Final Results

KleenAir Systems International plc ("KleenAir" or the "Company") Annual report for the year ended 30 September 2007 31 March 2008 CHAIRMAN'S STATEMENT Sales in the year were £35,102 (9 months to 30 September 2006: Nil) and group costs, which were primarily associated with management infrastructure and the costs of implementing our applications engineering and administrative facility in Ross-on-Wye, amounted to £866,817 (£710,281). The loss for the year was £825,003 (£699,262). Following the confirmation of the London Low Emission Zone ("LEZ") program, which was signed into effect on 9 May, 2007 by Mayor Livingstone, the company proceeded to submit its product for testing by Transport for London ("TfL"). The certification that qualified KleenAir's filter for the LEZ was received in early September. As stated in the interim report, initial revenue was expected for the last quarter of 2007. Shipments began in October, just after the end of the financial year. These related to the first phase of the LEZ program which required that heavy goods vehicles ("HGVs") over 12 tonnes be upgraded to Euro III standards by 4 February 2008. However, TfL changed the terms of reference such that many vehicles that had been expected to be upgraded were exempted. This reduced the potential market size from the previously estimated 24,000 to an estimated number of fewer than 10,000. In addition, confusion in the market place arising from these exemptions resulted in many operators of vehicles significantly delaying the placing of orders. The company has been ramping up shipments to complete the first phase and is commencing shipments for the second phase of the programme, which relates to HGVs of 3.5 - 12 tonnes. The current level of shipments represents a market share of about 8 per cent, which is in the range of the company's expectations. The adoption of LEZ programmes in other cities in the UK has not progressed as rapidly as hoped and is still under discussion by some 8 major urban local authorities. On the other hand, following enabling legislation and directives from the European Commission there are now more than sixty cities throughout Europe investigating or implementing LEZs of their own. The company will make a major effort to participate in this market opportunity. The company has negotiated access to a transport refrigeration unit suitable for retrofitting refrigerator trucks operated by the largest food chains, food suppliers and food distributors. This will be launched at the Commercial Vehicle Show at the NEC in Birmingham next month. While the cabs that haul these trailers meet current standards, the engines that run the refrigeration systems on the trailers do not. We aim to resolve the operators' problem created by this anomaly. This month, the company has successfully completed a further offering of shares, raising in excess of £1 million through Charles Street Securities Inc. and following this investment, Robert Hayim, Managing Director of CSS Capital Managers LLP has joined the board. We are now carrying out the due diligence procedures prior to making an investment of £300,000 in Nonox plc, a company with intellectual property ("IP") relating to stationary source particulate reduction systems applied to oil-fired boilers. The company believes that by harnessing its NOx reduction IP with the Nonox technology it can create a combined particulate and NOx reduction package that can be applied to both boilers and stationary electric generators, common in, for example, apartment buildings, office buildings and hospitals. This will enable the company to reduce emissions from stationary as well as mobile sources and so diversify its markets. I am confident that the products and technologies in the company's portfolio, together with the technical and marketing team and the physical facilities now in place, will enable the company to become a significant force in meeting the demand for emissions reductions solutions driven by the implementation of the LEZs both in the UK and on the continent. Lionel Simons 28 March 2008 For further information please contact: Peter Newell 07786 333 046 peter.newell@kleenairsystems.co.uk Nick Harriss 020 7512 0191 Blomfield Corporate Finance Ltd GROUP PROFIT AND LOSS ACCOUNT 9 month period Year to ended 30 Sep 07 30 Sep 06 Note £ £ Turnover 1 35,102 - ________ ________ Other operating charges 2 866,817 710,281 ________ ________ Operating loss 3 (830,883) (710,281) Interest receivable 5,880 11,019 ________ ________ Loss on ordinary activities before taxation (825,003) (699,262) Tax on loss on ordinary activities 6 - - ________ ________ Loss for the financial period (825,003) (699,262) ======== ======== Loss per share Basic and diluted loss per share 8 (4.10)p (4.00)p All of the activities of the company are classed as continuing. The company has no recognised gains or losses other than the results for the period as set out above. The company has taken advantage of section 230 of the Companies Act 1985 not to publish its own Profit and Loss Account. GROUP BALANCE SHEET 30 Sep 07 30 Sep 06 Note £ £ Fixed assets Intangible assets 9 186,772 88,334 Tangible assets and Investments 10 46,879 17,201 ________ ________ 233,651 105,535 ======== ======== Current assets Debtors 12 67,456 90,071 Stock of finished goods 178,643 - Cash at bank 9,166 483,808 ________ ________ 255,265 573,879 Creditors: amounts falling due within one year 13 (323,075) (160,036) ________ ________ Net current (liabilities)/assets (67,810) 413,843 ________ ________ Creditors: amounts falling due after one year (100,000) - ________ ________ Total assets less current liabilities 65,841 519,378 ======== ======== Capital and reserves Called-up share capital 14 206,885 189,235 Share premium account 15 1,985,074 1,705,699 Other reserves 15 86,891 12,450 Profit and loss account 15 (2,213,009)(1,388,006) ________ ________ Shareholders' funds 16 65,841 519,378 ======== ======== These financial statements were approved by the directors on 28 March 2008 and are signed on their behalf by L Simons, Director. COMPANY BALANCE SHEET 30 Sep 07 30 Sep 06 Note £ £ Fixed assets Intangible assets 9 78,334 88,334 Investments 11 20 20 ________ ________ 78,354 88,354 ________ ________ Current assets Debtors 12 1,946,046 1,669,149 Cash at bank 798 7,041 ________ ________ 1,946,844 1,676,190 Creditors: amounts falling due within one year 13 (31,027) (47,143) ________ ________ Net current assets 1,915,817 1,629,047 ________ ________ Long term creditors falling due after one year (100,000) - ________ ________ Total assets less current liabilities 1,894,171 1,717,401 ======== ======== Capital and reserves Called-up share capital 14 206,885 189,235 Share premium account 15 1,985,074 1,705,699 Other reserve 15 86,891 12,450 Profit and loss account 15 (384,679) (189,983) ________ ________ Shareholders' funds 1,894,171 1,717,401 ======== ======== These financial statements were approved by the directors on 28 March 2008 and are signed on their behalf by L Simons, Director. GROUP CASH FLOW STATEMENT 9 month period Year to ended 30 Sep 07 30 Sep 06 Note £ £ Net cash outflow from operating activities 17 (839,707) (684,483) Returns on investments and servicing of finance Interest received 5,880 11,019 ________ ________ Net cash inflow from returns on investments and servicing of finance 5,880 11,019 ________ ________ Capital expenditure Payments to acquire fixed assets (37,860) (17,377) ________ ________ Net cash outflow from capital expenditure (37,860) (17,377) ________ ________ ________ ________ Cash outflow before financing (871,687) (690,841) ________ ________ Financing Issue of equity share capital 17,670 59,797 Share premium on issue of equity share capital 282,375 1,599,679 Directors loan 100,000 - Issue costs (3,000) (531,673) ________ ________ Net cash inflow from financing 397,045 1,127,803 ________ ________ ________ ________ (Decrease)/increase in cash (474,642) 436,962 ======== ======== Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash in the period (474,642) 436,962 ________ ________ Movement in net funds in the period (474,642) 436,962 ======== ======== Net funds at 1 October 483,808 46,846 ________ ________ Net funds at 30 September 9,166 483,808 ======== ======== 1. Accounting Policies The financial statements have been prepared in accordance with the Companies Act 1985 and with applicable United Kingdom Accounting Standards (UK GAAP). Accounting convention The financial statements are prepared under the historical cost convention and on a going concern basis because in the view of the directors and despite losses to date, sales have now commenced and the company has been successful in raising funds to support its growth. Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and all group undertakings. These are adjusted, where appropriate, to conform to group accounting policies. Acquisitions are accounted for under the acquisition method and goodwill on consolidation is capitalised. The results of companies acquired are included in the profit and loss account after the date that control passes. As a consolidated profit and loss account is published, a separate profit and loss account for the parent company is omitted from the group financial statements by virtue of section 230 of the Companies Act 1985. Related parties transactions The company is the parent company of the group and consolidated accounts have been prepared. Accordingly, the group has taken advantage of the exemption in FRS 8 'Related Party Disclosures' from disclosing transactions with members of the group. Turnover Turnover represents amounts receivable in the course of the company's ordinary activities arising from the supply of vehicle filters for use in the London Low Emission Zone, exclusive of VAT, and therefore, in one business segment and geographical region, the United Kingdom. Intangible assets Research and development Research expenditure is written off to the profit and loss account as incurred. Development expenditure is written off in the same way unless the directors are satisfied as to the technical, commercial and financial viability of individual projects. In this situation, the expenditure is deferred and amortised over the period during which the company is expected to benefit Other intangible assets Intellectual property rights are included at cost and amortised on a straight- line basis over their useful economic lives. Amortisation Amortisation is calculated so as to write off the cost of an asset over the useful economic life of that asset as follows: Goodwill - 10 years Intellectual property rights - 10 years Research and development - 5 years Tangible Fixed Assets All tangible fixed assets are initially recorded at cost. Depreciation Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Leasehold improvements - over the term of the lease Plant and equipment - 4 years straight line Fixtures and fittings - 4 years straight line Investments Investments are recorded at cost less amounts written off. Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax except that deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Foreign currencies Monetary assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit. Operating lease agreements Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits on a straight line basis over the period of the lease. Financial Instruments Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Where none of the contractual terms of share capital meets the definition of a financial liability then this is classed as an equity instrument. Share-based payment Equity-settled share-based payment All share-based payment arrangements granted since the company's incorporation on 16th March 2004 that had not vested prior to 1 October 2006 are recognised in the financial statements. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets). All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account with a corresponding credit to "other reserve". If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options that have vested are not exercised. Upon exercise of share options, the proceeds received net of attributable transaction costs would be credited to share capital, and where appropriate share premium. 2 Other operating income and charges Other operating income and charges include: 9 month period Year to ended 30 Sep 07 30 Sep 06 £ £ Administrative expenses 536,037 707,447 ======= ======= 3 Operating loss Operating loss is stated after charging: 9 month period Year to ended 30 Sep 07 30 Sep 06 £ £ Depreciation 8,182 176 Amortisation 37,110 19,801 Auditors' remuneration: Audit fees 8,500 12,500 Write off of consolidated goodwill - 118,909 Operating lease rentals 52,237 7,949 4 Particulars of employees The average number of staff employed by the group during the financial period amounted to: 9 month period Year to ended 30 Sep 07 30 Sep 06 No No Management 2 2 Design staff 1 - Executive directors 2 2 Non-executive directors 5 4 ________ ________ 10 8 ======== ======== The aggregate payroll costs of the above were: 9 month period Year to ended 30 Sep 07 30 Sep 06 £ £ Wages and salaries 289,790 172,229 Social security costs 31,165 16,832 ________ ________ 320,955 189,061 ======== ======== 5 Directors Remuneration in respect of directors was as follows: 9 month period Year to ended 30 Sep 07 30 Sep 06 £ £ Emoluments receivable 142,250 102,180 ======= ======= No options were granted to a director of Kleenair Systems International Plc during the year (9 months to 30 September 2006 200,000) and the number outstanding at 30 September 2007 was 200,000. 6 Taxation on loss on ordinary activities Due to the losses in the period, no corporation tax liability has arisen. Factors affecting current tax charge: The tax assessed on the loss on ordinary activities for the period is different from the standard rate of corporation tax in the UK of 19% (2006 - 19%). 9 month period Year to ended 30 Sep 07 30 Sep 06 £ £ Loss on ordinary activities before taxation (825,003) (699,262) ________ ________ Loss on ordinary activities by rate of tax (156,751) (132,702) Unrelieved tax losses 156,751 132,702 ________ ________ Total current tax - - ======== ======== 7 Loss attributable to members of the parent company The loss dealt with in the accounts of the parent company was £119,421 (2006: £174,188). 8 Earnings (loss) per share Loss per ordinary share has been calculated using the weighted average number of shares in issue during the relevant financial periods. The calculations of both basic and diluted earnings per share for the year are based upon a loss after tax of £825,003 (2006: loss of £699,262). The weighted number of equity shares used in the basic calculation is 19,953,067 (2006: 17,424,682). The weighted average number of shares used in the dilution calculation is 19,953,067 (2006: 17,424,682). As the potential ordinary shares issued are deemed anti-dilutive they have been excluded from the calculation of the weighted average number of shares, for the purposes of the dilution. 9 Intangible assets Group Intellectual R & D property Capitalised rights Total £ £ Cost At 30 September 2006 - 100,000 100,000 Additions and disposals 135,548 - 135,548 _________ _________ _________ At 30 September 2007 135,548 100,000 235,548 _________ _________ _________ Amortisation At 30 September 2006 - 11,666 11,666 Charge for the period 27,110 10,000 37,110 _________ _________ _________ At 30 September 2007 27,110 21,666 48,776 _________ _________ _________ Net book value At 30 September 2007 108,438 78,334 186,772 At 30 September 2006 - 88,334 88,334 ========= ========= ========= Company Intellectual property rights and R & D Capitalisation £ Cost At 30 September 2006 100,000 _________ At 30 September 2007 100,000 _________ Amortisation At 30 September 2006 11,666 Charge for the period 10,000 _________ At 30 September 2007 21,666 _________ Net book value At 30 September 2007 78,334 ========= At 30 September 2006 88,334 ========= 10 Tangible assets Group Plant and Furniture and Leasedhold equipment Fittings Total property and MV £ £ £ £ Cost At 30 September 2006 9,850 5,820 1,707 17,377 Additions 14,500 20,654 2,706 37,860 _________ _________ _________ _________ At 30 September 2007 24,350 26,474 4,413 55,237 ========= ========= ========= ========= Depreciation At 30 September 2006 - 126 50 176 Charge for the period 3,000 4,582 600 8,182 _________ _________ _________ _________ At 30 September 2007 3,000 4,708 650 8,358 ========= ========= ========= ========= Net book value At 30 September 2007 21,350 21,766 3,763 46,879 ========= ========= ========= ========= At 30 September 2006 9,850 5,694 1,657 17,201 ========= ========= ========= ========= The company does not hold any fixed asset. 11 Investments At 30 September 2007 KleenAir Systems International Plc held 100% of the issued ordinary share capital of the company named below (whose results are included in these financial statements). Country of Proportion of Nature of incorporation share capital held business KleenAir Systems Limited England and Wales 100%(Direct) Trading 12 Debtors The group The company 30 Sep 07 30 Sep 06 30 Sep 07 30 Sep 06 £ £ £ £ Trade debtors 5,118 20,011 - - Amounts owed by group - - 1,940,898 1,641,691 undertakings VAT recoverable 32,897 19,551 2,881 19,551 Other debtors 5,600 11,925 - - Prepayments and accrued income 23,841 38,585 2,267 7,928 _________ _________ _________ _________ 67,456 90,072 1,946,046 1,669,170 ========= ========= ========= ========= 13 Creditors: amounts falling due within one year The group The company 30 Sep 07 30 Sep 06 30 Sep 07 30 Sep 06 £ £ £ £ Trade creditors 229,592 62,920 19,492 20,143 Amounts owed to related undertakings - 19,011 - - Other creditors 27,433 10,271 - - Accruals and deferred income 66,050 67,834 11,535 27,000 _________ _________ _________ _________ 323,075 160,036 31,027 47,143 ========= ========= ========= ========= Creditors: amounts falling due after one year The group The company 30 Sep 07 30 Sep 06 30 Sep 07 30 Sep 06 £ £ £ £ Other creditors 100,000 - 100,000 - During the year a loan of £100,000 was made from Mr L Simons to the company. The loan carries interest at 2% above Barclays Bank's base rate and is repayable by 31 December 2008, or earlier, subject to certain terms and conditions which are set out at Note 21 below. 14 Share capital Authorised share capital: 30 Sep 07 30 Sep 06 £ £ 30,000,000 (2006: 30,000,000) Ordinary shares of £0.01 each 300,000 300,000 ========= ========= Allotted, called up and fully paid: 30 Sep 07 30 Sep 06 No £ No £ Ordinary shares of £0.01 each 20,688,480 206,885 18,923,484 189,235 ========= ========= ========= ========= Allotments during the year In March 2007 882,500 ordinary shares were issued to Pershing Keen Nominees Ltd at £0.17 per share, followed by the issue of 882,500 ordinary shares to Bramley Ltd for £150,025. Further to an announcement made on 5 February 2008, the Company has to date, completed the placing of 6,595,503 new ordinary 1p shares ("Ordinary Shares") at 15.75p per share, raising £1,038,792 (the "Placing") before expenses. Subscribers to the Placing have in addition been granted warrants. Each warrant, which will be exercisable, generally, until 4 April 2009, entitles its holder to subscribe for new Ordinary Shares ("Warrant Shares") at par to ensure that the price per share paid by subscribers in the Placing, taking into account the Warrant Shares, will be the equivalent to a twenty five per cent discount to the placing price per Ordinary Share in any placing of Ordinary Shares (or any other securities with rights to subscribe or convert into Ordinary Shares) with third party investors in relation to which trading in the relevant placing shares or securities commences on AIM on or prior to 31 December 2008 ("Subsequent Placing") and, in the absence of a Subsequent Placing, a twenty five per cent discount to the average mid-market closing price of the Ordinary Shares on AIM for the 90 trading days prior to 31 December 2008. Share Option Scheme In accordance with an agreement dated 31 August 2005, the company established an approved share option scheme under the Enterprise Management Incentive Option Agreement on behalf of its directors and employees. No options were issued during the year. As at 30 September 2007 options over 501,658 shares were outstanding, including 200,000 in respect of directors of the group. The earliest possible vesting date for these options is three years from grant date. To date no options have been exercised. Given the volatility of the shares, the directors believe that the fair value of the options is not materially different from the maximum value (market value of shares at grant date). The directors have adopted a vesting period of three years for the pre 1 Jan 2006 options and a charge of £74,441 has been made during the year (2006: £12,450). On the grounds of immateriality, no prior year adjustment has been made. The exercise prices of the outstanding options as at 1 January 2006 and 30 September 2007 are Option Option Exercise period Exercise price price from period number (pence) to EMI Options 25,000 30 11 Aug 2008 10 Aug 2015 8,333 30 31 Aug 2008 30 Aug 2015 8,333 30 31 Oct 2008 31 Oct 2015 8,333 30 30 Nov 2008 30 Nov 2015 8,333 30 31 Dec 2008 31 Dec 2015 Non EMI shares 59,999 30 11 Aug 2008 30 Nov 2015 Issued at 01 Jan 06 118,331 Issued in the ye Sept 06 408,326 26 15 Sept 2009 15 Sept 2016 Forfeited in the ye Sept 06 (24,999) Issued at 30 Sept 07 501,658 15 Reserves Group Share premium Other Profit and loss account reserve account £ £ £ At 30 September 2006 1,705,699 12,450 (1,388,006) Loss for the period - - (825,003) Other - 74,441 New share capital subscribed 282,375 - - Issue and similar costs (3,000) - - _________ _________ _________ At 30 September 2007 1,985,074 86,891 (2,213,009) ========= ========= ========= Company Share premium Other Profit and loss account reserve account £ £ £ At 30 September 2006 1,705,699 12,450 (190,816) Loss for the period - - (119,422) Other movements FRS 20 - 74,441 (74,441) New equity share capital subscribed 282,375 - - Issue and similar costs (3,000) - _________ _________ _________ At 30 September 2007 1,985,074 86,891 (384,679) ========= ========= ========= 16 Reconciliation of movements in shareholders' funds 9 month period Year end ended 30 Sep 07 31 Dec 06 £ £ Loss for the financial period (825,003) (699,262) New share capital subscribed 17,670 59,797 Premium on new share capital subscribed/Shares to be issued 282,375 1,599,679 Issue and similar costs (3,000) (531,673) Share Option charge 74,441 12,450 _________ _________ Net addition/(reduction) to shareholders' equity funds (453,517) 440,991 Opening shareholders' equity funds 519,378 78,387 _________ _________ Closing shareholders' equity funds 65,861 519,378 ========= ========= 17 Reconciliation of operating loss to net cash outflow from operating activities 9 month period Year end ended 30 Sep 07 31 Dec 06 £ £ Operating loss (830,883) (710,281) Write off of goodwill/Capitalise R & D (135,548) 118,909 Other reserves 74,441 12,450 Amortisation 37,110 19,801 Depreciation 8,182 176 Decrease/(Increase) in debtors 22,595 (36,016) (Increase) in stock (178,643) - Increase/(Decrease) in creditors 163,039 (89,522) _________ _________ Net cash outflow from operating activities (839,707) (684,483) ========= ========= Some of the comparative figures appearing in the financial statements for the 9 month period ended 30 September 2006 were presented incorrectly, in error. These comparative figures have been amended in this set of financial statements. These errors did not impact on the movement in net funds shown in the group cash flow statement, nor the increase in cash, as originally set out in the financial statements for the 9 month period ended 30 September 2006. The table below shows those figures which were materially incorrect and which have now been amended. 9 month 9 month period period ended ended 30 Sep 06 30 Sep 06 As stated As amended originally £ £ (Decrease)/ Increase in creditors (Note 17) (89,522) 88,022 Net cash outflow from operating activities (Note 17) (684,483) (504,105) Cash outflow before financing (page 13) (690,841) (510,464) Share premium on issue of equity share capital (page 13) 1,599,679 1,419,302 Net cash inflow from financing (page 13) 1,127,803 943,327 18 Commitments At 30 September 2007 the group had annual commitments under operating leases as set out below. 2007 2006 £ £ £ £ Operating leases which expire: Buildings Other Buildings Other In more than 5 years 16,600 - 16,600 Between one and five years - 5,119 5,119 Within 1 year 7,630 - 7,510 - _______________________________________ 24,230 5,119 24,110 5,119 ======================================= The group had no other capital commitments contracted for at the balance sheet date (2006: £nil). There were no capital commitments authorised at the balance sheet date. 19 Financial instruments The group has no significant derivatives or financial instruments other than bank accounts held with variable rates of interest. Where in the future the directors perceive exposure to financial risk regarding financial instruments, they will seek to obtain appropriate hedging instruments to limit the group's exposure to such risks. Short term debtors and creditors or current asset investments are not treated as financial assets or liabilities respectively for the purpose of Financial Reporting Standard 13 disclosures. 20 Currency Exposure The group has minimal business transactions in foreign currencies and therefore incurs minimal transaction risk. If commercially viable such risk will be hedged in the future. The group does not hold monetary assets in foreign currency. The group had no open foreign exchange contracts at the balance sheet date. 21 Related party transactions During the year, no consultancy fees (2006: £12,245) were paid to Osney Consulting Limited, a company in which Mr P M Newell, a director, has a controlling interest. Nor during the year was any management fee (2006: £9,000) paid to KleenAir Systems Inc., a company in which Mr L Simons, a director, has a controlling interest. During the year a loan of £100,000 was made from Mr Simons to the company. This loan bears interest at 2% above Barclays Bank Plc base rate. The loan is repayable on the earlier of: (a) 31st December 2008; or (b) the company raising new funding in excess of £400,000 between receipt of the loan and the end of 2008 (the "loan period"), subject to investor agreement, but excluding the placing referred to in Note 1, or, (c) the moving average of the company's share price exceeding 50p for a period of 60 days during the loan period, in which case the directors shall authorise the sale of sufficient shares to repay the loan; or (d) the group's net cash flow in any month during the loan period exceeding £100,000, in which case £25,000 of the loan shall be immediately repayable. In March 2007, a loan for £150,025 from Bramley Ltd was satisfied and settled in full by way of the issue of 882,500 ordinary shares to Bramley Ltd. Mr Simons (together with his wife and daughter) are discretionary beneficiaries of a trust, the trustees of which own Bramley Limited. No other transactions with related parties such as are required to be disclosed under Financial Reporting Standard 8 'Related Party Disclosures' occurred. The Company is today posting its Annual Report and Accounts to Shareholders. -END-

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