Preliminary Results for the period ended 30th S...

KleenAir Systems International Plc ("KleenAir" or the "Company") Preliminary Results for the period ended 30th September 2006, Trading Update and Dispatch of Annual Report & Accounts 21 March 2007 Chairman's Statement In March 2006 the company successfully floated on the Alternative Investment Market (AIM) to secure the working capital necessary to continue preparing for commercialisation of its emission reduction technologies, generating net funding inflow of £1.1m. The company's primary initial marketing focus is to provide solutions for the required emissions upgrade of up to 30,000 vehicles anticipated under the upcoming London low emission zone (LEZ). This programme comes into effect in its first stage (for HGVs) in February 2008 and in its second stage (for buses and coaches) in July 2008. This is based on the assumption that Mayor Ken Livingstone gives the go-ahead to the LEZ in early May 2007, as is expected. It is anticipated that the initial major impact for the market should be the installation of systems starting in significant volume in the last quarter of 2007. As a result of a change in the company's reporting year to September, this will now be the first quarter of the company's 2008 reporting year. However, the company's longer term strategy is to play an important part in the roll out of LEZ programmes to other urban areas in the UK and in Europe. By having created solutions that meet the London LEZ emission reduction requirements, we anticipate applying those solutions, modified as may be required, wherever the need arises. In addition, the company strongly believes that corporate social responsibility programmes will play an increasingly important role in moving emissions upgrades through the supply chain. Discussions have been held with a number of leading quoted companies along these lines. Group costs during the period amounted to £707k (2005: £451k), which the company invested in retaining both marketing and technical leaders tasked with the role of evaluating and finalizing the emissions reduction product range. This has enabled the Company to assume a highly competitive marketing posture with strong applications engineering support. An applications engineering workshop has been set up in Ross-on-Wye and is being equipped with prototype engineering and testing capability. The directors believe that the products and technologies in its portfolio, together with the technical and marketing team, and the physical facilities now in place will enable the company to become a leader in meeting the emissions reductions solutions demand that will be driven by the implementation of the LEZ. During the period we welcomed as new non-executive directors of the company, Guy Saxton, MD of Angelbourse Private Equity, and Nigel Weller a Director of Falcon Securities. I wish to thank them and the three continuing directors, Peter Newell, MD of KleenAir Systems International plc, Tony Downes MBE, and Anthony Rentoul for their help and support. Trading Update With the approach in May of the expected final approval of the London's Low Emission Zone, KleenAir has begun its marketing campaign to fit emissions reduction systems to Heavy Goods Vehicles (HGV). The new regulations will require that all vehicles over 12 tonnes coming within the Greater London area must meet Euro III standard as of February, 2008. As of July, 2008 HGVs over 3.5 tonnes must meet these standards as well as all buses and coaches. The Company has identified the segment of the market that is already Euro II compliant as a primary target. At the Eurobus Show in November 2006 at the National Exhibition Centre in Birmingham, KleenAir launched its Free-FlowC filter which offers a 60% reduction of particulates. This is significantly greater than needed to upgrade a Euro II vehicle to Euro III. The product will also be offered at a lower cost than the standard Diesel Particulate Filter (DPF). Through trade advertising and a telephone marketing campaign geared to smaller vehicle operators, a flow of inquiries has commenced. A significant number of quotations have been sent out. As of now the order flow for this product is satisfactory based on an early installation discount being offered. Lionel Simons Chairman Enquiries: Beth Mason 07812 042747 beth.mason@kleenairsystems.co.uk Nick Harriss 020 7512 0191 ARM Corporate Finance Ltd Group Profit and Loss Account 9 Month period ended Year to 30 Sep 06 31 Dec 05 Note £ £ Group turnover 1 - 8,961 Other operating charges 2 709,447 451,658 -------- -------- Operating loss 3 (709,447) (442,697) Interest receivable 11,019 4,596 -------- -------- Loss on ordinary activities before taxation (698,428) (438,101) Tax on loss on ordinary activities 6 - - -------- -------- Loss for the financial period (698,428) (438,101) ======== ======== Loss per share Basic and diluted loss per share 8 (4.00)p (3.38)p All of the activities of the company are classed as continuing. The company has no recognised gains or losses other than the results for the period as set out above. The company has taken advantage of section 230 of the Companies Act 1985 not to publish its own Profit and Loss Account. Group Balance Sheet 30 Sep 06 31 Dec 05 Note £ £ Fixed assets Intangible assets 9 89,167 227,877 Tangible assets 10 17,201 - ------- ------- 106,368 227,877 ------- ------- Current assets Debtors 12 90,072 54,056 Cash at bank 483,808 46,846 ------- ------- 573,880 100,902 Creditors: amounts falling due within one year 13 160,036 250,392 ------- ------- Net current assets/(liabilities) 413,844 (149,490) ------- ------- Total assets less current liabilities 520,212 78,387 ======= ======= Capital and reserves Called-up share capital 15 189,235 129,438 Share premium account 16 1,705,699 637,693 Other reserves 16 12,450 - Profit and loss account 16 (1,387,172) (688,744) ------- ------- Shareholders' funds 17 520,212 78,387 ======= ======= These financial statements were approved by the directors on 20 March 2007 and are signed on their behalf by: L Simons Director Company Balance Sheet 30 Sep 06 31 Dec 05 Note £ £ Fixed assets Intangible assets 9 89,167 96,667 Investments 11 - 99,990 ------- ------- 89,167 196,657 ------- ------- Current assets Debtors 12 1,669,170 658,683 Cash at bank 7,041 31,894 ------- ------- 1,686,211 690,577 Creditors: amounts falling due within one year 13 47,143 125,064 ------- ------- Net current assets 1,639,068 565,513 ------- ------- Total assets less current liabilities 1,728,235 762,170 ======= ======= Capital and reserves Called-up share capital 15 189,235 129,438 Share premium account 16 1,705,699 637,693 Other reserve 16 12,450 - Profit and loss account 16 (179,149) (4,961) ------- ------- Shareholders' funds 1,728,235 762,170 ======= ======= These financial statements were approved by the directors on 20 March 2007 and are signed on their behalf by: L Simons Director Group Cash Flow Statement 9 month period ended Year to 30 Sep 06 31 Dec 06 Note £ £ Net cash outflow from operating activities 18 (504,105) (300,129) Returns on investments and servicing of finance Interest received 11,019 4,596 ------- ------- Net cash inflow from returns on investments and servicing of finance 11,019 4,596 ------- ------- Capital expenditure Payments to acquire fixed assets (17,377) (100,000) ------- ------- Net cash outflow from capital expenditure (17,377) (100,000) ------- ------- Cash outflow before financing (510,464) (395,533) ------- ------- Financing Issue of equity share capital 55,698 29,438 Unissued share capital paid - 637,693 Share premium on issue of equity share capital 1,419,302 (320,676) Issue costs (531,673) - -------- ------- Net cash inflow from financing 943,327 346,455 -------- ------- Increase/(decrease) in cash 436,962 (49,078) ======== ======= Reconciliation of net cash flow to movement in net funds 30 Sep 06 31 Dec 05 £ £ Increase/(Decrease) in cash in the period 436,962 (49,078) -------- -------- Movement in net funds in the period 436,962 (49,078) ======== ======== Net funds at 1 January 2006 17 46,846 95,924 -------- -------- Net funds at 30 September 2006 17 483,808 46,846 ======== ======== Principle Accounting Policies Basis of accounting The financial statements have been prepared in accordance with the Companies Act 1985 and with applicable United Kingdom Accounting Standards and on the historical cost and going concern basis. Going concern The directors are actively moving to raise further equity finance. The directors consider that, in preparing the financial statements, they have taken into account all information that could reasonably be expected to be available. On this basis they consider that it is appropriate to prepare the financial statements on the going concern basis. This assumes that the necessary finance will be raised by KleenAir Systems International plc which will in turn finance the business for the foreseeable future, being at least one year from the date of approval of the financial statements. The financial statements do not include any adjustments that would result if the raising of the finance were not successful. The principal accounting policies remain unchanged from the previous period apart from the adoption of Financial Reporting Standard 20 "Share Based Payment". In the opinion of the directors, the accounting policies remain the most appropriate and are set out below: Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and all group undertakings. These are adjusted, where appropriate, to conform to group accounting policies. Acquisitions are accounted for under the acquisition method and goodwill on consolidation is capitalised and amortised from the year of acquisition. The results of companies acquired are included in the profit and loss account after the date that control passes. As a consolidated profit and loss account is published, a separate profit and loss account for the parent company is omitted from the group financial statements by virtue of section 230 of the Companies Act 1985. Related parties transactions The company is the parent company of the group and consolidated accounts have been prepared. Accordingly, the group has taken advantage of the exemption in FRS 8 'Related Party Disclosures' from disclosing transactions with members of the group. Turnover The turnover shown in the group profit and loss account represents amounts receivable during the financial period, exclusive of VAT. Research and development Research and development expenditure is written off in the year in which it is incurred. Intangible assets Goodwill Purchased goodwill arising on acquisitions is the difference between the fair value of the purchase consideration and the fair value of the group's share of the identifiable assets and liabilities of the acquired business at the date of acquisition. Positive goodwill is capitalised and classified as an asset on the balance sheet and amortised over its estimated useful life up to a maximum of 10 years. Goodwill is reviewed for impairment at the end of the first full financial year following each acquisition and subsequently when necessary if circumstances indicate that its carrying value may not be recoverable. Other intangible assets Intellectual property rights are included at cost and amortised on a straight-line basis over their useful economic lives. Amortisation Amortisation is calculated so as to write off the cost of an asset over the useful economic life of that asset as follows: Goodwill - 10 years Intellectual property rights - 10 years Fixed Assets All fixed assets are initially recorded at cost. Depreciation Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Leasehold improvements - over the term of the lease Plant and equipment - 4 years straight line Fixtures and fittings - 4 years straight line Investments Investments are recorded at cost less amounts written off. Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax except that deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Foreign currencies Monetary assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit. Operating lease agreements Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits on a straight line basis over the period of the lease. Financial Instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Where none of the contractual terms of share capital meet the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity. Share-based payment Equity-settled share-based payment All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2006 are recognised in the financial statements. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account with a corresponding credit to "other reserve". If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options that have vested are not exercised. Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. Notes to the Financial Statements 1 Turnover The group has not earned any income in this financial period. 2 Other operating income and charges 9 month period ended Year to 30 Sep 06 31 Dec 05 £ £ Administrative expenses 707,447 451,658 ======== ======== 3 Operating loss Operating loss is stated after charging: 9 month period ended Year to 30 Sep 06 31 Dec 05 £ £ Depreciation 176 - Amortisation 19,801 19,734 Auditors' remuneration: Audit fees 12,500 17,950 Write off of consolidated goodwill 118,909 - Operating lease rentals 7,949 - Net loss on foreign currency translation - (303) ======== ======== 4 Particulars of employees The average number of staff employed by the group during the financial period amounted to: 9 month period ended Year end 30 Sep 06 31 Dec 05 No No Number of management staff 2 1 Executive directors 2 1 Non-executive directors 4 3 ==== ==== The aggregate payroll costs of the above were: 9 month period ended Year end 30 Sep 06 31 Dec 05 £ £ Wages and salaries 172,229 108,336 Social security costs 16,832 6,485 -------- ------- 189,061 114,821 ========= ======= 5 Directors Remuneration in respect of directors was as follows: 9 month period ended Year end 30 Sep 06 31 Dec 05 £ £ Emoluments receivable 102,180 75,000 ======== ======= During the period the following options were granted to a director of KleenAir Systems International Plc No. of ordinary Date of grant Expiry date of Exercise price per shares under options ordinary share options P M Newell 200,000 15 September 2006 15 September 2009 £0.26 The exercise of the above options is conditional upon the middle market closing share price at the date of the third anniversary of the date of grant being greater than or equal to 55p per share. 6 Taxation on loss on ordinary activities Due to the losses in the period, no corporation tax liability has arisen. Factors affecting current tax charge The tax assessed on the loss on ordinary activities for the period is different from the standard rate of corporation tax in the UK of 19% (2005 - 19%). 9 month period ended Year end 30 Sep 06 31 Dec 05 £ £ Loss on ordinary activities before taxation (698,428) (438,101) ========= ======== Loss on ordinary activities by rate of tax (132,702) (83,239) Unrelieved tax losses 132,702 83,239 --------- -------- Total current tax - - ========= ======== 7 Loss attributable to members of the parent company The loss dealt with in the accounts of the parent company was £174,188 (2005: (£4,961)). 8 Earnings (loss) per share Loss per ordinary share has been calculated using the weighted average number of shares in issu during the relevant financial periods. The calculations of both basic and diluted earnings per share for the year are based upon a loss after tax of £696,428 (2005: loss of £438,101). The weighted number of equity shares used in the basic calculation is 17,424,682 (2005: 12,943,833). The weighted average number of shares used in the dilution calculation is 17,424,682 (2005: 12,943,833). As the potential ordinary shares issued are deemed anti-dilutive they have been excluded from the calculation of the weighted average number of shares, for the purposes of the dilution. 9 Intangible assets Group Intellectual property Goodwill rights Total £ £ £ Cost At 1 January 2006 164,012 100,000 264,012 Additions and disposals - - - ------- ------- ------- At 30 September 2006 164,012 100,000 264,012 ------- ------- ------- Amortisation At 1 January 2006 32,802 3,333 36,135 Charge for the period 12,301 7,500 19,801 Write-off 118,909 - 118,909 ------- ------- ------- At 30 September 2006 164,012 10,833 174,845 ------- ------- ------- Net book value At 30 September 2006 - 89,167 89,167 ======= ======== ======= At 31 December 2005 131,210 96,667 227,877 ======= ======== ======= The Directors have considered the value of the Goodwill above. It was deemed that the value of the acquisition now lies in the distribution agreement held by the company itself. The distribution licence held by he subsidiary was replaced by the purchase of the intellectual property by the company hence made the need for a distribution licence redundant. Company Intellectual property rights £ Cost At 1 January 2006 100,000 Additions and disposals - ------- At 30 September 2006 100,000 ------- Amortisation At 1 January 2006 3,333 Charge for the period 7,500 Write-off - ------- At 30 September 2006 10,833 ------- Net book value At 30 September 2006 89,167 ======= At 31 December 2005 96,667 ======= 10 Tangible assets Group Leasehold Plant and Furniture and property equipment Fittings Total £ £ £ £ Cost At 1 January 2006 - - - - Additions 9,850 5,820 1,707 17,377 ------ ------- ------- ------- At 30 September 2006 9,850 5,820 1,707 17,377 ====== ======= ======= ======= Depreciation At 1 January 2006 - - - - Charge for the period 126 50 176 ------ ------- ------- ------- At 30 September 2006 - 126 50 176 ====== ======= ======= ======= Net book value At 30 September 2006 9,850 5,694 1,657 17,201 ====== ======= ======= ======= At 31 December 2005 - - - - ====== ======= ======= ======= The company does not hold any fixed asset. 11 Investments Company Group companies £ Cost At 1 January 2006 99,990 ------- Write off in the period (99,990) ------- Net book value At 30 September 2006 - ======= At 31 December 2005 99,990 ======= 12 Debtors The group The company 30 Sep 06 31 Dec 05 30 Sep 06 31 Dec 05 £ £ £ £ Trade debtors 20,011 20,011 - - Amounts owed by group undertakings - - 1,641,691 658,679 VAT recoverable 19,551 - 19,551 4 Other debtors 11,925 14,315 - - Prepayments and accrued income 38,585 19,730 7,928 - ------- ------- ------ ------- 90,072 54,056 1,669,170 658,683 ======= ======= ======= ======= 13 Creditors: amounts falling due within one year The group The company 30 Sep 06 31 Dec 05 30 Sep 06 31 Dec 05 £ £ £ £ Trade creditors 62,920 21,386 20,143 - Amounts owed to related undertakings 19,011 119,011 - 100,000 Other creditors 10,271 40,893 - 24,999 Accruals and deferred income 67,834 69,102 27,000 65 ------- ------- ------ ------- 160,036 250,392 47,143 125,064 ======= ======= ====== ======= 14 Related party transactions During the period, consultancy fees of £12,245 (2005:£35,534) were paid to Osney Consulting Limited, a company in which Mr P M Newell a director, has a controlling interest. A management fee of £9,000 (2005:£55,298) was paid to KleenAir Systems Inc., a company in which Mr L Simons a director, has a controlling interest. During the period KleenAir Systems plc remitted to KleenAir Systems Inc the sum of £100,000 in respect of the amount outstanding for the purchase in 2005 of some intangible assets. At the end of the period, the balance payable to KleenAir systems Inc. amounted to £19,011 (2005: £119,011). No other transactions with related parties such as are required to be disclosed under Financial Reporting Standard 8 'Related Party Disclosures' occurred. 15 Share capital Authorised share capital: 30 Sep 06 31 Dec 05 £ £ 30,000,000 (2005: 25,000,000) Ordinary shares of £0.01 each 300,000 250,000 ======= ======= Allotted, called up and fully paid: 30 Sep 06 31 Dec 05 No £ No £ Ordinary shares of £0.01 each 18,923,484 189,235 12,943,833 129,438 ======== ======= ========= ======= 16 Reserves Group Share premium Other Profit and loss account reserve account £ £ £ At 1 January 2006 637,693 - (688,744) Loss for the period - (698,428) Other movements - 12,450 - New share capital subscribed 1,599,679 - - Issue and similar costs (531,673) - - -------- ------- ------- At 30 September 2006 1,705,699 12,450 (1,387,172) ======== ======= ======= Company Share premium Other Profit and loss account reserve account £ £ £ At 1 January 2006 637,693 - (4,961) Loss for the period - - (174,188) Other movements FRS 20 - 12,450 12,450 New equity share capital subscribed 1,599,679 - - Issue and similar costs (531,673) - - -------- ------- ------- At 30 September 2006 1,705,699 12,450 (179,149) ======== ======= ======= 17 Reconciliation of movements in shareholders' funds 30 Sep 06 31 Dec 05 £ £ Loss for the financial period (698,428) (438,101) New share capital subscribed 59,797 29,438 Premium on new share capital subscribed/ Shares to be issued 1,599,679 637,693 Issue and similar costs (531,673) (320,676) Share Option charge 12,450 - ------- ------- Net addition/(reduction) to shareholders' equity funds 441,825 (91,646) Opening shareholders' equity funds 78,387 170,033 ------- ------- Closing shareholders' equity funds 520,212 78,387 ======= ======= 18 Reconciliation of operating loss to net cash outflow from operating activities 9 month period ended Year ended 30 Sep 06 31 Dec 05 £ £ Operating loss (709,447) (442,697) Write off of goodwill 118,909 - Other reserves 12,450 - Amortisation 19,801 19,734 Depreciation 176 - Increase in debtors (34,016) (9,136) Decrease in creditors 88,022 131,970 ------- ------- Net cash outflow from operating activities (504,105) (300,129) ====== ======= The Company expects to send the Annual Report and Accounts of the Company to shareholders on or before 30 March 2007.

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