Final Results

Netcentric Systems PLC 27 March 2002 NETCENTRIC SYSTEMS PLC 27 MARCH 2002 NETCENTRIC SYSTEMS PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2001 CHAIRMAN'S STATEMENT The Company recorded a group loss after tax of £648,000 (vs. 2000 restated loss of £12,375,000) which is fully explained in the accompanying information. Review There has been a dramatic reduction in the value of your Company during the period under review. In October 2001, after the year-end, the whole of the Board of Directors resigned except for Gerard Thompson. John May, FCA, was appointed as Finance Director and I was appointed Chairman. We have introduced a 'rescue package' for the Company, which has involved a CVA (Company Voluntary Arrangement) for the operating subsidiary, and the re-negotiation and challenging of the Group's debts in order to create a company with sufficient cash to attract a new business for a 'reverse' takeover. With regard to the period under review, the development of the Lychee(R) product was not on the scale that the previous board of directors had hoped to achieve. After July 2000, the development was plagued by un-anticipated operating 'bugs' many of which were later attributed to computer operating systems rather than the Lychee(R) product itself. As a result, in January 2001, the Company hired external application developers to assist in developing the necessary architecture of the Lychee(R) product with the object of having a finished product ready for market by May 2001. Unfortunately, the May deadline was exceeded, and the Company sought advice from certain of its investors, its nominated adviser and broker in order to arrange new funding in the August to September period. As it happened, no new funding was possible at that time. As a consequence, the then Directors considered a solvent liquidation. Since it was estimated that this course would produce no value to Shareholders, this idea was abandoned in favour of a reconstruction plan proposed by the members of the present Board with a view to the preservation of the Company. John May and I were appointed to effect this policy. Prior to those Board appointments, the Company had licensed for three years the continued development and sale in Europe of the Lychee(R) product to a company managed by Netcentric's former sales manager in return for a commission payment on all sales within the European Union. Post Current Year Events As mentioned above, during October, all but Gerard Thompson of the previous board resigned their positions and John May and I were appointed to the Board. The new Board immediately took steps to conserve the remaining cash in the Company which included negotiating reductions with creditors on their invoices, challenging and demanding proof of work done and instituting a CVA for the principal operating subsidiary, Netcentric Systems (Europe) Limited, which had accrued debts of £5,600,000 of which approximately £5,200,000 was owed to the parent company. Since the Company was unable to issue its own shares at below par value, the creditors of Netcentric Systems (Europe) Limited were offered 10 pence in the pound in cash and 90 pence in the pound in London & Boston Investments plc shares. The CVA was approved by creditors on 26 November 2001 and became effective as of that date. In November 2001, at the Company's request, PricewaterhouseCoopers resigned their position as the Company's auditors and new auditors, Milsted Langdon, were invited and accepted the position. We have announced that, subject to shareholders' approval, we propose to reconstruct the Company's share capital and to find a suitable business to reverse into the Company so that new value may be created for our long suffering shareholders and so that the full value of the Company's AIM listing can be utilised. We may need to have a number of shareholders' meetings to achieve all we need to do in the coming months. The Company remains liquid and in addition now anticipates the start of some commission payments from the Lychee(R) licencing agreement during the course of the current year. We will also seek to further licence or partner the Lychee(R) product in other markets, particularly the United States, and discussions are in progress with Avatar Systems Inc. who have an existing distribution agreement for Lychee(R). Details of the new proposals and notices of the EGMs will be posted to shareholders shortly. In the meantime we appreciate your continued support. S. A. Komlosy Chairman 27 March 2002 GROUP PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 SEPTEMBER 2001 As restated 2001 2000 £'000 £'000 TURNOVER Continuing operations 435 824 Acquisitions - 41 -------- -------- 435 865 Discontinued operations 557 1,840 -------- -------- TOTAL TURNOVER 992 2,705 Cost of sales (411) (413) -------- -------- GROSS PROFIT 581 2,292 Net operating expenses (5,279) (3,539) OPERATING LOSS Continuing operations (4,889) (823) Acquisitions - (466) -------- -------- (4,889) (1,289) Discontinued operations 191 42 -------- -------- (4,698) (1,247) Exceptional operating costs (238) (1,657) -------- -------- TOTAL OPERATING LOSS (4,936) (2,904) Loss on disposal of subsidiary (109) (661) Profit on disposal of businesses - (35) Amortisation of goodwill - (3,310) Recognition of future losses and fixed asset writedowns - (4,928) Release of provision for future losses and fixed asset writedowns 4,587 - -------- -------- LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST (458) (11,768) Interest income 76 35 Interest payable and similar charges (272) (617) -------- -------- LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (654) (12,350) Taxation 6 (25) -------- -------- LOSS FOR THE YEAR (648) (12,375) -------- -------- LOSS PER SHARE - BASIC 0.25p 9.46p -------- -------- - DILUTED 0.26p 9.46p -------- -------- STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 30 SEPTEMBER 2001 As restated 2000 2001 £'000 £'000 Loss for the financial year (648) (12,375) Prior year adjustments (8,190) - -------- -------- Total gains and losses recognised in the accounts since the last annual report (8,838) (12,375) -------- -------- NOTE OF GROUP HISTORICAL COST PROFIT AND LOSSES FOR THE YEAR ENDED 30 SEPTEMBER 2001 As restated 2000 2001 £'000 £'000 Loss on ordinary activities before taxation (654) (12,350) Realisation of property revaluation gains of previous years 14 - -------- -------- Historical cost loss on ordinary activities before taxation (640) (12,350) -------- -------- Historical cost loss on ordinary activities after taxation (634) (12,375) -------- -------- BALANCE SHEETS - AT 30 SEPTEMBER 2001 Group As restated 2001 2000 £'000 £'000 FIXED ASSETS Tangible assets 1,760 7,871 -------- -------- 1,760 7,871 CURRENT ASSETS Debtors 494 483 Cash at bank 747 3,662 -------- -------- 1,241 4,145 CREDITORS: amounts falling due within one year (2,248) (1,642) -------- -------- NET CURRENT (LIABILITIES)/ASSETS (1,007) 2,503 -------- -------- TOTAL ASSETS LESS CURRENT LIABILITIES 753 10,374 CREDITORS: amounts falling due after more than one year - (3,947) PROVISIONS (341) (4,928) -------- -------- NET ASSETS 412 1,499 -------- -------- Represented by: CAPITAL AND RESERVES Called up share capital 12,737 12,737 Reserves (12,325) (11,238) -------- -------- SHAREHOLDERS' FUNDS 412 1,499 -------- -------- The financial statements were approved by the board of directors on 27 March 2002. NOTES TO THE FINANCIAL STATEMENTS 1. SEGMENTAL ANALYSIS BY CLASS OF BUSINESS Profit/ Profit/ 2001 (loss) (loss) As restated Net assets 2000 before before £'000 £'000 Turnover taxation Turnover taxation £'000 £'000 £'000 £'000 Distribution - - - 1,840 42 - Investment properties 802 (431) 54 824 (1,415) 3,218 IT solutions 190 - (466) 41 (8,554) (1,719) Common costs - (223) - - (2,423) - ------- ------- ------- ------- ------- ------- 992 (654) 412 2,705 (12,350) 1,499 ------- ------- ------- ------- ------- ------- 2. EXCEPTIONAL ITEMS As restated 2001 2000 £'000 £'000 Loss on sale of Waltons Television (Manx) Limited and Pascoes Limited - (661) Profit on sale of business of Tods Limited and John North Limited - 35 Loss on sale of Manx Crawley Limited (109) - Amortisation of goodwill - (3,310) Recognition of future losses and fixed asset writedowns - (4,928) Release of provision for future losses and fixed asset writedowns 4,587 - -------- -------- Netcentric Systems (Europe) Limited has significantly curtailed the scale of its operations and accordingly a provision for future losses was provided in that company's financial statements for the period ended 30 September 2000 representing future costs incurred by that company up until January 2002 totalling £4,928,240. The above provision included costs incurred in the year ended 30 September 2001 amounting to £4,586,874 which has been credited to the profit and loss account in that year reversing the above provision. On the acquisition of Netcentric Systems (Europe) Limited, goodwill representing the excess of the consideration over the fair value of the assets acquired amounting to £3,310,000 (net of a prior year adjustment of £2,000,000), was acquired. As a result of the financial statements of Netcentric Systems (Europe) Limited having been prepared on a break-up basis, and the value to the group of that subsidiary considered to be negligible, the directors have reconsidered the treatment of goodwill and accordingly a full provision of £3,310,000 has been made in the accounts for the year ended 30 September 2000 as a prior year adjustment. 3. RESERVES Capital redemption Revaluation Profit Share reserve reserve and loss Group premium £'000 £'000 account Total £'000 £'000 £'000 At 1 October 2000 as restated 283 279 514 (12,314) (11,238) Loss for the year - - - (648) (648) Revaluation during the year - - (439) - (439) At 30 September 2001 283 279 75 (12,962) (12,325) 4. The financial information set out above does not constitute statutory accounts within the meaning of Section 6 and Schedule 1 of the Isle of Man Companies Act 1982. Statutory financial statements for the financial year ended 30 September 2001 will be delivered to the Registrar of Companies and sent to the shareholders shortly. 5. Loss Per Ordinary Share The calculation of loss per ordinary share is based upon a loss after taxation of £648,000 (2000: Restated loss £12,375,000) and on 254,743,956 being the weighted number of ordinary shares in issue during the year (2000: 130,865,008). Fully diluted loss per ordinary share is based upon a loss after taxation of £648,000 (2000:Restated loss £12,375,000) and on a weighted average of 253,258,473 (2000: 130,865,008) shares in issue. 6. Prior Year Adjustment Shares to be issued Profit and loss account £'000 £'000 As previously reported 2,000 (4,124) Prior year adjustments (see below) (2,000) (8,190) -------- -------- As restated - (12,314) -------- -------- The group acquired the entire issued share capital of Netcentric Systems (Europe) Limited on 11 July 2000. The acquisition price was agreed as follows: £'000 Tangible fixed assets 44 Debtors 118 Cash at bank and in hand 153 Creditors (383) -------- (68) Goodwill 5,310 -------- Cost 5,242 -------- Satisfied by: Shares issued 3,000 Deferred shares to be issued (see below) 2,000 Cash 242 -------- 5,242 -------- The deferred shares were to be issued based on achieving sales of up to £1,000,000 in the year to 30 June 2001, subject to minimum sales of £500,000 during the period, and sales of up to £5,000,000 in the year to 30 June 2002, subject to minimum sales of £2,500,000 during the period. In the financial statements for the group for the year ended 30 September 2000, the full deferred consideration was considered to be payable. The financial statements for Netcentric Systems (Europe) Limited for the period ended 30 September 2000 incorporated in the group accounts, were draft and not audited by the subsidiary auditors. The subsequent audit, which was completed on 13 February 2002, identified that Netcentric Systems (Europe) Limited had significantly curtailed its operations and accordingly the directors prepared the accounts for the period on a break-up basis. The above change in basis of preparing the financial statements for Netcentric Systems (Europe) Limited from the basis used in preparing the group accounts has been dealt with as a prior period adjustment, as the directors consider that the error is fundamental to the understanding of the accounts. Accordingly, the comparatives to the financial statements have been prepared to reflect the inclusion of the accounts for Netcentric Systems (Europe) Limited on a break-up basis. The following prior period adjustment has been made to the group accounts and reflected in the opening position of the group for the year ended 30 September 2001. As a result of the significant curtailment of activities, it would be unreasonable to assume that the criteria to allow the deferred consideration to be paid on the acquisition of Netcentric Systems (Europe) Limited would be achieved. Accordingly, a reduction to the acquisition price of £2,000,000 has been made reflecting a reduction in acquired goodwill and the removal of the deferred shares. As the financial statements have been prepared on a break-up basis, a provision for the goodwill in full should have been made in the financial statements of the year ended 30 September 2000. Accordingly, a prior period adjustment has been made to reflect the additional writedown of £3,133,000 being the original carrying value of goodwill in the group accounts at 30 September 2000 to reflect the review of the economic life of goodwill. The £3,133,000 has been charged to the profit and loss account in the year ended 30 September 2000 as an exceptional item. The original charge to the profit and loss account for amortisation of goodwill of £177,000 has also been transferred to exceptional items. As a result of the preparation of the financial statements of Netcentric Systems (Europe) Limited on a break-up basis, a provision was made in that subsidiary's accounts for the period ended 30 September 2000 to reflect future losses. A provision for £4,928,000 has accordingly been provided in the financial statements of the group as a prior period adjustment disclosed as an exceptional item. Other adjustments to the opening position, including additional write offs on the fixed assets of its subsidiary Netcentric Systems (Europe) Limited totalling £104,000 and other adjustments totalling £25,000, have been made as a prior period adjustment. Summary of prior period adjustment Profit and loss account Shares to be issued £'000 £'000 Deferred shares not to be issued (2,000) - Goodwill written back - (3,133) Recognition of future losses - (4,928) Fixed assets depreciation and write backs - (104) Other adjustments - (25) --------- --------- (2,000) (8,190) --------- --------- END This information is provided by RNS The company news service from the London Stock Exchange

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