Interim Results

Netcentric Systems PLC 28 June 2002 NETCENTRIC SYSTEMS PLC 28 JUNE 2002 NETCENTRIC SYSTEMS PLC ('Netcentric' or the 'Company') INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2002 CHAIRMAN'S STATEMENT Dear Shareholder You will be aware that, in October of last year, all the members of the previous board of directors, with the exception of Gerard Thompson, resigned and that, on 22 October 2001, John May and I were appointed as directors. The previous board had considered a solvent liquidation of the Company, but abandoned this plan, at our behest, as it would have produced no return to Shareholders. As the new Board, we proposed a rescue package, which has been implemented and involved three measures and I am pleased to say that a great deal of progress has been made in respect to these plans since our appointment. Firstly a European development and sales licence was granted to a third party, Netcentric Europe Limited ('NEL'), in relation to its Lychee(R) software product which was also granted the use of the name 'Netcentric' for promotion and sales purposes. Second, steps were taken to conserve the Company's remaining cash resources and to initiate a company voluntary arrangement ('CVA') for the Company's principal operating subsidiary, Netcentric Systems (Europe) Limited (' NSL'), which had accrued debts of £5,623,874 as at 30 September 2001, of which £5,090,091 was owed to the Company. Under the CVA, non-preferred creditors of NSL were offered 10p in the pound in cash and 90p in the pound in shares of London & Boston Investments Plc ('L&Bi'). The Company was unable to offer creditors its own Ordinary Shares, because the market price of the Company's shares was below their nominal value which meant that, under Isle of Man company law, Ordinary Shares could not be issued on an appropriate basis. Instead, the Company came to an arrangement with L&Bi (of which John May and I are both directors and which holds 9.03 per cent. of the existing Ordinary Capital of the Company) whereby L&Bi would issue its shares to NSL's creditors as part of the CVA. In return for the issue of its shares, L&Bi agreed to take an assignment from the creditors of NSL amounts due to them by NSL. The Company agreed to guarantee these debts. Accordingly, following the implementation of the CVA, L&Bi has become a creditor of The Group in the sum of £318,930, but has agreed, subject to shareholders' approval, to exchange this debt for new Ordinary shares in the Company as part of the planned capital re-organisation. Thirdly, the Board has recently announced the next stage of its rescue plan for the Company: a Capital Reorganisation and Capital Reduction, Allotment of 63,786,092 New Ordinary Shares to L&Bi in respect of the debt mentioned above, the Grant of New Warrants and a Rule 9 Waiver all of which shareholders are asked to vote on at an EGM called for 22 July 2002. Full details of these proposals have been sent to shareholders with a notice convening an EGM. Capital Reorganisation and Capital Reduction As at 30 September 2001, the deficit on the Company's profit and loss account stood at £13,023,000. Isle of Man company law prohibits the payment of a dividend while there is a deficit on a company's profit and loss account. In order to solve this problem, under the Capital Reorganisation and subject to Shareholders' approval, each Existing Ordinary Share of 5p will be divided into one new ordinary share of 0.1p and one Deferred Share of 4.9p. The new ordinary shares will then be consolidated on a 1 for 5 basis to create New Ordinary Shares of 0.5p each. Each of the resulting New Ordinary Shares will have the same rights as each Existing Ordinary Share. Under the Capital Reduction, it is proposed, subject to Shareholders' approval, to apply to the court in the Isle of Man to write off the Deferred Shares and thereby eliminate the bulk of the deficit on the Company's profit and loss account. It is also proposed, subject to Shareholders' approval, to write off the share premium account and the capital redemption reserve. Grant of New Warrants As part of the arrangements for L&Bi to issue its shares in the CVA of NSL, it was agreed that, subject to Shareholders' approval, 11,473,488 New Warrants representing 10 per cent. of the Enlarged Issued Ordinary Share Capital would be granted to L&Bi. In addition, it is proposed to issue 11,473,488 New Warrants to Gerard Thompson, Teather & Greenwood and employees of the Company representing in aggregate a further 10 per cent. of the Enlarged Issued Ordinary Share Capital. The Company has Existing Warrants, but these entitle the holder to subscribe for Existing Ordinary Shares at 5p or more per share and so are currently valueless. Rule 9 Waiver Under Rule 9 of the City Code on Takovers and Mergers, a body who, together with persons acting in concert with it, acquires 30 per cent. or more of the rights to vote at general meetings of a company, is required to make a general offer to all Shareholders for the acquisition of their shares. The effect of the Conversion of Debt and the exercise of the New Warrants would be to give L&Bi 60.53 per cent. of the enlarged issued ordinary share capital and including others acting in concert with L&Bi, 65.32 per cent. Accordingly, with the consent of the Panel on Takovers and Mergers, it is proposed to seek the approval of Shareholders at the EGM to the waiver of the Rule 9 requirement. Since L&Bi and those acting in concert with them (including Gerard Thompson) will hold more than 50 per cent. of the Enlarged Issued Ordinary Share Capital, they will be free to acquire any number of Ordinary Shares so as to increase their percentage of voting rights without incurring any obligation under Rule 9 to make a general offer for the Company. Independent Directors We have appointed two independent directors, Paul Hughes and Emanuel Mond, as part or our programme to prepare the Company for its future and I am very pleased to welcome them to the Board. Their details are included in this statement. Financial Matters During the period under review we have rationalised the affairs of the Company. The property disclosed in the balance sheet as at 30 September 2001 at a value of £1.76 million was sold at this revalued holding price (net of sales expenses). This was a profit of £75,000 on historic cost as disclosed in the notes to the accounts. The reported loss in the period emanates significantly from the legal and accountancy costs in rationalising the affairs of the Company, together with ongoing running costs. The release of the provision for future losses of £341,000 relates to the expenditure incurred in the development activities of the group company, Netcentric Systems (Europe) Limited, prior to the cessation of its development activities and therefore this amount has been written back. Included in creditors in the Balance Sheet is an amount of £299,000 in relation to amounts due to L&Bi at 31 March 2002, subsequently increased to £318,930 at today's date. If this debt is converted the net assets of the Company would increase to £445,000 as at the balance sheet date of 31 March 2002. Current Trading and Prospects for the Company As mentioned above, a licence has been granted in the Lychee product to NEL. NEL has taken the base on which the product was created and added the necessary 'fixes' and enhancements. It is platform independent and therefore works smoothly on virtually any operating system including Microsoft, Unix and Linux. Lychee operates with industry standard databases including Oracle 8 and Oracle 9i, IBM DB2 and Microsoft SQL Server. Lychee is in the process of being accepted by content management users in the United Kingdom and plans to approach users on the Continent will fall into place if Lychee becomes the content management system of choice. The Company is considering other markets, particularly the USA, and intends to arrange exploitation of them shortly. The Company currently has a distribution and reseller agreement with Avatar Systems Inc, a Dallas, Texas based Petro-software and internet application solutions provider, quoted on the NASDAQ Bulletin Board. Under this agreement, Avatar Systems Inc agreed to distribute the Lychee software in the United States. In regard to Lychee, the Company is dependent on the sales and marketing expertise of NEL. Turnover by way of commissions earned from sales is not expected to be substantial during calendar year 2002 in the UK and Europe. Whilst the Directors estimate that the USA market represents a greater opportunity for the Lychee product, it will also require additional resources and time to develop properly. The Directors would expect that USA commission contributions would not be significant until calendar year 2003 and beyond. The Directors are therefore currently considering ways to promote a closer relationship with Avatar Systems Inc (of which I am a director) to help develop sales of Lychee in the United States. For the remainder of calendar year 2002 into the first quarter of 2003, the Directors expect that commissions earned will not sustain the standing overheads. The Company therefore has announced that to generate additional income, a reverse merger of another business into the Group will be sought. The Company will continue to collect in cash and liquid assets in preparation for such a reverse takeover of a suitable business. Independent Directors Paul Martyn Hughes, Non Executive Director (aged 44) Paul Hughes spent the first seventeen years of his career working for Lloyds Bank plc in a management capacity dealing with graduate recruitment, training management and providing management consultancy to major clients of the bank including risk management. Since 1996 he has been the group managing director of the Gadd Group (Development and Contracting Group) and is the non-executive director of several companies including Peropa Limited, IR Flint Underwriting Agencies Limited, David Yeomans Fabrics Limited, Metrodiner Limited and Minsterstone Limited. Emanuel Mond, Non Executive Director (aged 45) Emanuel Mond qualified in 1981 as a solicitor. He initially pursued a legal career, but latterly he has predominantly devoted his time to The Monis Group, a leading supplier of asset finance and equity derivative libraries and spreadsheet systems based in London and New York. The Monis Group has now become one of the world's largest independent supplier of derivatives analytics, supplying libraries, applications, data and services for analysing and managing most derivatives. He has also invested at an early stage in a number of technology, biotech and media related ventures. Stephen A Komlosy Chairman. GROUP PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 31 MARCH 2002 6 months ended 31 6 months ended 31 Year ended March 2002 March 2001 30 September 2001 Unaudited Unaudited Audited As restated £'000 £'000 £'000 TURNOVER Continuing operations 15 466 435 Discontinued operations 17 - 557 ------------ ------------ ------------ TOTAL TURNOVER 32 466 992 ------------ ------------ ------------ OPERATING (LOSS)/PROFIT Continuing operations (578) (2,458) (4,889) ------------ ------------ ------------ (2,458) (4,889) Discontinued operations 11 - 191 ------------ ------------ ------------ (567) (2,458) (4,698) Exceptional operating costs - (249) (238) ------------ ------------ ------------ TOTAL OPERATING LOSS (567) (2,707) (4,936) Loss on disposal of subsidiary - (109) (109) Release of provision for future losses and fixed asset write downs 341 2,215 4,587 ------------ ------------ ------------ LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST (226) (601) (458) Interest income 1 66 76 Interest payable and similar charges (41) (205) (272) ------------ ------------ ------------ LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (266) (740) (654) Taxation - - 6 ------------ ------------ ------------ LOSS FOR THE YEAR (266) (740) (648) ------------ ------------ ------------ LOSS PER SHARE - BASIC (.10)p (0.29)p (0.25)p ------------ ------------ ------------ STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES FOR THE PERIOD ENDED 31 MARCH 2002 6 months ended 6 months ended Year ended 31 March 2002 31 March 2001 30 September Unaudited Unaudited 2001 As restated Audited £'000 £'000 £'000 Loss for the financial period (266) (740) (648) Prior year adjustments - - (8,190) --------- --------- --------- Total gains and losses recognised in the accounts since the last annual report (266) (740) (8,838) --------- --------- --------- NOTE OF GROUP HISTORICAL COST PROFIT AND LOSSES FOR THE PERIOD ENDED 31 MARCH 2002 6 months ended 6 months ended Year ended 31 March 2002 31 March 2001 30 September Unaudited Unaudited 2001 As restated Audited £'000 £'000 £'000 Loss on ordinary activities before taxation (266) (740) (654) Realisation of property revaluation gains of previous years 75 - 14 --------- --------- --------- Historical cost loss on ordinary activities before taxation (191) (740) (640) --------- --------- --------- Historical cost loss on ordinary activities after taxation (191) (740) (634) --------- --------- --------- GROUP BALANCE SHEET AS AT 31 MARCH 2002 6 months ended 31 6 months ended 31 Year ended March 2002 March 2001 30 September 2001 Unaudited Unaudited Audited As restated £'000 £'000 £'000 FIXED ASSETS Intangible assets - - - Tangible assets - 4,092 1,760 Investments 103 150 - --------- --------- --------- 4,242 1,760 CURRENT ASSETS Debtors 431 668 494 Cash at bank 158 1,029 747 --------- --------- --------- 589 1,697 1,241 CREDITORS: amounts falling due within one year (546) (1,520) (2,248) --------- --------- --------- NET CURRENT ASSETS/(LIABILITIES) 43 177 (1,007) --------- --------- --------- TOTAL ASSETS LESS CURRENT LIABILITIES 146 4,419 753 CREDITORS: amounts falling due after more than one year - (1,312) - PROVISIONS - (2,713) (341) --------- --------- --------- NET ASSETS 146 394 412 --------- --------- --------- Represented by: CAPITAL AND RESERVES Called up share capital 12,737 12,737 12,737 Reserves (12,591) (12,343) (12,325) --------- --------- --------- SHAREHOLDERS' FUNDS 146 394 412 --------- --------- --------- NOTES TO THE INTERIM ACCOUNTS RESERVES Capital redemption Revaluation Profit Share reserve reserve and loss Year ended 30 September 2001 premium £'000 £'000 account Total £'000 £'000 £'000 At 1 October 2000 as restated 283 279 514 (12,314) (11,238) Loss for the period - - - (648) (648) Revaluation during the period - - (439) - (439) -------- -------- -------- ------- -------- At 30 September 2001 283 279 75 (12,962) (12,325) -------- -------- -------- ------- -------- Capital redemption Revaluation Profit Share reserve reserve and loss Period ended 31 March 2001 premium £'000 £'000 account Total £'000 £'000 £'000 At 1 October 2000 as restated 283 279 514 (12,314) (11,238) Loss for the period - - - (740) (740) Revaluation during the period - - (365) - (365) -------- -------- -------- ------- -------- At 31 March 2001 283 279 149 (13,054) (12,343) -------- -------- -------- ------- -------- Capital redemption Revaluation Profit Share reserve reserve and loss Period ended 31 March 2002 premium £'000 £'000 account Total £'000 £'000 £'000 At 1 October 2001 283 279 75 (12,962) (12,325) Loss for the period - - - (266) (266) Disposal in the period - - (75) 75 - -------- -------- -------- ------- -------- At 31 March 2002 283 279 - (13,153) (12,591) -------- -------- -------- ------- -------- LOSS PER SHARE 6 months ended 31 6 months ended 31 Year ended March 2002 March 2001 30 September 2001 Unaudited Unaudited Audited As restated £'000 £'000 £'000 Basic loss after taxation (266) (740) (648) ----------- ----------- ----------- No. No. No. Weighted number of shares in issue 254,743,956 254,743,956 254,743,956 ----------- ----------- ----------- 1. The interim financial statements have been prepared on the basis of the accounting policies as set out in the Statutory Financial Statement for the year ended 30 September 2001. 2. The comparative figures for the six months ended 31 March 2001 have been restated to reflect the prior year adjustment disclosed in the accounts for the year ended 30 September 2001. 3. The release of the provision for future losses of £341,000 relates to the expenditure incurred in the development activities of the group company, Netcentric Systems (Europe) Limited, prior to the cessation its development activities. END This information is provided by RNS The company news service from the London Stock Exchange

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