ASLR.L Regulatory News (ASLR)

31 Mar 2006 10:37

Pentagon Protection PLC31 March 2006 For Release 31 March 2006 Pentagon Protection Plc Preliminary Results for year ended 30 September 2005 CHAIRMAN'S STATEMENT Introduction The period under review has been extremely challenging and disappointing, withlosses incurred at both operational divisions, the commercial and architecturalwindow protection buildings division called Pentagon Filmtek and the smaller,original automotive window filming division called Pentagon Glass Tech, despitean improvement in Group turnover over the previous financial year. It has also been one of much needed change and, as indicated in a trading updateannounced on 24 February 2006, the Group stated it intended to restructure itsbusiness to improve its sustainable growth prospects for the future. During the financial year under review and since February 1, the Board hasdecided to focus its management resources on its buildings division andimplemented the following actions: • Secured a platform for Pentagon's entry into the high growth potentialmarket for building window film-based protection via the August 2005collaboration with US-based Allegiance Holdings, in which its principal, Mr.Haytham ElZayn, acquired 14,322,349 shares of Pentagon Protection Group or 8.6%of the issued share capital for £589,523 and became a non-executive director. • Advanced its negotiations to acquire a leading UK-based competitor toconsolidate Pentagon's domestic market-leadership position in the commercialglass market for its building division. • Developed a superior protecting 'system' of window film and anchoring andcommenced negotiating exclusive global supply and distribution rights to thissuperior window-frame anchoring technology. • Strengthened its presence in targeted markets by opening new offices in theUS and Bahrain and closing its offices in Singapore. • Strengthened its market position in key Middle Eastern markets. • Commenced discussions to sell Pentagon GlassTech, the loss-making automotivewindow filming division of Pentagon Protection. • Initiated a significant cost savings programme through staff and overheadreductions. This is considered to be wholly in the best interest of theCompany's future growth prospects and its shareholders. Financial Review For the year ended 30 September 2005 turnover was up 9% to £3,619,939, comparedto £3,316,544 in the previous financial year. An operating loss has been made of £1,224,596 after exceptional items of£503,730 resulting from the restructuring, as compared to an operating profit of£690,716 as restated in 2004. The Group operating loss includes £778,770 from bythe automotive division. The Group received a cash injection of £589,523 in June 2005 from the issue of14,322,349 shares at 3.83p per share. Further finance of £281,155 was providedby the Group's bankers through debt factoring. Overall, the Group's cashresources fell by £136,948 over the year. Net interest payable reduced to £11,206, compared to £16,638 in the previousyear. Inevitably, the loss for the year has led to a reduction in the net assets ofthe Group, from £3,985,760 as restated in 2004 to £3,298,753 at 30 September2005. The reduction has been arrived at after the share issue (less costs) asdetailed above Strategic Overview After extensive internal review of the Company's core strengths and capabilitiesacross all areas of operations, the directors have concluded that the globalbuildings window film sector will be Pentagon Protection's primary focus, withspecific attention on high priority markets where the Company has an establishedmarket presence, or which represent growth potential. Despite the difficulties through the year, the buildings division's revenue inthe first quarter of the new financial year saw the contribution of overseassales increase significantly to 50% of all sales, up from 20% in the same periodof 2005. Demand for blast and weather protection film application on buildingsis growing rapidly around the world and Pentagon has determined to takeadvantage of this market opportunity. Pentagon's buildings division has established a solid track record ofperformance in its chosen focus geographies and is well positioned to capitaliseon this. The Company's geographic reach, strengthened by the opening of localrepresentative offices, has enabled contract wins on some of the world's leadingarchitectural structures, such as Emirates Towers in Dubai, Changi Airport inSingapore and the Bank of America building in London. The Company's professionalreputation is underpinned by superior technical skills and management systems toinstall film and security products in naturally hostile or difficultenvironments, evidenced by completed assignments in 65 different countries,significantly more than any direct competitor. An additional source of competitive advantage are our customer service systems,involving superior pre and post contract care, site inspection and sign offmethodology, developed specifically for each client. The Company is currentlydeveloping a B2B education campaign to stimulate market awareness of and demandfor its branded range of protection technologies. Products Pentagon's product development group has developed a dual component system whichoffers measurably superior performance versus conventional competition. TheCompany is now actively developing this initiative for both internal use and fortrade distribution, with particular emphasis on the growth potential of the USmarket. American development rates of security film relative to overall marketsize are significantly behind UK levels. Whereas the growth of window protectionin the UK was triggered by the IRA bombing campaigns in the late 1960's, it isanticipated that the growing fear of terrorism will add to worsening weather andincreasing 'smash & grab' crime in the US to stimulate growth of this demand forprotection. Pentagon's objective is to offer the best performing system solutionin this market. Pentagon Glass Tech In parallel, the directors have decided to cease investment in the automotivedivision. This has led to the decision to sell Pentagon Glass Tech. Although theBoard believed that GlassTech would eventually recover from the setbacks imposedby a change in the UK automotive solar tinting regulations, it was recognisedthat managing its recovery was proving too sizeable a distraction and risk forthe Company and would limit progress in developing the increasing opportunitiesfor the buildings division. Board Changes The Board has also revised its Company's management structure after thisrestructuring. The Board will be downsized to four from seven people to reflectthe Company's sharper focus, with Graham Bannerman continuing as ChiefExecutive, Stephen Harrhy as International Sales Director and Haytham ElZayn andAlan Nicholl as Non-Executive Directors, who combined represent a significantshareholding in the Company. Ronald Bambra, Non Executive Director and GeoffreyRussell, Operations Director, have agreed to retire or step down from the Board.Finally, David Thomas, Chairman, will be retiring from the Board but, as thesingle largest shareholder, will continue to advise the Board as and whenappropriate. His successor as Chairman will be announced at a later date. Said Mr. Thomas: "I am in favour of the need to focus the business on onedivision and consider that the Board will be better served by someone with afresh approach - I wish Graham and his team every success in the future andcurrently have no need or desire to sell any of my holding in the Company. Icontinue to have every confidence in Graham and his team who will nowconcentrate on growing the buildings division." The company has recruited Steve Lipscombe to assist the team with the strategicdevelopment of new markets. Mr Lipscombe was formerly head of EuropeanMarketing and Technical Communications, for the European Building ProductsDivision of Pilkington PLC. Total numbers in the Group have declined through redundancy to a total of 39people, of which 22 are in the buildings division. This compares with 45 peopleat its height during the previous financial year. Key developments across the year 1. Commitment to expand into the high potential US buildings market via acollaboration with a strong US-based partner. On 2 June 2005 the Companyannounced that it had entered into a letter of intent regarding an agreementwith Mr. Haytham ElZayn, the Chairman of Dublin, Ohio based Allegiance HoldingsLLC to collaborate in the introduction and development of Pentagon's servicesand products in the US market. A new company, Pentagon Protection USA LLC wasformed on 8 December 2005. This focuses on the development of building-sectoropportunities. The potential for Pentagon's products in the US with the currentstate of unease in the North America due to terrorism and dramatic shifts inweather has created a rapidly increasing general awareness of the need toprotect people and property from the inherent potential dangers of glass. Next Steps: • Identify priority market sectors: These are: Firstly, the growingrequirement for hurricane and storm resistant glass containment systems, anopportunity dramatically highlighted recently when severe storms devastatedMissouri based businesses and residences in early March; Secondly: the highvalue retail sector, which includes the jewellers security alliance, golfingequipment chains and sporting goods dealers, and thirdly their requirement forincreased protection against rising "smash and grab" style burglary attacks. • Develop the distribution network for the Company's window protectiontechnologies. Pentagon is in the process of identifying buildings sectordealerships as prospective trade partners in the creation of a North Americanmarketing and supply network. Key elements of the original agreement with Allegiance Investment Company LLCwere: • Mr ElZayn has subscribed for 14,322,349 shares in Pentagon at 3.83p pershare, for a total investment consideration of US$1 million (£589,523). • Pentagon and AICL entered into a license agreement granting AICL theexclusive rights to trade within the US as Pentagon's sole partner in the areaof application of window films and anchoring products for architectural glass. • A new company, Allegiance Investment Company LLC (AICL), was incorporated toact as the vehicle to market Pentagon's commercial buildings products andservices throughout the United States. • AICL will invest a further US$1million in the development and marketing ofPentagon's products into the US and international markets over the next 18months. • Mr ElZayn joined the main board of Pentagon. 2. Commenced acquisition discussions to establish Pentagon Protection as UKbuildings sector market leader. Pentagon is in advanced talks to acquire one theUK's leading flat glass film application companies. The acquisition will strengthen Pentagon's commercial building and architecturaldivision, which supplies the design and application of blast protection film toflat glass and anchoring systems for enhanced blast and weather protection. The target company has a healthy order book with a good spread of clientsthroughout the UK, and an experienced management team to compliment the growinginternational business of Pentagon's buildings division. The integration of Pentagon Protection and this new company will providePentagon Protection PLC with a share of the UK Market in excess of 10%, acompetitively robust base from which to expand the business. The opportunities of the new partnership are reflected in the blue chip clientswith which both companies have mature relationships. The market opportunity inthe UK is highlighted by the fact that, of the absolute requirement to complywith Health & Safety Regulation 14, a significant number of businesses have yetto complete their duty of care concerning glazing protection. This sector also provides substantial revenue opportunities in revisitingclients with warranty expired installations for upgrades to their glazingsystems 3. The Company is negotiating to acquire the Global rights to "newgeneration" Window anchoring technologies, proven in test to increaseeffectiveness Pentagon is currently in discussions to acquire the manufacturing and licencerights to a superior performing extruded anchoring system range and is in theprocess of developing the Company's own branded film supply for both flexibleand rigid anchoring systems. Pentagon-branded window films have been tested to the highest criteria globallyalong with the anchoring products. In Europe Pentagon film products haveachieved the highest impact levels required by EN12600 and EN356, while theCompany's anchoring systems and FT800 film are qualified to GSA standards 3A and3B in the USA. Testing programmes are continuing to meet additional standards inthe new North American markets. 4. Pentagon has opened offices in key growth markets and closed non-performing branches. The non-fulfillment of two significant and high-profilecontracts in Europe earlier in the year strengthened the Board's resolve tointensify the Middle East as a specific regional priority, arising from analready strong presence, reputation and network. In the Middle East, the Group established a Joint Venture in Bahrain, creating acommercial office in Bahrain to manage and control the expanding Middle Eastoperations. This became operational in March 2006 and extended the Company'sreach throughout the region in both architectural and automotive markets. TheCompany closed its Singapore office given a sharp decline in the Far Easternmarket's attractiveness caused by entrenched low-price local competition. In the Middle East, the Company will continue to develop contracts worked onthroughout 2004 and 2005, primarily in the Leisure and Petrochemical sectors. Contract gains were secured from a number of global companies, including ShellExploration, a large international oil logistics concern and a prestigeretail/office centre in Dubai. 5. Divestment of underperforming automotive division. The Company is in thefinal stages of agreeing the sale of Pentagon Glass Tech Limited, the Group'sautomotive division. This has been a regrettable but necessary decision. Thedivision continued to make losses during 2005, struggling to make up lost groundafter a significant change in legislation with respect to window tinting wasintroduced at the beginning of 2004. Section 32 of the Construction and Use Regulations (part of the Road TrafficAct) was changed by Parliament in February 2004 to include reference to windowtint films, the effect of which has been to discourage the practice of applyingtints to the driver and forward passenger windows. This had a significant effecton demand for window tinting and compelled the Group to increase its effort inpromoting the security and safety benefits of SupaGlass as a superioralternative to tinting and to open new markets internationally, capitalising onan improving awareness of the Pentagon brand. Although the early results indicated that GlassTech would recover behind thisstrategy, it was recognised that managing its recovery was proving too onerousfor Pentagon Protection and the losses generated over 2005 were unsustainable. Any recovery was also likely to take too long and ultimately limit the progressthat we were seeking to make in developing the expanding opportunities for thebuildings division. 6. Implementation of cost savings programme. Throughout the year, theCompany has reviewed its staffing needs resulting in annual payroll savingswithin the buildings division of up to £180,000. This programme will continue in2006/2007and the Board anticipates further reductions in the Company's costbase, helped by the divestment of Pentagon Glass Tech and further budgetinginitiatives. The directors have taken salary cuts of 15%. Conclusion The benefits to the Company's financial performance resulting from theseinitiatives should impact the second half of the current financial year. Thelessons learned over the last year were painful, precipitating a critical reviewof the most fundamental aspects of the Group's history and strategy. The actionstaken reflect a sharper, more resolved definition of market segments andgeographies in which the Group will focus upon as it strengthens its overallcapability to deliver innovative and superior products and services under thePentagon brand. The Board looks forward to shareholder continued support as wereport the improvements in Pentagon's progress and performance that weanticipate will be derived from the comprehensive changes made in the past 12months. INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF PENTAGON PROTECTION PLC We have audited the financial statements of Pentagon Protection Plc on pages 8to 27 for the year ended 30 September 2005 which comprise the consolidatedprofit and loss account, consolidated balance sheet, company balance sheet,consolidated cash flow statement and the related notes. These financialstatements have been prepared under the historical cost convention and theaccounting policies set out 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 As described in the statement of directors' responsibilities on page 2 thecompany's directors are responsible for the preparation of the financialstatements in accordance with applicable law and United Kingdom AccountingStandards. Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and United Kingdom AuditingStandards. 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 if, in our opinion, the directors' report is notconsistent with the financial statements, if 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 transactions with the company is not disclosed. We read the directors' report and consider the implications for our report if webecome aware of any apparent misstatements within it. Basis of audit opinion We conducted our audit in accordance with United Kingdom Auditing Standardsissued by the Auditing Practices Board. An audit includes examination, on a testbasis, of evidence relevant to the amounts and disclosures in the financialstatements. It also includes an assessment of the significant estimates andjudgements made by the directors in the preparation of the financial statements,and of whether the accounting policies are appropriate to the company's and thegroup's circumstances, consistently applied and adequately disclosed. 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 statements. Opinion In our opinion the financial statements give a true and fair view of the stateof the company's and the group's affairs as at 30 September 2005 and of thegroup's loss for the year then ended and have been properly prepared inaccordance with the Companies Act 1985. Warrener Stewart Chartered Accountants 30 March 2006 Registered Auditors Harwood House 43 Harwood Road London SW6 4QP CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 30 SEPTEMBER 2005 2005 2004 As restated Notes £ £ Turnover 3 3,619,939 3,316,554 Cost of sales (2,010,805) (1,364,463)Exceptional item 4 (40,473) ----------- -----------Gross profit 1,568,661 1,952,091 ----------- ----------- Distribution costs 631,058 501,997Administrative expenses 1,725,770 1,291,564Exceptional items 4 463,257 - ----------- ----------- 2,820,085 1,793,561 ----------- -----------Other operating income 26,828 532,186 ----------- -----------Operating (loss)/profit 4 (1,224,596) 690,716 ----------- -----------Interest receivable and 8,245 3,125similar incomeInterest payable and similar 5 (19,451) (19,763)charges ----------- -----------(Loss)/profit on ordinary (1,235,802) 674,078activities before taxation Tax on (loss)/profit on 6 - (105,770)ordinary activities ----------- -----------Retained (loss)/profit for (1,235,802) 568,308the year =========== =========== Basic (loss)/earnings per (0.82)p 0.48pshareDiluted (loss)/earnings per (0.70)p 0.48pshare =========== =========== The results above are derived wholly from continuing operations. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFOR THE YEAR ENDED 30 SEPTEMBER 2005 2005 2004 As restated Notes £ £ (Loss)/profit for the (1,235,802) 568,308financial yearPrior year adjustment 2 389,451 - ----------- -----------Total recognised gains and (846,351) 568,308losses since last annualreport =========== =========== BALANCE SHEETSAS AT 30 SEPTEMBER 2005 Group Company 2005 2004 2005 2004 Notes As restated £ £ £ £Fixed assetsIntangible assets 9 2,389,093 2,820,295 - -Tangible assets 10 202,038 237,814 - -Investments 11 - - 2,710,510 4,235,458 ----------- ----------- ----------- ----------- 2,591,131 3,058,109 2,710,510 4,235,458 ----------- ----------- ----------- -----------Current assetsStocks 201,923 156,276 - -Debtors 12 1,262,218 1,219,965 133,471 859,562Cash at bank and in hand 471,347 601,782 290,287 579,768 ----------- ----------- ----------- ----------- 1,935,488 1,978,023 423,758 1,439,330Creditors: amounts falling 13 (1,024,298) (777,972) (96,100) (84,004)due within one year ----------- ----------- ----------- -----------Net current assets 911,190 1,200,051 327,658 1,355,326 ----------- ----------- ----------- -----------Total assets less current liabilities 3,502,321 4,258,160 3,038,168 5,590,784 Creditors: amounts falling 14 (8,568) (22,400) - -due after more than one year Provisions for liabilities 15 (195,000) (250,000) (195,000) (250,000)and charges ----------- ----------- ----------- ----------- 3,298,753 3,985,760 2,843,168 5,340,784 =========== =========== =========== =========== Capital and reservesCalled up share capital 17 165,918 135,556 165,918 135,556Share premium 18 4,297,803 3,029,370 4,297,803 3,029,370Merger reserve 18 192,150 192,150 1,570,783 1,570,783Shares to be issued 18 - 750,000 - 750,000Profit and loss account (1,357,118) (121,316) (3,191,336) (144,925) ----------- ----------- ----------- -----------Shareholders' funds 19 3,298,753 3,985,760 2,843,168 5,340,784 =========== =========== =========== =========== The financial statements were approved by the board on 30 March 2006. A R NichollDirector CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2005 2005 2004 As restated £ £ £ £ Net cash (outflow)/inflow from operating (870,798) 350,357activities Returns on investments and servicingof financeInterest received 8,245 3,125Interest paid (18,940) (18,793)Interest element of finance lease (511) (970)rentals --------- ---------Net cash outflow for returns on (11,206) (16,638)investments and servicing of finance Taxation - (105,770) Capital expenditurePayments to acquire intangible - (334,984)assetsPayments to acquire tangible assets (27,807) (75,538)Receipts from sales of tangible 14,154 -assets --------- ---------Net cash (outflow) for capital (13,653) (410,522)expenditure AcquisitionsPurchase of subsidiary undertaking - (860,510)Payment against provision for (55,000)purchase of subsidiary undertakingNet overdrafts acquired with - (82,855)subsidiary --------- --------- (55,000) (943,365) FinancingLoans repaid to financial (2,309) (18,467)institutionsIncrease in factor finance 281,155 -Share issue costs (40,728) (55,913)Capital element of finance lease (13,932) (17,509)rentalNet decrease in directors' loans - (30,000)Shares issued 589,523 1,597,500 --------- ---------Net cash inflow from financing 813,709 1,475,611 --------- ---------(Decrease)/increase in cash in the (136,948) 349,673year ========= ========= NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2005 1 Reconciliation of operating profit to net cash inflow 2005 2004 from operating activities As restated £ £ Operating (loss)/profit (1,224,596) 690,716 Depreciation and amortisation of fixed assets 480,949 178,879 Profit on disposal of tangible assets (318) - Increase in stocks (45,647) (100,247) Increase in debtors (42,253) 97,428 Decrease in creditors (38,933) (110,741) Non cash movement arising on prior year - (405,678) adjustment --------- --------- Net cash inflow from operating (870,798) 350,357 activities ========= ========= 2 Analysis of net funds 1 October Cash flow 30 2004 September 2005 £ £ £ Cash at bank and in hand 601,782 (130,435) 471,347 Bank overdrafts (18,463) (6,513) (24,976) --------- --------- --------- 583,319 (136,948) 446,371 --------- --------- --------- Finance leases (31,886) 13,932 (17,954) Debts falling due after more than (2,309) 2,309 - one year Factor finance - (281,155) (281,155) --------- --------- --------- (34,195) (264,914) (299,109) --------- --------- --------- Net funds 549,124 (401,862) 147,262 ========= ========= ========= 3 Reconciliation of net cash flow to movement in net debt 2005 2004 £ £ (Decrease)/increase in cash in (136,948) 349,673 the year Cash outflow from decrease in debt (264,914) 211,131 --------- --------- Movement in net funds in the year (401,862) 560,804 Opening net funds/(debt) 549,124 (11,680) --------- --------- Closing net funds 147,262 549,124 ========= ========= NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 SEPTEMBER 2005 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 2005 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. 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 and 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 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 realisble value, after making provision for slow moving and obsolete items. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 2 Prior year adjustment During the year ended 30 September 2004, other operating income of £511,448, together with a related tax charge of £105,770 were treated incorrectly within the consolidated financial statements. Whilst the income and associated tax were correctly disclosed within the financial statements of the underlying subsidiary undertaking, these amounts were shown as a reduction in goodwill on consolidation of that subsidiary within the group. As a result of the above, the comparative figures for the year ended 30 September 2004 have been restated, in order correctly to classify these amounts as revenue items. The prior year adjustment is made up as follows: £ For the year ended 30 September 2004: Increase in other operating income 511,448 Increase in goodwill amortization (16,227) --------- 495,221 Tax effect of the above (105,770) --------- Increase in reserves at 1 October 2004 389,451 ========= The impact of the prior year adjustment on group results is set out below: 2005 2004 £ £ (Reduction)/increase in post (20,284) 389,451 tax profits ========= ========= 3 Turnover The turnover and group loss (2004: profit) are attributable to the principal activities of the group. An analysis of turnover by geographical market is given below: 2005 2004 £ £ United Kingdom 2,599,225 2,684,591 Americas - 25,000 Europe 562,974 116,311 Africa and Middle East 378,525 245,724 Far East 79,215 244,928 ---------- ---------- 3,619,939 3,316,554 ========== ========== NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 4 Operating (loss)/profit 2005 2004 Restated £ £ Operating profit is stated after charging/(crediting): Depreciation of tangible fixed assets 49,747 71,668 Profit on disposal of tangible fixed assets (318) Amortisation of intangible fixed assets 130,526 99,221 Operating lease rentals - Plant and machinery 41,751 37,183 Auditors' remuneration 17,000 9,500 Exceptional items (see below) 503,730 - ========== ========== The following items have been treated as exceptional in arriving at the operating (loss)/profit for the year: Exceptional stock write off 40,473 - Provision for diminution in value of development costs 300,676 - (see note 9) Exceptional bad debt charge 162,581 - ---------- ---------- 503,730 - ========== ========== The exceptional stock write off is included within cost of sales and the provision for diminution in value and exceptional bad debt charge (total £463,257) are included within administrative expenses. 5 Interest payable 2005 2004 £ £ On bank loans and overdrafts 11,324 8,364 On other loans 2,869 3,186 On factored debts 4,747 7,163 On finance leases 511 970 Other interest - 80 --------- --------- 19,451 19,763 ========= ========= NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 6 Taxation £ £ Domestic current year tax U.K. corporation tax - 105,770 Adjustment for prior years - - --------- --------- Current tax charge - 105,770 ========= ========= Factors affecting the tax charge for the year (Loss)/profit on ordinary activities before taxation (1,235,802) 674,078 ========== ========= Profit on ordinary activities before taxation multiplied (370,741) 202,223 by standard rate of UK corporation tax of 30.00% (2004: 30.00%) --------- --------- Effects of: Non deductible expenses 9,744 39,883 Accelerated capital allowances (1,505) (5,294) Carried/(brought) forward losses (1,235,802) (80,494) Research and development relief - (50,548) --------- --------- (370,741) (96,453) --------- --------- Current tax charge - 105,770 ========= ========= The group has tax losses of approximately £1,739,000 available to carry forward forward against future trading profits, subject to agreement by HMIT. On the basis of prudence, no provision has been made for a potential deferred tax asset of approximately £521,000. 7 (Loss)/earnings per share The calculation of (loss)/earnings per share are based on the following (losses)/profits and number of shares: 2005 2005 2004 2004 As restated As restated Basic Diluted Basic Diluted (Loss)/profit for the financial (1,235,802) (1,235,802) 568,308 568,308 year ========== ========== ========= ========= Weighted average number of shares for basic and diluted (loss)/ earnings per share 151,488,970 176,338,271 119,002,923 119,002,923 =========== =========== =========== =========== NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 8 Profit 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: 2005 2004 £ £ Holding company's loss for the financial year (3,046,411) (111,617) ========== ========= 9 Intangible fixed assets Group Goodwill Development Total costs £ £ £ Cost At 1 October 2004 (as restated) & 30 2,618,840 334,984 2,953,824 September 2005 ---------- --------- ---------- Amortisation At 1 October 2004 (as restated) 99,221 34,308 133,529 Charge for the year 130,526 300,676 431,202 --------- --------- --------- At 30 September 2005 229,747 334,984 564,731 --------- --------- --------- Net book value At 30 September 2005 2,389,093 - 2,389,093 ========== ========= ========== At 30 September 2004 2,519,619 300,676 2,820,295 ========== ========= ========== Goodwill arose on the acquisition in 2003 of Pentagon Filmtek Limited. Thegoodwill arising is being amortised over its estimated useful economic life of 20years. Following a review of deferred development costs, the directors have taken theview that the asset should now be fully amortised. Therefore it has been writtendown to a carrying value of £nil within the financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 10 Tangible fixed assets Group Land and Plant and Fixtures Office Motor Total buildings machinery & equipment vehicles Leasehold fittings £ £ £ £ £ £ Cost or valuation At 1 October 2004 81,838 121,924 61,956 12,994 123,616 402,328 Additions - 16,596 10,190 - 1,021 27,807 Disposals - - - - (23,965) (23,965) --------- --------- --------- --------- --------- --------- At 30 September 2005 81,838 138,520 72,146 12,994 100,672 406,170 --------- --------- --------- --------- --------- --------- Depreciation At 1 October 2004 32,381 49,017 31,916 1,185 50,015 164,514 Charge for the year 4,946 14,306 12,631 2,952 14,912 49,747 On disposals - - - - (10,129) (10,129) --------- --------- --------- --------- --------- --------- At 30 September 2005 37,327 63,323 44,547 4,137 54,798 204,132 --------- --------- --------- --------- --------- --------- Net book value At 30 September 2005 44,511 75,197 27,599 8,857 45,874 202,038 ========= ========= ========= ========= ========= ========= At 30 September 2004 49,457 72,907 30,040 11,809 73,601 237,814 ========= ========= ========= ========= ========= ========= Included above are assets held under finance leases or hire purchase contracts as follows: 2005 2004 £ £ Net book values Motor vehicles 18,683 32,596 ========= ========= Depreciation charge for the year Motor vehicles 6,228 10,865 ========= ========= NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 11 Fixed asset investments Company Shares in group undertakings £ Cost or valuation At 1 October 2004 & at 30 September 2005 4,235,458 ========== Provision for permanent diminution in value At 1 October 2004 - Charge for the year 1,524,948 ---------- At 30 September 2005 1,524,948 ---------- Net book value At 30 September 2004 2,710,510 ========== At 30 September 2005 4,235,458 ========== Following a review of the business carried on by Pentagon Glass Tech Limited and Pentagon Glass Tech (Franchising) Limited, the Board took the decision to make a provision against the cost of these investments, leaving a carrying value of £100,000. The investment in Pentagon Filmtek Limited remains at cost. The company owns 100% of the ordinary share capital of the following subsidiary companies, all of which are incorporated in England: Name: Principal activity: Pentagon Glass Tech Limited Solar protective and safety films for cars Pentagon Glass Tech (Franchising) Franchising of solar, protective and Limited safety films Pentagon Filmtek Limited Supply and application of solar controls, safety and security films to commercial buildings 12 Debtors Group Company 2005 2004 2005 2004 £ £ £ £ Trade debtors 1,087,666 1,007,451 - - Amounts owed by group - - 111,360 841,523 undertakings Other debtors 120,464 114,815 - - Prepayments and accrued income 54,088 97,699 22,111 18,039 ---------- ---------- ---------- --------- 1,262,218 1,219,965 133,471 859,562 ========== ========== ========== ========= Amounts owed to the company by group undertakings are stated net of a provision against amounts owed by Pentagon Glass Tech Limited of £1,395,760 (2004: Nil) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 13 Creditors : amounts falling due within one year Group Company 2005 2004 2005 2004 £ £ £ £ Bank loans and overdrafts 24,976 18,463 - - Factor finance 281,155 - - - Net obligations under finance lease 9,386 11,795 - - and hire purchase contracts Trade creditors 507,740 503,623 27,033 59,793 Other taxes and social security 70,802 86,066 10,984 21,711 costs Other creditors 71,879 137,085 52,083 - Accruals and deferred income 58,360 20,940 6,000 2,500 ---------- --------- --------- --------- 1,024,298 777,972 96,100 84,004 ========== ========= ========= ========= 14 Creditors : amounts falling due after more than one year Group Company 2005 2004 2005 2004 £ £ £ £ Bank loans - 2,309 - - Net obligations under finance 8,568 20,091 - - leases and hire purchase agreements --------- --------- --------- --------- 8,568 22,400 - - ========= ========= ========= ========= Analysis of loans Wholly repayable within five years 17,954 34,195 628 788 Included in current liabilities (9,386) (11,795) (140) (159) --------- --------- --------- --------- 8,568 22,400 488 629 ========= ========= ========= ========= Loan maturity analysis In more than one year but not more 8,568 13,832 140 159 than two years In more than two years but not more - 8,568 348 470 than five years ========= ========= ========= ========= NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 15 Provisions for liabilities and charges Other provisions Group Company £ £ Balance at 1 October 2004 250,000 250,000 Payments made in the year (55,000) (55,000) --------- --------- Balance at 30 September 2005 195,000 195,000 ========= ========= The above provision relates to deferred consideration on the acquisition of a subsidiary as follows: Group Company 2005 2004 2005 2004 £ £ £ £ Further payments 195,000 250,000 195,000 250,000 ========= ========= ========= ========= 16 Pension costs Defined contribution 2005 2004 £ £ Contributions payable by the group for the year 22,336 12,282 ========= ========= 17 Share capital 2005 2004 £ £ Authorised 200,000,000 Ordinary shares of 0.1p each 200,000 200,000 ========= ========= Allotted, called up and fully paid 165,918,156 (2004: 135,556,334) Ordinary shares of 0.1p 165,918 135,556 each ========= ========= Share transaction history: On 11 January 2005 there was a placing of 15,789,473 ordinary 0.1p shares for 4.75p each to the vendors of Pentagon Filmtek Limited in settlement of deferred consideration falling due. There were further placings of 250,000 ordinary 0.1p shares at par on 26 May 2005 and 14,322,349 ordinary 0.1p shares at 3.83p each on 7 June 2005. Share options The total number of outstanding share options at 30 September 2005 was 24,849,301. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 18 Statement of movements on reserves Group Profit and Share Merger Shares to Totals loss premium reserve be issued account account £ £ £ £ £ At 1 October 2004 as (510,767) 3,029,370 192,150 750,000 3,460,753 previously stated Prior year adjustment 389,451 - - - 389,451 ---------- ---------- --------- --------- ---------- At 1 October 2004 as (121,316) 3,029,370 192,150 750,000 3,850,204 restated Shares issued - 1,309,161 - (750,000) 559,161 Share issue expenses - (40,728) - - (40,728) Loss for the year (1,235,802) - - - (1,235,802) ---------- ---------- --------- --------- ---------- At 30 September 2005 (1,357,118) 4,297,803 192,150 - 3,132,835 ========== ========== ========= ========= ========== Company Profit and Share Merger Shares to Totals loss premium reserve be issued account account £ £ £ £ £ At 1 October 2004 (144,925) 3,029,370 1,570,783 750,000 5,205,228 Shares issued - 1,309,161 - (750,000) 559,161 Share issue expenses - (40,728) - - (40,728) Loss for the year (3,046,411) - - - (3,046,411) ---------- ---------- ---------- ---------- ---------- At 30 September 2005 (3,191,336) 4,297,803 1,570,783 - 2,677,250 ========== ========== ========== ========= ========== NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 19 Reconciliation of movements in shareholders' funds 2005 2004 Group As restated £ £ £ (Loss)/profit for the financial year (1,235,802) 178,857 Net proceeds from issue of shares 548,795 2,291,587 Shares to be issued - 750,000 ---------- ---------- Net (depletion in)/addition to shareholders' funds (687,007) 3,220,444 Opening shareholders' funds as 3,596,309 375,865 previously reported Prior year adjustment 389,451 - ---------- ---------- Opening shareholders' funds as 3,985,760 375,865 restated ---------- ---------- Closing shareholders' funds 3,298,753 3,596,309 ========== ========== 2005 2004 Company £ £ Loss for the financial year (3,046,411) (111,617) Net proceeds from issue of shares 548,795 2,291,587 Shares to be issued - 750,000 ---------- ---------- Net (depletion in)/addition to shareholders' funds (2,497,616) 2,929,970 Opening shareholders' funds 5,340,784 2,410,814 ---------- ---------- Closing shareholders' funds 2,843,168 5,340,784 ========== ========== NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 20 Directors' emoluments 2005 2004 £ £ Aggregate emoluments including benefits in kind 232,734 181,597 ========= ========= Emoluments disclosed above include the following amounts paid to the highest paid director: Aggregate emoluments 69,072 56,747 ========= ========= No director benefited from any increase in the value of share options during the year 21 Employees Number of employees The average monthly number of employees (including directors) during the year was: 2005 2004 Number Number Operations 13 12 Administration 16 18 Sales 10 7 --------- --------- 39 37 ========= ========= Employment costs £ £ Wages and salaries 1,119,294 958,260 Social security costs 113,250 125,098 Other pension costs 22,336 4,533 --------- --------- 1,254,880 1,087,891 ========= ========= NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 22 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 2005 is shown in note 14 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 cash deposits which is based on the Nat West base rate. The group' sterling floating cash balances at the year end were £471,347 (2004: £601,782). Financial liabilities The interest rate profile of the group's financial liabilities was as follows: Total Floating Fixed rate rate financial financial liabilities liabilities £ £ £ Currency At 30 September 2005: Sterling 299,109 281,155 17,954 At 30 September 2004: Sterling 182,094 150,208 31,886 ========= ========= ========= 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 and a director's loan that bear interest based on the Nat West base rate and borrowing from a factor that bear interest based on the Royal bank of Scotland base rate. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 30 SEPTEMBER 2005 23 Control The company is listed on the Alternative Investment Market and there is no individual controlling party. 24 Related party disclosures 2005 2004 £ £ Creditor balances R Bambra 52,803 - D A Thomas - 51,274 ========= ========= During the year the group paid rent and service charges of £35,400 (2004: £26,550, plus other charges of £6,933) to GB Management Limited, a company in which G Bannerman has an interest. 25 Contingent liability The group has received notice of a potential tax claim in relation to a non-trading subsidiary which has no assets. The maximum claim including interest is approximately £165,000. In the unlikely event of the claim subsisiting it would not create any liability in the parent undertaking. The Board believes that the tax liability will not be paid and since the year end the subsidiary in question has been put. In the light of the above, the directors have excluded the potential liability from the financial statements. ENDS This information is provided by RNS The company news service from the London Stock Exchange