Final Results
Pentagon Protection PLC
31 March 2006
For Release 31 March 2006
Pentagon Protection Plc
Preliminary Results for year ended 30 September 2005
CHAIRMAN'S STATEMENT
Introduction
The period under review has been extremely challenging and disappointing, with
losses incurred at both operational divisions, the commercial and architectural
window protection buildings division called Pentagon Filmtek and the smaller,
original automotive window filming division called Pentagon Glass Tech, despite
an improvement in Group turnover over the previous financial year.
It has also been one of much needed change and, as indicated in a trading update
announced on 24 February 2006, the Group stated it intended to restructure its
business to improve its sustainable growth prospects for the future.
During the financial year under review and since February 1, the Board has
decided to focus its management resources on its buildings division and
implemented the following actions:
• Secured a platform for Pentagon's entry into the high growth potential
market for building window film-based protection via the August 2005
collaboration with US-based Allegiance Holdings, in which its principal, Mr.
Haytham ElZayn, acquired 14,322,349 shares of Pentagon Protection Group or 8.6%
of the issued share capital for £589,523 and became a non-executive director.
• Advanced its negotiations to acquire a leading UK-based competitor to
consolidate Pentagon's domestic market-leadership position in the commercial
glass market for its building division.
• Developed a superior protecting 'system' of window film and anchoring and
commenced negotiating exclusive global supply and distribution rights to this
superior window-frame anchoring technology.
• Strengthened its presence in targeted markets by opening new offices in the
US and Bahrain and closing its offices in Singapore.
• Strengthened its market position in key Middle Eastern markets.
• Commenced discussions to sell Pentagon GlassTech, the loss-making automotive
window filming division of Pentagon Protection.
• Initiated a significant cost savings programme through staff and overhead
reductions. This is considered to be wholly in the best interest of the
Company's future growth prospects and its shareholders.
Financial Review
For the year ended 30 September 2005 turnover was up 9% to £3,619,939, compared
to £3,316,544 in the previous financial year.
An operating loss has been made of £1,224,596 after exceptional items of
£503,730 resulting from the restructuring, as compared to an operating profit of
£690,716 as restated in 2004. The Group operating loss includes £778,770 from by
the automotive division.
The Group received a cash injection of £589,523 in June 2005 from the issue of
14,322,349 shares at 3.83p per share. Further finance of £281,155 was provided
by the Group's bankers through debt factoring. Overall, the Group's cash
resources fell by £136,948 over the year.
Net interest payable reduced to £11,206, compared to £16,638 in the previous
year.
Inevitably, the loss for the year has led to a reduction in the net assets of
the Group, from £3,985,760 as restated in 2004 to £3,298,753 at 30 September
2005. The reduction has been arrived at after the share issue (less costs) as
detailed above
Strategic Overview
After extensive internal review of the Company's core strengths and capabilities
across all areas of operations, the directors have concluded that the global
buildings window film sector will be Pentagon Protection's primary focus, with
specific attention on high priority markets where the Company has an established
market presence, or which represent growth potential.
Despite the difficulties through the year, the buildings division's revenue in
the first quarter of the new financial year saw the contribution of overseas
sales increase significantly to 50% of all sales, up from 20% in the same period
of 2005. Demand for blast and weather protection film application on buildings
is growing rapidly around the world and Pentagon has determined to take
advantage of this market opportunity.
Pentagon's buildings division has established a solid track record of
performance in its chosen focus geographies and is well positioned to capitalise
on this. The Company's geographic reach, strengthened by the opening of local
representative offices, has enabled contract wins on some of the world's leading
architectural structures, such as Emirates Towers in Dubai, Changi Airport in
Singapore and the Bank of America building in London. The Company's professional
reputation is underpinned by superior technical skills and management systems to
install film and security products in naturally hostile or difficult
environments, evidenced by completed assignments in 65 different countries,
significantly more than any direct competitor.
An additional source of competitive advantage are our customer service systems,
involving superior pre and post contract care, site inspection and sign off
methodology, developed specifically for each client. The Company is currently
developing a B2B education campaign to stimulate market awareness of and demand
for its branded range of protection technologies.
Products
Pentagon's product development group has developed a dual component system which
offers measurably superior performance versus conventional competition. The
Company is now actively developing this initiative for both internal use and for
trade distribution, with particular emphasis on the growth potential of the US
market. American development rates of security film relative to overall market
size are significantly behind UK levels. Whereas the growth of window protection
in the UK was triggered by the IRA bombing campaigns in the late 1960's, it is
anticipated that the growing fear of terrorism will add to worsening weather and
increasing 'smash & grab' crime in the US to stimulate growth of this demand for
protection. Pentagon's objective is to offer the best performing system solution
in this market.
Pentagon Glass Tech
In parallel, the directors have decided to cease investment in the automotive
division. This has led to the decision to sell Pentagon Glass Tech. Although the
Board believed that GlassTech would eventually recover from the setbacks imposed
by a change in the UK automotive solar tinting regulations, it was recognised
that managing its recovery was proving too sizeable a distraction and risk for
the Company and would limit progress in developing the increasing opportunities
for the buildings division.
Board Changes
The Board has also revised its Company's management structure after this
restructuring. The Board will be downsized to four from seven people to reflect
the Company's sharper focus, with Graham Bannerman continuing as Chief
Executive, Stephen Harrhy as International Sales Director and Haytham ElZayn and
Alan Nicholl as Non-Executive Directors, who combined represent a significant
shareholding in the Company. Ronald Bambra, Non Executive Director and Geoffrey
Russell, Operations Director, have agreed to retire or step down from the Board.
Finally, David Thomas, Chairman, will be retiring from the Board but, as the
single largest shareholder, will continue to advise the Board as and when
appropriate. His successor as Chairman will be announced at a later date.
Said Mr. Thomas: 'I am in favour of the need to focus the business on one
division and consider that the Board will be better served by someone with a
fresh approach - I wish Graham and his team every success in the future and
currently have no need or desire to sell any of my holding in the Company. I
continue to have every confidence in Graham and his team who will now
concentrate on growing the buildings division.'
The company has recruited Steve Lipscombe to assist the team with the strategic
development of new markets. Mr Lipscombe was formerly head of European
Marketing and Technical Communications, for the European Building Products
Division of Pilkington PLC.
Total numbers in the Group have declined through redundancy to a total of 39
people, of which 22 are in the buildings division. This compares with 45 people
at its height during the previous financial year.
Key developments across the year
1. Commitment to expand into the high potential US buildings market via a
collaboration with a strong US-based partner. On 2 June 2005 the Company
announced that it had entered into a letter of intent regarding an agreement
with Mr. Haytham ElZayn, the Chairman of Dublin, Ohio based Allegiance Holdings
LLC to collaborate in the introduction and development of Pentagon's services
and products in the US market. A new company, Pentagon Protection USA LLC was
formed on 8 December 2005. This focuses on the development of building-sector
opportunities. The potential for Pentagon's products in the US with the current
state of unease in the North America due to terrorism and dramatic shifts in
weather has created a rapidly increasing general awareness of the need to
protect people and property from the inherent potential dangers of glass.
Next Steps:
• Identify priority market sectors: These are: Firstly, the growing
requirement for hurricane and storm resistant glass containment systems, an
opportunity dramatically highlighted recently when severe storms devastated
Missouri based businesses and residences in early March; Secondly: the high
value retail sector, which includes the jewellers security alliance, golfing
equipment chains and sporting goods dealers, and thirdly their requirement for
increased protection against rising 'smash and grab' style burglary attacks.
• Develop the distribution network for the Company's window protection
technologies. Pentagon is in the process of identifying buildings sector
dealerships as prospective trade partners in the creation of a North American
marketing and supply network.
Key elements of the original agreement with Allegiance Investment Company LLC
were:
• Mr ElZayn has subscribed for 14,322,349 shares in Pentagon at 3.83p per
share, for a total investment consideration of US$1 million (£589,523).
• Pentagon and AICL entered into a license agreement granting AICL the
exclusive rights to trade within the US as Pentagon's sole partner in the area
of application of window films and anchoring products for architectural glass.
• A new company, Allegiance Investment Company LLC (AICL), was incorporated to
act as the vehicle to market Pentagon's commercial buildings products and
services throughout the United States.
• AICL will invest a further US$1million in the development and marketing of
Pentagon's products into the US and international markets over the next 18
months.
• Mr ElZayn joined the main board of Pentagon.
2. Commenced acquisition discussions to establish Pentagon Protection as UK
buildings sector market leader. Pentagon is in advanced talks to acquire one the
UK's leading flat glass film application companies.
The acquisition will strengthen Pentagon's commercial building and architectural
division, which supplies the design and application of blast protection film to
flat glass and anchoring systems for enhanced blast and weather protection.
The target company has a healthy order book with a good spread of clients
throughout the UK, and an experienced management team to compliment the growing
international business of Pentagon's buildings division.
The integration of Pentagon Protection and this new company will provide
Pentagon Protection PLC with a share of the UK Market in excess of 10%, a
competitively robust base from which to expand the business.
The opportunities of the new partnership are reflected in the blue chip clients
with which both companies have mature relationships. The market opportunity in
the UK is highlighted by the fact that, of the absolute requirement to comply
with Health & Safety Regulation 14, a significant number of businesses have yet
to complete their duty of care concerning glazing protection.
This sector also provides substantial revenue opportunities in revisiting
clients with warranty expired installations for upgrades to their glazing
systems
3. The Company is negotiating to acquire the Global rights to 'new
generation' Window anchoring technologies, proven in test to increase
effectiveness
Pentagon is currently in discussions to acquire the manufacturing and licence
rights to a superior performing extruded anchoring system range and is in the
process of developing the Company's own branded film supply for both flexible
and rigid anchoring systems.
Pentagon-branded window films have been tested to the highest criteria globally
along with the anchoring products. In Europe Pentagon film products have
achieved the highest impact levels required by EN12600 and EN356, while the
Company's anchoring systems and FT800 film are qualified to GSA standards 3A and
3B in the USA. Testing programmes are continuing to meet additional standards in
the new North American markets.
4. Pentagon has opened offices in key growth markets and closed non-
performing branches. The non-fulfillment of two significant and high-profile
contracts in Europe earlier in the year strengthened the Board's resolve to
intensify the Middle East as a specific regional priority, arising from an
already strong presence, reputation and network.
In the Middle East, the Group established a Joint Venture in Bahrain, creating a
commercial office in Bahrain to manage and control the expanding Middle East
operations. This became operational in March 2006 and extended the Company's
reach throughout the region in both architectural and automotive markets. The
Company closed its Singapore office given a sharp decline in the Far Eastern
market's attractiveness caused by entrenched low-price local competition.
In the Middle East, the Company will continue to develop contracts worked on
throughout 2004 and 2005, primarily in the Leisure and Petrochemical sectors.
Contract gains were secured from a number of global companies, including Shell
Exploration, a large international oil logistics concern and a prestige
retail/office centre in Dubai.
5. Divestment of underperforming automotive division. The Company is in the
final stages of agreeing the sale of Pentagon Glass Tech Limited, the Group's
automotive division. This has been a regrettable but necessary decision. The
division continued to make losses during 2005, struggling to make up lost ground
after a significant change in legislation with respect to window tinting was
introduced at the beginning of 2004.
Section 32 of the Construction and Use Regulations (part of the Road Traffic
Act) was changed by Parliament in February 2004 to include reference to window
tint films, the effect of which has been to discourage the practice of applying
tints to the driver and forward passenger windows. This had a significant effect
on demand for window tinting and compelled the Group to increase its effort in
promoting the security and safety benefits of SupaGlass as a superior
alternative to tinting and to open new markets internationally, capitalising on
an improving awareness of the Pentagon brand.
Although the early results indicated that GlassTech would recover behind this
strategy, it was recognised that managing its recovery was proving too onerous
for Pentagon Protection and the losses generated over 2005 were unsustainable.
Any recovery was also likely to take too long and ultimately limit the progress
that we were seeking to make in developing the expanding opportunities for the
buildings division.
6. Implementation of cost savings programme. Throughout the year, the
Company has reviewed its staffing needs resulting in annual payroll savings
within the buildings division of up to £180,000. This programme will continue in
2006/2007and the Board anticipates further reductions in the Company's cost
base, helped by the divestment of Pentagon Glass Tech and further budgeting
initiatives. The directors have taken salary cuts of 15%.
Conclusion
The benefits to the Company's financial performance resulting from these
initiatives should impact the second half of the current financial year. The
lessons learned over the last year were painful, precipitating a critical review
of the most fundamental aspects of the Group's history and strategy. The actions
taken reflect a sharper, more resolved definition of market segments and
geographies in which the Group will focus upon as it strengthens its overall
capability to deliver innovative and superior products and services under the
Pentagon brand. The Board looks forward to shareholder continued support as we
report the improvements in Pentagon's progress and performance that we
anticipate will be derived from the comprehensive changes made in the past 12
months.
INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF PENTAGON PROTECTION PLC
We have audited the financial statements of Pentagon Protection Plc on pages 8
to 27 for the year ended 30 September 2005 which comprise the consolidated
profit and loss account, consolidated balance sheet, company balance sheet,
consolidated cash flow statement and the related notes. These financial
statements have been prepared under the historical cost convention and the
accounting policies set out therein.
This report is made solely to the company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them in an auditor's report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As described in the statement of directors' responsibilities on page 2 the
company's directors are responsible for the preparation of the financial
statements in accordance with applicable law and United Kingdom Accounting
Standards.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and United Kingdom Auditing
Standards.
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report to you if, in our opinion, the directors' report is not
consistent with the financial statements, if the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and transactions with the company is not disclosed.
We read the directors' report and consider the implications for our report if we
become aware of any apparent misstatements within it.
Basis of audit opinion
We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the financial statements,
and of whether the accounting policies are appropriate to the company's and the
group's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of the company's and the group's affairs as at 30 September 2005 and of the
group's loss for the year then ended and have been properly prepared in
accordance with the Companies Act 1985.
Warrener Stewart
Chartered Accountants
30 March 2006
Registered Auditors
Harwood House
43 Harwood Road
London
SW6 4QP
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 SEPTEMBER 2005
2005 2004
As restated
Notes £ £
Turnover 3 3,619,939 3,316,554
Cost of sales (2,010,805) (1,364,463)
Exceptional item 4 (40,473)
----------- -----------
Gross profit 1,568,661 1,952,091
----------- -----------
Distribution costs 631,058 501,997
Administrative expenses 1,725,770 1,291,564
Exceptional items 4 463,257 -
----------- -----------
2,820,085 1,793,561
----------- -----------
Other operating income 26,828 532,186
----------- -----------
Operating (loss)/profit 4 (1,224,596) 690,716
----------- -----------
Interest receivable and 8,245 3,125
similar income
Interest payable and similar 5 (19,451) (19,763)
charges
----------- -----------
(Loss)/profit on ordinary (1,235,802) 674,078
activities before taxation
Tax on (loss)/profit on 6 - (105,770)
ordinary activities
----------- -----------
Retained (loss)/profit for (1,235,802) 568,308
the year
=========== ===========
Basic (loss)/earnings per (0.82)p 0.48p
share
Diluted (loss)/earnings per (0.70)p 0.48p
share
=========== ===========
The results above are derived wholly from continuing operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 30 SEPTEMBER 2005
2005 2004
As restated
Notes £ £
(Loss)/profit for the (1,235,802) 568,308
financial year
Prior year adjustment 2 389,451 -
----------- -----------
Total recognised gains and (846,351) 568,308
losses since last annual
report
=========== ===========
BALANCE SHEETS
AS AT 30 SEPTEMBER 2005
Group Company
2005 2004 2005 2004
Notes As restated
£ £ £ £
Fixed assets
Intangible assets 9 2,389,093 2,820,295 - -
Tangible assets 10 202,038 237,814 - -
Investments 11 - - 2,710,510 4,235,458
----------- ----------- ----------- -----------
2,591,131 3,058,109 2,710,510 4,235,458
----------- ----------- ----------- -----------
Current assets
Stocks 201,923 156,276 - -
Debtors 12 1,262,218 1,219,965 133,471 859,562
Cash at bank and in hand 471,347 601,782 290,287 579,768
----------- ----------- ----------- -----------
1,935,488 1,978,023 423,758 1,439,330
Creditors: amounts falling 13 (1,024,298) (777,972) (96,100) (84,004)
due within one year
----------- ----------- ----------- -----------
Net current assets 911,190 1,200,051 327,658 1,355,326
----------- ----------- ----------- -----------
Total assets less current liabilities 3,502,321 4,258,160 3,038,168 5,590,784
Creditors: amounts falling 14 (8,568) (22,400) - -
due after more than one year
Provisions for liabilities 15 (195,000) (250,000) (195,000) (250,000)
and charges
----------- ----------- ----------- -----------
3,298,753 3,985,760 2,843,168 5,340,784
=========== =========== =========== ===========
Capital and reserves
Called up share capital 17 165,918 135,556 165,918 135,556
Share premium 18 4,297,803 3,029,370 4,297,803 3,029,370
Merger reserve 18 192,150 192,150 1,570,783 1,570,783
Shares to be issued 18 - 750,000 - 750,000
Profit and loss account (1,357,118) (121,316) (3,191,336) (144,925)
----------- ----------- ----------- -----------
Shareholders' funds 19 3,298,753 3,985,760 2,843,168 5,340,784
=========== =========== =========== ===========
The financial statements were approved by the board on 30 March 2006.
A R Nicholl
Director
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2005
2005 2004
As
restated
£ £ £ £
Net cash (outflow)/inflow from operating (870,798) 350,357
activities
Returns on investments and servicing
of finance
Interest received 8,245 3,125
Interest paid (18,940) (18,793)
Interest element of finance lease (511) (970)
rentals
--------- ---------
Net cash outflow for returns on (11,206) (16,638)
investments and servicing of finance
Taxation - (105,770)
Capital expenditure
Payments to acquire intangible - (334,984)
assets
Payments to acquire tangible assets (27,807) (75,538)
Receipts from sales of tangible 14,154 -
assets
--------- ---------
Net cash (outflow) for capital (13,653) (410,522)
expenditure
Acquisitions
Purchase of subsidiary undertaking - (860,510)
Payment against provision for (55,000)
purchase of subsidiary undertaking
Net overdrafts acquired with - (82,855)
subsidiary
--------- ---------
(55,000) (943,365)
Financing
Loans repaid to financial (2,309) (18,467)
institutions
Increase in factor finance 281,155 -
Share issue costs (40,728) (55,913)
Capital element of finance lease (13,932) (17,509)
rental
Net decrease in directors' loans - (30,000)
Shares issued 589,523 1,597,500
--------- ---------
Net cash inflow from financing 813,709 1,475,611
--------- ---------
(Decrease)/increase in cash in the (136,948) 349,673
year
========= =========
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2005
1 Reconciliation of operating profit to net cash inflow 2005 2004
from operating activities
As restated
£ £
Operating (loss)/profit (1,224,596) 690,716
Depreciation and amortisation of fixed assets 480,949 178,879
Profit on disposal of tangible assets (318) -
Increase in stocks (45,647) (100,247)
Increase in debtors (42,253) 97,428
Decrease in creditors (38,933) (110,741)
Non cash movement arising on prior year - (405,678)
adjustment
--------- ---------
Net cash inflow from operating (870,798) 350,357
activities
========= =========
2 Analysis of net funds 1 October Cash flow 30
2004 September
2005
£ £ £
Cash at bank and in hand 601,782 (130,435) 471,347
Bank overdrafts (18,463) (6,513) (24,976)
--------- --------- ---------
583,319 (136,948) 446,371
--------- --------- ---------
Finance leases (31,886) 13,932 (17,954)
Debts falling due after more than (2,309) 2,309 -
one year
Factor finance - (281,155) (281,155)
--------- --------- ---------
(34,195) (264,914) (299,109)
--------- --------- ---------
Net funds 549,124 (401,862) 147,262
========= ========= =========
3 Reconciliation of net cash flow to movement in net debt 2005 2004
£ £
(Decrease)/increase in cash in (136,948) 349,673
the year
Cash outflow from decrease in debt (264,914) 211,131
--------- ---------
Movement in net funds in the year (401,862) 560,804
Opening net funds/(debt) 549,124 (11,680)
--------- ---------
Closing net funds 147,262 549,124
========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2005
1 Accounting policies
1.1 Accounting convention
The financial statements have been prepared in accordance with applicable accounting
standards under the historical cost convention and in compliance with the
requirements of the Companies Act 1985.
As permitted by Section 230 of the Companies Act 1985 the profit and loss account of
the parent company has not been separately presented in the financial statements.
1.2 Basis of consolidation
The group financial statements consolidate the financial statements of the company
and all its subsidiary undertakings as at 30 September 2005 using merger accounting
or acquisition accounting depending on the circumstances surrounding the combination
of each subsidiary undertaking and after eliminating intra-group transactions.
Because the company prepares consolidated financial statements, advantage has been
taken of the partial exemptions contained within Financial Reporting Standard 8 and
transactions with group companies have not been disclosed.
1.3 Turnover
Turnover represents invoiced sales, net of value added tax and trade discounts.
1.4 Goodwill
Goodwill arising on the acquisition of subsidiaries is capitalised in the year of
acquisition and written off over its estimated useful economic life to the profit
and loss account.
1.5 Tangible fixed assets and depreciation
Depreciation is provided on all tangible fixed assets at rates calculated to write
off the cost less estimated residual value of each asset over its expected useful
life, as follows:
Leasehold land and buildings Over the term of the lease
Plant and machinery 10% to 25% on written down value
Fixtures and fittings 50% on cost and 25% on written down value
Office equipment 50% on cost
Motor vehicles 25% on written down value
1.6 Research and development
Development expenditure is capitalised on clearly defined projects whose outcome
can be assessed with reasonable certainty. Amortisation is commenced in the year
in which significant revenues from the development occur and is amortised in line
with sales. All other research and development expenditure is written off in the
year in which it is incurred.
1.7 Foreign currencies
Assets and liabilities in foreign currencies are translated into sterling at the
rates of exchange ruling at the balance sheet date. Transactions in foreign
currencies are translated into sterling at the rate of exchange prevailing at the
date of the transaction. Exchange differences are taken into account in arriving
at the operating result.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
1 Accounting policies (continued)
1.8 Leasing
Where assets are financed by leasing or hire purchase agreements, the assets are
treated as if they had been purchased. The present value of the minimum lease payments
payable during the lease term is capitalised as a tangible asset and the corresponding
leasing commitment is included as a liability. Rentals payable are apportioned between
interest which is charged to the profit and loss account, and capital which reduces the
outstanding commitment.
All other leases are treated as operating leases. Their annual rentals are charged to
the profit and loss account on a payable basis.
1.9 Investments
Investments are included in these financial statements at the cost of the ordinary
share capital acquired. Adjustments to this value are only made when, in the opinion of
the directors, a permanent diminution in value has taken place and where there is no
prospect of an improvement in the foreseeable future.
1.10 Pensions
The group operates a defined contribution scheme for its employees. The funds of this
scheme are administered by trustees and are separate from the group. All payments are
charged to the profit and loss account as and when they arise.
1.11 Deferred taxation
Deferred tax is provided using the full provision method In accordance with Financial
Reporting Standard 19.
Deferred tax is recognised in respect of all timing differences that have originated
but not reversed by the balance sheet date and is not recognised on permanent
differences. It is the group's policy not to discount deferred tax to reflect the time
value of money.
1.12 Invoice discounting
The group discounts some of its trade debts. The accounting policy is to include
trade debt within trade debtors due within one year and to record cash advances
within creditors due within one year.
Discounting fees are charged to the profit and loss account when incurred. Bad debts
are borne by the group and are charged to the profit and loss account when they are
incurred.
1.13 Stocks
Stocks are included at the lower of cost and net realisble value, after making
provision for slow moving and obsolete items.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
2 Prior year adjustment
During the year ended 30 September 2004, other operating income of £511,448,
together with a related tax charge of £105,770 were treated incorrectly within
the consolidated financial statements.
Whilst the income and associated tax were correctly disclosed within the
financial statements of the underlying subsidiary undertaking, these amounts
were shown as a reduction in goodwill on consolidation of that subsidiary within
the group.
As a result of the above, the comparative figures for the year ended 30
September 2004 have been restated, in order correctly to classify these amounts
as revenue items.
The prior year adjustment is made up as
follows:
£
For the year ended 30 September 2004:
Increase in other operating income 511,448
Increase in goodwill amortization (16,227)
---------
495,221
Tax effect of the above (105,770)
---------
Increase in reserves at 1 October 2004 389,451
=========
The impact of the prior year
adjustment on group results is
set out below:
2005 2004
£ £
(Reduction)/increase in post (20,284) 389,451
tax profits
========= =========
3 Turnover
The turnover and group loss (2004: profit) are attributable to the principal
activities of the group. An analysis of turnover by geographical market is given
below:
2005 2004
£ £
United Kingdom 2,599,225 2,684,591
Americas - 25,000
Europe 562,974 116,311
Africa and Middle East 378,525 245,724
Far East 79,215 244,928
---------- ----------
3,619,939 3,316,554
========== ==========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
4 Operating (loss)/profit 2005 2004
Restated
£ £
Operating profit is stated after charging/(crediting):
Depreciation of tangible fixed assets 49,747 71,668
Profit on disposal of tangible fixed assets (318)
Amortisation of intangible fixed assets 130,526 99,221
Operating lease rentals
- Plant and machinery 41,751 37,183
Auditors' remuneration 17,000 9,500
Exceptional items (see below) 503,730 -
========== ==========
The following items have been treated as exceptional in
arriving at the operating (loss)/profit for the year:
Exceptional stock write off 40,473 -
Provision for diminution in value of development costs 300,676 -
(see note 9)
Exceptional bad debt charge 162,581 -
---------- ----------
503,730 -
========== ==========
The exceptional stock write off is included within cost
of sales and the provision for diminution in value and
exceptional bad debt charge (total £463,257) are included
within administrative expenses.
5 Interest payable 2005 2004
£ £
On bank loans and overdrafts 11,324 8,364
On other loans 2,869 3,186
On factored debts 4,747 7,163
On finance leases 511 970
Other interest - 80
--------- ---------
19,451 19,763
========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
6 Taxation
£ £
Domestic current year tax
U.K. corporation tax - 105,770
Adjustment for prior years - -
--------- ---------
Current tax charge - 105,770
========= =========
Factors affecting the tax charge for the year
(Loss)/profit on ordinary activities before taxation (1,235,802) 674,078
========== =========
Profit on ordinary activities before taxation multiplied (370,741) 202,223
by standard rate of UK corporation tax of 30.00% (2004:
30.00%)
--------- ---------
Effects of:
Non deductible expenses 9,744 39,883
Accelerated capital allowances (1,505) (5,294)
Carried/(brought) forward losses (1,235,802) (80,494)
Research and development relief - (50,548)
--------- ---------
(370,741) (96,453)
--------- ---------
Current tax charge - 105,770
========= =========
The group has tax losses of approximately £1,739,000 available to carry forward
forward against future trading profits, subject to agreement by HMIT.
On the basis of prudence, no provision has been made for a potential deferred
tax asset of approximately £521,000.
7 (Loss)/earnings per share
The calculation of (loss)/earnings per share are based on
the following (losses)/profits and number of shares:
2005 2005 2004 2004
As restated As restated
Basic Diluted Basic Diluted
(Loss)/profit for the financial (1,235,802) (1,235,802) 568,308 568,308
year
========== ========== ========= =========
Weighted average number of shares
for basic and diluted (loss)/
earnings per share 151,488,970 176,338,271 119,002,923 119,002,923
=========== =========== =========== ===========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
8 Profit for the financial year
As permitted by section 230 of the Companies Act 1985, the holding company's
profit and loss account has not been included in these financial statements.
The loss for the financial year is made up as follows:
2005 2004
£ £
Holding company's loss for the financial year (3,046,411) (111,617)
========== =========
9 Intangible fixed assets
Group
Goodwill Development Total
costs
£ £ £
Cost
At 1 October 2004 (as restated) & 30 2,618,840 334,984 2,953,824
September 2005
---------- --------- ----------
Amortisation
At 1 October 2004 (as restated) 99,221 34,308 133,529
Charge for the year 130,526 300,676 431,202
--------- --------- ---------
At 30 September 2005 229,747 334,984 564,731
--------- --------- ---------
Net book value
At 30 September 2005 2,389,093 - 2,389,093
========== ========= ==========
At 30 September 2004 2,519,619 300,676 2,820,295
========== ========= ==========
Goodwill arose on the acquisition in 2003 of Pentagon Filmtek Limited. The
goodwill arising is being amortised over its estimated useful economic life of 20
years.
Following a review of deferred development costs, the directors have taken the
view that the asset should now be fully amortised. Therefore it has been written
down to a carrying value of £nil within the financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
10 Tangible fixed assets
Group
Land and Plant and Fixtures Office Motor Total
buildings machinery & equipment vehicles
Leasehold fittings
£ £ £ £ £ £
Cost or valuation
At 1 October 2004 81,838 121,924 61,956 12,994 123,616 402,328
Additions - 16,596 10,190 - 1,021 27,807
Disposals - - - - (23,965) (23,965)
--------- --------- --------- --------- --------- ---------
At 30 September 2005 81,838 138,520 72,146 12,994 100,672 406,170
--------- --------- --------- --------- --------- ---------
Depreciation
At 1 October 2004 32,381 49,017 31,916 1,185 50,015 164,514
Charge for the year 4,946 14,306 12,631 2,952 14,912 49,747
On disposals - - - - (10,129) (10,129)
--------- --------- --------- --------- --------- ---------
At 30 September 2005 37,327 63,323 44,547 4,137 54,798 204,132
--------- --------- --------- --------- --------- ---------
Net book value
At 30 September 2005 44,511 75,197 27,599 8,857 45,874 202,038
========= ========= ========= ========= ========= =========
At 30 September 2004 49,457 72,907 30,040 11,809 73,601 237,814
========= ========= ========= ========= ========= =========
Included above are assets held under finance leases or hire purchase contracts
as follows:
2005 2004
£ £
Net book values
Motor vehicles 18,683 32,596
========= =========
Depreciation charge for the year
Motor vehicles 6,228 10,865
========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
11 Fixed asset investments
Company
Shares in
group
undertakings
£
Cost or valuation
At 1 October 2004 & at 30 September 2005 4,235,458
==========
Provision for permanent diminution in value
At 1 October 2004 -
Charge for the year 1,524,948
----------
At 30 September 2005 1,524,948
----------
Net book value
At 30 September 2004 2,710,510
==========
At 30 September 2005 4,235,458
==========
Following a review of the business carried on by Pentagon Glass Tech Limited and
Pentagon Glass Tech
(Franchising) Limited, the Board took the decision to make a provision against the
cost of these investments, leaving a carrying value of £100,000. The investment in
Pentagon Filmtek Limited remains at cost.
The company owns 100% of the ordinary share capital of the following subsidiary
companies, all of which are incorporated in England:
Name: Principal activity:
Pentagon Glass Tech Limited Solar protective and safety films for
cars
Pentagon Glass Tech (Franchising) Franchising of solar, protective and
Limited safety films
Pentagon Filmtek Limited Supply and application of solar
controls, safety and security films to
commercial buildings
12 Debtors
Group Company
2005 2004 2005 2004
£ £ £ £
Trade debtors 1,087,666 1,007,451 - -
Amounts owed by group - - 111,360 841,523
undertakings
Other debtors 120,464 114,815 - -
Prepayments and accrued income 54,088 97,699 22,111 18,039
---------- ---------- ---------- ---------
1,262,218 1,219,965 133,471 859,562
========== ========== ========== =========
Amounts owed to the company by group undertakings are stated net of a provision
against amounts owed by Pentagon Glass Tech Limited of £1,395,760 (2004: Nil)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
13 Creditors : amounts falling due within one year
Group Company
2005 2004 2005 2004
£ £ £ £
Bank loans and overdrafts 24,976 18,463 - -
Factor finance 281,155 - - -
Net obligations under finance lease 9,386 11,795 - -
and hire purchase contracts
Trade creditors 507,740 503,623 27,033 59,793
Other taxes and social security 70,802 86,066 10,984 21,711
costs
Other creditors 71,879 137,085 52,083 -
Accruals and deferred income 58,360 20,940 6,000 2,500
---------- --------- --------- ---------
1,024,298 777,972 96,100 84,004
========== ========= ========= =========
14 Creditors : amounts falling due after more than one year
Group Company
2005 2004 2005 2004
£ £ £ £
Bank loans - 2,309 - -
Net obligations under finance 8,568 20,091 - -
leases and hire purchase agreements
--------- --------- --------- ---------
8,568 22,400 - -
========= ========= ========= =========
Analysis of loans
Wholly repayable within five years 17,954 34,195 628 788
Included in current liabilities (9,386) (11,795) (140) (159)
--------- --------- --------- ---------
8,568 22,400 488 629
========= ========= ========= =========
Loan maturity analysis
In more than one year but not more 8,568 13,832 140 159
than two years
In more than two years but not more - 8,568 348 470
than five years
========= ========= ========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
15 Provisions for liabilities and charges
Other provisions
Group Company
£ £
Balance at 1 October 2004 250,000 250,000
Payments made in the year (55,000) (55,000)
--------- ---------
Balance at 30 September 2005 195,000 195,000
========= =========
The above provision relates to deferred consideration on the acquisition of a
subsidiary as follows:
Group Company
2005 2004 2005 2004
£ £ £ £
Further payments 195,000 250,000 195,000 250,000
========= ========= ========= =========
16 Pension costs
Defined contribution 2005 2004
£ £
Contributions payable by the group for the year 22,336 12,282
========= =========
17 Share capital 2005 2004
£ £
Authorised
200,000,000 Ordinary shares of 0.1p each 200,000 200,000
========= =========
Allotted, called up and fully paid
165,918,156 (2004: 135,556,334) Ordinary shares of 0.1p 165,918 135,556
each
========= =========
Share transaction history:
On 11 January 2005 there was a placing of 15,789,473 ordinary 0.1p shares for
4.75p each to the vendors of Pentagon Filmtek Limited in settlement of deferred
consideration falling due. There were further placings of 250,000 ordinary 0.1p
shares at par on 26 May 2005 and 14,322,349 ordinary 0.1p shares at 3.83p each on
7 June 2005.
Share options
The total number of outstanding share options at 30 September 2005 was 24,849,301.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
18 Statement of movements on reserves
Group
Profit and Share Merger Shares to Totals
loss premium reserve be issued
account account
£ £ £ £ £
At 1 October 2004 as (510,767) 3,029,370 192,150 750,000 3,460,753
previously stated
Prior year adjustment 389,451 - - - 389,451
---------- ---------- --------- --------- ----------
At 1 October 2004 as (121,316) 3,029,370 192,150 750,000 3,850,204
restated
Shares issued - 1,309,161 - (750,000) 559,161
Share issue expenses - (40,728) - - (40,728)
Loss for the year (1,235,802) - - - (1,235,802)
---------- ---------- --------- --------- ----------
At 30 September 2005 (1,357,118) 4,297,803 192,150 - 3,132,835
========== ========== ========= ========= ==========
Company
Profit and Share Merger Shares to Totals
loss premium reserve be issued
account account
£ £ £ £ £
At 1 October 2004 (144,925) 3,029,370 1,570,783 750,000 5,205,228
Shares issued - 1,309,161 - (750,000) 559,161
Share issue expenses - (40,728) - - (40,728)
Loss for the year (3,046,411) - - - (3,046,411)
---------- ---------- ---------- ---------- ----------
At 30 September 2005 (3,191,336) 4,297,803 1,570,783 - 2,677,250
========== ========== ========== ========= ==========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
19 Reconciliation of movements in shareholders' funds 2005 2004
Group As
restated
£ £ £
(Loss)/profit for the financial year (1,235,802) 178,857
Net proceeds from issue of shares 548,795 2,291,587
Shares to be issued - 750,000
---------- ----------
Net (depletion in)/addition to shareholders' funds (687,007) 3,220,444
Opening shareholders' funds as 3,596,309 375,865
previously reported
Prior year adjustment 389,451 -
---------- ----------
Opening shareholders' funds as 3,985,760 375,865
restated
---------- ----------
Closing shareholders' funds 3,298,753 3,596,309
========== ==========
2005 2004
Company £ £
Loss for the financial year (3,046,411) (111,617)
Net proceeds from issue of shares 548,795 2,291,587
Shares to be issued - 750,000
---------- ----------
Net (depletion in)/addition to shareholders' funds (2,497,616) 2,929,970
Opening shareholders' funds 5,340,784 2,410,814
---------- ----------
Closing shareholders' funds 2,843,168 5,340,784
========== ==========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
20 Directors' emoluments 2005 2004
£ £
Aggregate emoluments including benefits in kind 232,734 181,597
========= =========
Emoluments disclosed above include the following amounts paid to the highest
paid director:
Aggregate emoluments
69,072 56,747
========= =========
No director benefited from any increase in the value of share options during the
year
21 Employees
Number of employees
The average monthly number of employees (including directors) during the year
was:
2005 2004
Number Number
Operations 13 12
Administration 16 18
Sales 10 7
--------- ---------
39 37
========= =========
Employment costs
£ £
Wages and salaries 1,119,294 958,260
Social security costs 113,250 125,098
Other pension costs 22,336 4,533
--------- ---------
1,254,880 1,087,891
========= =========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
22 Financial instruments
The group's financial instruments comprise cash, borrowings, factor finance and
hire purchase and finance liabilities as well as various items such as trade
debtors and trade creditors that arise directly from its operations. The main
purpose of these financial instruments is to raise finance for the group's
operations. Short term debtors and creditors have been excluded from the
following disclosures.
The fair value of the group's financial assets and liabilities is not materially
different from the carrying values in the balance sheet.
It is and has been throughout the period under review, the group's policy that no
trading in financial instruments shall be undertaken.
The main risks arising from the group's financial instruments are interest rate
risk and liquidity risk.
Interest rate risk
It is the group's policy to regularly review the group's exposure to interest
rate risk.
Liquidity risk
It is the group's policy to regularly review the group's exposure to liquidity
risk so that an appropriate balance between continuity of funding and short term
flexibility is achieved. The maturity profile of the group's financial
liabilities at 30 September 2005 is shown in note 14 to the financial statements.
Interest rate risk profile of financial assets and financial liabilities
Financial assets
The group's exposure to interest rate risk currently applies only to the interest
received cash deposits which is based on the Nat West base rate. The group'
sterling floating cash balances at the year end were £471,347 (2004: £601,782).
Financial liabilities
The interest rate profile of the group's financial liabilities was as follows:
Total Floating Fixed rate
rate financial
financial liabilities
liabilities
£ £ £
Currency
At 30 September 2005: Sterling 299,109 281,155 17,954
At 30 September 2004: Sterling 182,094 150,208 31,886
========= ========= =========
All fixed rate financial liabilities relate to hire purchase and finance lease
agreements which have different levels of agreed fixed interest rates.
The floating rate financial liabilities comprise sterling denominated overdrafts
and a director's loan that bear interest based on the Nat West base rate and
borrowing from a factor that bear interest based on the Royal bank of Scotland
base rate.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2005
23 Control
The company is listed on the Alternative Investment Market and there is no
individual controlling party.
24 Related party disclosures
2005 2004
£ £
Creditor balances
R Bambra 52,803 -
D A Thomas - 51,274
========= =========
During the year the group paid rent and service charges of £35,400 (2004:
£26,550, plus other charges of £6,933) to GB Management Limited, a company in
which G Bannerman has an interest.
25 Contingent liability
The group has received notice of a potential tax claim in relation to a
non-trading subsidiary which has no assets. The maximum claim including
interest is approximately £165,000. In the unlikely event of the claim
subsisiting it would not create any liability in the parent undertaking.
The Board believes that the tax liability will not be paid and since the year
end the subsidiary in question has been put. In the light of the above, the
directors have excluded the potential liability from the financial statements.
ENDS
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