Judges Scientific
Annual Report 2007

Plain-text annual report

Annual Report and Accounts 2007 Judges Capital plc Company Information Directors The Hon. Alexander Robert Hambro (Non-Executive Chairman) David Elie Cicurel (Chief Executive) Ralph Leslie Cohen (Finance Director) Ralph Julian Elman (Non-Executive Director) Glynn Carl Reece (Non-Executive Director) Company Secretary Ralph Leslie Cohen Registered Office Unit 19, Charlwoods Road East Grinstead West Sussex RH19 2HL Registrar Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA Nominated Adviser Shore Capital and Corporate Ltd Bond Street House 14 Clifford Street London W1S 4JU Stockbroker Shore Capital Stockbrokers Ltd Bond Street House 14 Clifford Street London W1S 4JU Auditor Grant Thornton UK LLP Registered Auditor Chartered Accountants 8 West Walk Leicester LE1 7NH Principal Bankers Bank of Scotland 55 Temple Row Birmingham B2 5LS Solicitors Faegre & Benson LLP 7 Pilgrim Street London EC4V 6LB Registered in England and Wales, Company No. 4597315 Contents Consolidated financial statements Chairman’s statement Directors’ report Report of the independent auditor Consolidated income statement Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash flow statement Page 1 – 2 3 – 6 7 8 9 10 11 Notes to the consolidated financial statements 12 – 31 Parent company financial statements Report of the independent auditor Parent company balance sheet 32 33 Notes to the parent company financial statements 34 – 36 Notice of Annual General Meeting Form of Proxy Chairman’s Statement I am delighted to report that your Company achieved record results for 2007. Revenue advanced from £5.2 million in 2006 to £6.2 million and generated profit of £836,000 before tax, gains on the disposal of securities and amortisation, compared with £516,000 in the previous year. Earnings per share, similarly adjusted, rose from 8.6p to 12.9p (fully diluted) and from 9.9p to 15.0p (basic). After gains and amortisation, pre tax profit totalled £858,000 (2006: £281,000). This equates to fully diluted earnings per share of 13.3p (2006: 4.8p) and basic earnings per share of 15.5p (2006: 5.4p). IFRS With effect from 1 January 2007, the company is required to present its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). The financial information in these financial statements has been prepared in accordance with accounting policies which are based on IFRS and comparatives have been restated accordingly. Constitution of the Group All Group subsidiaries were owned throughout the financial year to 31 December 2007. The accounts for the previous year included a 10-month contribution from UHV Design and a four-month contribution from Aitchee. Trading All our operations traded strongly during the year and achieved increases in sales and EBIT. Activity proved particularly buoyant towards the end of the year, a momentum that enabled the Group to enter 2008 with an order book almost double the level in hand at the onset of 2007. 1 Despite the relative strength of sterling, the robust performance of the Group in terms of sales, margins and orders is testament to our acquired companies’ solid niche positioning in their respective world markets. The proposed dividend will be payable on Friday 4 July 2008 to shareholders on the register on 6 June 2008 and the shares will go ex- dividend on 4 June 2008. Financial Performance Favourable trading contributed to a satisfactory increase in our year-end cash balances which stood at £910,000 (2006: £824,000) and to the reduction in net debt from £2.4 million to £2.0 million. A significant proportion of our debt is denominated in foreign currency to alleviate the impact of exchange fluctuations on export activity. During the year our last significant investment in securities was sold: an offer for Poole Investments became unconditional in August, a development which resulted in cash proceeds of £342,000 and a pre-tax gain of £142,000. Current trading and prospects Benefiting from a strong order book, the Group experienced a favourable start to 2008 and, in the opinion of your Directors, enjoys good visibility for the first half of the year. Your Directors are optimistic about the prospects for 2008, always bearing in mind the uncertain macro- economic climate currently pertaining in global markets and the high proportion of the Group’s turnover which is derived from overseas. Since the year-end, the Company has contracted to purchase a freehold property that adjoins the FTT factory for £490,000. This will enable Aitchee to be relocated into larger, more suitable premises and will serve to enhance the ongoing cooperation between Aitchee and FTT. Dividends Your Board is pleased to recommend a final dividend of 2.2p (2006: 2p) which, subject to approval at the forthcoming Annual General Meeting on 22 May 2008, would make a total distribution of 3.3p for the year (2006: 3p). The level of cover by adjusted basic earnings per share has risen from 3 times to 4 times, notwithstanding the proposed 10 per cent increase. Your Board is progressing with the ‘whitewash’ resolution referred to in last January’s trading statement, in order to enable the Company to purchase its own shares without an obligation being incurred by certain shareholders to make an offer for the entire share capital. Such a proposal to shareholders forms part of the Board’s efforts to improve the liquidity of the Company’s shares. Consolidation has been the hallmark of 2007 and, in the wake of an excellent trading performance reflected in record sales and profits, your Board is conscious of the benefits to be derived from a significant expansion in the scale of the Group. To this end your Directors are working hard to convert an encouraging pipeline of prospective deals into tangible and value enhancing transactions. I would like to take this opportunity to convey the Board’s thanks and appreciation to all our employees for their invaluable contributions to a first class trading result. Alex Hambro Chairman Date: 27 March 2008 2 Directors’ Report The directors present their report and financial statements for the year ended 31 December 2007. Principal activities The company is the parent of a trading group involved in the design and manufacture of scientific instruments. Business review The company’s business model calls for a steady increase in the scope of its operations, achieved through acquisitions of companies operating in its chosen fields of activity and through the ongoing performance of its established subsidiaries. In addition to the dilution of head office costs that results from acquisitions, the company closely monitors the return it derives on the capital invested in its subsidiaries. The annual rate of return on total invested capital (“ROTIC”) is computed monthly, both overall and in respect of each subsidiary, by comparing attributable earnings before interest, tax and amortisation (“EBITA”) with the investment in fixed and net current assets (excluding surplus cash). In 2007, the overall return computed in this manner amounted to 24.6%, before taking account of parent company costs (2006: 21.5%). • Acquisitions: although no acquisitions were made during 2007, the directors actively investigated a number of opportunities that came to the attention of the directors and there is a pipeline of interesting prospects that remain under investigation. It is regarded as paramount that acquisitions are completed only when the directors are satisfied that the target business has sound long-term strength. • Ongoing performance: the directors regard the trend of adjusted diluted earnings per share and the company’s ability to pay 3 dividends to its shareholders as key indicators of overall group performance. These indicators are monitored closely and both showed strong gains in the year, with the former rising from 8.6p per share in 2006 to 12.9p in 2007. Dividend cover remained constant over the 2 years at a factor of 5, despite the dividend in 2006 being only the maiden interim payment of 1p per share, compared with payments totalling 3.1p per share in 2007. In addition to these trends and the above "ROTIC" measure for the rate of return on investments, the company measures the performance of its individual subsidiaries in a number of ways: Sales trends: (a) sales at Fire Testing Technology (“FTT”) rose by 5% in 2007 compared with 2006. Order intake rose more significantly in the closing stages of 2007, with the result that the order backlog at the end of the year was £900,000 compared with less than £400,000 at 31 December 2006. Sales at Aitchee Engineering Limited, though slightly below budget, remained at a high level compared with recent years’ averages; (b) sales at PE.fiberoptics (“PFO”) rose by almost one third in 2007 as the company continued to establish a strong position in its slowly re-emerging market. The year-end order backlog was 80% up on the previous year-end; (c) sales at UHV Design (“UHV”) were 12% above the annualised rate for the previous accounting period, building further on the 42% gain of the previous year. The year-end order backlog was 38% up on the previous year-end. Earnings: Rising sales on a relatively fixed cost base enabled the group to post a 16.9% EBITA margin (excluding the gain arising on the disposal of available-for-sale investments), compared with 13.7% on a comparable basis in 2006. Cash generation and management: Consolidated gross cash flow from operating activities amounted to £859,000 (2006: £614,000) after a net investment in working capital of £283,000 (2006: £142,000). The proceeds of £342,000 received on the sale of the group’s last significant available-for-sale investment added materially to the group’s cash flow. • Commercial risks and uncertainties: An important element of the group’s business model is development through acquisition; the group is exposed to the risk of an insufficient flow of target companies of requisite quality. As regards the group’s existing businesses, activities are concentrated in niche markets, serving a worldwide customer base. The principal drivers of the individual businesses within the group are as follows: • FTT is the world’s major producer of instruments designed to measure the reaction of materials to fire; the long-term growth of the business is supported by the development of related safety regulations internationally and by the globalisation of trade. The activity is supported through the in-house production of engineering parts following the acquisition of Aitchee Engineering Associates in 2006. • PFO is a significant provider to the telecoms industry of equipment to test the properties of fibre optic and fibre optic networks. Trading is strongly influenced by the cyclical nature of this sector. • UHV designs and manufactures instruments to create motion, heating and cooling within ultra high vacuum chambers. It is benefiting from the buoyancy of the high-tech markets which it serves and their requirements for ultra high vacuum products. The directors consider that there is scope to improve the company’s output and market share through technical innovation and increased production capability. Across all the group’s activities lies the exposure to human resource shortages. This reflects the small niche-serving nature of the group’s businesses and the impracticality at this stage of the group’s development of providing significant back-up support in respect of key roles. • Financial risk management objectives and policies: the group utilises financial instruments, other than derivatives, comprising borrowings, cash and cash equivalents and various other items such as trade receivables and payables that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the group's operations. The main risks arising from the group’s financial instruments relate to interest rates, liquidity, credit and foreign currency exposure. The directors review and agree policies for managing each of these risks, which are described and evaluated in more detail in note 31 to the consolidated financial statements and which are summarised below. The policies have remained unchanged from previous periods. Interest rate risk The group finances its operations through a mixture of bank and hire purchase borrowings (predominantly at floating rates), equity and retained profits. With net debt of £2 million at 31 December 2007, exposure to interest rate fluctuations is not considered to be a major threat to the group. Liquidity risk The group seeks to manage liquidity risk by ensuring sufficient funds are available to meet foreseeable needs and to invest cash assets safely and profitably. Primarily this is achieved through loans arranged at group level. Short term flexibility is achieved through the availability of overdraft facilities and through the significant cash balances available since the group adopted its new strategy as an industrial enterprise in 2005. Credit risk The group reviews the credit risk relating to its customers by ensuring wherever possible that it deals with long established trading partners, agents and government / university backed bodies, where the risk of default is considered low. Where considered appropriate, the group insists on up-front payment and requires letters of credit facilities to be provided. Currency risk With exports representing a significant proportion of its sales, the main risk area to which the group is exposed is that of foreign currencies (principally US$ and Euros). The group adopts a strategy to hedge against this risk in whole or in part by maintaining a proportion of its bank loans in these currencies. The directors review the value of this hedge on a regular basis. There remains, nevertheless, an ongoing threat to the group’s competitive position in international markets from any sustained period of Sterling strength. Results and dividends The results for the financial year to 31 December 2007 are set out in the income statement. The company paid an interim dividend of 1.1p per Ordinary share on 2 November 2007. At the forthcoming Annual General Meeting, the directors will recommend payment of a final dividend for the year of 2.2p per Ordinary share to be paid on Friday 4 July 2008 to shareholders on the register on Friday 6 June 2008. The shares will go ex-dividend on Wednesday 4 June 2008. Directors The following directors have held office during the year: Hon AR Hambro1 - non-executive Mr DE Cicurel Mr RL Cohen Mr RJ Elman1 - non-executive Mr GC Reece1 - non-executive 1Member of the audit and remuneration committees 4 Directors’ interests The directors’ interests in the Ordinary shares of the company were as stated below: Ordinary of 5p each Hon AR Hambro Mr DE Cicurel * Mr RL Cohen Mr RJ Elman Mr GC Reece 31 December 2007 Options Shares 1 January 2007 Shares Options 25,000 526,356 10,000 45,791 3,000 - - 47,000 - - 25,000 526,356 - 20,000 - - - 37,000 - - * Held through David Cicurel Securities Limited, except for 40 shares held directly. Details of share options are set out in note 26 to the financial statements. In addition to the above holdings of Ordinary shares, the directors had the following interests in the Convertible Redeemable share capital of the company: Convertible Redeemable of 1p each (quarter-paid) 31 December 2007 Shares 1 January 2007 Shares Hon AR Hambro Mr DE Cicurel * Mr RL Cohen Mr RJ Elman Mr GC Reece 416,667 4,166,667 - 208,333 208,333 416,667 4,166,667 - 208,333 208,333 * Held through David Cicurel Securities Limited. 5 The conversion terms of the Convertible Redeemable shares are detailed in note 27 to the financial statements. Following a full conversion of the Convertible Redeemable shares to Ordinary shares, the directors’ interests in the enlarged share capital of the company as at 31 December 2007 would have been as follows: Hon AR Hambro Mr DE Cicurel Mr RL Cohen Mr RJ Elman Mr GC Reece Ordinary Shares 65,465 931,001 10,000 66,023 23,232 Payment policy The group’s policy is to agree terms and conditions with suppliers before business takes place and to pay agreed invoices in accordance with the terms of payment. Trade creditor days of the company at the end of the year represented 20 days (2006: 34 days). Directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the parent company financial statements in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) and the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the group and parent company and of the profit or loss of the group and parent company for that period. In preparing these 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 UK Accounting Standards and International Financial Reporting Standards as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the group and parent company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of both the group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the directors are aware: • there is no relevant audit information of which the company's auditor is unaware; and • the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the company's auditor is aware of that information. head office and premises of its principal subsidiary, FTT. The activities of FTT’s subsidiary, Aitchee Engineering Limited, will be relocated into Unit 18. Auditor Grant Thornton UK LLP offer themselves for reappointment as auditor in accordance with section 385 of the Companies Act 1985. On behalf of the board RL Cohen Director and Company Secretary 27 March 2008 The maintenance and integrity of the corporate and financial information included on the Judges Capital website is the responsibility of the directors: the work carried out by the auditor does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. Corporate governance The directors have established an audit committee and a remuneration committee with formally delegated duties and responsibilities. The members of both committees are the non-executive directors. The audit committee determines the terms of engagement of the company’s auditor and, in consultation with the company’s auditor, the scope of the audit. The audit committee has unrestricted access to the company’s auditor. The remuneration committee reviews the scale and structure of the executive directors’ remuneration and the terms of their service contracts. The remuneration of the non-executive directors is determined by the board as a whole. No directors participate in setting their own pay. Post balance sheet event On 20 March 2008, the parent company exchanged contracts for the purchase for £490,000 of a freehold property at Unit 18, Charlwoods Road, East Grinstead, West Sussex. This site comprises a factory unit with ancillary offices and is located adjacent to the parent company’s 6 Report of the Independent Auditor We have audited the consolidated financial statements of Judges Capital plc for the year ended 31 December 2007 which comprise the consolidated income statement, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and notes 1 to 35. These consolidated financial statements have been prepared under the accounting policies set out therein. We report to you our opinion as to whether the consolidated financial statements give a true and fair view and whether the consolidated financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the directors’ report is consistent with the consolidated financial statements. 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 consolidated 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 consolidated financial statements. We have reported separately on the parent company financial statements of Judges Capital plc for the year ended 31 December 2007. This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report and the consolidated financial statements in accordance with United Kingdom law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the consolidated financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. Opinion In our opinion: We read other information contained in the Annual Report and consider whether it is consistent with the audited consolidated financial statements. The other information comprises only the directors’ report and the Chairman's statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the consolidated financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the consolidated financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the consolidated financial statements, and of whether the accounting policies are appropriate to the group's circumstances, consistently applied and adequately disclosed. • the consolidated financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31 December 2007 and of its profit for the year then ended; • the consolidated financial statements have been properly prepared in accordance with the Companies Act 1985; and • the information given in the directors’ report is consistent with the consolidated financial statements. Grant Thornton UK LLP Registered Auditor Chartered Accountants Leicester 27 March 2008 7 Consolidated Income Statement Revenue Operating costs Operating profit Profit/(loss) on disposal of available-for-sale investments Interest receivable Interest payable Profit before tax Taxation Profit for the year Attributable to: Equity holders of the parent company Minority interest Earnings per share – total and continuing Basic Diluted The accompanying notes form an integral part of these consolidated financial statements. Notes 7 8 9 10 11 11 12 14 14 2007- £- 6,191,965- (5,267,084) 924,881- 142,217- 32,987- (241,772) 858,313- (231,496) 626,817- 552,468- 74,349- 15.5p 13.3p 2006- £- 5,195,325- (4,712,635) 482,690- (6,145) 32,041- (227,418) 281,168- (84,653) 196,515- 190,105- 6,410- 5.4p 4.8p 8 Consolidated Balance Sheet ASSETS Non-current assets Property, plant and equipment Goodwill Other intangible assets Available-for-sale investments Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets LIABILITIES Current liabilities Trade and other payables Current portion of long-term borrowings Current tax payable Non-current liabilities Long-term borrowings Deferred tax liabilities Total liabilities Net assets EQUITY Share capital Share premium account Merger reserve Retained earnings Revaluation reserve Equity attributable to equity holders of the parent company Minority interest Total equity Note 15 16 17 18 19 20 21 22 23 25 26 2007- £- 274,626- 4,383,347- 75,909- 20,000- 4,753,882- 553,311- 1,543,011- 910,366- 3,006,688- 7,760,570- (877,226) (527,008) (299,771) (1,704,005) (2,335,751) (35,934) (2,371,685) (4,075,690) 3,684,880- 178,044- 2,501,430- 475,074- 408,452- 450- 3,563,450- 121,430- 3,684,880- 2006- £- 295,468- 4,389,963- 195,924- 210,950- 5,092,305- 402,941- 1,249,039- 824,156- 2,476,136- 7,568,441- (779,708) (421,813) (261,718) (1,463,239) (2,835,940) (89,505) (2,925,445) (4,388,684) 3,179,757- 178,044- 2,501,430- 475,074- (33,629) (5,743) 3,115,176- 64,581- 3,179,757- The accompanying notes form an integral part of these consolidated financial statements. The financial statements were approved by the board on 27 March 2008 9 D.E. Cicurel Director R.L. Cohen Director Consolidated Statement of Changes in Equity Share capital Share premium Merger reserve Retained earnings- Revaluation reserve- Total**- Minority interest- Total equity- Note £ £ £ £- £- £- £- £- 1 January 2006 Changes in equity for 2006 Gains/(losses) on revaluation of available-for-sale investments Tax on revaluation gains/(losses) taken directly to equity Transferred to profit or loss on disposal of available-for-sale investments Net income recognised directly in equity Profit for the year Total recognised income and expense for the year Dividends Issue of share capital Balance at 31 December 2006 Changes in equity for 2007 Transferred to profit or loss on disposal of available-for-sale investments Net income recognised directly in equity Profit for the year Total recognised income and expense for the year Dividends Balance at 31 December 2007 13 13 173,118 2,501,430 380,000 (188,109) (58,510) 2,807,929- 58,171- 2,866,100- - - - - - - - 4,926 178,044 - - - - - - - - - - - - - 2,501,430 - - - - - - - - - - - - 95,074 475,074 - - - - - 178,044 2,501,430 475,074 -- -- -- -- 190,105- 190,105- (35,625) -- (33,629) -- -- 552,468- 552,468- (110,387) 408,452- 19,950- (5,985) 38,802- 52,767- -- 52,767- -- -- 19,950- (5,985) 38,802- 52,767- 190,105- 242,872- (35,625) 100,000- -- -- -- -- 6,410- 6,410- -- -- 19,950- (5,985) 38,802- 52,767- 196,515- 249,282- (35,625) 100,000- (5,743) 3,115,176- 64,581- 3,179,757- 6,193- 6,193- -- 6,193- -- 450- 6,193- 6,193- 552,468- 558,661- (110,387) 3,563,450- -- -- 74,349- 74,349- (17,500) 121,430- 6,193- 6,193- 626,817- 633,010- (127,887) 3,684,880- ** - Total represents amounts attributable to equity holders of the parent company. The accompanying notes form an integral part of these consolidated financial statements. 10 Consolidated Cash Flow Statement Cash flows from operating activities Profit after tax Adjustments for: Depreciation Amortisation of intangible assets Profit on disposal of property, plant and equipment (Profit)/loss on disposal of available-for-sale investments Foreign exchange losses/(gains) on foreign currency loans Interest receivable Interest payable Tax expense recognised in income statement (Increase)/decrease in inventories Increase in trade and other receivables Increase in trade and other payables Cash generated from operations Interest paid Tax paid Net cash from operating activities Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired Purchase of property, plant and equipment Proceeds from disposal of equipment Proceeds from disposal of available-for-sale investments Interest received Net cash generated/(used) in investing activities Cash flows from financing activities Proceeds from drawdown of long-term borrowings Repayments of borrowings (including hire purchase contracts) Dividends paid Net cash (used in)/from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period The accompanying notes form an integral part of these consolidated financial statements. 11 2007- £- 626,817- 70,289- 120,015- (611) (142,217) 27,443- (32,987) 241,772- 231,496- (150,370) (293,972) 161,518- 859,193- (242,399) (249,651) 367,143- (57,384) (57,032) 8,196- 342,000- 32,987- 268,767- --- (421,813) (127,887) (549,700) 86,210- 824,156- 910,366- 2006- £- 196,515- 53,644- 228,783- (2,078) 6,145- (7,335) (32,041) 227,418- 84,653- 104,775- (364,429) 117,929- 613,979- (227,418) (294,693) 91,868- (1,036,223) (31,336) 15,655- 202,611- 32,041- (817,252) 700,000- (263,454) (35,625) 400,921- (324,463) 1,148,619- 824,156- Notes to the Consolidated Financial Statements 1. General information Judges Capital plc is the ultimate parent company of the group, whose principal activities comprise the design, manufacture and sale of scientific instruments. These are used in the measurement of the reaction of materials to fire, in the testing of the properties of fibre optic and fibre optic networks and in the creation of movement, heating and cooling of objects within ultra high vacuum chambers. 2. Registered office The address of the registered office and principal place of business of Judges Capital plc is Unit 19, Charlwoods Road, East Grinstead, West Sussex RH19 2HL. 3. Basis of accounting The consolidated financial statements have been prepared under the historical cost convention except for certain financial instruments which are carried at fair value. The group’s financial statements up to and including those for the year ended 31 December 2006 were prepared in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). With effect from 1 January 2007, the company, being listed on the Alternative Investment Market of the London Stock Exchange, is required to present its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Accordingly, these financial statements have been prepared in accordance with the accounting policies set out below which are based on the IFRS in issue as adopted by the European Union (EU) and in effect at 31 December 2007. Comparatives have been restated in compliance with the principles of IFRS. Reconciliations of shareholders’ equity under UK Generally Accepted Accounting Practice (UK GAAP) to that under IFRS at 1 January and 31 December 2006 and of the profit for the year ended 31 December 2006, together with an explanation of material adjustments to the cash flow statement, are given in notes 33 and 34. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in the reconciliation schedules presented in note 33. 4. Use of accounting estimates and judgements Many of the amounts included in the consolidated financial statements involve the use of judgement and/or estimation. These judgements and estimates are based on management’s best knowledge of the relevant facts and circumstances, having regard to prior experience, but actual results may differ from the amounts included in the consolidated financial statements. Information about such judgements and estimation is contained in the accounting policies and/or the notes to the consolidated financial statements and the key areas are summarised below: Judgements in applying accounting policies: • the directors must judge whether all of the conditions required for revenues to be recognised in the income statement of the financial year, as set out in Note 6.4 below, have been met; • the classification of financial assets as "available for sale" requires judgements concerning the likelihood and timing of realisation of sale; • the directors must judge whether future profitability is likely in making the decision whether or not to create a deferred tax asset. Sources of estimation uncertainty: • depreciation rates are based on estimates of the useful lives and residual values of the assets involved; • estimates of future profitability are required for the decision whether or not to create a deferred tax asset; • estimates are required as to asset carrying values and impairment charges. These are assessed by reference to budgeted profits and cash flows for future periods for the relevant income generating units and an estimate of their values in use. 5. Change in accounting policies 5.1 Standards, amendments and Interpretations to existing Standards that are not yet effective At the date of authorisation of these consolidated financial statements, certain new Standards, amendments and Interpretations to existing standards have been published but are not yet effective. The group has not early-adopted any of these pronouncements. The new Standards, amendments and Interpretations that are expected to be relevant to the group’s consolidated financial statements are as follows: Amendment to IAS 1 Presentation of Financial Statements (effective from 1 January 2009, ie for reporting periods beginning on or after this date) This amendment affects the presentation of owner changes in equity and introduces a statement of comprehensive income. Preparers will have the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by 12 a statement of other comprehensive income). This amendment does not affect the financial position or results of the group but will give rise to additional disclosures. Management are currently assessing the detailed impact of this amendment on the group’s financial statements. IFRS 8 Operating Segments (effective from 1 January 2009) This IFRS specifies how an entity should report information about its operating segments in its consolidated financial statements. Generally, financial information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. Implementation of this Standard is not expected to increase the number of reportable segments but will alter the manner in which these are reported to be consistent with the internal reporting provided to the chief operating decision-maker. All the above pronouncements will be adopted in the group’s financial statements for the period beginning 1 January 2009. IFRS 3 Business Combinations (revised 2008) and IAS 27 Consolidated and Separate Financial Statements (revised 2008) – effective from 1 July 2009 The revised Standards introduced major changes to the accounting requirements for business combinations, transactions with non-controlling interests (a new term for “minority interests”) and a loss of control of a subsidiary. Management are currently assessing the detailed impact of this amendment on the group’s financial statements. The revised Standards will be adopted in the group’s financial statements for the period beginning 1 January 2010. identifiable net assets of the acquired subsidiary at the date of acquisition. Other new Standards and Interpretations have been issued but are not expected to have a material impact on the group's financial statements. 6. Accounting policies 6.1 Basis of consolidation The parent company is entitled to the merger relief offered by section 131 of the Companies Act 1985 in respect of the fair value of the consideration received in excess of the nominal value of the equity shares issued in connection with the acquisition of Fire Testing Technology Limited and UHV Design Limited. The consolidated financial statements include those of the parent company and its subsidiaries, all drawn up to 31 December 2007. Subsidiaries are entities over which the group has the power to control the financial and operating policies so as to obtain benefits from their activities. The group obtains and exercises control through voting rights. Income, expenditure, unrealised gains and intra-group balances arising from transactions within the group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the group. Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. In the case of acquisitions after 31 December 2005, goodwill is stated after separating out identifiable intangible assets. Goodwill represents the excess of acquisition cost over the fair value of the group's share of the 6.2 Business combinations completed prior to the date of transition to IFRS The group has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to the date of transition to IFRS on 1 January 2006. Accordingly the classification of the combination (acquisition, reverse acquisition or merger) remains unchanged from that used under UK GAAP. Assets and liabilities are recognised at the date of transition if they would be recognised under IFRS, and are measured using their UK GAAP carrying amounts immediately post-acquisition as deemed cost under IFRS, unless IFRS requires fair value measurement. Amounts recorded as goodwill under UK GAAP have not been re-assessed to identify intangible assets. Deferred tax and minority interest are adjusted for the impact of any consequential adjustments after taking advantage of the transitional provisions. 6.3 Goodwill Goodwill, representing the excess of the cost of acquisition over the fair value of the group’s share of the identifiable net assets acquired, is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. 13 Negative goodwill is recognised immediately after acquisition in the income statement. The carrying value of negative goodwill at the date of transition has been credited to reserves. There is no re-instatement of goodwill or negative goodwill that was amortised prior to transition to IFRS. 6.5 Intangible assets acquired as part of a business combination In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the group of its fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits embodied in the asset will flow to the group. • Plant and machinery: 15% on written down value to 20% straight-line on cost • Fixtures, fittings and equipment: 15% on written down value to 33% straight-line on cost 25% on written down value to 25% straight-line on cost 20% straight-line on cost • Building improvements: • Motor vehicles: 6.4 Revenue Revenue from the sale of goods is measured by reference to the fair value of consideration received or receivable by the group for goods supplied, excluding Value Added Tax, and is recognised when all the following conditions have been satisfied: • the group has transferred to the buyer the significant risks and rewards of ownership of the goods and effective control over them; • the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably; and • it is probable that the economic benefits associated with the transaction will flow to the group. Installation revenues are deferred and held on the balance sheet within trade and other payables pending recognition as revenue on completion of installation. Interest income is recognised using the effective interest method which calculates the amortised cost of a financial asset and allocates the interest income over the relevant period. Dividend income is recognised when the shareholder’s right to receive payment is established. Amortisation begins when the intangible asset is first available for use and is provided at rates calculated to write off the cost of each intangible asset over its expected useful life, ranging from a few weeks in the case of sales order backlogs to five years in the case of non-competition agreements. Amortisation charges are included in operating costs in the income statement. Subsequent to initial recognition, intangible assets are stated at deemed cost less accumulated amortisation and impairment charges. 6.6 Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and any provision for impairment. Disposal of assets: the gain or loss arising on the disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement. Depreciation: Depreciation is provided at annual rates calculated to write off the cost less residual value of each asset over its expected useful life, within the following ranges: Material residual value estimates are updated as required but at least annually. 6.7 Impairment testing of goodwill, other intangible assets and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash- generating unit level. Goodwill is allocated to those cash- generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other individual assets or cash-generating units are tested whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in 14 use based on estimated future cash flows from each cash- generating unit, abated at a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures is directly linked to the group’s latest approved budgets, adjusted as necessary to exclude any future restructuring to which the group is not yet committed. Discount rates are determined individually for each cash- generating unit and reflect their respective risk profiles as assessed by the directors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. Impairment charges are included in operating costs in the income statement. An impairment charge that has been recognised is reversed if the cash-generating unit’s recoverable amount exceeds its carrying amount. 6.8 Leases In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised as an asset in the balance sheet at the time of inception of the lease at the fair value of the leased asset or, if lower, the present value of the minimum lease payments plus incidental payments, if any, to be borne by the lessee. A corresponding amount is recognised as a finance leasing liability. The interest element of leasing payments represents a constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease. All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight line basis over the period of the lease term. Lease incentives are spread over the term of the lease. 6.9 Inventories Inventories are stated at the lower of cost and net realisable value. Costs of ordinarily interchangeable items are assigned using the first-in, first-out cost formula. Cost includes materials, direct labour and an attributable proportion of manufacturing overheads based on normal levels of activity. 6.10 Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of those temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity. 6.11 Share-based payments IFRS 2 has been applied, in accordance with IFRS 1 and where the effect is material, to equity-settled share options granted on or after 7 November 2002 and not vested prior to 1 January 2006. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions. All equity-settled share-based payments are ultimately recognised 15 as an expense in the income statement, with a corresponding credit to “other reserve”. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. The impact of the revision of the original estimates, if any, is recognised in the income statement over the remaining vesting period, with a corresponding adjustment to the appropriate reserve. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. 6.12 Financial assets Financial assets are divided into the following categories: loans and receivables and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which they were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available. All financial assets are recognised when the group becomes a party to the contractual provisions of the instrument. Financial assets are recognised at fair value plus transaction costs. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade receivables are classified as loans and receivables. Loans and receivables are measured subsequent to initial recognition at amortised cost using the effective interest method, less provision for impairment. Any change in their value through impairment or reversal of impairment is recognised in operating costs in the income statement. Provision against trade receivables is made when there is objective evidence that the group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows. Available-for-sale financial assets include non-derivative financial assets that are either designated as such or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are measured subsequently at fair value, with changes in value recognised in equity, through the statement of changes in equity. Gains and losses arising from investments classified as available-for-sale are recognised in the income statement when they are sold or when the investment is impaired. In the case of impairment of available-for-sale assets, any loss previously recognised in equity is transferred to the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. An assessment for impairment is undertaken at least at each balance sheet date. A financial asset is derecognised only where the contractual rights to the cash flows from the asset expire or the financial asset is transferred and that transfer qualifies for derecognition. A financial asset is transferred if the contractual rights to receive the cash flows of the asset have been transferred or the group retains the contractual rights to receive the cash flows of the asset but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial asset that is transferred qualifies for derecognition if the group transfers substantially all the risks and rewards of ownership of the asset, or if the group neither retains nor transfers substantially all the risks and rewards of ownership but does transfer control of that asset. 6.13 Financial liabilities Financial liabilities are obligations to pay cash or other financial assets and are recognised when the group becomes a party to the contractual provisions of the instrument. All financial liabilities are recorded initially at fair value net of direct issue costs. All financial liabilities with the exception of Convertible Redeemable shares (see paragraph 6.19) are recorded at amortised cost using the effective interest method, with interest- related charges recognised as an expense in finance cost in the income statement. These financial liabilities include trade and 16 6.19 Convertible Redeemable shares In accordance with IAS 32, the Convertible Redeemable shares have been recorded as a liability at the net proceeds received and the future conversion into Ordinary shares has not been taken into account. 7. Segmental reporting The group's primary reporting format is business segment and its secondary format is geographical segment by origin of revenue. Business segment analysis: all of the group’s operations are in the field of design and manufacture of scientific instruments. The financial performance of each of the business segments is summarised below. There are no material sales between business segments. All assets reside in the UK. other payables, current tax payable and borrowings, including bank loans, subordinated loan notes and hire purchase commitments. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the income statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. A financial liability is derecognised only when the obligation is extinguished, that is, when the obligation is discharged or cancelled or expires. 6.14 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. 6.15 Pensions Companies in the group operate defined contribution pension schemes for employees and directors. The assets of the schemes are held by investment managers separately from those of the company and group. The pension costs charged against profits are the contributions payable to the schemes in respect of the accounting period. 6.16 Foreign currencies Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were initially recorded are recognised in the income statement in the period in which they arise. 6.17 Dividends Dividend distributions payable to equity shareholders are included in trade and other payables when the dividends are approved in general meeting but not paid prior to the balance sheet date. 6.18 Equity Equity comprises the following: • “Share capital” represents the nominal value of equity shares. • “Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. • “Merger reserve” represents the fair value of the consideration received in excess of the nominal value of equity shares issued in connection with acquisitions where the company has exercised entitlement to the merger relief offered by section 131 of the Companies Act 1985. • “Profit and loss reserve” represents retained profits. • “Revaluation reserve” represents gains and losses due to the revaluation of certain financial assets. • “Minority interest” represents retained profits and losses attributable to minority shareholders in subsidiary companies. 17 Year ended / at 31 December 2007 Revenue Operating profit Assets Liabilities Total capital employed Goodwill Other intangible assets Capital expenditure Depreciation Amortisation of intangible assets Year ended / at 31 December 2006 Revenue Operating profit Assets Liabilities Total capital employed Goodwill Other intangible assets Capital expenditure Depreciation Amortisation of intangible assets Fire testing equipment Fibre optic testing equipment £ 3,650,041 636,341 1,771,520 951,840 819,680 3,871,161 33,666 15,047 76,197 32,667 £ 1,036,279 215,602 494,803 247,472 247,331 - - - 11,504 - Fire testing equipment Fibre optic testing equipment £ 3,247,979 495,499 2,037,890 1,141,002 896,888 3,877,777 66,333 11,742 68,837 14,667 £ 787,817 95,763 278,635 172,531 106,104 - - - 14,397 - Ultra high vacuum manipulation equipment £ 1,505,645 312,980 840,112 347,707 492,405 512,186 42,243 41,985 36,925 87,348 Ultra high vacuum manipulation equipment £ 1,159,529 282,839 840,355 421,143 419,212 512,186 129,591 76,144 24,746 214,116 Central costs- and consolidation- Group consolidated Geographical analysis: all the group’s design, manufacturing and sales activities are located in the United Kingdom. Sales by geographical destination are as follows: United Kingdom Europe United States/Canada Rest of the World Total 8. Operating costs Raw materials and consumables Other external charges Staff costs Depreciation Amortisation of intangible assets 2007 £ 988,451 2,501,724 1,053,638 1,648,152 6,191,965 2007 £ 1,703,062 1,231,289 2,142,429 70,289 120,015 5,267,084 2006 £ 710,496 1,731,933 1,075,996 1,676,900 5,195,325 2006 £ 1,619,220 1,138,553 1,672,435 53,644 228,783 4,712,635 £- -- (240,042) 4,654,135- 2,528,671- 2,125,464- -- -- -- (54,337) -- £ 6,191,965 924,881 7,760,570 4,075,690 3,684,880 4,383,347 75,909 57,032 70,289 120,015 Central costs- and consolidation- Group consolidated £- -- (391,411) 4,411,561- 2,654,008- 1,757,553- -- -- -- (54,336) -- £ 5,195,325 482,690 7,568,441 4,388,684 3,179,757 4,389,963 195,924 87,886 53,644 228,783 18 9. Operating profit 2007- £- 2006- £- 11. Interest receivable and payable 13. Dividends 2007- £- 2006- £- Interest receivable – short-term bank deposits 32,987- 32,041- Final dividend for the previous year Interim dividend for the current year Operating profit is stated after charging / (crediting): Profit on disposal of property, plant and equipment Fees payable to the company’s auditor for the audit of the company’s annual accounts Fees payable to the company’s auditor for other services: (610) (2,078) 24,353- 12,400- for the audit of the company’s subsidiaries, pursuant to legislation for tax services for all other services Depreciation Amortisation of intangible assets Operating lease rentals - land and property 39,850- 7,750- 8,000- 70,289- 120,015- 164,700- 18,320- 7,450- 800- 53,644- 228,783- 162,068- In addition fees were paid to the auditor in 2006 in respect of corporate finance transaction work undertaken in connection with the acquisition of UHV Design Limited. The costs of £28,727 plus VAT were charged to investments in subsidiaries. 10. Profit/(loss) on disposal of available-for-sale investments During the year, the parent company disposed of its 3% holding in Poole Investments plc, realising £342,000 in cash and a profit before tax of £142,217. During 2006, the parent company disposed of its holding in Dickinson Legg plc and received a final distribution on the liquidation of Lionheart plc, realising in aggregate £202,611 in cash and a loss before tax of £6,145. 19 Interest payable - bank and hire purchase loans - bank overdrafts and other short-term - borrowings Interest payable - loan notes Net interest payable 12. Taxation UK corporation tax at 30% (2006: 30%) - current year - prior years Deferred tax - origination and reversal of temporary differences: Current year Prior years Tax on profit for the year - current year - prior years Factors affecting the tax charge for the year: Profit before tax Profit before tax multiplied by standard rate of UK corporation tax of 30% Tax relief available on purchased goodwill Provisions and expenditure not deductible for tax purposes Marginal relief Variances between capital allowances and depreciation Change in the rate of deferred tax Tax on profit for the year - current year - prior years Total net taxation charge (202,836) (194,219) (1,282) (37,654) (241,772) -- (33,199) (227,418) 208,785- 195,377- 2007- £- 288,968- (1,264) 287,704- (48,227) (7,981) (56,208) 240,741- (9,245) 231,496- 2006- £- 160,305- 852- 161,157- (77,474) 970- (76,504) 82,831- 1,822- 84,653- 858,313- 281,168- 257,494- (19,682) 6,555- (1,747) 679- (2,558) 240,741- (9,245) 231,496- 84,350- (6,855) 8,223- (10,559) 7,672- -- 82,831- 1,822- 84,653- 2007 £ p/share 2006 p/share £ 71,217 2.0 1.1 39,170 3.1 110,387 - 1.0 1.0 - 35,625 35,625 The directors will propose a final dividend of 2.2p per share, amounting to £78,339, for payment on 4 July 2008. As this remains conditional on shareholders’ approval, provision has not been made in these consolidated financial statements. 14. Earnings per share Options and warrants over Ordinary shares and rights of conversion of the Convertible Redeemable shares are described in notes 26 and 27. Year to 31 December 2007 Earnings attributable- to equity holders of- the parent company- Earnings per share Weighted average number of shares £- No. pence 552,468- 22,230- 574,698- 82,492- (99,552) 557,638- Profit after tax for calculation of basic earnings per share Notional taxed interest income accruing on dilution Profit after tax for calculation of diluted earnings per share Add-back: amortisation of intangible assets, net of tax Less: profit on disposal of available- for-sale investments, net of tax Adjusted diluted profit before amortisation of intangible assets Number of shares for calculation of basic earnings per share Dilutive effect of potential shares Number of shares for calculation of diluted earnings per share Basic earnings per share Diluted earnings per share Adjusted basic earnings per share Adjusted diluted earnings per share 3,560,878 769,944 4,330,822 15.5 13.3 15.0 12.9 Year to 31 December 2006 Earnings attributable Weighted average to equity holders of number of the parent company shares Earnings per share £ No. pence Profit after tax for calculation of basic earnings per share Notional taxed interest income accruing on dilution Profit after tax for calculation of diluted earnings per share Add-back: amortisation of intangible assets, net of tax Adjusted diluted profit before amortisation of intangible assets 190,105 16,685 206,790 160,148 366,938 Number of shares for calculation of basic earnings per share Dilutive effect of potential shares Number of shares for calculation of diluted earnings per share 3,544,953 718,852 4,263,805 Basic earnings per share Diluted earnings per share Adjusted basic earnings per share Adjusted diluted earnings per share 5.4 4.8 9.9 8.6 15. Property, plant and equipment 16. Goodwill Plant &- machinery- Fixtures,- fittings &- equipment- Motor- vehicles- Building improve- ments Total- £- £- £- £ £- 71,736- Cost / deemed cost 1 January 2006 Additions through business 181,143- combinations 72,880- Additions Disposals (26,000) 31 December 2006 299,759- 7,950- Additions -- Disposals 127,928- 31,739- 29,367 260,770- 18,369- 12,706- -- 159,003- 19,092- -- 19,450- 2,300- (14,550) 38,939- 29,990- (18,950) 25,125 - - 54,492 - - 244,087- 87,886- (40,550) 552,193- 57,032- (18,950) 31 December 2007 307,709- 178,095- 49,979- 54,492 590,275- 50,039- Depreciation 1 January 2006 Additions through business 61,634- combinations 36,759- Charge (13,840) Disposals 134,592- 31 December 2006 46,179- Charge -- Disposals 31 December 2007 180,771- Net book value - 31 December 2007 126,938- Net book value - 31 December 2006 165,167- 39,017- 28,011- 29,367 146,434- 6,805- 9,169- -- 54,991- 14,132- -- 69,123- 7,911- 3,406- (13,133) 26,195- 5,696- (11,365) 20,526- 7,270 4,310 - 40,947 4,282 - 45,229 83,620- 53,644- (26,973) 256,725- 70,289- (11,365) 315,649- 108,972- 29,453- 9,263 274,626- 104,012- 12,744- 13,545 295,468- Included above are plant & machinery assets held under hire purchase contracts with a net book value at 31 December 2007 of £57,378 (2006: £68,110). The depreciation charge in the year on these assets was £10,732 (2006: £3,440). Cost 1 January 2006 Acquisitions of subsidiary companies 31 December 2006 Adjustment in 2007 to purchase price of prior year acquisition 31 December 2007 £- 3,734,535- 655,428- 4,389,963- (6,616) 4,383,347- An analysis of goodwill by business segment is given in Note 7. The adjustment in 2007 to the purchase price of a prior year acquisition arises from the payment of an earn-out instalment in a lesser amount than had been provided. There have been no impairment charges in either 2006 or 2007. Goodwill is tested annually for impairment by reference to the value in use of the relevant cash generating units. This is calculated on the basis of projected cash flows for the following five years derived from detailed budgets for the ensuing year, with subsequent years including modest nominal rates of sales and cost growth ranging from zero to 7.5% per annum and steady gross margins. These cash flows are adjusted to present day values at a discount rate based on a weighted average cost of capital of 10.88% per annum. The residual value at the end of the five years, computed by reference to projected year six cash flows and discounted, is also included. There was no requirement for any impairment provision at 31 December 2007. 20 17. Other intangible assets 18. Available-for-sale investments 19. Inventories Advertising Distribution agreements Sales Customer order backlog Non- relation- competition agreement ships Total 31 December 2007 Period end value Directors’ valuation Market- valuation- Historical cost Total- valuation- Raw materials Work in progress Finished goods £ £ £ £ £ £ - 5,600 - 98,000 - 91,000 - 207,602 - - 22,505 424,707 5,600 98,000 91,000 207,602 22,505 424,707 At 31 December 2007 – unquoted investment Net unrealised gain at 31 December 2007 - - - - - - 3,112 81,667 91,000 49,254 3,750 228,783 31 December 2006 £ 19,373 - £- -- -- £ £- 20,000 20,000- 627 627- Period end value Historical cost Market- valuation- Directors’ valuation Total- valuation- £ £- £ £- Unquoted investments Quoted investments At 31 December 2006 19,373 199,782 219,155 -- 190,950- 190,950- 20,000 - 20,000 20,000- 190,950- 210,950- Net unrealised (loss) / gain at 31 December 2006 - (8,832) 627 (8,205) Investments held at 31 December 2007 comprise 800,100 shares (representing 1.68%) in Fortress Holdings plc (in members' voluntary liquidation – the directors’ valuation is their estimate of the final distribution from the liquidator). During the year, the quoted investment held on 31 December 2006, comprising 5,700,000 shares in Poole Investments plc was disposed of for a consideration of £342,000. Cost 1 January 2006 Acquisitions 31 December 2006 and 2007 Amortisation 1 January 2006 Charge for the year 2006 31 December 2006 Charge for the year 2007 31 December 2007 Net book value 31 December 2007 31 December 2006 3,112 81,667 91,000 49,254 3,750 228,783 2,488 16,333 - 96,693 4,501 120,015 5,600 98,000 91,000 145,947 8,251 348,798 - - 2,488 16,333 - - 61,655 14,254 75,909 158,348 18,755 195,924 An analysis of other intangible assets by business segment is given in Note 7. 21 2007 £ 420,251 105,993 27,067 2006 £ 288,839 100,646 13,456 553,311 402,941 In 2007, a total of £1,703,062 of inventories was included in the income statement as an expense (2006: £1,619,220). This includes an amount of £3,352 (2006: £nil) resulting from write-downs of inventories. There were no reversals of previous write-downs that were recognised in the income statement in either 2007 or 2006. All group inventories form part of the assets pledged as security in respect of bank loans. 20. Trade and other receivables Trade receivables Prepayments and accrued income Other receivables 2007 £ 2006 £ 1,384,707 75,725 82,579 1,137,693 65,666 45,680 1,543,011 1,249,039 The carrying value of receivables, all of which are short-term, is considered a reasonable approximation of fair value. All trade and other receivables have been reviewed for impairment and a provision of £876 (2006: £nil) has been made relating to the group’s fire testing equipment market. In addition, some of the unimpaired trade receivables were past due at the balance sheet date as follows: Not more than 3 months More than 3 months but not more than 6 months More than 6 months but not more than 1 year 2007 £ 532,734 72,507 5,727 2006 £ 687,794 4,262 973 610,968 693,029 21. Trade and other payables Trade payables Accruals and deferred income Social security and other taxes Other payables 2007 £ 288,134 432,486 78,196 78,410 2006 £ 339,377 298,036 101,795 40,500 877,226 779,708 24. Maturity of borrowings and net debt 31 December 2007 Bank loan Repayable in less than 6 months Repayable in months 7 to 12 Current portion of long-term borrowings £ 254,000 254,000 508,000 Subor- dinated loan notes £ Hire purchase Total- £ £- - - - 9,350 9,658 263,350- 263,658- . 19,008 527,008- All amounts are short-term and their carrying values are considered reasonable approximations of fair value. Other payables include £12,500 of non equity shares classed as financial liabilities (see note 27). 22. Current portion of long-term borrowings Repayable in years 1 to 2 Repayable in years 2 to 5 Long-term borrowings 608,000 1,210,594 1,818,594 - 500,000 500,000 17,157 625,157- - 1,710,594- 17,157 2,335,751- 2007 £ 2006 £ Total borrowings 2,326,594 500,000 36,165 2,862,759- Bank loan Net obligations under hire purchase contracts 508,000 19,008 404,000 17,813 Cash and cash equivalents Total net debt (910,366) 1,952,393- All amounts are short-term and their carrying values are considered reasonable approximations of fair value. 527,008 421,813 23. Long-term borrowings Bank loan Subordinated loan notes Net obligations under hire purchase contracts 2007 £ 2006 £ 1,818,594 500,000 17,157 2,299,775 500,000 36,165 2,335,751 2,835,940 The bank loan is secured on assets of the group, is repayable in quarterly instalments over a six year period ending 31 March 2011 and bears interest at 21/4% above LIBOR-related rates. The subordinated loan notes are unsecured, repayable on 23 May 2010 and bear interest at Bank of Scotland base rate plus 2%. The hire purchase obligations are secured on the related assets. The repayment profile of borrowings is as set out below. 31 December 2006 Bank loan Repayable in less than 6 months Repayable in months 7 to 12 Current portion of long-term borrowings £ 202,000 202,000 404,000 Subor- dinated loan notes £ - - - Hire purchase Total- £ £- 8,761 9,052 210,761- 211,052- 17,813 421,813- Repayable in years 1 to 2 Repayable in years 2 to 5 Long-term borrowings 508,000 1,791,775 2,299,775 - 500,000 500,000 527,009- 19,009 17,156 2,308,931- 36,165 2,835,940- Total borrowings 2,703,775 500,000 53,978 3,257,753- Cash and cash equivalents Total net debt (824,156) 2,433,597- A proportion of the group’s bank loans is drawn in foreign currencies to provide a hedge against assets denominated in those currencies. The Sterling equivalent at 31 December 2007 of loans denominated in US$ was £492,730 (2006: £144,436) and in Euros was £529,699 (2006: £148,229). These amounts are included in the figures above for bank loans, repayable in years 2 to 5. The components of the hire purchase debt are as follows: Future payments Less: interest component of future payments 2007- £- 38,137- 1,972- 2006- £- 58,939- 4,961- Carrying amount – 31 December 36,165- 53,978- 25. Deferred tax liabilities 1 January 2007 Acquisitions - inherited deferred tax balance - deferred tax on intangible assets acquired Credit to income statement in the year Charge against revaluation reserve 2007- £- 89,505- -- -- (56,208) 2,637- 2006- £- 7,972- 8,011- 127,412- (76,504) 22,614- 31 December 2007 35,934- 89,505- Deferred tax balances relate to temporary differences as follows: Accelerated capital allowances Provisions allowable for tax in subsequent period Goodwill and other intangible assets Fair value adjustment arising on acquisition of FTT Available-for-sale investments 28,988- (7,770) 28,732- (14,192) 176- 43,676- -- 69,788- (21,497) (2,462) 35,934- 89,505- Amounts provided in respect of deferred tax are computed at 28% (2006: 30%). The effect of the change in the rate of tax from 30% to 28% was a reduction in deferred tax at 31 December 2007 of £2,570, of which £2,558 was credited against profits for the year and £12 was credited in revaluation reserve. The group has unrelieved tax losses at 31 December 2007 of £431,000 (2006: £325,000). The group has not recognised a deferred tax asset (2007: £120,000, 2006: £97,000) in respect of these losses as the timing and extent of recovery is insufficiently certain. These losses are available to be offset against future profits of the parent company. 22 26. Share capital Authorised 10,000,000 Ordinary shares of 5p each Allotted, called up and fully paid 3,560,878 (2006: 3,560,878) Ordinary shares of 5p each 2007 £ 2006 £ 500,000 500,000 178,044 178,044 Equity share options and warrants At 31 December 2007 and at the date of this report, options have been granted and remain outstanding in respect of 160,000 Ordinary shares in the company, all priced by reference to the mid-market price of the shares on the date of grant, all exercisable between the third and tenth anniversaries of grant and none exercisable at 31 December 2006 or 2007, as below: 2007 Number Weighted average exercise price 2006 Number Weighted average exercise price p/share p/share 2005 Approved Plan 28,000 Outstanding at 1 January Granted in year 62,000 Outstanding at 31 December 90,000 2005 Unapproved Plan 56,000 Outstanding at 1 January Granted in year 14,000 Outstanding at 31 December 70,000 Total Outstanding at 1 January 84,000 76,000 Granted in year Outstanding at 31 December 160,000 103.5 99.4 100.7 102.0 94.0 100.4 102.5 98.4 100.6 - 28,000 28,000 42,000 14,000 56,000 42,000 42,000 84,000 - 103.5 103.5 101.5 103.5 102.0 101.5 103.5 102.5 Exercise prices at 31 December 2007 ranged from 94p/share to 106.5p/share (2006: 101.5p/share to 103.5p/share), with a weighted average remaining contractual life of 8.77 years (2006: 9.04 years). Certain of the options were conditional upon the achievement of earnings targets, all of which had been met by 31 December 2007. Options have been granted to a director (Mr R.L. Cohen) amounting to 37,000 shares at 101.5p/share on 20 October 2005 and 10,000 shares at 94p/share on 24 September 2007. The market price of the company’s Ordinary shares on 31 December 2007 was £0.91, the highest price during 2007 was £1.08 between 23 March and 6 May, the lowest price during 2007 was £0.90 between 22 August and 20 September and the price on 20 March 2008 was £1.165. In accordance with IFRS 2, a Black Scholes valuation model has been used. This has indicated that no material expense is required to be charged for the years ended 31 December 2007 and 31 December 2006. As such, no adjustment has been made to either the consolidated or parent company financial statements. Warrants to subscribe Under an agreement dated 22 October 2004, Invex Capital LLP was granted unquoted warrants to subscribe for Ordinary shares in the company in connection with the acquisition of Fire Testing Technology Limited. This warrant has an exercise price of £1 per share, expires on 23 May 2010 and relates to 133,564 shares. 27. Shares classed as financial liabilities Authorised 5,000,000 Convertible Redeemable shares of 1p each Allotted, called up and fully paid 5,000,000 Convertible Redeemable shares of 1p each – quarter paid 2007 £ 2006 £ 50,000 50,000 12,500 12,500 In accordance with IAS 32, Financial Instruments: Presentation, the Convertible Redeemable shares are classified as financial liabilities and included in other payables – less than one year (see note 21). The principal terms of the Convertible Redeemable shares are as follows: • There is no right to participate in the profits of the company. • On a winding up or other return of capital the surplus assets remaining after payment of liabilities shall be applied: i) First in repaying the capital paid up on the Ordinary shares; ii) Secondly in repaying the capital paid up on the Convertible Redeemable shares; and iii) Thirdly distributed amongst the holders of the Ordinary shares according to the amounts paid up. Convertible Redeemable shares The conversion rights set out in note 27 would have resulted in the issue of 485,574 Ordinary shares if conversion of all the Convertible Redeemable shares had taken place on 31 December 2007. • The holders of the Convertible Redeemable shares are not entitled to attend or vote at General Meetings of the company unless the meeting considers a resolution for winding up the company. 23 • On payment to the company of the aggregate of (i) a sum equal to any amount which has not been called or which is otherwise unpaid in respect of all of the Convertible Redeemable shares to be converted and (ii) a further sum equal to 95 pence multiplied by the number of Ordinary shares to be issued as a result of the conversion less the amount paid up or deemed paid up (including the amount referred to in (i) above) in respect of the Convertible Redeemable shares to be converted ("Conversion Price"), each holder of Convertible Redeemable shares shall be entitled to convert all or any of his Convertible Redeemable shares into such number of fully paid Ordinary shares which represents 0.24 per cent of the number of Ordinary shares in issue, assuming that all the Convertible Redeemable shares remaining capable of being convertible into Ordinary shares at the date of which the conversion takes place had been converted at the time, for every 100,000 Convertible Redeemable shares so converted and in proportion for any greater or lesser number of Convertible Redeemable shares (“Conversion Rate”). The holders of Convertible Redeemable shares shall (subject to the provisions of the Companies Act) be entitled at any time to redeem all or any of the Convertible Redeemable shares outstanding out of any profits or monies of the company which may lawfully be applied for that purpose. 28. Emoluments of directors and key management personnel Total directors’ emoluments: Emoluments Defined contribution pension scheme contributions Emoluments of the highest paid director: Emoluments Defined contribution pension scheme contributions During the year one director participated in a defined contribution pension scheme (2006: one) Compensation of key management personnel 2007 £ 2006 £ 201,601 3,708 178,660 3,792 205,309 182,452 92,443 3,708 96,151 73,898 3,792 77,690 Short-term benefits 437,239 373,090 Key management personnel comprise directors of the parent company and the managing directors of the principal operating companies. The compensation of the non-executive directors of the parent company is determined by the Board of directors as a whole, that of the executive directors of the parent company is determined by the Remuneration Committee of the Board (comprising the non- executive directors) and that of the managing directors of the principal operating companies is determined by the group Chief Executive. 29. Employees Number of employees By function - manufacturing - sales and administration By business segment - fire testing equipment - fibre optic test equipment - ultra high vacuum manipulation equipment - head office Employment costs Wages and salaries Social security costs Pension costs 2007 no. 2006 no. 35 25 60 31 8 15 6 60 25 26 51 26 8 12 5 51 2007 £ 2006 £ 1,900,379 194,719 47,331 1,471,845 166,021 34,569 2,142,429 1,672,435 30. Financial instruments The group’s policies on treasury management and financial instruments are given in the directors’ report. Financial assets The group’s financial assets (which are summarised in note 31 – credit risk) comprise available-for-sale investments, cash and cash equivalents and trade and other receivables. • The amounts derived from these assets and included as interest income in the income statement are £32,987 (2006: £32,041). 24 • Cash and cash equivalents are principally denominated in • A proportion of the bank loans are denominated in foreign sterling and earn interest at floating rates. • There is no difference between the book and fair values of the currencies to provide a hedge against currency risk on group assets, as described in note 24. financial assets. • At 31 December 2007 the group had trade receivables denominated in foreign currency as follows: Euros - £236,708 (2006: £197,558) and US Dollars - £357,779 (2006: £294,228). Financial liabilities The group's principal financial liabilities are bank loans, subordinated loan notes issued in connection with the acquisition of Fire Testing Technology Limited in 2005, net obligations under hire purchase contracts, trade and other payables and Convertible Redeemable shares classed as financial liabilities, as follows: Bank loans Subordinated loan notes Net obligations under hire purchase contracts Trade and other payables Convertible Redeemable shares classed as financial liabilities 2007 £ 2006 £ 2,326,594 500,000 36,165 877,226 2,703,775 500,000 53,978 779,708 12,500 12,500 3,752,485 4,049,961 • The costs attributable to these liabilities and included as interest expense in the income statement amounted to £241,772 (2006: £227,418), as analysed in note 11. Foreign exchange losses attributable to bank loans (see below) and included as operating costs in the income statement amounted to £27,443 (2006: £7,335 gain). Fair value of financial instruments Financial instruments include the borrowings above. All financial instruments denominated in foreign currencies are translated into sterling at market prices at balance sheet dates. The directors believe that there is no material difference between the book value and fair value of such financial instruments. Borrowing facilities The group had an undrawn committed overdraft facility of £500,000 at 31 December 2007 (2006: £500,000). 31. Risk management objectives and policies The group is exposed to market risks, arising predominantly from currency exposure resulting from its export activities, interest rate fluctuation on its loans and deposits and credit and liquidity risks. Risk management strategies are co-ordinated by the board of directors of the parent company. Foreign currency sensitivity The group exports a substantial proportion of its sales, frequently denominated in foreign currencies (principally in US$ and Euros). Exposure to currency rate fluctuations exists from the moment a sales order is confirmed through to the time when the related remittance is converted into Sterling. This exposure is computed monthly (along with offsetting exposure on purchases, generally of minimal amounts) and counter-balanced by the conversion of a proportion of the group’s bank loans into equivalent foreign currencies. The net exposure to risk is therefore substantially reduced. Residual exposure is the difference between the net exposure and the converted bank loans, both translated into Sterling at each date of measurement. 31 December 2007 Sterling equivalent of US$ £ Sterling equivalent of € £ Sterling loans denominated in foreign currencies at year-end Residual exposure at year-end Impact on pre-tax profits of a 5% variation in exchange rate on year-end residual exposure Impact on equity of a 5% variation in exchange rate on year-end residual exposure 493,000 89,000 530,000 82,000 4,453 3,117 4,114 2,880 31 December 2006 Sterling equivalent of US$ £ Sterling equivalent of € £ Sterling loans denominated in foreign currencies at year-end Residual exposure at year-end Impact on pre-tax profits of a 5% variation in exchange rate on year-end residual exposure Impact on equity of a 5% variation in exchange rate on year-end residual exposure 144,436 340,000 17,000 11,900 148,229 184,000 92,000 64,400 Interest rate sensitivity The group’s interest rate exposure arises in respect of its bank loans, which are LIBOR-linked for interest rate purposes, its subordinated loan notes and its surplus funds, both of which are bank base-rate-linked. The group’s sensitivity to interest rate changes is as follows: 25 2007 £ 2006 £ 2,326,594 Bank loans outstanding at year-end 23,266 Impact on pre-tax profits of a 1% change in LIBOR Impact on equity of a 1% change in LIBOR 16,286 Surplus funds less subordinated loan notes at year-end 410,366 Impact on pre-tax profits of a 1% change in bank base rates Impact on equity of a 1% change in bank base rates 4,104 2,873 2,703,775 27,038 18,927 324,156 3,242 2,269 Credit risk The group’s exposure to credit risk is limited to the carrying amounts of financial assets recognised at the balance sheet date, as follows: Available-for-sale investments Cash and cash equivalents Trade and other receivables 2007 £ 2006 £ 20,000 910,366 1,543,011 210,950 824,156 1,249,039 2,473,377 2,284,145 The group reviews the credit risk relating to its customers by ensuring wherever possible that it deals with long established trading partners, and agents and government / university backed bodies, where the risk of default is considered low. Where considered appropriate, the group insists on up-front payment and requires letters of credit facilities to be provided. The directors consider that all the group’s financial assets that are not impaired at each of the reporting dates under review are of good credit quality, including those that are past due (see note 20). None of the financial assets are secured by collateral or other credit enhancements. Group companies generally trade through overseas agents and credit exposure to an individual agent can be significant at times. No single counterparty owed more than 10% of the group’s total trade and other receivables at 31 December 2007. At 31 December 2006, the USA and China agents of Fire Testing Technology Limited owed 15% and 11% respectively of the group’s total trade and other receivables at that date. The credit risk for liquid funds and other short-term financial assets is considered negligible since the counterparties are reputable banks with high-quality external credit ratings. Liquidity risk The group’s longer-term financing needs, principally in respect of business acquisitions, are satisfied by bank loans, with the objective of servicing repayments from the cash flow arising from the businesses acquired. For short and medium term financial needs, the group regularly compares its projected requirements with available cash and borrowing facilities; the directors continue to augment existing cash surpluses with a £500,000 borrowing facility from the group’s bank to provide an additional margin of liquidity. The periods of maturity of the group’s borrowings are set out in note 24. 32. Operating lease commitments Operating lease payments expensed during the year: Land and property Minimum operating lease commitments falling due: Within 1 year Between 1 and 5 years Total commitment 2007 £ 2006 £ 164,700 162,068 152,750 164,208 316,958 153,450 298,008 451,458 33. Explanation of transition to IFRS The consolidated financial statements for the year ended 31 December 2007 are the first full year figures to be presented under IFRS. In accordance with the provisions of IFRS 1, “First time adoption of International Financial Reporting Standards”, the group’s transition date for adoption of IFRS was 1 January 2006. Comparative figures in respect of 2006 have been restated in these consolidated financial statements to reflect changes in accounting policies as a result of the adoption of IFRS. The last consolidated financial statements to be prepared under UK GAAP were those for the year ended 31 December 2006. IFRS 1 permits companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. These consolidated financial statements have been prepared on the basis of taking the following exemptions: • business combinations prior to 1 January 2006, the group’s date of transition to IFRS, have not been restated to comply with IFRS 3 Business Combinations. Goodwill arising from these business combinations of £3,762,324 (net of amortisation to 31 December 2005) has not been restated other than as set out in note d below. • negative goodwill arising on business combinations prior to 1 January 2006 of £124,265 (net of amortisation to 31 December 2005) has been transferred to reserves as at the date of transition. • IFRS 2 has been applied, in accordance with IFRS 1, to equity-settled share options granted on or after 7 November 2002 and not vested at 1 January 2006. 26 Reconciliation of equity at 1 January 2006 Note Non-current assets Property, plant and equipment Goodwill Negative goodwill Available-for-sale investments Current assets Inventories Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Current portion of long-term borrowings Current tax payable Non-current liabilities Long-term borrowings Deferred tax Net assets Equity Share capital Share premium Merger reserve Retained earnings Revaluation reserve Minority interests Total equity 27 UK- GAAP- £- 114,336- 3,762,324- (124,265) 427,911- 413,130- 692,350- 1,148,619- (472,466) (256,000) (315,798) (2,528,959) (23,557) 2,837,625- (173,118) (2,501,430) (380,000) 232,471- -- (15,548) (2,837,625) Eliminate- negative- goodwill- adjustment- 33a- £- 124,265- (37,280) 86,985- (44,362) (42,623) (86,985) IFRS adjustments – 1 January 2006 State equity- investments- at market value- Deferred tax- on FTT- fair value- 33e- £- (83,586) 33f- £- (27,789) 25,076- (58,510) 27,789- -- 58,510- 58,510- -- IFRS- £- 114,336- 3,734,535- -- 344,325- 413,130- 692,350- 1,148,619- (472,466) (256,000) (315,798) (2,528,959) (7,972) 2,866,100- (173,118) (2,501,430) (380,000) 188,109- 58,510- (58,171) (2,866,100) Reconciliation of equity at 31 December 2006 Note Non-current assets Property, plant and equipment Goodwill Negative goodwill Other intangible assets Available-for-sale investments Current assets Inventories Trade and other receivables Cash and cash equivalents Current liabilities Trade and other payables Current portion of long-term borrowings Current tax payable Non-current liabilities Long-term borrowings Deferred tax Net assets Equity Share capital Share premium Merger reserve Retained earnings Revaluation reserve Minority interests Total equity UK- GAAP- 33a- £- 295,468- 4,467,528- (36,702) -- 219,155- 402,941- 1,249,039- 824,156- (779,708) (421,813) (261,718) (2,835,940) (43,676) 3,078,730- (178,044) (2,501,430) (475,074) 127,810- -- (51,992) (3,078,730) Eliminate- negative- goodwill- 33d (iii)- £- 36,702- (11,011) 25,691- (13,102) (12,589) (25,691) IFRS adjustments – 31 December 2006 Business- combinations- Amortisation- of intangibles- Eliminate- goodwill- amortisation- 33d (i)- £- 33d (iii)- £- 33e- £- State equity- investments- at market- values- 33f- £- IFRS- Deferred- tax on- FTT fair- value adj- £- £- 247,519- (297,295) (27,789) 424,707- (228,783) (8,205) (127,412) 68,635- 247,519- -- (160,148) 2,462- (5,743) 21,497- (6,292) (247,519) 160,148- 6,292- 5,743- 295,468- 4,389,963- -- 195,924- 210,950- 402,941- 1,249,039- 824,156- (779,708) (421,813) (261,718) (2,835,940) (89,505) 3,179,757- (178,044) (2,501,430) (475,074) 33,629- 5,743- (64,581) (247,519) -- 160,148- 5,743- 6,292- (3,179,757) 28 GAAP- UK- IFRS adjustments – 31 December 2006 Eliminate- goodwill- amortisation- Amortisation- of- intangibles- Eliminate- negative- goodwill- 33b- £- 33d (iii)- £- 33d (iii)- £- State equity- investments- at market- values- 33e- £- Deferred tax on FTT fair value adj 33f £ (87,563) (87,563) (87,563) (87,563) 26,269- (61,294) 30,030- (31,264) 247,519- 247,519- 247,519- (228,783) (228,783) (228,783) 247,519- 247,519- (228,783) 68,635- (160,148) (6,292) (6,292) 247,519- (160,148) -- (6,292) Reconciliation of profit for the year ended 31 December 2006 Note Revenue (continuing and acquisitions) Operating costs Goodwill amortisation - positive( Goodwill amortisation - negative Amortisation of intangibles Total operating costs Operating profit/(loss) Profit/(loss) on disposal and changes in market values of investments Interest receivable Interest (payable) Profit on ordinary activities before taxation Tax on profit on ordinary activities Profit on ordinary activities after taxation Minority interests Profit attributable to equity holders of the parent company £- 5,195,325- (4,483,852) 247,519) 87,563- - (4,643,808) 551,517- (6,145) 32,041- (227,418) 349,995- (173,265) 176,730- (36,440) 140,290- 29 IFRS- £- 5,195,325- (4,483,852) -- -- (228,783) (4,712,635) 482,690- (6,145) 32,041- (227,418) 281,168- (84,653) 196,515- (6,410) 190,105- Notes to the reconciliations a) The group acquired 51% of the issued share capital of PE.fiberoptics Limited (“PFO”) on 2 September 2005. PFO acquired the goodwill and certain assets of a business previously carried on by PerkinElmer (UK) Limited. Under UK GAAP, negative goodwill arising in connection with this acquisition was capitalised within the accounts of PFO. Under IFRS, the amount of negative goodwill as at the date of transition was transferred to reserves. The result of this adjustment is to decrease negative goodwill by £124,265 as at the date of transition to IFRS and to increase deferred tax, minority interest and reserves by the same amount in aggregate. The value of the reduction in negative goodwill at 31 December 2006 was £36,702. b) Negative goodwill recognised by the group on the above acquisition under UK GAAP was written back to profit and loss to match the consumption of the non-monetary assets acquired. Under IFRS, with the balance of negative goodwill as at the date of transition having been transferred to reserves, no amortisation or write-back is required. The result of these adjustments is to eliminate the amortisation credit of £87,563 in the income statement for the year ended 31 December 2006. After 30% corporation tax and 49% minority interest, the net profit reduction in that year is £31,264. c) The group acquired UHV Design Limited on 21 February 2006 and the goodwill and certain trading assets of Aitchee Engineering Associates on 4 September 2006. Goodwill recognised by the group on these acquisitions under UK GAAP was amortised over a period of 20 years in the case of UHV Design Limited and 3 years in the case of the Aitchee business. Under IFRS goodwill is not amortised but tested annually for impairment and therefore the amortisation charge recognised in accordance with UK GAAP in 2006 has been written back. However, intangible assets identified on business combinations in accordance with IFRS as described above are amortised in accordance with the accounting policy explained above. Application of IFRS 3 to these business combinations resulted in identification of a number of intangible assets, including customer relationships, distribution agreements and sales order backlogs. Under IFRS these have been recognised separately in the balance sheet at their fair values at the dates of the combinations, along with the associated deferred tax. Under UK GAAP these intangible assets were subsumed within goodwill and amortised in accordance with the group’s accounting policy above. d) The result of these changes is: (i) To decrease goodwill by £240,595 and increase intangible assets by £343,707 (with deferred tax of £103,112) as at the date of the combination in the case of UHV Design Limited and to decrease goodwill by £56,700 and increase intangible assets by £81,000 (with deferred tax of £24,300) in the case of Aitchee Engineering Associates. (ii) At 31 December 2006 the value of these intangible assets, net of amortisation, was £195,924. (iii) The goodwill amortisation charge in respect of these acquisitions and that of Fire Testing Technology Limited ("FTT" – acquired prior to the date of transition to IFRS) in the year ended 31 December 2006 was reduced in aggregate by £247,519. The equivalent intangible assets amortisation charge was increased by £228,783, stated prior to a 30% reduction to reflect the release of deferred taxation. e) Under UK GAAP, available-for-sale investments were stated at the lower of cost and the directors’ estimates of near-term net realisable value. Under IFRS, such investments are stated at open market values, with changes in value being transferred directly into equity, net of applicable taxation. Amounts accumulated in equity are transferred to the income statement when an available-for-sale investment is sold. This has had the effect of reducing the carrying value of such investments by £83,586 to £344,325 at 31 December 2005 and by £8,205 to £210,950 at 31 December 2006, with consequential changes to deferred tax and in equity. f) Under UK GAAP, no deferred tax was recognised in respect of fair value adjustments arising on the acquisition of FTT. Notwithstanding that the date of the FTT acquisition was prior to the group’s IFRS transition date, IFRS requires that deferred tax be recognised in respect of such fair value adjustments. Accordingly a deferred tax liability of £27,789 has been recognised at the transition date, with a reversal of the provision of £6,292 in the year ended 31 December 2006. 30 34. Explanation of material adjustments to the cash 35. Post balance sheet event On 20 March 2008, the parent company exchanged contracts for the purchase for £490,000 of a freehold property at Unit 18, Charlwoods Road, East Grinstead, West Sussex. This site comprises a factory unit with ancillary offices and is located adjacent to the parent company’s head office and premises of its principal subsidiary, FTT. The activities of FTT’s subsidiary, Aitchee Engineering Limited, will be relocated into Unit 18. flow statement Application of IFRS has resulted in the reclassification of certain items in the cash flow statement as follows: (i) Under UK GAAP, payments to acquire property, plant and equipment were classified as part of 'Capital expenditure and financial investment'. Under IFRS, payments to acquire property, plant and equipment have been classified as part of 'Investing activities'. Income taxes are classified as operating cash flows under IFRS, but were included in a separate category of tax cash flows under UK GAAP. Interest paid and interest received are classified as cash flows from investing activities under IFRS, but were included in the 'Returns on investments and servicing of finance' category in cash flows under UK GAAP. (ii) (iii) (iv) Equity dividends paid are classified as financing cash flows under IFRS, but were included in a separate category of dividend cash flows under UK GAAP. There are no other material differences between the cash flow statement presented under IFRS and that presented under UK GAAP. 31 Report of the Independent Auditor We have audited the parent company financial statements of Judges Capital plc for the year ended 31 December 2007 which comprise the company balance sheet and notes 1 to 12. These parent company financial statements have been prepared under the accounting policies set out therein. We have reported separately on the consolidated financial statements of Judges Capital plc for the year ended 31 December 2007. This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the parent company financial statements in accordance with United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the parent company financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the directors’ report is consistent with the parent company financial statements. In addition we report to you if, in our opinion, the parent 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 other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited parent company financial statements. The other information comprises only the directors' report and the Chairman's statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the parent company's circumstances, 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 parent company 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 parent company financial statements. Opinion In our opinion: • the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company’s affairs as at 31 December 2007; • the parent company financial statements have been properly prepared in accordance with the Companies Act 1985; and • the information given in the directors’ report is consistent with the parent company financial statements. Grant Thornton UK LLP Registered Auditor Chartered Accountants Leicester 27 March 2008 32 Parent Company Balance Sheet Fixed assets Investments in subsidiaries Current assets Debtors Investments Cash in hand and at bank Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Total net assets Capital and reserves Called up share capital Share premium Profit and loss account Shareholders' funds Notes 3 4 5 6 7 8 9 9 9 2007- £- 5,620,080- 374,343- 19,373- 335,919- 729,635- (592,231) 137,404- 5,757,484- (2,318,594) 3,438,890- 178,044- 2,501,430- 759,416- 3,438,890- 2006- £- 5,620,080- 384,878- 219,155- 218,514- 822,547- (513,838) 308,709- 5,928,789- (2,799,775) 3,129,014- 178,044- 2,501,430- 449,540- 3,129,014- In accordance with the exemptions permitted by s230 of the Companies Act 1985, the profit and loss account of the parent company has not been presented. These parent company financial statements were approved by the board on 27 March 2008 D.E. Cicurel Director R.L. Cohen Director 33 Notes to the Parent Company Financial Statements 1. General information 2.3 Pensions These separate financial statements of the parent company have been prepared under the historical cost convention and in accordance with applicable United Kingdom Accounting Standards. 2. Accounting policies 2.1 Investments Fixed asset investments in subsidiaries are stated at cost less provision for impairment. Other investments are treated as current assets, reflecting the parent company’s strategic investment policy actively to pursue appropriate exit routes on all such investments. Current asset investments are stated at the lower of cost and the directors’ estimate of near-term net realisable value. 2.2 Taxation Current tax is provided at amounts expected to be paid or recovered either directly or through group relief arrangements. Deferred tax is the taxation attributable to timing differences between the results computed for tax purposes and those stated in the parent company financial statements. It is recognised on all timing differences where the transaction or event which gives the company an obligation to pay more tax or the right to pay less tax in the future has occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Current and deferred tax assets and liabilities are calculated at rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. Companies in the group operate defined contribution pension schemes for employees and directors. The assets of the schemes are held by investment managers separately from those of the company and group. The pension costs charged against operating profits represent the amount of the contributions payable to the schemes in respect of the accounting period. 2.4 Share-based payments FRS 20 has been applied, where the effect is material, to equity- settled share options granted on or after 7 November 2002 and not vested prior to 1 January 2006. The Black Scholes valuation model is used and, up to 31 December 2007, has indicated that no material adjustment to profits is required. All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair values of employees’ services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions. All equity-settled share-based payments are ultimately recognised as an expense in the profit and loss account, with a corresponding credit to “other reserve”. If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. The impact of the revision of the original estimates, if any, is recognised in the profit and loss account over the remaining vesting period, with a corresponding adjustment to the appropriate reserve. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium. 2.5 Foreign currencies Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange prevailing at the balance sheet date. Transactions in foreign currencies are recorded at the rate of exchange prevailing at the date of transaction. All differences are taken to the profit and loss account. 2.6 Convertible redeemable shares In accordance with FRS 25, the convertible redeemable shares have been recorded as a current liability at the net proceeds received and any future conversion into Ordinary shares has not been taken into account. 34 3. Investments in subsidiaries Cost 1 January Acquisition in year Adjustment in respect of prior year acquisition 31 December 2007- £- 2006- £- 5,620,080- -- -- 4,579,564- 1,046,214- (5,698) 5,620,080- 5,620,080- The parent company’s trading subsidiaries at 31 December 2007, all of which were incorporated and operate in the United Kingdom, were as follows: Company Fire Testing Technology Limited PE.fiberoptics Limited Principal activity Design and assembly of fire testing instruments Class of shares % held 100% Ordinary £1 Design and assembly of fibre-optic testing instruments “A” Ordinary £1 UHV Design Limited Aitchee Engineering Limited Design and manufacture Ordinary £1 of instruments used to manipulate objects in ultra high vacuum chambers Manufacture of engineering parts and finished products Ordinary £1 100% of “A” class; being 51% of total equity 100% 100% 4. Debtors 2007 £ Amounts owed by group companies 274,844 Corporation tax - group relief owed by group companies 96,554 2,945 Prepayments and accrued income 2006 £ 275,125 106,857 2,896 374,343 384,878 Included in amounts owed by group companies is the sum of £203,853 (2006: £nil) which is repayable on demand at any time after 30 June 2009 provided that all liabilities to third parties falling due on or before that date have been met. 5. Current asset investments At 31 December 2007 Period end value Historical cost £ Market- valuation- £- Directors' valuation £ Total valuation £ At 31 December 2007 – unquoted investment 19,373 Net unrealised gain at 31 December 2007 - -- -- 20,000 20,000 627 627 At 31 December 2006 Period end value Directors' valuation £ Market- valuation- £- Historical cost £ Unquoted investments Quoted investments At 31 December 2006 19,373 199,782 219,155 -- 190,950- 190,950- 45,500 - 45,500 Total valuation £ 45,500 190,950 236,450 The unquoted investment held at 31 December 2007 is 800,100 shares (representing 1.68%) in Fortress Holdings plc (in members’ voluntary liquidation – the directors’ valuation is their estimate of the final distribution from the liquidator). The company’s quoted investment in Poole Investments PLC, being 5,700,000 shares (representing 3.08%, part of a 13% concert party), was sold during the year, realising £342,000 in cash and a gain before tax of £142,217. 6. Creditors: amounts falling due within one year Trade creditors Accruals and deferred income Social security and other taxes Bank loan Other creditors 2007 £ - 61,884 9,847 508,000 12,500 2006 £ 43,000 39,970 14,368 404,000 12,500 592,231 513,838 Other creditors comprise £12,500 of non equity shares classed as financial liabilities (see note 27 to the consolidated financial statements). 7. Creditors: amounts falling due after more than one year Bank loan Subordinated loan notes 2007 £ 2006 £ 1,818,594 500,000 2,299,775 500,000 2,318,594 2,799,775 All of the above companies are owned directly by Judges Capital plc, with the exception of Aitchee Engineering Limited, which is owned directly by Fire Testing Technology Limited. Net unrealised (loss) / gain at 31 December 2006 - (8,832) 26,127 17,295 35 The bank loan is secured on assets of the group, is repayable in quarterly instalments over a six year period ending 31 March 2011 and bears interest at 21/4% above LIBOR-related rates. The subordinated loan notes are unsecured, repayable on 23 May 2010 and bear interest at Bank of Scotland base rate plus 2%. The repayment profile of borrowings is as follows: Bank loan Subordinated loan notes £ £ Total £ Repayable in less than 1 year Repayable in years 1 to 2 Repayable in years 2 to 5 508,000 608,000 1,210,594 - - 500,000 508,000 608,000 1,710,594 2,326,594 500,000 2,826,594 A proportion of the company’s bank loans is drawn in foreign currencies to provide a hedge against assets within the group that are denominated in those currencies. The Sterling equivalent at 31 December 2007 of loans denominated in US$ was £492,730 (2006: £144,436) and in Euros was £529,699 (2006: £148,229). These amounts are included in the figures above for bank loans, repayable in years 2 to 5. 8. Share capital Details relating to the parent company’s share capital are set out in notes 26 and 27 to the consolidated financial statements. 9. Statement of movements in shareholders’ funds Share capital £ Share Total- Profit and- premium loss account- shareholders’- funds- account £- £ £- 1 January 2007 178,044 2,501,430 449,540- 3,129,014- Profit for the year Dividends paid in the year - - - - 420,263- (110,387) 420,263- (110,387) 31 December 2007 178,044 2,501,430 759,416- 3,438,890- The profit for the financial year in the accounts of the parent company amounted to £420,263 (2006: £99,398). 11. Directors and employees 10. Related party transactions The parent company entered into the following transactions during the year with its 51%-owned subsidiary, PE.fiberoptics Limited (“PFO”): (a) the parent company continued to make available to PFO a loan facility originally granted in the sum of £250,000 in September 2005 but reducing annually by £62,500. There were no amounts drawn or outstanding at any time during the year. Any amounts outstanding from time to time under this loan facility are secured by way of a first charge over the assets and undertaking of PFO and bear interest at the rate of 7% per annum. (b) an additional loan to PFO amounting to £40,800 was outstanding on 1 January and 31 December 2007. This loan is unsecured and repayable at the discretion of the directors of PFO. It was interest-free until 1 January 2007, since which date interest has been charged at the rate of 71/2% per annum (2007: £3,060; 2006: £nil). Total directors’ emoluments Emoluments Defined contribution pension scheme contributions Emoluments of the highest paid director Emoluments Defined contribution pension scheme contributions 2007 £ 2006 £ 201,601 3,708 178,660 3,792 205,309 182,452 92,443 3,708 96,151 73,898 3,792 77,690 During the year one director participated in a defined contribution pension scheme (2006: one) Employees Number of directors Administrative staff Total no. 5 1 6 no. 5 - 5 12. Post balance sheet event On 20 March 2008, the parent company exchanged contracts for the purchase for £490,000 of a freehold property at Unit 18, Charlwoods Road, East Grinstead, West Sussex. This site comprises a factory unit with ancillary offices and is located adjacent to the parent company’s head office and premises of its principal subsidiary, FTT. The activities of FTT’s subsidiary, Aitchee Engineering Limited, will be relocated into Unit 18. 36 Notice of Annual General Meeting Notice is hereby given that the fifth Annual General Meeting of Judges Capital plc (“the Company”) will be held at 8 - 10 Grosvenor Gardens, London SW1W 0DH on Thursday 22 May 2008 at 12.00 noon for the purpose of dealing with the following business of which items 6, 7 and 8 are special business. Ordinary Business 1 To receive the reports of the directors and the auditor and the audited financial statements of the Company for the year ended 31 December 2007. That: Special Resolutions 7 (a) subject to and conditional upon the passing of resolution 6 above, the directors of the Company be and they are hereby empowered pursuant to section 95(1) of the Act to allot equity securities (as defined for the purposes of section 95 of the Act) for cash, pursuant to the authority granted by resolution 6 above, as if section 89(1) of the Act did not apply to any such allotment, provided that such power shall be limited to: 2 To re-appoint Glynn Reece, who retires by rotation, as a director. (i) 3 To re-appoint Ralph Cohen, who retires by rotation, as a director. 4 To approve a final dividend of 2.2 pence per Ordinary share. 5 To re-appoint Grant Thornton UK LLP as auditor to hold office from the conclusion of this meeting until the conclusion of the next general meeting at which financial statements are laid before the Company and to authorise the directors to fix the remuneration of the auditor. Special Business To consider and, if thought fit, to pass the following resolutions, as to the resolution numbered 6 as an Ordinary Resolution and as to the resolutions numbered 7 and 8 (see note 5 below) as Special Resolutions: Ordinary Resolution 6 That the directors of the Company be and are hereby generally and unconditionally authorised to exercise all the powers of the Company to allot relevant securities (as defined for the purposes of section 80 of the Companies Act 1985 (“the Act”)) up to an aggregate nominal amount of £178,043 provided that this authority unless renewed shall expire at the close of the next Annual General Meeting of the Company, save that the Company may before such expiry make any offer, agreement or other arrangement which would or might require relevant securities to be allotted after such expiry and the directors of the Company may allot the relevant securities in pursuance of such offer, agreement or other arrangements as if the authority conferred hereby had not expired, this authority to replace any previous authority under section 80 of the Act which is hereby revoked with immediate effect. 37 the allotment of equity securities in connection with a relevant rights issue or open offer in favour of Ordinary shareholders where the equity securities attributable to the respective interests of all Ordinary shareholders are proportionate to the respective numbers of Ordinary Shares held by them on the record date for such allotment, but subject to such exclusions as the directors may deem fit to deal with fractional entitlements or problems arising under the laws of any overseas territory or the requirements of any regulatory body or stock exchange; and (ii) the allotment (otherwise than pursuant to sub-paragraph (i) above) of equity securities for cash up to an aggregate nominal amount of £178,043. and, unless previously renewed, revoked or varied, such power shall expire at the close of the next Annual General Meeting of the Company, save that the Company may before such expiry make an offer, agreement or other arrangement which would or might require equity securities to be allotted after such expiry and the directors of the Company may allot equity securities in pursuance of such offer, agreement or other arrangement as if the power conferred hereby had not expired; (b) For the purposes of this resolution: (i) “relevant rights issue” means an offer of equity securities open for acceptance for a period fixed by the directors of the Company to holders on the register on a fixed record date of Ordinary shares in the Company in proportion (or as nearly as may be practicable) to their respective holdings but subject in any case to such exclusions or other arrangements as the directors of the Company may deem necessary or desirable to deal with fractional entitlements or legal or practical problems under the laws of, or the requirements of, any recognised regulatory body or any stock exchange in any territory; and (ii) the nominal amount of any securities shall be taken to be, in the case of rights to subscribe for or convert any securities into shares of the Company, the nominal amount of such shares, which may be allotted pursuant to such rights. 8 That the Company be generally and unconditionally authorised pursuant to Article 15 of the Company’s Articles of Association and for the purpose of Section 166 of the Act to make one or more market purchases (within the meaning of Section 163(3) of the Act) of Ordinary shares of 5 pence each in the capital of the Company on such terms and in such manner as the Directors of the Company may from time to time determine, provided that: (a) (b) the maximum aggregate number of Ordinary shares hereby authorised to be purchased is 533,775 (representing approximately 14.99 per cent. of the Company’s issued share capital); the minimum price which may be paid for such shares is the nominal value of 5 pence per Ordinary share (exclusive of expenses); (c) unless the Company makes market purchases of its own Ordinary shares by way of a tender or partial offer made to all holders of Ordinary shares on the same terms, the maximum price (exclusive of expenses) which may be paid for an Ordinary share shall not be more than five per cent. above the average of the market values for an Ordinary share as derived from the AIM Appendix to the London Stock Exchange Official List for the five business days immediately preceding the date on which the Ordinary share is purchased; (d) unless previously renewed, varied or revoked, the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company to be held in 2009 or 15 months from the date of passing of this resolution, whichever shall be the earlier; and the Company may validly make a contract or contracts to purchase Ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of Ordinary shares in pursuance of any such contract or contracts. (e) e h t n a h t r e h t o y x o r p a t n i o p p a o t h s i w u o y f I . s d n a h f o w o h s a n o e t o v t o n n a c d n a d e t c u r t s n i e v a h u o y s a e t o v t s u m y x o r p A . c l p l a t i p a C s e g d u J f o r e b m e m a e b t o n d e e n y x o r p A . e c a l p r u o y n i e t o v d n a d n e t t a o t y x o r p a i t n o p p a y a m u o y , g n i t e e M l a r e n e G l a u n n A e h t d n e t t a o t e l b a n u e r a u o y f I H D 0 W 1 W S n o d n o L , s n e d r a G r o n e v s o r G 0 1 - 8 t a n o o n 0 0 . 2 1 t a 8 0 0 2 y a M 2 2 n o c l p l a t i p a C s e g d u J f o g n i t e e M l a r e n e G l a u n n A e h t r o f y x o r P f o m r o F By Order of the Board RL Cohen Company Secretary 25 April 2008 Registered Office: Unit 19, Charlwoods Road, East Grinstead West Sussex RH19 2HL Notes: 1 A member entitled to attend and vote at the meeting convened by the notice set out above is entitled to appoint one or more proxies to attend and, on a poll, vote in his/her place. A proxy need not be a member of the Company. 2 To be valid, the instrument appointing a proxy together with any power of attorney or other authority under which it is signed or a notarially certified copy of such power or authority, must be deposited at the registered office of the Company not less that 48 hours before the time fixed for holding the meeting or any adjournment thereof. 3 The completion and return of a form of proxy will not preclude a member from attending and voting in person at the meeting should he/she so wish. 4. Pursuant to Regulation 41 of The Uncertificated Securities Regulations 2001 only those members registered in the Register of Members of the Company as at 12.00 noon on 20 May 2008 (being not more than 48 hours prior to the time fixed for the Meeting) or, if the Meeting is adjourned, such time being not more than 48 hours prior to the time fixed for the adjourned meeting are entitled to attend or vote at the meeting in respect of the number of Ordinary shares registered in their name at that time. Changes to entries in the Register after 12.00 noon on 20 May 2008 shall be disregarded in determining the rights of any person to attend or vote at the meeting. 5. The directors note that Resolution 8, if passed by shareholders, cannot be implemented until either the Concert Party’s shareholding in the Company is appropriately diluted by an issue of new shares or shareholders pass a resolution to approve a “Rule 9” waiver from the Panel on Takeovers and Mergers, which is being sought at the time of printing this Notice. The Concert Party comprises David Cicurel Securities Limited; David Cicurel; Dawnay Day Corporate Finance Limited; ForwardIssue Limited; Totalassist Company Limited; Guy Naggar and the Naggar Family Pension Scheme. e c a p s e h t n i s s e r d d a d n a ’ e m a n s y x o r p r e h t o n a g n i t i r w d n a ’ g n i t e e m e h t f o n a m r i a h C ‘ s d r o w e h t t u o g n i s s o r c y b o s o d y a m u o y g n i t e e m e h t f o n a m r i a h C f I . x o b t n a v e l e r e h t n i k c i t a g n i c a l p y b e t o v o t y x o r p r u o y h s i w u o y w o h n o i t u l o s e R h c a e r o f e t a c i d n i e s a e l P . y x o r p e n o n a h t e r o m t n i o p p a y a m u o Y . d e d i v o r p e h t t a s s e n i s u b r e h t o y n a r o s n o i t u l o s e R e h t n o t i f s k n i h t e h s / e h s a e t o v r e h / s i h d l o h h t i w r o e t o v y a m y x o r p r u o y , e t o v o t w o h y x o r p r u o y l l e t t o n o d u o y . ) s n o i t u l o s e R o t s t n e m d n e m a g n i d u l c n i ( g n i t e e m ) s r e t t e L k c o l B ( y x o r p r u o / y m s a e h t t n i o p p a r o g n i t e e m e h t f o n a m r i a h C e W / I f o e t o V d l e h h t i W t s n i a g A r o F t a d n a , 8 0 0 2 y a M 2 2 n o n o o n 0 0 . 2 1 t a d l e h e b o t c l p l a t i p a C s e g d u J f o g n i t e e M l a r e n e G l a u n n A e h t t a f l a h e b r u o / y m n o e t o v o t , l l o p a n o , d n a d n e t t a o t . g n i t e e m t a h t f o ) s ( t n e m n r u o j d a y n a r e d l o h e n o y n a , s g n i d l o h t n i o j f o e s a c e h t n I . m r o f s i h t h t i w d e n r u t e r e b o s l a t s u m y t i r o h t u a r i e h t , f l a h e b r u o y n o e s l e e n o e m o s y b d e n g i s s i y x o r p s i h t f I r o r e c i f f o d e s i r o h t u a y l u d a f o d n a h e h t r e d n u r o l a e s n o m m o c s t i r e d n u d e t u c e x e e b t s u m y x o r p e h t , n o i t a r o p r o c a f o e s a c e h t n I . m r o f s i h t n g i s y a m . o s o d o t e d i c e d r e t a l u o y d l u o h s n o s r e p n i e t o v d n a g n i t e e m e h t d n e t t a l l i t s y a m u o y , m r o f y x o r p s i h t n r u t e r d n a e t e l p m o c u o y f i n e v E . y e n r o t t a : e t a D : e r e h n g i s e s a e l P s r u o h 8 4 n a h t r e t a l o n d e v i e c e r e b t s u m m r o f s i h t , d i l a v e b o T . f a e l r e v o d e t n i r p s s e r d d a e h t o t t i d e t e l p m o c e v a h u o y e c n o m r o f s i h t t s o p e s a e l P s t n u o c c A d n a t r o p e R l a u n n A f o l a v o r p p A e c e e R n n y l G f o t n e m t n i o p p a - e R n e h o C h p l a R f o t n e m t n i o p p a - e R d n e d i v i d l a n i f f o l a v o r p p A r o t i d u a f o t n e m t n i o p p a - e R * s t h g i r n o i t p m e - e r p y l p p a s i d o t y t i r o h t u A s e i t i r u c e s t n a v e l e r t o l l a o t y t i r o h t u A * s e r a h s n w o e s a h c r u p o t y t i r o h t u A 1 2 3 4 5 6 7 8 s n o i t u l o s e r l a i c e p S * . f o e r e h t t n e m n r u o d a j y n a r o g n i t e e m e h t i g n d o h l r o f d e x i f e m i t e h t e r o f e b L H 2 9 1 H R x e s s u S t s e W , d a e t s n i r G t s a E , d a o R s d o o w l r a h C , 9 1 t i n U , c l p l a t i p a C s e g d u J , y r a t e r c e S y n a p m o C e h T y x o r P f o m r o F r o f s s e r d d a g n i l i a M F o l d h e r e M a i l i n g a d d r e s s f o r F o r m o f P r o x y E a s t G r i n s t e a d , W e s t S u s s e x R H 1 9 2 H L T h e C o m p a n y S e c r e t a r y , J u d g e s C a p i t a l p l c , U n i t 1 9 , C h a r l w o o d s R o a d , Judges Capital plc Judges Capital plc, Unit 19, Charlwoods Road, East Grinstead, West Sussex RH19 2HL Tel: 01342 323600 Fax: 01342 323608 E-mail: enquiries@judges.uk.com Website: www.judges.uk.com 

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