iomart Group plc Report and Financial Statements 31 March 2002 Deloitte & Touche Lomond House 9 George Square, Glasgow, G2 1QQ IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 CONTENTS • Officers and professional advisers • Chairman’s statement • Chief Executive’s Review • Corporate governance • Report of the board to the members on directors’ remuneration • Directors' report • Statement of directors' responsibilities • Auditors’ report • Consolidated profit and loss account • Consolidated balance sheet • Company balance sheet • Consolidated cash flow statement • Notes to the accounts Page 2 3 4 6 7 10 11 12 14 16 17 18 19 Page 1 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 OFFICERS AND PROFESSIONAL ADVISERS Directors Nick Kuenssberg Angus MacSween Bill Dobbie Neil Finlayson Sarah Haran Fred Shedden David Harrison Secretary Stewart Moir Registered office Fleming Pavilion Todd Campus West of Scotland Science Park Glasgow G20 0XA Nominated adviser and broker Peel Hunt plc 62 Threadneedle Street London EC2R 8HP Bankers Bank of Scotland 235 Sauchiehall Street Glasgow G2 3EY Solicitors McGrigor Donald Pacific House 70 Wellington Street Glasgow G2 6SB Auditors Deloitte & Touche Lomond House 9 George Square Glasgow G2 1QQ Registrars Capita IRG plc Bourne House 34 Beckenham Road Beckenham Kent BR3 4TU (Non-executive Chairman) (Chief Executive Officer) (Business Development Director) (Technical Director) (Customer Service Director) (Non-executive Director) (Non-executive Director) Page 2 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 CHAIRMAN’S STATEMENT The period ended 31 March 2002 has seen "the longest year" with a very high level of activity in terms of strategic direction as the various markets in which your company has operated have changed. The actual figures showing sales of £5.4 million and losses of £7.9 million are factually correct but are largely irrelevant to our ongoing business. iomart today is effectively in "start-up" mode as a software company in the enterprise security sector. We acquired the On.Cue DSL broadband business at a time when this appeared to make sense to create critical mass. We exited from both the retail ISP and the broadband businesses in the course of the period as the valid business case for them was eroded. Our acquisition of CANBOX Technologies GmbH in Germany, originally intended to develop web mail and unified messaging businesses, has not proved a success. The German market has been under pressure and the inability to achieve satisfactory pricing has led to our decision to exit this business. The cost of this is provided in the accounts presented to you along with all known liabilities. There will be no continuing significant costs other than those relevant to our ongoing software and web-hosting business. We are now focusing on the NetIntelligence product portfolio in this potentially large but demanding corporate market for enterprise security products. Your company also has the small web hosting and co-location business based on iomart and NSL activities together with a high capacity infrastructure. In order to exploit this rather than simply abandon it, we have acquired a controlling interest in a new company focused on the SME sector with complementary activities, now re-named iomart Internet. Based in Lancaster and founded by two entrepreneurs who built up Business Serve, this company is supported by the back office in Glasgow. Sales have begun well, currently running at approximately £400k per year and growing with breakeven planned to be achieved by the end of the current fiscal year. As suggested the figures for the year include significant discontinued operations and do not reflect the business going forward. It is more appropriate to consider that we are now a small software company with a market-leading software product in NetIntelligence and with a controlling interest in a hosting company run by a separate management team. Our cost structure now respects this and, depending on the speed with which the corporate sector takes up NetIntelligence and the rate of growth of our new web-hosting company, we anticipate success within the next two years. I would like to pay tribute to the substantial contributions made by Neil Finlayson, a founder director, and David Harrison, finance director, both of whom are standing down at the AGM in response to the revised levels of business and our new focus. At the same time it is appropriate to thank those who have dedicated themselves to the company since flotation and to acknowledge the commitment demonstrated by the current team. The past three years has been an extraordinary interlude in economic terms and your company has ridden an acknowledged roller-coaster. The collective madness in the telecoms and dotcom worlds, the "free" business models, downward pressures on prices and optimistic views of uptake, supported by researchers, commentators, funders and analysts alike, have all combined to create an extremely difficult economic environment. With our new concentration on two markets, a reduced cost base and cash balances of £6.5m at the period end, we are better placed to provide long-term capital growth for our shareholders. Nick Kuenssberg Non-executive chairman 21 May 2002 Page 3 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 CHIEF EXECUTIVE’S REVIEW As I reported in my review of 26 February for the 6 months to 31 December 2001, the 15 month period to 31 March 2002 has been one of transformation. The sale of our ADSL business to Centrica for £2 million cash concluded our withdrawal from the Telco marketplace following the sale of our consumer ISP Madasafish in May 2001 for £3 million cash. The ADSL sale also concluded the transfer of all obligations of our Stornoway call centre to Centrica PLC. This included the lease and all support staff. During April 2002 we also terminated the office lease in Edinburgh. iomart’s German business Canbox which had a significant revenue stream in mail and messaging has suffered from the ongoing collapse of the internet services and portal markets in Germany; we have taken the decision to exit from this operation with effect from the end of June 2002. It has become clear that the messaging sector we believed would flourish has not emerged as any commentator envisaged. Given the much stronger interest in our NetIntelligence software it makes sense to redouble our efforts here. NetIntelligence includes a sophisticated mail filter component which we have developed as part of our mail product set, and gives us distinct unique selling points. Our prospect pipeline for NetIntelligence has continued to grow strongly in the final quarter with many blue chip companies, particularly in the finance sector, showing very keen interest. However the corporate sales cycle for this type of product is typically anywhere between six and twelve months. Although we disposed of our two largest business streams, iomart has retained a web hosting infrastructure and customer base and we have been working to grow and increase the value of this business. We opened a telesales office for web hosting services in the north of England in late March 2002. This is managed by the ex founders of Businessserve PLC, a web hosting company that grew aggressively in the years 1997 – 2000 before being sold privately in March 2000. We are achieving sales success in a market which is consolidating and where competitors are disappearing. Whilst still in its infancy the sales results give us reason to believe that we can build a significant and profitable business in this area using our residual infrastructure and internet skills. Results Turnover for the period of £5.40 million is made up of £1.72 million from ongoing operations, network security and web services (co-location, hosting, domain names and mail), £0.21 million from the discontinuing operations in Germany and £3.47 million from our discontinued ADSL and dial up access. It should be noted that the gross profit margin for the period was 38% overall but 67% from ongoing operations. Administrative expenses of £11.08 million comprise £5.69 million for ongoing operations, £1.02 millon from discontinuing operations and £4.37 million from discontinued operations. In addition, restructuring costs of £3.02 million were incurred. Other operating income of £0.20 million relates primarily to grants received. We have continued to reduce our administrative expenses to reflect our current business. The total operating loss of £11.84 million is attributable to £6.09 million from ongoing operations, including £0.57 million from acquisitions, £0.89 million from discontinuing operations and £4.86 million from discontinued operations. The net profit on sale of the group’s dial up access business was £1.83 million and of the ADSL business £1.78 million. Bank interest receivable amounted to £0.59 million. Interest payable on finance leases and hire purchase contracts was £0.26 million. The loss for the year was £7.90 million and no tax charge arises in respect of the group’s trading. Cash and borrowings Cash balances at 31 March 2002 were £6.52 million. Borrowings under finance leases amounted to £1.28 million. The group had no other debt outstanding. Page 4 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 CHIEF EXECUTIVE’S REVIEW (Continued) Financial instruments The group’s financial instruments comprise cash and liquid resources and various items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to provide finance for the group’s operations. The main risk to the group is interest rate risk arising from floating rate interest rates. The group has one subsidiary, which operates in Germany, whose revenue and expenses are denominated in Euros. All transactions of the holding company and the UK subsidiaries are in UK sterling and the group does not use derivative instruments. Financial Position The group’s financial position remains strong with sufficient cash reserves to fund the current business plan and take the group through to profitability. Prospects With this set of results we have put behind us the majority of the capital intensive business areas we were operating in and we have reduced our cash cost base to around £275,000 per month, of which £220,000 are variable costs. We now have two distinct areas of business, with strong management and clear objectives in each area. NetIntelligence provides us with considerable IPR and significant barriers to entry for competitors, targeted at the corporate sector, where although sales cycles are long the rewards for success are potentially substantial. On the other hand, our web services business, targeted at the SME sector provides immediate growth and cashflow whilst building a valuable long term business. iomart now has the ability to flex its cost base as required to either fund growth or conserve cash dependent on demand for our products and services. We remain confident that we can deliver success and profitability in the coming years. Angus MacSween Chief Executive Officer 21 May 2002 Page 5 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 CORPORATE GOVERNANCE While the company is listed on the Alternative Investment Market and is therefore not required to comply with the provisions of the Combined Code, the board is committed to ensuring that proper standards of corporate governance operate and has established governance procedures and policies that are considered appropriate to the nature and size of the group. The board considers that at this stage in the group’s development, the expense of full compliance with the Combined Code is not appropriate although it intends, as the group grows, to ensure that it observes the provisions of the Code, so far as is practicable. Directors and the board The board directs the group's activities in an effective manner through regular monthly board meetings and monitors performance through timely and relevant reporting procedures. Where it deems it necessary the board requests reports on specific areas outwith the normal reporting regime. The board comprises four executive and three non-executive directors. The roles of chairman and chief executive are separate appointments and it is board policy that this will continue. The board has established two committees, the audit committee and the remuneration committee, membership of both being exclusively non-executive. Nick Kuenssberg is chairman of the audit committee and Fred Shedden chairman of the remuneration committee. A separate report on directors’ remuneration is set out on pages 8 to 10. Accountability and audit The board considers that the annual report presents a balanced and understandable assessment of the group’s performance and prospects. The audit committee has written terms of reference setting out its authority and duties and meets at least twice per annum with the external auditors. Internal financial control The group has established policies covering the key areas of internal financial control and the appropriate procedures, controls, authority levels and reporting requirements which must be applied throughout the group. The key procedures that have been established in respect of internal financial control are as follows: • Financial reporting; there is in place a comprehensive system of financial reporting based on the annual budget which the board approves. The results for the group as whole and each business sector are reported monthly, along with an analysis of key variances. Year-end forecasts are updated on a regular basis. • Investment appraisal; applications for capital expenditure are made in a prescribed format which places emphasis on the commercial and strategic as well as the financial justification. All larger projects require specific board approval. No system can provide absolute assurance against material misstatement or loss but the group's systems are designed to provide reasonable assurance as to the reliability of financial information, ensuring proper control over income and expenditure, assets and liabilities. Page 6 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 REPORT OF THE BOARD TO THE MEMBERS ON DIRECTORS’ REMUNERATION Remuneration Committee The remuneration committee determines, on behalf of the board, the group’s policy for executive remuneration and the individual remuneration packages for executive directors. In setting the group’s remuneration policy, the remuneration committee considers a number of factors, including the following: • salaries and benefits available to executive directors of comparable companies; • the need to attract and retain executives of an appropriate calibre; • continued commitment of executives to the group’s success through appropriate incentive schemes. Remuneration of non-executive directors The fees paid to the non-executive directors, who do not receive any bonus or other benefits, are determined by the board. Non-executive directors’ letters of appointment are on a twelve month rolling basis. Remuneration of executive directors The remuneration packages of the executive directors comprise the following elements: • Base salary The remuneration committee sets base salaries to reflect responsibilities and the skill, knowledge and experience of the individual. • Bonus scheme The executive directors are eligible to receive a bonus of up to 50% of basic salary dependent on individual and group performance at the discretion of the remuneration committee. • Car allowance and other benefits The executive directors are entitled to a car allowance. No other benefits were provided. • Pensions Pension contributions to individuals’ personal pension arrangements are payable by the group at the rate of twice the contribution made by the director subject to a maximum employer contribution of 10% of basic salary. All the executive directors are engaged under service contracts which require a notice period of 12 months given any time on or after 31 March 2002. Page 7 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 REPORT OF THE BOARD TO THE MEMBERS ON DIRECTORS’ REMUNERATION (Continued) Directors’ remuneration Details of individual directors’ emoluments for the 15 month period are as follows: Name of director Executive Bill Dobbie Neil Finlayson Sarah Haran Angus MacSween Non-executive Nick Kuenssberg Fred Shedden David Harrison Salary and fees £ Benefits £ 112,917 81,000 77,150 123,458 27,500 21,250 74,583 9,000 9,000 9,000 9,000 - - 6,600 Pension contri- butions £ 8,875 - 3,209 - - - 11,686 Annual salaries and/or fees were revised as follows in the light of the changes to the company’s business: ended 15 months Year ended 31 31 March December 2000 Total £ 2002 Total £ 130,792 90,000 89,359 132,458 27,500 21,250 92,869 82,500 57,583 58,217 82,500 18,750 14,977 51,283 Name of director Angus MacSween Bill Dobbie Neil Finlayson Sarah Haran David Harrison Nick Kuenssberg Fred Shedden On flotation As from 1 February 2001 £ or appointment £ As from 1 July 2001 £ 90,000 90,000 55,000 50,000 75,000 25,000 20,000 110,000 100,000 70,000 65,000 80,000 25,000 20,000 93,500 85,000 63,000 60,000 72,000 20,000 15,000 Current £ 93,500 85,000 63,000 60,000 15,000 20,000 15,000 David Harrison served as an executive director until 30 November 2001, on which date he became a non-executive director. Page 8 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 REPORT OF THE BOARD TO THE MEMBERS ON DIRECTORS’ REMUNERATION (Continued) Directors’ interests in shares The interests of the directors in the shares of the company at 31 March 2002, together with their interests at 1 January 2001 were as follows: Name of director Bill Dobbie Neil Finlayson Sarah Haran David Harrison Nick Kuenssberg Angus MacSween Fred Shedden Number of ordinary shares 31 March 2002 1 January 2001 12,010,000 3,154 10,555 60,000 132,777 17,955,000 107,222 11,970,000 - 5,555 10,000 35,277 17,955,000 22,222 Directors’ interests in share options The interests of the directors at 31 March 2002 in options over the ordinary shares of the company were as follows: Surr- endered Exer- cised Name of director Neil Finlayson Sarah Haran David Harrison Nick Kuenssberg Fred Shedden 1 January 2001 159,746 159,747 159,747 159,746 159,747 159,747 - 300,000 80,701 53,801 Granted in the period - - - - - - 100,000 - - - - - - - - - - 300,000 80,701 53,801 Options over ordinary shares of 1p each 31 March 2002 159,746 159,747 159,747 159,746 159,747 159,747 100,000 - - - Exercise Date from which price exercisable 5p 5p 5p 5p 5p 5p 9p - - - 11/5/00 11/2/01 11/2/02 11/5/00 11/2/01 11/2/02 27/2/05 - - - Expiry date 14/12/08 14/12/08 14/12/08 14/12/08 14/12/08 14/12/08 27/2/12 - - - - - - - - - - - - - In addition to the options shown, Angus MacSween and Sarah Haran had 13,454 and 8,072 options respectively under the company’s sav- ings related share option scheme. These options, granted on 1 July 2000 at a price of 72p, were allowed to lapse during the period. Board members granted options on flotation or following their recruitment surrendered these options during the period. No other options lapsed during the period. No other directors have been granted share options in the shares of the company or other group companies. The market price of the company’s shares at the end of the financial period was 14.5p and the range of prices during the period was between 64.5p and 8.5p. By order of the board Stewart Moir Company Secretary 21 May 2002 Page 9 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 DIRECTORS’ REPORT The directors present their annual report and the audited financial statements for the 15 month period ended 31 March 2002, which is a change from the previous accounting reference date of 31 December. Principal activity The principal activity of the group is the provision of network security, web services and e-mail management. During the period the group’s ADSL and dial up access businesses were sold. Business review and future developments A review of the results and development of the business for the year and of future developments in the business is contained within the chairman’s statement on page 3 and the chief executive’s review on pages 4 and 5. Dividends No dividends have been paid or proposed for the period ended 31 March 2002 (31 December 2000 – nil). Directors and their interests The present membership of the board is set out on page 2. In accordance with the company’s articles of association, Fred Shedden and Bill Dobbie are required to resign and offer themselves for re-election at the forthcoming annual general meeting. David Harrison and Neil Finlayson have indicated their intention to resign at the forthcoming annual general meeting. Details of directors’ interests in the company’s shares are set out in the report of the board to the members on directors remuneration on pages 7 to 9. Substantial shareholdings At 9 May 2002 the following interests in three per cent or more of the issued ordinary share capital had been notified to the company: Angus MacSween Bill Dobbie Henderson Smaller Companies Investment Trust The Fleming Mercantile Investment Trust Plc Axa Sun Life Schroder UK Growth Fund plc Number of ordinary shares 17,955,000 12,010,000 4,398,269 3,932,730 2,600,000 1,800,000 Employee involvement An employee forum meets regularly to consult with staff and to provide feedback to management on any issues raised by employees. A newsletter is sent to all staff every two months, providing information on developments within the group including updates on the group’s strategy and details of new products and services provided by the group. All staff are eligible to receive share options in the company under the group’s share option schemes and it is the board’s policy to make regular option awards to all levels of staff to encourage staff involvement in and commitment to the group’s performance. Employment of disabled persons Full and fair consideration is given to applications for employment made by disabled persons having regard to their particular aptitudes and abilities. Appropriate training is arranged for disabled persons, including retraining for alternative work of employees who become disabled, to promote their career development within the organisation. Page 10 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 DIRECTORS’ REPORT (Continued) Supplier payment policy and practice The company and its subsidiaries agree the terms of payment when negotiating the terms and conditions for their transactions with their suppliers. Payment is made in compliance of those terms, subject to the terms and conditions of the relevant transaction having been met by the supplier. The group’s average creditor payment period at 31 March 2002 was 45 days (31 December 2000 – 49 days). The company did not have any transactions with suppliers. Auditors Deloitte & Touche have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming annual general meeting. By order of the board Stewart Moir Company Secretary 21 May 2002 STATEMENT OF DIRECTORS’ RESPONSIBILITIES Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the group as at the end of the financial year and of the profit or loss of the group for that period. In preparing those financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for the group’s system of internal financial control, for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Page 11 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF IOMART GROUP PLC We have audited the financial statements of Iomart Group Plc for the 15 month period ended 31 March 2002 which comprise the profit and loss account, the balance sheets, the cash flow statement, the statement of total recognised gains and losses and the related notes 1 to 30 together with the reconciliation of net cash flow to movement in net funds. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors As described in the statement of directors’ responsibilities, the company’s directors are responsible for the preparation of the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibility is to audit the financial statements in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report if, in our opinion, the directors’ report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions with the company and other members of the group is not disclosed. We read the directors’ report and the other information contained in the annual report for the above period as described in the contents section and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the circumstances of the company and the group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements. Page 12 IOMART GROUP PLC REPORT AND FINANCIAL STATEMENTS 2002 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF IOMART GROUP PLC (CONTINUED) Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the company and the group as at 31 March 2002 and of the loss of the group for the 15 month period then ended and have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche Chartered Accountants and Registered Auditors Lomond House 9 George Square Glasgow G2 1QQ 21 May 2002 Notes: An audit does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial statements since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions Page 13 IOMART GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT 15 Months ended 31 March 2002 TURNOVER Acquisitions Discontinuing operations Total Acquisitions Continuing operations Discontinued operations Total turnover Cost of sales Gross profit Administrative expenses Restructuring expenses Total administrative expenses Other operating income Net operating expenses OPERATING LOSS Acquisitions Discontinuing operations Total Acquisitions Continuing operations Discontinued operations Group operating loss Profit on sale of businesses Net interest LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION Tax on loss on ordinary activities LOSS ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE PERIOD Equity minority interests Note 3 3 3 3 3 3 3 3 3 3 3 4 6 7 LOSS FOR THE FINANCIAL PERIOD 19 Page 14 £’000 37 210 15 Months ended 31 Year ended 31 March December 2000 £’000 2002 £’000 - - - 1,389 1,389 2,192 247 1,682 1,929 3,470 5,399 3,581 (3,339) (1,424) 2,060 2,157 (11,079) (3,021) (14,100) 203 (7,663) - (7,663) 219 (13,897) (7,444) (574) (891) (1,465) - - - (6,402) (2,942) (7,867) (3,970) (2,942) (2,345) (11,837) (5,287) 3,609 (8,228) 327 (7,901) - - (5,287) 185 (5,102) - (7,901) 5 (5,102) - (7,896) (5,102) IOMART GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT (CONTINUED) 15 Months ended 31 March 2002 Loss per ordinary share (pence) Basic 9 (14.7p) (10.9p) There have been no recognised gains and losses attributable to the shareholders other than the loss for the current financial year and accordingly, no statement of total recognised gains and losses is shown. Page 15 IOMART GROUP PLC CONSOLIDATED BALANCE SHEET 31 March 2002 FIXED ASSETS Intangible assets Tangible assets CURRENT ASSETS Debtors Cash at bank and in hand CREDITORS: amounts falling due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS: amounts falling due after more than one year EQUITY MINORITY INTERESTS NET ASSETS CAPITAL AND RESERVES Called up share capital Capital redemption reserve Share premium account Profit and loss account TOTAL EQUITY SHAREHOLDERS’ FUNDS Note 31 March 2002 £’000 31 December 2000 £’000 10 11 13 14 15 17 18 19 19 19 20 279 1,011 1,290 927 6,519 7,446 (2,513) 4,933 6,223 (571) 12 5,664 538 1,200 19,087 (15,161) 5,664 1,174 3,960 5,134 1,792 12,026 13,818 (3,772) 10,046 15,180 (1,620) - 13,560 538 1,200 19,087 (7,265) 13,560 These financial statements were approved by the board of directors on 21 May 2002. Signed on behalf of the board of directors Angus MacSween Director Page 16 IOMART GROUP PLC COMPANY BALANCE SHEET 31 March 2002 FIXED ASSETS Investments CURRENT ASSETS Debtors Cash at bank and in hand CREDITORS: amounts falling due within one year NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES CREDITORS: amounts falling due after more than one year Note 12 13 31 March 2002 £’000 31 December 2000 £’000 1,500 1,525 11,851 6,430 18,281 - 18,281 19,781 - 6,756 12,118 18,874 - 18,874 20,399 - NET ASSETS 19,781 20,399 CAPITAL AND RESERVES Called up share capital Capital redemption reserve Share premium account Profit and loss account TOTAL EQUITY SHAREHOLDERS’ FUNDS 18 19 19 19 20 538 1,200 19,087 (1,044) 19,781 538 1,200 19,087 (426) 20,399 These financial statements were approved by the board of directors on 21 May 2002. Signed on behalf of the board of directors Angus MacSween Director Page 17 IOMART GROUP PLC CONSOLIDATED CASH FLOW STATEMENT 15 Months ended 31 March 2002 Net cash outflow from operating activities Returns on investments and servicing of finance Capital expenditure and financial investment Acquisitions and disposals Cash outflow before financing Financing (Decrease)/increase in cash in the period Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash in the period Cash outflows from debt and lease financing Change in net funds from cash flows New hire purchase and finance leases Hire purchase and finance leases acquired with subsidiary Opening net funds/(debt) Closing net funds Note 21 22 22 22 22 23 23 23 23 23 Page 18 15 Months ended 31 March 2002 £’000 Year ended 31 December 2000 £’000 (7,833) (4,681) 327 (577) 4,030 (4,053) (1,454) (5,507) 185 (1,206) 5 (5,697) 17,248 11,551 (5,507) 11,551 1,454 (4,053) (101) - 9,398 5,244 2,077 13,628 (2,723) (42) (1,465) 9,398 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 1. ACCOUNTING POLICIES The financial statements are prepared in accordance with applicable accounting standards. The group has applied three new accounting standards, FRS 17, FRS 18 and FRS 19 during the period. The adoption of FRS 17, retirement benefits, FRS 18, accounting policies, and FRS 19, deferred tax, has had no impact on the financial statements in the current period or prior year. The particular accounting policies adopted are described below. Accounting convention The financial statements are prepared under the historical cost convention. Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and all its subsidiaries. Acquisitions & disposals On the acquisition of a business fair values are attributed to the group’s share of net separable assets. Where the cost of acquisition exceeds the fair values attributable to such net assets, the difference is treated as purchased goodwill and is capitalised in the group balance sheet in the year of acquisition. The results and cash flows relating to a business are included in the consolidated profit and loss account and the consolidated cash flow statement from the date of acquisition or up to the date of disposal. Goodwill and intangible fixed assets Purchased goodwill arising on the acquisition of a business is capitalised in the year in which it arises and amortised over 3 years, which is the directors’ estimate of its useful life. Software licences are capitalised as intangible assets and amortised over the period of the licence. Tangible fixed assets Depreciation is provided on cost in equal annual instalments over the estimated useful lives of the assets. The rates of depreciation are as follows: Short-term leasehold improvements Computer software and equipment Office equipment and vehicles 25% per annum Between 20% and 50% per annum 25% per annum Investments Investments held as fixed assets are stated at cost less provision for any permanent diminution in value. Grants Amounts receivable as capital grants are treated as deferred income and credited to the profit and loss account by instalments on a basis consistent with the depreciation policy. On 7 January 2002, as part of the agreement for the sale of the group’s ADSL business, all obligations under the grant undertakings were assumed by Centrica Telecommunications Limited and the remaining deferred income in respect of these grants was credited to the profit and loss account. Revenue grants are credited to the profit and loss account in line with the expenditure to which they relate. Page 19 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 1. ACCOUNTING POLICIES (CONTINUED) Deferred taxation Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallize based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are recognized to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Foreign exchange Transactions denominated in foreign currencies are translated into the functional currency at the rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the rate ruling at that date. These translation differences are dealt with in the profit and loss account. The financial statements of foreign subsidiaries are translated into sterling at the closing rates of exchange and the differences arising from the translation of the opening net investment in subsidiaries at the closing rate are taken direct to reserves. Leases Assets obtained under finance leases and hire purchase contracts are capitalised at their fair value on acquisition and depreciated over their estimated useful lives. The finance charges are allocated over the period of the lease in proportion to the capital element outstanding. Operating lease rentals are charged to the profit and loss account in equal annual amounts over the lease term. Development expenditure Development expenditure is charged to the profit and loss account as incurred. 2. ACQUISITIONS AND DISPOSALS Acquisitions On 15 September 2001, the company acquired the entire issued shareholding of CANBOX Technologies GmbH and on the same date CANBOX Technologies GmbH purchased the business and assets of CANBOX Systems AG and CANBOX Europe GmbH from the receivers. The board have taken a decision to close the business of CANBOX Technologies GmbH. As such the results of this business have been shown as discontinuing activities. On 4 March 2002 the company acquired 60% of the entire issued share capital of iomart Internet Limited (formerly known as Networks Delivered Limited), with a further 15% being acquired on 28 March 2002. On 2 July 2001 iomart Limited purchased the business and assets of Actis Technology Limited from the provisional liquidator. The amount of goodwill arising as a result of these acquisitions is £293,000 (see notes 24 and 25), which is being amortised over 3 years. The results of these businesses have been shown as acquired activities. All acquisitions have been accounted for using the acquisition method of accounting. The cash effects of the acquisitions are given in notes 24 and 25. Disposals iomart Limited sold its dial up access business on 10 May 2001 and its ADSL business on 7 January 2002. The results of these businesses have been shown as discontinued activities. The cash effects of the disposals are given in note 26. Page 20 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 3. ANALYSES OF CONTINUING OPERATIONS AND ACQUISITIONS Continuing 15 months ended 31 March 2002 £’000 Discontinued 15 months ended 31 March 2002 £’000 Total 15 months ended 31 March 2002 £’000 Continuing Discontinued Year ended 31 December 2000 £’000 Year ended 31 December 2000 £’000 Total Year ended 31 December 2000 £’000 Turnover Cost of sales Gross profit Administrative expenses Restructuring expenses Other operating income 1,719 (559) 1,160 (6,712) (1,572) 148 3,680 (2,780) 5,399 (3,339) 1,389 (747) 2,192 (677) 3,581 (1,424) 900 2,060 642 1,515 2,157 (4,367) (1,449) 55 (11,079) (3,021) 203 (3,584) - - (4,079) - 219 (7,663) - 219 Net operating expenses (8,136) (5,761) (13,897) (3,584) (3,860) (7,444) Operating loss (6,976) (4,861) (11,837) (2,942) (2,345) (5,287) The total figures for continuing operations in the 15 months ended 31 March 2002 include the following amounts relating to acquisitions; turnover £37,000, cost of sales £3,000, gross profit £34,000, administrative expenses £608,000 and operating loss £574,000. Amounts relating to discontinuing operations; turnover £210,000, cost of sales £77,000; gross profit £133,000, administrative expenses £1,024,000 and operating loss £891,000. The discontinuing operations relate to the acquired CANBOX Technologies GmbH business, which cannot be treated as discontinued activities under FRS 3 as it is planned to cease activities at the end of June. The directors believe that this information is relevant to the understanding of the accounts and the business. Turnover comprises revenue from network security, web services, e-mail management, dial up access and ADSL, excluding VAT. Page 21 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 4. OPERATING LOSS Operating loss is after charging/(crediting) Depreciation of tangible fixed assets: Owned assets Leased assets Write down of tangible fixed assets Amortisation of intangible fixed assets Write down of intangible assets Loss on sale of assets Rentals under operating leases Revenue grants Amortised deferred grant income Auditors’ remuneration - company audit fees - group audit fees - other services The discount rate used in assessing the fixed asset write down is 11.93%. 5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES Directors’ emoluments Aggregate emoluments Pension contributions to money purchase schemes Emoluments payable to the highest paid director are as follows: Aggregate emoluments Pension contributions to money purchase schemes 15 Months ended 31 March 2002 £’000 Year ended 31 December 2000 £’000 432 1,117 1,452 499 506 15 492 (55) (148) 7 18 56 15 Months ended 31 March 2002 £’000 560 24 132 - 117 709 - 219 - 24 145 (120) (89) 10 26 134 Year ended 31 December 2000 £’000 365 1 83 - The detailed numerical analysis of directors’ remuneration and share options is included in the report of the board to the members on directors’ remuneration on pages 7 to 9. Average number of persons employed by the group: Technical Customer services Sales and marketing Administration Page 22 15 Months ended 31 March 2002 £’000 30 58 31 18 137 Year ended 31 December 2000 £’000 23 70 25 15 133 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 5. INFORMATION REGARDING DIRECTORS AND EMPLOYEES (CONTINUED) Staff costs during the period in respect of these employees were: Wages and salaries Social security costs Other pension costs 15 Months ended 31 March 2002 £’000 3,599 358 24 3,981 Year ended 31 December 2000 £’000 2,500 244 1 2,745 There are no company or group pension schemes. However the group makes contributions to directors’ personal schemes as disclosed in the report of the remuneration committee on pages 7 to 9. 6. NET INTEREST Investment income: Bank interest receivable Interest payable and similar charges: Bank overdraft and other borrowings Finance leases and hire purchase contracts Exceptional charge on early redemption of loan Net interest 15 Months ended 31 March 2002 £’000 Year ended 31 December 2000 £’000 587 (3) (257) - (260) 327 667 (13) (136) (333) (482) 185 7. TAX ON LOSS ON ORDINARY ACTIVITIES There is no tax charge in the period due to the availability of losses. Unrelieved losses of £12 million (31 December 2000 - £7.5 million) are carried forward. These will be available to reduce the tax liability of suitable future trading profits, subject to agreement with the Inland Revenue. Deferred tax A deferred tax asset has not been recognised in respect of losses carried forward as there is insufficient evidence that the asset will be recovered. The amount of the asset not recognised is approximately £4 million. The asset would be recovered if suitable taxable profits were to be generated in the future. 8. LOSS OF PARENT COMPANY As permitted by Section 230 of the Companies Act, the profit and loss account of the parent company is not presented as part of these accounts. The parent company’s loss for the financial period was £618,000 (year ended 31 December 2000 - £426,000). Page 23 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 9. LOSS PER ORDINARY SHARE Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period. FRS 14 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. For a loss making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options. Since it seems inappropriate to assume that option holders would act irrationally and there are no other diluting future share issues, diluted EPS has not been presented. Loss for the financial period and basic earnings attributed to ordinary shareholders Weighted average number of ordinary shares Loss per share 10.INTANGIBLE ASSETS The group Cost At 1 January 2001 Expired licences Additions in the period At 31 March 2002 Accumulated amortisation At 1 January 2001 Expired licences Write down on disposal of businesses Write down on restructuring Charge for the period At 31 March 2002 Net book value At 31 March 2002 At 31 December 2000 Goodwill £’000 684 - 293 977 57 - - 361 327 745 232 627 Page 24 15 Months ended 31 March 2002 £’000 (7,896) No ‘000 53,796 (14.7p) Software licences £’000 793 (282) 56 567 246 (282) 239 145 172 520 47 547 Year ended 31 December 2000 £’000 (5,102) No ‘000 46,709 (10.9p) Total £’000 1,477 (282) 349 1,544 303 (282) 239 506 499 1,265 279 1,174 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 11.TANGIBLE FIXED ASSETS The group Cost At 1 January 2001 Acquired with subsidiaries Foreign exchange translation differences Additions in the period Disposals At 31 March 2002 Accumulated depreciation At 1 January 2000 Acquired with subsidiaries Foreign exchange translation differences Write down on disposal of businesses Write down on restructuring Charge for the period Disposals At 31 March 2002 Net book value At 31 March 2002 At 31 December 2000 Leasehold improvements Computer software and equipment Office equipment and vehicles £’000 £’000 £’000 246 - - 107 (70) 283 46 - - - 89 86 (42) 179 104 200 4,649 508 (19) 595 (379) 5,354 1,071 - (1) 892 1,321 1,390 (124) 4,549 805 3,578 218 12 - 55 (56) 229 36 2 - - 42 73 (26) 127 102 182 Total £’000 5,113 520 (19) 757 (505) 5,866 1,153 2 (1) 892 1,452 1,549 (192) 4,855 1,011 3,960 The net book value of the group’s tangible fixed assets includes the following amounts in respect of assets held under finance leases and hire purchase contracts: The group At 31 March 2002 At 31 December 2000 Leasehold improvements Computer software and equipment Office equipment and vehicles £’000 61 95 £’000 373 2,933 £’000 72 145 Total £’000 506 3,173 Page 25 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 12.INVESTMENTS HELD AS FIXED ASSETS The company Cost At 1 January 2001 Additions in period At 31 March 2002 Provision Provided in period Net book value At 31 March 2002 At 31 December 2000 All of the above investments are unlisted. Shares in subsidiary undertakings £’000 1,525 310 1,835 335 1,500 1,525 Included within the additions in the year is £310,013 in respect of CANBOX Technologies GmbH and £120 in respect of iomart Internet Limited (formerly known as Networks Delivered Limited). Full provision has been made against the investments in NSL (Internet) Limited and CANBOX Technologies GmbH. The following subsidiaries have been consolidated in the group accounts: Country of registration and operation Activity Portion of ordinary shares held % iomart Limited NSL (Internet) Limited Scotland Scotland Network security and web services Dormant CANBOX Technologies GmbH Germany Messaging iomart Internet Limited (formerly known as Networks Delivered Limited) England Web services 100 100 100 75 Page 26 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 13.DEBTORS The group Trade debtors Other debtors Prepayments and accrued income The company 31 March 2002 £’000 31 December 2000 £’000 581 254 92 927 557 520 715 1,792 Amounts owed by subsidiary undertakings 11,851 6,756 14.CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR The group Obligations under finance leases and hire purchase contracts (note 16) Trade creditors Taxation and social security Other creditors Accruals and deferred income 31 March 2002 £’000 31 December 2000 £’000 704 831 89 32 857 2,513 1,097 1,373 149 30 1,123 3,772 15.CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR The group 31 March 2002 £’000 31 December 2000 £’000 Obligations under finance leases and hire purchase contracts (note 16) Deferred income 571 - 571 1,531 89 1,620 Page 27 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 16. BORROWINGS The group 31 March 2002 £’000 31 December 2000 £’000 Obligations under finance leases and hire purchase contracts 1,275 2,628 The obligations under finance leases and hire purchase contracts are secured by the related assets and are repayable as follows: Due within one year Due between two and five years 17.MINORITY INTERESTS 704 571 1,275 1,097 1,531 2,628 The equity minority interests comprise 40 ordinary shares of £1 each, representing 25% of the total issued share capital, in iomart Internet Limited. 18.CALLED UP SHARE CAPITAL The group and company Authorised At 31 December 2000 and 31 March 2002 Called up, allotted and fully paid At 31 December 2000 and 31 March 2002 Number of shares Ordinary shares of 1p 100,000,000 53,795,614 The company operates an approved share option scheme, an unapproved share option scheme and a savings related share option scheme. At 31 March 2002, 58 employees and directors and 78 former employees held share options as follows: Approved scheme Number of shares Exercise price per share Date from which exercisable 132,376 3,033 20,000 7,500 15,000 510,021 14,659 182,159 539,444 15,000 257,350 100,000 168,998 200,000 90.00p 90.00p 78.50p 78.50p 75.00p 44.00p 44.00p 44.00p 13.50p 13.50p 11.75p 11.75p 11.75p 9.00p Page 28 19/4/2003 19/4/2003 17/8/2003 4/9/2003 1/11/2003 24/1/2004 24/1/2004 24/1/2004 26/9/2004 26/9/2004 31/10/2004 31/10/2004 31/10/2004 27/2/2005 Expiry date 19/4/2010 31/12/2004 17/8/2010 4/9/2010 1/11/2010 24/1/2011 7/1/2007 31/12/2004 26/9/2011 31/12/2004 31/10/2011 7/7/2007 31/12/2004 27/2/2012 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 18.CALLED UP SHARE CAPITAL (CONTINUED) Number of shares Exercise price per share Unapproved scheme Other unapproved options Savings related scheme 19.STATEMENT OF MOVEMENT ON RESERVES The group Loss for the financial period Opening balance Closing balance The company Loss for the financial period Opening balance Closing balance 40,493 40,493 40,493 15,113 15,114 15,114 3,447 3,447 3,447 149,352 149,352 149,352 200,000 360,000 360,000 360,000 360,000 360,000 125,000 125,000 50,000 596,377 596,378 596,378 2,691 232,476 Page 29 Date from which exercisable 24/1/2002 24/1/2003 24/1/2004 24/1/2002 24/1/2003 24/1/2004 24/1/2002 24/1/2003 24/1/2004 26/9/2002 26/9/2003 26/9/2004 26/9/2001 31/1/2002 30/4/2002 31/7/2002 30/10/2002 31/1/2003 26/9/2002 26/9/2003 31/10/2001 11/5/2000 11/2/2001 11/2/2002 1/7/2003 1/10/2004 Expiry date 24/1/2011 24/1/2011 24/1/2011 7/7/2007 7/7/2007 7/7/2007 31/12/2004 31/12/2004 31/12/2004 26/9/2011 26/9/2011 26/9/2011 26/9/2011 26/9/2011 26/9/2011 26/9/2011 26/9/2011 26/9/2011 26/9/2011 26/9/2011 31/10/2011 14/12/2008 14/12/2008 14/12/2008 1/1/2004 1/4/2005 44.00p 44.00p 44.00p 44.00p 44.00p 44.00p 44.00p 44.00p 44.00p 13.50p 13.50p 13.50p 13.50p 13.50p 13.50p 13.50p 13.50p 13.50p 13.50p 13.50p 11.75p 5.00p 5.00p 5.00p 72.00p 19.20p Capital redemption reserve £’000 Share premium account £’000 Profit and loss account £’000 - 1,200 1,200 - 1,200 1,200 - 19,087 19,087 - 19,087 19,087 (7,896) (7,265) (15,161) (618) (426) (1,044) IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 20.RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES The group Loss for the financial period Shares issued – net of expenses Net (reduction)/increase in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds The company Opening shareholders’ funds Loss for the financial period New share capital subscribed Closing shareholders’ funds 15 Months ended 31 March 2002 £’000 Year ended 31 December 2000 £’000 (7,896) - (7,896) 13,560 5,664 20,399 (618) - 19,781 (5,102) 19,325 14,223 (663) 13,560 - (426) 20,825 20,399 21.RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES The group Operating loss Depreciation Amortisation of intangible assets Write down of tangible fixed assets Write down of intangible fixed assets Loss on sale of assets Foreign exchange translation differences Decrease/(increase) in debtors (Decrease)/increase in creditors Net cash outflow from operating activities 15 Months ended 31 March 2002 £’000 Year ended 31 December 2000 £’000 (11,837) 1,549 499 1,452 506 15 18 907 (942) (7,833) (5,287) 826 219 - - 24 - (1,283) 820 (4,681) Page 30 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 22.ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT 15 Months ended 31 March 2002 £’000 Year ended 31 December 2000 £’000 587 (3) (257) - 327 (656) 135 (56) (577) (310) (907) 310 (907) 2,960 1,977 4,937 4,030 - - - (1,454) (1,454) 667 (13) (136) (333) 185 (695) - (511) (1,206) (25) - 30 5 - - - 5 20,073 (748) (1,000) (1,077) 17,248 The group Returns on investments and servicing of finance Other interest receivable Bank overdraft and other borrowings Finance leases and hire purchase contracts Charge on early redemption of bank loan Capital expenditure and financial investment Payments to acquire tangible fixed assets Proceeds of disposal of fixed assets Payments to acquire intangible fixed assets Acquisitions Purchase of subsidiary undertakings Purchase of businesses Net cash acquired with subsidiary Sale of businesses Sale of dial up access Sale of ADSL Total acquisitions and disposals Financing Issue of ordinary shares Expenses of share issue Repayment of borrowings Capital element of finance lease rental and hire purchase contract payments Page 31 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 23.ANALYSIS OF CHANGE IN NET FUNDS At 31 December 2000 £’000 Cash flow £’000 Other non-cash changes £’000 At 31 March 2002 £’000 Cash at bank and in hand Finance leases and hire purchase Net funds 12,026 (2,628) 9,398 (5,507) 1,454 (4,053) - (101) (101) 6,519 (1,275) 5,244 24.PURCHASE OF SUBSIDIARY UNDERTAKINGS CANBOX Technologies GmbH Total 15 Months Iomart Internet Limited Year ended 31 ended 31 March 2002 £’000 December 2000 £’000 - - 310 - - - 310 - 310 310 10 - - (38) - 7 (21) 21 - - 10 - 310 (38) - 7 289 21 310 310 101 140 30 (888) (42) - (659) 684 25 25 Net assets acquired: Tangible fixed assets Debtors Cash at bank and in hand Creditors Hire purchase contracts Minority interest Goodwill Satisfied by: Cash The directors are satisfied that the net assets acquired were equivalent to the fair values at the date of acquisition. CANBOX Technologies GmbH did not trade prior to its acquisition by the company. The summarised profit and loss account of iomart Internet Limited for the period from 12 July 2001, the date of its incorporation, to 3 March 2002 is as follows: Turnover Operating loss Loss before and after taxation £’000 26 (28) (28) CANBOX Technologies GmbH paid £635,000 for acquisitions during the period and iomart Internet Limited contributed £3,000 to the group’s net operating cash flows. Page 32 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 25.PURCHASE OF BUSINESSES Actis Techno-logy Limited CANBOX Systems AG CANBOX Europe GmbH - - - 272 272 272 238 - 238 - 238 238 270 127 397 - 397 397 Tangible fixed assets Debtors Goodwill Satisfied by: Cash Total 15 Months ended 31 March 2002 £’000 Year ended 31 December 2000 £’000 508 127 635 272 907 907 - - - - - - The directors are satisfied that the net assets acquired were equivalent to the fair values at the date of acquisition. CANBOX Systems AG and CANBOX Europe GmbH were part of a larger group of companies prior to the purchase of part of their business from their trustees. Separate financial statements for the business purchased are not available and the directors do not consider that the results of the group prior to the purchase are relevant to the business purchased. The business of Actis Technology Limited was purchased from the liquidators of the company and no financial statements were prepared prior to the liquidation. The business acquired from the liquidators of Actis Technology Limited utilised £556,000 of net operating cash flows and paid £10,000 for capital expenditure. The business acquired from the trustees of CANBOX Systems AG and CANBOX Europe GmbH contributed £293,000 to the group’s net operating cash flows and generated £111,000 from net capital expenditure. Page 33 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 26.SALE OF BUSINESSES Tangible fixed assets Debtors Creditors Write down of tangible fixed assets Write down of intangible assets Profit on disposal Satisfied by: Cash Total 15 Months ended 31 March 2002 £’000 Year ended 31 December 2000 £’000 Dial up access ADSL - - - - 892 239 1,131 1,829 2,960 163 85 (51) 197 - - 197 1,780 1,977 163 85 (51) 197 892 239 1,328 3,609 4,937 2,960 1,977 4,937 - - - - - - - - - - The dial up access business utilised £1,359,000 of net operating cash flows and paid £127,000 for capital expenditure. The ADSL business utilised £2,241,000 of net operating cash flows. 27.CAPITAL COMMITMENTS The group Contracted for but not provided 31 March 2002 £’000 31 December 2000 £’000 - 140 Page 34 IOMART GROUP PLC NOTES TO THE ACCOUNTS 15 months ended 31 March 2002 28.OPERATING LEASE COMMITMENTS At 31 March 2002 the group was committed to making the following payments during the next year in respect of operating leases: Land and buildings 31 March 2002 £’000 Other 31 March 2002 £’000 Land and buildings 31 December 2000 £’000 Other 31 December 2000 £’000 59 - 101 160 - 6 - 6 30 284 267 581 - 7 - 7 Leases which expire: Within one year Within two to five years After five years 29.RELATED PARTY TRANSACTIONS During the period the company paid rent, in respect of an agreement, which terminated on 30 June 2001, of £15,000 (year ended 31 December 2000 - £30,000) to Adabrock Broadcasting Company, a partnership in which Angus MacSween and Bill Dobbie are partners. There are no outstanding balances at the period end (31 December 2000 - £40,500 due by Adabrock Broadcasting Company). On 27 March 1999 the company entered into a ten year property rental agreement with Highlands and Islands Enterprise. The rent was £55,000 per annum with a two year rent free period. Neil Finlayson, a director of the company, was also a director of Highlands and Islands Enterprise for part of the period. On 8 January 2002 the company’s interest as tenant under the lease was assigned to Centrica Telecommunications Limited. There are no outstanding balances at the period end (31 December 2000 - £nil). During the year ended 31 December 2000, the group purchased services of £255,000 from Abovenet Limited in respect of bandwidth usage and recharged them £33,000. Angus MacSween and Bill Dobbie were directors and shareholders in Abovenet Limited for part of that period. At 31 December 2000 there was an amount due to Abovenet Limited of £53,000 and an amount due from Abovenet Limited of £33,000. While there were transactions with Abovenet during the period ended 31 March 2002, these are not disclosed as the related-party relationship did not exist in that period. All of the above transactions were carried out at arms’ length. 30.FINANCIAL INSTRUMENTS The group’s policies as regards financial instruments are set out in the financial review on page 6. The group does not trade in financial instruments. The group has no undrawn committed borrowing facilities (31 December 2000 – nil). Short-term debtors and creditors have been omitted from all disclosures other than the currency profile. The fair value of the group’s cash balances is the same as the carrying values as disclosed in the balance sheets on pages 16 and 17. Interest on floating rate bank deposits is based on the Bank of Scotland base rate plus ten percentage points. Page 35 iomart Group plc Fleming Pavilion, Todd Campus, West of Scotland Science Park, Glasgow, G20 0XA Tel: +44 (0)141 931 7000 / Fax: +44 (0)141 931 7001 www.iomart.com PROTECT YOUR REPUTATION REDUCE YOUR RISK IMPROVE YOUR PRODUCTIVITY iomart Group 2002.