ASLR.L Regulatory News (ASLR)

29 Mar 2007 12:15

Pentagon Protection PLC29 March 2007 For release 29th March 2007 Pentagon Protection PLC Preliminary Results For the twelve months ended 30 September 2006 Pentagon Protection PLC ("Pentagon"), the provider of enhanced glass film andanchoring systems for greater security, blast protection and reduction of thetransmission of infrared radiation, announces its Preliminary results for thetwelve months ended 30 September 2006. Highlights • Turnover down 40% to £2.2m (includes only 5 months of disposed of automotive business) • Operating loss of 1.28m • Administrative costs unchanged at £1.75m; included major re-branding & marketing expense • Cash reserves up 53% to £720,000 Operational highlights • Disposed of loss making automotive division. This removed the high cost of the central London offices and showroom • Head office relocated to existing office outside London, in Buckinghamshire • Product and services relaunch • Maiden contract wins in USA by Pentagon USA • Greater focus on domestic sales Business review since year end • Expenditure cuts across the business • Head count reduced through ongoing redundancy programme • Extensive in house retraining programme for all sales staff ahead of anticipated increase in demand as businesses need to comply with Regulation 14, which states that building glass "be of safe material or be protected against breakage" Commenting on the results and the outlook, Alan Nicholl, Chairman said: "The results reported in the period under review show large losses, but I amhappy to announce that Pentagon has reacted positively by carrying out anextensive Business Review that has already resulted in the Company returning totrading profitably on a month to month basis. With the anticipated increase indemand for our products and services in the UK in 2007 we are optimistic thatfurther benefits will start to show through. I would like to thank all the stafffor their hard work as we continue to improve the Company's fortunes." For further information: Pentagon Protection PLC Seymour Pierce Parkgreen CommunicationsAlan Nicholl, Chairman Jonathan Wright Ben KnowlesDanielle Stewart, Company T: 020 7107 8000 T: 020 7851 7480SecretaryT: 01494 793333 CHAIRMAN'S STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2006 Introduction The nine months since I reported to you on our interim financial statements hasbeen a progressive period for Pentagon Protection Plc. Although the results forthe financial year ended 30 September 2006 report a very large loss, I amextremely pleased to be able to let you know that we have now turned the companyaround to month on month profitable trading and have no reason to presume thatthe trend of improving results will not continue for the foreseeable future. This has been achieved by a straightforward and down to earth approach ofcutting overheads to the level that can be supported on a sustained basis out ofcurrent turnover levels, at the same time as working to regain ground in all ofour traditional markets, thereby ensuring higher turnover in future. In the paragraphs which follow, I will set out for you how the turnaround hasbeen achieved and why I have every confidence in the future. In this context, Ihope that you will take a measured view of the disappointing results for theyear. Financial Review The turnover for the period under review was £2,152,621. This represents a dropof over 40% when compared with the results for the year ended 30 September 2005. These figures include the turnover of the automotive division, which wasdisposed of five months before the end of the year. However, the drop inturnover on continuing operations (from £2,739,407 to £1,616,344) was similarly41%. Obviously such a large reduction in turnover is of concern, but the Boardhas now taken extensive steps to reverse this trend. I explain further belowwhat has been done subsequent to the year end to work on improving turnover backto previous levels and beyond. The gross profit margin has also dropped from 43% to 34%. This has been causedin part by price pressure as well as by a lack of economies of scale resultingfrom the reduced volumes. This is another area that we are attacking, andmargins in the current year are much improved, again to previous levels. Administrative expenses for the year are very similar to those incurred in 2005in absolute terms (2006 - £1,752,827, 2005 - £1,725,770). However, these costsincluded a high level of expenditure on re-branding and marketing expenses,which represents a one off cost that is already paying dividends in improvedturnover. The 2006 figures also include one off costs of approximately £62,000relating to redundancies arising as a result of the Board's extensive review ofthe overheads and cost cutting exercise which is explained further below. Taken overall, the operating loss from continuing operations of £1,284,655 issubstantially larger than the 2005 loss of £453,797. Nonetheless, the company'scash reserves remain stable, with year end cash at £720,762 against 2005 cashreserves of £471,347. This is after taking account of two fund raisings on15th June and 25th September 2006, the details of which are given in note 18 tothe accounts. Our projections indicate that there will be no need to performany further fundraising in the current year. The basic loss per share, at 0.86p, was only 5% greater than the basic loss pershare in 2005, which was 0.82p. The Board has not proposed a dividend, in linewith its continuing policy at the current time. The net assets of the group have fallen by 9% from £3,298,753 to £2,995,902. Business Review In my last report, I explained that, subsequent to the disposal of theautomotive division on 1 May 2006, the Board undertook a review of all areas ofthe business in order to determine the best way forward in the interests of allstakeholders in the business. This review was conducted thoroughly,professionally and unemotionally. Some hard decisions had to be taken and manychanges made. The Board's review recommended the cutting of expenditure in every area of thebusiness. We also reviewed critically our sales and marketing strategy with theresult that a major re-launch of our products and services took place in October2006. Strategically, we have realised that our laudable focus on global penetrationhad led us to take our eye off the ball in our home territory, leading todisappointingly low UK sales. I am now addressing this with a completeretraining and reorganisation of the sales force. I am very pleased to be able to report that there was one area of our reviewthat resulted in purely positive observations and no need for any change instrategy, being our American operations. Haytham ElZayn, our American investor/director, has established an excellent team in the USA and we anticipate ourrelationship with them developing to the benefit of all concerned over the yearsto come. Taken overall, the Board currently feels content that no area of the businessrequires any further dramatic change, although we continue to reviewopportunities for risk minimisation and profit maximisation, such as the currentopportunity in Dubai, detailed below. The challenge now is simply to apply thenew policies, procedures and plans successfully. I set out below details of each of the areas mentioned above. Some serious cost cutting Our focus on overheads necessarily included cutting our payroll bill. This ledto the redundancy of a key individual who has been with the company sincefloatation. Geoff Russell left on 1st November 2006 because his role in thebusiness was severely curtailed by the disposal of the automotive division.Geoff has not been replaced, since his role has ceased to exist. The Boardwishes Geoff well for the future. Our review led to a number of further staff losses, some of which were effectedby redundancies and others by not replacing those leaving naturally. Overall,we have cut staff costs on a month by month basis subsequent to the year end byover 40%. Other overheads were also subjected to our critical gaze. Establishment costshave reduced dramatically because the disposal of the automotive division meansthat the group no longer incurs the cost of the Acton offices and showrooms. Wenow operate from a small office in Chesham, which is sufficient for ourcircumstances at the current time, given that all new business presentations aremade at our clients' premises. This is, in any event, the norm for a buildingsfocussed glass surfacing company, whereas an automotive glass surfacing businessneeds a workshop type premises. I am pleased to report that subsequent to the year end, overheads are nowannualising at a level which should allow the company to trade profitably on anongoing basis. The re-launch of Pentagon Protection In November our global brand was re-launched at an industry seminar held inLondon. Pentagon Filmtek Limited was re-branded as Pentagon Protection UKLimited, which more accurately describes the range of services we are nowmarketing. At the seminar, the effects of global warming were presented, focusing on thehuge impact this was having on energy costs for the owners and occupiers ofcommercial buildings with glass facades. The 25 EU member states have recently agreed to new EU directives regarding theenergy performance of buildings and a commitment to reduce carbon dioxideemissions by 2010. Air conditioning costs have soared to become one of the mostserious challenges facing companies seeking to control overheads and yetcontinue to provide acceptable working environments for their staff. Pentagon Protection Plc launched Infra-Max(R), an advanced glazing film that isdesigned precisely to bring the problem of solar gain in glass-clad buildingsunder control by significantly reducing the transmission of infra red light.Infra-Max(R) has been formulated to prevent more than 60% of infra red radiationfrom passing through glass into the interior of the building, thus dramaticallyreducing the load on air conditioning plant. Infra-Max(R) will, nonetheless, continue to allow 69% light transmission solighting loads will remain unaffected. It will not change the internal orexternal appearance of the building, thus maintaining aesthetics whilstsignificantly improving its performance and comfort. Tested to BS EN12600,Infra-Max(R) is supplied in Solar Control and combination Security/Solar controlformats. The audience was also reminded that more people are injured and killed from thesecondary effects of explosions caused by terrorism, industrial accidents,extreme weather conditions and violent attack than those in the direct path ofthe incident, caused by flying glass and other debris. In fact more than 90% ofall blast-related injuries are caused by flying glass. The effects of jagged pieces of flying glass can be catastrophic but may beeasily and effectively prevented by the combination of Pentagon's FT800high-tensile strength film - which retains the glass during an explosion orother violent incident - and an effective edge retention, or anchoring system,which prevents the shattered but retained glass from being propelled en masseinto the building. One of the newest and most effective solutions is theinstallation of Pentagon EliteTM. Pentagon EliteTM glazing anchoring system will prevent the retained glass fromblowing inwards following a blast or other violent incident, causing the unit torebound backwards into the blast area as the explosive force dissipates. Pentagon EliteTM is discreet in appearance and complements existing framing andweatherseals in appearance and feel. As a system the Pentagon anchoring andsecurity film combination is designed to offer the maximum possible protectionwithout disclosing the presence of security measures to staff, customers andguests within a building. Sales Force Training During the past 6 months, we have undertaken a complete overhaul of the salesteam and have initiated an intensive in house retraining programme. This hasbeen augmented by the valuable assistance of our manufacturers who have alsogiven additional product training ensuring that our team is amongst the mosttechnically adept in the industry. Due to the high number of accidents still being experienced with glass and itbeing over 10 years since the introduction of Regulation 14, there is an urgentrequirement for us to revisit those premises where previously applied film maynow be well past its effective life and, also equally importantly, to visitthose premises that might previously have omitted to comply with the Regulation. Regulation 14 requires that "every window or other transparent or translucentsurface in a wall, partition, door or gate should, where necessary for reasonsof health and safety, be of a safety material or be protected against breakage... and be appropriately marked or incorporate features to make it apparent". In preparation for what we expect to be an enormous demand, our sales team havebeen trained to carry out detailed Glazing Audits and Risk Assessments to ensurethat the duty holders are complying with their responsibilities under Regulation14 to take every possible precaution to ensure the safety of everybody usingtheir premises. This, we believe, is a huge market which will match or exceed our other marketsectors and will give us an unprecedented opportunity to re-establish PentagonProtection as an industry leader. Good News in the USA In September this year, the first important contract wins in the USA wereachieved by our partner, Pentagon USA, with contracts being placed by ColumbusPolice HQ and East Jefferson General Hospital. A number of other contracts havebeen subsequently won and the U.S. team continues to be enthusiastic aboutfurther large contract gains in the near future. Developments in Dubai The recent establishment of an office in Dubai has helped to give greater localcredibility to Pentagon Protection Plc and has undoubtedly helped to wincontracts with airports in the Middle East and The Far East, hotel groups andoil companies. The future Further consolidation of the UK Market will underpin our global efforts andensure that the encouraging results achieved in the first period of the newfinancial year will continue for the remainder of the year. The continuing development of film and anchoring systems, where we are at thecutting edge of technology, will endorse our position as market leaders in theyears to come. Conclusion The board has worked very hard over the past year with the onerous task ofturning the company around and as mentioned, we have not been afraid of makingmany difficult decisions. I know that our perseverance will take some time tomanifest in the returns that you justifiably expect on your investment, but thisis nonetheless what I intend we should attain in the medium term. I thank you inadvance for your continued support, patience and understanding while we work toachieve this goal. Alan NichollChairman29 March 2007 DIRECTORS' REPORTFOR THE YEAR ENDED 30 SEPTEMBER 2006 The directors present their report and financial statements of the company andthe group for the year ended 30 September 2006. Directors The following directors have held office since 1 October 2005: G H Bannerman Chief executiveA R Nicholl Executive chairmanS D Harrhy International sales directorH ElZayn Non-executive directorD A Thomas (Resigned 13 April 2006)R Bambra (Resigned 13 April 2006)G P Russell (Resigned 13 April 2006) Principal activities and review of the business Pentagon Protection Plc is the parent company of Pentagon Protection (UK)Limited (formerly Pentagon Filmtek Limited). The principal activity of Pentagon Protection (UK) Limited is the supply andapplication of solar control, safety and security films to commercial buildings. The company disposed of two former subsidiary undertakings during the year underreview being Pentagon Glass Tech Limited and Pentagon Glass Tech (Franchising)Limited. A review of the business and future developments is included within thechairman's statement which immediately precedes this report. Results and dividends The consolidated profit and loss account for the year is set out on page 10. The directors do not recommend the payment of a dividend and the loss for theyear will be transferred to consolidated reserves. Supplier payment policy The group's payment policy is to obtain the best possible terms for all businessand hence there is no standard policy as to the terms applied. The group seeksto abide by the payment terms agreed with suppliers when it is satisfied thatthe supplier has provided goods and services in accordance with contractualarrangements. Trade creditors of the group at 30 September 2006 were equivalentto 83 days purchases based on the average daily amount incurred by suppliersduring the year (2005: 120 days). Directors' interests The directors' interests in the shares of the company were as stated below: 30 September 2006 1 October 2005 G H Bannerman 24,278,947 19,578,947 A R Nicholl 1,232,002 1,092,022 S D Harrhy 10,073,684 10,073,684 H ElZayn 34,322,349 14,322,349 ========== ========== In addition, the following directors held share options in the company: 30 September 2006 1 October 2005 G H Bannerman 3,290,071 3,290,071 S D Harrhy 1,953,948 1,953,948 ========= ========= Employee involvement Efforts are made to consult and inform employees on matters which concern themwith emphasis on the continuous growth and development of the group. Regularmeetings are held to keep staff abreast of group changes and progress. It is the group's policy to support the employment of disabled persons whereverpossible, both through recruitment and through retention of those who havebecome disabled whilst in the employment of the group. Auditors Warrener Stewart, Chartered Accountants, of Harwood House, 43 Harwood Road,London, SW6 4QP will be proposed for reappointment at the forthcoming annualgeneral meeting. Directors' responsibilities The directors are responsible for preparing the annual report and the financialstatements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for eachfinancial year. Under that law the directors have elected to prepare thefinancial statements in accordance with United Kingdom Generally AcceptedAccounting Practice (United Kingdom Accounting Standards and applicable law).The financial statements are required by law to give a true and fair view of thestate of affairs of the company and of the group and of the profit or loss ofthe group for that period. In preparing those financial statements, thedirectors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. The directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of thecompany and the group and to enable them to ensure that the financial statementscomply with the Companies Act 1985. They are also responsible for safeguardingthe assets of the company and the group and hence for taking reasonable stepsfor the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporateand financial information included on the group's website. Legislation in theUnited Kingdom governing the preparation and dissemination of financialstatements may differ in other jurisdictions. Statement of disclosure to auditor (a) So far as the directors are aware, there is no relevant audit information of which the company's auditors are unaware, and (b) they have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the company's auditors are aware of that information. On behalf of the board A R NichollDirector 29 March 2007 INDEPENDENT AUDITORS' REPORTTO THE SHAREHOLDERS OF PENTAGON PROTECTION PLC We have audited the group and parent company financial statements (the "financial statements") of Pentagon Protection Plc for the year ended 30September 2006 which comprise the Group Profit and Loss Account, the Group andCompany Balance Sheets, the Group Cash Flow Statement and the related notes.These financial statements have been prepared under the accounting policies setout therein. This report is made solely to the company's members, as a body, in accordancewith Section 235 of the Companies Act 1985. Our audit work has been undertakenso that we might state to the company's members those matters we are required tostate to them in an auditor's report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the company and the company's members as a body, for our audit work,for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report and thefinancial statements in accordance with applicable law and United KingdomAccounting Standards (United Kingdom Generally Accepted Accounting Practice) areset out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a trueand fair view and are properly prepared in accordance with the Companies Act1985. We also report to you whether in our opinion the information given in theDirectors' Report is consistent with the financial statements. In addition we report to you if, in our opinion, the company has not kept properaccounting records, if we have not received all the information and explanationswe require for our audit, or if information specified by law regardingdirectors' remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether itis consistent with the audited financial statements. The other informationcomprises only the Directors' Report and the Chairman's Statement. We considerthe implications for our report if we become aware of any apparent misstatementsor material inconsistencies with the financial statements. Our responsibilitiesdo not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgments made by the directors in the preparation ofthe financial statements and of whether the accounting policies are appropriateto the group's and company's circumstances, consistently applied and adequatelydisclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statement Opinion In our opinion: • the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the group's and the parent company's affairs as at 30 September 2006 and of the group's loss for the year then ended; • the financial statements have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors' Report is consistent with the financial statements. Warrener Stewart Chartered Accountants 29 March 2007Registered Auditors Harwood House 43 Harwood Road London SW6 4QP PENTAGON PROTECTION PLC CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 30 SEPTEMBER 2006 2006 2005 Notes £ £ Turnover 2Continuing operations 1,616,343 2,739,407Discontinued operations 536,278 880,532 --------- --------- 2,152,621 3,619,939 Cost of sales (1,430,170) (2,010,805)Exceptional item 4 - (40,473) --------- ---------Gross profit 722,451 1,568,661 --------- --------- Distribution costs (542,998) (631,058)Administrative expenses (1,752,827) (1,725,770)Exceptional items 4 - (463,257) --------- --------- (2,295,825) (2,820,085) --------- ---------Other operating income 40,804 26,828 --------- ---------Operating loss 4Continuing operations (1,271,245) (453,797)Discontinued operations (261,325) (770,799) --------- --------- (1,532,570) (1,224,596)Loss on disposal of discontinued 5 (206,072) -operations --------- ---------Loss on ordinary activities before (1,738,642) (1,224,596)interest Interest receivable and similar income 6,728 8,245Interest payable and similar charges 6 (18,437) (19,451) --------- ---------Loss on ordinary activities before (1,750,351) (1,235,802)taxation Tax on loss on ordinary activities 7 - - --------- ---------Retained loss for the year 19 (1,750,351) (1,235,802) ========= ========= Basic and diluted loss per share 8 (0.86)p (0.82)p ========= ========= There are no recognised gains or losses other than those passing through the profit and loss account. PENTAGON PROTECTION PLC BALANCE SHEETSAS AT 30 SEPTEMBER 2006 Group Company Notes 2006 2005 2006 2005 £ £ £ £Fixed assetsIntangible assets 10 2,258,151 2,389,093 - -Tangible assets 11 23,586 202,038 - -Investments 12 - - 2,610,510 2,710,510 --------- --------- --------- --------- 2,281,737 2,591,131 2,610,510 2,710,510 --------- --------- --------- ---------Current assetsStocks 125,190 201,923 - -Debtors 13 691,326 1,262,218 935,066 133,471Cash at bank and in hand 720,762 471,347 710,508 290,287 --------- --------- --------- --------- 1,537,278 1,935,488 1,645,574 423,758Creditors: amounts falling due within 14 (639,306) (1,024,298) (102,277) (96,100)one year --------- --------- --------- ---------Net current assets 897,972 911,190 1,543,297 327,658 --------- --------- --------- ---------Total assets less current liabilities 3,179,709 3,502,321 4,153,807 3,038,168 Creditors: amounts falling due after 15 - (8,568) - -more than one year Provisions for liabilities 16 (183,807) (195,000) (183,807) (195,000) --------- --------- --------- --------- 2,995,902 3,298,753 3,970,000 2,843,168 ========= ========= ========= ========= Capital and reservesCalled up share capital 18 310,918 165,918 310,918 165,918Share premium account 19 5,600,303 4,297,803 5,600,303 4,297,803Merger reserve 19 - 192,150 - 1,570,783Profit and loss account 19 (2,915,319) (1,357,118) (1,941,221) (3,191,336) --------- --------- --------- ---------Shareholders' funds 20 2,995,902 3,298,753 3,970,000 2,843,168 ========= ========= ========= ========= The financial statements were approved by the board for issue on 29 March 2007. A R NichollDirector PENTAGON PROTECTION PLC CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2006 2006 2005 £ £ £ £ Net cash outflow from operating activities (877,728) (870,798) Returns on investments and servicing offinanceInterest received 6,728 8,245Interest paid (15,586) (18,940)Interest element of finance lease rentals (2,851) (511) --------- --------- Net cash outflow for returns on investments (11,709) (11,206)and servicing of finance Taxation - - Capital expenditurePayments to acquire tangible assets (12,486) (27,807)Receipts from sales of tangible assets 1,500 14,154 --------- ---------Net cash outflow for capital expenditure (10,986) (13,653) Acquisitions and disposalsPayment against provision for purchase of (11,193) (55,000)subsidiary undertakingDisposal of subsidiaries (29,702) - --------- --------- (40,895) (55,000) FinancingLoans repaid to financial institutions - (2,309)(Decrease)/increase in factor finance (213,837) 281,155Share issue costs (52,500) (40,728)Capital element of finance lease rental (17,954) (13,932)Shares issued 1,500,000 589,523 --------- ---------Net cash inflow from financing 1,215,709 813,709 --------- ---------Increase/(decrease) in cash in the year 274,391 (136,948) ========= ========= PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2006 1 Reconciliation of operating loss to net cash outflow from operating 2006 2005 activities £ £ Operating loss (1,532,570) (1,224,596) Depreciation and amortisation of fixed assets 169,832 480,949 Loss/(profit) on disposal of tangible assets 8,369 (318) Decrease/(increase) in stocks 56,559 (45,647) Decrease/(increase) in debtors 284,717 (42,253) Increase/(decrease) in creditors 135,365 (38,933) --------- --------- Net cash outflow from operating activities (877,728) (870,798) ========= ========= 2 Analysis of net funds 1 October 2005 Cash flow 30 September 2006 £ £ £ Cash at bank and in hand 471,347 249,415 720,762 Bank overdrafts (24,976) 24,976 - --------- --------- --------- 446,371 274,391 720,762 --------- --------- --------- Finance leases (17,954) 17,954 - Factor finance (281,155) 213,837 (67,318) --------- --------- --------- (299,109) 231,791 (67,318) --------- --------- --------- Net funds 147,262 506,182 653,444 ========= ========= ========= 3 Reconciliation of net cash flow to movement in net debt 2006 2005 £ £ Increase/(decrease) in cash in the year 274,391 (136,948) Cash outflow/(inflow) from decrease/(increase) in debt 231,791 (264,914) --------- --------- Movement in net funds in the year 506,182 (401,862) Opening net funds 147,262 549,124 --------- --------- Closing net funds 653,444 147,262 ========= ========= PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2006 4 Sale of businesses 2006 2005 £ £ Net assets disposed of Fixed assets 142,179 - Stock 20,174 - Debtors 286,176 - Cash 29,702 - Creditors (272,158) - --------- --------- 206,073 - Sales proceeds 1 - --------- --------- Loss on disposal 206,072 - ========= ========= The businesses disposed of during the year were responsible for £23,020 of the group's net operating cash outflows and were sold for a nominal consideration of £1. PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 SEPTEMBER 2006 1 Accounting policies 1.1 Accounting convention The financial statements have been prepared in accordance with applicable accounting standards under the historical cost convention and in compliance with the requirements of the Companies Act 1985. As permitted by Section 230 of the Companies Act 1985 the profit and loss account of the parent company has not been separately presented in the financial statements. 1.2 Basis of consolidation The group financial statements consolidate the financial statements of the company and all its subsidiary undertakings as at 30 September 2006 using merger accounting or acquisition accounting depending on the circumstances surrounding the combination of each subsidiary undertaking and after eliminating intra-group transactions. Because the company prepares consolidated financial statements, advantage has been taken of the partial exemptions contained within Financial Reporting Standard 8 and transactions with group companies have not been disclosed. 1.3 Turnover Turnover represents invoiced sales, net of value added tax and trade discounts. 1.4 Goodwill Goodwill arising on the acquisition of subsidiaries is capitalised in the year of acquisition and written off over its estimated useful economic life to the profit and loss account. Impairment provisions are only made when, in the opinion of the directors, sustainable future earnings from such subsidiaries are insufficient to support the carrying value of that goodwill. 1.5 Tangible fixed assets and depreciation Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows: Leasehold land and buildings Over the term of the lease Plant and machinery 10% to 25% on written down value Fixtures & fittings 50% on cost and 25% on written down value Office equipment 50% on cost Motor vehicles 25% on written down value 1.6 Research and development Development expenditure is capitalised on clearly defined projects whose outcome can be assessed with reasonable certainty. Amortisation is commenced in the year in which significant revenues from the development occur and is amortised in line with sales. All other research and development expenditure is written off in the year in which it is incurred. 1.7 Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange prevailing at the date of the transaction. Exchange differences are taken into account in arriving at the operating result. PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 1 Accounting policies (continued) 1.8 Leasing Where assets are financed by leasing or hire purchase agreements, the assets are treated as if they had been purchased. The present value of the minimum lease payments payable during the lease term is capitalised as a tangible asset and the corresponding leasing commitment is included as a liability. Rentals payable are apportioned between interest which is charged to the profit and loss account, and capital which reduces the outstanding commitment. All other leases are treated as operating leases. Their annual rentals are charged to the profit and loss account on a payable basis. 1.9 Investments Investments are included in these financial statements at the cost of the ordinary share capital acquired. Adjustments to this value are only made when, in the opinion of the directors, a permanent diminution in value has taken place and where there is no prospect of an improvement in the foreseeable future. 1.10 Pensions The group operates a defined contribution scheme for its employees. The funds of this scheme are administered by trustees and are separate from the group. All payments are charged to the profit and loss account as and when they arise. 1.11 Deferred taxation Deferred tax is provided using the full provision method in accordance with Financial Reporting Standard 19. Deferred tax is recognised in respect of all timing differences that have originated but not reversed by the balance sheet date and is not recognised on permanent differences. It is the group's policy not to discount deferred tax to reflect the time value of money. 1.12 Invoice discounting The group discounts some of its trade debts. The accounting policy is to include trade debt within trade debtors due within one year and to record cash advances within creditors due within one year. Discounting fees are charged to the profit and loss account when incurred. Bad debts are borne by the group and are charged to the profit and loss account when they are incurred. 1.13 Stocks Stocks are included at the lower of cost and net realisable value, after making provision for slow moving and obsolete items. PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 2 Turnover The turnover and group loss are attributable to the principal activities of the group. An analysis of turnover by geographical market is given below: 2006 2005 £ £ United Kingdom 1,479,127 2,599,225 Americas 76,429 - Europe 155,553 562,974 Africa and Middle East 422,018 378,525 Far East 19,494 79,215 --------- --------- 2,152,621 3,619,939 ========= ========= 3 Continuing/discontinued operations 2006 2005 £ £ £ £ £ £ Continuing Dis- Total Continuing Dis- Total continued continued Cost of sales 1,160,760 269,410 1,430,170 1,595,556 455,722 2,051,278 --------- --------- --------- --------- --------- --------- Net operating expenses Distribution expenses 406,707 136,291 542,998 376,156 254,902 631,058 Administrative expenses 1,320,121 432,706 1,752,827 1,221,492 967,535 2,189,027 Other operating income - (40,804) (40,804) - (26,828) (26,828) --------- --------- --------- --------- --------- --------- 1,726,828 528,193 2,255,021 1,597,648 1,195,609 2,793,257 --------- --------- --------- --------- --------- --------- PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 4 Operating loss 2006 2005 £ £ Operating loss is stated after charging/(crediting): Depreciation of tangible fixed assets 38,890 49,747 Loss/(profit) on disposal of tangible fixed assets 8,369 (318) Amortisation of intangible fixed assets 130,942 130,526 Operating lease rentals - Plant and machinery 75,774 25,748 - Other assets 159,663 264,436 Auditors' remuneration 17,000 17,000 Exceptional items (see below) 206,072 503,730 ========= ========= The following items have been treated as exceptional in arriving at the operating loss for the year: Exceptional stock write off - 40,473 Provision for diminution in value of development costs (see note 10) - 300,676 Exceptional bad debt charge - 162,581 --------- --------- - 503,730 ========= ========= In 2005 the exceptional stock write off was included within cost of sales and the provision for diminution in value and exceptional bad debt charge (total £463,257) were included within administrative expenses. 5 Loss on disposal of discontinued operations 2006 2005 £ £ Loss on disposal of subsidiary undertaking - Pentagon Glass Tech 491,447 - (Franchising) Limited Profit on disposal of subsidiary undertaking - Pentagon Glass Tech Limited (285,375) - --------- --------- 206,072 503,730 ========= ========= 6 Interest payable 2006 2005 £ £ On bank loans and overdrafts 2,176 11,324 On other loans - 2,869 On factored debts 13,410 4,747 On finance leases 2,851 511 --------- --------- 18,437 19,451 ========= ========= PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 7 Taxation £ £ 2006 2005 Domestic current year tax U.K. corporation tax - current tax charge - - ========= ========= Factors affecting the tax charge for the year Loss on ordinary activities before taxation (1,750,351) (1,235,802) ========= ========= Loss on ordinary activities before taxation multiplied by standard rate (525,105) (370,741) of UK corporation tax of 30.00% (2005: 30.00%) --------- --------- Effects of: Non deductible expenses 60,566 9,744 Accelerated capital allowances (4,422) (1,505) Carried forward losses (325,783) (378,980) Amortisation of goodwill 39,283 - Losses surrendered on disposal of subsidiaries (75,362) - Other adjustments (219,387) - --------- --------- (525,105) (370,741) --------- --------- Current tax charge - - ========= ========= The group has tax losses of approximately £1,410,000 available to carry forward against future trading profits, subject to agreement by HMRC. On the basis of prudence, no provision has been made for a potential deferred tax asset of approximately £423,000. 8 Loss per share The calculations of loss per share are based on the following losses and number of shares: 2006 2006 2005 2005 Basic Diluted Basic Diluted Loss for the financial year (1,750,351) (1,750,351) (1,235,802) (1,235,802) ========= ========= ========= ========= Weighted average number of shares for basic and diluted loss per share 203,233,224 203,233,224 151,488,970 151,488,970 ========= ========= ========= ========= In accordance with the provisions of FRS22, shares under option are not regarded as dilutive in calculating earnings per share. PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 9 Loss for the financial year As permitted by section 230 of the Companies Act 1985, the holding company's profit and loss account has not been included in these financial statements. The loss for the financial year is made up as follows: 2006 2005 £ £ Holding company's loss for the financial year (320,668) (3,046,411) ========= ========= 10 Intangible fixed assets Group Goodwill Development Total costs £ £ £ Cost At 1 October 2005 & 30 September 2006 2,618,840 334,984 2,953,824 --------- --------- --------- Amortisation At 1 October 2005 229,747 334,984 564,731 Charge for the year 130,942 - 130,942 --------- --------- --------- At 30 September 2006 360,689 334,984 695,673 --------- --------- --------- Net book value At 30 September 2006 2,258,151 - 2,258,151 ========= ========= ========= At 30 September 2005 2,389,093 - 2,389,093 ========= ========= ========= Goodwill arose in 2003 on the acquisition of Pentagon Protection (UK) Limited (formerly Pentagon FilmtekLimited). The goodwill arising is being amortised over its estimated useful economic life of 20 years. Following a review of deferred development costs, in 2005 the directors took the view that the assetshould be fully amortised. PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 11 Tangible fixed assets Group Land and Plant and Fixtures & Office Motor vehicles Total buildings machinery fittings equipment Leasehold £ £ £ £ £ £ Cost or valuation At 1 October 2005 81,838 138,520 72,146 12,994 100,672 406,170 Additions - 9,797 2,689 - - 12,486 Disposals (81,838) (114,055) (65,704) (12,994) (83,163) (357,754) --------- --------- --------- --------- --------- --------- At 30 September 2006 - 34,262 9,131 - 17,509 60,902 --------- --------- --------- --------- --------- --------- Depreciation At 1 October 2005 37,327 63,323 44,547 4,137 54,798 204,132 Charge for the year 1,855 24,135 3,009 - 9,891 38,890 On disposals (39,182) (69,621) (40,987) (4,137) (51,779) (205,706) --------- --------- --------- --------- --------- --------- At 30 September 2006 - 17,837 6,569 - 12,910 37,316 --------- --------- --------- --------- --------- --------- Net book value At 30 September 2006 - 16,425 2,562 - 4,599 23,586 ========= ========= ========= ========= ========= ========= At 30 September 2005 44,511 75,197 27,599 8,857 45,874 202,038 ========= ========= ========= ========= ========= ========= Included above are assets held under finance leases or hire purchase contracts as follows: 2006 2005 £ £ Net book values Motor vehicles - 18,683 ========= ========= Depreciation charge for the year Motor vehicles 1,573 6,228 ========= ========= PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 12 Fixed asset investments Company Shares in group undertakings £ Cost or valuation At 1 October 2005 4,235,458 Disposals (1,624,948) --------- 2,610,510 --------- Provision for permanent diminution in value At 1 October 2005 1,524,948 Disposals (1,524,948) --------- At 30 September 2006 - --------- Net book value At 30 September 2006 2,610,510 ========= At 30 September 2005 2,710,510 ========= The company disposed of two subsidiary undertakings during the year, being Pentagon Glass Tech Limited and Pentagon Glass Tech (Franchising) Limited. The investment in Pentagon Protection (UK) Limited (formerly Pentagon Filmtek Limited) remains at cost. The company owns 100% of the ordinary share capital of the following subsidiary company, which is incorporated in England: Name: Principal activity: Pentagon Protection (UK) Limited (formerly Supply and application of solar controls, safety Pentagon Filmtek Limited) and security films to commercial buildings. 13 Debtors Group Company 2006 2005 2006 2005 £ £ £ £ Trade debtors 386,284 1,087,666 - - Amounts owed by group undertakings - - 646,555 111,360 Other debtors 301,271 120,464 288,511 - Prepayments and accrued income 3,771 54,088 - 22,111 --------- --------- --------- --------- 691,326 1,262,218 935,066 133,471 ========= ========= ========= ========= PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 14 Creditors : amounts falling due within one year Group Company 2006 2005 2006 2005 £ £ £ £ Bank loans and overdrafts - 24,976 - - Factor finance 67,318 281,155 - - Net obligations under finance lease and - 9,386 - - hire purchase contracts Trade creditors 325,899 507,740 31,693 27,033 Other taxes and social security costs 20,352 70,802 - 10,984 Other creditors 78,007 71,879 2,584 52,083 Accruals and deferred income 147,730 58,360 68,000 6,000 --------- --------- --------- --------- 639,306 1,024,298 102,277 96,100 ========= ========= ========= ========= The invoice financing facility is secured by way of a fixed and floating charge over all of the assets, both present and future, of the company. 15 Creditors : amounts falling due after more than one year Group Company 2006 2005 2006 2005 £ £ £ £ Net obligations under finance leases and - 8,568 - - hire purchase agreements --------- --------- --------- --------- - 8,568 - - ========= ========= ========= ========= Analysis of loans Wholly repayable within five years - 17,954 - - Included in current liabilities - (9,386) - - --------- --------- --------- --------- - 8,568 - - ========= ========= ========= ========= Loan maturity analysis In more than one year but not more than - 8,568 - - two years ========= ========= ========= ========= PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 16 Provisions for liabilities Other provisions Group Company £ £ Balance at 1 October 2005 195,000 195,000 Payments made in the year (11,193) (11,193) --------- --------- Balance at 30 September 2006 183,807 183,807 ========= ========= The above provision relates to deferred consideration on the acquisition of a subsidiary as follows: Group Company 2006 2005 2006 2005 £ £ £ £ Further payments 183,807 195,000 183,807 195,000 ========= ========= ========= ========= 17 Pension costs Defined contribution 2006 2005 £ £ Contributions payable by the group for the year 8,139 22,336 ========= ========= 18 Share capital 2006 2005 £ £ Authorised 1,000,000,000 Ordinary shares of 0.1p each 1,000,000 1,000,000 ========= ========= Allotted, called up and fully paid 310,918,156 (2005: 165,918,156) Ordinary shares of 0.1p each 310,918 165,918 ========= ========= Share transaction history: On 15 June 2006 there was a placing of 125,000,000 ordinary 0.1p shares for 1p each. There was a further placing of 20,000,000 ordinary 0.1p shares for 1.25p on 25 September 2006. PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 18 Share capital (continued) Share options As at 30 September 2006 there were 3,592,105 share options outstanding under an Unapproved Executive Share Option scheme. These options are exercisable at 4.75p on or before 11 December 2014. There were also 2,579,534 options outstanding under an Enterprise Management Initiative Scheme exercisable at 4.75p per share on or before 9 February 2015. Employee share option plan On flotation 4,541,262 shares were gifted into an Employee Share Option Plan. At 30 September 2006 1,941,635 of these shares remained unallocated. 19 Statement of movements on reserves Group Profit and loss Share premium Merger reserve Totals account account £ £ £ £ At 1 October 2005 (1,357,118) 4,297,803 192,150 3,132,835 Shares issued - 1,355,000 - 1,355,000 Share issue expenses - (52,500) - (52,500) Loss for the year (1,750,351) - - (1,750,351) Reserve transfer 192,150 - (192,150) - --------- --------- --------- --------- At 30 September 2006 (2,915,319) 5,600,303 - 2,684,984 ========= ========= ========= ========= Company Profit and loss Share premium Merger reserve Totals account account £ £ £ £ At 1 October 2005 (3,191,336) 4,297,803 1,570,783 2,677,250 Shares issued - 1,355,000 - 1,355,000 Share issue expenses - (52,500) - (52,500) Loss for the year (320,668) - - (320,668) Reserve transfer 1,570,783 - (1,570,783) - --------- --------- --------- --------- At 30 September 2006 (1,941,221) 5,600,303 - 3,659,082 ========= ========= ========= ========= PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 20 Reconciliation of movements in shareholders' funds 2006 2005 Group £ £ Loss for the financial year (1,750,351) (1,235,802) Net proceeds from issue of shares 1,447,500 548,795 --------- --------- Net depletion in shareholders' funds (302,851) (687,007) Opening shareholders' funds 3,298,753 3,985,760 --------- --------- Closing shareholders' funds 2,995,902 3,298,753 ========= ========= 2006 2005 Company £ £ Loss for the financial year (320,668) (3,046,411) Net proceeds from issue of shares 1,447,500 548,795 --------- --------- Net increase/(depletion) in shareholders' funds 1,126,832 (2,497,616) Opening shareholders' funds 2,843,168 5,340,784 --------- --------- Closing shareholders' funds 3,970,000 2,843,168 ========= ========= PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 21 Directors' emoluments 2006 2005 £ £ Aggregate emoluments including benefits in kind 207,697 232,734 ========= ========= Emoluments disclosed above include the following amounts paid to the highest paid director: Aggregate emoluments 59,316 69,072 ========= ========= No director benefited from any increase in the value of share options during the year. 22 Employees Number of employees The average monthly number of employees (including directors) during the year was: 2006 2005 Number Number Operations 12 13 Administration 15 16 Sales 9 10 --------- --------- 36 39 ========= ========= Employment costs £ £ Wages and salaries 903,013 1,119,294 Social security costs 86,358 113,250 Other pension costs 8,139 22,336 --------- --------- 997,510 1,254,880 ========= ========= PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 23 Financial instruments The group's financial instruments comprise cash, borrowings, factor finance and hire purchase and finance liabilities as well as various items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the group's operations. Short term debtors and creditors have been excluded from the following disclosures. The fair value of the group's financial assets and liabilities is not materially different from the carrying values in the balance sheet. It is and has been throughout the period under review, the group's policy that no trading in financial instruments shall be undertaken. The main risks arising from the group's financial instruments are interest rate risk and liquidity risk. Interest rate risk It is the group's policy to regularly review the group's exposure to interest rate risk. Liquidity risk It is the group's policy to regularly review the group's exposure to liquidity risk so that an appropriate balance between continuity of funding and short term flexibility is achieved. The maturity profile of the group's financial liabilities at 30 September 2006 is shown in note 15 to the financial statements. Interest rate risk profile of financial assets and financial liabilities Financial assets The group's exposure to interest rate risk currently applies only to the interest received on cash deposits which is based on the Nat West base rate. The group' sterling floating cash balances at the year end were £720,762 (2005: £471,347). Financial liabilities The interest rate profile of the group's financial liabilities was as follows: Total Floating rate Fixed rate financial financial liabilities liabilities £ £ £ Currency At 30 September 2006: Sterling 67,318 67,318 - ========= ========= ========= At 30 September 2005: Sterling 299,109 306,131 17,954 ========= ========= ========= All fixed rate financial liabilities relate to hire purchase and finance lease agreements which have different levels of agreed fixed interest rates. The floating rate financial liabilities comprise sterling denominated overdrafts that bear interest based on the Nat West base rate and borrowing from a factor that bears interest based on the Royal Bank of Scotland base rate. PENTAGON PROTECTION PLC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2006 24 Control The company is listed on AIM and there is no individual controlling party. 25 Related party disclosures 2006 2005 £ £ Creditor balances R Bambra 2,803 52,803 A Nicholl 50,000 - ========= ========= During the year the group paid rent and service charges of £18,850 (2005: £35,400) to GB Management Limited, a company in which G Bannerman has an interest. This information is provided by RNS The company news service from the London Stock Exchange