TIDMEIL
30 June 2009
Equity Pre-IPO Investments Limited
Preliminary Results for the year ended 31 December 2008
Equity Pre IPO Investments Limited (AIM: EIL), the strategic
Pre-IPO investment company, today announces its preliminary results for the
year ended 31 December 2008.
DIRECTORS' REPORT
Introduction
We are pleased to present this annual report of Equity Pre-IPO
Investments Limited ("Pre-IPO" or the "Company") to shareholders for the year
ended 31 December 2008. The last financial year has been by far the most
difficult period in the Company's short history, with virtually no small cap
IPOs and interest by investors and lenders in supporting small unquoted
businesses reaching an all time low. These factors, together with investee
company specific reasons resulted in the directors having to write down the
value of those unquoted investments still held at the year end to almost zero.
Background
The environment for the provision of finance for smaller companies
deteriorated markedly during the year under review, as evidenced by the lack
of flotations and new monies raised by companies joining the AIM market of the
London Stock Exchange. In the previous financial year to December 2007, a
total of 284 new companies joined AIM, raising an aggregate GBP6.6 billion of
new money (an average of approximately GBP23 million of new money per IPO). In
stark contrast, in the last quarter of 2008, there were only 22 new admissions
and those companies raised an aggregate of GBP13.1 million (an average of just
GBP0.5 million per IPO), representing a plunge in financing activity of more
than 97 per cent.
Pre-IPO's historic business model and investment strategy of only
investing in unquoted companies which are expected to achieve a flotation
within a year or 18 months of the investment has, in the current economic
downturn, proved to have been a significant limiting factor to the Group's
ability to recycle its investments. Furthermore, the Company's objective at
the outset of providing long term capital growth by exploiting the valuation
differential between privately held companies and those whose shares are
publicly traded has also been challenged due to the significant falls in the
value of quoted companies - the AIM All Share index fell by more than 62%
during the course of 2008. A consequence of the significant changes in the
landscape for financing of small cap companies is that the Board of Pre-IPO
will be seeking approval of, inter alia, a broader investment policy, as set
out later in this report, at the Annual General Meeting of shareholders, which
is to be held on 21 July 2009.
Investee Companies
At the beginning of 2008, the Company held investments in six
unquoted companies:
- Pinnacle Plus Limited ("Pinnacle");
- Altair Financial Services plc ("Altair");
- Radioscape plc ("Radioscape");
- Fashion Brands Company B.V. ("Fashion");
- Lorega Limited ("Lorega"); and
- a London based corporate finance boutique, the name of which
Pre-IPO is contractually required to keep confidential.
During 2008, Pinnacle's entire issued share capital was acquired by
Creon Corporation ("Creon"), an AIM traded company, in exchange for Creon
Shares and these shares remain within Pre-IPO and are subject to an agreed
lock-in until October 2009.
Towards the end of the year, under pressure to repay outstanding
loans which at the time stood at approximately GBP0.74 million, we reluctantly
agreed to dispose of our shareholding in Lorega - achieving a price that
enabled us to reduce the Company's borrowings significantly. We sold the
majority of the holding in Lorega before the year end, with an investment
balance of only GBP0.1 million held at the year end, which was sold in February
2009 for the carrying value.
Unfortunately, during the latter part of 2008 and into 2009, all
four of the remaining investee companies encountered severe financial
difficulties, such that three were unable to refinance when required. As a
consequence, Altair and Fashion appointed administrators in the first quarter
of 2009 with no value being ascribed to their respective equity shareholders.
Radioscape, under pressure from its lenders, undertook a sale of the majority
of its trading assets around the same time. However disappointingly, the
proceeds received were only sufficient to repay Radioscape's secured lenders
with no value being ascribed to the holders of Radioscape's equity, such as
Pre-IPO. The corporate finance boutique in which Pre-IPO has a shareholding is
currently finalising a highly-discounted equity fund raise and those existing
shareholders that are unable to participate (such as Pre-IPO) are, in the
Board's opinion, being unjustifiably diluted, such that we do not believe that
there will be any material value ascribed to the Company's current
shareholding. The regrettable upshot of the financial difficulties afflicting
all of our unquoted investments is that the Board has written down all
investments to a value of GBP0.25 million (2007: GBP4.1 million).
Financial Review
Loss on ordinary activities for the year to 31 December 2008 was
GBP3.74 million (2007: GBP3.58 million loss), driven lower by the write downs on
investments at fair value through profit or loss of GBP3.60 million (2007: GBP3.28
million). Running expenses for the year of GBP0.37 million were in line with
2007 of GBP0.34 million. Loss per share for 2008 was 28.24 pence (2007: 27.06
pence).
The Company was able to reduce its borrowings from GBP0.50 million at
the beginning of the year to GBP0.12 million at the year end. This outstanding
amount was repaid after the period end from the proceeds of the disposal of
the final tranche of our investment in Lorega and a small new loan of GBP0.02
million. Net asset value per share at the year end was 0.33 pence (2007: 28.56
pence).
Cash balances were negligible at the year end, with the Company's
ongoing administrative running costs being met by third party loans and
supportive creditors. The recently announced placing of GBP0.04 million,
conversion of amounts owing to trade creditors of GBP0.15 million and the new
two-year borrowing facility of up to GBP0.1 million from our new shareholders
has enabled the Company to continue operations as further material sources of
finance are sourced and investment opportunities are identified.
Investment Policy
As outlined above, the Board believes that Pre-IPO's investment
policy should be broadened to improve the illiquidity of its future
investments and to not be dependent upon the IPO market for exits. The Company
will continue to evaluate potential investments from a wide variety of
industry sectors and will seek investments in sectors where there is potential
for growth. This is likely to include sectors such as financial services,
support services, and property where values have declined markedly over the
last 12-18 months. The Company will primarily focus on European based
businesses but will also consider investments in other geographical areas if
appropriate.
Previously the Company invested in privately held companies only,
however, given the current extremely difficult market conditions, the Company
will now broaden its investment criteria to include publicly quoted companies
and partnerships. The Company will not seek to limit the size of the
investment or the size of the entities in which it invests and will not limit
the percentage ownership that it may hold in any one company at any time.
The Company will not seek to have a fixed number of investments or
seek to diversify the investments over particular sectors or particular
indexes, however it is envisaged that the total number of investments at any
given time will not exceed 30 investments. The Company will instead generally
focus on diversifying the relative risks of investments. The Company does not
intend at this stage to gear its investments but may consider doing so in the
future if suitable funding arises.
Subject to seeking further finance for investment purposes, the
directors will begin to review a number of new investment opportunities and
will make an investment within the next three years.
The Company will generally be a passive investor in the entities in
which it invests but if the Board or the Company's consultants are able to add
value to the investee entity then the Company may take a more activist stance.
The Company's investment decisions will be based upon research prepared and
presented to the Board by its panel of research consultants and advisers.
Directors appointment
The Company is pleased to welcome August ("Guus") Johannes
Francisca Maria Berting onto the Board of the Company as a non-executive
director with immediate effect. Guus, aged 31, has experience as a
non-executive on a number of other AIM company boards which will be important
in evaluating the proposed broadened investment strategy. Guus is a
non-executive director of AIM quoted Avarae Global Coins plc and Creon
Corporation plc and of Pasha Investments B.V. He has previously been a
director of Ascona Capital Limited. There is no further information required
to be disclosed under Schedule 2, Paragraph (g) of the AIM Rules for
Companies, pursuant to Guus's appointment.
The current Board, with the exception of Guus Berting, has been in
place since the Company's admission to trading on AIM in February 2005 during
which time it has evaluated significant numbers of investment opportunities.
All of the directors are experienced directors who have served, and continue
to serve, on a number of company boards. This has given them knowledge of a
variety of sectors including technology, financial services, retail, consumer,
healthcare, property and construction, and support services and extensive
knowledge of operational matters that the Board feels makes them well place to
evaluate potential investments. These potential investments will be found
through the extensive network of contacts of the board and the Company's panel
of consultants and advisers.
Change of name
In line with the proposed widening of the Company's investment
policy to be not solely focussed on investments in pre-IPO companies, the
Board believes that it is appropriate to change the name of the Company. Your
Board proposes to change the name of the Company from Equity Pre-IPO
Investments Limited to Kingswalk Investments Limited. Pursuant to the
Companies (Guernsey) Law, 2008, a change of name requires the passing of a
special resolution of Shareholders at an Extraordinary General Meeting to be
held on 21 July 2009. Your Board believes that the proposed change of name
better reflects the change in the Company's strategy and is in the best
interests of the Company and its shareholders.
Annual General Meeting
The Company's Annual General Meeting ("AGM") is be held at its registered
office, being Martello Court, Admiral Park, St Peter Port Guernsey, GY1 3HB on
Tuesday 21 July 2009 at 12:00 noon. The notice of AGM, together with a form of
proxy for use at the AGM has today been sent to shareholders.
Outlook
The Directors are pleased that, following the recent injection of
funds into the Company, the Company's future has now been secured for the time
being. The Board and its advisors are currently in discussions with a number
of parties to obtain additional equity finance and future announcements will
be made in due course.
Paul Matthew Schreibke
Director
Martin Shires
Director
29 June 2009
STATEMENT OF TOTAL RETURN
FOR THE YEAR ENDED 31 DECEMBER 2008
For the year ended 31 December 2008 For the year ended 31 December 2007
Note Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP
LOSSES ON INVESTMENTS
Net losses on investments at
fair value through profit or loss 3 - (3,598,699) (3,598,699) - (3,279,261) (3,279,261)
Unrealised gain on foreign exchange - - - 14,163 - 14,163
_______ _______ _______ _______ _______ _______
(3,598,699) (3,598,699) 14,163 (3,279,261) (3,265,098)
_______ _______ _______ _______ _______ _______
INCOME 1(b)
Commission received - - - 1,200 - 1,200
Interest income 4 13,770 - 13,770 22,219 - 22,219
Loan waiver 12 - 429,051 429,051 - - -
_______ _______ _______ _______ _______ _______
13,770 429,051 442,821 23,419 - 23,419
_______ _______ _______ _______ _______ _______
EXPENDITURE 1(e)
Loan write off 11 - 210,306 210,306 - - -
Directors' fees 15,000 - 15,000 20,000 - 20,000
Administration fees 50,939 - 50,939 43,530 - 43,530
Professional fees 26,890 - 26,890 26,738 10,667 37,405
Consultancy fees - 154,220 154,220 - 183,768 183,768
Audit fee 11,500 - 11,500 12,930 - 12,930
Interest expense 5 77,362 - 77,362 20,418 - 20,418
Commission paid - - - 3,256 - 3,256
Regulatory and registration fees 12,588 - 12.588 19,097 - 19,097
Loss on foreign exchange 23,144 - 23,144 - - -
_______ _______ _______ _______ _______ _______
217,423 364,526 581,949 145,969 194,435 340,404
_______ _______ _______ _______ _______ _______
LOSS ON ORDINARY ACTIVITIES
FOR THE FINANCIAL YEAR (203,653)(3,534,174) (3,737,827) (108,387) (3,473,696) (3,582,083)
Earnings per share:
- basic (pence per share) 9 (28.24) (27.06)
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year.
BALANCE SHEET
31 DECEMBER 2008
Note 31 December 2008 31 December 2007
GBP GBP GBP GBP
FIXED ASSETS
Investments at fair value through profit or loss 3 251,239 4,093,423
CURRENT ASSETS
Loans receivable 11 - 230,000
Other debtors and prepayments - 21,202
Cash and cash equivalents 880 6,651
_____ ______
880 257,853
CREDITORS - AMOUNTS FALLING
DUE WITHIN ONE YEAR
Loans payable 12 (115,000) (496,269)
Other creditors and accruals 13 (93,763) (73,824)
(208,763) (570,093)
NET CURRENT LIABILITIES (207,883) (312,240)
TOTAL ASSETS LESS CURRENT LIABILITIES 43,356 3,781,183
CAPITAL AND RESERVES
CALLED UP SHARE CAPITAL 15 132,372 132,372
SHARE PREMIUM ACCOUNT 16 4,254,872 4,254,872
RESERVES 17 (4,343,888) (606,061)
SHAREHOLDERS' FUNDS 18 43,356 3,781,183
Net asset value per share 10
(pence per share) 0.33 28.56
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2008
For the year ended For the year ended
Notes 31 December 2008 31 December 2007
GBP GBP
Net cash outflow from operating activities 14 (349,613) (235,176)
Investing activities:
Purchase of unquoted investments - (1,466,394)
Proceeds from disposals of quoted investments - 985,498
Proceeds from disposals of unquoted investments 243,484 378,950
Loans receivable repaid / (advanced) 52,576 (230,000)
_________ _________
Net cash inflow / (outflow) from investing activities 296,060 (331,946)
Financing:
Loans received 47,782 496,269
_________ _________
Net cash inflow from financing 47,782 496,269
Decrease in cash for the year (5,771) (70,853)
Opening cash position 6,651 77,504
____ _____
Cash and cash equivalents at 31 December 880 6,651
RECONCILIATION OF NET CASHFLOW
TO MOVEMENT IN CASH AND CASH EQUIVALENTS
Decrease in cash for the year (5,771) (70,853)
Cash inflow from increase in debt finance (47,782) (496,269)
_______ _______
Change in net debt resulting from cash flows (53,553) (567,122)
Loans waived 429,051 -
Opening (debt) / funds brought forward (489,618) 77,504
________ ________
Closing net debt carried forward 14 (114,120) (489,618)
Notes to the Financial Statements
31 December 2008
1 ACCOUNTING POLICIES
(a) CONVENTION
The financial statements have been prepared under the historical
cost convention, modified to include the revaluation of investments and in
accordance with applicable United Kingdom accounting standards and with the
Statement of Recommended Practice "Financial Statements of Investment Trust
Companies" issued by The Association of Investment Trust Companies in December
2005. The principal accounting policies which the directors have adopted
within that convention are set out below.
(b) INCOME
Dividends receivable from equity investments are recognised on the
ex-dividend date. Dividends receivable from equity investments where no
ex-dividend date is quoted are recognised when the Company's right to receive
payment is established. Interest receivable on cash deposits is accounted for
using the effective interest rate method.
(c) FOREIGN CURRENCY
The Directors have considered the primary economic environment of
the Company and considered the currency in which the original finance was
raised and ultimately what currency would be returned to investors on a break
up basis. The directors have also considered the currency to which the
underlying investments are exposed. On balance, the directors believe sterling
best represents the functional currency of the Company. Sterling is also the
presentational currency.
Assets and liabilities denominated in foreign currencies other than
sterling have been translated into sterling at the rates of exchange ruling at
the balance sheet date. Transactions during the period have been translated at
the rates of exchange ruling at the date of the transaction.
(d) FINANCIAL INSTRUMENTS
The Company's financial instruments fall into the categories
discussed below with the allocation depending to an extent on the purpose for
which the asset was acquired. Unless otherwise indicated, the carrying amounts
of the Company's financial instruments are a reasonable approximation of their
fair values.
(i) Investments held at fair value through profit or loss
Classification
All investments are classified as "fair value through profit or
loss". These financial assets are designated by the Board of Directors at fair
value through profit or loss at inception.
Financial assets designated at fair value through profit or loss at
inception are those that are managed and their performance evaluated on a fair
value basis in accordance with the Company's documented investment strategy.
The Company's policy is for the Board of Directors to evaluate the information
about these financial assets on a fair value basis together with other related
financial information.
Recognition
Purchases and sales of investments are recognised on the trade date
or the date on which the Company commits to purchase or sell the investment.
Investments are derecognised when the rights to receive cash flows from the
investments have expired or the Company has transferred substantially all
risks and rewards of ownership.
Measurement
Financial assets at fair value through profit or loss are initially
recognised at fair value. Transaction costs are expensed in the income
statement. Subsequent to initial recognition, all financial assets at fair
value through
1 ACCOUNTING POLICIES (continued)
profit or loss are measured at fair value. Gains and losses arising
from changes in the fair value of the 'financial assets at fair value through
profit or loss' category are presented in the statement of total return in the
period in which they arise.
Fair value estimation
Quoted investments are valued at bid price.
Unquoted investments are valued by the Board according to the
valuation principles of the European Private Equity and Venture Capital
Association as set out in the International Private Equity and Venture Capital
Valuation Guidelines (Published June 2005, amended October 2006) and
accordingly are stated at the value of their latest third party funding. Where
no third party funding has taken place, they are valued at cost, less a
provision for impairment when necessary.
Because of the inherent uncertainty associated with the valuation
of such investments and the absence of a liquid market, these fair values may
differ from the realisable values, and differences could be material.
Realised gains or losses on the disposal of investments are taken
to the capital reserve - realised. Unrealised gains or losses on revaluation
of investments are taken to the capital reserve - unrealised.
(ii) Loans and receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They consist of
loans receivable, other debtors and cash and cash equivalents, but also
incorporate other types of contractual monetary assets. They are initially
recognised at fair value plus transaction costs that are directly attributable
to the acquisition or issue and subsequently carried at amortised cost using
the effective interest rate method, less provision for impairment. The effect
of discounting on these financial instruments is not considered to be
material.
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of the
counterparty or default or significant delay in payment) that the Company will
be unable to collect all of the amounts due under the terms receivable, the
amount of such a provision being the difference between the net carrying
amount and the present value of the future expected cash flows associated with
the impaired receivable.
(iii) Financial liabilities measured at amortised cost
These include;
- other creditors and accruals which are initially recognised at
fair value and subsequently carried at amortised cost using the effective
interest method; and
- loans payable which are initially recognised at fair value net of
attributable transaction costs incurred. Such interest bearing liabilities are
subsequently measured at amortised cost using the effective interest rate
method.
Other creditors and accruals primarily comprise of amounts
outstanding for ongoing costs. The Company has a financial risk management
procedure in place to ensure that all payables are paid within the credit
timeframe.
1 ACCOUNTING POLICIES (continued)
(iv) Share capital
Financial instruments issued by the Company are treated as equity
only to the extent that they do not meet the definition of a financial
liability.
(v) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the balance sheet when there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on a net
basis, or realise the asset and settle the liability simultaneously.
(vi) Effective interest rate method
The effective interest method is a method of calculating the
amortised cost of a financial asset or financial liability and of allocating
the interest income or interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future
cash payments or receipts throughout the expected life of the financial
instrument, or, when appropriate, a shorter period, to the net carrying amount
of the financial asset or financial liability. When calculating the effective
interest rate, the Company estimates cash flows considering all contractual
terms of the financial instruments but does not consider future credit losses.
The calculation includes all fees and points paid or received between parties
to the contract that are an integral part of the effective interest rate,
including transaction costs and all other premiums or discounts.
(e) EXPENDITURE
All expenses are accounted for on an accruals basis. Expenses that
are directly attributable to the management of investments are allocated
directly to capital in the Statement of Total Return. With the Directors' long
term target for returns on investments being entirely capital gain there is no
requirement to apportion these expenses between revenue and capital.
(f) SHARE BASED PAYMENTS
The Company has applied the requirements of FRS 20: Share-based
Payments.
The Company makes equity-settled share-based payments to certain
consultants. Equity-settled share based payments are measured at fair value as
at the date of grant. The fair value determined at grant date is expensed on a
straight line basis over the vesting period based on the Company's estimate of
shares that will eventually vest. Further details of how the fair value of
share based payments is determined are shown in note 20.
(g) GOING CONCERN
The directors have reviewed the current budgets and cashflow
projections for a period of more than 12 months from the date of this report.
The forecasts take into account the recent injection of new subscription funds
of GBP0.04 million, the conversion of more than GBP0.15 million of outstanding
creditors to equity, the renegotiation of existing contracts with advisers and
the secured loan facility of up to GBP100,000.
The forecasts indicate the need for additional working capital
funding towards the end of June 2010.
Various sources of additional financing have been considered by the
directors including raising of fresh equity and potential disposal of the
remaining investment. A final decision regarding the source of financing has
not yet been made, however, the directors are confident that sufficient cash
will be raised by the company to pay its future liabilities.
Accordingly the directors have prepared the financial statements on
the going concern basis.
2 TAXATION
The company has been granted exempt status under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance 1989, and is therefore subject to the
payment of an annual fee which is currently GBP600.
3 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 2008 31 December 2007
Designated at fair value through profit or loss GBP GBP
- Listed equity securities 151,239 -
- Unlisted investments 100,000 4,093,423
______ ________
Total investments at fair value through profit or loss 251,239 4,093,423
Changes in fair value of financial assets 31 December 2008 31 December 2007
at fair value through profit or loss. GBP GBP
- Realised (1,055,234) 169,980
- Unrealised (2,543,465) (3,449,241)
_________ _________
(3,598,699) (3,279,261)
4 INTEREST INCOME
31 December 2008 31 December 2007
GBP GBP
Bank interest (note 6) 215 2,892
Loan interest (note 6) 13,555 19,327
_____ ______
Total 13,770 22,219
The above interest income arises from financial assets classified
as loans and receivables (including cash and cash equivalents) and has been
calculated using the effective interest rate method. The loan interest of
GBP13,555 in 2008 arose on loans written off during the year (see note 11 for
further details).
5 INTEREST EXPENSE
31 December 2008 31 December 2007
GBP GBP
Bank interest and charges (note 7) 685 1,630
Loan interest (note 7) 76,677 18,788
______ ______
Total 77,362 20,418
The above interest expense arise on financial liabilities measured
at amortised cost using the effective interest rate method. The loan interest
expense of GBP76,677 in 2008 arose on loans reduced during the year (see note 12
for further details).
6 NET GAINS OR LOSSES ON LOANS AND RECEIVABLES
31 December 2008 31 December 2007
GBP GBP
Bank interest (note 4) 215 2,892
Loan interest (note4) 13,555 19,327
Loan written off (note 11) (210,306) -
_______ ______
Net (loss) / gain (196,536) 22,219
7 NET GAINS OR LOSSES ON FINANCIAL LIABILITIES CARRIED AT AMORTISED COST
31 December 2008 31 December 2007
GBP GBP
Bank interest and charges (note 5) 685 1,630
Loans interest (note 5) 76,677 18,788
Loans waived (note 12) (429,051) -
________ ______
Net (gain) / loss (351,689) 20,418
8 TOTAL INTEREST INCOME AND TOTAL INTEREST EXPENSE ON FINANCIAL ASSETS AND
FINANCIAL LIABILITIES NOT AT FAIR VALUE THROUGH PROFIT AND LOSS
31 December 2008 31 December 2007
GBP GBP
Bank interest 215 2,892
Loan interest received 13,555 19,327
Bank interest paid (685) (1,630)
Loan interest paid (76,677) (18,788)
______ ______
Total (63,592) 1,801
9 EARNINGS PER SHARE
The calculation of basic earnings per share is based on the net
return on ordinary activities after tax for the year and on 13,237,235 ( 2007:
13,237,235) shares being the weighted average number of shares in issue during
the year.
FRS 22: "Earnings Per Share" defines dilution as a reduction in
earnings per share or as an increase in loss per share. When calculating the
dilutive earnings per share for the year the loss decreased. Accordingly the
diluted loss per share is not disclosed as per FRS 22. The Company has 800,000
share options in issue which could potentially dilute basic earnings per share
in the future - see note 21.
10 NET ASSET VALUE PER SHARE
The calculation of net asset value per share is based on the net
assets of GBP43,356 (2007: GBP3,781,183) and on the ordinary shares in issue of
13,237,235 (2007: 13,237,235) at the balance sheet date.
11 LOANS RECEIVABLE
31 December 2008 31 December 2007
Loan to investee company GBP - GBP 230,000
The above loan bore interest at 18% per annum and was unsecured
with an amount of GBP80,000 due for repayment on 21 May 2007 and the balance of
GBP150,000 due for repayment on 15 December 2007. During 2008, the loans were
restructured to become interest bearing at 11% from inception. Subsequent to
this restructuring, the Company sold the loans and accrued interest totalling
GBP262,882 for GBP52,576, resulting in a loan write off of GBP210,306.
12 LOANS PAYABLE
31 December 2008 31 December 2006
GBP GBP
EUR loan - 421,296
GBP loan 115,000 75,000
______ ______
Total loans 115,000 496,269
The Euro and the GBP loan were from the same party. Both loans were
unsecured and repayable on demand. The Euro loan bore interest at 3% above
Euro base rate per annum and the GBP loan bore interest at 3% above GBP base
rate per annum.
During 2008, the Company reached an agreement with the lender,
whereby the loan and accrued interest of GBP741,908 was reduced to GBP312,857 by
the waiver of GBP429,051 of the outstanding balance. Prior to the year end,
GBP197,857 was repaid with the balance of GBP115,000 being repaid post year end.
In February 2009, the Company took on further borrowings to pay the Company's
ongoing running costs which, at the date of this report, the Company had a
loan outstanding of approximately GBP0.03 million, repayable in June 2011 and
attracting an interest rate of 10% per annum and secured on the Company's
quoted investment.
13 OTHER CREDITORS AND ACCRUALS
31 December 2008 31 December 2007
GBP GBP
Audit fees 10,000 10,000
Consultancy fees 72,570 7,150
Professional fees 5,000 22,425
Interest payable - 18,788
Nomad fees - 1,875
Registrar fees 2,193 4,393
Administration fees 4,000 8,973
Sundry creditors - 220
______ ______
93,763 73,824
14 CASH FLOW NOTE
(a) Reconciliation of revenue return to operating cashflow
31 December 2008 31 December 2007
GBP GBP
Net revenue return on ordinary activities for the year (203,653) (108,387)
Expenses charged to capital (154,220) (194,435)
Increase / (decrease) in debtors 1,875 (1,875)
Increase/(decrease) in creditors 38,728 36,380
Share based payments - 33,680
Loan interest paid (18,788) 18,788
Loan interest received (13,555) (19,327)
_______ _______
Net cash outflow from operating activities (349,613) (235,176)
(b) Analysis of net debt At 1 January 2008 Cashflow Other At 31 December 2008
GBP GBP GBP GBP
Cash and cash equivalents 6,651 (5,771) - 880
Loan payable (496,269) (47,782) 429,051 (115,000)
________ ________ _____ _______
(489,618) (53,553) 429,051 (114,120)
15 CALLED UP SHARE CAPITAL
31 December 2008 31 December 2007
GBP GBP
Authorised
50,000,000 ordinary shares of GBP0.01 each 500,000 500,000
Allotted and fully paid
13,237,235 ordinary shares of GBP0.01 each 132,372 132,372
16 SHARE PREMIUM ACCOUNT
As at 1 January 2008 and at 31 December 2008 GBP 4,254,872
17 RESERVES
Capital Capital Share
Reserve Reserve Option Revenue
Realised Unrealised Reserve Reserve Total
GBP GBP GBP GBP GBP
Balance at 1 January 2008 520,093 (595,745) 33,680 (564,089) (606,061)
Net return for the financial year (990,709) (2,543,465) - (203,653) (3,737,827)
Transfer from unrealised reserves to realised (314,327) 314,327 - - -
________ _________ ______ _______ ________
Balance at 31 December 2008 (784,943) (2,824,883) 33,680 (767,742) (4,343,888)
18 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
31 December 2008 31 December 2007
GBP GBP
Loss for the financial year (3,737,827) (3,582,083)
Effect of share based payments in the year - 33,680
________ ________
Net reduction to shareholders funds (3,737,827) (3,548,403)
Opening shareholders' funds 3,781,183 7,329,586
________ ________
Closing shareholders' funds 43,356 3,781,183
________ ________
19 CONTROLLING PARTY
The issued share capital of the Company is owned by numerous
parties and, therefore, in the opinion of the Directors, there is no ultimate
controlling party of the Company as defined by FRS 8: Related Party
Disclosures.
20 SHARE OPTIONS
At 31 December 2008 the number of ordinary shares of 1 pence each subject to
options granted under the Company's Share Option Plan were:
Exercise 01-Jan Grants Options 31-Dec 31-Dec
Exercise Price per 2008 during year exercised 2008 2008
Period Share No. No. No. No. No.
Exercisable
30 November 2007 - 26.0 pence 50,000 - - 50,000 50,000
30 May 2017
1 December 2007 - 26.0 pence 750,000 - - 750,000 750,000
1 June 2017 _______ ______ ______
800,000 - - 800,000 800,000
The share-based remuneration charge comprises:
Year ended Year ended
31 December 2008 31 December 2007
Share-based payments GBPnil GBP33,680
The charge is included within consultancy fees within the Statement of Total Return.
21 FINANCIAL INSTRUMENTS
In common with other businesses, the Company is exposed to risks
that arise from its use of financial instruments. This note describes the
Company's objectives, policies and processes for managing those risks and the
methods used to measure them. Further quantitative information in respect of
these risks is presented throughout these financial statements.
There have been no substantive changes in the Company's exposure to
financial instrument risks, its objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods
unless otherwise stated in this note.
(a) Strategy in using financial instruments
The Company's activities expose it to a variety of financial risks:
market risk (including currency risk, fair value interest rate risk, cash flow
interest rate risk and price risk), credit risk and liquidity risk. The
Company's overall risk management programme focuses on the unpredictability of
financial markets and seeks to minimise potential adverse effects on the
Company's financial performance.
The Company has, and may continue to, invest in companies which are
unquoted or trading on the AIM Market of the London Stock Exchange at the time
of the investment and where the Directors believe that a flotation is likely
to be achieved by the company within eighteen months of an investment by the
Company. Investee companies will be located in Europe. In addition, the
Company is seeking to broaden its investment strategy as outlined in the
Directors Report.
Investments
All of the Company's intended investments present the risk of a
loss of capital. Such investments are subject to investment-specific price
fluctuations as well as to macro-economic, market and industry-specific
conditions including, but not limited to, international economic conditions,
international financial policies and performance, governmental events and
changes in laws. Moreover, the Company may only have a limited ability to vary
its investments in response to changing economic, financial and investment
conditions.
The success of the Company will be dependent upon, inter alia, the
identification, making, management and realisation of suitable investments.
There can be no guarantee that such investments can or will be made or that
such investments will be successful. Poor performance by an investment could
severely affect the Net Asset Value per share. In particular, investors should
note that:-
- Shareholders will not have an opportunity to evaluate for
themselves the relevant economic, financial and other information
regarding the investments to be made by the Directors and, accordingly,
will be dependent on the judgement and ability of the Directors in
investing and managing the assets of the Company. No assurance can be
given that the Directors will be successful in making suitable investments
or that, if such investments are made, the investment objectives will be
achieved;
- the Company is likely in most cases to have minority interests in
the companies, partnerships and ventures in which it invests and may be
unable to exercise control over the operations of such companies,
partnerships and ventures or control over any exit, or timing of any exit,
by other investors in such companies, partnerships or ventures;
- the management of the investee companies targeted by the Directors
may not always welcome proactive shareholder involvement and may be
resistant to change;
- the Company may be unable to effect an investment in an identified
opportunity and, in particular, resources of the Company may be expended
investigating potential projects which are subsequently rejected as being
unsuitable;
- the Company may dispose of investments in certain circumstances
and may be required to give representations and warranties about those
investments and to pay damages to the extent that such representations and
warranties turn out to be inaccurate or other terms of sale are breached;
- an investee company's competitors may develop or market
technologies that are more effective or less expensive than those
developed or marketed by the investee company, or that would render the
invests company's technology or business model obsolete or uncompetitive;
- the Company cannot guarantee that the value of investments as
reported from time to time will in fact be realised; and
- although the Directors will use all due care and diligence when
implementing the investment strategy, the situation may arise whereby an
investee company does not proceed with a successful IPO. In such instance,
the Company may find it difficult to achieve an exit, or may do so at a
loss to the initial investment, or may lose the entirety of its
investment.
Investments in small unquoted companies
The Company's investment portfolio will comprise interests
predominantly in unquoted private companies and companies with an AIM listing
which may be difficult to value and/or realise. Investment in the securities
of smaller companies may involve greater risks than is customarily associated
with investments in larger, more established companies. In particular, such
companies may have limited product offerings, markets or resources and may be
dependent on a small number of key individuals.
Concentration risk
It is possible that certain investments will represent a
significant proportion of the Company's total assets. As a result, the impact
on the Company's performance and the potential returns to investors will be
adversely affected to a greater degree if anyone of those investments were to
perform badly than would be the case if the Company's portfolio of investments
was more diversified.
At 31 December 2008 the overall investment allocation was one
investment in a quoted company and four investments in unquoted investments.
Three of the unquoted companies in which the Company has an investment were in
administration at the year end and remain so at the date of this document and
the remaining unquoted investment was sold post the year end, leaving only one
quoted investment in the portfolio with a year end valuation of approximately
GBP0.15 million.
(b) Market risk
The Company operates in a competitive market for investment
opportunities. While the Directors consider the Pre-IPO market to be an
attractive area for investment, it is nonetheless likely that the Directors
will encounter competition for target investments from investors many of which
will have significantly greater resources than the Company. There can be no
assurance that these competitive pressures will not have a material adverse
effect on the Company's business, financial condition and results of
operations. As a result of this competition, the Directors may not be able to
take advantage of attractive investment opportunities from time to time.
Furthermore the Directors can offer no assurance that they will be able to
identify and make investments that are consistent with the Company's
investment strategy.
bi) Interest rate risk
The majority of the Company's financial assets and liabilities are
non-interest bearing. As result, the Company is not subject to significant
amounts of risk due to fluctuations in the prevailing levels of market
interest rates. Any cash and cash equivalents are invested at short-term
market interest rates.
The Company's interest-bearing financial assets and liabilities
expose it to risks associated with the effects of fluctuations in the
prevailing levels of market interest rates on its financial position and cash
flows.
The table below summarises the Company's exposure to interest rate
risks.
Non-Interest Variable Fixed
Bearing Interest Interest Total
As at 31 December 2008 GBP GBP GBP GBP
Assets
Investments at fair value through profit or loss 251,239 - - 251,637
Cash and cash equivalents - 880 - 880
______ ___ _ ______
Total financial assets 251,239 880 - 252,517
Liabilities
Loan payable 115,000 - - 115,000
Sundry creditors and accruals 93,763 - - 93,763
______ _ _ ______
Total financial liabilities 208,763 - - 208,763
The terms, including the interest rate, of the loan payable are disclosed in note 12.
Non-Interest Variable Fixed
Bearing Interest Interest Total
As at 31 December 2007 GBP GBP GBP GBP
Assets
Investments at fair value through profit or loss 4,093,423 - - 4,093,423
Loans receivable - - 230,000 230,000
Other debtors 21,202 - - 21,202
Cash and cash equivalents - 6,651 - 6,651
________ _____ ______ ________
Total financial assets 4,114,625 6,651 230,000 4,351,276
Liabilities
Loan payable - (496,269) - (496,269)
Sundry creditors and accruals (73,824) - - (73,824)
______ _______ _ _______
Total financial liabilities (73,824) (496,269) - (570,093)
The Company is not exposed to any significant interest rate risk.
bii) Hedging and currency risk
The Company's investments are expected to be denominated in pounds
sterling. The Directors may invest in opportunities other than sterling and
may, through forward foreign exchange contracts, hedge its exposure back to
sterling. While hedging may attempt to reduce currency risk, it is not
possible to hedge fully or perfectly against currency fluctuations.
Accordingly investors may, at certain times, be exposed to exchange rate risks
between sterling and other currencies, such that if the value of other
currencies falls relative to sterling, the Company's assets will, in sterling
terms be worth less.
The Company held no hedging instruments during the years ended 31
December 2008 and 31 December 2007. The Company had and is expected to hold
assets denominated in currencies other than pounds sterling, the functional
currency. It is therefore likely to be exposed to currency risk, as the value
of assets denominated in other currencies will fluctuate due to changes in
exchange rates.
The table below summarises the Company's foreign currency exposure:
Analysis of assets and liabilities in currencies other than sterling
Currency
31 December 2008 31 December 2007
Value GBP % of net assets Value GBP % of net assets
Financial assets
Euro - Unlisted investments - - 734,484 19.42%
Euro - Cash at bank 5 0.01% 765 0.02%
USD - Cash at bank - - 215 0.01%
Financial liabilities
Euro - Loans payable - - (421,269) (11.14%)
biii) Other price risk
Other price risk is the risk that value of an instrument will
fluctuate as a result of changes in market prices (other than those arising
from currency risk or interest rate risk), whether caused by factors specific
to an individual investment, its issuer or all factors affecting all
instruments traded in the market.
As the majority of the Company's financial instruments are carried
at fair value with changes in value recognised in the Statement of Total
Return, all changes in market conditions will directly affect net investment
income.
The table below details the breakdown of the investment assets held by the
Company
31 December 2008 31 December 2007
Value % of Net Value % of Net
GBP Assets GBP Assets
Investment assets
Equity investments:
- Listed equities 151,239 348.83% - -
- Unlisted equities 100,000 230.65% 4,093,623 108.26%
251,239 4,093,623
Investment liabilities
At the year end the equity investments held by the Company were
both listed and unlisted. A 5% increase in the fair value of all investments
at 31 December 2008 would have increased the net assets attributable to
shareholders by GBP12,562 (2007: GBP204,671): an equal change in the opposite
direction would have decreased the net assets attributable to shareholders by
an equal but opposite amount.
(c) Liquidity risk
The Company's financial instruments include unlisted equity
instruments, some of which are not traded in an organised public market and
which generally may be illiquid. As a result, the Company may not be able to
liquidate quickly some of its investments in these instruments at an amount
close to their fair value in order to meet its liquidity requirements.
The Company has a procedure to manage liquidity risk whereby the
board meet regularly to review investment holdings and current and anticipated
levels of financial liabilities. Where liquidity of the investments within the
portfolio is believed to be at a level which may adversely affect the
Company's ability to service its financial obligations, the board will
consider taking action to improve cash flow, which may include utilising bank
overdrafts or other credit arrangements.
The table below details the contractual, undiscounted cash flows of
the Company's financial liabilities
Less than 1-3 3 months No stated
1 month months to 1 year maturity
31 December 2008 GBP GBP GBP GBP
Financial liabilities
Loans payable 115,000 - - -
Sundry creditors and accruals 93,763 - - -
______ ______ ______ ______
Total 208,763 - - -
_______ ______ ______ ______
31 December 2007
Financial liabilities
Loans payable 496,269 - - -
Sundry creditors and accruals 73,824 - - -
_______ ______ ______ ______
Total 570,093 - - -
_______ ______ ______ ______
The gross nominal outflow disclosed above is the contractual,
undiscounted cash flow on the financial liability or commitment.
Amounts in the above table are based on the carrying value of all accounts.
The Company has a procedure to manage credit risk whereby the board
meets regularly to review credit positions.
d) Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that it has
entered into with the Company.
The carrying amounts of financial assets best represent the maximum
credit risk exposure at the balance sheet date.
At the reporting date, the Company's financial assets exposed to credit risk
amounted to the following:
31 December 31 December
2008 2007
GBP GBP
Loans receivable - 230,000
Other debtors - 21,202
Cash and cash equivalents 880 6,651
Total 880 257,853
21 EMPHASIS OF MATTER
The Company's independent auditors, In forming their unqualified
opinion on the Company's financial statements for the year ended 31 December
2008, considered the adequacy of disclosure made in note 1 (g) to the
financial statements concerning the company's ability to continue as a going
concern. As disclosed in note 1 (g) to the financial statements, the Company
will require additional funding within the next 12 months. The Directors are
reviewing the various options available to the Company. However, as at the
date of this report, no plans have been finalised. This indicates the
existence of a material uncertainty which may cast significant doubt about the
Company's ability to continue as a going concern. The 2008 financial
statements do not include the adjustments that would result if the Company was
unable to continue as a going concern.
22 POST BALANCE SHEET EVENTS
On 25 June 2009, the Company issued 19,018,392 new Ordinary Shares
(the "Issue"), of which 4,000,000 were issued pursuant to a subscription
raising GBP0.04 million for the Company, and 15,018,392 were issued to certain
creditors of the Company in final settlement. Following the Issue, the Company
has, in aggregate, 32,255,627 Ordinary Shares in issue.
The Company's Report and Accounts for the year ended 31 December 2008 will be
posted to shareholders today and the full report is available to view and
download from the Company's website at www.equitypreipo.com.
For further information please contact:
Equity Pre-IPO Investments Limited
Paul Schreibke +44 (0)1481 751 000
Jonathan Freeman +44 (0) 20 752 0215
Daniel Stewart & Company Plc
Oliver Rigby +44 (0)207 776 6550
GTH Communications
Toby Hall +44 (0)20 7153 8039
Christian Pickel +44 (0)20 7153 8036
END
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