Preliminary Results

VPhase plc

("VPhase" or the "Group")

Preliminary Results

For the year ended 31 December 2010

VPhase plc, (AIM:VPHA), a leading developer of energy saving products for residential and commercial properties announces its preliminary results for the twelve months ended 31 December 2010.

Highlights

Post year end

Rick Smith, Chief Executive Officer of VPhase, said: "Considerable progress has been made during the period, with a strengthened management team in place, and £2 million of funding raised in October 2010. Progress has been made across our strategic objectives, and importantly this has delivered increased sales. The Group has a strong platform for future growth, having concluded its first Framework Agreement with Eaga Heating Services Limited, and with a number of governmental policies helping to further support demand for the product. Technology innovation remains important to VPhase as we continue to advance the product, and we look forward to updating shareholders on our progress in terms of sales, strategy and technology over the coming year."

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Chairman's statement

I am pleased to present my first full year statement since my appointment in July 2010 and to report that VPhase has made significant progress in delivering its strategic objectives.

These were set out at the time of our interims as:

On 13 December 2010 we announced our first Framework Agreement with Eaga Heating Services Limited ("Eaga") and the Group is making good progress with a number of other potential partners.

The Group has clarified its powerful marketing message to consumers: VPhase is the low cost energy saving product that you simply fit, forget and save money instantly. We have developed better marketing tools and made extensive use of our website, television advertising, celebrity endorsement and social media as well as more traditional means of promotion.

The Group has won the Electrical Industry Awards most innovative residential/domestic product and was runner up in the Shell Springboard national competition having won the regional finals. All such accreditations add considerable endorsement to the product.

Subsequent to the year end we have also secured CERT accreditation at 2.5 tonnes of carbon dioxide over a 20 year measure.

Board appointment

To further strengthen the Board I am delighted to announce that Duncan Sedgwick will be joining as a Non-executive Director on 1 April 2011. With over 37 years experience in the electricity supply industry including five years as the CEO of the Energy Retail Association, Duncan brings extensive knowledge to the Board.

The year ahead is a critical one for the business as we continue to execute our commercial strategy and build on the strong partnerships that we have in place. I look forward to updating shareholders as the year progresses.

Vanda Murray OBE

Chairman

22 March 2011

Chief Executive Officer's statement

Operating review 2010

Since my appointment as Chief Executive Officer in September 2010 I have made sure that both the strategic objectives and the short term targets for the business are clearly understood, both internally and by our shareholders, as we set out at the time of our interim results in September 2010.

Six Months of Progress

In December 2010, we announced our first Framework Agreement with Eaga, part of EAGA plc, and this has already resulted in a further supply agreement via Eaga with Everest Limited who now offer VPhase with every solar Photovoltaic ("PV") or energy efficient boiler they sell. The Eaga agreement also enables us to offer national fulfilment within our advertising and marketing campaigns, directed at both retailers and domestic customers.

The Group has completed or has ongoing trials with 27 different social housing groups and local authorities. This will be an area of considerable focus for the Group over the forthcoming period and a significant number of enquiries are currently being progressed.

CERT Accreditation

CERT (Carbon Emission Reduction Target) is seen as an enabler to accelerate the adoption of our technology.

Over the last six months, an increased effort has been placed on securing CERT credits. The field trial results, as independently analysed by EA Technology, were submitted to Ofgem in October 2010, their peer review by AEA Technology was completed by December 2010 and our response to that review was submitted by the end of 2010.

On 21 March 2011 Ofgem confirmed that VPhase has secured a CERT measure based around its initial Demonstration Action with Scottish and Southern Energy ("SSE") and Ofgem; at 2.5 tonnes of carbon dioxide over a 20 year measure. The savings represent an excellent, proven approach to lowering household carbon emissions, yet the figure falls somewhat short of anticipated results, given that the device has been independently rated for a 36 year component lifespan. Other trials, for example Great Places and staff homes, have demonstrated carbon dioxide savings to be around 3.6 tonnes over a notional 20 year life. The CERT demonstration that was conducted in association with SSE has indicated energy savings of 5.2 % (6.3% for a gas centrally heated home). Whilst this is an important energy saving figure, the methodology upon which the Demonstration Action was based of 'day on/day off' is too easily impacted by day to day load variability in the domestic home which can be significant. Ofgem has agreed with VPhase that the 2.5 tonnes of carbon dioxide and 6.3% saving figures may be reviewed as further trial data is made available to improve the CERT measure beyond this current baseline.

I am aware that the Department for Energy and Climate Change ("DECC") is carrying out a consultation on the future of consumer electronics and appliances in CERT and that one of the scenarios being considered is that everything other than insulation and heating be removed from CERT. If this scenario was adopted then VPhase would no longer be able to utilise its CERT measure.

We have also started work on the inclusion of VPhase in the Government's Community Energy Saving Program ("CESP"). CESP targets households in areas of low income across Great Britain to improve efficiency and reduce fuel bills. As an energy efficiency and money saving product, VPhase typically delivers a reduction in household electricity consumption of between 6% and 12% making it an ideal product for this program.

As this program is delivered through a partnership with local authorities, energy suppliers and energy generators, there was some concern that it would be impacted by the Government's spending review. After some reported delays the consensus is that the project funding within CESP is accelerating.

In December 2010 the Government published the Energy Bill which set out future objectives for tackling barriers to investment in energy efficiency, enhancing energy security and enabling investment in low carbon technologies. Included in the Bill was the Green Deal where bill payers will be able to acquire energy efficiency improvements by spreading the payments rather than having to pay cash upfront. This is seen as being a further initiative for which VPhase is ideally suited as, despite its low cost, this reduces the competition for consumers' money for similar "non-energy" related products in the same price bracket.

From 2013 there will be a new Energy Company Obligation to replace CERT and CESP and to work alongside the Green Deal finance offer by targeting appropriate measures at those households which are likely to need additional support, in particular those containing vulnerable people on low incomes and those in hard to treat housing. We believe our product is ideally suited to all such initiatives.

Building Consumer Awareness

To build consumer and trade awareness we refocused our message that VPhase is a 'low cost, easy to fit and forget product that will save money instantly'; it is not reliant on the sun shining, the wind blowing or behavioural change. This message has been consistently delivered and has resulted in growing awareness of the product and how voltage optimisation can save money for home owners. This in turn has led to increased sales.

To further extend consumer awareness, the Group trialled a television advertising campaign, initially in the Granada region. To date we can directly attribute 30% uplift in hits on our website to this campaign. The campaign will run until the end of March 2011 after which a wider roll out will be considered.

Consumer awareness will remain a key focus in 2011 and we are also promoting the product in the national press and on relevant television programmes.

 For a new product it is important to grow consumer confidence and we have worked with:

In September we launched a new website, www.vphase.co.uk, and are running a series of initiatives to increase the number of people visiting the site. Prior to the re-launch in September 2010 the maximum number of hits had been 3,000 per month and, since the re-launch, this has grown to a peak of 13,000 per month in February 2011 and now stabilised at 11,000 per month. This website is the focal point for the education of consumers, the dissemination of technical information to the trade, and for communication with investors.

During 2010 the Group won the Electrical Industry Awards for the most innovative residential/domestic product of the year and received several other accolades from Professional Electrician and Installer and the Electrical Times. In February 2011 the Group also won the Shell Springboard regional awards and was the runner up in the national finals.

We also exhibited at various trade and consumer events during the year to promote an awareness of voltage optimisation, its benefits and how fitting a VPhase can deliver them. These shows included Elex, Ecobuild, the Salford Energy Hub where a VPhase unit is installed, and the National Home Improvement show. We have also established a more permanent presence for the next 12 months with a stand at the National Self Build and Renovation Centre in Swindon.

In 2010 SSE completed the construction of ten landmark zero carbon homes in Slough, each of which has a VPhase unit fitted as one of the initiatives contributing to the homes' low carbon footprint. VPhase continues its discussions with the Building Research Establishment ("BRE") and DECC about the mandatory inclusion of a VPhase in new build.

During the year our training team has continued to conduct training seminars around the country for independent electricians and dedicated sessions for Eaga, Everest, SSE and British Gas. The program of seminars will continue through 2011 and during the year additional electricians will be educated as to the benefits of VPhase and the up-sell opportunity it presents. Innovation is key to VPhase's future success and we are using our unique technology platform in the following ways:

A further opportunity for VPhase is the Government's plans to roll out smart meters to all domestic properties. We believe a VPhase can be fitted at the same time for minimal additional cost and will increase the energy savings without being reliant on behavioural changes. We are in continuing dialogue with smart meter suppliers as to how we may work together.

The compelling case for VPhase

There are many energy saving devices and renewable energy initiatives that will help homes reduce their energy consumption from low cost options, such as loft and cavity wall insulation, to more expensive measures such as solid wall insulation, heat pumps and solar PV.

VPhase is the cheapest "next" option at a similar cost and payback to loft insulation; it is also complementary to these other initiatives. For example:

Case Studies

The Group has carried out a range of trials to demonstrate the benefits of voltage optimisation in domestic applications. Each method consistently shows savings between 6% and 12% with varying degrees of accuracy. Generally the shorter the sampling period the better the accuracy and the greater the savings that have been shown.

Given the likelihood of ever increasing energy bills, with recent Government statements suggesting a two fold increase over the next few years (DECC, July 2010), the economic rationale for fitting VPhase simply gets better.

Future Strategy

The Group's strategy is to be the leading supplier of products for domestic and light commercial energy efficiency in the UK and selected international markets. We will achieve this through developing long term relationships with key partners and customers to drive demand and delivering continuous innovation in our products, processes, service and support. Working with our strategic partners and our employees we will drive the business forward.

The increasing political importance of climate change, energy security and resource conservation are all seen as important factors which will help grow the business.

People

We have today strengthened the Board with the appointment of Duncan Sedgwick who brings extensive knowledge of the electricity industry to the Board and we are in the process of appointing a Chief Financial Officer. At the end of this process we will retain a balanced Board with two Executive Directors and three Non-executive Directors.

The senior management team has been strengthened with a new Head of Sales and Supply Chain Manager addressing two critical areas for the business; sales growth and a low cost product. The recruitment of a new Head of Technical continues and should conclude in the next few weeks.

Technical

Continual improvement and innovation are core to the Group's future growth and our dedicated technical team has identified several areas for product development. These include minor changes to the existing product for inclusion within larger homes and light commercial units, constant cost reduction reviews and development of products for the international market.

Commercial focus

The Group will continue to manage its Framework Agreements which are targeted at driving growth. Following the recent CERT confirmation, we will increase our efforts with social housing and pay special attention to securing sales with bundled offerings including; home improvements; solar PV; smart meters; home energy audits; and other opportunities when an electrician is on-site.

The UK Market

The UK market for VPhase is some 26 million homes of which 5 million are in the social housing sector with Registered Social Landlords ("RSLs") and Local Housing Authorities ("LHAs"). Legislation ensures that social housing re-wires more frequently than the private sector and has a far greater proportion of the 4.5 million UK homes living in fuel poverty (Annual Report on Fuel Poverty 2010; DECC) that receive the highest level of subsidy as compared to the able to pay sector.

VPhase provides a compelling proposition for all customer groups as VPhase:

Outlook

As a business we have established a platform for growth, and discussions are in progress across a range of sectors for substantial sales volumes to social housing schemes, utilities, solar PV installers as well as the direct routes to markets we are developing via the electrical appliance distributers and independent electricians.

CERT is a key driver to further growth and the product is ideal for CESP and the Green Deal.

Clearly, there is much still to do, but the Group is well positioned to capitalise on the opportunities in the sector and the Board looks forward to delivering further progress in 2011.

Financial review

Operating result

Revenue

Product revenues continue to grow showing significant growth over 2009 to £217,000 (2009: £53,000). One-off non-product sales of £49,000 (2009: £71,000) relate to the CERT trials.

Gross Margins

Gross margins improved in the second half reflecting the impact of increased product sales and lower other income. Product sales are maintaining 39% gross margins.

Administrative expenses

Administrative expenses have increased as the Group has grown its sales and marketing team and invested more in consumer awareness of both the benefits of voltage optimisation and how VPhase is the only effective method to secure these benefits. Total administrative expenses were £1,817,000 (2009: £1,020,000); this includes £34,000 (2009: 26,000) of depreciation of plant property and equipment and £90,000 (2009: £27,000) of amortisation of the Group's intangible R&D asset.

Loss before tax

The loss before tax has increased in line with the Board's expectations to £1,711,000 (2009: £981,000) largely reflecting the increased expenditure on sales and marketing activities as the Group accelerates its commercial activity. The new Framework Agreement noted earlier in this operating review is expected to deliver growth as are the other Framework Agreements in negotiation.

Tax

During the year the Group received a tax credit of £nil (2009: £5,000) in relation to research and development expenditure. In accordance with Group accounting policies no amounts are accrued until the quantum and likelihood of repayment can be reliably measured.

Loss per ordinary share

The loss per ordinary share, basic and diluted, was 0.24 pence per share (2009: 0.14 pence per share); the increase reflecting the increased sales and marketing expenditure by the Group.

Investment in property, plant and equipment

During the year £36,000 (2009: £15,000) was invested in property, plant and equipment. The Group outsources its manufacturing activities which enables it to keep its investment in property, plant and equipment to a minimum.

Investment in intangible assets

Investments in intangible assets in the year were £nil (2009: £176,000) as the business has completed development of the first VPhase product.

Cash and cash equivalents

At the end of the year the Group had cash resources of £2,078,000 (2009: £1,677,000) with a burn rate of £133,000 (2009: £127,000) per month.

Rick Smith

Chief Executive Officer

22 March 2011

Group Income Statement

for the year ended 31 December 2010

Loss per ordinary share attributable to the equity holders of the Company during the year

Total and continuing

The Group has no items to be recognised in the "Group statement of comprehensive income" and consequently this statement has not been shown.

All revenue and costs originate from continuing activities.

Group Statement of Changes in Equity for the year ended 31 December 2010

Group Statement of Financial Position

Group Statement of Cash Flows

for the year ended 31 December 2010

Notes

1. Basis of preparation

While the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), this announcement does not itself contain sufficient information to comply with IFRS. The accounting policies used in preparation of this preliminary announcement have remained unchanged from those set out in the Group's 2009 annual report. They are also consistent with those in the full financial statements which have yet to be published. The preliminary results for the year ended 31 December 2010 were approved by the board of directors on 22 March 2011.

The financial information set out in this preliminary announcement does not constitute the Group's financial statement for the years ended 31 December 2010 and 2009. The financial information for the year ended 31 December 2009 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 December 2010 will be delivered to the Registrar of Companies following the Company's annual general meeting.

Going concern

The Group has sufficient financial resources to continue to operate for the foreseeable future and with the commencement of sales in 2009 the Group has moved from the development phase to revenue and ultimately cash generation. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully.

The Group's forecasts and projections, which have been prepared for the period to 31 December 2014 and taking account of reasonably possible changes in performance, show that the Group should be able to operate within the level of its current cash resources.

The Directors review the Group's Risk Register at each Board Meeting and after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.

Accordingly, they continue to adopt the going concern basis in preparing the Group Financial Statements.

2. Income tax

The prior year adjustment originates from a tax credit received in cash arising from research and development activities during the financial years ended 31 December 2006 and 2007. A claim has been submitted to HMRC for development activities during the financial year ended 31 December 2008 and claims are being prepared for the years ended 31 December 2009 and 2010, but no asset has been recognised as recoverability is uncertain.

Unrelieved tax losses relating to the current trade of £3,210,000 (2009: £1,818,000) remain available to offset against future taxable trading profits. No deferred tax asset has been recognised in respect of the losses, as recoverability is uncertain.

3. Loss per ordinary share

The loss per ordinary share is based on the loss of £1,711,000 (2009: loss £976,000) and 719,426,982 (2009: 700,351,607) ordinary shares of 0.25 pence each, being the weighted average number of shares in issue during the year. All shares have been included in the computation based on the weighted average number of days since issuance.

2010 2009

Loss attributable to equity holders of the Company (£'000) (1,711) (976)

Weighted average number of ordinary shares in issue ('000) 719,427 700,352

Basic and diluted loss per share (pence) (0.24) (0.14)

The share options and warrants in issue are anti-dilutive in respect of the basic loss per share calculation and have therefore not been included.

4. Intangible assets

The Group commenced amortisation of the intangible asset in September 2009 as management considered mainstream sales to have begun. The asset will be written off over 60 months as the Directors believe that this is an appropriate approach given continuing changes in market dynamics.

Impairment review

In accordance with IAS 36, the Group has undertaken an impairment review by cash generating unit. The Group determines that there exists one cash generating unit:

Following a review of the business, the Directors do not believe that the carrying value of the intangible asset in VPhase is impaired and, hence, no charge has been made.

Key assumptions

In determining value in use, forecasts have been prepared until 31 December 2014. These forecasts were constructed using:

- signed commercial agreements;

- memoranda of understanding with commercial partners; and

- management's assertions following discussion with various potential customers.

Costs have been calculated using existing cost bases adjusted for achievement of the above revenues.

Growth rates contained within forecasts are based on management's assertions following discussions with potential customers and increased by various rates throughout the forecasted period.

The sales growth rate used within the forecast period is in excess of GDP. Management asserts that such a growth rate is appropriate as the VPhase product is the lowest cost and only product to actively regulate voltage to a set point at the domestic home. Consequently, once customer adoption begins in earnest, a growth rate significantly in excess of UK GDP is to be expected.

Cost of capital

The Capital Asset Pricing Model (CAPM) has been used to arrive at the cost of capital.The components of this calculation were determined as follows:

Risk-free rate: lower range of UK Gilts as provided by the website of the Debt Management Office website (http://www.dmo.gov.uk/).Market-return rate: average total positive returns on the 'Electronics and Electrical Equipment' sector within AIM for each year from 31 December 2005 to 31 December 2010. Beta: taken from Digital Look (http://www.digitallook.com). A management derived risk premium has then been applied.

Effect of reasonably possible changes

Management have undertaken scenario analyses, including a significant reduction in sales, and in no scenario does the value in use of the cash generating unit approach the carrying value.

5. Cash consumed by operations

6. Availability of financial statements

Copies of the full statutory financial statements will be available from the registered office from 19 May 2011 and will also be available from the Group's website at www.vphase.co.uk.

7. Annual General Meeting

The Annual General Meeting will be held at 10:00am on 19 May 2011 at the Company's registered office, Castlefield House, Liverpool Road, Castlefield, Manchester, M3 4SB.

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