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Kings Arms Yard VCT 2 PLC (KAY2)

  Print      Mail a friend       Annual reports

Tuesday 19 April, 2011

Kings Arms Yard VCT 2 PLC

Annual Financial Report






Kings Arms Yard VCT 2 PLC

Annual Financial Report

As required by the UK Listing Authority's Disclosure and Transparency Rules 4.1
and 6.3, Kings Arms Yard VCT 2 PLC today makes public its information relating
to the Annual Report and Financial Statements for the year ended 31 December
2010.

This announcement was approved for release by the Board of Directors on 18 April
2011.

This announcement has not been audited.

You will shortly be able to view the Annual Report and Financial Statements for
the year to 31 December 2010 (which have been audited) at www.albion-
ventures.co.uk by clicking on 'Our Funds' and then 'Kings Arms Yard VCT 2 PLC'.
The Annual Report and Financial Statements for the year to 31 December 2010 will
be available as a PDF document via a link under the 'Investor Centre' in the
'Financial Reports and Circulars' section.  The information contained in the
Annual Report and Financial Statements will include information as required by
the Disclosure and Transparency Rules, including Rule 4.1.

Investment policy

The Company is a Venture Capital Trust.    The new investment policy, approved
by shareholders at the General Meeting held on 10 February 2011, is intended to
produce a regular and predictable dividend stream with an appreciation in
capital value as set out below.

  * The Company intends to achieve its strategy by adopting an amended
    investment policy for new investments which, over time, will rebalance the
    portfolio such that approximately 50 per cent. of the portfolio comprises an
    asset-based portfolio of lower risk, ungeared businesses, principally
    operating in the healthcare, environmental and leisure sectors (the "Asset-
    Based Portfolio").  The balance of the portfolio, other than funds retained
    for liquidity purposes, will be invested in a portfolio of higher growth
    businesses across a variety of sectors of the UK economy.  These will range
    from lower risk, income producing businesses to a limited number of higher
    risk technology companies (the "Growth Portfolio").

  * In neither category would portfolio companies normally have any external
    borrowing with a charge ranking ahead of the VCT.  Up to two thirds of
    qualifying investments by cost will comprise loan stock secured with a first
    charge on the portfolio company's assets.

  * The Company's investment portfolio will thus be structured to provide a
    balance between income and capital growth for the longer term.  The Asset-
    Based Portfolio is designed to provide stability and income whilst still
    maintaining the potential for capital growth.  The Growth Portfolio is
    intended to provide highly diversified exposure through its portfolio of
    investments in unquoted UK companies.

  * Funds held pending investment or for liquidity purposes will be held as cash
    on deposit or in floating rate notes or similar instruments with banks or
    other financial institutions with a Moody's rating of 'A' or above.

Financial calendar

Annual General Meeting                                               16 May 2011

Ex-dividend date for dividend                                        25 May 2011

Record date for dividend                                             27 May 2011

Payment date of dividend                                            24 June 2011

Announcement of interim results for the six months ended 30 June     August 2011
2011


 Financial highlights

                            31 December 2010  31 December 2009  31 December 2008

                           (pence per share) (pence per share) (pence per share)
--------------------------------------------------------------------------------


Net asset value                         23.6              31.0              36.4
--------------------------------------------------------------------------------


Dividends

Dividends paid during the                1.0                 -               1.0
year

Cumulative dividend                      7.9               6.9               6.9
--------------------------------------------------------------------------------


Total net asset value
return ((1))

To shareholders of Kings
Arms Yard VCT 2 PLC
(formerly SPARK VCT 2 plc)              31.5              37.9              43.3

Net asset value return                  51.5              57.9              63.3
including tax benefits
((2))
--------------------------------------------------------------------------------


Total net asset value
return to former
shareholders of:

SPARK VCT 3 plc ((3))                   39.4              48.8              56.7

Net asset value return                  59.4              68.8              76.7
including tax benefits
((2))
--------------------------------------------------------------------------------



(1) Net asset value plus cumulative dividend per share to ordinary shareholders
in the Company since the launch (then called Quester VCT 4 plc) in November
2008.

(2) Return after 20 per cent. income tax relief but excluding capital gains
deferral.

(3) Total return to original shareholders in SPARK VCT 3 plc, launched in
December 2001, (under the name Quester VCT 5 plc), which was merged with the
Company (then called Quester VCT 4 plc) in November 2008.  The share exchange
ratio for former shareholders in SPARK VCT 3 plc was 1.4613.  The total return
stated is applicable only to subscribers of shares in Quester VCT 5 plc at the
time of launch of the Company in 2001-02.  It does not represent the return to
subsequent subscribers or purchasers of shares.



                          The Company                       SPARK VCT 3 plc((1))
Dividends paid during                   Dividends paid
period to:            pence per share   during the year to:      pence per share
--------------------------------------------------------------------------------
31 October 2002                   1.7                                          -

31 October 2003                   1.2   31 December 2003                     0.5

31 October 2004                     -   31 December 2004                     1.0

31 October 2005                   1.0   31 December 2005                       -

31 October 2006                   1.0   31 December 2006                     1.0

31 December 2007                  1.0   31 December 2007                     1.0

31 December 2008                  1.0   31 December 2008                       -

31 December 2009                    -   31 December 2009                       -

31 December 2010                  1.0   31 December 2010                     1.4
                     -----------------                     ---------------------
Total dividends paid
to 31 December 2010               7.9                                        4.9

Net asset value as at
31 December 2010                 23.6                                       34.5
                     -----------------                     ---------------------
Total net asset value
return to 31 December
2010                             31.5                                       39.4
                     -----------------                     ---------------------



(1)        SPARK VCT 3 plc merged with SPARK VCT 2 plc in November 2008 in a
ratio of 1.4613 SPARK VCT 2 plc shares for each SPARK VCT 3 plc share.

Proposed Final Dividend for the year ended 31 December 2010

The Directors propose a final dividend of 1 penny per share for the year ended
31 December 2010, to be approved by shareholders at the Annual General Meeting.
If approved, the dividend would be paid on 24 June 2011 to shareholders on the
register on 27 May 2011.

Chairman's statement

Overview

This year has been a year of fundamental change and high activity for your
Company.  This began with a major strategic review triggered by the desire to
find a way of improving the prospects of a regular return to shareholders
combined with achieving a recovery in the net asset value. The original focus
since the beginning of the fund in 2000 had been on early stage technology
companies.  A handful of those businesses, long in gestation, may produce a
reasonable return and there have already been a few trade sales enabling the
Company to recommence the payment of dividends. In addition there is now a new
intention to engage with lower risk opportunities that are positioned with the
potential to provide positive cash flow enabling the payment of regular
dividends in the medium term.

Since SPARK Venture Management Limited's expertise remains firmly in early stage
technology, it became apparent that the Company would need to search for a more
suitable manager to implement the shift in investment strategy. A thorough
search led to formal proposals from a range of possible managers, all of high
calibre. Albion Ventures LLP ("Albion") was selected and the change of Manager
was announced to shareholders in December 2010.

A general meeting was held on 10 February 2011 at which the change in the
Company's name to Kings Arms Yard VCT 2 PLC was agreed.  At that meeting the new
investment policy was approved by over 95 per cent. of shares voted.

Albion was formally appointed on 1 January 2011 and has since undertaken an
extensive review of the investment portfolio.  Overall, it is the new manager's
strategy to support and encourage those of the Company's investments with growth
prospects, and to seek an exit from those where resources may be more usefully
devoted to new opportunities in line with the adjusted strategy.  This aligns
our Company with Albion's mainstream activity in a dividend yielding, lower risk
investment strategy.

Performance

                                Investments Net current assets   Total pence per

                                      £'000              £'000   £'000     share
--------------------------------------------------------------------------------
Net asset value at 31 December
2009                                 17,743              6,286  24,029      31.0

Income                                    -                 62      62       0.1

Operating expenses                        -              (616)   (616)     (0.8)

Net gain on disposals                   770                  -     770       1.0

Net loss on valuation of
investments                         (5,184)                  - (5,184)     (6.7)

Net investment                      (1,062)              1,062       -         -
--------------------------------------------------------------------------------
Net assets before dividends and
share buy-backs                      12,267              6,794  19,061      24.6

Dividend paid                             -              (773)   (773)     (1.0)

Share buybacks                            -               (30)    (30)     (0.0)
--------------------------------------------------------------------------------
Net asset value at 31 December
2010                                 12,267              5,991  18,258      23.6
--------------------------------------------------------------------------------



The net assets value per share has fallen from 31.0 pence per share as at 31st
December 2009 to 23.6 pence per share as at 31st December 2010.  The Directors
have followed closely the new Manager's assessment of the carrying values and
concur with the prudent mark down. These mark downs, combined with revaluations
during the year, the payment of a 1 penny dividend and the running costs of the
fund, have resulted in the year end net asset value falling by 7.4 pence  The
drop in carrying value does not necessarily reflect the future potential value
of the underlying businesses to produce a satisfactory return.  Whilst the
valuations of seven unquoted investments were increased and two were unchanged,
the valuations of fourteen unquoted investments have been reduced.

The three most significant valuation changes are UniServity, a learning platform
for schools, Workshare, a secure document comparison tool and Xtera, which
offers solutions to optimise telecoms infrastructure.  The uplift in
UniServity's valuation is driven by improved trading.  A number of other
portfolio companies, however, including Workshare and Xtera, did not achieve
their anticipated growth in 2010, leading to a reduction in their carrying
value.  Nevertheless, we believe that the longer term outlook at all three of
these companies is positive following the launch of new products by UniServity
and Workshare and significant, recent contract wins at Xtera.

An additional factor in the reduction of net asset value was a £0.4m reduction
in the value of the quoted portfolio, excluding realisations of £0.9m.

The Company's share price of 11.5 pence per share as at 31 December 2010
represented a discount of around 50 per cent. based on the net asset value per
share of 23.6 pence as at 31 December 2010.

At 31 December 2010 the Company held £5.7m of cash and liquid investments.

Dividends

As set out in the Circular sent to shareholders on 19 January 2011, the Board
intends to develop a sustainable and progressive dividend stream to
shareholders. This may encourage a gradual recovery in share price through the
secondary market. The Board recommends a final dividend of 1 penny per share
that brings the total dividends paid and declared in relation to the year ended
31 December 2010 to 2 pence per share.

Dividend reinvestment scheme

Enclosed with this Report is an explanatory circular and a form allowing
shareholders to participate in a dividend reinvestment scheme whereby you may
receive dividends in the form of new Ordinary shares which are eligible for up-
front tax relief.  Additional copies of the circular and form can be found on
the Company's web page at www.albion-ventures.co.uk under Our Funds/Kings Arms
Yard VCT 2 PLC/Dividend reinvestment scheme.

VCT Qualifying Status

On 31 December 2010, 82 per cent. of total investments were in qualifying
holdings.  The Board remains very conscious of the necessity to ensure that
qualifying investments and income exceed the minimum threshold of 70 per cent.
required for the Company to continue to enjoy VCT tax status and will continue
to monitor the position carefully.

Share buy-backs

In order to maintain resources for dividends and the implementation of the new
investment policy, the Board does not intend to buy back any shares in the
financial year to 31 December 2011. However, it intends to implement the share
buy-back policy practiced by the other Albion VCTs once the fruits of the new
investment policy have begun to show.

In general, the other Albion managed VCTs have a share buy-back policy to make
purchases in the market in the region of a 10 to 15 per cent. discount to net
asset value, so far as market conditions, liquidity and reserves permit.  Buy-
backs are subject to the overall constraint that the purchases are in the
Company's interest, including the maintenance of sufficient resources for
investment in existing and new investee companies and the continued payment of
dividends. It is hoped that this strategy, including the dividend policy, will
encourage a more active secondary market in the Company's shares.

Costs

Under the terms of the Existing Management Agreement with SPARK Venture
Management, the Company was required to give 12 months notice of termination.
The Company and SPARK Venture Management entered into the Termination Agreement
on 8 December 2010, pursuant to which the Company has agreed to pay SPARK
Venture Management the management and administration fees due under the Existing
Management Agreement for the period until 30 November 2011. Under the
Termination Agreement, the management fee shall be calculated by reference to
the net asset value of the Company as at 31 December 2010, subject to certain
adjustments in respect of dividends or realisations made during 2011. SPARK
Venture Management and the Company have agreed that the Termination Agreement is
in settlement of all claims against each other.

Albion has agreed to waive its management and administration fees for the first
year to 31 December 2011. Thereafter Albion will be entitled to an annual
management fee of 2 per cent. of net asset value, along with an administration
fee of £50,000 per annum.  The aggregate fees payable for management and
administration (including the management and administration fees due to Albion,
directors' remuneration, registrars' fees, stockbrokers' fees, company
secretarial fees and the fees of the Company's auditors) will be subject to an
aggregate annual cap of 3 per cent. of net asset value. This represents a
reduction in the management fee from 2.5 per cent., no change in the annual cap
of 3 per cent. and a reduction in the administration fee.

Board change

On 1 January 2011, Jayesh Patel, managing director of SPARK Venture Management
Limited resigned from the Board. The Board has benefited from Jayesh's
experience and wise counsel and wishes to express its thanks to Jayesh for his
contribution.

Outlook and prospects

The outlook for the UK economy remains uncertain.  In particular, the full
impact of the public sector cuts on the wider economy has not yet been fully
felt.  There is a widely held view that interest rates will remain low in the
short term, which will continue to depress income from deposits.  With this in
mind, the Company is looking to expand further its portfolio of asset-based
income producing investments where we have seen an improvement in the pipeline
at attractive prices across a range of industries, with particular emphasis on
the healthcare and environmental sectors. The Board believes that the Company
has the necessary liquid assets to start its new investment policy and that
there remain opportunities to add to these resources by selective exits from the
existing portfolio.

All three Directors of your company hold significant shareholdings and are
sharply aware of the history of unsatisfactory performance. Albion's task is to
generate value for shareholders through a proactive approach in managing the
existing investment portfolio as well as by sourcing new investments in more
mature and resilient businesses. Albion will be measured on its ability to
restore the Company's fortunes.

Robert Wright

Chairman

18 April 2011

Manager's report

Portfolio review

A number of developments took place in the portfolio during the year.
Performance strengthened at a number of companies including Celoxica, Level Four
and UniServity, but fell behind plan at Celona, Cluster Seven, Isango, Sift,
Xtera and Workshare.

The pie chart showing the current distribution of assets by sector as at 31
December 2010 is attached to the end of this announcement.

An overview, showing the holding period and the revenue stage of each
investment, for the top ten investments in the portfolio as at 31 December
2010, which comprise nearly 90 per cent. of the unquoted portfolio, is set out
below.

                                % of total    Date of
                     Valuation    unquoted      first     Revenue Basis of
                         £'000   portfolio investment       stage valuation
--------------------------------------------------------------------------------
UniServity               2,371       20.3%       2007   £3m - £5m Revenue
                                                                  multiple

Workshare                1,233       10.6%       2002 £10m - £15m Revenue
                                                                  multiple

Level Four               1,229       10.5%       2005   £1m - £3m Revenue
Software                                                          multiple

Elateral                 1,214       10.4%       2001  £5m - £10m Revenue
Holdings                                                          multiple

                                                                  Price of
Oxford Immunotec         1,094        9.4%       2003  £5m - £10m recent
                                                                  investment

Cluster Seven              616        5.3%       2005   £1m - £3m Revenue
                                                                  multiple

                                                                  Price of
Xention                    607        5.2%       2003   £3m - £5m recent
                                                                  investment

                                                              Pre Price of
Haemostatix                538        4.6%       2006     revenue recent
                                                                  investment

Antenova                   496        4.3%       2001   £3m - £5m Revenue
                                                                  multiple

Imagesound                 476        4.1%       2008  £5m - £10m Earnings
                                                                  multiple
--------------------------------------------------------------------------------
Total                    9,874       84.7%
--------------------------------------------------------------------------------



Valuation changes

The changes in the valuation of the unquoted and quoted portfolios are set out
on page 13 of the Annual Report and Financial Statements.  Key changes in
valuation were driven by a number of factors, primarily performance in 2010
against plan, along with the level of third party offers received for those
investments which were marketed during the year.

We have valued all investments in line with the International Private Equity and
Venture Capital Valuation ("IPEVCV") guidelines and have valued most investments
in the portfolio using either:

  * the price of recent third party investment impaired in the event of any
    underperformance against plan; or
  * an estimate of maintainable revenues or earnings, multiplying this by the
    trading multiples of comparable quoted companies and applying a discount to
    reflect the difference in marketability between a listed company and an
    unquoted company.

Realisations

The Company realised £525,000 on sale of unquoted investments, primarily
accounted for by £502,000 from the sale of Secerno to Oracle Corporation in June
2010.  The sale of AIM stocks realised £1,375,000.  A number of companies in the
portfolio are currently being marketed and we expect further realisations during
2011.

New investments

No investments were made in new companies in 2010.

Seven follow-on investments were made in the year amounting to £854,000
including: £261,000 into Celona; £49,602 into Celoxica; £51,018 into
Haemostatix; £120,500 into Level Four; £199,056 into Oxford Immunotec; £56,600
into Sift; and £115,920 into Vivacta.

Since the year end the Company has invested further funds including:  £20,000
into Celona; £207,000 into Oxford Immunotec; £103,000 into Perpetuum; and
£116,000 into Vivacta.

We hope to achieve a number of exits during 2011 and reinvest in new companies
which will, over time, rebalance the portfolio such that approximately fifty per
cent. of the portfolio comprises an asset-based portfolio of lower risk,
ungeared businesses, principally operating in the healthcare, environmental and
leisure sectors, as well as a portfolio of higher growth businesses across a
variety of sectors of the economy.

Albion has a strong pipeline of potential new investments - in particular in
renewable energy and healthcare. We expect to close a first investment by the
end of May.

Albion Ventures LLP

Manager

18 April 2011

Responsibility statement

In preparing these financial statements for the year to 31 December 2010, the
Directors of the Company, being Mr Robert Wright, Mr Thomas Chambers and Mr Alan
Lamb, confirm that to the best of their knowledge:

- summary financial information contained in this announcement and the full
Annual Report and Financial Statements for the year ended 31 December 2010 for
the Company has been prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (UK Accounting Standards and applicable law) and
give a true and fair view of the assets, liabilities, financial position and
profit and loss of the Company for the year ended 31 December 2010 as required
by DTR 4.1.12.R;

-the Chairman's statement, Manager's report and notes include a fair review of
the information required by DTR 4.2.7R (indication of important events during
the year ended 31 December 2010 and description of principal risks and
uncertainties that the Company faces); and

-the Chairman's statement, Manager's report and notes include a fair review of
the information required by DTR 4.2.8R (disclosure of related parties
transactions and changes therein).

A detailed "Statement of Directors' responsibilities for the preparation of the
Company's financial statements" is contained within the full audited Annual
Report and Financial Statements.

By order of the Board

Robert Wright

Chairman

18 April 2011

Income statement

+-------------------------+----+-----------------------+-----------------------+
|                         |    |Year ended 31 December |Year ended 31 December |
|                         |    |         2010          |         2009          |
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|                         |    |Revenue|Capital|  Total|Revenue|Capital|  Total|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|                         |Note|  £'000|  £'000|  £'000|  £'000|  £'000|  £'000|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|Losses on valuation of   |    |       |       |       |       |       |       |
|investments at fair value|    |       |       |       |       |       |       |
|through profit and loss  | 11 |      -|(5,184)|(5,184)|      -|(3,950)|(3,950)|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|Profit on disposal of    |    |       |       |       |       |       |       |
|investments at fair value|    |       |       |       |       |       |       |
|through profit or loss   | 11 |      -|    770|    770|      -|    188|    188|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|Investment income        | 2  |     62|      -|     62|    114|      -|    114|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|Investment management    |    |       |       |       |       |       |       |
|fees                     | 4  |  (345)|      -|  (345)|  (512)|      -|  (512)|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|Other expenses           | 6  |  (269)|      -|  (269)|  (260)|      -|  (260)|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|Loss on ordinary         |    |       |       |       |       |       |       |
|activities before tax    |    |  (552)|(4,414)|(4,966)|  (658)|(3,762)|(4,420)|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|Tax on ordinary          |    |       |       |       |       |       |       |
|activities               | 8  |      -|      -|      -|      -|      -|      -|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|Loss on ordinary         |    |       |       |       |       |       |       |
|activities after tax     |    |  (552)|(4,414)|(4,966)|  (658)|(3,762)|(4,420)|
+-------------------------+----+-------+-------+-------+-------+-------+-------+
|Basic and diluted loss   |    |       |       |       |       |       |       |
|per share (pence)        | 10 |  (0.7)|  (5.7)|  (6.4)|  (0.9)|  (4.8)|  (5.7)|
+-------------------------+----+-------+-------+-------+-------+-------+-------+



The accompanying notes form an integral part of this announcement.

The 'total' column of this Income statement represents the profit and loss
account of the Company.  The supplementary revenue return and capital columns
have been prepared in accordance with The Association of Investment Companies'
Statement of Recommended Practice.

All revenue and capital 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 recognised gains or losses other than the results for the year
disclosed above.  Accordingly a statement of total recognised gains and losses
is not required.

The difference between the reported loss on ordinary activities before tax and
the historical cost profit/(loss) is due to the fair value movements on
investments.  As a result, a note on historical cost profits and losses has not
been prepared.

Balance sheet

                                               31 December 2010 31 December 2009

                                          Note            £'000            £'000
--------------------------------------------------------------------------------


Fixed asset investments                    11            12,267           17,743
--------------------------------------------------------------------------------




Current assets

Trade and other debtors                    12               377              282

Current asset investment                   12             4,407            5,689

Cash at bank and in hand                                  1,325              447
--------------------------------------------------------------------------------
                                                          6,109            6,418



Creditors: amounts falling due within one  13             (118)            (132)
year
--------------------------------------------------------------------------------
                                                          5,991

Net current assets                                                         6,286
--------------------------------------------------------------------------------


Net assets                                               18,258           24,029
--------------------------------------------------------------------------------


Capital and reserves

Called-up share capital                    14               773              775

Share premium                                               339              339

Capital redemption reserve                                   91               89

Investment holding losses                              (16,899)         (12,962)

Merger reserve                                           12,615           12,615

Special reserve                                          19,482           20,056

Profit and loss account                                   1,857            3,117
--------------------------------------------------------------------------------


Total equity shareholders' funds                         18,258           24,029
--------------------------------------------------------------------------------


Net asset value per share                  15             23.6p            31.0p
--------------------------------------------------------------------------------



The accompanying notes form an integral part of this announcement.

The Financial Statements were approved by the Board of Directors and authorised
for issue on 18 April 2011, and were signed on its behalf by:

Robert Wright

Chairman

Company number: 4063505

Reconciliation of movements in shareholder's funds

                                                                  Profit
         Called-up   Share    Capital Investment                     and
             share premium redemption    holding  Merger Special    loss
           capital account    reserve     losses reserve reserve account   Total

             £'000   £'000      £'000      £'000   £'000   £'000   £'000   £'000
--------------------------------------------------------------------------------
At 31
December
2008           785     339         79    (9,937)  12,615  21,196   3,518  28,595

Shares
purchased
for
cancellation  (10)       -         10          -       -   (146)       -   (146)

Realisation
of prior
years' net
recognised
losses on
investments      -       -          -        925       -       -   (925)       -

Transfer
from special
reserve to
profit and
loss account     -       -          -          -       -   (994)     994       -

Investment
holding loss
on valuation
of
investments      -       -          -    (3,950)       -       -   3,950       -

Loss on
ordinary
activities
after
taxation         -       -          -          -       -       - (4,420) (4,420)
--------------------------------------------------------------------------------
At 31
December
2009           775     339         89   (12,962)  12,615  20,056   3,117  24,029

Shares
purchased
for
cancellation   (2)       -          2          -       -    (30)       -    (30)

Realisation
of prior
years' net
recognised
losses on
investments      -       -          -      1,247       -       - (1,247)       -

Transfer
from special
reserve to
profit and
loss account     -       -          -          -       -   (544)     544       -

Investment
holding loss
on valuation
of
investments      -       -          -    (5,184)       -       -   5,184       -

Loss on
ordinary
activities
after
taxation         -       -          -          -       -       - (4,966) (4,966)

Dividends        -       -          -          -       -       -   (773)   (773)
--------------------------------------------------------------------------------
At 31
December
2010           773     339         91   (16,899)  12,615  19,482   1,857  18,258
--------------------------------------------------------------------------------



The accompanying notes form an integral part of this announcement.

The special reserve is a distributable reserve, created by the cancellation of
the share premium account.  This allows the Company, amongst other things, to
fund the buy-back of its Ordinary shares and to pay dividends to shareholders
earlier than would otherwise have been possible, as transfers can be made from
this reserve to the profit and loss account to offset losses on disposal of
investments and for investments that have been fair valued to zero, with no
chance of recovering the cost of these investments.

A transfer of £544,000 (represents losses of previous years now treated as
recognised or written off) has been made from the special reserve to the profit
and loss account.

Other unrealised gains and losses arising on investments held at fair value are
transferred to the investment holding losses reserve.

Cash flow statement

                                             31 December 2010 31 December 2009

                                        Note            £'000            £'000
------------------------------------------------------------------------------


Net cash flow from operating activities 17              (650)              159



Taxation

UK corporation tax recovered/(paid)                         -                -



Financial investments

Purchase of fixed asset investments     11              (854)          (1,335)

Disposal of fixed asset investments     11              1,939              319

Disposal of current asset investment                    1,282            1,146
------------------------------------------------------------------------------


Net cash flow from investing activities                 2,367              130



Equity dividends paid                   9               (773)                -
------------------------------------------------------------------------------


Net cash flow before financing                            944              289
------------------------------------------------------------------------------


Financing

Purchase of own shares                                   (66)            (146)
------------------------------------------------------------------------------


Net cash flow from financing                             (66)            (146)
------------------------------------------------------------------------------


Cash flow in the year                   16                878              143
------------------------------------------------------------------------------



The accompanying notes form an integral part of this announcement.

Notes to the Financial Statements

1 Accounting policies

A summary of the principal accounting policies, all of which have been applied
consistently in current and prior periods, is set out below:

Basis of accounting

The Financial Statements have been prepared in accordance with the historical
cost convention, except for the measurement of fair value of investments, and in
accordance with applicable UK law and accounting standards and with the
Statement of Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" (AIC SORP) issued by The Association of
Investment Companies in January 2009.  As disclosed in the Directors' report on
page 26 of the Annual Report and Financial Statements, the accounts are prepared
on a going concern basis.

Fixed asset investments

The Company's business is investing in financial assets with a view to profiting
from their total return in the form of income and capital growth.  This
portfolio of financial assets is managed and its performance evaluated on a fair
value basis, in accordance with a documented investment policy, and information
about the portfolio is provided internally on that basis to the Board.

Upon initial recognition (using trade date accounting) investments are
designated by the Company as 'at fair value through profit or loss' and are
included at their initial fair value, which is cost (excluding expenses
incidental to the acquisition which are written off to the profit and loss
account).

Subsequently, the investments are valued at 'fair value', which is measured as
follows:

-      Investment listed on recognised exchanges are valued at their bid prices
at the end of the accounting year or otherwise at fair value based on published
price quotations;

-      Unquoted investments, where there is not an active market, are valued
using an appropriate valuation technique in accordance with the IPEVCV
guidelines.  Indicators of fair value are derived using established
methodologies including earnings multiples, the level of third party offers
received, prices of recent investment rounds, net assets and industry valuation
benchmarks. Where the Company has an investment in an early stage enterprise,
the price of a recent investment round is often the most appropriate approach to
determining fair value. In situations where a period of time has elapsed since
the date of the most recent transaction, consideration is given to the
circumstances of the investee company since that date in determining fair
value.  This includes consideration of whether there is any evidence of
deterioration or strong definable evidence of an increase in value. In the
absence of these indicators, the investment in question is valued at the amount
reported at the previous reporting date. Examples of events or changes that
could indicate a diminution include:

   -    the performance and/or prospects of the underlying business are
significantly below the expectations on which the investment was based;

   -    a significant adverse change either in the investee company's business
or in the technological, market, economic, legal or regulatory environment in
which the business operates; or

   -    market conditions have deteriorated, which may be indicated by a fall in
the share prices of quoted businesses operating in the same or related sectors.

It is not the Company's policy to exercise control or significant influence over
investee companies. Therefore, in accordance with the exemptions under FRS 9
"Associates and Joint Ventures", those undertakings in which the Company holds
more than 20 per cent., but less than 50 per cent., of the equity of an
investment company, and the investment company is not a subsidiary, are not
regarded as associated undertakings.

Current asset investments

In accordance with FRS 26, units held in funds used for cash management are
designated as fair value through profit and loss.  These investments are
classified as current asset investments as they are investments held for the
short term and comparative classification in the Balance sheet and Cash flow
statement has been restated accordingly.

Gains and losses on investments

Gains and losses arising from changes in the fair value of the investments are
included in the Income statement for the year as a Capital item and are
allocated to Investment holding losses.

Investment Income

Dividends receivable on quoted equity shares are recognised on the ex-dividend
date.  Income receivable on unquoted equity and non-equity shares and loan notes
is recognised when the Company's right to receive payment and expect settlement
is established.  Fixed returns on non-equity shares and debt securities are
recognised on a time apportionment basis (including amortisation of any premium
or discount to redemption) so as to reflect the effective interest rate,
provided there is no reasonable doubt that payment will be received in due
course.  Income from fixed interest securities and deposit interest is included
on an effective interest rate basis.

Expenses

All expenses, including expenses incidental to the acquisition or disposal of an
investment, are accounted for on an accruals basis and are charged wholly to the
profit and loss account.  Costs associated with the issue of shares are charged
to the share premium account.  Costs associated with the buy back of shares are
charged to the special reserve.

All other expenses including management fees are presented within the Revenue
column of the Income statement.

Taxation

Corporation tax is applied to profits chargeable to corporation tax, if any, at
the applicable rate for the period.  The Company has not provided for deferred
tax on any capital gains or losses arising on the revaluation or disposal of
investments as these items are not subject to tax whilst the Company maintains
its Venture Capital Trust status.  The Company intends to continue to meet the
conditions required for it to hold approved Venture Capital Trust status for the
foreseeable future.  Deferred tax assets in respect of surplus management
expenses are only recognised to the extent that such assets are likely to be
recoverable against future taxable profits of the Company.

Foreign exchange

The currency of the primary economic environment in which the Company operates
(the functional currency) is pounds sterling ("Sterling"), which is also the
presentational currency of the Company.  Transactions involving currencies other
than Sterling are recorded at the exchange rate ruling on the transaction date.
At each Balance sheet date, monetary items and non-monetary assets and
liabilities that are measured at fair value, which are denominated in foreign
currencies, are retranslated at the closing rates of exchange.  Exchange
differences arising on settlement of monetary items and from retranslating at
the Balance sheet date of investments and other financial instruments measured
at fair value through profit or loss, and other monetary items, are included in
the Profit and loss account.  Exchange differences relating to investments and
other financial instruments measured at fair value are subsequently included in
the transfer to the Investment holding losses.

Dividends

Dividends payable to equity shareholders are recognised when they are paid, or
have been approved by shareholders in an Annual General Meeting.

2  Investment income                                 Year ended       Year ended

                                               31 December 2010 31 December 2009

                                                          £'000            £'000
--------------------------------------------------------------------------------
Dividend income

-  Listed companies - UK                                      1                1

Interest receivable

- Listed fixed interest securities                            -                -

- Loans to investee companies                                31               24

- Bank deposits                                               7                1

- VAT reclaim                                                 -               28

Other income (The Royal Bank of Scotland                     23               60
Global Treasury Fund plc)
--------------------------------------------------------------------------------
                                                             62              114
--------------------------------------------------------------------------------



3  Recoverable VAT

HM Revenue and Customs ("HMRC") issued a business briefing on 24 July 2008,
which permitted the recovery of historic VAT that had been charged on management
fees, and which made these fees exempt from VAT with effect from 1 October
2008.

As previously advised in 2009, the Manager paid to the Company an amount of
£400,000 that it had received from HMRC for the repayment of historic VAT.  It
is possible that small additional amounts of VAT will be recoverable in due
course and a claim has been submitted.  However, the Directors are unable at
this stage to quantify the sums involved.



 4  Investment management fees         Year ended         Year ended

                                 31 December 2010   31 December 2009

                                            £'000              £'000
---------------------------------------------------------------------
 Investment management fees                   345                512
---------------------------------------------------------------------



During the year to 31 December 2010, SPARK Venture Management Limited provided
investment management services to the Company under an agreement dated 20
October 2000.  SPARK Venture Management Limited is a wholly owned subsidiary of
SPARK Venture Management Holdings Limited, a company of which Jayesh Patel is an
executive director and in which he is a beneficial shareholder.  Jayesh Patel is
also an executive director of SPARK Venture Management Limited.

SPARK Venture Management Limited was entitled to receive a management fee,
determined quarterly in arrears, at the annual rate of 2.5 per cent. on the
value of the Company's net assets at the end of each quarter.  This fee is
capped to ensure that the Company's normal running costs do not exceed 3.0 per
cent. of closing net asset value. There was a reduction of £200,000 in the
management fee in respect of the cap for the year ended 31 December 2010 (2009:
£85,000).

SPARK Venture Management Limited also provided administrative and secretarial
services to the Company for which it was entitled to a fee of £63,000 for the
year (2009: £61,000).

The Company and SPARK Venture Management Limited entered into a Termination
Agreement on 8 December 2010, pursuant to which the Company has agreed to pay
SPARK Venture Management Limited the management and administration fees due
under the Investment Management Agreement for the period until 30 November
2011.  Under the Termination Agreement, the management fee shall be calculated
by reference to the net asset value of the Company as at 31 December 2010,
subject to appropriate adjustments in respect of dividends or realisations made
during 2011.  SPARK Venture Management Limited and the Company have agreed that
the Termination Agreement is in settlement of all claims against each other.

Albion Ventures LLP signed an Investment Management Agreement with the Company
on 8 December 2010, which came into effect on 1 January 2011.  Albion Ventures
LLP will provide investment management, company secretarial and administrative
services to the Company.  Albion Ventures LLP has agreed to waive its management
and administration fees for the first year to 31 December 2011.  Thereafter
Albion Ventures LLP will be entitled to an annual management fee of 2 per cent.
of net asset value, along with an annual administration fee of £50,000.  This
represents a reduction in both the management and administration fees.

Under the terms of the Investment Management Agreement with Albion Ventures LLP,
the aggregate fees payable for management and administration (normal running
costs) are subject to an aggregate annual cap of 3 per cent. of the year end
closing net asset value, commencing 31 December 2012.

The Investment Management Agreement is for an initial period expiring on 31
December 2013 and thereafter can be terminated by either party on 12 months'
notice.  The Investment Management Agreement is subject to earlier termination
in the event of certain breaches or on the insolvency of either party.

The Manager is entitled to arrangement fees payable by investee companies (up to
a maximum of 2 per cent. of the amount invested) and to fees charged for the
monitoring of investments (up to a maximum of £15,000 per annum).  The maximums
are increased by the Retail Prices Index each year.

5  Performance incentive fee

As at 31 December 2010, the Company had no performance incentive fee
arrangements.

The Company has agreed with Albion Ventures LLP that no performance or incentive
fee will be payable to Albion Ventures LLP for any years prior to 31 December
2012.



6  Other expenses                                    Year ended       Year ended

                                               31 December 2010 31 December 2009

                                                          £'000            £'000
--------------------------------------------------------------------------------
Administrative and secretarial services                      63               61

Directors' remuneration (note 7)                             52               46

Auditor's remuneration

- Fees payable for audit of the financial                    18               17
statements

- Fees payable for other services relating to                 5                7
tax

Legal and professional expenses                              19               45

Insurance                                                     7                6

UKLA, LSE and registrars' fees                               26               26

Transaction costs                                             -                4

Irrecoverable VAT                                            30                5

Other expenses                                               49               43
--------------------------------------------------------------------------------
                                                            269              260
--------------------------------------------------------------------------------



 7  Directors' fees                  Year ended         Year ended

                               31 December 2010   31 December 2009

                                          £'000              £'000
-------------------------------------------------------------------
 Amount payable to Directors                 52                 46
-------------------------------------------------------------------



Further information regarding Directors remuneration can be found in the
Directors' remuneration report on page 28 of the Annual Report and Financial
Statements.

 8  Tax on ordinary activities         Year ended         Year ended

                                 31 December 2010   31 December 2009

                                            £'000              £'000
---------------------------------------------------------------------
 UK Corporation tax payable                     -                  -
---------------------------------------------------------------------



Reconciliation of loss on ordinary activities        Year ended       Year ended
to taxation charge
                                               31 December 2010 31 December 2009

                                                          £'000            £'000
--------------------------------------------------------------------------------
Loss on ordinary activities before taxation             (4,966)          (4,420)
--------------------------------------------------------------------------------


Tax on loss on ordinary activities at standard
UK corporation tax rate of 28% (2009: 28%)                1,390            1,238



Effects of:

Non taxable items - UK dividends and net                (1,236)          (1,106)
losses on investments

Unutilised management expenses                            (154)            (132)
--------------------------------------------------------------------------------
                                                              -                -
--------------------------------------------------------------------------------



The Company has excess trading losses of £6,205,000 (2009: £5,652,000) that are
available for offset against future profits.  A deferred tax asset of £1,737,000
(2009:  £1,583,000) has not been recognised in respect of those losses as they
will be recoverable only to the extent that the Company has sufficient future
taxable profits.

9  Dividends                                         Year ended       Year ended

                                               31 December 2010 31 December 2009

                                                          £'000            £'000
--------------------------------------------------------------------------------
Interim dividend of 1 penny per share paid on
24 September 2010 in respect of the year ended
31 December 2010                                            773                -
--------------------------------------------------------------------------------



There were no dividends paid in the year ended 31 December 2009.

The total reserves available for distribution by way of a dividend is £4,440,000
(2009: £10,211,000), comprising the special reserve and the profit and loss
account, less net Investment holding losses.

The Directors propose a final dividend of 1 penny per share for the year ended
31 December 2010, to be approved at the Annual General Meeting, which will
amount to approximately £773,000.

10  Earnings per share

The revenue loss per share of 0.7 pence (2009: loss 0.9 pence) is based on the
revenue loss on ordinary activities after tax of £552,000 (2009: loss £658,000)
and on the weighted average number of shares in issue during the year of
77,403,665 (2009: 77,968,095).

The capital loss per share of 5.7 pence (2009: loss 4.8 pence) is based on the
capital loss on ordinary activities after tax of £4,414,000 (2009: loss
£3,762,000) and on the weighted average number of shares in issue during the
year of 77,403,665 (2009: 77,968,095).

The total loss per share of 6.4 pence (2009: loss 5.7 pence) is based on the
loss on ordinary activities after tax of £4,966,000 (2009: loss £4,420,000) and
on the weighted average number of shares in issue during the year of 77,403,665
(2009: 77,968,095).

There is no dilution effect in respect of the year ended 31 December 2010 (2009:
nil).

11  Fixed asset investments

Summary of fixed asset investments            31 December 2010 31 December 2009

                                                         £'000            £'000
-------------------------------------------------------------------------------
Unquoted equity                                         10,273           14,870

Unquoted loan stock                                      1,372              978

Quoted equity                                              622            1,895
-------------------------------------------------------------------------------
                                                        12,267           17,743
-------------------------------------------------------------------------------
Movements in fixed asset investments                                      £'000
-------------------------------------------------------------------------------
Cost at 1 January 2010                                                   30,705

Investment holding losses at 1 January 2010                            (12,962)
-------------------------------------------------------------------------------
Valuation at 1 January 2010                                              17,743



Purchases at cost                                                           854

Disposal proceeds                                                       (1,916)

Realised gains                                                              770

Unrealised losses                                                       (5,184)
-------------------------------------------------------------------------------
Valuation at 31 December 2010                                            12,267
-------------------------------------------------------------------------------


Cost at 31 December 2010                                                 29,166

Investment holding losses at 31 December 2010                          (16,899)
-------------------------------------------------------------------------------
Valuation at 31 December 2010                                            12,267
-------------------------------------------------------------------------------

Amounts shown as cost represent the acquisition cost in the case of investments
made by the Company and/or the valuation attributed to the investments acquired
from SPARK VCT 3 plc at the date of the merger in 2008, plus any subsequent
acquisition cost.

Loss on fixed asset investments

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

                                             31 December 2010 31 December 2009

                                                        £'000            £'000

Loss on valuation of investments at fair
value through profit and loss

Net loss on valuation of investments                  (5,184)          (3,950)
-------------------------------------------------------------------------------


Loss on disposal of investments at fair
value through profit and loss:

Net profit/(loss) on disposals                            478             (47)

Recoveries made in respect of investments                 292              235
previously written off
-------------------------------------------------------------------------------
                                                          770              188
-------------------------------------------------------------------------------


                                                      (4,414)          (3,762)
-------------------------------------------------------------------------------
"Net loss on disposals" represents the difference between
proceeds received and the
carrying values of these investments sold during the year.

Movements in unrealised losses                                             £'000
--------------------------------------------------------------------------------
Opening accumulated unrealised losses                                   (12,962)

Transfer of previously unrealised losses to realised reserve               1,247
on disposal of investments

Movement in unrealised gains/(losses)                                    (5,184)
--------------------------------------------------------------------------------
Accumulated unrealised losses at 31 December 2010                       (16,899)
--------------------------------------------------------------------------------

Historic cost basis of fixed asset investments                             £'000
--------------------------------------------------------------------------------
Opening book cost                                                         30,251

Purchases at cost                                                            854

Sales at cost                                                            (1,939)
--------------------------------------------------------------------------------
Book cost at 31 December 2010                                             29,166
--------------------------------------------------------------------------------

Fixed asset investment valuation methodologies                             £'000
--------------------------------------------------------------------------------
Revenue multiple                                                           5,275

Price of recent investment                                                 3,144

Earnings multiple                                                          3,097

Cost reviewed current performance                                            129

Bid price                                                                    622
--------------------------------------------------------------------------------
                                                                          12,267
--------------------------------------------------------------------------------



The valuation will be the most appropriate valuation methodology for an
investment within its market, with regard to the financial health of the
investment and the September 2009 IPEVCV Guidelines.  The Directors believe that
the methods used are the most appropriate methods of valuation as at 31 December
2010.

                                     Value as at

                                31 December 2010
Change in valuation methodology
(2009 to 2010)                             £'000 Explanatory Note
--------------------------------------------------------------------------------
Price of recent investment to              2,121 More relevant industry
revenue multiple                                 benchmarks available

Price of recent investment to              2,372 More relevant industry
earnings multiple                                benchmarks available

Cost reviewed recent
performance to price of recent                   New investment made within the
investment round                             861 past year

Revenue multiple to earnings                 241
multiple                                         Company making profits

Cost reviewed recent                          71 Company making profits
performance to revenue multiple


--------------------------------------------------------------------------------

Fair value hierarchy

The amended FRS 29 'Financial Instruments: Disclosures' requires the Company to
disclose the inputs to the valuation methods applied to its investments at fair
value through profit or loss in a fair value hierarchy according to the
following definitions:

Fair value hierarchy Definition
--------------------------------------------------------------------------------
Level 1              Unadjusted quoted (bid) prices applied where an active
                     market exists

Level 2              Inputs to valuation are from observable sources and are
                     directly or indirectly derived from prices

Level 3              Inputs to valuations not based on observable market data
--------------------------------------------------------------------------------

Fixed asset investments at fair value through profit or loss as at 31 December
2010 are categorised in accordance with FRS 29 as follows:

                       31 December 2010   Level 1   Level 2   Level 3

                                  £'000     £'000     £'000     £'000
----------------------------------------------------------------------
 Unquoted equity                 10,273         -         -    10,273

 Unquoted loan stock              1,372         -         -     1,372

 Quoted equity                      622       622         -         -
----------------------------------------------------------------------
                                 12,267       622         -    11,645
                     -------------------------------------------------

 Fixed asset investments at fair value through profit or loss as at 31 December
2009 are categorised in accordance with FRS 29 as follows:

                       31 December 2009   Level 1   Level 2   Level 3

                                  £'000     £'000     £'000     £'000
----------------------------------------------------------------------
 Unquoted equity                 14,870         -         -    14,870

 Unquoted loan stock                978         -         -       978

 Quoted equity                    1,895     1,895         -         -
----------------------------------------------------------------------
                                 17,743     1,895         -    15,848
                     -------------------------------------------------



Level 3 reconciliation                    31 December 2010 31 December 2009

                                                     £'000            £'000
---------------------------------------------------------------------------
Valuation as at 31 December 2009                    15,848           18,837

Purchases at cost                                      854            1,329

Disposal proceeds                                    (515)             (70)

Realised net profits/(losses) on disposal              273             (53)

Investment holding losses                          (4,815)          (4,195)
---------------------------------------------------------------------------
Valuation as at 31 December 2010                    11,645           15,848
---------------------------------------------------------------------------



FRS29 requires the Directors to consider the impact of changing one or more of
the inputs used as part of the valuation process.  The valuation methodology
applied to 72 per cent. of the unquoted portfolio (level 3) is neither price of
recent investment nor cost.  The Directors believe that changes to the
reasonable possible alternative assumptions for the valuation of this part of
the portfolio could result in an increase of £0.4m or a decrease of £.03m in the
valuation of the unquoted investments

12  Current assets include the following;    31 December 2010 31 December 2009

Trade and other debtors                                 £'000            £'000
------------------------------------------------------------------------------
Other debtors                                             120              178

Prepayments and accrued income                            257              104
------------------------------------------------------------------------------
                                                          377              282
                                            ----------------------------------



The Directors consider that the carrying amount of debtors is not materially
different to their fair value.

Current asset investments                      31 December 2010 31 December 2009

                                                          £'000            £'000
--------------------------------------------------------------------------------
The Royal Bank of Scotland Global Treasury                4,407            5,689
Funds plc
--------------------------------------------------------------------------------



The investment in the The Royal Bank of Scotland Global Treasury Funds plc
represents money held for investment.  The units can be converted into cash
within five working days.

13  Creditors: amounts falling due within one  31 December 2010 31 December 2009
year
                                                          £'000            £'000

--------------------------------------------------------------------------------
Trade creditors                                              30                -

Accruals                                                     63               89

Other creditors                                              25               43
--------------------------------------------------------------------------------
                                                            118              132
--------------------------------------------------------------------------------



The Directors consider that the carrying amount of creditors is not materially
different to their fair value.

14  Called up share capital                    31 December 2010 31 December 2009

                                                          £'000            £'000
--------------------------------------------------------------------------------
Authorised:

100,000,000 (2009: 100,000,000) ordinary                  1,000            1,000
shares of 1p
--------------------------------------------------------------------------------
Allotted, issued and fully paid:

77,309,035 (2009: 77,554,035) ordinary shares               773              775
of 1p
--------------------------------------------------------------------------------



During the year, 245,000 shares, representing 0.3 per cent. of the opening
issued share capital, at a cost of £30,000, were bought back for cancellation by
the Company (2009:  980,841 shares, representing 1.2 per cent. of the opening
issued share capital, at a cost of £146,168).

15  Net asset value per share

The net asset value per share as at 31 December 2010 of 23.6p (2009: 30.1p) is
based on net assets of £18,258,000 (2009: £24,027,000) divided by the
77,309,035 ordinary shares in issue at that date (2009: 77,554,035).

16  Analysis of changes in cash during the     31 December 2010 31 December 2009
year
                                                          £'000            £'000

--------------------------------------------------------------------------------
Opening cash balances                                       447              304

Net cash inflow                                             878              143
--------------------------------------------------------------------------------
Closing cash balances                                     1,325              447
--------------------------------------------------------------------------------



17  Reconciliation of operating loss to net          Year ended       Year ended
cash flow from operating activities
                                              31  December 2010 31 December 2009
                                                          £'000            £'000
--------------------------------------------------------------------------------
Loss on ordinary activities before tax                  (4,966)          (4,420)

Loss on investments at fair value through                 4,414            3,762
profit or loss

(Increase)/decrease in debtors                            (121)            1,082

Increase/(decrease) in creditors                             23            (265)
--------------------------------------------------------------------------------
Cash flow from operating activities                       (650)              159
--------------------------------------------------------------------------------

18. Capital and financial instruments risk management

The Company's capital comprises Ordinary shares as described in note 14.  The
Company is permitted to buy-back its own shares for cancellation and this is
described in more detail in the explanation of proposed resolutions on page 51
of the Annual Report and Financial Statements.

The Company's financial instruments comprise equity and loan stock investments
in unquoted and quoted companies, cash balances and liquid cash instruments, and
short term debtors and creditors which arise from its operations.  The main
purpose of these financial instruments is to generate cashflow, revenue and
capital appreciation for the Company's operations.  The Company has no gearing
or other financial liabilities apart from short term creditors. The Company does
not use any derivatives for the management of its balance sheet.

The principal risks arising from the Company's operations are:

  * Investment (or market) risk (which comprises investment price and cash flow
    interest rate risk);
  * credit risk; and
  * liquidity risk.

The Board regularly reviews and agrees policies for managing each of these
risks.  There have been no changes in the nature of the risks that the Company
has faced during the past year, and apart from where noted below, there have
been no changes in the objectives, policies or processes for managing risks
during the past year. The key risks are summarised below.

Investment risk

As a venture capital trust, it is the Company's specific nature to evaluate and
control the investment risk of its portfolio in unquoted and quoted investments,
details of which are shown on pages 13 to 15 of the Annual Report and Financial
Statements.  Investment risk is the exposure of the Company to the revaluation
and devaluation of investments.  The main driver of investment risk is the
operational and financial performance of the investee company and the dynamics
of market quoted comparators.  The Manager receives management accounts from
investee companies, and members of the investment management team often sit on
the boards of unquoted investee companies; this enables the close
identification, monitoring and management of investment risk.

The Manager and the Board formally reviews investment risk (which includes
market price risk), both at the time of initial investment and at quarterly
Board meetings.

The Board monitors the prices at which sales of investments are made to ensure
that profits to the Company are maximised, and that valuations of investments
retained within the portfolio appear sufficiently prudent and realistic compared
to prices being achieved in the market for sales of unquoted investments.

The maximum investment risk as at the balance sheet date is the value of the
fixed and current investment portfolio which is £16,674,000 (2009: £23,432,000).
 Fixed and current asset investments form 91 per cent. of the net asset value as
at 31 December 2010 (2009: 98 per cent.).

More details regarding the classification of investments are shown in note 11.

Investment price risk

Investment price risk is the risk that the fair value of future investment cash
flows will fluctuate due to factors specific to an investment instrument or to a
market in similar instruments.  As a venture capital trust the Company invests
in unquoted and quoted companies in accordance with the investment policy set
out on page 17 of the Annual Report and Financial Statements.  The management of
risk within the venture capital portfolio is addressed though careful investment
selection, by diversification across different industry segments, by maintaining
a wide spread of holdings in terms of financing stage and by limitation of the
size of individual holdings.  The Directors monitor the Manager's compliance
with the investment policy, review and agree policies for managing this risk and
monitor the overall level of risk on the investment portfolio on a regular
basis.

Valuations are based on the most appropriate valuation methodology for an
investment within its market, with regard to the financial health of the
investment and the IPEVCV guidelines. Details of the sectors in which the
Company is currently invested are shown in the pie chart on page 9 of the Annual
Report and Financial Statements of the Managers report.

As required under FRS 29 "Financial Instruments: Disclosures", the Board is
required to illustrate by way of a sensitivity analysis the degree of exposure
to market risk.  The Board considers that the value of the fixed asset
investment portfolio is sensitive to a 10 per cent. change based on the current
economic climate.  The impact of a 10 per cent. change has been selected as this
is considered reasonable given the current level of volatility observed both on
a historical basis and future expectations.

The sensitivity of a 10 per cent. increase or decrease in the valuation of the
fixed asset investments (keeping all other variables constant) would increase or
decrease the net asset value and return for the year by £1,227,000 (2009:
£1,774,000).

Foreign currency risk

The Company is unlikely to be significantly affected by currency fluctuation.
Revenue received in currencies other than sterling is converted into sterling on
or shortly after the date of receipt as are any proceeds from the disposal of
foreign currency investments.

At the year ended 31 December 2010, the Company held investments denominated in
currencies other than sterling of £479,000 (2009: £801,000).

Cash flow interest rate risk

It is the Company's policy to accept a degree of interest rate risk on its
financial assets through the effect of interest rate changes. On the basis of
the Company's analysis, it is estimated that a rise of one percentage point in
all interest rates would have increased total return before tax for the year by
approximately £63,000 (2009: £98,000).  Furthermore, it is considered that a
fall of interest rates below current levels during the year would have been
unlikely.

The weighted average interest rate applied to the Company's fixed rate assets
during the year was approximately 2.1 per cent. (2009: 1.5 per cent.).  The
weighted average period to maturity for the fixed rate assets is approximately
2.2 years (2009: 1.3 years).

The Company's financial assets and liabilities as at 31 December 2010,
denominated in pounds sterling, consist of the following:

                     31 December 2010                  31 December 2009

                                   Non-
                                                                     Non-
                     Floating  interest                Floating  interest
              Fixed      rate   bearing  Total  Fixed      rate   bearing  Total
               rate                              rate
              £'000     £'000     £'000  £'000  £'000     £'000     £'000  £'000
--------------------------------------------------------------------------------
Unquoted
equity            -         -    10,273 10,273      -         -    16,237 16,237

Quoted
equity            -         -       622    622      -         -       528    528

Unquoted
loan stock      679        57       636  1,372    450       528         -    978

Debtors           -         -       377    377      -         -       282    282

Current
assets
investments       -     4,407         -  4,407      -     5,689         -  5,689

Current
liabilities       -         -     (118)  (118)      -         -     (132)  (132)

Cash              -     1,325         -  1,325      -       447         -    447
--------------------------------------------------------------------------------
Total net
assets          679     5,789    11,790 18,258    450     6,664    16,915 24,029
--------------------------------------------------------------------------------

Credit risk

Credit risk is the risk that the counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with the
Company. The Company is exposed to credit risk through its debtors, investment
in unquoted loan stock and cash held on deposit and in cash funds with banks.

The Manager evaluates credit risk on loan stock instruments prior to investment,
and as part of its ongoing monitoring of investments. In doing this, it takes
into account the extent and quality of any security held. Typically loan stock
instruments have a first fixed charge or a fixed and floating charge over the
assets of the investee company in order to mitigate the gross credit risk. The
Manager receives management accounts from investee companies, and members of the
investment management team often sit on the boards of unquoted investee
companies; this enables the close identification, monitoring and management of
investment specific credit risk.

The Manager and the Board formally review credit risk (including debtors) and
other risks, both at the time of initial investment and at quarterly Board
meetings.

The Company's total gross credit risk at 31 December 2010 was limited to
£1,372,000 (2009: £978,000) of unquoted loan stock instruments, £4,407,000 units
held in The Royal Bank of Scotland Global Treasury Funds plc (2009: £5,689,000)
and £1,325,000 (2009: £447,000) cash deposits on deposit with banks and £377,000
debtors.

As at the balance sheet date, the cash and liquid investments held by the
Company are held with The Royal Bank of Scotland plc and The Royal Bank of
Scotland Global Treasury Funds plc.  Credit risk on cash transactions is
mitigated by transacting with counterparties that are regulated entities subject
to regulatory supervision, with Moody's credit ratings of at least 'A' or
equivalent as assigned by international credit-rating agencies.

Liquidity risk

Liquid assets are held as cash on current account, cash on deposit or as units
in short term money market funds. Under the terms of its Articles, the Company
has the ability to borrow an amount equal to its adjusted capital and reserves
of the latest published audited balance sheet.

The Company has no committed borrowing facilities as at 31 December 2010 (2009:
£nil).

There are no externally imposed capital requirements other than the minimum
statutory share capital requirements for public limited companies.

The main cash outflows are for new investments, share buy-backs and dividend
payments, which are within the control of the Company. The Manager formally
reviews the cash requirements of the Company on a monthly basis, and the Board
on a quarterly basis as part of its review of management accounts and
forecasts.  The Company's financial liabilities at 31 December 2010 are short
term in nature and total £118,000 (2009: £132,000).

The carrying value of loan stock investments analysed by expected maturity dates
is as follows:

                           31 December 2010               31 December 2009
--------------------------------------------------------------------------------
                              Fully                       Fully
                    performing loan   Past due       performing   Past due
                              stock loan stock Total loan stock loan stock Total
Redemption date               £'000      £'000 £'000      £'000      £'000 £'000
--------------------------------------------------------------------------------


Less than one
year                              -         20    20          -          -     -

1-2 years                       959          -   959          -          -     -

2-3 years                       108          -   108      1,016          - 1,016

3-5 years                       228         57   285        120          -   120
--------------------------------------------------------------------------------
                              1,295         77 1,372      1,136          - 1,136
--------------------------------------------------------------------------------



Loan stock categorised as past due includes:

  * Loan stock valued at £77,000 has capital and interest past due by more than
    3 months.

In view of the factors identified above, the Board considers that the Company is
subject to low liquidity risk.

Fair values of financial assets and financial liabilities

All the Company's financial assets and liabilities as at 31 December 2010 are
stated at fair value as determined by the Directors.  There are no financial
liabilities other than creditors.  The Company's financial liabilities are all
non-interest bearing.  It is the Directors' opinion that the book value of the
financial liabilities is not materially different to the fair value and all are
payable within one year.

19  Commitments and guarantees

As at 31 December 2010, there were no legal commitments (2009: £nil) in respect
of further funding to be provided to existing investee companies.

There were no contingent liabilities or guarantees given by the Company as at
31 December 2010 (2009: £nil).

20  Significant holdings

The principal activity of the Company is to select and hold a portfolio of
investments in unquoted securities.  Although the Company, through the Manager,
will, in some cases, be represented on the board of the investee company, it
will not take a controlling interest or become involved in the management.  The
size and structure of the companies with unquoted securities may result in
certain holdings in the portfolio representing a participating interest without
there being any partnership, joint venture or management consortium agreement.

The Company has interests of greater than 20 per cent. of the nominal value of
any class of the allotted shares in the investee companies as at 31 December
2010 are described below.  All of the companies are incorporated in Great
Britain.

                                                     Number of   Proportion of

 Company                       Class of share      shares held      class held
-------------------------------------------------------------------------------
 Celona Technologies Limited   D Ordinary shares       200,000           37.6%

 UniServity Limited            Ordinary shares          14,350            9.1%

                               A Ordinary shares        50,256           58.3%

                               B Ordinary shares        25,960           58.3%
-------------------------------------------------------------------------------



As permitted by FRS 9, the investments listed above are held as part of an
investment portfolio, and their value to the Company is as part of a portfolio
of investments.  Therefore, these investments are not considered to be
associated undertakings.

21  Co-investment

The Company made venture capital investments in companies in which other funds
managed by SPARK Venture Management Limited have also invested.

For the purpose of this note, the following abbreviations apply:

KAY                    Kings Arms Yard VCT PLC (formerly SPARK VCT plc)

SPK                    SPARK Ventures plc

QVP                    Quester Venture Partnership

ICF                    Isis College Fund Limited Partnership and Second Isis
                       College Fund Limited Partnership

Lachesis               Lachesis Seed Fund Limited Partnership

Co-investors          Company

KAY, SPK and ICF      Academia Networks Limited

KAY                   Allergy Therapeutics plc

KAY and QVP           Antenova Limited

KAY and QVP           Celldex Therapeutics, Inc

KAY and QVP           Cluster Seven Ltd

KAY and QVP           Elateral Holdings Limited

KAY, QVP and Lachesis Haemostatix Limited

KAY                   Imagesound plc

KAY and SPK           Isango! Limited

KAY and QVP           Level Four Software Limited

KAY, QVP and ICF      MediGene AG

KAY and ICF           Oxonica Limited

KAY and QVP           Perpetuum Limited

KAY                   Sift Limited

KAY and SPK           Skinkers Limited

KAY                   Symetrica Limited

KAY                   TeraView Limited

KAY                   UniServity Limited

KAY and QVP           Vivacta Limited

KAY                   We7 Limited

KAY and QVP           Workshare Limited





With effect from 1 January 2011, the Company will be investing in companies in
which other funds managed by Albion Ventures LLP have also invested.  At the
date these accounts were signed, no such investments have yet been made.

22  Post balance sheet events

Since the year end, the Company has had the following post balance sheet events
all being additional investments in:

-           Celona Technologies Limited of £20,000 in January 2011;

-           Perpetuum Limited of £103,000 in February 2011;

-           Oxford Immunotec Limited of £208,000 in February 2011; and

-           Vivacta Limited of £116,000 in March 2011.

23  Related party disclosures

During the year to 31 December 2010, the previous Manager, SPARK Venture
Management Limited, was considered to be a related party by virtue of the fact
that Jayesh Patel, a Director of the Company, is also a director of the previous
Manager.  The Manager is party to a Management agreement from the Company
(details disclosed note 4 of this Report).  During the year, services of a total
value of £345,000 (2009: £512,000) were purchased by the Company from SPARK
Venture Management Limited.  As at 31 December 2010, an amount of £200,000 is
reflected in prepayments as a result of the operation of the expenses cap.

During the year to 31 December 2010, SPARK Investors Limited, (a fellow
subsidiary of the previous Manager, SPARK Venture Management Limited) was also
considered to be a related party by virtue of the fact that Jayesh Patel acted
as a director, was from time to time eligible to receive transaction fees and
directors' fees from investee companies.  During the year ended 31 December
2010, fees of £23,000 attributable to the investments of the Company were
received pursuant to these arrangements (2009: £23,000).

There were no transactions, during the year, by Directors in investments in
which the Company has invested (2009: nil).

With effect from 1 January 2011, the Manager, Albion Ventures LLP, is considered
to be a related party by virtue of the fact that it is party to an Investment
Management agreement from the Company (detailed disclosed in note 4 of this
Report).  Albion Ventures LLP is from time to time eligible to receive
transaction fees and/or Directors' fees from investee companies.

24  Principal risks and uncertainties

The Board considers that the Company faces the following major risks and
uncertainties:

1. Investment risk

This is the risk of investment in poor quality assets which reduces the capital
and income returns to shareholders, and negatively impacts on the Company's
reputation.  By nature, smaller unquoted businesses, such as those that qualify
for venture capital trust purposes, are more fragile than larger, long
established businesses.

To reduce this risk, the Board places reliance upon the skills and expertise of
the Manager and its strong track record for investing in this segment of the
market.  In addition, the Manager operates a formal and structured investment
process, which includes an investment committee, comprising investment
professionals from the Manager and at least one external investment
professional. The Manager also invites comments from non-executive Directors of
the Company on investments discussed at the investment committee meetings.
Investments are actively and regularly monitored by the Manager (investment
managers normally sit on investee company boards) and the Board receives
detailed reports on each investment as part of the Manager's report at quarterly
Board meetings.

2. Venture Capital Trust approval risk

The Company's current approval as a venture capital trust allows investors to
take advantage of tax reliefs on initial investment and ongoing tax free capital
gains and dividend income.  Failure to meet the qualifying requirements could
result in investors losing the tax relief on initial investment and loss of tax
relief on any tax-free income or capital gains received.  In addition, failure
to meet the qualifying requirements could result in a loss of listing of the
shares.

To reduce this risk, the Board has appointed the Manager, who has a team with
significant experience in venture capital trust management, used to operating
within the requirements of the venture capital trust legislation.  In addition,
to provide further formal reassurance, the Board has appointed Grant Thornton UK
LLP as its taxation advisers.  Grant Thornton UK LLP report annually to the
Board to independently confirm compliance with the venture capital trust
legislation, to highlight areas of risk and to inform on changes in legislation.

3. Compliance risk

The Company is listed on the London Stock Exchange and is required to comply
with the rules of the UK Listing Authority, as well as with the Companies Act,
Accounting Standards and other legislation.  Failure to comply with these
regulations could result in a delisting of the Company's shares, or other
penalties under the Companies Act or from financial reporting oversight bodies.

Board members and the Manager have experience of operating at senior levels
within quoted businesses.  In addition, the Board and the Manager receive
regular updates on new regulation from the Company's Auditors, lawyers and other
professional bodies.

4. Internal control risk

Failures in key controls, within the Board or within the Manager's business,
could put assets of the Company at risk or result in reduced or inaccurate
information being passed to the Board or to shareholders.

The Audit Committee will meet with Albion Ventures LLP's internal auditors,
Littlejohn LLP, at least once a year, receiving a report regarding the last
formal internal audit performed on the Manager and providing the opportunity for
the Audit Committee to ask specific and detailed questions.  The Manager has a
comprehensive business continuity plan in place in the event that operational
continuity is threatened. Further details regarding the Board's management and
review of the Company's internal controls through the implementation of the
Turnbull guidance are detailed on page 25 of the Annual Report and Financial
Statements.

Measures are in place to mitigate information risk in order to ensure the
integrity, availability and confidentiality of information used within the
business.

5. Reliance upon third parties risk

The Company is reliant upon the services of Albion Ventures LLP for the
provision of investment management and administrative functions. There are
provisions within the Management agreement for the change of Manager under
certain circumstances (for more detail, see the Management agreement details in
note 4). In addition, the Manager has demonstrated to the Board that there is no
undue reliance placed upon any one individual within Albion Ventures LLP.

6. Financial risks

By its nature, as a venture capital trust, the Company is exposed to investment
risk (which comprises investment price risk and cash flow interest rate risk),
credit risk and liquidity risk. The Company's policies for managing these risks
and its financial instruments are outlined in full in note 18.

All of the Company's income and expenditure is denominated in sterling. There
are two foreign currency quoted portfolio investments whose total value at 31
December 2010 is £479,000.  The Company is financed through equity and does not
have any borrowings. The Company does not use derivative financial instruments
for speculative purposes.

25  Other information

The information set out in this announcement does not constitute the Company's
statutory accounts within the terms of section 434 of the Companies Act 2006 for
the periods ended 31 December 2010 and 31 December 2009, and is derived from the
statutory accounts for those financial years, which have been, or in the case of
the accounts for the year ended 31 December 2010, which will be, delivered to
the Registrar of Companies.  The Auditors reported on those accounts; their
reports were unqualified and did not contain a statement under s498 (2) or (3)
of the Companies Act 2006.

The Company's Annual General Meeting will be held at The City of London Club,
19 Old Broad Street, London, EC2N 1DS on 16 May 2011 at 11 am.

26. Publication

The full audited Annual Report and Financial Statements are being sent to
shareholders and copies will be made available to the public at the registered
office of the Company, Companies House, the National Storage Mechanism and also
electronically at www.albion-ventures.co.uk under the 'Our Funds' section, by
clicking on 'Kings Arms Yard VCT 2 PLC', where the Report can be accessed as a
PDF document via a link under the 'Investor Centre' in the 'Financial Reports
and Circulars' section.






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Source: Kings Arms Yard VCT 2 PLC via Thomson Reuters ONE

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