Interim Results

Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas 22 September 2014 Magnolia Petroleum Plc (`Magnolia' or `the Company') Interim Results Magnolia Petroleum Plc, the AIM quoted US focused oil and gas exploration andproduction company, announces its interim results for the six month periodended 30 June 2014. Highlights * 93% increase in H1 2014 revenues to US$1,755,459 (H1 2013: US$910,721) * Half year EBITDA of US$699,397 compared to US$237,552 (after removing gain on foreign exchange) during six months to 30 June 2013 * 155 producing wells in proven US onshore formations such as the Bakken/ Three Forks Sanish, North Dakota, and the Mississippi Lime, Woodford/ Hunton, Oklahoma, 32% year on year increase (H1 2013: 117) * Reported initial production rates (`IPRs') for 15 wells * Elected to participate in 39 new wells - 74 wells currently at various stages of development * Daily production of 257 boepd as at 1 July 2014 compared to 150 boepd as at 1 April 2014 due to number of wells commencing production in which Magnolia has larger interests - Parmley 1-1WH (12.187%) * US$9.143 million value of proven developed producing reserves (`PDP') compared to US$8.416 million as at 1 April 2014 * Total net proved reserves (`1P') of 719 Mbbl of oil and condensate and 2,093 MMcf gas with NPV10 of US$31.832 million as at 1 July 2014 * Strong pipeline of opportunities across all formations both as participant and operator - over 600 potential drilling locations on existing acreage Magnolia CEO, Steven Snead said, "As this latest set of half year numbers show,Magnolia's well count, production, and revenues continue to grow atdouble-digit rates. With proven reserves valued at US$32 million providingasset backing, production of 257 boepd as at 1 July 2014 generating revenues ofUS$1,755,459 over the course of the last half year, and a new and improved US$6million credit facility secured, we have a strong platform with which to proveup the reserves on our 13,500 net minerals acres. We already have a pipeline of74 wells under development and continue to receive multiple proposals toparticipate in new drilling activity on our leases in proven US onshoreformations, and as a result we expect to report further excellent growth goingforward." Chief Executive's Statement We are successfully building an extensive portfolio of proven reserves inliquids rich US onshore formations such as the prolific Bakken and Three ForksSanish, North Dakota and the Woodford and Mississippi Lime, Oklahoma. From astanding start, the value of Magnolia's proven reserves have grown to US$32million, having been just US$1.5 million at the time of our Admission to AIM inOctober 2011. This growth has not been achieved by purchasing leases withproduction already established, but is the result of success at the drill bit.This in turn is due to our focus on proven US onshore formations, ourparticipation in drilling alongside leading operators such as Devon Energy,Chesapeake Energy and Statoil, and the use of advanced technologies andtechniques to enhance flow and recovery rates. With over 600 possible drillinglocations on our leases, we have merely scratched the surface of proving up ourportfolio's potential, and we expect further strong growth in the value of ourreserves going forward. At the half year end, Magnolia had interests in 155 producing wells on leasescovering over 13,500 net mineral acres in liquids rich US onshore plays. As at1 July 2014, these wells produced 257 boepd net to Magnolia and had provendeveloped producing reserves (`PDP') valued at US$9.1 million. Compare these tothe equivalent figures at the time of our Admission to AIM: 1,259 net mineralacres; interests in 64 wells producing approximately 7 boepd with PDP reservesof US$919,000. The excellent progress made by Magnolia in terms of building aportfolio of leases, growing production and proving up reserves is clear. Over the last six months, 15 new wells were brought into production on ouracreage. In line with our strategy, Magnolia has higher interests in a numberof these wells such as the Parmley 1-1WH well (12.187%) and, combined withexcellent initial production rates, the strong operational performance on theground has translated into another record set of financial numbers. Half yearlyrevenues have almost doubled to US$1,755,459 million, compared to theequivalent period last year (H1 2013: US$910,721) and have risen 15% comparedto the second half of 2013 (H2 2013: US$1,532,523). This is the 5th consecutivehalf year period we have reported double digit revenue growth and importantlywe expect to extend this run going forward thanks to a long pipeline of futureproduction and revenue growth. During the six month period we elected toparticipate in a further 35 new wells and at the time of writing, Magnolia hasinterests in 74 wells at various stages of development. In addition, we continue to receive multiple proposals from operators toparticipate in new wells on our leases. Armed with a refined view of theMississippi Lime formation's geology, which is now viewed as being comprised ofa series of highly productive wedges rather than a uniform resource, we arefocusing on drilling Mississippi Lime `sweet spots' identified on our leases.The benefits of this strategy are already bearing fruit and post period end weannounced initial production rates of 525.52 boepd for the Chesapeake Energyoperated Cummings 31-28-12-1H well in which we have a 3.34% interest. These areamong the best rates we have seen for our Mississippi Lime wells and highlightthe potential of this historic play. In our view, Cummings bodes well forMagnolia's future participation in the Mississippi Lime, not just in terms ofproduction, but also reserves. In the latest Reserves Report, a large portionof Mississippi Lime possible and probable reserves (`2P' and `3P') werereclassified as resources to reflect this new wedge model for the play. Futuredrilling will upgrade these substantial resources into the reserves categories. The Woodford formation provides another exciting potential source ofsubstantial reserves growth. We have always known that across the majority ofour leases in Oklahoma, the Woodford formation lies below the Mississippi Lime.The Woodford is at an earlier stage of development than the Lime play but asmore wells are drilled this is changing fast with the industry increasinglyregarding it as being the more prospective and productive of the two plays.Initial production rates for wells in which Magnolia has an interest such asthe Bolay#1-19HW (542 boepd) and the Parmley 1-1 WH (445 boepd) are consistentwith this view. More horizontal wells need to be drilled to the Woodford beforeMagnolia's reserves in the formation are upgraded from the resourcesclassification but the impact on our reserves could far outstrip that of theMississippi Lime. The Woodford promises to do to our Oklahoma acreage what theThree Forks Sanish has done to our leases in North Dakota, effectively doublingthe number of potential drilling locations on each section to eight, four performation, and increasing recovery rates. We are already starting to seeoperators propose drilling eight wells per section in Oklahoma to maximise therecovery of reserves from both the Woodford and Mississippi Lime. The presence of multiple payzones was one of the reasons why we acquired leasescovering over 5,000 plus net mineral acres in Oklahoma. The Mississippi Limehowever was the priority target. Now with the Woodford looking so promisingfollowing highly positive drilling results across the play, we view the lowerlying formation's prospectivity as at least equal to if not greater than thatof the Mississippi Lime. As both formations are present on the majority of ourleases, our footprint and potential drilling locations are effectively doubled.With our revenues maintaining their upwards trajectory and a new and improvedUS$6 million credit facility secured post period end, Magnolia is well placedto fund the drilling activity required to prove up what we believe aresubstantially higher recoverable resources/ reserves on our acreage. Financial Review (extracted from the Strategic Report) During the six months to 30 June 2014, net production generated revenues ofUS$1,755,459, a 93% increase on last year's US$910,721. EBITDA (after removalof non-cash items) totalled US$699,397 compared to US$237,552 (after removinggain on foreign exchange) in H1 2013. These funds were reinvested into drillingnew wells. Tangible assets as at end June 2014 stood at US$9,932,918, a 19% increase onthe US$8,352,385 reported as at end December 2013 while intangible assets (newleases and wells that are drilling but not yet completed) stood at US$6,329,437compared to US$6,400,258 in H2 2013. In line with our policy to invest as muchof our revenues into drilling new wells and acquiring additional leases,administrative costs continue to be tightly managed. Post period end, the Company secured a new two year US$6 million revolvingcredit facility with an initial borrowing base of US$4.6 million and animproved rate of interest charged on credit drawn down at Wall Street JournalPrime (currently 3.25%) +0.75%. In tandem with the Company's revenues, thecredit facility funds drilling activity on our leases. Outlook From the outset, we set out to create value by proving up the reserves on ourleases. The post period end sale of 24 small interests in non-core wells forUS$240,750, almost three times the US$83,000 value assigned to their combinedPDPs, demonstrates both how the market values non-operated properties such asthese, and also highlights the strong appetite for de-risked US onshore leases.The sale provides a real time, albeit much smaller scale, example of what weare aiming to achieve with the Company as a whole by acquiring and developingleases in US onshore formations. With a new US$6 million credit facilitysecured and rapidly growing revenues, Magnolia is in a stronger than everposition to monetise its leases and in the process generate significant valuefor all shareholders. Finally, I would like to thank the Board, management team and all our advisersfor their hard work during the period and also to our shareholders for theircontinued support. Steven SneadCEO Chief Operations Officer's Report The Bakken / Three Forks Sanish Formations, North Dakota The Bakken currently produces over 850,000 bopd and is estimated to hold a meanof 3.65 billion barrels of undiscovered, technically recoverable oil (2013 USGeological Survey). As the Three Forks Sanish lies beneath the Bakken, thenumber of wells which can be drilled per section doubles to eight (four performation), providing Magnolia with a total of 120 proven development locationson its acreage, 60 on the Bakken and 60 on the Three Forks Sanish. Magnolia holds leases in respect of 11,520 gross acres across 28 sections,equating to 421 net mineral acres within the boundaries of the Bakken / TFSformations. In their latest report dated 1 July 2014, Moyes & Co. (`Moyes')estimate Magnolia's Bakken 1P reserves at 145,000 barrels of oil and condensateand 67 MMcf of natural gas to which Moyes has assigned a value of US$3.691million. Meanwhile, Magnolia's 1P reserves in the Three Forks Sanish formationare estimated at 56,000 barrels of oil and condensate and 28 MMcf of naturalgas which Moyes has assigned a value of US$1.439 million. Mississippi Lime Formation, Oklahoma Since its admission to AIM in November 2011, Magnolia has acquiredapproximately 5,500 net mineral acres in the Mississippi Lime. The acquiredacreage includes leases with working interests of up to 100%. As more horizontal wells are drilled on the formation and more production ratesare reported, the Mississippi Lime is increasingly being regarded as comprisedof multiple wedges rather than a uniform resource. Production rates thereforevary markedly depending on whether or not a well encounters a very productivewedge. This industry wide re-evaluation of the Mississippi Lime has resulted inthe reclassification of a significant amount of Magnolia's 2P and 3P reservesto contingent resources. As more wells are drilled, the Directors expect theseto be upgraded to reserves categories. In the latest Reserves Report dated 1 July 2014, Moyes & Co. estimated theCompany's Mississippi Lime 1P reserves at 395,000 barrels of oil and condensateand 1,002 MMcf with a value of US$20.605 million. The Mississippi Lime is an historic oil and gas system that has been producingat depths ranging from 4,500 to 7,000 feet from several thousand vertical wellsfor over 50 years. As with the Bakken, new technology and horizontal drillinghas reopened the oil play. Due to the relatively shallow depths and less tightrock formation, drilling costs at between US$2.4 million and US$3.5 million perwell in the Mississippi Lime are considerably lower than those in the Bakken,which should lead to shorter pay-out periods. Woodford Formation, Oklahoma The Woodford, lies below and is the source rock to the Mississippi Limeformation in Oklahoma. As a result much of Magnolia's leases in Oklahoma areprospective for both the Woodford and the Mississippi Lime. In the updated Reserves Report dated 1 July 2014, Moyes & Co. estimated theCompany's Woodford 1P reserves at 77,000 barrels of oil and condensate and 808MMcf natural gas with a value of US$4.214 million. As the Woodford is at anearlier stage of development compared to the Mississippi Lime, the ReservesReport does not fully reflect the potential of the formation. This is expectedto change as more wells are drilled to the Woodford. Like the Bakken, the Woodford formation in Oklahoma is an established reservoirthat has been reopened following the introduction of horizontal drilling andstimulation technology. Summary During the period, initial production rates were reported for 15 new wells inproven US onshore formations in which Magnolia has an interest. In addition weelected to participate in 39 new wells, bringing the total number we currentlyhave under development to 74. A number of these are increased density or infillwells that maximise the recovery of reserves on leases held by production. Aswell as increasing production, infill wells have the potential to quickly addto our PDPs which in turn determine the borrowing base limit of our creditfacility. This creates a virtuous circle, as along with our growing revenues,the larger credit line increases the funds available to participate in furtherdrilling to increase production further and prove up more reserves. I lookforward to providing further updates on our progress over the course of thesecond half of 2014. Rita WhittingtonChief Operations Officer For further information on Magnolia Petroleum Plc visitwww.magnoliapetroleum.com or contact the following: Steven Snead Magnolia Petroleum Plc +01 918 449 8750 Rita Whittington Magnolia Petroleum Plc +01 918 449 8750 Jo Turner/James Caithie Cairn Financial Advisers LLP +44 20 7148 7900 John Howes/Alice Lane Northland Capital Partners +44 20 7382 1100 Limited Lottie Brocklehurst St Brides Media and Finance Ltd +44 20 7236 1177 Frank Buhagiar St Brides Media and Finance Ltd +44 20 7236 1177 Notes Magnolia Petroleum Plc is an AIM quoted, US focused, oil and gas explorationand production company. Its portfolio includes interests in 160 producing andnon-producing assets, primarily located in the highly productive Bakken/ThreeForks Sanish hydrocarbon formations in North Dakota as well as the oil richMississippi Lime and the substantial and proven Woodford and Hunton formationsin Oklahoma. Summary of Wells Category Number of wells Producing 161 Waiting on first sales / IP rates 8 Being drilled / completed 6 Elected to participate / waiting to 53spud TOTAL 228 Condensed Consolidated Statement of Comprehensive Income6 months ended 30 June 2014 Note 6 months to 6 months to 30 June 2014 30 June 2013 Unaudited Unaudited US $ US $ Continuing Operations Revenue 1,755,459 910,721 Operating expenses (838,863) (410,147) ______ ______ Gross Profit 916,596 500,574 Administrative expenses (545,568) (667,634) Impairment of mineral leases (229,385) (67,070) (Loss)/profit on disposal of (2,841) 208,705mineral leases (Loss)/gain on foreign exchange (491,219) 669,999 ______ ______ Operating (Loss)/Profit (352,417) 644,574 Finance income 3,374 - Finance costs (32,477) - ______ ______ (Loss)/Profit from ordinary (381,520) 644,574activities before tax Taxation - - ______ ______ (Loss)/Profit for the period (381,520) 644,574attributable to the equityholders of the Company ______ ______ Other comprehensive income: Items that may be reclassified 434,440 (696,872)subsequently to profit or loss Currency translation differences ______ ______ Total comprehensive income for 52,920 (52,298)the period attributable to theequity holders of the Company ______ ______ Earnings per share attributable 4 (0.042) 0.074to the equity holders of theCompany (expressed in cents per (0.042) 0.072share) - basic - diluted Condensed Consolidated Balance SheetAs at 30 June 2014 ASSETS Notes 30 June 31 December 2014 2013 Unaudited Audited US $ US $ Non-Current Assets Property, plant and equipment 5 9,932,918 8,352,385 Intangible assets 6 6,329,437 6,400,258 ________ ________ Total Non Current Assets 16,262,355 14,752,643 Current Assets Trade and other receivables 1,757,387 1,268,823 Cash and cash equivalents 9,210 128,002 ________ ________ Total Current Assets 1,766,597 1,369,825 ________ ________ Total Assets 18,028,952 16,149,468 ________ ________ EQUITY & LIABILITIES Equity Called up share capital 1,481,396 1,481,396 Share premium account 13,954,026 13,954,026 Warrants and options reserve 209,042 209,042 Merger reserve 1,975,950 1,975,950 Reverse acquisition reserve (2,250,672) (2,250,672) Translation reserve 949,829 515,389 Retained losses (2,241,233) (1,859,713) ________ ________ Total Equity - Capital and 14,078,338 14,025,418Reserves ________ ________ Non-current Liabilities Borrowings 2,100,000 900,000 ________ ________ Total Non-current Liabilities 2,100,000 900,000 ________ ________ Current Liabilities Borrowings 100,381 - Trade and other payables 1,750,233 1,224,050 _________ _________ Total Current Liabilities 1,850,614 1,224,050 _________ _________ Total Equity and Liabilities 18,028,952 16,149,468 _________ _________ Condensed Consolidated Statement of Changes in Equity Attributable to the owners of the parent Warrants and Reverse Share Share Merger Options Acquisition Translation Retained Capital Premium Reserve Reserve Reserve Reserve Earnings Total US $ US $ US $ US $ US $ US $ US $ US $ As at 1 January 1,390,244 11,888,717 1,975,950 66,603 (2,250,672) 47,300 (1,577,876) 11,540,2662013 Comprehensiveincome Profit for the - - - - - - 644,574 644,574period Othercomprehensiveincome Currency - - - - - (696,872) - (696,872)translationdifferences ________ ________ ________ ______ ________ _______ _______ ________ Total - - - - - (696,872) 644,574 (52,298)comprehensiveincome for theperiod ________ ________ ________ ______ ________ _______ _______ ________ Proceeds from 91,152 2,187,648 - - - - - 2,278,800share issue Share issue - (122,339) - - - - - (122,339)costs ________ ________ ________ ______ ________ _______ _______ ________ Transactions 91,152 2,065,309 - - - - - 2,156,461with owners ofthe parent,recogniseddirectly inequity ________ ________ ________ ________ ________ ________ ________ ________ As at 30 June 1,481,396 13,954,026 1,975,950 66,603 (2,250,672) (649,572) (933,302) 13,644,4292013 ________ ________ ________ ________ ________ ________ ________ ________ As at 1 January 1,481,396 13,954,026 1,975,950 209,042 (2,250,672) 515,389 (1,859,713) 14,025,4182014 Comprehensiveincome Loss for the - - - - - - (381,520) (381,520)period Othercomprehensiveincome Currency - - - - - 434,440 - 434,440translationdifferences ________ ________ ________ ________ ________ ________ ________ ________ Total - - - - - 434,440 (381,520) 52,920comprehensiveincome for theperiod ________ ________ ________ ________ ________ ________ ________ ________ As at 30 June 1,481,396 13,954,026 1,975,950 209,042 (2,250,672) 948,829 (2,241,233) 14,078,3382014 ________ ________ ________ ________ ________ ________ ________ ________ Condensed Consolidated Cash Flow Statement6 months ended 30 June 2014 6 months to 6 months to 30 June 30 June 2014 2013 Unaudited Unaudited US $ US $ Cash flow from operating activities (Loss)/profit/(Loss) before tax (381,520) 644,574 Finance income (3,374) - Finance costs 32,477 - Loss/(profit) on disposal of mineral 2,841 (208,705)leases Depreciation and amortisation 589,698 262,977 Exchange differences 420,691 (664,106) Impairment of mineral leases 229,385 67,070 _______ _______ 890,198 101,810 Changes to working capital Increase in trade and other receivables (488,564) (270,214) Increase in trade and other payables 526,183 1,023,867 _______ _______ 927,817 855,463 Interest paid (32,477) - _______ _______ Net cash inflow from operating 895,340 855,463activities _______ _______ Cash flows from investing activities Purchases of intangible assets (153,758) (1,863,181) Purchases of property, plant and (2,165,507) (2,488,000)equipment Proceeds from disposal of property, - 698,602plant and equipment Interest received 3,374 - _______ _______ Net cash used in investing activities (2,315,891) (3,652,579) _______ _______ Cash flows from financing activities Proceeds from issue of ordinary shares - 2,278,800 Issue costs - (122,339) Proceeds from borrowings 1,200,000 - _______ _______ Net cash from financing activities 1,200,000 2,156,461 _______ _______ Net decrease in cash and cash (220,551) (640,655)equivalents Cash and cash equivalents at the 128,002 2,293,153beginning of the period Exchange gain/(loss) on cash and cash 1,378 (11,010)equivalents _______ _______ Cash and cash equivalents at the end of (91,171) 1,641,488the period _______ _______ Comprising: Cash at bank 9,210 1,641,488 Bank overdraft (100,381) - _______ _______ Notes to the unaudited financial statements 1. General information The principal activity of the Group is the acquisition, exploration anddevelopment of oil and gas properties primarily located onshore in the UnitedStates. The address of its registered office is Suite 321, 19-21 Crawford Street,London, W1H 1PJ. 2. Basis of preparation These condensed consolidated interim financial statements have been prepared inaccordance with the requirements of the AIM Rules for Issuers. As permitted,the Company has chosen not to adopt IAS 34 "Interim Financial Statements" inpreparing this interim financial information. The condensed interim financialstatements should be read in conjunction with the annual financial statementsfor the year ended 31 December 2013, which have been prepared in accordancewith International Financial Reporting Standards (IFRS) as adopted by theEuropean Union. The interim financial information set out above does not constitute statutoryaccounts within the meaning of the Companies Act 2006. It has been prepared ona going concern basis in accordance with the recognition and measurementcriteria of International Financial Reporting Standards (IFRS) as adopted bythe European Union. Statutory financial statements for the year ended 31December 2013 were approved by the Board of Directors on 13 May 2014 anddelivered to the Registrar of Companies. The report of the auditors on thosefinancial statements was unqualified. The preparation of consolidated interim financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the end of the reporting period. Significant items subject to such estimatesare set out in the Group's 2013 Annual Report and Financial Statements. Thenature and amounts of such estimates have not changed significantly during theinterim period. 3. Accounting policies The same accounting policies, presentation and methods of computation arefollowed in this condensed consolidated financial information as were appliedin the preparation of the Company's annual audited financial statements for theyear ended 31 December 2013. The presentational currency of the Group is US dollars. 4. Earnings per share - basic and diluted The calculation of earnings per share is based on a loss of $381,520 for the 6months ended 30 June 2014 (6 months ended 30 June 2013: profit $644,574) andthe weighted average number of shares in issue in the period to 30 June 2014 of910,672,851 (30 June 2013: 865,258,486). The basic and diluted loss per share in the period ended 30 June 2014 is thesame, as the effect of the exercise of share options and warrants would be todecrease the loss per share. Diluted earnings per share in the period ended 30 June 2013 assumes thatoptions and warrants outstanding at 30 June 2013 were exercised at 1 January2013 for options and warrants where the exercise price was less than theaverage price of the ordinary shares during the period. A calculation is doneto determine the number of shares that could have been acquired at fair valuebased on the monetary value of subscription rights to outstanding share optionsand warrants. The number of shares calculated above is compared with the numberof shares that would have been issued assuming the exercise of the options andwarrants. On this basis, the calculation of diluted earnings per share is basedon the profit attributable to ordinary shareholders divided by 890,051,915shares. 5. Property, plant and equipment Drilling Producing costs and Motor properties equipment Vehicles Total $ $ $ $ Cost At 1 January 2014 1,255,743 8,112,955 19,059 9,387,757 Additions 111,296 2,054,211 - 2,165,507 Transferred from intangible - 4,724 - 4,724assets At 30 June 2014 1,367,039 10,171,890 19,059 11,557,988 Depreciation At 1 January 2014 190,841 837,233 7,298 1,035,372 Charge for the period 135,302 452,014 2,382 589,698 At 30 June 2014 326,143 1,289,247 9,680 1,625,070 Net Book Amount at 31 December 1,064,902 7,275,722 11,761 8,352,3852013 Net Book Amount at 30 June 2014 1,040,896 8,882,643 9,379 9,932,918 6. intangible assets Cost Goodwill Drilling Mineral Total $ costs leases $ $ $ At 1 January 2014 381,733 3,995 6,014,530 6,400,258 Additions - 24,644 129,114 153,758 Transferred to property, plant and - (4,724) - (4,724)equipment Exchange movements 12,371 - - 12,371 Impairment - - (229,385) (229,385) Disposals - - (2,841) (2,841) As at 30 June 2014 394,104 23,915 5,911,418 6,329,437 Amortisation At 1 January 2014 and - - - - At 30 June 2014 Net Book Amount at 31 December 2013 381,733 3,995 6,014,530 6,400,258 Net Book Amount at 30 June 2014 394,104 23,915 5,911,418 6,329,437 Impairment review Drilling costs and mineral leases represent acquired intangible assets with anindefinite useful life and are tested annually for impairment. Expenditureincurred on the acquisition of mineral leases is capitalised within intangibleassets until such time as the exploration phase is complete or commercialreserves have been discovered. Exploration expenditure including drilling costsare capitalised on a well by well basis if the results indicate the existenceof a commercially viable level of reserves. The directors have undertaken a review to assess whether circumstances existwhich could indicate the existence of impairment as follows: * The Group no longer has title to the mineral lease. * A decision has been taken by the Board to discontinue exploration due to the absence of a commercial level of reserves. * Sufficient data exists to indicate that the costs incurred will not be fully recovered from future development and participation. Following their assessment the directors recognised an impairment charge to thecost of mineral leases of $229,385 (2013 - $67,070) in respect of expiredmineral leases. The Directors believe that no impairment is necessary on the carrying value ofgoodwill. * * ENDS * *