Final Results to 31 December

30th Jun 2008 07:00



AIM: GBF

GEM Biofuels Plc

("GEM" or the "Company")

Preliminary Results for the Year Ended 31 December 2007

GEM Biofuels Plc ("GEM" or the "Company", AIM: GBF), the emerging feedstock supplier to the global biodiesel industry, today announces its preliminary results for the year ended 31 December 2007. These results are the Company's first since it was successfully admitted to trading on AIM in October 2007.

Corporate Highlights

Successful capital raising of £3.5 million and admission to AIM

Operational Highlights

The Company has exclusive land use agreements covering more than 450,000 hectares in Southern Madagascar

Planted over 12,000 hectares of Jatropha between the date of admission and the end of the year

Financial Highlights

Cash as at 31 December 2007: £2.17 million (2006: £0.21 million)

Group loss for the year: £0.98 million (2006: £0.66 million)

Post Period Highlights

Conclusion of the 2007/2008 planting season, which ended in mid-February 2008, during which a further 18,000 hectares of Jatropha was planted.

Offtake agreement signed with Natural Fuel Limited ("NFL") under which GEM will supply 55% of its crude Jatropha oil production to NFL. The agreement is for a 10 year period starting January 2009, at a free on board delivery price for the first five years of US$500 per tonne, adjusted for inflation.

Mr Paul Benetti, Chief Executive Officer, comments, "We are pleased to announce our results for the year ended 31 December 2007, our first since the admission of the Company to AIM in October last year. The £3.5 million capital raised at the time of listing has equipped the Company to forge ahead with its business plan. In late 2007, the Company made significant progress in establishing further plantations in Madagascar and our strategy of developing low-cost, sustainable and Company-managed Jatropha plantations has performed well against a backdrop of challenges facing the wider biofuels industry. Whilst Jatropha's place in the biofuels market is still in the early stages, your Board believes it can play a significant role in overcoming many of the issues currently facing the biodiesel industry. We see the entry of a multinational oil industry player in the development of a global Jatropha plantation business as a significant endorsement of the crop and its likely substantial future position in the global biodiesel feedstock industry.

Mr Simon Hunt, Non-Executive Chairman, added, "The broader biofuels industry faces questions on such matters as "food v fuel", and sustainability and their associated impact on the industry's viability. GEM's focus on Jatropha plantation removes it from much of this debate. GEM is well situated to capitalise on the anticipated growth from the ongoing political imperative to reduce emissions and provide energy security".  

Enquiries:

GEM Biofuels Plc	WH Ireland	Parkgreen Communications
Paul Benetti Chief Executive Officer	Tim Cofman-Nicoresti / Nicola Rayner	Louise Goodeve / Justine Howarth
+61 (0)8 6365 3038 +61 (0) 407 039 379 (mobile)	+ 44 (0) 121 265 6330	+44 (0) 20 7851 7480

Notes to Editors

About GEM Biofuels 

GEM Biofuels was founded in 2004 to capitalise on the opportunity presented by the local agricultural and socio-economic conditions in Madagascar to produce Jatropha oil for use as a biodiesel feedstock. Operations are based in the South of the island where the Jatropha tree grows wild.

The Company has secured 50 year agreements giving exclusive rights over 452,500 hectares (in excess of 1 million acres) to establish plantations, ranging in size from 2,500 - 50,000 hectares with a further 40,000 hectares of natural forest containing substantial numbers of mature Jatropha trees.

To date the Company has planted 43,500 hectares of Jatropha and a total of 200,000 hectares is expected to be planted by 2010. Based on this, the Group's production is expected to be 20,000 tonnes per annum ("t.p.a.") of crude Jatropha oil in 2009 rising to 210,000 t.p.a. in 2014, after its trees mature. 

GEM Biofuels Plc was admitted to trading on AIM in October 2007.

Jatropha 

Jatropha is a small tree/shrub, growing to about 5 metres in height and is well suited for use in the production of biodiesel. Jatropha trees are relatively drought resistant and suitable for cultivation in sub tropical regions. The high oil yielding seeds are mildly toxic and as such Jatropha is not a food and its use in biodiesel production does not affect the cost of living of the indigenous population. Biodiesel refined from Jatropha oil complies with international standards, including EN14214 in Europe, the major market for biodiesel.

Whilst the current production of Jatropha seed for commercial purposes is small, it is substantially increasing due to its attractiveness as a biodiesel feedstock because of its ability to grow on marginal land and the fact that it is non-edible.

  Chairman and Chief Executive Officer's Statement

We are pleased to announce our results for the year ended 31 December 2007, our first since the admission of GEM Biofuels Plc to trading on AIM in October last year. 

We believe that Jatropha provides an answer to many of the issues currently facing the wider biofuels industry on its viability and long-term sustainability as highlighted by the "food versus fuel" debate. GEM is focussed on the development of a low-cost, sustainable, biodiesel feedstock supply business based around the establishment of Company-managed plantations of Jatropha. Jatropha is a perennial, non-food crop and our plantations are established on land not otherwise used for food production and often involve the re-forestation of land previously denuded of trees by local communities.

Although Jatropha's place in the Biofuels market is still relatively young, your Board believes that it can play a significant role in addressing many of the issues currently facing the biodiesel industry. We believe the entry of a multinational oil industry player into the Jatropha plantation business represents a significant endorsement of the crop and its potential future role in the biofuels feedstock-supply landscape. 

Capital raising and admission to AIM

During the year GEM successfully completed a capital-raising of £3.5 million, and the Company's shares were admitted to trading on AIM in October. These funds will enable the Company to continue to finance the implementation of its business plan including the establishment of further Jatropha plantations and the purchasing of an initial oilseed-crushing facility in the South of Madagascar. The capital-raising also brought a number of respected investors on to the Company's share register, many of whom have provided invaluable assistance to us.

Plantation Operations

During the year under review, the Company planted 22,000 hectares of Jatropha in Southern Madagascar. This figure represents a 12,000 hectare increase over the 13,500 hectares reported in the Company's October 2007 admission document. 

The Company employs farmers who live locally to its intended plantation locations and utilises traditional farming techniques, thereby providing substantial employment and training opportunities to the local population. During the 2007/2008 planting season, the Company employed as many as 4,500 local farmers a day across 9 different communes.

GEM has demonstrated its ability to secure exclusive land use agreements. In addition, GEM has forged strong and productive relations with local people across multiple communes in Madagascar, implementing effective working practices to manage large numbers of employees to establish and maintain its plantations.

GEM is proud of the strong relations it has built with local communities and the government in Madagascar and considers these relations and the working practices upon which they are founded, to be central to its success in establishing and maintaining a growing portfolio of plantations.

Financial Review

In the year ended 31 December 2007, the Group's loss on ordinary activities after taxation was £977,926 (2006: £660,381), or a loss per ordinary share of 4.53p (2006: 3.30p). The Group's cash balance as at 31 December 2007 was £2,169,831 (2006: £212,615). 

Management

Upon Admission to AIM, the Company welcomed three new directors to its Board. Mr Simon Hunt, Non-Executive Chairman, brings a wealth of experience in the management of small, emerging companies, Mr. Frank Tiller, Finance Director, is an experienced AIM finance director, and Mr Malcolm Williams, Non Executive Director, who has had an active and successful career in international finance and business development. The Board, management and employees have been dedicated to implementing our business strategy and building our business and we thank all our staff across the Group for their efforts. We look forward to the continued support of all stakeholders in the coming year as we continue to seek to build GEM into a leading force in the biodiesel feedstock-supply business.

  Outlook

Despite a number of issues and difficulties facing the biofuels industry at all levels in the value chain, the sector continues to experience strong growth. In order to capitalise on this growth, GEM considers it necessary to develop feedstock supplies which do not threaten the ability of people to obtain sufficient food at reasonable prices and which do not negatively impact upon the environment.

Your Board believes that Jatropha offers a potential solution to this dilemma. Its potential to provide a low-cost feedstock which can be grown in a sustainable manner together with a potentially positive impact on the environment makes Jatropha a logical solution to the issues facing the industry and in so doing, presents us with substantial global opportunities.

Your Board is confident that the Company is well-positioned to benefit from the current opportunities in the global biodiesel feedstock industry. We will continue to develop and implement the Company's business plan and strengthen feedstock supplies through the expansion of our portfolio of plantation lands. In doing this, we are confident that we can and will continue to build shareholder value.

Simon D Hunt

Non-Executive Chairman

Paul R Benetti

Chief Executive Officer

  

Consolidated and Company Income Statements  for the year ended 31 December 2007
	Note		2007 Group £	From Incorporation to 31 December 2006 Group £		2007 Company £	From Incorporation to 31 December 2006 Company £
Administrative expenses	5		(1,032,495)	(646,586)		(714,778)	(476,741)
Finance income	8		20,743	4,794		20,743	4,794
Other gains and losses			56,141	(13,947)		19,081	(567)
Finance costs	8		(22,315)	(4,642)		(20,801)	(1,528)
Loss before tax			(977,926)	(660,381)		(695,755)	(474,042)
Tax expense	9		-	-		-	-
LOSS FOR THE YEAR / PERIOD			(977,926)	(660,381)		(695,755)	(474,042)
Loss per ordinary share	20
Basic loss per ordinary share (pence)			4.53	3.30		3.22	2.37
Diluted loss per ordinary share (pence)			4.53	3.30		3.22	2.37
Notes to the financial statements are included on pages 9 to 24.

Consolidated and Company Balance Sheets as at 31 December 2007
	Note		2007 Group £			2006 Group £		2007 Company £	2006 Company £
ASSETS
Non current assets
Goodwill	11		787,614			802,244		-	-
Property, plant and equipment	12		47,650			50,844		1,860	1,393
Plantation assets	13		168,379			58,500		-	-
Investment in subsidiary	19		-			-		751,350	765,306
Other assets			-			9,000		-	-
			1,003,643			920,588		753,210	766,699
Current Assets
Inventories	14		5,654			3,593		-	-
Loan to subsidiary	10		-			-		854,706	477,934
Cash and cash equivalents			2,169,831			212,615		2,003,713	15,833
			2,175,485			216,208		2,858,419	493,767
TOTAL ASSETS			3,179,128			1,136,796		3,611,629	1,260,466
LIABILITIES
Current liabilities
Trade and other payables	15		144,049			222,763		139,230	172,452
TOTAL LIABILITIES			144,049			222,763		139,230	172,452
NET CURRENT ASSETS / (LIABILITIES)			2,031,436			(6,555)		2,719,189	321,315
NET ASSETS			3,035,079			914,033		3,472,399	1,088,014
EQUITY
Issued capital	16		276,015			200,000		276,015	200,000
Share premium	16		4,391,866			1,564,708		4,391,866	1,564,708
Currency translation reserve			(188,716)			(190,294)		(219,906)	(202,652)
Share option reserve	22		194,221			-		194,221	-
Accumulated losses			(1,638,307)			(660,381)		(1,169,797)	(474,042)
TOTAL EQUITY			3,035,079			914,033		3,472,399	1,088,014
These financial statements were approved by the Board of Directors and authorised for use on 29 June 2008.
Signed on behalf of the Board of Directors by:
Simon D Hunt Non-Executive Chairman					Paul R Benetti Chief Executive Officer
Notes to the financial statements are included on pages 9 to 24.

Statements of Changes in Equity

for the year ended 31 December 2007

	Note	Share Capital	Share Premium	Currency Translation Reserve	Share Option Reserve	Accumulated Losses	Total
		£	£	£	£	£	£
2007 GROUP
Balance at 1 January 2007		200,000	1,564,708	(190,294)	-	(660,381)	914,033
Loss for the year		-	-	-	-	(977,926)	(977,926)
Issue of shares during the year	16	76,015	3,689,210	-	-	-	3,765,225
Issue of options		-	-	-	194,221	-	194,221
Share issue cost		-	(862,052)	-	-	-	(862,052)
Translation into presentation currency		-	-	1,578	-	-	1,578
Balance as at 31 December 2007		276,015	4,391,866	(188,716)	194,221	(1,638,307)	3,035,079
2006 GROUP
Balance at Incorporation		2	-	-	-	-	2
Loss for the period		-	-	-	-	(660,381)	(660,381)
Acquisition of subsidiaries	18	99,998	782,355	-	-	-	882,353
Issue of shares during the period		100,000	782,353	-	-	-	882,353
Translation into presentation currency		-	-	(190,294)	-	-	(190,294)
Balance as at 31 December 2007		200,000	1,564,708	(190,294)	-	(660,381)	914,033
2007 COMPANY
Balance at 1 January 2007		200,000	1,564,708	(202,652)	-	(474,042)	1,088,014
Loss for the year		-	-	-	-	(695,755)	(695,755)
Issue of shares during the year	16	76,015	3,689,210	-	-	-	3,765,225
Issue of options		-	-	-	194,221	-	194,221
Share issue cost		-	(862,052)	-	-	-	(862,052)
Translation into presentation currency		-	-	(17,254)	-	-	(17,254)
Balance as at 31 December 2007		276,015	4,391,866	(219,906)	194,221	(1,169,797)	3,472,399
2006 COMPANY
Balance at Incorporation		2	-	-	-	-	2
Loss for the period		-	-	-	-	(474,042)	(474,042)
Acquisition of subsidiary	18	99,998	782,355	-	-	-	882,353
Issue of shares during the period		100,000	782,353	-	-	-	882,353
Translation into presentation currency		-	-	(202,652)	-	-	(202,652)
Balance as at 31 December 2006		200,000	1,564,708	(202,652)	-	(474,042)	1,088,014

Notes to the financial statements are included on pages 9 to 24.

Cash Flow Statements for the year ended 31 December 2007
	Note		2007 Group £	From Incorporation to 31 December 2006 Group £		2007 Company £	From Incorporation to 31 December 2006 Company £
Cash flows from operating activities
Cash used in operations	17		(822,531)	(577,965)		(542,214)	(391,341)
Cash flows from investing activities
Purchases of property, plant and equipment			(30,300)	(38,067)		(1,206)	(2,039)
Purchases of plantation assets			(98,843)	(58,500)		-	-
Interest received			20,743	4,794		20,743	4,794
Interest paid			(2,396)	-		(882)	-
Loans to subsidiary			-	-		(376,772)	(477,934)
Net cash used in investing activities			(110,796)	(91,773)		(358,117)	(475,179)
Cash flows from financing activities
Proceeds from issue of shares			3,500,000	882,353		3,500,000	882,353
Proceeds from converting RAB Loan Notes to shares			250,000	-		250,000	-
Payment for share issue costs			(862,052)	-		(862,052)	-
Net cash provided by financing activities			2,887,948	882,353		2,887,948	882,353
Net increase in cash and cash equivalents			1,954,621	212,615		1,987,617	15,833
Cash and cash equivalents at the beginning of the year/from incorporation			212,615	-		15,833	-
Effects of exchange rate changes on the balance of cash held in foreign currencies			2,595	-		263	-
Cash and cash equivalents at the end of the year / period			2,169,831	212,615		2,003,713	15,833
Notes to the financial statements are included on pages 9 to 24.

1. GENERAL INFORMATION

GEM BioFuels PLC (formerly known as Madagascar Biodiesel Limited) (the "Company") is a company domiciled and incorporated in the Isle of Man, and was incorporated on 6 December 2005. The Company's ordinary shares are traded on AIM.

The consolidated and company accounts for GEM BioFuels Plc and its subsidiary (the "Group") have been prepared for the year ended 31 December 2007.

The Company's registered address is 34 North Quay, Douglas, Isle of Man IM1 4LB.

The functional currency of the company and the consolidated financial statements is the United States Dollars ('USD') as it is the currency of the primary economic environment in which the Group operates. The consolidated financial statements are presented in Pounds Sterling (presentation currency) for the convenience of readers. The translation between the functional and presentation currency is in accordance with the policy set out in Section 2(h) below.

2.  SIGNIFICANT ACCOUNTING POLICIES

(a)  Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as they apply to the financial statements of the Group for the year ended 31 December 2007.

In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 January 2007, and the related amendment to IAS 1 Presentation of Financial Statements. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group's financial instruments and management of capital (see note 23). Four Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 7 Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies; IFRIC 8 Scope of IFRS 2; IFRIC 9 Reassessment of Embedded Derivatives; and IFRIC 10 Interim Financial Reporting and Impairment. The adoption of these Interpretations has not led to any changes in the Group's accounting policies.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

IAS 1  Amendment to IAS 1 - Presentation of Financial Statements (revised September 2007)

IAS 23 Amendment to IAS 23 - Borrowing Costs

IAS 27 Consolidated and Separate Financial Statements (revised January 2008)

IAS 32 Amendment to IAS 32 - Financial Instruments: presentation

IFRS 2 Amendment to IFRS 2 - Vesting Conditions and Cancellations

IFRS 3 Business Combinations (revised January 2008)

IFRS 8  Operating Segments 

IFRC 11 IFRS 2 - Group and Treasury Share Transactions

IFRIC 12 Service Concession Arrangements

IFRIC 13 Customer Loyalty Programs

IFRIC 14 IAS 19 The Limit on Defined Benefit Assets, Minimum Funding Requirements

The directors have not yet completed their assessment of the impact of the adoption of these Standards and Interpretations in future periods, but expect they will have no material impact on the financial statements of the Group except for the impact of IFRS 2 and additional disclosures on capital and financial instruments when the relevant standards come into effect for periods commencing on or after 1 January 2008. With regard to IFRS 2, management anticipate that the amendment may have a material impact on the accounts, however this impact has not been quantified.

(b)  Basis of preparation

The Group financial statements are prepared on the historical cost basis.

The accounting policies have been consistently applied to the results, gains and losses, assets, liabilities and cash flows of entities included in the consolidated financial statements. 

The preparation of financial statements in conformity with IFRSs requires the Directors to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that year, or in the year of the revision and future periods if the revision affects both current and future years.

The Directors have prepared the financial statements on a going concern basis which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

The Company may be required to raise additional capital in order to fund its planned production program and to commercialise its operations. The Company manages its development and overhead expenditures in line with the funding available to the Company.

The Directors believe the going concern basis of accounting is appropriate as the Company has a successful track record in raising capital and believe they will be able to obtain further funding to commercialise the operations.

 (c)  Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

 (d)  Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceed the cost of the business combination, the excess is recognised immediately in profit or loss.

(e)  Goodwill

Goodwill is allocated as described in Section (d). After initial recognition, goodwill is measured at cost less any accumulated impairment losses. This impairment review is performed at least annually. Goodwill which is recognised as an asset is reviewed for impairment at least annually.

(f)  Revenue recognition

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. 

(g)  Leases

Leases are classified as finance leases whenever the terms of the lease substantially transfer the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group only has operating leases. Initial direct costs incurred in negotiating and arranging an operating lease is added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

(h)  Foreign currencies

The functional currency of the Company and subsidiaries is considered to be the USD as the currency of the primary economic environment in which the Group operates. For the purpose of the consolidated financial statements, the results and financial position of the Company and Group are expressed in Pounds Sterling.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise except for:

exchange differences which relate to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on foreign currency borrowings;

exchange differences on transactions entered into to hedge certain foreign currency risks (see below under financial instruments / hedge accounting); and

exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of the net investment.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(i)  Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the 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 tax liabilities are generally recognised for 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 the initial recognition of goodwill 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 tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, 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.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and 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.

  

 (j)  Financial instruments

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

Trade receivables

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. 

The allowance recognised is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Investments

Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and 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 Company or the Group after deducting all of its liabilities.

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

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

Derivative financial instruments and hedge accounting

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group does not use derivative financial instruments for speculative purposes.

Debt and equity instruments

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. 

Compound instruments

The component parts of compound instruments are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or upon the instruments reaching maturity. The equity component initially brought to account is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of income tax effects and is not subsequently remeasured.

(k)  Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

(l)  Property, plant and equipment

Items of property, plant and equipment are initially recorded at cost, being the fair value of consideration provided plus incidental costs, including an amount for dismantling costs where applicable. Items of plant and equipment, including motor vehicles, fixtures and fittings and leasehold improvements are depreciated from the date of acquisition using the straight line method over their estimated useful lives. Depreciation rates are reviewed annually.

The depreciation rates used for each class of asset are as follows:

Motor vehicles 25%

Fixtures and equipment  5% - 40%

(m)  Plantation assets

A biological asset is a living animal or plant. The Group has determined that it has a biological asset being the Jatropha trees in Madagascar. A biological asset is required to be recognised when the company controls the asset as a result of a past event, it is probable that the future economic benefits associated with the asset will flow to the entity and the fair value or cost of the asset can be measured reliably.

The biological asset should be measured on initial recognition and at each balance sheet date at its fair value less estimated point of sale costs, except where the fair value cannot be measured reliably. Fair value is not reliably measurable when market determined prices are not available and for which alternative measures of fair value are clearly unreliable.

Costs incurred may approximate fair value when little biological transformation has taken place since the initial cost occurrence.

Changes in the fair value (gains and/or losses) of the biological asset are recorded in the income statement in the period in which the change occurs.

(n)  Government Grants

Government grants relating to land are measured at fair value less estimated point of sale costs and treated as deferred income and released to profit or loss over the expected useful lives of the assets concerned. Where the grant relates to biological assets accounted for on an historical cost basis, the grant and related assets are recorded at nominal value.

 (o)  Impairment of assets

At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Goodwill, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently reversed.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in profit or loss immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately.

(p)  Inventories

Inventories are valued at the lower of cost and net realisable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventory on hand by the method most appropriate to each particular class of inventory, with the majority being valued on a first in first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

(q)  Share-based payments

Equity-settled share-based payments with employees and others providing similar services are measured at the fair value of the equity instrument at the grant date. Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Further details on how the fair value of equity-settled share-based transactions has been determined can be found in note 22.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of equity instruments that will eventually vest.

At each reporting date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit and loss over the remaining vesting period, with corresponding adjustment to the equity-settled employee benefits reserve.

No amount has been recognised in the financial statements in respect of other equity-settled share based payments.

Equity-settled share-based payment transactions with other parties are measured at the fair value of the goods and services received, except where the fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

For cash-settled share-based payments, a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each reporting date.

3.  CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Group's accounting policies, which are described in note 2, the Directors have made the following judgements that have the most significant effect on the amounts recognised in the financial statements.

Impairment of goodwill

Following a detailed review of the business combinations acquired, the Directors are satisfied that the carrying amount of the goodwill is justified and no impairment loss is to be recognised at the period end.

Impairment of biological assets

Following a review of the company's plantation and forest assets, the company has determined that as at 31 December 2007 the biological asset will be measured at the cost of initial planting as little if any biological transformation had occurred at 31 December 2007 and accordingly cost reflected the best approximation at fair value.

Valuation of Share Based payments

Share options are required to be valued at the grant date. The Directors have made certain assumptions which underpin the value assigned to the options. Refer to note 22 for details of the assumptions made.

4.  SEGMENT REPORTING

The Group's primary reporting format is its geographical segment, while its secondary reporting format is its business segment.

The Group has one geographical segment being Madagascar.

The Group has one business segment, which is the production of feedstock for the Biodiesel market.

5. ADMINISTRATIVE EXPENSES

Operating loss is stated after charging:

	2007 Group £	From Incorporation to 31 December 2006 Group £		2007 Company £	From Incorporation to 31 December 2006 Company £
Legal fees	175,256	246,366		151,199	246,366
Consultants' fees	46,902	121,258		13,874	39,236
Depreciation	21,801	14,572		709	646
Rental fees	55,406	28,703		2,490	-
Wages and salaries	418,703	187,705		391,142	168,857
Other administrative expenses	234,816	47,982		92,494	21,636
Loss on disposal of property, plant and equipment	16,741	-		-	-
Non-Executive Directors' fees	62,870	-		62,870	-
	1,032,495	646,586		717,778	476,741

  

Included within the Administrative expenses are the following amounts of Auditors remuneration:

	2007 Group £	From Incorporation to 31 December 2006 Group £		2007 Company £	From Incorporation to 31 December 2006 Company £
Audit fees	29,460	44,093		29,460	44,093
Taxation services	-	9,595		-	9,595
Corporate finance service	61,306	98,265		61,306	98,265
	90,766	151,953		90,766	151,953
Capitalised to share premium account	(61,306)	-		(61,306)	-
	29,460	151,953		29,460	151,953

6. STAFF NUMBERS AND COSTS

The average number of persons employed by the Group (including Directors) during the year, by category, was as follows:

	2007 Number		2006 Number
Executive directors	2		1
Technical	2		2
Administration	28		24
Total	32		27

The costs incurred in respect of these employees (including Directors) were:

	2007 £		From Incorporation to 31 December 2006 £
Total (including social security costs)	481,573		187,705

The average number of persons employed by the Company (including Directors) during the year, by category, was as follows:

	2007 Number		2006 Number
Executive directors	2		1
Administration	2		1
Total	4		2

The costs incurred in respect of these employees (including Directors) were:

	2007 £		From Incorporation to 31 December 2006 £
Total (including social security costs)	454,012		168,857

  

7. DIRECTORS' REMUNERATION

	Basic Salary £	Fees £	Share Options(ii) £	Total 2007 £	Total 2006 £
Executive directors
Paul R Benetti	106,041	-	44,087	150,128	65,578
Adam W Broadhurst (i)	31,500	-	128,090	159,590	-
Frank B Tiller (i)	7,500	-	3,674	11,174	-
Non-executive directors
Simon D Hunt (i)	-	27,500	11,022	38,522	-
Malcolm F Williams (i)	-	5,000	7,348	12,348	-
Pritesh R Desai	-	12,000	-	12,000	-
	145,041	44,500	194,221	383,762	65,578

 Appointed as a Director on 15 October 2007.

Further details of the share options issued to directors are set out in note 22.

8. NET FINANCING INCOME

	2007 Group £	From Incorporation to 31 December 2006 Group £		2007 Company £	From Incorporation to 31 December 2006 Company £
Interest income from financial institutions	20,743	4,794		20,743	4,794
Gross interest expenses (i)	(22,315)	(4,642)		(20,801)	(1,528)
Net financing income	(1,572)	152		(58)	3,266

Included in the gross interest expense of £22,315 (Group) and £20,801 (Company) is an amount of £19,919 of non cash interest relating to the RAB convertible notes. Refer to note 16 for further details. 

9. INCOME TAX EXPENSE

The Income Tax (Amendment) Act 2006 provides that a standard zero rate of income tax will apply to the company in the Isle of Man for 2006/07 and subsequent years of assessment. Therefore no provision for liability to Isle of Man income tax has been included in these accounts.. 

The company's subsidiary pays tax at a rate of 30% on its taxable profits. No tax charge has been recorded in the current period in respect of the operations of the subsidiary due to losses arising. A deferred tax asset has not been recognised in respect of these losses due to the unpredictability of future income streams in the company. The charge for the period can be reconciled to the loss per the income statement as follows:

	Group  2007 £		From Incorporation to 31 December Group  2006 £
Loss before tax	(977,926)		(660,381)
Tax at the domestic rate of 0%	-		-
Effect of different tax rates of subsidiary operating in another jurisdiction	(84,651)		(56,202)
Unrecorded deferred tax asset	84,651		56,202
Tax expense for the year / period	-		-

10. LOAN TO SUBSIDIARY

The Company has lent an additional £376,772 during the year to Green Energy Madagascar sarl ('Green Energy'), a wholly owned subsidiary, bringing the total amount loaned by the company to Green Energy as at 31 December 2007 to £854,706 (2006: £477,934). The loan is repayable on demand and attracts no interest.

  

11. GOODWILL

			Group £
Balance at Incorporation			-
Additions through business combinations (see note 18)			913,827
Effects of foreign currency exchange differences			(111,583)
Balance at 1 January 2007			802,244
Effects of foreign currency exchange differences			(14,630)
Balance at 31 December 2007			787,614

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating unit (CGU) that is expected to benefit from that business combination. The Group's only CGU is Green Energy Madagascar sarl.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

The recoverable amount of the CGU is determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following five years 

The rate used to discount the forecast cash flows is 15% (2006: 15%).

12. PROPERTY, PLANT AND EQUIPMENT

2007 GROUP COST		Motor Vehicles £	Fixtures and equipment £	Total £
At 1 January 2007		38,332	27,084	65,416
Additions		9,974	20,326	30,300
Disposals		-	(21,513)	(21,513)
Exchange difference		2,942	4,501	7,443
At 31 December 2007		51,248	30,398	81,646
ACCUMULATED DEPRECIATION
At 1 January 2007		11,344	3,228	14,572
Charge for the year		13,733	8,068	21,801
Disposals		-	(4,772)	(4,772)
Exchange difference		1,725	670	2,395
At 31 December 2007		26,802	7,194	33,996
NET BOOK VALUE
At 31 December 2007		24,446	23,204	47,650

  

2006 GROUP COST		Motor Vehicles £	Fixtures and equipment £	Total £
At Incorporation		-	-	-
Additions		10,983	27,084	38,067
Acquisition of subsidiary		27,349	-	27,349
At 31 December 2006		38,332	27,084	65,416
ACCUMULATED DEPRECIATION
At Incorporation		-	-	-
Charge for the period		11,344	3,228	14,572
At 31 December 2006		11,344	3,228	14,572
NET BOOK VALUE
At 31 December 2006		26,988	23,856	50,844

COMPANY COST			Fixtures and equipment £	Total £
At 1 January 2007			2,039	2,039
Additions			1,206	1,206
Exchange difference			(37)	(37)
At 31 December 2007			3,208	3,208
ACCUMULATED DEPRECIATION
At 1 January 2007			646	646
Charge for the year			709	709
Exchange difference			(7)	(7)
At 31 December 2007			1,348	1,348
NET BOOK VALUE
At 31 December 2007			1,860	1,860

COMPANY COST			Fixtures and equipment £	Total £
At Incorporation			-	-
Additions			2,039	2,039
At 31 December 2006			2,039	2,039
ACCUMULATED DEPRECIATION
At Incorporation			-	-
Charge for the period			646	646
At 31 December 2006			646	646
NET BOOK VALUE
At 31 December 2006			1,393	1,393

13. PLANTATION ASSETS

GROUP COST		2007 £	2006 £
At 1 January 2007 / At Incorporation		58,500	-
Additions during year / period		98,843	58,500
Exchange difference		11,036	-
At 31 December		168,379	58,500

14 INVENTORIES

	2007 Group £	2006 Group £		2007 Company £	2006 Company £
Raw material stock	5,654	3,593		-	-
Total	5,654	3,593		-	-

15. TRADE AND OTHER PAYABLES

	2007 Group £	2006 Group £		2007 Company £	2006 Company £
Trade payables	53,283	222,763		48,464	172,452
Accrued expenses	90,766	-		90,766	-
	144,049	222,763		139,230	172,452

Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days. For most suppliers no interest is charged on the trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe. 

Included in the Group trade payables above is £18,512 (2006: nil) which relates to amounts owed to a director. The amount is unsecured and interest free and payable on demand, Refer to note 21 for further details.

The directors consider that the carrying amount of trade payables approximates to their fair value.

16. SHARE CAPITAL AND SHARE PREMIUM

Authorised:		Number of Ordinary Shares of 1p each	£
31 December 2006		200,000,000	2,000,000
31 December 2007		200,000,000	2,000,000

Issued		Number of Shares Issued and Fully Paid	Share Capital £	Share Premium £
Balance at 1 January 2007		20,000,000	200,000	1,564,708
Issue of placing shares at 1p each		5,833,334	58,333	3,441,667
Issue of conversion shares at 1p each		1,768,167	17,682	247,543
AIM admission costs		-	-	(862,052)
At 31 December 2007		27,601,501	276,015	4,391,866

On 15 October 2007, the company completed the placing of 5,833,334 ordinary shares. The company received cash consideration of £3,500,000 for this placing prior to expenses of £862,052.

On 27 March 2007 the Company and RAB entered into a further investment agreement under which RAB agreed to subscribe in cash for US$500,000 of convertible loan notes to be issued under a loan note instrument. The loan notes were secured by way of a debenture over all the assets and business of the Company.

A total of 500,000 US$1 loan notes were issued with repayment required after 2 January 2008 upon receipt of a repayment notice from RAB. The loan notes bore interest at 1 per cent per month until 1 January 2008 and if still outstanding increasing to 1.5 per cent per month until 1 April 2008 and thereafter at 2 per cent per month if still outstanding.

The loan notes were deemed to be a compound financial instrument. The directors deemed the effective interest rate to be consistent with the rate applicable to a debt instrument and accordingly recorded the US$500,000 as a liability. 

On 15 October 2007, the company issued 1,768,167 ordinary shares in satisfaction of the conversion of US$500,000 in loan notes at the conversion price of US$0.30 per share. 

Share Capital

Share capital represents the nominal value of shares issued by the company.

Share Premium

Share premium represents the premium over nominal value raised on the issue of shares by the company.

The Company has one class of ordinary shares which carry no right to income.

Holders of the ordinary shares are entitled to receive dividends and other distributions and to attend and vote at any general meeting

17. NOTES TO THE CASH FLOW STATEMENT

	2007 Group £	From Incorporation to 31 December 2006 Group £		2007 Company £	From Incorporation  to 31  December  2006 Company £
Loss for the year / period	(977,926)	(660,381)		(695,755)	(474,042)
Adjustments for:
Finance costs	22,315	4,642		20,801	1,528
Loss on disposal of property, plant and equipment	16,741	-		-	-
Share option expense	194,221	-		194,221	-
Foreign exchange gain	(7,165)	(142,174)		(8,225)	(87,131)
Interest income received and receivable	(20,743)	(4,794)		(20,743)	(4,794)
Depreciation of property, plant and equipment	21,801	14,572		709	646
Operating cash flows before movements in working capital	(750,756)	(788,135)		(508,992)	(563,793)
Increase in inventories	(2,061)	(3,593)		-	-
Decrease/(increase) in other assets	9,000	(9,000)		-	-
(Decrease)/increase  in payables	(78,714)	222,763		(33,222)	172,452
Net cash used in operating activities	(822,531)	(577,965)		(542,214)	(391,341)

18. ACQUISITION OF SUBSIDIARIES

On 21 December 2005 GEM BioFuels Plc acquired GEM, a company incorporated in Madagascar. The transaction has been accounted for by the purchase method.

The following is a breakdown of the acquired assets and liabilities of the acquisitions:

			Book Value £	Fair Value £
Net liabilities acquired
Property, plant and equipment			27,349	27,349
Trade and other payables			(58,823)	(58,823)
			(31,474)	(31,474)
Goodwill				913,827
Total consideration				882,353
Satisfied by:
Share issue (1)				882,353
				882,353
Net cash outflow arising on acquisition:
Cash consideration				-
Cash and cash equivalents acquired				-
				-

  

(1) Pursuant to a share sale agreement dated 21 December 2005, the Company agreed to issue 10,000,000 Ordinary Shares to Jatroil Industries Pty Ltd in consideration for which the Company received 98 fully paid ordinary shares in the capital of GEM from Jatroil Industries Pty Ltd which was holding these shares on trust for the shareholders in Jatroil Industries Pty Ltd pursuant to a declaration of trust dated 2 August 2005. The Company on 21 December 2005 allotted 9,999,800 shares to Paul Benetti and a further 200 Ordinary Shares were transferred from Taitnys Nominees to Paul Benetti. Paul Benetti then held these shares on trust for the shareholders in Jatroil Industries Pty Ltd. On 21 December 2005, 10,000,000 ordinary shares were transferred to these shareholders or their nominees by Paul Benetti. Goodwill represents the excess of the fair value of the acquired net assets over their book value. This excess fair value attributed to the assets acquired by the Company is due to the estimated value of positive cash the directors believe will be generated from the assets over the future of the project.

19. GROUP ENTITIES

Significant subsidiaries		Country of incorporation	Ownership interest
Green Energy Madagascar sarl		Madagascar	100%

There were no acquisitions or disposals of investments during the year. The movement in the investment in subsidiary is due to foreign exchange differences.

20. LOSS PER ORDINARY SHARE

				2007 Number		2006 Number
Weighted average number of shares				21,596,315		20,000,000
		2007 Group	2006 Group		2007 Company		2006 Company
Loss per ordinary share - basic - diluted		4.53 4.53	3.30 3.30		3.22 3.22		2.37 2.37

The number of shares in issue at 31 December 2007 was 27,601,501 (2006 - 20,000,000). For the purpose of calculating the diluted loss per share 1,986,666 (2006 - nil) options have not been included as the share options are not dilutive.

21. RELATED PARTIES

Transactions between the Company and its subsidiary, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Amounts outstanding between the Company and subsidiary are disclosed in note 10.

Trading transactions

During the year (2006: period), there were were no transactions with companies in the Group or transactions with related parties having certain common Directors other than those referred to below:

The Company paid £2,500 (2006: nil) in rent for office space in Perth, Australia under a 'cancellable, month-to-month' operating lease to DAPRB Pty Ltd, a company in which Paul Benetti is a director. The contract is based on normal commercial terms.

The Company has an outstanding loan of approximately £18,000, which it owes to Paul Benetti, a Director of the Company. The loan arose as a result of expenses prior to the Company's successful capital raising and is interest free and repayable on demand. Subsequent to the end of the financial year, this loan has been repaid.

The Company paid £8,500 (2006: nil) in consultancy fees for the provision of Administrative support to Zettai 1 Pty Ltd, a company in of which Paul Benetti is a director and his wife, Caroline Benetti owns 100% of the issued capital. These payments were based on normal commercial rates.

The Company acquired GEM on 21 December 2005 from Jatroil Pty Ltd, a related party by virtue of the fact that the Company and Jatroil Pty Ltd have common directors. Details of the acquisition and consideration paid are described in note 18.

Loans

There are no other outstanding loans granted or guarantees provided by the Company to or for the benefit of any of the Directors, nor are there any outstanding loans or guarantees provided by the Directors to or for the benefit of the Company.

  22. SHARE-BASED PAYMENTS

Employee share option plans

The Group has two ownership-based compensation schemes for Directors and executives of the Group. In accordance with the provisions of these plans, as approved by shareholders at a previous general meeting, awards are made to directors and executives at the discretion of the Board of Directors either on appointment, at salary review time, or any other time that the Directors deem appropriate. Other than the Broadhurst options, there are no specific performance or vesting criteria attaching to the options and it is at the discretion of the Board of Directors to establish these criteria for option award if they deem it desirable. The Broadhurst options vest subject to certain conditions relating to the establishment and performance of the Company's operations in Madagascar. All of the conditions relating to vesting have been met.

The table below shows the contract and vesting periods of the options granted at 31 December 2007, 

		Number	Exercise Price	Vesting Period	Contract Period
Broadhurst Tranche 1 Broadhurst Tranche 2		166,666 560,000	1p 60p	30 days Performance based	5 years 5 years
Other Directors		1,260,000	60p	50% in 12 month 50% in 24 months	5 years

The expected life of the options has been assessed at 2.5 years for options which vest 1 year from grant and 3 years for options which vest after 1 year.

The fair value of the awards is calculated using the Black-Scholes model and subsequently adjusted for gain dependency, assessed at 15%, and forfeitures, assessed at 10% over the life of the award. A volatility adjustment considered appropriate for the sector and the age of the Group is included in the calculation. In forming the volatility assumption, the Directors have considered the volatility of the share price since the date of listing. The volatility of companies operating in the same sector has also been reviewed. Based on these factors, volatility has been assessed at 60% for the award grants made during the year. Appropriate risk-free rates (as defined by the Bank of England) of 5.0% has been applied to individual awards and to the calculation. A zero dividend yield has been assumed.

The expenditure recognised in the income statement of the Group and the Company for the share-based payments in respect of employee services received during the year to 31 December 2007 is £194,221 (2006: £nil). The expense all relates to equity-settled, share-based payment transactions.

The tables below illustrates the number and weighted average exercise price (WAEP) of, and movements in, two share options streams during the year.

Directors Options		2007 Number	2007 WAEP  £	2006 Number	2006 WAEP £
Outstanding at incorporation Outstanding at 1 January		- -	- -	- -	- -
Granted during the year		1,820,000	60p	-	-
Forfeited during the year		-	-	-	-
Exercised during the year		-	-	-	-
Outstanding at 31 December		1,820,000	60p	-	-
Exercisable at 31 December		-	-	-	-

The exercise price for Directors' Options outstanding at the end of the year was 60p. The weighted average remaining contractual life of the options in issues at 31 December 2007 is 4.8 years.

  

Broadhurst Options		2007 Number	2007 WAEP  £	2006 Number	2006 WAEP £
Outstanding at incorporation Outstanding at 1 January		- -	- -	- -	- -
Granted during the year		166,666	1p	-	-
Forfeited during the year		-	-	-	-
Exercised during the year		-	-	-	-
Outstanding at 31 December		166,666	1p	-	-
Exercisable at 31 December		166,666	1p	-	-

The exercise price for Broadhurst Options outstanding at the end of the year was 1p. The weighted average remaining contractual life of the options in issues at 31 December 2007 is 4.8 years.

23. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Liquidity risk

The Group seeks to manage financial risk to ensure sufficient liquid funds are available to meet foreseeable needs whilst investing cash assets safely and profitably. All of the Group's financial liabilities at 31 December 2007 £144,049 (2006: £222,763) and the Company's financial liabilities at 31 December 2007 £139,230 (2006: £172,452) are payable with 3 months.

Foreign currency risk

An amount of the Group's capital and operating expenditures is denominated in Malagasy Ariary (MGA). The Group does not hedge its exposure. The table below demonstrates the sensitivity of the Group's loss before tax and equity to a reasonably possible change in the MGA exchange rate.

	Increase/ decrease in MGA rate	Effect on loss before tax £	Effect on Equity £
2007	+5%	(8,542)	(8,542)
	-5%	9,442	9,442
2006	+5%	(6,597)	(6,597)
	-5%	7,289	7,289

Managing capital

The Group aims to optimise its capital structure by holding an appropriate level of debt relative to equity in order to maximise shareholder value. The appropriate level of debt is set with reference to a number of factors and financial ratios including expected operating and capital expenditure cash flows, contingent liabilities and the level of unrestricted cash as well as the general economic environment. The Group aims to control its capital structure by issuing new shares and raising debt finance to the extent that it is possible on commercially acceptable terms. The Group's developing nature and the economic conditions prevailing in the biofuels industry are restricting the Group's ability to raise debt finance and exert any significant degree of control over its gearing ratio. As a result, the Group is currently financed exclusively from equity.

Fair value of financial assets and financial liabilities

The table below is a category by category comparison of the carrying amounts and fair values of all of the Group's financial instruments that are carried in the financial statements.

	Book Value 2007 £	Fair Value 2007 £	Book Value 2006 £	Fair Value 2006 £
Financial assets
Cash and cash equivalents	2,169,831	2,169,831	212,615	212,615

  

24. COMMITMENTS

The Group has no significant capital commitments towards existing or forecasted investments.

The Directors are not aware of any commitments as at 31 December 2007 other than the property lease agreements. The properties are used for the processing and packing of vegetable matter and for office accommodation. The terms of the lease vary between two and five years with a maximum commitment of £30,000 per annum.

	2007 Group £	From Incorporation to 31 December 2006 Group £		2007 Company £	From Incorporation to 31 December 2006 Company £
Minimum lease payments under the operating leases recognized as an expense in the year	55,406	28,708		2,490	-

At the balance sheet date, the Group had outstanding commitments for the future minimum lease payments under non-cancellable operating leases, which fall due as follows:

	2007 Group £	2006 Group £		2007 Company £	2006 Company £
Within one year	14,285	31,500		-	-
In the second year to the fifth year	3,571	142,557		-	-
After five years	-	40,203		-	-
	17,856	214,260		-	-

Subsequent to the end of the financial year, the Company signed a long-term Off-take Agreement ("Agreement") with Natural Fuel Limited ("NFL"). For further details refer to note 27. 

25. ULTIMATE CONTROLLING PARTY

During the period to 31 December 2007, the ultimate controlling party of the Company and the Group is RAB Special Situations (Master) Fund Limited ('RAB'), a company incorporated in the Cayman Islands.

26. RISK EXPOSURE

Credit risk

The Group's principal financial assets are bank balances and cash, prepaid expenses and other receivables and investments. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The Group has no significant concentration of credit risk.

 

Market and liquidity risk

Market risk is the risk that changes in interest rates, foreign exchange rates, equity prices and other rates, prices, volatilities, correlations or other market conditions, such as liquidity, will have an adverse impact on the Group's financial position or results. The principal market risk to which the Group is exposed is interest rate risk, which is not hedged given the scale and nature of the Group's operations. 

Currency risk

Currency risk arises when transactions are conducted in a currency other than the functional currency of the Group, which is not hedged given the scale and nature of the Group's operations.

27. EVENTS AFTER THE BALANCE SHEET DATE

Off-take Agreement

On 14 February 2008, the Company announced that it had signed a long-term Off-take Agreement (the "Agreement") with Natural Fuel Limited ("NFL"), under which GEM will supply NFL with crude Jatropha oil as feedstock for its Singapore biodiesel facility. Under the terms of the Agreement, GEM will supply 55% of its crude Jatropha oil production in Madagascar to NFL. The Agreement is for a 10 year period, starting in January 2009, at a free on board delivery price of US$500 per tonne, adjusted for inflation, for the first 5 years. Where the Company is unable to supply the quantity committed, the Agreement provides for the unsupplied quantity to be rolled forward in to subsequent supply years.

  PUBLICATION OF NON STATUTORY ACCOUNTS 

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. 

The summarised consolidated balance sheet at 30 September 2007 and the summarised consolidated profit and loss account, summarised consolidated cash flow statement, the summarised statement of total recognised gains and losses and associated notes for the year then ended have been extracted from the Company's 2007 statutory financial statements upon which the auditors opinion is unqualified and does not include any statement under Section 237 of the Companies Act 1985. 

The accounts for the year ended 31 December 2007 will be posted to shareholders on 30 June 2008 and laid before the company at the Annual General Meeting which will be held on 23 September 2008 at 34 North Quay, Douglas, Isle of Man. 

Copies will also be available from GEM BioFuels Plc's Registered Office, 34 North Quay, Douglas, Isle of Man and via the website www.gembiofuels.com in accordance with AIM Rule 26.

ENDFR EAEKNALEPEAE

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