Preliminary Results for year

1st Jul 2008 07:30



For Immediate Release: 7.30am, 1 July 2008

Environmental Recycling Technologies plc

(formerly 3DM Worldwide plc)

Preliminary Results for the year ended 31 December 2007

Environmental Recycling Technologies plc ("ERT" or "the Company") (AIM: ENRT), which has developed and is exploiting the patented rights to the Powder Impression Moulding ("PIM") process capable of converting mixed waste plastics into commercially viable products, announces its preliminary results for the year ended 31 December 2007.

Highlights

The Company is now operating under an out-licensing business model

- Consequent significant reduction in overhead and costs

The Company continues to sign additional licensing

- Expected revenues of at least £1.0m from license fees

Increasing interest in applications for the technology

- Major interest in Eco Sheet

Turnover £243,000 (2006: £ 319,000); 

Operating loss £4.74 million (2006: loss £2.62 million);

Loss attributable to equity shareholders £5.69 million (2006: loss £8.49 million)

For further information:

Environmental Recycling Technologies Plc

Ken Brooks (Chairman)

David Shepley-Cuthbert (Finance Director) 01993 779 468 

Evolution Securities (Nominated Adviser)

Tim Worlledge 0207 071 4300

The Company confirms that the Company's Annual Report and Accounts for the year ended 31 December 2007 has been sent to shareholders and is available on the Company's website: www.ertplc.com.

 

Chairman's Statement

The Group had a difficult year in 2007 with projects underway at the beginning of the year failing to gain traction as quickly as expected and with certain development projects turning out to be more expensive than anticipated. Furthermore, although we have disposed of the Bedwas facility, thereby greatly reducing our overheads, we were still maintaining a costly in-house project management and development team for most of the financial year. It was expected that projects that were underway would mature and come to fruition over the course of the year. The result is a considerable loss for 2007.

The Group has also faced various claims arising from the previous restructuring including an historic claim arising from the closure of the Group's old operations in the Kyrgyzstan Republic. Our former Chief Executive Officer in the area has successfully maintained a compensation claim which we are contesting but have provided for in the Accounts. The Group no longer has any interests in Kyrgyzstan.

As a result of these high costs and provisions, the Group is reporting a loss from continuing operations before taxation of £5.7m (2006: loss £3.7m).

We have now reduced our overhead cost base to the minimum possible level by subsourcing activities wherever practical and we no longer manage projects in-house or undertake expensive product development work. Instead, under our revised business framework, we enter into licence agreements for the development, manufacture and use of our proprietary technology.

In effect we now operate as an intellectual property bank and we have been able to sign several new licences since 1 March 2008 which are expected to generate minimum revenue for the Group in the current financial year of £1.0m. This, combined with the Group's new approach of operating at minimal overhead and outsourcing where possible has placed the Group in a more stable position for the future. We are particularly pleased by the rapid progress being made by 2K Manufacturing Limited which has secured its own funding and is progressing apace on its site acquisition and development programme.

Last summer the Group raised £2,800,000 via an equity issue to repay outstanding debt due to Cornell Capital Partners and Montgomery Equity Partners. Both Cornell Capital Partners and Montgomery Equity Partners went through their own restructuring during 2007 and as a consequence the Group became indebted to their successor YA Global Investments Limited. However, following delays in negotiating the amount to be repaid, there arose certain other circumstances which the Board considered to be more important to deal with than the debt due to YA Global Investments. Accordingly as explained in the Company's announcement of 11 June, the Board decided to settle certain other liabilities. YA Global Investments has effected further conversions of debt into equity and the Company had total loans outstanding of £1.6 million as of 31 December 2007. A further £0.43 million (including accrued debt of £0.25 million) has been converted since the year end. The board believes that following the reduction of debt we have finally turned the corner in relation to the Company's indebtness. The loan facilities with YA Global Investments Limited expire in September 2010. More information on these facilities is set out in our previous announcement of 11 June 2008 and indeed in the Financial Review that follows. Following the reduction in the creditor position of the Company and with our overheads falling significantly we believe that the out licensing business model can be made profitable.

I am pleased to welcome Roger Baynham into his executive role as Managing Director and Henry Bellingham MP as a non-executive. With David Shepley-Cuthbert our Finance Director and myself resuming the Executive Chairman role, as announced on 27 February 2008, I believe we have the right team to run this Group on a simplified out-licensing basis. It has taken far longer than anticipated, but the Group has seen its first royalty revenue in 2008. Additionally, the Board believes it will see significant royalty revenue arising in 2009. In the meantime we continue to market licences and, as mentioned above, our marketing strategy now is proving successful.

I would like to thank shareholders for their support in 2007, I believe strongly in the technology the Group possesses and in the future of this company.

Ken Brooks

Chairman

 

Managing Director's review

As you will know I have been a non executive Director of ERT for the past 2 years and I was delighted to have been offered the position of Managing Director earlier this year. Ken Brooks and I have worked together for over 15 years, since our first business turnaround, Philip Tyler Polymers Limited, a plastic recycling company. This company has since delivered significant shareholder returns.

We believe that the successful business model which we devised for Philip Tyler Polymers should be used as a blueprint and adapted for ERT. As a result we have been tailoring the business such that its overhead costs are now significantly reduced and that commercial opportunities are exploited in conjunction with licencees. 

The rebranding of ERT is intended to reflect the refocusing on commercialisation of the plastic Powder Impression Moulding (PIM) system in the UK and European environmental sector.. The development of PIM products incorporating plastic waste, in particular for the construction sector, has arisen due to increasing demand for sustainable products. The numerous industry awards for "Eco Sheet" are a testimony to this and we look forward to full scale production by 2K Manufacturing in 2009. Bovis has also helped provide a focus on Eco Sheet in the project which includes utilisation of waste streams from Tesco. 

However, it is the step change in the plastic recycling sector which I believe will provide the catalyst for wider adoption of PIM. As Chairman of the WRAP (Waste Recourses Action Programme) Plastics Forum and Vice Chairman of the British Plastics Federation Recycling Council, I am fortunate to see both technical and commercial evidence of this step change. With plans for approximately 200,000 tonnes of post consumer bottle recycling capacity due to be delivered in the UK over the next 12 months, WRAP are now focusing on mixed waste recycling. An integrated approach will require a market for those significant out flows which cannot viably be separated. PIM provides that opportunity.

We are delighted by the recent progress of the Replas project. This was a DTI awarded project, managed by PERA, with support from its commercial partners and its academic partner, Brunel University. As 2K Manufacturing move into their product development phase we envisage close cooperation with Brunel University which will accelerate the project and develop technical specifications and material formulations.

In addition significant progress has been made by our licencee, EPT, with regards to the agreements with Contour and Mediwall. The PIM shower deck products were centre stage on the Contour stand at a recent exhibition and are currently in production at the Bedwas facility. The product development project for Mediwall is reaching a conclusion with positive results from the fire testing currently in progress. 

Whilst our main focus is in UK; it is our plan to offer territorial and sector franchising in order to accelerate licensing wherever possible either securing an upfront payment (possibly in instalments) or a transfer of overhead and liability effectively creating cost-savings for the Group.

Following this strategy, we have signed a number of licences over the past 3 months: Most (but not all) involve up front licence fees and minimum royalties. Within the constraints of commercial confidentiality, we will separately announce the major details of the Licences in due course but the brief headlines are:

Eco-Tek :	1. Africa Master licence
	2. Arabia Master licence
	3. Plastic wood slottable furniture and antimicrobial applications
Miguel Linares:	Collapsible Sea container of his own design which he is patenting
Invicta Recources	Worldwide licence for "Somali house" design
Reveho :	UK licences for in-house design of pallet box and radiant ceiling tile
Dextapoint :	Non exclusive licence for various construction products for Americas and Australasia
Global Tech:	1. Non exclusive licence for construction products in NAFTA.
	2. Exclusive license for auto non magnesium encapsulation in NAFTA
LBO Corporation	Exclusive worldwide licence for magnesium encapsulation for automotive applications.

These above new licence agreements are expected to generate minimum revenues of £1.0m in the year to 31 December 2008. 

 

There is no doubt in my mind that we have made significant progress over the past few weeks and months, and whilst there is still a considerable amount of work to be done, I am confident that, as a result of adoption of our new business model, the commercialisation of PIM is now much closer to reality.

Roger Baynham

Managing Director

Financial review for the year ended 31 December 2007

Results

Revenue for the year ended 31 December 2007 was £243,000 (2006: £319,000). The loss on operations was £4.74 million compared to losses of £2.62 million in 2006. Losses attributable to equity shareholders were £5.69 million (2006 loss £8.49 million).

Dividends and loss per share

No dividend payment is proposed. There remained 21.1 million warrants and 3.8 million shares under option at the year end which had no dilutive effect on the earnings per share. The loss per share was (4.01) pence compared to (10.91) pence in 2006.

Trading

Turnover included revenue for pre-production work and the release of licence income from deferred income.

Administrative expenses for continuing operations for the period were £3.72 million compared to £2.07 million in the same period in 2006. In addition to normal running expenses, they include corporate finance costs associated with the August 2007 placing and provision for increased depreciation for the US plant and machinery.

Exceptional expenses of £1.18 million compared to £1.01 million in 2006 cover provisions for contractual costs for product development for Mediwall and other contracts, as well as provisions for legal and settlement costs associated with a former employee in Kyrgyzstan. 

The reduction in general overheads continues as the company pursues its goal of becoming a virtual operation, run on the minimal overheads associated with being an AIM listed company.

Disposal of non-core interests

In accordance with the previously stated policy of disposing of non-core interests to concentrate resources on PIM Process development, the company sold its investments in Medical Waste Solutions Limited and Value Plastic Technologies LLC. The Board considered that management time was better spent on the UK and European based activities of the Group. Medical Waste Solutions was subsequently refinanced by a consortium of venture capitalists. The operations of Value Plastic Technologies have been taken over by Global Tech International Inc. and the company is now effectively dormant. Overall the company's stated policy has been followed in that these interests have been disposed of with resources in time and money being concentrated on UK and European operations of PIM Process.

Finance costs

During the IFRS conversion project, a number of warrants attaching to loans were identified which had not been previously accounted for. This has resulted in additional finance costs of £0.84 million (2006 - £0.57 million) being charged to the income statement. 

Financing

As announced on 11 June 2008 the placing that was authorised at the EGM on 23 August 2007 has raised £2.8 million and has been used to pay down other third party loans and interest due as well as for product development and long standing creditors. The balance has been used to fund general working capital. 

During the period, YA Global Investments Limited ("Yorkville"), successor to Cornell Capital Partners L.P. and Montgomery Equity Partners (collectively "Cornell") converted a further £1.24 million into equity reducing the loans outstanding to £1.61 million. Since 31 December 2007, Yorkville have converted a further £0.43 million including £0.25 million applicable to accrued interest outstanding. In total, Yorkville/Cornell/Montgomery have converted £5.06 million at an average price of 5.12p per share. 

The Standby Equity Distribution Agreement (SEDA) with Cornell to the value of £5 million was due to expire in September 2008. An extended SEDA for £5 million, on the same terms as Cornell, has been signed with Yorkville which expires in September 2010. No draw down has been made against this facility. 

David Shepley-Cuthbert

Finance Director

Group Income Statement

Year ended 31 December 2007

	Year ended 31 December 2007	Year ended 31 December 2006
Continuing operations	£'000	£'000
Revenue	243	319
Cost of sales	(95)	-
Gross profit	148	319
Administrative expenses
Exceptional	(1,176)	(1,012)
Other	(3,716)	(2,070)
Total administrative expenses	(4,892)	(3,082)
Other income	-	144
Loss on operations	(4,744)	(2,619)
Finance income	9	4
Finance costs	(1,035)	(1,048)
Loss for the year from continuing
operations and before income tax	(5,770)	(3,663)
Tax credit on loss on ordinary activities	(80)	-
Loss for the year	(5,690)	(3,663)
Discontinued operations
Loss from discontinued operations	-	(4,829)
Loss attributable to equity shareholders
of the company	(5,690)	(8,492)
Loss per share (pence)
Basic and diluted loss per share	(4.01p)	(10.91p)
Basic and diluted loss per share
on continuing operations	(4.01p)	(4.71p)
Basic and diluted loss per share
on discontinued operations	-	(6.20p)

Group Balance Sheet

At 31 December 2007

		31 December		31 December
		2007		2006
Assets	£'000	£'000	£'000	£'000
Non-Current Assets
Intangible assets		11,579		12,474
Plant & equipment		277		544
Available for sale investments		-		97
Trade and other receivables		585		599
Total non current assets		12,441		13,714
Current assets
Trade and other receivables	537		374
Cash and cash equivalents	146		55
Total current assets		683		429
Total assets		13,124		14,143
Liabilities
Non-current liabilities
Borrowings	-		1,708
Total non-current liabilities		-		1,708
Current liabilities
Trade and other payables	1,110		1,327
Borrowings	2,030		3,220
Provisions	545		-
Total current liabilities		3,685		4,547
Total liabilities		3,685		6,255
Net assets		9,439		7,888
Equity attributable to the shareholders of the parent
Share capital		6,310		2,656
Share premium reserve		35,447		32,213
Warrant reserve		1,367		1,321
Equity reserve		-		38
Retained earnings		(33,685)		(28,340)
Total equity		9,439		7,888

 

Group Statement of Changes in Shareholders' Equity

Year ended 31 December 2006

Share	Share	Share	Warrant	Equity	Retained
	Capital	Premium	Reserves	Reserve	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Loss for year	-	-	-	-	(8,492)	(8,492)
Total recognised income and
expense for the year	-	-	-	-	(8,492)	(8,492)
Issue of share capital	986	2,221	-	-	-	3,207
Movement due to share
based payment	-	-	-	-	2	2
Movement on warrant reserve	-	-	203	-	-	203
Arising on issue of
Loans	-	-	853	38	-	891
Movement for the year	986	2,221	1,056	38	(8,490)	(4,189)
Balance at 1 January 2006	1,670	29,992	265	-	(19,850)	12,077
Balance at 31 December 2006	2,656	32,213	1,321	38	(28,340)	(7,888)

Year ended 31 December 2007

	Share	Share	Warrant	Equity	Retained
	Capital	Premium	Reserves	Reserve	earnings	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Loss for year	-	-	-	-	(5,690)	(5,690)
Total recognised income and
expense for the year	-	-	-	-	(5,690)	(5,690)
Issue of share capital	3,654	3,234	(271)	-	-	6,617
Arising on loans	-	-	-	29	-	29
Warrants issued	-	-	261	-	-	261
Warrants revalued	-	-	334	-	-	334
Warrants and options lapsed	-	-	(278)	(67)	345	-
Movement for the year	3,654	3,234	46	(38)	(5,345)	1,551
Balance at 1 January 2007	2,656	32,213	1,321	38	(28,340)	7,888
Balance at 31 December 2007	6,310	35,447	1,367	-	(33,685)	9,439

 

Group cash flow statement

Year ended 31 December 2007
	31 December		31 December
	2007		2006
	£'000		£'000
Continuing Activities
Loss before tax	(5,770)		(3,663)
Adjusted for:
Depreciation on property plant and equipment	275		38
Amortisation of intangible assets	895		762
Finance income	(9)		(4)
Finance expense	1,035		1,048
Fees settled in shares	294		175
Investment write down	-		226
Gain on disposal of investments	-		(59)
	(3,280)		(1,477)
Decrease/(increase) in trade and other receivables	(163)		62
(Decrease)/increase in trade and other payables	674		11
Increase in provisions	545		-
Cash used by operations	(2,224)		(1,404)
Finance costs	-		(136)
Tax receipt	80		-
Net cash outflow from operations	(2,144)		(1,540)
Cash flows from investing activities
Interest received	9		4
Disposal proceeds	-		100
Purchase of plant and machinery	(8)		-
Net cash used in investing activities	1		104
Cash flow from financing activities
Issue of equity share capital	3,338		579
Inception of loans	125		2,275
Repayment of loans	(1,178)		(2,806)
Interest paid	(51)		-
Net cash generated (used) in financing activities	2,234		48
Cash used by operations (discontinued operations)	-		(2,450)
Cash used in investing activities (discontinued operations)	-		(220)
Cash used in financing activities (discontinued operations)	-		(164)
Net increase/(decrease) in cash	91		(4,222)
Cash and cash equivalents at beginning of period	55		4,277
Cash and cash equivalents at end of period	146		55

Notes to the financial statements 

1. Accounting policies 

Basis of accounting

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. 

The financial statements have been prepared for the first time in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union and implemented in the UK. Accordingly the comparatives for 2006 have been restated from UK Generally Accepted Accounting practice (UK GAAP) to comply with IFRS. Details of how the transition from UK accounting standards to EU adopted IFRS has affected the group's reported financial position, financial performance and cash flows, including changes in accounting policies, are given in note 16. The financial statements comply with those parts of the Companies Act 1985 applicable to companies preparing financial statements in accordance with IFRS.

The consolidated financial information set uoput above does not constitute statutory financial statements for the years ended 31 december 2007 or 2006 as defined in Section 240 of the Companies Act 1985. The annual statutory report for the year ended 31 december 2006 has been filed with the registrar of Companies and that for 2007 will be filed in due course. The auditors have reported on the accounts for the year ended 31 December 2006; their report was unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985.

Going concern

The directors believe Environmental Recycling Technologies plc is a going concern and provide details of available funds in the Financing section of the Financial Review.

Basis of consolidation

The financial statements consolidate the accounts of Environmental Recycling Technologies plc and its non-trading subsidiary undertakings. Intercompany transactions and balances between companies are eliminated in full. 

As a consolidated income statement is published, a separate income statement for the parent Company is omitted from the Group financial statements by virtue of section 230 of the Companies Act 1985.

2. Revenue and segment information

The revenue and loss before tax are attributable to the principal activities of the Group being the licensing of the intellectual property of the plastic Powder Impression Moulding system to generate licence fees and ongoing royalties.

Licence income is accounted for either over the period of the licence or the transfer technology. Minimum annual and any over riding royalties earned during the year are accounted for on an accruals basis.

In the opinion of the directors, the only business segment is the exploitation of the group's intellectual property. Whilst customers may be operating in different economic environments the group operates from the United Kingdom and all business is subject to English law.

Except for assets with a book value of £272,000 (2006 £539,000) held in the USA, all assets are in the UK.

  Secondary reporting of external revenue by location of customer is as follows:

	Year ended		Year ended
	31 December		31 December
	2007		2006
	£'000		£'000
United Kingdom	92		16
Rest of Europe	45		44
North America	106		259
	243		319

3. Other income

	Year ended		Year ended
	31 December		31 December
	2007		2006
	£'000		£'000
Machine rentals	-		144

4. Loss on operations before interest and finance

Loss on operations is stated after charging/(crediting):

	Year ended		Year ended
	31 December 2007		31 December 2006
	£'000		£'000
Depreciation of plant and equipment	275		895
Amortisation of intangible fixed assets	895		833
Fees payable to the Company's auditor in respect of -
- Audit of the Company's annual accounts	52		50
- Audit of the Company's subsidiaries	-		10
- Tax services	12		5
- All other services	20		15
Hire of other assets - operating leases	-		29
Rent of land and buildings	-		176
Net (gain)/loss on foreign currency translation	(1)		37
Equity settled share based payments	6		64

5. Discontinued operations

	Year ended		Year ended
	31 December 2007		31 December 2006
	£'000		£'000
Discontinued operations	-		(4,829)

On 30 November 2006, the group sold 3DM Europe Limited and its subsidiary 3DM Group Limited including the Bedwas House facility to Environmental Polymer Technologies Limited. 

The amount disclosed in the income statement is represented by: 

Revenue	40
Cost of sales	(177)
Gross loss	(137)
Administrative expenses	(3,036)
Operating loss	(3,173)
Loss from selling discontinued operations	(1,656)
Total	(4,829)

The loss from the disposal was calculated as follows: 

	31 December 2006
	£’000	£’000
Proceeds
Issue of shares	(200)
Loan to group undertaking written off	(330)
Future consideration	(200)
Loss on disposal of assets	(180)
		(910)
Intangible fixed assets Tangible fixed assets	(535) (3,851)
Debtors	(487)
Creditors	4,127
		(746)
Loss on disposal		(1,656)

6. Exceptional items

	Year ended	Year ended
	31 December 2007	31 December 2006
	£'000	£'000
Legal and settlement costs	545	-
Product development work	631	-
Provisions against loans and trade debts	-	1,012
	1,176	1,012

The legal and settlement costs are associated with the claim from a former employee in Kyrgyzstan. The product development work relates to the costs incurred and written off in respect of the Mediwall and Contour projects.

The exceptional item in 2006 was a provision for loans and trade debts which are owed by Silkwood Financial Corporation Inc. and Value Plastics Technologies LLC. These bad debt provisions were utilised in full during 2007. 

7. Finance costs

	Year ended	Year ended
	31 December 2007	31 December 2006
	£'000	£'000
Loan interest	194	212
Finance lease interest	-	233
HP interest	-	25
Bank interest	2	7
Amortisation of finance costs	839	571
Total finance costs	1,035	1,048

8. Earnings per share

From continuing and discontinued operations

		Year ended	Year ended
		31 December 2007	31 December 2006
		£'000	£'000
Numerator
Loss used for calculation of basic and diluted EPS		(5,690)	(8,492)
		Year ended	Year ended
		31 December 2007	31 December 2006
		£'000	£'000
Denominator
Weighted average number of shares used in basic and diluted EPS		141,959,606	77,862,312
From continuing operations
		Year ended	Year ended
		31 December 2007	31 December 2006
		£'000	£'000
Numerator
Loss for the financial year		(5,690)	(8,492)
Loss for the year from discontinued operations			4,829
Loss from continuing operations used in basic and diluted EPS		(5,690)	(3,663)

Denominator

The number of shares are the same as those calculated for continuing and discontinued operations.

From discontinued operations

		Year ended		Year ended
		31 December 2007		31 December 2006
		£'000		£'000
Basic and diluted loss per share from discontinued operations		-		(4.71)

At 31 December 2007, there were 23,946,785 (2006:33,995,754) of potentially issuable shares which are anti-dilutive.

9. Trade and other receivables

	31 December 2007	31 December 2006
Non current - due after one year	£'000	£'000
Other receivables	585	599
Other receivables are represented by the loan arising from the sale of Bedwas to Environmental Polymer Technologies Limited in November 2006.
Current - due within one year
Trade receivables	404	26
VAT recoverable	60	84
Other debtors and prepayments	73	264
	537	374

All receivable balances are in sterling, none were overdue and no provisions have been made. 

  10. Borrowings 

	31 December 2007	31 December 2006
Non current - due after one year	£'000	£'000
Long term borrowings	-	1,708
Current - due within one year
Short term borrowings	75	887
Current portion of long term borrowings	1,955	2,333
	2,030	3,220
Total borrowings	2,030	4,928

The carrying value (which is a reasonable approximation to fair value) of borrowings analysed by lender is as follows - 

YA Global Investment Limited - current	1,955	2,333
- non current	-	1,708
	1,955	4,041
Battlebridge Nominees Limited	-	72
Oxford Capital plc	75	528
Oxford Corporate Services Limited	-	25
Progressives Plastics Limited	-	262
Total borrowings	2,030	4,928

The amounts due to YA Global Investments Limited ("Yorkville"), formerly Cornell Capital Partners LLC, are stated net of unamortised finance costs. This convertible loan was unsecured and denominated in Sterling.

All borrowings at 31 December 2006, with the exception of "Yorkville", were repaid in full. A new loan of £75,000 has been made by Oxford Capital plc during the year which carries interest at 7.5% per annum from 1 January 2008 and is due for repayment on 1 January 2009. If the loan is not then repaid the lender gains conversion rights and the interest rate increases to 15% per annum.

The Yorkville loan at 31 December 2006 was due for repayment £2,333,000 by December 2007 and £1,708,000 by June 2008.

Pursuant to an agreement dated 27 March 2008 Yorkville borrowings are secured by a debenture, the loan is now due for repayment on or before 31 December 2009 and simple interest is being charged at 12% per annum (previously 5% per annum). Subject to certain conditions Yorkville may convert their loan to ordinary shares of the company.

11. Trade and other payables - current

	31 December 2007	31 December 2006
	£'000	£'000
Trade payables	694	425
Social security and other taxes	13	11
Accruals and deferred income	403	891
	1,110	1,327

Book value is a reasonable approximation to fair value and debts are due for repayment under normal trading terms.

12. Provisions

	31 December 2007	31 December 2006
	£'000	£'000
Legal claims	545	-

Provisions cover claims for legal and settlement costs associated with a former employee in Kyrgyzstan. 

13. Commitments under operating leases

The Group total contracted lease payments under non-cancellable operating leases as set out below.

	Lease commitments
	Motor vehicles	Motor vehicles
	£'000	£'000
Within one year	18	18
In one to two years	-	36

14. Related party transactions

Invoices totalling £15,933 (2006: £11,614) were received from Oxford Corporate Services Limited for recoverable expenses. This Company is controlled by Mrs N Brooks, wife of K W Brooks. The amount outstanding at the year end was £2,536 (2006: £27,001), which was due to Oxford Corporate Services Limited. 

Aston Hall Limited invoiced £50,060 (2006: £63,596) to the Group in respect of director's fees for D C Shepley-Cuthbert who is also a director and controlling party of Aston Hall Limited. The amount outstanding at the year end was £5,017 (2006: £17,145).

Oakridge Business Services Limited, of which R Baynham is a director, invoiced £15,000 (2006: £25,000) in the year for director's fees. The amount outstanding at the year end was £15,000 (2006: £25,000).

15. Events after balance sheet date

Since the year end ten new licences have been signed covering the automotive, construction and other products. This will result in income to the Company in 2008 with differing levels of minimum royalties due over the life of the licences.

YA Global Investments Limited ("Yorkville") advanced the company a further £350,000 in March 2008 at the same time as agreeing to extend the Standby Equity Distribution Agreement (SEDA) to the value of £5 million until September 2010. Yorkville is entitled to convert up to a maximum of £300,000 per week in to shares in the Company at a price which is the lower of 85% of the lowest volume weighted average price for the 10 consecutive trading days immediately prior to the loan notice date and £0.07. The Company has the right to repay all or part of the combined debenture in cash. No draw down has been made against the extended SEDA facility.

16. Reconciliation of UK GAAP to IFRS

The Group's financial statements for the year ended 31 December 2007 are the first annual financial statements to be prepared under IFRS with the date of transition to IFRS being 1 January 2006. Annual financial statements prior to this date have been prepared under UK GAAP.

Presented on the following pages, in accordance with IFRS 1, are the reconciliations of the Group Income Statement for the year ended 31 December 2006 as well as the reconciliation of the Group Balance Sheet at 1 January 2006 (date of transition to IFRS) and 31 December 2006 (date of last UK GAAP financial statements). 

Explanations of material adjustments of the Group Income Statement for the year ended 31 December 2006 and to the Group Balance Sheet at 1 January 2006 and 31 December 2006 are also shown on the following pages. The columns headed prior year adjustments reflect the accounting adjustments to prior year figures arising from the warrants attaching to loans which had not previously been accounted for.

Advantage has been taken of the exemptions available in IFRS 1 as follows:

IFRS 2 'Share-based Payments' has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 December 2006.

IFRS 3 'Business Combinations' has not been applied retrospectively to business combinations that occurred before 1 December 2006.

Group Income statement

Reconciliations	UK GAAP	Prior		IFRS
	31 Dec	Year	IFRS	31 Dec
	2006	*	*	2006
	£'000	£'000	£'000	£'000
Continuing operations
Revenue	359	-	(40)	319
Cost of sales	(177)	-	177	-
Gross profit	182	-	137	319
Administrative expenses
Exceptional	(1,012)	-	-	(1,012)
Other	(5,046)	-	2,976	(2,070)
Total administrative expenses	(6,058)	-	2,976	(3,082)
Other income	144	-	-	144
Loss on operations	(5,732)	-	3,113	(2,619)
Loss on disposal of subsidiary	(1,121)	-	1,121	-
Finance income	4	-	-	4
Finance costs	(477)	(571)	-	(1,048)
Loss for the year from continuing
operations before income tax	(7,326)	(571)	4,234	(3,663)
Tax credit on loss on ordinary activities	-	-	-	-
Loss for the year	(7,326)	(571)	4,234	(3,663)
Discontinued operations
Loss from discontinued operations	-	-	(4,829)	(4,829)
Loss attributable to equity shareholders
of the company	(7,326)	(571)	(595)	(8,492)

Group Balance Sheet

	At 31 December 2006				At 1 January 2006
Reconciliations	UK GAAP	Prior		IFRS	UK GAAP		IFRS
	31 Dec	Year	IFRS	31 Dec	01 Jan	IFRS	01 Jan
	2006	*	*	2006	2006	*	2006
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Non current assets
Intangible assets	12,474	-	-	12,474	11,996	595	12,591
Plant and equipment	544	-	-	544	5,158	-	5,158
Available for sale investments	97	-	-	97	64	-	64
Trade and other receivables	599	-	-	599	-	-
Total non current assets	13,714	-	-	13,714	17,218	595	17,813
Current assets
Trade and other receivables	374	-	-	374	2,330	-	2,330
Cash and cash equivalents	55	-	-	55	4,507	-	4,507
Total current assets	429	-	-	429	6,837	-	6,837
Total assets	14,143	-	-	14,143	24,055	595	24,650
Liabilities
Non-current liabilities
Borrowings	(1,708)	-	-	(1,708)	(5,329)	-	(5,329)
Total non current liabilities	(1,708)	-	-	(1,708)	(5,329)	-	(5,329)
Current liabilities
Trade and other payables	(1,327)	-	-	(1,327)	(1,464)	-	(1,464)
Borrowings	(3,540)	320		(3,220)	(5,780)	-	(5,780)
Total current liabilities	(4,867)	320	-	(4,547)	(7,244)	-	(7,244)
Total liabilities	(6,575)	320	-	(6,255)	(12,573)	-	(12,573)
Net assets	7,568	320		7,888	11,482	595	12,077
Equity
Share Capital	2,656	-	-	2,656	1,670	-	1,670
Share premium reserve	32,213	-	-	32,213	29,992	-	29,992
Warrant reserve	468	853	-	1,321	265	-	265
Equity reserve	-	38	-	38	-	-	-
Retained earnings	(27,769)	(571)	-	(28,340)	(20,445)	595	(19,850)
Total equity	7,568	320	-	7,888	11,482	595	12,077

   *Explanation of Adjustments

Prior Year - Warrants and Options

During the IFRS conversion project, the directors reviewed a number of contracts. They identified a number of warrants attaching to loans which had not been previously accounted for. As such, as part of the restatement, the directors have also adjusted the prior year figures to account for these additional warrants. The effect of these adjustments is summarised below:

	31 Dec		01 Jan
	2006		2006
	£'000		£'000
	Adjustment		Adjustment
Income statement
Finance costs	571
Balance sheet
Loans	320
Warrant reserve	(853)
Equity reserve	(38)
IFRS - IAS 38 - Development expenditure
Income statement
Administrative expenses - discontinued
Operations	60		(595)
Loss on disposal	535		-
Balance sheet
Intangible assets	(535)		661
Provision for amortisation	(60)		(66)

Other than presentational issues, the only adjustment on implementing IFRS is to capitalise development costs in accordance with IAS 38. These costs were capitalised in the company's subsidiary which was sold during 2006.

ENDFR KGGGNGMGGRZG

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