Interim Results
Brainspark PLC
30 September 2003
Interim Results 2003
for the six month period ended 30 June 2003
Brainspark Plc
Chairman's statement
In my statement issued with Brainspark's financial statement for the year ended
31 December 2002, I explained how the Board has begun to deal with the current
negative market conditions affecting, in particular, the technology investment
market. Although Brainspark was conceived to participate in the initial stages
of financing new and young companies to assist in their development, the
changing investment climate made this plan impossible to achieve. Meanwhile
Brainspark is currently operating cautiously, cutting costs and protecting its
current portfolio companies and assisting them to create value whenever possible
awaiting the upturn of the economy.
Cost cutting measures begun in 2002 have reduced further the cash burn rate to
under £36k per month in the second quarter from £97k per month in the first
quarter 2002 and £76k per month in the second half of 2001.
One of the most important contribution to this reduction was the surrender of
the lease of premises at The Lightwell, Laystall Street, London EC1R 4PA to
Braisnpark's landlord, Laystall House Limited. The existing lease, expiring
March 24, 2015, was at an annual rent of £534k equivalent to about £28 per
square foot. The deposit held by the landlord was forfeited and a reverse
premium of £330k was paid to the landlord.
Laystall House Limited has granted the Company a new lease of two floors at The
Lightwell at an annual rent of £170k, equivalent to about £22 per square foot.
The new lease is terminable by the Company after three years.
The six investee companies which occupy office space as short-term licensees of
the Company, remain unaffected by the above transaction.
The Company hopes to recover the rent payable to the landlord in full from the
investee companies and/or others.
In line with the new approach envisaged by the Board, after creating with the
acquisitions made last October a portfolio covering a geographic area ranging
from UK, to Italy and Israel, Brainspark is concentrating on the needs of its
existing portfolio.
In order to preserve cash resources and to demonstrate their own belief in
Brainspark's future, the Directors resolved on 31 July to use their contractual
remuneration in subscribing for equivalent equity in Brainspark or waiving their
rights to such contractual remuneration in consideration of the grant of
warrants over equity.
The Directors were offered a choice between using their contractual remuneration
in subscribing for ordinary shares of one penny each and waiving that
remuneration and receiving warrants exercisable into Shares. The Shares were
allotted at 1.1p. The Warrants have an exercise price of 1.1p or 1.32p and
exercisable within 3 years of grant. The mid-market price of the Shares at the
close of business on 29 September was 1.13p.
Financial Summary
In the six months ended 30 June 2003, the Company incurred a loss before
taxation of £1,582k, compared to a loss for the comparative period last year of
£811k. Of the loss of £1,582k, £471k principally represents operating costs,
£392k is attributable to the accumulated loss of investee companies, £539k is
attributable to the depreciation of goodwill on acquisitions and the remainder
£180k represents a write down on investments.
Operating costs ended 30 June 2003 (£471k) represent a decrease of 27% for the
comparative period of last year (£647k).
The consolidated net asset value at 30 June 2003 was £5.1 million - down from
£6.7 million at 31 December 2002.
While the Company is seeking to improve its current cash position, Cross
Atlantic Capital Partners, a major shareholder of Brainspark, has provided a
£200k loan, secured by some Brainspark portfolio assets
and has offered to provide an additional convertible loan to Brainspark of $300k
to cover more than one year current costs.
Investments Review
After the acquisition, made in October last year, of Infusion 2002 Ltd, an
English company holding five minority participations in companies in Italy and
Israel, Brainspark now has investments in thirteen companies. The Brainspark
portfolio comprises a range of businesses including Web service businesses,
application service providers and advanced technology solutions.
As a result of the negative sentiment of the market towards the technology
sector, the investee companies have not been able to achieve follow-on funding
and related valuation gains as originally planned. Many of the investee
companies have not made progress as originally envisaged; but, in spite of that,
all investee companies are concentrating on improving their businesses over a
longer time frame.
Also in the period starting from January 1, 2003, Brainspark had to sustain some
of its portfolio investments with cash injections through capital increases such
as Metapack and Geosim.
Among the portfolio companies, positive signs are already coming in particular
from EasyArt, Geosim, Kerb, Metapack and The Usability Company.
Outlook
At 30 June 2003, Brainspark's mid-market price per share of 1.25p valued the
Company's issued capital at £2.3 million against a consolidated net asset value
of £5.1 million. The Board believes that this is a conservative valuation of the
Company's future potential based upon the companies in Brainspark's portfolio.
At present there are some early signals that could indicate a return of
confidence and new interest for the start up companies that have navigated
through the hostile economic environment.
If sentiment in the technology market improves, the Company's prospects will
also improve, since the most important measures to achieve this are already in
place and we have a number of interesting businesses operating in advanced
sectors.
Based on this, the Board remains further committed to looking for value creation
opportunities and believes, if the early signals are confirmed and the new
market sentiment improves, Brainspark and the investee companies have the
possibility to show good returns.
Prof. Francesco Gardin
Chairman
29 September 2003
Financial Statements
Consolidated profit and loss account
For the period ended 30 June 2003
Notes
Six months to Six months to Year ended
30 June 2003
(Unaudited) 30 June 2002 31 December
2002
£'000 (Unaudited) (Audited)
£'000 £'000
Turnover 2a - - -
Net operating expenses - (508) (769) (1,612)
recurring
Net operating expenses - 2b - (3) (1,087)
exceptional
Total net operating (508) (772) (2,699)
expenses/Group operating
loss
Share of operating loss 3 (931) (149) (335)
of associated
undertakings
Total operating loss:
Group and share of
associated
undertakings (1,439) (921) (3,034)
Loss on ordinary (1,439) (921) (3,034)
activities before
interest
Net interest 37 110 123
receivable
Amounts written off (180) - (200)
investments
Loss on ordinary (1,582) (811) (3,111)
activities before
taxation
Tax on loss on ordinary - - -
activities
Loss on ordinary (1,582) (811) (3,111)
activities after
taxation
Equity minority - - -
interests
Retained loss for the (1,582) (811) (3,111)
financial year
Loss per 1p ordinary
share
Basic and diluted 4 (0.84p) (0.6p) (2.31p)
The loss for the year is derived wholly from continuing activities.
Consolidated statement of total recognised gains and losses
For the period ended 30 June 2003
___________________________________________________________
Notes
Six months to Six months to Year ended
30 June 2003 30 June 2002
(Unaudited) (Unaudited) 31 December
2002
£'000 £'000 (Audited)
£'000
Loss for the financial (1,582) (811) (3,111)
year
Revaluation of fixed - - -
asset investments
Foreign exchange 30 - 32
translation difference
Total recognised gains (1,552) (811) (3,079)
and losses for the year
There are no differences between the results disclosed and the historical cost
equivalents.
Consolidated Balance sheet at 30 June 2003
___________________________________________________________
Notes Six months to Six months to Year ended
30 June 2003 30 June 2002
(Unaudited) (Unaudited) 31 December
2002
£'000 £'000 (Audited)
£'000
Fixed assets
Tangible assets 170 400 306
Investments in subsidiary - - -
undertakings
Investments in associated 5 3,390 150 4,291
undertakings
Other investments 6 1,661 329 1,826
5,221 879 6,423
Current assets
Debtors 529 1,046 921
Cash at bank and in 276 4,599 964
hand
805 5,645 1,885
Creditors: amounts (887) (291) (525)
falling due within one
year
Net current assets (82) 5,354 1,360
Total assets less current 5,139 6,233 7,783
liabilities
Provisions for - - (1,092)
liabilities and charges
Net assets 5,139 6,233 6,691
Capital and reserves
Called up share capital 1,874 1,233 1,874
Share premium account 28,558 26,473 28,558
Other reserves 6,875 6,813 6,845
Profit and loss account (32,168) (28,286) (30,586)
(deficit)
Total equity 5,139 6,233 6,691
shareholders' funds
Reconciliation of movements in Group shareholders' funds
For the period ended 30 June 2003
___________________________________________________________
Notes Six months to Six months to Year ended
30 June 2002
30 June 2003 (Unaudited) 31 December
2002
(Unaudited) £'000 (Audited)
£'000 £'000
Loss for the period (1,582) (811) (3,111)
New share capital - 31 2,757
issued
Foreign exchange 30 - 32
translation
differences
Net reduction in (1,552) (780) (322)
shareholders' funds
Opening shareholders' 6,691 7,013 7,013
funds
Closing shareholders' 5,139 6,233 6,691
funds
Consolidated cash flow statement
For the period ended 30 June 2003
___________________________________________________________
Notes Six months to Six months to Year ended
30 June 2002
30 June 2003 (Unaudited) 31 December
2002
(Unaudited) £'000 (Audited)
£'000 £'000
Net cash outflow from 8 (710) (1,209) (1,451)
operating activities
Returns on investments
and servicing of
finance
Interest received 37 110 125
Interest paid - - (65)
Net cash inflow from
returns on investments
and servicing of
finance 37 110 60
Capital expenditure and
financial investment
Purchase of tangible - - -
fixed assets
Receipts from sale of - 3 11
tangible fixed assets
Purchase of other 15 - (128)
investments
Sale of own shares - 170 176
Net cash inflow
(outflow) from capital
expenditure and
financial investment 15 173 59
Acquisitions and
disposals
Purchase of subsidiary - - (2,324)
undertaking
Purchase of investments - (28) (964)
in associated
undertaking
Net cash outflow from (688) (28) (3,288)
acquisitions and
disposals
Net cash outflow before (688) (954) (4,620)
financing
Financing
Issue of ordinary share - - 31
capital
Net cash inflow from - - 31
financing
Decrease in net cash for (688) (954) (4,589)
the period
Reconciliation of cash
flow to movement in net
funds
Net cash at beginning of 964 5,553 5,553
period
Decrease in net cash in (688) (954) (4,589)
the period
Net cash at end of 276 4,599 964
period
Notes to the financial statements
___________________________________________________________
1. Basis of preparation
Principal accounting policies
The financial statements have been prepared under the historical cost convention
modified to include certain investments at valuation, and in accordance with
applicable accounting standards. Fixed annual charges are appointed to the
interim period on the basis of time elapsed and other expenses are accrued in
accordance with the same principles used in the preparation of the annual
accounts. The financial information contained in this interim statements is
unaudited and does not constitute statutory accounts as defined in Section 240
of the Companies Act 1985.
The comparative information for the year ended 31 December 2002 is an unbridged
version of the statutory accounts for that year and those accounts, upon which
the auditors issued an unqualified opinion, have been filed with the Registrar
of Companies.
2. Profit and Loss
Six months to Six months Year ended
30 June 2003
(Unaudited) to 30 June 2002 31 December
2002
£'000 (Unaudited) (Audited)
£'000 £'000
a) Turnover
Group turnover including share of 184 474 1,291
associated undertakings
Less: share of associated (184) (474) (1,291)
undertakings
- - -
Six months to Six months Year ended
30 June 2003 to 30 June 2002 31 December
2002
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
b) Net operating expenses -
exceptional
Penalties and legal costs arising - - 970
from surrender of lease
Impairment charge - - 146
Profit on sale of own shares - - (29)
Restructuring and closure costs - 3 -
Total operating expenses - - 3 1,087
exceptional
3. Share of operating loss of associated undertakings
Six months to Six months to Year ended
30 June 2003
(Unaudited) 30 June 2002 31 December
2002
£'000 (Unaudited) (Audited)
£'000 £'000
Share of operating loss of (392) (123) (174)
associated Undertakings
Amortisation of goodwill on (539) (26) (161)
acquisition
Impairment of goodwill - - -
(931) (149) (355)
4. Loss per 1p ordinary share
Six months to Six months to Year ended
30 June 2003
(Unaudited) 30 June 2002 31 December
2002
£'000 (Unaudited) (Audited)
£'000 £'000
Loss attributable to ordinary (1,582) (811) (3,111)
shareholders
Effect of dilutive shares - - -
options
Adjusted loss (1,582) (811) (3,111)
Weighted average number of 187,405 123,258 134,681
ordinary shares
Effect of dilutive share - - -
options
Adjusted weighted average number 187,405 123,258 134,681
of ordinary shares
Basic loss per share (0.84p) (0.6p) (2.31p)
Diluted loss per share (0.84p) (0.6p) (2.31p)
5. Investments in associated undertakings
Six months to Six months to Year ended
30 June 2003 30 June 2002 31 December
2002
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Share of net assets
At 1 January 621 198 198
Additions - 28 565
Disposals - - -
Exchange translation 30 102 32
difference
Share of loss for the year (392) - (174)
At period end 259 124 621
Goodwill
At 1 January 3,670 52 52
Arising on acquisition - - 3,779
Disposals - - -
Amortisation of goodwill (539) (26) (161)
At period end 3,131 26 3,670
Loans to associated
undertakings
At 1 January - 300 300
Additions - - -
Loans capitalised - -
Provisions against loans and - - (300)
disposal
At period end - 300 -
Net book amount at period end 3,390 450 4,291
Provisions
At 1 January 2002 - (300) -
Provided in year - - (300)
At period end - (300) (300)
Investments in Loans to Total
associated
undertakings associated £'000
undertakings
Group £'000 £'000
Net book amount
At period end 3,390 - 3,390
At 31 December 2002 4,291 - 4,291
At 31 December 2001 250 - 250
6. Other investments
Six months to Six months to Year ended
30 June 2003 30 June 2002
(Unaudited) (Unaudited) 31 December
2002
£'000 £'000 (Audited)
£'000
At 1 January 1,826 350 350
Additions 15 - 1,676
Revaluation (180) (21) (200)
At period end 1,661 329 1,826
7. Investment in own shares
Six months to Six months to Year ended
30 June 2003
(Unaudited) 30 June 2002 31 December
2002
£'000 (Unaudited) (Audited)
£'000 £'000
Cost or valuation
At 1 January - 2,445 147
Disposal - (2,478) (176)
Profit on disposal - 33 29
At period end - - -
8. Reconciliation of operating loss to net cash outflow from operating
activities
Six months to Six months to Year ended
30 June 2003 30 June 2002
(Unaudited) (Unaudited) 31 December
2002
£'000 £'000 (Audited)
£'000
Operating loss (508) (772) (2,699)
Depreciation charge 135 182 521
Goodwill valuation adjustment on - 123 -
associated undertaking
Provision against loans to - - -
associated undertakings
-
Provision against investment in - (147) -
own shares
Loss on disposal of fixed assets - - -
Profit on sale of own shares - - (29)
Decrease/(increase) in debtors 393 (65) 123
(Decrease)/increase in creditors 362 (471) (337)
)
(Decrease)/increase in (1,092) (59) 970
provisions
Net cash outflow from operating (710) (1,209) (1,451)
activities
9. Ultimate parent company
The immediate and ultimate parent company and controlling party from February
2002 has been AISoftware S.p.A., a company registered in Italy.
AISoftware S.p.A. distributed a dividend in kind to its shareholders
Brainspark's shares owned on June, 23, 2003; as a result, AISoftware S.p.A.
holds less than 0,07% of Brainspark's shares.
10. Surrender of the lease and related guarantees
During the first half 2003, Brainspark was requested by the Landlord a guarantee
to close the surrender of the lease deal. AISoftw@re S.p.A. granted Brainspark
to cover the risk amounting to £166,250 and Brainspark gave a collateral
security to AISoftw@re S.p.A. amounting to £250,000. Both these guarantees have
expired without enforcement.
11. Availability of Interim Results
Copies of the interim results will be available from The Lightwell, 12-16
Laystall Street, London EC1R 4PF.
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