Final Results

AEC Education plc 26 June 2007 26th June 2007 AEC EDUCATION PLC ('AEC' or 'the Company') Audited Results for the Year Ended 31 December 2006 Set out below is a summary of the audited financial results for AEC for the year ended 31 December 2006. CHAIRMAN'S STATEMENT - DECEMBER 2006 Introduction It is my pleasure to announce the financial results of the Company for the financial year ended 31st December 2006. The Company operates in an increasingly competitive Asian environment and faced especially tough trading conditions in 2006. Overall revenues increased during the year by 2.4% to £1,579,204, compared to £1,542,684 in the year 2005 but an increase in operating expenses, due to a number of strategic program launches during the year, as well as the costs of winding down the unprofitable ones, led to a loss of £271,934 (2005 - profit of £202,346). The Board remains confident that AEC can meet its working capital requirements, including its plans for future growth. I am also delighted to state that the major shareholders have declared their full funding support for any synergistic acquisition oppportunities that may arise in the future. Review of 2006 Operations Acquisition of BrainBox Limited Vietnam has quietly been experiencing tremendous economic growth in the Asian region. In order to take advantage of this growth, the Company acquired 64.8% of the equity of BrainBox Limited in April 2006. Brainbox is a private education provider, based in Ho Chi Minh City ( the financial capital of Vietnam), specialising in Language training and Management Studies. Vietnam has opened its doors to the flood of global influences and its citizens are eager to be a part of this new world. This is driving an ever-increasing demand for English-language skilled management professionals and this acquisition positions us to take full advantage of these opportunities. In addition to the current programs running at BrainBox, the Company has launched new cross-border programs ( please see the Program Development section) in Vietnam. Of equal importance is the fact that this acquisition provides the Company with another channel for student recruitment for its programs in Singapore. Acquisition of Smartworks Learning Center Pte. Ltd. (SLC) The Asian region has been experiencing a surge in the real-estate and property market. Consequently, there is an increasing demand for qualified real-estate advisors and consultants. In order to leverage on this demand, AEC Edu Group Pte Ltd, a wholly-owned Singapore-based subsidiary of the Company, acquired 100% of Smartworks Learning Center Pte. Ltd.(SLC) , a private education provider focussed on real-estate marketing programs. SLC provides a distance learning program in real estate and marketing in collaboration with the University of South Australia and the College of Estate Management in the UK. SLC also conducts similar programs in partnership with Singapore Polytechnic. With this acquisition, AEC will be able to widen the range of education services it offers and take full advantage of the growing demand for such programs. Program Development During 2006, AEC Edu Group developed a number of programs to meet the increasing demand for courses focused on creative media/ arts and professional reskilling. Diploma/ Advanced Diploma Programs in Interactive Media With increasing government encouragement of gaming and digital media/content development in Singapore, there has been a surge of demand for professionals with skills in these technologies. In order to meet this demand, AEC has developed a Diploma and an Advanced Diploma program in Interactive Media and is currently running its fifth batch of students in Singapore. The program is accredited by Napier University in the UK. There are also plans to recruit international students for these programs. Diploma in Pre-School Teaching - Leadership In the wake of rising affluence and living standards in the communities that AEC serves, there is an increasing need to provide childcare support services to families where both parents work. AEC's Diploma program in Pre-School Teaching - Leadership is accredited by the Singapore Ministry of Community and Youth Services and the Singapore Ministry of Education and provides candidates with the necessary skills to manage pre-school centers and provide curriculum and operational support. The program is targetted at bringing older workers back into the workforce while utilising their earlier experiences in operational and managerial roles. Diploma /Advanced Diploma in Hospitality Management The enormous growth in tourism in Singapore and other regions in South-East Asia has created an increasing demand for Hospitality Management professionals. To meet this demand, AEC has recently launched the Diploma and Advanced Diploma programs in Hospitality Management in Vietnam through an innovative cross-border delivery mechanism. The students start the course in Vietnam and complete it in Singapore, thereby creating bi-lingual professionals who are at ease in the burgeoning global world. Future Plans The last couple of years have been spent consolidating and restructuring our business activities whilst identifying new strategic areas of opportunity in the ASEAN, with specific focus on Singapore and Malaysia. We have launched new programs to coincide with the economic growth patterns in the region whilst taking the hard decisions to close down those that have become obsolete. Given the slightly longer business cycles in the Education market your directors now expect to see a return on these initiatives over the next 2 -3 years. China and India are two of the most important markets in Asia and they provide enormous opportunities for AEC to grow. China is rapidly expanding its education umbrella in preparation for the Beijing Olympics in 2008 and the Shanghai World Expo in 2010. The country is urgently preparing its citizens for the bilingual requirements of these two mammoth events. AEC is currently evaluating how best to avail of the opportunities arising from this demand. With the rapid increase in demand for trained professionals by the service-industries, India requires a much larger talent pipeline than it currently possesses. AEC is well-poised to provide a series of skill-building and career-enhancing programs. We are, therefore exploring alliances and partnerships in the Indian market that will enable our programs and ongoing development to be fully exploited. Outlook The Board remains confident that the Company's plans for growth and a rapid return to profitability will provide shareholders with a steady growth in value. We believe that we have now taken the tough, yet practical decisions, which will yield these results in the future. We will continue to seek acquisitions that are synergistic with our operations and provide a coherent addition to our growth strategy. Our greatest asset is the commitment and creativity of our loyal employees. The Board would like to express its gratitude for their unstinting and steadfast support. William Swords Chairman DIRECTORS REPORT The directors present their report and the audited financial statements of AEC Education Plc (the 'Company') and its subsidiary companies for the year ended 31st December 2006. PRINCIPAL ACTIVITIES 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 13 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 and increasingly competitive in 2006. As shown in the consolidated profit and loss account on page 12, the Group's revenue increased by 2.4% to £1,579,204 compared to £1,542,684 in the year 2005 but an increase in operating expenses, investment in staff for product development and marketing, combined with the slow growth in the market caused earnings to fall to a loss of £271,934 (2005: profit of £202,346). The Board expect the new products for launch during 2006 to provide steady growth in revenue and earnings while it continues to seek suitable niche acquisitions. A review of the year's operations and future prospects is given in the Chairman's Statement. PRINCIPAL RISKS AND UNCERTAINTIES FACING THE GROUP The Group operates in an increasingly challenging environment mainly in Singapore and Malaysia. The principal risks it faces are similar to other businesses. Specifically, keen competition, changes in government policy on education, funding and accreditation are some of the factors that could affect the operations of the Group. Also the general economic and political environment and the exchange rate fluctuations play an important part in determining the risk the Group is exposed to. The Group manages these risks by monitoring the situation carefully and working closely with all the parties concerned to minimise the impact of any changes on the operations. FINANCIAL INSTRUMENTS The risks faced by the Group, including financial risk, credit risk, liquidity risk and cash flow interest rate risk and the Group's management of these risks are detailed in note 30 of the accounts. KEY PERFORMANCE INDICATORS 2006 2005 Sales growth 2.4% 2.1% Gross Margin 42.0% 58.0% Operating (loss) / profit (£292,563) £135,059 (Loss) / Earnings per share (1.8) pence 1.4 pence As explained in the Chairman's Statement on page 1, due to a number of strategic program launches during the year as well as the costs of winding down the unprofitable ones, this has resulted in a drop in gross margin by 16% in the year and the resulting operating loss of £292,563 as compared to an operating profit of £135,059 in the year 2005. 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 year ended 31 December 2006 were 52 days (2005: 52 days), calculated in accordance with the requirements set down in the Companies Act 1985. This represents the ratio, expressed in days, between 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. The Company has no trade creditors. DIVIDENDS The directors do not recommend the payment of a dividend for the year ended 31st December 2006 (2005: £NIL). DIRECTORS The names of the directors who held office during the year and to date were: William Joseph Swords (Chairman) Tunku Iskandar Bin Tunku Abdullah Ramasamy Jayapal Gopinath Pillai Ho Peng Cheong (Appointed on 6th March 2007) 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: At beginning At end Name of director and company in which interests are held 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 SHAREHOLDING At 18th April 2007, 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 Company's issued share capital. Shares of % £0.10 each KSP Investments Pte Limited 5,526,048 37.05 Pershing Keen Nominees Limited * 2,428,319 16.28 Ranch House Limited 2,000,000 13.41 Naboobalan s/o Ramansamy Naidu 874,968 5.87 Vidacos Nominees Limited 554,318 3.72 WB Nominees Limited 475,828 3.19 *Ramasamy Jayapal is deemed to have an interest in the shares held as follows: Pershing Keen Nominees Limited 574,047 DISCLOSURE OF INFORMATION TO AUDITORS At the date of making this report each of the persons who are directors at the time when this Report is approved confirms that: (a) so far as each director is aware, there is no relevant audit information of which the Company's auditors are unaware; and (b) each director has taken all the steps that ought to have been taken as a director, including making appropriate enquiries of fellow directors and of the Company's auditors for that purpose, in order to be aware of any information needed by the Company's auditors in connection with preparing their Report and to establish that the Company's auditors are aware of that information. AUDITORS 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 25 June 2007 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 THE AEC EDUCATION PLC Independent Auditors' Report to the Shareholders of AEC Education plc We have audited the group and parent company financial statements (the ' financial statements') of AEC Education plc for the year ended 31 December 2006 which are set out pages 12 to 51. 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 The directors' responsibilities for preparing the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors' Responsibilities. 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 whether the financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements. In addition we report to you if, in our opinion, 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 other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. This other information comprises only the Directors' Report and the Chairman's Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. 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 judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and 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. 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 2006 and of the group's and the parent company's result for the year then ended; • the financial statements have been properly prepared in accordance with the Companies Act 1985 and, as regards the group financial statements, Article 4 of the IAS Regulation; and • the information given in the Directors' Report is consistent with the financial statements. MOORE STEPHENS LLP St. Paul's House Registered Auditors London, EC4M 7BP England Chartered Accountants 25 June 2007 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Note 2006 2005 £ £ Revenue Sale of services (4) 1,463,782 1,439,824 Other income (5) 115,422 102,860 1,579,204 1,542,684 Administrative expenses Cost of services sold 911,220 635,763 Salaries and employees' benefits (6) 416,513 334,426 Amortisation of deferred expenditure 11,644 9,135 Depreciation of plant and equipment 42,478 32,055 Exchange loss 16,547 - Finance costs (7) 8,074 2,939 Other operating expenses 465,291 393,307 Total operating costs and expenses 1,871,767 1,407,625 Operating (loss) / profit (8) (292,563) 135,059 Share of results of associated companies 25,834 67,620 (Loss) / profit before income tax (266,729) 202,679 Income tax (9) (5,205) (333) (Loss) / profit for the year (271,934) 202,346 Attributable to: Equity holders of the Company (271,934) 202,346 Minority interest - - (271,934) 202,346 (Loss) / Earnings per share (in pence) Basic (10) (1.8) 1.4 BALANCE SHEETS AS AT 31 DECEMBER 2006 Group Company Note 2006 2005 2006 2005 £ £ £ £ Non-Current Assets Plant and equipment (11) 125,076 128,815 - - Development expenditure (12) 49,511 28,414 - Investment in a subsidiary company (13) - - 1,308,639 1,308,639 Investment in associated companies (14) 1,300,058 1,393,934 - - Goodwill (15) 117,855 - - 1,592,500 1,551,163 1,308,639 1,308,639 Current Assets Inventories (16) 5,936 86,370 - - Trade receivables (17) 460,036 252,288 - - Other receivables (18) 84,132 55,260 8,049 52,140 Deferred expenditure (19) 23,762 31,054 - - Due from subsidiary companies (13) - - 236,970 343,000 Due from associated companies (14) 169,098 67,106 - - Due from other related parties (20) 1,607 484,210 - - Cash and bank balances (21) 161,998 89,679 512 4,280 906,569 1,065,967 245,531 399,420 Total Assets 2,499,069 2,617,130 1,554,170 1,708,059 EQUITY AND LIABILITIES Non Current Liabilities Finance lease obligations (26) 1,200 - - - Deferred taxation (9) 75 480 - - 1,275 480 - - Current Liabilities Trade payables (22) 129,916 90,283 - - Deferred income (23) 244,630 156,478 - - Other payables and accruals (24) 274,655 111,174 46,811 23,598 Bank overdraft (25) 85,958 120,549 - - Due to other related parties (20) 39,613 50,639 - - Finance lease obligations (26) 1,900 1,755 - - Provision for income tax 29,554 35,511 - - 806,226 566,389 46,811 23,598 Share Capital and Reserves Share capital (27) 1,491,604 1,491,604 1,491,604 1,491,604 Share premium 242,519 242,519 242,519 242,519 Reserves (42,555) 316,138 (226,764) (49,662) 1,691,568 2,050,261 1,507,359 1,684,461 Minority interest in equity - - - Total Equity and Liabilities 2,499,069 2,617,130 1,554,170 1,708,059 The financial statements were approved by the Board of Directors on 25 June 2007 and were signed on its behalf by: William Swords Chairman CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Share Share Retained Translation Capital Capital Premium Earnings Reserves Reserves Total £ £ £ £ £ £ Group 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 - - 202,346 Dividend paid (a) - - (238,657) - - (238,657) Cost of share issue - prior year - 4,425 - - - 4,425 overstated Gains not recognised in the income statement - Currency translation - - - 145,580 - 145,580 difference Balance at 31 December 2005 1,491,604 242,519 29,822 115,756 170,560 2,050,261 Balance at 1 January 2006 1,491,604 242,519 29,822 115,756 170,560 2,050,261 Loss for the year - - (271,934) - - (271,934) Loss not recognised in the income - - - (86,759) - (86,759) statement - Currency translation difference Balance at 31 December 2006 1,491,604 242,519 (242,112) 28,997 170,560 1,691,568 (a) In 2005, the Company paid an interim dividend of 1.6 pence per share amounting to £238,657. CONSOLIDATED CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Group Note 2006 2005 £ £ Cash Flows from Operating Activities (Loss) / Profit before income tax (266,729) 202,679 Adjustments for: Amortisation of deferred expenditure 11,644 9,135 Depreciation of plant and equipment 42,478 32,055 Loss on disposal of plant and equipment 934 - Interest expense 8,074 2,939 Interest income (353) - Exchange gain 14 (1,725) - Currency alignment 14 63,090 (123,068) Share of results of associated companies (25,834) (67,620) Operating cash flow before working capital changes (168,421) 56,120 Changes in working capital: Receivables (286,565) (145,770) Payables 190,647 (49,990) Inventories 80,434 1,742 Related parties 471,577 71,059 Net cash generated from/(used in)operations 287,672 (66,839) Interest paid (8,074) (2,939) Interest received 353 - Tax paid (15,931) (5,678) Net cash generated from/(used in)operating activities 264,020 (75,456) Cash Flows from Investing Activities Dividend income received from an associated company 58,344 45,263 Purchase of plant and equipment (41,568) (103,130) Development expenditure (34,627) - Acquisitions of subsidiaries net of cash acquired 15 (58,394) - Net cash used in investing activities (76,245) (57,867) Group 2006 2005 £ £ Cash Flows from Financing Activities Proceeds from issue of shares - 100,031 Costs of issue of shares - (126,174) Dividend paid - (238,657) Receipt / (repayment) of loan from third parties - (105,828) Repayment of finance lease creditor (2,451) (2,671) Repayment of amount due to a director - (7,611) Net cash generated from / (used in) financing activities (2,451) (380,910) Effect of foreign exchange rate changes on consolidation (78,414) 62,222 Net increase / (decrease) in cash and cash equivalents 106,910 (452,011) Cash and cash equivalents at beginning of the year (30,870) 421,141 Cash and cash equivalents at end of the year =SUM(ABOVE) (30,870) 76,040 Cash and cash equivalents consist of the following: 2006 2005 £ £ Cash and bank balances 161,998 89,679 Bank overdraft (85,958) (120,549) 76,040 (30,870) COMPANY INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Note Period from Incorporation on 8th July 2004 to 31st December Year ended 31st 2005 December 2006 £ £ Administrative expenses Other operating expenses (187,896) (136,801) Operating loss (8) (187,896) (136,801) Other operating income Consultancy fee 10,000 - Interest receivable 716 3,799 Dividends received - 321,997 Miscellaneous income 78 - (Loss) / profit before taxation (177,102) 188,995 Income tax expense (9) - - (Loss) / profit after taxation (177,102) 188,995 Dividends paid - (238,657) (Loss) / profit for the year (177,102) 49,662 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Share Share Retained Capital Premium Earnings 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 As at 1 January 2006 1,491,604 242,519 (49,662) 1,684,461 Loss for the year - - (177,102) (177,102) Balance at 31 December 2006 1,491,604 242,519 (226,764) 1,507,359 COMPANY CASH FLOW STATEMENT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Company Period from Incorporation Year ended on 8th July 31st 2004 to December 31st December 2006 2005 £ £ Cash Outflows from Operating Activities Loss from operations (177,102) (133,002) (177,102) (133,002) Change in working capital Receivables 44,091 (27,120) Payables 23,213 23,598 Related parties 106,030 (343,000) Net cash generated used in operating activities (3,768) (479,524) Cash Flows from Financial 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 by financial activities - 483,804 Net (decrease) / increase in cash and cash equivalents (3,768) 4,280 Cash and cash equivalents at beginning of the year 4,280 - Cash and cash equivalents at end of the year 512 4,280 NOTES TO THE FINANCIAL STATEMENTS - 31 DECEMBER 2006 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. The principal activities of the subsidiary companies are set out in Note 13 to the financial statements. There have been no significant changes in the nature of these activities during the year. The Board of Directors have authorised the issue of these financial statements on the date of the Statement by directors set out on page 8. 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 European Union. (b) Basis of Consolidation The consolidation of AEC Edu. Group Pte Ltd has 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 during the period ended 31 December 2005. 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. Acquisitions since the Group re-structure are accounted for applying the purchase method. All significant intercompany transactions and balances within the Group are eliminated in the preparation of the consolidated financial statements. (c) 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 has the 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 purchase method of accounting. (d) Associated Companies Associates are those entities in which the Group has an interest of not less than 20% of the equity and over 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. When the audited financial statements of associated companies are not co-terminous with those of the Group, the Group's share of profits and losses is arrived at based on the last audited financial statements available and unaudited management accounts to the end of the accounting period. In the Company's balance sheet, investments in associates are stated at cost less any provision for impairment losses. (e) 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'). The primary functional currency of Group companies is Singapore Dollars. (f) 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 the 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 statements. Assets and liabilities of the entities having a functional currency other than the presentation currency are translated into sterling equivalents at exchange rates ruling at the 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 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: 2006 2005 1 £ to 1 Singapore Dollar Closing rate 3.00 2.87 Average rate 2.93 2.97 1 Malaysian Ringgit to 1 Singapore Dollar Closing rate 2.31 2.25 Average rate 2.31 2.27 (g) Revenue Recognition Revenue is recognised on the following basis: (i) Course fees are recognised as income based on classes conducted during year. (ii) All other 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. (iii) Revenue from sub-letting of office space is recognised over the period of the lease. (iv) Consulting income is recognised on an accrual basis based on agreed amounts between parties. (v) Commission income is recognised when services are rendered. (vi) Management fee income is recognised when services are rendered. (vii) Dividend income from investments in associated companies is recognised when the shareholders' rights to receive payment have been established. (viii) Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. (h) 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. (i) Plant and Equipment Plant and equipment are stated at cost less accumulated depreciated 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 capitalized when it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be realized 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 Plant and equipment held under finance leases are depreciated over their estimated useful lives on the same basis as owned assets or, where shorter, term of the relevant leases. (j) Cash and Cash Equivalents Cash and cash equivalents comprise cash in 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 cash flow statement. (k) 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. (l) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. Cost comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and conditions. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Allowance or impairment is made for obsolete, slow moving and defective stocks. (m) 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. (n) Deferred Income Deferred income relates to course fees received in advance and is recognised in the income statement based on classes conducted. (o) 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 income 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 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. 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. (p) 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. (q) 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. 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. (r) 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. (s) 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. (t) Employees' Benefits Defined contribution plans Contributions to defined contribution plans are recognised as an expense in the income statement as incurred. 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. (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. (w) Minority Interests Minority interests are that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. It is measured at the minorities' share of the fair value of the subsidiaries' identifiable assets and liabilities at the date of acquisition by the Group and the minorities' share of changes in equity since the date of acquisition, except when the losses applicable to minority interest in a subsidiary exceed the minority interests in the equity of that subsidiary, in which case, the losses are absorbed by the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover its share of those losses. 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(u). The recoverable amount of goodwill of £907,680 stated in Note 14 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 2006 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) Trade receivables The directors exercise their judgement in making allowances for trade receivables. Trade receivable are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. (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 in accordance with the accounting policy stated in note 2(p). 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 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 2006 2005 £ £ Course fees 1,412,760 926,503 Sales of systems and support services 14,741 476,015 Application fees and registration fees 36,281 37,306 1,463,782 1,439,824 In 2005, application fees and registration fees was classified as other income. 5 Other Income Group 2006 2005 £ £ Commission income - 344 Consultancy fees - 40,404 Exchange gain 647 - Interest income 1,069 - Rental and related income 92,746 20,816 Sale of material and textbooks 9,664 2,698 Summer camp income - 22,980 Miscellaneous income 11,296 15,618 115,422 102,860 6 Salaries and Employees' Benefits Group 2006 2005 £ £ Staff salaries and related costs 290,032 246,978 Director's fee 45,000 22,500 Directors' remuneration 81,481 64,948 416,513 334,426 Average number of employees: Administration 46 40 46 40 7 Finance Costs Group 2006 2005 £ £ Interest on bank overdraft 7,120 1,303 Interest on loan from third party - 1,536 Interest on finance lease 206 100 Others 748 - 8,074 2,939 8 Operating (loss) / profit Operating (loss) / profit is stated after charging the following: Group Company 2006 2005 2006 2005 £ £ £ £ Auditor's remuneration: - Fees payable to the Company's auditors 34,526 22,940 15,000 12,000 and their associates for statutory audits - Fees payable to the Company's auditors 5,696 5,479 3,540 1,000 and their associates for taxation services - Fees payable to the Company's 8,318 9,778 5,239 7,375 auditors' and their associates for other services Bad debts written off 7,628 48,452 - - Exchange loss / (gain) 16,547 (22,752) - - Inventory written off 47,482 - - - Loss on disposal of plant and equipment 934 - - - Amortisation of pre-operating expenses - 16,748 Office and equipment rental 146,373 39,916 1,200 3,500 Allowance for/(write-back of) impairment of trade receivables - net (854) (1,703) - - 9 Income tax Tax expense attributable to the results is made up of: Group Company 2006 2005 2006 2005 £ £ £ £ Current income tax 1,049 - - - Deferred tax - - - - 1,049 - - - (Over)/underprovision in respect of prior years:- Current income tax 4,156 13,464 - - Deferred tax - (13,131) - - 5,205 333 - - 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 2006 2005 £ % £ % (Loss) / profit before income tax (266,730) 202,679 Income tax at the statutory rate of 30% (80,019) 30.0 60,804 30.0 Difference arising from foreign tax rate 19,983 (7.5) 17,734 8.7 Non allowable items 49,990 (18.7) 23,375 11.5 Tax exempted income (68,214) 25.6 (95,296) (47.0) Group relief set-off (7,347) 2.8 Singapore statutory stepped income exemption - (2,040) (1.0) Future tax benefits not recognised 86,580 (32.5) (4,577) (2.2) Underprovision of income tax in respect of prior 4,155 (1.6) 13,464 6.6 years Under provision of deferred tax in prior years 77 - (13,131) (6.5) 5,205 (2.0) 333 (0.1) At the balance sheet date, the Group had unutilised tax losses and unabsorbed capital allowances amounting to approximately £153,445 (2005: £22,577) and £35,956 (2005: £Nil) respectively available for offsetting against future taxable profit for subsidiary companies in Singapore. The Group has unutilised tax losses amounting to £9,579 (2005: £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 deferred tax benefit arising from the unutilised tax losses has not been recognised in accordance with the accounting policy in Note 2(n) to the financial statements. Temporary differences arising from investment in subsidiary and associated companies are considered to be insignificant to the Group. Group Company 2006 2005 2006 2005 £ £ £ £ Composition of deferred taxation: On the excess of the net book value over tax written down value of plant and equipment 75 480 - - Analysis of provision for deferred taxation: Balance at the beginning of the year 480 12,877 - - Overprovision of deferred taxation (405) (12,397) - - Balance at the end of the year 75 480 - - 10 (Loss) / Earnings Per Share The (loss) / earnings per ordinary share is based on (loss) / profit attributable to shareholders amounting to £(271,934) (2005: profit of £202,346) and the weighted average number of ordinary shares in issue of 14,916,062 (2005: 14,916,062) shares. There is no dilution as the Group did not have any potential ordinary shares outstanding as at 31 December 2006 and 2005. 11 Plant and Equipment Classroom Furniture and office Motor Library Renovation Computers & fittings equipment vehicle books Total Group £ £ £ £ £ £ £ 2006 Cost As at 1 January 2006 88,101 51,022 25,694 80,482 422 2,226 247,947 Additions 27,294 5,435 9,657 1,950 - - 44,336 Disposals - (1,006) - - - - (1,006) Acquisition of subsidiary - 497 - - - - 497 Currency realignment (4,243) 40,126 8,959 (57,231) (24) (176) (12,589) As at 31 December 2006 111,152 96,074 44,310 25,201 398 2,050 279,185 Accumulated depreciation As at 1 January 2006 18,689 34,942 4,634 59,047 296 1,524 119,132 Charge for the year 21,342 9,803 7,742 3,092 81 418 42,478 Disposal - (96) - - - - (96) Currency realignment (1,637) 36,508 6,846 (49,006) (19) (97) (7,405) As at 31 December 2006 38,394 81,157 19,222 13,133 358 1,845 154,109 Net book value At 31 December 2006 72,758 14,917 25,088 12,068 40 205 125,076 Classroom Furniture and office Motor Library Renovation Computers & fittings equipment 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 1,244 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 69,412 16,080 21,060 21,435 126 702 128,815 At the balance sheet date, the Group's net book value of computers under finance lease arrangements amounted to £3,504 (2005: £3,615). 12 Development Expenditure Group 2006 2005 £ £ Cost As at beginning of the year 47,351 43,125 Addition 33,754 - Currency realignment (2,173) 4,226 As at end of the year 78,932 47,351 Amortisation As at beginning of the year 18,937 8,624 Charge for the year 11,644 9,135 Currency realignment (1,160) 1,178 As at end of the year 29,421 18,937 Net Book Value As at end of the year 49,511 28,414 13 Investment in Subsidiary Company Company 2006 2005 £ £ Investment in a subsidiary - AEC.Edu Group Pte Ltd Unquoted equity shares, at cost 1,308,639 1,308,639 Due from subsidiary company 236,970 343,000 AEC Edu Group Pte Ltd is the Company's immediate subsidiary. The details of AEC Edu Group Pte Ltd and the subsidiaries companies it held at 31 December 2006 are as follows: Subsidiary companies and country of Principal activities Equity held by incorporation (Place of business) the Company 2006 2005 % % 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 (Singapore) human resource consultancy (Singapore) The McGregorr Consultants 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) The details of the subsidiary company as at 31 December 2006 are as follows: Subsidiary companies and country of Principal activities Equity held by incorporation (Place of business) the Company 2006 2005 % % 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) Brainbox Limited Consulting & marketing in 64.8 - (British Virgin Island) education, training and related services (Vietnam) Smartworks Learning Centre Pte Ltd Commercial education and 100 - (Singapore) provide training in property investments, consultancy and maintenance (Singapore) Held by AEC Edutech Sdn Bhd Dormant 100 100 ST Synergy (Malaysia) Sdn Bhd (Malaysia) Held by Brainbox Limited Brainbox Foreign Training courses in foreign 64.8 - languages and business Language & administration Management Studies (Vietnam) Training Center (Vietnam) In 2005, AEC Edu Group Pte Ltd converted 2 sole-proprietors, Brighton Commercial Training Centre and AEC Business School to limited liability companies with paid up capital of S$1 each respectively. In the opinion of the directors, the recoverable amount of the investment in subsidiary 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 subsidiaries' operations over the next few year will exceed the carrying amount of the investment in these subsidiaries. 14 Investment in Associated Companies Group 2006 2005 £ £ Unquoted shares, at cost 1,386,694 1,386,694 Goodwill transferred to capital reserves 14,038 14,038 Share of net post-acquisition reserves Balance at beginning of year (6,798) (152,223) Exchange gain 1,725 - Share in profits for the year 31,562 99,283 Share of taxes (5,729) (31,663) Dividends received (58,344) (45,263) Currency alignment (63,090) 123,068 Balance at end of year (100,674) (6,798) 1,300,058 1,393,934 Due from associated company 169,098 67,106 The carrying amount of the investment in associated companies includes goodwill of £907,680 (2005: £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 Company's associated companies is set out below: 2006 2005 £ £ Total assets 2,433,122 2,558,434 Total liabilities (1,112,103) (984,883) Net assets 1,321,019 1,573,551 Revenue 2,459,957 2,952,900 Profit for the year 70,687 220,462 Details of associated companies are as follows: Associated companies and country of Principal activities Equity held by incorporation (Place of business) the Group 2006 2005 % % Held by AEC.Edu Group Pte Ltd Keris Murni Sdn Bhd Provides education services and the 30 30 operation (Malaysia) of education tuition centers (Malaysia) Pusat Tuisyen 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) (Singapore) 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. 15 Goodwill Group 2006 2005 £ £ Cost At beginning of the year - - Additions 117,855 - At end of the year 117,855 - Provision for impairment in value At beginning and end of year - - At end of the year 117,855 - Goodwill arose in the year as a result of acquisitions by the Group. On 27 April 2006, the Group acquired 64.8% of Brainbox Limited, a company incorporated in British Virgin Island for a consideration of £16,650. The fair values of net assets acquired were as follows: £ Net assets acquired - Goodwill 16,650 Total purchase price 16,650 Less: Cash of Brainbox Limited - Cash flow on acquisition net of cash acquired 16,650 On 5 September 2006, the Group acquired the entire share capital of Smartworks Learning Centre Pte Ltd ('Smartworks'), a company incorporated and operating in Singapore, which provides a distance learning programme in real estate and marketing in collaboration with the University of South Australia and the College of Estate Management in the UK, for a total consideration of £147,180. The consideration comprised cash and £73,590 was paid on completion from existing cash resources and £73,590 is to be paid six months after completion date. The deferred consideration of £73,590 was paid on 5 March 2007. The fair values of net assets acquired were as follows: £ Cash and cash equivalent 105,436 Trade receivables 13,370 Other receivables 31,385 Plant and equipment 745 Trade and other payables (104,961) Net assets acquired 45,975 Goodwill 101,205 Total purchase price 147,180 Less: Cash of Smartworks (105,436) Cash flow on acquisition net of cash acquired 41,744 16 Inventories Inventories pertains to the net realisable value of goods received in exchange for the rendering of training services in 2004. 17 Trade Receivables Group 2006 2005 £ £ Trade receivables are stated after deducting allowance for impairment of 24,331 37,529 Group 2006 2005 £ £ Trade receivables are denominated in the following currencies: Singapore dollars 300,725 250,728 Pound sterling 714 - Malaysian ringgit 158,597 1,560 460,036 252,288 18 Other Receivables Group Company 2006 2005 2006 2005 £ £ £ £ Deposits 1,618 1,795 - - Prepayments 24,194 227 - - Other debtors 58,320 53,238 8,049 52,140 84,132 55,260 8,049 52,140 Other receivables are denominated in the following currencies: Singapore dollars 18,315 2,145 - - Vietnamese dong 57,156 - - - Pound sterling 7,335 52,140 8,049 52,140 Malaysian ringgit 1,326 975 - - 84,132 55,260 8,049 52,140 19 Deferred Expenditure Deferred expenditure relates to consultancy and course fees paid in advance. Group Company 2006 2005 2006 2005 £ £ £ £ Deferred expenditure is denominated in the following currencies: Singapore dollars 23,762 31,054 - - 20 Due from/(to) Other Related Parties Related parties are entities (except for subsidiary companies and associated companies) 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 by virtue of such common interests. Group 2006 2005 £ £ Due from related parties Trade - 223,567 Non-trade 1,607 260,643 1,607 484,210 Due to related parties Trade (16,391) (27,407) Non-trade (23,222) (23,232) (39,613) (50,639) Total (38,006) 433,571 Balances with related parties are denominated in the following currencies: Singapore dollar (38,006) 186,920 Malaysian ringgit - 246,651 (38,006) 433,571 The amounts due (to) / from related parties are unsecured, interest-free and due within the next twelve months. 21 Cash and Bank Balances Group Company 2006 2005 2006 2005 £ £ £ £ Cash and bank balances are denominated in the following currencies: Singapore dollars 149,886 65,764 - - Vietnamese dong 3,745 - - - Pound sterling 512 4,280 512 4,280 Malaysian ringgit 7,855 19,635 - - 161,998 89,679 512 4,280 22 Trade Payables Group Company 2006 2005 2006 2005 £ £ £ £ Trade payables balances are denominated in the following currencies: Singapore dollars 129,916 90,283 - - 23 Deferred Income Deferred income relates to course fees received in advance. Group Company 2006 2005 2006 2005 £ £ £ £ Deferred income is denominated in the following currencies: Singapore dollars 244,630 156,478 - - 24 Other Payables Group Company 2006 2005 2006 2005 £ £ £ £ Other creditors 152,470 61,480 22,061 23,598 Accrued expenses 122,185 49,694 24,750 - 274,655 111,174 46,811 23,598 Other payables are denominated in the following currencies: Singapore dollars 189,964 84,329 - - Vietnamese dong 35,430 - - - Pound sterling 46,809 23,598 46,811 23,598 Malaysian ringgit 2,452 3,247 - - 274,655 111,174 46,811 23,598 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 2006 2005 2006 2005 £ £ £ £ Within one year 2,124 1,806 1,900 1,755 Due after one year 1,239 - 1,200 - 3,363 1,806 3,100 1,755 Less: Future finance charges (263) (51) - - Present value of lease obligations 3,100 1,755 3,100 1,755 Effective rate of interest per annum for finance lease 5.4% 4.5% Finance lease creditors are denominated in the following currency: Singapore dollars - 1,755 Malaysian ringgit 3,100 - 3,100 1,755 27 Share Capital Group and Company 2006 2005 £ £ 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 28 Related Party Transactions In addition to the related party information disclosed elsewhere in the consolidated financial statements, there were the following significant transactions with related parties on terms agreed between the parties: Group Company 2006 2005 2006 2005 £ £ £ £ With subsidiary AEC Edu Group Pte Ltd - Consultancy fee income - - 10,000 - - Management fee paid - - (25,000) - With a related party with common directors OLOL Management Service Pte Ltd - Commission paid and payable (411,687) (343,748) - - Savant Infocomm Pte Ltd - Consultancy fees income - (41,880) - - - Accounting fees (28,598) - (6,000) - AEC Property Management Pte Ltd - Office rental expenses - (904) - - - Air-conditioning and electricity charges - - - - expenses Integrative Organisational Learning Sdn Bhd - revenue - Royalty and Licensing - 1,563 - - - Computer software and hardware - 2,863 - - - Implementation, training and testing - 2,978 - - - Management and consultancy fees - 391 - - Open Learning Agency Malaysia Sdn Bhd - revenue - Royalty and Licensing - 16,877 - - - Computer software and hardware - 30,920 - - - Implementation, training and testing - 32,159 - - - Management and consultancy fees - 4,219 - - QLA Learning Associates Malaysia Sdn Bhd -revenue - Royalty and Licensing 121 199 - - - Computer software and hardware 170 365 - - - Implementation, training and testing 282 379 - - - Management and consultancy fees 30 50 - - Intellectual Challenge Sdn Bhd -revenue - Royalty and Licensing - 3,128 - - - Computer software and hardware - 5,731 - - - Implementation, training and testing - 5,961 - - - Management and consultancy fees - 782 - - With associated companies and its related companies Genting Mutiara Sdn Bhd -revenue - Royalty and Licensing 8,731 10,238 - - - Computer software and hardware 12,270 18,756 - - - Implementation, training and testing 20,364 19,507 - - - Management and consultancy fees 2,183 2,559 - - Indopelangi Sdn Bhd - revenue - Royalty and Licensing 4,941 5,417 - - - Computer software and hardware 6,943 9,924 - - - Implementation, training and testing 11,524 10,321 - - - Management and consultancy fees 1,235 1,354 - - Jaguh Suria Sdn Bhd - revenue - Royalty and Licensing 4,431 3,608 - - - Computer software and hardware 6,226 6,609 - - - Implementation, training and testing 10,333 6,874 - - - Management and consultancy fees 1,108 902 - - Keris Murni Sdn Bhd -revenue - Royalty and Licensing 23,472 28,688 - - - Computer software and hardware 32,984 52,557 - - - Implementation, training and testing 54,743 54,663 - - - Management and consultancy fees 5,868 7,172 - - Pusat Tiusyen Kasturi Sdn Bhd -revenue - Royalty and Licensing 17,376 19,422 - - - Computer software and hardware 24,418 35,582 - - - Implementation, training and testing 40,525 37,008 - - - Management and consultancy fees 4,344 4,856 - - Pelangi Tegas Sdn Bhd - revenue - Royalty and Licensing 5,862 6,376 - - - Computer software and hardware 8,237 11,681 - - - Implementation, training and testing 13,671 12,149 - - - Management and consultancy fees 1,465 1,594 - - Group 2006 2005 £ £ Key management personnel - Short term benefits 123,417 87,420 - Post employment benefit 3,063 1,102 126,480 88,522 A director, Mr Ho Peng Cheong, had an interest in contracts of the company during the year by reason of his 1% shareholding in the ultimate holding company of the following: Integrative Organisation Learning Sdn Bhd Open Learning Agency Malaysia Sdn Bhd QLA Learning Associates Malaysia Sdn Bhd Intellectual Challenge Sdn Bhd 29 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. The Group also leases various plant and machinery under non-cancellable operating lease arrangements. The lease expenditure charged to the income statement during the financial year is disclosed in Note 8. At the balance sheet date, the future minimum rental payable under these non-cancellable operating leases are as follows:- Group 2006 2005 £ £ Payable: Within one year 117,544 119,472 Between two to five years 10,081 99,560 127,625 219,032 30 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. 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 has also been 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. (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 receivables, 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 loans advanced from third parties that 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. (iv) Interest rate 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 repricing or maturity dates. Fixed rates Less Non-interest than 6 Bearing Total months £ £ £ At 31.12.2006 Assets Trade and other receivables - 714,873 714,873 Cash and bank balances - 161,998 161,998 Non-financial assets - 1,622,198 1,622,198 Total assets - 2,499,069 2,499,069 At 31.12.2006 Liabilities Trade and other payables - 473,738 473,738 Borrowings 89,058 - 89,058 Non-financial liabilities - 244,705 244,705 Total Liabilities 89,058 718,443 807,501 Fixed rates Less Non-interest than 6 Bearing Total months £ £ £ At 31.12.2005 Assets Trade and other receivables - 858,864 858,864 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 - 287,607 287,607 Borrowings 122,304 - 122,304 Non-financial liabilities - 156,958 156,958 Total Liabilities 122,304 444,565 566,869 (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. 31 Comparative figures Certain comparative figures have been reclassified to confirm with the current year's presentation as follows: 2005 2005 Before After reclassification reclassification Effect £ £ £ Group Income Statement Sale of services (1,402,518) (1,439,824) (37,306) Other income (140,166) (102,860) 37,306 The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2006, but is derived from those accounts. Statutory accounts for the period have been delivered to the Registrar of Companies. Copies of the accounts will be posted to shareholders very shortly. **End** For further information please visit www.aec.edu.sg or enquire to: Liam Swords, Chairman 020 8308 1202 / 07775 787427 AEC Education plc David Nabarro / Anthony Rowland 020 7710 7400 Nabarro Wells & Co Limited This information is provided by RNS The company news service from the London Stock Exchange

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