Final Results

Interregnum PLC 27 October 2005 Thursday, 27 October 2005 Interregnum plc Financial results for the 12 months ended 30 June 2005 Financial highlights • Group turnover up 112% to £7.98m (2004: £3.77m) • Operating losses stabilised at £1.55m (2004: £1.53m) • Losses before tax reduced by 34% to £0.43m (2004: £0.65m) • Value of portfolio up 55% to £7.16m (2004: £4.62m) • Revenues for Interregnum's core investment and advisory business up 118% to £1.35m (2004: £0.62m) Corporate highlights: • Continued focus on acquiring majority stakes in businesses; acquisition of AVM, an audio visual solutions provider, in January 2005; AVM like-for-like revenues up 58% for the five months to June 2005 • Significant progress in strategy of combining companies to create a major player focused on audio visual solutions to major corporates; acquisition of certain assets from ITM Group Ltd by Interregnum's subsidiary company AVM in May 2005; further acquisition of VMC, a video conferencing systems provider, by AVM post the year-end • Merger of Interregnum subsidiaries IWH and CDS with Red-M Communications to create significant secure wireless communications group in April 2005; Interregnum has 46% share holding in combined business • Appointment as key advisor to DestiNY USA, an estimated US$20 billion initiative to create America's most visited leisure destination based on the use of innovative technologies • Eight new investments in the period totalling £1.5m including Red-M, Future Route, AVM and Oilcats • Strengthening of Corporate Finance advisory capabilities with the appointment of four new Managing Directors during the period; Interregnum has an advisory team of 17 professionals. Commenting on the results, Ken Olisa, Chairman of Interregnum, said: 'The last year has seen the tech sector continue to regain positive momentum. Interregnum Group revenues grew by 112% from £3.77m to £7.98m, our operating losses stabilised at £1.55m and the key measure of our value added - total recognised gains and losses - has also stabilised. 'As a technology merchant bank our mission is to 'Transform technology into wealth'. We do this in a variety of ways - buying, selling, advising, investing in and operating companies across the technology spectrum - anything where our intellectual capital, network and access to financial capital can help create value. 'In the last year, the value of our core business' revenues grew as well as those of our subsidiaries (Yospace, AVM and CDS). Importantly, in addition to the overall revenue increase of 112%, the value of our portfolio increased too. The core Interregnum revenues rose by 118% to £1.35m and the company's portfolio is now valued at £7.16m up 55% on the year before. 'The market for technology will continue to favour our mix of activities over the coming year and our plan is to grow organically in each of our main activities while demonstrating our ability to add value by disposing of one or more of our assets. At the same time we will remain vigilant for any scale building opportunities that can take advantage of our assets.' -Ends- For further information: Interregnum 020 7494 3080 Ken Olisa, Chairman & CEO Martin Cooper, Finance Director Merlin 020 7653 6620 Vanessa Maydon Mob 07802 961902 Rebecca Penney Mob 07795 108178 Attached: Chairman's Statement Consolidated Profit & Loss Account Consolidated Balance Sheet Company Balance Sheet Consolidated Statement of Cash flows Chairman's statement In the following Q&A, Ken Olisa provides his analysis of Interregnum's year to 30 June 2005 and the prospects for the year ahead. Q: The markets seem to be being kinder to technology stocks - is thisa sustainable phenomenon or a flash in the pan? A: The last year has seen the tech sector continue to regain positive momentum. The fundamental driver of this is the global move towards the use of the internet to conduct business, where we are seeing an explosion in the number of potentially interconnected devices taking advantage of the widespread access to data and users - what we call the 'Age of Ubiquity'. We are witnessing the early stages of a highly disruptive period as each new family of devices threatens an existing business. As a result, large established companies are implementing defensive strategies by gaining scale through mergers and acquisitions. At the same time these organisations are sourcing competitive solutions to meet market needs by acquiring smaller innovative companies at the other end of the spectrum, both of which has resulted in an increase in transaction activity.One dark cloud on the horizon is the reducing level of capital available from professional VCs around Europe. However a consequence of this is that early stage companies are both more open to advice than in boom times and, equally, they are willing to explore innovative approaches to growing their value from more reasonably priced expectations. These effects - consolidation at the top end through to an urgency to establish a market presence among smaller companies - provide Interregnum with a fertile environment which we expect to be sustained for years to come. Q: In what way is this improving climate having an effect on your results? A: As you will have noted in the Highlights section, Interregnum Group revenues grew by 112% from £3.77m to £7.98m, our operating losses stabilised at £1.55m and the key measure of our value added - total recognised gains and losses - has also stabilised. Q: But that revenue growth was due in large part to companies that you have acquired - what's happening to the underlying business? A: To talk of an 'underlying business' is to miss what we mean when we describe ourselves as a technology merchant bank. To clarify things, let me describe what we do. As a technology merchant bank our mission is to 'Transform technology into wealth'. We do this in a variety of ways - buying, selling, advising, investing in and operating companies across the technology spectrum - anything where our intellectual capital, network and access to financial capital can help create value. The Interregnum Group consists of three elements: 1) the core investment and advisory business, 2) the subsidiaries directly controlled by us during the year and 3) a portfolio of minority holdings in other companies. Our financial results include the first two of these and the increase in the value of the portfolio of holdings is included in the total recognised gains and losses. In the last year, the value of our core business' revenues grew as well as those of our subsidiaries (Yospace, AVM and CDS). Importantly, in addition to the overall revenue increase of 112%, the value of our portfolio increased too. The core Interregnum revenues rose by 118% to £1.35m and the company's portfolio is now valued at £7.16m up 55% on the year before. Q: Staying with the numbers - you say the operating losses have 'stabilised'. This sounds good, but you had previously said it was the intention to get this part of the business to break even - not stabilise its losses. When will this be? A: The summary numbers do not yet fully reflect the major changes which we have made in the fee-earning advisory part of our business. During the period, seven new people were recruited which has significantly enhanced both the quality and quantity of our fee-earning capability and has resulted in second half revenue growth. Since year end, that growth has continued, exemplified by the significant advisory fees of £700k which we generated from a large transaction which completed in October 2005. The additions to this team have genuinely transformed it, which is why I remain confident that we will reach operational profitability during the current financial year - our previously stated plan. Q: OK, to get the structure clear, the core Interregnum does what? A: We buy, sell, advise, invest in and operate technology companies. Q: Does 'buy and sell' mean the same as M&A - mergers and acquisitions? A: Yes - we do this both for our clients and on our own account. Using our network of technology and business contacts, our deep knowledge of the industry and our tried and tested methodologies, we have worked for buyers and sellers in Europe and the US. Q: Can you give some examples of buying and/or selling transactions? A: During the last year we have worked for clients in the UK, Czech Republic, Italy and the USA. In January 2005 we acquired Audio Visual Machines (AVM) for ourselves and subsequently they purchased the assets of ITM Group Ltd (ITM). We led the sale of Chevin to Florida-based Allen Systems Group (ASG) on behalf of their venture capital owner, MTI, and, shortly after the year end, we sold a UK plc's high technology portfolio to a secondary private equity fund. Q: And outside of M&A activity? A: For over a decade, since Interregnum's foundation in 1992, we have also acted as a trusted advisor to ambitious IT entrepreneurs and their investors. During the last financial year we have provided a range of advisory services, assisting clients, amongst other things, to develop strategies, raise funds, build partnerships and value their assets. Companies with whom we have worked are as diverse as AIM-listed Petards (AIM: PED) to DestiNY USA - the 21st century technology cluster being developed as part of an estimated US$20 billion initiative in Upstate New York. At DestiNY, we are working on IP commercialisation projects as well as providing financial advice and support and valuation methodologies. Q: You have very little investment firepower - how are you able to invest? A: We do have limited capital resources of our own which we have generally used to acquire control of businesses which we intend to operate, of which AVM and The Video Meeting Company (VMC) are the most recent examples. The main source of capital for other deals, on which we have advised, comes from external sources - mainly high net worth individuals - from whom we have successfully raised over £4m during the year. In these relationships our approach is to charge an arrangement fee and a share of the profits earned by our partners when the investment is realised. Q: And finally, you also run businesses directly - how does that fit with your role as a venture capitalist? A: Firstly, we are not a venture capitalist, we are a technology merchant bank. Where we do make VC-like investments, we ensure that, through the shareholder agreements and board structure, we can exert significant influence over the business strategy and its execution of the portfolio company. And where we can, we prefer to have majority ownership of our investments - they become operating subsidiaries of Interregnum. Currently we have two such subsidiaries, Yospace and AVM, having sold CDS to Red-M in 2005. Q: Yospace and AVM - what do they do and how are they performing? A: Yospace (www.yospace.com) is a software developer providing solutions to mobile operators such as Orange, Vodafone and 3. They have two core products: handset emulators and the MCP (Media Communications Platform) to enable MMS (multi media messaging system) applications to be developed. The handset emulation division helps the mobile operators' call centres to minimise costs by helping representatives to deal with functionality questions efficiently and without the need to have a version of every handset available for each call centre operator. MMS enabled applications form an important bridge between second and third generation mobile telephone use. AVM (www.avmachines.com) is a systems integrator specialising in the installation of complex video conferencing and audiovisual solutions for major corporations such as Pfizer and BP. As you will see from the detailed accounts, Yospace turned in flat revenues in year under review on disappointing sales of the MCP products following a delay to the implementation of a large contract with a major mobile phone company. The good news is that this project has now commenced and we expect to see revenue growth from Yospace in the current financial year. AVM had a good year having been acquired by the Group in January 2005. AVM's revenues were £1.89m (for the five months to June 2005) which was an increase of 58% on the same period last year. Boosted by the subsequent acquisition of ITM, AVM concluded the year under review on an upward trajectory and we are confident that the recent merger with VMC will accelerate that growth. Q: And what is the future for these subsidiaries - do you intend to become a diversified technology conglomerate? A: No. As a technology merchant bank, we intend to build value in all of our assets and to exit them when appropriate either via a trade sale or a flotation. Q: Just as your business seems to be travelling in the right direction you are growing in the US - isn't this a risky diversion? A: The planners behind DestiNY USA (www.destinyusa.com) intend it to become America's most visited leisure destination based on the use of innovative technologies ranging from IT and communications through to renewable energy. Interregnum has been appointed as a key advisor and we enjoy a very constructive relationship with the project's leaders. While to have such a dominant client is not without its risks, the DestiNY project has already proved financially beneficial to us and our strong relationship there provides a springboard for our expansion into the US market. Q: Where's the value in Interregnum? A: Interregnum's value comes from three parts of the business: the fee-earning advisory activity, our operating subsidiaries (such as AVM and Yospace) and our portfolio of investments. I have discussed the value of our advisory business and operating subsidiaries above. In the software sector it is usual for companies to be valued on a multiple of sales. The multiple can range from the low single digits to very much higher as the sale of Skype to eBay showed recently. The following table compares the portfolio's present value using BVCA guidelines) with its value were we to use 1 and 2 times each company's revenue. This approach can only provide a rough and prudent valuation - for example highly profitable businesses such as Respond would attract a far higher multiple - but it does provide an indication of the portfolio's potential on disposal. Portfolio table -------- ---------- ---------- --- ----------- 30 June 2005 30 June 2005 Revenue Holding BVCA multiple value 1X 2X Company % £000 £000 £000 AVM 77% 530 5,000 10,000 Yospace 54% 840 1,230 2,460 Red-M 46% 1,210 2,160 4,320 Metapraxis 18% 300 504 1,008 Respond 20% 3,280 1,180 2,360 Adaptive 15% 450 408 816 ---------- ------ ------- 6,610 10,482 20,964 ========== ====== ======= --------- ---------- ---------- --- ------- -------- Q: As ever, you sound very upbeat and the news all sounds positive. Did anything go wrong last year? A: Ah that's a very British question! But not an unreasonable one. And yes, not everything did go as well as we had hoped. A great disappointment was the failed IPO of Red-M. In 2004, we acquired CDS, a consultancy specialising in designing wireless infrastructure systems for the mobile phone operators and large landlords such as BAA. We successfully repositioned CDS to take advantage of the explosion in wireless usage by focusing its business on what is known as 'Total Airspace Management'. In April 2005, we merged it with a wireless security company, Red-M, which was owned principally by the leading venture capitalists, Apax and Amadeus. The plan was to list the combined company on AIM and in so doing, to raise sufficient funds to see it through to profitability. Unfortunately, market conditions forced the flotation to be aborted. Q: And what happens to CDS/Red-M now - will it go bust? A: Despite the aborted flotation, the value inherent in Red-M has not changed. We are currently negotiating a further private round of investment which should provide it with sufficient funds to proceed to profitability. The vision for the company - Total Airspace Management - remains demonstrably relevant, and once Red-M has secured its financing I believe that our asset will grow in value, returning a profit to Interregnum. Q: What's your prognosis for the next 12 months? A: The market for technology will continue to favour our mix of activities over the coming year and our plan is to grow organically in each of our main activities while demonstrating our ability to add value by disposing of one or more of our assets. At the same time we will remain vigilant for any scale building opportunities that can take advantage of our assets. Thank you. INTERREGNUM PLC UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT YEAR ENDED 30 JUNE 2005 Continuing Operations Discontinued Existing Acquisitions Operations Total Total 2005 2005 2005 2005 2004 Notes £ £ £ £ £ Turnover 3 2,261,244 1,891,737 3,828,634 7,981,615 3,773,470 Cost of 3 - (1,090,443) (1,201,375) (2,291,818) (746,035) sales Gross profit 2,261,244 801,294 2,627,259 5,689,797 3,027,435 Administrative expenses 3 (4,125,590) (661,845) (2,564,290) (7,351,725) (4,675,699) Other operating income 3 108,198 - - 108,198 108,313 Operating (loss)/profit (1,756,148) 139,449 62,969 (1,553,730) (1,539,951) Profit on sale of investments 4,434 574,663 Release of prior year provision against investments 1,271,819 344,880 Amounts written off investments (98,716) (95,261) Net interest(payable)/receivable (58,687) 62,536 Loss on ordinary activities Before taxation (434,880) (653,133) Taxation 30,300 102,336 Loss on ordinary activities after taxation (404,580) (550,797) Minority interest - equity 49,028 126,978 Loss retained for the financial year transferred from reserves (355,552) (423,819) Loss per share - basic and diluted (0.38p) (0.56p) INTERREGNUM PLC UNAUDITED NOTE OF HISTORICAL COST PROFITS AND LOSSES FOR THE YEAR ENDED 30 JUNE 2005 2005 2004 £ £ Loss on ordinary activities before taxation (434,880) (653,133) Realisation of revaluation gains from previous years - 551,755 Historical cost loss on ordinary activities before taxation (434,880) (101,378) Historical cost (loss)/profit for year retained after taxation and minority interest (355,552) 127,936 UNAUDITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 30 JUNE 2005 2005 2004 £ £ Loss for the financial year attributable to members of the parent company (355,552) (423,819) Unrealised surplus on revaluation of fixed asset investments 953,305 451,933 Write-down of previous revaluation of fixed asset investments (256,896) - Temporary diminution in value of fixed asset investments (360,290) - Total recognised (losses)/gains relating to the year (19,433) 28,114 INTERREGNUM PLC UNAUDITED CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2005 2005 2004 Notes £ £ £ £ FIXED ASSETS Intangible assets 863,324 1,651,234 Tangible assets 617,484 386,062 Investments 4 5,648,003 2,280,843 7,128,811 4,318,139 CURRENT ASSETS Stock 160,637 - Debtors 2,038,681 2,143,567 Cash at bank and in 886,456 2,859,146 hand 3,085,774 5,002,713 CREDITORS Amounts falling due within one year (including (3,296,519) (1,915,638) convertible debt) NET CURRENT (210,745) 3,087,075 (LIABILITIES)/ ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES 6,918,066 7,405,214 CREDITORS Amounts falling due after more than one year 5 (including convertible debt) (825,274) (1,280,833) PROVISION FOR LIABILITIES AND CHARGES (3,944) - NET ASSETS 6,088,848 6,124,381 CAPITAL AND RESERVES Called up share capital 4,621,263 4,621,263 Share premium account 19,430,496 19,430,496 Revaluation reserve 789,290 400,634 Merger reserve (2,406,655) (2,406,655) Profit and loss account (16,159,905) (15,751,816) EQUITY SHAREHOLDERS' FUNDS 6,274,489 6,293,922 MINORITY INTERESTS (EQUITY) (185,641) (169,541) TOTAL FUNDS EMPLOYED 6,088,848 6,124,381 INTERREGNUM PLC UNAUDITED COMPANY BALANCE SHEET AS AT 30 JUNE 2005 2005 2004 Notes £ £ £ £ FIXED ASSETS Tangible assets 136,397 175,236 Investments 4 7,164,975 4,624,417 7,301,372 4,799,653 CURRENT ASSETS Debtors 928,691 1,070,336 Cash at bank and in 595,918 2,593,012 hand 1,524,609 3,663,348 CREDITORS Amounts falling due (1,903,948) (796,563) within one year (including convertible debt) NET CURRENT (LIABILITIES)/ASSETS (379,339) 2,866,785 TOTAL ASSETS LESS CURRENT LIABILITIES 6,922,033 7,666,438 CREDITORS Amounts falling due after more than one year (including 5 (150,000) (1,200,000) convertible debt) NET ASSETS 6,772,033 6,466,438 CAPITAL AND RESERVES Called up share capital 4,621,263 4,621,263 Share premium account 19,430,496 19,430,496 Revaluation reserve 218,754 400,634 Profit and loss account (17,498,480) (17,985,955) EQUITY SHAREHOLDERS' FUNDS 6,772,033 6,466,438 INTERREGNUM PLC UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2005 2005 2004 £ £ Net cash flow from operating activities (1,086,852) (1,492,524) Returns on investments and servicing of finance 235,543 102,855 Taxation 96,724 24,089 Capital expenditure and financial investment (862,582) 890,028 Acquisitions and disposals (471,714) (685,312) Cash outflow before financing (2,088,881) (1,160,864) Financing (110,814) 2,726,230 (Decrease)/increase in cash (2,199,695) 1,565,366 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2005 2004 £ £ (Decrease)/increase in cash in the year (2,199,695) 1,565,366 Decrease/(increase) in debt and lease financing 110,814 (1,371,121) Loans and finance leases acquired/(disposed of) with subsidiaries (162,743) (18,918) Loan stock issued on acquisition of subsidiary (300,000) (400,000) Movement in net funds (2,551,624) (224,673) Net funds at 1 July 2004 952,867 1,177,540 Net funds at 30 June 2005 (1,598,757) 952,867 INTERREGNUM PLC UNAUDITED NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 30 JUNE 2005 1 Summary accounts The summary results for the year ended 30 June, 2005 does not constitute statutory accounts within the meaning of s240 of the Companies Act 1985. The full statutory accounts which will be available to shareholders shortly, have not been reported on by the Company's auditors and have not been delivered to the Registrar of Companies. Full accounts in respect of the year ended 30 June 2004 have been delivered to the Registrar of Companies and the Auditors report on those accounts was unqualified 2 Accounting polices (a) Basis of preparation The financial statements are prepared under the historical cost convention modified to include the revaluation of fixed asset investments and freehold land and buildings, and in accordance with applicable accounting standards. Going concern The Company's balance sheet shows that the cash balance has fallen from £2,593,012 to £595,918 during the year and the Company has loans of £1,350,000 due to be repaid within the next twelve months. The holder of the convertible loan note of £1,200,000 has agreed to extend the loan repayment date to 31 October 2006. Also the company has generated positive cash flow since the year. A cash flow forecast ('the forecast') has been prepared for the next twelve months which shows that the Company is anticipated to remain within its available cash resources and is able to settle its liabilities as they fall due. Based on the information currently available to them, the directors believe that the cash flow forecast is realistic and achievable. Accordingly, the accounts are prepared on a going concern basis. Unlisted investments The Group and Company balance sheets include a balance of £1,209,000 within investments in respect of loans to and shares held in an investee company. The investee company is currently in the process of a fundraising exercise which is intended to generate sufficient cash to enable it tocontinue to trade for the foreseeable future. Should the investee company not be successful in raising the funds required it would not be able to continue to trade and adjustments would be required to write down the investment in the accounts to its recoverable amount. The Group and Company balance sheets also include an amount of £447,724 in respect of a loan to another investee company. This company does not currently have sufficient cash flow or assets to repay the loans but the trade in this investee company has recently been improving and the directors of Interregnum PLC believe that it is a reasonable expectation that this investee company will be able to generate sufficient cash flow and profits in the future to repay this debt. Accordingly, no provision has been included in the accounts against the carrying value of the loan. Investments in subsidiaries and intellectual property The Group balance sheet includes intellectual property valued at £388,549 and goodwill of £68,200, and the Company balance sheet includes loans to subsidiaries of £861,229 in respect of the investment in a subsidiary. This subsidiary does not currently have sufficient cash resources to enable it to continue to trade for the foreseeable future. However, the subsidiary has recently signed a new contract with a major customer which, taken together with its ongoing business and other expected additionalinvestments, the directors believe will generate sufficient income to enable the Company to continue to trade and to settle its liabilities as they fall due. However, the precise timing of the cash receipts under this new contract is subject to uncertainty and the ability of third parties to provide further funds is also subject to a number of uncertainties. Should the subsidiary not be able to continue as a going concern, adjustments would be required to record additional liabilities and to write down assets to their recoverable amount. It is not practical to quantify these possible adjustments. Trade debtors The Group and Company balance sheets include trade debtors of approximately £182,000, which have not been received from customers since the year end as, in some cases, the debtors are in the process of raising additional funds. The directors of Interregnum PLC believe that the debtor companies will have sufficient funds to repay the debts and, accordingly, no provision has been included within the accounts against the carrying value of these debts. (b) Basis of consolidation The consolidated financial statements incorporate those of Interregnum PLC and all of its subsidiary undertakings for the year. Subsidiaries acquired and disposed of during the year are consolidated and deconsolidated from the date that control passes. Subsidiaries acquired are accounted for using the acquisition method of accounting. The difference between the acquisition cost of the shares in the subsidiary and the fair value of the separable net assets acquired is carried as goodwill. In accordance with the exemption allowed by section 230 of the Companies Act 1985, the Company profit and loss account is not presented. (c) Goodwill Positive goodwill arising on acquisitions is capitalised, classified as an asset on the balance sheet, and amortised on a straight line basis over its useful economic life up to a presumed maximum of 20 years. Goodwill arising on recent acquisitions has been written off over 10 years. It is reviewed for impairment at the end of the first full financial year following the acquisition and in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable. (d) Intangible assets Intangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill if the fair value can be measured reliably on initial recognition. Intangible assets created within the business are not capitalised. Intangible assets are amortised on a straight line basis over their estimated useful lives up to a maximum of 10 years. The carrying value of intangible assets is reviewed for impairment at the end of the first full year following acquisition and in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable. A discount factor of 30% has been applied to the cash flows in measuring the value in use of the intellectual property and goodwill within Yospace. (e) Depreciation Tangible fixed assets are stated at net book value. Depreciation is provided on all tangible fixed assets at rates calculated to write each asset down to its estimated residual value over its expected useful life, as follows: Freehold buildings - 2% per annum straight line Short leasehold improvements - 15% per annum straight line Fixtures, fittings and computer - 15%-33% per annum straight line equipment Plant and machinery - 33% per annum straight line Motor vehicles - 25-33% per annum straight line The carrying values of tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. (f) Fixed asset investments Fixed asset investments, comprising equity shares, share options and loans are stated at cost or valuation and in accordance with the 'Guidelines for the valuation and disclosure of venture capital portfolios' published by the British Venture Capital Association effective August 2003 on the following basis: * Early stage investments: these are investments in immature companies, including seed, start-up and early stage investments. Such investments are valued at cost less any provision considered necessary, until no longer viewed as early stage or unless a significant transaction involving an independent third party at arm's length values the investment at a materially different value. * Development stage investments: such investments are in mature companies having a maintainable trend of sustainable profits and from which an exit, by way of flotation or trade sale, can be reasonably foreseen. An investment at this stage is periodically revalued by reference to open market value. Valuation will usually be by one of four methods as indicated: i) At cost for at least one period unless such a basis is unsustainable; ii) On a third party basis based on the price at which a subsequent issue of capital is made involving a significant investment by a new investor; iii) On an earnings basis by applying a discounted price/earnings ratio to profit after taxation, either before or after interest; or iv) On a net asset basis, again applying a discount to reflect the illiquidity of the investment. * Quoted investments: such investments are valued using the quoted mid market price, discounted if the shares are subject to any particular restrictions or are significant in relation to the issued share capital of a small quoted company. * Share options are subject to vesting and other conditions set out in the options agreements. The valuation is based on the intrinsic value of all share options that have vested. This is the difference between the market value of shares at the balance sheet date and the exercise price. A review of permanent diminution in value is undertaken by reference to funding, investment or offers in progress after the balance sheet date. No adjustment is made for any uplift in value after the balance sheet date. Investments in subsidiaries are held at cost less provision for impairment. (g) Foreign currencies Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rate of exchange ruling at the balance sheet date. All differences are taken to the profit and loss account. (h) Leasing and hire purchase agreements Assets held under finance leases and hire purchase contracts, which are those where substantially all the risks and rewards of ownership of the asset have passed to the Group, are capitalised in the balance sheet and are depreciated over their useful lives. The interest element of the rental obligations is charged to the profit and loss account over the period of the lease and represents a constant proportion of the balance of capital repayments outstanding. Rentals payable and receivable under operating leases are charged or credited to the profit and loss account on a straight line basis over the lease term. (i) Deferred taxation Deferred taxation is recognised 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 right to pay less or to receive more tax, with the following exceptions: * Provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets, or gains on disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold. * 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 differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. (j) Pensions The Company contributes 3% of employees' gross salary into personal pension funds of their choice. The costs of providing pension contributions for employees are charged to the profit and loss account as incurred. (k) Turnover Turnover from advisory business represents the amount derived from the provision of completed work to clients during the year. Contingency fees (including investment fees) are recognised on completion of the contingent event. Software licence fees are recognised on delivery of the software licence. For bespoke projects income is recognised on acceptance of the software or hardware installation by the client. Software and hardware support income is recognised evenly over the period of the support agreement. Mobile and wireless consultancy is recognised on customer acceptance of the completed report. Turnover from the design, supply and installation of audio visual systems is recognised as contract activity progresses by reference to the value of work performed. (l) Research and development Research and development expenditure is charged to the profit and loss account as incurred. (m) Stock Stock is valued at the lower of cost and net realisable value. Costs of finished goods and work in progress include overheads appropriate to the stage of manufacture. Net realisable value is based upon estimated selling price less further costs expected to be incurred to completion and disposal. Provision is made for obsolete and slow-moving items. (n) Long term contracts Amounts recoverable on long term contracts, which are included in debtors, are stated at the net sales value of the work done after provisions for contingencies and anticipated future losses on contracts, less amounts received as progress payments on account. Excess progress payments are included in creditors as payments on account. 3 TURNOVER AND SEGMENTAL ANALYSIS Turnover and loss by origin were sourced from the UK. The Group operated in four classes of business during the year as noted below. Turnover by destination is as follows: 2005 2004 £ £ UK 7,342,289 3,289,356 Other European countries 71,525 439,922 USA and Canada 444,651 27,824 Other 123,150 16,368 7,981,615 3,773,470 Loss on ordinary activities before taxation Turnover and minority interest Net assets 2005 2004 2005 2004 2005 2004 £ £ £ £ £ £ Continuing operations: Investment and advisory 1,351,612 624,948 (145,163) (355,494) 6,767,762 6,040,514 Less: inter segmental sales (325,000) (65,100) - - - - Software development, 1,234,632 1,236,808 (478,698) (369,578) (777,494) (370,257) support and marketing Acquisitions: Design, supply 1,891,737 - 125,864 - 98,580 - and installation of audio visual systems ---------- --------- ---------- --------- --------- --------- 4,152,981 1,796,656 (497,997) (725,072) 6,088,848 5,670,257 Discontinued operations: 3,828,634 1,976,814 63,117 71,939 - 454,124 Mobile and wireless Consultancy ---------- --------- ---------- --------- --------- --------- 7,981,615 3,773,470 (434,880) (653,133) 6,088,848 6,124,381 ---------- --------- ---------- --------- --------- --------- The analysis of operating profit/(loss) between continuing and discontinued operations is set out below: 2005 2005 2005 2005 2005 2004 2004 Continuing operations Discontinuing Total Continuing Discontinuing Total Total Existing Acquisitions £ £ £ £ £ £ £ Turnover 2,261,244 1,891,737 3,828,634 7,981,615 1,796,656 1,976,814 3,773,470 Cost of sales - (1,090,443) (1,201,375) (2,291,818) - (746,035) (746,035) Gross profit 2,261,244 801,294 2,627,259 5,689,797 1,796,656 1,230,779 3,027,435 Admini- strative expenses (4,125,590) (661,845) (2,564,290) (7,351,725) (3,568,711) (1,106,988) (4,675,699) Other operating income 108,198 - - 108,198 108,313 - 108,313 Operating profit/ (loss) (1,756,148) 139,449 62,969 (1,553,730) (1,663,742) 123,791 (1,539,951) 4 INVESTMENTS Group Unlisted shares Listed shares Loans Total £ £ £ £ Cost or valuation At 1 July 2004 1,856,543 86,205 2,524,961 4,467,709 Reclassification 1,210,992 - (1,210,992) - Transfer on 987,556 - 140,000 1,127,556 deconsolidation of former subsidiary (note 23 (e)) Additions 463,716 - 270,000 733,716 Disposals (11,897) - - (11,897) Revaluations 953,305 - - 953,305 Eliminated on (11,043) - - (11,043) liquidation At 30 June 2005 5,449,172 86,205 1,723,969 7,259,346 Amounts provided At 1 July 2004 1,084,442 - 1,102,424 2,186,866 Released during the year (378,071) - (893,748) (1,271,819) Provided during the year 587,632 84,433 44,197 716,262 Disposal (8,923) - - (8,923) Eliminated on (11,043) - - (11,043 liquidation At 30 June 2005 1,274,037 84,433 252,873 1,611,343 Net book value At 30 June 2005 4,175,135 1,772 1,471,096 5,648,003 At 1 July 2004 772,101 86,205 1,422,537 2,280,843 Previous impairment losses in respect of investments have been reversed during the year due to the improved performance of the companies concerned. On an historical cost basis, these fixed asset investments would have been included as follows: 2005 2004 £ £ Unlisted investments 4,624,449 3,890,118 Listed investments - market value 1,772 1,772 The estimated taxation on the potential capital gain if sold at valuation is £nil since there are sufficient capital losses available to offset any potential gains. Company Subsidiary Unlisted shares Listed shares Loans Total undertakings £ £ £ £ £ Cost or valuation At 1 July 2004 1,719,210 1,904,425 86,205 3,148,343 6,858,183 Reclassification (1,558,092) 2,768,102 - (1,210,010) - Transfer from debtors - - - 140,399 140,399 Additions 532,091 463,356 - 469,000 1,464,447 Disposals - (11,897) - - (11,897) Revaluations - 953,305 - - 953,305 Eliminated on - (11,043) - - (11,043) liquidation At 30 June 2005 693,209 6,066,248 86,205 2,547,732 9,393,394 Amounts provided At 1 July 2004 - 1,131,342 - 1,102,424 2,233,766 Released during the year - (378,071) - (893,748) (1,271,819) Provided during the year - 1,157,808 84,433 44,197 1,286,438 Disposals - (8,923) - - (8,923) Eliminated on liquidation - (11,043) - - (11,043) At 30 June 2005 - 1,891,113 84,433 252,873 2,228,419 Net book value At 30 June 2005 693,209 4,175,135 1,772 2,294,859 7,164,975 At 30 June 2004 1,719,210 773,083 86,205 2,045,919 4,624,417 Previous impairment losses in respect of investments have been reversed during the year due to the improved performances of the companies concerned. 4 INVESTMENTS (Continued) On an historical cost basis, these fixed asset investments would have been included as follows: 2005 2004 £ £ Unlisted investments 6,141,421 6,282,353 Listed investments 1,772 1,772 The estimated taxation on the potential capital gain if sold at valuation is £nil since there are sufficient capital losses available to offset any potential gains. Subsidiary undertakings Name of subsidiary Class of Proportion held Nature of holding directly business Interregnum Investment Partners Ordinary 100% Fund managers Limited Interregnum Advisory Partners Ordinary 100% Advisory Limited services Yospace Technologies Limited* Ordinary 54% Provision of wireless software Audio Visual Machines Limited Ordinary 77% Audio visual solutions Provider * On a fully diluted basis Interregnum PLC owns 47% of Yospace Technologies Limited. 5 LOANS Group Company 2005 2004 2005 2004 £ £ £ £ Amounts falling due: In one year or less 1,432,934 614,383 1,350,000 400,000 or on demand In more than one 405,768 1,210,000 150,000 1,200,000 year but not more than two years In more than two 175,120 30,000 - - years but not more than five years In more than five 244,386 40,833 - - years 2,258,208 1,895,216 1,500,000 1,600,000 Less: Included in (1,432,934) (614,383) (1,350,000) (400,000) creditors: amounts falling due within one year 825,274 1,280,833 150,000 1,200,000 Included within loans is an amount of £240,620 (2004: £204,383) relating to loan notes in Yospace Technologies Limited secured over the assets of Yospace Technologies Limited. The loan attracts interest at the higher rate of 8% per annum or LIBOR plus 5% per annum and is repayable on 13 April 2007 with a repayment premium equal to 100% of the nominal value of the loan notes issued. Included within loans is £51,794 falling due within one year and £465,794 falling due after one year which are repayable in equal monthly instalments of between £833.33 and £3,657. Interest is charged at between 5.1% and 3.5% above the Barclays Bank PLC base rate. £266,880 of the balance is secured by a first legal charge over the freehold property of Audio Visual Machines Limited. £198,914 is secured by way of a fixed and floating charge over the assets of Yospace Technologies Limited. Interregnum PLC has issued £1,500,000 of debentures, £1,200,000 of which relates to floating rate Unsecured Convertible Loan Notes issued at par, and £300,000 relates to 6% unsecured loan notes issued at par. The Unsecured Convertible Loan Notes carry interest at the rate of 2 per cent above Barclays Bank PLC's base rate from time to time. They can be redeemed by the Company at any time within two years of their issue and are required to be redeemed at par together with outstanding interest by the Company on their maturity date being the second anniversary of the date of their issue of 8 March 2004. On redemption, the Company is required to issue warrants ('Warrants') over ordinary shares in respect of each £1 of Convertible Stock redeemed. The Warrants are exercisable within 3 years from their issue at 15 pence per ordinary share. Subsequent to the year end the redemption date of these loan notes was extended to 31 October 2006. The Unsecured Convertible Loan Notes can be converted by the holder at any time prior to the maturity date (unless previously redeemed by the Company) at a rate of 6.6667 new ordinary shares for each £1 of Convertible Loan Note. In the event that the Company has not redeemed all of the unconverted Convertible Loan Notes by or on the maturity date the holder of the Convertible Loan Notes will have the right to convert all of the outstanding Convertible Loan Notes at a rate of 20 ordinary shares for each £1 of Convertible Loan Note outstanding. The 6% unsecured loan notes can be redeemed by the Company at any time up to the final redemption date at par. The Company is required to redeem £150,000 of the loan notes on 26 January 2006 and the remaining £150,000 on 26 July 2006. This information is provided by RNS The company news service from the London Stock Exchange

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