Final Results
Netcentric Systems PLC
27 March 2002
NETCENTRIC SYSTEMS PLC
27 MARCH 2002
NETCENTRIC SYSTEMS PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2001
CHAIRMAN'S STATEMENT
The Company recorded a group loss after tax of £648,000 (vs. 2000 restated loss
of £12,375,000) which is fully explained in the accompanying information.
Review
There has been a dramatic reduction in the value of your Company during the
period under review. In October 2001, after the year-end, the whole of the
Board of Directors resigned except for Gerard Thompson. John May, FCA, was
appointed as Finance Director and I was appointed Chairman. We have introduced a
'rescue package' for the Company, which has involved a CVA (Company Voluntary
Arrangement) for the operating subsidiary, and the re-negotiation and
challenging of the Group's debts in order to create a company with sufficient
cash to attract a new business for a 'reverse' takeover.
With regard to the period under review, the development of the Lychee(R) product
was not on the scale that the previous board of directors had hoped to achieve.
After July 2000, the development was plagued by un-anticipated operating 'bugs'
many of which were later attributed to computer operating systems rather than
the Lychee(R) product itself. As a result, in January 2001, the Company hired
external application developers to assist in developing the necessary
architecture of the Lychee(R) product with the object of having a finished
product ready for market by May 2001.
Unfortunately, the May deadline was exceeded, and the Company sought advice from
certain of its investors, its nominated adviser and broker in order to arrange
new funding in the August to September period. As it happened, no new funding
was possible at that time.
As a consequence, the then Directors considered a solvent liquidation. Since it
was estimated that this course would produce no value to Shareholders, this idea
was abandoned in favour of a reconstruction plan proposed by the members of the
present Board with a view to the preservation of the Company. John May and I
were appointed to effect this policy.
Prior to those Board appointments, the Company had licensed for three years the
continued development and sale in Europe of the Lychee(R) product to a company
managed by Netcentric's former sales manager in return for a commission payment
on all sales within the European Union.
Post Current Year Events
As mentioned above, during October, all but Gerard Thompson of the previous
board resigned their positions and John May and I were appointed to the Board.
The new Board immediately took steps to conserve the remaining cash in the
Company which included negotiating reductions with creditors on their invoices,
challenging and demanding proof of work done and instituting a CVA for the
principal operating subsidiary, Netcentric Systems (Europe) Limited, which had
accrued debts of £5,600,000 of which approximately £5,200,000 was owed to the
parent company. Since the Company was unable to issue its own shares at below
par value, the creditors of Netcentric Systems (Europe) Limited were offered 10
pence in the pound in cash and 90 pence in the pound in London & Boston
Investments plc shares. The CVA was approved by creditors on 26 November 2001
and became effective as of that date.
In November 2001, at the Company's request, PricewaterhouseCoopers resigned
their position as the Company's auditors and new auditors, Milsted Langdon, were
invited and accepted the position.
We have announced that, subject to shareholders' approval, we propose to
reconstruct the Company's share capital and to find a suitable business to
reverse into the Company so that new value may be created for our long suffering
shareholders and so that the full value of the Company's AIM listing can be
utilised. We may need to have a number of shareholders' meetings to achieve all
we need to do in the coming months. The Company remains liquid and in addition
now anticipates the start of some commission payments from the Lychee(R)
licencing agreement during the course of the current year. We will also seek to
further licence or partner the Lychee(R) product in other markets, particularly
the United States, and discussions are in progress with Avatar Systems Inc. who
have an existing distribution agreement for Lychee(R). Details of the new
proposals and notices of the EGMs will be posted to shareholders shortly.
In the meantime we appreciate your continued support.
S. A. Komlosy
Chairman
27 March 2002
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 SEPTEMBER 2001
As restated
2001 2000
£'000 £'000
TURNOVER
Continuing operations 435 824
Acquisitions - 41
-------- --------
435 865
Discontinued operations 557 1,840
-------- --------
TOTAL TURNOVER 992 2,705
Cost of sales (411) (413)
-------- --------
GROSS PROFIT 581 2,292
Net operating expenses (5,279) (3,539)
OPERATING LOSS
Continuing operations (4,889) (823)
Acquisitions - (466)
-------- --------
(4,889) (1,289)
Discontinued operations 191 42
-------- --------
(4,698) (1,247)
Exceptional operating costs (238) (1,657)
-------- --------
TOTAL OPERATING LOSS (4,936) (2,904)
Loss on disposal of subsidiary (109) (661)
Profit on disposal of businesses - (35)
Amortisation of goodwill - (3,310)
Recognition of future losses and fixed asset writedowns - (4,928)
Release of provision for future losses and fixed asset
writedowns 4,587 -
-------- --------
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST (458) (11,768)
Interest income 76 35
Interest payable and similar charges (272) (617)
-------- --------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (654) (12,350)
Taxation 6 (25)
-------- --------
LOSS FOR THE YEAR (648) (12,375)
-------- --------
LOSS PER SHARE - BASIC 0.25p 9.46p
-------- --------
- DILUTED 0.26p 9.46p
-------- --------
STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 30 SEPTEMBER 2001
As restated 2000
2001 £'000
£'000
Loss for the financial year (648) (12,375)
Prior year adjustments (8,190) -
-------- --------
Total gains and losses recognised in the accounts since the last
annual report (8,838) (12,375)
-------- --------
NOTE OF GROUP HISTORICAL COST PROFIT AND LOSSES
FOR THE YEAR ENDED 30 SEPTEMBER 2001
As restated 2000
2001 £'000
£'000
Loss on ordinary activities before taxation (654) (12,350)
Realisation of property revaluation gains of previous years 14 -
-------- --------
Historical cost loss on ordinary activities before taxation (640) (12,350)
-------- --------
Historical cost loss on ordinary activities after taxation (634) (12,375)
-------- --------
BALANCE SHEETS - AT 30 SEPTEMBER 2001
Group
As restated
2001 2000
£'000 £'000
FIXED ASSETS
Tangible assets 1,760 7,871
-------- --------
1,760 7,871
CURRENT ASSETS
Debtors 494 483
Cash at bank 747 3,662
-------- --------
1,241 4,145
CREDITORS: amounts falling due within one year (2,248) (1,642)
-------- --------
NET CURRENT (LIABILITIES)/ASSETS (1,007) 2,503
-------- --------
TOTAL ASSETS LESS CURRENT LIABILITIES 753 10,374
CREDITORS: amounts falling due after more than one year - (3,947)
PROVISIONS (341) (4,928)
-------- --------
NET ASSETS 412 1,499
-------- --------
Represented by:
CAPITAL AND RESERVES
Called up share capital 12,737 12,737
Reserves (12,325) (11,238)
-------- --------
SHAREHOLDERS' FUNDS 412 1,499
-------- --------
The financial statements were approved by the board of directors on 27 March 2002.
NOTES TO THE FINANCIAL STATEMENTS
1. SEGMENTAL ANALYSIS BY CLASS OF BUSINESS
Profit/ Profit/
2001
(loss) (loss) As restated
Net assets 2000
before before
£'000 £'000
Turnover taxation Turnover taxation
£'000 £'000 £'000 £'000
Distribution - - - 1,840 42 -
Investment
properties 802 (431) 54 824 (1,415) 3,218
IT solutions 190 - (466) 41 (8,554) (1,719)
Common costs - (223) - - (2,423) -
------- ------- ------- ------- ------- -------
992 (654) 412 2,705 (12,350) 1,499
------- ------- ------- ------- ------- -------
2. EXCEPTIONAL ITEMS
As restated
2001 2000
£'000 £'000
Loss on sale of Waltons Television (Manx) Limited and Pascoes Limited - (661)
Profit on sale of business of Tods Limited and John North Limited - 35
Loss on sale of Manx Crawley Limited (109) -
Amortisation of goodwill - (3,310)
Recognition of future losses and fixed asset writedowns - (4,928)
Release of provision for future losses and fixed asset writedowns 4,587 -
-------- --------
Netcentric Systems (Europe) Limited has significantly curtailed the scale of its
operations and accordingly a provision for future losses was provided in that
company's financial statements for the period ended 30 September 2000
representing future costs incurred by that company up until January 2002
totalling £4,928,240. The above provision included costs incurred in the year
ended 30 September 2001 amounting to £4,586,874 which has been credited to the
profit and loss account in that year reversing the above provision.
On the acquisition of Netcentric Systems (Europe) Limited, goodwill representing
the excess of the consideration over the fair value of the assets acquired
amounting to £3,310,000 (net of a prior year adjustment of £2,000,000), was
acquired. As a result of the financial statements of Netcentric Systems
(Europe) Limited having been prepared on a break-up basis, and the value to the
group of that subsidiary considered to be negligible, the directors have
reconsidered the treatment of goodwill and accordingly a full provision of
£3,310,000 has been made in the accounts for the year ended 30 September 2000 as
a prior year adjustment.
3. RESERVES
Capital
redemption Revaluation Profit
Share reserve reserve and loss
Group premium £'000 £'000 account Total
£'000 £'000 £'000
At 1 October 2000 as restated 283 279 514 (12,314) (11,238)
Loss for the year - - - (648) (648)
Revaluation during the year - - (439) - (439)
At 30 September 2001 283 279 75 (12,962) (12,325)
4. The financial information set out above does not constitute statutory
accounts within the meaning of Section 6 and Schedule 1 of the Isle of Man
Companies Act 1982. Statutory financial statements for the financial year ended
30 September 2001 will be delivered to the Registrar of Companies and sent to
the shareholders shortly.
5. Loss Per Ordinary Share
The calculation of loss per ordinary share is based upon a loss after taxation
of £648,000 (2000: Restated loss £12,375,000) and on 254,743,956 being the
weighted number of ordinary shares in issue during the year (2000: 130,865,008).
Fully diluted loss per ordinary share is based upon a loss after taxation of
£648,000 (2000:Restated loss £12,375,000) and on a weighted average of
253,258,473 (2000: 130,865,008) shares in issue.
6. Prior Year Adjustment
Shares to be issued Profit and loss account
£'000 £'000
As previously reported 2,000 (4,124)
Prior year adjustments (see below) (2,000) (8,190)
-------- --------
As restated - (12,314)
-------- --------
The group acquired the entire issued share capital of Netcentric Systems
(Europe) Limited on 11 July 2000. The acquisition price was agreed as follows:
£'000
Tangible fixed assets 44
Debtors 118
Cash at bank and in hand 153
Creditors (383)
--------
(68)
Goodwill 5,310
--------
Cost 5,242
--------
Satisfied by:
Shares issued 3,000
Deferred shares to be issued (see below) 2,000
Cash 242
--------
5,242
--------
The deferred shares were to be issued based on achieving sales of up to
£1,000,000 in the year to 30 June 2001, subject to minimum sales of £500,000
during the period, and sales of up to £5,000,000 in the year to 30 June 2002,
subject to minimum sales of £2,500,000 during the period.
In the financial statements for the group for the year ended 30 September 2000,
the full deferred consideration was considered to be payable.
The financial statements for Netcentric Systems (Europe) Limited for the period
ended 30 September 2000 incorporated in the group accounts, were draft and not
audited by the subsidiary auditors. The subsequent audit, which was completed
on 13 February 2002, identified that Netcentric Systems (Europe) Limited had
significantly curtailed its operations and accordingly the directors prepared
the accounts for the period on a break-up basis.
The above change in basis of preparing the financial statements for Netcentric
Systems (Europe) Limited from the basis used in preparing the group accounts has
been dealt with as a prior period adjustment, as the directors consider that the
error is fundamental to the understanding of the accounts. Accordingly, the
comparatives to the financial statements have been prepared to reflect the
inclusion of the accounts for Netcentric Systems (Europe) Limited on a break-up
basis.
The following prior period adjustment has been made to the group accounts and
reflected in the opening position of the group for the year ended 30 September
2001.
As a result of the significant curtailment of activities, it would be
unreasonable to assume that the criteria to allow the deferred consideration to
be paid on the acquisition of Netcentric Systems (Europe) Limited would be
achieved. Accordingly, a reduction to the acquisition price of £2,000,000 has
been made reflecting a reduction in acquired goodwill and the removal of the
deferred shares.
As the financial statements have been prepared on a break-up basis, a provision
for the goodwill in full should have been made in the financial statements of
the year ended 30 September 2000. Accordingly, a prior period adjustment has
been made to reflect the additional writedown of £3,133,000 being the original
carrying value of goodwill in the group accounts at 30 September 2000 to reflect
the review of the economic life of goodwill. The £3,133,000 has been charged to
the profit and loss account in the year ended 30 September 2000 as an
exceptional item. The original charge to the profit and loss account for
amortisation of goodwill of £177,000 has also been transferred to exceptional
items.
As a result of the preparation of the financial statements of Netcentric Systems
(Europe) Limited on a break-up basis, a provision was made in that subsidiary's
accounts for the period ended 30 September 2000 to reflect future losses. A
provision for £4,928,000 has accordingly been provided in the financial
statements of the group as a prior period adjustment disclosed as an exceptional
item.
Other adjustments to the opening position, including additional write offs on
the fixed assets of its subsidiary Netcentric Systems (Europe) Limited totalling
£104,000 and other adjustments totalling £25,000, have been made as a prior
period adjustment.
Summary of prior period adjustment
Profit and loss
account
Shares to be
issued £'000
£'000
Deferred shares not to be issued (2,000) -
Goodwill written back - (3,133)
Recognition of future losses - (4,928)
Fixed assets depreciation and write backs - (104)
Other adjustments - (25)
--------- ---------
(2,000) (8,190)
--------- ---------
END
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