Information  X 
Enter a valid email address

Quester VCT 4 PLC (KAY2)

  Print      Mail a friend       Annual reports

Wednesday 30 April, 2008

Quester VCT 4 PLC

Preliminary Announcement


                               QUESTER VCT 4 PLC                               

 PRELIMINARY ANNOUNCEMENT OF RESULTS FOR THE 14 MONTHS ENDED 31 DECEMBER 2007  

Financial highlights

Per ordinary share (pence)                31.12.07 31.10.06 31.10.05
                                                                    
Net asset value                               46.5     65.8     61.1
                                                                    
Dividends                                                           
                                                                    
Dividend paid                                  1.0      1.0      1.0
                                                                    
Cumulative dividend                            5.9      4.9      3.9
                                                                    
Total return*                                 52.4     70.7     65.0
                                                                    
*Net asset value plus cumulative dividend                           

The Board recommends a final dividend of 1.0p per share, for approval at the
AGM. This recommended dividend would bring the cumulative dividends to 6.9p per
share.

Payment date: 27 June 2008

Ex-dividend date: 28 May 2008

Associated record date: 30 May 2008

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 4 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 4. 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 46.5p per share at 31 December 2007, cumulative dividends of
no more than 5.9p per share having been paid since launch, and an IRR for
investors of -9.1% 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 4 plc has been changed to SPARK
Venture Management Limited ("SPARK").

The accounting date of the Company has been changed to 31 December, to simplify
the administration of the three Quester VCTs under SPARK's management, which
now all report on the same date. This report therefore covers the 14 month
period from 31 October 2006 to 31

December 2007. Shareholders' approval is being sought at the Annual General
Meeting to a change in the name of the Company to SPARK VCT 2 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.

Since 31 December 2007, a successful exit from the investment in Nomad Payments
Limited and a trade sale of Identum Limited have been achieved, generating
proceeds totalling £3.8 million which is available for reinvestment. The SPARK
team now plans to refocus Quester VCT 4's investment strategy mainly onto later
stage companies which are already revenue generating and with the likelihood of
shorter holding periods prior to realisation.

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.

                                  Unquoted      Quoted    Bond,   Total   Pence
                                                       equities             per
                                   venture     venture      and   £'000   share
                                                                               
                                   capital     capital      net                
                                                        current                
                               investments investments                         
                                                         assets                
                                     £'000       £'000                         
                                                          £'000                
                                                                               
Net asset value at 31 October       20,206       3,406    8,312  31,924    65.8
2006                                                                           
                                                                               
Income and net gains on                 90         185      468     743     1.6
disposal                                                                       
                                                                               
Operating expenses                       -           -  (1,262) (1,262)   (2.7)
                                                                               
Write-off of investments net       (4,727)       (334)        - (5,061)  (10.6)
of recoveries                                                                  
                                                                               
Net (loss)/gain on revaluation     (2,599)     (1,229)      591 (3,237)   (6.8)
of investments                                                                 
                                                                               
Net assets before dividends         12,970       2,028    8,109  23,107    47.3
and share buy-backs                                                            
                                                                               
Dividend paid net of amounts             -           -    (455)   (455)   (1.0)
reinvested                                                                     
                                                                               
Share buy-backs                          -           -    (907)   (907)     0.2
                                                                               
Net investment                       3,352        (28)  (3,324)       -       -
                                                                               
Net asset value at 31 December      16,322       2,000    3,423  21,745    46.5
2007                                                                           

Net assets per share, before the payment of dividends and share buy-backs, fell
by 18.5p in the

14 months to 31 December 2007. The dividend paid in the 14 month period was 1p
per share.

The net asset value at 31 December 2007 is stated before accounting for the
recommended final dividend of 1p per share, amounting to £0.5 million.

The total return to shareholders from the launch of the Company in November
2000 to

31 December 2007 was 52.4p 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 14-month period of £7,326,000
(including £4,727,000 representing impairment in value of investments), net of
a gain of £1,466,000 in respect of Nomad Payments Limited which has been valued
at 31 December 2007 at its trade sale price.

The 14 month period 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 £1,378,000, of which
£334,000 represents impairment in value of investments.

The portfolio of bonds and listed equity investments performed well, with an
overall appreciation in value of £842,000.

The trade sale of Nomad Payments Limited, which was in the final stages of
negotiation at

31 December 2007 and closed in January 2008, generated proceeds of £3,020,000
(a multiple of

1.9 times cost). This investment dated from December 2001 and had been carried
in the Company's accounts at cost throughout the subsequent period. The trade
sale of Identum Limited, also closed in January 2008, brought in proceeds of a
further £763,000.

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 4 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 4 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.

The Board decided that the broad objectives will remain as before, subject to
important changes in investment emphasis. 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 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

As announced on 10 March 2008, Andrew Holmes, formerly managing director and
chairman of the Quester management company, announced his intention to retire
from the Board at the forthcoming AGM. John Spooner, also a director of the
Quester management company, resigned from the Board on that date. 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 2000.

Jay Patel, executive director 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.

Dividends

The dividend policy of the Company is to seek to maximise the dividend payable
from available distributable profits. Owing to the nature of a VCT, dividends
payable can vary considerably from time to time depending on the level of
income and capital gains.

The successful exit from Nomad Payments Limited and the trade sale of Identum
Limited, both of which closed in January 2008, have generated proceeds
totalling £3.8 million and in the case of the Nomad transaction a significant
capital gain. The Board recommends a final dividend of 1p per share, amounting
to £467,000, for approval at the AGM. This dividend would be payable on 27 June
2008.

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.

The process of reinvestment in new opportunities by the Manager commenced with
a £450,000 investment in Isango! Limited in March 2008 and is expected to
continue during the remainder of the year. The Manager has informed the Board
that it sees good deal flow in both technology and medical sciences in line
with the investment policy described above.

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.

Robert Wright

Chairman

30 April 2008

FUND SUMMARY AS AT 31 DECEMBER 2007

                       Industry sector    Original Valuation  Equity   % of    
                                                                               
                                          Cost (1) £'000      % held   fund by 
                                                                       value   
                                          £'000                                
                                                                               
Fifteen largest venture capital                                                
investment                                                                     
                                                                               
Nomad Payments Limited TMT                1,554    3,020      11.6%    13.9%   
                                                                               
Workshare Limited      TMT                1,910    2,591       7.3%    11.9%   
                                                                               
Celona Technologies    TMT                2,059    1,307       8.6%     6.0%    
Limited                                                                        
                                                                               
Xtera Communications,  TMT                2,687    1,275       8.3%     5.9%    
Inc.                                                                           
                                                                               
Oxford Immunotec       Healthcare         1,780    1,194       6.3%     5.5%    
Limited                                                                        
                                                                               
Xention Limited        Healthcare         1,050    1,125       5.1%     5.2%    
                                                                               
Teraview Limited       Healthcare         1,064      827       5.4%     3.8%    
                                                                               
Antenova Limited       TMT                1,384      779       4.7%     3.5%    
                                                                               
Identum Limited(2)     TMT                763        763       6.7%     3.5%    
                                                                               
Uniservity Limited     TMT                700        700      11.6%     3.2%    
                                                                               
Sift Group Limited     TMT                917        698       6.2%     3.2%    
                                                                               
MediGene AG FRANKFURT  Healthcare         1,142      676       0.6%     3.1%    
                                                                               
Elateral Holdings      TMT                479        479      13.8%     2.2%    
Limited(2)                                                                     
                                                                               
Arithmatica Limited    TMT                600        414      13.7%     1.9%    
                                                                               
Oxford BioMedica plc   Healthcare         1,147      368       0.3%     1.7%    
AIM                                                                            
                                                                               
                                         19,236   16,216               74.5%   
                                                                               
Other venture capital investments                                              
                                                                               
Portrait Software plc  TMT                1,130      340       2.7%     1.6%    
AIM                                                                            
                                                                               
Allergy Therapeutics   Healthcare           700      327       1.1%     1.5%    
plc AIM                                                                        
                                                                               
Vivacta Limited        Healthcare           228      286       1.8%     1.3%    
                                                                               
Cluster Seven Limited  TMT                  255      255       2.4%     1.2%    
                                                                               
Celldex Therapeutics,  Healthcare         1,400      182       2.7%     0.8%    
Inc.                                                                           
                                                                               
Perpetuum Limited      TMT                  146      166       1.5%     0.8%    
                                                                               
Quadnetics Group plc   TMT                  143      116       0.3%     0.5%    
AIM                                                                            
                                                                               
Celoxica Holdings plc  TMT                  109      109       2.6%     0.5%    
(2) AIM                                                                        
                                                                               
Other investments:                          652      325                1.5%    
valuations less than £                                                         
100,000(2)                                                                     
                                                                               
                                          4,763    2,106                9.7%    
                                                                               
Total venture capital                    23,999   18,322               84.2%   
investments                                                                    
                                                                               
Total quoted venture                      4,628    2,000                9.2%    
capital investments                                                            
                                                                               
Total unquoted venture                   19,371   16,322               75.0%   
capital investments                                                            
                                                                               
                                         23,999   18,322               84.2%   
                                                                               
Listed equity                             2,236    3,212               14.8%   
investments and fixed                                                          
interest securities                                                            
                                                                               
Total investments                        26,235   21,534               99.0%   
                                                                               
Cash and other net                          211      211                1.0%    
assets                                                                         
                                                                               
Net assets                               26,446   21,745              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 4 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 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 Nomad Payments Limited and Identum
Limited which have since been sold) collectively account for 74.5% of the net
assets at the balance sheet date.

Portfolio developments

Realisations

We are pleased to report the achievement of a successful exit from Nomad
Payments Limited: the trade sale to Metavante Technologies, Inc. (NYSE: MV), a
leading provider of banking and payments technologies for financial services
firms and businesses worldwide, closed on

10 January 2008 realising £3,020,000 (of which £2,449,000 has been received in
cash and

£571,000 is held in escrow for a period of 18 months or more), for a multiple
of 1.9 times original cost.

The trade sale of Identum Limited to Trend Micro, Inc., a global leader in
antivirus and content security, which also closed in January 2008, has brought
in proceeds of a further £763,000.

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 £243,000 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, Inc. 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 4 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, Inc. 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 4 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 14-month period 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 T-SPOT®.TB in the US market, and significantly enhances its
prospects.

- Workshare Limited: Workshare is an information security company that delivers
secure content compliance solutions ensuring safe information exchange without
business disruption. In December 2006 the company closed a Series B funding
round led by US venture capital firm Steelpoint Capital Partners and supported
by Intel Capital alongside the Company and other Quester funds. The company has
now achieved more than US$200 million in cumulative revenues, A current
bookings run-rate of US$30 million annually and an installed base over

6,000 organisations.

- Xention Limited: This drug discovery company is focused on ion channel
targets: it has recently initiated Phase I clinical development of a treatment
for atrial fibrillation. During 2007 the company achieved several key
milestones and the SPARK team is encouraged by its commercial progress.

The valuation of the new funding round of Workshare represented a significant
uplift on the Company's original investment valuation. In the cases of Celona
and Oxford Immunotec, the terms of the new financing rounds 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 capital gain.

Other portfolio progress

The business progress of the other unquoted companies included within the
fifteen largest venture capital investments and held throughout the period,
namely Antenova Limited, Elateral Holdings Limited, Sift Group Limited and
Teraview Limited, has been generally satisfactory although in certain cases the
valuations have been adjusted to reflect the SPARK team's assessment of fair
value at 31 December 2007. Bridge finance has been provided to Arithmatica
Limited against a plan for an early realisation of this investment.

Among the Company's smaller venture capital investments, we are pleased with
the business progress achieved by the specialist software company Cluster Seven
Limited, early stage life sciences company Haemostatix Limited, and diagnostics
business Vivacta Limited, with the latter company successfully closing a new
financing round during the period at an uplift on the Company's original cost
of investment.

We are 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.

Write-offs

We regret to report that Nexagent Limited to which follow-on funding was
provided during the period has suffered an adverse development since 31
December 2007, being unable to secure a necessary tranche of further funding.

A number of other investments have been written off as wholly or substantially
irrecoverable, as detailed under "Valuation changes" below.

Investment activity

New investments

During the 14-month period to 31 December 2007, the pace of new investment was
constrained by cash resources. A single new investment was completed as set out
in the table below:

Company                  Sector                       £'000
                                                           
Uniservity Limited       TMT                            700

7Uniservity 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.

Since the period end, following the recent realisations, the Company has closed
its first investment sourced from SPARK, with £450,000 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
14-month period to

31 December 2007.

Company                                           Sector               £'000
                                                                            
Follow-on rounds:                                                           
                                                                            
Antenova Limited                                  TMT                    129
                                                                            
Azea Networks, Inc. (since acquired by Xtera      TMT                    238
Communications, Inc.)                                                       
                                                                            
Celona Technologies Limited                       TMT                    411
                                                                            
Cluster Seven Limited                             TMT                     97
                                                                            
Lectus Therapeutics Limited                       Healthcare             129
                                                                            
Nexagent Limited                                  TMT                    189
                                                                            
Oxford Immunotec Limited                          Healthcare             441
                                                                            
Teraview Limited                                  Healthcare             117
                                                                            
Workshare Limited                                 TMT                    378
                                                                            
Xention Limited                                   Healthcare             300
                                                                            
Other companies (8)                                                      223
                                                                            
                                                                       2,652
                                                                            
Bridge finance ahead of planned merger or                                   
realisation:                                                                
                                                                            
Advanced Valve Technologies Limited(1)            Other                   14
                                                                            
Arithmatica Limited                               TMT                    171
                                                                            
HTC Healthcare Group plc                          Other                  107
                                                                            
Identum Limited                                   TMT                    357
                                                                            
Nomad Payments Limited                            TMT                    152
                                                                            
Oxxon Therapeutics Holdings, Inc. (since acquired Healthcare             243
by Oxford BioMedica plc)                                                    
                                                                            
                                                                       1,044
                                                                            
                                                                       3,696

 1. Loan subsequently repaid
   
The most significant of the follow-on rounds, namely those relating to Azea
Networks, Inc. (since acquired by Xtera Communications, Inc.), Celona
Technologies Limited, Nexagent Limited, Oxford Immunotec Limited, Workshare
Limited and Xention Limited have been covered under "Portfolio developments"
above.

As far as the provision of bridge finance is concerned, the subsequent
realisation of the investments in Nomad Payments Limited and Identum Limited
and the acquisition of Oxxon Therapeutics by the AIM-traded company Oxford
BioMedica plc have been covered under "Portfolio developments". In the case of
HTC Healthcare Group plc, the business plan objectives of follow-on finance
provided were not achieved: additional bridge finance has been advanced in
recent months based on a plan for the stabilisation of the business and
designed to permit an early exit. Efforts towards a realisation of the
investment in Arithmatica Limited also remain ongoing.

Looking ahead - new investment opportunities

The proceeds of the sale of Nomad Payments Limited and Identum Limited will be
available for reinvestment in new venture capital opportunities to be selected
from SPARK's deal flow.

The investment policy of the Company is unchanged in substance from that set
out in the prospectus dated 1 November 2000.

In 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 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 period, 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 14 months to 31 December 2007, in respect of unquoted investments,
the review has resulted in a write-down of £7,326,000 (of which £4,727,000 has
been written off as representing an impairment in value), net of gains
totalling £2,125,000.

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

- Nomad Payments Limited increased to reflect the terms of the trade sale which
was in the final stages of negotiation at 31 December 2007 (increase of £
1,466,000).

- Perpetuum Limited, Vivacta Limited and Workshare Limited increased to reflect
the terms of the most recent financing rounds (increases of £20,000, £58,000
and £581,000 respectively) and Celona Technologies Limited and Oxford Immunotec
Limited similarly reduced (reductions of

£752,000 and £803,000 respectively).

- Following the merger of Azea Networks, Inc. with Xtera Communications, Inc.,
the valuation has been reduced to reflect the last round price of the shares
received in exchange (reduction

£1,412,000); similarly the valuation of the holding in Celldex Therapeutics,
Inc. has been reduced to reflect the terms of the agreed merger with AVANT
Immunotherapeutics, Inc.

(reduction £843,000).

- Antenova Limited, Arithmatica Limited, Lectus Therapeutics Limited and
Teraview Limited reduced to reflect the management team's assessment of the
companies' value at this stage in their development (total reduction £914,000).

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 £
753,000). In relation to Nexagent Limited, full provision has been made as an
impairment in value to reflect the circumstances described under "Portfolio
developments" above (write off in period £1,776,000). 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 £1,032,000).

- In respect of De Novo Pharmaceuticals Limited, HTC Healthcare Group plc,
Mesophotonics Limited, Opsys Management Limited and Pelikon 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 £1,490,000).

- In respect of Elateral Holdings Limited an accounting adjustment has been
made to reverse an earlier provision of £324,000 made as an impairment in
value.

Quoted venture capital investments

The period ended 31 December 2007 has seen poor performance of the companies in
Quester VCT 4'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 £1,378,000, of which £
334,000 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 (£584,000), Oxford BioMedica plc (£280,000) and Medigene AG (£
257,000) and the accelerated computing company Celoxica Holdings plc (£
298,000).

Listed equity and bond portfolio

Approximately £4.6 million was withdrawn from the equity and bond portfolio
during the period to fund the 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 an
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 FOURTEEN MONTHS ENDED 31 DECEMBER 2007

                                               Note Fourteen      Twelve months
                                                    months to     to           
                                                                               
                                                    31.12.07      31.10.06     
                                                                               
                                                    £'000         £'000        
                                                                               
(Loss)/gain on investments at fair            1     (7,862)       3,456        
value through profit or loss                                                   
                                                                               
Income                                        2     307           412          
                                                                               
Investment management fee                     3     (924)         (923)        
                                                                               
Other expenses                                4     (332)         (295)        
                                                                               
(Loss)/profit on operating activities               (8,811)       2,650        
                                                                               
Interest payable on loan notes                      (6)           (5)          
                                                                               
(Loss)/profit on ordinary activities                (8,817)       2,645        
before tax                                                                     
                                                                               
Tax on (loss)/profit on ordinary              6     -             -            
activities                                                                     
                                                                               
(Loss)/profit on ordinary activities                (8,817)       2,645        
after taxation                                                                 
                                                                               
Basic and fully diluted (loss)/               8     (18.5)p       5.3p         
earnings per 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 period other than those passing through
the profit and loss account of the Company.

BALANCE SHEET

AS AT 31 DECEMBER 2007

                                                   31 December       31 October
                                                   2007                    2006
                                                                               
                                           Note    £'000                  £'000
                                                                               
Fixed assets                                                                   
                                                                               
Investments at fair value through                  21,534                30,624
profit or loss                                                                 
                                                                               
Current assets                                                                 
                                                                               
Debtors                                            14                       148
                                                                               
Cash at bank                                       599                    1,715
                                                                               
                                                   613                    1,863
                                                                               
Creditors: amounts falling due within              (302)                  (463)
one year                                                                       
                                                                               
Net current assets                                 311                    1,400
                                                                               
Creditors: amounts falling due in over             (100)                  (100)
one year                                                                       
                                                                               
Net assets                                         21,745                31,924
                                                                               
Capital and reserves                                                           
                                                                               
Called-up equity share capital                     467                      485
                                                                               
Share premium account                              339                      309
                                                                               
Capital redemption reserve                         67                        47
                                                                               
Special reserve                                    23,157                33,730
                                                                               
Revaluation reserve                                (4,701)              (4,781)
                                                                               
Profit and loss account                            2,416                  2,134
                                                                               
Total equity shareholders' funds                   21,745                31,924
                                                                               
Net asset value per share                   9      46.5p                  65.8p

CASHFLOW STATEMENT

FOR THE FOURTEEN MONTHS ENDED 31 DECEMBER 2007

                                               2007           2006        
                                                                          
                                               £'000          £'000       
                                                                          
Cash outflow from operating activities         (982)          (783)       
                                                                          
Financial investment                                                      
                                                                          
Purchase of venture capital investments        (4,396)        (4,834)     
                                                                          
Purchase of listed equities and fixed interest (645)          (1,476)     
investments                                                               
                                                                          
Sale of venture capital investments            982            3,091       
                                                                          
Sale/redemption of listed equity and fixed     5,287          1,410       
interest investments                                                      
                                                                          
Amounts recovered from investments previously  -              42          
written off                                                               
                                                                          
Total net financial investment                 1,228          (1,767)     
                                                                          
Equity dividends paid                          (487)          (501)       
                                                                          
Financing                                                                 
                                                                          
Buy-back of ordinary shares                    (907)          (899)       
                                                                          
Issue of shares under the terms of the         32             24          
dividend reinvestment scheme                                              
                                                                          
Total financing                                (875)          (875)       
                                                                          
Decrease in cash for the period                (1,116)        (3,926)     
                                                                          
Reconciliation of net cash flow to movement                               
                                                                          
in net funds                                                              
                                                                          
Decrease in cash for the period                (1,116)        (3,926)     
                                                                          
Net funds at the start of the period           1,715          5,641       
                                                                          
Net funds at the end of the period             599            1,715       

Net funds comprise cash at bank and on short term deposit.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

FOR THE FOURTEEN MONTHS ENDED 31 DECEMBER 2007

                     Share   Share    Capital Special Revaluation  Profit Total £
                   capital premium redemption reserve   reserve £     and    '000
                     £'000 account              £'000        '000    loss        
                             £'000    reserve                     account        
                                                                    £'000        
                                        £'000                                    
                                                                                 
At 1 November 2006     485     309         47  33,730     (4,781)   2,134  31,924
                                                                                 
Shares issued            2      30          -       -           -       -      32
under the dividend                                                               
reinvestment                                                                     
scheme                                                                           
                                                                                 
Shares purchased      (20)       -         20   (907)           -       -   (907)
for cancellation                                                                 
                                                                                 
Realisation of           -       -          -       -       3,317 (3,317)       -
prior years' net                                                                 
losses on                                                                        
investments                                                                      
                                                                                 
Transfer from            -       -          - (9,666)           -   9,666       -
special reserve to                                                               
profit and loss                                                                  
account                                                                          
                                                                                 
Net loss on              -       -          -       -     (3,237)   3,237       -
revaluation of                                                                   
investments                                                                      
                                                                                 
Loss on ordinary         -       -          -       -           - (8,817) (8,817)
activities after                                                                 
taxation                                                                         
                                                                                 
Dividends paid           -       -          -       -           -   (487)   (487)
                                                                                 
At 31 December         467     339         67  23,157     (4,701)   2,416  21,745
2007                                                                             

NOTES TO THE FINANCIAL STATEMENTS

1. (Loss)/profit on investments at fair value through profit or loss

                                                  Fourteen months   Twelve     
                                                  to                months to  
                                                                    31.10.06   
                                                  31.12.07                     
                                                                    £'000      
                                                  £'000                        
                                                                               
Net gain on disposal                              436               2,176      
                                                                               
Write-off of investments                          (5,061)           -          
                                                                               
Recoveries made in respect of investments         -                 42         
previously written off                                                         
                                                                               
Net (loss)/gain on revaluation of investments     (3,237)           1,238      
                                                                               
                                                  (7,862)           3,456      

2. Income

                                                    Fourteen months Twelve     
                                                    to 31.12.07     months to  
                                                                    31.10.06   
                                                    £'000                      
                                                                    £'000      
                                                                               
Dividend income                                                                
                                                                               
Unlisted companies                                  6               5          
                                                                               
Listed companies - UK                               99              168        
                                                                               
Listed companies - foreign                          40              63         
                                                                               
Interest receivable                                                            
                                                                               
Loans to venture capital investee                   84              -          
companies                                                                      
                                                                               
Bank deposits                                       55              41         
                                                                               
Other income                                        23              135        
                                                                               
                                                    307             412        

3. Investment management fee

                                                  Fourteen months   Twelve     
                                                  to 31.12.07       months to  
                                                                    31.10.06   
                                                  £'000                        
                                                                    £'000      
                                                                               
Investment management fee                         801               800        
                                                                               
Irrecoverable VAT                                 123               123        
                                                                               
                                                  924               923        

SVML provides investment management services to the Company under an agreement
dated

30 October 2000.

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

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. 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 period 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 payable in the event of termination.

SVML also provides administrative and secretarial services to the Company for
which it was entitled to a fee of £67,000 for the period (year ended 31 October
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
   
 5. 
   
                       Fourteen months to 31.12.07   Twelve months             
                                                       to 31.10.06             
                                                                               
                                                   £'000                  £'000
                                                                               
Administration and secretarial services            67              56          
                                                                               
Directors' remuneration (note 5)                   57              37          
                                                                               
Auditor's remuneration                                                         
                                                                               
Fees payable to the Company's auditor for the      16              14          
audit of the financial statements                                              
                                                                               
Fees payable to the Company's auditor and its      8               6           
associates for other services relating to taxation                             
                                                                               
Legal and professional expenses                    32              40          
                                                                               
Insurance                                          8               13          
                                                                               
UKLA, LSE and registrar's fees                     20              24          
                                                                               
Transaction costs                                  29              14          
                                                                               
Irrecoverable VAT                                  41              39          
                                                                               
Other                                              54              52          
                                                                               
                                                   332             295         

 5. Directors' remuneration
   
 
                       Fourteen months to 31.12.07   Twelve months             
                                                       to 31.10.06             
                                                                               
                                                   £'000           £'000       
                                                                               
Amounts payable to Directors or companies          57              37          
controlled by them                                                             

 6. Tax on ordinary activities
 
                             Fourteen months to 31.12.07   Twelve months             
                                                             to 31.10.06             
                                                                               
                                                   £'000           £'000       
                                                                               
Corporation tax                                    -               -           
                                                                               
Reconciliation of profit on ordinary activities to Fourteen months       Twelve
taxation                                               to 31.12.07    months to
                                                                       31.10.06
                                                                               
                                                   £'000           £'000       
                                                                               
(Loss)/profit on ordinary activities before tax    (8,817)         2,645       
                                                                               
Tax on (loss)/profit on ordinary activities at     (2,645)         794         
standard UK corporation tax rate of 30% (31                                    
October 2006: 30%)                                                             
                                                                               
Effects of:                                                                    
                                                                               
Non taxable items - UK dividends and net losses/   2,327           (1,089)     
(gains) on investments                                                         
                                                                               
Unutilised management expenses                     318             295         
                                                                               
                                                   -               -           

 7. Dividends paid

                       Fourteen months to 31.12.07   Twelve months             
                                                       to 31.10.06             
                                                                               
                                                   £'000           £'000       
                                                                               
Final dividend: 1p per share paid on 12 March 2007 487             -           
                                                                               
Interim dividend: 1p per share paid 1 March 2006   -               501         
                                                                               
                                                   487             501         

The Board proposes a final dividend of 1.0p per share, equivalent to £467,155,
in respect of the period ended 31 December 2007 which, upon approval by
shareholders at the Annual General Meeting, will be payable on 27 June 2008 and
consequently has not been recognised in the accounts.

 8. Earnings per share
   
The loss per share of 18.5p (year ended 31 October 2006: earnings 5.3p) is
based on the loss on ordinary activities after tax of £8,817,000 (year ended 31
October 2006: earnings £2,645,000) and on the weighted average number of
ordinary shares in issue during the period of 47,714,817

(year ended 31 October 2006: 49,861,329).

 9. Net asset value per share
   
The net asset value per share as at 31 December 2007 of 46.5p (31 October 2006:
65.8p) is based on net assets of £21,745,000 (31 October 2006: £31,924,000)
profit to net cash outflow divided by the 46,715,525 ordinary shares in issue
at that date (31 October 2006: 48,502,665). There is no dilution effect as at
31 December 2007 (year ended 31 October 2006: nil).

10. Financial information
   
The accounting date of the Company has been changed to 31 December, to simplify
the administration of the three Quester VCTs under SPARK's management, which
now all report on the same date. This statement therefore covers the 14 month
period from 31 October 2006 to 31

December 2007. Shareholders' approval is being sought at the Annual General
Meeting to a change in the name of the Company to SPARK VCT 2 plc.

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 period ended 31 December 2007 or the year ended 31 October
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 auditor has reported on the 2006 and 2007 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 period 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 133 Glasshouse Street,
London, W1B 5DG.