Frenkel Topping Regulatory News (FEN)

13 Aug 2007 09:58

Frenkel Topping Group PLC13 August 2007 FOR IMMEDIATE RELEASE 13 August 2007 Frenkel Topping Group plc ("Frenkel Topping" or "The Group") Frenkel Topping provides specialist independent financial advice on theinvestment of personal injury damages and clinical negligence awards. FrenkelTopping offers a complete service for all personal injury claim handlers,lawyers and individual clients, dealing with awards from a few thousand poundsto multi-million pound cases. Frenkel Topping's expertise includes assetprotection, bespoke investment portfolios, analysis of periodical payments,Court of Protection portfolios and provision of trustee and receivership bankaccounts. Unaudited Interim Results for the six months ended 30 June 2007 Highlights 6 Months 6 Months Year ended ended ended 30 June 30 June 31 December 2007 2006 * 2006 * £ £ £ Turnover 1,394,659 1,243,822 2,570,504Profit/(loss) from operations before provisions and share 128,089 (174,463) (93,649)based compensationProfit/(loss) from operations 5,771 (286,342) (398,935)Cash from/(used in) operations 47,704 (228,067) (141,306)Gross Profit Margin 62% 45% 54% * restated to reflect the adoption of IFRS Frenkel Topping Group plc Richard Fraser Chief Executive Tel No: 0161 886 8000 WH Ireland plc David Youngman Chief Executive Tel No: 0161 832 2174 Chairman's Statement The Group's performance for the six months ended 30 June 2007 has maintained themomentum established during the previous half year to 31 December 2006. For the six months ended 30 June 2007 the Group has reported a profit fromoperations before share based compensation and provisions of £128k (£174k lossfor the six month ended 30 June 2006 and £94k loss for the year ended 31December 2006). In comparison to the same period last year revenue hasincreased by 12% and the gross profit margin has increase from 45% to 62%. These improvements reflect the increase in the recurring income from the Fundsin the Investment Management Service (FIMS) and the focus on revenue generationand cost control implemented across all elements of the business by the Boardduring 2006. As at 30 June 2007 the Group's FIMS were £177m. The Group is also pleased to report cash generated from its operating activitiesof £48k (£228k absorbed in the six month period to June 2006, £141k absorbed foryear ended 31 December 2006). The net asset value of the Group as at 30 June2007 was £5m. The Board does not propose an interim dividend. These are the first results for the Group to be stated under InternationalReporting Standards (IFRS) and the comparatives have been restated on thisbasis. The date of conversion to IFRS for the Group is 1 January 2006. Theprinciple impact of IFRS on the results is the credit to the accounts of thegoodwill amortised during 2006. The Intangible Assets in the consolidatedbalance sheet of the Group is attributable to goodwill arising upon theacquisition of the trading subsidiaries Frenkel Topping Limited and FrenkelTopping Structured Settlements Limited. Under IFRS3 the carrying value of thegoodwill is reviewed at each balance sheet date to determine if the asset hassuffered any impairment. Having considered the carrying value of the goodwillto the future revenue streams at the date of conversion to IFRS the board aresatisfied with the carrying value of the goodwill. During the period the Group entered into a £500,000 loan facility with MBCSettlements Limited (MBC). MBC is a Gibraltar based investment companyoperating in the financial services sector. In consideration of MBC providingthe loan facility, the Group has issued options to MBC in respect of 10,000,000new ordinary shares. The options can be exercised at any time until May 2010provided that the aggregate value of the options exercised does not exceed thetotal of the sums drawn down on the loan facility by the Group. As at 30 June2007, £200,000 has been drawn down on the loan. The loan will be used for thestrategic developments of the Group. Whilst competition continues to grow in the market place the Board is pleasedwith the continued re-positioning of the Frenkel Topping brand as one of themarket leaders in the field of investment of personal injury awards. The Boardactively pursues growth opportunities and improvements to income generation andcost control. The Group has shown good performance for the first half of thefinancial year and the Board will continue to work towards maintaining thismomentum and to grow the FIMS to increase the recurring income for future years.At the 30 June the Group has a healthy pipeline of business to be finalisedand the Board is confident that the progress made to date will continue for theyear as a whole. David SouthworthChairman13 August 2007 Frenkel Topping Group plc 6 Months 6 Months YearConsolidated income statement ended ended ended 30-Jun-07 30-Jun-06 31-Dec- 06 Unaudited Unaudited Unaudited Note £ £ * £ * REVENUE 1,394,659 1,243,822 2,570,504 Cost of sales (535,051) (682,157) (1,170,467) Gross Profit 859,608 561,665 1,400,037 ADMINISTRATION EXPENSESShare based compensation (122,318) (111,879) (198,301)Provisions 3 - - (106,985)Other (731,519) (736,128) (1,493,686) TOTAL ADMINISTRATION EXPENSES (853,837) (848,007) (1,798,972) Profit/(loss) from operations before share based 128,089 (174,463) (93,649)compensation and provisionsShare based compensation (122,318) (111,879) (198,301)Provisions - - (106,985) PROFIT/(LOSS) FROM OPERATIONS 5,771 (286,342) (398,935) Finance costs (34,617) (16,607) (47,706) LOSS BEFORE TAXATION (28,846) (302,949) (446,641) Income tax expense - 13,366 (25,039) LOSS FOR THE PERIOD (28,846) (289,583) (471,680) Loss attributable to:Equity holders of parent (34,936) (312,333) (455,334)Minority Interests 6,090 22,750 (16,346) (28,846) (289,583) (471,680) Loss per share - basic (pence) 4 (0.06) (0.66) (0.89)Loss per share - diluted (pence) 4 (0.06) (0.66) (0.89) The results for the period are derived from continuing activities. * Restated to reflect the adoption of IFRS as per note 6. There was no recognised income or expenditure other than the profit/(loss) forthe period/year. Accordingly no Statement of Recognised Income and Expenditurehas been prepared. Frenkel Topping Group plcConsolidated Balance Sheet 30-Jun-07 30-Jun-06 31-Dec-06As at 30 June 2007 Unaudited Unaudited Unaudited £ £ * £ *ASSETSNON CURRENT ASSETSPlant and equipment 30,197 57,732 43,648Goodwill 5,090,288 4,826,662 5,095,287Deferred tax 7,069 9,179 7,069 5,127,554 4,893,573 5,146,004CURRENT ASSETSAccrued income 490,587 295,946 329,010Trade receivables 308,030 454,920 396,321Other receivables 82,539 156,630 101,067Cash 161 83 29 881,317 907,579 826,427 TOTAL ASSETS 6,008,871 5,801,152 5,972,431 EQUITY AND LIABILITIESEQUITYShare capital 273,915 268,915 273,915Share premium account 5,744,876 5,509,876 5,744,876Share based payment reserve 408,816 200,076 286,498Other reserve 12,997 - -Treasury share reserve (25,000) (25,000) (25,000)Profit and loss account (1,428,584) (1,250,647) (1,393,648) 4,987,020 4,703,220 4,886,641Minority Interests (298,409) (292,899) (304,499)TOTAL EQUITY 4,688,611 4,410,321 4,582,142 NON CURRENT LIABILITIESOther liabilities 25,000 25,000 25,000Loans and borrowings 187,118 - - 212,118 25,000 25,000CURRENT LIABILITIESAmounts due to bankers and short term loans 274,792 485,295 473,433Taxation 89,890 105,140 106,984Trade payables 309,174 288,125 297,342Other payables 219,286 332,905 237,723Obligations under finance lease - 11,866 9,807Provisions 215,000 142,500 240,000 1,108,142 1,365,831 1,365,289 TOTAL LIABILITIES 1,320,260 1,390,831 1,390,289TOTAL EQUITY AND LIABILITIES 6,008,871 5,801,152 5,972,431 * Restated to reflect the adoption of IFRS as per note 6. Frenkel Topping Group plc 6 Months 6 Months YearConsolidated Cash Flow ended ended endedFor the period to 30 June 2007 30-Jun-07 30-Jun-06 31-Dec -06 Unaudited Unaudited Unaudited £ £ * £ * Profit/(loss) from operations 5,771 (286,342) (398,935)Adjustments to reconcile profit/(loss) fromoperations to cash generated from/(used in)operating activitiesShare based compensation 122,318 111,879 198,301Depreciation 22,957 15,113 30,219(Increase)/decrease in accrued income (161,577) 33,997 86,787Decrease/(increase) in trade and other 110,855 (190,683) (160,265)receivables(Decrease)/increase in trade and other payables (52,620) 87,969 102,587Cash generated from/(used in) operations 47,704 (228,067) (141,306)Taxation - 13,366 (18,415)Cash generated from/(used in) operating 47,704 (214,701) (159,721)activities Investing activitiesAcquisition of plant and equipment (4,506) (4,419) (5,441)Acquisiton of additional shareholding in - (15,900) (17,032)subsidiary undertakingsCash used in investing activities (4,506) (20,319) (22,473) FinancingNet borrowings 167,668 31,211 19,981Repayment of finance lease (9,807) (2,059) (4,118)Interest on loans (34,617) (16,607) (44,336)Cash from/(used in) financing 123,244 12,545 (28,473) Increase/(decrease) in cash and cash equivalents 166,442 (222,475) (210,667)Opening cash and cash equivalents (287,700) (77,033) (77,033)Closing cash and cash equivalents (121,258) (299,508) (287,700) * Restated to reflect the adoption of IFRS as per note 6. Frenkel Topping Group plcConsolidated Statement of Changes in EquityAs at 30 June 2007 Share based payment reserve Issued Share Other Treasury Retained Total equity capital premium shares earnings reserve £ £ £ £ £ £ £ Balance at 1January 2006 227,998 3,586,193 88,197 - (25,000) (938,314) 2,939,074Loss for the period - - - - - (312,333) (312,333)Issue of shares 40,917 1,923,683 - - - - 1,964,600Cost of share basedpayments - - 111,879 - - - 111,879Balance as at 30June 2006 268,915 5,509,876 200,076 - (25,000) (1,250,647) 4,703,220 Loss for the period - - - - - (143,001) (143,001)Issue of shares 5,000 235,000 - - - - 240,000Cost of share basedpayments - - 86,422 - - - 86,422As at 1 January2007 273,915 5,744,876 286,498 - (25,000) (1,393,648) 4,886,641 Loss for the period - - - - - (34,936) (34,936)Share basedcompensation - - 122,318 - - - 122,318Equity element offinancialinstrument issued - - - 12,997 - - 12,997Balance at 30 June 2007 273,915 5,744,876 408,816 12,997 (25,000) (1,428,584) 4,987,020 Notes to the Interim Financial Statements 1. Accounting policies and basis of preparation The Group's previous financial statements have been prepared under UK GenerallyAccepted Accounting Principles (UK GAAP). For the financial year ended 31December 2007, the Group will prepare its annual consolidated financialstatements in accordance with IFRS as adopted by the European Union (EU) andimplemented in the UK. The Group's date of transition to IFRS was 1 January 2006 at which date theGroup prepared its opening IFRS balance sheet. The financial information forthe 6 months ended 30 June 2007 is unaudited and has been prepared in accordancewith the Group's accounting policies based on IFRS standards that are expectedto apply for the financial year 2007. The financial information for the 6months ended 30 June 2006 is also unaudited and has been restated under IFRS.The Group has not applied IAS 34, Interim Financial Reporting, which is notmandatory for UK Groups, in the preparation of these interim financialstatements. The presentation of financial information under IFRS is governed by IFRS 1 'First-time Adoption of IFRS', because they are part of the period covered by theGroup's first IFRS financial statement for the year ended 31 December 2007. Insome cases this will require the presentation of an item in a differentposition, or the use of a different description in the financial statements tothat adopted in the UK GAAP financial statements. These reclassifications havebeen described in the explanatory notes. An explanation of how the transition from UK GAAP to IFRS has affected theGroup's financial statements for the period ended 30 June 2007, 31 December 2006and 30 June 2006 is set out in note 6. The interim financial information has not been audited and does not constitutestatutory accounts within the meaning of Section 240 of the Companies Act 1985but has been reviewed by the auditors in accordance with Bulleting 1999/4 issuedby the Auditing Practices Board. The Group's statutory accounts for the yearended 31 December 2006, prepared under UK GAAP have been delivered to theRegistrar of Companies. The report of the auditors on these accounts wasunqualified and did not contain a statement under Section 237(2) or (3) of theCompanies Act 1985. The principal accounting policies adopted in the preparation of these interimfinancial statements are set out below. These policies have been consistentlyapplied to all period presented. The interim statements are prepared on a going concern basis, which assumes theGroup will continue in operational existence for the foreseeable future. TheGroup's ability to meet its future working capital requirements and thereforecontinue as a going concern is dependent upon it being able to generatesignificant revenues and free cash flow. The Directors have prepared projectionswhich they consider to be prudent and demonstrate that the business can operatewithin its existing cash resources and have identified a series of realisticallyachievable actions that they are committed to taking appropriate action tomitigate the rate of cash outflow should revenues not be secured as predicted.The Directors believe that the Group has sufficient funds for the foreseeablefuture and therefore the interim financial statements have been prepared on thegoing concern basis. The principle effects identified on adoption of IFRS are discussed below: IFRS 3 'Business Combinations', IAS 36 and IAS 38 resulted in a change to theaccounting policy for Goodwill. Until 31 December 2005, goodwill was: - Amortised on a straight line basis over a period of up to 10 years from the year of acquisition and; - Assessed for an indication of impairment at each balance sheet date. In accordance with the provisions of IFRS 3 and IAS 36: - The Group ceased amortisation of goodwill from 1 January 2006; - Accumulated amortisation as at 31 December 2006 has been eliminated with a corresponding increase in the carrying value of goodwill of £485,842; - From 1 January 2006 onwards, goodwill is tested annually for impairment, as well as when there are indications of impairment. Basis of consolidation The consolidated interim financial statements comprise the accounts of FrenkelTopping Group Plc and its subsidiary undertakings Frenkel Topping Limited,Frenkel Topping Structured Settlements Limited and FTG EBT Trustees Limited upto 30 June 2007. Revenue Revenue represents the amount of net fees and commission, excluding value addedtax, made during the period on client's contracts. Revenue is accrued based onthe stage of completion of specific client contracts where the outcome can beassessed with reasonable certainty. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary, associate or jointly controlled entityat the date of acquisition. Goodwill on acquisition of subsidiaries is separately disclosed. Goodwill is recognised as an asset and reviewed for impairment at leastannually. Any impairment is recognised immediately in the income statement andis not subsequently reversed. Goodwill is allocated to cash generating units for the purpose of impairmenttesting. Each of these cash generating units represents the Group's investmentin each country of operation by primary reporting segment. On disposal of a subsidiary, associate or jointly controlled entity, theattributable amount of goodwill is included in the determination of the profitor loss on disposal. Goodwill arising on the acquisitions before the date of transition to IFRS hasbeen retained at the previous UK GAAP amounts subject to being tested forimpairment at that date. Goodwill written off to reserves under UK GAAP priorto 1998 has not been reinstated and is not included in determining anysubsequent profit or loss on disposal. Goodwill has been re-stated on transition to IFRS as certain intangible assets,which were no recognised under UK GAAP, have now been separately classified, asthey meet the recognition criteria under IAS 38 for an individual company. No negative goodwill was eliminated on transition to IFRS. Plant and equipment All fixed assets are initially recorded at cost. Depreciation is provided atrates calculated to write off the cost less residual value of each asset overits expected useful life, as follows: Plant and machinery - 25% straight lineLeasehold improvements - 25% straight lineMotor vehicles - 25% straight lineComputer equipment - 25% straight line Residual value and estimating remaining lives are reviewed annually. Impairment At each balance sheet date, the Group reviews the carrying amounts of itsproperty, plant and equipment to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Anintangible asset with an indefinite useful life is tested for impairmentannually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount. An impairment lossis recognised as an expense immediately, unless the relevant asset is carried ata revalued amount, in which case the impairment loss is treated as a revaluationdecrease. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of an impairmentloss is recognised as income immediately, unless the relevant asset is carriedat a revalued amount, in which case the reversal of the impairment loss istreated as a revaluation increase. Leasing commitments Finance leases, which transfer to the Group substantially all the risks andbenefits incidental to ownership of the leased item, are capitalised at theinception of the lease at the fair value of the leased item or, if lower, at thepresent value of the minimum lease payments. Lease payments are apportionedbetween the finance charges and reduction of the lease liability so as toachieve a constant rate of interest on the remaining balance of the liability. Capitalised leased assets are depreciated over the shorter of the estimateduseful life of the asset or the lease term. Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease. Employee benefits The pension costs charged in the financial statements represent the contributionpayable by the Group during the year. Share-based compensation The Group operates an equity-settled, share based compensation plan. The fairvalue of the employee services received in exchange for the grant of options isrecognised as an expense. The total amount to be expensed over the vestingperiod is determined by reference to the fair value of the options granted,excluding the impact of any non-market vesting conditions (for example,profitability and growth targets). Non-market vesting conditions are includedin the assumptions about the number of options that are expected to becomeexercisable. At each balance sheet date, the Group revises its estimates of thenumber of options that are expected to become exercisable. It recognises theimpact of the revision of original estimates, if any, in the profit and lossaccount, and a corresponding adjustment to reserves over the remaining vestingperiod. The proceeds received net of any attributable transaction costs are credited toshare capital (nominal value) and share premium when the options are exercised. Employee share ownership plans The Group operates an Employee Benefit Trust and has de facto control of theshares held by the trust and bears their benefits and risks. The Group recordscertain assets and liabilities of the trust as its own. Finance costs andadministrative expenses are charged as they accrue. Deferred taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated by using tax rates that havebeen enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amount 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 recognised for all taxable temporary differences anddeferred 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 the temporarydifference arises from the initial recognition of goodwill or from the initialrecognition (other than in a business combination) of other assets andliabilities in a transaction which affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to theperiod when the asset is realised or the liability is settled. Deferred tax ischarged or credited in the income statement, except when it relates to itemscredited or charged directly to equity, in which case the deferred tax is alsodealt with in equity. Financial instruments The Group's principal financial instruments comprise bank loans, hire purchaseagreements and a bank overdraft facility. Convertible loans are regarded as compound instruments, consisting of aliability component and an equity component. At the date of issue, the fairvalue of the liability component is estimated using the prevailing marketinterest rate for similar non-convertible debt. The difference between theproceeds of issue of the convertible loan notes and the fair value assigned tothe liability component, representing the embedded option to convert theliability into equity of the Group, is included in equity. Issue costs are apportioned between the liability and equity components of theconvertible loan notes based on their relative carrying amounts at the date ofissue. The portion relating to the equity component is charged directly againstequity. The interest expense on the liability component is calculated by applying theprevailing market interest rate for similar non-convertible debt to theinstrument. The difference between this amount and the interest paid is added tothe carrying value of the convertible loan note. Trade and other receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using effective interest method, less provision forimpairment. A provision for impairment of trade receivables is established whenthere is objective evidence that the Group will not be able to collect allamounts due according to the original terms of receivables. The amount ofprovision is the difference between the asset's carrying amount and the presentvalue of estimated future cash flows, discounted at the effective interest rate. Financial liability Financial liabilities are classified according to the substance of thecontractual arrangements entered into. An instrument will be classified as a financial liability when there is acontractual obligation to deliver cash or another financial asset to anotherenterprise. An equity instrument is any contract that evidences a residual interest in theassets of the group after deducting all of its liabilities. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand, deposits held atcall with banks and other short-term highly liquid investments with originalmaturities of three months or less, and bank overdrafts. Bank overdrafts areshown within borrowings in current liabilities on the balance sheet. For the purposes of the Cash Flow Statement, cash and cash equivalents consistof cash and cash equivalents as defined above, net of any outstanding bankoverdraft where a right of set off exists. Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event and it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. If theeffect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflectscurrent market assessments of the time value of money. Borrowings Interest-bearing bank loans and overdrafts are initially recorded at fair value,which represents the fair value of the consideration received, net of any issuecosts associated with other borrowings. Borrowings are subsequently stated atamortised cost. Finance charges, including premiums payable on settlement or redemption, areaccounted for on an accrual basis and are added to the carrying amount of theinstrument to the extent that they are not settled in the period in which theyarise. Borrowings are classified as current liabilities unless the group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. Derecognition of financial instruments The derecognition of financial instruments takes place when the Group no longercontrols the contractual rights that comprise the financial instrument, which isnormally the case when the instrument is sold, or all of the cash flowsattributable to the instrument are passed through to anindependent third party. 2. Segmental Reporting The total turnover, losses before tax and net assets are attributable to the oneprincipal activity of the Group, the provision of advice regarding structuredsettlements and related financial services. All revenue and costs originatewithin the United Kingdom. 3. Provisions 6 Months 6 Months Year ended ended ended 30-Jun-07 30-Jun-06 31-Dec-06 Unaudited Unaudited Unaudited £ £ PROVISIONS Provisions for professional indemnity claims - - 106,985 - - 106,985 4. Loss per ordinary share The calculation of basic loss per ordinary share is based on losses attributableto equity holders of the parent of £34,935 (6 months ended 30 June 2006:£312,333, year ended 31 December 2006: £455,334) and on 54,782,947 ordinaryshares (6 months ended 30 June 2006: 46,956,382, year ended 31 December 2006:50,956,558) being the weighted average number of shares in issue during theperiod. The loss for the periods and the weighted average number of ordinary shares forcalculating the diluted loss per share are identical to those for the basic lossper share. This is because the outstanding share options would have the effectof reducing the loss per ordinary share and would therefore not be dilutiveunder the terms of International Accounting Standard ("IAS") 33. 5. Loan facility During the period the Group entered into a £500,000 loan facility. Inconsideration for providing the loan facility, the Group has issued options tothe loan provider in respect of 10,000,000 new ordinary shares. The options canbe exercised at any time until May 2010 provided that the aggregate value of theoptions exercised does not exceed the total of the sums drawn down on the loanfacility by the Group. As at 30 June 2007, £200,000 has been drawn down on theloan. The loan will be used for the strategic developments of the Group. Inaccordance with IAS 39 'Financial Instruments - Measurement' the loan is treatedas a compound instrument. IAS 39 requires the issuer to: a) Identify the various components of the instrument; b) Determine the fair value of the liability component c) Determine the equity component as a residual amount, essentially the issue proceeds of the instrument less the liability component determined in b) above The equity element of the loan of £12,997 has been transferred to reserves. 6. Explanation of the transition to IFRS For all periods up to and including the year ended 31 December 2006 the Groupprepared its financial statements in accordance with United Kingdom GenerallyAccepted Accounting Practices (UK GAAP). In preparing these interim financial statements, the Group has started from anopening balance sheet as at 1 January 2006, the Group's date of transition toIFRS, and made those changes in accounting policies and other restatementsrequired by IFRS. IFRS 1 allows first time adopters certain exemptions from thegeneral requirements to retrospectively apply IFRS as effective for the 31December 2005 year end. The optional exemptions taken by the Group are asfollows: Business Combinations: The Group has elected not to apply IFRS 3Business Combinations retrospectively to business that took place prior to thetransition date. Consequently goodwill arising on business combinations beforetransition date remains at its previous UK GAAP carrying value as at the date oftransition. The reconciliation between UK GAAP and IFRS for the Group's loss, incomestatement, balance sheet and total equity are presented below: 6 Months Year ended ended 30-Jun-06 31-Dec-06 Unaudited Unaudited £ £ Loss after tax and minority interests under UK GAAP (492,157) (941,176)Amortisation of goodwill 179,824 485,842Loss after tax and minority interests under IFRS (312,333) (455,334) Reconciliation of income statement for the 6 months ended 30 June 2006 UK GAAP IFRS IFRS effect £ £ £ REVENUE 1,243,822 - 1,243,822 Cost of sales (682,157) - (682,157) Gross Profit 561,665 - 561,665 ADMINISTRATION EXPENSESShare based compensation (111,879) - (111,879)Amortisation of goodwill (179,824) 179,824 -Other (736,128) - (736,128) TOTAL ADMINISTRATION EXPENSES (1,027,831) 179,824 (848,007) LOSS FROM OPERATIONS (466,166) 179,824 (286,342) Finance costs (16,607) - (16,607) LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (482,773) 179,824 (302,949) Income tax expense 13,366 - 13,366 LOSS FOR THE YEAR (469,407) 179,824 (289,583) Loss attributable to:Equity holders of parent (492,157) 179,824 (312,333)Minority Interest 22,750 - 22,750 (469,407) 179,824 (289,583) Reconciliation of income statement for the year ended 31 December 2006 UK GAAP IFRS IFRS effect £ £ £ REVENUE 2,570,504 - 2,570,504 Cost of sales (1,170,467) - (1,170,467) Gross Profit 1,400,037 - 1,400,037 ADMINISTRATION EXPENSESShare based compensation (198,301) - (198,301)Further provision (106,985) - (106,985)Amortisation of goodwill (485,842) 485,842 -Other (1,493,686) - (1,493,686) TOTAL ADMINISTRATION EXPENSES (2,284,814) 485,842 (1,798,972) LOSS FROM OPERATIONS (884,777) 485,842 (398,935) Finance expense (47,706) - (47,706) LOSS BEFORE TAXATION (932,483) 485,842 (446,641) Income tax expenses (25,039) - (25,039) LOSS FOR YEAR (957,522) 485,842 (471,680) Loss attributable to:Equity holders of parent (941,176) 485,842 (455,334)Minority Interests (16,346) - (16,346) (957,522) 485,842 (471,680) Reconciliation of equity as at 30 June 2006 and 31 December 2006 30-Jun-06 31-Dec-06 Unaudited Unaudited £ £ Total equity under UK GAAP 4,523,396 4,400,799Amortisation of goodwill 179,824 485,842Total equity under IFRS 4,703,220 4,886,641 Reconciliation of balance sheet as at 30 June 2006 UK IFRS GAAP effect IFRS £ £ £ASSETSNON CURRENT ASSETSPlant and equipment 57,732 - 57,732Goodwill 4,646,838 179,824 4,826,662Deferred tax 9,179 - 9,179 4,713,749 179,824 4,893,573 CURRENT ASSETSAccrued income 295,946 - 295,946Trade receivables 454,920 - 454,920Other receivables 156,630 - 156,630Cash 83 - 83 907,579 - 907,579 TOTAL ASSETS 5,621,328 179,824 5,801,152 EQUITY AND LIABILITIESEQUITYShare capital 268,915 - 268,915Share premium account 5,509,876 - 5,509,876Share based payment reserve 200,076 - 200,076Treasury share reserve (25,000) - (25,000)Profit and loss account (1,430,471) 179,824 (1,250,647) 4,523,396 179,824 4,703,220Minority Interests (292,899) - (292,899)TOTAL EQUITY 4,230,497 179,824 4,410,321 NON CURRENT LIABILITIESOther liabilities 25,000 - 25,000 25,000 - 25,000 CURRENT LIABILITIESAmounts due to bankers and short term loans 485,295 - 485,295Taxation 105,140 - 105,140Trade payables 288,125 - 288,125Other payables 332,905 - 332,905Finance lease obligations 11,866 - 11,866Provisions 142,500 - 142,500 1,365,831 - 1,365,831 TOTAL LIABILITIES 1,390,831 - 1,390,831TOTAL EQUITY AND LIABILITIES 5,621,328 179,824 5,801,152 Reconciliation of balance sheet as at 31 December 2006 UK IFRS GAAP effect IFRS £ £ £ASSETSNON CURRENT ASSETSPlant and equipment 43,648 - 43,648Goodwill 4,609,445 485,842 5,095,287Deferred tax 7,069 - 7,069 4,660,162 485,842 5,146,004 CURRENT ASSETSAccrued income 329,010 - 329,010Trade receivables 396,321 - 396,321Other receivables 101,067 - 101,067Cash 29 - 29 826,427 - 826,427 TOTAL ASSETS 5,486,589 485,842 5,972,431 EQUITY AND LIABILITIESEQUITYShare capital 273,915 - 273,915Share premium account 5,744,876 - 5,744,876Share based payment reserve 286,498 - 286,498Treasury share reserve (25,000) - (25,000)Profit and loss account (1,879,490) 485,842 (1,393,648) 4,400,799 485,842 4,886,641Minority Interests (304,499) - (304,499)TOTAL EQUITY 4,096,300 485,842 4,582,142 NON CURRENT LIABILITIESOther liabilities 25,000 - 25,000 25,000 - 25,000 CURRENT LIABILITIESAmounts due to bankers and short term loans 473,433 - 473,433Taxation 106,984 - 106,984Trade payables 297,342 - 297,342Other payables 237,723 - 237,723Finance lease obligations 9,807 - 9,807Provisions 240,000 - 240,000 1,365,289 - 1,365,289 TOTAL LIABILITIES 1,390,289 - 1,390,289TOTAL EQUITY AND LIABILITIES 5,486,589 485,842 5,972,431 7. Movement in net debt 1-Jan-07 Cash Flow Non-Cash 30-Jun-07 Movements £ £ £ £ Cash at Bank 29 132 - 161Overdrafts (287,729) 166,310 - (121,419) (287,700) 166,442 - (121,258) Debts due within one year (185,704) (167,668) 12,881 (340,491)Debts due after one year (25,000) - - (25,000)Finance leases (9,807) 9,807 - - (220,511) (157,861) 12,881 (365,491) (508,211) 8,581 12,881 (486,749) 8. Reconciliation of net cash flow to movement in net debt 6 Months 6 Months Year ended 30-Jun-07 30-Jun-06 31-Dec-06 Unaudited Unaudited Unaudited £ £ * £ *Increase/(decrease) in cash in the period 166,442 (222,475) (210,667)Net cash outflow from debt financing (157,861) (29,152) (15,863)Change in net debt resulting from cashflows 8,581 (251,627) (226,530)Other 12,881 - (3,370)Change in net debt 21,462 (251,627) (229,900)Net debt at start of period (508,211) (278,311) (278,311)Net debt at end of period (486,749) (529,938) (508,211) * Restated to reflect the adoption of IFRS. 9. The Board of Directors approved the interim report on 13 August 2007. INDEPENDENT REVIEW REPORT TO FRENKEL TOPPING GROUP PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises Consolidated Income Statement,Consolidated Balance Sheet, Consolidated Cash Flow Statement, ConsolidatedStatement of Changes in Equity and related notes that have been reviewed. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report, including the conclusion, has been prepared for and only for thecompany for the purpose of their interim statement and for no other purpose. Wedo not, therefore, in producing this report, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or intowhose hands it may come save where expressly agreed by our prior consent inwriting. Directors' responsibilities The interim statement, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the Interim Statement in accordance with the AIMMarket Rules which require that the accounting policies and presentation appliedto the interim figures must be consistent with those that will be adopted in thecompany's annual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom as if thatBulletin applied. A review consists principally of making enquiries of groupmanagement and applying analytical procedures to the financial information andunderlying financial data and based thereon, assessing whether the disclosedaccounting policies have been consistently applied unless otherwise disclosed.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly, we do notexpress an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. BAKER TILLY UK AUDIT LLP Chartered AccountantsBrazennose HouseLincoln SquareManchesterM2 5BL 13 August 2007 This information is provided by RNS The company news service from the London Stock Exchange