the total number of Ordinary Shares in the Company with voting rights to 442,169,247.

 

 

For further information, please contact:

 

TXO PLC

Tim Baldwin, Chairman +44 (0) 771 287 2820

 

Beaumont Cornish Limited

Roland Cornish and James Biddle +44 (0) 20 7628 3396

 

 

Appendix 1

 

DIRECTORS' REPORT

 

The directors submit their report together with the audited accounts of the Company and of the Group for the year ended 30 September 2011.   

 

Financial results

The loss on ordinary activities after taxation amounted to $709,301 (2010: $12,290,705).

 

The production for the 6 months to 31 March 2011, the latest practical date before disposal of the subsidiary, was 7,255 barrels, compared with 33,601 barrels produced for the previous 18 months to 30 September 2010.

 

The loss per share relating to continuing and total operations amounted to (0.34c) (2010 : 12.86c).

 

The directors do not recommend the payment of a dividend.

 

Principal activities

The principal activity of the Group until 14 April 2011 was oil and gas production and development.  From 15 April 2011 until the 30 September 2011 the principal activity of the Group was investment holding.  A review of the Group's operations for the period ended 30 September 2011 and an indication of likely future developments are set out on pages 4 - 5.

 

Directors

The directors of the Company during the year were:

 

Executive:

Timothy Baldwin	-  Appointed 15 April 2011
Iain May	-  Appointed 15 April 2011 and Resigned 18 October 2011
David Michael Chandler	-  Resigned 18 October 2011
Andrew Glendinning
Non executive:
Thomas Cooke	-  Resigned 15 April 2011
Hayden Scott Stiles	-  Resigned 15 April 2011
Richard Derek Harvey

 

Daniel French was appointed as a director on 18 October 2011.

 

All the directors retire by rotation and offered themselves for re-election at the forthcoming AGM.

 

DIRECTORS' REPORT (continued)

 

The interests of the directors (including persons connected with them within the meaning of sections 253 to 255 of the Companies Act 2006) holding office at 30 September 2011 in the share capital of the Company were as follows:

 

	At 30 September 2011	At 30 September 2010
	Ordinary shares Number	Ordinary shares Number
Timothy Baldwin	5,000,000	Nil
Iain May	Nil	Nil
David Michael Chandler	34,000	34,000
Andrew Glendinning	200,000	200,000
Richard Harvey	1,000,000	1,000,000

 

In addition to the above, M-C held 21,693,000 ordinary shares of 0.1 pence each in the Company at 30 September 2011 (2010: 21,693,000). David Michael Chandler is the sole shareholder and president of M-C. 

 

Hill Street Investments Plc ("HSI") held 10,000,000 ordinary shares of 0.1 pence each in the company at 30 September 2011 (2010 : Nil).  Timothy Baldwin is the director and a shareholder of HSI.

 

 

DIRECTORS' REPORT (continued)

 

The interests of the directors (including persons connected with them within the meaning of section 253 to 255 of the Companies Act 2006) holding office at 30 September 2011 in the options and warrants over the share capital of the Company were as follows:

 

6.375p options	At 30 September 2011	At 30 September 2010
	Number	Number
Timothy Baldwin	Nil	Nil
Iain May	Nil	Nil
David Michael Chandler	2,000,000	2,000,000
Andrew Glendinning	2,000,000	2,000,000
Richard Harvey	Nil	Nil

 

0.5p warrants	At 30 September 2011	At 30 September 2010
	Number	Number
Timothy Baldwin	Nil	Nil
Iain May	Nil	Nil
David Michael Chandler	63,000,000	Nil
Andrew Glendinning	36,541,353	Nil
Richard Harvey	7,048,872	Nil

 

As at 30 January 2012, the latest practicable date prior to publication of the Annual Report, the directors holding office at that date had interests in the share capital of the Company, all of which are beneficial, as follows:

		2011 Ordinary shares Number	2010 Ordinary shares Number
Timothy Baldwin		5,000,000	Nil
David Michael Chandler		34,000	34,000
Andrew Glendinning		200,000	200,000
Richard Harvey		1,000,000	1,000,000

 

M-C also held 21,693,000 ordinary shares of 0.1 pence each in the Company at 30 January 2012. 

 

Save as disclosed above, none of the directors (or any person connected with them within the meaning of Section 253 to 255 of the Companies Act 2006) had any interest in the share capital of the Company at the dates specified.

 

Research and development activities

The Company's subsidiary held until 15 April 2011, TOGS Energy Inc., is an independent energy company engaged in the acquisition, exploration, development, and operation of oil and gas properties with a geographical focus in the East Texas region of the United States of America.

 

Substantial interests

As far as is known to the directors, the following persons have interests (within the meaning of Part 15 of the Companies Act 2006) representing 3% or more of the issued ordinary shares of 5 pence each in the share capital of the Company at 30 January 2012.

 

			At 30 January 2012
			Number	%
Sunvest Corporation Limited			62,625,000	14.49%
W B Nominees			69,000,000	15.97%
Swandale Limited			-	-
TD Direct Investing Nominees			38,136,049	8.82%
L R Nominees Limited			14,292,499	3.31%
Forest Nominees Limited			27,503,000	6.36%
Barclayshare Nominees Limited			16,066,629	3.72%
Share Nominees Limited			18,882,275	4.37%
Better Loyal Investments Limited			26,547,369	6.14%

Share capital

 

Details of ordinary shares and warrants issued during the year are shown in notes 23-25 to the accounts.

 

Staff policy

 

The company is committed to a policy of recruitment and promotion on the basis of aptitude and ability. Applications for employment by disabled persons are given full and fair consideration having regard to their particular aptitudes and abilities. Where existing employees become disabled, it is the Company's policy, wherever possible, to provide continuing employment under normal terms and conditions and to provide training, career development and promotion wherever appropriate.

 

Payment policy and practice

 

It is the Company's policy to settle the terms of payment for the provision of services when agreeing terms of the transaction, to ensure that the suppliers are aware of those terms and to abide by them. The average credit taken for trade purchases is 72 days (2010: 67 days). 

 

Auditors

 

Kingston Smith LLP were appointed as auditors on 24 January 2011, and have been re-appointed under Section 489 of the Companies Act 2006.

 

 

Auditors right to information

 

Each person who is a director at the date of approval of this report confirms that:

 

·     So far as the Directors are aware, there is no relevant audit information of which the auditors are unaware; and

·     That director has individually taken all the steps that he or she ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Company auditors are aware of that information.

 

Statement of directors' responsibilities

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and the Company financial statements in accordance with IFRS as adopted by the EU.

 

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the Group and the financial performance and cash flows of the Group for that year. In preparing these financial statements, the Directors are required to:

 

·     select suitable accounting policies and then apply them consistently;

·     make judgements and accounting estimates that are reasonable and prudent;

·     state whether in preparation of the Group financial statements the Group has complied with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the group financial statements;

·     state whether in preparation of the parent company financial statements applicable International accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·     prepare the accounts on the going concern basis unless it is inappropriate to presume that the company will continue in business.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions

 

 

REPORT ON DIRECTORS' REMUNERATION

 

Remuneration policy

 

The Company aims to ensure that pay is set at an appropriate level and is comparable with peer group companies in the independent oil and gas sector.  Remuneration currently consists of salary without pension benefits.

 

Options and Warrants

 

The board believes that the attraction, motivation and retention of senior management is central to the Company's success.  The ability to grant options and warrants to key personnel as an incentive is an important and effective means of achieving this objective.  Options and warrants are also issued to directors. 

 

The remuneration (including options granted) earned by each director was as follows:

                                                                                                         

	Year ended 30 September 2011					Period 1 April 2009 to 30 September 2010
Executive directors:	Cash equivalent of options granted $	Remuneration $	Total $			Remuneration                 $
Timothy Baldwin	-	31,451	31,451			-
Iain May	-	20,889	20,889			-
David Michael Chandler	303,710	(444,650)	(140,939)			279,087
Andrew Glendinning	176,158	(274,990)	(98,832)			108,413
Non-Executive directors:
Thomas Cooke	20,389	(32,739)	(12,350)			22,586
Hayden Scott Stiles	36,700	(66,278)	(29,578)			22,586
Richard Harvey	33,981	(24,881)	9,100			37,643
Former directors:
P Smith (deceased)	-	(28,208)	(28,208)			-
L Ponder	-	(1,310)	(1,310)			-
	570,938	(820,716)	(249,777)			470,315

During the year warrants were issued to directors in lieu of all accrued liabilities in respect of previous years unpaid remuneration.  No benefits were made available to any of the directors in either year.

 

 

REPORT ON DIRECTORS' REMUNERATION (continued)

 

Options and warrants held by directors serving during the year were as follows:

	Scheme	Exercise Price	Number of options at beginning of year	Number of options granted in the year	Number of options at the end of year
Timothy Baldwin		-	-	-	-
Iain May		-	-	-	-
David Michael Chandler	6.375p options	6.375p	2,000,000	-	2,000,000
	0.5p warrants	0.5p	-	63,000,000	63,000,000
Andrew Glendinning	6.375p options	6.375p	2,000,000	-	2,000,000
	0.5p warrants	0.5p	-	36,541,353	36,541,353
Thomas Cooke	0.5p warrants	0.5p	-	4,229,323	4,229,323
Hayden Scott Stiles	6.375p options	6.375p	333,333	-	333,333
	0.5p warrants	0.5p	-	7,612,782	7,612,782
Richard Harvey	0.5p warrants	0.5p	-	7,048,872	7,048,872

 

 

No options or warrants were exercised by directors during the period ended 30 September 2011.

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

For the year ended 30 September 2011

 

	Notes					Year ended 30 September 2011			18 Month period to 30 September 2010
Continuing operations						$			(as restated)                    $
Administrative expenses	7					(465,601)			(458,457)
Operating loss	6					(465,601)			(458,457)
Finance costs	5					(4,405)			(2,374)
Finance income	4					7,915			1,559
Loss from continuing operations						(462,091)			(459,272)
Taxation on ordinary activities	10					1,710			-
Loss on continuing activities after taxation						(460,381)			(459,272)
Loss on discontinued operations	8					(248,920)			(11,831,433)
Loss for the financial year/period	27					(709,301)			(12,290,705)
Currency translation differences						(81,962)			(347)
Other comprehensive income						(81,962)			(347)
Total comprehensive income : Attributable to equity holders of the parent						(791,263)			(12,291,052)
Loss per share relating to continuing and total operations
Basic (cents)	11					(0.34)			(12.86)
Fully diluted (cents)	11					(0.34)			(12.86)
Loss per share relating to continuing operations
Basic (cents)	11					(0.22)			(0.32)
Fully diluted (cents)	11					(0.22)			(0.32)

 

 

CONSOLIDATED BALANCE SHEET (Company No. 2398784)

 

As at 30 September 2011

	Notes									2011				2010
										$				$
Non-current assets
Intangible assets	12									-				4,997,313
Property, plant and equipment	13									-				3,050,936
Investments	14									781,400				-
										781,400				8,048,249
Current assets
Inventories	15									-				18,720
Trade and other receivables	16									67,716				988,843
Investments	17					677,699									-
Cash and cash equivalents	18									408,862				251,129
										1,154,277				1,258,692
Total assets										1,935,677				9,306,941
Equity
Shareholders Equity
Share capital	23									9,139,110				8,752,846
Share premium	24									11,232,267				9,824,450
Options and warrants reserve	25									963,442				301,007
Retained earnings	26									(20,341,269)				(19,550,006)
Total equity attributable to equity holders of the parent										993,550				(671,703)
Current liabilities
Trade and other payables	19									181,727				4,000,525
Bank overdrafts	20									-				4,267
Current portion of long term borrowings	20									-				170,565
										181,727				4,175,357
Non-current liabilities
Provisions	22								-						2,735,766
Long term borrowings	20								760,400						3,067,521
										760,400				5,803,287
Total liabilities										942,127				9,978,644
Total equity and liabilities										1,935,677				9,306,941

 

The accounts on pages 22 to 56 were approved by the board and authorised for signature on 2 February 2012.

                                                                                                                                   

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

For the year ended 30 September 2011

 

	Share capital	Share premium	Warrant reserve	Retained earnings	Total
	$	$	$	$	$

 

Balance at 1 April 2009	8,746,098	9,731,542	391,202	(7,349,149)	11,519,693

 

Changes in equity
Issue of share capital	6,748	92,908	-	-	99,656
Unwinding of cancelled warrants	-	-	(90,195)	90,195	-
Total comprehensive income	-	-	-	(12,291,052)	(12,291,052)
Balance at 30 September 2010	8,752,846	9,824,450	301,007	(19,550,006)	(671,703)
Changes in equity
Issue of share capital	386,264	1,581,983	-	-	1,968,247
Expenses of share capital issue	-	(174,166)	-	-	(174,166)
Cash equivalent of warrants granted	-	-	662,435	-	662,435
Total comprehensive income	-	-	-	(791,263)	(791,263)
Balance at 30 September 2011	9,139,110	11,232,267	963,442	(20,341,269)	993,550

 

 

 

COMPANY STATEMENT OF COMPREHENSIVE INCOME

 

				Year ended 30 September 2011	18 month period to 30 September 2010
				$	$

 

Loss for the year							(491,952)	(14,398,748)
Currency translation differences							(80,235)	(2,806)
Total Comprehensive income							(572,187)	(14,401,554)

 

 

 

COMPANY STATEMENT OF CHANGES IN EQUITY

 

For the year ended 30 September 2011

 

Share capital Share premium Warrant reserve Retained earnings Total $ $ $ $ $   Balance at 1 April 2009 8,746,098 9,731,542 391,202 (5,457,723) 13,411,119       Changes in equity   Issue of share capital 6,748 92,908 - - 99,656   Unwinding of cancelled warrants - - (90,195) 90,195 -   Total comprehensive income - - - (14,401,554) (14,401,554)     Balance at 30 September 2010 8,752,846 9,824,450 301,007 (19,769,082) (890,779)   Changes in equity Issue of share capital 386,264 1,581,983 - - 1,968,247   Expenses of share capital issue - (174,166) - - (174,166)   Cash equivalent of warrants granted - - 662,435 - 662,435   Total comprehensive income - - - (572,187) (572,187)     Balance at 30 September 2011 9,139,110 11,232,267 963,442 (20,341,269) 993,550

 

CONSOLIDATED CASH FLOW STATEMENT

 

For the year ended 30 September 2011

	Notes		2011		2010
			$		$
Operating cash flows from continuing operations	29		(611,233)		161,326
Operating cash flows from discontinued operations	29		(44,926)		301,138
Net cash (outflow)/inflow from operating activities			(656,159)		462,464
Investing cash flows from continuing operations
Purchase of fixed asset investments			(781,400)		-
Purchase of current asset investments			(1,148,999)		-
Proceeds from current asset investments			471,300		-
Interest received			-		1,559
Cash (used)/generated in investing activities of continuing operations			(1,459,099)		1,559
Investing cash flows from discontinued operations
Purchase of intangible fixed assets	33		(8,425)		(5,000)
Proceeds from disposal of intangible fixed assets	33		200,000		41,500
Net cash outflow from disposal of subsidiary	31		(244,042)		-
Interest received			388		5,151
Cash (used)/generated from investing activities of discontinued operations			(52,079)		41,651
Net cash (outflow)/inflow from investing activities			(1,511,178)		43,210
Financing cash flows from continuing operations
Share capital issue	30		1,907,789		-
Expenses of share issue			(174,161)		-
Proceeds from long term borrowing			781,400		-
Interest paid			(177)		(2,374)
Net cash generated/(used) in financing activities of continuing operations			2,514,851		(2,374)
Financing cash flows from discontinued operations
Repayment of long term borrowing			(185,283)		(134,779)
Interest paid			(231)		(371,326)
Net cash used in financing activities of discontinued operations			(185,514)		(506,105)
Net cash inflow/(outflow) from financing activities			2,329,337		(508,479)
Net increase/(decrease) in cash and cash equivalents			162,000		(2,805)
Cash and cash equivalents at beginning of period			246,862		249,667
Cash and cash equivalents at end of period	34		408,862		246,862

 

 

COMPANY CASH FLOW STATEMENT  (continued)

 

For the year ended 30 September 2011

 

	Notes		2011		2010
			$		$
Cash outflows from operating activities	29		(578,023)		(113,873)
Cash flows from investing activities
Net costs of disposal of fixed asset investments			(31,203)		-
(Payments to)/proceeds from fixed asset investments	32		(31,850)		103,823
Purchase of fixed asset investments			(781,400)		-
Purchase of current asset investments			(1,148,999)		-
Proceeds from current asset investments			471,300		-
Interest received			-		1,559
Cash (used)/generated from investing activities			(1,522,152)		105,382
Cash flows from financing activities
Share capital issue	30		1,907,789		-
Expenses of share issue			(174,161)		-
Proceeds from long term borrowing			781,400		-
Interest paid			(177)		(2,375)
Net cash generated/(used) in financing activities			2,514,851		(2,375)
Net increase/(decrease) in cash and cash equivalents			414,676		(10,866)
Cash and cash equivalents at beginning of year			(5,814)		5,052
Cash and cash equivalents/(net debt) at end of year	34		408,862		(5,814)

 

 

 

NOTES TO THE ACCOUNTS

 

1.  General information

 

TXO Plc is a public company incorporated in England and Wales and its shares are quoted on the Alternative Investment Market ("AIM") of the London Stock Exchange Plc.  The principal activities of the Company and its subsidiary (the "Group") are described on page 9 of the Directors' Report.

 

2.  Significant accounting policies

 

The accounts have been prepared in accordance with International Financial Reporting Standards (IFRSs). The accounts fall within the scope of the Statement of Recommended Practice, "Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities", issued by the Oil Industry Accounting Committee ("SORP"). The accounts, including disclosures, have been prepared in accordance with the provisions of the SORP currently in effect.

 

The following accounting policies have been consistently applied:

 

Basis of preparation and going concern

 

The measurement basis used in the preparation of the accounts is historical cost.  

 

The group incurred a loss of $791,263 during the year ended 30 September 2011. However, at that date, the company's had net assets of $993,550 including cash reserves of $408,862.

 

On 11 November 2011, the Company completed the issue of Convertible Loan Notes totalling £961,200, due for repayment on 30 April 2013 or, on the election of the note holders, may be converted in whole or in part into ordinary shares at a conversion price of 0.75p per share. 

 

The Directors have received requests from existing warrant holders to exercise their right to subscribe for shares in the company. In addition, some convertible loan note holders have already converted £100,000 of their loans into ordinary shares and others have indicated that they may do likewise.

 

The Directors also have interested parties who were unable to participate in the convertible loan note completed 11 November 2011 because of the need to seek shareholder's approval to grant the Directors' authority to issue new equity or equity type equivalents, such as Convertible Loan Notes. The company received shareholder approval to issue 200 million additional shares (£200,000 nominal value) at the General Meeting held on 16 December 2011.

 

The Directors have prepared a forecast which include such monies already received together with those expected to be received shortly will provide the company with sufficient funds to settle its current obligations and provide funds required to continue to operate the company for the next 12 months from the date of signature of these financial statements. 

 

In keeping with other investment companies, the growth of the company is dependent on its ability to invest in current projects and new opportunities. The ability to raise this additional finance is critical to the group's growth objective. The directors are confident in their ability to finance future projects and opportunities by raising funds in the market.

 

Accordingly the directors consider that it is appropriate to use the going concern basis when preparing the financial statements.

 

 

2.  Significant accounting policies (continued)

 

Basis of consolidation

 

The consolidated financial statements include the results of the parent company, TXO plc, drawn up to 30 September 2011, and the entities it controlled during the year (its subsidiaries) until the date of disposal, 14 April 2011. All intra group transactions, balances, income and expenses are eliminated on consolidation.  Control comprises the power to govern the financial and operating policies of the subsidiaries so as to obtain benefit and is achieved through director and indirect ownership of voting rights.

 

In the Company's financial statements, investments in subsidiaries are carried at cost less any impairment that has been recognised in the profit and loss.

 

The acquisition of subsidiaries is accounted for on the purchase basis. On acquisition all the subsidiary's assets and liabilities which existed at the date of acquisition are recorded at their fair values reflecting their condition at the time. 

 

A list of significant investments in subsidiaries, including name, country of incorporation and proportion of ownership interest is included in note 14 to the Company's accounts. The parent company statement of comprehensive income is detailed on page 26.  A separate profit and loss account setting out the results of the parent company is not presented as permitted by Section 408 of the Companies Act 2006. 

 

An associate is an entity over which the Group is in a position to exercise significant influence through participation in the financial and operating policy decisions of the investee, but which is not a subsidiary.  The results, assets liabilities of associates are incorporated in using the equity method of accounting.  No investments in associates were held during this financial year.

 

An investment is an entity in which the Group has a non-controlling interest and are included in the financial statements at cost.

 

Goodwill

 

Goodwill on acquisition of subsidiaries represents the excess of the cost of acquisition over the fair value of the Group's share of the net identifiable assets and contingent liabilities acquired. Identifiable assets are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised but tested annually for impairment or when trigger events occur, and is carried at cost less accumulated impairment losses.

 

Significant accounting judgements and sources of estimation uncertainty

 

The preparation of financial statements under IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and assumptions are reviewed on an ongoing basis and any revision to estimates or assumptions are recognised in the period in which they are revised and in future periods affected. Significant estimates are made in determining the value of investments and, when possible,  any embedded elements. 

 

2.  Significant accounting policies (continued)

Valuation of intangible assets

The Group's intangible assets comprised oil and gas leases and development costs, and the value was dependent upon the success of the Group in exploiting and developing its current oil and gas properties.

 

Revenue

 

The Group's development and production activities were conducted by M-C. Due to the disposal of this operation during the year, all revenue is included within discontinued items and detailed within note 8. Revenue represents the Group's share of sales of oil during the year, excluding sales tax and royalties. All income arises from the United States of America. Revenues associated with sales of oil and gas are recorded when title passes to the customer. Revenues from the production in which the Company has an interest with the other producers are recognised on the basis of the Company's net working interest.

 

Segmental reporting

A business segment is a group of assets and operations engaged in providing services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing services within a particular economic environment that are subject to risks and returns that are different from those of segment operations in other economic environments.   Following the disposal of the Group's only subsidiaries, the company's primary activity was holding investments operating in the oil and gas sector.  These operations are reported to and monitored by the board as one segment, and as such the Directors consider that the results of the period relate to one economic segment only.  The restructured company operates in two geographical segments, the US and Australasia.  There are not considered to be any other operating segments as defined in IFRS 8 "Operating Segments".  54% of the Group's revenue arising from discontinued activities related to one major customer (2010: 47%)

 

Oil & gas leases and development costs

 

The Group follows the full-cost method of accounting for oil and gas properties.  Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalised into a "full-cost pool".

 

All capitalised costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves.  Costs directly associated with the acquisition and evaluation of unproved properties are excluded from the amortisation base until the related properties are evaluated.  Such unproved properties are assessed periodically and a provision for impairment is made to the full-cost amortization base when appropriate.  Amortisation of oil and gas leases and development costs are included within Costs of Sales.

 

Sales of oil and gas properties are credited to the full-cost pool unless the sale would have a significant effect on the amortisation rate.  Abandonments of properties are accounted for as adjustments to capitalised costs with no loss recognised.  Oil and gas drilling and workover equipment used primarily on the Group's properties are included in the full-cost pool.

 

 

2.  Significant accounting policies (continued)

 

The net capitalised costs are subject to a "ceiling test" which limits such costs to the aggregate of the estimated present value of future net revenues from proved reserves discounted at ten percent based on current economic and operating conditions.

 

The recoverability of amounts capitalised for oil and gas properties is dependent upon the identification of economically recoverable reserves, together with obtaining the necessary financing to exploit such reserves and the achievement of profitable operations.

 

Property, plant and equipment

 

Property, plant and equipment are stated at cost, less accumulated depreciation.  Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives using the straight line method.  Major repairs or replacements of property, plant and equipment are capitalised.  Maintenance, repairs and minor replacements are charged to operations as incurred.  When units of property are retired or otherwise disposed of, their cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in operations. 

 

Depreciation of office equipment, fixtures and fittings is provided at 33.3% per annum on cost.

 

Impairment of intangible assets and property, plant and equipment

 

Assets or groups of assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, for example low revenues, margins or downward trends in production volumes.  If any such indication of impairment exists, an assessment is made of the asset's recoverable amount.  Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable independent cash flows.  The recoverable amount of an asset or asset group is the higher of fair value less costs to sell or value in use.  Where the carrying amount exceeds the recoverable amount, the asset group is considered impaired and is written down to its recoverable amount, with the loss recognised in the profit and loss.  At each reporting date if there is any indication that previously recognised impairment losses may no longer exist or have decreased, the recoverable amount is estimated and the impairment loss reversed where there has been a change in the estimates used.

 

Certficates of deposit

 

At 30 September 2010 the Group had one $250,000 certificate of deposit, bearing interest at 4.25%, which was stated at cost, with fair value estimated to approximate book value.  The certificate was disposed of as part of the sale of the company's subsidiaries.

 

Investment in subsidiaries

 

Investments in subsidiaries represent share capital purchased plus loans to subsidiaries which are unlikely to be repaid in the foreseeable future and are considered as permanent funding.  Investments in subsidiaries are included as fixed asset investments at cost less any provision for impairment. The carrying value of investments in subsidiaries is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. The carrying amount of the investment is reduced, with the amount of the loss recognised in the profit and loss.  The directors believe that this method is appropriate in the circumstances of the Company.

 

 

2.  Significant accounting policies (continued)

 

Fixed asset investments

 

Fixed asset investments represent non-controlling interests in the share capital of unquoted companies. Where it is possible to determine a reliable fair value for such investments they are stated at fair value with changes in value being shown in equity; where it is not possible to determine a reliable fair value due to the wide range of possible estimates, and the probabilities of the various estimates cannot be reasonably assessed, such investments are stated at cost less impairment as required by IAS 39.

 

The carrying value of investments is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. The carrying amount of the investment is reduced, with the amount of the loss recognised in the profit and loss. 

 

Current asset investments

 

Current asset investments represent loans and receivables with fixed or determinable repayments due within one year.  The assets are carried at amortised cost using the effective interest rate if the time value of money is significant.  The carrying value of investments is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. The carrying amount of the investment is reduced, with the amount of the loss recognised in the profit and loss. 

 

Deferred tax

 

Deferred tax is recognised, using the liability method, in respect of temporary differences between the carrying amount of the Group's assets and liabilities and their tax base. Deferred tax liabilities are offset against deferred tax assets within the same taxable entity or qualifying local tax group. Any remaining deferred tax asset is recognised only when, on the basis of all available evidence, it can be regarded as probable that there will be suitable taxable profits, within the same jurisdiction, in the foreseeable future against which the deductible temporary difference can be utilised. Deferred tax is determined using tax rates that are expected to apply in the periods in which the asset is realised or liability settled, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in the profit and loss, except when the tax relates to items charged or credited directly to equity, in which case the tax is also recognised in equity.

 

Operating leases

 

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits as incurred.

 

Foreign currencies

 

The functional currency of the Oil & Gas industry is considered to be US dollars and therefore the financial statements have been prepared in US dollars in order that the results are comparable for the Company's shareholders, with other companies in the Oil & Gas sector.  The functional currency of TXO plc is £ sterling.  Monetary assets and liabilities held in the parent company in sterling are translated into US dollars at the rate of exchange ruling at the balance sheet date. Non-monetary items that are denominated in the presentational currency are not retranslated.  Equity balances are translated at the historical rate.

 

 

 

2.  Significant accounting policies (continued)

 

Profit and loss items are translated at the average rate for the year.  Exchange differences arising from the settlement of monetary items are included in the profit and loss for that period.  The rate of exchange that has been applied at 30 September 2011 is £1 : $1.563 and an average rate of £ : $1.571 has been applied.  Dollars is the functional currency used because it is the currency used by the overseas trading subsidiaries, and the oil and gas industry.

 

Decommissioning cost provision

 

Liabilities for decommissioning costs are recognised when the group has an obligation to plug and abandon an oil well and to restore the site on which it is located, and when a reliable estimate of that liability can be made.  The amount recognised is the full value of the estimated future expenditure determined in accordance with local requirements.  A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognised and subsequently depreciated as part of the asset.  Any change in the value of the estimated expenditure is reflected as an adjustment to the provision and the corresponding item of property plant & equipment.  All assets in the East Texas Oil field were disposed of on 14 April 2011 and the decommissioning liability was assumed by the new owners.

 

Inventories

 

Inventories are shown at the lower of cost and net realisable value.

 

Financial instruments

 

Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument.

 

Trade receivables

Trade receivables are measured at initial recognition at fair value at trade date.  Appropriate allowances for estimated irrecoverable amounts are recognised in the profit and loss when there is objective evidence the asset is impaired. 

 

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, cash at bank and short term deposits with banks and similar financial institutions.

 

Financial assets

The group classifies its financial assets as loans and receivables.  The group does not hold any fair value through profit or loss, available for sale financial assets or held to maturity financial assets.

 

The classification is dependent on the purpose for which the financial assets are acquired and is determined by the directors on initial recognition. 

 

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.  An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.  The accounting policies adopted for specific financial liabilities and equity are set out below:

 

 

2.  Significant accounting policies (continued)

 

Promissory notes

Interest bearing promissory notes with no conversion rights are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.  Any difference between the proceeds and the settlement or redemption of borrowing is recognised over the term of the borrowings.

 

Interest bearing loans and borrowings

The Group's financial liabilities at amortised cost include trade payables and other financial liabilities. These are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

 

Compound financial instruments

The simultaneous issue of a debt instrument and warrants to purchase ordinary shares are regarded as compound instruments, consisting of a liability component and an equity component.  At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt.  The difference between the proceeds of issue of the warrants and the fair value assigned to the liability component, representing the embedded option for the holder to convert the warrants into equity of the Group, is included in equity (capital reserves).

 

Compound financial instruments (continued)

Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue.  The portion relating to the equity component is charged directly to equity.

 

The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument.  The difference between this amount and the interest paid is added to the carrying amount of the loan.

 

Trade payables

 

Trade payables are initially measured at fair value at trade date.

 

Equity instruments

 

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

 

Joint interests in leases

 

The Group owns joint shares in certain leases. Revenues and costs relating to those leases are included in the profit and loss within discontinued operations at the Group's net share of those revenues or costs.  The oil and gas lease assets were also included in the consolidated balance sheet at the Group's net share of the asset until their disposal.

 

Share based payments

 

The Group makes equity-settled share-based payments to its employees and directors. The fair value of options and warrants granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options and warrants granted is measured based on the Black- Scholes model, taking into account the terms and conditions

 

 

2.  Significant accounting policies (continued)

 

upon which the instruments were granted. At each balance sheet date, the Company revises its estimate of the number of options and warrants that are expected to become exercisable.

 

The Consolidated financial statements account for share-based payments for compensation of goods or services received based on their fair value.  The cost of granting share-based payments is recognised through the profit and loss. The fair value is determined based upon invoices received in respect of such services and on current expectations of the shares to be issued.

 

New and Revised Standards

 

Standards in effect in 2011 adopted by the group

 

The following standards, interpretations, and amendments to standards have been adopted in the financial statements.  There were no material effects arising from the adoption of the standards.

 

IFRS	Improvements to IFRS 2010, various effective dates
IAS 24	Related party disclosures (revised), effective 1 January 2011

 

Standards in effect in 2011

 

The following new and amended standards, and interpretations are mandatory for the first time for the financial year beginning 1 January 2011 but not currently relevant to the group (although they may affect the accounting for future transactions and events):

IAS 32	Classification of Rights Issues, effective 1 February 2010
IFRIC 19	Extinguishing financial liabilities with equity instruments, effective 1 July 2010
IFRS 1	Amendment to First-time adoption of IFRS - Limited exemption from comparative IFRS 7 disclosures for first-time adopters, effective 1 July 2010
IAS 19	Amendment to IFRIC 14, IAS 19 - The limit on a defined benefit asset, minimum funding requirements  and their interaction, effective 1 January 2011

IFRS in issue but not applied in the current financial statements

 

The following IFRS and IFRIC Interpretations have been issued but have not been applied by the Group in preparing these financial statements as they are not as yet effective. The Group intends to adopt these Standards and Interpretations when they become effective, rather than adopt them early.

 

IFRS 1	First time adoption, on fixed dates and hyperinflation, effective date 1 July 2011
IFRS 7	Financial instruments: Disclosures' on derecognition, effective date 1 July 2011
IFRS 9	Financial instruments, effective date 1 January 2013
IFRS 10	Consolidated financial statements', effective date 1 January 2013
IFRS 11	Joint arrangements, effective date 1 January 2013
IFRS 12	Disclosures of interests in other entities', effective date 1 January 2013
IFRS 13	Fair value measurement', effective date 1 January 2013
IAS 1	Amendment to Financial Statement Presentation, regarding other comprehensive income, effective date 1 July 2012
IAS 12	Amendment to Income taxes, on deferred tax, effective date 1 January 2013

 

NOTES TO THE ACCOUNTS (continued)

 

2.  Significant accounting policies (continued)

 

IAS 19	Amendment to Employee benefits, effective date 1 January 2013
IAS 27	Separate financial statements (revised 2011), effective date 1 January 2013
IAS 28	Associates and joint ventures (revised 2011), effective date 1 January 2013

 

The Directors anticipate that the adoption of these Standards and Interpretations in future periods

will have no material impact on the Group's financial statements

 

3.    Revenue

 

All revenue arises in the United States of America and is included within discontinued operations as detailed in note 8.

 

4.   Finance income

	2011		2010
	$		$
Bank deposit interest	-		1,559
Interest receivable on loan notes	7,915		-
	7,915		1,559

 

5.   Finance costs

	2011		2010
	$		$
Bank overdraft interest	153		2,374
Interest payable on convertible loan stock	4,252		-
	4,405		2,374

 

6.   Operating loss is stated after charging:

	2011		2010
	$		$
Cash equivalent of directors options & warrants granted	570,938		-
Other directors' fees and salaries	(820,715)		470,315
Social security costs	(35,378)		13,713
Former Auditors' remuneration - statutory audit - parent Company	-		21,701
Current Auditors' remuneration - statutory audit - parent Company	66,316		30,867
Auditors' remuneration - non-statutory audit - subsidiary Company	-		30,570
Auditors' remuneration - non audit fees - parent company	7,945
Fees in respect of taxation services			-
Rentals payable in respect of land and buildings	16,657		12,018
Net foreign exchange  (profit)/loss	(4,129)		74,417

 

7.   Administration expenses

 

Administrative expenses comprise:	2011		2010
	$		$
Administrative expenses	371,229		458,457
Reorganisation expenses	94,372		-
Total administrative expenses	465,601		458,457

 

 

 

8.   Discontinued operations

 

The company disposed of its only subsidiary, TOGS Energy Inc. on 14 April 2011 and accordingly this operating segment has been treated as a discontinued operation.   Results for the year in respect of the discontinued operation were:

 

	2011		2010
	$		$
Revenue	423,140		1,610,995
Expenses	(1,278,595)		(13,442,426)
Profit on settlement of directors fees and salaries (note 9)	554,308		-
Pre-tax loss	(301,147)		(11,831,431)
Taxation	-		-
Profit on disposal	52,227		-
Total loss relating to discontinued operations	(248,920)		(11,831,431)

 

9.   Staff numbers and costs

 

The average number of persons, including executive directors was 4 (2010: 5).

 

Staff costs, including executive and non-executive directors were:

	2011		2010
	$		$
Wages and salaries	269,153		470,315
Cancellation of accrued liabilities	(1,105,583)		-
Settlements paid to former directors	15,715		-
Social security costs	(35,378)		13,713
Cash equivalent of options & warrants granted	570,938		-
	(285,155)		484,028

Of which:

	2011		2010
	$		$
Relating to continuing operations:
Wages and salaries	149,746		394,028
Relating to discontinued operations:
Wages and salaries	119,407		90,000
Gain on settlement of directors fees and salaries	(554,308)		-
	(285,155)		484,028

 

Total directors emoluments were $(249,777) (2010: $470,315).  The highest paid director received $193,267 cash equivalent of warrants granted. (2010: remuneration of $279,087).

 

10. Taxation on ordinary activities

 

No liability in respect of corporation tax arises as a result of trading losses.

 

Current tax:	2011		2010
	$		$
UK taxation: overprovision in prior years	1,710		-

NOTES TO THE ACCOUNTS (continued)

 

10. Taxation on ordinary activities (continued)

 

UK tax losses to be carried forward as at 30 September 2011 at the standard rate of UK corporation tax applicable from 1 October 2011 of 26% (2010 : 28%) amount to approximately $300,000 (2010 - $300,000).  Deferred tax has not been provided in respect of carried forward losses as there is insufficient evidence that the benefit of these losses will be recovered. 

 

Tax reconciliation:	2011		2010
	$		$
Loss on ordinary activities before taxation	(701,321)		(12,290,705)
Loss on ordinary activities before tax multiplied by the average of the standard rate of UK corporation tax of 26% (2010 - 27%).
	$		$
	(200,000)		(3,440,000)
Tax effects:
Expenses not deductible for tax purposes			-
Losses not utilised	200,000		3,440,000
Over provision in prior years	1,710		-
Tax credit	1,710		-

 

11.  Loss per share

 

The calculation of the basic and diluted loss per share attributable to the ordinary equity holders of the parent company is based on the following data:

 

Earnings	2011		2010
	$		$
Loss from continuing operations	(460,381)		(459,272)
Loss from discontinued operations	(248,920)		(11,831,433)
Loss for the year attributable to equity holders of the parent	(709,301)		(12,290,705)

 

Numbers of shares	2011 Number		2010 Number
Weighted average number of ordinary shares for the purposes
of basic and diluted earnings per share	206,037,545		94,885,350

 

Potentially dilutive instruments	2011 Number		2010 Number
Potentially dilutive instruments not included in the calculation because they are antidilutive
Potential ordinary shares	5,638,219		-
Warrants	160,739,726		-
Options	6,666,666		6,666,666

 

 

 

NOTES TO THE ACCOUNTS (continued)

 

12.    Intangible assets

	Oil and gas leases		Development  costs		Total
	$		$		$
COST
At 1 October 2010	9,834,347		2,801,657		12,636,004
Additions Disposals	- (9,761,071)		8,425 (2,810,082)		8,425 (12,571,153)
At 30 September 2011	73,276		-		73,276
AMORTISATION AND IMPAIRMENT
At 1 October 2010	7,573,971		64,720		7,638,691
Impairment	73,276		-		73,276
Charge for the year Eliminated on disposal	21,170 (7,595,141)		4,400 (69,120)		25,570 (7,664,261)
At 30 September 2011	73,276		-		73,276
NET BOOK VALUE
At 30 September 2011	-		-		-
At 30 September 2010	2,260,376		2,736,937		4,997,313

Amortisation and impairment is included within discontinued operations in the consolidated statement of comprehensive income.

 

The amounts applicable to exploration assets included in Oil and Gas Leases above are as follows:

 

COST		Oil & Gas Leases $
At 1 October 2010 and
at 30 September 2011		73,276

 

AMORTISATION AND IMPAIRMENT
At 1 October 2010						-
Impairment						73,276
At 30 September 2011						73,276
NET BOOK VALUE
At 30 September 2011						-
At 30 September 2010						73,276

The directors consider that the fair value of the exploration assets included in Oil and Gas Leases is negligible and the assets have been written down accordingly.

 

 

 

 

NOTES TO THE ACCOUNTS (continued)

 

13.    Property, plant and equipment

Group	Oil and gas   properties		Fixtures, fittings and equipment		Total
	$		$		$
COST
At 1 October 2010	2,735,766		2,124,188		4,859,954
Disposals	(2,735,766)		(2,119,458)		(4,855,224)
At 30 September 2011	-		4,730		4,730
DEPRECIATION
At 1 October 2010	1,705,526		103,492		1,809,018
Charge for the period Disposals	30,203 (1,735,729)		3,747 (102,509)		33,950 (1,838,238)
At 30 September 2011	-		4,730		4,730
NET BOOK VALUE
At 30 September 2011	-		-		-
At 30 September 2010	1,030,240		2,020,696		3,050,936

 

Company	Fixtures,    fittings and equipment
	$
COST
At 1 October 2010	4,730
Additions	-
At 30 September 2011	4,730

 

DEPRECIATION
At 1 October 2010	4,730
Charge for the period	-
At 30 September 2011	4,730
NET BOOK VALUE
At 30 September 2011	-
At 30 September 2010	-

 

 

 

NOTES TO THE ACCOUNTS (continued)

 

14. Investments

 

Company's investment in subsidiaries

	Shares	Loans	Total
COST	$	$	$
At 1 October 2010	2,882,922	13,091,705	15,974,627
Additions in the year	-	552,945	552,945
Disposals	(2,882,922)	(13,644,650)	(16,527,572)
At 30 September 2011	-	-	-
PROVISIONS
At 1 October 2010 Provision in the period	2,882,922 -	13,091,705 551,970	15,974,627 551,970
Disposals	(2,882,922)	(13,643,675)	(16,526,597)
At 30 September 2011	-	-	-
NET BOOK VALUE
At 30 September 2011	-	-	-
At 31 September 2010	-	-	-

The Company had interests in the equity share capital of the following principal subsidiary companies until their disposal on 14 April 2011:

 

Name of subsidiary	Country of incorporation and operation			%  interest		Activity
TOGS Energy Inc.	State of Delaware USA			100		Oil and gas production
Dilligaf Inc.	State of Texas USA			100		Dormant
Other Investments		Listed $	Unlisted $		Total $
At 1 October 2010		-	-		-
Additions		62,000	781,400		843,400
Disposals		(62,000)	-		(62,000)
At 30 September 2011		-	781,400		781,400

 

 

Unlisted investments at 30 September 2011 comprise 100 Ordinary Shares in the share capital of Bahama Group Limited, a company located in the Bahamas.  This represented a 10% shareholding, and the existing shareholders have also granted a further six month option, exercisable, at TXO's call, in two parts, to acquire a further 521 Ordinary Shares for £3.45 million.

 

Due to the wide range of potential reasonable fair value estimates for the unquoted shares and associated options, the probability of which estimates cannot be reliably assessed, the investment in The Grand Bahama Group Limited has been measured at cost less impairment as required under IAS 39 for investments in equity instruments of an unquoted undertaking where the fair value cannot be reliably measured.

 

NOTES TO THE ACCOUNTS (continued)

 

15.   Inventories

	Group	Company		Group	Company
	2011	2011		2010	2010
Current:	$	$		$	$
Pipe inventory	-	-		18,720	-
	-	-		18,720	-

 

16.   Trade and other receivables

	Group	Company		Group	Company
	2011	2011		2010	2010
Current:	$	$		$	$
Trade receivables	-	-		356,529	-
Other debtors	30,499	30,499		1,240,000	-
Less: bad debt provision	-	-		(620,000)	-
Net other receivables	30,499	30,499		976,529	-
Prepayments	37,217	37,217		12,314	11,850
	67,716	67,716		988,843	11,850

 

The average credit period taken on sales was 141 days (2010: 81 days).  No interest is charged on overdue receivables.  There is no material difference between the fair value of receivables and their book value.

 

17.   Investments

	Group	Company		Group	Company
	2011	2011		2010	2010
	$	$		$	$
Loans and receivables	677,699	677,699		-	-
	677,699	677,699		-	-

 

Loans and receivables comprise two convertible loan agreements with Empire Energy Corporation International (Empire) and two convertible loan agreements with Grand Bahama Group (GBG).

 

Empire Energy Corporation International:  Under the first convertible loan agreement TXO made an initial payment of US$100,000 and subject to raising a further US$4.9m, TXO would have the right to fund the drilling program and operating expenses of Empire, with the call option, entirely at the Company's discretion, on conversion to acquire 49% of Empire's oil drilling licence in Tasmania, Australia.  The option to acquire the drilling rights does not constitute a financial instrument or a derivative under IFRS and therefore is not required to be separately accounted for at fair value. The loan is stated at amortised cost.

 

Under the second convertible loan agreement, TXO made an advance payment of US$50,000 and subject to TXO advancing a further US$250,000 to Empire and extinguishing up to approximately US$2,680,000 nominal of Empire's debts, TXO will effectively have the call option to acquire 19.9% of Empire's share capital. This option was not in place at the year end.

 

The Grand Bahama Group Limited: The convertible loans carry embedded conversion options the exercise of which is conditional on the raising of further finance. It is not possible to ascertain the fair value of the options because of the wide range of possible estimates that are dependent on a number of factors and the probability of which cannot be reliably assessed. Because of the effect of not being able to ascertain a fair value of the embedded option, it is also not possible to determine a fair value for the entire instruments and the convertible loans are therefore held at amortised cost.

 

 

18.   Cash and cash equivalents

	Group	Company		Group	Company
	2011	2011		2010	2010
Held in sterling	$	$		$	$
Cash in hand	75	75		76	76
Bank accounts	407,738	407,738		-	-
	407,813	407,813		76	76
Held in US Dollars
Bank accounts	1,049	1,049		251,053	180
	1,049	1,049		251,053	180
Total cash and cash equivalents	408,862	408,862		251,129	256

 

Cash held in deposit accounts in connection with letters of credit amounting to $nil (2010: $250,873) are subject to restrictions as detailed in note 37.

 

For the purpose of the cash flow statement, cash and cash equivalents at 30 September 2011 comprise the balances included at note 34.

 

19.   Trade and other payables

	Group	Company		Group	Company
	2011	2011		2010	2010
Current:	$	$		$	$
Trade payables	77,249	77,249		434,357	153,662
Other taxation and social security	-	-		18,275	18,275
Amount payable to related party (note 36)	-	-		818,136	-
Other creditors	-	-		434,254	34,256
Accruals and deferred income	104,478	104,478		1,400,571	690,621
Amounts payable to directors	-	-		894,932	-
	181,727	181,727		4,000,525	896,814

 

The directors consider that the carrying amount of trade payables approximate their fair value.  The current amount payable to the related party at 30 September 2010 represented $818,136 in respect of trading items.

 

20.   Financial liabilities - borrowings

	Group	Company		Group	Company
	2011	2011		2010	2010
	$	$		$	$
Current
Bank overdrafts	-	-		4,267	6,070
Bank loan	-	-		170,565	-
	-	-		174,832	6,070

 

 

 

20.   Financial liabilities - borrowings (continued)

 

	Group	Company		Group	Company
	2011	2010		2010	2010
	$	$		$	$
Non-current
Bank loan	-	-		122,019	-
Convertible loan stock	760,400	760,400		-	-
Amount payable to related party (note 36)	-	-		2,945,502	-
	760,400	760,400		3,067,521	-

 

The Company has an overdraft facility in place with its bankers of £5,000.  The non-current amount payable to the related party at 30 September 2010 represents $2,945,502 being the non-current portion of long term borrowings due under promissory notes to M-C (note 36). The promissory notes carried interest at 10-12% per annum and were secured over all the Group's oil and gas leases.  The bank loan comprises borrowings from Texana Bank, repayable in instalments and carrying interest at 8% per annum.  This loan is repaid and is no longer secured by oil and gas properties. 

 

The amounts due in respect of bank and loan/promissory note borrowings are payable as follows.

 

	2011		2010
Due in one year	$ -		$ 170,565
Due in one to two years	760,400		3,067,521
Total	760,400		3,238,086

 

21.  Convertible loan stock

 

Convertible unsecured loan notes totaling £500,000 were issued in September 2011 which carry interest at 10% per annum, and are repayable by 30 April 2013.  The loan notes are convertible into ordinary shares at a rate of 0.75 pence per share by election of the borrower at any time before the repayment date. 

 

The net proceeds from the issue of the loan notes have been split between the liability element and an equity component, representing the fair value of the embedded option to convert the loans into equity of the Group, as follows:

		2011
		$
Nominal value of loan notes issued		781,400
Equity component (credited to equity reserve)		(21,000)
Liability component at date of issue and at 30 September 2011		760,400

 

The interest for the year is calculated by applying an effective interest rate of 12% per annum to the liability component.  The directors estimate the fair value of the liability component of the loan notes at 30 September 2011 to be approximately $675,452.  This fair value has been calculated by discounting the future cashflows at the rate applicable to a similar instrument with no equity component.  Costs of issue will be amortised to the profit and loss over the duration of the loan.

 

The effect on deferred tax has not been recognised on the basis that it is immaterial.

 

 

 

NOTES TO THE ACCOUNTS (continued)

 

22.  Provisions

			Decommissioning provision
			$
At 1 October 2010			2,735,766
Disposal			(2,735,766)
30 September 2011			-

 

The group makes provision for the future cost of plugging and abandoning oil and gas production facilities.  The provision was estimated using current prices and existing technology, and was undiscounted.  The costs were expected to be incurred over the next 25 years, and all liability was assumed by the subsidiary on disposal. 

 

23.   Share capital

 

The Companies Act 2006 abolished the concept of authorised share capital; the Company's constitution is no longer required to have a ceiling on the number of shares that can be issued. As such authorised share capital has not been disclosed.

CALLED UP, ALLOTTED AND FULLY PAID:		2011			2010
		Number	$		Number	$
Ordinary shares of 0.1p each
At 1 October 2010		97,869,292	181,660		93,469,292	8,746,098
Subdivision		-	-		-	(8,571,186)
Issued during the year		237,419,252	386,264		4,400,000	6,748
At 30 September 2011		335,288,544	567,924		97,869,292	181,660

 

CALLED UP, ALLOTTED AND FULLY PAID:		2011			2010
		Number	$		Number	$
Deferred shares of 4.9p each
At 1 October 2010		93,469,292	8,571,186		-	-
Subdivision		-	-		93,469,292	8,571,186
At 30 September 2011		93,469,292	8,571,186		93,469,292	8,571,186

 

The Ordinary shares have like rights and rank pari passu in all respects with the Ordinary Shares prior to sub-division.  They have the right to vote, participate in dividends and distributions, and to share in any capital distribution (including winding up).

 

The Deferred shares have special rights and restrictions.  They do not entitle the holders thereof to receive notice of or to attend or vote at any general meeting of the company, receive any dividend or other distribution, nor receive a return of capital on a winding up.  No distribution shall accrue.

 

 

 

23.   Share capital (continued)

 

The following issues of ordinary shares of 0.1p each were made during the year:

 

Date of Issue	Number allotted	Aggregate nominal value $	Premium on issue $	Consideration received $
18 February 2011	2,919,252	4,707	55,751	60,458
14 April 2011	225,500,000	366,866	1,467,464	1,834,330
15 June 2011	4,000,000	6,558	26,230	32,788
26 July 2011	2,500,000	4,074	16,297	20,371
18 August 2011	2,500,000	4,060	16,240	20,300
Total	237,419,252	386,265	1,581,983	1,968,247

 

The following issues of ordinary shares of 0.1p each were made during the year in satisfaction of professional fees:

 

Date of Issue	Number allotted	Aggregate nominal value $	Premium on issue $	Consideration received $
18 February 2011	2,919,252	4,707	55,751	60,458
Total	2,919,252	4,707	55,751	60,458

 

The weighted average fair value of the shares at the date of issue was 2.07 cents per share.  Fair value was measured at the value of goods and services received, or if not available, at the observable market price.  Expected dividends were not incorporated into the fair value measurement.

 

24.   Share premium account

	2011		2010
	$		$
At 1 October 2010	9,824,450		9,731,542
Premium on shares issued in the year	1,581,983		92,908
Expenses of share issue	(174,166)		-
At 30 September 2011	11,232,267		9,824,450

 

25.   Option and warrant reserve

	Group	Company		Group	Company
	2011	2011		2010	2010
	$	$		$	$
At 1 October 2010	301,007	301,007		391,202	391,202
Cash equivalent of options & warrants granted	662,435	662,435		-	-
Exercise of warrants	-	-		(90,195)	(90,195)
At 30 September 2011	963,442	963,442		301,007	301,007

 

The option and warrant reserve represents the cash equivalent of options and warrants issued in consideration of professional fees, those issued to directors in settlement of their outstanding remuneration, and those offered to places in the 14 April 2011 share capital placing.  The charge to the profit and loss for cancelled warrants during the year ended 30 September 2011 was $nil (2010: $90,195).

 

 

26.  Share based payments

 

The Company has a number of options and warrants with a range of vesting periods and are exercisable over a range of prices. Details of the options and warrants outstanding during the year are as follows:

		2011		2010
	Number	Weighted Average Exercise Price (in pence)	Number	Weighted Average Exercise Price (in pence)
Outstanding at the beginning of the year	6,666,666	6.38	8,999,999	6.38
Granted during the year	353,500,000	0.50	-
Cancelled/expired during the year	-		(2,333,333)	6.38
Exercised during the year	(9,000,000)	0.50	-
Outstanding & exercisable at the end of the year	351,166,666	0.61	6,666,666	6.38

 

The options and warrants outstanding at 30 September 2011 had a weighted average exercise price of 0.61 pence (2010: 6.38 pence) and a weighted average remaining contractual life of 1.54 years (2010: 6.39 years).  The estimated fair value of the options and warrants granted in previous years and vesting in the current year was $nil (2010: $nil).

 

The options and warrants issued have been valued using a Black-Scholes options pricing model.

 

The inputs into the Black-Scholes model were as follows:

	2008	2011
Weighted average share price (pence)	5.75	0.75
Weighted average exercise price (pence)	6.375	0.50
Expected volatility	31%	50%
Risk free rate	5.3%	1.7%
Expected dividends	None	None
Weighted average remaining contractual life (years)	10	1-3.5

 

Expected volatility was determined by calculating the historical volatility of the Company's share price using the Bloomberg 1 year volatility curve.  The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

 

The following transactions relating to option and warrants took place during the year:

	6.375p options Number	0.5p warrants Number	0.5p warrants number	0.5p warrants number
At 1 October 2010	6,666,666	-	-	-
Granted	-	123,000,000	5,000,000	225,500,000
Exercised	-	-	-	(9,000,000)
At 30 September 2011	6,666,666	123,000,000	5,000,000	216,500,000
Date of expiry	18 February 2017	14 October 2014	18 April 2016	14 April 2012

 

NOTES TO THE ACCOUNTS (continued)

 

26.  Share based payments (continued)

 

The options had a vesting period of one year to 18 February 2008 and may be exercised at any point from completion of the vesting period to date of expiry.  The weighted average exercise price of the share options outstanding at the end of the year was 6.375 pence.

 

The warrants may be exercised at any point from issue to date of expiry.  The weighted average exercise price of the warrants outstanding at the end of the year was 0.5 pence.

 

The total charge to the income statement in respect of share based payments was $603,967 (2010: $Nil).

 

27.   Retained earnings

	Group	Company		Group	Company
	2011	2011		2010	2010
	$	$		$	$
At 1 October 2010	(19,550,006)	(19,769,082)		(7,349,149)	(5,457,722)
Loss for the financial year	(709,301)	(491,952)		(12,290,705)	(14,398,748)
Currency translation differences	(81,962)	(80,235)		(347)	(2,806)
Unwinding of cancelled warrants	-	-		90,195	90,195
At 30 September 2011	(20,341,269)	(20,341,269)		(19,550,006)	(19,769,081)

 

28.     Reconciliation of movement in shareholders' funds

 

	Group	Company		Group	Company
	2011	2011		2010	2010
	$	$		$	$
Loss for the financial year	(709,301)	(491,952)		(12,290,705)	(14,398,748)
Issue of shares in the year	386,264	386,264		6,748	6,748
Premium on shares issued	1,581,983	1,581,983		92,908	92,908
Expenses of issue	(174,166)	(174,166)		-	-
Currency translation differences	(81,962)	(80,235)		(347)	(2,806)
Cash equivalent of warrants granted	662,435	662,435		-	-
Net (decrease)/increase to  shareholders' funds	1,665,253	1,884,329		(12,191,396)	(14,301,898)
Opening shareholders' funds	(671,703)	(890,779)		11,519,693	13,411,119
Closing shareholders' funds	993,550	993,550		(671,703)	(890,779)

 

All shareholders' funds relate to equity interests.

 

 

NOTES TO THE ACCOUNTS (continued)

 

29. Cash flows from operating activities (continued)

 

	Group			Company			Group			Company
Continuing operations	2011			2011			2010			2010
	$			$			$			$
Operating loss	(465,601)			(497,171)			(458,454)			(458,456)
Loss on disposal of investments	-			32,203			-			-
Impairment of investments	-			551,970			-			-
Net depreciation and amortisation	-			-			214			214
Other non cash expenses/(income)	62,141			(31,754)			-			(62,599)
(Increase)/decrease in trade and    other receivables	(47,951)			(47,951)			110,688			110,688
(Decrease)/increase in trade and    other payables	(77,860)			(503,360)			509,225			297,758
Currency translation differences	(81,962)			(81,960)			(347)			(1,478)
(Decrease)/increase in cash	(611,233)			(578,023)			161,326			(113,873)
Discontinued operations	Group			Company			Group			Company
	2011			2011			2010			2010
	$			$			$			$
Operating loss	(341,033)			-			(3,183,679)			-
Net depreciation	132,796			-			251,875			-
Loss on disposal of tangible    fixed assets	291,745			-			-			-
Decrease in inventories	-			-			199,996			-
Decrease in trade and other receivables	27,480			-			1,316,908			-
(Decrease)/increase in trade and    other payables	(155,915)			-			1,716,038			-
(Decrease)/increase in cash	(42,927)			-			301,138			-

 

 

30. Reconciliation of share capital consideration received to cash received for share capital issues

	2011		2010
	$		$
Share capital consideration received	1,968,247		99,656
Satisfied by goods and services	(60,458)		(99,656)
Cash received for share capital issues	1,907,789		-

 

NOTES TO THE ACCOUNTS (continued)

 

31. Cashflows from disposal of subsidiary

 

Summarised information relating to the sale of TOGS Energy Inc, in included below:

 

		2011		2010
		$		$
Non-current assets	7,567,409			-
Current assets	1,061,232			-
Non-current liabilities	(2,782,081)			-
Current liabilities	(6,112,032)			-
Total carrying value of net assets disposed	(327,473)			-
Costs on disposal	32,203			-
	(295,270)			-
Profit on disposal	52,227			-
Consideration received	(1,000)			-
Proceeds from the sale of subsidiary,  net of cash & cash equivalents disposed of	(244,043)				-

 

 

32. Reconciliation of Company investment in subsidiaries to cash (paid)/received from fixed asset investments

	2011		2010
	$		$
Company (payments)/receipts of fixed asset investment   loan balances	(552,945)		57,104
Non cash transactions	521,095		(162,255)
Exchange adjustment	-		1,328
Cash (paid)/received for fixed asset investments	(31,850)			(103,823)

 

33. Reconciliation of fixed assets to cash paid/received for fixed asset additions/disposals

 

	2011		2010
	$		$
Additions to intangible fixed assets	8,425		510,545
Other non cash additions	-		(505,045)
Cash paid for fixed asset additions	8,425		5,000

 

	2011		2010
	$		$
Disposals of intangible fixed assets	200,000		1,570,073
Other non cash consideration	-		(1,528,573)
Cash received for fixed asset disposals	200,000		41,500

 

 

 

34.       Cash and cash equivalents 

 

Cash and cash equivalents consist of cash in hand and balances with banks, and deposit accounts.

 

Cash and cash equivalents included in the cash flow statement comprise the following balance sheet amounts:

 

	Group	Company	Group	Company
	2011	2011	2010	2010
	$	$	$	$
Cash on hand	75	75	256	256
Overdraft balances with banks	-	-	(4,267)	(6,070)
Deposit accounts	408,787	408,787	250,873	-
Total cash and cash equivalents /(net debt)	408,862	408,862	246,862	(5,814)

 

Cash held in deposit accounts in connection with letters of credit amounting to $nil (2010: $250,873) are subject to restrictions as detailed in note 37, and not available for use by the group.

 

35.   Derivatives and other Financial Instruments

 

The Company finances its operations primarily from equity issues and loan/promissory notes. Funds in excess of immediate requirements are placed in sterling deposits.

 

The overall policy with regard to the management of financial risks is set out on pages 17-19.

 

Currency analysis

 

The Group has minimal currency exposure arising from transactions other than in its functional currency.

 

36.   Related Party Transactions

 

David Michael Chandler is the sole shareholder and president of M-C and Chandler Supply Co. Inc ("C-S"), both private companies incorporated in the state of Texas, USA, and was director and shareholder of TXO plc during the year.

 

Interest payable to M-C under certain loans and promissory notes for the 6 months until disposal was $148,402 (2010 - year - $332,153). 

 

During the year ending 30 September 2011, the following transactions were recorded between TOGS. and M-C in respect of the above:

 

a)         Payments to rework wells and acquire fixtures and equipment under the Joint Reworking Agreement, included as additions to tangible fixed assets - $Nil (2010: $Nil)..

b)         Oil and Gas Leases transferred to M-C at open market value $Nil (2010: $152,042).

c)         Revenue receivable for the sale of oil production in the year $214,697 (2010: $766,196).

d)         Payable for operating costs under the Joint Operating Agreement - $399,301 (2010: $1,680,793).

e)         Payable for other administration costs - $7,271 (2010 - $10,247).

 

 

 

 

36.   Related Party Transactions (continued)

 

At 30 September 2011 TOGS owed the director, D Chandler the sum of $Nil (2010: $894,932), and M-C the sum of $Nil (2010: $818,136) in respect of trading items. In addition the sum of $Nil (2010: $2,945,502) was payable to M-C in respect of liabilities due under promissory notes (note 20).  Trading balances were unsecured and repayable on demand.

 

Other interest charged by M-C on overdue trading balances during the period amounted to $Nil (2010: $120,867), and expenses charged by D Chandler for acting as bank guarantor during the period amounted to $184,864 (2010: $157,545).

 

During the period ending 30 September 2011, the following transactions were recorded between TOGS and C-S:

 

a)         Payable to rework wells and acquire fixtures and equipment under the Joint Reworking Agreement, included as additions to tangible fixed assets - $Nil (2010 : $Nil).

b)         Payable for operating costs under the Joint Operating Agreement - $Nil (2010 - $24,436).

 

At 30 September 2011 TOGS owed C-S the sum of $Nil (2010: $1,110) in respect of trading items. 

 

David Michael Chandler and M-C owned mineral interests in respect of certain oil leases until their disposal by the company. There was no contractual arrangement between David Michael Chandler and M-C and any of the companies in the group in respect of such interests.

 

As detailed earlier within the financial statements, TXO plc disposed of its entire interest in TOGS. to Gas-O-Line Inc, a company wholly owned by David Michael Chandler, for $1,000.

 

Timothy Baldwin is a director and a shareholder of Hill Street Investments Limited ("HSI").  HSI charged TXO plc $43,057 for consultancy services during the year.

 

Equity for Growth Limited is a company owned by HSI.  Equity for Growth Limited charged TXO Plc $101,594 in respect of the share capital placing on 14 April 2011 (included as expenses of issue), and $18,852 in respect of other professional fees.

 

Iain May was a director of the group during the year.  Iain May charged TXO plc $9,784 for consultancy services during the year.

 

Unpaid directors salaries of $Nil (2010: $787,502) were included within accruals during the previous financial year, and settled in the current financial year by the issue of warrants.

 

37.   Commitments and contingent liabilities

 

At the year end the Group had provided a letter of credit for $Nil (2010 - $250,000) in respect of any future potential environmental liabilities. Liabilities for expenditures are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated. The letters of credit were secured against certificates of deposits amounting to $250,873 at 30 September 2010, which is included in cash and cash equivalents in the balance sheet. 

 

No claim has been made during the year, nor is the Group aware of any liability, which it may have as it relates to, any environmental clean up, restoration or the violation of any rules or regulations relating thereto.

 

 

37.   Commitments and contingent liabilities (continued)

 

During the current and prior year TXO was party to claims as detailed in the financial statements for the period ending 30 September 2010.  TXO was released from any liability in respect of any such current and future claims as part of the disposal of its interest in TOGS.

 

38.   Post balance sheet events

 

On 20 October 2011 the Company made an additional investment in the ordinary share capital of Grand Bahama Group, for an investment of £212,500, bringing its total shareholding in the group to 14.3%.

 

On 1 December 2011 the Company satisfied the perfection event in the agreement dated 12 August 2011, enabling the Company to exercise a call option to acquire 19.9% in Empire Energy Corporation, but at the date of approval of these financial statements had not yet exercised that option.

 

On 17 January 2012 the Board announced that it has made available a £50,000 convertible loan facility to East African Oil Company Limited ("EAO").  EAO has stated to the Company that it intends to bid on certain oil and gas interests identified through recent commissioned studies and discoveries which justify searching for petroleum within the East African Rift System in Uganda, Kenya, Zambia and Tanzania. It is not the intention of the Company to extend their loan investment beyond the current investment. The Company has been informed that EAO is in discussions with a number of larger funding partners that have expressed interest.  Timothy Baldwin is a Director of EAO and is a beneficiary of a trust that holds 100,000 Ordinary Shares (representing 11 per cent of the existing share capital of EAO).

 

39.   Financial instruments

 

Capital risk management

 

The Group manages its capital to ensure its ability to continue as a going concern and to maintain an optimal capital structure to reduce cost of capital. The capital structure of the Group comprises equity attributable to equity holders of the Company consisting of issued ordinary share capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity and cash and cash equivalents as disclosed in note 18.

The Group maintains or adjusts its capital structure through the issue of new shares and buy-back of existing shares.

Capital risk management and levels of borrowing affect the gearing of the company.  Risks arising from changes in gearing include market, currency, interest rate and liquidity risks.  The current gearing ratio is 0.77:1 and primary factors affecting this ratio are future profits and losses, the issue of new shares, and the conversion of existing borrowings to share capital. Based on the equity balance at the year end, if an estimated 25%, 50% or 100% of convertible loan borrowings were converted to equity it would reduce the gearing of the Group to 0.48:1, 0.28:1 or 0.12:1. 

 

Categories of financial instruments

 

The principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows:

 

 

39.   Financial instruments (continued)

 

	2011		2010
	$		$
Group
Trade and other receivables	67,716		988,843
Loans and receivables	677,699		-
Cash and cash equivalents	408,862		251,129
Trade and other payables	(181,727)		(4,000,525)
Interest-bearing loans and borrowings	(760,400)		(3,242,353)
	212,150		(6,002,906)

 

 

	2011		2010
	$		$
Company
Trade and other receivables	67,716		11,850
Loans and receivables	677,699		-
Cash and cash equivalents	408,862		256
Trade and other payables	(181,727)		(896,814)
Interest-bearing loans and borrowings	(760,400)		(6,070)
	212,150		(890,778)

 

General risk management principles

 

The Group's activities expose it to a variety of risks including market risk (foreign currency risk and interest rate risk), credit risk and liquidity risk. The Group manages these risks through an effective risk management programme and through this programme, the Board seeks to minimise potential adverse effects on the Group's financial performance. The directors have an overall responsibility for the establishment of the Group's risk management framework. A formal risk assessment and management framework for assessing, monitoring and managing the strategic operational and financial risks of the Group is in place to ensure appropriate risk management of its operations.

 

The following represent the key financial risks that the Group faces:

 

Market risk

 

The Group's activities expose it primarily to the financial risk of changes in foreign currency exchange rates and interest rates.

 

Currency risk

 

The Group's revenue was generated within the United States and is included within discontinued operations as detailed in note 8. The Group has an insignificant level of exposure to currency risk on sales and purchases.  The Group has current asset investments in the form of loans and receivables, and borrowings in the form of convertible loan stock, both denominated in sterling.  These assets and liabilities naturally offset the foreign currency exchange risk exposure, however an indication of the possible effect of a 10% change in the exchange rate is:

 

Current asset investments - foreign exchange gain or loss of $67,779

Borrowings - foreign exchange gain or loss of $78,150

 

 

 

39.   Financial instruments (continued)

 

Interest rate risk

 

The Group's interest rate exposure arises mainly from its interest bearing borrowings. Contractual agreements entered into at floating rates expose the entity to cash flow risk. Interest rate risk also arises on the Group's cash and cash equivalents.  All of the current borrowings of the Group are at a fixed rate, carrying an insignificant level of interest rate risk until such future time if the borrowings need refinancing.  If the borrowings were refinanced on a 2% higher or lower interest rate, the estimated effect on the profit or loss before tax would be an increase or decrease of $15,000 due to the increased or decreased finance costs.  Interest rates are however one of many factors influencing borrowings and borrowing costs and this analysis does not consider the effect of any other changes.

 

Credit risk

 

The Group's principal financial assets are trade and other receivables and bank balances and cash. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. The maximum exposure to credit risk equals the carrying value of these items in the financial statements.

 

Credit risk with cash and cash equivalents is reduced by placing funds with banks with high credit ratings.

 

The maximum exposure to credit risk in respect of the above at 30 September 2011 is the carrying value of financial assets recorded in the financial statements.

 

Liquidity risk

 

The Group closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments on a regular basis to ensure that it has sufficient funds to meet the obligations of the Group as they fall due.

 

The Board receives regular forecasts which estimate cash flows over the next eighteen months, so that management can ensure that sufficient funding is in place as it is required.

 

Fair value of financial assets and liabilities

 

The directors consider that there is no significant difference between the book value and fair value of the Group's financial assets and liabilities.

 

40. Ultimate controlling party

 

There was no one ultimate controlling party in this or the prior year.

 

 

Note to the announcement:

 

The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 30 September 2011 or 2010. The financial information for the year ended 30 September 2010 is derived from the statutory accounts for that year. The audit of statutory accounts for the year ended 30 September 2011 is complete. The auditors reported on those accounts, their report was unqualified and did not include references to any matters to which the auditors drew attention to by way of emphasis without qualifying their report.

 

 

Appendix 2

 

LETTER FROM THE CHAIRMAN

TXO PLC
(Incorporated and registered in England and Wales with registered number 02398784)

 

 

Directors:                                                                                                                               Registered Office:

Timothy ("Tim") Baldwin (Executive Chairman)

Andrew Glendinning (Non-executive Director)                                                  2^nd Floor Suite

Richard Harvey (Non-executive Director)                                                                           30 Clarendon Road

Daniel French (Finance Director)                                                                                       Watford, Hertfordshire

                                                                                                                                                WD17 1JJ

 

8 February 2012

 

To the holders of existing Ordinary Shares

Notice of Annual General Meeting

New Investing Policy

Authority to issue and allot shares and to disapply pre-emption rights

 

Dear Shareholder

 

 

Notice of Annual General Meeting

 

The Board has the pleasure in inviting you to the Annual General Meeting of the Company to be held on 5 March 2012 at 11.00 am (AGM) to consider the resolutions set out in the notice of the Annual General Meeting enclosed with this letter (AGM Notice).

 

Enclosed with this letter is a copy of the Annual Report and Accounts for the year ended 30 September 2011 and the AGM Notice convening the AGM to be held at 2nd Floor Suite, 30 Clarendon Road, Watford, Hertfordshire, WD17 1JJ on Monday 5 March 2012 at 11.00am at which the resolutions described below will be proposed (AGM Resolutions).

 

 

New Investing Policy

 

The Company's present investing policy adopted by the Company on 18 May 2011 restricts the Company such that it may only invest in hydrocarbon projects. The Board now proposes to widen this investing policy to allow the Company to invest not only in hydrocarbon projects but also in all fossil fuel related projects, such as coal, coal bed methane as well as projects in the clean technology sectors. These projects can be located globally. The Board is proposing this widened investing policy to allow it to partake in attractive investment opportunities in these areas. It is therefore proposed that, subject to Shareholder approval, a new investing policy be adopted by the Company, as set out below (New Investing Policy):-

 

TXO's investing policy is to acquire mainly significant minority interests in both listed and unlisted companies and/or assets which the Directors believe represent opportunities to create Shareholder value, within the energy resource and clean technology sectors, globally.  The focus will be on fossil fuel resource situations such as oil and gas, coal, coal bed methane which are either: established resources with the ability to be increased through additional exploration and/or to be brought into production; or associated service companies in the energy sector; or in higher risk situations where TXO will provide seed capital to facilitate additional funding The Company will be an active investor.

 

Such investments may result in TXO acquiring the whole or part of a company or project. TXO's investments may take the form of equity, joint venture debt, convertible instruments, licence rights or any other financial instruments as the Directors deem appropriate.

 

The Directors believe that their broad collective experience in the areas of technical evaluation, acquisitions, accounting, corporate and financial management, together with the opinion of consultant experts in the evaluation and exploitation of potential investments, which will assist them in the identification and evaluation of suitable opportunities, will enable the

 

 

Company to achieve its objectives. Internationally-recognised competent persons and technical experts will be commissioned to prepare reports on the projects being considered by the Company where the Directors consider it necessary. The Directors may undertake the initial project assessments themselves with additional independent technical advice as required. Indeed, the Board as a whole has significant experience in the fossil fuel investment sector and Tim Baldwin, Executive Chairman, was involved in raising finance for several coal company floatations and coal related projects as well as having been on the Board of Saddleback Corporation Limited, an investor in coal mining operations in central Asia.

 

If the policy is approved, there is no limit on the number of projects in which the Company may invest and the Company may consider possible opportunities anywhere in the World. It is likely that a substantial portion of the Company's financial resources will be invested in a small number of propositions or in just one investment which may be deemed to be a reverse takeover under the AIM Rules. The Directors have not, however, excluded the possibility of building a broad portfolio of assets. Where this is the case, the Directors intend to mitigate risk by appropriate due diligence and transaction analysis and any transaction constituting a reverse takeover under the AIM Rules will require Shareholder approval. The Directors are currently reviewing potential investment and acquisition opportunities in line with TXO's strategy but have not, at this stage commissioned any due diligence nor entered into any firm commitment in connection with any investments or acquisitions. The Company intends to be a long-term investor and the Directors will place no minimum or maximum limit on the length of time that any investment may be held.

 

The risks to Shareholders in relation to the New Investing Policy are broadly the same as those outlined in the letter from the Chairman of the Company circulated to Shareholders on 20 April 2011 with the notice of the General Meeting of 18 May 2011. Investors should note that the New Investing Policy allows the Company to invest in early stage projects, providing seed capital, as well as later stage projects.

 

 

Authority to issue and allot shares and to disapply pre-emption rights

 

The Board is seeking Shareholders' approval to renew the Directors power to issue and allot new ordinary shares of 0.1p per share ("Ordinary Shares") in the Company and to disapply pre-emption rights attached to the number of Ordinary Shares covered by that authority. The Directors wish to renew their authority (granted at the 16 December 2011 General Meeting) to allow the issue of 200,000,000 new Ordinary Shares at an aggregate nominal value of £200,000. This would represent 46.3% of the Company's current issued share capital (or 24.4% of the fully diluted share capital).

 

The Directors are seeking Shareholder re-approval for the resolutions in order to allow the Company to raise additional funds through the issue of new equity or equity type equivalents, such as Convertible Loan Notes. Funds raised will be invested in accordance with the Company's investing policy as well as helping to fund the Company's ongoing working capital requirements.

 

Explanation of the Resolutions

 

Resolutions 1 to 8 (inclusive) will be proposed as ordinary resolutions. This means that for each of those resolutions to be passed, a majority of the votes cast must be in favour of the resolution. Resolution 9 will be proposed as a special resolution. This means that for this resolution to be passed, there must be a majority of not less than 75% in favour of the resolution.

 

Resolution 1 - Report and Accounts

 

To receive the Annual Report and Accounts for the year ended 30 September 2011.

 

Resolution 2 - Reappointment of Auditors

 

This resolution approves the re-appointment of Kingston Smith LLP as the Company's auditors to hold office until the next annual general meeting and authorises the Directors to agree their remuneration.

 

Resolutions 3 to 6 - Reappointment of Directors

 

Resolutions 3 to 6 deal with the reappointments of, respectively, Timothy Baldwin, Daniel French, Andrew Glendinning and Richard Harvey each of who retires as a director and being eligible offers himself for re-election as a director of the Company.

 

Resolution 7 - Proposed New Investing Policy

 

This resolution approves the New Investing Policy and authorises the Directors of the Company to take all such steps they consider necessary or desirable to implement the New Investing Policy.

 

Resolution 8 - Authority to allot Ordinary Shares

 

The Directors require Shareholder authority under section 551 of the Companies Act 2006 in order to be able to allot Ordinary Shares.  Resolution 8 authorises the Directors to allot shares up to the aggregate nominal amount of £200,000 immediately following the passing of this resolution.  The authority sought under this resolution 8 will expire on the earlier of 15 months after the passing of the resolution or at the conclusion of the next annual general meeting of the Company.

 

Resolution 9 - Disapplication of pre-emption rights

 

Resolution 9 approves the disapplication of pre-emption rights by giving the Directors authority to allot Ordinary Shares with an aggregate nominal value of £200,000 without being required to offer such securities first to existing Shareholders.  The authority sought under this resolution 9 will expire on the earlier of 15 months from the passing of the resolution or at the conclusion of the next annual general meeting of the Company.

 

Action to be taken in respect of the AGM

 

A Form of Proxy use at the AGM accompanies this letter.  The Form of Proxy should be completed and signed in accordance with the instructions thereon and returned to the Company's registrars, Capita Registrars Limited, PXS, The Registry, 34 Beckenham Road, Kent BR3 4TU as soon as possible, but in any event so as to be received by no later than 11:00am on Thursday 1 March 2012. The completion and return of the Form of Proxy will not preclude a Shareholder from attending the AGM and voting in person should he or she so wish.

 

 

 

Directors' Recommendation

 

The Directors unanimously consider each of the AGM Resolutions to be in the best interests of the Company and its Shareholders as a whole and to be most likely to promote the success of the Company for the benefit of its Shareholders as a whole. The Directors unanimously recommend Shareholders to vote on favour of the AGM Resolutions to be proposed at the AGM, as they intend to do in respect of their own beneficial holdings of Ordinary Shares, being 16,200,000 Ordinary Shares, representing 3.7% of the issued share capital of the Company. 

 

 

END.