Enteq Tech Regulatory News (NTQ)

Enteq Upstream plc

("Enteq" or the "Company")

28 November 2012

Enteq Upstream plc Interim Announcement

Interim results for the six months ended 30 September 2012

AIM traded Enteq Upstream plc ("Enteq", the "Company" or the "Group"), the oil & gas field services company today releases its consolidated financial statements for the six months from 1 April 2012 to 30 September 2012.

Enteq was established in April 2011 with the goal of building a substantial business, through acquisition and organic growth, which would supply products and technologies to service companies operating in the upstream oil & gas sector. The completion, during this period, of initial acquisitions in the directional drilling market in North America have been the first steps in realising this strategy.

Highlights

·; In May 2012, Enteq raised $66.7m (before costs) in order to commence its buy and build strategy.

·; Also in May 2012, Enteq completed its first acquisition, XXT, for an initial consideration of $46.1m.

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

·; The acquisitions have been integrated into a Drilling Tools Division where they have a common customer base and complementary products.

·; New products, new customers and new markets have already been established.

·; In September 2012 the company signed a revolving credit facility with HSBC for $15m (currently undrawn).

Financial metrics

·; Revenues of $5.3m (Sept 2011: nil)

·; Loss before tax $3.5m (Sept 2011: $1.3m)

·; EBITDA in Drilling Tools Division of $1.6m (Sept 2011: nil)

·; Consolidated adjusted EBITDA1 of $0.3m (Sept 2011: Loss $0.8m)

·; Basic loss per share $0.07 (Sept 2011:loss $0.17)

·; Adjusted earnings per share2 of $0.01 (Sept 2011:loss $0.09)

·; Cash generated from Drilling Tools Division $1.6m (Sept 2011:nil): Operating cash conversion 100%

·; Cash balances of $25.8m as at 30 September 2012 (Sept 2011: $21.8m)

Outlook

·; North American rig count reduction is leading to short-term spare drilling fleet capacity, but activity and distance being drilled remains high. XXT sales remain exposed, short term, to North American spare drilling capacity.

·; Global drilling activity remains close to an all-time high with directional and horizontal drilling a key component of future oil & gas production. Enteq is well positioned to take advantage of this opportunity and to achieve market share growth.

·; The Directors remain confident that Enteq's initial acquisitions represent solid foundations for a long-term, highly profitable business.

Neil Warner, Chairman of Enteq Upstream plc, commented:

"The half year ended 30 September was one of building the initial stages of a drilling tools product range in an environment where capital expenditure restriction in North America has reduced XXT's revenues in the short term. We have acquired good companies which are sound building blocks for our strategy of developing a broader and more international business. We look forward to extending our product range and entering new markets."

1Adjusted for exceptional items and foreign exchange movements. 2 Adjusted for exceptional items, amortisation of acquired intangible assets and foreign exchange movements.

For further information, please contact:

Interim Financial Report

CHAIRMAN'S REPORT

Introduction

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 & gas sector.

Enteq was admitted to trading on AIM on 1 July 2011, raising approximately $24.2m (before costs) of new equity from the Company's directors, institutional and other investors.

Acquisitions

In a transaction approved by shareholders on 18 May 2012, Enteq completed the acquisition of substantially all of the assets of XXT Inc., a company based in Santa Clara, California. The initial consideration for the business and assets was $43.1m in cash and $3.0m in newly issued Enteq shares, as well as up to $8.0m in contingent consideration.

A second equity raising of approximately $66.7m (before costs) was completed simultaneously with the acquisition of XXT in May 2012.

On 23 July 2012 further acquisitions of the businesses and assets of M&R Industries, Ltd. (trading as KM Services) and Pro-Flow Fabrication Technologies, Ltd., based in Houston, Texas, were completed and merged into a single entity, 'Enteq KMS'. The initial consideration was $11.5m (payable in cash and satisfied from Enteq's existing resources) as well as up to $6.0m in contingent consideration. Enteq also acquired a 5-acre site from which the businesses operate for a cash consideration of $2.3m.

Key features of the businesses are as follows:

·; XXT, M&R Industries and ProFlow are all suppliers of directional drilling equipment to oil & gas service companies in North America.

·; XXT Measurement While Drilling ("MWD") equipment is technically differentiated and comprises part of the drilling 'system' associated with each drilling rig. Its business demand is driven by both expansion of drilling fleets (the 'rig count') and replacement of obsolete and broken equipment.

·; Enteq KMS supplies mechanical components and parts which wear during drilling operations. Its business demand is driven by the number of feet being drilled in the North American market.

·; Both businesses currently address a North American customer base. Further product development in all companies will allow a much broader and international market to be addressed.

·; Synergies between the acquired businesses are deliverable through combining sales operations and through product integration.

During the short period of ownership substantial progress has been made with the integration and development of the businesses. At the same time there has been a decline of approximately 100 units in the horizontal and directional rig count in North America, which has resulted in short-term surplus capacity in drilling fleets. Discretionary capital expenditure in the North American drilling market has been delayed, as indicated in the Company's annual results announcement on 7 August 2012. However, the overall length of horizontal feet being drilled remains high and thus the demand for consumables and parts remains strong.

Fundraising

The company has raised total equity funding since formation of $67m and established a $15m revolving credit facility from HSBC with a view to further growth through acquisition as well as enabling organic growth in the operating businesses. Group overhead has been carefully controlled and maintained at a conservative level but is structured to accommodate expansion of the Group both at the operating level and through further acquisitions.

The Group had cash balances of $25.8m at the end of the half-year.

Further acquisition activity

Since the completion of the acquisition of the Enteq KMS business, market conditions have not been conducive to completing further acquisitions. Vendor price expectations have not been realistic relative to the short-term market conditions.

Results

The acquired businesses are reported as Enteq's 'Drilling Tools Division'.

For the periods since completion (4.5 months for XXT and 2 months for Enteq KMS), the Division has delivered EBITDA of $1.6m.

The Group as a whole reports adjusted EBITDA of $0.3m.

Cash flows

During the period total capital raised (after costs) was $65.3m. Acquiring the two businesses utilised $58.7m, with a further $0.7m spent on related costs. Adverse foreign exchange movements on GPB balances held resulted in a reduction of $1.1m. Cash generated from the Drilling Tools Division was $1.6m (100% conversion from division operating profit to cash) and central overheads were $1.3m. The net movement in cash was an increase of $5.0m with a resulting closing balance of $25.8m

Conclusion

Despite recent market conditions in North America, Enteq has generated positive cash flows and underlying positive EBITDA during this period where the businesses of XXT and KMS have been owned for 4.5 months and 2 months respectively. Global activity and the on-going requirement for technology and products which improve the economics of hydrocarbon extraction, support the business strategy that Enteq is pursuing and the Company looks forward to delivering on this strategy.

Neil Warner

Non-executive Chairman

Enteq Upstream plc

27 November 2012

CEO REPORT

Strategy review

Enteq has pursued its stated strategy of acquiring and growing businesses to address the needs of the global upstream oil & gas services market. The specific markets targeted by Enteq are valued at over $31bn1. Enteq's management believes that by building an appropriate product range over time they can establish a market for its product portfolio and selling those products internationally will dampen short term volatility seen in any one local market or geography.

A key global trend in the industry has been the increase in directional and horizontal drilling and associated services1. Enteq management believes that this trend will drive long term demand for differentiated products. Enteq will continue to build the businesses and invest as appropriate in this and associated market sectors.

Acquisition process review

Since inception, Enteq's management has been active in identifying analysing and negotiating potential acquisitions. Favoured targets are profitable 'owner-managed' businesses with established, differentiated products operating in directional drilling and intervention markets.

In excess of twenty negotiations with potential vendors have reached preliminary due diligence, where confidential information has been exchanged and valuation discussions commenced. The Enteq management team has been very focused on the rigorous parameters for acquisition and the long term strength and value of target businesses.

Discussions have been held with companies in USA, Canada, UK and Europe. Those that did not proceed to closure of an acquisition were aborted for a variety of reasons; mostly related to unacceptable market risk or to excessive value expectations. Most of these opportunities were 'off market' (not part of a general auction) and were only completed when management could see potential for growth. Many of the opportunities explored would still be available to Enteq at a later date should market conditions and price expectations be aligned.

Drilling Tools Division

The acquisitions which have been completed, XXT and M&R Industries/ProFlow ('Enteq KMS') are the core building blocks for evolving a Measurement While Drilling and Directional Drilling product line. Together they now form the Enteq Drilling Tools division.

Approximately 70% of wells drilled globally are either directional or horizontal1. The market for directional drilling services is approximately $16bn*1 annually. Only the major multi-national drilling companies such as Schlumberger and Halliburton have their own full in-house range of equipment which comprises the 'Bottom Hole Assembly' and drilling string. All smaller, independent or local drilling companies depend to some extent on equipment sourced from a third party supplier.

Enteq's management believe that the opportunity remains to become a significant participant in this market, through acquisition and product development.

1 Source Baker Hughes Rig Count

XXT

XXT has developed the down-hole electronics and communication system that is the core of directional drilling instrumentation; its system is regarded as 'leading edge' technically and can form the basis of a range of measurement products. Enteq has considered a number of add-on instruments, which work with the XXT equipment and is investing in growing a team of engineers to broaden the product range. Field trials on a new Electro Magnetic communication system and a Rotary Pulser are currently under way.

All directional drilling service companies require a fleet of MWD equipment in order to fulfil their drilling contracts. This equipment consists of multiple components that are each subject to damage and loss. Equipment components would typically require replacement, refurbishment or upgrading after approximately four years of use. Each working drilling rig will have a set of equipment in operation while it drills and some spare capacity will always exist in the market due to the competition amongst the drilling service companies to gain contracts.

XXT currently has established itself as the supplier to a narrow group of technically advanced, independent directional drilling companies in North America, where its products are very well received and have assisted these customers in achieving highly reliable and efficient operations. The Directors believe that XXT can gain market share globally, over time, by becoming the replacement choice for older equipment in the market across a broader range of customers both in the North American market and in additional international markets. The Directors believe that a small increase in market share in a market without spare capacity would deliver significant growth for XXT.

Since acquisition Enteq have taken the following actions at XXT:

• Strengthened the team

• Additional management, sales and technical support have been added;

• New engineers were added to support vendors in all areas;

• New equipment in field trials:

• Rotary pulser for robust data transmission;

• Electro Magnetic data transmission;

• New market entry;

• Communication for intervention systems;

• Early international sales into Russia;

• New manufacturing facilities; and

• New customer trial programme to broaden customer base.

Enteq's management believe that the XXT product line will perform the 'core' of a new generation Measurement and Logging While Drilling product line.

KMS

KMS is a supplier of mechanical products, parts and contract manufacturing services to the directional drilling and drilling related market.

These products are used on a regular basis by all directional drilling companies and are replaced frequently due to the abrasive and harsh environment in which they are used. Wear and, therefore, replacement frequency of these parts is related to the total number of feet, or distance, drilled.

KMS's product range is being broadened and its competitiveness improved. Efficiency, quality and on-time delivery improvements will make better use of the available capacity and gain new customers and market share, which together will drive margin improvements. The KMS site has scope for expansion in due course.

Since acquisition, Enteq have taken the following actions at KMS:

• Completed the integration of KMS & Pro-Flow driving immediate benefits :

• More effective use of available space and manufacturing synergies;

• Common MRP and reporting system; and

• The sales force has been cross-trained to give broader and more frequent dialogue with customer base;

• Re-focus of sales and operations is bringing margin improvements and efficiencies; and

• Developed new products for integration with XXT.

Enteq's management believes that the KMS product line and customer contact will broaden the accessible customer base for the Drilling Tools Division and can broaden the product range offered for the drilling market.

Market conditions

Fluctuations in gas and oil prices, uncertainty over the U.S. Presidential election and general economic concerns led to a reduction in confidence in the North American drilling market over the summer and autumn. The rig count in North America is approximately 300 rigs lower than twelve months previously. This net reduction is masked during the spring months as there is always a seasonal reduction due to the Canadian 'break-up' (when rigs are not allowed to move on the ground during the wet, thawing period) and the impact of this reduction only became apparent from July onwards. The reduction in rigs drilling horizontal and directional wells has been approximately 100, since June 2012.

MWD equipment is assigned to each working rig, so any reduction in working rigs implies there may be spare equipment capacity. This equipment is, however, regularly broken or retired. Hence any spare capacity will be absorbed relatively quickly, even in a flat market.

Sales of XXT equipment have been affected by the spare capacity currently in the North American market, although it is expected that this capacity will be reduced through equipment damaged and written-off, over a period of months.

Sales of parts and consumable products remain strong, related to the time and distance drilled.

International (outside North America) markets remain buoyant, with increases in rig count and directional / horizontal drilling. Some early sales into the Russian market have been made, and the addition of an Eastern Hemisphere Business Development resource will assist Enteq to achieve further sales in these markets.

Integration and Investment for growth

In the few months since completion of the acquisitions of XXT and KMS, a number of actions have been taken to gain synergies and establish a basis for market share increase:

·; The sales forces have been cross-trained with incremental technical sales resource added for MWD sales.

·; A joint design of KMS manufactured mechanical assemblies for housing XXT measurement sensors has been completed. Customers can now be offered a fuller, more integrated solution which is more straightforward to 'plug and play' with older equipment they may have.

·; A trial programme has been introduced to the market. Users of older, competitor-sourced equipment are offered a 90 day trial programme to operate the XXT equipment in drilling operations. Should the potential customer be satisfied with its performance, they have the option to rent or purchase the trial equipment. It is believed that using XXT equipment will improve the performance for the customer and result in XXT becoming the supplier of choice in the future.

·; KMS parts are sold on a repeat basis to a broad range of customers; this facilitates frequent customer access and cross training of the KMS sales force is providing introductions for XXT opportunities.

·; Field trials of new product introductions are in process.

·; Additional capacity has been added for production at XXT and through integration of the KMS and Pro-Flow businesses.

·; International resource is being added to explore further opportunities.

Outlook

Drilling activity in North America and the rest of the world is expected to be maintained at high levels for the foreseeable future, driven by continuing growth in global demand for hydrocarbon fuels. This will be increasingly supplied from non-conventional sources, such as shales, where high levels of on-going drilling are required to maintain production levels.

Enteq will gain exposure to global markets, in the identified $31bn market sector, through the supply of equipment to a range of drilling and production activities. Short-term geographical market fluctuations will be diluted through this broader exposure.

North American Capital Expenditure purchases remain constrained in the short term but expectations are that growth budgets should be released in 2013. Operating Expenditure continues, supported by the longer distances being drilled by active rigs.

Enteq's Directors anticipate future organic growth in the business from:

·; Market share increase;

·; A broader market through new product introductions;

·; New international markets;

·; On-going market growth; and

·; Efficiencies within the businesses.

Having established key core technologies and a trading base in North America, Enteq will continue to invest in new product development and market expansion for its current businesses. Existing funds will potentially be invested in a further complementary business and when appropriate, further funding will be considered for on-going execution of the acquisition strategy.

Martin Perry

Chief Executive

Enteq Upstream plc

27 November 2012

ENTEQ UPSTREAM PLC (REGISTERED NUMBER: 07590845)

NOTES TO THE FINANCIAL STATEMENTS

For six months to 30 September 2012

1. Reporting entity

Enteq Upstream plc ("the Company") is a public limited company incorporated and domiciled in England and Wales (registration number 07590845). The Company's registered address is The Courtyard, High Street, Ascot, Berks SL5 7HP.

The Company's ordinary shares are traded on the AIM market of the London Stock Exchange plc.

Both the Company and its subsidiaries (together referred to as the "Group") are focused the provision of specialist products and technologies to the upstream oil and gas services market.

2. General information and basis of preparation

The information for the period ended 30 September 2012 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the period ended 31 March 2012 has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

The Group's consolidated interim financial statements are presented in US Dollars ($), which is also the functional currency of the parent company. These condensed consolidated interim financial statements (the interim financial statements) have been approved for issue by the Board of directors on 27 November 2012.

3. Accounting policies

The interim financial statements have been prepared on the basis of the accounting policies and methods of computation applicable for the period ended 31 March 2012. These accounting policies are consistent with those applied in the preparation of the accounts for the period ended 31 March 2012 except as described below.

Since 31 March 2012, the Company has established two operating subsidiaries and hence has adopted the following new accounting policies, as per IAS 38 - Intangible assets and IFRS 3 - Business Combinations:

Intangible Assets and Goodwill

a) Goodwill

Goodwill represents amounts arising on the acquisition of trade and related assets and liabilities.

Goodwill on acquisitions comprises the excess of the fair value of the consideration transferred over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment.

b) Other intangible assets

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation.

NOTES TO THE FINANCIAL STATEMENTS (cont.)

3. Accounting policies (cont.)

c) Amortisation

Amortisation is charged to overhead in the income statement on a straight line basis over the estimated useful lives of the intangible assets unless such lives are indefinite. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are determined separately for each acquisition and fall within the following ranges:

Brand names 5 - 20 years

Customer relationships 11 - 13 years

Developed Technology 4 - 7 years

IPR&D Technology 7 years

Non-compete agreement 5 years

d) Research and Development Expenditure

Research expenditure is recognised as an expense when it is incurred. Development expenditure is recognised as an expense except that expenditure incurred on development projects are capitalised as long-term assets to the extent that such expenditure is expected to generate future economic benefits. Development expenditure is capitalised if, and only if an entity can demonstrate all of the following:-

·; its ability to measure reliably the expenditure attributable to the asset under development;

·; the product or process is technically and commercially feasible;

·; its future economic benefits are probable;

·; its ability to use or sell the developed asset;

·; the availability of adequate technical, financial and other resources to complete the asset under development; and

·; its intention to complete the intangible asset and use or sell.

Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses, if any. Development expenditure initially recognised as an expense is not recognised as assets in the subsequent period. Development expenditure is amortised on a straight-line method over the useful lives of each product from when the products are ready for sale or use. In the event that the expected future economic benefits are no longer probable of being recovered, the development expenditure is written down to its recoverable amount.

4. Adjusted Earnings

The following analysis illustrates the performance of the Group's activities, and reconciles the Group's profit, as shown in the condensed consolidated interim income statement, to adjusted earnings. Adjusted earnings is presented to provide a better indication of overall financial performance and to reflect how the business is managed and measured on a day-today basis. The adjusted earnings before interest, taxation, depreciation and amortisation ("adjusted EBITDA") is also presented as it is a key management metric.

NOTES TO THE FINANCIAL STATEMENTS (cont.)

5. Cashflow

An alternative cashflow is presented below to illustrate better the sources and uses of cash generated and used during the six months to 30 September 2012.

*Drilling Tools Division

6. Segmental

For management purposes, the Group is currently organised into a single business unit, the Drilling Tools division, which is currently based solely in the USA.

The principal activities of the Drilling Tools division is the design, manufacture and selling of specialised parts and products for Directional Drilling and Measurement While Drilling operations for use in the energy exploration and services sector of the Oil and Gas industry.

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.

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

The net assets in Europe (UK) are represented, primarily, by cash balances.

NOTES TO THE FINANCIAL STATEMENTS (cont.)

7. Earnings Per Share

Basic earnings per share

Basic earnings per share is calculated by dividing the loss attributable to ordinary shareholders for the six months of $3,496,000 (September 2011: loss of $1,291,000) by the weighted average number of ordinary shares in issue during the period of 47,612,377 (September 2011: 7,718,759).

Diluted earnings per share

Diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders for the six months of $3,496,000 (September 2011: loss of $1,291,000) by the diluted weighted average number of ordinary shares in issue during the period 47,612,377 (September 2011: 7,718,759).

Adjusted earnings per share

Adjusted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders, excluding exceptional items, amortisation of intangible assets and foreign exchange profits or losses for the six months of $239,000 (September 2011: loss of $689,000), by the weighted average number of ordinary shares in issue during the period of 47,612,377 (September 2011: 7,718,759).

Adjusted diluted earnings per share

Adjusted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders, excluding exceptional items, amortisation of intangible assets and foreign exchange profits or losses for the six months of $239,000 (September 2011: loss of $689,000), by the diluted weighted average number of ordinary shares in issue during the period of 47,612,377 (September 2011: 7,718,759).

The adjusted diluted earnings per share information are considered to provide a fairer representation of the Group's trading performance.

A reconciliation between basic earnings and adjusted earnings is shown in Note 4.

8. Income Tax

No liability corporate taxes in either the UK or the US arose on ordinary activities for the six months under review.

9. Acquisitions

a) Business and net trading assets of XXT Incorporated ("XXT")

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.

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

NOTES TO THE FINANCIAL STATEMENTS (cont.)

a) Business and net trading assets of XXT Incorporated ("XXT") (cont.)

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 up to $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 $1.6m 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.

NOTES TO THE FINANCIAL STATEMENTS (cont.)

a) Business and net trading assets of XXT Incorporated ("XXT") (cont.)

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 $2.2m. Identifiable intangible assets acquired were deemed to have a fair value of $35.9m.

Goodwill

Goodwill of $14.4m has been recognised in relation to the acquisition. The goodwill represents the difference between theconsideration 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.

b) Business and net trading assets of M&R Industries, Ltd. and Pro-Flow Fabrication Technologies, Ltd. ("Enteq KMS")

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. M&R (using the trading name KM Services) and Pro-Flow, manufacture and sell specialised parts and products for Directional Drilling and Measurement While Drilling operations.

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 $11.5m. A further plot of land was acquired, in a separate transaction, for $2.3m.

The purchase agreement also included an additional consideration of up to $6.0m 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 $6.0m. Management have estimated the total amounts expected to be paid based on forecasts for the business and their judgement.

Acquisition-related costs amounting to $0.2m 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.

9. Acquisitions (cont.)

The net cash paid for the KMS 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 $1.7m. Identifiable intangible assets acquired were deemed to have a fair value of $7.7m.

Goodwill

Goodwill of $4.6m 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.

10. Contingent liabilities

Apart from the balances shown in the Condensed Statement of Financial position, which relate to potential further payments in connection with the acquisitions of XXT and KMS (see Note 9), the Directors are not aware of any further contingent liabilities faced by the Group as at 30 September 2012 (31 March 2012: £nil, 30 September 2011: £nil).

11. Intangible Fixed Assets

a) Goodwill

Goodwill will be assessed to determine if there are indicators of impairment at the year end.

NOTES TO THE FINANCIAL STATEMENTS (cont.)

11. Intangible Fixed Assets (cont.)

b) Other Intangible Fixed Assets

12. Share capital

Share capital as at 30 September 2012 amounted to $939,000 (31 March 2012 and 30 September 2011: $242,000). During the period, the Group issued 43,853,453 shares in respect of the acquisitions and 50,000 in relation to an issue to a Director.

13. Going concern

In carrying out their duties in respect of going concern, the Directors have carried out a review of the Group's financial position and cash flow forecasts for the next 12 months. These have been based on a comprehensive review of revenue, expenditure and cash flows, taking into account specific business risks and the current economic environment. With regards to the Group's financial position, it had cash and cash equivalents at 30 September 2012 of $25.8 million. The Group also has in place a revolving credit facility of $15.0 million, which has not been drawn down.

The Group remains comfortably within its borrowing covenants.

Having taken the above into consideration the Directors have reached a conclusion that the Group is well placed to manage its business risks in the current economic environment. Accordingly, they continue to adopt the going concern basis in preparing the Interim Financial report.

14. Principal risks and uncertainties

Further detail concerning the principal risks affecting the business activities of the Group is detailed on pages 42 and 43 of the Annual Report and Accounts for the period ended 31 March 2012. The only significant changes since the last annual report relate to the trading of the two newly acquired businesses.

15. Events after the balance sheet date

There have been no material events subsequent to the end of the interim reporting period ended 30 September 2012.

16. Copies of the interim results

Copies of the interim results can be obtained from the Group's registered office at The Courtyard, High Street, Ascot Berkshire SL5 7HP and are available from the Group's website at www.enteq.com.