Annual Financial Report

Unicorn AIM VCT plc ("the Company") Annual financial report announcement for the year ended 30 September 2010 Investment Objective The Company's objective is to provide Shareholders with an attractive return from a diversified portfolio of investments, predominantly in the shares of AIM quoted companies, by maximising the stream of dividend distributions to Shareholders from the income and capital gains generated by the portfolio. It is also the objective that the Company should continue to qualify as a Venture Capital Trust, so that Shareholders benefit from the taxation advantages that this brings. To achieve this at least 70% of the Company's total assets are to be invested in qualifying investments of which 30% by value must be in ordinary shares carrying no preferential rights to dividends or return of capital and no rights to redemption. Investment Policy In order to achieve the Company's Investment Objective, the Board has agreed an Investment Policy which requires the Investment Manager to identify and invest in a diversified portfolio, predominantly of VCT qualifying companies quoted on AIM that display a majority of the following characteristics: - experienced and well-motivated management; - products and services supplying growing markets; - sound operational and financial controls; and - good cash generation to finance development allied with a progressive dividend policy. Asset allocation and risk diversification policies, including maximum exposures, are to an extent governed by prevailing VCT legislation. Specific conditions for HMRC approval of VCTs include the requirement that no single holding may represent more than 15% (by value) of the Company's investments, at the date of investment. The Investment Manager is responsible for managing sector and stock specific risk and the Board does not impose formal limits in respect of such exposures. In order to maintain compliance with HMRC rules, however, and to ensure that an appropriate spread of investment risk is achieved, the Board receives and reviews comprehensive reports from the Investment Manager and the Administrator on a monthly basis. When the Investment Manager proposes to make an investment in an unquoted company, the prior approval of the Board is required. Where capital is available for investment while awaiting suitable VCT qualifying opportunities, or in excess of the 70% VCT qualification threshold, it may be invested in collective investment funds or in non-qualifying shares and securities in smaller listed UK companies. To date the Company has operated without recourse to borrowing. The Board may however consider the possibility of introducing modest levels of gearing up to a maximum of 10% of the adjusted capital and reserves, should circumstances suggest that such action is in the interests of shareholders. Chairman's Statement I am pleased to present the Annual Report of the Company for the year ended 30 September 2010. The financial year under review has been one of considerable progress for your Company. The most significant event during the year was the share consolidation and acquisition of the assets and liabilities of Unicorn AIM VCT II plc ("merger"), which was successfully completed in March 2010. In addition to generating material annual cost savings, the merger has resulted in a simplified shareholder structure with a single class of share and a significantly enlarged asset base. Total costs associated with the share consolidation and merger were Â£15,000 below those budgeted for in the merger prospectus, at Â£295,000 (after deducting the Investment Manager's Â£100,000 contribution). The Company met Â£ 140,000 of these costs, with the remainder being settled by Unicorn AIM VCT II plc. The cost savings achieved in the six months since merger have been marginally better than originally anticipated and amount to over Â£300,000 on an annualised basis. As a result, the total expense ratio for the year fell to 2.1% of total assets, a low figure by VCT standards. Following the merger, the Board has pursued an active buy back policy. This policy provides a convenient method for shareholders to realise their investment whilst also acting as an effective discount control mechanism. At times during the twelve months prior to the merger, the discount between the share prices of the five different share classes and their respective net asset values fluctuated greatly, ranging between 21% and 49%. Since the merger a total of 1,577,778 shares have been repurchased at a cost of Â£1.2 million and the discount has fallen to 12.1% at the financial year end. The revised arrangements entered into with the Manager, Unicorn Asset Management Limited, have provided stability and continuity of investment management. I am optimistic that the strong relative performance delivered across the two VCTs in the years prior to the merger can be maintained. Performance over the first six months since the merger has been very encouraging with net asset value increasing from 91.78 pence per share as at the merger date of 9 March 2010, to 104.15 pence per share as at 30 September 2010, an increase of 13.5%. Finally, the merger has resulted in the Company becoming the largest AIM-based VCT in the market, with audited net assets as at 30 September 2010 of Â£62.3m. The year under review witnessed a broad based recovery in equity markets around the world with UK equity markets being no exception. The FTSE All-Share Index delivered a total return of 12.5% over the past twelve months, whilst the FTSE AIM All-Share Index fared even better, registering a total return of 22.3%. The improved performance of equity markets reflects both sustained improvement in corporate profitability and renewed investor confidence. The recovery in corporate earnings has been driven by a period of restocking (following an extended period of destocking), cost efficiencies and a solid increase in demand for certain products and services. Those UK companies with meaningful overseas exposure have also enjoyed a competitive advantage resulting from the weakness of Sterling and have been able to access markets where economic growth has been more robust than in the UK. There has been much commentary about the scale of the national debt and the urgent need for it to be reduced quickly and sharply. The new coalition government has acted swiftly and the recently announced cuts in government spending will slow the increase in national debt but at the same time may hinder economic growth. Consumer spending remains at subdued levels as the fear of increased unemployment combined with high levels of personal debt continues to depress spending habits. While a setback in the domestic economic recovery could have negative implications for the UK stock market, the Company's investment portfolio is diversified across a range of sectors. The Company owns stakes in a number of smaller quoted companies which have emerged from recession stronger, leaner and more efficient. A number of these could be attractive acquisition candidates for larger companies. The investment portfolios delivered a resilient performance over the past year. Given the consolidation of five different share classes across two different VCTs, it is not practical to make meaningful or accurate performance comparisons. However, as at 30 September 2009, the total net assets of the combined investment portfolios amounted to Â£58.2m and had risen to Â£62.3m at 30 September 2010, an increase of 7.0% overall. This figure has, of course, been reduced by amounts paid in respect of share buy-backs, dividends and merger costs across both VCTs which, in aggregate, totalled Â£4.5m. At year end, the Company held 81.9% of its total assets in VCT qualifying companies (based on tax cost as defined in tax legislation, which differs from the actual cost shown in the Investment Portfolio Summary in the Annual Report). The Manager has maintained a selective approach to new VCT qualifying investments with only one new VCT qualifying company introduced to the portfolio during the year. In addition to this new investment, five follow-on investments were made in existing VCT qualifying companies. In terms of disposals, M&A activity resulted in four qualifying companies being sold to trade buyers, whilst three holdings were sold outright through secondary market trades. Regrettably, two companies, Hexagon Human Capital and Relax Group, failed to survive the effects of the economic downturn and went into administration during the year. Since the financial year end, Shieldtech also announced that it had appointed administrators. These three investments have been written down to a carrying value of zero. Since the financial year end there has been one material event which had a significant, positive impact on the net assets of the Company. Amber Taverns, an unquoted operator of a chain of public houses in the North-West of England was acquired by a private equity firm at a substantial premium to carrying value. The transaction completed in October 2010 and delivered an uplift to net asset value of just over 5 pence per share, and is reflected in these accounts, equivalent to a gain in the year of Â£3.3m. The total capital gain on disposal was Â£3.7m and the return on investment was equivalent to 2.7x book cost. The non-qualifying portfolio developed considerably during the period with twenty-one new investments, three follow-on investments and a number of partial disposals made. To date, the new investments have performed well, generating aggregate realised and unrealised gains of 8.3%. The existing investments in the non-qualifying portfolio also produced solid returns over the past 12 months showing an average gain of 7.5%. Over the twelve months to 30 September 2010 there was a net gain on investments of Â£8.2 million and the total gain on ordinary activities after taxation was Â£ 8.3 million, the equivalent of 16.77 pence per share. The profit on the revenue account was Â£98,000. At the financial year end, the qualifying portfolio consisted of 60 holdings whilst the non-qualifying portfolio had grown to 29. A detailed report on the performance of both the qualifying and the non-qualifying portfolios is contained in the Investment Manager's Review below. Dividend payments totalling Â£2.8m were made during the course of the financial year ended 30 September 2010, to shareholders of the Company and to shareholders of Unicorn AIM VCT II plc. In aggregate, the payments made across both VCTs were equivalent to 3.3 pence per share (based on the sum total of shares in the five different share classes in issue at the dividend record date prior to the merger). Prior to the financial year end shareholders across the two VCTs had received in excess of Â£21m in tax free dividend distributions. In view of the strong performance of the portfolio since the merger and taking into account substantial realised capital gains together with improving revenue reserves, the Board is recommending a final dividend of 4 pence per share. Finally, I am pleased to report that we will shortly be launching an offer for subscription for shares in the Company to raise up to Â£15m ("Offer"). The Offer is expected to be launched in December 2010 and will close on 30 June 2011 unless fully subscribed before then. The Offer will provide existing shareholders the opportunity to add to their current shareholding whilst also benefiting from the tax reliefs available on an issue of new VCT shares for either, or both of the tax years 2010/2011 and 2011/2012. New investors will also be able to participate in the Offer, thereby gaining immediate exposure to an established, mature and diversified portfolio of investee companies, whilst also benefiting from the same tax reliefs available and the potential for receiving regular tax-free dividend distributions. The authority of shareholders is required in order to issue new shares in relation to the Offer. Such authority will be sought at the Annual General Meeting of the Company to be held on 7 January 2011. Those shareholders and investors considering an investment should contact their Independent Financial Adviser or Stockbroker for advice. An announcement regarding the proposed Offer has been made to the London Stock Exchange today and it is intended that full details of the proposals will be sent to shareholders together with the Report & Accounts. Peter Dicks Chairman 23 November 2010 The Directors confirm to the best of their knowledge that: (a) the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP) and the 2009 Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (SORP), give a true and fair view of the assets, liabilities, financial position and the profit or loss of the Company. (b) the management report, comprising the Chairman's Statement, Investment Manager's Review, Investment Portfolio Summary and Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. Peter Dicks Chairman 23 November 2010 Principal risks and uncertainties The Directors review the principal risks faced by the Company as part of the internal controls process (see the Corporate Governance Statement in the Annual Report for further information). The principal risks identified by the Directors are: * Investment and strategic risk - Unsuitable investment strategy or stock selection could lead to poor returns to shareholders. * Regulatory and tax risk - The Company is subject to relevant laws and regulations including Companies Act 2006, Income Tax Act 2007 and UK Listing Authority Rules. There is a risk that the Company may breach these rules and face public censure, suspension from the Official List and/or financial penalties. There is a risk that the Company may lose its VCT status under the Income Tax Act 2007 before shareholders have held their shares for the minimum period to retain their tax reliefs. Should the Company lose its VCT status, shareholders may lose any upfront income tax relief they received and be taxed on any future dividends paid and capital gains received if they dispose of their shares. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations. * Operational risk - The Company has no employees and is therefore reliant on third party service providers. Failure of the systems at third party service providers could lead to inaccurate reporting or monitoring. Inadequate controls may lead to the misappropriation or insecurity of assets. * Financial Instruments risks - The main risks arising from the Company's financial instruments are due to fluctuations in the market price and interest rates, credit risk and liquidity risk. The Board regularly reviews and agrees policies for managing these risks and full details can be found in note 20 in the Annual Report. * Economic risk - Recession, inflation or deflation and movements in interest rates could affect trading conditions for smaller companies and consequently the value of the Company's investments. Investment Manager's Review Investment Policy It is the aim of the Investment Manager to identify and invest in a diversified portfolio of companies that display a majority of the following characteristics: - experienced and well-motivated management; - products and services supplying growing markets; - sound operational and financial controls; and - good cash generation to finance ongoing development allied with a progressive dividend policy. Performance The audited net assets of the Company as at 30 September 2010 were Â£62.3m, equivalent to 104.15 pence per share. This compares with the combined unaudited net assets of Unicorn AIM VCT plc and Unicorn AIM VCT II plc of Â£58.2m as at 30 September 2009, and is equivalent to an increase during the financial year of 7.0%. After adding back dividends paid, share buybacks and the one-off costs associated with the share consolidation and merger, this figure rises to 15%. Investment strategy The policy of investing in companies which have a demonstrable record of profitability and positive cash generation remains unchanged. The VCT qualifying and the non-qualifying portfolios are now well diversified both by sector and by number of investments held. The Company remains comfortably above the threshold required to retain VCT qualifying status (whereby a minimum of 70% of combined assets must be invested in VCT qualifying holdings). Your Investment Manager will continue to adopt a highly selective approach to new investment opportunities. Alternative Investment Market (AIM) review The UK stock market experienced a broad based recovery in the period under review, as corporate profitability recovered and investor sentiment improved. The Alternative Investment Market produced the strongest returns with the FTSE AIMAll-Share Index delivering a total return of 22.3%. Interestingly, the majority of this return was delivered in the three months to 30 September 2010 during which period the FTSE AIM All-Share Index recorded a capital gain 18.3%. As commented on in previous years, the returns generated by the Index are highly dependent on the performance of a small number of sectors. The Mining and Oil & Gas sectors remain the dominant components, accounting for 42.1% of the Index by value as at the period end. The increase in value of these two sectors alone accounted for over 58% of the value uplift generated across the entire Index over this three month period. The portfolios contain minimal exposure to Mining & Resource companies since they rarely qualify for investment by Venture Capital Trusts under existing HMRC legislation. Investment in these sectors also carries a higher than average level of risk since AIM quoted mining and oil & gas businesses tend to be at the exploration stage and are therefore loss-making and cash consuming. For these reasons they also do not typically meet the Manager's investment criteria. Despite the rally in indices generally, the volume of trades on AIM remained subdued. The average number of shares traded on a daily basis during 2010 is down by 35% when compared with the equivalent period in 2009 (source: LSE). In addition, activity levels in the primary market have yet to pick up meaningfully. So far in 2010, just Â£677m of new money has been raised for companies listing on AIM for the first time. This amount is 8.5% lower than the equivalent period in 2009, which in itself was a poor year for initial listings. The Company invested in only one of the 42 new listings that have taken place on AIM over the past twelve months. Qualifying investments It is pleasing to report that the majority of VCT qualifying companies held in the Company performed well in the year to 30 September 2010. Smaller quoted companies generally continue to recover both operationally and in valuation terms from the depths of recession reached towards the end of 2008. The evidence of this recovery can be found in revenue growth, in margin and profit improvement and in enhanced cashflows. In addition, there were a number of holdings which continued to prosper and develop despite the wider economic travails. However, as referred to in the Chairman's Statement there were two investee companies, Hexagon Human Capital, a specialist recruitment business, and Relax Group, a provider of debt management services, which unfortunately failed in the year and were placed into administration. Since the company's financial year end, Shieldtech has also announced that it has appointed administrators. The carrying values of these investments have been written down to zero in the year end accounts. A review of the other main contributors to performance in the VCT qualifying portfolio follows:- Abcam is one of the world's leading manufacturers and distributors of therapeutic antibodies to the worldwide life science research market. The company continues to deliver consistent growth and recently reported results for its financial year to 30 June 2010. The results highlighted the operational gearing of the business with annual revenues growing by 25% to over Â£71m, whilst pre-tax profits increased by 58% to Â£25.8m. The company is inherently cash generative. Cash flow in the period remained strong with cash generated from operations of almost Â£25m, whilst the net cash position increased to Â£40m. Abcam shares rose by 98% in the period under review following a gain of 85% recorded in the previous year. Following this extremely strong share price performance, partial disposals of Abcam have again been made in order to maintain the holding at an appropriate weighting within the portfolio. The net amount of these realisations was Â£1.9m and the realised capital gain was Â£1.6m. As at 30 September 2010 the company had a market capitalisation of Â£620m. Since the financial year end, Abcam has effected a five for one sub-division of its shares. Access Intelligence comprises a group of Software as a Service (SaaS) businesses that deliver compliance solutions to the public and private sectors. The company's strategy is to buy growth businesses in target industries and to build value through organic growth and acquisitions. In March 2010, Access Intelligence successfully placed new shares with institutions to fund the acquisition of Cobent, a provider of compliance training software. Your Manager participated in this latest fund-raising and has now supported the development of the business on three separate occasions. In July, Access Intelligence released interim results for the six month period to 31 May 2010 showing that turnover had increased by 63% to Â£4.1m compared to the same period twelve months earlier, whilst basic earnings per share were up 83%. The company had a cash balance of Â£2.4m and net assets of almost Â£10m at the balance sheet date. Importantly, Access Intelligence has also established a sizeable customer base from which it derives recurring revenues currently representing 57% of total revenues. Amber Taverns is an operator of freehold pubs in the North West of England. The business has successfully defied increasing pressures on consumer spending by continuing to develop and grow. As at 30 September 2010 the Amber Taverns estate consisted of 56 pubs, annualised revenues were forecast to reach Â£20.1m and the business was expected to generate EBITDA of Â£3.8m in its financial year to 31 January 2011. Amber Taverns is an unquoted business whose growth plans have been financially supported by the Manager on three occasions over the past five years. The total book cost of these investments amounts to Â£2m. In August 2010, Amber Taverns received a bid approach from a private equity buyer valuing the business at an enterprise value of Â£32m. The deal completed shortly after the Company's financial year end and I am pleased to report that cash proceeds of Â£5.3m have now been received. This equates to a realised capital gain of Â£ 3.3m and a return in excess of 2.7x book cost. Animalcare has restructured recently and is now a pure-play, speciality veterinary products company. The sale of Animalcare's agricultural businesses for Â£3.25m in cash was announced in September 2010 and leaves the company essentially debt free and able to focus exclusively on its rapidly growing 'companion animal' division. The shares performed particularly well following the disposal announcement and our investment in the company registered a capital gain of 13% in the year to 30 September 2010. Augean is one of the UK's leading hazardous waste disposal and treatment businesses. The recession has had a considerable impact on the company with volumes of hazardous waste handled declining sharply in line with the fall in economic activity. Augean's half year results to the end of June 2010 were released at the end of September and illustrate the disproportionate effect of a decline in revenue on levels of profitability in an operationally geared business. Like for like turnover was down marginally in the six months to 30 June 2010, whilst the Company recorded a loss before tax of Â£0.3m. In response to falling landfill volumes and pricing pressures, Augean's management team has focused on cost cutting and has significantly reduced capital expenditure in an attempt to drive value from the company's existing, unique and well invested asset base. Importantly, twelve months ago, the Company successfully completed a placing to raise Â£12m. The proceeds of this fundraising were primarily used to reduce bank debt and thus strengthen the balance sheet. As at 30 June 2010, net debt had fallen to Â£4.9m from Â£18m twelve months earlier. In the twelve month period to 30 September 2010, the total value of our investment in Augean fell by 33%. On a positive note, it is encouraging that management are now reporting signs of a sustained recovery in Augean's markets. Cohort, an independent technology group focused on the defence and security sectors, endured a difficult twelve months. In December 2009, the company issued a surprise profit warning related to an overstatement of income from certain contracts at one of its subsidiary companies. The impact of the overstatement resulted in a restatement of financial results for the year ended 30 April 2009, reducing group profitability substantially. Group profitability for the financial year ended 30 April 2010 was also significantly lower than originally anticipated, partly reflecting the considerable exceptional costs related to necessary restructuring as well as deteriorating trading conditions. Encouragingly, the company began its current financial year with a record order book of more than Â£112m which provides a basis for a recovery in profitability. However, considerable uncertainty remains as to how damaging the spending cuts, recently announced as part of the Government's Strategic Defence Review, will be in the short term. The shares fell by 61% during the year under review. Driver Group, which provides a broad range of consultancy services to the construction and engineering sectors, also suffered over the past twelve months as the full effects of the economic downturn became apparent. Driver Group's UK business was particularly hard hit since its dispute resolution services are highly dependent on healthy levels of construction activity. The group swung to a loss before tax of Â£330,000 in the half year to 31 March 2010. In response, the Board of Driver Group has implemented significant operational restructuring and is re-positioning the Group in order to drive international growth. The executive management team expects trading conditions to remain challenging especially in the UK construction market. However, the company has a reasonably strong balance sheet and the longer term strategic plan is to expand internationally. The current financial year is therefore anticipated to remain loss-making as investment is directed at exploiting overseas opportunities. EG Solutions is a small IT business which specialises in developing software designed to optimise back office workflow. The company recently released its half year results for the six months ended 31 July 2010, which demonstrate evidence of sustained stabilisation in its core markets together with the considerable growth potential offered through international expansion opportunities. At the low point in January 2009, shares in EG Solutions touched 8 pence per share, valuing the entire business at just over Â£1m. As it became apparent that the company was successfully renewing contracts and winning new business, so the share price began to recover. At the start of October 2009, EG Solutions' share price stood at 25 pence per share and by the end of the financial year under review the share price had risen to 90 pence per share, a gain of 260% in twelve months. The share price is now above the level at which the company was first listed in 2005 and the prospects for continued growth are reported to be brighter than they have been at any point over the past five years. Hasgrove, a pan European marketing and communications services group, recently announced half yearly results for the six months to 30 June 2010. Having survived the worst of the economic downturn between the end of 2008 and the middle of 2009, the business has been enjoying steadily improving momentum. Traditionally, Hasgrove has had a reliance on work related to public sector clients but this is now changing and the business is seeing increased private sector demand across all areas. Following a difficult period of consolidation, the group now has relatively little exposure to public service revenue. Although underlying trading has now clearly improved, this has not yet been reflected in Hasgrove's share price, which fell by 41% in the twelve months to 30 September 2010. Maxima Holdings is an IT business systems and managed services company, which grew rapidly through acquisition after floating on AIM in November 2004. After a very successful initial period as a listed company, Maxima began to struggle in the second half 2007. The number of acquisitions resulting in steadily rising net debt meant that the business was ill-equipped when the economic downturn took hold in 2008. Investor confidence steadily eroded after the company delivered a sequence of disappointing financial results and the market value of the business fell from Â£75m in August 2007 to just over Â£10m at its nadir in early 2009. A new executive management team with a track record of successful company turnarounds was brought into Maxima in April 2009. There are encouraging signs of recovery as management increasingly focus on the controlled management and migration of customers to new more focused services and solutions. The number of enquiries, order pipeline and order intake are all reported to have improved in Maxima's core areas. The share price has yet to reflect this progress, however, and the shares fell by 39% in the twelve months to 30 September 2010 to 65p. Mount Engineering is a holding company for three specialist engineering business, which manufactures and distributes safety critical valves, thread convertors and actuators for use in capital plants around the globe. Despite challenging trading conditions, the group has been profitable and cash generative throughout the downturn. The balance sheet has also remained strong with net cash of Â£2.4m as at 30 June 2010. In September 2010, Mount Engineering announced that it had received a takeover approach. This offer was swiftly followed by another, higher, all cash offer from Cooper Industries valuing Mount Engineering at an enterprise value of approximately Â£17m. At the time of writing, it appears that this second offer will be successful, which would yield a gain on book cost for the Company of 17%. Pressure Technologies is the holding company for Chesterfield Special Cylinders Ltd whose principal activities are the design, manufacture and reconditioning of seamless steel, high pressure gas cylinders. The core activity of the company is the supply of air pressure vessel assemblies for motion compensation systems on semi-submersible rigs and drill ships in deep-sea oil and gas markets. The company currently remains dependent on a small number of customers in this market and anticipated orders for deep water projects are still pending. As a result of this uncertainty, the company's share price has been weak, falling by 20% in the period under review. The management team has, however, put in place a diversification strategy and is actively exploring ways of applying the company's specialist skills to new markets. Chesterfield BioGas has been established as an operating subsidiary and significant resource has been directed at developing an engineering solution to process and condition biomethane for vehicle fuel use and for injection into the National Gas Grid. The company recently announced that Chesterfield BioGas had successfully completed its first biogas upgrading project whereby injection of organically produced gas was made directly into the National Gas Grid at Thames Water's site in Didcot, Oxfordshire. This achievement is a first for the UK energy industry and the success of the Didcot site will be monitored closely. Shieldtech was listed on AIM in July 2007 with the intention of pursuing a buy and build strategy focused on acquiring businesses which supply products and services to the Homeland Security market. The outlook for small, acquisitive businesses like Shieldtech deteriorated significantly as the recession took hold. The Group was therefore unable to secure additional funds to help finance further acquisitions. At the same time, the core business; Aegis, which specialises in the manufacture and supply of body armour systems to police forces was unable to secure a number of significant expected orders. As a result of these order delays and because the Group had built a central overhead designed to accommodate a much larger entity, the Company continued to absorb cash and suffer significant losses. Despite a successful fundraising in May 2009, the company remained under-capitalised. In addition, the hoped for orders failed to materialise and in October 2010, the Board of Shieldtech announced that it had appointed administrators to the Company. The remaining value of this investment has therefore been written down to zero. Surgical Innovations designs, develops and manufactures devices for use in minimally invasive surgery and industrial markets. In April 2008, the company consolidated all its operations into a single, new site. The move to this state of the art facility has greatly improved in-house manufacturing capabilities and benefits are beginning to show in the form of improved margins and profitability. The company recently released interim results for the six months to 30 June 2010, demonstrating strong growth. Revenues grew by 79% when compared with the same period in the previous financial year, whilst pre-tax profits increased by 256% to Â£766,000. The company is also highly cash generative and has a strong balance sheet with net cash of Â£888,000 as at 30 June 2010. Surgical Innovations' shares increased in value by 196% in the twelve months to 30 September 2010. Tangent Communications provides customised marketing services for clients through various delivery channels including direct mail, web, email, mobile and print. The company employs 175 people across locations in London, Newcastle, Cheltenham and Melbourne, Australia. With a strong focus on innovation, Tangent stands to benefit from a continued industry shift towards targeted, personalised marketing campaigns. As at 28 February 2010 the company had net cash of Â£1.1m with trading in the first five months of its current financial year in line with expectations and ahead of the previous period. Significant exposure to the property sector through the Ravensworth subsidiary has had a negative impact on operating margins and disappointingly the share price fell by 54% during the year to 30 September 2010. Universe Group provides managed services, payment and loyalty systems to the Petrol Forecourt and Retail sector. In July 2010 the company streamlined its operations with the sale of its loss making Jet Wash division for an initial cash payment of Â£300,000. Net debt as at 30 June 2010 stood at Â£2.9m. The Group was the subject of a bid approach from Brulines during the year but failure to agree terms saw the offer period lapse in May 2010. Universe Group's share price fell by 33% during the course of the year. Vindon Healthcare manufactures and sells specialist storage solutions to clients in the pharmaceutical, life sciences, food and heritage sectors in the UK, Ireland, Europe and North America. In early 2010, the company acquired Westech Instruments Inc, its sole US distributor. This acquisition should help Vindon to improve penetration in the key US pharmaceutical market. The company continues to enjoy strong recurring revenues from long term storage contracts, however, despite this underlying stability, the company has struggled to achieve growth. The manufacturing side of the business has particularly suffered since potential customers continue to defer expenditure on capital projects. The share price fell by 39% during the period. New qualifying investments At the financial year end the Company had approximately 82% of its total assets invested in VCT qualifying businesses as calculated in accordance with HMRC tax valuation rules. New VCT qualifying investments will only be made where they meet the Manager's clearly defined investment criteria. Green Compliance, a rapidly growing provider of compliance solutions in the areas of pest control and prevention, water treatment, water hygiene, fire protection and energy services, was the only new VCT qualifying investment made during the period under review. The underlying business has performed well since initial investment and the share price performance has exceeded expectation in the short term. The shares have appreciated by 60% since first investment, generating an unrealised capital gain of over Â£1m. Follow-on investments were made during the year in Access Intelligence, Keycom, Kiotech, SnacktimeandTristel. All five of these businesses are progressing in line with expectations. In total, Â£3.4m of new capital was invested in VCT qualifying situations in the period under review. With the exception of Green Compliance, all were in the form of secondary investments in companies already held. Following the financial year end, Â£985,000 of capital was committed to Instem Life Science Systems at its initial public offer and AIM listing. Instem, a VCT qualifying software company, is focused on the life sciences and biotechnology markets. It has developed world leading software to enable pharmaceutical companies to collect, analyse and report large volumes of complex scientific data in an accurate and efficient manner. The business has been consistently profitable and cash generative over recent years and is now well placed to enjoy further success through both organic and acquisitive growth. The shares were admitted to AIM on 8 October 2010 and at the time of writing this review were trading at a 17% premium to float price. Realisations There were a number of realisations made in the year to 30 September 2010. As reported earlier, the sale of Amber Taverns, which completed in October 2010, represented the highlight of a busier than usual year for realisations. A realised capital gain of over Â£3m on this single investment adds tangible value to the net assets of the Company and releases significant cash for future dividend distributions and for new investment opportunities. Claimar Care, a provider of domiciliary care services was acquired for cash by Housing 21, a charitable group specialising in retirement services. Although the transaction resulted in a capital loss on initial investment of Â£532,000 the outcome was welcome since doubts were growing as to whether Claimar Care was capable of remaining viable as an independent entity. The investment in Claimar Care was held in Unicorn AIM VCT II plc and was realised prior to the merger of the two VCTs. Clerkenwell Ventures, a cash shell, returned the remainder of its cash to investors during the year having failed to identify any suitable acquisitions. Connaught shares were disposed of in their entirety. Connaught became part of the portfolio as a consequence of its all share acquisition of Fountains plc which was an existing holding in the Company. Following a detailed, internal review of Connaught's business and prospects, the decision was taken to exit the position. Our holding in Connaught was sold in the secondary market at Â£ 3.58 per share in early January 2010 realising proceeds of Â£340,000 and a capital loss of Â£6,500. Subsequent events have confirmed that the decision to exit this investment was well founded as Connaught entered administration in September 2010. Essentially Group, a sports marketing business, was acquired by Chime Communications during the year. Chime is a leading marketing services group with a market capitalisation of approximately Â£150m. The transaction was settled in the form of equity in Chime Communications. The shares in Chime have been retained since they continue to qualify as a VCT qualifying investment for a period of 2 years following completion of the acquisition of Essentially. Glisten is a snack and confectionery group. Having suffered during the economic downturn, the business was enjoying strong operational and financial recovery, when it received a takeover approach from a trade buyer. Although your Manager rejected the initial offer received as being too low, negotiations continued and a substantially increased offer valuing Glisten at an enterprise value of Â£ 47.8m was eventually accepted. The share price gain in the year to 30 September 2010 was in excess of 65% and the total realised capital gain amounted to Â£ 462,000. Invocas, a debt management business, continued to struggle and the shares were sold in the secondary market in June 2010 realising a capital loss of Â£316,000. Melorio, the provider of vocational training courses, was sold in the secondary market on concerns that cuts in public sector spending would eventually impact the group. The sale of Melorio generated a realised capital gain of Â£170,000. Supporta,the provider of domiciliary care services was acquired by Mears Group in an all-share transaction. On the date that the transaction completed, the value of Mears shares received was Â£1.9m, which was equivalent to the total book costs of investments made in Supporta. The share price of Mears has risen by 17% between transaction completion and 30 September 2010. The Company, which already owned an equity stake in Mears Group, has made a series of partial disposals in the shares in order to maintain the holding at prudent levels. Non-qualifying portfolios Following the merger with Unicorn AIM VCT II plc in March 2010, the combined assets of the Company are well diversified and the Company remains comfortably above the threshold required by HMRC to retain VCT qualifying status. As a consequence, your Manager has taken the opportunity to develop the non-qualifying portfolio significantly. During the period, twenty-one new non-qualifying companies were added to the portfolio. The total cost of these investments amounted to Â£5.3m and it is pleasing to report that most have contributed positively to performance since being introduced. A brief description of the new holdings follows below:- Advanced Medical Solutions Share price as at 30 September 2010 65p Investment Date September 2010 Results for the year ended 31 December 2009 Book Cost Â£32k Turnover Â£24.1m Valuation Â£33k Profit Before Tax Â£4.1m Market Cap Â£100m Net Assets Â£22.9m Dividend Yield - Advanced Medical Solutions (AMS) is a global medical device company focused on the woundcare and wound closure & sealant markets. Founded in 1991 and quoted on AIM, AMS provides a full range of advanced woundcare products which are supplied globally through major partners, private label distributors and, in the UK, direct to the NHS under the ActivHealÂ® brand. Through its wound closure and sealants division, under the LiquiBandÂ® brand, AMS is also a leader in the use of tissue adhesives for closing wounds in the A&E and Operating Room areas. Air Partner Share price as at 30 September 2010 390p Investment Date August 2010 Results for the year ended 31 July 2010 Book Cost Â£160k Turnover Â£230.0m Valuation Â£195k Profit Before Tax Â£2.8m Market Cap Â£40m Net Assets Â£11.6m Dividend Yield 3.75% Air Partner is the world's largest air charter broker. It organises whole aircraft charters of airliners, private jets and dedicated freighters for corporate customers, governments and high net worth individuals using a supplier base consisting of aircraft operators worldwide. Air Partner is a world leader in its field, highly cash generative and its core business has been consistently profitable despite recurring industry volatility. Brady Share price as at 30 September 2010 58p Investment Date August 2010 Results for the year ended 31 December 2009 Book Cost Â£133k Turnover Â£8.2m Valuation Â£116k Profit Before Tax Â£1.0m Market Cap Â£17m Net Assets Â£8.4m Dividend Yield 2.2% Brady provides a range of transaction and risk management software applications, which help producers, consumers, financial institutions and trading companies manage their commodity transactions in a single integrated solution. The Capital Pub Company Share price as at 30 September 2010 108p Investment Date July 2010 Results for the year ended 28 March 2010 Book Cost Â£206k Turnover Â£22.0m Valuation Â£216k Loss Before Tax (Â£1.5m) Market Cap Â£28m Net Assets Â£31.1m Dividend Yield - The Capital Pub Company operates 30 high quality, predominantly freehold pubs in and around the London area. The pubs are not themed and are mainly located in areas which serve local communities. Individual pub managers are highly incentivised and the company is now London's largest independent free-house operator. CareTech Share price as at 30 September 2010 332p Investment Date March 2010 Results for the year ended 30 September 2009 Book Cost Â£400k Turnover Â£83.4m Valuation Â£332k Profit Before Tax Â£6.8m Market Cap Â£167m Net Assets Â£47.4m Dividend Yield 1.4% CareTech provides quality housing and support services to adults with a range of learning and physical disabilities. Founded in 1993, the company offers specialist services and support for people with severe physical disability, challenging behaviours, mental health problems and autistic disorders. Elementis Share price as at 30 September 2010 100p Investment Date July 2010 Results for the year ended 31 December 2009 Book Cost Â£224k Turnover Â£363.7m Valuation Â£300k Loss Before Tax (Â£31.2m) Market Cap Â£458m Net Assets Â£178.8m Dividend Yield 2.8% Elementis manufactures and sells specialty chemicals which are used in a diverse range of products and processes. The business is split into three divisions; Specialty Products is a leading producer of organoclays and other rheological additives and also manufactures colourants, specialty additives and polymers; Elementis Surfactants is a producer of surface active ingredients that are used in a broad range of applications; Elementis Chromium is the world's largest producer of chromium chemicals. Elementis has manufacturing facilities in China, the Netherlands, the UK and the US. Hargreaves Services Share price as at 30 September 2010 680p Investment Date June 2010 Results for the year ended 31 May 2010 Book Cost Â£347k Turnover Â£459.8m Valuation Â£374k Profit Before Tax Â£30.7m Market Cap Â£182m Net Assets Â£89.8m Dividend Yield 2.0% Established in 1994 as a specialist bulk haulier, the Hargreaves Group has grown, both organically and via acquisition, into a major force in the supply, movement and management of mineral resources and the provision of support services to the energy and waste industries. Group activities are managed through four divisions: Production, Energy & Commodities, Transport and Industrial Services. Huntsworth Share price as at 30 September 2010 81p Investment Date May 2010 Results for the year ended 31 December 2009 Book Cost Â£218k Turnover Â£156.3m Valuation Â£243k Loss Before Tax (Â£9.8m) Market Cap Â£185m Net Assets Â£194.1m Dividend Yield 3.6% Huntsworth plc is a global public relations and integrated healthcare communications group operating from 74 principal offices in 31 countries. The company operates under four principal consultancy brands; Citigate, a leading financial brand; Grayling, a global independent public relations consultancy; Huntsworth Health, integrated healthcare communications specialists and Red, one of the leading multi-specialist public relations consultancies. London Capital Group Share price as at 30 September 2010 120p Investment Date May 2010 Results for the year ended 31 December 2009 Book Cost Â£198k Turnover Â£27.6m Valuation Â£194k Profit Before Tax Â£5.9m Market Cap Â£50m Net Assets Â£24.4m Dividend Yield 2.1% London Capital Group is a financial services company specialising in online trading services for private, professional and institutional customers. The company provides spread betting products on financial markets to retail customers through Capital Spreads and to professional traders through ProSpreads.com, as well as offering market-leading forex trading and derivatives broking services. Macfarlane Group Share price as at 30 September 2010 20p Investment Date September 2010 Results for the year ended 31 December 2009 Book Cost Â£434k Turnover Â£123.6m Valuation Â£410k Profit Before Tax Â£2.5m Market Cap Â£24.7m Net Assets Â£25.0m Dividend Yield 7.5% Macfarlane Group PLC is a UK-based group of companies focused on packaging-related activities. The packaging distribution business is the leading UK distributor of a comprehensive range of packaging consumable products. The manufacturing operations comprise two businesses, the manufacture of transit packaging and the manufacture of self-adhesive and re-sealable labels. Headquartered in Glasgow, Macfarlane Group employs 700 people at 22 sites. MorsonGroup Share price as at 30 September 2010 96p Investment Date February 2010 Results for the year ended 31 December 2009 Book Cost Â£161k Turnover Â£436.6m Valuation Â£220k Profit Before Tax Â£9.7m Market Cap Â£45m Net Assets Â£57.4m Dividend Yield 6.25% Morson is the UK's leading provider of technical contract staffing, supplying highly skilled white collar personnel to the aerospace & defence, nuclear & power, rail, oil & gas, construction and telecommunications industries. The Group currently provides personnel on long term assignments for major infrastructure/defence projects, rail maintenance and upgrades and nuclear design, decommissioning and asset improvement as well as the provision of safety critical personnel. Murgitroyd & Company Share price as at 30 September 2010 270p Investment Date September 2010 Results for the year ended 31 May 2010 Book Cost Â£194k Turnover Â£29.4m Valuation Â£184k Profit Before Tax Â£3.8m Market Cap Â£24m Net Assets Â£16.5m Dividend Yield 3.7% Murgitroyd & Company is one of Europe's largest firms of European Patent and Trade Mark Attorneys, providing services to international organisations from a range of sectors. The Group has around 210 employees of which around 65 are professionally qualified fee earners and operates from fifteen European offices, a US Development and Client Management office in Raleigh, North Carolina and a recently established office in Tokyo (Japan). The Group's focus on Intellectual Property covers a range of areas, including Patents, Trade Marks, registered and unregistered Design rights, Copyright and Confidential Information. Office2Office Share price as at 30 September 2010 118p Investment Date April 2010 Results for the year ended 31 December 2009 Book Cost Â£266k Turnover Â£187.5m Valuation Â£183k Profit Before Tax Â£8.1m Market Cap Â£43m Net Assets Â£22.8m Dividend Yield 9.4% The group is split into two divisions; Managed Procurement and Business Critical Services. Managed Procurement helps customers reduce expenditure on office and business products, ethically and sustainably. Business Critical Services provides communication services through creative design, print management, fulfilment and response handling services; enabling customers to outsource these requirements to a single supplier and thereby reduce costs. Optos Share price as at 30 September 2010 103p Investment Date April 2010 Results for the year ended 30 September 2009 Book Cost Â£248k Turnover $97.2m Valuation Â£206k Loss Before Tax ($3.82m) Market Cap Â£74m Net Assets $58.7m Dividend Yield - Optos is a medical devices business supplying machines that capture digital images of the retina in just a quarter of a second. Retinal examinations are a routine part of eye exams and an important tool in screening and verifying the health of the eye. There is a growing recognition that monitoring the health of the eye can also provide evidence of non-eye diseases. Over 80% of the current instrument base has been installed in the key US market. Portmeirion Share price as at 30 September 2010 385p Investment Date September 2010 Results for the year ended 31 December 2009 Book Cost Â£151k Turnover Â£43.2m Valuation Â£154k Profit Before Tax Â£3.7m Market Cap Â£40m Net Assets Â£20.5m Dividend Yield 4.1% The Portmeirion Group markets ceramic tableware, cookware and giftware, glassware, candles, placemats, coasters and other associated products, and manufactures ceramics. It has four brands; Portmeirion, Spode, Royal Worcester and Pimpernel. The Group employs around 500 staff and has a wholly owned subsidiary in North America, Portmeirion USA, from which it distributes products throughout North America. Renew Holdings Share price as at 30 September 2010 31p Investment Date December 2009 Results for the year ended 30 September 2009 Book Cost Â£153k Turnover Â£316.7m Valuation Â£134k Profit Before Tax Â£1.2m Market Cap Â£20m Net Assets Â£11.3m Dividend Yield 10.3% Renew Holdings operates in niche sectors of the UK construction industry and is split into two divisions. Specialist Engineering includes land remediation and services to regulated industries (nuclear, water, rail). Specialist Building includes social housing, new build, high quality building restoration/ refurbishment and science & education building projects. Renold Share price as at 30 September 2010 24.5p Investment Date April 2010 Results for the year ended 31 March 2010 Book Cost Â£564k Turnover Â£156.1m Valuation Â£490k Loss Before Tax (Â£13.6m) Market Cap Â£54m Net Assets Â£44.8m Dividend Yield - The principal activity of the company is the manufacture and sale of industrial chains and related power transmission products. The company has three main product groups; chains, gears and couplings. The company supplies goods worldwide, with revenue split between US (31%), Europe ex-UK (28%), UK (9%) and Rest of World (32%). Sagentia Share price as at 30 September 2010 60p Investment Date May 2010 Results for the year ended 31 December 2009 Book Cost Â£250k Turnover Â£23.8m Valuation Â£375k Loss Before Tax (Â£3.5m) Market Cap Â£26m Net Assets Â£12.7m Dividend Yield - Sagentia is an international technology consulting group with a reputation for successfully commercialising emerging science and technology. The company creates, develops and delivers business opportunities, products and services for its clients with particular development strength in Medical, Industrial and Consumer sectors. Key areas of expertise include engineering, electronics, life sciences, business innovation and materials. Scapa Group Share price as at 30 September 2010 25p Investment Date September 2010 Results for the year ended 31 March 2010 Book Cost Â£358k Turnover Â£176.7m Valuation Â£500k Loss Before Tax (Â£5.2m) Market Cap Â£37m Net Assets Â£65.3m Dividend Yield - Scapa Group is a leading manufacturer of technical tapes. Its main end markets are: Industrial, serving various markets including industrial assembly and printing/graphics; Transport, supplying specialist tapes and films used in auto production and aerospace; Electronics, including tapes for mobile phone, LED TVs and other devices; Medical, supplying films, tapes and foams for wound care dressings and Consumer, through branded tapes such as Renfrew and Barnier. Scapa operates globally with manufacturing plants in a variety of countries. Current estimates indicate that Scapa has approximately 3% of the global market for technical tapes. Xaar Share price as at 30 September 2010 179p Investment Date July 2010 Results for the year ended 31 December 2009 Book Cost Â£25k Turnover Â£42.1m Valuation Â£36k Loss Before Tax (Â£0.2m) Market Cap Â£115m Net Assets Â£37.2m Dividend Yield 1.4% Xaar is a world-leading independent supplier of industrial inkjet print heads. The company offers a wide range of industrial strength inkjet solutions which can be used in a wide variety of applications. Xaar generates a large percentage of its earnings outside the UK and demand for the latest Platform 3 products is growing rapidly and significantly exceeding manufacturing capacity. Scott Wilson During the year a non-qualifying investment was also made in Scott Wilson, the design and engineering consultancy group. The company was subsequently subject to two bid approaches and the entire holding was sold in the secondary market, generating a return of 136% on initial investment. Cash proceeds amounted to Â£477k and the realised capital profit was Â£275k. The total value of the new non-qualifying investments had, in aggregate, increased by Â£498,000 during the period under review, generating aggregate realised and unrealised gains of 8.3%. In addition, the majority of these companies offer attractive dividend yields and are committed to a progressive dividend policy. Amongst existing investments within the non-qualifying portfolio, the contribution to performance from the investment in sub-funds of the Unicorn Investment Funds OEIC has been strong. Four out of the five sub-funds of the Unicorn Investment Funds OEIC performed particularly well, each ending the year in the top decile of their respective asset classes over twelve months. Across the five sub-funds positive returns ranged between 9% in the Unicorn Free Spirit Fund and 37% in the Unicorn UK Smaller Companies Fund. It is important to note that the Investment Manager's fees are based on the net asset value of the Company after deducting the value of the investments in these OEIC Funds. The existing non-qualifying holdings in Microgen and Robert Walters also performed well during the year, registering share price gains of 50% and 13% respectively. Given recent additions to the non-qualifying portfolio, the Manager believes that the Company is developing characteristics more akin to a traditional Investment Trust. The focus will remain on identifying established, profitable, cash generative businesses run by high quality management teams but it is to be anticipated that the average market value of these businesses, at the point of initial investment, may be considerably higher than in the past. Prospects The recovery in stock markets over the past twelve months has been welcome. Many of the companies quoted on UK exchanges now operate in a truly global economy and have benefitted from sustained economic growth from emerging markets such as Brazil, China and India. For those UK companies which have significant exposure to overseas earnings, the benefits of this global economic growth have become obvious. Companies which have been able to sell world leading products and services into secular growth markets at competitive prices due to the relative weakness of Sterling have prospered. The management teams of prudently run businesses did not allow balance sheets to become over-leveraged in the boom years leading up to the financial crisis. As a result, the benefits of recovery have flowed through to equity investors in the form of higher share prices and improved dividend payouts rather than being swallowed up in excessive debt servicing costs levied by the banks. Your Investment Manager continues to believe that a policy of investing in conservatively managed, sustainably profitable businesses with strong balance sheets and healthy cashflows provides the best method of delivering superior returns over the longer term. On relative valuation grounds, quoted companies of this type remain attractive despite receiving a general re-rating over the past year. In addition, with Sterling remaining relatively weak it is likely that levels of corporate activity will continue to increase as cash-rich foreign buyers examine opportunities to acquire well-run, UK based businesses. The remit and purpose of the Company remains unchanged. However, in future years the returns generated are likely to be split more evenly between the VCT qualifying portfolio and the non-qualifying portfolio. Your Manager will continue to invest capital selectively in companies that are at a relatively early stage in their development. However, the percentage of total assets invested in VCT qualifying holdings is now well above the 70% minimum threshold required by HMRC (based on tax cost as defined in tax legislation, which differs from actual cost as shown in the Investment Portfolio Summary in the Annual Report), which in turn allows greater scope to continue developing the quality of the non-qualifying portfolio. The aim remains to invest in high quality companies run by experienced management, addressing growing markets, with sound financial and operational controls and which are capable of generating sustainable and growing levels of cash. In the non-qualifying portfolio the average market capitalisation of new investee companies is likely to be significantly greater. Over the longer term, we believe this strategy should deliver attractive returns for Shareholders whilst simultaneously offering a reduced risk profile especially when compared with new and less mature AIM based VCTs. Chris Hutchinson Unicorn Asset Management Limited 23 November 2010 Income Statement For the year ended 30 September 2010 30 September 2010 30 September 2009 Notes Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net unrealised gains/(losses) on investments - 7,184 7,184 - (166) (166) Net gains on realisation of investments - 1,557 1,557 - 256 256 Income 2 930 - 930 580 - 580 Investment management fees (195) (585) (780) (126) (377) (503) Other expenses (539) - (539) (476) - (476) Merger costs (98) - (98) - - - ----- ----- ----- ----- ----- ----- Profit/(loss) on ordinary activities before taxation 98 8,156 8,254 (22) (287) (309) Tax on profit/(loss) on ordinary activities 3 - - - - - - ----- ----- ----- ----- ----- ----- Profit/(loss) on ordinary activities after taxation for the financial year 98 8,156 8,254 (22) (287) (309) ==== ==== ==== ==== ==== ==== Basic and diluted earnings per share: Ordinary Shares (formerly S3 Fund Shares) 5 0.20p 16.57p 16.77p 0.10p 10.47p 10.57p Ordinary Shares 5 - - - 0.04p (3.15)p (3.11)p S2 Shares 5 - - - (0.27)p 1.10p 0.83p All revenue and capital items in the above statement derive from continuing operations of the Company up to 8 March 2010 and thereafter reflects that of the enlarged entity. This includes the assets and liabilities of Unicorn AIM VCT II plc that were transferred to the Company on 9 March 2010. No restatement has been made for comparable periods. There were no other recognised gains or losses in the year. The total column of this statement is the profit and loss account of the Company. Other than revaluation movements arising on investments held at fair value through the Profit and Loss Account, there were no differences between the profit/(loss) as stated above and at historical cost. The notes below form part of these financial statements. Balance sheet as at 30 September 2010 30 September 2010 30 September 2009 Notes Â£'000 Â£'000 Â£'000 Â£'000 Fixed assets Investments at fair value 61,432 28,305 Current assets Debtors and prepayments 452 138 Current investments 7 375 3,912 Cash at bank 349 366 ---- ---- 1,176 4,416 Creditors: amounts falling due within one year (329) (583) ---- ---- ---- ---- Net current assets 847 3,833 ---- ---- Net assets 62,279 32,138 ==== ==== Capital Called up share capital 598 498 Capital redemption reserve 240 72 Share premium account 25,143 840 Revaluation reserve 5,955 (3,061) Special distributable reserve 24,263 28,741 Profit and loss account 6,080 5,048 ---- ---- Equity shareholders' funds 62,279 32,138 ==== ==== Net asset value per share of 1 pence each: Ordinary Shares (formerly S3 shares) 6 104.15p 56.26p S2 Shares 6 - 74.63p S3 Shares 6 - 87.18p The notes below form part of these financial statements. Cash flow statement For the year ended 30 September 2010 30 September 2010 30 September 2009 Notes Â£'000 Â£'000 Â£'000 Â£'000 Operating activities Investment income received 708 517 Vat recovered and related interest - 889 Other income received 50 13 Investment management fees paid (743) (504) Other cash payments (655) (438) Payment of merger costs of the company (120) - ---- ---- ---- ---- Net cash (outflow)/inflow from operating activities (760) 477 Investing activities Purchase of investments (8,128) (1,502) Sale of investments 6,002 2,711 ---- ---- ---- ---- (2,126) 1,209 Equity dividends Equity dividends paid to Unicorn AIM VCT plc shareholders 4 (1,418) (1,274) Equity dividends paid in respect of dividends declared to Unicorn AIM VCT II plc shareholders but not paid before assets and liabilities were transferred to Unicorn AIM VCT plc (1,353) - ---- ---- Net cash (outflow)/inflow before financing and liquid resource management (5,657) 412 Financing Cash received on acquisition of net assets from Unicorn AIM VCT II plc 3,736 - Stamp duty on shares issued to acquire net assets of Unicorn AIM VCT II plc (98) - Payments to meet merger costs of Unicorn AIM VCT II plc (170) - Share capital bought back (1,365) (334) ---- ---- ---- ---- 2,103 (334) Management of liquid resources Decrease in current investments 3,537 240 ---- ---- Net (decrease)/increase in cash (17) 318 ==== ==== Reconciliation of movements in Shareholders' funds for the year ended 30 September 2010 30 September 2010 30 September 2009 Notes Â£'000 Â£'000 As at 1 October 2009 32,138 34,123 Net share capital bought back in the year (1,267) (402) Shares issued upon acquisition of assets and liabilities from Unicorn AIM VCT II plc 8 24,670 - Stamp duty on shares issued (98) - Profit/(loss) for the year 8,254 (309) Dividends paid 4 (1,418) (1,274) ---- ---- Closing Shareholders' funds at 30 September 2010 62,279 32,138 ==== ==== Notes to the accounts For the year ended 30 September 2010 1. Accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below: a) Basis of accounting The accounts have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ("the SORP") issued by the Association of Investment Companies in January 2009. The results for the year to 30 September 2010 reflect the activities of what were previously the Ordinary Share Fund, the S2 Share Fund and the S3 Share Fund of the Company, which were consolidated on 9 March 2010, for the whole period. In addition, these results include the transfer of the assets and liabilities of Unicorn AIM VCT II PLC to the Company, with effect from 9 March 2010. Results for the current year are reported for the one share class of the enlarged VCT now in issue, namely Ordinary Shares. These were formerly the S3 Shares of the Company, redesignated new Ordinary Shares on 9 March 2010. Further details are contained in note 8 below. The comparatives reported in these financial statements reflect the activities of what were previously the Ordinary Share Fund, the S2 Share Fund and the S3 Share Fund of the Company and are therefore as previously reported. As a result of the Directors' decision to distribute capital profits by way of a dividend, the Company revoked its investment company status as defined under section 266(3) of the Companies Act 1985, on 17 August 2004. b) Presentation of the Income Statement In order to better reflect the activities of a VCT and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The revenue column of the profit attributable to shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in section 274 Income Tax Act 2007. c) Investments All investments held by the Company are classified as "fair value through profit and loss", in accordance with the International Private Equity and Venture Capital Valuation ("IPEVCV") guidelines, as updated in September 2009, which have not materially changed the results reported last year. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income. For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. Unquoted investments are stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEVCV guidelines: All unquoted investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, the following factors will be considered: (i) Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used. (ii) In the absence of i), and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:- a) an earnings multiple basis. The shares may be valued by applying a suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortisation (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Investment Manager compared to the sector including, inter alia, a lack of marketability). or:- b) where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Manager, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value. (iii) Premiums on loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable. (iv) Where an earnings multiple or cost less impairment basis is not appropriate and overriding factors apply, discounted cash flow or net asset valuation bases may be applied. d) Income Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividends receivable on unquoted equity shares are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received. Fixed returns on non-equity shares are recognised on a time apportioned basis so as to reflect the effective interest rate, provided there is no reasonable doubt that payment will be received in due course. Fixed returns on debt securities are recognised on a time-apportioned basis so as to reflect the effective yield. e) Capital reserves (i) Realised (included within the Profit and Loss Account reserve) The following are accounted for in this reserve: - Gains and losses on realisation of investments; - Permanent diminution in value of investments; - Transaction costs incurred in the acquisition of investments; and - 75% of management fee expense, together with the related tax effect to this reserve in accordance with the policies. (ii) Revaluation reserve (Unrealised capital reserve) Increases and decreases in the valuation of investments held at the year-end are accounted for in this reserve, except to the extent that the diminution is deemed permanent. In accordance with stating all investments at fair value through profit and loss, all such movements through both revaluation and realised capital reserves are shown within the Income Statement for the year. (iii) Special distributable reserve The cost of share buybacks are charged to this reserve. In addition, any realised losses on the sale of investments, and 75% of the management fee expense, and the related tax effect, are transferred from the Profit and Loss Account reserve to this reserve. f) Expenses All expenses are accounted for on an accruals basis. Expenses are charged wholly to revenue, with the exception of expenses incidental to the acquisition or disposal of an investment, which are charged to capital, and with the further exception that 75% of the fees payable to the Investment Manager are charged against capital. This is in line with the allocation followed by most other VCTs. IFA trail commission is expensed in the period in which it is incurred. g) 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 that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in the tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax is measured at the average tax rates that are expected to apply in the years in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantially enacted at the balance sheet date. Deferred tax is measured on a non-discounted basis. A deferred tax asset is recognised only to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilised. Any tax relief obtained in respect of management fees allocated to capital is reflected in the capital reserve - realised and a corresponding amount is charged against revenue. The tax relief is the amount by which corporation tax payable is reduced as a result of these capital expenses. h) Liquid resources Liquid resources are the current investments disclosed in note 7, regarded as available for investment, rather than to meet the Company's running expenses, as at the year-end. 2. Income 2010 2009 Â£ Â£ '000 '000 Interest receivable - from bank deposits - 2 - from VAT recoverable - 98 ---- ---- - 100 Income from investments - from equities 595 332 - from loan stocks 194 30 - from money-market funds and Unicorn managed OEICs 85 118 ---- ---- 874 480 Other income 56 - ---- ---- Total income 930 580 ==== ==== Total income comprises Dividends 680 450 Interest 194 130 Other income 56 - ---- ---- 930 580 Income from investments comprises Listed UK securities 131 45 Listed Overseas securities 15 92 Unlisted UK securities 728 343 ---- ---- 874 480 ==== ==== Other income of Â£56,000 above is the contribution of Unicorn Asset Management Limited towards the Company's share of the costs of the consolidation of the Company's Share classes and the acquisition of the assets and liabilities of Unicorn AIM VCT II plc. Â£100,000 was payable in total split between the Company and Unicorn AIM VCT II plc by reference to the relative net asset values at the date of the merger (see note 8). Â£50,000 remains outstanding within other debtors in note 12 in the Annual Report, which is due to be paid on 8 March 2011. 3. Taxation There is no tax charge for the period, as the Company has incurred taxable losses in the period. 4. Dividends 2010 2009 2009 2009 2009 Ordinary Ordinary S2 S3 Fund Fund Fund Fund Total Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Amounts recognised as distributions to equity holders in the year: Ordinary Share Fund (formerly S3 Fund) Final revenue dividend for the year ended 30 September 2008 of 1p per S3 share paid on 27th & 29th January 2009 - - - 50 50 Ordinary Fund (up until 9 March 2010) Interim capital dividend for the year ended 30 September 2009 of 3.5p per Ordinary Share paid on 29th January 2010 1,058 - - - - Final capital dividend for the year ended 30 September 2008 of 3p per Ordinary share paid on 27th & 29th January 2009 - 929 - - 929 S2 Fund Interim capital dividend for the year ended 30 September 2009 of 2.5p per Ordinary Share paid on 29th January 2010 360 - - - - Final capital dividend for the year ended 30 September 2008 of 2p per S2 share paid on 27th & 29th January 2009 - - 295 - 295 ---- ---- ---- ---- ---- 1,418 929 295 50 1,274 ==== ==== ==== ==== ==== Any proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. Set out below are the total income dividends payable in respect of the financial year, which is the basis on which the requirements of Section 274 of the Income Tax Act 2007 are considered. 2010 2009 Â£'000 Â£'000 Company Revenue available for distribution by way of dividends for the year 98 (22) Proposed final dividend for the year ended 30 September 2010 (2009: Â£nil) nil - Ordinary Fund: Revenue available for distribution by way of dividends for the year N/A 13 Proposed final dividend for the year ended 30 September 2010 (2009: Â£nil) N/A - S2 Fund: Revenue available for distribution by way of dividends for the year N/A (40) Proposed final dividend for the year ended 30 September 2010 (2009: Â£nil) N/A - S3 Fund: Revenue available for distribution by way of dividends for the year N/A 5 Proposed final dividend for the year ended 30 September 2010 (2009: Â£nil) N/A - A final dividend of 4 pence per share (to be paid from capital) will be recommended at the Annual General Meeting to be held on 7 January 2011. Subject to shareholder approval, the dividend will be paid on 14 January 2011 to shareholders on the register on 24 December 2010. 5. Basic and diluted earnings and return per share 2010 2009 2009 2009 2009 Ordinary Shares Ordinary Fund S2 Fund S3 Fund Total Total (formerly S3 Fund) Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Total earnings after taxation: 8,254 (955) 122 524 (309) ---- ---- ---- ---- ---- Basic and diluted earnings per share (note a) 16.77p (3.11)p 0.83p 10.57p Net revenue/(loss) from ordinary activities after taxation 98 13 (40) 5 (22) ---- ---- ---- ---- ---- Revenue earnings per share (note b) 0.20p 0.04p (0.27)p 0.10p Net unrealised capital (losses)/ gains 7,184 (883) 166 551 (166) Net realised capital gains/(losses) 1,557 143 113 - 256 Capital expenses (585) (228) (117) (32) (377) Total capital return 8,156 (968) 162 519 (287) ---- ---- ---- ---- ---- Capital earnings per share (note c) 16.57p (3.15)p 1.10p 10.47p Weighted average number of shares in issue in the year* 49,209,889 30,725,568 14,744,906 4,958,036 Notes Basic and diluted earnings per share is total earnings after taxation divided by the weighted average number of shares in issue. Revenue earnings per share is net revenue after taxation divided by the weighted average number of shares in issue. Capital earnings per share is total capital return divided by the weighted average number of shares in issue. * - The weighted average number of shares in issue for the year to 30 September 2010 is calculated by using the total of weighted average numbers of shares for each of the Company's three share classes up to the date of the merger on 8 March 2010 multiplied by the conversion ratios in note 8 and then adding the weighted average number of Ordinary Shares for the merged entity for the remaining period to 30 September 2010. There are no instruments in place that will increase the number of shares in issue in future. Accordingly, the above figures currently represent both basic and diluted returns. 6. Net asset values 2010 2009 2009 2009 2009 Ordinary Ordinary Fund Fund S2 Fund S3 Fund Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net Assets 62,279 17,047 10,769 4,322 32,138 Number of shares in issue 59,795,232 30,297,471 14,430,227 4,958,036 ---- ---- ---- ---- Net asset value per share 104.15p 56.26p 74.63p 87.18p 7. Current investments These comprise investments in two Dublin based OEIC money market funds, managed by Royal Bank of Scotland and Blackrock Investment Management UK Limited and one UK based OEIC, managed by Prime Rate Capital Management. Â£375,000 (30 September 2009: Â£3,911,000) of this sum is subject to same day access while Â£ Nil (30 September 2009: Â£1,000) is subject to two day access. These sums are regarded as monies held pending investment. 8. Consolidation of Ordinary and S2 share classes and transfer of assets and liabilities of Unicorn AIM VCT II plc - "merger" On 9 March 2010, the shares of the Ordinary Fund and S2 Fund of the Company were consolidated with the S3 Fund Shares, by being converted into S3 Fund shares on a relative net asset value basis. 15,094,686 Ordinary and S2 Shares were left over from this conversion process, and re-designated as Deferred Shares. These Deferred Shares were bought back by the Company for an aggregate amount of 1p. The resultant 34,493,485 S3 shares in issue, being 4,958,036 already in issue plus 29,535,449 created by both conversions, were then re-designated as New Ordinary Shares. Following this consolidation and redesignation, the assets and liabilities of Unicorn AIM VCT II plc were transferred to the Company in exchange for the issue of a further 26,879,525 New Ordinary Shares in the Company, at a total value of Â£24,670,000. Subsequently and on the same day, Unicorn AIM VCT II plc was placed into members' voluntary liquidation pursuant to a scheme of reconstruction under section 110 of the Insolvency Act 1986. The net asset values (NAV) of each Fund used for the purposes of conversion at the calculation date of 8 March 2010, and the resultant conversion ratios into S3 Fund or Ordinary Shares were: Conversion ratio applied to old shares to obtain new number of Unicorn AIM VCT plc - S3 Fund/Ordinary Unicorn AIM VCT plc NAV per share Shares Ordinary Fund 55.79p 0.60781764 S2 Fund 71.13p 0.77503076 S3 Fund 91.78p 1.00000000 Unicorn AIM VCT II plc Ordinary Fund 76.02p 0.82830102 C Share Fund 66.70p 0.72677686 9. Related party transactions Under the terms of the previous agreement dated 1 October 2001, and the amended agreement dated 9 March 2010, the Company has appointed Unicorn Asset Management Limited to be the Investment Manager. The fee arrangements for these services and the fees payable are set out in note 3 of the Annual Report. Unicorn Asset Management also received a fee of Â£nil for acting as promoter to the company (2009: Â£nil). Until 9 March 2010, David Royds was a director and shareholder of Matrix Group Limited, which owns Matrix-Securities Limited and has significant interests in Prime Rate Capital Management LLP ("PRCM") and Matrix Corporate Capital LLP ("MCC"). David Royds is also a director of Matrix-Securities Limited ("MSL") which provides administration services to the Company for a fee of Â£182,000 (2009: Â£195,000) as disclosed in note 4 of the Annual Report for the year ended 30 September 2010. Â£42,000 (2009: Â£49,000) was due to MSL at the end of the year. On 9 March 2010, the annual fee for these services was amended to Â£144,500 per annum. The Company has invested Â£363,000 in a liquidity fund managed by PRCM, and earned income of Â£7,000 from this fund in the year to 30 September 2010 (2009: Â£16,000). MCC are the Company's brokers and Â£15,000 in fees has been charged for the year (2009: Â£8,000). Nine share buybacks (2009: seven) were undertaken by MCC on the Company's instruction totalling Â£1.27m (2009: Â£402,000). Â£nil (2009: Â£97,000) was owed to MCC at the year-end. 10. Post balance sheet events On 11 October 2010, Â£985,000 was invested in Instem Life Science Systems plc. On 12 October 2010, the sale of the entire holding in Amber Taverns Limited was completed realising net proceeds of Â£5.34m and this amount has been reflected in the value of the investment portfolio in these financial statements. This sum includes Â£84,000 of fees passed over by Unicorn Asset Management, who had received these fees under the terms of the Investment Agreement entered into at the time of the follow-on investment in Amber Taverns Limited. One of the Company's investments, Shieldtech, has appointed administrators after the year-end and delisted, causing the Company's investment in Shieldtech to become permanently impaired in these accounts. 11. Non-statutory accounts These are not full accounts in terms of section 434 of the Companies Act 2006. The Annual Report for the year to 30 September 2010 will be sent to shareholders shortly and will then be available for inspection at One Vine Street, London W1J 0AH, the registered office of the Company. Copies of the Annual Report will shortly be available on the Company Secretary's and the Investment Manager's websites, details of which can be found at www.unicornaimvct.com. Statutory accounts will be delivered to the Registrar of Companies after the Annual General Meeting. The audited accounts for the year ended 30 September 2010 contain an unqualified audit report. 12. Annual general meeting The Annual General Meeting of the Company will be held at 10.30 am on 7 January 2011 at One Vine Street, London W1J 0AH. Contact details for further enquiries: Chris Hutchinson of Unicorn Asset Management Limited (the Investment Manager), on 020 7253 0889. Ross Lacey of Matrix-Securities Limited (the Company Secretary) on 020 3206 7000 or by e-mail on unicorn@matrixgroup.co.uk. ENDS DISCLAIMER Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

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