Interim Results

Zoo Digital Group PLC 12 December 2007 12th December 2007 ZOO Digital Group plc (the 'Company') Interim Report to 30 September 2007 ZOO Digital Group plc (AIM: ZOO.L), the digital media production technology group, today reports its Interim Results for the six months to 30 September 2007. Highlights •Continuing business turnover increased by 113% to £1.31 million (2006: £616,000) •Operating losses significantly reduced to £697,000 from £2.20 million in 2006 •Cash balance of £2.03 million •Successful share placing raising £3 million gross •Acquisition of Scope Seven Inc. in Los Angeles, enhanced Group's position in digital media solutions •ZOO's tools increasingly integrated into a major Hollywood studio •New revenue streams generated from the Regionalisation Tool following its adoption by SDI Media, the market leader in translation services for Hollywood studios •Established relationships with two new affiliates who will provide DVD production services in the UK and Europe •Patent portfolio expanded to include 22 patents granted with a further 40 pending Commenting on the results, Stuart Green, CEO of ZOO Digital Group plc, said 'During the first six months of this year the Group has made tremendous progress with the deployment of our tools for the benefit of a number of major Hollywood studios and the acquisition of Scope Seven. We continue to license our existing products to new customers as well as identify additional opportunities for products based on our core technologies in existing and adjacent markets. 'Our excellent staff in ZOOtech and Scope Seven have delivered world-class products and outstanding customer relationships, providing a strong platform for a period of growth.' For further enquiries please contact: ZOO Digital Group plc Tel: 0114 241 3700 Stuart Green - Chief Executive Officer Helen Gilder - Group Finance Director KBC Peel Hunt Ltd Tel: 020 7418 8900 Richard Kauffer Weber Shandwick Financial Tel: 020 7067 0700 Nick Dibden Notes to Editors About ZOO Digital Group plc ZOO Digital Group plc is an international technology company that revolutionises the digital media production market through conceiving, developing and deploying innovative software solutions. Their subsidiary ZOOtech Limited creates ground-breaking software products, and through their subsidiary Scope Seven LLC they provide digital media production services, including video compression, authoring and interactive title development. ZOO has a portfolio of over 60 patents (granted or pending) and a depth of knowledge in digital media processes which has few rivals. ZOOtech's key products include: Interactive DVD software - world leading tool for creating interactive DVDs. Most of the interactive titles played on any household DVD player are made with ZOO's software. Notable titles include 'Who Wants to be a Millionaire?', 'Question of Sport' and 'Madagascar - Animal Trivia Game'. Multi-language production software - technology to 'localise' text that appears in digital media. This software automates the localisation process for video publishers. Previously, highly-skilled technicians were required to manipulate graphical data. Now, with ZOO's software, text that needs translation is extracted and replaced with corresponding translations - reducing time, errors and labour costs. Template Authoring System (TAS) - technology to automate the production of linear (movies & TV shows) digital media. With this automation comes a significant reduction in time-to-value for the intellectual property, as well as radically changing the economies of publishing back catalogues. TAS has been designed to accomodate current and future video-based technologies. By defining templates for different platforms, alternative versions of the titles -such as HD DVD and Blu-ray disc can be quickly and easily created using the same system but different asset data. Scope Seven is a media production and design company providing world-class creative and technical services to select companies in the entertainment, games and education industries. The company is based in Los Angeles and has clients in Hollywood and worldwide. CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT We are pleased to report a strong improvement in our performance for the half year to 30 September 2007. Trading Results This is the first set of results announced under IFRS, with comparisons against restated 2006 interim results. Full details of the changes on the Group's financial statements are shown later in this report in the transitional statements. Revenue for the six months to 30 September 2007 for the continuing business increased by 113% to £1.31 million (2006: £616,000). The operating loss reduced significantly to £697,000 (2006: £2.20 million). During the six months our cash balance remained substantially unchanged at £2.03 million (2006: £2.44 million) Within ZOOtech the Templated Authoring System (TAS) product has been completely integrated into the processes of a major Hollywood studio where it is used for the production of domestic US and international DVD titles. This gives ZOO both a reliable and ongoing revenue stream. The adoption of our Regionalisation Tool into the service offerings of SDI Media, the leading provider of translation services to Hollywood, introduced additional revenue streams from this established product. The nature of our business model means that the costs are fixed so each new product or new customer adds further high margin revenue. Acquisition of the Assets of Scope Seven Inc The acquisition of the assets of Scope Seven together with its management and staff has marked a turning point for the Group. This changed the Group focus to the provision of digital media solutions rather than products. The combination of the services from Scope Seven and the unique benefits afforded by the ZOOtech technology makes a very attractive package for existing and prospective customers. We have been delighted to welcome to the Group Duncan Wain, President of Scope Seven, and his management team who have significant experience and reputation within the Hollywood digital media production market. The first few weeks of trade has shown the business to be integrating well and existing and new customers of both businesses have welcomed the acquisition. The exciting and innovative culture of Scope Seven matches the existing culture of the Group and we are all confident about the future. We have integrated ZOOtech's technologies and Scope Seven is now actively pursuing direct relationships with major studios with a new proposition offering clear competitive advantages. To that end we have chosen to terminate the affiliate relationship with GDMX in order to allow us to make the commercial arrangements directly. We expect that this strategy will lead to new and stronger customer relationships that provide enhanced revenue and profit potential. The acquisition of Scope Seven made a small contribution to the interim result with one month's trade included. Digital Media Development There are three fully developed products earning revenue for the Group, namely DVD-EXTRA STUDIO, the Regionalization Tool and the Templated Authoring System (TAS). The latter in particular has raised a great deal of interest with new customers and our development team is working on customisations for new licensees to enable them to adopt the tool, providing revenue to the Group through their usage. The technical team is completing the development of a new product which we anticipate will generate significant new revenue streams from existing and new customers within current and adjacent markets. Within Scope Seven development has continued into the efficient production of video-based titles for a number of digital formats including HD DVD, Blu-ray Disc and Video on Demand. Our DVD-EXTRA STUDIO product continues to be used for the production of leading interactive DVD titles in the UK, Europe and the USA. The technology has been used to produce a number of big brand titles for major video and toy companies in North America. We have continued to protect our patent portfolio with 22 patents granted and a further 40 pending. Financial Review We are pleased to report that our cash management and cost control procedures have enabled us to make the best use of the funds available to us and to maximise our cash balances. Our cash balance is substantially unchanged in the six month period with the operating cash outflow from operating activities reduced to £795,000. The other highlights within the period are the cash inflow from fundraising of £2.73 million and cash used for the acquisition of £1.56 million. Our innovative approach has continued to be recognised by industry leaders and we have been successful in a number of new grant applications. We anticipate over £600,000 grant funding available to us over the next two years for specific ongoing initiatives. Staff The Group has been built with a great deal of passion and hard work, and determination, to succeed as a market leader in our sector. Our excellent staff are our greatest asset and we are privileged to be working with outstanding individuals across all disciplines within the Group. The Board join us in thanking all of our employees for the efforts they have made during these six months of trading. Outlook The Board is focused on the drive towards becoming profitable and cash flow positive. This position is becoming ever closer and we can see a positive future with significant interest in our products and scalability of the technology. The pressure on speed to market and cost control within the film and video industry means we are uniquely placed to assist our clients and expand our business. The Group is positioned to play a key role in the future development of the industry and we look forward to driving the business forward in what we believe will be an exciting period ahead. Dr Christopher H B Honeyborne Chairman Dr Stuart A Green Chief Executive Officer 12th December 2007 CONSOLIDATED INCOME STATEMENT (UNAUDITED) for the six months ending 30 September 2007 6 months to 6 months to Year ended 30 Sep 2007 30 Sep 2006 31 Mar 2007 £000 £000 £000 (Restated) (Restated) -------------------------------------------------------------------------------- Revenue Continuing operations 1,309 616 1,491 Discontinued operations - 431 2,715 -------------------------------------------------------------------------------- 1,309 1,047 4,206 Cost of Sales (162) (1,113) (1,404) -------------------------------------------------------------------------------- Gross Profit 1,147 (66) 2,802 Other operating income 4 - 117 Other operating expenses (1,760) (1,937) (3,771) Share based payments (11) (66) (86) -------------------------------------------------------------------------------- Loss before interest, tax, (620) (2,069) (938) depreciation and amortisation Restructuring costs - - (94) Depreciation (75) (70) (127) Amortisation (2) (59) (83) -------------------------------------------------------------------------------- Operating Loss (697) (2,198) (1,242) Finance income 41 4 53 Finance cost (92) (27) (185) -------------------------------------------------------------------------------- Loss before taxation (748) (2,221) (1,374) Tax on loss - - - -------------------------------------------------------------------------------- Loss for the period (748) (2,221) (1,374) Continuing operations (748) (588) (1,648) Discontinued operations - (1,633) 274 -------------------------------------------------------------------------------- (748) (2,221) (1,374) Disposal of discontinued operations - - 310 -------------------------------------------------------------------------------- Loss for the period (748) (2,221) (1,064) -------------------------------------------------------------------------------- Loss per ordinary share (9.24p) (51.79p) (20.89p) -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET (UNAUDITED) as at 30 September 2007 As at As at As at 30 Sep 2007 30 Sep 2006 31 Mar 2007 £000 £000 £000 (Restated) (Restated) -------------------------------------------------------------------------------- ASSETS Non-Current Assets Goodwill 2,230 1,595 1,595 Other intangible assets 1,830 426 755 Property, plant and equipment 675 225 149 -------------------------------------------------------------------------------- 4,735 2,246 2,499 -------------------------------------------------------------------------------- Current Assets Trade receivables and other receivables 2,058 2,706 1,817 Cash and cash equivalents 2,030 2,444 2,026 -------------------------------------------------------------------------------- 4,088 5,150 3,843 -------------------------------------------------------------------------------- Total Assets 8,823 7,396 6,342 -------------------------------------------------------------------------------- LIABILITIES Current Liabilities Trade payables and other payables (2,597) (4,730) (2,336) -------------------------------------------------------------------------------- (2,597) (4,730) (2,336) -------------------------------------------------------------------------------- Non-current Liabilities Financial liabilities - borrowings (3,364) (3,275) (3,013) -------------------------------------------------------------------------------- (3,364) (3,275) (3,013) -------------------------------------------------------------------------------- Total Liabilities (5,961) (8,005) (5,349) -------------------------------------------------------------------------------- Net Assets/ Liabilities 2,862 (609) 993 -------------------------------------------------------------------------------- EQUITY Equity attributable to equity holders of the parent Called up share capital 2,687 887 887 Share premium account 23,031 21,818 22,102 Other reserves 8,598 8,598 8,598 Share option reserve 11 395 326 Convertible loan note reserve 266 266 266 Foreign exchange translation 3 (10) 81 Profit and loss account (31,659) (32,474) (31,192) -------------------------------------------------------------------------------- 2,937 (520) 1,068 -------------------------------------------------------------------------------- Interest in own shares (75) (89) (75) -------------------------------------------------------------------------------- Total Equity 2,862 (609) 993 -------------------------------------------------------------------------------- CONSOLIDATED CASHFLOW STATEMENT (UNAUDITED) for the six months ending 30 September 2007 As at As at As at 30 Sep 2007 30 Sep 2006 31 Mar 2007 £000 £000 £000 (Restated) (Restated) -------------------------------------------------------------------------------- Cash flows from operating activities Operating Loss for the period (697) (2,198) (1,242) Finance income 41 4 53 Depreciation 75 70 127 Amortisation 2 59 83 Share based payments (131) (84) (49) Disposal of own shares - - 14 Changes in working capital: Inventories - 48 48 Trade and other receivables (72) (208) 682 Trade and other payables (13) 1,170 (1,238) -------------------------------------------------------------------------------- Cash flow from operations (795) (1,139) (1,522) Tax received/(paid) - - - -------------------------------------------------------------------------------- Net cash flow from operating activities (795) (1,139) (1,522) -------------------------------------------------------------------------------- Investing Activities Sale of property, plant and equipment - - 11 Sale of subsidiary undertakings - - 299 Acquisition of subsidiary (1,559) - - Purchase of intangible assets (240) (26) (379) Purchase of property, plant and equipment (94) - 19 -------------------------------------------------------------------------------- Net cash flow from investing activities (1,893) (26) (50) -------------------------------------------------------------------------------- Cash flows from financing activities Repayment of borrowings - - - Finance cost (53) (27) (129) Share and convertible loan issues - - (398) Issue of Share capital 2,729 422 820 Issue of Convertible loan stock - 3,541 3,541 -------------------------------------------------------------------------------- Net cashflow from financing 2,676 3,936 3,834 -------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (12) 2,771 2,262 -------------------------------------------------------------------------------- Cash and cash equivalents at the 2,026 (317) (317) beginning of the period -------------------------------------------------------------------------------- Exchange gains on cash and cash equivalents 16 (10) 81 -------------------------------------------------------------------------------- Cash and cash equivalents at the end 2,030 2,444 2,026 of the period -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) As at 30 September 2007 Share Share Other Share Convertible Foreign Profit Total Capital premium reserve based Loan Note Exchange and payment Reserve Translation Loss reserve Account £000 £000 £000 £000 £000 £000 £000 £000 ----------------------------------------------------------------------------------------------------- Balance as at 635 21,648 8,598 418 - - (30,192) 1,107 1 Apr 2006 (Restated) Profit/(Loss) (2,221) (2,221) for the period Share based (23) (61) (84) payments Issue of 266 266 convertible loan note Shares Issued 252 170 422 in the period Foreign exchange (10) (10) translation adjustment ----------------------------------------------------------------------------------------------------- Balance as at 887 21,818 8,598 395 266 (10) (32,474) (520) 30 Sep 2006 (Restated) Profit/(Loss)for 1,156 1,156 the period Share based (69) 104 35 payments Issue of - convertible loan note Issue Costs 284 22 306 Foreign exchange 91 91 translation adjustment ----------------------------------------------------------------------------------------------------- Balance as at 887 22,102 8,598 326 266 81 (31,192) 1,068 31 Mar 2007 (Restated) Profit/(Loss) (748) (748) for the period Share based payments (315) 184 (131) Issue of - convertible loan note Shares Issued in the period 1,800 929 2,729 own shares Foreign exchange translation (78) 97 19 adjustment ----------------------------------------------------------------------------------------------------- Balance as at 2,687 23,031 8,598 11 266 3 (31,659) 2,937 30 Sep 2007 ----------------------------------------------------------------------------------------------------- NOTES TO THE FINANCIAL STATEMENTS 1. Basis of preparation The annual financial statements of ZOO Digital Group plc for the year ending 31 March 2008 will be prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted for use in the EU. Accordingly, the interim financial report has been prepared using accounting policies consistent with those which will be adopted by the Group in the financial statements. The comparative figures for the year ended 31 March 2007 do not constitute statutory accounts for the purposes of s240 of the Companies Act 1985. A copy of the statutory accounts for the year ended 31 March 2007, prepared under UK GAAP, has been delivered to the Registrar of Companies and contained an unqualified auditors' report in accordance with s235 of the Companies Act 1985. The disclosures required by IFRS 1 - First Time Adoption of International Financial Reporting Standards concerning the transition from UK GAAP to IFRS are presented at the end of this document. Exemptions taken on first time adoption of IFRS 1 Business combinations - The group has applied the exemption from retrospectively recalculating goodwill, which arose from acquisitions prior to 1 April 2006. This goodwill is included at its deemed cost, being the amount recorded under UK GAAP as at 1 April 2006. Fair value or revaluation of property, plant and equipment as deemed cost - The Group has elected to use previous revaluations as deemed cost at the transition date. Share based payment transactions - The Group has elected to apply IFRS 2 Share based payments only to equity instruments made after 7 November 2002 that had not vested by 1 April 2006. The interim statements have been prepared under the historical cost convention as modified by fair value accounting for share options. 2. Accounting policies The accounting policies used in these interim statements remain as previously stated in the latest Annual report and Accounts for the year ended 31 March 2007, unless these policies have been amended to comply with IFRS. Any variations to previously applied policies are detailed at the end of the document under 'Explanatory notes to the adjustments from UK GAAP to IFRS. 3. Basis of Consolidation The consolidated financial statements of ZOO Digital Group plc include the results of the Company and its subsidiaries. Subsidiary accounting policies are amended where necessary to ensure consistency within the Group and intra group transactions are eliminated on consolidation. 4. Earnings per Share On 28 August 2007 12,000,000 ordinary shares of 15p were issued for consideration of £3,000,000. Earnings per share is calculated based upon the loss on ordinary activities after tax for each period divided by the weighted average number of shares in issue during each period being 8,099,152 (6 months to 30 September 2006: 4,288,713; year ending 31 March 2007: 5,092,801). Information on fully diluted earnings per share has not been presented as the company recorded a loss after tax in each of the relevant periods and accordingly the exercise of options would not result in further earnings dilution for shareholders. EXPLANATORY NOTES TO THE ADJUSTMENTS FROM UK GAAP TO IFRS This is the first year that the Group has presented its consolidated financial statements under IFRS. In preparing its opening IFRS balance sheet, the Group has adjusted amounts previously reported in the financial statements prepared in accordance with UK GAAP. An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial position and financial performance is set out in the following notes and tables. IAS 18 - Revenue Previously the Group recognised non refundable royalty advances when they became contracted and invoicable to the client. Under IAS 18 royalties need to be recognised on an accruals basis in accordance with the substance of the relevant agreement. Based on the substance of the contract agreements, revenue is recognised to match with estimated sales. Estimates of expected sales are reviewed at each balance sheet date.The following adjustments have been applied retrospectively resulting in a charge of £1,017,000 in the six months ended 30 September 2006 and a credit of £457,000 in the year ended 31 March 2007. IAS 38 - Intangible Assets IAS 38 requires computer software, not integral to the operation of computers, to be reported under Intangible assets. Previously Computer software was reported under Computers within Tangible fixed assets. The adjustment has resulted in a straight reclassification of assets the changes being: £47,000 at 1 April 2006, £37,000 at 30 September 2006 and £21,000 at 31 March 2007. IAS 19 - Employee Benefits Under IAS 19 the Group is required to recognise in full the liabilities generated when the total of employees' cumulative paid holiday earned exceeds the total of cumulative paid holiday taken. Under UK GAAP the Group did not recognise this liability. This change in accounting policy has been applied from the 1 April 2006 balance sheet. This has resulted in a charge of £35,000 for the six months to 30 September 2006 and a charge for the year to 31 March 2007 of £26,000. This is due to the timing of the holiday year and the financial period ends. IFRS 2 - Share based payments For the year ending 31 March 2007 the Group adopted FRS20 the UK GAAP equivalent to IFRS 2, therefore no transitional adjustments are required in relation to Share based payments and the accounting policy remains as it was in the Annual report and accounts for the year ended 31 March 2007. IFRS 3 - Business Combinations IFRS 1 permits various optional exemptions. The Group has taken advantage of the exemption of applying IFRS 3 Business combinations, retrospectively to business combinations that took place prior to the transitional date. The investments held on the balance sheet at the transitional date remain at their previous UK GAAP carrying value at the date of transition. IFRS 3 - Goodwill Previously, the goodwill acquired on acquisition was amortised over a 10 year period. Goodwill is now reviewed annually for impairment. IAS 21 - The effects of changes in foreign exchange rates The Group has taken advantage of the exemption in IFRS 1, which allows the cumulative translation differences to be set to zero at the date of transition for all subsidiaries. The Group has therefore not identified cumulative translation differences prior to the date of transition. For translation difference occurring after the transition date, these are reported as a separate element within equity. RECONCILIATION OF UK GAAP TO IFRS Income Statements Software UK Intangible Employee Revenue GAAP Assets Goodwill Benefits Recognition IFRS IAS 38 IFRS3 IAS 19 IAS 18 (Restated) Six months to 30 Sep 2006 £000 £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------------ Revenue Continuing operations 736 (120) 616 Discontinued 1,328 (897) 431 operations ------------------------------------------------------------------------------------------ 2,064 - - - (1,017) 1,047 Cost of Sales (1,113) (1,113) ------------------------------------------------------------------------------------------ Gross profit 951 - - - (1,017) (66) Other operating - - income Other operating (2,038) 35 (2,003) expenses Share based - - payments Depreciation (82) 12 (70) Amortisation of (214) (12) 167 (59) intangible assets ------------------------------------------------------------------------------------------ Loss before (1,383) - 167 35 (1,017) (2,198) financing and tax Finance income 4 4 Finance costs (27) (27) ------------------------------------------------------------------------------------------ Loss before taxation (1,406) - 167 35 (1,017) (2,221) Taxation - ------------------------------------------------------------------------------------------ Loss for period (1,406) - 167 35 (1,017) (2,221) Continuing operations (670) 167 35 (120) (588) Discontinued operations (736) (897) (1,633) ------------------------------------------------------------------------------------------ Loss for the period (1,406) - 167 35 (1,017) (2,221) ------------------------------------------------------------------------------------------ RECONCILIATION OF UK GAAP TO IFRS Income Statements (Continued) Software UK Intangible Employee Revenue GAAP Assets Goodwill Benefits Recognition IFRS IAS 38 IFRS3 IAS 19 IAS 18 Year ended 31 Mar 2007 £000 £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------------ Revenue Continuing 1,399 92 1,491 operations Discontinued 2,350 365 2,715 operations ------------------------------------------------------------------------------------------ 3,749 - - - 457 4,206 Cost of Sales (1,404) (1,404) ------------------------------------------------------------------------------------------ Gross profit 2,345 - - - 457 2,802 Other operating 117 117 income Other operating (3,883) 26 (3,857) expenses Share based - - payments Restructuring costs (94) (94) Depreciation (144) 17 (127) Amortisation of (402) (17) 336 (83) intangible assets ------------------------------------------------------------------------------------------ Loss before (2,061) - 336 26 457 (1,242) financing and tax Finance income 53 53 Finance costs (185) (185) ------------------------------------------------------------------------------------------ Loss before taxation (2,193) - 336 26 457 (1,374) Taxation - ------------------------------------------------------------------------------------------ Loss for period (2,193) - 336 26 457 (1,374) Continuing (2,102) 336 26 92 (1,648) operations Discontinued (91) 365 274 operations ------------------------------------------------------------------------------------------ (2,193) - 336 26 457 (1,374) Disposal of 310 310 Discontinued operation ------------------------------------------------------------------------------------------ Loss for the period (1,883) - 336 26 457 (1,064) ------------------------------------------------------------------------------------------ RECONCILIATION OF UK GAAP TO IFRS Balance Sheets Software UK Intangible Employee Revenue GAAP Assets Goodwill Benefits Recognition IFRS IAS 38 IFRS3 IAS 19 IAS 18 As at 31 Mar 2006 £000 £000 £000 £000 £000 £000 ----------------------------------------------------------------------------------------------- ASSETS Non-current assets Goodwill 1,595 1,595 Other Intangible assets 412 47 459 Property, plant and 342 (47) 295 equipment ----------------------------------------------------------------------------------------------- 2,349 - - - - 2,349 ----------------------------------------------------------------------------------------------- Current assets Inventories 48 48 Trade receivables 2,499 2,499 and other receivables ----------------------------------------------------------------------------------------------- 2,547 - - - - 2,547 ----------------------------------------------------------------------------------------------- Total assets 4,896 - - - - 4,896 ----------------------------------------------------------------------------------------------- LIABILITIES Current Liabilities Trade payables and (2,646) (48) (868) (3,562) other payables Short-term borrowings (317) (317) and overdraft ----------------------------------------------------------------------------------------------- (2,963) - - (48) (868) (3,879) ----------------------------------------------------------------------------------------------- Non-current liabilities Borrowings - - ----------------------------------------------------------------------------------------------- - - - - - - ----------------------------------------------------------------------------------------------- Total Liabilities (2,963) - - (48) (868) (3,879) ----------------------------------------------------------------------------------------------- Net Assets 1,933 - - (48) (868) 1,017 ----------------------------------------------------------------------------------------------- EQUITY Equity attributable to equityholders of the parent Share capital 635 635 Share premium account 21,648 21,648 Other reserves 8,598 8,598 Share option reserve 418 418 Retained earnings (29,277) (48) (868) (30,193) ----------------------------------------------------------------------------------------------- 2,022 - - (48) (868) 1,106 ----------------------------------------------------------------------------------------------- Interest in own shares (89) (89) ----------------------------------------------------------------------------------------------- Total Equity 1,933 - - (48) (868) 1,017 ----------------------------------------------------------------------------------------------- RECONCILIATION OF UK GAAP TO IFRS Balance Sheets (Continued) Software UK Intangible Employee Revenue GAAP Assets Goodwill Benefits Recognition IFRS IAS 38 IFRS3 IAS 19 IAS 18 As at 30 Sep 2006 £000 £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------------ ASSETS Non-current assets Goodwill 1,428 167 1,595 Other Intangible 389 37 426 assets Property, plant and 262 (37) 225 equipment ------------------------------------------------------------------------------------------ 2,079 - 167 - - 2,246 ------------------------------------------------------------------------------------------ Current assets Inventories - Trade receivables 2,706 2,706 and other receivables Cash and cash 2,444 2,444 equivalents ------------------------------------------------------------------------------------------ 5,150 - - - - 5,150 ------------------------------------------------------------------------------------------ Total assets 7,229 - 167 - - 7,396 ------------------------------------------------------------------------------------------ LIABILITIES Current Liabilities Trade payables and (2,763) (83) (1,884) (4,730) other payables ------------------------------------------------------------------------------------------ (2,763) - - (83) (1,884) (4,730) ------------------------------------------------------------------------------------------ Non-current liabilities Borrowings (3,275) (3,275) ------------------------------------------------------------------------------------------ (3,275) - - - - (3,275) ------------------------------------------------------------------------------------------ Total Liabilities (6,038) - - (83) (1,884) (8,005) ------------------------------------------------------------------------------------------ Net Assets/ Liabilities 1,191 - 167 (83) (1,884) (609) ------------------------------------------------------------------------------------------ EQUITY Equity attributable to equity holders of the parent Share capital 887 887 Share premium 21,818 21,818 account Other reserves 8,598 8,598 Share option 395 395 reserve Convertible loan 266 266 note reserve Foreign exchange translation (10) (10) Retained earnings (30,674) 167 (83) (1,884) (32,474) ------------------------------------------------------------------------------------------ 1,280 - 167 (83) (1,884) (520) ------------------------------------------------------------------------------------------ Interest in own shares (89) (89) ------------------------------------------------------------------------------------------ Total Equity 1,191 - 167 (83) (1,884) (609) ------------------------------------------------------------------------------------------ RECONCILIATION OF UK GAAP TO IFRS Balance Sheets (Continued) Software UK Intangible Employee Revenue GAAP Assets Goodwill Benefits Recognition IFRS IAS 38 IFRS3 IAS 19 IAS 18 As at 31 Mar 2007 £000 £000 £000 £000 £000 £000 ----------------------------------------------------------------------------------------------- ASSETS Non-current assets Goodwill 1,259 336 1,595 Other Intangible 734 21 755 assets Property, plant and 170 (21) 149 equipment ----------------------------------------------------------------------------------------------- 2,163 - 336 - - 2,499 ----------------------------------------------------------------------------------------------- Current assets Inventories - Trade receivables 1,817 1,817 and other receivables Cash and cash 2,026 2,026 equivalents ----------------------------------------------------------------------------------------------- 3,843 - - - - 3,843 ----------------------------------------------------------------------------------------------- Total assets 6,006 - 336 - - 6,342 ----------------------------------------------------------------------------------------------- LIABILITIES Current Liabilities Trade payables and (1,903) (22) (411) (2,336) other payables ----------------------------------------------------------------------------------------------- (1,903) - - (22) (411) (2,336) ---------------------------------------------------------------------------------------------- Non-current liabilities Borrowings (3,013) (3,013) ----------------------------------------------------------------------------------------------- (3,013) - - - - (3,013) ----------------------------------------------------------------------------------------------- Total Liabilities (4,916) - - (22) (411) (5,349) ----------------------------------------------------------------------------------------------- Net Assets 1,090 - 336 (22) (411) 993 ----------------------------------------------------------------------------------------------- EQUITY Equity attributable to equity holders of the parent Share capital 887 887 Share premium 22,102 22,102 account Other reserves 8,598 8,598 Share option 326 326 reserve Convertible loan 266 266 note reserve Foreign exchange 81 81 translation Retained earnings (31,095) 336 (22) (411) (31,192) ----------------------------------------------------------------------------------------------- 1,165 - 336 (22) (411) 1,068 ----------------------------------------------------------------------------------------------- Interest in own shares (75) (75) ----------------------------------------------------------------------------------------------- Total Equity 1,090 - 336 (22) (411) 993 ----------------------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange

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