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30 June 2009 Equity Pre-IPO Investments Limited Preliminary Results for the year ended 31 December 2008
Equity Pre IPO Investments Limited (AIM: EIL), the strategic Pre-IPO investment company, today announces its preliminary results for the year ended 31 December 2008.
DIRECTORS' REPORTIntroductionWe are pleased to present this annual report of Equity Pre-IPOInvestments Limited ("Pre-IPO" or the "Company") to shareholders for the yearended 31 December 2008. The last financial year has been by far the mostdifficult period in the Company's short history, with virtually no small capIPOs and interest by investors and lenders in supporting small unquotedbusinesses reaching an all time low. These factors, together with investeecompany specific reasons resulted in the directors having to write down thevalue of those unquoted investments still held at the year end to almost zero.
Background
The environment for the provision of finance for smaller companiesdeteriorated markedly during the year under review, as evidenced by the lackof flotations and new monies raised by companies joining the AIM market of theLondon Stock Exchange. In the previous financial year to December 2007, atotal of 284 new companies joined AIM, raising an aggregate £6.6 billion ofnew money (an average of approximately £23 million of new money per IPO). Instark contrast, in the last quarter of 2008, there were only 22 new admissionsand those companies raised an aggregate of £13.1 million (an average of just£0.5 million per IPO), representing a plunge in financing activity of morethan 97 per cent.Pre-IPO's historic business model and investment strategy of onlyinvesting in unquoted companies which are expected to achieve a flotationwithin a year or 18 months of the investment has, in the current economicdownturn, proved to have been a significant limiting factor to the Group'sability to recycle its investments. Furthermore, the Company's objective atthe outset of providing long term capital growth by exploiting the valuationdifferential between privately held companies and those whose shares arepublicly traded has also been challenged due to the significant falls in thevalue of quoted companies - the AIM All Share index fell by more than 62%during the course of 2008. A consequence of the significant changes in thelandscape for financing of small cap companies is that the Board of Pre-IPOwill be seeking approval of, inter alia, a broader investment policy, as setout later in this report, at the Annual General Meeting of shareholders, whichis to be held on 21 July 2009.
Investee Companies
At the beginning of 2008, the Company held investments in six unquoted companies:
- Pinnacle Plus Limited ("Pinnacle"); - Altair Financial Services plc ("Altair"); - Radioscape plc ("Radioscape"); - Fashion Brands Company B.V. ("Fashion"); - Lorega Limited ("Lorega"); and - a London based corporate finance boutique, the name of which Pre-IPO is contractually required to keep confidential.
During 2008, Pinnacle's entire issued share capital was acquired by Creon Corporation ("Creon"), an AIM traded company, in exchange for Creon Shares and these shares remain within Pre-IPO and are subject to an agreed lock-in until October 2009.
Towards the end of the year, under pressure to repay outstandingloans which at the time stood at approximately £0.74 million, we reluctantlyagreed to dispose of our shareholding in Lorega - achieving a price thatenabled us to reduce the Company's borrowings significantly. We sold themajority of the holding in Lorega before the year end, with an investmentbalance of only £0.1 million held at the year end, which was sold in February2009 for the carrying value.Unfortunately, during the latter part of 2008 and into 2009, allfour of the remaining investee companies encountered severe financialdifficulties, such that three were unable to refinance when required. As aconsequence, Altair and Fashion appointed administrators in the first quarterof 2009 with no value being ascribed to their respective equity shareholders.Radioscape, under pressure from its lenders, undertook a sale of the majorityof its trading assets around the same time. However disappointingly, theproceeds received were only sufficient to repay Radioscape's secured lenderswith no value being ascribed to the holders of Radioscape's equity, such asPre-IPO. The corporate finance boutique in which Pre-IPO has a shareholding iscurrently finalising a highly-discounted equity fund raise and those existingshareholders that are unable to participate (such as Pre-IPO) are, in theBoard's opinion, being unjustifiably diluted, such that we do not believe thatthere will be any material value ascribed to the Company's currentshareholding. The regrettable upshot of the financial difficulties afflictingall of our unquoted investments is that the Board has written down allinvestments to a value of £0.25 million (2007: £4.1 million).
Financial Review
Loss on ordinary activities for the year to 31 December 2008 was£3.74 million (2007: £3.58 million loss), driven lower by the write downs oninvestments at fair value through profit or loss of £3.60 million (2007: £3.28million). Running expenses for the year of £0.37 million were in line with2007 of £0.34 million. Loss per share for 2008 was 28.24 pence (2007: 27.06pence).The Company was able to reduce its borrowings from £0.50 million atthe beginning of the year to £0.12 million at the year end. This outstandingamount was repaid after the period end from the proceeds of the disposal ofthe final tranche of our investment in Lorega and a small new loan of £0.02million. Net asset value per share at the year end was 0.33 pence (2007: 28.56pence).Cash balances were negligible at the year end, with the Company'songoing administrative running costs being met by third party loans andsupportive creditors. The recently announced placing of £0.04 million,conversion of amounts owing to trade creditors of £0.15 million and the newtwo-year borrowing facility of up to £0.1 million from our new shareholdershas enabled the Company to continue operations as further material sources offinance are sourced and investment opportunities are identified.
Investment Policy
As outlined above, the Board believes that Pre-IPO's investmentpolicy should be broadened to improve the illiquidity of its futureinvestments and to not be dependent upon the IPO market for exits. The Companywill continue to evaluate potential investments from a wide variety ofindustry sectors and will seek investments in sectors where there is potentialfor growth. This is likely to include sectors such as financial services,support services, and property where values have declined markedly over thelast 12-18 months. The Company will primarily focus on European basedbusinesses but will also consider investments in other geographical areas ifappropriate.Previously the Company invested in privately held companies only,however, given the current extremely difficult market conditions, the Companywill now broaden its investment criteria to include publicly quoted companiesand partnerships. The Company will not seek to limit the size of theinvestment or the size of the entities in which it invests and will not limitthe percentage ownership that it may hold in any one company at any time.The Company will not seek to have a fixed number of investments orseek to diversify the investments over particular sectors or particularindexes, however it is envisaged that the total number of investments at anygiven time will not exceed 30 investments. The Company will instead generallyfocus on diversifying the relative risks of investments. The Company does notintend at this stage to gear its investments but may consider doing so in thefuture if suitable funding arises.
Subject to seeking further finance for investment purposes, the directors will begin to review a number of new investment opportunities and will make an investment within the next three years.
The Company will generally be a passive investor in the entities inwhich it invests but if the Board or the Company's consultants are able to addvalue to the investee entity then the Company may take a more activist stance.The Company's investment decisions will be based upon research prepared andpresented to the Board by its panel of research consultants and advisers.
Directors appointment
The Company is pleased to welcome August ("Guus") JohannesFrancisca Maria Berting onto the Board of the Company as a non-executivedirector with immediate effect. Guus, aged 31, has experience as anon-executive on a number of other AIM company boards which will be importantin evaluating the proposed broadened investment strategy. Guus is anon-executive director of AIM quoted Avarae Global Coins plc and CreonCorporation plc and of Pasha Investments B.V. He has previously been adirector of Ascona Capital Limited. There is no further information requiredto be disclosed under Schedule 2, Paragraph (g) of the AIM Rules forCompanies, pursuant to Guus's appointment.The current Board, with the exception of Guus Berting, has been inplace since the Company's admission to trading on AIM in February 2005 duringwhich time it has evaluated significant numbers of investment opportunities.All of the directors are experienced directors who have served, and continueto serve, on a number of company boards. This has given them knowledge of avariety of sectors including technology, financial services, retail, consumer,healthcare, property and construction, and support services and extensiveknowledge of operational matters that the Board feels makes them well place toevaluate potential investments. These potential investments will be foundthrough the extensive network of contacts of the board and the Company's panelof consultants and advisers.
Change of name
In line with the proposed widening of the Company's investmentpolicy to be not solely focussed on investments in pre-IPO companies, theBoard believes that it is appropriate to change the name of the Company. YourBoard proposes to change the name of the Company from Equity Pre-IPOInvestments Limited to Kingswalk Investments Limited. Pursuant to theCompanies (Guernsey) Law, 2008, a change of name requires the passing of aspecial resolution of Shareholders at an Extraordinary General Meeting to beheld on 21 July 2009. Your Board believes that the proposed change of namebetter reflects the change in the Company's strategy and is in the bestinterests of the Company and its shareholders.
Annual General Meeting
The Company's Annual General Meeting ("AGM") is be held at its registeredoffice, being Martello Court, Admiral Park, St Peter Port Guernsey, GY1 3HB onTuesday 21 July 2009 at 12:00 noon. The notice of AGM, together with a form ofproxy for use at the AGM has today been sent to shareholders.
Outlook
The Directors are pleased that, following the recent injection offunds into the Company, the Company's future has now been secured for the timebeing. The Board and its advisors are currently in discussions with a numberof parties to obtain additional equity finance and future announcements willbe made in due course.Paul Matthew Schreibke DirectorMartin ShiresDirector 29 June 2009STATEMENT OF TOTAL RETURNFOR THE YEAR ENDED 31 DECEMBER 2008 For the year ended 31 December
2008 For the year ended 31 December 2007
Note Revenue Capital Total Revenue Capital Total £ £ £ £ £ £LOSSES ON INVESTMENTSNet losses on investments atfair value through profit or loss 3 - (3,598,699) (3,598,699) - (3,279,261) (3,279,261)Unrealised gain on foreign exchange - -
- 14,163 - 14,163 _______ _______ _______ _______ _______ _______ (3,598,699) (3,598,699) 14,163 (3,279,261) (3,265,098) _______ _______ _______ _______ _______ _______INCOME 1(b)Commission received - - - 1,200 - 1,200Interest income 4 13,770 - 13,770 22,219 - 22,219Loan waiver 12 - 429,051 429,051 - - - _______ _______ _______ _______ _______ _______ 13,770 429,051 442,821 23,419 - 23,419 _______ _______ _______ _______ _______ _______EXPENDITURE 1(e)Loan write off 11 - 210,306 210,306 - - -Directors' fees 15,000 - 15,000 20,000 - 20,000Administration fees 50,939 - 50,939 43,530 - 43,530Professional fees 26,890 - 26,890 26,738 10,667 37,405Consultancy fees - 154,220 154,220 - 183,768 183,768Audit fee 11,500 - 11,500 12,930 - 12,930Interest expense 5 77,362 - 77,362 20,418 - 20,418Commission paid - - - 3,256 - 3,256
Regulatory and registration fees 12,588 - 12.588 19,097 - 19,097Loss on foreign exchange 23,144 -
23,144 - - - _______ _______ _______ _______ _______ _______ 217,423 364,526 581,949 145,969 194,435 340,404 _______ _______ _______ _______ _______ _______LOSS ON ORDINARY ACTIVITIESFOR THE FINANCIAL YEAR (203,653)(3,534,174)
(3,737,827) (108,387) (3,473,696) (3,582,083)
Earnings per share: - basic (pence per share) 9 (28.24) (27.06)
All revenue and capital items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year.
BALANCE SHEET31 DECEMBER 2008 Note 31 December 2008 31 December 2007 £ £ £ £FIXED ASSETS
Investments at fair value through profit or loss 3 251,239 4,093,423 CURRENT ASSETSLoans receivable 11 - 230,000Other debtors and prepayments - 21,202Cash and cash equivalents 880 6,651 _____ ______ 880 257,853 CREDITORS - AMOUNTS FALLINGDUE WITHIN ONE YEARLoans payable 12 (115,000) (496,269)Other creditors and accruals 13 (93,763) (73,824) (208,763) (570,093) NET CURRENT LIABILITIES (207,883) (312,240) TOTAL ASSETS LESS CURRENT LIABILITIES 43,356 3,781,183 CAPITAL AND RESERVES CALLED UP SHARE CAPITAL 15 132,372 132,372SHARE PREMIUM ACCOUNT 16 4,254,872 4,254,872RESERVES 17 (4,343,888) (606,061) SHAREHOLDERS' FUNDS 18 43,356 3,781,183 Net asset value per share 10 (pence per share) 0.33 28.56CASH FLOW STATEMENTFOR THE YEAR ENDED 31 DECEMBER 2008 For the year ended For the year ended Notes 31 December 2008 31 December 2007 £ £
Net cash outflow from operating activities 14 (349,613) (235,176) Investing activities:Purchase of unquoted investments - (1,466,394)Proceeds from disposals of quoted investments - 985,498Proceeds from disposals of unquoted investments 243,484 378,950Loans receivable repaid / (advanced) 52,576 (230,000) _________ _________Net cash inflow / (outflow) from investing activities
296,060 (331,946) Financing:Loans received 47,782 496,269 _________ _________
Net cash inflow from financing 47,782 496,269 Decrease in cash for the year
(5,771) (70,853) Opening cash position 6,651 77,504 ____ _____
Cash and cash equivalents at 31 December 880 6,651 RECONCILIATION OF NET CASHFLOWTO MOVEMENT IN CASH AND CASH EQUIVALENTS Decrease in cash for the year (5,771) (70,853)Cash inflow from increase in debt finance (47,782) (496,269) _______ _______Change in net debt resulting from cash flows (53,553) (567,122)Loans waived 429,051 -Opening (debt) / funds brought forward (489,618) 77,504 ________ ________Closing net debt carried forward 14 (114,120) (489,618)
Notes to the Financial Statements
31 December 20081 ACCOUNTING POLICIES(a) CONVENTION
The financial statements have been prepared under the historical cost convention, modified to include the revaluation of investments and in accordance with applicable United Kingdom accounting standards and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" issued by The Association of Investment Trust Companies in December 2005. The principal accounting policies which the directors have adopted within that convention are set out below.
(b) INCOME
Dividends receivable from equity investments are recognised on theex-dividend date. Dividends receivable from equity investments where noex-dividend date is quoted are recognised when the Company's right to receivepayment is established. Interest receivable on cash deposits is accounted forusing the effective interest rate method.
(c) FOREIGN CURRENCY
The Directors have considered the primary economic environment ofthe Company and considered the currency in which the original finance wasraised and ultimately what currency would be returned to investors on a breakup basis. The directors have also considered the currency to which theunderlying investments are exposed. On balance, the directors believe sterlingbest represents the functional currency of the Company. Sterling is also thepresentational currency.Assets and liabilities denominated in foreign currencies other thansterling have been translated into sterling at the rates of exchange ruling atthe balance sheet date. Transactions during the period have been translated atthe rates of exchange ruling at the date of the transaction.
(d) FINANCIAL INSTRUMENTS
The Company's financial instruments fall into the categoriesdiscussed below with the allocation depending to an extent on the purpose forwhich the asset was acquired. Unless otherwise indicated, the carrying amountsof the Company's financial instruments are a reasonable approximation of theirfair values.
(i) Investments held at fair value through profit or loss
Classification
All investments are classified as "fair value through profit or loss". These financial assets are designated by the Board of Directors at fair value through profit or loss at inception.
Financial assets designated at fair value through profit or loss atinception are those that are managed and their performance evaluated on a fairvalue basis in accordance with the Company's documented investment strategy.The Company's policy is for the Board of Directors to evaluate the informationabout these financial assets on a fair value basis together with other relatedfinancial information.Recognition
Purchases and sales of investments are recognised on the trade date or the date on which the Company commits to purchase or sell the investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.
Measurement
Financial assets at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the income statement. Subsequent to initial recognition, all financial assets at fair value through
1 ACCOUNTING POLICIES (continued)
profit or loss are measured at fair value. Gains and losses arisingfrom changes in the fair value of the 'financial assets at fair value throughprofit or loss' category are presented in the statement of total return in theperiod in which they arise.
Fair value estimation
Quoted investments are valued at bid price.
Unquoted investments are valued by the Board according to thevaluation principles of the European Private Equity and Venture CapitalAssociation as set out in the International Private Equity and Venture CapitalValuation Guidelines (Published June 2005, amended October 2006) andaccordingly are stated at the value of their latest third party funding. Whereno third party funding has taken place, they are valued at cost, less aprovision for impairment when necessary.
Because of the inherent uncertainty associated with the valuation of such investments and the absence of a liquid market, these fair values may differ from the realisable values, and differences could be material.
Realised gains or losses on the disposal of investments are taken to the capital reserve - realised. Unrealised gains or losses on revaluation of investments are taken to the capital reserve - unrealised.
(ii) Loans and receivables
These assets are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They consist ofloans receivable, other debtors and cash and cash equivalents, but alsoincorporate other types of contractual monetary assets. They are initiallyrecognised at fair value plus transaction costs that are directly attributableto the acquisition or issue and subsequently carried at amortised cost usingthe effective interest rate method, less provision for impairment. The effectof discounting on these financial instruments is not considered to bematerial.Impairment provisions are recognised when there is objectiveevidence (such as significant financial difficulties on the part of thecounterparty or default or significant delay in payment) that the Company willbe unable to collect all of the amounts due under the terms receivable, theamount of such a provision being the difference between the net carryingamount and the present value of the future expected cash flows associated withthe impaired receivable.
(iii) Financial liabilities measured at amortised cost
These include;
- other creditors and accruals which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method; and
- loans payable which are initially recognised at fair value net of attributable transaction costs incurred. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method.
Other creditors and accruals primarily comprise of amounts outstanding for ongoing costs. The Company has a financial risk management procedure in place to ensure that all payables are paid within the credit timeframe.
1 ACCOUNTING POLICIES (continued)
(iv) Share capital
Financial instruments issued by the Company are treated as equity only to the extent that they do not meet the definition of a financial liability.
(v) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
(vi) Effective interest rate method
The effective interest method is a method of calculating theamortised cost of a financial asset or financial liability and of allocatingthe interest income or interest expense over the relevant period. Theeffective interest rate is the rate that exactly discounts estimated futurecash payments or receipts throughout the expected life of the financialinstrument, or, when appropriate, a shorter period, to the net carrying amountof the financial asset or financial liability. When calculating the effectiveinterest rate, the Company estimates cash flows considering all contractualterms of the financial instruments but does not consider future credit losses.The calculation includes all fees and points paid or received between partiesto the contract that are an integral part of the effective interest rate,including transaction costs and all other premiums or discounts.
(e) EXPENDITURE
All expenses are accounted for on an accruals basis. Expenses thatare directly attributable to the management of investments are allocateddirectly to capital in the Statement of Total Return. With the Directors' longterm target for returns on investments being entirely capital gain there is norequirement to apportion these expenses between revenue and capital.
(f) SHARE BASED PAYMENTS
The Company has applied the requirements of FRS 20: Share-based Payments.
The Company makes equity-settled share-based payments to certainconsultants. Equity-settled share based payments are measured at fair value asat the date of grant. The fair value determined at grant date is expensed on astraight line basis over the vesting period based on the Company's estimate ofshares that will eventually vest. Further details of how the fair value ofshare based payments is determined are shown in note 20.
(g) GOING CONCERN
The directors have reviewed the current budgets and cashflowprojections for a period of more than 12 months from the date of this report.The forecasts take into account the recent injection of new subscription fundsof £0.04 million, the conversion of more than £0.15 million of outstandingcreditors to equity, the renegotiation of existing contracts with advisers andthe secured loan facility of up to £100,000.
The forecasts indicate the need for additional working capital funding towards the end of June 2010.
Various sources of additional financing have been considered by thedirectors including raising of fresh equity and potential disposal of theremaining investment. A final decision regarding the source of financing hasnot yet been made, however, the directors are confident that sufficient cashwill be raised by the company to pay its future liabilities.
Accordingly the directors have prepared the financial statements on the going concern basis.
2 TAXATION
The company has been granted exempt status under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989, and is therefore subject to the payment of an annual fee which is currently £600.
3 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
31 December 2008 31 December 2007Designated at fair value through profit or loss
£ £- Listed equity securities 151,239 -- Unlisted investments 100,000 4,093,423 ______ ________Total investments at fair value through profit or loss
251,239 4,093,423
Changes in fair value of financial assets 31 December 2008 31 December 2007at fair value through profit or loss. £
£- Realised (1,055,234) 169,980- Unrealised (2,543,465) (3,449,241) _________ _________ (3,598,699) (3,279,261)4 INTEREST INCOME 31 December 2008 31 December 2007 £ £Bank interest (note 6) 215 2,892Loan interest (note 6) 13,555 19,327 _____ ______Total 13,770 22,219
The above interest income arises from financial assets classified as loans and receivables (including cash and cash equivalents) and has been calculated using the effective interest rate method. The loan interest of £13,555 in 2008 arose on loans written off during the year (see note 11 for further details).
5 INTEREST EXPENSE 31 December 2008 31 December 2007 £ £Bank interest and charges (note 7) 685 1,630Loan interest (note 7) 76,677 18,788 ______ ______Total 77,362 20,418The above interest expense arise on financial liabilities measuredat amortised cost using the effective interest rate method. The loan interestexpense of £76,677 in 2008 arose on loans reduced during the year (see note 12for further details).
6 NET GAINS OR LOSSES ON LOANS AND RECEIVABLES
31 December 2008 31 December 2007 £ £Bank interest (note 4) 215 2,892Loan interest (note4) 13,555 19,327Loan written off (note 11) (210,306) - _______ ______Net (loss) / gain (196,536) 22,219
7 NET GAINS OR LOSSES ON FINANCIAL LIABILITIES CARRIED AT AMORTISED COST
31 December 2008 31 December 2007 £ £Bank interest and charges (note 5) 685 1,630Loans interest (note 5) 76,677 18,788Loans waived (note 12) (429,051) - ________ ______Net (gain) / loss (351,689) 20,418
8 TOTAL INTEREST INCOME AND TOTAL INTEREST EXPENSE ON FINANCIAL ASSETS AND FINANCIAL LIABILITIES NOT AT FAIR VALUE THROUGH PROFIT AND LOSS
31 December 2008 31 December 2007 £ £Bank interest 215 2,892Loan interest received 13,555 19,327Bank interest paid (685) (1,630)Loan interest paid (76,677) (18,788) ______ ______Total (63,592) 1,8019 EARNINGS PER SHAREThe calculation of basic earnings per share is based on the netreturn on ordinary activities after tax for the year and on 13,237,235 ( 2007:13,237,235) shares being the weighted average number of shares in issue duringthe year.FRS 22: "Earnings Per Share" defines dilution as a reduction inearnings per share or as an increase in loss per share. When calculating thedilutive earnings per share for the year the loss decreased. Accordingly thediluted loss per share is not disclosed as per FRS 22. The Company has 800,000share options in issue which could potentially dilute basic earnings per sharein the future - see note 21.10 NET ASSET VALUE PER SHARE
The calculation of net asset value per share is based on the net assets of £43,356 (2007: £3,781,183) and on the ordinary shares in issue of 13,237,235 (2007: 13,237,235) at the balance sheet date.
11 LOANS RECEIVABLE 31 December 2008 31 December 2007 Loan to investee company £ - £ 230,000 The above loan bore interest at 18% per annum and was unsecuredwith an amount of £80,000 due for repayment on 21 May 2007 and the balance of£150,000 due for repayment on 15 December 2007. During 2008, the loans wererestructured to become interest bearing at 11% from inception. Subsequent tothis restructuring, the Company sold the loans and accrued interest totalling£262,882 for £52,576, resulting in a loan write off of £210,306.12 LOANS PAYABLE 31 December 2008 31 December 2006 £ £EUR loan - 421,296GBP loan 115,000 75,000 ______ ______Total loans 115,000 496,269
The Euro and the GBP loan were from the same party. Both loans were unsecured and repayable on demand. The Euro loan bore interest at 3% above Euro base rate per annum and the GBP loan bore interest at 3% above GBP base rate per annum.
During 2008, the Company reached an agreement with the lender,whereby the loan and accrued interest of £741,908 was reduced to £312,857 bythe waiver of £429,051 of the outstanding balance. Prior to the year end,£197,857 was repaid with the balance of £115,000 being repaid post year end.In February 2009, the Company took on further borrowings to pay the Company'songoing running costs which, at the date of this report, the Company had aloan outstanding of approximately £0.03 million, repayable in June 2011 andattracting an interest rate of 10% per annum and secured on the Company'squoted investment.
13 OTHER CREDITORS AND ACCRUALS
31 December 2008 31 December 2007 £ £Audit fees 10,000 10,000Consultancy fees 72,570 7,150Professional fees 5,000 22,425Interest payable - 18,788Nomad fees - 1,875Registrar fees 2,193 4,393Administration fees 4,000 8,973Sundry creditors - 220 ______ ______ 93,763 73,82414 CASH FLOW NOTE
(a) Reconciliation of revenue return to operating cashflow
31 December 2008 31 December 2007 £ £Net revenue return on ordinary activities for the year (203,653) (108,387)Expenses charged to capital (154,220) (194,435)Increase / (decrease) in debtors 1,875 (1,875)Increase/(decrease) in creditors 38,728 36,380Share based payments - 33,680Loan interest paid (18,788) 18,788Loan interest received (13,555) (19,327) _______ _______Net cash outflow from operating activities
(349,613) (235,176)
(b) Analysis of net debt At 1 January 2008 Cashflow Other At 31 December 2008
£ £ £ £ Cash and cash equivalents 6,651 (5,771) -
880 Loan payable (496,269) (47,782) 429,051 (115,000) ________ ________ _____ _______ (489,618) (53,553) 429,051 (114,120)
15 CALLED UP SHARE CAPITAL
31 December 2008 31 December 2007 £ £Authorised50,000,000 ordinary shares of £0.01 each 500,000
500,000
Allotted and fully paid13,237,235 ordinary shares of £0.01 each 132,372
132,372
16 SHARE PREMIUM ACCOUNT
As at 1 January 2008 and at 31 December 2008 £ 4,254,87217 RESERVES Capital Capital Share Reserve Reserve Option Revenue Realised Unrealised Reserve Reserve Total £ £ £ £ £
Balance at 1 January 2008 520,093 (595,745)
33,680 (564,089) (606,061)
Net return for the financial year (990,709) (2,543,465) - (203,653) (3,737,827)Transfer from unrealised reserves to realised (314,327) 314,327
- - - ________ _________ ______ _______ ________Balance at 31 December 2008 (784,943) (2,824,883) 33,680 (767,742) (4,343,888)
18 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
31 December 2008 31 December 2007 £ £Loss for the financial year (3,737,827) (3,582,083)
Effect of share based payments in the year -
33,680
________
________
Net reduction to shareholders funds (3,737,827)
(3,548,403)
Opening shareholders' funds 3,781,183
7,329,586
________
________
Closing shareholders' funds 43,356
3,781,183 ________ ________19 CONTROLLING PARTY
The issued share capital of the Company is owned by numerous parties and, therefore, in the opinion of the Directors, there is no ultimate controlling party of the Company as defined by FRS 8: Related Party Disclosures.
20 SHARE OPTIONS
At 31 December 2008 the number of ordinary shares of 1 pence each subject to options granted under the Company's Share Option Plan were:
Exercise 01-Jan Grants Options 31-Dec 31-DecExercise Price per 2008 during year exercised 2008 2008Period Share No. No. No. No. No. Exercisable30 November 2007 - 26.0 pence 50,000 - - 50,000 50,00030 May 20171 December 2007 - 26.0 pence 750,000 - - 750,000 750,0001 June 2017 _______ ______ ______ 800,000 - - 800,000 800,000
The share-based remuneration charge comprises:
Year ended Year ended 31 December 2008 31 December 2007 Share-based payments £nil £33,680
The charge is included within consultancy fees within the Statement of Total Return.
21 FINANCIAL INSTRUMENTS
In common with other businesses, the Company is exposed to risksthat arise from its use of financial instruments. This note describes theCompany's objectives, policies and processes for managing those risks and themethods used to measure them. Further quantitative information in respect ofthese risks is presented throughout these financial statements.
There have been no substantive changes in the Company's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
(a) Strategy in using financial instruments
The Company's activities expose it to a variety of financial risks:market risk (including currency risk, fair value interest rate risk, cash flowinterest rate risk and price risk), credit risk and liquidity risk. TheCompany's overall risk management programme focuses on the unpredictability offinancial markets and seeks to minimise potential adverse effects on theCompany's financial performance.The Company has, and may continue to, invest in companies which areunquoted or trading on the AIM Market of the London Stock Exchange at the timeof the investment and where the Directors believe that a flotation is likelyto be achieved by the company within eighteen months of an investment by theCompany. Investee companies will be located in Europe. In addition, theCompany is seeking to broaden its investment strategy as outlined in theDirectors Report.
Investments
All of the Company's intended investments present the risk of aloss of capital. Such investments are subject to investment-specific pricefluctuations as well as to macro-economic, market and industry-specificconditions including, but not limited to, international economic conditions,international financial policies and performance, governmental events andchanges in laws. Moreover, the Company may only have a limited ability to varyits investments in response to changing economic, financial and investmentconditions.The success of the Company will be dependent upon, inter alia, theidentification, making, management and realisation of suitable investments.There can be no guarantee that such investments can or will be made or thatsuch investments will be successful. Poor performance by an investment couldseverely affect the Net Asset Value per share. In particular, investors shouldnote that:- - Shareholders will not have an opportunity to evaluate for themselves the relevant economic, financial and other information regarding the investments to be made by the Directors and, accordingly, will be dependent on the judgement and ability of the Directors in investing and managing the assets of the Company. No assurance can be
given that the Directors will be successful in making suitable investments
or that, if such investments are made, the investment objectives will be
achieved; - the Company is likely in most cases to have minority interests in the companies, partnerships and ventures in which it invests and may be unable to exercise control over the operations of such companies,
partnerships and ventures or control over any exit, or timing of any exit,
by other investors in such companies, partnerships or ventures; - the management of the investee companies targeted by the Directors may not always welcome proactive shareholder involvement and may be resistant to change; - the Company may be unable to effect an investment in an identified
opportunity and, in particular, resources of the Company may be expended
investigating potential projects which are subsequently rejected as being
unsuitable; - the Company may dispose of investments in certain circumstances and may be required to give representations and warranties about those
investments and to pay damages to the extent that such representations and
warranties turn out to be inaccurate or other terms of sale are breached;
- an investee company's competitors may develop or market
technologies that are more effective or less expensive than those
developed or marketed by the investee company, or that would render the
invests company's technology or business model obsolete or uncompetitive;
- the Company cannot guarantee that the value of investments as
reported from time to time will in fact be realised; and
- although the Directors will use all due care and diligence when
implementing the investment strategy, the situation may arise whereby an
investee company does not proceed with a successful IPO. In such instance,
the Company may find it difficult to achieve an exit, or may do so at a
loss to the initial investment, or may lose the entirety of its
investment.
Investments in small unquoted companies
The Company's investment portfolio will comprise interestspredominantly in unquoted private companies and companies with an AIM listingwhich may be difficult to value and/or realise. Investment in the securitiesof smaller companies may involve greater risks than is customarily associatedwith investments in larger, more established companies. In particular, suchcompanies may have limited product offerings, markets or resources and may bedependent on a small number of key individuals.
Concentration risk
It is possible that certain investments will represent asignificant proportion of the Company's total assets. As a result, the impacton the Company's performance and the potential returns to investors will beadversely affected to a greater degree if anyone of those investments were toperform badly than would be the case if the Company's portfolio of investmentswas more diversified.At 31 December 2008 the overall investment allocation was oneinvestment in a quoted company and four investments in unquoted investments.Three of the unquoted companies in which the Company has an investment were inadministration at the year end and remain so at the date of this document andthe remaining unquoted investment was sold post the year end, leaving only onequoted investment in the portfolio with a year end valuation of approximately£0.15 million.(b) Market riskThe Company operates in a competitive market for investmentopportunities. While the Directors consider the Pre-IPO market to be anattractive area for investment, it is nonetheless likely that the Directorswill encounter competition for target investments from investors many of whichwill have significantly greater resources than the Company. There can be noassurance that these competitive pressures will not have a material adverseeffect on the Company's business, financial condition and results ofoperations. As a result of this competition, the Directors may not be able totake advantage of attractive investment opportunities from time to time.Furthermore the Directors can offer no assurance that they will be able toidentify and make investments that are consistent with the Company'sinvestment strategy.
bi) Interest rate risk
The majority of the Company's financial assets and liabilities are non-interest bearing. As result, the Company is not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. Any cash and cash equivalents are invested at short-term market interest rates.
The Company's interest-bearing financial assets and liabilities expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows.
The table below summarises the Company's exposure to interest raterisks. Non-Interest Variable Fixed Bearing Interest Interest TotalAs at 31 December 2008 £ £ £ £Assets
Investments at fair value through profit or loss 251,239 -
- 251,637Cash and cash equivalents - 880 - 880 ______ ___ _ ______Total financial assets 251,239 880 - 252,517 LiabilitiesLoan payable 115,000 - - 115,000Sundry creditors and accruals 93,763 - - 93,763 ______ _ _ ______Total financial liabilities 208,763 - - 208,763The terms, including the interest rate, of the loan payable are disclosed in note 12. Non-Interest Variable Fixed Bearing Interest Interest TotalAs at 31 December 2007 £ £ £ £Assets
Investments at fair value through profit or loss 4,093,423 -
- 4,093,423Loans receivable - - 230,000 230,000Other debtors 21,202 - - 21,202Cash and cash equivalents - 6,651 - 6,651 ________ _____ ______ ________Total financial assets 4,114,625 6,651 230,000 4,351,276 LiabilitiesLoan payable - (496,269) - (496,269)
Sundry creditors and accruals (73,824) -
- (73,824) ______ _______ _ _______Total financial liabilities (73,824) (496,269) - (570,093)
The Company is not exposed to any significant interest rate risk.
bii) Hedging and currency risk
The Company's investments are expected to be denominated in poundssterling. The Directors may invest in opportunities other than sterling andmay, through forward foreign exchange contracts, hedge its exposure back tosterling. While hedging may attempt to reduce currency risk, it is notpossible to hedge fully or perfectly against currency fluctuations.Accordingly investors may, at certain times, be exposed to exchange rate risksbetween sterling and other currencies, such that if the value of othercurrencies falls relative to sterling, the Company's assets will, in sterlingterms be worth less.
The Company held no hedging instruments during the years ended 31 December 2008 and 31 December 2007. The Company had and is expected to hold assets denominated in currencies other than pounds sterling, the functional currency. It is therefore likely to be exposed to currency risk, as the value of assets denominated in other currencies will fluctuate due to changes in exchange rates.
The table below summarises the Company's foreign currency exposure:
Analysis of assets and liabilities in currencies other than sterling
Currency 31 December 2008 31 December 2007 Value £ % of net assets Value £ % of net assetsFinancial assetsEuro - Unlisted investments - - 734,484 19.42%Euro - Cash at bank 5 0.01% 765 0.02%USD - Cash at bank - - 215 0.01% Financial liabilitiesEuro - Loans payable - - (421,269) (11.14%) biii) Other price risk
Other price risk is the risk that value of an instrument will fluctuate as a result of changes in market prices (other than those arising from currency risk or interest rate risk), whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market.
As the majority of the Company's financial instruments are carried at fair value with changes in value recognised in the Statement of Total Return, all changes in market conditions will directly affect net investment income.
The table below details the breakdown of the investment assets held by theCompany 31 December 2008 31 December 2007 Value % of Net Value % of Net £ Assets £ AssetsInvestment assetsEquity investments: - Listed equities 151,239 348.83% - - - Unlisted equities 100,000 230.65% 4,093,623 108.26% 251,239 4,093,623Investment liabilitiesAt the year end the equity investments held by the Company wereboth listed and unlisted. A 5% increase in the fair value of all investmentsat 31 December 2008 would have increased the net assets attributable toshareholders by £12,562 (2007: £204,671): an equal change in the oppositedirection would have decreased the net assets attributable to shareholders byan equal but opposite amount.
(c) Liquidity risk
The Company's financial instruments include unlisted equity instruments, some of which are not traded in an organised public market and which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements.
The Company has a procedure to manage liquidity risk whereby theboard meet regularly to review investment holdings and current and anticipatedlevels of financial liabilities. Where liquidity of the investments within theportfolio is believed to be at a level which may adversely affect theCompany's ability to service its financial obligations, the board willconsider taking action to improve cash flow, which may include utilising bankoverdrafts or other credit arrangements.
The table below details the contractual, undiscounted cash flows of the Company's financial liabilities
Less than 1-3 3 months No stated 1 month months to 1 year maturity31 December 2008 £ £ £ £ Financial liabilitiesLoans payable 115,000 - - -Sundry creditors and accruals 93,763 - - - ______ ______ ______ ______Total 208,763 - - - _______ ______ ______ ______ 31 December 2007 Financial liabilitiesLoans payable 496,269 - - -Sundry creditors and accruals 73,824 - - - _______ ______ ______ ______Total 570,093 - - - _______ ______ ______ ______
The gross nominal outflow disclosed above is the contractual, undiscounted cash flow on the financial liability or commitment.
Amounts in the above table are based on the carrying value of all accounts.
The Company has a procedure to manage credit risk whereby the board meets regularly to review credit positions.
d) Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.
The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date.
At the reporting date, the Company's financial assets exposed to credit riskamounted to the following: 31 December 31 December 2008 2007 £ £Loans receivable - 230,000Other debtors - 21,202Cash and cash equivalents 880 6,651 Total 880 257,85321 EMPHASIS OF MATTERThe Company's independent auditors, In forming their unqualifiedopinion on the Company's financial statements for the year ended 31 December2008, considered the adequacy of disclosure made in note 1 (g) to thefinancial statements concerning the company's ability to continue as a goingconcern. As disclosed in note 1 (g) to the financial statements, the Companywill require additional funding within the next 12 months. The Directors arereviewing the various options available to the Company. However, as at thedate of this report, no plans have been finalised. This indicates theexistence of a material uncertainty which may cast significant doubt about theCompany's ability to continue as a going concern. The 2008 financialstatements do not include the adjustments that would result if the Company wasunable to continue as a going concern.
22 POST BALANCE SHEET EVENTS
On 25 June 2009, the Company issued 19,018,392 new Ordinary Shares(the "Issue"), of which 4,000,000 were issued pursuant to a subscriptionraising £0.04 million for the Company, and 15,018,392 were issued to certaincreditors of the Company in final settlement. Following the Issue, the Companyhas, in aggregate, 32,255,627 Ordinary Shares in issue.
The Company's Report and Accounts for the year ended 31 December 2008 will be posted to shareholders today and the full report is available to view and download from the Company's website at www.equitypreipo.com.
For further information please contact:
Equity Pre-IPO Investments LimitedPaul Schreibke +44 (0)1481 751 000Jonathan Freeman +44 (0) 20 752 0215Daniel Stewart & Company PlcOliver Rigby +44 (0)207 776 6550GTH CommunicationsToby Hall +44 (0)20 7153 8039Christian Pickel +44 (0)20 7153 8036
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