Annual Report and Accounts

AEC Education plc 30 June 2006 For immediate release Stock Exchange Announcement 30th June 2006 AEC Education PLC and its subsidiary companies Chairman's statement and Accounts for the year to 31st December 2005 Introduction I have pleasure in announcing the Company's results for the year to 30 December 2005. The Asian educational markets, where AEC operates, continued to be very competitive during the second half of the year. Despite this, overall revenues increased by 2.1% to £1,542,684. During the period the Company also made significant investment in marketing and product development staff in order to review non - profitable lines and develop new products and partnerships for launch during 2006. This investment increased operating costs significantly, with the result that post tax earnings for the year fell to £202,346 (2004 - £547,628). Review of 2005 Operations 2005 was a year of many challenges. Competition was keen. Government rules and regulations in our main markets of Malaysia and Singapore were changing and the demand pattern continued to move towards degree courses. The Company viewed these changes as an opportunity and devoted its efforts both, in terms of manpower and finance, to identify niche programmes to meet the changing demand in the Asian environment. At the same time it also took immediate steps to run down those programmes that were no longer viable. A major portion of the investment focused on the development of proprietary educational courses. These included a Hospitality programme leading to the award of an Advanced Diploma, a Diploma and Advanced Diploma in Travel & Tourism and other Business Management Programmes to meet the changing requirements in the region. Early childhood education is a strongly growing market and the Company is now positioned to avail itself of this opportunity by the introduction of an Early Childhood Education Programme. In addition to the above, greater collaboration with various universities was developed. A Diploma and Advanced Diploma in Business Administration were successfully introduced in collaboration with the UK's James Watt College. This programme is recognized by Scotland's Napier's University. These programmes are being promoted internationally and are currently being offered in China, Malaysia, Myanmar, India, Sri Lanka and Vietnam. The Company was also able to secure the rights to conduct doctoral programmes in education provided by the University of Leicester. ACCA accounting courses and the London Chamber of Commerce (LCCI) Graduate Access Programme have also been introduced. Future Plans Education continues to grow both in the region and internationally. AEC is well placed to face the challenges that this growth will bring. Considerable effort has been put in, in 2005, to strengthen the management and structure of the Company. The recent appointment of David Ho as Managing Director of the Asian operations brings a wealth of experience in international education and commercial development to the Company. Apart from organic growth, the Company is continuously looking at acquisitions that have niche education programmes in both the UK and overseas. Recently, the Company announced the acquisition of 64.8% of the equity of BrainBox Limited. This company operates in Vietnam, in a prestigious centre in Ho Chi Min City, providing a range of foreign languages and management studies. The Directors believe that this acquisition puts AEC in a strong position to be able to penetrate the lucrative education market in Vietnam and also use the company to recruit students for its operations in Singapore and Malaysia. Outlook Over the last year the Group has gone through a period of review and is now ready to push forward with the initiatives it started in 2005. The operations in Singapore and Malaysia will remain stable and are the shop window for a range of high quality programmes that can be delivered around the world. The Company will continue with its strategy of continuous product development and collaboration with relevant Universities and partners around the globe. It will continue to seek suitable acquisitions of schools and through this strategy steadily grow its student base and profitability. The Board expect the Company's plans to grow the revenue and profitability, to provide shareholders with steady growth from the current position. At the same time the Board are seeking acquisition opportunities that will add to steady underlying growth during the coming years. The Board would like to express its appreciation of the loyal support and dedication of the staff during what was a challenging year. William Swords Chairman The directors present their report and the audited financial statements of AEC Education Plc (the 'Company') and its subsidiary companies for the year ended 31 December 2005. PRINCIPAL ACTIVITY The principal activities of the Company are that of investment holding and provision of educational consultancy services. The principal activities of the subsidiary companies are set out in note 14 to the financial statements. There have been no significant changes in the nature of these activities during the year. REVIEW OF BUSINESS AND FUTURE DEVELOPMENTS. The markets that the company operate in were challenging in 2005. Nonetheless, revenue increased by 2.1%. Investment in staff for product development and marketing combined with the slow growth in the market caused earnings to fall to £202,346 (2004 - £547,628). The Board expect the new products for launch during 2006 to provide steady growth in revenue and earnings while it continues so seek suitable niche acquisitions. The financial risks for the Group are set out in note 31. RESULTS AND DIVIDENDS The consolidated profit and loss account for the year is set out on page 6. The consolidated profit for the year on ordinary activities after taxation amounted to £202,346 (2004: £547,628). An interim dividend of 1.6p per share was paid in July 2005. The directors do not recommend the payment of a final dividend (2004: £Nil). DIRECTORS The names of the directors who held office during the period and to date were: William Joseph Swords (Chairman) (Appointed 21 July 2004) Tunku Iskandar Bin Tunku Abdullah (Appointed 21 July 2004) Ramasamy Jayapal (Appointed 21 July 2004) Gopinath Pillai (Appointed 21 July 2004) Ravi Manchanda (Appointed 21 July 2004; Resigned 1August 2005) DIRECTORS' INTERESTS The directors holding office at the end of the financial year and their interests in the share capital of the Company and its related corporations as recorded in the register of directors' shareholdings were as follows: Name of directors and company in which interests are held At the beginning At the end of the year of the year Shares of Shares of £0.10 each £0.10 each William Joseph Swords - - Tunku Iskandar Bin Tunku Abdullah - - Ramasamy Jayapal 574,047 574,047 Gopinath Pillai - - Indirect Interest William Joseph Swords - - Tunku Iskandar Bin Tunku Abdullah 399,000 399,000 Ramasamy Jayapal - - Gopinath Pillai 25,000 25,000 SUBSTANTIAL SHAREHOLDINGS At 23rd June 2005, notification had been received of the following holdings of more than 3% of the issued capital of the Company. Apart from these, the directors are not aware of any individual interests or group of interests held by persons acting together, which exceeds 3% of the issued share capital. Shares of % £0.10 each Asian Excellence Conglomerate Pte Limited 2,174,127 14.58 KSP Investments Pte Limited 5,526,048 37.05 Ravi Manchanda 654,318 4.39 Naboobalan s/o Ramasamy Naidu 874,968 5.87 Ramasamy Jayapal 574,047 3.85 CREDITOR PAYMENT POLICY AND PRACTICE Group policy is to pay creditors in line with agreed credit terms and generally this policy is adhered to. On average, creditors were settled within 60 days of their due date except on disputed items. Trade creditor days of the Group for the tear ended 31 December 2005 were 52 days, calculated in accordance with the requirements set down in the Companies act 1985. This represents the ratio, expressed in days, between the amounts invoiced to the Group by its suppliers in the year and in the amounts due, at the year end to trade creditors within one year. AUDITORS On 3 October 2005 Moore Stephens, the Company's auditor transferred its entire business to Moore Stephens LLP, a limited liability partnership incorporated under the Limited Liability Partnership Act 2000. The directors have consented to treating the appointment of Moore Stephens as extending to Moore Stephens LLP with effect from 3 October 2005. A resolution to reappoint Moore Stephens LLP as the Company's auditors will be proposed at the annual general meeting. BY ORDER OF THE BOARD William Swords DIRECTOR 30 June 2006 STATEMENT OF DIRECTORS' RESPONSIBILITIES Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group and of the profit and loss of the Group for that period. In preparing those financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and to enable them to ensure that the financial statements comply with International Financial Reporting Standards and with the Companies Act 1985. They are also responsible for the system of internal control, safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with laws and regulations. INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF AEC EDUCATION PLC We have audited the group and parent company financial statements ('the ' financial statements') of AEC Education plc (the 'Company') for the period from 8th July 2004 (date of incorporation) to 31st December 2005 which comprise the Group and Company Income Statement, Balance sheets, Changes in Shareholder Equity and the Group and Company Cash Flow Statements and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As described in the Statement of Directors' Responsibilities the company's directors are responsible for the preparation of the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors' Report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We read the other information in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements within it. The other information accompanying the financial statements comprises the Chairman's Statement and the Directors' Report. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group and the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF AEC EDUCATION PLC (CONTINUED) Opinion In our opinion the financial statements • give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's and the parent company's affairs as at 31 December 2005 and of its result for the year then ended; and • have been properly prepared in accordance with the Companies Act 1985. St. Paul's House MOORE STEPHENS LLP London, EC4M 7BP England Registered Auditors 30 June 2006 Chartered Accountants CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2005 Note 2005 2004 £ £ Revenue Sale of services (4) 1,402,518 1,417,049 Other income (5) 140,166 93,903 1,542,684 1,510,952 Administrative expenses Cost of services sold 635,763 473,841 Salaries and employees' benefits (6) 334,426 236,976 Amortisation of deferred expenditure 9,135 8,624 Depreciation of plant and equipment 32,055 22,962 Finance costs (7) 2,939 2,321 Other operating expenses 393,307 222,617 Total operating costs and expenses 1,407,625 967,341 Operating profit (8) 135,059 543,611 Other income (9) - 6,685 Share of results of associated companies 67,620 10,566 Profit before income tax 202,679 560,862 Income tax (10) (333) (13,234) Profit for the year 202,346 547,628 Earnings per share (in pence) Basic (11) 1.4 4.6 Diluted (11) 1.4 4.6 BALANCE SHEETS AS AT 31 DECEMBER 2005 Group Company Note 2005 2004 2005 2004 £ £ £ £ Non-Current Assets Plant and equipment (12) 128,815 50,809 - - Development expenditure (13) 28,414 34,501 - - Investment in a subsidiary company (14) - - 1,308,639 1,308,639 Investment in associated companies (15) 1,393,934 1,248,509 - - 1,551,163 1,333,819 1,308,639 1,308,639 Current Assets Inventories (16) 86,370 88,112 - - Trade receivables (17) 252,288 140,353 - - Other receivables (18) 55,260 139,763 52,140 125,050 Deferred expenditure (19) 31,054 12,747 - - Due from subsidiary company (14) - - 343,000 - Due from associated companies (15) 67,106 154,190 - - Due from related parties (20) 484,210 344,652 - - Cash and bank balances (21) 89,679 421,172 4,280 408,246 1,065,967 1,300,989 399,420 533,296 Total Assets 2,617,130 2,634,808 1,708,059 1,841,935 EQUITY AND LIABILITIES Non Current Liabilities Deferred taxation (10) 480 12,877 - - Current Liabilities Trade payables (22) 90,283 205,613 - - Deferred income (23) 156,478 42,446 - - Other payables and accruals (24) 111,174 290,465 23,598 130,596 Bank overdraft (25) 120,549 31 - - Due to related parties (20) 50,639 12,522 - - Finance lease obligations (26) 1,755 - - - Loans payable (27) - 105,828 - - Provision for income tax 35,511 28,459 - - 566,389 685,364 23,598 130,596 Share Capital and Reserves Share capital (28) 1,491,604 1,491,604 1,491,604 1,491,604 Share premium 242,519 238,094 242,519 238,094 Reserves 316,138 206,869 (49,662) (18,359) 2,050,261 1,936,567 1,684,461 1,711,339 Total Equity and Liabilities 2,617,130 2,634,808 1,708,059 1,841,935 The financial statements were approved by the Board of Directors on 30 June 2006 and were signed on its behalf by: William Swords Chairman CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2005 Share Share Retained Translation Capital Capital Premium Earnings Reserves Reserves Total £ £ £ £ £ £ Group At 1 January 2004 - - 789,961 (101,633) 170,560 858,888 Issue of shares on incorporation 2 - - - - 2 Issue of shares in consideration for the acquisition of the entire share capital of AEC.Edu Group Pte Ltd 1,308,639 - - - - 1,308,639 Issue of shares for cash on 182,963 567,185 - - - 750,148 Admission to AIM Cost of issue of shares - (329,091) - - - (329,091) Profit for the year - - 547,628 - 547,628 Dividends paid (a) - - (1,271,456) - - (1,271,456) Gains not recognised in the profit and loss account - Currency translation - - - 71,809 - 71,809 difference Balance at 31 December 2004 1,491,604 238,094 66,133 (29,824) 170,560 1,936,567 Balance at 1 January 2005 1,491,604 238,094 66,133 (29,824) 170,560 1,936,567 Profit for the year - - 202,346 - - 202,679 Dividends paid (b) - - (238,657) - - (238,657) Cost of share issue - prior year - 4,425 - - - 4,425 overstated Gains not recognised in the profit and loss account - Currency translation - - - 145,580 - 145,247 difference Balance at 31 December 2005 1,491,604 242,519 29,822 115,756 170,560 2,050,261 (a) In 2004, a special dividend of £1,271,586 was paid by AEC.Edu Group Pte Ltd and its subsidiary companies prior to the acquisition of the entire share capital by the Company. (b) During the year, the Company paid an interim dividend of 1.6p per share amounting to £238,657. CONSOLIDATED CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2005 Group 2005 2004 £ £ Cash Flows from Operating Activities Profit before income tax 202,679 560,862 Adjustments for: Amortisation of deferred expenditure 9,135 8,624 Depreciation of plant and equipment 32,055 22,962 Interest expense 2,939 2,321 Gain on disposal of subsidiaries - (6,686) Share of results of associated companies (67,620) (10,566) Operating cash flow before working capital changes 179,188 577,517 Changes in working capital: Receivables (145,770) (7,330) Payables (49,990) (359,578) Inventories 1,742 (88,112) Related parties (6,746) 1,228,498 Net cash generated (used in)/from operations (21,576) 1,365,655 Interest paid (2,939) (2,321) Tax paid (5,678) (2000) Net cash generated (used in)/from operating activities (30,193) 1,361,334 Cash Flows from Investing Activities Purchase of plant and equipment (103,130) (4,218) Payments to a related party for acquisition of an associate - (1,271,456) Investment in associates - (14,940) Net cash flow on disposal of interests in subsidiary companies (A) - 1,413 Net cash used in investing activities (103,130) (1,211,276) Cash Flows from Financing Activities Proceeds from issue of shares 100,031 625,097 Costs of issue of shares (126,174) (198,492) Dividend paid (238,657) - Loan advances from third parties - 105,828 Repayment of loan from third parties (105,828) (79,698) Repayment of finance lease creditor (2,671) - Repayment of amount due to a director (7,611) (118,322) Net cash generated (used in)/from financing activities (380,910) 334,413 CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2005 Group 2005 2004 £ £ Balance brought forward (514,233) 406,546 Effect of foreign exchange rate changes on consolidation 62,222 (5,673) Net decrease in cash and cash equivalents (452,011) 400,873 Cash and cash equivalents at beginning of the year 421,141 20,268 Cash and cash equivalents at end of the year (30,870) 421,141 Cash and cash equivalents comprise the following: 2005 2004 £ £ Cash and bank balances 89,679 421,172 Amount due to banker (120,549) (31) (30,870) 421,141 (A) Summary of the Effect of the Disposal of Subsidiary Companies The effect on the individual assets and liabilities is set out below: 2005 2004 £ £ Cash and cash equivalent - 704 Other payable - (1,429) Amount due to related parties - (3,844) Net liabilities disposed of - (4,569) Gain on disposal of subsidiaries - 6,686 - 2,117 Less: Cash and cash equivalents of disposed subsidiaries (net) - (704) - 1,413 COMPANY PROFIT AND LOSS ACCOUNT FOR THE PERIOD FROM INCORPORATION ON 8TH JULY 2004 TO 31ST DECEMBER 2005 Period from Incorporation On 8th July 2004 to 31st December Note 2005 £ Administrative expenses Other operating expenses (136,801) Operating loss (8) (136,801) Other operating income 3,799 Interest receivable Dividends received 321,997 Loss before taxation 188,995 Income tax expense (11) - Dividends paid (238,657) Loss for the year (49,662) COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD FROM INCORPORATION ON 8TH JULY 2004 TO 31ST DECEMBER 2005 Share Share Retained Translation Capital Capital Premium Earnings Reserves Reserves Total £ £ £ £ £ £ Issue of shares on incorporation 2 - - - - 2 Issue of shares in consideration for the acquisition of the entire share capital of AEC.Edu Group Pte Ltd 1,308,639 - - - - 1,308,639 Issue of shares for cash on Admission to AIM 182,963 567,185 - - - 750,148 Cost of share issue - (324,666) - - - (324,666) Profit for the period - - 188,995 - 188,995 Dividends paid - - (238,657) (238,657) Balance at 31 December 2005 1,491,604 242,519 (49,662) - - 1,684,461 COMPANY CASH FLOW STATEMENT FOR THE PERIOD FROM INCORPORATION ON 8TH JULY 2004 TO 31ST DECEMBER 2005 Period from incorporation on 8th July 2004 to 31st December 2005 £ Cash Outflows from Operating Activities Loss from operations (133,002) (133,002) Changes in working capital Receivables (27,120) Payables 23,598 Related parties (343,000) Net cash generated used in operating activities (479,524) Cash Flows from Financing Activities Proceeds from issue of shares 725,130 Costs of issue of shares (324,666) Dividends received 321,997 Dividends paid (238,657) Net cash generated used in financing activities 379,693 Net decrease in cash and cash equivalents 4,280 Cash and cash equivalents at start of period - Cash and cash equivalents at end of the period 4,280 1 General AEC Education plc (the 'Company') is a limited liability company incorporated in England and Wales on 8 July 2004. The Company was admitted to AIM on 10 December 2004. Its registered office is 1 Park Row, Leeds LS1 5AB and its principal place of business is in Singapore. The principal activities of the Company are that of investment holding and provision of educational consultancy services. On 17th November 2004, the Company acquired the whole of the issued share capital of AEC Edu Group Pte Limited, a company incorporated in Singapore. The principal activities of the subsidiary companies are set out in Note 14 to the financial statements. There have been no significant changes in the nature of these activities during the year. The directors of the Company are considered to be key management. The Board of Directors have authorised the issue of these financial statements on the date of the Statement by directors set out on page 9. 2 Significant Accounting Policies (a) Basis of Preparation The financial statements have been prepared in accordance with applicable International Financial Reporting Standards ('IFRS') as adopted by the EU. The Group has not adopted early IFRS 7, Financial Instruments: Disclosures, which was published in August 2005 and is effective for accounting periods beginning 1 January 2007. The impact on the accounts had this standard been adopted early is disclosed in note 31. (b) Basis of Consolidation The Company acquired AEC Edu Group Pte Limited by way of a share for share exchange. The consolidated financial statements have been prepared on the basis of the pooling of interest method to reflect the effective Group re-structure by way of a share for share exchange with common shareholders. On this basis, the Company has been treated as the holding company of its subsidiary company for the financial years presented rather than from the date of its acquisition. Accordingly, the consolidated results of the Group for the financial year ended 31 December 2005 include the results of the Company and its subsidiary with effect from 1 January 2005. The comparative combined balance sheet and profit and loss account for the financial year ended 31 December 2004 has been prepared on the basis that the existing Group had been in place at 1 January 2004. All significant intercompany transactions and balances within the Group are eliminated in the preparation of the consolidated financial statements. 2 Significant Accounting Policies (continued) (b) Subsidiary Company A subsidiary company is an entity in which the Group, directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors or which the Group has power to govern the financial and operating policies. Investment in subsidiaries is stated in the financial statements of the Company at cost less impairment losses. The financial statements of subsidiaries acquired are consolidated in the financial statements of the Group from the date that control commences until the date control ceases, using the acquisition method of accounting. (c) Associated Companies Associates are those entities in which the Group has an interest of not less than 20% of the equity and in whose financial and operating policy decisions the Group exercises significant influence. The consolidated financial statements include the Group's share of the total recognised gains and losses of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. (d) Functional and Presentation Currency The consolidated financial statements have been presented with United Kingdom sterling as the presentation currency as the Company is incorporated in England and Wales with sterling denominated shares which are traded on AIM. Items included in the financial statements of each subsidiary of the Group are measured using the currency of the primary economic environment in which the subsidiary operates ('the functional currency'). In the opinion of the directors, Singapore dollars is the most appropriate functional currency. (e) Foreign Currency Translations Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are measured using the exchange rates prevailing at transaction dates, or in the case of the items carried at fair value, the exchange rates ruling when the values were determined. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and translation of foreign currency denominated assets and liabilities are recognised in the income statement. Assets and liabilities of the entities having functional currency other than the presentation currency are translated into sterling equivalents at exchange rates ruling at balance sheet date. Revenues and expenses are translated at average exchange rates for the year, which approximates the exchange rates at the dates of transactions. All resultant differences are taken directly to equity. On disposal 2 Significant Accounting Policies (continued) of a foreign entity, accumulated exchange differences are recognised in the income statement as part of the gain or loss on disposal. The following rates of exchange have been applied: 2005 2004 1£ to 1 Singapore Dollar Closing rate 2.87 3.15 Average rate 2.97 3.15 1Malaysian Ringgit to 1 Singapore Dollar Closing rate 2.25 2.31 Average rate 2.27 2.23 (f) Revenue Recognition Revenue is recognised on the following basis: (i) Course fees in respect of courses offered with no obligation to impart lessons are recognised when the students register for the course and collect the study materials. All other course fees are recognised as income based on classes conducted during year. (ii) Revenue from sub-letting of office space is recognised over the period of the lease. (iii) Consulting income is recognised on an accruals basis. (iv) Commission income is recognised when services are rendered. (v) Dividend income from investments in associated companies is recognised when the shareholders' rights to receive payment have been established. (vi) Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. (g) Borrowing Costs Borrowing costs incurred to finance the development of plant and equipment are capitalised during the period of time that is required to complete and prepare the asset for its intended use. The capitalised costs are depreciated over the useful life of the plant and equipment. Other borrowing costs including interest cost and foreign exchange differences, on short term borrowings are recognised on a time-apportioned basis in the profit and loss account using the effective interest method. 2 Significant Accounting Policies (continued) (h) Plant and Equipment Plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation policy, useful lives and residual values are reviewed at least annually, for all asset classes to ensure that the current method is the most appropriate. Expenditure incurred after the plant and equipment have been put into operation, such as repairs and maintenance is charged to the income statement. Expenditure for additions, improvements and renewals is capitalised when it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be realised from the use of the items of plant and equipment beyond their originally assessed standard of performance. Depreciation is calculated based on the straight-line method to write off the cost of plant and equipment over their estimated useful lives as follows: Furniture and fittings - 5 - 10 years Classroom and office equipment - 4 - 10 years Computers - 4 - 5 years Renovation - 5 years Motor vehicles - 5 years Library books - 5 - 10 years (i) Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand and bank deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. (j) Trade and Other Receivables Trade and other receivables, which generally have 30 to 90 days terms, are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method, less allowance for impairment. An allowance 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 term of the receivables. The amount of the allowance is the difference between the asset's carrying amount and the present value of the estimated cash flows discounted at the original effective interest rate. The amount of the allowance is recognised in the income statement. (k) Trade and Other Payables Trade and other payables, which are normally settled on 30 to 90 days term, are initially measured at fair value, and subsequently measured at amortised cost, using the effective interest method. 2 Significant Accounting Policies (continued) (l) Deferred Income Deferred income relates to course fees received in advance and is recognised in the income statement based on classes conducted. (m) Deferred Income Tax Current tax is the expected tax payable on the taxable income for the year based on the tax rate enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of prior years. Deferred tax is provided, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same tax authority. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiary companies and associated companies, except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. (n) Development Expenditure Development expenditure represents direct expenditure and related costs incurred in developing new courses and are capitalised and deferred only when there is a clearly defined project and the outcome of the project has been assessed with reasonable certainty as to its technical feasibility and its ultimate commercial viability. These costs are amortised over the expected course duration of not more than five years, starting in the year when the course commences. (o) Impairment of Assets An assessment is made at each balance sheet date of whether there is any indication of impairment of an asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset's recoverable amount is estimated. An asset's recoverable amount is calculated as the higher of the asset's value in use or its net selling price. 2 Significant Accounting Policies (continued) (o) Impairment of Assets (continued) Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 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. Impairment losses are recognised as an expense immediately, unless the relevant asset is 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. (p) Leases Leases where the lessor effectively retains substantially all the risks and rewards of ownership of the leased item are classified as operating leases. Operating lease payments are recognised as rental expenses in the income statement in equal annual amounts over the lease terms. (q) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, 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. (s) Employees' Benefits Defined contribution plans As required by Singapore law, the Group makes contributions to the Singapore state pension scheme, the Central Provident Fund ('CPF'). CPF contributions are recognised as compensation expense in the same year as the employment that gives rise to the contribution. Employee leave entitlement Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. 2 Significant Accounting Policies (continued) (t) Fair Value Estimation The carrying amount of current receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instrument. (u) Goodwill Goodwill arising on a business combination represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of the acquired subsidiary/associated company at the date of acquisition. All business combinations are accounted for using the purchase method. Goodwill is recognised as an asset and is tested annually for impairment and carried at cost less any impairment losses. Any impairment is recognised immediately as a charge to the income statement and is not subsequently reversed. (v) Deferred Expenditure Deferred expenditure relates to course fees and related expenses paid in advance and is recognised in the income statement based on classes conducted. Critical accounting judgements and key sources of estimation uncertainty In the process of applying the Group's accounting policies above, management necessarily make judgements and estimates that have a significant effect on the amounts recognised in the financial statements. Changes in the assumptions underlying the estimates could result in a significant impact to the financial statements. The most critical of these accounting judgement and estimation areas are noted. (i) Estimated Impairment of Goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2(v). The recoverable amount of goodwill of £907,680 stated in Note 15 is determined from value in use calculation. The key assumption for the value in use calculation are those regarding expected discounted future cash flows of the associated company. In the opinion of the directors, as at 31 December 2005 there is no indication of impairment in the value of goodwill. (ii) Income Taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the capital allowance, deductibility of certain expenses and taxability of certain income during the estimation of the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities based on estimates of whether additional taxes will be due. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such determination is made. (iii) Allowance for receivables The directors exercises their judgement in making allowances for receivables. A special provision allowance for receivables is made if the receivables are not collectible. There is no policy on general provision for receivables. (iv) Impairment of assets/(other than goodwill) The Group reviews the carrying amounts of assets as at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets' recoverable amount or value in use is estimated. Determining the value in use of plant and equipment, which requires the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such asset, requires the Company to make estimates and assumptions that can materially affect the financial statements. Any resulting impairment loss could have a material adverse impact on the Group's financial condition and results of operations. 3 Segmental Information All revenue and profit before taxation arises from operations in the education sector, and in South East Asia. 4 Sale of Services Group 2005 2004 £ £ Course fees 926,503 916,392 Sales of systems and support services 476,015 500,657 1,402,518 1,417,049 In 2004, included in course fees is an amount of £97,902 pertaining to revenue earned arising from an exchange of goods (Note 16). 5 Other Income Group 2005 2005 £ £ Application fees and registration fees 37,306 9,680 Commission income 344 49,545 Consultancy fees 40,404 - Training and support income - 4,523 Rental and related income 20,816 - Sale of material and textbooks 2,698 2,482 Summer camp income 22,980 26,996 Miscellaneous income 15,618 677 140,166 93,903 6 Salaries and Employees' Benefits Group 2005 2004 £ £ Staff salaries and related costs 246,978 184,852 Director's fee 22,500 38,273 Directors' remuneration 64,948 13,851 334,426 236,976 7 Finance Costs Group 2005 2004 £ £ Interest on bank overdraft 1,303 - Interest on loan from third party 1,536 2,321 Interest on hire purchase 100 - 2,939 2,321 8 Operating profit/loss Operating profit /loss is stated after charging the following: Group Company 2005 2004 2005 2004 £ £ £ £ Auditor's remuneration: In respect of audit services 12,000 - 12,000 - In respect of other services* 7,375 57,000 7,375 57,000 Amortisation of pre-operating expenses 16,748 - - - Bad debts written off 48,452 7,448 - - Exchange (gain)/loss (22,752) 11,650 - - Office and equipment rental 39,916 25,824 - - Write back of allowance for Impairment of trade receivables (1,703) (6,101) - - * Other services include acting on the Admission of the Company to AIM in 2004. 9 Other Income Group 2005 2004 £ £ Gain on disposal of investment in subsidiary companies - 6,685 - 6,685 10 Income Tax Tax expense attributable to the results is made up of: Group Company 2005 2004 2005 2004 £ £ £ £ Current income tax - 16,514 - - Deferred tax - (5,146) - - - 11,368 - - Underprovision in respect of prior years: Current income tax 13,464 1,593 - - Deferred tax (13,131) 273 - - Office and equipment rental 333 13,234 - - The reconciliation of the current year tax expense and the product of accounting profit multiplied by the Singapore statutory tax rate is as follows: Group 2005 2005 2004 2004 £ % £ % Profit before income tax 194,378 560,862 Income tax at the statutory rate of 30% 58,313 30.0 168,259 30.0 Difference arising from foreign tax rate 20,224 10.4 (24,592) (4.4) Non allowable items 23,375 12.0 9,461 1.7 Tax exempted income (95,296) (49.0) (121,778) (21.7) Singapore statutory stepped income (2,040) (1.0) (8,020) (1.4) exemption Future tax benefits not recognised (4,577) (2.4) 1,082 0.1 Under/(over) provision of income tax in 13,464 6.9 (5,147) (0.9) respect of prior years (Over)/under provision of deferred tax in (13,131) (6.8) 273 - prior years Utilisation of previously unrecognised tax - - (6,304) (1.1) benefits 333 (0.1) 13,234 2.3 At the balance sheet date, the Group had unabsorbed tax losses amounting to £16,727 (2004: £16,727) from pre-pioneer status year carried forward available for off-setting against future taxable profits for its subsidiary company in Malaysia. The utilisation of these tax losses is subject to the agreement with the tax authorities and compliance with certain provisions of the tax legislation. The 10 Income Tax (continued) deferred tax benefit arising from the unutilised tax losses has not been recognised in accordance with the accounting policy in Note 2(m) to the financial statements. Temporary differences arising from investment in subsidiary and associated companies are considered to be insignificant to the Group. Group Company 2005 2004 2005 2004 £ £ £ £ Composition of deferred taxation: On the excess of the net book value over tax written down value of plant and equipment 480 12,877 - - Analysis of provision for deferred taxation: Balance at the beginning of the year 12,877 12,877 Overprovision of deferred taxation (12,397) - - - Balance at the end of the year 480 12,877 - - 11 Earnings Per Share The earnings per ordinary share is based on profit attributable to shareholders amounting to £194,045 (2004:£ 547,628) and the weighted average number of ordinary shares in issue of 14,916,042 (2004: 11,903,557) shares. There is no dilution as the Group did not have any potential ordinary shares outstanding as at 31st December 2005 and 2004. 12 Plant and Equipment Classroom and office Furniture Motor Library equipment Renovation Computers & fittings vehicle books Total Group £ £ £ £ £ £ £ 2005 Cost As at 1 January 2005 15,658 34,888 3,522 73,346 392 1,993 129,799 Additions 71,199 12,716 21,776 1,865 - - 107,556 Currency realignment 1244 3,418 396 5,271 30 233 10,592 As at 31 December 2005 88,101 51,022 25,694 80,482 422 2,226 247,947 Accumulated depreciation As at 1 January 2005 6,929 27,295 2,194 41,366 196 1,010 78,990 Charge for the year 10,692 4,798 2,147 13,916 82 420 32,055 Currency realignment 1,068 2,849 293 3,765 18 94 8,087 As at 31 December 2005 18,689 34,942 4,634 59,047 296 1,524 119,132 Net book value At 31 December 2005 69,385 16,080 21,086 21,409 126 729 128,815 Classroom and office Furniture Motor Library equipment Renovation Computers & fittings vehicle books Total Group £ £ £ £ £ £ £ 2004 Cost As at 1 January 2004 13,454 34,510 3,250 73,587 401 2,064 127,266 Additions 2,465 751 272 730 - - 4,218 Disposal - - - (216) - - (216) Currency realignment (261) (373) - (755) (9) (71) (1,469) As at 31 December 2004 15,658 34,888 3,522 73,346 392 2,020 129,799 Accumulated depreciation As at 1 January 2004 4,036 23,937 1,734 26,822 120 619 57,268 Charge for the year 2,979 3,358 460 15,682 79 404 22,962 Disposal - - - (216) - - (216) Currency realignment (86) - - (922) (3) (13) (1,024) As at 31 December 2004 6,929 27,295 2,194 41,366 196 1,010 78,990 Net book value At 31 December 2004 8,729 7,593 1,328 31,980 196 983 50,809 At the balance sheet date, the Group's net book value of computers under finance lease arrangements amounted to £3,615 (2004: £Nil). 13 Development Expenditure Group 2005 2004 £ £ Cost At 1st January 2005 43,125 43,125 Addition - - Currency alignment 4,226 - At 31st December 2005 47,351 43,125 Amortisation At 1st January 2005 8,624 - Charge for the year 9,135 8,624 Currency alignment 1,178 At 31st December 2005 18,937 8,624 Net Book Value At 31st December 2005 28,414 34,501 14 Investment in Subsidiary Company Company 2005 2004 £ £ Investment in a subsidiary - AEC.Edu Group Pte Ltd Unquoted equity shares, at cost 1,308,639 1,308,639 Due from subsidiary company 343,000 - AEC Edu Group Pte Ltd is the Company's immediate subsidiary. The details of AEC Edu Group Pte Ltd and the subsidiaries and associates it held at 31 December 2005 are as follows: Subsidiary companies and country of Principal activities Equity held by incorporation (Place of business) the Company 2005 2004 % % AEC.Edu Group Pte Ltd Investment holding and (Singapore) provision of education consultancy services 100 100 (Singapore) Subsidiaries held by AEC Edu.Group Pte Ltd AEC Resource Development Pte Ltd Education, training and 100 100 (Singapore) human resource consultancy (Singapore) AEC Accountancy & Business School Pte Ltd Education, training and 100 100 (formerly known as Melewar Business School human resource consultancy Pte Ltd) (Singapore) (Singapore) The McGregorr Consultancts Pte Ltd Advisors and consultants for 100 100 (Singapore) further learning and dealing in study kits and manuals (Singapore) Flexi Learning Systems Pte Ltd Operator and agent of schools, 100 100 (Singapore) colleges, institutions, and professional associations in promoting training and Educational programmes and courses (Singapore) AEC Internet Education Technology Pte Ltd E-learning applications 100 100 service (Singapore) provider to develop, distribute and implement dynamic Educational content and innovative learning processes and software tools (Singapore) 14 Investment in Subsidiary Company (continued) The details of the subsidiary company as at 31 December 2005 are as follows: Subsidiary companies and country of Principal activities Equity held by Incorporation (Place of business) the Company 2005 2004 % % Subsidiaries held by AEC Edu.Group Pte Ltd AEC Edutech Sdn Bhd Development, management, 100 100 (Malaysia) * and provision of consultancy and market educational technology solutions related products (Malaysia) Brighton Commercial Training Centre Pte Ltd Technical, vocational and 100 - (Singapore) commercial education (Singapore) AEC Business School Pte Ltd Technical, vocational and 100 - (Singapore) commercial education (Singapore) In 2005, the subsidiary company, AEC.Edu Group Pte Ltd converted 2 sole-proprietors, Brighton Commercial Training Centre and AEC Business School to limited liability companies with a paid up capital of S$1 equivalent to 0.3367 pence each respectively. 15 Investment in Associated Companies Group 2005 2004 £ £ Unquoted shares, at cost 1,386,694 1,386,694 Goodwill transferred to capital reserves 14,038 14,038 Share of net postacquisition reserves Balance at beginning of year (152,223) (162,789) Share in profits for the year 99,283 28,640 Share of taxes (31,663) (18,074) Dividends received (45,263) - Currency alignment 123,068 Balance at end of year (6,798) (152,223) 1,393,934 1,248,509 Due from associated company 67,106 154,190 15 Investment in Associated Companies (continued) The carrying amount of the investment in associated companies includes goodwill of £907,680 (2004: £907,680).The amounts due from associated companies are trade in nature, unsecured, interest-free and payable within the next twelve months. Summarised financial information in respect of the Group's associated companies is set out below: 2005 2004 £ £ Total assets 2,558,434 2,562,990 Total liabilities (984,883) (1,152,224) Net assets 1,573,551 1,410,767 Revenue 2,952,900 2,435,418 Profit for the year 220,462 98,133 Details of associated companies are as follows: Associated companies and country of Principal activities Equity held by Incorporation (Place of business) the Group 2005 2004 % % Held by AEC.Edu Group Pte Ltd Keris Murni Sdn Bhd Provides education services and the 30 30 operation (Malaysia) of education tuition centres (Malaysia) Pusat Tiusyen Kasturi Sdn Provides education services and the 30 30 operation Bhd of education tuition centre (Malaysia) (Malaysia) Educational Resources Pte Provides consultancy services in education 34.96 34.96 Ltd related services and business training (Singapore) In the prior year, the a subsidiary company, AEC.Edu Group Pte Ltd acquired a 34.96% interest in Educational Resources Pte Ltd for a consideration of S$4 million (£1,271,459) from a related party (common directors/shareholders). The consideration was settled by a novation of related party balances, amounting to S$3,953,000 (£1,256,516) with the balance paid in cash. 15 Investment in Associated Companies (continued) In the opinion of the directors, the recoverable amount of the investment in associated companies is not less than the carrying amount of the investment on the basis that the present value of the estimated future cash flows expected to arise from the associated companies' operations over the next few years will exceed the carrying amount of the investment in these associated companies. 16 Inventories Inventories pertains to the net realisable value of goods received in exchange for the rendering of training services in the previous financial year. 17 Trade Receivables Group 2005 2004 £ £ Trade receivables are stated after deducting allowance for impairment of 37,529 17,298 Group 2005 2004 £ £ Trade receivables are denominated in the following currencies: Singapore dollars 250,728 135,863 Pound sterling - - Malaysian ringgit 1,560 4,490 252,288 140,353 18 Other Receivables Group Company 2005 2004 2005 2004 £ £ £ £ Deposits 1,795 1,179 - - Prepayments 227 459 - - Other debtors 53,238 138,125 52,140 125,050 55,260 139,763 52,140 125,050 Other receivables are denominated in the following currencies: Singapore dollars 2,145 8,873 - - Pound sterling 52,140 125,050 52,140 125,050 Malaysian ringgit 975 5,840 - - 55,260 139,763 52,140 125,050 19 Deferred Expenditure Deferred expenditure relates to consultancy and course fees paid in advance. Group Company 2005 2004 2005 2004 £ £ £ £ Deferred expenditure is denominated in the following currencies: Singapore dollars 31,054 12,747 - - 20 Due from/(to) Related Parties Related parties are entities (except for holding company and associated company) with common direct/indirect shareholders and directors. Parties are considered to be related (directly or indirectly) if one party has the ability to control or exercise significant influence over the other party in making financial and operating decision. The related parties are companies with common shareholders or directors. Group 2005 2004 £ £ Due from related parties Trade 223,527 66,270 Non-trade 260,673 278,382 484,210 344,652 Due to related parties Trade (27,407) - Non-trade (23,232) (5,337) (50,639) (5,337) Total 433,571 339,315 20 Due from/(to) Related Parties (continued) Group 2005 2004 £ £ Balances with related parties are denominated in the following currencies: Singapore dollar 186,920 233,715 Pound sterling Malaysian ringgit 246,651 105,600 433,571 339,315 The amount due from/(to) related parties are unsecured, interest-free and due within the next twelve months 21 Cash and Bank Balances Group Company 2005 2004 2005 2004 £ £ £ £ Cash and bank balances are denominated in the following currencies: Singapore dollars 65,764 10,916 - - Pound sterling 4,280 408,246 4,280 408,246 Malaysian ringgit 19,635 2,010 - - 89,679 421,172 4,280 408,246 22 Trade Payables Group Company 2005 2004 2005 2004 £ £ £ £ Trade payables balances are denominated in the following currencies: Singapore dollars 90,283 205,613 - - 23 Deferred Income Deferred income relates to course fees received in advance. Group Company 2005 2004 2005 2004 £ £ £ £ Deferred income is denominated in the following currencies: Singapore dollars 156,478 42,446 - - 24 Other Payables Group Company 2005 2004 2005 2004 £ £ £ £ Advance from staff - 497 - - Other creditors 61,480 206,962 23,598 130,596 Accrued expenses 49,694 83,006 - - 111,174 290,465 23,598 130,596 Other payables are denominated in the following currencies: Singapore dollars 84,329 159,866 - - Pound sterling 23,598 141,131 23,598 130,596 Malaysian ringgit 3,247 - - - 111,174 300,997 23,598 130,596 25 Bank Overdraft The bank overdraft facility of the Group is secured by a personal guarantee by a director and incurs interest of prime rate plus 2% per annum. The bank overdraft is payable within 12 months from the balance sheet date. 26 Finance Lease Obligations Group Group Present value Minimum of minimum lease payments lease payments 2005 2004 2005 2004 £ £ £ £ Within one year 1,806 - 1,755 - Less: Future finance charges (51) - - - Present value of lease obligations 1,755 - 1,755 - Effective rate of interest per - annum for hire purchase 4.5% Nil Finance lease creditors are denominated in the following currency: Singapore dollars 1,755 - 1,755 - 27 Loans Payable Group 2005 2004 £ £ Secured - 71,415 Unsecured - 34,413 - 105,828 Loan Payables are denominated in the following currency: Singapore dollars - 105,828 In the prior year, the secured loan represented the amount extended to a director of the Group by The 1 Group Plc (on behalf of Yourway Limited), a company incorporated in the United Kingdom, amounting to £75,000 to be used as a temporary advance to the Group for amounts owing to its creditors. The loan was repayable monthly at £3,500 commencing February 2005 and the balance (including unpaid interest fees and other sums payable) by 15 May 2005. The loan carried interest at 18% per annum. 27 Loans Payable (continued) The 1 Group Plc is a related party by virtue of a common director with the Group's ultimate holding company. This loan is secured by:- (a) a personal guarantee by a director; (b) shares of the ultimate holding company, AEC Edu Group PLC, amounting to £85,000 This secured loan was fully paid subsequent to year end by the ultimate holding company on behalf of the Group. The unsecured loans were from third parties, interest-free, and were fully repaid during the year. 28 Share Capital Group and Company 2005 2004 £ £ Authorised 50,000,000 ordinary shares of 10p each 5,000,000 5,000,000 Allotted, called up 14,916,042 ordinary shares of 10p each 1,491,604 1,491,604 The Company was incorporated on 8 July 2004 with the name Spurlynx public limited company, and changed its name to AEC Education plc on 11 November 2004. On incorporation, the Company had an authorised share capital of £100,000 divided into 100,000 shares of £1 each, of which 2 ordinary shares of £1 each were issued at par for cash. On 10 November 2004 the authorised share capital of the Company was increased by £1,300,000 by the creation of an additional 1,300,000 ordinary shares of £1 each, and subsequently each authorised and issued ordinary share of £1 was sub-divided into 10 Ordinary shares of 10p. On 17 November 2004 the authorised share capital of the Company was increased by £3,600,000 by the creation of an additional 36,000,000 Ordinary Shares of 10p each. On 19 November 2004, the Company was granted a certificate to trade under section 117 Companies Act 1985. On19 November 2004, the Company acquired the whole of the issued share capital of AEC Edu Group Pte Ltd, a company incorporated in the Republic of Singapore, in consideration for the issue of 13,086,394 Ordinary Shares of 10p each in the Company at par. 29 Related Party Transactions In addition to the related party information disclosed elsewhere in the consolidated financial statements, the Group had significant transactions with related parties on terms agreed between the parties as follows: Group 2005 2004 £ £ With a related party with common directors OLOL Management Service Pte Ltd - Course fees income 343,952 217,980 - Commission paid and payable (343,748) (171,322) Savant Infocomm Pte Ltd - Consultancy fees income (41,880) - AEC Property Management Pte Ltd - Office rental expenses (904) (22,359) - Air-conditioning and electricity charges expenses - (10,436) Integrative Organisational Learning Sdn Bhd - revenue - Royalty and Licensing 1,563 1,228 - Computer software and hardware 2,863 2,352 - Implementation, training and testing 2,978 2,238 - Management and consultancy fees 391 307 Open Learning Agensi Malaysia Sdn Bhd - revenue - Royalty and Licensing 16,877 15,665 - Computer software and hardware 30,920 30,006 - Implementation, training and testing 32,159 28,541 - Management and consultancy fees 4,219 3,916 QLA Learning Agency Malaysia Sdn Bhd -revenue - Royalty and Licensing 199 413 - Computer software and hardware 365 790 - Implementation, training and testing 379 752 - Management and consultancy fees 50 236 Intellectual Challenge Sdn Bhd -revenue - Royalty and Licensing 3,128 5,699 - Computer software and hardware 5,731 10,916 - Implementation, training and testing 5,961 10,383 - Management and consultancy fees 782 1,425 29 Related Party Transactions (continued) Group 2005 2004 £ £ With related parties with associated companies Genting Mutiara Sdn Bhd -revenue - Royalty and Licensing 10,238 8,316 - Computer software and hardware 18,756 15,929 - Implementation, training and testing 19,507 15,359 - Management and consultancy fees 2,559 2,079 Indo Pelangi Tegas Sdn Bhd - revenue - Royalty and Licensing 5,417 4,311 - Computer software and hardware 9,924 8,257 - Implementation, training and testing 10,321 7,854 - Management and consultancy fees 1,354 1,078 Jaguh Suria Sdn Bhd - revenue - Royalty and Licensing 3,608 3,533 - Computer software and hardware 6,609 6,768 - Implementation, training and testing 6,874 6,437 - Management and consultancy fees 902 883 Keris Murni Sdn Bhd -revenue - Royalty and Licensing 28,688 23,008 - Computer software and hardware 52,557 44,072 - Implementation, training and testing 54,663 41,921 - Management and consultancy fees 7,172 5,752 Pusat Tuiysen Sdn Bhd -revenue - Royalty and Licensing 19,422 19,925 - Computer software and hardware 35,582 38,166 - Implementation, training and testing 37,008 36,095 - Management and consultancy fees 4,856 4,848 Pelangi Tegas Sdn Bhd - revenue - Royalty and Licensing 6,376 5,594 - Computer software and hardware 11,681 10,715 - Implementation, training and testing 12,149 10,192 - Management and consultancy fees 1,594 1,398 29 Related Party Transactions (continued) Group 2005 2004 £ £ Key management personnel - Short term benefits 87,420 52,124 - post employment benefit 1,102 - 88,522 52,124 30 Operating Lease Commitments The Group leases its office premises for a period of 2 years, renewable for such period and under such terms and conditions as may be agreed upon with the lessor. There are no restrictions placed upon the Group in entering into these lease arrangements. At the balance sheet date, the future minimum rental payable under these non-cancellable operating leases are as follows:- Group 2005 2004 £ £ Payable: Within one year 4,387 17,546 Between two to five years - 4,387 4,387 21,933 31 Financial Instruments IFRS 7 Financial Instruments: Disclosure was issued in August 2005, but comes into force for accounting periods beginning on or after 1 January 2007. The Company is not intending to adopt the standard early. IFRS 7 will have no impact on the net assets of the Company or Group, but will require increased disclosure in respect of the credit, liquidity and market risks faced by the Company and Group. At the same time as IFRS 7 comes into force, IAS 1 is also amended to require additional disclosure in respect of capital. The impact of the revision of IAS 1 on the Company and Group will be limited, as neither the Company nor the Group is subject to externally imposed capital requirements. 31 Financial Instruments (continued) (a) Financial Risk Management Objectives and Policies The Group does not have written risk management policies and guidelines. Generally, the Group adopts conservative strategies in its risk management. The directors believe that the Group's exposure associated with these risks is minimal. (i) Credit risk The carrying amount of trade and other debtors, subsidiary companies and related parties' balances and cash represent the Group's maximum exposure to credit risk. The Group has no significant concentration of credit risk. (ii) Liquidity risk The Group adopts prudent liquidity risk management by maintaining sufficient cash and having adequate amount of credit facilities. Due to the nature of the Group's operations, the Group aims at maintaining flexibility in funding by keeping committed credit facilities available. (iii) Foreign exchange risk The Group incurs foreign currency risk on commission payable to universities, the sale of system and support services, and loan advanced from a third party are primarily denominated in currencies other than Singapore dollars. The currencies giving rise to this risk are Australian dollar, Singapore dollar and Malaysian ringgit. The Group does not use derivative financial instruments to hedge against the volatility associated with foreign currency transactions as the directors believe that the risks arising from fluctuations in foreign currency exchange rates are not significant. 31 Financial Instruments (continued) (iv) Interest risk The Group's exposure to market risk for changes in interest rates relate primarily to the Group's bank overdraft facility. The tables below set out the Group's exposure to interest rate risks. Included in the tables are the assets and liabilities at carrying amounts, categorised by the earlier of contractual re-pricing or maturity dates. Fixed rates Less Non-interest than Total 6 Bearing months £ £ £ At 31.12.2005 Assets Trade and other receivables - 858,864 858,864984,100 Cash and bank balances - 89,679 89,679 Non-financial assets - 1,668,587 1,668,587 Total assets - 2,617,130 2,617,130 At 31.12.2005 Liabilities Trade and other payables - 252,096 252,096 Borrowings 122,304 - 122,304 Non-financial liabilities - 192,469 192,469 Total Liabilities 122,304 444,565 566,869 31 Financial Instruments (continued) (a) Financial Risk Management Objectives and Policies (iv) Interest risk Fixed rates Less Non-interest than 6 Bearing Total months £ £ £ At 31.12.2004 Assets Trade and other receivables - 791,705 791,705 Cash and bank balances - 421,172 421,172 Non-financial assets - 88,112 88,112 Total assets - 1,300,989 1,300,989 Liabilities Trade and other payables - 561,578 561,578 Borrowings 105,859 - 105,859 Non-financial liabilities - 28,459 28,459 Total Liabilities 105,859 590,037 695,896 (b) Fair Values The fair value of financial assets and liabilities are not materially different from their carrying amounts because of the immediate or short-term maturity of these financial instruments. 32. Post Balance Sheet Events On 27 April 2006, AEC Edu Group Pte Ltd, a wholly owned subsidiary of the Company, entered into a sale and purchase agreement with a third party for the acquisition of 64.8% of the issued share capital of Brainbox Limited, a company incorporated in the British Virgin Islands, for a total purchase consideration of S$50,000 in cash. Pursuant to this agreement, the subsidiary has agreed to provide a loan of US$11,160 to Brainbox Limited for its business operation purposes. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 Page Chairman's Statement 1 Directors' Report 3 Independent Auditors' Report 6 Profit and Loss Account 8 Balance Sheets 9 Statement of Changes in Equity 10 Cash Flow Statement 11 Company Profit and Loss Account 13 Company statement of Changes in Equity 13 Company Cash Flow Statement 14 Notes to the Financial Statements 15 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 This information is provided by RNS The company news service from the London Stock Exchange

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