ASLR.L Regulatory News (ASLR)

31 Jan 2008 15:35

Pentagon Protection PLC31 January 2008 Pentagon Protection Plc ("Pentagon") PRELIMINARY RESULTS Pentagon Protection Plc, the global specialist in the supply and installation ofenhanced glass protection and anchoring for glazing, announces its preliminaryresults for the 12 months ended 30 September 2007, a year showing a considerablereduction in losses. Results highlights: • Revenue up 7.4% to £1.74million (2006: £1.62million) • Gross profit up 180% to £819,000 (2006: £456,000). Gross profit margin up to 47% from 28% in 2006 • Operating losses reduced by 71% to £330,000 (2006: £1.14million excluding loss from discontinued operations) • Administrative expenses reduced by £396,000 (33%) to £792,000 Alan Nicholl, Chairman of Pentagon, commented: "I am very happy to report a significant reduction in losses following our majorrestructuring implemented through the first half of the year. There wereimprovements in all areas and in the period since the end of year we have seenfurther positive progress in sales and are now in a strong position to gainsignificant market share." Enquiries: Pentagon Protection Plc Tel: 01494 793 333Alan Nicholl, Chairman Seymour Pierce Limited Tel: 020 7107 8000Matthew Thomas Parkgreen Communications Tel: 020 7479 7933Paul McManus Mob: 07980 541 893Paul.mcmanus@parkgreenmedia.com PENTAGON PROTECTION PLC CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2007 Introduction My report on the Interim Financial Statements in June 2007 referred to ourreorganised Board - I particularly mentioned our aim to appoint another nonexecutive director. I am delighted to report that this was achieved in November2007 when we welcomed Liu Chunlin as our new Deputy Chairman. Mr Chunlin bringswith him the energy of youth coupled with extensive experience in our industry,gained by developing an enormously successful property protection group inSingapore and China. His particular responsibility on our Board will be toenhance our presence in Singapore and Asia, where we have previously carried outsome major contracts, including Terminals 1, 2 and 3 of Changi Airport. In the period since the release of the interim financial statements, we haveseen further positive progress in the sales performance of the group and we arenow in a strong position to gain significant market share, not only in ourtraditional market of enhanced glass protection, but also in the area of energysaving, where our Infra-Max(R) films are making a significant contribution tothe reduction of carbon emissions. Financial Review I am very pleased to report that the Board has decided to adopt InternationalFinancial Reporting Standards (IFRS) a year before we were obliged to do so.This decision was taken in order to make our financial results and position morecomprehensible to our stakeholders all around the world, particularly to our newSingaporean partners (see further details below). In fact, we have found thatthe new formats, disclosures and accounting treatments make the accounts easierto understand for all concerned. For example, the discontinued aspect of our operations within the 2006 results(which related to the automotive division) is now shown as one line, after theloss for the period from continuing operations, rather than being split betweenall the various categories on the face of the income statement (as it was lastyear). This means that the results shown are truly comparing like with like,which makes it even more pleasing to be able to say that revenues are up by 7.4%from £1,616,343 to £1,736,026, and the loss from operations, derived fromcontinuing activities, has reduced by 71%, from £1,138,450 in 2006 to £329,787this year. When one compares the total loss for the year with that for theprevious year (i.e. including the loss from discontinued operations) theimprovement in results is even more dramatic, being an 80% reduction in the lossfrom £1,617,556 to £325,543. Looking a little more closely at the operational changes that have led to theseimproved results, you will see that administrative expenses have reduced bynearly £400,000, representing a fall of 33.3% compared to the 2006 level. Thishas been achieved by very strict management of all aspects of our spending. Inparticular, we initiated a major reduction in staff numbers throughout thebusiness, particularly at senior management and Board level. In all this celebration, I will just take a moment out to explain that despitethe dramatic improvement in our results compared to the last few years, theBoard is a little disappointed that the loss in the second half of the yearturned out to be high as it was. There were two main reasons for this. Themain cause was a contract at Dubai Airport where stringent security measureswere initiated after the contract had already been started. This addedapproximately £100,000 additional costs which were not recoverable from theclient. The other reason arose because our sales team invested significant timeand effort in some very large, profitable overseas contracts, which took longerto come to fruition than we had originally anticipated. As a consequence ofthese factors, the financial results are not as good as we had hoped for theyear ended 30th September 2007. Nonetheless, the results continue to improve anddeveloping the business in the Far East looks likely to accelerate the rate ofthis improvement. Returning to the areas of significant improvement, we are reporting an increasein the gross profit, from £455,583 in 2006 to £818,719 in 2007. This representsan improvement from a gross profit margin of 28% in 2006 to a very respectable47% in 2007. Finally, it is worth noting that in addition to all the improvements above, allthe other items reported in the consolidated income statement are better thanthe equivalent figure in the previous period. For example, investment income at£10,440 is up on the 2006 income of £6,468. Finance costs are reduced at£6,196, compared with £15,545 last year and of course last year's resultsincluded a loss arising on the disposal of the automotive division, amounting intotal to £470,029 and there is no equivalent figure at all this year. Note 25 to the accounts sets out the differences in accounting policies underIFRS, which have led to the restatement of the balance sheet. The largestdifference relates to the treatment of goodwill. Under IFRS, goodwill has anindefinite life and is only written down when an impairment test suggests thatthe carrying value is overstated. An amortisation charge of £130,942 relatingto goodwill, arising on the acquisition of subsidiaries, was reversed onadoption of IFRS. In addition to this, a staff bonus accrual has beenintroduced to the accounts, which amounts in total at 30 September 2007 to£8,408. Taken over all, Total Equity (previously known as Shareholders' funds)at 30 September 2007 is £2,912,418, a figure which is only £83,484 less than theequivalent figure at 30 September 2006, as reported under UK GAAP. The cash flow statement shows that we have raised very little cash this yearthrough share issues (only £120,500), therefore the trading loss has inevitablyled to a reduction in cash and cash equivalents held at the end of the period(2006 - £720,762, 2007 - £257,851). Nonetheless, we are confident that we havesufficient cash resources to fund our activities for the foreseeable future. Operational Review Continuing the global communication theme initiated by the use of IFRS, thedirectors normally consider the Group's activities in terms of the developmentof various geographical areas. This year has seen a number of excitingdevelopments in our 'think global' theme, as follows: European Operations An important and sizeable contract win in Vienna and outstanding quotations ofaround £1M has helped us to maintain an important presence in Europe. Thecontinuing push for more energy efficient buildings by the EU ensures a fertileand growing market place throughout this important trading area. Singapore and China The introduction of Mr Liu Chunlin and his company K & C Protective TechnologiesPte Ltd by our ex CEO Graham Bannerman has given us an important foothold inthis part of the world with its dynamic and rapidly expanding economy. K & C were recently awarded first place in the prestigious E5O start up awardsorganised by Accenture and The Business Times to recognise innovation andcompanies making a significant contribution to the Singapore economy. As mentioned above, Mr Chunlin has joined the Board as non executive DeputyChairman and we are intending to trade with Mr Chunlin's companies and contactsduring the coming year. Middle East Operations I have already told you, in my Statement with the Interim Report, that in May2007, Graham Bannerman was granted a licence to make certain international saleson our behalf. One of his key territories was Dubai, which is now producingpositive results and has started to contribute modest commissions which areexpected to grow during the next 12 months. In addition to this, we will be reviewing all our agency agreements in theMiddle East during January 2008 and expect to make changes in any areas of underperformance. Russian Operations A new agent, Ronix Standart, has been appointed in Moscow. Their training hasjust begun and thereafter we expect to see an expansive marketing drive startingin Moscow and then spreading out to the other major cities in the region. We have great hopes for this region, where there is currently no significantcompetition. Ronix Standart are particularly well placed to open up this areafor the Group, since they already have an extensive client base supplying a widevariety of security products. USA Operations Our suppliers, 3M and Bekaerts, have been appointed as preferred suppliers ofenergy saving films for the Clinton Climate Initiative. This has provided uswith an exceptional opportunity to promote our installation services to the 40cities that have already signed up to the initiative and the many more that willbe joining this unique and far reaching programme. In addition, our partners in the USA continue to grow their business and haverecently acquired a Florida based company, Elite Window Films, whose founderLucas Rodrigues has been appointed as Vice President of Operations for PentagonUSA. UK Operations Back at home, we have continued to invest in sales and marketing and have addedthree young and enthusiastic salesmen to the team. Our continued investment in quality sales training has proven to be a successfulstrategy borne out by an order book of around £1M and an equally healthy quotebank. Without doubt, the most exciting development in our industry since theintroduction of bomb blast protection in the '70s is our range of energy savingfilms, Infra-Max(R). We anticipate tremendous growth in this area during theyear ahead. A new division has been set up to concentrate on the sale of manifestations(graphics for glass) through the internet and also via our usual marketingstrategies. This division adds an exciting new dimension to our range ofproducts as we are finding innovative ways of using existing glass facades foradvertising or by adding decorative designs to make the glass more interestingand attractive. Conclusion The year ended with significant contract gains in Austria, Iraq and the UK whichhas given us an impressive start for the year 2007 - 2008. Our early adoption of IFRS echoes our international aspirations, which the Boardbelieves will take us from strength to strength in 2008. Alan Nicholl Chairman 31 January 2008 PENTAGON PROTECTION PLC DIRECTORS' REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2007 The directors present their report and the financial statements of the companyand the group for the year ended 30 September 2007. Principal activities and review of the business Pentagon Protection Plc is the parent company of Pentagon Protection (UK)Limited. The principal activity of Pentagon Protection (UK) Limited is the supply andapplication of solar control, safety and security films to commercial buildings. A review of the business and future developments is included within thechairman's statement which immediately precedes this report. Results and dividends The results of the group for the year are set out in the Group Income Statementon page 10. The directors do not recommend the payment of a dividend. International financial reporting standards The group has applied International Financial Reporting Standards (IFRS) for thefirst time in these financial statements. 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 2007 were equivalentto 70 days purchases based on the average daily amount incurred by suppliersduring the year (2006: 83 days). Directors The directors who served throughout the year were as follows: A R Nicholl (Executive Chairman)S D Harrhy (Sales Director)H ElZaynG H Bannerman (resigned 1 May 2007)L Chunlin (appointed 6 November 2007) Substantial shareholdings As of 24 January 2008, being the latest practical date before the date of thisreport, the Company has been notified of the following shareholders (excludingdirectors) with interests of more than 3 per cent in the issued share capital ofthe Company. Name of owner Number of Shares Percentage of Issued share capital D Thomas 40,597,788 12.44%G Bannerman 24,378,947 7.47%J Hitchins 14,000,000 4.29% 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 prepared the group and parentcompany financial statements in accordance with International FinancialReporting Standards (IFRS) as adopted by the European Union. In preparing thesefinancial statements, the directors have also elected to comply with IFRSs,issued by the International Accounting Standards Board (IASB). The financialstatements are required by law to give a true and fair view of the state ofaffairs of the company and the group and of the profit or loss of the group forthat period. In preparing those financial statements, the directors are requiredto: -select suitable accounting policies and then apply them consistently; -make judgements and estimates that are reasonable and prudent; -state that the financial statements comply with IFRSs as adopted by theEuropean Union and IFRSs issued by IASB; -prepare the financial statements on the going concern basis unless it isinappropriate to presume that the group will continue in business. The directors confirm that they have complied with the above requirement inpreparing the financial statements. 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 informationof which the company's auditors are unaware, and (b) they have taken all the steps that they ought to have taken as directorsin order to make themselves aware of any relevant audit information and toestablish that the company's auditors are aware of that information. On behalf of the board A R Nicholl Director 31 January 2008 PENTAGON PROTECTION PLC INDEPENDENT AUDITORS' REPORT TO 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 2007 which comprise the Group Income Statement, the Group and ParentCompany Balance Sheets, the Group and Parent Company Cash Flow Statement and therelated notes. These financial statements have been prepared under 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 The directors' responsibilities for preparing the Annual Report and thefinancial statements in accordance with applicable law and InternationalFinancial Reporting Standards (IFRSs) as adopted by the European Union are setout 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 and Article 4 of the IAS Regulation. We also report to you whether in ouropinion the information given in the Directors' Report is consistent with thefinancial 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 group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's and the parent company's affairs as at 30 September 2007 and of its loss and cash flows for the year then ended; • the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company's affairs as at 30 September 2007 and cash flows for the year then ended; • the information given in the Directors' Report is consistent with the financial statements. Warrener Stewart Chartered Accountants Registered Auditors 31 January 2008 Harwood House43 Harwood RoadLondonSW6 4QP PENTAGON PROTECTION PLC GROUP INCOME STATEMENTFOR THE YEAR ENDED 30 SEPTEMBER 2007 2007 2006 Notes £ £ Continuing OperationsRevenue 2 1,736,026 1,616,343Cost of sales (917,307) (1,160,760) Gross profit 818,719 455,583Distribution costs (356,761) (406,707)Administrative expenses (791,745) (1,187,326) Loss from operations (329,787) (1,138,450)Investment income 10,440 6,468Finance costs 5 (6,196) (15,545) Loss before tax (325,543) (1,147,527)Tax 6 - - Loss for the period from continuing operations (325,543) (1,147,527) Discontinued OperationsLoss for the period from discontinued operations 3 - (470,029) Loss for the period (325,543) (1,617,556) Loss attributable to:Equity holders of the parent (325,543) (1,617,556) Total recognised income and expensesattributable to:Equity holders of the parent (325,543) (1,617,556) Loss per shareFrom continuing operations:Basic (0.10)p (0.56)pDiluted (0.10)p (0.56)p From continuing and discontinuing operations:Basic (0.10)p (0.80)pDiluted (0.10)p (0.80)p BALANCE SHEETSAS AT 30 SEPTEMBER 2007 Group Company 2007 2006 2007 2006 Notes £ £ £ £Non-current assetsGoodwill 8 2,389,093 2,389,093 - -Property, plant and equipment 9 6,459 23,586 - -Investments 10 - - 2,610,510 2,610,510 2,395,552 2,412,679 2,610,510 2,610,510 Current assetsInventories 105,984 125,190 - -Trade and other receivables 11 496,247 691,326 1,263,289 935,066Cash and cash equivalents 260,904 720,762 253,039 710,508 863,135 1,537,278 1,516,328 1,645,574 Current liabilitiesTrade and other payables 12 (267,100) (581,371) (62,500) (102,277)Borrowings 13 (20,362) (67,318) - - Net current assets 575,673 888,589 1,453,828 1,543,297 Total assets less current liabilities 2,971,225 3,301,268 4,064,338 4,153,807 Non-current liabilitiesProvisions 14 (58,807) (183,807) (58,808) (183,807) 2,912,418 3,117,461 4,005,530 3,970,000 EquityShare capital 16 326,418 310,918 326,418 310,918Share premium account 17 5,705,303 5,600,303 5,705,303 5,600,303Shares held by ESOP (4,541) (4,541) (4,541) (4,541)Retained earnings 17 (3,114,762) (2,789,219) (2,021,650) (1,936,680) Total equity 2,912,418 3,117,461 4,005,530 3,970,000 The financial statements were authorised for issue by the Board of Directors on31 January 2008 and were signed on its behalf. A.R Nicholl Director CASH FLOW STATEMENTSFOR THE YEAR ENDED 30 SEPTEMBER 2007 Group Company 2007 2006 2007 2006 £ £ £ £Operating activitiesNet loss of consolidated companies (329,787) (1,411,010) - -Net loss of company - - (92,650) (326,281)Net loss of disposal of subsidiaries - - - 99,999Depreciation of property, plant and equipment 16,186 38,890 - -Loss on disposal of property, plant and equipment 200 8,369 - -Decrease in inventories 19,206 56,559 - -Decrease in trade receivables 195,078 284,717 (328,223) (812,579)(Decrease)/increase in trade payables (314,271) 144,747 (42,278) 17,161Interest received 10,440 6,728 10,191 5,637Interest paid (6,196) (15,586) (10) (24) Net cash from operating activities (409,144) (886,586) (452,970) (1,016,087) Investing activitiesPayments to acquire property, plant and equipment (559) (12,486) - -Receipts from sales of property, plant and equipment 1,300 1,500 - -Payment against provision for purchase of subsidiary (124,999) (11,193) (124,999) (11,193)undertaking Disposal of subsidiaries - (29,702) - 1 Net cash used in investing activities (124,258) (51,881) (124,999) (11,192) Financing activitiesInterest element of finance lease rentals - (2,851) - -Decrease in factor finance (47,511) (213,837) - -Share issue costs - (52,500) - (52,500)Capital element of finance lease rental - (17,954) - -Shares issued 120,500 1,500,000 120,500 1,500,000 Net cash (used in)/from financing activities 72,989 1,212,858 120,500 1,447,500 Net increase/(decrease) in cash and cash equivalents (460,413) 274,391 (457,469) 420,221 Cash and cash equivalents at the start of the period 720,762 446,371 710,508 290,287 Cash and cash equivalents at the end of the period 260,349 720,762 253,039 710,508 Cash and cash equivalents consists of:Cash and cash equivalents 260,904 720,762 253,039 710,508Bank overdrafts (555) - - - 260,349 720,762 253,039 710,508 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2007 1 Accounting policies 1.1 Basis of preparation The financial statements have been prepared in accordance with EU endorsedInternational Accounitng Standards, International Financial Reporting Standards(collectively "IFRS") for the first time. They have also been prepared inaccordance with the Companies Act 1985 applicable to companies preparing theiraccounts under IFRS. The disclosures required by IFRS 1 concerning thetransition from UK GAAP to IFRS are given in note 25. The financial statements are presented in sterling and have been prepared on thehistorical cost basis, except where IFRS requires an alternative treatment. Theprincipal variations from historical cost relate to financial instruments (IAS39). At the date of issue of these financial statements, the following Standards andinterpretations, which have not been applied, were in issue but not yeteffective: IFRS7 Financial Instruments: Disclosures; and the related amendment to IAS1 oncapital disclosures IFRS8 Operating Segments IFRIC10 Interim reporting and impairments The directors anticipate that the adoption of these Standards andInterpretations will have no material impact on the financial statements of thegroup other than the appropriate necessary changes to disclosures arising fromthe applications of IFRS7 and IFRS8. 1.2 Basis of consolidation The group financial statements consolidate the financial statements of thecompany and all its subsidiary undertakings as at 30 September 2007. Control isachieved where the company has the power to govern the financial and operatingpolicies of an investee entity so as to obtain benefits from its activities. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used in line with those of thegroup. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. 1.3 Revenue Revenue represents the total amounts receivable by the group for goods andservices supplied to third parties, net of value added tax and trade discounts. 1.4 Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess costof acquisition over the Group's interest in the net fair value of the indefiniteassets, liabilities and contingent liabilities of the subsidiary recognised atthe date of acquisition. Impairment provisions are only made when, in theopinion of the directors, sustainable future earnings from such subsidiaries areinsufficient to support the carrying value of that goodwill. An impairment lossrecognised for goodwill is not reversed in a subsequent period. Goodwill arising on acquisition before the date of transition to IFRS has beenretained at the previous UK GAAP amounts as at 30 September 2005, subject tobeing tested for impairment at that date. Goodwill written off to reserves underUK GAAP prior to 2005 has not been reinstated and is not included in determiningany subsequent profit or loss on disposal. 1.5 Property, plant and equipment Depreciation is provided on all property, plant and equipment at ratescalculated to write off the cost less estimated residual value of each assetover its expected useful life, as follows: Plant and machinery 10% to 25% on written down value Fixtures & fittings 50% on cost and 25% on written down value Motor vehicles 25% on written down value 1.6 Research and development Development expenditure is capitalised on clearly defined projects whose outcomecan be assessed with reasonable certainty. Amortisation is commenced in the yearin which significant revenues from the development occur and is amortised inline with sales. All other research and development expenditure is written offin the year in which it is incurred. 1.7 Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at therates of exchange ruling at the balance sheet date. Transactions in foreigncurrencies are translated into sterling at the rate of exchange prevailing atthe date of the transaction. Exchange differences are taken into account inarriving at the operating result. 1.8 Leasing Assets held under finance leases are recognised as assets of the Group as theirfair value or, if lower, at the present value of the minimum lease payment, eachdetermined at the inception of the lease. The corresponding liability to thelessor is included in the balance sheet as a finance lease obligation. Leasepayments are apportioned between finance charges and reduction of the leaseobligation so as to achieve a constant rate of interest on the remaining balanceof the liability. Finance charges are charged directly against income, unlessthey are directly attributable to qualifying assets, in which case they arecapitalised in accordance with the Group's general policy on borrowing costs(see below). Rentals payable under opening leases are charged to income on a straight-linebasis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operatinglease are also spread on a straight-line basis over the lease term. 1.9 Pensions The group operates a defined contribution scheme for its employees. The fundsof 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. 1.10 Deferred taxation Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if thetemporary difference arises from goodwill or from the initial liabilities in atransaction that affects neither the tax profit nor the accounting profit. 1.10 Deferred taxation (continued) The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the rates that are expected to apply in the periodwhen the liability is settled or the asset is realised. Deferred tax is chargedor credited in the income statement, except when it relates to items charged orcredited directly to equity, in which case the deferred tax is also dealt within equity. 1.11 Inventories Inventories are included at the lower of cost and net realisable value, aftermaking provision for slow moving and obsolete items. 1.12 Financial instruments Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call withbanks, other short term deposits with maturities of three months or less. Bankoverdrafts also form part of net cash and cash equivalents for the purposes ofthe cash flow statement. Borrowings Borrowings are recognised initially at fair value net of transaction costsincurred and such interest bearing liabilities are subsequently stated atamortised cost using the effective interest rate method. Borrowings areclassified as current liabilities unless the group has an unconditional right todefer settlement of the liabilities for at least 12 months after the balancesheet date. Trade and other receivables Trade and other non-interest bearing receivables are initially recognised atcost and are subsequently measured at amortised cost using the effectiveinterest method, less provision for impairment. A provision for impairment oftrade receivables is established when there is objective evidence that it isuncertain if the amount due can be collected. Movement in the provision chargedor credited in the period is recognised in the income statement. The group discounts some of its trade receivables. The accounting policy is tocontinue to recognise the trade receivables within current assets and to recordcash advances as borrowings within current liabilties. Discounting fees arecharged in the income statement as finance costs. Trade and other payables Trade and other payables are not interest bearing and are initially recognisedat cost and are subsequently measured at amortised cost using the the effectiveinterest method. Investments in subsidiaries Investments in subsidiairies are included in these financial statements at thecost of the ordinary share capital acquired. Adjustments to this value are onlymade when, in the opinion of the directors, a permanent diminution in value hastaken place and where there is no prospect of an improvement in the foreseeablefuture. 1.13 Share based payments The group has applied the exemption available under IFRS 1 and elects to applyIFRS 2 only to awards of equity instruments made after 7 November 2002 that hadnot vested by 1 January 2006. Options are measured at fair value at grant date using the Black-Scholes model.The fair value is expensed on a straight line basis over the vesting period,based on an estimate of the number of options that will eventually vest. 2 Business and geographical segments Based on the risks and returns the directors consider that the primary reportingformat is by business segment. The directors consider that there is only onebusiness segment being the application of protective film to building's glass.Therefore the necessary disclosures have already been provided elsewhere in thefinancial statements. The group was also previously involved in the application of protective film toautomotive glass. That operation was discontinued in the previous year and thesegmented information is presented below: Discontinued Building Automotive Operations Consolidated 2006 2006 2006 2006 £ £ £ £ Revenue 1,616,343 536,278 536,278 2,152,621 Segment results (1,147,527) (263,957) (263,957) (1,411,484) The results of the consolidated discontinued operations within the business segments are disclosed in note 3. Capital additions 12,447 39 39 12,486 Depreciation (16,609) (22,281) (22,281) (38,890) Balance Sheet Assets 3,949,957 - - 3,949,957 Liabilities (832,496) - - (832,496) The secondary reporting format is by geographic segments based on location ofcustomers. All of the business assets are located in the United Kingdom.External revenue by segment is as follows: 2007 2006 £ £ Continuing operations United Kingdom 606,232 942,849 Americas - 76,429 Europe 204,283 155,553 Africa and Middle East 526,740 422,018 Far East 398,771 19,494 1,736,026 1,616,343 Discontinued operations United Kingdom - 536,278 - 536,278 1,736,026 2,152,621 3 Discontinued operations 2007 2006 £ £ Revenue - 536,278 Cost of sales - (269,410) 266,868 Distribution expenses - (136,291) Administrative expenses - (432,706) Other operating income - 40,804 Investment income - 260 Finance costs - (2,892) - (530,825) Net loss - (263,957) Disposal of discontinued operations: Loss on disposal of subsidiary undertaking - Pentagon Glass Tech (Franchising) Limited - (491,447) Profit on disposal of subsidiary undertaking - Pentagon Glass Tech Limited - 285,375 Loss for the period from discontinued operations - (470,029) 4 Loss for the period 2007 2006 £ £ Loss for the period is stated after charging/ (crediting): Depreciation of property, plant and equipment 16,186 38,890 Loss/(profit) on disposal of property, plant and equipment 200 8,369 Operating lease rentals - Plant and machinery 13,517 75,774 - Other assets 24,900 159,663 Auditors' remuneration 12,000 17,000 5 Finance costs 2007 2006 £ £ On bank loans and overdrafts 321 2,176 On factored debts 5,875 10,518 On finance leases - 2,851 6,196 15,545 6 Taxation 2007 2006 £ £ 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 (325,543) (1,617,556) Loss on ordinary activities before taxation (97,663) (485,267) multiplied by standard rate of UK corporation tax of 30.00% (2006: 30.00%) Effects of: Non deductible expenses 1,721 22,565 Accelerated capital allowances 485 651 Carried forward losses 95,457 325,783 Losses surrendered on disposal of subsidiaries - 74,447 Other adjustments - 61,821 97,663 485,267 Current tax charge - - The group has tax losses of approximately £1,729,000 available to carry forwardagainst future trading profits, subject to agreement by HMRC. No provision has been made for a potential deferred tax asset of approximately£519,000 arising from these losses. 7 Loss per share The calculations of loss per share are based on the following losses and number of shares: 2007 2007 2006 2006 Basic Diluted Basic Diluted Loss for the financial year (325,543) (325,543) (1,617,556) (1,617,556) Weighted average number of shares for basic and diluted loss per share 312,271,580 312,271,580 203,233,224 203,233,224 In accordance with the provisions of IAS33, shares under option are not regarded as dilutive in calculatingearnings per share. 8 Goodwill Group 2007 2006 £ £ Carrying Value 2,389,093 2,389,093 Goodwill arose in 2003 on the acquisition of Pentagon Protection (UK) Limited(formerly Pentagon Filmtek Limited). The goodwill arising was previouslyamortised over its estimated useful economic life of 20 years until 1 October2005 when the policy was changed to undertake impairment reviews in accordancewith international financial reporting standards at the year end. 9 Property, plant and equipment Group Plant and machinery Fixtures & Motor Total fittings vehicles £ £ £ £ Cost or valuation At 1 October 2006 34,262 9,131 17,509 60,902 Additions 559 - - 559 Disposals - - (11,167) (11,167) At 30 September 2007 34,821 9,131 6,342 50,294 Depreciation At 1 October 2006 17,837 6,569 12,910 37,316 Charge for the year 13,843 1,568 775 16,186 On disposals - - (9,667) (9,667) At 30 September 2007 31,680 8,137 4,018 43,835 Net book value At 30 September 2007 3,141 994 2,324 6,459 At 30 September 2006 16,425 2,562 4,599 23,586 10 Investments Company Shares in group undertakings £ Cost or valuation At 1 October 2006 and 30 September 2007 2,610,510 Net book value At 1 October 2006 and 30 September 2007 2,610,510 The company owns 100% of the ordinary share capital of the following subsidiary company, which isincorporated 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. 11 Trade and other receivables Group Company 2007 2006 2007 2006 £ £ £ £ Trade receivables 447,604 386,284 - - Amounts owed by group undertakings - - 1,248,096 646,555 Other receivables 48,643 301,271 15,193 288,511 Prepayments and accrued income - 3,771 - - 496,247 691,326 1,263,289 935,066 12 Trade and other payables Group Company 2007 2006 2007 2006 £ £ £ £ Trade payables 192,406 325,899 15,917 31,693 Other taxes and social security costs 11,576 20,352 - - Other payables 7,709 78,007 2,083 2,584 Accruals and deferred income 55,409 157,113 44,500 68,000 267,100 581,371 62,500 102,277 13 Borrowings Group Company 2007 2006 2007 2006 £ £ £ £ Factoring finance 19,807 67,318 - - Bank overdrafts 555 - - - 20,362 67,318 - - The invoice financing facility is secured by way of a fixed and floating chargeover all of the assets, both present and future, of the company. 14 Non-current liabilities Group Company £ £ Balance at 1 October 2006 183,807 183,807 Payments made in the year (125,000) (125,000) Balance at 30 September 2007 58,807 58,807 The provision above relates to deferred consideration on the acquisition of a subsidiary. 15 Pension costs Defined contribution 2007 2006 £ £ Contributions payable by the group for the year 7,282 8,139 16 Share capital 2007 2006 £ £ Authorised 1,000,000,000 Ordinary shares of 0.1p each 1,000,000 1,000,000 Allotted, called up and fully paid 326,418,156 (2006: 310,918,156) Ordinary shares of 0.1p each 326,418 310,918 Share transaction history On 6 December 2006 there was a placing of 500,000 ordinary 0.1p shares for 0.1peach. There was a further placing of 15,000,000 ordinary 0.1p shares for 0.8peach on 7 September 2007. Share options As at 30 September 2006 there were 3,592,105 share options outstanding under anUnapproved Executive Share Option scheme. These options are exercisable at 4.75pon or before 11 December 2014. There were also 2,579,534 options outstandingunder an Enterprise Management Initiative Scheme exercisable at 4.75p per shareon or before 9 February 2015. Employee share option plan On flotation 4,541,262 shares were gifted into an Employee Share Option Plan atpar. At 30 September 2006 1,941,635 of these shares remained unallocated. 17 Statement of movements on reserves Group Retained Share premium Totals earnings account £ £ £ At 1 October 2006 (2,789,219) 5,600,303 2,811,084 Shares issued - 105,000 105,000 Loss for the year (325,543) - (325,543) At 30 September 2007 (3,114,762) 5,705,303 2,590,541 Company Retained Share premium Totals earnings account £ £ £ At 1 October 2006 (1,936,680) 5,600,303 3,663,623 Shares issued - 105,000 105,000 Loss for the year (84,970) - (84,970) At 30 September 2007 (2,021,650) 5,705,303 3,683,653 18 Statement of changes in equity Group 2007 2006 £ £ At 1 October 2006 3,117,461 3,287,517 Loss for the financial year (325,543) (1,617,556) Net proceeds from issue of shares 120,500 1,447,500 Total recognised income and expense for the year (205,043) (170,056) At 30 September 2007 2,912,418 3,117,461 Company 2007 2006 £ £ At 1 October 2006 3,970,000 2,843,168 Loss for the financial year (84,970) (320,668) Net proceeds from issue of shares 120,500 1,447,500 Total recognised income and expense for the year 35,530 1,126,832 At 30 September 2007 4,005,530 3,970,000 19 Directors' emoluments 2007 2006 £ £ Aggregate emoluments including benefits in kind 141,785 207,697 Emoluments disclosed above include the following amounts paid to the highest paid director: Aggregate emoluments 65,004 59,316 No director benefited from any increase in the value of share options during the year. The number of directors for whom retirement benefits are accruing under defined benefit schemes amounted to 2(2006: 2). 20 Employees Number of employees The average monthly number of employees (including directors) during the year was: 2007 2006 Number Number Operations 7 12 Administration 10 15 Sales 2 9 19 36 Employment costs 2007 2006 £ £ Wages and salaries 492,933 903,013 Social security costs 52,122 86,358 Other pension costs 7,282 8,139 552,337 997,510 21 Financial instruments The group's financial instruments comprise cash, borrowings, factor finance andhire purchase and finance liabilities as well as various items such as tradedebtors and trade creditors that arise directly from its operations. The mainpurpose of these financial instruments is to raise finance for the group'soperations. Short term debtors and creditors have been excluded from thefollowing disclosures. The fair value of the group's financial assets and liabilities is not materiallydifferent from the carrying values in the balance sheet. It is and has been throughout the period under review, the group's policy thatno trading in financial instruments shall be undertaken. The main risks arising from the group's financial instruments are interest raterisk and liquidity risk. Interest rate risk It is the group's policy to regularly review the group's exposure to interestrate risk. Liquidity risk It is the group's policy to regularly review the group's exposure to liquidityrisk so that an appropriate balance between continuity of funding and short termflexibility is achieved. Interest rate risk profile of financial assets and financial liabilities Financial assets The group's exposure to interest rate risk currently applies only to theinterest received on cash deposits which is based on the Nat West base rate. Thegroup's sterling floating cash balances at the year end were £260,904 (2006:£720,762). Financial liabilities The interest rate profile of the group's financial liabilities was as follows: Total Floating Fixed rate rate financial financial liabilities liabilities £ £ £ At 30 September 2007: Sterling 20,362 20,362 - At 30 September 2006: Sterling 67,318 67,318 - All fixed rate financial liabilities relate to hire purchase and finance leaseagreements which have different levels of agreed fixed interest rates. The floating rate financial liabilities comprise sterling denominated overdraftsthat bear interest based on the Nat West base rate and borrowing from a factorthat bears interest based on the Royal Bank of Scotland base rate. 22 Control The company is listed on AIM and there is no individual controlling party. 23 Related party disclosures 2007 2006 £ £ Creditor balances R Bambra - 2,803 A Nicholl - 50,000 In the year ended 30 September 2006 the group paid rent and service charges of £18,850 to GB ManagementLimited, a company in which G Bannerman has an interest. No such rent was paid in the current year. On 1 May 2007 G Bannerman resigned as a director of the company, and on that same date entered in to a licenseagreement with the company making him the sole licensee for the promotion, sales and application of laminate(or similar) film for application to windows of buildings within specified territories, prominently: EastAsia, Australasia and Africa. Included within turnover are amounts of £5,426 in connection with thisagreement.24 Operating lease commitments The group leases offices and various plant and machinery under non-cancellable operating agreements. The leaseterms are between 3 and 5 years, and the majority of lease agreements are renewable at the end of the leaseperiod at market rate. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: 2007 2006 £ £ No later than 1 year 39,850 40,461 Later than 1 year and no later than 5 years 20,011 59,861 59,861 100,322 25 Explanation of transition to IFRSs This is the first year that the company has presented its financial statements under IFRS. The followingdisclosures are required in the year of transition. The last financial statements under UK GAAP were for theyear ended 30 September 2006 and the date of transition to IFRSs was therefore 1 October 2005. Reconciliation of the Group's equity at 1 October 2005 (date of transition to IFRSs) Per accounts Effects of Notes UK GAAP transition to IFRSs IFRSsNon-current assetsGoodwill 2,389,093 - 2,389,093 Property, plant and equipment 202,038 - 202,038 2,591,131 - 2,591,131 Current assetsInventories 201,923 - 201,923Trade and other receivables 1,262,218 - 1,262,218Cash and cash equivalents 471,347 - 471,347 1,935,488 - 1,935,488 Current liabilitiesTrade and other payables (1,024,298) - (1,024,298)Employee benefits 2 - (11,235) (11,235)Net current assets 911,190 (11,235) 899,955Total assets less current liabilities 3,502,321 (11,235) 3,491,086 Non-current liabilitiesOther non-currentliabilities (8,568) - (8,568)Provisions (195,000) - (195,000) 3,298,753 (11,235) 3,287,518 EquityShare capital 165,918 - 165,918Share premium account 4,297,803 - 4,297,803Shares held by Employee Share Ownership Plan - (4,541) (4,541)Merger reserve 192,150 - 192,150Profit and loss account (1,357,118) (6,694) (1,363,812) Total equity 3,298,753 (11,235) 3,287,518 Reconciliation of the Group's equity at 30 September 2006 (date of last UK GAAP financial statements) Per accounts Effects of Notes UK GAAP transition to IFRSs IFRSsNon-current assetsGoodwill 1 2,258,151 130,942 2,389,093Property, plant and equipment 23,586 23,586 2,281,737 130,942 2,412,679 Current assetsInventories 125,190 - 125,190Trade and other receivables 691,326 - 691,326Cash and cash equivalents 720,762 - 720,762 1,537,278 - 1,537,278 Current liabilitiesTrade and other payables (639,306) - (639,306)Employee benefits 2 - (9,383) (9,383)Net current assets 897,972 (9,383) 888,589Total assets less current liabilities 3,179,709 121,559 3,301,268 Non-current liabilitiesProvisions (183,807) - (183,807) 2,995,902 121,559 3,117,461 EquityShare capital 310,918 - 310,918Share premium account 5,600,303 - 5,600,303Shares held by ESOP 3 - (4,541) (4,541)Profit and loss account (2,915,319) 126,100 (2,789,219) Total equity 2,995,902 121,559 3,117,461 Notes to the reconciliations of the Group's equity at 1 October 2005 and 30 September 2006 1 GoodwillUnder IFRS, goodwill has an indefinite life and is only written down when an impairment test suggests that thecarrying value is overstated. The amortisation charge of £130,942 relating to goodwill arising on theacquisition of subsidiaries were reversed under IFRS. 2 Employee benefitsAccruing for holiday pay was not required under UK GAAP but is required under IFRS and charges have been madeunder IFRS relating to holidays that have accrued to staff but have not yet been taken. A cumulative charge of£11,235 was recognised at the transition date and the provision was reduced to £9,383 in 2006. 3 Shares held by Employee Share Ownership PlanShares held by the employee share ownership plan trust which have not been unconditionally transferred to therelevant employees are shown as a deduction from equity. As stated in note 16 the shares were originallygifted to the trust prior to 1 October 2005 and therefore the corresponding adjustment is to increase theretained earnings. Reconciliation of the Group's income statement for 2006 Per accounts Effects of Notes UK GAAP transition to IFRSs IFRSsContinuing OperationsRevenue 1,616,343 - 1,616,343Cost of sales (1,160,760) - (1,160,760) Gross profit 455,583 - 455,583 Distribution costs (406,707) - (406,707)Administrative expenses (1,320,121) 132,795 (1,187,326) -Loss from operations (1,271,245) 132,795 (1,138,450) Investment income 6,468 - 6,468 Finance costs (15,545) - (15,545) Loss before tax (1,280,322) 132,795 (1,147,527) Tax - - - Loss for the period from continuing operations (1,280,322) 132,795 (1,147,527) Discontinued OperationsLoss for the period from discontinued operations (470,029) - (470,029) Loss for the period (1,750,351) 132,795 (1,617,556) Reconciliation of the Company's equity at 1 October 2005 (date of transition to IFRSs) Per accounts Effects of Notes UK GAAP transition to IFRSs IFRSsNon-current assetsInvestments 2,710,510 - 2,710,510 2,710,510 - 2,710,510 Current assetsTrade and other receivables 133,471 - 133,471Cash and cash equivalents 290,287 - 290,287 423,758 - 423,758 Current liabilitiesTrade and other payables (96,100) - (96,100) Net current assets 327,658 - 327,658 Total assets less current liabilities 3,038,168 - 3,038,168 Non-current liabilitiesProvisions (195,000) - (195,000) 2,843,168 - 2,843,168 EquityShare capital 165,918 - 165,918Share premium account 4,297,803 - 4,297,803Shares held by Employee Share Ownership Plan - (4,541) (4,541)Merger reserve 1,570,783 - 1,570,783Retained earnings (3,191,336) 4,541 (3,186,795) Total equity 2,843,168 - 2,843,168 Reconciliation of the Company's equity at 30 September 2006 (date of last UK GAAP financial statements) Per accounts Effects of Notes UK GAAP transition to IFRSs IFRSsNon-current assetsInvestments 2,610,510 - 2,610,510 2,610,510 - 2,610,510 Current assetsTrade and other receivables 935,066 - 935,066Cash and cash equivalents 710,508 - 710,508 1,645,574 - 1,645,574 Current liabilitiesTrade and other payables (102,277) - (102,277) Net current assets 1,543,297 - 1,543,297 Total assets less current liabilities 4,153,807 - 4,153,807 Non-current liabilitiesProvisions (183,807) - (183,807) 3,970,000 - 3,970,000 EquityShare capital 310,918 - 310,918Share premium account 5,600,303 - 5,600,303Shares held by ESOP 1 - (4,541) (4,541)Retained earnings (1,941,221) 4,541 (1,936,680) Total equity 3,970,000 - 3,970,000 Notes to the reconciliation of the Company's equity at 1 October 2005 and 30 September 2006 1 Shares held by Employee Share Ownership PlanShares held by the employee share ownership plan trust which have not been unconditionally transferred to therelevant employees are shown as a deduction from equity. As stated in note 16 the shares were originally giftedto the trust prior to 1 October 2005 and therefore the corresponding adjustment is to increase the retainedearnings. This information is provided by RNS The company news service from the London Stock Exchange