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QUESTER VCT 5 (SVC3)

  Print      Mail a friend       Annual reports

Wednesday 30 April, 2008

QUESTER VCT 5

Preliminary Announcement


                               QUESTER VCT 5 PLC                               

 PRELIMINARY ANNOUNCEMENT OF UNAUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER  
                                     2007                                      

Summary of results for the year ended 31 December 2007

Per ordinary share (pence)                 2007       2006        2005
                                                                      
Net asset value                            67.4       84.9        88.6
                                                                      
Dividends                                                             
                                                                      
Dividend paid                               1.0        1.0           -
                                                                      
Cumulative dividend                         3.5        2.5         1.5
                                                                      
Total return*                              70.9       87.4        90.1

*Net asset value plus cumulative dividend per share to ordinary shareholders
since the launch of the Company

The Directors do not recommend a dividend for the year ended 31 December 2007.

CHAIRMAN'S STATEMENT

Overview

In May 2007 we announced that the Quester management company had been acquired
by NewMedia SPARK plc (since renamed SPARK Ventures plc). SPARK Ventures plc is
a venture capital investment company traded on the Alternative Investment
Market (AIM) of the London Stock Exchange. It specialises in digital media,
software applications, technology and communications, complementing the
established activities of the former Quester group in these areas and its
strong healthcare business.

The Board believes that the acquisition by SPARK Ventures plc will provide
greater access to some of the UK's best early stage entrepreneurs as well as
broadening the range of investment opportunities available to the Company. It
believes that the newly combined management group has the potential to deliver
enhanced long-term returns to investors in Quester VCT 5 plc.

The Board was involved in meetings with a number of possible acquirers of the
Quester management company and held further meetings with SPARK to discuss its
plans for the future management of Quester VCT 5. The Board sees the
acquisition by SPARK as a very positive development, and one that was much
needed, particularly in view of the negative performance of the fund to date (a
net asset value of 67.4p per share at 31 December 2007, cumulative dividends of
no more than 3.5p per share having been paid since launch, and an IRR for
investors of -5.6% per annum).

The two management teams have now been successfully integrated. Several
investments have seen a transition to new managers within SPARK, while
longstanding and valuable relationships with former Quester managers have been
retained, particularly where they have been able to contribute to an exit
process. The name of the Manager of Quester VCT 5 plc has been changed to SPARK
Venture Management Limited ("SPARK").

Shareholders' approval is being sought at the Annual General Meeting to a
change in the name of your Company to SPARK VCT 3 plc.

Since taking over management responsibility, the combined team has been very
active in reviewing both the portfolio and the investment strategy. In
particular, I would like to highlight the following actions taken by SPARK
which have had the full support of the Board. The combined team has conducted a
detailed review of the portfolio, including reassessment of the business
strategy, progress to date, opportunities and potential for value of each of
the investee companies. The companies have been classified into those that are
key to producing a good return for the whole portfolio; companies with
potential for growth; and companies where the plan is simply for cash recovery
of the existing valuation. The review resulted in the write-off of a number of
investments and a net reduction in valuation of others, contributing to a
significant reduction in the net asset value per share at 31 December 2007.

The SPARK team's review of the existing portfolio has confirmed encouraging
prospects for a number of the most significant venture capital investments.
While the majority of these companies are still at early stage and subject to
all the associated risks, a number of them are considered to offer the
potential for significant capital growth.

Results for the year ended 31 December 2007

The movement in net assets and net assets per share is summarised in the table
below

                             Unquoted       Quoted    Bonds,   Total   Pence
                              venture      venture  equities             per
                              capital      capital   and net   £'000   share
                          investments  investments   current                
                                                      assets                
                                £'000        £'000                          
                                                       £'000                
                                                                            
Net asset value at 31           8,737        2,714     8,702  20,153    84.9
December 2006                                                               
                                                                            
Income and net gains on            66           68       363     497     2.1
disposal                                                                    
                                                                            
Operating expenses                  -            -     (608)   (608)   (2.6)
                                                                            
Write-off of                  (1,951)        (158)         - (2,109)   (9.0)
investments net of                                                          
recoveries                                                                  
                                                                            
Net (loss)/gain on            (1,458)        (911)       666 (1,703)   (7.3)
revaluation of                                                              
investments                                                                 
                                                                            
Net assets before               5,394        1,713     9,123  16,230    68.1
dividends and share                                                         
buy-backs                                                                   
                                                                            
Dividend paid, net of               -            -     (224)   (224)   (1.0)
amounts reinvested                                                          
                                                                            
Share buy-backs                     -            -     (610)   (610)     0.3
                                                                            
Net investment                  2,404          274   (2,678)       -       -
                                                                            
Net asset value at 31           7,798        1,987     5,611  15,396    67.4
December 2007                                                               

Net assets per share, before the payment of dividends and share buy-backs, fell
by 16.8p in the year to 31 December 2007. The dividend paid in the year was
1.0p per share.

The total return to shareholders from the launch of the Company in December
2001 to 31 December 2007 was 70.9p per share before taking account of tax
reliefs.

The valuation review by the SPARK team has resulted in an overall reduction in
valuation of the unquoted investments for the year to 31 December 2007 of £
3,409,000 (including £1,951,000 representing impairment in value of
investments).

The year has seen, as expected, substantial follow-on investment in a number of
key companies in the portfolio. A number of these companies have demonstrated
successful business progress by closing new financing rounds at an uplift on
the Company's original investment valuation. In other cases, the terms of new
financing rounds or other transactions positive for the future of the business
- such as a merger with a larger company - have been such as to necessitate a
downward valuation adjustment at 31 December 2007 even though the Manager
considers that there are prospects for the ultimate realisation of a
substantial capital gain.

Over the period the quoted venture capital portfolio lost £1,001,000, of which
£158,000 represents impairment in value of investments.

The portfolio of bonds and listed equity investments performed well, with an
overall appreciation in value of £762,000.

Review of investment strategy

Following the integration of the SPARK and Quester teams, and the review of the
portfolio discussed above, the Board reassessed the Company's investment
strategy.

The activities of Quester VCT 5 have been focused in the venture capital area.
Venture capital is a long-term investment which, in the first few years, may
often show a drop in net asset value before showing any significant uplift,
reflecting initial costs and management fees, and the writing down in value of
troubled or failed investments which may occur in the first few years, before
gains on the successful investments start to flow through.

The portfolio of Quester VCT 5 has been invested in early stage companies, with
a significant bias towards technology. The Board is satisfied that SPARK has
longstanding skills, and a better record over recent years than Quester, in
this area.

Towards the end of the year the process of investment in new opportunities
sourced from SPARK commenced with £300,000 being invested in Skinkers Limited,
a company involved in information broadcast technology, and has continued since
the year end with £300,000 invested in the early stage online travel website
company Isango! Limited. The Company retains substantial reserves for follow-on
investment but will not add further new investments to the portfolio for the
time being.

The Board decided that the broad objectives will remain as before, subject to
important changes in investment emphasis. Whilst at present there are not
sufficient funds for further new investment within the context of that policy,
the principal changes in SPARK's investment approach from that of Quester will
be as follows:

• A greater focus on revenue producing companies, which may also require less
capital

• A shorter target holding period than Quester (under 5 years)

• SPARK's traditional expertise in media technology

• In healthcare, a reduced emphasis on drug discovery opportunities and a
greater emphasis on areas such as medical devices and diagnostics

• SPARK's experience in achieving returns from struggling companies

• An overriding concentration on the market opportunities that are appropriate
for early stage companies, rather than backing novel technologies

• A reduced emphasis on investment in AIM companies, unless they match the core
risk/return and pricing criteria in SPARK's area of expertise.

Board

Andrew Holmes, formerly managing director and chairman of the Quester
management company, and John Spooner, also a director of the Quester management
company, retired from the Board on 10 March 2008. I would like to record the
Board's warmest appreciation of the contribution that Andrew and John have made
to the affairs of the Company since its establishment in 2001.

Andrew Carruthers, CEO of SPARK, was appointed to the Board on 10 March 2008.
In accordance with the Articles of Association, he will stand for election at
the AGM.

Jay Patel, executive director of SPARK, was also appointed to the Board on 10
March 2008 but will not stand for election.

Dividends

The Directors do not recommend a dividend in respect of the year ended 31
December 2007.

Outlook

The bulk of the value in the assets of the Company is now represented by a more
concentrated venture capital portfolio including around 20 significant
investments which have been assessed by the SPARK team as having positive
prospects. It is emphasised that many of these investments are still at early
stage and subject to all the associated risks.

In a number of cases it may be appropriate for strategic reasons to seek an
early realisation of the investment. More generally, however, on the assumption
of successful progress of the key companies, and subject to favourable business
and market conditions, it should be expected that the bulk of the profitable
realisations of investments from within the existing portfolio will be
concentrated in the period 2010 to 2011.

Looking ahead, the Board recognises the potential volatility in returns from an
early stage technology portfolio. It believes that the modified approach
adopted by SPARK to the implementation of investment policy will, in the longer
term, provide better prospects for sustainable growth in net asset values and
total returns.

Michael Inwards

Chairman

30 April 2008

FUND SUMMARY AS AT 31 DECEMBER 2007

                         Industry sector   Cost (1) Valuation Equity   % of    
                                                                               
                                           £'000    £'000     % held   fund by 
                                                                       value   
                                                                               
Fifteen largest venture capital                                                
investments                                                                    
                                                                               
Workshare Limited      TMT                 764      1,037     2.9%     6.7%    
                                                                               
Xention Limited        Healthcare          700      738       3.4%     4.8%    
                                                                               
Uniservity Limited     TMT                 700      700       11.6%    4.5%    
                                                                               
Level Four Software    TMT                 580      580       4.1%     3.8%    
Limited                                                                        
                                                                               
Vivacta Limited        Healthcare          455      570       3.9%     3.7%    
                                                                               
Celona Technologies    TMT                 824      523       3.5%     3.4%    
Limited                                                                        
                                                                               
Cluster Seven Limited  TMT                 510      510       4.8%     3.3%    
                                                                               
Imagesound plc AIM     TMT                 500      486       0.5%     3.2%    
                                                                               
Oxford Immunotec       Healthcare          711      476       3.7%     3.1%    
Limited                                                                        
                                                                               
MediGene AG FRANKFURT  Healthcare          624      408       0.3%     2.7%    
                                                                               
Xtera Communications,  TMT                 802      381       2.5%     2.5%    
Inc.                                                                           
                                                                               
Perpetuum Limited      TMT                 292      332       3.0%     2.2%    
                                                                               
Allergy Therapeutics   Healthcare          700      327       1.1%     2.1%    
plc AIM                                                                        
                                                                               
Identum Limited (2)    TMT                 305      305       2.7%     2.0%    
                                                                               
Antenova Limited       TMT                 443      302       1.8%     2.0%    
                                                                               
                                              8,910     7,675          50.0%   
                                                                               
Other venture capital investments                                              
                                                                               
Skinkers Limited       TMT                 300      300       1.9%     1.9%    
                                                                               
We7 Limited            TMT                 276      276       4.1%     1.8%    
                                                                               
Secerno Limited        TMT                 182      182       1.7%     1.2%    
                                                                               
Portrait Software plc  TMT                 565      170       1.4%     1.1%    
AIM                                                                            
                                                                               
Oxford BioMedica plc   Healthcare          428      137       0.1%     0.9%    
AIM                                                                            
                                                                               
Haemostatix Limited    Healthcare          130      130       3.1%     0.8%    
                                                                               
Celldex Therapeutics,  Healthcare          400      112       1.0%     0.7%    
Inc.                                                                           
                                                                               
Oxonica plc AIM        Healthcare          90       103       0.9%     0.6%    
                                                                               
Other investments:                         1,821    700                4.5%    
valuations less than £                                                         
100,000 (2)                                                                    
                                                                               
                                           4,192    2,110              13.5%   
                                                                               
Total venture capital                      13,102   9,785              63.5%   
investments                                                                    
                                                                               
Total quoted venture                       3,872    1,987              12.9%   
capital investments                                                            
                                                                               
Total unquoted venture                     9,230    7,798              50.6%   
capital investments                                                            
                                                                               
                                           13,102   9,785              63.5%   
                                                                               
Listed equity                              2,505    3,989              25.9%   
investments and fixed                                                          
interest securities                                                            
                                                                               
Total investments                          15,607   13,774             89.4%   
                                                                               
Cash and other net                         1,622    1,622              10.6%   
assets                                                                         
                                                                               
Net assets                                 17,229   15,396             100.0%  

(1) Amounts shown as cost represent acquisition cost as reduced in certain
cases(2) by amounts written off as representing an impairment in value

(2) Cost reduced by amounts written off as representing an impairment in value

BUSINESS REVIEW

Management changes

Following the acquisition of Quester Capital Management Limited by NewMedia
SPARK plc (since renamed SPARK Ventures plc) on 11 May 2007, the investment
team now responsible for the management of Quester VCT 5 plc is led by Andrew
Carruthers, CEO of SPARK, along with Jay Patel, Executive Director, and Tom
Teichman, Chairman of SPARK, and ongoing members of the Quester team.

Portfolio update and overview

The combined SPARK team has conducted a detailed review of the portfolio,
including reassessment of the business strategy, progress to date,
opportunities and potential for value of each of the investee companies. The
companies have been classified into those that are key to producing a good
return for the whole portfolio; companies with potential for growth; and
companies where the plan is simply for cash recovery of the existing valuation.

In parallel with this review, the SPARK team has reviewed the fair values of
the investments. This review, coupled with events affecting the investee
companies and stock market and financing conditions generally, has resulted in
the write-off of a number of investments and a net reduction in valuation of
others. Further details are given under "Valuation changes" below.

The bulk of the value in the assets of the Company is now represented by a more
concentrated venture capital portfolio including around 20 significant
investments which have been assessed by the SPARK team as having positive
prospects. It is emphasised that many of these investments are still at early
stage and subject to all the associated risks.

The fund summary above lists the venture capital investments held by the
Company at 31 December 2007 with their cost and valuation at that date. The 15
largest venture capital investments (including Identum Limited which has since
been sold) collectively account for 50% of the net assets at the balance sheet
date

Portfolio developments

Realisations

Realisations during the year included the quoted healthcare companies, Polaron
plc (proceeds

£158,000) and Cyclacel Pharmaceuticals, Inc. (part realisation £53,000).

The trade sale of Identum Limited to Trend Micro, Inc., a global leader in
antivirus and content security, which closed in January 2008, has brought in
proceeds of a further £305,000.

M&A activity

In March 2007 Oxxon Therapeutics was acquired by the AIM-traded healthcare
company Oxford BioMedica plc in a share-for-share transaction, representing the
culmination of an exit strategy initiated in 2006. As a condition of the
transaction an additional £91,000 was invested in Oxxon Therapeutics: this
subsequently became represented by tradable shares in the acquirer, which were
immediately placed in the market. The balance of the resulting holding in
Oxford BioMedica plc is currently retained in the portfolio.

In relation to Azea Networks, and despite the company's success in March 2007
in securing a US$20 million Series D funding round led by TVM Capital, it was
decided that certain strategic business development issues would most
effectively be addressed through merger with a larger group. This was achieved
in November 2007 with the acquisition of Azea by the US venture- backed company
Xtera Communications, Inc. on a share-for-share basis, valuing Azea at US$34.6
million (a 14% discount on the post-money valuation at the venture capital
round led by TVM Capital). This transaction provides Quester VCT 5 with an
investment through which Azea's commercial opportunities are more likely to be
successfully realised, as well as offering growth opportunities from a more
diversified business base.

The merger of Celldex Therapeutics with the NASDAQ-listed AVANT
Immunotherapeutics, Inc. was announced in October 2007 and closed in March
2008. While the terms on which the merger has taken place represent a
significant reduction in valuation from that previously reported for the
holding in Celldex, the transaction leaves Quester VCT 5 with a holding in a
publicly-traded company with a substantial pipeline of product candidates and
technology platforms, on the basis of which the SPARK team is optimistic as to
the prospects for recovery of value.

Follow-on financings

The year to 31 December 2007 has seen, as expected, substantial follow-on
investment in a number of key companies in the portfolio. The following
highlights the most significant transactions:

• Celona Technologies Limited: Celona is a developer of data transformation
software for large enterprises, enabling them to migrate from the legacy
software platforms which manage their operations to modern systems without
affecting customer service. The company reached an important milestone in June
2007 with the closing of a £7.0 million Series B funding round with Caledonia
Investments plc, enabling it to build out its sales and support activities and
to fund further product development.

• Oxford Immunotec Limited: this Oxford University spinout company is
commercialising a new test for the diagnosis of tuberculosis. The closing of
its Series C funding round in October 2007 raised US$40 million (including the
conversion of bridge finance) and was one of the world's largest fund raisings
for a diagnostics company in 2007. The round was led by two new international
investors, Clarus Ventures in the US and German-based Wellington Partners. The
funding will be used to support the next stage of the company's development,
including building up its sales and marketing capabilities in the United
States, securing approval by the US Food and Drug Administration (FDA) and
launching of T-SPOT®.TB in the US market, and significantly enhances its
prospects.

• Cluster Seven Limited : Cluster Seven provides technology for managing,
analysing and auditing the activity and data generated by Microsoft Excel
spreadsheets, its product being used principally in the investment banking
industry. Following good progress achieved in 2006, during the year the company
raised £1.5 million in additional equity from Quester funds as the sole
institutional investor.

• Level Four Software Limited: Level Four supplies advanced software products
for the testing and development of ATM services to major banks and financial
institutions worldwide. The

company raised £800,000 in February 2007 from Quester funds as the sole
institutional investor.

The terms of the new financing rounds for Celona and Oxford Immunotec have been
such as to necessitate a downward valuation adjustment at this stage even
though the transactions were positive for the future of the business and the
Manager considers that there are prospects for the ultimate realisation of a
substantial gain.

Investment activity

New investments

The table below sets out the new investments completed during the year to 31
December 2007:

Company                  Sector                       £'000
                                                           
Academia Networks        TMT                             22
Limited                                                    
                                                           
Oxonica plc              Healthcare                      90
                                                           
Skinkers Limited         TMT                            300
                                                           
Symetrica Limited        TMT                             44
                                                           
Uniservity Limited       TMT                            700
                                                           
We7 Limited              TMT                            276
                                                           
                                                      1,432

Oxonica Limited is an AIM-traded company focused on developing commercial
solutions for international markets in the design of nanomaterials. Symetrica
Limited is an early stage company set to commercialise proprietary, high
performance gamma ray spectroscopy, imaging hardware and software for use in
the nuclear, medical and process control industries.

Uniservity Limited is a development stage company which is a leading provider
of web-based learning platforms to the educational sector, enhancing
communication and collaboration between schools, teachers, pupils and the
community. Uniservity's learning platforms provide schools with a customised
suite of tools to support innovative ways of teaching and learning, thereby
extending the classroom to the internet.

We7 Limited is an advertising funded music download service backed by a highly
experienced management team.

In the second half of the year, the Company closed two new investments sourced
from SPARK: Academia Networks Limited is an early stage social networking
website catering for the academic and scientific research community; Skinkers
Limited is involved in information broadcast technology. Its enterprise
software product enables organisations to deliver priority notifications and
distribute content through a controlled, highly versatile and secure universal
communication platform with such clients as BBC, Cisco, Bloomberg, FT and CNN.
In addition, its

`Livestation' product is a revolutionary live streaming internet broadcasting
solution built on technology co-developed with Microsoft research and designed
specifically to deliver uninterrupted live TV to large audiences at
dramatically reduced costs.

Another new investment has been closed since the year end, with £300,000 being
committed to Isango! Limited, an early stage online travel website company
offering users an authoritative source of travel experiences such as holiday
tours, sightseeing, attractions and activities in more than 50 countries across
the world.

Follow-on investments

The table below sets out the follow-on investments completed during the year to
31 December

2007:

Name                               Sector                        £'000      
                                                                            
Follow-on rounds in AIM traded                                              
companies:                                                                  
                                                                            
Genosis plc                        Healthcare                            113
                                                                            
Phoqus Pharmaceuticals plc         Healthcare                             58
                                                                            
                                                                         171
                                                                            
Follow-on rounds in unquoted                                                
companies:                                                                  
                                                                            
Antenova Limited                   TMT                                    41
                                                                            
Azea Networks, Inc. (since         TMT                                    71
acquired by Xtera Communications,                                           
Inc.)                                                                       
                                                                            
Celona Technologies Limited        TMT                                   164
                                                                            
Cluster Seven Limited              TMT                                   193
                                                                            
Haemostatix Limited                Healthcare                             69
                                                                            
Level Four Software Limited        TMT                                   166
                                                                            
Oxford Immunotec Limited           Healthcare                            155
                                                                            
Pelikon Limited                    TMT                                   115
                                                                            
Perpetuum Limited                  TMT                                   107
                                                                            
Secerno Limited                    TMT                                    74
                                                                            
Vivacta Limited                    Healthcare                             65
                                                                            
                                                                       1,220
                                                                            
Bridge finance ahead of planned                                             
realisation:                                                                
                                                                            
Arithmatica Limited                TMT                                    31
                                                                            
HTC Healthcare Group plc           Other                                  43
                                                                            
Identum Limited                    TMT                                    71
                                                                            
Oxxon Therapeutics Holdings, Inc.  Healthcare                             91
                                                                            
                                                                         236
                                                                            
                                                                       1,627

The most significant of the follow-on rounds, namely those relating to Celona
Technologies Limited, Cluster Seven Limited, Level Four Software Limited and
Oxford Immunotec Limited have been covered under "Portfolio developments"
above.

In the case of Pelikon Limited, the business plan objectives of the follow-on
round were not achieved and the terms of a further funding round eliminated any
value in the original holding.

Looking ahead - new investment opportunities

The investment policy of the Company is unchanged in substance from that set
out in the prospectus dated 23 December 2004.

Whilst at present there are not sufficient funds for further new investments,
when selecting new investments to add to the portfolio, within the context of
that policy, the SPARK investment team intends to give greater emphasis to:

• the identification of later-stage venture capital opportunities (i.e. in
companies that are revenue-generating at date of first investment), and

• investments for which the holding period (the period from date of first
investment to ultimate realisation for cash) may be expected to be less than
the 5+ years typically the case hitherto.

Having regard to the particular experience and reputation of the SPARK
investment team, the programme of new investment may be expected to include,
within the TMT (technology, media and telecoms) sector, a greater emphasis on
opportunities in the digital media and software applications sectors and a
reduced exposure to `hardware' investments which tend to involve longer holding
periods and are typically highly demanding in terms of capital requirements. In
healthcare, for similar reasons, a reduced exposure to drug discovery and a
greater emphasis on areas such as medical devices and diagnostics may be
expected.

In the selection of new venture capital investments, the emphasis is expected
to be on unquoted companies; where investment in an AIM-traded company is being
considered, the investment decision will be made by reference to the underlying
risk and return and pricing criteria in SPARK's area of expertise rather than
against a plan for the building of a quoted venture capital portfolio.

Valuation changes

Events during the year, and the results of the SPARK team's review, have
necessitated significant changes in the valuations of the venture capital
investments. In some cases the changes reflect the terms of recent
transactions, or market prices in respect of the quoted investments, while in
others the changes reflect the management team's own review of the companies'
current stage of development and their prospects.

Unquoted venture capital investments

During the year to 31 December 2007, in respect of unquoted investments, the
review has resulted in a net write-down of £3,409,000 (of which £1,951,000 has
been written off as representing an impairment in value).

The following valuation changes have been made in respect of investments
considered to have future potential:

• Vivacta Limited increased to reflect the terms of the most recent financing
round (increase of

£115,000) and Celona Technologies Limited and Oxford Immunotec Limited
similarly reduced

(reductions of £301,000 and £323,000 respectively).

• We are also pleased with our first investment in the `green tech' sector,
energy harvesting company Perpetuum Limited, which has achieved good early
progress and has successfully closed a new financing round during the period at
an uplift on the Company's original cost of investment (increase of £40,000).

• Following the merger of Azea Networks, Inc. with the US venture-backed
company Xtera Communications, Inc., the valuation has been reduced to reflect
the last round price of the shares received in exchange (reduction £193,000);
similarly the valuation of the holding in Celldex Therapeutics, Inc. has been
reduced to reflect the terms of the agreed merger with the NASDAQ-listed AVANT
Immunotherapeutics, Inc. (reduction £288,000).

• Antenova Limited, Arithmatica Limited and Lectus Therapeutics Limited reduced
to reflect the management team's assessment of the companies' value at this
stage in their development

(total reduction £508,000).

The write-offs are as follows:

• The valuation of the holding in Identum Limited has been reduced to reflect
the terms of the trade sale completed since 31 December 2007 (write-off £
304,000). Efforts to find a trade buyer for Advanced Valve Technologies Limited
within the timeframe dictated by the company's dwindling financial resources
proved unsuccessful and the company has been placed into administration
(write-off £402,000).

• In respect of HTC Healthcare Group plc and Mesophotonics Limited the
valuations have been reduced as an impairment in value to reflect the
management team's assessment of the companies' value at this stage in their
development or estimated to be recoverable in a trade sale (write-off in the
period £371,000).

• Keronite Limited and Pelikon Limited were unsuccessful in implementing the
business plans which formed the basis of the Company's investment and the terms
of further funding rounds in each case eliminated any value in the original
holdings (write-off £874,000).

Quoted venture capital investments

The year ended 31 December 2007 has seen poor performance of the companies in
Quester VCT 5's quoted venture capital portfolio. Market movements, and a
number of individual setbacks, have resulted in an overall reduction in
valuation of quoted venture capital investments of £1,001,000, of which £
158,000 has been written off as representing an impairment in value. The most
severe losses in value have been in the cases of healthcare companies Allergy
Therapeutics plc (£522,000), Genosis plc (£158,000), Phoqus Pharmaceuticals plc
(£115,000) and Oxford BioMedica plc (£105,000).

Listed equity and bond portfolio

Approximately £2.5 million was withdrawn from the equity and bond portfolio
during the year to fund new and follow-on investments and the operations of the
Company.

Outlook

The SPARK team's review of the portfolio has confirmed encouraging prospects
for a number of the most significant venture capital investments.

It is emphasised, however, that the majority of these companies are still at
early stage and remain vulnerable, in the case of certain of the healthcare
companies, to the risk of adverse results in scientific development or clinical
programmes and, in the case of the TMT companies, to the normal risks of early
stage commercial development when there may be a critical dependence on key
customer contracts, as well as ongoing funding risk.

On the assumption of successful progress of the key investments and subject to
favourable business and market conditions, it should be expected that the bulk
of the profitable realisations of investments from within the existing
portfolio will be concentrated in the period 2010 to 2011, although it is
always possible that earlier opportunities may arise for the crystallisation of
strategic value.

SPARK Venture Management Limited

Manager

30 April 2008

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31 DECEMBER 2007

                                               Note 2007          2006         
                                                                               
                                                    £'000         £'000        
                                                                               
Loss on investments at fair value             1     (3,624)       (206)        
through profit or loss                                                         
                                                                               
Income                                        2     309           292          
                                                                               
Investment management fee                     3     (356)         (617)        
                                                                               
Other expenses                                4     (250)         (218)        
                                                                               
Loss on operating activities                        (3,921)       (749)        
                                                                               
Interest payable on loan notes                      (2)           (2)          
                                                                               
Loss on ordinary activities before                  (3,923)       (751)        
taxation                                                                       
                                                                               
Tax on loss on ordinary activities            6     -             -            
                                                                               
Loss on ordinary activities after                   (3,923)       (751)        
taxation                                                                       
                                                                               
Basic and fully diluted earnings per          8     (16.8)p       (3.1)p       
share                                                                          

All items in the above statement derive from continuing operations.

The Company has only one class of business and derives its income from
investments made in shares and securities and from bank deposits.

There are no gains and losses for the year other than those passing through the
profit and loss account of the Company.

BALANCE SHEET

AS AT 31 DECEMBER 2007

                                                    2007                   2006
                                                                               
                                           Note     £'000                 £'000
                                                                               
Fixed assets                                                                   
                                                                               
Investments at fair value through                   13,774               17,212
profit or loss                                                                 
                                                                               
Current assets                                                                 
                                                                               
Debtors                                             199                     278
                                                                               
Cash at bank                                        1,698                 2,847
                                                                               
                                                    1,897                 3,125
                                                                               
Creditors: amounts falling due within               (229)                 (138)
one year                                                                       
                                                                               
Net current assets                                  1,668                 2,987
                                                                               
Creditors: amounts falling due after                (46)                   (46)
more than one year                                                             
                                                                               
Net assets                                          15,396               20,153
                                                                               
Capital and reserves                                                           
                                                                               
Called-up equity share capital                      229                     237
                                                                               
Capital redemption reserve                          24                       15
                                                                               
Share premium account                               5,996                 5,982
                                                                               
Special reserve                                     10,644               14,986
                                                                               
Fair value reserve                                  (1,834)             (1,468)
                                                                               
Profit and loss account                             337                     401
                                                                               
Total equity shareholders' funds                    15,396               20,153
                                                                               
Net asset value per share                    9      67.4p                 84.9p

CASHFLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2007

                                               2007            2006         
                                                                            
                                               £'000           £'000        
                                                                            
Cash outflow from operating activities         (105)           (623)        
                                                                            
Financial investment                                                        
                                                                            
Purchase of venture capital investments        (3,059)         (3,856)      
                                                                            
Purchase of listed equities and fixed interest (456)           (2,433)      
investments                                                                 
                                                                            
Sale of venture capital investments            315             200          
                                                                            
Sale of listed equity and fixed interest       2,990           3,639        
investments                                                                 
                                                                            
Total net financial investment                 (210)           (2,450)      
                                                                            
Equity dividends paid                          (239)           (246)        
                                                                            
Financing                                                                   
                                                                            
Buy-back of ordinary shares                    (610)           (626)        
                                                                            
Issue of shares under the terms of the         15              16           
dividend                                                                    
                                                                            
reinvestment scheme                                                         
                                                                            
Total financing                                (595)           (610)        
                                                                            
Decrease in cash for the year                  (1,149)         (3,929)      
                                                                            
Reconciliation of net cash flow to movement                                 
                                                                            
in net funds                                                                
                                                                            
Decrease in cash for the year                  (1,149)         (3,929)      
                                                                            
Net funds at the start of the year             2,847           6,776        
                                                                            
Net funds at the end of the year               1,698           2,847        

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

FOR THE YEAR ENDED 31 DECEMBER 2007

                     Share    Share    Capital Special Revaluation  Profit Total £
                   capital  premium redemption reserve   reserve £     and    '000
                     £'000  account  reserve £   £'000        '000    loss        
                              £'000       '000                     account        
                                                                     £'000        
                                                                                  
At 1 January 2007      237    5,982         15  14,986     (1,468)     401  20,153
                                                                                  
Shares issued            1       14          -       -           -       -      15
under the dividend                                                                
reinvestment                                                                      
                                                                                  
scheme                                                                            
                                                                                  
Shares purchased       (9)        -          9   (610)           -       -   (610)
for cancellation                                                                  
                                                                                  
Realisation of           -        -          -       -       1,337 (1,337)       -
prior years' net                                                                  
losses                                                                            
                                                                                  
on investments                                                                    
                                                                                  
Transfer from            -        -          - (3,732)           -   3,732       -
special reserve to                                                                
profit and                                                                        
                                                                                  
loss account                                                                      
                                                                                  
Net loss on              -        -          -       -     (1,703)   1,703       -
revaluation of                                                                    
investments                                                                       
                                                                                  
Loss on ordinary         -        -          -       -           - (3,923) (3,923)
activities after                                                                  
taxation                                                                          
                                                                                  
Dividends                -        -          -       -           -   (239)   (239)
                                                                                  
At 31 December         229    5,996         24  10,644     (1,834)     337  15,396
2007                                                                              

NOTES TO THE FINANCIAL STATEMENTS

1 Loss on investments

The overall loss on investments at fair value through profit or loss disclosed
in the profit and loss account is analysed as follows:

                                                               2007        2006
                                                                               
                                                              £'000       £'000
                                                                               
Net gain on disposal                                            188         126
                                                                               
Write-off of investments                                    (2,109)           -
                                                                               
Net loss on revaluation of investments                      (1,703)       (332)
                                                                               
                                                            (3,624)       (206)

`Net gain on disposal' represents the difference between proceeds received and
the carrying values of those investments sold during the year.

The amounts reported under `write-off of investments' represent the proportion
of the carrying value that have, in the opinion of the Directors, suffered an
impairment in value.

2 Income

                                                    2007            2006       
                                                                               
                                                    £'000           £'000      
                                                                               
Dividend income                                                                
                                                                               
Listed UK companies                                 77              98         
                                                                               
Listed foreign companies                            36              32         
                                                                               
Interest receivable                                                            
                                                                               
Listed fixed interest securities                    59              113        
                                                                               
Loans to venture capital investee                   66              -          
companies                                                                      
                                                                               
Bank deposits                                       71              49         
                                                                               
                                                    309             292        

3. Investment management fee

                                                               2007        2006
                                                                               
                                                              £'000       £'000
                                                                               
Investment management fee                                       304         540
                                                                               
Irrecoverable VAT                                                52          77
                                                                               
                                                                356         617

SPARK Venture Management Limited ("SVML"), formerly called Quester Capital
Management Limited, provides investment management services to the Company
under an agreement dated 3 December 2001, as amended by a supplemental
agreement dated 23 December 2004.

SVML is a wholly owned subsidiary of SPARK Ventures plc, a company in which AB
Carruthers and JR Patel are beneficial shareholders. APG Holmes and JA Spooner
were executive directors of SVML until their retirement in April 2008.

The management fee is subject to a cap to ensure that the Company's running
costs do not exceed 3.5% of the closing net asset value. The cap for the
current year was £179,000 (2006: £nil).

The management fee, which is calculated monthly and is payable quarterly in
advance, is levied at a rate of 2.5% on the Company's net assets at each
respective month end. The Manager's appointment is for a fixed term which shall
expire on the seventh anniversary of the commencement of the Fund and shall
continue until terminated by either party subject to a notice period. If such
notice is given on or after the seventh anniversary of the commencement of the
Fund, the notice period shall be the longer of (i) twelve months and (ii) the
year from the date on which notice is given to the tenth anniversary of the
commencement of the Fund. Thereafter the notice period shall be twelve months.
There are no provisions for compensation in the event of termination of the
agreement.

SVML also provides administrative and secretarial services to the Company for
which it was entitled to a fee of £58,000 for the year (2006: £56,000) adjusted
annually in line with changes in the Retail Price Index.

The management fee payable to Newton Investment Management Limited, to the
extent that it is not covered by transaction fees payable by the Company, will
be met by SVML out of the fee above.

4. Other expenses

                                                               2007        2006
                                                                               
                                                              £'000       £'000
                                                                               
Administrative and secretarial services                          58          56
                                                                               
Directors' remuneration (note 5)                                 50          39
                                                                               
Auditors' remuneration                                                         
                                                                               
-Fees payable to the Company's auditor for audit of              14          14
the financial statements                                                       
                                                                               
-Fees payable to the Company's auditor and its                    8           6
associates for other services relating to tax                                  
                                                                               
Legal and professional expenses                                  26          12
                                                                               
Insurance                                                        10          15
                                                                               
UKLA, LSE and registrar's fees                                   16          16
                                                                               
Transaction costs                                                 8           9
                                                                               
Irrecoverable VAT                                                16          37
                                                                               
Other                                                            44          14
                                                                               
                                                                250         218

5. Directors' remuneration

                                                               2007        2006
                                                                               
                                                               £000        £000
                                                                               
Amounts payable to Directors or companies                        50          39
controlled by them                                                             
                                                                               
                                                                 50          39

6. Tax on ordinary activities

                                                               2007        2006
                                                                               
                                                              £'000       £'000
                                                                               
Corporation tax                                                   -           -
                                                                               
Reconciliation of loss on ordinary activities to                               
taxation                                                                       
                                                                               
                                                               2007        2006
                                                                               
                                                              £'000       £'000
                                                                               
Loss on ordinary activities before tax                      (3,923)       (751)
                                                                               
Tax on ordinary activities at standard UK                   (1,177)       (225)
                                                                               
corporation tax rate at 30% (2006: 30%)                                        
                                                                               
Effects of:                                                                    
                                                                               
Non taxable items - UK dividends and net losses on            1,064          61
investments                                                                    
                                                                               
Unutilised management expenses                                  113         164
                                                                               
                                                                  -           -

7. Dividends

                                                   2007            2006        
                                                                               
                                                   £'000           £'000       
                                                                               
Final dividend: 1p per share paid on 28 March 2007 239             -           
                                                                               
Interim dividend: 1p per share paid 15 May 2006    -               246         
                                                                               
                                                   239             246         

8. Earnings per share

The loss per share of 16.8p (2006: loss 3.1p) is based on the loss on ordinary
activities after tax of £3,923,000 (2006: loss £751,000) and on the weighted
average number of ordinary shares in issue during the year of 23,316,331 (2006:
24,218,576).

There is no dilution effect in respect of the year ended 31 December 2007 (31
December 2006:

nil).

9 Net asset value per share

The net asset value per share as at 31 December 2007 of 67.4p (2006: 84.9p) is
based on net assets of £15,396,000 (2006: £20,153,000) divided by the
22,850,431 ordinary shares in issue at that date (2006: 23,727,722). There is
no dilution effect as at 31 December 2007 (2006: nil).

10. Financial information

This preliminary statement was approved by the Board on 30 April 2008.The
financial information set out above does not constitute the company's statutory
accounts for the years ended 31 December 2007 or 31 December 2006, but is
derived from and has been prepared on the same basis as those financial
statements.

Statutory accounts for 2006, which were prepared under UK GAAP, have been
delivered to the registrar of companies and those for 2007, prepared under UK
GAAP, will be delivered in due course.

The auditors have reported on the 2006 and 2007 year end accounts and their
reports were unqualified and did not include references to any matters to which
the auditors drew attention by way of emphasis without qualifying their reports
and did not contain statements under section 237(2) or (3) of the Companies Act
1985.

A copy of the Company's statutory accounts will be submitted to the UK Listing
Authority, and will shortly be available for inspection at the UK Listing
Authority's Document Viewing Facility, which is situated at:

Financial Services Authority

25 The North Colonnade

Canary Wharf

London

E14 5HS

Copies of the full financial statements for the year ended 31 December 2007 are
expected to be posted to shareholders on 6 May 2008 and will be available to
the public at the registered office of the Company at 33 Glasshouse Street,
London W1B 5DG.