Earthport Regulatory News (EPO)

1 Dec 2005 15:36

Earthport PLC01 December 2005 For immediate release Stock Exchange Announcement 1st December 2005 earthport repositions for growth • The year to 30th June 2005 was a difficult one. Development of the business was impeded by working capital concerns and staff turnover. Consequently, turnover fell by 4.3% to £887,780 (2004: £925,611) and the loss before tax increased 7.2% to £7,113,122 (2004: £6,636,211). • Despite the disappointing headline numbers, transaction volumes rose as did revenue from underlying operations (excluding development funding) up by 7.5% to £887,780 (2004: £825,611). The operating loss fell 14.6% to £5,856,445 (2004: £6,854,239). • Mike Harrison was appointed Chairman on 3rd May 2005 and, following the resignation of Rob Cunningham on 23rd May 2005, became Chairman and Chief Executive. Mike Harrison instigated an immediate review of all the Company's activities. • Much progress has been made since then: • Legacy issues have been addressed including outstanding litigation. • The balance sheet has been significantly strengthened by the reduction of major creditors by £2.75 million and new committed equity funding of £3.2 million. • The business model was repositioned to one focussed on being the independent utility of choice for global money movement applications. • The above steps have put the Company on a much firmer footing and have allowed new management to focus on building the business as reflected in recent announcements. • Mike Harrison said "We are pleased with the progress we have made in such a short period, having addressed both legacy and working capital/balance sheet issues. The business has been repositioned and we are now focussed on delivering its full potential. The recently announced partnership with Datacash demonstrates our progress to date." The Annual Report, which is set out below, has been posted to shareholders andis available free of charge for one month from today at the Company's office, 21New Street, London EC2M 4TP. -End- Press enquiries: Mike Harrison Chairman - earthport plc +44 20 7220 9700 David Nabarro/Nigel Atkinson - Nabarro Wells & Co. Limited +44 20 7710 7400 earthport plc Report and Financial Statements Year ended 30 June 2005 Registered No: 3428888 Directors M Harrison Executive ChairmanN Clayton ExecutiveJ Hill Non ExecutiveC Medway Non Executive Secretary N Clayton Registered office 21 New StreetLondon EC2M 4TP Auditors Baker TillyChartered Accountants2 Bloomsbury StreetLondon WC1B 3ST Bankers Barclays Bank plc1 Churchill PlaceLondon E14 5HP Nominated Adviser Nabarro Wells & Co. LimitedSaddlers HouseGutter LaneLondon EC2V 6HS Registrars Capita RegistrarsThe Registry34 Beckenham RoadBeckenham Kent BR3 4TU Solicitors Pinsent MasonsDashwood House69 Old Broad StreetLondon EC2M 1NR Statement by the Chairman and Chief Executive The Group has had a difficult year to 30 June 2005, with its ability to deliverits operating strategy hampered by working capital concerns. The Group has madeconsiderable progress towards the end of the year, repositioning its strategicfocus and laying the foundations for the future development of the business. Turnover for the year ended 30 June 2005 is down 4.3% at £887,780 (2004:£925,611). However transaction volumes have risen and revenue from underlyingoperations is up by 7.5% to £887,780 (2004: £825,611). The Group's operatingloss has fallen 14.6% to £5,856,445 (2004: £6,854,239). The prior year includedan exceptional gain arising on the termination of an operation of £1,216,999. Asa result, the loss on ordinary activities before interest and tax has increased3.9% to £5,856,445 (2004: £5,637,240). Interest costs have increased 25.2% to£1,256,858 (2004: £1,003,973) reflecting the issue of convertible loan stock andthe high cost of short term facilities. The loss before tax has increased 7.2%to £7,113,122 (2004: £6,636,211). The basic loss per share has fallen 13% to1.3p (2004: 1.5p). The members of the previous Board resigned at various times during the year andthe current Board have been appointed since the last Annual General Meeting.Following the resignation of Rob Cunningham on 23rd May 2005, Mike Harrison tookon the additional role of Chief Executive. By the end of the accounting period, the Group had repositioned its businessmodel to one focussed on being the independent utility of choice for globalmoney movement applications. The reach and capacity of its international bankingnetwork supports the ability to make payments to over 120 countries through over30 primary banking relationships. The banking network is leveraged by ourtechnology platform, the Universal Payments Network, which is stable, performingto specification and able to accommodate current and projected transactionvolumes. Since the balance sheet date, the Company has raised additional finance throughthe issue of convertible loan notes of £600,000 and ordinary shares for cashconsideration of £1.5m. The Company has also received commitments of a further£1.7m to subscribe for ordinary shares, which may be drawn down at the Company'soption. Warrants to subscribe for £0.75m of ordinary shares have been issuedwith exercise prices from 31.5p to 41.8p with an expiry no later than 31December 2006. It has been agreed to issue further warrants to subscribe for anadditional £2.8m with exercise prices from 35p to 41.8p with an expiry no laterthan 31 October 2006, conditional upon the passing of Resolutions 7 and 8 at theAnnual General Meeting. On 17 October 2005, the Company announced that it hadreached agreement with its principal creditors, whereby £4.0m of secured andunsecured loans have been settled for £1m cash and the issue of £250,000 7% LoanNote 2007. This has been financed through a new secured loan facility of £1.25m,with repayments spread over five years. Since July/August 2005, controlled investment has been made in sales andmarketing capacity and early results indicate an enthusiastic response to thecompany's key infrastructure offerings. The directors are confident that thesewill lead to strong revenue growth for the second half of the year ended 30 June2006. The growth in sales will come from the penetration of new sectors(insurance, retail and financial services) to add to steady growth in ourtraditional customer base. The sales channel capacity, when complete - by theend of 2005 - will cover the full range of functionality from telesales throughdirect account sales to re-sellers. These channels will be specifically targetedat levels and sectors of the market where there is a proven appetite andinterest to purchase the Groups' infrastructure offerings. The Board believe that the Group is now equipped to realise the undoubtedpotential of the market it is set to address and look forward to the future withconfidence. Mike HarrisonChairman and Chief Executive29 November 2005 Directors' Report The directors are pleased to submit their report together with the financialstatements of the Company and its subsidiaries (the "Group") for the year ended30 June 2005. Principal Activities and Business Review By the end of the accounting period, earthport's business model has evolved toone focussed on being the independent utility of choice for global moneymovement applications. The reach and capacity of its international bankingnetwork supports the ability to make payments to over 120 countries through over30 primary banking relationships. The banking network is leveraged by ourtechnology platform, the Universal Payments Network, which is stable, performingto specification and able to accommodate current and projected transactionvolumes. Events since the end of the year During July 2005, the Company raised £600,000 through a further issue ofConvertible Loan Notes 2005 with a maturity date of 30 June 2006. On 29 July 2005 at an Extraordinary General Meeting the shareholders amongstother things: a. approved a reorganisation of the share capital by: i. consolidating and converting the issued share capital of 638,040,880 ordinary shares of 2.5p each into new consolidated shares of 190p each at a rate of one new consolidated share of 190p each for 76 existing ordinary shares of 2.5p each; ii. sub-dividing and converting each consolidated share of 190p into 24 deferred shares of 7.5p each and 1 new ordinary share of 10p; iii. consolidating and converting the 4,069,472 authorised but unissued ordinary shares of 2.5p each into new ordinary shares of 10p each at the rate of 1 new ordinary share of 10p each for every 4 authorised but unissued ordinary shares of 2.5p each. b. approved an increase in the Company's authorised share capital from £24,000,000 to £30,000,000 comprising 69,412,642 new ordinary shares of 10p each and 307,449,810 deferred shares of 7.5p each; and c. authorised the issue of up to £2,549,702 in nominal value of new ordinary shares of 10p each. On 17 October 2005, the Company announced that it had reached agreement with itsprincipal creditors, whereby £4.0m of secured and unsecured loans have beensettled for £1m cash and the issue of £250,000 7% Loan Notes 2007. This has beenfinanced through a new secured loan facility, with repayments spread over fiveyears. On 21 October 2005 the Company announced that, since the Extraordinary GeneralMeeting, it has secured new equity funding of £3.2m to be drawn down asrequired. To date £1.5m has been drawn down. Results and Dividends The group loss for the year after taxation amounted to £7,113,122 (2004:£6,636,211). The directors do not recommend the payment of a dividend for the year (2004:£Nil). Directors R Clarke (resigned 20 August 2004)N Clayton (appointed 28 February 2005)R Cunningham (resigned 23 May 2005)C Hall (resigned 31 January 2005)M Harrison (appointed 3 May 2005)J Hill (appointed 15 July 2005)C Keen (resigned 28 February 2005)C Medway (appointed 24 May 2005)R Rakison (resigned 17 February 2005)A Ripley (resigned 29 April 2005) Mike Harrison was appointed Non-Executive Chairman on 3 May 2005 and, followingthe resignation of Rob Cunningham on 23 May 2005, became Chairman and ChiefExecutive. Mike is managing director of the Steering Partnership Limited.Previously he was managing director of the Cedar Group and Oracle Corporation UKLimited. Neil Clayton, Finance Director, joined the board on 28 February 2005. He wasformally the Group Treasurer of First Technology PLC. Jonathan Hill, Non-Executive Director, was appointed on 15 July 2005. He isChief Executive of General Capital Group Plc and is chairman of the nominationscommittee. Colin Medway, Non-Executive Director, was appointed on 24 May 2005. He ischairman of the audit committee and the remuneration committee. He was formerlyVice President, UK and Ireland and European Director of Finance for CambridgeTechnology Partners Inc. Election of Directors In accordance with the articles of association, Neil Clayton is subject toretirement by rotation, and Jonathan Hill, having been appointed since thenotice of the Extraordinary General Meeting held on 29 July 2005 was sent toshareholders, retire at the Annual General Meeting and, being eligible, offerthemselves for re-election. Neil Clayton has an executive service agreement witha six month notice period, extended to 24 months in the event of a change incontrol. This will reduce to 12 months on 1 March 2007. Jonathan Hill, as anon-executive director, has a letter of appointment with no notice period. Directors' Interests in Shares None of the directors holding office at 30 June 2005 have an interest in theshares of the Company at that date. Interests of former directors at the date of their resignation were: Ordinary shares of 2.5p each At date of resignation 1 July 2004R Cunningham 54,957,070 4,957,070R Rakison 6,877,204 6,877,204A Ripley 200,000 200,000 R Cunningham and R Rakison also have a beneficial interest in Gelande Holdings(Overseas Undertakings) Limited which holds Nil (2004: 24,000,000) shares in thecompany. 50,000,000 ordinary shares of 2.5p each (equivalent to 657,894 new ordinaryshares of 10p each) held by Rob Cunningham are partly paid and subject to a callnotice for £625,000 for the unpaid share capital. Details of transactions with related parties during the year are disclosed innote 28. The Company has a share option scheme under which options to subscribe for theCompany's shares have been granted to certain employees. The interests of thedirectors were as follows: Exercise Price At 30 June 2004 No. Granted No. Exercised No. Lapsed No. At 30 June 2005 No.R Cunningham (a) 5p 3,000,000 - - - 3,000,000C Hall (b) 5p 2,000,000 - - - 2,000,000R Rakison 250,000 - - 250,000 -A Ripley 500,000 - - 500,000 -C Keen 250,000 - - 250,000 - Following the reorganisation of share capital approved by shareholders on 29July 2005, the number of shares under option was divided by 76 and the exerciseprice multiplied by 76 to 380p. The subsisting options are exercisable as follows: a. Under the rules of the option scheme, these options lapsed on 23 November 2005. b. In recognition of the significant contribution made by Chris Hall, the Board have agreed that he may retain his options, which are exercisable before 1 September 2010. The directors believe that equity incentives are an important element of theremuneration of the executive directors and the senior management team in orderto align directors' interests with the interests of shareholders. Afterconsultation with the major shareholders and convertible loan note holders whohave supported and re-financed the Company, the Remuneration Committee have madethe following grants of options on 28 October 2005, after the refinancing wasannounced on 21 October 2005: Exercise Price New Ordinary shares of 10p eachM Harrison 35p 2,250,000N. Clayton 35p 900,000J Hill 35p 50,000C Medway 35p 50,000 The awards to the executive directors reflect the significant progress to dateand the important role they have to deliver a profitable future for the Group.These awards are subject to the approval of shareholders at the Annual GeneralMeeting. The awards for executive directors are subject to performance criteria. Optionsmust be exercised between the third and seventh anniversary of the date of grantand vest as follows:Following the first six month period reporting a profit before tax excluding exceptional items 40%Upon reporting a balance sheet with positive net assets 10%On growth in the TSR, with the exercise price being the base price, of 300% 25%On further growth in the TSR, from 300% to 550% (prorated) 25% In arriving at the award for Mike Harrison, the Remuneration Committee havereduced his annual salary, with effect from 1 November 2005, from £200,000 to£120,000 and his chairmanship fees from £45,000 to £25,000. The options granted to Jonathan Hill and Colin Medway are not subject to therules of the earthport plc unapproved share option scheme (the "Scheme") as,being non-executive directors they are not qualifying employees as defined bythe Scheme rules. Major Interests in Shares As of 11 November 2005 the Company had been notified, in accordance withSections 198 to 208 of the Companies Act 1985,of the following interests in theissued ordinary share capital of the Company. New Ordinary Shares of 10p each %Man Financial Limited 877,631 6.0%Millennium Global High Yield Fund 714,285 4.9%Rob Cunningham 713,150 4.9%Metropole Europe Corporation 584,008 4.0%Goldman Sachs Group Inc 560,350 3.9% Save for these interests, the directors have not been notified that any personis directly or indirectly interested in 3% or more of the issued ordinary sharecapital of the Company. Charitable and other Donations Charitable donations of £1,400 were made in the year ended 30 June 2005 (2004:£5,360). No contributions for political purposes were made in this period. Employees The Group places considerable value on the awareness and involvement of itsemployees in the Group's performance. Within the bounds of commercialconfidentiality, information is disseminated to all levels of staff aboutmatters that affect the progress of the Group and are of interest and concern tothem as employees. Suppliers Due to working capital difficulties, the Group has not adhered to its paymentpolicy. At 30 June 2005, the company had an average of 125 days purchasesoutstanding in trade creditors (2004: 198 days). Annual General Meeting The notice of the meeting for the 2005 Annual General Meeting has been sent toshareholders on 30 November 2005. Renewal of authority to allot shares: At the Extraordinary General Meeting on 30July 2005, the shareholders authorised the issue of up to 25,497,020 newordinary shares of 10p each to enable the directors to allot shares in respectof existing rights of 13,535,301 and 11,961,719 to raise up to £5m. The totalnumber of new ordinary shares of 10p each authorised to be issued is 33,892,295.To date 6,115,772 ordinary shares of 10p each have been issued under theseauthorities. The new equity funding of £3.2m announced on 21 October 2005 willrequire the allotment of up to 10,127,256 ordinary shares of 10p. As part ofthis new investment and funding strategy, the directors have issued warrantsover 1,137,643 new ordinary shares of 10p each and propose to issue warrantsover a further 7,249,487 new ordinary shares of 10p each to secure follow upfunding of up to £3.5m. The number of new ordinary shares of 10p each in issueis 14,511,047. Together with the remaining subsisting rights and, in order toprovide some flexibility to meet future funding requirements, the directorsrequire authority to issue up to a further 35,488,953 new ordinary shares of 10peach. At the Annual General Meeting an ordinary resolution (resolution 7) will beproposed to renew the directors' authority to allot relevant securities up to anaggregate nominal value of £3,548,895. A special resolution (resolution 8) willbe proposed to renew the directors' authority to allot shares in connection witha rights issue or in connection with an issue of shares for cash up to anaggregate nominal value of £3,548,895. These authorities expire on the earlierof 15 months after the date of passing these resolutions or on the expiration ofthe period from the date such resolutions are passed, to the date of the nextAnnual General Meeting. earthport plc Unapproved Share Option Scheme: At the Annual General Meeting anordinary resolution (resolution 5) will be proposed to amend the Scheme Rules asfollows: Rule 2 - Limits of Scheme: The maximum number of shares in respect of whichoptions to subscribe for shares may be granted shall not, when added to thenumber of shares issued or capable of being issued on the exercise of optionsduring the previous ten years, both under the Scheme and any other scheme exceedthe higher of 7.5m shares or 15% of the issued share capital at the date ofgrant. Rule 4 - Exercise of Options: All performance criteria are deemed to have beenmet, subsisting options vest automatically and any holding criteria are waived,upon a change in control of the Company. Grant of options to directors: At the Annual General Meeting an ordinaryresolution (resolution 6) will be proposed to approve the grant of options tothe directors on the terms outlined above. Amendments to Articles: At the Annual General Meeting a special resolution(Resolution 9)will be proposed to amend Article 157 of the articles ofassociation, which currently provides for the directors and other officers to beindemnified by the Company against liability incurred in defending anyproceedings, whether civil or criminal, in which judgment is given in theirfavour (or the proceedings are otherwise disposed of without any finding oradmission of any material breach of duty on their part) or they are acquitted orin connection with any application in which relief is granted to them by thecourt from liability for negligence, default, breach of duty or break of trustin relation to the affairs of the Company. The Companies (Audit, Investigations and Community Enterprise) Act 2004 hasamended the Companies Act from 6 April 2005 to permit companies to indemnifyofficers (other than auditors) in respect of liabilities (including legal costs)incurred by them in proceedings brought against them by third parties. However,amongst other things, the indemnity cannot cover liability incurred by adirector to the company or any associated company; fines imposed in criminalproceedings and penalties imposed by regulatory authorities; costs incurred incriminal proceedings where the director is convicted or civil proceedingsbrought by the company or an associated company where judgment is given againsthim; or costs incurred in proceedings for relief where the court refuses togrant relief. It is proposed to adopt a new Article 157 to continue and expand the protectioncurrently afforded to officers of the Company so that they are also covered intheir capacity as officers of group companies. Furthermore, the new Articlegrants the Board new powers to cover the costs of defending proceedings andseeking relief to the extent permitted by the Act (as amended). To ensure thatthe Board is able to exercise the powers, the resolution also amends Article125.1.7 of the Articles to provide that each of the directors may vote and becounted in the quorum on any proposal for the provision of indemnitiesconsistent with the provisions of Article 157. Auditors Baker Tilly have expressed their willingness to continue in office as auditorsof the Company and in accordance with Section 385 of Companies Act 1985, aresolution to reappoint Baker Tilly and to authorise the directors to fix theirremuneration will be proposed at the Annual General Meeting. By order of the Board N ClaytonSecretary 29 November 2005 Corporate Governance Compliance with the Combined Code Under the rules of the AIM market the Company is not required to comply with theCombined Code. The Board of Directors are committed to high standards ofcorporate governance and have regard to the principles of the Combined Code. TheCorporate Governance procedures that have been in effect during the year aredescribed below. BOARD OF DIRECTORS The Board of Directors at 30 June 2005 comprised two executive directors and anon-executive director. On 15 July 2005, Jonathan Hill joined the Board as afurther non-executive director. The Board meets regularly throughout the year.Committees of the board are chaired by a non-executive director and comprise allboard members. Audit Committee The Audit Committee is chaired by Colin Medway. The purpose of the Committee isto ensure the preservation of good financial practices throughout the Group; tomonitor that controls are enforced to ensure the integrity of financialinformation; to review the interim and annual financial statements; and toprovide a line of communication between the Board and external auditors. Theterms of any related party transactions are required to be approved by theCommittee. Remuneration Committee The Remuneration Committee is chaired by Colin Medway. It is responsible for theexecutive directors' remuneration, other benefits and terms of employment,including performance related benefits and share options. Board members absentthemselves from discussions involving there own remuneration. Nominations Committee The Nominations Committee is chaired by Jonathan Hill. It meets as necessary toselect suitable candidates for the appointment of directors and other seniorappointments. Internal Control The board is ultimately responsible for the Group's system of internal controland for reviewing its effectiveness. A comprehensive business plan and budget isbeing prepared to reflect the new strategic focus of the Group. Actual resultswill be compared to this plan and reported to the board on a monthly basis. Directors' Responsibilities in the Preparation of Financial Statements Company law requires the directors to prepare financial statements for eachfinancial year which give a true and fair view of the state of affairs of theCompany and of the Group at the end of the financial year and of the profit orloss for that year. In preparing those financial statements, the directors arerequired to: a. select suitable accounting policies and then apply these consistently; b. make judgements and estimates that are reasonable and prudent; c. state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; d. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company and Group will continue in business. The directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of thegroup and to enable them to ensure that the financial statements comply with therequirements of the Companies Act 1985. They are also responsible forsafeguarding the assets of the group and hence for taking reasonable steps forthe prevention and detection of fraud and other irregularities. Independent Auditors' Report to the members of earthport plc We have audited the financial statements following this audit report. 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 auditors' 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 opinion we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report and thefinancial statements in accordance with applicable law and United KingdomAccounting Standards are set out in the Statement of Directors'Responsibilities. 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 other information contained in the Annual Report, and consider whetherit is consistent with the audited financial statements. This other informationcomprises only the Statement by the Executive Chairman and the Directors'Report. We consider the implications for our report if we become aware of anyapparent misstatements or material inconsistencies with the financialstatements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by theAuditing Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the financial statements. Italso includes an assessment of the significant estimates and judgements made bythe directors in the preparation of the financial statements, and of whether theaccounting policies are appropriate to the Company's circumstances, consistentlyapplied and adequately disclosed. We planned our audit so as to obtain all the information and explanations whichwe considered necessary in order to provide us with sufficient evidence to givereasonable assurance that the financial statements are free from materialmisstatement, whether caused by fraud or other irregularity or error. In formingour opinion we also evaluated the overall adequacy of the presentation ofinformation in the financial statements. However the evidence available to us was limited as explained in the paragraphbelow: As explained in note 1, the financial statements have been prepared on a goingconcern basis, the validity of which depends upon the Company's ability togenerate sufficient cashflows to finance current and future liabilities as theyfall due. We have been unable to obtain sufficient evidence that the Companywill be able to generate sufficient cashflows to finance these liabilities. The financial statements do not include any adjustments that would result from afailure to generate these cashflows. In forming our opinion we also evaluated the overall adequacy of thepresentation of information in the financial statements. Opinion: Disclaimer of view given by financial statements Because of the possible effect of the limitation in evidence available to us, weare unable to form an opinion as to whether the financial statements give a trueand fair view of the state of affairs of the Group and the Company as at 30 June2005 and of the loss of the Group for the year then ended. In all otherrespects, in our opinion the financial statements have been properly prepared inaccordance with the Companies Act 1985. In respect alone of the limitation of our work relating to going concern we havenot obtained all the information and explanations that we considered necessaryfor the purpose of our audit. BAKER TILLYRegistered AuditorChartered Accountants2 Bloomsbury StreetLondon WC1B 3ST 29 November 2005 Consolidated profit and loss account for the year ended 30 June 2005 Notes 2005 2004 £ £Turnover 3 887,780 925,611Administrative expenses (6,744,225) (7,779,850)Operating Loss (5,856,445) (6,854,239)Gain on termination of operation 4 - 1,216,999Loss on ordinary activities before interest and tax (5,856,445) (5,637,240)Interest receivable and similar income 8 181 5,002Interest payable and similar charges 9 (1,256,858) (1,003,973)Loss on ordinary activities before taxation (7,113,122) (6,636,211)Taxation 10 - -Loss on ordinary activities after taxation 24 (7,113,122) (6,636,211)Loss per share - basic and diluted 11 (1.3p) (1.5p) All activities are classed as continuing. No separate statement of total recognised gains and losses has been presented asall such gains and losses have been dealt with in the profit and loss account. Consolidated Balance Sheet at 30 June 2005 Notes 2005 2004 £ £Fixed AssetsTangible Assets 14 184,968 389,294Current AssetsDebtors 16 1,351,566 693,063Cash in bank and in hand 17 7,622 22,527 1,359,188 715,590Creditors: amounts falling due within one year 18 (12,234,709) (5,898,580) (10,875,521) (5,182,990)Total assests less current liabilities (10,690,553) (4,793,696)Creditors: amounts falling due within one year 19 (1,010713) (1,991,330) (11,700,713) (6,785,026)Capital and ReservesOrdinary share capital 22 23,898,263 21,700,828Share premium account 23 29,827,033 29,827,033Other Reserve 23 9,200,000 9,200,000Profit and loss account 23 (74,626,009) (67,512,887)Equity shareholders' funds (11,700,713) (6,785,026) Approved by the board on 29 November 2005M Harrison ) DirectorN Clayton ) Director Company Balance Sheet at 30 June 2005 Notes 2005 2004 £ £Fixed AssetsTangible Assets 14 184,968 389,294Investments 15 751,010 751,009 935,978 1,140,303Current AssetsDebtors 16 2,483,152 1,835,484Cash in bank and in hand 17 1,622 17,527 2,484,774 1,853,011Creditors: amounts falling due within one year 18 (13,347,927) (6,445,913)Net current liabilities (10,863,153) (4,592,902)Total assets less current liabilities (9,927,175) (3,452,599)Creditors: amounts falling due after more than one year 19 (1,010,160) (1,991,330) (10,937,335) (5,443,929)Capital and reservesOrdinary share capital 22 23,898,263 21,700,828Share premium account 23 29,827,033 29,827,033Other reserve 23 9,200,000 9,200,000Profit and Loss Account 23 (73,862,631) (66,171,790)Equity shareholders' funds (10,937,335) (5,443,929) Approved by the board on 29 November 2005M Harrison ) DirectorN Clayton ) Director Consolidated Cash Flow Statement for the year ended 30 June 2005 Notes 2005 2004 £ £Net cash outflow from operating activities 25a (3,253,070) (4,807,006)Returns on investments and servicing of financeInterest received 181 5,002Interest Paid (769,626) (1,003,973)Net cash flow from returns on investments and servicing of finance (769,445) (998,971)Capital expenditure and financial investmentPayment to acquire tangible assets (96,820) (201,965)Cash outflow before financing (4,119,335) (6,007,942)FinancingIssue of ordinary share capital 300,000 6,855,958Capital element of finance lease rental payments (325,265) (679,879)New loans and convertible loan notes 4,129,695 -Repayment of loans and convertible loan notes - (420,829)Net cash inflow from financing 4,104,430 5,755,250)Decrease in cash in the year 25b (14,905) (252,692) Reconciliation of net cash flow to movement in debt Notes 2005 2004 £ £Decrease in cash in the year (14,905) (252,692)Cash (inflow)/outflow from change in debt and lease financing (3,804,430) 1,100,708Change in net debts resulting from cash flows (3,819,335) 848,016Conversion of loans into share capital 875,000 1,307,277Non cash movements (162,533) -Movement in the year (3,106,868) 2,155,293Net debt at beginning of year (3,970,963) (6,126,256)Net debt at end of year 25b (7,077,831) (3,970,963) Notes to the Financial Statements for the year ended 30 June 2005 1. Fundamental accounting concept The financial statements have been prepared on the assumption that the Companyis a going concern. By the end of the accounting period, the Company had repositioned its businessmodel to one focussed on being the independent utility of choice for globalmoney movement applications. The reach and capacity of its international bankingnetwork supports the ability to make payments to over 120 countries through over30 primary banking relationships. This banking network is leveraged by ourtechnology platform, the Universal Payments Network, which is stable, performingto specification and able to accommodate current and projected transactionvolumes. Since the balance sheet date, the Company has raised additional finance throughthe issue of convertible loan notes of £600,000 and ordinary shares for cashconsideration of £1.5m. The Company has also received commitments for a further£1.7m to subscribe for ordinary shares, which may be drawn down at the Company'soption. Warrants to subscribe for £0.75m of ordinary shares have been issuedwith exercise prices from 31.5p to 41.8p with an expiry no later than 31December 2006. It has been agreed to issue further warrants to subscribe for anadditional £2.8m with exercise prices from 35p to 41.8p with an expiry no laterthan 31 October 2006, conditional upon the passing of resolution 8 at the AnnualGeneral Meeting. On 17 October 2005, the Company announced that it had reached agreement with itsprincipal creditors, whereby £4.0m of secured and unsecured loans have beensettled for £1m cash and the issue of £250,000 7% Loan Note 2007. This has beenfinanced through a new secured loan facility of £1.25m, with repayments spreadover five years. The Company has also entered formal schedules of payment with amaterial proportion of its other creditors. Over the last few months, investment has been made in sales and marketingcapacity and early results indicate an enthusiastic response to the company'sre-positioned products and services. The directors are confident that thesefirst responses are the pre-cursor to strong revenue growth for the second halfof the year ended 30 June 2006. The growth in sales will come from thepenetration of new sectors (insurance, retail and financial services) to add tosteady growth in our traditional customer base. The sales channel capacity, whencomplete - by the end of 2005 - will cover the full range of functionality fromtelesales through direct account sales to re-sellers. This sales channeldiversity and capacity will ensure that earthport is equipped to realise theundoubted potential of the market it is set to address. When assessing the foreseeable future the directors have looked at a period oftwelve months from the date of approval of the financial statements. Whilstconsiderable progress has been made in securing funding to date, the follow oninvestment, in the form of warrants, outlined above is contingent upon theability of the Group to generate future sales. The uncertainty as to the timingof the future growth in sales, together with the potential impact on the followup funding arrangements, cast doubt on the Group's ability to continue as agoing concern. Notwithstanding this uncertainty, the directors believe the Groupwill demonstrate progress in achieving its objective of positioning the Group asan infrastructure supplier to the global payments industry, and thereforeconsider that it is appropriate to prepare the Group's financial statements on agoing concern basis, which assumes that the Company is to continue inoperational existence for the foreseeable future. The financial statements do not include any adjustment that would result shouldthe Group not generate sufficient revenues, free cash flow, or raise additionalfinance through further injections of debt and equity. It is not practical toquantify the adjustments that may be required, but should any adjustments berequired, they may be significant. 2. Accounting policies Basis of preparation The financial statements are prepared under the historical cost convention andin accordance with applicable United Kingdom accounting standards. Basis of consolidation The Group financial statements consolidate the financial statements of earthportplc and all of its subsidiaries for the year ended 30 June 2005. The results ofsubsidiaries acquired or sold are included in the Group financial statementsfrom the date control passes, until control ceases. Turnover Revenue on the sale of software licences and from the service agreements isrecognised upon delivery to the customer providing that there is evidence of acontract, the fee is fixed or determinable, no significant customer obligationsremain and collection of the resulting receivable is probable. In circumstanceswhere a significant vendor obligation exists (such as the installation andacceptance of the software), revenue recognition is delayed until the obligationhas been satisfied. Revenue from client transaction volume is billed monthly inarrears. Revenue from software implementation, consultancy and training isrecognised as the services are performed. Research and development Research and development expenditure is charged to the profit and loss accountas incurred. Foreign currency translation Transactions in foreign currencies are recorded at the rate ruling at the dateof the transaction. Monetary assets and liabilities denominated in foreigncurrencies are retranslated at the rate of exchange ruling at the balance sheetdate. The trading results of overseas subsidiaries are translated at the averagerate for the year. Translation differences arising on the restatement oftranslation of opening net assets and their results is taken directly toreserves. All other translation differences are taken to the profit and lossaccount. Intangible assets Intangible assets acquired separately from a business are capitalised at cost.Intangible assets acquired as part of an acquisition of a business arecapitalised separately from goodwill if the fair value can be measured reliablyon initial recognition, subject to the constraint that, unless the asset has areadily ascertainable market value, the fair value is limited to an amount thatdoes not create or increase any negative goodwill arising on the acquisition.Intangible assets created within the business are not capitalised andexpenditure is charged against profits in the year in which it is incurred.Intangible assets are amortised on a straight-line basis over their estimateduseful lives of 4 years. The carrying value of intangible assets is reviewed forimpairment at the end of each year. Tangible fixed assets and depreciation Tangible fixed assets are stated at cost less depreciation and provision forimpairment. Depreciation is provided at rates calculated to write down assets totheir estimated residual values over their its expected useful life, as follows: Fixtures, fittings and equipment - 20% - 33.3% straight line per annumComputer equipment - 33% straight line per annumComputer software - 25% straight line per annumMotor vehicles - 16.6% straight line per annum Leasing Assets held under finance leases and hire purchase contracts are capitalised andare depreciated over their expected useful lives. The interest elements of therental obligations are charged to the profit and loss account over the period ofthe lease and represent a constant proportion of the balance of capitalrepayment outstanding. Rentals payable under operating leases are charged against income on astraight-line basis over the lease term. Investments Fixed asset investments are stated at cost less provision for diminution invalue. Pensions The Company offers a stakeholder pension scheme to all employees but the Companydoes not make any contributions to the scheme. In addition, certain employeesand directors are entitled to receive, under their contracts of employment,contributions from the company to their individual retirement plans. Thesecontributions are accrued. Deferred tax Deferred taxation is provided in full on timing differences which result in anobligation at the balance sheet date to pay more tax, or the right to pay lesstax, at a future date at rates expected to apply when they crystalise, based oncurrent tax rates and law. Deferred tax assets are recognised only to the extentthat the directors consider that it is more likely than not that they will berecovered. Deferred tax assets and liabilities are not discounted. Financial risk management The Group's principal financial instruments comprise secured and unsecuredshort-term creditors, finance leases, cash, short-term deposits and convertibleloan notes. The main purpose of these financial instruments is to finance theGroup's operations, including any acquisitions where relevant. The Group hasvarious other financial instruments, such as trade debtors and trade creditorsthat arise directly from its operations. It is the Group's policy that no trading in financial instruments shall beundertaken. The Group borrows at both fixed and floating rates of interest. TheGroup's policy in relation to the finance is to ensure that sufficient liquidfunds are maintained for operations. Details of cash and other financialinstruments are shown in note 21 to the financial statements. 3. Turnover and segmental analysis Turnover, profit and net assets are all attributable to one business segment. Turnover can be further analysed as follows: 2005 2004 £ £Transaction fees 831,530 610,830Development, licences and implementation 56,250 314,781 887,780 925,611An analysis of turnover by geographical market is given below:United Kingdom 789,091 461,872Europe 52,583 463,739Rest of the world 46,106 - 887,780 925,611 4. Exceptional items 2005 2004 £ £Gain on termination of operation - 1,216,999 5. Loss on ordinary activities 2005 2004 £ £Loss on ordinary activities before taxation is stated after charging:Depreciation and amounts written off tangible fixed assets:Charge for the year 301,146 699,150owned assets - 669,684leased assets - 118,958Research and developmentOperating lease rentals:Land and buildings 269,705 209,419Auditors' remuneration - audit work 30,000 78,000- non-audit work 23,000 52,250 6. Employees 2005 No. 2004 No.The average monthly number of persons (including directors) employed by the group during theyear was:Directors 3 6Administration and technical 51 59 54 65 2005 2004 £ £Staff costs for above personsWages and salaries 2,400,356 3,631,315Social security costs 278,118 348,529Other pension costs 67,143 35,499 2,745,617 4,015,343 7. Directors' emoluments Basic salary Pension 2005 Total 2004 Total and fees £ £ £ £Executive chairman:M Harrison 35,160 - 35,160 -Executive directors:R Clarke 9,883 600 10,483 20,000N Clayton 40,000 2,400 42,400 -R Cunningham 174,707 10,890 185,597 14,948R Flood - - - 87,063C Hall 78,814 4,200 83,014 118,445R Mennie - - - 92,254C Rawlins - - - 10,462P Townsend 17,538 1,200 18,738 104,538Non-executive directors:C Keen 13,333 - 13,333 20,000R Manchanda 11,000 - 11,000 20,000C Medway 2,468 - 2,468 -R Rakison 15,000 - 15,000 20,000A Ripley 25,231 - 25,231 30,000 423,134 19,290 442,424 537,710 8. Interest receivable and similar income 2005 2004 £ £Bank interest 181 5,002 9. Interest payable 2005 2004 £ £Bank interest - 82,363Secured and unsecured loan interest 709,680 628,132Finance lease interest 114,877 293,478Loan arrangement fees and other finance costs 432,301 - 1,256,858 1,003,973 10. Taxation 2005 2004 £ £Factors affecting tax charge for year:The tax assessed for the year is lower than the standard rate of corporation tax in the UK(30%). The differences are explained below:Loss on ordinary activities before tax (7,113,122) (6,636,211)Loss on ordinary activities multiplied by standard rate of corporation tax in the UK 30% (2,133,937) (1,990,863)(2004: 30%)Effects of:Expenses not deductible for tax purposes 60,334 140,400Depreciation in excess of capital allowances 90,349 269,266Other timing differences 15,250 10,650Tax losses 1,968,004 1,570,547Tax charge for year - - A deferred tax asset has not been recognised as the criteria of FRS19 have notbeen satisfied. 11. Loss per share The calculation of basic loss per share of 1.3p (2004: loss per share 1.5p) isbased on the loss on ordinary activities after taxation, namely £7,113,122(2004: £6,636,211) and on the number of Ordinary Shares, being the weightedaverage number of Ordinary Shares in issue during the year of 554,630,885 (2004:429,839,515). The loss attributable to ordinary shareholders and weighted average number ofordinary shares for the purposes of calculating the diluted loss per share areidentical to those used for basic loss per ordinary share. This is because theexercise of share options and other share benefits would have the effect ofreducing the loss per share and is therefore not dilutive under the terms of FRS14. 12. Loss attributable to members of the parent undertaking The loss dealt with in the financial statements of the parent undertaking was£7,690,841 (2004: £6,727,961). 13. Intangible fixed assets Acquired Goodwill Total software £ £ £CostAt 30 June 2004 and 30 June 2005 8,252,078 2,490,215 10,742,293AmortisationAt 30 June 2004 and 30 June 2005 8,252,078 2,490,215 10,742,293Net book valueAt 30 June 2004 30 June 2005 - - - The Company's International Banking Network supports the ability to makepayments to over 120 countries through over 30 primary banking relationships.This network has been developed over a number of years and represents a valuablestrategic asset of the Group. As the network has been developed internally,current accounting policy means that its value is not reflected on the balancesheet 14. Tangible fixed assets Group and company Computer Fixtures, Motor Total equipment fittings and vehicles and software equipment £ £ £ £CostAt 1 July 2004 6,103,784 523,074 21,000 6,647,858Additions 53,820 9,952 33,048 96,82030 June 2005 6,157,604 533,026 54,048 6,744,678DepreciationAt 1 July 2004 5,914,188 340,890 3,486 6,258,564Charged in the year 164,120 107,120 29,906 301,14630 June 2005 6,078,308 448,010 33,392 6,559,710Net book value30 June 2005 79,296 85,016 20,656 184,96830 June 2004 189,596 182,184 17,514 389,294 15. Fixed assets investments Company Shares in subsidiary undertakings £Cost:At 1 July 2004 11,073,254Additions 1At 30 June 2005 11,073,255Amounts provided:At 1 July 2004 10,322,245Additions -At 30 June 2005 10,322,245Net book value:At 30 June 2005 751,010At 30 June 2004 751,009 The company's principal subsidiary is:Company Country of incorporation Nature of business HoldingEnsurePay Limited England and Wales On line services 100% Other subsidiary companies were dormant throughout the year. 16. Debtors Group Company 2005 2004 2005 2004 £ £ £ £Trade debtors 141,848 256,278 60,424 235,386Other debtors 1,022,619 342,079 2,235,629 1,525,843Prepayments and accrued income 187,099 94,706 187,099 74,255 1,351,566 693,063 2,483,152 1,835,484 Included in other debtors is an amount in respect of unpaid share capitalamounting to £900,000 (see note 22). 17. Cash Group Company 2005 2004 2005 2004 £ £ £ £Cash at bank and in hand 1,622 17,527 1,622 17,527Cash at bank and in hand - restricted 6,000 5,000 - - 7,622 22,527 1,622 17,527 At 30 June 2005 the Company's bankers had issued a letter of credit to a creditcard clearing provider which is secured on a £6,000 (2004: £5,000) bank depositand as such is treated as restricted cash. 18. Creditors: Amounts falling due within one year Group Company 2005 2004 2005 2004 £ £ £ £Secured loans 1,287,065 895,438 1,287,065 895,438Unsecured loans 195,000 25,000 195,000 25,000Trade creditors 1,745,090 1,787,159 1,405,395 1,594,681Amount due to subsidiary undertakings - - 1,502,498 889,811Other taxation and social security 2,277,853 1,413,659 2,228,268 1,413,659Accruals and deferred income 2,116,473 695,602 2,116,473 545,602Obligations under finance leases and hire purchase contracts 1,508,533 1,081,722 1,508,533 1,081,722Convertible loan notes 3,104,695 - 3,104,695 - 12,234,709 5,898,580 13,347,927 6,445,913 The secured loans are secured over the revenue stream from a customer. At 30June 2005, the convertible loan notes in issue were subject to the followingterms: Principal Conversion termsSeries £ No. shares per £1 loan note Maturity dateNo. 1 2004 600,000 40 31 August 2005No. 3 2004 1,129,695 182 31 December 2005No. 4 2004 375,000 80 31 December 2005No. 1 2005 500,000 182 31 May 2005No. 1 2005 500,000 182 30 June 2005 All notes have a coupon of 10% payable in arrears in cash or shares at theoption of the Company. The No. 1 Loan Notes 2004 are convertible into shares atthe option of the note holder. All other notes convert at the maturity date intoshares, at the option of the Company. 19. Creditors: Amounts falling due after more than one year Group and company 2005 2004 £ £Secured loans 1,010,160 1,700,401Obligations under finance leases and hire purchase contracts - 290,929 1,010,160 1,991,330 The secured loans are secured over the revenue stream from a customer. 20. Obligations under leases and hire purchase contracts Amounts due under finance lease and hire purchase contracts:Group and company 2005 2004 £ £Amounts payable:Within one year 1,513,276 1,118,530In one to two years - 299,174 1,513,276 1,417,704Less: finance charges allocated to future periods 4,743 45,053 1,508,533 1,372,651 21. Derivatives and other financial instruments Financial instruments, policies and strategies During the year the Group has financed its business with cash it has raisedthrough the issue of shares and convertible loan notes. It has used these fundsto develop its secure payment system. It is, and has been through the year, theGroup's policy that no trading in financial instruments should be undertaken. Anexplanation of the Group's financial risk management policy is set out in note2. Short-term debtors and creditors have been excluded from all risk disclosures,as permitted by FRS 13. (a) Currency profile There are no material foreign currency exposures. (b) Interest rate risk profile At floating interest rates At floating interest rates 2005 2004 £ £Financial assetsSterling 7,622 22,527 Floating rate financial assets comprise cash deposits on money market deposit atcall, overnight and periodic rates. Financial liabilities The maturity profile of the Group's financial liabilities was as follows: At fixed interest rates 2005 2004 £ £In one year or less, or on demand 3,570,598 2,002,160In more than one year but not more than two years 1,010,160 981,170In more than two years but not more than five years - 1,010,160 4,580,758 3,993,490 The weighted average interest rate of the fixed rate financial liabilities is12.5% (2004: 12.6%). The liabilities at fixed interest rates comprise secured and unsecured loans,finance leases and those convertible loan notes, which may be converted toequity at the note holder's option. The weighted average period for which interest rates are fixed is 13 months(2004: 29 months). (c) Fair value of financial instruments: There is no material difference between the fair value and book value of theGroup's financial assets and liabilities. 22. Share capital 2005 2004 £ £Authorised642,110,352 (2004: 642,110,352) ordinary shares of 2.5p each 16,052,759 16,052,759105,963,216 deferred shares of 7.5p each 7,947,241 7,947,241 24,000,000 24,000,000Issued638,040,880 (2004: 550,143,466) ordinary shares of 2.5p each 15,951,022 13,753,587105,963,216 deferred shares of 7.5p each 7,947,241 7,947,241 23,898,263 21,700,828 During the year to 30 June 2005 a total of 87,897,414 ordinary shares with anaggregate nominal value of £2,197,435 were issued for cash consideration of£300,000, £122,435 in satisfaction of creditors and the conversion of debtamounting to £875,000. At 30 June 2005, there remained £900,000 due in respectof unpaid share capital. All shares were issued at par. At the Extraordinary General Meeting held on 29 July 2005, the shareholdersapproved a capital reorganisation whereby the 638,040,880 ordinary shares of2.5p each in issue at 30 June 2005 were consolidated and converted into newconsolidated shares of 190p each at a rate of 1 consolidated share of 190p eachfor 76 ordinary shares of 2.5p each. Each consolidated share of 190p each wasthen sub-divided into 24 deferred shares of 7.5p each and 1 new ordinary shareof 10p each. At the same time, the authorised but unissued share capital of4,069,472 ordinary shares of 2.5p each were consolidated and converted into new ordinary shares of 10p each at the rate of 1new ordinary share of 10p each for every 4 ordinary shares of 2.5p each. The authorised share capital was also increased to £30,000,000 by the creationof 60,000,000 new ordinary shares of 10p each. Following the consolidation and sub-division, the issued share capital comprised8,395,275 new ordinary shares of 10p each and 307,449,810 deferred shares of7.5p each. The deferred shares carry no rights to receive any dividend or otherdistribution. The holders of the deferred shares have no rights to receivenotice, attend, speak or vote at any general meeting of the Company. On a returnof capital on liquidation or otherwise, the holders of the deferred shares areentitled to receive the nominal amount paid up on the deferred shares after therepayment of £10,000,000 per ordinary share. Consequently a value of £nil hasbeen ascribed to the deferred shares. The company has granted share options to subscribe for the Company's shares tocertain employees. Details of Options are disclosed in the Annual Report, a copyof which is available from the Company Secretary at the registered office. Further options have been granted in respect of 179,465,600 ordinary shares of2.5p each under the terms of the Company's fund-raising activities at strickprices ranging from 1.25p to 160p exersizable at various dates upto 31 December2006. 23. Reserves Group Share Other Profit and Total premium reserve loss account account £ £ £ £At 1 July 2004 29,827,033 9,200,000 (67,512,887) (28,485,854)Loss for the year - - (7,113,122) (7,113,122)At 30 June 2005 29,827,033 9,200,000 (74,626,009) (35,598,976)CompanyAt 1 July 2004 29,827,033 9,200,000 (66,171,790) (27,144,757)Loss for the year - - (7,690,841) (7,690,841)At 30 June 2005 29,827,033 9,200,000 (73,862,631) (34,835,598) 24. Movements in equity shareholders' funds Group Company 2005 2004 2005 2004 £ £ £ £At 1 July 2004 (6,785,026) (8,206,780) (5,443,929) (6,773,933)Loss for the financial year (7,113,122) (6,636,211) (7,690,841) (6,727,961)Arising on issue of shares 2,197,435 8,057,965 2,197,435 8,057,965At 30 June 2005 (11,700,713) (6,785,026) (10,937,335) (5,443,929) 25. Cash flows a Reconciliation of operating loss to net cash outflow from operating activities 2005 2004 £ £Operating loss (5,856,445) (6,854,239)Depreciation of tangible assets 301,146 1,368,834Increase in debtors 261,497 (250,303)Increase in creditors 2,040,732 928,702Net cash outflow from operating activities (3,253,070) (4,807,006)b Analysis of net debt At 1 July Cash flow Other non At 30 June 2004 cash movements movements 2005 2005 £ £ £ £Cash 22,527 (14,905) - 7,622Secured and Unsecured Loans (2,620,840) 148,615 - (2,472,225)Finance lease obligations (1,372,650) 26,650 (162,533) (1,508,533)Convertible loan notes - (3,979,695) 875,000 (3,104,695) (3,970,963) (3,819,335) 712,467 (7,077,831) The non-cash movement in the year relates to unpaid interest, rolled into theprincipal outstanding at 30 June 2005 and the conversion of convertible loannotes during the year. 26. Commitments under operating leases At 30 June 2005 the Company had annual commitments under non-cancellableoperating leases as follows: 2005 2004 £ £Land and buildings:Expiring in the second to fifth year 287,000 287,000 27. Pension commitments The Company offers a stakeholder pension scheme to all employees but the Companydoes not make any contributions to the scheme. In addition, certain employeesand directors are entitled to receive, under their contracts of employment,contributions from the company to their individual retirement plans. Thesecommitments are accrued and amounted to £67,143 at 30 June 2005 (2004: £35,499).There have been no payments during the year in respect of accrued pensioncommitments. 28. Related party disclosures During the year the Company entered into transactions, in the ordinary course ofbusiness, with related parties as set out below: Gelande Gelande Holdings (Overseas Undertakings) Limited and Gelande CorporationLimited, (together "Gelande"), companies in which Robert Rakison and RobCunningham, former directors of the Company, have a direct beneficial interest,entered into a series of agreements with the Company (the "Gelande Agreements"). At 1 July 2004, the balance due from the Group to Gelande under the GelandeAgreements, together with accrued interest, amounted to £538,325. In July, Gelande invested £200,000 in Convertible Loan Notes No. 3 2002. Thesewere redeemed from the proceeds of a new loan from Rob Cunningham in November2004. During the year, the Company received invoices or made accruals under theGelande Agreements totalling £213,577. The Company made payments of £34,726 andin addition, issued 1.5m ordinary shares of 2.5p each at par in satisfaction ofcreditors of Gelande amounting to £37,500. Gelande issued credit notes inrespect of invoices issued in prior periods amounting to £1,355,604. The Companyhas made a separate provision for of these of £1,153,706 net of VAT, as invoiceshave been received from Gelande since the year end. On 22 February 2005, Gelande transferred its holding of 24m ordinary shares 2.5peach to the holder of £300,000 of Convertible Loan Notes No. 3 2004 uponconversion. The directors are of the opinion that the fair value of thistransfer is best represented by the value of the debt subject to the conversionnotice. Accordingly the amounts due to Gelande have been increased by £300,000. On 1 March 2005, the Company issued to Rob Cunningham £1m of Convertible LoanNotes No. 4 2004 in satisfaction of amounts owed by the Company to Gelande. As a result of these transactions, at 30 June 2005 the balance due to the Groupfrom Gelande amounted to £222,222. Rob Cunningham At 1 July 2004 the Company was due £96,040 from Rob Cunningham. On 30 November 2004 Rob Cunningham made two loans to the Company totalling£280,000, of which £35,000 was repaid on 18 January 2005 and £20,000 on 4February 2005. A further loan of £62,000 made during March 2005 was repaid on 27May 2005. During the year, Rob Cunningham incurred expenses of £46,326 on behalf of theCompany and payments made by the Company to him amounted to £103,353. On 1 March 2005 the Company issued to Rob Cunningham £1m of Convertible LoanNotes No. 4 2004 in satisfaction of amounts owed by the Company to Gelande.Pursuant to the conversion terms in respect of £635,000 Loan Notes No. 4 2004,50m ordinary shares of 2.5p were allotted to Rob Cunningham on 19 April 2005. On 8 July 2005, the Company issued a call notice for £625,000 in respect of thepartly paid shares allotted on 19 April 2005. As a result of these transactions, the balance due to the Company from RobCunningham amounted to £178,067. This balance excludes any sums that may be dueto Rob Cunningham following the termination of his employment on 23 May 2005. Grundberg Mocatta Rakison Grundberg Mocatta Rakison, a legal firm in which Robert Rakison, a formerdirector of the Company is a partner, invoiced the Company for £222,757 (2004:£552,850) in respect of legal fees incurred during the year and payments of£160,250 (2004: £447,686) were made. The amount due to the firm at 30 June 2005was £505,757 (2004: 443,250). The Company has agreed to convert £200,000 intoequity and to pay the remaining balance by instalments by February 2006. General Capital Venture Finance Limited General Capital Venture Finance Limited ("GCVFL") is a wholly owned subsidiaryof General Capital Group plc, a company in which Jonathan Hill has an interest.Jonathan Hill was appointed a director on 15 July 2005. GCVFL advanced theCompany £200,000 on 1 March 2005. The facility was secured by means of an allmonies mortgage debenture over the Company's assets, a mortgage over £1mConvertible Loan Notes No. 4 issued to Rob Cunningham, (referred to above) andthe personal guarantee of Rob Cunningham. Under the facility, £400,000 fell duefor repayment on 30 May 2005. GCVFL agreed to roll the facility for a furthermonth. On 23 June 2005, the Company repaid £420,000. At 30 June 2005, thebalance outstanding to GCVFL was £20,000 and GCVFL remains a secured creditorunder the debenture terms. The guarantees provided by Rob Cunningham werereleased on 29 June 2005. On 15 July 2005, GCVFL subscribed for £250,000Convertible Loan Notes No.1 2005. On 17 October 2005, GCVFL committed to providea debenture secured facility of £1.25m to refinance the debt restructuring (seenote 29). 29. Events since the balance sheet date During July 2005, the Company raised £600,000 through a further issue ofConvertible Loan Notes 2005 with a maturity date of 30 June 2006. On 29 July 2005 at an Extraordinary General Meeting the shareholders amongstother things: a. approved a reorganisation of the share capital by: i. consolidating and converting the issued share capital of 638,040,880 ordinary shares of 2.5p each into new consolidated shares of 190p each at a rate of one new consolidated share of 190p each for 76 existing ordinary shares of 2.5p each; ii. sub-dividing and converting each consolidated share of 190p into 24 deferred shares of 7.5p each and 1 new ordinary share of 10p; iii. consolidating and converting the 4,069,472 authorised but unissued ordinary shares of 2.5p each into new ordinary shares of 10p each at the rate of 1 new ordinary share of 10p each for every 4 authorised but unissued ordinary shares of 2.5p each. b. approved an increase in the Company's authorised share capital from £24,000,000 to £30,000,000 comprising 69,412,642 new ordinary shares of 10p each and 307,449,810 deferred shares of 7.5p each; and c. authorised the issue of up to £2,549,702 in nominal value of new ordinary shares of 10p each. On 17 October 2005, the Company announced that it had reached agreement with itsprincipal creditors, whereby £4.0m of secured loans and unsecured finance leaseshave been settled for £1m cash and the issue of £250,000 7% Loan Note 2007. Thishas been financed through a new secured loan facility, with repayments spreadover five years. On 21 October 2005 the Company announced that, since the Extraordinary GeneralMeeting, it has secured new equity funding of £3.2m to be drawn down asrequired. To date £1.5m has been drawn down. As part of this funding strategy the directors, have issued warrants tosubscribe for £0.75m of ordinary shares with exercise prices from 31.5p to 41.8pwith an expiry date no later than 31 December 2006, with a further £2.8m with anexpiry no later than 31 October 2006 conditional upon shareholder approval. 30. Contingent liabilities Rob Cunningham, a former director, has brought a claim against the Company forunfair dismissal. A hearing date has been set for early 2006. Rob Cunningham and Gelande Corporation limited have between them filed 38statutory demands amounting to £2.5m. The Company has a bona fide dispute onsubstantial grounds in respect of each of these demands and/or a cross orcounterclaim. The Company will defend its position vigorously in respect ofmatters alleged in the statutory demands. This information is provided by RNS The company news service from the London Stock Exchange