Enteq Tech Regulatory News (NTQ)

Enteq Upstream plc

("Enteq" or the "Company")

7 August 2012

Final results for the period 5 April 2011 to 31 March 2012

Enteq Upstream plc, the oil & gas field services company, today releases its consolidated financial statements for the period 5 April 2011 to 31 March 2012.

Highlights

·; Enteq established and admitted to trading on AIM, raising $24.2m (before costs) in July 2011

·; Strong Board and management team, with considerable oil & gas sector, M&A and public company experience

·; Subsequent to the year end, significant progress made in executing the Group's strategy

o In May 2012 Enteq completed its first acquisition, of XXT for an initial consideration of $46.1m. Enteq also raised a further $66.7m (before costs) to fund the purchase of XXT and provide capital to make further acquisitions

o In July 2012 Enteq completed its second acquisition, of KM Services and Pro-Flow for an initial cash consideration of $11.5m

Financial metrics

·; Cash of $20.8m as at 31 March 2012

·; No revenues for the period under review

·; Loss during the period of $3.4m, as expected, incurred mainly as transaction costs, fund raising costs and salaries

·; Loss per share of 28.78¢ (both on a diluted and undiluted basis) and 13.42¢ when adjusted to exclude foreign exchange movements and other non-recurring items

Outlook

·; Initial product platform established with common customer base in North American Directional Drilling market

·; Sales are a combination of upgrades, fleet expansion and replacement parts required on a regular basis

·; Drilling activity remains high despite oil & gas price volatility

·; As previously indicated some discretionary capital expenditure in the North American market may be delayed or put on hold pending further market stability

·; Enteq continues to invest in expansion of its product range through acquisition and engineering development

·; Buy & build strategy continues to address very significant global market potential

Martin Perry, CEO of Enteq Upstream plc, commented:

"The year ended 31 March 2012 was one of preparation for our first acquisitions, two of which have been completed subsequent to the year end. I am very pleased with progress made during the period which has given Enteq a strong foundation from which to continue to implement our strategy."

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Joint review from the Chairman and Chief Executive

Introduction & review of period ended 31 March 2012

Enteq Upstream plc was established in April 2011 with the goal of building a substantial business which would supply products and technologies to service companies operating in the upstream oil and gas sector.

The global oilfield market is estimated to be valued at over $300bn, with the specific areas being targeted by Enteq being valued at over $31bn. The introduction of non-conventional drilling in the shales of North America and the expectation of further development globally have given rise to the highest global rig-counts ever. The management of Enteq intends to build a product and technology portfolio which will service this activity.

The founders of Enteq were formerly the CEO and senior VP of a LSE Main Market-listed company, Sondex plc, that had operated successfully in this field with a similar business model. Sondex was acquired by GE in 2007.

A Board of Directors was assembled with considerable experience in the oil & gas industry including the service sector, as well as with substantial M&A and plc experience.

Enteq was admitted to trading on AIM on 1 July 2011, raising approximately $24.2m (before costs) from the directors, institutional and other investors. The investment strategy, as outlined at that time, was to build a pipeline of potential acquisitions through management's personal contacts and associations within the industry. Further fund-raising would be likely and the initial acquisitions should be strategic in order to build the platform for a global business.

During the financial period to 31 March 2012, Enteq's management team began to execute this strategy with the assistance of the Board of Directors and interim personnel and at the year-end had a number of active negotiations with potential acquisitions in progress.

Financial highlights

The financial period to 31 March 2012 did not include any trading or acquisitions. Key Financial highlights of the period and post period end events are noted below.

Following the fund raising at the IPO of $24.2m, costs were kept to a minimum while the management team established the pipeline of acquisition opportunities.

Subsequent events

Subsequent to the period end Enteq announced the acquisition of substantially all of the assets of XXT Inc., a company based in Santa Clara, California. The initial consideration for the assets and business was $43.1m in cash and $3.0m in newly issued Enteq shares, as well as up to $8.0m in deferred consideration. Details of the transaction are set out in Note 1 of these Consolidated Financial Statements. The acquisition was approved by shareholders on 18 May 2012. A further fund raise of $66.7m (before costs) to fund the purchase of XXT and provide capital to make further acquisitions was completed during May 2012.

Highlights of XXT are as follows:

·; A leading developer and supplier of highly technical products for Measurement While Drilling

·; Directional Drilling, utilising Measurement While Drilling, is a rapidly growing market

·; Current market penetration is limited to North America, where market share growth can be achieved

·; Further product development will allow international expansion

·; A high margin and cash generative business

At the time of the acquisition Enteq added additional management to the Enteq and XXT team, including the confirmation of a Chief Financial Officer appointment. Additional premises have been leased for XXT enabling expansion of capacity, and engineering development work is under way in order to continue enhancement of the product line.

On 23 July 2012 Enteq announced further acquisitions of substantially all of the assets of M&R Industries, Ltd. and Pro-Flow Fabrication Technologies, Ltd., businesses based in Houston, Texas.

The initial consideration was $11.5m (payable in cash and was satisfied from Enteq's existing resources) as well as up to $6.0m in deferred consideration. Enteq also acquired a 5-acre site from which the businesses operate for a cash consideration of $2.3m.

Highlights of M&R and Pro-Flow are as follows:

·; Developer and manufacturer of complex machined products and components for directional drilling equipment including Measurement While Drilling

·; Overlap in customer base and potential customers of XXT

·; Repeat and regular business from customers enabling frequent contact

·; Potential for expansion of capacity on the acquired 5 acre freehold property

·; Profitable and cash generative businesses

Enteq management intend to combine M&R (trading as KM services) and Pro-Flow, and together with XXT they will form the basis of a Drilling Products Division for Enteq.

Outlook

During the financial period to 31 March 2012 North American drilling activity remained at a high level, although the US domestic gas price dropped to very low levels, with prices around $2.50MMBtu for a prolonged period. This caused a decline in gas drilling activity and some general nervousness in the gas market. However rigs no longer used in gas drilling were redeployed to liquids / oil drilling and overall drilling activity did not decline. Oil prices also softened during the first half of 2012, causing a degree of market uncertainty, but oil prices have recovered in June and July 2012.

It is possible some discretionary capital investment in oil and gas drilling may be delayed during the second half of 2012, however the fundamental outlook for drilling activity on a global basis remains high.

Having established an initial trading platform in the directional drilling markets, Enteq intends to continue to execute its stated strategy of acquisition and investment in product development and expansion of distribution, continuing to build a base of products and technologies in the markets that have been identified as having long term global potential.

6 August 2012

Business Review and Performance Measures

Introduction

During the financial period to 31 March 2012, the Company was established and listed on AIM with an initial fund-raising of $24.2m (before costs). The management team were pursuing their strategy of developing a pipeline of acquisitions, two of which have been completed subsequent to the period end.

The Board of Directors has met regularly to review the progress of negotiations with potential targets and to establish corporate governance and appropriate standards and approvals.

Accounting during the year was primarily performed by an external firm of accountants and has principally been book keeping and cash management for the Group's limited activities. Ian Leaman joined the team as interim Chief Financial Officer in November 2011 and his appointment was made permanent subsequent to the year end in May 2012.

Subsequent to the year-end acquisitions have been made to comprise what will become the Drilling Products Division for Enteq.

Reporting & performance indicators

During the year, the Board closely monitored the progress of acquisitions from prospect to target and through negotiations.

A set of Key Performance Indicators have subsequently been set for the acquired companies. These are being implemented and will be reported on in future periods. Key market indicators regularly monitored by management and Board of Directors include: Global Rig Count, North American Rig Count, Oil Price and Natural Gas Price.

Governance

Enteq is committed to maintaining high standards of Corporate Governance. As an AIM listed Company, Enteq is not obliged to follow the UK Corporate Governance Code (June 2010) but the Board has determined that the Company will seek to follow the code as far as practicable. During the period under review the Board has begun to develop the internal controls and processes to ensure as far as possible compliance with the Code. Further explanation of these processes is given in the Corporate Governance section of this report and in connection with Directors' remuneration in the relevant section of the Remuneration report.

Financial Review

Introduction

The financial period to 31 March 2012 has been one of preparation for the first acquisitions. There has been little financial activity beyond start-up and preparation costs. The period ended with the Company in a strong positive net cash position following the initial fund raising of $24m (before costs).

The financial strength of the business remains robust with strong support from shareholders as demonstrated by a second fund raising which occurred subsequent to the period end, raising a further $66.7m (before costs). In due course management intend to secure debt financing, diversifying the Company's funding sources and reducing the Company's cost of capital.

Results

Revenue

As the Group had not made any acquisitions before the end of the financial period, there are no revenues to report.

EBITDA and loss from operations

The loss from operations in the period was $3.4m, incurred mainly as transaction fees and fund raising costs, together with Board salaries and professional fees.

Net Finance Income

As a result of the Group having no borrowings, with all funding to date being raised by share placings, there are no debt-related costs. As at the end of the financial period, the proceeds of the initial fund raising were held as cash deposits and had earned net finance income of $104,195.

Taxation

There was no charge to corporation tax for the Group in the period.

Loss per Share

The basic loss per share for the period was 28.78¢ (both on a diluted and undiluted basis) and 13.42¢ when adjusted to exclude foreign exchange movements and other non-recurring items.

Cashflow

Working capital movements reflect the general costs involved in bringing the Company to the point of its first acquisitions, which happened subsequent to the period end.

The cash generated from equity placing represents the Group's initial fund raising in 2011.

Balance sheet

The Group's assets and liabilities at the period end consist primarily of cash and trade payables.

Financial Capital Management

The Group had no bank borrowings or other debt at the balance sheet date.

The financial statements are presented in US dollars as the Company's primary economic environment, in which it operates and generates cash flows is one of US dollars. Apart from its share placings, substantially all other transactions are likely to be transacted in US dollars. The majority of the Company's subsidiaries' activities and transactions therewith are expected to be in US dollars.

The Group's financial statements are subject to the effects of foreign exchange rate fluctuations with respect to currency conversions.

Critical Accounting Policies

The Group accounts are prepared using the accounting policies set out in Note 5 of these Consolidated Financial Statements, in accordance with IFRS as adopted by the EU.

The preparation of these accounts requires the use of estimates, judgements and assumptions that affect the reported amount of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. Directors' estimates are based on historical experience, consultation with experts and other methods that they believe are reasonable and appropriate. Details of the critical accounting judgements and estimates are included in the notes of the Consolidated Financial Statements.

Ian Leaman

Chief Financial Officer

6 August 2012

Independent auditor's report to the members of Enteq Upstream Plc

We have audited the Group financial statements of Enteq Upstream plc for the period ended 31 March 2012 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Scope of the audit of the financial statements

In our opinion the Group financial statements:

·; give a true and fair view of the state of the Group's affairs as at 31 March 2012 and of its loss for the period then ended;

·; have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·; have been prepared in accordance with the requirements of the Companies Act 2006

Opinion on other matters prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following. Under the Companies Act 2006 we are required to report to you if, in our opinion:

·; certain disclosures of directors' remuneration specified by law are not made; or

·; we have not received all the information and explanations we require for our audit.

Other matters

We have reported separately on the Parent Company financial statements of Enteq Upstream plc for the period ended 31 March 2012.

Nicholas Watson

Senior Statutory Auditor

for and on behalf of Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants, Reading

6 August 2012

CONSOLIDATED INCOME STATEMENT

For The Period 5 April 2011 to 31 March 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For The Period 5 April 2011 to 31 March 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 March 2012

The financial statements were approved by the Board of Directors on

6 August 2012 and were signed on its behalf by:

Ian Leaman

Director

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For The Period 5 April 2011 to 31 March 2012

CONSOLIDATED STATEMENT OF CASH FLOWS

For The Period 5 April 2011 to 31 March 2012

NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

For The Period 5 April 2011 to 31 March 2012

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For The Period 5 April 2011 to 31 March 2012

Preparation note:The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The preliminary announcement has been prepared in accordance with applicable standards as stated in financial statements for the year ended 31 March 2012.Publication of Non-Statutory AccountsThe above does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. It is an extract from the full accounts for the year ended 31 March 2012 on which the auditor has expressed an unqualified opinion. The accounts will be posted on the Group's website and subsequently filed at Companies House.

1. EVENTS AFTER THE BALANCE SHEET DATE - ACQUISITIONS

Acquisition of the business and net trading assets of XXT Incorporated in May 2012

On 18 May 2012, the Group acquired substantially all of the operating assets and certain liabilities of XXT Incorporated, a California based business specialising in the design and manufacture of high-quality, ruggedized electronic equipment for use in the energy exploration and services sector of the Oil and Gas industry.

Enteq's strategy is to acquire and consolidate companies providing specialist reach and recovery products and technologies to the upstream oil and gas services market. The Directors are attracted to this market since they believe that by applying their expertise, experience and relationships in the reach and recovery products and technologies market, significant shareholder value can be created.

The Directors believe that XXT has a specialist product set which is supported by strong technical and industry knowledge. As a result of this, the Directors believe that XXT presents the first step in executing Enteq's acquisition strategy, providing a high technology market entry point from which to expand its customer base, geographic reach and product lines.

The fair value of the consideration and net assets acquired are as follows:

The revaluation adjustments applied to the book values of acquired assets are as follows:

Consideration transferred

The acquisition was settled in cash amounting to $44.5m, and new ordinary shares with a market value at the date of acquisition of $3.0m.

The purchase agreement also included an additional consideration of $8.0m payable in two annual instalments following the closing date should certain performance targets be met. The total amount payable is based on volumes of product sales in the future and will range from $nil to $8.0m. Management have estimated the total amounts expected to be paid based on forecasts for the business and their judgement.

Acquisition-related costs amounting to $1.1m are not included as part of consideration transferred and have been recognised as an expense in the consolidated income statement, as part of other expenses, so far as they were incurred in the period.

The net cash paid for XXT's assets was:

Identifiable net assets

The fair value of the trade and other receivables (non-cash) acquired as part of the business combination amounted to $2.3m. Identifiable intangible assets acquired were deemed to have a fair value of $35.9m.

Goodwill

Goodwill of $15.2m has been recognised in relation to the acquisition.

The goodwill represents the difference between the consideration paid for the business and the net assets acquired.

Deferred tax

The identified intangible assets and goodwill are expected to be fully deductible for tax purposes. Hence no deferred tax arises on the recognition of these assets.

XXT's notional contribution to the Group results

XXT's unaudited EBITDA was approximately $8.6m for the period 5 April 2011 to 31 March 2012. If XXT had been acquired on 5 April 2011, revenue of the Group for the period would have been approximately $18.7m, and EBITDA for the year would have increased by approximately $8.6m.

Share issue

On 18 May 2012 the Company issued 42 million new Ordinary (£0.01) shares, to provide necessary funds for the acquisition of the business and net trading assets of XXT Inc., as well as further future acquisitions. This placing raised a total of £42m (before costs), or $66.7m.

Acquisition of the business and net trading assets of M&R Industries, Ltd. and Pro-Flow Fabrication Technologies, Ltd. in July 2012

On 23 July 2012, the Group acquired, through its indirect wholly-owned subsidiary, Enteq KMS LLC, substantially all of the business and assets and some of the liabilities of M&R Industries, Ltd. and Pro-Flow Fabrications Technologies, Ltd. for an initial consideration of $11.5m. M&R, using the trading name KMServices, and Pro-Flow, manufacture and sell specialised parts and products for Directional Drilling and Measurement While Drilling operations.

M&R and Pro-Flow together employ 72 staff at their Houston facilities in Texas. The components and products supplied by M&R and Pro-Flow will complement the highly technical equipment supplied by XXT which was acquired by Enteq in May 2012. These acquisitions will share a common customer base, primarily consisting of North American focused oil & gas field service companies.

Enteq now intends to invest in M&R and Pro-Flow, expanding their facilities and broadening their product range. The combined, unaudited annualised revenues for M&R with Pro-Flow for the year ending 30 April 2012 were approximately $15.2m, with EBITDA of $2.4m and profit before tax of $2.0m (adjusted for ongoing costs).

The initial consideration of $11.5m will be satisfied in cash from the Company's existing resources. An earn-out of up to $6.0m is payable in cash in two instalments of up to $3.0m each, within 90 days of the first and second anniversary of completion of the acquisition respectively. The amount of the earn-out relates to increased revenues at agreed minimum margins.

In addition, Enteq has also acquired from the vendor of M&R the 5 acre site with 29,940 sq. ft. of industrial facilities in Houston, Texas, from which the M&R and Pro-Flow businesses operate for a cash consideration of $2.3m, which will be satisfied from the Company's existing resources.

Due to the timing of the acquisition management have not been able to identify all of the information necessary to provide full disclosure of this transaction in accordance with IFRS3. In particular, none of the quantitative disclosures could be made. This note has been prepared to include all information available at the time of the preparation of these financial statements.

2. NATURE OF OPERATIONS

The principal activity of Enteq Upstream Plc and subsidiaries is that of acquiring, consolidating and operating companies providing specialist reach and recovery products and technologies to the upstream oil and gas services market.

3. GENERAL INFORMATION AND STATEMENT OF COMPLIANCE WITH IFRS

Enteq Upstream Plc, the Group's ultimate Parent Company is a limited liability company incorporated and domiciled in England and Wales. Its registered office is The Courtyard, High Street, Ascot, Berkshire, SL5 7HP. Enteq's shares are listed on the Alternative Investment Market of the London Stock Exchange. The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the EU.

4. STANDARDS, AMENDMENTS AND INTERPRETATIONS OF ACCOUNTING POLICIES

Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group

At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective, and have not been adopted early by the Group. Management anticipates that all of the relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments and interpretations that are expected to be relevant to the Group's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Group's financial statements.

IFRS 9 Financial Instruments (IFRS 9)

The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. IFRS 9 is being issued in phases. To date, the chapters dealing with recognition, classification, measurement and derecognition of financial assets and liabilities have been issued. These chapters are effective for annual periods beginning 1 January 2015. Further chapters dealing with impairment methodology and hedge accounting are still being developed. The Group's management have yet to assess the impact of this new standard on the Group's consolidated financial statements. However, they do not expect to implement IFRS 9 until all of its chapters have been published and they can comprehensively assess the impact of all changes.

Consolidation Standards

A package of consolidation standards are effective for annual periods beginning or after 1 January 2013. Information on these new standards is presented below. The Group's management have yet to assess the impact of these new and revised standards on the Group's consolidated financial statements.

IFRS 10 Consolidated Financial Statements (IFRS 10)

IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements (IAS 27) and SIC 12 Consolidation - Special Purpose Entities. It revised the definition of control together with accompanying guidance to identify an interest in a subsidiary. However, the requirements and mechanics of consolidation and the accounting for any non-controlling interests and changes in control remain the same.

IFRS 13 Fair Value Measurement (IFRS 13)

IFRS 13 does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It is applicable for annual periods beginning on or after 1 January 2013. The Group's management have yet to assess the impact of this new standard.

Amendments to IAS 1 Presentation of Financial Statements

(IAS 1 Amendments)

The IAS 1 Amendments require an entity to Group items presented in other comprehensive income into those that, in accordance with other IFRSs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are met. It is applicable for annual periods beginning on or after 1 July 2012. The Group's management do not anticipate this will have a material impact on the Group.

5. ACCOUNTING POLICIES

Overall considerations

The consolidated financial statements have been prepared using the significant accounting policies and measurement bases summarised below.

Basis of accounting

Enteq Upstream plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given in the Company Information found on page 1.

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the financial statements.

Basis of consolidation

The Group financial statements consolidate those of the Parent Company and all of it's subsidiaries as of 31 March 2012. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control through more than half of the voting rights. All subsidiaries have a reporting date of 31 March 2012.

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Companies included in the consolidation:

The financial statements of subsidiaries are included in the consolidated financial statements from the date at which control commences to the date that control ceases. Amounts reported in the financial statements of the subsidiaries have been adjusted where necessary to bring the accounting policies used in line with those used by the Group.

Business combinations 

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree's financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.

Basis of preparation

The financial statements have been prepared on the going concern basis under the historical cost convention and are the Group's first statutory accounts since incorporation.

The board regularly reviews the Group's resources to ensure they are sufficient to continue trading for the foreseeable future. It is therefore considered appropriate to use the going concern basis to compile these financial statements. The main requirement is for sufficient financial resources to maintain the overhead required to fulfil the pipeline of business. The Directors are also mindful of the potential impact of on-going acquisition and fund raising activities on the Group's resources and will manage the Group accordingly.

The financial statements are presented in US dollars as the Company's primary economic environment, in which it operates and generates cash flows is one of US dollars. Apart from its share placings, substantially all other transactions are likely to be transacted in US dollars. The majority of the Company's subsidiaries' activities and transactions therewith are expected to be in US dollars. The Parent Company's functional currency is US dollars.

Foreign currencies

All companies in the Group have a functional currency of US dollars.

Foreign currency transactions are translated into the functional currency of the respective Group entity, using the exchange rates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in profit or loss. The exchange rate used at the year-end is £1:$1.59873. Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the executive members of the Board, at which level strategic decisions are made.

Revenue

Revenue is measured as the fair value of the consideration received or receivable for the provision of goods or services in the ordinary course of business, taking into account trade discounts and volume rebates, and is stated net of sales taxes. Revenue is recognised when it is probable that the economic benefits associated with a transaction will flow to the Group and the amount of revenue can be reliably measured.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the customer, which is normally on delivery of the products.

Interest

Interest income and expenses are reported on an accrual basis using the effective interest method.

Operating expenses

Operating expenses are recognised in profit or loss upon utilisation of the service or at the date of their origin. Expenditure for warranties is recognised and charged against the associated provision when the related revenue is recognised.

Exceptional items

Exceptional items are items of income and expense that, in the judgement of management, should be disclosed separately on the basis that they are material, either by their nature or their size, to an understanding of our financial performance and distort the comparability of our financial performance between periods.

Goodwill

On the acquisition of a business, fair values are attributed to the net assets acquired. Goodwill arises where the fair value of the consideration paid exceeds the fair value of the Group's share of the net assets acquired.

Goodwill is recognised as an asset and is carried at cost less accumulated impairment losses.

Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made on those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

On the disposal of a business, goodwill relating to that business remaining on the statement of financial position at the date of disposal is included in the determination of the profit or loss on disposal.

Other intangible assets

Other intangible assets are stated at cost less accumulated amortisation and impairment losses, where applicable. These assets have a finite life and are amortised in accordance with the pattern of expected future economic benefits, or when this cannot be reliably estimated, by using the straight line method.

Development costs not meeting these criteria for capitalisation are expensed as incurred. Directly attributable costs include employee (other than directors) costs incurred on software development along with an appropriate portion of relevant overheads and borrowing costs.

Subsequent measurement

All intangible assets, including capitalised internally developed software, are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing as described below.

Impairment testing of goodwill, other intangible assets and property, plant and equipment

For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill.

Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect management's assessment of respective risk profiles, such as market and asset-specific risks factors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash-generating unit's recoverable amount exceeds its carrying amount.

Property, plant and equipment

Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all tangible assets at rates calculated to write off the cost, less estimated residual value of each asset on a straight-line basis over useful economic life, as follows:

Computer equipment - 33% Straight line basis

Management review the useful economic life and residual values of all assets on an annual basis.

Leased assets

Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

Financial instruments

Recognition, initial measurement and derecognition

Financial assets and liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets are recognised initially at fair value plus transaction costs. Financial liabilities are recorded initially at fair value net of transaction costs. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

All financial assets are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within other expenses.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent historical counterparty default rates for each identified group.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Costs of ordinarily interchangeable items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less any applicable selling expenses.

Taxation

The charge for current income tax is based on the results for the period as adjusted for items that are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred income tax is the income tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred income tax is provided in full and is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred income tax liabilities are generally recognised on all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or any discount on acquisition) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred income tax is measured on an undiscounted basis at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Deferred income tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity or other comprehensive income, in which case the deferred tax is also dealt with in equity or other comprehensive income. Deferred income tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Trade and other receivables

Trade and other receivables do not carry any interest and are stated less any provisions for impairment. Impairment of trade and other receivables is recorded when there are indicators that suggest that the debts are not fully recoverable, or the fair value is impaired at the balance sheet date. This will be determined by management's best estimate of the recoverable amount.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Trade and other payables

Trade and other payables are not interest-bearing and are recognised initially at fair value. Subsequently they are carried at amortised cost.

Equity instruments

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

Equity, reserves and dividend payments

Share capital represents the nominal value of shares that have been issued. Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Other components of equity include the following:

Retained earnings include all current and prior period retained profits. All transactions with owners of the parent are recorded separately within equity. Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.

Pensions and short-term employee benefits

Share based payments

Certain non-executive directors receive remuneration in the form of share-based payment transactions, whereby they render services in exchange for rights over shares under the Non-Executive Director Share Options scheme. These options vest in two equal tranches, in June 2014 and June 2015. The total amount to be expensed over the vesting period of the options is determined by reference to the fair value at the date of granting and the number of awards that are expected to vest. The fair value is based upon a binomial model taking into account different scenarios for the possible outcomes of the Company's investment activities, using management's best estimates of these likely outcomes. The total expense is based upon initial conditions and will crystallise smoothly over the vesting period without reanalysis for subsequent events. The movement in cumulative expense is recognised in the profit and loss, with a corresponding entry to the share-based payment reserve.

Incentive Shares

The Executive Directors have been awarded and purchased 50,000 Incentive Shares. The Incentive Shares only reward participants if shareholder value is created, thereby aligning the interests of the Executive Directors with those of shareholders. The Incentive Shares carry the right to 12.5% of any increase above £2 million in the market value of the Company after the initial flotation, allowing for the time-cost of money. These options vest in two equal tranches, in June 2014 and June 2015, or earlier in the event of a takeover or winding-up of the Group. The Incentive Shares do not carry any voting or dividend rights and are not transferable. The total amount to be expensed over the vesting period of the Incentive Shares is determined by a model taking into account different scenarios for the possible outcomes of the Company's investment activities, using management's best estimates of these likely outcomes. The total expense is based upon initial conditions and will crystallise smoothly over the vesting period subject to any changes in service or non-market performance conditions. The amounts subscribed for the Incentive Shares have been recognised as a current liability on the balance sheet as they become repayable if the Executive Directors leave office.

Provisions, contingent assets and contingent liabilities

Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow may still be uncertain. Restructuring provisions are recognised only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan's main features to those affected by it. Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material. Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognised.

Critical accounting estimates and judgements

The preparation of the financial statements in conforming with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income, expenses and contingent liabilities. These will seldom equal the related actual results and adjustments will consequently be necessary. Estimates are continually evaluated based on experience, consultation with experts and reasonable expectations of future events.

Accounting estimates are applied in determining the carrying amounts of the following significant assets and liabilities:

6. SEGMENTAL REPORTING

At present there is only one operating segment and the information presented to the board is consistent with the consolidated income statement and the consolidated statement of financial position. As such this is all that is required from a geographical and business line perspective. However this is expected to change in the future once the Group's acquisition strategy develops.

The net assets of the Group can be analysed by geographic location (post-consolidation adjustments) as follows:

7. EMPLOYEES AND DIRECTORS

The average monthly number of employees during the period was as follows:

Information regarding the highest paid director is as follows:

The directors are deemed to be 'Key Management'. This is detailed further in Note 17. Further details of emoluments paid to directors, including details of the highest paid director are contained in the Remuneration Committee report.

Share plans

Non-executive director options

The Group has an equity-settled share option scheme. Options are exercisable at a price of 100p. The vesting periods are shown below. The total amount to be expensed over the vesting period is determined by reference to the fair value at the date at which the options are granted. It is assumed that all options will vest. The fair value is determined using a binomial model which assesses the likelihood of the Company achieving certain goals in line with its strategy, ranging from failure to make any investments and return of funds to investors, to achieving various rates of acquisitive growth. The cashflows attached to these different scenarios are discounted over the vesting period at an annual rate of 14% and contribute to the estimated value of the Company in line with each scenario's assessed weighting of likelihood of occurrence. The value of each share in issue is therefore estimable and the consequent value to option holders calculable following their payment of the exercise price.

Details of the share options outstanding during the year are as follows:

Incentive Shares

Certain Executive Directors have been awarded and purchased $79,937 of Incentive Shares. The Incentive Shares only reward participants if shareholder value is created, thereby aligning the interests of the Executive Directors with those of shareholders. The Incentive Shares carry the right to 12.5% of any increase in the value of the Company in excess of £2 million GBP above the net asset value of the Company adjusted for placings. The Incentive Shares do not carry any voting or dividend rights and are not transferable except in limited circumstances. The Incentive Shares have been treated as an equity settled share based payment. However, since the initial $79,937 is potentially repayable to the shareholders, this amount is treated as a liability. The total amount to be expensed over the vesting period of the Incentive Shares is determined by reference to the fair value at the date at which the Incentive Shares were acquired. The holders of the Incentive Shares can realise value from the shares by converting them into Ordinary Shares, vesting in two tranches in June 2014 and June 2015.

The fair value is determined using a binomial model. The fair value of the Incentive Shares has been recognised as a current liability on the balance sheet as it becomes repayable if the Executive Directors leave office.

The valuation of Incentive Shares was determined by running a series of scenarios which used variables of the amount of acquisitive growth and return on the capital raised in the initial IPO. The scenarios incorporated the management's assessment of the likelihood of each scenario occurring and its associated cashflows, each cashflow being weighted accordingly after being discounted at a rate of 14% per annum. It has also been assumed that there will not be any early exercise of Incentive Shares.

If the Incentive shares had become convertible on 31 March 2012, based on the share price on that day no entitlement to Ordinary Shares would have arisen due to the value of the Company not having increased by at least £2 million. Full details of the calculation of Incentive Share entitlements are given in the placing document available on the Company's website. The Incentive Shares will immediately vest on change of control following a takeover.

8. NET FINANCE INCOME

9. LOSS BEFORE INCOME TAX

The loss before income tax is stated after charging:

10. INCOME TAX

Analysis of tax expense

No liability to UK corporation tax arose on ordinary activities for the period.

Factors affecting the tax charge

The tax assessed for the period is different from to the standard rate of corporation tax in the UK. The difference is explained below:

There has been no deferred taxation recognised in these financial statements due to the uncertainty surrounding the timing and the recovery of these amounts. Therefore a potential deferred tax asset of $861,372 has not been recognised. There were no significant deferred tax liabilities.

11. EARNINGS PER SHARE AND DIVIDENDS

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share are calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares. (The potential ordinary shares are anti-dilutive since the Group is loss-making and therefore have no effect).

Adjusted earnings per share are calculated by dividing the earnings attributable to ordinary shareholders, excluding exceptional items and foreign exchange profits or losses, by the weighted average number of ordinary shares outstanding during the period.

Reconciliations are set out below.

Adjusted EPS - basic and diluted

EPS is restated to exclude foreign exchange movements and other non-recurring items as follows:

During the period Enteq Upstream Plc did not pay any dividends. The Group made a further issue of shares post-year end as detailed in note 1 to the accounts.

12. PROPERTY, PLANT AND EQUIPMENT

13. TRADE AND OTHER RECEIVABLES

The management believe that the carrying value is an approximation of fair value.

14. CASH AND CASH EQUIVALENTS

15. CALLED UP SHARE CAPITAL

Allotted, issued and fully paid:

The Company was formed with 2 shares, for which £2 GBP was paid. These were then subdivided on 24 May 2011 into 200 shares of £0.01 GBP each. 15,050,000 Ordinary shares of £0.01 GBP each were allotted as fully paid at a premium of 99p per share during the period (50,000 on 24 May 2011 and 15,000,000 on 1 July 2011). All shares issued carry the same voting rights.

Proceeds received in addition to the nominal value of the shares issued during the period have been included in share premium, less registration and other regulatory fees and net of related tax benefits. The costs associated with the above share allotment were $1,157,727. These costs have been deducted from share premium.

The Companies Act 2006 abolished the concept of authorised share capital and, accordingly, there is no limit on the maximum amount of shares that may be allotted by the Company.

Details of the incentive shares are included in note 7.

16. TRADE AND OTHER PAYABLES

The management believe the carrying value is an approximation of the fair value. The average creditor days for the period ending 31 March 2012 is 1.49 days.

The accrued expenses related primarily to obligated costs in respect of potential acquisitions.

17. RELATED PARTY DISCLOSURES

Transactions with key management personnel

The remuneration of the current directors (including Ian Leaman who was appointed on 14 May 2012), who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24: 'Related party disclosures'. Further information about the remuneration of individual Directors is provided in the remuneration committee report. Incentive Shares were issued to some of the directors as detailed in Note 7.

18. ULTIMATE CONTROLLING PARTY

There is no ultimate controlling party.

19. FINANCIAL INSTRUMENTS

Capital management

The Group intends to finance its initial acquisitions using equity. The Group's ordinary shares are quoted on the AIM market of the London Stock Exchange. This affords it access to investors which seek access to growth opportunities of the sort which the Group is targeting to acquire.

Debt is not employed in the Group at present and the limited working capital requirements are currently financed out of cash reserves.

Details of the current equity structure can be seen on the Consolidated Statement of Financial Position.

Maturity analysis of financial liabilities

All financial liabilities are due for repayment in the next 12 months. No interest is accruing on any of these amounts.

Categories of financial instruments

Financial liabilities and assets included in the balance sheet relate to the following IAS 39 categories:

All of the Group's assets and liabilities are held at amortised cost. The directors are of the opinion that there is no material difference between the book value and the fair value of any of the Group's assets or liabilities.

Financial risk management

The Group's principal current financial asset is cash. The main risks arising from this financial instrument are credit risk and interest rate fluctuation risks.

The Board reviews and determines policies for managing key risks and they are summarised below. These policies have been consistently been applied throughout the period.

Credit risk

Credit risk is the risk that the counterparty will fail to discharge its obligation.

The Group's principal financial assets are bank balances and cash, which represent the Group's maximum exposure to credit risk in relation to financial assets. The risk associated with these balances is managed by only depositing monies with highly reputable institutions.

The Group's credit risk is attributable to the risk of bank default.

Interest rate risk

The Group has cash on deposit and no borrowings. It maintains sufficient liquidity to finance its day-to-day operations whilst obtaining a commercial return on funds not immediately required. Management actively monitor opportunities to deposit amounts with other institutions in order to achieve better returns whilst considering risk levels.

Foreign exchange risk

The Group's cash balances are currently held in GBP. Management will monitor this position going forward and place cash appropriately to ensure a reasonable approach is taken to the management of the associated foreign currency risk.

The majority of the Group's cashflow going forward is currently expected to be in US$, which will minimise the Group's foreign currency exposure.

Capital management policies and procedures

The Group's capital management objectives are:

·; To ensure the Group's ability to continue as a going concern

·; To provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented on the face of the statement of financial position.

20. POST-REPORTING DATE EVENTS

Please refer to Note 1 (Acquisition of XXT Inc) which details the non-adjusting events that have occurred between the reporting date and the date of authorisation. These are the acquisition of the business and net trading assets of XXT Inc., an issue of 42 million shares for the purposes of raises funds thereto and the acquisition of the business and assets and some of the liabilities of M&R Industries, Ltd. and Pro-Flow Fabrications Technologies, Ltd.

No adjusting events have occurred.