IFRS Transition

Vislink PLC 01 September 2005 Vislink plc News Release: Transition from UK GAAP to IFRS 1 September 2005 Vislink plc ('The Group'), a leading supplier of microwave radio and satellite transmission products for the broadcast and security markets and of CCTV systems for the marine security market has today announced its interim results for the six months to 30 June 2005. These interim financial statements are the first interim financial statements following the adoption of International Financial Reporting Standards (IFRS). As the Group has not previously published a full set of financial statements under IFRS the content of these statements has been expanded to include summarised reconciliations of net assets and equity from previously reported amounts under UK GAAP for the six months ended 30 June 2004 and the year ended 31 December 2004. The purpose of this release is to provide a more detailed analysis of the impact of adopting IFRS on the Group. 1. Introduction In accordance with European Union (EU) regulations, all listed groups within the EU are required to adopt International Financial Reporting Standards (IFRS) in their consolidated accounts for accounting periods beginning on or after 1 January 2005. Therefore, the Group's first IFRS results are for the six months ending 30 June 2005. These results and the financial statements for the year to 31 December 2005 will include comparative information for 2004. The purpose of this report is to provide guidelines as to the impact of the initial transition balance sheet adjustments and the restatement of the 2004 published financial statements. Although our independent auditors have provided guidance on the process of transition, the numbers in this report are not audited. 2. Summary of changes The major changes required to the financial statements of the Group by the introduction of IFRS are: •the recording of share-based payments at fair value •the cessation of the amortisation of goodwill •the timing of the recognition of a dividend creditor •the recognition of certain deferred tax liabilities •the recognition of intangible assets whereby certain qualifying costs in respect of product development which were written off under UK GAAP are required to be capitalised and amortised over a future period of time The restated accounting policies and reconciliations between financial statements previously presented under UK GAAP and the IFRS presentation are included in the following appendices: Appendix 1: Restatement of Group accounting policies Appendix 2: Restatement of the balance sheet at 1 January 2004 Appendix 3: Restatement of the income statement for the year ended 31 December 2004 Appendix 4: Restatement of balance sheet at 31 December 2004 Appendix 5: Restatement of cash flow statement for year ended 31 December 2004 3. Summary of Impacts to Financial Statements 3.1 Summary profit and loss impact for year ended 31 December 2004 The table below shows the impact of the adoption of IFRS on the consolidated income statement of the Group for the year ended 31 December 2004. Before Tax After Tax EPS £'000 £'000 Pence -------------------------------------------------------------------------------- Reported (loss) - UK GAAP (809) (1,574) (1.56) IFRS adjustments: (with paragraph references) 5.1: IFRS 2 - Share based payments (47) (47) (0.05) 5.2: IFRS 3 - Goodwill amortisation 1,132 1,132 1.13 5.2: IFRS 3 - Goodwill impairment (817) (817) (0.82) 5.4: IAS 12 - Taxation - 7 0.01 5.6: IAS 38 - Development costs 236 167 0.17 ------------------------------------- Sub total of adjustments 504 442 0.44 ------------------------------------- ------------------------------------- Restated (loss) - IFRS (305) (1,132) (1.12) -------------------------------------------------------------------------------- 3.2 Net asset adjustments The table below shows the impact of the adoption of IFRS on the Group consolidated shareholders' equity statement at 31 December 2004 and 1 January 2004. At 31 December At 1 January 2004 2004 £'000 £'000 -------------------------------------------------------------------------------- Total shareholders' equity - UK GAAP 24,136 26,820 IFRS adjustments: (with paragraph references) 5.2: IFRS 3 - Goodwill 300 - 5.3: IAS 10 - Dividend 246 202 5.4: IAS 12 - Taxation (321) (328) 5.6: IAS 38 - Development cost 640 514 ------------------------------ Sub total of adjustments 865 388 ------------------------------ ------------------------------ Total shareholders' equity - IFRS 25,001 27,208 -------------------------------------------------------------------------------- 3.3 Underlying Profit Under UK GAAP the Group has previously presented a measure of underlying profit in the income statement by excluding goodwill and exceptional non-trading items. The term 'underlying' is not a defined term under IFRS and therefore may not be comparable with similarly titled profit measurements reported by other companies. It is not intended to be a substitute for, or superior to GAAP measurements of profit. In implementing IFRS it is necessary to revise the Group's definition of underlying profit in order that the Group may continue to present a measure of its underlying performance. In presenting underlying profits and earnings per share under IFRS the Group will exclude non-trading exceptional items as before, the impairment of goodwill and the amortisation of acquired intangible assets resulting from business combinations. The table below shows the comparative underlying earnings between UK GAAP and IFRS: UK GAAP IFRS --------------------------- ------------------------------ Pre Post Basic EPS Pre Post tax Basic EPS tax tax Pence tax £'000 Pence £'000 £'000 £'000 ------------------------------------------------ ------------------------------ Loss as reported (809) (1,574) (1.56) (305) (1,132) (1.12) Adjustments: Rationalisation 1,539 1,539 1.52 1,539 1,539 1.52 costs Goodwill 1,132 1,021 1.01 - - - amortisation Goodwill impairment - - - 817 817 0.81 ------------------------------------------------ ------------------------------ Underlying earnings 1,862 986 0.97 2,051 1,224 1.21 -------------------------------------------------------------------------------- 4. Transitional arrangements Under the provisions of IFRS1 (First Time Adoption of IFRS) specific exemptions may be applied in certain areas as part of the transition of the financial statements to IFRS. The Group has elected to take advantage of the following exemptions: •Business combinations completed prior to 1 January 2004 have not been restated under the provision of IFRS 3 Business Combinations; •Under the transitional provisions in IFRS2 Share-based Payments, only share grants made after 7 November 2002 have been fair valued: •The 2004 comparative information has not been prepared in accordance with IAS 32, 'Financial instruments: Disclosure and presentation' and IAS 39, 'Financial instruments: 'Recognition and measurement'. 5. Details of changes 5.1 IFRS2 - Share-based payments IFRS 2 Under UK GAAP share incentive schemes were accounted for under UITF 17, which is based on the intrinsic value of the awards. All approved employee share saving schemes were exempted from a charge under this standard. In addition, as the Group's existing executive options had a strike price equal to the market value at the time of the grant, the intrinsic value of these awards was calculated as zero and so no charge to the profit and loss account was made historically. Under IFRS2 share awards must be measured at fair value at grant date and should be recognised as an expense over the vesting period. The Group has undertaken a review of methods for valuing share options awards, as all options granted since 7 November 2002, a date specified in IFRS2, which vest after the effective date of IFRS2 on 1 January 2005 require valuation. Options issued under the Vislink plc Sharesave Scheme and the Vislink plc Share Option Scheme have been valued using the Black-Scholes model. The impact of this standard on the financial statements of the Group will be a charge to the profit and loss account of £47,000 for the year ended 31 December 2004 offset by an equivalent credit to reserves. 5.2 IFRS 3 - Business combinations IFRS3 deals with accounting for business combinations including goodwill and intangible assets. The Group's current policy under UK GAAP is that goodwill recognised on acquisitions made after 1997 was amortised over its useful life, which in the case of acquisitions by the Group was 20 years. In addition the Group tested for impairment when there is an indication that the carrying value of an asset might be impaired. Under IFRS3 this policy will be replaced by an annual impairment test and cessation of goodwill amortisation. At the transition date the Group had goodwill assets of £18.1 million, which under the transitional arrangements laid out in IFRS 1 was deemed to be the fair value of these assets. During the year ended 31 December 2004, under UK GAAP, a goodwill amortisation charge of £1.13 million was made, which is added back under IFRS. At 31 December 2004 an impairment review was undertaken in respect of the goodwill associated with the UK broadcast business. The goodwill at 31 December 2004 was considered to be fairly valued after the goodwill amortisation charge in 2004 of £0.82million. Therefore this charge has been reclassified as an impairment of goodwill under IFRS. 5.3 IAS 10 - Events after the balance sheet date IAS10 does not permit dividends declared after the balance sheet date to be recognised as a liability. Consequently, under IFRS, the Group will no longer make provision for unapproved dividends at a period end. The effect of this change is to increase shareholders' equity at 1 January 2004 by £202,000 and at 31 December 2004 by £246,000 and a corresponding reduction in trade and other payables. 5.4 IAS 12 - Taxation IAS12 requires entities to provide for deferred taxation based on temporary differences between the carrying amount of assets/liabilities and their tax base. Consequently, the Group has made additional provision for deferred tax in respect of certain non-qualifying properties. The effect of this change is to decrease shareholders' equity at 1 January 2004 by £328,000 and at 31 December 2004 by £321,000 and a corresponding increase in the deferred tax liability. In addition the Group has made provision for deferred tax on separately identified intangible development costs, see 5.6 below. 5.5 IAS 21 - Effects of changes in foreign exchange rates IAS21 requires that the cumulative impact of movements in translation rates on the foreign net assets of the business needs to be tracked separately and that, should a subsidiary be sold, the cumulative translation value associated with the subsidiary is reversed as part of the sale transaction. The Group has therefore reclassified the cumulative translation movements on the net assets of its overseas subsidiaries (Hernis and MRC) from the profit and loss account to a translation reserve. There is no net impact on total shareholders' equity. At 1 January 2004 the cumulative historic translation deficit was £2.13million. At 31 December 2004 this had increased by £0.92million to £3.05million. 5.6 IAS38 - Research and development costs IAS 38 requires that all development costs meeting specified criteria be capitalised as intangible assets. As part of the IFRS transition preparation Vislink has reviewed all its development projects, whether the costs were previously recognised under UK GAAP or not, to determine whether the criteria in IAS 38 were met or not. The key eligibility criteria for capitalisation relate to: • The identification of development costs. In general the Group's research and development activities are closely interrelated and it is not until the technical feasibility of a product can be determined with reasonable certainty that development costs are separately identifiable; and • The generation of future economic benefit. Intangible assets are not recognised unless the resultant product is expected to generate future economic benefit in excess of the amount capitalised. As a result of the review the development costs associated with certain products met the criteria of IAS 38 and have therefore been capitalised, and subsequently amortised over their estimated useful lives (generally three years). The net book value capitalised as at 1 January 2004 was £0.84million. A deferred tax liability associated with the capitalised amount of £0.32million was also created (see 5.4). For the year ended 31 December 2004 a further £0.99million was capitalised under IFRS and there is an amortisation charge of £0.76million. The deferred tax liability is also increased in the year by £0.07million. At 31 December 2004 the net book value of capitalised development costs under IFRS is £1.03million (after a reduction in respect of a foreign exchange adjustment of £0.04million) and the associated deferred tax liability is £0.39million. - Ends - For further information, please contact: Ian Scott-Gall 01488 685500 Chief Executive, Vislink plc James Trumper 01488 685500 Group Finance Director, Vislink plc Appendix 1 Restatement of accounting policies This appendix provides a summary of Vislink's new Group accounting policies under IFRS. Basis of preparation The restated financial information for the transition to IFRS at 1 January 2004, the interim period ended 30 June 2004 and the year ended 31 December 2004 have been prepared in accordance with all International Financial Reporting Standards and IFRIC interpretations that had been published by 30 June 2005 and apply to accounting periods beginning on or after 1 January 2005. The standards used are those endorsed by the EU together with those standards and interpretations that have been issued by the IASB but had not been endorsed by the EU by 30 June 2005. The 2004 comparative information has, as permitted by the exemption in IFRS 1, not been prepared in accordance with IAS 32, 'Financial instruments: Disclosure and presentation' and IAS 39, 'Financial instruments: Recognition and measurement'. Basis of consolidation The Group financial statements include the results of the Company and its subsidiary undertakings. The results of subsidiaries acquired during the year are included from the date of acquisition. The results of businesses disposed of are included to the date of disposal. The financial statements of the subsidiaries and the Company are prepared for the same reporting year as the Group, using consistent accounting policies but in accordance with UK Generally Accepted Accounting Principles (UKGAAP). Adjustments are made to bring into line any dissimilar accounting policies that may exist. All intercompany balances and transactions, including unrealised profits arising from inter-group transactions, have been eliminated in full. Business combinations and goodwill Goodwill represents the excess of the fair value of the purchase consideration for the interest in subsidiary undertakings over the fair value to the Group of the net tangible and intangible assets and any contingent liabilities acquired. Goodwill arising on acquisitions is capitalised and subject to impairment review, both annually and when there are indications that the carrying value may not be recoverable. Prior to 1 January 1997, goodwill was written off to reserves in the year of acquisition. Goodwill arising after 1 January 1997 was amortised over its estimated useful life; under IFRS such amortisation ceased on 31 December 2003. From 1 January 2004 it will be subject to impairment reviews as above. Acquired intangible assets Intangible assets acquired as part of business combinations are capitalised at fair value at the date of acquisition. Following the initial recognition, the carrying amount of an intangible asset is its cost less accumulated amortisation and any accumulated impairment losses. Amortisation is charged on the basis of the estimated useful life (5 years) and the expense is taken to the income statement. Investments All investments are initially recorded at cost, being the fair value of consideration given including the acquisition costs associated with the investment. Subsequently they are reviewed for impairment on an individual basis, if events or changes in circumstances indicate the carrying value may not be fully recoverable. Property, plant and equipment Tangible fixed assets are stated at cost less accumulated depreciation and any provision for impairment. Depreciation is calculated in order to write off the cost of property plant and equipment, other than land, over their estimated useful lives by equal annual installments using the following rates: -------------------------------------------------------------------------------- Freehold and long leasehold buildings 2% Motor vehicles 25% Plant and machinery 10%-33% Fixtures and fittings 10% Durable tools 10%-33% -------------------------------------------------------------------------------- Leases Assets held under finance leases are capitalised and included in property, plant and equipment at fair value. Depreciation is provided in accordance with the Group's depreciation policy. The capital elements of obligations under finance leases are recorded as liabilities. The interest elements of the rental obligation are allocated to accounting periods over the lease term to give a constant periodic rate of interest on the outstanding liability. Rentals payable under operating leases are charged to the income statement on a straight-line basis. Inventory and work in progress Inventory is stated at the lower of cost and net realisable value. Cost is based on normal levels of cost and activity and comprises cost of purchase and, where applicable, cost of conversion to current condition. Cost of purchase includes charges such as freight or duty where appropriate. Cost of conversion includes direct labour, direct expenses and fixed and variable production overhead expenditure. Net realisable value comprises the actual or estimated selling price (net of trade but before settlement discounts), less all further costs to completion, and less all costs to be incurred in marketing, selling and distribution. Work in progress is stated net of amounts taken to cost of sales under long term contracts. The amount by which turnover exceeds a payment received on account is included in debtors as amounts recoverable on long term contracts. Payments on account in excess of work in progress are included in creditors as payments received on account. Trade and other receivables Trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified. Net cash and cash equivalents Net cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of less than three months, reduced by overdrafts to the extent that there is a right of offset against other cash balances. For the purposes of the consolidated cashflow statement, cash and cash equivalents consist of cash and short-term deposits as defined above net of outstanding bank overdrafts. Revenue recognition Revenue represents net amounts receivable from outside customers for goods sold by Group companies in the ordinary course of business and excluding value added tax. Sales are recognised when the significant rewards of ownership of the goods are transferred to the customer, the sales price agreed and the receipt of payment can be assured. Long-term contracts are recognised in revenue on the basis of the sales value of work performed during the year by reference to expenditure to date as a percentage of total expected costs to complete on a contract-by-contract basis. Research and development Research expenditure is written off as incurred. Where development expenditure meets the criteria for capitalisation as set out in IAS38 'Intangible Assets' the costs are capitalised and amortised over its useful economic life from the date of commercial manufacture of the product. The key eligibility criteria for capitalisation relate to: • The identification of development costs. In general the Group's research and development activities are closely interrelated and it is not until the technical feasibility of a product can be determined with reasonable certainty that development costs are separately identifiable; and • The generation of future economic benefit. Intangible assets are not recognised unless the resultant product is expected to generate future economic benefit in excess of the amount capitalised. If a product becomes unviable the deferred development costs are written off. Deferred Taxation Deferred corporation tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised in respect of all temporary differences except where the deferred tax liability arises from the initial recognition of goodwill in business combinations. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and tax losses, to the extent that they are regarded as recoverable. They are regarded as recoverable where, on the basis of available evidence, there will be suitable taxable profits against which the future reversal of the underlying temporary differences can be deducted. The carrying value of the amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all, or part, of the tax asset to be utilised. Deferred corporation tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted at the balance sheet date. Foreign Currencies Trading results of overseas subsidiaries are translated into sterling at the average rates of exchange prevailing during the year. Their assets and liabilities are translated at the rates of exchange prevailing at the year-end. Exchange differences arising from restatement of the opening balance sheets and trading results of overseas subsidiaries are dealt with through reserves. Other monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the balance sheet date and other non-monetary assets at the exchange rates ruling at the dates of the transactions. Derivative financial instruments The Group uses forward foreign currency contracts to reduce its exposure to foreign exchange rates. The Group has only applied IAS32 and IAS 39 from 1 January 2005 as permitted by the transition arrangements in IFRS1. Pensions Group employees are members of money purchase schemes where the obligations of Group companies are charged to the profit and loss account as they are incurred. Property Provisions Provisions are made in respect of residual onerous long leasehold properties where expected future rental costs are in excess of expected income from subletting. Share-based payments The fair value of employee share plans is calculated using an option-pricing model. In accordance with IFRS2 'Share-based payments' the resulting cost is charged to the income statement over the vesting period of the plans. The value of the charge is adjusted to reflect the expected and actual levels of options vesting. Employee Share Ownership Plan The Group's Employee Share Ownership Plan (ESOP) is a separately administered trust. The Company guarantees liabilities of the ESOP, and the assets of the ESOP mainly comprise shares in the Company. The assets, liabilities, income and costs of the ESOP have been included in the consolidated financial statements. Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. Appendix 2 Restatement of balance sheet as at 1 January 2004 from UK GAAP to IFRS As Reclassi- Proposed Taxation Effects Development As previously fications dividend IAS12 of costs restated reported to IFRS IAS10 foreign IAS38 in under format exchange accordance UK GAAP IAS21 with IFRS Paragraph reference 5.3 5.4 5.5 5.6 £'000 £'000 £'000 £'000 £'000 £'000 £'000 ------------------------------------------------------------------------------------------------------------------ Assets Non-current assets Goodwill 18,091 - - - - - 18,091 Intangible assets 101 - - - 838 939 Property, plant and equipment 4,464 (101) - - - - 4,363 Deferred tax assets 1,241 - - - - 1,241 -------------------------------------------------------------------------------------- 22,555 1,241 - - - 838 24,634 -------------------------------------------------------------------------------------- Current assets Inventories 9,099 - - - - - 9,099 Trade and other receivable 12,857 (1,716) - - - - 11,141 Financial assets - available for sale investments 475 - - - - 475 Cash at bank and in hand 9,540 - - - - - 9,540 -------------------------------------------------------------------------------------- 31,496 (1,241) - - - - 30,255 -------------------------------------------------------------------------------------- Liabilities Current liabilities Financial liabilities - borrowings 276 - - - - 276 Trade and other payables 19,121 (405) (202) - - - 18,514 Current tax liabilities 129 - - - - 129 Provisions 1,431 - - - - 1,431 -------------------------------------------------------------------------------------- 19,121 1,431 (202) - - - 20,350 -------------------------------------------------------------------------------------- Net current assets 12,375 (2,672) 202 - - - 9,905 -------------------------------------------------------------------------------------- Non-current liabilities Financialliabilities - borrowings 5,567 - - - - - 5,567 Deferred tax liabilities 237 - 328 - 324 889 Provisions 2,543 (1,668) - - - - 875 -------------------------------------------------------------------------------------- 8,110 (1,431) - 328 - 324 7,331 -------------------------------------------------------------------------------------- 26,820 - 202 (328) - 514 27,208 ------------------------------------------------------------------------------------------------------------------ Capital and reserves Called up share capital 2,552 - - - - - 2,552 Share premium account 205 - - - - - 205 Investment in own shares (160) - - - - - (160) Merger reserve 27,895 - - - - - 27,895 Translation reserve - - - (2,133) - (2,133) Profit and loss account (3,672) - 202 (328) 2,133 514 (1,151) -------------------------------------------------------------------------------------- Total shareholders' equity 26,820 - 202 (328) - 514 27,208 ------------------------------------------------------------------------------------------------------------------ Appendix 3 Restatement of income statement for year to 31 December 2004 from UK GAAP to IFRS Reformatted UK Share-based Business Taxation Development IFRS GAAP as payments combinations IAS12 costs As restated previously IFRS2 IFRS3 IAS38 reported Paragraph reference 5.1 5.2 5.4 5.6 £'000 £'000 £'000 £'000 £'000 £'000 -------------------------------------------------------------------------------------------------------------- Continuing operations Revenue 67,831 - - - - 67,831 Cost of sales (51,612) - - - - (51,612) ------------------------------------------------------------------------------------ 16,219 - - - - 16,219 Other income - - - - - - Sales and marketing (5,865) - - - - (5,865) Research and development (3,318) - - - 992 (2,326) Administrative costs (4,406) (47) - - - (4,453) Other expenses (270) - - - - (270) Impairment and amortisation of intangibles (1,132) - 315 - (756) (1,573) Rationalisation costs (1,539) - - - - (1,539) ------------------------------------------------------------------------------------ Operating profit/(loss) from continuing operations (311) (47) 315 - 236 193 Interest payable and similar charges (591) - - - - (591) Interest receivable 93 - - - - 93 ------------------------------------------------------------------------------------ Profit/(loss) on continuing activities before taxation (809) (47) 315 - 236 (305) Tax on profit/(loss) on ordinary activities (765) - - 7 (69) (827) ------------------------------------------------------------------------------------ Profit/(loss)for the period from continuing operations (1,574) (47) 315 7 167 (1,132) Discontinued operations (Loss)/profit for the period from discontinued operations - - - - - - Profit/(loss) for the period being profit/(loss) attributable to shareholders (1,574) (47) 315 7 167 (1,132) -------------------------------------------------------------------------------------------------------------- Earnings per share expressed in pence per share: From continuing operations - basic (1.56)p (0.05)p 0.31p 0.01p 0.17p (1.12)p From continuing operations - diluted (1.55)p (0.05)p 0.31p 0.01p 0.17p (1.11)p --------------------------------------------------------------------------------------------------------------- Appendix 4 Restatement of balance sheet as at 31 December 2004 from UK GAAP to IFRS As Reclassi- Business Proposed Taxation Effects of Development As previously fications combinations dividend IAS12 foreign costs restated reported to IFRS IFRS3 IAS10 exchange IAS38 accordance under UK format IAS21 with IFRS GAAP Paragraph reference 5.2 5.3 5.4 5.5 5.6 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 --------------------------------------------------------------------------------------------------------------------- Assets Non-current assets Goodwill 16,622 - 300 - - - - 16,922 Intangible assets - 29 - - - - 1,033 1,062 Property, plant and equipment 4,343 (29) - - - - - 4,314 Deferred tax assets - 1,602 - - - - - 1,602 --------------------------------------------------------------------------------------------- 20,965 1,602 300 - - - 1,033 23,900 -------------------------------------------------------------------------------------------- Current assets Inventories 8,936 - - - - - - 8,936 Trade and other receivable 16,988 (1,602) - - - - - 15,386 Cash at bank and in hand 3,219 - - - - - - 3,219 --------------------------------------------------------------------------------------------- 29,143 (1,602) - - - - - 27,541 --------------------------------------------------------------------------------------------- Liabilities Current liabilities Financial liabilities - borrowings - 2,190 - - - - - 2,190 Trade and other payables 21,005 (2,396) - (246) - - - 18,363 Current tax liabilities - 206 - - - - - 206 Provisions - 757 - - - - - 757 --------------------------------------------------------------------------------------------- 21,005 757 - (246) - - - 21,516 --------------------------------------------------------------------------------------------- Net current assets 8,138 (2,359) - 246 - - - 6,025 --------------------------------------------------------------------------------------------- Non-current liabilities Financial liabilities - borrowings 3,378 - - - - - - 3,378 Deferred tax liabilities - 541 - - 321 - 393 1,255 Provisions 1,589 (1,298) - - - - - 291 --------------------------------------------------------------------------------------------- 4,967 (757) - - 321 - 393 4,924 --------------------------------------------------------------------------------------------- 24,136 - 300 246 (321) - 640 25,001 --------------------------------------------------------------------------------------------------------------------- Capital and reserves Called up share capital 2,552 - - - - - - 2,552 Share premium account 205 - - - - - - 205 Investment in own shares (160) - - - - - - (160) Merger reserve 27,895 - - - - - - 27,895 Translation reserve - - (15) - - (2,997) (41) (3,053) Profit and loss account (6,356) - 315 246 (321) 2,997 681 (2,438) --------------------------------------------------------------------------------------------- Total shareholders' equity 24,136 - 300 246 (321) - 640 25,001 --------------------------------------------------------------------------------------------------------------------- Appendix 5 Restatement of cashflow statement for the year ended 31 December 2004 from UK GAAP to IFRS Reformatted Reclassi- Share-based Business Taxation Development Restated in UK GAAP as fications payments combinations IAS12 costs accordance previously to IFRS2 IFRS3 IAS38 with IFRS reported IFRS format £'000 £'000 £'000 £'000 £'000 £'000 £'000 --------------------------------------------------------------------------------------------------------------------- Continuing operations Operating profit (311) 311 Net profit/(loss) (1,574) (47) 315 7 167 (1,132) Adjustments for: Taxation 765 - - (7) 69 827 Depreciation 849 - - - - - 849 (Profit) on disposal of property, plant and equipment (2) - - - - - (2) Amortisation of goodwill 1,132 (1,132) - - - - - Impairment of goodwill - - 817 - - 817 Amortisation of intangibles 1,132 - (1,132) - 756 756 Share options - value of employee services - 47 - - - 47 Interest income (93) - - - - (93) Interest expense 591 - - - - 591 Changes in working capital (Increase) in inventories (68) - - - - - (68) (Increase) in trade and other receivables (3,999) - - - - - (3,999) Increase in payables 33 - - - - - 33 (Decrease) in provisions (1,239) - - - - - (1,239) ------------------------------------------------------------------------------------------ Cash generated from operations (3,605) - - - - 992 (2,613) ------------------------------------------------------------------------------------------ Cash generated from/ (absorbed by) operating activities Interest received 93 - - - - - 93 Interest paid (590) - - - - - (590) Taxation paid (737) - - - - - (737) ------------------------------------------------------------------------------------------ Net cash (absorbed by) operating activities (4,839) - - - - 992 (3,847) ------------------------------------------------------------------------------------------ Cash flows from investing activities Proceeds from sale of property, plant and equipment 2 - - - - - 2 Purchase of property, plant and equipment (769) 40 - - - - (729) Expenditure on development costs (40) - - - (992) (1,032) ------------------------------------------------------------------------------------------ Net cash used in investing activities (767) - - - - (992) (1,759) ------------------------------------------------------------------------------------------ Cash flows from financing activities Repayment of borrowings (275) - - - - - (275) Dividend paid to shareholders (202) - - - - - (202) ------------------------------------------------------------------------------------------ Net cash used in financing activities (477) - - - - - (477) ------------------------------------------------------------------------------------------ Effect of foreign exchange rate changes (238) - - - - - (238) ------------------------------------------------------------------------------------------ Net (decrease) in cash and cash equivalents (6,321) - - - - - (6,321) Cash and cash equivalents at beginning of period 9,540 - - - - - 9,540 ------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period 3,219 - - - - - 3,219 --------------------------------------------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange

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