Final Results

RNS Number : 7629P

Blue Star Capital plc

31 March 2009

 



BLUE STAR CAPITAL PLC

FINAL RESULTS

Chairman's Statement

I am pleased to report Blue Star Capital plc's results for the year ended 30 September 2008.

These results are the first that Blue Star Capital (the 'Company') has prepared under International Financial Reporting Standards ('IFRS') and include reconciliations to the previously reported numbers prepared under United Kingdom Generally Accepted Accounting Principles ('UK GAAP'). 

This has been a year of considerable activity and change both within the portfolio and our corporate strategy. In July we announced, following a strategic review and in the light of the changed regulatory environment, that Blue Star Capital would shift its investment objectives to investing in predominantly unquoted companies within the Homeland Securities Industry ('HSI') sector. As you are aware, Blue Star Capital was incorporated to invest in a diverse portfolio of companies across a variety of sectors, which exhibited similar characteristics of potential capital growth. The strategic review identified the HSI as a sector with the best opportunity for capital growth. We currently have one investment in this sector, The PegasusBridge Defence & Security Fund Limited, (the 'Fund'). To this end, the Board is now working extensively with Guernsey-based PegasusBridge Fund Management Limited ('PegasusBridge', the 'Fund Manager'), a specialist in the HSI market which manages the Fund.

An agreement was put in place for PegasusBridge to manage the assets of Blue Star Capital, and in connection with this, Dr Richard Leaver, the CEO of PegasusBridge, was appointed as a director on 17 July 2008 and became CEO of Blue Star Capital following the retirement of Haresh Kanabar on 23 September 2008. At the same time, I joined the Board as Non Executive Chairman together with Peter Varnish OBE, a noted international defence expert.

My predecessor, Nigel Robertson, retired as Chairman on 3 December 2008 and I would like to thank both Nigel and Haresh for their substantial contributions to Blue Star Capital.

This has been a challenging year driven by the turmoil in the world economy which has impacted many of our quoted investments; however, we believe that much of their value will recover.

Blue Star Capital reported a loss for the year of £1,542,974 (2007: £728,752). This loss is largely attributable to the quoted legacy investments. Administration costs remained constant at £486,939. Net assets were reduced by £1,542,974 to £3,838,159 (2007: £5,381,133).

Blue Star Capital is now positioned to enter a new phase of growth. The HSI sector encompasses major multi-billion dollar markets based on products and technologies derived from the defence industry and applied to homeland security. Areas in which such technologies are utilised include detection, identification, screening and location, materials, sensors, communications, electronics, and computing. It is a fast growing sector with significant business opportunities for focused investment companies such as Blue Star Capital.

Our intention is to gradually unwind the existing investments of Blue Star Capital and invest in the HSI sector, in particular, in those companies with clear capital growth capability. We will also put in place long term management incentives including options to further the creation of shareholder value. In pursuit of our redeployment strategy, there has been significant activity within our portfolio which I set out below. The percentage shareholdings are set out in note 12. 

1. THE PEGASUSBRIDGE DEFENCE & SECURITY FUND LIMITED

PegasusBridge (www.pegasusbridgefund.com) manages The PegasusBridge Defence & Security Fund Limited ('the Fund'), Europe's first HSI fund, in which Blue Star Capital has invested a total of £800,000 in this financial year. This investment represents a significant shareholding at the balance sheet date, giving 30.77% of the total voting rights. The Fund is able to invest in both unquoted and quoted investments. The Fund has a strong management team, board of directors and advisory board as well as a network of prominent industry advisers and specialists delivering an unparalleled level of experience in HSI, industrial, investment and fund management. Further information can be found on the PegasusBridge website. The Fund is effectively positioned to exploit significant opportunities in the HSI sector, not least because of the considerably increased spending in this area by key Government agencies in the USA, UK and other countries but also because it is the first and only current fund specifically to target the UK and mainland Europe. A key part of the Fund's strategy is to invest in those companies whose technology offerings are particularly attractive to the civilian sector and which therefore offer a wider and more mainstream set of exit opportunities. 

In summary, the Fund has been established to enable its investors to achieve significant capital growth by: 

• investing in a portfolio of unquoted and some quoted high growth-oriented companies;

• exploiting HSI technologies primarily in the UK, but also mainland Europe, Scandinavia, USA and elsewhere in the developed world;

• targeting companies and business propositions that have good prospects of achieving significantly enhanced valuations through acquisitions or initial public offerings;

• targeting technologies that have an HSI focus but with significant cross-sectoral civilian applications as well as attractive valuations, strong, focused management and products with proven potential and revenues; and

• drawing upon the diversified skills and experience of the board of directors of the Fund Manager.

The Fund has increased in value, after management fees and set-up costs. The total increase attributable to Blue Star Capital for the period to the end of September 2008 is £35,764.

The Fund continues to evaluate and progress a strong range of incoming deal flow. However it is clear that further fund raising in the current climate will be difficult and Blue Star Capital is currently reviewing opportunities.

The Fund has made four unquoted UK company investments since October 2007 which are summarised below:

Zimiti Limited (www.zimiti.com) is developing portable and robust wireless access control solutions for monitoring and control of security systems including electronic locks based upon its patented wireless technology platform. The company was rebranded as Zimiti from award-winning product company, Boardbug, which developed and brought to market a wristwatch child-monitoring device in 2004/5. The company is making strong advances in both its product development and sales to customers in access control and electronic locks. Dr Richard Leaver, CEO of both PegasusBridge and Blue Star Capital is also a Non Executive Director of Zimiti.

OmniPerception Limited (www.omniperception.com) has successfully commercialised world leading research from the University of Surrey's Centre for Vision, Speech and Signal Processing led by Professor Josef Kittler. It has developed unique face biometrics technology for computer vision including applications such as secure access, machine-readable travel documents, identification and personalisation. This software is unique in that it can be deployed not just in security applications including the Police services but also in civilian areas including social networking and broadcast, as well as variants which allow automatic logo brand recognition and quantification in video imagery for high value advertising tracking. 

The company has confirmed in January 2009, a non-dilutionary development funding of £1.5 million including contribution in kind by BAE Systems. 

The company is chaired by me, and Dr Richard Leaver is a Non Executive Director.

Pedagog Limited (www.pedagog.com) has developed cost effective SIM-enabled camera technology using mobile phone networks to create real-time video interaction via a middleware platform with simple setup. It offers both security solutions for commercial and private users at all levels including videoconference as well as the opportunity to establish a social network platform with live video. The company is growing rapidly and we anticipate continuing valuation uplift during 2009. Dr Richard Leaver is a Non Executive Director.

Radiation Watch Limited (www.radiation-watch.com) failed to achieve a £750,000-£1 million fund raising in the difficult economic climate of late 2008 and was liquidated in November 2008 with a maximum loss to the Fund of £250,000 plus rolled up interest. There is no residual value remaining due to the Fund. 

It had developed patented technologies to enable the efficient solid-state measurement of radiation detection, dose measurement and isotope identification both for its family of stand-alone portable devices and networked devices. PegasusBridge did not follow its initial investment although other investors subsequently invested further in the company in a bid to help it survive.

2. ZENERGY POWER PLC

Zenergy Power plc (AIM:ZEN), (www.zenergypower.com) is a global specialist manufacturer and developer of commercial applications for superconductive materials. Comprising three operating subsidiaries located in Germany (Trithor GmbH), USA (SC Power Systems Inc) and Australia (Australian Superconductors Pty Limited), Zenergy is developing a number of energy efficient applications to be adopted in renewable energy power generation, energy distribution and large scale, energy intensive industrial processes.

Zenergy owns and employs a portfolio of proprietary patents for high temperature semiconductor ('HTS') materials and is poised to commercialise a number of ground-breaking energy products into a variety of global markets. HTS materials are particularly good at energy saving efficiencies.

In October 2007, Blue Star Capital sold 40,000 Zenergy shares for £97,492 yielding a gain of £79,328 on the original cost of £18,065. 

Zenergy announced on 16 January 2009 that it had been awarded a core patent in Germany relating to its ground-breaking HTS induction heater. This patent covers a key operating process governing the exceptional heating control, performance and overall productivity of the HTS induction heater. Therefore Zenergy now has protection over a key design specification that enables the HTS induction heater to deliver significant increases in industrial output as evidenced by the recent performance data released by Zenergy's first industrial customer, Weseralu GmbH.

On 2 February 2009, Zenergy announced that the U.S Department of Energy ('DOE') is to provide additional funding to extend its existing research and development agreement with Sandia National Laboratories ('Sandia'). The additional funding will be used to further the research work being conducted on Zenergy's ground breaking mass production techniques for its 2nd generation low-cost superconducting wires ('2G'). 

Since 2003, Zenergy has been developing its own proprietary low-cost 2G production techniques in anticipation and support of its range of high efficiency renewable energy generators, and initially received funding from the DOE in 2006. Subsequently, Zenergy has successfully leveraged Sandia's world renowned research capabilities and demonstrated the potential cost advantages of its patented 'all-chemical' production techniques. Building on these initial successes, the total value of Zenergy's research project with Sandia will now be expanded from a base of approximately US$800,000 to approximately US$1,800,000 and will be in place until the end of 2010. 

Zenergy believes that it will have significant cost advantages over alternative methods being developed by other industry participants and that the wide availability of low-cost superconductive materials has significant implications for the production and distribution of renewable energy, as recognised by DOE's involvement. Furthermore, Zenergy considers that the continued successful development of these processes will place it at the forefront of delivering the cost competitive superconductive materials driving the commercialisation of superconductor technologies across the variety of power applications associated with the generation, distribution and use of electrical energy. In particular, Zenergy is focussing on applications that will significantly improve the financial return of renewable energy production and help prepare electricity grids for its contribution. 

3. ESEEKERS LIMITED

eSeekers is a private company which launched the www.sharenow.com portal. It previously had a software file-sharing application, developed in Oxford, called Izimi for file-sharing. The name Izimi was changed to ShareNow in mid-2007 and the service was relaunched in April 2008.

ShareNow enables a registered user to instantly share any files and of any size on their computer with anyone else on the web - without the need to have to upload them to anyone's servers, in essence, the user remains in control and ownership of their media. This is a key differential advantage in establishing ShareNow as a leading social networking site in a sector that is rapidly growing.

eSeekers has had a challenging year in seeking to raise finance. We are pleased to note however that on 3 February 2009, Nigel Robertson, Chairman of eSeekers signed a joint venture contract with a 'Christian group', whose name remains confidential. This group intends to build its own social networking site using sharenow.com domain to enable it to interact more with its members. The contract is for eSeekers to build the web presence, using the existing software. 

eSeekers is to be paid $3m in one payment on April 24th 2009 (once the site has been delivered) and will then have 50% interest in the joint venture, sharing revenues and profits accordingly. The money will provide the holding company with working capital and pay off existing loans including a £100,000 outstanding loan from Blue Star Capital. No shares are being issued for this $3m and therefore there is no dilution in Blue Star Capital's equity investment. Overheads have been reduced dramatically at eSeekers as has the head count. The development money is expected to take eSeekers through to break-even and the project is also expected to generate significant media interest.

eSeekers is now talking to other groups about constructing similar deals and raising further investment.

4. MEDCENTER HOLDINGS INC

Medcenter (www.medcentersolutions.com, www.medcenter.com) is a multinational pharmaceutical marketing company specialising in innovative solutions to increase drug sales and business effectiveness. Blue Star Capital owns a minority stake in this private company. 

Operating for over 10 years with offices in Europe and the Americas, Medcenter works with 50 of the most important international laboratories which together own 80 of the most sold pharmaceutical products in the global market. Medcenter has a team of highly qualified pharmaceutical marketing professionals with specific expertise in the areas of medical education, promotion, market research and marketing. These solutions are designed to strengthen the relationship between the pharmaceutical industry, physicians and patients in order to increase product prescription, market share and sales Medcenter is looking to both expand its nascent operations initially in Spain and then in Iberia more broadly; use the strong demand for access to both the Latin American and North American Hispanic markets as leverage with which to establish strategic partnerships or other relationships with leading online health sector companies and/or international advertising and marketing groups.

Medcenter announced a strategic collaboration with Web MD ('Web MD' NASDAQ: WBMD) to create and launch a new portal in conjunction with its subsidiary, Medscape. Although it operates only from within the United States and enjoys a 90% share of the online continuing medical education market in the US, Web MD is the leading provider of healthcare information services around the globe. Medcenter was identified by Web MD as the group with whom it wanted to collaborate for its first overseas expansion. Accordingly, Medcenter was appointed to act as Web MD's exclusive partner with respect to Latin America and Iberia.

5. GASOL PLC

Gasol plc (AIM:GAS) (www.gasol.co.uk), has a mission to become the premier independent integrated liquefied natural gas (LNG) company in West and Central Africa. Its strategy is to identify and secure appropriate acquisition, investment and strategic alliance opportunities for the successful delivery of its corporate objectives. Haresh Kanabar is a Non Executive Director of Gasol.

Gasol, through its investment in African LNG ('AFLNG'), is seeking to access substantial gas reserves and flared gas to underpin development of multiple LNG trains in the region. It is increasingly accepted that West Africa will become a major supply point for LNG for countries throughout the Atlantic Basin including the key markets of Europe and North America. 

On 23 September 2008, Gasol announced a Memorandum of Understanding between itself, EDF (France) and Afren PLC ('Afren') to establish a gas aggregation joint venture to identify and develop onshore and offshore stranded gas assets. 

On 28 November 2008, Gasol announced its interim results, in particular that it continues to progress strategic plans to build a substantial business across the gas value chain, by focusing on aggregating stranded gas in West Africa. Gasol is continuing to explore various gas monetisation solutions with a primary focus on developing Liquefied Natural Gas (LNG) projects for supply into high-value markets worldwide, while aligning with domestic priorities of host nations and communities.

On 22 December 2008, Gasol announced the appointment of Jean Vermeire as a member of its International Advisory Board. Jean is currently the Non-Executive Chairman of Distrigas NV ('Distrigas'), the €4.5 billon Belgian-based natural gas company, and one of the largest in Europe. 

Gasol raised £1m in February 2009 for additional working capital at a 10% discounted placing to the 0.55p mid closing price on 10 February 2009.

6. INDIAN RESTAURANTS GROUP PLC

Indian Restaurants Group, (AIM:IRGP) (www.indianrestaurantsgroup.com), formerly India Outsourcing Services plc, has been set up to create a chain of restaurants providing authentic, home style Indian food on a consistent basis across the Indian Restaurants Group Plc. The Group is initially targeting the mid market, sporting and event catering and lunchtime takeaway.

During 2008, IRGP acquired Mela Group and subsequently its focus has been to review the strategic positioning of both Mela Restaurant and Chowki Restaurant. The goal of this review is to better understand how to establish a leadership position in a very large but highly fragmented sector. IRGP is also developing a range of promotional campaigns that drive additional revenue into the existing units.

A short-list of potential sites for IRGP's expansion has been finalised focussing on the London/M25 area. As the economic climate has rapidly deteriorated since the acquisition, further rigour is being applied to the financial aspects to potential site expansion. 

The Non Executive Chairman is Haresh Kanabar and the CEO, Amit Pau (both working out of Blue Star Capital's offices in 22 Soho Square). Nigel Robertson, ex-Chairman of Blue Star Capital, is a Non Executive Director. 

7. VENTECO PLC

Venteco plc (AIM:VTO), (www.venteco.co.uk), is a UK-incorporated investment company focussing on the strategic acquisition of non-toxic pest control activities and operations. Its principal operations are presently in Switzerland and Sweden. 

Venteco's Cryonite patented technology is said to provide a new and unique solution for control of crawling pests and infestation. The technology uses a nozzled carbon dioxide 'snow' to freeze insects to death. The global market opportunity for Cryonite, ranges from professional applications within 'clean' commercial and industrial environs such as hospitals, food producers, pharmaceutical companies, hotels and restaurants, through to more general kitchen locations and the retail market. 

Venteco announced on 10 October 2008 that Stefan Hansson had resigned as Chief Executive Officer and will left the Board with immediate effect. Haresh Kanabar, Chairman, then assumed the responsibilities of Chief Executive Officer in the interim period while the business searches for a replacement alongside his current role as Chairman.

8. BLACK RAVEN PROPERTIES PLC

Black Raven Properties plc (AIM: BRP), (www.blackravenproperties.com), joined AIM in February 2005 with the strategy of identifying investment opportunities in the property sector. Since flotation, Black Raven has pursued its strategy of seeking and making some acquisitions in the commercial, residential and leisure sectors largely in Portugal. 

Black Raven announced on 19 November 2008 that it was in administration and that shares of Black Raven had been suspended from trading on AIM. The directors of Black Raven wrote to shareholders outlining their concerns that the company affairs had not been run appropriately and a number of board resignations have taken place. On 26 November 2008, Black Raven announced that its Nomad, Arden Partners, had been reappointed with immediate effect. The Black Raven investment accounts for a £487,795 loss to Blue Star Capital during the period with a further loss of £51,205 expected in this coming year.

Financials 

Blue Star Capital has maintained a prudent approach to both its cost base and ongoing investment operations. Blue Star Capital's cash position at the end of the year was £276,642 compared with £1.13 million at the start of the year, primarily due to the £800,000 investment made in The PegasusBridge Defence & Security Fund Limited during the year. Blue Star Capital had net assets of £3.84 million at the year end. Under the new IFRS reporting, Blue Star Capital now shows a loss for the year of £1.543m compared to a loss of £728,752 the previous year with the difference being primarily due to the fall in the value of quoted shares held by Blue Star Capital.

Outlook

Blue Star Capital's investments in Zenergy and Medcenter are expected to perform well during 2009. Since the year end, Gasol has performed less well but with the additional fund raising we expect a recovery in its fortunes during 2009. We do not anticipate significant residual value from either Black Raven Properties or Venteco, both of which have fallen in value since the year end.

The performance of the three investments in the PegasusBridge Fund, namely OmniPerception (of which I am Chairman), Pedagog and Zimiti all exhibit major future potential and each is well positioned to deliver significant returns to the Blue Star Capital portfolio as we further implement our Homeland Security investment strategy.

As existing investments are divested, we are committed to Blue Star Capital's forward strategy to invest in highly potential profitable, diversified and robust late-stage businesses in the Homeland Security sector to deliver growth and value to shareholders.

The Lord Dear

Chairman 

30 March 2009

For further information:

Blue Star Capital plc	Tel: [phone]
Dr Richard Leaver, Chief Executive Officer
Dowgate Capital Advisers Limited	Tel: [phone]
James Caithie
Alexander David Securities Limited	Tel: [phone]
David Scott / Bill Sharp
Square1 Consulting Limited	Tel: [phone]
Mark Longson

A copy of the annual report and accounts for the year ended 30 September 2008 was sent to shareholders on 31 March 2009. The annual report and accounts have also been published on the Company's website, www.bluestarcapital.co.uk. 

INCOME STATEMENT

	Notes		Year ended 30 September 2008 £	Year ended 30 September 2007 £
Fair value losses arising from investments held for trading	12		(1,488,451)	(488,744)
Other income	5		15,000	-
Administrative expenses			(486,939)	(463,894)
Operating loss			(1,960,390)	(952,638)
Share of profit from associate	11		35,764	-
Finance income	4		75,453	57,109
Loss before taxation			(1,849,173)	(895,529)
Taxation	8		306,199	166,777
Loss for the year			(1,542,974)	(728,752)

Loss per ordinary share:
Basic and diluted loss per share		9				(1.46p)	(0.69p)

The loss for the year was derived from continuing operations and is attributable to equity shareholdings.

BALANCE SHEET

	Notes	30 September 2008 £	30 September 2007 £
Non-current assets
Investment in associate	11	835,764	-
Current assets
Investments held for trading	12	2,722,255	4,248,123
Trade and other receivables	13	198,971	423,009
Cash and cash equivalents	14	276,642	1,135,479
Total current assets		3,197,868	5,806,611
Total assets		4,033,632	5,806,611
Non-current liabilities
Deferred tax	8	-	306,199
Current liabilities
Trade and other payables	15	195,473	119,279
Total liabilities		195,473	425,478
Net assets		3,838,159	5,381,133
Equity
Share capital	16	105,500	105,500
Share premium account		5,032,525	5,032,525
(Accumulated losses)/retained earnings		(1,299,866)	243,108
Total equity		3,838,159	5,381,133

STATEMENT OF CHANGES IN EQUITY

	Share capital	Share premium	Retained earnings	Total
	£	£	£	£
Year ended 30 September 2007
At 1 October 2006	105,500	5,032,525	971,860	6,109,885
Loss for the year and total recognised income and expense	-	-	(728,752)	(728,752)
At 30 September 2007	105,500	5,032,525	243,108	5,381,133
Year ended 30 September 2008
At 1 October 2007	105,500	5,032,525	243,108	5,400,909
Loss for the year and total recognised income and expense	-	-	(1,542,974)	(1,542,974)
At 30 September 2008	105,500	5,032,525	(1,299,866)	3,857,935

Share Capital    

Share capital represents the nominal value on the issue of Blue Star Capital's equity share capital, comprising £1 ordinary shares.

Share Premium

Share premium represents the amount subscribed for Blue Star Capital's equity share capital in excess of nominal value.

Retained Earnings

Retained earnings represent the cumulative net income and losses of Blue Star Capital recognised through the income statement.

CASH FLOW STATEMENT

	Notes				Year ended 30 September 2008 £		Year ended 30 September  2007 £
Cash flow from operating activities
(Loss) before taxation				(1,849,173)			(895,529)
Adjustments for:
Share of profit from associate				(35,765)			-
Finance income				(75,453)			(57,109)
Fair value losses				1,488,451			488,744
Depreciation				-			7,605
Operating cash flows before movements in working capital				(471,940)			(456,289)
Decrease/(increase) in receivables				224,038			(369,861)
Increase/(decrease) in payables				76,193			(8,856)
Net cash (used in) operating activities				(171,709)			(835,006)
Investing activities
Interest received				75,453				57,109
Payments to acquire investments				(860,073)				(209,115)
Proceeds from sale of investments				97,492				1,000,325
Cash flows (used in)/from investing activities				(687,128)				848,319
Net increase in cash and cash equivalents				(858,837)				13,313
Cash and cash equivalents at beginning of the year	14			1,135,479				1,122,166
Cash and cash equivalents at end of the year	14			276,642				1,135,479

NOTES TO THE FINANCIAL STATEMENTS

• Accounting policies

Basis of preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ('adopted IFRSs').

This is the first time the Company has prepared its financial statements in accordance with IFRSs, having previously prepared its financial statements in accordance with UK GAAP accounting standards. Details of how the transition from UK accounting standards to EU adopted IFRS has affected the Company's reported financial position, financial performance and cash flows are given in note 21.

Associates

Where Blue Star Capital has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the balance sheet at cost and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Company's share of post-acquisition profits and losses is recognised in the income statement, except that losses in excess of the Company's investment in the associate are not recognised unless there is an obligation to make good those losses.

Profits and losses arising on transactions between Blue Star Capital and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate.

Any premium paid for an associate above the fair value of the Company's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. The carrying amount of investment in associate is subject to impairment as described below.

Derivatives

Embedded derivatives are separated from the host contract and recognised at fair value using generally accepted valuation techniques. If there is an active market for the derivatives, they are recognised at the quoted market price.  

Where a contract contains one or more embedded derivatives, Blue Star Capital may choose to designate the entire hybrid contract as a financial asset at fair value through profit or loss.

Financial assets

Blue Star Capital classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. Blue Star Capital has not classified any of its financial assets as held to maturity or available for sale.

Blue Star Capital's accounting policy for each category is as follows;

Fair value through profit or loss 

Financial assets are initially recognised in the balance sheet at fair value with changes in fair value recognised through the income statement as fair value gains/(losses) on investments held for trading. This includes Blue Star Capital's investments that are classified as held for trading within current assets on the balance sheet. 

The fair value of unlisted securities is established using British Venture Capital Association ('BVCA') guidelines. The valuation methodology used most commonly by the Company is the 'price of recent investment' contained in the BVCA valuation guidelines. The following considerations are used when calculating the fair value using the 'price of recent investment' guidelines:

• Where the investment being valued was itself made recently, its cost will generally provide a good indication of fair value.

• Where there has been any recent investment by third parties, the price of that investment will provide a basis of the valuation.

• If there is no readily ascertainable value from following the 'price of recent investment' methodology, the Company considers alternative methodologies in the BVCA guidelines, being principally discounted cash flows and price earnings multiples requiring management to make assumptions over the timing and nature of future earnings and cash flows when calculating fair value.

• Where a fair value cannot be readily estimated the investment is reported at the carrying value at the previous reporting date unless there is evidence that the investment has been impaired.

Loans and receivables

Blue Star Capital's loans and receivables comprise cash and cash investment in the balance sheet and loans receivable from third parties.

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less.

For the purpose of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. 

Loans receivable from third parties, excluding convertible loan notes from third parties, are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.  

Financial liabilities

Blue Star Capital classifies its financial liabilities in the category of financial liabilities measured at amortised cost. The Company does not have any financial liabilities at fair value through profit or loss.

Financial liabilities measured at amortised cost:

Financial liabilities measured at amortised cost include:

Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

Finance income

Finance income relates to interest income arising on cash and cash equivalents held on deposit and interest accrued on loans receivable. Finance income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.  

Leased assets

Where substantially all of the risks and rewards incidental to ownership are not transferred to the group (an 'operating lease'), the total rentals payable under the lease are charged to the income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis. 

Pension costs

Company contributions to defined contribution pension schemes are charged to the income statement in the period in which they become payable.

Operating loss

Operating loss is stated after crediting all items of operating income and charging all items of operating expense, but before recognising the Company's share of the results of associated undertakings.

Foreign currency

The functional and presentational currency of the Company is Sterling, which is the currency of the primary economic environment in which the entity operates.

Foreign currency transactions are translated into sterling at the rate of exchange at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of foreign currency monetary assets and liabilities at the year end rate are recognised in the income statement.

Foreign currency gains or losses arising on financial assets at fair value through profit or loss are included in the income statement in fair value gains or losses.

Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

2. Critical accounting estimates and judgements

Blue Star Capital makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

    Fair Value of financial instruments:

Blue Star Capital holds a number of investments classified as held for trading. Blue Star Capital determines the fair value of these financial instruments that are not quoted, using valuation techniques. Those techniques are significantly affected by certain key assumptions, such as discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot always be substantiated by comparison with independent markets and, in many cases, may not be capable of being realised immediately. 

The methods and assumptions applied, and the valuation techniques used, are disclosed in note 12.

3.  Operating Loss

		Year ended 30 September 2008 £	Year ended 30 September  2007 £
This is stated after charging:
Operating lease rentals - land & buildings		39,500	39,500
Depreciation		-	7,605
Auditors remuneration - audit		33,142	15,850
- non-audit services		19,840	-

4.  Finance Income

		Year ended 30 September 2008 £	Year ended 30 September  2007 £
Interest received on short term deposits classified as loans and receivables		75,453	57,109

5.  Other Operating Income

During the year Blue Star Capital received rental income of £15,000 (2007 - £Nil) for part let of its office. Income is recognised on a straight line basis over the period of the rental agreement.

6.  Staff Costs including directors

		Year ended 30 September 2008 £	Year ended 30 September  2007 £
Wages & Salaries		92,267	270,000
Social security costs		5,163	12,144
Other pension costs		27,500	30,000
Compensation for loss of office		100,000	-
		224,930	312,144

During the year the Company had an average of 2 employees who were both administrative (2007 - 2). These 2 employees were both the directors and the key management personnel of the Company. 

7.  Directors and key management personnel

		Year ended 30 September 2008 £	Year ended 30 September  2007 £
Directors' emoluments		92,267	270,000
Compensation for loss of office		100,000	-
Pension costs		27,500	30,000
		219,767	300,000

There were two directors in Blue Star Capital's defined contribution pension scheme during the year (2007 - 2).

8.  Taxation

		2008 £	2007 £
Tax credit - deferred tax		(306,199)	(166,777)

Factors affecting the tax charge

The tax assessed on loss before tax for the year differs to the applicable rate of corporation tax in the UK for small companies of 20.5% (2007: 19.5%). The differences are explained below:

					2008 £	2007 £
Loss before tax					(1,849,173)	(895,529)
Loss before tax multiplied by standard rate of corporation tax of 20.5% (2007 - 19.5%)					(379,080)	(174,628)
Effect of:
Expenses not deductible for tax purposes					-	202
Other differences					(309)	993
Unrecognised deferred tax in relation to losses					73,190	-
Use of brought forward losses unrecognised in deferred tax					-	(27,662)
Change in rate for deferred tax					-	34,318
Tax (credit) for the year					(306,199)	(166,777)

Deferred tax liability recognised in the balance sheet as at 30 September 2008 was £Nil (2007: £306,199) 

Blue Star Capital has incurred tax losses for the period and a corporation tax expense is not anticipated. The amount of the unutilised tax losses has not been recognised in the financial statements as the recovery of this benefit is dependent on future profitability, the timing of which cannot be reasonably foreseen. The unrecognised deferred tax asset at 30 September 2008 is £574,845 (2007: £186,202).

9.  Loss per ordinary share

The calculation of basic loss per share of 1.46p (2007: loss per share of 0.69p) is based on the loss for the year after tax of £1,542,974 (2007: loss of £728,752) and on the weighted average number of shares in issue during the period of 105,500,000 (2007: 105,500,000).

10.  Property, Plant & Equipment

			Office equipment £
Cost
At 1 October 2006 and 2007			20,093
Depreciation
At 1 October 2006			12,488
Charge for the year ended 30 September 2007			7,605
At 30 September 2007 and 2008			20,093
Net Book Value
At 30 September 2007 and 2008			-
At 30 September 2006			7,605

11.  Investment in associate

Blue Star Capital acquired a 30.77% interest in The PegasusBridge Defence & Security Fund Limited on 14 July 2008, a private company, incorporated in Guernsey. The fund invests in both unquoted and quoted shares in defence and security related companies, with a strong focus on homeland security. 

The carrying value of the associate in the balance sheet of Blue Star Capital comprises £800,000, being the cost of investment, together with Blue Star Capital's share of the associate's post acquisition profit of £35,764. This gives an aggregate carrying value at the balance sheet date of £835,764.

The following tables illustrate summarised financial information for the associate at 30 September 2008. The summarised table showing financial performance of the associate relates to the period from the date of incorporation (6 September 2007) to 30 September 2008.  

Associate's balance sheet							30 September  2008 £
Total assets							2,258,144
Total liabilities							47,324
Net assets							2,210,820

Associate's result				Period ended 30 September  2008 £
Profit for the period				60,820

12.  Investments - held for trading

		2008 £	2007 £
At 1 October		4,248,123	5,528,079
Additions		60,074	209,115
Disposals		(97,491)	(1,000,327)
Fair value (loss) for the year		(1,488,451)	(488,744)
At 30 September		2,722,255	4,248,123

These trade investments are classified as financial assets at fair value through profit and loss.

Investments	Class of Shares / Investment	Holding as % of Issued Share Capital		Book Value £	Fair Value £
Quoted on the Alternative Investment Market of the London Stock Exchange:
Black Raven Properties plc	Ordinary 1p	10.6%		51,205	51,205
Gasol plc	Ordinary 0.5p	13.9%		975,000	975,000
Indian Restaurants Group plc	Ordinary 1p	16.0%		94,792	94,792
Venteco plc	Ordinary 1p	3.06%		21,250	21,250
Zenergy Power plc	Ordinary 1p	1.34%		731,864	731,864
Unquoted:
Medcenter Holdings Inc	Preferred US$0.01			383,515	383,515
Medcenter Holdings Inc	Convertible loan notes			164,629	164,629
eSeekers Ltd (ShareNow)	Ordinary 1p			300,000	300,000

    All of the above investments are incorporated in the United Kingdom barring Medcenter Holdings Inc, which is a company incorporated in the Cayman Islands.

Fair Value:

Investments held for trading consist of investment in ordinary shares, preferred shares and convertible loan notes, which have been valued as financial assets at fair value through profit or loss.

Quoted investments: 

a.   The Fair value of quoted investments is determined by reference to the mid market bid prices at the balance sheet date. 

Unquoted investments

b.    The fair values of unquoted investments are initially measured at cost, reflecting the 'price of recent investment' methodology set out in the BVCA guidelines. Where there is no recent investment against which to subsequently value unquoted investments, fair values are determined using the Black-Scholes pricing model. Where a fair value cannot be estimated reliably the investment is reported at the carrying value at the previous reporting date.

The Company assesses at each balance sheet date whether there is any objective evidence that the unquoted investments are impaired. The unquoted investments are deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event (or events) has an impact on the estimated future fair value of the investments that can be reliably estimated.

Using the fair value method the following change in fair value was recognised in the income statement during the period.     

Blue Star Capital holds convertible loan notes and have chosen to designate the entire contract as a single financial asset at fair value through profit or loss.

13.  Trade and other receivables

		2008 £	2007 £
Trade receivables		-	310,215
Prepayments		62,160	48,231
Loan receivable		120,761	49,900
Social security and other taxes		16,050	13,075
Other receivables		-	1,588
		198,971	423,009

All trade and other receivables are due within one year. The directors consider that the carrying value of trade and other receivables approximates to their fair value.

14.  Cash and cash equivalents

		2008   £	2007 £
Cash at bank and in hand		46,710	200,432
Treasury reserve deposit		229,932	935,047
		276,642	1,135,479

Cash and cash equivalents comprise cash at bank and other short-term highly liquid investments with an original maturity of three months or less. The directors consider that the carrying value of cash and cash equivalents approximates to their fair value.

15.  Trade and other payables

		2008 £	2007 £
Trade payables		86,497	29,530
Accruals		108,208	86,580
Social security and other taxes		768	3,170
		195,473	119,280

All trade and other payables fall due for payment within one year. The directors consider that the carrying value of trade and other payables approximates to their fair value.

16.  Share capital 

		2008 £	2007 £
Authorised
500,000,000 Ordinary shares of £0.001p each		500,000	500,000

Issued and fully paid
Authorised
105,500,000 Ordinary shares of £0.001p each		105,500	105,500

17.  Post balance sheet events

Blue Star Capital invests in a number of AIM listed companies and the share prices of these companies can be volatile and move up or down on small volumes traded. The market value at 25 March 2009 of some of its investments are less than the carrying value at September 2008.

Investments	Class of Shares	Fair Value at 30 September 2008 £	Fair Value at 25 March 2009 £
Quoted on the Alternative Investment Market of the  London Stock Exchange:
Gasol plc	Ordinary 0.5p	975,000	342,333
Indian Restaurants Group plc	Ordinary 1p	94,792	77,805
Venteco plc	Ordinary 1p	21,250	9,917
Zenergy Power plc	Ordinary 1p	731,864	521,328
Black Raven Properties plc	Ordinary 1p	51,205	-

Black Raven Properties plc an AIM listed company, in which Blue Star Capital held 13,475,000 ordinary shares (equivalent to 8% of Black Raven Properties plc's issued ordinary share capital), announced the appointment of Administrators on 19 November 2008. As a consequence the fair value of this investment has been written down to zero.

Other investments, such as Gasol plc and Zenergy plc have seen significant falls in their share price since the balance sheet date resulting in a material decline in the value of Blue Star Capital's holding.

18.  Financial instruments

Categories of financial assets and liabilities

The following tables set out the categories of financial instruments held by the Company:

Financial assets	Notes	Loans and receivables
		2008 £	2007 £
Trade receivables	12	-	310,215
Loan receivable	12	120,761	49,900
Cash and cash equivalents	13	276,642	1,135,479
		397,403	1,495,594

Financial assets	Notes	Fair value through profit or loss
		2008 £	2007 £
Investments held for trading	11	2,722,255	4,248,123

Financial liabilities	Notes	Financial liabilities measured at amortised cost
		2008 £	2007 £
Trade payables	14	86,497	29,530
Accruals	14	108,208	86,580
		194,705	116,110

Blue Star Capital's financial instruments comprise investments held for trading, cash and cash equivalents and trade payables that arise directly from the Company's operations. The main purpose of these instruments is to raise finance for operations. Included within investments held for trading are convertible loan notes that have been held at fair value through profit and loss. The main risks arising from holding these financial instruments is market risk and credit risk. Market risk is also examined in post balance sheet events (note 17). 

Interest rate risk

Blue Star Capital's exposure to changes in interest rates relate primarily to cash and cash equivalents. Cash and cash equivalents is held either on current or on short term deposits at floating rates of interest determined by the relevant bank's prevailing base rate. Blue Star Capital seeks to obtain a favourable interest rate on its cash balances through the use of bank treasury deposits. Any reasonable change in interest rate would not have a material impact on finance income that Blue Star Capital could receive in the course of a year, based on the current level of cash and cash equivalents either held in current accounts or short term deposits.

Market risk

All trading instruments are subject to market risk, the potential that future changes in market conditions may make an instrument less valuable, due to fluctuations in security prices, as well as interest and foreign exchange rates. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. 

Sensitivity analysis

The following table looks at the impact on net result and net assets based on a given movement in the fair value of investments held for trading; 

10%    movement either way will result in £272,226 profit or (loss)

20%    movement either way will result in £544,451 profit or (loss)

30%    movement either way will result in £816,677 profit or (loss)  

Currency risk

Blue Star Capital's foreign currency risk is limited to two convertible loan notes and two equity investments denominated in US Dollars. The total value of these investments in US Dollars at the balance sheet date was $788,094 (2007: $670,094). A 10% increase or decrease in the $/£ exchange rate would have a £49,127 (2007: £41,770) impact on net result for the year and net assets, based on the rate prevailing at 30 September 2008.

Liquidity risks

Blue Star Capital seeks to manage liquidity risk by ensuring sufficient liquid assets are available to meet foreseeable needs and to invest liquid funds safely and profitably. All cash balances are immediately accessible and Blue Star Capital holds no trades payable that mature in greater than 3 months, hence a contractual maturity analysis of financial liabilities has not been presented. Since these financial liabilities all mature within 3 months, the directors believe that their carrying value reasonably equates to fair value.

Borrowing facilities

The operations to date have been financed through the placing of shares and it is Board policy to keep borrowing to a minimum.

Credit risk

Blue Star Capital's credit risk is attributable to cash held on deposit at financial institutions, a loan receivable and convertible loan notes. 

Cash is deposited with reputable financial institutions with a high credit rating. The maximum credit risk relating to cash and cash equivalents is equal to their carrying value of £276,642 (2007: £1,135,479). 

The maximum credit risk relating to a loan receivable is equal to its carrying value of £120,761 (2007: £49,900).

The maximum credit risk relating to convertible loan notes is equal to 125% of the face value of the loan, being the amount that would be received on redemption of $295,869 (2007: $148,369).

Trade receivables arise as a result of share trading and are usually settled within 3 days. Due to trade receivables being settled so quickly and because there are no trade receivables held at year end the Company's maximum exposure to credit risk on trade receivables is £Nil (2007: £310,215).  

Capital Disclosure

As in previous years, Blue Star Capital defines capital as issued capital, reserves and retained earnings as disclosed in note 15. Blue Star Capital does not have any borrowings and manages its capital to ensure that Blue Star Capital will be able to continue to pursue strategic investments and continue as a going concern.  Blue Star Capital does not have any externally imposed financial requirements.

19.  Related party transactions

Blue Star Capital plc's former chairman Nigel Robertson (resigned 03.12.2008) is a director and a shareholder of eSeekers Limited. An equity investment of £300,000 is made in eSeekers Limited which owns ShareNow.com, a social networking domain.  Blue Star Capital made a loan of £100,000 (2007: £49,600) to eSeekers Limited. This loan carries an annual interest rate of 7.5% and is repayable by 24 December 2008. The loan is expected to be repaid on 24 April 2009.

During the year Blue Star Capital and its quoted investments held for trading had the following directors in common.

Indian Restaurants Group plc    Nigel Robertson and Haresh Kanabar

Gasol plc      Haresh Kanabar

Venteco plc      Haresh Kanabar

Both directors have now resigned from Blue Star Capital plc.

During the year Blue Star Capital was involved in transactions with Indian Restaurants Group plc, a company with common directors. Blue Star shares office space with Indian Restaurants Group plc, to whom it charged a share of office rent & communication expenses totalling £15,000 (2007: £Nil) 

There were no outstanding amounts due from Indian Restaurants Group plc at 30 September 2008 (2007: £31,362).

Dr Richard Leaver, director of Blue Star Capital plc is partner in PegasusBridge Fund Management LLP, a director of PegasusBridge Fund Management Limited and became a director of Zimiti Limited, OmniPerception Limited and Pedagog Limited on completion of these investments in order to represent the interests of the investors. 

Lord Dear, chairman of Blue Star Capital plc is also a director of OmniPerception Limited.

During the year Blue Star Capital has also made an investment of £800,000 in The PegasusBridge Defence & Security Fund Limited. 

The PegasusBridge Fund Management Limited charged Blue Star Capital a sum of £18,576 for asset management, which forms part of administrative expenses. Trade creditors include an amount due to PegasusBridge Fund Management Limited of £23,350 at 30 September 2008.

The PegasusBridge Defence & Security Fund Limited made the following investments during the year as advised by its Investment Adviser, PegasusBridge Fund Management LLP, of which Dr Richard Leaver is a partner:

1.     £380,000 tranched investment in Zimiti Limited as a convertible loan for which PegasusBridge Fund Management LLP received a 2% one off arrangement fee (£7,600) and will receive a £1,500 monthly monitoring fee from Zimiti Limited. 
   

2.     £500,000 investment in OmniPerception Limited as a convertible loan for which PegasusBridge Fund Management LLP received a 2% one off arrangement fee (£10,000) and will receive a £1,000 monthly monitoring fee from OmniPerception Limited. 
   

3.     £333,608 tranched investment in Pedagog Limited as a convertible loan for which PegasusBridge Fund Management LLP received a 2.5% one off arrangement fee (£8,965) and will receive a £1,500 monthly monitoring fee from Pedagog Limited. 

The above investments are secured against debentures and were warranted by investee management at the point of investment only. 

20.  Operating lease commitments

At the balance sheet date the Company has outstanding commitments under operating leases of which the total future minimum lease payments were due as follows:

		Land and buildings
		2008 £	2007 £
Due within one year		39,500	39,500
Due after one year and within five years		-	39,500
		39,500	79,000

Blue Star Capital has entered into a lease agreement with Westbury Properties Limited, now part of Stobart Group Limited, which is due to expire at the end of September 2009 at an annual rent of £39,500 for the rental of office premises. 

21.  Explanation of transition to IFRS

This is the first year that Blue Star Capital has presented its financial statements under IFRS. The following disclosures are required in the year of transition. The last audited financial statements under UK GAAP were for the year ended 30 September 2007 and the date of transition to IFRSs was therefore 1 October 2006.

a.    Reconciliation of balance sheet at 1 October 2006 from UK GAAP to IFRS
	Notes	UK GAAP £	Effect of transition to IFRS £	IFRS £
Assets
Non-current assets
Tangible assets		7,605	-	7,605
Investments	(i)	3,038,731	(3,038,731)	-
		3,046,336	(3,038,731)	7,605
Current assets
Investments held for trading	(i)	-	5,528,079	5,528,079
Trade and other receivables		53,148	-	53,148
Cash and cash equivalents		1,122,166	-	1,122,166
Total current assets		1,175,314	5,528,079	6,703,393
Total assets		4,221,650	2,489,348	6,710,998
Non-current liabilities
Deferred Tax	(ii)	-	472,976	472,976
Current liabilities
Trade and other payables		128,137	-	128,137
Total liabilities		128,137	472,976	601,113
Net assets		4,093,513	2,016,372	6,109,885
Equity
Share capital		105,500	-	105,500
Share premium account		5,032,525	-	5,032,525
(Accumulated losses)/retained earnings		(1,044,512)	2,016,372	971,860
Total equity		4,093,513	2,016,372	6,109,885

b. Reconciliation of balance sheet at 30 September 2007 from UK GAAP to IFRS
	Notes	UK GAAP £	Effect of transition to IFRS £	IFRS £
Assets
Non-current assets
Investments	(i)	2,790,036	(2,790,036)	-
		2,790,036	(2,790,036)	-
Current assets
Investments held for trading	(i)	-	4,248,123	4,248,123
Trade and other receivables		423,009	-	423,009
Cash and cash equivalents		1,135,479	-	1,135,479
Total current assets		1,558,488	4,248,123	5,806,611
Total assets		4,348,524	1,458,087	5,806,611
Non-current liabilities
Deferred Tax	(ii)	-	306,199	306,199
Current liabilities
Trade and other payables		119,279	-	119,279
Total liabilities		119,279	306,199	425,478
Net assets		4,229,245	1,151,888	5,381,133
Equity
Share capital		105,500	-	105,500
Share premium account		5,032,525	-	5,032,525
(Accumulated losses)/retained earnings		(908,780)	1,151,888	243,108
Total equity		4,229,245	1,151,888	5,381,133

c. Reconciliation of the UK GAAP statement of profit and loss to the IFRS income statement for the year ended 30 September 2007
	Notes	UK GAAP £	Effect of transition to IFRS £	IFRS £
Fair value losses arising from investments held for trading		542,515	(1,031,259)	(488,744)
Administrative expenses		(463,894)	-	(463,894)
Operating profit/(loss)		78,621	(1,031,259)	(952,638)
Finance income		57,109	-	57,109
Profit/(loss) before taxation		135,730	(1,031,259)	(895,529)
Taxation	(ii)	-	166,777	166,777
Profit/(loss) for the year		135,730	(864,482)	(728,752)

d. Notes to reconciliations explaining the transition to IFRS 

• Equity investments were previously recognised under UK GAAP at cost on acquisition, less any provision for impairment. Under IFRS, these investments are classified as held for trading and are recognised initially at cost and subsequently at fair value. Any gains or losses arising due to movements in the fair values of these investments are recorded directly in Income Statement

• Deferred taxation arises on the adjustment to investments held for trading, previously stated at cost under UK GAAP but revalued to fair value under IFRS. Any fair value gains give rise to a deferred tax liability, whilst any fair value losses give rise to a deferred tax asset.

• There have been no material changes in the cash flow statement as a result the transition to IFRS.

 

END

 

 

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