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Knowledge Support (KSS)

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Monday 10 September, 2001

Knowledge Support

Interim Results

Knowledge Support Systems Group Plc
10 September 2001



     10 September 2001

                     KNOWLEDGE SUPPORT SYSTEMS GROUP PLC

                               INTERIM RESULTS

                      FOR THE SIX MONTHS TO 30 JUNE 2001

Knowledge Support Systems Group PLC, ('the Company' or 'KSS'), which develops
and markets software systems which enable organisations to make profitable
decisions through the setting of prices in competitive markets, today
announces its interim results for the six months to 30 June 2001.


    Key Points


  * New Chief Executive appointed, David Mushin. David joins KSS with a
    strong track record in the Software Industry having served ten years with
    NASDAQ listed Aspen Technology Inc., a software company specialising in
    supply chain and optimisation software. Other Board changes implemented
    including the appointment of two new non-executive Directors who succeed
    two who are stepping down

  * Retail - Three pilot projects running and commitment from two other
    retailers received, PriceStrat has attracted strong interest from the USA
    and additional KSS resources are now committed to the region.

  * Petroleum - A first stage PriceNet licence has been secured with a
    subsidiary of a multi-national fuel retailer, seven pilots currently
    undertaken, 4 of which are in the US market.

  * Telecommunications - The pilot project with a major UK mobile operator
    continues. A pilot project order has been received for the TelPrice
    product in Asia and discussions continue with five other operators,
    including one in the US.

  * Cost Reduction - Head count has been reduced and cost reduction
    initiatives are continuing with the overall objective of reducing cash
    burn rate (excluding revenue receipts) to under £750k per month, by the
    end of the year.

  * The Company's net funds amounted to £28 million at the end of June.

Commenting, Professor Madan Singh who assumes the role of Executive Chairman
following the appointment of David Mushin as CEO commented:

'Trading conditions remain difficult, however, interest in our pricing
products remain strong, reflected in our twelve active pilot projects. The
cost reduction activities we have undertaken together with prioritisation
towards medium and short term revenue generation opportunities, will ensure
that KSS remain sufficiently well funded to take us through to profitability
and a positive cash flow situation. We are well placed to move forward in
2002'.

David Mushin commented 'I am delighted to be on board. KSS has a great
reputation, good people and little competition. Price optimisation is an
exciting area with great potential'



KSS

Madan Singh,     Tel: 0161 228 0040

David Mushin

Iain Cockburn

Buchanan Communications Tim Thompson / Nicola Cronk     Tel: 020 7466 5000


    Chairman and Chief Executive's Statement

On the interim results of Knowledge Support Systems Group Plc for the six
months ended 30 June 2001

As we indicated in our trading statement on 8 May, in line with many other
companies in the IT sector, we continue to find market conditions very
difficult. The Company's revenue for the first six months of 2001 was £512,000
compared to £896,000 in the corresponding period last year. This has resulted
in a net loss of £4,613,000 for the first six months of 2001 compared to a net
loss of £426,000 in the corresponding period.

In response to the difficult and changing trading conditions we have made
changes to, and continue to review, both the Company's cost base and business
strategy. However, interest in our market adaptive pricing solutions remains
strong, as reflected in the 13 pilot projects that were initiated in the first
half.




    CEO Appointment

We are pleased to announce that we have appointed David Mushin as Chief
Executive Officer. David's appointment to the Board is effective from 10
September. David joins KSS with a strong track record in the software
industry, having successfully served for ten years with Aspen Technology Inc,
a Nasdaq quoted software company specialising in supply chain and optimisation
software for the petroleum, chemical and pharmaceutical sectors. During his
career at Aspen he was promoted through a number of roles to the position of
Executive Vice President and made a key contribution to the successful
operation and significant growth of the Group into an enterprise with revenues
in excess of $300million. David has held US-based executive roles for a number
of years and comes to KSS with both knowledge of the US market and extensive
experience of growing a technology based business that is operating in
multiple vertical market sectors.

With the appointment of David Mushin as Chief Executive Officer, John King
relinquishes his role as Non-Executive Chairman enabling the founder Professor
Madan Singh to assume the role of Executive Chairman. John King leaves the
Board after more than four years and his personal commitment and support to
KSS during that time is much appreciated.

In the recent past, Professor Singh has been suffering from ill health. Whilst
Professor Singh has continued to work as near to full time as possible,
naturally he has not been able to devote all his energies to the direction of
KSS. It is therefore very appropriate that David Mushin, an experienced
business professional, has now joined as CEO and will be able to share the
management of KSS as Professor Singh's medical treatment continues. It is the
current intention to Professor Singh to assume the role of Non-executive
Chairman before the 2002 Annual General Meeting.

Recognition of KSS's leadership in the field of Market Adaptive Pricing was
re-enforced, when on 9th July, Professor Singh was elected a Fellow of the
Royal Academy of Engineering for his invention of the science and technology
of Market Adaptive Pricing.




    Cost Reduction

Headcount has been reduced following a recent redundancy program and a
recruitment freeze is in place. Discretionary spend on other items such as
marketing and travel has also been reduced. The Company will continue to
pursue further cost reduction opportunities with the target of reducing net
cash burn, exclusive of revenue receipts, to under £750K a month by the end of
the year.

The Company's net funds amounted to £28 million at the end of June.




    BUSINESS REVIEW



    Retail

The Company currently has 3 pilot projects running in the Retail sector and
has commitments from 2 other retailers to commence pilots during the second
half. In response to the strong level of interest we are attracting for our
PriceStrat product, particularly in the US, we continue to focus additional
resource in the US market. To compensate for this and to recognise the
slightly less mature nature of the European market we have reduced our
European resources accordingly. Jean-Christophe Bennavail, Chief Technology
Officer and co-founder, is moving to the US office and has taken on the
additional role of Senior Vice President of Retail to provide leadership and
technical input to the Retail operations and projects that are currently
underway in the US.

The competitive landscape in the US continues to develop, reflecting the
growing recognition of the need for pricing optimisation software. Management
believes that KSS is steadily building a strong reputation as a key player in
that market.

As shown by recent activities with SAP AG at the Retail Solutions tradeshow in
Chicago, the Company continues to develop its activities and alliances with
other partners, although at this stage is not in a position to disclose
specific details.




    Petroleum

During the first half of the year the Company secured a first stage PriceNet
licence for a part of the network belonging to a subsidiary of the
multi-national fuels retailer with which it signed a global framework deal in
June 2000.

We are encouraged that pilot project activity levels in the Petroleum sector
have been increasing. The Company is currently undertaking 8 projects, 4 of
which are in the US market. From these projects the Company expects to have a
number of significant additional reference sites by the end of this year.
Although the project activity levels are very high, the value of initial
licences is on the whole lower than originally expected as several customers
have committed to licensing for only a portion of their networks. Management
are confident that following successful implementation, these customers will
provide additional licensing opportunities for the remaining parts of their
networks.

A number of the Company's European customers are deferring pilots and
implementations until they have completed essential IT projects in readiness
to support the final stage of Euro conversion in January 2002.




    Telecommunications

The pilot project with a major UK mobile operator continues. The consequential
implementation plans for our TelPrice product are still uncertain, partly as a
result of the current volatility in the mobile sector.

We are pleased to announce that the Company has received an order and has now
commenced a pilot with a major operator in Asia. In addition the Company
continues advanced discussions with five other operators over potential
projects, including one in the US.




    Business Strategy and Operational Changes

In recognition of the changes that are occurring in the market and the length
of time it is taking to close licensing opportunities, the Company is
transitioning from 'no win/no fee' pilot projects to funded pilot projects.



In previous statements we have already discussed the changes we have made to
our licensing models to provide for smaller up-front licence fees and allow
the sale of additional licences to match the speed at which a customer can
implement the software. We continue to review the licensing models in each
sector to ensure they are closely aligned to market preferences.

The Company remains confident about the market opportunity that exists in the
Financial Services sector. However, reflecting the desire to focus on
developing short term revenue opportunities, the Company has elected to
postpone the commencement of its prospecting activities in the financial
services sector.


    Other Board Changes

In addition to the changes outlined above relating to the appointment of David
Mushin to the Board as Chief Executive Officer there have been a number of
other Board changes. It is with regret that the Board accepted the resignation
of Philip Crawford with effect from 10 September due to his time constraints
having recently taken on a full time executive role with a major software
company. The Board thanks Philip for his excellent advice and support during
the last two years.

The Board is pleased to announce the appointment of two new independent
non-executive directors, Trevor Goul-Wheeker and Jean-Yves Leclerc. Trevor
Goul-Wheeker brings experience in corporate finance, retail and general
management to KSS. Trevor is currently the Managing Director of Hammicks
Bookshops Ltd and in the past has held senior management positions at large
operating units of companies including Unilever and Gestetner.

Jean-Yves Leclerc has a strong Telecommunication background and experience of
managing and driving technology companies and start-ups in both Europe and the
US. He his currently the Chairman and Chief Executive of Ipanema Technologies
SA, a private company offering measurement systems for IP Networks. In the
past he has held executive positions at companies such as Alcatel Business
Systems and Matra, including Chairmanship of Alcatel Business Systems UK.


    Outlook

The trading conditions remain challenging in each market and the delays the
Company has experienced in commencing projects to date have impacted revenue
expectations for the first half of 2001 and are likely also to impact the
second half. The results for the second half will once again be heavily
influenced by the outcome of a number of the larger pilots that are currently
underway.

Whilst the revenues for the current year remain very disappointing against
original projections and expectations, the management believe that with
activity levels trending upwards in each vertical market, supported by
increasingly strong products, the Company is well placed to move forward in
2002.

The cost reduction activities that the Company has undertaken and which are
on-going, together with the prioritisation of resource toward short and medium
term revenue generation opportunities, will ensure that the Company remains
sufficiently well funded to carry it through to profitability and positive
cash flow, even in the event of a prolonged slowdown in the US and elsewhere.



End



Consolidated profit and loss account
                                         (Unaudited)  (Unaudited)    (Audited)
                                          Six months   Six months   Year ended
                                               ended        ended  31 December
                                             30 June      30 June
                                                2001         2000         2000
                                   Note            £            £            £  
      

                                                   

Turnover                            2        512,658      895,739    2,803,736
Cost of sales                                      -            -            -


Gross profit                                 512,658      895,739    2,803,736
Administrative expenses                  (6,108,997)  (1,883,758)  (6,553,077)
Other operating income                       168,526            -       21,167


Operating loss                           (5,427,813)    (988,019)  (3,728,174)
Interest receivable and similar              844,998      568,910    1,617,325
income
Interest payable                                   -      (6,613)      (5,731)


Loss on ordinary activities before       (4,582,815)    (425,722)  (2,116,580)
taxation
Tax on loss on ordinary activities  6       (30,031)            -            -


Loss on ordinary activities after        (4,612,846)    (425,722)  (2,116,580)
taxation
Dividends paid and proposed                        -            -            -


Retained loss for the                    (4,612,846)    (425,722)  (2,116,580)
Period/year                                             


Earnings per ordinary share
          - Basic                   3         (6.2)p       (0.7)p       (3.0)p

           - Diluted                3         (6.2)p       (0.6)p       (3.0)p





The Group's turnover and operating loss arise from continuing operations.



Consolidated balance sheet
                                          (Unaudited)   (Unaudited)   (Audited)
                                              30 June       30 June 31 December
                                                 2001          2000        2000
                                                    £             £           £
Fixed assets
Intangible assets                                   4             4           4
Tangible assets                             2,026,099       525,024   1,864,674


                                            2,026,103       525,028   1,864,678



Current assets
                                            
    Debtors                                 1,529,490     1,853,312   2,000,172

Investments                                27,428,255    35,368,798  32,114,215
Cash at bank and in hand                      615,705       799,466     419,513


                                           29,573,450    38,021,576  34,533,900
                                                         

Creditors: amounts falling due within     (1,186,339)   (1,913,371) (1,383,209)
one year


Net current assets                         28,387,111    36,108,205  33,150,691



Total assets less current liabilities      30,413,214    36,633,233  35,015,369

Creditors: amounts falling due after        (102,294)             -    (83,747)
more than one year


Net assets                                 30,310,920    36,633,233  34,931,622



Capital and reserves
Called up share capital                       147,922       147,698     147,698
Share premium account                      37,363,279    37,348,391  37,350,013
Profit and loss account                   (7,200,281)     (862,856) (2,566,089)


Equity shareholders' funds                 30,310,920    36,633,233  34,931,622







Consolidated statement of total recognised gains and losses

                                           (Unaudited) (Unaudited)   (Audited)
                                            Six months  Six months        Year
                                                 ended       ended       Ended
                                               30 June     30 June 31 December
                                                  2001        2000        2000
                                                     £           £           £

Loss attributable to members of the        (4,612,846)   (425,722) (2,116,580)
company

Exchange translation differences              (21,346)           -    (12,375)


Total recognised gains and losses for      (4,634,192)   (425,722) (2,128,955)
the period/year



Reconciliation of movements in shareholders' funds

                                          (Unaudited)  (Unaudited)    (Audited)
                                           Six months   Six months         Year
                                                ended        ended        ended
                                              30 June      30 June           31
                                                                       December
                                                 2001         2000         2000
                                                    £            £            £

Loss for the period/year                  (4,612,846)    (425,722)  (2,116,580)



Retained loss for the period/year         (4,612,846)    (425,722)  (2,116,580)
                                               
    Proceeds from issue of ordinary            13,490   40,000,000   40,000,000
    shares

Share issues costs                                  -  (3,192,459)  (3,190,837)
Exchange translation differences             (21,346)            -     (12,375)


Net (reduction in)/addition to           (4,620,702)    36,381,819   34,680,208
shareholders' funds
                                                        
Opening shareholders' funds                34,931,622      251,414      251,414


Closing shareholders' funds                30,310,920   36,633,233   34,931,622







Consolidated cash flow statement
                                          (Unaudited)  (Unaudited)    (Audited)
                                           Six months   Six months         Year
                                                Ended        ended        ended
                                              30 June      30 June  31 December
                                                 2001         2000         2000
                                     Note           £            £            £
Net cash outflow from operating         4 (4,632,223)  (1,382,396)  (4,164,678)
activities




    Returns on investment and
    servicing of finance

                                              
    Interest received and similar             743,188      402,300    1,374,688
    income

Interest paid                                       -      (6,613)      (5,731)


Total returns on investments and              743,188      395,687    1,368,957
servicing of finance



Taxation paid                                       -            -            -


Capital expenditure
Purchase of tangible fixed assets           (637,614)    (182,037)  (1,863,603)
Proceeds from of sale of tangible                   -        1,201        1,026
fixed Assets


Net cash outflow from capital               (637,614)    (180,836)  (1,862,577)
expenditure



Cash outflow before use of                (4,526,649)  (1,167,545)  (4,658,298)
Liquid resources and financing


Management of liquid resources
Decrease/(increase) in short term           2,185,860 (23,189,041) (23,379,524)
deposits
Purchase of shares held in money          (3,000,000) (12,179,757) (12,484,811)
market
Sale of shares held in money market         2,500,100            -    3,750,120


Net cash inflow/(outflow) from              4,685,960 (35,368,798) (32,114,215)
management of liquid resources



Cash inflow/(outflow) before                  159,311 (36,536,343) (36,772,513)
financing

Financing
Proceeds from issue of ordinary                13,490   40,000,000   40,000,000
share

Capital
Share issues costs                                  -  (3,192,459)  (3,190,836)
Repayment of loan                                   -     (73,097)     (73,097)


Net cash inflow from financing                 13,490   36,734,444   36,736,067



Increase/(decrease) in funds            5     172,801      198,101     (36,446)



Notes

1     Basis of preparation


        The interim financial statements have been prepared on the basis of
        the accounting policies set out in the Group's last Annual Report and
        Accounts.

        The financial information for the year ended 31 December 2000 has been
        extracted from the statutory accounts, which have been filed with the
        Registrar of Companies. The auditors' report on these accounts was
        unqualified.

        The Interim Report for the six months ended 30 June 2001 was approved
        by the Board on 10 September 2001.

2     Analysis of turnover


        All turnover and results are derived from the Group's principal
        activity, being the development and licensing of intelligent software
        products and provision of related services that optimise tactical
        pricing decisions for businesses selling to mass consumer markets. The
        products determine the prices to be set to meet strategic objectives
        in the most profitable manner. These strategic objectives could be
        sales volumes, customer acquisition, customer retention or
        profitability.

                            (Unaudited)          (Unaudited)          (Audited)
                       Six months ended     Six months ended         Year ended
                                30 June              30 June        31 December
                                   2001                 2000               2000
                                      £                    £                  £

Marketing rights                      -                    -            800,000
Licences                        246,592              348,412          1,049,919
Royalties                             -               60,000            179,000
Maintenance income              123,557               15,069             99,920
Professional services           142,509              472,258            674,897

                                512,658              895,739          2,803,736


3     Earnings per share

                                   (Unaudited)     (Unaudited)       (Audited)
                                    Six months      Six months            Year
                                         ended           ended           ended
                                       30 June         30 June     31 December
                                          2001            2000            2000

Earnings per ordinary share:
Basic                                   (6.2)p          (0.7)p          (3.0)p
Diluted                                 (6.2)p          (0.6)p          (3.0)p





        Earnings per ordinary share is based on the Group's loss for the
        financial period of £4,612,846 (30 June 2000: loss £425,722; 31
        December 2000: loss £2,116,580).

        The weighted average number of shares used in the calculation is basic
        73,899,427 (30 June 2000: 65,157,659; 31 December 2000: 69,565,033)
        and diluted 73,899,427 (30 June 2000: 65,572,072; 31 December 2000:
        66,527,072).

4     Reconciliation of operating loss to net cash outflow from
      operating activities

                                       (Unaudited)    (Unaudited)     (Audited)
                                        Six months     Six months    Year ended
                                             ended          ended
                                           30 June        30 June   31 December
                                              2001           2000          2000
                                                 £              £             £
Total operating loss                   (5,427,813)      (988,019)   (3,728,174)
Depreciation and amortisation              421,512         84,918       375,325
charges
Profit on sale of tangible fixed                 -        (1,022)         (554)
assets
Decrease/(increase) in debtors             572,491    (1,329,123)   (1,399,956)
(Decrease)/increase in creditors         (198,413)        850,850       588,681


Net cash outflow from                  (4,632,223)    (1,382,396)   (4,164,678)
operating activities





5     Reconciliation of net cash flow to movement in net funds

                                          (Unaudited)  (Unaudited)    (Audited)
                                           Six months   Six months   Year ended
                                                ended        ended
                                              30 June      30 June  31 December
                                                 2001         2000         2000
                                                    £            £            £
Increase/(decrease) in cash and cash          172,801      198,101     (36,446)
equivalents in the period/year
Cash flow from decrease in debt                     -       73,097       73,097
Cash flow from (decrease)/ increase in    (4,685,960)   35,368,798   32,114,215
liquid resources


                                          
    Movement in net funds resulting from  (4,513,159)   35,639,996   32,150,866
    cash flows



Movement in net funds in the              (4,513,159)   35,639,996   32,150,866
period/year
Net funds at the start of the              32,512,560      361,694      361,694
period/year


Net funds at the end of the                27,999,401   36,001,690   32,512,560
period/year






                         (Unaudited)           (Unaudited)            (Audited)
                    Six months ended      Six months ended           Year ended
                             30 June               30 June          31 December
                                2001                  2000                 2000
                                   £                     £                    £
Current taxation:

                              
    Overseas tax              30,031                     -                    -




There is no charge for taxation in the UK during the current period as the
estimated effective tax rate for the year is nil% (2000: nil%)






        Independent review report to Knowledge Support Systems Group plc

        Introduction

We have been instructed by the Company to review the financial information for
the six months ended 30 June 2001 which comprises consolidated profit and loss
account, balance sheet, cash flow statement and related notes. We have read
the other information contained in the Interim Report and considered whether
it contains any apparent misstatements or material inconsistencies with the
financial information.

Directors' responsibilities

The Interim Report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The directors
are responsible for preparing the interim report in accordance with the
Listing Rules of the Financial Services Authority which require that the
accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance in Bulletin 1999/4: Review
of Interim Financial Information issued by the Auditing Practices Board for
use in the United Kingdom. A review consists principally of making enquiries
of group management and applying analytical procedures to the financial
information and underlying financial data and, based thereon, assessing
whether the accounting policies and presentation have been consistently
applied unless otherwise disclosed. A review excludes audit procedures such as
tests of controls and verification of assets, liabilities and transactions. It
is substantially less in scope than an audit performed in accordance with
United Kingdom Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an audit opinion on the
financial information.

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2001.



KPMG Audit Plc

Chartered Accountants

Manchester

10 September 2001



                                                                                
                                       

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