at 30 June 2013
30 June 31 December
2013 2012
Par value/ Estimated Estimated
number of fair fair
securities Cost value Cost value
Company/ type of security US$/No. US$ US$ US$ US$
--------------------------------- ------------ ----------- ----------- ----------- -----------
INVESTMENT PORTFOLIO
Crest Energy Services
Limited
----------- -----------
Convertible secured
debentures 6,996,499 7,399,683 7,399,683
Promissory note 2,989,858 2,989,858 4,000,000 2,689,858 4,000,000
--------------------------------- ----------- -----------
SR2020 Inc
----------- -----------
Common stock 7,000,000 1 1
Convertible and non-convertible
secured debenture 5,161,821 5,161,821 5,161,821
Promissory note 7,793,368 7,817,224 6,917,224
1474559 Alberta Ltd
Secured promissory
note 2,751,074 2,751,074 14,000,000 2,751,074 17,837,436
--------------------------------- ----------- -----------
Strata Energy Services
Inc
----------- -----------
Common shares 840,890 22,879,668 34,898,561 22,879,668 39,118,022
Secured promissory
note 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
----------- -----------
Total 50,999,329 54,898,561 49,799,329 62,955,458
----------- ----------- ----------- -----------
1) The investment in SR2020 is held both directly and through
1474559 Alberta Ltd, a wholly owned subsidiary of the Company.
Notes to the condensed financial statements
1. GENERAL INFORMATION
This condensed interim financial information was approved for
issue on 30 August 2013. This condensed interim financial
information does not constitute statutory accounts under Guernsey
Company Law and has not been audited.
Business registration
International Oil and Gas Technology Limited (the "Company" or
"IOGT")) is a closed-ended investment company incorporated and
registered in Guernsey on 20 November 2007. The Company's
participating redeemable preference shares are listed on the London
Stock Exchange as a standard listing.
The currency used in the condensed financial statements is the
United States dollar, which is the currency of the primary economic
environment in which the Company operates.
Authorisation
The Company is designated as authorised pursuant to The
Authorised Closed-Ended Investment Scheme Rules 2008.
Basis of preparation
This condensed set of financial statements does not include all
the information and disclosures required in the annual financial
statements and should be read in conjunction with the Company's
annual report and financial statements for the year ended 31
December 2012.
Going concern
The directors believe it is appropriate to adopt the
going-concern basis in preparing the Financial Statements as, after
due consideration, the directors consider that the Company will
have adequate resources to continue in operational existence for
the foreseeable future. In making this assessment, the directors
note that a majority of the shareholders have orally agreed to
subscribe for a rights issue to raise around US$3 million. This
additional finance will enable the Company to continue to defend
the litigation through to trial and proceed in an orderly manner to
dispose of one or more portfolio companies. In addition, the
Company has no gearing and the Preferred Shares are only redeemable
at the discretion of the Company.
Litigation
As previously reported, QOGT Inc. ("Quorum") issued proceedings
in the High Court, Queen's Bench (Commercial Court) on 17 January
2012 claiming damages of US$15.7 million for wrongful termination
of the original investment management agreement.
The exchange of documentary evidence has taken place and the
exchange of witness statements is scheduled to occur in September
2013. The Board continues to take advice on the merits and defence
of the case from Norton Rose LLP and Queen's Counsel. A date for
trial has been fixed for March 2014.
The Board and its advisers continue to view the claim by Quorum
as entirely without merit and the damages claimed as inflated,
speculative and far-fetched.
As reported in the year-end accounts, of Quorum's total claim
for US$15.7 million, the first head of damage claims loss of
management and transaction fees during the three-year notice period
and (based on the Company's NAV at the date of termination) amounts
to approximately US$4 million. The recovery by Quorum of this head
of damage can only occur if the Court rules at trial that (contrary
to advice taken by the Board in 2010) dismissal of the co-managers
was wrongful and represented a breach of contract. The second head
of damages, which seeks compensation for lost future transaction
fees, performance fees and options, and other consequential losses,
amounts to approximately US$11.7 million. This part of the claim
makes a number of assumptions, including that the Company would not
only have permitted Quorum to make further and new investments but
that the Company would have also raised more capital and both
existing and new investments would have performed well. The Board
has been advised that, as a matter of English law, Quorum will fail
to recover the second head of damages.
Notwithstanding the rules of the High Court of England and Wales
on the recoverability of costs of litigation, parties generally
incur around 25 per cent costs that are not recoverable even on a
successful outcome. The Company has budgeted to incur a further
US$1.4 million in defending the claim. Legal costs incurred to date
of nearly US$1.5 million have been expensed. No provision or asset
has been recognised for any future costs or recoveries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The same accounting policies, methods of computation and
presentation are followed in the condensed set of financial
statements as those applied in the Company's latest Annual Report
and Accounts, where they were set out on pages 33 to 35.
Annual financial statements are prepared by the Company in
accordance with Canadian generally accepted accounting principles
("GAAP"). The Company is an investment company and accounted for in
accordance with the Canadian Institute of Chartered Accountants
Accounting Guideline 18 - Investment Companies.
Use of estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, income and expenses
during the reporting period. Significant estimates and judgments in
these financial statements are required principally in determining
the reported estimated fair value of investments since these
determinations include estimates of expected future cash flows,
rates of return and the impact of future events. Actual results
could differ significantly from these estimates.
Valuation of investments
Investments measured and reported at fair value are classified
and disclosed in one of the following categories:
Level I - Unadjusted quoted prices in an active market for
identical assets or liabilities provide the most reliable evidence
of fair value. This is used to measure fair value whenever
available.
Level II - Inputs other than unadjusted quoted prices in active
markets, which are either directly or indirectly observable as of
the reporting date, and fair value is determined through the use of
models or other valuation methodologies.
Level III - Inputs that are unobservable for the investment and
include situations where there is little, if any, market activity
for the investment. The inputs into the determination of fair value
require significant management judgment or estimation.
All of the investments of the Company are classified as Level
III.
Investment management performance fee ("Performance Fee")
Incentive fees are accrued where the valuation of a portfolio
asset is such that, upon a realisation at that value, a fee would
become payable under the terms of the investment management
agreement. No Performance Fee has been accrued in the condensed
financial statements. A proportion of any Performance Fee due may
be held in escrow pending future realisations.
Investment transactions and income
Investment transactions are accounted for as at the trade date.
Interest income is recorded on an accrued basis. Realised and
unrealised gains and losses from investment transactions are
calculated on an average-cost basis. Interest income received in
advance is recorded as deferred interest income and is included on
the balance sheet as a liability. Where interest receivable is
capitalised, it is added to the relevant investment's cost of
investment and is not shown as interest receivable in debtors.
Translation of foreign currencies
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