gem biofuels - annual report 2009 (30p)

8/6/2019 Gem Biofuels - Annual Report 2009 (30p)

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GEM BioFuels PLC

Isle of Man Company Registration No. 115011C

Annual Report and Accounts 2009


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GEM BioFuels PLC

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Contents

Directors and Professional Advisors 3

Report of the Chairman and of the Chief Executive Officer 4

Directors Report 6

Statement of Directors Responsibilities 9

Independent Auditors Report 10

Company and Consolidated Statements of Comprehensive Income 12

Company and Consolidated Statements of Financial Position 13

Company and Consolidated Statements of Changes in Equity 14

Company and Consolidated Statements of Cash Flow 15

Notes to the Company and Consolidated Financial Statements 16


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GEM BioFuels PLC

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Directors and Professional Advisorsfor the year ended 31 December 2009

Directors Simon HuntPaul BenettiMalcolm Williams

Adam Broadhurst (resigned 29 September 2009)Frank Tiller (resigned 29 September 2009)Pritesh Desai (resigned 5 May 2010)

Company Secretary James Cunningham-Davies (resigned 5 May 2010)Nigel Tebay (appointed 5 May 2010)

Nominated Advisor and Broker Shore Capital and Corporate LimitedBond Street House14 Clifford StreetLondon W1S 4JO

Auditors Deloitte & ToucheThe Old Courthouse, Athol StreetDouglasIsle of Man IM99 1XJ

UK Solicitors Memery Crystal LLP44 Southampton BuildingsLondon WC2A 1AP


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GEM BioFuels PLC

Report of the chairman and of the chief executive officer

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Report of the Chairman and of the Chief Executive Officer

We are pleased to announce the results of GEM BioFuels Plc (GEM or the Company) for the yearended 31 December 2009 and following is our report to shareholders for the year.

GEM is a plantation company which controls, through its wholly-owned subsidiary, substantial owner-managed plantations of Jatropha in Madagascar and since the commencement of its plantation operations

in 2005, the Company has planted over 55,700 hectares of Jatropha. In addition, it has exclusive accessto 40,000 hectares of natural forest that contains substantial numbers of mature Jatropha trees. Thisrepresents a significant area under management and sets the Company apart from other companiesinvolved with Jatropha which rely on seed purchase, contract farming and/or joint venture productionmodels. The natural forest under management has allowed GEM to commence production earlier than if itwere to wait for the full maturity of its own plantation.

The Company and its wholly-owned subsidiary (together the Group) are focused on establishing andmaintaining plantations that will enable it to provide sustainable feedstock for the global biofuel andbiochemical industries. The outlook for these industries and the green energy industry, which theCompany expects to enter through the on-going development of new crops and processing techniques,provides GEM with an excellent platform for future growth.

Successful year

2009 was a year of consolidation for the Company. With difficult capital markets, it avoided attempting toraise significant additional capital beyond the 500,000 raised in September 2009.

The year was used to focus on maximisation of the Companys existing plantation assets as well asenhancing its operational base, to ensure that it is ready for when the plantations reach production age.This involved, among other things, the commencement of commercial seed crushing operations to test outits business model and logistical operations. This generated:

61 tonnes of crude Jatropha oil, which was sold and shipped to customers in Australia andEurope after the end of the year, and

143 tonnes of seed meal, which is being stored awaiting the commencement of trials with severalpotential users of this biomass.

Whilst the Companys focus is currently on the establishment and management of plantations of Jatropha,

it is also examining complementary crops and processing techniques which, through their shortermaturation times, will enable it to maximize the Companys significant land bank and to acceleraterevenue generation

Operational Review

The Companys planned consolidation meant that no additional plantation establishment work was carriedout during the 2009/10 season, with the focus being on preparing existing plantation areas, storage andprocessing arrangements for increased production expected to result from the first harvest from theCompanys plantations and an expansion of the collections from the natural forest areas to which theCompany has access.

First crushing of seed occurred during the year and, while we utilized toll/third party crushing facilities,these operations confirmed the oil content of our seed and the effectiveness of the Companys logistics of

collection, crushing and shipping. These now form the basis of planning for our own crushing operations inMadagascar.

Research is being conducted on several complementary crops, in particular biomass plants, that can beincorporated into existing and future Jatropha plantation areas. We believe that by pursuing such astrategy we will be able to bring forward cash flow from the plantations, through shorter maturation timesand diversify the Companys customer and industry base. These should yield quicker positive results interms of shareholder value creation.

GEM continues to focus on its target of establishing up to 200,000 hectares of low-cost, sustainableplantations under company management in Madagascar and planning for future planting campaigns iscurrently underway.

Financial Review

In the year ended 31 December 2009, the Groups loss on ordinary activities after taxation was 956,183(2008: 1,394,417), or a loss per ordinary share of 3.30p (2008: 5.05p).


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GEM BioFuels PLC

Report of the chairman and of the chief executive officer

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In September 2009 the Company completed a placement, raising 500,000 before expenses. The Groupscash balance at the end of the year was 102,940 (2008: 1,070,753).

Since the end of the financial year, the Company has achieved sales prices for its crude Jatropha oilproduct of between US$540 and US$685/Metric ton (Mt), which are well in line with our financialforecasts and implies a potential annual revenue figure for the Group of between US$620 and US$800 permature hectare of Jatropha plantation. Further, it has raised 300,000 in new capital through a private

placement of fully-paid, ordinary shares as it prepares for a larger fund raising round prior to the end of thecurrent financial year.

Management

The consolidation and review of operations has led to a number of changes in the Companys governancestructure, including the resignations of Messrs Frank Tiller, Adam Broadhurst and Pritesh Desai asDirectors. We thank them all for the part they have played in the development of the Company to date.Adam Broadhurst remains as an executive of the Company and we are continuing to make changesaimed at enlarging our management skills set as we move to production and expanded operations.

We would again like to thank all the staff at GEM for their hard work and determination to see theCompanys plans come to fruition. Without their effort and dedication we could not have made or continueto make the progress we have or expect in the future.

Outlook

The Companys outlook is positive as we capitalise on our increasing experience as a manager ofplantations of energy crops. In addition new technologies and government mandates point towards theexpansion the biofuels markets which represents the largest opportunity for our end products. Additionally,we are increasingly being presented with new markets, particularly in the biochemical and energyindustries, which offer significant upside that is not already factored in to our plans.

We remain excited about the opportunities we have before us and continue to strive toward maximisingthe benefits that can be derived from them by all our various stakeholders. However, in order to capitalisefully on our position we need to maintain the Company as a going concern and to ensure this GEM willneed to raise up to an additional 2 million of new funding by 31 December 2010. Details of the Groupsfinancing plans for the future can be found in note 2 to the financial statements.

Simon D HuntNon-Executive Chairman

Paul R Benetti

Chief Executive Officer

Date: 2 November 2010


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GEM BioFuels PLC

Directors report

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Directors reportThe directors present their annual report on the affairs of GEM BioFuels Plc (the Company) and of itssubsidiary (together the Group), together with the financial statements and independent auditors report,for the year ended 31 December 2009.

Principal activity

GEM BioFuels Plc has been formed to establish plantations that will provide low-cost, sustainablefeedstock to the rapidly growing global biofuel and biochemical markets through focusing on thedeployment of company-managed operations.

Business review

The Groups loss for the year ended 31 December 2009 was 956,183 (2008: 1,394,417). The Companymade a loss for the year ended 31 December 2009 of 776,391 (2008: 1,220,420).

Dividends

The directors do not recommend the payment of a dividend for the year ended 31 December 2009 (2008:nil).

Directors

The directors, who served throughout the year and to date, were as follows:

Date of Date of

appointment resignation

Simon Hunt Non-Executive Chairman 15 October 2007 -

Paul Benetti Chief Executive 20 December 2005 -

Malcolm Williams Non-Executive Director 15 October 2007 -

Adam Broadhurst Operations Director 15 October 2007 29 September 2009

Frank Tiller Finance Director 15 October 2007 29 September 2009

Pritesh Desai Non-Executive Director 6 December 2005 5 May 2010

Directors interests

The directors who held office at 31 December 2009 have the following interests in the Companys ordinaryshare capital as at that date:

Shares Shares Options Optionsat 31

December2009

at 31December

2008

at 31December

2009

at 31December

2008

Simon Hunt - - 210,0001 210,0001

Paul Benetti 776,000 776,000 840,0001

840,0001

Malcolm Williams - - 140,0001 140,0001

1 These options are exercisable at 0.60 per share and lapse after 5 years. These options vested as to one half on17 October 2008 and the other half after 17 October 2009.

Further details with respect to the above options granted to directors are set out in note 22. No directorheld any other interests in the Group during the year and to date.

Corporate governance

As an AIM-listed company, the Company is not required to comply with the revised Combined Code,issued by the Financial Reporting Council in June 2006, (Combined Code). However, the Directorsrecognised the value of the provisions set out in the Combined Code and have therefore decided to


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GEM BioFuels PLC

Directors report

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provide certain corporate governance disclosures based on the disclosures required of a fully listedcompany.

The Board has established an Audit Committee and a Remuneration Committee, each with formallydelegated duties and responsibilities. The Audit Committee and the Remuneration Committee arecomprised of Simon Hunt (Chairman) and Malcolm Williams.

The Audit Committee receives and reviews reports from management and the Groups auditors relating tothe interim and annual financial statements and the accounting and internal control systems in usethroughout the Group. The Audit Committee has unrestricted access to the Groups auditors.

The Remuneration Committee reviews the scale and structure of the Executive Directors remunerationand the terms of their service contracts. The remuneration and terms and conditions of appointment of theNon-Executive Directors are set by the Board. The Remuneration Committee also administers the Groupsshare option scheme.

Going concern basis

The Groups business activities, together with the factors likely to affect its future development,performance and position are set out in the Chairman and CEOs Review and this Directors Report. Thefinancial position of the Group, its cash flows, liquidity position and capital requirements are also describedin these financial statements on pages 12 to 15. In addition, notes 23 and 26 of the financial statementsinclude the Groups objectives, policies and processes for managing its capital; its financial riskmanagement objectives; details of its financial instruments and hedging activities; and its exposure tocredit risk and liquidity risk.

As highlighted in note 2(b) the Groups forecasts and projections, taking account of reasonably possiblechanges in trading variables, such as sale prices, oil and seed yields, operating costs and maturation ofplantations, show that the Group will need to raise additional, new capital if it is to execute its currentoperating plan. The Group has, since 31 December 2009:

raised 300,000 in new capital through the issue of 3,750,000 ordinary, fully paid shares; and had initial discussions with brokers regarding the raising of up to an additional 2 million of new

funding by 31 December 2010 and, although no commitments have been made, no matters havebeen drawn to the Groups attention to suggest that the capital raising may not be achievable onacceptable terms.

The directors have a reasonable expectation that the Company and the Group have, or will have,adequate resources to continue in operational existence for the foreseeable future. Thus they continue toadopt the going concern basis of accounting in preparing the annual financial statements.

Substantial shareholding interests

The following shareholdings of 3% or more of the ordinary share capital of the Company are set out in theregister of members of the Company as at 31 December 2009 and 30 September 2010.

31December

2009

31December

2009

30September

2010

30September

2010

Number % Number %

Credit Suisse ClientNominee 16,051,500 50.79 17,926,500 50.71

BBHISL Nominees 3,158,333 9.99 3,533,333 9.99

Sweet Global Holdings 2,008,000 6.35 2,008,000 5.68

Diana Lalor 2,000,000 6.33 2,000,000 5.66

Pershing Nominees Limited 1,083,334 3.43 1,083,334 3.06

JP Morgan Clearing Corp 965,000 3.05 - -

Total 25,266,167 79.94 26,551,167 75.10


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GEM BioFuels PLC

Directors report

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Auditors

Following the transfer of their business to Deloitte LLP with effect from 1 October 2010, Deloitte & Touchehave confirmed their intention to resign as auditors at the next annual general meeting, at which time aresolution to appoint their successors, Deloitte LLP as auditors will be proposed.

Approved by the Board of Directors and signed on behalf of the Board.

___________________________

Paul R Benetti (Director)

Date: 2 November 2010


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GEM BioFuels PLC

Statement of directors responsibilities

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Statement of directors responsibilities

The Directors are responsible for preparing the Annual Report comprising the Report of the Chairman andof the Chief Executive Officer, the Directors Report, and financial statements prepared in accordance withapplicable laws and regulations. The Directors have elected to prepare financial statements of theCompany and the Group in accordance with International Financial Reporting Standards (IFRS). Isle of

Man company law requires the Directors to prepare such financial statements in accordance with relevantaccounting standards and the Companies Acts 1931 to 2004.

International Accounting Standard 1 requires that financial statements present fairly for each financial yearthe Companys position, financial performance, and cash flows. This requires the faithful representation ofthe effects of the transactions, other events and conditions in accordance with the definitions andrecognition criteria for assets, liabilities, income, and expenses set out in the International AccountingStandards Framework for the Preparation and Presentation of Financial Statements. In virtually allcircumstances, a fair presentation will be achieved by compliance with all applicable InternationalFinancial Reporting Standards. Directors are also required to:

properly select and apply accounting standards;

present information, including accounting policies, in a manner that provides relevant, reliable,comparable, and understandable information;

prepare the financial statements on a going concern basis unless it is inappropriate to presume thatthe Company will continue in business; and

provide additional disclosures when compliance with the specific requirements of IFRS is insufficientto enable users to understand the impact of particular transactions, other events, and conditions onthe entitys financial position and financial performance.

The Directors are responsible for keeping proper accounting records which disclose with reasonable

accuracy at any time the financial position of the Company and the Group, for the system of internalcontrol, for safeguarding assets, for taking reasonable steps for the prevention and detection of fraud, andother irregularities and for the preparation of a Directors Report which complies with the requirements ofthe Companies Acts 1931 to 2004.

The Directors are responsible for the maintenance and integrity of the company website. Legislation in theIsle of Man governing the preparation and dissemination of financial statements may differ from legislationin other jurisdictions.


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GEM BioFuels PLC

Independent auditors report

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INDEPENDENT AUDITORS' REPORT TO THEMEMBERS OF GEM BIOFUELS PLC

We have audited the Consolidated andCompany financial statements (the ''financial

statements'') of GEM BioFuels Plc for the yearended 31 December 2009 which comprise theConsolidated and Company Statements ofComprehensive Income, the Consolidated andCompany Statements of Financial Position, theConsolidated and Company Statements ofChanges in Equity, the Consolidated andCompany Statements of Cashflows and therelated notes 1 to 28. These financial statementshave been prepared under the accountingpolicies set out therein.

This report is made solely to the companysmembers, as a body, in accordance with section15 of the Companies Act 1982. Our audit workhas been undertaken so that we might state tothe Companys members those matters we arerequired to state to them in an auditors reportand for no other purpose. To the fullest extentpermitted by law, we do not accept or assumeresponsibility to anyone other than the Companyand the Companys members as a body, for ouraudit work, for this report, or for the opinions wehave formed.

Respective responsibilities of directors andauditors

The Directors' responsibilities for preparing theAnnual Report and the financial statements inaccordance with applicable law and InternationalFinancial Reporting Standards (IFRSs) are setout in the Statement of Directors'Responsibilities.

Our responsibility is to audit the financialstatements in accordance with relevant legal andregulatory requirements and International

Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether thefinancial statements give a true and fair view areproperly prepared in accordance with theCompanies Acts 1931 to 2004. We also report toyou if, in our opinion, the information given in theDirectors' Report is not consistent with thefinancial statements, if the company has not keptproper accounting records, if we have notreceived all the information and explanations werequire for our audit, or if information specified by

law regarding directors' transactions is notdisclosed.

We read the Directors Report and otherinformation contained in the Annual Report and

consider whether it is consistent with the auditedfinancial statements. The other informationcomprises only the Report of the Chairman andof the Chief Executive Officer. We consider theimplications for our report if we become aware ofany apparent misstatements or materialinconsistencies within them.

Basis of audit opinion

We conducted our audit in accordance withInternational Standards on Auditing (UK and

Ireland) issued by the Auditing Practices Board.An audit includes examination, on a test basis, ofevidence relevant to the amounts anddisclosures in the financial statements. It alsoincludes an assessment of the significantestimates and judgments made by the directorsin the preparation of the financial statements,and of whether the accounting policies areappropriate to the Group's and Company'scircumstances, consistently applied andadequately disclosed.

We planned and performed our audit so as to

obtain all the information and explanations whichwe considered necessary in order to provide uswith sufficient evidence to give reasonableassurance that the financial statements are freefrom material misstatement, whether caused byfraud or other irregularity or error. In forming ouropinion we also evaluated the overall adequacyof the presentation of information in the financialstatements.

Opinion

In our opinion:

the financial statements give a true andfair view, in accordance with IFRSs, ofthe state of the Company and Group'saffairs as at 31 December 2009 and oftheir losses for the year then ended; and

the financial statements have beenproperly prepared in accordance with theCompanies Acts 1931 to 2004.

Emphasis of matter Going concern &valuation of assets

In forming our opinion on the financialstatements, which is not qualified, we haveconsidered the adequacy of the disclosures


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made in note 2(b) to the financoncerning the Company and Gcontinue as going concerns. Ththe Group have incurred a net lthe year ended 31 December 20and 956,183 respectively and

cash outflows from operations o878,383 respectively. As discloadditional funding is still requiredother matters explained in nofinancial statements, these conthe existence of a material uncasts significant doubt about thCompany and of the Group to coconcerns and to realise thedischarge their liabilities in the nbusiness at the amounts stated istatements. The financial statinclude the adjustments that wo

Company and Group were unablgoing concerns and if they wrealise their assets and extinguisother than in the normal courseat amounts different to thosefinancial statements.

Deloitte & ToucheChartered Accountants

DouglasIsle of Man

2 November 2010

cial statementsroups ability to

Company andss after tax for09 of 776,391xperienced net

f 950,705 anded in note 2(b),and along with

te 2(b) to theditions indicatecertainty whiche ability of thentinue as goingir assets andormal course of

these financialments do not

uld result if the

to continue asre required to

h their liabilitiesf business andtated in these

GEM BioFuels PLC

Independent auditors report


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GEM BioFuels PLC

Statement of comprehensive income

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Consolidated and Company Statements of Comprehensive Income

for the year ended 31 December 2009

Note

2009

Group

2008

Group

2009

Company

2008

Company

Administrative expenses 5 (1,073,209) (1,279,755) (912,777) (1,118,515)

Finance income 8 1,724 63,172 1,724 63,172

Other gains and (losses) 123,356 (173,027) 139,115 (161,544)

Finance costs 8 (8,054) (4,807) (4,453) (3,533)

Loss before tax (956,183) (1,394,417) (776,391) (1,220,420)

Tax expense 9 - - - -

LOSS FOR THE YEAR (956,183) (1,394,417) (776,391) (1,220,420)

Exchange difference in translation of

foreign operations (371,800) 785,231 (412,853) 1,056,220

TOTAL COMPREHENSIVE LOSS FOR

THE YEAR (1,327,983) (609,186) (1,189,244) (164,200)

Loss per ordinary share 20

Basic and diluted loss per ordinary

share (pence) 3.30 5.05 2.68 4.42

Notes to the financial statements are included on pages 16 to 30.


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GEM BioFuels PLC

Statement of financial position

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Consolidated and Company Statements of Financial Position

as at 31 December 2009

Note

2009

Group

2008

Group

2009

Company

2008

Company

ASSETS

Non current assets

Goodwill 11 987,309 1,086,527 - -

Property, plant and equipment 12 27,782 64,358 1,717 4,412

Biological assets 13 943,848 614,619 - -

Investment in subsidiary 18, 19 - - 941,850 1,036,500

Other assets 716 270 - -

1,959,655 1,765,774 943,567 1,040,912

Current Assets

Inventories 14 31,657 11,185 - -

Loan to subsidiary 10 - - 2,064,782 1,839,368

VAT refundable 2,291 53,027 1,333 53,027

Cash and cash equivalents 102,940 1,070,753 102,294 849,738

136,888 1,134,965 2,168,409 2,742,133

TOTAL ASSETS 2,096,453 2,900,739 3,111,976 3,783,045

LIABILITIES

Current liabilities

Trade and other payables 15 121,140 80,024 115,528 80,024

TOTAL LIABILITIES 121,140 80,024 115,528 80,024

NET CURRENT ASSETS 15,748 1,054,941 2,052,881 2,662,109

NET ASSETS 1,975,403 2,820,715 2,996,448 3,703,021

EQUITY

Issued capital 16 316,015 276,015 316,015 276,015

Share premium 16 4,737,056 4,391,866 4,737,056 4,391,866

Currency translation reserve 224,715 596,515 423,461 836,314

Share option reserve 22 686,524 589,043 686,524 589,043

Accumulated losses (3,988,907) (3,032,724) (3,166,608) (2,390,217)

TOTAL EQUITY 1,975,403 2,820,715 2,996,448 3,703,021

These financial statements were approved by the Board of Directors and authorised for use on 2 November 2010.

Signed on behalf of the Board of Directors by:

Simon D Hunt

Non-Executive Chairman

Paul R Benetti

Chief Executive Officer



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DTT Special Purpose Pty Limited

Statement of changes in GEM BioFuels PLC

Statement of changes in equity

equity

14B 14

Statements of Changes in Equity


NoteShare

CapitalShare

Premium

CurrencyTranslation

Reserve

ShareOption

ReserveAccumulated

Losses Total

2009

GROUP

Balance at 1 January 2009 276,015 4,391,866 596,515 589,043 (3,032,724) 2,820,715Total comprehensive loss for theyear - - (371,800) - (956,183) (1,327,983)Issue of shares 40,000 345,190 - - - 385,190Issue of options - - - 97,481 97,481

Balance as at 31 December 2009 316,015 4,737,056 224,715 686,524 (3,988,907) 1,975,403

2008

GROUP

Balance at 1 January 2008 276,015 4,391,866 (188,716) 194,221 (1,638,307) 3,035,079Total comprehensive loss for theyear - - 785,231 - (1,394,417) (609,186)Issue of shares during the year - - - - -Issue of options - - - 394,822 - 394,822Share issue cost - - - - - -


2009

COMPANY

Balance at 1 January 2009 276,015 4,391,866 836,314 589,043 (2,390,217) 3,703,021Total comprehensive loss for theyear - - (412,853) - (776,391) (1,189,244)Issue of shares 40,000 345,190 - - 385,190Issue of options - - - 97,481 97,481


2008

COMPANY

Balance at 1 January 2008 276,015 4,391,866 (219,906) 194,221 (1,169,797) 3,472,399Total comprehensive loss for theyear - - 1,056,220 - (1,220,420) (164,200)Issue of shares during the year - - - - - -Issue of options - - - 394,822 - 394,822Share issue cost - - - - - -




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GEM BioFuels PLC

Statements of cash flow

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Statements of Cash Flow


Note

2009

Group

2008

Group

2009

Company

2008

Company

Cash flows from operating activities

Cash used in operations 17 (878,383) (1,022,490) (950,705) (782,945)

Cash flows from investing activities

Purchases of property, plant and equipment (2,604) (38,207) (465) (4,147)

Purchases of plantation assets (422,012) (391,316) - -

Interest received 1,724 63,172 1,724 63,172

Interest paid (8,054) (4,807) (4,453) (3,533)

Loans to subsidiary - - (225,414) (660,287)

Net cash used in investing activities (430,946) (371,158) (228,608) (604,795)

Cash flows from financing activities

Proceeds from issue of shares 500,000 - 500,000 -

Payment for share issue costs (114,810) - (114,810) -

Net cash provided by financing activities 385,190 - 385,190 -

Net decrease in cash and cash equivalents (924,139) (1,393,648) (794,123) (1,387,740)

Cash and cash equivalents at the beginning of theyear 1,070,753 2,169,831 849,738 2,003,713

Effects of exchange rate changes on the balance ofcash held in foreign currencies (43,674) 294,570 46,679 233,765

Cash and cash equivalents at the end of the year 102,940 1,070,753 102,294 849,738



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GEM BioFuels PLC

Notes to the financial statements

16

1. GENERAL INFORMATIONGEM BioFuels PLC (the Company) is a company domiciled and incorporated in the Isle of Man, and wasincorporated on 6 December 2005. The Companys ordinary shares are traded on the London Stock ExchangesAlternative Investment Market (AIM), although it has been suspended from trading since 1 July 2010.

The consolidated and company accounts for GEM BioFuels Plc and its subsidiary (the Group) have beenprepared for the year ended 31 December 2009.

The Companys registered address is 33 Athol St, Douglas, Isle of Man, IM1 1LB.

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

2. SIGNIFICANT ACCOUNTING POLICIES(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial ReportingStandards (IFRS) as they apply to the financial statements of the Group for the year ended 31 December 2009.

At the date of authorisation of these financial statements, the following Standards and Interpretations were in issuebut not yet effective:

Amendments to IFRS 1 Additional Exemptions for First-time Adopters

Amendment to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures for First-time AdoptersAmendments to IFRS 2 Group Cash-settled Share-based Payment TransactionsIFRS 3 Business Combinations (revised January 2008)

IFRS 9 Financial Instruments

Revised IAS 24 Related Party Disclosures

Amendment to IAS 32 Classification of Rights Issues

Amendment to IFRIC 14 Prepayments of a Minimum Funding Requirement

IFRIC 17 Distribution of Non-cash Assets to Owners

IFRIC 18 Transfers of Assets from Customers

IFRIC 19 Extinguishing Liabilities with Equity Instruments

Improvements to IFRSs 2010

The directors anticipate that all of the above standards and interpretations will be adopted when effective and thatthe adoption of these Standards and Interpretations will have no material impact on the financial statements of theGroup in the period of initial application.

(b) Basis of preparationThe 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 cashflows 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 ofmaking the judgements about carrying values of assets and liabilities that are not readily apparent from othersources. Actual results may differ from these estimates.

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

The financial report has been prepared on a going concern basis, which contemplates the continuity of normalbusiness activity.

The Company and the Group have incurred a net loss after tax for the year ended 31 December 2009 of 776,391and 956,183 respectively (2008: 1,220,420 and 1,394,417 respectively) and experienced net cash outflows fromoperations of 950,705 and 878,383 respectively (2008: 782,945 and 1,022,490 respectively). As at 31December 2009 the Company and the Group had net current assets of 2,052,881 and 15,748 respectively (2008:

2,662,109 and 1,054,941 respectively). These conditions indicate the existence of a material uncertainty whichmay cast significant doubt about the abili ty of the Company and the Group to continue as going concerns and meanthat they may be unable to realise their assets and discharge their liabilities in the normal course of business.


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GEM BioFuels PLC


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2. SIGNIFICANT ACCOUNTING POLICIES (continued)(b) Basis of preparation(continued)

During the year and to the date of this report the Directors have taken steps to ensure the Company and the Groupcontinue as going concerns. These steps have included:(i) Entering into discussions with a number of potential investors regarding the raising of additional equity funds to

progress the Groups project in Madagascar.

(ii) Appointment of Shore Capital and Haywood Securities to assist the Company in raising additional equityfunds.

(iii) Entering into discussions with a number of potential off-take parties.

(iv) The Directors have reviewed the quantum and timing of all discretionary expenditure and wherever necessarythese costs will be minimised or deferred to suit the Companys and Groups cashflows.

The Company has not obtained any debt funding and has no external debts at the date of this report. Further theCompany does not have any significant commitments.

The ability of the Company and the Group to continue as going concerns and to pay their ongoing liabilities as andwhen they fall due is dependent on a combination of the following:(i) Successful completion of the proposed fund raising of 2 million by December 2010; and

(ii) Ongoing and active management of the expenditure incurred by the Group to protect current cash levels.

The Directors have reviewed the Companys and the Groups overall position and outlook in respect of the mattersidentified above and are of the opinion that the use of the going concern basis is appropriate in the circumstances.

Notwithstanding this, there are a number of matters upon which the going concerns of the Company and the Groupare dependent and should these matters not be satisfactorily resolved, and in particular should the proposed capitalraising by December 2010 not be successful, there is significant uncertainty whether the Company and the Groupwill be able to continue as going concerns.

Should the Company and the Group be unable to continue as going concerns, they may be required to realise theirassets and extinguish their liabilities other than in the normal course of business and at amounts different fromthose stated in the financial report.

(c) Basis of consolidationThe consolidated financial statements incorporate the financial statements of the Company and entities controlledby the Company (its subsidiaries) made up to 31 December. Control is achieved where the Company has the powerto 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 year are included in the consolidated statement ofcomprehensive income 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 policiesused into line with those used by the Group.

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

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measuredat the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, andequity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable

to the business combination. The acquirees identifiable assets, liabilities and contingent liabilities that meet theconditions 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 CurrentAssets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs tosell.

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

(d) GoodwillGoodwill is allocated as described in Section (c). After initial recognition, goodwill is measured at cost less anyaccumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at leastannually.


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2. SIGNIFICANT ACCOUNTING POLICIES (continued)(e) Revenue recognition

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

(f) LeasesLeases are classified as finance leases whenever the terms of the lease substantially transfer the risks and rewardsof ownership to the lessee. All other leases are classified as operating leases. The Group only has operatingleases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carryingamount of the leased asset and recognised on a straight-line basis over the lease term.

(g) Foreign currenciesThe functional currency of the Company and subsidiaries is considered to be United States Dollars as the currencyof the primary economic environment in which the Group operates. For the purpose of the consolidated financialstatements, 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 entitysfunctional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currenciesare retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that aredenominated in foreign currencies are translated at the rates prevailing at the date when the fair value wasdetermined. Non-monetary items that are measured in terms of historical cost in a foreign currency are notretranslated.

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

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

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

exchange differences on monetary items receivable from or payable to a foreign operation for whichsettlement 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 Groups foreignoperations are translated at exchange rates prevailing on the balance sheet date. Income and expense items aretranslated at the average exchange rates for the year, unless exchange rates fluctuate significantly during that year,in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, areclassified as other comprehensive income and transferred to the Groups translation reserve. Such translationdifferences are recognised as income or as expenses in the year 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 liabilitiesof the foreign entity and translated at the closing rate.

(h) TaxationThe tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported inthe statement of comprehensive income because it excludes items of income or expense that are taxable ordeductible in other years and it further excludes items that are never taxable or deductible. The Groups liability forcurrent 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 ofassets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognisedfor all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differences can be utilised. Such assets andliabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from theinitial recognition (other than in a business combination) of other assets and liabilities in a transaction that affectsneither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries andassociates, 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 itis no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.


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2. SIGNIFICANT ACCOUNTING POLICIES (continued)(h) Taxation(continued)

Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or theasset is realised. Deferred tax is charged or credited in the statement of comprehensive income, except when itrelates 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 assetsagainst current tax liabilities and when they relate to income taxes levied by the same taxation authority and theGroup intends to settle its current tax assets and liabil ities on a net basis.

(i) Financial instrumentsFinancial assets and financial liabilities are recognised on the Groups balance sheet when the Group becomes aparty to the contractual provisions of the instrument.

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

Investments in subsidiariesInvestments in subsidiaries are held at initial cost less provision for any impairment.

Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquidinvestments that are readily convertible to a known amount of cash and are subject to an insignificant risk ofchanges in value.

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

Trade payablesTrade payables are measured at cost which is deemed to equate to fair value.

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

Derivative financial instruments and hedge accountingThe Groups activities expose it primarily to the financial risks of changes in foreign currency exchange rates andinterest rates. The Group does not use derivative financial instruments for speculative purposes.

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

(j) Provisions

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

(k) Property, plant and equipmentItems of property, plant and equipment are initially recorded at cost, being the fair value of consideration providedplus 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 ofacquisition using the straight line method over their estimated useful lives. Depreciation rates are reviewedannually.

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

Motor vehicles 25%

Fixtures and equipment 5% - 40%


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2. SIGNIFICANT ACCOUNTING POLICIES (continued)(l) Biological assets

A biological asset is a living animal or plant. The Group has determined that it has a biological asset being theJatropha trees in Madagascar. A biological asset is required to be recognised when the company controls the assetas a result of a past event, it is probable that the future economic benefits associated with the asset will flow to theentity 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 lessestimated point of sale costs, except where the fair value cannot be measured reliably. Fair value is not reliablymeasurable when market determined prices are not available and for which alternative measures of fair value areclearly unreliable. For these reasons and the fact that the planted areas are relatively immature and still to yieldsubstantial harvests, the Directors do not believe it is possible to reliably measure the fair value of these asset and,as such, have not used fair value accounting.

Costs incurred may approximate fair value when little biological transformation has taken place since the initial costoccurrence. As disclosed in note 13, the Group recognises plantation assets at cost, this being the directors bestestimation of fair value. Depreciation of these assets commences when assets are ready for their intended use.

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

(m) Impairment of assetsAt 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, therecoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Wherethe asset does not generate cash flows that are independent from other assets, the Group estimates therecoverable 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 forimpairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwillis not subsequently reversed.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, theestimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset for which the estimates of futurecash 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, thecarrying 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) isincreased to the revised estimate of its recoverable amount, but only to the extent that the increased carryingamount does not exceed the carrying amount that would have been determined had no impairment loss beenrecognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised inprofit or loss immediately.

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

(o) Share-based paymentsEquity-settled share-based payments with employees and others providing similar services are measured at the fairvalue of the equity instrument at the grant date. Fair value is measured by use of a binomial model. The expectedlife used in the model has been adjusted, based on managements 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 Groups 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. Theimpact of the revision of the original estimates, if any, is recognised in profit and loss over the remaining vestingperiod, 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 basedpayments.

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 thefair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterpartyrenders the service.


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2. SIGNIFICANT ACCOUNTING POLICIES (continued)(o) Share-based payments (continued)

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

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTYIn the process of applying the Groups accounting policies, which are described in note 2, the Directors have madethe following judgements that have the most significant effect on the amounts recognised in the financialstatements.

Impairment of goodwillFollowing a detailed review of the business combinations acquired, the Directors are satisfied that the carryingamount of the goodwill is justified and no impairment loss is to be recognised at the year end. In making theirassessment, the Directors have made certain assumptions which underpin the value. Refer to note 11 for details ofthe assumptions made.

Impairment of biological assetsFollowing a review of the Groups plantation and forest assets, the Company has determined that as at 31December 2009 the biological asset will be measured at the cost of initial planting as little biological transformationhad occurred at 31 December 2009 and accordingly cost reflected the best approximation of fair value. Further, theGroups interest in wild forests continues to be carried at nil value. In making their assessment, the Directors havemade certain assumptions which underpin the value. Refer to note 13 for details of the assumptions made.

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

4. SEGMENT REPORTINGThe Groups primary reporting format is its geographical segment, while its secondary reporting format is itsbusiness 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 EXPENSESOperating loss is stated after charging:

2009

Group

2008

Group

2009

Company

2008

Company

Legal & professional fees 129,804 106,588 119,639 102,026

Consultants fees 1,939 4,546 872 -

Depreciation 26,411 31,805 2,807 1,814

Rental fees 41,091 33,324 12,911 14,040

Wages and salaries 608,743 703,013 556,039 644,124

Other administrative expenses 177,216 240,499 132,504 196,531

Non-Executive Directors emoluments 88,005 159,980 88,005 159,980

1,073,209 1,279,755 912,777 1,118,515

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

2009

Group

2008

Group

2009

Company

2008

Company

Audit fees 46,747 36,661 46,747 36,661

46,747 36,661 46,747 36,661


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6. STAFF NUMBERS AND COSTSThe average number of persons employed by the Group (including Directors) during the year, by category, was asfollows:

2009 2008

Executive directors 3 3

Technical 3 2

Administration 32 33

Total 38 38

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

2009

2008

Total (including social security costs) 608,743 703,013

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

2009 2008

Executive directors 3 3

Administration 2 1

Total 5 4

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

2009

2008

Total (including social security costs) 556,039 644,124

7. DIRECTORS REMUNERATION

Basic

Salary

Fees

ShareOptions(vi)

Total

2009

Total

2008

Executive directors

Paul R Benetti 169,391 - 55,843 225,234 327,157Adam W Broadhurst (i) 105,000 - 37,229 142,229 257,956

Frank B Tiller (ii) 33,000 - (18,859) 14,141 51,228

Non-executive directors

Simon D Hunt (iii) - 40,250 13,961 54,211 81,579

Malcolm F Williams - 24,000 9,307 33,307 54,401

Pritesh R Desai (iv) & (v) - 24,000 - 24,000 24,000

307,391 88,250 97,481 493,122 796,321

(i) Resigned 29 September 2009 and Share Options retained as remained an employee of the Company

(ii) Resigned 29 September 2009 and Share Options forfeited in accordance with Employee Share OptionPlan

(iii) These amounts (36,000 fees and 4,250 additional services) are paid to Cornerstone Capital Limited,a company of which Simon Hunt is both a Director and shareholder(iv) These amounts are paid to Cavendish Trust Limited, a company of which Pritesh Desai is both a

Director and shareholder(v) Resigned 5 May 2010(vi) Further details of the share options issued to directors are set out in note 22

8. NET FINANCING (EXPENSE)/INCOME

2009

Group

2008

Group

2009

Company

2008

Company

Interest income from financial institutions 1,724 63,172 1,724 63,172

Gross interest expenses (8,054) (4,807) (4,453) (3,533)

Net financing (expense)/income (6,330) 58,365 (2,729) 59,639


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

The Companys subsidiary pays tax at a rate of 30% on its taxable profits. No tax charge has been recorded in thecurrent year 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 totalof the unrecognised deferred tax asset as at 31 December 2009 was 326,436 (2008: 263,728). The charge forthe year can be reconciled to the loss per the statement of comprehensive income as follows:

Group

2009

Group

2008

Loss before tax (956,183) (1,394,417)

Tax at the domestic rate of 0% - -

Effect of different tax rates of subsidiary operating in anotherjurisdiction

(62,708) (122,875)

Unrecorded deferred tax asset 62,708 122,875

Tax expense for the year - -

10. LOAN TO SUBSIDIARYThe Company has lent an additional 225,414 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 December2009 to 2,064,782 (2008: 1,839,368). The loan is repayable on demand and attracts no interest.

The recoverability of the loan to the subsidiary is dependent on the Group continuing as a going concern. Thefinancial statements have been prepared on a going concern basis notwithstanding the uncertainties faced by theCompany and Group. Refer to section 2(b) for further details.

11. GOODWILL

Group

Balance at 1 January 2008 787,614Effects of foreign currency exchange differences 298,913

Balance at 1 January 2009 1,086,527

Effects of foreign currency exchange differences (99,218)

Balance at 31 December 2009 987,309

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

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

The recoverable amount of the CGU is determined from value in use calculations from its plantation operations. The

key assumptions for the value in use calculations are those regarding the discount rates, oil yield from seeds, seedyields from trees and expected changes to selling prices and direct costs during the year. Management estimatesdiscount rates using pre-tax rates that reflect current market assessments of the time value of money and the risksspecific to the CGU and at present uses a range of discount factors between 14% and 31% (2008: 16%) to accountfor a number of potential outcomes to the risks inherent in the project at the time. Oil yield assumed from seeds isset at 29% and is based on our direct experience from commercial-scale crushing of seeds in Madagascar. TheCompany plants on average just over 2,000 trees per hectare of plantation and seed yields assumed from treesranges from 0.0kg per tree in the first 2 years to 0.55kg per tree in the third year to 1.0kg per tree in the fourth yearto 2.0kg per tree in the fifth year and beyond and are based on our direct experience with natural, wild trees inMadagascar and international experience these levels are at the lower end of published international experience.Changes in selling prices and direct costs are based on past practices and expectations of future changes in themarket, with the current selling price based on US$550/Mt of crude jatropha oil a value that sits within the recentlyachieved sales values of US$540/Mt and US$685/Mt. Accordingly goodwill is considered not to be impaired.

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

The recoverability of the goodwill is dependent on the Company and Group continuing as going concerns. Thefinancial statements have been prepared on a going concern basis notwithstanding the uncertainties faced by theCompany and Group. Refer Section 2(b) for further details.


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12. PROPERTY, PLANT AND EQUIPMENT

GROUP

COST

MotorVehicles

Fixturesand

equipment

Total

At 1 January 2009 88,256 58,403 146,659

Additions

Disposals

803

(15,387)

1,156

-

1,959

(15,387)

Exchange difference (11,743) (9,116) (20,859)

At 31 December 2009 61,929 50,443 112,372

ACCUMULATED DEPRECIATION

At 1 January 2009 59,174 23,127 82,301

Charge for the year 12,571 13,840 26,411

Disposals (11,339) - (11,339)

Exchange difference (7,491) (5,292) (12,783)

At 31 December 2009 52,915 31,675 84,590

NET BOOK VALUE

At 31 December 2009 9,014 18,768 27,782

COST

MotorVehicles

Fixtures andequipment

Total

At 1 January 2008 51,248 30,398 81,646

Additions 20,289 17,918 38,207

Disposals - - -

Exchange difference 16,719 10,087 26,806

At 31 December 2008 88,256 58,403 146,659


At 1 January 2008 26,802 7,194 33,996

Charge for the year 20,338 11,467 31,805

Disposals - - -

Exchange difference 12,034 4,466 16,500

At 31 December 2008 59,174 23,127 82,301

NET BOOK VALUE

At 31 December 2008 29,082 35,276 64,358

COMPANY

COST

Fixturesand

equipment

Total

At 1 January 2009 8,572 8,572

Additions 465 465

Exchange difference (791) (791)

At 31 December 2009 8,246 8,246


At 1 January 2009 4,160 4,160

Charge for the year 2,807 2,807

Exchange difference (438) (438)

At 31 December 2009 6,529 6,529

NET BOOK VALUE

At 31 December 2009 1,717 1,717


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12. PROPERTY, PLANT AND EQUIPMENT (continued)

COST

Fixturesand

equipment

Total

At 1 January 2008 3,208 3,208

Additions 4,147 4,147Exchange difference 1,217 1,217

At 31 December 2008 8,572 8,572


At 1 January 2008 1,348 1,348

Charge for the year 1,814 1,814

Exchange difference 998 998

At 31 December 2008 4,160 4,160

NET BOOK VALUE

At 31 December 2008 4,412 4,412

13. BIOLOGICAL ASSETS

COST

2009

Group

2008

Group

2009

Company

2008

Company

At 1 January 614,619 168,379 - -

Additions during year 422,012 391,316 - -

Exchange difference (92,783) 54,924 - -

At 31 December 943,848 614,619 - -

Following a review of the Groups plantation assets, the Group has determined that as at 31 December 2009 thebiological asset will continue to be measured at the cost of initial planting as little biological transformation hasoccurred at that date. As the assets have not yet been brought into use depreciation has not yet been applied.

In considering whether there has been any impairment the Group has considered the reasonableness of the carryingvalue at cost by reference to value in use calculations. The key assumptions for the value in use calculations arethose regarding the discount rates, oil yield from seeds, seed yields from trees and expected changes to selling pricesand direct costs during the year. Management estimates discount rates using pre-tax rates that reflect current marketassessments of the time value of money and the risks specific to the CGU and at present uses a range of discountfactors between 14% and 31% (2008: 16%) to account for a number of potential outcomes to the risks inherent in theproject at the time. Oil yield assumed from seeds is set at 29% and is based on our direct experience fromcommercial-scale crushing of seeds in Madagascar. The Company plants on average just over 2,000 trees perhectare of plantation and seed yields assumed from trees ranges from 0.0kg per tree in the first 2 years to 0.55kg pertree in the third year to 1.0kg per tree in the fourth year to 2.0kg per tree in the fifth year and beyond and are basedon our direct experience with natural, wild trees in Madagascar and international experience these levels are at thelower end of published international experience. Changes in selling prices and direct costs are based on pastpractices and expectations of future changes in the market, with the current selling price based on US$550/Mt ofcrude jatropha oil a value that sits within the recently achieved sales values of US$540/Mt and US$685/Mt.

Accordingly, the directors do not believe that the cost of the biological asset has been impaired and that costcontinues to reflect the best approximation of fair value.

Whilst the CGU has access to 40,000 hectares of natural forest which provide the Group with a source of seeds, dueto the fact that trees are more sparsely grown in this area and yields are unpredictable because of the uncultivatedand unmanaged nature of the areas, no value continues to be attributed to them as a biological asset.

The recoverability of plantation assets is dependent on the Company and Group continuing as going concerns. Thefinancial statements have been prepared on a going concern basis, notwithstanding the uncertainties faced by theCompany and the group. Refer to Section 2(b) for further details.

14 INVENTORIES

2009

Group

2008

Group

2009

Company

2008

Company

Raw material stock 31,657 11,185 - -

Total 31,657 11,185 - -


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15. TRADE AND OTHER PAYABLES

2009

Group

2008

Group

2009

Company

2008

Company

Trade payables 85,350 48,656 79,738 48,656

Accrued expenses 35,790 31,368 35,790 31,368

121,140 80,024 115,528 80,024

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

16. SHARE CAPITAL AND SHARE PREMIUM

Authorised:

Number ofOrdinary Shares

of 1p each

31 December 2008 200,000,000 2,000,000

31 December 2009 200,000,000 2,000,000

Issued

Number ofShares Issuedand Fully Paid

ShareCapital

SharePremium

Balance at 1 January 2008 27,601,501 276,015 4,391,866

Balance at 31 December 2008 and at 1 January 2009 27,601,501 276,015 4,391,866

Issue of ordinary shares at 1p each

Costs of capital raising

4,000,000

-

40,000

-

460,000

(114,810)

Balance at 31 December 2009 31,601,501 316,015 4,737,056

On 31 August 2009, the Company completed the placing of 4,000,000 ordinary shares at 1 pence each at 12.5 penceper share and issued 2,000,000 warrants with an exercise price of 18p per share at no cost with an expiry date of 3September 2010. The shares rank pari passu in all respects with the existing ordinary shares, including the right toreceive all dividends and other distributions hereafter declared, made or paid.

In addition the Company issued 200,000 warrants with an exercise price of 12.5 pence per share at no cost with anexpiry date of 3 September 2010 to Haywood Securities (UK) Limited in connection with the placing.

Share CapitalShare capital represents the nominal value of shares issued by the Company.

Share PremiumShare 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 anygeneral meeting.


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17. NOTES TO THE CASH FLOW STATEMENT

2009

Group

2008

Group

2009

Company

2008

Company

Loss for the year (956,183) (1,394,417) (776,391) (1,220,420)

Adjustments for:

Finance costs 8,054 4,807 4,453 3,533

Share option expense 97,481 394,822 97,481 394,822

Foreign exchange (gain)/loss (123,356) 126,518 (139,114) 212,711

Interest income received and receivable (1,724) (63,172) (1,724) (63,172)

Depreciation of property, plant andequipment 26,411 31,805 2,807 1,814

Operating cash flows before

movements in working capital (949,317) (899,637) (812,488) (670,712)

Increase in inventories (20,472) (5,531) - -

Decrease/(increase) in other assets 50,290 (53,297) (173,721) (53,027)

Increase/(decrease) in payables 41,116 (64,025) 35,504 (59,206)

Net cash used in operating activities (878,383) (1,022,490) (950,705) (782,945)

18. ACQUISITION OF SUBSIDIARIESOn 21 December 2005 GEM BioFuels Plc acquired Green Energy Madagascar sarl, a company incorporated inMadagascar.

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 insubsidiary is due to foreign exchange differences.

20. LOSS PER ORDINARY SHARE

2009

Group

2008

Group

2009

Company

2008

Company

Loss for the year 956,183 1,394,417 776,391 1,220,420

2009

Number

2008

Number

Weighted average number of shares 28,934,834 27,601,501

2009

Group

2008

Group

2009

Company

2008

Company

Loss per ordinary share - basic

- diluted

3.30

3.30

5.05

5.05

2.68

2.68

4.42

4.42

21. RELATED PARTIESTransactions between the Company and its subsidiary, which are related parties, have been eliminated onconsolidation and are not disclosed in this note. Amounts outstanding between the Company and subsidiary aredisclosed in note 10.

Trading transactionsDuring the year, there were no transactions with companies in the Group or transactions with related parties havingcertain common Directors other than those referred to below:

The Company paid 40,250 (2008 36,000) in fees for Simon Hunts services under aan agreement withCornerstone Capital Limitedd, a company in which Simon Hunt is a shareholder and a director. The contract isbased on normal commercial terms.

The Company paid 12,911 (2008 12,000) 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 basedon normal commercial terms.


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21. RELATED PARTIES (continued)LoansThere are no other outstanding loans granted or guarantees provided by the Company to or for the benefit of any ofthe Directors, nor are there any outstanding loans or guarantees provided by the Directors to or for the benefit ofthe Company. However, as at 31 December 2009 the Company owes certain Directors amounts totalling 33,158(2008: 1,615), which represents outstanding repayments of expenses that the Director has incurred in carrying out

his duties for the Company.

22. SHARE-BASED PAYMENTSEmployee share option plansThe Group has two ownership-based compensation schemes for Directors and executives of the Group. Inaccordance with the provisions of these plans, as approved by shareholders at a previous general meeting, awardsare made to Directors and executives at the discretion of the Board of Directors either on appointment, at salaryreview time, or any other time that the Directors deem appropriate. Other than the Broadhurst options, there are nospecific performance or vesting criteria attaching to the options and it is at the discretion of the Board of Directors toestablish these criteria for option award if they deem it desirable. The Broadhurst options vest subject to certainconditions relating to the establishment and performance of the Companys operations in Madagascar. All of theconditions relating to vesting have been met.

The table below shows the contract and vesting periods of the options granted at 31 December 2009:

Number

Exercise

Price

Vesting

Period

Contract

Period

Broadhurst Tranche 1

Broadhurst Tranche 2

166,666

560,000

1p

60p

Vested

Vested

5 years

5 years

Other Directors 1,260,000 60p Vested 5 years

The expected life of the options has been assessed at 2.5 years (2008: 2.5 years) for options which vest 1 yearfrom grant and 3 years (2008: 3 years) for options which vest after 1 year from grant.

The fair value of the awards is calculated using the Black-Scholes model and subsequently adjusted for gaindependency, assessed at 15%, and forfeitures, assessed at 10% over the life of the award. A volatility adjustmentconsidered appropriate for the sector and the age of the Group is included in the calculation. In forming the volatilityassumption, the Directors have considered the volatility of the share price since the date of listing. The volatility ofcompanies operating in the same sector has also been reviewed. Based on these factors, volatility has beenassessed at 60% for the award grants made during the year. An appropriate risk-free rate (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 beenassumed.

The expenditure recognised in the statement of comprehensive income of the Group and the Company for theshare-based payments in respect of employee services received during the year to 31 December 2009 is nil(2008: 394,822). 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, twoshare options streams during the year.

Broadhurst 2 and Other Directors Options

2009

Number

2009

WAEP

2008

Number

2008

WAEP

Outstanding at 1 January 1,820,000 60p 1,820,000 60p

Granted during the year - - - -Forfeited during the year 70,000 60p - -

Exercised during the year - - - -

Outstanding at 31 December 1,750,000 60p 1,820,000 60p

Exercisable at 31 December 1,750,000 60p 910,000 60p

The exercise price for Directors Options outstanding at the end of the year was 60p (2008: 60p). The weightedaverage remaining contractual life of the options in issue at 31 December 2009 is 2.8 years (2008: 3.8 years).Included within the balance of options are 560,000 attributable to Adam Broadhurst; vesting of these options wasconditional on the achievement of certain performance criteria (which have been achieved), whereas the remaindervested on the expiry of certain time periods.


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22. SHARE-BASED PAYMENTS (continued)Employee share option plans (continued)

Broadhurst 1 Options

2009

Number

2009

WAEP

2008

Number

2008

WAEP

Outstanding at 1 January 166,666 1p 166,666 1p

Granted during the year - - - -

Forfeited during the year - - - -

Exercised during the year - - - -

Outstanding at 31 December 166,666 1p 166,666 1p

Exercisable at 31 December 166,666 1p 166,666 1p

As at 31 December 2009, the exercise price for Broadhurst Options outstanding was 1p (2008: 1p) and theweighted average remaining contractual life of the options in issue was 2.8 years (2008: 3.8 years).

23. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESLiquidity riskThe Group seeks to manage financial risk to ensure sufficient liquid funds are available to meet foreseeable needswhilst investing cash assets safely and profitably. All of the Groups net financial liabilities at 31 December 2009

118,849 (2008: 26,997) and the Companys net financial liabilities at 31 December 2009 114,195 (2008:26,997) are payable within 3 months. Since 31 December 2009, the Company has successfully raised 300,000in cash through the issue of 3,750,000 fully-paid, ordinary shares to new and existing investors of the Company.

Foreign currency riskAn amount of the Groups capital and operating expenditures is denominated in Malagasy Ariary (MGA). The Groupdoes not hedge its exposure. The table below demonstrates the sensitivity of the Groups loss before tax and equityto a reasonably possible change in the MGA exchange rate.

Increase/decrease

in MGA rate

Effect on lossbefore tax

Effect onEquity

2009 +5% (47,994) (47,994)

-5% 43,422 43,422

2008 +5% (28,071) (28,071)

-5% 31,026 31,026

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

Fair value of financial assets and financial liabilitiesThe carrying amounts of all of the Groups financial instruments that are carried in the financial statementsreasonably approximates their fair value.

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

The Directors are not aware of any commitments as at 31 December 2009. In September 2009 the business movedpremises (used for the processing and packing of vegetable matter and for office accommodation) and the lease ison a month by month basis.

2009

Group

2008

Group

2009

Company

2008

Company

Minimum lease payments under the

operating leases recognized as anexpense in the year 41,091 33,324 - -

At the balance sheet date, the Group had no outstanding commitments for the future minimum lease paymentsunder non-cancellable operating leases.


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25. ULTIMATE CONTROLLING PARTYDuring the year to 31 December 2009, the ultimate controlling party of the Company and the Group is RAB SpecialSituations (Master) Fund Limited (RAB), a company incorporated in the Cayman Islands.

26. RISK EXPOSURECredit risk

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

Market and liquidity riskMarket 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 Groupsfinancial position or results. The principal market risks to which the Group is exposed are interest rate risk andforeign currency risk, which are not hedged given the scale and nature of the Group's operations.

Interest rate riskInterest rate risk arises when interest rates move. The Group does not have any borrowings and as such has noexposure to interest rate movements in this area, however it does, from time-to-time, hold cash balances on depositbut does not hedge or fix these rates given the scale and nature of the Group's operations.

Currency riskCurrency 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

Subsequent to the end of the financial year, the following events occurred:

Resignation of a Director

On 5 May 2010 Pritesh Desai resigned as a Director of the Company.

Completion of 300,000 Placement

On 19 July 2010, the Company completed the private placement of 3,750,000 fully paid ordinary shares at 8 penceeach to raise 300,000.

28. CONTINGENT LIABILITIES

2009Group

2008Group

2009Company

2008Company

Commercial disputes 31,000 36,000 - -

Green Energy Madagascar sarl is a defendant in legal actions in two commercial disputes. The first relates to theearly termination of a lease and the second relates to expenses incurred during a 2007 seed collection campaign.The directors believe, based on legal advice, that the actions can be successfully defended and therefore no losseswill be incurred, however the above amounts represent the probability weighted potential loss and associated legalcosts. The legal claim is expected to be settled in the course of the next 12 months.

gem biofuels - annual report 2009 (30p)

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