Half Yearly Report

MERCHANT HOUSE GROUP PLC

HALF YEARLY REPORT PERIOD ENDED 30 JUNE 2010

Highlights

·; Revenues increased to £677,905 (2009: £95,493)

·; Gross profit of £481,140 (2009: £64,485)

·; Operating profit from Merchant Capital Ltd of £17,608 (2009: £113,705 loss)

·; Group loss before and after taxation of £520,794 (2009: £496,308)

·; Christopher Day appointed as CEO

·; Took over the administration of £400million of structured product

·; Acquired a new Corporate Finance team.

Enquiries:

Merchant House Group Plc

James Holmes

Tel: 020 7332 2200

Shore Capital and Corporate Limited

Pascal Keane

Tel: 020 7408 4090

Chairman's statement

I am pleased to report that over the period under review, your company has continued to make considerable progress in its strategy of establishing a focused financial services Group similar in some respects to a traditional merchant banking business.

Revenues expanded significantly, at over £650,000, some 60% greater than for the whole of the year ended December 2009.

This reflects the addition of new businesses as well as the expansion of existing activities. This rapid growth has been through acquisition of structured product portfolios and investment in new teams as well as organic growth. Losses continued in the first half, a reflection of the considerable investments made by the Board, the benefits of which will be seen more in the second half.

At the end of the period under review, your company announced it was undertaking a debt restructuring to ensure the company is on a firmer financial foundation for the next period of growth. The company has undergone a significant restructuring to turn around the business; the initial steps have now been completed and set out below are the next steps which we believe will, in time, lead to increased shareholder value.

Your Board's next task is to consolidate current activities to drive profitability by only spending where required and to take opportunities as they arise. In addition, we intend to expand the scope of these activities by attracting new teams to generate new income streams. I believe we are making good progress on both fronts.

Corporate Advisory

The corporate advisory business has expanded through the appointment of a new experienced team who have a number of new mandates in technology, renewable energy, property, education, mining and publishing. In addition to the retainers that will flow from these mandates, we aim to raise in excess of €250m between them, although there is no certainty that these will complete. These mandates were agreed within eight weeks of the new team joining which makes the corporate finance division larger in terms of funds to be raised than at any time previously, including when it was the company's only activity. In addition, the team is negotiating a number of significant, larger mandates that would extend the reach of the business beyond its historic concentration on smaller companies and deals. This has been enabled by synergies created with our other new business streams.

Wealth Management

Over the six months under review, the company took over the administration of approximately £100 million worth of structured products from Arc Capital and subsequently took on the administration of around £300 million worth of structured products from Key Data. This puts the business in the position of being one of the largest independent providers of structured products in the UK after six months work. The client base of 28,000 will be a pool into which to sell future products.

The sales function of this new business is now being combined with our existing private client broking team to develop a Wealth Management business that will concentrate on the development, acquisition and marketing of innovative products both directly to investors and through the Intermediary Financial Adviser networks that will have to adjust significantly to new regulation over the next few years. We believe this is a major opportunity for the Group.

An important product in this area is the establishment and distribution of products built around corporate recovery and financing. As publicly reported by the Bank of England, the major commercial banks have reduced their activity in this area and many companies continue to require working capital. This remains an area of significant opportunity as our existing and new products provide excellent high income and capital gain opportunities for investors. Merchant Capital, our wholly owned FSA operating subsidiary has raised funds for two corporate recovery products, investing in a number of diversified businesses and is seeking to expand this range with another corporate recovery bond and a larger corporate turnaround fund. When investee companies are successfully turned around, Merchant Capital will sponsor or arrange for them to be admitted to a public market or share trading facility thereby establishing a valuation.

Asset Management

The Group has made strong progress in the asset management business. We are one of the first to offer a Dublin domiciled UCITS umbrella throughout Europe that provides economically attractive and timely access for funds that want to enter the estimated $7trillion UCITS retail fund market. In particular, this is a focus of the alternative investment fund industry. Launched at the end of January 2010 with one small fund, we are due to launch two new funds with minimums of €20 million each early in the fourth quarter of 2010, with six contracts either signed or due for signature to launch funds this year and early next. These funds will cover green technology, commodities, European equities and one that is China focused. The alternative UCITS business is expected to undergo dramatic and sustained growth over the next few years according to commentators and industry specialists. We believe the company is extremely well place to benefit and we expect the considerable investment in this division to have been the right decision.

Trading Platform

The trading infrastructure business was established towards the end of 2009 and described last year. This business has now been consolidated into Merchant Trading LLP and the foreign exchange liquidity provision team, the first client, has now expanded into one of the largest in Europe trading in excess of $10 billion per day. Clearly, your company has been a significant beneficiary of this decision and now your Board is actively seeking to expand this business with the introduction of new trading teams and relationships.

A great deal of progress has been made and the economic environment remains and is expected to continue to be favourable to your Group's strategy. The objective is to use this period of uncertainty and opportunity in the financial services industry to develop a significant merchant banking business based on the traditional principles of using market and trading intelligence to help clients develop their business and investment customers to participate in higher returns.

Current trading

The improvements in the first half are a result of the significant investment in infrastructure and personnel and the directors are encouraged that the Group continues to trade to plan.

Post balance sheet events

All the resolutions put to the AGM on 31st August were passed with no votes against, as a result of which £632,000 has been raised for the Group. While strengthening the balance sheet, management of working capital remains a key priority at this point in the Group's development.

Summary

It has been a period of major transition for the Group; providing uncertainty for shareholders and employees alike as your Board concentrated on building the business. It is a credit to our staff that they have given their loyalty and unwavering effort during this period and I thank them. I would also like to thank our shareholders for their patience and understanding; I hope that we can together continue to build a new force in the financial services industry.

I was pleased to announce the appointment of Christopher Day as CEO. Christopher, formerly a managing director in the Dresdner Bank has experience of growing and managing both small and large financial services businesses. He brings the necessary skills for the Group's next phase of growth. We expect to announce a further strengthening of the Board in the months ahead.

MERCHANT HOUSE GROUP PLC

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six month period ended 30 June 2010

 All results are in respect of continuing operations.

The Group has no recognised gains or losses other than the results for the period as set out above.

MERCHANT HOUSE GROUP PLC

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 June 2010

MERCHANT HOUSE GROUP PLC

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

MERCHANT HOUSE GROUP PLC

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

for the six month period 30 June 2010

MERCHANT HOUSE GROUP PLC

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

For the six month period ended 30 June 2010

1.Accounting policies

Basis of accounting

The interim results have been prepared in accordance with International Accounting Standards 34 "Interim Financial Reporting".

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs).

The interim results have been prepared on the historical cost basis except that certain financial instruments are accounted for at fair values. The same principal accounting policies and methods of computation have been followed in the interim results as compared with the Group's 2009 Financial Statements.

Going concern

The financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business. The group incurred a loss of £524,052 for the period ended 30 June 2010.

The financial statements have been prepared on a going concern basis because the directors believe it is appropriate to prepare the financial report on this basis based upon the company's business plan, its trading prospects and the financial support provided by Liberty Capital, an investor in the Company. 

2.Loan Interest

Loan interest is payable on secured and unsecured convertible loan notes 2010, at a floating rate of 100 basis points above Barclays Bank Plc base rate.

3.Taxation

No provision for corporation tax has been provided for, due to tax losses incurred in the current and previous periods.

4.Loss per Share

The loss per share has been calculated on the net basis on the consolidated loss excluding associate for the period ended 30 June 2010, after taxation, of £(524,052) (June 2009: £(496,308), December 2009: (£915,263) using the weighted average number of ordinary shares in issue at 30 June 2010 of 263,589,312 (June 2009: 107,870,148, December 2009: 118,555,080).

Diluted earnings per share have been calculated using the weighted average number of ordinary shares in issue, diluted for the effect of share options, loan conversion rights and warrants. There were unexercised loan conversion rights and warrants on shares in existence at the period end of 593,855,979 (June 2009: 200,066,667, December 2009: 200,066,667).

5.Related party transactions

During the period ended 30 June 2010, M Eberhardt was also a director of Hollywood Media Services Plc.

During the period ended 30 June 2010, J Holmes was also a director of Hollywood Media Services Plc, Merchant Corporate Recovery Plc, Merchant House Finance Ltd and Deo Petroleum Plc (formerly Microcap Equities Plc).

At the period end current asset investments held by the company include the following at market value:

During the period transactions took place as follows:

Merchant House Finance Ltd and Merchant Corporate Recovery Plc are associate companies.

At the period end the Company owed Merchant Corporate Recovery Plc and its wholly owned subsidiary MCR Support Services Limited £239,149 ( June 2009: £Nil, December 2009: £59,522). This amount has since been settled. During the period ended 30 June 2010, Merchant House Group Plc recovered expenses totalling £158,767 (June 2009: £nil, December 2009: £94,816) in respect of transactions with Merchant Corporate Recovery Plc.

During the period ended 30 June 2010, Merchant House Group Plc received £372,000 (June 2009: £162,000, December 2009: £295,000) in management fees from Merchant Capital Limited, a wholly owned subsidiary. At the period end the balance owed to Merchant Capital Ltd was £188,800 (at 30 June 2009 owed by Merchant Capital Ltd: £13,181, at 31 December 2009 owed to Merchant Capital Ltd: £20,495).

During the period ended 30 June 2010 and at 31 December 2009, J Holmes was also a Director of and owned 100% of the issued shares in Stokewell Limited.

6.Post Balance Sheet Event

At the Company's Annual General Meeting held on 31 August 2010 all resolutions were passed in connection with the Circular for the Conversion of 2005 Loan Notes, Placing of New Ordinary Shares, Subscription for New Convertible Loan Notes, Debt Settlement through issue of New Ordinary Shares, Directors' Fees Settlement and issue of Senior Management Warrants, Shareholder Bonus Issue of 2 New Ordinary Shares for every 10 Ordinary Shares held and approval for issue of shares upon any conversion of Tixway Convertible Loan Notes

3. 7.Availability of accounts

Copies of this statement are available to shareholders and members of the public, free of charge, from the Company's principal place of business at Aldermary House, 10-15 Queen Street, London, EC4N 1TX4

Alternatively a downloadable version is available from the following web address: http://www.merchanthousegroup.com/investor-relations