Final Results

Octopus AIM VCT PLC Final Results 8 June 2010 Octopus AIM VCT plc, managed by Octopus Investments Limited, today announces the final results for the year ended 28 February 2010. These results were approved by the Board of Directors on 8 June 2010. You may view the Annual Report in full at www.octopusinvestments.com < http://www.octopusinvestments.com/> by navigating to Services, Investor Services, Venture Capital Trusts, Octopus AIM VCT plc. All other statutory information will also be found there. Financial Summary +------------------------+ | | Year to 28 February   |Year to 28 February 2010| 2009* | |   |  | | | Net assets (£'000) | 23,644| 19,443 | | Net profit/(loss) after tax| | (£'000) | 6,551| (12,285) | | Net asset value per share| | ("NAV") | 82.0p| 64.50p | |   |  | | |   |  | +------------------------+ *The comparative figures are the cumulative of both Ordinary shares and New Ordinary shares The table below shows the Net Asset Value (NAV) per share and lists the dividends that have been paid since the launch of Octopus AIM VCT plc: Dividends paid in the Period Ended New Ordinary shares Ordinary shares  C shares D shares 28 February 1999 - 1.88p - - 29 February 2000 - 3.13p - - 28 February 2001 - 37.25p - - 28 February 2002 - 6.50p 2.55p - 28 February 2003 - 3.50p 1.50p - 29 February 2004 - 0.50p 0.50p - 28 February 2005 - 0.50p 0.50p 0.50p 28 February 2006 - 2.15p 2.31p* 2.25p 28 February 2007 - 4.20p 4.52p* 3.30p 31 August 2007 - 2.50p 2.69p* 2.50p 29 February 2008 - 2.50p 2.69p* 2.50p 31 August 2008 - 2.50p 2.69p* 2.50p 28 February 2009 2.50 1.36p* 1.47p* 2.50p* 31 August 2009 2.50 1.36p* 1.47p* 2.50p* 28 February 2010 2.50 1.36p* 1.47p* 2.50p* Total dividends (capital 71.19p and revenue) 7.50p 24.36p 21.05p NAV at 28 February 2010 82.00p 44.61p 48.02p 82.00p NAV plus cumulative dividends paid at 28 115.80p February 2010** - 72.38p 103.05p * Notional dividends adjusting for conversion. ** Notional NAV plus cumulative dividends based on NAV adjusting for conversion Notes <li>    The Ordinary shares were first listed on 17 March 1998. <li>    Dividends paid before 5 April 1999 were paid to qualifying shareholders inclusive of the associated tax credit. <li>    The C shares, first listed in February 2001, were converted into Ordinary shares on 31 May 2004, in accordance with the conversion factor of 1.0765 Ordinary shares for each C share. This adjustment is shown in the net asset value per C share above. <li>    The D shares were first listed on 17 March 2004. <li>    The Ordinary shares were converted into D shares on 31 May 2008, in accordance with the conversion factor of 0.5448 D shares for each Ordinary share. This adjustment is shown in the net asset value per Ordinary share above. <li>    New D shares issued between 6 January 2005 and 8 April 2005, did not rank for the final dividend. <li>    All dividends paid by the Company are free of income tax. It is an HM Revenue & Customs requirement that dividend vouchers indicate the tax element should dividends have been subject to income tax. Investors should ignore this figure on their dividend voucher and need not disclose any income they receive from a VCT on their tax return. <li>    The above table excludes the tax benefits investors received upon subscription. <li>    The net asset value of the Company is not its share price as quoted on the official list of the London Stock Exchange. The share price of the Company can be found in the Investment Companies section of the Financial Times on a daily basis. Investors are reminded that it is common for shares in VCTs to trade at a discount to their net asset value, primarily as a result of the initial tax relief which is non-transferable. Chairman's Statement Introduction I am glad to be able to report that the Net Asset Value of your shares increased by 34.9% (after adding back the 5p dividend) to 82.0p during the year to 28 February 2010.  The discount against net asset value at which your shares stand in the market was 10% at the year end, which is the figure your board seeks to achieve by the repurchase of shares.  1,176,233 were purchased during the year bringing the number of shares held in treasury to 9% of the total number of shares in issue.  Your Board had hoped that HMRC rules might change to enable such shares to be sold with an upfront tax break.  However as this has not occurred your Board has decided that it will cancel shares held in treasury. Temporary suspension of share buybacks and dividends On 26 March 2010 a regulatory announcement was made by the Company informing shareholders that, as a result of the Company not having sufficient distributable reserves, the Company would suspend its share buyback policy.  The announcement also stated that certain share buybacks had been effected and dividends paid without the Company having the necessary distributable reserves as required by the Companies Act 2006. An Extraordinary General Meeting will be held on 1 July 2010 at which resolutions will be proposed, both to remedy the share buybacks already effected and dividends already paid, and to place the Company into the position to allow it to pay dividends and to resume its share buyback policy. In order to complete this, the Company will require the approval of the High Court. The Budget There were a number of changes mooted in the recent budget, but in the end the proximity of the General Election meant that all of these were shelved.  It remains to be seen what will happen later in the year.  Any reversal of the recent trend to place increasing restrictions on the size and other characteristics of qualifying investments for new monies raised would be welcome as  a way to help companies not only when they are tiny, but also as they grow. Performance Dividends of 5 pence in total have been paid in the year to 28 February 2010 and they need to be added back to the year end NAV to provide a figure comparable to the movement in indices.  The adjusted NAV rose by 34.9%, which although welcome, fell short of the 71.6% achieved by the AIM Index. The latter was propelled by a high weighting in resource stocks which rebounded from their lows during the year and in which VCTs are unable to invest.  The manager's review covers the progress made in many investments and the potential for this to be realised in share prices when the appetite for small company shares returns in more detail. Portfolio Purchases and sales in the year totalled £2.8 million and £4.8 million respectively. Our investment in Mears Group will cease to be a qualifying investment in June, on the second anniversary of its move to the full list. Although it is a pity to have to dispose of a profitable, dividend paying investment that we have held for many years, it has been a tremendous performer for the fund, with the initial investment made at 13p compared to a market value of £2.98 as at 17 May 2010.   Other investments to increase in value in the year included Brooks Macdonald and Advanced Computer Software, in respect of each of which we realised some profit, and Craneware.  Our largest disposal was Research Now where we realised more than twice the cost.  The opportunity was taken to dispose of other less successful investments.   Our Investment Managers Review on gives further details of portfolio activity. Dividend Your Board intends to pay a dividend of 2.5p per share as a capital dividend following the cancellation of the reserve created on conversion as detailed above. This dividend will be subject to approval from HMRC.  The record date and payment of this dividend will then be announced on the London Stock Exchange news service.  I look forward to informing you of this in due course. VCT qualifying status As at 28 February 2010 82.9% of the portfolio (as measured by HMRC rules) was invested in qualifying investments, significantly in excess of the required 70% minimum level. VAT on management fees. Following the European Court of Justice judgement against the Government relating to VAT payable by investment trusts, the Government announced that VCTs will be exempt from paying VAT on investment management fees.  We have now received a repayment of £1,068,000 which includes simple interest.  This was £580,000 more than the principal amount originally accrued, which is reflected in the Income Statement and also includes £138,000 in simple interest payments. There is some doubt as to whether simple or compound interest should be applied and your Board have lodged a claim should the latter be ruled to be applicable. Risks and uncertainties As required by the Listing Rules under which your Company operates, your Board has to comment on the potential risks and uncertainties which could have a material impact over the Company's performance.  The risk derives from the need to maintain compliance with HMRC regulations requiring 70 per cent of your Company's assets to be invested in qualifying holdings.  In addition the current challenging economic conditions impacts particularly on smaller companies in which your Company invests and this could have an adverse effect on their share prices. Annual General Meeting At the Annual General Meeting last year a resolution was passed to extend the life of the Company until 2016.  At this year's Annual General Meeting on 1 July 2010 a similar resolution is being proposed to extend the life of the Company until 2017 in order to preserve the ability of the Company to conduct tops ups in future years.  Since the year end 205,838 shares have been issued under the top up program which provides for up to 10% of the share capital of the Company to be so issued. Proposed Merger On 13 January 2010 your Board issued a joint announcement with the board of Octopus Phoenix VCT plc that discussions were taking place with a view to a merger of the two companies on the basis of their relevant net asset values. Both companies are managed by Octopus Investments Limited.  The merger will reduce the total running costs of the combined Company (compared to the running costs separately) and will spread the fixed costs over a larger asset base. Shareholders will be sent further details concerning the proposed merger shortly. Outlook Credit remains tight and if smaller companies continue to be less favoured by banks there will be opportunities to invest in good companies at attractive rates.  Nearly 30% of your Company's assets are in liquid form and your Board intends to maintain an appropriate level of liquidity to enable your Company to make such investments.   Your Board also intends to continue its strategy of supporting existing portfolio companies, maintaining liquidity in the Company's shares and maintaining a consistent dividend flow. Michael Reeve Chairman 8 June 2010 Investment Manager's Review The Alternative Investment Market Most of 2009/10 was spent in the shadow of the banking crisis which had engulfed the world in 2008 and which led progressively into a severe recession. Only towards the end of 2009 did official statistics show that the UK economy was emerging from its severe cyclical downturn.  However, throughout this period small companies have continued to trade and, as the interim report made clear, many share prices recovered from their early very- oversold positions throughout the year, helped by good trading results.  The FTSE AIM Index recovered dramatically and appreciated by over 70% in the year, outstripping the rise in all other UK indices.  This had more to do with a revival in the fortunes of resource stocks which still account for over a third of the AIM index rather than any fundamental recovery in investor appetite for risk, and consequentially the prices of many domestically orientated smaller companies remained depressed even after the initial bounce. AIM has seen a large number of companies withdraw from the market either as a result of delisting voluntarily or as a result of appointing receivers. Your portfolio has not escaped from this.  Playgolf, and more recently Hexagon Human Capital, called in the receivers after struggling with too much debt.  The number of AIM companies was 1,268 on 28th February 2010 compared with 1,514 on 28th February 2009.  More recently we have seen companies once again announcing their intentions to move to the Full List, and the worst of what has been a necessary sorting out of the tail end of AIM seems to be now nearing an end. There has also been a bout of takeovers, something which is likely to continue now that the very worst fears about future trading have passed.  In your portfolio Claimar Care, Research Now and Concateno have all been taken over and more recently Melorio has been the subject of a takeover bid. Against this background it is hardly surprising that there have been very few new issues on AIM with the majority of new capital raised by existing AIM companies.  We had hoped that this would turn at the beginning of 2010, but the General Election has delayed matters and it is likely to be the autumn before there is any meaningful increase.  It ought to be the case that with credit still tight and likely to remain that way for some time to come, that small companies look to equity to fund growth. Performance The Net Asset Value (NAV) per share, after adding back the dividends of 5p per share received by shareholders in the year, rose by 34.9%.  This compares with a rise in the FTSE All Share Index of 29.1%, the Smallcap index (excluding investment trusts) of 62.9% and of the AIM index of 71.6%.  This performance may seem disappointing, but the AIM index, in particular, has been boosted by the sharp rise in the resource sector which accounts for more than a third of AIM.  It remains the case that VCTs are prohibited by their regulations from investing in such companies. While the portfolio overall has benefited from the recovery in the market, we feel that many companies remain out of favour with investors in general and unnecessarily lowly rated. It remains the case that small company share prices react to news and other events and the importance of issuing news can hardly be overstated.  An example in the portfolio last year was Vertu Motors which saw its share price down as low as 10p at the moment when nobody believed that there would be any buyers of cars at all, but recovered to raise £30m at 30p to acquire other businesses at below property asset value.  It has since had its profits upgraded three times, although the share price has stuck more recently as investors have worried about fiscal tightening post the General Election. During the year significant contributions to the rise in the NAV have come from Advanced Computer Software, Brooks Macdonald, Vertu Motors, Portrait Software, Zetar, Craneware, Animalcare, Melorio and Research Now, the last of which was disposed of when that company was taken over in December.  We have also purchased non-qualifying holdings during the year, for example, in Matchtech, System C Healthcare, Immunodiagnostic Systems and Hargreaves Services as new holdings and adding to the existing holding in Colliers CRE.  All contributed to the NAV increase in the year.  We will continue, as situations arise, to make non-qualifying investments in the expectation that they will enhance the NAV and produce a return greater than that available on cash deposits. Portfolio Activity We have already referred to a number of companies which were taken over during the year, and one of the challenges has been to find enough new attractive qualifying investments to replace these and other sales. In the first half of the year we made only one qualifying investment in Innovision. In the second half we added two more investments in Omega Diagnostics, a tiny company with an ambitious chairman specialising in the production of antibodies and food allergy testing kits, and SnackTime, a vending machine operator in predominantly commercial premises. In addition to those holdings taken over, we decided to sell the holdings in Neuropharm, Bglobal, Invu, Armour, Clipper Ventures, Capcon and Pilat Media as well as taking some profit in Advanced Computer Software, Brooks Macdonald and Brulines. Not all of these disposals were profitable, but we are very hopeful that with a recovering economy the prospects for the new holdings are substantially better than those of the investments sold. The portfolio remains well above its 70% qualifying level, and although we have been disappointed not to have been presented with more qualifying investment opportunities we are confident that the pace will pick up once the election is out of the way. Outlook All eyes have been focused on the General Election outcome and the uncertainty about how severe government spending cuts will have to be.  This has been to the detriment of smaller company share valuations although all areas of the stock market have been subject to extreme volatility in recent weeks.  The market strength in the first quarter of 2010 centred on companies with overseas earnings, favouring both the FTSE 100 and AIM indices and leaving those exposed to the domestic economy behind. Nevertheless, trading statements from small companies have continued to improve, with even cyclical stocks reporting a recovering level of visibility over business levels, supporting the notion that the economy is slowly improving. It remains to be seen which individual companies will be affected by spending cuts, but we believe that the blanket de-rating of smaller company shares will prove to have thrown up investment opportunities at low prices with the benefit of hindsight.  To this end, we continue to search out new investment opportunities which should come at attractive prices given the unwillingness of the banks to lend. It is also worth noting that the top ten equity holdings, which between them account for around a third of the portfolio by value, are all profitable companies with an average of £5.3m of profit, 7 of them paying dividends.  Analysts are expecting profits for these companies to grow by more than 18% over the next two years, which we do not believe is adequately reflected in the current share prices. The Octopus AIM Team Octopus Investments Limited 8 June 2010 Investment Portfolio as at 28 February 2010 Ten Largest Holdings by value Brooks MacDonald Group plc Brooks MacDonald is a provider of asset management and financial consulting services with a particular emphasis on the pensions market. Cost:                                                      £279,000 Valuation:                                              £1,104,000 Valuation basis:                                    Bid Price Equity held:                                           1.95% Last audited accounts:                       30 June 2009 Profit before tax:                                  £3.2 million Net assets:                                            £8.1 million Advanced Computer Software plc The group was formed to acquire and manage software businesses in sectors where the Directors believe there are opportunities for consolidation. Cost:                                                      £510,000 Valuation:                                             £1,079,000 Valuation basis:                                    Bid price Equity held:                                           0.78% Last audited accounts:                       28 February 2009 Profit before tax:                                  £1.1 million Net assets:                                            £25.4 million Mears Group plc Mears is a building maintenance contractor to local authorities, the MOD and the private sector.  It is also a provider of domiciliary care for the elderly on local authority contracts. Cost:                                                      £172,000 Valuation:                                              £980,000 Valuation basis:                                    Bid Price Equity held:                                           0.41% Last audited accounts:                       31 December 2009 Profit before tax:                                  £18.4 million Net assets:                                            £105.9 million Melorio plc Melorio plc was formed to consolidate the UK vocational training market. In September 2007, it acquired CLW, the UK's largest provider of on-site construction assessment and training. As well as the construction industry, Melorio has acquired Xenos, an IT training business for 17-19 year olds. In future it will focus on acquisitions within the utility, logistics and care sectors. Cost:                                                      £817,000 Valuation:                                             £931,000 Valuation basis:                                    Bid price Equity held:                                           2.09% Last audited accounts:                       31 March 2009 Profit before tax:                                 £7.6 million Net assets:                                            £42.7 million Mattioli Woods plc Mattioli Woods plc is a provider of pensions consultancy and administration services Cost: £523,000 Valuation:                                              £928,000 Valuation basis:                                    Bid Price Equity held:                                           2.28% Last audited accounts:                       31 May 2009 Profit before tax:                                  £3.9 million Net assets:                                            £16.5 million Immunodiagnostic Systems plc (non-qualifying) Immunodiagnostic Systems Holdings plc (IDS) manufactures and distributes medical diagnostic products. The Company is also involved in research and development projects and has a particular specialism in vitamin D testing. Cost:                                                      £231,000 Valuation:                                              £675,000 Valuation basis:                                    Bid Price Equity held:                                           0.36% Last audited accounts:                       31 March 2009 Profit before tax:                                  £4.8 million Net assets:                                            £50.7 million Vertu Motors plc Vertu Motors has grown through acquisition and is now the ninth largest motor distributor in the country with 56 franchised dealerships and 4 non-franchised operations. Cost:                                                      £1,000,000 Valuation:                                              £633,000 Valuation basis:                                    Bid Price Equity held:                                           0.84% Last audited accounts:                       28 February 2010 Profit before tax:                                  £4.6 million Net assets:                                            £90.5 million Animalcare plc Animalcare is a manufacturer and distributor of veterinary medicines, identification chips and other products for pets and livestock. Cost:                                                      £303,000 Valuation:                                              £603,000 Valuation basis:                                    Bid price Equity held:                                           2.76% Last audited accounts:                       30 June 2009 Profit before  tax:                                 £1.5 million Net assets:                                            £15.4 million Craneware plc Craneware plc is engaged in the development, licensing and post contract support of computer software for the US healthcare industry. Cost:                                                      £175,000 Valuation:                                              £498,000 Valuation basis:                                    Bid price Equity held:                                           0.54% Last audited accounts:                       30 June 2009 Profit before tax:                                 $5.9 million Net assets:                                            $18.7 million Idox plc Idox is a leading developer and supplier of software solutions and services to local government for core functions relating to land, people and property. Cost:                                                      £362,000 Valuation:                                              £483,000 Valuation basis:                                    Bid Price Equity held:                                           1.40% Last audited accounts:                       31 October 2009 Profit before tax:                                  £4.5 million Net assets:                                            £28.2 million Statement of Directors' Responsibilities The Directors are responsible for preparing the Directors' Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Services Authority. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these 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; and * 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 adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions. The Directors confirm, to the best of their knowledge, that: * the  financial statements, which have been prepared in accordance with UK Generally Accepted Accounting Practice, and the 2009 Statement of Recommended Practice, 'Financial Statements of Investments Trust Companies and Venture Capital Trusts', give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and * the management report, comprising the Chairman's Statement, Investment Manager's Review, Investment Portfolio and Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. On Behalf of the Board Michael Reeve Chairman 8 June 2010 Income Statement +----------------------+ | Year to 28 February | | 2010 |    | New Ordinary shares | +----------------------+   Notes|Revenue Capital Total| | |     | £'000 £'000 £'000| | |     |     | | | Gain on disposal of fixed asset investments 10 | - 1,852 1,852| | | Gain on disposal of current asset investments 11 | - 37 37| | |     |      | | | Gain on valuation of fixed asset investments  10 | - 4,326 4,326| | |     |      | | | Investment Income 2 | 389 - 389| | |     |      | | | Investment management fees 3 | (112) (338) (450)| | | Management fee VAT rebate 3 | 145 435 580| | |     |      | | | Other expenses 4 | (183) - (183)| | |     |      | | | Profit on ordinary activities before tax   | 239 6,312 6,551| | |     |      | | | Taxation on profit on ordinary activities 6 | - - -| | |     |      | | | Profit on ordinary activities after tax   |  239 6,312   6,551| | | Return per share - basic and diluted 8 | 0.8p 21.3p 22.1p| +----------------------+ * the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AIC Statement of Recommended Practice * all revenue and capital items in the above statement derive from continuing operations * the accompanying notes are an integral part of the financial statements * the Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds The Company has no recognised gains or losses other than the results for the year as set out above.  Accordingly a statement of total recognised gains or losses is not required. Other than revaluation movements arising on investments held at fair value through profit and loss account, there were no differences between the profit as stated above and at historical cost. Income Statement +---------------------------------------------------------------------------------+    | Year to 28 February 2009 | | | | |     | Ordinary shares* | New Ordinary shares** | Total | | | | |   Notes|Revenue Capital Total|Revenue Capital Total|Revenue Capital Total| | | | |     | £'000 £'000 £'000| £'000 £'000 £'000| £'000 £'000 £'000| | | | |     |      |      |     | | | | | Gain/(Loss) | | | | on disposal | | | | of fixed | | | | asset | | | | investments   | - 229 229| - (2,608) (2,608)| - (2,379) (2,379)| | | | |     |      |      |      | | | | | Loss on | | | | valuation of | | | | fixed asset | | | | investments   | - (1,335) (1,335)| - (8,725) (8,725)| - (10,060) (10,060)| | | | | Loss on | | | | valuation of | | | | current asset | | | | investments   | - - -| - (2) (2)| - (2) (2)| | | | |     |      |      |      | | | | | Investment | | | | Income 2 | 86 - 86| 544 - 544| 630 - 630| | | | |     |      |      |      | | | | | Investment | | | | management | | | | fees 3 | (25) (76) (101)| (112) (335) (447)| (137) (411) (548)| | | | | Management | | | | fee VAT | | | | rebate 3 | - - -| 78 236 314| 78 236 314| | | | |     |      |      |      | | | | | Other | | | | expenses 4 | (43) - (43)| (197) - (197)| (240) - (240)| | | | |     |      |      |      | | | | | Profit/(loss) | | | | on ordinary | | | | activities | | | | before tax   | 18 (1,182) (1,164)| 313 (11,434) (11,121)| 331 (12,616) (12,285)| | | | |     |      |      |      | | | | | Taxation on | | | | profit/(loss) | | | | on ordinary | | | | activities 6 | 4 16 20| (28) 8 (20)| (24) 24 -| | | | |     |      |      |      | | | | | Profit/(loss) | | | | on ordinary | | | | activities | | | | after tax   |  22  (1,166)  (1,144)|  285  (11,426)  (11,141)|  307 (12,592)   (12,285)| | | | | Return per | | | | share - basic | | | | and diluted 8 | 0.0p (4.0)p (4.0)p| 0.8p (33.6)p (32.8)p| - - -| +-------------------------+---------------------------+---------------------------+ * the 'Total' column of this statement represents the statutory Profit and Loss account of the Company; the supplementary revenue return and capital return columns have been prepared in accordance with the AIC Statement of Recommended Practice * all revenue and capital items in the above statement derive from continuing operations * the accompanying notes are an integral part of the financial statements * the Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds The Company has no recognised gains or losses other than the results for the year as set out above.  Accordingly a statement of total recognised gains or losses is not required. Other than revaluation movements arising on investments held at fair value through profit and loss account, there were no differences between the profit/ (loss) as stated above and at historical cost. * Ordinary shares for the period 1 March 2008 to 31 May 2008 ** The conversion of Ordinary shares to D shares took place on 31 May 2008. The resulting share class was named "New Ordinary shares." Ordinary shares were converted into D shares at a conversion ratio of 0.5448 D shares for every Ordinary share. Balance Sheet +-----------------+----------------+ |As at 28 February| As at 28 |   | 2010| February 2009| | | | | New Ordinary| New Ordinary| | shares| shares|   Notes| | (re-stated)**| | | |     | £'000 £'000| £'000 £'000| | | |     |    |    | | | | Fixed asset investments* 10 |   16,944|   12,821| | | | Current assets:   |    |    | | | | Investments* 11 | 6,732  | 6,163  | | | | Debtors 12 | 27  | 485  | | | | Cash at bank   | 153  | 167  | | | |     |   6,912|   6,815| | | | Creditors: amounts falling due within | | | one year 13 |   (212)|   (193)| | | | Net current assets   |   6,700|   6,622| | | |     |    |    | | | | Net assets   |   23,644|   19,443| | | |     |    |    | | | | Called up equity share capital 14 | 15,928  | 15,965  | | | | Share premium** 15 | 1,490  | 1,490  | | | | Special distributable reserve 15 | 16,358  | 16,412  | | | | Capital redemption reserve** 15 | 10,483  | 10,446  | | | | Capital reserve gains/(losses) on 15 | | | disposal |(13,478)  |(11,052)  | | | | Capital reserve holding 15 | | | gains/(losses)                      | (5,007)  |(12,381)  | | | | Own shares held in treasury 15 | (2,447)  | (1,636)  | | | | Revenue Reserve 15 | 317  | 199  | | | | Total equity shareholder's funds   |   23,644|   19,443| | | | Net asset value per share - basic and | | | diluted 9 |   82.0p|   64.5p| +-----------------+----------------+ * at fair value through profit & loss **Following the reorganisation of the Company's share capital in May 2008, £6,719,000 was incorrectly transferred to the share premium reserve. This balance should have been transferred to the capital redemption reserve. The re-stated balance sheet shows the correct position. The accompanying notes are an integral part of the financial statements. The statements were approved by the Directors and authorised for issue on 8 June 2010 and are signed on their behalf by: Michael Reeve Chairman +----------------+----------------------------------------+ | Year to 28 | |   | February 2010| Year to 29 February 2009 | | | | | | | New Ordinary|  | New Ordinary| |   | shares|Ordinary shares| shares| Total| | | | | |   | £'000| £'000| £'000| £'000| | | | | | Shareholders' funds | | 17,346| | | at start of period | 19,443| | 17,437|  34,783| | | | | | Profit/(loss) for the| | (1,144)| | | period | 6,551| | (11,141)|(12,285)| | | | | | Shares purchased and | | (147)| | | held in Treasury | (811)| | (1,049)| (1,196)| | | | | | Transfer  between | | (16,055)| | | share class | -| | 16,055| -| | | | | | Cancellation of own | | -| | | shares | (54)| | -| -| | | | | | Dividends paid | (1,485)| -| (1,859)| (1,859)| | | | | | Shareholders' funds | 23,644| -| 19,443| 19,443| at end of period | | | | | Reconciliation of Movements in Shareholders' Funds +--------------+--------------------------------------+ | Year to 28 | | | February 2010| Year to 28 February 2009 | | | | | | | New Ordinary| Ordinary| New Ordinary| |   | shares| shares*| shares**| Total*| | | | | |   | £'000| £'000| £'000| £'000| | | | | |   |  |  |  |  | | | | | | Profit/(loss) on ordinary| | | |(12,285)| activities before tax | 6,551| (1,164)| (11,121)| | | | | | | Decrease/(increase) in | | | | (243)| debtors | 458| 127| (370)| | | | | | | Increase in creditors | 19| (63)| 133| 70| | | | | | Gain on disposal of | | | | -| current asset investments| (37)| -| -| | | | | | | (Gain)/loss on disposal | | | | | of fixed asset | | | | | investments | (1,852)| (229)| 2,608| 2,379| | | | | | (Gain)/loss on valuation | | | | | of fixed asset | | | | | investments | (4,326)| 1,335| 8,727| 10,062| | | | | | Net cash inflow/(outflow)| | | | | from operating activities| 813| 6| (23)| (17)| | | | | |   |  |  |  |  | | | | | | Taxation: UK Corporation | | | | | tax paid | -| -| -| -| | | | | |   |  |  |  |  | | | | | | Financial investment |  |  |  |  | | | | | | Purchase of fixed asset | | | | | investments | (2,784)| -| (1,706)| (1,706)| | | | | | Disposal of fixed asset | | | | | investments | 4,839| 1,089| 1,213| 2,302| | | | | | |  |  |  |  | +--------------+--------------+--------------+--------+   | 2,055| 1,089| (493)| 596| Management of liquid +--------------+--------------+--------------+--------+ resources |  |  |  |  | Purchase of current asset| | | | | investments | (9,797)| -| -| -| Disposal of current asset| | | | | investments | 9,265| -| -| -| -------------------------+--------------+--------------+--------------+--------+   | (532)| -| -| -| -------------------------+--------------+--------------+--------------+--------+ Net cash inflow / | | | | | (outflow) from investing | | | | | activities | 1,523| 1,089| (493)| 596| | | | | |   |  |  |  |  | | | | | | Equity dividends paid |  |  |  |  | | | | | | Dividends paid | (1,485)| -| (1,859)| (1,859)| -------------------------+--------------+--------------+--------------+--------+   |  |  |  |  | | | | | | Net cash inflow / | | | | | (outflow) before | | | | | financing | 851| 1,095| (2,375)| (1,280)| | | | | |   |  |  |  |  | | | | | | Financing : |  |  |  |  | | | | | | Purchase of own shares | (865)| (147)| (1,049)| (1,196)| -------------------------+--------------+--------------+--------------+--------+   |  |  |  |  | | | | | | (Decrease)/increase in | | | | | cash resources before | | | | | transfers | (14)| 948| (3,424)| (2,476)| | | | | |   |  |  |  |  | | | | | | Interclass transfer | -| (2,159)| 2,159| -| | | | | |   |  |  |  |  | | | | | | Decrease in cash | | | | | resources | (14)| (1,211)| (1,265)| (2,476)| +--------------+--------------+--------------+--------+ Cash Flow Statement * Ordinary shares for the period 1 March 2008 to 31 May 2008 ** The conversion of Ordinary shares to D Shares took place on 31 May 2008. The resulting share class was named "New Ordinary shares." Ordinary shares were converted into D shares at a conversion ratio of 0.5448 D shares for every Ordinary share. Reconciliation of Net Cash Flow to Movement in Liquid Resources +-----------------+-----------------------------------------+ | | Year to 28 February 2009 | | Year to 28 |   | | February 2010| | | | | New Ordinary| | New Ordinary| |   | shares|Ordinary shares| shares| Total| | | | | |  | £'000| £'000| £'000| £'000| | | | | | Decrease in cash at| | | | | bank | (14)| (1,211)| (1,265)|(2,476)| | | | | | Movement in cash | | | | | equivalent | | | | | securities | 569| -| 6,163| 6,163| | | | | | Opening net liquid | | | | 2,643| resources | 6,330| 1,211| 1,432| | | | | | | Net liquid | | | | | resources at 28 | 6,885| -| 6,330| 6,330| February | | | | | +-----------------+---------------+-----------------+-------+ Liquid Resources at 28 February comprised: +----------------------+   |As at 28 February 2010|As at 28 February 2009 | |   | £'000| £'000 | | Cash at Bank | 153| 167 | | Money market cash funds | 6,732| 6,163 | | Net liquid resources at 28 | | February | 6,885| 6,330 ----------------------------------+----------------------+---------------------- Notes to the Financial Statements 1.         Principal Accounting policies The financial statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice (UK GAAP), and the Statement of Recommended Practice (SORP) 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (revised 2009). The principal accounting policies have remained unchanged from those set out in the Company's 2009 Annual Report and financial statements. A summary of the principal accounting policies is set out below. Investments Purchases and sales of investments are recognised in the financial statements at the date of the transaction (trade date). These investments will be managed and their performance evaluated on a fair value basis in accordance with a documented investment strategy and information about them has to be provided internally on that basis to the Board. Accordingly as permitted by FRS 26, the investments will be designated as fair value through profit and loss ("FVTPL") on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy.  The Company's investments are measured at subsequent reporting dates at fair value. In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted.  This is consistent with the International Private Equity and Venture Capital (IPEVC) guidelines.  For the avoidance of doubt, the Company does not hold any unquoted investments. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - holding gains/(losses). In preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies. Current asset investments Current asset investments comprise money market funds and are designated as FVTPL. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the appropriate capital reserve. The current asset investments are all invested with the Company's cash manager and are readily convertible into cash at the choice of the Company. The current asset investments are held for trading, are actively managed and the performance is evaluated on a fair value basis in accordance with a documented investment strategy. Information about them has to be provided internally on that basis to the Board. Income Investment income includes interest earned on bank balances and money market securities and includes income tax withheld at source. Dividend income is shown net of any related tax credit. Dividends receivable are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received.  Fixed returns on debt and money market securities are recognised on a time apportionment basis so as to reflect the effective yield, provided there is no reasonable doubt that payment will be received in due course. Expenses All expenses are accounted for on an accruals basis.  Expenses are charged wholly to revenue with the exception of the investment management fee, which has been charged 25% to the revenue account and 75% to the realised capital reserve to reflect, in the Directors' opinion, the expected long term split of returns in the form of income and capital gains respectively from the investment portfolio. Revenue and capital The revenue column of the Income Statement includes all income and revenue expenses of the Company.  The capital column includes realised and unrealised gains and losses on investments.  Gains and losses arising from changes in fair value are considered to be realised only to the extent that they are readily convertible to cash in full at the balance sheet date. Taxation Corporation tax payable is applied to profits chargeable to corporation tax, if any, at the current rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the "marginal" basis as recommended in the SORP. Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less tax, with the exception that deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing can be deducted. Cash and liquid resources Cash, for the purposes of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand.  Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash) and investments in money market managed funds. Loans and receivables The Company's loans and receivables are initially recognised at fair value and subsequently measured at amortised cost. Financial instruments The Company's principal financial assets are its investments and the policies in relation to those assets are set out above.  Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity. Financing strategy and capital structure FRS 29 'Financial Instruments: Disclosures' comprises disclosures relating to financial instruments. We define capital as shareholders' funds and our financial strategy in the medium term is to manage a level of cash that balances the risks of the business with optimising the return on equity. The Company currently has no borrowings nor does it anticipate that it will drawdown any borrowing facilities in the future to fund the acquisition of investments. Dividends Dividends payable are recognised as distributions in the financial statements when the Company's liability to make payment has been established.  This liability is established when the dividends proposed by the Board are approved by the shareholders. 2.         Income   28 February  2010 28 February 2009   New Ordinary Ordinary shares New Ordinary shares shares Total   £'000 £'000 £'000 £'000 Interest receivable on money market securities and bank balances 15 50 372 422 Dividend income 241 36 166 202 Other income - - 1 1 Interest received relating to VAT rebate 133 - 5 5   389 86 544 630 3.                   Investment management fees 28 February  2010 28 February 2009 New Ordinary Ordinary shares New Ordinary Total   shares shares   £'000 £'000 £'000 £'000 Investment management fee: Revenue 112 25 112 137 Capital 338 76 335 411 Total 450 101 447 548 VAT rebate: Revenue 145 - 78 78 Capital 435 - 236 236 Total 580 - 314 314 For the purposes of the revenue and capital columns in the Income Statement, the management fee (including VAT) has been allocated 25% to revenue and 75% to capital, in line with the Board's expected long term return in the form of income and capital gains respectively from the Company's investment portfolio. Octopus provides investment management and accounting and administration services to the Company under a management agreement dated 3 February 1998 which was revised in September 2000 and again in January 2004 for an initial fixed term to June 2008 and may be terminated at any time thereafter by not less than twelve months' notice given by either party.  No compensation is payable in the event of terminating the agreement by either party, if the required notice period is given.  The fee payable, should insufficient notice be given, will be equal to the fee that would have been paid should continuous service be provided, or the required notice period was given. The Chancellor of the Exchequer announced in his budget statement on 12 March 2008 that the Finance Act 2008 would contain draft legislation exempting VCTs from VAT on management fees with effect from 1 October 2008. This legislation was passed in July 2008 and as such all VCTs have been made exempt from VAT on management fees from this date, thus VAT has not been included on management fees for this year and has been rebated, with interest, for previous years. As a result, the Company received a VAT rebate totalling £930,000 during the year relating to the principal amount of VAT previously suffered on management fees.  £350,000 of this had been accrued in the year ending 28 February 2009 with the excess being recognised in the accounts to 28 February 2010. £138,000 was received in interest payments. 4.                  Other expenses   28 February 2010 28 February 2009 New Ordinary Ordinary shares New Ordinary   shares shares Total   £'000 £'000 £'000 £'000 Directors' remuneration 67 10 58 68 Fees payable to the Company's auditor for the audit of the financial statements 22 2 17 19 Other expenses 94 31 122 153   183 43 197 240 The total expense ratio for the Company for the year to 28 February 2010 was 3.2 per cent (2009: 3.2 per cent). 5.                  Directors' remuneration   28 February 2010 28 February 2009   £'000 £'000 Directors' emoluments Michael Reeve 24 24 Roger Smith 18 18 Stephen Hazell-Smith 18 18   60 60 None of the Directors received any other remuneration or benefit from the Company during the year.  The Company has no employees other than non-executive Directors.  The average number of non-executive Directors in the year was three (2009: three). 6.         Tax on ordinary activities The corporation tax charge for the year was £nil (2009: £nil) Factors affecting the tax charge for the current year: The current tax charge for the year differs from the small companies rate of corporation tax in the UK of 21% (2009: 20.9%).  The differences are explained below. Current tax reconciliation: 31 January 2010 31 January 2009   £'000 £'000 Profit/(loss) on ordinary activities before tax 6,551 (12,285) Current tax at 21% (2009: 20.9%) 1,376 (2,567) Income not liable to tax (50) (45) Expenses not deductible for tax purposes (1,306) 2,593 Excess management expenses (20) 19 Total current tax charge - - Approved Venture Capital Trusts are exempt from tax on capital gains within the Company.  Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a Venture Capital Trust, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments. 7.         Dividends The interim dividend declared of 2.5 pence per New Ordinary share for the six months ending 31 August 2009 was paid on 21 December 2009 to shareholders on the register on 11 December 2009. It has been brought to the attention of the Directors that during the financial years 2008/2009 and 2009/2010, dividends paid of £2,245,158 in total ("the Dividends"), were not carried out in a manner consistent with the requirements of the Companies Act 2006. On 26 March 2010 a regulatory announcement was made by the Company informing shareholders that, as a result of the Company not having sufficient distributable reserves, the Company would suspend payment of any dividends. An Extraordinary General Meeting will be held on 1 July 2010 at which resolutions will be proposed, to remedy the dividends already paid, and to place the Company into the position to allow it to pay dividends. In order to complete this, the Company will require the approval of the High Court. 8.         Return per share - basic and diluted The return per share is based on profit after tax of £6,551,000 (2009: (£12,285,000)) on New Ordinary shares, and 29,646,204 New Ordinary shares (2009: 33,947,228), being the weighted average number of shares in issue during the year. There are no potentially dilutive capital instruments in issue and, as such, the basic and diluted earnings per share are identical. 9.        Net asset value per share - basic and diluted The calculation of net asset value per New Ordinary share as at 28 February 2010 is based on net assets of £23,644,000 (2009: £19,443,000) divided by 28,824,452 (2009: 30,148,687) New Ordinary shares in issue at that date (excluding treasury shares). 10.               Fixed asset investments Effective from 1 January 2009 the Company adopted the amendment to FRS 29 regarding financial instruments that are measured in the balance sheet at fair value; this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Level 1: quoted prices in active markets for identical assets and liabilities. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held is the current bid price. These instruments are included in level 1 and comprise AIM listed investments classified as held at fair value through profit or loss. Level 2: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. The Company holds no such investment in the current or prior year. Level 3: the fair value of financial instruments that are not traded in an active market (for example investments in unquoted companies) is determined by using valuation techniques such as earnings multiples. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. The Company held no such investments in the current or prior year. There have been no transfers between these classifications in the period (2009: none). The change in fair value for the current and previous year is recognised through the profit and loss account. All items held at fair value through profit or loss were designated as such upon initial recognition. Movements in investments at fair value through profit or loss during the year to 28 February 2010 are summarised below and in note 11.   Level 1: Quoted prices   £'000 £'000 Valuation and net book amount: Book cost at 1 March 2009 25,160 Opening unrealised loss at 1 March 2009 (12,339) Valuation at 1 March 2009   12,821 Movement in the year: Purchases at cost 2,784 Proceeds from the sale of investments (4,839) Gain on realisation of investments 1,852 Change in fair value in year 4,326 Closing fair value at 28 February 2010   16,944 Closing cost at 28 February 2010 21,951 Closing unrealised loss at 28 February 2010 (5,007) Valuation at 28 February 2010   16,944 Level 1 valuations are valued in accordance with the bid-price on the relevant date. Further details of the fixed asset investments held by the Company are shown within the Investment Manager's Review. All investments are designated as fair value through profit or loss from the time of acquisition, and all capital gains or losses on investments so designated.  Given the nature of the Company's venture capital investments, the changes in fair value of such investments recognised in these financial statements are not considered to be readily convertible to cash in full at the balance sheet date and accordingly these gains are treated as unrealised. When the Company revalues the investments still held during the period, any gains or losses arising are credited / charged to the Capital reserve - holding gains/(losses). When an investment is sold any balance held on the Capital reserve - holding gains/(losses) is transferred to the Capital reserve - gains/(losses) on disposal as a movement in reserves. At 28 February 2010 and 28 February 2009 there were no commitments in respect of investments approved by the manager but not yet completed. Transaction costs on purchases and disposals for the year were £8,000 and £15,000 respectively. 11.        Current asset investments at fair value through profit and loss Current asset investments represent level 1 investments as described in note 10 above.    New Ordinary   shares     £'000 £'000 Valuation and net book amount: Book cost at 1 March 2009 -          FRNs 6,205 Opening unrealised loss as at 1 March 2009 - FRNs   (42) Valuation as at 1 March 2009     6,163 Movement in year: Purchases at cost - Money market funds     9,797         9,797 Disposal proceeds - FRNs   (6,200) - Money market funds   (3,065) -       (9,265) Profit/(loss) in year on realisation of investments - FRNs   37 - Money market funds   - -       37 Revaluation in year - FRNs   - - Money market funds   -       - Closing valuation as at 28 February     6,732 Book cost at 28 February 2010 - Money market funds   6,732 Closing unrealised gain/(loss) as at 28 February 2010 - Money market funds   - Closing valuation as at 28 February 2010     6,732 Transaction costs on purchases and disposals for the year were £nil (2009: £nil). 12.               Debtors   28 February 2010 28 February 2009   £'000 £'000 Prepayments and accrued income 27 42 Sales awaiting settlement - 78 Other debtors - 365   27 485 13.               Creditors: amounts falling due within one year   28 February 2010 28 February 2009   £'000 £'000 Accruals 171 175 Bank overdraft - current account - 18 Other creditors 41 -   212 193 ------------------------------------------------------------------------ 14.               Share capital   28 February 2010 28 February 2009   £'000 £'000 Authorised: 70,000,000 New Ordinary shares of 50p 35,000 35,000 Allotted and fully paid up (including treasury shares): 31,856,029 New Ordinary shares of 50p (2009: 31,930,030) 15,928 15,965 The capital of the Company is managed in accordance with its investment policy with a view to the achievement of its investment objective.  The Company is not subject to any externally imposed capital requirements. The Company did not issue any other shares in the year (2009: nil). During the year the Company repurchased the following shares to be held in treasury: Date Number of shares Price per share Total value of shares 09.03.09 67,715 57.0p 38,598 27.03.09 22,337 58.0p 12,955 30.03.09 7,619 58.0p 4,419 17.04.09 9,864 60.5p 5,968 24.04.09 26,422 61.5p 16,250 08.05.09 33,730 65.0p 21,925 19.06.09 40,157 66.0p 26,504 10.07.09 26,096 66.0p 17,223 13.07.09 28,925 66.0p 19,091 24.07.09 11,304 66.0p 7,461 07.08.09 35,828 66.0p 23,646 21.08.09 223,210 66.0p 147,319 11.09.09 94,450 68.5p 64,698 25.09.09 10,766 69.0p 7,429 16.11.09 134,028 74.5p 99,851 30.11.09 44,572 76.0p 33,875 16.12.09 57,302 71.0p 40,684 20.01.10 252,961 73.5p 185,926 28.01.10 48,947 73.5p 35,976 Totals 1,176,233   809,798 The total nominal value of the shares repurchased to be held in treasury was £588,116.50 representing 3.69% of the issued share capital. During the year the Company repurchased the following shares for cancellation: Date Number of shares Price per share Total value of shares 10.02.10 25,186 73.5p 18,512 25.02.10 48,815 74.0p 36,123 Totals 74,001   54,635 The total nominal value of the shares repurchased for cancellation was £37,000.50 representing 0.23% of the issued share capital. It has been brought to the attention of the Directors that during the financial years 2008/2009 and 2009/2010, share repurchases of 2,052,423 shares and for a consideration of £1,460,991 in total ("the share repurchases"), were not carried out in a manner consistent with the requirements of the Companies Act 2006. On 26 March 2010 a regulatory announcement was made by the Company informing shareholders that, as a result of the Company not having sufficient distributable reserves, the Company would suspend its share buyback policy. An Extraordinary General Meeting will be held on 1 July 2010 at which resolutions will be proposed to remedy the share buybacks already effected, and to place the Company into the position to allow it to resume its share buyback policy. In order to complete this, the Company will require the approval of the High Court. 15.               Reserves Capital reserve Capital gains/ reserve Own Special (losses) holding Capital shares Share distributable on gains/ redemption held in Revenue   premium reserve* disposal* (losses)* reserve treasury reserve*   £'000 £'000 £'000 £'000 £'000 £'000 £'000 Ast at 1 March 2009 8,209 16,412 (11,052) (12,381) 3,727 (1,636) 199 Prior year adjustment** (6,719) - - - 6,719 - - ----------------------------------------------------------------------------------- Balance as restated 1,490 16,412 (11,052) (12,381) 10,446 (1,636) 199 Repurchase of own shares -  -  -  -  -  (811) - Cancellation of shares -  (54) -  -  37 -  - Profit on ordinary activities after tax -  -  -  -  -  -  239 Management fees allocated as capital expenditure -  -  (338) -  -  -  - Management fee rebate allocated as capital income -  -  435 -  -  -  - Current year gains/losses on disposal -  -  1,889 -  -  -  - Prior period holding gains/losses now crystallised -  -  (3,048) 3,048 -  -  - Current period gains/losses on fair value of investments - - - 4,326 - - - Dividends paid -  -  (1,364) -  -  -  (121) Balance as at 28 February 2010 1,490 16,358 (13,478) (5,007) 10,483 (2,447) 317 *These reserves are considered distributable to shareholders **Following the reorganisation of the Company's share capital in May 2008, £6,719,000 was incorrectly transferred to the share premium reserve. This balance should have been transferred to the capital redemption reserve. The above prior year adjustment shows the correct position. When the Company revalues its investments during the period, any gains or losses arising are credited/charged to the Income Statement. Changes in fair value of investments held are then transferred to the capital reserve - holding gains/(losses). When an investment is sold any balance held on the capital reserve - holding gains/(losses) reserve is transferred to the capital reserve - gains/(losses) on disposal as a movement in reserves. The purpose of the special distributable reserve was to create a reserve which will be capable of being used by the Company to pay dividends and for the purpose of making repurchases of its own shares in the market with a view to narrowing the discount at which the Company's shares trade to net asset value. 16.        Financial instruments and risk management The Company's financial instruments comprise equity investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy of investing mainly in a portfolio of VCT qualifying unquoted and AIM-quoted securities whilst holding a proportion of its assets in cash or near-cash investments in order to provide a reserve of liquidity. Fixed and current asset investments (see note 10 and 11) are valued at fair value. For quoted investments this is bid price. The fair value of all other financial assets and liabilities is represented by their carrying value in the balance sheet.  The Directors believe that the fair value of the assets held at the year end is equal to their book value. In carrying on its investment activities, the Company is exposed to various types of risk associated with the financial instruments and markets in which it invests. The most significant types of financial risk facing the Company are price risk, interest rate risk, credit risk and liquidity risk. The Company's approach to managing these risks is set out below together with a description of the nature and amount of the financial instruments held at the balance sheet date. Fair value methods and assumptions Where investments are in quoted stocks, fair value is set as market price, discounted if appropriate. Market risk The Company's strategy for managing investment risk is determined with regard to the Company's investment objective, as outlined previously. The management of market risk is part of the investment management process and is a central feature of venture capital investment. The Company's portfolio is managed in accordance with the policies and procedures described in the Corporate Governance statement, having regard to the possible effects of adverse price movements, with the objective of maximising overall returns to shareholders. Investments in smaller companies, by their nature, usually involve a higher degree of risk than investments in larger companies quoted on a recognised stock exchange, though the risk can be mitigated to a certain extent by diversifying the portfolio across business sectors and asset classes. The overall disposition of the Company's assets is regularly monitored by the Board. Details of the Company's investment portfolio at the balance sheet date are set out in the Investment Manager's Review. 71.7% (28 February 2009: 65.9%) by value of the Company's net assets comprises equity securities listed on the London Stock Exchange or quoted on AIM. A 10% increase in the bid price of these securities as at 28 February 2010 would have increased net assets and the total return for the year by £1,694,000 (2009: £1,282,000); a corresponding fall would have reduced net assets and the total return for the year by the same amount. Interest rate risk Some of the Company's financial assets are interest-bearing.  As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. Floating rate The Company's floating rate investments comprise cash held on interest-bearing deposit accounts and, where appropriate, within interest bearing money market securities.  The benchmark rate which determines the rate of interest receivable on such investments is the bank base rate, which was 0.5% at 28 February 2010 (2009: 1.0%).  The amounts held in floating rate investments at the balance sheet date were as follows: 28 February 2010 28 February 2009   £'000 £'000 Current asset investments 6,732 6,163 Cash at bank 153 167   6,885 6,330 A 1% increase in the base rate would increase income receivable from these investments and the total return for the year by £68,850 (2009: £63,300). Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager and the Board carry out a regular review of counterparty risk. The carrying values of financial assets represent the maximum credit risk exposure at the balance sheet date. At 28 February 2010 the Company's financial assets exposed to credit risk comprised the following:   28 February 2010 28 February 2009   £'000 £'000 Current investments 6,732 6,163 Cash at bank 153 167 Accrued dividends and interest receivable 24 18   6,909 6,348 Credit risk relating to listed money market securities is mitigated by investing in money market instruments issued by major companies and institutions with a minimum Moody's long term debt rating of 'A'. Those assets of the Company which are traded on recognised stock exchanges are held on the Company's behalf by third party custodians.  Bankruptcy or insolvency of a custodian could cause the Company's rights with respect to securities held by the custodian to be delayed or limited. Credit risk arising on the sale of investments is considered to be small due to the short settlement and the contracted agreements in place with the settlement lawyers. The Company's interest-bearing deposit and current accounts are maintained with BGI. Other than cash or liquid money market funds, there were no significant concentrations of credit risk to counterparties at 28 February 2010 or 28 February 2009. Liquidity risk The Company's financial assets include investments in AIM-quoted companies, which by their nature; involve a higher degree of risk than investments on the main market.  As a result, the Company may not be able to realise some of its investments in these instruments quickly at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. The Company's listed money market securities are considered to be readily realisable as they are of high credit quality as outlined above. The Company's liquidity risk is managed on a continuing basis by the Investment Manager in accordance with policies and procedures laid down by the Board. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses.  At 28 February 2010 these investments were valued at £153,000, (28 February 2009: £167,000).  17.       Post balance sheet events The following events occurred between the balance sheet date and the signing of these financial statements: ·    The Company has purchased for cancellation 78,648 New Ordinary shares at a weighted average price of 74.0p per share. ·    On 1 April 2010 the Company issued 194,484 Ordinary shares at a price of 89.4 pence per share ·    On 6 April 2010 the Company issued 11,354 Ordinary shares at a price of 89.4 pence per share Since the year end the Company has made partial disposals of Hargreaves Services plc, Melorio plc and Immunodiagnostic Systems plc as well as taking cash for Clerkenwell Ventures plc shares. These disposals total £0.78 million with a realised profit of £0.39 million. There was one qualifying investment in Strategic Thought Group plc for £0.12 million. On 12 March 2010 Hexagon Human Capital plc was placed in administration. 18.        Contingencies, guarantees and financial commitments There were no contingencies, guarantees or financial commitments as at 28 February 2010 (2009: £nil). [HUG#1422585]

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