Interim Results

Brainspark PLC 30 September 2002 EMBARGOED - NOT TO BE RELEASED UNTIL 7.00 A.M. ON 30 September 2002 BRAINSPARK PLC ('Brainspark' or 'the Company') Interim Results for the six month period ended 30 June 2002 Chairman's statement In my statement issued with Brainspark's financial statement for the year ended 31 December 2001, I explained that owing to the current negative market conditions Brainspark had invested in fewer businesses and for a longer period than originally envisaged. At its inception, Brainspark was conceived to participate in the initial stages of financing new and young companies to assist in their development and then take its profit by a trade sale or flotation in due course. The changing investment climate made this plan impossible to achieve. In order to address the issues presented during this difficult climate, I proposed the following actions: * to reduce significantly the Brainspark headcount during 2002 - retaining just two employees by March 2002 and reducing expenses in general; * to evolve Brainspark's business model, from the sole incubator approach through new sources of revenues, consistent with the Company's and new Board's know-how. The first areas of intervention were identified, which include, among others: IT portfolio management, private placements, mergers and acquisitions, fund raising through advanced financial instruments; and * to evaluate asset acquisition, which would involve the transfer of certain investments from Infusion S.p.A, the AISoftware 99.9 per cent. controlled investment vehicle, to Brainspark, in order to create a portfolio covering a geographic area ranging from UK, to Italy and Israel. The first point was implemented as scheduled bringing down the monthly cash burn rate to under Â£80k per month in the second quarter from Â£97k per month in the first quarter 2002 and Â£147k per month in the second half 2001; the second is in progress with two deals formally approved and awaiting sign off. As for the last point, on 20 May 2002 it was announced that the Boards of Infusion S.p.A. and Brainspark plc had entered into discussions with a view to assessing the potential acquisition by Brainspark of certain assets and liabilities of Infusion for a consideration to be satisfied by cash and an issue of Brainspark ordinary shares. Such a transaction would be treated as a related party transaction under the AIM Rules, but would be intended to be structured so that it would not constitute a reverse takeover under these Rules. The two Boards appointed Ernst & Young to conduct an independent valuation of the assets of both companies. On 24 July 2002, the Annual General Meeting of Brainspark gave the Board the authority to allot authorised but unissued Brainspark ordinary shares, to be used in connection with the acquisition of Infusion's assets and for other similar transactions. It is envisaged that the acquisition of Infusion's assets will not be contracted until the value of Brainspark's shares returns to a level of at least 3.75p per share, which was its listed price on 20 May 2002. The 3.75p value per share is considered by the Board to be below the value per share of the Company - an opinion reinforced by the independent evaluation commissioned by Infusion and carried out by Ernst & Young LLP of London referred to above. Financial Summary In the six months ended 30 June 2002, the Company incurred a loss before taxation of Â£811k, compared to a loss for the comparative period last year of Â£8.32 million. The consolidated net asset value at 30 June 2002 was Â£6.2 million - down from Â£7.0 million at 31 December 2001. Of the fall of Â£800k, Â£200k is attributable to depreciation of fixed assets and the remainder principally represents operating costs. Investments Review To date, Brainspark has made investments in eight companies during 2000 and 2001. The Brainspark portfolio comprises a range of businesses including Web service businesses and application service providers. Our decision not to continue supporting businesses that were not attracting new third party funding was prudent and has proved to be correct. This has been the case for the last few months and it will certainly continue if sentiment does not change. Most of the companies in which Brainspark has invested have not made progress as originally envisaged, but all them are concentrating on improving their businesses over a longer time frame. EasyArt and The Usability Company should reach a positive cashflow from the fourth quarter this year. As stated above in May 2002, following the takeover of Brainspark by AISoftware, the Board announced it had entered into negotiations with Infusion S.p.A. - an Italian investment vehicle 99.9 per cent owned by AISoftware which holds eight minority holdings in advanced technology companies - with a view to the acquisition of certain of Infusion's trade and assets. Outlook At 30 June 2002, Brainspark's mid-market price per share of 2.75p valued the Company's issued capital at Â£3.4 million against a consolidated net asset value of Â£6.2 million. The Board believes that this insufficiently values the Company's future potential based upon the companies in Brainspark's portfolio and from the new business opportunities following the redirection of Brainspark's revenue. The Board remains committed to looking for value creation opportunities and with the new cost structure which we plan to reduce even further by the end of 2002, Brainspark remains well positioned to withstand the extremely difficult market environment. Following the Infusion/Brainspark transaction, Brainspark will be able to rationalise the operational infrastructure and leverage the knowledge and market potential of the whole investment portfolio. When sentiment in the technology market improves, the company's prospects will also improve, since the most important measures to achieve this will already be in place. In addition to that, I am pleased to confirm that a few of the investee companies in which the company has invested will be ready for flotation once market conditions improve. Prof. Francesco Gardin Chairman 30 September 2002 Consolidated profit and loss account Notes Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Turnover 2a - - - Net operating expenses - recurring (769) (2,336) (4,149) Net operating expenses - exceptional 2b (3) (3,100) (3,550) -------- -------- -------- Total net operating expenses/group (772) (5,436) (7,699) operating loss - continuing Share of operating loss of associated 3 (149) (1,873) (5,329) undertakings -------- -------- -------- Total operating loss: group and share of associated undertakings (921) (7,309) (13,028) Exceptional items 2c Profit on deemed disposal of interests - 370 421 in associated undertakings Loss on disposal, liquidation and provisions for loss on disposal of - (1,632) (223) interests in associated undertakings -------- -------- -------- Loss on ordinary activities before (921) (8,571) (12,830) interest and taxation Net interest receivable 110 251 396 Amounts written off investments - - (499) -------- -------- -------- Loss on ordinary activities before (811) (8,320) (12,933) taxation Tax on loss on ordinary activities - - - -------- -------- -------- Loss on ordinary activities after (811) (8,320) (12,933) taxation Equity minority interests - 34 34 -------- -------- -------- Loss for the financial year (811) (8,286) (12,899) -------- -------- -------- Loss per 1p ordinary share Basic and diluted 4 (0.6p) (6.7p) (10.5p) -------- -------- -------- The loss for the year is derived wholly from continuing activities. Consolidated statement of total recognised gains and losses Notes Six months Six months Year ended to 30 June to 30 Jun 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Loss for the financial year (811) (8,286) (12,899) (Impairment)/Revaluation of fixed asset investments - 34 (719) -------- -------- -------- Total recognised losses for the year (811) (8,252) (13,618) -------- -------- -------- There are no differences between the results disclosed and their historical cost equivalents. Consolidated Balance sheets Notes At At At 30 June 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Fixed assets Tangible assets 400 943 616 Investments in subsidiary undertakings - - - Investments in associated undertakings 5 150 2,201 250 Other investments 6 329 1,602 350 Investment in own shares 7 - 253 147 -------- -------- -------- 879 4,999 1,363 -------- -------- -------- Current Assets Debtors 1,046 1,024 981 Cash at bank in hand 4,599 6,978 5,553 -------- -------- -------- 5,645 8,002 6,534 Creditors: amounts falling due (291) (469) (762) within one year -------- -------- -------- Net current assets 5,354 7,533 5,772 -------- -------- -------- Total assets less current liabilities 6,233 12,532 7,135 -------- -------- -------- Provisions for liabilities and charges - (153) (122) -------- -------- -------- Net assets 6,233 12,379 7,013 -------- -------- -------- Capital and reserves Called up share capital 1,233 1,233 1,233 Share premium account 26,473 26,442 26,442 Revaluation reserve - 753 - Other reserves 6,813 6,813 6,813 Profit and loss account (deficit) (28,286) (22,862) (27,475) -------- -------- -------- Total equity shareholders' funds 6,233 12,379 7,013 -------- -------- -------- Equity minority interests - - - -------- -------- -------- Capital employed 6,233 12,379 7,013 -------- -------- -------- Reconciliation of movements in Group shareholders' funds Notes At At At 30 June 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Loss for the year (811) (8,286) (12,899) New share capital issued for cash 31 - - (Impairment)/Revaluation of fixed - 34 (719) asset investments Charge for issue of shares at below market value - 126 126 -------- -------- -------- Net (reduction)/additions to (780) (8,126) (13,492) shareholders' funds Opening shareholders' funds 7,013 20,505 20,505 -------- -------- -------- Closing shareholders' funds 6,233 12,379 7,013 -------- -------- -------- Consolidated cash flow statement Notes Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Net cash outflow from 8 (1,209) (2,248) (3,696) operating activities Returns on investments and servicing of finance Interest received (net) 110 237 381 -------- -------- -------- Net cash inflow from returns on 110 237 381 investments and servicing of finance -------- -------- -------- Capital expenditure and financial investment Purchase of tangible fixed assets - (5) (61) Receipts from sale of tangible 3 - 13 fixed assets Purchase of other investments - - - Sales of own shares 170 - - Disposal of fixed assets 2 -------- -------- -------- Net cash outflow from capital 173 (3) (48) expenditure and financial investment -------- -------- -------- Acquisitions and disposals Purchase of subsidiary undertaking - - - Cash acquired with - - - subsidiary undertaking Closure of subsidiary undertaking - (49) - Purchase of investments in (28) (310) (385) associated undertakings Loans to associated undertakings - (415) (465) -------- -------- -------- Net cash outflow from acquisitions (28) (774) (850) and disposals -------- -------- -------- Net cash outflow before financing (954) (2,788) (4,213) -------- -------- -------- Financing Issue of ordinary share capital - - - -------- -------- -------- Net cash inflow from financing - - - -------- -------- -------- (Decrease)/increase in net cash (954) (2,788) (4,213) for the year -------- -------- -------- Reconciliation of cash flow to movement in net cash Net cash at beginning of year 5,553 9,766 9,766 (Decrease)/increase in net cash (954) (2,788) (4,213) in the year -------- -------- -------- Net cash at end of year 4,599 6,978 5,553 Notes to the interim financial statements 1. Basis of preparation Principal accounting policies The financial statements have been prepared under the historical cost convention modified to include certain investments at valuation, and in accordance with applicable accounting standards. Fixed annual charges are appointed to the interim period on the basis of time elapsed and other expenses are accrued in accordance with the same principles used in the preparation of the annual accounts. The financial information contained in this interim statements is unaudited and does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The comparative information for the year ended 31 December 2001 is an unabridged version of the statutory accounts for that year and those accounts, upon which the auditors issued an unqualified opinion, have been filed with the Registrar of Companies. 2. Profit and Loss Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 a) Turnover Group turnover including share of associated 474 495 708 undertakings Less: share of associated undertakings (474) (495) (708) -------- -------- -------- - - - -------- -------- -------- Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 b) Net operating expenses - exceptional National Insurance on warrants - (242) (243) Provision against investment in own shares - 2,192 2,298 Provision against associated undertakings - 450 645 Provision against other investments and assets dismissal - 240 - Restructuring and closure costs 3 460 850 -------- -------- -------- Total operating expenses - exceptional 3 3,100 3,550 -------- -------- -------- Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 c) Exceptional items Profit on deemed disposal of interests in associated undertakings - 370 421 -------- -------- -------- Loss on disposal, liquidation and provisions for loss on disposal of interests in associated undertakings - (1,632) (2,231) -------- -------- -------- 3. Share of operating loss of associated undertakings Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Share of operating loss of associated undertakings (123) (1,099) (1,407) Amortisation of goodwill on acquisition (26) (774) (2,507) Impairment of goodwill - (240) (1,415) -------- -------- -------- (149) (2,113) (5,329) -------- -------- -------- 4. Loss per 1p ordinary share Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Loss attributable to ordinary shareholders (811) (8,286) (12,899) -------- -------- -------- Effect of dilutive shares options - - - Adjusted loss (811) (8,286) (12,899) -------- -------- -------- Weighted average number of ordinary shares 123,258 123,258 123,258 Effect of dilutive share options - 1,817 18,390 Adjusted weighted average number of ordinary shares 123,258 125,075 141,648 Basic loss per share (0.6p) (6.7 p) (10.5 p) Diluted loss per share (0.6p) (6.7 p) (10.5 p) -------- -------- -------- 5. Investments in associated undertakings Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Share of net assets At 1 January 198 1084 1,084 Additions 28 310 126 Disposals - (371) (26) Share of loss for the year 102 (1,099) (1,407) Profit on deemed disposals - 370 421 -------- -------- -------- At period end 124 294 198 -------- -------- -------- Goodwill At 1 January 52 3,323 3,323 Arising on acquisition - 611 659 Disposals - (1,013) (8) Impairment of goodwill (240) (1,415) Amortisation of goodwill (26) (774) (2,507) -------- -------- -------- At period end 26 1,907 52 -------- -------- -------- Loans to associated undertakings At 1 January 300 580 580 Additions - 415 465 Loans capitalised - (400) (400) Provisions against loans and disposal - (595) (345) -------- -------- -------- At period end 300 - 300 -------- -------- -------- Net book amount at period end 450 2,201 550 -------- -------- -------- Provisions At 1 January 2002 (300) - - Provided in year - (300) (300) -------- -------- -------- At period end (300) (300) (300) -------- -------- -------- Group Investments Loans to Total in associated Associated Â£'000 undertakings undertakings Â£'000 Â£'000 Net book amount At period end 150 - 150 At 31 December 2001 250 - 250 -------- -------- -------- At 31 December 2000 4,407 580 4,987 -------- -------- -------- 5. Investments in associated undertakings Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Share of net assets At 1 January 198 1084 1,084 Additions 28 310 126 Disposals - (371) (26) Share of loss for the year 102 (1,099) (1,407) Profit on deemed disposals - 370 421 -------- -------- -------- At period end 124 294 198 -------- -------- -------- Goodwill At 1 January 52 3,323 3,323 Arising on acquisition - 611 659 Disposals - (1,013) (8) Impairment of goodwill (240) (1,415) Amortisation of goodwill (26) (774) (2,507) -------- -------- -------- At period end 26 1,907 52 -------- -------- -------- Loans to associated undertakings At 1 January 300 580 580 Additions - 415 465 Loans capitalised - (400) (400) Provisions against loans and disposal - (595) (345) -------- -------- -------- At period end 300 - 300 -------- -------- -------- Net book amount at period end 450 2,201 550 -------- -------- -------- Provisions At 1 January 2002 (300) - - Provided in year - (300) (300) -------- -------- -------- At period end (300) (300) (300) -------- -------- -------- Group Investments Loans to Total in associated Associated Â£'000 undertakings undertakings Â£'000 Â£'000 Net book amount At period end 150 - 150 At 31 December 2001 250 - 250 -------- -------- -------- At 31 December 2000 4,407 580 4,987 -------- -------- -------- 6. Other investments Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 At 1 January 350 1,568 1,568 Additions - - - Revaluation (21) 34 (1,218) -------- -------- -------- At period end 329 1,602 350 -------- -------- -------- 7. Investment in own shares Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Cost or valuation At 1 January 2,445 2,445 2,445 Provision against investment (2,192) (2,298) -------- -------- -------- Disposal (2,478) -------- -------- -------- Profit on disposal 33 -------- -------- -------- At period end - 253 147 -------- -------- -------- 8. Reconciliation of operating loss to net cash outflow from operating activities Six months Six months Year ended to 30 June to 30 June 31 December 2002 2001 2001 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Operating loss (772) (5,436) (7,699) Depreciation charge 182 191 467 Goodwill valuation adjustment 123 240 - on associated undertaking Provision against loans to - 450 645 associated undertakings Provision against investment in (147) 2,192 2,298 own shares Loss on disposal of fixed assets - 100 Decrease/(increase) in debtors (65) 344 383 (Decrease) increase in creditors (471) (123) 247 Charge for issue of share options at 126 126 below market value (Decrease) /increase in provisions (59) (232) (263) -------- -------- -------- Net cash outflow from (1,209) (2,248) (3,696) operating activities -------- -------- -------- 9. Ultimate parent company The immediate and ultimate parent company and controlling party from 1 March 2002 is AISoftware S.p.A., a company registered in Italy. Copies of the ultimate parent company's consolidated financial statements can be obtained from Camera di Commercio di Milano, Via Meravigli 11/b, 20123 Milan, Italy. 10. Availability of Interim Results Copies of the interim results will be available from The Lightwell, 12-16 Laystall Street, London EC1R 4PF. This information is provided by RNS The company news service from the London Stock Exchange

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