Interim Results

Frenkel Topping Group PLC 13 August 2007 FOR IMMEDIATE RELEASE 13 August 2007 Frenkel Topping Group plc ('Frenkel Topping' or 'The Group') Frenkel Topping provides specialist independent financial advice on the investment of personal injury damages and clinical negligence awards. Frenkel Topping offers a complete service for all personal injury claim handlers, lawyers and individual clients, dealing with awards from a few thousand pounds to multi-million pound cases. Frenkel Topping's expertise includes asset protection, bespoke investment portfolios, analysis of periodical payments, Court of Protection portfolios and provision of trustee and receivership bank accounts. Unaudited Interim Results for the six months ended 30 June 2007 Highlights 6 Months 6 Months Year ended ended ended 30 June 30 June 31 December 2007 2006 * 2006 * £ £ £ Turnover 1,394,659 1,243,822 2,570,504 Profit/(loss) from operations before provisions and share 128,089 (174,463) (93,649) based compensation Profit/(loss) from operations 5,771 (286,342) (398,935) Cash from/(used in) operations 47,704 (228,067) (141,306) Gross Profit Margin 62% 45% 54% * restated to reflect the adoption of IFRS Frenkel Topping Group plc Richard Fraser Chief Executive Tel No: 0161 886 8000 WH Ireland plc David Youngman Chief Executive Tel No: 0161 832 2174 Chairman's Statement The Group's performance for the six months ended 30 June 2007 has maintained the momentum established during the previous half year to 31 December 2006. For the six months ended 30 June 2007 the Group has reported a profit from operations before share based compensation and provisions of £128k (£174k loss for the six month ended 30 June 2006 and £94k loss for the year ended 31 December 2006). In comparison to the same period last year revenue has increased by 12% and the gross profit margin has increase from 45% to 62%. These improvements reflect the increase in the recurring income from the Funds in the Investment Management Service (FIMS) and the focus on revenue generation and cost control implemented across all elements of the business by the Board during 2006. As at 30 June 2007 the Group's FIMS were £177m. The Group is also pleased to report cash generated from its operating activities of £48k (£228k absorbed in the six month period to June 2006, £141k absorbed for year ended 31 December 2006). The net asset value of the Group as at 30 June 2007 was £5m. The Board does not propose an interim dividend. These are the first results for the Group to be stated under International Reporting Standards (IFRS) and the comparatives have been restated on this basis. The date of conversion to IFRS for the Group is 1 January 2006. The principle impact of IFRS on the results is the credit to the accounts of the goodwill amortised during 2006. The Intangible Assets in the consolidated balance sheet of the Group is attributable to goodwill arising upon the acquisition of the trading subsidiaries Frenkel Topping Limited and Frenkel Topping Structured Settlements Limited. Under IFRS3 the carrying value of the goodwill is reviewed at each balance sheet date to determine if the asset has suffered any impairment. Having considered the carrying value of the goodwill to the future revenue streams at the date of conversion to IFRS the board are satisfied with the carrying value of the goodwill. During the period the Group entered into a £500,000 loan facility with MBC Settlements Limited (MBC). MBC is a Gibraltar based investment company operating in the financial services sector. In consideration of MBC providing the loan facility, the Group has issued options to MBC in respect of 10,000,000 new ordinary shares. The options can be exercised at any time until May 2010 provided that the aggregate value of the options exercised does not exceed the total of the sums drawn down on the loan facility by the Group. As at 30 June 2007, £200,000 has been drawn down on the loan. The loan will be used for the strategic developments of the Group. Whilst competition continues to grow in the market place the Board is pleased with the continued re-positioning of the Frenkel Topping brand as one of the market leaders in the field of investment of personal injury awards. The Board actively pursues growth opportunities and improvements to income generation and cost control. The Group has shown good performance for the first half of the financial year and the Board will continue to work towards maintaining this momentum and to grow the FIMS to increase the recurring income for future years. At the 30 June the Group has a healthy pipeline of business to be finalised and the Board is confident that the progress made to date will continue for the year as a whole. David Southworth Chairman 13 August 2007 Frenkel Topping Group plc 6 Months 6 Months Year Consolidated income statement ended ended ended 30-Jun-07 30-Jun-06 31-Dec- 06 Unaudited Unaudited Unaudited Note £ £ * £ * REVENUE 1,394,659 1,243,822 2,570,504 Cost of sales (535,051) (682,157) (1,170,467) Gross Profit 859,608 561,665 1,400,037 ADMINISTRATION EXPENSES Share based compensation (122,318) (111,879) (198,301) Provisions 3 - - (106,985) Other (731,519) (736,128) (1,493,686) TOTAL ADMINISTRATION EXPENSES (853,837) (848,007) (1,798,972) Profit/(loss) from operations before share based 128,089 (174,463) (93,649) compensation and provisions Share based compensation (122,318) (111,879) (198,301) Provisions - - (106,985) PROFIT/(LOSS) FROM OPERATIONS 5,771 (286,342) (398,935) Finance costs (34,617) (16,607) (47,706) LOSS BEFORE TAXATION (28,846) (302,949) (446,641) Income tax expense - 13,366 (25,039) LOSS FOR THE PERIOD (28,846) (289,583) (471,680) Loss attributable to: Equity holders of parent (34,936) (312,333) (455,334) Minority Interests 6,090 22,750 (16,346) (28,846) (289,583) (471,680) Loss per share - basic (pence) 4 (0.06) (0.66) (0.89) Loss per share - diluted (pence) 4 (0.06) (0.66) (0.89) The results for the period are derived from continuing activities. * Restated to reflect the adoption of IFRS as per note 6. There was no recognised income or expenditure other than the profit/(loss) for the period/year. Accordingly no Statement of Recognised Income and Expenditure has been prepared. Frenkel Topping Group plc Consolidated Balance Sheet 30-Jun-07 30-Jun-06 31-Dec-06 As at 30 June 2007 Unaudited Unaudited Unaudited £ £ * £ * ASSETS NON CURRENT ASSETS Plant and equipment 30,197 57,732 43,648 Goodwill 5,090,288 4,826,662 5,095,287 Deferred tax 7,069 9,179 7,069 5,127,554 4,893,573 5,146,004 CURRENT ASSETS Accrued income 490,587 295,946 329,010 Trade receivables 308,030 454,920 396,321 Other receivables 82,539 156,630 101,067 Cash 161 83 29 881,317 907,579 826,427 TOTAL ASSETS 6,008,871 5,801,152 5,972,431 EQUITY AND LIABILITIES EQUITY Share capital 273,915 268,915 273,915 Share premium account 5,744,876 5,509,876 5,744,876 Share based payment reserve 408,816 200,076 286,498 Other reserve 12,997 - - Treasury share reserve (25,000) (25,000) (25,000) Profit and loss account (1,428,584) (1,250,647) (1,393,648) 4,987,020 4,703,220 4,886,641 Minority Interests (298,409) (292,899) (304,499) TOTAL EQUITY 4,688,611 4,410,321 4,582,142 NON CURRENT LIABILITIES Other liabilities 25,000 25,000 25,000 Loans and borrowings 187,118 - - 212,118 25,000 25,000 CURRENT LIABILITIES Amounts due to bankers and short term loans 274,792 485,295 473,433 Taxation 89,890 105,140 106,984 Trade payables 309,174 288,125 297,342 Other payables 219,286 332,905 237,723 Obligations under finance lease - 11,866 9,807 Provisions 215,000 142,500 240,000 1,108,142 1,365,831 1,365,289 TOTAL LIABILITIES 1,320,260 1,390,831 1,390,289 TOTAL EQUITY AND LIABILITIES 6,008,871 5,801,152 5,972,431 * Restated to reflect the adoption of IFRS as per note 6. Frenkel Topping Group plc 6 Months 6 Months Year Consolidated Cash Flow ended ended ended For the period to 30 June 2007 30-Jun-07 30-Jun-06 31-Dec -06 Unaudited Unaudited Unaudited £ £ * £ * Profit/(loss) from operations 5,771 (286,342) (398,935) Adjustments to reconcile profit/(loss) from operations to cash generated from/(used in) operating activities Share based compensation 122,318 111,879 198,301 Depreciation 22,957 15,113 30,219 (Increase)/decrease in accrued income (161,577) 33,997 86,787 Decrease/(increase) in trade and other 110,855 (190,683) (160,265) receivables (Decrease)/increase in trade and other payables (52,620) 87,969 102,587 Cash generated from/(used in) operations 47,704 (228,067) (141,306) Taxation - 13,366 (18,415) Cash generated from/(used in) operating 47,704 (214,701) (159,721) activities Investing activities Acquisition of plant and equipment (4,506) (4,419) (5,441) Acquisiton of additional shareholding in - (15,900) (17,032) subsidiary undertakings Cash used in investing activities (4,506) (20,319) (22,473) Financing Net borrowings 167,668 31,211 19,981 Repayment of finance lease (9,807) (2,059) (4,118) Interest on loans (34,617) (16,607) (44,336) Cash from/(used in) financing 123,244 12,545 (28,473) Increase/(decrease) in cash and cash equivalents 166,442 (222,475) (210,667) Opening cash and cash equivalents (287,700) (77,033) (77,033) Closing cash and cash equivalents (121,258) (299,508) (287,700) * Restated to reflect the adoption of IFRS as per note 6. Frenkel Topping Group plc Consolidated Statement of Changes in Equity As at 30 June 2007 Share based payment reserve Issued Share Other Treasury Retained Total equity capital premium shares earnings reserve £ £ £ £ £ £ £ Balance at 1 January 2006 227,998 3,586,193 88,197 - (25,000) (938,314) 2,939,074 Loss for the period - - - - - (312,333) (312,333) Issue of shares 40,917 1,923,683 - - - - 1,964,600 Cost of share based payments - - 111,879 - - - 111,879 Balance as at 30 June 2006 268,915 5,509,876 200,076 - (25,000) (1,250,647) 4,703,220 Loss for the period - - - - - (143,001) (143,001) Issue of shares 5,000 235,000 - - - - 240,000 Cost of share based payments - - 86,422 - - - 86,422 As at 1 January 2007 273,915 5,744,876 286,498 - (25,000) (1,393,648) 4,886,641 Loss for the period - - - - - (34,936) (34,936) Share based compensation - - 122,318 - - - 122,318 Equity element of financial instrument issued - - - 12,997 - - 12,997 Balance at 30 June 2007 273,915 5,744,876 408,816 12,997 (25,000) (1,428,584) 4,987,020 Notes to the Interim Financial Statements 1. Accounting policies and basis of preparation The Group's previous financial statements have been prepared under UK Generally Accepted Accounting Principles (UK GAAP). For the financial year ended 31 December 2007, the Group will prepare its annual consolidated financial statements in accordance with IFRS as adopted by the European Union (EU) and implemented in the UK. The Group's date of transition to IFRS was 1 January 2006 at which date the Group prepared its opening IFRS balance sheet. The financial information for the 6 months ended 30 June 2007 is unaudited and has been prepared in accordance with the Group's accounting policies based on IFRS standards that are expected to apply for the financial year 2007. The financial information for the 6 months ended 30 June 2006 is also unaudited and has been restated under IFRS. The Group has not applied IAS 34, Interim Financial Reporting, which is not mandatory for UK Groups, in the preparation of these interim financial statements. The presentation of financial information under IFRS is governed by IFRS 1 ' First-time Adoption of IFRS', because they are part of the period covered by the Group's first IFRS financial statement for the year ended 31 December 2007. In some cases this will require the presentation of an item in a different position, or the use of a different description in the financial statements to that adopted in the UK GAAP financial statements. These reclassifications have been described in the explanatory notes. An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial statements for the period ended 30 June 2007, 31 December 2006 and 30 June 2006 is set out in note 6. The interim financial information has not been audited and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 but has been reviewed by the auditors in accordance with Bulleting 1999/4 issued by the Auditing Practices Board. The Group's statutory accounts for the year ended 31 December 2006, prepared under UK GAAP have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985. The principal accounting policies adopted in the preparation of these interim financial statements are set out below. These policies have been consistently applied to all period presented. The interim statements are prepared on a going concern basis, which assumes the Group will continue in operational existence for the foreseeable future. The Group's ability to meet its future working capital requirements and therefore continue as a going concern is dependent upon it being able to generate significant revenues and free cash flow. The Directors have prepared projections which they consider to be prudent and demonstrate that the business can operate within its existing cash resources and have identified a series of realistically achievable actions that they are committed to taking appropriate action to mitigate the rate of cash outflow should revenues not be secured as predicted. The Directors believe that the Group has sufficient funds for the foreseeable future and therefore the interim financial statements have been prepared on the going concern basis. The principle effects identified on adoption of IFRS are discussed below: IFRS 3 'Business Combinations', IAS 36 and IAS 38 resulted in a change to the accounting policy for Goodwill. Until 31 December 2005, goodwill was: - Amortised on a straight line basis over a period of up to 10 years from the year of acquisition and; - Assessed for an indication of impairment at each balance sheet date. In accordance with the provisions of IFRS 3 and IAS 36: - The Group ceased amortisation of goodwill from 1 January 2006; - Accumulated amortisation as at 31 December 2006 has been eliminated with a corresponding increase in the carrying value of goodwill of £485,842; - From 1 January 2006 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment. Basis of consolidation The consolidated interim financial statements comprise the accounts of Frenkel Topping Group Plc and its subsidiary undertakings Frenkel Topping Limited, Frenkel Topping Structured Settlements Limited and FTG EBT Trustees Limited up to 30 June 2007. Revenue Revenue represents the amount of net fees and commission, excluding value added tax, made during the period on client's contracts. Revenue is accrued based on the stage of completion of specific client contracts where the outcome can be assessed with reasonable certainty. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill on acquisition of subsidiaries is separately disclosed. Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. Goodwill is allocated to cash generating units for the purpose of impairment testing. Each of these cash generating units represents the Group's investment in each country of operation by primary reporting segment. On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Goodwill arising on the acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Goodwill has been re-stated on transition to IFRS as certain intangible assets, which were no recognised under UK GAAP, have now been separately classified, as they meet the recognition criteria under IAS 38 for an individual company. No negative goodwill was eliminated on transition to IFRS. Plant and equipment All fixed assets are initially recorded at cost. Depreciation is provided at rates calculated to write off the cost less residual value of each asset over its expected useful life, as follows: Plant and machinery - 25% straight line Leasehold improvements - 25% straight line Motor vehicles - 25% straight line Computer equipment - 25% straight line Residual value and estimating remaining lives are reviewed annually. Impairment At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Leasing commitments Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased item or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Employee benefits The pension costs charged in the financial statements represent the contribution payable by the Group during the year. Share-based compensation The Group operates an equity-settled, share based compensation plan. The fair value of the employee services received in exchange for the grant of options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and growth targets). Non-market vesting conditions are included in the assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the profit and loss account, and a corresponding adjustment to reserves over the remaining vesting period. The proceeds received net of any attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. Employee share ownership plans The Group operates an Employee Benefit Trust and has de facto control of the shares held by the trust and bears their benefits and risks. The Group records certain assets and liabilities of the trust as its own. Finance costs and administrative expenses are charged as they accrue. Deferred taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Financial instruments The Group's principal financial instruments comprise bank loans, hire purchase agreements and a bank overdraft facility. Convertible loans are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The difference between the proceeds of issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity. Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity. The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the instrument. The difference between this amount and the interest paid is added to the carrying value of the convertible loan note. Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. Financial liability Financial liabilities are classified according to the substance of the contractual arrangements entered into. An instrument will be classified as a financial liability when there is a contractual obligation to deliver cash or another financial asset to another enterprise. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of any outstanding bank overdraft where a right of set off exists. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money. Borrowings Interest-bearing bank loans and overdrafts are initially recorded at fair value, which represents the fair value of the consideration received, net of any issue costs associated with other borrowings. Borrowings are subsequently stated at amortised cost. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Derecognition of financial instruments The derecognition of financial instruments takes place when the Group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all of the cash flows attributable to the instrument are passed through to an independent third party. 2. Segmental Reporting The total turnover, losses before tax and net assets are attributable to the one principal activity of the Group, the provision of advice regarding structured settlements and related financial services. All revenue and costs originate within the United Kingdom. 3. Provisions 6 Months 6 Months Year ended ended ended 30-Jun-07 30-Jun-06 31-Dec-06 Unaudited Unaudited Unaudited £ £ PROVISIONS Provisions for professional indemnity claims - - 106,985 - - 106,985 4. Loss per ordinary share The calculation of basic loss per ordinary share is based on losses attributable to equity holders of the parent of £34,935 (6 months ended 30 June 2006: £312,333, year ended 31 December 2006: £455,334) and on 54,782,947 ordinary shares (6 months ended 30 June 2006: 46,956,382, year ended 31 December 2006: 50,956,558) being the weighted average number of shares in issue during the period. The loss for the periods and the weighted average number of ordinary shares for calculating the diluted loss per share are identical to those for the basic loss per share. This is because the outstanding share options would have the effect of reducing the loss per ordinary share and would therefore not be dilutive under the terms of International Accounting Standard ('IAS') 33. 5. Loan facility During the period the Group entered into a £500,000 loan facility. In consideration for providing the loan facility, the Group has issued options to the loan provider in respect of 10,000,000 new ordinary shares. The options can be exercised at any time until May 2010 provided that the aggregate value of the options exercised does not exceed the total of the sums drawn down on the loan facility by the Group. As at 30 June 2007, £200,000 has been drawn down on the loan. The loan will be used for the strategic developments of the Group. In accordance with IAS 39 'Financial Instruments - Measurement' the loan is treated as a compound instrument. IAS 39 requires the issuer to: a) Identify the various components of the instrument; b) Determine the fair value of the liability component c) Determine the equity component as a residual amount, essentially the issue proceeds of the instrument less the liability component determined in b) above The equity element of the loan of £12,997 has been transferred to reserves. 6. Explanation of the transition to IFRS For all periods up to and including the year ended 31 December 2006 the Group prepared its financial statements in accordance with United Kingdom Generally Accepted Accounting Practices (UK GAAP). In preparing these interim financial statements, the Group has started from an opening balance sheet as at 1 January 2006, the Group's date of transition to IFRS, and made those changes in accounting policies and other restatements required by IFRS. IFRS 1 allows first time adopters certain exemptions from the general requirements to retrospectively apply IFRS as effective for the 31 December 2005 year end. The optional exemptions taken by the Group are as follows: Business Combinations: The Group has elected not to apply IFRS 3 Business Combinations retrospectively to business that took place prior to the transition date. Consequently goodwill arising on business combinations before transition date remains at its previous UK GAAP carrying value as at the date of transition. The reconciliation between UK GAAP and IFRS for the Group's loss, income statement, balance sheet and total equity are presented below: 6 Months Year ended ended 30-Jun-06 31-Dec-06 Unaudited Unaudited £ £ Loss after tax and minority interests under UK GAAP (492,157) (941,176) Amortisation of goodwill 179,824 485,842 Loss after tax and minority interests under IFRS (312,333) (455,334) Reconciliation of income statement for the 6 months ended 30 June 2006 UK GAAP IFRS IFRS effect £ £ £ REVENUE 1,243,822 - 1,243,822 Cost of sales (682,157) - (682,157) Gross Profit 561,665 - 561,665 ADMINISTRATION EXPENSES Share based compensation (111,879) - (111,879) Amortisation of goodwill (179,824) 179,824 - Other (736,128) - (736,128) TOTAL ADMINISTRATION EXPENSES (1,027,831) 179,824 (848,007) LOSS FROM OPERATIONS (466,166) 179,824 (286,342) Finance costs (16,607) - (16,607) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (482,773) 179,824 (302,949) Income tax expense 13,366 - 13,366 LOSS FOR THE YEAR (469,407) 179,824 (289,583) Loss attributable to: Equity holders of parent (492,157) 179,824 (312,333) Minority Interest 22,750 - 22,750 (469,407) 179,824 (289,583) Reconciliation of income statement for the year ended 31 December 2006 UK GAAP IFRS IFRS effect £ £ £ REVENUE 2,570,504 - 2,570,504 Cost of sales (1,170,467) - (1,170,467) Gross Profit 1,400,037 - 1,400,037 ADMINISTRATION EXPENSES Share based compensation (198,301) - (198,301) Further provision (106,985) - (106,985) Amortisation of goodwill (485,842) 485,842 - Other (1,493,686) - (1,493,686) TOTAL ADMINISTRATION EXPENSES (2,284,814) 485,842 (1,798,972) LOSS FROM OPERATIONS (884,777) 485,842 (398,935) Finance expense (47,706) - (47,706) LOSS BEFORE TAXATION (932,483) 485,842 (446,641) Income tax expenses (25,039) - (25,039) LOSS FOR YEAR (957,522) 485,842 (471,680) Loss attributable to: Equity holders of parent (941,176) 485,842 (455,334) Minority Interests (16,346) - (16,346) (957,522) 485,842 (471,680) Reconciliation of equity as at 30 June 2006 and 31 December 2006 30-Jun-06 31-Dec-06 Unaudited Unaudited £ £ Total equity under UK GAAP 4,523,396 4,400,799 Amortisation of goodwill 179,824 485,842 Total equity under IFRS 4,703,220 4,886,641 Reconciliation of balance sheet as at 30 June 2006 UK IFRS GAAP effect IFRS £ £ £ ASSETS NON CURRENT ASSETS Plant and equipment 57,732 - 57,732 Goodwill 4,646,838 179,824 4,826,662 Deferred tax 9,179 - 9,179 4,713,749 179,824 4,893,573 CURRENT ASSETS Accrued income 295,946 - 295,946 Trade receivables 454,920 - 454,920 Other receivables 156,630 - 156,630 Cash 83 - 83 907,579 - 907,579 TOTAL ASSETS 5,621,328 179,824 5,801,152 EQUITY AND LIABILITIES EQUITY Share capital 268,915 - 268,915 Share premium account 5,509,876 - 5,509,876 Share based payment reserve 200,076 - 200,076 Treasury share reserve (25,000) - (25,000) Profit and loss account (1,430,471) 179,824 (1,250,647) 4,523,396 179,824 4,703,220 Minority Interests (292,899) - (292,899) TOTAL EQUITY 4,230,497 179,824 4,410,321 NON CURRENT LIABILITIES Other liabilities 25,000 - 25,000 25,000 - 25,000 CURRENT LIABILITIES Amounts due to bankers and short term loans 485,295 - 485,295 Taxation 105,140 - 105,140 Trade payables 288,125 - 288,125 Other payables 332,905 - 332,905 Finance lease obligations 11,866 - 11,866 Provisions 142,500 - 142,500 1,365,831 - 1,365,831 TOTAL LIABILITIES 1,390,831 - 1,390,831 TOTAL EQUITY AND LIABILITIES 5,621,328 179,824 5,801,152 Reconciliation of balance sheet as at 31 December 2006 UK IFRS GAAP effect IFRS £ £ £ ASSETS NON CURRENT ASSETS Plant and equipment 43,648 - 43,648 Goodwill 4,609,445 485,842 5,095,287 Deferred tax 7,069 - 7,069 4,660,162 485,842 5,146,004 CURRENT ASSETS Accrued income 329,010 - 329,010 Trade receivables 396,321 - 396,321 Other receivables 101,067 - 101,067 Cash 29 - 29 826,427 - 826,427 TOTAL ASSETS 5,486,589 485,842 5,972,431 EQUITY AND LIABILITIES EQUITY Share capital 273,915 - 273,915 Share premium account 5,744,876 - 5,744,876 Share based payment reserve 286,498 - 286,498 Treasury share reserve (25,000) - (25,000) Profit and loss account (1,879,490) 485,842 (1,393,648) 4,400,799 485,842 4,886,641 Minority Interests (304,499) - (304,499) TOTAL EQUITY 4,096,300 485,842 4,582,142 NON CURRENT LIABILITIES Other liabilities 25,000 - 25,000 25,000 - 25,000 CURRENT LIABILITIES Amounts due to bankers and short term loans 473,433 - 473,433 Taxation 106,984 - 106,984 Trade payables 297,342 - 297,342 Other payables 237,723 - 237,723 Finance lease obligations 9,807 - 9,807 Provisions 240,000 - 240,000 1,365,289 - 1,365,289 TOTAL LIABILITIES 1,390,289 - 1,390,289 TOTAL EQUITY AND LIABILITIES 5,486,589 485,842 5,972,431 7. Movement in net debt 1-Jan-07 Cash Flow Non-Cash 30-Jun-07 Movements £ £ £ £ Cash at Bank 29 132 - 161 Overdrafts (287,729) 166,310 - (121,419) (287,700) 166,442 - (121,258) Debts due within one year (185,704) (167,668) 12,881 (340,491) Debts due after one year (25,000) - - (25,000) Finance leases (9,807) 9,807 - - (220,511) (157,861) 12,881 (365,491) (508,211) 8,581 12,881 (486,749) 8. Reconciliation of net cash flow to movement in net debt 6 Months 6 Months Year ended 30-Jun-07 30-Jun-06 31-Dec-06 Unaudited Unaudited Unaudited £ £ * £ * Increase/(decrease) in cash in the period 166,442 (222,475) (210,667) Net cash outflow from debt financing (157,861) (29,152) (15,863) Change in net debt resulting from cashflows 8,581 (251,627) (226,530) Other 12,881 - (3,370) Change in net debt 21,462 (251,627) (229,900) Net debt at start of period (508,211) (278,311) (278,311) Net debt at end of period (486,749) (529,938) (508,211) * Restated to reflect the adoption of IFRS. 9. The Board of Directors approved the interim report on 13 August 2007. INDEPENDENT REVIEW REPORT TO FRENKEL TOPPING GROUP PLC Introduction We have been instructed by the company to review the financial information for the six months ended 30 June 2007 which comprises Consolidated Income Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement, Consolidated Statement of Changes in Equity and related notes that have been reviewed. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of their interim statement and for no other purpose. We do not, therefore, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Directors' responsibilities The interim statement, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Interim Statement in accordance with the AIM Market Rules which require that the accounting policies and presentation applied to the interim figures must be consistent with those that will be adopted in the company's annual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom as if that Bulletin applied. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the disclosed accounting policies have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2007. BAKER TILLY UK AUDIT LLP Chartered Accountants Brazennose House Lincoln Square Manchester M2 5BL 13 August 2007 This information is provided by RNS The company news service from the London Stock Exchange

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